Document:

exv10w1

Exhibit 10.1

TEKELEC

AMENDED AND RESTATED

2003 EQUITY INCENTIVE PLAN

1. Establishment and Purposes of the Plan.

     Tekelec hereby establishes this Amended and Restated 2003 Equity Incentive Plan to promote the
interests of the Company and its shareholders by (i) helping to attract and retain the services of
selected key employees of and persons affiliated with the Company who are in a position to make
material contributions to the successful operation of the Company’s business, (ii) motivating such
persons, by means of performance-related incentives, to achieve the Company’s business goals and
(iii) enabling such persons to participate in the long-term growth and financial success of the
Company by providing them with an opportunity to purchase stock of the Company.

2. Definitions.

     The following definitions shall apply throughout the Plan:

     a. “2004 Restatement” shall mean the Tekelec Amended and Restated 2003 Stock Option Plan, as
approved by the shareholders of the Company on May 14, 2004.

     b. “Affiliate” shall mean any entity that directly or indirectly through one or more
intermediaries controls or is controlled by, or is under common control with, the Company.

     c. “Award” shall mean any Option, SAR, Restricted Stock Award or Restricted Stock Unit granted
pursuant to the provisions of the Plan.

     d. “Award Agreement” shall mean any written agreement, contract or other instrument or
document, including without limitation an Option Agreement, evidencing and reflecting the terms of
any Award granted by the Committee hereunder in such form or forms as the Committee (subject to the
terms and conditions of the Plan) may from time to time approve.

     e. “Board” shall mean the Board of Directors of the Company.

     f. “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.
References in the Plan to any section of the Code shall be deemed to include any amendment or
successor provisions to such section and any regulations issued under such section.

     g. “Common Stock” shall mean the common stock, without par value, of the Company.

     h. “Company” shall mean Tekelec, a California corporation, any “subsidiary” corporation,
whether now or hereafter existing, as defined in Sections 424(f) and (g) of the Code, and any
Affiliate, whether now or hereafter existing.

 

 

     i. “Committee” shall mean the committee of the Board appointed in accordance with Section 4(a)
of the Plan or, if no such committee shall be appointed or in office, the Board.

     j. “Continuous Status as an Employee” shall mean the absence of any interruption or
termination of employment by the Company. Continuous Status as an Employee shall not be considered
interrupted in the case of sick leave, military leave or any other leave of absence approved by the
Committee or in the case of transfers between locations of the Company. Notwithstanding the
foregoing, the determination of whether a termination of employment or service has occurred shall
be made in a manner consistent with Section 409A of the Code, to the extent necessary to avoid the
adverse tax consequences thereunder.

     k. “Dividend Equivalent” shall mean any right granted under Section 9(b) of this Plan.

     l. “Employee” shall mean any employee of the Company, including officers and directors who are
also employees and, for purposes of eligibility for Awards other than Incentive Stock Options,
shall mean any consultant to the Company, whether or not employed by the Company, and any
Non-Employee Director serving on the Board.

     m. “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

     n. “Fair Market Value” shall mean, with respect to Shares, the fair market value per Share on
the date of determination as determined by the Board or its Committee in its sole discretion,
exercised in good faith; provided, however, that where there is a public market for
the Common Stock, the fair market value per Share shall be the average of the closing bid and asked
prices of the Common Stock on the date of determination (or, if there are no such prices for such
date, on the first preceding day on which there were such reported prices) as reported by The
Wall Street Journal or as reported in such other manner as the Committee deems reliable and
consistent with the requirements of Code Section 409A, or, in the event the Common Stock is listed
on a stock exchange, the fair market value per Share shall be the closing sales price on such
exchange on the date of determination (or, if there are no sales on such date, on the first
preceding day on which there were reported sales), as reported by The Wall Street Journal
or as reported in such other manner as the Committee deems reliable and consistent with the
requirements of Code Section 409A.

     o. “Freestanding SAR” means a SAR that is granted independently of any Options, as described
in Section 8.

     p. “Grant Price” means the price established at the time of grant of a SAR pursuant to
Section 8, used to determine whether there is any payment due upon exercise of the SAR.

     q. “Incentive Stock Option” or “ISO” shall mean an Option intended to qualify as an incentive
stock option within the meaning of Section 422 of the Code.

     r. “Non-Employee Director” means a director of the Company who is not an employee of the
Company.

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     s. “Nonstatutory Stock Option” shall mean an Option which is not an Incentive Stock Option.

     t. “Option” shall mean a stock option to purchase Common Stock granted to a Participant
pursuant to the Plan.

     u. “Option Agreement” means a written agreement substantially in the form attached hereto as
Exhibit A, or such other form or forms as the Committee (subject to the terms and
conditions of the Plan) may from time to time approve, evidencing and reflecting the terms of an
Option.

     v. “Optioned Stock” shall mean the Common Stock subject to an Option granted pursuant to the
Plan.

     w. “Original Plan” shall mean the Tekelec 2003 Stock Option Plan, as approved by the
shareholders of the Company on May 8, 2003.

     x. “Participant” shall mean any Employee who is granted an Award.

     y. “Permitted Transferee” shall have the meaning set forth in Section 12.

     z. “Plan” shall mean this Tekelec Amended and Restated 2003 Equity Incentive Plan.

     aa. “Restricted Stock Award” shall mean any Shares granted under Section 9 of this Plan and
issued with the restriction that the holder may not sell, transfer, pledge or assign such Shares
and with such other vesting and other restrictions as the Committee, in its sole discretion, may
impose, which restrictions may lapse separately or in combination at such time or times, in
installments or otherwise, as the Committee may deem appropriate.

     bb. “Restricted Stock Unit” shall mean any unit granted under Section 10 of this Plan
evidencing the right to receive one Share at some future date.

     cc. “Restricted Stock Unit Award Agreement” means a written agreement substantially in the
form attached hereto as Exhibit B, or such other form or forms as the Committee (subject to
the terms and conditions of the Plan) may from time to time approve, evidencing and reflecting the
terms of the grant of Restricted Stock Units.

     dd. “SAR” means an Award, designated as a Share Appreciation Right, granted pursuant to the
terms of Section 8 of this Plan.

     ee. “SAR Award Agreement” means a written agreement substantially in the form attached hereto
as Exhibit C, or such other form or forms as the Committee (subject to the terms and
conditions of the Plan) may from time to time approve, evidencing and reflecting the terms of the
grant of a SAR.

     ff. “Securities Act” shall mean the Securities Act of 1933, as amended.

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     gg. “Shares” shall mean shares of the Common Stock, any shares into which such Shares may be
converted in accordance with Section 13 of the Plan and, to the extent a Participant would not
become subject to the adverse tax consequences under Code Section 409A, such other securities or
property as may become subject to Awards pursuant to this Plan.

     hh. “Tandem SAR” means a SAR that is granted in connection with a related Option pursuant to
Section 8 herein, the exercise of which shall require forfeiture of the right to purchase a Share
under the related Option (and when a Share is purchased under the Option, the Tandem SAR shall
similarly be canceled).

3. Shares Reserved.

     The maximum aggregate number of Shares reserved for issuance pursuant to the Plan shall be
7,500,000 Shares or the number of shares of stock to which such Shares shall be adjusted as
provided in Section 13 of the Plan. Such number of Shares may be set aside out of authorized but
unissued Shares not reserved for any other purpose, or out of issued Shares acquired for and held
in the treasury of the Company from time to time.

     Shares subject to, but not sold or issued under, any Award terminating, expiring, forfeited or
canceled for any reason prior to issuance of such Shares shall again become available for Awards
thereafter granted under the Plan and the same shall not be deemed an increase in the number of
Shares reserved for issuance under the Plan.

4. Administration of the Plan.

     a. The Plan shall be administered by a Committee designated by the Board to administer the
Plan and consisting of not less than two directors and subject to such terms and conditions as the
Board may prescribe. Each director designated by the Board to administer the Plan shall be a
“non-employee director” for purposes of Rule 16b-3 under the Exchange Act, an “outside director” as
defined in the Treasury regulations issued pursuant to Section 162(m) of the Code, and shall
otherwise satisfy all applicable independence requirements set forth in the applicable rules of any
stock exchange on which the Common Stock is listed. Members of the Committee shall serve for such
period of time as the Board may determine. From time to time the Board may increase or decrease
(but not below two) the size of the Committee and appoint additional members thereto, remove
members (with or without cause) and appoint new members in substitution therefor, fill vacancies
however caused or remove all members of the Committee and thereafter directly administer the Plan.
Notwithstanding the foregoing, in administering this Plan with respect to Awards for Non-Employee
Directors, the Board shall exercise the powers of the Committee after obtaining the recommendation
of the Committee.

     b. Subject to the provisions of the Plan, the Committee shall have the authority in its sole
discretion to: (i) determine the type or types of Awards (i.e., Incentive Stock Options,
Nonstatutory Stock Options, SARs, Restricted Stock Awards or Restricted Stock Units) to be granted
to each Participant in the Plan, (ii) determine the Fair Market Value per Share in accordance with
the terms of the Plan, (iii) determine the exercise price of Options to be granted to Employees in
accordance with the terms of the Plan, (iv) determine the Employees to whom, and the time or

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times at which, Awards shall be granted and the number of Shares subject to each Award,
(v) prescribe, amend and rescind rules and regulations relating to the Plan, subject to the
limitations set forth in Section 15 of the Plan, (vi) determine the terms and provisions of each
Award granted to Participants under the Plan and each Award Agreement (which need not be identical
with the terms of other Awards and Award Agreements) and, with the consent of the Participant, to
modify or amend an outstanding Award Agreement; provided, however, that the
Committee shall not have the authority to amend or adjust the exercise price of any Options
previously granted to a Participant under the Plan, whether through amendment, cancellation,
replacement grant or otherwise, without the approval of the shareholders of the Company obtained in
the manner provided in Section 14 of the Plan, (vii) accelerate the exercise date of any Option or
SAR or the vesting of any Restricted Stock Award or Restricted Stock Unit, (viii) determine whether
any Participant will be required to execute a stock purchase agreement or other agreement as a
condition to the issuance of Shares pursuant to an Award, and to determine the terms and provisions
of any such agreement (which need not be identical with the terms of any other such agreement) and,
with the consent of the Participant, to amend any such agreement, (ix) interpret the Plan or any
agreement entered into with respect to the grant of Awards and the issuance of Shares upon exercise
of Options or the vesting of Restricted Stock Units, (x) determine the eligibility of an Employee
for benefits hereunder and the amount thereof, (xi) authorize any person to execute on behalf of
the Company any instrument required to effectuate the grant of an Award previously granted or to
take such other actions as may be necessary or appropriate with respect to the Company’s rights
pursuant to Awards or agreements relating to the grant or exercise thereof and (xii) make such
other determinations and establish such other procedures as it deems necessary or advisable for the
administration of the Plan.

     c. All decisions, determinations and interpretations of the Committee shall be final and
binding on all Participants and any other holders of any Awards granted under the Plan.

     d. The Committee shall keep minutes of its meetings and of the actions taken by it without a
meeting. A majority of the Committee shall constitute a quorum and the actions of a majority at a
meeting, including a telephone meeting, at which a quorum is present or acts approved in writing by
a majority of the members of the Committee without a meeting shall constitute acts of the
Committee.

     e. The Company shall pay all original issue and transfer taxes with respect to the grant of
Awards and/or the issue and transfer of Shares pursuant to the exercise of Options or SARs or the
vesting of Restricted Stock Awards or Restricted Stock Units and all other fees and expenses
necessarily incurred by the Company in connection therewith; provided, however,
that the person exercising an Option or SAR or to whom an Award is granted or to whom Shares are
otherwise issued pursuant to the Plan shall be responsible for all payroll, withholding, income and
other taxes incurred by such person on the date of exercise of the Option or of issuance or vesting
of Shares, as applicable.

5. Eligibility.

     Awards may be granted under the Plan only to Employees; provided, however,
that consultants and Non-Employee Directors shall not be eligible to receive Incentive Stock
Options.

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An Employee who has been granted Awards may, if he or she is otherwise eligible, be granted
additional Awards. References in this Plan to “employment” and related terms (except for
references to “employee” in the definition of “Employee”) shall include the providing of services
as a Non-Employee Director or consultant.

6. Terms and Conditions of Options.

     Options granted pursuant to the Plan by the Committee shall be either Incentive Stock Options
or Nonstatutory Stock Options and shall be evidenced by an Option Agreement providing, in addition
to such other terms as the Board may deem advisable, the following terms and conditions:

     a. Time of Granting Options. The date of grant of an Option shall for all purposes be
the date on which the Committee makes the determination granting such Option; provided,
however, that if the Committee determines that such grant shall be made as of some future
date, the date of grant shall be such future date. Notice of the determination shall be given to
each Participant within a reasonable time after the date of such grant.

     b. Number of Shares. Each Option Agreement shall state the number of Shares to which
it pertains and whether such Option is intended to constitute an Incentive Stock Option or a
Nonstatutory Stock Option. The maximum number of Shares which may be awarded as Options under the
Plan during any calendar year to any one Participant is 1,000,000 (as may be adjusted pursuant to
Section 13 herein, but only to the extent that such adjustment will not affect the status of any
Award intended to qualify as performance-based compensation under Section 162(m) of the Code)
Shares. If an Option held by an Employee, including a Non-Employee Director or consultant, of the
Company is canceled, the canceled Option shall continue to be counted against the maximum number of
Shares for which Options may be granted to such Employee, including a Non-Employee Director or
consultant, and any replacement Option granted to such Employee shall also count against such
limit.

     c. Exercise Price. The exercise price per Share for the Shares to be issued pursuant
to the exercise of an Option shall be such price as is determined by the Board; provided,
however, that such price shall in no event be less than 100% of the Fair Market Value per
Share on the date of grant of an Option.

          In the case of any Incentive Stock Option granted to an Employee who at the time of grant owns
or is deemed to own (by reason of the attribution rules applicable under Section 424(d) of the Code
or otherwise) stock possessing more than ten percent of the total combined voting power of all
classes of stock of the Company or any parent or subsidiary corporations of the Company, the
exercise price per Share shall be no less than 110% of the Fair Market Value per Share on the date
of grant.

     d. Medium and Time of Payment. The consideration to be paid for the Shares to be
issued upon exercise of an Option shall consist entirely of cash or check payable to the Company or
such other consideration and method of payment permitted under any laws to which the Company is
subject and which is approved by the Committee, including without limitation (i) by delivery of a

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promissory note, (ii) by tendering previously acquired Shares (valued at Fair Market Value as
of the date of tender) that have been owned for a period of at least six months (or such other
period as is necessary to avoid accounting charges against the Company’s earnings), (iii) if Shares
are traded on a national securities exchange or Nasdaq, through the delivery of irrevocable
instructions to a broker to deliver promptly to the Company an amount equal to the exercise price,
or (iv) any combination of (i), (ii) and (iii). In connection with all exercises of Options and
regardless of the medium of payment, the Participant shall pay in cash any amount necessary to
satisfy the Company’s withholding obligations.

     e. Term of Options. The term of each Option may be up to ten years from the date of
grant thereof; provided, however, that the term of an Incentive Stock Option
granted to an Employee who, at the time the Incentive Stock Option is granted, owns or is deemed to
own (by reason of the attribution rules of Section 424(d) of the Code) stock possessing more than
ten percent of the total combined voting power of all classes of stock of the Company, shall be
five years from the date of grant thereof or such shorter term as may be provided in the Option
Agreement.

          The term of any Option may be less than the maximum term provided for herein as specified by
the Committee upon grant of the Option and as set forth in the Option Agreement.

     f. Maximum Amount of Incentive Stock Options. To the extent that the aggregate Fair
Market Value (determined at the time an Incentive Stock Option is granted) of the Shares with
respect to which Incentive Stock Options are exercisable for the first time by an Optionee during
any calendar year under all incentive stock option plans of the Company exceeds $100,000, the
Options in excess of such limit shall be treated as Nonstatutory Stock Options.

7. Exercise of Option.

     a. In General. Any Option granted hereunder to a Participant shall be exercisable at
such times and under such conditions as may be determined by the Committee and as shall be
permissible under the terms of the Plan, including any performance criteria with respect to the
Company and/or the Participant as may be determined by the Committee.

          An Option may be exercised in accordance with the provisions of the Plan as to all or any
portion of the Shares then exercisable thereunder from time to time during the term of the Option.
However, an Option may not be exercised for a fraction of a Share.

     b. Procedure. An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company at its principal business office, or when electronic notice
has been effected pursuant to such procedures and using such third party service providers (for
example, E*Trade Securities, Inc.), if any, as the Company may elect from time to time to engage,
in accordance with the terms of the Option Agreement by the person entitled to exercise the Option
and full payment for the Shares with respect to which the Option is exercised has been received by
or on behalf of the Company, together with (i) any other agreements required by the terms of the
Plan and/or Option Agreement or as required by the Committee and (ii) payment by the Participant

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of all payroll, withholding or income taxes incurred in connection with such Option exercise
(or arrangements for the collection or payment of such tax satisfactory to the Board are made).

     c. Decrease in Available Shares. Exercise of an Option in any manner shall result in
a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan
and for sale under the Option, by the number of Shares as to which the Option is exercised, except
if the Option is exercised by tendering Shares, either actually or by attestation.

     d. Exercise of Shareholder Rights. Until the Option is properly exercised in
accordance with the terms of this Section 7, no right to vote or receive dividends or any other
rights as a shareholder shall exist with respect to the Optioned Stock. No adjustment shall be
made for a dividend or other right for which the record date is prior to the date the Option is
exercised.

     e. Termination of Eligibility. Except as otherwise provided in an Award Agreement, if
a Participant ceases to serve as an Employee for any reason other than death or permanent and total
disability (within the meaning of Section 22(e)(3) of the Code) and thereby terminates his or her
Continuous Status as an Employee, he or she may, but only within 90 days following the date he or
she ceases his or her Continuous Status as an Employee (subject to any earlier termination of the
Option as provided by its terms), exercise his or her Option to the extent that he or she was
entitled to exercise it at the date of such termination. To the extent that he or she was not
entitled to exercise the Option at the date of such termination, or if he or she does not exercise
such Option (which he or she was entitled to exercise) within the time specified herein, the Option
shall terminate. Notwithstanding anything to the contrary herein, the Committee may at any time
and from time to time prior to the termination of a Nonstatutory Stock Option, with the consent of
the Participant, extend the period of time during which the Participant may exercise his or her
Nonstatutory Stock Option following the date he or she ceases his or her Continuous Status as an
Employee; provided, however, that the maximum period of time during which a
Nonstatutory Stock Option shall be exercisable following the date on which a Participant terminates
his or her Continuous Status as an Employee shall not exceed the original term of such Option as
set forth in the Option Agreement and that notwithstanding any extension of time during which a
Nonstatutory Stock Option may be exercised, such Option, unless otherwise amended by the Committee,
shall only be exercisable to the extent the Participant was entitled to exercise the Option on the
date he or she ceased his or her Continuous Status as an Employee; provided,
further, that no extension shall be made at any time where the exercise price per Share of
such Option is less than the Fair Market Value of one Share at the time of such proposed extension,
unless it is determined that such extension will not cause the Participant to incur additional tax
and interest charges upon exercise of such Option under Section 409A of the Code.

     f. Death or Disability of Participant. Except as otherwise provided in an Award
Agreement, if a Participant’s Continuous Status as an Employee ceases due to death or permanent and
total disability (within the meaning of Section 22(e)(3) of the Code) of the Participant, the
Option may be exercised within 180 days (or such other period of time not exceeding one year as is
determined by the Committee at the time of granting the Option) following the date of death or
termination of employment due to permanent or total disability (subject to any earlier termination
of the Option as provided by its terms), by the Participant in the case of permanent or total
disability,

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or in the case of death by the Participant’s estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but in any case (unless otherwise determined by the
Committee at the time of granting the Option) only to the extent the Participant was entitled to
exercise the Option at the date of his or her termination of employment by death or permanent and
total disability. To the extent that he or she was not entitled to exercise such Option at the
date of his or her termination of employment by death or permanent and total disability, or if he
or she does not exercise such Option (which he or she was entitled to exercise) within the time
specified herein, the Option shall terminate. Notwithstanding anything to the contrary herein, the
Committee may at any time and from time to time prior to the termination of a Nonstatutory Stock
Option, with the consent of the Participant, extend the period of time during which the Participant
may exercise his or her Nonstatutory Stock Option following the date he or she ceases his or her
Continuous Status as an Employee; provided, however, that the maximum period of
time during which a Nonstatutory Stock Option shall be exercisable following the date on which a
Participant terminates his or her Continuous Status as an Employee shall not exceed the original
term of such Option as set forth in the Option Agreement and that notwithstanding any extension of
time during which a Nonstatutory Stock Option may be exercised, such Option, unless otherwise
amended by the Committee, shall only be exercisable to the extent the Participant was entitled to
exercise the Option on the date he or she ceased his or her Continuous Status as an Employee, and
provided further, that no extension shall be made at any time where the exercise
price per Share of such Option is less than the Fair Market Value of one Share at the time of such
proposed extension, unless it is determined that such extension will not cause the Participant to
incur additional tax and interest charges upon exercise of such Option under Section 409A of the
Code.

     g. Expiration of Option. Notwithstanding any provision in the Plan, including but not
limited to the provisions set forth in Sections 7(e) and 7(f), an Option may not be exercised,
under any circumstances, after the expiration of its term.

     h. Conditions on Exercise and Issuance. As soon as practicable after any proper
exercise of an Option in accordance with the provisions of the Plan, the Company shall (i) deliver
to the Participant at the principal executive office of the Company or such other place as shall be
mutually agreed upon between the Company and the Participant, a certificate or certificates
representing the Shares for which the Option shall have been exercised or (ii) otherwise arrange
for such Shares to be issued to the Participant. The time of issuance and, if applicable, delivery
of the certificate or certificates representing the Shares for which the Option shall have been
exercised may be postponed by the Company for such period as may be required by the Company, with
reasonable diligence, to comply with any law or regulation applicable to the issuance or delivery
of such Shares.

          Options granted under the Plan are conditioned upon the Company obtaining any required permit
or order from the appropriate governmental agencies authorizing the Company to issue such Options
and Shares issuable upon exercise thereof. Shares shall not be issued pursuant to the exercise of
an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant
thereto shall comply with all relevant provisions of law, including, without limitation, the
Securities Act, the Exchange Act, applicable state law, the rules and regulations promulgated
thereunder and the requirements of any stock exchange upon which the Shares may

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then be listed. Any such issuance may be further subject to the approval of counsel for the
Company with respect to such compliance.

8. Share Appreciation Rights

     a. Grant of SARs. Subject to the terms and conditions of the Plan, SARs may be granted
to Participants at any time and from time to time as shall be determined by the Committee. The
Committee may grant Freestanding SARs, Tandem SARs or any combination of Freestanding and Tandem
SARs.

     b. Subject to the terms and conditions of the Plan, the Committee shall have complete
discretion in determining the number of SARs granted to each Participant and, consistent with the
provisions of the Plan, in determining the terms and conditions pertaining to such SARs. The
maximum number of Shares with respect to which SARs may be awarded under the Plan during any
calendar year to any one Participant is 1,000,000 (as may be adjusted pursuant to Section 13
herein, but only to the extent that such adjustment will not affect the status of any Award
intended to qualify as performance-based compensation under Section 162(m) of the Code). If SARs
held by an Employee, including a Non-Employee Director or consultant, of the Company are canceled,
the canceled SARs shall continue to be counted against the maximum number of Shares for which SARs
may be granted to such Participant, and any replacement SARs granted to Participant shall also
count against such limit.

          The Grant Price for each SAR shall be determined by the Committee and shall be specified in
the SAR Award Agreement; provided, however, that the Grant Price shall not be less
than 100% of the Fair Market Value per Share on the date of grant.

     c. SAR Award Agreement. Each SAR Award shall be evidenced by a SAR Award Agreement
that shall specify the Grant Price, the term of the SAR, and such other provisions as the Committee
shall determine in its sole discretion and which are not inconsistent with this Plan.

     d. Term of SAR. The term of a SAR granted under the Plan shall be determined by the
Committee, in its sole discretion, and except as determined otherwise by the Committee and
specified in the SAR Award Agreement, no SAR shall be exercisable later than the tenth anniversary
of the date of grant.

     e. Exercise of Freestanding SARs. Freestanding SARs may be exercised upon whatever
terms and conditions the Committee, in its sole discretion, imposes and specifies in the SAR Award
Agreement.

     f. Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of the Shares
subject to the related Option upon the surrender of the right to exercise the equivalent portion of
the related Option. A Tandem SAR may be exercised only with respect to the Shares for which its
related Option is then exercisable.

          Notwithstanding any other provision of this Plan to the contrary, with respect to a Tandem
SAR: (a) the Tandem SAR will expire no later than the expiration of the underlying Option;

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(b) the exercise of the Tandem SAR may not have economic and tax consequences more favorable
than the exercise of the Option followed by an immediate sale of the underlying Shares, and the
value of the payout with respect to the Tandem SAR may be for no more than 100% of the excess of
the Fair Market Value of the Shares subject to the underlying Option at the time the Tandem SAR is
exercised over the exercise price of the underlying Option; (c) the Tandem SAR may be exercised
only when the Fair Market Value of the Shares subject to the Option exceeds the exercise price of
the Option; (d) the Tandem SAR may be exercised only when the underlying Option is eligible to be
exercised; and (e) the Tandem SAR is transferable only when the underlying Option is transferable,
and under the same conditions.

     g. Payment of SAR Amount. SARs granted under this Plan shall be payable upon exercise
in Shares, cash or such other property as may be designated by the Committee. Upon the exercise of
a SAR, a Participant shall be entitled to receive from the Company such number of Shares (or, in
the case of SARs exercisable for cash or other property, cash or property with a value equal to
such number of Shares) determined by multiplying:

	 	(i)	 	The excess of the Fair Market Value of a Share on the date of
exercise over the Grant Price; by
	 
	 	(ii)	 	The number of Shares with respect to which the SAR is
exercised.

          Such product shall then be divided by the Fair Market Value of a Share on the date of
exercise. The resulting number (rounded down to the next whole number) is the number of Shares to
be issued to the Participant upon exercise of a SAR.

     h. Termination of Employment. Each SAR Award Agreement shall set forth the extent to
which the Participant shall have the right to exercise the SAR following termination of the
Participant’s employment with or provision of services to the Company, its Affiliates and/or its
Subsidiaries, as the case may be. Such provisions shall be determined in the sole discretion of the
Committee, shall be included in the SAR Award Agreement entered into with Participants, need not be
uniform among all SARs issued pursuant to this Plan, and may reflect distinctions based on the
reasons for termination.

     i. Nontransferability of SARs. Except as otherwise provided in a Participant’s SAR
Award Agreement or otherwise determined at any time by the Committee, no SAR granted under the Plan
may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by
will or by the laws of descent and distribution. Further, except as otherwise provided in a
Participant’s SAR Award Agreement or otherwise determined at any time by the Committee, all SARs
granted to a Participant under this Plan shall be exercisable during his lifetime only by such
Participant. With respect to those SARs, if any, that are permitted to be transferred to another
individual, references in the Plan to exercise of the SAR by the Participant or payment of any
amount to the Participant shall be deemed to include, as determined by the Committee, the
Participant’s permitted transferee.

     j. Other Restrictions. The Committee shall impose such other conditions and/or
restrictions on any Shares received upon exercise of a SAR granted pursuant to the Plan as it may

11

 

deem advisable or desirable. These restrictions may include, but shall not be limited to, a
requirement that the Participant hold the Shares received upon exercise of a SAR for a specified
period of time.

9. Terms and Conditions of Restricted Stock Awards.

     a. Grant. Restricted Stock Awards may be granted hereunder by the Committee to
Employees either alone or in addition to other Awards granted under the Plan. A Restricted Stock
Award shall be subject to such terms and conditions as may be determined by the Committee and may
be subject to vesting conditioned upon the satisfaction of such requirements, conditions (such as a
condition that the Participant’s right to the Shares shall vest in installments over a period of
time during which services are to be provided to the Company by the Employee), restrictions or
performance criteria as shall be established by the Committee and set forth in the Award Agreement.
During any period during which Shares acquired pursuant to a Restricted Stock Award are subject to
vesting conditions, such Shares may not be sold, exchanged, transferred, pledged, assigned or
otherwise disposed of by the Participant. The provisions of Restricted Stock Awards need not be
the same with respect to each Participant receiving such awards. The Committee has absolute
discretion to determine whether any consideration is to be received by the Company as a condition
precedent to the issuance of Restricted Stock Awards. The terms of any Restricted Stock Award
granted under this Plan shall be set forth in a written Award Agreement which shall contain
provisions determined by the Committee which are not inconsistent with the Plan. The maximum
number of Shares subject to Restricted Stock Awards that may be granted under the Plan during any
calendar year to any one Participant is 1,000,000 (as may be adjusted pursuant to Section 13
herein, but only to the extent that such adjustment will not affect the status of any Award
intended to qualify as performance-based compensation under Section 162(m) of the Code).

     b. Rights of Holders of Restricted Stock. Beginning on the date of grant of a
Restricted Stock Award and subject to execution of the Award Agreement, the Participant shall
become a shareholder of the Company with respect to all Shares subject to the Restricted Stock
Award and shall have all of the rights of a shareholder, including the right to vote the Shares
subject to the Restricted Stock Award and the right to receive distributions made with respect to
such Shares; provided, however, that any Shares or any other property (other than
cash) distributed as a dividend or otherwise with respect to any such Shares as to which the
restrictions have not yet lapsed shall be subject to the same restrictions as the Shares subject to
the Restricted Stock Award.

     c. Delivery of Shares. Shares issued upon the grant of Restricted Stock Awards shall,
unless otherwise determined by the Committee, be maintained in the custody of or on behalf of the
Company until all applicable vesting conditions have been satisfied. Shares subject to Restricted
Stock Awards that are no longer subject to restrictions shall be delivered to the Participant
promptly after the applicable restrictions lapse or are waived. Notwithstanding anything to the
contrary set forth herein, but subject to Section 17(j) hereof, delivery of Shares pursuant to a
Restricted Stock Award shall be made no later than 2-1/2 months after the close of the Company’s
first taxable year in which such Shares are no longer subject to a substantial risk of forfeiture
(within the meaning of Section 409A of the Code).

12

 

     d. Termination of Continuous Status as an Employee. Unless otherwise determined by
the Committee or unless otherwise provided in the Award Agreement evidencing the Award, in the
event of the termination of a Participant’s Continuous Status as an Employee, Shares which are
subject to a Participant’s Restricted Stock Award which are not vested as of the date of such
termination shall be automatically forfeited by the Participant and cancelled by the Company for no
value.

     e. Waiver of Forfeiture. The Committee may, when it finds that a waiver would be in
the best interests of the Company and subject to such terms and conditions as the Committee shall
deem appropriate, waive in whole or in part any remaining vesting restrictions with respect to any
Restricted Stock Award or any other conditions set forth in any Award Agreement.

10. Terms and Conditions of Restricted Stock Units.

     a. Grant. Restricted Stock Units may be issued hereunder to Employees either alone or
in addition to other Awards granted under the Plan. A Restricted Stock Unit is a bookkeeping entry
that represents the right to receive one Share to be issued and delivered at the end of the
applicable vesting period, subject to a risk of cancellation and to the other terms and conditions
set forth in the Plan and in any Award Agreement evidencing the Restricted Stock Unit and subject
to any additional restrictions, performance criteria and other terms and conditions established by
the Committee. The Company shall establish and maintain accounts for Participants in which the
Company shall record Restricted Stock Units and the transactions and events affecting such units.
Restricted Stock Units and other items reflected in the account will represent only bookkeeping
entries by the Company to evidence the Company’s unfunded obligations. The provisions of
Restricted Stock Units need not be the same with respect to each Participant receiving such Awards.
The Committee has absolute discretion to determine whether any consideration is to be received by
the Company as a condition precedent to the grant of a Restricted Stock Unit. The terms of any
Restricted Stock Unit granted under this Plan shall be set forth in a written Award Agreement which
shall contain provisions determined by the Committee in its sole discretion which are not
inconsistent with the Plan. The maximum number of Shares subject to Restricted Stock Units that may
be granted under the Plan during any calendar year to any one Participant is 1,000,000 (as may be
adjusted pursuant to Section 13 herein, but only to the extent that such adjustment will not affect
the status of any Award intended to qualify as performance-based compensation under Section 162(m)
of the Code).

     b. Rights of Holders of Restricted Stock Units; Dividend Equivalents. Unless the
Committee otherwise provides in an Award Agreement for Restricted Stock Units, any Participant
holding Restricted Stock Units shall have no rights as a shareholder of the Company with respect to
such Restricted Stock Units. The Committee shall be authorized to establish procedures pursuant to
which the Company’s payment of any Restricted Stock Unit may be deferred in a manner that would not
trigger the adverse tax consequences under Code Section 409A. Subject to the provisions of the
Plan and any Award Agreement, the recipient of a Restricted Stock Unit may, if so determined by the
Committee, be entitled to receive, currently (or on a deferred basis, but in such a case subject to
the same vesting restrictions as the Restricted Stock Unit to which such dividend relates, with
such deferral to last no longer than the vesting period to which such Restricted Stock Unit is
subject) and

13

 

with respect to the number of Shares covered by the Award, payments (“Dividend Equivalents”)
in amounts equivalent to cash, stock or other property paid by the Company as dividends on the
Company’s Common Stock prior to the vesting of the Restricted Stock Units in a manner that would
not trigger the adverse tax consequences under Code Section 409A.

     c. Delivery of Shares in Settlement of Restricted Stock Units. Restricted Stock Units
(if not previously cancelled) will be automatically settled on or about the vesting date or dates
set forth in the Restricted Stock Unit Award Agreement evidencing the Award. The Company may make
delivery of Shares in settlement of Restricted Stock Units by either delivering one or more stock
certificates representing such Shares to the Participant, registered in the name of the
Participant, or by depositing such Shares into an account maintained for the Participant and
established in connection with any Company plan or arrangement providing for investment in Common
Stock of the Company. Notwithstanding anything to the contrary set forth herein, but subject to
Section 17(k), delivery of Shares pursuant to a Restricted Stock Unit shall be made no later than
2-1/2 months after the close of the Company’s first taxable year in which such Shares are no longer
subject to a substantial risk of forfeiture (within the meaning of Section 409A of the Code).

     d. Termination of Continuous Status as an Employee. Unless otherwise determined by
the Committee and provided in the Restricted Stock Unit Award Agreement evidencing the Award, in
the event of the termination of a Participant’s Continuous Status as an Employee, the Participant’s
Restricted Stock Units which are not vested as of the date of such termination shall not vest and
shall automatically be cancelled for no value and without issuance of any Shares.

     e. Waiver of Forfeiture. The Committee may, when it finds that a waiver would be in
the best interests of the Company and subject to such terms and conditions as the Committee shall
deem appropriate, waive in whole or in part any remaining vesting restrictions with respect to any
Restricted Stock Units or any other conditions set forth in any Restricted Stock Unit Award
Agreement.

