Document:

BLUE
      HOLDINGS, INC.

     

    PREFERRED
      STOCK RESCISSION AND PURCHASE AGREEMENT

     

    THIS
      PREFERRED STOCK RESCISSION AND PURCHASE AGREEMENT (this “Agreement”),
      is
      made as of November 28, 2007 (the “Effective
      Date”),
      by
      and among Blue Holdings, Inc., a Nevada corporation, (the “Company”),
      and
      Paul Guez (“Investor”).
      

     

    WHEREAS,
      on
      November 13, 2007 (the “Original
      Effective Date”),
      the
      Company agreed to issue and sell to the Investor, pursuant to the terms of
      that
      certain Series A Convertible Preferred Stock Purchase Agreement dated as of
      the
      Original Effective Date (the “Original
      Purchase Agreement”),
      up to
      an aggregate of 1,000,000 shares (the “Preferred
      Shares”)
      of the
      Company’s Series A Convertible Preferred Stock, par value $0.001 per share (the
“Series
      A Preferred Stock”),
      in
      exchange for the cancellation of certain indebtedness due and owing to the
      Investor on the Effective Date; 

     

    WHEREAS,
      on the
      Original Effective Date, the parties concluded the purchase and sale of Series
      A
      Preferred Stock contemplated by the Original Purchase Agreement;

     

    WHEREAS,
      notwithstanding the conclusion of the purchase and sale of Series A Preferred
      Stock contemplated by the Original Purchase Agreement, the Company has not,
      as
      of the Effective Date, issued or delivered the Preferred Shares, or any
      certificates representing such shares;

     

    WHEREAS,
      effective as of the Original Effective Date, the parties desire to rescind
      and
      unwind the purchase and sale of Series A Preferred Stock contemplated by the
      Original Purchase Agreement in such a manner as is necessary to (i) permit
      such
      purchase and sale to be deemed rescinded and unwound, and null and void, on
      and
      as of the Original Effective Date, and (ii) allow the Federal income tax
      doctrine of rescission to be applied to the unwinding of such purchase and
      sale;

     

    WHEREAS,
      on or
      prior to the date hereof, the Company has amended and restated the Certificate
      of Designations, Preferences, Rights and Limitations of Series A Convertible
      Preferred Stock (the “Certificate”),
      which, in the form attached hereto as Exhibit
      B,
      is
      applicable to the New Series A Preferred Stock (as defined below);

     

    WHEREAS,
      on and
      as of the Effective Date, the Company desires to issue and sell to the Investor,
      pursuant to the terms of this Agreement, an aggregate of 1,000,000 shares (the
      “New
      Preferred Shares”)
      of the
      Company’s Series A Convertible Preferred Stock, par value $0.001 per share (the
“New
      Series A Preferred Stock”),
      having the designations, preferences, rights and limitations set forth in the
      Certificate, in exchange for (i) the cancellation of certain indebtedness due
      and owing to the Investor on the Effective Date (and taking into account the
      rescission described above), and (ii) the additional cash investment by Investor
      of $125,000; and

     

    WHEREAS,
      Investor wishes to rescind and unwind the purchase and sale of Series A
      Preferred Stock contemplated by the Original Purchase Agreement, and to purchase
      the New Preferred Shares, on the terms and subject to the conditions set forth
      in this Agreement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    NOW,
      THEREFORE,
      in
      consideration of the premises, representations, warranties and the mutual
      covenants contained in this Agreement, the parties agree as
      follows:

     

    
      	
              1.

            	
              RESCISSION
                OF ORIGINAL PURCHASE

            

    

     

    1.1  Rescission. 

     

    1.1.1 Effective
      as of the Original Effective Date, (i) the parties hereby rescind and unwind
      the
      purchase and sale of Series A Preferred Stock contemplated by the Original
      Purchase Agreement; and (ii) the Original Purchase Agreement, and the purchase
      and sale of Series A Preferred Stock contemplated by the Original Purchase
      Agreement, shall be deemed null and void and of no further force and
      effect.

     

    1.1.2 The
      foregoing rescission shall be effective so as to allow the Federal income tax
      doctrine of rescission to be applied thereto, and, each party acknowledges
      and
      agrees that it has been returned to its situation existing immediately prior
      to
      the consummation of the purchase and sale of Series A Preferred Stock
      contemplated by the Original Purchase Agreement, including, for the avoidance
      of
      doubt, that any and all outstanding amounts due and owing to Investor
      immediately prior to the Original Effective Date shall be deemed due and owning
      on and as of Original Effective Date and as of immediately prior to the
      Effective Date hereof.

     

    1.1.3 Investor
      hereby represents and warrants that it did not receive a certificate from the
      Company representing the Preferred Shares upon the consummation of the purchase
      and sale of Series A Preferred Stock contemplated by the Original Purchase
      Agreement. Investor hereby transfers and assigns to the Company all right,
      title
      and interest in and to the Preferred Shares, to the extent held by Investor,
      and
      relinquishes all claims to ownership of the Preferred Shares and any and all
      rights therein.

     

    
      	
              2.

            	
              
                AUTHORIZATION
                  AND SALE OF NEW PREFERRED
                  SHARES

              

            

    

     

    2.1 Issuance,
      Sale and Delivery of the New Preferred Shares at the
      Closing.
      At the
      Closing (as defined in Section 2.2 hereof), on the terms and subject to the
      conditions of this Agreement, the Company shall issue and sell to Investor,
      and
      Investor shall purchase from the Company, that number of New Preferred Shares
      set forth opposite the name of Investor under the heading “Number of Preferred
      Shares to be Purchased” on Exhibit A hereto, at a price of $2.681682 per share
      for the aggregate purchase price set forth opposite the name of Investor under
      the heading “Aggregate Purchase Price for Preferred Shares” on Exhibit A
      hereto. 

     

    2.2 Closing.
      The
      Closing shall take place at the offices of Stubbs Alderton & Markiles, LLP,
      15260 Ventura Blvd., 20th
      Floor,
      Sherman Oaks, California 91403, at such date and time as may be agreed upon
      between the Company and the Investors (such closing being called the
“Closing” and
      such
      date and time being called the “Closing
      Date”).
      At the
      Closing, the Company shall issue and deliver to Investor a stock certificate
      or
      certificates in definitive form, registered in the name of Investor,
      representing the New Preferred Shares being purchased by it at the Closing.
      As
      payment in full for the New Preferred Shares being purchased by it under this
      Agreement, and against delivery of the stock certificate or certificates
      therefor as aforesaid, on the Closing Date, Investor shall deliver to the
      Company by such method as may be reasonably acceptable to the Company, cash,
      cashier’s check, wire transfer of immediately available funds, or a promissory
      note or other evidence of indebtedness for cancellation, as applicable, in
      the
      amount and as set forth opposite the name of Investor under the heading
“Aggregate Purchase Price for Preferred Shares” on Exhibit A. All amounts shall
      be paid to the account of the Company as shall have been designated in writing
      a
      reasonable time in advance to the Investor by the Company.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    2.3 Issuance,
      Sale and Delivery of the New Preferred Shares at the
      Closing.
      The
      Company has authorized the number of New Preferred Shares of New Series A
      Preferred Stock having the rights, preferences, privileges and restrictions
      set
      forth in the Certificate, which, in the form attached hereto as Exhibit B,
      shall
      be adopted and filed with the Secretary of State of the State of Nevada on
      or
      before the Closing. 

