MIDCOAST ENERGY RESOURCES, INC.

                            1996 INCENTIVE STOCK PLAN
                            (AS AMENDED MAY 15, 1998)


1.    PURPOSE OF THE PLAN

      This Midcoast Energy Resources, Inc. 1996 Incentive Stock Plan is intended
to provide a means through which the Company and its Subsidiaries may attract
able persons to enter into the employ of the Company or its Subsidiaries, and to
promote the interests of the Company by providing the employees and consultants
of the Company or of any Subsidiary corporation, who are largely responsible for
the management, growth and protection of the business of the Company, with a
proprietary interest in the Company, thereby strengthening their concern for the
welfare of the Company and their desire to remain in its employ. A further
purpose of the Plan is to provide such persons with additional incentive and
reward opportunities to enhance the profitable growth of the Company.

2.    DEFINITIONS

      As used in the Plan, the following definitions apply to the terms
indicated below:

      (a) "Board of Directors" shall mean the Board of Directors of Midcoast
Energy Resources, Inc.

      (b) "Cause," when used in connection with the termination of a
Participant's employment with the Company, shall mean the termination of the
Participant's employment by the Company by reason of (i) the conviction of the
Participant by a court of competent jurisdiction as to which no further appeal
can be taken of a crime involving moral turpitude; (ii) the proven commission by
the Participant of an act of fraud upon the Company; (iii) the willful and
proven misappropriation of any funds or property of the Company by the
Participant; (iv) the willful, continued and unreasonable failure by the
Participant to perform duties assigned to him and agreed to by him; (v) the
knowing engagement by the Participant in any direct, material conflict of
interest with the Company without compliance with the Company's conflict of
interest policy, if any, then in effect; (vi) the knowing engagement by the
Participant, without the written approval of the Board of Directors of the
Company, in any activity which competes with the business of the Company or
which would result in a material injury to the Company; or (vii) the knowing
engagement in any activity which would constitute a material violation of the
provisions of the Company's Policies and Procedures Manual, if any, then in
effect.

      (c) "Cash Bonus" shall mean an award of a bonus payable in cash pursuant
to Section 11 hereof.

      (d) "Change in Control" shall mean:

            (i)   a  "change  in  control"  of the  Company,  as that  term is
      contemplated in the federal securities laws; or

            (ii) the occurrence of any of the following events:

                  (1) any Person becomes, after the effective date of this Plan,
                  the "beneficial owner" (as defined in Rule 13d-3 promulgated
                  under the Exchange Act), directly or indirectly, of securities
                  of the Company representing 20% or more of the combined voting
                  power of the Company's then outstanding securities; provided,
                  that the Board of Directors (as constituted immediately prior
                  to such person becoming such a beneficial owner) may
                  determine, in its sole discretion, that a Change in Control
                  has not occurred; and provided further, that the acquisition
                  of additional voting securities, after the effective date of
                  this Plan, by any Person who is, as of the effective date of
                  this Plan, the beneficial owner, directly or indirectly, of
                  20% or more of the combined voting power of the Company's then
                  outstanding securities, shall not constitute a "Change in
                  Control" of the Company for purposes of this Section 2(d).
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                  (2) a majority of individuals who are nominated by the Board
            of Directors for election to the Board of Directors on any date,
            fail to be elected to the Board of Directors as a direct or indirect
            result of any proxy fight or contested election for positions on the
            Board of Directors; or

                  (3) the Board of Directors determines in its sole and absolute
            discretion that there has been a change in control of the Company.

      (d) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time. Reference in the Plan to any Section of the Code shall be deemed
to include any amendments or successor provisions to any Section and any
treasury regulations thereunder.

      (e) "Committee" shall mean the Compensation Committee of the Board of
Directors or such other committee as the Board of Directors shall appoint from
time to time to administer the Plan.

      (f) "Common Stock" shall mean the Company's common stock, par value $.01
per share.

      (g) "Company" shall mean Midcoast Energy Resources, Inc., a Nevada
corporation, and each of its Subsidiaries, and its successors.

      (h) "Consultant" shall mean any person who is engaged by the Company or
any Subsidiary to render consulting services and is compensated for such
services.

      (i) "Employee" shall mean any person who is an employee of the Company or
any Subsidiary within the meaning of Section 3401(c) of the Code and the
applicable interpretive authority thereunder.

      (j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.

      (k) the "Fair Market Value" of a share of Common Stock on any date shall
be (i) the closing sales price on the immediately preceding business day of a
share of Common Stock as reported on the principal securities exchange on which
shares of Common Stock are then listed or admitted to trading or (ii) if not so
reported, the average of the closing bid and asked prices for a share of Common
Stock on the immediately preceding business day as quoted on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") or (iii)
if not quoted on NASDAQ, the average of the closing bid and asked prices for a
share of Common Stock as quoted by the National Quotation Bureau's "Pink Sheets"
or the National Association of Securities Dealers' OTC Bulletin Board System. If
the price of a share of Common Stock shall not be so reported, the Fair Market
Value of a share of Common Stock shall be determined by the Committee in its
absolute discretion.

      (l) "Incentive Award" shall mean an Option, a share of Restricted Stock, a
Performance Award, a share of Phantom Stock, a Stock Bonus or Cash Bonus granted
pursuant to the terms of the Plan.

      (m) "Incentive Stock Option" shall mean an Option which is an "incentive
stock option" within the meaning of Section 422 of the Code and which is
identified as an Incentive Stock Option in the agreement by which it is
evidenced.

      (n) "Issue Date" shall mean the date established by the Committee on which
certificates representing shares of Restricted Stock shall be issued by the
Company pursuant to the terms of Section 7(d) hereof.

      (o) "Non-Qualified Stock Option" shall mean an Option which is not an
Incentive Stock Option and which is identified as a Non-Qualified Stock Option
in the agreement by which it is evidenced.

      (p) "Option" shall mean an option to purchase shares of Common Stock of
the Company granted pursuant to Section 6 hereof. Each Option shall be
identified as either an Incentive Stock Option or a Non-Qualified Stock Option
in the agreement by which it is evidenced.

