KANEB SERVICES INC
1994 STOCK INCENTIVE PLAN
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>6
<FILENAME>sip94.txt
<DESCRIPTION>1994 STOCK INCENTIVE PLAN
<TEXT>
                                                                    EXHIBIT 10.5



                              KANEB SERVICES, INC.

                            1994 STOCK INCENTIVE PLAN


                       Amendment and Restatement Effective
                                  June 1, 2001



<PAGE>
                              KANEB SERVICES, INC.
                            1994 STOCK INCENTIVE PLAN

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                                            Section
<S>               <C>                                                                                       <C>
ARTICLE I - PLAN

                  Purpose.......................................................................................1.1
                  Term of Plan..................................................................................1.2

ARTICLE II - DEFINITIONS

                  Affiliate.....................................................................................2.1
                  Award.........................................................................................2.2
                  Board.........................................................................................2.3
                  Change of Control.............................................................................2.4
                  Code..........................................................................................2.5
                  Committee.....................................................................................2.6
                  Company.......................................................................................2.7
                  Disability....................................................................................2.8
                  Distribution Date.............................................................................2.9
                  Employee Benefits Agreement..................................................................2.10
                  Employee.....................................................................................2.11
                  Exchange Act.................................................................................2.12
                  Fair Market Value............................................................................2.13
                  Holder.......................................................................................2.14
                  Incentive Option.............................................................................2.15
                  Mature Shares................................................................................2.16
                  Nonqualified Option..........................................................................2.17
                  Option.......................................................................................2.18
                  Option Agreement.............................................................................2.19
                  Plan.........................................................................................2.20
                  Restricted Stock.............................................................................2.21
                  Restricted Stock Agreement...................................................................2.22
                  Restricted Stock Award.......................................................................2.23
                  Retirement...................................................................................2.24
                  Stock........................................................................................2.25
                  Ten Percent Stockholder......................................................................2.26

ARTICLE III - ELIGIBILITY

ARTICLE IV - GENERAL PROVISIONS RELATING TO AWARDS

                  Authority to Grant Awards.....................................................................4.1
                  Dedicated Shares; Maximum Awards..............................................................4.2
                  Non-Transferability...........................................................................4.3
                  Requirements of Law...........................................................................4.4
                  Changes in the Company's Capital Structure....................................................4.5
                  Election Under Section 83(b) of the Code......................................................4.6

ARTICLE V - OPTIONS

                  Type of Option................................................................................5.1
                  Exercise Price................................................................................5.2
                  Duration of Options...........................................................................5.3
                  Amount Exercisable............................................................................5.4
                  Exercise of Options...........................................................................5.5
                  Substitution Options..........................................................................5.6
                  No Rights as Stockholder......................................................................5.7

ARTICLE VI - RESTRICTED STOCK AWARDS

                  Restricted Stock Awards.......................................................................6.1
                  Holder's Rights as Stockholder................................................................6.2

ARTICLE VII - ADMINISTRATION

ARTICLE VIII - AMENDMENT OR TERMINATION OF PLAN

ARTICLE IX - MISCELLANEOUS

                  No Establishment of a Trust Fund..............................................................9.1
                  No Employment or Affiliation Obligation.......................................................9.2
                  Forfeiture ...................................................................................9.3
                  Tax Withholding...............................................................................9.4
                  Written Agreement.............................................................................9.5
                  Indemnification of the Committee..............................................................9.6
                  Gender........................................................................................9.7
                  Headings......................................................................................9.8
                  Other Compensation Plans......................................................................9.9
                  Other Options or Awards......................................................................9.10
                  Option Adjustments Pursuant to the Employee Benefits Agreement...............................9.11
                  Governing Law................................................................................9.12

</TABLE>

<PAGE>

PLAN

     Purpose.  The Plan is intended to advance the best interests of the Company
and  its   stockholders  by  providing   those  persons  who  have   substantial
responsibility  for the  management and growth of the Company and its Affiliates
with  additional  incentives  and an  opportunity  to obtain or  increase  their
proprietary  interest in the Company,  thereby  encouraging  them to continue in
their employment or affiliation with the Company or any of its Affiliates.

     Term of Plan.  No Award  shall be granted  under the Plan  after  March 23,
2004.  The Plan shall remain in effect until all Awards under the Plan have been
satisfied or expired.


DEFINITIONS

     The words and phrases  defined in this  Article  shall have the meaning set
out in these  definitions  throughout the Plan,  unless the context in which any
such word or phrase appears reasonably requires a broader, narrower or different
meaning.

     "Affiliate"  means any parent  corporation and any subsidiary  corporation.
The term "parent  corporation" means any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company if, at the time of the
action or  transaction,  each of the  corporations  other than the Company  owns
stock  possessing 50 percent or more of the total  combined  voting power of all
classes  of  stock  in one of the  other  corporations  in the  chain.  The term
"subsidiary  corporation"  means any corporation  (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of the
action or transaction,  each of the corporations other than the last corporation
in the  unbroken  chain  owns stock  possessing  50 percent or more of the total
combined  voting power of all classes of stock in one of the other  corporations
in the chain.

     "Award" means any Incentive Option, Nonqualified Option or Restricted Stock
Award granted under the Plan.

     "Board" means the board of directors of the Company.

