|   | *Executive Officer Agreement* |
|--------|-------------------------------|

**EXHIBIT 10.4**

 

 

**CRIMSON EXPLORATION INC.**

**2005 STOCK INCENTIVE PLAN**

**STOCK OPTION AGREEMENT**

             This Stock Option Agreement (the “***Agreement***”) is made and entered into as of the Date of Grant set forth below by and between Crimson Exploration Inc., a Delaware corporation (the “***Company***”), and Participant named below. This Agreement            represents a distribution to Participant pursuant to the Company’s Long Term Incentive Performance Plan for the fiscal year ending December 31, 2008. Unless otherwise indicated herein, capitalized terms not defined herein shall have the meaning ascribed to them in the Company’s 2005 Stock Incentive Plan, as amended and restated effective as of August 15, 2008 (the “***Plan***”).

|   | Participant: |
|--------|--------------|

|   | Social Security Number: | _____ - ____ - _______ |
|--------|-------------------------|------------------------|

|   | Address: |
|--------|----------|

 

|   | Total Option Shares: |
|--------|----------------------|

|   | Exercise Price Per Share: | $______ |
|--------|---------------------------|---------|

|   | Date of Grant: | ________________ |
|--------|----------------|------------------|

|   | Expiration Date: | ________________ |
|--------|------------------|------------------|

|   | Type of Stock Option: | oIncentive Stock Option |
|--------|-----------------------|-------------------------|

|   | x Nonqualified Stock Option |
|--------|-----------------------------|

1.         **Grant of Option**. The Company hereby grants to Participant an option (this “***Option***”) to purchase the total number of shares of Common Stock of the Company set forth above as Total Option Shares (the            “***Shares***”) at the Exercise Price Per Share set forth above (the “***Exercise Price***”), subject to all of the terms and conditions of this Agreement and the Plan. If designated as an Incentive Stock Option above, the Option is intended to qualify as an incentive stock option (an            “***ISO***”) within the meaning of Section 422 of the Code, although the Company makes no representation or guarantee that such Option will qualify as an ISO.

|   | 2. | **Exercise Period; Vesting**. |
|--------|----|-------------------------------|

2.1.      Regular Vesting. Unless expired as provided in Section 3of this Agreement, this Option may be exercised from time to time after the Date of Grant set forth above to the extent the Option has vested in accordance with the vesting schedule            set forth below. The Shares issued upon exercise of the Option will be subject to the restrictions on transfer set forth in Section 11below. Provided Participant continues to provide Continuous Service to the Company or any Affiliate, the Option will become vested and exercisable with 

 

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*Executive Officer Agreement*

 

respect to Twenty-Five Percent (25%) of the Shares on the first anniversary of the Date of Grant set forth above and thereafter at the end of each full succeeding year from the Date of Grant the Option will become vested and exercisable as follows: Twenty-Five Percent (25%) on the second anniversary; an additional Twenty-Five Percent (25%) on the third anniversary; and Twenty-Five Percent (25%) on            the fourth anniversary at which time the Option will be vested and exercisable with respect to one hundred percent (100%) of the Shares. A vested Option may not be exercised for less than a full share unless the currently exercisable portion of such Option is less than a whole share. 

2.2.      Change of Control. In the event of a Change of Control (as such term is defined in an employment agreement between Participant and the Company, the terms of which have been approved by the Administrator, or, otherwise, by the Plan), vesting shall be accelerated and this Option shall become            immediately vested and exercisable with respect to one hundred percent (100%) of the Shares without regard to Participant’s number of years of Continuous Service.

2.3.      Termination Without Cause or for Good Reason. If Participant is party to an employment agreement with the Company, the terms of which have been approved by the Administrator, in the event Participant’s Continuous Service is terminated by the Company without Cause or by Participant for            Good Reason (as and if such term is defined in such employment agreement), this Option shall vest and become exercisable with respect to the Shares as provided by such employment agreement.

2.4.      Death or Disability. Unless otherwise provided in an employment agreement between Participant and the Company, the terms of which have been approved by the Administrator, in the event Participant’s Continuous Service is terminated on account of death or Disability, for purposes of            determining vesting under Section 2.1, Participant shall be deemed to continue Continuous Service through the date that is the anniversary of the Date of Grant coincident with or next following the date of such termination.