      (q) "Parent" shall mean a "parent corporation" of the Company, whether now
or hereafter existing, as defined in Section 424(e) of the Code.

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      (r) "Participant" shall mean an Employee or Consultant who is eligible to
participate in the Plan and to whom an Incentive Award is granted pursuant to
the Plan, and, upon his death, his successors, heirs, executors and
administrators, as the case may be, to the extent permitted hereby.

      (s) "Performance Award" shall mean an award payable in cash or Common
Stock, which award is granted pursuant to Section 8 hereof and subject to the
terms and conditions contained therein.

      (t) "Person" shall mean a "person," as such term is used in Sections 13(d)
and 14(d) of the Exchange Act, and the rules and regulations in effect from time
to time thereunder.

      (u) a share of "Phantom Stock" shall represent the right to receive in
cash the Fair Market Value of a share of Common Stock of the Company, which
right is granted pursuant to Section 9 hereof and subject to the terms and
conditions contained therein.

      (v) "Plan" shall mean the Midcoast Energy Resources, Inc. 1996 Incentive
Stock Plan, as it may be amended from time to time.

      (w) a share of "Restricted Stock" shall mean a share of Common Stock which
is granted pursuant to the terms of Section 7 hereof and which is subject to the
restrictions set forth in Section 7(c) hereof for so long as such restrictions
continue to apply to such share.

      (x) "Securities Act" shall mean the Securities Act of 1933, as amended
from time to time.

      (y) "Stock Bonus" shall mean a grant of a bonus payable in shares of
Common Stock pursuant to Section 10 hereof.

      (z) "Subsidiary" or "Subsidiaries" shall mean any and all corporations in
which at the pertinent time the Company owns, directly or indirectly, stock
vested with more than 50% of the total combined voting power of all classes of
stock of such corporations within the meaning of Section 424(f) of the Code.

      (aa) "Vesting Date" shall mean the date established by the Committee on
which a share of Restricted Stock or Phantom Stock may vest.

3.    STOCK SUBJECT TO THE PLAN

      Under the Plan, the Committee may grant to Participants: (i) Options; (ii)
shares of Restricted Stock; (iii) Performance Awards; (iv) shares of Phantom
Stock; (v) Stock Bonuses; and (vi) Cash Bonuses.

      The Committee may grant Options, shares of Restricted Stock, Performance
Awards, shares of Phantom Stock and Stock Bonuses under the Plan with respect to
a number of shares of Common Stock that in the aggregate at any time does not
exceed 425,000 shares of Common Stock, subject to adjustment pursuant to Section
12 hereof. The grant of a Cash Bonus shall not reduce the number of shares of
Common Stock with respect to which Options, shares of Restricted Stock,
Performance Awards, shares of Phantom Stock or Stock Bonuses may be granted
pursuant to the Plan. Notwithstanding any provision in the Plan to the contrary,
the maximum number of shares of Common Stock that may be subject to Incentive
Awards granted to any one individual during any calendar year shall be 50,000
shares of Common Stock, subject to adjustment under Section 12 hereof. The
limitation set forth in the preceding sentence shall be applied in a manner
which will permit compensation generated in connection with the exercise of
Options and the payment of Performance Awards to constitute "qualified
performance-based compensation" for purposes of Section 162(m) of the Code,
including, without limitation, counting against such maximum number of shares,
to the extent required under Section 162(m) of the Code and applicable
interpretive authority thereunder, any shares subject to Options that are
canceled or repriced.

      If any outstanding Option expires, terminates or is canceled for any
reason, the shares of Common Stock subject to the unexercised portion of such
Option shall again be available for grant under the Plan. If any shares of
Restricted Stock or Phantom Stock, or any shares of Common Stock granted as a
Performance Award or a Stock Bonus are forfeited or canceled for any reason,
such shares shall again be available for grant under the Plan.


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      Shares of Common Stock issued under the Plan may be either newly issued or
treasury shares, at the discretion of the Committee.

4..   ADMINISTRATION OF THE PLAN

      The Plan shall be administered by a Committee of the Board of Directors
consisting of two or more persons, each of whom shall be both (i) a
"non-employee director" within the meaning of Rule 16b-3(b)(3)(i) promulgated
under Section 16 of the Exchange Act and (ii) an "outside director" within the
meaning of Section 162(m) of the Code and applicable interpretive authority
thereunder. The Committee shall from time to time designate the key Employees
and Consultants of the Company who shall be granted Incentive Awards and the
amount and type of such Incentive Awards.

      The Committee shall have full authority to administer the Plan, including
authority to interpret and construe any provision of the Plan and the terms of
any Incentive Award issued under it and to adopt such rules and regulations for
administering the Plan as it may deem necessary. Decisions of the Committee
shall be final and binding on all parties.

      The Committee may, in its absolute discretion (i) accelerate the date on
which any Option granted under the Plan becomes exercisable, (ii) extend the
date on which any Option granted under the Plan ceases to be exercisable, (iii)
accelerate the Vesting Date or Issue Date, or waive any condition imposed
pursuant to Section 7(b) hereof, with respect to any share of Restricted Stock
granted under the Plan and (iv) accelerate the Vesting Date or waive any
condition imposed pursuant to Section 9 hereof, with respect to any share of
Phantom Stock granted under the Plan.

      In addition, the Committee may, in its absolute discretion, grant
Incentive Awards to Participants on the condition that such Participants
surrender to the Committee for cancellation such other Incentive Awards
(including, without limitation, Incentive Awards with higher exercise prices) as
the Committee specifies. Notwithstanding Section 3 hereof, Incentive Awards
granted on the condition of surrender of outstanding Incentive Awards shall not
count against the limits set forth in such Section 3 until such time as such
Incentive Awards are surrendered.

      Except as provided in Section 6(e)(4) hereof, whether an authorized leave
of absence, or absence in military or government service, shall constitute
termination of employment shall be determined by the Committee in its absolute
discretion.

