EXHIBIT 10.7

                            MONTEREY RESOURCES, INC.
                     1996 INCENTIVE STOCK COMPENSATION PLAN
                               FOR KEY EMPLOYEES

                              STATEMENT OF PURPOSE

                 One purpose of the Monterey Resources, Inc. 1996 Incentive
Stock Option Compensation Plan For Key Employees (the "Plan") is to encourage
superior performance by employees, by allowing the Board of Directors of
Monterey Resources, Inc. ("MRI") to award several forms of incentive
compensation to employees of the Company.  By providing incentive compensation
commensurate and competitive with that provided by other companies, the Plan
should also assist MRI in attracting and retaining the services of qualified
and capable employees.

                 In order to further the identity of interest of employees with
the stockholders of  MRI, all of the forms of compensation under the Plan
relate to MRI Common Stock.  Employees' success in enhancing stockholder value
will translate directly into an enhanced benefit for the employee.

                 An additional purpose of the Plan is to encourage the
Directors to own shares of the Company's stock and thereby to align their
interests more closely with the interests of the other stockholders of MRI, to
encourage the highest level of Director performance by providing the Directors
with a direct interest in MRI's attainment of its financial goals, and to
provide a financial incentive that will help attract and retain the most
qualified Directors.

                 Notwithstanding anything in the Plan or any Award agreement to
the contrary, no Award shall become exercisable or payable (even if vested)
prior to the first anniversary of the date the Company is spunoff by Santa Fe
Energy Resources, Inc. (or during such additional period, if any, as may be
recommended by counsel to the Company as necessary or helpful to the tax-free
status of the spinoff); provided, however, the foregoing restriction shall not
apply to a Participant whose employment or Board membership terminates due to
death or Disability and such restriction shall also lapse upon a Change in
Control.

I.       DEFINITIONS

         Unless the context indicates otherwise, the following terms have the
meanings set forth below:

                 "Acceleration Date" means the earliest date on which any of
         the following events shall first have occurred: (i) the acquisition
         described in clause (a) of the definition of

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         "Change in Control" contained in this Section I, (ii) the change in
         the composition of the Board of Directors described in clause (b) of
         such definition, or (iii) the stockholder approval or adoption
         described in clause (c) or (d) of such definition.

                 "Award" means a grant of Options, Director Options, Restricted
         Stock, Phantom Units, Bonus Stock or Stock Appreciation Rights
         pursuant to the Plan.

                 "Board" means the Board of Directors of MRI.

                 "Bonus Stock" means Common Stock, which is not subject to a
         Restricted Period, awarded by the Committee pursuant to the Plan.

                 "Cause" means (a) the willful and continued failure by the
         Participant (other than a Director) to substantially perform his
         duties with the Company (other than any such failure resulting from
         his incapacity due to physical or mental illness), or (b) the willful
         engaging by the Participant (other than a Director) in conduct which
         is demonstrably and materially injurious to the Company, monetarily or
         otherwise.  For purposes of this definition, no act, or failure to
         act, shall be deemed "willful" unless done, or omitted to be done, by
         the Participant not in good faith and without reasonable belief that
         his action or omission was in the best interest of the Company.

                 A "Change in Control" shall be deemed to have occurred if:

                 (a)      any "person," as such term is used in Section 13(d)
                          and 14(d) of the Securities Exchange Act of 1934, as
                          amended (the "Exchange Act"), other than any trustee
                          or other fiduciary holding securities under an
                          employee benefit plan of SFER or an affiliate, or any
                          company owned, directly or indirectly, by the
                          stockholders of SFER in substantially the same
                          proportions as their ownership of stock of SFER), is
                          or becomes the "beneficial owner" (as defined in Rule
                          13d-3 under the Exchange Act), directly or
                          indirectly, of securities of SFER representing 25% or
                          more of the combined voting power of SFER's then
                          outstanding securities;

                 (b)      during any period of two consecutive years (not
                          including any period prior to the effective date of
                          this provision), individuals who at the beginning of
                          such period constitute the Board of Directors of
                          SFER, and any new director (other than a director
                          designated by a person who has entered into an
                          agreement with SFER to effect a transaction described
                          in clause (a), (c) or (d) of this definition) whose
                          election by the Board of Directors of SFER or
                          nomination for election by SFER's stockholders was
                          approved by a vote of at least two-thirds (2/3) of
                          the directors then still in office who either were
                          directors at the beginning of the period or whose
                          election or nomination for





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                          election was previously so approved, cease for any
                          reason to constitute at least a majority thereof;

                 (c)      the stockholders of SFER approve a merger or
                          consolidation of SFER with any other company other
                          than (i) a merger or consolidation which would result
                          in the voting securities of SFER outstanding
                          immediately prior thereto continuing to represent
                          (either by remaining outstanding or by being
                          converted into voting securities of the surviving
                          entity) more than 65% of the combined voting power of
                          the voting securities of SFER (or such surviving
                          entity) outstanding immediately after such merger or
                          consolidation, or (ii) a merger or consolidation
                          effected to implement a recapitalization of SFER (or
                          similar transaction) in which no "person" (as
                          hereinabove defined) acquires more than 25% of the
                          combined voting power of SFER's then outstanding
                          securities; or

