Document:

EXHIBIT
      10.5

     

     

     

    ENERGY
      XXI SERVICES, LLC

    2006
      LONG-TERM INCENTIVE
      PLAN 

    Effective
      Date:
      October 6, 2006 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
    

    ENERGY
      XXI SERVICES, LLC

    2006
      LONG-TERM INCENTIVE
      PLAN 

    Table
      of Contents

     

    
      	
            	
            	
            	
            	
            
	ARTICLE
              I INTRODUCTION	  	1
	
            	
            	
            
	
              1.1

            	  	Purpose	  	1
	
              1.2

            	  	Shares
              Subject to the Plan	  	1
	
              1.3

            	  	Administration
              of the Plan	  	1
	
              1.4

            	  	Amendment
              and Discontinuance of the Plan	  	2
	
              1.5

            	  	Granting
              of Awards to Participants	  	2
	
              1.6

            	  	Term
              of Plan	  	2
	
              1.7

            	  	Leave
              of Absence	  	2
	
              1.8

            	  	Definitions	  	2
	
            	
            
	ARTICLE
              II NON-QUALIFIED OPTIONS	  	7
	
            	
            	
            
	
              2.1

            	  	Grants	  	7
	
              2.2

            	  	Calculation
              of Exercise Price	  	7
	
              2.3

            	  	Terms
              and Conditions of Options	  	7
	
              2.4

            	  	Amendment	  	9
	
              2.5

            	  	Acceleration
              of Vesting	  	9
	
              2.6

            	  	Other
              Provisions	  	9
	
              2.7

            	  	No
              Option Repricing Without Stockholder Approval	  	10
	
            	
            
	ARTICLE
              III INCENTIVE OPTIONS	  	10
	
            	
            	
            
	
              3.1

            	  	Eligibility	  	10
	
              3.2

            	  	Exercise
              Price	  	10
	
              3.3

            	  	Dollar
              Limitation	  	10
	
              3.4

            	  	10%
              Stockholder	  	10
	
              3.5

            	  	Options
              Not Transferable	  	10
	
              3.6

            	  	Compliance
              with 422	  	10
	
              3.7

            	  	Limitations
              on Exercise	  	11
	
            	
            
	ARTICLE
              IV STOCK APPRECIATION RIGHTS AND RESTRICTED STOCK UNIT
              AWARDS	  	11
	
            	
            	
            
	
              4.1

            	  	Stock
              Appreciation Rights	  	11
	
              4.2

            	  	Restricted
              Stock Unit Awards	  	12
	
            	
            
	ARTICLE
              V RESTRICTED STOCK	  	12
	
            	
            	
            
	
              5.1

            	  	Eligible
              Persons	  	12
	
              5.2

            	  	Restricted
              Period and Vesting	  	13

    

    
    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

       

    

    
      	
            	
            	
            	
            	
            
	ARTICLE
              VI PERFORMANCE AWARDS	  	14
	
            	
            	
            
	
              6.1

            	  	Performance
              Awards	  	14
	
              6.2

            	  	Performance
              Goals	  	14
	
            	
            
	ARTICLE
              VII OTHER STOCK OR PERFORMANCE-BASED AWARDS	  	15
	
            	
            
	ARTICLE
              VIII CERTAIN PROVISIONS APPLICABLE TO ALL AWARDS	  	16
	
            	
            	
            
	
              8.1

            	  	General	  	16
	
              8.2

            	  	Stand-Alone,
              Additional, Tandem and Substitute Awards	  	16
	
              8.3

            	  	Term
              of Awards	  	16
	
              8.4

            	  	Form
              and Timing of Payment under Awards; Deferrals	  	16
	
              8.5

            	  	Vested
              and Unvested Awards	  	17
	
              8.6

            	  	Exemptions
              from Section 16(b) Liability	  	17
	
              8.7

            	  	Other
              Provisions	  	17
	
            	
            
	ARTICLE
              IX WITHHOLDING FOR TAXES	  	18
	
            	
            
	ARTICLE
              X MISCELLANEOUS	  	18
	
            	
            	
            
	
              10.1

            	  	No
              Rights to Awards	  	18
	
              10.2

            	  	No
              Right to Employment	  	18
	
              10.3

            	  	Governing
              Law	  	18
	
              10.4

            	  	Severability	  	18
	
              10.5

            	  	Other
              Laws	  	19
	
              10.6

            	  	409A
              Compliance - No Guarantee of Tax Consequences	  	19
	
              10.7

            	  	Shareholder
              Agreements	  	19

    

     

     

    
      
         

      

      
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    ENERGY
      XXI SERVICES, LLC

    2006
      Long-term Incentive
      Plan 

    ARTICLE
      I

    INTRODUCTION
      

    1.1
      Purpose. The
      Energy XXI Services, LLC 2006 Long-term Incentive Plan (the
“Plan”) is intended to promote the interests of Energy XXI
      Services, LLC, a Delaware limited liability corporation, (the
“Employer”) and its stockholders (the
“Stockholders”) by encouraging Employees, Service Providers
      and
      Non-Employee Directors (as each is defined below) to acquire or increase their
      equity interests in Energy XXI (Bermuda) Limited, a Bermuda entity, and any
      successor entity (the “Company”) thereby giving them an added
      incentive to work toward the continued growth and success of the Employer and
      the Company. The Board of Directors of the Company (the “Board”)
      also contemplates that through the Plan, the Company, the Employer and its
      Affiliates will be better able to compete for the services of the individuals
      needed for the continued growth and success of the Company. 

    1.2
      Shares Subject to the
      Plan. The aggregate number of shares of Common Stock, of the Company
      (“Common Stock”) that may be issued under the Plan shall not
      exceed one million two hundred fifty thousand (1,250,000) shares. No more
      than 1,250,000 shares of Common Stock shall be issued to any one Participant
      pursuant to this Plan in any one calendar year. Notwithstanding the above,
      however, in the event that at any time after the Effective Date (as defined
      below) the outstanding shares of Common Stock are subdivided, consolidated,
      split-up, spun-off, reclassified, recapitalized, or changed into or exchanged
      for a different number or kind of shares or other securities of the Company
      by
      reason of a merger, consolidation, recapitalization, reclassification, stock
      split, stock dividend, combination of shares or the like, the aggregate number
      and class of securities available under the Plan (or issuable to any one
      Participant pursuant to this Plan in any one calendar year) shall be ratably
      adjusted by the Committee (as defined below), whose determination shall be
      final
      and binding upon the Company and all other interested persons. In the event
      the
      number of shares to be delivered upon the exercise or payment of any Award
      (as
      defined below) granted under the Plan is reduced for any reason whatsoever
      or in
      the event any Award granted under the Plan can no longer under any circumstances
      be exercised or paid, the number of shares no longer subject to such Award
      shall
      thereupon be released from such Award and shall thereafter be available under
      the Plan for the grant of additional Awards. Shares issued pursuant to the
      Plan
      (i) may be treasury shares, authorized but unissued shares or, if
      applicable, shares acquired in the open market and (ii) shall be fully paid
      and nonassessable. 

    1.3
      Administration of the
      Plan. The Plan shall be administered by the Committee. Subject to the
      provisions of the Plan, the Committee shall interpret the Plan and all Awards
      under the Plan, shall make such rules as it deems necessary for the proper
      administration of the Plan, shall make all other determinations necessary or
      advisable for the administration of the Plan and shall correct any defect or
      supply any omission or reconcile any inconsistency in the Plan or in any Award
      under the Plan in the manner and to the extent that the Committee deems
      desirable to effectuate the Plan. Any action taken or determination made by
      the
      Committee pursuant to this and the other paragraphs of the Plan shall be
      conclusive on all parties. The act or determination of
      a majority of the
      Committee shall be deemed to be the act or determination of the Committee.
      

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    1.4
      Amendment and
      Discontinuance of the Plan. The Board may amend, suspend or terminate
      the Plan; provided, however, that, without the consent of the holder of an
      Award, no amendment, suspension or termination of the Plan may terminate such
      Award or adversely affect such person’s rights with respect to such Award in any
      material respect; provided further, however, that any amendment which would
      constitute a “material revision” of the Plan (as that term is used in the rules
      of any exchange on which the Common Stock is traded) that would require
      Stockholder approval under the applicable exchange rules on which the Common
      Stock is traded, shall be subject to Stockholder approval and/or approval of
      the
      shareholders of the Company, whichever is applicable under the applicable
      exchange rules. 

    1.5
      Granting of Awards to
      Participants. The Committee shall have the authority to grant, prior to
      the expiration date of the Plan, Awards to such Employees, Service Providers
      and
      Non-Employee Directors as may be selected by it on the terms and conditions
      hereinafter set forth in the Plan. In selecting the persons to receive Awards,
      including the type and size of the Award, the Committee may consider any factors
      that it may deem relevant. Notwithstanding the foregoing, any Awards made to
      members of the Committee or any Service Provider to the Committee or the Board,
      must be approved by the full Board. 

