Exhibit 10.2

BPZ Energy, Inc.
2007 Directors’ Compensation Incentive Plan

BPZ ENERGY, INC.
2007 DIRECTORS’ COMPENSATION INCENTIVE PLAN

Table of Contents

1.

 

Definitions

 

2

2.

 

Incentives

 

3

3.

 

Administration

 

4

4.

 

Eligibility

 

5

5.

 

Effect of Termination of Service

 

5

6.

 

Shares Available for Incentives and Limits on Incentives

 

6

7.

 

Options

 

6

8.

 

Stock Appreciation Rights (SARs)

 

7

9.

 

Grants of Stock, Restricted Stock, and Other Stock-Based Incentives

 

8

10.

 

Acquisition and Change in Control Events

 

9

11.

 

Discontinuance or Amendment of the Plan

 

11

12.

 

Nontransferability

 

11

13.

 

No Right of Continued Services

 

11

14.

 

Taxes

 

12

15.

 

Governing Law

 

12

16.

 

Additional Requirements

 

12

17.

 

“Lockup” Agreement

 

12

18.

 

Limitation of Liability

 

12

19.

 

Unfunded Status of Incentives

 

12

20.

 

Nonexclusivity of the Plan

 

13

21.

 

Successors and Assigns

 

13

22.

 

No Fractional Shares

 

13

23.

 

Severability

 

13

24.

 

Miscellaneous

 

13

 

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BPZ ENERGY, INC.
2007 DIRECTORS’ COMPENSATION INCENTIVE PLAN

This BPZ Energy, Inc. 2007 Directors’ Compensation Incentive Plan (the “Plan”),
is established effective June 4, 2007, by BPZ Energy Inc. (the “Company”), a
Colorado corporation. It is believed that the Plan will stimulate Directors’
efforts on the Company’s behalf, will tend to maintain and strengthen their
desire to remain with the Company, and will be in the interest of the Company
and its shareholders. The purposes of the Plan include: (i) to promote the
identity of interests between shareholders and Directors by encouraging and
creating significant ownership of Stock of the Company by such Directors; (ii)
to enable the Company to attract and retain qualified Directors who contribute
to the Company’s success by their ability, ingenuity and industry; (iii) to
provide a meaningful motivation and incentive for Directors who are responsible
for the success of the Company and who are in a position to make significant
contributions toward its objectives; and (iv) to provide an additional means to
compensate Directors who provide valuable services to the Company. The Plan
amends, supersedes and, replaces and restates those parts of the BPZ Energy Inc.
2005 Long-Term Incentive Compensation Plan (the “2005 Plan”) applicable to
Directors but does not impair the vesting or exercise of any incentive granted
to a Director under the 2005 Plan prior to the date that this Plan became
effective.

1.                                      Definitions

“Affiliate” shall have the meaning assigned to the term pursuant to Rule 12b-2
as promulgated under the Exchange Act.

“Blackout Period” means any period self-imposed by the Company or required under
applicable law that restricts the purchase and sale of the Stock by designated
persons for a period of time.

The “Board” means the Board of Directors of the Company.

“Cause” shall mean: (a) theft of property belonging to the Company or one of its
Affiliates (including but not limited to trade secrets and confidential
information); (b) fraud on the Company or one of its Affiliates; (c) conviction
of, or pleading “no contest” to, a felony committed while serving as a Director;
(d) breach of fiduciary duty to the Company or one of its Affiliates; or (e)
deliberate, willful or gross misconduct related to the Company or an Affiliate.

The “Code” means the Internal Revenue Code of 1986, as amended, or any successor
code thereto.

The “Committee” means the Compensation Committee of the Board of Directors of
the Company.

The “Company” means BPZ Energy Inc.

“Director” means a member of the Board who is not an employee of the Company or
one of its Affiliates on the date he receives a grant under this Plan.

“Division” means a section of the Company or an Affiliate.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Fair Market Value” means the value of a share of Stock on a particular date
means: (i) the closing sale price for a share of Stock on the established stock
exchange on which the Stock is listed on the applicable date, and if shares are
not traded on such day, on the next preceding trading date, or (ii) if the Stock
or other security is not listed on an established stock exchange, the fair
market value of a share thereof on the applicable date as established by the
Committee in good faith.

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“Incentives” means awards made under this Plan of any of the following, or any
combination of the following: (a) Options; (b) Stock Appreciation Rights; (c)
Restricted Stock; (d) Stock Grants; and (e) Other Stock-Based Incentives (as
such term is described in Section 9(f)).

“Option” means an option to purchase one or more shares of the Company’s Stock
that is not an “incentive stock option” within the meaning of Section 422 of the
Code.

“Other Stock-Based Incentives” means compensatory awards other than Options,
SARs, Restricted Stock, or Stock Grants that are determined with reference to
the value of Stock, granted by the Board in its discretion.”

“Participant” means any holder of an Incentive awarded under the Plan.

