exv10w7



 






	 	 	 	 	 



Exhibit 10.7




PARALLEL PETROLEUM CORPORATION




INCENTIVE AND RETENTION PLAN

(as amended on August 23, 2005 and February 27, 2007)




Purpose





     The purpose of the Parallel Petroleum Corporation Incentive and Retention Plan (the “Plan”) is
to advance the interests of Parallel Petroleum Corporation, a Delaware corporation, and its
stockholders by providing certain officers, employees and consultants to Parallel with incentive
bonus compensation which is linked to the sale of the Company (as defined in Article I hereof) or
all or substantially all of the assets of the Company, a merger or business combination or other
transaction. In addition, recognizing the possibility of a proposed or threatened transaction, the
aggregate effect of which may be a Corporate Transaction or a Change of Control (both as defined in
Article I hereof), the Board of Directors of the Company and the Compensation Committee of the
Board have determined that it is imperative that the Company be able to rely upon participating
officers, employees and consultants to continue in their employment by or service to the Company or
its Subsidiaries (as defined in Article I hereof), and that the Company be able to receive and rely
upon their advice as to the best interests of the Company and its stockholders without concern that
they might be distracted by the personal uncertainties and risks created by any such transaction.



ARTICLE I

DEFINITIONS




     In addition to the terms defined in the preamble and elsewhere in this Plan, the following
definitions are applicable throughout this Plan:



     “Additional Base Price” means $8.62 per share of common stock.



     “Additional Base Shares” means 400,000 shares of common stock of the Company.



     “Affiliate” means with respect to any Person, any other Person who is, or would be deemed to
be, an “affiliate” or an “associate” of such Person within the respective meanings given to such
terms in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “1934 Act”), as in
effect on the date of this Agreement.



     “Base Price” means the volume weighted average closing price of the Company’s common stock
for the fiscal quarter ended December 31, 2003, or $3.73 per share.



     “Base Shares” means the weighted average shares of common stock (basic) of the Company
outstanding for the fiscal quarter ended December 31, 2003, or 1,080,362 shares.



     A person will be deemed the “Beneficial Owner” of any securities which such Person or any of
such Person’s Affiliates would be deemed to beneficially own, directly or indirectly, within the
meaning given to such term in Rule 13d-3 under the 1934 Act as in effect on the date of this
Agreement.



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



     “Change of Control” means the occurrence of either one or both of the following events:



     (a) the acquisition of beneficial ownership (within the meaning of Rule 13d-3 under the 1934
Act) of an aggregate of 60% or more of the Voting Power of the Company’s outstanding Voting
Securities by any person or group (as such term is used in Rule 13d-5 under the 1934 Act) who
beneficially owned less than 50% of the Voting Power of the Company’s outstanding Voting
Securities on the date of this Plan; provided, however, that notwithstanding the
foregoing, an acquisition shall not constitute a Change in Control hereunder if the acquiror is (i)
a trustee or other fiduciary holding securities under an employee benefit plan of the Company and
acting in such capacity, or (ii) a Subsidiary of the Company or a corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same proportions as their
ownership of Voting Securities of the Company; or



     (b) A change in the composition of the Board such that the individuals who, as of the
effective date of this Plan, constitute the Board (such Board shall be hereinafter referred to as
the “Incumbent Board”) cease for any reason (other than by way of voluntary resignation) to
constitute at least a majority of the Board; provided, however, that for purposes of this
definition, any individual who becomes a member of the Board subsequent to the effective date of
this Plan, whose election, or nomination for election, by the Company’s stockholders was approved
by a vote of at least a majority of those individuals who are members of the Board and who were
also members of the Incumbent Board (or deemed to be such pursuant to this proviso) shall be
considered as though such individual were a member of the Incumbent Board; and provided, further
however, that any such individual whose initial assumption of office occurs as a result of or in
connection with either an actual or threatened election contest or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the Board shall not be
so considered as a member of the Incumbent Board.



     “Change of Control Date” means the date on which a Change of Control occurs.



