Document:

exv10w20

 

Exhibit 10.20

SEVERANCE AGREEMENT

     THIS AGREEMENT, made and entered into as of the Effective Date, by and between Danny Heatly
(the “Employee”) and Devon Energy Corporation (the “Company”);

WITNESSETH THAT:

     WHEREAS, the parties desire to enter into this Agreement pertaining to the employment of the
Employee by the Company;

     NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth below, it is
hereby covenanted and agreed by the Employee and the Company as follows:

     1. Definitions and Construction. The following words, terms, and phrases used in this
Agreement shall have the meanings set forth in this paragraph 1:

	(a)	 	“Affiliate” means any entity during any period that it is an affiliate of the Company, as
the term “affiliate” is defined under Rule 12b-2 of
the Exchange Act (provided that for this purpose, “Affiliate” shall exclude natural persons).
	 
	(b)	 	The “Agreement Term” shall be the period beginning on the Effective Date and ending
on the earlier of the Employee’s Date of Termination based upon the circumstances
described in paragraphs 5(a) through 5(f) or two years after the Company has provided
the Employee with written notice of the Company’s desire to terminate the Agreement;
provided if a Change of Control Date occurs at any time, including during the above
referenced two year notice period, then, the Agreement Term may not cease prior to the
earliest of the Employee’s Date of Termination or the last day of the 24th
calendar month following the calendar month in which a Change of Control Date occurs.
	 
	(c)	 	“Aggregate Annual Compensation” shall mean the sum of (i) and (ii) below:

	 	(i)	 	The Employee’s annual base salary rate in effect on the date immediately
prior to the Employee’s Date of Termination, or any greater annual base salary rate
applicable to the Employee during the two-year period prior to the Date of Termination.
	 
	 	(ii)	 	An amount equal to the largest annual bonus paid or payable to the
Employee for the three consecutive years prior to the year in which the Employee’s Date
of Termination occurs (or, if fewer than three, for the years in which the Employee is
employed).

Determinations under this paragraph (c) shall be subject to the following:

(I) If any portion of the Employee’s salary has been reduced to reflect elective deferrals
of amounts that would otherwise be included in salary in the absence of such deferral,

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those deferred amounts shall be included in the determination of the Employee’s salary at
the time they would have been paid in the absence of such deferral. Conversely, such
amounts shall not be included in the Employee’s salary when they are paid at the end of the
deferral period.

(II) A bonus is deemed paid for a year if it is earned as a result of services that are
performed by the Employee in that year. If any portion of the Employee’s bonus has been
reduced to reflect elective deferrals of amounts that would otherwise be included in
bonus in the absence of such deferral, those deferred amounts shall be included in the
determination of the Employee’s bonus without regard to such deferral. Conversely, such
amounts shall not be included in the Employee’s bonus when they are paid at the end of
the deferral period.

(III)
The determination of the bonus amount paid or payable to the Employee for any
year shall be annualized if the Employee is not employed by the Company or an Affiliate
for the entire year.

(IV)
If the Employee’s Date of Termination occurs within the period beginning on a
Change of Control Date and ending on the last day of the 24th calendar month following
the calendar month in which the Change of Control Date occurs, then the amount
determined in accordance with paragraph (ii) above shall be not less than the largest of
the annual bonus amounts paid or payable to the Employee for the three consecutive
years prior to the year in which the Change of Control Date occurs (or, if fewer than
three, for the years in which the Employee is employed).

(V) For the avoidance of doubt, it is recited here that “Aggregate Annual
Compensation” will not include the following: (1) amounts realized from the exercise of
a nonqualified stock option; (2) amounts realized when restricted stock (or property) held
by the Employee either becomes freely transferable or is no longer subject to a substantial
risk of forfeiture; and (3) amounts realized from the sale, exchange or other disposition of
stock acquired under an incentive stock option or an employee stock purchase plan.

(VI)
If the Employee is employed by one or more Affiliates in any of the three
consecutive years prior to the year in which the Employee’s Date of Termination occurs,
the determination of the bonus paid or payable in any year shall include amounts paid or
payable by such Affiliate or Affiliates for such year.

(VII) If the Employee has not been employed by the Company for a sufficient period of
time to have been eligible to have received a bonus from the Company or any Affiliate,
the Employee’s bonus amount shall be the target bonus in effect for the year in which the
Employee’s Date of Termination occurs.

	(d)	 	“Basic Benefits” means health, dental, and life benefits (including accidental
death/dismemberment) for the Employee and the Employee’s family.
	 
	(e)	 	“Board” means the Board of Directors of the Company.

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	(f)	 	“Cause” means:

	 	(i)	 	the willful and continued failure by the Employee to substantially
perform his or her duties with the Company (other than any such failure resulting from
the Employee being Disabled), within a reasonable period of time after a written
demand for substantial performance is delivered to the Employee by the Employee’s
Supervisor, which demand specifically identifies the manner in which the Employee’s
Supervisor believes that the Employee has not substantially performed such duties;
	 
	 	(ii)	 	the willful engaging by the Employee in conduct which is demonstrably and
materially injurious to the Company or any Affiliate, monetarily or otherwise; or
	 
	 	(iii)	 	the engaging by the Employee in egregious misconduct involving serious
moral turpitude to the extent that, in the reasonable judgment of the Employee’s
Supervisor, the Employee’s credibility and reputation no longer conform to the standard
of the Company’s employees.

For purposes of this paragraph (f), no act, or failure to act, on the Employee’s part shall
be deemed “willful” unless done, or omitted to be done, by the Employee not in good faith
and without reasonable belief that the Employee’s action or omission was in the best
interest of the Company and Affiliates.

	(g)	 	A “Change of Control Date” shall be deemed to have occurred each time any one of the
events described in paragraphs (i), (ii), (iii), or (iv) below occurs; provided that if a
Change of Control Date occurs by reason of an acquisition by any Person that comes within the
provisions of paragraph (i) below), no addition Change of Control Date shall be deemed to
occur under such paragraph (i) by reason of subsequent changes in holdings by such Person
(except if the holdings by such Person are reduced below 30% and thereafter increase to 30% or
above). For the purpose of this paragraph (g), the term “Company” shall include Devon Energy
Corporation and any successor thereto.

	 	(i)	 	The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) if, immediately after
such acquisition, such Person has beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 30% or more of either (I) the then
outstanding shares of common stock of the Company (the “Outstanding Company Common
Stock”) or (II) the combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of directors (the “Outstanding
Company Voting Securities”); provided, however, that the following acquisitions shall
not constitute a Change of Control Date: (A) any acquisition by an underwriter
temporarily holding securities pursuant to an offering of such securities; (B) any
acquisition by the Company; (C) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any corporation controlled by
the Company; or

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	 	 	 	(D) any acquisition by any corporation pursuant to a transaction which complies with
clauses (A), (B), and (C) of paragraph (iii) below.

	 	(ii)	 	Individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”)
cease for any reason to constitute at least a majority of the Board; provided, however, that
any individual becoming a director subsequent to the Effective Date whose election,
appointment or nomination for election by the Company’s shareholders was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board shall be considered
as though such individual were a member of the Incumbent Board, but excluding, for purposes of
this definition, any such individual whose initial assumption of office occurs as a result of
an actual or publicly threatened election contest (as such terms are used in Rule 14a-l 1
promulgated under the Exchange Act) with respect to the election or removal of directors or
other actual or publicly threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board.

	 	(iii)	 	A reorganization, share exchange, merger or consolidation (a “Business
Combination”), in each case, unless, following such Business Combination, (A) all or
substantially all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the ultimate parent entity
resulting from such Business Combination (including, without limitation, an entity which, as
a result of such transaction, has ownership of the Company or all or substantially all of
the assets of the Company either directly or through one or more subsidiaries) in
substantially the same relative proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (B) no Person (excluding any employee benefit plan (or
related trust) of the Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 30% or more of, respectively, the then
outstanding common stock of the ultimate parent entity resulting from such Business
Combination or the combined voting power of the then outstanding voting securities of such
entity except to the extent that such ownership existed prior to the Business Combination,
and (C) at least a majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent Board at the time of
the execution of the initial agreement, or of the action of the Incumbent Board providing
for such Business Combination, or were elected, appointed or nominated by the Incumbent
Board.

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	 	(iv)	 	Approval by the shareholders of the Company of (A) a complete liquidation or
dissolution of the Company or, (B) the sale or other disposition of all or substantially
all of the assets of the Company, other than to an entity with respect to which following
such sale or other disposition, (1) more than 50% of, respectively, the then outstanding
shares of common stock of such entity and the combined voting power of the then outstanding
voting securities of such entity entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior to such
sale or other disposition in substantially the same relative proportions as their
ownership, immediately prior to such sale or other disposition, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be, (2) less than
30% of, respectively, the then outstanding shares of common stock of such entity and the
combined voting power of the then outstanding voting securities of such entity entitled to
vote generally in the election of directors is then beneficially owned, directly or
indirectly, by any Person (excluding any employee benefit plan (or related trust) of the
Company or such entity), except to the extent that such Person owned 30% or more of the
Outstanding Company Common Stock or Outstanding Company Voting Securities prior to the sale
or disposition, and (3) at least a majority of the members of the board of directors of
such entity were members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Incumbent Board providing for such sale or other
disposition of assets of the Company, or were elected, appointed or nominated by the
Incumbent Board.

If (I) the Employee’s Date of Termination occurs on or after the date of approval by the Company’s
shareholders of a transaction described in paragraph (iii) above; (II) the transaction so approved
by shareholders is consummated and constitutes a Change of Control Date under paragraph (iii)
above; and (III) prior to the consummation of such transaction, the Employee’s Date of Termination
occurs, then for purposes of applying the provisions of paragraph 6(c), the Change of Control Date
shall be deemed to have occurred with respect to such Employee immediately prior to such Employee’s
Date of Termination provided that, to the extent that the application of this sentence results in
the Employee becoming entitled to benefits under this Agreement, commencement of such benefits
shall be required to occur not earlier than the date of the consummation of the transaction.

