Document:

exv10w3

 

EXHIBIT 10.3

	 	 	 
	

	 	Bear, Stearns & Co. Inc.

383 Madison Avenue
New York, NY 10179
	 

	 	Tel (212) 272-2000
	 

	 	www.bearstearns.com

December 7, 2006

To: SESI, LLC

1105 Peters Road

Harvey, Louisiana, 70058

Attention: Mr. Robert S. Taylor, Chief Financial Officer

Telephone No.: (504) 210-4105

Facsimile No.: (504) 362-9642

Re: Call Option Transaction

     The purpose of this letter agreement is to confirm the terms and conditions of the Transaction
entered into between Bear, Stearns International Limited (“Dealer”) and SESI, LLC
(“Counterparty”) on the Trade Date specified below (the “Transaction”). This letter agreement
constitutes a “Confirmation” as referred to in the ISDA Master Agreement specified below. This
Confirmation shall replace any previous agreements and serve as the final documentation for this
Transaction.

     The definitions and provisions contained in the 2002 ISDA Equity Derivatives Definitions (the
“Equity Definitions”), as published by the International Swaps and Derivatives Association, Inc.
(“ISDA”) are incorporated into this Confirmation. In the event of any inconsistency between the
Equity Definitions and this Confirmation, this Confirmation shall govern. Certain defined terms
used herein have the meanings assigned to them in the Offering Memorandum dated December 7, 2006
(the “Offering Memorandum”) relating to the USD 400,000,000 principal amount of 11/2% Senior
Exchangeable Notes due 2026, (the “Exchangeable Notes” and each USD 1,000 principal amount of
Exchangeable Notes, an “Exchangeable Note”) giving effect to the exercise in full of the initial
purchasers’ option to purchase an additional $50,000,000 of Exchangeable Notes, issued by
Counterparty pursuant to an Indenture to be dated December 12, 2006 between Counterparty and The
Bank of New York Trust Company, as trustee (without giving effect to any subsequent amendment,
modification or waiver, the “Indenture”). In the event of any inconsistency between the terms
defined in the Offering Memorandum, the Indenture and this Confirmation, this Confirmation shall
govern.

     Each party is hereby advised, and each such party acknowledges, that the other party has
engaged in, or refrained from engaging in, substantial financial transactions and has taken other
material actions in reliance upon the parties’ entry into the Transaction to which this
Confirmation relates on the terms and conditions set forth below.

     1. This Confirmation evidences a complete and binding agreement between Dealer and
Counterparty as to the terms of the Transaction to which this Confirmation relates. This
Confirmation shall supplement, form a part of, and be subject to an agreement in the form of the
2002 ISDA Master Agreement (the “Agreement”) as if Dealer and Counterparty had executed an
agreement in such form (but without any Schedule except for (i) the election of the laws of the
State of New York as the governing law, and (ii) the election of US Dollars (“USD”) as the
Termination Currency) on the Trade Date. In the event of any inconsistency between provisions of
that Agreement and this Confirmation, this Confirmation will

 

 

prevail for the purpose of the Transaction to which this Confirmation relates. The parties
hereby agree that no Transaction other than the Transaction to which this Confirmation relates
shall be governed by the Agreement.

          2. The terms of the particular Transaction to which this Confirmation relates are as follows:

          General Terms:

	 	 	 	 	 
	 

	 	Trade Date:
	 	December 7, 2006
	 
	 	 	 	 
	 

	 	Option Style:
	 	“Modified American”, as described under
“Procedures for Exercise” below.
	 
	 	 	 	 
	 

	 	Option Type:
	 	Call
	 
	 	 	 	 
	 

	 	Buyer:
	 	Counterparty
	 
	 	 	 	 
	 

	 	Seller:
	 	Dealer
	 
	 	 	 	 
	 

	 	Shares:
	 	The common stock of Superior Energy
Services, Inc., par value USD 0.001 per
Share (Exchange symbol “SPN”), subject
to an adjustment as set forth under
“Consequences of Merger Events” below.
	 
	 	 	 	 
	 

	 	Number of Options:
	 	The product of (i) the Applicable
Percentage and (ii) the number of
Exchangeable Notes in denominations of
USD 1,000 principal amount issued by
Counterparty on the closing date for
the initial issuance of the
Exchangeable Notes. For the avoidance
of doubt, the Number of Options
outstanding shall be reduced by each
exercise of Options hereunder. In no
event will the Number of Options be
less than zero.
	 
	 	 	 	 
	 

	 	Option Entitlement:
	 	As of any date, a number of Shares per
Option equal to the Exchange Rate as of
such date (as defined in the Indenture,
but without regard to any adjustments
to the Exchange Rate pursuant to
Section 12.03 of the Indenture, except
to the extent provided under “Delivery
Obligation” below).
	 
	 	 	 	 
	 

	 	Applicable Percentage: 

Premium:
	 	50%
 
USD 48,000,000 (Premium per Option USD
240).
	 
	 	 	 	 
	 

	 	Premium Payment Date:
	 	December 12, 2006
	 
	 	 	 	 
	 

	 	Exchange:
	 	New York Stock Exchange

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	 	Related Exchange(s):
	 	All Exchanges

Procedures for Exercise:

	 	 	 	 	 
	 

	 	Exercise Period(s):
	 	Notwithstanding the Equity Definitions,
the Exercise Period shall be, in
respect of the Exercisable Options (as
defined below), each period commencing
on and including an Exchange Date to
and including 5:00 PM (New York City
time) on the Scheduled Trading Day
immediately preceding the first day of
the related Observation Period (as
defined in the Indenture); provided
that if by the 30th
Scheduled Trading Day prior to December
15, 2011, Counterparty has specified
December 15, 2011 as a redemption date
for the Exchangeable Notes pursuant to
the terms of the Indenture, there shall
be a single Exercise Period for
Exercisable Options with respect to any
Exchangeable Notes surrendered for
exchange following Counterparty’s
notice of such redemption and the final
day of the Exercise Period shall be the
Scheduled Trading Day immediately
preceding the redemption date; provided
further that if by the 30th
Scheduled Trading Day prior to December
15, 2011, Counterparty has not
specified December 15, 2011 as a
redemption date for the Exchangeable
Notes pursuant to the terms of the
Indenture, notices of exchange received
by Counterparty from holders of
Exchangeable Notes following such
30th Scheduled Trading Day
prior to December 15, 2011 shall not
result in the commencement of an
Exercise Period and no Exercisable
Options will be exercised or deemed
exercised in respect of such notices of
exchange of Exchangeable Notes.
	 
	 	 	 	 
	 

	 	Exchange Date:
	 	Each “Exchange Date”, as defined in the
Indenture, occurring during the
Exercise Period for Exchangeable Notes
(such Exchangeable Notes, the “Relevant
Exchangeable Notes” for such Exchange
Date).
	 
	 	 	 	 
	 

	 	Exercisable Options:
	 	In respect of each Exercise Period, a
number of Options equal to the product
of (i) the Applicable Percentage and
(ii) the number of Relevant
Exchangeable Notes surrendered to
Counterparty for exchange with respect
to such Exercise Period but no greater
than the Number of Options.

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	 	Expiration Date:
	 	The earlier of (i) the last day on
which any Exchangeable Notes remain
outstanding and (ii) December 15, 2011.
	 
	 	 	 	 
	 

	 	Minimum Number of Options:
	 	 
Zero
	 
	 	 	 	 
	 

	 	Maximum Number of Options:
	 	 
Number of Options
	 
	 	 	 	 
	 

	 	Multiple Exercise:
	 	Applicable, as described under
Exercisable Options above.
	 
	 	 	 	 
	 

	 	Automatic Exercise:
	 	Applicable; and means that in respect
of an Exercise Period, a number of
Options not previously exercised
hereunder equal to the Exercisable
Options shall be deemed to be exercised
on the Expiration Date for such
Exercisable Options; provided that such
Options shall be deemed exercised only
to the extent that Counterparty has
provided a Notice of Exercise to
Dealer.
	 
	 	 	 	 
	 

	 	Notice of Exercise:
	 	Notwithstanding anything to the
contrary in the Equity Definitions, in
order to exercise any Exercisable
Options, Counterparty or trustee under
the Indenture (the “Trustee”) on behalf
of Counterparty must notify Dealer in
writing prior to 5:00 P.M., New York
City time, on the Scheduled Trading Day
prior to the first day of the
Observation Period for the Relevant
Exchangeable Notes in respect of which
the Exercisable Options are being
exercised (the “Notice Deadline”) of
(i) the number of such Exercisable
Options, (ii) the first day of the
Observation Period and the expected
Settlement Date, and (iii) the method
by which Counterparty is satisfying its
obligation to exchange the Relevant
Exchangeable Notes; provided that,
notwithstanding the foregoing, such
notice (and the related Automatic
Exercise of Options) shall be effective
if given after the Notice Deadline but
prior to 5:00 PM (New York City time)
on the fifth Exchange Business Day of
such “Observation Period,” in which
event the Calculation Agent shall have
the right to adjust the Delivery
Obligation as appropriate to reflect
the additional costs (including, but
not limited to, hedging mismatches and
market losses) and expenses incurred by
Dealer or any of its affiliates in
connection with its hedging activities
(including the unwinding of any hedge
position) as a result of its not having
received such notice prior to the
Notice Deadline, unless Counterparty’s
chief financial

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	 	 	 	officer received a
phone call from an officer of the
Dealer inquiring about such notice
between 9:00 AM and 5:00 PM (New York
City time) on the second Exchange
Business Day preceding the beginning of
the Observation Period, in which case
this proviso shall not apply; provided
further that in respect of Exercisable
Options relating to Exchangeable Notes
tendered for exchange following the
election by Counterparty of December
15, 2011 as a redemption date for the
Exchangeable Notes pursuant to the
terms of the Indenture, such notice may
be given on or prior to the second
Scheduled Trading Day immediately
preceding the Expiration Date and need
only specify the number of such
Exercisable Options.
	 
	 	 	 	 
	 

	 	Dealer’s Telephone Number
and Telex and/or Facsimile
Number and Contact Details
for purpose of Giving Notice
of Exercise:
	 	

To: Bear, Stearns & Co. Inc. 

Attn: Patrick Dempsey 

Telephone: (212)272-0550

Facsimile: (212) 272-4022
	 
	 	 	 	 
	 

	 	Valuation Time:
	 	At the close of trading of the regular
trading session on the Exchange;
provided that if the principal trading
session is extended, the Calculation
Agent shall determine the Valuation
Time in its reasonable discretion.
	 
	 	 	 	 
	 

	 	Market Disruption Event:
	 	Section 6.3(a) of the Equity
Definitions is hereby amended by (x)
deleting the phrase “during the one
hour period that ends at the relevant
Valuation Time” in Section 6.3(a)(ii)
and replacing it with the phrase “at
any time prior to 1:00 p.m. on such
Scheduled Trading Day of an aggregate
one half hour period” and (y) deleting
the phrase “or (iii) an Early Closure”.

Settlement Terms:

	 	 	 	 	 
	 

	 	Settlement Date:
	 	In respect of an Exercise Date, the
settlement date for the Shares and cash
(in respect of fractional shares) to be
delivered under the Relevant
Exchangeable Notes under the terms of
the Indenture; provided that if such a
day is

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	 	 	 	not the third Currency Business
Day following the last day of the
related Observation Period, Dealer
shall use its reasonable efforts to
make deliveries on the Settlement Date
for the Relevant Exchangeable Notes
(subject to receipt of a prior notice
from Issuer sufficiently in advance of
such Settlement Date) and if,
notwithstanding such reasonable
efforts, the Dealer is unable to effect
the delivery on such day, then it shall
be the third Currency Business Day
following the last day of the related
Observation Period.
	 
	 	 	 	 
	 

	 	Delivery Obligation:
	 	In lieu of the obligations set forth in
Sections 8.1 and 9.1 of the Equity
Definitions, and subject to “Notice of
Exercise” above, in respect of an
Exercise Date occurring on or with
respect to an Exchange Date, Dealer
will deliver to Counterparty, on the
related Settlement Date, for each
Option exercised or deemed exercised,
an amount equal to the product of (x)
the Applicable Percentage and (y) an
aggregate number of Shares and an
aggregate amount of cash (in respect of
fractional Shares) in excess of (i) USD
1,000 (if Counterparty has elected to
settle the Relevant Exchangeable Notes
in cash and Shares) or (ii) the number
of Shares equivalent to USD 1,000 (if
Counterparty has elected to settle the
Relevant Exchangeable Notes in Shares
only), as determined by the Calculation
Agent based on the sum, for all Trading
Days in the Observation Period, of a
respective number of Shares equal to
USD 40 divided by the Daily VWAP (as
defined in the Indenture) for each such
Trading Day (if Counterparty has
elected to settle the Relevant
Exchangeable Notes in Shares only) that
Counterparty is obligated to deliver to
the holder(s) of the Relevant

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	 	 	 	Exchangeable Notes exchanged on such
Exchange Date pursuant to Section
12.01(d) of the Indenture (the
“Exchange Obligation”); provided that,
if the Relevant Exchangeable Notes are
being exchanged in connection with any
Fundamental Change (as defined in the
Indenture), (a) the Calculation Agent
shall determine an amount that would be
payable by Dealer to Counterparty
pursuant to Section 6(e)(ii)(1) of the
Agreement (for purposes of such
determination, the Calculation Agent
shall not be taking into account the
amount deliverable to the holder(s) of
the Relevant Exchangeable Notes
pursuant to Section 12.03 of the
Indenture) if (x) the Number of Options
were equal to the product of the
Applicable Percentage and the number of
the Relevant Exchangeable Notes and (y)
the Fundamental Change were an
Additional Termination Event occurring
on the effective date for the
Fundamental Change with Counterparty as
the sole Affected Party (the “Fair
Value Amount”), and (b) to the extent
that a number of additional Shares that
Counterparty is obligated to deliver to
holder(s) of the Relevant Exchangeable
Notes as a result of any adjustments to
the Exchange Rate pursuant to Section
12.03 of the Indenture in respect of
such Fundamental Change exceeds the
number of Shares equal to the Fair
Value Amount (such number of Shares to
be determined by the Calculation Agent
based on the daily VWAP of the Shares
on the effective date of the
Fundamental Change), then the “Delivery
Obligation” shall be determined
excluding any such excess Shares. For
the avoidance of doubt, if the
“Exchange Obligation”, as defined in
the Indenture, is less than or equal to
USD 1,000 (or a number of Shares
equivalent to USD 1,000 determined as
set forth above), Dealer will have no
delivery obligation hereunder.
	 
