Document:

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                                                                    EXHIBIT 10.7

                             POWELL INDUSTRIES, INC.
                       EXECUTIVE SEVERANCE PROTECTION PLAN

                                   WITNESSETH:

         WHEREAS, the Board of Directors (the "Board") of Powell Industries,
Inc. (the "Company") has determined that, in the event the Company becomes
subject to any proposed or threatened Change of Control (as defined in the
Plan), the Board and the Company must be able to rely on the continued advice
and support of key management personnel without concern that such personnel
might be distracted by personal financial concerns and leave the employ of the
Company;

         WHEREAS, the Board has determined that a formal executive severance
protection plan should be adopted to insure stability and continuity of
employment of key management personnel in the event of a proposed or threatened
Change of Control;

         WHEREAS, it is intended that this Plan set forth the terms and
conditions upon which benefits are payable to certain executives under this
Plan; and

         WHEREAS, this Plan constitutes an employee welfare benefit plan, as
that term is defined in Section 3(1) of the Employee Retirement Income Security
Act of 1974 ("ERISA"); and

         WHEREAS, it is intended that this Plan shall comply with the
requirements of Section 402 of ERISA that an employee benefit plan be maintained
pursuant to a written instrument;

         NOW, THEREFORE, the Company has adopted this Plan which provides as
follows:

1.       DEFINITIONS.

         The following definitions shall apply for the purposes of this Plan:

         A. "BENEFICIARY" means any person or entity entitled to receive
benefits which are payable upon or after a Participant's death pursuant to the
terms of this Plan.

         B. "CHANGE OF CONTROL" of Powell Industries, Inc. means the date of
occurrence of one or more of the following:

                  (1) Any acquisition 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 (the "Exchange Act")) (a "Person") of
         beneficial ownership (within the meaning of Rule 13d-3 under the
         Exchange Act) of 35% or more of either (A) the then outstanding shares
         of common stock of the Company (the "Outstanding Common Stock") or (B)
         the combined voting power of the then outstanding voting securities of
         the Company entitled to vote

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         generally in the election of the Board of Directors of the Company (the
         "Outstanding Voting Securities");

                  (2) the merger or consolidation of the Company with any other
         entity if any person or group of persons (as defined in Rule 13d-5),
         together with his or its affiliates, is the beneficial owner, directly
         or indirectly, of 35% or more of the surviving entity's then
         outstanding securities entitled generally to vote for the election of
         the surviving entity's directors;

                  (3) Continuing Directors no longer constitute a majority of
         the Board; the term "Continuing Director" means any individual who is a
         member of the Board on the date hereof or was nominated for election as
         a director by, or whose nomination as a director was approved by, the
         Board with the affirmative vote of a majority of directors who were
         members of the Board on the date hereof; or

                  (4) The Company transfers substantially all of its assets to
         another corporation which is a less than 80% owned subsidiary of the
         Company.

         C. "COMMITTEE" means the Compensation Committee of the Company's Board
of Directors.

         D. "COVERED PERIOD" means three years from the date of occurrence of a
Change of Control.

         E. "EXECUTIVE" means an executive designated by the Board as eligible
to receive benefits under this Plan, as provided for in Section 5.

         F. "INVOLUNTARY TERMINATION" means, within the Covered Period,
termination of an Executive's employment following:

                  (1) an Executive's resignation, for any reason, which is
         requested by the Company;

                  (2) a significant change or reduction in job duties and
         responsibilities without the Executive's consent including, but not
         limited to his position title, work location, responsibility, or
         authority;

                  (3) reduction in his base salary, incentive award opportunity,
         employee benefits, or perquisites; or

                  (4) resignation by the Executive for "good reason". "Good
         reason" means the failure of the Company to provide a comparable
         position and compensation.

         G. "PLAN" means the Powell Industries, Inc. Executive Severance
Protection Plan as set forth in this document, and as hereafter amended.