     

    2.4 Conversion
      Shares.
      Shares
      of Common Stock issuable upon conversion of the New Preferred Shares are
      referred to herein as the “Conversion
      Shares.”
Each
      share of New Series A Preferred Stock shall be convertible, at the option of
      the
      Investor, at any time after the date of issuance of such share, into such number
      of shares of Common Stock as is determined by dividing (i) the purchase price
      per share of New Series A Preferred Stock, plus all accrued but unpaid Dividends
      (as defined in the Certificate) on each such share, by (ii) the Conversion
      Price
      in effect on the date the certificate is surrendered for conversion. The initial
      “Conversion
      Price”
per
      share for the New Series A Preferred Stock shall be $0.58 and shall be subject
      to adjustment as set forth in the Certificate. For the avoidance of doubt,
      the
      Conversion Price represents the consolidated closing bid price for a share
      of
      the Common Stock immediately prior to the execution of this
      Agreement.

     

    
      	
              3.

            	
              REPRESENTATIONS
                AND WARRANTIES OF THE
                COMPANY

            

    

     

    The
      Company represents and warrants to Investor that:

     

    3.1 Organization
      and Standing; Qualifications.
      The
      Company is a corporation validly existing and in good standing under the laws
      of
      the State of Nevada. The Company has all requisite power and authority to own
      and operate its properties and assets, and to carry on its business as conducted
      and as proposed to be conducted. The Company is duly qualified to transact
      business and is in good standing in each jurisdiction in which the failure
      to so
      qualify could, singly or in the aggregate, have a material adverse effect on
      the
      business, assets, liabilities, financial condition or results of operations
      of
      the Company as presently conducted or proposed to be conducted.

     

    3.2 Corporate
      Power.
      The
      Company has all requisite power and authority to execute and deliver this
      Agreement, to sell and issue the New Preferred Shares hereunder, to issue the
      Conversion Shares and to carry out and perform its obligations under the terms
      of this Agreement.

     

    3.3 Authorization.

     

    3.3.1 All
      corporate action on the part of the Company, its officers, directors and
      stockholders, necessary for (i) the authorization, execution and delivery of
      the
      Agreement by the Company, (ii) the authorization, sale, issuance and delivery
      of
      the New Preferred Shares and the Conversion Shares, (iii) the filing of the
      Certificate, and (iv) the performance of all of the Company’s obligations under
      the Agreement has been taken. The Agreement has been duly and validly executed
      and delivered by the Company and constitutes the valid and binding obligation
      of
      the Company, enforceable in accordance with its terms, except as limited by
      applicable bankruptcy, insolvency, reorganization, moratorium, and other laws
      of
      general application affecting enforcement of creditors’ rights
      generally.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    3.3.2 The
      New
      Preferred Shares, when sold, issued and delivered in compliance with the
      provisions of this Agreement, will be duly and validly issued, fully paid and
      nonassessable and shall have the rights, preferences, privileges and
      restrictions described in the Certificate, and shall be free of any liens,
      preemptive or similar rights, encumbrances or restrictions on transfer;
      provided, however, that the New Preferred Shares may be subject to restrictions
      on transfer under state and/or federal securities laws. The Conversion Shares
      have been duly and validly reserved for issuance and, upon issuance in
      accordance with the terms of the Certificate, will be duly and validly issued,
      fully paid, and nonassessable and shall be free of any liens, preemptive or
      similar rights, encumbrances or restrictions on transfer; provided, however,
      that the Conversion Shares may be subject to restrictions on transfer under
      state and/or federal securities laws.

     

    
      	
              4.

            	
              REPRESENTATIONS
                AND WARRANTIES OF THE
                INVESTORS

            

    

     

    Investor
      hereby represents and warrants to the Company with respect to the purchase
      of
      the New Preferred Shares to be purchased by it as follows:

     

    4.1 Experience.
      Investor acknowledges that it is able to bear the economic risk of its
      investment, and has such knowledge and experience in financial or business
      matters that it is capable of evaluating the merits and risks of the investment
      in the New Preferred Shares and the Conversion Shares and is able to bear the
      economic risk of its investment in the New Preferred Shares and Conversion
      Shares for an indefinite period of time. 

     

    4.2 Disclosure
      of Information. Investor further represents that it has had an
      opportunity to ask questions of and receive answers from the Company regarding
      the terms and conditions of the offering of the New Preferred Shares and the
      business, prospects, properties and financial condition of the
      Company.

     

    4.3 Investment.
      Investor is acquiring the New Preferred Shares and the Conversion Shares for
      investment for its own account, not as a nominee or agent, and not with the
      view
      to, or for resale in connection with, any distribution thereof. It understands
      that the New Preferred Shares have not been, and the Conversion Shares will
      not
      be, (except for specific registration rights granted to the Investor),
      registered under the Securities Act by reason of a specific exemption from
      the
      registration provisions of the Securities Act, the availability of which depends
      upon, among other things, the bona fide nature of the investment intent and
      the
      accuracy of Investor’s representations as expressed herein.

     

    4.4 Accredited
      Investor. Investor is an “accredited investor” as defined in Rule
      501(a) of Regulation D promulgated under the Securities Act.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    4.5 Legends.
      It is understood that the certificates evidencing the New Preferred Shares
      and
      the Conversion Shares may bear one or all of the following legends:

     

    “THESE
      SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
      AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
      THE
      ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES
      UNDER SUCH ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY
      THAT SUCH REGISTRATION IS NOT REQUIRED, OR UNLESS SOLD PURSUANT TO RULE 144
      OF
      SUCH ACT.” 

     

    Any
      other
      legend required by the securities laws of the State of California.

     

    4.6 Authorization.
      The
      execution, delivery and performance by Investor of the Agreement has been duly
      authorized by all requisite action of Investor. The Agreement, when executed
      and
      delivered by Investor, shall constitute valid and legally binding obligations
      of
      Investor, enforceable in accordance with its terms except as limited by
      applicable bankruptcy, insolvency, reorganization, moratorium and other laws
      of
      general application affecting enforcement of creditors’ rights
      generally.

     

    
      	
              5.

            	
              INVESTOR’S
                CONDITIONS TO CLOSING

            

    

     

    Investor’s
      obligation to purchase the New Preferred Shares at the Closing is, at the option
      of Investor, subject to the fulfillment of the following conditions on or before
      the Closing:

     

    5.1 Representations
      and Warranties True and Correct. The representations and warranties
      made by the Company in Section 2 hereof shall be true and correct as of the
      Closing, with the same effect as if made as of the Closing.

     

    5.2 Covenants.
      All covenants, agreements and conditions contained in this Agreement to be
      performed by the Company on or prior to the Closing shall have been performed
      or
      complied with.

     

    5.3 Certificate.
      Prior to the Closing, the Company shall have prepared and executed the
      Certificate in the form set forth in Exhibit B. The Certificate shall have
      been
      filed with and accepted by the Secretary of State of the State of Nevada and
      shall have become effective.

     

    
      	
              6.

            	
              COMPANY’S
                CONDITIONS TO EACH
                CLOSING

            

    

     

    The
      Company’s obligation to sell and issue any New Preferred Shares at the Closing
      to Investor is, at the option of the Company, subject to the fulfillment of
      the
      following conditions as of the Closing:

     

    6.1 Representations
      and Warranties True and Correct.
      The
      representations and warranties made by Investor in Section 3 hereof shall be
      true and correct when made, and shall be true and correct at the Closing.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    6.2 Covenants.
      All covenants, agreements and conditions contained in this Agreement to be
      performed by Investor on or prior to the Closing shall have been performed
      or
      complied with. 

     

    6.3 Certificate.
      The Secretary of State of the State of Nevada shall have accepted the
      Certificate for filing. 

     

    6.4 Purchase
      Price Paid.
      Investor
      shall have delivered to the Company the purchase price for the New Preferred
      Shares set forth in Exhibit A hereto.

     

    
      	
              7.

            	
              COVENANTS.

