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                                                                    EXHIBIT 10.1

                         THE HOUSTON EXPLORATION COMPANY
                             1996 STOCK OPTION PLAN
                            (As Amended and Restated)

                                    ARTICLE I

                                      PLAN

         1.1 PURPOSE. This Plan is a plan for non-employee directors of the
Company and employees, consultants and advisors of the Company and its
Affiliates and is intended to advance the best interests of the Company, its
Affiliates, and its stockholders by providing those persons who have substantial
responsibility for the management and growth of the Company and its Affiliates
with additional incentives and an opportunity to obtain or increase their
proprietary interest in the Company, thereby encouraging them to continue as
directors or in the employ of the Company or any of its Affiliates.

         1.2 EFFECTIVE DATE OF PLAN. This Plan became effective May 9, 1996.
This amendment and restatement of the Plan shall be effective September 22,
1997, if within one year of that date it shall have been approved by at least a
majority vote of stockholders voting in person or by proxy at a duly held
stockholders' meeting, or if the provisions of the corporate charter, by-laws or
applicable state law prescribes a greater degree of stockholder approval for
this action, the approval by the holders of that percentage, at a duly held
meeting of stockholders. No Option shall be granted pursuant to this Plan after
May 8, 2006.


                                   ARTICLE II

                                   DEFINITIONS

         The words and phrases defined in this Article shall have the meaning
set out in these definitions throughout this Plan, unless the context in which
any such word or phrase appears reasonably requires a broader, narrower, or
different meaning.

         2.1 "AFFILIATE" means any parent corporation and any subsidiary
corporation. The term "parent corporation" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if, at the
time of the action or transaction, each of the corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in the chain. The term
"subsidiary corporation" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of the
action or transaction, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in the
chain.

         2.2      "BOARD OF DIRECTORS" means the board of directors of the 
                  Company.

         2.3      "CHANGE OF CONTROL" means:

                  (i) the acquisition after the closing date of the sale of any
         or all of the shares of Stock registered under the Securities Act of
         1933, as amended, pursuant to a Registration Statement on Form S-1
         (Reg. No. 333-4437) (the "Effective Date") by any individual, entity or
         group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
         Securities Exchange Act of 1934, as amended) (a "Person") of beneficial
         ownership of 20 percent or more of either (i) the then outstanding
         shares of common stock of the Company (the "Outstanding Common Stock")
         or (ii) the combined voting power of the then outstanding voting
         securities of the Company entitled to vote generally in the election of
         directors (the "Outstanding Voting Securities"), provided that for
         purposes of this subsection (i), the following acquisitions shall not
         constitute a Change of Control: (A) any


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         acquisition directly from the Company, (B) any acquisition by the
         Company, (C) any acquisition by any employee benefit plan (or related
         trust) sponsored or maintained by the Company or any corporation
         controlled by the Company, or (D) any acquisition by any corporation
         pursuant to a transaction which complies with clauses (A), (B) and (C)
         of subsection (iii) hereof; or

                  (ii) individuals, who, as of the Effective Date, constitute
         the Board (the "Incumbent Board") cease for any reason to constitute at
         least a majority of the Board provided that any individual becoming a
         director subsequent to the Effective Date whose election, or nomination
         for election by the Company's stockholders, was approved by a vote of
         at least a majority of the directors then comprising the Incumbent
         Board shall be considered as though such individual was a member of the
         Incumbent Board, but excluding, for this purpose, any such individual
         whose initial assumption of office occurs as a result of an actual or
         threatened election contest with respect to the election or removal of
         directors or other actual or threatened solicitation of proxies or
         consents by or on behalf of a Person other than the Board; or

