Document:

Filed by Bowne Pure Compliance

Exhibit 10.3

December __, 2008

[Name]

[Title]

[Address]

Dear [Name]:

[COMPANY] (the “Company”) anticipates entering into a Securities Purchase Agreement (the
“Participation Agreement”), with the United States Department of the Treasury (“Treasury”) that
provides for the Company’s participation in the Treasury’s TARP Capital Purchase Program (the
“CPP”). If the Company does not participate or ceases at any time to participate in the CPP, this
letter shall be of no further force and effect.

For the Company to participate in the CPP and as a condition to the closing of the investment
contemplated by the Participation Agreement, the Company is required to establish specified
standards for incentive compensation to its senior executive officers and to make changes to its
compensation arrangements. The requirements of this Agreement shall apply to you only for so long
as both (1) you are a Senior Executive Officer of the Company, and (2) any debt or equity
securities issued by the Company under the CPP are by held by Treasury (the “CPP Covered Period”).
To comply with these requirements, and in consideration of the benefits that you will receive as a
result of the Company’s participation in the CPP, you agree as follows:

(1) No Golden Parachute Payments. The Company is prohibiting any Golden Parachute
Payment to you during any CPP Covered Period. To the extent any event occurs during the CPP
Covered Period that would otherwise trigger a Golden Parachute Payment, you will be entitled to the
lesser of (i) your rights under the Benefit Plans (as defined below) and (ii) the maximum amount
allowed under Section 111(b)(2)(C) of EESA.

(2) Recovery of Bonus and Incentive Compensation. Any bonus and incentive
compensation paid to you during a CPP Covered Period is subject to recovery or “clawback” by the
Company if the payments were based on materially inaccurate financial statements or any other
materially inaccurate performance metric criteria.

(3) Compensation Program Amendments. Each of the Company’s compensation, bonus,
incentive and other benefit plans, arrangements and agreements (including golden parachute,
severance and employment agreements) (collectively, “Benefit Plans”) with respect to you is hereby
amended to the extent necessary to give effect to provisions (1) and (2). This provision also
applies to any Benefit Plans with respect to you that are entered into after the date of this
letter agreement and during the CCP Covered Period. For reference, certain affected Benefit Plans
are set forth in Appendix A to this letter.

 

 

 

In addition, the Company is required to review its Benefit Plans to ensure that they do not
encourage senior executive officers to take unnecessary and excessive risks that threaten the value
of the Company. To the extent any such review requires revisions to any Benefit Plan with respect
to you, you and the Company agree to negotiate such changes promptly and in good faith.

(4) Definitions and Interpretation. This letter shall be interpreted as follows:

	 	•	 	“Senior executive officer” means the Company’s “senior executive officers”
as defined in subsection 111(b)(3) of EESA.

	 	•	 	“Golden parachute payment” is used with the same meaning as in
Section 111(b)(2)(C) of EESA.

	 	•	 	“EESA” means the Emergency Economic Stabilization Act of 2008 as
implemented by guidance or regulation issued by the Department of the Treasury
and as published in the Federal Register on October 20, 2008, as in effect on
the date hereof.

	 	•	 	The term “Company” includes any entities treated as a single employer with
the Company under 31 C.F.R. § 30.1(b) (as in effect on the Closing Date). You
are also delivering a waiver pursuant to the Participation Agreement, and, as
between the Company and you, the term “employer” in that waiver will be deemed
to mean the Company as used in this letter.

	 	•	 	The term “CPP Covered Period” shall be limited by, and interpreted in a
manner consistent with, 31 C.F.R. § 30.11 (as in effect on the Closing Date).

	 	•	 	Provisions (1) and (2) of this letter are intended to, and will be
interpreted, administered and construed to, comply with Section 111 of EESA
(and, to the maximum extent consistent with the preceding, to permit operation
of the Benefit Plans in accordance with their terms before giving effect to
this letter).

(5) Miscellaneous. To the extent not subject to federal law, this letter will be
governed by and construed in accordance with the laws of the Commonwealth of Virginia. This letter
may be executed in two or more counterparts, each of which will be deemed to be an original. A
signature transmitted by facsimile will be deemed an original signature.

 

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The Company appreciates the concessions you are making and looks forward to your continued
leadership during these financially turbulent times.

