Exhibit 10-16 - Stock Option Agmt. between A.J. Knapp 10-18-05


    

      Exhibit
        10.16

      


      Summary
        Information

      Employee:
        A.
        John Knapp, Jr.

      Location:
        Corporate

      Date
        of
        Grant: November 18, 2005

      ESOP:
        1998

      Exercise
        Price: $2.40/Share

      Expiration:
        November 18, 2012, 12:00 a.m.

      Total
        #
        Shares subject to grant: 240,000

      Vesting:
        

      *
        120,000
        Shares vest on December 15, 2006 (provided that Knapp is employed on September
        30, 2006 and all of the conditions for vesting described in Exhibit A are
        satisfied. In the event that only a portion of the conditions described in
        Exhibit A are satisfied, a corresponding portion of the 120,000 Shares will
        vest
        in accordance with Exhibit A.)

      *
        120,000
        Shares vest on December 15, 2007 (provided that Knapp is employed on September
        30, 2006 and all of the conditions for vesting described in Exhibit B are
        satisfied. In the event that only a portion of the conditions described in
        Exhibit B are satisfied, a corresponding portion of the 120,000 Shares will
        vest
        in accordance with Exhibit B.)

       

      


      STOCK
        OPTION AGREEMENT

       

      This
        AGREEMENT is made and effective this 18th
        day of
        November, 2005 (the “Date of Grant”), between ICO, Inc., a Texas corporation
        (the “Company”), and A. John Knapp, Jr. (“Employee”), an employee of the Company
        or one of its subsidiaries. 

       

      To
        carry
        out the purposes of ICO, Inc.’s 1998 STOCK OPTION PLAN, (the “Plan”), by
        affording Employee the opportunity to purchase shares of the common stock
        of the
        Company (“Shares”), and in consideration of the mutual agreements and other
        matters set forth herein and in the Plan, the Company and Employee hereby
        agree
        as follows: 

       

      1. Grant
        of Option.
        The
        Company hereby grants to Employee the right to purchase all or any part of
        an
        aggregate of 240,000 Shares (such right to purchase 240,000 Shares at the
        purchase price set forth in paragraph 2 below being referred to herein as
        this
“Option”), on the terms and conditions set forth herein and in the Plan, as such
        Plan may be amended or supplemented from time to time, and which Plan is
        incorporated herein by reference as a part of this Agreement, and subject
        to the
        conditional vesting described below. This Option shall not
        be
        treated as an incentive stock option within the meaning of Section 422(b)
        of the
        Internal Revenue Code of 1986, as amended (the “Code”).

       

      2. Purchase
        Price.
        The
        purchase price of the Shares that may be purchased by Employee pursuant to
        the
        exercise of this Option shall be $2.40 per Share, which has been determined
        to
        be not less than the fair market value of the Shares on the Date of Grant
        of
        this Option. For the purpose of this Agreement, the “fair market value” of the
        Shares shall be determined in accordance with the definition of “fair market
        value” contained in the Plan. 

       

      3. Exercise
        of Option / Vesting Schedule.
        This
        Option shall vest and may be exercised, in whole or part, according to the
        schedule described below. 

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      This
        Option may be exercised in whole or part, by written notice to the Company
        at
        its principal executive office addressed to the attention of its General
        Counsel, at any time and from time to time after the Date of Grant hereof,
        provided that the Option or portion thereof has vested and may be purchased
        in
        accordance with the following schedule:

       

      
        	
                Vesting
                  Date 

              	
                Number
                  of Shares

                That
                  Vest and May Be Purchased

              
	
                December
                  15, 2006

              	
                Up
                  to 120,000 Shares, contingent upon achieving the objectives described
                  in
                  clause (a) below and Exhibit A

              
	
                December
                  15, 2007

              	
                Up
                  to 120,000 Shares, contingent upon achieving the objectives described
                  in
                  clause (b) below and Exhibit B

              


      

      


      (a) Options
        to purchase 120,000 Shares vest based on the Company’s fiscal year (“FY”) 2006
        performance/service:
        30,000
        of these Options vest on December 15, 2006, provided that service as President
        & Chief Executive Officer has continued through September 30, 2006. All or
        a
        portion of 90,000 of these Options will vest on December 15, 2006 based on
        the
        Company’s performance against target in FY 2006 on the three measurements
        described in Exhibit A and C, and also conditioned upon Employee’s continued
        service as President & Chief Executive Officer through September 30,
        2006.