                  (iii) consummation after the Effective Date of a
         reorganization, merger or consolidation or sale or other disposition of
         all or substantially all of the assets of the Company (a "Corporate
         Transaction") unless, in each case, following such Corporate
         Transaction, (A) (1) all or substantially all of the persons who were
         the beneficial owners of the Outstanding Common Stock immediately prior
         to such Corporate Transaction beneficially own, directly or indirectly,
         more than 60 percent of the then outstanding shares of common stock of
         the corporation resulting from such Corporate Transaction, and (2) all
         or substantially all of the persons who were the beneficial owners of
         the Outstanding Voting Securities immediately prior to such Corporate
         Transaction beneficially own directly or indirectly, more than 60
         percent of the combined voting power of the then outstanding voting
         securities entitled to vote generally in the election of directors of
         the corporation resulting from such Corporate Transaction (including,
         without limitation, a corporation which as a result of such transaction
         owns the Company or all or substantially all of the Company's assets
         either directly or through one or more subsidiaries) in substantially
         the same proportions as their ownership of the Outstanding Common Stock
         and the outstanding Voting Securities immediately prior to such
         Corporate Transaction, as the case may be, (B) no Person (excluding (1)
         any corporation resulting from such Corporate Transaction or any
         employee benefit plan (or related trust) of the Company or such
         corporation resulting from such Corporate Transaction and (2) any
         Person approved by the Incumbent Board) beneficially owns, directly or
         indirectly, 20 percent or more of the then outstanding shares of common
         stock of the corporation resulting from such Corporate Transaction or
         the combined voting power of the then outstanding voting securities of
         such corporation except to the extent that such ownership existed prior
         to such Corporate Transaction and (C) at least a majority of the
         members of the board of directors of the corporation resulting from
         such Corporate Transaction were members of the Incumbent Board at the
         time of the execution of the initial agreement or of the action of the
         Board providing for such Corporate Transaction.

         2.4 "CODE" means the internal Revenue Code of 1986, as amended.

         2.5 "COMMITTEE" means the Compensation Committee of the Board of
Directors or such other committee designated by the Board of Directors. The
Committee shall be comprised solely of at least two members who are Outside
Directors.

         2.6 "COMPANY" means The Houston Exploration Company, a Delaware
corporation.

         2.7 "DISABILITY" means a physical or mental infirmity which, in the
opinion of a physician selected by the Committee, shall prevent the Employee
from earning a reasonable livelihood with the Company or any Affiliate and which
can be expected to result in death or which has lasted or can be expected to
last for a continuous period of not less than 12 months and which: (a) was not
contracted, suffered or incurred while the Employee was engaged in, or did not
result from having engaged in, a felonious criminal enterprise; (b) did not
result from alcoholism or addiction to narcotics; and (c) did not result from an
injury incurred while a member of the Armed Forces of the United States for
which the Employee receives a military pension.

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         2.8      "EMPLOYEE" means a person employed by the Company or any 
Affiliate to whom an Option is granted.

         2.9 "FAIR MARKET VALUE" of the Stock as of any date means (a) the
average of the high and low sale prices of the Stock on that date (or, if there
was no sale on such date, the next preceding date on which there was such a
sale) on the principal securities exchange on which the Stock is listed; or (b)
if the Stock is not listed on a securities exchange, the average of the high and
low sale prices of the Stock on that date (or, if there was no sale on such
date, the next preceding date on which there was such a sale) as reported on the
Nasdaq Stock Market; or (c) if the Stock is not listed on the Nasdaq Stock
Market, the average of the high and low bid quotations for the Stock on that
date as reported by the National Quotation Bureau Incorporated; or (d) if none
of the foregoing is applicable, an amount at the election of the Committee equal
to (x) the average between the closing bid and ask prices per share of Stock on
the last preceding date on which those prices were reported or (y) an amount as
determined by the Committee in its sole discretion.

         2.10 "INCENTIVE OPTION" means an Option granted under this Plan which
is designated as an "Incentive Option" and satisfies the requirements of Section
422 of the Code.

         2.11 "NON-EMPLOYEE DIRECTOR" means a "non-employee director" as that
term is defined in Rule 16b-3 of the Securities Exchange Act of 1934; provided
that for purposes of Article III, Section 4.1, Article V and the related
provisions of this Plan "Non-Employee Director" means a member of the Board of
Directors who is not an employee, consultant or advisor of the Company or its
subsidiaries.

