Document:

Exhibit
10.1

BPZ Energy, Inc.

2007
Long-Term Incentive Compensation Plan

BPZ
ENERGY, INC.

2007 LONG-TERM INCENTIVE COMPENSATION PLAN

Table of Contents

	
  1.

  	
   

  	
  Definitions

  	
   

  	
  1

  
	
  2.

  	
   

  	
  Incentives

  	
   

  	
  3

  
	
  3.

  	
   

  	
  Administration

  	
   

  	
  4

  
	
  4.

  	
   

  	
  Eligibility

  	
   

  	
  5

  
	
  5.

  	
   

  	
  Effect of Termination of Employment or of
  Consultant’s Engagement

  	
   

  	
  5

  
	
  6.

  	
   

  	
  Qualified Performance-Based Incentives

  	
   

  	
  6

  
	
  7.

  	
   

  	
  Shares Available for Incentives and Limits on
  Incentives

  	
   

  	
  7

  
	
  8.

  	
   

  	
  Options

  	
   

  	
  7

  
	
  9.

  	
   

  	
  Stock Appreciation Rights (“SARs”)

  	
   

  	
  8

  
	
  10.

  	
   

  	
  Performance Shares

  	
   

  	
  9

  
	
  11.

  	
   

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

  	
   

  	
  10

  
	
  12.

  	
   

  	
  Acquisition and Change of Control Events

  	
   

  	
  10

  
	
  13.

  	
   

  	
  Discontinuance or Amendment of the Plan

  	
   

  	
  12

  
	
  14.

  	
   

  	
  Nontransferability

  	
   

  	
  13

  
	
  15.

  	
   

  	
  No Right of Employment

  	
   

  	
  13

  
	
  16.

  	
   

  	
  Taxes

  	
   

  	
  13

  
	
  17.

  	
   

  	
  Governing Law

  	
   

  	
  13

  
	
  18.

  	
   

  	
  Additional Requirements

  	
   

  	
  13

  
	
  19.

  	
   

  	
  “Lockup” Agreement

  	
   

  	
  14

  
	
  20.

  	
   

  	
  Limitation of Liability

  	
   

  	
  14

  
	
  21.

  	
   

  	
  Unfunded Status of Incentives

  	
   

  	
  14

  
	
  22.

  	
   

  	
  Nonexclusivity of the Plan

  	
   

  	
  14

  
	
  23.

  	
   

  	
  Successors and Assigns

  	
   

  	
  14

  
	
  24.

  	
   

  	
  No Fractional Shares

  	
   

  	
  14

  
	
  25.

  	
   

  	
  Severability

  	
   

  	
  14

  
	
  26.

  	
   

  	
  Miscellaneous

  	
   

  	
  15

  

 

 i

BPZ ENERGY, INC.

2007
LONG-TERM INCENTIVE COMPENSATION PLAN

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

1.                                      Definitions

“Affiliate” shall have
the meaning assigned to the term pursuant to Rule 12b-2 as promulgated under
the Exchange Act; however, with respect to Incentive Options, “Affiliate” only
includes those entities that are a parent or subsidiary of the Company.

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

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

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

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

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

The “Company”
means BPZ Energy, Inc.

“Consultant”
means a person engaged to provide consulting or advisory services (other than
as an Employee or a member of the Board) to the Company or one of its
Affiliates or joint ventures, provided that the identity of such person, the
nature of such services or the Person to which such services are provided would
not preclude the Company from offering or selling securities to such person
pursuant to the Plan in reliance on registration on a Form S-8 Registration
Statement under the Securities Act.

“Covered Employee” means
an employee who is a “covered employee” within the meaning of Section 162(m) of
the Code.

“Director” means a
member of the Board.

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

“Eligible Employee”
means a regular full-time or part-time employee of the Company, its Affiliates,
and/or its joint ventures, including officers, whether or not under direction
of the Company.

 1
 

“Employment
Termination” means termination of the employment of an Eligible Employee who is
employed by one of the Related Entities due to: (i) such person’s voluntary
resignation, retirement, death, extended absence from work as a consequence of
disability, or termination with or without Cause.  Termination of an individual from a Related
Entity for the purpose of immediately transferring such individual to another
Related Entity shall not constitute “Employment Termination” for purposes of
this Plan.  An Eligible Employee’s
temporary absence from work due to sick leave, military leave, or other leave
approved by the Committee shall not constitute Employment Termination for
purposes of this Plan; however, after an individual has been absent on leave
for more than ninety (90) days, the Committee may, to the fullest extent
allowed by law, specify a date upon which such person’s continued absence shall
be treated as Employment Termination for purposes of this Plan.

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

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

“Incentive Option” means
an Option that by its terms is to be treated as an “incentive stock option”
within the meaning of Section 422 of the Code. 
An Incentive Option is a statutory stock option.

