**Exhibit10.1**

 

**U.S.RESTAURANT PROPERTIES, INC.**

** **

**FLEXIBLEINCENTIVE PLAN**

 

SECTION 1.           PURPOSE OF THIS PLAN

 

The purposes ofthe U.S. Restaurant Properties, Inc. Flexible Incentive Plan are to (i) promotethe interests of U.S. Restaurant Properties, Inc. (the “Company”) andits stockholders by enabling the Company and each of its Subsidiaries (ashereinafter defined) to (A) attract, motivate and retain their respectiveemployees and non-employee Directors (as hereinafter defined) by offering suchemployees and Non-Employee Directors performance based stock incentives andother equity interests in the Company and other incentive awards and (B)compensate Consultants (as hereinafter defined) by offering such Consultantsperformance based stock incentives and other equity interests in the Companyand other incentive awards that recognize the creation of value for thestockholders of the Company and (ii) promote the Company’s long-term growth andsuccess.  To achieve these purposes,eligible Persons may receive Stock Options, Restricted Stock, PerformanceAwards and any other Awards (as such terms are hereinafter defined), or anycombination thereof.

 

SECTION 2.           DEFINITIONS

 

As used in thisPlan, the following terms shall have the meanings set forth below unless the contextotherwise requires:

 

2.1.          “*Award*” shall mean the grant of a StockOption, Restricted Stock, a Performance Award, a Dividend Equivalent or anyother grant of incentive compensation pursuant to this Plan.

 

2.2.          “*Book Value*” shall mean the excess of thevalue of the assets of an entity over the liabilities of such entity(determined in accordance with United States generally accepted accountingprinciples, consistently applied).

 

2.3.          “*Board*” shall mean the Board of Directorsof the Company, as the same may be constituted from time to time.

 

2.4.          “*Cause*” shall mean termination of aParticipant’s employment with the Company or a Subsidiary upon the occurrenceof one or more of the following events:

 

(a)           TheParticipant’s failure to substantially perform such Participant’s duties withthe Company or any Subsidiary as determined by the Committee or the Boardfollowing receipt by the Participant of written notice of such failure and theParticipant’s failure to remedy such failure within thirty (30) days afterreceipt of such notice (other

 

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than a failureresulting from the Participant’s incapacity during physical or mental illness);

 

(b)           TheParticipant’s willful failure or refusal to perform specific directives of theBoard, which directives are consistent with the scope and nature of theParticipant’s duties and responsibilities, and which are not remedied by theParticipant within thirty (30) days after being notified in writing of suchParticipant’s failure by the Board;

 

(c)           TheParticipant’s conviction of a felony; or

 

(d)           A breachof the Participant’s fiduciary duty to the Company or any Subsidiary or willfulviolation in the course of performing the Participant’s duties for the Companyor any Subsidiary of any law, rule or regulation (other than traffic violationsor other minor offenses).  No act orfailure to act on the Participant’s part shall be considered willful unlessdone or omitted to be done in bad faith and without reasonable belief that theaction or omission was in the best interest of the Company;

 

provided, however,that for each employee of the Company who has entered into an employmentagreement with the Company, “cause” shall have the meaning provided in suchemployment agreement.

 

2.5.          “*Change in Control*” shall mean, after theEffective Date, (i) a Corporate Transaction is consummated, other than aCorporate Transaction that would result in substantially all of the holders ofvoting securities of the Company outstanding immediately prior thereto owning(directly or indirectly and in substantially the same proportions relative toeach other) not less than fifty percent (50%) of the combined voting power ofthe voting securities of the issuing/surviving/resulting entity outstandingimmediately after such Corporate Transaction or (ii) an agreement for the saleor other disposition of all or substantially all of the Company’s assets(evaluated on a consolidated basis, without regard to whether the sale ordisposition is effected via a sale or disposition of assets of the Company, thesale or disposition of the securities of one or more Subsidiaries or the saleor disposition of the assets of one or more Subsidiaries) is consummated.

 

2.6.          “*Code*” shall mean the Internal Revenue Codeof 1986, as amended from time to time (or any successor to such legislation).

 

2.7.          “*Committee*” shall mean the CompensationCommittee of the Board as such Compensation Committee may be constituted fromtime to time; provided, however, membership on the Committee shall be limitedto Non Employee Directors; and provided further, the Committee will consist ofnot less than two (2) Directors.  Allmembers of the Committee will serve at the pleasure of the Board.

 

2.8.          “*Common Stock*” shall mean the Common Stock,par value $0.001 per share, of the Company.

 

2.9.          “*Company*” shall have the meaning set forthin Section 1 of this Plan.

 

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2.10.        “*Consultant*” shall mean any Person who orwhich is engaged by the Company or any Subsidiary to render consultingservices.

 

2.11.        “*Corporate Transaction*” shall mean anyrecapitalization (other than a transaction contemplated by Section 13(a) ofthis Plan) merger, consolidation or conversion involving the Company or anyexchange of securities involving the Common Stock (other than a transactioncontemplated by Section 13(a) of this Plan), provided that a primary issuanceof shares of Common Stock shall not be deemed to be a “Corporate Transaction.”

 

2.12.        “*Designated Beneficiary*” shall mean thebeneficiary designated by a Participant, in a manner authorized by theCommittee or the Board, to exercise the rights of such Participant in the eventof such Participant’s death.  In theabsence of an effective designation by a Participant, the DesignatedBeneficiary shall be such Participant’s estate.

 

2.13.        “*Director*” shall mean any member of theBoard.

 

2.14.        “*Disability*” shall mean permanent and totalinability to engage in any substantial gainful activity, even with reasonableaccommodation, by reason of any medically determinable physical or mentalimpairment which has lasted or can reasonably be expected to last withoutmaterial interruption for a period of not less than twelve (12) months, asdetermined in the sole discretion of the Committee or the Board.

 

2.15.        “*Dividend Equivalent*” shall mean an awardgranted pursuant to Section 8 of this Plan of a right to receive certainpayments with respect to Shares.

 

2.16.        “*Effective Date*” shall mean December 18,1997.

 

2.17.        “*Exchange Act*” shall mean the SecuritiesExchange Act of 1934, as amended from time to time (or any successor to suchlegislation).

 

2.18.        “*Fair Market Value*” shall mean with respectto the Shares, as of any date, the value established by the Board.  Fair market value shall be determinedwithout regard to any restriction other than a restriction which, by its terms,will never lapse.