                 (d)      the stockholders of SFER adopt a plan of complete
                          liquidation of SFER or approve an agreement for the
                          sale or disposition by SFER of all or substantially
                          all of SFER's assets.  For purposes of this clause
                          (d), the term "the sale or disposition by SFER of all
                          or substantially all of SFER's assets" shall mean a
                          sale or other disposition transaction or series of
                          related transactions involving assets of SFER or of
                          any direct or indirect subsidiary of SFER (including
                          the stock of any direct or indirect subsidiary of
                          SFER) in which the value of the assets or stock being
                          sold or otherwise disposed of (as measured by the
                          purchase price being paid therefor or by such other
                          method as the Board of Directors of SFER determines
                          is appropriate in a case where there is no readily
                          ascertainable purchase price) constitutes more than
                          two-thirds of the fair market value of SFER (as
                          hereinafter defined).  For purposes of the preceding
                          sentence, the "fair market value of SFER" shall be
                          the aggregate market value of the outstanding shares
                          of common stock of SFER (on a fully diluted basis)
                          plus the aggregate market value of SFER's other
                          outstanding equity securities.  The aggregate market
                          value of the shares of common stock of SFER shall be
                          determined by multiplying the number of shares of
                          SFER's common stock (on a fully diluted basis)
                          outstanding on the date of the execution and delivery
                          of a definitive agreement with respect to the
                          transaction or series of related transactions (the
                          "Transaction Date") by the average closing price of
                          the shares of common stock of SFER for the ten
                          trading days immediately preceding the Transaction
                          Date.  The aggregate market value of any other equity
                          securities of SFER shall be determined in a manner
                          similar to that prescribed in the immediately
                          preceding sentence for determining the aggregate
                          market value of the shares of common stock of SFER or
                          by such other method as the Board shall determine is
                          appropriate.





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                 (e)      If SFER ceases to own 80% of the combined voting
                          power of the then outstanding voting securities of
                          the Company, the term "Company" shall be substituted
                          for SFER as used in this definition of "Change in
                          Control" and all other appropriate places; provided,
                          however, as long as SFER owns 35% or more of the
                          combined voting power of the voting securities of the
                          Company, the above "Change in Control" definition
                          shall be applied separately with respect to SFER and
                          with respect to the Company as substituted for SFER
                          in the definition, and a Change in Control with
                          respect to either SFER or the Company in such
                          situation shall be a Change in Control for purposes
                          of this Plan.  Notwithstanding anything herein to the
                          contrary, a distribution by SFER to its stockholders
                          of its interest in such voting securities of the
                          Company shall not constitute a Change in Control.

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

                 "Committee" means the Compensation and Benefits Committee of
         the Board.

                 "Common Stock" means the common stock, $0.01 par value, of MRI.

                 "Company" means collectively MRI, its parent and all companies
         in which MRI owns, directly or indirectly, more than 50% of the voting
         stock.

                 "Director" means a member of the Board who is not also an
         employee of the Company.

                 "Director Option" means an option to purchase shares of Common
         Stock granted pursuant to Section XVIII.

                 "Disability" means the inability of a Participant to continue
         to perform the duties of his or her employment with the Company or as
         a member of the Board, as the case may be, as determined by the
         Committee.

                 "Dividend Equivalents" means, with respect to an Option or
         Phantom Unit, an amount equal to the amount of any dividends that are
         declared and become payable after the Grant Date for such Award and on
         or before the date such Award is exercised, paid or forfeited, as the
         case may be.

                 "Fair Market Value" means the average of high and low (or bid
         and ask, if applicable) price per share of the Common Stock on the
         applicable date (or if there are no transactions on that date, the
         last preceding date on which there were transactions) in the principal
         market in which the Common Stock is traded, as reported in The Wall
         Street Journal, or the fair market value per share as determined by
         the Committee in good faith, using any fair and reasonable means for
         this purpose.





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                 "Grant Date" as used with respect to a particular Award means
         the date as of which such Award is granted pursuant to the Plan.

                 "Option" means an option, other than a Director Option, to
         purchase shares of Common Stock granted by the Committee pursuant to
         the Plan, which may be designated as either an "Incentive Stock
         Option" or a "Non-Qualified Stock Option."

                 "Incentive Stock Option" means an Option that is intended to
         qualify as an Incentive Stock Option as described in Section 422 of
         the Code.

                 "Non-Qualified Stock Option" means an Option granted pursuant
         to the Plan, other than an Incentive Stock Option.

                 "Participant" means any key employee of the Company or
         Director who has an Award outstanding under the Plan.

                 "Phantom Unit" means a right to receive upon the achievement
         of specified performance goals a payment from the Company in an amount
         equal to a specified percentage of the Fair Market Value of a share of
         Common Stock on the date on which such right becomes payable.

                 "Plan" means the Monterey Resources, Inc. 1996 Incentive Stock
         Compensation Plan for Key Employees as set forth herein and as may be
         amended from time to time.

                 "Restricted Period" means the period of time for which
         Restricted Stock and/or Phantom Units are subject to forfeiture
         pursuant to the Plan or during which Options and Stock Appreciation
         Rights are not exercisable.

                 "Restricted Stock" means Common Stock subject to a Restricted
         Period which is granted pursuant to the Plan.

                 "Retirement" means an employee's leaving the employment of the
         Company, other than for Cause, after attaining age 55 and completing
         five years of service with the Company.  With respect to a Director,
         "Retirement" means ceasing to be a member of the Board on or after
         reaching age 65.

                 "SFER" means Santa Fe Energy Resources, Inc.

                 "Stock Appreciation Right" means the right, granted by the
         Committee pursuant to the Plan, to receive a payment equal to the
         increase in the Fair Market Value of a share of Common Stock
         subsequent to the Grant Date of such Award.