         2.12 "NONQUALIFIED OPTION" means an Option granted under this Plan
other than an Incentive Option.

         2.13 "OPTION" means either an Incentive Option or a Nonqualified Option
granted under this Plan to purchase shares of Stock.

         2.14 "OPTION AGREEMENT" means the written agreement which sets out the
terms of an Option.

         2.15 "OPTIONEE" means a person who is granted an Option under this
Plan.

         2.16 "OUTSIDE DIRECTOR" means a member of the Board of Directors
serving on the Committee who satisfies the criteria of Section 162(m) of the
Code.

         2.17 "PLAN" means The Houston Exploration Company 1996 Stock Option
Plan, as set out in this document and as it may be amended from time to time.

         2.18 "STOCK" means the common stock of the Company, $.01 par value or,
in the event that the outstanding shares of common stock are later changed into
or exchanged for a different class of stock or securities of the Company or
another corporation, that other stock or security.

         2.19 "10% STOCKHOLDER" means an individual who, at the time the Option
is granted, owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or of any Affiliate. An individual
shall be considered as owning the stock owned, directly or indirectly, by or for
his brothers and sisters (whether by the whole or half blood), spouse,
ancestors, and lineal descendants; and stock owned, directly or indirectly, by
or for a corporation, partnership, estate, or trust, shall be considered as
being owned proportionately by or for its stockholders, partners or
beneficiaries.



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                                   ARTICLE III

                                   ELIGIBILITY

         The individuals who shall be eligible to receive Incentive Options
shall be those key employees of the Company or any of its Affiliates as the
Committee shall determine from time to time. The individuals who shall be
eligible to receive Nonqualified Options shall be those key employees,
consultants and advisors of the Company or any of its Affiliates as the
Committee shall determine from time to time, and those individuals who are
Non-Employee Directors; provided, however, that Non-Employee Directors shall be
eligible only to receive Nonqualified Options pursuant to Section 5.8. Further,
no member of the Committee shall be eligible to receive any Option or to receive
stock, stock options, or stock appreciation rights under any other plan of the
Company or any of its Affiliates, if to do so would cause the individual not to
be an Outside Director. The Board of Directors may designate one or more
individuals who shall not be eligible to receive any Option under this Plan or
under other similar plans of the Company.


                                   ARTICLE IV

                     GENERAL PROVISIONS RELATING TO OPTIONS

         4.1 AUTHORITY TO GRANT OPTIONS. The Committee may grant to those
individuals (other than Non-Employee Directors), as it shall from time to time
determine, Options under the terms and conditions of this Plan. Subject only to
any applicable limitations set out in this Plan, the number of shares of Stock
to be covered by any Option to be granted to an Employee, consultant or advisor
of the Company or any of its Affiliates shall be as determined by the Committee.
Non-Employee Directors shall automatically receive grants of Nonqualified
Options as provided in Section 5.8.

         4.2 DEDICATED SHARES. The total number of shares of Stock with respect
to which Options may be granted under the Plan shall be ten percent of the
shares of Stock outstanding from time to time. The shares may be treasury shares
or authorized but unissued shares. The total number of shares of stock with
respect to which Incentive Options may be granted under the Plan shall be
1,125,000 shares. The maximum number of shares subject to Options which may be
issued to any Optionee under the Plan during any period of three consecutive
years is 1,125,000 shares. The number of shares stated in this Section 4.2 shall
be subject to adjustment in accordance with the provisions of Section 4.5.

         In the event that any outstanding Option shall expire or terminate for
any reason or any Option is surrendered, the shares of Stock allocable to the
unexercised portion of that Option may again be subject to an Option under the
Plan.

         4.3 NON-TRANSFERABILITY. Options shall not be transferable by the
Optionee otherwise than by will or under the laws of descent and distribution,
and shall be exercisable, during the Optionee's lifetime, only by him.