         H. "PLAN ADMINISTRATOR" means the entity provided for in Section 2.

         I. "TERMINATION FOR CAUSE" means a termination of the Executive's
employment because of (1) the conviction of the Executive by a state or federal
court of competent jurisdiction of any felony, (2) the conviction of the
Executive by a state or federal court of competent jurisdiction for embezzlement
or misappropriation of funds of the Company or its

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consolidated subsidiaries, (3) gross negligence or willful misconduct of the
Executive which causes a material monetary injury to the Company or its
consolidated subsidiaries, or (4) the Executive's continued failure to
substantially perform material stated duties of his positions with the Company
and its consolidated subsidiaries.

2.       NAME OF ADMINISTRATOR AND PLAN FIDUCIARY.

         For purposes of Section 3(16) of ERISA, the Company is administrator of
this Plan. Unless the Board designates a different committee, the Committee is
designated Plan Administrator and Fiduciary of this Plan and is charged with the
general administration of this Plan.

3.       BENEFITS UNFUNDED.

         All benefits owing under the Plan shall be paid out of the Company's
general corporate funds, which are subject to the claims of creditors.

         Neither the Executives nor any Beneficiary shall have any right, title
or interest whatever in or to, or any claim, preferred or otherwise, in or to,
any particular assets of the Company as a result of participation in the Plan.
Nothing contained in the Plan, and no action taken pursuant to its provisions,
shall create or be construed to create a trust or a fiduciary relationship of
any kind between the Company and an Executive or any other person. Neither an
Executive nor a Beneficiary of an Executive shall acquire any interest greater
than that of an unsecured creditor in any assets of the Company.

4.       PLAN OPERATION AND POWERS OF THE COMMITTEE AS PLAN ADMINISTRATOR AND
         FIDUCIARY.

         A. THE COMMITTEE. The Committee is authorized in its sole discretion to
make all rules, regulations and procedures it deems necessary or appropriate for
administering this Plan within policies established by the Board, to construe
its provisions, to correct its defects, and supply any omissions or reconcile
any inconsistencies which may appear in this Plan, to determine all questions of
eligibility and entitlement to benefits and resolve all controversies. The Board
may allocate discretionary responsibilities to the Committee as Fiduciary
provided it is in writing. The Board may in writing permit the Committee as
Fiduciary to designate other persons to carry out discretionary
responsibilities.

         B. CLAIMS. If an Executive believes any benefit under this Plan has
been incorrectly calculated or denied, he or she may file a claim with the
Committee. The Committee shall follow claims procedures substantially identical
to the claims procedures in the Powell Industries, Inc. Employees Incentive
Savings Plan.

         C. STANDARD OF JUDICIAL REVIEW OF COMMITTEE ACTIONS. The Committee has
full and absolute discretion in the exercise of its authority under this Plan,
including without limitation, the authority to determine any person's right to
benefits under this Plan, the correct amount and form of any benefits, the
authority to decide any appeal, the authority to review and correct the actions
of any prior administrative committee, and all of the rights, powers, and
authorities specified in this Section 4 and this Plan. Notwithstanding any
provision of law or any explicit or implicit provision of this document, any
action taken or ruling or decision made by the Committee in the exercise of any
of its powers and authorities under this Plan, shall be final and conclusive as
to all parties, regardless of whether the Committee or one or more of its

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members may have an actual or potential conflict of interest with respect to the
subject matter of the action, ruling, or decision. Thus, no final action,
ruling, or decision of the Committee shall be subject to de novo review in any
judicial proceeding and no final action, ruling, or decision of the Committee
may be set aside unless it is held to have been arbitrary and capricious by a
final judgment of a court having jurisdiction with respect to the issue.

5.       ELIGIBILITY FOR PLAN BENEFITS:

         The Board shall designate the Executives eligible to receive benefits
under this Plan in the event of that Executive's termination of employment
following a Change of Control as described in this Plan, and the Board shall
designate whether each such Executive is eligible for benefits under Executive
Benefit Group 1 or Group 2. The Board may change the benefit classification of
an Executive, or add or delete names from the list, from time to time, prior to
a Change of Control.