3.         **Expiration**. The Option shall expire on the Expiration Date set forth above or earlier as provided in Section 4below, or, if applicable, pursuant to Section 8 or 12 of the Plan.

|   | 4. | **Termination of Continuous Service**. |
|--------|----|----------------------------------------|

4.1.      Termination for Cause or Participant’s Voluntary Resignation. Unless otherwise provided in an employment agreement between Participant and the Company, the terms of which have been approved by the Administrator, if Participant’s Continuous Service is terminated by Company for            Cause or by the Participant’s voluntary resignation, the Option, to the extent (and only to the extent) that it would have been exercisable by Participant on the date of termination, may be exercised by Participant no later than 30 days after the date of termination, but in any event no later than the Expiration Date. Outstanding Options that are not exercisable at the time Participant’s Continuous Service terminates shall be forfeited and expire at the close of business            on the date of such termination.

4.2.      Termination Because of Death or Disability. If Participant’s Continuous Service is terminated because of death or Disability of Participant, the Option, to the extent 

 

 

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*Executive Officer Agreement*

 

exercisable by Participant on the date of termination (subject to Section_2.4), may be exercised by Participant (or Participant’s legal representative) no later than the earlier to occur of (a) the date twelve months following the date Continuous Service is terminated or (b) the Expiration Date. Outstanding Options that are not exercisable at            the time Participant’s Continuous Service terminates shall be forfeited and expire at the close of business on the date of such termination.

4.3.      Change of Control. If Participant’s Continuous Service is terminated by the Company without Cause or by Participant for Good Reason (if Participant is party to an employment agreement with the Company, the terms of which have been approved by the Administrator, that defines            “Good Reason”) within one year following a Change of Control, the Option may be exercised by Participant (or Participant’s legal representative) no later than three yearsafter the date of termination, but in any event no later than the Expiration Date. 

4.4.      Termination Without Cause or for Good Reason. In the event Participant’s Continuous Service is terminated by the Company without Cause or by Participant for Good Reason (if Participant is party to an employment agreement with the Company, the terms of which have been approved by the            Administrator, that defines “Good Reason”), the Option may be exercised by Participant (or Participant’s legal representative) no later than twelve months after the date of termination, but in any event no later than the Expiration Date. 

4.5.      No Obligation to Employ. Nothing in the Plan or this Agreement shall confer on Participant any right to continue in the employ of, or other relationship with, the Company or any Affiliate, or limit in any way the right of the Company or any Affiliate to terminate Participant’s            employment or other relationship at any time, with or without Cause.

|   | 5. | **Manner of Exercise**. |
|--------|----|-------------------------|

5.1.      Stock Option Exercise Agreement. To exercise this Option, Participant (or in the case of exercise after Participant’s death or incapacity, Participant’s executor, administrator, heir or legatee, as the case may be) must deliver to the Company an executed stock option exercise            agreement in the form attached hereto as Exhibit A, or in such other form as may be approved by the Administrator from time to time (the “***Exercise Agreement***”), which shall set forth, interalia, (a) Participant’s election to exercise the Option, (b) the number of Shares being            purchased, (c) any restrictions imposed on the Shares and (d) any representations warranties and agreements regarding Participant’s investment intent and access to information as may be required by the Company to comply with applicable securities laws. If someone other than Participant exercises the Option, then such person must submit documentation reasonably acceptable to the Company verifying that such person has the legal right to exercise the Option.

5.2.      Limitations on Exercise. The Option may not be exercised unless such exercise is in compliance with all applicable federal and state securities laws, as they are in effect on the date of exercise. The Option may not be exercised for fewer than 1 Share unless it is exercised as to all Shares            as to which the Option is then exercisable.

5.3.      Payment. The entire Exercise Price of this Option to purchase Shares shall be payable in full by cash or check for an amount equal to the aggregate exercise price for the number of Shares being purchased. Alternatively, in the sole discretion of the Plan 

 

 

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*Executive Officer Agreement*

 

Administrator and upon such terms as the Plan Administrator shall approve, the Exercise Price may be paid by: 

(a)       paying all or a portion of the aggregate exercise price for the number of Shares being purchased by delivery to the Company of other shares of Common Stock, duly endorsed for transfer to the Company, with a Fair Market Value on the date of delivery equal to the exercise price (or portion thereof) due for the number of Shares being            acquired, or by means of attestation whereby the Participant identifies for delivery specific shares of Common Stock where such shares have a Fair Market Value on the date of attestation equal to the exercise price (or portion thereof) and receives a number of shares of Common Stock equal to the difference between the number of Shares thereby purchased and the number of identified attestation shares of Common Stock (collectively a ***“Stock For Stock            Exercise”***); provided, however, that the shares of Common Stock used in such Stock for Stock Exercise (i) have either (1) been held for more than six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes) and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with            respect to such shares); or (2) were obtained by Participant in the open public market; and (ii) are clear of all liens, claims, encumbrances or security interests. 