            

    

     

    7.1 Reserve
      for Conversion Shares. The Company shall at all times reserve and
      keep available out of its authorized but unissued shares of Common Stock, for
      the purpose of effecting the conversion of the New Preferred Shares and
      otherwise complying with the terms of this Agreement, such number of its duly
      authorized shares of Common Stock as shall be sufficient to effect the
      conversion of the New Preferred Shares from time to time outstanding or
      otherwise to comply with the terms of this Agreement. If at any time the number
      of authorized but unissued shares of Common Stock shall not be sufficient to
      effect the conversion of the New Preferred Shares or otherwise to comply with
      the terms of this Agreement, the Company will forthwith take such corporate
      action as may be necessary to increase its authorized but unissued shares of
      Common Stock to such number of shares as shall be sufficient for such purposes.
      The Company will obtain any authorization, consent, approval or other action
      by
      or make any filing with any court or governmental authority that may be required
      under applicable state securities laws in connection with the issuance of shares
      of Common Stock upon conversion of the New Preferred Shares.

     

    7.2 Further
      Assurances. The Company shall cure promptly any defects in the
      creation and issuance of the New Preferred Shares and the Conversion Shares,
      and
      in the execution and delivery of the Agreements. The Company, at its expense,
      shall execute and deliver promptly to the Investor upon request all such other
      and further documents, agreements and instruments as may be reasonably necessary
      to permit the Company to comply with its covenants and agreements herein, and
      shall make any recordings, file any notices and obtain any consents as may
      be
      necessary or appropriate in connection therewith.

     

    7.3 Regulation
      D Filings. The Company shall file on a timely basis all notices of
      sale required to be filed with the Securities and Exchange Commission pursuant
      to Regulation D under the Securities Act of 1933, as amended (the “Securities
      Act”),
      with
      respect to the transactions contemplated by this Agreement.

     

    7.4
      Piggyback
      Registrations.

     

    7.4.1 Right
      to Include Conversion Shares.
      Each
      time that the Company proposes for any reason to register any of its Common
      Stock under the Securities Act, either for its own account or for the account
      of
      a stockholder or stockholders, other than Registration Statements on Forms
      S-4
      or S-8 (or similar or successor forms) (a “Proposed
      Registration”),
      the
      Company shall promptly give written notice of such Proposed Registration to
      the
      Investor (which notice shall be given in no event less than ten (10) days prior
      to the expected filing date of the Proposed Registration) and shall offer
      Investor the right to request inclusion of Investor’s Conversion Shares in the
      Proposed Registration. The rights to piggyback registration may be exercised
      on
      an unlimited number of occasions.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    7.4.2 Piggyback
      Procedure.
      Investor shall have twenty (20) days from the date of receipt of the Company’s
      notice referred to in Section 6.4.1 above to deliver to the Company a written
      request specifying the number of Conversion Shares Investor intends to sell
      and
      Investor’s intended method of disposition. Investor shall have the right to
      withdraw Investor’s request for inclusion of Investor’s Conversion Shares in any
      Proposed Registration pursuant to this Section 7.4 by giving written notice
      to
      the Company of such withdrawal; provided,
      however,
      that
      the Company may ignore a notice of withdrawal made within less than one full
      business day prior to the date the Proposed Registration is scheduled to become
      effective. Subject to Section 7.4.4 below, the Company shall use its reasonable
      best efforts to include
      in such Proposed Registration all such Conversion Shares so requested to be
      included therein; provided,
      however,
      that
      the Company may at any time withdraw or cease proceeding with any such Proposed
      Registration if it shall at the same time withdraw or cease proceeding with
      the
      registration of all other shares of Common Stock originally proposed to be
      registered.

     

    7.4.3 Selection
      of Underwriters.
      The
      managing underwriter for any Proposed Registration that involves an underwritten
      public offering shall be one or more reputable nationally recognized investment
      banks selected by the Company.

     

    7.4.4 Priority
      for Piggyback Registration.
      

     

    7.4.4.1 Notwithstanding
      any other provision of this Section 7.4, if the managing underwriter of an
      underwritten public offering determines and advises the Company and the Investor
      in writing that the inclusion of all Conversion Shares proposed to be included
      by the Investor in the underwritten public offering would materially and
      adversely interfere with the successful marketing of the Company’s securities in
      the Proposed Registration, then the Investor shall not be permitted to include
      any Conversion Shares in excess of the amount, if any, of Conversion Shares
      which the managing underwriter of such underwritten public offering shall
      reasonably and in good faith agree in writing to include in such public offering
      in addition to the amount of securities to be registered for the Company. No
      party, other than the Company and the Investor, shall be permitted to include
      their shares in any such Proposed Registration unless such shares are also
      limited on a pro rata basis equal to the ratio which such party’s requested
      shares bear to the total number of Conversion Shares requested to be included
      in
      such Proposed Registration by Investor. The securities to be included in a
      Proposed Registration initiated by the Company shall be allocated:
      first,
      to the Company; second, pari
      passu
      to the
      Investor, and third, to any others requesting registration of securities of
      the
      Company.

     

    7.4.4.2 Notwithstanding
      any portion of the foregoing to the contrary, in no event shall the shares
      to be
      sold by the Investor be reduced below twenty percent (20%) of the total amount
      of securities included in the Proposed Registration. No stockholder of the
      Company shall be granted piggyback registration rights which would reduce the
      number of shares to be included by the Investor in such registration without
      the
      consent of the Investor.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    7.4.4.3 If
      as a
      result of the provisions of this Section 7.4, Investor shall not be entitled
      to
      include more than 50% of its Conversion Shares in a registration that Investor
      has requested to be so included, Investor may withdraw Investor’s request to
      include Conversion Shares in such Proposed Registration.

     

    7.4.5 Underwritten
      Offering.
      In the
      event that the Proposed Registration by the Company is, in whole or in part,
      an
      underwritten public offering of securities of the Company, any request under
      this Section 7.4 shall specify that the Conversion Shares be included in the
      underwriting on the same terms and conditions as the shares, if any, otherwise
      being sold through the underwriters under such registration.

     

    7.4.6 Transfer.
      The
      foregoing registration rights may be transferred to any transferee that acquires
      all of the Series A Preferred Stock.

     

    
      	
              8.

            	
              MISCELLANEOUS

            

    

     

    8.1 Closing.
      Investor
      expressly acknowledges and agrees that immediately following the Closing,
      Investor shall have deemed its conditions to closing identified in Section
      5
      hereof to have been satisfied or waived.

     

    8.2 Governing
      Law. This Agreement shall be governed in all respects by the
      internal laws of the State of California, without giving effect to principles
      of
      conflicts of law, as applied to agreements entered into among California State
      residents to be performed entirely within California. Each party hereto
      irrevocably and unconditionally (i) agrees that any action, suit or claim
      brought hereunder must be brought in the courts of the United States in the
      State of California or the state courts of the State of California which shall
      serve as the exclusive jurisdiction and venue for any and all disputes arising
      out of and/or relating to this Agreement; (ii) consents to the jurisdiction
      of
      any such court in any such suit, action or proceeding; and (iii) waives any
      objection which such party may have to the laying of venue of any such suit,
      action or proceeding in any such court.

     

    8.3 Successors
      and Assigns. Except as otherwise provided herein, the provisions of
      this Agreement shall inure to the benefit of, and be binding upon, the
      successors, assigns, heirs, executors and administrators of the parties hereto
      (including to any transferee of any New Preferred Shares or Conversion Shares
      that is an affiliate of the Investor). Nothing in this Agreement, express or
      implied, is intended to confer upon any party other than the parties hereto
      or
      their respective successors and assigns any rights, remedies, obligations or
      liabilities under or by reason of this Agreement, except as expressly provided
      in this Agreement.