6.       PLAN BENEFITS.

         The benefits payable under this Plan shall be calculated as follows:

<Table>
<Caption>
-----------------------------    -------------------------------------------   -------------------------
                                               INVOLUNTARY                          TERMINATION FOR
          BENEFITS                             TERMINATION                               CAUSE
-----------------------------    -------------------------------------------   -------------------------
<S>                              <C>                                           <C>

Base Salary                      Group 1: 3 times the current                  Group 1 and 2: None
                                 annual base salary

                                 Group 2: 2 times the current
                                 annual base salary

Annual Incentive                 Group 1: 3 times the maximum                  Group 1 and 2: None.
under Executive                  incentive opportunity for the
Incentive Plan                   current year

                                 Group 2: 2 times the maximum
                                 incentive opportunity for the
                                 current year
</Table>

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<Table>
<Caption>
-----------------------------    -------------------------------------------   -------------------------
                                               INVOLUNTARY                          TERMINATION FOR
          BENEFITS                             TERMINATION                               CAUSE
-----------------------------    -------------------------------------------   -------------------------
<S>                              <C>                                           <C>
Employee Benefits                Group 1: Continuation of medical,             Group 1 and 2:
                                 dental, and life benefits (as existing
*These benefits cease at the     on date of termination) for
earliest to occur of (i)         Executive and dependents for up to
maximum number of years          3 years.* Executive would pay normal          None
indicated, or (ii) the           group rate employee contribution
Executive is covered under       amounts for this Coverage.
another plan.                                                                  None
                                 Group 2: Continuation of medical,
                                 dental, and life benefits (as existing
                                 on date of termination) for Executive
                                 and dependents for up to 2 years.*
                                 Executive would pay normal group rate
                                 employee contribution amounts for this
                                 Coverage.                                     Group 1 and 2: COBRA
                                                                               coverage begins at
                                 Group 1 and 2: COBRA coverage Period, if      termination unless
                                 applicable, begins after the benefits         Executive is terminated
                                 continuation period has ended.                for gross misconduct.
</Table>

<Table>
<Caption>
--------------------------------------------------------------------------------------------------------
                                   BENEFITS PROVIDED BY OTHER PLANS
--------------------------------------------------------------------------------------------------------
<S>                              <C>                                           <C>
Qualified Retirement             Group 1 and 2: All vested balances            Group 1 and 2: All vested
Plan                             (as required by law).                         balances (as required by
                                                                               law).

Restricted Stock and             Group 1 and 2: Immediate vesting              Group 1 and 2: Immediate
Stock Options                    at time of change of control per              vesting at time of change
                                 Option Plan.                                  of control per Option
                                                                               Plan.
</Table>

         Benefits are not payable under this Plan if an Executive's employment
is terminated following the sale or disposition of any subsidiary of the Company
unless that transaction is in conjunction with a Change of Control of Powell
Industries, Inc.

         If an Executive dies during the Covered Period after his Involuntary
Termination, but before the payment or provision of all benefits to which that
Executive has become entitled, then (1) cash payments due under Section 7 shall
be made in accordance with the terms thereof, and (2) coverage for the
Executive's dependents shall continue for the applicable term provided in this
Section 6.

7.       PLAN PAYMENTS.

         Payments from this Plan will consist of the payment and provision of
severance benefits by the Company out of its general assets in accordance with
the terms of this Plan. Cash

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payments due will be paid to the Executive or his Beneficiary within 90 days of
the event causing the benefit payment under this Plan.

8.       DESIGNATION OF BENEFICIARY.

         Each Executive may from time to time designate the person(s) or
entity(ies) to whom the benefits provided for in this Plan are to be paid in the
event of the Executive's death. An Executive may from time to time change such
Executive's designation of Beneficiary and, upon any such change, any previously
designated Beneficiary's right to receive any benefits under the Plan shall
terminate.

         In order to be effective, any designation or change of designation of a
Beneficiary must be made on a form furnished by the Committee and signed by the
Executive and received by the Committee while the Executive is alive. If a
Beneficiary of a deceased Executive shall survive the deceased Executive but die
prior to the receipt of all benefits payable to said Beneficiary under the Plan,
then such benefits as would have been payable to said deceased Beneficiary shall
be paid to such Beneficiary's estate at the same time and in the same manner as
such benefits would have been payable to said deceased Beneficiary.