(b)       during any period for which the Common Stock is publicly traded i.e., the Common Stock is listed on any established stock exchange or a national market system, or if the Common Stock is quoted on the Nasdaq System or any similar system whereby the Common Stock is regularly quoted by a recognized securities dealer but closing sale            prices are not reported, (i) a copy of instructions to a broker-dealer that is a member of the Financial Industry Regulatory Authority (a “***FINRA Dealer***”) directing such broker to sell the Shares for which this option is exercised, and to remit to the Company the aggregate Exercise Price of such option or (ii) through a “margin” commitment from Participant and a FINRA Dealer whereby Participant            irrevocably elects to exercise the Option and to pledge the Shares so purchased to the FINRA Dealer in a margin account as security for a loan from such FINRA Dealer in the amount of the total Exercise Price, and whereby the FINRA Dealer irrevocably commits upon receipt of such Shares to forward the total Exercise Price directly to the Company (collectively referred to as a “***Cashless Exercise***”); provided, however,            a Cashless Exercise by a Director or executive officer that involves or may involve a direct or indirect extension of credit or arrangement of an extension of credit by the Company, a Parent or Subsidiary in violation of Section 402(a) of the Sarbanes Oxley Act (codified as Section 13(k) of the Securities Exchange Act of 1934, 15 U.S.C. § 78m(k)) shall be prohibited; 

(c)       by cancellation of indebtedness of the Company to the Participant;

(d)       by waiver of compensation due or accrued to Participant for services rendered;

(e)       by any other form of legal consideration that may be acceptable to the Administrator, including without limitation, a full-recourse promissory note. However, if there is a stated par value of the Shares and applicable law requires, the par value of the Shares, if newly issued, shall be paid in cash or cash equivalents. The Shares shall            be pledged as 

 

 

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*Executive Officer Agreement*

 

security for payment of the principal amount of the promissory note and interest thereon. The interest rate payable under the terms of the promissory note shall not be less than the minimum rate (if any) required to avoid the imputation of additional interest under the Code. Subject to the foregoing, the Administrator (in its sole discretion) shall specify the term, interest rate, amortization            requirements (if any) and other provisions of such note. Unless the Administrator determines otherwise, shares of Common Stock having a Fair Market Value at least equal to the principal amount of the loan shall be pledged by the holder to the Company as security for payment of the unpaid balance of the loan and such pledge shall be evidenced by a pledge agreement, the terms of which shall be determined by the Administrator, in its discretion; provided, however, that each loan shall            comply with all applicable laws, regulations and rules of the Board of Governors of the Federal Reserve System and any other governmental agency having jurisdiction. Exercise with a promissory note or other transaction by a Director or executive officer that involves or may involve a direct or indirect extension of credit or arrangement of an extension of credit by the Company, or an Affiliate in violation of section 402(a) of the Sarbanes Oxley Act (codified as Section 13(k) of the            Securities Exchange Act of 1934, 15 U.S.C. § 78m(k)) shall be prohibited; or

|   | (f) | by any combination of the foregoing. |
|--------|-----|--------------------------------------|

5.4.      Tax Withholding. Prior to the issuance of the Shares upon exercise of the Option, Participant must pay or provide for any applicable federal, state and local withholding obligations of the Company. If the Administrator permits, Participant may provide for payment of withholding taxes upon            exercise of the Option by requesting that the Company retain Shares with a Fair Market Value that does not exceed the minimum statutory amount of taxes required to be withheld. In such case, the Company shall issue the net number of Shares to Participant by deducting the Shares retained from the Shares issuable upon exercise.

5.5.      Issuance of Shares. Provided that the Exercise Agreement and payment are in form and substance satisfactory to counsel for the Company, the Company shall issue the Shares registered in the name of Participant, Participant’s authorized assignee, or Participant’s legal            representative, and shall deliver certificates representing the Shares with the appropriate legends affixed thereto.

6.         **Notice of Disqualifying Disposition of ISO Shares**. If the Option is an ISO, and if Participant sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (a) the date two (2) years after the Date of Grant, and (b) the date one (1)            year after transfer of such Shares to Participant upon exercise of the Option, Participant shall immediately notify the Company in writing of such disposition. Participant agrees that Participant will satisfy any obligation in the event any such disposition causes Participant to be subject to income tax withholding by the Company on the compensation income recognized by Participant from the early disposition by payment in cash or out of the current wages or other compensation            payable to Participant.