“Incentives” means awards made under this Plan of any
of the following, or any combination of the following: (a) Options (including
both Incentive Options and Nonstatutory Stock Options); (b) Stock Appreciation
Rights; (c) Restricted Stock; (d) Performance Shares; (e) Stock Grants; and (f)
Other Stock-Based Incentives (as such term is described in Section 11(f)).

“Nonstatutory Stock
Option” means any Option that is not an Incentive Option.

“Option” means an option
to purchase one or more shares of the Company’s Stock.

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

“Performance Criteria”
means the criteria that the Committee selects for purposes of establishing the
Performance Goal or Performance Goals for a Participant for a Performance
Period. The Performance Criteria used to establish Performance Goals include
but are not limited to: pre- or after-tax net earnings, sales growth, operating
earnings, operating cash flow, return on net assets, return on shareholders’
equity, return on assets, return on capital, stock price growth, shareholder
returns, gross or net profit margin, earnings per share, price per share of
stock, and market share, any of which may be measured either in absolute terms
or as compared to any incremental increase or as compared to results of a peer
group. In the case of Qualified Performance-Based Incentives, the Committee
will, within the time prescribed by Section 162(m) of the Code, objectively
define the manner of calculating the Performance Criteria it selects to use for
such Performance Period for recipients of such Incentives.

“Performance Goals”
means, for a Performance Period, the written goals established by the Committee
for the Performance Period based upon the Performance Criteria. Depending on
the Performance Criteria used to establish such Performance Goals, the
Performance Goals may be expressed in terms of overall Company performance or
the performance of an Affiliate, Division, joint venture of which the Company
or an Affiliate is a member, or Participant.

“Performance Period”
means the one or more periods of time, which may be of varying and overlapping
durations, selected by the Committee, over which the attainment of one or more
Performance Goals will be measured for purposes of determining a Participant’s
right to, and the payment of, an Incentive.

“Performance Shares”
means contingent awards granted by the Committee in shares of Stock, cash or
any combination of Stock and Stock and cash, with such awards only paid if the
Company, an Affiliate, joint venture, Division, or Participant specified by the
Committee meets Performance Goals established by the Committee.

“Plan” means this BPZ
Energy, Inc. 2007 Long-Term Incentive Compensation Plan, as amended or restated
from time to time.

 2
 

“Qualified
Performance-Based Incentives” means awards of Incentives intended to qualify as
“performance-based compensation” under Section 162(m) of the Code.

“Related Entities” means
the Company, Affiliates, and joint ventures in which the Company or one or more
Affiliates is a member; however, with respect to Incentive Options, “Related
Entities” means the Company and those Affiliates that are a parent or
subsidiary of the Company.

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

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

“SARs” means Stock
Appreciation Rights.

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

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

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

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

“Terminated Employee”
means an individual who meets the following criteria:

(a)                                  the
individual is granted Incentives under this Plan at a time when he or she is
employed by one of the Related Entities; and

(b)                                 the
individual is the subject of an Employment Termination.

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

2.                                      Incentives

Incentives under
the Plan may be granted to Eligible Employees in any one or a combination of:
(a) Incentive Options (or other statutory stock option); (b) Nonstatutory Stock
Options; (c) SARs; (d) Restricted Stock; (e) Performance Shares; (f) Stock
Grants; and (g) Other Stock-Based Incentives (as such term is described in
Section 11(f)).  Incentives under the
Plan may be granted to Consultants in any one or a combination of: (a)
Nonstatutory Stock Options, (b) SARs, (c) Restricted Stock, (d) Stock Grants,
and (e) Other Stock-Based Incentives. 
All Incentives shall be subject to the terms and conditions set forth
herein and to such other terms and conditions as may be established by the
Committee, except that the provisions of this Plan shall not apply
retroactively to any Incentive issued before the effective date of this
Plan.  Determinations by the Committee
under the Plan (including, without limitation, determinations as to the
Eligible Employees; the form, amount and timing of Incentives; and the terms
and provisions of agreements evidencing Incentives) need not be uniform and may
be made selectively among Eligible Employees and Consultants who receive, or
are eligible to receive, Incentives, whether or not such Eligible Employees and
Consultants are similarly situated.

 3
 

3.                                      Administration

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

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

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

(ii)                                  To
interpret the Plan;

(iii)                               To
decide all questions concerning the Plan and the eligibility of any person to
participate in the Plan, and the determination of whether a worker is an
Eligible Employee shall be made in the sole and exclusive discretion of the
Committee;

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

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

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

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

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

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

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

(c)                                  Vesting Period.  If applicable, the Committee shall determine
the Vesting Period for Incentives granted under this Plan and shall specify
such Vesting Period in writing in making an award of an Incentive under this
Plan. However, should the Committee award Incentives under this Plan without
specifying a Vesting Period, (i) any SAR awarded in tandem with any underlying
Option shall vest on the date that its underlying Option vests, and (ii) SARs
awarded not in tandem with an underlying Option, Options, and Restricted Stock
shall vest on a graduated basis over a four-year period, with 25% of such
Incentives vesting on each anniversary of the date of grant until all Incentives
covered by the grant are vested.  In the
case of Restricted Stock granted to a Consultant; if the grantee’s consulting
engagement is completed, under the terms of the engagement agreement and other
than by cancellation or termination, prior to the end of the Vesting Period
specified in the granting document, the restrictions on the Restricted Stock
will be deemed terminated or satisfied at that time.