 

2.19.        “*Incentive Stock Option*” shall mean anyoption to purchase Shares awarded pursuant to this Plan which qualifies as an“Incentive Stock Option” pursuant to Section 422 of the Code.

 

2.20.        “*Non Employee Director*” shall have themeaning set forth in Rule 16b 3 (or any successor to such rule) promulgatedunder the Exchange Act) who are also “outside directors,” as required pursuantto Section 162(m) of the Code and such Treasury regulations as may bepromulgated thereunder.

 

2.21.        “*Non Qualified Stock Option*” shall mean anyoption to purchase Shares awarded pursuant to this Plan that does not qualifyas an Incentive Stock Option (including, without limitation, any option topurchase Shares originally designated as or intended to qualify as an IncentiveStock Option) but which does not (for whatever reason) qualify as an IncentiveStock Option.

 

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2.22.        “*Non Share Method*” shall have the meaning setforth in Section 6.6(c) of this Plan.

 

2.23.        “*Optionee*” shall mean any Participant whohas been granted and holds a Stock Option awarded pursuant to this Plan.

 

2.24.        “*Participant*” shall mean any Person who hasbeen granted and holds an Award granted pursuant to this Plan.

 

2.25.        “*Performance Award*” shall mean any Awardgranted pursuant to this Plan of Shares, rights based upon, payable in orotherwise related to Shares (including Restricted Stock) or cash, as theCommittee or Board may determine, at the end of a specified performance periodestablished by the Committee or Board and may include, without limitation,Performance Shares or Performance Units.

 

2.26.        “*Performance Shares*” shall have the meaningset forth in Section 9.1 of this Plan.

 

2.27.        “*Performance Units*” shall have the meaningset forth in Section 9.1 of this Plan.

 

2.28.        “*Permitted Modification*” shall be deemed tobe any modification of an Award which is made in connection with a CorporateTransaction and which provides in connection with a Stock Option, thatsubsequent to the consummation of the Corporate Transaction (i) the exerciseprice of such Stock Option will be proportionately adjusted to reflect theexchange ratio applicable to the particular Corporate Transaction and/or (ii)the nature and amount of consideration to be received upon exercise of theStock Option will be the same (on a per share basis) as was received by Personswho were holders of shares of Common Stock immediately prior to theconsummation of the Corporate Transaction.

 

2.29.        “*Person*” shall mean an individual,partnership, limited liability company, corporation, joint stock company,trust, estate, joint venture, association or unincorporated organization or anyother form of business organization.

 

2.30.        “*Plan*” shall mean this U.S. RestaurantProperties, Inc. Flexible Incentive Plan as it may be amended from time totime.

 

2.31.        “*Reload Option*” shall mean a Stock Optionas defined in Section 6.6(b) of this Plan.

 

2.32.        “*Reorganization*” shall mean any stocksplit, stock dividend, reverse stock split, combination of Shares or any othersimilar increase or decrease in the number of Shares issued and outstanding.

 

2.33.        “*Restricted Stock*” shall mean any Sharesgranted pursuant to this Plan that are subject to restrictions or substantialrisk of forfeiture.

 

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2.34.        “*Retirement*” shall mean termination ofemployment of an employee of the Company or any Subsidiary, other thandischarge for Cause, after age 65 or on or before age 65 if pursuant to theterms of any retirement plan maintained by the Company or any Subsidiary inwhich such employee participates.

 

2.35.        “*Securities Act*” shall mean the SecuritiesAct of 1933, as amended from time to time (or any successor to such legislation).

 

2.36.        “*Share Retention Method*” shall have themeaning set forth in Section 6.6(c) of this Plan.

 

2.37.        “*Shares*” shall mean shares of the CommonStock and any shares of capital stock or other securities hereafter issued orissuable upon, in respect of or in substitution or exchange for shares ofCommon Stock.

 

2.38.        “*Stock Option*”  shall mean any Incentive Stock Option or Non Qualified StockOption.

 

2.39.        “*Subsidiary*” shall mean a subsidiarycorporation of the Company, as defined in Section 424(f) of the Code.

 

2.40.        “*Transactional Consideration*” shall havethe meaning set forth in Section 13(b) of this Plan.

 

SECTION 3.           ADMINISTRATION OF THISPLAN

 

3.1.          *Committee/Board*.  This Plan shall be administered and interpreted by the Committeeand/or the Board.

 

3.2.          *Awards*. (a)  Subject to the provisions ofthis Plan and directions from the Board, the Committee is authorized to:

 

(i)            determinethe Persons to whom Awards are to be granted;

 

(ii)           determinethe types and combinations of Awards to be granted; the number of Shares to becovered by an Award; the exercise price of an Award; the time or times when anAward shall be granted and may be exercised; the terms, performance criteria orother conditions, vesting periods or any restrictions for an Award; anyrestrictions on Shares acquired pursuant to the exercise of an Award; and anyother terms and conditions of an Award;

 

(iii)          interpret the provisions of this Plan;

 

(iv)          prescribe,amend and rescind rules and regulations relating to this Plan;

 

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(v)           determinewhether, to what extent and under what circumstances to provide loans from theCompany to Participants to exercise Awards granted pursuant to this Plan, andthe terms and conditions of such loans;

 

(vi)          relyupon employees of the Company for such clerical and recordkeeping duties as maybe necessary in connection with the administration of this Plan;

 

(vii)         accelerate or defer (with the consent of theParticipant) the vesting of any rights pursuant to an Award; and

 

(viii)        make all other determinations and take allother actions necessary or advisable for the administration of this Plan.

 

(b)           Withoutlimiting the Board’s right to amend this Plan pursuant to Section 13 of thePlan, the Board may take all actions authorized by Section 3.2(a) of this Plan,including, without limitation, granting such Awards pursuant to this Plan asthe Board may deem necessary or appropriate.

 

3.3.          *Procedures*.

 

(a)           Proceedingsby the Board with respect to this Plan will be conducted in accordance with thearticles of incorporation and bylaws of the Company.

 

(b)           Amajority of the Committee members shall constitute a quorum for action by theCommittee.  All determinations of theCommittee shall be made by not less than a majority of its members.

