Document:

exv10w1

Exhibit 10.1

Execution Version

Copano Energy, L.L.C.

Copano Energy Finance Corporation

and

The Guarantors Listed on Schedule A

$300,000,000

7.75% Senior Notes due 2018

PURCHASE AGREEMENT

dated May 13, 2008

Banc of America Securities LLC

J.P. Morgan Securities Inc.

Credit Suisse Securities (USA) LLC

Deutsche Bank Securities Inc.

RBC Capital Markets Corporation

SunTrust Robinson Humphrey, Inc.

 

 

PURCHASE AGREEMENT

May 13, 2008

BANC OF AMERICA SECURITIES LLC

J.P. MORGAN SECURITIES INC.

CREDIT SUISSE SECURITIES (USA) LLC

DEUTSCHE BANK SECURITIES INC.

RBC CAPITAL MARKETS CORPORATION

SUNTRUST ROBINSON HUMPHREY, INC.
 As
Initial Purchasers

c/o Banc of America Securities LLC

9 West 57th Street

New York, New York 10019

Ladies and Gentlemen:

     Introductory. Copano Energy, L.L.C., a Delaware limited liability company (the “Company”),
and Copano Energy Finance Corporation, a Delaware corporation (“FinCo”), propose to issue and sell
to the several Initial Purchasers named below (the “Initial Purchasers”), acting severally and not
jointly, the respective amounts set forth on Schedule B attached hereto of $300,000,000 aggregate
principal amount of the Company’s and FinCo’s 7.75% Senior Notes due 2018 (the “Notes”). The
Company and FinCo are referred to collectively as the “Issuers.” Banc of America Securities LLC,
J.P. Morgan Securities Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., RBC
Capital Markets Corporation and SunTrust Robinson Humphrey, Inc. have agreed to act as the several
Initial Purchasers in connection with the offering and sale of the Notes.

     The Securities (as defined below) will be issued pursuant to an indenture (the “Indenture”),
to be dated as of the Closing Date (as defined in Section 2 hereof), among the Company, FinCo, the
Guarantors (as defined below) and U.S. Bank National Association, as trustee (the “Trustee”). The
Notes will be issued only in book-entry form in the name of Cede & Co., as nominee of The
Depository Trust Company (the “Depositary”) pursuant to a letter of representations, to be dated on
or before the Closing Date (the “DTC Agreement”), among the Company, FinCo, the Guarantors, the
Trustee and the Depositary.

     The holders of the Notes will be entitled to the benefits of a registration rights agreement,
to be dated as of the Closing Date (the “Registration Rights Agreement”), among the Company, FinCo,
the Guarantors and the Initial Purchasers, pursuant to which the Company, FinCo and the Guarantors
will agree to file with the Commission (as defined below), under certain circumstances set forth
therein, (i) a registration statement under the Securities Act (as defined below) relating to
another series of debt securities of the Company and FinCo and another set of guarantees of the
Guarantors, each respectively with terms substantially identical to the Notes (the “Exchange
Notes”) and the Guarantees (the “Exchange Guarantees”) to be offered in exchange for the Notes and
the Guarantees (the “Exchange Offer”) and (ii) to the

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extent required by the Registration Rights Agreement, a shelf registration statement pursuant
to Rule 415 of the Securities Act relating to the resale by certain holders of the Notes, and in
each case, to use its reasonable best efforts to cause such registration statements to be declared
effective.

     The payment of principal of, premium and Additional Interest (as defined in the Indenture), if
any, and interest on the Notes and the Exchange Notes will be fully and unconditionally guaranteed
on a senior unsecured basis, jointly and severally, by (i) the guarantors listed on Schedule A
attached hereto and (ii) any subsidiary of the Company formed or acquired after the Closing Date
that executes an additional guarantee in accordance with the terms of the Indenture, and their
respective successors and assigns (such persons referred to in clauses (i) and (ii) are
collectively referred to as the “Guarantors”), pursuant to their guarantees (the “Guarantees”).
The Notes and the Guarantees attached thereto are herein collectively referred to as the
“Securities,” and the Exchange Notes and the Exchange Guarantees attached thereto are herein
collectively referred to as the “Exchange Securities.”

     The Issuers and the Guarantors are referred to collectively as the “Copano Parties.” The
Copano Parties (excluding the Company), together with Webb/Duval Gatherers, a Texas general
partnership (“Webb/Duval”), Southern Dome L.L.C., a Delaware limited liability company (“Southern
Dome”), Bighorn Gas Gathering L.L.C., a Delaware limited liability company (“Bighorn”), and Fort
Union Gas Gathering, L.L.C., a Delaware limited liability company (“Fort Union”), are referred to
collectively as the “Subsidiaries”.

     The Issuers and the Guarantors understand that the Initial Purchasers propose to make an
offering of the Securities on the terms and in the manner set forth herein and in the Pricing
Disclosure Package (as defined below) and agrees that the Initial Purchasers may resell, subject to
the conditions set forth herein, all or a portion of the Securities to purchasers (the “Subsequent
Purchasers”) on the terms set forth in the Pricing Disclosure Package (the first time when sales of
the Securities are made is referred to herein as the “Time of Sale”). The Securities are to be
offered and sold to or through the Initial Purchasers without being registered with the Securities
and Exchange Commission (the “Commission”) under the Securities Act of 1933 (as amended,
the “Securities Act,” which term, as used herein, includes the rules and regulations of the
Commission promulgated thereunder), in reliance upon exemptions therefrom. Pursuant to the terms
of the Securities and the Indenture, investors who acquire Securities shall be deemed to have
agreed that Securities may only be resold or otherwise transferred, after the date hereof, if such
Securities are registered for sale under the Securities Act or if an exemption from the
registration requirements of the Securities Act is available (including the exemptions afforded by
Rule 144A under the Securities Act (“Rule 144A”) and Regulation S under the Securities Act
(“Regulation S”)).

     In connection with the sale of the Securities, the Company has prepared and delivered to each
Initial Purchaser copies of a Preliminary Offering Memorandum, dated May 12, 2008 (the “Preliminary
Offering Memorandum”), and has prepared and delivered to each Initial Purchaser copies of a Pricing
Supplement, dated May 13, 2008 (the “Pricing Supplement”), describing the terms of the Securities,
each for use by the Initial Purchasers in connection with its solicitation of offers to purchase
the Securities. The Preliminary Offering Memorandum, as supplemented by the Pricing Supplement, is
herein referred to as the “Pricing Disclosure

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Package.” Promptly after this Agreement is executed and delivered, and in any event not later
than the second business day following the date hereof, the Company will prepare and deliver to
each Initial Purchaser a final offering memorandum, dated as of the date hereof (the “Offering
Memorandum”).

     All references herein to the terms “Pricing Disclosure Package” and “Offering Memorandum”
shall be deemed to mean and include all information filed under the Securities Exchange Act of 1934
(as amended, the “Exchange Act,” which term, as used herein, includes the rules and regulations of
the Commission promulgated thereunder) prior to the Time of Sale and incorporated by reference in
the Pricing Disclosure Package (including the Preliminary Offering Memorandum) or the Offering
Memorandum (as the case may be), and all references herein to the terms “amend,” “amendment” or
“supplement” with respect to the Offering Memorandum shall be deemed to mean and include all
information filed under the Exchange Act after the Time of Sale and incorporated by reference in
the Offering Memorandum.

     SECTION 1. Representations and Warranties. Each of the Issuers and the Guarantors,
jointly and severally, hereby represents and warrants to each Initial Purchaser as set forth below
in this Section 1:

     (a) No Registration Required. None of the Copano Parties, nor any person acting on its or
their behalf has, directly or indirectly, made offers or sales of any security, or solicited offers
to buy any security, under circumstances that would require the registration of the Securities
under the Securities Act.

     (b) No General Solicitation. None of the Copano Parties, nor any person acting on its or
their behalf has engaged in any form of general solicitation or general advertising (within the
meaning of Rule 502(c) under the Securities Act) in connection with any offer or sale of the
Securities in the United States.

     (c) Rule 144A Eligibility. The Securities satisfy the eligibility requirements of
Rule 144A(d)(3) under the Securities Act.

     (d) Regulation S Sales. None of the Copano Parties, nor any person acting on its or their
behalf, has engaged in any directed selling efforts with respect to the Securities, and each of
them has complied with the offering restrictions requirement of Regulation S. Terms used in this
paragraph have the meanings given to them by Regulation S.

     (e) Sales of Securities. None of the Copano Parties has paid or agreed to pay to any person
any compensation for soliciting another to purchase any Securities (except as contemplated by this
Agreement).

     (f) No Stabilization Activities. None of the Copano Parties has taken, directly or
indirectly, any action designed to or that would constitute or that might reasonably be expected to
cause or result in, under the Exchange Act or otherwise, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the Notes.

     (g) The Pricing Disclosure Package and the Offering Memorandum. The Pricing Disclosure
Package, as of the Time of Sale, does not, and the Offering Memorandum, as of its

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date and (as amended or supplemented in accordance with Section 4(a), as applicable) and as of
the Closing Date does not and will not, contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that the Copano
Parties make no representation or warranty as to statements contained in or omitted from the
Pricing Disclosure Package or the Offering Memorandum, or any amendment or supplement thereto, in
reliance upon and in conformity with information furnished to the Company in writing by any Initial
Purchaser through Banc of America Securities LLC expressly for use in the Pricing Disclosure
Package or the Offering Memorandum, or any amendment or supplement thereto, it being understood and
agreed that the only such information furnished by or on behalf of any of the Initial Purchasers
consists of the information described as such in Section 9(b) hereof.

     (h) Additional Written Communications. The Copano Parties have not prepared, made, used,
authorized, approved or distributed and will not prepare, make, use, authorize, approve or
distribute any written communication that constitutes an offer to sell or solicitation of an offer
to buy the Securities (each such communication by any of the Copano Parties or their respective
agents and representatives (other than a communication referred to in clauses (i) or (ii) below) an
“Additional Written Communication”) other than (i) the Pricing Disclosure Package, (ii) the
Offering Memorandum and (iii) any electronic road show or other written communications, in each
case used in accordance with Section 4(a). Each such Additional Written Communication, when taken
together with the Pricing Disclosure Package, did not, and at the Closing Date will not, contain
any untrue statement of a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the Copano Parties make no representation or
warranty as to statements contained in or omitted from any such Additional Written Communication in
reliance upon and in conformity with information furnished to the Company in writing by any Initial
Purchaser through Banc of America Securities LLC expressly for use in such Additional Written
Communication, it being understood and agreed that the only such information furnished by or on
behalf of any of the Initial Purchasers consists of the information described as such in Section
9(b) hereof.

     (i) Incorporated Documents. The documents incorporated by reference in the Preliminary
Offering Memorandum or the Offering Memorandum, when they became effective or were filed with the
Commission, as the case may be, conformed in all material respects to the applicable requirements
of the Securities Act or the Exchange Act, as applicable. Any further documents so filed and
incorporated by reference in the Pricing Disclosure Package or the Offering Memorandum or any
further amendment or supplement thereto, when such documents become effective or are filed with the
Commission, as the case may be, will conform in all material respects to the applicable
requirements of the Securities Act or the Exchange Act, as applicable.

     (j) The Purchase Agreement. This Agreement has been duly authorized and validly executed and
delivered by each of the Copano Parties and constitutes a valid and binding agreement enforceable
against each of the Copano Parties in accordance with its terms; provided that such
enforceability may be limited by (i) applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or similar laws relating to or affecting creditors’ rights generally and
by general principles of equity (regardless of whether such enforceability is

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considered in a proceeding in equity or at law) and (ii) public policy, applicable law
relating to fiduciary duties and indemnification and contribution and an implied covenant of good
faith and fair dealing.

     (k) The Registration Rights Agreement. The Registration Rights Agreement has been duly
authorized by each of the Copano Parties and, at the Closing Date, will have been validly executed
and delivered by each of the Copano Parties, and, assuming due authorization and execution by each
of the Initial Purchasers or other parties thereto, will constitute a valid and binding agreement
enforceable against each of the Copano Parties in accordance with its terms; provided that
such enforceability may be limited by (i) applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or similar laws relating to or affecting creditors’ rights generally and
by general principles of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law) and (ii) public policy, applicable law relating to fiduciary duties
and indemnification and contribution and an implied covenant of good faith and fair dealing.

     (l) The Notes, the Guarantees, the Exchange Notes and the Exchange Guarantees.

          (i) The Notes have been duly authorized by the Issuers for issuance and sale to the Initial
Purchasers pursuant to this Agreement and the Indenture and, at the Closing Date, will have been
validly executed by the Issuers and, when the Notes have been authenticated by the Trustee in the
manner provided for in the Indenture and delivered against payment of the purchase price therefor
in accordance with the terms hereof, will constitute valid and binding obligations of the Issuers
entitled to the benefits of the Indenture, enforceable against each of them in accordance with
their terms; provided that such enforceability may be limited by (i) applicable bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium or similar laws relating to or
affecting creditors’ rights generally and by general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law) and (ii) public policy,
applicable law relating to fiduciary duties and indemnification and contribution and an implied
covenant of good faith and fair dealing.

          (ii) The Exchange Notes have been duly authorized by the Issuers for issuance and sale and,
when issued by the Issuers and authenticated by the Trustee in the manner provided for in the
Indenture, the Registration Rights Agreement and the Exchange Offer, will have been validly
executed by the Issuers and will constitute valid and binding obligations of the Issuers entitled
to the benefits of the Indenture, enforceable against each of them in accordance with their terms;
provided that such enforceability may be limited by (i) applicable bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium or similar laws relating to or affecting creditors’
rights generally and by general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law) and (ii) public policy, applicable law relating to
fiduciary duties and indemnification and contribution and an implied covenant of good faith and
fair dealing.

          (iii) The Guarantees have been duly authorized by the Guarantors for issuance and sale to the
Initial Purchasers pursuant to this Agreement and the Indenture and, at the Closing Date, will have
been validly executed by each of the Guarantors and, when the Notes have been authenticated by the
Trustee in the manner provided for in the Indenture and delivered

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by the Issuers against payment of the purchase price therefor, will constitute valid and
binding obligations of the Guarantors, enforceable against the Guarantors in accordance with their
terms; provided that such enforceability may be limited by (i) applicable bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium or similar laws relating to or
affecting creditors’ rights generally and by general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law) and (ii) public policy,
applicable law relating to fiduciary duties and indemnification and contribution and an implied
covenant of good faith and fair dealing.

          (iv) The Exchange Guarantees have been duly authorized by the Guarantors for issuance and sale
and, when the Exchange Notes have been issued by the Issuers and authenticated by the Trustee in
the manner provided for in the Indenture, the Registration Rights Agreement and the Exchange Offer,
will have been validly executed by the Guarantors and will constitute valid and binding obligations
of the Guarantors, enforceable against the Guarantors in accordance with their terms;
provided that such enforceability may be limited by (i) applicable bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium or similar laws relating to or affecting creditors’
rights generally and by general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law) and (ii) public policy, applicable law relating to
fiduciary duties and indemnification and contribution and an implied covenant of good faith and
fair dealing.

     (m) The Indenture. The Indenture has been duly authorized by each of the Copano Parties and,
at the Closing Date, will have been validly executed and delivered by each of the Copano Parties
and, assuming due authorization, execution and delivery by the Trustee, will constitute a valid and
binding agreement of each of the Copano Parties, enforceable against each of them in accordance
with its terms; provided that such enforceability may be limited by (i) applicable
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or similar laws relating to
or affecting creditors’ rights generally and by general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law) and (ii) public policy,
applicable law relating to fiduciary duties and indemnification and contribution and an implied
covenant of good faith and fair dealing. The Indenture conforms in all material respects to the
requirements of the Trust Indenture Act applicable to an indenture that is qualified thereunder.

     (n) Description of the Securities and the Indenture. The Securities, the Exchange Securities,
the Indenture and the Registration Rights Agreement do or will, as applicable, conform in all
material respects to the respective statements relating thereto contained in the Pricing Disclosure
Package and the Offering Memorandum.

     (o) No Material Adverse Change. Except as otherwise disclosed in the Pricing Disclosure
Package and the Offering Memorandum, subsequent to the respective dates as of which information is
given therein, there has not been (i) any material adverse change, or any development involving a
prospective material adverse change, in the business, properties, management, financial condition
or results of operations of the Copano Parties taken as a whole, (ii) any transaction that is
material to the Copano Parties taken as a whole, (iii) any obligation or liability, direct or
contingent (including any off-balance sheet obligations), incurred by any of the Copano Parties
that is material to the Copano Parties taken as a whole, (iv) any change in the

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membership or other equity interests or outstanding indebtedness of any of the Copano Parties
that is material to the Copano Parties taken as a whole or (v) any dividend or distribution of any
kind declared, paid or made on the capital stock of, or in respect of membership or partnership
interests in, any of the Copano Parties, except for dividends or distributions made or paid to
other Copano Parties.

     (p) Independent Registered Public Accounting Firms. Each of Deloitte & Touche LLP, which
expressed its opinion with respect to certain financial statements of the Company and Bighorn
incorporated by reference in the Preliminary Offering Memorandum and the Offering Memorandum, and
KPMG LLP, which expressed its opinion with respect to certain financial statements of Cantera
Natural Gas, LLC, a Delaware limited liability company, (“Cantera”), Bighorn and Fort Union
incorporated by reference in the Preliminary Offering Memorandum and the Offering Memorandum, is,
or was at the time of such opinion with respect to the financial statements, an independent
registered public accounting firm within the meaning of Regulation S-X under the Securities Act and
the Exchange Act and the rules of the Public Company Accounting Oversight Board.

     (q) Preparation of the Financial Statements. The historical consolidated financial statements
(including the related notes and supporting schedules) incorporated by reference in the Preliminary
Offering Memorandum and the Offering Memorandum (and any amendment or supplement thereto) present
fairly in all material respects the financial condition and results of operations of the entities
purported to be shown thereby on the basis stated therein, at the dates and for the periods
indicated, and have been prepared in conformity with U.S. generally accepted accounting principles
applied on a consistent basis throughout the periods involved. The unaudited pro forma financial
statements incorporated by reference in the Preliminary Offering Memorandum and the Offering
Memorandum (and any amendment or supplement thereto) have been prepared in all material respects in
accordance with the applicable requirements of Article 11 of Regulation S-X of the Securities Act,
except with respect to the requirement of Rule 11-02(c)(2) to provide certain pro forma financial
statements for the most recent fiscal year. The assumptions used in the preparation of such
unaudited pro forma financial statements are, in the opinion of the management of the Company,
reasonable. The pro forma adjustments reflected in such unaudited pro forma financial statements
have been properly applied to the historical amounts in compilation of such unaudited pro forma
financial statements. The other financial and statistical data contained or incorporated by
reference in the Preliminary Offering Memorandum and the Offering Memorandum (and any amendment or
supplement thereto) are accurately and fairly presented and prepared on a basis consistent with the
financial statements and books and records of the Company. The Company and its Subsidiaries do not
have any (i) off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K
under the Exchange Act, or (ii) other liabilities or obligations, direct or contingent, that are
material to the Company and its Subsidiaries taken as a whole that are not described in the
Preliminary Offering Memorandum, the Offering Memorandum or the documents incorporated by reference
therein; and all disclosures contained or incorporated by reference in the Preliminary Offering
Memorandum and the Offering Memorandum regarding “non-GAAP financial measures” (as such term is
defined by the rules and regulations of the Commission) comply with Regulation G of the Exchange
Act and Item 10 of Regulation S-K under the Securities Act.

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     (r) Formation and Qualification. Each of the Company and the Subsidiaries (except
for Webb/Duval with respect to good standing) has been duly formed and is validly existing in
good standing under the laws of its jurisdiction of formation, and is duly registered or qualified
to do business and is in good standing as a foreign corporation, limited liability company, limited
partnership or general partnership, as the case may be, in each jurisdiction in which its ownership
or lease of property or the conduct of its businesses requires such registration or qualification,
except where the failure so to register or qualify would not, individually or in the aggregate,
either (i) have a material adverse effect on the business, properties, financial condition, results
of operations or prospects of the Company and the Subsidiaries taken as a whole or (ii) prevent or
materially interfere with the ability of the Copano Parties to consummate the transactions
contemplated hereby (the occurrence of any such effect or any such prevention or interference or
any such result described in the foregoing clauses (i) and (ii) being herein referred to as a
“Material Adverse Effect”). Each of the Company and the Subsidiaries has all corporate, limited
liability company, limited partnership or general partnership, as the case may be, power and
authority necessary to own or lease its properties currently owned or leased or to be owned or
leased at the Closing Date and to conduct its business as currently conducted or to be conducted at
the Closing Date, in each case in all material respects as described in the Pricing Disclosure
Package and the Offering Memorandum.

     (s) Authority to Act as General Partner. Each of the Subsidiaries set forth under the heading
“General Partner” on Annex I attached hereto has all necessary limited liability company power and
authority to act as general partner of each of the subsidiaries set forth opposite its name under
the heading “Limited Partnerships” on Annex I attached hereto.

     (t) Ownership of FinCo. The Company directly owns 100% of the issued and outstanding capital
stock of FinCo; such capital stock has been duly authorized and validly issued in accordance with
the certificate of incorporation and bylaws of FinCo, as amended to date, and is fully paid and
nonassessable; and the Company owns such capital stock free and clear of all liens, encumbrances,
security interests, equities, charges and other claims except for liens created pursuant to the
Amended and Restated Credit Agreement dated as of January 12, 2007 among the Company, as the
Borrower, Bank of America, N.A., as Administrative Agent and L/C Issuer, JPMorgan Chase Bank, N.A.
and Wachovia Bank, National Association, as Co-Syndication Agents, and the other lenders party
thereto and Banc of America Securities LLC, as Sole Lead Arranger and Sole Book Manager, as amended
by First Amendment to Amended and Restated Credit Agreement, dated as of October 19, 2007
(the “Credit Agreement”).

     (u) Ownership of Subsidiaries. The Company directly or indirectly owns (i) 100% of the issued
and outstanding membership interests or partnership interests, as the case may be, of each of the
other Copano Parties (excluding FinCo), (ii) a 62.5% partnership interest in Webb/Duval, (iii) a
majority limited liability company interest in Southern Dome, (iv) a 51% managing member interest
in Bighorn and (v) a 37.04% managing member interest in Fort Union, in each case free and clear of
all liens, encumbrances, security interests, equities, charges and other claims except for liens
created pursuant to (i) the Credit Agreement, , (ii) the Amended and Restated Credit Agreement,
dated as of April 30, 2007, among Fort Union, as the Borrower, Bank of America, N.A., as
Administrative Agent and L/C Issuer, the other lenders party thereto and Banc of America Securities
LLC, as Sole Lead Arranger and Sole Book Manager (the “Fort Union Credit Agreement”) or (iii) the
Amended and Restated Promissory Note, dated February 27, 2004, by Copano Pipelines/Rocky Mountains,
LLC (formerly known as

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Cantera Gas Holdings LLC) and Cantera Gas Company, LLC (formerly known as Cantera Gas Company)
in favor of CMS Gas Transmission Company (the “CMS Note”). Such limited liability company
interests or limited partner interests, as the case may be, have been duly authorized and validly
issued and are fully paid (to the extent required under such Subsidiary’s applicable constituent
documents) and non-assessable (except as such nonassessability may be affected by: (A) Section
18-607 of the Delaware Limited Liability Company Act (the “Delaware LLC Act”), in the case of a
Delaware limited liability company, (B) Section 17-607 of the Delaware Revised Uniform Limited
Partnership Act (the “Delaware LP Act”), in the case of a Delaware limited partnership,
(C) Sections 3.03, 5.02 and 6.07 of the Texas Revised Uniform Limited Partnership Act (the “Texas
LP Act”), in the case of a Texas limited partnership, (D) Section 5.09 of the Texas Limited
Liability Company Act (the “Texas LLC Act”), in the case of a Texas limited liability company, or
(E) or Section 2031 of the Oklahoma Limited Liability Company Act, in the case of an Oklahoma
limited liability company.

     (v) No Other Subsidiaries. Other than its ownership interests in the Subsidiaries, the
Company does not own and at the Closing Date will not own, directly or indirectly, any equity or
long-term debt securities of any corporation, partnership, limited liability company, joint
venture, association or other entity that, individually or in the aggregate, would be deemed to be
a “significant subsidiary” as such term is defined in Rule 405 of the Securities Act.

     (w) Capitalization. As of March 31, 2008, the Company had or would have had, on the
consolidated historical and as adjusted basis indicated in the Offering Memorandum (and any
amendment or supplement thereto), a capitalization as set forth therein.

     (x) Authority and Authorization. The Issuers have all requisite corporate or limited
liability company power and authority to issue, sell and deliver the Notes and the Exchange Notes,
and each Guarantor has all requisite corporate, limited liability company or limited partnership
power and authority to issue the Guarantees and the Exchange Guarantees. Each of the Copano
Parties has all requisite corporate, limited liability company or limited partnership power and
authority to enter into this Agreement, the Indenture and the Registration Rights Agreement and to
perform its respective obligations thereunder. At the Closing Date, all corporate, partnership and
limited liability company action, as the case may be, required to be taken by the Copano Parties or
any of their owners, members or partners for the authorization, issuance, sale and delivery of the
Securities as contemplated by this Agreement shall have been validly taken.

     (y) Enforceability of Limited Liability Company Agreement. The Third Amended and Restated
Limited Liability Company Agreement of the Company, as amended as of the date hereof (the “Limited
Liability Company Agreement”), has been duly authorized, executed and delivered by affiliates of
the Company’s management and, assuming due authorization, execution and delivery by the other
parties thereto, is a valid and legally binding agreement of each of the parties thereto,
enforceable against each of them in accordance with its terms; provided that the
enforceability thereof may be limited by (i) applicable bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium or similar laws relating to or affecting creditors’ rights
generally and by general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law) and (ii) public policy, applicable law relating to
fiduciary duties and indemnification and contribution and an implied covenant of good faith and
fair dealing.

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     (z) Operating Agreements. The certificate of incorporation, certificate of formation, bylaws,
limited liability company agreement, limited partnership agreement or other organizational
documents, as applicable, of the Copano Parties (excluding the Company) (collectively, the
“Guarantor and FinCo Operating Agreements” and, together with the Limited Liability Company
Agreement, the “Operating Agreements”) have been duly authorized, executed and delivered by the
Copano Parties that are parties thereto, as applicable, and are valid and legally binding
agreements of the respective parties thereto, enforceable against the respective parties thereto in
accordance with their terms; provided that the enforceability thereof may be limited by
(i) applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or similar
laws relating to or affecting creditors’ rights generally and by general principles of equity
(regardless of whether such enforceability is considered in a proceeding in equity or at law) and
(ii) public policy, applicable law relating to fiduciary duties and indemnification and
contribution and an implied covenant of good faith and fair dealing.