     "Change of Control" means the occurrence of any of the following after June
1, 2001:

          the acquisition by any individual, entity or group (within the meaning
     of Section  13(d)(3) or 14(d)(2) of the Exchange Act) (a "Covered  Person")
     of beneficial ownership (within the meaning of rule 13d-3 promulgated under
     the Exchange Act) of 20 percent or more of either (i) the then  outstanding
     shares  of Stock  (the  "Outstanding  Company  Common  Stock")  or (ii) the
     combined  voting power of the then  outstanding  voting  securities  of the
     Company  entitled  to vote  generally  in the  election of  directors  (the
     "Outstanding  Company  Voting  Securities");  provided,  however,  that for
     purposes of this  Section  2.4(a),  the  following  acquisitions  shall not
     constitute a Change in Control of the Company:  (i) any  acquisition by the
     Company,  (ii) any  acquisition  by any  employee  benefit plan (or related
     trust)  sponsored or maintained by the Company or any entity  controlled by
     the  Company or (iii) any  acquisition  by any  corporation  pursuant  to a
     transaction  which  complies  with clauses  (i),  (ii) and (iii) of Section
     2.4(c);

          individuals who, as of June 1, 2001, constitute the Board of Directors
     (the  "Incumbent  Board")  cease for any  reason to  constitute  at least a
     majority of the Board of Directors;  provided, however, that any individual
     becoming  a  director  subsequent  to  June1,  2001,  whose  election,   or
     nomination for election, by the Company's  stockholders,  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 actual or threatened
     election contest with respect to the election or removal of directors; or

          the consummation of (i) a  reorganization,  merger or consolidation or
     sale of the Company or (ii) a disposition  of all or  substantially  all of
     the assets of the Company (a "Business Combination"), in each case, unless,
     following such Business  Combination,  (A) all or substantially  all of the
     individuals and entities who were the beneficial owners,  respectively,  of
     the  Outstanding  Company  Common  Stock  and  Outstanding  Company  Voting
     Securities immediately prior to such Business Combination beneficially own,
     directly or  indirectly,  more than 80 percent of,  respectively,  the then
     outstanding  shares of common  stock and the  combined  voting power of the
     then  outstanding  voting  securities  entitled  to vote  generally  in the
     election of  directors,  as the case may be, of the  corporation  resulting
     from  such  Business   Combination   (including,   without  limitation,   a
     corporation  which as a result of such  transaction owns the Company or all
     or substantially all of the Company's assets either directly or through one
     or more  subsidiaries)  in  substantially  the  same  proportions  as their
     ownership immediately prior to such Business Combination of the Outstanding
     Company Common Stock or Outstanding Company Voting Securities,  as the case
     may be, (B) no Covered  Person  (excluding  any  employee  benefit plan (or
     related  trust) of the  Company  or such  corporation  resulting  from such
     Business Combination) beneficially owns, directly or indirectly, 80 percent
     or more of,  respectively,  the then outstanding  shares of common stock of
     the  corporation  resulting from such Business  Combination or the combined
     voting power of the then outstanding voting securities of such corporation,
     except to the extent  that such  ownership  existed  prior to the  Business
     Combination,  and (C) at least a  majority  of the  members of the board of
     directors of the corporation  resulting from such Business Combination were
     members of the Incumbent  Board at the time of the execution of the initial
     agreement,  or of the  action of the  Board,  providing  for such  Business
     Combination;  provided,  however,  that any individual  becoming a director
     subsequent to June 1, 2001 whose  election,  or nomination  for election by
     the Company's  stockholders,  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 actual or threatened election contest with respect
     to the election or removal of directors.

     "Code" means the Internal Revenue Code of 1986, as amended.

     "Committee"  means a  committee  of at least two persons  appointed  by the
Board.

     "Company" means Kaneb Services, Inc., a Delaware corporation.

     "Disability" means a medically  determinable  mental or physical impairment
which,  in the opinion of a physician  selected by the Committee,  shall prevent
the Holder from engaging in any  substantial  gainful  activity and which can be
expected to result in death or which has lasted or can be expected to last for a
continuous  period of not less than 12 months and which: (a) was not contracted,
suffered  or  incurred  while the Holder was  engaged in, or did not result from
having  engaged in, a  felonious  criminal  enterprise;  (b) did not result from
alcoholism or addiction to narcotics; (c) did not result from an injury incurred
while a member of the Armed  Forces of the  United  States  for which the Holder
receives  a  military  pension;  and (d) did not  result  from an  intentionally
self-inflicted injury.

     "Distribution  Date" shall have the meaning  specified in the  Distribution
Agreement by and between the Company,  Kaneb  Services,  LLC and Kaneb  Pipeline
Partners, L.P.

     "Employee Benefits  Agreement" means the Employee Benefits Agreement by and
between  the  Company  and Kaneb  Services  LLC,  a Delaware  limited  liability
company.

     "Employee"  means a person  employed by the Company or any  Affiliate  as a
common law employee.

     "Exchange Act" means the Securities Exchange Act of 1934, as amended.

     "Fair  Market  Value" of the Stock as of any date means (a) the  average of
the  high  and low  sale  prices  of the  Stock  on that  date on the  principal
securities  exchange  on which the Stock is  listed;  or (b) if the Stock is not
listed on a  securities  exchange,  an amount at the  election of the  Committee
equal to (x) the  average  between  the  closing bid and ask prices per share of
stock on the last  preceding  date on which those prices were  reported,  or (y)
that amount as determined by the Committee.

     "Holder"  means a person who has been granted an Award or any person who is
entitled to receive stock under an Award.

     "Incentive  Option"  means  an  Option  granted  under  the  Plan  which is
designated as an "Incentive  Option" and satisfies the  requirements  of section
422 of the Code.

     "Mature Shares" means shares of Stock that the Holder has held for at least
six months.

     "Nonqualified  Option" means an Option granted under the Plan other than an
Incentive Option.

     "Option" means either an Incentive Option or a Nonqualified  Option granted
under the Plan to purchase shares of Stock.

     "Option  Agreement" means the written agreement which sets out the terms of
an Option.

     "Plan" means the Kaneb  Services,  Inc. 1994 Stock  Incentive  Plan, as set
forth in this document and as it may be amended from time to time.

     "Restricted Stock" means stock awarded or purchased under the Plan pursuant
to a Restricted Stock Agreement.