11. Code Section 162(m) Provisions

     a. Application to Covered Employee. Notwithstanding any other provision of the Plan,
if the Committee determines at the time an Option, SAR, Restricted Stock, or Restricted Stock Unit
Award is granted to a Participant that such Participant is, or is likely to be as of the end of the
tax year in which the Company would claim a tax deduction in connection with such Award, a “covered
employee” within the meaning of Section 162(m)(3) of the Code, then the Committee may qualify such
an Award as “performance-based compensation” pursuant to Section 162(m) of the Code. The Committee
has complete discretion concerning whether a particular Award should be qualified as
“performance-based compensation.” If the Committee determines that a particular Award should
qualify as “performance-based compensation,” the provisions of this Section 11, to the extent
applicable, shall control over any contrary provision in the Plan.

     b. Performance Goals. Restricted Stock and Restricted Stock Unit Awards may be made
subject to the achievement of performance goals established by the Committee relating to one or
more business criteria (the “Performance Criteria”) pursuant to Section 162(m) of the Code.
Performance Criteria may be applied to the Company, an Affiliate, a Subsidiary, division, business

14

 

unit or individual or any combination thereof and may be measured in absolute levels or
relative to another company or companies, a peer group, an index or indicies or Company performance
in a previous period. Performance may be measured annually or cumulatively over a longer period of
time. Performance Criteria that may be used to establish performance goals are: revenue; operating
income or net operating income; orders, return on equity; return on assets or net assets; cash
flow; share price performance; return on capital; earnings; earnings per share; shareholder return
and/or value (including but not limited to total shareholder return); economic value added;
economic profit; ratio of operating earnings to capital spending; EBITDA; EBIT; costs; operating
earnings; gains; product development; client development; leadership; project progress; project
completion; increase in total revenues; net income; operating cash flow; net cash flow; retained
earnings; budget achievement; return on capital employed; return on invested capital; cash
available to Company from a subsidiary or subsidiaries; expense spending; gross margin; net margin;
market capitalization; customer satisfaction; financial return ratios; market share; operating
profits (including earnings before or after income taxes, depreciation and amortization); net
profits; earnings per share growth; profit returns and margins; stock price; working capital;
business trends; production cost; project milestones; capacity utilization; quality; economic value
added; operating efficiency; diversity; debt; dividends; bond ratings; corporate governance; and
health and safety. The performance goals for each Participant and the amount payable if those
goals are met shall be established in writing for each specified period of performance by the
Committee no later than 90 days after the commencement of the period of service to which the
performance goals relate and while the outcome of whether or not those goals will be achieved is
substantially uncertain. However, in no event will such goals be established after 25% of the
period of service to which the goals relate has elapsed. The performance goals shall be objective.
Such goals and the amount payable for each performance period if the goals are achieved shall be
set forth in the applicable Award Agreement. No amounts shall be payable to any Participant for
any performance period unless and until the Committee certifies that the performance goals and any
other material terms were in fact satisfied.

     c. Adjustment of Payment. Notwithstanding any provision of the Plan, with respect to
any Restricted Stock or Restricted Stock Unit Award that is subject to this Section, the Committee
may adjust downwards, but not upwards, the amount payable pursuant to such Award.

     d. Other Restrictions. The Committee shall have the power to impose such other
restrictions on Awards subject to this Section as it may deem necessary or appropriate to ensure
that such Awards satisfy all requirements for “performance-based compensation” within the meaning
of Section 162(m)(4)(C) of the Code, or any successor provision thereto.

12. Nontransferability of Awards.

     Except as otherwise provided in a Participant’s Award Agreement or otherwise determined at any
time by the Committee, no Awards granted under the Plan, and no Shares subject to any such Awards,
that have not been issued or as to which any applicable vesting restriction, performance or
deferral period has not lapsed, may be sold, pledged, assigned, hypothecated, gifted, transferred
or disposed of in any manner, either voluntarily or involuntarily by operation of law, other than
by will or by the laws of descent or distribution or transfers between spouses incident to a
divorce. Further, except as otherwise provided in a Participant’s Award Agreement or otherwise
determined at any

15

 

time by the Committee, Options and SARs may be exercised during the life of the Participant
only by the Participant or the Participant’s guardian or legal representative. Notwithstanding the
foregoing, a Participant may assign or transfer an Award (other than an ISO) with the consent of
the Committee (each transferee thereof, a “Permitted Transferee”), which consent may be granted or
withheld in the Committee’s sole discretion, provided that such Permitted Transferee shall be bound
by and subject to all of the terms and conditions of the Plan and the Award Agreement relating to
the transferred Award and shall execute an agreement satisfactory to the Company evidencing such
obligations; and, provided further, that such Participant shall remain bound by the terms and
conditions of the Plan. The Company shall cooperate with any Permitted Transferee and the
Company’s transfer agent in effectuating any transfer permitted under this Section 12. With
respect to those Awards, if any, that are permitted to be transferred to another individual,
references in the Plan to exercise of the Award by the Participant or payment of any amount or
issuance of any Shares to the Participant shall be deemed to include, as determined by the Board,
the Participant’s Permitted Transferee.

13. Adjustment Upon Change in Corporate Structure.

     a. Subject to any required action by the shareholders of the Company, the number and type of
Shares covered by each outstanding Award, and the number and type of Shares which have been
authorized for issuance under the Plan but as to which no Awards have yet been granted or which
have been returned to the Plan upon cancellation, expiration or forfeiture of an Award, as well as
the exercise or purchase price per Share, as applicable, covered by outstanding Awards, shall be
proportionately adjusted for any increase or decrease in the number of issued Shares resulting from
a stock split, reverse stock split or combination or the payment of a stock dividend (but only on
the Common Stock) or reclassification of the Common Stock or any other increase or decrease in the
number of issued Shares effected without receipt of consideration by the Company (other than stock
awards to Employees); provided, however, that the conversion of any convertible
securities of the Company shall not be deemed to have been effected without the receipt of
consideration. Any such adjustment shall be determined in good faith by the Committee to be
appropriate in order to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan, and the Committee’s determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no issue by the
Company of shares of stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number
or price of Shares subject to the Plan or an Award.

     b. In the event of the proposed dissolution or liquidation of the Company, or in the event of
a proposed sale of all or substantially all of the assets of the Company (other than in the
ordinary course of business), or the merger or consolidation of the Company with or into another
corporation, as a result of which the Company is not the surviving and controlling corporation, the
Board shall, to the extent such action would not trigger the adverse tax consequences under Code
Section 409A, (i) make provision for the assumption of outstanding Awards by the successor
corporation, (ii) declare that any Option shall terminate as of a date fixed by the Board which is
at least 30 days after the notice thereof to the Participant and shall give each Participant the
right to exercise his or her Option as to all or any part of the Optioned Stock, including Shares
as to which

16

 

the Option would not otherwise be exercisable provided such exercise does not violate
Section 7(h) of the Plan, (iii) accelerate the vesting of Restricted Stock Awards and Restricted
Stock Units, or (iv) cause any Award outstanding as of the effective date of any such event to be
cancelled in consideration of a cash payment or grant of an alternative option or award (whether by
the Company or any entity that is a party to the transaction), or a combination thereof, to the
holder of the cancelled Award, provided that such payment and/or grant are substantially equivalent
in value to the fair market value of the cancelled Award as determined by the Committee.

     c. No fractional shares of Common Stock shall be issuable on account of any action aforesaid,
and the aggregate number of shares into which Shares then covered by an Award, when changed as the
result of such action, shall be reduced to the largest number of whole shares resulting from such
action, unless the Board, in its sole discretion, shall determine to issue scrip certificates in
respect to any fractional shares, which scrip certificates shall be in a form and have such terms
and conditions as the Board in its discretion shall prescribe.

14. Shareholder Approval.

     Effectiveness of the Original Plan was subject to approval by the shareholders of the Company
within 12 months before or after the date the Plan was adopted by the Board, and such shareholder
approval was obtained on May 8, 2003. Effectiveness of the 2004 Restatement was subject to
approval of the shareholders of the Company, and such approval was obtained on May 14, 2004.
Effectiveness of this Amended and Restated 2003 Equity Incentive Plan shall be subject to approval
by the shareholders of the Company. Shareholder approval shall be obtained (i) by the affirmative
vote of the holders of a majority of the Shares present or represented and entitled to vote thereon
at a meeting of shareholders duly held in accordance with the laws of the State of California or
(ii) by written consent of the holders of the outstanding Shares having not less than the minimum
number of votes that would be necessary to authorize the approval at a meeting of the shareholders
duly held in accordance with the laws of the State of California.

15. Amendment and Termination of the Plan.

     a. Amendment and Termination. The Board may amend or terminate the Plan from time to
time in such respects as the Board may deem advisable, subject to any requirement for shareholder
approval imposed by applicable law, including the rules and regulations of The NASDAQ Stock
Exchange LLC or any stock exchange on which Shares are listed or quoted, and shall make any
amendments which may be required so that Options intended to be Incentive Stock Options shall at
all times continue to be Incentive Stock Options for the purpose of Section 422 of the Code;
provided, however, that without approval of the Company’s shareholders, no such
revision or amendment shall (i) materially increase the benefits accruing to participants under the
Plan; (ii) increase the number of Shares which may be issued under the Plan, other than in
connection with an adjustment under Section 13 of the Plan; (iii) materially modify the
requirements as to eligibility for participation in the Plan; (iv) materially change the
designation of the class of Employees eligible to be granted Awards; (v) remove the administration
of the Plan from the Board or its Committee; or (vi) extend the term of the Plan beyond the maximum
term set forth in Section 18 hereunder.

17

 

     b. Effect of Amendment or Termination. Except as otherwise provided in Section 13 of
the Plan, and except to the extent necessary to avoid the imposition of additional tax and/or
interest under Section 409A of the Code with respect to Awards that are treated as nonqualified
deferred compensation, any amendment or termination of the Plan shall not affect Awards already
granted, and such Awards shall remain in full force and effect as if the Plan had not been amended
or terminated, unless mutually agreed otherwise between the Participant and the Company, which
agreement must be in writing and signed by the Participant and the Company.

16. Indemnification.

          No member of the Board or its Committee shall be liable for any act or action taken, whether
of commission or omission, except in circumstances involving willful misconduct, or for any act or
action taken, whether of commission or omission, by any other member or by any officer, agent or
Employee. In addition to such other rights of indemnification they may have as members of the
Board, or as members of the Committee, the Board and the Committee shall be indemnified by the
Company against reasonable expenses, including attorneys’ fees actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action taken, by commission
or omission, in connection with the Plan or any Award granted thereunder, and against all amounts
paid by them in settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment in any action, suit
or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit
or proceeding that a Board or Committee member is liable for willful misconduct in the performance
of his or her duties; provided that within 60 days after institution of any such action, suit or
proceeding, such Board or Committee member shall in writing have offered the Company the
opportunity, at its own expense, to handle and defend the same.

17. General Provisions.

     a. Withholding or Deduction for Taxes. The grant of Awards hereunder and the issuance
of Shares and all payments and distributions pursuant to this Plan are conditioned upon the
Company’s reservation of the right to withhold, in accordance with any applicable law, from any
compensation or other amounts payable to the Participant, any taxes required to be withheld under
Federal, state or local law as a result of the: (i) grant of any Award, (ii) exercise of any
Option, (iii) sale of Shares issued upon exercise of Options, (iv) delivery of Shares, cash or
other property, (v) lapse of restrictions in connection with any Award, or (vi) any other event
occurring pursuant to the Plan. To the extent that compensation and other amounts, if any, payable
to the Participant are insufficient to pay any taxes required to be so withheld, the Company may,
in its sole discretion, require the Participant, including without limitation, as a condition of
the exercise of any Option, to pay in cash to the Company an amount sufficient to cover such tax
liability or otherwise to make adequate provision for the delivery to the Company of cash necessary
to satisfy the Company’s withholding obligations under Federal and state law. The Committee shall
be authorized to establish procedures for election by Participants to satisfy such obligations for
the payment of such taxes by tendering previously acquired Shares (either actually or by
attestation, valued at their then Fair Market Value) that have been owned for a period of at least
six months (or such other period as may

18

 

be necessary to avoid accounting charges against the Company’s earnings), or by directing the
Company to retain Shares (up to the Participant’s minimum required tax withholding rate) otherwise
deliverable in connection with the Award.

     b. Other Plans. Nothing contained in the Plan shall prohibit the Company from
establishing additional incentive compensation arrangements.

     c. No Enlargement of Rights. Neither the Plan, nor the granting of Awards, nor any
other action taken pursuant to the Plan shall constitute or be evidence of any agreement or
understanding, express or implied, that the Company will retain an Employee for any period of time,
or at any particular rate of compensation. Nothing in the Plan shall be deemed to limit or affect
the right of the Company to discharge any Employee at any time for any reason or no reason.

          No Employee shall have any right to or interest in Awards authorized hereunder prior to the
grant thereof to such eligible person, and upon such grant he or she shall have only such rights
and interests as are expressly provided herein and in the related Award Agreement, subject,
however, to all applicable provisions of the Company’s Articles of Incorporation, as the same may
be amended from time to time.

     d. Notice. Any notice to be given to the Company pursuant to the provisions of the
Plan shall be addressed to the Company in care of its Secretary (or such other person as the
Company may designate from time to time) at its principal office, and any notice to be given to a
Participant to whom an Award is granted hereunder shall be delivered personally or addressed to him
or her at the address given beneath his or her signature on his or her Award Agreement, or at such
other address as such Participant or his or her transferee (upon any permitted transfer) may
hereafter designate in writing to the Company. Any such notice shall be deemed duly given when
enclosed in a properly sealed envelope or wrapper addressed as aforesaid, registered or certified,
and deposited, postage and registry or certification fee prepaid, in a post office or branch post
office regularly maintained by the United States Postal Service. It shall be the obligation of
each Participant holding Shares purchased upon exercise of an Option or otherwise issued pursuant
to Awards hereunder to provide the Secretary of the Company, by letter mailed as provided
hereinabove, with written notice of his or her direct mailing address.

     e. Applicable Law. To the extent that Federal laws do not otherwise control, the Plan
shall be governed by and construed in accordance with the laws of the State of California, without
regard to the conflict of laws rules thereof.

     f. Incentive Stock Options. The Company shall not be liable to an Optionee or other
person if it is determined for any reason by the Internal Revenue Service or any court having
jurisdiction that any Incentive Stock Options are not incentive stock options as defined in
Section 422 of the Code.

     g. Information to Participants. The Company shall provide without charge to each
Participant copies of its annual financial statements (which need not be audited), which may be
included within such annual and periodic reports as are provided by the Company to its shareholders
generally.

19

 

     h. Availability of Plan. A copy of the Plan shall be delivered to the Secretary of
the Company and shall be shown by him or her to any eligible person making reasonable inquiry
concerning it.

     i. Severability. In the event that any provision of the Plan is found to be invalid
or otherwise unenforceable under any applicable law, such invalidity or unenforceability shall not
be construed as rendering any other provisions contained herein as invalid or unenforceable, and
all such other provisions shall be given full force and effect to the same extent as though the
invalid or unenforceable provision was not contained herein.

     j. Form of Shares and Restricted Stock Awards; Stop Transfer Orders. Shares issued or
delivered under the Plan, including Shares subject to any Restricted Stock Award, may be evidenced
in such manner as the Committee in its sole discretion shall deem appropriate, including, without
limitation, book-entry registration or issuance of a stock certificate or certificates. In the
event any stock certificate is issued in respect of a Restricted Stock Award, such certificate
shall bear an appropriate legend referring to the terms, conditions and restrictions applicable to
such Award. All certificates for Shares delivered under the Plan pursuant to any Award shall be
subject to such stop transfer orders and other restrictions as the Committee may deem advisable
under the rules, regulations and other requirements of the Securities and Exchange Commission, any
stock exchange or quotation system upon which the Shares are then listed or quoted, and any
applicable federal or state securities law, and the Committee may cause a legend or legends to be
put on any such certificates to make appropriate reference to such restrictions.

     k. Unfunded Status of the Plan. The Plan is intended to constitute an “unfunded” plan
for incentive compensation. With respect to any payments not yet made to a Participant by the
Company, nothing contained herein shall give any such Participant any rights that are greater than
those of a general creditor of the Company. In its sole discretion, the Committee may authorize
the creation of trusts or other arrangements to meet the obligations created under the Plan to
deliver the Shares or payments in lieu of or with respect to Awards hereunder; provided,
however, that the existence of such trusts or other arrangements is consistent with the
unfunded status of the Plan.

     l. Amendment to Comply with Applicable Law. It is intended that no Award granted
under this Plan shall be subject to any interest or additional tax under Section 409A of the Code.
In the event Code Section 409A is amended after the date hereof, or regulations or other guidance
is promulgated after the date hereof that would make an Award under the Plan subject to the
provisions of Code Section 409A, then the terms and conditions of this Plan shall be interpreted
and applied, to the extent possible, in a manner to avoid the imposition of the provisions of Code
Section 409A.

18. Effective Date and Term of Plan.

     The Original Plan became effective upon shareholder approval on May 8, 2003 in accordance with
Section 14 of the Plan, and the 2004 Restatement became effective on May 14, 2004 in accordance
with the shareholder approval provisions of Section 14. This Amended and Restated 2003 Equity
Incentive Plan shall become effective upon shareholder approval at the 2008 Annual Meeting of
Shareholders of the Company. This Plan shall continue in effect for a term of

20

 

ten years following the date of shareholder approval of the Original Plan (i.e., until May 8,
2013) unless sooner terminated under Section 15 of the Plan. This Amended and Restated 2003 Equity
Incentive Plan shall not become effective if not approved by the shareholders of the Company at the
Company’s 2008 Annual Meeting of Shareholders and, in such case, the 2004 Restatement shall
continue in full force and effect.

21

 

CERTIFICATE OF SECRETARY

     The undersigned Secretary of Tekelec, a California corporation (the “Company”), hereby
certifies that the foregoing is a true and correct copy of the Company’s Amended and Restated 2003
Equity Incentive Plan.

     IN WITNESS WHEREOF, the undersigned has executed this document as of the date set forth below.

	 	 	 	 	 
	Date:                     , 2008
	 	 	 	 
	 

	 	 

Stuart H. Kupinsky, Secretary
	 	 

 

EXHIBIT A

[2008 Master Option Form]

AMENDED AND RESTATED

2003 EQUITY INCENTIVE PLAN

Stock Option Agreement

Tekelec hereby grants to you an Option under the Tekelec Amended and Restated
2003 Equity Incentive Plan (the “Plan”), to purchase the number of shares of
Tekelec Common Stock set forth below.

Name:

Employee ID #:

Date of Grant:

Type of Option:

Number of Shares:

Exercise Price:

	 	 	 
	Payment:

	 	Payment of the exercise price and applicable taxes may be made (i) by
cash or check and/or (ii) pursuant to a “Cashless” exercise (see Option Terms
and Conditions attached hereto).
	 
	 	 
	Vesting Schedule:

	 	[e.g., ___% will vest and become exercisable on DATE, and
the remaining ___% will vest in ___[quarterly] installments with the first
of such installments vesting on DATE and one additional installment vesting on
[the last day of each calendar quarter thereafter], provided that with respect
to each such vesting of an installment the optionee remains an Employee of the
Company (or one of its affiliates) from the option grant date through the
applicable vesting date.]
	 
	 	 
	Expiration Date:

	 	[e.g., your option will expire on DATE, provided, however,
that in the event of your termination of employment with the Company or your
disability or death, the provision of Sections 6 and 7 of the Option Terms and
Conditions attached hereto shall apply to your right to exercise the Option.]

This Stock Option Agreement consists of this page and the Option Terms and
Conditions and the Notice of Exercise of Stock Option attached hereto. By
signing below, you accept the grant of this Option and agree that this Option
is subject in all respects to the terms and conditions of the Plan located on
Tekelec’s internal website at Teksource.

You further acknowledge and agree that (i) you have carefully reviewed this
Stock Option Agreement (including the Option Terms and Conditions attached
hereto) and the Plan and (ii) this Stock Option Agreement and the Plan set
forth the entire understanding between you and the Company regarding this
Option and supersede all prior oral and written agreements with respect
thereto.

	 	 	 	 	 	 	 
	TEKELEC
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	By:
	 	 	 	 	 	 
	 

	 	 
	 	 	 	 
	Print Name:

	 	 

	 	 	 	Date
	Title:
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 
	 	 	 	 
	 

	 	                    Optionee
	 	 	 	Date

 

 

TEKELEC AMENDED AND RESTATED

2003 EQUITY INCENTIVE PLAN

Stock Option Agreement — Option Terms and Conditions

The following Terms and Conditions apply to the nonstatutory stock option granted by Tekelec to the
Participant whose name appears on the Stock Option Agreement to which these Terms and Conditions
are attached.

	1.	 	Amended and Restated 2003 Stock Option Plan. This Option is in all respects subject to the
terms, definitions and provisions of the Tekelec Amended and Restated 2003 Equity Incentive
Plan (the “Plan”) adopted by the Company and incorporated herein by reference. The terms
defined in the Plan shall have the same meanings herein.
	 
	2.	 	Nature of the Option. This Option is intended to be a [nonstatutory stock option] and is
not intended to be an incentive stock option within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the “Code”), or to otherwise qualify for any
special tax benefits to the Participant.
	 
	3.	 	Method of Payment. The aggregate exercise price of the Shares purchased upon an exercise, in
whole or in part, of the Option may be paid:

	 	(a)	 	In the form of check made payable to the Company or its designated agent or
cash, including cash from funds depositing in an online securities account maintained
by the Participant as an employee of the Company (e.g., an account with E*Trade
Securities LLC); and/or
	 
	 	(b)	 	Through a special sale and remittance procedure commonly referred to as a
“cashless exercise” or “sell to cover” transaction pursuant to which the Optionee (or
any other person(s) entitled to exercise the Option) shall concurrently provide
irrevocable written instructions:

	 	(i)	 	to a brokerage firm (e.g., E*Trade through the Optionee’s on-line
account) to effect the immediate sale of a sufficient number of the Shares
purchased upon the exercise of the Option to enable such brokerage firm to remit
out of the sales proceeds available upon the settlement date, sufficient funds
to Tekelec to cover the aggregate exercise price payable for the purchased
Shares plus all applicable federal, state and local income and employment taxes
required to be withheld by Tekelec by reason of such exercise and/or sale; and
	 
	 	(ii)	 	to Tekelec to deliver any certificate(s) or other evidence of
ownership for the purchased Shares directly to such brokerage firm in order to
complete the sale transaction.

	4.	 	Exercise of Option. This Option shall be exercisable during its term only in accordance with
the terms and provisions of the Plan and this Option as follows:

	 	(a)	 	This Option shall vest and be exercisable cumulatively as set forth on the
first page of the Stock Option Agreement. An Optionee who has been in continuous
employment with the Company since the grant of this Option may exercise the exercisable
portion of his or her Option in whole or in part at any time during his or her
employment; provided, however, that an Option may not be exercised for
a fraction of a Share. In the event of the Optionee’s termination of employment with
the Company or Optionee’s disability or death, the provisions of Sections 6 or 7 below
shall apply to the right of the Optionee to exercise the Option.
	 
	 	(b)	 	This Option shall be exercisable following such procedures as are from time to
time established and prescribed by the Company’s management, including as prescribed by
the Company and any third party (e.g. E*Trade) in connection with an on-line securities
account maintained by the Optionees as an employee of the Company (e.g., an OptionsLink
on-line securities account.
	 
	 	(c)	 	No rights of a shareholder shall exist with respect to the Shares under this
Option as a result of the mere grant of this Option or the exercise of this Option.
Such rights shall exist only after issuance of a stock certificate or electronic
transfer of the shares to an account maintained by the Optionee as an employee of
Tekelec.

2

 

	5.	 	Restrictions on Exercise. This Option may not be exercised if the issuance of Shares upon
Optionee’s exercise or the method of payment of consideration for such Shares would constitute
a violation of any applicable Federal or state securities law or other applicable law or
regulation. As a condition to the exercise of this Option, the Company may require the
Optionee to make any representation and warranty to the Company as may be required by any
applicable law or regulation.
	 
	6.	 	Termination of Employment. If the Optionee ceases to serve as an Employee for any reason
other than death or permanent and total disability (within the meaning of Section 22(e)(3) of
the Code) and thereby terminates his or her Continuous Employment, the Optionee shall have the
right to exercise this Option at any time within 90 days after the date of such termination to
the extent that the Optionee was entitled to exercise this Option at the date of such
termination. To the extent that the Optionee was not entitled to exercise this Option at the
date of termination, or to the extent this Option is not exercised within the time specified
herein, this Option shall terminate. Notwithstanding the foregoing, this Option shall not be
exercisable after the expiration of the term set forth in Section 8 hereof.
	 
	7.	 	Death or Disability. If the Optionee ceases to serve as an Employee due to death or
permanent and total disability (within the meaning of Section 22(e)(3) of the Code), this
Option may be exercised at any time within 180 days after the date of death or termination of
employment due to disability, in the case of death, by the Optionee’s estate or by a person
who acquired the right to exercise this Option by bequest or inheritance, or, in the case of
disability, by the Optionee, but in any case only to the extent the Optionee was entitled to
exercise this Option at the date of such termination. To the extent that the Optionee was not
entitled to exercise this Option at the date of termination, or to the extent this Option is
not exercised within the time specified herein, this Option shall terminate. Notwithstanding
the foregoing, this Option shall not be exercisable after the expiration of the term set forth
in Section 8 hereof.
	 
	8.	 	Term of Option. This Option shall expire and terminate for all purposes on
                                         and may be exercised during such term only in accordance with the
Plan and the terms of this Option Agreement; provided, however, that to the extent an
installment of this Option is not exercised within the four-year period following the date on
which such installments vests and becomes exercisable, this Option shall expire and terminate
with respect to such installment. Notwithstanding any provision in the Plan with respect to
the post-employment exercise of an Option, an Option may not be exercised after the expiration
of its term.
	 
	9.	 	Withholding upon Exercise of Option. The Company reserves the right to withhold, in
accordance with any applicable laws, from any consideration payable to Optionee any taxes
required to be withheld by Federal, state or local law as a result of the grant or exercise of
this Option or the sale or other disposition of the Shares issued upon exercise of this
Option. If the amount of any consideration payable to the Optionee is insufficient to pay
such taxes or if no consideration is payable to the Optionee, upon the request of the Company,
the Optionee shall pay to the Company in cash an amount sufficient for the Company to satisfy
any Federal, state or local tax withholding requirements it may incur as a result of the grant
or exercise of this Option or the sale or other disposition of the Shares issued upon the
exercise of this Option.
	 
	10.	 	Nontransferability of Option. This Option may not be sold, pledged, assigned, hypothecated,
gifted, transferred or disposed of in any manner either voluntarily or involuntarily by
operation of law, other than by will or by the laws of descent or distribution or transfer
between spouses incident to a divorce. Subject to the foregoing and the terms of the Plan,
the terms of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
	 
	11.	 	No Right of Employment. Neither the Plan nor this Option shall confer upon the Optionee any
right to continue in the employment of the Company or limit in any respect the right of the
Company to discharge the Optionee at any time, with or without cause and with or without
notice.
	 
	12.	 	Miscellaneous.

	 	(a)	 	Successors and Assigns. This Option Agreement shall bind and inure
only to the benefit of the parties to this Option Agreement (the “Parties”) and their
respective successors and assigns.
	 
	 	(b)	 	No Third-Party Beneficiaries. Nothing in this Option Agreement is
intended to confer any rights or remedies on any persons other than the Parties and
their respective successors or assigns. Nothing in this Option Agreement

3

 

	 	 	 	is intended to relieve or discharge the obligation or liability of third persons to
any Party. No provision of this Option Agreement shall give any third person any
right of subrogation or action over or against any Party.
	 
	 	(c)	 	Amendments.

	 	(i)	 	The Committee reserves the right to amend the terms and
provisions of this Option without the Optionee’s consent to comply with any
Federal or state securities law.
	 
	 	(ii)	 	Except as specifically provided in subsection (i) above, this
Option Agreement shall not be changed or modified, in whole or in part, except
by supplemental agreement signed by the Parties. Either Party may waive
compliance by the other Party with any of the covenants or conditions of this
Option Agreement, but no waiver shall be binding unless executed in writing by
the Party making the waiver. No waiver or any provision of this Option
Agreement shall be deemed, or shall constitute, a waiver of any other provision,
whether or not similar, nor shall any waiver constitute a continuing waiver.
Any consent under this Option Agreement shall be in writing and shall be
effective only to the extent specifically set forth in such writing.

	 	(d)	 	Governing Law. To the extent that Federal laws do not otherwise
control, the Plan and all determinations made or actions taken pursuant hereto shall be
governed by the laws of the state of California, without regard to the conflict of laws
rules thereof.
	 
	 	(e)	 	Severability. If any provision of this Option Agreement or the
application of such provision to any person or circumstances is held invalid or
unenforceable, the remainder of this Option Agreement, or the application of such
provision to persons or circumstances other than those as to which it is held invalid
or unenforceable, shall not be affected thereby.

*  *  *  *

4

 

EXHIBIT B

[2008 Master RSU Form]

AMENDED AND RESTATED

2003 EQUITY INCENTIVE PLAN

Restricted Stock Unit Award Agreement

Tekelec hereby grants to you a Restricted Stock Unit Award under the Tekelec Amended and Restated 2003 Equity
Incentive Plan (the “Plan”), as set forth below. Capitalized terms defined in the Plan but not in this Agreement
shall have the meanings given to them herein.

Name:

Employee ID #:

Date of Grant:

Number of

Restricted Stock Units:

	 	 	 
	Nature of
Restricted Stock Units:

	 	Each Restricted Stock Unit (“RSU”) represents the right to receive one share (“Share”) of
Tekelec Common Stock to be issued and delivered at the end of the applicable vesting period, subject to the risk of
cancellation as described in the Plan. [or — Each Restricted Stock Unit represents the right to receive one share
(“Share”) of Tekelec Common Stock to be issued and delivered at the end of the applicable Performance Period, subject
to the risk of cancellation as described herein and in the Plan.]
	 
	 	 
	[Performance Period:]

	 	[The Performance Period for
this award begins [___, 200_] and ends [___, 200_.]
	 
	 	 
	Vesting Schedule:

	 	The Restricted Stock Units will vest and the shares represented thereby will be automatically issued
and delivered on [e.g., DATE and the remaining ___% will vest and the shares represented thereby will be
automatically issued and delivered in three equal annual installments commencing on DATE, provided that with respect
to each such vesting of an installment you remain an Employee of the Company (or any of its affiliates) from the RSU
grant date through such vesting date]. [or — The Restricted Stock Units will vest on the last day of the Performance
Period, as long as you remain an employee of the Company (or any of its affiliates) through such date and provided
that the following performance goals are achieved at the end of the Performance Period:                     (“Performance
Goals”).]
	 
	 	 
	Forfeiture:

	 	If you cease to serve as an Employee for any reason, any Restricted Stock Units which are not vested as of
the date of such termination shall not vest and shall automatically be cancelled and forfeited for no value and
without any issuance of Shares. [or — If you cease to serve as an Employee for any reason prior to the date on which
the Performance Period ends, or if the Performance Goals are not achieved, any Restricted Stock Units shall not vest
and shall automatically be cancelled and forfeited for no value and without any issuance of Shares.]
	 
	 	 
	Taxes:

	 	Payment of the applicable taxes in connection with the vesting of Restricted Stock Units must be made by check
or a Cashless Exercise (see section 4(c) of Restricted Stock Unit Terms and Conditions attached hereto).

1

 

This Restricted Stock Unit Award Agreement consists of this page and the Restricted Stock Unit Terms and Conditions
attached hereto. By signing below, you accept the grant of this Restricted Stock Unit Award and agree that this
Restricted Stock Unit Award is subject in all respects to the terms and conditions of the Plan. Copies of the Plan and
a Prospectus containing information concerning the Plan are available on the Tekelec’s internal website at Teksource.

You further acknowledge and agree that (i) you have carefully reviewed this Restricted Stock Unit Award Agreement
(including the Restricted Stock Unit Terms and Conditions attached hereto) and the Plan and (ii) this Restricted Stock
Unit Award Agreement and the Plan set forth the entire understanding between you and the Company regarding this
Restricted
Stock Unit Award and supersede all prior or contemporaneous oral and written agreements with respect
thereto.

	 	 	 	 	 	 	 
	TEKELEC
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	By:
	 	 	 	 	 	 
	 

	 	 
	 	 	 	 
	 
	Print Name:

	 	 	 	 	 	Date
	 

	 	 

	 	 	 	 
	Title:
	 	 	 	 	 	 
	 

	 	 

	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	Participant

	 	 	 	 	 	Date

2

 

TEKELEC AMENDED AND RESTATED

2003 EQUITY INCENTIVE PLAN

Restricted Stock Unit Award Agreement — Restricted Stock Unit Terms and Conditions

     The following Restricted Stock Unit Terms and Conditions apply to the Restricted Stock Unit Award
granted by Tekelec (“Tekelec” or the “Company”) to the Participant whose name appears on the
Restricted Stock Unit Award Agreement cover page to which these Restricted Stock Unit Terms and
Conditions are attached.

	1.	 	Amended and Restated 2003 Equity Incentive Plan. This Restricted Stock Unit Award is in all
respects subject to the terms, definitions and provisions of the Tekelec Amended and Restated
2003 Equity Incentive Plan (the “Plan”) adopted by the Company and incorporated herein by
reference. Capitalized terms defined in the Plan but not defined in this Restricted Stock
Unit Award Agreement shall have the meanings given to them in the Plan.

	2.	 	Vesting of Restricted Stock Units Awards.

	 	(a)	 	Upon each vesting date for the Restricted Stock Unit Award (each, a “Vesting
Date”), one share of Tekelec Common Stock shall be issuable for each Restricted Stock
Unit that vests on such date, subject to the terms and provision of the Plan and this
Restricted Stock Unit Award Agreement. [or — Provided that you remain employed during
such period and the Performance Goals are achieved at the end of the Performance
Period, following the end of the Performance Period, one share of Tekelec Common Stock
shall be issuable for each Restricted Stock Unit on such date, subject to the terms and
provisions of the Plan and this Restricted Stock Unit Award Agreement.] Following
vesting, the Company will issue and transfer such Shares to the Participant as soon as
administratively feasible following satisfaction of any required withholding tax
obligations as provided in Section 4 below. Notwithstanding anything to the contrary
set forth herein, delivery of Shares pursuant to a Restricted Stock Unit Award shall be
made no later than 2-1/2 months after the close of Tekelec’s first taxable year in
which such Shares are no longer subject to a substantial risk of forfeiture (within the
meaning of Section 409A of the Code).
	 
	 	(b)	 	To the extent the Restricted Stock Units vest and Shares are issued and
delivered to the Participant, such Shares will be free of the terms and conditions of
this Restricted Stock Unit Award Agreement.
	 
	 	(c)	 	No rights of a shareholder shall exist with respect to the Restricted Stock
Units as a result of the mere grant of the Restricted Stock Units. Such rights shall
exist only after issuance of the Shares following the applicable Vesting Date.

	3.	 	Delivery of Shares upon Vesting of Restricted Stock Units. Restricted Stock Units (if not
previously forfeited) will automatically be settled on or about the Vesting Date or Vesting
Dates set forth on the cover page of this Restricted Stock Unit Award Agreement. [or -
Restricted Stock Units (if not previously forfeited) will automatically be settled following
the end of the Performance Period set forth on the cover page of this Restricted Stock Unit
Award Agreement, provided that the Performance Goals are achieved at the end of the
Performance Period and the Employee remains employed with the Company through such date.] The
Company may make delivery of Shares upon vesting of Restricted Stock Units either by (i)
delivering one or more stock certificates representing such Shares to the Participant,
registered in the name of the Participant, or (ii) depositing such Shares into an account
maintained for the Participant and established in connection with any Company plan or
arrangement providing for investment in Common Stock of the Company, including without
limitation any on-line securities account maintained by the Participant with E*Trade
Securities LLC (“E*Trade”) as an employee of Tekelec. All certificates for Shares and all
Shares shall be subject to such stop transfer orders and other restrictions as the Company may
deem advisable under the rules, regulations and other requirements of the Securities and
Exchange Commission, any stock exchange or quotation system upon which the Shares are then
listed or quoted, and any applicable Federal or state securities law, and the Company may
cause a legend or legends to be put on any such certificates (or other appropriate
restrictions and/or notations to be associated with any accounts in which such Shares are
held) to make appropriate reference to such restrictions.