7.         **Compliance with Laws and Regulations**. The exercise of the Option and the issuance and transfer of Shares shall be subject to compliance by the Company and Participant with all applicable requirements of federal and state securities laws and with all applicable requirements of            any stock exchange on which the Company’s Common Stock may be listed at 

 

 

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*Executive Officer Agreement*

 

the time of such issuance or transfer. Participant understands that the Company is under no obligation to register or qualify the Shares with the SEC, any state securities commission or any stock exchange to effect such compliance.

8.         **Nontransferability of Option**. If the Option is an ISO, the Option may not be transferred in any manner other than by will or by the laws of descent and distribution and may be exercised during the lifetime of Participant only by Participant or in the event of            Participant’s incapacity, by Participant’s legal representative. The terms of the Option shall be binding upon the executors, administrators, successors and assigns of Participant. If the Option is not an ISO, upon written approval by the Administrator, it may be transferred by gift or domestic relations order to a member of Participant’s immediate family (child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,            mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing Participant’s household (other than a tenant or employee), a trust in which these persons have more than 50% of the beneficial interest, a foundation in which these persons (or Participant) control the management of assets, and any other entity in which these persons (or Participant) own more than 50% of the voting            interests.

9.         **Privileges of Stock Ownership**. Participant shall not have any of the rights of a Stockholder with respect to any Shares until the Shares are issued to Participant.

10.       **Obligation To Sell.**Notwithstanding anything herein to the contrary, if at any time following Participant’s acquisition of Shares hereunder, stockholders of the Company owning 51% or more of the shares of the Company (on a fully diluted basis) (the            ***“Control Sellers”***) enter into an agreement (including any agreement in principal) to transfer all of their shares to any person or group of persons who are not affiliated with the Control Sellers, such Control Sellers may require each stockholder who is not a Control Seller (a ***“Non-Control Seller”***) to sell all of their shares to such person or            group of persons at a price and on terms and conditions the same as those on which such Control Sellers have agreed to sell their shares, other than terms and conditions relating to the performance or non-performance of services. For the purposes of the preceding sentence, an affiliate of a Control Seller is a person who controls, which is controlled by, or which is under common control with, the Control Seller.

|   | 11. | **Restrictions On Transfer.** |
|--------|-----|-------------------------------|

11.1.    Securities Law Restrictions**.**Regardless of whether the offering and sale of shares of Common Stock under the Plan have been registered under the Securities Act or have been registered or qualified under the securities laws of any state, the Company at its discretion may            impose restrictions upon the sale, pledge or other transfer of such shares of Common Stock (including the placement of appropriate legends on stock certificates or the imposition of stop-transfer instructions) if, in the judgment of the Company, such restrictions are necessary or desirable in order to achieve compliance with the Securities Act, the securities laws of any state or any other law. 

11.2.    Market Stand-Off. If an underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the Securities Act, Participant shall not sell, make any short sale of, loan, hypothecate, pledge, grant any option for 

 

 

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*Executive Officer Agreement*

 

the repurchase of, transfer the economic consequences of ownership or otherwise dispose or transfer for value or otherwise agree to engage in any of the foregoing transactions with respect to any Common Stock without the prior written consent of the Company or its underwriters, for such period of time from and after the effective date of such registration statement as may be requested by the Company            or such underwriters (the “***Market Stand-Off***”). In order to enforce the Market Stand-Off, the Company may impose stop-transfer instructions with respect to the Shares acquired under this Agreement until the end of the applicable stand-off period. If there is any change in the number of outstanding shares of Common Stock by reason of a stock split, reverse stock split, stock dividend, recapitalization, combination,            reclassification, dissolution or liquidation of the Company, any corporate separation or division (including, but not limited to, a split-up, a split-off or a spin-off), a merger or consolidation; a reverse merger or similar transaction, then any new, substituted or additional securities which are by reason of such transaction distributed with respect to any shares of Common Stock subject to the Market Stand-Off, or into which such shares of Common Stock thereby become convertible,            shall immediately be subject to the Market Stand-Off.

11.3.    Transfer of Common Stock Acquired Under Plan. Notwithstanding anything to the contrary herein, if the Shares acquired upon exercise of this Option are not readily tradable on an established securities market, Participant may not transfer Shares acquired under this Plan within six months after the            purchase of such Shares, other than, if permitted by the Administrator in its discretion: (a) to satisfy minimum tax withholding requirements, or (b) to a Permitted Transferee.

11.4.    Investment Intent at Grant. If the grant of this Option under the Plan is not registered under federal or state securities laws, but an exemption is available which requires an investment representation or other representation, Participant shall represent and agree, at the time of grant of this            Option, that the security being acquired upon the grant of this Option is being acquired for investment, and not with a view to the sale or distribution thereof, and shall make such other representations as are deemed necessary or appropriate by the Company and its counsel.