     (aa) No Conflicts. None of the offering, issuance and sale of the Notes and the Guarantees by
the Issuers and the Guarantors, respectively, the execution, delivery and performance of the Notes,
the Guarantees, the Exchange Notes, the Exchange Guarantees, the Indenture, the Registration Rights
Agreement or this Agreement by the Copano Parties or the consummation of the transactions
contemplated hereby or thereby (i) conflicts or will conflict with or constitutes or will
constitute a violation of the certificate of incorporation, limited partnership, formation or
organization of any of the Copano Parties, as applicable, or any of their respective Operating
Agreements, (ii) conflicts or will conflict with or constitutes or will constitute a breach or
violation of, or a default under (or an event which, with notice or lapse of time or both, would
constitute such a default), any indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which any of the Copano Parties is a party or by which any of them or
any of their respective properties may be bound, (iii) violates or will violate any statute, law or
regulation or any order, judgment, decree or injunction of any court or governmental agency or body
having jurisdiction over any of the Copano Parties or any of their respective properties in a
proceeding to which any of them or their property is or was a party or (iv) results or will result
in the creation or imposition of any lien, charge or encumbrance upon any property or assets of any
of the Copano Parties (other than liens created pursuant to the Credit Agreement), which conflicts,
breaches, violations, defaults or liens, in the case of clauses (ii), (iii) or (iv), would have ,
individually or in the aggregate, a Material Adverse Effect.

     (bb) No Consents. Except for (i) such consents, approvals, authorizations, orders, filings,
registrations or qualifications as may be required (A) under applicable state securities or “Blue
Sky” laws in connection with the purchase and resale of the Securities by the Initial Purchasers
and (B) with respect to the Exchange Securities under the Securities Act, the Trust Indenture Act
and applicable state securities or “Blue Sky” laws as contemplated by the Registration Rights
Agreement, (ii) such consents that have been, or prior to the Closing Date will have been, obtained
and (iii) such consents that, if not obtained, would not, individually or in the aggregate, have a
Material Adverse Effect, no consent, approval, authorization or order of, or filing or registration
with, any court or governmental agency or body having jurisdiction over any of the Copano Parties
or any of their respective properties is required in connection with the offering, issuance and
sale of the Securities by the Copano Parties in the manner contemplated

10

 

herein or in the Offering Memorandum, the execution, delivery and performance of this
Agreement, the Indenture, the Notes, the Guarantees and the Registration Rights Agreement by the
Copano Parties or the consummation by the Copano Parties of the transactions contemplated hereby or
thereby.

     (cc) No Default. None of the Copano Parties (i) is in violation of its applicable Operating
Agreement, (ii) is in default (and no event has occurred which, with notice or lapse of time or
both, would constitute such a default) in the due performance or observance of any term, covenant
or condition contained in any indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which it is a party or by which it is bound or to which any of its properties or
assets is subject or (iii) is in violation of any law, statute, ordinance, administrative or
governmental rule or regulation applicable to it or of any order, judgment, decree or injunction of
any court or governmental agency or body having jurisdiction over it, which default or violation in
the case of clause (ii) or (iii), would, if continued, have a Material Adverse Effect. To the
knowledge of the Copano Parties without independent investigation, no third party to any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to which any of the Copano
Parties is a party or by which any of them is bound or to which any of their properties is subject,
is in default under any such agreement, which default would, if continued, have a Material Adverse
Effect.

     (dd) Litigation. There are no actions, suits, claims, investigations or proceedings pending
or, to the knowledge of the Copano Parties, threatened or contemplated to which any of the Copano
Parties is or would be a party or of which any of their respective properties is or would be
subject at law or in equity, before or by any federal, state, local or foreign governmental or
regulatory commission, board, body, authority or agency, or before or by any self-regulatory
organization or other non-governmental regulatory authority (including, without limitation, the
Nasdaq Stock Market LLC) that could reasonably be expected to have a Material Adverse Effect.

     (ee) No Labor Dispute. No labor dispute with the employees of any of the Copano Parties
exists or, to the knowledge of the Copano Parties, is imminent or threatened that is reasonably
likely to have a Material Adverse Effect.

     (ff) Title to Real Property. Each of the Copano Parties has good and marketable title to all
real property and good title to all personal property described in the Pricing Disclosure Package
and the Offering Memorandum as owned by such Copano Party free and clear of all (i) liens and
security interests except liens or security interests arising under or securing indebtedness
incurred under the Credit Agreement, the Fort Union Credit Agreement or the CMS Note or (ii) other
claims and other encumbrances (other than liens or security interests) except, in each case, (1) as
described, and subject to the limitations contained, in the Pricing Disclosure Package and Offering
Memorandum, (2) such as do not materially affect the value of such property taken as a whole or
(3) such as do not materially interfere with the use of such properties taken as a whole as they
have been used in the past and are proposed to be used in the future as described in the Pricing
Disclosure Package and the Offering Memorandum; provided, however, that, with
respect to any real property and buildings held under lease by any of the Copano Parties, such real
property and buildings are held under valid and subsisting and enforceable leases with such
exceptions as do not materially interfere with the use of the

11

 

properties of the Copano Parties taken as a whole as they have been used in the past as
described in the Pricing Disclosure Package and the Offering Memorandum and are proposed to be used
in the future as described in the Pricing Disclosure Package and the Offering Memorandum.

     (gg) Insurance. The Copano Parties maintain insurance covering their properties, operations,
personnel and businesses against such losses and risks and in such amounts as is reasonably
adequate for the conduct of their respective businesses and the value of their respective
properties and as is customary for companies engaged in similar businesses in similar industries.
None of the Copano Parties has received notice from any insurer or agent of such insurer that
substantial capital improvements (relating to the Company and its subsidiaries on a consolidated
basis) or other substantial expenditures will have to be made in order to continue such insurance,
and all such insurance is outstanding and duly in force on the date hereof and will be outstanding
and duly in force at the Closing Date.

     (hh) Certain Relationships and Related Transactions. No relationship, direct or indirect,
exists between or among any of the Copano Parties, on the one hand, and the directors, officers,
members, partners, stockholders, customers or suppliers of any of the Copano Parties, on the other
hand, that would be required by the Securities Act to be described in a registration statement on
Form S-1 that is not so described in the Offering Memorandum or the documents incorporated by
reference therein. There are no outstanding loans, advances (except normal advances for business
expenses in the ordinary course of business) or guarantees of indebtedness by any of the Copano
Parties to or for the benefit of any of the officers or directors of any of the Copano Parties or
their respective family members, except as disclosed in the Pricing Disclosure Package and the
Offering Memorandum or the documents incorporated by reference therein. None of the Copano Parties
has, in violation of the Sarbanes-Oxley Act of 2002, directly or indirectly, extended or maintained
credit, arranged for the extension of credit, or renewed an extension of credit, in the form of a
personal loan to or for any director or executive officer of any of the Copano Parties.

     (ii) Sarbanes-Oxley Act of 2002. The Company and its officers and directors are in compliance
in all material respects with all applicable provisions of the Sarbanes-Oxley Act of 2002 and the
applicable rules and regulations thereunder.

     (jj) Tax Returns. Each of the Copano Parties has filed (or has obtained extensions with
respect to) all material federal, state and local income and franchise tax returns required to be
filed through the date of this Agreement, which returns are correct and complete in all material
respects, and has timely paid all taxes due thereon, other than those (i) that are being contested
in good faith and for which adequate reserves have been established in accordance with generally
accepted accounting principles or (ii) that, if not paid, would not have a Material Adverse Effect.

     (kk) Books and Records. Each of the Copano Parties (i) makes and keeps books and records
which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
assets and (ii) maintains internal accounting controls sufficient to provide reasonable assurance
that (A) transactions are executed in accordance with management’s general or specific
authorization, (B) transactions are recorded as necessary to permit preparation of its financial
statements in conformity with generally accepted accounting principles and to maintain

12

 

accountability for its assets, (C) access to its assets is permitted only in accordance with
management’s general or specific authorization and (D) the reported accountability for its assets
is compared with existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

     (ll) Disclosure Controls. The Company has established and maintains disclosure controls and
procedures (as such term is defined in Rule 13a-15 under the Exchange Act), which (i) are designed
to ensure that material information relating to the Company, including its consolidated
subsidiaries, is made known to the Company’s principal executive officer and its principal
financial officer by others within those entities, particularly during the periods in which the
periodic reports required under the Exchange Act are being prepared; (ii) have been evaluated for
effectiveness as of the end of the period covered by the Company’s most recent quarterly report
filed with the Commission; and (iii) are effective in all material respects to perform the
functions for which they were established.

     (mm) No Deficiency in Internal Controls. Based on the evaluation of its internal controls and
procedures as of the end of the period covered by the Company’s most recent quarterly report on
Form 10-Q filed with the Commission, the Company is not aware of (i) any significant deficiency in
the design or operation of internal controls that could adversely affect the Company’s ability to
record, process, summarize and report financial data or any material weaknesses in internal
controls; or (ii) any fraud, whether or not material, that involves management or other employees
who have a significant role in the Company’s internal controls.

     (nn) No Recent Changes to Internal Controls. Since the end of the period covered by the
Company’s most recent quarterly report on Form 10-Q filed with the Commission, there have been no
significant changes in internal controls or in other factors that could significantly affect
internal controls, including any corrective actions with regard to significant deficiencies and
material weaknesses, except for improvements and new procedures implemented as part of the
Company’s review of its internal controls.

     (oo) Environmental Compliance. The Copano Parties (i) are in compliance with any and all
applicable federal, state and local laws and regulations relating to the protection of human health
and safety and the environment or imposing liability or standards of conduct concerning any
Hazardous Materials (as defined below) (“Environmental Laws”), (ii) have received all permits
required of them under applicable Environmental Laws to conduct their respective businesses,
(iii) are in compliance with all terms and conditions of any such permits and (iv) do not have any
liability in connection with the release into the environment of any Hazardous Material, except
where such noncompliance with Environmental Laws, failure to receive required permits, failure to
comply with the terms and conditions of such permits or liability would not, individually or in the
aggregate, have a Material Adverse Effect. The term “Hazardous Material” means (A) any “hazardous
substance” as defined in the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, (B) any “hazardous waste” as defined in the Resource Conservation and Recovery
Act, as amended, (C) any petroleum or petroleum product, (D) any polychlorinated biphenyl and
(E) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material, waste or
substance regulated under or within the meaning of any other Environmental Law.

13

 

     (pp) Permits. Each of the Copano Parties has, and at the Closing Date will have, such
permits, consents, licenses, franchises, certificates and authorizations of governmental or
regulatory authorities (“permits”) as are necessary to own its properties and to conduct its
business in the manner described in the Pricing Disclosure Package and the Offering Memorandum,
subject to such qualifications as may be set forth in the Pricing Disclosure Package and the
Offering Memorandum, respectively, and except for such permits which, if not obtained, would not,
individually or in the aggregate, have a Material Adverse Effect. Except as set forth in the
Pricing Disclosure Package and the Offering Memorandum, each of the Copano Parties has, and at the
Closing Date will have, fulfilled and performed all its material obligations with respect to such
permits which are or will be due to have been fulfilled and performed by such date and no event has
occurred that would prevent the permits from being renewed or reissued or which allows, or after
notice or lapse of time would allow, revocation or termination thereof or results in any impairment
of the rights of the holder of any such permit, except for such non-renewals, non-issues,
revocations, terminations and impairments that would not, individually or in the aggregate, have a
Material Adverse Effect. Except as described in the Pricing Disclosure Package and the Offering
Memorandum, none of such permits contains, or at the Closing Date will contain, any restriction
that is materially burdensome to the Copano Parties considered as a whole.

     (qq) Investment Company. None of the Copano Parties is now, and after the sale of the Notes
to be sold by the Company hereunder and the application of the net proceeds from such sale as
described in the Offering Memorandum under the caption “Use of Proceeds” will be, an “investment
company” or a company “controlled by” an “investment company” within the meaning of the Investment
Company Act of 1940, as amended.

     (rr) Forward-Looking Statements. No forward-looking statement (within the meaning of Rule 175
or Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in the
Preliminary Offering Memorandum or the Offering Memorandum has been made or reaffirmed without a
reasonable basis or has been disclosed other than in good faith.

     (ss) Statistical and Market Data. Nothing has come to the attention of the Company that has
caused it to believe that the statistical and market-related data included in the Preliminary
Offering Memorandum or the Offering Memorandum is not based on or derived from sources that are
reliable and accurate in all material respects.

     Any certificate signed by an officer of any of the Copano Parties and delivered to the Initial
Purchasers or counsel to the Initial Purchasers shall be deemed a representation and warranty by
such Copano Party to each Initial Purchaser as to the matters set forth therein.

     SECTION 2. Purchase, Sale and Delivery of the Securities.

     (a) The Securities. Each of the Issuers and the Guarantors agrees to issue and sell to the
Initial Purchasers, severally and not jointly, all of the Securities, and the Initial Purchasers
agree, severally and not jointly, to purchase from the Issuers and the Guarantors the aggregate
principal amount of Securities set forth opposite their names on Schedule B attached hereto, at a
purchase price of 98.00% of the principal amount thereof payable on the Closing Date, in each

14

 

case, on the basis of the representations, warranties and agreements herein contained, and
upon the terms, subject to the conditions thereto, herein set forth.

     (b) The Closing Date. Delivery of certificates for the Securities in definitive form to be
purchased by the Initial Purchasers and payment therefor shall be made at the offices of Vinson &
Elkins L.L.P., 1001 Fannin Street, Houston, Texas 77002 (or such other place as may be agreed to by
the Company and Banc of America Securities LLC) at 9:00 a.m. New York City time, on May 13, 2008 or
such other time and date as Banc of America Securities LLC shall designate by notice to the Company
(the time and date of such closing are called the “Closing Date”). The Company hereby acknowledges
that circumstances under which Banc of America Securities LLC may provide notice to postpone the
Closing Date as originally scheduled include, but are in no way limited to, any determination by
the Company or the Initial Purchasers to recirculate to investors copies of an amended or
supplemented Offering Memorandum or a delay as contemplated by the provisions of Section 17 hereof.

     (c) Delivery and Payment. The Company shall deliver, or cause to be delivered, to Banc of
America Securities LLC for the accounts of the several Initial Purchasers certificates for the
Notes at the Closing Date against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The certificates for the Notes will
be evidenced by one or more global securities in definitive form and will be registered in the name
of Cede & Co., as nominee of the Depositary, pursuant to the DTC Agreement, and shall be made
available for inspection on the business day preceding the Closing Date at a location in New York
City, as Banc of America Securities LLC may designate. Time shall be of the essence, and delivery
at the time and place specified in this Agreement is a further condition to the obligations of the
Initial Purchasers.

     SECTION 3. Offering by Initial Purchasers. Each Initial Purchaser, severally and not
jointly, represents and warrants to and agrees with the Company that:

     (a) Offers to Qualified Institutional Buyers. It has not offered or sold, and will not offer
or sell, any Securities, except (i) within the United States, to those persons it reasonably
believes to be “qualified institutional buyers” within the meaning of Rule 144A under the
Securities Act (a “Qualified Institutional Buyer”) and that, in connection with each such sale, it
has taken or will take reasonable steps to ensure that the purchaser of such Securities is aware
that such sale is being made in reliance on Rule 144A or (ii) in accordance with the restrictions
set forth in Annex II hereto.

     (b) Initial Purchasers as Qualified Institutional Buyers. Each Initial Purchaser severally
and not jointly represents and warrants to, and agrees with, the Company that it is a Qualified
Institutional Buyer.

     SECTION 4. Additional Covenants. Each of the Issuers and the Guarantors further
covenants and agrees with each Initial Purchaser as follows:

     (a) Initial Purchasers’ Review of Proposed Amendments and Supplements. Until the later of
(x) the completion of the placement of the Securities by the Initial Purchasers with the Subsequent
Purchasers and (y) the Closing Date, prior to amending or supplementing the

15

 

Offering Memorandum, the Company shall furnish to the Initial Purchasers for review a copy of
each such proposed amendment or supplement, and the Company shall not use any such proposed
amendment or supplement to which Banc of America Securities LLC reasonably objects. Before making,
preparing, using, authorizing, approving or distributing any Additional Written Communication, the
Company will furnish to the Initial Purchasers a copy of such written communication for review and
will not make, prepare, use, authorize, approve or distribute any such written communication to
which Banc of America Securities LLC reasonably objects.

     (b) Notice to Company. The Company will advise the Initial Purchasers promptly (i) of the
issuance by any governmental or regulatory authority of any order preventing or suspending the use
of the Pricing Disclosure Package or the Offering Memorandum or the initiation or threatening of
any proceeding for that purpose; (ii) of the occurrence of any event at any time prior to the
completion of the initial offering of the Securities as a result of which the Pricing Disclosure
Package or the Offering Memorandum, as then amended or supplemented, would include any untrue
statement of a material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were made, not misleading;
and (iii) of the receipt by any of the Copano Parties of any notice with respect to any suspension
of the qualification of the Securities for offer and sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and the Copano Parties will use their respective
reasonable best efforts to prevent the issuance of any such order preventing or suspending the use
of the Pricing Disclosure Package or the Offering Memorandum or suspending any such qualification
of the Securities and, if any such order is issued, will use their respective reasonable best
efforts to obtain as soon as possible the withdrawal thereof.

     (c) Amendments and Supplements to the Offering Memorandum and Other Securities Act Matters.
If, prior to the completion of the placement of the Securities by the Initial Purchasers with the
Subsequent Purchasers, any event shall occur or condition exist as a result of which, in the
judgment of any of the Issuers or in the opinion of counsel for the Initial Purchasers, it is
necessary to amend or supplement the Offering Memorandum in order to make the statements therein,
in the light of the circumstances under which they are made, not misleading or it is otherwise
necessary to amend or supplement the Offering Memorandum to comply with law, the Company will
promptly (i) notify the Initial Purchasers of any such event, if applicable, (ii) subject to
Section 4(a) above, prepare an amendment or supplement that corrects any such statement or omission
or effects such compliance with law and (iii) supply a reasonable number of any such amended or
supplemented Offering Memorandum to the Initial Purchasers and counsel for the Initial Purchasers
without charge.

     Following the consummation of any Exchange Offer or the effectiveness of an applicable shelf
registration statement and for so long as the Securities are outstanding if, in the judgment of the
Initial Purchasers, the Initial Purchasers or any of their Affiliates (as such term is defined in
the Securities Act) are required to deliver a prospectus in connection with sales of, or
market-making activities with respect to, the Securities, the Company agrees to periodically amend
the applicable registration statement so that the information contained therein complies with the
requirements of Section 10 of the Securities Act, and to amend the applicable registration
statement or supplement the related prospectus or the documents incorporated by reference

16

 

therein when necessary to reflect any material changes in the information provided therein so
that the registration statement will not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein not misleading and the
prospectus will not contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the circumstances under
which they are made, not misleading and to provide the Initial Purchasers with copies of each
amendment or supplement filed and such other documents as the Initial Purchasers may reasonably
request.

     The Company and the Initial Purchasers hereby expressly acknowledge that the indemnification
and contribution provisions of Sections 9 and 10 hereof are specifically applicable and relate to
each offering memorandum, registration statement, prospectus, amendment or supplement referred to
in this Section 4.

     (d) Copies of the Pricing Disclosure Package and the Offering Memorandum. The Company agrees
to furnish the Initial Purchasers, without charge, as many copies of the Pricing Disclosure Package
and the Offering Memorandum and any amendments and supplements thereto as they shall have
reasonably requested.

     (e) Blue Sky Compliance. Each of the Copano Parties shall cooperate with the Initial
Purchasers and counsel for the Initial Purchasers to qualify or register (or to obtain exemptions
from qualifying or registering) all or any part of the Securities for offer and sale under the
securities laws of the several states of the United States and any other jurisdictions reasonably
designated by the Initial Purchasers, shall comply with such laws and shall continue such
qualifications, registrations and exemptions in effect for so long as required for the distribution
of the Securities; provided, however, that the Company shall not be required to
qualify as a foreign limited liability company or to take any other action that would subject it to
general service of process in any jurisdiction (except service of process with respect to the
offering and sale of the Securities) where it is not presently qualified or where it would be
subject to taxation as a foreign limited liability company. The Company will advise the Initial
Purchasers promptly of the suspension of the qualification or registration of (or any such
exemption relating to) the Securities for offering, sale or trading in any jurisdiction or any
initiation or threat of any proceeding for any such purpose, and in the event of the issuance of
any order suspending such qualification, registration or exemption, each of the Issuers and the
Guarantors shall use its reasonable best efforts to obtain the withdrawal thereof at the earliest
possible moment.

     (f) The Depositary. The Company will cooperate with the Initial Purchasers and use its
reasonable best efforts to permit the Securities to be eligible for clearance and settlement
through the facilities of the Depositary.

     (g) Additional Issuer Information. For so long as any of the Securities are “restricted
securities” within the meaning of Rule 144(a)(3) under the Securities Act, the Company shall file,
on a timely basis, with the Commission and The Nasdaq National Market LLC all reports and documents
required to be filed under Section 13 or 15(d) of the Exchange Act. Additionally, at any time when
the Company is not subject to Section 13 or 15(d) of the Exchange Act and the Notes are “restricted
securities” within the meaning of Rule 144(a)(3) under the Securities Act, for the benefit of
holders and beneficial owners from time to time of the Securities, the Company

17

 

shall furnish, at its expense, upon request, to holders and beneficial owners of Securities
and prospective purchasers of Securities information satisfying the requirements of Rule 144A(d)(4)
under the Securities Act.

     (h) Use of Proceeds. The Company will apply the net proceeds from the sale of the Securities
in the manner set forth under the caption “Use of Proceeds” in the Offering Memorandum.

     (i) Agreement Not To Offer or Sell Additional Securities. During the period of sixty (60)
days following the date of the Offering Memorandum, the Copano Parties will not, without the prior
written consent of Banc of America Securities LLC (which consent may be withheld at the sole
discretion of Banc of America Securities LLC), directly or indirectly, issue, sell, offer to sell,
contract or grant any option to sell, pledge, transfer or establish an open “put equivalent
position” within the meaning of Rule 16a-1 under the Exchange Act, or otherwise dispose of or
transfer, or announce the offering of, or file any registration statement under the Securities Act
in respect of, any securities similar to the Notes or any securities exchangeable for or
convertible into the Notes or any such similar securities (other than as contemplated by this
Agreement and to register the Exchange Securities).

     (j) No Integration. The Company agrees that it will not and will cause its Affiliates not to
make any offer or sale of securities of the Company of any class if, as a result of the doctrine of
“integration” referred to in Rule 502 under the Securities Act, such offer or sale would render
invalid (for the purpose of (i) the sale of the Securities by the Company to the Initial
Purchasers, (ii) the resale of the Securities by the Initial Purchasers to Subsequent Purchasers or
(iii) the resale of the Securities by such Subsequent Purchasers to others) the exemption from the
registration requirements of the Securities Act provided by Section 4(2) thereof or by Rule 144A or
by Regulation S thereunder or otherwise.

     (k) Legended Securities. Each certificate for a Note will bear the legend contained in
“Transfer Restrictions” in the Offering Memorandum for the time period and upon the other terms
stated in the Offering Memorandum.

     (l) PORTAL. The Company will use its reasonable best efforts to cause the Notes to be
eligible for the PORTAL Market.

     (m) Stabilization. Except as stated in this Agreement and in the Pricing Disclosure Package
and the Offering Memorandum, the Copano Parties and their respective Affiliates will not take,
directly or indirectly, any action designed to or that might reasonably be expected to cause or
result in stabilization or manipulation of the price of the Notes.

     (n) Resales. During the one-year period after the Closing Date, the Copano Parties will not,
and will not permit any of their “affiliates” (as defined in Rule 144 under the Securities Act), to
resell any of the Notes that constitute “restricted securities” under Rule 144 that have been
reacquired by any of them.

     Banc of America Securities LLC, on behalf of the several Initial Purchasers, may, in its sole
discretion, waive in writing the performance by the Issuers or any Guarantor of any one or more of
the foregoing covenants or extend the time for their performance.

18

 

     SECTION 5. Payment of Expenses. Each of the Copano Parties agrees to pay all costs,
fees and expenses incurred in connection with the performance of its obligations hereunder and in
connection with the transactions contemplated hereby, including without limitation: (i) all
expenses incident to the issuance and delivery of the Securities (including all printing and
engraving costs), (ii) all necessary issue, transfer and other stamp taxes in connection with the
original issuance and sale of the Securities to the Initial Purchasers, (iii) all fees and expenses
of the Issuers’ counsel, independent registered public accounting firms and other advisors,
(iv) all costs and expenses incurred in connection with the preparation, printing, filing, shipping
and distribution of the Pricing Disclosure Package and the Offering Memorandum (including financial
statements and exhibits), and all amendments and supplements thereto, this Agreement, the
Registration Rights Agreement, the Indenture, the DTC Agreement and the Notes and Guarantees,
(v) all filing fees, attorneys’ fees and expenses incurred by the Copano Parties or the Initial
Purchasers in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Securities for offer and sale under the
securities laws of the several states of the United States or other jurisdictions designated by the
Initial Purchasers (including, without limitation, the cost of preparing, printing and mailing
preliminary and final blue sky or legal investment memoranda and any related supplements to the
Preliminary Offering Memorandum or Offering Memorandum, (vi) all fees and expenses of the Trustee,
including the fees and disbursements of counsel for the Trustee in connection with the Indenture,
the Securities and the Exchange Securities, (vii) all fees payable in connection with the rating of
the Securities or the Exchange Securities with the ratings agencies and the listing of the
Securities with the PORTAL Market and (viii) all fees and expenses (including reasonable fees and
expenses of counsel) of the Copano Parties in connection with approval of the Securities by the
Depositary for “book-entry” transfer, and the performance by the Copano Parties of their respective
other obligations under this Agreement. Except as provided in this Section 5 and Sections 7, 9 and
10 hereof, the Initial Purchasers shall pay their own expenses, including the fees and expenses of
their counsel, Baker Botts L.L.P.