“Plan” means this BPZ Energy Inc. Directors’ Compensation Incentive Plan, as
amended or restated from time to time.

“Restricted Stock” means shares of Stock granted to a Participant subject to a
Risk of Forfeiture.

“Risk of Forfeiture” means a limitation on the right of the Participant to
retain Restricted Stock, including a right of the Company to reacquire shares of
Restricted Stock at less than their then Fair Market Value, arising because of
the occurrence or non-occurrence of specified events or conditions.

“SARs” means Stock Appreciation Rights.

“Securities Act” means the Securities Act of 1933, as amended.

“Stock” means one or more shares of the Company’s common stock.

“Stock Appreciation Right” means a right to receive any excess in the Fair
Market Value of shares of Stock over a specified exercise price.

“Stock Grant” means an award of Stock of the Company granted in full and
unrestricted ownership from time to time in the sole discretion of the
Committee.  Stock Grants may include, but are not limited to, bonuses payable in
Stock as compensation for exemplary service or achievements, whether or not
pursuant to formal compensation arrangements.  Stock Grants may also serve as
the primary means of compensating Participants.

“Termination of Service” means a Participant’s termination of service as a
Director.  The written agreement for each Incentive granted to a Director may
more specifically define “Termination of Service” for such Participant.

“Vesting Period” means the period of time established by Section 3(c) in
connection with an award of an Incentive, during which the Participant may not
sell, assign, transfer, pledge, or otherwise dispose of or may not have a fully
vested ownership interest in some or all of the Incentive and/or Stock or rights
in stock granted pursuant to the Incentive, except as expressly permitted in
this Plan.

2.                                      Incentives

Incentives under the Plan may be granted to Participants in any one or a
combination of: (a) Options; (c) SARs; (d) Restricted Stock; (e) Stock Grants;
and (g) Other Stock-Based Incentives (as such term is described in Section
9(f)).  All Incentives shall be subject to the terms and conditions set forth
herein and to such other terms and conditions as may be established by the
Committee, except that the provisions of this Plan shall not apply retroactively
to any Incentive issued before the effective date of this Plan.  Determinations
by the Committee under the Plan (including, without limitation, determinations
as to the form, amount and timing of Incentives; and the terms and provisions of
agreements evidencing

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Incentives) need not be uniform and may be made selectively among Participants
who receive, or are eligible to receive, Incentives, whether or not such
Participants are similarly situated.

3.                                      Administration

(a)                                  Committee.  The Plan shall be administered
by the Committee.  No person who makes or participates in making an award under
this Plan, whether as a member of the Committee, a delegate of the Committee, or
in any other capacity, shall make or participate in making an award to himself
or herself.

(b)                                 Powers of Committee.  The Committee will
have full discretionary power to administer the Plan in all of its details,
subject to applicable requirements of law.  For this purpose, in addition to all
other powers provided by this Plan, the Committee’s discretionary powers will
include, but will not be limited to, the following discretionary powers:

(i)                                     To make and enforce such rules and
regulations as it deems necessary or proper for the efficient administration of
the Plan;

(ii)                                  To interpret the Plan;

(iii)                               To decide all questions concerning the Plan
and the eligibility of any person to participate in the Plan;

(iv)                              To appoint such agents, counsel, accountants,
consultants and other persons as may be required to assist in administering the
Plan;

(v)                                 To engage one or more compensation
specialists to assist it in determining the types and amounts of incentives to
award under the Plan that would be appropriate under the circumstances;

(vi)                              To the extent allowed by law, to delegate some
or all of its power and authority to the Company’s Chief Executive Officer,
other senior members of management, or committee or subcommittee, as the
Committee deems appropriate.  However, the Committee may not delegate its
authority with regard to any matter or action affecting an officer subject to
the Exchange Act;

(vii)                           To impose such restrictions and limitations on
any awards granted under the Plan as it may deem advisable, including, but not
limited to share ownership or holding period requirements and requirements to
enter into or to comply with confidentiality agreements and, to the extent
allowed by law, non-competition and other restrictive or similar covenants.

(viii)                        To correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any award made under the Plan in the
manner and to the extent it shall deem expedient to carry the Plan into effect
and it shall be the sole and final judge of such expediency; and

(ix)                                If the Committee determines that the
amendment of an Incentive awarded under this Plan is in the best interest of a
Participant, to amend any such Incentive without the consent of the Participant,
provided that no Incentive may be amended by backdating or in any other manner
that would violate any applicable law or regulation or in any manner that would
violate the terms of this Plan.

Any determination by the Committee or its delegate(s) shall be final, binding
and conclusive on all persons, in the absence of clear and convincing evidence
that the Committee or its delegates(s) acted arbitrarily and capriciously.