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II.      STOCK AND PHANTOM UNITS SUBJECT TO THE PLAN

         Subject to adjustment as provided in the Plan, the maximum aggregate
         number of shares of Common Stock with respect to which Options,
         Director Options, Restricted Stock, Bonus Stock, Phantom Units and
         Stock Appreciation Rights may be granted from time to time under the
         Plan is 3,000,000; provided, however, no more than 500,000 shares of
         Common Stock shall be issued as Restricted Stock.  The Common Stock
         issued under the Plan may be either previously authorized but unissued
         shares or treasury shares acquired by MRI.  In the event that any
         Award expires, lapses, is forfeited or otherwise terminates, any
         shares of Common Stock allocable to the terminated portion of such
         Award may again be made subject to an Award under the Plan.  Further,
         to the extent an Award is paid in cash, rather than in Common Stock,
         or shares of Common Stock are tendered to the Company, or withheld by
         the Company from an Award, as payment of the exercise price of an
         Award or in satisfaction of any Company tax withholding obligation,
         such shares of Common Stock may again be made subject to an Award
         (other than Incentive Stock Options) under the Plan.

III.     ADMINISTRATION OF THE PLAN

         The Plan shall be administered by the Committee.  The members of the
         Committee shall not be eligible to participate in the Plan, except as
         provided in Section XVIII.  The Committee shall select from time to
         time those employees to be granted Awards under the Plan.  The
         Committee shall also determine the terms and provisions of Awards,
         which need not be identical.  The Committee shall grant all Awards.
         The Committee shall construe the Plan, prescribe and rescind rules and
         regulations relating to the Plan and make all other determinations
         deemed necessary or advisable for the administration of the Plan,
         subject to the limitations of Section XXII.

IV.      ELIGIBILITY

         Subject to the discretion of the Committee, all officers and other key
         employees of the Company who have responsibility for the growth and
         profitability of the Company are eligible to receive Awards under the
         Plan; provided, however, no employee may receive in any calendar year
         an Award or Awards of Options and/or Stock Appreciation Rights with
         respect to more than 1,000,000 shares of Common Stock.  Directors
         shall automatically participate in the Plan as provided in Section
         XVIII.

V.       OPTIONS

         The Committee may, from time to time and subject to the provisions of
         the Plan, grant Awards of Options to key employees of the Company to
         purchase shares of Common Stock.  Any Options granted may be
         designated as either Incentive Stock Options or as Non-Qualified Stock
         Options, or the Committee may designate a portion of an Award as
         "Incentive Stock Options" and the remaining portion as "Non-Qualified
         Stock Options." Any





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         portion of an Award that is not designated as "Incentive Stock
         Options" shall be "NonQualified Stock Options" and shall not be
         subject to the requirements of Section VI of the Plan.  The Committee
         may grant replacement or substitution options (or Stock Appreciation
         Rights) to affected employees in conjunction with any Company merger,
         consolidation, purchase or acquisition of property or stock, spinoff
         or other distribution of stock or property, reorganization, or partial
         or complete liquidation, on such terms as the Committee deems
         equitable.

         The purchase price of the Common Stock subject to any Options shall be
         determined by the Committee, but, except with respect to a replacement
         Option, may not be less than 100% of the Fair Market Value of the
         Common Stock on the Grant Date.  Such price shall be subject to
         adjustment as provided in Section XIII of the Plan.

         The Committee may include in each agreement evidencing the Option
         grant a provision stating that the Option granted therein may not be
         exercised in whole or in part for such period(s) of time specified in
         such agreement, and may further limit the exercisability of the Option
         in such manner as the Committee deems appropriate, including, without
         limitation, the achievement of performance goals.  The Committee may,
         in its discretion, at any time and from time-to-time accelerate the
         exercisability of all or part of any Option.

         The period of any Option, which is the time period during which the
         Option may be exercised, shall be determined by the Committee and
         shall not extend more than ten years after the Grant Date.

         Each grant will specify the number of shares of Common Stock to which
         it pertains and whether Dividend Equivalents are awarded with respect
         to the Option, and, if awarded, the payment or crediting of such
         Dividend Equivalents.

         Options granted to a key employee who is an officer of the Company
         may, in the discretion of the Committee, provide for an automatic
         "reload" grant upon the exercise of the Option, with such terms and
         conditions on any such reload grant as the Committee may choose,
         provided, however, the option price may not be less than 100% of the
         Fair Market Value per share on the Grant Date of the reload option and
         its term may not exceed the remaining term for the exercised option.

         Options shall not be transferable other than by will or the laws of
         descent and distribution during the Participant's lifetime shall be
         exercisable only by the Participant.

         Termination for Cause, as defined in Section I, shall result in
         forfeiture of all outstanding Options.  Termination by the Company for
         any reason other than Cause (including terminations pursuant to formal
         severance programs sponsored by the Company or an affiliate), or
         terminations by reason of death, Disability or Retirement, shall
         result in a lapse





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         of all or a proportion of the Restricted Period applicable to any
         outstanding Award as set forth in Section XI.

