Document:

exv4w1

 

Exhibit 4.1

Execution Version

AMENDMENT NO. 2

     This Amendment No. 2 (“Agreement”) dated as of October 13, 2006 (“Effective Date”) is among
Mariner Energy, Inc., a Delaware corporation (the “Parent”), Mariner Energy Resources, Inc., a
Delaware corporation (“Mariner Energy Resources” and together with the Parent, the “Borrowers”,
each a “Borrower”), the Lenders (as defined in the Credit Agreement described below), and Union
Bank of California, N.A., as administrative agent for such Lenders (in such capacity, the
“Administrative Agent”) and as issuing lender for such Lenders (in such capacity, the “Issuing
Lender”).

RECITALS

     A. The Borrowers, the Lenders, the Issuing Lender and the Administrative Agent are parties to
the Amended and Restated Credit Agreement dated as of March 2, 2006, as amended by Amendment No. 1
and Consent dated as of April 7, 2006 (as so amended and as the same may be further amended,
restated, supplemented or otherwise modified from time to time, the “Credit Agreement”).

     B. In connection with the Credit Agreement, the Borrowers and the Administrative entered into
that certain post-closing letter agreement dated March 2, 2006, as amended and modified by that
certain Extension Agreement dated June 2, 2006 (the “Extension Agreement”) and that Second
Extension Agreement dated July 17, 2006 pertaining to certain title matters (as so amended and as
the same may be further amended, restated, supplemented or otherwise modified from time to time,
the “Letter Agreement”).

     C. At the request of the Borrowers, the Administrative Agent and the Lenders wish to, subject
to the terms and conditions of this Agreement, increase the Borrowing Base and update the status of
certain post-closing requirements set forth in the Letter Agreement.

     THEREFORE, the Borrowers, the subsidiaries of the Borrowers signatory hereto (the
“Guarantors”), the Lenders, the Issuing Lender and the Administrative Agent hereby agree as
follows:

ARTICLE I.

DEFINITIONS

     Section 1.01 Terms Defined Above. As used in this Agreement, each of the terms
defined in the opening paragraph and the Recitals above shall have the meanings assigned to such
terms therein.

     Section 1.02 Terms Defined in the Credit Agreement. Each term defined in the Credit
Agreement and used herein without definition shall have the meaning assigned to such term in the
Credit Agreement, unless expressly provided to the contrary.

     Section 1.03 Other Definitional Provisions. The words “hereby”, “herein”,
“hereinafter”, “hereof”, “hereto” and “hereunder” when used in this Agreement shall refer to this
Agreement as a whole and not to any particular Article, Section, subsection or provision of this
Agreement. Article, Section, subsection and Exhibit references herein are to such Articles,
Sections, subsections and Exhibits of this Agreement unless otherwise specified. All titles or

 

 

headings to Articles, Sections, subsections or other divisions of this Agreement or the
exhibits hereto, if any, are only for the convenience of the parties and shall not be construed to
have any effect or meaning with respect to the other content of such Articles, Sections,
subsections, other divisions or exhibits, such other content being controlling as the agreement
among the parties hereto. Whenever the context requires, reference herein made to the single
number shall be understood to include the plural; and likewise, the plural shall be understood to
include the singular. Words denoting sex shall be construed to include the masculine, feminine and
neuter, when such construction is appropriate; and specific enumeration shall not exclude the
general but shall be construed as cumulative. Definitions of terms defined in the singular or
plural shall be equally applicable to the plural or singular, as the case may be, unless otherwise
indicated.

ARTICLE II.

AMENDMENT TO CREDIT AGREEMENT

     Section 2.01 Increase in Borrowing Base. Subject to the terms of this Agreement, the
Administrative Agent, the Lenders and the Borrowers hereby agree that as of the Effective Date the
Borrowing Base shall be $450,000,000 and such Borrowing Base shall remain in effect at that level
until the next redetermination or adjustment of the Borrowing Base is made pursuant to Section 2.02
of the Credit Agreement.

ARTICLE III.

AMENDMENT TO LETTER AGREEMENT

     Section 3.01 Post Closing Requirements. Subject to the terms of this Agreement, the
Administrative Agent, the Lenders and the Borrowers hereby agree that as of the Effective Date, all
requirements set forth in the Letter Agreement have been completed or addressed to the satisfaction
of the Lenders and no further action shall be required thereunder, other than the continuing
requirement more particularly described in item number 3 of Schedule 1A of the Letter Agreement.

ARTICLE IV.

COVENANTS

     Section 4.01 MEI Pledge of BP Interests. In the event that BP Exploration and
Production Inc. (“BP”) sells the properties (“BP Properties”) covered by the BP Acquisition
Agreement (as defined in Section 6.01(b) below) to the Parent instead of Mariner Energy Resources
pursuant to Section 17 of the BP Acquisition Agreement, then the Parent agrees to, at the
Borrowers’ expense, take all actions reasonably required by the Administrative Agent to grant to
the Administrative Agent an Acceptable Security Interest in such BP Properties, including without
limitation, all Proven Reserves associated with the BP Properties and all personal property assets
associated with the BP Properties.

ARTICLE V.

REPRESENTATIONS AND WARRANTIES

     Section 5.01 Borrowers Representations and Warranties. Each of the Borrowers
represents and warrants that: (a) its representations and warranties contained in Article IV of the
Credit Agreement and its representations and warranties contained in the Security Instruments, the
Guaranties, and each of the other Loan Documents to which it is a party are true and correct

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in all material respects on and as of the Effective Date, after giving effect to the terms of
this Agreement, as though made on and as of such date, except those representations and warranties
that speak of a certain date, which representations and warranties were true and correct as of such
date; (b) after giving effect to the terms of this Agreement, no Default has occurred and is
continuing; (c) the execution, delivery and performance of this Agreement and the other documents,
instruments, certificates and agreements (“Other Documents”) required to be delivered by this
Agreement and to which each of the Borrowers is a party are within the corporate power and
authority of each of the Borrowers and have been duly authorized by appropriate corporate action
and proceedings; (d) this Agreement and the Other Documents to which each of the Borrowers is a
party constitute legal, valid, and binding obligations of such Borrower enforceable in accordance
with their respective terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting the rights of creditors generally and general
principles of equity; (e) there are no governmental or other third party consents, licenses and
approvals required in connection with the execution, delivery, performance, validity and
enforceability of this Agreement or any of the Other Documents; and (f) the Liens under the
Security Instruments are valid and subsisting and secure each of the Borrowers’ obligations under
the Loan Documents.

     Section 5.02 Guarantors Representations and Warranties. Each Guarantor represents and
warrants that: (a) its representations and warranties contained in Article IV of the Credit
Agreement and its representations and warranties contained in the Security Instruments, the
Guaranties, and each of the other Loan Documents to which it is a party are true and correct in all
material respects on and as of the Effective Date, as though made on and as of such date, except
those representations and warranties that speak of a certain date, which representations and
warranties were true and correct as of such date; (b) after giving effect to the terms of this
Agreement, no Default has occurred and is continuing; (c) the execution, delivery and performance
of this Agreement and the Other Documents to which such Guarantor is a party are within the
corporate power and authority of such Guarantor and have been duly authorized by appropriate
corporate action and proceedings; (d) this Agreement and the Other Documents to which such
Guarantor is a party constitute legal, valid, and binding obligations of such Guarantor enforceable
in accordance with their respective terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting the rights of creditors generally and general
principles of equity; (e) there are no governmental or other third party consents, licenses and
approvals required in connection with the execution, delivery, performance, validity and
enforceability of this Agreement or any of the Other Documents; (f) it has no defenses to the
enforcement of its Guaranty; and (g) the Liens under the Security Instruments are valid and
subsisting and secure such Guarantor’s obligations under the Loan Documents.

ARTICLE VI.

CONDITIONS

     This Agreement shall become effective and enforceable against the parties hereto, and the
Credit Agreement shall be amended as provided herein, upon the occurrence of the following
conditions precedent:

     Section 6.01 Documents; Certificates.