      


      (b) Options
        to purchase 120,000 Shares vest based on FY 2007
        performance/service:
        30,000
        of these Options vest on December 15, 2007, provided that service as President
        & Chief Executive Officer has continued through September 30, 2007. All or
        a
        portion of 90,000 of these Options will vest on December 15, 2007 based on
        the
        Company’s performance against target in FY 2007 on the three measurements
        described in Exhibit B and C, and also conditioned upon Employee’s continued
        service as President & Chief Executive Officer through September 30,
        2007.

      


      In
        the
        event that all or a portion of the Option does not vest because the conditions
        set forth herein or in Exhibits A and/or B are not satisfied, the portion
        of the
        Option that does not vest will be automatically terminated on the date when
        it
        would otherwise vest, and shall not be exercisable by Employee. No portion
        of
        this Option shall not be exercisable in any event after November 18, 2012
        at
        12:00 a.m. 

      


      4. Withholding
        of Tax.
        To the
        extent that the exercise of this Option or the disposition of Shares acquired
        by
        exercise of this Option results in compensation income or wages to Employee
        for
        federal, state, or local tax purposes, if requested by Company, Employee
        shall
        deliver to the Company at the time of such exercise or disposition such amount
        of money or Shares as the Company may require to meet its obligations under
        applicable tax laws or regulations, and, if Employee fails to do so, the
        Company
        is authorized to withhold from any cash or Share remuneration then or thereafter
        payable to Employee any tax required to be withheld by reason of such resulting
        compensation income. Upon an exercise of this Option, the Company is further
        authorized in its discretion to satisfy any such withholding requirements
        out of
        any cash or Shares distributable to Employee upon such exercise. 

       

       

      
        
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      5. Binding
        Effect.
        This
        Agreement shall be binding upon and inure to the benefit of any successors
        to
        the Company and all persons lawfully claiming under Employee. In the event
        of
        conflict between any of the provisions in this Agreement and provisions in
        the
        Plan, the provisions of the Plan will govern. 

       

      6. Governing
        Law and Dispute Resolution.
        This
        Agreement and the Option granted hereunder, shall be governed by, and construed
        in accordance with the laws of the State of Texas, without regard to its
        principles of conflicts of law. Any and all controversies, claims and
        differences arising out of or relating to the Option granted under this
        Agreement which cannot be settled by good faith negotiation between the parties
        will be finally settled by binding arbitration brought within three (3) months
        of the termination of the Option, with the date of termination to be governed
        by
        the provisions of the Plan and this Agreement. The binding arbitration will
        be
        conducted in accordance with the then existing rules of the American Arbitration
        Association (“AAA”), by one arbitrator. In the event of any conflict between
        such rules and this paragraph, the provisions of this paragraph shall govern.
        Upon the written demand of either party, the parties shall appoint a single
        arbitrator acceptable to both parties. Arbitration proceedings shall be held
        in
        Houston, Texas. The decision of the arbitrator shall be final and binding
        upon
        the parties hereto, not subject to appeal, and shall deal with the questions
        of
        interest, cost of the arbitration, and all matters relevant thereto. Judgment
        upon the award or decision rendered by the arbitrator may be entered in any
        court having jurisdiction thereof, or application may be made to such court
        for
        a judicial recognition of the award or any order of enforcement thereof as
        the
        case may be.

       

      IN
        WITNESS WHEREOF,
        the
        Company has caused this Agreement to be duly executed by its officer thereunto
        and duly authorized, and Employee has executed this Agreement, to be effective
        as of the Date of Grant set forth above.

       

       

       

                                  ICO,
        INC.

      


      
        	
                By:

              	
                /s/
                  Jon C. Biro

              
	 	
                Jon
                  C. Biro

              
	 	
                Chief
                  Financial Officer

              


      

      
 

                                  EMPLOYEE

       

      
        	
                /s/
                  A. John Knapp, Jr.

              
	
                A.
                  John Knapp, Jr.

              
	 	 


      

      


       

      
        
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            3 of 3

        

        
          
          

          
            

          

        

        
          
          

        

      


      Exhibit
        A to Stock Option Agreement

       

      Matrix
        for Vesting of FY 2006 Options

       

      

        
          	
                  Measurement

                	
                  Weighting

                	
                  FY
                    '06 Minimum

                	
                  FY
                    '06 Target

                	
                  CEO
                    pay-out at target

                
	
                  ICO,
                    Inc. consolidated Operating Income

                	 	 	 	
                  Vesting
                    of 30,000 options

                
	
                  ICO,
                    Inc. consolidated Investment turnover

                	 	 	 	
                  Vesting
                    of 30,000 options

                
	
                  ICO,
                    Inc. consolidated ROE

                	 	 	 	
                  Vesting
                    of 30,000 options

                
	
                  Vesting
                    over time

                	 	 	 	
                  Vesting
                    of 30,000 options

                
	
                  Total

                	 	 	 	
                  Vesting
                    of 120,000 options

                




      

      


      See
        Exhibit C for explanation of measurement definitions, vesting calculation
        information, and additional provisions regarding vesting.

