Exhibit 10.6

PANDA ETHANOL, INC.

2006 AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN

The Panda Ethanol, Inc. 2006 Long-Term Incentive Plan (the “Plan”) was adopted
by the Board of Directors of Panda Ethanol, Inc., a Delaware corporation (the
“Company”), effective as of May 9, 2006, and approved by the Company’s
stockholders on the 9th day of May, 2006. The Plan is now amended and restated
in its entirety and approved by the Board of Directors and shareholders of the
Company on June 7, 2006.

ARTICLE 1

PURPOSE

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

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

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

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

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

ARTICLE 2

DEFINITIONS

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

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

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

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

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

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

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

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

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

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

 

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2.10 “Company” means Panda Ethanol, Inc., a Delaware corporation, and any
successor entity. Notwithstanding the foregoing, for purposes of determining an
entity is entitled to grant Awards to an employee of a Subsidiary or related
entity under this Plan, “Company” shall include any Subsidiary, or related
company treated as a member of the controlled group with Company under Code
Section 414(b) or (c). In making the determination of whether a Subsidiary or
related company is a member of the controlled group with the Company under Code
Section 414(b) or (c), the definition of “controlled group” in Code
Section 1563(a) shall govern and the phrase “at least 80 percent” in Code
Section 1563(a) shall be replaced with “at least 50 percent” in each place it
appears in Code Section 1563(a)(1), (2) and (3) and in applying Treasury
Regulation § 1.414(c)-2 for purposes of determining whether the entities
(whether or not incorporated) that are under common control for purposes of Code
Section 414(c). This shall be construed in a manner consistent with Panda
Ethanol, Inc. being treated as a service recipient so that the options and
equity rights granted hereunder are granted on stock of the service recipient as
such phase is defined under Proposed Treasury Regulation § 1.409A-1(b)(5)(iii),
and any successor provision thereto.

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

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

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

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

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

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

 

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2.17 “Fair Market Value” means, as of a particular date, (a) if the shares of
Common Stock are listed on a national securities exchange, the closing sales
price per share of Common Stock on the consolidated transaction reporting system
for the principal securities exchange for the Common Stock on that date, or, if
there shall have been no such sale so reported on that date, on the last
preceding date on which such a sale was so reported, (b) if the shares of Common
Stock are not so listed but are quoted on the Nasdaq National Market System, the
closing sales price per share of Common Stock on the Nasdaq National Market
System on that date, or, if there shall have been no such sale so reported on
that date, on the last preceding date on which such a sale was so reported,
(c) if the Common Stock is not so listed or quoted, the mean between the closing
bid and asked price on that date, or, if there are no quotations available for
such date, on the last preceding date on which such quotations shall be
available, as reported by Nasdaq, or, if not reported by Nasdaq, by the National
Quotation Bureau, Inc., or (d) if none of the above is applicable, such amount
as may be determined by the Board (acting on the advice of an Independent Third
Party, should the Board elect in its sole discretion to utilize an Independent
Third Party for this purpose), in good faith, to be the fair market value per
share of Common Stock and in compliance with the valuation methods permitted
under Treasury Regulations § 1.422-2(e) and § 20.2031-2 and the guidance issued
under Section 409A of the Code.

2.18 “Incentive” is defined in Section 2.1 hereof.

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

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

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

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

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

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

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

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

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

 

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2.28 “Plan” means this Panda Ethanol, Inc. 2006 Long-Term Incentive Plan, as
amended from time to time.