         A person electing to exercise an Option shall give written notice of
         such election to the Company in such form as the Committee may
         require.  Upon exercise of an Option, the full option purchase price
         for the shares with respect to which the Option is being exercised
         shall be payable to the Company (i) in cash or by check payable and
         acceptable to the Company or (ii) subject to the approval of the
         Committee, (a) by tendering to the Company shares of Common Stock
         owned by such person having an aggregate Fair Market Value as of the
         date of exercise and tender that is not greater than the full option
         purchase price for the shares with respect to which the Option is
         being exercised and by paying any remaining amount of the option
         purchase price as provided in (i) above (provided that the Committee
         may, upon confirming that such person owns the number of additional
         shares being tendered, authorize the issuance of a new certificate for
         the number of shares being acquired pursuant to the exercise of the
         Option less the number of shares being tendered upon the exercise and
         return to such person (or not require surrender of) the certificate
         for the shares being tendered upon the exercise) or (b) by such person
         delivering to the Company a properly executed exercise notice together
         with irrevocable instructions to a broker to promptly deliver to the
         Company cash or a check payable and acceptable to the Company to pay
         the option purchase price and any withholding taxes; provided that in
         the event such person chooses to pay the option purchase price and
         withholding taxes as provided in (ii)(b) above, such person and the
         broker shall comply with such procedures and enter into such
         agreements of indemnity and other agreements as the Committee shall
         prescribe as a condition of such payment procedure.  Payment
         instruments will be received subject to collection.

         Notwithstanding any other provision in the Plan, if a Change in
         Control occurs while unexercised Options, and Stock Appreciation
         Rights relating thereto, remain outstanding under the Plan, then from
         and after the Acceleration Date, all Options and Stock Appreciation
         Rights shall be exercisable in full, whether or not otherwise
         exercisable.

VI.      INCENTIVE STOCK OPTIONS

         An Option designated by the Committee as an "Incentive Stock Option"
         is intended to qualify as an "incentive stock option" within the
         meaning of Section 422 of the Code and shall satisfy, in addition to
         the conditions of Section V, the conditions set forth in this Section
         VI.

         The purchase price of the Common Stock subject to an Incentive Stock
         Option shall be the greater of the Fair Market Value of the Common
         Stock on the Grant Date or the "fair market value" of the Common Stock
         as such term is used for purposes for Section 422(b)(4) of the Code.





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         An Incentive Stock Option shall not be granted to an employee who, on
         the Grant Date, owns stock possessing more than ten percent of the
         total combined voting power of all classes of stock of SFER, or of its
         parent or subsidiary corporations.

VII.     RESTRICTED STOCK

         The Committee may, from time to time and subject to the provisions of
         the Plan, grant Awards of Restricted Stock to employees of the
         Company; provided, however, no employee may receive in any calendar
         year Restricted Stock Awards with respect to more than 500,000 shares
         of Common Stock.

         The Committee shall, at the time shares of Restricted Stock are
         granted, designate the Restricted Period and the performance goals, if
         any, of the Company with respect to such Award.  Such goals must be
         achieved (and certified by the Committee) in order for a Participant
         to receive the unrestricted shares of Common Stock at the designated
         time.

         With respect to any Restricted Stock Award that is intended to meet
         the requirements of Section 162(m) of the Code, the performance goal
         or goals for such Award shall be with respect to one or more of the
         following: earnings per share; earnings before interest, taxes,
         depreciation and amortization expenses ("EBITDA"); earnings before
         interest and taxes ("EBIT"); EBITDA, EBIT or earnings before taxes and
         unusual or nonrecurring items as measured either against the annual
         budget or as a ratio to revenue; market share; sales; costs; return on
         equity; operating cash flow; production volumes compared to plan or
         prior years; reserves added; discretionary cash flow; return on net
         capital employed and/or stock price performance.  The goals can be
         applied, where appropriate, with respect to an individual, a business
         unit or the Company as a whole and need not be based on increases or
         positive results, but can be based on maintaining the status quo or
         limiting economic losses, for example.  Which goals to use with
         respect to such Award, the weighting of the goals if more than one is
         used, and whether the goal is to be measured against a
         Company-established budget or target, an index or a peer group of
         companies, shall also be determined by the Committee at the time of
         grant of the Award.

         Each certificate representing Restricted Stock awarded under the Plan
         shall be registered in the name of the Participant and, during the
         Restricted Period, shall be left on deposit with the Company with a
         stock power endorsed in blank.  Participants shall have the right to
         receive dividends paid on their Restricted Stock and to vote such
         shares.  Restricted Stock may not be sold, pledged, assigned,
         transferred or encumbered during the Restricted Period other than by
         will or the laws of descent and distribution.

         Termination for Cause, as defined in Section I, shall result in
         forfeiture of all outstanding Restricted Stock.  Termination by the
         Company for any reason other than Cause (including terminations
         pursuant to formal severance programs sponsored by the Company or an
         affiliate), or termination by reason of death, Disability or
         Retirement, shall result in a lapse





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         on all or a portion of the Restricted Period applicable to any
         outstanding Award as set forth in Section XI.

         Notwithstanding any other provisions in the Plan, if a Change in
         Control occurs while any shares of Restricted Stock remain subject to
         restrictions relating thereto, then from and after the Acceleration
         Date, (1) all such restrictions and all Restricted Periods shall lapse
         and (2) no later than the fifth day following the Acceleration Date,
         any Restricted Stock theretofore granted a Participant shall be
         delivered to the Participant.

VIII.    STOCK APPRECIATION RIGHTS

         The Committee may, from time to time and subject to the provisions of
         the Plan, grant Awards of Stock Appreciation Rights to employees of
         the Company subject to the limitation in Section II.  An Award of
         Stock Appreciation Rights, in the Committee's discretion, may or may
         not be made in tandem with the grant of an Option, and need not be
         granted at the same time as the Option grant to be made in tandem with
         the Option grant.