         4.4 REQUIREMENTS OF LAW. The Company shall not be required to sell or
issue any Stock under any Option if issuing that Stock would constitute or
result in a violation by the Optionee or the Company of any provision of any
law, statute, or regulation of any governmental authority. Specifically, in
connection with any applicable statute or regulation relating to the
registration of securities, upon exercise of any Option, the Company shall not
be required to issue any Stock unless the Committee has received evidence
satisfactory to it to the effect that the holder of that Option will not
transfer the Stock except in accordance with applicable law, including receipt
of an opinion of counsel satisfactory to the Company to the effect that any
proposed transfer complies with applicable law. The determination by the
Committee on this matter shall be final, binding and conclusive. The Company
may, but shall in no event be obligated to, register any Stock covered by this
Plan pursuant to applicable securities laws of any country or any political
subdivision. In the event the Stock issuable on exercise of an Option is not
registered, the Company may imprint on the certificate evidencing the Stock any
legend that counsel for the Company considers necessary or advisable to comply
with applicable law. The Company shall not be obligated to take any other
affirmative action in

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order to cause the exercise of an Option and the issuance of shares thereunder,
to comply with any law or regulation of any governmental authority.

         4.5 CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of
outstanding Options shall not affect in any way the right or power of the
Company or its stockholders to make or authorize any adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issue of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Stock or its rights, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding, whether of a similar character or
otherwise.

         If the Company shall effect a subdivision or consolidation of shares or
other capital readjustment, the payment of a stock dividend, or other increase
or reduction of the number of shares of the Stock outstanding, without receiving
compensation for it in money, services or property then (a) the number, class,
and per share price of shares of Stock subject to outstanding Options under this
Plan shall be appropriately adjusted in such a manner as to entitle an Optionee
to receive upon exercise of an Option, for the same aggregate cash
consideration, the equivalent total number and class of shares he would have
received had he exercised his Option in full immediately prior to the event
requiring the adjustment; and (b) the number and class of shares of Stock then
reserved to be issued under the Plan shall be adjusted by substituting for the
total number and class of shares of Stock then reserved, that number and class
of shares of Stock that would have been received by the owner of an equal number
of outstanding shares of such class of Stock as the result of the event
requiring the adjustment.

         If the Company is merged or consolidated with another corporation and
the Company is not the surviving corporation, or if the Company is liquidated or
sells or otherwise disposes of substantially all its assets while unexercised
Options remain outstanding under this Plan, (a) subject to the provisions of
clause (c) below, after the effective date of the merger, consolidation,
liquidation, sale or other disposition, as the case may be, each holder of an
outstanding Option shall be entitled, upon exercise of the Option, to receive,
in lieu of shares of Stock, the number and class or classes of shares of stock
or other securities or property to which the holder would have been entitled if,
immediately prior to the merger, consolidation, liquidation, sale or other
disposition, the holder had been the holder of record of a number of shares of
Stock equal to the number of shares as to which the Option shall be so
exercised; (b) the Committee shall waive any limitations set out in or imposed
under this Plan so that all Options, from and after a date prior to the
effective date of the merger, consolidation, liquidation, sale or other
disposition, as the case may be, specified by the Committee, shall be
exercisable in full; and (c) all outstanding Options may be canceled by the
Committee as of the effective date of any merger, consolidation, liquidation,
sale or other disposition, if (i) notice of cancellation shall be given to each
holder of an Option and (ii) each holder of an Option shall have the right to
exercise that Option in full (without regard to any limitations set out in or
imposed under this Plan or the Option Agreement granting that Option) during a
period set by the Committee preceding the effective date of the merger,
consolidation, liquidation, sale or other disposition and, if in the event all
outstanding Options may not be exercised in full under applicable securities
laws without registration of the shares of Stock issuable on exercise of the
Options, the Committee may limit the exercise of the Options to the number of
shares of Stock, if any, as may be issued without registration. The method of
choosing which Options may be exercised, and the number of shares of Stock for
which Options may be exercised, shall be solely within the discretion of the
committee.

