Exhibit 10.1
PARALLEL PETROLEUM CORPORATION
2008 LONG-TERM INCENTIVE PLAN
     The Parallel Petroleum Corporation 2008 Long-Term Incentive Plan (this
“Plan”) was adopted by the Board of Directors of Parallel Petroleum Corporation,
a Delaware corporation (the “Company”), effective as of May 28, 2008, subject to
approval by the Company’s stockholders.
ARTICLE 1
PURPOSE
     The purpose of this Plan is to attract and retain the services of key
Employees, key Consultants and Outside Directors of the Company and its
Subsidiaries and to provide such persons with a proprietary interest in the
Company through the granting of incentive stock options, nonqualified stock
options, restricted stock, performance awards and other awards, whether granted
singly or in combination, that will
     (a) increase the interest of such persons in the Company’s welfare;
     (b) furnish an incentive to such persons to continue their services for the
Company; and
     (c) provide a means through which the Company may attract able persons as
Employees, Consultants and Outside Directors.
     With respect to Reporting Participants, the Plan and all transactions under
this Plan are intended to comply with all applicable conditions of Rule 16b-3
promulgated under the Securities Exchange Act of 1934 (the “1934 Act”). To the
extent any provision of the Plan or action by the Committee fails to so comply,
it shall be deemed null and void ab initio, to the extent permitted by law and
deemed advisable by the Committee.
ARTICLE 2
DEFINITIONS
     For purposes of this Plan, unless the context requires otherwise, the
following terms shall have the meanings indicated:
     2.1 “Award” means the grant of any Incentive Stock Option, Nonqualified
Stock Option, Restricted Stock, Performance Award or Other Award, whether
granted singly or in combination (each individually referred to herein as an
“Incentive”).
     2.2 “Award Agreement” means a written agreement between a Participant and
the Company which sets out the terms of the grant of an Award.
     2.3 “Award Period” means the period set forth in the Award Agreement during
which one or more Incentives granted under an Award may be exercised.
     2.4 “Board” means the Board of Directors of the Company.

 

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     2.5 “Change in Control” means the occurrence of any of the following:
     (a) Any “Person” (as defined below), other than (i) the Company or any of
its subsidiaries, (ii) a trustee or other fiduciary holding stock under an
employee benefit plan of the Company or any of its “Affiliates” (as defined
below), (iii) an underwriter temporarily holding stock pursuant to an offering
of such stock, or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, acquires ownership of stock of the Company
that, together with stock held by such Person, constitutes more than 50% of the
total fair market value or total voting power of the Company’s stock. However,
if any Person is considered to own more than 50% of the total fair market value
or total voting power of the Company’s stock, the acquisition of additional
stock by the same Person is not considered to be a Change in Control;
     (b) During any 12-month period, a majority of members of the Board is
replaced by directors whose appointment or election is not endorsed by a
majority of the Board before the date of the appointment or election; provided,
however, that any such director shall not be considered to be endorsed by the
Board if his or her initial assumption of office occurs as a result of an actual
or threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
     (c) There is consummated a merger or consolidation of the Company or any
direct or indirect subsidiary of the Company with any other corporation, except
if:
     (i) the merger or consolidation would result in the voting stock of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting stock of the surviving
entity or any parent thereof) more than 70% of the total voting power of the
stock of the Company or such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation; or
     (ii) the merger or consolidation is effected to implement a
recapitalization of the Company (or similar transaction) in which no Person is
or becomes the beneficial owner, directly or indirectly, during the 12-month
period ending on the date of the most recent acquisition by such Person, of
stock of the Company (not including in the stock beneficially owned by such
Person any stock acquired directly from the Company or its Affiliates other than
in connection with the acquisition by the Company or its Affiliates of a
business) representing 30% or more of the total voting power of the Company’s
then outstanding stock; or
     (d) Any Person acquires (or has acquired during the 12-month period ending
on the date of the most recent acquisition by such Person) assets of the Company
that have a total gross fair market value equal to at least 40% of the total
gross fair market value of all of the Company’s assets immediately before such
acquisition or acquisitions. However, there is no Change in Control when there
is such a sale or transfer to (i) a stockholder of the Company (immediately
before the asset transfer) in exchange for or with respect to the Company’s then
outstanding stock; (ii) an entity, at least 50% of the total value or voting
power of the stock of which is owned, directly or indirectly, by the Company;
(iii) a Person that owns directly or indirectly, at least 50% of the total value
or voting power of the outstanding stock of the Company; or (iv) an entity, at
least 50% of the total value or voting power of the stock of which are owned by
a Person that owns, directly or indirectly, at least 50% of the total value or
voting power of the outstanding stock of the Company.

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     For purposes of this Section 2.5:
     (a) “Person” shall have the meaning given in Section 7701(a)(1) of the
Code. Person shall include more than one Person acting as a group as defined by
the Final Treasury Regulations issued under Section 409A of the Code.
     (b) “Affiliate” shall have the meaning set forth in Rule 12b-2 promulgated
under Section 12 of the Securities Exchange Act of 1934, as amended.
     The provisions of this Section 2.5 shall be interpreted in accordance with
the requirements of the Final Treasury Regulations under Code Section 409A, it
being the intent of the parties that this Section 2.5 shall be in compliance
with the requirements of said Code Section and said Regulations.
     2.6 “Code” means the Internal Revenue Code of 1986, as amended.
     2.7 “Committee” means the committee appointed or designated by the Board to
administer the Plan in accordance with Article 3 of this Plan.
     2.8 “Common Stock” means the common stock, par value $0.01 per share, which
the Company is currently authorized to issue or may in the future be authorized
to issue, or any securities into which or for which the common stock of the
Company may be converted or exchanged, as the case may be, pursuant to the terms
of this Plan.
     2.9 “Company” means Parallel Petroleum Corporation, a Delaware corporation,
and any successor entity.
     2.10 “Consultant” means any natural person, who is not an Employee,
rendering bona fide services to the Company or a Subsidiary, with compensation,
pursuant to a written independent contractor agreement between such person and
the Company or a Subsidiary, provided that such services are not rendered in
connection with the offer or sale of securities in a capital raising transaction
and do not directly or indirectly promote or maintain a market for the Company’s
securities.
     2.11 “Corporation” means any entity that (i) is defined as a corporation
under Section 7701 of the Code and (ii) is the Company or is in an unbroken
chain of corporations (other than the Company) beginning with the Company, if
each of the corporations other than the last corporation in the unbroken chain
owns stock possessing a majority of the total combined voting power of all
classes of stock in one of the other corporations in the chain. For purposes of
clause (ii) hereof, an entity shall be treated as a “corporation” if it
satisfies the definition of a corporation under Section 7701 of the Code.
     2.12 “Date of Grant” means the effective date on which an Award is made to
a Participant as set forth in the applicable Award Agreement; provided, however,
that solely for purposes of Section 16 of the 1934 Act and the rules and
regulations promulgated thereunder, the Date of Grant of an Award shall be the
date of stockholder approval of the Plan if such date is later than the
effective date of such Award as set forth in the Award Agreement. The
determination of Fair Market Value shall, where applicable, be in compliance
with Section 409A of the Code.
     2.13 “Employee” means a common law employee (as defined in accordance with
the Regulations and Revenue Rulings then applicable under Section 3401(c) of the
Code) of the Company or any Subsidiary of the Company.