11.5.    Investment Intent at Exercise. If the sale of shares of Common Stock under the Plan is not registered under federal or state securities laws, but an exemption is available which requires an investment representation or other representation, Participant shall represent and agree at the time of exercise            that the Shares being acquired upon exercise of this Option are being acquired for investment, and not with a view to the sale or distribution thereof, and shall make such other representations as are deemed necessary or appropriate by the Company and its counsel.

11.6.    Legends. All certificates evidencing shares of Common Stock purchased under this Agreement in an unregistered transaction shall bear the following legend (and such other restrictive legends as are required or deemed advisable under the provisions of any applicable law):

“THE SHARES OF COMMON STOCK EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO AND TRANSFERABLE ONLY IN ACCORDANCE WITH THAT CERTAIN CRIMSON EXPLORATION INC. 2005 STOCK INCENTIVE PLAN AS AMENDED AND 

 

 

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*Executive Officer Agreement*

 

RESTATED, THE OPTION AGREEMENT AND THE EXERCISE AGREEMENT PURSUANT TO WHICH THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED, COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. NO TRANSFER OR PLEDGE OF THE SHARES EVIDENCED HEREBY MAY BE MADE EXCEPT IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF SAID PLAN AND OPTION AGREEMENT AND THE TERMS OF THE EXERCISE            AGREEMENT.”

11.7.    Removal of Legends. If, in the opinion of the Company and its counsel, any legend placed on a stock certificate representing shares of Common Stock sold under this Agreement no longer is required, the holder of such certificate shall be entitled to exchange such certificate for a certificate            representing the same number of shares of Common Stock but without such legend. 

11.8.    Administration. Any determination by the Company and its counsel in connection with any of the matters set forth in this Section 11shall be conclusive and binding on Participant and all other persons. 

|   | 12. | **General**. |
|--------|-----|--------------|

12.1.    Interpretation. Any dispute regarding the interpretation of this Agreement shall be submitted by Participant or the Company to the Administrator for review. The resolution of such a dispute by the Administrator shall be final and binding on the Company and Participant.

12.2.    Entire Agreement. The Plan is incorporated herein by reference. This Agreement, the Plan and any employment agreement between Participant and the Company, the terms of which have been approved by the Administrator, constitute the entire agreement of the parties and supersede all prior undertakings and            agreements with respect to the subject matter hereof. If any inconsistency should exist between the nondiscretionary terms and conditions of this Agreement, the Plan and such employment agreement, if any, the Plan shall govern and control.

12.3.    Notices. Any notice required to be given or delivered to the Company under the terms of this Agreement shall be in writing and addressed to the Corporate Secretary of the Company at its principal corporate offices. Any notice required to be given or delivered to Participant shall be in writing and            addressed to Participant at the address indicated above or to such other address as such party may designate in writing from time to time to the Company. All notices shall be deemed to have been given or delivered upon: (a) personal delivery; (b) five (5) days after deposit in the United States mail by certified or registered mail (return receipt requested); (c) two (2) business days after deposit with any return receipt express courier (prepaid); or (d) one (1) business day after            transmission by facsimile.

12.4.    Successors and Assigns. The Company may assign any of its rights under this Agreement. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this 

 

 

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*Executive Officer Agreement*

 

Agreement shall be binding upon Participant and Participant’s heirs, executors, administrators, legal representatives, successors and assigns.

12.5.    Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas without giving effect to its conflict of law principles. If any provision of this Agreement is determined by a court of law to be illegal or unenforceable, then such provision will be            enforced to the maximum extent possible and the other provisions will remain fully effective and enforceable.

13.       **Acceptance**. Participant hereby acknowledges receipt of a copy of the Plan and this Agreement. Participant has read and understands the terms and provisions thereof, and accepts the Option subject to all the terms and conditions of the Plan and this Agreement. Participant acknowledges            that there may be adverse tax consequences upon exercise of the Option or disposition of the Shares and that Participant should consult a tax advisor prior to such exercise or disposition.