     SECTION 6. Conditions of the Obligations of the Initial Purchasers. The obligations
of the several Initial Purchasers to purchase the Securities as provided herein on the Closing Date
shall be subject to the accuracy of the respective representations and warranties of the Copano
Parties set forth in Section 1 hereof as of the Time of Sale and as of the Closing Date as though
then made and to the performance by the Copano Parties of their respective covenants and other
obligations hereunder, and to each of the following additional conditions:

     (a) Accountants’ Comfort Letters. On the date hereof, the Initial Purchasers shall have
received from each of Deloitte & Touche LLP, the independent registered public accounting firm for
the Company and Bighorn, and KPMG LLP, the independent registered public accounting firm for
Cantera, Bighorn and Fort Union, letters dated the date hereof addressed to the Initial Purchasers,
in form and substance satisfactory to the Initial Purchasers, containing statements and information
of the type ordinarily included in accountant’s “comfort letters” to Initial Purchasers, delivered
according to Statement of Auditing Standards Nos. 72, 76 and 100 (or any successor bulletins), with
respect to the audited and unaudited financial statements and certain financial information
contained in the Preliminary Offering Memorandum and the Pricing Supplement.

19

 

     (b) Offering Memorandum. The Initial Purchasers shall not have discovered and
disclosed to the Issuers on or prior to the Closing Date that the Pricing Disclosure Package
or the Offering Memorandum or any amendment or supplement thereto contains an untrue statement of a
fact that, in the opinion of Baker Botts L.L.P., is material or omits to state a fact that, in the
opinion of such counsel, is material and is necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.

     (c) No Material Adverse Effect or Ratings Agency Change. For the period from and after the
date of this Agreement and prior to the Closing Date:

          (i) there shall not have occurred any Material Adverse Effect the effect of which, in the
judgment of the Initial Purchasers, makes it impracticable or inadvisable to proceed with the
offering, sale or delivery of the Securities on the terms and in the manner contemplated by this
Agreement, the Pricing Disclosure Package and the Offering Memorandum; and

          (ii) there shall not have occurred any downgrading, nor shall any notice have been given of
any intended or potential downgrading or of any review for a possible change that does not indicate
the direction of the possible change, in the rating accorded any securities or indebtedness of the
Company or any of its Subsidiaries by any “nationally recognized statistical rating organization”
as such term is defined for purposes of Rule 436 under the Securities Act.

     (d) Opinion of Outside Counsel for the Company. On the Closing Date the Initial Purchasers
shall have received an opinion letter from Vinson & Elkins L.L.P., counsel for the Company, dated
as of such Closing Date, the form of which is attached as Exhibit A.

     (e) Opinion of General Counsel of the Company. On the Closing Date the Initial Purchasers
shall have received an opinion letter from Douglas L. Lawing, Senior Vice President, General
Counsel and Secretary of the Company, dated as of such Closing Date, the form of which is attached
as Exhibit B.

     (f) Opinion of Counsel for the Initial Purchasers. On the Closing Date the Initial Purchasers
shall have received an opinion letter from Baker Botts L.L.P., counsel for the Initial Purchasers,
dated as of such Closing Date, with respect to such matters as may be reasonably requested by the
Initial Purchasers.

     (g) Officers’ Certificate. On the Closing Date the Initial Purchasers shall have received a
written certificate executed by an executive officer of each Copano Party who has specific
knowledge of such Copano Party’s financial matters and is satisfactory to the Initial Purchasers,
dated as of the Closing Date, to the effect set forth in Section 6(c) hereof, and further to the
effect that:

          (i) the representations, warranties and covenants of such entity set forth in Section 1 hereof
were true and correct as of the Time of Sale and are true and correct as of the Closing Date with
the same force and effect as though expressly made on and as of the Closing Date; and

          (ii) such entity has complied with all the agreements and satisfied all the conditions on its
part to be performed or satisfied at or prior to the Closing Date.

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     (h) Bring-Down Comfort Letter. On the Closing Date the Initial Purchasers shall have received
from each of Deloitte & Touche LLP and KPMG LLP a letter dated such date, in form and substance
satisfactory to the Initial Purchasers, to the effect that they reaffirm the statements made in the
respective letter furnished by them pursuant to Section 6(a) hereof, except that the specified date
referred to therein for the carrying out of procedures shall be no more than three business days
prior to the Closing Date and that their procedures shall extend to financial information in the
Offering Memorandum not contained in the Preliminary Offering Memorandum.

     (i) PORTAL Listing. At the Closing Date, the Notes shall have been designated for trading on
the PORTAL Market.

     (j) Registration Rights Agreement. The Copano Parties shall have entered into the Registration
Rights Agreement and the Initial Purchasers or their counsel shall have received executed
counterparts thereof.

     (k) Indenture. The Copano Parties and the Trustee shall have executed and delivered the
Indenture, and the Initial Purchasers or their counsel shall have received an executed counterpart
thereof, duly executed by the Copano Parties and the Trustee.

     (l) Additional Documents. On or before the Closing Date, the Initial Purchasers and counsel
for the Initial Purchasers shall have received such information, documents and opinions as they may
reasonably require for the purposes of enabling them to pass upon the issuance and sale of the
Securities as contemplated herein, or in order to evidence the accuracy of any of the
representations and warranties, or the satisfaction of any of the conditions or agreements, herein
contained.

     If any condition specified in this Section 6 is not satisfied when and as required to be
satisfied, this Agreement may be terminated by the Initial Purchasers by notice to the Company at
any time on or prior to the Closing Date, which termination shall be without liability on the part
of any party to any other party, except that Sections 5, 7, 9 and 10 hereof shall at all times be
effective and shall survive such termination.

     SECTION 7. Reimbursement of Initial Purchasers’ Expenses. If this Agreement is
terminated by the Initial Purchasers because any condition to the obligations of the Initial
Purchasers set forth in Section 6 is not satisfied, because of any termination pursuant to
Section 11(i) hereof, or because of any refusal, inability or failure on the part of any of the
Copano Parties to perform any agreement herein or to comply with any provision hereof other than by
reason of a default by any of the Initial Purchasers, then the Copano Parties agree to reimburse
the Initial Purchasers (or such Initial Purchasers as have terminated this Agreement with respect
to themselves), severally, upon demand for all out-of-pocket expenses that shall have been
reasonably incurred by the Initial Purchasers in connection with the proposed purchase and the
offering and sale of the Securities, including, without limitation, fees and disbursements of
counsel, printing expenses, travel expenses, postage, facsimile and telephone charges.

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     SECTION 8. Offer, Sale and Resale Procedures. Each of the Initial Purchasers, on the
one hand, and the Copano Parties, on the other hand, hereby agrees that they have observed and
will observe the following procedures in connection with the offer and sale of the Securities:

     (a) Offers and sales of the Securities will be made only by the Initial Purchasers or
Affiliates thereof qualified to do so in the jurisdictions in which such offers or sales are made.
Each such offer or sale shall only be made to persons whom the offeror or seller reasonably
believes to be Qualified Institutional Buyers or non-U.S. persons outside the United States to whom
the offeror or seller reasonably believes offers and sales of the Securities may be made in
reliance upon Regulation S upon the terms and conditions set forth in Annex II hereto, which Annex
II is hereby expressly made a part hereof.

     (b) The Securities will be offered by approaching prospective Subsequent Purchasers on an
individual basis. No general solicitation or general advertising (within the meaning of Rule 502
under the Securities Act) will be used in the United States in connection with the offering of the
Securities.

     (c) Upon original issuance by the Company, and until such time as the same is no longer
required under the applicable requirements of the Securities Act, the Notes (and all securities
issued in exchange therefor or in substitution thereof, other than the Exchange Notes) shall bear
the following legend and such other legends as the Initial Purchasers and their counsel shall deem
necessary:

“THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR ANY STATE SECURITIES LAWS. NEITHER THIS NOTE NOR ANY INTEREST
OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS
SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT. THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE WHICH IS ONE YEAR
AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH AN
ISSUER OR ANY AFFILIATE OF AN ISSUER WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR
OF THIS NOTE) (THE “RESALE RESTRICTION TERMINATION DATE”) ONLY (A) TO AN ISSUER OR
ANY SUBSIDIARY THEREOF, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO
RULE 144A UNDER THE SECURITIES ACT (“RULE 144A”), TO A PERSON IT REASONABLY BELIEVES
IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS
GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO
OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE

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MEANING OF REGULATION S UNDER THE SECURITIES ACT OR (E) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT TO THE ISSUERS’ AND THE TRUSTEE’S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER (i) PURSUANT TO CLAUSE (D) PRIOR TO THE END OF THE 40 DAY DISTRIBUTION
COMPLIANCE PERIOD WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT OR
PURSUANT TO CLAUSE (E) PRIOR TO THE RESALE RESTRICTION TERMINATION DATE TO REQUIRE
THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH OF THE FOREGOING CASES, TO REQUIRE
THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS NOTE IS COMPLETED AND
DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE
REQUEST OF A HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.”

     Following the sale of the Securities by the Initial Purchasers to Subsequent
Purchasers pursuant to the terms hereof, the Initial Purchasers shall not be liable or
responsible to the Company for any losses, damages or liabilities suffered or incurred by
the Company, including any losses, damages or liabilities under the Securities Act, arising
from or relating to any resale or transfer of any Security.

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     SECTION 9. Indemnification.

     (a) Indemnification of the Initial Purchasers. Each of the Copano Parties, jointly and
severally, agrees to indemnify and hold harmless each Initial Purchaser, its directors, officers
and employees, and each person, if any, who controls any Initial Purchaser within the meaning of
the Securities Act and the Exchange Act against any loss, claim, damage, liability or expense, as
incurred, to which such Initial Purchaser, director, officer, employee or controlling person may
become subject, under the Securities Act, the Exchange Act or other federal or state statutory law
or regulation, or at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Company), insofar as such loss, claim,
damage, liability or expense (or actions in respect thereof as contemplated below) arises out of or
is based upon any untrue statement or alleged untrue statement of a material fact contained in the
Preliminary Offering Memorandum, the Pricing Supplement, any Additional Written Communication or
the Offering Memorandum (or any amendment or supplement thereto), or the omission or alleged
omission therefrom of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; provided,
however, that the foregoing indemnity agreement shall not apply to any loss, claim, damage,
liability or expense to the extent, but only to the extent, arising out of or based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in reliance upon and in
conformity with written information furnished to the Company by the Initial Purchasers expressly
for use in the Preliminary Offering Memorandum, the Pricing Supplement, any Additional Written
Communication or the Offering Memorandum (or any amendment or supplement thereto). The indemnity
agreement set forth in this Section 9(a) shall be in addition to any liabilities that the Company
may otherwise have.

     (b) Indemnification of the Copano Parties. Each Initial Purchaser agrees, severally and not
jointly, to indemnify and hold harmless the Copano Parties, each of their respective directors and
each person, if any, who controls any of the Copano Parties within the meaning of the Securities
Act or the Exchange Act, against any loss, claim, damage, liability or expense, as incurred, to
which such Copano Party or any such director or controlling person may become subject, under the
Securities Act, the Exchange Act, or other federal or state statutory law or regulation, or at
common law or otherwise (including in settlement of any litigation, if such settlement is effected
with the written consent of such Initial Purchaser), insofar as such loss, claim, damage, liability
or expense (or actions in respect thereof as contemplated below) arises out of or is based upon any
untrue statement or alleged untrue statement of a material fact contained in the Preliminary
Offering Memorandum, the Pricing Supplement, any Additional Written Communication or the Offering
Memorandum (or any amendment or supplement thereto), or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission or alleged omission
was made in the Preliminary Offering Memorandum, the Pricing Supplement, any Additional Written
Communication or the Offering Memorandum (or any amendment or supplement thereto), in reliance upon
and in conformity with written information furnished to the Company by the Initial Purchasers
expressly for use therein; and to reimburse such Copano Party and each such director or controlling
person for any and all expenses (including the fees and disbursements of counsel) as such expenses
are reasonably incurred by such Copano Party or such director or controlling person in connection

24

 

with investigating, defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action. Each Copano Party hereby acknowledges that the only information that
the Initial Purchasers have furnished to the Company expressly for use in the Preliminary Offering
Memorandum, the Pricing Supplement, any Additional Written Communication or the Offering Memorandum
(or any amendment or supplement thereto) are the statements set forth in the first sentence of the
fourth paragraph, the third sentence of the twelfth paragraph and the thirteenth paragraph under
the caption “Plan of Distribution” in the Preliminary Offering Memorandum and the Offering
Memorandum. The indemnity agreement set forth in this Section 9(b) shall be in addition to any
liabilities that each Initial Purchaser may otherwise have.

     (c) Notifications and Other Indemnification Procedures. Promptly after receipt by an
indemnified party under this Section 9 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against an indemnifying party
under this Section 9, notify the indemnifying party in writing of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any liability which it may
have to any indemnified party for contribution or otherwise than under the indemnity agreement
contained in this Section 9 or to the extent it is not prejudiced as a proximate result of such
failure. In case any such action is brought against any indemnified party and such indemnified
party seeks or intends to seek indemnity from an indemnifying party, the indemnifying party will be
entitled to participate in and, to the extent that it shall elect, jointly with all other
indemnifying parties similarly notified, by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party; provided,
however, if the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded that a conflict may
arise between the positions of the indemnifying party and the indemnified party in conducting the
defense of any such action or that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to the indemnifying
party, the indemnified party or parties shall have the right to select separate counsel to assume
such legal defenses and to otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying party to such
indemnified party of such indemnifying party’s election so to assume the defense of such action and
approval by the indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 9 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the indemnified party
shall have employed separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel (together with local counsel), approved by the indemnifying party
(Banc of America Securities LLC in the case of Sections 9(b) and 10 hereof), representing the
indemnified parties who are parties to such action) or (ii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent the indemnified party within a
reasonable time after notice of commencement of the action, in each of which cases the fees and
expenses of counsel shall be at the expense of the indemnifying party.

     (d) Settlements. The indemnifying party under this Section 9 shall not be liable for any
settlement of any proceeding effected without its written consent, but if settled with such

25

 

consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party against any loss, claim, damage, liability or expense by reason of
such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified
party shall have requested an indemnifying party to reimburse the indemnified party for fees and
expenses of counsel as contemplated by this Section 9, the indemnifying party agrees that it shall
be liable for any settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than thirty (30) days after receipt by such indemnifying party of
the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified
party in accordance with such request or disputed in good faith the indemnified party’s entitlement
to such reimbursement prior to the date of such settlement. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement, compromise or consent to
the entry of judgment in any pending or threatened action, suit or proceeding in respect of which
any indemnified party is or could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise or consent (i) includes an
unconditional release of such indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding and (ii) does not include any statements as to, or any,
findings of fault, culpability or failure to act by or on behalf of any indemnified party.

     SECTION 10. Contribution. If the indemnification provided for in Section 9 hereof is
for any reason held to be unavailable to or otherwise insufficient to hold harmless an indemnified
party in respect of any losses, claims, damages, liabilities or expenses referred to therein, then
each indemnifying party shall contribute to the aggregate amount paid or payable by such
indemnified party, as incurred, as a result of any losses, claims, damages, liabilities or expenses
referred to therein (i) in such proportion as is appropriate to reflect the relative benefits
received by the Copano Parties, on the one hand, and the Initial Purchasers, on the other hand,
from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also the relative fault
of the Copano Parties, on the one hand, and the Initial Purchasers, on the other hand, in
connection with the statements or omissions or inaccuracies in the representations and warranties
herein which resulted in such losses, claims, damages, liabilities or expenses, as well as any
other relevant equitable considerations. The relative benefits received by the Copano Parties, on
the one hand, and the Initial Purchasers, on the other hand, in connection with the offering of the
Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as
the total net proceeds from the offering of the Securities pursuant to this Agreement (after
deducting discounts and commissions to the Initial Purchasers but before deducting expenses)
received by the Company, and the total purchase discounts and commissions received by the Initial
Purchasers bear to the aggregate initial offering price of the Securities. The relative fault of
the Copano Parties, on the one hand, and the Initial Purchasers, on the other hand, shall be
determined by reference to, among other things, whether any such untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact or any such inaccurate
or alleged inaccurate representation or warranty relates to information supplied by the Copano
Parties, on the one hand, or the Initial Purchasers, on the other hand, and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent such statement or
omission or inaccuracy.

26

 

     The amount paid or payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include, subject to the limitations set forth in
Section 9 hereof, any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim. The provisions set forth in
Section 9 hereof with respect to notice of commencement of any action shall apply if a claim for
contribution is to be made under this Section 10; provided, however, that no
additional notice shall be required with respect to any action for which notice has been given
under Section 9 hereof for purposes of indemnification.

     The Copano Parties and the Initial Purchasers agree that it would not be just and equitable if
contribution pursuant to this Section 10 were determined by pro rata allocation (even if the
Initial Purchasers were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred to in this
Section 10.

     Notwithstanding the provisions of this Section 10, no Initial Purchaser shall be required to
contribute any amount in excess of the discount and commission received by such Initial Purchaser
in connection with the Securities distributed by it. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent misrepresentation. The Initial
Purchasers’ obligations to contribute pursuant to this Section 10 are several, and not joint, in
proportion to their respective commitments as set forth opposite their names in Schedule B attached
hereto. For purposes of this Section 10, each director, officer and employee of an Initial
Purchaser and each person, if any, who controls an Initial Purchaser within the meaning of the
Securities Act and the Exchange Act shall have the same rights to contribution as such Initial
Purchaser, and each director of any of the Copano Parties, and each person, if any, who controls
any of the Copano Parties with the meaning of the Securities Act and the Exchange Act shall have
the same rights to contribution as the Copano Parties.

     SECTION 11. Termination of this Agreement. Prior to the Closing Date, this Agreement
may be terminated by the Initial Purchasers by notice given to the Company if at any time:
(i) trading or quotation in any of the Company’s securities shall have been suspended or limited by
the Commission or by The Nasdaq Stock Market LLC, or (ii) trading in securities generally on either
The Nasdaq Stock Market LLC or the New York Stock Exchange shall have been suspended or limited, or
minimum or maximum prices shall have been generally established on any of such quotation system or
stock exchange by the Commission, the Nasdaq Stock Market LLC or the New York Stock Exchange;
(iii) a general banking moratorium shall have been declared by any of federal, New York or Delaware
authorities; or (iv) there shall have occurred any outbreak or escalation of national or
international hostilities involving the United States or any crisis or calamity, or any change in
the United States or international financial markets, as in the judgment of the Initial Purchasers
is material and adverse and makes it impracticable or inadvisable to proceed with the offering,
sale or delivery of the Securities in the manner and on the terms described in the Offering
Memorandum or to enforce contracts for the sale of securities.

     SECTION 12. Representations and Indemnities to Survive Delivery. The respective
indemnities, agreements, representations, warranties and other statements of the Copano Parties,

27

 

their respective officers and the several Initial Purchasers set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any investigation made by or on
behalf of any Initial Purchaser, any Copano Party or any of their partners, officers or directors
or any controlling person, as the case may be, and will survive delivery of and payment for the
Securities sold hereunder and any termination of this Agreement.

     SECTION 13. Notices. All communications hereunder shall be in writing and shall be
mailed, hand delivered, couriered or facsimiled and confirmed to the parties hereto as follows:

If to the Initial Purchasers:

Banc of America Securities LLC

40 West 57th Street

New York, New York 10019

Facsimile: (212) 901-7897

Attention: Legal Department

with a copy to:

Baker Botts L.L.P.

One Shell Plaza

910 Louisiana Street

Houston, Texas 77002

Facsimile: (713) 229-2727

Attention: Joshua Davidson

If to any Copano Party:

Copano Energy, L.L.C.

2727 Allen Parkway, Suite 1200

Houston, Texas 77019

Facsimile: (713) 621-9545

Attention: Douglas L. Lawing

with a copy to:

Vinson & Elkins L.L.P.

2500 First City Tower

1001 Fannin Street

Houston, Texas 77002

Facsimile: (713) 615-5627

Attention: Jeffrey K. Malonson

     Any party hereto may change the address or facsimile number for receipt of communications by
giving written notice to the others.

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     SECTION 14. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto, including any substitute Initial Purchasers pursuant to Section 17 hereof,
and to the benefit of the indemnified parties referred to in Sections 9 and 10 hereof, and in each
case their respective successors, and no other person will have any right or obligation hereunder.
The term “successors” shall not include any Subsequent Purchaser or other purchaser of the
Securities as such from any of the Initial Purchasers merely by reason of such purchase.

     SECTION 15. Partial Unenforceability. The invalidity or unenforceability of any
section, paragraph or provision of this Agreement shall not affect the validity or enforceability
of any other section, paragraph or provision hereof. If any section, paragraph or provision of
this Agreement is for any reason determined to be invalid or unenforceable, then to the extent
practicable there shall be deemed to be made such minor changes (and only such minor changes) as
are necessary to make it valid and enforceable.

     SECTION 16. Governing Law Provisions. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS
MADE AND TO BE PERFORMED IN SUCH STATE WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES THEREOF.

     SECTION 17. Default of One or More of the Several Initial Purchasers. If any one or
more of the several Initial Purchasers shall fail or refuse to purchase Securities that it or they
have agreed to purchase hereunder on the Closing Date, and the aggregate number of Securities which
such defaulting Initial Purchaser or Initial Purchasers agreed but failed or refused to purchase
does not exceed 10% of the aggregate number of the Securities to be purchased on such date, the
other Initial Purchasers shall be obligated, severally, in the proportions that the number of
Securities set forth opposite their respective names on Schedule B bears to the aggregate number of
Securities set forth opposite the names of all such non-defaulting Initial Purchasers, or in such
other proportions as may be specified by the Initial Purchasers with the consent of the
non-defaulting Initial Purchasers, to purchase the Securities which such defaulting Initial
Purchaser or Initial Purchasers agreed but failed or refused to purchase on the Closing Date. If
any one or more of the Initial Purchasers shall fail or refuse to purchase Securities and the
aggregate number of Securities with respect to which such default occurs exceeds 10% of the
aggregate number of Securities to be purchased on the Closing Date, and arrangements satisfactory
to the Initial Purchasers and the Company for the purchase of such Securities are not made within
48 hours after such default, this Agreement shall terminate without liability of any party to any
other party except that the provisions of Sections 5, 7, 9 and 10 hereof shall at all times be
effective and shall survive such termination. In any such case either the Initial Purchasers or
the Company shall have the right to postpone the Closing Date, as the case may be, but in no event
for longer than seven days in order that the required changes, if any, to the Offering Memorandum
or any other documents or arrangements may be effected.

     As used in this Agreement, the term “Initial Purchaser” shall be deemed to include any person
substituted for a defaulting Initial Purchaser under this Section 17. Any action taken under this
Section 17 shall not relieve any defaulting Initial Purchaser from liability in respect of any
default of such Initial Purchaser under this Agreement.

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     SECTION 18. No Advisory or Fiduciary Responsibility. Each of the Copano Parties
acknowledges and agrees that: (i) the purchase and sale of the Securities pursuant to this
Agreement, including the determination of the offering price of the Securities and any related
discounts and commissions, is an arm’s-length commercial transaction between the Copano Parties, on
the one hand, and the several Initial Purchasers, on the other hand, and the Copano Parties are
capable of evaluating and understanding and understand and accept the terms, risks and conditions
of the transactions contemplated by this Agreement; (ii) in connection with each transaction
contemplated hereby and the process leading to such transaction each Initial Purchaser is and has
been acting solely as a principal and is not the agent or fiduciary of any of the Copano Parties or
their respective affiliates, stockholders, creditors or employees or any other party; (iii) no
Initial Purchaser has assumed or will assume an advisory or fiduciary responsibility in favor of
any Copano Party with respect to any of the transactions contemplated hereby or the process leading
thereto (irrespective of whether such Initial Purchaser has advised or is currently advising any
Copano Party on other matters) or any other obligation to any Copano Party except the obligations
expressly set forth in this Agreement; (iv) the several Initial Purchasers and their respective
affiliates may be engaged in a broad range of transactions that involve interests that differ from
those of the Copano Parties and that the several Initial Purchasers have no obligation to disclose
any of such interests by virtue of any fiduciary or advisory relationship; and (v) the Initial
Purchasers have not provided any legal, accounting, regulatory or tax advice with respect to the
offering contemplated hereby and the Copano Parties have consulted their own legal, accounting,
regulatory and tax advisors to the extent they deemed appropriate.

     This Agreement supersedes all prior agreements and understandings (whether written or oral)
among the Copano Parties and the several Initial Purchasers, or any of them, with respect to the
subject matter hereof. The Copano Parties hereby waive and release, to the fullest extent
permitted by law, any claims that any Copano Party may have against the several Initial Purchasers
with respect to any breach or alleged breach of fiduciary duty.

     SECTION 19. General Provisions. This Agreement constitutes the entire agreement of
the parties to this Agreement and supersedes all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations with respect to the subject matter hereof. This
Agreement may be executed in two or more counterparts, each one of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same instrument. For purposes
of this Agreement, (i) “business day” means any day on which the New York Stock Exchange, Inc. is
open for trading and (ii) “subsidiary” has the meaning set forth in Rule 405 of the rules and
regulations under the Securities Act.

     This Agreement may not be amended or modified unless in writing by all of the parties hereto,
and no condition herein (express or implied) may be waived unless waived in writing by each party
whom the condition is meant to benefit. The section headings herein are for the convenience of the
parties only and shall not affect the construction or interpretation of this Agreement.

[Signature pages follow.]

30

 

     If the foregoing is in accordance with your understanding of our agreement, kindly sign and
return to the Company the enclosed copies hereof, whereupon this instrument, along with all
counterparts hereof, shall become a binding agreement in accordance with its terms.