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     2.14 “Executive Officer” means an officer of the Company or a Subsidiary
subject to Section 16 of the 1934 Act or a “covered employee” as defined in
Section 162(m)(3) of the Code.
     2.15 “Fair Market Value” means, as of a particular date, (a) if the shares
of Common Stock are listed on the Nasdaq Global Market, the closing sales price
per share of Common Stock on the Nasdaq Global Market on that date, or, if there
shall have been no such sale so reported on that date, on the last preceding
date on which such a sale was so reported, (b) if the shares of Common Stock are
listed on any other established national securities exchange, the closing sales
price per share of Common Stock on the consolidated transaction reporting system
for the principal securities exchange for the Common Stock on that date, or, if
there shall have been no such sale so reported on that date, on the last
preceding date on which such a sale was so reported, (c) if the shares of Common
Stock are not so listed but are quoted on the Nasdaq National Market System, the
closing sales price per share of Common Stock on the Nasdaq National Market
System on that date, or, if there shall have been no such sale so reported on
that date, on the last preceding date on which such a sale was so reported,
(d) if the Common Stock is not so listed or quoted, the mean between the closing
bid and asked price on that date, or, if there are no quotations available for
such date, on the last preceding date on which such quotations shall be
available, as reported by Nasdaq, or, if not reported by Nasdaq, by the National
Quotation Bureau, Inc., or (e) if none of the above is applicable, such amount
as may be determined by the Committee (acting on the advice of an Independent
Third Party, should the Committee elect in its sole discretion to utilize an
Independent Third Party for this purpose), in good faith, to be the fair market
value per share of Common Stock. Notwithstanding the foregoing provisions of
this Section 2.15, to the extent an Award is intended to be in compliance with
some or all of the requirements of Section 409A of the Code, “ Fair Market
Value” for purposes of the Plan and any Award shall be the definition provided
for under Section 409A of the Code and Section 1.409A-1(b)(5)(iv) of the
regulations issued thereunder or any successor provision thereto.
     2.16 “Independent Third Party” means an individual or entity independent of
the Company having experience in providing investment banking or similar
appraisal or valuation services and with expertise generally in the valuation of
securities or other property for purposes of this Plan. The Committee may
utilize one or more Independent Third Parties.
     2.17 “Incentive” is defined in Section 2.1 hereof.
     2.18 “Incentive Stock Option” means an incentive stock option within the
meaning of Section 422 of the Code, granted pursuant to this Plan.
     2.19 “Nonqualified Stock Option” means a nonqualified stock option, granted
pursuant to this Plan, which is not an Incentive Stock Option.
     2.20 “Option Price” means the price which must be paid by a Participant
upon exercise of a Stock Option to purchase a share of Common Stock.
     2.21 “Other Award” means an Award issued pursuant to Section 6.6 hereof.
     2.22 “Outside Director” means a director of the Company who is not an
Employee or a Consultant.
     2.23 “Participant” means an Employee, Consultant or Outside Director of the
Company or a Subsidiary to whom an Award is granted under this Plan.
     2.24 “Plan” means this Parallel Petroleum Corporation 2008 Long-Term
Incentive Plan, as amended from time to time.

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     2.25 “Performance Award” means an Award hereunder of cash or shares of
Common Stock pursuant to Section 6.5 hereof.
     2.26 “Performance Goal” means any of the goals set forth in Section 6.7
hereof.
     2.27 “Reporting Participant” means a Participant who is subject to the
reporting requirements of Section 16 of the 1934 Act.
     2.28 “Restricted Stock” means shares of Common Stock issued or transferred
to a Participant pursuant to Section 6.4 of this Plan which are subject to
restrictions or limitations set forth in this Plan and in the related Award
Agreement.
     2.29 “Retirement” means any Termination of Service solely due to retirement
upon or after attainment of age sixty-five (65), or permitted early retirement
as determined by the Committee.
     2.30 “Stock Option” means a Nonqualified Stock Option or an Incentive Stock
Option.
     2.31 “Subsidiary” means (i) any corporation in an unbroken chain of
corporations beginning with the Company, if each of the corporations other than
the last corporation in the unbroken chain owns stock possessing a majority of
the total combined voting power of all classes of stock in one of the other
corporations in the chain, (ii) any limited partnership, if the Company or any
corporation described in item (i) above owns a majority of the general
partnership interest and a majority of the limited partnership interests
entitled to vote on the removal and replacement of the general partner, and
(iii) any partnership or limited liability company, if the partners or members
thereof are composed only of the Company, any corporation listed in item
(i) above or any limited partnership listed in item (ii) above. “Subsidiaries”
means more than one of any such corporations, limited partnerships, partnerships
or limited liability companies.
     2.32 “Termination of Service” occurs when a Participant who is (i) an
Employee of the Company or any Subsidiary ceases to serve as an Employee of the
Company and its Subsidiaries, for any reason; (ii) an Outside Director of the
Company or a Subsidiary ceases to serve as a director of the Company and its
Subsidiaries for any reason; or (iii) a Consultant of the Company or a
Subsidiary ceases to serve as a Consultant of the Company and its Subsidiaries
for any reason. Except as may be necessary or desirable to comply with
applicable federal or state law, a “Termination of Service” shall not be deemed
to have occurred when a Participant who is an Employee becomes an Outside
Director or Consultant or vice versa. If, however, a Participant who is an
Employee and who has an Incentive Stock Option ceases to be an Employee but does
not suffer a Termination of Service, and if that Participant does not exercise
the Incentive Stock Option within the time required under Section 422 of the
Code upon ceasing to be an Employee, the Incentive Stock Option shall thereafter
become a Nonqualified Stock Option. Notwithstanding the foregoing provisions of
this Section 2.32, if an Award issued under this Plan is subject to Section 409A
of the Code, then, in lieu of the foregoing definition and to the extent
necessary to comply with the requirements of Section 409A of the Code, the
definition of “Termination of Service” for purposes of such Award shall be the
definition of “separation from service” provided for under Section 409A of the
Code and the regulations or other guidance issued thereunder.
     2.33 “Total and Permanent Disability” means a Participant is qualified for
long-term disability benefits under the Company’s or Subsidiary’s disability
plan or insurance policy; or, if no such plan or policy is then in existence or
if the Participant is not eligible to participate in such plan or policy, that
the Participant, because of a physical or mental condition resulting from bodily
injury, disease, or mental disorder, is unable to perform his or her duties of
employment for a period of six (6) continuous months, as determined in good
faith by the Committee, based upon medical reports or other evidence
satisfactory to the Committee; provided that, with respect to any Incentive
Stock Option, Total and Permanent Disability shall have the meaning given it

