Document:

Exhibit
10.2

 

The EXCO Holdings Inc.

 

2005 LONG-TERM INCENTIVE
PLAN

 

The EXCO
Holdings Inc. 2005 Long-Term Incentive Plan (the “Plan”) was adopted by the
Board of Directors and the stockholders of the predecessor to EXCO Holdings
Inc., a Delaware corporation (the “Company”), effective as of September 30,
2005, and ratified by the Company’s Board of Directors, effective as of October 5,
2005, and the Company’s stockholders, effective as of October 3, 2005.

 

ARTICLE 1

PURPOSE

 

The purpose of the Plan is to attract and
retain the services of key employees, consultants and Outside Directors of the
Company and its Subsidiaries and to provide such persons with a proprietary
interest in the Company through the granting of incentive stock options,
non-qualified stock options, stock appreciation rights, restricted stock,
restricted stock units, performance awards, dividend equivalent rights, and
other awards, whether granted singly, or in combination, or in tandem, that
will

 

(a)           increase the interest of
such persons in the Company’s welfare;

 

(b)           furnish an incentive to
such persons to continue their services for the Company; and

 

(c)           provide a means through
which the Company may attract able persons as employees, and Outside Directors.

 

With respect
to Reporting Participants, the Plan and all transactions under the Plan are
intended to comply with all applicable conditions of Rule 16b-3
promulgated under the Securities Exchange Act of 1934 (the “1934 Act”) in the
event the Common Stock as a class should ever be registered under the 1934
Act.  To the extent any provision of the
Plan or action by the Committee fails to so comply, it shall be deemed null and
void ab initio, to the extent permitted by
law and deemed advisable by the Committee. 
No Incentive Stock Options shall be issued to Consultants, independent
contractors or Outside Directors of the Company.

 

ARTICLE 2

DEFINITIONS

 

For the
purpose of the Plan, unless the context requires otherwise, the following terms
shall have the meanings indicated:

 

2.1           “Award” means the grant of
any Incentive Stock Option, Nonqualified Stock Option, Reload Option, Restricted Stock, SAR, Restricted Stock Units,
Performance Award, Dividend Equivalent Right or Other Award, whether granted
singly or in combination or in tandem (each individually referred to herein as
an “Incentive” or as “Award”).

 

2.2           “Award Agreement” means a
written agreement between a Participant and the Company which sets out the
terms of the grant of an Award.

 

 

2.3           “Award Period” means the
period set forth in the Award Agreement during which one or more Incentives
granted under an Award may be exercised.

 

2.4           “Board” means the board of
directors of the Company.

 

2.5           “Callable” means Common
Stock issued to a Participant which is subject to the Company’s right to call
and repurchase such Common Stock upon Termination of Employment pursuant to the
terms of the Award Agreement under which the Participant purchased the Common
Stock.

 

2.6           “Change in Control” means
that following an offering of the Common Stock pursuant to an IPO, a “Change in
Control” shall mean any of the following: 
(i) any consolidation, merger or share exchange of the Company in
which the Company is not the continuing or surviving corporation or pursuant to
which shares of the Company’s Common Stock would be converted into cash,
securities or other property, other than a consolidation, merger or share
exchange of the Company in which the holders of the Company’s Common Stock
immediately prior to such transaction have the same proportionate ownership of
Common Stock of the surviving corporation immediately after such transaction or
the merger of the Company into one of its subsidiaries, including but not
limited to EXCO Holdings, Inc. or EXCO Resources, Inc.; (ii) any
sale, lease, exchange or other transfer (excluding transfer by way of pledge or
hypothecation) in one transaction or a series of related transactions, of all
or substantially all of the assets of the Company; (iii) the stockholders
of the Company approve any plan or proposal for the liquidation or dissolution
of the Company; (iv) the cessation of control (by virtue of their not
constituting a majority of directors) of the Board by the individuals (the “Continuing
Directors”) who (x) at the date of an IPO were directors or
(y) become directors after the date of an IPO and whose election or
nomination for election by the Company’s stockholders was approved by a vote of
at least two-thirds of the directors then in office who were directors at the
date of an IPO or whose election or nomination for election was previously so
approved; (v) the acquisition of beneficial ownership (within the meaning
of Rule 13d-3 under the 1934 Act) of an aggregate of 50% or more of the voting power of the
Company’s outstanding voting securities by any person or group (as such term is
used in Rule 13d-5 under the 1934 Act) who beneficially owned less than 50% of the voting power of the Company’s
outstanding voting securities on the date of an IPO; provided, however,
that notwithstanding the foregoing, an acquisition shall not constitute a
Change in Control hereunder if the acquirer is (x) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company and acting in
such capacity, (y) a Subsidiary of the Company or a corporation owned, directly
or indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of voting securities of the Company or
(z) any other person whose acquisition of shares of voting securities is
approved in advance by a majority of the Continuing Directors or (aa) a
purchase(s) of the shares are sold pursuant to effective registration under
applicable federal and state securities laws; or (vi) in a Title 11
bankruptcy proceeding, the appointment of a trustee or the conversion of a case
involving the Company to a case under Chapter 7.  Notwithstanding the above, no amount may
become payable under a SAR or any other Award which is subject to Code section 409A
unless the Change in Control also satisfies the definition of a Change in
Control under the guidance issued under section 409A of the Code, and the
payment occurs within the time specified in such guidance for the payment to be
treated as on account of the Change in Control.

 

2.7           “Code” means the Internal
Revenue Code of 1986, as amended.

 

2.8           “Committee” means the
committee appointed or designated by the Board to serve as the Compensation
Committee (or a similarly named Committee generally intended to administer and
oversee employee compensation plans such as the Plan) of the Board to
administer the Plan in accordance with Article 3 of this Plan.

 

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2.9           “Common Stock” means the
Common Stock, par value $0.001 per share, which the Company is currently
authorized to issue or may in the future be authorized to issue, or any
securities into which or for which the common stock of the Company may be
converted or exchanged, as the case may be, pursuant to the terms of this Plan.

 

2.10         “Company” means EXCO Holdings
Inc., a Delaware corporation, and any successor entity.

 

2.11         “Consultant” means any person
performing advisor or consulting services to the Company or a Subsidiary, with
or without compensation, to whom the Company chooses to grant an Award in
accordance with the Plan, provided that bona fide services must be rendered by
such person and such services shall not be rendered in connection with the
offer or sale of securities in a capital raising transaction.  A Consultant is not eligible to receive
Incentive Stock Options (or Statutory Stock Options).

 

2.12         “Corporation” means any
entity that (i) is defined as a corporation under Section 7701 of the
Code and (ii) is the Company or is in an unbroken chain of corporations
(other than the Company) beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing a majority of the total combined voting power of all classes of
stock in one of the other corporations in the chain.  For purposes of clause (ii) hereof, an
entity shall be treated as a “corporation” if it satisfies the definition of a
corporation under Section 7701 of the Code.

 

2.13         “Date of Grant” means the
effective date on which an Award is made to a Participant as set forth in the
applicable Award Agreement; provided, however, that solely for purposes of Section 16
of the 1934 Act and the rules and regulations promulgated thereunder in
the event the Common Stock should ever be registered under the 1934 Act, the
Date of Grant of an Award shall be the date of stockholder approval of the Plan
if such date is later than the effective date of such Award as set forth in the
Award Agreement.

 

2.14         “Dividend Equivalent Right”
means the right of the holder thereof to receive credits as set forth in Section 6.9
hereof based on the cash dividends that would have been paid on the shares of
Common Stock specified in the Award if such shares were held by the Participant
to whom the Award is made.

 

2.15         “Employee” means common law
employee (as defined in accordance with the Regulations and Revenue Rulings
then applicable under Section 3401(c) of the Code) of the Company or
any Subsidiary of the Company.

 

2.16         “Executive Officer” means an
officer of the Company or a Subsidiary subject to Section 16 of the 1934
Act in the event the Common Stock should ever be registered under the 1934 Act
or a “covered employee” as defined in Section 162(m)(3) of the Code.

 

2.17         “Fair Market Value” means, as
of a particular date, (a) if the shares of Common Stock are listed on a
national securities exchange, the closing sales price per share of Common Stock
on the consolidated transaction reporting system for the principal securities
exchange for the Common Stock on that date, or, if there shall have been no
such sale so reported on that date, on the last preceding date on which such a
sale was so reported, (b) if the shares of Common Stock are not so listed
but are quoted on the Nasdaq National Market System, the closing sales price
per share of Common Stock on the Nasdaq National Market System on that date,
or, if there shall have been no such sale so reported on that date, on the last
preceding date on which such a sale was so reported, (c) if the Common
Stock is not so listed or quoted, the mean between the closing bid and asked
price on that date, or, if there are no quotations available for such date, on
the last preceding date on which such quotations shall be available, as
reported by Nasdaq, or, if not reported by Nasdaq, by the National Quotation
Bureau, Inc., or (d) if none of the above is applicable, such amount
as may be determined by the Board (acting on the advice of an Independent Third
Party, should the Board elect in its sole discretion to

 

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utilize an Independent Third Party for this purpose),
in good faith, to be the fair market value per share of Common Stock and in
compliance with the valuation methods permitted under Treasury Regulations § 1.422-2(e) and
§ 20.2031-2.

 

2.18         “Incentive” is defined in Section 2.1
hereof.

 

2.19         “Incentive Stock Option” or “Statutory
Stock Option” or “ISO” means an incentive stock option within the meaning of Section 422
of the Code, granted pursuant to this Plan.

 

2.20         “Independent Third Party”
means an individual or entity independent of the Company having experience in
providing investment banking or similar appraisal or valuation services and
with expertise generally in the valuation of securities or other property for
purposes of this Plan.  The Board may
utilize one or more Independent Third Parties.

 

2.21         “IPO” means the first public
offering of any class of equity securities of this Company (or any successor or
assign of the Company whether by merger, consolidation, sale of assets or
otherwise occurring after this Plan is effective) pursuant to a registration
statement filed with and declared effective by the Securities Exchange
Commission.

 

2.22         “Nonpublicly Traded” means
Company Stock as it exists prior to an IPO.

 

2.23         “Nonqualified Stock Option”
or “Nonstatutory Stock Option” or “NQSO” means a nonqualified stock option,
granted pursuant to this Plan, which is not an Incentive Stock Option.

 

2.24         “Option Price” means the
price which must be paid by a Participant upon exercise of a Stock Option to
purchase a share of Common Stock.

 

2.25         “Other Award” means an Award
issued pursuant to Section 6.10 hereof.

 

2.26         “Outside Director” means a
director of the Company who is not an Employee. 
Outside Directors are not eligible to receive an Incentive Stock Option.

 

2.27         “Participant” means an
Employee, Consultant, independent contractor, 
or Outside Director of the Company or a Subsidiary to whom an Award is
granted under this Plan for any grant that is not an Incentive Stock
Option.  A Participant also includes an
Employee to whom an Award for an Incentive Stock Option is granted.

 

2.28         “Plan” means this EXCO
Holdings Inc. 2005 Long-Term Incentive Plan, as amended from time to time.

 

2.29         “Performance Award” means an
Award hereunder of cash, shares of Common Stock, units or rights based upon,
payable in, or otherwise related to, Common Stock pursuant to Section 6.8
hereof.

 

2.30         “Performance Goal” means any
of the goals set forth in Section 6.11 hereof.

 

2.31         “Reload Stock Option” means a
Nonqualified Stock Option or an Incentive Stock Option granted pursuant to Section 8.3(c) hereof.

 

2.32         “Reporting Participant” means
a Participant who is subject to the reporting requirements of Section 16
of the 1934 Act in the event the Common Stock should ever be registered under
the 1934 Act.

 

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2.33         “Restricted Stock” means
shares of Common Stock issued or transferred to a Participant pursuant to Section 6.4
of this Plan which are subject to restrictions or limitations set forth in this
Plan and in the related Award Agreement.

 

2.34         “Restricted Stock Units”
means units awarded to Participants pursuant to Section 6.7 hereof, which
are convertible into Common Stock at such time as such units are no longer
subject to restrictions as established by the Committee.

