Document:

Exhibit 10.1

Exhibit 10.1

HILLENBRAND, INC.

STOCK INCENTIVE PLAN

(As of February 24, 2010)

APPENDIX A

HILLENBRAND, INC.

STOCK INCENTIVE PLAN

(As of February 24, 2010)

R E C I T A L S

WHEREAS, in accordance with that certain Distribution Agreement (as defined below),
Hillenbrand Industries, Inc. (re-named Hill-Rom Holdings, Inc. and hereinafter referred to in these
recitals as “RemainCo” or “Hill-Rom Holdings, Inc.”) has distributed its entire ownership interest
in Batesville Holdings, Inc. (re-named Hillenbrand, Inc. and hereinafter referred to in these
recitals as “SpinCo” or “Hillenbrand, Inc.”) through a pro-rata distribution of all of the
outstanding shares of SpinCo common stock then owned by RemainCo to the holders of RemainCo common
stock (“Distribution”); and

WHEREAS, RemainCo and SpinCo have entered into that certain Employee Matters Agreement (as
defined below) for the purpose of continuing benefits for the pre-Distribution directors, employees
and consultants of RemainCo and its subsidiaries; and

WHEREAS, in accordance with Section 2.5 of the Employee Matters Agreement, SpinCo did adopt
and implement a Stock Incentive Plan with features that are comparable to the Hillenbrand
Industries, Inc. Stock Incentive Plan, as amended, to be effective as of the date of the
consummation of the transactions contemplated by the Distribution Agreement; and

WHEREAS, the Board of Directors of Hillenbrand, Inc. (the “Company”) previously determined
that certain revisions to the Stock Incentive Plan as previously adopted were desirable for the
purpose of making the provisions of the Stock Incentive Plan compliant with Section 409A of the
Internal Revenue Code of 1986, as amended, and did adopt the Stock Incentive Plan (As of December
19, 2008) to amend, restate, supersede and replace the form of the Stock Incentive Plan previously
adopted; and

WHEREAS, the Board of Directors of the Company has determined that it is in the best interest
of the Company and its shareholders to increase the total number of shares of the Common Stock of
the Company that can potentially be issued under the Stock Incentive Plan from 4,635,436 shares to
8,635,436 shares, an increase of 4,000,000 shares; and

WHEREAS, the Board of Directors of the Company has, subject to shareholder approval of the
Stock Incentive Plan, re-adopted the Stock Incentive Plan (As of February 24, 2010) in the form
that follows to amend, restate, supersede, and replace the form thereof previously adopted (when
approved by the shareholders of the Company), for purposes of increasing the total number of shares
of Common Stock of the Company that can be issued under the Plan as stated above and making certain
other amendments thereto.

 

 

 

SECTION 1. Purpose and Types of Awards

1.1 The purposes of the Hillenbrand, Inc. Stock Incentive Plan (the “Plan”) are to enable
Hillenbrand, Inc. (the “Company”) to attract, retain and reward its employees, officers and
directors, and strengthen the mutuality of interests between such persons and the Company’s
shareholders by offering such persons an equity interest in the Company and thereby enabling them
to participate in the long-term success and growth of the Company.

1.2 Awards under the Plan may be in the form of (i) Stock Options; (ii) Stock Appreciation
Rights; (iii) Restricted Stock; (iv) Deferred Stock; and/or (v) Bonus Stock. Awards may be
free-standing or granted in tandem. If two awards are granted in tandem, the award holder may
exercise (or otherwise receive the benefit of) one award only to the extent he or she relinquishes
the tandem award.

SECTION 2. Definitions

“Board” shall mean the Board of Directors of the Company.

“Bonus Stock” shall mean an award described in Section 10 of the Plan.

“Code” shall mean the Internal Revenue Code of 1986, as amended from time-to-time.

“Committee” shall mean the committee of independent (in accordance with Section 162(m) of the
Code) directors of the Board designated by the Board to administer the Plan, or if no committee is
designated, and in any case with respect to awards to non-employee directors, the entire Board.

“Common Stock” shall mean the common stock of the Company, without par value.

“Company” shall mean Hillenbrand, Inc. and its successors.

“Deferred Stock” shall mean an award described in Section 9 of the Plan and also known as
Restricted Stock Units.

“Distribution” shall have the meaning set forth in the recitals.

“Distribution Agreement” shall mean the Distribution Agreement by and between Hillenbrand
Industries, Inc. and Batesville Holdings, Inc. dated effective as of March 14, 2008.

“Effective Date” shall mean the date of the consummation of the transactions contemplated by
the Distribution Agreement.

“Effective Time” shall mean the occurrence of the consummation of the transaction contemplated
by the Distribution Agreement.

“Employee” shall mean an employee of the Company or of any Subsidiary of the Company.

“Employee Matters Agreement” shall mean the Employee Matters Agreement by and between
Hillenbrand Industries, Inc. and Batesville Holdings, Inc. dated effective as of March 31, 2008.

“Fair Market Value” of the Common Stock on any date shall mean the value determined in good
faith by the Committee, by formula or other method consistent with the determination of fair market
value under Code Section 409A and its interpretive regulations; provided, however, that unless the
Committee determines to use a different measure, the fair market value of the Common Stock shall be
the average of the high and the low sales prices of the Common Stock (on such exchange or market as
is determined by the Board to be the primary market for the Common Stock) on the date in question
(or if shares of Common Stock were not traded on such date, then on the next preceding trading day
on which a sale of Common Stock occurred).

 

 

 

“Hillenbrand Industries Common Stock” shall have the meaning set forth in Section 5.3.

“Hillenbrand Industries Deferred Stock” shall have the meaning set forth in Section 5.3.

“Hillenbrand Industries Options” shall have the meaning set forth in Section 5.3.

“Hillenbrand Industries Stock Incentive Plan” shall mean the Hillenbrand Industries, Inc.
Stock Incentive Plan, as amended, which is in effect immediately prior to the Effective Time.

“Incentive Option” shall mean a Stock Option granted under the Plan which both is designated
as an Incentive Option and qualifies as an incentive stock option within the meaning of Section 422
of the Code.

“Non-Employee Director” shall mean a director of the Company who is not employed by the
Company or any of its Subsidiaries.

“Non-Qualified Option” shall mean a Stock Option granted under the Plan, which either is
designated as a Non-Qualified Option or does not qualify as an incentive stock option within the
meaning of Section 422 of the Code.

“Optionee” shall mean any person who has been granted a Stock Option under the Plan or who is
otherwise entitled to exercise a Stock Option.

“Option Period” shall mean, with respect to any portion of a Stock Option, the period after
such portion has become exercisable and before it has expired or terminated.

“Plan” shall mean the Hillenbrand, Inc. Stock Incentive Plan.

“Prior Plans” shall mean the Hillenbrand Industries, Inc. 1996 Stock Option Plan and the
Hillenbrand Industries Stock Incentive Plan.

“Relationship” shall mean the status of employee, officer, or director of the Company or any
Subsidiary of the Company.

“Restricted Stock” shall mean an award described in Section 8 of the Plan.

“Spinoff Awards” shall have the meaning set forth in Section 5.5.

“Spinoff Deferred Stock” shall have the meaning set forth in Section 5.3.

“Spinoff Options” shall have the meaning set forth in Section 5.3.

“Stock Appreciation Right” shall mean an award described in Section 7 of the Plan.

“Stock Option” shall mean an Incentive Option or a Non-Qualified Option, and, unless the
context requires otherwise, shall include Director Options.

“Subsidiary” shall mean any corporation, partnership, joint venture or other entity in which
the Company owns, directly or indirectly, more than 50% of the ownership interests.

 

 

 

SECTION 3. Administration

3.1 The Plan shall be administered by the Committee. Notwithstanding anything to the contrary
contained herein, only the Board shall have authority to grant awards to Non-Employee Directors and
to amend and interpret such awards.

3.2 The Committee shall have the authority and discretion with respect to awards under the
Plan to take the following actions, if consistent with Section 15.7 of the Plan and subject to the
conditions of Section 3.2A of the Plan: to grant and amend (provided, however, that no amendment
shall impair the rights of the award holder without his or her written consent) awards to eligible
persons under the Plan; to adopt, alter and repeal such administrative rules, guidelines and
practices governing the Plan as it shall deem advisable; to interpret the terms and provisions of
the Plan and any award granted under the Plan; and to make all factual and other determinations
necessary or advisable for the administration of the Plan. In particular, and without limiting its
authority and powers, the Committee shall have the authority and discretion:

(a) to select the persons to whom awards will be granted from among those eligible;

(b) to determine the number of shares of Common Stock to be covered by each award
granted hereunder subject to the limitations contained herein;

(c) to determine the terms and conditions of any award granted hereunder, including, but
not limited to, any vesting or other restrictions based on such continued employment,
performance objectives and such other factors as the Committee may establish, and to
determine whether the terms and conditions of the award have been satisfied;

(d) to determine the treatment of awards upon an Employee’s retirement, disability,
death, termination for cause or other termination of employment, or during a leave of absence
or upon a Non-Employee Director’s termination of Relationship as allowed by law;

(e) to determine, in establishing the terms of the award agreement, that the award
holder has no rights with respect to any dividends declared with respect to any shares
covered by an award or that amounts equal to the amount of any dividends declared with
respect to the number of shares covered by an award (i) will be paid to the award holder
currently, or (ii) will be deferred and deemed to be reinvested, or (iii) will otherwise be
credited to the award holder;

(f) to amend the terms of any award, prospectively or retroactively; provided, however,
that no amendment shall impair the rights of the award holder without his or her written
consent;

(g) after considering any accounting impact to the Company, as well as any applicable
provisions of Code Sections 409A and 422, to substitute new Stock Options for previously
granted Stock Options, or for options granted under other plans or agreements, in each case
including previously granted options having higher option prices;

(h) to determine the Fair Market Value of the Common Stock on a given date;

(i) after considering any accounting impact to the Company, to provide that the shares
of Common Stock received as a result of an award shall be subject to a right of repurchase by
the Company and/or a right of first refusal, in each case subject to such terms and
conditions as the Committee may specify;

 

 

 

(j) to adopt one or more sub-plans, consistent with the Plan, containing such provisions
as may be necessary or desirable to enable awards under the Plan to comply with the laws of
other jurisdictions and/or qualify for preferred tax treatment under such laws; and

(k) to delegate such administrative duties as it may deem advisable to one or more of
its members or to one or more Employees or agents.

3.2A Notwithstanding anything in this Plan to the contrary, no “underwater” Stock Options or
Stock Appreciation Rights shall be (a) directly repriced, (b) exchanged for the grant of a new or
different type of award, or (c) bought out (cashed out), without in any such case first obtaining
the approval of the shareholders of the Company to the taking of such action. For purposes of this
Plan, a Stock Option or a Stock Appreciation Right is “underwater” at any time when the then
current Fair Market Value of a share of Common Stock is less than the per share exercise price or
grant price of the Stock Option or Stock Appreciation Right.

3.3 The Committee shall have the right to designate awards as “Performance Awards.” The grant
or vesting of a Performance Award shall be subject to the achievement of performance objectives
established by the Committee based on one or more of the following criteria, in each case applied
to the Company on a consolidated basis and/or to a business unit and which the Committee may use as
an absolute measure, as a measure of improvement relative to prior performance, or as a measure of
comparable performance relative to a peer group of companies: sales, operating profits, operating
profits before taxes, operating profits before interest expense and taxes, net earnings, earnings
per share, return on equity, return on assets, return on invested capital, total shareholder
return, cash flow, debt to equity ratio, market share, stock price, economic value added, and
market value added.

