APACHE CORP
1996 PERFORMANCE STOCK OPTION
<DOCUMENT>
<TYPE>EX-10.03
<SEQUENCE>5
<FILENAME>h89591ex10-03.txt
<DESCRIPTION>1996 PERFORMANCE STOCK OPTION
<TEXT>
<PAGE>   1
                                                                  EXHIBIT 10.03




                               APACHE CORPORATION


                       1996 PERFORMANCE STOCK OPTION PLAN


                      (AS AMENDED AND RESTATED MAY 3, 2001)


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                               APACHE CORPORATION
                       1996 PERFORMANCE STOCK OPTION PLAN

                      (AS AMENDED AND RESTATED MAY 3, 2001)


                                    SECTION 1

                                  INTRODUCTION

1.1 Establishment. Apache Corporation, a Delaware corporation (hereinafter
referred to, together with its Affiliated Corporations (as defined in Section
2.1 hereof) as the "Company" except where the context otherwise requires),
hereby establishes the Apache Corporation 1996 Performance Stock Option Plan
(the "Plan") for certain employees of the Company.

1.2 Purposes. The primary purpose of this Plan is to provide the participating
employees of the Company with added incentives to focus their energies on
achieving significant stock price appreciation for the balance of the decade by
providing a meaningful stock based performance plan which provides accelerated
vesting incentives to attain the prices of $50 and $60 per share of Apache
Corporation common stock, respectively, before January 1, 2000. Additional
purposes of this Plan include the retention of existing valued employees and as
an additional inducement in the recruitment of talented personnel in a
competitive environment.

1.3 Effective Date. The Effective Date of the Plan (the "Effective Date") is
October 31, 1996.

                                    SECTION 2

                                   DEFINITIONS

2.1 Definitions. The following terms shall have the meanings set forth below:

         (a) "Administrative Agent" means any designee or agent that may be
appointed by the Committee pursuant to Section 3.1(b) hereof.

         (b) "Affiliated Corporation" means any corporation or other entity
(including but not limited to a partnership) which is affiliated with Apache
Corporation through stock ownership or otherwise and is treated as a common


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employer under the provisions of Sections 414(b) and (c) or any successor
section(s) of the Internal Revenue Code.

         (c) "Base Salary" means, with regard to any Participant, such
Participant's base compensation as an employee of the Company at the date of
grant of an Option, without regard to any bonus, pension, profit sharing, stock
option, life insurance or salary continuation plan which the Participant either
receives or is otherwise entitled to have paid on his behalf.

         (d) "Board" means the Board of Directors of the Company.

         (e) "Committee" means the Stock Option Plan Committee of the Board.

         (f) "Depositary Shares" means the depositary shares representing the
Company's preferred stock convertible into Stock.

         (g) "Eligible Employees" means any full-time employee of the Company or
any division thereof who is not a participant under the Apache Corporation 1996
Share Price Appreciation Plan.

         (h) "Exercise Date" has the meaning set forth in Section 7.3(i).

         (i) "Fair Market Value" means the per share closing price of the Stock
or Depositary Shares, as applicable, as reported on The New York Stock Exchange,
Inc. Composite Transactions Reporting System for a particular date. If on such
date there are no transactions in the Stock or Depositary Shares, as applicable,
the Fair Market Value shall be determined as of the immediately preceding date
on which there were transactions in the Stock or Depositary Shares, as
applicable.

         (j) "Final Amount" has the meaning set forth in Section 7.2.

         (k) "Final Price Threshold Date" means the last of any 10 trading days
(which need not be consecutive) during any period of 30 consecutive trading days
occurring prior to January 1, 2000, but not thereafter, on each of which 10 days
the closing price of the Stock as reported on The New York Stock Exchange, Inc.
Composite Transactions Reporting System has equaled or exceeded $60 per share.
If the above trading criteria is met more than once, the first occurrence shall
be deemed to be the Final Price Threshold Date.

         (l) "First Category" has the meaning set forth in Section 7.2.

         (m) "Initial Amount" has the meaning set forth in Section 7.2.


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         (n) "Initial Price Threshold Date" means the last of any 10 trading
days (which need not be consecutive) during any period of 30 consecutive trading
days occurring prior to January 1, 2000, but not thereafter, on each of which 10
days the closing price of the Stock as reported on The New York Stock Exchange,
Inc. Composite Transactions Reporting System has equaled or exceeded $50 per
share. If the above trading criteria is met more than once, the first occurrence
shall be deemed to be the Initial Price Threshold Date.