If (A) the Employee’s Date of Termination occurs prior to a Change of Control Date under
circumstances described in paragraph 5(f) (relating to termination of employment by the Company
without Cause); (B) the Participant reasonably demonstrates that such termination either:

(1) was at the request of a third party who had indicated an intention or taken steps
reasonably calculated to effect a Change of Control Date or who effectuates a Change of
Control Date or

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(2) was otherwise in connection with, or in anticipation of, a Change of
Control Date which actually occurs,

then, for purposes of this Plan, a Change of Control Date with respect to that Participant
shall be deemed to be the date immediately prior to the Participant’s Date of Termination;
provided that, to the extent that the application of this sentence results in the Employee
becoming entitled to benefits under this Agreement, commencement of such benefits shall be
required to occur not earlier than the date of the Change in Control or, in the case of a
Change in Control described in paragraph (ii) above, consummation of the transaction. If
any such termination occurs while an agreement is pending and the effective provisions of
such agreement provide for a transaction or transactions which, if consummated, would
constitute a Change of Control Date, and such Change of Control Date occurs, then such
termination shall conclusively be presumed to be in connection with a Change of Control
Date.

	(h)	 	“Code” means the Internal Revenue Code of 1986, as amended.
	 
	(i)	 	“Company” means Devon Energy Corporation, a Delaware corporation.
	 
	(j)	 	“Confidential Information” shall include all non-public information (including,
without limitation, information regarding litigation and pending litigation) concerning the
Company and the Affiliates which was acquired by or disclosed to the Employee during the
course of employment with the Company, or during the course of consultation with the Company
prior to the commencement of employment and following the Date of Termination (regardless of
whether consultation is pursuant to paragraph 12).
	 
	(k)	 	“Date of Termination” means the last day the Employee is employed by the Company
(including any successor to the Company as determined in accordance with paragraph 18). If the
Employee becomes employed by the entity into which Devon Energy Corporation is merged, or the
purchaser of substantially all of the assets of Devon Energy Corporation, or a successor to
such entity or purchaser, the Employee shall not be treated as having terminated employment
for purposes of this Agreement until such time as the Employee terminates employment with the
successor (including, without limitation, the merged entity or purchaser). If the Employee is
transferred to employment with Devon Energy Corporation (including a successor to Devon Energy
Corporation) or an Affiliate, such transfer shall not constitute a termination of employment
for purposes of this Agreement, provided that the new employer agrees to assume this Agreement
and be substituted for the Company under this Agreement.
	 
	(l)	 	The Employee shall be considered “Disabled” during any period in which a physical or
mental disability which renders the Employee incapable, after reasonable accommodation, of
performing the duties under this Agreement. The Employee shall be considered “Permanently
Disabled” during any period in which the Employee is Disabled; provided, however, that the
Employee shall not be considered to be “Permanently Disabled” on the Date of Termination
unless, at that time (i) such disability is reasonably expected by the Employee’s Supervisor
to continue for at least 90 days after the Date of Termination, and (ii) at the Date of
Termination, the Employee is eligible for

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	 	 	income replacement benefits under the Company’s long-term disability plan or another
arrangement providing substantially similar benefits. In the event of a dispute as to
whether the Employee is Disabled or Permanently Disabled, the Company may refer the same to
a licensed practicing physician of the Company’s choice, and the Employee agrees to submit
to such tests and examinations as such physician shall deem appropriate.

	(m)	 	“Effective Date” means September 14, 2004.
	 
	(n)	 	“Exchange Act” means the Securities Exchange Act of 1934.
	 
	(o)	 	“Good Reason” shall include:

	 	(i)	 	The assignment to the Employee of any position which results, in the
aggregate, in a material reduction in the Employee’s rank, status, or
responsibilities; provided that the Employee shall not be deemed to have been assigned
a position described in this paragraph (i) solely because of a change in the
Employee’s reporting relationship.
	 
	 	(ii)	 	A revision by the Company of the Employee’s rate of salary to a rate
that is less than the Employee’s rate of salary immediately prior to such revision, or
a material failure to provide incentive compensation opportunities or benefits to the
Employee that are provided to other similarly situated employees of the Company.
	 
	 	(iii)	 	The relocation of the Employee’s base office to an office that is
more than 50 highway miles of the Employee’s base office on the Effective Date.
	 
	 	(iv)	 	The failure of the Company to obtain a satisfactory agreement from any
successor to assume and agree to perform this Agreement.
	 
	 	(v)	 	Any purported termination of the Employee’s employment which is not
effected pursuant to a Notice of Termination satisfying the requirements of paragraph
(p) below, and for purposes of this Agreement, no such purported termination shall be
effective.
	 
	 	(vi)	 	Any material breach of this Agreement by the Company not
described in paragraphs (i) through (v) next above.

	(p)	 	A “Notice of Termination” means a dated notice which indicates the Date of Termination
(not earlier than the date on which the notice is provided), and which indicates the specific
termination provision in this Agreement relied on and which sets forth in reasonable detail
the facts and circumstances, if any, claimed to provide a basis for termination of the
Employee’s employment under the provision so indicated.

	(q)	 	“Retiree Medical Benefit Coverage” shall be the coverage in effect under the
retiree medical benefit plan applicable to the Employee, or which would be applicable to
the

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	 	 	Employee if the Employee’s employment then terminated and the Employee satisfied the
applicable age and service requirements.

	(r)	 	“The Employee’s “Supervisor” will be the person to whom the Employee reports. The
identity of the Employee’s “Supervisor” shall be determined by the Chief Executive Officer or
the designee of the Chief Executive Officer of the Company from time to time.

     2. Rights Provided By Agreement. This Agreement does not constitute a guarantee of
continued employment but instead provides for certain rights and benefits in the event the
Employee’s employment with the Company terminates under the circumstances described herein.

     3. Compensation. Subject to the terms of this Agreement, while the Employee is
employed by the Company, the Company shall provide such compensation for the Employee’s
services as shall be determined from time to time by the Company. All payments and
distributions under this Agreement are subject to withholding of all applicable taxes.

     4. Certain Additional Payments by the Company.

	(a)	 	Anything in this Agreement to the contrary notwithstanding, in the event it shall be
determined that any payment, benefit, or distribution from the Company, any affiliate of
the Company, or trusts established by the Company or by any affiliate of the Company
for the benefit of its employees, to the Employee or for the Employee’s benefit, whether
paid or payable or distributed or distributable pursuant to the terms of this Agreement or
otherwise, including, by way of example and not by way of limitation, acceleration of the
date of vesting, payment, rate of payment, benefit or right to future payment or benefit
under any plan, program or arrangement of the Company or by any other company,
person or entity (a “Payment”), would be subject to the excise tax imposed by section
4999 of the Code or any interest or penalties with respect to such excise tax (such excise
tax, together with any such interest and penalties, are hereinafter collectively referred to
as the “Excise Tax”), then the Employee shall be entitled to receive an additional
payment (a “Gross-Up Payment”) in an amount such that after payment by the Employee
of all taxes (including any interest or penalties imposed with respect to such taxes),
including any Excise Tax imposed upon the Gross-Up Payment, the Employee retains an
amount of the Gross-Up Payment equal to the sum of: (i) the Excise Tax imposed upon
the Payments; plus (ii) an amount equal to the product of any deductions disallowed for
federal, state, or local income tax purposes because of the inclusion of the Gross-Up
Payment in the Employee’s adjusted gross income multiplied by the highest applicable
marginal rate of federal, state, or local income taxation, respectively, for the calendar
year in which the Gross-Up Payment is to be made.

	(b)	 	Subject to the provisions of paragraph 4(c), all determinations required to be made under
this paragraph 4, including whether a Gross-Up Payment is required and the amount of
such Gross-Up Payment, shall be made by a nationally recognized certified public
accounting firm as may be selected by the Company (the “Accounting Firm”) which shall
provide detailed supporting calculations both to the Company and the Employee within
15 business days of the receipt of notice from the Employee that there has been a 

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	 	 	Payment which would be subject to the Excise Tax, or such earlier time as is requested
by the Company. The initial Gross-Up Payment, if any, as determined pursuant to this
paragraph 4(b), shall be paid to the Employee within five days of the receipt of the
Accounting Firm’s determination. If the Accounting Firm determines that no Excise Tax is
payable by the Employee, it shall furnish the Employee with an opinion that the Employee has
substantial authority not to report any Excise Tax on the Employee’s federal income tax
return. Any determination by the Accounting Firm shall be binding upon the Company and the
Employee. As a result of the uncertainty in the application of section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payment which will not have been made by the Company should have been made
(“Underpayment”), consistent with the calculations required to be made hereunder. In the
event that the Company exhausts its remedies pursuant to paragraph 4(c) and the Employee
thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such Underpayment shall
be promptly paid by the Company to or for the benefit of the Employee.