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under the rules governing Incentive Stock Options under the Code.
Notwithstanding the foregoing provisions of this Section 2.33, if an Award
issued under the Plan is subject to Section 409A of the Code, then, in lieu of
the foregoing definition and to the extent necessary to comply with the
requirements of Section 409A of the Code, the definition of “Total and Permanent
Disability” for purposes of such Award shall be the definition of “disability”
provided for under Section 409A of the Code and the regulations or other
guidance issued thereunder.
ARTICLE 3
ADMINISTRATION
     Subject to the terms of this Article 3, the Plan shall be administered by
the Board or such committee of the Board as is designated by the Board to
administer the Plan (the “Committee”). The Committee shall consist of not fewer
than two persons. Any member of the Committee may be removed at any time, with
or without cause, by resolution of the Board. Any vacancy occurring in the
membership of the Committee may be filled by appointment by the Board. At any
time there is no Committee to administer the Plan, any references in this Plan
to the Committee shall be deemed to refer to the Board.
     If necessary to satisfy the requirements of Section 162(m) of the Code
and/or Rule 16b-3 promulgated under the 1934 Act, membership on the Committee
shall be limited to those members of the Board who are “outside directors” under
Section 162(m) of the Code and/or “non-employee directors” as defined in
Rule 16b-3 promulgated under the 1934 Act. The Committee shall select one of its
members to act as its Chairman. A majority of the Committee shall constitute a
quorum, and the act of a majority of the members of the Committee present at a
meeting at which a quorum is present shall be the act of the Committee.
     The Committee shall determine and designate from time to time the eligible
persons to whom Awards will be granted and shall set forth in each related Award
Agreement, where applicable, the Award Period, the Date of Grant, and such other
terms, provisions, limitations, and performance requirements, as are approved by
the Committee, but not inconsistent with the Plan. The Committee shall determine
whether an Award shall include one type of Incentive or two or more Incentives
granted in combination and shall determine, where applicable, whether the
requirements of Section 162(m) of the Code shall apply to an Award to be granted
to an Executive Officer. Although the members of the Committee shall be eligible
to receive Awards, all decisions with respect to any Award, and the terms and
conditions thereof, to be granted under the Plan to any member of the Committee
shall be made solely and exclusively by the other members of the Committee, or
if such member is the only member of the Committee, by the Board.
     The Committee, in its sole discretion, shall (i) interpret the Plan,
(ii) prescribe, amend and rescind any rules and regulations necessary or
appropriate for the administration of the Plan, (iii) establish performance
goals for an Award and certify the extent of their achievement, and (iv) make
such other determinations or certifications and take such other action as it
deems necessary or advisable in the administration of the Plan. Any
interpretation, determination or other action made or taken by the Committee
shall be final, binding, and conclusive on all interested parties.
     The Committee may delegate to officers of the Company, pursuant to a
written delegation, the authority to perform specified functions under the Plan.
Any actions taken by any officers of the Company pursuant to such written
delegation of authority shall be deemed to have been taken by the Committee.
Notwithstanding the foregoing, to the extent necessary to satisfy the
requirements of Section 162(m) of the Code and/or Rule 16b-3 promulgated under
the 1934 Act, any function relating to a Reporting Participant or a covered
employee (as defined in Section 162(m) of the Code) shall be performed solely by
the Committee.

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     With respect to restrictions in the Plan that are based on the requirements
of Rule 16b-3 promulgated under the 1934 Act, Section 422 of the Code, Section
162(m) of the Code, the rules of any exchange or inter-dealer quotation system
upon which the Company’s securities are listed or quoted, or any other
applicable law, rule or restriction (collectively, “applicable law”), to the
extent that any such restrictions are no longer required by applicable law, the
Committee shall have the sole discretion and authority to grant Awards that are
not subject to such mandated restrictions and/or to waive any such mandated
restrictions with respect to outstanding Awards.
ARTICLE 4
ELIGIBILITY
     Any Employee (including an Employee who is also a director or an officer),
Consultant or Outside Director of the Company whose judgment, initiative and
efforts contributed or may be expected to contribute to the successful
performance of the Company is eligible to participate in the Plan; provided that
only Employees of a corporation shall be eligible to receive Incentive Stock
Options. The Committee, upon its own action, may grant, but shall not be
required to grant, an Award to any Employee, Consultant or Outside Director of
the Company or any Subsidiary. Awards may be granted by the Committee at any
time and from time to time to new Participants, or to then Participants, or to a
greater or lesser number of Participants, and may include or exclude previous
Participants, as the Committee shall determine. Except as required by this Plan,
Awards granted at different times need not contain similar provisions. The
Committee’s determinations under the Plan (including, without limitation,
determinations of which Employees, Consultants or Outside Directors, if any, are
to receive Awards, the form, amount and timing of such Awards, the terms and
provisions of such Awards and the agreements evidencing same) need not be
uniform and may be made by it selectively among Participants who receive, or are
eligible to receive, Awards under the Plan.
ARTICLE 5
SHARES SUBJECT TO PLAN
     5.1 Number Available for Awards. Subject to adjustment as provided in
Articles 11 and 12, the maximum number of shares of Common Stock that may be
delivered pursuant to Awards granted under the Plan is 2,000,000 shares, of
which 2,000,000 shares may be delivered pursuant to Incentive Stock Options.
Subject to adjustment pursuant to Articles 11 and 12, the maximum number of
shares of Common Stock with respect to which Stock Options may be granted to any
Participant during any calendar year is 2,000,000 shares of Common Stock. Shares
to be issued may be made available from authorized but unissued Common Stock,
Common Stock held by the Company in its treasury, or Common Stock purchased by
the Company on the open market or otherwise. During the term of this Plan, the
Company will at all times reserve and keep available the number of shares of
Common Stock that shall be sufficient to satisfy the requirements of this Plan.
     5.2 Reuse of Shares. To the extent that any Award under this Plan shall be
forfeited, shall expire or be canceled, in whole or in part, then the number of
shares of Common Stock covered by the Award or stock option so forfeited,
expired or canceled may again be awarded pursuant to the provisions of this
Plan. If previously acquired shares of Common Stock are delivered to the Company
in full or partial payment of the exercise price for the exercise of a Stock
Option granted under this Plan, the number of shares of Common Stock available
for future Awards under this Plan shall be reduced only by the net number of
shares of Common Stock issued upon the exercise of the Stock Option. Previously
acquired shares of Common Stock surrendered to the Company for payment of
applicable employment tax withholding or other tax payment due with respect to
any Award may again be awarded pursuant to the provisions of this Plan. Awards
that may be satisfied either by the issuance of shares of Common Stock or by
cash or other consideration shall be counted against the maximum number of
shares of Common Stock that may be issued under this Plan only during the period
that the Award is outstanding or to the extent the Award is ultimately satisfied
by the issuance of shares

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of Common Stock. Awards will not reduce the number of shares of Common Stock
that may be issued pursuant to this Plan if the settlement of the Award will not
require the issuance of shares of Common Stock. Notwithstanding any provisions
of this Plan to the contrary, only shares forfeited back to the Company, shares
canceled on account of termination, expiration or lapse of an Award, shares
surrendered in payment of the exercise price of an option or shares withheld for
payment of applicable employment taxes and/or withholding obligations resulting
from the exercise of an option shall again be available for grant of Incentive
Stock Options under the Plan, but shall not increase the maximum number of
shares described in Section 5.1 above as the maximum number of shares of Common
Stock that may be delivered pursuant to Incentive Stock Options.
ARTICLE 6
GRANT OF AWARDS
     6.1 In General.
     (a) The grant of an Award shall be authorized by the Committee and shall be
evidenced by an Award Agreement setting forth the Incentive or Incentives being
granted, the total number of shares of Common Stock subject to the Incentive(s),
the Option Price (if applicable), the Award Period, the Date of Grant, and such
other terms, provisions, limitations, and performance objectives, as are
approved by the Committee, but (i) not inconsistent with the Plan, (ii) to the
extent an Award issued under the Plan is subject to Section 409A of the Code, in
compliance with the applicable requirements of Section 409A of the Code and the
regulations or other guidance issued thereunder and (iii) to the extent the
Committee determines that an Award shall comply with the requirements of Section
162(m) of the Code, in compliance with the applicable requirements of Section
162(m) of the Code and the regulations and other guidance issued thereunder. The
Company shall execute an Award Agreement with a Participant after the Committee
approves the issuance of an Award. Any Award granted pursuant to this Plan must
be granted within ten (10) years of the date of adoption of this Plan. The Plan
shall be submitted to the Company’s stockholders for approval; however, the
Committee may grant Awards under the Plan prior to the time of stockholder
approval. Any such Award granted prior to such stockholder approval shall be
made subject to such stockholder approval. The grant of an Award to a
Participant shall not be deemed either to entitle the Participant to, or to
disqualify the Participant from, receipt of any other Award under the Plan.
     (b) If the Committee establishes a purchase price for an Award, the
Participant must accept such Award within a period of thirty (30) days (or such
shorter period as the Committee may specify) after the Date of Grant by
executing the applicable Award Agreement and paying such purchase price.
     (c) Any Award under this Plan that is settled in whole or in part in cash
on a deferred basis may provide for interest equivalents to be credited with
respect to such cash payment. Interest equivalents may be compounded and shall
be paid upon such terms and conditions as may be specified by the grant.
     6.2 Option Price. The Option Price for any share of Common Stock which may
be purchased under a Nonqualified Stock Option for any share of Common Stock may
be equal to or greater than the Fair Market Value of the share on the Date of
Grant. The Option Price for any share of Common Stock which may be purchased
under an Incentive Stock Option must be at least equal to the Fair Market Value
of the share on the Date of Grant; if an Incentive Stock Option is granted to an
Employee who owns or is deemed to own (by reason of the attribution rules of
Section 424(d) of the Code) more than ten percent (10%) of the combined voting
power of all classes of stock of the Company (or any parent or Subsidiary), the
Option Price shall be at least 110% of the Fair Market Value of the Common Stock
on the Date of Grant.