 

(c)           Allquestions of interpretation and application of this Plan or pertaining to anyquestion of fact or Award granted hereunder will be decided by the Committee orthe Board, whose decision will be final, conclusive and binding upon theCompany and each other affected party.

 

SECTION 4.           SHARES SUBJECT TO PLAN

 

4.1.          *Limitations*.  The maximum number of Shares that may be issued with respect toAwards granted pursuant to this Plan at any time shall be an amount equal to4.9% of the Company’s issued and outstanding shares of Common Stock at suchtime; provided, however, that the maximum number of Shares issuable pursuant toIncentive Stock Options granted under the Plan shall be 575,000.  The Shares issued pursuant to this Plan maybe authorized but unissued Shares, or may be issued Shares which have beenreacquired by the Company.

 

4.2.          *Changes*. To the extent that any Award granted pursuant to this Plan shall beforfeited, shall expire or shall be cancelled, in whole or in part, then thenumber of Shares covered by the Award so forfeited, expired or cancelled mayagain be awarded pursuant to the provisions of this Plan.  In the event that Shares are delivered tothe Company in full or partial payment of the exercise price for the exerciseof a Stock Option, the number of Shares available for future Awards grantedpursuant to this Plan shall be reduced only by the net number of

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Shares issued upon theexercise of the Stock Option.  Awardsthat may be satisfied either by the issuance of Shares or by cash or otherconsideration shall, until the form of consideration to be paid is finallydetermined, be counted against the maximum number of Shares that may be issuedpursuant to this Plan.

 

SECTION 5.           ELIGIBILITY

 

Eligibility forparticipation in this Plan shall be confined to those individuals who areemployed by the Company or a Subsidiary and such Consultants and non-employeeDirectors as may be designated by the Committee or the Board.  In making any determination as to Persons towhom Awards shall be granted, the type of Award and/or the number of Shares tobe covered by the Award, the Committee or the Board shall consider the positionand responsibilities of the Person, the importance of the Person to theCompany, the duties of the Person, the past, present and potentialcontributions of the Person to the growth and success of the Company and suchother factors as the Committee or the Board may deem relevant in connectionwith accomplishing the purposes of this Plan.

 

SECTION 6.           STOCK OPTIONS

 

6.1.          *Grants*. The Committee or the Board may grant Stock Options alone or in additionto other Awards granted pursuant to this Plan to any eligible Person.  Each Person so selected shall be offered aStock Option to purchase the number of Shares determined by the Committee orthe Board.  The Committee or the Boardshall specify whether such Stock Option is an Incentive Stock Option or a NonQualified Stock Option and any other terms or conditions relating to suchAward; provided, however only employees of the Company or a Subsidiary may begranted Incentive Stock Options.  To theextent that any Stock Option designated as an Incentive Stock Option does notqualify as an Incentive Stock Option (whether because of its provisions, thefailure of the stockholders of the Company to authorize the issuance ofIncentive Stock Options, the time or manner of its exercise or otherwise), suchStock Option or the portion thereof which does not qualify shall be deemed toconstitute a Non Qualified Stock Option. Each Person to be granted a Stock Option shall enter into a writtenagreement with the Company, in such form as the Committee or the Board mayprescribe, setting forth the terms and conditions (including, withoutlimitation, the exercise price and vesting schedule) of the Stock Option.  At any time and from time to time, theOptionee and the Committee or the Board may agree to modify an option agreementin such respects as they may deem appropriate, including, without limitation,the conversion of an Incentive Stock Option into a Non Qualified StockOption.  The Committee or the Board mayrequire that an Optionee meet certain conditions before the Stock Option or aportion thereof may vest or be exercised, as, for example, that the Optioneeremain in the employ of the Company or a Subsidiary for a stated period orperiods of time.

 

6.2.          *Incentive Stock Options Limitations*.

 

(a)           Inno event shall any individual be granted Incentive Stock Options to the extentthat the Shares covered by any Incentive Stock Options (and any incentive stockoptions granted pursuant to any other plans of the Company or its Subsidiaries)that may be exercised for the first time by such individual in any calendaryear have an aggregate Fair Market Value in excess of $100,000.  For this purpose, the Fair Market Value ofthe

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Shares shall be determined as of the date(s) on whichthe Incentive Stock Options are granted. It is intended that the limitation on Incentive Stock Options providedin this Section 6.2(a) be the maximum limitation on Stock Options which may beconsidered Incentive Stock Options pursuant to the Code.

 

(b)           Theoption exercise price of an Incentive Stock Option shall not be less than onehundred percent (100%) of the Fair Market Value of the Shares subject to suchIncentive Stock Option on the date of the grant of such Incentive Stock Option.

 

(c)           Notwithstandinganything herein to the contrary, in no event shall any employee owning morethan ten percent (10%) of the total combined voting power of the Company or anySubsidiary be granted an Incentive Stock Option unless the option exerciseprice of such Incentive Stock Option shall be at least one hundred ten percent(110%) of the Fair Market Value of the Shares subject to such Incentive StockOption on the date of the grant of such Incentive Stock Option.

 

(d)           Inno event shall any individual be granted an Incentive Stock Option after theexpiration of ten (10) years from the date this Plan is adopted or is approvedby the stockholders of the Company (if stockholder approval is required bySection 422 of the Code).

 

(e)           Tothe extent stockholder approval of this Plan is required by Section 422 of theCode, no individual shall be granted an Incentive Stock Option unless this Planis approved by the stockholders of the Company within twelve (12) months beforeor after the date this Plan is initially adopted.  In the event this Plan is amended to increase the number ofShares subject to issuance upon the exercise of Incentive Stock Options or tochange the class of employees eligible to receive Incentive Stock Options, noindividual shall be granted an Incentive Stock Option unless such amendment isapproved by the stockholders of the Company within twelve (12) months before orafter such amendment.

 

(f)            NoIncentive Stock Option shall be granted to any employee owning more than tenpercent (10%) of the total combined voting power of the Company or anySubsidiary unless the term of such Incentive Stock Option is equal to or lessthan five (5) years measured from the date on which such Incentive Stock Optionis granted.

 

6.3.          *Option Term*.  The term of a Stock Option shall be for such period of time fromthe date of its grant as may be determined by the Committee or the Board;provided, however, that no Incentive Stock Option shall be exercisable laterthan ten (10) years from the date of its grant.