     "Restricted Stock Agreement" means the written agreement which sets out the
terms of a Restricted Stock Award.

     "Restricted Stock Award" means an Award of Restricted Stock.

     "Retirement" means the termination of an Employee's employment relationship
with the Company and all Affiliates after attaining the age of 55.

     "Stock"  means the common  stock of the Company,  no par value,  or, in the
event that the  outstanding  shares of common  stock are later  changed  into or
exchanged for a different class of stock or securities of the Company or another
corporation, that other stock or security.

     "Ten Percent  Stockholder"  means an individual who, at the time the Option
is granted,  owns stock  possessing  more than ten percent of the total combined
voting  power of all  classes  of  stock  or  series  of the  Company  or of any
Affiliate. An individual shall be considered as owning the stock owned, directly
or indirectly,  by or for his brothers and sisters (whether by the whole or half
blood), spouse,  ancestors and lineal descendants;  and stock owned, directly or
indirectly,  by or for a  corporation,  partnership,  estate or trust,  shall be
considered as being owned  proportionately by or for its stockholders,  partners
or beneficiaries.


ELIGIBILITY

     The individuals who shall be eligible to receive Incentive Options shall be
those key  Employees of the Company or any of its  Affiliates  as the  Committee
shall  determine  from time to time.  The  individuals  who shall be eligible to
receive  Awards other than Incentive  Options shall be those persons,  including
Employees,   consultants,   advisors  and   directors,   who  have   substantial
responsibility  for the  management  and  growth  of the  Company  or any of its
Affiliates as the Committee shall determine from time to time.


GENERAL PROVISIONS RELATING TO AWARDS

     Authority  to Grant  Awards.  The  Committee  may grant Awards to those key
Employees of the Company or any of its Affiliates and other eligible  persons as
it shall  from time to time  determine,  under the terms and  conditions  of the
Plan. Subject only to any applicable limitations set out in the Plan, the number
of shares of Stock to be covered by any Award to be granted to any person  shall
be as determined by the Committee.

     Dedicated  Shares;  Maximum  Awards.  The maximum number of shares of Stock
with respect to which Awards may be granted  under the Plan is  3,000,000.  Such
shares of Stock may be treasury  shares or authorized but unissued  shares.  The
maximum  number of shares of Stock with respect to which  Options may be granted
under the Plan is 3,000,000  shares.  The maximum number of shares of Stock with
respect  to which  Restricted  Stock  Awards  may be  granted  under the Plan is
1,000,000  shares.  The maximum  number of shares with respect to which  Options
which may be granted to any person  under the Plan during any  calendar  year is
1,000,000  shares.  If a Holder's  Option is  cancelled,  the  cancelled  Option
continues to be counted  against the maximum number of shares of Stock for which
Options may be granted to the Holder under the Plan. The number of shares stated
in this  Section  4.2 shall be  subject to  adjustment  in  accordance  with the
provisions of Section 4.5. If any  outstanding  Award expires or terminates  for
any reason or any Award is  surrendered,  the shares of Stock  allocable  to the
unexercised  portion of that  Award may again be  subject to an Award  under the
Plan.

     Non-Transferability.  Incentive  Options shall not be  transferable  by the
Employee other than by will or under the laws of descent and  distribution,  and
shall be  exercisable,  during the Employee's  lifetime,  only by him. Except as
specified in the  applicable  Award  agreements or in domestic  relations  court
orders,  Awards other than Incentive  Options shall not be  transferable  by the
Holder  other than by will or under the laws of descent  and  distribution,  and
shall  be  exercisable,  during  the  Holder's  lifetime,  only by  him.  In the
discretion of the  Committee,  any attempt to transfer an Award other than under
the terms of the Plan and the  applicable  Award  agreement  may  terminate  the
Award.

     Requirements of Law. The Company shall not be required to sell or issue any
Stock  under any Award if issuing  that Stock  would  constitute  or result in a
violation by the Holder or the Company of any  provision of any law,  statute or
regulation of any governmental authority.  Specifically,  in connection with any
applicable  statute or regulation  relating to the  registration  of securities,
upon  exercise of any Option or pursuant to any other Award,  the Company  shall
not be required to issue any Stock unless the  Committee  has received  evidence
satisfactory to it to the effect that the Holder of that Award will not transfer
the Stock except in accordance  with  applicable  law,  including  receipt of an
opinion of counsel  satisfactory  to the Company to the effect that any proposed
transfer  complies with  applicable law. The  determination  by the Committee on
this matter shall be final,  binding and conclusive.  The Company may, but shall
in no event be obligated to,  register any Stock covered by the Plan pursuant to
applicable securities laws of any country or any political  subdivision.  In the
event the Stock issuable on exercise of an Option or pursuant to any other Award
is not  registered,  the Company may imprint on the  certificate  evidencing the
Stock any legend that counsel for the Company  considers  necessary or advisable
to comply with  applicable  law. The Company  shall not be obligated to take any
other affirmative  action in order to cause the exercise of an Option or vesting
under an Award, or the issuance of shares pursuant  thereto,  to comply with any
law or regulation of any governmental authority.

     Changes  in  the  Company's  Capital   Structure.   (a)  The  existence  of
outstanding Awards shall not affect in any way the right or power of the Company
or  its   stockholders   to  make   or   authorize   any  or  all   adjustments,
recapitalizations,  reorganizations  or other changes in the  Company's  capital
structure or its business, any merger or consolidation of the Company, any issue
of bonds, debentures,  preferred or prior preference stock ahead of or affecting
the Stock or its rights, the dissolution or liquidation of the Company, any sale
or transfer of all or any part of its assets or business or any other  corporate
act or proceeding, whether of a similar character or otherwise.