3.4 All determinations and interpretations made by the Committee pursuant to the provisions of
the Plan shall be final and binding on all persons, including the Company and award holders.
Determinations by the Committee under the Plan relating to the form, amount, and terms and
conditions of awards need not be uniform, and may be made selectively among persons who receive or
are eligible to receive awards under the Plan, whether or not such persons are similarly situated.

3.5 The Committee shall act by a majority of its members at a meeting (present in person or by
conference telephone) or by majority written consent.

3.6 No member of the Board or the Committee, nor any officer or Employee of the Company or its
Subsidiaries acting on behalf of the Board or the Committee, shall be personally liable for any
action, determination or interpretation taken or made with respect to the Plan or any award
hereunder. The Company shall indemnify all members of the Board and the Committee and all such
officers and Employees acting on their behalf, to the extent permitted by law, from and against any
and all liabilities, costs and expenses incurred by such persons as a result of any act, or
omission to act, in connection with the performance of such persons’ duties, responsibilities and
obligations under the Plan.

SECTION 4. Stock Subject to Plan

4.1 Subject to adjustment as provided in Section 4.4, the total number of shares of Common
Stock which may be issued under the Plan shall be 8,635,436, and the total number of shares which
may be issued as Incentive Options shall be 1,500,000. Such shares may consist of authorized but
unissued shares or shares that have been issued and reacquired by the Company. The exercise of a
Stock Appreciation Right for cash or the payment of any award in cash shall not count against this
share limit.

4.2 To the extent a Stock Option is surrendered for cash or terminates without having been
exercised, or an award terminates without the holder having received payment of the award, or
shares awarded are forfeited, the shares subject to such award shall again be available for
distribution in connection with future awards under the Plan other than Incentive Options. Shares
of Common Stock equal in number to the shares surrendered in payment of the option price, and
shares of Common Stock which are withheld in order to satisfy federal, state or local tax liability
shall count against the share limit set forth in Section 4.1.

 

 

 

4.3 No Employee shall be granted Stock Options and/or Stock Appreciation Rights with respect
to more than 400,000 shares of Common Stock in any fiscal year, and no Employee shall be granted
Restricted Stock, Deferred Stock and/or Bonus Stock awards with respect to more than 200,000 shares
of Common Stock in any fiscal year, subject to adjustment as provided in Section 4.4.
Notwithstanding the foregoing, any Spinoff Awards (as defined in Section 5.3) shall not count
against the foregoing fiscal year award limits.

4.4 In the event of any merger, reorganization, consolidation, sale of substantially all
assets, recapitalization, stock dividend, stock split, spin-off, split-up, split-off, distribution
of assets or other change in corporate structure affecting the Common Stock such that an adjustment
is determined by the Board in its discretion to be appropriate, after considering any accounting
impact to the Company, in order to prevent dilution or enlargement of benefits under the Plan, then
the Board shall, in such a manner as it may in its discretion deem equitable, adjust any or all of
(i) the aggregate number and kind of shares reserved for issuance under the Plan, and (ii) the
number and kind of shares as to which awards may be granted to any individual in any fiscal year.
In the event of any merger, reorganization, consolidation, sale of substantially all assets,
recapitalization, stock dividend, stock split, spin-off, split-up, split-off, distribution of
assets or other change in corporate structure affecting the Common Stock subject to an outstanding
award, the number and kind of shares of Common Stock or other securities which are subject to this
Plan or subject to any awards theretofore granted, and the exercise prices, shall be appropriately
and equitably adjusted by the Board so as to maintain the proportionate number of shares or other
securities without changing the aggregate exercise price, if any.

In addition, upon the dissolution or liquidation of the Company or upon any reorganization,
merger, or consolidation as a result of which the Company is not the surviving corporation (or
survives as a wholly-owned subsidiary of another corporation), or upon a sale of substantially all
the assets of the Company, the Board may, after considering any accounting impact to the Company,
take such action as it in its discretion deems appropriate to (i) accelerate the time when awards
vest and/or may be exercised and/or may be paid, (ii) cash out outstanding Stock Options and/or
other awards at or immediately prior to the date of such event, (iii) provide for the assumption of
outstanding Stock Options or other awards by surviving, successor or transferee corporations, (iv)
provide that in lieu of shares of Common Stock of Company, the award recipient shall be entitled to
receive the consideration he would have received in such transaction in exchange for such shares of
Common Stock (or the Fair Market Value thereof in cash), and/or (v) provide that Stock Options
shall be exercisable for a period of at least 10 business days from the date of receipt of a notice
from the Company of such proposed event, following the expiration of which period any unexercised
Stock Options shall terminate.

The Board shall exercise its discretion under this Section 4.4 only to the extent consistent
with Section 15.7 of the Plan. The Board’s determination as to which adjustments shall be made
under this Section 4.4 and the extent thereof shall be final, binding and conclusive.

4.5 No fractional shares shall be issued or delivered under the Plan. The Committee shall
determine whether the value of fractional shares shall be paid in cash or other property, or
whether such fractional shares and any rights thereto shall be cancelled without payment.

SECTION 5. Eligibility and Spinoff Awards

5.1 The persons who are eligible for awards under Sections 6, 7, 8, 9, and 10 of the Plan are
Employees, officers and directors of the Company or of any Subsidiary of the Company. In addition,
awards under such Sections may be granted to prospective Employees, officers, or directors but such
awards shall not become effective until the recipient’s commencement of employment or service with
the Company or a Subsidiary. Incentive Options may be granted only to Employees and prospective
Employees. Award recipients under the Plan shall be selected from time-to-time by the Committee,
in its sole discretion, from among those eligible.

 

 

 

5.2 Non-Employee Directors shall be granted awards under Section 12 in addition to any awards
which may be granted to them under other Sections of the Plan.

5.3 In connection with the Distribution and except as provided below, Stock Options to
purchase Common Stock (“Spinoff Options”) are granted as of the Effective Time in accordance with
the terms of the Employee Matters Agreement to holders of options (“Hillenbrand Industries
Options”) to purchase shares of common stock, no par value, of Hillenbrand Industries, Inc.
(“Hillenbrand Industries Common Stock”) under the Prior Plans. The Spinoff Options granted to such
holders shall be under the same terms as the corresponding options to purchase Hillenbrand
Industries Common Stock held by such holders, including the rate at which the options vest and the
expiration date of such options, provided that the number of shares of Common Stock under the
Spinoff Options and the exercise prices of the Spinoff Options compared to their Hillenbrand
Industries Option counterparts will reflect the Distribution in the manner set forth in the
Employee Matters Agreement. In addition and except as provided below, Deferred Stock awards
(“Spinoff Deferred Stock”) are granted as of the Effective Time in accordance with the terms of the
Employee Matters Agreement to holders of deferred stock relating to Hillenbrand Industries Common
Stock (“Hillenbrand Industries Deferred Stock”) under the Hillenbrand Industries Stock Incentive
Plan. The Spinoff Deferred Stock awards granted to such holders shall be under the same terms as
the corresponding deferred stock relating to Hillenbrand Industries Common Stock held by such
holders, including the rate at which the awards vest, provided that the number of shares of Common
Stock under the Spinoff Deferred Stock awards compared to their Hillenbrand Industries Deferred
Stock counterparts will reflect the Distribution in the manner set forth in the Employee Matters
Agreement. It is intended that all grants of Spinoff Options and Spinoff Deferred Stock described
in this paragraph satisfy the requirements of Section 424 of the Code, to the extent applicable,
and avoid treatment as nonqualified deferred compensation subject to Section 409A of the Code. For
purposes of this Section 5.3, a director of Hillenbrand Industries, Inc., who will not be a
director of the Company after the Effective Time, and an employee of Hillenbrand Industries, Inc.
or its Subsidiaries, who will not be an employee of the Company or its Subsidiaries after the
Effective Time, shall not be treated as a holder of Hillenbrand Industries Options and/or
Hillenbrand Industries Deferred Stock, even though he or she may be such a holder prior to the
Effective Time and shall not be entitled to Spinoff Options and Spinoff Deferred Stock hereunder as
set forth above. Notwithstanding anything herein to the contrary and except for Spinoff Option
agreements and Spinoff Deferred Stock agreements for the individuals who are receiving Spinoff
Options and Spinoff Deferred Stock pursuant to Section 7.1(c) and/or Sections 7.2(c) or (d),
respectively, of the Employee Matters Agreement, all other Spinoff Option agreements and Deferred
Stock agreements for the grants of Spinoff Options and Spinoff Deferred Stock as set forth in this
Section 5.3 shall provide that as of the Effective Time, the corresponding Hillenbrand Industries
Options and Hillenbrand Industries Deferred Stock are cancelled and shall have no further force or
effect.

5.4 In connection with the Distribution, Spinoff Deferred Stock is granted as of the Effective
Time in accordance with Section 7.2(d) of the Employee Matters Agreement to holders of Hillenbrand
Industries Deferred Stock who have made an election to defer payment of the Hillenbrand Industries
Deferred Stock pursuant to and under the Hillenbrand Industries Stock Incentive Plan. The Spinoff
Deferred Stock Awards granted to such holders shall be under the same terms as the corresponding
Hillenbrand Industries Deferred Stock held by such holders, provided that the number of shares of
Common Stock under the Spinoff Deferred Stock awards compared to their Hillenbrand Industries
Deferred Stock counterparts will reflect the Distribution in the manner set forth in the Employee
Matters Agreement. It is intended that all grants of Spinoff Deferred Stock described in this
paragraph satisfy the requirements of Section 424 of the Code, to the extent applicable, and avoid
treatment as nonqualified deferred compensation subject to Section 409A of the Code.

 

 

 

5.5 Spinoff Options and Spinoff Deferred Stock granted pursuant to Sections 5.3 and 5.4 above
shall be referred to collectively herein as “Spinoff Awards.”

SECTION 6. Stock Options

6.1 The Stock Options awarded to eligible persons under the Plan may be of two types: (i)
Incentive Options, and (ii) Non-Qualified Options. To the extent that any Stock Option granted to
an Employee does not qualify as an Incentive Option, it shall constitute a Non-Qualified Option.
All Stock Options awarded to persons who are not Employees shall be Non-Qualified Options.

6.2 Subject to the following provisions, Stock Options awarded under Section 6 of the Plan
shall be in such form and shall have such terms and conditions as the Committee may determine.

(a) Option Price. The option price per share of Common Stock purchasable under
a Stock Option (other than a Spinoff Option) shall be determined by the Committee and may not
be less than the Fair Market Value of the Common Stock on the date of the award of the Stock
Option (or, with respect to awards to prospective Employees, on the first date of
employment).

(b) Option Term. The term of each Stock Option shall be fixed by the Committee.

(c) Exercisability. Stock Options shall be exercisable and shall vest at such
time or times and subject to such terms and conditions as shall be determined by the
Committee. The Committee may impose different schedules for exercisability and vesting.
After considering any accounting impact to the Company, the Committee may waive any exercise
or vesting provisions or accelerate the exercisability or vesting of the Stock Option at any
time in whole or in part.