     

    8.4 Amendment.
      Any provision of this Agreement may be amended, waived, modified, discharged
      or
      terminated only with the written consent of the Company and the Investor. Any
      amendment or waiver affected in accordance with this Section 8.4 shall be
      binding upon the Company and Investor and future holders of all such securities.
      Investor may waive his rights or the Company’s obligations with respect to its
      New Preferred Shares hereunder without obtaining the consent of any other
      natural person or Person.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    8.5 Notices.
      All notices required or permitted hereunder shall be in writing and shall be
      deemed effectively given (a) upon personal delivery to the party to be notified,
      (b) five (5) days after deposit in the United States mail, by registered or
      certified mail, postage prepaid and properly addressed to the party to be
      notified as set forth in the Company records, or (c) when received if
      transmitted by telecopy (to be followed by U.S. mail), electronic or digital
      transmission method. In each case notice shall be sent to the addresses set
      forth on the Company’s records or at such other address as a party may designate
      by ten (10) days’ advance written notice to the other parties
      hereto.

     

    8.6 Counterparts.
      This Agreement may be executed in any number of counterparts, each of which
      shall be enforceable against the parties actually executing such counterparts,
      and all of which together shall constitute one and the same
      instrument.

     

    8.7 Severability.
      In the event that any provision of this Agreement becomes or is declared by
      a
      court of competent jurisdiction to be illegal, unenforceable or void, this
      Agreement shall continue in full force and effect without said
      provision.

     

    8.8 Titles
      and Subtitles. The titles and subtitles used in this Agreement are
      used for convenience only and are not to be considered in construing or
      interpreting this Agreement.

     

    8.9 Survival
      of Agreement.
      All
      covenants and agreements made in this Agreement shall survive the execution
      and
      delivery hereof and the issuance, sale and delivery of the New Preferred Shares,
      and the issuance and delivery of the Conversion Shares. For the avoidance of
      doubt, the representations and warranties made in this Agreement shall not
      survive the execution and delivery hereof.

     

    8.10 Attorneys'
      Fees.
      If any
      action at law or in equity (including arbitration) is necessary to enforce
      or
      interpret the terms of any of the Agreements, the prevailing party shall be
      entitled to reasonable attorney’s fees, costs and necessary disbursements in
      addition to any other relief to which such party may be entitled.

     

    8.11 Facsimile
      Signatures.
      This
      Agreement may be executed and delivered by facsimile and, upon such delivery,
      the facsimile will be deemed to have the same effect as if the original
      signature had been delivered to the other party. Investor agrees to deliver
      to
      the Company the original signature copy by express overnight delivery. The
      failure to deliver the original signature copy and/or the nonreceipt of the
      original signature copy shall have no effect upon the binding and enforceable
      nature of this Agreement.

     

    8.12 Entire
      Agreement. This Agreement, together with the Exhibits hereto, the
      certificates, documents, instruments and writings that are delivered pursuant
      hereto and each of the other Agreements, constitutes the entire agreement and
      understanding of the parties hereto in respect of its subject matters and
      supersedes all prior understandings, agreements, or representations by or among
      the parties hereto, written or oral, to the extent they relate in any way to
      the
      subject matter hereof or the transactions contemplated hereby.

     

    Company
      Signature Page to Preferred Stock Rescission and Purchase
      Agreement

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    

     

    IN
      WITNESS WHEREOF,
      the
      parties have executed this Preferred Stock Rescission and Purchase Agreement
      on
      the day and year first set forth above.

     

    
      	 	 	 
	 	Blue
              Holding, Inc.
	 
 	 
 	 
 
	
            	
            	/s/
              Glenn Palmer
	 	
              

              By: Glenn
                Palmer 

            
	 	
              Title: Chief
                Executive Officer  

            

    

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    Investors
      Signature Page to Preferred Stock Rescission and Purchase
      Agreement

     

    
      	 	 	 	
              INVESTOR:

            
	 	 	 	 
	
            	 	 	Paul
              Guez
	
            	 	 	
              

              By:
                Paul Guez

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      A

     

    Schedule
      of Investors

    

    
      	
              Closing

            
	
              Investor

            	 	
              Number
                of New Preferred Shares

              To
                Be Purchased

            	 	
              Aggregate
                Purchase Price

              For
                New Preferred Shares

            
	
              Paul
                Guez*

            	 	
              1,000,000

            	 	
              $2,681,682**

            
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 

    

    

    * Investor
      may be Paul Guez or any accredited investor designee thereof that executes
      a
      joinder hereto.

     

    ** Represents
      (i) the cancellation of indebtedness due and owing to Investor, in the aggregate
      principal and interest amount of $2,556,682, and (ii) the delivery of $125,000
      by wire transfer of immediately available funds.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      B

    

    AMENDED
      AND RESTATED

    CERTIFICATE
      OF DESIGNATIONS,

    PREFERENCES,
      RIGHTS AND LIMITATIONS OF

    SERIES
      A CONVERTIBLE PREFERRED STOCK

    OF

    BLUE
      HOLDINGS, INC.

    

    Pursuant
      to Section 78.195 of the General Corporation Law 

    of
      the
      State of Nevada

     

    Blue
      Holdings, Inc., a Nevada corporation (hereinafter called the “Corporation”),
      hereby certifies that, pursuant to the authority expressly vested in the Board
      of Directors of the Corporation by the Articles of Incorporation, as amended
      (the “Articles
      of Incorporation”),
      and
      in accordance with the provisions of Section 78.195 of the General Corporation
      Law of the State of Nevada, the Board of Directors has duly adopted the
      following resolutions:

     

    RESOLVED,
      that the
      Corporation previously filed with the Secretary of State of the State of Nevada
      on November 14, 2007 a Certificate of Designations, Preferences, Rights and
      Limitations of Series A Convertible Preferred Stock of the Corporation (the
      “Original
      Certificate of Designations”);

     

    RESOLVED
      FURTHER, that, pursuant to the Articles of Incorporation (which authorizes
      5,000,000 shares of preferred stock, $0.001 par value per share (“Preferred
      Stock”)),
      the
      Board of Directors hereby amends and restates the Original Certificate of
      Designations to amend and restate the powers, designations, preferences and
      relative, participating, optional and other special rights, and the
      qualifications, limitations and restrictions, of the Series A Convertible
      Preferred Stock; and

     

    RESOLVED
      FURTHER, that the Corporation is authorized to issue Series A Convertible
      Preferred Stock on the following terms and with the provisions herein set
      forth:

     

    (1)
       Designation
      and Number of Shares.
      Of the
      5,000,000 shares of Preferred Stock authorized pursuant to the Fourth Article
      of
      the Corporation's Articles of Incorporation, 1,000,000 shares are hereby
      designated as Series A Convertible Preferred Stock (the “Series
      A Preferred Stock”).

     

    (2)
       Par
      Value.
      Each
      share of Series A Preferred stock will have a par value of $0.001 per share.
      

     

    (3)
       Dividends.
      

     

    (a)
      Dividend
      Accrual.
      The
      holder of record of each share of Series A Preferred Stock of the Corporation
      (a
“Holder”)
      shall
      be entitled to receive a cumulative share dividend (a “Dividend”)
      equal
      to the Dividend Rate (as defined below), payable only when, as and if declared
      by the Board of Directors. Such dividends will accrue and accumulate annually
      whether or not they have been declared. The “Dividend
      Rate”
shall
      mean six percent (6%) of the Purchase Price. For purposes of this Certificate
      of
      Designations, the “Purchase
      Price”
for
      each share of Series A Preferred Stock shall be $2.681682 per
      share.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b)
      Further
      Dividends.
      After
      payment of any such Dividends, and subject to the rights of any series of
      Preferred Stock with preference or priority over or on a parity with the Common
      Stock or Series A Preferred Stock with respect to the right to receive any
      dividends, any additional dividends shall be distributed among all holders
      of
      Common Stock pro rata.

     

    (c)
      Dividend
      Payment.

     

    (i) No
      Dividend distribution shall be made with respect to accrued or declared but
      unpaid dividends on any Series A Preferred Stock unless and until such shares
      are (i) converted to Common Stock pursuant to Section
      6,
      or (ii)
      delivered in a Liquidation Event.