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     6.3 Maximum ISO Grants. The Committee may not grant Incentive Stock Options
under the Plan to any Employee which would permit the aggregate Fair Market
Value (determined on the Date of Grant) of the Common Stock with respect to
which Incentive Stock Options (under this and any other plan of the Company and
its Subsidiaries) are exercisable for the first time by such Employee during any
calendar year to exceed $100,000. To the extent any Stock Option granted under
this Plan which is designated as an Incentive Stock Option exceeds this limit or
otherwise fails to qualify as an Incentive Stock Option, such Stock Option (or
any such portion thereof) shall be a Nonqualified Stock Option. In such case,
the Committee shall designate which stock will be treated as Incentive Stock
Option stock by causing the issuance of a separate stock certificate and
identifying such stock as Incentive Stock Option stock on the Company’s stock
transfer records.
     6.4 Restricted Stock. If Restricted Stock is granted to or received by a
Participant under an Award (including a Stock Option), the Committee shall set
forth in the related Award Agreement: (i) the number of shares of Common Stock
awarded, (ii) the price, if any, to be paid by the Participant for such
Restricted Stock and the method of payment of the price, (iii) the time or times
within which such Award may be subject to forfeiture, (iv) specified Performance
Goals of the Company, a Subsidiary, any division thereof or any group of
Employees of the Company, or other criteria, which the Committee determines must
be met in order to remove any restrictions (including vesting) on such Award,
and (v) all other terms, limitations, restrictions and conditions of the
Restricted Stock, which shall be consistent with this Plan, to the extent the
Committee determines that an Award shall comply with the requirements of Section
162(m) of the Code, in compliance with the requirements of Section 162(m) of the
Code and the regulations issued thereunder, and to the extent Restricted Stock
granted under the Plan is subject to Section 409A of the Code, in compliance
with the applicable requirements of Section 409A of the Code and the regulations
or other guidance issued thereunder. The provisions of Restricted Stock need not
be the same with respect to each Participant.
     (a) Legend on Shares. Each Participant who is awarded or receives
Restricted Stock shall be issued a stock certificate or certificates in respect
of such shares of Common Stock. Such certificate(s) shall be registered in the
name of the Participant, and shall bear an appropriate legend referring to the
terms, conditions and restrictions applicable to such Restricted Stock,
substantially as provided in Section 15.9 hereof.
     (b) Restrictions and Conditions. Shares of Restricted Stock shall be
subject to the following restrictions and conditions:
     (i) Subject to the other provisions of this Plan and the terms of the
particular Award Agreements, during such period as may be determined by the
Committee commencing on the Date of Grant or the date of exercise of an Award
(the “Restriction Period”), the Participant shall not be permitted to sell,
transfer, pledge or assign shares of Restricted Stock. Except for these
limitations, the Committee may in its sole discretion, remove any or all of the
restrictions on such Restricted Stock whenever it may determine that, by reason
of changes in applicable laws or other changes in circumstances arising after
the date of the Award, such action is appropriate.
     (ii) Except as provided in sub-paragraph (i) above or in the applicable
Award Agreement, the Participant shall have, with respect to his or her
Restricted Stock, all of the rights of a stockholder of the Company, including
the right to vote the shares, and the right to receive any dividends thereon.
Certificates for shares of Common Stock free of restriction under this Plan
shall be delivered to the Participant promptly after, and only after, the
Restriction Period shall expire without forfeiture in respect of such shares of
Common Stock or after any other restrictions imposed on such shares of Common
Stock by the applicable

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Award Agreement or other agreement have expired. Certificates for the shares of
Common Stock forfeited under the provisions of the Plan and the applicable Award
Agreement shall be promptly returned to the Company by the forfeiting
Participant. Each Award Agreement shall require that each Participant, in
connection with the issuance of a certificate for Restricted Stock, shall
endorse such certificate in blank or execute a stock power in form satisfactory
to the Company in blank and deliver such certificate and executed stock power to
the Company.
     (iii) The Restriction Period of Restricted Stock shall commence on the Date
of Grant or the date of exercise of an Award, as specified in the Award
Agreement, and, subject to Article 12 of this Plan, unless otherwise established
by the Committee in the Award Agreement setting forth the terms of the
Restricted Stock, shall expire upon satisfaction of the conditions set forth in
the Award Agreement, which such conditions may provide for vesting based on such
Performance Goals as may be determined by the Committee in its sole discretion.
     (iv) Except as otherwise provided in the particular Award Agreement, upon
Termination of Service for any reason during the Restriction Period, the
nonvested shares of Restricted Stock shall be forfeited by the Participant. If a
Participant has paid any consideration to the Company for such forfeited
Restricted Stock, the Committee shall specify in the Award Agreement that either
(i) the Company shall be obligated to, or (ii) the Company may, in its sole
discretion, elect to, pay to the Participant, as soon as practicable after the
event causing forfeiture, in cash, an amount equal to the lesser of the total
consideration paid by the Participant for such forfeited shares or the Fair
Market Value of such forfeited shares as of the date of Termination of Service,
as the Committee, in its sole discretion shall select. Upon any forfeiture, all
rights of a Participant with respect to the forfeited shares of the Restricted
Stock shall cease and terminate, without any further obligation on the part of
the Company.
     6.5 Performance Awards.
     (a) The Committee may grant Performance Awards to one or more Participants.
The terms and conditions of Performance Awards shall be specified at the time of
the grant and may include provisions establishing the performance period, the
Performance Goals to be achieved during a performance period, and the maximum or
minimum settlement values, provided that such terms and conditions are (i) not
inconsistent with the Plan and (ii) to the extent a Performance Award issued
under the Plan is subject to Section 409A of the Code, in compliance with the
applicable requirements of Section 409A of the Code and the regulations or other
guidance issued thereunder. If the Performance Award is to be in shares of
Common Stock, the Performance Awards may provide for the issuance of the shares
of Common Stock at the time of the grant of the Performance Award or at the time
of the certification by the Committee that the Performance Goals for the
performance period have been met; provided, however, if shares of Common Stock
are issued at the time of the grant of the Performance Award and if, at the end
of the performance period, the Performance Goals are not certified by the
Committee to have been fully satisfied, then, notwithstanding any other
provisions of this Plan to the contrary, the Common Stock shall be forfeited in
accordance with the terms of the grant to the extent the Committee determines
that the Performance Goals were not met. The forfeiture of shares of Common
Stock issued at the time of the grant of the Performance Award due to failure to
achieve the established Performance Goals shall be separate from and in addition
to any other restrictions provided for in this Plan that may be applicable to
such shares of Common Stock. Each Performance Award granted to one or more
Participants shall have its own terms and conditions.