          (b) If the Company  shall effect a  subdivision  or  consolidation  of
     shares or other capital  readjustment,  the payment of a stock dividend, or
     other  increase or reduction of the number of shares of Stock  outstanding,
     without receiving compensation for it in money, services or property,  then
     (i) the  number,  class or series  and per  share  price of shares of Stock
     subject to  outstanding  Options  under  this Plan  shall be  appropriately
     adjusted in such a manner as to entitle a Holder to receive  upon  exercise
     of an Option,  for the same  aggregate cash  consideration,  the equivalent
     total  number and class or series of shares he would have  received  had he
     exercised his Option in full  immediately  prior to the event requiring the
     adjustment, and (ii) the number and class or series of shares of Stock then
     reserved to be issued under the Plan shall be adjusted by substituting  for
     the total number and class or series of shares of Stock then reserved, that
     number and class or series of shares of Stock that would have been received
     by the owner of an equal  number  of  outstanding  shares of each  class or
     series of Stock as the result of the event requiring the adjustment.

          (c) If while unexercised Options remain outstanding under the Plan (i)
     the Company shall not be the surviving entity in any merger,  consolidation
     or other  reorganization  (or survives  only as a  subsidiary  of an entity
     other than an entity that was wholly-owned by the Company immediately prior
     to such merger,  consolidation or other  reorganization),  (ii) the Company
     sells,  leases or  exchanges  or agrees to sell,  lease or exchange  all or
     substantially  all of its assets to any other person or entity  (other than
     an  entity  wholly-owned  by  the  Company),  (iii)  the  Company  is to be
     dissolved or (iv) the Company is a party to any other corporate transaction
     (as defined under section 424(a) of the Code and  applicable  Department of
     Treasury  Regulations)  that is not described in clauses (i), (ii) or (iii)
     of this  sentence  (each such event is referred  to herein as a  "Corporate
     Change"), then, except as otherwise provided in an Option Agreement or as a
     result  of the  Board's  effectuation  of one or more  of the  alternatives
     described  below,  there shall be no  acceleration of the time at which any
     Option then outstanding may be exercised,  and no later than ten days after
     the approval by the  stockholders of the Company of such Corporate  Change,
     the Board,  acting in its sole and absolute  discretion without the consent
     or approval of any Holder, shall act to effect one or more of the following
     alternatives,  which may vary among  individual  Holders and which may vary
     among Options held by any individual Holder:

               1.  accelerate  the time at which some or all of the Options then
          outstanding  may be exercised so that such Options may be exercised in
          full  for a  limited  period  of time on or  before a  specified  date
          (before  or after such  Corporate  Change)  fixed by the Board,  after
          which specified date all such Options that remain  unexercised and all
          rights of Holders thereunder shall terminate;

               2.  require  the  mandatory  surrender  to the  Company by all or
          selected Holders of some or all of the then  outstanding  Options held
          by such  Holders  (irrespective  of  whether  such  Options  are  then
          exercisable under the provisions of this Plan or the Option Agreements
          evidencing such Options) as of a date,  before or after such Corporate
          Change,  specified  by the  Board,  in which  event  the  Board  shall
          thereupon  cancel such Options and the Company  shall pay to each such
          Holder an amount of cash per share equal to the excess, if any, of the
          per share price offered to  stockholders  of the Company in connection
          with such Corporate Change over the exercise prices under such Options
          for such shares;

               3. with respect to all or selected  Holders,  have some or all of
          their then outstanding Options (whether vested or unvested) assumed or
          have  a  new  Option  substituted  for  some  or  all  of  their  then
          outstanding Options (whether vested or unvested) by an entity which is
          a party to the  transaction  resulting  in such  Corporate  Change and
          which is then employing him, or a parent or subsidiary of such entity,
          provided that (1) such  assumption or substitution is on a basis where
          the excess of the aggregate fair market value of the shares subject to
          the Option  immediately  after the assumption or substitution over the
          aggregate  exercise price of such shares is equal to the excess of the
          aggregate  fair  market  value of all  shares  subject  to the  Option
          immediately  before such assumption or substitution over the aggregate
          exercise  price of such shares,  and (2) the assumed rights under such
          existing Option or the substituted rights under such new Option as the
          case may be will have the same  terms  and  conditions  as the  rights
          under the existing Option assumed or substituted  for, as the case may
          be;

               4. provide that the number and class or series of shares of Stock
          covered by an Option (whether vested or unvested)  theretofore granted
          shall be adjusted so that such Option when exercised shall  thereafter
          cover  the  number  and  class or  series  of shares of stock or other
          securities or property (including,  without limitation, cash) to which
          the  Holder  would  have been  entitled  pursuant  to the terms of the
          agreement or plan relating to such  Corporate  Change if,  immediately
          prior to such  Corporate  Change,  the  Holder  had been the holder of
          record of the number of shares of Stock then  covered by such  Option;
          or

               5. make such adjustments to Options then outstanding as the Board
          deems appropriate to reflect such Corporate Change (provided, however,
          that the Board may determine in its sole and absolute  discretion that
          no such adjustment is necessary).

               In effecting one or more of  alternatives  (C), (D) or (E) above,
          and except as otherwise  may be provided in an Option  Agreement,  the
          Board, in its sole and absolute  discretion and without the consent or
          approval of any Holder,  may  accelerate the time at which some or all
          Options then outstanding may be exercised.

          (d) In the  event of  changes  in the  outstanding  Stock by reason of
     recapitalizations,  reorganizations, mergers, consolidations, combinations,
     exchanges or other relevant changes in  capitalization  occurring after the
     date of the grant of any  Option  and not  otherwise  provided  for by this
     Section 4.5, any  outstanding  Options and any agreements  evidencing  such
     Options  shall  be  subject  to  adjustment  by the  Board  in its sole and
     absolute  discretion as to the number and price of shares of stock or other
     consideration  subject to such Options.  In the event of any such change in
     the outstanding  Stock, the aggregate number of shares available under this
     Plan may be appropriately  adjusted by the Board, whose determination shall
     be conclusive.