 

2.35         “Retirement” means any
Termination of Service solely due to retirement upon or after attainment of age
sixty-five (65), or permitted early retirement as determined by the Committee.

 

2.36         “SAR” or “stock appreciation
right” means the right to receive a payment, in cash and/or Common Stock, equal
to the excess of the Fair Market Value of a specified number of shares of
Common Stock on a specified date, provided the amount is fixed on the date the
SAR is exercised over the SAR Price for such shares.

 

2.37         “SAR Price” means the
exercise price of each share of Common Stock covered by a SAR, determined on
the Date of Grant of the SAR.

 

2.38         “Stock Option” means a
Nonqualified Stock Option, a Reload
Stock Option or an Incentive Stock Option.

 

2.39         “Subsidiary” means (i) any
corporation in an unbroken chain of corporations beginning with the Company, if
each of the corporations other than the last corporation in the unbroken chain
owns stock possessing a majority of the total combined voting power of all
classes of stock in one of the other corporations in the chain, (ii) any
limited partnership, if the Company or any corporation described in item (i) above
owns a majority of the general partnership interest and a majority of the
limited partnership interests entitled to vote on the removal and replacement
of the general partner, and (iii) any partnership or limited liability
company, if the partners or members thereof are composed only of the Company,
any corporation listed in item (i) above or any limited partnership listed
in item (ii) above.  “Subsidiaries”
means more than one of any such corporations, limited partnerships,
partnerships or limited liability companies.

 

2.40         “Termination of Service”
occurs when a Participant who is an Employee of the Company or any Subsidiary
shall cease to serve as an Employee of the Company and its Subsidiaries, for
any reason; or, when a Participant who is an Outside Director of the Company or
a Subsidiary shall cease to serve as a director of the Company and its
Subsidiaries for any reason.  Except as
may be necessary or desirable to comply with applicable federal or state law, a
“Termination of Service” shall not be deemed to have occurred when a
Participant who is an Employee becomes an Outside Director or vice versa.  If, however, a Participant who is an Employee
and who has an Incentive Stock Option ceases to be an Employee but does not
suffer a Termination of Service, and if that Participant does not exercise the
Incentive Stock Option within the time required under Section 422 of the
Code upon ceasing to be an Employee, the Incentive Stock Option shall
thereafter become a Nonqualified Stock Option. 
Notwithstanding the above, effective on and after January 1, 2005,
for any Award which is deferred compensation subject to Section 409A of
the Code, “Termination from Service” shall have the same meaning as “Separation
from Service” under Section 409A(a)(2)(A)(i) and any guidance issued
thereunder.

 

2.41         “Total and Permanent
Disability” means a Participant is qualified for long-term disability benefits
under the Company’s or Subsidiary’s disability plan or insurance policy; or, if
no such plan or policy is then in existence or if the Participant is not
eligible to participate in such plan or policy, that the Participant,

 

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because of a physical or mental condition resulting
from bodily injury, disease, or mental disorder which prevents the Participant
from performing his or her duties of employment for a period of six (6) continuous
months, as determined in good faith by the Committee, based upon medical
reports or other evidence satisfactory to the Committee; provided  that,
with respect to any Incentive Stock Option, Total and Permanent Disability
shall have the meaning given it under the rules governing Incentive Stock
Options under the Code.  Notwithstanding
the above, for purposes of any Award hereunder which is deemed to be deferred
compensation subject to Section 409A of the Code, effective for all
periods on or after January 1, 2005, “Total and Permanent Disability”
shall mean a participant who either (a) is unable to engage in any
substantial gainful activity by reason of any medically determinable physical
or mental impairment which can be expected to last for a continuous period of
not less than 12 months, or (b) is, by reason of any medically
determinable physical or mental impairment which can be expected to last for a
continuous period of not less than 12 months, receiving income replacement
benefits for a period of not less than 3 months under an accident and health
plan covering employees of the participant’s employer, or otherwise satisfies
such definition as it is modified by any guidance issued under or regarding Section 409A
of the Code.

 

ARTICLE 3

ADMINISTRATION

 

3.1          General Administration; Establishment of Committee.  Subject to the terms of
this Article 3, the Plan shall be administered by the Board or such
committee of the Board as is designated by the Board to administer the Plan
(the “Committee”). The Committee shall consist of not fewer than two
persons.  Any member of the Committee may
be removed at any time, with or without cause, by resolution of the Board. Any
vacancy occurring in the membership of the Committee may be filled by appointment
by the Board.  At any time there is no
Committee to administer the Plan, any references in this Plan to the Committee
shall be deemed to refer to the Board.

 

Membership on
the Committee shall be limited to those members of the Board who are “outside
directors” under Section 162(m) of the Code and “non-employee directors”
as defined in Rule 16b-3 promulgated under the 1934 Act only in the event
the Common Stock should ever be registered under the 1934 Act.  The Committee shall select one of its members
to act as its Chairman.  A majority of
the Committee shall constitute a quorum, and the act of a majority of the
members of the Committee present at a meeting at which a quorum is present
shall be the act of the Committee.

 

3.2          Designation of Participants and Awards.

 

(a)           The Committee or the Board
shall determine and designate from time to time the eligible persons to whom
Awards will be granted and shall set forth in each related Award Agreement,
where applicable, the Award Period, the Date of Grant, and such other terms,
provisions, limitations, and performance requirements, as are approved by the
Committee, but not inconsistent with the Plan. 
The Committee shall determine whether an Award shall include one type of
Incentive or two or more Incentives granted in combination or two or more
Incentives granted in tandem (that is, a joint grant where exercise of one
Incentive results in cancellation of all or a portion of the other Incentive). Although the members of the Committee shall
be eligible to receive Awards, all decisions with respect to any Award,
and the terms and conditions thereof, to be granted under the Plan to any
member of the Committee shall be made solely and exclusively by the other
members of the Committee, or if such member is the only member of the
Committee, by the Board.

 

(b)           Notwithstanding Subsection 3.2(a),
the Board may, in its discretion and by a resolution adopted by the Board,
authorize one or more officers of the Company (an “Authorized

 

6

 

Officer”) to (i) designate
one or more Employees as eligible persons to whom Awards will be granted under
the Plan and (ii) determine the number of shares of Common Stock that will
be subject to such Awards; provided, however, that the resolution of the Board
granting such authority shall (x) specify the total number of shares of Common
Stock that may be made subject to the Awards, (y) set forth the price or prices
(or a formula by which such price or prices may be determined) to be paid for
the purchase of the Common Stock subject to such Awards, and (z) not authorize
an officer to designate himself as a recipient of any Award.

 

3.3          Authority of the Committee.  The Committee, in its discretion, shall (i) interpret
the Plan, (ii) prescribe, amend, and rescind any rules and regulations
necessary or appropriate for the administration of the Plan, (iii) establish
performance goals for an Award and certify the extent of their achievement, and
(iv) make such other determinations or certifications and take such other
action as it deems necessary or advisable in the administration of the
Plan.  Any interpretation, determination,
or other action made or taken by the Committee shall be final, binding, and
conclusive on all interested parties. 
The Committee’s discretion set forth herein shall not be limited by any
provision of the Plan, including any provision which by its terms is applicable
notwithstanding any other provision of the Plan to the contrary.

 

The Committee
may delegate to officers of the Company, pursuant to a written delegation, the
authority to perform specified functions under the Plan.  Any actions taken by any officers of the
Company pursuant to such written delegation of authority shall be deemed to
have been taken by the Committee.

 

With respect
to restrictions in the Plan that are based on the requirements of Rule 16b-3
promulgated under the 1934 Act in the event the Common Stock should ever be
registered under the 1934 Act, Section 422 of the Code, Section 162(m)
of the Code, the rules of any exchange or inter-dealer quotation system
upon which the Company’s securities are listed or quoted, or any other
applicable law, rule or restriction (collectively, “applicable law”), to
the extent that any such restrictions are no longer required by applicable law,
the Committee shall have the sole discretion and authority to grant Awards that
are not subject to such mandated restrictions and/or to waive any such mandated
restrictions with respect to outstanding Awards.

 

3.4          Prohibition on Acceleration of Benefits.  Any Award which
constitutes deferred compensation under Section 409A of the Code shall not
have the time or schedule of any payment thereunder accelerated, except as
permitted under the guidance issued under Section 409A of the Code.

 

ARTICLE 4

ELIGIBILITY

 

Any Employee
(including an Employee who is also a director or an officer), or Outside
Director of the Company or any Subsidiary whose judgment, initiative, and
efforts contributed or may be expected to contribute to the successful
performance of the Company or any Subsidiary is eligible to participate in the
Plan; provided that only Employees of the Company or any Subsidiary shall be
eligible to receive Incentive Stock Options. 
An independent contractor providing services to the Company or any
Subsidiary whose judgment, initiative, and efforts contributed or may be
expected to contribute to the successful performance of the Company or any
Subsidiary is eligible to participate in the Plan; provided that independent
contractors shall not be eligible to receive Incentive Stock Options.  The Committee, upon its own action, may
grant, but shall not be required to grant, an Award to any Employee or Outside
Director of the Company or any Subsidiary. 
Awards may be granted by the Committee at any time and from time to time
to new Participants, or to some or all of the existing Participants, and may
include or exclude previous Participants, as the Committee shall
determine.  Except as required by this
Plan, Awards granted at different times need not contain similar
provisions.  The Committee’s
determinations under the Plan (including without limitation determinations of

 

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which Employees or Outside Directors, if any, are to
receive Awards, the form, amount and timing of such Awards, the terms and
provisions of such Awards and the agreements evidencing same) need not be
uniform and may be made by it selectively among Participants who receive, or
are eligible to receive, Awards under the Plan.

 

ARTICLE 5

SHARES SUBJECT TO PLAN

 

5.1          Number
Available for Awards.  Subject to adjustment as provided in
Articles 11 and 12, the maximum number of shares of Common Stock that may
be delivered pursuant to Awards granted under the Plan is ten million
(10,000,000) shares.  Shares to be issued
may be made available from authorized but unissued Common Stock, Common Stock
held by the Company in its treasury, or Common Stock purchased by the Company
on the open market or otherwise.  During
the term of this Plan, the Company will at all times reserve and keep available
the number of shares of Common Stock that shall be sufficient to satisfy the
requirements of this Plan.  The maximum
number of shares of Common Stock that may be delivered pursuant to Awards under
the Plan that are Incentive Stock Option grants is ten million (10,000,000)
shares.

 

5.2          Reuse
of Shares. 
To the extent that any Award under this Plan shall be forfeited, shall
expire or be canceled, in whole or in part, then the number of shares of Common
Stock covered by the Award or stock option so forfeited, expired or canceled
may again be awarded pursuant to the provisions of this Plan.  In the event that previously acquired shares
of Common Stock are delivered to the Company in full or partial payment of the
exercise price for the exercise of a Stock Option granted under this Plan, the
number of shares of Common Stock available for future Awards under this Plan
shall be reduced only by the net number of shares of Common Stock issued upon
the exercise of the Stock Option.  Awards
that may be satisfied either by the issuance of shares of Common Stock or by
cash or other consideration shall be counted against the maximum number of
shares of Common Stock that may be issued under this Plan only during the
period that the Award is outstanding or to the extent the Award is ultimately
satisfied by the issuance of shares of Common Stock.  Awards will not reduce the number of shares
of Common Stock that may be issued pursuant to this Plan if the settlement of
the Award will not require the issuance of shares of Common Stock, as, for
example, a SAR that can be satisfied only by the payment of cash.

 

ARTICLE 6

GRANT OF AWARDS

 

6.1          In
General.

 

(a)           The grant of an Award shall
be authorized by the Committee and shall be evidenced by an Award Agreement
setting forth the Incentive or Incentives being granted, the total number of
shares of Common Stock subject to the Incentive(s), the Option Price (if
applicable), the Award Period, the Date of Grant, and such other terms,
provisions, limitations, and performance objectives, as are approved by the
Committee, but not inconsistent with the Plan. 
The Company shall execute an Award Agreement with a Participant after
the Committee approves the issuance of an Award.  Any Award granted pursuant to this Plan must
be granted within ten (10) years of the date of adoption of this Plan. The
Plan shall be submitted to the Company’s stockholders for approval; however,
the Committee may grant Awards under the Plan prior to the time of stockholder
approval.  Any such Award granted prior
to such stockholder approval shall be made subject to such stockholder
approval. The grant of an Award to a Participant shall not be deemed either to
entitle the Participant to, or to disqualify the Participant from, receipt of
any other Award under the Plan.

