<PAGE>

                                                                   EXHIBIT 10.16

                            BAKER HUGHES INCORPORATED
                       DIRECTOR COMPENSATION DEFERRAL PLAN
                            (AS AMENDED AND RESTATED
                         EFFECTIVE AS OF JULY 24, 2002)

<PAGE>

                                                                   EXHIBIT 10.16

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                                <C>
1.       PURPOSES OF THE PLAN; DEFINITIONS; INTERPRETATION AND CONSTRUCTION....................     1
         1.1      General......................................................................     1
         1.2      Definitions..................................................................     1
         1.3      Interpretation and Construction..............................................     3

2.       ADMINISTRATION........................................................................     3

3.       PARTICIPATION IN THE PLAN.............................................................     4
         3.1      Eligibility..................................................................     4
         3.2      Election to Participate......................................................     4

4.       DEFERRAL ELECTIONS....................................................................     4
         4.1      Compensation Deferrals.......................................................     4
         4.2      Retirement Income Deferrals..................................................     4

5.       ELECTION OF DEFERRAL VEHICLES.........................................................     4
         5.1      Stock Option-Related Deferral Vehicles.......................................     4
         5.2      Cash-Based Deferral Vehicles.................................................     5

6.       SHARES AVAILABLE FOR STOCK OPTIONS....................................................     5
         6.1      Number of Shares Available for Stock Options.................................     5
         6.2      Adjustments in Authorized Shares.............................................     6

7.       STOCK OPTIONS.........................................................................     6
         7.1      Calculation of Exercise Price................................................     6
         7.2      Terms and Conditions of Options..............................................     6

8.       PAYMENT OF AMOUNTS IN ACCOUNTS........................................................     8
         8.1      Payment Generally............................................................     8
         8.2      Payment of Simultaneous Amounts..............................................     8
         8.3      Hardship.....................................................................     8
         8.4      Disability...................................................................     8
         8.5      Death........................................................................     9
         8.6      Change in Purpose............................................................     9
         8.7      Debiting of Plan Accounts....................................................     9

9.       PROHIBITION AGAINST ASSIGNMENT OR ENCUMBRANCE.........................................     9

10.      EFFECTIVE DATE, AMENDMENT AND TERMINATION OF THE PLAN.................................     9

11.      NATURE OF THE PLAN....................................................................     9

12.      REORGANIZATION........................................................................    10

13.      ACCELERATION..........................................................................    10

14.      MISCELLANEOUS.........................................................................    10
         14.1     Severability.................................................................    10
         14.2     Requirements of Law..........................................................    10
         14.3     Securities Law Compliance....................................................    10
         14.4     Governing Law................................................................    10
</TABLE>

                                       i

<PAGE>

                                                                   EXHIBIT 10.16

                            BAKER HUGHES INCORPORATED
                       DIRECTOR COMPENSATION DEFERRAL PLAN
                            (AS AMENDED AND RESTATED
                            EFFECTIVE JULY 24, 2002)

1.       PURPOSES OF THE PLAN; DEFINITIONS; INTERPRETATION AND CONSTRUCTION.

         1.1      GENERAL. The Baker Hughes Incorporated Director Compensation
         Deferral Plan, as amended and restated (the "PLAN"), is intended to
         provide a means whereby non-employee directors of Baker Hughes
         Incorporated, a Delaware corporation (the "COMPANY") may defer
         compensation otherwise payable and provide flexibility respecting the
         Company's compensation policies.

         1.2      DEFINITIONS. Whenever used in this Plan, the following
         capitalized terms shall have the meanings set forth below, and when the
         meaning is intended, the initial letter of the word shall be
         capitalized.

                  "ACCOUNT" means the account established by the Committee for
         each Participant in accordance with Section 5.2.

                  "BENEFICIAL OWNER" or "BENEFICIAL OWNERSHIP" shall have the
         meaning ascribed to the term in Rule 13d-3 of the General Rules and
         Regulations under the Exchange Act.

                  "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors
         of the Company.