         (o) "Internal Revenue Code" means the Internal Revenue Code of 1986, as
it may be amended from time to time.

         (p) "Option" means a right to purchase shares of Stock at a stated
price for a specified period of time. All Options granted under the Plan shall
be Options which are not "incentive stock options" as described in Section 422
or any successor section(s) of the Internal Revenue Code.

         (q) "Option Agreement" has the meaning set forth in Section 7.1.

         (r) "Option Period" has the meaning set forth in Section 7.3(c).

         (s) "Option Price" means the price at which shares of Stock subject to
an Option may be purchased, determined in accordance with Section 7.3(b) hereof.

         (t) "Participant" means an Eligible Employee designated by the
Committee from time to time during the term of the Plan to receive an Option
under the Plan.

         (u) "Price Threshold Date" means either the Initial Price Threshold
Date or the Final Price Threshold Date, as the context may require.

         (v) "Second Category" has the meaning set forth in Section 7.2.

         (w) "Stock" means the $1.25 par value Common Stock of the Company.

2.2 Headings; Gender and Number. The headings contained in the Plan are for
reference purposes only and shall not affect in any way the meaning or
interpretation of the Plan. Except when otherwise indicated by the context, the
masculine gender shall also include the feminine gender, and the definition of
any term herein in the singular shall also include the plural.


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                                    SECTION 3

                               PLAN ADMINISTRATION

3.1      Administration by the Committee.

         (a) The Plan shall be administered by the Committee. In accordance with
the provisions of the Plan, the Committee shall, in its sole discretion, select
the Participants from among the Eligible Employees, determine the Options to be
granted pursuant to the Plan, the time at which such Options are to be granted,
and establish such other terms and requirements as the Committee may deem
necessary or desirable and consistent with the terms of the Plan. The Committee
shall determine the form or forms of the Option Agreements with Participants
which shall evidence the particular provisions, terms, conditions, rights and
duties of the Company and the Participants with respect to Options granted
pursuant to the Plan, which provisions need not be identical except as may be
provided herein.

         (b) The Committee may from time to time adopt such rules and
regulations for carrying out the purposes of the Plan as it may deem proper and
in the best interests of the Company. The Committee may appoint an
Administrative Agent, who need not be a member of the Committee or an employee
of the Company, to assist the Committee in administration of the Plan and to
whom it may delegate such powers as the Committee deems appropriate, except that
the Committee shall determine any dispute. The Committee may correct any defect,
supply any omission or reconcile any inconsistency in the Plan, or in any
agreement entered into hereunder, in the manner and to the extent it shall deem
expedient and it shall be the sole and final judge of such expediency. No member
of the Committee shall be liable for any action or determination made in good
faith. The determinations, interpretations and other actions of the Committee
pursuant to the provisions of the Plan shall be binding and conclusive for all
purposes and on all persons.

                                    SECTION 4

                            STOCK SUBJECT TO THE PLAN

4.1 Number of Shares. Subject to Section 7.1 and Section 4.3, one million three
hundred thousand (1,300,000) shares of Stock are authorized for issuance under
the Plan in accordance with its terms and subject to such restrictions or


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other provisions as the Committee may from time to time deem necessary. This
authorization may be increased from time to time by approval of the Board and
the stockholders of the Company if, on the advice of counsel for the Company,
such stockholder approval is required. Shares of Stock which may be issued
pursuant to the terms of the Options granted hereunder shall be applied to
reduce the maximum number of shares of Stock remaining available for use under
the Plan. The Company shall at all times during the term of the Plan and while
any Options are outstanding retain as authorized and unissued Stock and/or Stock
in the Company's treasury, at least the number of shares from time to time
required under the provisions of the Plan, or otherwise assure itself of its
ability to perform its obligations hereunder.

4.2 Other Shares of Stock. Any shares of Stock that are subject to an Option
which expires, is forfeited, is canceled, or for any reason is terminated, and
any shares of Stock that for any other reason are not issued to a Participant or
are forfeited shall automatically become available for use under the Plan.

4.3 Adjustments for Stock Split, Stock Dividend, etc. If the Company shall at
any time increase or decrease the number of its outstanding shares of Stock or
change in any way the rights and privileges of such shares by means of the
payment of a Stock dividend or any other distribution upon such shares payable
in Stock, or through a Stock split, subdivision, consolidation, combination,
reclassification or recapitalization involving the Stock, then in relation to
the Stock that is affected by one or more of the above events, the numbers,
rights and privileges of the following shall be increased, decreased or changed
in like manner as if they had been issued and outstanding, fully paid and
nonassessable at the time of such occurrence: (i) the shares of Stock as to
which Options may be granted under the Plan; and (ii) the shares of the Stock
then included in each outstanding Option granted hereunder.