     “Committee” shall have the meaning given to such term in Section 2.1 of this Plan.



     “Company” means Parallel Petroleum Corporation or any Successor.



     “Corporate Transaction” means the occurrence of any one or more of the following events:



     (a) an acquisition of the Company by any Person or group of Persons (other than the
Participants) by way of purchase, merger, consolidation, reorganization or other business
combination, whether by way of tender offer or negotiated transaction, as a result of which the
outstanding securities of the Company are exchanged or converted into cash, property and/or
securities not issued by the Company (other than a merger, consolidation or reorganization the sole
purpose of which is to change the Company’s domicile solely within the United States, and other
than a merger, consolidation or reorganization of the Company in which the holders of the
securities of the Company immediately prior to such transaction have the same proportionate
ownership of the securities of the surviving corporation immediately after such transaction);



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     (b) a sale, lease, exchange or other disposition by the Company (excluding disposition by way
of pledge, hypothecation or foreclosure) to any Person or group of Persons (other than the
Participants) in one transaction or a series of related transactions, of all or substantially all
of the assets of the Company;



     (c) the stockholders of the Company approve any plan or proposal for the liquidation or
dissolution of the Company; or



     (d) any combination of any of the foregoing.



     “Executive Group” means all executive officers of the Company and any other officer employee
of the Company or its Subsidiaries selected by the Compensation Committee in its sole discretion
for participation in the Plan.



     “Market Value” means, as of any specified date, an amount equal to the per share closing
price of the Company’s common stock on the Nasdaq Stock Market at the close of business on the day
immediately preceding the Change of Control Date. If the common stock is not publicly traded on
the Nasdaq Stock Market at the time a determination of its value is required to be made, the market
value of the common stock shall be the per share closing price reported on the stock exchange
composite tape of the exchange on which the common stock is then publicly traded, or if the common
stock is not publicly traded on any such other exchange, the determination of fair market value of
the common stock shall be made by the Committee in such manner as it deems appropriate.



     “Participant” means a member of the Executive Group and any other employee of or consultant
to the Company or its Subsidiaries selected by the Compensation Committee in its sole discretion
for participation in the Plan.



     “Performance Bonus” means a positive amount determined in accordance with the following
formula:



[(Transaction
Proceeds — Base Price) x Base Shares], plus

[(Transaction Proceeds — Additional Base Price) x Additional Base Shares]



     “Person” means any natural person, corporation, trust, company, organization, association,
partnership or other entity of any kind, and any successors or assigns thereof, and shall also
include any group of Persons acting jointly or in concert.



     “Proportionate Share” means the amount of the Performance Bonus or Retention Payment
allocated to each Participant upon the occurrence of a Corporate Transaction or Change of Control,
as the case may be, as provided for in Section 4.1 and Section 4.2 of this Plan.



     “Retention Payment” means a positive amount determined in accordance with the following
formula:



[(Market
Value — Base Price) x Base Shares], plus

[(Market Value — Additional Base Price) x Additional Base Shares]



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     “Subsidiary” means any corporation or other entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of directors or other
persons performing similar functions are at the time directly or indirectly owned by the Company or
another Subsidiary.



     “Successor” means any Person into or with which Parallel shall be merged, consolidated or
otherwise combined, or any Person which acquires all or substantially all the assets of Parallel
and in connection therewith assumes all or substantially all of Parallel’s obligations and
liabilities, including Parallel’s obligations under this Agreement.



     “Transaction Date” means the date on which a Corporate Transaction is consummated. If a
Corporate Transaction occurs in a manner providing for multiple closings or steps, the Transaction
Date will be deemed to be the date on which the first closing or step is consummated and the
Corporate Transaction will be deemed to have been consummated in its entirety on such Transaction
Date.