 

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(b)           If the Committee
establishes a purchase price for an Award, the Participant must accept such
Award within a period of thirty (30) days (or such shorter period as the
Committee may specify) after the Date of Grant by executing the applicable
Award Agreement and paying such purchase price.

 

(c)           Any Award under this Plan
that is settled in whole or in part in cash on a deferred basis may provide for
interest equivalents to be credited with respect to such cash payment. Interest
equivalents may be compounded and shall be paid upon such terms and conditions
as may be specified by the Award.  If the
Award does not specify inherent equivalents, then no interest equivalents shall
be credited.

 

6.2          Option
Price.  The
Option Price for any share of Common Stock which may be purchased under a
Nonqualified Stock Option for any share of Common Stock may be equal to, or
greater than the Fair Market Value of the share on the Date of Grant.  The Option Price shall never be less than the
Fair Market Value of the share of the Date of Grant.  The Option Price for any share of Common
Stock which may be purchased under an Incentive Stock Option must be at least
equal to the Fair Market Value of the share on the Date of Grant; if an
Incentive Stock Option is granted to an Employee who owns or is deemed to own
(by reason of the attribution rules of Section 424(d) of the
Code) more than ten percent (10%) of the combined voting power of all classes
of stock of the Company (or any parent or Subsidiary), the Option Price shall
be at least 110% of the Fair Market Value of the Common Stock on the Date of
Grant.

 

6.3          Maximum
ISO Grants. 
The Committee may not grant Incentive Stock Options under the Plan to
any Employee which would permit the aggregate Fair Market Value (determined on
the Date of Grant) of the Common Stock with respect to which Incentive Stock
Options (under this and any other plan of the Company and its Subsidiaries) are
exercisable for the first time by such Employee during any calendar year to
exceed $100,000.  To the extent any Stock
Option granted under this Plan which is designated as an Incentive Stock Option
exceeds this limit or otherwise fails to qualify as an Incentive Stock Option,
such Stock Option (or any such portion thereof) shall be a Nonqualified Stock
Option.  In such case, the Committee
shall designate which stock will be treated as Incentive Stock Option stock by
causing the issuance of a separate stock certificate and identifying such stock
as Incentive Stock Option stock on the Company’s stock transfer records.

 

6.4          Restricted
Stock.  If
Restricted Stock is granted to or received by a Participant under an Award
(including a Stock Option), the Committee shall set forth in the related Award
Agreement: (i) the number of shares of Common Stock awarded, (ii) the
price, if any, to be paid by the Participant for such Restricted Stock and the
method of payment of the price, (iii) the time or times within which such
Award may be subject to forfeiture, in whole or in part, or the schedule which
determines when the Participant earns a vested interest in the shares of Common
Stock (subject to the Restricted Stock Award), (iv) specified Performance
Goals of the Company, a Subsidiary, any division thereof or any group of
Employees of the Company, or other criteria, which the Committee determines
must be met in order to remove any restrictions (including vesting) on such
Award, and (v) all other terms, limitations, restrictions, and conditions
of the Restricted Stock, which shall be consistent with this Plan.  The provisions of Restricted Stock need not
be the same with respect to each Participant.

 

(a)           Legend
on Shares. 
Each Participant who is awarded or receives Restricted Stock shall be
issued a stock certificate or certificates in respect of such shares of Common
Stock which shall vest under the terms of the Award.  Such certificate(s) shall be registered in
the name of the Participant, and shall bear an appropriate legend referring to
the terms, conditions, and restrictions applicable to such Restricted Stock,
substantially as provided in Section 15.9 of the Plan.

 

9

 

(b)           Restrictions
and Conditions. 
Shares of Restricted Stock shall be subject to the following restrictions
and conditions:

 

(i)            Subject
to the other provisions of this Plan and the terms of the particular Award
Agreements, during such period as may be determined by the Committee commencing
on the Date of Grant or the date of exercise of an Award (the “Restriction
Period”), the Participant shall not be permitted to sell, transfer, pledge or
assign shares of Restricted Stock. Except for these limitations, the Committee
may in its sole discretion, remove any or all of the restrictions on such
Restricted Stock whenever it may determine that, by reason of changes in
applicable laws or other changes in circumstances arising after the date of the
Award, such action is appropriate.

 

(ii)           Except
as provided in sub-paragraph (i) above or in the applicable Award Agreement,
the Participant shall have, with respect to his or her Restricted Stock, all of
the rights of a stockholder of the Company, including the right to vote the
shares, and the right to receive any dividends thereon.  Certificates for shares of Common Stock free
of restriction under this Plan shall be delivered to the Participant promptly
after, and only after, the Restriction Period shall expire without forfeiture
in respect of such shares of Common Stock or after any other restrictions
imposed in such shares of Common Stock by the applicable Award Agreement or
other agreement have expired. 
Certificates for the shares of Common Stock forfeited under the
provisions of the Plan and the applicable Award Agreement shall be promptly
returned to the Company by the forfeiting Participant.  Each Award Agreement shall require that (x) each Participant, by his or her
acceptance of Restricted Stock, shall irrevocably grant to the Company a power
of attorney to transfer any shares so forfeited to the Company and agrees to
execute any documents requested by the Company in connection with such
forfeiture and transfer, and (y) such provisions regarding returns and
transfers of stock certificates with respect to forfeited shares of Common
Stock shall be specifically performable by the Company in a court of equity or
law.

 

(iii)          The
Restriction Period of Restricted Stock shall commence on the Date of Grant or
the date of exercise of an Award, as specified in the Award Agreement, and,
subject to Article 12 of the Plan, unless otherwise established by the
Committee in the Award Agreement setting forth the terms of the Restricted
Stock, shall expire upon satisfaction of the conditions set forth in the Award
Agreement; such conditions may provide for vesting based on such Performance
Goals, as may be determined by the Committee in its sole discretion.

 

(iv)          Except
as otherwise provided in the particular Award Agreement, upon Termination of
Service for any reason during the Restriction Period, the nonvested shares of
Restricted Stock shall be forfeited by the Participant.  In the event a Participant has paid any
consideration to the Company for such forfeited Restricted Stock, the Committee
shall specify in the Award Agreement that either (i) the Company shall be
obligated to, or (ii) the Company may, in its sole discretion, elect to,
pay to the Participant, as soon as practicable after the event causing
forfeiture, in cash, an amount equal to the lesser of the total consideration
paid by the Participant for such forfeited shares or the Fair Market Value of
such forfeited shares as of the date of Termination of Service, as the
Committee, in its sole discretion shall select. Upon any forfeiture, all rights
of a Participant with respect to the forfeited shares of the Restricted Stock
shall cease and terminate, without any further obligation on the part of the
Company.

 

10

 

6.5          SARs.  The Committee may grant SARs
to any Participant, either as a separate Award or in connection with a Stock
Option.  SARs shall be subject to such
terms and conditions as the Committee shall impose.  The grant of the SAR may provide that the
holder may be paid for the value of the SAR either in cash or in shares of
Common Stock, or a combination thereof. 
In the event of the exercise of a SAR payable in shares of Common Stock,
the holder of the SAR shall receive that number of whole shares of Common Stock
having an aggregate Fair Market Value on the date of exercise equal to the
value obtained by multiplying (i) the difference between the Fair Market
Value of a share of Common Stock on the date of exercise over the SAR Price as
set forth in such SAR (or other value specified in the agreement granting the
SAR), by (ii) the number of shares of Common Stock as to which the SAR is
exercised, with a cash settlement to be made for any fractional shares of
Common Stock.  The Committee, in its sole
discretion, may place a ceiling on the amount payable upon exercise of a SAR,
but any such limitation shall be specified at the time that the SAR is granted.

 

Effective for
any SAR granted on or after January 1, 2005, the exercise price of any SAR
shall in no event be less than the Fair Market Value of the Shares at the time
of the grant.  The Award of the SAR shall
provide for a period during which the Participant may exercise the SAR which
shall be prior to the specified payment date. 
The Award of the SAR shall provide the specified date on which payment
will be made.  The payment amount shall
be based upon the difference in the Fair Market Value of the shares at the
exercise date and the SAR exercise price set in the Award multiplied by the
number of shares exercised (the “Spread”). 
The Award for the SAR may provide for crediting of interest equivalents
from the date of exercise to the specified payment date at a rate specified in
the Award provided the interest rate used is permissible under Section 409A
of the Code and the guidance issued thereunder. 
If the Award does not specify any interest equivalent, no interest
equivalents shall be credited on the Spread from the date of exercise to the
specified payment date.  A SAR shall only
be issued following the date the Company’s Common Stock is offered in a
transaction registered under the applicable federal and state securities laws,
when its securities are publicly traded on an established market; however, if
guidance under Code Section 409A provides for any fewer or different
requirements in order for the SAR to avoid being deferred compensation, the
issuance of the SAR shall be permitted when such fewer or different
requirements are satisfied as determined by the Committee in its sole
discretion.

 

6.6          SAR
Price.  The
SAR Price for any share of Common Stock subject to a SAR may be equal to or
greater than the Fair Market Value of the share on the Date of Grant.

 

6.7          Restricted Stock Units.  Restricted Stock Units may be awarded or sold
to any Participant under such terms and conditions as shall be established by
the Committee.  Restricted Stock Units
shall be subject to such restrictions as the Committee determines, including,
without limitation, (a) a prohibition against sale, assignment, transfer,
pledge, hypothecation or other encumbrance for a specified period; or (b) a
requirement that the holder forfeit (or in the case of shares of Common Stock
or units sold to the Participant, resell to the Company at cost) such shares or
units in the event of Termination of Service during the period of restriction.

 

6.8          Performance Awards.

 

(a)           The
Committee may grant Performance Awards to any Participant upon such terms and
conditions as shall be specified at the time of the grant and may include
provisions establishing the performance period, the Performance Goals to be
achieved during a performance period, and the maximum or minimum settlement
values.  Each Performance Award shall
have its own terms and conditions.  If
the Committee determines, in its sole discretion, that the established
performance measures or objectives are no longer suitable because of a change
in the Company’s business, operations, corporate structure, or for other
reasons that the Committee deemed satisfactory, the

 

11

 

Committee may
modify the performance measures or objectives and/or the performance
period.  However, the Committee may not,
in any event, increase the number of shares of Common Stock earned by any
Executive Officer upon satisfaction of any Performance Goal.

 

(b)           Performance Awards may be
valued by reference to the Fair Market Value of a share of Common Stock or
according to any formula or method deemed appropriate by the Committee, in its
sole discretion, including, but not limited to, achievement of Performance
Goals or other specific financial, production, sales or cost performance
objectives that the Committee believes to be relevant to the Company’s business
and/or remaining in the employ of the Company for a specified period of
time.  Performance Awards may be paid in
cash, shares of Common Stock, or other consideration, or any combination
thereof.  If payable in shares of Common
Stock, the consideration for the issuance of such shares may be the achievement
of the performance objective established at the time of the grant of the
Performance Award.  Performance Awards
may be payable in a single payment or in installments and may be payable at a
specified date or dates or upon attaining the performance objective.  The extent to which any applicable
performance objective has been achieved shall be conclusively determined by the
Committee.

 

6.9          Dividend Equivalent Rights.  For grants prior to January 1, 2005, the Committee may grant a
Dividend Equivalent Right to any Participant, either as a component of another
Award or as a separate Award. The terms and conditions of the Dividend
Equivalent Right shall be specified by the grant.  Dividend equivalents credited to the holder
of a Dividend Equivalent Right may be paid currently or may be deemed to be
reinvested in additional shares of Common Stock (which may thereafter accrue
additional dividend equivalents).  Any
such reinvestment shall be at the Fair Market Value at the time thereof.  Dividend Equivalent Rights may be settled in
cash or shares of Common Stock, or a combination thereof, in a single payment
or in installments.  A Dividend
Equivalent Right granted as a component of another Award may provide that such
Dividend Equivalent Right shall be settled upon exercise, settlement, or
payment of, or lapse of restrictions on, such other Award, and that such
Dividend Equivalent Right granted as a component of another Award may also
contain terms and conditions different from such other Award.