         The issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or property, or for
labor or services either upon direct sale or upon the exercise of rights or
warrants to subscribe for them, or upon conversion of shares or obligations of
the Company convertible into shares or other securities, shall not affect, and
no adjustment by reason of such issuance shall be made with respect to, the
number, class, or price of shares of Stock then subject to outstanding Options.

         4.6 CHANGES OF CONTROL. In the event of a Change of Control, the
Committee may, in its discretion, at the time an Option is granted or any time
thereafter: (i) provide for the acceleration of any time period relating to the
exercise of the Option, (ii) provide for the purchase of the Option upon the
Optionee's request for an amount of cash or other property that could have been
received upon the exercise of the Option had the Option been

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then currently exercisable, (iii) adjust the terms of the Option in a manner
determined by the Committee to reflect the Change of Control, (iv) cause the
Option to be assumed, or new rights substituted therefore, by another entity, or
(v) make such other provisions as the Committee may consider equitable and in
the best interest of the Company. Any transaction described in this Section that
is approved by the Committee will be effective only if a committee of the Board
of Directors that is composed solely of two or more Non-Employee Directors
approves of the transaction, unless the transaction would not otherwise subject
the Optionee to potential liability under Section 16(b) of the Securities
Exchange of 1934, as amended.


                                    ARTICLE V

                                     OPTIONS

         5.1 TYPE OF OPTION. The Committee shall specify whether a given Option
shall constitute an Incentive Option or a Nonqualified Option; provided,
however, that the Options granted to Non-Employee Directors pursuant to Section
5.8 shall be Nonqualified Options.

         5.2 OPTION PRICE. The price at which Stock may be purchased under an
Option shall not be less than the greater of: (a) 100% of the Fair Market Value
of the shares of Stock on the date the Option is granted or (b) the aggregate
par value of the shares of Stock on the date the Option is granted; provided,
however, the price at which Stock may be purchased under a Nonqualified Option
granted to a Non-Employee Director pursuant to Section 5.8 shall be equal to the
greater of (a) or (b) above on the date the Option is granted. In the case of
any 10% Stockholder, the price at which shares of Stock may be purchased under
an Incentive Option shall not be less than 110% of the Fair Market Value of the
Stock on the date the Incentive Option is granted.

         5.3 DURATION OF OPTIONS. No Option shall be exercisable after the
expiration of 10 years from the date the Option is granted. In the case of a 10%
Stockholder, no Incentive Option shall be exercisable after the expiration of
five years from the date the Incentive Option is granted.

         5.4 AMOUNT EXERCISABLE. Except as provided in Section 5.8 below, each
Option may be exercised from time to time, in whole or in part, in the manner
and subject to the conditions the Committee, in its sole discretion, may provide
in the Option Agreement, as long as the Option is valid and outstanding provided
that no Option may be exercisable within six (6) months of the date of grant. To
the extent that the aggregate Fair Market Value (determined as of the time an
Incentive Option is granted) of the Stock with respect to which Incentive
Options first become exercisable by the Optionee during any calendar year (under
this Plan and any other incentive stock option plan(s) of the Company or any
Affiliate) exceeds $100,000, the Incentive Options shall be treated as
Nonqualified Options. In making this determination, Incentive Options shall be
taken into account in the order in which they were granted.