    1.6
      Term of Plan.
      The Plan has been adopted by the board of directors of the Employer and the
      Company. The Plan is effective as of October 6, 2006 (the “Effective
      Date”), subject to approval by the Stockholders and the shareholders of
      the Company. The provisions of the Plan are applicable to all Awards granted
      on
      or after the Effective Date. If not sooner terminated under the provisions
      of
      Section 1.4 hereof, the Plan shall terminate upon, and no further Awards
      shall be made, after the tenth (10th) anniversary
      of the Effective Date. 

    1.7
      Leave of
      Absence. If an Employee is on military, sick leave or other bona fide
      leave of absence, such person shall be considered an “Employee” for purposes of
      an outstanding Award during the period of such leave provided it does not exceed
      ninety (90) days, or, if longer, so long as the person’s right to
      reemployment is guaranteed either by statute or by contract. If the period
      of
      leave exceeds ninety (90) days, such Employee’s Employment (as defined
      below) shall be deemed to have terminated on the ninety-first (91st) day
      of such leave, unless the person’s right to
      reemployment is guaranteed by statute or contract. 

    1.8
      Definitions. As
      used in the Plan, the following terms shall have the meanings set forth below:
      

    “1934
      Act” means the
      Securities Exchange Act of 1934, as amended, and the rules and regulations
      promulgated thereunder by the Securities and Exchange Commission. 

    “Affiliate”
means
      (i) any entity in which the Employer directly or indirectly, owns fifty
      percent (50%) or more of the combined voting power, as determined by the
      Committee, (ii) any “parent corporation” of the Employer (as defined in
      Section 424(e) of the Code), (iii) any “subsidiary corporation” of any
      such parent corporation (as defined in Section 424(f) of the Code) of the
      Employer and (iv) any trades or businesses, whether or not incorporated
      which are members of
      a
      controlled group or are under common control (as defined in Sections 414(b)
      or
      (c) of the Code) with the Employer, but using the threshold of 50%
      ownership wherever 80% appears. 

     

    
      
         

      

      
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    “Awards”
means,
      collectively,
      Options, Stock Appreciation Rights, Restricted Stock Unit Awards, Restricted
      Stock, Performance Awards or Other Stock or Performance Based Awards.

    “Board”
has
      the meaning set
      forth in Section 1.1 hereof. 

    “Cause”
for
      termination of
      any Participant who is a party to an agreement of Employment with or provides
      services to the Employer or the Company shall mean termination for “Cause” as
      such term is defined in such agreement, the relevant portions of which are
      incorporated herein by reference. If such agreement does not define “Cause” or
      if a Participant is not a party to such an agreement, “Cause” means (i) the
      commission by a Participant of a criminal or other act that causes or is likely
      to cause substantial economic damage to the Company or an Affiliate or
      substantial injury to the business reputation of the Company or an Affiliate;
      (ii) the commission by a Participant of an act of fraud in the performance
      of such Participant’s duties on behalf of the Company or an Affiliate; or
      (iii) the failure of a Participant to perform the duties of such
      Participant to the Company or an Affiliate (other than such failure resulting
      from the Participant’s incapacity due to physical or mental illness).

    “Change
      of Control” shall be
      deemed to have occurred upon any of the following events: 

    (i)
      any “person” (as defined in
      Section 3(a)(9) of the 1934 Act, and as modified by Section 13(d) and
      14(d) thereof) other than (A) the Company or any of its subsidiaries,
      (B) any employee benefit plan of the Company or any of its subsidiaries,
      (C) an Affiliate, (D) a company owned, directly or indirectly, by
      stockholders of the Company in substantially the same proportions as their
      ownership of the Company, or (E) an underwriter temporarily holding
      securities pursuant to an offering of such securities (a
“person”), becomes the “beneficial owner” (as defined in Rule
      13d-3 of the 1934 Act), directly or indirectly, of securities of the Company
      representing fifty percent (50%) or more of the shares of voting stock of
      the Company then outstanding; provided, however, that an initial public offering
      of Common Stock shall not constitute a Change of Control; 

    (ii)
      the consummation of any merger,
      reorganization, business combination or consolidation of the Company or one
      of
      its subsidiaries with or into any other company, other than a merger,
      reorganization, business combination or consolidation which would result in
      the
      holders of the voting securities of the Company outstanding immediately prior
      thereto holding securities which represent immediately after such merger,
      reorganization, business combination or consolidation more than fifty percent
      (50%) of the combined voting power of the voting securities of the Company
      or the surviving company or the parent of such surviving company; 

     

     

    
      
         

      

      
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    (iii)
      the consummation of a sale or
      disposition by the Company of the Employer or all or substantially all of the
      Company’s assets, other than a sale or disposition where the holders of the
      voting securities of the Company outstanding immediately prior thereto hold
      securities immediately thereafter which represent more than fifty percent
      (50%) of the combined voting power of the voting securities of the
      acquiror, or parent of the acquiror, of such assets, or the stockholders of
      the
      Company approve a plan of complete liquidation or dissolution of the Company;
      or

    (iv)
      individuals who, as of the
      Effective Date, constitute the Board (the “Incumbent Board”) cease
      for any reason to constitute at least a majority of the Board; provided,
      however, that any individual becoming a Director subsequent to the Effective
      Date whose election to the Board was approved by a vote of at least a majority
      of the Directors then comprising the Incumbent Board shall be considered as
      though such individual were a member of the Incumbent Board, but excluding,
      for
      this purpose, any such individual whose initial assumption of office occurs
      as a
      result of an election contest with respect to the election or removal of
      Directors or other solicitation of proxies or consents by or on behalf of a
      person other than the Board. 

    Solely
      with respect to any Award
      that is subject to Section 409A of the Code and that is payable upon a
      Change of Control, and to the extent that the above definition does not comply
      with Section 409A, such definition shall be modified, to the extent
      required to ensure that this definition complies with the requirements of
      Section 409A of the Code, as set forth in regulations or other regulatory
      guidance issued under Section 409A of the Code by the appropriate
      governmental authority and the Plan shall be operated in accordance with the
      above definition of Change of Control as modified to the extent necessary to
      ensure that the above definition complies with the definition prescribed in
      such
      regulations or other regulator guidance insofar as the definition relates to
      any
      Award that is subject to Section 409A of the Code and payable upon a Change
      of Control. 

    “Code”
means
      the Internal
      Revenue Code of 1986, as amended from time to time, and the rules and
      regulations thereunder. 

    “Committee”
means
      the
      committee appointed by the Board or, if none, the Board; provided however,
      that
      with respect to any Award granted to a Covered Employee which is intended to
      be
“performance-based compensation” as described in Section 162(m)(4)(c) of
      the Code, to the extent such Award is subject to Section 162(m) of the
      Code, the Committee shall consist solely of two or more “outside directors” as
      described in Section 162(m)(4)(c)(i) of the Code; and if the Company is
      subject to the 1934 Act, the Committee shall mean the compensation committee
      of
      the Board, which shall consist of not less than two (2) independent members
      of the Board, each of whom shall qualify as a “non-employee director” (as that
      term is defined in Rule 16b-3 of the General Rules and Regulations under the
      1934 Act) appointed by and serving at the pleasure of the Board to administer
      this Plan or, if none, the independent members of the Board. 

    “Common
      Stock” has the
      meaning set forth in Section 1.2 hereof. 

     

    
      
         

      

      
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    “Company”
has
      the meaning set
      forth in Section 1.1 hereof. 

    “Covered
      Employee” means the
      Chief Executive Officer of the Company or the four highest paid officers of
      the
      Company other than the Chief Executive Officer as described in
      Section 162(m)(3) of the Code, as well as any person designated by the
      Committee, at the time of grant of an Award, who is likely to be a Covered
      Employee. 

    “Director”
means
      a director of the
      Company. 

    “Disability”
means
      a
      Participant is unable to engage in any substantial gainful activity by reason
      of
      any medically determinable physical or mental impairment which can be expected
      to result in death or can be expected to last for a continuous period of not
      less than 12 months, or is, by reason of any medically determinable physical
      or
      mental impairment which can be expected to result in death or can be expected
      to
      last of or a continuous period of not less than 12 months, receiving income
      replacement benefits for a period of not less than three months under an
      accident and health plan covering employees of the Employer. 

    “Effective
      Date” has the
      meaning set forth in Section 1.6 hereof. 

    “Employee”
means
      any employee
      of the Employer or an Affiliate. 

    “Employer”
has
      the meaning
      set forth in Section 1.1 hereof and any other Affiliate which is determined
      by the Board to be an Employer. 

    “Employment”
includes
      any
      period in which a Participant is an Employee or a paid Service Provider to
      the
      Employer or an Affiliate. 