                  "CHANGE IN CONTROL" of the Company shall be deemed to have
         occurred as of the first day that any one or more of the following
         conditions shall have been satisfied:

                           (A)      Any Person is or becomes a Beneficial Owner,
                  directly or indirectly, of securities of the Company (not
                  including in the securities beneficially owned by this Person
                  any securities acquired directly from the Company or its
                  affiliates) representing 30% or more of the combined voting
                  power of the Company's then outstanding securities, excluding
                  any Person who becomes, as described in this Section (A), a
                  Beneficial Owner in connection with a transaction described in
                  Section (C)(1) of this definition below; or

                            (B)     The following individuals cease for any
                  reason to constitute a majority of the number of Directors
                  then serving: individuals who, on the Effective Date,
                  constitute the Board of Directors of the Company and any new
                  Director (other than a Director whose initial assumption of
                  office is in connection with an actual or threatened election
                  contest relating to the election of Directors of the Company)
                  whose appointment or election by the Board of Directors of the
                  Company or nomination for election by the Company's
                  stockholders was approved or recommended by a vote of at least
                  2/3 of the Directors then still in office who either were
                  Directors on the date hereof or whose appointment, election or
                  nomination for election was previously so approved or
                  recommended; or

                           (C)      There is consummated a merger or
                  consolidation of the Company or any direct or indirect
                  subsidiary of the Company with any other corporation, other
                  than (1) a merger or consolidation that would result in the
                  voting securities of the Company outstanding immediately prior
                  to such merger or consolidation continuing to represent
                  (either by remaining outstanding or by being converted into
                  voting securities of the surviving entity or any parent
                  thereof), in combination with the ownership of any trustee or
                  other fiduciary holding securities under an employee benefit
                  plan of the Company or any Affiliate, at least 55% of the
                  combined voting power of the securities of the Company or such
                  surviving entity or any parent thereof outstanding immediately
                  after such merger or consolidation or (2) a merger or
                  consolidation effected to implement a recapitalization of the
                  Company (or similar transaction) in which no Person is or
                  becomes the Beneficial Owner, directly or indirectly, of
                  securities of the Company (not including in the securities
                  Beneficially Owned by this Person any securities acquired
                  directly from the

                                       1

<PAGE>

                                                                   EXHIBIT 10.16

                  Company or its Affiliates other than in connection with the
                  acquisition by the Company or its Affiliates of a business)
                  representing 30% or more of the combined voting power of the
                  Company's then outstanding securities; or

                           (D)      There is consummated a merger or
                  consolidation of the Company or any direct or indirect
                  subsidiary of the Company with any other corporation, other
                  than a merger or consolidation immediately following which the
                  individuals who comprise the Board immediately prior thereto
                  constitute at least a majority of the board of directors of
                  the entity surviving such merger or any parent thereof (or a
                  majority plus one member where such board is comprised of an
                  odd number of members); or

                           (E)      The stockholders of the Company approve a
                  plan of complete liquidation or dissolution of the Company or
                  there is consummated an agreement for the sale or disposition
                  by the Company of all or substantially all of the Company's
                  assets, other than (i) a sale or disposition by the Company of
                  all or substantially all of the Company's assets to an entity,
                  at least 55% of the combined voting power of the voting
                  securities of which are owned by stockholders of the Company
                  in substantially the same proportions as their ownership of
                  the Company immediately prior to such sale, or (ii) where the
                  individuals who comprise the Board immediately prior thereto
                  constitute at least a majority of the board of directors of
                  such entity or any parent thereof (or a majority plus one
                  member where such board is comprised of an odd number of
                  members).

                  Notwithstanding the foregoing, a "Change in Control" shall not
                  be deemed to have occurred by virtue of the consummation of
                  any transaction or series of integrated transactions
                  immediately following which the record holders of the common
                  stock of the Company immediately prior to such transaction or
                  series of transactions continue to have substantially the same
                  proportionate ownership in an entity that owns all or
                  substantially all of the assets of the Company immediately
                  following such transaction or series of transactions.

                  "COMMITTEE" means the Compensation Committee of the Board or
         such other committee of the Board or the entire Board as the Board
         designates to administer the terms and provisions of this Plan, as
         specified in Section 2.

                  "COMMON STOCK" means the Company's common stock, $1.00 par
         value.

                  "COMPENSATION" means a Director's annual retainer.

                  "DEFERRAL VEHICLES" has the meaning specified in Section 5.

                  "DEFERRED COMPENSATION" means the Compensation and Retirement
         Income deferred by a Participant with respect to any calendar year
         pursuant to an election as provided in Section 4.

                  "DESIGNATED DATE" means the designated payment date
            selected by a Participant at the time of the deferral election is
            made, and with the consent of the Committee, a Participant may elect
            multiple Designated Dates with respect to Deferred Compensation.
            Designated Dates are further described in clause 5.2 and Section 8.

                  "DIRECTORS" means all non-employee directors of the Company.

                  "DISCOUNTED STOCK OPTIONS" means the Stock Options described
         in Section 5.1(b).

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

                  "FAIR MARKET VALUE" means the price per share of Common Stock,
         based on the composite transactions in the Common Stock as reported by
         The Wall Street Journal, and shall be equal to the per share price of
         the last sale of Common Stock on the trading day prior to the date of
         grant of the Stock Option.