4.4 Dividend Payable in Stock of Another Corporation. If the Company shall at
any time pay or make any dividend or other distribution upon the Stock payable
in securities or other property (except money or Stock), a proportionate part of
such securities or other property shall be set aside and delivered to any
Participant then holding an Option for the particular type of Stock for which
the dividend or other distribution was made, upon exercise thereof. Prior to the
time that any such securities or other property are delivered to a Participant
in accordance with the foregoing, the Company shall be the owner of such
securities or other property, and in all other respects shall be treated as the
owner. If securities or other property which have been set aside by the Company
in accordance with this Section are not delivered to a Participant because an
Option is not exercised, then such securities or other property shall remain the
property of the Company and shall be dealt with by the Company as it shall
determine in its sole discretion.


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4.5 Other Changes in Stock. In the event there shall be any change, other than
as specified in Sections 4.3 and 4.4 hereof, in the number or kind of
outstanding shares of Stock or of any stock or other securities into which the
Stock shall be changed or for which it shall have been exchanged, and if the
Committee shall in its discretion determine that such change equitably requires
an adjustment in the number or kind of shares subject to outstanding Options or
which have been reserved for issuance pursuant to the Plan but are not then
subject to an Option, then such adjustments shall be made by the Committee and
shall be effective for all purposes of the Plan and on each outstanding Option
that involves that particular type of stock for which a change was effected.

4.6 Rights to Subscribe. If the Company shall at any time grant to the holders
of its Stock rights to subscribe pro rata for additional shares thereof or for
any other securities of the Company or of any other corporation, there shall be
reserved with respect to the shares then under Option to any Participant of the
particular class of Stock involved the Stock or other securities which the
Participant would have been entitled to subscribe for if immediately prior to
such grant the Participant had exercised his entire Option. If, upon exercise of
any such Option, the Participant subscribes for the additional shares or other
securities, the aggregate Option Price shall be increased by the amount of the
price that is payable by the Participant for such additional shares or other
securities.

4.7 General Adjustment Rules. No adjustment or substitution provided for in this
Section 4 shall require the Company to sell a fractional share of Stock under
any Option, or otherwise issue a fractional share of Stock, and the total
substitution or adjustment with respect to each Option shall be limited by
deleting any fractional share. In the case of any such substitution or
adjustment, the aggregate Option Price for the shares of Stock then subject to
the Option shall remain unchanged but the Option Price per share under each such
Option shall be equitably adjusted by the Committee to reflect the greater or
lesser number of shares of Stock or other securities into which the Stock
subject to the Option may have been changed.

4.8 Determination by the Committee, etc. Adjustments under this Section 4 shall
be made by the Committee, whose determinations with regard thereto shall be
final and binding upon all parties.


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                                    SECTION 5

                          REORGANIZATION OR LIQUIDATION

In the event that the Company is merged or consolidated with another corporation
and the Company is not the surviving corporation, or if all or substantially all
of the assets or more than 20 percent of the outstanding voting stock of the
Company is acquired by any other corporation, business entity or person, or in
case of a reorganization (other than a reorganization under the United States
Bankruptcy Code) or liquidation of the Company, and if the provisions of Section
8 hereof do not apply, the Committee, or the board of directors of any
corporation assuming the obligations of the Company, shall, as to the Plan and
outstanding Options either (i) make appropriate provision for the adoption and
continuation of the Plan by the acquiring or successor corporation and for the
protection of any such outstanding Options by the substitution on an equitable
basis of appropriate stock of the Company or of the merged, consolidated or
otherwise reorganized corporation which will be issuable with respect to the
Stock, provided that no additional benefits shall be conferred upon the
Participants holding such Options as a result of such substitution, and the
excess of the aggregate Fair Market Value of the shares subject to such Options
immediately after such substitution over the aggregate Option Price thereof is
not more than the excess of the aggregate Fair Market Value of the shares
subject to such Options immediately before such substitution over the aggregate
Option Price thereof, or (ii) upon written notice to the Participants, provide
that all unexercised Options shall be exercised within a specified number of
days of the date of such notice or such Options will be terminated. In the
latter event, the Committee shall accelerate the vesting dates of outstanding
Options so that all Options become fully vested and exercisable prior to any
such event.