         If no such designation is on file with the Committee at the time of the
death of the Executive or such designation is not effective for any reason as
determined by the Committee, then the designated Beneficiary to receive such
benefit shall be such Executive's spouse, if any, or the Executive's estate, if
the Executive was not married at the time of his death.

9.       PLAN AMENDMENT AND/OR TERMINATION.

         This Plan may be amended at any time at the sole discretion of the
Company by appropriate action of the Board and may be terminated at any time;
provided that within one year of a Change of Control: (i) no amendment may be
made which adversely affects the benefits which would be payable to an Executive
hereunder in the event of a termination of employment following such Change of
Control, and (ii) the Plan may not be terminated.

10.      COORDINATION WITH EMPLOYMENT AND OTHER AGREEMENTS.

         The severance benefits provided under this Plan to an Executive of the
Company shall be coordinated with any severance benefits provided to such
officer under any employment contract or other agreements between the Company
and its consolidated subsidiaries and such Executive, such that for each item of
severance benefit described herein, the Executive shall be entitled to the most
favorable of the benefits provided by this Plan and by the employment contract
or other agreement, but the Company shall not be required under this Plan to pay
or provide twice any item of severance benefit that is covered both by this Plan
and by such employment contract or other agreement. Split dollar agreements, if
any, between the Company and an Executive shall operate according to their terms
and shall not be affected by, or affect, payments due under this Plan.

11.      GENERAL PROVISIONS.

         A. NO ASSIGNMENT OF PROPERTY RIGHTS. Unless it is specifically required
by applicable law, no interest or property rights of any Executive in this Plan
or in any severance benefit to be paid pursuant to its terms, shall be subject
in any manner to sale, transfer,

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assignment, pledge, attachment, garnishment, or other alienation or encumbrance
of any kind, nor may such interest or right to receive a payment or distribution
be taken, voluntarily or involuntarily, for the satisfaction of the obligations
or debts of, or other claims against, the Executive or his Beneficiary,
including claims for alimony, support, separate maintenance, and claims in
bankruptcy proceedings. Any act in violation of this section shall be null and
void.

         B. NO EMPLOYMENT CONTRACT. This Plan is not an employment contract and
nothing contained in it shall prohibit the adjustment from time to time of the
terms of employment of any Executive, including his current compensation and
fringe benefits to which he may otherwise be entitled. No provision in this Plan
shall be construed to affect in any way the Company's right to discharge any
Executive at any time and for any reason, which right is hereby reserved,
subject to any separate contract with such Executive.

         C. INTERPRETATION. The interpretation, performance and enforcement of
this Plan shall be governed by ERISA and, to the extent not preempted, by the
laws of the State of Texas, without regard to Texas rules concerning conflicts
of laws. Except when otherwise indicated by the context, the use of masculine
terminology in this Plan shall include the feminine.

         D. NO OFFSET REQUIRED. No payments or benefits payable to or with
respect to an Executive pursuant to this Plan shall be reduced by any amount the
Executive may owe to the Company, or any amount the Executive may earn or
receive from employment with another employer or from any other source.

         E. TAX WITHHOLDING. If any Federal or state tax withholding is required
with respect to an Executive's severance benefit under this Plan, the Committee
shall make appropriate arrangements to withhold the required amount from the
Executive's benefit payment under this Plan.

         F. GROSS UP. Benefits paid to an Executive pursuant to this Plan shall
be "grossed-up" by the Company to cover (1) any federal excise tax due by that
Executive on account of these benefit payments and (2) any federal income and
employment taxes due on the federal excise tax described in this Section 11.F.

         G. REIMBURSEMENT FOR LEGAL FEES. The Company shall reimburse an
Executive for legal fees incurred by an Executive to successfully enforce the
terms of this Plan in an amount which does not exceed the following maximums:

                     Executive in Group 1            $150,000
                                                     ========

                     Executive in Group 2            $100,000
                                                     ========

         Reimbursement shall be made by the Company to the Executive within 30
days of receipt by the Company of a statement for such legal fees submitted by
the Executive.