	(c)	 	The Employee shall notify the Company in writing of any claim by the Internal Revenue
Service that, if successful, would require the payment by the Company of the Gross-Up Payment.
Such notification shall be given as soon as practicable but no later than ten business days
after the Employee knows of such claim, and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Employee shall not pay
such claim prior to the expiration of the 30-day period following the date on which the
Employee gives such notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company notifies the Employee in
writing prior to the expiration of such period that it desires to contest such claim, the
Employee shall:

	 	(i)	 	give the Company any information reasonably requested by the Company
relating to such claim;
	 
	 	(ii)	 	take such action in connection with contesting such claim as the Company
shall reasonably request in writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by an attorney reasonably
selected by the Company;
	 
	 	(iii)	 	cooperate with the Company in good faith in order effectively to
contest such claim; and
	 
	 	(iv)	 	permit the Company to participate in any proceedings relating to such claim;

provided, however, that the Company shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in connection with such contest and
shall indemnify and hold the Employee harmless, on an after-tax basis, for any Excise Tax or
income tax, including interest and penalties with respect thereto, imposed as a result of
such representation and payment of costs and expenses. Without limitation on

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the foregoing provisions of this paragraph 4(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may pursue or
forgo any and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either direct the
Employee to pay the tax claimed and sue for a refund or contest the claim in any
permissible manner. The Employee agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the Company
directs the Employee to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Employee, on an interest-free basis and shall indemnify and
hold the Employee harmless, on an after-tax basis, from any Excise Tax or income tax,
including interest or penalties with respect thereto, imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes for the
taxable year of the Employee with respect to which such contested amount is claimed to be
due is limited solely to such contested amount. Furthermore, the Company’s control of the
contest shall be limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Employee shall be entitled to settle or contest, as the case may
be, any other issue raised by the Internal Revenue Service or any other taxing authority.

	(d)	 	If, after the receipt by the Employee of an amount advanced by the Company pursuant to
paragraph 4(c), the Employee becomes entitled to receive any refund with respect to such
claim, the Employee shall (subject to the Company’s complying with the requirements of
paragraph 4(c)) promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the receipt by
the Employee of an amount advanced by the Company pursuant to paragraph 4(c), a determination
is made that the Employee shall not be entitled to any refund with respect to such claim and
the Company does not notify the Employee in writing of its intent to contest such denial of
refund prior to the expiration of thirty days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

     5. Termination. The Employee’s employment with the Company during the Agreement Term
may be terminated by the Company or the Employee under the circumstances described in paragraphs
5(a) through 5(f):

	(a)	 	Death. The Employee’s employment hereunder will terminate upon the Employee’s
death.
	 
	(b)	 	Permanently Disabled. The Company may terminate the Employee’s employment during
any period in which the Employee is Permanently Disabled.
	 
	(c)	 	Cause. The Company may terminate the Employee’s employment at any time for Cause.

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	(d)	 	Constructive Discharge. If (I) the Employee provides written notice to the
Company of the occurrence of Good Reason within a reasonable time (not to exceed 90 days) after the
Employee has knowledge of the circumstances constituting Good Reason, which notice
shall specifically identifies the circumstances which the Employee believes constitute
Good Reason; (II) the Company fails to notify the Employee of the Company’s intended
method of correction within a reasonable period of time after the Company receives the
notice, or the Company fails to correct the circumstances within a reasonable period of
time after such notice; and (III) the Employee resigns within a reasonable time after
receiving the Company’s response, if such notice does not indicate an intention to correct
such circumstances, or within a reasonable time after the Company fails to correct such
circumstances; then the Employee shall be considered to have been subject to a
Constructive Discharge by the Company. Notwithstanding the foregoing provisions of
this paragraph (d), the Employee shall not be deemed to have been subject to a
“Constructive Discharge” unless the Employee remains in the employ of the Company
for the period requested by the Company at a rate of pay not less than his or her rate of
pay immediately prior to the event giving rise to the Employee’s notice (not to exceed 90
days after the Employee provides written notice in accordance with clause (I) above).
	 
	(e)	 	Termination by Employee. The Employee may terminate his or her employment
hereunder at any time for any reason by giving the Company prior written Notice of
Termination, which Notice of Termination shall be effective not less than 30 days after it
is given to the Company, provided that nothing in this Agreement shall require the
Employee to specify a reason for any such termination. However, to the extent that the
procedures specified in paragraph 5(d) are required, the procedures of this paragraph 5(e)
may not be used in lieu of the procedures required under paragraph 5(d).
	 
	(f)	 	Termination by Company. The Company may terminate the Employee’s employment
hereunder at any time for any reason, by giving the Employee prior written Notice of
Termination, which Notice of Termination shall be effective immediately, or such later
time as is specified in such notice. The Company shall not be required to specify a
reason for the termination under this paragraph (f), provided that termination of the
Employee’s employment by the Company shall be deemed to have occurred under this
paragraph (f) only if it is not for reasons described in paragraph 5(a), 5(b), 5(c), 5(d),
or 5(e).
	 
	(g)	 	Notice of Termination. Any termination of the Employee’s employment by the Company
or the Employee (other than a termination pursuant to paragraph 5 (a)) must be
communicated by a written Notice of Termination to the other party hereto.
	 
	(h)	 	Effect of Termination. If, on the Date of Termination, the Employee is a member
of the Board of Directors of the Company or any of the Affiliates, or holds any other position
with the Company and the Affiliates, the Employee shall resign from all such positions as of
the Date of Termination.

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     6. Rights Upon Termination. The Employee’s right to payment and benefits under
this Agreement for periods after the Date of Termination shall be determined in accordance with the
following provisions of this paragraph 6:

	(a)	 	General. If the Employee’s Date of Termination occurs during the Agreement Term
for any reason, the Company shall pay to the Employee:

(i) The Employee’s salary for the period ending on the Date of Termination.

(ii) Payment for unused vacation days, as determined in accordance with Company policy
as in effect from time to time.

(iii) If the Date of Termination occurs after the end of the period during which performance
is measured for purposes of determining eligibility for a performance bonus, the Employee
shall be paid such bonus amount at the regularly scheduled time.

(iv) The Employee and any of the Employee’s dependents shall be eligible for COBRA
continuation coverage (as described in section 4980B of the Code) to the extent required by
applicable law.

(v) Any other payments or benefits to be provided to the Employee by the Company pursuant to
any employee benefit plans or arrangements established or adopted by the Company, to the
extent such amounts are due from the Company in accordance with the terms of such plans or
arrangements. The Employee’s right to payments under this paragraph (v) shall include,
without limitation, any rights to indemnification from the Company, or from a third-party
insurer for directors and officers liability coverage) with respect to any costs, losses,
claims, suits, proceedings, damages or liabilities to which the Employee may become subject
(regardless of whether they arise during the Employee’s employment or after his or her Date
of Termination for any reason) which arise out of, are based upon or relate to the
Employee’s employment by the Company and any predecessors, or the Employee’s service as an
officer or member of the Board of Directors of the Company or any predecessor or any
Affiliate.

Except as may otherwise be expressly provided to the contrary in this Agreement, nothing in
this Agreement shall be construed as requiring the Employee to be treated as employed by the
Company for purposes of any employee benefit plan or arrangement following the Employee’s
Date of Termination. If the Employee’s Date of Termination occurs during the Agreement Term
under circumstances described in paragraph 5(a) (relating to Employee’s death), paragraph
5(b) (relating to Employee’s being Permanently Disabled), paragraph 5(c) (relating to the
Employee’s termination for Cause), paragraph 5(e) (relating to the Employee’s resignation),
or after the end of the Agreement Term then, except as otherwise expressly provided in this
Agreement or otherwise agreed in writing between the Employee and the Company, the Company
shall have no obligation to make payments under the Agreement for periods after the
Employee’s Date of Termination.

12

 

	(b)	 	Termination without Cause and Constructive Discharge. If the Employee’s
Date of Termination occurs during the Agreement Term under circumstances described in
paragraph 5(d) (relating to Constructive Discharge) or paragraph 5(f) (relating to
termination by the Company without Cause), then, in addition to the amounts payable in
accordance with paragraph 6(a):

	 	(i)	 	The Company shall pay to the Employee in a lump sum, in cash, within 30
days after the Date of Termination, an amount equal to two (2) times the Employee’s
Aggregate Annual Compensation.
	 
	 	(ii)	 	The Company shall pay for a reasonable amount of outplacement services
to be performed by an outplacement service provider mutually agreeable by the Employee
and the Company. The amount of such outplacement services will be commensurate with
the Employee’s title and position with the Company and other employees similarly
situated in other companies within the Company’s peer industry group.
	 
	 	(iii)	 	The Employee shall receive payment of the bonus for the performance
period in which the Date of Termination occurs, based on actual performance for the
entire period, and payable at the same time it is payable for other participants in
the bonus plan; provided, however, that it shall be subject to a pro-rata reduction
for the portion of the performance period following the Date of Termination.

In no event, however, shall the Employee be entitled to receive any amounts, rights, or
benefits under this paragraph (b) unless the Employee executes a release of claims against
the Company in a form prepared by the Company.

	(c)	 	Change of Control Benefits. If, during the period beginning on a Change of Control
Date and ending on the last day of the 24th calendar month following the calendar
month in which a Change of Control Date occurs, the Employee’s Date of Termination occurs
under circumstances described in paragraph 5(d) (relating to Constructive Discharge) or
paragraph 5(f) (relating to termination by the Company without Cause), then, in addition
to the benefits provided payable in accordance with paragraph 6(a) and paragraph 6(b):

	 	(i)	 	For the period beginning on the Date of Termination, and ending on the
24-month anniversary of the Date of Termination, the Company shall continue the Basic
Benefits to the Employee and/or the Employee’s family which are concurrently being
provided to individuals then employed by the Company during that period in positions
comparable to the Employee’s position prior to the Date of Termination, subject to the
Employee making the contributions that are generally required of employees of the
Company for such coverage from time to time. At the end of such 24-month period, the
Employee shall be eligible to purchase COBRA medical continuation coverage (as
described in section 4980B of the Code (if any), with the period of medical benefit
coverage provided in accordance with the first sentence of this paragraph (c) being
counted toward the Company’s obligation to provide COBRA coverage. However, during any
period after the

13

 

	 	 	 	Employee’s Date of Termination during which the Employee is eligible to
obtain medical benefit coverage (with respect to the Employee or the Employee’s
family) from the Employee’s employer, or other person to whom the Employee provides
service, the Employee will file such an application, and take such other steps as
may be necessary to obtain such coverage (including the payment of premiums), and
to the extent permitted by applicable law, coverage obtained in accordance with
this sentence shall be primary.