	 	 	 	 
	 

	 	Notice of Delivery Obligation:
	 	No later than the Exchange Business Day
immediately following the last day of
the “Observation Period”, as defined in
the Indenture, Counterparty or the
Trustee on behalf of Counterparty shall
give Dealer notice of the final number
of Shares and the amount of cash (in
respect of fractional shares)
comprising the Exchange Obligation (it
being understood, for the avoidance of
doubt, that the requirement of
Counterparty to deliver such notice
shall not limit Counterparty’s
obligations with respect to Notice of
Exercise, as set forth above, in any
way).
	 
	 	 	 	 
	 

	 	Other Applicable Provisions:
	 	To the extent Dealer is obligated to
deliver Shares hereunder, the
provisions of Sections 9.1(c), 9.8,
9.9, 9.11, 9.12 and 10.5 of the Equity
Definitions will be applicable, except
that all references in such provisions
to “Physical Settlement” shall be read
as references to “Net Share
Settlement”; and provided that the
Representation and Agreement contained
in Section 9.11 of the

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	 	 	 	Equity
Definitions shall be modified by
excluding any representations therein
relating to restrictions, obligations,
limitations or requirements under
applicable securities laws as a result
of the fact that Buyer is the Issuer of
the Shares. “Net Share Settlement” in
relation to any Option means that
Dealer is obligated to deliver Shares
hereunder.

     3. Additional Terms applicable to the Transaction:

     Adjustments applicable to the Transaction:

	 	 	 	 	 
	 

	 	Method of Adjustment:
	 	Calculation Agent Adjustment, and
means that, notwithstanding
Section 11.2(c) of the Equity
Definitions, upon any adjustment
to the Exchange Rate of the
Exchangeable Notes pursuant to
the Indenture (other than Section
12.03 of the Indenture, except to
the extent provided under
“Delivery Obligation” above), the
Calculation Agent will make a
corresponding adjustment to any
one or more of the Number of
Options, the Option Entitlement
and any other variable relevant
to the exercise, settlement or
payment for the Transaction.
Immediately upon the occurrence
of any adjustment contemplated in
Section 12.03 of the Indenture
(an “Adjustment Event”),
Counterparty shall notify the
Calculation Agent of such
Adjustment Event; and once the
adjustments to be made to the
terms of the Indenture and the
Exchangeable Notes in respect of
such Adjustment Event have been
determined, Counterparty shall
immediately notify the
Calculation Agent in writing of
the details of such adjustments.
	 
	 	 	 	 
	 

	 	Potential Adjustment Events:
	 	Notwithstanding Section 11.2(e)
of the Equity Definitions, a
“Potential Adjustment Event”
means an occurrence of any event
or condition, as set forth in
Section 12.02 of the Indenture
that would result in an
adjustment to the Exchange Rate
of the Exchangeable Notes;
provided that in no event shall
there be any adjustment hereunder
as a result of an adjustment to
the Exchange Rate pursuant to
Section 12.03 of the Indenture,
except to the extent provided
under “Delivery Obligation”
above.

8

 

Extraordinary Events applicable to the Transaction:

	 	 	 	 	 
	 

	 	Merger Events:
	 	Notwithstanding Section
12.1(b) of the Equity
Definitions, a “Merger
Event” means the
occurrence of any event
or condition set forth in
Section 12.05 of the
Indenture.
	 
	 	 	 	 
	 

	 	Tender Offers:
	 	Notwithstanding Section
12.1(d) of the Equity
Definitions, a “Tender
Offer” means the
occurrence of any event
or condition set forth in
Section 12.02(e) of the
Indenture and, upon the
occurrence of such an
event, adjustments set
forth under “Method of
Adjustment” above shall
apply.
	 
	 	 	 	 
	 

	 	Consequences of Merger Events:
	 	Notwithstanding Section
12.2 of the Equity
Definitions, upon the
occurrence of a Merger
Event, the Calculation
Agent shall make a
corresponding adjustment
in respect of any
adjustment under the
Indenture to any one or
more of the nature of the
Shares, Number of
Options, the Option
Entitlement and any other
variable relevant to the
exercise, settlement or
payment for the
Transaction; provided
however that such
adjustment shall be made
without regard to any
adjustment to the
Exchange Rate for the
issuance of additional
shares as set forth in
Section 12.03 of the
Indenture, except to the
extent provided under
“Delivery Obligation”
above. Notwithstanding
the foregoing, upon the
occurrence of a Merger
Event that constitutes a
“Public Acquirer Change
in Control”, as defined
in the Indenture, with
respect to which
Counterparty elects to
adjust the terms of the
Exchangeable Notes in
accordance with Section
12.04 of the Indenture
(such a Public Acquirer
Change in Control, a
“PACC Event”), subject to
compliance with the
proviso to this sentence,
the Calculation Agent
will adjust any one or
more of the nature of the
Shares, the Number of
Options, the Option
Entitlement and any other
variable relevant to the
exercise, settlement or
payment for the
Transaction to the extent
required to preserve the
fair value of the
Transaction to Dealer
(such adjustments, the
“PACC Adjustments”);
provided that, as a
condition precedent to
the adjustments
contemplated above,
Counterparty and, if
Counterparty is not the
issuer of the “Public
Acquirer Common Stock”,
as defined in the

9

 

	 	 	 	 	 
	 

	 	 	 	Indenture, the issuer of
the Public Acquirer
Common Stock, shall,
prior to the effective
date of such PACC Event,
have entered into such
documentation containing
representations,
warranties and agreements
relating to securities
laws and other issues as
requested by Dealer that
Dealer determined, in its
reasonable discretion, to
be reasonably necessary
or appropriate to allow
Dealer to continue as a
party to the Transaction,
as adjusted, and to
preserve its hedge
unwind, hedge leg in and
other hedging activities
in connection with the
Transaction in a manner
compliant with applicable
legal, regulatory or
self-regulatory
requirements, or with
related policies and
procedures applicable to
Dealer.
	 
	 	 	 	 
	 

	 	Nationalization, Insolvency or
Delisting:
	 	Cancellation and Payment
(Calculation Agent
Determination); provided
that Counterparty may
elect settlement of the
related obligation in
accordance with Section
9(k) below; provided,
further that, in addition
to the provisions of
Section 12.6(a)(iii) of
the Equity Definitions,
it will also constitute a
Delisting if the Exchange
is located in the United
States and the Shares are
not re-listed, re-traded
or re-quoted within 30
Exchange Business Days
following such Delisting
on a U.S. national or
regional securities
exchange or an
established automated
over-the-counter trading
market in the U.S.; if
the Shares are re-listed,
re-traded or re-quoted
within 30 Scheduled
Trading Days following
such Delisting on any
U.S. national or regional
securities exchange or an
established automated
over-the-counter trading
market in the U.S., such
exchange or quotation
system shall thereafter
be deemed to be the
Exchange.
	 
	 	 	 	 
	 

	 	Additional Disruption Events:	 	 
	 
	 	 	 	 
	 

	 	Change in Law:
	 	Applicable
	 
	 	 	 	 
	 

	 	Failure to Deliver:
	 	Applicable
	 
	 	 	 	 
	 

	 	Insolvency Filing:
	 	Applicable
	 
	 	 	 	 
	 

	 	Hedging Disruption:
	 	Not Applicable
	 
	 	 	 	 
	 

	 	     Determining Party:
	 	For all applicable
Additional Disruption
Events, Dealer.

10

 

	 	 	 	 	 
	 

	 	Non-Reliance:
	 	Applicable
	 
	 	 	 	 
	 

	 	Agreements and Acknowledgements	 	 
	 

	 	Regarding Hedging Activities:
	 	Applicable
	 
	 	 	 	 
	 

	 	Additional Acknowledgments:
	 	Applicable
	 
	 	 	 	 
	 

	 	4. Calculation Agent:
	 	Dealer

  5. Account Details:

	 	(a)	 	Account for payments to Counterparty:
	 
	 	 	 	Whitney National Bank

228 St. Charles Avenue

New Orleans, LA 70130

ABA 065000171
	 
	 	 	 	For credit to:

SESI, LLC

1105 Peters Road

Harvey, LA 70058

Account 713121440
	 
	 	 	 	Account for delivery of Shares to Counterparty:
	 
	 	 	 	To be provided under separate cover by Counterparty.

	 	(b)	 	Account for payments to Dealer:
	 
	 	 	 	Citibank

111 Wall Street

New York, NY

ABA # 021000089

A/C Bear Stearns

A/C # 09253186

Sub A/C NZA5

Sub A/C # 351-29171-17
	 
	 	 	 	Account for delivery of Shares to Dealer: DTC # 352

          6. Offices:

The Office of Counterparty for the Transaction is: Inapplicable, Counterparty is not a
Multibranch Party.

The Office of Dealer for the Transaction is: Inapplicable, Dealer is not a Multibranch Party.

11

 

     7. Notices: For purposes of this Confirmation:

	 	(a)	 	Address for notices or communications to Counterparty:

SESI, LLC

1005 Peters Road

Harvey, Louisiana 70058

Attention: Mr. Robert S. Taylor, Chief Financial Officer

Telephone No.: (504) 210-4105

Facsimile No.: (504) 362-9642

Address for notices or communications to Dealer:

Bear, Stearns International Limited

One Canada Square

London, England

Attention: Legal Department

With a copy to:

Bear, Stearns & Co. Inc.

383 Madison Avenue

New York, NY 10179

Attention: Michael O’Donovan

Telephone No: (212) 272-9895

Facsimile No: (917) 849-0251

     8. Representations and Warranties of Counterparty

     (A) The Counterparty hereby represents and warrants to Dealer that:

     (a) It is an “eligible contract participant” (as such term is defined in Section
1a(12) of the Commodity Exchange Act, as amended (the “CEA”));

     (b) Each of it, Superior Energy Services, Inc. (the “Issuer”) and their affiliates is
not, on the date hereof, in possession of any material non-public information with respect
to Counterparty;

     (c) On the Trade Date, neither Counterparty nor any “affiliate” or “affiliated
purchaser” (each as defined in Rule 10b-18 of the Exchange Act (“Rule 10b-18”)) shall
directly or indirectly (including, without limitation, by means of any cash-settled or
other derivative instrument) purchase, offer to purchase, place any bid or limit order that
would effect a purchase of, or commence any tender offer relating to, any Shares (or an
equivalent interest, including a unit of beneficial interest in a trust or limited
partnership or a depository share) or any security convertible into or exchangeable or
exercisable for Shares, except through Bear Stearns & Co. Inc.;

     (d) Without limiting the generality of Section 13.1 of the Equity Definitions,
Counterparty acknowledges that Dealer is not making any representations or warranties with

12

 

respect to the treatment of the Transaction under FASB Statements 149 or 150, EITF
Issue No. 00-19 (or any successor issue statements) or under FASB’s Liabilities & Equity
Project;

     (e) Without limiting the generality of Section 3(a)(iii) of the Agreement, the
Transaction will not violate Rule 13e-1 or Rule 13e-4 under the Exchange Act;

     (f) Prior to the Trade Date, Counterparty shall deliver to Dealer resolutions of
Counterparty’s and Issuer’s boards of directors authorizing the Transaction and such other
certificate or certificates as Dealer shall reasonably request;

     (g) Counterparty is not, and after giving effect to the transactions contemplated
hereby will not be required to register as an “investment company” as such term
is defined in the Investment Company Act of 1940, as amended;

     (h) On the Trade Date (A) the assets of Counterparty at their fair valuation exceed
the liabilities of Counterparty, including contingent liabilities, (B) the capital of
Counterparty is adequate to conduct the business of Counterparty and (C) Counterparty has
the ability to pay its debts and obligations as such debts mature and does not intend to,
or does not believe that it will, incur debt beyond its ability to pay as such debts
mature;

     (i) Counterparty understands that no obligations of Dealer to it hereunder will be
entitled to the benefit of deposit insurance or securities investor protection and that
such obligations will not be guaranteed by any affiliate of Dealer (except as expressly set
forth herein) or any governmental agency;

     (j) The Exchangeable Notes have been duly authorized by the Counterparty, and, when
issued and delivered as provided in the Purchase Agreement dated as of December 7, 2006
between Counterparty, the guarantors named therein and the Initial Purchasers party thereto
(the “Purchase Agreement”) and duly authenticated pursuant to the Indenture (assuming due
authentication of the Exchangeable Notes by the trustee) will be duly executed,
authenticated, issued and delivered and will constitute valid and legally binding
obligations of the Counterparty entitled to the benefits provided by the Indenture; and the
Exchangeable Notes will conform, in all material respects, to the descriptions thereof in
Offering Memorandum;

     (k) The Indenture has been duly authorized, executed and delivered by the Counterparty
and the guarantors named therein, and (assuming the authorization, execution and delivery
by the trustee), constitutes a valid and legally binding instrument of the Counterparty,
enforceable against the Counterparty in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, fraudulent transfer, fraudulent conveyance,
moratorium, reorganization and laws of general applicability relating to or affecting
creditors’ rights and general equity principles (regardless of whether enforceability is
considered in a proceeding in equity or at law); and the Indenture conforms, in all
material respects, to the description thereof in the Offering Memorandum;

     (l) Upon issuance and delivery of the Exchangeable Notes in accordance with the
Purchase Agreement and the Indenture, the Exchangeable Notes will be exchangeable at the
option of the holder thereof into Shares or cash and Shares, if applicable, in accordance
with the terms of the Exchangeable Notes; the Shares reserved for issuance upon exchange of
the Exchangeable Notes have been duly authorized and reserved and, when issued upon
exchange of the Exchangeable Notes in accordance with the terms of the Exchangeable Notes,
will be validly issued, fully paid and non assessable, and the issuance of the Shares will
not be subject to any preemptive or similar rights;

13

 

     (m) Neither the Counterparty nor any affiliate (as defined in Rule 501(b) of
Regulation D of the Securities Act of 1933, as amended (the “Securities Act”)) of the
Counterparty has directly, or through any agent, sold, offered for sale, solicited offers
to buy or otherwise negotiated in respect of, any security (as defined in the Securities
Act) which is or will be integrated with the sale of the Exchangeable Notes in a manner
that would require the registration under the Exchangeable Notes Act of the offering
contemplated by the Offering Memorandum;

     (n) None of the Counterparty, any affiliate of the Counterparty or any person acting
on its or their behalf (other than the Initial Purchasers for whom we make no
representation) has offered or sold the Exchangeable Notes by means of any general
solicitation or general advertising within the meaning of Rule 502(c) under the Securities
Act;