         H. SEVERABILITY. In the event any provision of this Plan is held
illegal or invalid, the remaining provisions of this Plan shall not be affected
thereby.

12.      EXECUTION.

         To record the adoption of this amended and restated Executive Severance
Protection Plan as set forth in this document, effective as of September 20,
2002, the effective date for this Plan

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<PAGE>

as approved by its Board, Powell Industries, Inc. has caused this Plan to be
executed by its duly authorized representative this 20th day of September, 2002.

                                            POWELL INDUSTRIES, INC.

                                            By: /s/ DON R. MADISON
                                                -------------------------------
                                                Don R. Madison
                                                Vice President
                                                Chief Financial Officer

                                       8<PAGE>

                                                                    EXHIBIT 10.8

                             POWELL INDUSTRIES, INC.

                     NON-EMPLOYER DIRECTOR STOCK OPTION PLAN

         1. PURPOSE. The Powell Industries, Inc. Non-Employee Director Stock
Option Plan (the "Plan") of Powell Industries, Inc. (the "Company") is for the
benefit of members of the Board of Directors of the Company (the "Board"), who,
at the time of their service, are not employees of the Company or any of its
affiliates, by providing them an opportunity to become owners of the Common
Stock of the Company (the "Stock"), thereby advancing the best interests of the
Company by increasing their proprietary interest in the success of the Company
and encouraging them to continue in their present capacity.

         2. EFFECTIVE DATE OF PLAN. The Plan, as amended and restated, is
effective January 18, 2002, having been approved by the Board and the
stockholders of the Company.

         3. ADMINISTRATION. The Plan shall be administered by the Compensation
Committee of the Board (the "Committee"). Subject to the terms of the Plan, the
Committee shall have the power to grant Options to Eligible Directors, construe
the provisions of the Plan, Options, and Stock issued hereunder, to determine
all questions arising hereunder, and to adopt and amend such rules and
regulations for administering the Plan as the Committee deems desirable;
provided, however, that the actions and decisions taken by the Committee in its
capacity as administrator of the Plan shall not be effective until submitted to
and ratified by the Board.

         4. DEDICATED SHARES. The total number of shares of Stock with respect
to which Initial Grants and Annual Grants (collectively, the "Options") may be
granted under this Plan shall not exceed, in the aggregate, 100,000 shares;
provided, that the class and aggregate number of shares of Stock which may be
granted hereunder shall be subject to adjustment in accordance with the
provisions of Paragraph 17. The shares of Stock may be treasury shares or
authorized but unissued shares of Stock. In the event that any outstanding
Option shall expire or is terminated or canceled for any reason, the shares of
Stock allocable to the unexercised portion of that Option may again be subject
to an Option or Options under the Plan.

         5. GRANT OF OPTIONS. All Options granted under the Plan shall be
Nonqualified Options which are not intended to satisfy the requirements of
Section 422 of the Internal Revenue Code of 1986, as amended.

         6. ELIGIBILITY. The individuals who shall be eligible to receive
Options under the Plan shall be each member of the Board who is not an employee
of the Company or any affiliate of the Company ("Eligible Director").

         7. OPTION GRANT SIZE AND GRANT DATES.

         Annual Grants -- If shares of Stock are available for issuance under
the Plan, on a date established by the Committee, each Eligible Director who is
continuing to serve as a director after such date, shall receive a grant of an
Option to purchase the 2000 shares of Stock at the Fair Market Value of the
Stock on the date of grant (an "Annual Grant").

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         Initial Grants -- If an Eligible Director is first elected or appointed
to the Board (whichever is applicable), after the date of the immediately
preceding Annual Grant but before the date chosen for the next Annual Grant, the
Eligible Director shall be granted an Option to purchase the number of shares of
Stock (rounded to the nearest whole share) which is determined my multiplying
2,000 shares by a fraction, the numerator of which is the number of months
served actually served by the Eligible Director until the date of the next
Annual Grant and the denominator of which is 12. The exercise price of such
Stock shall be the Fair Market Value on the date of grant (an "Initial Grant").
The intent of this initial Grant is to provide the new Director with a prorated
Option for the partial year served before the Annual Grant.