(d)                                 Compliance with
409A.
 To the extent
that the Board determines that any Incentive granted under the Plan is subject
to §409A of the Code, the granting document evidencing such Incentive shall
incorporate the terms and conditions

 4
 

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

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

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

4.                                      Eligibility

(a)                                  Employees. 
Eligible Employees may receive Incentives under this Plan.  Directors who are not Eligible Employees may
not receive Incentives under this Plan.

(b)                                 Consultants.  Consultants are eligible to receive
Incentives to the extent specified in Section 2 above.

5.                                      Effect
of Termination of Employment or of Consultant’s Engagement

(a)                          Termination for Cause.  If the Company or one of its Affiliates or
joint ventures terminates an Eligible Employee for Cause or cancels the
engagement of a Consultant for Cause or discovers facts that would have
entitled it to cancel the engagement of such Consultant for Cause if such
engagement were still ongoing, the Board, by written resolution, may, to the
fullest extent allowed by law, cancel and/or cause the forfeiture of any
non-vested and/or unexercised Option, non-vested or unexercised SAR, non-vested
or unearned Performance Share, or Restricted Stock awarded to such Eligible
Employee or Consultant.  However, if the
Board fails to act under this Subsection (a), then the non-vested, unexercised,
unearned and/or restricted Incentives of a grantee terminated for Cause shall
revert to the Company as though Section 5(b) applied.

(b)                                 Other Terminations. 
As to a “Terminated Employee” who is not terminated for Cause, the
following provisions shall apply without regard to whether the reason for the
termination is voluntary termination, involuntary termination, retirement,
extended absence due to disability, or death.

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

(ii)                                  Any vested but unexercised
Options held by or through such individual as of the date of his or her
Employment Termination shall expire and be of no further force and effect
unless either exercised or surrendered under a SAR within the earlier of:  (a) 90 days after the date of such individual’s
Employment Termination (one year in the case of an Incentive Option if such
termination is due to the individual’s disability within the meaning of Section
22(e)(3) of the Code), or (b) the expiration date of the Option.

 5
 

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

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

Notwithstanding the foregoing provisions of
Subsections (b)(i)-(iv), the Committee may, in its sole discretion, agree in
writing to accelerate the vesting of non-vested Options, SARs, and Restricted
Stock due to the Participant’s Employment Termination.  Any such agreement shall be valid only if it
is in writing, signed by an authorized member of the Committee, and executed by
the Participant and the Committee prior to the Participant’s Employment
Termination or within two (2) business days thereafter.

6.                                      Qualified
Performance-Based Incentives

(a)                                  Applicability. 
This section will apply only to Covered Employees, or to those persons
whom the Committee determines are reasonably likely to become Covered Employees
in the period covered by an Incentive. 
The Committee may, in its discretion, select particular Covered
Employees to receive Qualified Performance-Based Incentives. The Committee may,
in its discretion, grant Incentives (other than Qualified Performance-Based
Incentives) to Covered Employees that do not satisfy the requirements of this
section.

(b)                                 Purpose. 
As to any Covered Employee or person likely to become a Covered Employee
during the period covered by an Incentive, the Committee shall have the ability
to qualify any of the Incentives as “performance-based compensation” under
Section 162(m) of the Code. If the Committee, in its discretion, decides to
grant an Incentive as a Qualified Performance-Based Incentive, the provisions
of this section will control over any contrary provision contained in the Plan.
In the course of granting any Incentive, the Committee may specifically
designate the Incentive as intended to qualify as a Qualified Performance-Based
Incentive. However, no Incentive shall be considered to have failed to qualify
as a Qualified Performance-Based Incentive solely because the Incentive is not
expressly designated as a Qualified Performance-Based Incentive, if the
Incentive otherwise satisfies the provisions of this section and the
requirements of Section 162(m) of the Code and the regulations thereunder
applicable to “performance-based compensation.”

(c)                                  Authority. 
All grants of Incentives intended to qualify as Qualified
Performance-Based Incentives shall be made by the Committee or, if all of the
members thereof do not qualify as “outside directors” within the meaning of
applicable IRS regulations under Section 162 of the Code, by a subcommittee of
the Committee consisting of such of the members of the Committee who do so
qualify. Any action by such a subcommittee shall be considered the action of
the Committee for purposes of the Plan.  The Committee (or subcommittee,
if necessary) shall also determine the terms applicable to Qualified
Performance-Based Incentives.

