Document:

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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Exhibit 10.23

GUARANTY

     THIS GUARANTY (this “Guaranty”) is made as of the 23rd day of December, 2005, by PARALLEL,
L.L.C., a Delaware limited liability company (the “Guarantor”) in favor of the Agent, for the
benefit of the Lenders, under the Credit Agreement referred to below;

WITNESSETH:

     WHEREAS, PARALLEL PETROLEUM CORPORATION, a Delaware corporation (“PPC”) and PARALLEL, L.P., a
Texas limited partnership (“PLP”) (PPC and PLP collectively are hereinafter referred to as the
“Principal”), Guarantor, CITIBANK TEXAS, N.A., a national banking association, having its principal
office in Midland, Texas, as Joint Lead Arranger and Administrative Agent (the “Agent”), BNP
PARIBAS, as Joint Lead Arranger and Syndication Agent, and certain other financial institutions
from time to time parties thereto (the “Lenders”) have entered into a certain Third Amended and
Restated Credit Agreement dated of even date herewith (as same may be amended, modified or restated
from time to time, the “Credit Agreement”), providing, subject to the terms and conditions thereof,
for extensions of credit to be made by the Lenders to the Principal;

     WHEREAS, it is a condition precedent to the Agent and the Lenders executing the Credit
Agreement that Guarantor execute and deliver this Guaranty whereby the Guarantor shall guarantee
the payment when due, subject to Section 9 hereof, of all Guaranteed Obligations and Rate
Management Obligations, as defined below; and

     WHEREAS, in consideration of the financial and other support that the Principal has provided,
and such financial and other support as the Principal may in the future provide, to the Guarantor,
and in order to induce the Lenders and the Agent to enter into the Credit Agreement, and the
Lenders and their Affiliates to enter into one or more Rate Management Transactions with the
Principal, and because the Guarantor has determined that executing this Guaranty is in its interest
and to its financial benefit, the Guarantor is willing to guarantee the obligations of the
Principal under the Credit Agreement, any Note, any Rate Management Transaction, and the other Loan
Documents;

     NOW, THEREFORE, in consideration of the premises and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

     SECTION l.1. Selected Terms Used Herein.

     “Guaranteed Obligations” is defined to mean (i) all indebtedness, obligations and liabilities
of either Principal to Agent or any Lender arising out of or pursuant to the provisions of the
Credit Agreement, the Notes and other Loan Documents, (ii) all Rate Management Obligations, (iii)
all indebtedness, obligations and liabilities of either Principal to any Lender of any kind or
character now existing or hereafter arising, whether direct, indirect, related, unrelated, fixed,
contingent, liquidated, unliquidated, joint, several or joint and several, and regardless of
whether such indebtedness, obligations and liabilities may, prior to their acquisition by any
Lender, be or have been payable to or in favor of a

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third party and subsequently acquired by any Lender (it being contemplated that any Lender may
make such acquisitions from third parties), including without limitation all indebtedness,
obligations and liabilities of either Principal to any Lender now existing or hereafter arising by
note, draft, acceptance, guaranty, endorsement, letter of credit, assignment, purchase, overdraft,
discount, indemnity agreement or otherwise, (iv) all accrued but unpaid interest on any of the
indebtedness described in (i), (ii) and (iii) above, (v) all obligations of either Principal to any
Lender under any documents evidencing, securing, governing and/or pertaining to all or any part of
the indebtedness described in (i), (ii), (iii) or (iv) above, (vi) all costs and expenses incurred
by any Lender in connection with the collection and administration of all or any part of the
indebtedness and obligations described in (i), (ii), (iii), (iv) or (v) above or the protection or
preservation of, or realization upon, the collateral securing all or any part of such indebtedness
and obligations, including without limitation all reasonable attorneys’ fees, and (vii) all
renewals, extensions, modifications and rearrangements of the indebtedness and obligations
described in (i), (ii), (iii), (iv), (v) and (vi) above.