          (e) After a merger of one or more  corporations  into the  Company  or
     after a consolidation of the Company and one or more  corporations in which
     the  Company  shall be the  surviving  corporation,  each  Holder  shall be
     entitled to have his Restricted Stock  appropriately  adjusted based on the
     manner the Stock was adjusted under the terms of the agreement of merger or
     consolidation.

          (f) The  issue by the  Company  of  shares  of  stock of any  class or
     series,  or  securities  convertible  into  shares of stock of any class or
     series,  for cash or property,  or for labor or services either upon direct
     sale or upon the exercise of rights or warrants to subscribe  for them,  or
     upon  conversion of shares or obligations of the Company  convertible  into
     shares or other securities,  shall not affect,  and no adjustment by reason
     of such  issuance  shall be made with  respect  to,  the  number,  class or
     series, or price of shares of Stock then subject to outstanding  Options or
     Restricted Stock Awards.

     Election  Under  Section  83(b) of the Code.  No Holder shall  exercise the
election  permitted  under  section  83(b) of the Code with respect to any Award
without the written approval of the Chief Financial Officer of the Company.  Any
Holder who makes an election under section 83(b) of the Code with respect to any
Award without the written approval of the Chief Financial Officer of the Company
may, in the  discretion of the  Committee,  forfeit any or all Awards granted to
him under the Plan.


OPTIONS

     Type of Option.  The Committee shall specify in an Option Agreement whether
a given  Option  is an  Incentive  Option  or a  Nonqualified  Option.  However,
notwithstanding  such designation,  to the extent that the aggregate Fair Market
Value  (determined  as of the time an Incentive  Option is granted) of the Stock
with respect to which  incentive  stock options first become  exercisable  by an
Employee  during any calendar year (under the Plan and any other incentive stock
option plan(s) of the Company or any Affiliate) exceeds $100,000,  the Incentive
Option shall be treated as a Nonqualified  Option. In making this determination,
incentive  stock  options shall be taken into account in the order in which they
were granted.

     Exercise  Price.  The price at which Stock may be purchased under an Option
shall not be less than 100  percent  of the Fair  Market  Value of the shares of
Stock  on the  date  the  Option  is  granted.  In the  case of any Ten  Percent
Stockholder,  the  price at which  shares  of Stock  may be  purchased  under an
Incentive  Option shall not be less than 110 percent of the Fair Market Value of
the Stock on the date the Incentive Option is granted.

     Duration of Options.  An Option shall not be exercisable  after the earlier
of (i) the term of the Option specified in the Option Agreement (which shall not
exceed  five  years  from the  date  the  Option  is  granted  in the case of an
Incentive  Option  granted to a Ten Percent  Stockholder,  or ten years from the
date the Option is granted in the case of any other Option),  or (ii) the period
of time specified herein that follows the Holder's Retirement, Disability, death
or other  severance of the  employment or affiliation  relationship  between the
Holder and the Company and all Affiliates.  Except as specified in Section 9.11,
unless the Holder's Option Agreement  specifies  otherwise,  an Option shall not
continue  to  vest  after  the  severance  of  the   employment  or  affiliation
relationship between the Company and all Affiliates.

     General  Term of Option.  Unless the Option  Agreement  specifies a shorter
term, an Option shall expire on the tenth  anniversary of the date the Option is
granted.  Notwithstanding the foregoing, unless the Option Agreement specifies a
shorter  term,  in the case of an  Incentive  Option  granted  to a Ten  Percent
Stockholder,  the Option shall expire on the fifth  anniversary  of the date the
Option is granted.

     Early  Termination  of Option Due to Severance of Employment or Affiliation
Relationship (Other Than for Death, Disability or Retirement).  Except as may be
otherwise expressly provided in an Option Agreement, (i) an Option that has been
in effect for at least two years shall  terminate  on the earlier of the date of
the  expiration  of the general  term of the Option or 90 days after the date of
the termination of the employment or affiliation relationship between the Holder
and the  Company  and all  Affiliates  for any  reason  other  than  the  death,
Disability  or  Retirement  of the  Holder,  or (ii) an Option  that has been in
effect for less than two years shall terminate on the earlier of the date of the
expiration  of the  general  term of the Option or 30 days after the date of the
termination of the employment or affiliation relationship between the Holder and
the Company and all Affiliates  for any reason other than the death,  Disability
or Retirement of the Holder, during which period the Holder shall be entitled to
exercise  the Option in respect  of the number of shares  that the Holder  would
have been  entitled to purchase had the Holder  exercised the Option on the date
of such  termination of employment or affiliation.  Whether  authorized leave of
absence,  or absence on military  or  government  service,  shall  constitute  a
termination of the employment or affiliation relationship between the Holder and
the Company and all Affiliates  shall be determined by the Committee at the time
thereof.

     Early  Termination  of Option Due to Death.  Unless  the  Option  Agreement
specifies  otherwise,  in the  event  of the  severance  of  the  employment  or
affiliation  relationship  between the Holder and the Company and all Affiliates
due to death  before the date of  expiration  of the general term of the Option,
the Holder's  Option shall terminate on the earlier of the date of expiration of
the general term of the Option or the 180 days after the Holder's death.

     Early Termination of Option Due to Disability.  Unless the Option Agreement
specifies  otherwise,  in the  event  of the  severance  of  the  employment  or
affiliation  relationship  between the Holder and the Company and all Affiliates
due to Disability  before the date of the  expiration of the general term of the
Option,  the Option  shall  terminate  on the earlier of the  expiration  of the
general term of the Option or 90 days after the termination of the employment or
affiliation  relationship  between the Holder and the Company and all Affiliates
terminates due to Disability.

