Exhibit 10.2

FAR EAST ENERGY CORPORATION

FORM OF INCENTIVE STOCK OPTION AGREEMENT

FOR GOOD AND VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
Far East Energy Corporation (the “Company”), a Nevada corporation, hereby grants
to                              (the “Option Holder”), the option to purchase
shares of the common stock, $0.001 par value per share, of the Company
(“Shares”), upon the terms set forth in this incentive stock option agreement
(this “Agreement”):

WHEREAS, the Option Holder has been granted the following award in connection
with his or her retention as an employee and as compensation for services to be
rendered, and the following terms reflect the Company’s 2005 Incentive Stock
Plan (the “Plan”);

NOW, THEREFORE, in consideration of the premises and mutual covenants contained
herein, the parties hereto agree as follows.

1. Defined Terms; Plan. Terms used but not defined herein shall have the same
meaning ascribed to such terms in the Plan. This Agreement and the grant herein
is subject to the terms and conditions herein and the terms and conditions of
the applicable provisions of the Plan, the terms of which are incorporated
herein by reference.

2. Grant. The Option Holder is hereby granted an option (the “Option”) to
purchase                      Shares (the “Option Shares”) pursuant to the Plan.
The Option is granted as of                      (the “Date of Grant”). This
Option is intended to qualify as an “incentive stock option” as defined in
Section 422(b) of the Code to the extent that the aggregate Fair Market Value
(determined as of the Date of Grant) of Option Shares that are exercisable for
the first time by the Option Holder during any calendar year does not exceed
$100,000. The remaining Option Shares covered by this Option, if any, shall be
deemed to be non-qualified options.

3. Status of Option Shares. The Option Shares shall upon issue rank equally in
all respects with the other Shares.

4. Option Price. The purchase price for the Option Shares shall be, except as
herein provided, $                     per Option Share, hereinafter sometimes
referred to as the “Option Price,” payable immediately in full upon the exercise
of the Option. In no event shall the Option Price be less than 100% of the Fair
Market Value of the Option Shares subject to this Option on the Date of Grant
(or 110% where the Option Holder owns more than 10% of the combined voting power
of all classes of stock of the Company on the Date of Grant).

5. Term of Option. The Option may be exercised only during the period (the
“Option Period”) set forth in Section 7 below and shall remain exercisable until
the tenth anniversary of the Date of Grant (or in the case that the Option
Holder owns more than 10% of the combined voting power of the Company on the
Date of Grant, then the Option shall remain exercisable until the day preceding
the fifth anniversary of Date of Grant). Thereafter, the Option Holder shall
cease to have any rights in respect thereof.

6. Exercisability. Subject to the Option Holder’s continued service with the
Company and the terms and conditions of this Agreement and the Plan, the Option
will vest and become exercisable with respect to             % of the Option
Shares on each of the                     ,                     ,
                    ,                      and

--------------------------------------------------------------------------------

                     anniversaries of the Date of Grant, so that the Option will
be 100% vested and exercisable after the                      anniversary of the
Date of Grant, as set forth in the following schedule:

 

Timeframe from Date of Grant

(Vesting Date)

   Vesting    Cumulative Vesting

__________, 20__ (1 year)

   %    %

__________, 20__ (2 years)

   %    %

__________, 20__ (3 years)

   %    %

__________, 20__ (4 years)

   %    %

__________, 20__ (5 years)

   %    %

7. Exercise of Option. The Option may be exercised for all, or from time to time
any part, of the Option Shares for which it is then exercisable. The exercise
date shall be the date the Company receives a written notice of exercise signed
by the Option Holder, specifying the whole number of Option Shares in respect of
which the Option is being exercised, accompanied by (a) full payment for the
Option Shares with respect to which the Option is exercised, in a manner
acceptable to the Company (which, at the discretion of the Company, shall
include a broker assisted exercise arrangement), of the Option Price for the
Option Shares for which the Option is being exercised and (b) payment by the
Option Holder of all payroll, withholding or income taxes incurred in connection
with the Option exercise (or arrangements for the collection or payment of such
tax satisfactory to the Committee are made). The purchase price for the Shares
as to which the Option is exercised shall be paid to the Company in full at the
time of exercise at the election of the Option Holder (i) in cash, (ii) in
Shares having a Fair Market Value equal to the aggregate Option Price for the
Shares being purchased and satisfying such other requirements as may be imposed
by the Committee; provided, that, such Shares have been held by the Option
Holder for no less than six months, (iii) partly in cash and partly in such
Shares, or (iv) through the delivery of irrevocable instructions to a broker to
deliver promptly to the Company an amount equal to the aggregate Option Price
for the Shares being purchased. Anything to the contrary herein notwithstanding,
the Company shall not be obligated to issue any Option Shares hereunder if the
issuance of the Option Shares would violate the provision of any applicable law,
in which event the Company shall, as soon as practicable, take whatever action
it reasonably can so that the Option Shares may be issued without resulting in
such violations of law.