	 	(ii)	 	The Employee’s entitlement to Retiree Medical Benefit Coverage shall be
determined as though, at the Date of Termination, the Employee had earned 24 months
of service in addition to the Employee’s actual service at the Date of Termination,
and as though the Employee was two years older than the Employee’s actual age at the
Date of Termination (provided that the additional deemed age and service shall not
be construed to reduce the Employee’s right to Retiree Medical Benefit Coverage
which may otherwise be reduced by reason of additional age or service).
	 
	 	(iii)	 	Regardless of whether the Date of Termination has occurred prior to, on,
or after the Change of Control Date, for the period continuing at all times after the
Change of Control Date (if any), the Retiree Medical Benefit Coverage (as applied to
the Employee and the Employee’s family) shall not be modified to adversely affect the
Employee’s right to coverage or benefits as compared to the coverage that was provided
immediately prior to the Change of Control Date.

     7. Duties on Termination. Subject to the terms and conditions of this Agreement,
during the period beginning on the date of delivery of a Notice of Termination, and ending on the
Date of Termination, the Employee shall continue to perform the duties as set forth in this
Agreement, and shall also perform such services for the Company as are necessary and appropriate for a
smooth transition to the Employee’s successor, if any. Notwithstanding the foregoing
provisions of this paragraph 7, the Company may suspend the Employee from performing the duties under
this Agreement following the delivery of a Notice of Termination providing for the Employee’s
resignation, or delivery by the Company of a Notice of Termination providing for the
Employee’s termination of employment for any reason; provided, however, that during the period
of suspension (which shall end on the Date of Termination), the Employee shall continue to be
treated as employed by the Company for other purposes, and the Employee’s rights to
compensation or benefits shall not be reduced by reason of the suspension. Following the Date
of Termination, the Employee agrees to return to the Company any keys, credit cards, passes,
confidential documents or material, or other property belonging to the Company, and to return
all writings, files, records, correspondence, notebooks, notes and other documents and things
(including any copies thereof) containing any Confidential Information.

     8. Mitigation, Alienation, and Set-Off. The Employee shall not be required to mitigate
the amount of any payment provided for in this Agreement by seeking other employment or
otherwise. The Company shall not be entitled to set off against the amounts payable to the
Employee under this Agreement any amounts owed to the Company by the Employee, any
amounts earned by the Employee in other employment after termination of employment with the

14

 

Company, or any amounts which might have been earned by the Employee in other employment had such
other employment been sought. This Agreement is personal to the Employee and may not be assigned by
the Employee without the written consent of the Company. The interests of the Employee under this
Agreement are not subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, attachment, or garnishment by creditors of the Employee or the Employee’s
beneficiary. However, to the extent that rights or benefits under this Agreement otherwise survive
the Employee’s death, the Employee’s heirs and estate shall succeed to such rights and benefits
pursuant to the Employee’s will or the laws of descent and distribution; provided that the Employee
shall have the right at any time and from time to time, by notice delivered to the Company, to
designate or to change the beneficiary or beneficiaries with respect to such benefits.

     9. Confidential Information. The Employee agrees that, during the Agreement Term, and
at all times thereafter:

	(a)	 	Except as may be required by the lawful order of a court or agency of competent
jurisdiction, except as necessary to carry out the duties to the Company and the Affiliates,
or except to the extent that the Employee has express authorization from the Company,
the Employee agrees to keep secret and confidential indefinitely, all Confidential
Information, and not to disclose the same, either directly or indirectly, to any other
person, firm, or business entity, or to use it in any way. The Employee shall, during the
continuance of the Employee’s employment, use the Employee’s best efforts to prevent
the unauthorized publication or misuse of any Confidential Information.
	 
	(b)	 	To the extent that any court or agency seeks to have the Employee disclose Confidential
Information, the Employee shall promptly inform the Company, and shall take reasonable
steps to prevent disclosure of Confidential Information until the Company has been
informed of such requested disclosure, and the Company has an opportunity to respond to
such court or agency. To the extent that the Employee obtains information on behalf of
the Company or any of the Affiliates that may be subject to attorney-client privilege as to
the Company’s attorneys, the Employee shall take reasonable steps to maintain the
confidentiality of such information and to preserve such privilege.
	 
	(c)	 	Nothing in the foregoing provisions of this paragraph 9 shall be construed so as to
prevent the Employee from using, in connection with the Employee’s employment for
himself or herself or an employer other than the Company or any of the Affiliates,
knowledge which was acquired during the course of the Employee’s employment with the
Company and the Affiliates, and which is generally known to persons of the Employee’s
experience in other companies in the same industry.
	 
	(d)	 	This paragraph 9 shall not be construed to unreasonably restrict the Employee’s ability to
disclose confidential information in an arbitration proceeding or a court proceeding in
connection with the assertion of, or defense against any claim of breach of this
Agreement. If there is a dispute between the Company and the Employee as to whether
information may be disclosed in accordance with this paragraph (d), the matter shall be
submitted to the arbitrators or the court (whichever is applicable) for decision.

15

 

     10. Non-Disparagement. The Employee shall not, while employed by the Company, and
after the Date of Termination, publicly (e.g., via an interview or speech or presentation
available to the public) criticize, defame, or disparage the Company or its Affiliates or their officers
or directors, orally or in writing, unless compelled by law to do so. While the Employee is
employed by the Company, and after the Date of Termination, the Company agrees, on behalf of
itself and its Affiliates, that neither the officers nor the directors of the Company or the
Affiliates shall publicly (e.g., via an interview or speech or presentation available to the public)
criticize, defame, or disparage the Employee, orally or in writing, unless compelled by law to do so.

     11. Other Duties. Nothing in paragraph 9 or 10 shall be construed as limiting the
Employee’s duty of loyalty to the Company, or any other duty the Employee may otherwise have
to the Company, while employed by the Company.

     12. Assistance with Claims. The Employee agrees that, for the period beginning on the
Effective Date, and continuing for a reasonable period after the Employee’s Date of
Termination, the Employee will assist the Company and the Affiliates in defense of any claims that may be
made against the Company and the Affiliates, and will assist the Company and the Affiliates in
the prosecution of any claims that may be made by the Company or the Affiliates, to the extent
that such claims may relate to services performed by the Employee for the Company and the
Affiliates. The Employee agrees to promptly inform the Company if the Employee becomes
aware of any lawsuits involving such claims that may be filed against the Company or any
Affiliate. The Company agrees to provide legal counsel to the Employee in connection with
such assistance (to the extent legally permitted), and to reimburse the Employee for all of
the Employee’s reasonable out-of-pocket expenses associated with such assistance, including travel
expenses. For periods after the Employee’s employment with the Company terminates, the
Company agrees to provide reasonable compensation to the Employee for such assistance. The
Employee also agrees to promptly inform the Company if asked to assist in any investigation of
the Company or the Affiliates (or their actions) that may relate to services performed by the
Employee for the Company or the Affiliates, regardless of whether a lawsuit has then been
filed against the Company or the Affiliates with respect to such investigation.

     13. Equitable Remedies. The Employee acknowledges that the Company and/or the
Affiliates would be irreparably injured by a violation of paragraph 9 or 10, and agrees that
the Company and any affected Affiliate, in addition to any other remedies available to it for such
breach or threatened breach, shall be entitled to a preliminary injunction, temporary
restraining order, or other equivalent relief, restraining the Employee from any actual or threatened
breach of either paragraph 9 or 10. The Company acknowledges that the Employee would be
irreparably injured by a violation of paragraph 10, and agrees that the Employee, in addition
to any other remedies available to the Employee for such breach or threatened breach, shall be
entitled to a preliminary injunction, temporary restraining order, or other equivalent relief,
restraining the Company from any actual or threatened breach of paragraph 10. If a bond is
required to be posted in order for the Company, an Affiliate, or the Employee to secure an
injunction or other equitable remedy, the parties agree that said bond need not be more than a
nominal sum.

16

 

     14. Amendment. This Agreement may be amended or cancelled only by mutual
agreement of the parties in writing without the consent of any other person. So long as the
Employee lives, no person, other than the parties hereto, shall have any rights under or
interest in this Agreement or the subject matter hereof.

     15. Applicable Law. This Agreement shall be governed by and construed in accordance
with the laws of the State of Oklahoma, without reference to principles of conflict of laws
except as superseded by applicable federal law. All disputes shall be arbitrated or litigated
(whichever is applicable) in Oklahoma City, Oklahoma.

     16. Severability. The invalidity or unenforceability of any provision of this
Agreement will not affect the validity or enforceability of any other provision of this Agreement, and
this Agreement will be construed as if such invalid or unenforceable provision were omitted (but
only to the extent that such provision cannot be appropriately reformed or modified).

     17. Waiver of Breach. No waiver by any party hereto of a breach of any provision of
this Agreement by any other party, or of compliance with any condition or provision of this
Agreement to be performed by such other party, will operate or be construed as a waiver of any
subsequent breach by such other party of any similar or dissimilar provisions and conditions
at the same or any prior or subsequent time. The failure of any party hereto to take any action
by reason of such breach will not deprive such party of the right to take action at any time
while such breach continues. Notwithstanding the foregoing provisions of this paragraph 17, the
Employee shall be deemed to have waived the right to claim any benefit under paragraph 6(b)
and 6(c) (relating to separation benefits and certain change of control benefits) if he or she
fails to file a claim with the Company for such benefits within 90 days following the date on which
he or she has knowledge of the circumstances which the Employee believes give rise to the right
to benefits.

     18. Successors, Assumption of Contract. This Agreement shall be binding upon and
inure to the benefit of the Company and any successor of the Company, subject to the
following:

	(a)	 	The Company may assign its rights and obligations under this Agreement to any
Affiliate. The Company will require that any assignee (pursuant to the preceding
sentence) and will require that any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business or assets of
the Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it if no
such assignment or succession had taken place.
	 