    “Fair
      Market Value or FMV Per
      Share” The Fair Market Value or FMV Per Share of the Common Stock shall be
      the closing price on any national or foreign securities exchange or
      over-the-counter market, if applicable, for the date of the determination,
      or if
      no trade of the Common Stock shall have been reported for such date, the closing
      sales price quoted on such exchange for the most recent trade prior to the
      determination date. If shares of the Common Stock are not listed or admitted
      to
      trading on any exchange, over-the-counter market or any similar organization
      as
      of the determination date, the FMV Per Share shall be determined by the
      Committee in good faith using a fair application of a reasonable valuation
      methodology taking into account all available information material to the value
      of the Company. 

    “Good
      Reason” means
      termination of Employment by an Employee, or termination of service by a Service
      Provider if such Employee or Service Provider is a party to an agreement for
      Employment with or services to the Employer or the Company, which agreement
      includes a definition of “Good Reason” (or similar term or concept) for
      termination of Employment with or services to the Company, “Good Reason” shall
      have the same definition for purposes of the Plan as is set forth in such
      agreement, the relevant portions of which are incorporated herein by
reference. If such
      Employee or Service Provider is not a party to an agreement with the Employer
      or
      the Company that defines the term “Good Reason,” (or similar term or concept)
      such term shall not be applicable to such Employee or Service Provider and
      any
      provision of the Plan or an Award referencing “Good Reason” shall not be
      applicable to such Employee or Service Provider. 

     

    
      
         

      

      
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    “Incentive
      Option” means any
      option which satisfies the requirements of Section 422 of the Code and is
      granted pursuant to Article III of the Plan. 

    “Incumbent
      Board” has the
      meaning set forth in this Section 1.8 in the definition of “Change of
      Control.” 

    “Non-Employee
      Director” means
      persons who are members of the Board but who are neither Employees nor Service
      Providers of the Company or any Affiliate. 

    “Non-Qualified
      Option” shall
      mean an option not intended to satisfy the requirements of Section 422 of
      the Code and which is granted pursuant to Article II of the Plan. 

    “Option”
means
      an option to
      acquire Common Stock granted pursuant to the provisions of the Plan, and refers
      to either an Incentive Option or a Non-Qualified Option, or both, as applicable.
      

    “Option
      Expiration Date”
means the date determined by Committee which shall not be more than ten
      (10) years after the date of grant of an Option. 

    “Option
      Grant Date” means the
      date on which the Committee grants an Option pursuant to the provisions of
      the
      Plan. 

    “Optionee”
      means a
      Participant who has received or will receive an Option. 

    “Other
      Stock or Performance-Based
      Award” means an award granted pursuant to Article VII of the Plan.

    “Participant”
means
      any
      Non-Employee Director, Employee or Service Provider granted an Award under
      the
      Plan. 

    “Performance
      Award” means an
      Award granted pursuant to Article VI of the Plan, which, if earned, shall be
      payable in shares of Common Stock, cash or any combination thereof as determined
      by the Committee. 

    “Performance
      Period” means a
      period of not less than one year and not more than five years during which
      the
      Committee may grant Performance Awards. 

     

    
      
         

      

      
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    “Person”
has
      the meaning set
      forth in this Section 1.8 in the definition of “Change of Control”.

    “Restricted
      Period” means the
      period established by the Committee with respect to an Award during which the
      Award either remains subject to forfeiture or is not exercisable by the
      Participant. 

    “Restricted
      Stock” means any
      share of Common Stock, prior to the lapse of restrictions thereon, granted
      under
      Article V of the Plan. 

    “Restricted
      Stock Unit
      Awards” has the meaning set forth in Section 4.2 hereof. 

    “Service
      Provider” means any
      individual or entity, other than a Director or an Employee, who renders
      consulting or advisory services to the Company or an Affiliate. 

    “Stock
      Appreciation Rights”
means an Award described in Section 4.1(a) that is granted pursuant to
      Article IV of the Plan. 

    “Stockholder”
has
      the meaning
      set forth in Section 1.1 hereof. 

    ARTICLE
      II

    NON-QUALIFIED
      OPTIONS

    2.1
      Grants. The
      Committee may grant Options to purchase Common Stock to any Employee, Service
      Provider or Non-Employee Director, provided that such grant does not constitute
      a deferral of compensation within the meaning of section 409A of the Code.
      

    2.2
      Calculation of Exercise
      Price. The exercise price to be paid for each share of Common Stock
      deliverable upon exercise of each Option granted under this Article II shall
      not
      be less than the FMV Per Share on 

    the
      date of grant of such Option.
      The exercise price for each Option granted under this Article II shall be
      subject to adjustment as provided in Section 2.3(d) below. 

    2.3
      Terms and Conditions of
      Options. Options shall be in such form as the Committee may from time
      to time approve, shall be subject to the following terms and conditions and
      may
      contain such additional terms and conditions, not inconsistent with this Article
      II, as the Committee shall deem desirable: 

    (a)
Option
      Period and Conditions
      and Limitations on Exercise. No Option shall be exercisable later than the
      Option Expiration Date. To the extent not prohibited by other provisions of
      the
      Plan, each Option shall be exercisable at such time or times as the Committee
      in
      its discretion may determine at the time such Option is granted. 

     

    
      
         

      

      
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    (b)
Manner
      of Exercise. In
      order to exercise an Option, the person or persons entitled to exercise it
      shall
      deliver to the Company payment in full for the shares being purchased, together
      with any required withholding taxes. The payment of the exercise price, together
      with any required withholding taxes, for each Option shall be made (i) in
      cash or by check payable and acceptable to the Company, (ii) with the
      consent of the Committee, by tendering to the Company shares of Common Stock
      owned by the person for more than six months having an aggregate Fair Market
      Value as of the date of exercise that is not greater than the full exercise
      price for the shares with respect to which the Option is being exercised and
      by
      paying any remaining amount of the exercise price as provided in (i) above,
      or (iii) subject to such instructions as the Committee may specify, at the
      person’s written request the Company may deliver certificates for the shares of
      Common Stock for which the Option is being exercised to a broker for sale on
      behalf of the person, provided that the person has irrevocably instructed such
      broker to remit directly to the Company on the person’s behalf the full amount
      of the exercise price from the proceeds of such sale. In the event that the
      person elects to make payment as allowed under clause (ii) above, the
      Committee may, upon confirming that the Optionee owns the number of additional
      shares being tendered, authorize the issuance of a new certificate for the
      number of shares being acquired pursuant to the exercise of the Option less
      the
      number of shares being tendered upon the exercise and return to the person
      (or
      not require surrender of) the certificate for the shares being tendered upon
      the
      exercise. If the Committee so requires, such person or persons shall also
      deliver a written representation that all shares being purchased are being
      acquired for investment and not with a view to, or for resale in connection
      with, any distribution of such shares. 

    (c)
Options
      not Transferable.
      Except as provided below, no Non-Qualified Option granted hereunder shall be
      transferable other than by (i) will or by the laws of descent and
      distribution or (ii) pursuant to a domestic relations order and, during the
      lifetime of the Participant to whom any such Option is granted, and it shall
      be
      exercisable only by the Participant (or his guardian). Any attempt to transfer,
      assign, pledge, hypothecate or otherwise dispose of, or to subject to execution,
      attachment or similar process, any Option granted hereunder, or any right
      thereunder, contrary to the provisions hereof, shall be void and ineffective,
      shall give no right to the purported transferee, and shall, at the sole
      discretion of the Committee, result in forfeiture of the Option with respect
      to
      the shares involved in such attempt. With respect to a specific Non-Qualified
      Option, the Participant (or his guardian), subject to the 

    consent
      of the Committee, may
      transfer, for estate planning purposes, all or part of such Option to one or
      more immediate family members or related family trusts or partnerships or
      similar entities. 

    (d)
Adjustment
      of Options. In
      the event that at any time after the Effective Date the outstanding shares
      of
      Common Stock are subdivided, consolidated, split-up, spun-off, reclassified,
      recapitalized, or changed into or exchanged for a different number or kind
      of
      shares or other securities of the Company by reason of merger, consolidation,
      recapitalization, reclassification, stock split, stock dividend, combination
      of
      shares or the like, the Committee shall make an appropriate and equitable
      adjustment in the number and kind of shares, and the exercise price per share,
      as to which all outstanding Options granted, or portions thereof then
      unexercised, shall be exercisable, to the end that after such event the shares
      subject to the Plan and each Participant’s proportionate interest shall be
      maintained as before the occurrence of such event. Such adjustment in an
      outstanding Option shall be made without change in the total price applicable to the
      Option or the
      unexercised portion of the Option (except for any change in the aggregate price
      resulting from rounding of share quantities or prices) and with any necessary
      corresponding adjustment in exercise price per share. Any such adjustment made
      by the Committee shall be final and binding upon all Participants, the Company
      and all other interested persons. 