 

6.4.          *Time of Exercise*.  No Stock Option may be exercised unless itis exercised prior to the expiration of its stated term and, in connection withoptions granted to employees of the Company or its Subsidiaries,  at the time of such exercise, the Optioneeis, and has been continuously since the date of grant of such Stock Option,employed by the Company or a Subsidiary, except that:

 

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(a)           AStock Option may, to the extent vested as of the date the Optionee ceases to bean employee of the Company or a Subsidiary, be exercised during the three monthperiod immediately following the date the Optionee ceases (for any reason otherthan death, Disability or termination for Cause) to be an employee of theCompany or a Subsidiary (or within such other period as may be specified in theapplicable option agreement), provided that, if the Stock Option has beendesignated as an Incentive Stock Option and the option agreement provides for alonger exercise period, the exercise of such Stock Option after such threemonth period shall be treated as the exercise of a Non Qualified Stock Option;

 

(b)           Ifthe Optionee dies while in the employ of the Company or a Subsidiary, or withinthree months after the Optionee ceases (for any reason other than terminationfor Cause) to be such an employee (or within such other period as may bespecified in the applicable option agreement), a Stock Option may, to theextent vested as of the date of the Optionee’s death, be exercised by theOptionee’s Designated Beneficiary during the one year period immediatelyfollowing the date of the Optionee’s death (or within such other period as maybe specified in the applicable option agreement); provided that, if the StockOption has been designated as an Incentive Stock Option and the optionagreement provides for a longer exercise period, the exercise of such StockOption after such one year period shall be treated as the exercise of a NonQualified Stock Option;

 

(c)           Ifthe Optionee ceases to be an employee of the Company or a Subsidiary by reasonof the Optionee’s Disability, a Stock Option, to the extent vested as of thedate the Optionee ceases to be an employee of the Company or a Subsidiary, maybe exercised during the one year period immediately following the date on whichthe Disability is determined to exist (or within such other period as may bespecified in the applicable option agreement); provided that, if the StockOption has been designated as an Incentive Stock Option and the optionagreement provides for a longer exercise period, the exercise of such StockOption after such one year period shall be treated as the exercise of a NonQualified Stock Option; and

 

(d)           Ifthe Optionee’s employment is terminated for Cause, all Stock Options held bysuch Optionee shall simultaneously terminate and will no longer be exercisable.

 

Nothing containedin this Section 6.4 will be deemed to extend the term of a Stock Option or torevive any Stock Option which has previously lapsed or been cancelled,terminated or surrendered.  StockOptions granted under this Plan to Consultants or Non Employee Directors willcontain such terms and conditions with respect to the death or disability of aConsultant or Non Employee Director or termination of a Consultant’s or nonemployee Director’s relationship with the Company as the Committee or the Boarddeems necessary or appropriate.  Suchterms and conditions will be set forth in the option agreements evidencing thegrant of such Stock Options.

 

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6.5.          *Vesting of Stock Options*.

 

(a)           EachStock Option granted pursuant to this Plan may only be exercised to the extentthat the Optionee is vested in such Stock Option.  Each Stock Option shall vest separately in accordance with theoption vesting schedule determined by the Committee or the Board, which will beincorporated in the option agreement entered into between the Company and suchOptionee.  The option vesting schedulemay be accelerated if, in the sole discretion of the Committee or the Board,the acceleration of the option vesting schedule would be in the best intereststhe Company.

 

(b)           Inthe event of the dissolution or liquidation of the Company, each Stock Optiongranted pursuant to this Plan shall terminate as of a date to be fixed by theCommittee or Board; provided, however, that not less than thirty (30) days’prior written notice of the date so fixed shall be given to each Optionee.  During such period all Stock Options whichhave not previously been terminated, exercised or surrendered will (subject tothe provisions of Sections 6.3 and 6.4 of the Plan) fully vest and becomeexercisable, notwithstanding the vesting schedule set forth in the optionagreement evidencing the grant of such Stock Option.  Upon the date fixed by the Committee or the Board, anyunexercised Stock Options shall terminate and be of no further effect.

 

(c)           Uponthe occurrence of a Change in Control, all Stock Options and any associatedStock Appreciation Rights shall become fully vested and immediatelyexercisable.

 

6.6.          *Manner of Exercise of Stock Options*.

 

(a)           Exceptas otherwise provided in this Plan, Stock Options may be exercised as to Sharesonly in amounts and at intervals of time specified in the written optionagreement between the Company and the Optionee.  Each exercise of a Stock Option, or any part thereof, shall beevidenced by a written notice delivered by the Optionee to the Company.  Except as set forth in Section 6.6(c) ofthis Plan, the purchase price of the Shares as to which a Stock Option shall beexercised shall be paid in full at the time of exercise, and may be paid to theCompany either:

 

(i)            incash (including check, bank draft or money order); or

 

(ii)           byother consideration deemed acceptable by the Committee or the Board in its solediscretion.

 

(b)           Ifan Optionee delivers Shares (including Shares of Restricted Stock) alreadyowned by the Optionee in full or partial payment of the exercise price for anyStock Option, or if the Optionee elects to have the Company retain that numberof Shares out of the Shares being acquired through the exercise of the StockOption having a Fair Market Value equal to the exercise price of the StockOption being exercised, the Committee or the Board may, in its sole discretion,authorize the grant of a new Stock Option (a “Reload Option”) for thatnumber of Shares equal to the number of already owned Shares surrendered(including Shares of Restricted Stock) or newly acquired Shares being retainedby the Company in payment of the option exercise price of the

 

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underlying Stock Option being exercised.  The grant of a Reload Option will becomeeffective upon the exercise of the underlying Stock Option.  The option exercise price of the ReloadOption shall be the Fair Market Value of a Share on the effective date of thegrant of the Reload Option.  Each ReloadOption shall be exercisable no later than the time when the underlying stockoption being exercised could be last exercised. The Committee or the Board mayalso specify additional terms, conditions and restrictions for the ReloadOption and the Shares to be acquired upon the exercise thereof.