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

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

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

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

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

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

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

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

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

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

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

2.40 “Termination of Service” occurs when a Participant who is an Employee of
the Company or any Subsidiary shall cease to serve as an Employee of the Company
and its Subsidiaries, for any reason; or, when a Participant who is an Outside
Director of the Company or a Subsidiary shall cease to serve as a director of
the Company and its Subsidiaries for any reason. Except as may be necessary or
desirable to comply with

 

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

2.41 “Total and Permanent Disability” means a Participant is qualified for
long-term disability benefits under the Company’s or Subsidiary’s disability
plan or insurance policy; or, if no such plan or policy is then in existence or
if the Participant is not eligible to participate in such plan or policy, that
the Participant, because of a physical or mental condition resulting from bodily
injury, disease, or mental disorder which prevents the Participant from
performing his or her duties of employment for a period of six (6) continuous
months, as determined in good faith by the Committee, based upon medical reports
or other evidence satisfactory to the Committee; provided that, with respect to
any Incentive Stock Option, Total and Permanent Disability shall have the
meaning given it under the rules governing Incentive Stock Options under the
Code. Notwithstanding the above, for purposes of any Award hereunder which is
deemed to be deferred compensation subject to Section 409A of the Code,
effective for all periods on or after January 1, 2005, “Total and Permanent
Disability” shall mean a participant who either (a) is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to last for a continuous period of not
less than 12 months, or (b) is, by reason of any medically determinable physical
or mental impairment which can be expected to last for a continuous period of
not less than 12 months, receiving income replacement benefits for a period of
not less than 3 months under an accident and health plan covering employees of
the participant’s employer, or otherwise satisfies such definition as it is
modified by any guidance issued under or regarding Section 409A of the Code.

ARTICLE 3

ADMINISTRATION

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

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

 

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3.2 Designation of Participants and Awards.

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

(b) Notwithstanding Subsection 3.2(a), the Board may, in its discretion and by a
resolution adopted by the Board, authorize one or more officers of the Company
(an “Authorized Officer”) to (i) designate one or more Employees as eligible
persons to whom Awards will be granted under the Plan and (ii) determine the
number of shares of Common Stock that will be subject to such Awards; provided,
however, that the resolution of the Board granting such authority shall
(x) specify the total number of shares of Common Stock that may be made subject
to the Awards, (y) set forth the price or prices (or a formula by which such
price or prices may be determined) to be paid for the purchase of the Common
Stock subject to such Awards, and (z) not authorize an officer to designate
himself as a recipient of any Award.

(c) Notwithstanding the above, no Awards shall be granted under the Plan until
such time as the shelf registration statement referenced in that certain
Registration Rights Agreement dated as of June 5, 2006 is declared effective by
the Securities Exchange Commission.

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

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

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

 

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

ARTICLE 4

ELIGIBILITY

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

ARTICLE 5

SHARES SUBJECT TO PLAN

5.1 Number Available for Awards. Subject to adjustment as provided in
Articles 11 and 12, the maximum number of shares of Common Stock that may be
delivered pursuant to Awards granted under the Plan is three million three
hundred and thirty three thousand three hundred thirty three (3,333,333) shares.
Shares to be issued may be made available from authorized but unissued Common
Stock, Common Stock held by the Company in its treasury, or Common Stock
purchased by the Company on the open market or otherwise. During the term of
this Plan, the Company will at all times reserve and keep available the number
of shares of Common Stock that shall be sufficient to satisfy the requirements
of this Plan. The maximum number of shares of Common Stock that may be delivered
pursuant to Awards under the Plan that are Incentive Stock Option grants is
three million three hundred and thirty three thousand three hundred thirty three
(3,333,333) shares.

5.2 Reuse of Shares. To the extent that any Award under this Plan shall be
forfeited, shall expire or be canceled, in whole or in part, then the number of
shares of Common Stock covered by the Award or stock option so forfeited,
expired or canceled may again be awarded pursuant to the provisions of this
Plan. In the event that previously acquired shares of Common Stock are delivered
to the Company in full or partial payment of the exercise price for the exercise
of a Stock Option granted under this Plan, the number of shares of Common Stock
available for future Awards under this Plan shall be reduced only by the net
number of shares of Common Stock issued upon the exercise of the Stock Option.
Awards that may be satisfied either by the issuance of shares of Common Stock or
by cash or other consideration shall be counted against the maximum number of
shares of Common Stock that may be issued under this Plan only during the period
that the Award

 

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is outstanding or to the extent the Award is ultimately satisfied by the
issuance of shares of Common Stock. Awards will not reduce the number of shares
of Common Stock that may be issued pursuant to this Plan if the settlement of
the Award will not require the issuance of shares of Common Stock, as, for
example, a SAR that can be satisfied only by the payment of cash.