	 	 	 	 	 	 	 	 	 
	 	 	Very truly yours,	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Copano Energy, L.L.C.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By	 	/s/ Matthew J. Assiff 	 	 
	 

	 	 	 	 	 	 

Matthew J. Assiff
	 	 
	 

	 	 	 	 	 	Senior Vice President and	 	 
	 

	 	 	 	 	 	Chief Financial Officer	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Copano Energy Finance Corporation	 	 
	 
	 
	 	 	 	By	 	/s/ Matthew J. Assiff 	 	 
	 

	 	 	 	
	 	 

Matthew J. Assiff
	 	 
	 

	 	 	 	 	 	Senior Vice President and	 	 
	 

	 	 	 	 	 	Chief Financial Officer	 	 

SIGNATURE PAGE TO PURCHASE AGREEMENT

 

 

	 	 	 	 	 	 	 	 	 
	 	 	Guarantors	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	Scissortail Energy, LLC	 	 
	 	 	 	 	Copano Processing GP, L.L.C.	 	 
	 	 	 	 	Copano NGL Services GP, L.L.C.	 	 
	 	 	 	 	Copano Field Services GP, L.L.C.	 	 
	 	 	 	 	Copano Pipelines GP, L.L.C.	 	 
	 	 	 	 	Copano Pipelines (Texas) GP, L.L.C.	 	 
	 	 	 	 	Copano Energy Services GP, L.L.C.	 	 
	 	 	 	 	Copano Energy Services (Texas) GP, L.L.C.	 	 
	 	 	 	 	Copano Field Services/Central Gulf Coast GP, L.L.C.	 	 
	 	 	 	 	Copano/Webb-Duval Pipeline GP, L.L.C.	 	 
	 	 	 	 	CPNO Services GP, L.L.C.	 	 
	 	 	 	 	Nueces Gathering, L.L.C.	 	 
	 	 	 	 	Estes Cove Facilities, L.L.C.	 	 
	 	 	 	 	Copano/Red River Gathering GP, L.L.C.	 	 
	 	 	 	 	Copano Natural Gas/Rocky Mountains, LLC 	 	 
	 	 	 	 	Copano Pipelines/Rocky Mountains, LLC	 	 
	 	 	 	 	Copano Field Services/Rocky Mountains, LLC	 	 
	 	 	 	 	Cantera Gas Company, LLC	 	 
	 	 	 	 	Copano Processing/Louisiana, LLC	 	 
	 	 	 	 	CMW Energy Services, L.L.C.	 	 
	 	 	 	 	Greenwood Gathering, L.L.C.	 	 
	 	 	 	 	Copano Energy/Rocky Mountains, L.L.C.	 	 
	 	 	 	 	Copano Energy/Mid-Continent, L.L.C. 	 	 
	 	 	 	 	Copano Field Services/North Texas, L.L.C.	 	 
	 	 	 	 	ACP Texas, L.L.C.	 	 
	 	 	 	 	Alamo Creek Properties, L.L.C.	 	 
	 	 	 	 	River View Pipelines, L.L.C.	 	 
	 
	 
	 	 	 	By	 	/s/ Matthew J. Assiff 	 	 
	 

	 	 	 	
	 	 

Matthew J. Assiff
	 	 
	 

	 	 	 	 	 	Senior Vice President and	 	 
	 

	 	 	 	 	 	Chief Financial Officer	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	Copano Processing, L.P.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	Copano Processing GP, L.L.C.,	 	 
	 

	 	 	 	 	 	General Partner	 	 
	 
	 
	 
	 	 	 	By	 	/s/ Matthew J. Assiff 	 	 
	 

	 	 	 	
	 	 

Matthew J. Assiff
	 	 
	 

	 	 	 	 	 	Senior Vice President and	 	 
	 

	 	 	 	 	 	Chief Financial Officer	 	 

SIGNATURE PAGE TO PURCHASE AGREEMENT

 

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	Copano NGL Services, L.P.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	Copano NGL Services GP, L.L.C.,

General Partner	 	 
	 
	 
	 	 	 	By	 	/s/ Matthew J. Assiff 	 	 
	 

	 	 	 	
	 	 

Matthew J. Assiff
	 	 
	 

	 	 	 	 	 	Senior Vice President and	 	 
	 

	 	 	 	 	 	Chief Financial Officer	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	Copano Houston Central, L.L.C.	 	 
	 	 	 	 	CHC LP Holdings, L.L.C.	 	 
	 	 	 	 	Copano Pipelines Group, L.L.C.	 	 
	 	 	 	 	Copano General Partners, Inc.	 	 
	 	 	 	 	CPG LP Holdings, L.L.C.	 	 
	 	 	 	 	CWDPL LP Holdings, L.L.C.	 	 
	 	 	 	 	CPNO Services LP Holdings, L.L.C.	 	 
	 	 	 	 	Copano Red/River Gathering LP 	 	 
	 	 	 	 	Holdings, L.L.C.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	/s/ Amy Stengel 	 	 
	 

	 	 	 	 	 	 

Amy Stengel
	 	 
	 

	 	 	 	 	 	Vice President	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	Copano Field Services/Aqua Dulce, L.P.	 	 
	 	 	 	 	Copano Field Services/Copano Bay, L.P.	 	 
	 	 	 	 	Copano Field Services/Karnes, L.P.	 	 
	 	 	 	 	Copano Field Services/Live Oak, L.P.	 	 
	 	 	 	 	Copano Field Services/South Texas, L.P.	 	 
	 	 	 	 	Copano Field Services/Upper Gulf Coast, L.P.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	Copano Field Services GP, L.LC.,	 	 
	 

	 	 	 	 	 	General Partner	 	 
	 
	 
	 
	 	 	 	By	 	/s/ Matthew J. Assiff 	 	 
	 

	 	 	 	
	 	 

Matthew J. Assiff
	 	 
	 

	 	 	 	 	 	Senior Vice President and	 	 
	 

	 	 	 	 	 	Chief Financial Officer	 	 

SIGNATURE PAGE TO PURCHASE AGREEMENT

 

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	Copano Pipelines/Hebbronville, L.P.	 	 
	 	 	 	 	Copano Pipelines/South Texas, L.P.	 	 
	 	 	 	 	Copano Pipelines/Upper Gulf Coast, L.P.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	Copano Pipelines GP, L.L.C.,	 	 
	 

	 	 	 	 	 	 General Partner	 	 
	 
	 
	 	 	 	By	 	/s/ Matthew J. Assiff 	 	 
	 

	 	 	 	
	 	 

Matthew J. Assiff
	 	 
	 

	 	 	 	 	 	Senior Vice President and	 	 
	 

	 	 	 	 	 	Chief Financial Officer	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	Copano Pipelines/Texas Gulf Coast, L.P.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	Copano Pipelines (Texas) GP, 	 	 
	 

	 	 	 	 	 	L.L.C., General Partner	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 
	 	 	 	By	 	/s/ Matthew J. Assiff 	 	 
	 

	 	 	 	
	 	 

Matthew J. Assiff
	 	 
	 

	 	 	 	 	 	Senior Vice President and	 	 
	 

	 	 	 	 	 	Chief Financial Officer	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	Copano Field Services/Central Gulf Coast,
L.P.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	Copano Field Services/Central 	 	 
	 

	 	 	 	 	 	Gulf Coast GP, L.L.C., General	 	 
	 

	 	 	 	 	 	Partner	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 
	 	 	 	By	 	/s/ Matthew J. Assiff 	 	 
	 

	 	 	 	
	 	 

Matthew J. Assiff
	 	 
	 

	 	 	 	 	 	Senior Vice President and	 	 
	 

	 	 	 	 	 	Chief Financial Officer	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	Copano Energy Services/Upper Gulf Coast, L.P.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	Copano Energy Services GP, 	 	 
	 

	 	 	 	 	 	L.L.C., General Partner	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 
	 	 	 	By	 	/s/ Matthew J. Assiff 	 	 
	 

	 	 	 	
	 	 

Matthew J. Assiff
	 	 
	 

	 	 	 	 	 	Senior Vice President and	 	 
	 

	 	 	 	 	 	Chief Financial Officer	 	 

SIGNATURE PAGE TO PURCHASE AGREEMENT

 

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	Copano Energy Services/Texas Gulf Coast,
L.P.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	Copano Energy Services (Texas)	 	 
	 

	 	 	 	 	 	 GP, L.L.C., General Partner	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	/s/ Matthew J. Assiff 	 	 
	 

	 	 	 	 	 	 

Matthew J. Assiff
	 	 
	 

	 	 	 	 	 	Senior Vice President and	 	 
	 

	 	 	 	 	 	Chief Financial Officer	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	Copano/Webb-Duval Pipeline, L.P.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	Copano/Webb-Duval Pipeline GP, 	 	 
	 

	 	 	 	 	 	L.L.C., General Partner	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	/s/ Matthew J. Assiff 	 	 
	 

	 	 	 	 	 	 

Matthew J. Assiff
	 	 
	 

	 	 	 	 	 	Senior Vice President and Chief	 	 
	 

	 	 	 	 	 	Financial Officer	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	CPNO Services, L.P.
	 	 
	 	 	 	 	Copano Risk Management, L.P.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	CPNO Services GP, L.L.C.,	 	 
	 

	 	 	 	 	 	General Partner	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	/s/ Matthew J. Assiff 	 	 
	 

	 	 	 	 	 	 

Matthew J. Assiff
	 	 
	 

	 	 	 	 	 	Senior Vice President and	 	 
	 

	 	 	 	 	 	Chief Financial Officer	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	Cimmarron Gathering, LP	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	Copano/Red River Gathering GP, 	 	 
	 

	 	 	 	 	 	L.L.C., General Partner	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 
	 	 	 	By	 	/s/ Matthew J. Assiff 	 	 
	 

	 	 	 	
	 	 

Matthew J. Assiff
	 	 
	 

	 	 	 	 	 	Senior Vice President and	 	 
	 

	 	 	 	 	 	Chief Financial Officer	 	 

SIGNATURE PAGE TO PURCHASE AGREEMENT

 

 

     The foregoing Purchase Agreement is hereby confirmed and accepted by the Initial Purchasers as
of the date first above written.

BANC OF AMERICA SECURITIES LLC

J.P. MORGAN SECURITIES INC.

CREDIT SUISSE SECURITIES (USA) LLC

DEUTSCHE BANK SECURITIES INC.

RBC CAPITAL MARKETS CORPORATION

SUNTRUST ROBINSON HUMPHREY, INC.

By: Banc of America Securities LLC

	 	 	 	 	 
	By:
	 	/s/ Lex Maultsby 	 	 
	 

	 	 

Managing Director
	 	 

SIGNATURE PAGE TO PURCHASE AGREEMENT

 

 

SCHEDULE A

Guarantors

	 	 	 
	 	 	Jurisdiction of
	Name	 	Formation
	Copano Pipelines Group, L.L.C.

	 	Delaware
	Copano Houston Central, L.L.C.

	 	Delaware
	Copano Energy/Mid-Continent, L.L.C.

	 	Delaware
	ScissorTail Energy, LLC

	 	Delaware
	Copano Field Services/Copano Bay, L.P.

	 	Texas
	Copano Field Services/South Texas, L.P.

	 	Texas
	Copano Field Services/Agua Dulce, L.P.

	 	Texas
	Copano Field Services/Central Gulf Coast, L.P.

	 	Texas
	Copano Field Services/Karnes, L.P.

	 	Texas
	Copano Field Services/Upper Gulf Coast, L.P.

	 	Texas
	Copano Field Services/Live Oak, L.P.

	 	Texas
	Copano Pipelines/South Texas, L.P.

	 	Texas
	Copano Pipelines/Upper Gulf Coast, L.P.

	 	Texas
	Copano Pipelines/Hebbronville, L.P.

	 	Texas
	Copano Pipelines/Texas Gulf Coast, L.P.

	 	Texas
	Copano Energy Services/Upper Gulf Coast, L.P.

	 	Texas
	Copano Energy Services/Texas Gulf Coast, L.P.

	 	Texas
	Copano NGL Services, L.P.

	 	Texas
	Copano Processing, L.P.

	 	Texas
	Copano/Webb-Duval Pipeline, L.P.

	 	Delaware
	CPNO Services, L.P.

	 	Texas
	Copano Risk Management, L.P.

	 	Texas
	Copano Processing GP, L.L.C.

	 	Delaware
	Copano NGL Services GP, L.L.C.

	 	Delaware
	Copano Field Services GP, L.L.C.

	 	Delaware
	Copano Pipelines GP, L.L.C.

	 	Delaware
	Copano Pipelines (Texas) GP, L.L.C.

	 	Delaware
	Copano Energy Services GP, L.L.C.

	 	Delaware
	Copano Energy Services (Texas) GP, L.L.C.

	 	Delaware
	Copano Field Services/Central Gulf Coast GP, L.L.C.

	 	Delaware
	Copano/Webb-Duval Pipeline GP, L.L.C.

	 	Delaware
	CHC LP Holdings, L.L.C.

	 	Delaware
	CPG LP Holdings, L.L.C.

	 	Delaware
	CWDPL LP Holdings, L.L.C.

	 	Delaware
	CPNO Services LP Holdings, L.L.C.

	 	Delaware
	CPNO Services GP, L.L.C.

	 	Delaware
	Nueces Gathering, L.L.C.

	 	Texas
	Estes Cove Facilities, L.L.C.

	 	Texas
	Copano General Partners, Inc.

	 	Delaware
	Cimmarron Gathering, LP

	 	Texas

Schedule A -1

 

	 	 	 
	 	 	Jurisdiction of
	Name	 	Formation
	CMW Energy Services, L.L.C.

	 	Delaware
	Greenwood Gathering, L.L.C.

	 	Delaware
	Cantera Gas Company LLC

	 	Delaware
	Copano Processing/Louisiana, LLC

	 	Oklahoma
	Copano Pipelines/Rocky Mountains, LLC

	 	Delaware
	Copano Natural Gas/Rocky Mountains, LLC

	 	Delaware
	Copano Energy/Rocky Mountains, L.L.C.

	 	Delaware
	Copano/Red River Gathering GP, L.L.C.

	 	Delaware
	Copano/Red River Gathering LP Holdings, L.L.C.

	 	Delaware
	ACP Texas, L.L.C.

	 	Delaware
	Alamo Creek Properties, L.L.C.

	 	Delaware
	River View Pipelines, L.L.C.

	 	Delaware
	Copano Field Services/North Texas, L.L.C.

	 	Delaware
	Copano Field Services/Rocky Mountains, LLC

	 	Delaware

Schedule A - 2

 

SCHEDULE B

	 	 	 	 	 
	 	 	Aggregate Principal	 
	 	 	Amount of	 
	 	 	Securities	 
	           Initial Purchasers	 	to be Purchased	 
	Banc of America Securities LLC
	 	$	112,500,000	 
	J.P. Morgan Securities Inc.
	 	 	97,500,000	 
	Credit Suisse Securities (USA) LLC
	 	 	22,500,000	 
	Deutsche Bank Securities Inc.
	 	 	22,500,000	 
	RBC Capital Markets Corporation
	 	 	22,500,000	 
	SunTrust Robinson Humphrey, Inc.
	 	 	22,500,000	 
	 
	 	 	 
	Total
	 	$	300,000,000	 
	 
	 	 	 

Schedule B - 1

 

EXHIBIT A

Opinion of Vinson & Elkins L.L.P.

     (a) Formation and Qualification of Copano Group. Each of (i) Copano Energy, L.L.C., a
Delaware limited liability company (the “Company”), (ii), Copano Energy Finance Corporation, a
Delaware corporation (“FinCo”), (iii) Copano Pipelines Group, L.L.C., a Delaware limited liability
company (“CPG”), (iii) Copano/Webb-Duval Pipeline GP, L.L.C., a Delaware limited liability company
(“CWDPL”), (iv) CWDPL LP Holdings, L.L.C., a Delaware limited liability company (“CWDPL Holdings”),
(v) Copano Houston Central, L.L.C., a Delaware limited liability company (“CHC”), (vi) Copano
Energy/Mid-Continent, L.L.C., a Delaware limited liability company (“Mid-Continent”), and (vii)
Copano Energy/Rocky Mountains, L.L.C., a Delaware limited liability company (“Rocky Mountains”)
(the Company, FinCo, CPG, CHC, CWDPL, CWDPL Holdings, Mid-Continent and Rocky Mountains, the
“Copano Group”), has been duly formed and is validly existing as a limited liability company or
corporation, as the case may be, in good standing under the laws of its jurisdiction of formation
with all limited liability company or corporate, as the case may be, power and authority necessary
to own or lease its properties and to conduct its business, in each case in all material respects
as described in the Pricing Disclosure Package and the Offering Memorandum. Each member of the
Copano Group is duly registered or qualified to do business and is in good standing as a foreign
limited liability company or corporation, as the case may be, in each jurisdiction set forth under
its name on Appendix 1 to this opinion letter.

     (b) Ownership of the Copano Group. Except as described in the Pricing Disclosure
Package and the Offering Memorandum, the Company owns (i) 100% of the capital stock of FinCo and
(ii) 100% of the limited liability company interests of each CPG, CHC, CWDPL, CWDPL Holdings,
Mid-Continent and Rocky Mountains. All such limited liability company interests (including the
units representing common limited liability company interests in the Company) or capital stock, as
the case may be, has been duly authorized and validly issued in accordance with the applicable
certificates of incorporation or organization, bylaws or limited liability company agreements, as
the case may be, of the Copano Group (the “Copano Group Operating Agreements”) and are fully paid
(to the extent required under the applicable Copano Group Operating Agreement) and non-assessable
(except as such nonassessability may be affected by Section 18-607 of the Delaware LLC Act); and
all such interests are owned free and clear of all liens, encumbrances (except restrictions on
transferability as described in the Pricing Disclosure Package and the Offering Memorandum),
security interests, equities, charges and other claims (other than those arising under the Credit
Agreement, the Fort Union Credit Agreement or the CMS Note) (i) in respect of which a financing
statement under the Uniform Commercial Code of the State of Delaware naming the Company is on file
as of a recent date in the office of the Secretary of State of the State of Delaware or
(ii) otherwise known to such counsel, without independent investigation, other than those created
by or arising under the Delaware General Corporation Law (the “DGCL”) or the Delaware LLC Act.

     (c) Authorization, Execution and Delivery of Agreement. This Agreement has been duly
authorized and validly executed and delivered by each of the Copano Parties.

Exhibit A - 1

 

     (d) Other Enforceability Matters.

          (i) The Indenture has been duly authorized and validly executed and delivered by each of the
Copano Parties and (assuming the due authorization and valid execution and delivery thereof by the
Trustee) is a valid and legally binding agreement of each of the Copano Parties, enforceable
against each of them in accordance with its terms; provided that the enforceability thereof
may be limited by (A) applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or similar laws from time to time in effect relating to or affecting creditors’ rights
and remedies generally and by general principles of equity (regardless of whether such principles
are considered in a proceeding in equity or at law) and (B) public policy, applicable law relating
to fiduciary duties and indemnification and contribution and an implied covenant of good faith and
fair dealing.

          (ii) The Notes and the Guarantees have been duly authorized and validly executed by each of
the Copano Parties, and, when duly authenticated by the Trustee in the manner provided for in the
Indenture and delivered to and paid for by the Initial Purchasers under the Purchase Agreement,
will constitute valid and binding obligations of the Copano Parties entitled to the benefits of the
Indenture, enforceable against them in accordance with their respective terms, except as
enforcement thereof may be limited by (A) applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or similar laws from time to time in effect relating to or affecting
creditors’ rights and remedies generally and by general principles of equity (regardless of whether
such principles are considered in a proceeding in equity or at law) and (B) public policy,
applicable law relating to fiduciary duties and indemnification and contribution and an implied
covenant of good faith and fair dealing.

          (iii) The Exchange Notes and the Exchange Guarantees have been duly authorized by Issuers and
the Guarantors, respectively, and, when the Exchange Notes have been validly issued and duly
authenticated in accordance with the terms of the Indenture, the Registration Rights Agreement and
the Exchange Offer, the Exchange Notes and the Exchange Guarantees will have been validly executed
and will constitute valid and binding obligations of the Issuers and the Guarantors, respectively,
entitled to the benefits of the Indenture, enforceable against them in accordance with their
respective terms, except as enforcement thereof may be limited by (A) applicable bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium or similar laws from time to time in
effect relating to or affecting creditors’ rights and remedies generally and by general principles
of equity (regardless of whether such principles are considered in a proceeding in equity or at
law) and (B) public policy, applicable law relating to fiduciary duties and indemnification and
contribution and an implied covenant of good faith and fair dealing.

          (iv) The Registration Rights Agreement has been duly authorized and validly executed and
delivered by each of the Copano Parties, and (assuming the valid execution and delivery thereof by
the Initial Purchasers) is a valid and legally binding agreement of each of the Copano Parties,
enforceable against each of them in accordance with its terms; provided that the
enforceability thereof may be limited by (A) applicable bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium or similar laws from time to time in effect relating to or
affecting creditors’ rights and remedies generally and by general principles of equity (regardless
of whether such principles are considered in a proceeding in equity or at law) and (B) public
policy, applicable law relating to fiduciary duties and indemnification and contribution and
an implied covenant of good faith and fair dealing.

Exhibit A - 2

 

     (e) No Conflicts. None of the offering, issuance and sale of the Notes and the
Guarantees, the execution, delivery and performance of the Notes, the Guarantees, the Exchange
Notes, the Exchange Guarantees, the Indenture, the Registration Rights Agreement, and this
Agreement or the consummation of the transactions contemplated hereby or thereby will conflict with
or result in a breach or violation (and no event has occurred that, with notice or lapse of time or
otherwise, would constitute such an event) or imposition of any lien, charge or encumbrance upon
any property or assets of the Copano Group pursuant to (i) the Copano Group Operating Agreements,
(ii) any other agreement, lease or other instrument filed or incorporated by reference as an
exhibit to the Company’s annual report on Form 10-K for the year ended December 31, 2007, quarterly
report on Form 10-Q for the quarter ended March 31, 2008 or any applicable current report on Form
8-K filed with the Commission since the date of filing of the most recent Form 10-K (other than
liens created under the Credit Agreement) or (iii) the Delaware LLC Act, the DGCL or federal law,
which breaches, violations, defaults or liens, in the case of clause (ii) or (iii), would
reasonably be expected to have a Material Adverse Effect; provided, however, that
no opinion is expressed pursuant to this paragraph with respect to federal or state securities laws
or other anti-fraud laws.

     (f) No Consents. No consent, approval, authorization or order of, or filing or
registration with, any court or governmental agency or body having jurisdiction over any of the
Copano Parties or any of their respective properties is required in connection with the offering,
issuance and sale by the Copano Parties of the Notes and the Guarantees in the manner contemplated
in this Agreement or in the Offering Memorandum, the execution, delivery and performance of this
Agreement, the Indenture and the Registration Rights Agreement by the Copano Parties and the
consummation by the Copano Parties of the transactions contemplated hereby and thereby, except (i)
with respect to the purchase and resale of the Notes by the Initial Purchasers, under applicable
state securities or “Blue Sky” laws, (ii) with respect to the Exchange Notes, as may be required
under the Securities Act and applicable state securities laws pursuant to the Registration Rights
Agreement, (iii) with respect to the Trustee and the Indenture in respect of the Exchange Notes and
Exchange Guarantees, as may be required under the Trust Indenture Act, as to which we express no
opinion, (iv) for such consents as have been obtained or made, (v) for such consents that, if not
obtained, would not, individually or in the aggregate, have a Material Adverse Effect or (vi) as
disclosed in the Pricing Disclosure Package and the Offering Memorandum.

     (g) Descriptions and Summaries. The statements included or incorporated by reference
in the Preliminary Offering Memorandum and the Offering Memorandum (i) under the captions “The
Offering” (excluding Use of Proceeds) and “Description of Notes,” insofar as they purport to
constitute summaries of the terms of the Securities, the Indenture and the Registration Rights
Agreement, are accurate in all material respects and (ii) under the captions “Business—Regulation,”
“Business—Environmental, Health and Safety Matters,” “Certain United States Federal Income Tax
Considerations,” “Certain Relationships and Related Parties” and “Description of Other
Indebtedness,” insofar as such statements or descriptions constitute descriptions of contracts or
refer to statements of law or legal conclusions, are accurate in all material respects.

Exhibit A - 3

 

     (h) Legal Proceedings. To the knowledge of such counsel, except as described in the
Pricing Disclosure Package, the Offering Memorandum or the documents incorporated by reference
therewith, there are no legal or governmental proceedings pending or threatened to which any of the
Copano Parties is a party or to which the business or property of any of the Copano Parties is
subject that is reasonably likely to, individually or in the aggregate, have a Material Adverse
Effect.

     (i) Investment Company. None of the Copano Parties is (i) an “investment company” as
such term is defined in the Investment Company Act of 1940, as amended.

     (j) Registration and Qualification. Assuming the accuracy of the representations and
warranties and compliance with the agreements contained in this Agreement, no registration of the
Securities under the Securities Act, and no qualification of an indenture under the Trust Indenture
Act, are required for the offer and sale by the Initial Purchasers of the Securities in the manner
contemplated by this Agreement.

     In addition, such counsel shall state that they have participated in conferences with officers
and other representatives of the Copano Parties, representatives of the registered independent
public accounting firms for the Company and representatives of and counsel to the Initial
Purchasers at which the contents of the Pricing Disclosure Package, the Offering Memorandum and
related matters were discussed, and although such counsel did not independently verify, is not
passing upon and does not assume any responsibility for the accuracy, completeness or fairness of
the statements contained in the Pricing Disclosure Package or the Offering Memorandum (except to
the extent specified in paragraph (h) above), on the basis of the foregoing, no facts have come to
the attention of such counsel that lead them to believe that the Pricing Disclosure Package as of
the Time of Sale or the Offering Memorandum as of its date and as of the Closing Date (in each case
other than (i)  financial statements included or incorporated by reference therein, including the
notes and schedules thereto and auditors’ reports thereon and (ii) the other financial data
included or incorporated by reference therein, as to which such counsel need express no belief)
contained or contains an untrue statement of a material fact or omitted or omits to state a
material fact necessary to make the statements therein, in the light of the circumstances under
which they were made, not misleading.

     In rendering such opinion, such counsel may (A) rely in respect of matters of fact upon
certificates of officers and employees of the Copano Parties and upon information obtained from
public officials, (B) assume that all documents submitted to them as originals are authentic, that
all copies submitted to them conform to the originals thereof, and that the signatures on all
documents examined by them are genuine, (C) state that their opinion is limited to federal laws,
the Delaware LLC Act, the DGCL and the laws of the State of New York (D) with respect to the
opinions expressed in paragraph (a) above as to the due qualification or registration as a foreign
corporation or limited liability company, as the case may be, of the Copano Group, state that such
opinions are based upon certificates of foreign qualification or registration provided by the
Secretary of State of the states listed on Appendix 1 (each of which will be dated not more than
fourteen days prior to such Closing Date, as the case may be, and shall be provided to the Initial
Purchasers), (E) state that they express no opinion with respect to any permits to own or operate
any real or personal property, (F) state that they express no opinion with respect to the accuracy
or descriptions of real or personal property and (G) state that they express no opinion with

Exhibit A - 4

 

respect to state or local taxes or tax statutes to which any of the members of the Company or
any of the Copano Parties may be subject.

[Insert Appendix 1 listing foreign qualifications of the Copano Group]

Exhibit A - 5

 

EXHIBIT B

Opinion of Douglas L. Lawing

     (a) Formation and Qualification of the Subsidiaries. Each of the subsidiaries listed
in Appendix 1 (the “Subsidiaries”) to this opinion letter has been duly formed and is
validly existing as a limited partnership, limited liability company or corporation, as the case
may be, in good standing under the laws of its jurisdiction of formation and with all limited
partnership, limited liability company or corporate, as the case may be, power and authority
necessary to own or lease its properties and to conduct its business, in each case in all material
respects as described in the Pricing Disclosure Package and the Offering Memorandum. Each
Subsidiary is duly registered or qualified to do business and is in good standing as a foreign
limited partnership, limited liability company or corporation, as the case may be, in each
jurisdiction set forth under its name on Appendix 1 to this opinion letter.