         The period of any Stock Appreciation Right, which is the time period
         during which the Stock Appreciation Right may be exercised, shall be
         determined by the Committee and shall not extend more than ten years
         after the Grant Date or, if in tandem with an Option, the period of
         such Option.

         Stock Appreciation Rights shall not be transferable other than by will
         or the laws of descent and distribution and during the Participant's
         lifetime shall be exercisable only by the Participant.

         Termination for Cause, as defined in Section I, shall result in
         forfeiture of all outstanding Stock Appreciation Rights.  Termination
         by the Company for any reason other than Cause (including terminations
         pursuant to formal severance programs sponsored by the Company or an
         affiliated company), or termination by reason of death, Disability or
         Retirement, shall result in a lapse on all or a portion of the
         Restricted Period applicable to any outstanding Award as set forth in
         Section XI.

         Subject to any restrictions or conditions imposed by the Committee,
         upon the exercise of a Stock Appreciation Right, the Company shall pay
         the amount, if any, by which the Fair Market Value of a share of
         Common Stock on the date of exercise exceeds the Fair Market Value of
         a share of Common Stock on the Grant Date.  The amount payable by the
         Company upon the exercise of a Stock Appreciation Right may be paid in
         cash or in shares of Common Stock or in any combination thereof as the
         Committee, in its sole discretion, shall determine, but no fractional
         shares shall be issuable pursuant to any Stock Appreciation Right.

         A person electing to exercise a Stock Appreciation Right shall give
         written notice of such election to the Company in such form as the
         Committee may require.  The exercise of Stock





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         Appreciation Rights or Options granted in tandem will result in an
         equal reduction in the number of corresponding Options or Stock
         Appreciation Rights which were granted in tandem with such Stock
         Appreciation Rights and Options.

         The Change in Control provisions in Section V, concerning Options and
         Stock Appreciation Rights granted in tandem with an Option, shall also
         apply to Stock Appreciation Rights that are not granted in tandem with
         Options.

IX.      PHANTOM UNITS

         The Committee may, from time to time and subject to the provisions of
         the Plan, grant Awards of Phantom Units to employees of the Company;
         provided, however, no employee  may receive in any calendar year
         Phantom Unit Awards with respect to more than 500,000 shares of Common
         Stock.  Each grant will specify the number of Phantom Units to which
         it pertains and the payment or crediting of any Dividend Equivalents
         with respect to such Phantom Units.  Phantom Units may not be sold,
         pledged, assigned, transferred or encumbered during the Restricted
         Period, other than by will or the laws of descent and distribution.

         The Committee shall, at the time Phantom Units are granted, designate
         the Restricted Period and the performance goals, if any, of the
         Company with respect to such Award.  Such goals must be achieved (and
         certified by the Committee) in order for a Participant to receive the
         value of the Phantom Units at the designated time.  To the extent
         earned in accordance with this Section and the grant of such Award,
         all such Phantom Units must be paid as soon as practicable following
         the end of the Restricted Period in cash or in shares of Common Stock
         or in any combination thereof as the Committee, in its sole discretion
         shall determine, but no fractional shares shall be issuable pursuant
         to any Phantom Unit.

         With respect to any Phantom Unit Award that is intended to meet the
         requirements of Section 162(m) of the Code, the performance goal or
         goals for such Award shall be with respect to one or more of the
         following:  earnings per share; earnings before interest, taxes,
         depreciation and amortization expenses ("EBITDA"); earnings before
         interest and taxes ("EBIT"); EBITDA, EBIT or earnings before taxes and
         unusual or nonrecurring items as measured either against the annual
         budget or as a ratio to revenue; market share; sales; costs; return on
         equity; operating cash flow; production volumes compared to plan or
         prior years; reserves added; discretionary cash flow; return on net
         capital employed and/or stock price performance.  The goals can be
         applied, where appropriate, with respect to an individual, a business
         unit or the Company as a whole and need not be based on increases or
         positive results, but can be based on maintaining the status quo or
         limiting economic losses, for example.  Which goals to use with
         respect to such Award, the weighting of the goals if more than one is
         used, and whether the goal is to be measured against a
         Company-established budget or target, an index or a peer group of
         companies, shall also be determined by the Committee at the time of
         grant of the Award.


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         At the discretion of the Committee, Phantom Units (other than those
         intended to meet the requirements of Section 162(m) of the Code) may
         at any time be converted into NonQualified Stock Options, Bonus Stock
         or shares of Restricted Stock or any combination thereof having a
         value, as determined in the good faith judgment of the Committee,
         substantially equal to the value of the Phantom Units so converted.

         Termination for Cause, as defined in Section I, shall result in
         forfeiture of all outstanding Phantom Units.  Termination by the
         Company for any reason other than Cause (including terminations
         pursuant to formal severance programs sponsored by the Company or an
         affiliate), or termination by reason of death, Disability or
         Retirement, shall result in a lapse on all or a proportion of the
         Restricted Period applicable to any outstanding Award as set forth in
         Section XI.

         Notwithstanding any other provisions in the Plan, if a Change in
         Control occurs while any Phantom Units remain outstanding, then from
         and after the Acceleration Date, (1) all designated goals shall be
         deemed to have been met and (2) no later than the fifth day following
         the Acceleration Date, the full value of all such Phantom Units shall
         be paid to the Participant in cash.

X.       CONTINUED EMPLOYMENT

         Participation in the Plan shall confer no rights to continued
         employment with the Company, nor shall it restrict the rights of the
         Company to terminate a Participant's employment relationship at any
         time.