      No member of the Committee shall be liable for any action, omission, or
determination relating to the Plan, and the Company shall indemnify and hold
harmless each member of the Committee and each other director or employee of the
Company to whom any duty or power relating to the administration or
interpretation of the Plan has been delegated from and against any cost or
expense (including attorneys' fees) or liability (including any sum paid in
settlement of a claim with the approval of the Committee) arising out of any
action, omission or determination relating to the Plan, unless, in either case,
such action, omission or determination was taken or made by such member,
director or employee in bad faith and without reasonable belief that it was in
the best interests of the Company.

5.    ELIGIBILITY

      The persons who shall be eligible to receive Incentive Awards pursuant to
the Plan shall be those Employees who are largely responsible for the
management, growth and protection of the business of the Company or any
Subsidiary (including officers of the Company, whether or not they are directors
of the Company) or (ii) any Consultant, as the Committee, in its absolute
discretion, shall select from time to time; PROVIDED, HOWEVER, Incentive Stock
Options may only be granted to Employees.

6.    OPTIONS

      The Committee may grant Options pursuant to the Plan, which Options shall
be evidenced by agreements in such form as the Committee shall from time to time
approve. Options shall comply with and be subject to the following terms and
conditions:

      (a)   IDENTIFICATION OF OPTIONS

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<PAGE>

      All Options granted under the Plan shall be clearly identified in the
agreement evidencing such Options as either Incentive Stock Options or as
Non-Qualified Stock Options.

      (b)   EXERCISE PRICE

      The exercise price of any Option granted under the Plan shall be such
price as the Committee shall determine on the date on which such Option is
granted; PROVIDED, that such price shall be not less than 100% of the Fair
Market Value of a share of Common Stock on the date on which such Option is
granted, subject to (i) the restrictions provided in Section 6(d) hereof and
(ii) the adjustments provided in Section 12 hereof.

      (c)   TERM AND EXERCISE OF OPTIONS

            (1) Each Option shall be exercisable on such date or dates, during
      such period and for such number of shares of Common Stock as shall be
      determined by the Committee on the day on which such Option is granted and
      set forth in the agreement evidencing the Option; PROVIDED, HOWEVER, that
      (A) subject to the restrictions provided in Section 6(d) hereof, no Option
      shall be exercisable after the expiration of ten years from the date such
      Option was granted and (B) no Option shall be exercisable until six months
      after the date of grant; and, PROVIDED, FURTHER, that each Option shall be
      subject to earlier termination, expiration or cancellation as provided in
      the Plan.

            (2) Each Option shall be exercisable in whole or in part with
      respect to whole shares of Common Stock. The partial exercise of an Option
      shall not cause the expiration, termination or cancellation of the
      remaining portion thereof. Upon the partial exercise of an Option, the
      agreement evidencing such Option shall be returned to the Participant
      exercising such Option together with the delivery of the certificates
      described in Section 6(c)(5) hereof.

            (3) An Option shall be exercised by delivering notice to the
      Company's principal office, to the attention of its Secretary, no fewer
      than five business days in advance of the effective date of the proposed
      exercise. Such notice shall be accompanied by the agreement evidencing the
      Option, shall specify the number of shares of Common Stock with respect to
      which the Option is being exercised and the effective date of the proposed
      exercise, and shall be signed by the Participant. The Participant may
      withdraw such notice at any time prior to the close of business on the
      business day immediately preceding the effective date of the proposed
      exercise, in which case such agreement shall be returned to the
      Participant. Payment for shares of Common Stock purchased upon the
      exercise of an Option shall be made on the effective date of such exercise
      either (i) in cash, by certified check, bank cashier's check or wire
      transfer, (ii) subject to the approval of the Committee, in shares of
      Common Stock owned by the Participant and valued at their Fair Market
      Value on the effective date of such exercise, (iii) subject to the
      approval of the Committee, in the form of a "cashless exercise" (as
      described below) or (iv) subject to the approval of the Committee, in any
      combination of the foregoing. Any payment in shares of Common Stock shall
      be effected by the delivery of such shares to the Secretary of the
      Company, duly endorsed in blank or accompanied by stock powers duly
      executed in blank, together with any other documents and evidences as the
      Secretary of the Company shall require from time to time.

            The cashless exercise of an Option shall be pursuant to procedures
      whereby the Participant by written notice, directs (i) an immediate market
      sale or margin loan respecting all or a part of the shares of Common Stock
      to which he is entitled upon exercise pursuant to an extension of credit
      by the Company to the Participant of the exercise price, (ii) the delivery
      of the shares of Common Stock directly from the Company to a brokerage
      firm and (iii) delivery of the exercise price from the sale or the margin
      loan proceeds from the brokerage firm directly to the Company.

            (4) Any Option granted under the Plan may be exercised by a
      broker-dealer acting on behalf of a Participant if (i) the broker-dealer
      has received from the Participant or the Company a duly endorsed agreement
      evidencing such Option and instructions signed by the Participant
      requesting the Company to deliver the shares of Common Stock subject to
      such Option to the broker-dealer on behalf of the Participant and
      specifying the account into which such shares should be deposited, (ii)
      adequate provision has been made with respect to the payment of any
      withholding taxes due upon such exercise and (iii) the broker-dealer and
      the Participant have otherwise complied with Section 220.3(e)(4) of
      Regulation T, 12 CFR Part 220.


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<PAGE>

            (5) Certificates for shares of Common Stock purchased upon the
      exercise of an Option shall be issued in the name of the Participant and
      delivered to the Participant as soon as practicable following the
      effective date on which the Option is exercised; PROVIDED, HOWEVER, that
      such delivery shall be effected for all purposes when a stock transfer
      agent of the Company shall have deposited such certificates in the United
      States mail, addressed to the Participant.

            (6) During the lifetime of a Participant each Option granted to him
      shall be exercisable only by him or a broker-dealer acting on behalf of
      such Participant pursuant to Section 6(c)(4) hereof. No Option shall be
      assignable or transferable otherwise than by will or by the laws of
      descent and distribution.