 

Effective for
grants on or after January 1, 2005, the Committee may grant a Dividend
Equivalent Right to any Participant, either as a component of another Award or
as a separate Award. The terms and conditions of the Dividend Equivalent Right
shall be specified by the grant and will comply with the requirements of Section 409A
of the Code to the extent applicable. 
Dividend equivalents credited to the holder of a Dividend Equivalent
Right may be paid currently or may be deemed to be reinvested in additional
shares of Common Stock (which may thereafter accrue additional dividend
equivalents) and will be paid at a date specified in the Award.  Any such reinvestment shall be at the Fair
Market Value at the time thereof. 
Dividend Equivalent Rights may be settled in cash or shares of Common
Stock, or a combination thereof, in a single payment or in installments which
payment date or dates shall be specified in the Award.  A Dividend Equivalent Right granted as a
component of another Award may provide that such Dividend Equivalent Right
shall be settled upon a specified date or a schedule of specified payment
dates in the Award, and that such Dividend Equivalent Right granted as a
component of another Award may also contain terms and conditions different from
such other Award.

 

6.10        Other Awards.  The Committee may grant to any Participant
other forms of Awards,  based upon,
payable in, or otherwise related to, in whole or in part, shares of Common
Stock, if the Committee determines that such other form of Award is consistent
with the purpose and restrictions of this Plan. 
The terms and conditions of such other form of Award shall be specified
by the grant.  Such Other Awards may be
granted for no cash consideration, for such minimum consideration as may be
required by applicable law, or for such other consideration as may be specified
by the grant.

 

12

 

6.11        Performance Goals.  Awards of Restricted Stock, Restricted Stock Units, Performance
Award and Other Awards (whether relating to cash or shares of Common Stock)
under the Plan may be made subject to the attainment of Performance Goals
relating to one or more business criteria within the meaning of Section 162(m)
of the Code, including, but not limited to, cash flow; cost; ratio of debt to
debt plus equity; profit before tax; economic profit; earnings before interest
and taxes; earnings before interest, taxes, depreciation and amortization;
earnings per share; operating earnings; economic value added; ratio of
operating earnings to capital spending; free cash flow; net profit; net sales;
sales growth; price of the Company’s Common Stock; return on net assets, equity
or stockholders’ equity; market share; or total return to stockholders (“Performance
Criteria”).  Any Performance Criteria may
be used to measure the performance of the Company as a whole or any business
unit of the Company and may be measured relative to a peer group or index.  Any Performance Criteria may include or
exclude (i) extraordinary, unusual and/or non-recurring items of gain or
loss, (ii) gains or losses on the disposition of a business, (iii) changes
in tax or accounting regulations or laws, or (iv) the effect of a merger
or acquisition, as identified in the Company’s quarterly and annual earnings
releases.  In all other respects,
Performance Criteria shall be calculated in accordance with the Company’s
financial statements, under generally accepted accounting principles, or under
a methodology established by the Committee prior to the issuance of an Award
which is consistently applied and identified in the audited financial
statements, including footnotes, or the Management Discussion and Analysis section of
the Company’s annual report.  However,
the Committee may not in any event increase the amount of compensation payable
to an individual upon the attainment of a Performance Goal.  Any Performance Goal Award issued on or after
January 1, 2005, shall only be paid at a time specified or pursuant to a
fixed schedule specified in the Award if such Performance Goal Award
constitutes deferred compensation under Section 409A of the Code and the
guidance issued thereunder or related thereto.

 

6.12        Tandem
Awards.  The
Committee may grant two or more Incentives in one Award in the form of a “tandem
Award,” so that the right of the Participant to exercise one Incentive shall be
canceled if, and to the extent, the other Incentive is exercised.  For example, if a Stock Option and a SAR are
issued in a tandem Award, and the Participant exercises the SAR with respect to
100 shares of Common Stock, the right of the Participant to exercise the
related Stock Option shall be canceled to the extent of 100 shares of Common
Stock.

 

6.13        Maximum Individual Grants.  No participant may receive during any
calendar year of the Company, Awards covering an aggregate of more than two
million (2,000,000) shares of Company Stock.

 

6.14        Option Price.  The Option Price for a Nonqualified Stock
Option shall be such price as determined by the Committee; provided, however,
such Option Price shall not be less than the Fair Market Value of the Common
Stock on the date of the Grant.  The
Option Price for an Incentive Stock Option shall be at least one hundred
percent (100%) of the Fair Market Value of the share on the Date of Grant.  If an Incentive Stock Option is granted to an
Employee who owns or is deemed to own (by reason of attribution rules of Section 424(d) of
the Code) more than ten percent (10%) of the combined voting power of all
classes of the Company’s stock (or of any parent or Subsidiary), the Option
Price shall be at least one hundred ten percent (110%) of the Fair Market Value
of the Common Stock on the Date of Grant.

 

ARTICLE 7

AWARD PERIOD; VESTING;
TERMINATION OF SERVICE

 

7.1          Award
Period.  Subject
to the other provisions of this Plan, the Committee may, in its discretion,
provide that an Incentive may not be exercised in whole or in part for any
period or periods of time or beyond any date specified in the Award
Agreement.  Except as provided in the
Award Agreement, an Incentive may be exercised in whole or in part at any time
during its term.  The Award Period for an
Incentive

 

13

 

shall be reduced or terminated upon Termination of
Service.  No Incentive granted under the
Plan may be exercised at any time after the end of its Award Period.  No portion of any Incentive may be exercised
after the expiration of ten (10) years from its Date of Grant.  However, if an Employee owns or is deemed to
own (by reason of the attribution rules of Section 424(d) of the
Code) more than ten percent (10%) of the combined voting power of all classes
of stock of the Company (or any parent or Subsidiary) and an Incentive Stock
Option is granted to such Employee, the term of such Incentive Stock Option (to
the extent required by the Code at the time of grant) shall be no more than
five (5) years from the Date of Grant.

 

7.2          Vesting.  The Committee, in its sole
discretion, may determine that an Incentive will be immediately vested in whole
or in part, or that all or any portion may not be vested until a date, or
dates, subsequent to its Date of Grant, or until the occurrence of one or more
specified events, subject in any case to the terms of the Plan.  If the Committee imposes conditions upon
vesting, then, subsequent to the Date of Grant, the Committee may, in its sole
discretion, accelerate the date on which all or any portion of the Incentive
may be vested.

 

7.3          Termination of Service.  In the event of Termination of Service of a
Participant, an Incentive or Award may only be exercised as determined by the
Committee and as provided in the Award Agreement.

 

ARTICLE 8

EXERCISE OF INCENTIVE

 

8.1          In General.  A vested Incentive may be
exercised during its Award Period, subject to limitations and restrictions set
forth in the Award Agreement and in Article 7.  A vested Incentive may be exercised at such
times and in such amounts as provided in this Plan and the applicable Award
Agreement, subject to the terms, conditions and restrictions of the Plan.

 

8.2          Securities
Law and Exchange Restrictions.  In no event may an Incentive be exercised or
shares of Common Stock be issued pursuant to an Award if a necessary listing or
quotation of the shares of Common Stock on a stock exchange or inter-dealer
quotation system or any registration under state or federal securities laws
required under the circumstances has not been accomplished.

 

8.3          Exercise
of Stock Option.

 

(a)           In
General.  If
a Stock Option is exercisable prior to the time it is vested, the Common Stock
obtained on the exercise of the Stock Option shall be Restricted Stock which is
subject to the applicable provisions of the Plan and the Award Agreement.  If the Committee imposes conditions upon
exercise, then subsequent to the Date of Grant, the Committee may, in its sole
discretion, accelerate the date on which all or any portion of the Stock Option
may be exercised.  No Stock Option may be
exercised for a fractional share of Common Stock.  The granting of a Stock Option shall impose
no obligation upon the Participant to exercise that Stock Option.

 

(b)           Notice
and Payment. 
Subject to such administrative regulations as the Committee may from
time to time adopt, a Stock Option may be exercised by the delivery of written
notice to the Company setting forth the number of shares of Common Stock with
respect to which the Stock Option is to be exercised and the date of exercise
thereof (the “Exercise Date”) which shall be at least three (3) days after
giving such notice unless an earlier time shall have been mutually agreed
upon.  On the Exercise Date, the
Participant shall deliver to the Company consideration with a value equal to
the total Option Price of the shares to be purchased, payable as provided in
the Award Agreement, which may provide for payment in any one or more of the
following ways:  (a) cash or check,
bank draft, or

 

14

 

money order
payable to the order of the Company, (b) Common Stock (including
Restricted Stock) owned by the Participant on the Exercise Date, valued at its
Fair Market Value on the Exercise Date, and which the Participant has not
acquired from the Company within six (6) months prior to the Exercise Date,
(c) by delivery (including by FAX) to the Company or its designated agent
of an executed irrevocable option exercise form together with irrevocable
instructions from the Participant to a broker or dealer, reasonably acceptable
to the Company, to sell certain of the shares of Common Stock purchased upon
exercise of the Stock Option or to pledge such shares as collateral for a loan
and promptly deliver to the Company the amount of sale or loan proceeds
necessary to pay such purchase price, and/or (d) in any other form of
valid consideration that is acceptable to the Committee in its sole
discretion.  In the event that shares of Restricted Stock are tendered as
consideration for the exercise of a Stock Option, a number of shares of Common
Stock issued upon the exercise of the Stock Option equal to the number of
shares of Restricted Stock used as consideration therefor shall be subject to
the same restrictions and provisions as the Restricted Stock so tendered.

 

(c)           Reload Stock Options.  In the event that shares of Common Stock are
delivered by a Participant in payment of all or a portion of the exercise price
of a Stock Option as set forth in Section 8.3(b) above and/or shares
of Common Stock are delivered to or withheld by the Company in satisfaction of
the Company’s tax withholding obligations upon exercise in accordance with Section 15.6
hereof, then, subject to Article 10 hereof, the Committee may authorize
the automatic grant to a Participant so exercising a Nonqualified Stock Option,
a replacement Nonqualified Stock Option, and to a Participant so exercising an
Incentive Stock Option, a replacement Incentive Stock Option (in either case, a
“Reload Stock Option”), to purchase that number of shares so delivered to or
withheld by the Company, as the case may be, at an option exercise price equal
to the Fair Market Value per share of the Common Stock on the date of exercise
of the original Stock Option (subject to the provisions of the Plan regarding
Incentive Stock Options and, in any event not less than the par value per share
of the Common Stock). The option period for a Reload Stock Option will commence
on its Date of Grant and expire on the expiration date of the original Stock
Option it replaces (subject to the provisions of the Plan regarding Incentive Stock
Options), after which period the Reload Stock Option cannot be exercised.  The Date of Grant of a Reload Stock Option
shall be the date that the Stock Option it replaces is exercised.  A Reload Stock Option shall automatically
vest and be exercisable in full after the expiration of six (6) months
from its Date of Grant.  It shall be a
condition to the grant of a Reload Stock Option that promptly after its Date of
Grant, a stock option agreement shall be delivered to the Participant and
executed by the Participant and the Company which sets forth the total number
of shares subject to the Reload Stock Option, the option exercise price, the
option period of the Reload Stock Option and such other terms and provisions as
are consistent with the Plan.