XI.      TERMINATION OF EMPLOYMENT

         In the event of a Participant's termination of employment with the
         Company by reason of death, the Restricted Period shall lapse on all
         of the Participant's outstanding Awards.

         In the event of a Participant's termination of employment with the
         Company by reason of Disability, Retirement or by the Company for any
         reason other than Cause, a portion of all of the Participant's
         outstanding Awards shall be immediately forfeited to the extent not
         then otherwise vested.  The portion of an Award forfeited shall be a
         fraction, the denominator of which is the total number of months of
         any Restricted Period applicable to the Award (rounded up to the
         nearest whole month) and the numerator of which is the number of
         months remaining in such Restricted Period (rounded up to the nearest
         whole month) as of the termination of employment.

         Unless the Committee directs the acceleration of the payment of that
         portion of an Award of Phantom Units or Restricted Stock that is not
         automatically forfeited as provided above upon the Participant's
         termination of employment such Phantom Units and Restricted Stock
         shall be payable or issued, as the case may be, at the end of the
         Restricted Period applicable





                                      -12-
<PAGE>   
         to such Awards, but only to the extent otherwise payable pursuant to
         the Award Agreement evidencing such Phantom Units or Restricted Stock,
         e.g., the goals, if any, for such Award are achieved.  However, the
         Committee shall not accelerate the payment of any Award intended to
         qualify under Section 162(m).  Any Awards not payable or earned at the
         end of such Restricted Period, as provided above, shall be forfeited
         at such time.

         Phantom Units and Restricted Stock upon which the Restricted Period
         lapse as provided above shall be paid or issued to the Participant or,
         in the case of death prior to such payment or issuance, to the
         Participant's designated beneficiary, or in the absence of such
         designation, to the person to whom the Participant's rights pass by
         will or the laws of descent and distribution.

         Options and Stock Appreciation Rights which are or become exercisable
         at the time of a Participant's termination of employment with the
         Company (i) by reason of Disability or Retirement or by the Company
         for any reason other than Cause, may be exercised by the Participant
         within three years following such termination of employment and (ii)
         for any reason other than Cause, death or a reason specified in (i),
         may be exercised by the Participant within three months following such
         termination, but, in either event, not after the expiration of the
         period of the Option or Stock Appreciation Right.  Options and Stock
         Appreciation Rights which are or become exercisable at the time of a
         Participant's termination of employment with the Company by reason of
         death, may be exercised by the Participant's designated beneficiary,
         or in the absence of such designation, by the person to whom the
         Participant's rights pass by will or the laws of descent and
         distribution at any time within three years after the Participant's
         death but not after the expiration of the period of the Option or
         Stock Appreciation Right.  Options and Stock Appreciation Rights that
         do not become exercisable as provided above, or that are not otherwise
         vested, shall be immediately forfeited on termination.

         In the event of a Participant's termination of employment with the
         Company for any reason other than as provided above, all Awards not
         otherwise vested or earned as of the date of such termination of
         employment shall be immediately forfeited on termination.

         Notwithstanding the foregoing however, the Committee may determine
         that termination of employment by reasons of any other special
         circumstances not set forth above shall not terminate an Award or a
         portion thereof.

XII.     AWARD AGREEMENT

         Each person granted an Award pursuant to the Plan shall sign an Award
         Agreement which signifies the offer of the Award by the Company and
         the acceptance of the Award by the person in accordance with the terms
         of the Award and the provisions of the Plan.  Each Award Agreement
         shall reflect the terms and conditions of the Award.





                                      -13-
<PAGE>   
XIII.    ADJUSTMENTS UPON CHANGES IN CAPITALIZATION

         In the event of a change in the capitalization of MRI due to a stock
         split, stock dividend, recapitalization, merger, consolidation,
         combination, or similar event, the aggregate shares subject to the
         Plan and the terms of any existing Awards shall be adjusted by the
         Committee to reflect such change.

XIV.     PARACHUTE TAX PROVISION

         To the extent that the acceleration of vesting or any payment,
         distribution or issuance made to a Participant under the Plan (a
         "Benefit") would be subject to a golden parachute excise tax under
         Section 4999(a) of the Code (a "Parachute Tax"), such acceleration of
         the Participant's Awards shall be reduced to the extent necessary so
         that no portion thereof shall be subject to the Parachute Tax, but
         only if, by reason of such reduction, the Participant's net after tax
         benefit shall exceed the net after tax benefit if such reduction were
         not made.  The Participant may direct which Awards shall not be
         accelerated for this purpose.

XV.      BONUS STOCK

         The Committee may, from time to time and subject to the provision of
         the Plan, grant Awards of Bonus Stock to employees of the Company.  In
         addition, the Committee shall have the authority to pay in shares of
         Common Stock all or any portion of the cash amounts payable under any
         other compensation program of the Company, but not exceeding $1
         million with respect to any employee during any calendar year.

XVI.     SECURITIES LAW AGREEMENT

         If, at the time of the exercise of any Option, Director Option, or
         Stock Appreciation Right or Award of Restricted Stock or Bonus Stock,
         in the opinion of counsel for the Company, it is necessary or
         desirable, in order to comply with any then applicable laws or
         regulations relating to the sale of securities, for the individual
         exercising the Option, Director Option, or Stock Appreciation Right or
         receiving the Restricted Stock or Bonus Stock to agree to hold any
         shares issued to the individual for investment and without intention
         to resell or distribute the same and for the individual to agree to
         dispose of such shares only in compliance with such laws and
         regulations, the individual will, upon the request of the Company,
         execute and deliver to the Company a further agreement to such effect.