3

 

4. Taxes.

	 	(a)	 	Responsibility of the Participant. The Participant is responsible for any
taxes required to be withheld under Federal, state or local law in connection with:
(i) the vesting of the Restricted Stock Unit Award and the issuance and delivery of
Shares to the Participant, or (iii) any other event occurring pursuant to this
Restricted Stock Unit Award Agreement or the Plan (collectively, “Taxes”).
	 
	 	(b)	 	Payment in Cash. The Participant may elect to pay to the Company an amount
sufficient to cover such Taxes by delivering to the Company a check or by such other
means as the Company may establish or permit.
	 
	 	(c)	 	Cashless Exercise. Subject to the Participant’s compliance with the company’s
policy on Insider Trading and Tipping (as in effect from time to time), the Participant
may elect to pay the Company his or her obligations for the payment of such Taxes
through a special sale and remittance procedure commonly referred to as a “cashless
exercise” or “sell to cover” transaction pursuant to which the Participant (or any
other person(s) entitled to receive the Shares upon vesting) shall concurrently provide
irrevocable written instructions:

	 	(i)	 	to E*Trade (through the Participant’s on-line account) to effect
the immediate sale of a sufficient number of the Shares acquired upon the
vesting of the Shares to enable E*Trade to remit, out of the sales proceeds
available upon the settlement date, sufficient funds to Tekelec to cover all
applicable federal, state and local income and employment taxes required to be
withheld by Tekelec by reason of such vesting and/or sale; and
	 
	 	(ii)	 	to Tekelec to deliver any certificate(s) or other evidence of
ownership for such sold Shares directly to E*Trade in order to complete the sale
transaction.

	 	(d)	 	Payment by Withholding of Shares. In the Company’s sole discretion and in the
lieu of Participant’s election under section 4(c), the Company may elect to retain that
number of whole Shares which would otherwise be deliverable in connection with the
Restricted Stock Unit Award upon vesting and which have a Fair Market Value sufficient
to satisfy the amount of the Taxes required to be withheld. “Fair Market Value” for
this purpose shall be as determined in the Plan as of the applicable date.
	 
	 	(e)	 	Company Rights. Any election pursuant to this Section 4 above shall be made in
writing on such form or electronically in such manner (including without limitation
through a Participant’s on-line E*Trade account) as shall be prescribed by the Company
for such purpose. The Company also reserves the right to withhold Taxes, in accordance
with any applicable law, from (i) any compensation or other amounts payable to the
Participant and/or (ii) the Shares otherwise issuable to the Participant.

	5.	 	Termination of Employment. If the Participant ceases to serve as an Employee for any reason
and thereby terminates his or her Continuous Status as an Employee, the Participant’s
Restricted Stock Units which are not vested as of the date of such termination shall not vest
and shall automatically be cancelled and forfeited for no value and without any issuance of
Shares. [or — If the Participant ceases to serve as an Employee for any reason and thereby
terminates his or her Continuous Status as an Employee prior to the end of the Performance
Period, the Participant’s Restricted Stock Units shall not vest and shall automatically be
cancelled and forfeited for no value and without any issuance of Shares.]

	6.	 	Nontransferability of Restricted Stock Units. This Restricted Stock Unit Award may not be
sold, pledged, assigned, hypothecated, gifted, transferred or disposed of in any manner either
voluntarily or involuntarily by operation of law, other than transfers between spouses
incident to a divorce. Subject to the foregoing and the terms of the Plan, the terms of this
Restricted Stock Unit Award shall be binding upon the executors, administrators, heirs,
successors and assigns of the Participant. The Shares issued upon vesting of the Restricted
Stock Unit Award will not be subject to restrictions on transfer under this Section 6.

	7.	 	No Dividend Equivalents. The Participant shall not be entitled to receive, currently or on a
deferred basis, any payments (i.e., “dividend equivalents”) equivalent to cash, stock or other
property paid by the Company as dividends on the Company’s Common Stock prior to the vesting
of the Restricted Stock Units.

4

 

	8.	 	No Right of Employment. Neither the Plan nor this Restricted Stock Unit Award shall confer
upon the Participant any right to continue in the employment of the Company or limit in any
respect the right of the Company to discharge the Participant at any time, with or without
cause and with or without notice.

9. Miscellaneous.

	 	(a)	 	Successors and Assigns. This Restricted Stock Unit Award Agreement shall bind
and inure only to the benefit of the parties to this Restricted Stock Unit Award
Agreement (the “Parties”) and their respective permitted successors and assigns.
	 
	 	(b)	 	No Third-Party Beneficiaries. Nothing in this Restricted Stock Unit Award
Agreement is intended to confer any rights or remedies on any persons other than the
Parties and their respective permitted successors or assigns. Nothing in this
Restricted Stock Unit Award Agreement is intended to relieve or discharge the
obligation or liability of third persons to any Party. No provision of this Restricted
Stock Unit Award Agreement shall give any third person any right of subrogation or
action over or against any Party.
	 
	 	(c)	 	Amendments.

	 	(i)	 	The Committee reserves the right to amend the terms and
provisions of this Restricted Stock Unit Award without the Participant’s consent
to comply with any Federal or state securities law.
	 
	 	(ii)	 	Except as specifically provided in subsection (i) above, this
Restricted Stock Unit Award Agreement shall not be changed or modified, in whole
or in part, except by supplemental agreement signed by the Parties. Either
Party may waive compliance by the other Party with any of the covenants or
conditions of this Restricted Stock Unit Award Agreement, but no waiver shall be
binding unless executed in writing by the Party making the waiver. No waiver or
any provision of this Restricted Stock Unit Award Agreement shall be deemed, or
shall constitute, a waiver of any other provision, whether or not similar, nor
shall any waiver constitute a continuing waiver. Any consent under this
Restricted Stock Unit Award Agreement shall be in writing and shall be effective
only to the extent specifically set forth in such writing.

	 	(d)	 	Governing Law. To the extent that Federal laws do not otherwise control, the
Plan and all determinations made or actions taken pursuant hereto shall be governed by
the laws of the state of California, without regard to the conflict of laws rules
thereof.
	 
	 	(e)	 	Severability. If any provision of this Restricted Stock Unit Award Agreement
or the application of such provision to any person or circumstances is held invalid or
unenforceable, the remainder of this Restricted Stock Unit Award Agreement, or the
application of such provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby.

* * * *

5

 

	 	 	 	 	 
	 

	 	EXHIBIT C
	 	[2008 Master SAR Form]     

AMENDED AND RESTATED

2003 EQUITY INCENTIVE PLAN FOR

SAR Award Agreement

Tekelec hereby grants to you a Share Appreciation Right Award (“SAR”) under the Tekelec Amended and Restated 2003
Equity Incentive Plan (the “Plan”), covering the number of Shares set forth below.

	 	 	 
	Name:
	 	 
	 
	 	 
	Employee ID #:
	 	 
	 
	 	 
	Date of Grant:
	 	 
	 
	 	 
	Type of SAR:

	 	[e.g., Freestanding or Tandem]
	 
	 	 
	Number of Shares
	 	 
	subject to the SAR:
	 	 
	 
	 	 
	SAR Payable in:

	 	[e.g., Shares of Tekelec Common Stock and/or Cash]
	 
	 	 
	Grant Price:

	 	$                                        
	 
	 	 
	Vesting Schedule:

	 	[e.g., 25% will vest and become exercisable on April 3 , 2008, and the remaining 75% will vest and
become exercisable cumulatively in 12 equal quarterly installments with the first of such installments vesting on June
30, 2008 and one additional installment vesting on the last day of each calendar quarter thereafter, provided that
with respect to each such vesting of an installment the holder of the SARs remains an employee of the Company (or any
of its affiliates) from the SAR grant date through such vesting date.]
	 
	 	 
	Expiration Date:

	 	[e.g., The SAR will expire at the close of business on                                    
     , (i.e.,                                        years following the
grant date); provided, however, that in the event of your termination of employment with the Company or your
disability or death, the provisions of Sections 7 and 8 of the SAR Terms and Conditions attached hereto shall apply to
your right to exercise the SARs.]

This SAR Award Agreement (this “SAR Award Agreement”) consists of this page and the SAR Terms and Conditions attached
hereto. By signing below, you accept the grant of these SARs and agree that these SARs are subject in all respects to
the terms and conditions of the Plan located on Tekelec’s internal website at Teksource. Copies of the Plan and
Prospectus containing information concerning the Plan are available on Tekelec’s internal website at Teksource.

You further acknowledge and agree that (i) you have carefully reviewed this SAR Award Agreement (including the SAR
Terms and Conditions attached hereto) and the Plan and (ii) this SAR Award Agreement and the Plan set forth the entire
understanding between you and the Company regarding these SARs and supersede all prior oral and written agreements
with respect thereto.

	 	 	 	 	 	 	 
	TEKELEC
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	By:
	 	 	 	 	 	 
	 

	 	 

	 	 
	 	 
 Date
	 
	 	 	 	 	 	 
	Print Name:
	 	 	 	 	 	 
	 

	 	 

	 	 
	 	 
	 
	 	 	 	 	 	 
	Title:
	 	 	 	 	 	 
	 

	 	 

	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 
           
Participant
	 	 	 	 
 Date

 

 

TEKELEC AMENDED AND RESTATED

2003 EQUITY INCENTIVE PLAN

SAR Award Agreement — Terms and Conditions

The following Terms and Conditions apply to the SARs granted by Tekelec (“Tekelec” or the
“Company”) to the Participant whose name appears on the SAR Award Agreement to which these Terms
and Conditions are attached (the “SARs”).

	1.	 	Amended and Restated 2003 Equity Incentive Plan. The SARs are in all respects subject to the
terms, definitions and provisions of the Tekelec Amended and Restated 2003 Equity Incentive
Plan (the “Plan”) adopted by the Company and incorporated herein by reference. The terms
defined in the Plan shall have the same meanings herein.
	 
	2.	 	Payment of SAR Amount. The SARS shall be payable in shares of the Company’s Common Stock
and, upon exercise of the SARs, in whole or in part, the Participant shall be entitled to
receive from the Company such number of Shares as is determined by multiplying (x) the excess
of the Fair Market Value of a Share on the date of exercise over the Grant Price times (y) the
number of Shares with respect to which the SAR Award is exercised, and dividing such product
by (z) the Fair Market Value of a Share on the date of exercise. The resulting number
(rounded down to the nearest whole number) shall be the number of Shares to be issued to the
Participant upon the exercise of the SARs. The Participant shall not be entitled to receive
any fractional Share or cash for any fractional Share as a result of any such rounding down
upon exercise of the SARs.
	 
	3.	 	Exercise of SARs. The SARs shall be exercisable during their term only in accordance with
the terms and provisions of the Plan and these Terms and Conditions as follows:

	 	(a)	 	Vesting. The SARs shall vest and be exercisable cumulatively as set forth on the
first page of this SAR Award Agreement. Provided the Participant has been in continuous
employment with the Company since the grant of these SARs, the Participant may exercise
the exercisable (i.e., vested) portion of his or her SARs in whole or in part at any
time during his or her employment; provided, however, that the SARs may
not be exercised for a fraction of a Share. In the event of the Participant’s
termination of employment with the Company or the Participant’s disability or death, the
provisions of Sections 7 or 8 below shall apply to the right of the Participant to
exercise the SARs.
	 
	 	(b)	 	Manner of Exercise. The SARs shall be exercisable by following such procedures
as may from time to time be prescribed by Tekelec or by any third party service provider
designated by the Company, including without limitation E*Trade Securities LLC
(“E*Trade”) in connection with an OptionsLink on-line securities account maintained by
the Participant with E*Trade as an employee of Tekelec.
	 
	 	(c)	 	No Shareholder Rights. No rights of a shareholder shall exist with respect to
the Shares under the SARs as a result of the mere grant of the SARs or the exercise of
the SARs. Such rights shall exist only after issuance of a stock certificate or
electronic transfer of the shares to the E*Trade account maintained by the Participant
in connection with his or her employment with Tekelec.
	 
	 	(d)	 	[Tandem SARs. Any of the SARs which are Tandem SARs may be exercised by the
Participant for all or part of the Shares subject to the related Option upon the
surrender of the right to exercise the equivalent portion of the related Option. A
Tandem SAR may be exercised only with respect to the Shares for which its related Option
is then exercisable.]

	4.	 	Delivery of Shares upon Exercise of SARs. The Company may make delivery of Shares upon
exercise of the SARs either by (i) delivering one or more stock certificates representing such
Shares to the Participant, registered in the name of the Participant, or (ii) depositing such
Shares into an account maintained for the Participant and established in connection with any
Company plan or arrangement providing for investment in Common Stock of the Company, including
without limitation any on-line securities account maintained by the Participant with E*Trade
in connection with his or her employment with Tekelec. All certificates for Shares and all
Shares shall be subject to such stop transfer orders and other restrictions as the Company may
deem advisable under the rules, regulations and other requirements of the Securities and
Exchange Commission, any stock exchange or quotation system upon which the Shares are then
listed or quoted, and any applicable Federal or state securities law, and the Company may
cause a legend or legends to be put on any such certificates (or other appropriate
restrictions and/or notations to be associated with any accounts in which such Shares are
held) to make appropriate reference to such restrictions.

2

 

	5.	 	Taxes.

	 	(a)	 	Responsibility of the Participant. The Participant is responsible for any taxes
required to be withheld under Federal, state or local law in connection with: (i) the
exercise of the SARs and the issuance and delivery of Shares to the Participant, or (ii)
any other event occurring pursuant to this SAR Award Agreement or the Plan
(collectively, “Taxes”). Any election pursuant to this Section 5 shall be made in
writing on such form or electronically in such manner (including through the
Participant’s on-line E*Trade account) as shall be prescribed by the Company for such
purpose.
	 
	 	(b)	 	Payment in Cash. The Participant may elect to pay to the Company an amount
sufficient to cover such Taxes by delivering to the Company a check or by such other
means as the Company may establish or permit.
	 
	 	(c)	 	Cashless Exercise. The Participant may also elect to pay the Company his or her
obligations for the payment of such Taxes through a special sale and remittance
procedure commonly referred to as a “cashless exercise” or “sell to cover” transaction
pursuant to which the Participant (or any other person(s) entitled to exercise the SARs)
shall concurrently provide irrevocable written instructions:

	 	(i)	 	to such third party service provider as may be designated by the
Company, including without limitation E*Trade (through the Participant’s on-line
account), to effect the immediate sale of a sufficient number of the Shares
acquired upon the exercise of the SARs to enable, such third party (e.g., E*Trade
or other designated third party) to remit, out of the sales proceeds available
upon the settlement date, sufficient funds to Tekelec to cover all applicable
federal, state and local income and employment taxes required to be withheld by
Tekelec by reason of such exercise and/or sale; and
	 
	 	(ii)	 	to Tekelec to deliver any certificate(s) or other evidence of
ownership for such sold Shares directly to such third party (e.g., E*Trade or
other designated third party) in order to complete the sale transaction.

	 	(d)	 	[Payment by Withholding of Shares.] [if authorized] Subject to approval by
Tekelec and compliance with any applicable legal conditions or restrictions, the
Participant may also elect to satisfy his or her obligations for the payment of such
Taxes by having the Company retain that number of whole Shares which would otherwise be
deliverable in connection with the exercise of the SARs and which have a Fair Market
Value sufficient to satisfy the amount of the Taxes required to be withheld. “Fair
Market Value” for this purpose shall be as determined in the Plan as of the applicable
date.
	 
	 	(e)	 	Company Rights. The Company also reserves the right, and the Participant
authorizes the Company, to withhold Taxes, in accordance with any applicable law, from
(i) any compensation or other amounts payable to the Participant and/or (ii) the Shares
otherwise issuable to the Participant upon exercise of the SARs.

	6.	 	Restrictions on Exercise. The SARs may not be exercised if the issuance of Shares upon
Participant’s exercise or the method of payment of consideration for such Shares would
constitute a violation of any applicable Federal or state securities law or other applicable
law or regulation. As a condition to the exercise of the SARs, the Company may require the
Participant to make any representation and warranty to the Company as may be required by any
applicable law or regulation.
	 
	7.	 	Termination of Employment. If the Participant ceases to serve as an Employee for any reason
other than death or permanent and total disability (within the meaning of Section 22(e)(3) of
the Code) and thereby terminates his or her employment, the Participant shall have the right
to exercise the SARs at any time within 90 days after the date of such termination to the
extent that the Participant was entitled to exercise the SARs at the date of such termination.
To the extent that the Participant was not entitled to exercise the SARs at the date of
termination, or to the extent the SARs are not exercised within the time specified herein, the
SARs shall terminate. Notwithstanding the foregoing, the SARs shall not be exercisable after
the expiration of the term set forth in Section 9 hereof.
	 
	8.	 	Death or Disability. If the Participant ceases to serve as an Employee due to death or
permanent and total disability (within the meaning of Section 22(e)(3) of the Code), the SARs
may be exercised at any time within 180 days after the date of death or termination of
employment due to disability, in the case of death, by the Participant’s estate or by a person
who acquired the right to exercise the SARs by bequest or inheritance, or, in the case of
disability, by the Participant, but in any case only to the extent the Participant was
entitled to exercise the SARs at the date of such termination. To the extent that the
Participant was not entitled to exercise the SARs at the date of termination, or to the extent
the SARs are not exercised within the time

3

 

	 	 	specified herein, the SARs shall terminate. Notwithstanding the foregoing, the SARs shall
not be exercisable after the expiration of the term set forth in Section 9 hereof.

	9.	 	Term of SARs. The SARs shall expire and terminate for all purposes at the close of business
on [                    , 20___], and may be exercised during such term only in accordance with the Plan
and the terms of the attached SAR Award Agreement; provided, however, that to
the extent a vested installment of the SARs is not exercised prior to such termination date,
such SARs shall expire and terminate with respect to such installment. Notwithstanding any
provision in the Plan with respect to the post-employment exercise of the SARs, a vested
installment of a SAR may not be exercised after the expiration of the term of the SARs.
	 
	10.	 	Nontransferability of SARs. No SAR may be sold, transferred, pledged, assigned or otherwise
alienated or hypothecated, other than by will or by the laws of descent and distribution or
transfer between spouses incident to a divorce. Subject to the foregoing and the terms of the
Plan, the terms of this SAR Award Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Participant.
	 
	11.	 	No Right of Employment. Neither the Plan nor the SARs shall confer upon the Participant any
right to continue in the employment of the Company or limit in any respect the right of the
Company to discharge the Participant at any time, with or without cause and with or without
notice.
	 
	12.	 	Miscellaneous.

	 	(a)	 	Successors and Assigns. This SAR Award Agreement shall bind and inure only to
the benefit of the parties to the attached SAR Award Agreement (the “Parties”) and their
respective successors and assigns.
	 
	 	(b)	 	No Third-Party Beneficiaries. Nothing in this SAR Award Agreement is intended to
confer any rights or remedies on any persons other than the Parties and their respective
successors or assigns. Nothing in this SAR Award Agreement is intended to relieve or
discharge the obligation or liability of third persons to any Party. No provision of
this SAR Award Agreement shall give any third person any right of subrogation or action
over or against any Party.
	 
	 	(c)	 	Amendments.

	 	(i)	 	The Committee reserves the right to amend the terms and provisions
of the SARs without the Participant’s consent in order to comply with any Federal
or state securities law.
	 
	 	(ii)	 	Except as specifically provided in subsection (i) above, this SAR
Award Agreement shall not be changed or modified, in whole or in part, except by
supplemental agreement signed by the Parties. Either Party may waive compliance
by the other Party with any of the covenants or conditions of this SAR Award
Agreement, but no waiver shall be binding unless executed in writing by the Party
making the waiver. No waiver or any provision of this SAR Award Agreement shall
be deemed, or shall constitute, a waiver of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver. Any consent under
this SAR Award Agreement shall be in writing and shall be effective only to the
extent specifically set forth in such writing.

	 	(d)	 	Governing Law. To the extent that Federal laws do not otherwise control, the
Plan and all determinations made or actions taken pursuant hereto shall be governed by
the laws of the State of California, without regard to the conflict of laws rules
thereof.
	 
	 	(e)	 	Severability. If any provision of this SAR Award Agreement or the application of
such provision to any person or circumstances is held invalid or unenforceable, the
remainder of this SAR Award Agreement, or the application of such provision to persons
or circumstances other than those as to which it is held invalid or unenforceable, shall
not be affected thereby.

* * * *

4exv10w1

Exhibit 10.1

FOURTH AMENDED AND RESTATED

CREDIT AGREEMENT

AMONG

PARALLEL PETROLEUM CORPORATION,

AS BORROWER,

AND

CITIBANK, N.A.

AND THE INSTITUTIONS NAMED HEREIN,

AS LENDERS,

AND

CITIBANK, N.A.

AS JOINT LEAD ARRANGER AND

ADMINISTRATIVE AGENT,

AND

BNP PARIBAS,

AS JOINT LEAD ARRANGER AND

SYNDICATION AGENT

May 16, 2008

 

 

Table of Contents

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	Page
	 
	1.	 	Definitions	 	 	1	 
	2.	 	Commitments of the Lenders	 	 	12	 
	 

	 	(a)
	 	Revolving Loans
	 	 	12	 
	 

	 	(b)
	 	Ratable Loans
	 	 	13	 
	 

	 	(c)
	 	Procedure for Borrowing
	 	 	13	 
	 

	 	(d)
	 	Letters of Credit
	 	 	14	 
	 

	 	(e)
	 	Procedure for Obtaining Letters of Credit
	 	 	15	 
	 

	 	(f)
	 	Voluntary Reduction of Commitment
	 	 	15	 
	 

	 	(g)
	 	Several Obligations
	 	 	16	 
	 

	 	(h)
	 	Type and Number of Advances
	 	 	16	 
	3.	 	Notes Evidencing Loans	 	 	16	 
	 

	 	(a)
	 	Form of Notes
	 	 	16	 
	 

	 	(b)
	 	Issuance of Additional Notes
	 	 	16	 
	 

	 	(c)
	 	Interest Rates
	 	 	16	 
	 

	 	(d)
	 	Payment of Interest
	 	 	17	 
	 

	 	(e)
	 	Payment of Principal
	 	 	17	 
	 

	 	(f)
	 	Payment to Lenders
	 	 	17	 
	 

	 	(g)
	 	Sharing of Payments, Etc.
	 	 	17	 
	 

	 	(h)
	 	Non-Receipt of Funds by the Agent
	 	 	18	 
	4.	 	Interest Rates.	 	 	18	 
	 

	 	(a)
	 	Options
	 	 	18	 
	 

	 	(b)
	 	Interest Rate Determination
	 	 	19	 
	 

	 	(c)
	 	Conversion Option
	 	 	19	 
	 

	 	(d)
	 	Recoupment
	 	 	19	 
	 

	 	(e)
	 	Interest Rates Applicable After Default
	 	 	20	 
	5.	 	Special Provisions Relating to Loans	 	 	20	 
	 

	 	(a)
	 	Unavailability of Funds or Inadequacy of Pricing
	 	 	20	 
	 

	 	(b)
	 	Change in Laws
	 	 	20	 
	 

	 	(c)
	 	Increased Cost or Reduced Return
	 	 	21	 
	 

	 	(d)
	 	Discretion of Lender as to Manner of Funding
	 	 	23	 
	 

	 	(e)
	 	Breakage Fees
	 	 	23	 
	6.	 	Collateral Security	 	 	24	 
	7.	 	Borrowing Base	 	 	25	 
	 

	 	(a)
	 	Initial Borrowing Base
	 	 	25	 
	 

	 	(b)
	 	Subsequent Determinations of Borrowing Base
	 	 	25	 
	 

	 	(c)
	 	Subsequent Unscheduled Redeterminations of Borrowing Base
	 	 	25	 
	 

	 	(d)
	 	Other Determinations of the Borrowing Base
	 	 	26	 
	 

	 	(e)
	 	Evaluation Factors
	 	 	26	 

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	 	 	 	 	 	 	 	Page
	 
	 

	 	(f)
	 	Required Percentage of Lenders
	 	 	26	 
	 

	 	(g)
	 	Automatic Reductions of Borrowing Base
	 	 	26	 
	8.	 	Fees	 	 	27	 
	 

	 	(a)
	 	Letter of Credit Fee
	 	 	27	 
	 

	 	(b)
	 	Borrowing Base Determination Fee
	 	 	27	 
	 

	 	(c)
	 	Unused Commitment Fee
	 	 	27	 
	 

	 	(d)
	 	Facility Fee
	 	 	27	 
	 

	 	(e)
	 	Agency and Arrangement Fee
	 	 	27	 
	9.	 	Prepayments	 	 	27	 
	 

	 	(a)
	 	Voluntary Prepayments
	 	 	27	 
	 

	 	(b)
	 	Mandatory Collateral or Prepayment For Borrowing Base Deficiency
	 	 	28	 
	10.	 	Representations and Warranties	 	 	28	 
	 

	 	(a)
	 	Creation and Existence
	 	 	28	 
	 

	 	(b)
	 	Power and Authority
	 	 	28	 
	 

	 	(c)
	 	Binding Obligations
	 	 	29	 
	 

	 	(d)
	 	No Legal Bar or Resultant Lien
	 	 	29	 
	 

	 	(e)
	 	No Consent
	 	 	29	 
	 

	 	(f)
	 	Financial Condition
	 	 	29	 
	 

	 	(g)
	 	Liabilities
	 	 	29	 
	 

	 	(h)
	 	Litigation
	 	 	29	 
	 

	 	(i)
	 	Taxes; Governmental Charges
	 	 	30	 
	 

	 	(j)
	 	Titles, Etc.
	 	 	30	 
	 

	 	(k)
	 	Defaults
	 	 	30	 
	 

	 	(l)
	 	Casualties; Taking of Properties
	 	 	30	 
	 

	 	(m)
	 	Use of Proceeds; Margin Stock
	 	 	30	 
	 

	 	(n)
	 	Location of Business and Offices
	 	 	31	 
	 

	 	(o)
	 	Compliance with the Law
	 	 	31	 
	 

	 	(p)
	 	No Material Misstatements
	 	 	31	 
	 

	 	(q)
	 	Not A Utility
	 	 	31	 
	 

	 	(r)
	 	ERISA
	 	 	32	 
	 

	 	(s)
	 	Public Utility Holding Company Act
	 	 	32	 
	 

	 	(t)
	 	Subsidiaries
	 	 	32	 
	 

	 	(u)
	 	Environmental Matters
	 	 	32	 
	 

	 	(v)
	 	Liens
	 	 	32	 
	 

	 	(w)
	 	Investment Company Act
	 	 	32	 
	 

	 	(x)
	 	Maintenance of Properties
	 	 	32	 
	 

	 	(y)
	 	Gas Imbalances, Prepayments
	 	 	33	 
	 

	 	(z)
	 	General
	 	 	33	 
	11.	 	Conditions of Lending	 	 	34	 
	12.	 	Affirmative Covenants	 	 	37	 
	 

	 	(a)
	 	Financial Statements and Reports
	 	 	37	 

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	 	 	 	 	 	 	 	Page
	 
	 

	 	(b)
	 	Certificates of Compliance
	 	 	38	 
	 

	 	(c)
	 	Accountants’ Certificate
	 	 	39	 
	 

	 	(d)
	 	Taxes and Other Liens
	 	 	39	 
	 

	 	(e)
	 	Compliance with Laws
	 	 	39	 
	 

	 	(f)
	 	Further Assurances
	 	 	39	 
	 

	 	(g)
	 	Performance of Obligations
	 	 	39	 
	 

	 	(h)
	 	Insurance
	 	 	40	 
	 

	 	(i)
	 	Accounts and Records
	 	 	40	 
	 

	 	(j)
	 	Right of Inspection
	 	 	40	 
	 

	 	(k)
	 	Notice of Certain Events
	 	 	41	 
	 

	 	(l)
	 	ERISA Information and Compliance
	 	 	41	 
	 

	 	(m)
	 	Environmental Reports and Notices
	 	 	41	 
	 

	 	(n)
	 	Compliance and Maintenance
	 	 	42	 
	 

	 	(o)
	 	Operation of Properties
	 	 	42	 
	 

	 	(p)
	 	Compliance with Leases and Other Instruments
	 	 	42	 
	 

	 	(q)
	 	Certain Additional Assurances Regarding Maintenance and
Operations of Properties
	 	 	43	 
	 

	 	(r)
	 	Sale of Certain Assets/Prepayment of Proceeds
	 	 	43	 
	 

	 	(s)
	 	Title Matters
	 	 	43	 
	 

	 	(t)
	 	Curative Matters
	 	 	44	 
	 

	 	(u)
	 	Change of Principal Place of Business
	 	 	44	 
	 

	 	(v)
	 	Additional Collateral
	 	 	44	 
	 

	 	(w)
	 	Crude Oil and Natural Gas Hedging
	 	 	45	 
	 

	 	(x)
	 	Indenture
	 	 	45	 
	 

	 	(y)
	 	Existence; Conduct of Business
	 	 	45	 
	13.	 	Negative Covenants	 	 	45	 
	 

	 	(a)
	 	Negative Pledge
	 	 	46	 
	 

	 	(b)
	 	Current Ratio
	 	 	46	 
	 

	 	(c)
	 	Funded Debt Ratio
	 	 	46	 
	 

	 	(d)
	 	Adjusted Consolidated Net Worth
	 	 	46	 
	 

	 	(e)
	 	Subsidiaries; Consolidations and Mergers
	 	 	46	 
	 

	 	(f)
	 	Debts, Guaranties and Other Obligations
	 	 	47	 
	 

	 	(g)
	 	Dividend and Distributions
	 	 	48	 
	 

	 	(h)
	 	Loans and Advances
	 	 	48	 
	 

	 	(i)
	 	Receivables and Payables
	 	 	48	 
	 

	 	(j)
	 	Nature of Business
	 	 	48	 
	 

	 	(k)
	 	Transactions with Affiliates
	 	 	48	 
	 

	 	(l)
	 	Rate Management Transactions
	 	 	48	 
	 

	 	(m)
	 	Investments
	 	 	49	 
	 

	 	(n)
	 	Amendment to Organizational Documents
	 	 	50	 
	 

	 	(o)
	 	ERISA Compliance
	 	 	50	 
	 

	 	(p)
	 	Accounting Method and Fiscal Year
	 	 	50	 

-iii-

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	Page
	 
	 

	 	(q)
	 	Issuance of Equity Interests
	 	 	50	 
	 

	 	(r)
	 	Senior Unsecured Debt
	 	 	50	 
	 

	 	(s)
	 	Limitation on Leases
	 	 	51	 
	14.	 	Events of Default	 	 	51	 
	15.	 	The Agent and the Lenders	 	 	54	 
	 

	 	(a)
	 	Appointment and Authorization
	 	 	54	 
	 

	 	(b)
	 	Note Holders
	 	 	55	 
	 

	 	(c)
	 	Consultation with Counsel
	 	 	55	 
	 

	 	(d)
	 	Documents
	 	 	55	 
	 

	 	(e)
	 	Resignation or Removal of Agent
	 	 	55	 
	 

	 	(f)
	 	Responsibility of Agent
	 	 	56	 
	 

	 	(g)
	 	Independent Investigation
	 	 	57	 
	 

	 	(h)
	 	Indemnification
	 	 	58	 
	 

	 	(i)
	 	Benefit of Section 15
	 	 	58	 
	 

	 	(j)
	 	Pro Rata Treatment
	 	 	58	 
	 

	 	(k)
	 	Assumption as to Payments
	 	 	59	 
	 

	 	(l)
	 	Other Financings
	 	 	59	 
	 

	 	(m)
	 	Interests of Lenders
	 	 	59	 
	 

	 	(n)
	 	Investments
	 	 	60	 
	 

	 	(o)
	 	Delegation to Affiliates
	 	 	60	 
	 

	 	(p)
	 	Execution of Collateral Documents
	 	 	60	 
	 

	 	(q)
	 	Collateral Releases
	 	 	60	 
	 

	 	(r)
	 	Internal Revenue Service Forms
	 	 	60	 
	 

	 	(s)
	 	Syndication Agent
	 	 	61	 
	16.	 	Exercise of Rights	 	 	61	 
	17.	 	Notices	 	 	61	 
	18.	 	Expenses	 	 	62	 
	19.	 	Indemnity	 	 	63	 
	20.	 	Non-Liability of Lenders	 	 	63	 
	21.	 	Governing Law	 	 	64	 
	22.	 	Invalid Provisions	 	 	64	 
	23.	 	Maximum Interest Rate	 	 	64	 
	24.	 	Amendments	 	 	65	 
	25.	 	Multiple Counterparts	 	 	65	 
	26.	 	Conflict	 	 	65	 
	27.	 	Survival	 	 	65	 
	28.	 	Parties Bound	 	 	65	 
	29.	 	Assignments and Participations	 	 	66	 
	30.	 	Choice of Forum: Consent to Service of Process and Jurisdiction	 	 	67	 
	31.	 	Waiver of Jury Trial	 	 	68	 
	32.	 	Other Agreements	 	 	68	 
	33.	 	Financial Terms	 	 	68	 

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	 	 	 	 	 	 	 	Page
	 
	34.	 	Communications Via Internet	 	 	68	 
	35.	 	Amendment and Restatement	 	 	69	 
	36.	 	USA Patriot Act Notice	 	 	69	 

	 	 	 	 	 	 	 
	Exhibits	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Exhibit “A”
	 	-
	 	Notice of Borrowing
	 

	 	Exhibit “B”
	 	-
	 	Revolving Note
	 

	 	Exhibit “C”
	 	-
	 	Certificate of Compliance
	 

	 	Exhibit “D”
	 	-
	 	Assignment and Acceptance Agreement
	 
	 	 	 	 	 	 
	Schedules	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Schedule “1”
	 	-
	 	Liens
	 

	 	Schedule “2”
	 	-
	 	Financial Condition
	 

	 	Schedule “3”
	 	-
	 	Liabilities
	 

	 	Schedule “4”
	 	-
	 	Litigation
	 

	 	Schedule “5”
	 	-
	 	Gas Imbalances; Prepayments
	 

	 	Schedule “6”
	 	-
	 	Title Matters
	 

	 	Schedule “7”
	 	-
	 	Curative Matters

-v-

 

FOURTH AMENDED AND RESTATED CREDIT AGREEMENT

     THIS FOURTH AMENDED AND RESTATED CREDIT AGREEMENT (hereinafter referred to as this
“Agreement”) executed as of the 16th day of May, 2008, is by and among PARALLEL PETROLEUM
CORPORATION, a Delaware corporation (“Borrower”), and CITIBANK, N.A., a national banking
association (“Citibank”), and each of the financial institutions which is a party hereto (as
evidenced by the signature pages to this Agreement) or which may from time to time become a party
hereto pursuant to the provisions of Section 29 hereof or any successor or assignee thereof
(hereinafter collectively referred to as “Lenders”, and individually, “Lender”), and Citibank, as
Joint Lead Arranger and as Administrative Agent (“Agent”) and BNP Paribas, as Joint Lead Arranger
and as Syndication Agent (“Syndication Agent”).