     (o) The Exchangeable Notes satisfy the requirements set forth in Rule 144A(d)(3) under
the Securities Act;

     (p) The issue and sale of the Exchangeable Notes, the issuance by the Issuer of the
Shares upon exchange of the Exchangeable Notes and the compliance by the Counterparty with
all of the provisions of the Exchangeable Notes, the Indenture, the Registration Rights
Agreement dated December 12, 2006 among the Counterparty, the Issuer, the guarantors named
therein and the Initial Purchasers (the “Registration Rights Agreement”), the Purchase
Agreement and this Confirmation and the consummation of the transactions herein and therein
contemplated (A) will not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the Counterparty or any of
its subsidiaries is a party or by which the Counterparty or any of its subsidiaries is
bound or to which any of the property or assets of the Counterparty or any of its
subsidiaries is subject, except such conflict, breach or violation as would not have a
Material Adverse Effect, (B) will not result in any violation of the provisions of the
certificate of incorporation or bylaws of the Counterparty, and (C) will not result in the
violation of any statute or any order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Counterparty or any of its subsidiaries or any
of its properties, except such violations as would not have a Material Adverse Effect; and
except as disclosed in the Offering Memorandum, no consent, approval, authorization,
order, registration or qualification of or with any such court or governmental agency or
body is required for the issue and sale of the Exchangeable Notes or the consummation by
the Counterparty of the transactions contemplated by the Purchase Agreement or the
Indenture, except for the filing and effectiveness of a registration statement by the
Counterparty with the Commission pursuant to the Securities Act and the Registration Rights
Agreement, the qualification of the Indenture under the Trust Indenture Act of 1939 (“Trust
Indenture Act”) in relation to the Shares and such consents, approvals, authorizations,
registrations or qualifications as may be required under state Securities or Blue Sky laws
in connection with the purchase and distribution of the Exchangeable Notes by the Initial
Purchasers in the manner contemplated by the Purchase Agreement and Offering Memorandum and
except for such consents the failure to obtain would not have a Material Adverse Effect.
“Material Adverse Effect” means any change in the capital stock, increase in long-term debt
or any decreases in consolidated net current assets or stockholders’ equity of the Issuer
or any of its subsidiaries or any material adverse change, or any development involving a
prospective material adverse change, in or affecting the general affairs, management,
current or future consolidated financial position, stockholders’ equity or results of
operations of the Issuer and its subsidiaries taken as a whole;

     (q) Issuer is subject to Section 13 or 15(d) of the Securities Exchange Act, as
amended (the “Exchange Act”);

14

 

     (r) All of the issued shares of capital stock of the Issuer have been duly and validly
authorized and issued and are fully paid and non-assessable; such authorized capital stock
of the Issuer conforms as to legal matters in all material respects to the description
thereof contained in the Offering Memorandum; there are no outstanding options to purchase,
or any rights or warrants to subscribe for, or any securities or obligations convertible
into, or any contracts or commitments to issue or sell, any Shares, any shares of capital
stock of any subsidiary, or any such warrants, convertible securities or obligations,
except as set forth in the Offering Memorandum and except for options granted under, or
contracts or commitments pursuant to, the Issuer’s previous or currently existing stock
option and other similar officer, director or employee benefit plans;

     (s) Prior to the Trade Date, neither the Counterparty nor any of its affiliates has
taken any action which is designed to or which has constituted or which might have been
expected to cause or result in stabilization or manipulation of the price of any security
of the Issuer in connection with the offering of the Exchangeable Notes;

     (t) None of the Issuer or any of its subsidiaries is in violation of its certificate
of incorporation or certificate of formation, or its bylaws or limited liability company
agreement (or other organizational documents), or in default in the performance or
observance of any material obligation, covenant or condition contained in any indenture,
mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it
is a party or by which it or any of its properties may be bound, other than such defaults
that individually or in the aggregate would not have a Material Adverse Effect; and

     (u) Other than as set forth in the Offering Memorandum, there are no legal or
governmental proceedings pending to which the Issuer or any of its subsidiaries is a party
or of which any property of the Issuer or any of its subsidiaries is the subject which, if
determined adversely to the Issuer or any of its subsidiaries, would individually or in the
aggregate have a Material Adverse Effect; and, to the best of the Counterparty’s knowledge,
no such proceedings are threatened or contemplated by governmental authorities or
threatened by others.

     (B) Each party makes to the other the representations and warranties set forth in Sections
3(a) through (f) of the Agreement with respect to the Agreement as supplemented by this
Confirmation; provided that Dealer makes the representation and warranty set forth in Section 3(e)
and Counterparty makes the representation and warranty set forth in Section 3(f). In addition, each
of Dealer and Counterparty acknowledges that the offer and sale of the Transaction to it is
intended to be exempt from registration under the Securities Act of 1933, as amended (the
“Securities Act”), by virtue of Section 4(2) thereof. Accordingly, Counterparty represents and
warrants to Dealer that (i) it has the financial ability to bear the economic risk of its
investment in the Transaction and is able to bear a total loss of its investment and its
investments in and liabilities in respect of the Transaction, which it understands are not readily
marketable, are not disproportionate to its net worth, and it is able to bear any loss in
connection with the Transaction, including the loss of its entire investment in the Transaction,
(ii) it is an “accredited investor” as that term is defined in Regulation D as promulgated under
the Securities Act, (iii) it is entering into the Transaction for its own account and without a
view to the distribution or resale thereof, (iv) the assignment, transfer or other disposition of
the Transaction has not been and will not be registered under the Securities Act and is restricted
under this Confirmation, the Securities Act and state securities laws, and (v) its financial
condition is such that it has no need for liquidity with respect to its investment in the
Transaction and no need to dispose of any portion thereof to satisfy any existing or contemplated
undertaking or indebtedness and is capable of assessing the merits of and understanding (on its own
behalf or through independent professional advice), and understands and accepts, the terms,
conditions and risks of the Transaction.

15

 

     9. Other Provisions:

     (a) Opinions. Counterparty shall deliver to Dealer an opinion of counsel,
dated as of the Trade Date, with respect to the matters set forth in Section 3(a) of the
Agreement and Section 8(A)(g) of this Confirmation.

     (b) Repurchase Notices. Counterparty shall, on any day on which Issuer
effects any repurchase of Shares, give Dealer a written notice of such repurchase (a
“Repurchase Notice”) on such day, and, if such notice relates to material non-public
information at the time, simultaneously publicly announce (or cause to have announced) such
information, if following such repurchase, the Notice Percentage as determined on such day
is (i) greater than 4.5% and (ii) greater by 0.5% than the Notice Percentage included in
the immediately preceding Repurchase Notice (or, in the case of the first such Repurchase
Notice, greater than the Notice Percentage as of the date hereof). The “Notice Percentage”
as of any day is the fraction, expressed as a percentage, the numerator of which is the
product of the Number of Options and the Option Entitlement and the denominator of which is
the number of Shares outstanding on such day.

     (c) Regulation M. Counterparty and Issuer are not on the date
hereof engaged in a distribution, as such term is used in Regulation M under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), of any securities of Issuer, other
than a distribution meeting the requirements of the exception set forth in Rules 101(b)(10)
and 102(b)(7) of Regulation M. Counterparty and Issuer shall not, until the second
Scheduled Trading Day immediately following the Trade Date, engage in any such
distribution.

     (d) No Manipulation. Counterparty is not entering into this Transaction to
create actual or apparent trading activity in the Shares (or any security convertible into
or exchangeable for the Shares) or to raise or depress or otherwise manipulate the price of
the Shares (or any security convertible into or exchangeable for the Shares) or otherwise
in violation of the Exchange Act.

     (e) Number of Repurchased Shares. Counterparty represents that it could have
purchased Shares, in an amount equal to the product of the Number of Options and the Option
Entitlement, on the Exchange or otherwise, in compliance with applicable law, its
organizational documents and any orders, decrees, contractual agreements binding upon
Counterparty, on the Trade Date.

     (f) Early Unwind. In the event the sale of Exchangeable Notes is not
consummated with the initial purchasers for any reason by the close of business in New York
on December 12, 2006 (or such later date as agreed upon by the parties) (December 12, 2006
or such later date as agreed upon being the “Early Unwind Date”), this Transaction shall
automatically terminate (the “Early Unwind”), on the Early Unwind Date and (i) the
Transaction and all of the respective rights and obligations of Dealer and Counterparty
under the Transaction shall be cancelled and terminated and (ii) each party shall be
released and discharged by the other party from and agrees not to make any claim against
the other party with respect to any obligations or liabilities of the other party arising
out of and to be performed in connection with the Transaction either prior to or after the
Early Unwind Date; provided that, unless the sale of Exchangeable Notes is not consummated
with the initial purchasers for any reason other than as a result of breach of the Purchase
Agreement by the initial purchasers, Counterparty shall purchase from Dealer on the Early
Unwind Date all Shares purchased by Dealer or one or more of its affiliates and reimburse
Dealer for any costs or expenses (including market losses) relating to the unwinding of its
Hedging Activities in connection with the Transaction (including any loss or cost incurred
as a result of its terminating, liquidating, obtaining or reestablishing any hedge or
related trading

16

 

position). The amount of any such reimbursement shall be determined by Dealer in its
sole good faith discretion. Dealer shall notify Counterparty of such amount and
Counterparty shall pay such amount in immediately available funds on the Early Unwind Date.
Dealer and Counterparty represent and acknowledge to the other that, subject to the
proviso included in this paragraph, upon an Early Unwind, all obligations with respect to
the Transaction shall be deemed fully and finally discharged.

     (g) Transfer or Assignment. Neither party may transfer any of its rights or
obligations under the Transaction without the prior written consent of the non-transferring
party; provided that Dealer may transfer or assign without any consent of Counterparty its
rights and obligations hereunder, in whole or in part, to any of its affiliates that are
not less creditworthy than Dealer, or another affiliate not less creditworthy than Dealer);
provided further that at any time at which a transaction proposed to be entered into by
Dealer would cause the Articles Ownership Percentage to exceed 9.0%, Dealer will (i) have a
right to, unless Counterparty provides an acknowledgment to Dealer to the effect that the
Shares owned or controlled by Dealer or any of its affiliates will not be deemed as owned
or controlled by a “Non-Citizen” (as defined in Article Twelve Section B.4 of
Counterparty’s Certificate of Incorporation), or (ii) if requested by Counterparty,
transfer or assign to a third party such portion of the Transaction that would otherwise
cause the Articles Ownership Percentage to exceed 9.0% (it being understood and agreed that
Dealer would make such a transfer or assignment to (a) one of its U.S. affiliates, if, in
Counterparty’s view, such a transfer or assignment would result in the Shares owned or
controlled by such U.S. affiliates not being owned or controlled by a “Non-Citizen” for
purposes of Article Twelve of Counterparty’s Certificate of Incorporation) or (b) unless
otherwise consented by Counterparty, to a third party who is not a “Non-Citizen” for
purposes of Article Twelve of Counterparty’s Certificate of Incorporation, if the transfer
or assignment would otherwise result in the Shares owned or controlled by a “Non-Citizen”
for purposes of Article Twelve of Counterparty’s Certificate of Incorporation); provided
further that if Dealer is unable to effect a transfer or assignment to a third party after
its commercially reasonable efforts on pricing terms reasonably acceptable to Dealer (or to
one of its U.S. affiliates, if, in Counterparty’s view, such a transfer or assignment would
result in the Shares owned or controlled by such U.S. affiliates not being owned or
controlled by a “Non-Citizen” for purposes of Article Twelve of Counterparty’s Articles of
Incorporation) such that the Articles Ownership Percentage does not exceed 9.0%, Dealer may
designate any Scheduled Trading Day as an Early Termination Date with respect to a portion
(the “Articles Terminated Portion”) of the Transaction, such that the Articles Ownership
Percentage following such partial termination will be equal to 9.0%.

Notwithstanding the foregoing, at any time at which the Option Equity
Percentage exceeds 9.0%, if Dealer, in its discretion, is unable to effect a transfer or
assignment to a third party after its commercially reasonable efforts on pricing terms
reasonably acceptable to Dealer such that the Option Equity Percentage is reduced to 9.0%
or less, Dealer may designate any Scheduled Trading Day as an Early Termination Date with
respect to a portion (the “Section 13 Terminated Portion”) of the Transaction, such that
the Option Equity Percentage following such partial termination will be equal to or less
than 9.0%.

In the event that Dealer so designates an Early Termination Date with respect to an
Articles Terminated Portion or a Section 13 Terminated Portion, a payment shall be made
pursuant to Section 6 of the Agreement as if (i) an Early Termination Date had been
designated in respect of a Transaction having terms identical to this Transaction and a
Number of Options equal to the Articles Terminated Portion or the Section 13 Terminated
Portion, as the case may be, (ii) Counterparty shall be the sole Affected Party with
respect to such partial termination and (iii) such Transaction shall be the only Terminated
Transaction (and, for the avoidance of doubt, the

17

 

provisions of paragraph 9(k) shall apply to any amount that is payable by Dealer to
Counterparty pursuant to this sentence).

The “Articles Ownership Percentage” as of any day is the fraction, expressed as a
percentage, (A) the numerator of which is the number of Shares that Dealer and its
affiliates “beneficially own” (within the meaning of Article 12 Section B.1 of
Counterparty’s Certificate of Incorporation) on such day, and (B) the denominator of which
is the number of Shares outstanding on such day.

The “Option Equity Percentage” as of any day is the fraction, expressed as a
percentage, (A) the numerator of which is the sum of (i) the number of Shares that Dealer
“beneficially owns” (within the meaning of Section 13 of the Exchange Act) on such day,
other than any Shares so owned as a hedge of the Transaction, and (ii) the product of the
Number of Options and the Option Entitlement and (B) the denominator of which is the number
of Shares outstanding on such day.