     

    
      
         

      

      
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    (e)
Listing
      and Registration of
      Shares. Each Option shall be subject to the requirement that if at any time
      the Committee determines, in its discretion, that the listing, registration,
      or
      qualification of the shares subject to such Option under any securities exchange
      or under any state or federal law, or the consent or approval of any
      governmental regulatory body, is necessary or desirable as a condition of,
      or in
      connection with, the issue or purchase of shares thereunder, such Option may
      not
      be exercised in whole or in part unless such listing, registration,
      qualification, consent or approval shall have been effected or obtained and
      the
      same shall have been free of any conditions not acceptable to the Committee.
      

    2.4
      Amendment. The
      Committee may, without the consent of the person or persons entitled to exercise
      any outstanding Option, amend, modify or terminate such Option; provided,
      however, such amendment, modification or termination shall not, without such
      person’s consent, reduce or diminish the value of such Option determined as if
      the Option had been exercised, vested, cashed in or otherwise settled on the
      date of such amendment or termination or cause such Option to be subject to
      adverse tax consequences under section 409A of the Code. The Committee may
      at
      any time or from time to time, in its discretion, in the case of any Option
      which is not then immediately exercisable in full, accelerate the time or times
      at which such Option may be exercised to any earlier time or times.

    2.5
      Acceleration of
      Vesting. Any Option granted hereunder which is not otherwise vested
      shall vest (unless specifically provided to the contrary by the Committee in
      the
      document or instrument evidencing an Option granted hereunder) upon
      (i) termination of an Employee or Service Provider without Cause or
      termination by an Employee or Service Provider with Good Reason;
      (ii) termination, removal or resignation of an Employee, Service Provider
      or Non-Employee Director for any reason within one (1) year from the
      effective date of the Change of Control; or (iii) death or Disability of
      the Participant. 

    2.6
      Other
      Provisions. 

    (a)
      The person or persons entitled
      to exercise, or who have exercised, an Option shall not be entitled to any
      rights as a Stockholder with respect to any shares subject to such Option until
      he shall have become the holder of record of such shares. 

    (b)
      No Option granted hereunder
      shall be construed as limiting any right which the Employer, the Company or
      any
      Affiliate may have to terminate at any time, with or without cause, the
      Employment of any person to whom such Option has been granted. 

    (c)
      Notwithstanding any provision of
      the Plan or the terms of any Option, the Company shall not be required to issue
      any shares hereunder if such issuance would, in the judgment of the Committee,
      constitute a violation of any state, local or federal law or of the rules or
      regulations of any governmental regulatory body. 

     

    
      
         

      

      
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    2.7
      No Option Repricing
      Without Stockholder Approval. With the approval of the shareholders of
      the Company, the Committee may grant to holders of outstanding Non-Qualified
      Options, in exchange for the surrender and cancellation of such Non-Qualified
      Options, new Non-Qualified Options having exercise prices lower than the
      exercise price provided in the Non-Qualified Options so surrendered and
      canceled. 

    ARTICLE
      III

    INCENTIVE
      OPTIONS

    The
      terms specified below shall be
      applicable to all Incentive Options. Except as modified by the provisions of
      this Article III, all the provisions of Article II hereof shall also be
      applicable to Incentive Options. Non-Qualified Options shall
not be subject to the terms of this Article III.

    3.1
      Eligibility.
      Incentive Options may be granted only to Employees of (i) the Employer or
      the Company, (ii) any “parent corporation” of the Company (as defined in
      section 424(e) of the Code) or (iii) any “subsidiary corporation” of the
      Company (as defined in section 424(f) of the Code). Incentive Options may be
      granted only if the Plan is approved by the Stockholders of the Employer within
      one year prior to or after the Effective Date. 

    3.2
      Exercise Price.
      The exercise price per Share shall not be less than one hundred percent
      (100%) of the FMV Per Share on the Option Grant Date (subject to adjustment
      as provided in Section 2.3(d)). 

    3.3
      Dollar
      Limitation. The aggregate Fair Market Value (determined as of the
      respective date or dates of grant) of shares of Common Stock for which one
      or
      more options granted to any Employee under the Plan (or any other option plan
      of
      the Employer, the Company or an Affiliate) may for the first time become
      exercisable as Incentive Options during any one (1) calendar year shall not
      exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
      Employee holds two (2) or more such Options which become exercisable for
      the first time in the same calendar year, the foregoing limitation on the
      exercisability of such Options as Incentive Options shall be applied on the
      basis of the order in which such Options are granted. 

    3.4
      10%
      Stockholder. If any Employee to whom an Incentive Option is granted is
      a 10% stockholder of the Company, the Employer or any Affiliate, then the
      exercise price per share shall not be less than one hundred ten percent
      (110%) of the FMV Per Share on the Option Grant Date and the option term
      shall not exceed five (5) years measured from the Option Grant Date.

    3.5
      Options Not
      Transferable. No Incentive Option granted hereunder shall be
      transferable other than by will or by the laws of descent and distribution
      and
      shall be exercisable during the Optionee’s lifetime only by such Optionee.

    3.6
      Compliance with
      422. All Options that are intended to be Incentive Options shall be
      designated as such in the Option grant and in all respects shall be issued
      in
      compliance with Code Section 422. 

     

    
      
         

      

      
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    3.7
      Limitations on
      Exercise. No Incentive Option shall be exercisable more than three
      (3) months after the Optionee ceases to be an Employee for any reason other
      than death or disability (within the meaning of section 22(e)(3) of the Code),
      or more than one (1) year after the Optionee ceases to be an Employee due
      to death or disability (within the meaning of section 22(e)(3) of the Code).
      

    ARTICLE
      IV

    STOCK
      APPRECIATION RIGHTS
      AND RESTRICTED STOCK UNIT AWARDS 

    4.1
      Stock Appreciation
      Rights. The Committee is authorized to grant Stock Appreciation Rights
      to Employees, Service Providers or Non-Employee Directors on the following
      terms
      and conditions, provided that such grant does not constitute a deferral of
      compensation within the meaning of section 409A of the Code. 

    (a)
Right
      to Payment. A Stock
      Appreciation Right shall confer on the Participant to whom it is granted a
      right
      to receive, upon exercise thereof, the excess of (A) the FMV Per Share on
      the date of exercise over (B) the FMV Per Share on the date of grant. Such
      excess may be paid in cash or shares of Common Stock as determined by the
      Committee and set forth in the Award agreement. 

    (b)
Rights
      Related to
      Options. A Stock Appreciation Right granted in connection with an Option
      shall entitle a Participant, upon exercise thereof, to surrender that Option
      or
      any portion thereof, to the extent unexercised, and to receive payment of an
      amount computed pursuant to Subsection 4.1(a) hereof. That Option shall then
      cease to be exercisable to the extent surrendered. A Stock Appreciation Right
      granted in connection with an Option shall be exercisable only at such time
      or
      times and only to the extent that the related Option is exercisable and shall
      not be transferable (other than by will or the laws of descent and distribution)
      except to the extent that the related Option is transferable. 

    (c)
Right
      Without Option. A
      Stock Appreciation Right granted independent of an Option shall be exercisable
      as determined by the Committee and set forth in the Award agreement governing
      such Stock Appreciation Right. 

    (d)
Terms.
      The Committee
      shall determine at the date of grant the time or times at which and the
      circumstances under which a Stock Appreciation Right may be exercised in whole
      or in part (including achievement of certain performance goals and/or meeting
      certain future service requirements), the method of exercise, whether or not
      a
      Stock Appreciation Right shall be in tandem or in combination with any other
      Award and any other terms and conditions of any Stock Appreciation Right.

    (e)
Adjustment
      of Stock
      Appreciation Rights. In the event that at any time after the Effective Date
      the outstanding shares of Common Stock are subdivided, consolidated, split-up,
      spun-off, reclassified, recapitalized, or changed into or exchanged for a
      different number or kind of shares or other securities of the Company by reason
      of merger, consolidation, recapitalization, reclassification, stock split,
      stock
      dividend, combination of shares or the like, the Committee shall make an
      appropriate and equitable adjustment in the outstanding Stock Appreciation
      Rights granted, to the end that after such event the Stock Appreciation Rights
      subject to the Plan and each Participant’s proportionate
      interest shall be maintained as before
      the occurrence of such event. Any such adjustment made by the Committee shall
      be
      final and binding upon all Participants, the Company and all other interested
      persons. 

     

    
      
         

      

      
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    4.2
      Restricted Stock Unit
      Awards. The Committee is authorized to grant rights to receive cash or
      Common Stock equal to the Fair Market Value of specified number of shares of
      Common Stock at the end of a specified deferral period to Participants
      (“Restricted Stock Unit Awards”), subject to the following terms
      and conditions: 

    (a)
Award
      and Restrictions.
      Satisfaction of a Restricted Stock Unit Award shall occur upon expiration of
      the
      deferral period specified for such Restricted Stock Unit Award by the Committee.
      In addition, Restricted Stock Unit Awards shall be subject to such restrictions
      (which may include a risk of forfeiture), if any, as the Committee may impose,
      which restrictions may lapse at the expiration of the deferral period or at
      earlier specified times (including based on achievement of performance goals
      and/or future service requirements), separately or in combination, installments
      or otherwise, as the Committee may determine. 