     (b) Ownership of the Subsidiaries. The Company directly or indirectly owns of record
100% of the limited liability company interests, limited partnership interests or capital stock, as
the case may be, of each of the Subsidiaries (excluding (i) Webb/Duval Gatherers, a Texas general
partnership (“Webb/Duval”), as to which the Company owns a 62.5% partnership interest, (ii)
Southern Dome L.L.C., a Delaware limited liability company (“Southern Dome”), as to which the
Company owns a majority limited liability company interest, (iii) Bighorn Gas Gathering L.L.C., a
Delaware limited liability company (“Bighorn”), as to which the Company owns a 51% membership
interest, and (iv) Fort Union Gas Gathering, L.L.C., a Delaware limited liability company (“Fort
Union”), as to which the Company owns a 37.04% membership interest) . All such limited liability
company interests, limited partnership interests or capital stock, as the case may be, has been
duly authorized and validly issued in accordance with the limited liability company agreements,
limited partnership agreements or articles of incorporation and bylaws, as the case may be, of such
entity and are fully paid (to the extent required under their respective limited liability company
agreements or limited partnership agreements) and non-assessable (except as such nonassessability
may be affected by: (A) Section 18-607 of the Delaware LLC Act, in the case of a Delaware limited
liability company, (B) Section 17-607 of the Delaware LP Act, in the case of a Delaware limited
partnership, or (C) or Sections 3.03, 5.02 and 6.07 of the Texas LP Act, in the case of a Texas
limited partnership); and all such interests are owned free and clear of all liens, encumbrances
(except restrictions on transferability as described in the Pricing Disclosure Package and the
Offering Memorandum or, in the case of Webb/Duval, Southern Dome, Bighorn and Fort Union, as set
forth in its partnership agreement or limited liability agreement, as the case may be), security
interests, equities, charges and other claims (other than those arising under the Credit Agreement,
the Fort Union Credit Agreement or the CMS Note).

     (c) No Conflicts. None of the offering, issuance and sale of the Notes and the
Guarantees, the execution, delivery and performance of the Notes, the Guarantees, the Exchange
Notes, the Exchange Guarantees, the Indenture, the Registration Rights Agreement and this Agreement
or the consummation of the transactions contemplated hereby or thereby will conflict with or result
in a breach or violation (and no event has occurred that, with notice or lapse of time or
otherwise, would constitute such an event) or imposition of any lien, charge or encumbrance upon
any property or assets of any of the Subsidiaries pursuant to (i) the applicable

Exhibit B - 1

 

Operating Agreement of any of the Subsidiaries, (ii) any other agreement, lease or other
instrument known to such counsel (other than those filed or incorporated by reference as an exhibit
to the Company’s annual report on Form 10-K for the year ended December 31, 2007, quarterly report
on Form 10-Q for the quarter ended March 31, 2008 or any applicable current report on Form 8-K
filed with the Commission since the date of filing of the most recent Form 10-K, the Fort Union
Credit Agreement or the CMS Note) (other than liens created under the Credit Agreement) or (iii) to
the knowledge of such counsel, any order, judgment, decree or injunction of any federal, Texas or
Delaware court or government agency or body having jurisdiction over any of the Subsidiaries or any
of their properties in a proceeding to which any of them or their property is a party, which
breaches, violations, defaults or liens, in the case of clause (ii) or (iii), would reasonably be
expected to have a Material Adverse Effect; provided, however, that no opinion is expressed
pursuant to this paragraph (c) with respect to federal or state securities laws or other anti-fraud
laws.

     In addition, such counsel shall state that he has participated in conferences with officers
and other representatives of the Copano Parties, representatives of the independent registered
public accounting firm for the Company and representatives of and counsel to the Initial Purchasers
at which the contents of the Pricing Disclosure Package, the Offering Memorandum and related
matters were discussed, and although such counsel did not independently verify, is not passing upon
and does not assume any responsibility for the accuracy, completeness or fairness of the statements
contained in the Pricing Disclosure Package or the Offering Memorandum, on the basis of the
foregoing, no facts have come to the attention of such counsel that lead him to believe that the
Pricing Disclosure Package as of the Time of Sale or the Offering Memorandum as of its date and as
of the Closing Date (in each case other than (i)  financial statements included or incorporated by
reference therein, including the notes and schedules thereto and auditors’ reports thereon, and
(ii) the other financial data included or incorporated by reference therein, as to which such
counsel need express no belief) contained or contains an untrue statement of a material fact or
omitted or omits to state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.

     In rendering such opinion, such counsel may (A) rely in respect of matters of fact upon
certificates of officers and employees of the Copano Parties and upon information obtained from
public officials, (B) assume that all documents submitted to him as originals are authentic, that
all copies submitted to him conform to the originals thereof, and that the signatures on all
documents examined by him are genuine, (C) state that his opinion is limited to federal laws, the
Delaware LP Act, the Delaware LLC Act, the DGCL, the Texas LP Act and the Texas LLC Act, and
(D) state that he expresses no opinion with respect to state or local taxes or tax statutes to
which any of the members of the Company or any of the Copano Parties may be subject.

[Insert Appendix 1 listing foreign qualifications of Subsidiaries]

Exhibit B - 2

 

ANNEX I

	 	 	 
	General Partner	 	Limited Partnerships
	Copano/Webb-Duval Pipeline GP, L.L.C.

	 	Copano/Webb-Duval Pipeline, L.P.
	 
	 	 
	Copano Field Services/Central Gulf Coast
GP, L.L.C.

	 	Copano Field Services/Central Gulf
Coast, L.P.
	 
	 	 
	Copano Field Services GP, L.L.C.

	 	Copano Field Services/Copano Bay, L.P.
	 

	 	Copano Field Services/South Texas, L.P.
	 

	 	Copano Field Services/Agua Dulce, L.P.
	 

	 	Copano Field Services/Upper Gulf
Coast, L.P.
	 

	 	Copano Field Services/Live Oak, L.P.
	 

	 	Copano Field Services/Karnes, L.P.
	 
	 	 
	Copano Pipelines GP, L.L.C.

	 	Copano Pipelines/South Texas, L.P.
	 

	 	Copano Pipelines/Upper Gulf Coast, L.P.
	 

	 	Copano Pipelines/Hebbronville, L.P.
	 
	 	 
	Copano Pipelines (Texas) GP, L.L.C.

	 	Copano Pipelines/Texas Gulf Coast, L.P.
	 
	 	 
	Copano Energy Services GP, L.L.C.

	 	Copano Energy Services/Upper Gulf
Coast, L.P.
	 
	 	 
	Copano Energy Services (Texas) GP, L.L.C.

	 	Copano Energy Services/Texas Gulf
Coast, L.P.
	 
	 	 
	Copano NGL Services GP, L.L.C.

	 	Copano NGL Services, L.P.
	 
	 	 
	Copano Processing GP, L.L.C.

	 	Copano Processing, L.P.
	 
	 	 
	Copano/Red River Gathering GP, L.L.C.

	 	Cimmarron Gathering, LP
	 
	 	 
	CPNO Services GP, L.L.C.

	 	CPNO Services, L.P.
	 

	 	Copano Risk Management, L.P.

Annex I

 

 

ANNEX II

     Resale Pursuant to Regulation S or Rule 144A. Each Initial Purchaser understands that:

     Such Initial Purchaser agrees that it has not offered or sold and will not offer or sell the
Securities in the United States or to, or for the benefit or account of, a U.S. Person (other than
a distributor), in each case, as defined in Rule 902 of Regulation S (i) as part of its
distribution at any time and (ii) otherwise until 40 days after the later of the commencement of
the offering of the Securities pursuant hereto and the Closing Date, other than in accordance with
Regulation S or another exemption from the registration requirements of the Securities Act. Such
Initial Purchaser agrees that, during such 40-day restricted period, it will not cause any
advertisement with respect to the Securities (including any “tombstone” advertisement) to be
published in any newspaper or periodical or posted in any public place and will not issue any
circular relating to the Securities, except such advertisements as permitted by and include the
statements required by Regulation S.

     Such Initial Purchaser agrees that, at or prior to confirmation of a sale of Securities by it
to any distributor, dealer or person receiving a selling concession, fee or other remuneration
during the 40-day restricted period referred to in Rule 903 of Regulation S, it will send to such
distributor, dealer or person receiving a selling concession, fee or other remuneration a
confirmation or notice to substantially the following effect:

“The Securities covered hereby have not been registered under the U.S. Securities
Act of 1933, as amended (the “Securities Act”), and may not be offered and sold
within the United States or to, or for the account or benefit of, U.S. persons (i)
as part of your distribution at any time or (ii) otherwise until 40 days after the
later of the date the Securities were first offered to persons other than
distributors in reliance on Regulation S and the Closing Date, except in either case
in accordance with Regulation S under the Securities Act (or in accordance with Rule
144A under the Securities Act or to accredited investors in transactions that are
exempt from the registration requirements of the Securities Act), and in connection
with any subsequent sale by you of the Securities covered hereby in reliance on
Regulation S under the Securities Act during the period referred to above to any
distributor, dealer or person receiving a selling concession, fee or other
remuneration, you must deliver a notice to substantially the foregoing effect.
Terms used above have the meanings assigned to them in Regulation S under the
Securities Act.”

     Such Initial Purchaser agrees that the Securities offered and sold in reliance on Regulation S
will be represented upon issuance by a global security that may not be exchanged for definitive
securities until the expiration of the 40-day restricted period referred to in Rule 903 of
Regulation S and only upon certification of beneficial ownership of such Securities by non-U.S.
persons or U.S. persons who purchased such Securities in transactions that were exempt from the
registration requirements of the Securities Act.

Annex IIexv10w1

Exhibit 10.1

SMITH INTERNATIONAL, INC.

THIRD AMENDED AND RESTATED

1989 LONG-TERM INCENTIVE

COMPENSATION PLAN

(Effective as of January 1, 2008)

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	 	Page	 
	SECTION 1 GENERAL PROVISIONS RELATING TO PLAN GOVERNANCE, COVERAGE AND BENEFITS
	 	 	1	 
	1.1 Background and Purpose
	 	 	1	 
	1.2 Definitions
	 	 	1	 
	(a) Advisory Director
	 	 	1	 
	(b) Authorized Officer
	 	 	2	 
	(c) Award Date
	 	 	2	 
	(d) Board
	 	 	2	 
	(e) Cause
	 	 	2	 
	(f) CEO
	 	 	2	 
	(g) Change in Control
	 	 	2	 
	(h) Code
	 	 	2	 
	(i) Committee
	 	 	2	 
	(j) Common Stock
	 	 	3	 
	(k) Common Stock Award
	 	 	3	 
	(l) Company
	 	 	3	 
	(m) Covered Employee
	 	 	3	 
	(n) Disability
	 	 	3	 
	(o) Employee
	 	 	3	 
	(p) Employment
	 	 	3	 
	(q) Exchange Act
	 	 	3	 
	(r) Fair Market Value
	 	 	4	 
	(s) Grantee
	 	 	4	 
	(t) Immediate Family
	 	 	4	 
	(u) Incentive Agreement
	 	 	4	 
	(v) Incentive Award or Award
	 	 	4	 
	(w) Independent Director
	 	 	4	 
	(x) Independent SAR or SAR
	 	 	4	 
	(y) Insider
	 	 	4	 
	(z) Option Price
	 	 	4	 
	(aa) Other Stock-Based Award
	 	 	5	 
	(bb) Outside Director
	 	 	5	 
	(cc) Performance-Based Exception
	 	 	5	 
	(dd) Performance-Based Restricted Award
	 	 	5	 
	(ee) Performance Criteria
	 	 	5	 
	(ff) Performance Period
	 	 	5	 
	(gg) Plan
	 	 	5	 
	(hh) Publicly Held Corporation
	 	 	5	 
	(ii) Restricted Stock
	 	 	5	 
	(jj) Restricted Stock Award
	 	 	5	 
	(kk) Restricted Stock Unit
	 	 	5	 
	(ll) Restricted Stock Unit Award
	 	 	5	 
	(mm) Restriction Period
	 	 	6	 
	(nn) Retirement
	 	 	6	 
	(oo) Share
	 	 	6	 
	(pp) Share Pool
	 	 	6	 

i 

 

	 	 	 	 	 
	 	 	 	Page	 
	(qq) Spread
	 	 	6	 
	(rr) Stock Appreciation Right or SAR
	 	 	6	 
	(ss) Stock Option or Option
	 	 	6	 
	(tt) Stock Option Award
	 	 	6	 
	(uu) Subsidiary
	 	 	6	 
	(vv) Termination of Directorship
	 	 	6	 
	1.3 Plan Administration
	 	 	6	 
	(a) Authority of the Committee
	 	 	6	 
	(b) Meetings
	 	 	7	 
	(c) Decisions Binding
	 	 	7	 
	(d) Modification of Outstanding Incentive Awards
	 	 	7	 
	(e) Delegation of Authority
	 	 	7	 
	(f) Expenses of Committee
	 	 	7	 
	(g) Indemnification
	 	 	8	 
	1.4 Shares of Common Stock Available for Incentive Awards
	 	 	8	 
	1.5 Share Pool Adjustments for Awards and Payouts
	 	 	9	 
	1.6 Common Stock Available
	 	 	9	 
	1.7 Eligibility
	 	 	9	 
	1.8 Types of Incentive Awards
	 	 	10	 
	 
	 	 	 	 
	SECTION 2 STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
	 	 	10	 
	2.1 Grant of Stock Options
	 	 	10	 
	2.2 Stock Option Terms
	 	 	10	 
	(a)  Written Agreement
	 	 	10	 
	(b) Number of Shares
	 	 	10	 
	(c) Exercise Price
	 	 	10	 
	(d) Term
	 	 	10	 
	(e) Exercise
	 	 	10	 
	2.3 Stock Option Exercises
	 	 	11	 
	(a) Method of Exercise and Payment
	 	 	11	 
	(b) Restrictions on Share Transferability
	 	 	12	 
	(c) Proceeds of Option Exercise
	 	 	12	 
	2.4 Stock Appreciation Rights
	 	 	12	 
	(a) Grant
	 	 	12	 
	(b) General Provisions
	 	 	12	 
	(c) Exercise
	 	 	12	 
	(d) Settlement
	 	 	12	 
	 
	 	 	 	 
	SECTION 3 COMMON STOCK AWARDS FOR OUTSIDE DIRECTORS
	 	 	13	 
	3.1 Initial Award
	 	 	13	 
	3.2 Annual Award
	 	 	13	 
	3.3 Termination of Directorship
	 	 	13	 
	3.4 Issuance of Common Stock
	 	 	13	 
	3.5 Deferral of Common Stock Award
	 	 	14	 
	3.6 Subsequent Deferrals
	 	 	14	 
	 
	 	 	 	 
	SECTION 4 RESTRICTED STOCK
	 	 	14	 
	4.1 Award of Restricted Stock
	 	 	14	 
	(a) Grant
	 	 	14	 
	(b) Immediate Transfer Without Immediate Delivery of Restricted Stock
	 	 	14	 
	4.2 Restrictions
	 	 	15	 

ii 

 

	 	 	 	 	 
	 	 	 	Page	 
	(a) Forfeiture of Restricted Stock
	 	 	15	 
	(b) Issuance of Certificates
	 	 	15	 
	(c) Removal of Restrictions
	 	 	16	 
	4.3 Delivery of Shares of Common Stock
	 	 	16	 
	 
	 	 	 	 
	SECTION 5 RESTRICTED STOCK UNITS
	 	 	16	 
	5.1 Award of Restricted Stock Units
	 	 	16	 
	5.2 Restricted Stock Unit Award Terms
	 	 	16	 
	(a) Written Agreement
	 	 	16	 
	(b) Vesting
	 	 	16	 
	(c) Payment
	 	 	17	 
	(d) Subsequent Deferrals
	 	 	17	 
	 
	 	 	 	 
	SECTION 6 OTHER STOCK-BASED AWARDS
	 	 	17	 
	6.1 Grant of Other Stock-Based Awards
	 	 	17	 
	6.2 Other Stock-Based Award Terms
	 	 	17	 
	(a) Written Agreement
	 	 	17	 
	(b) Purchase Price
	 	 	17	 
	(c) Performance Criteria and Other Terms
	 	 	18	 
	(d) Payment
	 	 	18	 
	 
	 	 	 	 
	SECTION 7 PERFORMANCE CRITERIA
	 	 	18	 
	 
	 	 	 	 
	SECTION 8 PROVISIONS RELATING TO PLAN PARTICIPATION
	 	 	19	 
	8.1 Incentive Agreement
	 	 	19	 
	8.2 No Right to Employment
	 	 	20	 
	8.3 Securities Requirements
	 	 	20	 
	8.4 Transferability
	 	 	21	 
	8.5 Rights as a Stockholder
	 	 	21	 
	(a) No Stockholder Rights
	 	 	21	 
	(b) Representation of Ownership
	 	 	21	 
	8.6 Change in Stock and Adjustments
	 	 	22	 
	(a) Changes in Law or Circumstances
	 	 	22	 
	(b) Exercise of Corporate Powers
	 	 	22	 
	(c) Recapitalization of the Company
	 	 	22	 
	(d) Issue of Common Stock by the Company
	 	 	22	 
	(e) Assumption under the Plan of Outstanding Stock Options
	 	 	23	 
	(f) Assumption of Incentive Awards by a Successor
	 	 	23	 
	8.7 Termination of Employment or Directorship, Death, Disability and Retirement
	 	 	24	 
	(a) Termination of Employment
	 	 	24	 
	(b) Termination of Directorship
	 	 	24	 
	(c) Termination of Employment for Cause
	 	 	24	 
	(d) Voluntary Resignation
	 	 	24	 
	(e) Retirement
	 	 	25	 
	(f) Disability or Death
	 	 	25	 
	(g) Continuation
	 	 	25	 
	8.8 Change in Control
	 	 	26	 
	8.9 Exchange of Incentive Awards
	 	 	27	 
	8.10 Financing
	 	 	28	 

iii 

 

	 	 	 	 	 
	 	 	 	Page	 
	SECTION 9 GENERAL
	 	 	28	 
	9.1 Effective Date and Grant Period
	 	 	28	 
	9.2 Funding and Liability of Company
	 	 	28	 
	9.3 Withholding Taxes
	 	 	28	 
	(a) Tax Withholding
	 	 	28	 
	(b) Share Withholding
	 	 	29	 
	(c) Loans
	 	 	29	 
	9.4 No Guarantee of Tax Consequences
	 	 	29	 
	9.5 Designation of Beneficiary by Grantee
	 	 	29	 
	9.6 Deferrals
	 	 	29	 
	9.7 Amendment and Termination
	 	 	29	 
	9.8 Requirements of Law
	 	 	30	 
	(a) Governmental Entities and Securities Exchanges
	 	 	30	 
	(b) Securities Act Rule 701
	 	 	30	 
	9.9 Rule 16b-3 Securities Law Compliance for Insiders
	 	 	31	 
	9.10 Compliance with Code Section 162(m) for Publicly Held Corporation
	 	 	31	 
	9.11 Notices
	 	 	31	 
	9.12 Pre-Clearance Agreement with Brokers
	 	 	32	 
	9.13 Successors to Company
	 	 	32	 
	9.14 Miscellaneous Provisions
	 	 	32	 
	9.15 Severability
	 	 	32	 
	9.16 Gender, Tense and Headings
	 	 	32	 
	9.17 Governing Law
	 	 	32	 
	9.18 Section 409A Compliance
	 	 	32	 

iv 

 

SMITH INTERNATIONAL, INC.

1989 LONG-TERM INCENTIVE COMPENSATION PLAN

SECTION 1

GENERAL PROVISIONS RELATING TO

PLAN GOVERNANCE, COVERAGE AND BENEFITS

1.1 Background and Purpose

     Smith International, Inc., (the “Company”) established and adopted the “Smith International,
Inc. 1989 Long-Term Incentive Compensation Plan” (the “Plan”). The Plan has been amended from time
to time, and most recently amended and restated effective as of January 1, 2005.

     The Company hereby amends and restates the Plan under the form of this Plan document primarily
to (i) incorporate various changes for the benefit of the Company and the participants in the Plan,
(ii) to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as
amended (the “Code”) and (iii) to increase the number of shares of Common Stock eligible for
Incentive Awards. This amendment and restatement is generally effective as of January 1, 2008 (the
“Effective Date”), except as may otherwise be noted under certain terms and provisions of the Plan.

     The purpose of the Plan is to foster and promote the long-term financial success of the
Company and to increase stockholder value by: (a) encouraging the commitment of selected key
Employees, (b) motivating superior performance of key Employees by means of long-term performance
related incentives, (c) encouraging and providing key Employees with a program for obtaining
ownership interests in the Company which link and align their personal interests to those of the
Company’s stockholders, (d) attracting and retaining key Employees by providing competitive
compensation opportunities, (e) enabling key Employees to share in the long-term growth and success
of the Company, (f) providing additional incentives for securing and retaining qualified
individuals who are not employees of the Company to serve on the Board of Directors of the Company
(“Outside Directors”), and (g) to enhance the future growth of the Company by furthering Outside
Directors’ identification with the interests of the Company and its stockholders.

     The Plan provides for payment of various forms of compensation. It is not intended to be a
plan that is subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).
The Plan shall be interpreted, construed and administered consistent with its status as a plan that
is not subject to ERISA.

     The Plan will remain in effect, subject to the right of the Board to amend or terminate the
Plan at any time pursuant to Section 9.7, until all Shares subject to the Plan have been
purchased or acquired according to its provisions.

1.2 Definitions

     The following terms shall have the meanings set forth below:

     (a) Advisory Director. An individual who (i) is not an officer or employee of the
Company or any Subsidiary and (ii) serves as an advisory director on the Board.

 

 

     (b) Authorized Officer. The Chairman of the Board, the CEO or any other senior
officer of the Company to whom either of them delegate the authority to execute any
Incentive Agreement for and on behalf of the Company. No officer or director shall be an
Authorized Officer with respect to any Incentive Agreement for himself.

     (c) Award Date. The annual date or other date upon which a Common Stock Award is
granted by the Independent Directors of the Board to a Grantee as provided in Section
3.

     (d) Board. The Board of Directors of the Company.

     (e) Cause. When used in connection with the termination of a Grantee’s Employment,
shall mean the termination of the Grantee’s Employment by the Company or any Subsidiary by
reason of (i) the conviction of the Grantee by a court of competent jurisdiction as to which
no further appeal can be taken of a crime involving moral turpitude or a felony; (ii) the
proven commission by the Grantee of a material act of fraud upon the Company or any
Subsidiary, or any customer or supplier thereof; (iii) the misappropriation of any funds or
property of the Company or any Subsidiary, or any customer or supplier thereof; (iv) the
willful and continued failure by the Grantee to perform the material duties assigned to him
that is not cured to the reasonable satisfaction of the Company within 30 days after written
notice of such failure is provided to Grantee by the Board or CEO (or by another officer of
the Company or a Subsidiary who has been designated by the Board or CEO for such purpose);
(v) the knowing engagement by the Grantee in any direct and material conflict of interest
with the Company or any Subsidiary without compliance with the Company’s or Subsidiary’s
conflict of interest policy, if any, then in effect; or (vi) the knowing engagement by the
Grantee, without the written approval of the Board or CEO, in any material activity which
competes with the business of the Company or any Subsidiary or which would result in a
material injury to the business, reputation or goodwill of the Company or any Subsidiary.

     (f) CEO. The Chief Executive Officer of the Company.

     (g) Change in Control. Any of the events described in and subject to
Section 8.8.

     (h) Code. The Internal Revenue Code of 1986, as amended, and the regulations and
other authority promulgated thereunder by the appropriate governmental authority. References
herein to any provision of the Code shall refer to any successor provision thereto.

     (i) Committee. A committee appointed by the Board to administer the Plan. While the Company is a Publicly
Held Corporation, the Plan shall be administered by a Committee appointed by the Board
consisting of not less than two directors who fulfill the “nonemployee director”
requirements of Rule 16b-3 under the Exchange Act and the “outside director” requirements of
Code Section 162(m). In either case, the Committee may be the Compensation and Benefits
Committee of the Board, or any subcommittee of the Compensation and Benefits Committee,
provided that the members of the Committee satisfy the requirements of the previous
provisions of this paragraph. Notwithstanding the preceding provisions of this subsection,
with regard to Incentive Awards granted to Outside Directors, the Independent Directors of
the Board shall have the sole power and authority to administer the Plan, and thus all
references to the Committee herein shall mean the Independent Directors of the Board with
respect to Incentive Awards granted to Outside Directors.

     The Board shall have the power to fill vacancies on the Committee arising by
resignation, death, removal or otherwise. The Board, in its sole discretion, may bifurcate
the powers and

2

 

duties of the Committee among one or more separate committees, or retain all
powers and duties of the Committee in a single Committee. The members of the Committee shall
serve at the discretion of the Board.

     (j) Common Stock. The common stock of the Company, $1.00 par value per share, and
any class of common stock into which such common shares may hereafter be converted,
reclassified or recapitalized.

     (k) Common Stock Award. An authorization of the Independent Directors of the Board
to issue or transfer common stock to a Grantee who is an Outside Director pursuant to
Section 3.

     (l) Company. Smith International, Inc. and any successor in interest thereto.

     (m) Covered Employee. A named executive officer who is one of the group of covered
employees, as defined in Code Section 162(m) and Treasury Regulation § 1.162-27(c) (or its
successor), during any period that the Company is a Publicly Held Corporation.

     (n) Disability. A condition of a Grantee which (a) renders him unable to engage in
any substantial gainful activity by reason of any medically determinable physical or mental
impairment that can be expected to result in death or can be expected to last for a
continuous period of not less than 12 months, or (b) is a medically determinable physical or
mental impairment that can be expected to result in death or can be expected to last for a
continuous period of not less than 12 months, for which the Grantee is receiving income
replacement benefits for a period of not less than three months under an accident and health
plan or long-term disability plan covering Employees of the Company or any Subsidiary. A
determination of Disability shall be made by a physician selected or approved by the
Committee and, in this respect, the Grantee shall submit to any reasonable examination(s)
required by such physician upon request. In addition, any determination of
Disability shall be made in accordance with the requirements of Code Section 409A as
determined by the Committee.

     (o) Employee. Any full-time, salaried employee of the Company (or any Subsidiary)
within the meaning of Code Section 3401(c) who, in the opinion of the Committee, is in a
position to contribute to the growth, development or financial success of the Company (or
any Subsidiary), including, without limitation, officers who are members of the Board.