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     To the extent the Committee determines that a Performance Award shall
comply with the requirements of Section 162(m) of the Code and if it is
determined to be necessary in order to satisfy Section 162(m) of the Code, at
the time of the grant of a Performance Award (other than a Stock Option) and to
the extent permitted under Section 162(m) of the Code and the regulations issued
thereunder, the Committee shall provide for the manner in which the Performance
Goals shall be reduced to take into account the negative effect on the
achievement of specified levels of the Performance Goals which may result from
enumerated corporate transactions, extraordinary events, accounting changes and
other similar occurrences which were unanticipated at the time the Performance
Goal was initially established. In no event, however, may the Committee increase
the amount earned under such a Performance Award, unless the reduction in the
Performance Goals would reduce or eliminate the amount to be earned under the
Performance Award and the Committee determines not to make such reduction or
elimination.
     With respect to a Performance Award that is not intended to satisfy the
requirements of Code Section 162(m), if the Committee determines, in its sole
discretion, that the established performance measures or objectives are no
longer suitable because of a change in the Company’s business, operations,
corporate structure, or for other reasons that the Committee deemed
satisfactory, the Committee may modify the performance measures or objectives
and/or the performance period.
     (b) Performance Awards may be valued by reference to the Fair Market Value
of a share of Common Stock or according to any formula or method deemed
appropriate by the Committee, in its sole discretion, including, but not limited
to, achievement of Performance Goals or other specific financial, production,
sales or cost performance objectives that the Committee believes to be relevant
to the Company’s business and/or remaining in the employ of the Company for a
specified period of time. Performance Awards may be paid in cash, shares of
Common Stock, or other consideration, or any combination thereof. If payable in
shares of Common Stock, the consideration for the issuance of such shares may be
the achievement of the performance objective established at the time of the
grant of the Performance Award. Performance Awards may be payable in a single
payment or in installments and may be payable at a specified date or dates or
upon attaining the performance objective. The extent to which any applicable
performance objective has been achieved shall be conclusively determined by the
Committee.
     (c) Notwithstanding the foregoing, in order to comply with the requirements
of Section 162(m) of the Code, no Participant may receive in any calendar year
Performance Awards intended to comply with the requirements of Section 162(m) of
the Code which have an aggregate value of more than $1,000,000, and if such
Performance Awards involve the issuance of shares of Common Stock, said
aggregate value shall be based on the Fair Market Value of such shares at the
time of the grant such Performance Awards. In no event, however, shall any
Performance Awards not intended to comply with the requirements of Section
162(m) of the Code be issued contingent upon the failure to attain the
Performance Goals applicable to the Performance Awards intended to comply with
the requirements of Section 162(m) of the Code.
     6.6 Other Awards. The Committee may grant to any Participant other forms of
Awards, based upon, payable in, or otherwise related to, in whole or in part,
shares of Common Stock, if the Committee determines that such other form of
Award is consistent with the purpose and restrictions of this Plan. The terms
and conditions of such other form of Award shall be specified by the grant. Such
Other Awards may be granted for no cash consideration, for such minimum
consideration as may be required by applicable law, or for such other
consideration as may be specified by the grant.
     6.7 Performance Goals. Awards of Restricted Stock, Performance Awards and
Other Awards (whether relating to cash or shares of Common Stock) under the Plan
may be made subject to the attainment of

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Performance Goals relating to one or more business criteria which, where
applicable, shall be within the meaning of Section 162(m) of the Code and
consist of one or more or any combination of the following criteria: one or more
measures of reserves of oil and natural gas; one or more components of the
production or costs of production of oil and natural gas; cash flow; cost;
revenues; sales; ratio of debt to debt plus equity; net borrowing, credit
quality or debt ratings; profit before tax; economic profit; earnings before
interest and taxes; earnings before interest, taxes, depreciation and
amortization; gross margin; earnings per share (whether on a pre-tax, after-tax,
operational or other basis); operating earnings; capital expenditures; expenses
or expense levels; economic value added; ratio of operating earnings to capital
spending or any other operating ratios; free cash flow; net profit; net sales;
net asset value per share; the accomplishment of mergers, acquisitions,
dispositions, public offerings or similar extraordinary business transactions;
sales growth; price of the Company’s Common Stock; return on assets, equity or
stockholders’ equity; or total return to stockholders (“Performance Criteria”).
Any Performance Criteria may be used to measure the performance of the Company
as a whole or any business unit of the Company and may be measured relative to a
peer group or index. Any Performance Criteria may include or exclude
(i) extraordinary, unusual and/or non-recurring items of gain or loss, (ii)
gains or losses on the disposition of a business, (iii) changes in tax or
accounting regulations or laws, (iv) the effect of a merger or acquisition, as
identified in the Company’s quarterly and annual earnings releases, or (v) other
similar occurrences. In all other respects, Performance Criteria shall be
calculated in accordance with the Company’s financial statements, under
generally accepted accounting principles, or under a methodology established by
the Committee prior to the issuance of an Award which is consistently applied
and identified in the audited financial statements, including footnotes, or
which is identified in the Compensation Discussion and Analysis section of the
Company’s annual report. However, to the extent Section 162(m) of the Code is
applicable, the Committee may not in any event increase the amount of
compensation payable to an individual upon the attainment of a Performance Goal.
ARTICLE 7
AWARD PERIOD; VESTING
     7.1 Award Period. Subject to the other provisions of this Plan, the
Committee may, in its discretion, provide that an Incentive may not be exercised
in whole or in part for any period or periods of time or beyond any date
specified in the Award Agreement. Except as provided in the Award Agreement, an
Incentive may be exercised in whole or in part at any time during its term. The
Award Period for an Incentive shall be reduced or terminated upon Termination of
Service. No Incentive granted under the Plan may be exercised at any time after
the end of its Award Period. No portion of any Incentive may be exercised after
the expiration of ten (10) years from its Date of Grant. However, if an Employee
owns or is deemed to own (by reason of the attribution rules of Section 424(d)
of the Code) more than ten percent (10%) of the combined voting power of all
classes of stock of the Company (or any parent or Subsidiary) and an Incentive
Stock Option is granted to such Employee, the term of such Incentive Stock
Option (to the extent required by the Code at the time of grant) shall be no
more than five (5) years from the Date of Grant.
     7.2 Vesting. The Committee, in its sole discretion, may determine that an
Incentive will be immediately vested in whole or in part, or that all or any
portion may not be vested until a date, or dates, subsequent to its Date of
Grant, or until the occurrence of one or more specified events, subject in any
case to the terms of the Plan. If the Committee imposes conditions upon vesting,
then, subsequent to the Date of Grant, the Committee may, in its sole
discretion, accelerate the date on which all or any portion of the Incentive may
be vested.