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          (a) The Administrative Agent shall have received multiple original counterparts, as requested
by the Administrative Agent, of this Agreement duly and validly executed and delivered by duly
authorized officers of the Borrowers, the Guarantors, the Administrative Agent, and the Lenders.

          (b) The Administrative Agent shall have received copies, certified by a Responsible Officer of
Mariner Energy Resources, of the Purchase and Sale Agreement for Preferential Purchase Right Holder
dated as of August 7, 2006 (“BP Acquisition Agreement”) between BP and Mariner Energy Resources,
pursuant to which Mariner Energy Resources has acquired certain Oil and Gas Properties in the Gulf
of Mexico more particularly described therein (the “BP Acquisition”), together with any material
agreements executed in connection with the BP Acquisition Agreement, and all amendments,
modifications or waivers thereto in effect on the Effective Date.

          (c) The Administrative Agent shall have received supplements to existing Mortgages providing
for the mortgaging of certain additional Oil and Gas Properties acquired by Mariner Energy
Resources pursuant to the BP Acquisition, in form and substance satisfactory to the Administrative
Agent, duly and validly executed and delivered by duly authorized officers of the Borrowers, the
Administrative Agent and the Lenders.

          (d) The Administrative Agent shall have received a signed certificate of the secretary or an
assistant secretary of each of the Borrowers and any Guarantor in form and substance reasonably
satisfactory to the Administrative Agent.

          (e) The Administrative Agent shall have received such other instruments, documents and
amendments or supplements as the Administrative Agent may reasonably request.

     Section 6.02 Title. The Administrative Agent shall have satisfactory title opinions
or other title evidence, in form and substance reasonably acceptable to the Administrative Agent,
evidencing the title to the Oil and Gas Properties acquired pursuant to the BP Acquisition and that
are to be considered in determining the Borrowing Base.

     Section 6.03 No Default. No Default shall have occurred and be continuing as of the
Effective Date.

     Section 6.04 Representations. The representations and warranties in this Agreement
shall be true and correct in all material respects.

     Section 6.05 Fees. The Borrower shall have paid (a) to the Administrative Agent for
the benefit of the Lenders a borrowing base increase fee in an aggregate amount equal to 0.25% of
the increased availability under the Borrowing Base, which amount when calculated equals $218,750,
and (b) all reasonable fees and expenses of the Administrative Agent under the Credit Agreement
that have been invoiced and are then due and owing.

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ARTICLE VII.

MISCELLANEOUS

     Section 7.01 Effect on Loan Documents; Acknowledgments.

          (a) Each of the Borrowers acknowledges that on the date hereof all Obligations are payable
without defense, offset, counterclaim or recoupment.

          (b) The Administrative Agent, the Issuing Lender, and the Lenders hereby expressly reserve all
of their rights, remedies, and claims under the Loan Documents. Nothing in this Agreement shall
constitute a waiver or relinquishment of (i) any Default or Event of Default under any of the Loan
Documents other than as expressly set forth above, (ii) any of the agreements, terms or conditions
contained in any of the Loan Documents other than as expressly set forth above, (iii) any rights or
remedies of the Administrative Agent, the Issuing Lender or any Lender with respect to the Loan
Documents, or (iv) the rights of the Administrative Agent, any Issuing Lender or any Lender to
collect the full amounts owing to them under the Loan Documents.

          (c) Each of the Borrowers, the Guarantors, Administrative Agent, Issuing Lender, and Lenders
does hereby adopt, ratify, and confirm the Credit Agreement, as amended hereby, and acknowledges
and agrees that the Credit Agreement, as amended hereby, and all other Loan Documents are and
remain in full force and effect, and each of the Borrowers and the Guarantors acknowledges and
agrees that its liabilities under the Credit Agreement and the other Loan Documents are not
impaired in any respect by this Agreement or the consents granted hereunder.

          (d) From and after the Effective Date, all references to the Credit Agreement and the Loan
Documents shall mean such Credit Agreement and such Loan Documents as amended by this Agreement.

          (e) This Agreement is a Loan Document for the purposes of the provisions of the other Loan
Documents. Without limiting the foregoing, any breach of representations, warranties, and
covenants under this Agreement shall be a Default or Event of Default, as applicable, under the
Credit Agreement.

     Section 7.02 Reaffirmation of the Guaranty. Each Guarantor hereby ratifies, confirms,
acknowledges and agrees that its obligations under its Guaranty are in full force and effect and
that such Guarantor continues to unconditionally and irrevocably guarantee the full and punctual
payment, when due, whether at stated maturity or earlier by acceleration or otherwise, all of the
Guaranteed Obligations (as defined in its Guaranty), as such Guaranteed Obligations may have been
amended by this Agreement, and its execution and deliver of this Agreement does not indicate or
establish an approval or consent requirement by such Guarantor under its Guaranty in connection
with the execution and delivery of amendments to the Credit Agreement, the Notes or any of the
other Loan Documents.

     Section 7.03 Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original and all of which, taken together, constitute a
single instrument. This Agreement may be executed by facsimile signature and all such signatures
shall be effective as originals.

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     Section 7.04 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the Lenders, the Borrowers and the Administrative Agent hereto and their
respective successors and assigns permitted pursuant to the Credit Agreement.

     Section 7.05 Invalidity. In the event that any one or more of the provisions
contained in this Agreement shall for any reason be held invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any other provision of
this Agreement.

     Section 7.06 Governing Law. This Agreement shall be deemed to be a contract made
under and shall be governed by and construed in accordance with the laws of the State of Texas.

     Section 7.07 Entire Agreement. THIS AGREEMENT, THE CREDIT AGREEMENT AS AMENDED BY THIS
AGREEMENT, THE NOTES, AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE
PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS,
WRITTEN OR ORAL, WITH RESPECT THERETO.

THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

[SIGNATURES BEGIN ON NEXT PAGE]

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     EXECUTED effective as of the date first above written.

	 	 	 	 	 	 	 	 	 	 	 
	 	 	MARINER ENERGY, INC.	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	By:	 	/s/ Rick G. Lester	 	 
	 	 	 	 	 	 	 
	 	 	 	 	Rick G. Lester

Vice President and Chief Financial Officer	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	MARINER ENERGY RESOURCES, INC.	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	By:	 	/s/ Rick G. Lester	 	 
	 	 	 	 	 	 	 
	 	 	 	 	Rick G. Lester

Vice President and Chief Financial Officer	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	MARINER LP LLC, a Delaware

limited liability company	 	 
	 	 	 	 	By:	 	Mariner Energy, Inc., its sole member	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	By:	 	/s/ Rick G. Lester	 	 
	 	 	 	 	 	 	 
	 	 	 	 	Rick G. Lester

Vice President and Chief Financial Officer	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	MARINER ENERGY TEXAS LP, a Delaware limited partnership	 	 
	 	 	 	 	By:	 	Mariner Energy, Inc., its sole general partner	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/s/ Rick G. Lester	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Rick G. Lester	 	 
	 

	 	 	 	 	 	 	 	Vice President and Chief Financial Officer	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	UNION BANK OF CALIFORNIA, N.A.,

as Administrative Agent, as Issuing Lender, and as a
Lender	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	By:	 	/s/ Damien Meiburger	 	 
	 	 	 	 	 	 	 
	 	 	 	 	Damien Meiburger, Senior Vice President	 	 

Signature Page to Amendment No. 2

(Mariner Energy, Inc. and Mariner Energy Resources, Inc.)

 

 

	 	 	 	 	 	 	 
	 	 	LENDERS:	 	 
	 
	 	 	 	 	 	 
	 	 	BNP PARIBAS	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Gabe Ellisor	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Gabe Ellisor	 	 
	 

	 	Title:
	 	Vice President	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Polly Schott	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Polly Schott	 	 
	 

	 	Title:
	 	Vice President	 	 

Signature Page to Amendment No. 2

(Mariner Energy, Inc. and Mariner Energy Resources, Inc.)

 

 

	 	 	 	 	 	 	 
	 	 	JPMORGAN CHASE BANK, N.A.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Jo Linda Papadakis	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Jo Linda Papadakis	 	 
	 

	 	Title:
	 	Vice President	 	 

Signature Page to Amendment No. 2

(Mariner Energy, Inc. and Mariner Energy Resources, Inc.)