(d) Method of Exercise. Stock Options may be exercised in whole or in part at
any time during the Option Period by giving the Company notice of exercise in the form
approved by the Committee (which may be written or electronic) specifying the number of whole
 shares to be purchased, accompanied by payment of the aggregate option price for such shares.
Payment of the option price shall be made in such manner as the Committee may provide in the
award, which may include (i) cash (including cash equivalents), (ii) delivery (either by
actual delivery of the shares or by providing an affidavit affirming ownership of the shares)
of shares of Common Stock already owned by the Optionee for at least six months, (iii)
broker-assisted “cashless exercise” in which the Optionee delivers a notice of exercise
together with irrevocable instructions to a broker acceptable to the Company to sell shares
of Common Stock (or a sufficient portion of such shares) acquired upon exercise of the Stock
Option and remit to the Company a sufficient portion of the sale proceeds to pay the total
option price and any withholding tax obligation resulting from such exercise, (iv) any other
manner permitted by law, or (v) any combination of the foregoing.

(e) No Shareholder Rights. An Optionee shall have no rights to dividends or
other rights of a shareholder with respect to shares subject to a Stock Option until the
Optionee has duly exercised the Stock Option and a certificate for such shares has been duly
issued (or the Optionee has otherwise been duly recorded as the owner of the shares on the
books of the Company).

(f) Termination of Employment or Relationship. Following the termination of an
Optionee’s employment or other Relationship with the Company or its Subsidiaries, the Stock
Option shall be exercisable to the extent determined by the Committee. The Committee may
provide different post-termination exercise provisions which may vary based on the nature of
and reason for the termination. The Committee may provide that, notwithstanding the option
term fixed pursuant to Section 6.2(b), a Non-Qualified Option which is outstanding on the
date of an Optionee’s death shall remain outstanding for an additional period after the date
of such death. The Committee shall have absolute discretion to determine the date and
circumstances of any termination of employment or other Relationship.

 

 

 

(g) Non-transferability. Unless otherwise provided by the Committee, (i) Stock
Options shall not be transferable by the Optionee other than by will or by the laws of
descent and distribution, and (ii) during the Optionee’s lifetime, all Stock Options shall be
exercisable only by such Optionee. The Committee, in its sole discretion, may permit Stock
Options to be transferred to such other transferees and on such terms and conditions as may
be determined by the Committee.

(h) Surrender Rights. The Committee may, after considering any accounting
impact to the Company, provide that Stock Options may be surrendered for cash upon any terms
and conditions set by the Committee.

6.3 Notwithstanding the provisions of Section 6.2, Incentive Options shall be subject to the
following additional restrictions:

(a) Option Term. No Incentive Option shall be exercisable more than ten years
after the date such Incentive Stock Option is awarded.

(b) Additional Limitations for 10% Shareholders. No Incentive Option granted to
an Employee who owns more than 10% of the total combined voting power of all classes of stock
of the Company or any of its parent or subsidiary corporations, as defined in Section 424 of
the Code, shall (i) have an option price which is less than 110% of the Fair Market Value of
the Common Stock on the date of award of the Incentive Option, or (ii) be exercisable more
than five years after the date such Incentive Option is awarded.

(c) Exercisability. The aggregate Fair Market Value (determined as of the time
the Incentive Option is granted) of the shares with respect to which Incentive Options
(granted under the Plan and any other plans of the Company, its parent corporation or
subsidiary corporations, as defined in Section 424 of the Code) are exercisable for the first
time by an Optionee in any calendar year shall not exceed $100,000.

(d) Notice of Disqualifying Disposition. An Optionee’s right to exercise an
Incentive Option shall be subject to the Optionee’s agreement to notify the Company of any
“disqualifying disposition” (for purposes of Section 422 of the Code) of the shares acquired
upon such exercise.

(e) Non-transferability. Incentive Options shall not be transferable by the
Optionee, other than by will or by the laws of descent and distribution. During the
Optionee’s lifetime, all Incentive Options shall be exercisable only by such Optionee.

(f) Last Grant Date. No Incentive Option shall be granted more than ten years
after the earlier of the date of adoption of the Plan by the Board or approval of the Plan by
the Company’s shareholders.

The Committee may, with the consent of the Optionee, amend an Incentive Option in a manner that
would cause loss of Incentive Option status, provided the Stock Option as so amended satisfies the
requirements of Section 6.2.

6.4 Substitute Options. In connection with a merger or consolidation of an entity
with the Company or the acquisition by the Company of property or stock of an entity, the Committee
may grant Stock Options in substitution for any options or other stock awards or stock-based awards
granted by such entity or an affiliate thereof. Such substitute Stock Options may be granted on
such terms, consistent with Section 15.7, as the Committee deems appropriate in the circumstances,
notwithstanding any limitations on Stock Options contained in other provisions of this Section 6.

 

 

 

SECTION 7. Stock Appreciation Rights

7.1 A Stock Appreciation Right shall entitle the holder thereof to receive, for each share as
to which the award is granted, payment of an amount, in cash, shares of Common Stock, or a
combination thereof, as determined by the Committee, equal in value to the excess of the Fair
Market Value of a share of Common Stock on the date of exercise over the Fair Market Value of a
share of Common Stock on the day such Stock Appreciation Right was granted. Any such award shall
be in such form and shall have such terms and conditions as the Committee may determine. The grant
shall specify the number of shares of Common Stock as to which the Stock Appreciation Right is
granted.

7.2 The Committee may provide that a Stock Appreciation Right may be exercised only within the
60-day period following occurrence of a Change in Control (as defined in Section 14.2) (such Stock
Appreciation Right being referred to herein as a “Limited Stock Appreciation Right”). The
Committee may also provide that in the event of a Change in Control the amount to be paid upon
exercise of a Stock Appreciation Right shall be based on the Change in Control Price (as defined in
Section 14.3).

SECTION 8. Restricted Stock

Subject to the following provisions, all awards of Restricted Stock shall be in such form and
shall have such terms and conditions as the Committee may determine:

(a) The Restricted Stock award shall specify the number of shares of Restricted Stock to
be awarded, the price, if any, to be paid by the recipient of the Restricted Stock and the
date or dates on which, or the conditions upon the satisfaction of which, the Restricted
Stock will vest. The grant and/or the vesting of Restricted Stock may be conditioned upon
the completion of a specified period of service with the Company and/or its Subsidiaries,
upon the attainment of specified performance objectives, or upon such other criteria as the
Committee may determine.

(b) Stock certificates representing the Restricted Stock awarded under the Plan shall be
registered in the award holder’s name, but the Committee may direct that such certificates be
held by the Company on behalf of the award holder. Except as may be permitted by the
Committee, no share of Restricted Stock may be sold, transferred, assigned, pledged or
otherwise encumbered by the award holder until such share has vested in accordance with the
terms of the Restricted Stock award. At the time Restricted Stock vests, a certificate for
such vested shares shall be delivered to the award holder (or his or her designated
beneficiary in the event of death), free of all restrictions.

(c) The Committee may provide that the award holder shall have the right to vote and/or
receive dividends on Restricted Stock. Unless the Committee provides otherwise, Common Stock
received as a dividend on, or in connection with a stock split of, Restricted Stock shall be
subject to the same restrictions as the Restricted Stock.

(d) Except as may be provided by the Committee, in the event of an award holder’s
termination of employment or other Relationship before all of his or her Restricted Stock has
vested, or in the event any conditions to the vesting of Restricted Stock have not been
satisfied prior to any deadline for the satisfaction of such conditions set forth in the
award, the shares of Restricted Stock which have not vested shall be forfeited, and the
Committee may provide that (i) any purchase price paid by the award holder shall be returned
to the award holder, or (ii) a cash payment equal to the Restricted Stock’s Fair Market Value
on the date of forfeiture, if lower, shall be paid to the award holder.

(e) The Committee may waive, in whole or in part, any or all of the conditions to
receipt of, or restrictions with respect to, any or all of the award holder’s Restricted
Stock. The Committee may not, however, waive conditions or restrictions with respect to
awards intended to qualify under Section 162(m) of the Code unless such waiver would not
cause the award to fail to qualify as “performance-based compensation” within the meaning of
Section 162(m) of the Code, and the Committee may not accelerate the payment of any dividends
subject to restrictions under Section 8.6(c) unless such acceleration is consistent with
Section 15.7.

 

 

 

SECTION 9. Deferred Stock Awards (also known as Restricted Stock Units)

Subject to the following provisions, all awards of Deferred Stock shall be in such form and
shall have such terms and conditions as the Committee may determine:

(a) The Deferred Stock award shall specify the number of shares of Deferred Stock to be
awarded and the duration of the period (the “Deferral Period”) during which, and the
conditions under which, receipt of the Common Stock will be deferred. The Committee may
condition the grant or vesting of Deferred Stock, or receipt of Common Stock or cash at the
end of the Deferral Period, upon the completion of a specified period of service with the
Company and/or its Subsidiaries, upon the attainment of specified performance objectives, or
upon such other criteria as the Committee may determine.

(b) Except as may be provided by the Committee, Deferred Stock awards may not be sold,
assigned, transferred, pledged or otherwise encumbered during the Deferral Period.

(c) At the expiration of the Deferral Period, the award holder (or his or her designated
beneficiary in the event of death) shall receive (i) certificates for the number of shares of
Common Stock equal to the number of shares covered by the Deferred Stock award, (ii) cash
equal to the Fair Market Value of such Common Stock, or (iii) a combination of shares and
cash, as the Committee may determine.

(d) Except as may be provided by the Committee, in the event of an award holder’s
termination of employment or other Relationship before the Deferred Stock has vested, his or
her Deferred Stock award shall be forfeited.

(e) The Committee may waive, in whole or in part, any or all of the conditions to
receipt of, or restrictions with respect to, Common Stock or cash under a Deferred Stock
award. The Committee may not, however, waive conditions or restrictions with respect to
awards intended to qualify under Section 162(m) of the Code unless such waiver would not
cause the award to fail to qualify as “performance-based compensation” within the meaning of
Section 162(m) of the Code, and the Committee may not accelerate the payment of any Deferred
Stock awards unless such acceleration is consistent with Section 15.7.

SECTION 10. Bonus Stock Awards

The Committee may award Bonus Stock to any eligible award recipient subject to such terms and
conditions as the Committee shall determine. The grant of Bonus Stock may, but need not, be
conditioned upon the attainment of specified performance objectives or upon such other criteria as
the Committee may determine. The Committee may waive such conditions in whole or in part, except
that the Committee may not waive conditions or restrictions with respect to awards intended to
qualify under Section 162(m) of the Code unless such waiver would not cause the award to fail to
qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, and
the Committee may not accelerate the payment of any Bonus Stock unless such acceleration is
consistent with Section 15.7. Unless otherwise specified by the Committee, no money shall be paid
by the recipient for the Bonus Stock. Alternatively, the Committee may, after considering any
accounting impact to the Company, offer eligible employees the opportunity to purchase Bonus Stock
at a discount from its Fair Market Value. The Bonus Stock award shall be satisfied by the delivery
of the designated number of shares of Common Stock which are not subject to restriction.

 

 

 

SECTION 11. Election to Defer Deferred Stock Awards or Bonus Stock Awards

The Committee may permit an award recipient to elect to defer payment of an award other than a
Stock Option for a specified period or until a specified event, upon such terms as are determined
by the Committee. An award holder may elect to defer the distribution date of a Deferred Stock
Award or Bonus Stock Award provided that such election is made and delivered to the Company in
compliance with Section 409A of the Code, when applicable.