                                    SECTION 6

                                  PARTICIPATION

Participants in the Plan receiving First Category Options may be any Eligible
Employee in the discretion of the Committee. Participants in the Plan receiving
Second Category Options shall be those Eligible Employees who, in the judgment
of the Committee, are performing, or during the term of their incentive
arrangement are expected to perform, important services in the management,
operation and development of the Company or an Affiliated Corporation, and
contribute, or are expected to contribute, to the achievement of the Company's
long-term corporate economic objectives. Upon determination by the Committee


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that an Option is to be granted to a Participant, written notice shall be given
to such person, specifying the terms, conditions, rights and duties related
thereto. Options shall be deemed to be granted as of the date specified in the
granting resolution of the Committee, which date also shall be the date of the
Option Agreement with the Participant. In the event of any inconsistency between
the provisions of the Plan and any Option Agreement, the provisions of the Plan
shall govern.

                                    SECTION 7

                                     OPTIONS

7.1 Grants. Each Participant may be granted only one Option under this Plan.
Each Option granted by the Committee shall be evidenced by a written agreement
entered into by the Company and the Participant to whom the Option is granted
(the "Option Agreement"), which shall contain the terms and conditions set out
in this Section 7, as well as such other terms and conditions, not inconsistent
therewith, as the Committee may consider appropriate.

7.2 Option Agreements. There shall be two categories of Options issued under
this Plan as follows:

         (a) The first category of Option ("First Category") shall have a total
of two hundred (200) shares of Stock issuable to a Participant upon exercise;
and

         (b) The second category of Option ("Second Category") shall vary by
Participant and, as to any Participant, shall have a total number of shares of
Stock issuable upon exercise which equals the sum of the Initial Amount and the
Final Amount.

For purposes of this Plan, the term "Initial Amount" means such number of shares
(rounded to the nearest full share) which equals not more than one (1) times
such Participant's Base Salary divided by the difference between $50 and the
Option Price. The term "Final Amount" means such number of shares (rounded to
the nearest full share) which equals not more than one and one-half (1.5) times
such Participant's Base Salary divided by the difference between $60 and the
Option Price.

7.3 Common Terms. Subject to Section 7.2 and Section 7.5, each Option Agreement
entered into by the Company and the Participants shall contain at least the
following terms and conditions:


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         (a) Number of Shares. Each Option Agreement shall set forth a specified
number of shares of Stock issuable upon exercise of the Option, as determined by
the Committee pursuant to Section 7.2 hereof.

         (b) Price. The exercise price (the "Option Price") at which each share
of Stock covered by an Option may be purchased shall be the price specified in
the granting resolution of the Committee.

         (c) Duration. Each Option Agreement shall state the period of time,
determined by the Committee, within which the Option may be exercised (the
"Option Period"), which in no event may be greater than ten (10) years.

         (d) Vesting. Subject to the provisions of Section 7.3(e) and Section
7.3(f), each Option shall become exercisable in full on the date occurring nine
years and six months from the date of grant or such earlier date as the
Committee may determine.

         (e) Acceleration. Each Option may become exercisable earlier, in
increments, upon the occurrence of a Price Threshold Date as follows:

                  (i) If the Initial Price Threshold Date occurs prior to
January 1, 2000:

                           (A) One-half of the shares of Stock subject to the
First Category Options become immediately exercisable as of such date, and

                           (B) The Initial Amount of shares of Stock subject to
each Second Category Option become immediately exercisable as of such date.

                  (ii) If the Final Price Threshold Date occurs prior to January
1, 2000, the remaining portion of shares of Stock under each category of Option
becomes immediately exercisable as of such date.

         (f) Termination of Employment, Death, Disability, etc. Subject to the
following provisions, each Option Agreement shall state that each Option and the
right to acquire stock thereunder shall be subject to the condition that the
Participant has remained a full-time employee of the Company from the date of
grant of an Option until the applicable exercise date:

                  (i) If the employment of the Participant by the Company is
terminated (which for this purpose means that the Participant is no longer
employed by the Company or by an Affiliated Corporation) within the Option
Period for any reason other than cause, the Participant's retirement on or after


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attaining age 60, or the Participant's disability or death, the Option may be
exercised by the Participant within three months following the date of such
termination (provided that such exercise must occur within the Option Period),
but not thereafter. In any such case, the Option may be exercised only as to the
shares as to which the Option had become exercisable on or before the date of
termination of the Participant's employment. If the employment of the
Participant is terminated within the Option Period for cause, as determined by
the Company, any portion of any Option not previously exercised in accordance
with this Section 7 shall thereafter be void for all purposes. As used in this
subsection, "cause" shall mean a gross violation, as determined by the Company,
of the Company's established policies and procedures, provided that the effect
of this subsection 7.3(f) shall be limited to determining the consequences of a
termination and that nothing in this subsection shall restrict or otherwise
interfere with the Company's discretion with respect to the termination of any
employee.