 

 

	 	 	 	 	 	 	 
	 	 	NATEXIS BANQUES POPULAIRES	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Donovan C. Broussard	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Donovan C. Broussard	 	 
	 

	 	Title:
	 	Vice President and Group Manager	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Daniel Payer	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Daniel Payer	 	 
	 

	 	Title:
	 	Vice President	 	 

Signature Page to Amendment No. 2

(Mariner Energy, Inc. and Mariner Energy Resources, Inc.)

 

 

	 	 	 	 	 	 	 
	 	 	CAYLON NEW YORK BRANCH	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Tom Byargeon	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Tom Byargeon	 	 
	 

	 	Title:
	 	Managing Director	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Michael D. Willis	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Michael D. Willis	 	 
	 

	 	Title:
	 	Director	 	 

Signature Page to Amendment No. 2

(Mariner Energy, Inc. and Mariner Energy Resources, Inc.)

 

 

	 	 	 	 	 	 	 
	 	 	GUARANTY BANK	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Kelly L. Elmore III	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Kelly L. Elmore III	 	 
	 

	 	Title:
	 	Senior Vice President	 	 

Signature Page to Amendment No. 2

(Mariner Energy, Inc. and Mariner Energy Resources, Inc.)

 

 

	 	 	 	 	 	 	 
	 	 	AMEGY BANK NATIONAL ASSOCIATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Kenneth R. Batson, III	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Kenneth R. Batson, III	 	 
	 

	 	Title:
	 	Vice President	 	 

Signature Page to Amendment No. 2

(Mariner Energy, Inc. and Mariner Energy Resources, Inc.)

 

 

	 	 	 	 	 	 	 
	 	 	DZ BANK AG DEUTSCHE ZENTRAL-GENOSSENSCHAFTSBANK

FRANKFURT AM MAIN, NEW YORK BRANCH	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Richard L. Hagemann	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Richard L. Hagemann	 	 
	 

	 	Title:
	 	First Vice President	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ John Hammarskjold	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	John Hammarskjold	 	 
	 

	 	Title:
	 	Assistant Vice President	 	 

Signature Page to Amendment No. 2

(Mariner Energy, Inc. and Mariner Energy Resources, Inc.)

 

 

	 	 	 	 	 	 	 
	 	 	CITICORP USA, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ David E. Hunt	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	David E. Hunt	 	 
	 

	 	Title:
	 	Vice President	 	 

Signature Page to Amendment No. 2

(Mariner Energy, Inc. and Mariner Energy Resources, Inc.)

 

 

	 	 	 	 	 	 	 
	 	 	WELLS FARGO BANK, NATIONAL ASSOCIATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Jo Ann Vasquez	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Jo Ann Vasquez	 	 
	 

	 	Title:
	 	Vice President	 	 

Signature Page to Amendment No. 2

(Mariner Energy, Inc. and Mariner Energy Resources, Inc.)

 

 

	 	 	 	 	 	 	 
	 	 	COMERICA BANK	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Josh Strong	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Josh Strong	 	 
	 

	 	Title:
	 	Banking Officer	 	 

Signature Page to Amendment No. 2

(Mariner Energy, Inc. and Mariner Energy Resources, Inc.)

 

 

	 	 	 	 	 	 	 
	 	 	BMO CAPITAL MARKETS FINANCING, INC.

  (f / k / a / HARRIS NESBITT FINANCING, INC.)	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ James V. Ducote	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	James V. Ducote	 	 
	 

	 	Title:
	 	Vice President	 	 

Signature Page to Amendment No. 2

(Mariner Energy, Inc. and Mariner Energy Resources, Inc.)exv10w1

 

Exhibit 10.1

EMPLOYMENT AGREEMENT

     This Employment Agreement (“Agreement”) is made and entered into as of October 16, 2006 (the
“Effective Date”), by and between Mariner Energy, Inc., a Delaware corporation (hereafter
“Company”), and John H. Karnes (hereafter “Executive”).

     1. Employment. During the Employment Period (as defined in Section 4 hereof),
the Company shall employ Executive, and Executive shall serve, as Senior Vice President, Chief
Financial Officer and Treasurer. References herein to employment with or by the Company shall
include employment with or by any affiliate of the Company.

     2. Duties and Responsibilities of Executive.

     (a) During the Employment Period, Executive shall devote his full time and attention
during normal business hours to the business of the Company, will act in the best interests
of the Company and will perform with due care his duties and responsibilities. Executive’s
duties will include those normally incidental to the position of Vice President as well as
whatever additional duties may be assigned to him by the Board of Directors of the Company
(the “Board”) or the Chief Executive Officer of the Company. Executive agrees to cooperate
fully with the Board and the Chief Executive Officer of the Company and not to engage in any
activity that materially interferes with the performance of Executive’s duties hereunder.
During the Employment Period, Executive will not hold outside employment without the advance
written approval of the Board. Provided that it shall not be a violation of this Agreement
for Executive to (1) serve on corporate, civic, or charitable boards or committees (except
for boards or committees of a business organization that competes with the Company in any
business in which the Company is regularly engaged), which are listed on Exhibit A so long
as such service does not materially interfere with the performance of Executive’s duties and
responsibilities under this Agreement, as determined in the good faith opinion of the Board,
(2) manage personal investments, or (3) take vacation days and reasonable absences due to
injury or illness, as set forth herein and/or permitted by the general policies of the
Company.

     (b) Executive represents and covenants to the Company that he is not subject or a party
to any employment agreement, non-competition covenant, nondisclosure agreement, or any other
agreement, covenant, understanding, or restriction that would prohibit Executive from
executing this Agreement and fully performing his duties and responsibilities hereunder, or
would in any manner, directly or indirectly, limit or affect the duties and responsibilities
that may now or in the future be assigned to Executive hereunder.

     (c) Executive acknowledges and agrees that Executive owes the Company a duty of loyalty
and that the obligations described in this Agreement are in addition to, and not in lieu of,
the obligations Executive owes the Company under the common law.

     3. Compensation.

     (a) During the Employment Period (as defined in Section 4 hereof), the Company
shall pay to Executive an annualized base salary of $235,000 (the “Base

 

 

Salary”) in consideration for Executive’s services under this Agreement, payable on a
not less than semi-monthly basis, in conformity with the Company’s customary payroll
practices for executive salaries. For all purposes of this Agreement, Executive’s Base
Salary shall include any portion thereof which is deferred under any nonqualified plan or
arrangement. Each year, the Board shall review Executive’s salary based on market survey
data, corporate performance, and performance of Executive. If, in its sole and complete
discretion, the Board determines that an increase in Executive’s salary is appropriate, the
Board may make such adjustment, and such adjusted salary shall thereafter be Executive’s
Base Salary for purposes of this Agreement. Executive’s Base Salary may not be reduced
except as part of a general reduction of salaries paid to management employees that is
necessitated by business conditions, as determined by the Board.

     (b) Executive may be eligible for an annual discretionary performance bonus with
respect to each calendar year during the Employment Period (the “Annual Bonus”). If you
remain employed at the Company until such time as bonuses for calendar year 2006 are paid to
other officers of the Company in 2007, which is expected to be no later than May 15, 2007,
you will be paid a guaranteed bonus of not less than $125,000. Thereafter, the amount, if
any, of Executive’s Annual Bonus will be determined by the Board in its sole and complete
discretion based on market survey data, corporate performance, and performance of Executive.
Bonus determinations will be made by the Board at a time convenient to the Board but
typically within 60 calendar days of the end of each calendar year. The Board will, on an
annual basis (at or near the beginning of each calendar year in the Employment Period)
establish a target bonus for Executive for the upcoming year, and will communicate such
target to Executive. If the Board determines to award Executive an Annual Bonus, it will be
payable in conformity with the Company’s customary payroll practices for executive bonuses.
The Board may also award additional bonuses or other compensation to Executive at any time
in its sole and complete discretion.