     

    (ii) So
      long
      as any shares of Series A Preferred Stock are outstanding, the Corporation
      shall
      not declare, pay or set aside for payment any dividend or other distribution
      in
      respect of its Common Stock until all Dividends declared and unpaid with respect
      to the Series A Preferred Stock have been paid. 

     

    (ii) Notwithstanding
      any provision to the contrary set forth in this Certificate of Designations,
      no
      payment shall be made with respect to declared but unpaid Dividends on any
      Series A Preferred Stock that are converted into Common Stock.

     

    (4)
      Liquidation.
      

     

    (a)
       Liquidation
      Preference.
      In the
      event of any liquidation, dissolution or winding up of the Corporation, either
      voluntary or involuntary (a “Liquidation
      Event”),
      subject to the rights of any other series of Preferred Stock that are in
      existence or may, from time to time, come into existence, the cash and other
      assets of the Corporation available for distribution to shareholders shall
      be
      distributed among the holders of the Series A Preferred Stock, prior to any
      amount being distributed to or among the holders of common stock, $0.001 par
      value per share, of the Corporation (the “Common
      Stock”),
      such
      that for each share of Series A Preferred Stock, a holder of Series A Preferred
      Stock shall be entitled to receive an amount equal to the Purchase Price, as
      adjusted for any stock dividends, combinations or splits with respect to such
      shares, plus all accrued but unpaid Dividends on each such share (pursuant
      to
Section
      3(a))
      (the
“Liquidation
      Preference”).
      The
      cash value of any remaining cash and other distributable property that is
      available for distribution to the holders of equity of the Corporation (after
      payment of the Liquidation Preference to the Series A Preferred Stock and any
      other liquidation preference amount to any other class of equity securities
      of
      the Corporation) shall be distributed among among all holders of Common Stock
      pro rata.

     

    (b)
      Merger;
      Sale.
      The
      following events shall be deemed to constitute a Liquidation Event under this
      Section
      4:
      (i) the
      sale, lease, transfer, exclusive license or other disposition of all or
      substantially all of the assets of the Corporation, or (ii) the acquisition
      of
      the Corporation by another entity by means of merger, consolidation, share
      exchange, reorganization or otherwise pursuant to which shares of capital stock
      of the Corporation are converted into cash, securities or other property of
      the
      acquiring entity or any of its affiliates and which results in the holders
      of
      voting securities (excluding shares of the surviving entity held by holders
      of
      the capital stock of the Corporation acquired by means other than the exchange
      or conversion of the capital stock of the Corporation for shares of the
      surviving entity) of the Corporation immediately prior to such merger,
      consolidation, share exchange, reorganization or sale of assets beneficially
      owning, directly or indirectly, less than a majority of the combined voting
      power of the surviving entity resulting from such merger, consolidation, share
      exchange, reorganization or sale of assets (any of the foregoing transactions,
      a
“Deemed
      Liquidation Event ”).

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (c)
      Valuation
      of Consideration.
      If the
      consideration received by the Corporation is other than cash in connection
      with
      any of the events set forth above, its value shall be deemed its fair market
      value as determined in good faith by the Board; provided,
      however,
      that if
      the consideration consists of securities, the fair market value of such
      securities shall be valued as follows: 

     

    (i) if
      traded
      on a securities exchange or through the NASDAQ Stock Market, the value shall
      be
      deemed to be the average of the closing prices of the securities on such
      exchange or system over the thirty (30) day period ending three (3) days prior
      to the closing;

     

    (ii) if
      actively traded over-the-counter, the value shall be deemed to be the average
      of
      the closing bid or sale prices (whichever is applicable) over the thirty (30)
      day period ending three (3) days prior to the closing; and

     

    (iii) if
      there
      is no active public market, the value shall be the fair market value thereof,
      as
      determined in good faith by the Board.

     

    (d)
       Alternative
      Amount.
      Notwithstanding Section
      4(a)
      above,
      each holder of Series A Preferred Stock shall have the right to elect the
      conversion benefits of the provisions of Section 6
      or other
      applicable conversion provisions in lieu of receiving the Liquidation Preference
      pursuant to Section
      4(a).

     

    (5)
       Redemption.
      The
      Series A Preferred Stock does not have any redemption rights. 

     

    (6)
       Conversion.
      

     

    (a)
       Right
      to Convert.
      Each
      share of Series A Preferred Stock shall be convertible, at the option of the
      Holder, at any time after the date of issuance of such share, at the office
      of
      the Corporation or any transfer agent for such stock, into such number of fully
      paid and nonassessable shares of Common Stock as is determined by dividing
      (i)
      the Purchase Price plus all accrued but unpaid Dividends on each such share
      (pursuant to Section
      3(a),
      by (ii)
      the Conversion Price, determined as hereafter provided, in effect on the date
      the certificate is surrendered for conversion (such quotient is referred to
      as
      the “Conversion
      Rate”).
      The
      initial “Conversion
      Price”
per
      share for the Series A Preferred Stock shall be $0.58 and shall be subject
      to
      adjustment as set forth in Section
      6(d).
      For the
      avoidance of doubt, the Conversion Price represents the consolidated closing
      bid
      price for a share of the Common Stock prior to the signing of the definitive
      agreement applicable to the transaction pursuant to which each Holder acquired
      their shares of Series A Preferred Stock.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (b)
      Automatic
      Conversion.
      Each
      share of Series A Preferred Stock shall automatically be converted into shares
      of Common Stock at the Conversion Rate at the time in effect immediately upon
      the date specified by written consent or agreement of the holders of a majority
      of the then outstanding Series A Preferred Stock.

     

    (c)
      Mechanics
      of Conversion.
      Before
      any Holder of Series A Preferred Stock shall be entitled to convert the same
      into shares of Common Stock, the Holder shall surrender the certificate or
      certificates therefor, duly endorsed, at the office of the Corporation or of
      any
      transfer agent for the Series A Preferred Stock, and shall give written notice
      to the Corporation at its principal corporate office, of the election to convert
      the same and shall state therein the name or names in which the certificate
      or
      certificates for shares of Common Stock are to be issued. The Corporation shall,
      as soon as practicable thereafter, issue and deliver at such office to such
      Holder of Series A Preferred Stock, or to the nominee or nominees of such
      Holder, a certificate or certificates for the number of shares of Common Stock
      to which such Holder shall be entitled as aforesaid. Such conversion shall
      be
      deemed to have been made immediately prior to the close of business on the
      date
      of such surrender of the shares of Series A Preferred Stock to be converted,
      and
      the person or persons entitled to receive the shares of Common Stock issuable
      upon such conversion shall be treated for all purposes as the record holder
      or
      holders of such shares of Common Stock as of such date. If the conversion is
      in
      connection with an underwritten offering of securities, the conversion may,
      at
      the option of any holder tendering shares of Series A Preferred Stock for
      conversion, be conditioned upon the closing with the underwriters of the sale
      of
      securities pursuant to such offering, in which event the persons entitled to
      receive the Common Stock upon conversion of the shares of Series A Preferred
      Stock shall not be deemed to have converted such shares of Series A Preferred
      Stock until immediately prior to the closing of such sale of
      securities.

     

    (d)
       Adjustments
      to Conversion Rate and Reorganization. The Conversion Rate for the number of
      shares of Common Stock into which the Series A Preferred Stock shall be
      converted on a conversion shall be subject to adjustment from time to time
      as
      hereinafter set forth:

     

    (i) Stock
      Dividends - Recapitalization, Reclassification, Split-Ups.
      If,
      prior to the date of a conversion, the number of outstanding shares of Common
      Stock is increased by a stock dividend on the Common Stock payable in shares
      of
      Common Stock or by a stock split, recapitalization or reclassification of shares
      of Common Stock or other similar event, then, on the effective date thereof,
      the
      Conversion Rate will be adjusted so that the number of shares of Common Stock
      issuable on the conversion of the Series A Preferred Stock shall be increased
      in
      proportion to such increase in outstanding shares of Common Stock.