                  (ii) If the Participant retires from employment by the Company
on or after attaining age 60, the Option may be exercised by the Participant
within 36 months following his or her retirement (provided that such exercise
must occur within the Option Period), but not thereafter. In the event of the
Participant's death during such 36-month period, each Option may be exercised by
those entitled to do so in the manner referred to in (iv) below. In any such
case:

                           (A) If the Participant is holding a First Category
Option and the Participant's retirement occurs on or after January 1, 2000, the
Option may be exercised as to all shares of Stock which are subject to the
Option, including an increment of the Option, if any, which had not otherwise
become exercisable on or before the date of the Participant's retirement, or

                           (B) If the Participant is holding a First Category
Option and the Participant's retirement occurs prior to January 1, 2000, the
Option may be exercised only as to the shares of Stock as to which the Option
had become exercisable on or before the date of the Participant's retirement, or

                           (C) If the Participant is holding a Second Category
Option, the Option may be exercised only as to the shares of Stock as to which
the Option had become exercisable on or before the date of the Participant's
retirement.

                  (iii) If the Participant becomes disabled (as determined
pursuant to the Company's Long-Term Disability Plan or any successor plan),
during the Option Period while still employed, or within the 36-month period
referred to in (ii) above, the Option may be exercised by the Participant or by
his or her guardian or legal representative, within twelve months following the
Participant's disability,


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or within the 36-month period referred to in (ii) if applicable and if longer
(provided that such exercise must occur within the Option Period), but not
thereafter. In the event of the Participant's death during such twelve-month
period, each Option may be exercised by those entitled to do so in the manner
referred to in (iv) below. In any such case, the Option may be exercised only as
to the shares of Stock as to which the Option had become exercisable on or
before the date of the Participant's disability.

                  (iv) In the event of the Participant's death while still
employed by the Company, each Option of the deceased Participant may be
exercised by those entitled to do so under the Participant's will or under the
laws of descent and distribution within twelve months following the
Participant's death (provided that in any event such exercise must occur within
the Option Period), but not thereafter, as to all shares of Stock which are
subject to such Option, including any increment of the Option, if any, which has
not yet become exercisable at the time of the Participant's death. In the event
of the Participant's death within the 36-month period referred to in (ii) above
or within the twelve-month period referred to (iii) above, each Option of the
deceased Participant that is exercisable at the time of death may be exercised
by those entitled to do so under the Participant's will or under the laws of
descent and distribution within twelve months following the Participant's death
or within the 36-month period referred to in (ii), if applicable and if longer
(provided that in any event such exercise must occur within the Option Period).

         (g) Transferability. Each Option Agreement shall state that the Option
granted thereunder is not transferable by the Participant, except by will or
pursuant to the laws of descent and distribution, and that such Option is
exercisable during the Participant's lifetime only by him or her, or in the
event of the Participant's disability or incapacity, by his or her guardian or
legal representative.

         (h) Exercise, Payments, etc.

                  (i) Each Option Agreement shall provide that the method for
exercising the Option granted therein shall be by delivery to the Office of the
Secretary of the Company or the Administrative Agent of written notice
specifying the number of shares of Stock with respect to which such Option is
exercised and payment to the Company of the aggregate Option Price. Such notice
shall be in a form satisfactory to the Committee and shall specify the
particular Option (or portion thereof) which is being exercised and the number
of shares of Stock with respect to which the Option is being exercised. The
exercise of the Option shall be deemed effective on the date such notice is
received by the Office of the Secretary or the Administrative Agent and payment
is made to the Company of


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the aggregate Option Price (the "Exercise Date"); however, if payment of the
aggregate Option Price is made pursuant to a sale of shares of Stock as
contemplated by subsection 7.2(b)(iii)(E) below, the Exercise Date shall be
deemed to be the date of such sale. If requested by the Company, such notice
shall contain the Participant's representation that he or she is purchasing the
Stock for investment purposes only and his or her agreement not to sell or
otherwise distribute any Stock so purchased in any manner that is in violation
of the Securities Act of 1933, as amended, or any applicable state law, and such
restriction, or notice thereof, shall be placed on the certificates representing
the Stock so purchased. The purchase of such Stock shall take place upon
delivery of such notice to the Office of the Secretary of the Company or to the
Administrative Agent, at which time the Option Price shall be paid in full to
the Company by any of the methods or any combination of the methods set forth in
7.2(h)(iii) below.