WITNESSETH:

     WHEREAS, Borrower has requested that the Lenders provide Borrower with a $600,000,000
revolving credit facility and the Lenders are willing to make such facility available to Borrower,
subject to the terms and conditions set forth in this Agreement.

     NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the
parties hereby agree as follows:

     1. Definitions. When used herein the terms “Agent”, “Agreement”, “Borrower”, “Citibank”,
“Lender”, “Lenders” and “Syndication Agent” shall have the meanings indicated above. When used
herein the following terms shall have the following meanings:

     Adjusted Consolidated Net Worth shall mean Borrower’s consolidated stockholders’
equity, as determined in accordance with GAAP, excluding the cumulative effect of any change in
accounting principles after December 31, 2007, and the after-tax net effect of any non-recurring
non-cash charges after December 31, 2007, including, without limitation, any charges under
Financial Accounting Standards Board Statement Nos. 133 and 144, as amended, supplemented or
modified from time to time.

     Advance means a borrowing hereunder (i) made to Borrower by some or all of the Lenders
on the same Borrowing Date, or (ii) converted or continued by the Lenders on the same date of
conversion or continuation, consisting, in either case, of the aggregate amount of the several
Loans of the same type and, in the case of LIBOR Loans, for the same Interest Period.

     Affiliate means any Person which, directly or indirectly, controls, is controlled by
or is under common control with the relevant Person. For the purposes of this definition,
“control” (including, with correlative meanings, the terms “controlled by” and “under common
control with”), as used with respect to any Person, shall mean a member of the board of directors,
a partner or an officer of such Person, or any other Person with possession, directly or
indirectly,

-1-

 

of the power to direct or cause the direction of the management and policies of such
Person, through the ownership (of record, as trustee, or by proxy) of voting shares, partnership
interests or voting rights, through a management contract or otherwise. Any Person owning or
controlling directly or indirectly ten percent or more of the voting shares, partnership interests or
voting rights, or other equity interest of another Person shall be deemed to be an Affiliate of
such Person.

     Alternate Base Rate means, as of any date, a rate of interest per annum equal to the
higher of (i) the Base Rate for such date, or (ii) the sum of the Federal Funds Effective Rate for
such date plus one-half of one percent (.50%) per annum.

     Assignment and Acceptance means a document substantially in the form of Exhibit
“D” hereto.

     Available Commitment means, at any time, the Commitment then in effect minus the Total
Outstandings.

     Base Rate shall mean the fluctuating rate of interest per annum established and
announced from time to time by Citibank, N.A. as its prime rate (which is not necessarily the
lowest rate charged to any customer). Each change in the Base Rate shall become effective without
prior notice to Borrower automatically as of the opening of business on the date of any change in
said prime rate.

     Base Rate Loans shall mean any loan during any period which bears interest based upon
the Alternate Base Rate or which would bear interest based upon the Alternate Base Rate if neither
the Maximum Rate ceiling nor the minimum 4.75% floor rate under Section 4(a)(i) hereof was in
effect at that particular time.

     Base Rate Margin means zero percent (0%) per annum.

     Borrowing Base shall mean the value assigned by the Lenders from time to time to the
Oil and Gas Properties or other Collateral pursuant to Section 7 hereof.

     Borrowing Base Deficiency is used herein as defined in Section 9(b) hereof.

     Borrowing Base Usage shall mean, as of any date, the Total Outstandings divided by the
Borrowing Base.

     Borrowing Date means the date elected by Borrower pursuant to Section 2(c) hereof for
an Advance on the Loan.

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     Business Day shall mean (i) with respect to any borrowing, payment or note selection
of LIBOR Loans, a day (other than Saturdays or Sundays) on which banks are legally open for
business in Midland, Texas and New York, New York and on which dealings in United States dollars
are carried on in the London interbank market, and (ii) for all other purposes a day (other than
Saturdays and Sundays) on which banks are legally open for business in Midland, Texas.

     Change of Control shall occur (i) if a majority of the individuals comprising the
Board of Directors of Borrower as of the Effective Date shall either resign, be declared
incompetent or otherwise be removed (voluntarily or involuntarily) or cease to serve as members of
the Board of Directors of Borrower, (ii) upon the acquisition of beneficial ownership (within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended, the “1934 Act”) of an
aggregate of 35% or more of the Voting Power of Borrower’s outstanding Voting Securities by any
person or group (as such term is used in Rule 13d-5 under the 1934 Act), and/or (iii) upon the
sale, lease, transfer, conveyance or other disposition (other than by way of merger or
consolidation), in one or a series of related transactions, of all or substantially all of the
assets of Borrower and its Subsidiaries taken as a whole to any “person” (as such term is used in
Sections 13(d) and 14(d) of the 1934 Act). For purposes of the definition of “Change of Control,”
“Voting Securities” means all securities of a company entitling the holders thereof to vote in an
election of directors (without consideration of the rights of any class of stock other than the
common stock to elect directors by a separate class vote); and a specified percentage of the
“Voting Power” of a company means such number of the Voting Securities as will enable the holders
thereof to cast such percentage of all the votes which could be cast in an election of directors
(without consideration of the rights of any class of stock other than the common stock to elect
directors by a separate class vote).

     Collateral is used herein as defined in Section 6 hereof.

     Commitment means (A) for all Lenders, the lesser of (i) $600,000,000 or (ii)
the Borrowing Base, as reduced or increased from time to time pursuant to Sections 2 and 7 hereof,
and (B) as to any Lender, its obligation to make Advances hereunder in amounts not exceeding, in
the aggregate, an amount equal to such Lender’s Commitment Percentage times the total Commitment as
of any date. The Commitment of each Lender hereunder shall be adjusted from time to time to
reflect assignments made by such Lender pursuant to Section 29 hereof. Each reduction in the
Commitment shall result in a Pro Rata reduction in each Lender’s Commitment.

     Commitment Percentage means for each Lender the percentage set forth opposite the
Lender’s name on the signature page hereto. The Commitment Percentage of each Lender hereunder
shall be adjusted from time to time to reflect assignments made by such Lender pursuant to Section
29 hereof.

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     Consolidated Current Assets means the total of the consolidated current assets
determined in accordance with GAAP, including as of any date, the Available Commitment, but
excluding the after tax net effect of any non-recurring non-cash charges after December 31, 2007,
under Financial Accounting Standards Board Statement No. 133, as amended, supplemented or modified
from time to time.

     Consolidated Current Liabilities means the total of consolidated current obligations
as determined in accordance with GAAP, excluding therefrom, as of any date, current maturities due
on the Loans and the Senior Unsecured Notes, and excluding the after tax net effect of any
non-recurring non-cash charges after December 31, 2007, under Financial Accounting Standards Board
Statement No. 133, as amended, supplemented or modified from time to time.

     Consolidated EBITDA means for any period, Borrower’s consolidated earnings during such
period from continuing operations, before provision for interest expenses, income taxes,
depreciation, depletion, amortization, gains and losses on asset sales and other non-cash charges.

     Consolidated Funded Debt means as of any date, Borrower’s total outstanding
liabilities for borrowed money and other interest-bearing liabilities on such date, determined in
each case on a consolidated basis in accordance with GAAP.

     Consolidated Net Income shall mean Borrower’s consolidated net income after income
taxes calculated in accordance with GAAP.

     Current Ratio means the ratio of Consolidated Current Assets for the date or period
being measured to the Consolidated Current Liabilities for such date or period.

     Default means all the events specified in Section 14 hereof, regardless of whether
there shall have occurred any passage of time or giving of notice, or both, that would be necessary
in order to constitute such event as an Event of Default.

     Default Rate shall mean a default rate of interest determined in accordance with
Section 4(e) hereof.

     Defaulting Lender is used herein as defined in Section 3(f) hereof.

     Effective Date means the date of this Agreement.

     Eligible Assignee means any of (i) a Lender or any Affiliate of a Lender; (ii) a
commercial bank organized under the laws of the United States, or any state thereof, and having a
combined capital and surplus of at least $100,000,000; (iii) a commercial bank organized under the
laws of any other country which is a member of the Organization for Economic Cooperation

-4-

 

and
Development, or a political subdivision of any such country, and having a combined capital and
surplus of at least $100,000,000, provided that such bank is acting through a branch or agency
located in the United States; (iv) a Person that is primarily engaged in the business of commercial
lending and that (A) is a subsidiary of a Lender, (B) a subsidiary of a Person of which a Lender is
a subsidiary, or (C) a Person of which a Lender is a subsidiary; (v) any other entity (other than a
natural person) which is an “accredited investor” (as defined in Regulation D under the Securities
Act) which extends credit or buys loans as one of its businesses, including, but not limited to,
insurance companies, mutual funds, investments funds and lease financing companies; and (vi) with
respect to any Lender that is a fund that invests in loans, any other fund
that invests in loans and is managed by the same investment advisor of such Lender or by an
Affiliate of such investment advisor (and treating all such funds so managed as a single Eligible
Assignee); provided, however, that no Affiliate of Borrower shall be an Eligible Assignee.

     Engineered Value is used herein as defined in Section 6 hereof.

     Environmental Laws means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42
U.S.C.A. §9601, et seq., the Resource Conservation and Recovery Act, as amended by
the Hazardous Solid Waste Amendment of 1984, 42 U.S.C.A. §6901, et seq., the Clean
Water Act, 33 U.S.C.A. §1251, et seq., the Clean Air Act, 42 U.S.C.A. §1251, et
seq., the Toxic Substances Control Act, 15 U.S.C.A. §2601, et seq., The Oil
Pollution Act of 1990, 33 U.S.G. §2701, et seq., and all other laws, statutes,
codes, acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, orders,
permits and restrictions of any federal, state, county, municipal and other governments,
departments, commissions, boards, agencies, courts, authorities, officials and officers, domestic
or foreign, relating to oil pollution, air pollution, water pollution, noise control and/or the
handling, discharge, disposal or recovery of on-site or off-site asbestos, radioactive materials,
spilled or leaked petroleum products, distillates or fractions and industrial solid waste or
“hazardous substances” as defined by 42 U.S.C. § 9601, et seq., as amended, as each
of the foregoing may be amended from time to time.

     Environmental Liability means any claim, demand, obligation, cause of action, order,
violation, damage, injury, judgment, penalty or fine, cost of enforcement, cost of remedial action
or any other costs or expense whatsoever, including reasonable attorneys’ fees and disbursements,
resulting from the violation or alleged violation of any Environmental Law or the release of any
substance into the environment which is required to be remediated by a regulatory agency or
governmental authority or the imposition of any Environmental Lien (as hereinafter defined), which
could reasonably be expected to individually or in the aggregate have a Material Adverse Effect.

     Environmental Lien means a Lien in favor of any court, governmental agency or
instrumentality or any other Person (i) for any Environmental Liability or (ii) for damages arising

-5-

 

from or cost incurred by such court or governmental agency or instrumentality or other person in
response to a release or threatened release of asbestos or “hazardous substance” into the
environment, the imposition of which Lien could reasonably be expected to have a Material Adverse
Effect.

     ERISA means the Employee Retirement Income Security Act of 1974, as amended.

     Event of Default is used herein as defined in Section 14 hereof.

     Federal Funds Effective Rate shall mean, for any day, an interest rate per annum equal
to the weighted average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as published for such
day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the
Federal Reserve Bank of Dallas, Texas, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10:00 a.m. (Dallas, Texas time) on
such day on such transactions received by the Agent from three (3) Federal funds brokers of
recognized standing selected by the Agent in its sole discretion.

     Financial Statements means balance sheets, income statements, statements of cash flow
and appropriate footnotes and schedules, prepared in accordance with GAAP.

     GAAP means generally accepted accounting principles, consistently applied.

     Hagerman Gas Gathering System means Hagerman Gas Gathering System, a Texas joint
venture created pursuant to that certain Joint Venture Agreement dated as of January 16, 2007, to
be effective from and after April 1, 2006, among Borrower, Feagan Gathering Company and Capstone
Oil and Gas Company, L.P.

     Indenture means that certain Indenture dated as of July 31, 2007, between Borrower, as
Issuer, and Wells Fargo Bank, National Association, as Trustee, as the same may be amended,
modified or restated from time to time.

     Interest Payment Date shall mean the last day of each calendar month in the case of
Base Rate Loans and, in the case of LIBOR Loans, the last day of the applicable Interest Period,
and if such Interest Period is longer than three (3) months, at three (3) month intervals following
the first day of such Interest Periods.

     Interest Period shall mean with respect to any LIBOR Loan (i) initially, the period
commencing on the date such LIBOR Loan is made and ending one (1), two (2), three (3), six (6) or
twelve (12) months (if, at the date of any such election, a six (6) or twelve (12) month placement
is available to the Agent) thereafter as selected by the Borrower pursuant to Section

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4(a)(ii), and
(ii) thereafter, each period commencing on the day following the last day of the next preceding
Interest Period applicable to such LIBOR Loan and ending one (1), two (2), three (3), six (6) or
twelve (12) months (if, at the date of any such election, a six (6) month or twelve (12) month
placement is available to the Agent) thereafter, as selected by the Borrower pursuant to Section
4(a)(ii); provided, however, that (i) if any Interest Period would otherwise expire on a day which
is not a Business Day, such Interest Period shall expire on the next succeeding Business Day unless
the result of such extension would be to extend such Interest Period into the next calendar month,
in which case such Interest Period shall end on the immediately preceding Business Day, (ii) if any
Interest Period begins on the last Business Day of a calendar month (or on a day for which there is
no numerically corresponding day in the calendar month at the end of such Interest Period) such
Interest Period shall end on the last Business Day of a calendar month, and (iii) any Interest
Period which would otherwise expire after the Maturity Date shall end on such Maturity Date.

     Letters of Credit is used herein as defined in Section 2(d) hereof.

     LIBOR Base Rate shall mean the offered rate for the period equal to or greater than
the Interest Period for U.S. dollar deposits of not less than $1,000,000 as of 11:00 a.m. City of
London, England time two (2) Business Days prior to the first day of the Interest Period as shown
on the display designated as “British Bankers Association Interest Settlement Rates” on Reuter’s
for the purpose of displaying such rate. In the event such rate is not available on Reuter’s, then
such offered rate shall be otherwise independently determined by the Agent from an alternate,
substantially independent source available to Agent or shall be calculated by Agent by
substantially similar methodology as that theretofore used to determine such offered rate.

     LIBOR Loans means any loans during any period which bear interest at the LIBOR Rate,
or which would bear interest at such rate if the Maximum Rate ceiling was not in effect at a
particular time.

     LIBOR Margin means:

     (a) two and one-half percent (2.50%) per annum whenever the Borrowing Base
Usage is equal to or greater than 75%; or

     (b) two and one-quarter percent (2.25%) per annum whenever the Borrowing Base
Usage is equal to or greater than 50%, but less than 75%; or

     (c) two percent (2.00%) per annum whenever the Borrowing Base Usage is less
than 50%.

-7-

 

     LIBOR Rate means, with respect to a LIBOR Loan for the relevant Interest Period, the
higher of (A) four and three-fourths percent (4.75%) per annum, or (B) the sum of (i) the quotient
of the LIBOR Base Rate applicable to such Interest Period, divided by one minus the Reserve
Requirement (expressed as a decimal) applicable to such Interest Period, plus (ii) the LIBOR
Margin. The LIBOR Rate shall be rounded to the next higher multiple of 1/100th of one percent if
the rate is not such a multiple.

     Lien means any mortgage, deed of trust, pledge, security interest, assignment,
encumbrance or lien (statutory or otherwise) of every kind and character.

     Loan Documents means this Agreement, the Notes, the Security Instruments and all other
documents executed by Borrower or any Subsidiary and delivered to the Agent or the Lenders in
connection with the transactions described in this Agreement.

     Loans means the Revolving Loans.

     Majority Lenders means Lenders holding 66-2/3% or more of the Commitments or if one or
more of the Commitments have been terminated, Lenders holding 66-2/3% of the outstanding Loans.

     Material Adverse Effect shall mean a material adverse effect on (i) the assets or
properties, liabilities, financial condition, business, operations, affairs or circumstances of
Borrower and its Subsidiaries taken as a whole, (ii) the ability of Borrower or any Subsidiary to
carry out its businesses as of the date of this Agreement or as proposed at the date of this
Agreement to be conducted, (iii) the ability of Borrower or any Subsidiary to perform fully and on
a timely basis its obligations under any of the Loan Documents, or (iv) the validity or
enforceability of any of the Loan Documents or the rights and remedies of the Agent or the Lenders
thereunder.

     Maturity Date shall mean December 31, 2013.

     Maximum Rate means at any particular time in question, the maximum non-usurious rate
of interest which under applicable law may then be charged on the Notes. If such Maximum Rate
changes after the date hereof, the Maximum Rate shall be automatically increased or deceased, as
the case may be, without notice to Borrower from time to time as of the effective date of each
change in such Maximum Rate.

     Notes means the Revolving Notes, substantially in the form of Exhibit “B”
hereto issued or to be issued hereunder to each Lender, respectively, to evidence the indebtedness
to such Lender arising by reason of the Advances on the Commitment, together with all
modifications, renewals and extensions thereof or any part thereof.

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     Notice of Borrowing is used herein as defined in Section 2(c) hereof.

     Oil and Gas Properties means all oil, gas and mineral properties and interests and
related personal properties, in which Borrower or any Subsidiary now or hereafter owns an interest.

     Other Financing is used herein as defined in Section 15(l) hereof.

     Payor is used herein as defined in Section 3(h) hereof.

     Permitted Liens shall mean (i) royalties, overriding royalties, reversionary
interests, production payments and similar burdens to the extent the same do not reduce Borrower’s
or any Subsidiary’s net revenue interest in the Oil and Gas Properties to an interest below that
represented to Agent and Lenders; (ii) sales contracts or other arrangements for the sale of
production of oil, gas or associated liquid or gaseous hydrocarbons which would not (when
considered cumulatively with the matters discussed in clause (i) above) deprive Borrower or any
Subsidiary of any material right in respect of its assets or properties (except for rights
customarily granted with respect to such contracts and arrangements); (iii) statutory Liens for
taxes or other assessments that are not yet delinquent (or that, if delinquent, are being contested
in good faith by appropriate proceedings, levy and execution thereon having been stayed and
continue to be stayed and for which Borrower or any Subsidiary has set aside on its books adequate
reserves in accordance with GAAP); (iv) easements, rights of way, servitudes, permits,
surface leases and other rights in respect to surface operations, pipelines, grazing, logging,
canals, ditches, reservoirs or the like, conditions, covenants and other restrictions, and
easements of streets, alleys, highways, pipelines, telephone lines, power lines, railways and other
easements and rights of way on, over or in respect of Borrower’s or any Subsidiary’s assets or
properties and that do not individually or in the aggregate cause a Material Adverse Effect; (v)
materialmen’s, mechanic’s, repairman’s, employee’s, vendor’s, laborer’s warehousemen’s, landlord’s,
carrier’s, pipeline’s, contractor’s, sub-contractor’s, operator’s, non-operator’s (arising under
operating or joint operating agreements), and other Liens (including any financing statements filed
in respect thereof) incidental to obligations incurred by Borrower or any Subsidiary in connection
with the construction, maintenance, development, transportation, processing, storage or operation
of Borrower’s or any Subsidiary’s assets or properties to the extent not delinquent (or which, if
delinquent, are being contested in good faith by appropriate proceedings and for which Borrower or
any Subsidiary, as applicable, has set aside on its books adequate reserves in accordance with
GAAP); (vi) all contracts, agreements and instruments, and all defects and irregularities and other
matters affecting Borrower’s or any Subsidiary’s assets and properties which were in existence at
the time such assets and properties were originally acquired by it and all routine operational
agreements entered into in the ordinary course of business, which contracts, agreements,
instruments, defects, irregularities and other matters and routine operational agreements are not
such as to, individually or in the aggregate, interfere materially

-9-

 

with the operation, value or use
of Borrower’s or any Subsidiary’s assets and properties, considered in the aggregate; (vii) Liens
in connection with workmen’s compensation, unemployment insurance or other social security, old age
pension or public liability obligations; (viii) legal or equitable encumbrances deemed to exist by
reason of the existence of any litigation or other legal proceeding or arising out of a judgment or
award with respect to which an appeal is being prosecuted in good faith and levy and execution
thereon have been stayed and continue to be stayed; (ix) rights reserved to or vested in any
municipality, governmental, statutory or other public authority to control or regulate Borrower’s
or any Subsidiary’s assets and properties in any manner, and all applicable laws, rules and orders
from any governmental authority; (x) landlord’s Liens; (xi) Liens incurred pursuant to the Security
Instruments or Rate Management Transactions with any Lender or an Affiliate of any Lender; (xii)
Liens granted on certificates of deposit to secure Borrower’s or any Subsidiary’s regulatory
operator bonding requirements, not to exceed secured amounts in excess of $1,000,000 in the
aggregate at any time, and (xiii) Liens existing at the date of this Agreement which are identified
in Schedule 1 hereto. Provided, however, that the definition of the term “Permitted Liens”
does not include Liens of any kind or character which are prior by perfection to Liens on the
Collateral held by Agent, or which may, by operation of law, become prior to such Liens held by
Agent.

     Permitted Property Sales means sales of Oil and Gas Properties between scheduled
determinations of the Borrowing Base having an aggregate value, based upon the then most current
oil and gas reserve engineering report required pursuant to Section 12(a)(iii) hereof, not
exceeding the lesser of (i) five percent (5%) of the value of all of Borrower’s and Subsidiaries’
proved producing crude oil and natural gas reserves as of the effective date of such reserve
engineering report, or (ii) $20,000,000.

     Person means an individual, a corporation, a partnership, an association, a trust or
any other entity or organization, including a government or political subdivision or an agency or
instrumentality thereof.

     Plan means any plan subject to Title IV of ERISA and maintained by Borrower or any
Subsidiary, or any such plan to which Borrower or any Subsidiary is required to contribute on
behalf of its employees.

     Prior Credit Agreement means that certain Third Amended and Restated Credit Agreement
dated as of December 23, 2005, by and among Borrower, Citibank, as Agent, and Citibank and the
other lender parties thereto, as Lenders, as amended by First Amendment to Third Amended and
Restated Credit Agreement dated as of August 18, 2006, by Second Amendment to Third Amended and
Restated Credit Agreement dated as of July 10, 2007, by Third Amendment to Third Amended and
Restated Credit Agreement dated as of July 31, 2007, by Fourth Amendment to Third Amended and
Restated Credit Agreement dated as of November

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30, 2007, and by Fifth Amendment to Third Amended
and Restated Credit Agreement dated as of March 11, 2008.

     Pro Rata or Pro Rata Part means for each Lender, (i) for all purposes where no Loan is
outstanding, such Lender’s Commitment Percentage and (ii) otherwise, the proportion which the
portion of the outstanding Loans owed to such Lender bears to the aggregate outstanding Loans owed
to all Lenders at the time in question.

     Rate Management Transaction means any transaction (including an agreement with respect
thereto) now existing or hereafter entered into by Borrower or any Subsidiary which is a rate swap,
basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index
swap, equity or equity index option, bond option, interest rate option, forward exchange
transaction, cap transaction, floor transaction, collar transaction, forward transaction, currency
swap transaction, cross-currency rate swap transaction, currency option or any other similar
transaction (including any option with respect to any of these transactions) or any combination
thereof, whether linked to one or more interest rates, foreign currencies, commodity prices, equity
prices or other financial measures.

     Regulation D shall mean Regulation D of the Board of Governors of the Federal Reserve
System as from time to time in effect and any successor thereto and other regulation or official
interpretation of said Board of Governors relating to reserve requirements applicable to member
banks of the Federal Reserve System.

     Reimbursement Obligations shall mean at any time, the obligations of Borrower or any
Subsidiary in respect of all Letters of Credit then outstanding to reimburse amounts paid by any
Lender in respect of any drawing or drawings under a Letter of Credit.

     Required Payment is used herein as defined in Section 3(h) hereof.

     Reserve Requirement means, with respect to any Interest Period, the maximum aggregate
reserve requirement (including all basic, supplemental, marginal and other reserves) which is
imposed under Regulation D on Eurocurrency liabilities.

     Revolving Loan or Loans means an Advance or Advances made pursuant to Section 2(a)
hereof.

     Security Instruments is used collectively herein to mean this Agreement, all Deeds of
Trust, Mortgages, Line of Credit Mortgages, Security Agreements, Assignments of Production and
Financing Statements and other collateral documents covering certain of the Oil and Gas Properties
and related personal property, equipment, oil and gas inventory and proceeds of the foregoing, all
guaranties, all pledge agreements, all security agreements and all collateral

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assignments of notes
and liens executed as security for the Loans, all such documents to be in form and substance
reasonably satisfactory to Agent.

     Senior Unsecured Debt means all obligations owed by Borrower pursuant to the
Indenture, the Senior Unsecured Notes or any related document or instrument, as the same may be
amended, modified or restated from time to time.

     Senior Unsecured Notes means the Senior Unsecured Notes issued by Borrower pursuant to
the Indenture, as the same may be renewed, extended, modified or amended from time to time.

     Subsidiary means (a) any Person of which at least a majority of the outstanding
securities or other ownership interests having by the terms thereof ordinary voting power to elect
a majority of the board of directors, managers or other governing body of such Person is at any
time, directly or indirectly, owned or controlled by Borrower or a Subsidiary, and (b) any
partnership of which Borrower or any Subsidiary is a general partner, provided that Hagerman Gas
Gathering System shall not be a Subsidiary for purposes of this Agreement.

     Total Outstandings means, at any time, the sum of (i) the total principal balance
outstanding on the Revolving Loans, plus (ii) the total face amount of all outstanding Letters of
Credit, plus (iii) the amount of all unpaid Reimbursement Obligations.

     Tranche means a set of LIBOR Loans made by the Lenders at the same time and for the
same Interest Period.

     Unscheduled Redeterminations means a redetermination of the Borrowing Base made at any
time other than on the dates set for the regular redetermination of the Borrowing Base which are
made (A) at the request of Borrower (but only once each six (6) month period), or (B) at the
reasonable request of Majority Lenders, or (C) at any time that Agent or Majority Lenders
determine, in their sole discretion that either (i) there has been a material decrease in the value
of the Collateral, or (ii) an event has occurred which could cause a Material Adverse Effect.

     2. Commitments of the Lenders.

     (a) Revolving Loans. On the terms and conditions hereinafter set forth, each
Lender agrees severally to make Advances to Borrower from time to time during the period
beginning on the Effective Date and ending on the Maturity Date in such amounts as Borrower
may request up to an amount not to exceed, in the aggregate principal amount advanced at any
time, its Pro Rata Part of the Available Commitment. Subject to the terms of this
Agreement, Borrower may borrow, repay and reborrow at any time prior to the Maturity Date.
The obligation of Borrower hereunder shall be evidenced by this Agreement and the Notes
issued in connection herewith, said Notes to be as described in

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Section 3 hereof.
Notwithstanding any other provision of this Agreement, no Advance shall be required to be
made hereunder if any Default or Event of Default has occurred and is continuing. Each
Advance under the Commitment shall be an aggregate amount of at least $1,000,000 or any
whole multiples of $100,000 in excess thereof. Irrespective of the face amount of the Note
or Notes, the Lenders shall never have the obligation to Advance any amount or amounts in
excess of the Commitment or to increase the Commitment.

     (b) Ratable Loans. Each Advance hereunder shall consist of Revolving Loans
made from the several Lenders ratably in proportion to the ratio that their respective
Commitments bear to the total of all Commitments.

     (c) Procedure for Borrowing. Whenever Borrower desires an Advance under the
Commitment, it shall give Agent telegraphic, telex, facsimile or telephonic notice (“Notice
of Borrowing”) of such requested Advance, which in the case of telephonic notice, shall be
promptly confirmed in writing. Each Notice of Borrowing shall be in the form of Exhibit
“A” attached hereto and shall be received by Agent not later than 11:00 a.m. Midland,
Texas time, (i) one (1) Business Day prior to the Borrowing Date in the case of Base Rate
Loans, or (ii) two (2) Business Days prior to any proposed Borrowing Date in the case of
LIBOR Loans. Each Notice of Borrowing shall specify (i) the Borrowing Date (which shall be
a Business Day), (ii) the principal amount to be borrowed, (iii) the portion of the Advance
constituting Base Rate Loans and/or LIBOR Loans and (iv) if any portion of the proposed
Advance is to constitute LIBOR Loans, the initial Interest Period selected by Borrower
pursuant to Section 4 hereof to be applicable thereto. Upon receipt of such Notice, Agent
shall advise each Lender thereof; provided, that if the Lenders have received at least one
(1) day’s notice of such Advance prior to funding of a Base Rate Loan, or at least two (2)
days’ notice of each Advance prior to funding in the case of a LIBOR Loan, each Lender shall
provide Agent at its office at 1004 N. Big Spring, Suite 121, Midland, Texas 79701, not
later than 1:00 p.m., Midland, Texas time, on the Borrowing Date, in immediately available
funds, its Pro Rata Part of the requested Advance, but the aggregate of all such fundings by
each Lender shall never exceed such Lender’s Commitment. Not later than
2:00 p.m., Midland, Texas time, on the Borrowing Date, Agent shall make available to
the Borrower at the same office, in like funds, the aggregate amount of such requested
Advance. Neither Agent nor any Lender shall incur any liability to the Borrower in acting
upon any Notice of Borrowing referred to above which Agent or such Lender believes in good
faith to have been given by a duly authorized officer or other person authorized to borrow
on behalf of Borrower or for otherwise acting in good faith under this Section 2(c). Upon
funding of Advances by Lenders and such funds being made available to Borrower in accordance
with this Agreement, pursuant to any such Notice, the Borrower shall have effected Advances
hereunder.

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     (d) Letters of Credit. On the terms and conditions hereinafter set forth, the
Agent, or an Affiliate of Agent, shall from time to time during the period beginning on the
Effective Date and ending on the Maturity Date upon request of Borrower or a Subsidiary
issue standby Letters of Credit for the account of Borrower or a Subsidiary (the “Letters of
Credit”) in such face amounts as Borrower or a Subsidiary may request, but not to exceed in
the aggregate face amount at any time outstanding the sum of Two Million and No/100 Dollars
($2,000,000.00). The face amount of all Letters of Credit issued and outstanding hereunder
shall be considered as Advances on the Commitment for Borrowing Base purposes and all
payments made by the Agent, or any issuing Affiliate of Agent, on such Letters of Credit
shall be considered as Advances under the Notes. Each Letter of Credit issued for the
account of Borrower or a Subsidiary hereunder shall (i) be in favor of such beneficiaries as
are specifically requested by Borrower or a Subsidiary for purposes of securing Borrower’s
or a Subsidiary’s obligations associated with its oil and gas operations and activities, or
securing Borrower’s or a Subsidiary’s obligations in connection with Rate Management
Transactions permitted under this Agreement, (ii) have an expiration date not exceeding the
earlier of (a) one year or (b) the Maturity Date, and (iii) contain such other terms and
provisions as may be required by Agent. Each Lender (other than Agent, except in cases
where an Affiliate of Agent is the issuer) agrees that, upon issuance of any Letter of
Credit hereunder, it shall automatically acquire a participation in the Agent’s, or its
issuing Affiliate’s, liability under such Letter of Credit in an amount equal to such
Lender’s Commitment Percentage of such liability, and each Lender (other than Agent, except
in cases where an Affiliate of Agent is the issuer) thereby shall absolutely,
unconditionally and irrevocably assume, as primary obligor and not as surety, and shall be
unconditionally obligated to Agent, or its issuing Affiliate, to pay and discharge when due,
its Commitment Percentage of Agent’s, or its issuing Affiliate’s, liability under such
Letter of Credit. Borrower hereby unconditionally agrees to pay and reimburse the Agent, or
its issuing Affiliate, for the amount of each demand for payment under any Letter of Credit
that is in compliance with the provisions of any such Letter of Credit at or prior to the
date on which payment is to be made by the Agent, or its issuing Affiliate, to the
beneficiary thereunder, without presentment, demand, protest or other formalities of any
kind. Upon receipt from any beneficiary of any Letter of Credit of any demand for payment
under such Letter of Credit, the Agent shall promptly notify the Borrower of the demand and
the date upon which such payment is to be made by the Agent, or its issuing
Affiliate, to such beneficiary in respect of such demand. Forthwith upon receipt of
such notice from the Agent, Borrower shall advise the Agent whether or not Borrower intends
to borrow hereunder to finance its obligations to reimburse the Agent, or its issuing
Affiliate, and if so, submit a Notice of Borrowing as provided in Section 2(c) hereof. If
Borrower fails to so advise Agent and thereafter fails to reimburse Agent, or its issuing
Affiliate, the Agent shall notify each Lender of the demand and the failure of the

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Borrower
to reimburse the Agent, or its issuing Affiliate, and each Lender shall reimburse the Agent,
or its issuing Affiliate, for its Commitment Percentage of each such draw paid by the Agent,
or its issuing Affiliate, and unreimbursed by the Borrower. All such amounts paid by Agent,
or its issuing Affiliate, and/or reimbursed by the Lenders shall be treated as an Advance or
Advances under the Commitment, which Advances shall be immediately due and payable and shall
bear interest at the Maximum Rate.

     (e) Procedure for Obtaining Letters of Credit. The amount and date of
issuance, renewal, extension or reissuance of a Letter of Credit pursuant to the Lenders’
commitments above in Section 2(d) shall be designated by Borrower’s or a Subsidiary’s
written request delivered to Agent at least three (3) Business Days prior to the date of
such issuance, renewal, extension or reissuance. Concurrently with or promptly following
the delivery of the request for a Letter of Credit, the Borrower or Subsidiary shall execute
and deliver to the Agent, or its issuing Affiliate, documentation required by Agent or its
issuing Affiliate with respect to the Letter of Credit. Neither the Agent nor any Affiliate
of Agent shall be obligated to issue, renew, extend or reissue such Letter of Credit if (A)
the amount thereon when added to the face amount of the outstanding Letters of Credit plus
any Reimbursement Obligations exceeds Two Million and No/100 Dollars ($2,000,000.00) or (B)
the amount thereof when added to the Total Outstandings would exceed the Commitment.
Borrower agrees to pay the Agent, or its issuing Affiliate, for the benefit of the Lenders
commissions for issuing the Letters of Credit (calculated separately for each Letter of
Credit) in an amount equal to the greater of (i) the LIBOR Margin in effect per annum at the
time of issuance times the maximum face amount of the Letter of Credit (calculated on the
basis of actual days elapsed or a year consisting of 360 days) or (ii) $500.00. In
addition, Borrower agrees to pay to the Agent, or its issuing Affiliate, for its own account
an additional commission of one-quarter of one percent (.25%) times the maximum face amount
of such Letter of Credit for issuing each such Letter of Credit. Such commissions shall be
payable prior to the issuance of each Letter of Credit and thereafter on each anniversary
date of such issuance while such Letter of Credit is outstanding.

     (f) Voluntary Reduction of Commitment. Subject to the provisions of Section
5(e) hereof, Borrower may at any time, or from time to time, upon not less than three (3)
Business Days’ prior written notice to Agent, reduce or terminate the Commitment; provided,
however, that (i) each reduction in the Commitment must be in the amount of $1,000,000 or
more, in increments of $100,000 and (ii) each reduction must be accompanied by a prepayment
of
the Notes in the amount by which the outstanding principal balance of the Notes exceeds
the Commitment as reduced pursuant to this Section 2(f).