                                       2

<PAGE>

                                                                   EXHIBIT 10.16

                  "MARKET-PRICED STOCK OPTIONS" means the Stock Options
         described in Section 5.1(a).

                  "OPTION EXPIRATION DATE" has the meaning specified in Section
         7.2.

                  "PARTICIPANT" means an eligible Director who elects to become
         a participant in the Plan.

                  "PERSON" shall have the meaning ascribed to the term in
         Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and
         14(d) thereof, including a "group" as defined in Section 13(d) thereof,
         except that the term shall not include (a) the Company or any of its
         affiliates, (b) a trustee or other fiduciary holding Company securities
         under an employee benefit plan of the Company or any of its affiliates,
         (c) an underwriter temporarily holding securities pursuant to an
         offering of those securities or (d) a corporation owned, directly or
         indirectly, by the stockholders of the Company in substantially the
         same proportions as their ownership of stock of the Company.

                  "PRIME RATE EQUIVALENTS" has the meaning specified in Section
         5.2.

                  "RETIREMENT INCOME" means retirement benefits pursuant to the
         Company's Director Retirement Policy.

                  "S&P 500 EQUIVALENTS" has the meaning specified in Section
         5.2.

                  "SHARES" means the shares of Common Stock reserved for
         issuance under this Plan.

                  "STOCK OPTION" or "STOCK OPTIONS" are the stock options issued
         to Participants in exchange for Deferred Compensation pursuant to
         Section 7, or if permitted by the Committee, pursuant to any other plan
         that would permit the grant of options under this Plan.

                  "STOCK OPTION PRICE" means the price at which a Participant
         may purchase a Share pursuant to a Stock Option.

         1.3      INTERPRETATION AND CONSTRUCTION. As used in this Plan, unless
         the context otherwise expressly requires to the contrary, references to
         the singular include the plural, and vice versa; references to the
         masculine include the feminine and neuter; references to "including"
         mean "including (without limitation)," and references to Sections mean
         the sections of this Plan.

2.       ADMINISTRATION.

                  The Plan shall be administered by the Committee. The Committee
         is authorized to interpret the Plan and may, from time to time, adopt
         such rules and regulations, consistent with the provisions of the Plan,
         as it may deem advisable to carry out the Plan. All determinations made
         by the Committee shall be final. No member of the Committee shall have
         any right to vote or decide upon any matter relating to himself under
         the Plan or to vote in any case in which his individual right to claim
         any benefit under the Plan is particularly involved. The Committee may
         delegate to the Vice President of Human Resources or other officer of
         the Company its duties for the day-to-day administration of the Plan,
         including accepting deferral elections and accounting for deferrals and
         distributions under the Plan. All expenses incurred in connection with
         the administration of the Plan shall be borne by the Company.

                  All determinations and decisions made by the Committee and the
         Board pursuant to the provisions of this Plan and all related orders
         and resolutions of the Committee and the Board shall be final,
         conclusive and binding on all Persons, including the Company, its
         stockholders, Directors, Participants and the estates and beneficiaries
         of Directors and Participants.

                                       3

<PAGE>

                                                                   EXHIBIT 10.16

3.       PARTICIPATION IN THE PLAN.

         3.1      ELIGIBILITY. Directors shall be eligible to participate in the
         Plan. An individual shall be considered to be a Director until the
         close of business on the day preceding the earlier of the first date
         the individual (1) becomes a common-law employee of the Company or its
         subsidiaries or (2) ceases to be a member of the Board for any reason
         whatsoever.

         3.2      ELECTION TO PARTICIPATE. An eligible Director may elect to
         become a Participant by electing to defer an integral percentage (from
         1% to 100%) of his Compensation. All elections shall be made in the
         form and manner prescribed by the Committee.

4.       DEFERRAL ELECTIONS.

         4.1      COMPENSATION DEFERRALS.

                  (a)      Compensation deferral elections shall be made with
         respect to each calendar year. Unless otherwise determined by the
         Committee, any election by a Participant to defer Compensation under
         this Plan must be made on or before the DECEMBER 1st preceding the
         calendar year to which the election relates. Any such election shall
         apply to the Participant's Compensation for the period commencing on
         January 1st of the applicable calendar year and ending upon the earlier
         of December 31st of such calendar year or the date during such calendar
         year that his directorship is terminated for any reason.