      (d)   LIMITATIONS ON GRANT OF INCENTIVE STOCK OPTIONS

            (1) The aggregate Fair Market Value of shares of Common Stock with
      respect to which "incentive stock options" (within the meaning of Section
      422 without regard to Section 422(d) of the Code) are exercisable for the
      first time by a Participant during any calendar year under the Plan (and
      any other stock option plan of the Company, or of its Parent or any
      Subsidiary) shall not exceed $100,000. Such Fair Market Value shall be
      determined as of the date on which each such Incentive Stock Option is
      granted. If such aggregate Fair Market Value of shares of Common Stock
      underlying such Incentive Stock Options exceeds $100,000, then Incentive
      Stock Options granted hereunder to such Participant shall, to the extent
      and in the order required by regulations promulgated under the Code (or
      any other authority having the force of such regulations), automatically
      be deemed to be Non-Qualified Stock Options, but all other terms and
      provisions of such Incentive Stock Options shall remain unchanged. In the
      absence of such regulations promulgated under the Code (and authority), or
      if such regulations (or authority) require or permit a designation of the
      options which shall cease to constitute Incentive Stock Options, Incentive
      Stock Options shall, to the extent of such excess and in the order in
      which they were granted, automatically be deemed to be Non-Qualified Stock
      Options, but all other terms and provisions of such Incentive Stock
      Options shall remain unchanged.

            (2) No Incentive Stock Option may be granted to an individual if, at
      the time of the proposed grant, such individual owns stock possessing more
      than ten percent of the total combined voting power of all classes of
      stock of the Company or of its Parent or any Subsidiary, unless (i) the
      exercise price of such Incentive Stock Option is at least 110% of the Fair
      Market Value of a share of Common Stock at the time such Incentive Stock
      Option is granted and (ii) such Incentive Stock Option is not exercisable
      after the expiration of five years from the date such Incentive Stock
      Option is granted.

      (e)   EFFECT OF TERMINATION OF EMPLOYMENT

            (1) If the employment of a Participant with the Company shall
      terminate for any reason other than Cause, "permanent and total
      disability" (within the meaning of Section 22(e)(3) of the Code) or the
      death of the Participant (i) Options granted to such Participant, to the
      extent that they were exercisable at the time of such termination, shall
      remain exercisable until the expiration of one month after such
      termination, on which date they shall expire, and (ii) Options granted to
      such Participant, to the extent that they were not exercisable at the time
      of such termination, shall expire at the close of business on the date of
      such termination; PROVIDED, HOWEVER, that no Option shall be exercisable
      after the expiration of its term.

            (2) If the employment of a Participant with the Company shall
      terminate as a result of the "permanent and total disability" (within the
      meaning of Section 22(e)(3) of the Code) or the death of the Participant
      (i) Options granted to such Participant, to the extent that they were
      exercisable at the time of such termination, shall remain exercisable
      until the expiration of one year after such termination, on which date
      they shall expire, and (ii) Options granted to such Participant, to the
      extent that they were not exercisable at the time of such termination,
      shall expire at the close of business on the date of such termination;
      PROVIDED, HOWEVER, that no Option shall be exercisable after the
      expiration of its term.

            (3) In the event of the termination of a Participant's employment
      for Cause, all outstanding Options granted to such Participant shall
      expire at the commencement of business on the date of such termination.


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<PAGE>

            (4) A Participant's employment with the Company shall be deemed
      terminated if the Participant's leave of absence (including military or
      such leave or other bona fide leave of absence) extends for more than 90
      days and the Participant's continued employment with the Company is not
      guaranteed by contract or statute.

      (f)   ACCELERATION OF EXERCISE DATE UPON CHANGE IN CONTROL

      Upon the occurrence of a Change in Control, each Option granted under the
Plan and outstanding at such time shall become fully and immediately exercisable
and shall remain exercisable until its expiration, termination or cancellation
pursuant to the terms of the Plan.

7.    RESTRICTED STOCK

      The Committee may grant shares of Restricted Stock pursuant to the Plan.
Each grant of shares of Restricted Stock shall be evidenced by an agreement in
such form as the Committee shall from time to time approve. Each grant of shares
of Restricted Stock shall comply with and be subject to the following terms and
conditions:

      (a)   ISSUE DATE AND VESTING DATE

      At the time of the grant of shares of Restricted Stock, the Committee
shall establish an Issue Date or Issue Dates and a Vesting Date or Vesting Dates
with respect to such shares. The Committee may divide such shares into classes
and assign a different Issue Date and/or Vesting Date for each class. Except as
provided in Sections 7(c) and 7(f) hereof, upon the occurrence of the Issue Date
with respect to a share of Restricted Stock, a share of Restricted Stock shall
be issued in accordance with the provisions of Section 7(d) hereof. Provided
that all conditions to the vesting of a share of Restricted Stock imposed
pursuant to Section 7(b) hereof are satisfied, and except as provided in
Sections 7(c) and 7(f) hereof, upon the occurrence of the Vesting Date with
respect to a share of Restricted Stock, such share shall vest and the
restrictions of Section 7(c) hereof shall cease to apply to such share.

      (b)   CONDITIONS TO VESTING

      At the time of the grant of shares of Restricted Stock, the Committee may
impose such restrictions or conditions, not inconsistent with the provisions
hereof, to the vesting of such shares as it in its absolute discretion deems
appropriate. By way of example and not by way of limitation, the Committee may
require, as a condition to the vesting of any class or classes of shares of
Restricted Stock, that (i) the Participant or the Company achieve certain
performance criteria, such criteria to be specified by the Committee at the time
of the grant of such shares and (ii) prohibiting an election by the Participant
under Section 83(b) of the Code.

      (c)   RESTRICTIONS ON TRANSFER PRIOR TO VESTING

      Prior to the vesting of a share of Restricted Stock, no transfer of a
Participant's rights with respect to such share, whether voluntary or
involuntary, by operation of law or otherwise, shall vest the transferee with
any interest or right in or with respect to such share, but immediately upon any
attempt to transfer such rights, such share, and all of the rights related
thereto, shall be forfeited by the Participant and the transfer shall be of no
force or effect.