 

(d)           Issuance
of Certificate. 
Except as otherwise provided in Section 6.4 hereof (with respect to
shares of Restricted Stock) or in the applicable Award Agreement, upon payment
of all amounts due from the Participant, the Company shall cause certificates
for the Common Stock then being purchased to be delivered as directed by the
Participant (or the person exercising the Participant’s Stock Option in the
event of his death) at its principal business office promptly after the
Exercise Date; provided that if the Participant has exercised an Incentive
Stock Option, the Company may at its option retain physical possession of the
certificate evidencing the shares acquired upon exercise until the expiration
of the holding periods described in Section 422(a)(1) of the Code.
The obligation of the Company to deliver shares of Common Stock shall, however,
be subject to the condition that, if at any time the Committee shall determine
in its discretion that the listing, registration, or qualification of the Stock
Option or the Common Stock upon any securities exchange or inter-dealer
quotation system or under any state or federal law, or the consent or approval
of any governmental regulatory body, is necessary as a condition of, or in
connection with, the Stock Option or the issuance or purchase of shares of
Common Stock thereunder, the Stock Option may not be

 

15

 

exercised in
whole or in part unless such listing, registration, qualification, consent, or
approval shall have been effected or obtained free of any conditions not
reasonably acceptable to the Committee.

 

(e)           Failure
to Pay. 
Except as may otherwise be provided in an Award Agreement, if the
Participant fails to pay for any of the Common Stock specified in such notice
or fails to accept delivery thereof, that portion of the Participant’s Stock
Option and right to purchase such Common Stock may be forfeited by the
Participant, in the Company’s sole discretion.

 

8.4          SARs.  Subject to the conditions of
this Section 8.4 and such administrative regulations as the Committee may
from time to time adopt, a SAR may be exercised by the delivery (including by
FAX) of written notice to the Committee setting forth the number of shares of
Common Stock with respect to which the SAR is to be exercised and the date of
exercise thereof (the “Exercise Date”) which shall be at least three (3) days
after giving such notice unless an earlier time shall have been mutually agreed
upon. Subject to the terms of the Award Agreement, on the Exercise Date, the
Participant shall be credited by the Company with cash in an amount equal to
the excess (if any) of the Fair Market Value (as of the date of the exercise of
the SAR) per share of Common Stock over the SAR Price per share specified in
such SAR, multiplied by the total number of shares of Common Stock of the SAR
being surrendered, which shall be paid to the Participant at the date specified
in the SAR.  In the discretion of the
Committee, and subject to the terms of the Award Agreement, the Company may
satisfy its obligation upon exercise of a SAR by distributing on the specified
date for the Award, that number of shares of Common Stock having an aggregate
Fair Market Value (as of the date of the exercise of the SAR) equal to the
amount of cash otherwise payable to the Participant, with a cash settlement to
be made for any fractional share interests, or the Company may settle such
obligation in part with shares of Common Stock and in part with cash.

 

8.5          Disqualifying
Disposition of Incentive Stock Option.  If shares of Common Stock acquired upon
exercise of an Incentive Stock Option are disposed of by a Participant prior to
the expiration of either two (2) years from the Date of Grant of such
Stock Option or one (1) year from the transfer of shares of Common Stock
to the Participant pursuant to the exercise of such Stock Option, or in any
other disqualifying disposition within the meaning of Section 422 of the
Code, such Participant shall notify the Company in writing of the date and
terms of such disposition.  A
disqualifying disposition by a Participant shall not affect the status of any
other Stock Option granted under the Plan as an Incentive Stock Option within
the meaning of Section 422 of the Code.

 

ARTICLE 9

AMENDMENT OR
DISCONTINUANCE

 

Subject to the
limitations set forth in this Article 9, the Board may at any time and
from time to time, without the consent of the Participants, alter, amend,
revise, suspend, or discontinue the Plan in whole or in part; provided,
however, that no amendment which requires stockholder approval in order for the
Plan and Incentives awarded under the Plan to continue to comply with Sections
162(m), 421, and 422 of the Code, including any successors to such Sections,
shall be effective unless such amendment shall be approved by the requisite
vote of the stockholders of the Company entitled to vote thereon.  Any such amendment shall, to the extent
deemed necessary or advisable by the Committee, be applicable to any
outstanding Incentives theretofore granted under the Plan, notwithstanding any
contrary provisions contained in any Award Agreement.  In the event of any such amendment to the
Plan, the holder of any Incentive outstanding under the Plan shall, upon
request of the Committee and as a condition to the exercisability thereof,
execute a conforming amendment in the form prescribed by the Committee to any
Award Agreement relating thereto. 
Notwithstanding anything contained in this Plan to the contrary, unless
required by law, no action contemplated or permitted by this Article 9
shall adversely affect any rights of Participants or obligations of the

 

16

 

Company to Participants with respect to any Incentive
theretofore granted under the Plan without the consent of the affected
Participant.

 

ARTICLE 10

TERM

 

The Plan shall be
effective from the date that this Plan is approved by the Board.  Unless sooner terminated by action of the
Board, the Plan will terminate on September    , 2015, but
Incentives granted before that date will continue to be effective in accordance
with their terms and conditions.

 

ARTICLE 11

CAPITAL ADJUSTMENTS

 

In the event
that the Committee shall determine that any dividend or other distribution
(whether in the form of cash, Common Stock, other securities, or other
property), recapitalization, stock split, reverse stock split, rights offering,
reorganization, merger, consolidation, split-up, spin-off, split-off,
combination, subdivision, repurchase, or exchange of Common Stock or other
securities of the Company, issuance of warrants or other rights to purchase
Common Stock or other securities of the Company, or other similar corporate
transaction or event affects the Common Stock such that an adjustment is
determined by the Committee to be appropriate to prevent the dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan, then the Committee shall, in such manner as it may deem
equitable, adjust any or all of the (i) the number of shares and type of
Common Stock (or the securities or property) which thereafter may be made the
subject of Awards, (ii) the number of shares and type of Common Stock (or
other securities or property) subject to outstanding Awards, (iii) the
number of shares and type of Common Stock (or other securities or property)
specified as the annual per-participant limitation, (iv) the Option Price
of each outstanding Award, (v) the amount, if any, the Company pays for
forfeited shares of Common Stock in accordance with Section 6.4, and (vi) the
number of or SAR Price of shares of Common Stock then subject to outstanding
SARs previously granted and unexercised under the Plan to the end that the same
proportion of the Company’s issued and outstanding shares of Common Stock in
each instance shall remain subject to exercise at the same aggregate SAR Price;
provided however, that the number of shares of Common Stock (or other
securities or property) subject to any Award shall always be a whole
number.  In lieu of the foregoing, if
deemed appropriate, the Committee may make provision for a cash payment to the
holder of an outstanding Award. 
Notwithstanding the foregoing, no such adjustment or cash payment shall
be made or authorized to the extent that such adjustment or cash payment would
cause the Plan or any Stock Option to violate Section 422 of the
Code.  Such adjustments shall be made in
accordance with the rules of any securities exchange, stock market, or
stock quotation system to which the Company is subject.

 

Upon the
occurrence of any such adjustment or cash payment, the Company shall provide
notice to each affected Participant of its computation of such adjustment or
cash payment which shall be conclusive and shall be binding upon each such
Participant.

 

ARTICLE 12

RECAPITALIZATION, MERGER
AND CONSOLIDATION

 

12.1        No Effect
on Company’s Authority.  The existence of this Plan and Incentives
granted hereunder shall not affect in any way the right or power of the Company
or its stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations, or other changes in the Company’s capital

 

17

 

structure and its business, or any merger or
consolidation of the Company, or any issuance of bonds, debentures, preferred
or preference stocks ranking prior to or otherwise affecting the Common Stock
or the rights thereof (or any rights, options, or warrants to purchase same),
or the dissolution or liquidation of the Company, or 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.

 

12.2        Conversion
of Incentives Where Company Survives.  Subject to any required action by the
stockholders, if the Company shall be the surviving or resulting corporation in
any merger, consolidation or share exchange, any Incentive granted hereunder
shall pertain to and apply to the securities or rights (including cash,
property, or assets) to which a holder of the number of shares of Common Stock
subject to the Incentive would have been entitled.

 

12.3        Exchange
or Cancellation of Incentives Where Company Does Not Survive.  In the event of any merger,
consolidation or share exchange pursuant to which the Company is not the
surviving or resulting corporation or where stockholders of the Company prior
to such transaction do not control a majority of the voting shares of the
surviving corporation, there shall be substituted for each share of Common
Stock subject to the unexercised portions of outstanding Incentives, that
number of shares of each class of stock or other securities or that amount of
cash, property, or assets of the surviving, resulting or consolidated company
which were distributed or distributable to the stockholders of the Company in
respect to each share of Common Stock held by them, such outstanding Incentives
to be thereafter exercisable for such stock, securities, cash, or property in
accordance with their terms.

 

Notwithstanding
the foregoing, however, all such Incentives may be canceled by the Company, in
its sole discretion, as of the effective date of any such reorganization,
merger, consolidation, or share exchange, or of any proposed sale of all or
substantially all of the assets of the Company, or of any dissolution or
liquidation of the Company, by either:

 

(a)           giving notice to each
holder thereof or his personal representative of its intention to cancel those
Incentives for which the issuance of shares of Common Stock involved payment by
the Participant for such shares and, permitting the purchase during the thirty
(30) day period next preceding such effective date of any or all of the shares
of Common Stock subject to such outstanding Incentives, including in the Board’s
discretion some or all of the shares as to which such Incentives would not
otherwise be vested and exercisable; or

 

(b)           in the case of Incentives
that are either (i) settled only in shares of Common Stock, or (ii) at
the election of the Participant, settled in shares of Common Stock, paying the
holder thereof an amount equal to a reasonable estimate of the difference
between the net amount per share payable in such transaction or as a result of
such transaction, and the price per share of such Incentive to be paid by the
Participant (hereinafter the “Spread”), multiplied by the number of shares
subject to the Incentive.  In cases where
the shares constitute, or would after exercise, constitute Restricted Stock,
the Company, in its discretion may include some or all of those shares in the calculation
of the amount payable hereunder.  In
estimating the Spread, appropriate adjustments to give effect to the existence
of the Incentives shall be made, such as deeming the Incentives to have been
exercised, with the Company receiving the exercise price payable thereunder,
and treating the shares receivable upon exercise of the Incentives as being
outstanding in determining the net amount per share.  In cases where the proposed transaction
consists of the acquisition of assets of the Company, the net amount per share
shall be calculated on the basis of the net amount receivable with respect to
shares of Common Stock upon a distribution and liquidation by the Company after
giving effect to expenses and charges, including but not limited to taxes,
payable by the Company before such liquidation could be completed.

 

18

 

(c)           An Award that by its terms
would be fully vested or exercisable upon a Change of Control will be
considered vested or exercisable for purposes of Section 12.3(a) hereof.

 

ARTICLE 13

LIQUIDATION OR DISSOLUTION

 

Subject to Section 12.3
hereof, in case the Company shall, at any time while any Incentive under this
Plan shall be in force and remain unexpired, (i) sell all or substantially
all of its property, or (ii) dissolve, liquidate, or wind up its affairs,
then each Participant shall be entitled to receive, in lieu of each share of
Common Stock of the Company which such Participant would have been entitled to
receive under the Incentive, the same kind and amount of any securities or
assets as may be issuable, distributable, or payable upon any such sale,
dissolution, liquidation, or winding up with respect to each share of Common
Stock of the Company.  If the Company
shall, at any time prior to the expiration of any Incentive, make any partial
distribution of its assets, in the nature of a partial liquidation, whether
payable in cash or in kind (but excluding the distribution of a cash dividend
payable out of earned surplus and designated as such) and an adjustment is
determined by the Committee to be appropriate to prevent the dilution of the
benefits or potential benefits intended to be made available under the Plan,
then the Committee shall, in such manner as it may deem equitable, make such
adjustment in accordance with the provisions of Article 11 hereof.

 

ARTICLE 14

INCENTIVES IN SUBSTITUTION
FOR

INCENTIVES GRANTED BY
OTHER ENTITIES

 

Incentives may be
granted under the Plan from time to time in substitution for similar
instruments held by employees or directors of a corporation, partnership, or
limited liability company who become or are about to become Employees or
Outside Directors of the Company or any Subsidiary as a result of a merger or
consolidation of the employing corporation with the Company, the acquisition by
the Company of equity of the employing entity, or any other similar transaction
pursuant to which the Company becomes the successor employer.  The terms and conditions of the substitute
Incentives so granted may vary from the terms and conditions set forth in this
Plan to such extent as the Committee at the time of grant may deem appropriate
to conform, in whole or in part, to the provisions of the Incentives in
substitution for which they are granted.