     (h) Staggered Settlement. If upon advice of counsel with respect to
applicable legal and regulatory requirements, including any requirements relating to
Dealer’s Hedging Activities hereunder, Dealer reasonably determines that it would not be
practicable or advisable to deliver, or to acquire Shares to deliver, any or all of the
Shares to be delivered by Dealer on the Settlement Date for the Transaction, Dealer may, by
notice to Counterparty on or prior to any Settlement Date (a “Nominal Settlement Date”),
elect to deliver the Shares on two or more dates (each, a “Staggered Settlement Date”) as
follows:

     (i) in such notice, Dealer will specify to Counterparty the related Staggered
Settlement Dates (provided that the last of such Staggered Settlement Dates shall
occur not later than 20 Trading Days (as defined in the Indenture) following the
Nominal Settlement Date) and the number of Shares that it will deliver on each
Staggered Settlement Date;

     (ii) the aggregate number of Shares that Dealer will deliver to Counterparty
hereunder on all such Staggered Settlement Dates will equal the number of Shares
that Dealer would otherwise be required to deliver on such Nominal Settlement
Date;

     (iii) if the Settlement terms set forth above were to apply on the Nominal
Settlement Date, then the Settlement terms will apply on each Staggered Settlement
Date, except that the Shares to be delivered will be allocated among such
Staggered Settlement Dates as specified by Dealer in the notice referred to in
clause (i) above; and

     (iv) if Counterparty declares a dividend or other distribution with respect
to Shares with an ex dividend date falling on or after a Nominal Settlement Date
and prior to a Staggered Settlement Date, then in addition to any Shares it
delivers on such a Staggered Settlement Date, Dealer shall deliver to
Counterparty the amount of such dividend or other distribution in respect of such
Shares on the Exchange Business Day next following its receipt of such dividend
or distribution.

     (i) Role of Agent. Each party agrees and acknowledges that (i) Bear, Stearns
& Co., an affiliate of Dealer (“Agent”), has acted solely as agent and not as principal
with respect to this Transaction and (ii) Agent has no obligation or liability, by way of
guaranty, endorsement or otherwise, in any manner in respect of this Transaction
(including, if applicable, in respect of the settlement thereof). Each party agrees it will
look solely to the other party (or any guarantor in respect thereof) for performance of
such other party’s obligations under this Transaction.

18

 

     (j) No Collateral or Setoff. Notwithstanding any provision of the Agreement
or any other agreement between the parties, the obligations of Dealer hereunder are not
secured by any collateral. In addition to and without limiting any rights of set-off that a
party hereto may have as a matter of law, pursuant to contract or otherwise, upon the
occurrence of an Early Termination Date, Dealer (and only Dealer) shall have the right to
set off any obligation that it may have to Counterparty under this Confirmation, including
without limitation any obligation to make any payment of cash or delivery of Shares to
Counterparty, against any obligation Counterparty may have to Dealer under any other
agreement between Dealer and Counterparty relating to Shares (other than any warrant
purchased by Dealer from Counterparty during a three month period commencing on the Trade
Date) (each such contract or agreement, a “Separate Agreement”), including without
limitation any obligation to make a payment of cash or a delivery of Shares or any other
property or securities if such Separate Agreement would not convey rights to Dealer senior
to the claims of common stockholders of Counterparty in the event of Counterparty’s
bankruptcy; provided that Dealer may not exercise any such right to net or set off in the
event of Counterparty’s bankruptcy. For this purpose, Dealer shall be entitled to convert
any obligation (or the relevant portion of such obligation) denominated in one currency
into another currency at the rate of exchange at which it would be able to purchase the
relevant amount of such currency, and to convert any obligation to deliver any non-cash
property into an obligation to deliver cash in an amount calculated by reference to the
market value of such property as of the Early Termination Date, as determined by the
Calculation Agent in its sole discretion; provided that in the case of a set-off of any
obligation to release or deliver assets against any right to receive fungible assets, such
obligation and right shall be set off in kind and; provided further that in determining the
value of any obligation to deliver Shares, the value at any time of such obligation shall
be determined by reference to the market value of the Shares at such time, as determined in
good faith by the Calculation Agent. If an obligation is unascertained at the time of any
such set-off, the Calculation Agent may in good faith estimate the amount or value of such
obligation, in which case set-off will be effected in respect of that estimate, and the
relevant party shall account to the other party at the time such obligation or right is
ascertained. Except as set forth herein, Dealer waives any further right of setoff with
respect to this Transaction.

     (k) Alternative Calculations and Payment on Early Termination and on Certain
Extraordinary Events. If in respect of this Transaction, subject to paragraph (j)
above, an amount is payable by Dealer to Counterparty (i) pursuant to Section 12.7 or
Section 12.9 of the Equity Definitions or (ii) pursuant to Section 6(d)(ii) of the
Agreement (a “Payment Obligation”), Counterparty may request Dealer to satisfy any such
Payment Obligation by the Share Termination Alternative (as defined below) (except that
Counterparty shall not make such an election in the event of a Nationalization, Insolvency
or a Merger Event, in each case, in which the consideration to be paid to holders of Shares
consists solely of cash, or an Event of Default in which Counterparty is the Defaulting
Party or a Termination Event in which Counterparty is the Affected Party, other than an
Event of Default of the type described in Section 5(a)(iii), (v), (vi), (vii) or (viii) of
the Agreement or a Termination Event of the type described in Section 5(b)(i), (ii), (iii),
(iv), (v) or (vi) of the Agreement in each case that resulted from an event or events
outside Counterparty’s control) and shall give irrevocable telephonic notice to Dealer,
confirmed in writing within one Currency Business Day, no later than 12:00 p.m. New York
local time on the Merger Date, the Announcement Date (in the case of Nationalization or
Insolvency), the Early Termination Date or date of cancellation, as applicable; provided
that if Counterparty does not validly request Dealer to satisfy its Payment Obligation by
the Share Termination Alternative, Dealer shall have the right, in its sole discretion, to
satisfy its Payment Obligation by the Share Termination Alternative, notwithstanding
Counterparty’s election to the contrary. In calculating any amounts under Section 6(e) of
the Agreement, notwithstanding anything to the contrary in the Agreement, (1) separate
amounts shall be calculated as set forth in Section 6(e) with respect to (i)

19

 

this Transaction and (ii) all other Transactions, and (2) such separate amounts shall
be payable pursuant to Section 6(d)(ii) of the Agreement.

	 	 	 	 	 
	 

	 	Share Termination Alternative:
	 	Applicable, if elected as per above,
and means that Dealer shall deliver
to Counterparty the Share Termination
Delivery Property on the date when
the Payment Obligation would
otherwise be due pursuant to Section
12.7 or 12.9 of the Equity
Definitions or Section 6(d)(ii) and
6(e) of the Agreement, as applicable
(the “Share Termination Payment
Date”), in satisfaction of the
Payment Obligation in the manner
reasonably requested by Counterparty
free of payment.
	 
	 	 	 	 
	 

	 	Share Termination Delivery Property:
	 	A number of Share Termination
Delivery Units, as calculated by the
Calculation Agent, equal to the
Payment Obligation divided by the
Share Termination Unit Price. The
Calculation Agent shall adjust the
Share Termination Delivery Property
by replacing any fractional portion
of a security therein with an amount
of cash equal to the value of such
fractional security based on the
values used to calculate the Share
Termination Unit Price.
	 
	 	 	 	 
	 

	 	Share Termination Unit Price:
	 	The value to Dealer of property
contained in one Share Termination
Delivery Unit on the date such Share
Termination Delivery Units are to be
delivered as Share Termination
Delivery Property, as determined by
the Calculation Agent in its
discretion by commercially reasonable
means and notified by the Calculation
Agent to Dealer at the time of
notification of the Payment
Obligation.
	 
	 	 	 	 
	 

	 	Share Termination Delivery Unit:
	 	One Share or, if a Merger Event has
occurred and a corresponding
adjustment to this Transaction has
been made, a unit consisting of the
number or amount of each type of
property received by a holder of one
Share (without consideration of any
requirement to pay cash or other
consideration in lieu of fractional
amounts of any securities) in such
Merger Event, as determined by the
Calculation Agent.
	 
	 	 	 	 
	 

	 	Failure to Deliver:
	 	Applicable
	 
	 	 	 	 
	 

	 	Other applicable provisions:
	 	If this Transaction is to be Share
Termination Settled, the provisions
of Sections 9.1(c), 9.8, 9.9, 9.11,
9.12 and 10.5 (as modified above) of
the Equity Definitions will be
applicable,

20

 

	 	 	 	 	 
	 

	 	 	 	except that all
references in such provisions to
“Physically-Settled” shall be read as
references to “Share Termination
Settled” and all references to
“Shares” shall be read as references
to “Share Termination Delivery
Units”. “Share Termination Settled”
in relation to this Transaction means
that Share Termination Alternative is
applicable to this Transaction.

     (l) Waiver of Jury Trial. Each party waives, to the fullest extent permitted
by applicable law, any right it may have to a trial by jury in respect of any suit, action
or proceeding relating to this Transaction. Each party (i) certifies that no
representative, agent or attorney of either party has represented, expressly or otherwise,
that such other party would not, in the event of such a suit, action or proceeding, seek to
enforce the foregoing waiver and (ii) acknowledges that it and the other party have been
induced to enter into this Transaction, as applicable, by, among other things, the mutual
waivers and certifications provided herein.

     (m) Registration. Counterparty hereby agrees that if, in the good faith
reasonable judgment of Dealer, the Shares (“Hedge Shares”) acquired by Dealer for the
purpose of hedging its obligations pursuant to this Transaction cannot be sold in the
public market by Dealer without registration under the Securities Act of 1933, as amended
(the “Securities Act”), Counterparty and Issuer shall, at Counterparty’s election, either
(i) in order to allow Dealer to sell the Hedge Shares in a registered offering, make
available to Dealer an effective registration statement under the Securities Act and enter
into an agreement, in form and substance reasonably satisfactory to Dealer, substantially
in the form of an underwriting agreement for a registered secondary offering; provided
however, that if Dealer, in its sole reasonable discretion, is not satisfied with access to
due diligence materials, the results of its due diligence investigation, or the procedures
and documentation for the registered offering referred to above, then clause (ii) or clause
(iii) of this Section shall apply at the election of Counterparty, (ii) in order to allow
Dealer to sell the Hedge Shares in a private placement, enter into a private placement
agreement substantially similar to private placement purchase agreements customary for
private placements of equity securities, in form and substance reasonably satisfactory to
Dealer (in which case, the Calculation Agent shall make any adjustments to the terms of
this Transaction that are necessary, in its reasonable judgment, to compensate Dealer for
any discount from the public market price of the Shares incurred on the sale of Hedge
Shares in a private placement), or (iii) purchase the Hedge Shares from Dealer at the
closing price on such Exchange Business Days, and in the amounts, requested by Dealer.

     (n) Tax Disclosure. Effective from the date of commencement of discussions
concerning the Transaction, Counterparty and each of its employees, representatives, or
other agents may disclose to any and all persons, without limitation of any kind, the tax
treatment and tax structure of the Transaction and all materials of any kind (including
opinions or other tax analyses) that are provided to Counterparty relating to such tax
treatment and tax structure.

     (o) Status of Claims in Bankruptcy. Dealer acknowledges and agrees that this
Confirmation is not intended to convey to Dealer rights with respect to the Transaction
that are senior to the claims of common stockholders in any U.S. bankruptcy proceedings of
Counterparty; provided that nothing herein shall limit or shall be deemed to limit Dealer’s
right to pursue remedies in the event of a breach by Counterparty of its obligations and
agreements with respect to

21

 

the Transaction; provided, further, that nothing herein shall limit or shall be deemed
to limit Dealer’s rights in respect of any transactions other than the Transaction.

     (p) Securities Contract; Swap Agreement. The parties hereto intend for: (a)
the Transaction to be a “securities contract” and a “swap agreement” as defined in the
Bankruptcy Code (Title 11 of the United States Code) (the “Bankruptcy Code”), and the
parties hereto to be entitled to the protections afforded by, among other Sections,
Sections 362(b)(6), 362(b)(17), 555 and 560 of the Bankruptcy Code; (b) a party’s right to
liquidate the Transaction and to exercise any other remedies upon the occurrence of any
Event of Default under the Agreement with respect to the other party to constitute a
“contractual right” as described in the Bankruptcy Code; (c) any cash, securities or other
property provided as performance assurance, credit support or collateral with respect to
the Transaction to constitute “margin payments” and “transfers” under a “swap agreement” as
defined in the Bankruptcy Code; and (d) all payments for, under or in connection with the
Transaction, all payments for the Shares and the transfer of such Shares to constitute
“settlement payments” and “transfers” under a “swap agreement” as defined in the Bankruptcy
Code.

     (q) Additional Provisions. Counterparty covenants and agrees that, as promptly
as practicable following the public announcement of any consolidation, merger and binding
share exchange to which Counterparty is a party, or any sale of all or substantially all of
Counterparty’s assets, in each case pursuant to which the Shares will be converted into
cash, securities or other property, Counterparty shall notify Dealer in writing of the
types and amounts of consideration that holders of Shares have elected to receive upon
consummation of such transaction or event (the date of such notification, the
“Consideration Notification Date”); provided that in no event shall the Consideration
Notification Date be later than the date on which such transaction or event is consummated.

     (r) Additional Termination Events. The occurrence of (i) an event of default
with respect to Counterparty under the terms of the Exchangeable Notes as set forth in
Section 7.01 of the Indenture that results in an acceleration of the Exchangeable Notes
pursuant to the terms of the Indenture, (ii) an Amendment Event or (iii) a PACC Termination
Event (which shall be deem to occur on the effective date for the related PACC Event) shall
be an Additional Termination Event with respect to which the Transaction is the sole
Affected Transaction and Counterparty is the sole Affected Party, and Dealer shall be the
party entitled to designate an Early Termination Date pursuant to Section 6(b) of the
Agreement.

     “Amendment Event” means that Counterparty amends, modifies, supplements or obtains a waiver
in respect of any term of the Indenture or the Exchangeable Notes governing the principal
amount, coupon, maturity, repurchase obligation of Counterparty, redemption right of
Counterparty, any term relating to exchange of the Exchangeable Notes (including changes to
the exchange price, exchange settlement dates or exchange conditions) that may adversely
affect the rights or obligations of Dealer hereunder, or any term that would require
consent of the holders of not less than 100% of the principal amount of the Exchangeable
Notes to amend, in each case without the prior consent of Dealer, such consent not to be
unreasonably withheld.

     (s) “PACC Termination Event” means a PACC Event with respect to which (i) the
Calculation Agent reasonably determines that no PACC Adjustments would produce a
commercially reasonable result, (ii) the PACC Adjustments have not been made because any of
the documentation requirements set forth under “Consequences of Merger Events” above have
not been satisfied by the effective date for such PACC Event or (iii) Dealer has
determined, in its reasonable discretion, that it will be unable to effect its hedge
unwind, hedge leg in or other hedging activities in a manner compliant with applicable
legal, regulatory or self-regulatory

22

 

requirements, or with policies and procedures applicable to Dealer related to such
applicable legal, regulatory or self-regulatory requirements.

23

 

     Please confirm that the foregoing correctly sets forth the terms of our agreement by executing
this Confirmation and returning it to Michael O’Donovan, 383 Madison Avenue, New York, NY 10179,
or by fax on (917) 849-0251.