(c)                                  Vesting Period.  If applicable, the
Committee shall determine the Vesting Period for Incentives granted under this
Plan and shall specify such Vesting Period in writing in making an award of

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an Incentive under this Plan. However, should the Committee award Incentives
under this Plan without specifying a Vesting Period, (i) any SAR awarded in
tandem with any underlying Option shall vest on the date that its underlying
Option vests, and (ii) SARs awarded not in tandem with underlying Options,
Options, and Restricted Stock shall vest on a graduated basis over a four-year
period, with 25% of such Incentives vesting on each anniversary of the date of
grant until all Incentives covered by the grant are vested.

(d)                                 Compliance with 409A.  To the extent that
the Board determines that any Incentive granted under the Plan is subject to
§409A of the Code, the granting document evidencing such Incentive shall
incorporate the terms and conditions required by §409A of the Code.  To the
extent applicable, the Plan and granting documents prepared in connection with
the Plan shall be interpreted in accordance with §409A of the Code. 
Notwithstanding any provision of the Plan to the contrary, in the event that,
following the effective date of this Plan, the Board determines that any
Incentive may be subject to §409A of the Code, the Board may adopt such
amendments to the Plan and the applicable granting document or adopt other
policies and procedures (including amendments, policies and procedures with
retroactive effect), or take any other actions that the Board determines are
necessary or appropriate to (1) exempt the Incentive from §409A of the Code
and/or preserve the intended tax treatment of the benefits provided with respect
to the Incentive or (2) comply with the requirements of §409A of the Code.

(e)                                  Documentation of Award of Incentive.  Each
Incentive awarded under this Plan shall be evidenced in such written form as the
Committee shall determine. Each award may contain terms and conditions in
addition to those set forth in the Plan.

(f)                                    Participants Outside the United States. 
The Committee may modify the terms of any Incentive granted under the Plan to a
Participant who is, at the time of grant or during the term of the Incentive,
resident or primarily employed outside of the United States.  Such modification,
which may be made in any manner deemed by the Committee to be necessary or
appropriate, shall only be made in order that the Incentive shall conform to
laws, regulations, and customs of the country in which the Participant is then
resident or primarily employed, or so that the value and other benefits of the
Incentive to the Participant, as affected by foreign tax laws and other
restrictions applicable as a result of the Participant’s residence or employment
abroad, shall be comparable to the value of such an Incentive to a Participant
who is resident or primarily employed in the United States. The Committee may
establish supplements to, or amendments, restatements, or alternative versions
of, the Plan for the purpose of granting and administrating any such modified
Incentive. No such modification, supplement, amendment, restatement or
alternative version may increase the share limits set forth in this Plan or
violate any applicable law of the United States.

4.                                      Eligibility

Directors are eligible to be granted Incentives under the Plan.

5.                                      Effect of Termination of Service

The granting document will specify the effect on an Incentive upon Termination
of Service.  If the granting document does not specify such effect, the
following provisions shall apply without regard to whether the reason for the
termination is voluntary termination, involuntary termination, retirement,
extended absence due to disability, or death.

(a)                                  Any non-vested Options and non-vested SARs
held by or through such individual on the date of the Termination of Service
shall lapse and be automatically cancelled and of no further force and effect as
of midnight on the date of such Termination of Service.

(b)                                 Any vested but unexercised Options held by
or through such individual as of the date of the Termination of Service shall
expire and be of no further force and effect unless either exercised

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or surrendered under a SAR within the earlier of: (i) 90 days after the date of
such individual’s Termination of Service, or (ii) the expiration date of the
Option.

(c)                                  Any vested but unexercised SARs held by or
through such individual as of the date of the Termination of Service shall
expire and be of no further force and effect unless either exercised within the
earlier of: (a) 90 days after the date of such Termination of Service, or (b)
the expiration date of the SAR.

(d)                                 Any non-vested shares of Restricted Stock on
the date of the Termination of Service shall revert to the Company and any
rights of the grantee in such Restricted Stock shall automatically terminate and
shall be returned immediately to the Company.

Notwithstanding the foregoing provisions of Subsections (a)-(d), the Committee
may, in its sole discretion, agree in writing to accelerate the vesting of
non-vested Incentives due to the Termination of Service.  Any such agreement
shall be valid only if it is in writing, signed by an authorized member of the
Committee, and executed by the Participant and the Committee prior to the
Termination of Service or within two (2) business days thereafter. 
Additionally, in the case of a Termination of Service for Cause, the Board may,
in its sole discretion, cancel and/or cause the forfeiture of any non-vested,
unexercised, and/or restricted Incentive awarded to such Director.

6.                                      Shares Available for Incentives and
Limits on Incentives

(a)                                  Maximum Shares.  Subject to adjustment as
provided in this Section 6, there is hereby reserved for issuance under the Plan
up to 2,500,000 shares of Stock of the Company.

(b)                                 Limit on an Individual’s Incentives.  In any
given year, no Participant may receive Incentives covering more than 20% of the
aggregate number of shares that may be issued pursuant to the Plan.