 

(c)           Eitherthe (i) purchase price of the Shares as to which a Stock Option shall beexercised or (ii) amount, as determined by the Committee or the Board, of anyfederal, state or local tax required to be withheld by the Company due to theexercise of a Stock Option may, subject to the authorization of the Committeeor the Board, be satisfied, at the election of the Optionee, either (A) bypayment by the Optionee to the Company of the amount of such withholdingobligation in cash or other consideration acceptable to the Committee or theBoard in its sole discretion (the “Non Share Method”) or (B) througheither the retention by the Company of a number of Shares out of the Sharesbeing acquired through the exercise of the Stock Option or the delivery ofalready owned Shares having a Fair Market Value equal to the amount of thewithholding obligation (the “Share Retention Method”).  If an Optionee elects to use the ShareRetention Method in full or partial satisfaction of any tax liability resultingfrom the exercise of a Stock Option, the Committee or the Board may authorizethe grant of a Reload Option for that number of Shares as shall equal thenumber of Shares used to satisfy the tax liabilities of the Optionee arisingout of the exercise of such Stock Option. Such Reload Option will be granted at the price and on the terms setforth in Section 6.6(b) of this Plan. The cash payment or an amount equal to the Fair Market Value of theShares so withheld, as the case may be, shall be remitted by the Company to theappropriate taxing authorities.

 

(d)           AnOptionee shall not have any of the rights of a stockholder of the Company withrespect to the Shares subject to a Stock Option except to the extent that suchStock Option is exercised and one or more certificates representing such Sharesshall have been delivered to the Optionee.

 

SECTION 7.           RESTRICTED STOCK

 

7.1.          *Grants*. The Committee or the Board may grant Awards of Restricted Stock to anyConsultant, Non-Employee Director or employee of the Company or a Subsidiaryfor such minimum consideration, if any, as may be required by applicable law orsuch greater consideration as may be determined by the Committee or the Board,in its sole discretion.  The terms andconditions of the Restricted Stock shall be specified by the grantagreement.  The Committee or the Board,in its sole discretion, may specify any particular rights which the Participantto whom a grant of Restricted Stock is made shall have in the Restricted Stockduring the restriction period and the restrictions applicable to the particularAward, the vesting schedule (which may be based on service, performance orother factors) and rights to acceleration of vesting (including, withoutlimitation, whether non vested Shares are forfeited or vested upon terminationof employment).  Further, the Committeeor the Board may grant performance based Awards consisting of Restricted Stockby conditioning the grant, or vesting or such other factors, such as therelease, expiration or lapse of restrictions upon any such Award (including the

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acceleration of any suchconditions or terms) of such Restricted Stock upon the attainment of specifiedperformance goals or such other factors as the Committee or the Board maydetermine.  The Committee or the Boardshall also determine when the restrictions shall lapse or expire and theconditions, if any, pursuant to which the Restricted Stock will be forfeited orsold back to the Company. Each Award of Restricted Stock may have differentrestrictions and conditions.  Unlessotherwise set forth in the grant agreement, Restricted Stock may not be sold,pledged, encumbered or otherwise disposed of by the recipient until therestrictions specified in the Award expire. Awards of Restricted Stock are subject to acceleration of vesting,termination of restrictions and termination in the same manner as Stock Optionspursuant to Sections 6.4 and 6.5 of this Plan.

 

7.2.          *Awards and Certificates*.  Any Restricted Stock issued hereunder may beevidenced in such manner as the Committee or the Board, in its sole discretion,shall deem appropriate including, without limitation, book entry registrationor issuance of a stock certificate or certificates.  In the event any stock certificate is issued in respect of Sharesof Restricted Stock, such certificate shall bear an appropriate legend withrespect to the restrictions applicable to such Award.  The Company may retain, at its option, the physical custody ofany stock certificate representing any awards of Restricted Stock during therestriction period or require that the certificates evidencing Restricted Stockbe placed in escrow or trust, along with a stock power endorsed in blank, untilall restrictions are removed or expire.

 

SECTION 8.           DIVIDEND EQUIVALENTS

 

8.1.          *Grant of Dividend Equivalents*.  The Committee is authorized to grantDividend Equivalents to Participants, which will entitle such Participant toreceive, on a current or deferred basis and subject to such conditions as maybe imposed by the Committee, cash payments from the Company in the same amounts(or such lesser fraction of such amounts as may be specifically set forth in theDividend Equivalent agreement evidencing such award) that the holder of recordof such number of Shares would be entitled to receive as cash dividends on suchShares (unless otherwise limited in such agreement).  Dividend Equivalent agreements will specify the expiration dateof such Dividend Equivalents, the number of Shares to which they relate, andsuch other conditions as the Committee may impose.

 

8.2.          *Payments*. The right to a cash payment in respect of a Dividend Equivalent willapply to all dividends the record date for which occurs at any time during theperiod commencing on the date the Dividend Equivalent is granted and ending onthe date such Dividend Equivalent expires or is terminated, whichever occursfirst.

 

8.3.          *Related Dividend Equivalents*.  If a Dividend Equivalent is granted inconjunction with the grant of a Stock Option, the applicable DividendEquivalent agreement will provide that the grantee is entitled to receive fromthe Company cash payments, on a current or deferred basis, in the same amounts(or such lesser fraction of such amounts as may be specifically set forth inthe Dividend Equivalent agreement) that the holder of record of a number ofShares equal to the number of Shares covered by such Stock Option would beentitled to receive as dividends on such Shares unless otherwise limited in theDividend Equivalent agreement.  Suchright to a cash payment will apply to, and such Dividend Equivalent will remainoutstanding in respect of, all cash dividends the record date for which occursat any time during the period

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commencing on the datethe related Stock Option is granted and ending on the date that such StockOption is exercised, expires or terminates, whichever occurs first.

 

SECTION 9.           PERFORMANCE AWARDS

 

9.1.          *Grants*. A Performance Award may consist of either or both, as the Committee orthe Board may determine, of (i) the right to receive Shares or RestrictedStock, or any combination thereof as the Committee or the Board may determine(“Performance Shares”), or (ii) the right to receive a fixed dollaramount payable in Shares, Restricted Stock, cash or any combination thereof, asthe Committee or the Board may determine (“Performance Units”).  The Committee or the Board may grantPerformance Awards to any eligible Consultant, non-employee Director oremployee of the Company or a Subsidiary, for such minimum consideration, ifany, as may be required by applicable law or such greater consideration as maybe determined by the Committee or the Board, in its sole discretion.  The terms and conditions of PerformanceAwards shall be specified at the time of the grant and may include provisionsestablishing the performance period, the performance criteria to be achievedduring a performance period, the criteria used to determine vesting (includingthe acceleration thereof), whether Performance Awards are forfeited or vestupon termination of employment during a performance period and the maximum orminimum settlement values.  EachPerformance Award shall have its own terms and conditions, which shall bedetermined in the sole discretion of the Committee or the Board.  If the Committee or the Board determines, inits sole discretion, that the established performance measures or objectivesare no longer suitable because of a change in the Company’s business,operations, corporate structure or for other reasons that the Committee or theBoard deems satisfactory, the Committee or the Board may modify the performancemeasures or objectives and/or the performance period.  Awards of Performance Shares and/or Performance Units are subjectto acceleration of vesting, termination of restrictions and termination in thesame manner as Stock Options pursuant to Sections 6.4 and 6.5 of this Plan.