	(b)	 	Notwithstanding the foregoing provisions of this paragraph 18, if an assignee or the
successor is required to assume the obligations of this Agreement under paragraph 18(a),
and fails to execute and deliver to the Employee a written acknowledgment of the
assumption at that time or, if later, promptly following demand by the Employee for
execution and deliver of such an acknowledgment, then the successor shall not be
substituted as the Company, the Employee shall be entitled to payments and benefits as
provided under paragraph 6(b), and if the Employee is then employed by the Company

17

 

	 	 	(or successor), the Employee’s employment shall be deemed to have been terminated by the
Company under circumstances described in paragraph 5(f), and the Employee shall not be
required to perform services under this Agreement after such deemed termination.

	(c)	 	The Company’s rights and obligations under this Agreement may not be assigned to an
entity that is not an Affiliate without the Employee’s consent. If, during the Agreement Term,
and prior to the date that would otherwise be the Employee’s Date of Termination in the
absence of this sentence, the Company ceases to be either Devon Energy Corporation (or
successor thereto) or an Affiliate, then, as of the Employee’s Date of Termination shall be
deemed to have occurred as of the date of such cessation by the Company for reasons other than
Cause.

     19. Notices. Notices and all other communications provided for in this Agreement shall
be in writing and shall be delivered personally or sent by registered or certified mail, return
receipt requested, postage prepaid (provided that international mail shall be sent via overnight or
two-day delivery), or sent by facsimile or prepaid overnight courier to the parties at the
addresses set forth below (or such other addresses as shall be specified by the parties by like
notice). Such notices, demands, claims and other communications shall be deemed given:

	(a)	 	in the case of delivery by overnight service with guaranteed next day delivery, the next
day or the day designated for delivery;
	 
	(b)	 	in the case of certified or registered U.S. mail, five days after deposit in the U.S. mail; or
	 
	(c)	 	in the case of facsimile, the date upon which the transmitting party received confirmation
of receipt by facsimile, telephone or otherwise;

provided, however, that in no event shall any such communications be deemed to be given later than
the date they are actually received. Communications that are to be delivered by the U.S. mail or by
overnight service or two-day delivery service are to be delivered to the addresses set forth below:

to the Company:

Devon Energy Corporation 

20 North Broadway, Suite 1500 

Oklahoma City, Oklahoma 73102-8260

or to the Employee’s current home address on file.

All notices to the Company shall be directed to the attention of Senior Vice President,
Administration of the Company, with a copy to the Vice President, Human Resources of the Company.
Each party, by written notice furnished to the other party, may modify the applicable delivery
address, except that notice of change of address shall be effective only upon receipt.

18

 

     20. Arbitration. In the event of a dispute, claim, or controversy regarding the
Employee’s rights and obligations in connection with the Employee’s employment or otherwise
under this Agreement, the following shall apply:

	(a)	 	The parties agree that the Employee’s employment and this Agreement relate to interstate
commerce, and that any disputes, claims or controversies between the Employee and the
Company which may arise out of or relate to the Employee’s employment relationship or
this Agreement shall be settled by arbitration. This agreement to arbitrate shall survive
the Date of Termination. Any arbitration shall be in accordance with the Rules of the
American Arbitration Association and shall be undertaken pursuant to the Federal
Arbitration Act. Arbitration will be held in Oklahoma City, Oklahoma unless the parties
mutually agree on another location. The decision of the arbitrator(s) will be enforceable
in any court of competent jurisdiction.
	 
	(b)	 	The parties agree that punitive, liquidated or indirect damages shall not be awarded by
the arbitrator(s) unless such damages would be awarded by a court of competent
jurisdiction.
	 
	(c)	 	This paragraph 20 shall not be construed to limit the right of the Company, an Affiliate,
or the Employee to obtain relief under paragraph 13 with respect to any matter or
controversy subject to paragraph 13, or otherwise to prevent any on-going breach by the
Employee or the Company and, pending a final determination by the arbitrator with
respect to any such matter or controversy, the Company or the Employee shall be entitled
to obtain any such relief by direct application to state, federal, or other applicable
court, without being required to first arbitrate such matter or controversy.

     21. Attorney Fees. In the event of a dispute, claim, or controversy regarding the
Employee’s rights and obligations in connection with the Employee’s employment or otherwise
under this Agreement, the following shall apply:

	(a)	 	The Company otherwise responsible for payment of the benefits shall reimburse the
Employee for all legal fees and expenses reasonably incurred by the Employee in
connection with such contest or dispute (provided that such legal fees are calculated on
an hourly, and not on a contingency fee, basis), costs and expenses incurred by the
Employee in connection with such enforcement or defense.
	 
	(b)	 	The Employee shall be entitled to select his or her legal counsel; provided, however, that
such right of selection shall not affect the requirement that any costs and expenses
reimbursable under this paragraph 21 be reasonable.
	 
	(c)	 	Except as otherwise provided in paragraph (d) below, reimbursement by the Company
shall be made as soon as practicable following the resolution of the contest or dispute to
the extent the Company receives appropriate documentation evidencing the incurrence of
such attorneys’ fees, costs, and expenses. However, subject to paragraph (d) below, such
reimbursement shall be due under this paragraph 21 only if the Employee is successful in

19

 

	 	 	respect of one or more of the Employee’s material claims or defenses brought, raised
or pursued in connection with such contest or dispute.

	(d)	 	In the event that (i) within the period beginning on the Change of Control Date and
ending on the last day of the 24th calendar month following the calendar month
in which a Change of Control Date, a claim (a “Claim”) for arbitration or a lawsuits filed by the
Company or the Employee in connection with a dispute, claim, or controversy regarding
the Employee’s rights and obligations in connection with the Employee’s employment or
otherwise under this Agreement or (ii) a Claim has been filed prior to a Change of
Control Date but has not been resolved as of the Change of Control Date, then payments
required under this paragraph 21 with respect to such Claim shall be made by the
Company to the Employee (or directly to the Employee’s attorney) promptly following
submission to the Company of appropriate documentation evidencing the incurrence of
such attorneys’ fees, costs, and expenses. The Employee shall repay the Company the
amount of any such reimbursement received in connection with such dispute in
accordance with this paragraph 21 (without interest) as soon as practicable following the
resolution of such contest or dispute; provided, however, that this sentence shall not
apply (and no repayment shall be due from the Employee) if the Employee is successful
in respect of any one or more of the Employee’s material claims or defenses brought,
raised or pursued in connection with such contest or dispute.
	 
	(e)	 	The guarantee of payment in accordance with paragraph 22 of amounts due under this
Agreement shall apply to this paragraph 21.

     22. Secondary Liability for Payment. To the extent that the Company and/or an
Affiliate are not otherwise obligated to provide benefits to the Employee by the provisions of the
Agreement, the Company shall take such actions as are necessary, and cause each Affiliate to
take such actions as are necessary, to cause each such entity (the “Guarantors”) to jointly
and severally guarantee the payment of benefits otherwise due to the Employee under this
Agreement. However, in no event shall the guarantee provided by the preceding sentence give
rise to an obligation unless the Company does not pay such benefit within 30 days of the due
date for such payment, and no entity organized under the laws of any jurisdiction outside the
United States shall have an obligation to enter into such guarantee. Each of the Guarantors
shall be subrogated to the Employee’s rights under the Agreement to the extent of any payments by
each such Guarantor to or on account of the Employee under this paragraph 22. For the
avoidance of doubt, it is recited here that after a transaction described in paragraph 18(c),
this paragraph 22 shall continue to be applicable to the Employee.

     23. Entire Agreement. Except as otherwise provided herein, this Agreement constitutes
the entire agreement among the parties with respect to the subject matter hereof and
supersedes any and all prior or contemporaneous oral and prior written agreements and understandings,
subject to the following:

	(a)	 	This Agreement shall not adversely affect the Employee’s rights under the terms of
any option on stock of the Company or any other award based on the stock of the Company.

20

 

	(b)	 	The Employee irrevocably consents to the modification of the definition of “Change
of Control Date” in all Employee Benefit Arrangements (as defined below), by substituting
for such definition, in each such employee benefit arrangement, the definition of “Change
of Control Date” set forth in this Agreement, with such substitution to be effective on the
Effective Date. For purposes of the preceding sentence, the term “Employee Benefit
Arrangement” shall mean each agreement with the Employee to which the Company or
any Affiliate is a party, and each plan or arrangement maintained by the Company or any
Affiliate, and including any awards outstanding under any such agreement, plan, or
arrangement, to the extent that such award, agreement, plan, or arrangement contains a
definition of “Change of Control Date.” However, this paragraph (b) shall not apply with
respect to stock options granted prior to the Effective Date (with the grant date
determined without regard to the date of grant of any subsequent replacement awards).
	 
	(c)	 	There are no oral promises, conditions, representations, understandings, interpretations or
terms of any kind as conditions or inducements to the execution hereof or in effect among
the parties.
	 
	(d)	 	Nothing in this Agreement shall be construed to limit any policy or agreement that is
otherwise applicable relating to confidentiality, rights to inventions, copyrightable
material, business and/or technical information, trade secrets, solicitation of employees,
interference with relationships with other businesses, competition, and other similar
policies or agreement for the protection of the business and operations of the Company or
the Affiliates.
	 
	(e)	 	This Agreement shall supercede any employment agreement or severance agreement
(including any employment offer letter) covering the Employee and signed prior to the
Effective Date.
	 
	(f)	 	Except as may be otherwise specifically provided in an amendment of this paragraph 23
adopted in accordance with paragraph 14, the Employee’s rights under this Agreement
shall be in lieu of any benefits that may be otherwise payable to or on behalf of the
Employee pursuant to the terms of any severance pay arrangement of the Company or
any Affiliate or any other, similar arrangement of the Company or any Affiliate providing
benefits upon involuntary termination of employment.