(c)                                  Source of Shares.  Shares under this Plan
may be delivered by the Company from its authorized but unissued shares of Stock
or from Stock held in the Company treasury.  To the extent that shares of Stock
subject to an outstanding award under the Plan are not issued by reason of
forfeiture, termination, surrender, cancellation, or expiration while
unexercised; by reason of the tendering or withholding of shares to pay all or a
portion of the exercise price or to satisfy all or a portion of the tax
withholding obligations relating to the award; by reason of being settled in
cash in lieu of shares or settled in a manner that some or all of the shares
covered by the award are not issued to the Participant; or being exchanged for a
grant under the Plan that does not involve Stock, then such shares shall
immediately again be available for issuance under the Plan, unless such
availability would cause the Plan to fail to comply with Rule 16b-3  under
Exchange Act, or any other applicable law or regulation.

(d)                                 Recapitalization Adjustment.  In the event
of a reorganization, recapitalization, stock split, stock dividend, combination
of shares, merger, consolidation, rights offering, or any other change in the
corporate structure or shares of the Company, the Committee shall make
appropriate adjustments in the number and kind of shares authorized by the Plan;
in the number and kind of shares covered by Incentives granted; in the exercise
price of Options; and in the Fair Market Value of SARs. No adjustment under this
section or any other part of this Plan shall be made if it would violate any
applicable law or regulation.

7.                                      Options

The only Options that the Committee may grant to Directors are Options that do
not qualify as “incentive stock options” under Section 422 of the Code.  All
Options granted under this Plan shall be subject to the following terms and
conditions and such other terms and conditions as the Committee may prescribe:

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(a)                                  Option Price.  The option price per share
with respect to each Option shall be determined by the Committee, but shall not
be less than 100% of the Fair Market Value of the Company’s Stock on the date
the Option is granted.

(b)                                 Vesting.  Options granted under this Plan
shall vest in accordance with Section 3(c) above unless the granting document
for such Options specifies a different vesting schedule.

(c)                                  Expiration Date for Option.  The expiration
date for each Option shall be fixed by the Committee in the granting document
but shall not exceed the later of (a) a fixed term of not more than ten (10)
years, or (b) 10 business days following the lifting of a Blackout Period
applicable to the Participant, provided that the fixed term expires during such
Blackout Period or within 10 business days following the lifting of the Blackout
Period.  The expiration date may not be extended after the grant.

(d)                                 Payment.  At the time an Option is
exercised, the holder must tender the full purchase price for the applicable
shares, which may be paid or satisfied by: (i) cash; (ii) check; (iii) delivery
of shares of Common Stock, which shares shall be valued for this purpose at the
Fair Market Value on the business day immediately preceding the date such Option
is exercised and, unless otherwise determined by the Committee, shall have been
held by the optionee for at least six months; or (iv) in such other manner as
may be authorized from time to time by the Committee.  All such payments shall
be made or denominated in United States dollars.  If an Option is granted in
combination with a SAR as described in Section 8, upon exercise of the Option
the SAR will be cancelled.  No shares shall be issued until full payment for
such shares has been made. A grantee of an Option shall have none of the rights
of a shareholder until the shares are issued.

(e)                                  Exercise of Option.  An Option may be
exercised only by giving written notice, specifying the number of shares of
Common Stock to be purchased.  Additional procedures for exercise of each Option
awarded under this Plan will be set forth in the granting document for such
Option.  The Committee may, from time to time, amend the exercise procedures, in
which case Participants will be notified of such revised procedures.  Options
cannot be exercised during a Blackout Period.  In no event shall any Option be
exercisable after its specified expiration period.

(f)                                    Effect of Termination of Service on
Options.  Upon Termination of Service, the Participant’s Options shall be
handled in accordance with Section 5 above.

(g)                                 Cancellation of Options with No Value.  Any
person who receives a grant of Options under this Plan may be required, at the
time the Options are awarded, to sign a consent allowing the Board, in its
discretion, to cancel the Options if the Fair Market Value of the Stock
decreases such that the exercise price of the Options is significantly above the
Fair Market Value of the Stock.

8.                                      Stock Appreciation Rights (“SARs”)

The Committee may, in its discretion, grant SARs to Participants. SARs may be
granted either singly or in combination with an underlying Option granted
hereunder. Such SARs shall be subject to the following terms and conditions and
such other terms and conditions as the Committee may prescribe:

(a)                                  Vesting and Exercise Period of SAR.  If a
SAR is granted with respect to an underlying Option, it may be granted at the
time of the Option or at any time thereafter but prior to the expiration of the
Option. In no event shall the exercise period for a SAR exceed the exercise
period for its underlying Option, if any. If the Committee fails to set the
Vesting Period in the granting document for a SAR, then the Vesting Period for
such SAR shall be as stated in Section 3(c) above. Unless otherwise specified in
the granting document for a SAR, the exercise period for the SAR shall be five
(5) years from the date of vesting unless such exercise period is earlier
terminated under Sections 5(b) or (c) of this Plan.  The exercise period may not
be extended after the grant.