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     (g) Several Obligations. The obligations of the Lenders under the Commitment
are several and not joint. The failure of any Lender to make an Advance required to be made
by it shall not relieve any other Lender of its obligation to make its Advance, and no
Lender shall be responsible for the failure of any other Lender to make the Advance to be
made by such other Lender. No Lender shall be required to lend hereunder any amount in
excess of its legal lending limit.

     (h) Type and Number of Advances. Any Advance on the Commitment may be a Base
Rate Loan or a LIBOR Loan, or a combination thereof, as selected by the Borrower pursuant to
Section 4 hereof. The total number of Tranches which may be outstanding at any time shall
never exceed four (4).

     3. Notes Evidencing Loans. The loans described above in Section 2 shall be evidenced by
promissory notes of Borrower as follows:

     (a) Form of Notes. The Revolving Loan shall be evidenced by a Note or Notes in
the aggregate face amount of $600,000,000, and the Note or Notes shall be in the form of
Exhibit “B” hereto with appropriate insertions. Notwithstanding the face amount of
the Notes, the actual principal amount due from the Borrower to Lenders on account of the
Notes, as of any date of computation, shall be the sum of Advances then and theretofore made
on account thereof, less all principal payments actually received by Lenders in collected
funds with respect thereto. Although the Notes may be dated as of the Effective Date,
interest in respect thereof shall be payable only for the period during which the loans
evidenced thereby are outstanding and, although the stated amount of the Notes may be
higher, the Notes shall be enforceable, with respect to Borrower’s obligation to pay the
principal amount thereof, only to the extent of the unpaid principal amount of the Revolving
Loans. Irrespective of the face amount of the Notes, no Lender shall ever be obligated to
advance on the Commitment any amount in excess of its Commitment then in effect.

     (b) Issuance of Additional Notes. At the Effective Date there shall be
outstanding Note or Notes in the aggregate face amount of $600,000,000 payable to the order
of Lenders. From time to time new Notes may be issued to other Lenders as such Lenders
become parties to this Agreement. Upon request from Agent, Borrower shall execute and
deliver to Agent any such new or additional Notes. From time to time as new Notes are
issued the Agent shall require that each Lender exchange its Note(s) for newly issued
Note(s) to better reflect the extent of each Lender’s Commitments hereunder.

     (c) Interest Rates. The unpaid principal balance of the Notes shall bear
interest from time to time as set forth in Section 4 hereof.

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     (d) Payment of Interest. Interest on the Notes shall be payable on each
Interest Payment Date.

     (e) Payment of Principal. Principal of the Revolving Loans shall be due and
payable to the Agent for the ratable benefit of the Lenders on the Maturity Date unless
earlier due in whole or in part as a result of an acceleration of the amount due or pursuant
to the mandatory prepayment provisions of Section 9(b) hereof.

     (f) Payment to Lenders. Each Lender’s Pro Rata Part of payment or prepayment
of the Loans shall be directed by wire transfer to such Lender by the Agent at the address
provided to the Agent for such Lender for payments no later than 2:00 p.m., Midland, Texas,
time on the Business Day such payments or prepayments are deemed hereunder to have been
received by Agent; provided, however, in the event that any Lender shall have failed to make
an Advance as contemplated under Section 2 hereof (a “Defaulting Lender”) and the Agent or
another Lender or Lenders shall have made such Advance, payment received by Agent for the
account of such Defaulting Lender or Lenders shall not be distributed to such Defaulting
Lender or Lenders until such Advance or Advances shall have been repaid in full to the
Lender or Lenders who funded such Advance or Advances. Any payment or prepayment received
by Agent at any time after 12:00 noon, Midland, Texas, time on a Business Day shall be
deemed to have been received on the next Business Day. Interest shall cease to accrue on
any principal as of the end of the day preceding the Business Day on which any such payment
or prepayment is deemed hereunder to have been received by Agent. If Agent fails to
transfer any principal amount to any Lender as provided above, then Agent shall promptly
direct such principal amount by wire transfer to such Lender.

     (g) Sharing of Payments, Etc. If any Lender shall obtain any payment (whether
voluntary, involuntary, or otherwise) on account of the Loans, (including, without
limitation, any set-off) which is in excess of its Pro Rata Part of payments on the Loans,
as the case may be, obtained by all Lenders, such Lender shall purchase from the other
Lenders such participation as shall be necessary to cause such purchasing Lender to share
the excess payment pro rata with each of them; provided that, if all or any portion of such
excess payment is thereafter recovered from such purchasing Lender, the purchase shall be
rescinded and the purchase price restored to the extent of the recovery. Borrower agrees
that any Lender so purchasing a participation from another Lender pursuant to this Section
may, to the fullest extent permitted by law, exercise all of its rights of payment
(including the right of offset) with respect to such participation as fully as if such
Lender were the direct creditor of Borrower in the amount of such participation.

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     (h) Non-Receipt of Funds by the Agent. Unless the Agent shall have been
notified by a Lender or the Borrower (the “Payor”) prior to the date on which such Lender is
to make payment to the Agent of the proceeds of a Loan to be made by it hereunder or
Borrower is to make a payment to the Agent for the account of one or more of the Lenders, as
the case may be (such payment being herein called the “Required Payment”), which notice
shall be effective upon receipt, that the Payor does not intend to make the Required Payment
to the Agent, the Agent may assume that the Required Payment has been made and may, in
reliance upon such assumption (but shall not be required to), make the amount thereof
available to the intended recipient on such date and, if the Payor has not in fact made the
Required Payment to the Agent, the recipient of such payment shall, on demand, pay to the
Agent the amount made available to it together with interest thereon in respect of the
period commencing on the date such amount was made available by the Agent until the date the
Agent recovers such amount at the rate applicable to such portion of the applicable Loan.

     4. Interest Rates.

     (a) Options.

     (i) Base Rate Loans. On all Base Rate Loans Borrower agrees to
pay interest on the Notes calculated on the basis of the actual days elapsed
in a year consisting of 365 days, or if appropriate, 366 days with respect
to the unpaid principal amount of each Base Rate Loan from the date the
proceeds thereof are made available to Borrower until maturity (whether by
acceleration or otherwise), at a varying rate per annum equal to the lesser
of (A) the Maximum Rate (defined herein), or (B) the greater of (i) four and
three-fourths percent (4.75%), or (ii) the sum of the Alternate Base Rate
plus the Base Rate Margin. Subject to the provisions of this Agreement as
to prepayment, the principal of the Notes representing Base Rate Loans shall
be payable as specified in Section 3(e) hereof and the interest in respect
of each Base Rate Loan shall be payable on each Interest Payment Date
applicable thereto. Past due principal and, to the extent permitted by law,
past due interest in respect to each Base Rate Loan, shall bear interest,
payable on demand, at a rate per annum equal to the Default Rate.

     (ii) LIBOR Loans. On all LIBOR Loans Borrower agrees to pay
interest calculated on the basis of a year consisting of 360 days with
respect to the unpaid principal amount of each LIBOR Loan from the date the
proceeds thereof are made available to Borrower until maturity (whether by
acceleration or otherwise), at a varying rate per annum equal

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to the lesser of (i) the Maximum Rate, or (ii) the LIBOR Rate. Subject to
the provisions of this Agreement with respect to prepayment, the
principal of the Notes shall be payable as specified in Section 3(e) hereof
and the interest with respect to each LIBOR Loan shall be payable on each
Interest Payment Date applicable thereto. Past due principal and, to the
extent permitted by law, past due interest shall bear interest, payable on
demand, at a rate per annum equal to the Default Rate. Upon two (2)
Business Days’ written notice prior to the making by the Lenders of any
LIBOR Loan (in the case of the initial Interest Period therefor) or the
expiration date of each succeeding Interest Period (in the case of
subsequent Interest Periods therefor), Borrower shall have the option,
subject to compliance by Borrower with all of the provisions of this
Agreement, as long as no Event of Default exists, to specify whether the
Interest Period commencing on any such date shall be a one (1), two (2),
three (3), six (6) or twelve (12) month period. If Agent shall not have
received timely notice of a designation of such Interest Period as herein
provided, Borrower shall be deemed to have elected to convert all maturing
LIBOR Loans to Base Rate Loans.

     (b) Interest Rate Determination. The Agent shall determine each interest rate
applicable to the Loans hereunder. The Agent shall give prompt notice to Borrower and the
Lenders of each rate of interest so determined and its determination thereof shall be
conclusive absent error.

     (c) Conversion Option. Borrower may elect from time to time (i) to convert all
or any part of its LIBOR Loans to Base Rate Loans by giving Agent irrevocable notice of such
election in writing prior to 10:00 a.m. (Midland, Texas time) on the conversion date and
such conversion shall be made on the requested conversion date, provided that any such
conversion of a LIBOR Loan shall only be made on the last day of the Interest Period with
respect thereof, (ii) to convert all or any part of its Base Rate Loans to LIBOR Loans by
giving the Agent irrevocable written notice of such election two (2) Business Days prior to
the proposed conversion and such conversion shall be made on the requested conversion date
or, if such requested conversion date is not a Business Day, on the next succeeding Business
Day. Any such conversion shall not be deemed to be a prepayment of any of the loans for
purposes of this Agreement or the Notes.

     (d) Recoupment. If at any time the applicable rate of interest selected
pursuant to Sections 4(a)(i) or 4(a)(ii) above shall exceed the Maximum Rate, thereby
causing the interest on the Notes to be limited to the Maximum Rate, then any subsequent
reduction in the interest rate so selected or subsequently selected shall not reduce the
rate of interest on the Notes below the Maximum Rate until the total amount of interest

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accrued on the Notes equals the amount of interest which would have accrued on the Notes if
the rate or rates selected pursuant to Sections 4(a)(i) or (ii), as the case may be, had at
all times been in effect.

     (e) Interest Rates Applicable After Default. Notwithstanding anything to the
contrary contained in this Section 4, during the continuance of a Default or an Event of
Default the Majority Lenders may, at their option, by notice from Agent to Borrower (which
notice may be revoked at the option of the Majority Lenders notwithstanding the provisions
of Section 15 hereof, which requires all Lenders to consent to changes in interest rates)
declare that no Advance may be made as, converted into, or continued as a LIBOR Loan.
During the continuance of an Event of Default, the Majority Lenders, may, at their option,
by notice from Agent to Borrower (which notice may be revoked at the option of Majority
Lenders notwithstanding the provisions of Section 15 hereof, which requires all Lenders to
consent to changes in interest rates) declare that (i) each LIBOR Loan shall bear interest
for the remainder of the applicable Interest Period at the rate otherwise applicable to such
Interest Period plus four percent (4%) per annum and (ii) each Base Rate Loan shall bear
interest at the rate otherwise applicable to such Interest Period plus four percent (4%),
provided that, during the continuance of an Event of Default under Section 14(f) or 14(g),
the interest rate set forth in clauses (i) and (ii) above shall be applicable to all
outstanding Loans without any election or action on the part of the Agent or any Lender.

     5. Special Provisions Relating to Loans.

     (a) Unavailability of Funds or Inadequacy of Pricing. In the event that, in
connection with any proposed LIBOR Loan, the Agent reasonably determines, which
determination shall, absent manifest error, be final, conclusive and binding upon all
parties, due to changes in circumstances since the date hereof, adequate and fair means do
not exist for determining the LIBOR Rate or such rate will not accurately reflect the costs
to the Lenders of funding a LIBOR Loan for such Interest Period, the Agent shall give notice
of such determination to Borrower and the Lenders, whereupon, until the Agent notifies
Borrower and the Lenders that the circumstances giving rise to such suspension no longer
exist, the obligations of the Lenders to make, continue or convert Loans into a LIBOR Loan
shall be suspended, and all Loans to Borrower shall be Base Rate Loans during the period of
suspension.

     (b) Change in Laws. If at any time any new law or any change in existing laws
or in the interpretation of any new or existing laws shall make it unlawful for any Lender
to make or continue to maintain or fund LIBOR Loans hereunder, then such Lender shall
promptly notify Borrower in writing and such Lender’s obligation to make, continue or
convert Loans into LIBOR Loans under this Agreement shall be suspended

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until it is no longer unlawful for such Lender to make or maintain LIBOR Loans. Upon
receipt of such notice, Borrower shall either repay the outstanding LIBOR Loans owed to such
Lender, without penalty, on the last day of the current Interest Periods (or, if any Lender
may not lawfully continue to maintain and fund such LIBOR Loans, immediately), or Borrower
may convert such LIBOR Loans at such appropriate time to Base Rate Loans.

     (c) Increased Cost or Reduced Return.

     (i) If, after the date hereof, the adoption of any applicable law,
rule, or regulation, or any change in any applicable law, rule, or
regulation, or any change in the interpretation or administration thereof by
any governmental authority, central bank, or comparable agency charged with
the interpretation or administration thereof, or compliance by any Lender
with any request or directive (whether or not having the force of law) of
any such governmental authority, central bank, or comparable agency:

     (A) shall subject such Lender to any tax, duty, or
other charge with respect to any LIBOR Loans, its Notes, or
its obligation to make LIBOR Loans, or change the basis of
taxation of any amounts payable to such Lender under this
Agreement or its Notes in respect of any LIBOR Loan (other
than franchise taxes and taxes imposed on or measured by the
overall net income of such Lender);

     (B) shall impose, modify, or deem applicable any
reserve, special deposit, assessment, or similar requirement
(other than reserve requirements, if any, taken into account
in the determination of the LIBOR Rate) relating to any
extensions of credit or other assets of, or any deposits
with or other liabilities or commitments of, such Lender,
including the Commitment of such Lender hereunder; or

     (C) shall impose on such Lender or on the London
interbank market any other condition affecting this
Agreement or its Notes or any of such extensions of credit
or liabilities or commitments;

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and the result of any of the foregoing is to increase the cost to such
Lender of making, converting into, continuing, or maintaining any LIBOR Loan
or to reduce any sum received or receivable by such Lender under this
Agreement or its Notes with respect to any LIBOR Loan, then Borrower
shall pay to such Lender on demand such amount or amounts as will reasonably
compensate such Lender for such increased cost or reduction. If any Lender
requests compensation by Borrower under this Section 5(c), Borrower may, by
notice to such Lender (with a copy to Agent), suspend the obligation of such
Lender to make or continue LIBOR Loans, or to convert all or part of the
Base Rate Loans owing to such Lender to LIBOR Loans, until the event or
condition giving rise to such request ceases to be in effect (in which case
the provisions of Section 5(c) shall be applicable); provided that
such suspension shall not affect the right of such Lender to receive the
compensation so requested.

     (ii) If, after the date hereof, any Lender shall have reasonably
determined that the adoption of any applicable law, rule, or regulation
regarding capital adequacy or any change therein or in the interpretation or
administration thereof by any governmental authority, central bank, or
comparable agency charged with the interpretation or administration thereof,
or any request or directive regarding capital adequacy (whether or not
having the force of law) of any such governmental authority, central bank,
or comparable agency, has or would have the effect of reducing the rate of
return on the capital of such Lender or any corporation controlling such
Lender as a consequence of such Lender’s obligations hereunder to a level
below that which such Lender or such corporation could have achieved but for
such adoption, change, request, or directive (taking into consideration its
policies with respect to capital adequacy), then from time to time upon
demand Borrower shall pay to such Lender such additional amount or amounts
as will reasonably compensate such Lender for such reduction.

     (iii) Each Lender shall promptly notify Borrower and Agent of any event
of which it has knowledge, occurring after the date hereof, which will
entitle such Lender to compensation pursuant to this Section 5(c) and will
designate a separate lending office, if applicable, if such designation will
avoid the need for, or reduce the amount of, such compensation and will not,
in the judgment of such Lender, be otherwise disadvantageous to it. Any
Lender claiming compensation under this Section 5(c) shall furnish to
Borrower and Agent a statement setting forth the additional amount or
amounts to be paid to it hereunder which shall be

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conclusive in the absence
of manifest error. In determining such amount, such Lender may use any
reasonable averaging and attribution methods.

     (iv) Any Lender giving notice to Borrower through the Agent pursuant to
Section 5(c) shall give to Borrower a statement signed by an officer of such
Lender setting forth in reasonable detail the basis for, and the calculation
of such additional cost, reduced payments or capital
requirements, as the case may be, and the additional amounts required
to compensate such Lender therefor.

     (v) Within five (5) Business Days after receipt by Borrower of any
notice referred to in Section 5(c), Borrower shall pay to the Agent for the
account of the Lender issuing such notice such additional amounts as are
required to compensate such Lender for the increased cost, reduced payments
or increased capital requirements identified therein, as the case may be.

     (d) Discretion of Lender as to Manner of Funding. Notwithstanding any
provisions of this Agreement to the contrary, each Lender shall be entitled to fund and
maintain its funding of all or any part of its Loan in any manner it sees fit, it being
understood, however, that for the purposes of this Agreement all determinations hereunder
shall be made as if each Lender had actually funded and maintained each LIBOR Loan through
the purchase of deposits having a maturity corresponding to the last day of the Interest
Period applicable to such LIBOR Loan and bearing an interest rate at the applicable interest
rate for such Interest Period.

     (e) Breakage Fees. Without duplication under any other provision hereof, if
any Lender incurs any loss, cost or expense including, without limitation, any loss of
profit and loss, cost, expense or premium reasonably incurred by reason of the liquidation
or re-employment of deposits or other funds acquired by such Lender to fund or maintain any
LIBOR Loan or the relending or reinvesting of such deposits or amounts paid or prepaid to
the Lenders as a result of any of the following events other than any such occurrence as a
result in the change of circumstances described in Sections 5(a) and (b):

     (i) any payment, prepayment or conversion of a LIBOR Loan on a date
other than the last day of its Interest Period (whether by acceleration,
prepayment or otherwise);

     (ii) any failure to make a principal payment of a LIBOR Loan on the due
date thereof; or

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     (iii) any failure by Borrower to borrow, continue, prepay or convert to
a LIBOR Loan on the dates specified in a notice given pursuant to Section
2(c) or 4(c) hereof;

then Borrower shall pay to such Lender such amount as will reimburse such Lender for such
loss, cost or expense. If any Lender makes such a claim for compensation, it shall furnish
to Borrower and Agent a statement setting forth the amount of such loss, cost or expense in
reasonable detail (including an explanation of the basis for and the computation of such
loss, cost or expense) and the amounts shown on such statement shall be conclusive and
binding absent manifest error.

     6. Collateral Security. To secure the performance by Borrower or any Subsidiary of its
obligations hereunder, and under the Notes, Security Instruments and Rate Management Transactions
with any Lender or an Affiliate of any Lender, whether now or hereafter incurred, matured or
unmatured, direct or contingent, joint or several, or joint and several, including extensions,
modifications, renewals and increases thereof, and substitutions therefor, Borrower and each
Subsidiary has granted and assigned to Agent and/or shall herewith grant and assign to Agent for
the ratable benefit of the Lenders a first and prior Lien on certain of its Oil and Gas Properties,
certain related equipment, oil and gas inventory, as-extracted collateral and proceeds of the
foregoing. The Oil and Gas Properties heretofore or herewith mortgaged to the Agent by Borrower or
any Subsidiary shall represent (i) not less than 80% of the Engineered Value (as hereinafter
defined) of Borrower’s and each Subsidiary’s proved developed producing Oil and Gas Properties as
of the Effective Date, and (ii) not less than 80% of the Engineered Value of Borrower’s and each
Subsidiary’s other proved Oil and Gas Properties as of the Effective Date. Obligations arising
from Rate Management Transactions between Borrower or any Subsidiary and one or more of the Lenders
or an Affiliate of any of the Lenders shall be secured by the Collateral on a pari passu basis with
the indebtedness and obligations of Borrower or any Subsidiary under the Loan Documents. All Oil
and Gas Properties and other collateral in which Borrower or any Subsidiary herewith grants or
hereafter grants to Agent for the ratable benefit of the Lenders a first and prior Lien (to the
satisfaction of the Agent) in accordance with this Section 6, as such properties and interests are
from time to time constituted, are hereinafter collectively called the “Collateral”.

     The granting and assigning of such security interests and Liens by Borrower and each
Subsidiary shall be pursuant to Security Instruments in form and substance reasonably satisfactory
to the Agent. Concurrently with the delivery of each of the Security Instruments or within a
reasonable time thereafter, Borrower and each Subsidiary shall have furnished to the Agent mortgage
and title opinions and other title information reasonably satisfactory to Agent with respect to the
title and Lien status of its interests in not less than 80% of the Engineered Value of its
mortgaged Oil and Gas Properties. “Engineered Value” for this purpose shall mean future net
revenues discounted at the discount rate being used by the Agent as of the date of any

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such determination utilizing the pricing parameters used in the engineering report furnished to the
Agent pursuant to Sections 7 and 12 hereof. Borrower will cause to be executed and delivered to
the Agent, in the future, additional Security Instruments if the Agent reasonably deems such are
necessary to insure perfection or maintenance of Lenders’ security interests and Liens in not less
than 80% of the Engineered Value of the Oil and Gas Properties or in any of the other Collateral.

     7. Borrowing Base.

     (a) Initial Borrowing Base. At the Effective Date, the Borrowing Base shall be
$230,000,000.

     (b) Subsequent Determinations of Borrowing Base. Subsequent determinations of
the Borrowing Base shall be made by the Lenders semi-annually on or about April 1 and
October 1 of each year beginning October 1, 2008, or as Unscheduled Redeterminations. No
later than March 1 and September 1 of each year, beginning September 1, 2008, Borrower
shall, at its own expense, furnish to Lenders an engineering report covering the Oil and Gas
Properties in form and substance satisfactory to Agent and dated effective not more than
sixty (60) days prior to the delivery of the same to Lenders. Each such report shall be
prepared by an independent petroleum engineering firm acceptable to Agent, utilizing
economic pricing perameters used by Agent as established from time to time, together with
such other information, reports and data concerning the value of the Oil and Gas Properties
as Agent shall deem reasonably necessary to determine the value of such Oil and Gas
Properties. Agent shall by notice to Borrower no later than 45 days after its receipt of
the engineering report and all other information requested by Lenders (herein called a
“Determination Date”), notify Borrower of the designation by Lenders of the new Borrowing
Base for the period beginning on such Determination Date and continuing until, but not
including, the next Determination Date.

     (c) Subsequent Unscheduled Redeterminations of Borrowing Base. Within thirty
(30) days after either (i) receipt of notice from Agent that Lenders require an Unscheduled
Redetermination, or (ii) Borrower gives notice to Agent of its desire to have an Unscheduled
Redetermination performed, Borrower shall furnish to Lenders an engineering report in form
and substance satisfactory to Agent prepared by independent petroleum engineers acceptable
to Agent valuing the Oil and Gas Properties utilizing economic and pricing parameters used
by the Agent as established from time to time, together with such other information, reports
and data concerning the value of the Oil and Gas Properties as Agent shall deem reasonably
necessary to determine the value of such Oil and Gas Properties. If an Unscheduled
Redetermination is made by Lenders, the Agent shall notify Borrower within a reasonable time
after receipt of all requested

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information of the new Borrowing Base, and such new Borrowing
Base shall continue until the next Determination Date.

     (d) Other Determinations of the Borrowing Base. If Borrower does not furnish
all such information, reports and data by any date specified in Section 7(b) or 7(c), unless
such failure is of no fault of Borrower, Lenders may nonetheless designate the Borrowing
Base at any amounts which Lenders in their discretion determine and may redesignate the
Borrowing Base from time to time thereafter until Lenders receive all such information,
reports and data, whereupon Lenders shall designate a new Borrowing Base as described above.

     (e) Evaluation Factors. Each Lender shall determine the amount of the
Borrowing Base attributable to the Oil and Gas Properties based upon the loan collateral
value which such Lender in its discretion (using such methodology, assumptions and discount
rates as such Lender customarily uses in assigning collateral value to oil and gas
properties, oil and gas gathering systems, gas processing and plant operations) assigns
to such Oil and Gas Properties at the time in question and based upon such other credit
factors consistently applied (including, without limitation, the assets, liabilities, cash
flow, business, properties, prospects, management and ownership of Borrower and its
Affiliates) as such Lender customarily considers in evaluating similar oil and gas credits.

     (f) Required Percentage of Lenders. All determinations or Unscheduled
Redeterminations of the Borrowing Base require the approval of Majority Lenders, except that
any increase in the Borrowing Base requires the approval of all Lenders. If the Lenders
cannot otherwise agree on the Borrowing Base attributable to the Oil and Gas Properties,
each Lender shall submit in writing to the Agent its proposed Borrowing Base attributable to
the Oil and Gas Properties and the Borrowing Base attributable to the Oil and Gas Properties
shall be set on the basis of the lowest Borrowing Base attributable to the Oil and Gas
Properties proposed by any Lender.

     (g) Automatic Reductions of Borrowing Base. If at any time Oil and Gas
Properties having a value (based upon the then most current oil and gas reserve engineering
report required pursuant to Section 12(a)(iii) hereof) in excess of the amount of the
Permitted Property Sales are sold with the consent of Lenders, the Borrowing Base then in
effect shall automatically be reduced by the amount of such excess. The Borrowing Base
shall be additionally reduced from time to time pursuant to the provisions of Section 12(t)
hereof and as elsewhere provided herein. It is expressly understood that Agent and Lenders
have no obligation to designate the Borrowing Base at any particular amounts, except in the
exercise of their discretion, whether in relation to the Commitment of otherwise.

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     8. Fees.

     (a) Letter of Credit Fee. Borrower shall pay to Agent the Letter of Credit
fees required above in Section 2(e).

     (b) Borrowing Base Determination Fee. Borrower shall pay to Agent for the
ratable benefit of Lenders at the time Agent provides any notice required by Section 7, an
amount equal to three-eighths of one percent (.375%) of the amount of any increase in the
Borrowing Base upon a scheduled semi-annual determination of the Borrowing Base or an
Unscheduled Redetermination. The parties acknowledge and agree that such fee is intended as
reasonable compensation to Lenders for their time, effort and expense in determining the
Borrowing Base.

     (c) Unused Commitment Fee. Borrower shall pay to Agent for the ratable benefit
of the Lenders an unused commitment fee (the “Unused Commitment Fee”) in an amount equal to
one-quarter of one percent (.25%) times the daily average of the unadvanced amount of the
Commitment (i.e., the Commitment minus the Total Outstandings). Such Unused Commitment Fee
shall be calculated on the basis of a year
consisting of 360 days. The Unused Commitment Fee shall be payable quarterly in
arrears on the last day of each calendar quarter beginning June 30, 2008, with the first
payment being for the period from the Effective Date through June 30, 2008, and with the
final fee payment due on the Maturity Date for any period then ending for which the Unused
Commitment Fee shall not have been theretofore paid. In the event the Commitment terminates
on any date prior to the end of any such quarterly period, Borrower shall pay to the Agent
for the ratable benefit of the Lenders, on the date of such termination, the total Unused
Commitment Fee due for the period in which such termination occurs. If a date for payment
of the Unused Commitment Fee shall be other than a Business Day such payment shall be made
on the next succeeding Business Day.

     (d) Facility Fee. On the Effective Date Borrower shall pay to Agent for the
benefit of Lenders an aggregate facility fee in the amount of $638,041.85.

     (e) Agency and Arrangement Fee. Borrower shall pay to Agent for its own
account the fees described in the fee letter dated as of the Effective Date between Borrower
and Agent, at the times provided therein.

     9. Prepayments.

     (a) Voluntary Prepayments. Subject to the provisions of Section 5(e) hereof,
Borrower may at any time and from time to time, without penalty or premium, prepay the
Notes, in whole or in part. Each such prepayment shall be made on at least three (3)

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Business Days’ notice to Agent in the case of LIBOR Loan Tranches and without notice in the
case of Base Rate Loans and shall be in a minimum amount of (i) $1,000,000 or any whole
multiple of $100,000 in excess thereof (or the unpaid balance of the Notes, whichever is
less), for Base Rate Loans, plus accrued interest thereon, to the date of prepayment, and
(ii) $1,000,000 or any whole multiple of $100,000 in excess thereof (or the unpaid balance
of the Notes, whichever is less) for LIBOR Loans, plus accrued interest thereon to the date
of prepayment.

     (b) Mandatory Collateral or Prepayment For Borrowing Base Deficiency. In the
event the Total Outstandings ever exceed the Borrowing Base as determined by Lenders
pursuant to Section 7 hereof (a “Borrowing Base Deficiency”), Borrower shall, within thirty
(30) days after written notification from the Agent, either (A) by instruments reasonably
satisfactory in form and substance to the Agent, provide the Agent with collateral with
value and quality in amounts satisfactory to all of the Lenders in their discretion in order
to increase the Borrowing Base by an amount at least equal to such excess, (B) prepay,
without premium or penalty, the principal amount of the Notes in an amount at least equal to
such excess plus accrued interest thereon to the date of prepayment, or (C) eliminate the
Borrowing Base Deficiency through a combination of (A) and (B) above. If the Total
Outstandings ever exceed the Commitment as a result of any required reduction in the
Commitment pursuant to Section 7(g) hereof, then in such
event, Borrower shall immediately prepay the principal amount of the Notes in an amount
at least equal to such excess plus accrued interest to the date of prepayment.

     10. Representations and Warranties. In order to induce the Lenders to enter into this
Agreement, Borrower represents and warrants to the Lenders (which representations and warranties
will survive the delivery of the Notes) that:

     (a) Creation and Existence. Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and is duly qualified
and in good standing in the States of Texas, New Mexico and Utah and in all other
jurisdictions wherein failure to qualify may result in a Material Adverse Effect. Borrower
has all power and authority (corporate or otherwise) to own its properties and assets and to
transact the business in which it is engaged.

     (b) Power and Authority. Borrower is duly authorized and empowered to create
and issue the Notes and to execute, deliver and perform its obligations under the other Loan
Documents, including this Agreement; and all action (corporate or otherwise) on Borrower’s
part requisite for the due creation and issuance of the Notes and for the due execution,
delivery and performance of the other Loan Documents, including this Agreement, has been
duly and effectively taken.

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     (c) Binding Obligations. This Agreement does, and the Notes and other Loan
Documents upon their creation, issuance, execution and delivery will, constitute valid and
binding obligations of Borrower enforceable in accordance with their respective terms
(except that enforcement may be subject to general principles of equity and any applicable
bankruptcy, insolvency, or similar debtor relief laws now or hereafter in effect and
relating to or affecting the enforcement of creditors’ rights generally).

     (d) No Legal Bar or Resultant Lien. The Notes and the other Loan Documents,
including this Agreement, do not and will not, to the best of Borrower’s knowledge, violate
any provisions of any contract, agreement, law, regulation, order, injunction, judgment,
decree or writ to which Borrower is subject, or result in the creation or imposition of any
Lien or other encumbrance upon any assets or properties of Borrower, other than those
contemplated or permitted by this Agreement.

     (e) No Consent. The execution, delivery and performance by Borrower of the
Notes and the execution, delivery and performance by Borrower of the other Loan Documents,
including this Agreement, does not require the consent or approval of any other person or
entity, including without limitation any regulatory authority or governmental body of the
United States or any state or any political subdivision of the United States or any state
thereof, which consent has not been obtained.

     (f) Financial Condition. The consolidated Financial Statements of Borrower
dated as of December 31, 2007, which have been delivered to Lenders by Borrower are
complete and correct in all material respects and fully and accurately reflect in all
material respects the financial condition and results of operations of Borrower as of such
date and for the periods stated and no change in the condition, financial or otherwise, of
Borrower which is reasonably expected to have a Material Adverse Effect has occurred since
December 31, 2007, except as disclosed to Lenders in Schedule “2” attached hereto.

     (g) Liabilities. Borrower has no material liability, direct or contingent on
the Effective Date, except as disclosed to the Lenders in the Financial Statements or on
Schedule “3” attached hereto. No unusual or unduly burdensome restrictions,
restraint, or hazard exists by contract, law or governmental regulation or otherwise
relative to the business, assets or properties of Borrower which is reasonably expected to
have a Material Adverse Effect.

     (h) Litigation. Except as described in the Financial Statements, or as
otherwise disclosed to the Lenders in Schedule “4” attached hereto, on the Effective
Date there is no litigation, legal or administrative proceeding, investigation or other
action of any nature pending or, to the knowledge of the officers of Borrower, threatened
against or affecting Borrower or any Subsidiary which involves the possibility of any
judgment or

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liability not fully covered by insurance, and which is reasonably expected to
have a Material Adverse Effect.

     (i) Taxes; Governmental Charges. Borrower and each Subsidiary has filed all
tax returns and reports required to be filed and has paid all taxes, assessments, fees and
other governmental charges levied upon it or its assets, properties or income which are due
and payable, including interest and penalties, the failure of which to pay could reasonably
be expected to have a Material Adverse Effect, except such as are being contested in good
faith by appropriate proceedings and for which adequate reserves for the payment thereof as
required by GAAP has been provided and levy and execution thereon have been stayed and
continue to be stayed.

     (j) Titles, Etc. Borrower and each Subsidiary has good and defensible title to
all of its material assets, including without limitation, the Oil and Gas Properties and
other Collateral, free and clear of all Liens or other encumbrances except Permitted Liens.

     (k) Defaults. Neither Borrower nor any Subsidiary is in default and no event
or circumstance has occurred which, but for the passage of time or the giving of notice, or
both, would constitute a default under any loan or credit agreement, indenture, mortgage,
deed of trust, security agreement or other agreement or instrument to which Borrower or any
Subsidiary is a party in any respect that would be reasonably expected to have a Material
Adverse Effect. No Default or Event of Default hereunder has occurred and is continuing.

     (l) Casualties; Taking of Properties. Since the dates of the latest Financial
Statements of Borrower delivered to Lenders, neither the business nor the assets or
properties of Borrower has been affected (to the extent it is reasonably expected to cause a
Material Adverse Effect), as a result of any fire, explosion, earthquake, flood, drought,
windstorm, accident, strike or other labor disturbance, embargo, requisition or taking of
property or cancellation of contracts, permits or concessions by any domestic or foreign
government or any agency thereof, riot, activities of armed forces or acts of God or of any
public enemy.

     (m) Use of Proceeds; Margin Stock. The proceeds of the Commitment may be used
by Borrower for the purposes of (i) refinancing Borrower’s existing indebtedness with
Lenders, (ii) the acquisition, exploration and development of oil and gas properties, (iii)
working capital in Borrower’s oil and gas business, and (iv) the payment of fees associated
with the transaction contemplated by this Agreement. Borrower is not engaged principally or
as one of its important activities in the business of extending credit for the purpose of
purchasing or carrying any “margin stock” as defined in Regulation U

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of the Board of
Governors of the Federal Reserve System (12 C.F.R. Part 221), or for the purpose of reducing
or retiring any indebtedness which was originally incurred to purchase or carry a margin
stock or for any other purpose which might constitute this transaction a “purpose credit”
within the meaning of Regulation G or U of the Board of Governors of the Federal Reserve
System.

     Neither Borrower nor any Subsidiary, nor any person or entity acting on behalf of
Borrower or any Subsidiary, has taken or will take any action which might cause the loans
hereunder or any of the Loan Documents, including this Agreement, to violate Regulation G or
U or any other regulation of the Board of Governors of the Federal Reserve System or to
violate the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each
case as now in effect or as the same may hereafter be in effect.

     (n) Location of Business and Offices. The principal place of business and
chief executive offices of Borrower are located at the address as stated in Section 17
hereof.

     (o) Compliance with the Law. To the best of Borrower’s knowledge, neither
Borrower nor any Subsidiary:

     (i) is in violation of any law, judgment, decree, order, ordinance, or
governmental rule or regulation to which Borrower or any Subsidiary, or any
of their respective assets or properties are subject; or

     (ii) has failed to obtain any license, permit, franchise or other
governmental authorization necessary to the ownership of any of its
respective assets or properties or the conduct of its respective business.