SECTION 12. Non-Employee Director Awards

The Board shall have the discretion to determine the number and types of awards to be granted
to Non-Employee Directors and the terms of such awards, including but not limited to the
exercisability and the effect of a director’s termination of service.

SECTION 13. Tax Withholding

13.1 Each award holder shall, no later than the date as of which an amount with respect to an
award first becomes includible in such person’s gross income for applicable tax purposes, pay to
the Company, or make arrangements satisfactory to the Committee regarding payment of, any federal,
state, local or other taxes of any kind required by law to be withheld with respect to the award.
The obligations of the Company under the Plan shall be conditional on such payment or arrangements.
The Company (and, where applicable, its Subsidiaries), shall, to the extent permitted by law, have
the right to deduct the minimum amount of any required tax withholdings from any such taxes from
any payment of any kind otherwise due to the award holder.

13.2 To the extent permitted by the Committee, and subject to such terms and conditions as the
Committee may provide, an Employee may elect to have the minimum amount of any required tax
withholdings with respect to any awards hereunder, satisfied by (i) having the Company withhold
shares of Common Stock otherwise deliverable to such person with respect to the award or (ii)
delivering to the Company shares of unrestricted Common Stock already owned by the Employee for at
least six months. Alternatively, the Committee may require that a portion of the shares of Common
Stock otherwise deliverable be applied to satisfy the withholding tax obligations with respect to
the award.

SECTION 14. Change in Control

14.1 In the event of a Change in Control, unless otherwise determined by the Committee at the
time of grant or by amendment (with the award holder’s consent) of such grant:

(a) all outstanding Stock Options (including Director Options) and all outstanding Stock
Appreciation Rights (including Limited Stock Appreciation Rights) awarded under the Plan
shall become fully exercisable and vested;

(b) the restrictions and vesting conditions applicable to any outstanding Restricted
Stock and Deferred Stock awards under the Plan shall lapse and such shares and awards shall
be deemed fully vested;

(c) the Committee may, in its sole discretion, accelerate the payment date of all
Restricted Stock and Deferred Stock awards; and

(d) to the extent the cash payment of any award is based on the Fair Market Value of
Common Stock, such Fair Market Value shall be the Change in Control Price.

 

 

 

14.2 A “Change in Control” shall be deemed to occur on:

(a) the date that any person, corporation, partnership, syndicate, trust, estate or
other group acting with a view to the acquisition, holding or disposition of securities of
the Company, becomes, directly or. indirectly, the beneficial owner, as defined in Rule 13d-3
under the Securities Exchange Act of 1934 (“Beneficial Owner”), of securities of the Company
representing 35% or more of the voting power of all securities of the Company having the
right under ordinary circumstances to vote at an election of the Board (“Voting Securities”),
other than by reason of (x) the acquisition of securities of the Company by the Company or
any of its Subsidiaries or any employee benefit plan of the Company or any of its
Subsidiaries, (y) the acquisition of securities of the Company directly from the Company, or
(z) the acquisition of securities of the Company by one or more members of the Hillenbrand
Family (which term shall mean descendants of John A. Hillenbrand and their spouses, trusts
primarily for their benefit or entities controlled by them);

(b) the consummation of a merger or consolidation of the Company with another
corporation unless

(i) the shareholders of the Company, immediately prior to the merger or
consolidation, beneficially own, immediately after the merger or consolidation, shares
entitling such shareholders to 50% or more of the voting power of all securities of the
corporation surviving the merger or consolidation having the right under ordinary
circumstances to vote at an election of directors in substantially the same proportions
as their ownership, immediately prior to such merger or consolidation, of Voting
Securities of the Company;

(ii) no person, corporation, partnership, syndicate, trust, estate or other group
beneficially owns, directly or indirectly, 35% or more of the voting power of the
outstanding voting securities of the corporation resulting from such merger or
consolidation except to the extent that such ownership existed prior to such merger or
consolidation; and

(iii) the members of the Company’s Board, immediately prior to the merger or
consolidation, constitute, immediately after the merger or consolidation, a majority of
the board of directors of the corporation issuing cash or securities in the merger;

(c) the date on which a majority of the members of the Board are replaced during any
12-month period by persons other than directors whose appointment or election was approved by
a majority of the members of the Board as constituted immediately prior to such appointment
or election;

(d) the consummation of a sale or other disposition of all or substantially all of the
assets of the Company; or

(e) the corporate dissolution of the Company if the corporate dissolution results,
within 12 months, in the complete termination and liquidation of the Plan.

Notwithstanding any other provision of this Section to the contrary, an occurrence shall
not constitute a Change in Control if it does not constitute a change in the ownership or
effective control, or in the ownership of a substantial portion of the assets of, the Company
or another allowable acceleration event under Section 409A of the Code and its interpretive
regulations.

14.3 “Change in Control Price” means the highest price per share of Common Stock paid in any
transaction reported on any national market or securities exchange where the Common Stock is
traded, or paid or offered in any transaction related to a Change in Control at any time during the
90-day period ending with the Change in Control. Notwithstanding the foregoing sentence, in the
case of Stock Appreciation Rights granted in tandem with Incentive Options, the Change in Control
Price shall be the highest price paid on the date on which the Stock Appreciation Right is
exercised.

 

 

 

SECTION 15. General Provisions

15.1 Each award under the Plan shall be subject to the requirement that, if at any time the
Committee shall determine that (i) the listing, registration or qualification of the Common Stock
subject or related thereto upon any securities exchange or market or under any state or federal
law, or (ii) the consent or approval of any government regulatory body, or (iii) an agreement by
the recipient of an award with respect to the disposition of Common Stock, is necessary or
desirable in order to satisfy any legal requirements, or (iv) the issuance, sale or delivery of any
shares of Common Stock is or may in the circumstances be unlawful under the laws or regulations of
any applicable jurisdiction, the right to exercise such Stock Option shall be suspended, such award
shall not be granted and such shares will not be issued, sold or delivered, in whole or in part,
unless such listing, registration, qualification, consent, approval or agreement shall have been
effected or obtained free of any conditions not acceptable to the Committee, and the Committee
determines that the issuance, sale or delivery of the shares is lawful. The application of this
Section shall not extend the term of any Stock Option or other award. The Company shall have no
obligation to effect any registration or qualification of the Common Stock under federal or state
laws or to compensate the award holder for any loss caused by the implementation of this Section
15.1.

15.2 The Committee may provide, at the time of grant or by amendment with the award holder’s
consent, that an award and/or Common Stock acquired under the Plan shall be forfeited, including
after exercise or vesting, if within a specified period of time the award holder engages in any of
the conduct described below (“Disqualifying Conduct”). Disqualifying Conduct shall mean (i) the
award holder’s performance of service for a competitor of the Company and/or its Subsidiaries,
including service as an employee, director, or consultant, or the establishing by the award holder
of a business which competes with the Company and/or its Subsidiaries, (ii) the award holder’s
solicitation of employees or customers of the Company and/or its Subsidiaries, (iii) the award
holder’s improper use or disclosure of confidential information of the Company and/or its
Subsidiaries, or (iv) material misconduct by the award holder in the performance of such award
holder’s duties for the Company and/or its Subsidiaries, as determined by the Committee.

15.3 Nothing set forth in this Plan shall prevent the Board from adopting other or additional
compensation arrangements.

15.4 Nothing in the Plan nor in any award hereunder shall confer upon any award holder any
right to continuation of his or her employment by or other Relationship with the Company or its
Subsidiaries, or interfere in any way with the rights of any such company to terminate such
employment or other Relationship.

15.5 Neither the Plan nor any award shall create or be construed to create a trust or separate
fund of any kind or a fiduciary relationship between the Company or Subsidiary and an award
recipient, and no award recipient will, by participation in the Plan, acquire any right in any
specific Company property, including any property the Company may set aside in connection with the
Plan. To the extent that any award recipient acquires a right to receive payments from the Company
or any Subsidiary pursuant to an award, such right shall not be greater than the right of an
unsecured general creditor of the Company or its Subsidiaries.

15.6 The Plan and all awards hereunder shall be governed by the laws of the State of Indiana
without giving effect to conflict of laws principles.

 

 

 

15.7 The Plan and all awards under the Plan shall be interpreted and applied in a manner
consistent with the applicable standards for nonqualified deferred compensation plans established
by Code Section 409A and its interpretive regulations and other regulatory guidance. To the extent
that any terms of the Plan or an award would subject an Employee to gross income inclusion,
interest, or additional tax pursuant to Code Section 409A, those terms are to that extent
superseded by, and shall be adjusted to the minimum extent necessary to satisfy or to be exempt
from, the Code Section 409A standards. If as of the date Employee’s employment terminates, an
Employee is a “key employee,” within the meaning of Code Section 416(i), without regard to
paragraph 416(i)(5), and if the Company has stock that is publicly traded on an established
securities market or otherwise, any payment of deferred compensation, within the meaning of Code
Section 409A, otherwise payable because of employment termination will be suspended until, and will
be paid to the Employee on, the first day of the seventh month following the month in which the
Employee’s last day of employment occurs.

SECTION 16. Amendments and Termination

16.1 The Plan shall be of unlimited duration. The Board may discontinue the Plan at any time
and may amend it from time-to-time. No amendment or discontinuation of the Plan shall adversely
affect any award previously granted without the award holder’s written consent. Amendments may be
made without shareholder approval except as required to satisfy applicable laws or regulations or
the requirements of any stock exchange or market on which the Common Stock is listed or traded.

16.2 The Committee may amend the terms of any award prospectively or retroactively; provided,
however, that no amendment shall impair the rights of the award holder without his or her written
consent.

SECTION 17. Effective Date of Plan

17.1 The former version of the Plan was approved by the Board on December 19, 2008, and this
revised version of the Plan was approved and adopted by the Board on December 2, 2009. The Plan
was effective as of the date of the consummation of the transactions contemplated by the
Distribution Agreement (“Effective Date”). This February 24, 2010 version of the Plan is to be
effective, and is to amend, restate, supersede, and replace the version of the Plan adopted by the
Board on December 19, 2008, upon approval thereof by the shareholders of the Company.exv10w23

Exhibit 10.23

EMPLOYMENT AGREEMENT

     This Employment Agreement (“Agreement”) is made and entered into as of February 7, 2005 (the
“Effective Date”), by and between Mariner Energy, Inc., a Delaware corporation (hereafter
“Company”), and Jesus Melendrez (hereafter “Executive”).

     1. Employment. During the Employment Period (as defined in Section 4 hereof),
the Company shall employ Executive, and Executive shall serve, as Vice President.

     2. Duties and Responsibilities of Executive.

     (a) During the Employment Period, Executive shall devote his full time and attention
during normal business hours to the business of the Company, will act in the best interests
of the Company and will perform with due care his duties and responsibilities. Executive’s
duties will include those normally incidental to the position of Vice President as well as
whatever additional duties may be assigned to him by the Board of Directors of the Company
(the “Board”) or the Chief Executive Officer of the Company. Executive agrees to cooperate
fully with the Board and the Chief Executive Officer of the Company and not to engage in any
activity that materially interferes with the performance of Executive’s duties hereunder.
During the Employment Period, Executive will not hold outside employment without the advance
written approval of the Board. Provided that it shall not be a violation of this Agreement
for Executive to (1) serve on corporate, civic, or charitable boards or committees (except
for boards or committees of a business organization that competes with the Company in any
business in which the Company is regularly engaged), which are listed on Exhibit A so long
as such service does not materially interfere with the performance of Executive’s duties and
responsibilities under this Agreement, as determined in the good faith opinion of the Board,
(2) manage personal investments, or (3) take vacation days and reasonable absences due to
injury or illness, as set forth herein and/or permitted by the general policies of the
Company.