         If the General Counsel of the Company determines, in his sole
discretion, that the Company is in possession of material, nonpublic information
about the Company or any of its subsidiaries, he may suspend granting of the
Initial Grant and Annual Grant to each Eligible Director until the second
trading day after public dissemination of the information, and the determination
by the General Counsel that issuance of the Options is then appropriate.

         8. OPTION PRICE; FAIR MARKET VALUE. The price at which shares of Stock
may be purchased by each Eligible Director (the "Optionee") pursuant to his
Initial Grant and each Annual Grant, respectively, shall be 100% of the "Fair
Market Value" of the shares of Stock on the date of grant of the Initial Grant
and each Annual Grant, as applicable.

         For all purposes of this Plan, the "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 on the principal securities exchange on which the Stock is listed;
(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 as reported on the NASDAQ National
Market System; (c) if the Stock is not listed on the NASDAQ National Market
System 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, 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
that amount as determined by the Committee.

         9. DURATION OF OPTIONS. The term of each Option shall be seven (7)
years from the date of grant. No Option shall be exercisable after the
expiration of seven (7) years from the date the Option is granted.

         10. AMOUNT EXERCISABLE. Each Option granted hereunder shall be
exercisable in full after the first anniversary of the grant of the Option.

         11. EXERCISE OF OPTIONS. Options shall be exercised by the delivery of
written notice to the Company setting forth the number of shares 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, (b) Stock (held by
Optionee for at least six months) at its Fair Market Value on the date of
exercise, and/or (c) any other form of payment which is acceptable to the
Committee, and specifying the address to which the certificates for the shares
are to be mailed. As promptly as practicable after receipt of written
notification and payment, the Company shall deliver to the Eligible Director
certificates for the number of shares with respect to which the Option has been
exercised, issued in the Eligible Director's name. If shares of Stock are used
in payment, the Fair Market Value of the shares of Stock tendered must be less
than the option price of the shares being purchased, and the difference must be
paid by check. Delivery 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 Eligible Director, at the address specified
by the Eligible Director.

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<PAGE>

         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.

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

         13. TERMINATION OF DIRECTORSHIP OF OPTIONEE. If, before the date of
expiration of the Option, the Optionee shall cease to be a director of the
Company, the Option shall terminate on the earlier of the date of expiration or
one (1) year after the date of ceasing to serve as a director. In this event,
the Optionee shall have the right, prior to the termination of the Option, to
exercise the Option if he was entitled to exercise the Option immediately prior
to ceasing to serve as a director, however, in the event that the Optionee has
ceased to serve as a director on or after attaining the age of seventy (70)
years, the Optionee shall be entitled to exercise all or any part of such Option
without regard to any limitations imposed pursuant to Paragraph 10, provided
that in no event shall the Option be exercisable within six months after the
date of grant.

         Upon the death of the Optionee while serving as a director, his
executors, administrators, or any person or persons to whom his Option may be
transferred by will or by the laws of descent and distribution, shall have the
right, at any time prior to the earlier of the date of expiration of the Option
or one (1) year following the date of his death, to exercise the Option, in
whole or in part without regard to any limitations imposed pursuant to Paragraph
10, provided that in no event shall the Option be exercisable within six months
after the date of grant.

         14. 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 state 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 Company 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 Company 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 order to
cause the exercise of an Option, or the issuance of shares under it, to comply
with any law or regulation of any governmental authority.

         15. NO RIGHTS AS STOCKHOLDER. No Optionee shall have any rights as a
stockholder with respect to Stock covered by any Option until the date a stock
certificate is issued for the Stock, and, except as otherwise provided in
Paragraph 17 hereof, no adjustment for dividends, or otherwise, shall be made if
the record date thereof is prior to the date of issuance of such certificate.