     “Rate Management Obligations” means any and all obligations of either Principal, whether
absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired
(including all renewals, extensions and modifications thereof and substitutions therefor), under
(i) any and all Rate Management Transactions with Agent or a Lender or an Affiliate of Agent or a
Lender, and (ii) any and all cancellations, buy backs, reversals, terminations or assignments of
any Rate Management Transactions.

     SECTION 1.2. Terms in Credit Agreement. Other capitalized terms used herein but not
defined herein shall have the meaning set forth in the Credit Agreement.

     SECTION 2.1. Representations and Warranties. The Guarantor represents and warrants
(which representations and warranties shall be deemed to have been renewed upon each Borrowing Date
under the Credit Agreement) that:

     (a) It is a limited liability company duly and properly organized, validly existing and
in good standing under the laws of the State of Delaware and has all requisite authority to
conduct its business in each jurisdiction in which its business is conducted.

     (b) It has the power and authority and legal right to execute and deliver this Guaranty
and to perform its obligations hereunder. The execution and delivery by it of this Guaranty
and the performance of its obligations hereunder have been duly authorized by proper
corporate, partnership or limited liability company proceedings, and this Guaranty
constitutes a legal, valid and binding obligation of Guarantor enforceable against it in
accordance with its terms, except as enforceability may be limited by general principles of
equity and bankruptcy, insolvency or similar laws affecting the enforcement of creditors’
rights generally.

     (c) Neither the execution and delivery by it of this Guaranty, nor the consummation of
the transactions herein contemplated, nor compliance with the provisions hereof will violate
(i) any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on
it or any of its subsidiaries or (ii) its articles or certificate of incorporation,
partnership agreement, limited liability company agreement, certificate of partnership,
articles or certificate of organization, by-laws, or operating or other management
agreement, as the case may be, or

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(iii) the provisions of any indenture, instrument or agreement to which it or any of its
subsidiaries is a party or is subject, or by which it, or its Property, is bound, or
conflict with or constitute a default thereunder, or result in, or require, the creation or
imposition of any Lien in, of or on the property of Guarantor or a subsidiary thereof
pursuant to the terms of any such indenture, instrument or agreement. No order, consent,
adjudication, approval, license, authorization, or validation of, or filing, recording or
registration with, or exemption by, or other action in respect of any governmental or public
body or authority, or any subdivision thereof, which has not been obtained by it or any of
its subsidiaries, is required to be obtained by it or any of its subsidiaries in connection
with the execution and delivery of this Guaranty or the performance by it of its obligations
hereunder or the legality, validity, binding effect or enforceability of this Guaranty.

     SECTION 2.2. Covenants. The Guarantor covenants that, so long as any Lender has any
Commitment outstanding under the Credit Agreement, any Reimbursement Obligations remain
outstanding, any Rate Management Transaction remains in effect or any of the Guaranteed Obligations
shall remain unpaid, that it will, and, if necessary, will enable the Principal to, fully comply
with those covenants and agreements set forth in the Credit Agreement.

     SECTION 3. The Guaranty. Subject to Section 9 hereof, the Guarantor hereby
absolutely and unconditionally guarantees, as primary obligor and not as surety, the full and
punctual payment (whether at stated maturity, upon acceleration or early termination or otherwise,
and at all times thereafter) and performance of the Guaranteed Obligations, including without
limitation any such Guaranteed Obligations incurred or accrued during the pendency of any
bankruptcy, insolvency, receivership or other similar proceeding, whether or not allowed or
allowable in such proceeding. Upon failure by the Principal to pay punctually any such amount, the
Guarantor agrees that it shall forthwith on demand pay to the Agent for the benefit of the Lenders
and, if applicable, their Affiliates, the amount not so paid at the place and in the manner
specified in the Credit Agreement, any Note, any Rate Management Transaction or the relevant Loan
Document, as the case may be. This Guaranty is a guaranty of payment and not of collection. The
Guarantor waives any right to require any Lender, or any Affiliate of any Lender, to sue the
Principal, any other guarantor, or any other Person obligated for all or any part of the Guaranteed
Obligations, or otherwise to enforce its payment against any Collateral securing all or any part of
the Guaranteed Obligations.