	 	 	 	 	 
	 	Very truly yours,

Bear, Stearns & Co. Inc., as agent for Bear,
      Stearns International Limited

 	 
	 	By:  	/s/
James D. Kern	 
	 	 	Authorized Signatory 	 
	 	 	Name: James D. Kern	
	 

Accepted and confirmed

as of the Trade Date:

SESI, LLC

	 	 	 	 	 
	By:
	 	/s/ Robert S. Taylor
	 

	 	 

Authorized Signatory
	 	 
	 

	 	Name: Robert S. Taylorexv10w4

 

EXHIBIT 10.4

December 7, 2006

	 	 	 	 	 
	To:	 	SESI, LLC
	 	 	1105 Peters Road
	 	 	Harvey, Louisiana, 70058
	 	 	Attention: Mr. Robert S. Taylor, Chief Financial Officer
	 

	 	Telephone No.:
	 	(504) 210-4105
	 

	 	Facsimile No.:
	 	(504) 362-9642
	 
	 	 	 	 
	From:	 	Lehman Brothers Inc., acting as Agent
	 	 	Lehman Brothers OTC Derivatives Inc., acting as Principal
	 	 	Attention: Transaction Management Group
	 

	 	Telephone No.:
	 	(212) 526-9986
	 

	 	Facsimile No.:
	 	(646) 885-9546

Re: Call Option Transaction

     The purpose of this letter agreement is to confirm the terms and conditions of the Transaction
entered into between Lehman Brothers OTC Derivatives Inc. (“Dealer”) and SESI, LLC
(“Counterparty”) on the Trade Date specified below (the “Transaction”). This letter agreement
constitutes a “Confirmation” as referred to in the ISDA Master Agreement specified below. This
Confirmation shall replace any previous agreements and serve as the final documentation for this
Transaction. Lehman Brothers OTC Derivatives Inc. is not a member of the Securities Investor
Protection Corporation.

     The definitions and provisions contained in the 2002 ISDA Equity Derivatives Definitions (the
“Equity Definitions”), as published by the International Swaps and Derivatives Association, Inc.
(“ISDA”) are incorporated into this Confirmation. In the event of any inconsistency between the
Equity Definitions and this Confirmation, this Confirmation shall govern. Certain defined terms
used herein have the meanings assigned to them in the Offering Memorandum dated December 7, 2006
(the “Offering Memorandum”) relating to the USD 400,000,000 principal amount of 11/2% Senior
Exchangeable Notes due 2026, (the “Exchangeable Notes” and each USD 1,000 principal amount of
Exchangeable Notes, an “Exchangeable Note”) giving effect to the exercise in full of the initial
purchasers’ option to purchase an additional $50,000,000 of Exchangeable Notes, issued by
Counterparty pursuant to an Indenture to be dated December 12, 2006 between Counterparty and The
Bank of New York Trust Company, as trustee (without giving effect to any subsequent amendment,
modification or waiver, the “Indenture”). In the event of any inconsistency between the terms
defined in the Offering Memorandum, the Indenture and this Confirmation, this Confirmation shall
govern.

     Each party is hereby advised, and each such party acknowledges, that the other party has
engaged in, or refrained from engaging in, substantial financial transactions and has taken other
material actions in reliance upon the parties’ entry into the Transaction to which this
Confirmation relates on the terms and conditions set forth below.

     1. This Confirmation evidences a complete and binding agreement between Dealer and
Counterparty as to the terms of the Transaction to which this Confirmation relates. This
Confirmation shall supplement, form a part of, and be subject to an agreement in the form of the
2002 ISDA Master Agreement (the “Agreement”) as if Dealer and Counterparty had executed an
agreement in such form (but

 

 

without any Schedule except for (i) the election of the laws of the State of New York as the
governing law, and (ii) the election of US Dollars (“USD”) as the Termination Currency) on the
Trade Date. In the event of any inconsistency between provisions of that Agreement and this
Confirmation, this Confirmation will prevail for the purpose of the Transaction to which this
Confirmation relates. The parties hereby agree that no Transaction other than the Transaction to
which this Confirmation relates shall be governed by the Agreement.

     2. The terms of the particular Transaction to which this Confirmation relates are as follows:

     General Terms:

	 	 	 	 	 
	 

	 	Trade Date:
	 	December 7, 2006
	 
	 	 	 	 
	 

	 	Option Style:
	 	“Modified American”, as described
under “Procedures for Exercise” below.
	 
	 	 	 	 
	 

	 	Option Type:
	 	Call
	 
	 	 	 	 
	 

	 	Buyer:
	 	Counterparty
	 
	 	 	 	 
	 

	 	Seller:
	 	Dealer
	 
	 	 	 	 
	 

	 	Shares:
	 	The common stock of Superior Energy
Services, Inc., par value USD 0.001
per Share (Exchange symbol “SPN”),
subject to an adjustment as set forth
under “Consequences of Merger Events”
below.
	 
	 	 	 	 
	 

	 	Number of Options:
	 	The product of (i) the Applicable
Percentage and (ii) the number of
Exchangeable Notes in denominations of
USD 1,000 principal amount issued by
Counterparty on the closing date for
the initial issuance of the
Exchangeable Notes. For the avoidance
of doubt, the Number of Options
outstanding shall be reduced by each
exercise of Options hereunder. In no
event will the Number of Options be
less than zero.
	 
	 	 	 	 
	 

	 	Option Entitlement:
	 	As of any date, a number of Shares per
Option equal to the Exchange Rate as
of such date (as defined in the
Indenture, but without regard to any
adjustments to the Exchange Rate
pursuant to Section 12.03 of the
Indenture, except to the extent
provided under “Delivery Obligation”
below).
	 
	 	 	 	 
	 

	 	Applicable Percentage:
	 	50%
	 
	 	 	 	 
	 

	 	Premium:
	 	USD 48,000,000 (Premium per Option USD
240).

2

 

	 	 	 	 	 
	 

	 	Premium Payment Date:
	 	December 12, 2006
	 
	 	 	 	 
	 

	 	Exchange:
	 	New York Stock Exchange
	 
	 	 	 	 
	 

	 	Related Exchange(s):
	 	All Exchanges
	 
	 	 	 	 
	Procedures for Exercise:	 	 
	 
	 	 	 	 
	 

	 	Exercise Period(s):
	 	Notwithstanding the Equity
Definitions, the Exercise Period shall
be, in respect of the Exercisable
Options (as defined below), each
period commencing on and including an
Exchange Date to and including 5:00 PM
(New York City time) on the Scheduled
Trading Day immediately preceding the
first day of the related Observation
Period (as defined in the Indenture);
provided that if by the
30th Scheduled Trading Day
prior to December 15, 2011,
Counterparty has specified December
15, 2011 as a redemption date for the
Exchangeable Notes pursuant to the
terms of the Indenture, there shall be
a single Exercise Period for
Exercisable Options with respect to
any Exchangeable Notes surrendered for
exchange following Counterparty’s
notice of such redemption and the
final day of the Exercise Period shall
be the Scheduled Trading Day
immediately preceding the redemption
date; provided further that if by the
30th Scheduled Trading Day
prior to December 15, 2011,
Counterparty has not specified
December 15, 2011 as a redemption date
for the Exchangeable Notes pursuant to
the terms of the Indenture, notices of
exchange received by Counterparty from
holders of Exchangeable Notes
following such 30th
Scheduled Trading Day prior to
December 15, 2011 shall not result in
the commencement of an Exercise Period
and no Exercisable Options will be
exercised or deemed exercised in
respect of such notices of exchange of
Exchangeable Notes.
	 
	 	 	 	 
	 

	 	Exchange Date:
	 	Each “Exchange Date”, as defined in
the Indenture, occurring during the
Exercise Period for Exchangeable Notes
(such Exchangeable Notes, the
“Relevant Exchangeable Notes” for such
Exchange Date).
	 
	 	 	 	 
	 

	 	Exercisable Options:
	 	In respect of each Exercise Period, a
number of Options equal to the product
of (i) the Applicable Percentage and
(ii) the number of Relevant
Exchangeable Notes surrendered to

3

 

	 	 	 	 	 
	 

	 	 	 	Counterparty for exchange with respect
to such Exercise Period but no greater
than the Number of Options.
	 
	 	 	 	 
	 

	 	Expiration Date:
	 	The earlier of (i) the last day on
which any Exchangeable Notes remain
outstanding and (ii) December 15,
2011.
	 
	 	 	 	 
	 

	 	Minimum Number of Options:
	 	Zero
	 
	 	 	 	 
	 

	 	Maximum Number of Options:
	 	Number of Options
	 
	 	 	 	 
	 

	 	Multiple Exercise:
	 	Applicable, as described under
Exercisable Options above.
	 
	 	 	 	 
	 

	 	Automatic Exercise:
	 	Applicable; and means that in respect
of an Exercise Period, a number of
Options not previously exercised
hereunder equal to the Exercisable
Options shall be deemed to be
exercised on the Expiration Date for
such Exercisable Options; provided
that such Options shall be deemed
exercised only to the extent that
Counterparty has provided a Notice of
Exercise to Dealer.
	 
	 	 	 	 
	 

	 	Notice of Exercise:
	 	Notwithstanding anything to the
contrary in the Equity Definitions, in
order to exercise any Exercisable
Options, Counterparty or trustee under
the Indenture (the “Trustee”) on
behalf of Counterparty must notify
Dealer in writing prior to 5:00 P.M.,
New York City time, on the Scheduled
Trading Day prior to the first day of
the Observation Period for the
Relevant Exchangeable Notes in respect
of which the Exercisable Options are
being exercised (the “Notice
Deadline”) of (i) the number of such
Exercisable Options, (ii) the first
day of the Observation Period and the
expected Settlement Date, and (iii)
the method by which Counterparty is
satisfying its obligation to exchange
the Relevant Exchangeable Notes;
provided that, notwithstanding the
foregoing, such notice (and the
related Automatic Exercise of Options)
shall be effective if given after the
Notice Deadline but prior to 5:00 PM
(New York City time) on the fifth
Exchange Business Day of such
“Observation Period,” in which event
the Calculation Agent shall have the
right to adjust the Delivery
Obligation as appropriate to reflect
the additional costs (including, but
not limited to, hedging mismatches and
market losses) and expenses incurred
by Dealer or any of its affiliates in
connection with its hedging

4

 

	 	 	 	 	 
	 

	 	 	 	activities
(including the unwinding of any hedge
position) as a result of its not
having received such notice prior to
the Notice Deadline, unless
Counterparty’s chief financial officer
received a phone call from an officer
of the Dealer inquiring about such
notice between 9:00 AM and 5:00 PM
(New York City time) on the second
Exchange Business Day preceding the
beginning of the Observation Period,
in which case this proviso shall not
apply; provided further that in
respect of Exercisable Options
relating to Exchangeable Notes
tendered for exchange following the
election by Counterparty of December
15, 2011 as a redemption date for the
Exchangeable Notes pursuant to the
terms of the Indenture, such notice
may be given on or prior to the second
Scheduled Trading Day immediately
preceding the Expiration Date and need
only specify the number of such
Exercisable Options.
	 
	 	 	 	 
	 

	 	Dealer’s Telephone Number
and Telex and/or Facsimile
Number and Contact Details
for purpose of Giving Notice
of Exercise:
	 	To be provided by Dealer.
	 
	 	 	 	 
	 

	 	Valuation Time:
	 	At the close of trading of the regular
trading session on the Exchange;
provided that if the principal trading
session is extended, the Calculation
Agent shall determine the Valuation
Time in its reasonable discretion.
	 
	 	 	 	 
	 

	 	Market Disruption Event:
	 	Section 6.3(a) of the Equity
Definitions is hereby amended by (x)
deleting the phrase “during the one
hour period that ends at the relevant
Valuation Time” in Section 6.3(a)(ii)
and replacing it with the phrase “at
any time prior to 1:00 p.m. on such
Scheduled Trading Day of an aggregate
one half hour period” and (y) deleting
the phrase “or (iii) an Early
Closure”.
	Settlement Terms:	 	 
	 
	 	 	 	 
	 

	 	Settlement Date:
	 	In respect of an Exercise Date, the
settlement date for the Shares and
cash (in respect of fractional shares)
to be delivered under the Relevant
Exchangeable Notes under the terms of
the Indenture; provided that if such a
day is not the third Currency Business
Day following

5

 

	 	 	 	 	 
	 

	 	 	 	the last day of the
related Observation Period, Dealer
shall use its reasonable efforts to
make deliveries on the Settlement Date
for the Relevant Exchangeable Notes
(subject to receipt of a prior notice
from Issuer sufficiently in advance of
such Settlement Date) and if,
notwithstanding such reasonable
efforts, the Dealer is unable to
effect the delivery on such day, then
it shall be the third Currency
Business Day following the last day of
the related Observation Period.
	 
	 	 	 	 
	 

	 	Delivery Obligation:
	 	In lieu of the obligations set forth
in Sections 8.1 and 9.1 of the Equity
Definitions, and subject to “Notice of
Exercise” above, in respect of an
Exercise Date occurring on or with
respect to an Exchange Date, Dealer
will deliver to Counterparty, on the
related Settlement Date, for each
Option exercised or deemed exercised,
an amount equal to the product of (x)
the Applicable Percentage and (y) an
aggregate number of Shares and an
aggregate amount of cash (in respect
of fractional Shares) in excess of (i)
USD 1,000 (if Counterparty has elected
to settle the Relevant Exchangeable
Notes in cash and Shares) or (ii) the
number of Shares equivalent to USD
1,000 (if Counterparty has elected to
settle the Relevant Exchangeable Notes
in Shares only), as determined by the
Calculation Agent based on the sum,
for all Trading Days in the
Observation Period, of a respective
number of Shares equal to USD 40
divided by the Daily VWAP (as defined
in the Indenture) for each such
Trading Day (if Counterparty has
elected to settle the Relevant
Exchangeable Notes in Shares only)
that Counterparty is obligated to
deliver to the holder(s) of the
Relevant Exchangeable Notes exchanged
on such Exchange Date pursuant to
Section 12.01(d) of the Indenture (the
“Exchange Obligation”); provided that,
if the Relevant Exchangeable Notes are
being exchanged in connection with any
Fundamental Change (as defined in the
Indenture), (a) the Calculation Agent
shall determine an amount that would
be payable by Dealer to Counterparty
pursuant to Section 6(e)(ii)(1) of the
Agreement (for purposes of such
determination, the Calculation Agent
shall not be taking into account the
amount deliverable to the holder(s) of
the Relevant Exchangeable Notes
pursuant to Section 12.03

6

 

	 	 	 	 	 
	 

	 	 	 	of the
Indenture) if (x) the Number of
Options were equal to the product of
the Applicable Percentage and the
number of the Relevant Exchangeable
Notes and (y) the Fundamental Change
were an Additional Termination Event
occurring on the effective date for
the Fundamental Change with
Counterparty as the sole Affected
Party (the “Fair Value Amount”), and
(b) to the extent that a number of
additional Shares that Counterparty is
obligated to deliver to holder(s) of
the Relevant Exchangeable Notes as a
result of any adjustments to the
Exchange Rate pursuant to Section
12.03 of the Indenture in respect of
such Fundamental Change exceeds the
number of Shares equal to the Fair
Value Amount (such number of Shares to
be determined by the Calculation Agent
based on the daily VWAP of the Shares
on the effective date of the
Fundamental Change), then the
“Delivery Obligation” shall be
determined excluding any such excess
Shares. For the avoidance of doubt,
if the “Exchange Obligation”, as
defined in the Indenture, is less than
or equal to USD 1,000 (or a number of
Shares equivalent to USD 1,000
determined as set forth above), Dealer
will have no delivery obligation
hereunder.
	 