     (c) Any salary, bonus, and other compensation payments hereunder shall be subject to
such payroll and other taxes, withholdings, and deductions as may be required by applicable
law or with respect to Executive’s coverage in the Company’s insurance and other employee
benefit plans.

     4. Term of Employment. The initial term of this Agreement shall be for the period
beginning on the Effective Date and ending at midnight (EST) on October 15, 2007 (the “Initial
Term”). On October 15, 2007, and on October 15 of each succeeding year (each such date being
referred to as a “Renewal Date”), this Agreement shall automatically renew and extend for a period
of 12 months (a “Renewal Term”) unless written notice of non-renewal is delivered from one party to
the other at least 90 days prior to such Renewal Date (in which case the Termination Date shall be
the day immediately prior to such Renewal Date). Notwithstanding any other provision of this
Agreement, this Agreement may be terminated at any time during the Initial Term or the Renewal Term
(if any) in accordance with Section 6. The period from the Effective Date through the Termination
Date of this Agreement, regardless of the time or reason for such termination, shall be referred to
herein as the “Employment Period.” In the event that this Agreement is not renewed, Executive
shall become an at-will employee of the Company and the Company shall have the right to terminate
Executive’s employment with the Company at any time.

2

 

     5. Benefits. Subject to the terms and conditions of this Agreement, Executive shall
be entitled to the following benefits during the Employment Period:

     (a) Reimbursement of Business Expenses. The Company agrees to reimburse Executive for
reasonable business-related expenses incurred in the performance of Executive’s duties under
this Agreement in accordance with Company policies.

     (b) Benefit Plans and Programs. To the extent permitted by applicable law and subject
to the terms and eligibility requirements of any such plan or program, Executive will be
eligible to participate in all benefit plans and programs, including improvements or
modifications of the same, that are maintained by the Company generally for executive
employees of the Company, subject to the eligibility requirements and other terms and
conditions of those plans and programs. The Company will not, however, by reason of this
Section 5(b) be obligated either (1) to institute, maintain, or refrain from changing,
amending, or discontinuing any such benefit plan or program, or (2) to provide Executive
with all benefits provided to any other person or individual employed by the Company or any
of its affiliates; provided, however, that if Executive remains employed at the Company
until such time as bonuses for calendar year 2006 are paid to other officers of the Company
in 2007, the Company agrees to grant to Executive no fewer than 20,000 shares of restricted
stock of the Company. Such restricted stock is expected to have a four-year vesting
schedule.

     6. Termination of Employment.

(a) Company’s Right to Terminate. At any time during the Initial Term or any
Renewal Term, the Company shall have the right to terminate this Agreement and
Executive’s employment with the Company for any of the following reasons:

	 	(1)	 	Upon Executive’s death (in which case the
Termination Date shall be the date of Executive’s death);
	 
	 	(2)	 	Upon Executive’s Disability (as defined below);
	 
	 	(3)	 	For Cause (as defined in Section 7); or
	 
	 	(4)	 	For any other reason whatsoever, in the sole and complete discretion of the
Company.

(b) Executive’s Right to Terminate. At any time during the Initial Term or any
Renewal Term, Executive will have the right to terminate this Agreement and
Executive’s employment with the Company for:

     (1) Good Reason (as defined in Section 7); or

     (2) For any other reason whatsoever, in the sole and complete discretion of
Executive.

(c) “Disability.” For purposes of this Agreement, “Disability” means that Executive
has sustained sickness or injury that renders Executive incapable, with reasonable
accommodation, of performing the duties and services required of

3

 

Executive hereunder for a period of 90 consecutive calendar days or a total of 120
calendar days during any 12 month period.

(d) “Notices.” Any termination of this Agreement by the Company under Section 6(a)
(other than termination due to the death of Executive), or by Executive under
Section 6(b) shall be communicated by a Notice of Termination to the other party. A
“Notice of Termination” means a written notice that (1) indicates the specific
termination provision in this Agreement relied upon and (2) if the termination is by
the Company for Cause or by Executive for Good Reason, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
Executive’s employment under the provision so indicated. The Notice of Termination
must specify the Termination Date. In the case of a termination by the Company for
Cause or due to Executive’s Disability, or by Executive for Good Reason, the
Termination Date may be as early as the date notice is given but no later than 30
calendar days after notice is given, unless otherwise agreed to in writing by both
parties. In the case of a termination by the Company or by Executive for any other
reason, the Termination Date may be as early as 14 calendar days after notice is
given but no later than 60 calendar days after notice is given, unless otherwise
agreed to by the parties in writing.

     7. Severance Payments.

(a) Termination by the Company. If (1) the Company terminates this Agreement and
Executive’s employment with the Company and its affiliates during the Initial Term
or the Renewal Term (if any) pursuant to Section 6(a)(4), (2) Executive
timely signs and does not revoke a waiver and release agreement substantially
similar to Exhibit B, and (3) Executive continues to comply with Executive’s ongoing
obligations under Sections 11 and 12 of this Agreement, then, subject to
Section 7(h), the Company shall pay Executive severance (A) in the amount of
$375,000 if such termination occurs prior to the earlier of April 16, 2007, or the
occurrence of a Change of Control, or (B) an amount equal to 2.99 times the sum of
Executive’s Base Salary plus his Average Bonus Amount if such termination occurs on
or after the earlier of April 16, 2007, or the occurrence of a Change of Control.
The Executive’s “Average Bonus Amount” for purposes of Sections 7(a), 7(b) and 7(d)
shall be the average annual amount paid or payable to Executive as bonuses for the
Company’s three calendar years ended immediately prior to the Termination Date (or
for the number of calendar years that Executive has been an employee of the Company
before the Termination Date, if less than three). Such severance payment shall be
in addition to payment by the Company of all previously unpaid amounts (including,
without limitation, salary, bonuses, equity plans, incentive compensation plans,
fringe benefits, and expense reimbursements) owed to Executive under this Agreement
with respect to periods prior to the Termination Date.

(b) Termination by Executive. If (1) Executive terminates this Agreement and
Executive’s employment with the Company and its affiliates during the Initial Term
or the Renewal Term (if any) pursuant to Section 6(b)(1), (2) Executive
timely signs and does not revoke a waiver and release agreement substantially
similar to Exhibit B, and (3) Executive continues to comply with Executive’s ongoing
obligations under Sections 11 and 12 of this Agreement, then, subject to
Section 7(h), the Company shall pay Executive severance (A) in the amount of

4

 

$375,000 if such termination occurs prior to the earlier of April 16, 2007, or the
occurrence of a Change of Control, or (B) an amount equal to 2.99 times the sum of
Executive’s Base Salary plus his Average Bonus Amount if such termination occurs on
or after the earlier of April 16, 2007, or the occurrence of a Change of Control.
Such severance payment shall be in addition to payment by the Company of all
previously unpaid amounts (including, without limitation, salary, bonuses, equity
plans, incentive compensation plans, fringe benefits, and expense reimbursements)
owed to Executive under this Agreement with respect to periods prior to the
Termination Date.

(c) Additional Benefits. If the Company is required to pay Executive severance by
the express terms of Section 7(a) or 7(b), then:

     (1) Executive, Executive’s spouse, and Executive’s dependents will continue to
be eligible for coverage under the Company’s group health plan or any successor plan
on the same basis as active executive employees of the Company, their spouses, and
their dependents for a period of eighteen months commencing on the date on which
Executive’s employment with the Company is terminated (the “Termination Date”) (the
“Severance Period”). If and when group health coverage under another employer’s
plan is made available to Executive, Executive’s spouse, or Executive’s dependents,
the Company’s obligations under this paragraph will cease with respect to each
person to whom such coverage is made available, notwithstanding that such person may
not in fact become covered under such other employer’s plan. Executive shall
reimburse the Company for Executive’s portion of the premium on a monthly basis.

     (2) Executive shall become 50% vested in all of the rights and interests
granted to Executive under the Company’s stock and other equity plans, including
without limitation any stock options, restricted stock, restricted stock units,
performance units, and/or performance shares to the extent Executive is less than
50% vested in such award as of the Termination Date.

     (3) Payments under Sections 7(a) or 7(b) shall be in lieu of any severance
benefits otherwise due to Executive under any severance pay plan or program
maintained by the Company that covers its employees or executives generally.