                  If a directorship commences during a calendar year, any
         deferral election with respect to the first year of the directorship
         must be made by the Director WITHIN THIRTY (30) days of the date he or
         she first becomes a Director. Any such deferral election will apply
         commencing on the date he or she first becomes a Director to the
         Participant's Compensation during the calendar year in which he or she
         first becomes a Director.

                  (b)      Any election to defer Compensation which may be made
         by a Participant shall be irrevocable once made with respect to the
         calendar year. Any election to defer Compensation made by a Participant
         with respect to any calendar year shall be deemed to have been made
         with respect to each subsequent calendar year, unless the Participant
         changes such election prior to the expiration of the time for making
         the election with respect to the subsequent calendar year.

         4.2      RETIREMENT INCOME DEFERRALS. Deferrals of Retirement Income
         were allowed prior to January 1, 2002. Amounts attributable to such
         deferrals shall be paid in accordance with the Participants' Retirement
         Income deferral elections made hereunder prior to January 1, 2002.

5.       ELECTION OF DEFERRAL VEHICLES.

         At the time of making a deferral election, a Participant shall select
         one or more deferral vehicles ("Deferral Vehicles") for the
         Participant's Deferred Compensation respecting the applicable calendar
         year or years as described in Sections 5.1 and 5.2.

         5.1      STOCK OPTION-RELATED DEFERRAL VEHICLES. The Participant's
         Deferred Compensation shall be exchanged for Stock Options. All Stock
         Options granted in exchange for Deferred Compensation under this Plan
         shall be subject to all of the applicable terms and provisions of this
         Plan or such other plan from which the Stock Option is granted.

                  A Participant who elects a Stock Option-Related Deferral
         Vehicle shall also elect whether to receive such Stock Options priced
         in accordance with the following subsection (a) or (b):

                  (a)      "MARKET-PRICED STOCK OPTIONS." If Market-Priced Stock
         Options are elected, the amount of the Participant's aggregate Deferred
         Compensation as of the last day of each calendar quarter which would
         otherwise have been paid during such quarter shall be multiplied by 4.4
         and then divided by

                                       4

<PAGE>

                                                                   EXHIBIT 10.16

         the Fair Market Value of the Company's Common Stock on the last day of
         the quarter to determine the number of Market-Priced Stock Options to
         be granted in exchange for the Deferred Compensation.

                  OR

                  (b)      "DISCOUNTED STOCK OPTIONS." If Discounted Stock
         Options are elected, the Participant's aggregate Deferred Compensation
         as of the last day of each calendar quarter which would otherwise have
         been paid during such quarter shall be divided by the discounted price
         of the Company's Common Stock on the last day of such quarter to
         determine the number of Discounted Stock Options to be granted in
         exchange for the Deferred Compensation. The discounted price is a 50%
         discount to the Fair Market Value of the Company's Common Stock on the
         last day of the quarter.

         5.2      CASH-BASED DEFERRAL VEHICLES. The Participant's Deferred
         Compensation shall be credited to an Account established by the
         Committee as of the date or dates the Deferred Compensation would
         otherwise have been paid. A Participant who elects a Cash-Based
         Deferral Vehicle shall also elect whether to receive Prime Rate
         Equivalents or S&P 500 Equivalents for the deferral period that
         commences on the date or dates such Deferred Compensation is credited
         to the Account and ending on the Designated Date. All Deferred
         Compensation and interest and earnings equivalents credited to an
         Account shall be nonforfeitable pending payment as of the Designated
         Date.

                  (a)      Prime Rate Equivalents. To the extent Prime Rate
         Equivalents are elected, interest equivalents will be credited to the
         Participant's Account as of the last day of each calendar month based
         upon the average daily balance in the Account for the month and the
         prime lending rate as declared by Citibank, or such other lending
         institution selected by the Committee, to be in effect from time to
         time.

                  (b)      S&P 500 Equivalents. To the extent S&P 500
         Equivalents are elected, the earnings (or loss) equivalents will be
         credited (or debited) to the Participant's Account as of the last day
         of each calendar quarter based upon the balance in the Account as of
         the last day of the quarter and the returns realized by the Standard &
         Poor's 500 Index for the quarter.

                  (c)      Designated Date.

                           (1)      Any Designated Date respecting Deferred
                  Compensation subject to Prime Rate Equivalents shall be as of
                  the last day of a calendar month.

                           (2)      Any Designated Date respecting Deferred
                  Compensation subject to S&P 500 Equivalents shall be as of the
                  last day of a calendar quarter.

                           (3)      Any such Designated Date so elected may be
                  either during the Participant's active tenure as a Director or
                  after cessation of the Participant's directorship for any
                  reason and may be elected either by specifying a particular
                  date or by selecting a date that follows the occurrence of a
                  specified event; provided, however, that in no event shall a
                  Designated Date be more than 10 years from the date the
                  Participant's directorship terminates.