                                       3
<PAGE>

         16. NO OBLIGATION TO RETAIN OPTIONEE. The granting of any Option shall
not impose upon the Company or its stockholders any obligation to retain or
continue to retain any Optionee or nominate any Optionee for election to
continue in his capacity as a director of the Company. The right of the Company,
the Board, and the stockholders to terminate the service of any Optionee as a
director shall not be diminished or affected by reason of the fact that one or
more Options have been or would be granted to him.

         17. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of
outstanding Options or Stock Awards shall not affect in any way the right or
power of the Company or its stockholders to make or authorize any or all
adjustments, recapitalization, 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 Employee
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 each class of Stock as the result of the event
requiring the adjustment.

         If while unexercised Options remain outstanding under the Plan (i) the
Company shall not be the surviving entity in any merger, consolidation or other
reorganization, (or survives only as a subsidiary of an entity other than an
entity that was wholly-owned by the Company immediately prior to such merger,
consolidation or other reorganization), (ii) the Company sells, leases or
exchanges or agrees to sell, lease or exchange all or substantially all of its
assets to any other person or entity (other than an entity wholly-owned by the
Company), (iii) the Company is to be dissolved, or (iv) the Company is a party
to any other corporate transaction (as defined under Section 424(a) of the Code
and applicable Treasury Regulations) that is not described in clauses (i), (ii)
or (iii) of this sentence (each such event is referred to herein as a "Corporate
Change"), then (x) except as otherwise provided in an Option Agreement or as a
result of the Committee's effectuation of one or more of the alternatives
described below, there shall be no acceleration of the time at which any Option
then outstanding may be exercised, and (y) no later than ten (10) days after the
approval by the stockholders of the Company of such Corporate Change, the
Committee, without the consent or approval of any Optionee, shall act to effect
one or more of the following alternatives, which may vary among individual
Optionees and which may vary among Options held by any individual Optionee:

         (1) accelerate the time at which some or all of the Options then
outstanding may be exercised so that such Options may be exercised in full for a
limited period of time on or before a specified date (before or after such
Corporate Change) fixed by the Committee, after which specified date all such
Options that remain unexercised and all rights of Optionees thereunder shall
terminate,

         (2) require the mandatory surrender to the Company by all or selected
Optionees of some or all of the then outstanding Options held by such Optionee
(irrespective of whether such Options are then exercisable under the provisions
of this Plan or the Option Agreements evidencing such Options) as of a

                                       4
<PAGE>

date, before or after such Corporate Change, specified by the Committee, in
which event the Committee shall thereupon cancel such Options and the Company
shall pay to each such Optionee an amount of cash per share equal to the excess,
if any, of the per share price offered to stockholders of the Company in
connection with such Corporate Change over the exercise price(s) under such
Options for such shares,

         (3) with respect to all or selected Optionees, have some or all of
their then outstanding Options (whether vested or unvested) assumed or have a
new Option substituted for some or all of their then outstanding options
(whether vested or unvested) by an entity which is a party to the transaction
resulting in such Corporate Change and which is then, employing him, or a parent
or subsidiary of such entity, provided that (A) such assumption or substitution
is on a basis where the excess of the aggregate fair market value of the shares
subject to the Option immediately after the assumption or substitution over the
aggregate exercise price of such shares is equal to the excess of the aggregate
fair market value of all shares subject to the Option immediately before such
assumption or substitution over the aggregate exercise price of such shares, and
(B) the assumed rights under such existing option or the substituted rights
under such new Option as the case may be will have the same terms and conditions
as the rights under the existing Option assumed or substituted for, as the case
may be,

         (4) provide that the number and class of shares of Stock covered by an
Option (whether vested or unvested) theretofore granted shall be adjusted so
that such Option when exercised shall thereafter cover the number and class of
shares of stock or other securities or property (including, without limitation,
cash) to which the Optionee would have been entitled pursuant to the terms of
the agreement and/or plan relating to such Corporate Change if, immediately
prior to such Corporate Change, the Optionee had been the holder of record of
the number of shares of Stock then covered by such Option, or

         (5) make such adjustments to Options then outstanding as the Committee
deems appropriate to reflect such Corporate Change (provided, however, that the
Committee may determine that no such adjustment is necessary).