(d)                                 Discretion of Committee. 
Options may be granted as Qualified Performance-Based Incentives.  The exercise price of any Option intended to
qualify as a Qualified Performance-Based Incentive shall in no event be less
than the Fair Market Value on the date of the grant of the Stock covered by the
Option. With regard to other Incentives intended to qualify as Qualified
Performance-Based Incentives, the Committee will have full discretion to select
the length of any applicable Restriction Period or Performance Period.  Additionally, the Committee shall have full
discretion to establish the Performance Criteria, the kind and/or level of the
applicable Performance Goal, and whether the Performance Goal is to apply to
the Company, Affiliate or Division. Any Performance Goal or Goals applicable to
Qualified Performance-Based Incentives shall be objective, shall be established
not later than ninety (90) days after the beginning of any applicable
Performance Period (or at such other date as may be required or permitted for “performance-based
compensation” under Section 162(m) of the Code), and shall otherwise meet the
requirements of Section 162(m) of the Code, including the requirement that the
outcome of the Performance Goal or Goals be substantially uncertain (as defined
in the regulations under Section 162(m) of the Code) at the time established.

(e)                                  Payment of Qualified Performance-Based Incentives.  A Participant will be eligible to receive
payment under a Qualified Performance-Based Incentive that is subject to
achievement of a Performance Goal or Goals only if the applicable Performance
Goal or Goals are achieved within the applicable Performance Period, as
determined by the Committee. In determining the actual size of an individual
Qualified Performance-Based Incentive, the Committee may

 6
 

reduce or eliminate the
amount of the Qualified Performance-Based Incentive earned for the Performance
Period, if, in its sole and absolute discretion, such reduction or elimination
is appropriate.

(f)                                    Limitation of Adjustments for Certain Events.  No adjustment of any Qualified
Performance-Based Incentive shall be made except on such basis, if any, as will
not cause such Incentive to provide other than “performance-based compensation”
within the meaning of Section 162(m) of the Code.

7.                                      Shares
Available for Incentives and Limits on Incentives

(a)                                  Maximum Shares.  Subject to
adjustment as provided in this Section 7, there is hereby reserved for issuance
under the Plan up to 4,000,000 shares of Stock of the Company.

(b)                                 Limit on an Individual’s Incentives.  In any given year, no Eligible Employee or Consultant may receive
Incentives covering more than 20% of the aggregate number of shares that may be
issued pursuant to the Plan. Except as may otherwise be permitted by the Code,
Incentive Options granted to an employee of the Company or its parent or
subsidiary during one calendar year shall be limited as follows:  at the time the Incentive Options are
granted, the Fair Market Value of the Stock covered by Incentive Options first
exercisable by such employee in any calendar year may not, in the aggregate,
exceed $100,000. The maximum Qualified Performance-Based Incentive payment to
any one Participant under the Plan for a Performance Period is 20% of the
aggregate number of shares that may be issued pursuant to the Plan, or if the
Qualified Performance-Based Incentive is paid in cash, that number of shares
multiplied by the Fair Market Value of the Stock as of the date the Qualified
Performance-Based Incentive is granted.

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

(d)                                 Recapitalization Adjustment.  In the event of a reorganization,
recapitalization, stock split, stock dividend, combination of shares, merger,
consolidation, rights offering, or any other change in the corporate structure
or shares of the Company, the Committee shall make appropriate adjustments in
the number and kind of shares authorized by the Plan; in the number and kind of
shares covered by Incentives granted; in the price of Options; and in the Fair
Market Value of SARs. No adjustment under this section or any other part of
this Plan shall be made if: (1) it would cause an Incentive granted under this
Plan as a Qualified Performance-Based Incentive to fail under Code 162(m), (2)
it would cause an Incentive granted as an Incentive Option to fail to meet the
criteria for an Incentive Option, or (3) it would violate any applicable law or
regulation.

8.                                      Options

The
Committee may grant options qualifying as Incentive Options under the Code,
other statutory options under the Code, and Nonstatutory Options.  However, in accordance with Code § 422(b), no
one may be granted an Incentive Option under this Plan unless such person, as
of the date of grant, is an employee of the Company, the Company’s parent
company, or a Company subsidiary.  All
Options granted under this Plan shall be subject to the following terms and conditions
and such other terms and conditions as the Committee may prescribe:

(a)                                  Option Price.  The
option price per share with respect to each Option shall be determined by the
Committee, but shall not be less than 100% of the Fair Market Value of the Company’s
Stock on the date the Option is granted; provided, however, that in the case of
an Incentive Option granted to an Eligible Employee who, immediately prior to
such grant, owns (directly or indirectly) stock (either common or preferred)
possessing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or a subsidiary of the Company, the option
price shall not be less than one hundred ten percent (110%) of the fair market
value on the date of grant.