     (p) Employment. Employment means that the individual is employed as an Employee
by the Company or any Subsidiary. In this regard, neither the transfer of a Grantee from
Employment by the Company to Employment by any Subsidiary, nor the transfer of a Grantee
from Employment by any Subsidiary to Employment by the Company, shall be deemed to be a
termination of Employment of the Grantee. Moreover, the Employment of a Grantee shall not be
deemed to have been terminated because of an approved leave of absence from active
Employment on account of temporary illness, authorized vacation or granted for reasons of
professional advancement, education, or health, or during any period required to be treated
as a leave of absence by virtue of any applicable statute, Company personnel policy or
written agreement. All determinations regarding Employment, and the termination of
Employment hereunder, shall be made by the Committee.

     (q) Exchange Act. The Securities Exchange Act of 1934, as amended.

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     (r) Fair Market Value. While the Company is a Publicly Held Corporation, the Fair
Market Value of one Share of Common Stock on the date in question is deemed to be (i) the
closing sales price of a Share as reported on the New York Stock Exchange or other principal
securities exchange on which Shares are then listed or admitted to trading, or (ii) the
closing sales price for a Share as quoted on the National Association of Securities Dealers
Automated Quotation System (“NASDAQ”), or (iii) if not quoted on NASDAQ, the average of the
closing bid and asked prices for a Share as quoted by the National Quotation Bureau’s “Pink
Sheets” or the National Association of Securities Dealers’ OTC Bulletin Board System. If
there was no public trade of Common Stock on the date in question, Fair Market Value shall
be determined by reference to the last preceding date on which such a trade was so reported.

     If the Company is not a Publicly Held Corporation at the time a determination of the
Fair Market Value of the Common Stock is required to be made hereunder, the determination of
Fair Market Value for purposes of the Plan shall be made by the Committee in its sole and
absolute discretion. In this respect, the Committee may rely on such financial data,
appraisals, valuations, experts, and other sources as, in its sole and absolute discretion,
it deems advisable under the circumstances.

     (s) Grantee. Any Employee or Outside Director who is granted an Incentive Award
under the Plan.

     (t) Immediate Family. With respect to a Grantee, the Grantee’s child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including
adoptive relationships.

     (u) Incentive Agreement. A separate written agreement entered into between the
Company and the Grantee setting forth the terms and conditions pursuant to which an
Incentive Award is granted under the Plan, as such agreement is further defined in
Section 8.1.

     (v) Incentive Award or Award. A grant of an award under the Plan to a Grantee,
including any Stock Option, Stock Appreciation Right (SAR), Restricted Stock Award,
Performance-Based Restricted Award, Common Stock Award, Restricted Stock Unit Award or Other
Stock-Based Award.

     (w) Independent Director. A director who is an “independent director” as defined in
the New York Stock Exchange current listings, or by such other stock exchange as may be
applicable.

     (x) Independent SAR or SAR. A Stock Appreciation Right described in
Section 2.4.

     (y) Insider. While the Company is a Publicly Held Corporation, an individual who is,
on the relevant date, an officer, director or ten percent (10%) beneficial owner of any
class of the Company’s equity securities that is registered pursuant to Section 12 of the
Exchange Act, all as defined under Section 16 of the Exchange Act.

     (z) Option Price. The exercise price at which a Share may be purchased by the
Grantee of a Stock Option.

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     (aa) Other Stock-Based Award. An award granted by the Committee to a Grantee under
Section 6.1 that is valued in whole or in part by reference to, or is otherwise
based upon, Common Stock.

     (bb) Outside Director. A member of the Board, or an Advisory Director, who is not,
at the time the Incentive Award is granted to him, an officer or employee of the Company or
any Subsidiary.

     (cc) Performance-Based Exception. The performance-based exception from the tax
deductibility limitations of Code Section 162(m), as prescribed in Code Section 162(m)(4)(C)
and Treasury Regulation § 1.162-27(e) (or its
successor), which is applicable during such period that the Company is a Publicly Held
Corporation.

     (dd) Performance-Based Restricted Award. Restricted Stock Awards or Restricted Stock
Unit Awards awarded to a Grantee pursuant to Section 4 or Section 5, as applicable,
the grant of which is contingent upon the attainment of specified Performance Criteria,
and/or the vesting of which are subject to a risk of forfeiture if the specified Performance
Criteria are not met within the Performance Period.

     (ee) Performance Criteria. The business criteria that are specified by the Committee
pursuant to Section 7 for an Incentive Award that is intended to qualify for the
Performance-Based Exception; the satisfaction of such business criteria during the
Performance Period being required for the grant or vesting of the particular Incentive Award
to occur, as specified in the Incentive Agreement.

     (ff) Performance Period. A period of time determined by the Committee over which
performance is measured for the purpose of determining a Grantee’s right to and the payment
value of any Performance-Based Restricted Award or Other Stock-Based Award that is intended
to qualify for the Performance-Based Exception.

     (gg) Plan. Smith International, Inc. 1989 Long-Term Incentive Compensation Plan, as
set forth herein and as it may be amended from time to time.

     (hh) Publicly Held Corporation. A corporation issuing any class of common equity
securities required to be registered under Section 12 of the Exchange Act.

     (ii) Restricted Stock. Shares of Common Stock issued or transferred to a Grantee
pursuant to Section 4.

     (jj) Restricted Stock Award. An authorization by the Committee to issue or transfer
Restricted Stock to a Grantee pursuant to Section 4.

     (kk) Restricted Stock Unit. A unit granted to a Grantee pursuant to
Section 5 which entitles him to receive one share of Common Stock on the date
specified in the Incentive Agreement.

     (ll) Restricted Stock Unit Award. An authorization to award Restricted Stock Units
to Grantee pursuant to Section 5.

5

 

     (mm) Restriction Period. The period of time determined by the Committee and set
forth in the Incentive Agreement during which the transfer of an Incentive Award by the
Grantee is restricted.

     (nn) Retirement. The voluntary termination of Employment by an Employee from the
Company and any Subsidiary constituting retirement, and as confirmed through the Company’s
Human Resources Department (i) on any date after the Employee attains the normal retirement
age, (ii) on an earlier retirement date as expressly agreed to by the Committee prior to
termination of Employment, or (iii) as of such other age as may be designated by the
Committee in the Employee’s individual Incentive Agreement.

     (oo) Share. A share of the Common Stock of the Company.

     (pp) Share Pool. The number of Shares authorized for issuance under
Section 1.4, as adjusted for awards and payouts under Section 1.5 and as
adjusted for changes in corporate capitalization under Section 8.6.

     (qq) Spread. The difference between the exercise price per Share specified in a SAR
grant and the Fair Market Value of a Share on the date of exercise of the SAR.

     (rr) Stock Appreciation Right or SAR. A Stock Appreciation Right as described in
Section 2.4.

     (ss) Stock Option or Option. A stock option that is a nonstatutory stock option (and
not an “incentive stock option” as described in Code Section 422), as described in
Section 2.

     (tt) Stock Option Award. An authorization to award a Stock Option to a Grantee
pursuant to Section 2.

     (uu) Subsidiary. Any corporation (whether now or hereafter existing) which
constitutes a “subsidiary” of the Company, as defined in Code Section 424(f) of the Code,
and any limited liability company, partnership, or other entity in which the Company
controls fifty percent (50%) or more of the voting power or equity interests.

     (vv) Termination of Directorship. The date upon which a Grantee who is an Outside Director ceases to be an Outside Director
for whatever reason, voluntary or involuntary. The effective date of such Termination of
Directorship shall be the actual date of such termination (whether occasioned by death,
Disability, retirement, resignation, non-election or otherwise). The change in an Outside
Director’s position to an Advisory Director shall not be a Termination of Directorship
hereunder.

1.3 Plan Administration

     (a) Authority of the Committee. Except as may be limited by law or applicable stock
exchange requirements, and subject to the provisions herein, the Committee shall have full
power to (i) select Grantees who shall participate in the Plan; (ii) determine the amounts,
duration and types of Incentive Awards; (iii) determine the terms and conditions of
Incentive Awards and Incentive Agreements; (iv) determine whether any Shares subject to
Incentive Awards will be subject to any restrictions on transfer; (v) construe and interpret
the Plan and any Incentive Agreement or other agreement entered into under the Plan; and
(vi) establish, amend, or waive

6

 

rules for the Plan’s administration. Further, the Committee
shall make all other determinations which may be necessary or advisable for the
administration of the Plan.

     With respect to Incentive Awards granted under the Plan to Outside Directors, the
Independent Directors of the Board shall constitute the Committee.

     (b) Meetings. The Committee shall designate a chairman from among its members who
shall preside at its meetings, and shall designate a secretary, without regard to whether
that person is a member of the Committee, who shall keep the minutes of the proceedings and
all records, documents, and data pertaining to its administration of the Plan. Meetings
shall be held at such times and places as shall be determined by the Committee and the
Committee may hold telephonic meetings. The Committee may take any action otherwise proper
under the Plan by the affirmative vote, taken with or without a meeting, of a majority of
its members. The Committee may authorize any one or more of its members or any officer of
the Company to execute and deliver documents on behalf of the Committee.

     (c) Decisions Binding. All determinations and decisions of the Committee shall be
made in its discretion pursuant to the terms and provisions of the Plan, and shall be final,
conclusive and binding on all persons including the Company, its stockholders, Employees,
Grantees, and their estates and beneficiaries. The Committee’s decisions with respect to any
Incentive Award need not be uniform and may be made selectively among Incentive Awards and
Grantees, whether or not such Incentive Awards are similar or such Grantees are similarly
situated.

     (d) Modification of Outstanding Incentive Awards. Subject to the stockholder
approval requirements of Section 9.7 if applicable, the Committee may, in its
discretion, provide for the extension of the exercisability of an Incentive Award,
accelerate the vesting or exercisability of an Incentive Award, eliminate or make less
restrictive any restrictions contained in an Incentive Award, waive any restriction or other
provisions of an Incentive Award, or otherwise amend or modify an Incentive Award in any
manner that is either

     (i) not adverse to the Grantee to whom such Incentive Award was granted or (ii) consented to
by such Grantee. Notwithstanding the preceding provisions of this subsection, (i) no
amendment or other modification of an Incentive Award shall be made to the extent such
modification results in any Stock Option with an exercise price less than 100% of the Fair
Market Value per Share on the date of grant, (ii) no acceleration of the vesting of any
Incentive Award shall be made, except in the event of the Grantee’s death, Disability, or
Retirement, or a Change in Control, or another type of similar circumstance as determined by
the Committee, and (iii) no acceleration of vesting, extension of exercisability or other
modification shall be made that will subject the Grantee to adverse taxation under Code
Section 409A.

     (e) Delegation of Authority. The Committee may delegate to designated officers or
other employees of the Company any of its duties and authority under the Plan pursuant to
such conditions or limitations as the Committee may establish from time to time; provided,
however, the Committee may not delegate to any person the authority (i) to grant Incentive
Awards or (ii) if the Company is a Publicly Held Corporation, to take any action which would
contravene the requirements of Rule 16b-3 under the Exchange Act, the Performance-Based
Exception under Code Section 162(m), or the Sarbanes-Oxley Act of 2002.

     (f) Expenses of Committee. The Committee may employ legal counsel, including,
without limitation, independent legal counsel and counsel regularly employed by the Company,
and other agents as the Committee may deem appropriate for the administration of the Plan.
The

7

 

Committee may rely upon any opinion or computation received from any such counsel or
agent. All expenses incurred by the Committee in interpreting and administering the Plan,
including, without limitation, meeting expenses and professional fees, shall be paid by the
Company.

     (g) Indemnification. Each person who is or was a member of the Committee shall be
indemnified by the Company against and from any damage, loss, liability, cost and expense
that may be imposed upon or reasonably incurred by him in connection with or resulting from
any claim, action, suit, or proceeding to which he may be a party or in which he may be
involved by reason of any action taken or failure to act under the Plan, except for any such
act or omission constituting willful misconduct or gross negligence. Each such person shall
be indemnified by the Company for all amounts paid by him in settlement thereof, with the
Company’s approval, or paid by him in satisfaction of any judgment in any such action, suit,
or proceeding against him, provided he shall give the Company an opportunity, at its own
expense, to handle and defend the same before he undertakes to handle and defend it on his
own behalf. The foregoing right of indemnification shall not be exclusive of any other
rights of indemnification to which such persons may be entitled under the Company’s Articles
or Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any power
that the Company may have to indemnify them or hold them harmless.

1.4 Shares of Common Stock Available for Incentive Awards

     Subject to adjustment under Section 8.6, there shall be available for Incentive Awards
that are granted wholly or partly in Common Stock (including rights or Stock Options that may be
exercised for or settled in Common Stock) Thirty Three Million and Forty Thousand (33,040,000)
Shares of Common Stock. The number of Shares of Common Stock that are the subject of Incentive
Awards under the Plan,
and which are forfeited or terminated, expire, are settled in a manner such that all or some
of the Shares covered by an Incentive Award are not issued to a Grantee or are exchanged for
Incentive Awards that do not involve Common Stock, shall again immediately become available for
Incentive Awards hereunder. The Committee may from time to time adopt and observe such procedures
concerning the counting of Shares against the Plan maximum as it may deem appropriate.

     During any period that the Company is a Publicly Held Corporation, then unless and until the
Committee determines that a particular Incentive Award granted to a Covered Employee is not
intended to comply with the Performance-Based Exception, the following rules shall apply to grants
of Incentive Awards to Covered Employees:

     (a) Subject to adjustment as provided in Section 8.6, the maximum aggregate
number of Shares of Common Stock (including Stock Options, SARs, Restricted Stock,
Performance-Based Restricted Awards, and Other Stock-Based Awards that are paid out in
Shares) that may be granted (in the case of Stock Options and SARs) or that may vest (in the
case of Restricted Stock Awards, Performance-Based Restricted Awards, Restricted Stock Unit
Awards or Other Stock-Based Awards), as applicable, in any calendar year pursuant to any
Incentive Award held by any individual Covered Employee shall be One Million (1,000,000)
Shares.

     (b) With respect to any Stock Option or SAR granted to a Covered Employee that is
canceled or repriced (which may only occur subject to the approval of the Company’s
stockholders, as required under applicable securities laws and stock exchange requirements),
the number of Shares subject to such Stock Option or SAR shall continue to count against the
maximum number of Shares that may be the subject of Stock Options or SARs granted to such

8

 

Covered Employee hereunder and, in this regard, such maximum number shall be determined in
accordance with Code Section 162(m).

     (c) The limitations of subsections (a), (b) and (c) above shall be construed and
administered so as to comply with the Performance-Based Exception.

1.5 Share Pool Adjustments for Awards and Payouts

     The following Incentive Awards and payouts shall reduce, on a one Share for one Share basis,
the number of Shares authorized for issuance under the Share Pool:

     (a) Stock Option Award;

     (b) SAR;

     (c) Common Stock Award;

     (d) Restricted Stock Award;

     (e) Performance-Based Restricted Award;

     (f) Restricted Stock Unit Awards; and

     (g) Other Stock-Based Awards.

     A cancellation, termination, expiration, forfeiture, or lapse for any reason of any Shares
subject to an Award shall restore, on a one Share for one Share basis, the number of Shares
authorized for issuance under the Share Pool.

1.6 Common Stock Available

     The Common Stock available for issuance or transfer under the Plan shall be made available
from Shares now or hereafter (a) held in the treasury of the Company, (b) authorized but unissued
Shares, or (c) Shares to be purchased or acquired by the Company. No fractional Shares shall be
issued under the Plan; payment for fractional Shares shall be made in cash.

1.7 Eligibility

     Outside Directors and Employees shall be eligible to receive Incentive Awards under the Plan.
The Committee shall from time to time designate those Employees to be granted Incentive Awards, the
type of Incentive Awards granted, the number of Shares, Stock Options, rights or units, as the case
may be, which are subject to an Award, and any other terms or conditions relating to each Award, as
it may deem appropriate to the extent consistent with the provisions of the Plan. A Grantee who
has been granted an Incentive Award may, if otherwise eligible, be granted additional Incentive
Awards at any time.

     No Insider shall be eligible to be granted an Incentive Award that is subject to Rule 16a-3
under the Exchange Act unless and until such Insider has granted a limited power of attorney to
those employees of the Company who have been designated by the Company for purposes of future
required filings under the Exchange Act.

9

 

1.8 Types of Incentive Awards

     The types of Incentive Awards under the Plan are (a) Stock Options and Stock Appreciation
Rights, (b) Common Stock Awards as described in Section 3, (c) Restricted Stock and
Performance-Based Restricted Awards, (d) Restricted Stock Units as described in Section 5,
(e) Other Stock-Based Awards, or (f) any combination of the foregoing.

SECTION 2

STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

2.1 Grant of Stock Options

     The Committee is authorized to grant Stock Options to Employees and the Independent Directors
of the Board are authorized to grant Stock Options to Outside Directors, in accordance with the
terms and conditions of the Plan, and with such additional terms and conditions, not inconsistent
with the Plan, as the Committee or Independent Directors, as applicable, shall determine in its
discretion. Successive grants may be made to the same Grantee regardless of whether any Stock
Option previously granted to such person remains unexercised.

2.2 Stock Option Terms

     (a) Written Agreement. Each grant of a Stock Option shall be evidenced by a written Incentive Agreement. Among its
other provisions, each Incentive Agreement shall set forth the extent to which the Grantee
shall have the right to exercise the Stock Option following termination of the Grantee’s
Employment or Termination of Directorship, as the case may be. Such provisions shall be
determined in the discretion of the Committee, shall be included in the Grantee’s Incentive
Agreement, and need not be uniform among all Stock Options issued pursuant to the Plan.

     (b) Number of Shares. Each Stock Option Award shall specify the number of Shares of
Common Stock to which it pertains.

     (c) Exercise Price. The exercise price per Share of Common Stock under each Stock
Option shall be determined by the Committee, but in no event shall the exercise price be
less than 100% of the Fair Market Value per Share on the date the Stock Option is granted.
Each Stock Option shall specify the method of exercise which shall be consistent with the
requirements of Section 2.3(a).

     (d) Term. In the Incentive Agreement, the Committee shall fix the term of each Stock
Option, not to exceed ten (10) years from the date of grant. In the event no term is fixed,
such term shall be ten (10) years from the date of grant.

     (e) Exercise. The Committee shall determine the time or times at which a Stock
Option may be exercised, in whole or in part. Each Stock Option may specify the required
period of continuous Employment or service as an Outside Director, as applicable, and/or the
performance objectives to be achieved before the Stock Option (or any portion thereof) will
become exercisable. Each Stock Option Award, the exercise (or timing of the exercise) of
which is dependent, in whole or in part, on the achievement of designated performance
objectives, may specify a minimum level of achievement in respect of the specified
performance objectives below which no Stock Options will be exercisable, as well as a method
for determining the number of

10

 

Stock Options that will be exercisable if performance is at or
above such minimum but short of full achievement of the performance objectives. All such
terms and conditions shall be set forth in the Incentive Agreement.

2.3 Stock Option Exercises

     (a) Method of Exercise and Payment. Stock Options shall be exercised by the delivery
of a signed written notice of exercise to the Company as of a date set by the Company on the
effective date of the proposed exercise. The notice shall set forth the number of Shares
with respect to which the Stock Option is to be exercised, accompanied by full payment for
the Shares.

     The Stock Option exercise price upon exercise of any Stock Option shall be payable to
the Company in full either: (i) in cash or its equivalent; or (ii) subject to prior approval
by the Committee in its discretion, by tendering previously acquired Shares having an
aggregate Fair
Market Value at the time of exercise equal to the Option Price (provided that the
Shares which are tendered must have been held by the Grantee for at least six (6) months
prior to their tender to satisfy the Option Price); or (iii) subject to prior approval by
the Committee in its discretion, by withholding Shares which otherwise would be acquired on
exercise having an aggregate Fair Market Value at the time of exercise equal to the total
Option Price; or (iv) subject to prior approval by the Committee in its discretion, by a
combination of (i), (ii), and (iii) above.

     Any payment in Shares shall be effected by the surrender of such Shares to the Company
in good form for transfer and shall be valued at their Fair Market Value on the date when
the Stock Option is exercised. Unless otherwise permitted by the Committee in its
discretion, the Grantee shall not surrender, or attest to the ownership of, Shares in
payment of the Option Price if such action would cause the Company to recognize compensation
expense (or additional compensation expense) with respect to the Stock Option for financial
accounting reporting purposes.

     The Committee, in its discretion, also may allow the Option Price to be paid with such
other consideration as shall constitute lawful consideration for the issuance of Shares
(including, without limitation, effecting a “cashless exercise” with a broker of the Stock
Option), subject to applicable securities law restrictions and tax withholdings, or by any
other means which the Committee determines to be consistent with the Plan’s purpose and
applicable law. At the direction of the Grantee, the broker will either (i) sell all of the
Shares received when the Stock Option is exercised and pay the Grantee the proceeds of the
sale (minus the Option Price, withholding taxes and any fees due to the broker); or
(ii) sell enough of the Shares received upon exercise of the Stock Option to cover the
Option Price, withholding taxes and any fees due the broker and deliver the remaining Shares
to the Grantee (either directly or through the Company). Dispositions to a broker effecting
a cashless exercise are not exempt under Section 16 of the Exchange Act while the Company is
a Publicly Held Corporation. Moreover, in no event will the Committee allow the Option
Price to be paid with a form of consideration, including a loan or a “cashless exercise,” if
such form of consideration would violate the Sarbanes-Oxley Act of 2002 as determined by the
Committee.

     As soon as practicable after receipt of a written notification of exercise and full
payment, the Company shall deliver, or cause to be delivered, to or on behalf of the
Grantee, in the name of the Grantee or other appropriate recipient, evidence of ownership
for the number of Shares purchased under the Stock Option.

11

 

     Subject to Section 8.4, during the lifetime of a Grantee, each Stock Option
granted to him shall be exercisable only by the Grantee (or his legal guardian in the event
of his Disability) or by a broker-dealer acting on his behalf pursuant to a cashless
exercise under the foregoing provisions of this Section 2.3(a).

     (b) Restrictions on Share Transferability. The Committee may impose such
restrictions on any grant of Stock Options or on any Shares acquired pursuant to the
exercise of a Stock Option as it may deem advisable, including, without limitation,
restrictions under (i) any stockholders’ agreement, buy/sell agreement, right of first
refusal, non-competition, and any other agreement between the Company and any of its
securities holders or employees; (ii) any applicable federal securities laws; (iii) the
requirements of any stock exchange or market upon which such Shares are then listed and/or
traded; or (iv) any blue sky or state securities law applicable to such Shares. Any
certificate issued to evidence Shares
issued upon the exercise of an Incentive Award may bear such legends and statements as the
Committee shall deem advisable to assure compliance with federal and state laws and
regulations.

     Any Grantee or other person exercising an Incentive Award shall be required, if
requested by the Committee, to give a written representation that the Incentive Award and
the Shares subject to the Incentive Award will be acquired for investment and not with a
view to public distribution; provided, however, that the Committee in its discretion, may
release any person receiving an Incentive Award from any such representations either prior
to or subsequent to the exercise of the Incentive Award.

     (c) Proceeds of Option Exercise. The proceeds received by the Company from the sale
of Shares pursuant to Stock Options exercised under the Plan shall be used for general
corporate purposes.

2.4 Stock Appreciation Rights

     (a) Grant. The Committee may grant to Employees Stock Appreciation Rights that are
independent of Stock Options. All SARs granted under the Plan are intended to be exempt
from taxation as deferred compensation under Code Section 409A.

     (b) General Provisions. The terms and conditions of each SAR shall be evidenced by
an Incentive Agreement. The exercise price per Share shall be not less than one hundred
percent (100%) of the Fair Market Value of a Share on the grant date of the SAR. The term of
the SAR shall be determined by the Committee. The Committee cannot include any feature for
the deferral of compensation other than the deferral of recognition of income until exercise
of the SAR.

     (c) Exercise. SARs shall be exercisable subject to such terms and conditions as the
Committee shall specify in the Incentive Agreement for the SAR grant. No SAR granted to an
Insider may be exercised prior to six (6) months from the date of grant, except in the event
of his death or Disability which occurs prior to the expiration of such six-month period if
so permitted under the Incentive Agreement.

     (d) Settlement. Effective for any SARs issued on or after January 1, 2005, upon
exercise of the SAR, the Grantee shall receive an amount equal to the Spread. The Spread,
less applicable withholdings, shall be payable only in Shares, the number of which shall be
determined based on the Fair Market Value of the Shares as of the exercise date, within 30
calendar days after the exercise date. In no event shall any SAR be settled in any manner
other

12

 

than by delivery of Shares. In addition, the Incentive Agreement under which such
SARs are awarded, or any other agreements or arrangements, shall not provide that the
Company will purchase any Shares delivered as a result of the exercise or vesting of a SAR.
Any SARs issued under the Plan prior to January 1, 2005 shall be subject to the settlement
provisions of the Plan as in effect prior to January 1, 2005, but
only to the extent that such settlement is not considered a payment of deferred compensation
that would be subject to Code Section 409A after December 31, 2004.

SECTION 3

COMMON STOCK AWARDS FOR OUTSIDE DIRECTORS

3.1 Initial Award

     Each Outside Director shall receive, upon initial election or appointment to the Board, the
grant of a Common Stock Award for the number of Shares as deemed appropriate to provide equity
compensation to such Grantee having a Fair Market Value, effective as of the first date of such
Outside Director’s service on the Board, as determined and voted upon by the Independent Directors
of the Board from time to time in its discretion.

3.2 Annual Award

     Each Outside Director shall receive an annual Common Stock Award on each Award Date with
respect to service rendered by the Grantee during the 12-month period ending on such annual Award
Date. The Shares subject to the annual Common Stock Award shall be such number as deemed
appropriate to provide equity compensation to such Grantee having a Fair Market Value as determined
by the Independent Directors of the Board from time to time, and effective as of the Award Date.
The Award Date for annual Common Stock Awards shall be made on the date of the annual Board meeting
with respect to the Grantee’s service as an Outside Director during the 12-month period ending on
such annual Award Date. The annual Common Stock Awards shall not be prorated for partial service
of any Outside Director, except as described in Section 3.3.

3.3 Termination of Directorship

     If a Termination of Directorship occurs to an Outside Director, then in lieu of the annual
Common Stock Award under Section 3.2, as of the next following annual Award Date such
Outside Director shall be entitled to receive a number of Shares equal to the nearest whole number
of Shares obtained by multiplying the number of Shares having a Fair Market Value approximately
equal to a dollar amount set by the Board from time to time pursuant to Section 3.2 by a
fraction, the numerator of which is the number of days from the last previous annual Award Date up
to and including the date of his Termination of Directorship, and the denominator of which is the
number of days from the last previous annual Award Date up to and including his next following
regularly scheduled annual Award Date. Such Shares shall be delivered to the Outside Director
within thirty (30) days following the date of his Termination of Directorship.