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ARTICLE 8
EXERCISE OR CONVERSION OF INCENTIVE
     8.1 In General. A vested Incentive may be exercised or converted, during
its Award Period, subject to limitations and restrictions set forth in the Award
Agreement
     8.2 Securities Law and Exchange Restrictions. In no event may an Incentive
be exercised or shares of Common Stock be issued pursuant to an Award if a
necessary listing or quotation of the shares of Common Stock on a stock exchange
or inter-dealer quotation system or any registration under state or federal
securities laws required under the circumstances has not been accomplished.
     8.3 Exercise of Stock Option.
     (a) In General. If a Stock Option is exercisable prior to the time it is
vested, the Common Stock obtained on the exercise of the Stock Option shall be
Restricted Stock which is subject to the applicable provisions of this Plan and
the Award Agreement. If the Committee imposes conditions upon exercise, then
subsequent to the Date of Grant, the Committee may, in its sole discretion,
accelerate the date on which all or any portion of the Stock Option may be
exercised. No Stock Option may be exercised for a fractional share of Common
Stock. The granting of a Stock Option shall impose no obligation upon the
Participant to exercise that Stock Option.
     (b) Notice and Payment. Subject to such administrative regulations as the
Committee may from time to time adopt, a Stock Option may be exercised by the
delivery of written notice to the Committee setting forth the number of shares
of Common Stock with respect to which the Stock Option is to be exercised and
the date of exercise thereof (the “Exercise Date”) which shall be at least three
(3) days after giving such notice unless an earlier time shall have been
mutually agreed upon. On the Exercise Date, the Participant shall deliver to the
Company consideration with a value equal to the total Option Price of the shares
to be purchased, payable as provided in the Award Agreement, which may provide
for payment in any one or more of the following ways: (a) cash or check, bank
draft, or money order payable to the order of the Company, (b) Common Stock
(including Restricted Stock) owned by the Participant on the Exercise Date,
valued at its Fair Market Value on the Exercise Date, and which the Participant
has not acquired from the Company within six (6) months prior to the Exercise
Date, (c) by delivery (including by FAX or electronic transmission) to the
Company or its designated agent of an executed irrevocable option exercise form
together with irrevocable instructions from the Participant to a broker or
dealer, reasonably acceptable to the Company, to sell certain of the shares of
Common Stock purchased upon exercise of the Stock Option or to pledge such
shares as collateral for a loan and promptly deliver to the Company the amount
of sale or loan proceeds necessary to pay such purchase price, and/or (d) in any
other form of valid consideration that is acceptable to the Committee in its
sole discretion. If shares of Restricted Stock are tendered as consideration for
the exercise of a Stock Option, a number of shares of Common Stock issued upon
the exercise of the Stock Option with an Option Price equal to the value of
Restricted Stock used as consideration therefor shall be subject to the same
restrictions and provisions as the Restricted Stock so tendered.
     (c) Issuance of Shares. Except as otherwise provided in Section 6.4 hereof
(with respect to shares of Restricted Stock) or in the applicable Award
Agreement, upon payment of all amounts due from the Participant, the Company
shall cause certificates (or at the Company’s discretion, uncertified shares)
for the Common Stock then being purchased to be delivered as directed by the
Participant (or the person exercising the Participant’s Stock Option in the
event of his death) at its principal business office promptly after the Exercise
Date; provided that if the Participant has exercised an Incentive Stock Option,
the Company may at its option retain physical possession of any

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certificate evidencing the shares acquired upon exercise until the expiration of
the holding periods described in Section 422(a)(1) of the Code. The obligation
of the Company to deliver shares of Common Stock shall, however, be subject to
the condition that, if at any time the Committee shall determine in its
discretion that the listing, registration or qualification of the Stock Option
or the Common Stock upon any securities exchange or inter-dealer quotation
system or under any state or federal law, or the consent or approval of any
governmental regulatory body, is necessary as a condition of, or in connection
with, the Stock Option or the issuance or purchase of shares of Common Stock
thereunder, the Stock Option may not be exercised in whole or in part unless
such listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not reasonably acceptable to the
Committee.
     (d) Failure to Pay. Except as may otherwise be provided in an Award
Agreement, if the Participant fails to pay for any of the Common Stock specified
in such notice or fails to accept delivery thereof, that portion of the
Participant’s Stock Option and right to purchase such Common Stock may be
forfeited by the Company.
     8.4 Disqualifying Disposition of Incentive Stock Option. If shares of
Common Stock acquired upon exercise of an Incentive Stock Option are disposed of
by a Participant prior to the expiration of either two (2) years from the Date
of Grant of such Stock Option or one (1) year from the transfer of shares of
Common Stock to the Participant pursuant to the exercise of such Stock Option,
or in any other disqualifying disposition within the meaning of Section 422 of
the Code, such Participant shall notify the Company in writing of the date and
terms of such disposition. A disqualifying disposition by a Participant shall
not affect the status of any other Stock Option granted under the Plan as an
Incentive Stock Option within the meaning of Section 422 of the Code.
ARTICLE 9
AMENDMENT OR DISCONTINUANCE
     Subject to the limitations set forth in this Article 9, the Board may at
any time and from time to time, without the consent of the Participants, alter,
amend, revise, suspend or discontinue the Plan in whole or in part; provided,
however, that no amendment for which stockholder approval is required either
(i) by any securities exchange or inter-dealer quotation system on which the
Common Stock is listed or traded or (ii) in order for the Plan and Incentives
awarded under the Plan to continue to comply with Sections 162(m), 421, and 422
of the Code, including any successors to such Sections, or other applicable law,
shall be effective unless such amendment shall be approved by the requisite vote
of the stockholders of the Company entitled to vote thereon. Any such amendment
shall, to the extent deemed necessary or advisable by the Committee, be
applicable to any outstanding Incentives theretofore granted under the Plan,
notwithstanding any contrary provisions contained in any Award Agreement. In the
event of any such amendment to the Plan, the holder of any Incentive outstanding
under the Plan shall, upon request of the Committee and as a condition to the
exercisability thereof, execute a conforming amendment in the form prescribed by
the Committee to any Award Agreement relating thereto. Notwithstanding anything
contained in this Plan to the contrary, unless required by law, no action
contemplated or permitted by this Article 9 shall adversely affect any rights of
Participants or obligations of the Company to Participants with respect to any
Incentive theretofore granted under the Plan without the consent of the affected
Participant.