      (d)   ISSUANCE OF CERTIFICATES

            (1) Except as provided in Sections 7(c) or 7(f) hereof, reasonably
      promptly after the Issue Date with respect to shares of Restricted Stock,
      the Company shall cause to be issued a stock certificate, registered in
      the name of the Participant to whom such shares were granted, evidencing
      such shares; PROVIDED, that the Company shall not cause to be issued such
      a stock certificates unless it has received a stock power duly endorsed in
      blank with respect to such shares. Each such stock certificate shall bear
      the following legend:

            THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK
            REPRESENTED HEREBY ARE SUBJECT TO THE RESTRICTIONS, TERMS AND
            CONDITIONS (INCLUDING FORFEITURE AND RESTRICTIONS AGAINST TRANSFER)
            CONTAINED IN THE MIDCOAST ENERGY RESOURCES, INC. 1996 INCENTIVE
            STOCK PLAN AND AN AGREEMENT ENTERED INTO BETWEEN THE REGISTERED



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            OWNER OF SUCH SHARES AND MIDCOAST ENERGY RESOURCES, INC. A COPY OF
            THE PLAN AND AGREEMENT IS ON FILE IN THE OFFICE OF THE SECRETARY OF
            MIDCOAST ENERGY RESOURCES, INC., 1100 LOUISIANA, SUITE 2950,
            HOUSTON, TEXAS 77002.

      Such legend shall not be removed from the certificate evidencing such
      shares until such shares vest pursuant to the terms hereof.

            (2) Each certificate issued pursuant to Paragraph 7(d)(1) hereof,
      together with the stock powers relating to the shares of Restricted Stock
      evidenced by such certificate, shall be held by the Company. The Company
      shall issue to the Participant a receipt evidencing the certificates held
      by it which are registered in the name of the Participant.

      (e)   CONSEQUENCES UPON VESTING

      Upon the vesting of a share of Restricted Stock pursuant to the terms
hereof, the restrictions of Section 7(c) hereof shall cease to apply to such
share. Reasonably promptly after a share of Restricted Stock vests pursuant to
the terms hereof, the Company shall cause to be issued and delivered to the
Participant to whom such shares were granted, a certificate evidencing such
share, free of the legend set forth in Paragraph 7(d)(1) hereof, together with
any other property of the Participant held by Company pursuant to Section 12(a)
hereof; PROVIDED, HOWEVER, that such delivery shall be effected for all purposes
when the Company shall have deposited such certificate and other property in the
United States mail, addressed to the Participant.

      (f)   EFFECT OF TERMINATION OF EMPLOYMENT

            (1) If the employment of a Participant with the Company shall
      terminate for any reason other than Cause prior to the vesting of shares
      of Restricted Stock granted to such Participant, a portion of such shares,
      to the extent not forfeited or canceled on or prior to such termination
      pursuant to any provision hereof, shall vest on the date of such
      termination. The portion referred to in the preceding sentence shall be
      determined by the Committee at the time of the grant of such shares of
      Restricted Stock and may be based on the achievement of any conditions
      imposed by the Committee with respect to such shares pursuant to Section
      7(b) hereof. Such portion may equal zero.

            (2) In the event of the termination of a Participant's employment
      for Cause, all shares of Restricted Stock granted to such Participant
      which have not vested as of the commencement of business on the date of
      such termination shall immediately be forfeited.

      (g)   EFFECT OF CHANGE IN CONTROL

      Upon the occurrence of a Change in Control, all shares of Restricted Stock
which have not theretofore vested (including those with respect to which the
Issue Date has not yet occurred) shall immediately vest.

8.    PERFORMANCE AWARDS

      The Committee may grant Performance Awards pursuant to the Plan. Each
grant of Performance Awards shall be evidenced by an agreement in such form as
the Committee shall from time to time approve. Each grant of Performance Awards
shall comply with and be subject to the following terms and conditions:

      (a)   PERFORMANCE PERIOD AND PERFORMANCE AWARD

            (1) With respect to each grant of a Performance Award, the Committee
      shall establish a performance period over which the performance of the
      applicable Participant shall be measured.

            (2) In determining the amount of the Performance Award to be granted
      to a particular Participant, the Committee may take into account such
      factors as the Participant's responsibility level and growth potential,
      the amount of other Incentive Awards granted or received by such
      Participant, and such other considerations as the Committee deems
      appropriate. Each Performance Award shall be subject to a maximum 

                                       8

<PAGE>

     value as established by the Committee at the time of grant of such award;
     PROVIDED, HOWEVER, the maximum value that can be granted as a Performance
     Award to any one individual during any calendar year is $1,000,000.

      (b)   PERFORMANCE MEASURES

      A Performance Award shall be awarded to a Participant contingent upon
future performance of the Company (or any Subsidiary, division or department
thereof) by or in which the Participant is employed or responsible during the
performance period. The Committee shall establish, in writing, the performance
measures applicable to such performance within 90 days after the commencement of
the performance period, to which such measures relate, and at a time when the
outcome of such performance measures are substantially uncertain within the
meaning of Section 162(m) of the Code, subject to such later revisions as the
Committee shall deem appropriate to reflect significant unforeseen events or
changes.

      (c)   PAYMENT

      Upon the expiration of the performance period relating to a Performance
Award granted to a Participant, such Participant shall be entitled to receive
payment of an amount not exceeding the maximum value of the Performance Award,
based on the achievement of the performance measures for such performance
period, as determined by the Committee. The Committee shall certify in writing
prior to the payment of a Performance Award that the applicable performance
measures and any other material terms of the grant have been satisfied. Subject
to Section 3 hereof, payment of a Performance Award may be made in cash, Common
Stock or a combination thereof, as determined by the Committee. Payment shall be
made in a lump sum or in installments as prescribed by the Committee. Any
payment to be made in Common Stock shall be based on the Fair Market Value of
the Common Stock on the payment date.

      (d)   EFFECT OF TERMINATION OF EMPLOYMENT

      If the employment of a Participant shall terminate for any reason prior to
the expiration of the applicable performance period, the Performance Awards
relating to such performance period, shall immediately be forfeited as of the
commencement of business on the date of such termination, except as may be
determined by the Committee in its sole and absolute discretion, or as may be
otherwise provided in the agreement evidencing such Performance Award.