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(b)                                 Value of SAR.  If a SAR is granted with
respect to an underlying Option, the grantee will be entitled to surrender the
Option that is then exercisable and receive in exchange an amount equal to the
excess of the Fair Market Value of the Stock on the date the election to
surrender is received by the Company over the Option price multiplied by the
number of shares covered by the Options that are surrendered. If a SAR is
granted without an underlying Option, the grantee will receive upon exercise of
the SAR an amount equal to the Fair Market Value of the Stock on the date the
election to surrender such SAR is received by the Company over the Fair Market
Value of the Stock on the date of grant multiplied by the number of shares
covered by the SARs being exercised.

(c)                                  Payment of SAR.  When a SAR is exercised,
payment for the SAR shall be in the form of shares of Stock, cash, or any
combination of Stock and cash.

(d)                                 Effect of Termination of Service on SARs. 
Upon Termination of Service, the Participant’s SARs shall be handled in
accordance with Section 5 above.

9.                                      Grants of Stock, Restricted Stock, and
Other Stock-Based Incentives

The Committee may, in its discretion, award a Participant any of the following:
Stock (in the form of Stock Grants), Restricted Stock, or Other Stock-Based
Incentives (as described in Section 9(f) that are valued in whole or in part by
reference to, or are otherwise based on, the Fair Market Value of shares of
Stock.  Restricted Stock shall vest in accordance with Section 3(c) above,
unless a different Vesting Period is specified at the time of the grant.  All
non-vested shares of Restricted Stock shall be subject to a Risk of Forfeiture
as determined by the Committee, and shall additionally be subject to the
following terms and conditions and such other terms and conditions as the
Committee may prescribe.

(a)                                  Effect of Termination of Service on
Restricted Stock.  A grantee of Restricted Stock must remain on the Board during
the Vesting Period in order to retain the shares of Restricted Stock.  Upon
Termination of Service, the Participant’s Restricted Stock shall be handled in
accordance with Section 5 above.

(b)                                 Restrictions on Transfer and Legend on Stock
Certificates.  During the Vesting Period, the grantee may not sell, assign,
transfer, pledge, or otherwise dispose of the shares of Stock except as
expressly permitted in this Plan.  Each certificate for shares of Restricted
Stock granted hereunder shall contain a legend giving appropriate notice of the
restrictions in the grant.

(c)                                  Escrow Agreement.  The Committee may
require the grantee to enter into an escrow agreement providing that the
certificates representing the Restricted Stock award will remain in the physical
custody of an escrow holder until all restrictions are removed or expire.

(d)                                 Lapse of Restrictions.  All restrictions
imposed on the Restricted Stock shall lapse upon the expiration of the Vesting
Period if the conditions of the grant have been met. The grantee shall then be
entitled to have the legend removed from the certificates.

(e)                                  Dividends.  Any dividends declared on the
Restricted Stock during the Vesting Period shall be accumulated and paid to the
grantee after the expiration of the Vesting Period if the conditions of the
grant are met and the grantee still owns such Stock at the end of the Vesting
Period.

(f)                                    Other Stock-Based Incentives. Other
Stock-Based Incentives shall be in such form, and dependent on such conditions
as the Committee shall determine, including, without limitation, the right to
receive one or more shares of Stock (or the equivalent cash value of such shares
of Stock) upon the completion of a specified period of service and/or the
occurrence of an event.  Other Stock-Based Incentives may be granted alone or in
addition to any other Incentives granted under the Plan.  Subject to the
provisions of the Plan, the Committee shall determine (i) to whom and when Other
Stock-Based Incentives will be made, (ii) the number of shares of Stock to be
awarded under (or otherwise related to) such Other Stock-Based Incentives, (iii)
whether such Other Stock-Based Incentives shall be settled in

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cash, shares of Stock or a combination of cash and shares of Stock, and (iv) all
other terms and conditions of such Incentives (including, without limitation,
the vesting provisions thereof).

10.                               Acquisition and Change in Control Events

(a)                                  Definitions.

“Acquisition Event” shall mean:

(i)                                     Any merger or consolidation of the
Company with or into another entity as a result of which the Company’s Stock is
converted into or exchanged for the right to receive cash, securities of the
other entity, or other property; or

(ii)                                  Any exchange of shares of the Company for
cash, securities of another entity or other property pursuant to a statutory
share exchange transaction.