     (p) No Material Misstatements. No information, exhibit or report furnished by
Borrower to the Lenders in connection with the negotiation of this Agreement contained any
material misstatement of fact or omitted to state a material fact or any fact necessary to
make the statements contained therein not materially misleading.

     (q) Not A Utility. Neither Borrower nor any Subsidiary is a utility as a
result of being engaged in the (i) generation, transmission, or distribution and sale of
electric power; (ii) transportation, distribution and sale through a local distribution
system of natural or other gas for domestic, commercial, industrial, or other use; (iii)
provision of telephone or telegraph service to others; (iv) production, transmission, or
distribution and sale of steam or water; (v) operation of a railroad; or (vii) provision of
sewer service to others.

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     (r) ERISA. Borrower and each Subsidiary is in compliance in all material
respects with the applicable provisions of ERISA, and no “reportable event”, as such term is
defined in Section 403 of ERISA, has occurred with respect to any Plan of Borrower or any
Subsidiary.

     (s) Public Utility Holding Company Act. Neither Borrower nor any Subsidiary is
a “holding company”, or “subsidiary company” of a “holding company”, or an “affiliate” of a
“holding company” or of a “subsidiary company” of a “holding company”, or a “public utility”
within the meaning of the Public Utility Holding Company Act of 1935, as amended.

     (t) Subsidiaries. As of the Effective Date, Borrower has no Subsidiaries.

     (u) Environmental Matters. As of the Effective Date neither Borrower nor any
Subsidiary (i) has received notice or otherwise learned of any Environmental Liability which
would be reasonably expected to individually or in the aggregate have a Material Adverse
Effect arising in connection with (A) any non-compliance with or violation of the
requirements of any Environmental Law or (B) the release or threatened release of any toxic
or hazardous waste into the environment, (ii) has received notice of any threatened or
actual liability in connection with the release or notice of any threatened release of any
toxic or hazardous waste into the environment which would be reasonably expected to
individually or in the aggregate have a Material Adverse Effect or (iii) has received notice
or otherwise learned of any federal or state investigation evaluating whether any remedial
action is needed to respond to a release or threatened release of any toxic or hazardous
waste into the environment for which Borrower or any Subsidiary is or may be liable which
would reasonably be expected to result in a Material Adverse Effect.

     (v) Liens. Except (i) as disclosed on Schedule “1” hereto and (ii) for
Permitted Liens, the assets and properties of Borrower and each Subsidiary are free and
clear of all Liens and encumbrances.

     (w) Investment Company Act. Neither Borrower nor any Subsidiary is an
“investment company,” or a company “controlled” by an “investment company” within the
meaning of the Investment Company Act of 1940, as amended.

     (x) Maintenance of Properties. Except for such acts or failures to act as
could not reasonably be expected to have a Material Adverse Effect, the Oil and Gas
Properties (and properties unitized therewith), to the Borrower’s knowledge prior to taking
over operations and as to all non-operated properties, have been maintained, operated and

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developed in a good and workmanlike manner and in conformity with all requirements of
governmental authorities and in conformity with the provisions of all leases, subleases or
other contracts comprising a part of the Oil and Gas Properties. Specifically in connection
with the foregoing, except as could not reasonably be expected to have a Material Adverse
Effect, (a) no Oil and Gas Property is subject to having allowable production reduced below
the full and regular allowable (including the maximum permissible tolerance) because of any
overproduction (whether or not the same was permissible at the time) and (b) none of the
wells comprising a part of the Oil and Gas Properties (or properties unitized therewith) is
deviated from the vertical more than the maximum permitted by governmental authorities, and
such wells are, in fact, bottomed under and are producing from, and the well bores are
wholly within, the Oil and Gas Properties (or in the case of wells located on properties
unitized therewith, such unitized properties). All pipelines, wells, gas processing plants,
platforms and other material improvements, fixtures and equipment owned in whole or in part
by the Borrower or any Subsidiary that are necessary to conduct normal operations on the Oil
and Gas Properties currently operated by the Borrower or any Subsidiary or, to the
Borrower’s knowledge prior to taking over operations and as to all non-operated properties,
are being maintained in a state adequate to conduct normal operations, and with respect to
such of the foregoing which are operated by the Borrower or any Subsidiary, in a manner
consistent with the Borrower’s or such Subsidiary’s past practices (other than those the
failure of which to maintain in accordance with this Section 10(x) could not reasonably be
expected to have a Material Adverse Effect).

     (y) Gas Imbalances, Prepayments. As of the date hereof, except as set forth on
Schedule 5, on a net basis there are no gas imbalances, take or pay or other
prepayments which would require the Borrower or any Subsidiary to deliver hydrocarbons
produced from the Oil and Gas Properties at some future time without then or thereafter
receiving full payment therefor exceeding 500,000 Mcf of gas (on an Mcf equivalent basis) in
the aggregate.

     (z) General. As of the Effective Date, there are no significant material facts
or conditions relating to the Loans, the Loan Documents, any of the Collateral, or the
financial condition or business of Borrower or any Subsidiary that could, collectively
or individually, have a Material Adverse Effect and that have not been related, in writing,
to Lenders as an attachment to this Agreement; and all writings heretofore or hereafter
exhibited or delivered to Lenders by or on behalf of Borrower or any Subsidiary are and will
be genuine and in all material respects what they purport and appear to be.

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     11. Conditions of Lending.

     (a) The effectiveness of this Agreement, and the obligation to make the initial Advance or
issue any initial Letter of Credit under the Commitment shall be subject to satisfaction of the
following conditions precedent:

     (i) Borrower’s Execution and Delivery. Borrower shall have executed
and delivered this Agreement, the Notes and all other required Loan Documents, all
in form and substance satisfactory to the Agent;

     (ii) Legal Opinions. The Agent shall have received from Borrower’s
legal counsel one or more favorable legal opinions in form and substance
satisfactory to the Agent as to (1) the matters set forth in subsections 10(a), (b),
(c), (d), (e) and (h) hereof, and (2) as to such other matters as Agent or its
counsel may reasonably request;

     (iii) Resolutions. The Agent shall have received a copy of the
resolutions, in form and substance satisfactory to Agent, of the Board of Directors
of Borrower authorizing the execution, delivery and performance of this Agreement
and the other Loan Documents to which it is a party, the borrowings contemplated
hereunder and, to the extent applicable, the pledge of Collateral, certified by the
secretary or an assistant secretary of Borrower as of the Effective Date, which
certificate shall be in form and substance satisfactory to Agent and Agent’s counsel
and shall state that the resolutions thereby certified have not been amended,
modified, revoked or rescinded;

     (iv) Good Standing. The Agent shall have received evidence of
existence and good standing of Borrower in the States of Delaware, New Mexico, Texas
and Utah;

     (v) Incumbency. The Agent shall have received a signed certificate of
Borrower, certifying the names of the officers of Borrower authorized to sign loan
documents on behalf of Borrower, together with the true signatures of each such
officer. The Agent may conclusively rely on such certificate until the Agent
receives a further certificate of Borrower canceling or amending the prior
certificate and submitting signatures of the officers named in such further
certificate;

     (vi) Environmental Review. The Agent shall have received satisfactory
evidence that Borrower has completed an environmental review of its

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material Oil and
Gas Properties or other environmental assurances satisfactory to Agent;

     (vii) Organizational Documents. The Agent shall have received a copy
of the Certificate of Incorporation for Borrower together with all amendments
thereto, appropriately certified by governmental authority in the jurisdiction of
organization of Borrower, and a copy of the Bylaws of Borrower, and all amendments
thereto, certified by one or more officers of Borrower as being true, correct and
complete;

     (viii) Payment of Accrued Interest and Fees. Agent shall have received
(i) payment of all accrued interest and all Unused Commitment Fees and other fees
and expenses accruing prior to the Effective Date pursuant to the Prior Credit
Agreement, and (ii) payment of any fees and expenses required to be received by it
on the Effective Date pursuant to the Loan Documents and the fee letter dated as of
the Effective Date, between Borrower and Agent;

     (ix) Representation and Warranties. The representations and warranties
of Borrower under this Agreement shall be true and correct in all material respects
as of such date, as if then made (except to the extent that such representations and
warranties related solely to an earlier date);

     (x) Security Instruments. Agent shall have received Security
Instruments in form and substance satisfactory to Agent covering the Collateral as
required by Section 6 hereof;

     (xi) Title Opinions or Information. Agent shall have received from
Borrower title opinions or title information covering such part of the Oil and Gas
Properties as may be selected by Agent, such opinions or other title information to
be in content, form and substance satisfactory to Agent;

     (xii) Engineering Review. Agent shall have received a copy of an
engineering report prepared by an independent engineering firm acceptable to Agent
in its sole discretion covering such part of the Oil and Gas Properties as may be
selected by Agent, said report to be in form and substance satisfactory to Agent;

     (xiii) Absence of Certain Proceedings. No suit, action or other
proceeding by a third party or a governmental authority shall be pending or
threatened which relates to this Agreement or the transactions contemplated hereby;

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     (xiv) Certificates of Insurance. Borrower shall have delivered to
Agent certificates of insurance acceptable to Agent evidencing that Borrower is
carrying insurance in accordance with Section 12(h) hereof, reflecting that all
required insurance policies are endorsed in favor of and made jointly payable to
Agent as its interests may appear, naming Agent and the Lenders as “additional
insureds” and providing that the insurer will give at least thirty (30) days prior
notice of any cancellation to Agent;

     (xv) Rate Management Transactions. Borrower shall have delivered to
Agent a current schedule reflecting all of its existing Rate Management
Transactions;

     (xvi) No Event of Default. No Default or Event of Default shall have
occurred and be continuing;

     (xvii) Other Documents. Agent shall have received such other
instruments and documents incidental and appropriate to the transactions provided
for herein as Agent or its counsel may reasonably request, and all such documents
shall be in form and substance reasonably satisfactory to the Agent; and

     (xviii) Legal Matters Satisfactory. All legal matters incident to the
consummation of the transactions contemplated hereby shall be reasonably
satisfactory to special counsel for Agent retained at the expense of Borrower.

     (b) The obligation of the Lenders to make any Advance or issue any Letter of Credit under the
Commitment (other than the initial Advance) shall be subject to the following additional conditions
precedent that, at the date of making each such Advance and after giving effect thereto:

     (i) Representation and Warranties. The representations and warranties
of Borrower under this Agreement are true and correct in all material respects as of
such date, as if then made (except to the extent that such representations and
warranties relate solely to an earlier date);

     (ii) No Event of Default. No Default or Event of Default shall have
occurred and be continuing; and

     (iii) Legal Matters Satisfactory. All legal matters incident to the
consummation of the transactions contemplated hereby shall be satisfactory to
special counsel for Agent retained at the expense of Borrower.

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Each Notice of Borrowing shall constitute a representation and warranty by Borrower that the
conditions contained in Sections 11(b)(i) and (ii) have been satisfied.

     12. Affirmative Covenants. A deviation from the provisions of this Section 12 shall not
constitute a Default or an Event of Default under this Agreement if such deviation is consented to
in writing by Majority Lenders prior to the date of deviation. Borrower will at all times comply
with the covenants contained in this Section 12 from the date hereof and for so long as the
Commitments are in existence or any amount is owed to the Agent or the Lenders under this Agreement
or the other Loan Documents.

     (a) Financial Statements and Reports. Borrower shall, and shall cause each
Subsidiary to, promptly furnish to the Agent from time to time upon request such information
regarding the business and affairs and financial condition of Borrower and each Subsidiary,
as the Agent may reasonably request, and Borrower will furnish to the Agent:

     (i) Annual Financial Statements. As soon as available, and in
any event within ninety (90) days after the end of each fiscal year of
Borrower (x) the annual audited consolidated Financial Statements of
Borrower, prepared in accordance with GAAP accompanied by an unqualified
opinion on such consolidated statements rendered by BDO Seidman, LLP or
another independent accounting firm reasonably acceptable to the Agent, and
(y) the annual unaudited consolidating Financial Statements of Borrower
prepared in accordance with GAAP;

     (ii) Quarterly Financial Statements. As soon as available, and
in any event within forty-five (45) days after the end of each fiscal
quarter of Borrower, the quarterly unaudited consolidated and consolidating
Financial Statements of Borrower prepared in accordance with GAAP;

     (iii) Report on Properties. As soon as available and in any
event on or before September 1, 2008, and thereafter on or before March 1
and September 1 of each calendar year, and at such other times as any
Lender, in accordance with Section 7 hereof, may request, the engineering
reports required to be furnished to the Agent under such Section 7 on the
Oil and Gas Properties;

     (iv) Quarterly Production Reports. As soon as available and in
any event within forty-five (45) days after the end of each fiscal quarter
of Borrower, a quarterly production report, in form and substance

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satisfactory to the Agent, indicating the sales volumes, sales revenues,
production taxes, operating expenses and net operating income from the Oil
and Gas Properties, with detailed calculations and worksheets, all in form
and substance reasonably satisfactory to the Agent;

     (v) List of Purchasers. Promptly upon request of the Agent
from time to time and promptly after an Event of Default, a list of all
Persons purchasing hydrocarbons from the Borrower or any Subsidiary;

     (vi) SEC Reports. As soon as available, and in any event
within five (5) days of filing, copies of all filings by Borrower with the
Securities and Exchange Commission; and

     (vii) Additional Information. Promptly upon request of the
Agent from time to time any additional financial or other information that
the Agent may reasonably request.

All such reports, information, balance sheets and Financial Statements referred to in
Subsection 12(a) above shall be in such detail as the Agent may reasonably request and shall
be prepared in a manner consistent with the Financial Statements.

     (b) Certificates of Compliance. Concurrently with the furnishing of the annual
audited Financial Statements pursuant to Subsection 12(a)(i) hereof and the quarterly
unaudited Financial Statements pursuant to Subsection 12(a)(ii) hereof, Borrower will
furnish or cause to be furnished to the Agent a certificate in the form of Exhibit
“C” attached hereto, signed by the President, Chief Financial Officer or other
authorized representative of Borrower, (i) stating that Borrower has fulfilled in all
material respects its obligations under the Notes and the Loan Documents, including this
Agreement, and that all representations and warranties made herein and therein continue
(except to the extent they relate solely to an earlier date) to be true and correct in all
material respects (or specifying the nature of any change), or if a Default has occurred,
specifying the Default and the nature and status thereof; (ii) to the extent requested from
time to time by the Agent, specifically affirming compliance of Borrower in all material
respects with any of its representations (except to the extent they relate solely to an
earlier date) or obligations under said instruments; (iii) setting forth the computation, in
reasonable detail as of the end of each period covered by such certificate, of compliance
with Sections 13(b), (c) and (d); and (iv) containing or accompanied by such financial or
other details, information and material as the Agent may reasonably request to evidence such
compliance.

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     (c) Accountants’ Certificate. Concurrently with the furnishing of the annual
audited Financial Statements pursuant to Section 12(a)(i) hereof, Borrower will furnish a
statement from the firm of independent public accountants which prepared such Financial
Statements to the effect that nothing has come to their attention to cause them to believe
that there existed on the date of such statements any Event of Default and specifically
calculating Borrower’s compliance with Sections 13(b), (c) and (d) of this Agreement.

     (d) Taxes and Other Liens. Borrower will, and will cause each Subsidiary to,
pay and discharge promptly all taxes, assessments and governmental charges or levies
imposed upon it, or upon its income or any of its assets or property, as well as all
claims of any kind (including claims for labor, materials, supplies and rent) which, if
unpaid, might become a Lien or other encumbrance upon any or all of its assets or property
and which could reasonably be expected to result in a Material Adverse Effect; provided,
however, that neither Borrower nor any Subsidiary shall be required to pay any such tax,
assessment, charge, levy or claim if the amount, applicability or validity thereof shall
currently be contested in good faith by appropriate proceedings diligently conducted, levy
and execution thereon have been stayed and continue to be stayed and if it shall have set up
adequate reserves therefor, if required, under GAAP.

     (e) Compliance with Laws. Borrower will, and will cause each Subsidiary to,
observe and comply, in all material respects, with all applicable laws, statutes, codes,
acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, orders and
restrictions relating to environmental standards or controls or to energy regulations of all
federal, state, county, municipal and other governments, departments, commissions, boards,
agencies, courts, authorities, officials and officers, domestic or foreign.

     (f) Further Assurances. Borrower will cure promptly any defects in the
creation and issuance of the Notes and the execution and delivery of the Notes and Borrower
and each Subsidiary will cure promptly any defects in the execution and delivery of the
other Loan Documents, including this Agreement, to which it is a party. Borrower and each
Subsidiary at its sole expense will promptly execute and deliver to Agent upon its
reasonable request all such other and further documents, agreements and instruments in
compliance with or accomplishment of the covenants and agreements in this Agreement, or to
correct any omissions in the Notes or the other Loan Documents or more fully to state the
obligations set out herein.

     (g) Performance of Obligations. Borrower will pay the Notes and other
obligations incurred by it hereunder according to the reading, tenor and effect thereof and
hereof; and Borrower and each Subsidiary will do and perform every act and discharge all of
the obligations provided to be performed and discharged by it under the Loan Documents,
including this Agreement, at the time or times and in the manner specified.

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     (h) Insurance. Borrower now maintains and will continue to maintain insurance
with financially sound and reputable insurers with respect to its assets and the assets of
its Subsidiaries against such liabilities, fires, casualties, risks and contingencies and in
such types and amounts as is customary in the case of persons engaged in the same or similar
businesses and similarly situated. Upon request of the Agent, Borrower will furnish or
cause to be furnished to the Agent from time to time a summary of its insurance coverage in
form and substance reasonably satisfactory to the Agent, and, if requested, will furnish the
Agent copies of the applicable policies. Any insurance policies covering any such property
shall be endorsed (i) to provide that such policies may not be canceled, reduced or affected
in any manner for any reason without thirty (30) days prior notice to Agent, (ii) to provide
for insurance against fire, casualty and other
hazards normally insured against, in the amount of the full value (less a reasonable
deductible not to exceed amounts customary in the industry for similarly situated business
and properties) of the property insured, (iii) in favor of and made jointly payable to Agent
as its interests may appear, (iv) to name Agent and the Lenders as “additional insureds”,
and (v) to provide for such other matters as the Agent may reasonably require. Borrower
will at all times maintain adequate insurance with respect to all of its assets and the
assets of its Subsidiaries, including but not limited to, the Oil and Gas Properties or any
Collateral against their liability for injury to persons or property, which insurance shall
be by financially sound and reputable insurers and shall without limitation provide the
following coverages: comprehensive general liability (including coverage for damage to
underground resources and equipment, damages caused by blowouts or cratering, damage caused
by explosion, damage to underground minerals or resources caused by saline substances, broad
form property damage coverage, broad form coverage for contractually assumed liabilities and
broad form coverage for acts of independent contractors), workers compensation, automobile
liability and environmental liability. Borrower shall at all times maintain adequate
insurance with respect to all of its and its Subsidiaries other assets and wells in
accordance with prudent business practices.

     (i) Accounts and Records. Borrower will, and will cause each Subsidiary to,
keep books, records and accounts in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and activities, prepared in a manner
consistent with prior years, subject to changes suggested by Borrower’s auditors or with
which Borrower’s auditors concur.

     (j) Right of Inspection. Borrower will, and will cause each Subsidiary to,
permit any officer, employee or agent of the Lenders to examine Borrower’s and each
Subsidiary’s books, records and accounts, and take copies and extracts therefrom, all at
such reasonable times during normal business hours and as often as the Lenders may
reasonably request. The Lenders will use best efforts to keep all Confidential

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Information
(as herein defined) confidential and will not disclose or reveal the Confidential
Information or any part thereof other than (i) as required by law, and (ii) to the Lenders’,
and the Lenders’ subsidiaries’, Affiliates, officers, employees, legal counsel and
regulatory authorities or advisors to whom it is necessary to reveal such information for
the purpose of effectuating the agreements and undertakings specified herein or as otherwise
required in connection with the enforcement of the Lenders’ and the Agent’s rights and
remedies under the Notes, this Agreement and the other Loan Documents. As used herein,
“Confidential Information” means information about Borrower or any Subsidiary furnished by
Borrower or any Subsidiary to the Lenders, but does not include information (i) which was
publicly known, or otherwise known to the Lenders, at the time of the disclosure, (ii) which
subsequently becomes publicly known through no act or omission by the Lenders, or (iii)
which otherwise becomes known to the Lenders, other than through disclosure by Borrower or
any Subsidiary.

     (k) Notice of Certain Events. Borrower shall, and shall cause each Subsidiary
to, promptly notify the Agent if it learns of the occurrence of (i) any event which
constitutes an Event of Default together with a detailed statement of the steps being taken
to cure such Event of Default; (ii) any legal, judicial or regulatory proceedings affecting
Borrower or any Subsidiary or any of the assets or properties of Borrower or any Subsidiary
which, if adversely determined, would reasonably be expected to have a Material Adverse
Effect; (iii) any dispute between Borrower or any Subsidiary and any governmental or
regulatory body or any other Person or entity which, if adversely determined, would
reasonably be expected to cause a Material Adverse Effect; (iv) any other matter which in
Borrower’s reasonable opinion could have a Material Adverse Effect.

     (l) ERISA Information and Compliance. Borrower will promptly furnish to the
Agent upon becoming aware of the occurrence of any “reportable event”, as such term is
defined in Section 4043 of ERISA, or of any “prohibited transaction”, as such term is
defined in Section 4975 of the Internal Revenue Code of 1986, as amended, in connection with
any Plan or any trust created thereunder, a written notice signed by the President or chief
financial officer of Borrower specifying the nature thereof, what action Borrower is taking
or proposes to take with respect thereto, and, when known, any action taken by the Internal
Revenue Service with respect thereto.

     (m) Environmental Reports and Notices. Borrower will, and will cause each
Subsidiary to, deliver to the Agent (i) promptly upon its becoming available, one copy of
each report (other than routine informational filings) sent by Borrower or any Subsidiary to
any court, governmental agency or instrumentality pursuant to any Environmental Law, (ii)
notice, in writing, promptly upon Borrower’s or any Subsidiary’s receipt of notice or
otherwise learning of any claim, demand, action, event, condition, report or

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investigation
indicating any potential or actual liability arising in connection with (x) the
non-compliance with or violation of the requirements of any Environmental Law which
reasonably could be expected to have a Material Adverse Effect; (y) the release or
threatened release of any toxic or hazardous waste into the environment which reasonably
would be expected to have a Material Adverse Effect or which release Borrower or any
Subsidiary would have a duty to report to any court or government agency or instrumentality,
and (iii) promptly a copy of any notice evidencing the existence of any Environmental Lien
on any properties or assets of Borrower or any Subsidiary.

     (n) Compliance and Maintenance. Borrower will, and will cause each Subsidiary
to (i) observe and comply in all material respects with all Environmental Laws; (ii) except
as provided in Subsections 12(p) and 12(q) below, maintain the Oil and Gas Properties and
other assets and properties in good and workable condition at all times and make all
repairs, replacements, additions, betterments and improvements to the Oil and Gas Properties
and other assets and properties as are needed and proper so that the business carried on in
connection therewith may be conducted properly and efficiently at all times; (iii) take or
cause to be taken whatever actions are necessary or desirable to
prevent an event or condition of default by Borrower or any Subsidiary under the
provisions of any gas purchase or sales contract or any other contract, agreement or lease
comprising a part of the Oil and Gas Properties or other collateral security hereunder which
default could reasonably be expected to result in a Material Adverse Effect; and (iv)
furnish Agent upon request evidence reasonably satisfactory to Agent that there are no
Liens, claims or encumbrances on the Oil and Gas Properties, except Permitted Liens.

     (o) Operation of Properties. Except as provided in Subsections 12(p) and (q)
below, Borrower will, and will cause each Subsidiary to, operate, or use reasonable efforts
to cause to be operated, all Oil and Gas Properties in a careful and efficient manner in
accordance with the practice of the industry and in compliance in all material respects with
all applicable laws, rules, and regulations, and in compliance in all material respects with
all applicable proration and conservation laws of the jurisdiction in which the properties
are situated, and all applicable laws, rules, and regulations, of every other agency and
authority from time to time constituted to regulate the development and operation of the
properties and the production and sale of hydrocarbons and other minerals therefrom;
provided, however, that Borrower or any Subsidiary shall have the right to contest in good
faith by appropriate proceedings, the applicability or lawfulness of any such law, rule or
regulation and pending such contest may defer compliance therewith, as long as such
deferment shall not subject the properties or any part thereof to foreclosure or loss.

     (p) Compliance with Leases and Other Instruments. Borrower will, and will
cause each Subsidiary to, pay or cause to be paid and discharge all rentals, delay rentals,

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royalties, production payment, and indebtedness required to be paid by Borrower or any
Subsidiary (or required to keep unimpaired in all material respects the rights of Borrower
or any Subsidiary in the Oil and Gas Properties) accruing under, and perform or cause to be
performed in all material respects each and every act, matter, or thing required of Borrower
or any Subsidiary by each and all of the assignments, deeds, leases, subleases, contracts,
and agreements in any way relating to Borrower, any Subsidiary or any of the Oil and Gas
Properties and do all other things necessary to keep unimpaired in all material respects the
rights of Borrower and each Subsidiary thereunder and to prevent the forfeiture thereof or
default thereunder; provided, however, that nothing in this Agreement shall be deemed to
require Borrower or any Subsidiary to perpetuate or renew any oil and gas lease or other
lease by payment of rental or delay rental or by commencement or continuation of operations
nor to prevent Borrower or any Subsidiary from abandoning or releasing any oil and gas lease
or other lease or well thereon when, in any of such events, in the opinion of Borrower or
such Subsidiary exercised in good faith, it is not in the best interest of Borrower or such
Subsidiary to perpetuate the same.

     (q) Certain Additional Assurances Regarding Maintenance and Operations of
Properties. With respect to those Oil and Gas Properties which are being operated by
operators other than the Borrower or a Subsidiary, Borrower and each Subsidiary shall not be
obligated to perform any undertakings contemplated by the covenants and
agreement contained in Subsections 12(n) or 12(o) hereof which are performable only by
such operators and are beyond the control of Borrower or a Subsidiary; however, Borrower
agrees to promptly take, and cause each Subsidiary to promptly take, all reasonable actions
available under any operating agreements or otherwise to bring about the performance of any
such material undertakings required to be performed thereunder.

     (r) Sale of Certain Assets/Prepayment of Proceeds. Borrower will, and will
cause each Subsidiary to, immediately pay over to the Agent for the ratable benefit of the
Lenders as a prepayment of principal on the Notes an amount equal to 100% of the net
proceeds received by Borrower or any Subsidiary from the sale of the Oil and Gas Properties,
which sale is a Permitted Property Sale or has otherwise been approved in advance by the
Lenders. Any such prepayment of principal on the Notes required by this Section 12(r),
shall not be in lieu of, but shall be in addition to, any mandatory prepayment of principal
required to be paid pursuant to Section 9(b) hereof.

     (s) Title Matters. Within sixty (60) days after the Effective Date with
respect to the Oil and Gas Properties listed on Schedule “6” hereto, Borrower shall
furnish Agent with title opinions and/or title information reasonably satisfactory to Agent
showing good and defensible record title of Borrower to such Oil and Gas Properties subject
only to the Permitted Liens. As to any Oil and Gas Properties hereafter mortgaged to Agent,
Borrower will, and will cause each Subsidiary to, promptly (but in no event more than

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sixty
(60) days following such mortgaging), furnish, if requested, Agent with title opinions
and/or title information reasonably satisfactory to Agent showing good and defensible title
of Borrower or a Subsidiary to such Oil and Gas Properties subject only to Permitted Liens.

     (t) Curative Matters. Within sixty (60) days after the Effective Date with
respect to matters listed on Schedule “7” and, thereafter, within sixty (60) days
after receipt by Borrower from Agent or its counsel of written notice of title defects the
Agent reasonably requires to be cured, Borrower shall, and shall cause each Subsidiary to,
either (i) provide such curative information, in form and substance satisfactory to Agent,
or (ii) substitute Oil and Gas Properties of value and quality satisfactory to the Agent for
all of Oil and Gas Properties for which such title curative was requested but upon which
Borrower or a Subsidiary elected not to provide such title curative information, and, within
sixty (60) days of such substitution, provide title opinions or title information
satisfactory to the Agent covering the Oil and Gas Properties so substituted. If the
Borrower or a Subsidiary fails to satisfy (i) or (ii) above within the time specified, the
loan collateral value assigned by the Lenders to the Oil and Gas Properties for which such
curative information was requested shall be deducted from the Borrowing Base resulting in a
reduction thereof.

     (u) Change of Principal Place of Business. Borrower shall, and shall cause
each Subsidiary to, give Agent at least thirty (30) days prior written notice of its
intention to move its principal place of business from the address set forth in Section 17
hereof.

     (v) Additional Collateral. Borrower agrees to regularly monitor engineering
data covering all producing oil and gas properties and interests owned or acquired by
Borrower or a Subsidiary on or after the date hereof and to mortgage or cause to be
mortgaged such of the same to Agent for the ratable benefit of the Lenders in substantially
the form of the Security Instruments, as applicable, to the extent that the Lenders shall at
all times during the existence of the Commitment be secured by perfected Liens and security
interests covering (i) not less than eighty percent (80%) of the Engineered Value of all
proved developed producing Oil and Gas Properties of Borrower and its Subsidiaries, and (ii)
not less than eighty percent (80%) of the Engineered Value of all other proved Oil and Gas
Properties of Borrower and its Subsidiaries. In addition, the Borrower agrees that in
connection with the mortgaging of such additional oil and gas properties, it shall within a
reasonable time thereafter, deliver or cause to be delivered to the Agent such mortgage and
title opinions and other title information with respect to the title and Lien status of such
oil and gas properties as may be necessary to maintain at all times a level of such title
opinions and title information of not less than eighty percent (80%) of the Engineered Value
of all Oil and Gas Properties mortgaged to the Agent for the ratable benefit of the Lenders.

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     (w) Crude Oil and Natural Gas Hedging. Borrower shall maintain with
counterparties acceptable to the Agent non-speculative crude oil and natural gas price
hedges for rolling eight (8) calendar quarter periods, but not to extend beyond the Maturity
Date unless Borrower otherwise elects, and with prices and other terms as shall be approved
in advance by Agent covering at least fifty percent (50%) of Borrower’s and its
Subsidiaries’ aggregate estimated monthly crude oil and natural gas production from
Borrower’s and its Subsidiaries’ proved producing Oil and Gas Properties, determined on a
BOE Basis (defined below). The foregoing hedging requirement shall be based upon the then
most current reserve evaluation delivered by Borrower to Agent pursuant to Section
12(a)(iii) above, and Borrower shall be in compliance with the required volumes to be hedged
within ninety (90) days after the effective date of each such most current reserve
evaluation. As used in this Agreement, the term “BOE Basis” shall mean in the case of crude
oil, barrels of crude oil, and in the case of natural gas and natural gas liquids,
quantities of natural gas and natural gas liquids translated into barrels of crude oil based
on equal energy content.

     (x) Indenture. Borrower will furnish to Agent copies of all documents,
instruments, notices, reports, certificates or other items which are furnished to or
received from the trustee pursuant to the terms of the Indenture or pursuant to any document
executed in connection with the Indenture, at the same time as the same are furnished to or
received from the trustee pursuant to the terms of the Indenture or any such other document
(except to the extent a copy of any such item has previously been furnished to Agent).

     (y) Existence; Conduct of Business. Borrower will, and will cause each
Subsidiary to, do or cause to be done all things necessary to preserve, renew and keep in
full force and effect its legal existence and the rights, licenses, permits, privileges and
franchises material to the conduct of its business and maintain, if necessary, its
qualification to do business in each other jurisdiction in which any of its Oil and Gas
Properties is located or the ownership of its properties requires such qualification, except
where failure to so qualify could not reasonably be expected to have a Material Adverse
Effect; provided that the foregoing shall not prohibit any merger, consolidation,
liquidation or dissolution permitted under Section 13(e).

     13. Negative Covenants. A deviation from the provisions of this Section 13 shall not
constitute an Event of Default under this Agreement if such deviation is consented to in writing by
Majority Lenders prior to the date of deviation. Borrower will at all times comply with the
covenants contained in this Section 13 from the date hereof and for so long as the Commitment is in
existence or any amount is owed to the Agent or the Lenders under this Agreement or the other Loan
Documents.

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     (a) Negative Pledge. Borrower will not, and will not permit any Subsidiary to:

     (i) create, incur, assume or permit to exist any Lien, security
interest or other encumbrance on any of its respective assets or properties
except Permitted Liens; or

     (ii) sell, lease, transfer or otherwise dispose of any of its
respective assets except for (A) Permitted Property Sales, so long as no
Default or Event of Default has occurred and is continuing and no Borrowing
Base deficiency exists, (B) sales of extracted petroleum hydrocarbons made
in the ordinary course of Borrower’s or a Subsidiary’s oil and gas business,
(C) to the extent not otherwise forbidden under the Security Instruments,
equipment that is worthless or obsolete or which is replaced by equipment of
equal suitability in value, (D) transfers to Borrower or any Subsidiary, and
(E) during any calendar year, other assets of Borrower and Subsidiaries
having an aggregate fair market value not exceeding $10,000,000.

     (b) Current Ratio. Borrower shall not allow its Current Ratio to be less than
1.0 to 1.0 as of the end of any fiscal quarter beginning with the fiscal quarter ending
March 31, 2008.

     (c) Funded Debt Ratio. Borrower will not allow its ratio of Consolidated
Funded Debt to Consolidated EBITDA to exceed 4.00 to 1.00. This ratio shall be calculated
at the end of each fiscal quarter of Borrower using the results of the twelve month period
immediately preceding the end of each such fiscal quarter.

     (d) Adjusted Consolidated Net Worth. At all times during the term hereof,
Borrower’s Adjusted Consolidated Net Worth shall not be less than (a) $175,000,000, plus (b)
seventy-five percent (75%) of the net proceeds from any equity securities issued by the
Borrower on or after the date of this Agreement, plus (c) fifty percent (50%) of Borrower’s
Consolidated Net Income for each fiscal quarter, if positive, and zero percent (0%) if
negative, determined on a cumulative basis, for the period beginning January 1, 2008, and
ending on the last day of the most recent fiscal quarter as of the time in question.

     (e) Subsidiaries; Consolidations and Mergers. Borrower will not, and will not
permit any Subsidiary to, form or acquire any new Subsidiary or consolidate or merge with

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or
into any other Person, except that any Subsidiary may consolidate or merge with or into
Borrower if Borrower is the surviving entity in such consolidation or merger and if, after
giving effect thereto, no Default or Event of Default shall have occurred and be continuing.