     “Transaction Proceeds” means the amount determined in clause (i), (ii) or (iii), whichever is
applicable, as follows: (i) the price per share of common stock offered to stockholders of the
Company in any merger, consolidation, share exchange, reorganization, combination, sale of assets,
liquidation or dissolution transaction, (ii) the price per share of common stock offered to
stockholders of the Company in any tender offer or exchange offer, or (iii) if a transaction
occurs other than as described in clause (i) or (ii), the per share price determined in good faith
by the Committee. If the consideration offered to holders of common stock of the Company in any
transaction consists of anything other than cash, the Committee shall determine in good faith the
fair cash equivalent of the portion of the consideration offered which is other than cash.



     “Voting Securities” means all securities of a company entitling the holders thereof to vote in
an annual election of directors (without consideration of the rights of any class of stock other
than the common stock to elect directors by a separate class vote); and a specified percentage of
the “Voting Power” of a company means such number of the Voting Securities as will enable the
holders thereof to cast such percentage of all the votes which could be cast in an annual election
of directors (without consideration of the rights of any class of stock other than the common stock
to elect directors by a separate class vote).



ARTICLE II

ADMINISTRATION




     2.1 Administration by Compensation Committee. Subject to the terms of this Article
II, this Plan shall be administered by the Compensation Committee (the “Committee”) of the Board of
Directors of the Company.



     2.2 Committee Action. 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. Any action taken by the Committee may be taken without a
meeting, without prior notice, and without a vote, if a consent or consents in writing, setting
forth the action so taken, shall be signed by all of the members of the Committee.



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     2.3 Committee’s Powers. The Committee shall have the power, in its sole discretion, to
take such actions as may be necessary to carry out the provisions and purposes of this Plan and
shall have the authority to control and manage the operation and administration of this Plan. In
order to effectuate the purposes of this Plan, the Committee shall have the discretionary power and
authority to construe and interpret this Plan, to supply any omissions therein, to reconcile and
correct any errors or inconsistencies, to decide any questions in the administration and
application of this Plan, and to make equitable adjustments for any mistakes or errors made in the
administration of the Plan. All such actions or determinations made by the Committee, in good
faith, shall not be subject to review by anyone, but shall be final, binding and conclusive on all
persons ever interested hereunder.



     In construing this Plan and in exercising its powers, the Committee will attempt to ascertain
the purpose of any provision in question, and when the purpose is known or reasonably
ascertainable, the purpose will be given effect to the extent feasible. Likewise, the Committee is
authorized to determine all questions with respect to the individual rights of all Participants
under this Plan (which need not be identical), including, but not limited to, all issues with
respect to eligibility. The Committee shall have all powers necessary or appropriate to accomplish
its duties under this Plan including, but not limited to, the power and duty to:



          (a) designate the officers and employees of the Company and its Subsidiaries, and consultants
to the Company and its Subsidiaries, who shall participate in this Plan, in addition to the
“Executive Group”;




          (b) maintain complete and accurate records and data in the manner necessary for proper
administration of this Plan;




          (c) adopt rules of procedure and regulations necessary for the proper and efficient
administration of this Plan, provided the rules and regulations are not inconsistent with the terms
of this Plan as set out herein. The Committee shall exercise its discretion hereunder in a
nondiscriminatory manner;




          (d) enforce the terms of this Plan and the rules and regulations it adopts;




          (e) employ agents, attorneys, accountants or other Persons (who also may be employed by or
represent the Company) for such purposes as the Committee considers necessary or desirable in
connection with its duties hereunder; and




          (f) perform any and all other acts necessary or appropriate for the proper management and
administration of this Plan.




ARTICLE III

PARTICIPATION




     All members of the Executive Group are Participants in this Plan and are eligible to receive a
Proportionate Share of the Performance Bonus or Retention Payment upon the occurrence of a
Corporate Transaction or a Change of Control as provided in this Plan. The Committee may from time
to time select and designate (with the advice and assistance of the Executive Group, if requested
by the Committee) other non-officer employees of, and consultants to, the Company and its
Subsidiaries as Participants in the Plan who shall also be eligible



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to receive a Proportionate Share of the Performance Bonus or Retention Payment. Participants
in the Plan may also participate in other incentive or benefit plans of the Company or any
Subsidiary, subject to the terms and conditions of such plans.