         In effecting one or more of alternatives (3), (4) or (5) above, and
except as otherwise may be provided in an Option Agreement, the Committee, in
its sole and absolute discretion and without the consent or approval of any
Optionee, may accelerate the time at which some or all Options then outstanding
may be exercised.

         In the event of changes in the outstanding Stock by reason of
recapitalizations, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in capitalization occurring after the date
of the grant of any Option and not otherwise provided for by this Section 17,
any outstanding Options and any agreements evidencing such Options shall be
subject to adjustment by the Committee as to the number and price of shares of
stock or other consideration subject to such Options. In the event of any such
change in the outstanding Stock, the aggregate number of shares available under
this Plan may be appropriately adjusted by the Committee.

         After a merger of one or more corporations into the Company or after a
consolidation of the Company and one or more corporations in which the Company
shall be the surviving corporation, each Employee shall be entitled to have his
Restricted Stock appropriately adjusted based on the manner the Stock was
adjusted under the terms of the agreement of merger or consolidation.

         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

                                       5
<PAGE>

shall be made with respect to, the number, class, or price of shares of Stock
then subject to outstanding Options or Stock Awards.

         18. TERMINATION AND AMENDMENT OF PLAN. The Board may amend, terminate
or suspend the Plan at any time, in its sole and absolute discretion; provided,
however, to the extent required to qualify the Plan under Rule 16b-3 promulgated
under Section 16 of the Securities Exchange Act of 1934, as amended, no
amendment shall be made more than once every six months that would change the
amount, price or timing of the Initial and Annual Grants, other than to comport
with changes in the Internal Revenue Code of 1986, as amended, the Employee
Retirement Income Security Act or the rules and regulations promulgated
thereunder, and provided, further, to the extent required to qualify the Plan
under Rule 16b-3, no amendment that would (a) materially increase the number of
shares of the Stock that may be issued under the Plan, (b) materially modify the
requirements as to eligibility for participation in the Plan, or (c) otherwise
materially increase the benefits accruing to participants under the Plan, shall
be made without the approval of the Company's stockholders.

         19. WRITTEN AGREEMENT. Each Option granted hereunder shall be embodied
in written agreement, which shall be subject to the terms and conditions of this
Plan and shall be signed by the Optionee and by the Chairman of the Board, the
Vice Chairman, the President or any Vice President of the Company for and in the
name and on behalf of the Company.

         20. INDEMNIFICATION OF COMMITTEE. With respect to administration of the
Plan, the Company shall indemnify each present and future member of the
Committee against, and each member of the Committee shall be entitled without
further act on his part to indemnity from the Company for, all expenses
(including 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, whether or not he continues
to be a member of the Committee at the time of incurring the expenses. However,
this indemnity shall not include any expenses incurred by any member of the
Committee (a) 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 (b) in respect of any matter in which any settlement is effected, to an
amount in excess of the amount approved by the Company on the advice of its
legal counsel. In addition, no right of indemnification under this Plan shall be
available to or enforceable by any member of the Committee 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 shall be in
addition to all other rights to which a member of the Committee may be entitled
as a matter of law, contract, or otherwise.

         21. FORFEITURES. Notwithstanding any other provision of this Plan, if,
before or after termination of the Optionee's capacity as a director of the
Company, there is an adjudication by a court of competent jurisdiction that the
Optionee committed fraud, embezzlement, theft, commission of felony, or proves
dishonesty in the course of his advisory relationship to the Company and its
affiliates which conduct materially damaged the Company or its affiliates, or
disclosed trade secrets of the Company or its affiliates, then any outstanding
options which have not been exercised by Optionee shall be forfeited. In order
to provide the Company with an opportunity to enforce this Section, an Option
may not be exercised if a lawsuit alleging that an action described in the
preceding sentence has taken place until a final resolution of the lawsuit
favorable to the Optionee.

         22. 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.

                                       6
<PAGE>

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

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

                                       7

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