     24. Acknowledgment by Employee. The Employee represents and warrants that (i) he or
she is not, and will not become a party to any agreement, contract, arrangement or understanding,
whether of employment or otherwise, that would in any way restrict to prohibit the Employee from
undertaking or performing the duties in accordance with this Agreement or that restricts the
Employee’s ability to be employed by the Company in accordance with this Agreement; (ii) the
Employee’s employment by the Company will not violate the terms of any policy of any prior employer
of the Employee regarding competition; and (iii) the Employee’s position with the Company, as
described in this Agreement, will not require the Employee to improperly use any trade secrets or
confidential information of any prior employer, or any other person or entity for whom the Employee
has performed services.

21

 

     IN WITNESS THEREOF, the Employee has hereunto set his or her hand, and the Company has
caused these presents to be executed in its name and on its behalf, all as of the Effective Date.

	 	 	 	 	 	 	 
	 

	 	 	 	/s/ Danny Heatly
	 	 
	 

	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	 	 	
               
Danny Heatly	 	 
	 
	 	 	 	 	 	 
	 	 	DEVON ENERGY CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Paul R. Poley	 	 
	 

	 	 	 	 	 	 
	 

	 	Its:
	 	VP, HR	 	 
	 

	 	 	 	 	 	 

22exv4w7

 

Exhibit 4.7

PARALLEL PETROLEUM CORPORATION

AND

AMERICAN STOCK TRANSFER, INC.

                          Warrant Agent

PURCHASE WARRANT AGREEMENT

Dated as of October 1, 1980

 

 

     THIS AGREEMENT dated as of October 1, 1980, between PARALLEL PETROLEUM CORPORATION, a Texas
corporation (the “Company”), and AMERICAN STOCK TRANSFER, INC., a Colorado corporation, (the
“Warrant Agent”).

     WHEREAS:

     1. In connection with a public offering of 1,500,000 Units (the “Units”), each consisting of
10 common shares of the Company, $.001 par value (the “Common Shares”), and 2 detachable purchase
warrants (the “Warrants”) to purchase one Common Share each, the Company proposes to issue
3,000,000 Warrants to purchase initially up to an aggregate of 3,000,000 Common Shares.

     2. The Company desires to provide for the issuance of Purchase Warrant Certificates (the
“Warrant Certificates”) representing the Warrants.

     3. The Company desires the Warrant Agent to act on behalf of the Company, and the Warrant
Agent is willing to so act, in connection with the issuance, registration, registration of transfer
and exchange of Warrant Certificates and the exercise of Warrants.

     NOW, THEREFORE, in consideration of the promises and the mutual agreements hereinafter set
forth and for the purpose of defining the terms and provisions of the Warrant Certificates and the
Warrants, and the respective rights and obligations thereunder of the Company, the registered
holder of the Warrant Certificates and the Warrant Agent, the parties hereto agree as follows:

     Section 1. Definitions. As used herein:

     A. “Common Shares” shall mean shares of the Company of any class, whether now or hereafter
authorized, which have the right to participate in the distribution of earnings and assets of the
Company without limit as to amount or percentage, which as of the date hereof consists of the
Company’s Common Shares, $.001 par value.

     B. “Corporate Office” shall mean the principal place of business of the Warrant Agent (or its
successor) in Denver, Colorado, which office is presently located at 1825 Lawrence Street, Denver,
Colorado 80202.

     C. “Initial Exercise Date” shall mean August 21, 1981 (9 months after the close of the
Company’s public offering of the Units) prior to which date the Warrants are not exercisable.

     D. “Expiration Date” shall mean 5:00 P.M. (Denver time) 30 days after the Initial Exercise
Date or, if such day shall in the State of Colorado be a holiday or a day on which banks are
authorized to close, then 5:00 P.M. (Denver time) on the next following day which in the State of
Colorado is not a holiday or a day on which banks are authorized to close.

     E. “Exercise Price” shall mean $.60 per Common Share.

     F. “Registered Holder” shall mean the person in whose name any Warrant Certificate shall be
registered on the books maintained by the Warrant Agent pursuant to Section 6.

 

 

     G. “Subsidiary” shall mean any corporation of which shares having ordinary voting power to
elect a majority of the Board of Directors of such corporation (irrespective of whether or not at
the time shares of any other class or classes of such corporation shall have or may have voting
power by reason of the happening of any contingency) is at the time directly or indirectly owned by
the Company or by one or more Subsidiaries, or by the Company and one or more Subsidiaries.

     H. “Trading Date” shall mean 5:00 P.M. (Denver time) 14 days after the closing of the public
offering of the Units.

     I. “Transfer Agent” shall mean the Company’s transfer agent, American Stock Transfer, Inc., or
its successor.

     J. “Warrant Shares” shall mean and include (i) up to 3,000,000 shares of authorized and
unissued Common Shares initially reserved for issuance upon exercise of the Warrants; and (ii) any
additional Common Shares or other property which may hereafter be issuable or deliverable upon
exercise of the Warrants pursuant to Section 8.

     Section 2. Warrants and Issuance of Warrant Certificates. Each Warrant shall
initially entitle the Registered Holder of the Warrant Certificate representing such Warrant to
purchase one Common Share upon the exercise thereof, subject to modification and adjustment as
provided in Section 8. Upon execution of this Agreement, Warrant Certificates representing up to an
aggregate of 3,000,000 Warrants to purchase the Warrant Shares, attached to certificates
representing 15,000,000 Common Shares in Units each consisting of 10 Common Shares and two
Warrants, shall be executed by the Company and delivered to the Warrant Agent and, after the
attached certificates for Common Shares shall have been duly countersigned by the Transfer Agent of
the Company’s Common Shares, shall be countersigned, issued and delivered by the Warrant Agent upon
written order of the Company signed by its President or a Vice President and its Treasurer or an
Assistant Treasurer or its Secretary or an Assistant Secretary.

     From time to time, up to the Expiration Date, the Warrant Agent shall countersign and deliver
Warrant Certificates in required whole number denominations to the persons entitled thereto in
connection with any transfer or exchange permitted under this Agreement. Except as provided in
Section 7 hereof, no Warrant Certificates shall be issued except (i) Warrant Certificates
initially, up to the Trading Date, issued hereunder and attached to certificates for a number of
Common Shares equal to 5 times the number of Warrants represented thereby, (ii) Warrant
Certificates issued on or after the Trading Date, upon transfer thereof by the holder pursuant to
Section 6, (iii) Warrant Certificates issued on or after the Initial Exercise Date, upon the
partial exercise of any Warrant to evidence the portion of such Warrant not exercised, and (iv)
Warrant Certificates issued on or after the Exercise Date, upon any transfer or exchange of
Warrants.

     Section 3.
Form and Execution of Warrant Certificates. The Warrant
Certificates shall be substantially in the form annexed hereto as Exhibit A (the provisions of
which are hereby incorporated herein) and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements printed, lithographed or
engraved hereon as the Company may deem

2

 

appropriate and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any law or with any rule or regulation of any stock exchange on which the
Warrants may be listed, or to conform to usage. The Warrant Certificates shall be dated as of the
date of their issuance (whether upon initial issuance, transfer, exchange or in lieu of mutilated,
lost, stolen or destroyed Warrant Certificates).

     The Warrant Certificates initially shall be issued only when attached to certificates for a
number of Common Shares equal to 5 times the number of Warrants represented thereby. Such Warrants
shall be numbered serially in accordance with the Common Shares with letter “W” on Warrant
Certificates. Thereafter the Warrants may be issued by number preceded by the letter “W” without
regard to the number of the Common Shares.

     The Warrant Certificates shall be executed on behalf of the Company by its President or a Vice
President and by its Treasurer or an Assistant Treasurer or its Secretary or an Assistant
Secretary, by manual signatures or by facsimile signatures printed thereon, and shall have
imprinted thereon a facsimile of the Company’s seal. The Warrant Certificates shall be manually
countersigned by the Warrant Agent and shall not be valid for any purpose unless so countersigned.
In case any officer of the Company who shall have signed any of the Warrant Certificates shall
cease to be such officer of the Company before the date of issuance of the Warrant Certificates or
before countersignature by the Warrant Agent and issue and delivery thereof, such Warrant
Certificates, nevertheless, may be countersigned by the Warrant Agent, issued and delivered with
the same force and effect as though the person who signed such Warrant Certificates had not ceased
to be such officer of the Company.

     Section 4. Exercise. Each Warrant represented by a Warrant Certificate may be
exercised at any time on or after the Initial Exercise Date, but not after the Expiration Date,
upon the terms and subject to the conditions set forth herein and in such Warrant Certificate. A
Warrant shall be deemed to have been exercised immediately prior to the close of business on the
date of the surrender for exercise (the “Exercise Date”) of the Warrant Certificate representing
such Warrant, with the exercise form thereon duly executed by the registered holder thereof or his
attorney duly authorized in writing, together with payment to the Warrant Agent, in cash or by
official bank or certified check, of an amount in lawful money of the United States of America
equal to the Purchase Price, and the person entitled to receive the number of Warrant Shares
deliverable upon such exercise shall be treated for all purposes as the holder of such Warrant
Shares as of the close of business on the Exercise Date. The Company shall not be obligated to
issue any fractional share interests in Warrant Shares issuable or deliverable upon the exercise of
any Warrant or Warrants. If more than one Warrant shall be exercised at one time by the same
registered holder, the number of full shares which shall be issuable upon exercise thereof shall be
computed on the basis of the aggregate number of full shares issuable upon such exercise. As soon
as practicable on or after the Exercise Date and in any event within 30 days after such date, the
Warrant Agent on behalf of the Company shall cause to be issued to the person or persons entitled
to receive the same, a certificate or certificates for the number of Warrant Shares deliverable
upon such exercise, and the Warrant Agent shall deliver the same to the person or persons entitled
thereto. No adjustment shall be made in respect of cash dividends on Warrant Shares delivered upon
exercise of any Warrant. Upon the exercise of any Warrant the Warrant Agent shall promptly notify
the Company in writing of such fact and of the number of Warrant Shares delivered upon such
exercise and shall cause payment of an amount in cash equal to the Exercise Price, to be made
promptly to or on the order of the Company.