ARTICLE 6

GRANT OF AWARDS

6.1 In General.

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

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

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

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

6.3 Maximum ISO Grants. The Committee may not grant Incentive Stock Options
under the Plan to any Employee which would permit the aggregate Fair Market
Value (determined on the Date of Grant) of the Common Stock with respect to
which Incentive Stock Options (under this and any other plan of the Company and
its Subsidiaries) are exercisable for the first time by such Employee during any
calendar year to exceed $100,000. To the extent any Stock Option granted under
this Plan which is designated as an Incentive

 

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Stock Option exceeds this limit or otherwise fails to qualify as an Incentive
Stock Option, such Stock Option (or any such portion thereof) shall be a
Nonqualified Stock Option. In such case, the Committee shall designate which
stock will be treated as Incentive Stock Option stock by causing the issuance of
a separate stock certificate and identifying such stock as Incentive Stock
Option stock on the Company’s stock transfer records.

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

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

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

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

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

 

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

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

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

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

 

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

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

6.8 Performance Awards.

(a) The Committee may grant Performance Awards to any Participant upon such
terms and conditions as shall be specified at the time of the grant and may
include provisions establishing the performance period, the Performance Goals to
be achieved during a performance period, and the maximum or minimum settlement
values. Each Performance Award shall have its own terms and conditions. If the
Committee determines, in its sole discretion, that the established performance
measures or objectives are no longer suitable because of a change in the
Company’s business, operations, corporate structure, or for other reasons that
the Committee deemed satisfactory, the Committee may modify the performance
measures or objectives and/or the performance period. However, the Committee may
not, in any event, increase the number of shares of Common Stock earned by any
Executive Officer upon satisfaction of any Performance Goal.

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

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

 

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

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

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

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

 

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tandem Award, and the Participant exercises the SAR with respect to 100 shares
of Common Stock, the right of the Participant to exercise the related Stock
Option shall be canceled to the extent of 100 shares of Common Stock.

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

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

ARTICLE 7

AWARD PERIOD; VESTING; TERMINATION OF SERVICE

7.1 Award Period. Subject to the other provisions of this Plan, the Committee
may, in its discretion, provide that an Incentive may not be exercised in whole
or in part for any period or periods of time or beyond any date specified in the
Award Agreement. Except as provided in the Award Agreement, an Incentive may be
exercised in whole or in part at any time during its term. The Award Period for
an Incentive shall be reduced or terminated upon Termination of Service. No
Incentive granted under the Plan may be exercised at any time after the end of
its Award Period. No portion of any Incentive may be exercised after the
expiration of ten (10) years from its Date of Grant. However, if an Employee
owns or is deemed to own (by reason of the attribution rules of Section 424(d)
of the Code) more than ten percent (10%) of the combined voting power of all
classes of stock of the Company (or any parent or Subsidiary) and an Incentive
Stock Option is granted to such Employee, the term of such Incentive Stock
Option (to the extent required by the Code at the time of grant) shall be no
more than five (5) years from the Date of Grant.

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

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

ARTICLE 8

EXERCISE OF INCENTIVE

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

 

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

8.3 Exercise of Stock Option.

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

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

(c) Reload Stock Options. In the event that shares of Common Stock are delivered
by a Participant in payment of all or a portion of the exercise price of a Stock
Option as set forth in Section 8.3(b) above and/or shares of Common Stock are
delivered to or withheld by the Company in satisfaction of the Company’s tax
withholding obligations upon exercise in accordance with Section 15.6 hereof,
then, subject to Article 10 hereof, the Committee may authorize the automatic
grant to a Participant so exercising a Nonqualified Stock Option, a replacement
Nonqualified Stock Option, and to a Participant so exercising an Incentive Stock
Option, a replacement Incentive Stock Option (in either case, a “Reload Stock
Option”), to purchase that number of shares so delivered to or withheld by the
Company, as the case may be, at an option exercise price equal to the Fair
Market Value per share of the Common Stock on the date of exercise of the
original Stock Option (subject to the provisions of the Plan regarding Incentive
Stock Options and, in any event not less than the par value per share of the
Common Stock). The option period for a Reload Stock Option will commence on its
Date of Grant