(d) Termination in Event of Executive’s Disability. If (1) the Company terminates
Executive’s employment with the Company and its affiliates during the Initial Term
or the Renewal Term (if any) pursuant to Section 6(a)(2), (2) Executive
timely signs and does not revoke a waiver and release agreement substantially
similar to Exhibit B, and (3) Executive continues to comply with Executive’s ongoing
obligations under Section 11 and 12 of this Agreement, then, subject to
Section 7(h), the Company shall pay Executive severance in an amount equal to 2.99
times the sum of Executive’s Base Salary plus his Average Bonus Amount. Such
severance payment shall be in addition to payment by the Company of all previously
unpaid amounts (including, without limitation, salary, bonuses, equity plans,
incentive compensation plans, fringe benefits, and expense reimbursements) owed to
Executive under this Agreement with respect to periods prior to the Termination
Date.

5

 

(e) Additional Disability Benefits. If the Company is required to pay Executive
severance by the express terms of Section 7(d), then:

     (1) Executive, Executive’s spouse, and Executive’s dependents will continue to
be eligible for coverage under the Company’s group health plan or any successor plan
on the same basis as active executive employees of the Company, their spouses, and
their dependents for the duration of the Severance Period. Executive shall
reimburse the Company for Executive’s portion of the premium on a monthly basis. If
and when group health coverage under another employer’s plan is made available to
Executive, Executive’s spouse, or Executive’s dependents, the Company’s obligations
under this paragraph will cease with respect to each person to whom such coverage is
made available, notwithstanding that such person may not in fact become covered
under such other employer’s plan.

     (2) Executive shall become 50% vested in all of the rights and interests
granted to Executive under the Company’s stock and other equity plans, including
without limitation any stock options, restricted stock, restricted stock units,
performance units, and/or performance shares to the extent Executive is less than
50% vested in such award as of the Termination Date.

     (3) Payments under this Section 7(e) shall be in lieu of any severance benefits
otherwise due to Executive under any severance pay plan or program maintained by the
Company that covers its employees or executives generally.

(f) “Cause” means the occurrence or existence, prior to occurrence of circumstances
constituting Good Reason, of any of the following events:

     (1) Executive’s gross negligence or material mismanagement in performing, or
material failure or inability (excluding as a result of death or Disability) to
perform, Executive’s duties and responsibilities as described herein or as lawfully
directed by the Board or the Chief Executive Officer of the Company;

     (2) Executive’s having committed any act of willful misconduct or material
dishonesty against the Company or any of its affiliates (including theft,
misappropriation, embezzlement, forgery, fraud, falsification of records, or
misrepresentation) or any act that results in, or could reasonably be expected to
result in, material injury to the reputation, business or business relationships of
the Company or any of its affiliates;

     (3) Executive’s material breach of this Agreement, any fiduciary duty owed by
Executive to the Company or its affiliates, or any written workplace policies
applicable to Executive (including the Company’s code of conduct and policy on
workplace harassment) whether adopted on or after the date of this Agreement;

     (4) Executive’s having been convicted of, or having entered a plea bargain, a
plea of nolo contendre or settlement admitting guilt for, any felony, any crime of
moral turpitude, or any other crime that could reasonably be expected to

6

 

have a material adverse impact on the Company’s or any of its affiliates’
reputations; or

     (5) Executive’s having committed any material violation of any federal law
regulating securities (without having relied on the advice of the Company’s attorney
to perform required acts on the Chief Executive Officer’s behalf) or having been the
subject of any final order, judicial or administrative, obtained or issued by the
Securities and Exchange Commission, for any securities violation involving fraud,
including, for example, any such order consented to by Executive in which findings
of facts or any legal conclusions establishing liability are neither admitted nor
denied.

(g) “Good Reason” means the occurrence, prior to occurrence of circumstances
constituting Cause, of any of the following events without Executive’s consent:

     (1) Any material breach by the Company of this Agreement, provided that
Executive provides the Board written notice of such breach within 90 days from the
first date that he is aware, or reasonably should be aware, of such breach and such
breach is not remedied within 30 days of the Board’s receipt of such written notice;

     (2) Any requirement by the Company that Executive relocate outside of the
Houston metropolitan area;

     (3) Failure of any successor to assume this Agreement not later than the date
as of which it acquires substantially all of the equity, assets or businesses of the
Company;

     (4) Any material reduction in Executive’s title, responsibilities, or duties;
or

     (5) The assignment to Executive of any duties materially inconsistent with his
duties as Senior Vice President and Chief Financial Officer of the Company.

(h) Later Determinations. Notwithstanding any other provision of this Agreement, if
Executive’s employment with the Company is terminated such that Executive is
entitled to severance from the Company and within one year following such
termination the Board determines that Cause exists or existed on, prior to, or after
such termination, Executive shall not be entitled to any severance from the Company,
and any and all severance payments from the Company to Executive in any form or
amount shall cease and any such payments or reimbursements already made to Executive
must be returned to the Company.

     8. Change of Control.

     (a) Upon the occurrence of a Change of Control that occurs during the Employment Period
or within nine months following a termination of Executive’s employment that entitles
Executive to severance under Section 7(a) or 7(b), Executive

7

 

shall become 100% vested in all of the rights and interests granted to Executive under
the Company’s stock and other equity plans, including without limitation any stock options,
restricted stock, restricted stock units, performance units, and/or performance shares to
the extent Executive is less than 100% vested in such award as of the Termination Date.

     (b) “Change of Control” means (i) after the Effective Date, any person or group of
affiliated or associated persons acquires more than 35% of the voting power of the Company;
(ii) the consummation of a sale of all or substantially all of the assets of the Company;
(iii) the dissolution of the Company or (iv) the consummation of any merger, consolidation,
or reorganization involving the Company in which, immediately after giving effect to such
merger, consolidation or reorganization, less than 51% of the total voting power of
outstanding stock of the surviving or resulting entity is then “beneficially owned” (within
the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) in the
aggregate by the stockholders of the Company immediately prior to such merger, consolidation
or reorganization.

     9. Gross-up Parachute Payment. In the event that Executive shall become entitled to
any amounts, whether pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with the Company (the “Regular Amounts”) that will be subject to the tax (the “Excise
Tax”) imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (and any similar tax
that may hereafter be imposed), the Company shall pay to Executive an additional amount (the
“Gross-up Payment”) such that the net amount retained by Executive after payment of all applicable
federal and state taxes on the sum of the Regular Amount plus the Gross-up Payment, is equal to the
net amount that would have been retained by Executive after payment of all applicable federal and
state taxes on the Regular Amount if it had not been subject to the Excise Tax.

     10. Conflicts of Interest. Executive agrees that he shall promptly disclose to the
Board any conflict of interest involving Executive upon Executive becoming aware of such conflict.
Executive’s ownership of an interest not in excess of five percent in a business organization that
competes with the Company shall not be deemed to constitute a conflict of interest.

     11. Confidentiality. The Company agrees to provide Executive valuable Confidential
Information of the Company and of third parties who have supplied such information to the Company.
In consideration of such Confidential Information and other valuable consideration provided
hereunder, Executive agrees to comply with this Section 11.