6.       SHARES AVAILABLE FOR STOCK OPTIONS.

         6.1      NUMBER OF SHARES AVAILABLE FOR STOCK OPTIONS. Subject to
         adjustment as provided in Section 6.2, the number of Shares of Common
         Stock reserved for issuance to Participants under this Plan shall be up
         to 500,000. These Shares may consist of authorized but unissued Shares
         or previously issued Shares reacquired by the Company as treasury
         shares. The number of Shares that are the subject of Stock Options
         under this Plan that are forfeited or terminated or expire unexercised
         shall again immediately become available to be issued as Stock Options
         under this Plan. Shares approved pursuant to the Long Term Incentive
         Plan of Baker Hughes Incorporated, as amended, and the Baker Hughes
         Incorporated 1998 Employee Stock Option Plan, as amended, that have not
         been awarded under such plans, including Shares that are canceled,
         terminated, expired unexercised, settled in cash in lieu of Shares or
         in a manner such that all or some of the Shares covered thereby are not
         issued to a participant or are exchanged for a consideration that does
         not involve Shares, and Shares that are so canceled, terminated,
         expired unexercised, settled in cash in lieu of Shares or in a manner
         such that all or some of the Shares covered thereby are not issued to a
         participant or are exchanged for a

                                       5

<PAGE>

                                                                  EXHIBIT 10.16

         consideration that does not involve Shares, and Shares that are so
         canceled, terminated, expired unexercised, settled in cash in lieu of
         Shares or in a manner such that all or some of the Shares covered
         thereby are not issued to a participant or are exchanged for a
         consideration that does not involve Shares, will immediately become
         available for Stock Options under this Plan. The Shares described in
         the foregoing sentence shall be included in the up to 500,000 Shares
         reserved for issuance under this Plan. The Committee shall determine
         the appropriate methodology for calculating the number of Shares issued
         pursuant to this Plan.

         6.2      ADJUSTMENTS IN AUTHORIZED SHARES. The existence of outstanding
         Stock Options shall not affect in any manner 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
         capital stock of the Company or its business or any merger or
         consolidation of the Company, or any issue of bonds, debentures,
         preferred or prior preference stock (whether or not such issue is prior
         to, on a parity with or junior to the Shares) 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 of
         any kind, whether or not of a character similar to that of the acts or
         proceedings enumerated above.

                  If there shall be any change in the Shares of the Company or
         the capitalization of the Company through merger, consolidation,
         reorganization, recapitalization, stock dividend, stock split, reverse
         stock split, split up, spin-off, combination of shares, exchange of
         shares, dividend in kind or other like change in capital structure or
         distribution (other than normal cash dividends) to stockholders of the
         Company, the Board, in its sole discretion, to prevent dilution or
         enlargement of Participants' rights under this Plan, shall adjust, in
         an equitable manner, as applicable, the number and kind of Shares that
         may be issued under this Plan, the number and kind of Shares subject to
         outstanding Stock Options and other value determinations applicable to
         outstanding Stock Options. In the event of a corporate merger,
         consolidation, acquisition of property or stock, separation,
         reorganization or liquidation, the Board shall be authorized to issue
         or assume Stock Options by means of substitution of new Stock Options,
         as appropriate, for previously issued Stock Options.

7.       STOCK OPTIONS

         7.1      CALCULATION OF EXERCISE PRICE. The exercise price to be paid
         for each share of Common Stock deliverable upon exercise of each Stock
         Option granted shall be equal to the Fair Market Value per share of
         Common Stock at the time of grant as determined by the Committee,
         provided, that the exercise price of each Stock Option may, in the
         discretion of the Committee, be discounted from Fair Market Value, in
         accordance with the provisions of Section 5.1. The exercise price for
         each Stock Option shall be subject to adjustment as provided in Section
         6.2.

         7.2      TERMS AND CONDITIONS OF OPTIONS. Stock Options shall be in
         such form as the Committee may from time to time approve and shall be
         subject to the following terms and conditions:

                  (a)      EXERCISE PERIODS FOR STOCK OPTIONS. All Stock Options
                  shall vest and become exercisable on the first anniversary of
                  the date of grant. Each Stock Option shall be exercisable from
                  time to time, in whole or in part, at any time after one year
                  from the date of grant and prior to the date which is 10 years
                  after the date of grant, subject to the provisions of clause
                  (b) of this Section 7.2 (the "OPTION EXPIRATION DATE").