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ARTICLE 10
TERM
     The Plan shall be effective from the date that this Plan is approved by the
Board. Unless sooner terminated by action of the Board, the Plan will terminate
on May 28, 2018, but Incentives granted before that date will continue to be
effective in accordance with their terms and conditions.
ARTICLE 11
CAPITAL ADJUSTMENTS
     If any dividend or other distribution (whether in the form of cash, Common
Stock, other securities or other property), recapitalization, stock split,
reverse stock split, rights offering, reorganization, merger, consolidation,
split-up, spin-off, split-off, combination, subdivision, repurchase or exchange
of Common Stock or other securities of the Company, issuance of warrants or
other rights to purchase Common Stock or other securities of the Company, or
other similar corporate transaction or event affects the fair value of an Award,
then the Committee shall adjust any or all of the following so that the fair
value of the Award immediately after the transaction or event is equal to the
fair value of the Award immediately prior to the transaction or event: (i) the
number of shares and type of Common Stock (or the securities or property) which
thereafter may be made the subject of Awards, (ii) the number of shares and type
of Common Stock (or other securities or property) subject to outstanding Awards,
(iii) the number of shares and type of Common Stock (or other securities or
property) specified as the annual per-participant limitation under Section 5.1
of the Plan, (iv) the Option Price of each outstanding Award, and (v) the
amount, if any, the Company pays for forfeited shares of Common Stock in
accordance with Section 6.4; provided however, that the number of shares of
Common Stock (or other securities or property) subject to any Award shall always
be a whole number. Notwithstanding the foregoing, no such adjustment shall be
made or authorized to the extent that such adjustment would cause the Plan or
any Stock Option to violate Section 422 of the Code or Section 409A of the Code.
Such adjustments shall be made in accordance with the rules of any securities
exchange, stock market or stock quotation system to which the Company is
subject.
     Upon the occurrence of any such adjustment, the Company shall provide
notice to each affected Participant of its computation of such adjustment which
shall be conclusive and shall be binding upon each such Participant.
ARTICLE 12
RECAPITALIZATION, MERGER AND CONSOLIDATION
     12.1 No Effect on Company’s Authority. The existence of this Plan and
Incentives granted hereunder shall not affect in any way the right or power of
the Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations, or other changes in the Company’s capital
structure and its business, or any Change in Control, or any merger or
consolidation of the Company, or any issuance of bonds, debentures, preferred or
preference stocks ranking prior to or otherwise affecting the Common Stock or
the rights thereof (or any rights, options or warrants to purchase same), or the
dissolution or liquidation of the Company, or any sale or transfer of all or any
part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
     12.2 Conversion of Incentives Where Company Survives. Subject to any
required action by the stockholders and except as otherwise provided by
Section 12.4 hereof or as may be required to comply with Section 409A of the
Code and the regulations or other guidance issued thereunder, if the Company
shall be the surviving or resulting corporation in any merger, consolidation or
share exchange, any Incentive granted

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hereunder shall pertain to and apply to the securities or rights (including
cash, property, or assets) to which a holder of the number of shares of Common
Stock subject to the Incentive would have been entitled.
     12.3 Exchange or Cancellation of Incentives Where Company Does Not Survive.
Except as otherwise provided by Section 12.4 hereof or as may be required to
comply with Section 409A of the Code and the regulations or other guidance
issued thereunder, in the event of any merger, consolidation or share exchange
pursuant to which the Company is not the surviving or resulting corporation,
there shall be substituted for each share of Common Stock subject to the
unexercised portions of outstanding Incentives, that number of shares of each
class of stock or other securities or that amount of cash, property, or assets
of the surviving, resulting or consolidated company which were distributed or
distributable to the stockholders of the Company in respect to each share of
Common Stock held by them, such outstanding Incentives to be thereafter
exercisable for such stock, securities, cash, or property in accordance with
their terms.
     12.4 Cancellation of Incentives. Notwithstanding the provisions of
Sections 12.2 and 12.3 hereof, and except as may be required to comply with
Section 409A of the Code and the regulations or other guidance issued
thereunder, all Incentives granted hereunder may be canceled by the Company, in
its sole discretion, as of the effective date of any Change in Control, merger,
consolidation or share exchange, or any issuance of bonds, debentures, preferred
or preference stocks ranking prior to or otherwise affecting the Common Stock or
the rights thereof (or any rights, options, or warrants to purchase same), or of
any proposed sale of all or substantially all of the assets of the Company, or
of any dissolution or liquidation of the Company, by either:
     (a) giving notice to each holder thereof or his personal representative of
its intention to cancel those Incentives for which the issuance of shares of
Common Stock involved payment by the Participant for such shares, and permitting
the purchase during the thirty (30) day period next preceding such effective
date of any or all of the shares of Common Stock subject to such outstanding
Incentives, including in the Board’s discretion some or all of the shares as to
which such Incentives would not otherwise be vested and exercisable; or
     (b) in the case of Incentives that are either (i) settled only in shares of
Common Stock, or (ii) at the election of the Participant, settled in shares of
Common Stock, paying the holder thereof an amount equal to a reasonable estimate
of the difference between the net amount per share payable in such transaction
or as a result of such transaction, and the price per share of such Incentive to
be paid by the Participant (hereinafter the “Spread”), multiplied by the number
of shares subject to the Incentive. In cases where the shares constitute, or
would after exercise, constitute Restricted Stock, the Company, in its
discretion, may include some or all of those shares in the calculation of the
amount payable hereunder. In estimating the Spread, appropriate adjustments to
give effect to the existence of the Incentives shall be made, such as deeming
the Incentives to have been exercised, with the Company receiving the exercise
price payable thereunder, and treating the shares receivable upon exercise of
the Incentives as being outstanding in determining the net amount per share. In
cases where the proposed transaction consists of the acquisition of assets of
the Company, the net amount per share shall be calculated on the basis of the
net amount receivable with respect to shares of Common Stock upon a distribution
and liquidation by the Company after giving effect to expenses and charges,
including but not limited to taxes, payable by the Company before such
liquidation could be completed.
     (c) An Award that by its terms would be fully vested or exercisable upon a
Change in Control will be considered vested or exercisable for purposes of
Section 12.4(a) hereof.

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ARTICLE 13
LIQUIDATION OR DISSOLUTION
     Subject to Section 12.4 hereof, in case the Company shall, at any time
while any Incentive under this Plan shall be in force and remain unexpired,
(i) sell all or substantially all of its property, or (ii) dissolve, liquidate,
or wind up its affairs, then each Participant shall be entitled to receive, in
lieu of each share of Common Stock of the Company which such Participant would
have been entitled to receive under the Incentive, the same kind and amount of
any securities or assets as may be issuable, distributable or payable upon any
such sale, dissolution, liquidation or winding up with respect to each share of
Common Stock of the Company. If the Company shall, at any time prior to the
expiration of any Incentive, make any partial distribution of its assets, in the
nature of a partial liquidation, whether payable in cash or in kind (but
excluding the distribution of a cash dividend payable out of earned surplus and
designated as such) and an adjustment is determined by the Committee to be
appropriate to prevent the dilution of the benefits or potential benefits
intended to be made available under the Plan, then the Committee shall, in such
manner as it may deem equitable, make such adjustment in accordance with the
provisions of Article 11 hereof.
ARTICLE 14
INCENTIVES IN SUBSTITUTION FOR
INCENTIVES GRANTED BY OTHER ENTITIES
     Incentives may be granted under this Plan from time to time in substitution
for similar instruments held by employees, consultants or directors of a
corporation, partnership, or limited liability company who become or are about
to become Employees, Consultants or Outside Directors of the Company or any
Subsidiary as a result of a merger or consolidation of the employing corporation
with the Company, the acquisition by the Company of equity of the employing
entity, or any other similar transaction pursuant to which the Company becomes
the successor employer. The terms and conditions of the substitute Incentives so
granted may vary from the terms and conditions set forth in this Plan to such
extent as the Committee at the time of grant may deem appropriate to conform, in
whole or in part, to the provisions of the Incentives in substitution for which
they are granted.
ARTICLE 15
MISCELLANEOUS PROVISIONS
     15.1 Investment Intent. The Company may require that there be presented to
and filed with it by any Participant under this Plan, such evidence as it may
deem necessary to establish that the Incentives granted or the shares of Common
Stock to be purchased or transferred are being acquired for investment and not
with a view to their distribution.
     15.2 No Right to Continued Employment. Neither this Plan nor any Incentive
granted under the Plan shall confer upon any Participant any right with respect
to continuance of employment by the Company or any Subsidiary.
     15.3 Indemnification of Board and Committee. No member of the Board or the
Committee, nor any officer or Employee of the Company acting on behalf of the
Board or 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 Board and the Committee, each officer of the Company, and each
Employee of the Company acting on behalf of the Board or the Committee shall, to
the extent permitted by law, be fully indemnified and protected by the Company
in respect of any such action, determination or interpretation.