     Early Termination of Option Due to Retirement.  Unless the Option Agreement
specifies   otherwise,   if  the  Holder  is  an  Employee  and  the  employment
relationship between the Holder and the Company and all Affiliates terminates by
reason of Retirement,  the Holder's Option shall terminate on the earlier of the
expiration  of the general  term of the Option or one day less than three months
after the date of the Holder's termination of employment due to Retirement.

     After the death of the Holder,  the Holder's  executors,  administrators or
any person or persons to whom the Holder's  Option may be transferred by will or
by the laws of descent and distribution, shall have the right, at any time prior
to the  termination  of the Option to  exercise  the  Option,  in respect to the
number of shares  that the Holder  would have been  entitled  to exercise if the
Holder exercised the Option prior to his death.

     Amount Exercisable. Each Option may be exercised at the time, in the manner
and subject to the conditions the Committee specifies in the Option Agreement in
its sole  discretion.  If specified in the Option  Agreement,  an Option will be
exercisable in full upon the occurrence of a Change of Control.

     Exercise of Options.  Each Option  shall be  exercised  by the  delivery of
written notice to the Committee setting forth the number of shares of Stock with
respect  to which  the  Option  is to be  exercised,  together  with:  (a) cash,
certified  check,  bank draft or postal or express  money  order  payable to the
order of the Company for an amount equal to the exercise price under the Option,
(b) Mature Shares with a Fair Market Value on the date of exercise  equal to the
exercise  price  under the Option,  (c) an election to make a cashless  exercise
through a registered  broker-dealer (if approved in advance by the Committee) or
(d) except as specified  below, any other form of payment which is acceptable to
the  Committee,  and specifying  the address to which the  certificates  for the
shares are to be mailed.  As promptly as  practicable  after  receipt of written
notification and payment,  the Company shall deliver to the Holder  certificates
for the number of shares  with  respect to which the Option has been  exercised,
issued in the  Holder's  name.  If Mature  Shares  are used for  payment  by the
Holder,  the aggregate Fair Market Value of the shares of Stock tendered must be
equal to or less than the aggregate exercise price of the shares being purchased
upon exercise of the Option, and any difference must be paid by cash,  certified
check,  bank draft or postal or express  money order payable to the order of the
Company. Delivery of the shares shall be deemed effected for all purposes when a
stock transfer agent of the Company shall have deposited the certificates in the
United  States mail,  addressed to the Holder,  at the address  specified by the
Holder.

     Whenever an Option is exercised by  exchanging  Mature  Shares owned by the
Holder, the Holder shall deliver to the Company  certificates  registered in the
name of the  Holder  representing  a  number  of  shares  of Stock  legally  and
beneficially owned by the Holder,  free of all liens, claims and encumbrances of
every kind,  accompanied  by stock  powers duly  endorsed in blank by the record
holder of the shares represented by the certificates (with signature  guaranteed
by a commercial bank or trust company or by a brokerage firm having a membership
on a registered national stock exchange).  The delivery of certificates upon the
exercise of Options is subject to the condition  that the person  exercising the
Option  provide the Company with the  information  the Company might  reasonably
request pertaining to exercise, sale or other disposition.

     The Committee  may permit a Holder to elect to pay the exercise  price upon
exercise  of an  Option by  authorizing  a  third-party  broker to sell all or a
portion of the shares of Stock acquired upon exercise of the Option and remit to
the Company a sufficient  portion of the sale proceeds to pay the exercise price
and any applicable tax withholding resulting from such exercise.

     The Committee  shall not permit a Holder to pay his exercise price upon the
exercise of an Option by having the Company reduce the number of shares of Stock
that will be delivered to the Holder pursuant to the exercise of the Option.  In
addition, the Committee shall not permit a Holder to pay his exercise price upon
the exercise of an Option by using shares of Stock other than Mature Shares.

     An Option may not be exercised for a fraction of a share of Stock.

     Substitution  Options.  Options may be granted  under the Plan from time to
time in substitution  for stock options held by employees of other  corporations
who are about to become  employees  of or  affiliated  with the  Company  or any
Affiliate  as  the  result  of  a  merger  or  consolidation  of  the  employing
corporation with the Company or any Affiliate, or the acquisition by the Company
or any Affiliate of the assets of the employing corporation,  or the acquisition
by the Company or any  Affiliate of stock of the  employing  corporation  as the
result of which it becomes an Affiliate of the Company. The terms and conditions
of the substitute Options granted may vary from the terms and conditions set out
in the  Plan to the  extent  the  Committee,  at the  time of  grant,  may  deem
appropriate  to conform,  in whole or in part,  to the  provisions  of the stock
options in substitution for which they are granted.

     No Rights as Stockholder.  No Holder shall have any rights as a stockholder
with respect to Stock  covered by his Option until the date a stock  certificate
is issued for the Stock.


RESTRICTED STOCK AWARDS

     Restricted Stock Awards.  The Committee may make Awards of Restricted Stock
to  eligible  persons  selected  by it.  The  amount  of,  the  vesting  and the
transferability  restrictions applicable to, any Restricted Stock Award shall be
determined by the  Committee in its sole  discretion.  If the Committee  imposes
vesting or  transferability  restrictions  on a Holder's  rights with respect to
shares of Restricted  Stock,  the Committee may issue such  instructions  to the
Company's stock transfer agent in connection  therewith as it deems appropriate.
The Committee  may also cause the  certificate  for shares issued  pursuant to a
Restricted  Stock Award to be imprinted  with any legend  which  counsel for the
Company considers advisable with respect to the restrictions.

     Each Restricted  Stock Award shall be evidenced by a Restricted Stock Award
Agreement  that  contains any vesting,  transferability  restrictions  and other
provisions not inconsistent with the Plan as the Committee may specify.