	 	 	 	 	 
	 	Yours sincerely,

[COMPANY]

 	 
	 	By:  	 	 
	 	 	Name:  	[Name] 	 
	 	 	Title:  	[Title] 	 

Intending to be legally bound,

I agree with and accept the foregoing

terms on the date set forth below.

                                                                      

[Title]

Date:                                                             

 

3Filed by Bowne Pure Compliance

 Exhibit 10.1

PARALLEL PETROLEUM CORPORATION

NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN

1. Purpose of the Plan. The purpose of the Parallel Petroleum Corporation Non-employee
Directors Stock Option Plan (the “Plan”) is to secure for Parallel Petroleum Corporation (the
“Company”) and its stockholders the benefits of the incentives inherent in increased common stock
ownership by members of the Board of Directors (the “Board”) of the Company who are not employees
of the Company (“Non-employee Directors”) or any of its subsidiaries and to provide a means whereby
Non-employee Directors of the Company may develop a sense of proprietorship and personal
involvement in the development and financial success of the Company, and to encourage them to
remain with and devote their best efforts to the business of the Company, thereby advancing the
interests of the Company and its stockholders. Accordingly, the Plan provides for granting to
Non-employee Directors the option (“Option”) to purchase shares of common stock of the Company
(“Stock”), as hereinafter set forth. Options granted under the Plan to Non-employee Directors are
not intended to be incentive stock options within the meaning of section 422 of the Internal
Revenue Code of 1986, as amended.

2. Administration. The Plan shall be administered by the Board of Directors of the Company
(the “Board”) or by a committee (the “Committee”) of two or more directors of the Company appointed
by the Board. If a Committee is not appointed by the Board, the Board shall act as and be deemed to
be the Committee for all purposes of the Plan. The Committee shall have sole authority (within the
limitations described herein) to select the Non-employee Directors who are to be granted Options;
to establish the number of shares which may be issued to Non-employee Directors under each Option;
and to prescribe the form of the agreement embodying awards of Options. The Committee is authorized
to interpret the Plan, to determine all questions arising thereunder and to adopt such rules and
regulations, consistent with the provisions of the Plan, as it may deem advisable to carry out the
Plan. All decisions made by the Committee shall be final and conclusive. No member of the Board
shall be liable for anything done or omitted to be done by such member or by any other member of
the Board in connection with the Plan, except for such member’s own willful misconduct or as
expressly provided by statute.

3. Eligibility of Optionee. Options may be granted only to directors who are not employees of
the Company or any parent or subsidiary corporation of the Company at the time the Option is
granted. The adoption of this Plan shall not be deemed to give any director any right to be granted
an Option. Options may be granted to the same Non-employee Director on more than one occasion.

4. Shares Subject to the Plan. The aggregate number of shares which may be issued under
Options granted under the Plan shall not exceed 500,000 shares of Stock. Such shares may consist of
authorized but unissued shares of Stock or previously issued shares of Stock reacquired by the
Company. Any of such shares which remain unissued and which are not subject to outstanding Options
at the termination of the Plan shall cease to be subject to the Plan, but, until termination of the
Plan, the Company shall at all times make available sufficient number of shares to meet the
requirements of the Plan. If any Option hereunder expires or terminates prior to its exercise in
full, the shares theretofore subject to such Option may again be subject to an Option granted under
the Plan. The aggregate number of shares which may be issued under the Plan shall be subject to
adjustment in the same manner as provided in Paragraph 7 hereof with respect to shares of Stock
subject to Options then outstanding. Exercise of an Option in any manner shall result in a decrease
in the number of shares of Stock which may thereafter be available, both for purposes of the Plan
and for sale to any one individual, by the number of shares as to which the Option is exercised.