    (b)
Forfeiture.
      Except as
      otherwise determined by the Committee or as may be set forth in any Award,
      employment or other agreement pertaining to a Restricted Stock Unit Award,
      upon
      termination of Employment or services during the applicable deferral period
      or
      portion thereof to which forfeiture conditions apply, all Restricted Stock
      Unit
      Awards that are at that time subject to deferral (other than a deferral at
      the
      election of the Participant) shall be forfeited; provided that the Committee
      may
      provide, by rule or regulation or in any Award agreement, or may determine
      in
      any individual case, that restrictions or forfeiture conditions relating to
      Restricted Stock Unit Awards shall be waived in whole or in part in the event
      of
      terminations resulting from specified causes, and the Committee may in other
      cases waive in whole or in part the forfeiture of Restricted Stock Unit Awards.
      

    (c)
Adjustment
      of Restricted
      Stock Unit Awards. In the event that at any time after the Effective Date
      the outstanding shares of Common Stock are subdivided, consolidated, split-up,
      spun-off, reclassified, recapitalized, or changed into or exchanged for a
      different number or kind of shares or other securities of the Company by reason
      of merger, consolidation, recapitalization, reclassification, stock split,
      stock
      dividend, combination of shares or the like, the Committee shall make an
      appropriate and equitable adjustment in the outstanding Restricted Stock Unit
      Awards granted, to the end that after such event the Restricted Stock Unit
      Awards subject to the Plan and each Participant’s proportionate interest shall
      be maintained as before the occurrence of such event. Any such adjustment made
      by the Committee shall be final and binding upon all Participants, the Company
      and all other interested persons. 

    ARTICLE
      V

    RESTRICTED
      STOCK

    5.1
      Eligible
      Persons. All Employees, Service Providers and Non-Employee Directors
      shall be eligible for grants of Restricted Stock. 

     

    
      
         

      

      
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    5.2
      Restricted Period and
      Vesting. 

    (a)
      A grant of Restricted Stock is a
      grant of Common Stock to a Participant which is subject to such limitations
      (including, without limitation, limitations that qualify as a “substantial risk
      of forfeiture” within the meaning given to that term under Section 83 of
      the Code) and restrictions on transfer by the Participant and repurchase by
      the
      Employer or the Company as the Committee, in its sole discretion, shall
      determine. Prior to the lapse of such restrictions, the Participant shall not
      be
      permitted to transfer such shares. The Employer or the Company shall have the
      right to repurchase or recover such shares for the lesser of (A) the amount
      of cash paid therefore, if any or (B) the FMV of the shares at the time of
      repurchase, if (i) the Participant’s Employment from or services to the
      Employer or an Affiliate is terminated by the Employer, such Affiliate or the
      Participant prior to the lapse of such restrictions (unless otherwise provided
      in the related Award agreement) or (ii) the Restricted Stock is forfeited
      by the Participant pursuant to the terms of the Award. 

    (b)
      Notwithstanding the foregoing,
      unless the Award specifically provides otherwise, all Restricted Stock not
      otherwise vested shall vest upon (i) termination of an Employee or Service
      Provider without Cause; (ii) termination by an Employee or Service Provider
      with Good Reason; (iii) termination, resignation or removal of an Employee,
      Service Provider or Non-Employee Director for any reason within one
      (1) year from the effective date of a Change of Control; or (iv) death
      or Disability of the Participant. 

    (c)
      Each certificate representing
      Restricted Stock awarded under the Plan shall be registered in the name of
      the
      Participant and, during the Restricted Period, shall be left in deposit with
      the
      Company and a stock power endorsed in blank. Unless otherwise provided in an
      Award agreement, the grantee of Restricted Stock shall have all the rights
      of a
      Stockholder with respect to such shares including the right to vote and the
      right to receive dividends or other distributions paid or made with respect
      to
      such shares. Any certificate or certificates representing shares of Restricted
      Stock shall bear a legend similar to the following: 

    The
      shares represented by this
      certificate have been issued pursuant to the terms of the Energy XXI Services,
      LLC 2006 Long-term Incentive Plan (as amended and restated) and Restricted
      Stock
      Grant Agreement dated
                    ,
      200     and may not be sold, pledged, transferred,
      assigned or otherwise encumbered in any manner except as is set forth in the
      terms of such Plan or grant. 

    (d)
Adjustment
      of Restricted
      Stock. In the event that at any time after the Effective Date the
      outstanding shares of Common Stock are subdivided, consolidated, split-up,
      spun-off, reclassified, recapitalized, or changed into or exchanged for a
      different number or kind of shares or other securities of the Company by reason
      of merger, consolidation, recapitalization, reclassification, stock split,
      stock
      dividend, combination of shares or the like, the Committee shall make an
      appropriate and equitable adjustment in the outstanding Restricted Stock
      granted, to the end that after such event the shares of Restricted Stock subject
      to the Plan and each Participant’s proportionate interest shall be maintained as
      before the occurrence of such event. Any such adjustment made by the Committee
      shall be final and binding upon all Participants, the Company and all other
      interested persons. 

     

    
      
         

      

      
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    ARTICLE
      VI

    PERFORMANCE
      AWARDS

    6.1
      Performance
      Awards. To the extent the Committee determines that any Award granted
      pursuant to this Plan shall be contingent upon performance goals or shall
      constitute performance-based compensation for purposes of Section 162(m) of
      the Code, the grant or settlement of the Award shall, in the Committee’s
      discretion, be subject to the achievement of performance goals determined and
      applied in a manner consistent with this Section 6.1. The Committee may
      grant Performance Awards based on performance criteria measured over a
      Performance Period. The Committee may use such business criteria and other
      measures of performance as it may deem appropriate in establishing any
      performance conditions, and may exercise its discretion to increase the amounts
      payable under any Award subject to performance conditions except as limited
      under Section 6.2 hereof in the case of a Performance Award granted to a
      Covered Employee. 

    6.2
      Performance
      Goals. The grant and/or settlement of a Performance Award shall be
      contingent upon the terms set forth in this Section 6.2. 

    (a)
General.
      The performance
      goals for Performance Awards shall consist of one or more business criteria
      and
      a targeted level or levels of performance with respect to each such criteria,
      as
      specified by the Committee. In the case of any Award granted to a Covered
      Employee, performance goals shall be designed to be objective and shall
      otherwise meet the requirements of Section 162(m) of the Code and
      regulations thereunder (including Treasury Regulations sec. 1.162-27 and
      successor regulations thereto), including the requirement that the level or
      levels of performance targeted by the Committee are such that the achievement
      of
      performance goals is “substantially uncertain” at the time the Award is granted.
      The Committee may determine that such Performance Awards shall be granted and/or
      settled upon achievement of any one performance goal or that two or more of
      the
      performance goals must be achieved as a condition to the grant and/or settlement
      of such Performance Awards. Performance goals may differ among Performance
      Awards granted to any one Participant or for Performance Awards granted to
      different Participants. 

    (b)
Business
      Criteria. One or
      more of the following business criteria for the Company, an a consolidated
      basis, and/or for specified subsidiaries, divisions or business or geographical
      units of the Company (except with respect to the total stockholder return and
      earnings per share criteria), shall be used by the Committee in establishing
      performance goals for Performance Awards granted to a Participant:
      (i) earnings per share; (ii) increase in revenues; (iii) increase
      in cash flow; (iv) increase in cash flow return; (v) return on net
      assets; (vi) return on assets; (vii) return on investment;
      (viii) return on capital; (ix) return on equity; (x) economic
      value added; (xi) gross margin; (xii) net income; (xiii) pretax
      earnings; (xiv) pretax earnings before interest, depreciation and
      amortization; (xv) pretax operating earnings after interest expense and
      before incentives, service fees, and extraordinary or special items;
      (xvi) operating income; (xvii) total stockholder return;
      (xviii) debt reduction; (xix) any other operational criteria
      determined by the Committee; and (xx) any of the above goals determined on
      the absolute or relative basis or as compared to the performance of a published
      or special index deemed applicable by the Committee including, but not limited
      to, the Standard & Poor’s 500 Stock Index or a group of comparable
      companies. 

     

    
      
         

      

      
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    (c)
Timing
      for Establishing
      Performance Goals. Performance goals in the case of any Award granted to a
      Participant who is a Covered Employee shall be established not later than ninety
      (90) days after the beginning of any Performance Period applicable to such
      Performance Awards, or at such other date as may be required or permitted for
      “performance-based compensation” under Section 162(m) of the Code.