     SECTION 4. Guaranty Unconditional. Subject to Section 9 hereof, the obligations of
the Guarantor hereunder shall be unconditional and absolute and, without limiting the generality of
the foregoing, shall not be released, discharged or otherwise affected by:

     (i) any extension, renewal, settlement, compromise, waiver or release in respect of any
of the Guaranteed Obligations, by operation of law or otherwise, or any obligation of any
other guarantor of any of the Guaranteed Obligations, or any default, failure or delay,
willful or otherwise, in the payment or performance of the Guaranteed Obligations;

     (ii) any modification or amendment of or supplement to the Credit Agreement, any Note,
any Rate Management Transaction or any other Loan Document;

     (iii) any release, nonperfection or invalidity of any direct or indirect security for
any obligation of the Principal under the Credit Agreement, any Note, the Security
Instrument, any

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Rate Management Transaction, any other Loan Document, or any obligations of any other
guarantor of any of the Guaranteed Obligations, or any action or failure to act by the
Agent, any Lender or any Affiliate of any Lender with respect to any collateral securing all
or any part of the Guaranteed Obligations;

     (iv) any change in the corporate existence, structure or ownership of the Principal or
any other guarantor of any of the Guaranteed Obligations, or any insolvency, bankruptcy,
reorganization or other similar proceeding affecting the Principal, or any other guarantor
of the Guaranteed Obligations, or its assets or any resulting release or discharge of any
obligation of the Principal, or any other guarantor of any of the Guaranteed Obligations;

     (v) the existence of any claim, setoff or other rights which the Guarantor may have at
any time against the Principal, any other guarantor of any of the Guaranteed Obligations,
the Agent, any Lender or any other Person, whether in connection herewith or any unrelated
transactions;

     (vi) any invalidity or unenforceability relating to or against the Principal, or any
other guarantor of any of the Guaranteed Obligations, for any reason related to the Credit
Agreement, any Rate Management Transaction, any other Loan Document, or any provision of
applicable law or regulation purporting to prohibit the payment by the Principal, or any
other guarantor of the Guaranteed Obligations, of the principal of or interest on any Note
or any other amount payable by the Principal under the Credit Agreement, any Note, any Rate
Management Transaction or any other Loan Document; or

     (vii) any other act or omission to act or delay of any kind by the Principal, any other
guarantor of the Guaranteed Obligations, the Agent, any Lender or any other Person or any
other circumstance whatsoever which might, but for the provisions of this paragraph,
constitute a legal or equitable discharge of Guarantor’s obligations hereunder.

     SECTION 5. Discharge Only Upon Payment In Full: Reinstatement In Certain
Circumstances. The Guarantor’s obligations hereunder shall remain in full force and effect
until all Guaranteed Obligations shall have been indefeasibly paid in full, the Commitments under
the Credit Agreement shall have terminated or expired and all Rate Management Transactions have
terminated or expired. If at any time any payment of the principal of or interest on any Note or
any other amount payable by the Principal or any other party under the Credit Agreement, any Rate
Management Transaction or any other Loan Document is rescinded or must be otherwise restored or
returned upon the insolvency, bankruptcy or reorganization of the Principal or otherwise, the
Guarantor’s obligations hereunder with respect to such payment shall be reinstated as though such
payment had been due but not made at such time.

     SECTION 6. Waivers. The Guarantor irrevocably waives acceptance hereof,
presentment, demand, protest and, to the fullest extent permitted by law, any notice not provided
for herein, as well as any requirement that at any time any action be taken by any Person against
the Principal, any other guarantor of any of the Guaranteed Obligations, or any other Person.