3.4 Issuance of Common Stock

     Within thirty (30) days of the Award Date of a Common Stock Award pursuant to
Sections 3.1, 3.2 or 3.3, the Company shall cause Shares of Common Stock to be issued in
the name of the Grantee.

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3.5 Deferral of Common Stock Award

     At the discretion of the Committee, a Grantee may elect in writing to defer the receipt of a
Common Stock Award; provided, however, that such election be made by the Grantee not later than by
the end of the calendar year that precedes the calendar year in which the applicable 12-month
performance period begins. Notwithstanding the previous sentence, at the discretion of the
Committee, a
Grantee who is eligible to receive an initial award pursuant to Section 3.1 may elect
in writing to defer receipt of such initial award within thirty (30) days after the Grantee first
becomes eligible to participate in the Plan or any other plan maintained by the Company that is an
“account balance” plan within the meaning of, and subject to, Code Section 409A.

3.6 Subsequent Deferrals

     At the discretion of the Committee, a Grantee may elect in writing to defer the receipt of a
Common Stock Award which has previously been deferred pursuant to Section 3.5; provided,
however, that (i) such election will not take effect until at least twelve (12) months after the
date upon which the election is made by the Grantee, (ii) except in the case of payment on account
of the Grantee’s death or Disability, the payment with respect to which such election is made must
be deferred for a period of not less than five (5) years from the date the payment would otherwise
have been paid, and (iii) such election may not be made less than twelve (12) months prior to the
date the payment was otherwise scheduled to be made. Any subsequent deferral election made by the
Grantee pursuant to this Section 3.5 must be consistent with the requirements of Code
Section 409A.

SECTION 4

RESTRICTED STOCK

4.1 Award of Restricted Stock

     (a) Grant. In consideration of the Grantee’s Employment or service as an Outside
Director, as applicable, Shares of Restricted Stock may be awarded by the Committee (or,
with respect to Outside Directors, by the Independent Directors of the Board) with such
restrictions during the Restriction Period as may be imposed by the Committee or the
Independent Directors, as applicable, in its discretion. The minimum Restriction Period for
a Restricted Stock Award shall be three (3) years, and for a Performance Based Restricted
Stock Award shall be one (1) year. Any such restrictions may differ with respect to a
particular Grantee. Restricted Stock shall be awarded for no additional consideration or
such additional consideration as the Committee may determine, which consideration may be
less than, equal to, or more than the Fair Market Value of the Shares of Restricted Stock on
the grant date. The terms and conditions of each Restricted Stock Award shall be evidenced
by an Incentive Agreement and, during the Restriction Period, Shares of Restricted Stock
must remain subject to a “substantial risk of forfeiture” within the meaning given to such
term under Code Section 83. Any Restricted Stock Award granted to an Employee may, at the
time of grant, be designated by the Committee as a Performance-Based Restricted Award that
is intended to qualify for the Performance-Based Exception.

     (b) Immediate Transfer Without Immediate Delivery of Restricted Stock. Unless
otherwise specified in the Grantee’s Incentive Agreement, each Restricted Stock Award shall
constitute an immediate transfer of the record and beneficial ownership of the Shares of
Restricted Stock to the Grantee in consideration of his performance of services as an
Employee or Outside Director, as applicable, entitling such Grantee to all voting and other
ownership rights in such Shares.

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     As specified in the Incentive Agreement, a Restricted Stock Award may limit the
Grantee’s dividend rights during the Restriction Period in which the Shares of Restricted
Stock
are subject to a “substantial risk of forfeiture” (within the meaning given to such
term under Code Section 83) and restrictions on transfer. In the Incentive Agreement, the
Committee may apply any restrictions to the dividends that the Committee deems appropriate.
Without limiting the generality of the preceding sentence, if the grant or vesting of Shares
of Performance-Based Restricted Stock granted to a Covered Employee is designed to comply
with the requirements of the Performance-Based Exception, the Committee may apply any
restrictions it deems appropriate to the payment of dividends declared with respect to such
Shares of Restricted Stock, such that the dividends and/or the Shares of Restricted Stock
maintain eligibility for the Performance-Based Exception. In the event that any dividend
constitutes a derivative security or an equity security pursuant to the rules under Section
16 of the Exchange Act, if applicable, such dividend shall be subject to a vesting period
equal to the remaining vesting period of the Shares subject to the Restricted Stock Award
with respect to which the dividend is paid.

     Shares awarded pursuant to a Restricted Stock Award or Performance-Based Restricted
Stock Award may be issued in the name of the Grantee and held, together with a stock power
endorsed in blank, by (i) the Committee (or its delegate), (ii) Company (or its delegate),
(iii) in trust or in escrow pursuant to an agreement satisfactory to the Committee, or
(iv) in a restricted account held by the transfer agent, as shall be determined by the
Committee, until such time as the restrictions on transfer have expired. All such terms and
conditions shall be set forth in the particular Grantee’s Incentive Agreement. The Company
or Committee, or its delegate, shall issue to the Grantee a receipt evidencing the Shares
held by it which are registered in the name of the Grantee.

4.2 Restrictions

     (a) Forfeiture of Restricted Stock. Restricted Stock awarded to a Grantee may be
subject to the following restrictions until the expiration of the Restriction Period: (i) a
restriction that constitutes a “substantial risk of forfeiture” (as defined under Code
Section 83), or a restriction on transferability; (ii) unless otherwise specified by the
Committee in the Incentive Agreement, the Shares of Restricted Stock that are subject to
restrictions which are not satisfied shall be forfeited and all rights of the Grantee to
such Shares shall terminate; and (iii) any other restrictions that the Committee determines
in advance are appropriate, including, without limitation, rights of repurchase or first
refusal in the Company or provisions subjecting the Restricted Stock to a continuing
substantial risk of forfeiture in the hands of any transferee. Any such restrictions shall
be set forth in the Grantee’s Incentive Agreement.

     (b) Issuance of Certificates. Reasonably promptly after the date of grant with
respect to the Restricted Stock Award, and unless the Committee has approved the use of
electronic stock accounts that do not require the issuance of stock certificates, the
Company shall cause to be issued a stock certificate, registered in the name of the Grantee
to whom the Restricted Stock Award was granted, evidencing such Shares; provided, however,
that the Company shall not cause to be issued such a stock certificate unless it has
received a stock power duly endorsed in blank with respect to such Shares. Each such stock
certificate shall bear the following legend or any other legend approved by the Company:

The transferability of this certificate and the shares of stock represented
hereby are subject to the restrictions, terms and conditions (including
forfeiture and
restrictions against transfer) contained in the Smith International, Inc.
1989 Long-Term Incentive Compensation Plan and an Incentive Agreement
entered

15

 

into between the registered owner of such shares and Smith
International, Inc. A copy of the Plan and Incentive Agreement are on file
in the main corporate office of Smith International, Inc.

Such legend shall not be removed from the certificate evidencing such Shares of Restricted
Stock unless and until such Shares vest pursuant to the terms of the Incentive Agreement.

     (c) Removal of Restrictions. The Committee, in its discretion, shall have the
authority to provide in an Incentive Agreement that the restrictions on the Restricted Stock
shall lapse upon the occurrence of the Grantee’s death or Disability, or in the event of a
Change in Control. In addition, the Committee shall have the authority, in its discretion,
to remove any or all of the restrictions on the Restricted Stock if it determines that, by
reason of a change in applicable law or another change in circumstance arising after the
grant date of the Restricted Stock Award, such action is necessary or appropriate.

4.3 Delivery of Shares of Common Stock

     When the restrictions in the Incentive Agreement have been satisfied, subject to (a)
withholding taxes under Section 9.3 with respect to Employees and (b) the terms of the
Incentive Agreement, the Company shall cause Shares of Common Stock to be issued in the name of the
Grantee free of restrictions.

SECTION 5

RESTRICTED STOCK UNITS

5.1 Award of Restricted Stock Units

     In consideration of the Grantee’s Employment or service as an Outside Director, as applicable,
Restricted Stock Unit Awards may be awarded by the Committee (or, with respect to Outside
Directors, by the Independent Directors of the Board) to designated Grantees, as determined in the
discretion of the Committee or the Independent Directors, as applicable. Any Restricted Stock Unit
Award to an Employee may, at the time of grant, be designated by the Committee as a
Performance-Based Restricted Award that is intended to qualify for the Performance-Based Exception.
The minimum Restriction Period for a Restricted Stock Unit Award shall be three (3) years, and for
a Performance Based Restricted Stock Unit Award shall be one (1) year.

5.2 Restricted Stock Unit Award Terms

     (a) Written Agreement. The terms and conditions of each grant of a Restricted Stock
Unit Award shall be evidenced by an Incentive Agreement, which shall specify among other
provisions (i) the number of Restricted Stock Units awarded to the Grantee, (ii) a specified
period during which such Restricted Stock Units must remain subject to a “substantial risk
of forfeiture” within the meaning given to such term under Code Section 409A, and (iii) the
Performance Criteria, if applicable.

     (b) Vesting. The Committee, in its discretion, shall specify in the Grantee’s Incentive Agreement the
date or dates upon which the “substantial risk of forfeiture” (as described in Section
4.2(a)) will lapse (the “Vesting Date”), and the events upon which such lapse occurs.

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     (c) Payment. When the restrictions in the Incentive Agreement have been satisfied,
subject to (i) withholding taxes under Section 9.3 with respect to Employees and
(ii) the terms of the Incentive Agreement, Restricted Stock Units shall be paid in Shares
within thirty (30) days after the later of (A) the Vesting Date (as defined in Section
5.2(b)) or (B) the date that satisfaction of any Performance Criteria for the Restricted
Stock Units have been certified by the Committee but, in either event, not later than 2-1/2
months following the last day of the calendar year containing the Vesting Date.

     (d) Subsequent Deferrals. At the discretion of the Committee, a Grantee may elect
in writing to defer the receipt of Shares payable upon vesting of a Restricted Stock Unit
Award; provided, however, that (i) such election will not take effect until at least twelve
(12) months after the date upon which the election is made by the Grantee, (ii) except in
the case of payment on account of the Grantee’s death or Disability, the payment with
respect to which such election is made must be deferred for a period of not less than five
(5) years from the date the payment would otherwise have been paid, and (iii) such election
may not be made less than twelve (12) months prior to the date the payment was otherwise
scheduled to be made. Any subsequent deferral election made by the Grantee pursuant to this
Section 5.2(d) must be consistent with the requirements of Code Section 409A.

SECTION 6

OTHER STOCK-BASED AWARDS

6.1 Grant of Other Stock-Based Awards

     Other Stock-Based Awards may be awarded by the Committee to selected Grantees that are payable
in Shares, as determined by the Committee to be consistent with the goals of the Company. Other
types of Stock-Based Awards include, without limitation, purchase rights, Shares of Common Stock
awarded that are not subject to any restrictions or conditions other than Common Stock Awards
pursuant to Section 3 (limited, however, to not more than five percent (5%) of the Shares
available under the Plan under Section 1.4), convertible or exchangeable debentures, other
rights convertible into Shares, Incentive Awards valued by reference to the performance of a
specified Subsidiary, division or department of the Company, and settlement in cancellation of
rights of any person with a vested interest in any other plan, fund, program or arrangement that is
or was sponsored, maintained or participated in by the Company or any Subsidiary. As is the case
with other types of Incentive Awards, Other Stock-Based Awards may be awarded either alone or in
addition to or in conjunction with any other Incentive Awards. Other Stock-Based Awards are not
intended to be deferred compensation that is subject to Code Section 409A unless otherwise
determined by the Committee.

6.2 Other Stock-Based Award Terms

     (a) Written Agreement. The terms and conditions of each grant of an Other Stock-Based Award shall be evidenced by
an Incentive Agreement.

     (b) Purchase Price. Except to the extent that an Other Stock-Based Award is granted
in substitution for an outstanding Incentive Award or is delivered upon exercise of a Stock
Option, the amount of consideration required to be received by the Company shall be either
(i) no consideration other than services actually rendered (in the case of authorized and
unissued Shares) or to be rendered, or (ii) as otherwise specified in the Incentive
Agreement.

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     (c) Performance Criteria and Other Terms. In its discretion, the Committee may
specify Performance Criteria for (i) vesting in Other Stock-Based Awards and (ii) payment
thereof to the Grantee, as it may determine in its discretion. The extent to which any such
Performance Criteria have been met shall be determined and certified by the Committee in
accordance with the requirements to qualify for the Performance-Based Exception under Code
Section 162(m). All terms and conditions of Other Stock-Based Awards shall be determined by
the Committee and set forth in the Incentive Agreement.

     (d) Payment. Other Stock-Based Awards shall be paid in Shares, in a single payment
or in installments on such dates as determined by the Committee; all as specified in the
Incentive Agreement.

SECTION 7

PERFORMANCE CRITERIA

     As determined by the Committee at the time of grant, Performance-Based Restricted Awards,
Other Stock-Based Awards and other types of Incentive Awards made under the Plan may be granted to
an Employee subject to performance objectives relating to one or more of the following within the
meaning of Code Section 162(m) in order to qualify for the Performance-Based Exception (the
“Performance Criteria”):

	 	(a)	 	profits (including, but not limited to, profit growth, net operating profit or
economic profit);
	 
	 	(b)	 	profit-related return ratios;
	 
	 	(c)	 	return measures (including, but not limited to, return on assets, capital,
equity, investment or sales);
	 
	 	(d)	 	cash flow (including, but not limited to, operating cash flow, free cash flow
or cash flow return on capital or investments);
	 
	 	(e)	 	earnings (including but not limited to, total shareholder return, earnings per
share or earnings before or after taxes);
	 
	 	(f)	 	net sales growth;
	 
	 	(g)	 	net earnings or income (before or after taxes, interest, depreciation and/or
amortization);
	 
	 	(h)	 	gross, operating or net profit margins;
	 
	 	(i)	 	productivity ratios;
	 
	 	(j)	 	share price (including, but not limited to, growth measures and total
shareholder return);
	 
	 	(k)	 	turnover of assets, capital, or inventory;
	 
	 	(l)	 	expense targets;
	 
	 	(m)	 	margins;

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	 	(n)	 	measures of health, safety or environment;
	 
	 	(o)	 	operating efficiency;
	 
	 	(p)	 	customer service or satisfaction;
	 
	 	(q)	 	market share;
	 
	 	(r)	 	credit quality; and
	 
	 	(s)	 	working capital targets.

     Performance Criteria may be stated in absolute terms or relative to comparison companies or
indices to be achieved during a Performance Period.

     The Committee shall establish one or more Performance Criteria for each Incentive Award that
is intended to qualify for the Performance-Based Exception no later than ninety (90) days after the
beginning of the Performance Period to which the Award relates. In establishing the Performance
Criteria for each applicable Incentive Award, the Committee may provide that the effect of
specified extraordinary or unusual events will be included or excluded (including, but not limited
to, all items of gain, loss or expense determined to be extraordinary or unusual in nature or
infrequent in occurrence or related to the disposal of a segment of business or related to a change
in accounting principle, all as determined in accordance with standards by Opinion No. 30 of the
Accounting Principles Board (APB Opinion 30) or other authoritative financial accounting
standards). The terms of the stated Performance Criteria for each applicable Incentive Award must
preclude the Committee’s discretion to increase the amount payable to any Grantee that would
otherwise be due upon attainment of the Performance Criteria. The Performance Criteria specified
in any Incentive Agreement need not be applicable to all Incentive Awards, and may be particular to
an individual Grantee’s function or business unit. The Committee may establish the Performance
Criteria of the Company or any entity which is affiliated by common ownership with the Company as
determined and designated by the Committee, in its discretion, in the Incentive Agreement.

SECTION 8

PROVISIONS RELATING TO PLAN PARTICIPATION

8.1 Incentive Agreement

     Each Grantee to whom an Incentive Award is granted (other than a Common Stock Award) shall be
required to enter into an Incentive Agreement with the Company, in such a form as is provided by
the Committee. The Incentive Agreement shall contain such specific terms as determined by the
Committee, in its discretion, with respect to the Grantee’s particular Incentive Award. Such terms
need not be uniform among all Grantees or any similarly situated Grantees. The Incentive Agreement
may include, without limitation, vesting, forfeiture and other provisions that are specific to the
individual Grantee’s Incentive Award, as well as, for example, provisions to the effect that the
Grantee (a) shall not disclose any confidential information acquired during Employment with the
Company, (b) shall abide by all the terms and conditions of the Plan and such other terms and
conditions as may be imposed by the Committee, (c) shall not interfere with the employment or other
service of any employee, (d) shall not compete with the Company or become involved in a conflict of
interest with the interests of the Company, (e) shall forfeit an Incentive Award if terminated for
Cause, (f) shall not be permitted to make an election under Code Section 83(b) when applicable, and
(g) shall be subject to any other agreement between the Grantee and

19

 

the Company regarding Shares
that may be acquired under an Incentive Award including, without limitation, a stockholders’
agreement, buy-sell agreement, or other agreement restricting the transferability of Shares by
Grantee. An Incentive Agreement shall include such terms and conditions as are determined by the
Committee, in its discretion, to be appropriate with respect to the Grantee. The Incentive
Agreement shall be signed by the Grantee to whom the Incentive Award is made and by an Authorized
Officer; provided, however, effective as of January 1, 2006, the Committee, in its discretion, may
from time to time approve another method of acceptance.

8.2 No Right to Employment

     Nothing in the Plan or any instrument executed pursuant to the Plan shall create any
Employment rights (including without limitation, rights to either continued Employment or service
as an Outside Director) in any Grantee or affect any right to terminate the Employment of any
Grantee or service as an Outside Director at any time without regard to the existence of the Plan.

8.3 Securities Requirements

     The Company shall be under no obligation to effect the registration pursuant to the Securities
Act of 1933 of any Shares to be issued hereunder or to effect similar compliance under any state
laws. Notwithstanding anything herein to the contrary, the Company shall not be obligated to cause
to be issued or delivered any certificates evidencing Shares pursuant to the Plan unless and until
the Company is advised by its counsel that the issuance and delivery of such certificates is in
compliance with all applicable laws, regulations of governmental authorities, and the requirements
of any securities exchange on which Shares are traded. The Committee may require, as a condition of
the issuance and delivery of certificates evidencing Shares pursuant to the terms hereof, that the
recipient of such Shares make such covenants, agreements and representations, and that such
certificates bear such legends, as the Committee, in its discretion, deems necessary or desirable.

     The Committee may, in its discretion, defer the effectiveness of any payment under an
Incentive Award to allow the issuance of Shares to be made pursuant to registration or an exemption
from registration or other methods for compliance available under federal or state securities laws.
The Committee shall inform the Grantee in writing of its decision to defer the effectiveness of
the exercise of
an Incentive Award. During the period that the effectiveness of the exercise of an Incentive
Award has been deferred, the Grantee may, by written notice to the Committee withdraw such exercise
and obtain the refund of any amount paid with respect thereto.

     If the Shares issuable on payment of an Incentive Award are not registered under the
Securities Act of 1933, the Company may imprint on the certificate for such Shares the following
legend or any other legend which counsel for the Company considers necessary or advisable to comply
with the Securities Act of 1933:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (“ACT”), OR THE SECURITIES LAWS OF ANY STATE. THE
SECURITIES MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO ANY
APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS OR
PURSUANT TO A WRITTEN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED.

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8.4 Transferability

     Incentive Awards granted under the Plan shall not be transferable or assignable other than:
(a) by will or the laws of descent and distribution or (b) pursuant to a qualified domestic
relations order (as defined under Code Section 414(p)); provided, however, only with respect to
Incentive Awards consisting of Stock Options awarded to an Employee, the Committee may, in its
discretion, authorize all or a portion of the Stock Options to be granted on terms which permit
transfer by the Grantee to (i) the members of the Grantee’s Immediate Family, (ii) a trust or
trusts for the exclusive benefit of Immediate Family members, (iii) a partnership in which such
Immediate Family members are the only partners, or (iv) any other entity owned solely by Immediate
Family members; provided that (A) there may be no consideration for any such transfer, (B) the
Incentive Agreement pursuant to which such Stock Options are granted must be approved by the
Committee, and must expressly provide for transferability in a manner consistent with this
Section 8.4, (C) subsequent transfers of transferred Stock Options shall be prohibited
except in accordance with clauses (a) and (b) (above) of this sentence, and (D) there may be no
transfer of any Incentive Award in a listed transaction as described in IRS Notice 2003-47.
Following any permitted transfer, the Stock Option shall continue to be subject to the same terms
and conditions as were applicable immediately prior to transfer, provided that the term “Grantee”
shall be deemed to refer to the transferee. The events of termination of employment, as set out in
Section 8.7 and in the Incentive Agreement, shall continue to be applied with respect to
the original Grantee, and the Incentive Award shall be exercisable by the transferee only to the
extent, and for the periods, specified in the Incentive Agreement.

     Except as may otherwise be permitted under the Code, in the event of a permitted transfer of a
Stock Option hereunder, the original Grantee shall remain subject to withholding taxes upon
exercise. In addition, the Company and the Committee shall have no obligation to provide any
notices to any Grantee or transferee thereof, including, for example, notice of the expiration of
an Incentive Award following the original Grantee’s termination of Employment.

     The designation by a Grantee of a beneficiary of an Incentive Award shall not constitute
transfer of the Incentive Award. No transfer by will or by the laws of descent and distribution
shall be effective to bind the Company unless the Committee has been furnished with a copy of the
deceased Grantee’s
enforceable will or such other evidence as the Committee deems necessary to establish the
validity of the transfer. Any attempted transfer in violation of this Section 8.4 shall be
void and ineffective. All determinations under this Section 8.4 shall be made by the
Committee.

8.5 Rights as a Stockholder

     (a) No Stockholder Rights. Except as otherwise provided in Section 4.1(b)
for grants of Restricted Stock, a Grantee of an Incentive Award (or a permitted transferee
of such Grantee) shall have no rights as a stockholder with respect to any Shares of Common
Stock until the issuance of a stock certificate or other record of ownership for such
Shares.

     (b) Representation of Ownership. In the case of the exercise of an Incentive Award
by a person or estate acquiring the right to exercise such Incentive Award by reason of the
death or Disability of a Grantee, the Committee may require reasonable evidence as to the
ownership of such Incentive Award or the authority of such person. The Committee may also
require such consents and releases of taxing authorities as it deems advisable.

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8.6 Change in Stock and Adjustments

     (a) Changes in Law or Circumstances. Subject to Section 8.8 (which only
applies in the event of a Change in Control), in the event of any change in applicable law
or any change in circumstances which results in or would result in any dilution of the
rights granted under the Plan, or which otherwise warrants an equitable adjustment because
it interferes with the intended operation of the Plan, then, if the Board or Committee
should so determine, in its absolute discretion, that such change equitably requires an
adjustment in the number or kind of shares of stock or other securities or property
theretofore subject, or which may become subject, to issuance or transfer under the Plan or
in the terms and conditions of outstanding Incentive Awards, such adjustment shall be made
in accordance with such determination. Such adjustments may include changes with respect to
(i) the aggregate number of Shares that may be issued under the Plan, (ii) the number of
Shares subject to Incentive Awards, and (iii) the price per Share for outstanding Incentive
Awards, but shall not result in the grant of any Stock Option with an exercise price less
than 100% of the Fair Market Value per Share on the date of grant. The Board or Committee
shall give notice to each applicable Grantee of such adjustment which shall be effective and
binding.

     (b) Exercise of Corporate Powers. The existence of the Plan or outstanding Incentive
Awards hereunder shall not affect in any way the right or power of the Company or its
stockholders to make or authorize any or all adjustments, recapitalization, reorganization
or other changes in the Company’s capital structure or its business or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred or prior
preference stocks ahead of or affecting the Common Stock or the rights thereof, or the
dissolution or liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding whether of a similar character
or otherwise.

     (c) Recapitalization of the Company. Subject to Section 8.8 (which only applies in the event of a Change in Control), if
while there are Incentive Awards outstanding, the Company shall effect any subdivision or
consolidation of Shares of Common Stock or other capital readjustment, the payment of a
stock dividend, stock split, combination of Shares, recapitalization or other increase or
reduction in the number of Shares outstanding, without receiving compensation therefor in
money, services or property, then the number of Shares available under the Plan and the
number of Incentive Awards which may thereafter be settled shall (i) in the event of an
increase in the number of Shares outstanding, be proportionately increased and the Option
Price or Fair Market Value of the Incentive Awards awarded shall be proportionately reduced;
and (ii) in the event of a reduction in the number of Shares outstanding, be proportionately
reduced, and the Option Price or Fair Market Value of the Incentive Awards awarded shall be
proportionately increased. The Board or Committee shall take such action and whatever other
action it deems appropriate, in its discretion, so that the value of each outstanding
Incentive Award to the Grantee shall not be adversely affected by a corporate event
described in this Section 8.6(c).

     (d) Issue of Common Stock by the Company. Except as hereinabove expressly provided
in this Section 8.6 and subject to Section 8.8 in the event of a Change in
Control, the issue by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class, for cash or property, or for labor or services, either
upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon
any conversion of shares or obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be made with respect
to, the number of, Option Price or Fair Market Value of, any Incentive

22

 

Awards then
outstanding under previously granted Incentive Awards; provided, however, in such event,
outstanding Shares of Restricted Stock shall be treated the same as outstanding unrestricted
Shares of Common Stock.

     (e) Assumption under the Plan of Outstanding Stock Options. Notwithstanding any
other provision of the Plan, the Board or Committee, in its discretion, may authorize the
assumption and continuation under the Plan of outstanding and unexercised stock options or
other types of stock-based incentive awards that were granted under a stock option plan (or
other type of stock incentive plan or agreement) that is or was maintained by a corporation
or other entity that was merged into, consolidated with, or whose stock or assets were
acquired by, the Company as the surviving corporation. Any such action shall be upon such
terms and conditions as the Board or Committee, in its discretion, may deem appropriate,
including provisions to preserve the holder’s rights under the previously granted and
unexercised stock option or other stock-based incentive award; such as, for example,
retaining an existing exercise price under an outstanding stock option. Any such assumption
and continuation of any such previously granted and unexercised incentive award shall be
treated as an outstanding Incentive Award under the Plan and shall thus count against the
number of Shares reserved for issuance pursuant to Section 1.4. In addition, any
Shares issued by the Company through the assumption or substitution of outstanding grants
from an acquired company shall reduce the Shares available for grants under Section
1.4 and, if not prohibited by any applicable rule or regulation and after obtaining any
required shareholder approval, shall likewise increase the number of Shares available for
Incentive Awards.