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

 7
 

(c)                                  Expiration Date for Option. 
The expiration date for each Option shall be fixed by the Committee in
the granting document but shall not exceed the later of (a) a fixed term of not
more than ten (10) years, or (b) 10 business days following the lifting of
a Blackout Period applicable to the Participant, provided that the fixed term expires
during such Blackout Period or within 10 business days following the lifting of
the Blackout Period.  If an Incentive Option is granted to an employee of
the Company or its parent company or one of its Affiliates who owns shares
possessing more than ten (10) percent of the total combined voting power of all
classes of stock of the Company as of the date the Incentive Option is granted,
then the Incentive Option will expire five (5) years from the date it is
granted, unless it is earlier terminated under one of the other provisions of
this Plan.  The expiration date may not
be extended after the grant.

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

(e)                                  Exercise of Option.  An Option may be exercised only by giving
written notice, specifying the number of shares of Common Stock to be
purchased. A Participant may not exercise Options during a Blackout Period
applicable to that Participant. Additional procedures for exercise of each
Option awarded under this Plan will be set forth in the granting document for
such Option.  The Committee may, from
time to time, amend the exercise procedures, in which case Participants will be
notified of such revised procedures.  If
an Option grantee is awarded the Option while he or she is employed by the
Company or one of its Affiliates or joint ventures, then so long as such Option
grantee remains employed by the Company or one of its Affiliates or joint
ventures, the shares covered by an Option may be purchased in such installments
and on such exercise dates as the Committee or its delegate may determine and
as set forth in the document awarding the Option.  In no event shall any Option be exercisable
after its specified expiration period. If a Consultant is awarded an Option,
the shares covered by such Option may be purchased in such installments and on
such exercise dates and conditions as set forth in the document awarding the
Option.

(f)                                   Handling of Options When
Employment Ends.

(i)                                     A
Terminated Employee’s Options that are not vested on the date of his or her Employment
Termination shall be handled in accordance with Section 5 above.

(ii)                                  A
Terminated Employee’s Options that are vested but unexercised on the date of
his or her Employment Termination shall be handled in accordance with Section 5
above.

(g)                                 Transfers. 
Incentive Options transferred other than by will or by the laws of
descent and distribution will become Nonstatutory Stock Options upon transfer.

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

9.                                      Stock
Appreciation Rights (“SARs”)

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

(a)                                  Vesting and Exercise Period of SAR.  If a SAR is granted with respect to an
underlying Option, it may be granted at the time of the Option or at any time
thereafter but prior to the expiration of the Option. In no event shall the
exercise period for a SAR exceed the exercise period for its underlying Option,
if any. If the Committee fails to set the Vesting Period in the granting
document for a SAR, then the Vesting Period for such SAR shall be as stated in
Section 3(c) above. Unless otherwise specified in the granting document for a
SAR, the exercise period for the SAR shall be five (5) years

 8
 

from the date of
vesting unless such exercise period is earlier terminated under Sections 4(b)
or 9(d) of this Plan.  The exercise
period may not be extended after the grant.

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

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

(d)                                 Handling of SAR When Employment Ends.

(i)                                     A
Terminated Employee’s SARs that are not vested on the date of his or her
Employment Termination shall be handled in accordance with Section 5 above.

(ii)                                  A
Terminated Employee’s SARs that are vested but unexercised on the date of his
or her Employment Termination shall be handled in accordance with Section 5
above.

10.                               Performance
Shares

The
Committee may grant Performance Shares to any Eligible Employee selected by the
Committee in its sole discretion.  Such
Performance Shares shall be subject to the following terms and conditions and
such other terms and conditions as the Committee may prescribe:

(a)                                  Performance Period and Performance Goals.  In granting Performance Shares, the Committee
shall determine and specify the Performance Period.  The Committee shall also establish
Performance Goals to be met by the Company, Affiliate, Division, or joint
venture during the Performance Period as a condition to payment of the Performance
Share grant. The Performance Goals may include minimum and optimum objectives
or a single set of objectives.

(b)                                 Payment of Performance Shares.  The Committee shall establish the method of
calculating the amount of payment to be made under a Performance Share grant if
the Performance Goals are met, including the fixing of a maximum payment. The
Performance Share grant shall be expressed in terms of shares of Stock. After
the completion of a Performance Period, the performance of the Company, Affiliate,
or Division or joint venture shall be measured against the Performance Goals,
and the Committee shall determine whether all, none or any portion of a
Performance Share grant shall be paid. The Committee, in its discretion, may
elect to make payment in shares of Stock, cash or a combination of Stock and
Stock and cash.  Any cash payment shall
be based on the Fair Market Value of Performance Shares on, or reasonably close
to, the date of payment.

(c)                                  Revision of Performance Goals.  At any time prior to the end of a Performance
Period, the Committee may revise the Performance Goals and the computation of
payment if unforeseen events occur that have a substantial effect on the
performance of the Company, Affiliate, Division, or joint venture and that in the
judgment of the Committee make the application of the Performance Goals unfair
unless a revision is made.