3

 

     Section 5. Reservation of Shares; Listing; Payment of Taxes; Etc. The Company
covenants that it will at all times reserve and keep available out of its authorized Common Shares
solely for the purpose of issue upon exercise of Warrants as herein provided, such number of Common
Shares as shall then be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all Warrant Shares which shall be so issuable shall be duly and validly issued and
fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue
thereof, and that upon issuance such shares shall be listed on each national securities exchanged,
if any, on which the other outstanding Common Shares of the Company are then listed.

     If any Common Shares to be reserved for the purpose of exercise of Warrants hereunder require
registration with or approval of any governmental authority under any federal or state law, before
such shares may be validly issued or delivered upon such exercise, then the Company covenants that
it will in good faith and as expeditiously as possible endeavor to secure such registration or
approval, as the case may be; however, Warrants may not be exercised by, or shares issued to, any
registered holder in any state in which such exercise would be unlawful.

     The Warrant holder shall pay all documentary, stamp or similar taxes and other governmental
charges that may be imposed with respect of the issuance of the Warrants, or the issuance, transfer
or delivery of any Warrant Shares upon exercise of the Warrants; provided, however, that if Warrant
Shares are to be delivered in a name other than the name of the registered holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery shall be made unless
the person requesting the same has paid to the Warrant Agent the amount of any such taxes or
charges incident thereto.

     The Warrant Agent is hereby irrevocably authorized to requisition the Company’s Transfer Agent
from time to time for certificates of Warrant Shares required upon exercise of the Warrants, and
the Company will authorize the Transfer Agent to comply with all such requisitions. The Company
will file with the Warrant Agent a statement setting forth the name and address of its Transfer
Agent for Common Shares or other capital shares issuable upon exercise of the Warrants and of each
successor Transfer Agent.

     Section 6. Registration of Transfer. The Warrant Certificates may be transferred in
whole or in part. Warrant Certificates to be so exchanged shall be surrendered to the Warrant Agent
at its Corporate Office, and the Company shall execute and the Warrant Agent shall countersign,
issue and deliver in exchange therefor the Warrant Certificate or certificates which the holder
making the transfer shall be entitled to receive.

     The Warrant Agent shall keep, at such office, books in which, subject to such reasonable
regulations as it may prescribe, it shall register Warrant Certificates and the transfer thereof.
Upon due presentment for registration of transfer of any Warrant Certificate at such office, the
Company shall execute and the Warrant Agent shall issue and deliver to the transferee or
transferees a new Warrant Certificate or Certificates representing an equal aggregate number of
Warrants.

     All Warrant Certificates presented for registration of transfer or exercise on the
subscription form on the reverse thereof shall be duly endorsed by, or be accompanied by a written
instrument or instruments of transfer and subscription in form satisfactory to the Company and the
Warrant Agent duly executed by the registered holder thereof or his attorney duly authorized in
writing.

4

 

     A $3.00 fee shall be paid by the registered holder for any registration of transfer of Warrant
Certificates, but the Company may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith.

     All Warrant Certificates so surrendered or surrendered for exercise in case of mutilated
Warrant Certificates shall be promptly cancelled by the Warrant Agent and thereafter delivered or
disposed of as directed by the Company in writing.

     Prior to due presentment for registration of transfer thereof the Company and the Warrant
Agent may deem and treat the registered holder of any Warrant Certificate as the absolute owner
thereof and of each Warrant represented thereby (notwithstanding any notations of ownership or
writing thereon made by anyone other than the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.

     Section 7. Loss or Mutilation. Upon receipt by the Company and the Warrant Agent of
evidence satisfactory to them of the ownership of and the loss, theft, destruction or mutilation of
any Warrant Certificate and (in the case of loss, theft or destruction) of indemnity satisfactory
to them, and in the case of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall countersign and deliver in lieu thereof a new Warrant
Certificate representing an equal aggregate number of Warrants. Applicants for a substitute Warrant
Certificate shall also comply with such other reasonable regulations and pay such other reasonable
charges as the Company may prescribe.

     Section 8. Adjustment of Exercise Price and Number of Shares Deliverable. After each
adjustment of the Exercise Price pursuant to this Section 8, the number of Common Shares
purchasable upon the exercise of each Warrant shall be the number derived by dividing such adjusted
Purchase Price into the original Exercise Price as defined in Section 1.E above. The Exercise Price
shall be subject to adjustment as follows:

          (a) In the event, prior to the expiration of the Warrant by exercise or by its
terms, the Company shall issue any of its Common Shares as a stock dividend or shall subdivide the
number of outstanding Common Shares into a greater number of shares, then, in either of such
events, the then applicable Exercise Price per Common Share purchasable pursuant to this Warrant in
effect at the time of such action be reduced proportionately and the number of Common Shares at
that time purchasable pursuant to this Warrant shall be increased proportionately; and conversely,
in the event that the Company shall reduce the number of its outstanding Common Shares by
combining such shares into a smaller number of shares, then, in such event, the then applicable
Exercise Price per Common Share purchasable pursuant to this Warrant in effect at the time of such
action shall be increased proportionately and the number of Common Shares at that time purchasable
pursuant to the Warrant proportionately shall be decreased. Any dividend paid or distributed upon
the Common Shares in shares of any other class of the Company or securities convertible into Common
Shares shall be treated as a dividend paid in Common Shares to the extent that such Common Shares
are issuable upon the conversion thereof.

          (b) In the event, prior to the expiration of this Warrant by exercise or by its terms, the
Company shall be recapitalized by reclassifying its outstanding Common Shares into shares with a
different par value, or by changing its outstanding Common Shares to shares without par value, or
in the

5

 

event the Company or a successor corporation shall consolidate or merge with or convey all or
substantially all of its, or of any successor corporation’s property and assets to any other
corporation or corporations (any such other corporation being included within the
meaning of the term “successor corporation” hereinbefore used in the context of any consolidation
or merger of any other corporation with, or the sale of all or substantially all of the property of
any such other corporation to, another corporation or corporations), or in the event of any other
material change of the capital structure of the Company or of any successor corporation by reason
of any reclassification, reorganization, recapitalization, consolidation, merger or conveyance, a
prompt, proportionate, equitable, lawful and adequate provision shall be made whereby the Holder of
this Warrant shall thereafter have the right to purchase, upon the basis and the terms and
conditions specified in this Warrant, in lieu of the Common Shares of the Company theretofore
purchasable upon the exercise of this Warrant, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for the number of Common Shares of the Company
theretofore purchasable upon the exercise of this Warrant had such reclassification,
reorganization, recapitalization, consolidation, merger or conveyance not taken place; and in any
such event, the rights of the Holder of this Warrant to any adjustment in the number of,
shares of Common Shares purchasable upon exercise of this Warrant, as hereinbefore provided, shall
continue and be preserved in respect of any stock, securities or assets which the Holder becomes
entitled to purchase.

          (c) In the event the Company, at any time while this Warrant shall remain unexpired and
unexercised, shall sell all or substantially all of its property, or dissolves, liquidates or winds
up its affairs, prompt, proportionate, equitable, lawful and adequate provision shall be made as
part of the terms of any such sale, dissolution, liquidation, or winding up such that the Holder of
this warrant may thereafter receive, upon exercise hereof, in lieu of each Common Share of the
Company which he would have been entitled to receive, the same kind and amount of any stock,
securities or assets as may be issuable, distributable or payable upon any such sale, dissolution,
liquidation or winding up with respect to each Common Share of the Company; provided however, that
in the event of any such sale, dissolution, liquidation or winding up, the right to exercise this
Warrant shall terminate on a date fixed by the Company, such date so fixed to be not earlier than
5:00 P.M., Mountain Time, on the 30th day next succeeding the date on which notice of such
termination of the right to exercise this Warrant has been given by mail to the Holder of this
Warrant at his address as it appears on the books of the Company.

          (d) In the event, prior to the expiration of this Warrant by exercise or by its terms, the
Company shall take a record of the holders of its Common Shares for the purpose of entitling them
to purchase its Common Shares at a price per share more than 10% below the then current market
price per share (as defined below) of its Common Shares at the date of taking such record, then,
(i) the number of Common Shares purchasable pursuant to the Warrant shall be redetermined as
follows: the number of Common Shares purchasable pursuant to this Warrant immediately prior to such
adjustment (taking into account fractional interests to the nearest one-thousandth of a share)
shall be multiplied by a fraction, the numerator of which shall be the number of Common Shares of
the Company then outstanding (excluding the Common Shares then owned by the Company) immediately
prior to taking of such record, plus the number of additional shares offered for purchase, and the
denominator of which shall be the number of Common Shares of the Company outstanding (excluding the
Common Shares owned by the Company) immediately prior to the taking of such record, plus
the number of shares which the aggregate offering price of the total number of additional shares so
offered would purchase at such current market price; and (ii) the Exercise Price per Common Share
purchasable pursuant to this Warrant shall be redetermined as follows: the Exercise Price in effect
immediately prior to the taking of such record, shall be

6

 

multiplied by a fraction, the numerator of which is the number of Common Shares purchasable
hereunder immediately prior to the taking of such record, and the denominator of which is the
number of Common Shares purchasable hereunder immediately after the taking of such record as
determined pursuant to clause (i) above. For the purpose hereof, the current market price per
Common Share of the Company at any date shall be deemed to be the average of the daily closing
prices for 30 consecutive business days commencing 45 business days before the day in question. The
closing price for each day shall be the average of the highest bid-and-asked prices as reported by
NASDAQ or, if the Common Shares are not admitted to listing for trading thereon, then in the “pink
sheets” of the National Association of Securities Dealers, Inc., for the over-the-counter market in
Denver, Colorado, or in the local daily newspapers for such city, or if not reported, the average
of the highest bid-and-asked prices as furnished by any member firm of the New York Stock Exchange,
Inc. selected from time to time by the Company for such purpose.