     (f) Debts, Guaranties and Other Obligations. Borrower will not, and will not
permit any Subsidiary to, incur, create, assume or in any manner become or be liable in
respect of any indebtedness, or guarantee or otherwise in any manner become or be liable in
respect of any indebtedness, liabilities or other obligations of any other Person, whether
by agreement to purchase the indebtedness of any other Person or agreement for the
furnishing of funds to any other Person through the purchase or lease of goods, supplies or
services (or by way of stock purchase, capital contribution, advance or loan) for the
purpose of paying or discharging the indebtedness of any other Person, or otherwise, except
that the foregoing restrictions shall not apply to:

     (i) the Notes and any renewal or increase thereof, or other
indebtedness heretofore disclosed to Lenders in the Borrower’s Financial
Statements or on Schedule “4” hereto; or

     (ii) taxes, assessments or other government charges which are not yet
due or are being contested in good faith by appropriate action promptly
initiated and diligently conducted, if such reserve as shall be required by
GAAP shall have been made therefor and levy and execution thereon have been
stayed and continue to be stayed; or

     (iii) indebtedness (other than in connection with a loan or lending
transaction) incurred in the ordinary course of business which is not more
than 60 days past due, including, but not limited to indebtedness for
drilling, completing, leasing and reworking oil and gas wells; or

     (iv) obligations under Rate Management Transactions permitted pursuant
to Section 13(l) hereof; or

     (v) the Senior Unsecured Debt, not to exceed an aggregate principal
amount of $150,000,000 outstanding at any time; or

     (vi) other indebtedness not exceeding $1,000,000 in the aggregate for
Borrower and Subsidiaries outstanding at any time; or

     (vii) any renewals or extensions of (but, other than in the case of the
Notes, not increases in) any of the foregoing.

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     (g) Dividend and Distributions. Borrower will not, and will not permit any
Subsidiary to, declare, pay or make any loans, advances, dividends or distributions of any
kind to its stockholders or other equity owners, or make any other distribution on account
of, or purchase, acquire or redeem or retire any stock or other security issued by it,
except that (i) Subsidiaries may declare, pay or make dividends or distributions to
Borrower, and (ii) Borrower may use “Excess Proceeds” (as defined in the Indenture) to offer
to purchase Senior Unsecured Notes, but only to the extent required by Section 4.7(c) of the
Indenture.

     (h) Loans and Advances. Borrower will not, and will not permit any Subsidiary
to, make or permit to remain outstanding any loans or advances to or in any Person, except
that the foregoing restriction shall not apply to:

     (i) loans or advances to any Person, the material details of which have
been set forth in the Financial Statements of the Borrower heretofore
furnished to Lenders; or

     (ii) advances made in the ordinary course of Borrower’s or a Subsidiary’s
oil and gas business; or

     (iii) other loans or advances to any third party or Affiliate (other than
Borrower) not in excess of $1,000,000 in the aggregate outstanding; or

     (iv) loans or advances to Borrower or any Subsidiary.

     (i) Receivables and Payables. Borrower will not, and will not permit any
Subsidiary to, discount or sell with recourse, or sell for less than the market value
thereof, any of its notes receivable or accounts receivable.

     (j) Nature of Business. Borrower will not, and will not permit any Subsidiary
to, permit any material change to be made in the character of its businesses as carried on
at the date hereof.

     (k) Transactions with Affiliates. Borrower will not, and will not permit any
Subsidiary to, enter into any transaction with any Affiliate, except transactions upon terms
that are no less favorable to it than could be obtained in a transaction negotiated at arm’s
length with an unrelated third party.

     (l) Rate Management Transactions. Borrower will not, and will not permit any
Subsidiary to, enter into any Rate Management Transactions, except the foregoing
prohibitions shall not apply to (x) transactions required by this Agreement or consented

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to
in writing by the Majority Lenders, in each case which are on terms acceptable to the
Majority Lenders, or (y) transactions by Borrower or any Subsidiary designed to hedge,
provide a floor price for, or swap crude oil or natural gas, provided that (i) the
same do not cover more than eighty-five percent (85%) of Borrower’s and Subsidiaries’
aggregate estimated monthly crude oil and natural gas production from proved producing crude
oil and natural gas reserves existing as of the date of the execution thereof based upon the
then most current reserve evaluation required pursuant to Section 12(a)(iii) above and
determined on a BOE Basis, (ii) the same do not cover more than 100% of Borrower’s and
Subsidiaries’ aggregate estimated proved producing crude oil production or more than 100% of
Borrower’s and Subsidiaries’ aggregate estimated proved producing natural gas production,
each as existing as of the date of the execution thereof based upon the then most current
reserve evaluation required pursuant to Section 12(a)(iii) above, (iii) the same do not
contain terms or provisions which would require margin calls, (iv) the counterparty to any
such transaction has a minimum rating of “A-1” by Standard & Poors’ Corporation or “A-3” by
Moody’s Investors Service, Inc., (v) the same are for a term not extending beyond the
Maturity Date, and (vi) the same include provisions for payment to Borrower or a Subsidiary
upon the occurrence of specified price indexes of a price per unit of measurement equal to
or greater than that under the Agent’s then current pricing policies; or, provided
that (A) the same do not cover more than ninety percent (90%) of Borrower’s and
Subsidiaries’ aggregate estimated monthly crude oil and natural gas production from proved
producing crude oil and natural gas reserves existing as of the date of the execution
thereof based upon the then most current reserve evaluation required pursuant to Section
12(a)(iii) above and determined on a BOE Basis, (B) the same do not cover more than
seventy-five percent (75%) of Borrower’s and Subsidiaries’ aggregate estimated monthly crude
oil and natural gas production from all categories of proved crude oil and natural gas
reserves existing as of the date of the execution thereof based upon the then most current
reserve evaluation required pursuant to Section 12(a)(iii) above and determined on a BOE
Basis, (C) as of the date of the execution thereof, Borrower’s and Subsidiaries’ aggregate
actual production from proved producing crude oil and natural gas reserves exceeds
Borrower’s and Subsidiaries’ aggregate forecasted production from proved producing crude oil
and natural gas reserves for such date based on the then most current reserve evaluation
required pursuant to Section 12(a)(iii) above, (D) the same are for a term of twelve (12)
months or less, and (E) the same satisfy the requirements set forth in items (ii), (iii),
(iv) and (vi) above.

     (m) Investments. Borrower will not, and will not permit any Subsidiary to,
make any investments in any Person or entity, except such restriction shall not apply to:

     (i) investments with maturities of not more than 180 days in direct
obligations of the United States of America or any agency thereof; or

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     (ii) investments in certificates of deposit issued by a Lender; or

     (iii) investments in First Permian GP, L.L.C., First Permian, L.P.,
Hagerman Gas Gathering System and West Fork Pipeline Company II, LP, to the
extent of such investments as of the Effective Date; or

     (iv) investments after the Effective Date in Hagerman Gas Gathering
System, not to exceed $5,000,000 in the aggregate for Borrower and
Subsidiaries; or

     (v) investments in any Subsidiary; or

     (vi) other investments not to exceed $5,000,000 in the aggregate for
Borrower and Subsidiaries during any calendar year, when aggregated with
loans and advances allowed pursuant to Section 13(h)(iii).

     (n) Amendment to Organizational Documents. Borrower will not, and will not
permit any Subsidiary to, permit any material amendment to, or any material alteration of,
its Articles or Certificate of Incorporation, Articles or Certificate of Organization,
Agreement or Certificate of Limited Partnership, Certificate of Formation, Bylaws, Limited
Liability Company Agreement or other governing documents, as applicable.

     (o) ERISA Compliance. Borrower will not, and will not permit any Subsidiary
to, permit any Plan subject to ERISA maintained by it to (i) engage in any “prohibited
transaction” as such term is defined in Section 4975 of the Internal Revenue Code of 1986,
as amended; (ii) incur any “accumulated funding deficiency” as such term is defined in
Section 302 of ERISA; or (iii) terminate in a manner which could result in the imposition of
a lien on its property pursuant to Section 4068 of ERISA.

     (p) Accounting Method and Fiscal Year. Borrower will not, and will not permit
any Subsidiary to, make any change in its present accounting method unless such changes are
required for conformity with GAAP.

     (q) Issuance of Equity Interests. Borrower will not permit any Subsidiary to
issue or sell to any Person (other than Borrower) any equity interest in it, or any option,
warrant or other right to acquire any such equity interest.

     (r) Senior Unsecured Debt. Borrower will not (i) amend or enter into any
agreement to amend or otherwise change the Indenture or any agreement or instrument

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executed
in connection therewith; (ii) fail to comply in any material respect with the provisions of
the Indenture; or (iii) except as specifically required by the Indenture, make any
prepayment of amounts owing under the Senior Unsecured Notes.

     (s) Limitation on Leases. Borrower will not, and will not permit any
Subsidiary to, create, incur, assume or suffer to exist any obligation for the payment of
rent or hire of property of any kind whatsoever (real or personal, but excluding oil and/or
gas leases and leases of compressors or other oilfield equipment), under leases or lease
agreements which would cause the aggregate amount of all payments by the Borrower and
Subsidiaries pursuant to all such leases or lease agreements, including, without limitation,
any residual payments at the end of any lease, to exceed $1,000,000 in any period of twelve
(12) consecutive calendar months during the life of such leases.

     14. Events of Default. Any one or more of the following events shall be considered an “Event
of Default” as that term is used herein:

     (a) Borrower shall fail to pay when due or declared due the principal of, and the
interest on, the Notes or any fee or any other indebtedness of Borrower incurred pursuant to
this Agreement or any of the other Loan Documents; or

     (b) Any representation or warranty made by Borrower under this Agreement, or in any
certificate or statement furnished or made to the Lenders pursuant hereto, or in connection
herewith, or in connection with any document furnished hereunder, shall prove to be untrue
in any material respect as of the date on which such representation or warranty is made (or
deemed made), or any representation, statement (including Financial Statements),
certificate, report or other data furnished or to be furnished or made by Borrower or any
Subsidiary under any Loan Document, including this Agreement, proves to have been untrue in
any material respect, as of the date as of which the facts therein set forth were stated or
certified; or

     (c) Default shall be made in the due observance or performance of any of the covenants
or agreements of Borrower or any Subsidiary contained in the Loan Documents, including this
Agreement (excluding covenants contained in Section 13 of the Agreement for which there is
no cure period), and such default shall continue for more than thirty (30) days after
written notice from Agent is received by Borrower; or

     (d) Default shall be made in the due observance or performance of the covenants of
Borrower contained in Section 13 of this Agreement; or

     (e) Default shall be made in respect of any obligation for borrowed money other than
the Notes, for which Borrower or any Subsidiary is liable (directly, by

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assumption, as guarantor or otherwise), or any obligations secured by any mortgage,
pledge or other consensual security interest with respect thereto, on any asset or property
of Borrower or any Subsidiary or in respect of any agreement relating to any such
obligations, unless the aggregate amount of such obligations in respect of which such
default shall have occurred is less than $1,000,000; or

     (f) Borrower or any Subsidiary shall commence a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking
an appointment of a trustee, receiver, liquidator, custodian or other similar official of it
or any substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for the benefit of
creditors, or shall fail generally to pay its debts as they become due, or shall take any
corporate action authorizing the foregoing; or

     (g) An involuntary case or other proceeding, shall be commenced against Borrower or
any Subsidiary seeking liquidation, reorganization or other relief with respect to it or its
debts under any bankruptcy, insolvency or similar law now or hereafter in effect or seeking
the appointment of a trustee, receiver, liquidator, custodian or other similar official of
it or any substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of thirty (30) days; or an order for
relief shall be entered against Borrower or any Subsidiary under the federal bankruptcy laws
as now or hereinafter in effect; or

     (h) A final judgment or order for the payment of money in excess of $1,000,000 (or
judgments or orders aggregating in excess of $1,000,000) shall be rendered against Borrower
or any Subsidiary and such judgments or orders shall continue unsatisfied and unstayed for a
period of thirty (30) days; or

     (i) In the event the Total Outstandings shall at any time exceed the Borrowing Base
established for the Notes, and Borrower shall fail to comply with the provisions of Section
9(b) hereof; or

     (j) An event of default (as defined therein) shall occur under any agreement entered
into in connection with any Rate Management Transaction; or

     (k) A Change of Control shall occur; or

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     (l) Any Lien for failure to pay income, payroll, FICA or similar taxes shall be filed
by the U. S. Government or any agent or instrumentality thereof against Borrower or any
Subsidiary, or any of their respective assets; or

     (m) Any of the Loan Documents shall cease, for any reason, to be in full force and
effect, or Borrower or any Subsidiary shall so assert; or

     (n) An Event of Default (as defined therein) shall occur under the terms of the
Indenture or under any document or instrument executed in connection therewith.

     Upon occurrence of any Event of Default specified in Subsections 14(f) and (g) hereof, the
entire principal amount due under the Notes and all interest then accrued thereon, and any other
liabilities of Borrower hereunder, shall become automatically and immediately due and payable all
without notice and without presentment, demand, protest, notice of protest or dishonor or any other
notice of default of any kind, all of which are hereby expressly waived by the Borrower. Upon the
occurrence of any other Event of Default, the Agent, upon request of Majority Lenders, shall by
written notice to the Borrower declare the principal of, and all interest then accrued on, the
Notes and any other liabilities hereunder to be forthwith due and payable, whereupon the same shall
forthwith become due and payable without presentment, demand, protest, notice of intent to
accelerate, notice of acceleration or other notice of any kind, all of which the Borrower hereby
expressly waives, anything contained herein or in the Notes to the contrary notwithstanding.

     Upon the occurrence and during the continuance of any Event of Default, the Lenders are hereby
authorized at any time and from time to time, without notice to the Borrower (any such notice being
expressly waived by the Borrower), to set-off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other indebtedness at any time owing by
any of the Lenders to or for the credit or the account of Borrower against any and all of the
indebtedness of the Borrower under the Notes and the Loan Documents, including this Agreement,
irrespective of whether or not the Lenders shall have made any demand under the Loan Documents,
including this Agreement or the Notes and although such indebtedness may be unmatured. Any amount
set-off by any of the Lenders shall be applied against the indebtedness owed the Lenders by the
Borrower pursuant to this Agreement and the Notes. The Lenders agree promptly to notify the
Borrower after any such setoff and application, provided that the failure to give such notice shall
not affect the validity of such set-off and application. The rights of the Lender under this
Section are in addition to other rights and remedies (including, without limitation, other rights
of set-off) which the Lenders may have.

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     15. The Agent and the Lenders.

     (a) Appointment and Authorization. Each Lender hereby appoints Agent as its
nominee and agent, in its name and on its behalf: (i) to act as nominee for and on behalf of
such Lender in and under all Loan Documents; (ii) to arrange the means whereby the funds of
Lenders are to be made available to the Borrower under the Loan Documents; (iii) to take
such action as may be requested by any Lender under the Loan Documents (when such Lender is
entitled to make such request under the Loan Documents); (iv) to receive all documents and
items to be furnished to Lenders under the Loan Documents; (v) to be the secured party,
mortgagee, beneficiary, and similar party in respect of, and to receive, as the case may be,
any collateral for the benefit of Lenders; (vi) to promptly distribute to each Lender all
material information, requests, documents and items received from the Borrower or any
Subsidiary under the Loan Documents; (vii) to promptly distribute to each Lender such
Lender’s Pro Rata Part of each payment or prepayment (whether voluntary, as proceeds of
insurance thereon, or otherwise) in accordance with the terms of the Loan Documents and
(viii) to deliver to the appropriate Persons requests, demands, approvals and consents
received from Lenders. Each Lender hereby authorizes Agent to take all actions and to
exercise such powers under the Loan Documents as are specifically delegated to Agent by the
terms hereof or thereof, together with all other powers reasonably incidental thereto. With
respect to its Commitment hereunder and the Notes issued to it, Agent and any successor
Agent shall have the same rights under the Loan Documents as any other Lender and may
exercise the same as though it were not the Agent; and the term “Lender” or “Lenders” shall,
unless otherwise expressly indicated, include Agent and any successor Agent in its capacity
as a Lender. Agent and any successor Agent and its Affiliates may accept deposits from,
lend money to, act as trustee under indentures of and generally engage in any kind of
business with the Borrower or any Subsidiary, and any Person which may do business with the
Borrower or any Subsidiary, all as if Agent and any successor Agent was not Agent hereunder
and without any duty to account therefor to the Lenders; provided that, if any payments in
respect of any property (or the proceeds thereof) now or hereafter in the possession or
control of Agent which may be or become security for the obligations of the Borrower or any
Subsidiary arising under the Loan Documents by reason of the general description of
indebtedness secured or of property contained in any other agreements, documents or
instruments related to any such other business shall be applied to reduction of the
obligations of the Borrower and each Subsidiary arising under the Loan Documents, then each
Lender shall be entitled to share in such application according to its Pro Rata Part
thereof. Each Lender, upon request of any other Lender, shall disclose to all other Lenders
all indebtedness and liabilities, direct and contingent, of the Borrower and each Subsidiary
to such Lender as of the time of such request.

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     (b) Note Holders. From time to time as other Lenders become a party to this
Agreement, Agent shall obtain execution by Borrower of additional Notes in amounts
representing the Commitments of each such new Lender, up to an aggregate face amount of all
Notes not exceeding $600,000,000. The obligation of such Lender shall be
governed by the provisions of this Agreement, including but not limited to, the
obligations specified in Section 2 hereof. From time to time, Agent may require that the
Lenders exchange their Notes for newly issued Notes to better reflect the Commitments of the
Lenders. Agent may treat the payee of any Note as the holder thereof until written notice
of transfer has been filed with it, signed by such payee and in form satisfactory to Agent.

     (c) Consultation with Counsel. Lenders agree that Agent may consult with legal
counsel selected by Agent and shall not be liable for any action taken or suffered in good
faith by it in accordance with the advice of such counsel. LENDERS ACKNOWLEDGE THAT COTTON,
BLEDSOE, TIGHE & DAWSON IS COUNSEL FOR CITIBANK, BOTH AS AGENT AND AS A LENDER, AND THAT
SUCH FIRM DOES NOT REPRESENT ANY OF THE OTHER LENDERS IN CONNECTION WITH THIS TRANSACTION.

     (d) Documents. Agent shall not be under a duty to examine or pass upon the
validity, effectiveness, enforceability, genuineness or value of any of the Loan Documents
or any other instrument or document furnished pursuant thereto or in connection therewith,
and Agent shall be entitled to assume that the same are valid, effective, enforceable and
genuine and what they purport to be.

     (e) Resignation or Removal of Agent. Subject to the appointment and acceptance
of a successor Agent as provided below, Agent may resign at any time by giving written
notice thereof to Lenders and Borrower, and Agent may be removed at any time with or without
cause by all Lenders (excluding the Agent). If no successor Agent has been so appointed by
Majority Lenders (and approved by the Borrower) and has accepted such appointment within
thirty (30) days after the retiring Agent’s giving of notice of resignation or removal of
the retiring Agent, then the retiring Agent may, on behalf of Lenders, appoint a successor
Agent. Any successor Agent must be approved by Borrower, which approval will not be
unreasonably withheld. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become vested with all
the rights and duties of the retiring Agent, and the retiring Agent, as the case may be,
shall be discharged from its duties and obligations hereunder. After any retiring Agent’s
resignation or removal hereunder as Agent, the provisions of this Section 15 shall continue
in effect for its benefit in respect to any actions taken or omitted to be taken by it while
it was acting as Agent. To be eligible to be an Agent hereunder the party serving, or to
serve, in such capacity must

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own a Pro Rata Part of the Commitments equal to the level of
Commitment required to be held by any Lender pursuant to Section 29 hereof.

     (f) Responsibility of Agent. It is expressly understood and agreed that the
obligations of Agent under the Loan Documents are only those expressly set forth in the Loan
Documents and that Agent shall be entitled to assume that no Default or Event of Default has
occurred and is continuing, unless Agent has actual knowledge of such fact
or has received notice from a Lender or the Borrower that such Lender or the Borrower
consider that a Default or an Event of Default has occurred and is continuing and specifying
the nature thereof. Neither Agent nor any of its directors, officers, attorneys or
employees shall be liable for any action taken or omitted to be taken by them under or in
connection with the Loan Documents, except for its or their own gross negligence or willful
misconduct. Agent shall not incur liability under or in respect of any of the Loan
Documents by acting upon any notice, consent, certificate, warranty or other paper or
instrument believed by it to be genuine or authentic or to be signed by the proper party or
parties, or with respect to anything which it may do or refrain from doing in the reasonable
exercise of its judgment, or which may seem to it to be necessary or desirable. The
Syndication Agent shall have no responsibilities as an agent hereunder.

     Agent shall not be responsible to Lenders for any of the Borrower’s or any Subsidiary’s
recitals, statements, representations or warranties contained in any of the Loan Documents,
or in any certificate or other document referred to or provided for in, or received by any
Lender under, the Loan Documents, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of any of the Loan Documents or for any failure by the
Borrower or any Subsidiary to perform any of their obligations hereunder or thereunder.
Agent may employ agents and attorneys-in-fact and shall not be answerable, except as to
money or securities received by it or its authorized agents, for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it with reasonable care.

     The relationship between Agent and each Lender is only that of agent and principal and
has no fiduciary aspects. Nothing in the Loan Documents or elsewhere shall be construed to
impose on Agent any duties or responsibilities other than those for which express provision
is therein made. In performing its duties and functions hereunder, Agent does not assume
and shall not be deemed to have assumed, and hereby expressly disclaims, any obligation or
responsibility toward or any relationship of agency or trust with or for the Borrower, any
Subsidiary or any of their beneficiaries or other creditors. As to any matters not
expressly provided for by the Loan Documents, Agent shall not be required to exercise any
discretion or take any action, but shall be required to act or to refrain from acting (and
shall be fully protected in so acting or refraining from acting) upon the instructions of

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all Lenders and such instructions shall be binding upon all Lenders and all holders of the
Notes; provided, however, that Agent shall not be required to take any action which is
contrary to the Loan Documents or applicable law.

     Agent shall have the right to exercise or refrain from exercising, without notice or
liability to the Lenders, any and all rights afforded to Agent by the Loan Documents or
which Agent may have as a matter of law; provided, however, Agent shall not (i) subject to
the provisions of Section 7(f), without the consent of Majority Lenders, designate the
amount of the Borrowing Base or (ii) without the consent of Majority Lenders take any other
action with regard to amending the Loan Documents, waiving any default under the Loan
Documents or taking any other action with respect to the Loan Documents.
Provided further, however, that no amendment, waiver, or other action shall be effected
pursuant to the preceding clause (ii) without the consent of all Lenders which: (a) would
increase the Borrowing Base, (b) would reduce any fees hereunder, or the principal of, or
the interest on, any Lender’s Note or Notes, (c) would postpone any date fixed for any
payment of any fees hereunder, or any principal or interest of any Lender’s Note or Notes,
(d) would increase the aggregate Commitments or any Lender’s individual Commitment hereunder
or would materially alter Agent’s obligations to any Lender hereunder, (e) would release
Borrower from its obligation to pay any Lender’s Note or Notes, (f) would change the
definition of Majority Lenders, (g) would extend the Maturity Date, (h) would release any
Collateral (except as permitted in Section 15(q) hereof), or (i) would amend this sentence
or the previous sentence. Agent shall not have liability to Lenders for failure or delay in
exercising any right or power possessed by Agent pursuant to the Loan Documents or otherwise
unless such failure or delay is caused by the gross negligence of the Agent, in which case
only the Agent responsible for such gross negligence shall have liability therefor to the
Lenders.

     (g) Independent Investigation. Each Lender expressly acknowledges that neither
the Agent nor any of its officers, directors, employees, agents, attorneys in fact or
Affiliates has made any representations or warranties to it and that no act by the Agent
hereinafter taken, including any review of the affairs of the Borrower or any Subsidiary,
shall be deemed to constitute any representation or warranty by the Agent to any Lender.
Each Lender severally represents and warrants to Agent that it has made its own independent
investigation and assessment of the financial condition and affairs of the Borrower in
connection with the making and continuation of its participation hereunder and has not
relied exclusively on any information provided to such Lender by Agent in connection
herewith, and each Lender represents, warrants and undertakes to Agent that it shall
continue to make its own independent appraisal of the credit worthiness of the Borrower
while the Notes are outstanding or its Commitments hereunder are in force. Agent shall not
be required to keep itself informed as to the performance or observance by the Borrower or
any Subsidiary of this Agreement or any other document referred to

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or provided for herein or to inspect the properties or books of the Borrower or any
Subsidiary. Other than as provided in this Agreement, Agent shall not have any duty,
responsibility or liability to provide any Lender with any credit or other information
concerning the affairs, financial condition or business of the Borrower or any Subsidiary
which may come into the possession of Agent.

     (h) Indemnification. Lenders agree to indemnify Agent and the Syndication
Agent (“Indemnified Agents”) ratably according to their respective Commitments on a Pro Rata
basis, from and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any proper and reasonable
kind or nature whatsoever which may be imposed on, incurred by or asserted against any
Indemnified Agent in any way relating to or arising out of the Loan Documents or any action
taken or omitted by any Indemnified Agent under the Loan Documents, provided that no Lender
shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from any Indemnified Agent’s gross negligence or willful misconduct.
Each Lender shall be entitled to be reimbursed by any such Indemnified Agent for any amount
such Lender paid to any such Indemnified Agent under this Section 15(h) to the extent such
Indemnified Agent has been reimbursed for such payments by Borrower or any other Person.
THE PARTIES INTEND FOR THE PROVISIONS OF THIS SECTION TO APPLY TO AND PROTECT THE
INDEMNIFIED AGENTS FROM THE CONSEQUENCES OF ANY LIABILITY, INCLUDING STRICT LIABILITY,
IMPOSED OR THREATENED TO BE IMPOSED ON ANY INDEMNFIED AGENT AS WELL AS FROM THE CONSEQUENCES
OF ITS OWN NEGLIGENCE, WHETHER OR NOT THAT NEGLIGENCE IS THE SOLE, CONTRIBUTING OR
CONCURRING CAUSE OF ANY SUCH LIABILITY.

     (i) Benefit of Section 15. The agreements contained in this Section 15 are
solely for the benefit of Agent, Syndication Agent and the Lenders and are not for the
benefit of, or to be relied upon by, the Borrower, any Affiliate of the Borrower or any
other Person.

     (j) Pro Rata Treatment. Subject to the provisions of this Agreement, each
payment (including each prepayment) by the Borrower and each collection by Lenders
(including offsets) on account of the principal of and interest on the Notes and fees
provided for in this Agreement, that are payable by the Borrower, shall be made Pro Rata;
provided, however, in the event that any Defaulting Lender shall have failed to make an
Advance as contemplated under Section 3 hereof and Agent or another Lender or Lenders shall
have made such Advance, payment received by Agent for the account of such Defaulting Lender
or

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Lenders shall not be distributed to such Defaulting Lender or Lenders until such Advance
or Advances shall have been repaid in full to the Lender or Lenders who funded such Advance
or Advances.

     (k) Assumption as to Payments. Except as specifically provided herein, unless
Agent shall have received notice from the Borrower prior to the date on which any payment is
due to Lenders hereunder that the Borrower will not make such payment in full, Agent may,
but shall not be required to, assume that the Borrower has made such payment in full to
Agent on such date and Agent may, in reliance upon such assumption, cause to be distributed
to each Lender on such due date an amount equal to the amount then due such Lender. If and
to the extent the Borrower shall not have made such payment in full to Agent, each Lender
shall repay to Agent forthwith on demand such amount distributed to such Lender together
with interest thereon, for each day from the date such amount is distributed to such Lender
until the date such Lender repays such amount to Agent, at the interest rate applicable to
such portion of the Loan.

     (l) Other Financings. Without limiting the rights to which any Lender
otherwise is or may become entitled, such Lender shall have no interest, by virtue of this
Agreement or the Loan Documents, in (a) any present or future loans from, letters of
credit issued by, or leasing or other financial transactions by, any other Lender to, on
behalf of, or with Borrower or any Subsidiary (collectively referred to herein as “Other
Financings”) other than the obligations hereunder; (b) any present or future guarantees by
or for the account of Borrower or any Subsidiary which are not contemplated by the Loan
Documents; (c) any present or future property taken as security for any such Other
Financings; or (d) any property now or hereafter in the possession or control of any other
Lender which may be or become security for the obligations of Borrower or any Subsidiary
arising under any loan document by reason of the general description of indebtedness secured
or property contained in any other agreements, documents or instruments relating to any such
Other Financings.

     (m) Interests of Lenders. Nothing in this Agreement shall be construed to
create a partnership or joint venture between Lenders for any purpose. Agent, Lenders and
Borrower recognize that the respective obligations of Lenders under the Commitments shall be
several and not joint and that neither Agent nor any of Lenders shall be responsible or
liable to perform any of the obligations of the other under this Agreement. Each Lender is
deemed to be the owner of an undivided interest in and to all rights, titles, benefits and
interests belonging and accruing to Agent under the Security Instruments, including, without
limitation, liens and security interests in any collateral, fees and payments of principal
and interest by the Borrower under the Commitments on a Pro Rata basis. Each Lender shall
perform all duties and obligations of Lenders under this Agreement in the same proportion as
its ownership interest in the Loans outstanding at the date of determination thereof.

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     (n) Investments. Whenever Agent in good faith determines that it is uncertain
about how to distribute to Lenders any funds which it has received, or whenever Agent in
good faith determines that there is any dispute among the Lenders about how such funds
should be distributed, Agent may choose to defer distribution of the funds which are the
subject of such uncertainty or dispute. If Agent in good faith believes that the
uncertainty or dispute will not be promptly resolved, or if Agent is otherwise required to
invest funds pending distribution to the Lenders, Agent may invest such funds pending
distribution (at the risk of the Borrower). All interest on any such investment shall be
distributed upon the distribution of such investment and in the same proportions and to the
same Persons as such investment. All monies received by Agent for distribution to the
Lenders (other than to the Person who is Agent in its separate capacity as a Lender) shall
be held by the Agent pending such distribution solely as Agent for such Lenders, and Agent
shall have no equitable title to any portion thereof.

     (o) Delegation to Affiliates. The Borrower and the Lenders agree that the
Agent may delegate any of its duties under this Agreement to any of its Affiliates. Any
such Affiliate (and such Affiliate’s directors, officers, agents and employees) which
perform duties in connection with this Agreement shall be entitled to the same benefits of
the indemnification, waiver and other protective provisions to which the Agent is entitled
under this Section 15 and Section 19.

     (p) Execution of Collateral Documents. The Lenders hereby empower and
authorize the Agent to execute and deliver the Security Instruments and all related
financing statements and other financing statements, agreements, documents or instruments
that shall be necessary or appropriate to effect the purposes of the Security Instruments.

     (q) Collateral Releases. The Lenders hereby empower and authorize the Agent to
execute and deliver to the Borrower on their behalf any agreements, documents, or
instruments as shall be necessary or appropriate to reflect any releases of Collateral which
shall be permitted by the terms hereof (including, without limitation, the release of
Collateral that Borrower or any Subsidiary is permitted to sell pursuant to Section
13(a)(ii) hereof) or of any other Loan Document or which shall otherwise have been approved
by the requisite Lenders pursuant to this Section 15.

     (r) Internal Revenue Service Forms. At least five (5) Business Days prior to
the first date on which interest or fees are payable hereunder for the account of any
Lender, each Lender that is not incorporated under the laws of the United States of America,
or a state thereof, agrees that it will deliver to the Agent two duly completed copies of
United States Internal Revenue Service Form W-8 BEN or W-8 ECI or W-8

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IMY or W-8 EXP or such other form as may be applicable and allowable under the Internal Revenue
Code and the regulations thereunder (collectively, a “Withholding Form”), certifying in
either case that such Lender is entitled to receive payments under this Agreement and the
Notes without deduction or withholding of any United States federal income taxes. Each
Lender which so delivers a Withholding Form further undertakes to deliver to the Agent two
additional copies of such form (or a successor form) on or before the date that such form
expires or becomes obsolete or after the occurrence of any event requiring a change in the
most recent Withholding Form so delivered by it, and such amendments thereto or extensions
or renewals thereof as may be reasonably requested by the Agent, in each case certifying
that such Lender is entitled to receive payments under this Agreement and the Notes without
deduction or withholding of any United States federal income taxes, unless an event
(including without limitation any change in treaty, law or regulation) has occurred prior to
the date on which any such delivery would otherwise be required which renders all such
Withholding Forms inapplicable or which would prevent such Lender from duly completing and
delivering any such Withholding Form with respect to it and such Lender advises the Agent
that it is not capable of receiving payments without any deduction or withholding of United
States federal income tax.

     (s) Syndication Agent. The Lender identified in this Agreement as the
Syndication Agent shall not have any right, power, obligation, liability, responsibility or
duty under this Agreement other than those applicable to all Lenders as such. Without
limiting the foregoing, the Syndication Agent shall not have or be deemed to have a
fiduciary relationship with any Lender. Each Lender hereby makes the same acknowledgments
with respect to the Syndication Agent as it makes with respect to the Agent in Section
15(f).

     16. Exercise of Rights. No failure to exercise, and no delay in exercising, on the part of
the Agent or the Lenders, any right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise thereof preclude any other or further exercise thereof or the exercise
of any other right. The rights of the Agent and the Lenders hereunder shall be in addition to all
other rights provided by law.

     17. Notices. Any notices or other communications required or permitted to be given by this
Agreement or any other documents or instruments referred to herein must be given in writing (which
may be by bank wire, telecopy or similar writing) and shall be given to the party to whom such
notice or communication is directed at the address or telecopy number of such party as follows:

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	 	(a)	 	BORROWER:
	 
	 	 	 	1004 North Big Spring, Suite 400

Midland, Texas 79701

Facsimile (432) 684-3905

Attention: Steven D. Foster, Chief Financial Officer
	 
	 	(b)	 	AGENT and LENDERS:
	 
	 	 	 	c/o CITIBANK

1004 N. Big Spring, Suite 121

Midland, Texas 79701

Facsimile: (432) 685-1835

Attention: Ryan Monroe, Vice President

Any such notice or other communication shall be effective (a) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified in this Section 17 and the appropriate
answerback is received or receipt is otherwise confirmed, (b) if given by mail, three (3) days
after deposit in the mails with first-class postage, prepaid, as addressed as aforesaid or (c) if
given by any other method, when delivered at the address specified in this Section 17; provided,
however, that notices to the Agent under Sections 2, 3, 4 or 5 hereof shall not be effective until
received. Any notice required to be given to the Lenders shall be given to the Agent and
distributed to all Lenders by the Agent.

     18. Expenses. The Borrower shall pay (i) all reasonable and necessary out-of-pocket expenses
of the Agent, including reasonable fees and disbursements of special counsel for the Agent, in
connection with the preparation of this Agreement, any waiver or consent hereunder or any amendment
hereof or any Default or Event of Default or alleged Default or Event of Default hereunder, (ii)
all reasonable and necessary out-of-pocket expenses of the Agent, including reasonable fees and
disbursements of special counsel for the Agent in connection with the preparation of any
participation agreement for a participant or participants or any amendment thereof and (iii) if a
Default or an Event of Default occurs, all reasonable and necessary out-of-pocket expenses incurred
by the Lenders, including reasonable fees and disbursements of counsel, in connection with such
Default and Event of Default and collection and other enforcement proceedings resulting therefrom.
THE BORROWER HEREBY ACKNOWLEDGES THAT COTTON, BLEDSOE, TIGHE & DAWSON IS SPECIAL COUNSEL TO
CITIBANK, AS AGENT AND AS A LENDER, UNDER THIS AGREEMENT AND THAT IT IS NOT COUNSEL TO, NOR DOES IT
REPRESENT THE BORROWER IN CONNECTION WITH THE TRANSACTIONS DESCRIBED IN THIS AGREEMENT. The
Borrower is relying on separate counsel in the transaction described herein. The Borrower shall
indemnify the Lenders against any transfer taxes, document taxes,

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assessments or charges made by
any governmental authority by reason of the execution, delivery and filing of the Loan Documents.
The obligations of this Section 18 shall survive any termination of this Agreement, the expiration
of the Loans and the payment of all indebtedness of the Borrower to the Lenders hereunder and under
the Notes.