     

    (ii) Aggregation
      of Shares.
      If
      prior to the date of conversion, the number of outstanding shares of Common
      Stock is decreased by a consolidation, combination, reverse stock split or
      reclassification of shares of Common Stock or other similar event, then, upon
      the effective date thereof, the number of shares of Common Stock issuable on
      the
      conversion of the Series A Preferred Stock shall be decreased in proportion
      to
      such decrease in outstanding shares of Common Stock.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (iii) Change
      Resulting from Reorganization or Change in Par Value, etc.
      In case
      of any reclassification or reorganization of the outstanding shares of Common
      Stock which solely affects the par value of the shares of Common Stock, or
      in
      the case of any merger or consolidation of the Corporation with or into another
      corporation (other than a consolidation or merger in which the Corporation
      is
      the continuing corporation and which does not result in any reclassification
      or
      reorganization of the outstanding shares of Common Stock), or in the case of
      any
      sale or conveyance to another corporation or entity of the property of the
      Corporation as an entirety or substantially as an entirety in connection with
      which the Corporation is dissolved, the holders of the Series A Preferred Stock
      shall have the right thereafter (unless otherwise converted) to receive upon
      the
      conversion of the Series A Preferred Stock the kind and amount of shares of
      stock or other securities or property (including cash) receivable upon such
      reclassification, reorganization, merger or consolidation, or upon a dissolution
      following any such sale or other transfer, by a holder of the number of shares
      of Common Stock into which the Series A Preferred Stock is convertible
      immediately prior to such event; and if any reclassification also results in
      a
      change in shares of Common Stock, then such adjustment also shall be
      made.

     

    (iv) Successive
      Changes.
      The
      provisions of this Section shall similarly apply to successive
      reclassifications, reorganizations, mergers or consolidations, sales or other
      transfers.

     

    (7)
       Voting
      Rights.
      The
      holders of record of shares of Series A Preferred Stock shall be entitled to
      the
      following voting rights: 

     

    (a)
        Those
      voting rights required by applicable law and as provided in Section 0
      hereof;

     

    (b)
        The
      right
      to vote together with the holders of the Common Stock, as a single class, upon
      all matters submitted to holders of Common Stock for a vote. Each
      share of Series A Preferred Stock will carry a number of votes equal to the
      number of shares of Common Stock issuable in a conversion based on the then
      applicable Conversion Rate; and

     

    (c)
        Whenever
      holders of Series A Preferred Stock are required or permitted to take any action
      by vote, such action may be taken without a meeting on written consent, setting
      forth the action so taken and signed by the holders of the outstanding capital
      stock of the Corporation having not less than the minimum number of votes that
      would be necessary to authorize or take such action at a meeting at which all
      such shares entitled to vote thereon were present and voted. Each share of
      the
      Series A Preferred Stock shall entitle the holder thereof to one vote on all
      matters to be voted on by the holders of the Series A Preferred Stock, as set
      forth in this Section
      7(c).

     

    (8)
       No
      Impairment.
      The
      Corporation will not, by amendment of its Articles of Incorporation or through
      any reorganization, recapitalization, transfer of assets, consolidation, merger,
      dissolution, issue or sale of securities or any other voluntary action, avoid
      or
      seek to avoid the observance or performance of any of the terms to be observed
      or performed hereunder by the Corporation, but will at all times in good faith
      assist in the carrying out of all the provisions of this section and in the
      taking of all such action as may be necessary or appropriate in order to protect
      the conversion rights of the holders of Series A Preferred Stock against
      impairment.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (9)
       No
      Fractional Shares and Certificate as to Adjustments.
      No
      fractional shares shall be issued upon the conversion of any share or shares
      of
      the Series A Preferred Stock, and the number of shares of Common Stock to be
      issued shall be rounded to the nearest whole share. The number of shares
      issuable upon conversion shall be determined on the basis of the total number
      of
      shares of Series A Preferred Stock the holder is at the time converting into
      Common Stock and the number of shares of Common Stock issuable upon such
      aggregate conversion.

     

    (10)
       Notices
      of Record Date.
      In the
      event of any taking by the Corporation of a record of the holders of any class
      of securities for the purpose of determining the holders thereof who are
      entitled to receive any dividend (other than a cash dividend) or other
      distribution, any right to subscribe for, purchase or otherwise acquire any
      shares of stock of any class or any other securities or property, or any other
      right, the Corporation shall mail to each holder of Series A Preferred Stock,
      at
      least ten (10) days prior to the date specified therein, a notice specifying
      the
      date on which any such record is to be taken for the purpose of such dividend,
      distribution or right, and the amount and character of such dividend,
      distribution or right.

     

    (11)
       Notices.
      Any
      notice required by the provisions of this Certificate of Designations to be
      given to the holders of shares of Series A Preferred Stock shall be deemed
      given
      if deposited in the United States mail, postage prepaid, and addressed to each
      holder of record at his address appearing on the books of the
      Corporation.

     

    (12)
       Protective
      Provisions.
      So long
      as any shares of Series A Preferred Stock are outstanding, the Corporation
      shall
      not without first obtaining the approval (by vote or written consent, as
      provided by law) of the holders of at least a majority of the then outstanding
      shares of Series A Preferred Stock, voting as a separate class: (i) amend,
      alter or repeal the preferences, privileges, special rights or other powers
      of
      the Series A Preferred Stock, as set forth herein, in a manner adverse to
      the holders thereof;
      (ii) create,
      issue, or obligate itself to issue any new class or series of stock or any
      other
      equity security (including any security convertible into or exercisable for
      any
      equity security) ranking senior to the Series A Preferred Stock as to
      dividend rights, redemption rights, conversion rights or liquidation
      preferences;
      (iii) reclassify
      any existing class or series of outstanding shares into a class or series of
      stock or any other equity security (including any security convertible into
      or
      exercisable for any equity security) ranking senior to, or on a parity with,
      the
      Series A Preferred Stock as to dividend rights, redemption rights, conversion
      rights or liquidation preferences;
      or
      (iv) amend
      its
      Certificate of Incorporation or Bylaws in any manner that adversely affects
      the
      preferences, privileges, restrictions or other rights of the holders of
      Series A Preferred Stock.

     

    (13)
       Return
      of Status as Authorized Shares.
      Upon a
      conversion or any other redemption or extinguishment of the Series A Preferred
      Stock, the shares converted, redeemed or extinguished will be automatically
      returned to the status of authorized and unissued shares of Preferred Stock,
      available for future designation and issuance pursuant to the terms of the
      Articles of Incorporation.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    RESOLVED
      FURTHER, that the statements contained in the foregoing resolutions amending
      and
      restating the terms applicable to the said Series A Convertible Preferred Stock
      and fixing the number, powers, preferences and relative, optional,
      participating, and other special rights and the qualifications, limitations,
      restrictions, and other distinguishing characteristics thereof shall, upon
      the
      effective date of said series, be deemed to be included in and be a part of
      the
      Articles of Incorporation of the Corporation pursuant to the provisions of
      Sections 104 and 151 of the General Corporation Law of the State of
      Nevada.

    

    IN
      WITNESS WHEREOF,
      the
      undersigned has executed this Certificate of Designation of the Series A
      Convertible Preferred Stock on this 28th day of November, 2007.

     

    BLUE
      HOLDINGS, INC.