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     15.4 Effect of the Plan. Neither the adoption of this Plan nor any action
of the Board or the Committee shall be deemed to give any person any right to be
granted an Award or any other rights except as may be evidenced by an Award
Agreement, or any amendment thereto, duly authorized by the Committee and
executed on behalf of the Company, and then only to the extent and upon the
terms and conditions expressly set forth therein.
     15.5 Compliance With Other Laws and Regulations. Notwithstanding anything
contained herein to the contrary, the Company shall not be required to sell or
issue shares of Common Stock under any Incentive if the issuance thereof would
constitute a violation by the Participant or the Company of any provisions of
any law or regulation of any governmental authority or any national securities
exchange or inter-dealer quotation system or other forum in which shares of
Common Stock are quoted or traded (including, without limitation, Section 16 of
the 1934 Act and Section 162(m) of the Code); and, as a condition of any sale or
issuance of shares of Common Stock under an Incentive, the Committee may require
such agreements or undertakings, if any, as the Committee may deem necessary or
advisable to assure compliance with any such law or regulation. The Plan, the
grant and exercise of Incentives hereunder, and the obligation of the Company to
sell and deliver shares of Common Stock, shall be subject to all applicable
federal and state laws, rules and regulations and to such approvals by any
government or regulatory agency as may be required.
     15.6 Tax Requirements. The Company or, if applicable, any Subsidiary (for
purposes of this Section 15.6, the term “Company” shall be deemed to include any
applicable Subsidiary), shall have the right to deduct from all amounts paid in
cash or other form in connection with this Plan, any Federal, state, local, or
other taxes required by law to be withheld in connection with an Award granted
under this Plan. The Company may, in its sole discretion, also require the
Participant receiving shares of Common Stock issued under the Plan to pay the
Company the amount of any taxes that the Company is required to withhold in
connection with the Participant’s income arising with respect to the Award. Such
payments shall be required to be made when requested by the Company and may be
required to be made prior to the delivery of any certificate representing shares
of Common Stock. Such payment may be made (i) by the delivery of cash to the
Company in an amount that equals or exceeds (to avoid the issuance of fractional
shares under (iii) below) the required tax withholding obligations of the
Company; (ii) if the Company, in its sole discretion, so consents in writing,
the actual delivery by the exercising Participant to the Company of shares of
Common Stock that the Participant has not acquired from the Company within six
(6) months prior to the date of exercise, which shares so delivered have an
aggregate Fair Market Value that equals or exceeds (to avoid the issuance of
fractional shares under (iii) below) the required tax withholding payment;
(iii) if the Company, in its sole discretion, so consents in writing, the
Company’s withholding of a number of shares to be delivered upon the exercise of
the Stock Option, which shares so withheld have an aggregate Fair Market Value
that equals (but does not exceed) the required tax withholding payment; or
(iv) any combination of (i), (ii), or (iii). The Company may, in its sole
discretion, withhold any such taxes from any other cash remuneration otherwise
paid by the Company to the Participant. The Committee may in the Award Agreement
impose any additional tax requirements or provisions that the Committee deems
necessary or desirable.
     15.7 Assignability. Incentive Stock Options may not be transferred,
assigned, pledged, hypothecated or otherwise conveyed or encumbered other than
by will or the laws of descent and distribution and may be exercised during the
lifetime of the Participant only by the Participant or the Participant’s legally
authorized representative, and each Award Agreement in respect of an Incentive
Stock Option shall so provide. The designation by a Participant of a beneficiary
will not constitute a transfer of the Stock Option. The Committee may waive or
modify any limitation contained in the preceding sentences of this Section 15.7
that is not required for compliance with Section 422 of the Code.
     Except as otherwise provided herein, Nonqualified Stock Options may not be
transferred, assigned, pledged, hypothecated or otherwise conveyed or encumbered
other than by will or the laws of descent and distribution. The Committee may,
in its discretion, authorize all or a portion of a Nonqualified Stock Option to

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be granted to a Participant on terms which permit transfer by such Participant
to (i) the spouse (or former spouse), children or grandchildren of the
Participant (“Immediate Family Members”), (ii) a trust or trusts for the
exclusive benefit of such Immediate Family Members, (iii) a partnership or
limited liability company in which the only partners or members are (1) such
Immediate Family Members and/or (2) entities which are controlled by the
Participant and/or Immediate Family Members, (iv) an entity exempt from federal
income tax pursuant to Section 501(c)(3) of the Code or any successor provision,
or (v) a split interest trust or pooled income fund described in
Section 2522(c)(2) of the Code or any successor provision, provided that
(x) there shall be no consideration for any such transfer, (y) the Award
Agreement pursuant to which such Nonqualified Stock Option is granted must be
approved by the Committee and must expressly provide for transferability in a
manner consistent with this Section, and (z) subsequent transfers of transferred
Nonqualified Stock Options shall be prohibited except those by will or the laws
of descent and distribution.
     Following any transfer, any such Nonqualified Stock Option shall continue
to be subject to the same terms and conditions as were applicable immediately
prior to transfer, provided that for purposes of Articles 8, 9, 11, 13 and 15
hereof the term “Participant” shall be deemed to include the transferee. The
events of Termination of Service shall continue to be applied with respect to
the original Participant, following which the Nonqualified Stock Options shall
be exercisable or convertible by the transferee only to the extent and for the
periods specified in the Award Agreement. The Committee and the Company shall
have no obligation to inform any transferee of a Nonqualified Stock Option of
any expiration, termination, lapse or acceleration of such Stock Option. The
Company shall have no obligation to register with any federal or state
securities commission or agency any Common Stock issuable or issued under a
Nonqualified Stock Option that has been transferred by a Participant under this
Section 15.7.
     15.8 Use of Proceeds. Proceeds from the sale of shares of Common Stock
pursuant to Incentives granted under this Plan shall constitute general funds of
the Company.
     15.9 Legend. Each certificate representing shares of Restricted Stock
issued to a Participant shall bear the following legend, or a similar legend
deemed by the Company to constitute an appropriate notice of the provisions
hereof (any such certificate not having such legend shall be surrendered upon
demand by the Company and so endorsed):
On the face of the certificate:
“Transfer of this stock is restricted in accordance with conditions printed on
the reverse of this certificate.”
On the reverse:
“The shares of stock evidenced by this certificate are subject to and
transferable only in accordance with that certain Parallel Petroleum Corporation
2008 Long-Term Incentive Plan, a copy of which is on file at the principal
office of the Company in Midland, Texas. No transfer or pledge of the shares
evidenced hereby may be made except in accordance with and subject to the
provisions of said Plan. By acceptance of this certificate, any holder,
transferee or pledgee hereof agrees to be bound by all of the provisions of said
Plan.”
     The following legend shall be inserted on a certificate evidencing Common
Stock issued under the Plan if the shares were not issued in a transaction
registered under the applicable federal and state securities laws:

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“Shares of stock represented by this certificate have been acquired by the
holder for investment and not for resale, transfer or distribution, have been
issued pursuant to exemptions from the registration requirements of applicable
state and federal securities laws, and may not be offered for sale, sold or
transferred other than pursuant to effective registration under such laws, or in
transactions otherwise in compliance with such laws, and upon evidence
satisfactory to the Company of compliance with such laws, as to which the
Company may rely upon an opinion of counsel satisfactory to the Company.”
     A copy of this Plan shall be kept on file in the principal office of the
Company in Midland, Texas.
***************

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