      



      
        
          
          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
            


          

        

      



      Exhibit
        B to Stock Option Agreement

       

      Matrix
        for Vesting of FY 2007 Options

      


       

        	
                Measurement

              	
                Weighting

              	
                FY
                  '07 Minimum

              	
                FY
                  '07 Target

              	
                CEO
                  pay-out at target

              
	
                ICO,
                  Inc. consolidated Operating Income

              	 	 	 	
                Vesting
                  of 30,000 options

              
	
                ICO,
                  Inc. consolidated Investment turnover

              	 	 	 	
                Vesting
                  of 30,000 options

              
	
                ICO,
                  Inc. consolidated ROE

              	 	 	 	
                Vesting
                  of 30,000 options

              
	
                Vesting
                  over time

              	 	 	 	
                Vesting
                  of 30,000 options

              
	
                Total

              	 	 	 	
                Vesting
                  of 120,000 options

              


      

       

      
 

      See
        Exhibit C for explanation of measurement definitions, vesting calculation
        information, and additional provisions regarding vesting.

      


       

       

       

       

       

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       


      Exhibit
        C to Stock Option Agreement

      


      Explanation
        of Measurement Definitions and Summary of Terms of Proposed Option
        Grants

      


      


      Measurement
        definitions

      


      
        	·  	
                “Operating
                  Income”:
                  Earnings before interest and taxes, excluding non-recurring charges.
                  Note
                  that Operating Income shall include expenses for bonuses payable
                  to the
                  CEO, Group Presidents and CFO pursuant to the incentive plans applicable
                  to them. Non-recurring charges that are excluded from the calculation
                  of
                  Operating Income shall consist of impairment, restructuring and
                  other
                  charges included in ICO's audited financial statements. Additionally,
                  Operating Income shall exclude, on a pro-forma basis, the effect
                  of
                  discontinued operations (including plants that are shut
                  down).

              


      

      


      
        	·  	
                “Investment
                  turnover”: Trailing
                  twelve months revenue divided by the “Average Invested Capital Base” for
                  the previous thirteen month-end periods. “Average Invested Capital Base”
                  is defined as the average total assets minus current liabilities,
                  excluding funded debt (i.e. interest bearing debt.), calculated
                  using the
                  previous thirteen month-end
                  periods.

              


      

      


      
        	·  	
                “ROE”:
                  Net income from continuing operations, minus preferred dividends
                  (whether
                  paid or accrued towards Convertible Preferred Stock liquidation
                  preference), divided by Stockholders' equity, less the liquidation
                  preference of Convertible Preferred Stock. For purposes of this
                  calculation, Stockholders' equity and liquidation preference balances
                  shall be averaged using the previous four (4) quarter-end balances,
                  plus
                  the prior year-end balance (e.g. for FY 2006 calculation the FY
                  2005
                  previous year end-balance plus the four quarter-end balances of
                  fiscal
                  year 2006).

              


      

      


      


      Additional
        Terms of Option Grants

      


      
        	·  	
                Actual
                  results between the "minimum" and "target" are interpolated assuming
                  zero
                  Options vest if the actual results equal the results described
                  in the
                  "minimum" column, and 100% of the Options in a given measurement
                  row vest
                  if the results equal or exceed the “target” column (therefore the midpoint
                  between the "minimum" and the "target" results in any given measurement
                  row result in 50% of the Options at target being vested).
                  

              


      

      


      
        	·  	
                Upon
                  the circumstances described in Section 6.1 of the 1998 Employee
                  Stock
                  Option Plan (sale or merger of the Company), unvested Options shall
                  vest
                  in accordance with Section 6.1, with the following exception: the
                  Options
                  referenced in the row in both Exhibits A and B entitled "Vesting
                  over
                  time" above shall only vest in proportion to service as CEO &
                  President as of the date of the sale or merger (e.g. if a sale
                  or merger
                  was to close on January 1, 2007, only 3/12ths of the CEO’s 30,000 Options
                  referenced in the row entitled “Vesting over time” for FY 2007 would
                  vest).