     SECTION 7. Subrogation. The Guarantor hereby agrees not to assert any right, claim
or cause of action, including, without limitation, a claim for subrogation, reimbursement,
indemnification or

4

 

otherwise, against the Principal arising out of or by reason of this Guaranty or the
obligations hereunder, including, without limitation, the payment or securing or purchasing of any
of the Guaranteed Obligations by the Guarantor unless and until the Guaranteed Obligations are
indefeasibly paid in full, any commitment to lend under the Credit Agreement and any other Loan
Documents is terminated and all Rate Management Transactions have terminated or expired.

     SECTION 8. Stay of Acceleration. If acceleration of the time for payment of any of
the Guaranteed Obligations is stayed upon the insolvency, bankruptcy or reorganization of the
Principal, all such amounts otherwise subject to acceleration under the terms of the Credit
Agreement, any Note, any Rate Management Transaction or any other Loan Document shall nonetheless
be payable by the Guarantor hereunder forthwith on demand by the Agent made at the request of the
Majority Lenders.

     SECTION 9. Limitation on Obligations.

     (a) The provisions of this Guaranty are severable, and in any action or proceeding
involving any state corporate law, or any state, federal or foreign bankruptcy, insolvency,
reorganization or other law affecting the rights of creditors generally, if the obligations
of Guarantor under this Guaranty would otherwise be held or determined to be avoidable,
invalid or unenforceable on account of the amount of Guarantor’s liability under this
Guaranty, then, notwithstanding any other provision of this Guaranty to the contrary, the
amount of such liability shall, without any further action by the Guarantor, the Agent or
any Lender, be automatically limited and reduced to the highest amount that is valid and
enforceable as determined in such action or proceeding (such highest amount determined
hereunder being the Guarantor’s “Maximum Liability”). This Section 9(a) with respect to the
Maximum Liability of the Guarantor is intended solely to preserve the rights of the Agent
hereunder to the maximum extent not subject to avoidance under applicable law, and neither
the Guarantor nor any other person or entity shall have any right or claim under this
Section 9(a) with respect to the Maximum Liability, except to the extent necessary so that
the obligations of the Guarantor hereunder shall not be rendered voidable under applicable
law.

     (b) The Guarantor agrees that the Guaranteed Obligations may at any time and from time
to time exceed the Maximum Liability of the Guarantor, without impairing this Guaranty or
affecting the rights and remedies of the Agent hereunder. Nothing in this Section 9(b) shall
be construed to increase Guarantor’s obligations hereunder beyond its Maximum Liability.

     SECTION 10. Application of Payments. All payments received by the Agent hereunder
shall be applied by the Agent to payment of the Guaranteed Obligations in the following order
unless a court of competent jurisdiction shall otherwise direct:

     (a) FIRST, to payment of all costs and expenses of the Agent incurred in connection
with the collection and enforcement of the Guaranteed Obligations or of any security
interest granted to the Agent in connection with any Collateral securing the Guaranteed
Obligations;

     (b) SECOND, to payment of that portion of the Guaranteed Obligations constituting
accrued and unpaid interest and fees, pro rata among the Lenders and their Affiliates in
accordance with the amount of such accrued and unpaid interest and fees owing to each of
them;

5

 

     (c) THIRD, to payment of the principal of the Guaranteed Obligations then due and
unpaid from the Principal to any of the Lenders or their Affiliates, Pro Rata among the
Lenders and their Affiliates in accordance with the amount of such principal then due and
unpaid to each of them; and

     (d) FOURTH, to payment of any Guaranteed Obligations (other than those listed above)
Pro Rata among those parties to whom such Guaranteed Obligations are due in accordance with
the amounts owing to each of them.

     SECTION 11. Notices. All notices, requests and other communications to any party
hereunder shall be given or made by telecopier or other writing and telecopied, or mailed or
delivered to the intended recipient at its address or telecopier number set forth on the signature
pages hereof or such other address or telecopy number as such party may hereafter specify for such
purpose by notice to the Agent in accordance with the provisions of Section 17 of the Credit
Agreement. Except as otherwise provided in this Guaranty, all such communications shall be deemed
to have been duly given when transmitted by telecopier, or personally delivered or, in the case of
a mailed notice sent by certified mail return-receipt requested, on the date set forth on the
receipt (provided, that any refusal to accept any such notice shall be deemed to be notice thereof
as of the time of any such refusal), in each case given or addressed as aforesaid.