      (e)   EFFECT OF CHANGE IN CONTROL

      Upon the occurrence of a Change in Control, the Committee (as constituted
immediately prior to such Change in Control) shall determine, in its sole
discretion, whether Performance Awards, which have not theretofore satisfied the
requisite performance measure or for which the performance period has not
expired, shall immediately be paid or whether such Performance Awards shall
remain outstanding according to its respective terms.

9.    PHANTOM STOCK

      The Committee may grant shares of Phantom Stock pursuant to the Plan. Each
grant of shares of Phantom Stock shall be evidenced by an agreement in such form
as the Committee shall from time to time approve. Each grant of shares of
Phantom Stock shall comply with and be subject to the following terms and
conditions:

      (a)   VESTING DATE

      At the time of the grant of shares of Phantom Stock, the Committee shall
establish a Vesting Date or Vesting Dates with respect to such shares. The
Committee may divide such shares into classes and assign a different Vesting
Date for each class. Provided that all conditions to the vesting of a share of
Phantom Stock imposed pursuant to Section 9(c) hereof are satisfied, and except
as provided in Section 9(d) hereof, upon the occurrence of the Vesting Date with
respect to a share of Phantom Stock, such share shall vest.

      (b)   BENEFIT UPON VESTING

      Upon the vesting of a share of Phantom Stock, a Participant shall be
entitled to receive in cash, within 90 days of the date on which such share
vests, an amount in cash in a lump sum equal to the sum of (i) the Fair Market
Value of a share of Common Stock of the Company on the date on which such share
of Phantom Stock vests and (ii) the aggregate amount of cash dividends paid with
respect to a share of Common Stock of the Company during the period commencing
on the date on which the share of Phantom Stock was granted and terminating on
the date on which such share vests.


                                       9
<PAGE>

      (c)   CONDITIONS TO VESTING

      At the time of the grant of shares of Phantom Stock, the Committee may
impose such restrictions or conditions, not inconsistent with the provisions
hereof, to the vesting of such shares as it, in its absolute discretion deems
appropriate. By way of example and not by way of limitation, the Committee may
require, as a condition to the vesting of any class or classes of shares of
Phantom Stock, that the Participant or the Company achieve certain performance
criteria, such criteria to be specified by the Committee at the time of the
grant of such shares.



<PAGE>


      (d)   EFFECT OF TERMINATION OF EMPLOYMENT

            (1) If the employment of a Participant with the Company shall
      terminate for any reason other than Cause prior to the vesting of shares
      of Phantom Stock granted to such Participant a portion of such shares, to
      the extent not forfeited or canceled on or prior to such termination
      pursuant to any provision hereof, shall vest on the date of such
      termination. The portion referred to in the preceding sentence shall be
      determined by the Committee at the time of the grant of such shares of
      Phantom Stock and may be based on the achievement of any conditions
      imposed by the Committee with respect to such shares pursuant to Section
      9(c) hereof. Such portion may equal zero.

            (2) In the event of the termination of a Participant's employment
      for Cause, all shares of Phantom Stock granted to such Participant which
      have not vested as of the date of such termination shall immediately be
      forfeited.

      (e)   EFFECT OF CHANGE IN CONTROL

      Upon the occurrence of a Change in Control, all shares of Phantom Stock
which have not theretofore vested shall immediately vest.

10.   STOCK BONUSES

      The Committee may, in its absolute discretion, grant Stock Bonuses in such
amounts as it shall determine from time to time. A Stock Bonus shall be paid at
such time and subject to such conditions as the Committee shall determine at the
time of the grant of such Stock Bonus. Certificates for shares of Common Stock
granted as a Stock Bonus shall be issued in the name of the Participant to whom
such grant was made and delivered to such Participant as soon as practicable
after the date on which such Stock Bonus is required to be paid.

11.   CASH BONUSES

      The Committee may, in its absolute discretion, grant in connection with
any grant of Restricted Stock or shares of Common Stock granted as a Performance
Award or Stock Bonus or at any time thereafter, a cash bonus, payable promptly
after the date on which the Participant is required to recognize income for
federal income tax purposes in connection with such Restricted Stock,
Performance Award or Stock Bonus, in such amounts as the Committee shall
determine from time to time; PROVIDED, HOWEVER, that in no event shall the
amount of a Cash Bonus exceed the Fair Market Value of the related shares of
Restricted Stock or shares of Common Stock granted pursuant to a Performance
Award or Stock Bonus on such date. A Cash Bonus shall be subject to such
conditions as the Committee shall determine at the time of the grant of such
Cash Bonus.


                                       10
<PAGE>

12.   ADJUSTMENT UPON CHANGES IN COMMON STOCK

      (a)   OUTSTANDING  RESTRICTED STOCK,  PERFORMANCE  AWARDS,  AND PHANTOM
STOCK

      Unless the Committee in its absolute discretion otherwise determines, if a
Participant receives any securities or other property (including dividends paid
in cash) with respect to a share of Restricted Stock, the Issue Date with
respect to which occurs prior to such event, but which has not vested as of the
date of such event, as a result of any dividend, stock split recapitalization,
merger, consolidation, combination, exchange of shares or otherwise, such
securities or other property will not vest until such share of Restricted Stock
vests, and shall be held by the Company pursuant to Paragraph 7(d)(2) hereof as
if such securities or other property were unvested shares of Restricted Stock.

      The Committee may, in its absolute discretion, adjust any grant of shares
of Restricted Stock, the Issue Date with respect to which has not occurred as of
the date of the occurrence of any of the following events, any shares of Common
Stock upon the grant of a Performance Award or any grant of shares of Phantom
Stock, to reflect any dividend, stock split, recapitalization, merger,
consolidation, combination, exchange of shares or similar corporate change as
the Committee may deem appropriate to prevent the enlargement or dilution of
rights of Participants under the grant.