                  (b)      EXERCISE PERIODS IN THE EVENT OF DIRECTORSHIP
                  TERMINATION. A Director's directorship shall terminate at the
                  close of business on the day preceding the day he or she
                  ceases to be a member of the Board for any reason whatsoever.
                  When a Director's directorship terminates, each of his or her
                  Stock Options and all rights thereunder shall expire three (3)
                  years after the Director's directorship terminates for any
                  reason. Any Stock Options unexercised at the time of the
                  Director's death (including the Director's death which results
                  in termination of his or her directorship or the Director's
                  death during the 3-year period after his or her directorship
                  terminates) may be exercised by the Director's estate or by
                  the Person or Persons who acquire the right to exercise his or
                  her Stock Option by bequest or inheritance.

                                       6

<PAGE>

                                                                   EXHIBIT 10.16

                  (c)      TRANSFERABILITY OF STOCK OPTIONS. Except as otherwise
                  provided in the Stock Option agreement, no Stock Option may be
                  sold, transferred, pledged, assigned, or otherwise alienated
                  or hypothecated, other than by will or by the laws of descent
                  and distribution. Further, except as otherwise provided in the
                  Stock Option agreement, all Stock Options granted under this
                  Plan shall be exercisable during his or her lifetime only by
                  the Participant. Any attempted assignment of a Stock Option in
                  violation of this Section shall be null and void.

                  (d)      PAYMENT OF STOCK OPTION PRICE. Stock Options granted
                  under this Plan shall be exercised in the form and manner as
                  the Committee shall determine from time to time.

                           Upon the exercise of any Stock Option, the Stock
                  Option Price shall be payable to the Company in full either
                  (i) in cash or its equivalent; (ii) by tendering previously
                  acquired Shares having an aggregate fair market value at the
                  time of exercise equal to the total Stock Option Price
                  (provided that the Shares that are tendered must have been
                  held by the Participant for at least 6 months prior to their
                  tender to satisfy the Stock Option Price); (iii) by a
                  combination of (i) and (ii); or (iv) any other method approved
                  by the Committee in its sole discretion at the time of grant
                  and as set forth in the Stock Option.

                           Subject to any governing rules or regulations, after
                  the exercise of the Stock Option and full payment of the Stock
                  Option Price in the form and manner as the Committee shall
                  determine, the Director may pay the required fee and request a
                  Share certificate based upon the number of Shares purchased
                  under the Stock Option through the third-party administrator
                  designated by the Committee to have this administrative duty.
                  In addition, the Company may, at its option, issue or cause to
                  be issued Share certificates.

                           Unless otherwise determined by the Committee, all
                  payments under all of the methods indicated above shall be
                  paid in United States dollars.

                  (e)      LISTING AND REGISTRATION OF SHARES. Each Stock Option
                  shall be subject to the requirement that if at any time the
                  Committee determines, in its discretion, that the listing,
                  registration or qualification under the regulations of any
                  securities exchange or under any state or federal law of the
                  Shares subject to the Stock Option, or the consent or approval
                  of any governmental regulatory body, is necessary or desirable
                  as a condition of, or in connection with, the issue or
                  purchase of the Shares under such Stock Option, 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 and the same shall have
                  been free of any conditions not acceptable to the Committee.

                  (f)      AMENDMENT. The Committee may, with the consent of the
                  Person or Persons entitled to exercise any outstanding Stock
                  Option, amend such Stock Option; provided, however, that any
                  such amendment shall be subject to stockholder approval when
                  required.

                  (g)      INVESTMENT REPRESENTATIONS. As a condition to the
                  exercise of a Stock Option, the Company may require the Person
                  exercising such Stock Option to represent and warrant at the
                  time of any such exercise that the Shares are being purchased
                  only for investment and without any present intention to sell
                  or distribute such Shares if, in the opinion of counsel for
                  the Company, such a representation is required.

                  (h)      UNCERTIFICATED SHARES. To the extent that this Plan
                  provides for issuance of certificates to reflect the transfer
                  of Shares, the transfer of such Shares may be effected on a
                  noncertificated basis, to the extent not prohibited by
                  applicable law or the rules of any stock exchange.

                  (i)      NO FRACTIONAL SHARES. No fractional Shares shall be
                  issued or delivered pursuant to this Plan or any Stock Option
                  agreement. The Committee shall determine whether cash or other
                  property shall be issued or paid in lieu of fractional Shares
                  or whether such fractional Shares or any rights thereto shall
                  be forfeited or otherwise eliminated.

                                       7

<PAGE>

                                                                   EXHIBIT 10.16

                  (j)      OTHER PROVISIONS.