 

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and expire on the expiration date of the original Stock Option it replaces
(subject to the provisions of the Plan regarding Incentive Stock Options), after
which period the Reload Stock Option cannot be exercised. The Date of Grant of a
Reload Stock Option shall be the date that the Stock Option it replaces is
exercised. A Reload Stock Option shall automatically vest and be exercisable in
full after the expiration of six (6) months from its Date of Grant. It shall be
a condition to the grant of a Reload Stock Option that promptly after its Date
of Grant, a stock option agreement shall be delivered to the Participant and
executed by the Participant and the Company which sets forth the total number of
shares subject to the Reload Stock Option, the option exercise price, the option
period of the Reload Stock Option and such other terms and provisions as are
consistent with the Plan.

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

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

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

8.5 Disqualifying Disposition of Incentive Stock Option. If shares of Common
Stock acquired upon exercise of an Incentive Stock Option are disposed of by a
Participant prior to the expiration of either two

 

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

ARTICLE 9

AMENDMENT OR DISCONTINUANCE

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

ARTICLE 10

TERM

The Plan shall be effective from the date that this Plan is approved by the
Board. Unless sooner terminated by action of the Board, the Plan will terminate
on May 9, 2016, but Incentives granted before that date will continue to be
effective in accordance with their terms and conditions.

ARTICLE 11

CAPITAL ADJUSTMENTS

In the event that the Committee shall determine that any dividend or other
distribution (whether in the form of cash, Common Stock, other securities, or
other property), recapitalization, stock split, reverse stock split, rights
offering, reorganization, merger, consolidation, split-up, spin-off, split-off,
combination, subdivision, repurchase, or exchange of Common Stock or other
securities of the Company, issuance of warrants or other rights to purchase
Common Stock or other securities of the Company, or other similar corporate
transaction or event affects the Common Stock such that an adjustment is
determined by the Committee to be appropriate to prevent the dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan, then the Committee shall, in such manner as it may deem
equitable, adjust any or all of the (i) the number of shares and type of

 

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Common Stock (or the securities or property) which thereafter may be made the
subject of Awards, (ii) the number of shares and type of Common Stock (or other
securities or property) subject to outstanding Awards, (iii) the number of
shares and type of Common Stock (or other securities or property) specified as
the annual per-participant limitation, (iv) the Option Price of each outstanding
Award, (v) the amount, if any, the Company pays for forfeited shares of Common
Stock in accordance with Section 6.4, and (vi) the number of or SAR Price of
shares of Common Stock then subject to outstanding SARs previously granted and
unexercised under the Plan to the end that the same proportion of the Company’s
issued and outstanding shares of Common Stock in each instance shall remain
subject to exercise at the same aggregate SAR Price; provided however, that the
number of shares of Common Stock (or other securities or property) subject to
any Award shall always be a whole number. In lieu of the foregoing, if deemed
appropriate, the Committee may make provision for a cash payment to the holder
of an outstanding Award. Notwithstanding the foregoing, no such adjustment or
cash payment shall be made or authorized to the extent that such adjustment or
cash payment would cause the Plan or any Stock Option to violate Section 422 of
the Code. Such adjustments shall be made in accordance with the rules of any
securities exchange, stock market, or stock quotation system to which the
Company is subject.

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

ARTICLE 12

RECAPITALIZATION, MERGER AND CONSOLIDATION

12.1 No Effect on Company’s Authority. The existence of this Plan and Incentives
granted hereunder shall not affect in any way the right or power of the Company
or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations, or other changes in the Company’s capital
structure and its business, or any merger or consolidation of the Company, or
any issuance of bonds, debentures, preferred or preference stocks ranking prior
to or otherwise affecting the Common Stock or the rights thereof (or any rights,
options, or warrants to purchase same), or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding, whether of a similar character or
otherwise.