      (b)   STOCK SUBJECT TO PLAN, OUTSTANDING OPTIONS,  INCREASE
            OR DECREASE IN ISSUED SHARES WITHOUT CONSIDERATION

      Subject to any required action by the stockholders of the Company, in the
event of any increase or decrease in the number of issued shares of Common Stock
resulting from a subdivision or consolidation of shares of Common Stock or the
payment of a stock dividend (but only on the shares of Common Stock), or any
other increase or decrease in the number of such shares effected without receipt
of consideration by the Company, the Committee shall proportionally adjust (i)
the number of shares of Common Stock for which Incentive Awards may be granted
under the Plan and (ii) the number of shares and the exercise price per share of
Common Stock subject to each outstanding Option.

      (c)   OUTSTANDING OPTIONS, CERTAIN MERGERS

      Subject to any required action by the stockholders of the Company, if the
Company shall be the surviving corporation in any merger or consolidation
(except a merger or consolidation as a result of which the holders of shares of
Common Stock receive securities of another corporation), each Option outstanding
on the date of such merger or consolidation shall entitle the Participant to
acquire upon exercise the securities which a holder of the number of shares of
Common Stock subject to such Option would have received in such merger or
consolidation.

      (d)   OUTSTANDING OPTIONS, CERTAIN OTHER TRANSACTIONS

      In the event of a dissolution or liquidation of the Company, a sale of all
or substantially all of the Company's assets, a merger or consolidation
involving the Company in which the Company is not the surviving corporation or a
merger or consolidation involving the Company in which the Company is the
surviving corporation but the holders of shares of Common Stock receive
securities of another corporation and/or other property, including cash, the
Committee shall, in its absolute discretion, have the power to:

            (i) cancel, effective immediately prior to the occurrence of such
      event, each Option outstanding immediately prior to such event (whether or
      not then exercisable), and, in full consideration of such cancellation,
      pay to the Participant to whom such Option was granted an amount in cash,
      for each share of Common Stock subject to such Option equal to the excess
      of (A) the value, as determined by the Committee in its absolute
      discretion, of the property (including cash) received by the holder of a
      share of Common Stock as a result of such event over (B) the exercise
      price of such Option; or

            (ii) provide for the exchange of each Option outstanding immediately
      prior to such event (whether or not then exercisable) for an option on
      some or all of the property for which such Option is exchanged and,
      incident thereto, make an equitable adjustment as determined by the
      Committee in its absolute discretion in the exercise price of the option,
      or the number of shares or amount of property subject to the option or, if
      appropriate, provide for a cash payment to the Participant to whom such
      Option was granted in partial consideration for the exchange of the
      Option.


                                       11
<PAGE>
      (e)   OUTSTANDING OPTIONS, OTHER CHANGES

      In the event of any change in the capitalization of the Company or
corporate change other than those specifically referred to in Sections 12(b),
(c) or (d) hereof, the Committee may, in its absolute discretion, make such
adjustments in the number and class of shares subject to Options outstanding on
the date on which such change occurs and in the per share exercise price of each
such Option as the Committee may consider appropriate to prevent dilution or
enlargement of rights.

      (f)   NO OTHER RIGHTS

      Except as expressly provided in the Plan, no Participant shall have any
rights by reason of any subdivision or consolidation of shares of stock of any
class, the payment of any dividend, any increase or decrease in the number of
shares of stock of any class or any dissolution, liquidation, merger or
consolidation of the Company or any other corporation. Except as expressly
provided in the Plan, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Common Stock subject to an Incentive Award or the exercise
price of any Option.

13a   RIGHTS AS A STOCKHOLDER

      No person shall have any rights as a stockholder with respect to any
shares of Common Stock covered by or relating to any Incentive Award granted
pursuant to this Plan until the date of the issuance of a stock certificate with
respect to such shares. Except as otherwise expressly provided in Section 12
hereof, no adjustment to any Incentive Award shall be made for dividends or
other rights for which the record date occurs prior to the date such stock
certificate is issued.

14a   NO SPECIAL EMPLOYMENT RIGHTS; NO RIGHT TO INCENTIVE AWARD

      Nothing contained in the Plan or any Incentive Award shall confer upon any
Participant any right with respect to the continuation of his employment by the
Company or interfere in any way with the right of the Company, subject to the
terms of any separate employment agreement to the contrary, at any time to
terminate such employment or to increase or decrease the compensation of the
Participant from the rate in existence at the time of the grant of an Incentive
Award.

      No person shall have any claim or right to receive an Incentive Award
hereunder. The Committee's granting of an Incentive Award to a Participant at
any time shall neither require the Committee to grant an Incentive Award to such
Participant or any other Participant or other person at any time nor preclude
the Committee from making subsequent grants to such Participant or any other
Participant or other person.

15a   SECURITIES MATTERS

      (a) The Company shall be under no obligation to effect the registration
pursuant to the Securities Act of any shares of Common Stock to be issued
hereunder or to effect similar compliance under any state laws. Notwithstanding
anything herein to the contrary, the Company shall not be obligated to cause to
be issued or delivered any certificates evidencing shares of Common Stock
pursuant to the Plan unless and until the Company is advised by its counsel that
the issuance and delivery of such certificates is in compliance with all
applicable laws, regulations of governmental authority and the requirements of
any securities exchange on which shares of Common Stock are traded. The
Committee may require, as a condition of the issuance and delivery of
certificates evidencing shares of Common Stock pursuant to the terms hereof,
that the recipient of such shares make such covenants, agreements and
representations, and that such certificates bear such legends, as the Committee,
in its sole discretion, deems necessary or desirable.

      (b) The exercise of any Option granted hereunder shall only be effective
at such time as counsel to the Company shall have determined that the issuance
and delivery of shares of Common Stock pursuant to such exercise is in
compliance with all applicable laws, regulations of governmental authorities and
the requirements of any securities exchange on which shares of Common Stock are
traded. The Company may, in its sole discretion, defer the effectiveness of any
exercise of an Option granted hereunder in order to allow the issuance of shares
of Common Stock pursuant thereto to be made pursuant to registration or an
exemption from registration or other methods for compliance available under
federal or state securities laws. The Company shall inform the Participant in
writing of its decision to defer the effectiveness of the exercise of an Option
granted hereunder. During the period that the effectiveness of the exercise of
an Option has been deferred, the Participant may, by written notice, withdraw
such exercise and obtain the refund of any amount paid with respect thereto.