ARTICLE IV

BONUS AND RETENTION PAYMENTS




     4.1 Performance Bonus. Subject to the terms and conditions of Article VIII of this
Plan, on the Transaction Date, or as soon as practicable thereafter, the Company shall set aside an
amount equal to the Performance Bonus. The Committee, with the assistance and non-binding
recommendations of one designee appointed by the Executive Group, shall then allocate for payment
to and among each member of the Executive Group such portion of the Performance Bonus as the
Committee shall determine in its sole discretion. After making such allocations, and if and to the
extent any part of the Performance Bonus remains unallocated, the Committee, with the assistance
and non-binding recommendations of the designee appointed by the Executive Group, shall next
allocate any such remaining portion of the Performance Bonus among all other Participants in the
Plan. After all allocations of the Performance Bonus have been made, each Participant’s
Proportionate Share of the Performance Bonus shall be paid in a cash lump sum on the Transaction
Date or as soon as practicable thereafter.



     4.2 Retention Payment. Subject to the terms and conditions of Article VIII of this
Plan, on the Change of Control Date, or as soon as practicable thereafter, the Company shall set
aside an amount equal to the Retention Payment. The Committee, with the assistance and non-binding
recommendations of one designee appointed by the Executive Group, shall then allocate for payment
to and among each member of the Executive Group such portion of the Retention Payment as the
Committee shall determine in its sole discretion. After making such allocations, and if and to the
extent any part of the Retention Payment remains unallocated, the Committee, with the assistance
and non-binding recommendations of the designee appointed by the Executive Group, shall next
allocate any such remaining portion of the Retention Payment among all other Participants in the
Plan. After all allocations of the Retention Payment have been made, each Participant’s
Proportionate Share of the Retention Payment shall be paid in a cash lump sum on the Change of
Control Date or as soon as practicable thereafter.



ARTICLE V

NONALIENATION




     A Participant may not alienate, assign, pledge, encumber, transfer, sell or otherwise dispose
of any rights or benefits awarded hereunder prior to the actual receipt thereof; and any attempt by
any Participant to alienate, assign, pledge, encumber, transfer, sell or otherwise dispose of any
rights or benefits prior to such receipt, or any levy, attachment, execution or similar process
upon any rights or benefits conferred hereunder will immediately be null and void.



ARTICLE VI

UNFUNDED OBLIGATION




     The Plan shall at all times be entirely unfunded and no provision shall at any time be made
with respect to segregating assets of the Company for payment of any
amounts hereunder.



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 This Plan and any setting aside of amounts by the Company with which to discharge its
obligations hereunder shall not be deemed to create a trust of any kind or a fiduciary relationship
between the Company and a Participant or any other Person. The benefits provided under this Plan
shall be a general, unsecured obligation of the Company payable solely from the general assets of
the Company, and neither any Participant nor any Participant’s beneficiaries or estate shall have
any interest in any particular assets of the Company or any Subsidiary by virtue of this Plan.
Participants and beneficiaries shall have only the rights of a general unsecured creditor of the
Company.



ARTICLE VII

REIMBURSEMENT OF EXPENSES




     If, after the occurrence of a Corporate Transaction or a Change of Control, a Participant
brings any action, whether at law or in equity, to obtain or enforce any payment, benefit or right
provided by this Plan, such Participant shall be entitled to recover reasonable attorneys’ fees and
related expenses upon issuance by a court of competent jurisdiction of a final non-appealable order
to the effect that such Participant is the prevailing party.