14.       **Section 409A Limitation**. In the event the Administrator determines at any time that this Option has been granted with an Exercise Price less than Fair Market Value of the Common Stock subject to the Option on the date the Option is granted (regardless of whether or not such Exercise            Price is intentionally or unintentionally priced at less than Fair Market Value, or is materially modified at a time when the Fair Market Value exceeds the Exercise Price), or is otherwise determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Code, notwithstanding any provision of the Plan or this Option Agreement to the contrary, the Option shall satisfy the additional conditions applicable to nonqualified deferred            compensation under Section 409A of the Code, in accordance with Section 8 of the Plan. The specified exercise date and term shall be the default date and term specified in Section 8 of the Plan. Notwithstanding the foregoing, the Company shall have no liability to any Participant or any other person if an Option designated as an ISO fails to qualify as such at any time or if an Option is determined to constitute “nonqualified deferred compensation” within the            meaning of Section 409A of the Code and the terms of such Option do not satisfy the additional conditions applicable to nonqualified deferred compensation under Section 409A of the Code and the regulations thereunder.

 

**[SIGNATURE PAGE FOLLOWS]**

 

 

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*Executive Officer Agreement*

 

**IN WITNESS WHEREOF**, the Company has caused this Agreement to be executed by its duly authorized representative and Participant has executed this Agreement, effective as of the Date of Grant.
|                                | **CRIMSON EXPLORATION INC.**                                                 |
|-------------------------------------|------------------------------------------------------------------------------|
|                                |                                                                         |
|                                |                                                                         |
| By:                                 |                                                                         |
| Name:                        Title: | _____________________________________

_____________________________________ |

 
|   | **PARTICIPANT** |
|--------|-----------------|
|   |            |
|   |            |
|   |            |
|   | (Signature)     |
|   | Printed Name:   |

 

 

 

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**EXHIBIT A**

 

**CRIMSON EXPLORATION INC.**

**2005 STOCK INCENTIVE PLAN**

**STOCK OPTION EXERCISE AGREEMENT**

|   | Participant: | ______________________________ |
|--------|--------------|--------------------------------|

|   | Social Security Number: | ______________________________ |
|--------|-------------------------|--------------------------------|

|   | Address: | ______________________________ |
|--------|----------|--------------------------------|

|   | ______________________________ |
|--------|--------------------------------|

|   | Option Shares Being Purchased: | ______________________________ |
|--------|--------------------------------|--------------------------------|

|   | Exercise Price Per Share: | $______ |
|--------|---------------------------|---------|

|   | Date of Grant: | ________________ |
|--------|----------------|------------------|

|   | Expiration Date: | ________________ |
|--------|------------------|------------------|

|   | Type of Stock Option: | **o** Incentive Stock Option |
|--------|-----------------------|-----------------------------------|

|   | **x**Nonqualified Stock Option |
|--------|--------------------------------|

|   | 1. | **Exercise** **of** **Option**. |
|--------|----|-------------------------------------------|

1.1.      Exercise. Pursuant to exercise of that certain option (the “***Option***”) granted to Purchaser under the Plan and the Stock Option Agreement and subject to the terms and conditions of this Exercise Agreement, Purchaser hereby purchases from the Company, and the Company hereby sells to Purchaser, the Option Shares            Being Purchased set forth above (the “***Shares***”) of the Company’s Common Stock at the Exercise Price Per Share set forth above (the “***Exercise Price***”). As used in this Exercise Agreement, the term “***Shares***” refers to the Shares purchased under this Exercise Agreement and includes all securities received (a) in replacement of the Shares, (b) as a result of stock dividends or stock splits with respect to            the Shares, and (c) all securities received in replacement of the Shares in a merger, recapitalization, reorganization or similar corporate transaction.

 

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1.2.      Title to Shares. The exact spelling of the name(s) under which Purchaser will take title to the Shares is: _____________________________________________________

Purchaser desires to take title to the Shares as follows:

|   | o | Individual, as separate property |
|--------|---|----------------------------------|

|   | o | Husband and wife, as community property |
|--------|---|-----------------------------------------|

|   | o | Joint Tenants |
|--------|---|---------------|

o      Other; please specify:__________________________________________

 

1.3.      Payment. Purchaser hereby delivers payment of the Exercise Price, together with any applicable tax obligations, as follows: 

o      in cash (by check) in the amount of $**_________**, receipt of which is acknowledged by the Company;

o      by a broker assisted cashless exercise procedure that has been approved by the Company;

o      by tender of _______ shares of the Company’s Common Stock that has been owned for at least six months in a Stock-for-Stock exercise; 

o      by delivery of a full recourse promissory note payable to the Company, having such term, interest rate and other provisions as are specified by the Administrator, in the amount of $**_________**(“***Note***”)**;**or

o      other method or form of consideration that is acceptable to the Administrator in its sole discretion.