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

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

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

 

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

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

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

ARTICLE 13

LIQUIDATION OR DISSOLUTION

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

 

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ARTICLE 14

INCENTIVES IN SUBSTITUTION FOR

INCENTIVES GRANTED BY OTHER ENTITIES

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

ARTICLE 15

MISCELLANEOUS PROVISIONS

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

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

15.3 Indemnification of Board and Committee. No member of the Board or the
Committee, nor any officer or Employee of the Company acting on behalf of the
Board or the Committee, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect to the
Plan, and all members of the Board and the Committee, each officer of the
Company, and each Employee of the Company acting on behalf of the Board or the
Committee shall, to the extent permitted by law, be fully indemnified and
protected by the Company in respect of any such action, determination, or
interpretation.

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

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

 

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

15.7 Assignability. Incentive Stock Options may not be transferred, assigned,
pledged, hypothecated or otherwise conveyed or encumbered other than by will or
the laws of descent and distribution and may be exercised during the lifetime of
the Participant only by the Participant or the Participant’s legally authorized
representative, and each Award Agreement in respect of an Incentive Stock Option
shall so provide. The designation by a Participant of a beneficiary will not
constitute a transfer of the Stock Option. The Committee may waive or modify any
limitation contained in the preceding sentences of this Section 15.7 that is not
required for compliance with Section 422 of the Code.

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

 

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

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

15.9 Compliance With Other Agreements. Any shares of Common Stock issued upon
exercise of an Incentive awarded under this Plan prior to such date on which the
Company’s Common Stock is offered in a transaction registered under the
applicable state and federal securities laws, shall be subject to all of the
terms and provisions of this Plan. Upon the Award of any Incentive prior to the
date on which the Company’s Common Stock were offered in a transaction
registered under the applicable state and federal securities laws, the
Participant shall enter into such joinder agreements or other appropriate
instruments binding them and any shares of Common Stock they may acquire under
any Incentive to said agreements.

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

On the face of the certificate:

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

On the reverse:

“The shares of stock evidenced by this certificate are subject to and
transferable only in accordance with that certain Panda Ethanol, Inc. 2006
Long-Term Incentive Plan, a copy of which is on file at the principal office of
the Company in Dallas, Texas. No transfer or pledge of the shares evidenced
hereby may be made except in accordance with and subject to the provisions of
said Plan. By acceptance of this certificate, any holder, transferee or pledgee
hereof agrees to be bound by all of the provisions of said Plan.”

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

“Shares of stock represented by this certificate have been acquired by the
holder for investment and not for resale, transfer or distribution, have been
issued pursuant to exemptions from the

 

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registration requirements of applicable state and federal securities laws, and
may not be offered for sale, sold or transferred other than pursuant to
effective registration under such laws, or in transactions otherwise in
compliance with such laws, and upon evidence satisfactory to the Company of
compliance with such laws, as to which the Company may rely upon an opinion of
counsel satisfactory to the Company.”

A copy of this Plan shall be kept on file in the office of the Company at 4100
Spring Valley Road, Suite 1001 Dallas, Texas 75244, United States, or any
successor location of the Company’s principal executive offices.

15.11 Construction and Interpretation. The terms of this Plan and any Award
granted hereunder which may be exempt from the application of Section 409A of
the Code shall be interpreted and construed in a manner consistent with
maintaining such exempt status. The terms of any Award hereunder which is not
eligible to be exempt under Section 409A of the Code shall be construed and
interpreted in a manner so that it complies with the requirements of
Section 409A of the Code and the guidance issued thereunder.

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

 

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IN WITNESS WHEREOF, the Company has caused this instrument to be executed as of
June 7, 2006, by its Chairman and President and Secretary pursuant to prior
action taken by the Board.

 

PANDA ETHANOL, INC. By:  

/s/ MICHAEL TRENTEL

Name:  

Michael Trentel

Title:  

Chief Financial Officer

 

Attest:

/s/ R. RUSSELL PETTERSON

R. Russell Petterson

Assistant Secretary

 

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