ARTICLE VIII

CONDITIONS TO OBLIGATIONS OF THE COMPANY




     The Company will have no obligation to pay or cause to be paid to any Participant the
Performance Bonus or Retention Payment described herein if (a) the payment of the Performance Bonus
or Retention Payment would, in the sole determination of the Committee, cause the Company to be in
violation or breach of any law, statute, rule or regulation or any determination of an arbitrator
or a court or other governmental authority, or any covenant, limitation, prohibition or restriction
of any nature contained in any agreement to which the Company is a party or by which it is bound,
or (b) Participant dies, retires, resigns or is terminated or removed by the Company as an officer
or employee of, or consultant to, the Company or any of its Subsidiaries prior to the date on which
a Corporate Transaction or Change of Control occurs, as applicable, except that if a Corporate
Transaction or Change of Control occurs at any time during the period of one year following the
date a Participant ceases to be an employee or officer of, or consultant to, the Company for any
reason (other than by reason of such Participant’s termination of employment or service or removal
from office by the Company, whether with or without cause), such former Participant (or such former
Participant’s estate) may, but shall not be entitled to, be designated by the Committee in its
sole discretion as a Participant eligible to receive the Performance Bonus or Retention Payment,
as applicable.



ARTICLE IX

PAYMENT OF OBLIGATION ABSOLUTE




     Subject to the terms and conditions of Article VIII of this Plan, the obligations of the
Company to pay the Performance Bonus or Retention Payment described in Article IV of this Plan
shall be absolute and unconditional and will not be affected by any circumstances, including,
without limitation, any set-off, counterclaim, recoupment, defense or other right that the Company
may have against a Participant. In no event will a Participant be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable to Participants
under any of the provisions of this Plan, nor will the amount of any payment



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hereunder be reduced by any compensation earned by Participants as a result of employment by
another employer.



ARTICLE X

NO RIGHT TO CONTINUED EMPLOYMENT




     This Plan does not, and shall not be construed to, give any Participant any right to remain in
the employ of the Company or any Subsidiary. The Company and its Subsidiaries reserve the right to
terminate any employee or other Participant at any time, with or without cause.



ARTICLE XI

TERM OF PLAN




     Unless earlier terminated in accordance with Section 12.5 of this Plan, this Plan shall
automatically terminate and expire upon the date on which all Participants have received their
respective Proportionate Share of the Performance Bonus or their respective Retention Payment
following the occurrence of a Corporate Transaction or Change of Control, as the case may be. Upon
termination of this Plan, Participants shall have no rights, benefits or claims under or pursuant
to this Plan.



ARTICLE XII

MISCELLANEOUS




     12.1 No Adverse Actions. Upon the occurrence of a Corporate Transaction or a Change
of Control, no action, including, but not by way of limitation, the amendment, suspension or
termination of this Plan, shall be taken which would adversely affect the rights of Participants or
the operation of this Plan with respect to the Performance Bonus or Retention Payment to which
Participants may have become entitled hereunder as a result of a Corporate Transaction or Change of
Control.



     12.2 Simultaneous Transactions. If a transaction or event or series of related
transactions or events constitutes both a Corporate Transaction and a Change of Control, then for
purposes of this Plan, a Corporate Transaction shall be deemed to have occurred.



     12.3 Recapitalization or Reorganization.



     (a) The existence of the Plan shall not affect in any way the right or power of the Board or
the stockholders of the Company to make or authorize any adjustment, recapitalization,
reorganization or other change in the Company’s capital structure or its business, any merger or
consolidation of the Company, any issue of debt or equity securities, the dissolution or
liquidation of the Company or any sale, lease, exchange or other disposition of all or any part of
its assets or business or any other corporate act or proceeding.



     (b) If the Company shall effect a subdivision or consolidation of shares of common stock or
the payment of a stock dividend on common stock without receipt of consideration by the Company,
the number of Base Shares and Additional Base Shares (i) in the event of an increase of the number
of outstanding shares of common stock shall be proportionately increased, and the Base Price and
Additional Base Price shall be proportionately reduced, and (ii) in the event of a reduction in the
number of outstanding shares of common stock



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shall be proportionately reduced, and the Base Price and Additional Base Price shall be
proportionately increased.



     (c) If the Company after the date hereof recapitalizes or otherwise changes its capital
structure, and such recapitalization or change in corporate structure would in the opinion of the
Committee materially affect the rights of Participants, the Base Price and Additional Base Price
and the number of Base Shares and Additional Base Shares shall be adjusted in such manner, if any,
and at such time as the Committee, in good faith, may determine to be equitable in the
circumstances.