                  (ii) The shares of Stock to which the Participant is entitled
as a result of the exercise of the Option shall be issued by the Company and (A)
delivered by electronic means to an account designated by the Participant, or
(B) delivered to the Participant in the form of a properly executed certificate
or certificates representing such shares of Stock. If shares of Stock and/or
Depositary Shares are used to pay all or part of the aggregate Option Price, the
Company shall issue and deliver to the Participant the additional shares of
Stock, in excess of the aggregate Option Price or portion thereof paid using
shares of Stock or Depositary Shares, to which the Participant is entitled as a
result of the Option exercise.

                  (iii) The aggregate Option Price shall be paid by any of the
following methods or any combination of the following methods:

                           (A) in cash, including the wire transfer of funds in
U.S. dollars to one of the Company's bank accounts located in the United States,
with such bank account to be designated from time to time by the Company;

                           (B) by personal, certified or cashier's check payable
in U.S. dollars to the order of the Company;

                           (C) by delivery to the Company or the Administrative
Agent of certificates representing a number of shares of Stock then owned by the
Participant, the aggregate Fair Market Value (as of the Exercise Date) of which
is not greater than the aggregate Option Price of the Option being exercised,
properly endorsed for transfer to the Company; provided that the shares of Stock
used for this purpose must have been owned by the Participant for a period of at
least six months;


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                           (D) by certification or attestation to the Company or
the Administrative Agent of the Participant's ownership as of the Exercise Date
of the number of (1) shares of Stock and/or (2) Depositary Shares, the aggregate
Fair Market Value (as of the Exercise Date) of which is not greater than the
aggregate Option Price of the Option being exercised; provided that the shares
of Stock and/or Depositary Shares used for this purpose must have been owned by
the Participant for a period of at least six months; or

                           (E) by delivery to the Company or the Administrative
Agent of a properly executed notice of exercise together with irrevocable
instructions to a broker to promptly deliver to the Company, by wire transfer or
check as noted in (A) and (B) above, the amount of the proceeds of the sale of
all or a portion of the Stock or of a loan from the broker to the Participant
necessary to pay the aggregate Option Price.

                  (iv) For purposes of the Plan, the income resulting from an
Option exercise shall be based on the Fair Market Value of the Stock for the
Exercise Date; however, if payment of the aggregate Option Price is made
pursuant to a sale of shares of Stock as contemplated by subsection
7.2(h)(iii)(E) hereof, the Fair Market Value shall be deemed to be the per share
sale price and the Exercise Date shall be deemed to be the date of such sale.

7.4 Tax Withholding. Each Option Agreement shall provide that, upon exercise of
the Option, the Participant shall make appropriate arrangements with the Company
to provide for the amount of additional tax withholding required by Sections
3102 and 3402 or any successor section(s) of the Internal Revenue Code and
applicable state and local income tax laws, including payment of such taxes in
cash, by check or as provided in Section 13.2 hereof.

7.5 Subsequent Option Agreements. Following the initial grant of Options in
1996, additional Participants may be designated by the Committee for grant of
Options substantially in accordance with the above terms and conditions, subject
to such changes and modifications to reflect the circumstances of any subsequent
grant as the Committee, in its discretion, deems appropriate.

7.6 Stockholder Privileges. No Participant shall have any rights as a
stockholder with respect to any shares of Stock covered by an Option until the
Participant becomes the holder of record of such Stock. No adjustments shall be
made for dividends or other distributions or other rights as to which there is a
record date preceding the date on which such Participant becomes the holder of
record of such Stock.


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                                    SECTION 8

                                CHANGE OF CONTROL

8.1 In General. In the event of the occurrence of a change of control of the
Company, as defined in Section 8.3 hereof, all outstanding Options shall become
automatically vested, without further action by the Committee or the Board, so
as to make all such Options fully vested and exercisable as of the date of such
change of control.