     Holder's Rights as Stockholder.  Subject to the terms and conditions of the
Plan, each Holder  receiving a certificate  for Restricted  Stock shall have all
the rights of a stockholder  with respect to the shares of Stock included in the
Stock Award during any period in which such shares are subject to forfeiture and
restrictions on transfer,  including without limitation,  the right to vote such
shares,  if  unrestricted  shares  of the same  class  have  the  right to vote.
Dividends  paid with respect to shares of  Restricted  Stock in cash or property
other than stock in the Company or rights to acquire  stock in the Company shall
be paid to the  Holder  currently.  Dividends  paid in stock in the  Company  or
rights to acquire  stock in the  Company  shall be added to and become a part of
the Restricted Stock.


ADMINISTRATION

     The  Plan  shall  be  administered  by  the  Committee.  All  questions  of
interpretation  and  application  of the Plan and Awards shall be subject to the
determination of the Committee. A majority of the members of the Committee shall
constitute a quorum.  All  determinations  of the  Committee  shall be made by a
majority of its members.  Any decision or  determination  reduced to writing and
signed by a majority of the members shall be as effective as if it had been made
by a majority  vote at a meeting  properly  called  and held.  The Plan shall be
administered  in such a manner as to permit the Options which are  designated to
be  Incentive  Options to qualify as  Incentive  Options.  In  carrying  out its
authority  under the Plan, the Committee shall have full and final authority and
discretion,  including  but not  limited  to the  following  rights,  powers and
authorities, to:

          determine  the  persons to whom and the time or times at which  Awards
     will be made;

          determine the number of shares and the exercise price of Stock covered
     in each Award, subject to the terms of the Plan;

          determine the terms,  provisions and  conditions of each Award,  which
     need not be identical;

          accelerate the time at which any outstanding  Option may be exercised,
     or Restricted Stock Award will vest;

          define  the  effect,  if any,  on an Award of the  death,  disability,
     retirement or termination of employment or affiliation relationship between
     the Holder and the Company and Affiliates;

          prescribe,  amend  and  rescind  rules  and  regulations  relating  to
     administration of the Plan; and

          make  all  other  determinations  and take all  other  actions  deemed
     necessary,  appropriate or advisable for the proper  administration  of the
     Plan.

     The actions of the Committee in exercising all of the rights,  powers,  and
authorities  set out in this  Article and all other  Articles of the Plan,  when
performed in good faith and in its sole judgment, shall be final, conclusive and
binding on all parties.


AMENDMENT OR TERMINATION OF PLAN

     The Board may amend, terminate or suspend the Plan at any time, in its sole
and  absolute  discretion;  provided,  however,  that to the extent  required to
maintain the status of any Incentive  Option under the Code,  no amendment  that
would change the  aggregate  number of shares of Stock which may be issued under
Incentive  Options,  or  change  the  class of  Employees  eligible  to  receive
Incentive   Options  shall  be  made  without  the  approval  of  the  Company's
stockholders.  Subject to the preceding sentence, the Board shall have the power
to make  any  changes  in the  Plan and in the  regulations  and  administrative
provisions under it or in any outstanding  Incentive Option as in the opinion of
counsel for the Company may be  necessary  or  appropriate  from time to time to
enable any Incentive  Option granted under the Plan to continue to qualify as an
incentive  stock option or such other stock  option as may be defined  under the
Code so as to receive preferential federal income tax treatment.


MISCELLANEOUS

     No  Establishment of a Trust Fund. No property shall be set aside nor shall
a trust fund of any kind be established to secure the rights of any Holder under
the Plan.  All Holders shall at all times rely solely upon the general credit of
the Company for the payment of any benefit which becomes payable under the Plan.

     No  Employment  or  Affiliation  Obligation.  The granting of any Option or
Award shall not  constitute  an  employment  contract,  express or implied,  nor
impose upon the Company or any Affiliate any obligation to employ or continue to
employ, or utilize the services of, any Holder.  The right of the Company or any
Affiliate to terminate  the  employment of any person shall not be diminished or
affected by reason of the fact that an Option or Award has been granted to him.

     Forfeiture.  Notwithstanding  any  other  provisions  of the  Plan,  if the
Committee  finds by a majority vote after full  consideration  of the facts that
the  Holder,  before  or after  termination  of his  employment  or  affiliation
relationship  with the  Company  or an  Affiliate  for any reason  committed  or
engaged in willful  misconduct,  gross  negligence,  a breach of fiduciary duty,
fraud,  embezzlement,  theft, a felony,  a crime  involving  moral  turpitude or
proven  dishonesty  in  the  course  of his  employment  by  the  Company  or an
Affiliate,  which  conduct  damaged the Company or  Affiliate,  the Holder shall
forfeit all outstanding  Options and all outstanding  Awards,  and all exercised
Options if the Company has not yet delivered a stock  certificate  to the Holder
with respect thereto.

     The decision of the  Committee  as to the cause of the Holder's  discharge,
the damage done to the Company or an  Affiliate  shall be final.  No decision of
the Committee, however, shall affect the finality of the discharge of the Holder
by the Company or an Affiliate in any manner.