 

ARTICLE 15

MISCELLANEOUS PROVISIONS

 

15.1        Investment
Intent.  The
Company may require that there be presented to and filed with it by any
Participant under the Plan, such evidence as it may deem necessary to establish
that the Incentives granted or the shares of Common Stock to be purchased or
transferred are being acquired for investment and not with a view to their
distribution.

 

15.2        No Right to
Continued Employment.  Neither the Plan nor any Incentive granted
under the Plan shall confer upon any Participant any right with respect to
continuance of employment by the Company or any Subsidiary.

 

15.3        Indemnification
of Board and Committee.  No member of the Board or the Committee, nor
any officer or Employee of the Company acting on behalf of the Board or the
Committee, shall be personally

 

19

 

liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Board and the Committee, each officer of the Company, and each
Employee of the Company acting on behalf of the Board or the Committee shall,
to the extent permitted by law, be fully indemnified and protected by the
Company in respect of any such action, determination, or interpretation.

 

15.4        Effect of
the Plan. 
Neither the adoption of this Plan nor any action of the Board or the
Committee shall be deemed to give any person any right to be granted an Award
or any other rights except as may be evidenced by an Award Agreement, or any
amendment thereto, duly authorized by the Committee and executed on behalf of
the Company, and then only to the extent and upon the terms and conditions
expressly set forth therein.

 

15.5        Compliance With
Other Laws and Regulations.  Notwithstanding anything contained herein to
the contrary, the Company shall not be required to sell or issue shares of
Common Stock under any Incentive if the issuance thereof would constitute a
violation by the Participant or the Company of any provisions of any law or
regulation of any governmental authority or any national securities exchange or
inter-dealer quotation system or other forum in which shares of Common Stock
are quoted or traded (including without limitation Section 16 of the 1934
Act in the event the Common Stock should ever be registered under the 1934 Act
and Section 162(m) of the Code); and, as a condition of any sale or
issuance of shares of Common Stock under an Incentive, the Committee may
require such agreements or undertakings, if any, as the Committee may deem
necessary or advisable to assure compliance with any such law or
regulation.  The Plan, the grant and
exercise of Incentives hereunder, and the obligation of the Company to sell and
deliver shares of Common Stock, shall be subject to all applicable federal and
state laws, rules and regulations and to such approvals by any government
or regulatory agency as may be required.

 

15.6        Tax
Requirements. 
The Company or, if applicable, any Subsidiary (for purposes of this Section 15.6,
the term “Company”
shall be deemed to include any applicable Subsidiary), shall have the right to
deduct from all amounts paid in cash or other form in connection with the Plan,
any Federal, state, local, or other taxes required by law to be withheld in
connection with an Award granted under this Plan.  The Company may, in its sole discretion, also
require the Participant receiving shares of Common Stock issued under the Plan
to pay the Company the amount of any taxes that the Company is required to
withhold in connection with the Participant’s income arising with respect to
the Award.  Such payments shall be
required to be made when requested by Company and may be required to be made
prior to the delivery of any certificate representing shares of Common
Stock.  Such payment may be made (i) by
the delivery of cash to the Company in an amount that equals or exceeds (to
avoid the issuance of fractional shares under (iii) below) the required
tax withholding obligations of the Company; (ii) if the Company, in its
sole discretion, so consents in writing, the actual delivery by the exercising
Participant to the Company of shares of Common Stock that the Participant has
not acquired from the Company within six (6) months prior to the date of
exercise, which shares so delivered have an aggregate Fair Market Value that
equals or exceeds (to avoid the issuance of fractional shares under (iii) below)
the required tax withholding payment; (iii) if the Company, in its sole
discretion, so consents in writing, the Company’s withholding of a number of
shares to be delivered upon the exercise of the Stock Option, which shares so
withheld have an aggregate fair market value that equals (but does not exceed)
the required tax withholding payment; or (iv) any combination of (i),
(ii), or (iii).  The Company may, in its
sole discretion, withhold any such taxes from any other cash remuneration
otherwise paid by the Company to the Participant.  The Committee may in the Award Agreement
impose any additional tax requirements or provisions that the Committee deems
necessary or desirable.

 

15.7        Assignability.  Incentive Stock Options may
not be transferred, assigned, pledged, hypothecated or otherwise conveyed or
encumbered other than by will or the laws of descent and distribution and may
be exercised during the lifetime of the Participant only by the Participant or
the Participant’s legally authorized representative, and each Award Agreement
in respect of an Incentive Stock Option shall so provide.

 

20

 

The designation by a Participant of a beneficiary will
not constitute a transfer of the Stock Option. 
The Committee may waive or modify any limitation contained in the
preceding sentences of this Section 15.7 that is not required for
compliance with Section 422 of the Code.

 

Except as
otherwise provided herein, Nonqualified Stock Options and SARs may not be
transferred, assigned, pledged, hypothecated or otherwise conveyed or
encumbered other than by will or the laws of descent and distribution.  The Committee may, in its discretion,
authorize all or a portion of a Nonqualified Stock Option or SAR to be granted
to a Participant on terms which permit transfer by such Participant to (i) the
spouse (or former spouse), children or grandchildren of the Participant or a
sister or brother of the Participant (“Immediate Family Members”), (ii) a
trust or trusts for the exclusive benefit of such Immediate Family Members, (iii) a
partnership in which the only partners are (1) the Participant or such
Immediate Family Members and/or (2) entities which are controlled by the
Participant or Immediate Family Members, (iv) an entity exempt from
federal income tax pursuant to Section 501(c)(3) of the Code or any
successor provision, or (v) a split interest trust or pooled income fund
described in Section 2522(c)(2) of the Code or any successor
provision, provided that (x) there shall be no consideration for
any such transfer, (y) the Award Agreement pursuant to which such
Nonqualified Stock Option or SAR is granted must be approved by the Committee
and must expressly provide for transferability in a manner consistent with this
Section, and (z) subsequent transfers of transferred Nonqualified Stock
Options or SARs shall be prohibited except those by will or the laws of descent
and distribution.

 

Following any
transfer, any such Nonqualified Stock Option and SAR shall continue to be
subject to the same terms and conditions as were applicable immediately prior
to transfer, provided that for purposes of Articles 8, 9, 11, 13 and 15
hereof the term “Participant” shall be deemed to include the transferee.  The events of Termination of Service shall
continue to be applied with respect to the original Participant, following
which the Nonqualified Stock Options and SARs shall be exercisable by the
transferee only to the extent and for the periods specified in the Award Agreement.  The Committee and the Company shall have no
obligation to inform any transferee of a Nonqualified Stock Option or SAR of
any expiration, termination, lapse or acceleration of such Stock Option or SAR.  The Company shall have no obligation to register
with any federal or state securities commission or agency any Common Stock
issuable or issued under a Nonqualified Stock Option or SAR that has been
transferred by a Participant under this Section 15.7.

 

15.8        Use of
Proceeds. 
Proceeds from the sale of shares of Common Stock pursuant to Incentives
granted under this Plan shall constitute general funds of the Company.

 

15.9        Compliance With Other Agreements.  Any shares of
Common Stock issued upon exercise of an Incentive awarded under this Plan prior
to such date on which the Company’s Common Stock is offered in a transaction
registered under the applicable state and federal securities laws, shall be
subject to all of the terms and provisions of (i) the EXCO Holdings Inc.
Stockholders’ Agreement (herein so called), dated as of October 3, 2005,
among the Company and the stockholders signatory thereto, and (ii) that
certain Registration Rights Agreement (herein so called), dated as of October 3,
2005, among the Company and the stockholders signatory thereto, among the
Company and the stockholders signatory thereto. 
Upon the Award of any Incentive prior to the date on which the Company’s
Common Stock were offered in a transaction registered under the applicable
state and federal securities laws, the Participant shall enter into such
joinder agreements or other appropriate instruments binding them and any shares
of Common Stock they may acquire under any Incentive to said agreements.

 

15.10      Legend.  Each certificate
representing shares of Restricted Stock issued to a Participant shall bear the
following legend, or a similar legend deemed by the Company to constitute an
appropriate notice of the provisions hereof (any such certificate not having
such legend shall be surrendered upon demand by the Company and so endorsed):

 

21

 

On the face of
the certificate:

 

“Transfer of
this stock is restricted in accordance with conditions printed on the reverse
of this certificate.”

 

On the
reverse:

 

“The shares
of stock evidenced by this certificate are subject to and transferable only in
accordance with that certain EXCO Holdings Inc. 2005 Long-Term Incentive Plan,
a copy of which is on file at the principal office of the Company in Dallas,
Texas.  No transfer or pledge of the
shares evidenced hereby may be made except in accordance with and subject to
the provisions of said Plan.  By
acceptance of this certificate, any holder, transferee or pledgee hereof agrees
to be bound by all of the provisions of said Plan.”

 

The following
legend shall be inserted on a certificate evidencing Common Stock issued under
the Plan if the shares were not issued in a transaction registered under the
applicable federal and state securities laws:

 

“Shares of
stock represented by this certificate have been acquired by the holder for
investment and not for resale, transfer or distribution, have been issued
pursuant to exemptions from the registration requirements of applicable state
and federal securities laws, and may not be offered for sale, sold or
transferred other than pursuant to effective registration under such laws, or
in transactions otherwise in compliance with such laws, and upon evidence
satisfactory to the Company of compliance with such laws, as to which the
Company may rely upon an opinion of counsel satisfactory to the Company.”

 

Any legend required by
any of the terms of the EXCO Holdings Inc. Stockholders’ Agreement and the
Registration Rights Agreement.

 

A copy of this
Plan shall be kept on file in the office of the Company at 12377 Merit Drive, Suite 1700,
Dallas, Texas, United States, or any successor location of the Company’s
principal executive offices.

 

***************

 

22

 

IN WITNESS
WHEREOF, the Company has caused this instrument to be executed as of October 5,
2005, by its Chairman, Chief Executive Officer and Vice Chairman, President and
Secretary pursuant to prior action taken by the Board.

 

 

	
   

  	
  EXCO HOLDINGS INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ DOUGLAS
  H. MILLER

  	
   

  
	
   

  	
  Name:
  Douglas H. Miller

  
	
   

  	
  Title:
  Chairman and Chief Executive Officer

  
	
   

  	
   

  
	
  Attest:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ STEPHEN
  F. SMITH

  	
   

  	
   

  
	
  Stephen F.
  Smith

  	
   

  
	
  Vice
  Chairman, President and Secretary

  	
   

  
					

 

23Exhibit
10.3

 

INCENTIVE STOCK OPTION
AGREEMENT

 

THE EXCO HOLDINGS INC.

2005 LONG-TERM INCENTIVE
PLAN

 

1.             Grant of Option.  Pursuant to the EXCO Holdings Inc. 2005
Long-Term Incentive Plan (the “Plan”) for key employees of EXCO Holdings Inc.,
a Delaware corporation (the “Company”), the Company grants to

 

 

(the “Participant”),

 

who is an
employee of the Company, an option to purchase shares of Common Stock, par
value $.001 per share (“Common Stock”), of the Company as follows:

 

On the date
hereof, the Company grants to the Participant an option (the “Option” or “Stock
Option”) to purchase                                
(                   )
full shares (the “Optioned Shares”) of Common Stock at an Option Price equal to
$                   
per share (being the Fair Market Value per share of the Common Stock on this
Date of Grant or 110% of such Fair Market Value, in the case of a ten percent
(10%) or more stockholder as provided in Code Section 422).  The Date of Grant of this Stock Option is                            ,
20    .

 

The “Option
Period” shall commence on the Date of Grant and shall expire on the date
immediately preceding the tenth (10th) anniversary of the Date of
Grant (or the date immediately preceding the fifth (5th) anniversary
of the Date of Grant, in the case of a ten percent (10%) or more stockholder as
provided in Code Section 422).  The
Stock Option is intended to be an Incentive Stock Option.