8.2 Limitation on Payments. If the provisions of this Section 8 would result in
the receipt by any Participant of a payment within the meaning of Section 280G
or any successor section(s) of the Internal Revenue Code, and the regulations
promulgated thereunder, and if the receipt of such payment by any Participant
would, in the opinion of independent tax counsel of recognized standing selected
by the Company, result in the payment by such Participant of any excise tax
provided for in Sections 280G and 4999 or any successor section(s) of the
Internal Revenue Code, then the amount of such payment shall be reduced to the
extent required, in the opinion of independent tax counsel, to prevent the
imposition of such excise tax; provided, however, that the Committee, in its
sole discretion, may authorize the payment of all or any portion of the amount
of such reduction to the Participant.

8.3 Definition. For purposes of the Plan, a "change of control" shall mean any
of the events specified in the Company's Income Continuance Plan or any
successor plan which constitute a change of control within the meaning of such
plan.

                                    SECTION 9

                        RIGHTS OF EMPLOYEES, PARTICIPANTS

9.1 Employment. Nothing contained in the Plan or in any Option granted under the
Plan shall confer upon any Participant any right with respect to the
continuation of his or her employment by the Company or any Affiliated
Corporation, or interfere in any way with the right of the Company or any
Affiliated Corporation, subject to the terms of any separate employment
agreement to the contrary, at any time to terminate such employment or to
increase or decrease the level of the Participant's compensation from the level
in existence at the time of the grant of an Option. Whether an authorized leave
of absence, or absence


                                       14
<PAGE>   16
in military or government service, shall constitute a termination of employment
shall be determined by the Committee at the time.

9.2 Nontransferability. No right or interest of any Participant in an Option
granted pursuant to the Plan shall be assignable or transferable during the
lifetime of the Participant, either voluntarily or involuntarily, or subjected
to any lien, directly or indirectly, by operation of law, or otherwise,
including execution, levy, garnishment, attachment, pledge or bankruptcy. In the
event of a Participant's death, a Participant's rights and interests in Options
shall, to the extent provided in Section 7 hereof, be transferable by
testamentary will or the laws of descent and distribution, and payment of any
amounts due under the Plan shall be made to, and exercise of any Options may be
made by, the Participant's legal representatives, heirs or legatees. If in the
opinion of the Committee, a person entitled to payments or to exercise rights
with respect to the Plan is disabled from caring for his or her affairs because
of mental condition, physical condition or age, payment due such person may be
made to, and such rights shall be exercised by, such person's guardian,
conservator or other legal personal representative upon furnishing the Committee
with evidence of such status satisfactory to the Committee.

                                   SECTION 10

                              GENERAL RESTRICTIONS

10.1 Investment Representations. The Company may require a Participant, as a
condition of exercising an Option, to give written assurances in substance and
form satisfactory to the Company and its counsel to the effect that such person
is acquiring the Stock subject to the Option for his own account for investment
and not with any present intention of selling or otherwise distributing the
same, and to such other effects as the Company deems necessary or appropriate in
order to comply with federal and applicable state securities laws.

10.2 Compliance with Securities Laws. Each Option shall be subject to the
requirement that, if at any time counsel to the Company shall determine that the
listing, registration or qualification of the shares of Stock subject to such
Option upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, is necessary as a
condition of, or in connection with, the issuance or purchase of shares of Stock
thereunder, such Option may not be accepted or exercised in whole or in part
unless such listing, registration, qualification, consent or approval shall have
been effected or obtained on conditions acceptable to the Committee. Nothing
herein shall be


                                       15
<PAGE>   17
deemed to require the Company to apply for or to obtain such listing,
registration, qualification, consent or approval.

                                   SECTION 11

                             OTHER EMPLOYEE BENEFITS

The amount of any income deemed to be received by a Participant as a result of
an Option exercise shall not constitute "earnings" or "compensation" with
respect to which any other employee benefits of such Participant are determined
including, without limitation, benefits under any pension, profit sharing, life
insurance or salary continuation plan.

                                   SECTION 12

                  PLAN AMENDMENT, MODIFICATION AND TERMINATION

The Board may at any time terminate, and from time to time may amend or modify
the Plan provided, however, that no amendment or modification may become
effective without approval of the amendment or modification by the Company's
stockholders if stockholder approval is required to enable the Plan to satisfy
any applicable statutory or regulatory requirements, unless the Company, on the
advice of counsel, determines that stockholder approval is otherwise necessary.

No amendment, modification or termination of the Plan shall in any manner
adversely affect any Option theretofore granted under the Plan, without the
consent of the Participant holding such Option.

The Committee shall have the authority to adopt such modifications, procedures
and subplans as may be necessary or desirable to comply with the provisions of
the laws (including, but not limited to, tax laws and regulations) of countries
other than the United States in which the Company may operate, so as to assure
the viability of the benefits of the Plan to Participants employed in such
countries.