         5.5 EXERCISE OF OPTIONS. Each Option shall be exercised by the delivery
of written notice to the Committee setting forth the number of shares of Stock
with respect to which the Option is to be exercised, together with: (a) cash,
certified check, bank draft, or postal or express money order payable to the
order of the Company for an amount equal to the option price of the shares, or
(b) if approved by a committee of the Board of Directors that is composed solely
of two or more Non-Employee Directors, Stock at its Fair Market Value on the
date of exercise, and/or any other form of payment which is acceptable to such
committee, and specifying the address to which the certificates for the shares
are to be mailed. Subject to Section 8.8, as promptly as practicable after
receipt of written notification and payment, the Company shall deliver to the
Optionee certificates for the number of shares with respect to which the Option
has been exercised, issued in the Optionee's name. If shares of Stock are used
in payment of the exercise price, the aggregate Fair Market Value of the shares
of Stock tendered must be equal to or less than the aggregate exercise price of
the shares being purchased upon exercise of the Option, and any difference must
be paid by cash, certified check, bank draft, or postal or express money order
payable to the Company. Delivery of the shares shall be deemed effected for all
purposes when a stock transfer agent of the Company shall have deposited the
certificates in the United States mail, addressed to the Optionee, at the
address specified by the Optionee.

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         Whenever an Option is exercised by exchanging shares of Stock owned by
the Optionee, the Optionee shall deliver to the Company certificates registered
in the name of the Optionee representing a number of shares of Stock legally and
beneficially owned by the Optionee, free of all liens, claims, and encumbrances
of every kind, accompanied by stock powers duly endorsed in blank by the record
holder of the shares represented by the certificates, (with signature guaranteed
by a commercial bank or trust company or by a brokerage firm having a membership
on a registered national stock exchange). The delivery of certificates upon the
exercise of Options is subject to the condition that the person exercising the
Option provide the Company with the information the Company might reasonably
request pertaining to exercise, sale or other disposition of an Option.

         5.6 SUBSTITUTION OPTIONS. Options may be granted under this Plan from
time to time in substitution for stock options held by employees of other
corporations who are about to become employees of or affiliated with the Company
or any Affiliate as the result of a merger or consolidation of the employing
corporation with the Company or any Affiliate, or the acquisition by the Company
or any Affiliate of the assets of the employing corporation, or the acquisition
by the Company or any Affiliate of stock of the employing corporation as the
result of which it becomes an Affiliate of the Company. The terms and conditions
of the substitute Options granted may vary from the terms and conditions set out
in this Plan to the extent the Committee, at the time of grant, may deem
appropriate to conform, in whole or in part, to the provisions of the stock
options in substitution for which they are granted.

         5.7 NO RIGHTS AS STOCKHOLDER. No Optionee shall have any rights as a
stockholder with respect to Stock covered by his Option until the date a stock
certificate is issued for the Stock.

         5.8      DIRECTOR OPTIONS.

                  (a) Each individual who is a Non-Employee Director on
         September 20, 1997 shall automatically receive a Nonqualified Option
         for 5,000 shares of Stock on September 22, 1997.

                  (b) Each individual who becomes a Non-Employee Director upon
         his or her first election to the Board of Directors after September 20,
         1997 shall automatically receive a Non-Qualified Option for 5,000
         shares of Stock on the date of his or her election as a Non-Employee
         Director.

                  (c) On September 20 of each year that this Plan is in effect
         (commencing with September 20, 1997), each individual who is a
         Non-Employee Director on such date shall automatically receive a
         Nonqualified Option for 2,000 shares of Stock on such date; provided,
         however, that if September 20 of any year in which such Options are to
         be granted falls on a day which is not a business day, such Options
         shall be granted on the next following business day.

                  (d) Each Nonqualified Option granted to a Non-Employee
         Director pursuant to this Section 5.8 will be subject to the following
         provisions:

                  (i) Each such Option shall be fully vested and exercisable on
         the later of its date of grant or the date this amendment is approved
         as provided in Section 1.2.; and

                  (ii) Each such Option shall have a term of 10 years from the
         date the Option is granted; provided, however, that if the Non-Employee
         Director ceases to serve as a director of the Company for any reason,
         including death, each such Option shall terminate on the earlier to
         occur of (A) the first anniversary of the date on which such
         Non-Employee Director ceased to serve as a director of the Company and
         the (B) 10th anniversary of the date of grant of such Option.