    (d)
Settlement
      of Performance
      Awards; Other Terms. After the end of each Performance Period, the Committee
      shall determine the amount, if any, of Performance Awards payable to each
      Participant based upon achievement of business criteria over a Performance
      Period. The Committee may not exercise discretion to increase any such amount
      payable in respect of a Performance Award to a Covered Employee which is
      designed to comply with Section 162(m) of the Code. The Committee shall
      specify the circumstances in which such Performance Awards shall be paid or
      forfeited in the event of termination of Employment by the Participant prior
      to
      the end of a Performance Period or settlement of Performance Awards.

    (e)
Written
      Determinations.
      All determinations by the Committee as to the establishment of performance
      goals, the amount of any Performance Award, and the achievement of performance
      goals relating to Performance Awards shall be made in writing in the case of
      any
      Award granted to a Participant. The Committee may not delegate any
      responsibility relating to Performance Awards discussed in this
      Section 6.2(e). 

    (f)
Status
      of Performance Awards
      under Section 162(m) of the Code. It is the intent of the Employer and
      the Company that Performance Awards granted to persons who are designated by
      the
      Committee as likely to be Covered Employees within the meaning of
      Section 162(m) of the Code and regulations thereunder (including Treasury
      Regulations sec. 1.162-27 and successor regulations thereto) shall, if so
      designated by the Committee, constitute “performance-based compensation” within
      the meaning of Section 162(m) of the Code and regulations thereunder.
      Accordingly, the terms of this Section 6.2 shall be interpreted in a manner
      consistent with Section 162(m) of the Code and regulations thereunder. If
      any provision of the Plan as in effect on the date of adoption or any agreements
      relating to Performance Awards that are designated as intended to comply with
      Section 162(m) of the Code does not comply or is inconsistent with the
      requirements of Section 162(m) of the Code or regulations thereunder, such
      provision shall be construed or deemed amended to the extent necessary to
      conform to such requirements. 

    ARTICLE
      VII

    OTHER
      STOCK OR
      PERFORMANCE-BASED AWARDS 

    The
      Committee is hereby authorized
      to grant to Employees, Non-Employee Directors and Service Providers of the
      Company or its Affiliates, Other Stock or Performance-Based Awards, which shall
      consist of a right which (i) is not an Award described in any other Article
      and (ii) is denominated or payable in, valued in whole or in part by
      reference to, or otherwise based on or related to, shares of Common Stock
      (including, without limitation, securities convertible into shares of Common
      Stock) or cash as are deemed by the Committee to be consistent with the purposes
      of the Plan. Subject to the terms of the Plan, the Committee shall determine
      the
      terms and conditions of any such Other Stock or Performance-Based Award.

     

    
      
         

      

      
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    ARTICLE
      VIII

    CERTAIN
      PROVISIONS
      APPLICABLE TO ALL AWARDS 

    8.1
      General. Awards
      may be granted on the terms and conditions set forth herein. In addition, the
      Committee may impose on any Award or the exercise thereof, such additional
      terms
      and conditions, not inconsistent with the provisions of the Plan, as the
      Committee shall determine, including terms requiring forfeiture of Awards in
      the
      event of termination of Employment by the Participant and terms permitting
      a
      Participant to make elections relating to his Award. Notwithstanding the
      foregoing, the Committee may amend any Award without the consent of the holder
      if the Committee deems it necessary to avoid adverse tax consequences to the
      holder under Code Section 409A. The Committee shall retain full power and
      discretion to accelerate or waive, at any time, any term or condition of an
      Award that is not mandatory under this Plan; provided, however,
      that the Committee shall not have discretion to accelerate or waive any term
      or
      condition of an Award (i) if such discretion would cause the Award to have
      adverse tax consequences to the Participant under 409A, or (ii) if the
      Award is intended to qualify as “performance-based compensation” for purposes of
      Section 162(m) of the Code and such discretion would cause the Award not to
      so qualify. 

    8.2
      Stand-Alone, Additional,
      Tandem and Substitute Awards. Awards granted under the Plan may, in the
      discretion of the Committee, be granted either alone, in addition to, in tandem
      with, or in substitution or exchange for, any other Award or any award granted
      under another plan of the Company, any Affiliate, or any business entity to
      be
      acquired by the Company or an Affiliate, or any other right of a Participant
      to
      receive payment from the Company or any Affiliate. Such additional, tandem
      and
      substitute or exchange Awards may be granted at any time. If an Award is granted
      in substitution or exchange for another Award, the Committee shall require
      the
      surrender of such other Award in consideration for the grant of the new Award.
      Notwithstanding anything in the Plan to the contrary, Options granted in
      substitution or exchange for an option in a corporate transaction shall be
      granted in accordance with the rules of Treasury Regulations section 1.424-1.
      In
      addition, Awards may be granted in lieu of cash compensation, including, but
      not
      limited to, in lieu of cash amounts payable under other plans of the Company
      or
      any Affiliate. 

    8.3
      Term of Awards.
      The term or Restricted Period of each Award that is an Option, Stock
      Appreciation Right, Restricted Stock Unit Award or Restricted Stock shall be
      for
      such period as may be determined by the Committee; provided that in no event
      shall the term of any such Award exceed a period of ten (10) years (or such
      shorter terms as may be required in respect of an Incentive Option).

    8.4
      Form and Timing of
      Payment under Awards; Deferrals. Subject to the terms of the Plan and
      any applicable Award agreement, payments to be made by the Company or an
      Affiliate upon the exercise of an Option or other Award or settlement of an
      Award may be made in a single payment or transfer, in installments or on a
      deferred basis. The settlement of any Award may, subject to any limitations
      set
      forth in the related Award agreement, be accelerated and cash may be paid in
      lieu of shares in connection with such settlement, in the discretion of the
      Committee or upon occurrence of one or more specified events; provided, however,
      such discretion may not be exercised if the exercise of such discretion would
      result in adverse tax consequences to the Participant under Section 409A of
      the Code. In the discretion of the Committee, Awards
      granted pursuant
      to Article IV or VI hereof may be payable in cash or shares to the extent
      permitted by the terms of the applicable Award agreement. Installment or
      deferred payments may be required by the Committee (subject to Section 1.4
      hereof, including the consent provisions thereof in the case of any deferral
      of
      an outstanding Award not provided for in the original Award agreement) or
      permitted at the election of the Participant on terms and conditions established
      by the Committee; provided, however, that no deferral shall be required or
      permitted by the Committee if such deferral would result in adverse tax
      consequences to the Participant under Section 409A of the Code. Payments
      may include, without limitation, provisions for the payment or crediting of
      reasonable interest on installment or deferred payments or the grant or
      crediting of amounts in respect of installment or deferred payments denominated
      in shares. Any deferral shall only be allowed as is provided in a separate
      deferred compensation plan adopted by the Company, which plan shall be compliant
      with Section 409A of the Code. The Plan shall not constitute an “employee
      benefit plan” for purposes of Section 3(3) of the Employee Retirement
      Income Security Act of 1974, as amended. 

     

    
      
         

      

      
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    8.5
      Vested and Unvested
      Awards. After the satisfaction of all of the terms and conditions set
      by the Committee with respect to an Award of (i) Restricted Stock, a
      certificate, without the legend set forth in Section 5.2(c) hereof, for the
      number of shares that are no longer subject to such restrictions, terms and
      conditions shall be delivered to the Employee, (ii) Restricted Stock Unit
      Award, to the extent not paid in cash, a certificate for the number of shares
      equal to the number of shares of Restricted Stock Unit Award earned, and
      (iii) Stock Appreciation Rights or Performance Awards, cash and/or a
      certificate for the number of shares equal in value to the number of Stock
      Appreciation Rights or amount of Performance Awards vested shall be delivered
      to
      the person. Upon termination, resignation or removal of a Participant under
      circumstances that do not cause such Participant to become fully vested, any
      remaining unvested Options, shares of Restricted Stock, Restricted Stock Unit
      Award, Stock Appreciation Rights or Performance Awards, as the case may be,
      shall either be forfeited back to the Employer or the Company or, if appropriate
      under the terms of the Award, shall continue to be subject to the restrictions,
      terms and conditions set by the Committee with respect to such Award.

    8.6
      Exemptions from
      Section 16(b) Liability. It is the intent of the Company that the
      grant of any Awards to or other transaction by a Participant who is subject
      to
      Section 16 of the 1934 Act shall be exempt from Section 16(b) of the
      1934 Act pursuant to an applicable exemption (except for transactions
      acknowledged by the Participant in writing to be non-exempt). Accordingly,
      if
      any provision of this Plan or any Award agreement does not comply with the
      requirements of Rule 16b-3 under the 1934 Act as then applicable to any such
      transaction, such provision shall be construed or deemed amended to the extent
      necessary to conform to the applicable requirements of Rule 16b-3 so that such
      Participant shall avoid liability under Section 16(b). 

    8.7
      Other
      Provisions. No grant of any Award shall be construed as limiting any
      right which the Employer, the Company or any Affiliate may have to terminate
      at
      any time, with or without cause, the Employment of any person to whom such
      Award
      has been granted. 