8. Exercisability Upon Termination of Service by Death or Disability. Upon a
Termination of Service by reason of death or Disability, the Option may be
exercised within 180 days following the date of death or Termination of Service
due to Disability (subject to any earlier termination of the Option as provided
herein), by the Option Holder in the case of Disability, or in the case of
death, by the Option Holder’s estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but in any case only to the
extent the Option Holder was entitled to exercise the Option on the date of his
or her Termination of Service by death or Disability. To the extent that the
Option Holder was not entitled to exercise the Option at the date of his or her
Termination of Service by death or Disability, or if he or she does not exercise
the Option (which he or she was entitled to exercise) within the time specified
herein, the Option shall terminate. Notwithstanding anything to the contrary
herein, the Committee may at any time and from time to time prior to the
termination of the Option, with the consent of the Option Holder, extend the
period of time during which the Option Holder may exercise his or her Option
following the date of Termination of Service due to death or Disability;
provided, however, that the maximum period of time during which the Option shall
be exercisable following the date of Termination of Service due to death or
Disability shall not exceed the original term of the Option and that
notwithstanding any extension of time during which the Option may be exercised,
the Option, unless

--------------------------------------------------------------------------------

otherwise amended by the Committee, shall only be exercisable to the extent the
Option Holder was entitled to exercise the Option on the date of Termination of
Service due to death or Disability. Any such extension shall be designed to
conform to the requirements of Section 409A of the Code so as to avoid the
imposition of the additional income tax.

9. Effect of Other Termination of Service. Upon a Termination of Service for any
reason (other than death or Disability), the unexercised Option may thereafter
be exercised during the period ending 90 days after the date of such Termination
of Service, but only to the extent to which the Option was vested and
exercisable at the time of such Termination of Service. Notwithstanding the
foregoing, the Committee may, in its sole discretion, either by prior written
agreement with the Option Holder or upon the occurrence of a Termination of
Service, accelerate the vesting of unvested Options held by the Option Holder if
the Option Holder’s Termination of Service is without “cause” (as such term is
defined by the Committee in its sole discretion) by the Company.

10. Effect of Change of Control. Subject to the terms of this Section 10 and the
other terms of this Agreement, if, upon or within 24 months following the
occurrence of a Change of Control, [a Termination of Service of the Holder in
his capacity as a director of the Company occurs][the Holder’s employment with
the Company and its subsidiaries is terminated without Cause], then the unvested
Option Shares subject to the Option shall become immediately vested in full on
the date of such Termination of Service. [For purposes of this Section 10,
“Cause” shall mean (i) your gross and willful misappropriation or theft of the
Company’s or any of its subsidiary’s funds or property; (ii) your conviction of,
or plea of guilty or nolo contendere to, any felony or crime involving
dishonesty or moral turpitude; or (iii) your complete and total abandonment of
employment duties at the Company for a period of thirty consecutive days (other
than for reason of Disability).]

11. Liquidation. In the event of the dissolution or liquidation of the Company,
other than pursuant to Section 12 in connection with a Reorganization, the
Option shall terminate as of a date to be fixed by the Committee, provided that
not less than 30 days written notice of the date so fixed shall be given to the
Option Holder and the Option Holder shall have the right during such period to
exercise the Option as to all or any part of the Option Shares covered hereby as
to which the Option would then be exercisable.

12. Reorganization. In the event of a Reorganization in which the Company is not
the surviving or acquiring company, or in which the Company is or becomes a
wholly-owned subsidiary of another company or entity after the effective date of
the Reorganization, then (i) if there is no plan or agreement respecting the
Reorganization (“Reorganization Agreement”) or if the Reorganization Agreement
does not specifically provide for the change, conversion or exchange of the
Option Shares under outstanding unexercised Options for securities of another
corporation, then the Option shall terminate as of a date to be fixed by the
Committee, provided that not less than 30 days written notice of the date so
fixed shall be given to the Option Holder and the Option Holder shall have the
right during such period to exercise the Option as to all or any part of the
Option Shares covered hereby; or (ii) if there is a Reorganization Agreement and
if the Reorganization Agreement specifically provides for the change, conversion
or exchange of the Option Shares under outstanding or unexercised options for
securities, cash or property of another corporation or entity, then the
Committee shall adjust the Option Shares under such outstanding unexercised
Options (and shall adjust the Option Shares which are then available to be
optioned, if the Reorganization Agreement makes specific provisions therefor) in
a manner not inconsistent with the provisions of the Reorganization Agreement
for the adjustment, change, conversion or exchange of such stock and such
options. The term “Reorganization” as used in this Section 12 shall mean any
merger, consolidation, sale of all or substantially all of the assets of the
Company, or sale, pursuant to an agreement with the Company, of securities of
the Company pursuant to which the Company is or becomes a wholly-owned
subsidiary of another company or entity after the effective date of the
Reorganization.

--------------------------------------------------------------------------------

13. Early Disposition of Stock. Option Holder agrees that if he or she disposes
of any Option Shares received under this Option within two (2) years after the
Date of Grant or within one (1) year after such Option Shares were transferred
to Option Holder, then Option Holder will notify the Committee of such
disposition within thirty (30) days after the date of any such disposition.