(d)                                 Requirement of Employment.  If a grantee receives Performance Shares
while employed by one of the Related Entities, then such grantee must remain in
the employment of one of the Related Entities until the completion of the
Performance Period in order to be entitled to payment under the Performance
Share grant.  All of the grantee’s rights
as to a Performance Share shall lapse if the grantee’s employment with a
Related Entity terminates prior to the end of the Performance Period.  This Subsection shall apply without regard to
whether the reason for termination of the grantee’s employment is voluntary
termination, involuntary termination, retirement, extended absence due to
disability, or death of the grantee. 
However, this Subsection shall not apply if the grantee is terminated
from one Related Entity and immediately transferred to another Related Entity.

 9

(e)                                  Dividends. Any dividends declared on Stock awarded as
Performance Shares before the completion of the Performance Period shall be
accumulated and paid to the grantee after the expiration of the Performance
Period if the Performance Goals are met during the Performance Period and the
grantee still owns such Performance Shares at the end of the Performance
Period.

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

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

(a)                                  Effect of Employment Termination or Cancellation of
Consulting Agreement on Restricted Stock.  A Participant receiving Restricted Stock must
remain employed by one of the Related Entities (or must continue providing
consulting services under a consulting agreement) during the Vesting Period in
order to retain all the granted shares of Restricted Stock.  If a Participant experiences Employment
Termination (or if the consulting agreement is cancelled) prior to the
completion of the Vesting Period, the grant shall terminate with respect to
non-vested Restricted Stock, and the shares of non-vested Restricted Stock must
be returned immediately to the Company. 
The Committee may, in its discretion, also provide such complete or
partial exceptions to the restrictions as it deems appropriate.

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

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

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

(e)                                  Dividends.  The
Committee shall, in its discretion, at the time the Restricted Stock is
granted, provide that any dividends declared on the Stock during the Vesting
Period shall either be (i) paid to the Participant, or
(ii) accumulated for the benefit of the Participant and paid to the
Participant only after the expiration of the Vesting Period.

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

12.                               Acquisition
and Change in Control Events

(a)                                  Definitions.

“Acquisition Event”
shall mean:

 10
 

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

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

“Change
in Control Event” shall mean:

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

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

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

(iv)                              the
complete liquidation of the Company.

(b)                                 Effect on Options.

(i)                                     Acquisition Event – Options Assumed or Substituted.
 Upon the occurrence of an Acquisition Event (regardless of whether such
event also constitutes a Change in Control Event), or the execution by the
Company of any agreement with respect to an Acquisition Event (regardless of
whether such event will result in a Change in Control Event), the Board shall provide
that all outstanding Options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding Person (or an Affiliate
thereof).  An Option shall be considered
to be assumed if, following consummation of the Acquisition Event, the Option
confers the right to purchase, for each share of Stock subject to the Option
immediately prior to the consummation of the Acquisition Event, the
consideration (whether cash, securities or other property) received as a result
of the Acquisition Event by holders of Stock for each share of Stock held
immediately prior to the consummation of the Acquisition Event (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding shares of Stock).  However, if the consideration received as a
result of the Acquisition Event is not solely Stock of the acquiring or
succeeding Person (or an Affiliate thereof), the Company may, with the consent of
the acquiring or succeeding Person, provide for the consideration to be
received upon the exercise of Options to consist solely of Stock of the
acquiring or succeeding Person (or an Affiliate thereof) equivalent in Fair
Market Value to the per share consideration received by holders of outstanding
shares of Stock as a result of the Acquisition Event.

(ii)                                  Acquisition Event – Options not Assumed or Substituted.  Upon the occurrence of an Acquisition Event
(regardless of whether such event also constitutes a Change in Control Event),
or the execution by the Company of any agreement with respect to an Acquisition
Event (regardless of whether such event will result in a Change in Control
Event), if the acquiring or succeeding Person (or an Affiliate thereof), does
not agree to assume such Options, or substitute equivalent options for such
Options, then the Board shall, upon written notice to the Option holders,
provide that all then unexercised Options will become exercisable in full as of
a specified time prior to the Acquisition Event and will terminate immediately

 11
 

prior to the
consummation of such Acquisition Event, except to the extent exercised by the
Option holders before the consummation of such Acquisition Event.  However, in the event of an Acquisition Event
under the terms of which holders of Stock will receive upon consummation
thereof a cash payment for each share of Stock surrendered pursuant to such
Acquisition Event (the “Acquisition Price”), then the Board may instead provide
that all outstanding Options shall terminate upon consummation of such
Acquisition Event and that each Option holder shall receive, in exchange
therefor, a cash payment equal to the amount (if any) by which (A) the
Acquisition Price multiplied by the number of shares of Stock subject to such
outstanding Options (whether or not then exercisable), exceeds (B) the
aggregate exercise price of such Options.

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

(c)                                  Effect on Restricted Stock.

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

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

(d)                                 Effect on Other Awards.