     (b) Executive represents and covenants to the Company that he is not subject or a party
to any employment agreement, noncompetition covenant, nondisclosure agreement, or any other
agreement, covenant, understanding, or restriction that would prohibit Executive from
executing this Agreement and fully performing his duties and responsibilities hereunder, or
would in any manner, directly or indirectly, limit or affect the duties and responsibilities
that may now or in the future be assigned to Executive hereunder.

     (c) Executive acknowledges and agrees that Executive owes the Company a duty of loyalty
and that the obligations described in this Agreement are in addition to, and not in lieu of,
the obligations Executive owes the Company under the common law.

 

 

     3. Compensation.

     (a) During the Employment Period (as defined in Section 4 hereof), the Company
shall pay to Executive an annualized base salary of $187,500 (the “Base Salary”) in
consideration for Executive’s services under this Agreement, payable on a not less than
semi-monthly basis, in conformity with the Company’s customary payroll practices for
executive salaries. For all purposes of this Agreement, Executive’s Base Salary shall
include any portion thereof which is deferred under any nonqualified plan or arrangement.
Each year, the Board shall review Executive’s salary based on market survey data, corporate
performance, and performance of Executive. If, in its sole and complete discretion, the
Board determines that an increase in Executive’s salary is appropriate, the Board may make
such adjustment, and such adjusted salary shall thereafter be Executive’s Base Salary for
purposes of this Agreement. Executive’s Base Salary may not be reduced except as part of a
general reduction of salaries paid to management employees that is necessitated by business
conditions, as determined by the Board.

     (b) Executive may be eligible for an annual discretionary performance bonus with
respect to each calendar year during the Employment Period (the “Annual Bonus”). The
amount, if any, of Executive’s Annual Bonus will be determined by the Board in its sole and
complete discretion based on market survey data, corporate performance, and performance of
Executive. Bonus determinations will be made by the Board at a time convenient to the Board
but typically within 60 calendar days of the end of each calendar year. The Board will, on
an annual basis (at or near the beginning of each calendar year in the Employment Period)
establish a target bonus for Executive for the upcoming year, and will communicate such
target to Executive. If the Board determines to award Executive an Annual Bonus, it will be
payable in conformity with the Company’s customary payroll practices for executive bonuses.
The Board may also award additional bonuses or other compensation to Executive at any time
in its sole and complete discretion.

     (c) Any salary, bonus, and other compensation payments hereunder shall be subject to
such payroll and other taxes, withholdings, and deductions as may be required by applicable
law or with respect to Executive’s coverage in the Company’s insurance and other employee
benefit plans.

     4. Term of Employment. The initial term of this Agreement shall be for the period
beginning on the Effective Date and ending at midnight (EST) on March 2, 2006 (the “Initial Term”);
provided, however, that if the Company consummates an initial public offering of its common stock
prior to March 3, 2006, the Initial Term shall end on March 2, 2007. For all purposes of this
Agreement, the consummation of a sale under Rule 144A and/or Regulation D of equity securities of
the Company shall be treated as the consummation of an initial public offering by the Company. On
March 3, 2006 (or 2007, if applicable) and on March 3 of each succeeding year (each such date being
referred to as a “Renewal Date”), this Agreement shall automatically renew and extend for a period
of 12 months (a “Renewal Term”) unless written notice of non-renewal is delivered from one party to
the other at least 90 days prior to such

2

 

Renewal Date (in which case the Termination Date shall be the day immediately prior to such
Renewal Date). Notwithstanding any other provision of this Agreement, this Agreement may be
terminated at any time during the Initial Term or the Renewal Term (if any) in accordance with
Section 6. The period from the Effective Date through the Termination Date of this Agreement,
regardless of the time or reason for such termination, shall be referred to herein as the
“Employment Period.” In the event that this Agreement is not renewed, Executive shall become an
at-will employee of the Company and the Company shall have the right to terminate Executive’s
employment with the Company at any time.

     5. Benefits. Subject to the terms and conditions of this Agreement, Executive shall
be entitled to the following benefits during the Employment Period:

     (a) Reimbursement of Business Expenses. The Company agrees to reimburse Executive for
reasonable business-related expenses incurred in the performance of Executive’s duties under
this Agreement.

     (b) Benefit Plans and Programs. To the extent permitted by applicable law and subject
to the terms and eligibility requirements of any such plan or program, Executive will be
eligible to participate in all benefit plans and programs, including improvements or
modifications of the same, that are maintained by the Company generally for executive
employees of the Company, subject to the eligibility requirements and other terms and
conditions of those plans and programs. The Company will not, however, by reason of this
Section 5(b) be obligated either (1) to institute, maintain, or refrain from changing,
amending, or discontinuing any such benefit plan or program, or (2) to provide Executive
with all benefits provided to any other person or individual employed by the Company or any
of its affiliates.

     6. Termination of Employment.

     (a) Company’s Right to Terminate. At any time during the Initial Term or any
Renewal Term, the Company shall have the right to terminate this Agreement and
Executive’s employment with the Company for any of the following reasons:

     (1) Upon Executive’s death (in which case the
Termination Date shall be the date of Executive’s death);

     (2) Upon Executive’s Disability (as defined below);

     (3) For Cause (as defined in Section 7); or

     (4) For any other reason whatsoever, in the sole and complete discretion of the
Company.

(b) Executive’s Right to Terminate. At any time during the Initial Term or any
Renewal Term, Executive will have the right to terminate this Agreement and
Executive’s employment with the Company for:

3

 

     (1) Good Reason (as defined in Section 7); or

     (2) For any other reason whatsoever, in the sole and complete discretion of
Executive.

(c) “Disability.” For purposes of this Agreement, “Disability” means that Executive
has sustained sickness or injury that renders Executive incapable of performing the
duties and services required of Executive hereunder for a period of 90 consecutive
calendar days or a total of 120 calendar days during any 12 month period.

(d) “Notices.” Any termination of this Agreement by the Company under Section 6(a)
(other than termination due to the death of Executive), or by Executive under
Section 6(b) shall be communicated by a Notice of Termination to the other party. A
“Notice of Termination” means a written notice that (1) indicates the specific
termination provision in this Agreement relied upon and (2) if the termination is by
the Company for Cause or by Executive for Good Reason, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
Executive’s employment under the provision so indicated. The Notice of Termination
must specify the Termination Date. In the case of a termination by the Company for
Cause or due to Executive’s Disability, or by Executive for Good Reason, the
Termination Date may be as early as the date notice is given but no later than 30
calendar days after notice is given, unless otherwise agreed to in writing by both
parties. In the case of a termination by the Company or by Executive for any other
reason, the Termination Date may be as early as 14 calendar days after notice is
given but no later than 60 calendar days after notice is given, unless otherwise
agreed to by the parties in writing.

     7. Severance Payments.

(a) Termination by the Company. If (1) the Company terminates this Agreement and
Executive’s employment with the Company and its affiliates during the Initial Term
or the Renewal Term (if any) pursuant to Section 6(a)(4), (2) Executive
signs and does not revoke a waiver and release agreement substantially similar to
Exhibit B, and (3) Executive continues to comply with Executive’s ongoing
obligations under Sections 11 and 12 of this Agreement, then, subject to
Section 7(h), the Company shall pay Executive severance in accordance with
Section 7(c). Such severance payments shall be in addition to payment by
the Company of all previously unpaid amounts (including, without limitation, salary,
bonuses, equity plans, incentive compensation plans, fringe benefits, and expense
reimbursements) owed to Executive under this Agreement with respect to periods prior
to the Termination Date.

(b) Termination by Executive. If (1) Executive terminates this Agreement and
Executive’s employment with the Company and its affiliates during the Initial

4

 

Term or the Renewal Term (if any) pursuant to Section 6(b)(1), (2) Executive
signs and does not revoke a waiver and release agreement substantially similar to
Exhibit B, and (3) Executive continues to comply with Executive’s ongoing
obligations under Sections 11 and 12 of this Agreement, then, subject to
Section 7(h), the Company shall pay Executive severance in accordance with Section
7(c). Such severance payments shall be in addition to payment by the Company of all
previously unpaid amounts (including, without limitation, salary, bonuses, equity
plans, incentive compensation plans, fringe benefits, and expense reimbursements)
owed to Executive under this Agreement with respect to periods prior to the
Termination Date.

(c) Severance Amount. If the Company is required to pay Executive severance by the
express terms of Section 7(a) or 7(b), the Company shall pay Executive the
following as severance:

(1) Executive’s Base Salary at the highest rate in effect prior to the
Termination Date as salary continuation for a period of eighteen months commencing
on the date on which Executive’s employment with the Company is terminated (the
“Termination Date”) (the “Severance Period”), payable in equal monthly installments
pursuant to the Company’s customary payroll practices for executive salaries;
provided, however, that, at the option of the Company, the amounts payable under
this Section 7(c) may be paid by the Company in one lump sum.

(2) Executive, Executive’s spouse, and Executive’s dependents will continue to
be eligible for coverage under the Company’s group health plan or any successor plan
on the same basis as active executive employees of the Company, their spouses, and
their dependents for the duration of the Severance Period. If and when group health
coverage under another employer’s plan is made available to Executive, Executive’s
spouse, or Executive’s dependents, the Company’s obligations under this paragraph
will cease with respect to each person to whom such coverage is made available,
notwithstanding that such person may not in fact become covered under such other
employer’s plan. Executive’s portion of the premium for such coverage shall be
withheld from the salary continuation payments described in paragraph (1)
immediately above or, if salary continuation has been paid in a lump sum, Executive
shall reimburse the Company for Executive’s portion of the premium on a monthly
basis.

(3) An amount equal to the sum of amounts paid or payable to Executive as
bonuses by the Company for the year prior to the year in which the Termination Date
occurs. This amount will be payable in one lump sum, to Executive within 30 days
after the end of the Severance Period.

(4) Executive shall become 100% vested in all of the shares of restricted stock
granted to Executive under the Mariner Energy, Inc. Equity

5

 

Participation Plan to the extent Executive is less than 100% vested in such
shares as of the Termination Date.

(5) Executive shall become 50% vested in all of the rights and interests
granted to Executive under the Company’s stock and other equity plans (other than
the Mariner Energy, Inc. Equity Participation Plan), including without limitation
any stock options, restricted stock, restricted stock units, performance units,
and/or performance shares to the extent Executive is less than 50% vested in such
award as of the Termination Date.

(6) Notwithstanding any other provision hereof, if the Company incurs an
obligation to pay severance under this Section 7(c) in connection with the
termination of Executive’s employment after the consummation of an initial public
offering by the Company, then, subject to Section 7(h), Executive shall be entitled
to receive the amounts specified in Section 8(a) in lieu of the amounts specified in
Sections 7(c)(1) and 7(c)(3).

(7) Payments under this Section 7(c) shall be in lieu of any severance benefits
otherwise due to Executive under any severance pay plan or program maintained by the
Company that covers its employees or executives generally. If Executive receives
payment under Section 8(a), payments otherwise payable under Section 7(c)(1) shall
terminate.