 

9.2.          *Terms and Conditions*.  Performance Awards may be valued byreference to the Fair Market Value of a Share or according to any other formulaor method deemed appropriate by the Committee or the Board, in its solediscretion, including, but not limited to, achievement of specific financial,production, sales, cost or earnings performance objectives that the Committeeor the Board believes to be relevant or the Company’s performance or theperformance of the Common Stock measured against the performance of the market,the Company’s industry segment or its direct competitors.  Performance Awards may also be conditionedupon the applicable Participant remaining in the employ of the Company or oneof its Subsidiaries for a specified period. Performance Awards may be paid in cash, Shares (including RestrictedStock) or other consideration, or any combination thereof.  Performance Awards may be payable in asingle payment or in installments and may be payable at a specified date ordates or upon attaining the performance objective or objectives, all at thesole discretion of the Committee or the Board. The extent to which any applicable performance objective has beenachieved shall be conclusively determined by the Committee or the Board in itssole discretion.

 

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SECTION 10.         STOCK PURCHASE PLAN

 

10.1.        *Grant of Stock Purchase Rights*.  The term “Stock Purchase Right” means the right to purchaseshares of Common Stock and to pay for all or a portion of the purchase pricefor such shares through a loan made by the Company to a Participant (a “PurchaseLoan”) as set forth in this Section 10.

 

10.2.        *Terms of Purchase Loans*.

 

(a)           EachPurchase Loan shall be evidenced by a promissory note.  The term of the Purchase Loan shall be aperiod not to exceed ten years, as determined by the Committee, and theproceeds of the Purchase Loan shall be used exclusively by the Participant forpurchase of shares of Common Stock at a purchase price equal to the Fair MarketValue on the date of the Stock Purchase Right.

 

(b)           APurchase Loan shall bear interest at whatever rate the Committee shalldetermine (not less than the then existing prime rate as announced by theCompany’s lender under the Company’s credit facility but not in excess of themaximum rate permissible under applicable law), payable in a manner and at suchtimes as the Committee shall determine. Those terms and provisions as the Committee shall determine shall beincorporated into the promissory note evidencing the Purchase Loan.

 

10.3.        *Security for Loans*.

 

(a)           PurchaseLoans granted to Participants shall be secured by a pledge of the shares ofCommon Stock acquired pursuant to the Stock Purchase Right.  Such pledge shall be evidenced by a pledgeagreement (the “Pledge Agreement”) containing such terms and conditionsas the Committee shall determine.  Thecertificates for the shares of Common Stock purchased by a Participant pursuantto a Stock Purchase Right shall be issued in the Participant’s name, but shallbe held by the Company as security for repayment of the Participant’s PurchaseLoan together with a stock power executed in blank by the Participant (theexecution and delivery of which by the Participant shall be a condition to theissuance of the Stock Purchase Right). The Participant shall be entitled to exercise all rights applicable tosuch shares of Common Stock, including, but not limited to, the right to votesuch shares of Common Stock and the right to receive dividends and otherdistributions made with respect to such shares of Common Stock.

 

(b)           TheCompany shall release and deliver to each Participant certificates for theshares of Common Stock purchased by the Participant under the Stock PurchaseRight and then held by the Company, provided the Participant has paid orotherwise satisfied in full the balance of the Purchase Loan and any accruedbut unpaid interest thereon.  In theevent the balance of the Purchase Loan is not repaid, forgiven or otherwisesatisfied within ninety (90) days after (i) the date repayment of the PurchaseLoan is due (whether in accordance with its term, by reason of acceleration orotherwise), or (ii) such longer time as the Committee, in its discretion, shallprovide for repayment or satisfaction, the Company shall retain those shares ofCommon Stock then held by the Company in accordance with the Pledge Agreement.

 

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10.4.        *Restrictions on Transfer*. No Stock Purchase Right or shares of Common Stock purchased through suchRight and pledged to the Company as collateral security for the Participant’sPurchase Loan and accrued but unpaid interest thereon may be otherwise pledged,sold, assigned or transferred (other than by will or by the laws of descent anddistribution).

 

SECTION 11.         OTHER AWARDS

 

The Committee orthe Board may grant to any eligible Consultant, non-employee Director oremployee of the Company or a Subsidiary other forms of Awards based upon,payable in or otherwise related to, in whole or in part, Shares, if theCommittee or the Board, in its sole discretion, determines that such other formof Award is consistent with the purposes of this Plan.  The terms and conditions of such other formof Award shall be specified in a written agreement which sets forth the termsand conditions of such Award, including, but not limited to, the price, if any,and the vesting schedule, if any, of such Award.  Such Awards may be granted for such minimum consideration, ifany, as may be required by applicable law or for such other greaterconsideration as may be determined by the Committee or the Board, in its solediscretion.