(i)                                     Acquisition Event that is not a Change in Control
Event.  In the documents
granting such Incentive, the Board may specify the effect of an Acquisition
Event that is not a Change in Control Event on any Incentive other than Options
and Restricted Stock, including the substitution of an Incentive of equivalent
value as determined immediately prior to the consummation of the Acquisition
Event.  If the Board does not specify the
effect of such Acquisition Event on such Incentives, the Acquisition Event
shall impact such Incentives in accordance with applicable law.

(ii)                                  Change in Control Event.  Upon the occurrence of a Change in Control
Event (regardless of whether such event also constitutes an Acquisition Event),
except to the extent specifically provided to the contrary in the instrument
granting such Incentive or any other agreement between the Incentive holder and
the Company:

(I)
all Incentives within the scope of the foregoing 12(d)(i) (other than
Performance Shares or other performance-based awards) shall become exercisable,
realizable and/or vested in full, or shall be free of all conditions or
restrictions, as applicable to each such Incentive.

(II)
all Performance Shares and other performance-based awards shall be immediately
payable based upon the extent, as determined by the Committee, to which the
Performance Goals for the Performance Period then in progress have been met up
through the date of the Change in Control Event or based on 100% of the value
on the date of grant of the Performance Shares or other performance-based
award, if such amount is higher.

13.                               Discontinuance
or Amendment of the Plan

The
Plan shall automatically terminate on the earlier of the following dates: (1)
ten years from the date that the Plan becomes effective, or (2) at such time as
no shares of Stock remain available for issuance through the Plan.  No termination of the Plan will affect the
terms of any outstanding Incentives.  The
Board may discontinue the Plan at any time and may from time to time amend or
revise the terms of the Plan as permitted by applicable statutes, except that
it may not revoke or alter, in a manner unfavorable to the grantees of any
Incentives hereunder, any Incentives then outstanding, nor may the Board amend
the Plan without shareholder approval where the absence of such approval would
cause the Plan to fail to comply with the Exchange Act or any other applicable
law or regulation.

 12
 

14.                               Nontransferability

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

(a)                                  By will;

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

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

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

15.                               No Right of Employment

The Plan and the
Incentives granted hereunder shall not confer upon any Eligible Employee the
right to continued employment with the Company, its Affiliates, or its joint
ventures, or affect in any way the right of such entities to terminate the
employment of an Eligible Employee at any time and for any reason.  Neither shall the Plan nor the Incentives
granted hereunder confer on a Consultant the right to continuation of his or
her consulting agreement or a right to become an Eligible Employee.

16.                               Taxes

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

17.                               Governing
Law

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

18.                               Additional
Requirements

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

 13
 

19.                               “Lockup”
Agreement

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

20.                               Limitation
of Liability

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

21.                               Unfunded
Status of Incentives

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

22.                               Nonexclusivity
of the Plan

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

23.                               Successors
and Assigns

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

24.                               No
Fractional Shares

No fractional shares of
Stock shall be issued or delivered pursuant to the Plan or any Incentive,
including on account of any action under Section 7(d) of the Plan.  In lieu of such fractional shares, the
Committee shall determine, in its discretion, whether cash, other Incentives,
scrip certificates (which shall be in a form and have such terms and conditions
as the Committee in its discretion shall prescribe) or other property shall be
issued or paid in lieu of such fractional shares or whether such fractional
shares or any rights thereto shall be forfeited or otherwise eliminated.

25.                               Severability

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

 14
 

full force and effect.

26.                               Miscellaneous

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

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

	
  BPZ Energy, Inc., a Colorado Corporation

  	 

	
   

  	 

	
   

  	 

	
  By:

  	
  /s/ Manuel Pablo Zúñiga-Pflücker

  	
   

  	
  By:

  	
  /s/ Edward G. Caminos

  	
   

  
	
  Name:

  	
  Manuel Pablo Zúñiga-Pflücker

  	
  Name:

  	
  Edward G. Caminos

  	
   

  	 

	
  Title:

  	
  President and Chief Executive Officer

  	
  Title:

  	
  Chief Financial Officer

  	
   

  	 

											

 

 15Exhibit
10.2

BPZ
Energy, Inc.

2007 Directors’ Compensation Incentive Plan

BPZ ENERGY, INC. 

2007 DIRECTORS’ COMPENSATION INCENTIVE PLAN

Table of Contents

	
  1.

  	
   

  	
  Definitions

  	
   

  	
  2

  
	
  2.

  	
   

  	
  Incentives

  	
   

  	
  3

  
	
  3.

  	
   

  	
  Administration

  	
   

  	
  4

  
	
  4.

  	
   

  	
  Eligibility

  	
   

  	
  5

  
	
  5.

  	
   

  	
  Effect of Termination of Service

  	
   

  	
  5

  
	
  6.

  	
   

  	
  Shares Available for Incentives and Limits on
  Incentives

  	
   

  	
  6

  
	
  7.

  	
   

  	
  Options

  	
   

  	
  6

  
	
  8.