     (d) Except as hereinbefore expressly provided, the issuance by the Company of shares of stock
of any class or securities convertible into shares of stock of any class, for cash, property, labor
or services, upon direct sale, upon the exercise of rights or warrants to subscribe therefore, or
upon conversion of shares or obligations of the Company convertible into such shares or other
securities, and in any case whether or not for fair value, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number of Base Shares and Additional Base Shares
or the Base Price and Additional Base Price.



     12.4 Construction of Agreement. Nothing in this Plan shall be construed to amend any
provision of any other plan or policy of the Company. This Plan is not and nothing herein shall be
deemed to create, a commitment of continued service by any Participant as an officer or employee
of, or consultant to, the Company or its Subsidiaries, or in any other capacity. The benefits
provided under this Plan are in addition to any other compensation agreements or arrangements that
the Company may have with the Participants.



     12.5 Amendment or Discontinuance. At any time and from time to time, by action of the
Board, subject to the limitations hereinafter provided, any or all provisions of the Plan may be
amended. Each amendment of the Plan shall be in writing and shall become effective on the date
specified therein. No amendment of the Plan may be made which shall deprive any Participant of
amounts that may become payable with respect to events occurring after the date of this Plan;
provided, however, and notwithstanding the foregoing, the Plan may be amended from time to time by
the Board if, in the sole discretion of the Board, any such amendment is necessary, advisable or
required in order to comply with any law, statute, rule or regulation or any determination of an
arbitrator or a court or other governmental entity.



     The Plan may not be discontinued or terminated by the Board, but shall continue until
terminated as provided in Article XI; provided, however, and notwithstanding the foregoing, the
Plan may be discontinued or terminated by the Board if, in the sole discretion of the Board, such
discontinuation or termination is necessary, advisable or required in order to comply with any law,
statute, rule or regulation or any determination of an arbitrator or a court or other governmental
entity.



     12.6 Successors.



          (a) This Plan is binding upon any Successor to the Company, and any Person that acquires
substantially all of the Company’s assets or substantially all its business (whether direct or
indirect, by purchase, merger, consolidation or otherwise), in the same manner and to the same
extent that the Company would be obligated under this Plan if no succession had taken place.




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          (b) This Plan inures to the benefit of, and is enforceable by, a Participant’s personal or
legal representatives, executors, administrators, successors, heirs, distributees, devisees and
legatees. If a Participant dies after the occurrence of a Corporate Transaction or Change of
Control, as the case may be, but before the receipt of the Performance Bonus or Retention Payment
payable hereunder with respect to events occurring prior to death, such Performance Bonus or
Retention Payment shall be paid in accordance with the last beneficiary designation executed by the
Participant and filed with the Company. If no beneficiary form has been filed with the Company,
any payment due to a Participant hereunder shall be paid to the deceased Participant’s estate.




     12.7 Taxes. The Company will withhold from all payments due to a Participant (or such
Participant’s beneficiary or estate) hereunder all taxes which, by applicable federal, state, local
or other law, the Company is required to withhold therefrom.



     12.8 Indemnification of Committee. No member of the Committee nor any director,
officer or employee, or consultant to, of the Company or any Subsidiary 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 each director, officer
or employee, or consultant to, of the Company or any Subsidiary acting on its behalf shall, to the
extent permitted by law, be fully indemnified and protected by the Company with respect to any such
action, determination or interpretation.



     12.9 Governing Law. This Plan will be governed by and construed in accordance with
the laws of the State of Texas.



     12.10 Headings. The headings of the Sections herein are included solely for reference
convenience, and will not in any way affect the meaning or interpretation of this Agreement.



     12.11 Expenses of the Plan. All costs and expenses of the adoption and administration
of this Plan shall be borne by the Company and none of such expenses shall be charged to any
Participant.



     12.12 Date of Plan. The effective date of this Plan is September 23, 2004, the date
of adoption by the Board, except with respect to amendments to this Plan adopted on August 23,
2005, which are effective as of such date, and except with respect to amendments to this Plan
adopted on February 27, 2007, which are effective as of such date.



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