                                       12
<PAGE>

      (c) It is intended that the Plan and any grant of an Incentive Award made
to a person subject to Section 16 of the Exchange Act meet all of the
requirements of Rule 16b-3 promulgated thereunder. If any provision of the Plan
or any such Incentive Award would disqualify the Plan or such Incentive Award
under, or would otherwise not comply with, Rule 16b-3, such provision or
Incentive Award shall be construed or deemed amended to conform to Rule 16b-3 to
the extent permitted by applicable law and deemed advisable by the Board of
Directors.

16a   QUALIFIED PERFORMANCE-BASED COMPENSATION

      It is intended that the Plan comply fully with and meet all the
requirements of Section 162(m) of the Code so that (i) Options granted hereunder
with an exercise price not less than Fair Market Value of a share of Common
Stock on the date of grant and (ii) the payment of a Performance Award granted
hereunder, shall constitute "qualified performance based compensation" within
the meaning of such Section and the interpretive authority thereunder. If any
provision of the Plan would disqualify the Plan or would not otherwise permit
the Plan to comply with Section 162(m) as so intended, such provision shall be
construed or deemed amended to conform to the requirements or provisions of
Section 162(m) to the extent permitted by applicable law and deemed advisable by
the Board of Directors; provided that no such construction or amendment shall
have an adverse effect on the economic value to a Participant of any Incentive
Award previously granted hereunder.

17a   WITHHOLDING TAXES

      Whenever shares of Common Stock are to be issued upon the exercise of an
Option, the occurrence of the Issue Date or Vesting Date with respect to a share
of Restricted Stock, the payment of a Performance Award in shares of Common
Stock or the payment of a Stock Bonus, the Company shall have the right to
require the Participant to remit to the Company in cash an amount sufficient to
satisfy federal, state and local withholding tax requirements, if any,
attributable to such exercise, occurrence or payment prior to the delivery of
any certificate or certificates for such shares. In addition, upon the grant of
a Cash Bonus, the payment of a Performance Award or the making of a payment with
respect to a share of Phantom Stock, the Company shall have the right to
withhold from any cash payment required to be made pursuant thereto an amount
sufficient to satisfy the federal, state and local withholding tax requirements,
if any, attributable to such exercise or grant.

18a.  AMENDMENT OF THE PLAN

      The Board of Directors may at any time suspend or discontinue the Plan or
revise or amend it in any respect whatsoever, PROVIDED, HOWEVER, that without
approval of the stockholders no revision or amendment shall (i) except as
provided in Section 12 hereof, increase the number of shares of Common Stock
that may be issued under the Plan, (ii) except as provided in Section 12 hereof,
increase the maximum number of shares of Common Stock that may be subject to an
Incentive Award granted to any one individual for any calendar year, (iii)
increase the maximum value that can be awarded as a Performance Award, (iv)
materially increase the benefits accruing to individuals holding Incentive
Awards granted pursuant to the Plan, (v) materially modify the requirements as
to eligibility for participation in the Plan, (vi) extend the term of the Plan
or (vii) decrease any authority granted to the Committee under the Plan in
contravention of Rule 16b-3 under the Exchange Act.

19a   NO OBLIGATION TO EXERCISE

      The grant to a Participant of an Option shall impose no obligation upon
such Participant to exercise such Option.


                                       13
<PAGE>
20a   TRANSFERS UPON DEATH

      Upon the death of a Participant, outstanding Incentive Awards granted to
such Participant may be exercised only by the executors or administrators of the
Participant's estate or by any person or persons who shall have acquired such
right to exercise by will or by the laws of descent and distribution. No
transfer by will or the laws of descent and distribution of any Incentive Award,
or the right to exercise any Incentive Award, shall be effective to bind the
Company unless the Committee shall have been furnished with (a) written notice
thereof and with a copy of the will and/or such evidence as the Committee may
deem necessary to establish the validity of the transfer and (b) an agreement by
the transferee to comply with all the terms and conditions of the Incentive
Award that are or would have been applicable to the Participant and to be bound
by the acknowledgments made by the Participant in connection with the grant of
the Incentive Award.

21a   EXPENSES AND RECEIPTS

      The expenses of the Plan shall be paid by the Company. Any proceeds
received by the Company in connection with any Incentive Award will be used for
general corporate purposes.

22a   FAILURE TO COMPLY

      In addition to the remedies of the Company elsewhere provided for herein,
failure by a Participant to comply with any of the terms and conditions of the
Plan or the agreement executed by such Participant evidencing an Incentive
Award, unless such failure is remedied by such Participant within ten days after
having been notified of such failure by the Committee, shall be grounds for the
cancellation and forfeiture of such Incentive Award, in whole or in part as the
Committee, in its absolute discretion, may determine.

23a   EFFECTIVE DATE AND TERM OF PLAN

      The Plan was adopted by the Board of Directors on May 13, 1996, subject to
approval by the stockholders of the Company in accordance with applicable law
and the requirements of Sections 422 and 162(m) of the Code. No Incentive Award
may be granted under the Plan after May 12, 2006. Incentive Awards may be
granted under the Plan at any time prior to the receipt of such stockholder
approval; PROVIDED, HOWEVER, that each such grant shall be subject to such
approval. Without limitation on the foregoing, no Option may be exercised prior
to the receipt of such approval, no share certificate shall be issued pursuant
to a grant of Restricted Stock, Performance Award or Stock Bonus prior to the
receipt of such approval and no Cash Bonus or payment with respect to a
Performance Award or a share of Phantom Stock shall be paid prior to the receipt
of such approval. If the Plan is not so approved prior to May 13, 1997, then the
Plan and all Incentive Awards then outstanding hereunder shall forthwith
automatically terminate and be of no force and effect.