XVII.    WITHHOLDING FOR TAXES

         Any cash payment under the Plan shall be reduced by any amounts
         required to be withheld or paid with respect thereto under all present
         or future federal, state and local taxes and other laws and
         regulations that may be in effect as of the date of each such payment
         ("Tax Amounts").  Any issuance of Common Stock pursuant to the
         exercise of an Option or other





                                      -14-
<PAGE>   
         distribution of Common Stock under the Plan shall not be made until
         appropriate arrangements have been made for the payment of any amounts
         that may be required to be withheld or paid with respect thereto.
         Such arrangements may, at the discretion of the Committee, include
         allowing the Participant to tender to the Company shares of Common
         Stock owned by the Participant, being part of the broker-cashless
         exercise procedure; or to request the Company to withhold a portion of
         the shares of Common Stock being acquired pursuant to the exercise or
         otherwise distributed to the Participant, which have a Fair Market
         Value per share as of the date of such Award exercise, tender or
         withholding that is not greater than the sum of all Tax Amounts,
         together with payment of any remaining portion of all Tax Amounts in
         cash or by check payable and acceptable to the Company.

XVIII.   AUTOMATIC DIRECTOR AWARDS

         Each Director who serves in such capacity on the date of the closing
         of the initial public offering of the Common Stock (the "IPO") shall
         automatically receive, on such date, a Director Option for 10,000
         shares of Common Stock.  Each person who was a member of the Board on
         the IPO date, did not qualify to receive the foregoing grant on the
         IPO date, and is a Director on the date MRI is spunoff from SFER shall
         receive a Director Option for 10,000 shares of Common Stock on such
         spinoff date.  Each Director who is elected or appointed to the Board
         for the first time after the IPO date shall automatically receive, on
         the date of his or her election or appointment, a Director Option for
         10,000 shares of Common Stock.  These Director Options shall be
         subject to the limitations described in subparagraph 1. below.

         On the date of the regular Annual Meeting of Stockholders of the
         Company in each year that this Plan is in effect (commencing with the
         Annual Meeting of Stockholders that follows the above initial grant
         date), each Director who is serving on that day, including a Director
         who was elected for the first time at such annual meeting, shall
         automatically receive the following:

         1.      Director Options.  A Director Option grant for 5,000 shares of
                 Common Stock.  Each Director Option will be subject to all of
                 the limitations contained in the following provisions:

                 (a)      Each Director Option shall become exercisable
                          (vested) on the earlier of (i) the first day that is
                          more than six months following its Grant Date or (ii)
                          an Acceleration Date occurring after the Grant Date;
                          provided that in no event shall any Director Option
                          be exercisable prior to the approval of this Plan by
                          the Company's stockholders.

                 (b)      The option purchase price of each Director Option
                          shall be the Fair Market Value of the Common Stock on
                          its effective Grant Date.





                                      -15-
<PAGE>   
                 (c)      Each Director Option that is vested may be exercised
                          in full at one time or in part from time to time by
                          giving written notice to the Company, stating the
                          number of shares of Common Stock with respect to
                          which the Director Option is being exercised,
                          accompanied by payment in full of the option purchase
                          price for such shares, which payment may be (i) in
                          cash by check acceptable to the Company, (ii) by the
                          transfer to the Company of shares of Common Stock
                          already-owned by the optionee having an aggregate
                          Fair Market Value at the date of exercise equal to
                          the aggregate option purchase price, (iii) from the
                          proceeds of a sale through a broker of some or all of
                          the shares to which such exercise relates, or (iv) by
                          a combination of such methods of payment.

                 (d)      Each Director Option shall expire 10 years from the
                          Grant Date thereof, but shall be subject to earlier
                          termination as follows: (1) to the extent exercisable
                          as of the date a Director ceases to serve as a
                          director of the Company (the "Resignation Date"), the
                          Director Option may be exercised only within three
                          years of such Resignation Date by the optionee or the
                          optionee's legal representative or the person to whom
                          the Nonemployee Director's rights shall pass by will
                          or the laws of descent and distribution, as the case
                          may be, and to the extent not so exercised shall
                          terminate on the third anniversary of the Resignation
                          Date and (2) to the extent not exercisable as of the
                          Resignation Date, the Director Option shall terminate
                          on such Resignation Date.

         2.      Restricted Stock.  A Restricted Stock Award for 1,000 shares
of Common Stock.

                 (a)      The Restricted Period shall lapse on an Award of
                          Restricted Stock granted pursuant to this Section
                          XVIII upon the earlier of the date that is six months
                          and one day after the Grant Date, the Director's
                          death, Retirement, or Disability or the occurrence of
                          a Change in Control.  If a Director ceases to be a
                          member of the Board during a Restricted Period for
                          any reason other than death, Disability or
                          Retirement, the Restricted Stock subject to such
                          Restricted Period shall be forfeited.

                 (b)      Each certificate representing Restricted Stock
                          awarded hereunder shall be registered in the name of
                          the director and, during the Restricted Period, shall
                          be left on deposit with MRI with a stock power
                          endorsed in blank.  Directors shall have the right to
                          receive dividends paid on their Restricted Stock and
                          to vote such shares.  Restricted Stock may not be
                          sold, pledged, assigned, transferred or encumbered
                          during the Restricted Period other than by will or
                          the laws of descent and distribution.