	 	 	 	 
	 

	 	Notice of Delivery Obligation:
	 	No later than the Exchange Business
Day immediately following the last day
of the “Observation Period”, as
defined in the Indenture, Counterparty
or the Trustee on behalf of
Counterparty shall give Dealer notice
of the final number of Shares and the
amount of cash (in respect of
fractional shares) comprising the
Exchange Obligation (it being
understood, for the avoidance of
doubt, that the requirement of
Counterparty to deliver such notice
shall not limit Counterparty’s
obligations with respect to Notice of
Exercise, as set forth above, in any
way).
	 
	 	 	 	 
	 

	 	Other Applicable Provisions:
	 	To the extent Dealer is obligated to
deliver Shares hereunder, the
provisions of Sections 9.1(c), 9.8,
9.9, 9.11, 9.12 and 10.5 of the Equity
Definitions will be applicable, except
that all references in such provisions
to “Physical Settlement” shall be read
as references to “Net Share
Settlement”; and provided that the
Representation and Agreement contained
in Section 9.11 of the Equity
Definitions shall be modified by

7

 

	 	 	 	 	 
	 

	 	 	 	excluding any representations therein
relating to restrictions, obligations,
limitations or requirements under
applicable securities laws as a result
of the fact that Buyer is the Issuer
of the Shares. “Net Share Settlement”
in relation to any Option means that
Dealer is obligated to deliver Shares
hereunder.

     3. Additional Terms applicable to the Transaction:

     Adjustments applicable to the Transaction:

	 	 	 	 	 
	 

	 	Method of Adjustment:
	 	Calculation Agent Adjustment, and
means that, notwithstanding
Section 11.2(c) of the Equity
Definitions, upon any adjustment
to the Exchange Rate of the
Exchangeable Notes pursuant to
the Indenture (other than Section
12.03 of the Indenture, except to
the extent provided under
“Delivery Obligation” above), the
Calculation Agent will make a
corresponding adjustment to any
one or more of the Number of
Options, the Option Entitlement
and any other variable relevant
to the exercise, settlement or
payment for the Transaction.
Immediately upon the occurrence
of any adjustment contemplated in
Section 12.03 of the Indenture
(an “Adjustment Event”),
Counterparty shall notify the
Calculation Agent of such
Adjustment Event; and once the
adjustments to be made to the
terms of the Indenture and the
Exchangeable Notes in respect of
such Adjustment Event have been
determined, Counterparty shall
immediately notify the
Calculation Agent in writing of
the details of such adjustments.
	 
	 	 	 	 
	 

	 	Potential Adjustment Events:
	 	Notwithstanding Section 11.2(e)
of the Equity Definitions, a
“Potential Adjustment Event”
means an occurrence of any event
or condition, as set forth in
Section 12.02 of the Indenture
that would result in an
adjustment to the Exchange Rate
of the Exchangeable Notes;
provided that in no event shall
there be any adjustment hereunder
as a result of an adjustment to
the Exchange Rate pursuant to
Section 12.03 of the Indenture,
except to the extent provided
under “Delivery Obligation”
above.

8

 

	 	 	 	 	 
	Extraordinary Events applicable
to the Transaction:
	 
	 	 	 	 
	 

	 	Merger Events:
	 	Notwithstanding Section
12.1(b) of the Equity
Definitions, a “Merger
Event” means the
occurrence of any event
or condition set forth in
Section 12.05 of the
Indenture.
	 
	 	 	 	 
	 

	 	Tender Offers:
	 	Notwithstanding Section
12.1(d) of the Equity
Definitions, a “Tender
Offer” means the
occurrence of any event
or condition set forth in
Section 12.02(e) of the
Indenture and, upon the
occurrence of such an
event, adjustments set
forth under “Method of
Adjustment” above shall
apply.
	 
	 	 	 	 
	 

	 	Consequences of Merger Events:
	 	Notwithstanding Section
12.2 of the Equity
Definitions, upon the
occurrence of a Merger
Event, the Calculation
Agent shall make a
corresponding adjustment
in respect of any
adjustment under the
Indenture to any one or
more of the nature of the
Shares, Number of
Options, the Option
Entitlement and any other
variable relevant to the
exercise, settlement or
payment for the
Transaction; provided
however that such
adjustment shall be made
without regard to any
adjustment to the
Exchange Rate for the
issuance of additional
shares as set forth in
Section 12.03 of the
Indenture, except to the
extent provided under
“Delivery Obligation”
above. Notwithstanding
the foregoing, upon the
occurrence of a Merger
Event that constitutes a
“Public Acquirer Change
in Control”, as defined
in the Indenture, with
respect to which
Counterparty elects to
adjust the terms of the
Exchangeable Notes in
accordance with Section
12.04 of the Indenture
(such a Public Acquirer
Change in Control, a
“PACC Event”), subject to
compliance with the
proviso to this sentence,
the Calculation Agent
will adjust any one or
more of the nature of the
Shares, the Number of
Options, the Option
Entitlement and any other
variable relevant to the
exercise, settlement or
payment for the
Transaction to the extent
required to preserve the
fair value of the
Transaction to Dealer
(such adjustments, the
“PACC Adjustments”);
provided that, as a
condition precedent to
the adjustments
contemplated above,
Counterparty and, if
Counterparty is not the
issuer of the “Public
Acquirer Common Stock”,
as defined in the

9

 

	 	 	 	 	 
	 

	 	 	 	Indenture, the issuer of
the Public Acquirer
Common Stock, shall,
prior to the effective
date of such PACC Event,
have entered into such
documentation containing
representations,
warranties and agreements
relating to securities
laws and other issues as
requested by Dealer that
Dealer determined, in its
reasonable discretion, to
be reasonably necessary
or appropriate to allow
Dealer to continue as a
party to the Transaction,
as adjusted, and to
preserve its hedge
unwind, hedge leg in and
other hedging activities
in connection with the
Transaction in a manner
compliant with applicable
legal, regulatory or
self-regulatory
requirements, or with
related policies and
procedures applicable to
Dealer.
	 
	 	 	 	 
	 

	 	Nationalization, Insolvency or
Delisting:
	 	Cancellation and Payment
(Calculation Agent
Determination); provided
that Counterparty may
elect settlement of the
related obligation in
accordance with Section
9(k) below; provided,
further that, in addition
to the provisions of
Section 12.6(a)(iii) of
the Equity Definitions,
it will also constitute a
Delisting if the Exchange
is located in the United
States and the Shares are
not re-listed, re-traded
or re-quoted within 30
Exchange Business Days
following such Delisting
on a U.S. national or
regional securities
exchange or an
established automated
over-the-counter trading
market in the U.S.; if
the Shares are re-listed,
re-traded or re-quoted
within 30 Scheduled
Trading Days following
such Delisting on any
U.S. national or regional
securities exchange or an
established automated
over-the-counter trading
market in the U.S., such
exchange or quotation
system shall thereafter
be deemed to be the
Exchange.
	 
	 	 	 	 
	 

	 	Additional Disruption Events:	 	 
	 
	 	 	 	 
	 

	 	Change in Law:
	 	Applicable
	 
	 	 	 	 
	 

	 	Failure to Deliver:
	 	Applicable
	 
	 	 	 	 
	 

	 	Insolvency Filing:
	 	Applicable
	 
	 	 	 	 
	 

	 	Hedging Disruption:
	 	Not Applicable
	 
	 	 	 	 
	 

	 	     Determining Party:
	 	For all applicable
Additional Disruption
Events, Dealer.

10

 

	 	 	 	 	 
	 

	 	Non-Reliance:
	 	Applicable
	 
	 	 	 	 
	 

	 	Agreements and Acknowledgements
Regarding Hedging Activities:
	 	Applicable
	 
	 	 	 	 
	 

	 	Additional Acknowledgments:
	 	Applicable
	 
	 	 	 	 
	     4. Calculation Agent:
	 	Dealer

     5. Account Details:

	 	(a)	 	Account for payments to Counterparty:

Whitney National Bank

228 St. Charles Avenue

New Orleans, LA 70130

ABA 065000171

For credit to:

SESI, LLC

1105 Peters Road

Harvey, LA 70058

Account 713121440

Account for delivery of Shares to Counterparty:

To be provided under separate cover by Counterparty.

	 	(b)	 	Account for payments to Dealer:

To be provided by Dealer.

Account for delivery of Shares to Dealer: To be provided by Dealer.

6. Offices:

The Office of Counterparty for the Transaction is: Inapplicable, Counterparty is not a
Multibranch Party.

The Office of Dealer for the Transaction is: Inapplicable, Dealer is not a Multibranch Party.

7. Notices: For purposes of this Confirmation:

	 	(a)	 	Address for notices or communications to Counterparty:

SESI, LLC

1005 Peters Road

Harvey, Louisiana 70058

11

 

Attention: Mr. Robert S. Taylor, Chief Financial Officer

Telephone No.: (504) 210-4105

Facsimile No.: (504) 362-9642

Address for notices or communications to Dealer:

Lehman Brothers Inc., acting as Agent

Lehman Brothers OTC Derivatives Inc., acting as Principal

745 Seventh Avenue

New York, NY 10019

Attention: Transaction Management Group

Telephone No.: (212) 526-9986

Facsimile No.: (646) 885-9546

With a copy to:

Lehman Brothers Inc., acting as Agent

Lehman Brothers OTC Derivatives Inc., acting as Principal

745 Seventh Avenue

New York, NY 10019

Attention: Steve Roti-US Equity Linked

Telephone No: (212) 526-0055

Facsimile No: (917) 552-0561

8. Representations and Warranties of Counterparty

(A) The Counterparty hereby represents and warrants to Dealer that:

     (a) It is an “eligible contract participant” (as such term is defined in Section
1a(12) of the Commodity Exchange Act, as amended (the “CEA”));

     (b) Each of it, Superior Energy Services, Inc. (the “Issuer”) and their affiliates is
not, on the date hereof, in possession of any material non-public information with respect
to Counterparty;

     (c) On the Trade Date, neither Counterparty nor any “affiliate” or “affiliated
purchaser” (each as defined in Rule 10b-18 of the Exchange Act (“Rule 10b-18”)) shall
directly or indirectly (including, without limitation, by means of any cash-settled or
other derivative instrument) purchase, offer to purchase, place any bid or limit order that
would effect a purchase of, or commence any tender offer relating to, any Shares (or an
equivalent interest, including a unit of beneficial interest in a trust or limited
partnership or a depository share) or any security convertible into or exchangeable or
exercisable for Shares, except through Bear Stearns & Co. Inc.;

     (d) Without limiting the generality of Section 13.1 of the Equity Definitions,
Counterparty acknowledges that Dealer is not making any representations or warranties with
respect to the treatment of the Transaction under FASB Statements 149 or 150, EITF Issue
No. 00-19 (or any successor issue statements) or under FASB’s Liabilities & Equity Project;

     (e) Without limiting the generality of Section 3(a)(iii) of the Agreement, the
Transaction will not violate Rule 13e-1 or Rule 13e-4 under the Exchange Act;

12

 

     (f) Prior to the Trade Date, Counterparty shall deliver to Dealer resolutions of
Counterparty’s and Issuer’s boards of directors authorizing the Transaction and such other
certificate or certificates as Dealer shall reasonably request;

     (g) Counterparty is not, and after giving effect to the transactions contemplated
hereby will not be required to register as an “investment company” as such term
is defined in the Investment Company Act of 1940, as amended;

     (h) On the Trade Date (A) the assets of Counterparty at their fair valuation exceed
the liabilities of Counterparty, including contingent liabilities, (B) the capital of
Counterparty is adequate to conduct the business of Counterparty and (C) Counterparty has
the ability to pay its debts and obligations as such debts mature and does not intend to,
or does not believe that it will, incur debt beyond its ability to pay as such debts
mature;

     (i) Counterparty understands that no obligations of Dealer to it hereunder will be
entitled to the benefit of deposit insurance or securities investor protection and that
such obligations will not be guaranteed by any affiliate of Dealer (except as expressly set
forth herein) or any governmental agency;

     (j) The Exchangeable Notes have been duly authorized by the Counterparty, and, when
issued and delivered as provided in the Purchase Agreement dated as of December 7, 2006
between Counterparty, the guarantors named therein and the representatives of the Initial
Purchasers party thereto (the “Purchase Agreement”) and duly authenticated pursuant to the
Indenture (assuming due authentication of the Exchangeable Notes by the trustee) will be
duly executed, authenticated, issued and delivered and will constitute valid and legally
binding obligations of the Counterparty entitled to the benefits provided by the Indenture;
and the Exchangeable Notes will conform, in all material respects, to the descriptions
thereof in Offering Memorandum;

     (k) The Indenture has been duly authorized, executed and delivered by the Counterparty
and the guarantors named therein, and (assuming the authorization, execution and delivery
by the trustee), constitutes a valid and legally binding instrument of the Counterparty,
enforceable against the Counterparty in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, fraudulent transfer, fraudulent conveyance,
moratorium, reorganization and laws of general applicability relating to or affecting
creditors’ rights and general equity principles (regardless of whether enforceability is
considered in a proceeding in equity or at law); and the Indenture conforms, in all
material respects, to the description thereof in the Offering Memorandum;