(d) Termination in Event of Executive’s Disability. If (1) the Company terminates
Executive’s employment with the Company and its affiliates during the Initial Term
or the Renewal Term (if any) pursuant to Section 6(a)(2), (2) Executive
signs and does not revoke a waiver and release agreement substantially similar to
Exhibit B, and (3) Executive continues to comply with Executive’s ongoing
obligations under Section 11 and 12 of this Agreement, then, subject to
Section 7(h), the Company shall pay Executive the severance described in accordance
with Section 7(e). Such severance payments shall be in addition to payment
by the Company of all previously unpaid amounts (including, without limitation,
salary, bonuses, equity plans, incentive compensation plans, fringe benefits, and
expense reimbursements) owed to Executive under this Agreement with respect to
periods prior to the Termination Date.

(e) Disability Severance. If the Company is required to pay Executive severance by
the express terms of Section 7(d), the Company shall pay Executive the following as severance:

(1) Executive’s Base Salary at the highest rate in effect prior to the
Termination Date as salary continuation for the duration of the Severance Period,
payable in equal monthly installments pursuant to the Company’s customary payroll
practices for executive salaries; provided, however, that, at the option of the
Company, the amounts payable under this Section 7(e) may be paid by the
Company in one lump sum.

6

 

(2) Executive, Executive’s spouse, and Executive’s dependents will continue to
be eligible for coverage under the Company’s group health plan or any successor plan
on the same basis as active executive employees of the Company, their spouses, and
their dependents for the duration of the Severance Period. Executive’s portion of
the premium for such coverage shall be withheld from the salary continuation
payments described in paragraph (1) immediately above or, if salary continuation has
been paid in a lump sum, Executive shall reimburse the Company for Executive’s
portion of the premium on a monthly basis. If and when group health coverage under
another employer’s plan is made available to Executive, Executive’s spouse, or
Executive’s dependents, the Company’s obligations under this paragraph will cease
with respect to each person to whom such coverage is made available, notwithstanding
that such person may not in fact become covered under such other employer’s plan.

(3) An amount equal to the sum of amounts paid or payable to Executive as
bonuses awarded by the Company for the calendar year prior to the calendar year in
which the Termination Date occurs. This amount will be payable in one lump sum to
Executive within 30 days after the end of the Severance Period.

(4) Executive shall become 100% vested in all of the shares of restricted stock
granted to Executive under the Mariner Energy, Inc. Equity Participation Plan to the
extent Executive is less than 100% vested in such shares as of the Termination Date.

(5) Executive shall become 50% vested in all of the rights and interests
granted to Executive under the Company’s stock and other equity plans (other than
the Mariner Energy, Inc. Equity Participation Plan), including without limitation
any stock options, restricted stock, restricted stock units, performance units,
and/or performance shares to the extent Executive is less than 50% vested in such
award as of the Termination Date.

(6) Notwithstanding any other provision hereof, if the Company incurs an
obligation to pay severance under this Section 7(e) in connection with termination
of Executive’s employment after the consummation of an initial public offering by
the Company, then, subject to Section 7(h), Executive shall be entitled to receive
the amounts specified in Section 8(a) in lieu of the amounts specified in Sections
7(e)(1) and 7(e)(3).

(7) Payments under this Section 7(e) shall be in lieu of any severance benefits
otherwise due to Executive under any severance pay plan or program maintained by the
Company that covers its employees or executives generally.

(f) “Cause” means the occurrence or existence, prior to occurrence of circumstances
constituting Good Reason, of any of the following events:

7

 

(1) Executive’s gross negligence or material mismanagement in performing, or
material failure or inability (excluding as a result of death or Disability) to
perform, Executive’s duties and responsibilities as described herein or as lawfully
directed by the Board or the Chief Executive Officer of the Company;

(2) Executive’s having committed any act of willful misconduct or material
dishonesty against the Company or any of its affiliates (including theft,
misappropriation, embezzlement, forgery, fraud, falsification of records, or
misrepresentation) or any act that results in, or could reasonably be expected to
result in, material injury to the reputation, business or business relationships of
the Company or any of its affiliates;

(3) Executive’s material breach of this Agreement, any fiduciary duty owed by
Executive to the Company or its affiliates, or any written workplace policies
applicable to Executive (including the Company’s code of conduct and policy on
workplace harassment) whether adopted on or after the date of this Agreement;

(4) Executive’s having been convicted of, or having entered a plea bargain, a
plea of nolo contendre or settlement admitting guilt for, any felony, any crime of
moral turpitude, or any other crime that could reasonably be expected to have a
material adverse impact on the Company’s or any of its affiliates’ reputations; or

(5) Executive’s having committed any material violation of any federal law
regulating securities (without having relied on the advice of the Company’s attorney
to perform required acts on the Chief Executive Officer’s behalf) or having been the
subject of any final order, judicial or administrative, obtained or issued by the
Securities and Exchange Commission, for any securities violation involving fraud,
including, for example, any such order consented to by Executive in which findings
of facts or any legal conclusions establishing liability are neither admitted nor
denied.

(g) “Good Reason” means the occurrence, prior to occurrence of circumstances
constituting Cause, of any of the following events without Executive’s consent:

(1) Any material breach by the Company of this Agreement, provided that
Executive provides the Board written notice of such breach within 90 days from the
first date that he is aware, or reasonably should be aware, of such breach and such
breach is not remedied within 30 days of the Board’s receipt of such written notice;

8

 

     (2) Any requirement by the Company that Executive relocate outside of the
Houston metropolitan area;

     (3) Failure of any successor to assume this Agreement not later than the date
as of which it acquires substantially all of the equity, assets or businesses of the
Company;

     (4) Any material reduction in Executive’s title, responsibilities, or duties;
or

     (5) The assignment to Executive of any duties materially inconsistent with his
duties as Vice President of the Company.

(h) Later Determinations. Notwithstanding any other provision of this Agreement, if
Executive’s employment with the Company is terminated such that Executive is
entitled to severance from the Company and within one year following such
termination the Board determines that Cause exists or existed on, prior to, or after
such termination, Executive shall not be entitled to any severance from the Company,
and any and all severance payments from the Company to Executive in any form or
amount shall cease and any such payments or reimbursements already made to Executive
must be returned to the Company.

     8. Change of Control.

     (a) Upon the termination of Executive’s employment with the Company for any reason other than
Cause at any time on or within nine months after a Change of Control that occurs during the
Employment Period or upon the occurrence of a Change of Control within nine months following a
termination of Executive’s employment that entitles Executive to severance under Section 7(c), the
Company shall pay Executive, subject to Section 8(d) below, an amount equal to 2.0 times the sum of
Executive’s Base Salary plus his Average Bonus Amount. The Executive’s “Average Bonus Amount” shall
be the average annual amount paid or payable to Executive as bonuses for the Company’s three
calendar years ended immediately prior to the occurrence of the Change of Control (or for the
number of calendar years that Executive has been an employee of the Company before the occurrence
of the Change of Control, if less than three); provided that any payment otherwise payable under
this Section 8(a) shall be subject to Section 7(h) notwithstanding that such payment is not a
severance payment.

     (b) Upon the occurrence of a Change of Control that occurs during the Employment Period or
within nine months following a termination of Executive’s employment that entitles Executive to
severance under Section 7(c), Executive shall become 100% vested in all of the rights and interests
granted to Executive under the Company’s stock and other equity plans, including without limitation
any stock options, restricted stock, restricted stock units, performance units, and/or performance
shares to the extent Executive is less than 100% vested in such award as of the Termination Date.

     (c) “Change of Control” means (i) after the Effective Date, any person or group of affiliated
or associated persons acquires more than 35% of the voting power of the Company; (ii)

9

 

the consummation of a sale of all or substantially all of the assets of the Company; (iii) the
dissolution of the Company or (iv) the consummation of any merger, consolidation, or reorganization
involving the Company in which, immediately after giving effect to such merger, consolidation or
reorganization, less than 51% of the total voting power of outstanding stock of the surviving or
resulting entity is then “beneficially owned” (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) in the aggregate by the stockholders of the Company
immediately prior to such merger, consolidation or reorganization. Notwithstanding the foregoing,
a Change of Control shall not include any acquisitions resulting from the consummation of the
private placement offering of common stock of the Company under Rule 144A and/or Regulation D prior
to March 31, 2005.

     (d) Except as provided below, such Change of Control payments shall be in addition to payment
by the Company of all other amounts (including, without limitation, salary, bonuses, equity plans,
incentive compensation plans, fringe benefits, and expense reimbursements) owed to Executive under
other provisions of this Agreement. Notwithstanding the foregoing, if on or before the Change of
Control Executive becomes or has become entitled to payment pursuant to Section 7(c), the amount
payable under this Section 8 shall be reduced by the amount paid or payable to Executive under
Section 7(c).

     9. Gross-up Parachute Payment. In the event that Executive shall become entitled to
any amounts (the “Regular Amounts”), whether pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Company, any person whose actions result in a change of
ownership covered by Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended, or any
person affiliated with the Company or such person, that will be subject to the tax (the “Excise
Tax”) imposed by Section 4999 of the Code (and any similar tax that may hereafter be imposed), the
Company shall pay to Executive an additional amount (the “Gross-up Payment”) such that the net
amount retained by Executive after payment of all applicable federal and state taxes on the sum of
the Regular Amount plus the Gross-up Payment, is equal to the net amount that would have been
retained by Executive after payment of all applicable federal and state taxes on the Regular Amount
if it had not been subject to the Excise Tax.

     10. Conflicts of Interest. Executive agrees that he shall promptly disclose to the
Board any conflict of interest involving Executive upon Executive becoming aware of such conflict.
Executive’s ownership of an interest not in excess of five percent in a business organization that
competes with the Company shall not be deemed to constitute a conflict of interest.

     11. Confidentiality. The Company agrees to provide Executive valuable Confidential
Information of the Company and of third parties who have supplied such information to the Company.
In consideration of such Confidential Information and other valuable consideration provided
hereunder, Executive agrees to comply with this Section 11.