                  (e) In the event that the number of shares of Stock available
         for grant under this Plan is insufficient to make all automatic grants
         provided for in this Section 5.8 on the applicable date, then each Non-
         Employee Director shall receive a Nonqualified Option for his or her
         pro rata share of the total number of

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         shares of Stock then available for grant under this Plan 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
         5.8 shall terminate.


                                   ARTICLE VI

                                 ADMINISTRATION

         This Plan shall be administered by the Committee. All questions of
interpretation and application of this Plan and Options shall be subject to the
determination of the Committee. A majority of the members of the Committee shall
constitute a quorum. All determinations of the Committee shall be made by a
majority of its members. Any decision or determination reduced to writing and
signed by a majority of the members shall be as effective as if it had been made
by a majority vote at a meeting properly called and held. This Plan shall be
administered in such a manner as to permit the Options granted under it which
are designated to be Incentive Options to qualify as Incentive Options. In
carrying out its authority under this Plan, the Committee shall have full and
final authority and discretion, including but not limited to the following
rights, powers and authorities, to:

                  (a) determine the persons to whom and the time or times at 
      which Options will be made,

                  (b) determine the number of shares and the purchase price of
      Stock covered in each Option, subject to the terms of the Plan,

                  (c) determine the terms, provisions and conditions of each
      Option, which need not be identical,

                  (d) accelerate the time at which any outstanding Option may be
      exercised,

                  (e) define the effect, if any, on an Option of the death,
      disability, retirement, or termination of employment of the Optionee,

                  (f) prescribe, amend and rescind rules and regulations 
      relating to administration of this Plan, and

                  (g) make all other determinations and take all other actions
      deemed necessary, appropriate, or advisable for the proper administration
      of this Plan.

Notwithstanding the foregoing, the Committee shall not have the authority or
discretion to modify any of the terms of the Nonqualified Options automatically
granted to Non-Employee Directors pursuant to Section 5.8. The actions of the
Committee in exercising all of the rights, powers, and authorities set out in
this Article and all other Articles of this Plan, when performed in good faith
and in its sole judgment, shall be final, conclusive and binding on all parties.


                                   ARTICLE VII

                        AMENDMENT OR TERMINATION OF PLAN

      The Board of Directors of the Company may amend, terminate or suspend this
Plan at any time, in its sole and absolute discretion; provided, however, that
to the extent required to maintain the status of any Incentive Option under the
Code, no amendment that would (a) change the aggregate number of shares of Stock
which may be issued under Incentive Options, (b) change the class of employees
eligible to receive Incentive Options, or (c) decrease the exercise price for
Incentive Options below the Fair Market Value of the Stock at the time it is
granted, shall be made without the approval of the Company's stockholders.
Subject to the preceding sentence, the Board shall have the power to make any
changes in this Plan and in the regulations and administrative provisions under
it or in any outstanding Incentive Option as in the opinion of counsel for the
Company may be necessary or appropriate from time to time to enable any

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Incentive Option granted under this Plan to continue to qualify as an incentive
stock option or such other stock option as may be defined under the Code so as
to receive preferential Federal income tax treatment.


                                  ARTICLE VIII

                                  MISCELLANEOUS

         8.1 NO ESTABLISHMENT OF A TRUST FUND. No property shall be set aside
nor shall a trust fund of any kind be established to secure the rights of any
Optionee under this Plan. All Optionees shall at all times rely solely upon the
general credit of the Company for the payment of any benefit which becomes
payable under this Plan.

         8.2 NO EMPLOYMENT OBLIGATION. The granting of any Option shall not
constitute an employment contract, express or implied, nor impose upon the
Company or any Affiliate any obligation to employ or continue to employ any
Optionee. The right of the Company or any Affiliate to terminate the employment
of any person shall not be diminished or affected by reason of the fact that an
Option has been granted to him.