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

    
    

    ARTICLE
      IX

    WITHHOLDING
      FOR TAXES

    Any
      issuance of Common Stock
      pursuant to the exercise of an Option or payment of any other Award under the
      Plan shall not be made until appropriate arrangements, satisfactory to the
      Employer and the Company, have been made for the payment of any tax amounts
      (federal, state, local or other) that may be required to be withheld or paid
      by
      the Employer or the Company with respect thereto. Such arrangements may, at
      the
      discretion of the Committee, include allowing the person to tender to the
      Employer or the Company shares of Common Stock owned by the person, or to
      request the Employer or the Company to withhold shares of Common Stock being
      acquired pursuant to the Award, whether through the exercise of an Option or
      as
      a distribution pursuant to the Award, which have an aggregate FMV Per Share
      as
      of the date of such withholding that is not greater than the sum of all tax
      amounts to be withheld with respect thereto, together with payment of any
      remaining portion of such tax amounts in cash or by check payable and acceptable
      to the Employer or the Company. 

    Notwithstanding
      the foregoing, if on
      the date of an event giving rise to a tax withholding obligation on the part
      of
      the Employer or the Company the person is an officer or individual subject
      to
      Rule 16b-3 under the 1934 Act, then, to the extent permitted by applicable
      law,
      such person may direct that such tax withholding be effectuated by the Employer
      or the Company withholding the necessary number of shares of Common Stock (at
      the tax rate required by the Code) from such Award payment or exercise.

    ARTICLE
      X

    MISCELLANEOUS
      

    10.1
      No Rights to
      Awards. No Participant or other person shall have any claim to be
      granted any Award, there is no obligation for uniformity of treatment of
      Participants, or holders or beneficiaries of Awards and the terms and conditions
      of Awards need not be the same with respect to each recipient. 

    10.2
      No Right to
      Employment. The grant of an Award shall not be construed as giving a
      Participant the right to be retained in the employ of the Employer, the Company
      or any Affiliate. Further, the Employer, the Company or any Affiliate may at
      any
      time dismiss a Participant from Employment, free from any liability or any
      claim
      under the Plan, unless otherwise expressly provided in the Plan or in any Award
      Agreement. 

    10.3
      Governing Law.
      The validity, construction and effect of the Plan and any rules and regulations
      relating to the Plan shall be determined in accordance with applicable federal
      law and the laws of the State of Texas, without regard to any principles of
      conflicts of law. 

    10.4
      Severability.
      If any provision of the Plan or any Award is or becomes or is deemed to be
      invalid, illegal, or unenforceable in any jurisdiction or as to any Participant
      or Award, or would disqualify the Plan or any Award under any law deemed
      applicable by the Committee, such provision shall be construed or deemed amended
      to conform to the applicable laws, or if it cannot be construed or deemed
      amended without, in the determination of the Committee, materially altering
      the
      intent of the Plan or the Award, such provision shall be stricken as to
      such jurisdiction,
      Participant or Award and the remainder of the Plan and any such Award shall
      remain in full force and effect. 

     

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

    10.5
      Other Laws.
      The Committee may refuse to issue or transfer any shares or other consideration
      under an Award agreement if, acting in its sole discretion, it determines that
      the issuance or transfer of such shares or such other consideration might
      violate any applicable law. 

    10.6
      409A Compliance—No
      Guarantee of Tax Consequences. It is the intention of the Employer and
      the Company that all Awards granted by the Committee be in compliance with
      Section 409A of the Code in all respects and the Plan shall be so
      construed; provided, however that the Participant shall be solely responsible
      for and liable for any tax consequences (including but not limited to any
      interest or penalties) as a result of participation in the Plan. Neither the
      Board, nor the Employer, the Company nor the Committee 

    makes
      any commitment or guarantee
      that any federal, state or local tax treatment will apply or be available to
      any
      person participating or eligible to participate hereunder and assumes no
      liability whatsoever for the tax consequences to the Participants.
      Notwithstanding anything herein to the contrary, if any amounts payable
      hereunder are reasonably determined by the Committee to be “nonqualified
      deferred compensation” payable to a “specified employee” upon “separation from
      service” (within the meaning of section 409A of the Code) then such amounts that
      would otherwise be payable upon separation from service shall be held and not
      be
      paid by the Company upon separation from service, but shall be paid as soon
      as
      administratively feasible following the earlier of: (1) the first day that
      is six months following the Participant’s separation from service; or
      (2) Participant’s date of death. Such amounts that would otherwise be
      payable in installments commencing on separation from service shall be
      accumulated and paid in a lump sum on the date that is the earlier of
      (1) or (2) above and shall be paid in installments thereafter.

    10.7
      Shareholder
      Agreements. The Committee may condition the grant, exercise or payment
      of any Award upon such person entering into a stockholders’ agreement in such
      form as approved from time to time by the Board. 

     

     

    
      
         

      

      
        19Exhibit
      10.6

    2006
      ENERGY XXI SERVICES,
      LLC LONG-TERM INCENTIVE PLAN 

    FORM
      OF RESTRICTED STOCK
      GRANT AGREEMENT 

    THE
      SECURITIES SUBJECT TO
      THIS GRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (“ACT”) OR
      ANY OTHER SECURITIES STATUTE. NO SALE, TRANSFER OR OTHER DISPOSITION OF SUCH
      SECURITIES, OR OF ANY INTEREST THEREIN, MAY BE MADE OR SHALL BE RECOGNIZED
      UNLESS IN THE SATISFACTORY WRITTEN OPINION OF COUNSEL FOR, OR OTHER COUNSEL
      SATISFACTORY TO, THE ISSUER SUCH TRANSACTION WOULD NOT VIOLATE OR REQUIRE
      REGISTRATION UNDER SUCH ACT OR OTHER STATUTE. 

    THIS
      RESTRICTED STOCK GRANT
      AGREEMENT (this “Agreement”) is made as of the ____ day of ___________,
      20___ (the “Grant Date”), between Energy XXI SERVICES, LLC, a Delaware
      corporation (the “Employer”), and __________________________ (“Participant”).

    1.
      Grant of Restricted
      Shares. To carry out the purposes of the 2006 Energy XXI, LLC
      Long-Term Incentive Plan (the “Plan”), and subject to the conditions described
      in this agreement (the “Agreement”) and the Plan, Energy XXI, LLC, a Delaware
      limited liability Employer (the “Employer”), hereby grants to Participant all
      rights, title and interest in the record and beneficial ownership of
      ________________
      (            )
      shares (the “Restricted Shares”) of common stock of Energy XXI (Bermuda)
      Limited, a Bermuda entity (“Stock”). The grant of such Restricted Shares shall
      be effective as of the Grant Date. All capitalized terms not otherwise defined
      herein shall have the meanings set forth in the Plan, the terms of which are
      incorporated herein by reference. The Plan and this Agreement shall be
      administered by the Committee appointed by the Board of Directors as set forth
      in the Plan (the “Committee”). 

    2.
Issuance
      and
      Transferability. The Restricted Shares may be evidenced in
      such a manner as the Committee shall deem appropriate. Any certificates
      representing the Restricted Shares granted hereunder shall be issued in the
      name
      of the Participant pursuant to the terms of the Plan as of the Grant Date and
      shall be marked with the following legend: 

    “The
      shares represented by this
      certificate have been issued pursuant to the terms of the 2006 Energy XXI,
      LLC
      Long-Term Incentive Plan and may not be sold, pledged, transferred, assigned
      or
      otherwise encumbered in any manner except as is set forth in the terms of the
      Restricted Stock Grant Agreement dated ___________.” 

    Until
      restrictions lapse, the
      Restricted Share certificates shall be left on deposit with the Employer along
      with a stock power (substantially in the form attached thereto as Exhibit A)
      endorsed in blank and shall not be transferable except by will or the laws
      of
      descent and distribution or pursuant to a domestic relations order. No right
      or
      benefit hereunder shall in any manner be liable for or subject to any debts,
      contracts, liabilities, or torts of Participant. Any purported assignment,
      alienation, pledge, attachment, sale, transfer or other encumbrance of the
      Restricted Shares, prior to the lapse of restrictions that does not satisfy
      the
      requirements hereunder shall be void and unenforceable against the Employer.
      Notwithstanding the foregoing, in the case of Participant’s Disability or death,
      Participant’s
      rights under this Agreement may be exercised by Participant’s guardian or legal
      representative. 