(a) “Confidential Information” means, without limitation and regardless of whether
such information or materials are expressly identified as confidential or
proprietary, (i) any and all non-public, confidential or proprietary information or
work product of the Company or its affiliates, (ii) any information that gives the

10

 

Company or its affiliates a competitive business advantage or the opportunity of
obtaining such advantage, (iii) any information the disclosure or improper use of
which is reasonably expected to be detrimental to the interests of the Company or
its affiliates, (iv) any trade secrets of the Company or its affiliates, and (v) any
other information of or regarding the Company or any of its affiliates, or its or
their past, present or future, direct or indirect, potential or actual officers,
directors, employees, owners, or business partners, including but not limited to
information regarding any of their businesses, operations, assets (including any Oil
and Gas Interests as defined below), liabilities, properties, systems, methods,
models, processes, results, performance, investments, investors, financial affairs,
future plans, business prospects, acquisition or investment opportunities,
strategies, business partners, business relationships, contracts, contractual
relationships, organizational or personnel matters, policies or procedures,
management or compensation matters, compliance or regulatory matters, as well as any
technical, seismic, industry, market or other data, studies or research, or any
forecasts, projections, valuations, derivations or other analyses, performed,
generated, collected, gathered, synthesized, purchased or owned by, or otherwise in
the possession of, the Company or its affiliates or which Executive has learned of
through his employment with the Company. Confidential Information also includes any
non-public, confidential or proprietary information about or belonging to any third
party which has been entrusted to the Company or its affiliates. Notwithstanding
the foregoing, Confidential Information does not include any information which is or
becomes generally known by the public other than as a result of Executive’s actions
or inactions. “Oil and Gas Interests” means: (a) direct and indirect interests in
and rights with respect to oil, gas, mineral and related properties (including
revenues or net revenues therefrom) and assets of any kind and nature, direct or
indirect, including without limitation working, royalty and overriding royalty
interests, mineral interests, leasehold interests, production payments, operating
rights, net profits interests, other non-working interests and non-operating
interests; (b) interests in and rights with respect to Hydrocarbons and other
minerals or revenues therefrom and contracts or agreements in connection therewith
and claims and rights thereto (including oil and gas leases, operating agreements,
unitization and pooling agreements and orders, division orders, transfer orders,
mineral deeds, royalty deeds, oil and gas sales, exchange and processing contracts
and agreements and, in each case, interests thereunder), surface interests, fee
interests, reversionary interests, reservations and concessions; (c) easements,
rights of way, licenses, permits, leases, and other interests associated with,
appurtenant to, or necessary for the operation of any of the foregoing; and (d)
interests in equipment and machinery (including well equipment and machinery), oil
and gas production, gathering, transmission, compression, treating, processing and
storage facilities (including tanks, tank batteries, pipelines and gathering
systems), pumps, water plants, electric plants, gasoline and gas processing plants,
refineries and other tangible personal property and fixtures associated with,
appurtenant to, or necessary for the operation of any of the foregoing, regardless
of location. “Hydrocarbons”

11

 

means oil, condensate gas, casinghead gas and other liquid or gaseous hydrocarbons.

(b) Protection. In return for the Company’s promise to provide Executive with
Confidential Information, Executive promises (i) to keep the Confidential
Information, and all documentation, materials and information relating thereto,
strictly confidential, (ii) not to use the Confidential Information for any purpose
other than as required in connection with fulfilling his duties as Vice President
for the benefit of the Company, and (iii) to return to the Company all documents
containing Confidential Information in Executive’s possession upon separation from
the Company for any reason. For the sake of clarity, Executive specifically
acknowledges and agrees that (x) the definition of Confidential Information in
Section 11(a) includes (but is not limited to) any nonpublic information about the
Oil and Gas Interests (as defined above) and any other assets, investments,
properties, sites or locations in which the Company or its affiliates have an
ownership or other interest or right, as well as any Oil and Gas Interests (as
defined above), assets, investments, properties, sites, locations, acquisitions or
other business prospects upon which the Company or its affiliates have expended
resources in the past, are currently expending resources, or are contemplating
expending resources in the future, and (y) that any use by Executive of such
Confidential Information other than as required in connection with fulfilling his
duties as Executive for the benefit of the Company will be a material breach of this
Agreement. The immediately preceding sentence has been included for the purpose of
highlighting certain aspects of the foregoing covenants and shall in no event be
read to limit or narrow the foregoing covenants.

(c) Scope. Executive understands and agrees that all Confidential Information, in
whatever medium (verbal, written, electronic or other), is subject to this Agreement
whether provided directly to Executive or not, whether provided to Executive prior
to the Effective Date of this Agreement or not, and whether inadvertently disclosed
to Executive or not. Confidential Information which was or is available to
Executive or to which Executive had or has access will be deemed to have been
provided to Executive. Executive also hereby agrees that Confidential Information
shall be deemed to include information regarding the assets of the Company, even if
such information was learned by Executive prior to formation of the Company.

(d) Value and Security. Executive understands and agrees that all Confidential
Information, and every portion thereof, constitutes the valuable intellectual
property of the Company, its affiliates, and/or third parties, and Executive further
acknowledges the importance of maintaining the security and confidentiality of the
Confidential Information and of not misusing the Confidential Information.

(e) Disclosure Required By Law. If Executive is legally required to disclose any
Confidential Information, Executive shall promptly notify the Company in

12

 

writing of such request or requirement so that the Company may seek an appropriate
protective order or other relief. Executive agrees to cooperate with and not to
oppose any effort by the Company to resist or narrow such request or to seek a
protective order or other appropriate remedy. In any case, Executive will (a)
disclose only that portion of the Confidential Information that, according to the
advice of Executive’s counsel, is required to be disclosed (and Executive’s
disclosure of Confidential Information to Executive’s counsel in connection with
obtaining such advice shall not be a violation of this Agreement), (b) use
reasonable efforts (at the expense of the Company) to obtain assurances that such
Confidential Information will be treated confidentially, and (c) promptly notify the
Company in writing of the items of Confidential Information so disclosed.

(f) Third-Party Confidentiality Agreements. To the extent that the Company possesses
any Confidential Information which is subject to any confidentiality agreements
with, or obligations to, third parties, Executive will comply with all such
agreements or obligations in full. The immediately preceding sentence shall apply
only if the Company has provided Executive with a copy of such agreements, and
Executive may disclose such agreements and any related Confidential Information to
Company’s attorneys and rely on their advice regarding compliance therewith.

(g) Survival. The covenants made by Executive in this Section 11, other than
Paragraph (f) hereof, will be effective only during the Employment Period and for
the two-year period immediately following the Employment Period, and to that extent
(and only that extent) shall survive termination of this Agreement. The covenants
made by Executive in Paragraph (f) of this Section 11 will be effective during the
period specified in the confidentiality agreements described therein.

     12. No Solicitation. Executive shall not, for a period of one year after the
Termination Date, either as principal, agent, independent contractor, consultant, director,
officer, employee, employer, advisor, stockholder, partner, member, joint venturer, owner or in any
other individual or representative capacity whatsoever, whether paid or unpaid, either for his own
benefit or for the benefit of any other person or entity, either (A) contact or solicit, with
respect to hiring, any person known by Executive to be or to have been, at any time during the
12-month period immediately preceding the Termination Date, an employee of the Company or its
affiliates, or (B) induce or otherwise counsel, advise or encourage any employee of the Company or
its affiliates to leave the employment of the Company or their respective employment with the
Company’s affiliates, as the case may be; provided, however, that this restriction shall not apply
to any solicitations contained in an advertisement directed generally to the public or the trade,
nor to any contacts resulting from such a solicitation. If Executive fails to comply with this
Section 12, the Company shall be entitled to, among other remedies, compliance by Executive
with the terms of this section for an additional period of time that shall equal the period over
which such noncompliance occurred. Notwithstanding any other provision hereof, this Section 12
shall not apply (1) if the Company terminates Executive’s employment with the Company and its
affiliates pursuant to Section 6(a)(4) or pursuant to delivery by the Company to Executive
of a

13

 

notice of non-renewal in accordance with Section 4, (2) if Executive terminates
Executive’s employment with the Company and its affiliates pursuant to Section 6(b)(1), or
(3) after the occurrence of a Change of Control.

     13. Defense of Claims. Executive agrees that, during the Employment Period and for a
period of 36 months after the Termination Date, upon request from the Company, Executive will
cooperate with the Company and its affiliates in the defense of any claims or actions that may be
made by or against the Company or any of its affiliates that relate to Executive’s prior areas of
responsibility, except if Executive’s reasonable interests are adverse to the Company or affiliates
in such claim or action. If Executive is not an employee of the Company or an affiliate at such
time, the Company agrees to compensate Executive for his time spent on such matters at the rate of
$150 per hour, and in addition, to pay or reimburse Executive for all of Executive’s reasonable
travel and other direct expenses incurred, or to be reasonably incurred, to comply with Executive’s
obligations under this Section 13, provided Executive provides reasonable documentation of
same.

     14. Withholdings: Right of Offset. The Company may withhold and deduct from any
payments made or to be made pursuant to this Agreement (a) all federal, state, local and other
taxes as may be required pursuant to any law or governmental regulation or ruling, (b) any
deductions consented to in writing by Executive, and (c) any other sums owed by Executive to the
Company, any affiliate, or any employee benefit plan or program of the Company or any affiliate.

     15. Severability. It is the desire of the parties hereto that this Agreement be
enforced to the maximum extent permitted by law, and should any provision contained herein be held
unenforceable by a court of competent jurisdiction or arbitrator (pursuant to Section 17),
the parties hereby agree and consent that such provision shall be reformed to create a valid and
enforceable provision to the maximum extent permitted by law; provided, however, if such provision
cannot be reformed, it shall be deemed ineffective and deleted herefrom without affecting any other
provision of this Agreement.

     16. Title and Headings; Construction. Titles and headings to Sections hereof are for
the purpose of reference only and shall in no way limit, define or otherwise affect the provisions
hereof. Any and all Exhibits referred to in this Agreement are, by such reference, incorporated
herein and made a part hereof for all purposes. The words “herein”, “hereof”, “hereunder” and
other compounds of the word “here” shall refer to the entire Agreement and not to any particular
provision hereof.

     17. Arbitration; Injunctive Relief; Attorneys’ Fees.

     (a) Subject to Section 17(b), any dispute, controversy or claim between
Executive and the Company arising out of or relating to this Agreement, Executive’s
employment with Company, or the termination of either will be finally settled by arbitration
in Houston, Texas before, and in accordance with the rules for the resolution of employment
disputes then obtaining of, the American Arbitration Association. The arbitrator’s award
shall be final and binding on both parties.

14

 

     (b) Notwithstanding Section 17(a), an application for emergency or temporary
injunctive relief by either party shall not be subject to arbitration under this Section
17; provided, however, that the remainder of any such dispute (beyond the
application for emergency or temporary injunctive relief) shall be subject to arbitration
under this Section 17. Executive acknowledges that Executive’s violation of
Sections 11 and/or 12 of this Agreement will cause irreparable harm to the Company,
Executive agrees not to contest that Executive’s violation of Sections 11 and/or 12
of this Agreement will cause irreparable harm to the Company and Executive agrees that the
Company shall be entitled as a matter of right to specific performance of Executive’s
obligations under Sections 11 and 12 and an injunction, from any court of competent
jurisdiction, restraining any violation or further violation of such agreements by Executive
or others acting on his/her behalf, without any showing of irreparable harm and without any
showing that the Company does not have an adequate remedy at law. The Company’s right to
injunctive relief shall be cumulative and in addition to any other remedies provided by law
or equity.

     (c) Each side shall share equally the cost of the arbitrator and bear its own costs and
attorneys’ fees incurred in connection with any arbitration, unless a statutory claim
authorizing the award of attorneys’ fees is at issue, in which event the arbitrator may
award a reasonable attorneys’ fee in accordance with the jurisprudence of that statute.

     (d) Nothing in this Section 17 shall prohibit a party to this Agreement from
(i) instituting litigation to enforce any arbitration award or (ii) joining another party to
this Agreement in a litigation initiated by a person which is not a party to this Agreement.

     18. Governing Law. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS. THE
EXCLUSIVE VENUE FOR THE RESOLUTION OF ANY DISPUTE RELATING TO THIS AGREEMENT OR EXECUTIVE’S
EMPLOYMENT (THAT IS NOT SUBJECT TO ARBITRATION UNDER SECTION 17 FOR ANY REASON) SHALL BE IN THE
STATE AND FEDERAL COURTS LOCATED IN HARRIS COUNTY, TEXAS AND THE PARTIES HEREBY EXPRESSLY CONSENT
TO THE JURISDICTION OF THOSE COURTS.