         8.3 TAX WITHHOLDING. The Company or any Affiliate shall be entitled to
deduct from other compensation payable to each Optionee any sums required by
federal, state, or local tax law to be withheld with respect to the grant or
exercise of an Option. In the alternative, the Company may require the Optionee
(or other person exercising the Option) to pay the sum directly to the employer
corporation. If the Optionee (or other person exercising the Option) is required
to pay the sum directly, payment in cash or by check of such sums for taxes
shall be delivered within ten days after the date of exercise or lapse of
restrictions. The Company shall have no obligation upon exercise of any Option
until payment has been received, unless withholding (or offset against a cash
payment) as of or prior to the date of exercise is sufficient to cover all sums
due with respect to that exercise. The Company and its Affiliates shall not be
obligated to advise an Optionee of the existence of the tax or the amount which
the employer corporation will be required to withhold.

         8.4 WRITTEN AGREEMENT. Each Option shall be embodied in a written
Option Agreement which shall be subject to the terms and conditions of this Plan
and shall be signed by the Optionee and by a member of the Committee and an
officer of the Company on behalf of the Committee and the Company. The Option
Agreement may contain any other provisions that the Committee in its discretion
shall deem advisable which are not inconsistent with the terms of this Plan.

         8.5 INDEMNIFICATION OF THE COMMITTEE AND THE BOARD OF DIRECTORS.  With 
respect to administration of this Plan, the Company shall indemnify each present
and future member of the Committee and the Board of Directors against, and each
member of the Committee and the Board of Directors shall be entitled without
further action his part to indemnity from the Company for, all expenses
(including attorneys' fees, the amount of judgments and the amount of approved
settlements made with a view to the curtailment of costs of litigation, other
than amounts paid to the Company itself) reasonably incurred by him in
connection with or arising out of any action, suit, or proceeding in which he
may be involved by reason of his being or having been a member of the Committee
and/or the Board of Directors, whether or not he continues to be a member of the
Committee and/or the Board of Directors at the time of incurring the
expenses--including, without limitation, matters as to which he shall be finally
adjudged in any action, suit or proceeding to have been found to have been
negligent in the performance of his duty as a member of the Committee or of the
Board of Directors. However, this indemnity shall not include any expenses
incurred by any member of the Committee and/or the Board of Directors in respect
of matters as to which he shall be finally adjudged in any action, suit or
proceeding to have been guilty of gross negligence or willful misconduct in the
performance of his duty as a member of the Committee or the Board of Directors.
In addition, no right of indemnification under this Plan shall be available to
or enforceable by any member of the Committee or the Board of Directors unless,
within 60 days after institution of any action, suit or proceeding, he shall
have offered the Company, in writing, the opportunity to handle and defend same
at its own expense. This right of indemnification shall inure to the benefit of
the heirs, executors or administrators of each member of the Committee and the
Board of Directors and shall be in addition to all

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<PAGE>   10


other rights to which a member of the Committee and the Board of Directors may
be entitled as a matter of law, contract, or otherwise.

         8.6 GENDER. If the context requires, words of one gender when used in
this Plan shall include the others and words used in the singular or plural
shall include the other.

         8.7 HEADINGS. Headings of Articles and Sections are included for
convenience of reference only and do not constitute part of this Plan and shall
not be used in construing the terms of this Plan.

         8.8 OTHER COMPENSATION PLANS. The adoption of this Plan shall not
affect any other stock option, incentive or other compensation or benefit plans
in effect for the Company or any Affiliate, nor shall this Plan preclude the
Company from establishing any other forms of incentive or other compensation for
employees of the Company or any Affiliate.

         8.9 OTHER OPTIONS. The grant of an Option shall not confer upon an
Optionee the right to receive any future or other Options under this Plan,
whether or not Options may be granted to similarly situated Optionees, or the
right to receive future Options upon the same terms or conditions as previously
granted.

         8.10 ARBITRATION OF DISPUTES. Any controversy arising out of or
relating to the Plan or an Option Agreement shall be resolved by arbitration
conducted pursuant to the arbitration rules of the American Arbitration
Association. The arbitration shall be final and binding on the parties.

         8.11 GOVERNING LAW.  The provisions of this Plan shall be construed, 
administered, and governed under the laws of the State of Texas.


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