“Change in Control Event” shall mean:

(i)                                     any merger or consolidation that results
in the voting securities of the Company outstanding immediately prior thereto
representing (either by remaining outstanding or by being converted into voting
securities of the surviving or acquiring entity) less than 50% of the combined
voting power of the voting securities of the Company or such surviving or
acquiring entity outstanding immediately after such merger or consolidation; or

(ii)                                  the acquisition by an individual, entity
or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange
Act) (a “Person”) of beneficial ownership of any capital stock of the Company
if, after such acquisition, such Person beneficially owns (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) 51% or more of either (A) the
then-outstanding shares of Stock of the Company (the “Outstanding Company
Stock”), or (B) 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”).  However, for purposes
of this Subsection (ii), the following acquisitions shall not give rise to a
Change in Control event: (A) any acquisition directly from the Company, (B) any
acquisition by the Company, (C) any acquisition by any employee benefit plan (or
related trust ) sponsored or maintained by the Company or an Affiliate, or (D)
any acquisition by any Person pursuant to a transaction that results in all or
substantially all of the individuals and entities who were the beneficial owners
of 50 percent or more of the Outstanding Company Stock and Outstanding Company
Voting Securities immediately prior to such transaction beneficially owning,
directly or indirectly, more than 50% of the then-outstanding shares of Stock
and the combined voting power of the then-outstanding voting securities entitled
to vote generally in the election of directors, respectively, of the resulting
or acquiring Person in such transaction (which shall include, without
limitation, a Person that as a result of such transaction owns the Company or
substantially all of the Company’s assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such transaction, of the Outstanding Company Stock and
Outstanding Company Voting Securities, respectively;

(iii)                               any sale of all or substantially all of the
assets of the Company; or

(iv)                              the complete liquidation of the Company.

(b)                                 Effect on Options.

(i)                                     Acquisition Event – Options Assumed or
Substituted.  Upon the occurrence of an Acquisition Event (regardless of whether
such event also constitutes a Change in Control Event), or the execution by the
Company of any agreement with respect to an Acquisition Event (regardless of
whether such event will result in a Change in Control Event), the Board shall
provide that all outstanding Options

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shall be assumed, or equivalent options shall be substituted, by the acquiring
or succeeding Person (or an Affiliate thereof).  An Option shall be considered
to be assumed if, following consummation of the Acquisition Event, the Option
confers the right to purchase, for each share of Stock subject to the Option
immediately prior to the consummation of the Acquisition Event, the
consideration (whether cash, securities or other property) received as a result
of the Acquisition Event by holders of Stock for each share of Stock held
immediately prior to the consummation of the Acquisition Event (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding shares of Stock).  However, if the
consideration received as a result of the Acquisition Event is not solely Stock
of the acquiring or succeeding Person (or an Affiliate thereof), the Company
may, with the consent of the acquiring or succeeding Person, provide for the
consideration to be received upon the exercise of Options to consist solely of
Stock of the acquiring or succeeding Person (or an Affiliate thereof) equivalent
in Fair Market Value to the per share consideration received by holders of
outstanding shares of Stock as a result of the Acquisition Event.

(ii)                                  Acquisition Event – Options not Assumed or
Substituted.  Upon the occurrence of an Acquisition Event (regardless of whether
such event also constitutes a Change in Control Event), or the execution by the
Company of any agreement with respect to an Acquisition Event (regardless of
whether such event will result in a Change in Control Event), if the acquiring
or succeeding Person (or an Affiliate thereof), does not agree to assume such
Options, or substitute equivalent options for such Options, then the Board
shall, upon written notice to the Option holders, provide that all then
unexercised Options will become exercisable in full as of a specified time prior
to the Acquisition Event and will terminate immediately prior to the
consummation of such Acquisition Event, except to the extent exercised by the
Option holders before the consummation of such Acquisition Event.  However, in
the event of an Acquisition Event under the terms of which holders of Stock will
receive upon consummation thereof a cash payment for each share of Stock
surrendered pursuant to such Acquisition Event (the “Acquisition Price”), then
the Board may instead provide that all outstanding Options shall terminate upon
consummation of such Acquisition Event and that each Option holder shall
receive, in exchange therefor, a cash payment equal to the amount (if any) by
which (A) the Acquisition Price multiplied by the number of shares of Stock
subject to such outstanding Options (whether or not then exercisable), exceeds
(B) the aggregate exercise price of such Options.

(iii)                               Change in Control Event.  Upon the
occurrence of a Change in Control Event (regardless of whether such event also
constitutes an Acquisition Event), except to the extent specifically provided to
the contrary in the instrument evidencing any Option or any other agreement
between a Participant and the Company, all Options then outstanding (including
assumed or substituted options in the case of an Acquisition Event) shall
automatically become immediately vested and exercisable in full.

(c)                                  Effect on Restricted Stock.

(i)                                     Acquisition Event that is not a Change
in Control Event.  Upon the occurrence of an Acquisition Event that is not a
Change in Control Event, the repurchase and other rights of the Company under
each outstanding grant of Restricted Stock shall inure to the benefit of the
Company’s successor and shall apply to the cash, securities or other property
into which the Stock was converted or for which it was exchanged pursuant to
such Acquisition Event in the same manner and to the same extent as such rights
applied to the Stock subject to such Restricted Stock award.