     (l) Upon issuance and delivery of the Exchangeable Notes in accordance with the
Purchase Agreement and the Indenture, the Exchangeable Notes will be exchangeable at the
option of the holder thereof into Shares or cash and Shares, if applicable, in accordance
with the terms of the Exchangeable Notes; the Shares reserved for issuance upon exchange of
the Exchangeable Notes have been duly authorized and reserved and, when issued upon
exchange of the Exchangeable Notes in accordance with the terms of the Exchangeable Notes,
will be validly issued, fully paid and non assessable, and the issuance of the Shares will
not be subject to any preemptive or similar rights;

     (m) Neither the Counterparty nor any affiliate (as defined in Rule 501(b) of
Regulation D of the Securities Act of 1933, as amended (the “Securities Act”)) of the
Counterparty has directly, or through any agent, sold, offered for sale, solicited offers
to buy or otherwise negotiated in respect of, any security (as defined in the Securities
Act) which is or will

13

 

be integrated with the sale of the Exchangeable Notes in a manner that would require
the registration under the Exchangeable Notes Act of the offering contemplated by the
Offering Memorandum;

     (n) None of the Counterparty, any affiliate of the Counterparty or any person acting
on its or their behalf (other than the Initial Purchasers for whom we make no
representation) has offered or sold the Exchangeable Notes by means of any general
solicitation or general advertising within the meaning of Rule 502(c) under the Securities
Act;

     (o) The Exchangeable Notes satisfy the requirements set forth in Rule 144A(d)(3) under
the Securities Act;

     (p) The issue and sale of the Exchangeable Notes, the issuance by the Issuer of the
Shares upon exchange of the Exchangeable Notes and the compliance by the Counterparty with
all of the provisions of the Exchangeable Notes, the Indenture, the Registration Rights
Agreement dated December 12, 2006 among the Counterparty, the Issuer, the guarantors named
therein and the Initial Purchasers (the “Registration Rights Agreement”), the Purchase
Agreement and this Confirmation and the consummation of the transactions herein and therein
contemplated (A) will not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the Counterparty or any of
its subsidiaries is a party or by which the Counterparty or any of its subsidiaries is
bound or to which any of the property or assets of the Counterparty or any of its
subsidiaries is subject, except such conflict, breach or violation as would not have a
Material Adverse Effect, (B) will not result in any violation of the provisions of the
certificate of incorporation or bylaws of the Counterparty, and (C) will not result in the
violation of any statute or any order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Counterparty or any of its subsidiaries or any
of its properties, except such violations as would not have a Material Adverse Effect; and
except as disclosed in the Offering Memorandum, no consent, approval, authorization,
order, registration or qualification of or with any such court or governmental agency or
body is required for the issue and sale of the Exchangeable Notes or the consummation by
the Counterparty of the transactions contemplated by the Purchase Agreement or the
Indenture, except for the filing and effectiveness of a registration statement by the
Counterparty with the Commission pursuant to the Securities Act and the Registration Rights
Agreement, the qualification of the Indenture under the Trust Indenture Act of 1939 (“Trust
Indenture Act”) in relation to the Shares and such consents, approvals, authorizations,
registrations or qualifications as may be required under state Securities or Blue Sky laws
in connection with the purchase and distribution of the Exchangeable Notes by the Initial
Purchasers in the manner contemplated by the Purchase Agreement and Offering Memorandum and
except for such consents the failure to obtain would not have a Material Adverse Effect.
“Material Adverse Effect” means any change in the capital stock, increase in long-term debt
or any decreases in consolidated net current assets or stockholders’ equity of the Issuer
or any of its subsidiaries or any material adverse change, or any development involving a
prospective material adverse change, in or affecting the general affairs, management,
current or future consolidated financial position, stockholders’ equity or results of
operations of the Issuer and its subsidiaries taken as a whole;

     (q) Issuer is subject to Section 13 or 15(d) of the Securities Exchange Act, as
amended (the “Exchange Act”);

     (r) All of the issued shares of capital stock of the Issuer have been duly and validly
authorized and issued and are fully paid and non-assessable; such authorized capital stock
of the Issuer conforms as to legal matters in all material respects to the description
thereof contained in

14

 

the Offering Memorandum; there are no outstanding options to purchase, or any rights
or warrants to subscribe for, or any securities or obligations convertible into, or any
contracts or commitments to issue or sell, any Shares, any shares of capital stock of any
subsidiary, or any such warrants, convertible securities or obligations, except as set
forth in the Offering Memorandum and except for options granted under, or contracts or
commitments pursuant to, the Issuer’s previous or currently existing stock option and other
similar officer, director or employee benefit plans;

     (s) Prior to the Trade Date, neither the Counterparty nor any of its affiliates has
taken any action which is designed to or which has constituted or which might have been
expected to cause or result in stabilization or manipulation of the price of any security
of the Issuer in connection with the offering of the Exchangeable Notes;

     (t) None of the Issuer or any of its subsidiaries is in violation of its certificate
of incorporation or certificate of formation, or its bylaws or limited liability company
agreement (or other organizational documents), or in default in the performance or
observance of any material obligation, covenant or condition contained in any indenture,
mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it
is a party or by which it or any of its properties may be bound, other than such defaults
that individually or in the aggregate would not have a Material Adverse Effect; and

     (u) Other than as set forth in the Offering Memorandum, there are no legal or
governmental proceedings pending to which the Issuer or any of its subsidiaries is a party
or of which any property of the Issuer or any of its subsidiaries is the subject which, if
determined adversely to the Issuer or any of its subsidiaries, would individually or in the
aggregate have a Material Adverse Effect; and, to the best of the Counterparty’s knowledge,
no such proceedings are threatened or contemplated by governmental authorities or
threatened by others.

     (B) Each party makes to the other the representations and warranties set forth in Sections
3(a) through (f) of the Agreement with respect to the Agreement as supplemented by this
Confirmation; provided that Dealer makes the representation and warranty set forth in Section 3(e)
and Counterparty makes the representation and warranty set forth in Section 3(f). In addition, each
of Dealer and Counterparty acknowledges that the offer and sale of the Transaction to it is
intended to be exempt from registration under the Securities Act of 1933, as amended (the
“Securities Act”), by virtue of Section 4(2) thereof. Accordingly, Counterparty represents and
warrants to Dealer that (i) it has the financial ability to bear the economic risk of its
investment in the Transaction and is able to bear a total loss of its investment and its
investments in and liabilities in respect of the Transaction, which it understands are not readily
marketable, are not disproportionate to its net worth, and it is able to bear any loss in
connection with the Transaction, including the loss of its entire investment in the Transaction,
(ii) it is an “accredited investor” as that term is defined in Regulation D as promulgated under
the Securities Act, (iii) it is entering into the Transaction for its own account and without a
view to the distribution or resale thereof, (iv) the assignment, transfer or other disposition of
the Transaction has not been and will not be registered under the Securities Act and is restricted
under this Confirmation, the Securities Act and state securities laws, and (v) its financial
condition is such that it has no need for liquidity with respect to its investment in the
Transaction and no need to dispose of any portion thereof to satisfy any existing or contemplated
undertaking or indebtedness and is capable of assessing the merits of and understanding (on its own
behalf or through independent professional advice), and understands and accepts, the terms,
conditions and risks of the Transaction.

15

 

9. Other Provisions:

     (a) Opinions. Counterparty shall deliver to Dealer an opinion of counsel,
dated as of the Trade Date, with respect to the matters set forth in Section 3(a) of the
Agreement and Section 8(A)(g) of this Confirmation.

     (b) Repurchase Notices. Counterparty shall, on any day on which Issuer
effects any repurchase of Shares, give Dealer a written notice of such repurchase (a
“Repurchase Notice”) on such day, and, if such notice relates to material non-public
information at the time, simultaneously publicly announce (or cause to have announced) such
information, if following such repurchase, the Notice Percentage as determined on such day
is (i) greater than 4.5% and (ii) greater by 0.5% than the Notice Percentage included in
the immediately preceding Repurchase Notice (or, in the case of the first such Repurchase
Notice, greater than the Notice Percentage as of the date hereof). The “Notice Percentage”
as of any day is the fraction, expressed as a percentage, the numerator of which is the
product of the Number of Options and the Option Entitlement and the denominator of which is
the number of Shares outstanding on such day.

     (c) Regulation M. Counterparty and Issuer are not on the date
hereof engaged in a distribution, as such term is used in Regulation M under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), of any securities of Issuer, other
than a distribution meeting the requirements of the exception set forth in Rules 101(b)(10)
and 102(b)(7) of Regulation M. Counterparty and Issuer shall not, until the second
Scheduled Trading Day immediately following the Trade Date, engage in any such
distribution.

     (d) No Manipulation. Counterparty is not entering into this Transaction to
create actual or apparent trading activity in the Shares (or any security convertible into
or exchangeable for the Shares) or to raise or depress or otherwise manipulate the price of
the Shares (or any security convertible into or exchangeable for the Shares) or otherwise
in violation of the Exchange Act.

     (e) Number of Repurchased Shares. Counterparty represents that it could have
purchased Shares, in an amount equal to the product of the Number of Options and the Option
Entitlement, on the Exchange or otherwise, in compliance with applicable law, its
organizational documents and any orders, decrees, contractual agreements binding upon
Counterparty, on the Trade Date.

     (f) Early Unwind. In the event the sale of Exchangeable Notes is not
consummated with the initial purchasers for any reason by the close of business in New York
on December 12, 2006 (or such later date as agreed upon by the parties) (December 12, 2006
or such later date as agreed upon being the “Early Unwind Date”), this Transaction shall
automatically terminate (the “Early Unwind”), on the Early Unwind Date and (i) the
Transaction and all of the respective rights and obligations of Dealer and Counterparty
under the Transaction shall be cancelled and terminated and (ii) each party shall be
released and discharged by the other party from and agrees not to make any claim against
the other party with respect to any obligations or liabilities of the other party arising
out of and to be performed in connection with the Transaction either prior to or after the
Early Unwind Date; provided that, unless the sale of Exchangeable Notes is not consummated
with the initial purchasers for any reason other than as a result of breach of the Purchase
Agreement by the initial purchasers, Counterparty shall purchase from Dealer on the Early
Unwind Date all Shares purchased by Dealer or one or more of its affiliates and reimburse
Dealer for any costs or expenses (including market losses) relating to the unwinding of its
Hedging Activities in connection with the Transaction (including any loss or cost incurred
as a result of its terminating, liquidating, obtaining or reestablishing any hedge or
related trading

16

 

position). The amount of any such reimbursement shall be determined by Dealer in its
sole good faith discretion. Dealer shall notify Counterparty of such amount and
Counterparty shall pay such amount in immediately available funds on the Early Unwind Date.
Dealer and Counterparty represent and acknowledge to the other that, subject to the
proviso included in this paragraph, upon an Early Unwind, all obligations with respect to
the Transaction shall be deemed fully and finally discharged.

     (g) Transfer or Assignment. Neither party may transfer any of its rights or
obligations under the Transaction without the prior written consent of the non-transferring
party; provided that Dealer may transfer or assign without any consent of Counterparty its
rights and obligations hereunder, in whole or in part, to any of its affiliates that are
not less creditworthy than Dealer, or another affiliate not less creditworthy than Dealer);
provided further that at any time at which the Option Equity Percentage exceeds 9.0%,
Dealer will (i) have a right to, or (ii) if requested by Counterparty, transfer or assign
to a third party such portion of the Transaction that would otherwise cause the Option
Equity Percentage to exceed 9.0% (it being understood and agreed that Dealer, unless
otherwise consented to by Counterparty, would make such a transfer or assignment to a third
party who is not a “Non-Citizen” for purposes of Article Twelve of Counterparty’s
Certificate of Incorporation, if the transfer or assignment would otherwise result in the
Shares owned or controlled by a “Non-Citizen” for purposes of Article Twelve of
Counterparty’s Certificate of Incorporation); provided further that if Dealer is unable to
effect a transfer or assignment to a third party after its commercially reasonable efforts
on pricing terms reasonably acceptable to Dealer such that the Option Equity Percentage
does not exceed 9.0%, Dealer may designate any Scheduled Trading Day as an Early
Termination Date with respect to a portion (the “Section 13 Terminated Portion”) of the
Transaction, such that the Option Equity Percentage following such partial termination will
be equal to or less than 9.0%.

  In the event that Dealer so designates an Early Termination Date with
respect to a Section 13 Terminated Portion, a payment shall be made pursuant to Section 6
of the Agreement as if (i) an Early Termination Date had been designated in respect of a
Transaction having terms identical to this Transaction and a Number of Options equal to the
Section 13 Terminated Portion, (ii) Counterparty shall be the sole Affected Party with
respect to such partial termination and (iii) such Transaction shall be the only Terminated
Transaction (and, for the avoidance of doubt, the provisions of paragraph 9(k) shall apply
to any amount that is payable by Dealer to Counterparty pursuant to this sentence).

  The “Option Equity Percentage” as of any day is the fraction, expressed as a
percentage, (A) the numerator of which is the sum of (i) the number of Shares that Dealer
“beneficially owns” (within the meaning of Section 13 of the Exchange Act) on such day,
other than any Shares so owned as a hedge of the Transaction, and (ii) the product of the
Number of Options and the Option Entitlement and (B) the denominator of which is the number
of Shares outstanding on such day.

     (h) Staggered Settlement. If upon advice of counsel with respect to
applicable legal and regulatory requirements, including any requirements relating to
Dealer’s Hedging Activities hereunder, Dealer reasonably determines that it would not be
practicable or advisable to deliver, or to acquire Shares to deliver, any or all of the
Shares to be delivered by Dealer on the Settlement Date for the Transaction, Dealer may, by
notice to Counterparty on or prior to any Settlement Date (a “Nominal Settlement Date”),
elect to deliver the Shares on two or more dates (each, a “Staggered Settlement Date”) as
follows:

     (i) in such notice, Dealer will specify to Counterparty the related Staggered
Settlement Dates (provided that the last of such Staggered Settlement Dates

17

 

shall occur not later than 20 Trading Days (as defined in the Indenture)
following the Nominal Settlement Date) and the number of Shares that it will
deliver on each Staggered Settlement Date;

     (ii) the aggregate number of Shares that Dealer will deliver to Counterparty
hereunder on all such Staggered Settlement Dates will equal the number of Shares
that Dealer would otherwise be required to deliver on such Nominal Settlement
Date;

     (iii) if the Settlement terms set forth above were to apply on the Nominal
Settlement Date, then the Settlement terms will apply on each Staggered Settlement
Date, except that the Shares to be delivered will be allocated among such
Staggered Settlement Dates as specified by Dealer in the notice referred to in
clause (i) above; and

     (iv) if Counterparty declares a dividend or other distribution with respect
to Shares with an ex dividend date falling on or after a Nominal Settlement Date
and prior to a Staggered Settlement Date, then in addition to any Shares it
delivers on such a Staggered Settlement Date, Dealer shall deliver to
Counterparty the amount of such dividend or other distribution in respect of such
Shares on the Exchange Business Day next following its receipt of such dividend
or distribution.