  	
   

  	
  Stock Appreciation Rights (SARs)

  	
   

  	
  7

  
	
  9.

  	
   

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

  	
   

  	
  8

  
	
  10.

  	
   

  	
  Acquisition and Change in Control Events

  	
   

  	
  9

  
	
  11.

  	
   

  	
  Discontinuance or Amendment of the Plan

  	
   

  	
  11

  
	
  12.

  	
   

  	
  Nontransferability

  	
   

  	
  11

  
	
  13.

  	
   

  	
  No Right of Continued Services

  	
   

  	
  11

  
	
  14.

  	
   

  	
  Taxes

  	
   

  	
  12

  
	
  15.

  	
   

  	
  Governing Law

  	
   

  	
  12

  
	
  16.

  	
   

  	
  Additional Requirements

  	
   

  	
  12

  
	
  17.

  	
   

  	
  “Lockup” Agreement

  	
   

  	
  12

  
	
  18.

  	
   

  	
  Limitation of Liability

  	
   

  	
  12

  
	
  19.

  	
   

  	
  Unfunded Status of Incentives

  	
   

  	
  12

  
	
  20.

  	
   

  	
  Nonexclusivity of the Plan

  	
   

  	
  13

  
	
  21.

  	
   

  	
  Successors and Assigns

  	
   

  	
  13

  
	
  22.

  	
   

  	
  No Fractional Shares

  	
   

  	
  13

  
	
  23.

  	
   

  	
  Severability

  	
   

  	
  13

  
	
  24.

  	
   

  	
  Miscellaneous

  	
   

  	
  13

  

 

 i

BPZ
ENERGY, INC.

2007 DIRECTORS’ COMPENSATION INCENTIVE PLAN

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

1.                                      Definitions

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

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

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

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

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

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

The “Company”
means BPZ Energy Inc.

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

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

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

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

 2
 

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

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

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

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

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

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

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

“SARs” means Stock
Appreciation Rights.

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

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

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

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

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

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

2.                                      Incentives

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

 3
 

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

3.                                      Administration

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

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

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

(ii)                                  To interpret the Plan;

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

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

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

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

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

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

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

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

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

 4
 

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

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

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

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

4.                                      Eligibility

Directors
are eligible to be granted Incentives under the Plan.

5.                                      Effect of Termination of Service

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

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

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

 5
 

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

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

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

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

6.                                      Shares Available for Incentives
and Limits on Incentives

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

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

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

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

7.                                      Options

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

 6
 

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

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

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

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

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

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

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

8.                                      Stock Appreciation Rights (“SARs”)

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

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

 7
 

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

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

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

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

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

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

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

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

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

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

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

 8
 

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

10.                               Acquisition and Change in Control
Events

(a)                                  Definitions.

“Acquisition Event” shall mean:

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

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

“Change in Control Event” shall mean:

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

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

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

(iv)                              the complete liquidation of
the Company.

(b)                                 Effect on Options.

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

 9
 

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

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

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

(c)                                  Effect on Restricted Stock.

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

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

(d)                                 Effect on Other Awards.

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

 10
 

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

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

11.                               Discontinuance or Amendment of
the Plan

The
Plan shall automatically terminate on the earlier of the following dates: (1)
ten years from the date that the Plan becomes effective, or (2) at such time as
no shares of Stock remain available for issuance through the Plan.  No termination of the Plan will affect the
terms of any outstanding Incentives.  The
Board may discontinue the Plan at any time and may from time to time amend or
revise the terms of the Plan as permitted by applicable statutes, except that
it may not revoke or alter, in a manner unfavorable to the grantees of any
Incentives hereunder, any Incentives then outstanding, nor may the Board amend
the Plan without shareholder approval where the absence of such approval would
cause the Plan to fail to comply with the Exchange Act or any other applicable
law or regulation.

12.                               Nontransferability

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

(a)                                  By will;

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

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

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

13.                               No Right of Continued Services

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

 11
 

14.                               Taxes

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

15.                               Governing
Law

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

16.                               Additional
Requirements

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

17.                               “Lockup” Agreement

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

18.                               Limitation of Liability

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

19.                               Unfunded Status of Incentives

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

 12
 

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

20.                               Nonexclusivity of the Plan

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

21.                               Successors and Assigns

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

22.                               No Fractional Shares

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

23.                               Severability

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

24.                               Miscellaneous

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

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

	
  

  	
   

  
	
  By:

  	
  /s/ Manuel Pablo Zúñiga-Pflücker

  	
   

  	
  By:

  	
  /s/ Edward G. Caminos

  	
   

  
	
  Name:

  	
  Manuel Pablo Zúñiga-Pflücker

  	
   

  	
  Name:

  	
  Edward G. Caminos

  	
   

  
	
  Title:

  	
  President and Chief Executive Officer

  	
  Title:

  	
  Chief Financial Officer

  	
   

  
										

 

 13

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