(ii)                                  Change in Control Event.  Upon the
occurrence of a Change in Control Event (regardless of whether such event also
constitutes an Acquisition Event), except to the extent specifically provided to
the contrary in the instrument evidencing any Restricted Stock award or any
other agreement between a holder of a Restricted Stock award and the Company,
all restrictions and conditions on all Restricted Stock awards then outstanding
shall automatically be deemed terminated or satisfied.

(d)                                 Effect on Other Awards.

(i)                                     Acquisition Event that is not a Change
in Control Event.  In the documents granting such Incentive, the Board may
specify the effect of an Acquisition Event that is not a Change in

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Control Event on any SARs, Stock Grants, and Other Stock-Based Incentives,
including the substitution of an Incentive of equivalent value as determined
immediately prior to the consummation of the Acquisition Event.  If the Board
does not specify the effect of such Acquisition Event on such Incentives, the
Acquisition Event shall impact such Incentives in accordance with applicable
law.

(ii)                                  Change in Control Event.  Upon the
occurrence of a Change in Control Event (regardless of whether such event also
constitutes an Acquisition Event), except to the extent specifically provided to
the contrary in the instrument granting such Incentive or any other agreement
between the Incentive holder and the Company, all SARs, Stock Grants, and Other
Stock-Based Incentives shall become exercisable, realizable and/or vested in
full, or shall be free of all conditions or restrictions, as applicable to each
such Incentive.

11.                               Discontinuance or Amendment of the Plan

THE PLAN SHALL AUTOMATICALLY TERMINATE ON THE EARLIER OF THE FOLLOWING DATES:
(1) TEN YEARS FROM THE DATE THAT THE PLAN BECOMES EFFECTIVE, OR (2) AT SUCH TIME
AS NO SHARES OF STOCK REMAIN AVAILABLE FOR ISSUANCE THROUGH THE PLAN.  NO
TERMINATION OF THE PLAN WILL AFFECT THE TERMS OF ANY OUTSTANDING INCENTIVES. 
THE BOARD MAY DISCONTINUE THE PLAN AT ANY TIME AND MAY FROM TIME TO TIME AMEND
OR REVISE THE TERMS OF THE PLAN AS PERMITTED BY APPLICABLE STATUTES, EXCEPT THAT
IT MAY NOT REVOKE OR ALTER, IN A MANNER UNFAVORABLE TO THE GRANTEES OF ANY
INCENTIVES HEREUNDER, ANY INCENTIVES THEN OUTSTANDING, NOR MAY THE BOARD AMEND
THE PLAN WITHOUT SHAREHOLDER APPROVAL WHERE THE ABSENCE OF SUCH APPROVAL WOULD
CAUSE THE PLAN TO FAIL TO COMPLY WITH THE EXCHANGE ACT OR ANY OTHER APPLICABLE
LAW OR REGULATION.

12.                               Nontransferability

No Incentives granted hereunder may be transferred, pledged, assigned or
otherwise encumbered by a Participant except:

(a)                                  By will;

(b)                                 By the laws of descent and distribution; or

(c)                                  To the extent permitted by the document
granting the Incentive (or amendment thereto) (i) pursuant to a domestic
relations order, as defined in the Code, (ii) to Immediate Family Members (as
defined below), (iii) to a partnership in which the Participant and/or the
Participant’s Immediate Family Members, or entities in which the Participant
and/or the Participant’s Immediate Family Members are the owners, members or
beneficiaries, as appropriate, are the sole partners, (iv) to a limited
liability company in which the Participant and/or the Participant’s Immediate
Family Members, or entities in which the Participant and/or the Participant’s
Immediate Family Members are the sole owners, members or beneficiaries, as
appropriate, are the sole members, or (v) to a trust for the benefit solely of
the Participant and/or the Participant’s Immediate Family Members. “Immediate
Family Members” means the spouses and natural or adopted children, stepchildren,
grandchildren of the Participants and the spouses of such children, stepchildren
and grandchildren.

Any attempted assignment, transfer, pledge, hypothecation, or other disposition
of an Incentive, or levy of attachment (or similar process) upon an Incentive
not specifically permitted herein, shall be null and void and without effect.

13.                               No Right of Continued Services

The Plan and the Incentives granted hereunder shall not confer upon any
Participant the right to continue as a Director, or affect in any way the right
of the Company to effect a Termination of Service with respect to a Participant.

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14.                               Taxes

The Company shall be entitled, at the time the Company deems appropriate under
the law then in effect, to withhold the amount of any tax attributed to any
Incentive granted under the Plan.

15.                               Governing Law

The provisions of this Plan and all awards made under this Plan shall be
governed by and interpreted in accordance with the law of the State of Texas,
without regard to applicable conflicts of law principles.