Payment of the Exercise Price in any form other than cash is subject to the advance approval of the Administrator in its sole discretion.

|   | 2. | **Delivery**. |
|--------|----|---------------|

2.1.      Deliveries by Purchaser. Purchaser hereby delivers to the Company (a) this Exercise Agreement, (b) if Purchaser is married, a consent of spouse in the form of Exhibit_Aattached hereto executed by Purchaser’s spouse, (c) the            Exercise Price and payment or other provision for any applicable tax obligations in the form specified in Section 1.3above and (d) if the Purchaser has provided a Note for exercise of the Shares, a stock pledge agreement executed by Purchaser (**“*****Pledge*** ***Agreement***”) and two            (2) copies of a blank stock power (“***Stock*** ***Power***”), both executed by Purchaser (and Purchaser’s spouse, if any). 

 

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2.2.      Deliveries by the Company. Upon its receipt of the Exercise Price, payment or other provision for any applicable tax obligations and all the documents to be executed and delivered by Purchaser to the Company under Section 2.1hereof, the            Company will issue a duly executed stock certificate evidencing the Shares in the name of Purchaser, provided, however, if the Purchaser has provided a Note for exercise of the Shares, such stock certificate shall be placed in escrow as provided in Section 6hereof to secure payment of Purchaser’s obligation under the            Note.

3.         **Representations and Warranties of Purchaser**. Purchaser represents and warrants to the Company that:

3.1.      Agrees to Terms of the Plan. Purchaser has received a copy of the Plan and the Stock Option Agreement, has read and understands the terms of the Plan, the Stock Option Agreement and this Exercise Agreement, and agrees to be bound by their terms and conditions. Purchaser acknowledges that            there may be adverse tax consequences upon exercise of the Option or disposition of the Shares, and that Purchaser should consult a tax advisor prior to such exercise or disposition.

3.2.      SEC Rule 144. Purchaser understands that Rule 144 promulgated under the Securities Act may indefinitely restrict transfer of the Shares so long as Purchaser remains an “affiliate” of the Company or if “current public information” about the Company (as defined in Rule            144) is not publicly available.

4.         **Compliance** **with** **Securities** **Laws**. Purchaser understands and acknowledges that, notwithstanding any other            provision of the Stock Option Agreement to the contrary, the exercise of any rights to purchase any Shares is expressly conditioned upon compliance with the Securities Act and all applicable state securities laws. Purchaser agrees to cooperate with the Company to ensure compliance with such laws. 

5.         **Rights as a Stockholder**. Subject to the terms and conditions of this Exercise Agreement, Purchaser will have all of the rights of a stockholder of the Company with respect to the Shares from and after the date that Shares are issued to Purchaser until such time as Purchaser            disposes of the Shares.

6.         **Escrow**. If the Purchaser has provided a Note for exercise of the Shares, as security for Purchaser’s faithful performance of this Exercise Agreement, Purchaser agrees, immediately upon receipt of the stock certificate(s) evidencing the Shares, to deliver such            certificate(s), together with the Stock Powers executed by Purchaser and by Purchaser’s spouse, if any (with the date and number of Shares left blank), to the Secretary of the Company or other designee of the Company (the “***Escrow*** ***Holder***”), who is hereby appointed to hold such certificate(s) and Stock Powers in escrow and to take all such actions            and to effectuate all such transfers and/or releases of such Shares as are in accordance with the terms of this Exercise Agreement. Purchaser and the Company agree that Escrow Holder will not be liable to any party to this Exercise Agreement (or to any other party) for any actions or omissions unless Escrow Holder is grossly negligent or intentionally fraudulent in carrying out the duties of Escrow Holder under this Exercise Agreement. Escrow Holder may rely upon any letter, notice            or other document executed with any signature purported to be genuine and may rely on the advice of 

 

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counsel and obey any order of any court with respect to the transactions contemplated by this Exercise Agreement. The Shares will remain in escrow so long as they are subject to the Pledge Agreement.

7.         **Tax Consequences**. ***Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser’s purchase or disposition of the Shares. Purchaser represents: (a) that Purchaser has consulted with any tax advisor that            Purchaser deems advisable in connection with the purchase or disposition of the Shares and (b) that Purchaser is not relying on the Company for any tax advice. In addition to the foregoing, the Company shall have no liability to Purchaser or any other person if an option designated as an Incentive Stock Option fails to qualify at such at any time or if an option is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A of the            Code and the terms of such Option do not satisfy the additional conditions applicable to nonqualified deferred compensation under Section 409A of the Code and Section 8 of the Plan.***

8.         **Compliance with Laws and Regulations**. The issuance and transfer of the Shares will be subject to and conditioned upon compliance by the Company and Purchaser with all applicable state, local and U.S. Federal laws and regulations and with all applicable requirements of any            stock exchange or automated quotation system on which the Company’s Common Stock may be listed or quoted at the time of such issuance or transfer.