                           (i)      The Person or Persons entitled to exercise,
                           or who have exercised, a Stock Option shall not be
                           entitled to any rights as a stockholder of the
                           Company with respect to any Shares subject to such
                           Stock Option until he or she shall have become the
                           holder of record of such Shares.

                           (ii)     No Stock Option shall be construed as
                           limiting any right which either the Company's
                           stockholders or the Board of Directors may have to
                           remove at any time from the Board of Directors, with
                           or without cause, any Person to whom such Stock
                           Option has been granted.

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

                           (iv)     Notwithstanding any provision of the Plan,
                           the Committee may not exercise any discretion with
                           respect to this Section 7 which would be inconsistent
                           with the intent that the Plan meet the requirements
                           of Rule 16b-3 promulgated by the Securities Exchange
                           Commission under the Exchange Act.

8.       PAYMENT OF AMOUNTS IN ACCOUNTS.

         8.1      PAYMENT GENERALLY. Except as otherwise provided in this
         Section 8, the Deferred Compensation and interest and earnings
         equivalents credited to a Participant's Account with respect to a
         calendar year or years, as applicable, shall be paid in cash to the
         Participant in one lump sum as of the Designated Date elected by the
         Participant. In the absence of a valid election of a Designated Date by
         the Participant, the Designated Date shall be deemed to be the date of
         cessation of the Participant's status as a Director.

         8.2      PAYMENT OF SIMULTANEOUS AMOUNTS. It is recognized that a
         Participant may elect to defer Compensation with respect to more than
         one calendar year, so that Deferred Compensation and interest and
         earnings equivalents are credited to the Participant's Account with
         respect to more than one calendar year, and the payment of such amounts
         with respect to more than one calendar year may, but need not, become
         payable to the Participant as of the same Designated Date.

         8.3      HARDSHIP. In the event of hardship of the Participant, as
         determined in the sole discretion of the Committee, all or a portion of
         the cash payments that would otherwise be made on a later Designation
         Date under this Section 8 shall be accelerated by being made as soon as
         practicable, following the Committee's determination of hardship, in
         one lump sum. For this purpose, hardship shall mean a severe financial
         hardship of the Participant resulting from a sudden and unexpected
         illness or accident of the Participant or of a dependent (as defined in
         section 152(a) of the Code) of the Participant, loss of the
         Participant's property due to casualty, or any similar extraordinary
         and unforeseeable circumstance arising as a result of events beyond the
         control of the Participant. The circumstances that will constitute a
         hardship will depend upon the facts of each case, but, in any case,
         payment may not be made to the extent that the hardship is or may be
         relieved through reimbursement or compensation by insurance or
         otherwise or by liquidation of the Participant's assets, to the extent
         the liquidation of such assets will not itself cause severe financial
         hardship. Such foreseeable needs for funds as the desire to send a
         Participant's child to college or purchase a home will not be
         considered to be a hardship. No hardship distribution can exceed the
         lesser of the amount deemed credited to the Participant's Account or
         the amount reasonably needed to satisfy the emergency need. Whether a
         hardship exists and the amount reasonably needed to satisfy the
         emergency need will be determined by the Committee.

         8.4      DISABILITY. In the event of the disability of the Participant,
         as determined in the sole discretion of the Committee, all cash
         payments that would otherwise be made on a later Designation Date under
         this Section 8 shall be accelerated by being made as soon as
         practicable, following the Committee's

                                       8

<PAGE>

                                                                   EXHIBIT 10.16

         determination of such disability, in one lump sum. For this purpose,
         disability shall mean total and permanent disability that will prevent
         the Participant from engaging in meaningful business activities.

         8.5      DEATH. In the event of the death of the Participant, all of
         the cash payments that would otherwise be made on later Designation
         Date under this Section 8, shall be accelerated by being made as soon
         as practicable following the death of the Participant. A Participant,
         by written instrument filed with the Committee in such manner and form
         as it may prescribe, may designate one or more beneficiaries to receive
         payment of the Participant's Deferred Compensation and interest or
         earnings equivalents in the event of the death of the Participant. Any
         such beneficiary designation may be changed from time to time prior to
         the death of the Participant. In the absence of a beneficiary
         designation on file with the Committee at the time of the Participant's
         death, the Deferred Compensation and interest or earnings equivalents
         remaining to be paid to the Participant shall be paid to the executor
         or administrator of the Participant's estate.