     (i) Role of Agent. Each party agrees and acknowledges that (i) Lehman
Brothers Inc., an affiliate of Dealer (“Agent”), has acted solely as agent and not as
principal with respect to this Transaction and (ii) Agent has no obligation or liability,
by way of guaranty, endorsement or otherwise, in any manner in respect of this Transaction
(including, if applicable, in respect of the settlement thereof). Each party agrees it will
look solely to the other party (or any guarantor in respect thereof) for performance of
such other party’s obligations under this Transaction.

     (j) No Collateral or Setoff. Notwithstanding any provision of the Agreement
or any other agreement between the parties, the obligations of Dealer hereunder are not
secured by any collateral. In addition to and without limiting any rights of set-off that a
party hereto may have as a matter of law, pursuant to contract or otherwise, upon the
occurrence of an Early Termination Date, Dealer (and only Dealer) shall have the right to
set off any obligation that it may have to Counterparty under this Confirmation, including
without limitation any obligation to make any payment of cash or delivery of Shares to
Counterparty, against any obligation Counterparty may have to Dealer under any other
agreement between Dealer and Counterparty relating to Shares (other than any warrant
purchased by Dealer from Counterparty during a three month period commencing on the Trade
Date) (each such contract or agreement, a “Separate Agreement”), including without
limitation any obligation to make a payment of cash or a delivery of Shares or any other
property or securities if such Separate Agreement would not convey rights to Dealer senior
to the claims of common stockholders of Counterparty in the event of Counterparty’s
bankruptcy; provided that Dealer may not exercise any such right to net or set off in the
event of Counterparty’s bankruptcy. For this purpose, Dealer shall be entitled to convert
any obligation (or the relevant portion of such obligation) denominated in one currency
into another currency at the rate of exchange at which it would be able to purchase the
relevant amount of such currency, and to convert any obligation to deliver any non-cash
property into an obligation to deliver cash in an amount calculated by reference to the
market value of such property as of the Early Termination Date, as determined by the
Calculation Agent in its sole discretion; provided that in the case of a set-off of any
obligation to release or deliver assets against any right to receive fungible assets, such
obligation and right shall be set off in kind and; provided further that in determining the
value of any obligation to deliver Shares, the value at any time of such obligation shall
be determined by reference to the market value of the Shares at such time, as determined in
good

18

 

faith by the Calculation Agent. If an obligation is unascertained at the time of any
such set-off, the Calculation Agent may in good faith estimate the amount or value of such
obligation, in which case set-off will be effected in respect of that estimate, and the
relevant party shall account to the other party at the time such obligation or right is
ascertained. Except as set forth herein, Dealer waives any further right of setoff with
respect to this Transaction.

     (k) Alternative Calculations and Payment on Early Termination and on Certain
Extraordinary Events. If in respect of this Transaction, subject to paragraph (j)
above, an amount is payable by Dealer to Counterparty (i) pursuant to Section 12.7 or
Section 12.9 of the Equity Definitions or (ii) pursuant to Section 6(d)(ii) of the
Agreement (a “Payment Obligation”), Counterparty may request Dealer to satisfy any such
Payment Obligation by the Share Termination Alternative (as defined below) (except that
Counterparty shall not make such an election in the event of a Nationalization, Insolvency
or a Merger Event, in each case, in which the consideration to be paid to holders of Shares
consists solely of cash, or an Event of Default in which Counterparty is the Defaulting
Party or a Termination Event in which Counterparty is the Affected Party, other than an
Event of Default of the type described in Section 5(a)(iii), (v), (vi), (vii) or (viii) of
the Agreement or a Termination Event of the type described in Section 5(b)(i), (ii), (iii),
(iv), (v) or (vi) of the Agreement in each case that resulted from an event or events
outside Counterparty’s control) and shall give irrevocable telephonic notice to Dealer,
confirmed in writing within one Currency Business Day, no later than 12:00 p.m. New York
local time on the Merger Date, the Announcement Date (in the case of Nationalization or
Insolvency), the Early Termination Date or date of cancellation, as applicable; provided
that if Counterparty does not validly request Dealer to satisfy its Payment Obligation by
the Share Termination Alternative, Dealer shall have the right, in its sole discretion, to
satisfy its Payment Obligation by the Share Termination Alternative, notwithstanding
Counterparty’s election to the contrary. In calculating any amounts under Section 6(e) of
the Agreement, notwithstanding anything to the contrary in the Agreement, (1) separate
amounts shall be calculated as set forth in Section 6(e) with respect to (i) this
Transaction and (ii) all other Transactions, and (2) such separate amounts shall be payable
pursuant to Section 6(d)(ii) of the Agreement.

	 	 	 
	Share Termination Alternative:

	 	Applicable, if elected as per above,
and means that Dealer shall deliver
to Counterparty the Share Termination
Delivery Property on the date when
the Payment Obligation would
otherwise be due pursuant to Section
12.7 or 12.9 of the Equity
Definitions or Section 6(d)(ii) and
6(e) of the Agreement, as applicable
(the “Share Termination Payment
Date”), in satisfaction of the
Payment Obligation in the manner
reasonably requested by Counterparty
free of payment.
	 
	 	 
	Share Termination Delivery Property:

	 	A number of Share Termination
Delivery Units, as calculated by the
Calculation Agent, equal to the
Payment Obligation divided by the
Share Termination Unit Price. The
Calculation Agent shall adjust the
Share Termination Delivery Property
by replacing any fractional portion
of a security therein with an amount
of cash equal to the value of such
fractional security based on the
values used to calculate the Share

19

 

	 	 	 
	 

	 	Termination Unit Price.
	 
	 	 
	Share Termination Unit Price:

	 	The value to Dealer of property
contained in one Share Termination
Delivery Unit on the date such Share
Termination Delivery Units are to be
delivered as Share Termination
Delivery Property, as determined by
the Calculation Agent in its
discretion by commercially reasonable
means and notified by the Calculation
Agent to Dealer at the time of
notification of the Payment
Obligation.
	 
	 	 
	Share Termination Delivery Unit:

	 	One Share or, if a Merger Event has
occurred and a corresponding
adjustment to this Transaction has
been made, a unit consisting of the
number or amount of each type of
property received by a holder of one
Share (without consideration of any
requirement to pay cash or other
consideration in lieu of fractional
amounts of any securities) in such
Merger Event, as determined by the
Calculation Agent.
	 
	 	 
	Failure to Deliver:

	 	Applicable
	 
	 	 
	Other applicable provisions:

	 	If this Transaction is to be Share
Termination Settled, the provisions
of Sections 9.1(c), 9.8, 9.9, 9.11,
9.12 and 10.5 (as modified above) of
the Equity Definitions will be
applicable, except that all
references in such provisions to
“Physically-Settled” shall be read as
references to “Share Termination
Settled” and all references to
“Shares” shall be read as references
to “Share Termination Delivery
Units”. “Share Termination Settled”
in relation to this Transaction means
that Share Termination Alternative is
applicable to this Transaction.

     (l) Waiver of Jury Trial. Each party waives, to the fullest extent permitted
by applicable law, any right it may have to a trial by jury in respect of any suit, action
or proceeding relating to this Transaction. Each party (i) certifies that no
representative, agent or attorney of either party has represented, expressly or otherwise,
that such other party would not, in the event of such a suit, action or proceeding, seek to
enforce the foregoing waiver and (ii) acknowledges that it and the other party have been
induced to enter into this Transaction, as applicable, by, among other things, the mutual
waivers and certifications provided herein.

     (m) Registration. Counterparty hereby agrees that if, in the good faith
reasonable judgment of Dealer, the Shares (“Hedge Shares”) acquired by Dealer for the
purpose of hedging its obligations pursuant to this Transaction cannot be sold in the
public market by Dealer without registration under the Securities Act of 1933, as amended
(the “Securities Act”), Counterparty

20

 

and Issuer shall, at Counterparty’s election, either (i) in order to allow Dealer to
sell the Hedge Shares in a registered offering, make available to Dealer an effective
registration statement under the Securities Act and enter into an agreement, in form and
substance reasonably satisfactory to Dealer, substantially in the form of an underwriting
agreement for a registered secondary offering; provided however, that if Dealer, in its
sole reasonable discretion, is not satisfied with access to due diligence materials, the
results of its due diligence investigation, or the procedures and documentation for the
registered offering referred to above, then clause (ii) or clause (iii) of this Section
shall apply at the election of Counterparty, (ii) in order to allow Dealer to sell the
Hedge Shares in a private placement, enter into a private placement agreement substantially
similar to private placement purchase agreements customary for private placements of equity
securities, in form and substance reasonably satisfactory to Dealer (in which case, the
Calculation Agent shall make any adjustments to the terms of this Transaction that are
necessary, in its reasonable judgment, to compensate Dealer for any discount from the
public market price of the Shares incurred on the sale of Hedge Shares in a private
placement), or (iii) purchase the Hedge Shares from Dealer at the closing price on such
Exchange Business Days, and in the amounts, requested by Dealer.

     (n) Tax Disclosure. Effective from the date of commencement of discussions
concerning the Transaction, Counterparty and each of its employees, representatives, or
other agents may disclose to any and all persons, without limitation of any kind, the tax
treatment and tax structure of the Transaction and all materials of any kind (including
opinions or other tax analyses) that are provided to Counterparty relating to such tax
treatment and tax structure.

     (o) Status of Claims in Bankruptcy. Dealer acknowledges and agrees that this
Confirmation is not intended to convey to Dealer rights with respect to the Transaction
that are senior to the claims of common stockholders in any U.S. bankruptcy proceedings of
Counterparty; provided that nothing herein shall limit or shall be deemed to limit Dealer’s
right to pursue remedies in the event of a breach by Counterparty of its obligations and
agreements with respect to the Transaction; provided, further, that nothing herein shall
limit or shall be deemed to limit Dealer’s rights in respect of any transactions other than
the Transaction.

     (p) Securities Contract; Swap Agreement. The parties hereto intend for: (a)
the Transaction to be a “securities contract” and a “swap agreement” as defined in the
Bankruptcy Code (Title 11 of the United States Code) (the “Bankruptcy Code”), and the
parties hereto to be entitled to the protections afforded by, among other Sections,
Sections 362(b)(6), 362(b)(17), 555 and 560 of the Bankruptcy Code; (b) a party’s right to
liquidate the Transaction and to exercise any other remedies upon the occurrence of any
Event of Default under the Agreement with respect to the other party to constitute a
“contractual right” as described in the Bankruptcy Code; (c) any cash, securities or other
property provided as performance assurance, credit support or collateral with respect to
the Transaction to constitute “margin payments” and “transfers” under a “swap agreement” as
defined in the Bankruptcy Code; and (d) all payments for, under or in connection with the
Transaction, all payments for the Shares and the transfer of such Shares to constitute
“settlement payments” and “transfers” under a “swap agreement” as defined in the Bankruptcy
Code.

     (q) Additional Provisions. Counterparty covenants and agrees that, as promptly
as practicable following the public announcement of any consolidation, merger and binding
share exchange to which Counterparty is a party, or any sale of all or substantially all of
Counterparty’s assets, in each case pursuant to which the Shares will be converted into
cash, securities or other property, Counterparty shall notify Dealer in writing of the
types and amounts of consideration that holders of Shares have elected to receive upon
consummation of such transaction or event (the date of such notification, the
“Consideration Notification Date”); provided that in no event shall

21

 

the Consideration Notification Date be later than the date on which such transaction
or event is consummated.

     (r) Additional Termination Events. The occurrence of (i) an event of default
with respect to Counterparty under the terms of the Exchangeable Notes as set forth in
Section 7.01 of the Indenture that results in an acceleration of the Exchangeable Notes
pursuant to the terms of the Indenture, (ii) an Amendment Event or (iii) a PACC Termination
Event (which shall be deem to occur on the effective date for the related PACC Event) shall
be an Additional Termination Event with respect to which the Transaction is the sole
Affected Transaction and Counterparty is the sole Affected Party, and Dealer shall be the
party entitled to designate an Early Termination Date pursuant to Section 6(b) of the
Agreement.

“Amendment Event” means that Counterparty amends, modifies, supplements or obtains a waiver
in respect of any term of the Indenture or the Exchangeable Notes governing the principal
amount, coupon, maturity, repurchase obligation of Counterparty, redemption right of
Counterparty, any term relating to exchange of the Exchangeable Notes (including changes to
the exchange price, exchange settlement dates or exchange conditions) that may adversely
affect the rights or obligations of Dealer hereunder, or any term that would require
consent of the holders of not less than 100% of the principal amount of the Exchangeable
Notes to amend, in each case without the prior consent of Dealer, such consent not to be
unreasonably withheld.

     (s) “PACC Termination Event” means a PACC Event with respect to which (i) the
Calculation Agent reasonably determines that no PACC Adjustments would produce a
commercially reasonable result, (ii) the PACC Adjustments have not been made because any of
the documentation requirements set forth under “Consequences of Merger Events” above have
not been satisfied by the effective date for such PACC Event or (iii) Dealer has
determined, in its reasonable discretion, that it will be unable to effect its hedge
unwind, hedge leg in or other hedging activities in a manner compliant with applicable
legal, regulatory or self-regulatory requirements, or with policies and procedures
applicable to Dealer related to such applicable legal, regulatory or self-regulatory
requirements.

     (t) Regulatory Provisions. (i) Counterparty represents and warrants that it
has received and read and understands the Notice of Regulatory Treatment and the OTC Option
Risk Disclosure Statement. (ii) The Agent will furnish Counterparty upon written request a
statement as to the source and amount of any remuneration received or to be received by the
Agent in connection with the Transaction evidenced hereby.

22

 

     Please confirm that the foregoing correctly sets forth the terms of our agreement by executing
this Confirmation and returning it by fax on (646) 885-9546.

	 	 	 	 	 
	 	Very truly yours,

Lehman Brothers OTC Derivatives Inc.

 	 
	 	By:  	/s/
Anatoly Kozlov	 
	 	 	Authorized Signatory 	 
	 	 	Name: Anatoly Kozlov	 
	 

Accepted and confirmed
as of the Trade Date:

	 	 	 	 
	SESI, LLC

 	 
	By:  	/s/
Robert S. Taylor	 
	 	Authorized Signatory 	 
	 	Name: Robert S. Taylor	 
	 

23

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