     (f) Assumption of Incentive Awards by a Successor. Subject to the accelerated vesting and other provisions of Section 8.8 that apply in
the event of a Change in Control, in the event of a Corporate Event (defined below), each
Grantee shall be entitled to receive, in lieu of the number of Shares subject to Incentive
Awards, such shares of capital stock or other securities or property as may be issuable or
payable with respect to or in exchange for the number of Shares which Grantee would have
received had he been entitled to exercise Shares subject to the Award immediately prior to
such Corporate Event, together with any conforming adjustments. For this purpose, Shares of
Restricted Stock shall be treated the same as unrestricted outstanding Shares of Common
Stock. A “Corporate Event” means any of the following: (i) a dissolution or liquidation of
the Company, (ii) a sale of all or substantially all of the Company’s assets, or (iii) a
merger, consolidation or combination involving the Company (other than a merger,
consolidation or combination (A) in which the Company is the continuing or surviving
corporation and (B) which does not result in the outstanding Shares being converted into or
exchanged for different securities, cash or other property, or any combination thereof). The
Board or Committee shall take whatever other action it deems appropriate to preserve the
rights of Grantees holding outstanding Incentive Awards.

     Notwithstanding the previous paragraph of this Section 8.6(f), but subject to
any accelerated vesting or other provisions of Section 8.8 or the Incentive
Agreement that apply in the event of a Change in Control, in the event of a Corporate Event
(described in the previous paragraph), the Board or Committee, in its discretion, shall have
the right and power to:

     (i) cancel, effective immediately prior to the occurrence of the Corporate
Event, each outstanding Incentive Award (whether or not then exercisable) and, in
full consideration of such cancellation, pay to the Grantee an amount in cash equal
to the excess of (A) the value, as determined by the Board or Committee, of the
property (including cash) received by the holders of Common Stock as a result of
such Corporate Event over (B) the exercise price of such Incentive Award, if any;
provided, however, this subsection (i) shall be inapplicable to an Incentive Award
granted within six (6)

23

 

months before the occurrence of the Corporate Event if the
Grantee is an Insider and such disposition is not exempt under Rule 16b-3 (or other
rules preventing liability of the Insider under Section 16(b) of the Exchange Act)
and, in that event, the provisions hereof shall be applicable to such Incentive
Award after the expiration of six (6) months from the date of grant; or

     (ii) provide for the exchange or substitution of each Incentive Award
outstanding immediately prior to such Corporate Event (whether or not then
exercisable) for another award with respect to the Common Stock or other property
for which such Incentive Award is exchangeable and, incident thereto, make an
equitable adjustment as determined by the Board or Committee, in its discretion, in
the Option Price or exercise price of the Incentive Award, if any, or in the number
of Shares or amount of property (including cash) subject to the Incentive Award; or

     (iii) provide for assumption of the Plan and such outstanding Incentive Awards
by the surviving entity or its parent.

     The Board or Committee, in its discretion, shall have the authority to take whatever
action it deems to be necessary or appropriate to effectuate the provisions of this
Section 8.6(f).

8.7 Termination of Employment or Directorship, Death, Disability and Retirement

     (a) Termination of Employment. Unless otherwise expressly provided in the Grantee’s Incentive Agreement with respect to a
Grantee who is an Employee, if the Grantee’s Employment is terminated (i) involuntarily by
the Company without Cause or (ii) for any other reason except due to his death, Disability,
Retirement, for Cause, or his voluntary resignation, as subject to the following provisions
of this Section 8.7, then any non-vested portion of any Stock Option or other
Incentive Award at the time of such termination shall automatically expire and terminate and
no further vesting shall occur after the termination date unless the Committee, in its
discretion, provides for an extension of exercisability or other modification pursuant to
Section 1.3(d) or Section 8.7(g). In such event, except as otherwise
expressly provided in his Incentive Agreement or as determined by the Committee in its
discretion, the Grantee shall be entitled to exercise his rights only with respect to the
vested portion of the Incentive Award for a period that shall end on the earlier of (i) the
expiration date set forth in the Incentive Agreement or (ii) one (1) year after the date of
his termination of Employment.

     (b) Termination of Directorship. With respect to a Grantee who is an Outside
Director, unless otherwise specifically provided in the Grantee’s Incentive Agreement, and
except as provided in Section 3.3, upon a Grantee’s Termination of Directorship, all
outstanding Awards that are not vested as of such Termination of Directorship will be
forfeited.

     (c) Termination of Employment for Cause. Unless otherwise expressly provided in the
Grantee’s Incentive Agreement with respect to a Grantee who is an Employee, in the event of
termination of the Grantee’s Employment for Cause, all vested and non-vested Incentive
Awards granted to such Grantee shall immediately expire, and shall not be exercisable to any
extent, as of 12:01 a.m. (CST) on the date of such termination of Employment.

     (d) Voluntary Resignation. Unless otherwise expressly provided in the Grantee’s
Incentive Agreement, with respect to a Grantee who is an Employee, in the event of
termination of the Grantee’s Employment due to his voluntary resignation except resulting
from his Disability or Retirement:

24

 

     (i) any non-vested portion of any outstanding Incentive Award shall immediately
terminate and no further vesting shall occur; and

     (ii) any vested Incentive Award shall expire on the earlier of (A) the
expiration date set forth in the Incentive Agreement for such Incentive Award, or
(B) the expiration of ninety (90) days after the date of his termination of
Employment.

     (e) Retirement. Unless otherwise expressly provided in the Grantee’s Incentive
Agreement, with respect to a Grantee who is an Employee, upon the termination of Employment
due to Retirement:

     (i) any non-vested portion of any outstanding Incentive Award shall immediately
terminate and no further vesting shall occur; and

     (ii) any vested Incentive Award shall expire on the earlier of (A) the
expiration date set forth in the Incentive Agreement for such Incentive Award, or
(B) the expiration of three (3) years after the date of his termination of
Employment.

     (f) Disability or Death. Unless otherwise expressly provided in the Grantee’s
Incentive Agreement, with respect to a Grantee who is an Employee, upon termination of
Employment as a result of the Grantee’s Disability or death:

     (i) any non-vested portion of any outstanding Incentive Award shall immediately
terminate upon termination of Employment and no further vesting shall occur; and

     (ii) any vested Incentive Award shall expire on the earlier of (A) the
expiration date set forth in the Incentive Agreement for such Incentive Award or (B)
the expiration of three (3) years after the date of his termination of Employment.

     In the event that the Grantee dies or becomes permanently and totally disabled as
determined by the Committee within the one-year period specified in Section 8.7(a)
(above), then notwithstanding Section 8.7(a), the Incentive Award shall expire on
the earlier of (A) the expiration date set forth in the Incentive Agreement for such
Incentive Award or (B) the expiration of one (1) year after the date of his death or the
date he is determined to be permanently and totally disabled as such date is determined by
the Committee.

     In the event that the Grantee dies or becomes permanently and totally disabled as
determined by the Committee within the three-year period specified in Section 8.7(e)
(above), then notwithstanding Section 8.7(e), the Incentive Award shall expire on
the earlier of: (A) the expiration date set forth in the Incentive Agreement for such
Incentive Award or (B) the later of either (i) the expiration of three (3) years after the
date of his Retirement or (ii) one (1) year from the date of his death or the date he is
determined to be permanently and totally disabled as such date is determined by the
Committee.

     (g) Continuation. Subject to the conditions and limitations of the Plan and
applicable law and regulation, with respect to a Grantee who is an Employee, in the event
that the Grantee ceases to be an Employee, the Committee and Grantee, in their discretion,
may mutually agree with respect to any outstanding Incentive Award then held by the Grantee
(i) for an acceleration or other adjustment in any vesting schedule applicable to the
Incentive Award; (ii) for a continuation of the exercise period following termination for a
longer period than is

25

 

otherwise provided under such Incentive Award; or (iii) to any other
change in the terms and conditions of the Incentive Award. In the event of any such change
to an outstanding Incentive Award, a written amendment to the Grantee’s Incentive Agreement
shall be required.

8.8 Change in Control

     Notwithstanding any contrary provision in the Plan, with respect to a Grantee who is an
Employee, in the event of a Change in Control (as defined below), the following actions shall
automatically occur as of the day immediately preceding the Change in Control date unless expressly
provided otherwise in the individual Grantee’s Incentive Agreement:

     (a) all of the Stock Options and Stock Appreciation Rights then outstanding shall
become 100% vested and immediately and fully exercisable;

     (b) all of the restrictions and conditions of any Restricted Stock and any Other
Stock-Based Awards then outstanding shall be deemed satisfied, and the Restriction Period
with respect thereto shall be deemed to have expired, and thus each such Incentive Award
shall become free of all restrictions and fully vested; and

     (c) all of the Performance-Based Restricted Awards and any Other Stock-Based Awards
shall become fully vested and deemed earned in full at the specified 100% target amounts,
and promptly paid in full within thirty (30) days to the affected Grantees without regard to
payment schedules and notwithstanding that the applicable performance cycle, retention cycle
or other restrictions and conditions have not been completed or satisfied.

     For all purposes of the Plan, a “Change in Control” of the Company means the occurrence of any
one or more of the following events:

     (a) The acquisition by any individual, entity or group (a “Person”) (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of
either (i) the then outstanding Shares (the “Outstanding Company Stock”) or (ii) the
combined voting power of the then outstanding voting securities of the Company entitled to
vote generally in the election of directors (the “Outstanding Company Voting Securities”);
provided, however, that the following acquisitions shall not constitute a Change in Control:
(i) any acquisition directly from the Company or any Subsidiary, (ii) any acquisition by the
Company or any Subsidiary or by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Subsidiary, or (iii) any acquisition by any corporation
pursuant to a reorganization, merger, consolidation or similar business combination
involving the Company (a “Merger”), if, following such Merger, the conditions described in
Section 8.8(c) (below) are satisfied;

     (b) Individuals who, as of the Effective Date, constitute the Board of Directors of the
Company (the “Incumbent Board”) cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director subsequent to the
Effective Date whose election, or nomination for election by the Company’s stockholders, was
approved by a vote of at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A

26

 

promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other than the
Board;

     (c) Consummation of a reorganization, merger or consolidation, or sale or other
disposition of all or substantially all of the assets of the Company (a “Business
Combination”), in each case, unless, following such Business Combination, (1) all or
substantially all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or indirectly,
more than sixty percent (60%) of, respectively, the then outstanding Shares and the combined
voting power of the then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company’s assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership, immediately prior to
such Business Combination of the Outstanding Company Stock and Outstanding Company Voting
Securities, as the case may be, (2) no Person (excluding any corporation resulting from such
Business Combination or any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially owns, directly or
indirectly, twenty (20%) or more of, respectively, the then outstanding Shares resulting
from such Business Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed prior to the
Business Combination, and (3) at least a majority of the members of the board of directors
of the corporation resulting from such Business Combination were members of the Incumbent
Board at the time of the execution of the initial agreement, or the action of the Board,
providing for such Business Combination;

     (d) The adoption of any plan or proposal for the liquidation or dissolution of the
Company; or

     (e) Any other event that a majority of the Board, in its sole discretion, determines to
constitute a Change in Control hereunder.

     Notwithstanding the occurrence of any of the foregoing events set out in this Section
8.8 which would otherwise result in a Change in Control, the Board may determine in its
discretion, if it deems it to be in the best interest of the Company, that an event or events
otherwise constituting or reasonably leading to a Change in Control shall not be deemed a Change in
Control hereunder. Such determination shall be effective only if it is made by the Board (i) prior
to the occurrence of an event that otherwise would be, or reasonably lead to, a Change in Control,
or (ii) after such event only if made by the Board a majority of which is composed of directors who
were members of the Board immediately prior to the event that otherwise would be, or reasonably
lead to, a Change in Control.

     Notwithstanding the foregoing provisions of this Section 8.8, to the extent that any
payment or acceleration hereunder is subject to Code Section 409A, whether a Change in Control has
occurred with respect to such amount shall be determined within the meaning set forth in Code
Section 409A(a)(2)(A)(v), but only to the extent inconsistent with the foregoing provisions as
determined in the discretion of the Committee.

8.9 Exchange of Incentive Awards

     Subject to the approval of the Company’s stockholders, as required under applicable securities
laws and stock exchange requirements, the Committee may permit any Grantee to surrender outstanding

27

 

Incentive Awards in order to exercise or realize his rights under other Incentive Awards or in
exchange for the grant of new Incentive Awards, or require holders of Incentive Awards to surrender
outstanding Incentive Awards (or comparable rights under other plans or arrangements) as a
condition precedent to the grant of new Incentive Awards.

8.10 Financing

     Subject to the requirements of the Sarbanes-Oxley Act of 2002, the Company may extend and
maintain, or arrange for and guarantee, the extension and maintenance of financing to any Grantee
to purchase Shares pursuant to exercise of an Incentive Award upon such terms as are approved by
the Committee in its discretion.

SECTION 9

GENERAL

9.1 Effective Date and Grant Period

     The Plan is adopted by the Board effective as of the Effective Date, subject to the approval
of the stockholders of the Company. Incentive Awards may be granted under the Plan at any time
prior to receipt of such stockholder approval; provided, however, (a) no Shares may be issued
pursuant to Incentive Awards granted after the Effective Date until the requisite stockholder
approval is obtained, and (b) if the requisite stockholder approval is not obtained then any
Incentive Awards granted hereunder after the Effective Date shall automatically become null and
void and of no force or effect. Notwithstanding the foregoing, any Incentive Award that is
intended to satisfy the Performance-Based Exception shall not be granted until the terms of the
Plan are disclosed to, and approved by, stockholders of the Company in accordance with the
requirements of the Performance-Based Exception.

9.2 Funding and Liability of Company

     No provision of the Plan shall require the Company, for the purpose of satisfying any
obligations under the Plan, to purchase assets or place any assets in a trust or other entity to
which contributions are made, or to otherwise segregate any assets. In addition, the Company shall
not be required to maintain separate bank accounts, books, records or other evidence of the
existence of a segregated or separately maintained or administered fund for purposes of the Plan.
Although bookkeeping accounts may be established with respect to Grantees who are entitled to cash,
Common Stock or rights thereto under the Plan, any such accounts shall be used merely as a
bookkeeping convenience. The Company shall not be required to segregate any assets that may at any
time be represented by cash, Common Stock or rights thereto. The Plan shall not be construed as
providing for such segregation, nor shall the Company, the Board or the Committee be deemed to be a
trustee of any cash, Common Stock or rights thereto. Any liability or obligation of the Company to
any Grantee with respect to an Incentive Award shall be based solely upon any contractual
obligations that may be created by the Plan and any Incentive Agreement, and no such liability or
obligation of the Company shall be deemed to be secured by any pledge or other encumbrance on any
property of the Company. Neither the Company, the Board nor the Committee shall be required to give
any security or bond for the performance of any obligation that may be created by the Plan.

9.3 Withholding Taxes

     (a) Tax Withholding. The Company shall have the power and the right to deduct or
withhold, or require a Grantee to remit to the Company, an amount sufficient to satisfy
federal,

28

 

state, and local taxes, domestic or foreign, required by law or regulation to be
withheld with respect to any taxable event arising as the result of an Incentive Award.
Upon the lapse of restrictions on Restricted Stock, the Committee, in its discretion, may
elect to satisfy the tax withholding requirement, in whole or in part, by having the Company
withhold Shares having a Fair Market Value on the date the tax is to be determined equal to
the minimum withholding taxes which could be imposed on the transaction as determined by the
Committee.

     (b) Share Withholding. With respect to tax withholding required upon the exercise of Stock Options or SARs, upon
the lapse of restrictions on Restricted Stock or Restricted Stock Units, or upon any other
taxable event arising as a result of any Incentive Awards, Grantees may elect, subject to
the approval of the Committee in its discretion, to satisfy the withholding requirement, in
whole or in part, by having the Company withhold Shares having a Fair Market Value on the
date the tax is to be determined equal to the minimum withholding taxes which could be
imposed on the transaction as determined by the Committee. All such elections shall be made
in writing, signed by the Grantee, and shall be subject to any restrictions or limitations
that the Committee, in its discretion, deems appropriate.

     (c) Loans. To the extent permitted by the Sarbanes-Oxley Act of 2002 or other
applicable law, the Committee may provide for loans, on either a short term or demand basis,
from the Company to a Grantee who is an Employee to permit the payment of taxes required by
law.

9.4 No Guarantee of Tax Consequences

     The Company, the Committee and the Board do not make any commitment or guarantee that any
federal, state or local tax treatment will apply or be available to any person participating or
eligible to participate in the Plan.

9.5 Designation of Beneficiary by Grantee

     Each Grantee may, from time to time, name any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any benefit under the Plan is to be paid in case of his death
before he receives any or all of such benefit. Each such designation shall revoke all prior
designations by the same Grantee, shall be in a form prescribed by the Company and will be
effective only when filed by the Grantee in writing with the Company during the Grantee’s lifetime.
In the absence of any such designation, benefits remaining unpaid at the Grantee’s death shall be
paid to the Grantee’s estate.

9.6 Deferrals

     Except as set forth in Section 5.2, the Committee shall not permit a Grantee to defer
such Grantee’s receipt of the payment of cash or the delivery of Shares that would otherwise be due
to such Grantee by virtue of the lapse or waiver of restrictions with respect to Restricted Stock
or Restricted Stock Units, or the satisfaction of any requirements or goals with respect to
Performance-Based Restricted Awards or Other Stock-Based Awards.

9.7 Amendment and Termination

     The Board shall have the power and authority to terminate or amend the Plan at any time,
provided, however, the Board shall not, without the approval of the stockholders of the Company
within the time period required by applicable law:

29

 

     (a) except as provided in Section 8.6, increase the maximum number of Shares
which may be issued under the Plan pursuant to Section 1.4;

     (b) amend the requirements as to the class of individuals eligible to purchase Common
Stock under the Plan;

     (c) extend the term of the Plan; or,

     (d) while the Company is a Publicly Held Corporation (i) increase the maximum limits on
Incentive Awards to Covered Employees as set for compliance with the Performance-Based
Exception or (ii) decrease the authority granted to the Committee under the Plan in
contravention of Rule 16b-3 under the Exchange Act.

     No termination, amendment, or modification of the Plan shall adversely affect in any material
way any outstanding Incentive Award previously granted to a Grantee under the Plan, without the
written consent of such Grantee or other designated holder of such Incentive Award.

     In addition, to the extent that the Committee determines that (a) the listing for
qualification requirements of any national securities exchange or quotation system on which the
Company’s Common Stock is then listed or quoted, if applicable, or (b) the Code (or regulations
promulgated thereunder), require stockholder approval in order to maintain compliance with such
listing requirements or to maintain any favorable tax advantages or qualifications, then the Plan
shall not be amended in such respect without approval of the Company’s stockholders.

9.8 Requirements of Law

     (a) Governmental Entities and Securities Exchanges. The granting of Incentive Awards
and the issuance of Shares under the Plan shall be subject to all applicable laws, rules,
and regulations, and to such approvals by any governmental agencies or national securities
exchanges as may be required. Certificates evidencing Shares delivered under the Plan (to
the extent that such Shares are so evidenced) may be subject to such stop transfer orders
and other restrictions as the Committee may deem advisable under the rules and regulations
of the Securities and Exchange Commission, any securities exchange or transaction reporting
system upon which the Common Stock is then listed or to which it is admitted for quotation,
and any applicable federal or state securities law, if applicable. The Committee may cause a
legend or legends to be placed upon such certificates (if any) to make appropriate reference
to such restrictions.

     (b) Securities Act Rule 701. If no class of the Company’s securities is registered
under Section 12 of the Exchange Act, then unless otherwise determined by the Committee,
grants of Incentive Awards to “Rule 701 Grantees” (as defined below) and issuances of the
underlying Shares, if any, on the exercise or conversion of such Incentive Awards are
intended to comply with all applicable conditions of Securities Act Rule 701 (“Rule 701”),
including, without limitation, the restrictions as to the amount of securities that may be
offered and sold in reliance on Rule 701, so as to qualify for an exemption from the
registration requirements of the Securities Act. Any ambiguities or inconsistencies in the
construction of an Incentive Award or the Plan shall be interpreted to give effect to such
intention. In accordance with Rule 701, each Grantee shall receive a copy of the Plan on or
before the date an Incentive Award is granted to him, as well as the additional disclosure
required by Rule 701(e) if the aggregate sales price or amount of securities sold during any
consecutive 12-month period exceeds $5,000,000 as determined under Rule 701(e). If Rule 701
(or any successor provision) is amended to eliminate or otherwise

30

 

modify any of the
requirements specified in Rule 701, then the provisions of this Section 9.8(b) shall
be interpreted and construed in accordance with Rule 701 as so amended. For purposes of this
Section 9.8(b), as determined in accordance with Rule 701, “Rule 701 Grantees” shall
mean any Grantee other than
a director of the Company, the Company’s chairman, CEO, president, chief financial officer,
controller and any vice president of the Company, and any other key employee of the Company
who generally has access to financial and other business related information and possesses
sufficient sophistication to understand and evaluate such information.

9.9 Rule 16b-3 Securities Law Compliance for Insiders

     While the Company is a Publicly Held Corporation, transactions under the Plan with respect to
Insiders are intended to comply with all applicable conditions of Rule 16b-3 under the Exchange
Act. Any ambiguities or inconsistencies in the construction of an Incentive Award or the Plan shall
be interpreted to give effect to such intention, and to the extent any provision of the Plan or
action by the Committee fails to so comply, it shall be deemed null and void to the extent
permitted by law and deemed advisable by the Committee in its discretion.

9.10 Compliance with Code Section 162(m) for Publicly Held Corporation

     While the Company is a Publicly Held Corporation, unless otherwise determined by the Committee
with respect to any particular Incentive Award, it is intended that the Plan shall comply fully
with the applicable requirements so that any Incentive Awards subject to Section 162(m) that are
granted to Covered Employees shall qualify for the Performance-Based Exception, except for grants
of Stock Options with an Option Price set at less than the Fair Market Value of a Share on the date
of grant. If any provision of the Plan or an Incentive Agreement would disqualify the Plan or would
not otherwise permit the Plan or Incentive Award to comply with the Performance-Based Exception as
so intended, such provision shall be construed or deemed to be amended to conform to the
requirements of the Performance-Based Exception to the extent permitted by applicable law and
deemed advisable by the Committee; provided, however, no such construction or amendment shall have
an adverse effect on the prior grant of an Incentive Award or the economic value to a Grantee of
any outstanding Incentive Award.

9.11 Notices

     (a) Notice From Insiders to Secretary of Change in Beneficial Ownership.
Within two business days after the date of a change in beneficial ownership of the Common
Stock issued or delivered pursuant to the Plan, an Insider should report to the Secretary of
the Company, or his delegate, any such change to the beneficial ownership of Common Stock
that is required to be reported with respect to such Insider under Rule 16(a)-3 promulgated
pursuant to the Exchange Act. Whenever reasonably feasible, Insiders will provide the
Committee or Company with advance notification of such change in beneficial ownership.

     (b) Notice to Insiders and Securities and Exchange Commission. The Company
shall provide notice to any Insider, as well as to the Securities and Exchange Commission,
of any “blackout period,” as defined in Section 306(a)(4) of the Sarbanes-Oxley Act of 2002,
in any case in which Insider is subject to the requirements of Section 304 of said Act in
connection with such “blackout period.”

31

 

9.12 Pre-Clearance Agreement with Brokers

     Notwithstanding anything in the Plan to the contrary, no Shares issued pursuant to the Plan
will be delivered to a broker or dealer that receives such Shares for the account of an Insider
unless and until the broker or dealer enters into an agreement with the Company whereby such broker
or dealer agrees to
report immediately to the Secretary of the Company (or other designated person) a change in
the beneficial ownership of such Shares.

9.13 Successors to Company

     All obligations of the Company under the Plan with respect to Incentive Awards granted
hereunder shall be binding on any successor to the Company, whether the existence of such successor
is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or
substantially all of the business and/or assets of the Company.

9.14 Miscellaneous Provisions

     (a) No Employee, Outside Director, or other person shall have any claim or right to be
granted an Incentive Award under the Plan. Neither the Plan, nor any action taken hereunder,
shall be construed as giving any Employee or Outside Director any right to be retained in
the Employment or other service of the Company or any Subsidiary.

     (b) The expenses of the Plan shall be borne by the Company.

     (c) By accepting any Incentive Award, each Grantee and each person claiming by or
through him shall be deemed to have indicated his acceptance of the Plan.

9.15 Severability

     In the event that any provision of the Plan shall be held illegal, invalid or unenforceable
for any reason, such provision shall be fully severable, but shall not affect the remaining
provisions of the Plan, and the Plan shall be construed and enforced as if the illegal, invalid, or
unenforceable provision was not included herein.

9.16 Gender, Tense and Headings

     Whenever the context so requires, words of the masculine gender used herein shall include the
feminine and neuter, and words used in the singular shall include the plural. Section headings as
used herein are inserted solely for convenience and reference and constitute no part of the
interpretation or construction of the Plan.

9.17 Governing Law

     The Plan shall be interpreted, construed and constructed in accordance with the laws of the
State of Delaware without regard to its conflicts of law provisions, except as may be superseded by
applicable laws of the United States.

9.18 Section 409A Compliance

     To the extent that the Plan provides for the payment of amounts that constitute “nonqualified
deferred compensation” under Code Section 409A, the Plan is intended to comply with the provisions
of

32

 

Section 409A so as to prevent the inclusion of gross income of any amounts deferred hereunder in
a taxable year that is prior to the taxable year or years in which such amounts would otherwise be
actually distributed and made available to Grantees or beneficiaries. Notwithstanding any other
provision of the Plan, at the discretion of the Committee, the timing of the payment for any
Incentive Award that was issued to a Grantee prior to December 31, 2008 may, at the election of the
Grantee, be changed to an
earlier or later date in accordance with IRS Notice 2006-79, IRS Notice 2007-86 or other
authority, as applicable, provided that such election change is made not later than by December 31
of the applicable year as required pursuant to the terms and conditions for such transition relief
as set forth in the applicable IRS Notice or other authority.

[Signature page follows.]

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     IN WITNESS WHEREOF, on this 13th day of May, 2008, the Company has caused the Plan to be duly
executed in its name and on its behalf by its duly authorized officer.

	 	 	 	 	 
	 	 	SMITH INTERNATIONAL, INC.
	 
	 	 	 	 
	 

	 	By: 	 	/s/ Richard E. Chandler, Jr. 
	 

	 	 	 
	 	 	Name: Richard E. Chandler, Jr.
	 	 	Title: Senior Vice President, General Counsel and
Secretary

34

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