(a) “Confidential Information” means, without limitation and regardless of whether
such information or materials are expressly identified as confidential or
proprietary, (i) any and all non-public, confidential or proprietary information or
work product of the Company or its affiliates, (ii) any information that gives the
Company or its affiliates a competitive business advantage or the opportunity of
obtaining such advantage, (iii) any information the disclosure or improper use of
which is reasonably expected to be detrimental to the interests of the Company or
its affiliates, (iv) any trade secrets of the Company or its affiliates, and (v) any
other information of or regarding the Company or any of its affiliates, or its or
their past, present or future, direct or indirect, potential or actual officers,
directors, employees, owners, or business partners, including but not limited to
information regarding any of their businesses, operations, assets (including any

8

 

Oil and Gas Interests as defined below), liabilities, properties, systems, methods,
models, processes, results, performance, investments, investors, financial affairs,
future plans, business prospects, acquisition or investment opportunities,
strategies, business partners, business relationships, contracts, contractual
relationships, organizational or personnel matters, policies or procedures,
management or compensation matters, compliance or regulatory matters, as well as any
technical, seismic, industry, market or other data, studies or research, or any
forecasts, projections, valuations, derivations or other analyses, performed,
generated, collected, gathered, synthesized, purchased or owned by, or otherwise in
the possession of, the Company or its affiliates or which Executive has learned of
through his employment with the Company. Confidential Information also includes any
non-public, confidential or proprietary information about or belonging to any third
party which has been entrusted to the Company or its affiliates. Notwithstanding
the foregoing, Confidential Information does not include any information which is or
becomes generally known by the public other than as a result of Executive’s actions
or inactions. “Oil and Gas Interests” means: (a) direct and indirect interests in
and rights with respect to oil, gas, mineral and related properties (including
revenues or net revenues therefrom) and assets of any kind and nature, direct or
indirect, including without limitation working, royalty and overriding royalty
interests, mineral interests, leasehold interests, production payments, operating
rights, net profits interests, other non-working interests and non-operating
interests; (b) interests in and rights with respect to Hydrocarbons and other
minerals or revenues therefrom and contracts or agreements in connection therewith
and claims and rights thereto (including oil and gas leases, operating agreements,
unitization and pooling agreements and orders, division orders, transfer orders,
mineral deeds, royalty deeds, oil and gas sales, exchange and processing contracts
and agreements and, in each case, interests thereunder), surface interests, fee
interests, reversionary interests, reservations and concessions; (c) easements,
rights of way, licenses, permits, leases, and other interests associated with,
appurtenant to, or necessary for the operation of any of the foregoing; and (d)
interests in equipment and machinery (including well equipment and machinery), oil
and gas production, gathering, transmission, compression, treating, processing and
storage facilities (including tanks, tank batteries, pipelines and gathering
systems), pumps, water plants, electric plants, gasoline and gas processing plants,
refineries and other tangible personal property and fixtures associated with,
appurtenant to, or necessary for the operation of any of the foregoing, regardless
of location. “Hydrocarbons” means oil, condensate gas, casinghead gas and other
liquid or gaseous hydrocarbons.

(b) Protection. In return for the Company’s promise to provide Executive with
Confidential Information, Executive promises (i) to keep the Confidential
Information, and all documentation, materials and information relating thereto,
strictly confidential, (ii) not to use the Confidential Information for any purpose
other than as required in connection with fulfilling his duties as Vice President
for the benefit of the Company, and (iii) to return to the Company all documents
containing Confidential Information in Executive’s possession upon separation from
the Company for any reason. For the sake of clarity, Executive specifically
acknowledges and agrees that (x) the definition of Confidential Information in
Section 11(a) includes (but is not limited to) any nonpublic information about the
Oil and Gas Interests (as defined above) and any other assets, investments,

9

 

properties, sites or locations in which the Company or its affiliates have an
ownership or other interest or right, as well as any Oil and Gas Interests (as
defined above), assets, investments, properties, sites, locations, acquisitions or
other business prospects upon which the Company or its affiliates have expended
resources in the past, are currently expending resources, or are contemplating
expending resources in the future, and (y) that any use by Executive of such
Confidential Information other than as required in connection with fulfilling his
duties as Executive for the benefit of the Company will be a material breach of this
Agreement. The immediately preceding sentence has been included for the purpose of
highlighting certain aspects of the foregoing covenants and shall in no event be
read to limit or narrow the foregoing covenants.

(c) Scope. Executive understands and agrees that all Confidential Information, in
whatever medium (verbal, written, electronic or other), is subject to this Agreement
whether provided directly to Executive or not, whether provided to Executive prior
to the Effective Date of this Agreement or not, and whether inadvertently disclosed
to Executive or not. Confidential Information which was or is available to
Executive or to which Executive had or has access will be deemed to have been
provided to Executive. Executive also hereby agrees that Confidential Information
shall be deemed to include information regarding the assets of the Company, even if
such information was learned by Executive prior to formation of the Company.

(d) Value and Security. Executive understands and agrees that all Confidential
Information, and every portion thereof, constitutes the valuable intellectual
property of the Company, its affiliates, and/or third parties, and Executive further
acknowledges the importance of maintaining the security and confidentiality of the
Confidential Information and of not misusing the Confidential Information.

(e) Disclosure Required By Law. If Executive is legally required to disclose any
Confidential Information, Executive shall promptly notify the Company in writing of
such request or requirement so that the Company may seek an appropriate protective
order or other relief. Executive agrees to cooperate with and not to oppose any
effort by the Company to resist or narrow such request or to seek a protective order
or other appropriate remedy. In any case, Executive will (i) disclose only that
portion of the Confidential Information that, according to the advice of Executive’s
counsel, is required to be disclosed (and Executive’s disclosure of Confidential
Information to Executive’s counsel in connection with obtaining such advice shall
not be a violation of this Agreement), (ii) use reasonable efforts (at the expense
of the Company) to obtain assurances that such Confidential Information will be
treated confidentially, and (iii) promptly notify the Company in writing of the
items of Confidential Information so disclosed.

(f) Third-Party Confidentiality Agreements. To the extent that the Company possesses
any Confidential Information which is subject to any confidentiality agreements
with, or obligations to, third parties, Executive will comply with all such
agreements or obligations in full. The immediately preceding sentence shall apply
only if the Company has provided Executive with

10

 

a copy of such agreements, and Executive may disclose such agreements and any
related Confidential Information to Company’s attorneys and rely on their advice
regarding compliance therewith.

(g) Survival. The covenants made by Executive in this Section 11, other than
Paragraph (f) hereof, will be effective only during the Employment Period and for
the two-year period immediately following the Employment Period, and to that extent
(and only that extent) shall survive termination of this Agreement. The covenants
made by Executive in Paragraph (f) of this Section 11 will be effective during the
period specified in the confidentiality agreements described therein.

     12. No Solicitation. Executive shall not, for a period of one year after the
Termination Date, either as principal, agent, independent contractor, consultant, director,
officer, employee, employer, advisor, stockholder, partner, member, joint venturer, owner or in any
other individual or representative capacity whatsoever, whether paid or unpaid, either for his own
benefit or for the benefit of any other person or entity, either (a) contact or solicit, with
respect to hiring, any person known by Executive to be or to have been, at any time during the
12-month period immediately preceding the Termination Date, an employee of the Company or its
affiliates, or (b) induce or otherwise counsel, advise or encourage any employee of the Company or
its affiliates to leave the employment of the Company or their respective employment with the
Company’s affiliates, as the case may be; provided, however, that this restriction shall not apply
to any solicitations contained in an advertisement directed generally to the public or the trade,
nor to any contacts resulting from such a solicitation. If Executive fails to comply with this
Section 12, the Company shall be entitled to, among other remedies, compliance by Executive
with the terms of this section for an additional period of time that shall equal the period over
which such noncompliance occurred. Notwithstanding any other provision hereof, this Section 12
shall not apply (1) if the Company terminates Executive’s employment with the Company and its
affiliates pursuant to Section 6(a)(4) or pursuant to delivery by the Company to Executive
of a notice of non-renewal in accordance with Section 4, (2) if Executive terminates
Executive’s employment with the Company and its affiliates pursuant to Section 6(b)(1), or
(3) after the occurrence of a Change of Control.

     13. Defense of Claims. Executive agrees that, during the Employment Period and for a
period of 36 months after the Termination Date, upon request from the Company, Executive will
cooperate with the Company and its affiliates in the defense of any claims or actions that may be
made by or against the Company or any of its affiliates that relate to Executive’s prior areas of
responsibility, except if Executive’s reasonable interests are adverse to the Company or affiliates
in such claim or action. If Executive is not an employee of the Company or an affiliate at such
time, the Company agrees to compensate Executive for his time spent on such matters at the rate of
$150 per hour, and in addition, to pay or reimburse Executive for all of Executive’s reasonable
travel and other direct expenses incurred, or to be reasonably incurred, to comply with Executive’s
obligations under this Section 13, provided Executive provides reasonable documentation of
same.