 

SECTION 12.         COMPLIANCE WITHSECURITIES AND OTHER LAWS

 

As a condition tothe issuance or transfer of any Award or any security issuable in connectionwith such Award, the Company may require an opinion of counsel, satisfactory tothe Company, to the effect that (a) such issuance and/or transfer will not bein violation of the Securities Act or any other applicable securities laws and(b) such issuance and/or transfer will not be in violation of the rules andregulations of any securities exchange or automated quotation system on whichthe Common Stock is listed or admitted to trading.  Further, the Company may refrain from issuing, delivering ortransferring any Award or any security issuable in connection with such Awarduntil the Committee or the Board has determined that such issuance, delivery ortransfer will not violate such securities laws or rules and regulations andthat the recipient has tendered to the Company any federal, state or local taxowed as a result of such issuance, delivery or transfer, when the Company has alegal liability to satisfy such tax. The Company shall not be liable for damages due to delay in theissuance, delivery or transfer of any Award or any security issuable inconnection with such Award or any agreement, instrument or certificateevidencing such Award or security for any reason whatsoever, including, but notlimited to, a delay caused by the listing requirements of any securitiesexchange or automated quotation system or any registration requirements underthe Securities Act, the Exchange Act, or under any other state or federal law,rule or regulation.  The Company isunder no obligation to take any action or incur any expense to register orqualify the issuance, delivery or transfer of any Award or any securityissuable in connection with such Award under applicable securities laws or toperfect any exemption from such registration or qualification or to list anysecurity on any securities exchange or automated quotation system.  Furthermore, the Company will have noliability to any person for refusing to issue, deliver or transfer any Award orany security issuable in connection with such Award if such refusal is based uponthe foregoing provisions of this Section 12. As a condition to any issuance, delivery or transfer of any Award or anysecurity issuable in connection with such Award, the Company may place legendson any agreement, instrument or certificate evidencing such Award or security,issue stop transfer orders with respect thereto and require such agreements orundertakings as the Company may deem necessary or advisable to assurecompliance with applicable laws or regulations, including, if the

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Company or its counseldeems it appropriate, representations from the recipient of such Award orsecurity to the effect that such recipient is acquiring such Award or securitysolely for investment and not with a view to distribution and that nodistribution of the Award or the security will be made unless registeredpursuant to applicable federal and state securities laws, or in the opinion ofcounsel to the Company, such registration is unnecessary.

 

SECTION 13.         ADJUSTMENTS UPON THEOCCURRENCE OF A REORGANIZATION OR CORPORATE TRANSACTION

 

13.1.        *Reorganization*.  Inthe event of a Reorganization, the number of Shares subject to this Plan and toeach outstanding Award, and the exercise price of each Award which is basedupon Shares, shall (to the extent deemed appropriate by the Committee or theBoard) be proportionately adjusted (as determined by the Committee or the Boardin its sole discretion) to account for any increase or decrease in the numberof issued and outstanding Shares of the Company resulting from suchReorganization.

 

13.2.        *Corporate Transaction with the Company as Survivor*.  If a Corporate Transaction is consummatedand immediately following the consummation of such Corporate Transaction thePersons who were holders of shares of Common Stock immediately prior to theconsummation of such Corporate Transaction do not receive any securities orother property (hereinafter collectively referred to as “TransactionalConsideration”) as a result of such Corporate Transaction and substantiallyall of such Persons continue to hold the shares of Common Stock held by themimmediately prior to the consummation of such Corporate Transaction (insubstantially the same proportions relative to each other), the Awards willremain outstanding and will (subject to the provisions of Sections 6.1, 6.5(c),7.1 and 9.1 of this Plan) continue in full force and effect in accordance withits terms (without any modification) following the consummation of theCorporate Transaction.

 

13.3.        *Corporate Transaction with Company Being Acquired*.   If a Corporate Transaction is consummatedand immediately following the consummation of such Corporate Transaction thePersons who were holders of shares of Common Stock immediately prior to the consummationof such Corporate Transaction do receive Transactional Consideration as aresult of such Corporate Transaction or substantially all of such Persons donot continue to hold the shares of Common Stock held by them immediately priorto the consummation of such Corporate Transaction (in substantially the sameproportions relative to each other), the terms and conditions of the Awardswill be modified as follows:

 

(i)            Ifthe documentation pursuant to which a Corporate Transaction will be consummatedprovides for the assumption (by the entity issuing Transactional Considerationto the Persons who were the holders of shares of Common Stock immediately priorto the consummation of such Corporate Transaction) of the Awards grantedpursuant to this Plan without any modification or amendment (other thanPermitted Modifications and the modifications contemplated by Sections 6.1,6.5(c), 7.1 and 9.1 of this Plan), such Awards will remain outstanding and willcontinue in full force and effect in accordance with its terms following theconsummation of such Corporate

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Transaction (subject to such Permitted Modificationsand the provisions of Sections 6.1, 6.5(c), 7.1 and 9.1 of the Plan).

 

(ii)           Ifthe documentation pursuant to which a Corporate Transaction will be consummateddoes not provide for the assumption by the entity issuing TransactionalConsideration to the Persons who were the holders of shares of Common Stockimmediately prior to the consummation of such Corporate Transaction of theAwards granted pursuant to this Plan without any modification or amendment(other than Permitted Modifications), all vesting restrictions (performancebased or otherwise) applicable to Awards which will not be so assumed willaccelerate and the holders of such Awards may (subject to the expiration of theterm of such Awards) exercise/receive the benefits of such Awards withoutregard to such vesting restrictions during the ten (10) day period immediatelypreceding the consummation of such Corporate Transaction.  For purposes of the immediately precedingsentence, all performance based goals will be deemed to have been satisfied infull.  The Company will provide eachParticipant holding Awards which will not be so assumed with reasonable noticeof the termination of such vesting restrictions and the impending terminationof such Awards.  Upon the consummationof such a Corporate Transaction, all unexercised Awards which are not to be soassumed will automatically terminate and cease to be outstanding.

 

Nothing containedin this Section 13 will be deemed to extend the term of an Award or to reviveany Award which has previously lapsed or been cancelled, terminated orsurrendered.

 

SECTION 14.         AMENDMENT OR TERMINATIONOF THIS PLAN

 

14.1.        *Amendment of This Plan*. Notwithstanding anything contained in this Plan to the contrary, allprovisions of this Plan (including, without limitation, the maximum number ofShares that may be issued with respect to Awards to be granted pursuant to thisPlan) may at any time or from time to time be modified or amended by the Board;provided, however, that no Award at any time outstanding pursuant to this Planmay be modified, impaired or cancelled adversely to the holder of the Awardwithout the consent of such holder.

 

14.2.        *Termination of This Plan*. The Board may suspend or terminate this Plan at any time, and suchsuspension or termination may be retroactive or prospective.  Termination of this Plan shall not impair oraffect any Award previously granted hereunder and the rights of the holder ofthe Award shall remain in effect until the Award has been exercised in itsentirety or has expired or otherwise has been terminated by the terms of suchAward.