**9.**         **Obligation To Sell.**Notwithstanding anything herein to the contrary, if at any time following Purchaser’s acquisition of Shares hereunder, stockholders of the Company owning 51% or more of the shares of the Company (on a fully diluted basis)            (the *“Control Sellers”*) enter into an agreement (including any agreement in principal) to transfer all of their shares to any person or group of persons who are not affiliated with the Control Sellers, such Control Sellers may require each stockholder who is not a Control Seller (a *“Non-Control Seller”*) to sell all of their shares to such person or group of            persons at a price and on terms and conditions the same as those on which such Control Sellers have agreed to sell their shares, other than terms and conditions relating to the performance or non-performance of services. For the purposes of the preceding sentence, an affiliate of a Control Seller is a person who controls, which is controlled by, or which is under common control with, the Control Seller.

10.       **Successors and Assigns**. The Company may assign any of its rights under this Exercise Agreement. This Exercise Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. This exercise Agreement will be binding upon Purchaser and            Purchaser’s heirs, executors, administrators, legal representatives, successors and assigns.

11.       **Governing Law; Severability**. This Exercise Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without giving effect to its conflict of law principles. If any provision of this Exercise Agreement is determined by a court of law to be illegal            or unenforceable, then such provision will be enforced to the maximum extent possible and the other provisions will remain fully effective and enforceable.

12.       **Notices**. Any notice required to be given or delivered to the Company shall be in writing and addressed to the Corporate Secretary of the Company at its principal corporate 

 

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offices. Any notice required to be given or delivered to Purchaser shall be in writing and addressed to Purchaser at the address indicated above or to such other address as Purchaser may designate in writing from time to time to the Company. All notices shall be deemed effectively given upon personal delivery, (a) five (5) days after deposit in the United States mail by certified or registered mail            (return receipt requested), (b) two (2) business days after its deposit with any return receipt express courier (prepaid), or (c) one (1) business day after transmission by facsimile.

13.       **Further Instruments**. The parties agree to execute such further instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Exercise Agreement.

14.       **Headings**. The captions and headings of this Exercise Agreement are included for ease of reference only and will be disregarded in interpreting or construing this Exercise Agreement.

15.       **Entire Agreement**. The Plan, the Stock Option Agreement, this Exercise Agreement, together with all Exhibits thereto constitute the entire agreement and understanding of the parties with respect to the subject matter of this Exercise Agreement, and supersede all prior understandings and            agreements, whether oral or written, between the parties hereto with respect to the specific subject matter hereof. If there is any inconsistency between the terms of this Exercise Agreement and the terms of the Plan and Stock Option Agreement, the terms of the Plan and Stock Option Agreement shall govern and control.

 

 

**[SIGNATURE PAGE FOLLOWS]**

 

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**IN WITNESS WHEREOF**, the Company has caused this Exercise Agreement to be executed in triplicate by its duly authorized representative and Purchaser has executed this Exercise Agreement in triplicate as of the Effective Date, indicated above.

 

|        | **CRIMSON EXPLORATION INC.** |
|-------------|------------------------------|
|        |                         |
|        |                         |
|        |                         |
|  

By: |                         |
| Name:       |                         |
| Title:      |                         |

 

 

|   | **PURCHASER** |
|--------|---------------|
|   |          |
|   |          |
|   |          |
|   |          |
|   | (Signature)   |
|   | Printed Name: |

 

 

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**EXHIBIT A**

**SPOUSE** **CONSENT**

The undersigned spouse of ____________________________ (the “***Purchaser***”) has read, understands, and hereby approves the exercise of the Stock Option Exercise Agreement (the “***Agreement***”) between Purchaser and Crimson Exploration Inc., a Delaware            corporation (the “***Company***”). In consideration of the Company’s granting my spouse the right to purchase the Shares as set forth in the Agreement, the undersigned hereby agrees to be irrevocably bound by the Agreement and further agrees that any community property interest I may have in the Shares shall similarly be bound by the Agreement. The undersigned hereby appoints Purchaser as my attorney-in-fact with            respect to any amendment or exercise of any rights under the Agreement.

 

| Dated: |         |
|--------|--------------|
|   |         |
|   |         |
|   | **SPOUSE**   |
|   |         |
|   |         |
|   | (Signature)  |
|   |         |
|   | Printed Name |
|   | Address:     |
|   |         |
|   |         |