                                       16
<PAGE>   18

                                   SECTION 13

                                   WITHHOLDING

13.1 Withholding Requirement. The Company's obligations to deliver shares of
Stock upon the exercise of an Option shall be subject to the Participant's
satisfaction of all applicable federal, state and local income and other tax
withholding requirements.

13.2 Satisfaction of Required Withholding. At the time the Committee grants an
Option, it may, in its sole discretion, grant the Participant an election to pay
all such amounts of required tax withholding, or any part thereof:

         (a) by the delivery to the Company or the Administrative Agent of a
number of shares of Stock then owned by the Participant, the aggregate Fair
Market Value (as of the Exercise Date) of which is not greater than the amount
required to be withheld, provided that such shares have been held by the
Participant for a period of at least six months;

         (b) by certification or attestation to the Company or the
Administrative Agent of the Participant's ownership as of the Exercise Date of a
number of shares of Stock and/or Depositary Shares, the aggregate Fair Market
Value (as of the Exercise Date) of which is not greater than the amount required
to be withheld, provided that such shares of Stock and/or Depositary Shares have
been owned by the Participant for a period of at least six months; or

         (c) by the Company or the Administrative Agent withholding from the
shares of Stock otherwise issuable to the Participant upon exercise of the
Option, a number of shares of Stock, the aggregate Fair Market Value (as of the
Exercise Date) of which is not greater than the amount required to be withheld.
Any such elections by Participants to have shares of Stock withheld for this
purpose will be subject to the following restrictions:

         (i) all elections shall be made on or prior to the Exercise Date; and

         (ii) all elections shall be irrevocable.

13.3 Excess Withholding. At the time the Committee grants an Option, it may, in
its sole discretion, grant the Participant an election to pay additional or
excess amounts of tax withholding, beyond the required amounts and up to the
Participant's marginal tax rate:


                                       17
<PAGE>   19

         (a) by delivery to the Company or the Administrative Agent of a number
of Shares of Stock then owned by the Participant, the aggregate Fair Market
Value (as of the Exercise Date) of which is not greater than such excess
withholding amount, provided that such shares of Stock have been owned by the
Participant for a period of at least six months; or

         (b) by certification or attestation to the Company or the
Administrative Agent of the Participant's ownership as of the Exercise Date of a
number of shares of Stock and/or Depositary Shares, the aggregate Fair Market
Value (as of the Exercise Date) of which is not greater than such excess
withholding amount, provided that such shares of Stock and/or Depositary Shares
have been owned by the Participant for a period of at least six months.

13.4 Section 16 Requirements. If the Participant is an officer or director of
the Company within the meaning of Section 16 or any successor section(s) of the
1934 Act ("Section 16"), the Participant must satisfy the requirements of such
Section 16 and any applicable rules and regulations thereunder with respect to
the use of shares of Stock and/or Depositary Shares to satisfy such tax
withholding obligation.

                                   SECTION 14

                               REQUIREMENTS OF LAW

14.1 Requirements of Law. The issuance of Stock and the payment of cash pursuant
to the Plan shall be subject to all applicable laws, rules and regulations.

14.2 Federal Securities Laws Requirements. If, subsequent to the date of grant,
a Participant becomes an officer or director of the Company within the meaning
of Section 16, Options granted hereunder shall be subject to all conditions
required under Rule 16b-3, or any successor rule(s) promulgated under the 1934
Act, to qualify the Option for any exemptions from the provisions of Section 16
available under such Rule. Such conditions are hereby incorporated herein by
reference and shall be set forth in the Stock Option Agreement with the
Participant which describes the Option.

14.3 Governing Law. The Plan and all Stock Option Agreements hereunder shall be
construed in accordance with and governed by the laws of the State of Texas.


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<PAGE>   20


                                   SECTION 15

                              DURATION OF THE PLAN

The Plan shall terminate at such time as may be determined by the Board, and no
Option shall be granted after such termination. If not sooner terminated under
the preceding sentence, the Plan shall fully cease and expire at midnight on
December 31, 1998. Any Options outstanding at the time of the Plan termination
shall continue to be exercisable in accordance with the Stock Option Agreement
pertaining to each such Option.



Dated:   May 3, 2001


                                        APACHE CORPORATION

ATTEST:

/s/ Cheri L. Peper                      By: /s/ Jeffrey M. Bender
-------------------------------             ---------------------------------
Cheri L. Peper                              Jeffrey M. Bender
Corporate Secretary                         Vice President, Human Resources


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