 

SECTION 15.         AMENDMENTS ANDADJUSTMENTS TO AWARDS

 

The Committee orthe Board may amend, modify or terminate any outstanding Award with theParticipant’s consent at any time prior to payment or exercise in any mannernot inconsistent with the terms of this Plan, including, without limitation,(a) to change the date or dates as of which and/or the terms and conditionspursuant to which (i) a Stock Option becomes exercisable or (ii) a PerformanceAward is deemed earned, (b) to amend the terms of any

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outstanding Award toprovide an exercise price per share which is higher or lower than the thencurrent exercise price per share of such outstanding Award or (c) to cancel anAward and grant a new Award in substitution therefor under such different termsand conditions as the Committee or the Board determines in its sole discretionto be appropriate including, but not limited to, having an exercise price pershare which may be higher or lower than the exercise price per share of thecancelled Award.  The Committee or theBoard may also make adjustments in the terms and conditions of, and thecriteria included in agreements evidencing Awards in recognition of unusual ornonrecurring events (including, without limitation, the events described inSection 13 of this Plan) affecting the Company, or the financial statements ofthe Company or any Subsidiary, or of changes in applicable laws, regulations oraccounting principles, whenever the Committee or the Board determines that suchadjustments are appropriate to prevent reduction or enlargement of the benefitsor potential benefits intended to be made available pursuant to this Plan.  Any provision of this Plan or any agreementregarding an Award to the contrary notwithstanding, the Committee or the Boardmay cause any Award granted to be cancelled in consideration of a cash paymentor alternative Award made to the holder of such cancelled Award equal in valueto the Fair Market Value of such cancelled Award.  The determinations of value pursuant to this Section 15 shall bemade by the Committee or the Board in its sole discretion.

 

SECTION 16.         GENERAL PROVISIONS

 

16.1.        *No Limit on Other Compensation Arrangements*.  Nothing contained in this Plan shall preventthe Company from adopting or continuing in effect other compensationarrangements, and such arrangements may be either generally applicable orapplicable only in specific cases.

 

16.2.        *No Right to Employment or Continuation of Relationship*.  Nothing in this Plan or in any Award, northe grant of any Award, shall confer upon or be construed as giving anyParticipant any right to remain in the employ of the Company or a Subsidiary orto continue as a Consultant or Non-Employee Director.  Further, the Company or a Subsidiary may at any time dismiss aParticipant from employment or terminate the relationship of any Consultant ornon-employee Director with the Company or any Subsidiary, free from anyliability or any claim pursuant to this Plan, unless otherwise expresslyprovided in this Plan or in any agreement evidencing an Award made under thisPlan.  No Consultant, Non-EmployeeDirector or employee of the Company or any Subsidiary shall have any claim tobe granted any Award, and there is no obligation for uniformity of treatment ofany Consultant, Non-Employee Director or employee of the Company or anySubsidiary or of any Participants.

 

16.3.        *GOVERNING LAW*.  THEVALIDITY, CONSTRUCTION AND EFFECT OF THIS PLAN AND ANY RULES AND REGULATIONSRELATING TO THIS PLAN SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THESTATE OF TEXAS, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLESTHEREOF.

 

16.4.        *Severability*.  If anyprovision of this Plan or any Award is or becomes or is deemed to be invalid,illegal or unenforceable in any jurisdiction or as to any individual or Award,or would disqualify this Plan or any Award under any law deemed applicable bythe Committee or the Board, such provision shall be construed or deemed amendedto conform to

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applicable law, or if itcannot be construed or deemed amended without, in the sole determination of theCommittee or the Board, materially altering the intent of this Plan or theAward, such provision shall be stricken as to such jurisdiction, individual orAward and the remainder of this Plan and any such Award shall remain in fullforce and effect.

 

16.5.        *No**Fractional Shares*.  No fractional Shares shall be issued ordelivered pursuant to this Plan or any Award, and the Committee or the Boardshall determine, in its sole discretion, whether cash, other securities orother property shall be paid or transferred in lieu of any fractional Shares orwhether such fractional Shares or any rights thereto shall be cancelled,terminated or otherwise eliminated.

 

16.6.        *Headings*.  Headingsare given to the Sections and Subsections of this Plan solely as a convenienceto facilitate reference.  Such headingsshall not be deemed in any way material or relevant to the construction orinterpretation of this Plan or any provision thereof.

 

16.7.        *Effective Date*.  Theprovisions of this Plan that relate to the grant of Incentive Stock Optionsshall be effective as of the date of the approval of this Plan by thestockholders of the Company.

 

16.8.        *Transferability of Awards*. Awards shall not be transferable otherwise than by will or the laws ofdescent and distribution without the written consent of the Committee or theBoard (which may be granted or withheld at the sole discretion of the Committeeor the Board).  Awards may be exercised,during the lifetime of the holder, only by the holder.  Any attempted assignment, transfer, pledge,hypothecation or other disposition of an Award contrary to the provisionshereof, or the levy of any execution, attachment or similar process upon anAward shall be null and void and without effect.

 

16.9.        *Rights of Participants*. Except as hereinbefore expressly provided in this Plan, any Person towhom an Award is granted shall have no rights by reason of any subdivision orconsolidation of stock of any class or the payment of any stock dividend or anyother increase or decrease in the number of shares of stock of any class or byreason of any dissolution, liquidation, reorganization, merger or consolidationor spinoff of assets or stock of another corporation, and any issue by theCompany of shares of stock of any class or securities convertible into sharesof stock of any class shall not affect, and no adjustment by reason thereofshall be made with respect to, the number or exercise price of Shares subject toan Award.

 

16.10.      *No Limitation Upon the Rights of the Company*.  The grant of an Award pursuant to this Planshall not affect in any way the right or power of the Company to makeadjustments, reclassifications, or changes of its capital or business structure;to merge, convert or consolidate; to dissolve or liquidate; or sell or transferall or any part of its business or assets.

 

16.11.      *Date of Grant of an Award*. Except as noted in this Section 16.11, the granting of an Award shalltake place only upon the execution and delivery by the Company and theParticipant of a written agreement and neither any other action taken by theCommittee or the Board nor anything contained in this Plan or in any resolutionadopted or to be adopted by the Committee, the Board or the stockholders of theCompany shall constitute the granting of an Award pursuant to this Plan.  Solely, for purposes of determining the FairMarket Value of the

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Shares subject to anAward, such Award will be deemed to have been granted as of the date specifiedby the Committee or the Board notwithstanding any delay which may elapse inexecuting and delivering the applicable agreement.

 

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