     

    
      	 	 	 	 
	By: /s/
              Glenn Palmer	 	 	
            
	
              
Name: Glenn
              Palmer  	 	 	
            
	Title:
              Chief
              Executive Officer	 	 	
            

    
      
        
        

      

      
        7Unassociated Document

     

    

      EXHIBIT
        10.1

       

      ENERGY
        XXI SERVICES, LLC

       

      2006
        LONG-TERM INCENTIVE PLAN

       

      [As
        amended for fiscal year 2008]

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

      ENERGY
        XXI SERVICES, LLC 

       

      2006
        LONG-TERM INCENTIVE PLAN

       

      Table
        of Contents 

      

      

        
          	
                  ARTICLE
                    I INTRODUCTION 

                	 	 	
                  1

                	 
	
                  1.1
                    Purpose 

                	 	 	
                  1

                	 
	
                  1.2
                    Shares Subject to the Plan 

                	 	 	
                  1

                	 
	
                  1.3
                    Administration of the Plan 

                	 	 	
                  1

                	 
	
                  1.4
                    Amendment and Discontinuance of the Plan 

                	 	 	
                  1

                	 
	
                  1.5
                    Granting of Awards to Participants 

                	 	 	
                  1

                	 
	
                  1.6
                    Term of Plan 

                	 	 	
                  2

                	 
	
                  1.7
                    Leave of Absence 

                	 	 	
                  2

                	 
	
                  1.8
                    Definitions

                	 	 	
                  2

                	 
	 	 	 	 	 
	
                  ARTICLE
                    II NON-QUALIFIED OPTIONS 

                	 	 	
                  5

                	 
	
                  2.1
                    Grants 

                	 	 	
                  5

                	 
	
                  2.2
                    Calculation of Exercise Price 

                	 	 	
                  5

                	 
	
                  2.3
                    Terms and Conditions of Options 

                	 	 	
                  5

                	 
	
                  2.4
                    Amendment 

                	 	 	
                  6

                	 
	
                  2.5
                    Acceleration of Vesting 

                	 	 	
                  7

                	 
	
                  2.6
                    Other Provisions 

                	 	 	
                  7

                	 
	
                  2.7
                    No Option Repricing Without Stockholder Approval 

                	 	 	
                  7

                	 
	 	 	 	 	 
	
                  ARTICLE
                    III INCENTIVE OPTIONS 

                	 	 	
                  7

                	 
	
                  3.1
                    Eligibility 

                	 	 	
                  7

                	 
	
                  3.2
                    Exercise Price 

                	 	 	
                  7

                	 
	
                  3.3
                    Dollar Limitation 

                	 	 	
                  7

                	 
	
                  3.4
                    10% Stockholder 

                	 	 	
                  7

                	 
	
                  3.5
                    Options Not Transferable 

                	 	 	
                  8

                	 
	
                  3.6
                    Compliance with 422 

                	 	 	
                  8

                	 
	
                  3.7
                    Limitations on Exercise 

                	 	 	
                  8

                	 
	 	 	 	 	 
	
                  ARTICLE
                    IV STOCK APPRECIATION RIGHTS AND RESTRICTED STOCK UNIT AWARDS
                    

                	 	 	
                  8

                	 
	
                  4.1
                    Stock Appreciation Rights 

                	 	 	
                  8

                	 
	
                  4.2
                    Restricted Stock Unit Awards 

                	 	 	
                  8

                	 
	 	 	 	 	 
	
                  ARTICLE
                    V RESTRICTED STOCK 

                	 	 	
                  10

                	 
	
                  5.1
                    Eligible Persons 

                	 	 	
                  10

                	 
	
                  5.2
                    Restricted Period and Vesting 

                	 	 	
                  10

                	 
	 	 	 	 	 
	
                  ARTICLE
                    VI PERFORMANCE AWARDS 

                	 	 	
                  10

                	 
	
                  6.1
                    Performance Awards 

                	 	 	
                  10

                	 
	
                  6.2
                    Performance Goals 

                	 	 	
                  11

                	 
	 	 	 	 	 
	
                  ARTICLE
                    VII OTHER STOCK OR PERFORMANCE-BASED AWARDS 

                	 	 	
                  12

                	 
	 	 	 	 	 
	
                  ARTICLE
                    VIII CERTAIN PROVISIONS APPLICABLE TO ALL AWARDS 

                	 	 	
                  12

                	 
	
                  8.1
                    General 

                	 	 	
                  12

                	 
	
                  8.2
                    Stand-Alone, Additional, Tandem and Substitute Awards 

                	 	 	
                  12

                	 
	
                  8.3
                    Term of Awards 

                	 	 	
                  12

                	 

        

         

        
          
            
            

          

          
            i

            
              

            

          

          
            
            

          

        

         

        
          	
                  8.4
                    Form and Timing of Payment under Awards; Deferrals 

                	 	 	
                  13

                	 
	
                  8.5
                    Vested and Unvested Awards 

                	 	 	
                  13

                	 
	
                  8.6
                    Exemptions from Section 16(b) Liability 

                	 	 	
                  13

                	 
	
                  8.7
                    Other Provisions 

                	 	 	
                  13

                	 
	 	 	 	 	 
	
                  ARTICLE
                    IX WITHHOLDING FOR TAXES 

                	 	 	
                  13

                	 
	 	 	 	 	 
	
                  ARTICLE
                    X MISCELLANEOUS 

                	 	 	
                  14

                	 
	
                  10.1
                    No Rights to Awards 

                	 	 	
                  14

                	 
	
                  10.2
                    No Right to Employment 

                	 	 	
                  14

                	 
	
                  10.3
                    Governing Law 

                	 	 	
                  14

                	 
	
                  10.4
                    Severability 

                	 	 	
                  14

                	 
	
                  10.5
                    Other Laws 

                	 	 	
                  14

                	 
	
                  10.6
                    409A Compliance — No Guarantee of Tax Consequences 

                	 	 	
                  14

                	 
	
                  10.7
                    Shareholder Agreements 

                	 	 	
                  15

                	 

        

      

      

      
        
          
          

        

        
          ii

          
            

          

        

        
          
          

        

      

      

      ENERGY
        XXI SERVICES, LLC 

       

      2006
        Long-term Incentive Plan 

      As
        Amended for Fiscal Year 2008 

       

      ARTICLE
        I

      INTRODUCTION
        

       

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

       

      1.2
        Shares Subject to the Plan. The
        aggregate number of shares of Common Stock, of the Company (‘‘Common
        Stock’’)
        that
        may be issued under the Plan shall not exceed five million (5,000,000) shares.
        In each calender year, during any part of which the Plan is in effect, a
        Participant may not be granted (a) Awards (other than Awards designated to
        be
        paid only in cash or the settlement of which is not based on a number of
        shares
        of Common Stock) relating to more than 5,000,000 shares of Common Stock,
        subject
        to adjustment in a manner consistent with any adjustment described below,
        and
        (b) Awards designated to be paid only in cash, or the settlement of which
        is not
        based on a number of shares of Common Stock, having a value determined on
        the
        date of grant in excess of $3,000,000. Notwithstanding the above, however,
        in
        the event that at any time after the Effective Date (as defined below) the
        outstanding shares of Common Stock are subdivided, consolidated, split-up,
        spun-off, reclassified, recapitalized, or changed into or exchanged for a
        different number or kind of shares or other securities of the Company by
        reason
        of a merger, consolidation, recapitalization, reclassification, stock split,
        stock dividend, combination of shares or the like, the aggregate number and
        class of securities available under the Plan (or issuable to any one Participant
        pursuant to this Plan in any one calendar year) shall be ratably adjusted
        by the
        Committee (as defined below), whose determination shall be final and binding
        upon the Company and all other interested persons. Shares issued pursuant
        to the
        Plan (i) may be treasury shares, authorized but unissued shares or, if
        applicable, shares acquired in the open market and (ii) shall be fully paid
        and
        nonassessable. 