     Tax  Withholding.  The Company or any Affiliate shall be entitled to deduct
from other  compensation  payable to each  Holder any sums  required by federal,
state or local tax law to be withheld  with  respect to the grant or exercise of
an Option, or lapse of restrictions on Restricted Stock. In the alternative, the
Company may  require the Holder of an Award to pay such sums for taxes  directly
to the Company or any  Affiliate  in cash or by check  within ten days after the
date of exercise or lapse of  restrictions.  In the discretion of the Committee,
and with the consent of the Holder,  the Company may reduce the number of shares
of Stock  issued to the Holder upon his exercise of an Option to satisfy the tax
withholding  obligations of the Company or an Affiliate;  provided that the Fair
Market  Value of the shares  held back shall not  exceed  the  Company's  or the
Affiliate's minimum statutory withholding tax obligations. The Committee may, in
its  discretion,  permit a Holder to  satisfy  any tax  withholding  obligations
arising upon the vesting of Restricted  Stock by delivering to the Holder of the
Restricted  Stock  Award a  reduced  number  of  shares  of Stock in the  manner
specified herein. If permitted by the Committee and acceptable to the Holder, at
the time of  vesting  of shares  of  Restricted  Stock,  the  Company  shall (a)
calculate the amount of the Company's or an  Affiliate's  minimum  statutory tax
withholding  obligation  on the  assumption  that  all  such  vested  shares  of
Restricted Stock are made available for delivery,  (b) reduce the number of such
shares made  available  for delivery so that the Fair Market Value of the shares
withheld on the vesting  date  approximates  the amount of tax the Company or an
Affiliate is obliged to withhold and (c) in lieu of the withheld  shares,  remit
cash  to  the  United  States   Treasury  and  other   applicable   governmental
authorities,  on behalf of the Holder, in the amount of the withholding tax due.
The Company shall withhold only whole shares of Stock to satisfy its withholding
obligation.  Where the Fair Market Value of the  withheld  shares does not equal
the Company's withholding tax obligation, the Company shall withhold shares with
a Fair Market Value slightly less than the amount of its withholding  obligation
and the  Holder  of the  Restricted  Stock  Award  must  satisfy  the  remaining
withholding  obligation in some other manner  permitted  under this Section 9.4.
The withheld  shares of Restricted  Stock not made available for delivery by the
Company shall be retained as treasury  stock or will be cancelled and, in either
case,  the Holder's  right,  title and interest in such  Restricted  Stock shall
terminate.  The Company shall have no obligation  upon exercise of any Option or
lapse of restrictions on Restricted  Stock until the Company or an Affiliate has
received  payment  sufficient  to cover  all tax  withholding  amounts  due with
respect  to that  exercise.  Neither  the  Company  nor any  Affiliate  shall be
obligated to advise a Holder of the  existence of the tax or the amount which it
will be required to withhold.

     Written  Agreement.  Each Award shall be  embodied  in a written  agreement
which  shall be  subject  to the terms and  conditions  of the Plan and shall be
signed by the Holder and by a member of the Committee on behalf of the Committee
and the Company or an executive  officer of the Company,  other than the Holder,
on behalf of the Company.  The agreement may contain any other  provisions  that
the Committee in its discretion  shall deem advisable which are not inconsistent
with the terms of the Plan.

     Indemnification of the Committee.  The Company shall indemnify each present
and future  member of the  Committee  against,  and each member of the Committee
shall be entitled  without further act on his part to indemnity from the Company
for, all expenses  (including  attorney's  fees, the amount of judgments and the
amount of approved  settlements  made with a view to the curtailment of costs of
litigation,  other than amounts paid to the Company itself) reasonably  incurred
by him in  connection  with or arising out of any action,  suit or proceeding in
which he may be  involved  by reason of his being or having been a member of the
Committee,  whether or not he continues  to be a member of the  Committee at the
time of incurring the expenses,  including,  without  limitation,  matters as to
which he shall be finally  adjudged in any action,  suit or  proceeding  to have
been found to have been negligent in the  performance of his duty as a member of
the Committee.  However,  this indemnity shall not include any expenses incurred
by any  member of the  Committee  in  respect of matters as to which he shall be
finally adjudged in any action,  suit or proceeding to have been guilty of gross
negligence or willful  misconduct in the  performance of his duty as a member of
the Committee.  In addition, no right of indemnification under the Plan shall be
available to or  enforceable  by any member of the Committee  unless,  within 60
days after institution of any action, suit or proceeding,  he shall have offered
the Company,  in writing,  the  opportunity to handle and defend same at its own
expense.  This right of indemnification shall inure to the benefit of the heirs,
executors  or  administrators  of each member of the  Committee  and shall be in
addition to all other rights to which a member of the  Committee may be entitled
as a matter of law, contract or otherwise.

     Gender. If the context requires,  words of one gender when used in the Plan
shall  include the other and words used in the singular or plural shall  include
the other.

     Headings. Headings of Articles and Sections are included for convenience of
reference only and do not  constitute  part of the Plan and shall not be used in
construing the terms of the Plan.

     Other  Compensation  Plans.  The  adoption of the Plan shall not affect any
other stock option,  incentive or other  compensation or benefit plans in effect
for the Company or any  Affiliate,  nor shall the Plan preclude the Company from
establishing  any  other  forms  of  incentive  compensation   arrangements  for
Employees.

     Other  Options or Awards.  The grant of an Award  shall not confer upon the
Holder the right to receive any future or other Awards  under the Plan,  whether
or not  Awards may be granted to  similarly  situated  Holders,  or the right to
receive future Awards upon the same terms or conditions as previously granted.

     Option   Adjustments   Pursuant  to  the   Employee   Benefits   Agreement.
Notwithstanding  any other  provision  of the Plan or an Option  Agreement,  the
exercise price  applicable to each  outstanding  Option,  to the extent that the
Option has not expired or been exercised as of the  Distribution  Date, shall be
reduced in accordance with the formula specified in paragraph (b) of Section 3.1
of the Employee Benefits Agreement.  Notwithstanding any other provisions of the
Plan or Option  Agreement,  the term of each outstanding  Option,  to the extent
that the Option has not expired or been exercised as of the  Distribution  Date,
shall be adjusted in the manner specified in paragraph (e) of Section 3.1 of the
Employee Benefits Agreement.

     Governing Law. The provisions of the Plan shall be construed,  administered
and governed under the laws of the State of Texas.


</TEXT>
</DOCUMENT>