 

2.             Subject to Plan.  The Stock Option and its
exercise are subject to the terms and conditions of the Plan, and the terms of
the Plan shall control to the extent not otherwise inconsistent with the
provisions of this Agreement. The capitalized terms used herein that are
defined in the Plan shall have the same meanings assigned to them in the Plan.  The Stock Option is subject to any rules promulgated
pursuant to the Plan by the Board or the Committee and communicated to the
Participant in writing.  In addition, if the Plan previously has not
been approved by the Company’s stockholders, the Stock Option is granted
subject to such stockholder approval.

 

3.             Vesting; Time of Exercise. 
Except as specifically provided in this Agreement and subject to certain
restrictions and conditions set forth in the Plan, the Optioned Shares shall be
vested and exercisable as follows:

 

a.             Twenty-five percent (25%) of the total Awarded Shares shall be fully
vested on the Date of Grant, provided the Participant is employed by the
Company or a Subsidiary on that date.

 

b.             Twenty-five percent (25%) of the total Awarded Shares shall be fully
vested on the first
anniversary of the Date of Grant, provided the Participant is employed by the
Company or a Subsidiary on that date.

 

 

c.             An additional twenty-five percent (25%) 
of the total Awarded Shares shall be fully vested on the second anniversary of the
Date of Grant, provided the Participant is employed by the Company or a
Subsidiary on that date.

 

d.             An additional twenty-five percent (25%) 
of the total Awarded Shares shall be shall be fully vested on the third anniversary of the
Date of Grant, provided the Participant is employed by the Company or a
Subsidiary on that date.

 

Notwithstanding the above, the Optioned Shares shall be fully vested
automatically upon a Change in Control (as defined in Section 2.6
of the EXCO Holdings Inc. 2005 Long-Term Incentive Plan (the “Plan”) or upon
the death of the Participant or the Total and Permanent Disability (as defined
in Section 2.41 of the Plan) of the Participant, provided the
Participant is still employed by the Company as of the date of one of such
specified events.

 

4.             Term; Forfeiture.

 

a.             Except as otherwise provided in this Agreement,
the unexercised portion of the Stock Option that relates to Optioned Shares
which are vested will terminate and be forfeited at the first of the following
to occur:

 

i.              5 p.m.
on the date the Option Period terminates;

 

ii.             5 p.m.
on the date which is one hundred eighty (180) days following the date of the
Participant’s Termination of Service due to death or Total and Permanent Disability;

 

iii.            5 p.m.
on the date which is ninety (90) days from the date of the Participant’s
Retirement;

 

iv.            5 p.m.
on the date of the Participant’s Termination of Service by the Company for
cause (as defined herein);

 

v.             5 p.m. on the date which is thirty (30)
days following the date of the Participant’s Termination of Service for any
reason not otherwise specified in this Section 4.a.;

 

vi.            5 p.m.
on the date the Company causes any portion of the Option to be forfeited
pursuant to Section 7 hereof.

 

vii.           For purposes hereof, “cause” shall mean that
the Participant shall have committed (i) an intentional material act of
fraud or embezzlement in connection with his duties in the course of his
employment with the Company; (ii) intentional wrongful material damage to
property of the Company; or (iii) intentional wrongful disclosure of
material secret processes or material confidential information of the
Company.  For the purposes of this
Agreement, no act, or failure to act, on the part of the Participant shall be
deemed “intentional” unless done, or omitted to be done, by the Participant not
in good faith and without reasonable belief that his action or omission was in
the best interest of the Company.

 

2

 

5.             Who May Exercise.  Subject to the terms and
conditions set forth in Sections 3 and 4 above, during the lifetime of
the Participant, the Stock Option may be exercised only by the Participant, or
by the Participant’s guardian or personal or legal representative.  If the Participant’s Termination of Service
is due to his death prior to the date specified in Section 4.a.i.
hereof, or Participant dies prior to the termination dates specified in Sections
4.a.i., ii., iii., iv., v. or vi. hereof, and the Participant has not
exercised the Stock Option as to the maximum number of vested Optioned Shares
as set forth in Section 3 hereof as of the date of death, the
following persons may exercise the exercisable portion of the Stock Option on
behalf of the Participant at any time prior to the earliest of the dates
specified in Section 4 hereof: 
the personal representative of his estate, or the person who acquired
the right to exercise the Stock Option by bequest or inheritance or by reason
of the death of the Participant; provided that the Stock Option shall remain
subject to the other terms of this Agreement, the Plan, and applicable laws,
rules, and regulations.

 

6.             No Fractional Shares.  The Stock Option may be
exercised only with respect to full shares, and no fractional share of stock
shall be issued.

 

7.             Manner of Exercise.  Subject to such
administrative regulations as the Committee may from time to time adopt, the
Stock Option may be exercised by the delivery of written notice to the
Committee setting forth the number of shares of Common Stock with respect to
which the Stock Option is to be exercised, the date of exercise thereof (the “Exercise
Date”) which shall be at least three (3) days after giving such notice
unless an earlier time shall have been mutually agreed upon, and whether the
Optioned Shares to be exercised will be considered as deemed granted under an
Incentive Stock Option as provided in Section 11.  On the Exercise Date, the Participant shall
deliver to the Company consideration with a value equal to the total Option
Price of the shares to be purchased, payable as follows:  (a) cash, check, bank draft, or money
order payable to the order of the Company, (b) Common Stock (including
Restricted Stock and Callable Shares)
owned by the Participant on the Exercise Date, valued at its Fair Market Value
on the Exercise Date, and which the Participant has not acquired from the
Company within six (6) months prior to the Exercise Date; provided, that
the six (6)-month holding requirement shall only apply to a Reporting Participant
at any time following an IPO, (c) if the Company has completed an IPO, by
delivery (including by FAX) to the Company or its designated agent of an
executed irrevocable option exercise form together with irrevocable
instructions from the Participant to a broker or dealer, reasonably acceptable
to the Company, to sell certain of the shares of Common Stock purchased upon
exercise of the Stock Option or to pledge such shares as collateral for a loan
and promptly deliver to the Company the amount of sale or loan proceeds
necessary to pay such purchase price, and/or (d) in any other form of
valid consideration that is acceptable to the Committee in its sole
discretion.  In the event that shares of Restricted Stock or Callable Shares are
tendered as consideration for the exercise of a Stock Option, a number of
shares of Common Stock issued upon the exercise of the Stock Option equal to
the number of shares of Restricted Stock or Callable Shares used as
consideration therefor shall be subject to the same restrictions and provisions
as the Restricted Stock or Callable Shares so tendered.

 

Upon payment
of all amounts due from the Participant, the Company shall cause certificates
for the Optioned Shares then being purchased to be delivered to the Participant
(or the person exercising the Participant’s Stock Option in the event of his
death) at its principal business office within ten (10) business days
after the Exercise Date. The obligation of the Company to deliver shares of
Common Stock shall, however, be subject to the condition that if at any time
the Company shall determine in its discretion that the listing, registration,
or qualification of the Stock Option or the Optioned Shares upon any securities
exchange or under any state or federal law, or the consent or approval of any
governmental regulatory body, is necessary as a condition of, or in connection
with, the Stock Option or the issuance or purchase of shares of Common Stock
thereunder, then the Stock Option may not be exercised in whole or in part
unless such listing,

 

3

 

registration, qualification, consent, or approval
shall have been effected or obtained free of any conditions not reasonably
acceptable to the Committee.

 

If the
Participant fails to pay for any of the Optioned Shares specified in such
notice or fails to accept delivery thereof, then the Stock Option, and right to
purchase such Optioned Shares may be forfeited by the Company.

 

8.             Nonassignability.  The Stock Option is not
assignable or transferable by the Participant except by will or by the laws of
descent and distribution.

 

9.             Rights as Stockholder.  The Participant will have
no rights as a stockholder with respect to any shares covered by the Stock
Option until the issuance of a certificate or certificates to the Participant
for the Optioned Shares.  The Optioned
Shares shall be subject to the terms and conditions of this Agreement regarding
such Optioned Shares.  Except as
otherwise provided in Section 10 hereof, no adjustment shall be
made for dividends or other rights for which the record date is prior to the
issuance of such certificate or certificates.

 

10.           Adjustment of Number of
Optioned Shares and Related Matters.  The number of shares of Common Stock covered
by the Stock Option, and the Option Prices thereof, shall be subject to
adjustment in accordance with Articles 11 - 13 of the Plan.

 

11.           Incentive Stock Option.  Subject to the provisions
of the Plan, this Stock Option is an Incentive Stock Option.  To the extent the number of Optioned Shares
exceeds the limit set forth in Section 6.3 of the Plan, such
Optioned Shares shall be deemed granted pursuant to a Nonqualified Stock
Option.  Unless otherwise indicated by
the Participant in the notice of exercise pursuant to Section 7,
upon any exercise of this Stock Option, the number of exercised Optioned Shares
that shall be deemed to be exercised pursuant to an Incentive Stock Option
shall equal the total number of Optioned Shares so exercised multiplied by a
fraction, (i) the numerator of which is the number of unexercised Optioned
Shares that could then be exercised pursuant to an Incentive Stock Option and (ii) the
denominator of which is the then total number of unexercised Optioned Shares.

 

12.           Disqualifying
Disposition. In the event that Common Stock
acquired upon exercise of this Stock Option is disposed of by the Participant
in a “Disqualifying Disposition,” such Participant shall notify the Company in
writing within thirty (30) days after such disposition of the date and terms of
such disposition.  For purposes hereof, “Disqualifying
Disposition” shall mean a disposition of Common Stock that is acquired upon the
exercise of this Stock Option (and that is not deemed granted pursuant to a
Nonqualified Stock Option under Section 11) prior to the expiration
of either two years from the Date of Grant of this Stock Option or one year
from the transfer of shares to the Participant pursuant to the exercise of this
Stock Option.

 

13.           Restrictions on Optioned
Shares.  The
Participant and any Optioned Shares he or she may acquire shall be subject to
and governed by the terms, provisions and restrictions set forth in that
certain (i) Stockholders’ Agreement (herein so called), dated as of October 3,
2005, among the Company and the Company stockholders signatory thereto, and (ii) Registration
Rights Agreement (herein so called), dated as of October 3, 2005, among
the Company and the Company stockholders signatory thereto.

 

14.           Voting.  The
Participant, as record holder of some or all of the Optioned Shares following
exercise of this Stock Option, has the exclusive right to vote, or consent with
respect to, such Optioned Shares until such time as the Optioned Shares are
transferred in accordance with this Agreement; provided, however,

 

4

 

that this Section shall
not create any voting right where the holders of such Optioned Shares otherwise
have no such right.

 

15.           Community Property. 
Each spouse individually is bound by, and such spouse’s interest, if any,
in any Optioned Shares is subject to, the terms of this Agreement.  Nothing in this Agreement shall create a
community property interest where none otherwise exists.

 

16.           Dispute Resolution.

 

a.             Arbitration.  All disputes and controversies of every kind and
nature between any parties hereto arising out of or in connection with this
Agreement or the transactions described herein as to the construction,
validity, interpretation or meaning, performance, non-performance, enforcement,
operation or breach, shall be submitted to arbitration pursuant to the
following procedures:

 

i.              After a dispute or controversy arises, any
party may, in a written notice delivered to the other parties to the dispute,
demand such arbitration.  Such notice
shall designate the name of the arbitrator (who shall be an impartial person)
appointed by such party demanding arbitration, together with a statement of the
matter in controversy.

 

ii.             Within 30 days after receipt of such demand,
the other parties shall, in a written notice delivered to the first party, name
such parties’ arbitrator (who shall be an impartial person).  If such parties fail to name an arbitrator,
then the second arbitrator shall be named by the American Arbitration
Association (the AAA).  The two arbitrators
so selected shall name a third arbitrator (who shall be an impartial person)
within 30 days, or in lieu of such agreement on a third arbitrator by the two
arbitrators so appointed, the third arbitrator shall be appointed by the AAA.  If any arbitrator appointed hereunder shall
die, resign, refuse or become unable to act before an arbitration decision is
rendered, then the vacancy shall be filled by the method set forth in this Section for
the original appointment of such arbitrator.