16.                               Additional Requirements

Anything in the Plan to the contrary notwithstanding: (a) the Company may, if it
shall determine it necessary or desirable for any reason, at the time of grant
of any Incentive or the issuance of any shares of Stock pursuant to any Option,
require the recipient of the Incentive, as a condition to the receipt thereof or
to the receipt of shares of Stock issued pursuant thereto, to deliver to the
Company a written representation of present intention to acquire the Incentive
or the shares of Stock issued pursuant thereto for his or her own account for
investment and not for distribution; and (b) if at any time the Company further
determines, in its sole discretion, that the listing, registration or
qualification (or any updating of any such document) of any Incentive or the
shares of Stock issuable pursuant thereto is necessary on any securities
exchange or under any federal or state securities or blue sky law, or that the
consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with the grant of any Incentive,
the issuance of shares of Stock pursuant thereto, or the removal of any
restrictions imposed on such shares, such Incentive shall not be granted or such
shares of Stock shall not be issued or such restrictions shall not be removed,
as the case may be, in whole or in part, unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Company.

17.                               “Lockup” Agreement

The Committee may in its discretion require that upon request of the Company or
the underwriters managing any underwritten offering of the Company’s securities,
the Participant shall agree in writing that for a period of time (not to exceed
180 days) from the effective date of any registration of securities of the
Company, the Participant will not sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any shares of Stock issued
or issuable pursuant to the exercise of such Incentive, without the prior
written consent of the Company or such underwriters, as the case may be.

18.                               Limitation of Liability

Each member of the Committee shall be entitled to, in good faith, rely or act
upon any report or other information furnished to him or her by any officer or
other employee of the Company or any Affiliate, the Company’s independent
certified public accountants, or other professional retained by the Company to
assist in the administration of the Plan.  No member of the Committee, nor any
officer, director, or employee of the Company acting on behalf of the Committee,
shall be personally liable for any action, determination, or interpretation
taken or made in good faith with respect to the Plan, and all members of the
Committee and any officer, director or employee of the Company acting on behalf
of the Committee shall, to the extent permitted by law, be fully indemnified and
protected by the Company with respect to any such action, determination, or
interpretation.

19.                               Unfunded Status of Incentives

The Plan is intended to constitute an “unfunded” plan for incentive
compensation.  With respect to any payments not yet made to a Participant
pursuant to an Incentive, nothing contained in the Plan or any Incentive shall
give any such Participant any rights that are greater than those of a general
creditor of the Company; provided, however, that the Committee may authorize the
creation of trusts or make other arrangements to meet the Company’s obligations
under the Plan to deliver cash, shares of Stock, other Incentives, or other
property pursuant to any Incentive, which trusts or other arrangements shall be

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consistent with the “unfunded” status of the Plan unless the Committee otherwise
determines with the consent of each affected Participant.

20.                               Nonexclusivity of the Plan

Neither the adoption of the Plan by the Board nor its submission to the
stockholders of the Company for approval shall be construed as creating any
limitations on the power of the Board to adopt such other incentive arrangements
as it may deem desirable, including, without limitation, arrangements granting
options and other Incentives otherwise than under the Plan, and such
arrangements may be either applicable generally or only in specific cases.

21.                               Successors and Assigns

The Plan shall be binding on all successors and assigns of the Company and a
Participant, including, without limitation, the estate of such Participant and
the executor, administrator or trustee of such estate, and any receiver or
trustee in bankruptcy or representative of the Participant’s creditors.

22.                               No Fractional Shares

No fractional shares of Stock shall be issued or delivered pursuant to the Plan
or any Incentive, including on account of any action under Section 6(d) of the
Plan.  In lieu of such fractional shares, the Committee shall determine, in its
discretion, whether cash, other Incentives, scrip certificates (which shall be
in a form and have such terms and conditions as the Committee in its discretion
shall prescribe) or other property shall be issued or paid in lieu of such
fractional shares or whether such fractional shares or any rights thereto shall
be forfeited or otherwise eliminated.

23.                               Severability

If any provision of the Plan is or becomes or is deemed invalid, illegal or
unenforceable in any jurisdiction, or would disqualify the Plan or any Incentive
under any law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform to applicable laws or if it cannot be
construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan, it shall be stricken and the
remainder of the Plan shall remain in full force and effect.

24.                               Miscellaneous

Any definition set forth in this Plan of the singular form of a term shall also
apply to the plural form of that term, and any definition of the plural form of
a term shall also apply to the singular form of the term.  Any reference in this
Plan to one gender shall also include the other gender.

Adopted by the Board of Directors of BPZ Energy, Inc. this 4th day of June,
2007.

 

By:

/s/ Manuel Pablo Zúñiga-Pflücker

 

By:

/s/ Edward G. Caminos

 

Name:

Manuel Pablo Zúñiga-Pflücker

 

Name:

Edward G. Caminos

 

Title:

President and Chief Executive Officer

Title:

Chief Financial Officer

 

 

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