     14. Withholdings: Right of Offset. The Company may withhold and deduct from any
payments made or to be made pursuant to this Agreement (a) all federal, state, local and other
taxes as may be required pursuant to any law or governmental regulation or ruling, (b) any
deductions consented to in writing by Executive, and (c) any other sums owed by Executive to the
Company, any affiliate, or any employee benefit plan or program of the Company or any affiliate.

11

 

     15. Severability. It is the desire of the parties hereto that this Agreement be
enforced to the maximum extent permitted by law, and should any provision contained herein be held
unenforceable by a court of competent jurisdiction or arbitrator (pursuant to Section 17),
the parties hereby agree and consent that such provision shall be reformed to create a valid and
enforceable provision to the maximum extent permitted by law; provided, however, if such provision
cannot be reformed, it shall be deemed ineffective and deleted herefrom without affecting any other
provision of this Agreement.

     16. Title and Headings; Construction. Titles and headings to Sections hereof are for
the purpose of reference only and shall in no way limit, define or otherwise affect the provisions
hereof. Any and all Exhibits referred to in this Agreement are, by such reference, incorporated
herein and made a part hereof for all purposes. The words “herein”, “hereof”, “hereunder” and
other compounds of the word “here” shall refer to the entire Agreement and not to any particular
provision hereof.

     17. Arbitration; Injunctive Relief; Attorneys’ Fees.

     (a) Subject to Section 17(b), any dispute, controversy or claim between
Executive and the Company arising out of or relating to this Agreement, Executive’s
employment with Company, or the termination of either will be finally settled by arbitration
in Houston, Texas before, and in accordance with the rules for the resolution of employment
disputes then obtaining of, the American Arbitration Association. The arbitrator’s award
shall be final and binding on both parties.

     (b) Notwithstanding Section 17(a), an application for emergency or temporary
injunctive relief by either party shall not be subject to arbitration under this Section
17; provided, however, that the remainder of any such dispute (beyond the
application for emergency or temporary injunctive relief) shall be subject to arbitration
under this Section 17. Executive acknowledges that Executive’s violation of
Sections 11 and/or 12 of this Agreement will cause irreparable harm to the Company,
Executive agrees not to contest that Executive’s violation of Sections 11 and/or 12
of this Agreement will cause irreparable harm to the Company and Executive agrees that the
Company shall be entitled as a matter of right to specific performance of Executive’s
obligations under Sections 11 and 12 and an injunction, from any court of competent
jurisdiction, restraining any violation or further violation of such agreements by Executive
or others acting on his/her behalf, without any showing of irreparable harm and without any
showing that the Company does not have an adequate remedy at law. The Company’s right to
injunctive relief shall be cumulative and in addition to any other remedies provided by law
or equity.

     (c) Each side shall share equally the cost of the arbitrator and bear its own costs and
attorneys’ fees incurred in connection with any arbitration, unless a statutory claim
authorizing the award of attorneys’ fees is at issue, in which event the arbitrator may
award a reasonable attorneys’ fee in accordance with the jurisprudence of that statute.

     (d) Nothing in this Section 17 shall prohibit a party to this Agreement from
(i) instituting litigation to enforce any arbitration award or (ii) joining another party to
this Agreement in a litigation initiated by a person which is not a party to this Agreement.

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     18. Governing Law. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS. THE
EXCLUSIVE VENUE FOR THE RESOLUTION OF ANY DISPUTE RELATING TO THIS AGREEMENT OR EXECUTIVE’S
EMPLOYMENT (THAT IS NOT SUBJECT TO ARBITRATION UNDER SECTION 17 FOR ANY REASON) SHALL BE IN THE
STATE AND FEDERAL COURTS LOCATED IN HARRIS COUNTY, TEXAS AND THE PARTIES HEREBY EXPRESSLY CONSENT
TO THE JURISDICTION OF THOSE COURTS.

     19. Entire Agreement and Amendment. This Agreement contains the entire agreement of
the parties with respect to Executive’s employment and the other matters covered herein (except to
the extent that other agreements are specifically referenced herein); moreover, this Agreement
supersedes all prior and contemporaneous agreements and understandings, oral or written, between
the parties hereto concerning the subject matter hereof and thereof. This Agreement may be
amended, waived or terminated only by a written instrument executed by both parties hereto.

     20. Survival of Certain Provisions. Wherever appropriate to the intention of the
parties hereto, the respective rights and obligations of said parties, including, but not limited
to, the rights and obligations set forth in Sections 6 through 18 hereof, shall survive any
termination or expiration of this Agreement for any reason.

     21. Waiver of Breach. No waiver by either party hereto of a breach of any provision
of this Agreement by the other party, or of compliance with any condition or provision of this
Agreement to be performed by such other party, will operate or be construed as a waiver of any
subsequent breach by such other party or any similar or dissimilar provision or condition at the
same or any subsequent time. The failure of either party hereto to take any action by reason of
any breach will not deprive such party of the right to take action at any time while such breach
continues.

     22. Assignment. Neither this Agreement nor any rights or obligations hereunder shall
be assignable or otherwise subject to hypothecation by Executive (except by will or by operation of
the laws of intestate succession) or by the Company, except that the Company may assign this
Agreement to any successor (whether by merger, purchase or otherwise) to all or substantially all
of the equity, assets or businesses of the Company, if such successor expressly agrees to assume
the obligations of the Company hereunder.

     23. Notices. Notices provided for in this Agreement shall be in writing and shall be
deemed to have been duly received (a) when delivered in person or sent by facsimile transmission,
(b) on the first business day after such notice is sent by air express overnight courier service,
or (c) on the third business day following deposit in the United States mail, registered or
certified mail, return receipt requested, postage prepaid and addressed, to the following address,
as applicable:

	 	(1)	 	If to Company, addressed to:

Mariner Energy, Inc.

Attn: Chief Executive Officer

One BriarLake Plaza, Suite 2000

2000 West Sam Houston Parkway South

Houston, TX 77042

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	 	(2)	 	If to Executive, addressed to the address set forth below
Executive’s name on the execution page hereof;

or to such other address as either party may have furnished to the other party in writing in
accordance with this Section 23.

     24. Counterparts. This Agreement may be executed in any number of counterparts, each
of which when so executed and delivered shall be an original, but all such counterparts shall
together constitute one and the same instrument. Each counterpart may consist of a copy hereof
containing multiple signature pages, each signed by one party, but together signed by both parties
hereto.

     25. Definitions. The parties agree that as used in this Agreement the following terms
shall have the following meanings: an “affiliate” of a person shall mean any person directly or
indirectly controlling, controlled by, or under common control with, such person; the terms
“controlling, controlled by, or under common control with” shall mean the possession, directly or
indirectly, of the power to direct or influence or cause the direction or influence of management
or policies (whether through ownership of securities or other ownership interest or right, by
contract or otherwise) of a person; the term “person” shall mean a natural person, partnership
(general or limited), limited liability company, trust, estate, association, corporation,
custodian, nominee, or any other individual or entity in its own or any representative capacity, in
each case, whether domestic or foreign.

     26. Internal Revenue Code Section 409A Compliance. Notwithstanding anything in this
Agreement to the contrary, if any provision hereof would result in the imposition of an additional
tax under Internal Revenue Code Section 409A and related regulations and Treasury pronouncements,
that provision will be reformed to avoid imposition of the applicable tax.

SIGNATURE PAGE FOLLOWS

14

 

     IN WITNESS WHEREOF, Executive and the Company have executed this Agreement to be effective for
all purposes as of the Effective Date.