         In the event that the number of shares of Common Stock available for
         Director Awards under this Plan is insufficient to make all automatic
         Awards provided for in this Section XVIII on





                                      -16-
<PAGE>   
         the applicable date, then all Directors who are entitled to a grant on
         such date shall share ratably in the number of shares then available
         for grant under this Plan (Restricted Stock Awards shall be made
         first, then the Director Options), and shall have no right to receive
         a grant with respect to the deficiencies in the number of available
         shares and all future grants under this Section XVIII shall terminate.

         Grants made pursuant to this Section XVIII shall be subject to all of
         the terms and conditions of this Plan; however, if there is a conflict
         between the terms and conditions of this Section XVIII and the terms
         and conditions of any other Section, then the terms and conditions of
         this Section XVIII shall control.

XIX.     DESIGNATION OF BENEFICIARY

         Each Participant to whom an Award has been made under this Plan may
         designate a beneficiary or beneficiaries (which beneficiary may be an
         entity other than a natural person) to exercise any rights or receive
         any payment that under the terms of such Award may become exercisable
         or payable on or after the Participant's death.  At any time, and from
         time to time, any such designation may be changed or canceled by the
         Participant without the consent of any such beneficiary.  Any such
         designation, change or cancellation must be on a form provided for
         that purpose by the Committee and shall not be effective until
         received by the Committee.  If no beneficiary has been named by a
         deceased Participant, or the designated beneficiaries have predeceased
         the Participant, the beneficiary shall be the Participant's estate.
         If a Participant designates more than one beneficiary, any such
         exercise or payment under this Plan shall be made in equal shares
         unless the Participant has designated otherwise, in which case the
         exercise or payment shall be made in the shares designated by the
         Participant.

XX.      PREEMPTION BY APPLICABLE LAWS AND REGULATIONS

         Anything in the Plan or any agreement entered into pursuant to the
         Plan to the contrary notwithstanding, if, at any time specified herein
         or therein for the making of any determination, the issuance or other
         distribution of shares of Common Stock, the payment of consideration
         to an employee as a result of the exercise of any Stock Appreciation
         Right or Limited Right, or the payment of any Phantom Units, as the
         case may be, any law, regulation or requirement of any governmental
         authority having jurisdiction in the premises shall require either the
         Company or the Participant (or the Participant's beneficiary), as the
         case may be, to take any action in connection with any such
         determination, the shares then to be issued or distributed, or such
         payment, the issue or distribution of such shares or the making of
         such determination or payment, as the case may be, shall be deferred
         until such action shall have been taken.





                                      -17-
<PAGE>   
XXI.     EFFECTIVE DATE AND DURATION OF PLAN

         This Plan shall become effective upon its approval by the stockholders
         of MRI.  Unless previously terminated by the Board, the Plan shall
         terminate on the tenth anniversary of its approval by the
         stockholders; provided, however, that such termination shall not
         terminate any Award then outstanding.  No Awards shall be made
         pursuant to this Plan after September 16, 2006.

XXII.    TERMINATION AND AMENDMENT

         The Board may suspend, terminate, modify or amend the Plan at such
         times and in such manner as it deems appropriate, provided that any
         amendment that would increase the number of shares available under the
         Plan shall be subject to the approval of MRI's stockholders.  No
         suspension, termination, modification or amendment of the Plan may
         terminate a Participant's existing Award or materially adversely
         affect a Participant's rights under such Award.

XXIII.   MISCELLANEOUS

         (a)     Nothing contained in the Plan shall be construed as conferring
         upon any employee the right to continue in the employ of the Company.

         (b)     No person shall have any rights as a stockholder with respect
         to shares covered by such person's Option, Director Option, Stock
         Appreciation Rights or Restricted Stock award until the date of the
         issuance of shares pursuant thereto.  No adjustment will be made for
         dividends or other distributions or rights for which the record date
         is prior to the date of such issuance.  An employee shall have no
         rights as a stockholder with respect to any award of Phantom Units
         under the Plan.

         (c)     Nothing contained in the Plan shall be construed as giving any
         person, such person's beneficiaries or any other person any equity or
         other interest of any kind in any assets of the Company or creating a
         trust of any kind or a fiduciary relationship of any kind between the
         Company and any such person.

         (d)     Nothing contained in the Plan shall be construed to prevent
         the Company from taking any corporate action that is deemed by the
         Company to be appropriate or in its best interest, whether or not such
         action would have an adverse effect on the Plan or any award made
         under the Plan.  No employee, beneficiary or other person shall have
         any claim against the Company as a result of any such action.

         (e)     No grantee nor any beneficiary thereof shall have the power or
         right to sell, exchange, pledge, transfer, assign or otherwise
         encumber or dispose of such grantee's or beneficiary's interest
         arising under the Plan or in any Award received under the Plan; nor
         shall such





                                      -18-
<PAGE>   
         interest be subject to seizure for the payment of any grantee's or
         beneficiary's debts, judgments, alimony, or separate maintenance or be
         transferable by operation of law in the event of a grantee's or
         beneficiary's bankruptcy or insolvency and to the extent any such
         interest arising under the Plan or Award received under the Plan is
         awarded to a spouse pursuant to any divorce proceeding, such interest
         shall be deemed to be terminated and forfeited notwithstanding any
         vesting provisions or other terms herein or in the agreement
         evidencing such award.

         (f)     All rights and obligations under the Plan shall be governed
         by, and the Plan shall be construed in accordance with, the laws of
         the State of Delaware without regard to the principles of conflicts of
         laws.  Titles and headings to Sections herein are for purposes of
         reference only, and shall in no way limit, define or otherwise affect
         the meaning or interpretation of any provisions of the Plan.

                                      -19-