          (e) Upon any exercise of this Warrant by the Holder, the Company shall not be required to
deliver fractions of the Common Shares; but prompt proportionate, equitable, lawful and adequate
adjustment in the Exercise Price payable by the Holder shall be made in respect of any such
fraction of one Common Share on the basis of the Exercise Price per share then applicable upon the
exercise of this Warrant.

          (f) In the event, prior to the expiration of this Warrant by exercise or by its terms, the
Company shall determine to take a record of the holders of its Common Shares for the purpose of
determining shareholders entitled to receive any stock dividend, distribution or other right which
will cause any change or adjustment in the number, amount, price or nature of the Common Shares or
other stock, securities or assets deliverable upon the exercise of this Warrant pursuant to the
foregoing provisions, the Company shall give to the registered Holder of this Warrant at his
address as it appears on the books of the Company at least 15 days prior written notice to the
effect that it intends to take such a record. Such notice shall specify the date as of which such
record is to be taken; the purpose for which such record is to be taken; and the number, amount,
price and nature of the Common Shares or other stock, securities or assets which will be
deliverable upon exercise of this Warrant after the action for which such record will be taken has
been consummated. Without limiting the obligation of the Company to provide notice to the
registered holders of the Warrant Certificates of corporate action hereunder, the failure of the
Company to give notice shall not invalidate such corporate action of the Company.

          (g) The Company may deem and treat the registered Holder of this Warrant at any time as the
absolute owner hereof for all purposes, and the Company shall not be affected by any notice to the
contrary.

          (h) This Warrant shall not entitle the Holder hereof to any of the rights of shareholders or
to any dividend declared upon the Common Shares unless the Holder shall have exercised this Warrant
and purchased the Common Shares prior to the record date fixed by the Board of Directors of the
Company for the determination of holders of Common Shares entitled to such dividend or other right.

          (i) No adjustment of the Exercise Price shall be made as a result of or in connection with (i)
the issuance of Common Shares of the Company pursuant to options, warrants and share purchase
agreements outstanding or in effect on the date hereof, (ii) the granting of additional option
plans

7

 

of the Company as currently or thereafter in effect or as hereafter modified, renewed or extended,
or the issuance of Common Shares of the Company upon exercise of any such options, or (iii) the
issuance of Common Shares in connection with acquisition of any type, in connection with
compensation arrangements with officers, employees or agents of the Company or any Subsidiary, or
under any circumstances other than those set forth in subsection (i) above.

          (j) The foregoing subparagraphs (a)-(i) shall be included on the back side of the Warrant
Certificate as a “Statement of Rights of Warrant Holders.”

     Section 9. Concerning the Warrant Agent. The Warrant Agent acts hereunder as agent
and in a ministerial capacity for the Company, and its duties shall be determined solely by the
provisions hereof. The Warrant Agent shall not be issuing and delivering Warrant Certificates or by
any other act hereunder be deemed to make any representations as to the validity or value or
authorization of the Warrant Certificate or the Warrants represented thereby or of any Common
Shares or other property delivered upon exercise of any Warrant or whether any such share is fully
paid and nonassessable. The Warrant Agent shall not at time be under any duty or responsibility to
any holder of Warrant Certificates to make or cause to be made any adjustment of the Exercise Price
provided in this Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment, when made, or with
respect to the method employed in making the same. It shall not (i) be liable for any recital or
statement of fact contained herein or for any action taken, suffered or omitted by it in reliance
on any Warrant Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties, (ii) be responsible
for any failure on the part of the Company to comply with any of its covenants and obligations
contained in this Agreement or in the Warrant Certificates, or (iii) be liable for any act or
omission in connection with this Agreement except for its own negligence or willful misconduct.

     The Warrant Agent may at any time consult with counsel satisfactory to it (who may be counsel
for the Company) and shall incur no liability or responsibility for any action taken, suffered or
omitted by it in good faith in accordance with the opinion or advice of such counsel.

     Any notice, statement, instruction, request, direction, order or demand of the Company shall
be sufficiently evidenced by an instrument signed by the President, a Vice President, its
Secretary, an Assistant Secretary, its Treasurer, or an Assistant Treasurer (unless other evidence
in respect thereof is herein specifically prescribed). The Warrant Agent shall not be liable for
any action taken, suffered or omitted by it in accordance with such notice, statement, instruction,
request, direction, order or demand.

     The Company agrees to pay the Warrant Agent reasonable compensation for its services hereunder
and to reimburse it for its reasonable expenses hereunder; it further agrees to indemnify the
Warrant Agent and save it harmless against any and all losses, expenses and liabilities, including
judgments, costs and counsel fees, for anything done or omitted by the Warrant Agent in the
execution of its duties and powers hereunder except losses, expenses and liabilities arising as a
result of the Warrant Agent’s negligence or willful misconduct.

     The Warrant Agent may resign its duties or the Company may terminate the Warrant Agent and the
Warrant Agent shall be discharged from all further duties and liabilities hereunder (except
liabilities arising as a result of the Warrant Agent’s own negligence or wilful misconduct), after
giving 30 days’

8

 

prior written notice to the other party. At least 15 days prior to the date such resignation is to
become effective, the Warrant Agent shall cause a copy of such notice of resignation to be mailed
to the registered holder of each Warrant Certificate. Upon such resignation or termination the
Company shall appoint in writing a new warrant agent. If the Company shall fail to make such
appointment within a period of 30 days after it has been notified in writing of such resignation by
the resigning Warrant Agent, then the registered holder of any Warrant Certificate may apply to any
court of competent jurisdiction for the appointment of a new warrant agent. Any new warrant agent,
whether appointed by the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders, of not less than
$1,000,000 and having its principal office in the City of Denver, State of Colorado. After
acceptance in writing of such appointment by the new warrant agent is received by the Company, such
new warrant agent shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named herein as the Warrant Agent, without any further assurance,
conveyance, act or deed; but if for any reason it shall be necessary or expedient to execute and
deliver any further assurance, conveyance, act or deed, the same shall be done at the expense of
the Company and shall be legally and validly executed and delivered by the resigning Warrant Agent.
Not later than the effective date of any such appointment the Company shall file notice thereof
with the resigning Warrant Agent and shall forthwith cause a copy of such notice to be mailed to
the registered holder of each Warrant Certificate.

     Any corporation into which the Warrant Agent or any new warrant agent may be converted or
merged or any corporation resulting from any consolidation to which the Warrant Agent or any new
warrant agent shall be a party or any corporation succeeding to the corporate trust business of the
Warrant Agent shall be a successor Warrant Agent under this Agreement without any further act,
provided that such corporation is eligible for appointment as successor to the Warrant Agent under
the provisions of the preceding paragraph. Any such successor Warrant Agent shall promptly cause
notice of its succession as Warrant Agent to be mailed to the Company and to the registered holder
of each Warrant Certificate.

     The Warrant Agent, its subsidiaries and affiliates, and any of its or their officers or
directors, may buy and hold or sell Warrants or other securities of the Company and otherwise deal
with the Company in the same manner and to the same extent and with like effect as though it were
not Warrant Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.

     Section 10. Modification of Agreement. The Warrant Agent and the Company may by
supplemental agreement make any changes or corrections in this Agreement (i) that they shall deem
appropriate to cure any ambiguity or to correct any defective or inconsistent provision or manifest
mistake or error herein contained; or (ii) that they may deem necessary or desirable and which
shall not adversely affect the interests of the holders of Warrant Certificates; but this Agreement
shall not otherwise be modified, supplemented or altered in any respect except with the consent in
writing of the registered holders of Warrant Certificates representing not less than 66-2/3% of the
Warrants outstanding; provided, however, that no change in the number or nature of the Warrant
Shares purchasable upon the exercise of a Warrant, or the Exercise Price therefor, or the
Expiration Date of a Warrant, shall be made without the consent in writing of the registered holder
of the Warrant Certificate representing such Warrant, other than such changes as are specifically
prescribed by this Agreement as originally executed.

9

 

     Section 11. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when delivered or mailed
first-class postage prepaid or delivered to a telegraph office for transmission:

          (i) if to the registered holder of a Warrant Certificate at the address of such holder as
shown on the registry books maintained by the Warrant Agent; or

          (ii) if to the Company at 119 North Colorado Street, Midland, Texas 79701, Attention:
President, or at such other address as may have been furnished to the Warrant Agent in writing by
the Company; or

          (iii) if to the Warrant Agent at the Corporate Office.

     Section 12. Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of Colorado.

     Section 13. Persons Benefiting. This Agreement shall be binding upon and inure to
the benefit of the Company, the Warrant Agent and their respective successors and assigns, and the
holders from time to time of the Warrant Certificates or any of them. Nothing in this Agreement is
intended or shall be construed to confer upon any other person any right, remedy or claim or to
impose upon any other person any duty, liability or obligation.

     Section 14. Execution.  This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of
the date first above mentioned.

	 	 	 	 	 
	 	PARALLEL PETROLEUM CORPORATION

 	 
	 	By:  	/s/ Frank S. Delay
 	 
	 	 	Frank S. Delay, President 	 
	 	 	 	 
	 

	 	 	 	 	 
	 	AMERICAN STOCK TRANSFER, INC.,

as Warrant Agent

 	 
	 	By:  	/s/ Signature Illegible
 	 
	 	 	Authorized Officer 	 
	 	 	 	 

10

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