	 	 	 	 	 	 	 
	 	 	EXECUTIVE:	 	 
	 
	 	 	 	 	 	 
	 

	 	Signature:
	 	/s/ John H. Karnes
 

John H. Karnes
	 	 

	 	 	 	 	 	 	 
	 

	 	Date:
	 	October 16, 2006	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	Address for Notices:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	7 Switchbud Place No. 192C-138	 	 
	 

	 	 	 	The Woodlands, TX 77380
	 	 

	 	 	 	 	 	 	 
	 	 	MARINER ENERGY, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Scott D. Josey
 

Scott D. Josey
	 	 
	 

	 	 	 	Chief Executive Officer and President	 	 
	 
	 	 	 	 	 	 
	 	 	Date: October 16, 2006	 	 

15

 

Exhibit A

None

A-1

 

Exhibit B

WAIVER AND RELEASE AGREEMENT

     This Waiver and Release Agreement (the “Agreement”) is between Mariner Energy, Inc., a
Delaware company (“Company”), and John H. Karnes (“Executive”), as provided pursuant to that
Employment Agreement between Executive and Company effective as of October 16, 2006 (the
“Employment Agreement”) and attached hereto as Exhibit A.

     WHEREAS, Executive’s employment with Company is being terminated; and

     WHEREAS, Executive will be paid certain severance benefits in exchange for his release and
waiver of his claims against the Company Releasee (as defined below) pursuant to this Agreement;

     NOW, THEREFORE, the parties agree to the following.

     1. Complete Release and Other Consideration from Executive. In exchange for the
severance benefits provided under Section 2 of this Agreement, Executive agrees as follows:

	 	a.	 	Complete Release. On behalf of Executive and
Executive’s heirs and assigns, Executive fully releases Company and its direct
and indirect, past present and future, parents, subsidiaries, affiliates,
divisions, predecessors, successors, and assigns, and, with respect to all such
entities, their partners, members, shareholders, owners, officers, directors,
attorneys, agents, representatives and employees (collectively, the “Company
Releasees”), from any and all claims, demands, damages, losses, expenses,
liabilities and causes of action (including claims for attorneys’ fees)
(collectively, “Claims”), known or unknown, that Executive, his heirs,
executors, administrators, and assigns may have or may claim to have against
any of the Company Releasees based upon facts occurring on or prior to the date
Executive signs this Agreement, including but not limited to any claims arising
out of Executive’s employment relationship with and service as an employee,
officer or director of Company, and the termination of such relationship or
service, (the “Release”); provided, however, that this Release shall not apply
to Company’s obligations under this Agreement. This Release includes, without
limitation, any claims arising out of any contract (express or implied); any
tort (whether based on negligent, grossly negligent, or intentional conduct);
or any federal, state, or local law, including, without limitation, the Age
Discrimination in Employment Act and the Employee Retirement Income Security
Act (“ERISA”), other than benefits that Executive is entitled to under the
terms of an ERISA plan. This Release does not include any claims under the Age
Discrimination in Employment Act that may arise after this Agreement is
executed.
	 
	 	b.	 	Confidentiality. Except as may be required by law or
court order or as may be necessary in an action arising out of this Agreement,
Executive agrees not to disclose the existence or terms of this Agreement to
anyone other than Executive’s immediate family, attorneys, tax advisors, and
financial counselors, provided that Executive first informs them of this

B-1

 

	 	 	 	confidentiality clause and secures their agreement to be bound by it.
Executive understands and agrees that a breach of this confidentiality
provision by any of these authorized persons will be deemed a material
breach of this Agreement by Executive.
	 
	 	c.	 	Executive agrees not to bring or join any lawsuit against any
of the Company Releasees in any court (except as necessary to protect
Executive’s rights under this Agreement or with respect to Executive’s entry
into this Agreement) relating to Executive’s employment, events occurring
during Executive’s employment or the termination of Executive’s employment.
Executive represents that, as of the effective date of this Agreement,
Executive has not brought or joined any lawsuit or filed any charge or claim
against any of the Company Releasees in any court or before any government
agency. If Executive brings or joins any lawsuit against any of the Company
Releasees in any court (except as necessary to protect Executive’s rights under
this Agreement or with respect to Executive’s entry into this Agreement)
relating to Executive’s employment, events occurring during Executive’s
employment or the termination of Executive’s employment, and Executive is the
prevailing party in such lawsuit, Executive shall be obligated to return to the
Company all amounts paid to Executive as benefits under this Agreement, to the
extent permitted under applicable law and ordered by the court. Further, if
any Company Releasee is the prevailing party in any lawsuit Executive brings
against such Company Releasee relating to Executive’s employment that has been
waived in this Agreement, to the extent permitted by applicable law (such as if
Executive’s claims are found to be brought in bad faith), Executive agrees to
pay all costs and expenses incurred by such person or entity, including
reasonable attorneys’ fees, in defending against such lawsuit.

This Agreement is not intended to indicate that any Claims exist or that, if they do
exist, they are meritorious. Rather, Executive is simply agreeing that, in return
for the Company’s payment provided by this Agreement, any and all potential Claims
that Executive may have against the Company Releasees, regardless of whether they
actually exist, are expressly settled, compromised and waived. By signing this
Agreement, Executive and the Company Releasees are bound by it. Anyone who succeeds
to Executive’s rights and responsibilities, such as heirs or the executor of
Executive’s estate, is also bound by this Agreement. The waiver and release
provisions of this Agreement do not apply to any rights or claims that may arise
after its effective date. This Release also applies to any claims brought by any
person or agency or class action under which Executive may have a right or benefit.

     2. Consideration from Company. In exchange for Executive’s obligations under this
Agreement, the Company shall pay Executive those severance payments and benefits described in
Sections 7, 8, and 9, as applicable, of the Employment Agreement, which are incorporated
herein by reference and made a part of this Agreement. Executive acknowledges that Executive is
not otherwise entitled to receive such severance payments and benefits, these severance payments
and benefits are conditioned on Executive’s compliance with the terms of this Agreement and the
Employment Agreement, including without limitation Sections 11 and 12

B-2

 

thereof. Executive acknowledges and agrees that Company will withhold any taxes required by
applicable law from the severance payments and benefits.

     3. Right to Consult an Attorney; Period of Review. Executive is encouraged to consult
with an attorney before signing this Agreement. From the date this Agreement is first presented to
Executive, Executive will have 21 [45, if applicable] days in which to review this Agreement.
Executive may use as little or much of this 21 [45]-day review period as Executive chooses.

     4. Entire Agreement; Amendment; Continuing Obligations. This Agreement and the
Employment Agreement together contain the entire agreement of the parties with respect to the
termination of Executive’s employment and the other matters covered herein and therein; moreover,
this Agreement supersedes all prior and contemporaneous agreements and understandings, oral or
written, between the parties hereto concerning the subject matter hereof. This Agreement may be
amended, waived or terminated only by a written instrument executed by both parties hereto.
Executive hereby reaffirms and agrees to continue to abide by all of Executive’s continuing
obligations under Sections 11 through 18 of the Employment Agreement.

     5. Revocation. Upon signing this Agreement, Executive will have 7 days to revoke the
Agreement. To properly revoke the Agreement, Company must receive written notice of revocation
from Executive by the close of business on the 7th day after the date the Agreement is signed by
Executive. Written notice must be delivered pursuant to Section 23 of the Employment
Agreement. Executive understands that failure to revoke his acceptance of this Agreement within 7
days after the date he signs it will result in this Agreement being permanent and irrevocable.

     6. Choice of Law. This Agreement will be governed in all respects by the laws of the
State of Texas, without regard to its choice of law principles. This Agreement is subject to the
arbitration provisions in Section 17 of the Employment Agreement.

     7. Effectiveness of Agreement. This Agreement will be effective, and the severance
payments and benefits provided in Section 2 of this Agreement will be made and provided,
only if Executive executes this Agreement within 21 [45] days of receiving it and only if Executive
does not revoke this Agreement under Section 5 above.

B-3

 

	 	 	 	 	 	 	 
	 	 	EXECUTIVE	 	 
	 
	 	 	 	 	 	 
	 

	 	Signature:	 	 	 	 
	 

	 	 	 	 

John H. Karnes
	 	 

	 	 	 	 	 	 	 
	 

	 	Date:	 	 	 	 
	 

	 	 	 	 

	 	 

	 	 	 	 	 	 	 
	 	 	MARINER ENERGY, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

[Name]
	 	 
	 

	 	 	 	[Title]	 	 

	 	 	 	 	 	 	 
	 

	 	Date:	 	 	 	 
	 

	 	 	 	 

	 	 

B-4

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