       

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

       

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

       

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

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

      

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

       

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

       

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

       

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

       

      ‘‘Affıliate’’
means
        (i) any entity in which the Employer directly or indirectly, owns fifty percent
        (50%) or more of the combined voting power, as determined by the Committee,
        (ii)
        any ‘‘parent corporation’’ of the Employer (as defined in Section 424(e) of the
        Code), (iii) any ‘‘subsidiary corporation’’ of any such parent corporation (as
        defined in Section 424(f) of the Code) of the Employer and (iv) any trades
        or
        businesses, whether or not incorporated which are members of a controlled
        group
        or are under common control (as defined in Sections 414(b) or (c) of the
        Code)
        with the Employer, but using the threshold of 50% ownership wherever 80%
        appears; provided, that, for the purpose of issuing Options or Stock
        Appreciation Rights, ‘‘Affiliate’’ means any corporation or other entity in a
        chain of corporations and/or other entities in which the Company has a
‘‘controlling interest’’ within the meaning of Treas. Reg. §
1.414(c)-2(b)(2)(i), but using the threshold of 50 percent ownership wherever
        80
        percent appears. 

       

      ‘‘Awards’’
means,
        collectively, Options, Stock Appreciation Rights, Restricted Stock Unit Awards,
        Restricted Stock, Performance Awards or Other Stock or Performance Based
        Awards.

       

      ‘‘Board’’
has
        the meaning set forth in Section 1.1 hereof. 

       

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

       

      ‘‘Change
        of Control’’
shall
        be deemed to have occurred upon any of the following events: 

       

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

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      

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

       

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

       

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

       

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

       

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

       

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

       

      ‘‘Common
        Stock’’
has
        the meaning set forth in Section 1.2 hereof. 

       

      ‘‘Company’’
has
        the meaning set forth in Section 1.1 hereof. 

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      

      ‘‘Covered
        Employee’’
shall
        mean each of the employees/officers of the Company as described in Section
        162(m) of the Code and applicable rules, regulations and guidance issued
        thereunder, as well as any person designated by the Committee, at the time
        of
        grant of an Award, who is likely to be a Covered Employee. 

       

      ‘‘Director’’
means
        a director of the Company. 

       

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

       

      ‘‘Effective
        Date’’
has
        the meaning set forth in Section 1.6 hereof. 

       

      ‘‘Employee’’
means
        any employee of the Employer or an Affiliate. 

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      

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

       

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

       

      ‘‘Optionee’’
        means
        a
        Participant who has received or will receive an Option. 

       

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

       

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

       

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

       

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

       

      ‘‘Person’’
has
        the meaning set forth in this Section 1.8 in the definition of ‘‘Change of
        Control’’. 

       

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

       

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

       

      ‘‘Restricted
        Stock Unit Awards’’
has
        the meaning set forth in Section 4.2 hereof. 

       

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

       

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

       

      ‘‘Stockholder’’
has
        the meaning set forth in Section 1.1 hereof. 

       

      

      ARTICLE
        II

      NON-QUALIFIED
        OPTIONS 

       

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

       

      2.2
        Calculation of Exercise Price. The
        exercise price to be paid for each share of Common Stock deliverable upon
        exercise of each Option granted under this Article II shall not be less than
        the
        FMV Per Share on the date of grant of such Option. The exercise price for
        each
        Option granted under this Article II shall be subject to adjustment as provided
        in Section 2.3(d) below. 

       

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

       

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

       

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

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

         

      

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

       

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

       

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

       

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

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

      

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

       

      2.6
        Other Provisions. 

       

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

       

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

       

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

       

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

      

      ARTICLE
        III

      INCENTIVE
        OPTIONS 

       

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

       

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

       

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

       

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

       

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

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

      

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

       

      3.6
        Compliance with 422. All
        Options that are intended to be Incentive Options shall be designated as
        such in
        the Option grant and in all respects shall be issued in compliance with Code
        Section 422. No more than five million (5,000,000) Incentive Options may
        be
        issued under the terms of the Plan. 

       

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

      

      ARTICLE
        IV

      STOCK
        APPRECIATION RIGHTS AND RESTRICTED STOCK UNIT AWARDS 

       

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

       

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

       

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

       

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

       

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

       

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

       

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

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

      

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

       

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

       

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

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

      

      ARTICLE
        V

      RESTRICTED
        STOCK 

       

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

       

      5.2
        Restricted Period and Vesting. 

       

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

       

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

       

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

       

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

       

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

      

      ARTICLE
        VI

      PERFORMANCE
        AWARDS 

       

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

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

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

       

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

       

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

       

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

       

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

       

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

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

      

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

      

      ARTICLE
        VII

      OTHER
        STOCK OR PERFORMANCE-BASED AWARDS 

       

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

       

      ARTICLE
        VIII

      CERTAIN
        PROVISIONS APPLICABLE TO ALL AWARDS 

       

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

       

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

       

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

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

      

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

       

      8.5
        Vested and Unvested Awards. After
        the
        satisfaction of all of the terms and conditions set by the Committee with
        respect to an Award of (i) Restricted Stock, a certificate, without the legend
        set forth in Section 5.2(c) hereof, for the number of shares that are no
        longer
        subject to such restrictions, terms and conditions shall be delivered to
        the
        Employee, (ii) Restricted Stock Unit Award, to the extent not paid in cash,
        a
        certificate for the number of shares equal to the number of shares of Restricted
        Stock Unit Award earned, and (iii) Stock Appreciation Rights or Performance
        Awards, cash and/or a certificate for the number of shares equal in value
        to the
        number of Stock Appreciation Rights or amount of Performance Awards vested
        shall
        be delivered to the person. Upon termination, resignation or removal of a
        Participant under circumstances that do not cause such Participant to become
        fully vested, any remaining unvested Options, shares of Restricted Stock,
        Restricted Stock Unit Award, Stock Appreciation Rights or Performance Awards,
        as
        the case may be, shall either be forfeited back to the Employer or the Company
        or, if appropriate under the terms of the Award, shall continue to be subject
        to
        the restrictions, terms and conditions set by the Committee with respect
        to such
        Award. Notwithstanding any other provisions of the Plan, upon or as soon
        as
        reasonably practicable following the vesting of a Restricted Stock Unit Award,
        Peformance Award or Other Stock or Performance Based Award, the distribution
        of
        such Award shall occur in a single lump sum no later than the fifteenth (15th)
        day of the third (3rd) month following the date on which vesting occurs.
        Should
        the Participant die before receiving all amounts payable hereunder, the balance
        shall be paid to the Participant’s estate by this date. 

       

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

       

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

      

      ARTICLE
        IX

      WITHHOLDING
        FOR TAXES 

       

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

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

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

       

      ARTICLE
        X

      MISCELLANEOUS
        

       

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

       

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

       

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

       

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

       

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

       

      10.6
        409A Compliance — No Guarantee of Tax Consequences. It
        is the
        intention of the Employer and the Company that all Awards granted by the
        Committee be in compliance with Section 409A of the Code in all respects
        and the
        Plan shall be so construed; provided, however that the Participant shall
        be
        solely responsible for and liable for any tax consequences (including but
        not
        limited to any interest or penalties) as a result of participation in the
        Plan.
        Neither the Board, nor the Employer, the Company nor the Committee makes
        any
        commitment or guarantee that any federal, state or local tax treatment will
        apply or be available to any person participating or eligible to participate
        hereunder and assumes no liability whatsoever for the tax consequences to
        the
        Participants. Notwithstanding anything herein to the contrary, if any amounts
        payable hereunder are reasonably determined by the Committee to be
‘‘nonqualified deferred compensation’’ payable to a ‘‘specified employee’’ upon
‘‘separation from service’’ (within the meaning of section 409A of the Code)
        then such amounts that would otherwise be payable upon separation from service
        shall be held and not be paid by the Company upon separation from service,
        but
        shall be paid on the earlier of: (1) the first day that is six months following
        the Participant’s separation from service; or (2) Participant’s date of death.
        Such amounts that would otherwise be payable in installments commencing on
        separation from service shall be accumulated and paid in a lump sum on the
        date
        that is the earlier of (1) or (2) above and shall be paid in installments
        thereafter. 

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

      

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

      
        
          
          

        

        
          15

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00133-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00133-of-00352.parquet"}]]