     19. Indemnity. The Borrower hereby agrees to, and agrees to cause each Subsidiary to,
indemnify the Agent, each Lender, their respective Affiliates, and each of their directors,
officers, and employees (the “Indemnified Parties”) against all losses, claims, damages, penalties,
judgments, liabilities and expenses (including, without limitation, all attorney’s fees and
expenses of litigation or preparation therefor of any Indemnified Party) which any of them may pay
or incur arising out of or relating to this Agreement, the other Loan Documents, the transactions
contemplated hereby or the direct or indirect application or proposed application of the proceeds
of any Loan hereunder even if any of the foregoing arises out of the ordinary negligence of the
party seeking indemnification except to the extent that they are determined in a final
non-appealable judgment by a court of competent jurisdiction to have resulted from the gross
negligence or willful misconduct of the party seeking indemnification. The indemnity set forth
herein shall be in addition to any other obligations or liabilities of the Borrower to any
Indemnified Party hereunder or at common law or otherwise, and shall survive any termination of
this Agreement, the expiration of the Loans and the payment of all indebtedness of the Borrower to
the Lenders hereunder and under the Notes. THE PARTIES INTEND FOR THE PROVISIONS OF THIS SECTION
TO APPLY TO AND PROTECT EACH INDEMNIFIED PARTY FROM THE CONSEQUENCES OF ANY LIABILITY INCLUDING
STRICT LIABILITY IMPOSED OR THREATENED TO BE IMPOSED ON THE INDEMNIFIED PARTY AS WELL AS FROM THE
CONSEQUENCES OF ITS OWN NEGLIGENCE, WHETHER OR NOT THAT NEGLIGENCE IS THE SOLE, CONTRIBUTING, OR
CONCURRING CAUSE OF ANY CLAIM.

     20. Non-Liability of Lenders. The relationship between the Borrower on the one hand and the
Lenders and the Agent on the other hand shall be solely that of borrower and lender. Neither the
Agent nor any Lender shall have any fiduciary responsibility to the Borrower or any Subsidiary.
Neither the Agent nor any Lender undertakes any responsibility to the Borrower or any Subsidiary to
review or inform the Borrower or any Subsidiary of any matter in connection with any phase of the
Borrower’s or any Subsidiary’s businesses or operations. The Borrower agrees that neither the
Agent nor any Lender shall have any liability to the Borrower or any Subsidiary (whether sounding
in tort, contract or otherwise) for losses suffered by the Borrower or any Subsidiary in connection
with, arising out of, or in any way related to, the transactions contemplated and the relationship
established by this Agreement and the other Loan Documents, or any act, omission or event occurring
in connection therewith, unless it is determined in a final non-appealable judgment by a court of
competent jurisdiction that such loss resulted from the gross negligence or willful misconduct of
the party from which recovery is sought. Neither the Agent nor any Lender shall have any liability
with respect to, and the

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Borrower hereby waives, releases and agrees not to sue for, any special,
indirect, consequential or punitive damages suffered by the Borrower or any Subsidiary in
connection with, arising out of, or in any way related to this Agreement, the Loan Documents or any
transaction contemplated thereby.

     21. Governing Law. THIS AGREEMENT IS BEING EXECUTED AND DELIVERED, AND IS INTENDED TO BE
PERFORMED, IN MIDLAND, MIDLAND COUNTY, TEXAS, AND THE SUBSTANTIVE LAWS OF TEXAS SHALL GOVERN THE
VALIDITY, CONSTRUCTION,
ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND ALL OTHER DOCUMENTS AND INSTRUMENTS
REFERRED TO HEREIN, UNLESS OTHERWISE SPECIFIED THEREIN.

     22. Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid, or
unenforceable under present or future laws effective during the term of this Agreement, such
provisions shall be fully severable and this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part of this Agreement, and the
remaining provisions of the Agreement shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance from this
Agreement.

     23. Maximum Interest Rate. Regardless of any provisions contained in this Agreement or in any
other documents and instruments referred to herein, the Lenders shall never be deemed to have
contracted for or be entitled to receive, collect or apply as interest on the Notes any amount in
excess of the Maximum Rate, and in the event any Lender ever receives, collects or applies as
interest any such excess, or if an acceleration of the maturities of any Notes or if any prepayment
by the Borrower results in the Borrower having paid any interest in excess of the Maximum Rate,
such amount which would be excessive interest shall be applied to the reduction of the unpaid
principal balance of the Notes for which such excess was received, collected or applied, and, if
the principal balance of such Note is paid in full, any remaining excess shall forthwith be paid to
the Borrower. All sums paid or agreed to be paid to the Lenders for the use, forbearance or
detention of the indebtedness evidenced by the Notes and/or this Agreement shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term
of such indebtedness until payment in full so that the rate or amount of interest on account of
such indebtedness does not exceed the Maximum Rate. In determining whether or not the interest
paid or payable under any specific contingency exceeds the Maximum Rate of interest permitted by
law, the Borrower and the Lenders shall, to the maximum extent permitted under applicable law, (i)
characterize any non-principal payment as an expense, fee or premium, rather than as interest; and
(ii) exclude voluntary prepayments and the effect thereof; and (iii) compare the total amount of
interest contracted for, charged or received with the total amount of interest which could be
contracted for, charged or received throughout the entire contemplated term of the Note at the
Maximum Rate.

-64-

 

     For purposes of Section 303 of the Texas Finance Code, to the extent applicable to any Lender
or Agent, Borrower agrees that the Maximum Rate shall be the “weekly ceiling” as defined in said
Chapter, provided that such Lender or Agent, as applicable, may also rely, to the extent permitted
by applicable laws of the State of Texas and the United States of America, on alternative maximum
rates of interest under the Texas Finance Code or other laws applicable to such Lender or Agent
from time to time if greater. Chapter 346 of the Texas Finance Code does not apply to the
Borrower’s obligations hereunder.

     24. Amendments. This Agreement may be amended only by an instrument in writing executed by an
authorized officer of the party against whom such amendment is sought to be enforced. No
modification or waiver of any
provision of the Loan Documents, including this Agreement, or the Notes nor consent to
departure therefrom, shall be effective unless in writing signed by Borrower, and Majority Lenders
(or by Agent on behalf of Majority Lenders) subject to the additional requirements of Section 15(f)
hereof, to the extent applicable. No such consent or waiver shall extend beyond the particular
case and purpose involved. No notice or demand given in any case shall constitute a waiver of the
right to take other action in the same, similar or other circumstances without such notice or
demand. No amendment of any provision of this Agreement relating to the Agent shall be effective
without the written consent of the Agent.

     25. Multiple Counterparts. This Agreement may be executed in a number of identical separate
counterparts (including by facsimile transmission), each of which for all purposes is to be deemed
an original, but all of which shall constitute, collectively, one agreement. No party to this
Agreement shall be bound hereby until a counterpart of this Agreement has been executed by all
parties hereto.

     26. Conflict. In the event any term or provision hereof is inconsistent with or conflicts
with any provision of the Loan Documents, the terms or provisions contained in this Agreement shall
be controlling.

     27. Survival. All covenants, agreements, undertakings, representations and warranties made in
the Loan Documents, including this Agreement, the Notes or other documents and instruments referred
to herein shall survive all closings hereunder and shall not be affected by any investigation made
by any party.

     28. Parties Bound. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, assigns, heirs, legal representatives and estates,
provided, however, that Borrower may not, without the prior written consent of all of the Lenders,
assign any rights, powers, duties or obligations hereunder.

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     29. Assignments and Participations.

     (a) Each Lender shall have the right to sell, assign or transfer all or any part of its
Note or Notes, its Commitment and its rights and obligations hereunder to one or more
Affiliates, Lenders, financial institutions, pension plans, insurance companies, investment
funds, or similar Persons who are Eligible Assignees or to a Federal Reserve Bank;
provided, that each sale, assignment or transfer (other than to an Affiliate, a
Lender or a Federal Reserve Bank) shall require the consent of Agent and the Borrower, which
consents will not be unreasonably withheld; provided, however, that if an Event of Default
has occurred and is continuing, the consent of the Borrower shall not be required. Any such
assignee, transferee or recipient shall have, to the extent of such sale, assignment, or
transfer, the same rights, benefits and obligations as it would if it were such Lender and a
holder of such Note, Commitment and rights and obligations, including, without limitation,
the right to vote on decisions requiring consent or approval of all Lenders or Majority
Lenders and the obligation to fund its Commitment; provided,
that (1) each such sale, assignment, or transfer (other than to an Affiliate, a Lender
or a Federal Reserve Bank) shall be in an aggregate principal amount not less than
$5,000,000, (2) each remaining Lender shall at all times maintain its Commitment then
outstanding in an aggregate principal amount at least equal to $5,000,000; (3) each such
sale, assignment or transfer shall be of a Pro Rata portion of such Lender’s Commitment, (4)
no Lender may offer to sell its Note or Notes, Commitment, rights and obligations or
interests therein in violation of any securities laws; and (5) no such assignments (other
than to a Federal Reserve Bank) shall become effective until the assigning Lender and its
assignee delivers to Agent and Borrower an Assignment and Acceptance and the Note or Notes
subject to such assignment and other documents evidencing any such assignment. An
assignment fee in the amount of $3,500 for each such assignment (other than to an Affiliate,
a Lender or the Federal Reserve Bank) will be payable to Agent by assignor or assignee.
Within five (5) Business Days after its receipt of copies of the Assignment and Acceptance
and the other documents relating thereto and the Note or Notes, the Borrower shall execute
and deliver to Agent (for delivery to the relevant assignee) a new Note or Notes evidencing
such assignee’s assigned Commitment and if the assignor Lender has retained a portion of its
Commitment, a replacement Note in the principal amount of the Commitment retained by the
assignor (except as provided in the last sentence of this paragraph (a) such Note or Notes
to be in exchange for, but not in payment of, the Note or Notes held by such Lender). On
and after the effective date of an assignment hereunder, the assignee shall for all purposes
be a Lender, party to this Agreement and any other Loan Document executed by the Lenders and
shall have all the rights and obligations of a Lender under the Loan Documents, to the same
extent as if it were an original party thereto, and no further consent or action by
Borrower, Lenders or the Agent shall be required to release the transferor Lender with
respect to its Commitment assigned to such assignee and the transferor Lender shall
henceforth be so released.

-66-

 

     (b) Each Lender shall have the right to grant participations in all or any part of such
Lender’s Notes and Commitment hereunder to one or more pension plans, investment funds,
insurance companies, financial institutions or other Persons, provided, that:

     (i) each Lender granting a participation shall retain the right to vote
hereunder, and no participant shall be entitled to vote hereunder on
decisions requiring consent or approval of Lenders or Majority Lenders
(except as set forth in (iii) below);

     (ii) in the event any Lender grants a participation hereunder, such
Lender’s obligations under the Loan Documents shall remain unchanged, such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, such Lender shall remain the holder of any
such Note or Notes for all purposes under the Loan Documents, and Agent,
each Lender and Borrower shall be entitled to deal with the Lender granting
a participation in the same manner as if no participation had been granted;
and

     (iii) no participant shall ever have any right by reason of its
participation to exercise any of the rights of Lenders hereunder, except
that any Lender may agree with any participant that such Lender will not,
without the consent of such participant (which consent may not be
unreasonably withheld) consent to any amendment or waiver requiring approval
of all Lenders.

     (c) It is understood and agreed that any Lender may provide to assignees and
participants and prospective assignees and participants financial information and reports
and data concerning Borrower’s properties and operations which was provided to such Lender
pursuant to this Agreement, provided, that each recipient thereto has first agreed, for the
benefit of Borrower, to hold such information, reports and data in confidence on the terms
set out in Section 12(j) hereof.

     (d) Upon the reasonable request of either Agent or Borrower, each Lender will identify
those to whom it has assigned or participated in any part of its Notes and Commitment, and
provide the amounts so assigned or participated.

     30. Choice of Forum: Consent to Service of Process and Jurisdiction. THE OBLIGATIONS OF
BORROWER UNDER THE LOAN DOCUMENTS ARE PERFORMABLE IN MIDLAND COUNTY, TEXAS. ANY SUIT, ACTION OR

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PROCEEDING AGAINST BORROWER WITH RESPECT TO THE LOAN DOCUMENTS OR ANY JUDGMENT ENTERED BY ANY COURT
IN RESPECT THEREOF, MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS, COUNTY OF MIDLAND, OR IN
THE UNITED STATES COURTS LOCATED IN MIDLAND COUNTY, TEXAS AND THE BORROWER HEREBY SUBMITS TO THE
NON-EXCLUSIVE JURISDICTION OF SUCH COURTS FOR THE PURPOSE OF ANY SUCH SUIT, ACTION OR PROCEEDING.
BORROWER HEREBY IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING IN
SAID COURT BY THE MAILING THEREOF BY AGENT BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE
BORROWER, AT THE ADDRESS FOR NOTICES AS PROVIDED IN SECTION 17. BORROWER HEREBY IRREVOCABLY WAIVES
ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT BROUGHT IN THE COURTS LOCATED IN THE
STATE OF TEXAS, COUNTY OF MIDLAND, AND HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH
SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

     31. Waiver of Jury Trial. THE PARTIES TO THIS AGREEMENT HEREBY, UNCONDITIONALLY AND
VOLUNTARILY, WITH AND UPON THE ADVICE OF COUNSEL, WAIVE, RELINQUISH AND FOREVER FOREGO TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING OR
ACTION BASED UPON, ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.

     32. Other Agreements. THIS WRITTEN CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.

     33. Financial Terms. All accounting terms used in this Agreement which are not specifically
defined herein shall be construed in accordance with GAAP.

     34. Communications Via Internet. Borrower hereby authorizes the Agent and each Lender and
their respective counsel, engineers and advisors to communicate and transfer documents and other
information (including confidential information) concerning this transaction or Borrower and the
Collateral or the business affairs of Borrower via the Internet or other electronic communication
without regard to the lack of security of such communications.

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     35. Amendment and Restatement. This Agreement amends and restates in its entirety the Prior
Credit Agreement.

     36. USA Patriot Act Notice. Each Lender and the Agent (for itself and not on behalf of any
Lender) hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act
(Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to
obtain, verify and record information that identifies Borrower, which information includes the name
and address of Borrower and other information that will allow such Lender or the Agent, as
applicable, to identify Borrower in accordance with the Act.

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

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

	 	 	 	 	 
	 	BORROWER:

PARALLEL PETROLEUM CORPORATION,

a Delaware corporation

 	 
	 	By:  	/s/ Steven D. Foster
 	 
	 	 	Steven D. Foster 	 
	 	 	Chief Financial Officer 	 

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COMMITMENT PERCENTAGE
AS OF EFFECTIVE DATE: 	LENDERS:

CITIBANK, N.A.,

a national banking association, as Joint Lead

Arranger and Administrative Agent and as a

Lender

 	 
	21% 
	By:  	/s/ Ryan Monroe
 	 
	 	 	Ryan Monroe 	 
	 	 	Vice President 	 
	 

[SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED CREDIT AGREEMENT]

-71-

 

	 	 	 	 	 
	COMMITMENT PERCENTAGE
AS OF EFFECTIVE DATE: 	BNP PARIBAS, as Joint Lead Arranger and

Syndication Agent and as a Lender

 	 
	24% 
	By:  	/s/ Richard Hawthorne
 	 
	 	 	Richard Hawthorne 	 
	 	 	Director 	 
	 	 	 
	 	By:  	/s/ Courtney Kubesch
 	 
	 	 	Courtney Kubesch 	 
	 	 	Vice President 	 
	 

[SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED CREDIT AGREEMENT]

-72-

 

	 	 	 	 	 
	COMMITMENT PERCENTAGE
AS OF EFFECTIVE DATE: 	WESTERN NATIONAL BANK,

as a Lender

 	 
	7.381% 
	By:  	/s/ Wesley D. Bownds
 	 
	 	 	Wesley D. Bownds 	 
	 	 	President 	 
	 

[SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED CREDIT AGREEMENT]

-73-

 

	 	 	 	 	 
	COMMITMENT PERCENTAGE
AS OF EFFECTIVE DATE: 	COMPASS BANK,

as a Lender

 	 
	17.35% 
	By:  	/s/ Kathleen J. Bowen
 	 
	 	 	Kathleen J. Bowen 	 
	 	 	Senior Vice President 	 
	 

[SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED CREDIT AGREEMENT]

-74-

 

	 	 	 	 	 
	COMMITMENT PERCENTAGE
AS OF EFFECTIVE DATE: 	COMERICA BANK,

as a Lender

 	 
	9.739% 
	By:  	/s/ Peter L. Sefzik
 	 
	 	 	Peter L. Sefzik 	 
	 	 	Vice President 	 
	 

[SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED CREDIT AGREEMENT]

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	COMMITMENT PERCENTAGE
AS OF EFFECTIVE DATE: 	BANK OF SCOTLAND plc,

as a Lender

 	 
	13.03% 
	By:  	/s/ Karen Weich
 	 
	 	 	Karen Weich 	 
	 	 	Vice President 	 
	 

[SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED CREDIT AGREEMENT]

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	COMMITMENT PERCENTAGE
AS OF EFFECTIVE DATE: 	TEXAS CAPITAL BANK, N.A.,

as a Lender

 	 
	7.50% 
	By:  	/s/ Brian J. Petet
 	 
	 	 	Brian J. Petet 	 
	 	 	Vice President 	 
	 

[SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED CREDIT AGREEMENT]

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EXHIBIT “A”

NOTICE OF BORROWING

     The undersigned hereby certifies that he is the                                          of PARALLEL PETROLEUM
CORPORATION, a Delaware corporation (“Borrower”), and that as such he is authorized to execute this
Notice of Borrowing on behalf of Borrower. With reference to that certain Fourth Amended and
Restated Credit Agreement dated as of May 16, 2008 (as same may be amended, modified, increased,
supplemented and/or restated from time to time, the “Agreement”) entered into by and among
Borrower, Citibank, N.A., as Joint Lead Arranger and Administrative Agent, BNP Paribas, as Joint
Lead Arranger and Syndication Agent and CITIBANK, N.A., and the other financial institutions party
thereto (the “Lenders”), the undersigned further certifies, represents and warrants on behalf of
Borrower that all of the foregoing statements are true and correct (each capitalized term used
herein having the same meaning given to it in the Agreement unless otherwise specified):

     (a) Borrower requests that the Lenders advance Borrower on the Loan the aggregate sum
of $________________ by no later than _______________. Immediately following such
Advance, the aggregate outstanding balance of Advances shall equal $                     on the
Loan.

     (b) This Advance shall be a Base Rate Loan                     , or a LIBOR Loan
                    ,
(if LIBOR please state requested Interest Period: ___ months).

     (c) As of the date hereof, and as a result of the making of the requested Advance,
there does not and will not exist any Default or Event of Default.

     (d) Borrower has performed and complied with all agreements and conditions contained in
the Agreement and the other Loan Documents which are required to be performed or complied
with by Borrower before or on the date hereof.

     (e) The representations and warranties contained in the Agreement are true and correct
in all material respects as of the date hereof and shall be true and correct upon the making
of the Advance, with the same force and effect as though made on and as of the date hereof
and thereof (except to the extent such representations and warranties relate solely to an
earlier date).

     (f) No change that would cause a Material Adverse Effect to the condition, financial or
otherwise, of Borrower or, to the knowledge of Borrower, any Subsidiary has occurred since
the most recent Financial Statement provided to the Lenders.

A-1

 

     EXECUTED
AND DELIVERED this ___ day of                     , 20___.

	 	 	 	 	 
	 	PARALLEL PETROLEUM CORPORATION,

a Delaware corporation

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

A-2

 

EXHIBIT “B”

REVOLVING NOTE

					
	 	 	 	 	 
	$                    
	 	Midland, Texas
	 	May 16, 2008

     FOR VALUE RECEIVED, the undersigned PARALLEL PETROLEUM CORPORATION, a Delaware corporation
(“Borrower”), hereby unconditionally promises to pay to the order of                                          (the
“Lender”) at the offices of CITIBANK, N.A. (the “Agent”) in Midland County, Texas, the principal
sum of                                          AND ___/100 DOLLARS ($                    ), or so much thereof as may be
advanced and outstanding at any time or from time to time pursuant to the Credit Agreement (as
hereinafter defined) in lawful money of the United States of America together with interest from
the date hereof until paid at the rates specified in the Credit Agreement. All payments of
principal and interest due hereunder are payable at the offices of Agent at 1004 N. Big Spring,
Suite 121, Midland, Texas 79701, or at such other address as Lender shall designate in writing to
Borrower.

     The principal and all accrued interest on this Note shall be due and payable in accordance
with the terms and provisions of the Credit Agreement.

     This Note is executed pursuant to that certain Fourth Amended and Restated Credit Agreement
dated of even date herewith among Borrower, Citibank, N.A., as Joint Lead Arranger and
Administrative Agent, BNP Paribas, as Joint Lead Arranger and Syndication Agent, and the Lenders
from time to time parties thereto (as the same may be modified or amended from time to time, the
“Credit Agreement”), and is one of the Notes referred to therein. Reference is made to the Credit
Agreement and the Loan Documents (as that term is defined in the Credit Agreement) for a statement
of prepayment rights and obligations of Borrower, for a statement of the terms and conditions under
which the due date of this Note may be accelerated and for statements regarding other matters
affecting this Note (including without limitation the obligations of the holder hereof to advance
funds hereunder, principal and interest payment due dates, voluntary and mandatory prepayments,
exercise of rights and remedies, payment of attorneys’ fees, court costs and other costs of
collection and certain waivers by Borrower and others now or hereafter obligated for payment of any
sums due hereunder). Upon the occurrence of an Event of Default, as that term is defined in the
Credit Agreement and Loan Documents, the Agent may declare forthwith to be entirely and immediately
due and payable the principal balance hereof and the interest accrued hereon, and the Lender shall
have all rights and remedies of the Lender under the Credit Agreement and Loan Documents. This
Note may be prepaid in accordance with the terms and provisions of the Credit Agreement.

     Regardless of any provision contained in this Note, the holder hereof shall never be entitled
to receive, collect or apply, as interest on this Note, any amount in excess of the Maximum Rate
(as such term is defined in the Credit Agreement), and, if the holder hereof ever receives,
collects, or applies as interest, any such amount which would be excessive interest, it

B-1

 

shall be deemed a partial prepayment of principal and treated hereunder as such; and, if the
indebtedness evidenced hereby is paid in full, any remaining excess shall forthwith be paid to
Borrower. In determining whether or not the interest paid or payable, under any specific
contingency, exceeds the Maximum Rate, Borrower and the holder hereof shall, to the maximum extent
permitted under applicable law (i) characterize any non-principal payment as an expense, fee or
premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof, and
(iii) spread the total amount of interest throughout the entire contemplated term of the
obligations evidenced by this Note and/or referred to in the Credit Agreement so that the interest
rate is uniform throughout the entire term of this Note; provided that, if this Note is paid and
performed in full prior to the end of the full contemplated term thereof; and if the interest
received for the actual period of existence thereof exceeds the Maximum Rate, the holder hereof
shall refund to Borrower the amount of such excess or credit the amount of such excess against the
indebtedness evidenced hereby, and, in such event, the holder hereof shall not be subject to any
penalties provided by any laws for contracting for, charging, taking, reserving or receiving
interest in excess of the Maximum Rate.

     If any payment of principal or interest on this Note shall become due on a day other than a
Business Day (as such term is defined in the Credit Agreement), such payment shall be made on the
next succeeding Business Day and such extension of time shall in such case be included in computing
interest in connection with such payment.

     If this Note is placed in the hands of an attorney for collection, or if it is collected
through any legal proceeding at law or in equity or in bankruptcy, receivership or other court
proceedings, Borrower agrees to pay all costs of collection, including, but not limited to, court
costs and reasonable attorneys’ fees.

     Borrower and each surety, endorser, guarantor and other party ever liable for payment of any
sums of money payable on this Note, jointly and severally waive presentment and demand for payment,
notice of intention to accelerate the maturity, protest, notice of protest and nonpayment, as to
this Note and as to each and all installments hereof, and agree that their liability under this
Note shall not be affected by any renewal or extension in the time of payment hereof, or in any
indulgences, or by any release or change in any security for the payment of this Note, and hereby
consent to any and all renewals, extensions, indulgences, releases or changes.

     This Note shall be governed by and construed in accordance with the applicable laws of the
United States of America and the laws of the State of Texas.

     THIS INSTRUMENT SECURES A LINE OF CREDIT USED PRIMARILY FOR BUSINESS, COMMERCIAL OR
AGRICULTURAL PURPOSES.

     This Note is executed in renewal, extension, increase and rearrangement, but not in
extinguishment or novation, of that certain Revolving Note dated                                         , in the

B-2

 

original principal amount of $                    , executed by Borrower and payable to the order of
Lender.

     THIS WRITTEN NOTE, THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENTS BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.

     EXECUTED as of the date and year first above written.

	 	 	 	 	 
	 	BORROWER:

PARALLEL PETROLEUM CORPORATION

a Delaware corporation

 	 
	 	By:  	 	 
	 	 	Steven D. Foster 	 
	 	 	Chief Financial Officer 	 
	 

B-3

 

EXHIBIT “C”

CERTIFICATE OF COMPLIANCE

     The undersigned hereby certifies that he is the                                          of PARALLEL PETROLEUM
CORPORATION, a Delaware corporation (“Borrower”), and that as such he is authorized to execute this
Certificate of Compliance on behalf of Borrower. With reference to that certain Fourth Amended and
Restated Credit Agreement, dated as of May 16, 2008 (as same may be amended, modified, increased,
supplemented and/or restated from time to time, the “Agreement”) entered into by and among the
Borrower, Citibank, N.A., as Joint Lead Arranger and Administrative Agent, BNP Paribas, as Joint
Lead Arranger and Syndication Agent, and CITIBANK, N.A., as “Agent,” for itself and the Lenders
signatory thereto (the “Lenders”), the undersigned further certifies, represents and warrants on
behalf of Borrower that all of the following statements are true and correct (each capitalized term
used herein having the same meaning given to it in the Agreement unless otherwise specified):

     (a) Borrower has fulfilled in all material respects its obligations under the Notes and
Loan Documents, including the Agreement, and all representations and warranties made herein
and therein continue (except to the extent they relate solely to an earlier date) to be true
and correct in all material respects [if the representations and warranties are not true and
correct, the party signing this certificate shall except from the foregoing statement the
matters for which such representations and warranties are no longer true specifying the
nature of any such change.]

     (b) No Default or Event of Default has occurred under the Loan Documents, including the
Agreement [if a Default or Event of Default has occurred, the party certifying hereto shall
specify the facts constituting the Default or Event of Default and the nature and status
thereof].

     (c) To the extent requested from time to time by the Agent, the certifying party shall
specifically affirm compliance of the Borrower in all material respects with any of its
representations and warranties (except to the extent they relate solely to an earlier date)
or obligations under the Loan Documents.

     (d)
Financial Computations for the period ending ______ (provide
calculations on a consolidated basis):

(i) Current Ratio;

(ii) Funded Debt Ratio; and

(iii) Adjusted Consolidated Net Worth.

C-1

 

     EXECUTED,
DELIVERED AND CERTIFIED TO this ___ day of                     , 20___.

	 	 	 	 	 
	 	PARALLEL PETROLEUM CORPORATION,

a Delaware corporation

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

C-2

 

EXHIBIT “D”

ASSIGNMENT AND ACCEPTANCE AGREEMENT

This Assignment and Acceptance Agreement (this “Assignment Agreement”) between                     
(the “Assignor”) and                                          (the “Assignee”) is dated as of                     ,
20___. The parties hereto agree as follows:

     1. PRELIMINARY STATEMENT. The Assignor is a party to a Fourth Amended and Restated
Credit Agreement (which, as it may be amended, modified, restated, renewed or extended from time to
time is herein called the “Credit Agreement”) described in Item 1 of Schedule 1 attached hereto
(“Schedule 1”). Capitalized terms used herein and not otherwise defined herein shall have
the meanings attributed to them in the Credit Agreement.

     2. ASSIGNMENT AND ASSUMPTION. The Assignor hereby sells and assigns to the Assignee,
and the Assignee hereby purchases and assumes from the Assignor, an interest in and to the
Assignor’s rights and obligations under the Credit Agreement and the other Loan Documents, such
that after giving effect to such assignment the Assignee shall have purchased pursuant to this
Assignment Agreement the percentage interest specified in Item 2 of Schedule 1 of all outstanding
rights and obligations under the Credit Agreement and the other Loan Documents relating to the
facilities listed in Item 3 of Schedule 1. The aggregate Commitment (or Loans, if the applicable
Commitment has been terminated) purchased by the Assignee hereunder is set forth in Item 4 of
Schedule 1.

     3. EFFECTIVE DATE. The effective date of this Assignment Agreement (the “Effective
Date”) shall be the later of the date specified in Item 5 of Schedule 1 or two Business Days (or
such shorter period agreed to by the Agent) after this Assignment Agreement, together with any
consents required under the Credit Agreement, are delivered to the Agent. In no event will the
Effective Date occur if the payments required to be made by the Assignee to the Assignor on the
Effective Date are not made on the proposed Effective Date.

     4. PAYMENT OBLIGATIONS. In consideration for the sale and assignment of Loans
hereunder, the Assignee shall pay the Assignor, on the Effective Date, the amount agreed to by the
Assignor and the Assignee. On and after the Effective Date, the Assignee shall be entitled to
receive from the Agent all payments of principal, interest and fees with respect to the interest
assigned hereby. The Assignee will promptly remit to the Assignor any interest on Loans and fees
received from the Agent which relate to the portion of the Commitment or Loans assigned to the
Assignee hereunder for periods prior to the Effective Date and not previously paid by the Assignee
to the Assignor. In the event that either party hereto receives any payment to which the other
party hereto is entitled under this Assignment Agreement, then the party receiving such amount
shall promptly remit it to the other party hereto.

D-1

 

     5. RECORDATION FEE. The Assignor and Assignee each agree to pay one-half of the
recordation fee required to be paid to the Agent in connection with this Assignment Agreement
unless otherwise specified in Item 6 of Schedule 1.

     6. REPRESENTATIONS OF THE ASSIGNOR; LIMITATIONS ON THE ASSIGNOR’S LIABILITY. The
Assignor represents and warrants that (i) it is the legal and beneficial owner of the interest
being assigned by it hereunder, (ii) such interest is free and clear of any adverse claim created
by the Assignor and (iii) the execution and delivery of this Assignment Agreement by the Assignor
is duly authorized. It is understood and agreed that the assignment and assumption hereunder are
made without recourse to the Assignor and that the Assignor makes no other representation or
warranty of any kind to the Assignee. Neither the Assignor nor any of its officers, directors,
employees, agents or attorneys shall be responsible for (i) the due execution, legality, validity,
enforceability, genuineness, sufficiency or collectability of any Loan Document, including without
limitation, documents granting the Assignor and the other Lenders a security interest in assets of
the Borrower, (ii) any representation, warranty or statement made in or in connection with any of
the Loan Documents, (iii) the financial condition or creditworthiness of the Borrower, (iv) the
performance of or compliance with any of the terms or provisions of any of the Loan Documents, (v)
inspecting any of the property, books or records of the Borrower, (vi) the validity,
enforceability, perfection, priority, condition, value or sufficiency of any collateral securing or
purporting to secure the Loans or (vii) any mistake, error of judgment, or action taken or omitted
to be taken in connection with the Loans or the Loan Documents.

     7. REPRESENTATIONS AND UNDERTAKINGS OF THE ASSIGNEE. The Assignee (i) confirms that
it has received a copy of the Credit Agreement, together with copies of the financial statements
requested by the Assignee and such other documents and information as it has deemed appropriate to
make its own credit analysis and decision to enter into this Assignment Agreement, (ii) agrees that
it will, independently and without reliance upon the Agent, the Assignor or any other Lender and
based on such documents and information at it shall deem appropriate at the time, continue to make
its own credit decisions in taking or not taking action under the Loan Documents, (iii) appoints
and authorizes the Agent to take such action as agent on its behalf and to exercise such powers
under the Loan Documents as are delegated to the Agent by the terms thereof, together with such
powers as are reasonably incidental thereto, (iv) confirms that the execution and delivery of this
Assignment Agreement by the Assignee is duly authorized, (v) agrees that it will perform in
accordance with its terms all of the obligations which by the terms of the Loan Documents are
required to be performed by it as a Lender, (vi) agrees that its payment instructions and notice
instructions are as set forth in the attachment to Schedule 1, (vii) confirms that none of the
funds, monies, assets or other consideration being used to make the purchase and assumption
hereunder are “plan assets” as defined under ERISA and that its rights, benefits and interests in
and under the Loan Documents will not be “plan assets” under ERISA, (viii) agrees to indemnify and
hold the Assignor harmless against all losses, costs and expenses (including, without limitation,
reasonable attorneys’ fees) and liabilities incurred by the Assignor in connection with or arising
in any manner from the

D-2

 

Assignee’s non-performance of the obligations assumed under this Assignment Agreement, and (ix) if
applicable, attaches the forms prescribed by the Internal Revenue Service of the United States
certifying that the Assignee is entitled to receive payments under the Loan Documents without
deduction or withholding of any United States federal income taxes.

     8. GOVERNING LAW. This Assignment Agreement shall be governed by the internal law,
and not the law of conflicts, of the State of Texas

     9. NOTICES. Notices shall be given under this Assignment Agreement in the manner set
forth in the Credit Agreement. For the purpose hereof, the addresses of the parties hereto (until
notice of a change is delivered) shall be the address set forth in the attachment to Schedule 1.

     10. COUNTERPARTS; DELIVERY BY FACSIMILE. This Assignment Agreement may be executed in
counterparts. Transmission by facsimile of an executed counterpart of this Assignment Agreement
shall be deemed to constitute due and sufficient delivery of such counterpart and such facsimile
shall be deemed to be an original counterpart of this Assignment Agreement.

     IN WITNESS WHEREOF, the duly authorized officers of the parties hereto have executed this
Assignment Agreement as of the date first above written.

	 	 	 	 	 
	 	[ASSIGNOR]

 	 
	 	By:  	 	 
	 	 	Title: 	 	 
	 
	 	Address: 	 	 
	 	 	 	 
	 
	 	[ASSIGNEE]

 	 
	 	By:  	 	 
	 	 	Title: 	 	 
	 
	 	Address: 	 
	 	 	 

D-3

 

	 	 	 	 	 

	 	 	 	 	 
	(If required)

ACKNOWLEDGED AND CONSENTED TO:

CITIBANK, N.A.

as Administrative Agent

 	 
	By:  	 	 
	 	Name:  	 	 
	 	Title:  	 	 
	 
	PARALLEL PETROLEUM CORPORATION

a Delaware corporation

 	 
	By:  	 	 
	 	Name:  	 	 
	 	Title:  	 	 
	 

D-4

 

SCHEDULE “1”

(Section 10(v))

LIENS

None.

 

 

SCHEDULE “2”

(Section 10(f))

FINANCIAL CONDITION

None.

 

 

SCHEDULE “3”

(Section 10(g))

LIABILITIES

None.

 

 

SCHEDULE “4”

(Section 10(h))

LITIGATION

Pending or Threatened Litigation,

Legal or Administrative Proceedings

None.

 

 

SCHEDULE “5”

(Section 10(y))

GAS IMBALANCES; PREPAYMENTS

None.

 

 

SCHEDULE “6”

(Section 12(s))

TITLE MATTERS

None.

 

 

SCHEDULE
“7”

(Section 12(t))

CURATIVE MATTERS

None.

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