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    3.
      Vesting/Forfeiture. Participant shall vest
      in his rights under the Restricted Shares and any accumulated dividends
      described in Paragraph 4 hereof, and the Employer’s right to reclaim such shares
      or dividends shall lapse with respect to 33.33% the Restricted Shares, on each
      of the first, second and third anniversaries of the [date of
      hire/Grant Date] (the “Vesting Dates”), provided that
      Participant remains continuously employed by the Employer from the Grant Date
      to
      such Vesting Date. Notwithstanding the foregoing, however, all Restricted Shares
      not then vested shall vest immediately if Participant’s employment with the
      Employer terminates due to Participant’s Disability or death. In the event of a
      Change of Control prior to vesting, the Committee may, in its sole discretion,
      accelerate vesting. If Participant’s employment with the Employer terminates
      other than by reason Disability or death, the Restricted Shares (to the extent
      not then vested) shall be forfeited as of the date Participant’s employment so
      terminates. As soon as administratively feasible following the vesting of the
      Restricted Shares, a Stock certificate evidencing the vested Restricted Shares,
      less the amount of Stock withheld pursuant to paragraph 7 hereof, shall be
      delivered without charge to the Participant, or his designated representative,
      free of all restrictions. 

    4.
Ownership
      Rights/Dividends. Participant shall be
      entitled to all voting rights applicable to the Restricted Shares. Any cash
      dividends that may be paid on the Restricted Shares after the Grant Date shall
      be accumulated and held in an account or in escrow and held by the Employer
      until such time as Participant shall vest in the Restricted Shares as described
      in paragraph 3 above. Participant shall receive a cash payment equal to the
      portion of the dividends paid (reduced by the amount of any taxes required
      to be
      withheld with respect to such payment) with respect to the Restricted Shares
      as
      they become vested. All accumulated dividends attributable to unvested
      Restricted Shares shall be forfeited, if and to the extent that the underlying
      Restricted Shares are forfeited. 

    5.
Employment
      Relationship. For purposes of this Agreement, Participant shall be
      considered to be in the employment of the Employer as long as Participant
      remains an Employee of either the Employer, a parent or subsidiary corporation
      (as defined in section 424 of the Code) of the Employer, or a corporation or
      a
      parent or subsidiary of such corporation assuming this Agreement. Any question
      as to whether and when there has been a termination of such employment, and
      the
      cause of such termination, shall be determined by the Committee in its sole
      discretion, and its determination shall be final. 

    6.
Withholding
      of
      Taxes. The Employer shall have the right to take any action as may
      be necessary or appropriate to satisfy any federal, state or local tax
      withholding obligations, including, but not limited to, the right to withhold
      cash or shares of Stock sufficient to pay the amount required to be withheld
      and
      to cause such Stock to be sold and the proceeds remitted to the Employer. In
      the
      event that the proceeds of such sale shall exceed the legally required
      withholding amount, the Employer shall remit the difference in cash to
      Participant. In the event that the proceeds of such sale are less than the
      legally required withholding amount, the Employer may withhold the difference
      from any cash or Stock then or thereafter payable to Participant. Participant
      agrees that, if he makes an election under Section 83(b) of the Code with
      regard to the Restricted Shares, he will so notify the Employer in writing
      within two (2) days after making such election, so as to enable the
      Employer to timely
      comply with any applicable governmental reporting requirements. 

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    7.
Reorganization
      of the
      Employer. The existence of this Agreement
      shall not affect in any way the right or power of the Employer or its
      stockholders to make or authorize any or all adjustments, recapitalizations,
      reorganizations or other changes in the Employer’s capital structure or its
      business; any merger or consolidation of the Employer; any issuance of bonds,
      debentures, preferred or prior preference stock ahead of or affecting the Stock
      or the rights thereof; the dissolution or liquidation of the Employer; any
      sale
      or transfer of all or any part of its assets or business; or any other corporate
      act or proceeding, whether of a similar character or otherwise. 

    8.
Recapitalization
      Events. In the event of stock dividends,
      spin-offs of assets or other extraordinary dividends, stock splits, combinations
      of shares, recapitalizations, mergers, consolidations, reorganizations,
      liquidations, issuances of rights or warrants and similar transactions or events
      involving the Employer (“Recapitalization Events”), then for all purposes
      references herein to Stock or to Restricted Shares shall mean and include all
      securities or other property (other than cash) that holders of Stock of the
      Employer are entitled to receive in respect of Stock by reason of each
      successive Recapitalization Event, which securities or other property (other
      than cash) shall be treated in the same manner and shall be subject to the
      same
      restrictions as the underlying Restricted Shares. 

    9.
Status
      of
      Stock. The Stock granted hereunder has not been registered under
      the Securities Act of 1933, as amended (the “Act”). In the absence of such
      effective registration or an available exemption from registration under the
      Act, issuance of shares of Stock acquired pursuant to this Agreement will be
      delayed until registration of such shares is effective or an exemption from
      registration under the Act is available. The Employer intends to use its
      reasonable efforts to ensure that no such delay will occur. In the event
      exemption from registration under the Act is available, Participant (or the
      person permitted to receive Participant’s shares in the event of Participant’s
      incapacity or death), if requested by the Employer to do so, will execute and
      deliver to the Employer in writing an agreement containing such provisions
      as
      the Employer may require assuring compliance with applicable securities laws.
      The Employer shall incur no liability to Participant for failure to register
      the
      Stock or maintain the registration. 

    Participant
      agrees that the shares
      of Stock, which Participant may acquire pursuant to this Agreement, will not
      be
      sold or otherwise disposed of in any manner that would constitute a violation
      of
      any applicable securities laws, whether federal or state. Participant also
      agrees (i) that the certificates representing such shares of Stock may bear
      such legend or legends as the Committee deems appropriate in order to assure
      compliance with applicable securities laws, (ii) that the Employer may
      refuse to register the transfer of the shares of Stock acquired pursuant to
      this
      Agreement on the stock transfer records of the Employer if such proposed
      transfer would in the opinion of counsel satisfactory to the Employer constitute
      a violation of any applicable securities law and (iii) that the Employer
      may give related instructions to its transfer agent, if any, to stop
      registration of the transfer of such shares.

    10.
      Severability. In the event that any
      provision of this Agreement shall be held illegal, invalid, or unenforceable
      for
      any reason, such provision shall be fully severable and shall not affect
the remaining
      provisions of this Agreement, and the Agreement shall be construed and enforced
      as if the illegal, invalid, or unenforceable provision had never been included
      herein.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    12.
Certain
      Restrictions. By executing this Agreement,
      Participant acknowledges that he will enter into such written representations,
      warranties and agreements and execute such documents as the Employer may
      reasonably request in order to comply with the terms of this Agreement or the
      Plan, or securities laws or any other applicable laws, rules or regulations.
      

    13.
Amendment
      and
      Termination. Except as otherwise provided in the Plan or this
      Agreement, no amendment or termination of this Agreement shall be made by the
      Employer without the written consent of the Participant. 

    14.
No
      Guarantee of Tax
      Consequences. The Employer makes no
      commitment or guarantee to Participant that any federal or state tax treatment
      will apply or be available to any person eligible for benefits under this
      Agreement. 

    15.
Binding
      Effect. This Agreement shall be binding upon and inure to the
      benefit of any successors to the Employer and all persons lawfully claiming
      under Participant. 

    16.
Governing
      Law and
      Venue. This Agreement shall be governed by, and construed in
      accordance with, the laws of the State of Texas. The courts in Harris County,
      Texas shall be the exclusive venue for any dispute regarding the Plan or this
      Agreement. 

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    
    

    IN
      WITNESS WHEREOF,
      the Employer has caused this Agreement to be duly executed by its officer
      thereunto duly authorized, and Participant has executed this Agreement, all
      as
      of the day and year first above written. 

     

    
      	
            	
            	
            	
            	
            	
            	
            	
            	
            
	ENERGY
              XXI SERVICES, LLC	 	
            	 	
            
	
            	
            	
            	
            	
            
	By:	 	  	 	
            	 	
              Date:

            	 	  
	Name:	 	  	 	
            	 	
            	 	
            
	Title:	 	  	 	
            	 	
            	 	
            

    

     

    
      	
            	
            	
            	
            	
            	
            	
            	
            	
            
	PARTICIPANT:	 	
            	 	
            
	
            	
            	
            	
            
	  	 	
            	 	
              Date:

            	 	  
	
            	
            	
            	
            	
            
	Address:	 	
            	 	
            	 	
            	 	
            
	
            	
            	
            	
            
	  	 	
            	 	
            	 	
            
	  	 	
            	 	
            	 	
            

    

     

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    
    

    Exhibit
      A

    STOCK
      POWER

    FOR
      VALUE RECEIVED,
      _____________________(“Transferor”) hereby sells, assigns and transfers
      unto Energy XXI SERVICES, LLC, ____________ (the “Employer”) shares of the
      common stock (“Common Stock”), of Energy XXI (Bermuda) Limited, a Bermuda
      entity (the “Company”), which shares of Common Stock are represented by
      certificate no(s).____________, and hereby irrevocably appoints
      ______________________________ as attorney-in-fact to transfer such shares
      of
      Common Stock on the books of the Employer, with full power of substitution
      on
      the premises. 

    Dated:

     

    
      	
            
	TRANSFEROR:
	
            
	   
	Printed
              Name:
              __________________________

    

     

     

    
      
         

      

      
        6

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