 

 

 

5. Option Agreements; Terms and Conditions. Each Option granted under the Plan shall be
evidenced by an agreement and shall contain such terms and conditions, and may be exercisable for
such periods, as the Committee shall prescribe from time to time in accordance with this Plan, and
shall comply with the following terms and conditions:

(a) The Option exercise price shall be the fair market value of the Stock subject to the
Option on the date the Option is granted. For all purposes under the Plan, the fair market of a
share of Stock on a particular date shall be equal to the average of the high and low sales prices
of the Stock on the date of grant as reported on the Nasdaq National Market tier of The Nasdaq
Stock Market (“NMS”), or on the stock exchange composite tape if the Stock is traded on a national
stock exchange on that date, or if no prices are reported on that date, on the last preceding date
on which such prices of the Stock are so reported. If the Stock is not traded on the NMS or other
stock exchange on that date, but is otherwise traded over the counter at the time a determination
of its fair market value is required to be made hereunder, its fair market value shall be deemed to
be equal to the average between the reported high and low or closing bid and asked prices of the
Stock on the most recent date on which the Stock was publicly traded. If the Stock is not publicly
traded at the time a determination of its value is required to be made hereunder, the determination
of its fair market value shall be made by the Committee in such manner as it deems appropriate.

(b) The Option shall not be transferable otherwise than by will or the laws of descent and
distribution, and may be exercised only by the Non-employee Director during the Non-employee
Director’s lifetime and while the Non-employee Director remains a director of the Company, except
that:

(i) If the Non-employee Director ceases to be a director of the
Company because of disability, the Option may be exercised in full by the
Non-employee Director (or the Non-employee Director’s estate or the person
who acquires the Option by will or the laws of descent and distribution or
otherwise by reason of the death of the Non-employee Director) at any time
during the period of one year following such termination;

(ii) If the Non-employee Director dies while he is a director of the
Company, the Non-employee Director’s estate, or the person who acquires the
Option by will or the laws of descent and distribution or otherwise by
reason of the death of the Non-employee Director, may exercise the Option in
full at any time during the period of one year-following the date of the
Non-employee Director’s death; and

(iii) If the Non-employee Director ceases to be director of the
Company for any reason other than as described in clause (i) or (ii) above,
unless the Non-employee Director is removed for cause, the Option may be
exercised by the Non-employee Director at any time during the period of
three months following the date the Non-employee Director ceases to be a
director of the Company, or by the Non-employee Director’s estate (or the
person who acquires the Option by will or the laws of descent and
distribution or otherwise by reason of the death of the Non-employee
Director) during a period of one year following the Non-employee Director’s
death if the Non-employee Director dies during such three-month period, but
in each case only as to the number of shares the Non-employee Director was
entitled to purchase hereunder upon exercise of the Option as of the date
the Non-employee Director ceases to be a director.

 

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(c) The Option shall not be exercisable in any event after the expiration of ten years from
the date of grant.

(d) The purchase price of shares as to which the Option is exercised shall be paid in full at
the time of exercise (a) in cash, (b) by delivering to the Company shares of Stock having a fair
market value equal to the purchase price, or (c) any combination of cash or Stock, as shall be
established by the Committee. Unless and until a certificate or certificates representing such
shares shall have been issued by the Company to the Non-employee Director, the Non-employee
Director (or the person permitted to exercise the Option in the event of Director’s death) shall
not be or have any of the rights or privileges of a stockholder of the Company with respect to
shares acquirable upon an exercise of the Option.

(e) The terms and conditions of the respective Non-employee Director Stock Option agreements
need not be identical.

6. Term of Plan. The Plan shall be effective upon the date of its approval and adoption by the
stockholders of the Company. Except with respect to Options then outstanding, if not sooner
terminated under the provisions of Paragraph 8, the Plan shall terminate upon and no further
Options shall be granted after the expiration of ten years from the date of its adoption by the
Board.

7. Recapitalization or Reorganization.

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

(b) The shares with respect to which Options may be granted are shares of Stock as presently
constituted, but if, and whenever, prior to the expiration of an Option theretofore granted, the
Company shall effect a subdivision or consolidation of shares of Stock or the payment of a stock
dividend on Stock without receipt of consideration by the Company, the number of shares of Stock
with respect to which such Option may thereafter be exercised (i) in the event of an increase in
the number of outstanding shares shall be proportionately increased, and the purchase price per
share shall be proportionately reduced, and (ii) in the event of a reduction in the number of
outstanding shares shall be proportionately reduced, and the purchase price per share shall be
proportionately increased.