         8.6      CHANGE IN PURPOSE. In the event of a major tax law change or
         other reason, as determined in the sole discretion of the Committee,
         which makes the continued deferral of amounts under the Plan
         undesirable, cash payments under this Section 8 shall be accelerated by
         being made as soon as practicable following the Committee's
         determination to discontinue deferrals, in one lump sum.

         8.7      DEBITING OF PLAN ACCOUNTS. Once Deferred Compensation and
         interest or earnings equivalents have been paid, such amounts shall be
         debited from the Participant's Account, and the Company shall no longer
         be accountable for such paid amounts.

9.       PROHIBITION AGAINST ASSIGNMENT OR ENCUMBRANCE.

                  No right, title, interest or benefit hereunder shall ever be
         liable for or charged with any of the torts or obligations of a
         Participant or any Person claiming under a Participant, or be subject
         to seizure by any creditor of a Participant or any Person claiming
         under a Participant. Except as to the selection of a "designated
         beneficiary" in the event of death, no Participant or any Person
         claiming under a Participant shall have the power to anticipate or
         dispose of any right, title, interest or benefit hereunder in any
         manner until the same shall have been actually distributed free and
         clear of the terms of the Plan.

10.      EFFECTIVE DATE, AMENDMENT AND TERMINATION OF THE PLAN.

                  The Plan shall be amended and restated effective as of July
         24, 2002. Subject to the terms of this Plan, the Committee may at any
         time and from time to time alter, amend, modify, suspend or terminate
         this Plan in whole or in part, except that no amendment, modification,
         suspension or termination that would adversely affect in any material
         way the rights of any Participant under any Stock Option previously
         granted to such Participant under this Plan shall be made without the
         written consent of such Participant or to the extent stockholder
         approval is otherwise required by applicable legal requirements. The
         Committee may terminate the Plan at any time with respect to periods
         following the date such termination is effected.

11.      NATURE OF THE PLAN.

                  The Plan constitutes an unfunded, unsecured liability of the
         Company to provide benefits in accordance with the provisions hereof.
         The Company, at its election, may fund the payment of benefits under
         the Plan by setting aside and investing, in an account on the Company's
         books, such funds as the Company may, from time to time, determine.
         Neither the establishment of the Plan, the crediting of amounts to
         Accounts nor the setting aside of any funds shall be deemed to create a
         trust. Legal and equitable title to any funds set aside pursuant to the
         Plan shall remain in the Company, and neither the Participants nor any
         Persons claiming under the Participants shall have any security or
         other interest in such funds. Any funds so set aside or acquired shall
         remain subject to the claims of the creditors of the Company, present
         and future. This Plan is not intended to be subject to Employee
         Retirement Income Security Act of 1974, as amended.

                                       9

<PAGE>

                                                                   EXHIBIT 10.16

12.      REORGANIZATION.

                  The Company shall not merge or consolidate with any other
         entity or entities, liquidate, dissolve, reorganize, or sell
         substantially all of its assets and business unless and until a
         succeeding or continuing entity or entities agrees to assume and
         discharge the obligations of the Company under this Agreement. Upon the
         occurrence of such an event, the term "Company" as used in this
         Agreement shall be deemed to refer to such successor or survivor entity
         or entities.

13.      ACCELERATION.

                  Notwithstanding any provision of this Plan to the contrary, in
         the event of an occurrence of a Change in Control other than an event
         described only in Section (C) of the definition of Change in Control,
         all Stock Options granted pursuant to this Plan shall become fully
         vested and shall become immediately exercisable.

14.      MISCELLANEOUS.

         14.1     SEVERABILITY. If any provision of this Plan shall be held
         illegal or invalid for any reason, the illegality or invalidity shall
         not affect the remaining parts of this Plan, and this Plan shall be
         construed and enforced as if the illegal or invalid provision had not
         been included.

         14.2     REQUIREMENTS OF LAW. The issuance of Shares under this Plan
         shall be subject to all applicable laws, rules and regulations and to
         such approvals by any governmental agencies or national securities
         exchanges as may be required. The Company shall receive the
         consideration required by law for the issuance of Shares under this
         Plan.

         14.3     SECURITIES LAW COMPLIANCE. All transactions under this Plan
         are intended to comply with all applicable conditions of Rule 16b-3 or
         its successor under the Exchange Act, unless determined otherwise by
         the Board. To the extent any provision of this Plan or action by the
         Board fails to so comply, it shall be deemed null and void, to the
         extent permitted by law and deemed advisable by the Board.

         14.4     GOVERNING LAW. This Plan shall be governed by the laws of the
         State of Texas, excluding any conflicts or choice of law rule or
         principle that might otherwise refer construction or interpretation of
         this Plan to the substantive law of another jurisdiction.

                                       10