     SECTION 12. No Waivers. No failure or delay by the Agent or any Lender in
exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies provided in this Guaranty, the
Credit Agreement, any Note, any Rate Management Transaction and the other Loan Documents shall be
cumulative and not exclusive of any rights or remedies provided by law.

     SECTION 13. No Duty to Advise. The Guarantor assumes all responsibility for being
and keeping itself informed of the Principal’s financial condition and assets, and of all other
circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations and the nature,
scope and extent of the risks that the Guarantor assumes and incurs under this Guaranty, and agrees
that neither the Agent nor any Lender has any duty to advise the Guarantor of information known to
it regarding those circumstances or risks.

     SECTION 14. Successors and Assigns. This Guaranty is for the benefit of the Agent
and the Lenders and their respective successors and permitted assigns and in the event of an
assignment of any amounts payable under the Credit Agreement, any Note, any Rate Management
Transaction, or the other Loan Documents, the rights hereunder, to the extent applicable to the
indebtedness so assigned, shall be transferred with such indebtedness. This Guaranty shall be
binding upon the Guarantor and its successors and permitted assigns.

     SECTION 15. Changes in Writing. Neither this Guaranty nor any provision hereof may
be changed, waived, discharged or terminated orally, but only in writing signed by the Guarantor
and the Agent with the consent of the Majority Lenders.

6

 

     SECTION 16. Costs of Enforcement. The Guarantor agrees to pay all costs and
expenses including, without limitation, all court costs and attorneys’ fees and expenses paid or
incurred by the Agent or any Lender or any Affiliate of any Lender in endeavoring to collect all or
any part of the Guaranteed Obligations from, or in prosecuting any action against, the Principal,
the Guarantor or any other guarantor of all or any part of the Guaranteed Obligations.

     SECTION 17. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. THIS
GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF TEXAS. THE
GUARANTOR HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE WESTERN DISTRICT OF TEXAS (MIDLAND DIVISION) AND OF ANY TEXAS STATE COURT SITTING IN MIDLAND,
TEXAS AND FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS GUARANTY
(INCLUDING, WITHOUT LIMITATION, ANY OF THE OTHER LOAN DOCUMENTS) OR THE TRANSACTIONS CONTEMPLATED
HEREBY. THE GUARANTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN
SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. THE GUARANTOR HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED
HEREBY.

     SECTION 18. Taxes, etc. All payments required to be made by the Guarantor hereunder
shall be made without setoff or counterclaim and free and clear of and without deduction or
withholding for or on account of, any present or future taxes, levies, imposts, duties or other
charges of whatsoever nature imposed by any government or any political or taxing authority thereof
(but excluding income and franchise taxes), provided, however, that if the Guarantor is required by
law to make such deduction or withholding, Guarantor shall forthwith (i) pay to the Agent or any
Lender, as applicable, such additional amount as results in the net amount received by the Agent or
any Lender, as applicable, equaling the full amount which would have been received by the Agent or
any Lender, as applicable, had no such deduction or withholding been made, (ii) pay the full amount
deducted to the relevant authority in accordance with applicable law, and (iii) furnish to the
Agent or any Lender, as applicable, certified copies of official receipts evidencing payment of
such withholding taxes within 30 days after such payment is made.

     SECTION 19. Setoff. Without limiting the rights of the Agent or the Lenders under
applicable law, if all or any part of the Guaranteed Obligations is then due, whether pursuant to
the occurrence of a Default or otherwise, then the Guarantor authorizes the Agent and the Lenders
to apply any sums standing to the credit of the Guarantor with the Agent or any Lender toward the
payment of the Guaranteed Obligations.

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     IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed, under seal, by
its authorized officer as of the day and year first above written.

	 	 	 	 	 
	 	GUARANTOR:

PARALLEL, L.L.C., a Delaware limited

liability company

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

8

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