14. Qualification as an Incentive Stock Option. Option Holder understands that
the Option is intended to qualify as an “incentive stock option” within the
meaning of Section 422(b) of the Code. Option Holder understands, further, that
the Option Price for the Option Shares has been set by the Committee at a price
that the Committee has determined to be not less than 100% (or, if Option Holder
owned at the time of grant more than 10% of the voting securities of the
Company, 110%) of the Fair Market Value of the Option Shares on the Date of
Grant. The Company believes that the methodology by which the Committee valued
the Option Shares at such time represented a good faith attempt, as defined in
the Code, at reaching an accurate appraisal of the Fair Market Value of the
Option Shares. Option Holder understands and acknowledges, however, that the
Company shall not be responsible for any additional tax liability incurred by
Option Holder in the event that the Internal Revenue Service is to determine
that this Option does not qualify as an incentive stock option, for any reason,
including without limitation a determination that the Committee’s valuation did
not represent a good faith attempt to value the Option Shares.

15. Lock Up Agreement. The Option Holder agrees that upon request of the Company
or the underwriters managing any underwritten offering of the Company’s
securities, the Option Holder 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 Option Holder will not sell, make any short sale
of, loan, grant any option for the purchase of, or otherwise dispose of any
Option Shares issued pursuant to the exercise of the Option, without the prior
written consent of the Company or such underwriters, as the case may be.

16. Transfer of Shares. The Option, the Option Shares, or any interest in
either, may be sold, assigned, pledged, hypothecated, encumbered, or transferred
or disposed of in any other manner, in whole or in part, only in compliance with
the terms, conditions and restrictions as set forth in the governing instruments
of the Company, applicable United States federal and state securities laws and
the terms and conditions this Agreement and the Plan.

17. Expenses of Issuance of Option Shares. The issuance of stock certificates
upon the exercise of the Option in whole or in part, shall be without charge to
the Option Holder. The Company shall pay, and indemnify the Option Holder from
and against any issuance, stamp or documentary taxes (other than transfer taxes)
or charges imposed by any governmental body, agency or official (other than
income taxes) by reason of the exercise of the Option in whole or in part or the
resulting issuance of the Option Shares.

18. Withholding. No later than the date of transfer of the Shares pursuant to
the exercise of the Option granted hereunder (and in any event no later than
three days after Option exercise), the Option Holder shall pay to the Company or
make arrangements satisfactory to the Committee in any manner permitted by the
terms of the Plan regarding payment of any federal, state or local taxes of any
kind required by law to be withheld upon the exercise of the Option and the
Company shall, to the extent permitted or required by law, have the right to
deduct from any payment of any kind otherwise due to the Option Holder, federal,
state and local taxes of any kind required by law to be withheld upon the
exercise of the Option.

19. References. References herein to rights and obligations of the Option Holder
shall apply, where appropriate, to the Option Holder’s legal representative or
estate without regard to whether specific reference to such legal representative
or estate is contained in a particular provision of this Option.

--------------------------------------------------------------------------------

20. Notices. Any notice required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally or by courier, or sent by certified or registered mail, postage
prepaid, return receipt requested, duly addressed to the party concerned at the
address indicated below or to such changed address as such party may
subsequently by similar process give notice of:

If to the Company:

Far East Energy Corporation

_____________________

_____________________

Attn.: Secretary

If to the Option Holder:

_____________________

_____________________

21. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas applicable to contracts made and
to be performed in the State of Texas without regard to conflict of laws
principles.

22. Entire Agreement. This Agreement and the Plan constitute the entire
agreement among the parties relating to the subject matter hereof, and any
previous agreement or understanding among the parties with respect thereto is
superseded by this Agreement and the Plan.

23. Counterparts. This Agreement may be executed in two counterparts, each of
which shall constitute one and the same instrument.

24. Conflict. To the extent the provisions of this Agreement conflicts with the
terms and conditions of any written agreement between the Company and the Option
Holder, the terms and conditions of such agreement shall control.

25. Qualification as an Incentive Stock Option. The Option Holder understands
that, subject to the terms of Section 2 of this Agreement, this Option is
intended to qualify as an “incentive stock option” within the meaning of
Section 422(b) of the Code. The Option Holder understands, further, that the
Option Price for the Option Shares subject to this Option has been set by the
Committee at a price that the Committee has determined to be not less than 100%
(or, if the Option Holder owns more than 10% of the combined voting power of all
classes of stock of the Company on the Date of Grant, 110%) of the Fair Market
Value of the Option Shares on the Date of Grant. The Company believes that the
methodology by which the Committee valued the Option Shares at such time
represented a good faith attempt, as defined in the Code, at reaching an
accurate appraisal of the Fair Market Value of the Option Shares. The Option
Holder understands and acknowledges, however, that the Company shall not be
responsible for any additional tax liability incurred by the Option Holder in
the event that the Internal Revenue Service is to determine that this Option
does not qualify as an incentive stock option, for any reason, including without
limitation a determination that the Committee’s valuation did not represent a
good faith attempt to value the Option Shares.

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the Date
of Grant.

 

FAR EAST ENERGY CORPORATION By:        Name:        Title:     

 

[NAME]     [name]