 

iii.            Each party shall bear its own arbitration
costs and expenses.  The arbitration
hearing shall be held in Dallas, Texas at a location designated by a majority
of the arbitrators.  The Commercial
Arbitration Rules of the American Arbitration Association shall be
incorporated by reference at such hearing and the substantive laws of the State
of Texas (excluding conflict of laws provisions) shall apply.

 

iv.            The arbitration hearing shall be concluded
within ten (10) days unless otherwise ordered by the arbitrators and the
written award thereon shall be made within fifteen (15) days after the close of
submission of evidence.  An award
rendered by a majority of the arbitrators appointed pursuant to this Agreement
shall be final and binding on all parties to the proceeding, shall resolve the
question of costs of the arbitrators and all related matters, and judgment on
such award may be entered and enforced by either party in any court of
competent jurisdiction.

 

v.             Except as set forth in Section 16.b.,
the parties stipulate that the provisions of this Section shall be a
complete defense to any suit, action or proceeding instituted in any federal,
state or local court or before any administrative tribunal with respect to any
controversy or dispute arising out of this Agreement or the transactions
described herein.  The

 

5

 

arbitration provisions hereof shall, with respect to such controversy or
dispute, survive the termination or expiration of this Agreement.

 

No party to an arbitration may disclose the existence or results of any
arbitration hereunder without the prior written consent of the other parties;
nor will any party to an arbitration disclose to any third party any
confidential information disclosed by any other party to an arbitration in the
course of an arbitration hereunder without the prior written consent of such
other party.

 

b.             Emergency Relief.  Notwithstanding anything in this
Section 16 to the contrary, any party may seek from a court any
provisional remedy that may be necessary to protect any rights or property of
such party pending the establishment of the arbitral tribunal or its
determination of the merits of the controversy or to enforce a party’s rights
under Section 16.

 

17.           Participant’s
Representations. 
Notwithstanding any of the provisions hereof, the Participant hereby
agrees that he will not exercise the Stock Option granted hereby, and that the
Company will not be obligated to issue any shares to the Participant hereunder,
if the exercise thereof or the issuance of such shares shall constitute a
violation by the Participant or the Company of any provision of any law or
regulation of any governmental authority. 
Any determination in this connection by the Company shall be final, binding,
and conclusive.  The obligations of the
Company and the rights of the Participant are subject to all applicable laws,
rules, and regulations.

 

18.           Investment
Representation. 
Unless the Common Stock is issued to the Participant in a transaction
registered under applicable federal and state securities laws, by his execution
hereof, the Participant represents and warrants to the Company that all Common
Stock which may be purchased hereunder will be acquired by the Participant for
investment purposes for his own account and not with any intent for resale or
distribution in violation of federal or state securities laws.  Unless the Common Stock is issued to the
Participant in a transaction registered under the applicable federal and state
securities laws, all certificates issued with respect to the Common Stock shall
bear an appropriate restrictive investment legend and shall be held
indefinitely, unless they are subsequently registered under the applicable
federal and state securities laws or the Participant obtains an opinion of
counsel, in form and substance satisfactory to the Company and its counsel,
that such registration is not required.

 

19.           Legend.  The following legend shall
be placed on all certificates representing Optioned Shares:

 

On the face of
the certificate:

 

“Transfer of
this stock is restricted in accordance with conditions printed on the reverse
of this certificate.”

 

On the
reverse:

 

“The shares of
stock evidenced by this certificate are subject to and transferable only in
accordance with that certain EXCO Holdings Inc. 2005 Long-Term Incentive Plan,
a copy of which is on file at the principal office of the Company in Dallas,
Texas.  No transfer or pledge of the
shares evidenced hereby may be made except in accordance with and subject to
the provisions of said Plan.  By acceptance
of this

 

6

 

certificate,
any holder, transferee or pledge hereof agrees to be bound by all of the
provisions of said Plan.”

 

The following
legend shall be inserted on a certificate evidencing Common Stock issued under
the Plan if the shares were not issued in a transaction registered under the
applicable federal and state securities laws:

 

“Shares of
stock represented by this certificate have been acquired by the holder for
investment and not for resale, transfer or distribution, have been issued
pursuant to exemptions from the registration requirements of applicable state
and federal securities laws, and may not be offered for sale, sold or
transferred other than pursuant to effective registration under such laws, or
in transactions otherwise in compliance with such laws, and upon evidence
satisfactory to the Company of compliance with such laws, as to which the
Company may rely upon an opinion of counsel satisfactory to the Company.”

 

Any legend
required by any of the terms of the EXCO Holdings Inc. Stockholders’ Agreement
and the Registration Rights Agreement.

 

All Optioned
Shares and shares into which Optioned Shares may be converted which are owned
by the Participant shall be subject to the terms of this Agreement and shall be
represented by a certificate or certificates bearing the foregoing legend.

 

20.           Lock-up Agreement. 
The Participant agrees that in connection with any underwritten public
offering of Common Stock, including the Company’s initial public offering, the
Optioned Shares may not be sold, offered for sale, pledged or otherwise
disposed of or transferred except in accordance with the terms of the
Registration Rights Agreement.  In the
event of the declaration of a stock dividend, a spin-off, a stock split, an
adjustment in conversion ratio, a recapitalization or a similar transaction
affecting the Company’s outstanding securities without receipt of
consideration, any new, substituted or additional securities which are by
reason of such transaction distributed with respect to any Optioned Shares
subject to this Section 20 or into which such Optioned Shares
thereby become convertible shall immediately be subject to this Section 20.

 

21.           Participant’s
Acknowledgments. 
The Participant acknowledges receipt of a copy of the Plan, which is
annexed hereto, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all the terms and
provisions thereof. The Participant hereby agrees to accept as binding,
conclusive, and final all decisions or interpretations of the Committee or the
Board, as appropriate, upon any questions arising under the Plan or this
Agreement.

 

22.           Law Governing.  This Agreement shall be
governed by, construed, and enforced in accordance with the laws of the State
of Texas (excluding any conflict
of laws rule or principle of Texas
law that might refer the governance, construction, or interpretation of this
agreement to the laws of another state).

 

23.           No Right to Continue
Service or Employment.  Nothing herein shall be construed to confer
upon the Participant the right to continue in the employ or to provide services
to the Company or any Subsidiary, whether as an employee or as a consultant or
as an Outside Director, or interfere with or restrict in any way the right of
the Company or any Subsidiary to discharge the Participant as an employee,
consultant or Outside Director at any time.

 

7

 

24.           Legal Construction.  In the event that any one or
more of the terms, provisions, or agreements that are contained in this
Agreement shall be held by a Court of competent jurisdiction to be invalid,
illegal, or unenforceable in any respect for any reason, the invalid, illegal,
or unenforceable term, provision, or agreement shall not affect any other term,
provision, or agreement that is contained in this Agreement and this Agreement
shall be construed in all respects as if the invalid, illegal, or unenforceable
term, provision, or agreement had never been contained herein.

 

25.           Covenants and Agreements
as Independent Agreements. Each of the covenants
and agreements that is set forth in this Agreement shall be construed as a
covenant and agreement independent of any other provision of this
Agreement.  The existence of any claim or
cause of action of the Participant against the Company, whether predicated on
this Agreement or otherwise, shall not constitute a defense to the enforcement
by the Company of the covenants and agreements that are set forth in this
Agreement.

 

26.           Entire Agreement.  This Agreement together
with the Plan supersede any and all other prior understandings and agreements,
either oral or in writing, between the parties with respect to the subject
matter hereof and constitute the sole and only agreements between the parties
with respect to the said subject matter. 
All prior negotiations and agreements between the parties with respect
to the subject matter hereof are merged into this Agreement.  Each party to this Agreement acknowledges
that no representations, inducements, promises, or agreements, orally or
otherwise, have been made by any party or by anyone acting on behalf of any
party, which are not embodied in this Agreement or the Plan and that any
agreement, statement or promise that is not contained in this Agreement or the
Plan shall not be valid or binding or of any force or effect.

 

27.           Parties Bound.  The terms, provisions, and
agreements that are contained in this Agreement shall apply to, be binding
upon, and inure to the benefit of the parties and their respective heirs,
executors, administrators, legal representatives, and permitted successors and
assigns, subject to the limitation on assignment expressly set forth
herein.  No person or entity shall be permitted to acquire any Optioned Shares
without first executing and delivering an agreement in the form satisfactory to
the Company making such person or entity subject to the restrictions on
transfer contained herein.

 

28.           Modification.  No change or modification
of this Agreement shall be valid or binding upon the parties unless the change
or modification is in writing and signed by the parties.  Notwithstanding the preceding sentence, the
Company may amend the Plan or revoke this Stock Option to the extent permitted
by the Plan.

 

29.           Headings.  The headings that are used
in this Agreement are used for reference and convenience purposes only and do
not constitute substantive matters to be considered in construing the terms and
provisions of this Agreement.

 

30.           Gender and Number.  Words of any gender used in
this Agreement shall be held and construed to include any other gender, and
words in the singular number shall be held to include the plural, and vice
versa, unless the context requires otherwise.

 

31.           Notice.  Any notice required or
permitted to be delivered hereunder shall be deemed to be delivered only when
actually received by the Company or by the Participant, as the case may be, at
the addresses set forth below, or at such other addresses as they have theretofore
specified by written notice delivered in accordance herewith:

 

8

 

a.             Notice to the Company
shall be addressed and delivered as follows:

 

EXCO Holdings
Inc.

12377 Merit
Dr., Suite 1700

Dallas, Texas
75251

Attn:  Chief Financial Officer

Facsimile:  (214) 368-2087

 

b.             Notice to the Participant
shall be addressed and delivered as set forth on the signature page.

 

32.           Tax Requirements.  The Participant is hereby
advised to consult immediately with his or her own tax advisor regarding the
tax consequences of this Agreement, the availability method, and timing for
filing an election to include income arising from this Agreement into the
Participant’s gross income under Section 83(b) of the Code, and the
tax consequences of such election.  By
execution of this Agreement, the Participant agrees that if the Participant
makes such an election, the Participant shall provide the Company with written
notice of such election in accordance with the regulations promulgated under
Code Section 83(b).  The Company or,
if applicable, any Subsidiary (for purposes of this Section 32, the
term “Company”
shall be deemed to include any applicable Subsidiary), shall have the right to
deduct from all amounts hereunder paid in cash or other form, any Federal,
state, local, or other taxes required by law to be withheld in connection with
this Award.  The Company may, in its sole
discretion, also require the Participant receiving shares of Common Stock
issued under the Plan to pay the Company the amount of any taxes that the
Company is required to withhold in connection with the Participant’s income
arising with respect to this Award.  Such
payments shall be required to be made when requested by the Company and may be
required to be made prior to the delivery of any certificate representing
shares of Common Stock.  Such payment may
be made (i) by the delivery of cash to the Company in an amount that
equals or exceeds (to avoid the issuance of fractional shares under (iii) below)
the required tax withholding obligations of the Company; (ii) if the
Company, in its sole discretion, so consents in writing, the actual delivery by
the exercising Participant to the Company of shares of Common Stock that the
Participant has not acquired from the Company within six (6) months prior
to the date of exercise, which shares so delivered have an aggregate Fair
Market Value that equals or exceeds (to avoid the issuance of fractional shares
under (iii) below) the required tax withholding payment; (iii) if the
Company, in its sole discretion, so consents in writing, the Company’s
withholding of a number of shares to be delivered upon the exercise of the
Stock Option, which shares so withheld have an aggregate fair market value that
equals (but does not exceed) the required tax withholding payment; or (iv) any
combination of (i), (ii), or (iii).  The
Company may, in its sole discretion, withhold any such taxes from any other
cash remuneration otherwise paid by the Company to the Participant.

 

* * * * * * *
*

 

9

 

IN WITNESS
WHEREOF, the Company has caused this Agreement to be executed by its duly
authorized officer, and the Participant, to evidence his consent and approval
of all the terms hereof, has duly executed this Agreement, as of the date
specified in Section 1 hereof.

 

	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  EXCO HOLDINGS INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:
  Douglas H. Miller

  
	
   

  	
  Title:
  Chairman and Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PARTICIPANT:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Signature

  
	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
					

 

10

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