 

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(c) If the Company recapitalizes or otherwise changes its capital structure, thereafter upon
any exercise of an Option theretofore granted the optionee shall be entitled to purchase under such
Option, in lieu of the number of shares of Stock as to which such Option shall then be exercisable,
the number and class of shares of stock and securities to which the optionee would have been
entitled pursuant to the terms of the recapitalization if, immediately prior to such
recapitalization, the optionee had been the holder of record of the number of shares of Stock as to
which such Option is then exercisable. If (i) the Company shall not be the surviving entity in any
merger or consolidation (or survives only as a subsidiary of an entity other than a previously
wholly-owned subsidiary of the Company), (ii) the Company sells, leases or exchanges or agrees to
sell, lease or exchange all or substantially all of its assets to any other person or entity (other
than a wholly-owned subsidiary of the Company), (iii) the Company is to be dissolved and
liquidated, (iv) any person or entity, including a “group” as contemplated by Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended, acquires or gains ownership or control (including,
without limitation, power to vote) of more than 50% of the outstanding shares of Stock, or (v) as a
result of or in connection with a contested election of
directors, the persons who were directors of the Company before such election shall cease to
constitute a majority of the Board (each such event is referred to herein as a “Corporate Change”),
then upon the occurrence of any such Corporate Change, any outstanding Options held by Non-employee
Directors shall become fully exercisable and upon any exercise of an Option theretofore granted the
Non-employee Director shall be entitled to purchase under such Option, in lieu of the number of
shares of Stock as to which such Option shall then be exercisable, the number and class of shares
of stock or other securities or property to which the Non-employee Director would have been
entitled pursuant to the terms of the Corporate Change if, immediately prior to such Corporate
Change, the Non-employee Director had been the holder of record of the number of shares of Stock as
to which such Option is then exercisable. Notwithstanding any of the foregoing provisions of this
Subparagraph (c) to the contrary, any Option referred to herein shall be adjusted, where necessary,
so that the fair value of the Option immediately after the transaction or event referred to herein
is equal to the fair value of the Option immediately prior to such transaction or event by
adjusting the number and type of  shares of Stock and/or the purchase price per share, and/or
making such other adjustments as may be appropriate, in order to comply with the requirements of
Section 409A of the Internal Revenue Code of 1986, as amended, and the final regulations and other
guidance issued thereunder.

(d) Any adjustment provided for in Subparagraphs (b) or (c) above shall be subject to any
required stockholder action.

(e) Except as hereinbefore expressly provided, the issuance by the Company of shares of stock
of any class or securities convertible into shares of stock of any class, for cash, property, labor
or services, upon direct sale, upon the exercise of rights or warrants to subscribe therefor, or
upon conversion of shares or obligations of the Company convertible into such shares or other
securities, and in any case whether or not for fair value, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number of shares of Stock subject to Options
theretofore granted or the purchase price per share.

8. Amendment or Termination of the Plan. The Board in its discretion may terminate the Plan
at any time with respect to any shares for which Options have not theretofore been granted. The
Board shall have the right to alter or amend the Plan or any part thereof from time to time,
provided, that no change in any Option theretofore granted may be made which would impair the
rights of the optionee without the consent of such optionee.

 

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9. Miscellaneous Provisions.

(a) Neither the Plan nor any action taken hereunder shall be construed as giving any
Non-Employee Director any right to be retained in the service of the Company.

(b) An optionee’s rights and interest under the Plan may not be assigned or transferred in
whole or in part either directly or by operation of law or otherwise (except in the event of an
optionee’s death or disability, by will or the laws of descent and distribution), including, but
not by way of limitation, execution, levy, garnishment, attachment, pledge, bankruptcy, or in any
other manner, and no such right or interest of any participant in the Plan shall be subject to any
obligation or liability of such participant.

(c) No shares of Stock shall be issued hereunder unless counsel for the Company shall be
satisfied that such issuance will be in compliance with applicable Federal, state, and other
securities laws and regulations.

(d) It shall be a condition to the obligation of the Company to issue shares of Stock upon
exercise of an Option, that the optionee (or any beneficiary or person entitled to act under or
through Optionee as provided herein) pay to the Company, upon its demand, such amount as may be
requested by the Company for the purpose of satisfying any liability to withhold Federal, state,
local, or foreign income or other taxes. If the amount requested is not paid, the Company may
refuse to issue shares of Stock.

(e) By accepting any option under the Plan, each optionee and each person claiming under or
through such person shall be conclusively deemed to have indicated his or her acceptance and
ratification of, and consent to, any action taken under the Plan by the Company, the Board or the
Committee.

 

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