     19. Entire Agreement and Amendment. This Agreement contains the entire agreement of
the parties with respect to Executive’s employment and the other matters covered herein (except to
the extent that other agreements are specifically referenced herein); moreover, this Agreement
supersedes all prior and contemporaneous agreements and understandings, oral or written, between
the parties hereto concerning the subject matter hereof and thereof. This Agreement may be
amended, waived or terminated only by a written instrument executed by both parties hereto.

     20. Survival of Certain Provisions. Wherever appropriate to the intention of the
parties hereto, the respective rights and obligations of said parties, including, but not limited
to,

15

 

the rights and obligations set forth in Sections 6 through 18 hereof, shall survive
any termination or expiration of this Agreement for any reason.

     21. Waiver of Breach. No waiver by either party hereto of a breach of any provision
of this Agreement by the other party, or of compliance with any condition or provision of this
Agreement to be performed by such other party, will operate or be construed as a waiver of any
subsequent breach by such other party or any similar or dissimilar provision or condition at the
same or any subsequent time. The failure of either party hereto to take any action by reason of
any breach will not deprive such party of the right to take action at any time while such breach
continues.

     22. Assignment. Neither this Agreement nor any rights or obligations hereunder shall
be assignable or otherwise subject to hypothecation by Executive (except by will or by operation of
the laws of intestate succession) or by the Company, except that the Company may assign this
Agreement to any successor (whether by merger, purchase or otherwise) to all or substantially all
of the equity, assets or businesses of the Company, if such successor expressly agrees to assume
the obligations of the Company hereunder.

     23. Notices. Notices provided for in this Agreement shall be in writing and shall be
deemed to have been duly received (a) when delivered in person or sent by facsimile transmission,
(b) on the first business day after such notice is sent by air express overnight courier service,
or (c) on the third business day following deposit in the United States mail, registered or
certified mail, return receipt requested, postage prepaid and addressed, to the following address,
as applicable:

	 	(1)	 	If to Company, addressed to:
	 
	 	 	 	Mariner Energy, Inc.

Attn: Chief Executive Officer

2101 Citywest Blvd.

19th Floor, Bldg. 2

Houston, TX 77042
	 
	 	(2)	 	If to Executive, addressed to the address set forth below
Executive’s name on the execution page hereof;

or to such other address as either party may have furnished to the other party in writing in
accordance with this Section 23.

     24. Counterparts. This Agreement may be executed in any number of counterparts, each
of which when so executed and delivered shall be an original, but all such counterparts shall
together constitute one and the same instrument. Each counterpart may consist of a copy hereof
containing multiple signature pages, each signed by one party, but together signed by both parties
hereto.

16

 

     25. Definitions. The parties agree that as used in this Agreement the following terms
shall have the following meanings: an “affiliate” of a person shall mean any person directly or
indirectly controlling, controlled by, or under common control with, such person; the terms
“controlling, controlled by, or under common control with” shall mean the possession, directly or
indirectly, of the power to direct or influence or cause the direction or influence of management
or policies (whether through ownership of securities or other ownership interest or right, by
contract or otherwise) of a person; the term “person” shall mean a natural person, partnership
(general or limited), limited liability company, trust, estate, association, corporation,
custodian, nominee, or any other individual or entity in its own or any representative capacity, in
each case, whether domestic or foreign.

SIGNATURE PAGE FOLLOWS

17

 

     IN WITNESS WHEREOF, Executive and the Company have executed this Agreement to be effective for
all purposes as of the Effective Date.

	 	 	 	 	 
	 	EXECUTIVE:

 	 
	 
	 	Signature:  	 /s/ Jesus Melendrez
 	 
	 	 	Jesus Melendrez 	 
	 
	 	Date: 

	 
	 	Address for Notices:

5301 Pocahontas

Bellaire, TX 77401

MARINER ENERGY, INC.

 	 
	 	By: /s/ Scott D. Josey
	 
	 	Scott D. Josey 
	 
	 	Chief Executive Officer and President
	 
	 
	 	Date:

18

 

	 	 	 	 	 

Exhibit A

NONE

A-1

 

Exhibit B

WAIVER AND RELEASE AGREEMENT

     This Waiver and Release Agreement (the “Agreement”) is between Mariner Energy, Inc., a
Delaware company (“Company”), and Jesus Melendrez (“Executive”), as provided pursuant to that
employment agreement between Executive and Company dated February 7, 2005 (the “Employment
Agreement”) and attached hereto as Exhibit A.

     WHEREAS, Executive’s employment with Company is being terminated; and

     WHEREAS, Executive will be paid certain severance benefits in exchange for his release and
waiver of his claims against the Company Releasee (as defined below) pursuant to this Agreement;

     NOW, THEREFORE, the parties agree to the following.

     1. Complete Release and Other Consideration from Executive. In exchange for the
severance benefits provided under Section 2 of this Agreement, Executive agrees as follows:

	 	a.	 	Complete Release. On behalf of Executive and
Executive’s heirs and assigns, Executive fully releases Company and its direct
and indirect, past present and future, parents, subsidiaries, affiliates,
divisions, predecessors, successors, and assigns, and, with respect to all such
entities, their partners, members, shareholders, owners, officers, directors,
attorneys, agents, representatives and employees (collectively, the “Company
Releasees”), from any and all claims, demands, damages, losses, expenses,
liabilities and causes of action (including claims for attorneys’ fees)
(collectively, “Claims”), known or unknown, that Executive, his heirs,
executors, administrators, and assigns may have or may claim to have against
any of the Company Releasees based upon facts occurring on or prior to the date
Executive signs this Agreement, including but not limited to any claims arising
out of Executive’s employment relationship with and service as an employee,
officer or director of Company, and the termination of such relationship or
service, (the “Release”); provided, however, that this Release shall not apply
to Company’s obligations under this Agreement. This Release includes, without
limitation, any claims arising out of any contract (express or implied); any
tort (whether based on negligent, grossly negligent, or intentional conduct);
or any federal, state, or local law, including, without limitation, the Age
Discrimination in Employment Act and the Employee Retirement Income Security
Act (“ERISA”), other than benefits that Executive is entitled to under the
terms of an ERISA plan. This Release does not include any claims under the Age
Discrimination in Employment Act that may arise after this Agreement is
executed.

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	 	b.	 	Confidentiality. Except as may be required by law or
court order or as may be necessary in an action arising out of this Agreement,
Executive agrees not to disclose the existence or terms of this Agreement to
anyone other than Executive’s immediate family, attorneys, tax advisors, and
financial counselors, provided that Executive first informs them of this
confidentiality clause and secures their agreement to be bound by it.
Executive understands and agrees that a breach of this confidentiality
provision by any of these authorized persons will be deemed a material breach
of this Agreement by Executive.

	 	c.	 	Executive agrees not to bring or join any lawsuit against any
of the Company Releasees in any court (except as necessary to protect
Executive’s rights under this Agreement or with respect to Executive’s entry
into this Agreement) relating to Executive’s employment, events occurring
during Executive’s employment or the termination of Executive’s employment.
Executive represents that, as of the effective date of this Agreement,
Executive has not brought or joined any lawsuit or filed any charge or claim
against any of the Company Releasees in any court or before any government
agency. If Executive brings or joins any lawsuit against any of the Company
Releasees in any court (except as necessary to protect Executive’s rights under
this Agreement or with respect to Executive’s entry into this Agreement)
relating to Executive’s employment, events occurring during Executive’s
employment or the termination of Executive’s employment, and Executive is the
prevailing party in such lawsuit, Executive shall be obligated to return to the
Company all amounts paid to Executive as benefits under this Agreement, to the
extent permitted under applicable law and ordered by the court. Further, if
any Company Releasee is the prevailing party in any lawsuit Executive brings
against such Company Releasee relating to Executive’s employment that has been
waived in this Agreement, to the extent permitted by applicable law (such as if
Executive’s claims are found to be brought in bad faith), Executive agrees to
pay all costs and expenses incurred by such person or entity, including
reasonable attorneys’ fees, in defending against such lawsuit.

This Agreement is not intended to indicate that any Claims exist or that, if they do
exist, they are meritorious. Rather, Executive is simply agreeing that, in return
for the Company’s payment provided by this Agreement, any and all potential Claims
that Executive may have against the Company Releasees, regardless of whether they
actually exist, are expressly settled, compromised and waived. By signing this
Agreement, Executive and the Company Releasees are bound by it. Anyone who succeeds
to Executive’s rights and responsibilities, such as heirs or the executor of
Executive’s estate, is also bound by this Agreement. The waiver and release
provisions of this Agreement do not apply to any rights or claims that may arise
after its effective date. This Release also applies to any claims brought by any
person or agency or class action under which Executive may have a right or benefit.

B-2

 

     2. Consideration from Company. In exchange for Executive’s obligations under this
Agreement, the Company shall pay Executive those severance payments and benefits described in
Sections 7, 8 and 9, as applicable, of the Employment Agreement, which are incorporated
herein by reference and made a part of this Agreement. Executive acknowledges that Executive is
not otherwise entitled to receive such severance payments and benefits, these severance payments
and benefits are conditioned on Executive’s compliance with the terms of this Agreement and the
Employment Agreement, including without limitation Sections 11 and 12 thereof. Executive
acknowledges and agrees that Company will withhold any taxes required by applicable law from the
severance payments and benefits.

     3. Right to Consult an Attorney; Period of Review. Executive is encouraged to consult
with an attorney before signing this Agreement. From the date this Agreement is first presented to
Executive, Executive will have 21 [45, if applicable] days in which to review this Agreement.
Executive may use as little or much of this 21 [45]-day review period as Executive chooses.

     4. Entire Agreement; Amendment; Continuing Obligations. This Agreement and the
Employment Agreement together contain the entire agreement of the parties with respect to the
termination of Executive’s employment and the other matters covered herein and therein; moreover,
this Agreement supersedes all prior and contemporaneous agreements and understandings, oral or
written, between the parties hereto concerning the subject matter hereof. This Agreement may be
amended, waived or terminated only by a written instrument executed by both parties hereto.
Executive hereby reaffirms and agrees to continue to abide by all of Executive’s continuing
obligations under Sections 11 through 18 of the Employment Agreement.

     5. Revocation. Upon signing this Agreement, Executive will have 7 days to revoke the
Agreement. To properly revoke the Agreement, Company must receive written notice of revocation
from Executive by the close of business on the 7th day after the date the Agreement is signed by
Executive. Written notice must be delivered pursuant to Section 23 of the Employment
Agreement. Executive understands that failure to revoke his acceptance of this Agreement within 7
days after the date he signs it will result in this Agreement being permanent and irrevocable.

     6. Choice of Law. This Agreement will be governed in all respects by the laws of the
State of Texas, without regard to its choice of law principles. This Agreement is subject to the
arbitration provisions in Section 17 of the Employment Agreement.

     7. Effectiveness of Agreement. This Agreement will be effective, and the severance
payments and benefits provided in Section 2 of this Agreement will be made and provided,
only if Executive executes this Agreement within 21 [45] days of receiving it and only if Executive
does not revoke this Agreement under Section 5 above.

B-3

 

	 	 	 	 	 
	 	EXECUTIVE

 	 
	 	 Signature: 	 
 	 
	 	 	Jesus Melendrez 	 
	 
	 	Date:

	 
	 	MARINER ENERGY, INC.

 	 
	 	By:  
	 
	 	[Name] 
	 
	 	[Title]

	 
	 
	 	Date:

	 

B-4

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