Document:

exv10w34

 

EXHIBIT 10.34

PURCHASE AND SALE OF ASSETS AGREEMENT

Between

U S LIQUIDS OF LA., L.P.

And

U S LIQUIDS INC.,

on the first part

And

TRINITY STORAGE SERVICES, L.P.

And

CCBS, INC., Its General Partner,

on the second part

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 
	SECTION
        	 	 	PAGE
	
	 	 	

	ARTICLE 1. SALE OF ASSETS
	 	 	4	 
	 	Section 1.1. Description of Assets
	 	 	4	 
	 	Section 1.2. Excluded Assets
	 	 	6	 
	 	Section 1.3. Non-Assignment of Certain Customer Contracts
	 	 	6	 
	 	Section 1.4. Prepaid Services
	 	 	7	 
	 	Section 1.5. Proration of Cash on Hand
	 	 	7	 
	 	Section 1.6. Handling of Receivables
	 	 	7	 
	ARTICLE 2. PURCHASE PRICE
	 	 	7	 
	 	Section 2.1. Purchase Price
	 	 	7	 
	 	Section 2.2. Additional Consideration
	 	 	8	 
	 	Section 2.3.
Payment of Certain Accounts Payable
	 	 	8	 
	ARTICLE 3. CLOSING
	 	 	9	 
	 	Section 3.1. Time and Place of Closing
	 	 	9	 
	 	Section 3.2. Deliveries by Seller and General Partner
	 	 	9	 
	 	Section 3.3. Deliveries by Buyer
	 	 	10	 
	ARTICLE 4. POST CLOSING COVENANTS
	 	 	10	 
	 	Section 4.1. Further Assurance
	 	 	10	 
	 	Section 4.2. Transition
	 	 	10	 
	ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF SELLER & GENERAL PARTNER
	 	 	10	 
	 	Section 5.1. Organization; Authority
	 	 	11	 
	 	Section 5.2. Binding Effect
	 	 	11	 
	 	Section 5.3. Predecessor Entities; Trade Names
	 	 	11	 
	 	Section 5.4. No Subsidiaries
	 	 	11	 
	 	Section 5.5. Financial Statements
	 	 	12	 
	 	Section 5.6. Non-Balance Sheet Liabilities
	 	 	12	 
	 	Section 5.7. Permits; Environmental Documents
	 	 	13	 
	 	Section 5.8. Personal Property
	 	 	13	 
	 	Section 5.9. Title to Real Property
	 	 	14	 
	 	Section 5.10. Contracts
	 	 	15	 
	 	Section 5.11. Insurance Policies
	 	 	16	 
	 	Section 5.12. Employees; Compensation
	 	 	16	 
	 	Section 5.13. Employee Relations and Benefit Plans
	 	 	16	 
	 	Section 5.14. Compliance with Law; No Conflicts
	 	 	16	 
	 	Section 5.15. Taxes
	 	 	17	 
	 	Section 5.16. Litigation
	 	 	17	 
	 	Section 5.17. Absence of Price Renegotiation Contracts
	 	 	17	 
	 	Section 5.18. Conduct of Seller’s Business Since Balance Sheet Date
	 	 	17	 
	 	Section 5.19. Hazardous Materials; Disposal Sites
	 	 	18	 
	 	Section 5.20. Underground Storage Tanks
	 	 	19	 
	 	Section 5.21. Corrupt Practices
	 	 	19	 
	 	Section 5.22. Complete Disclosure
	 	 	19	 
	 	Section 5.23. Due Diligence Disclosure
	 	 	19	 
	ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF BUYER
	 	 	19	 
	 	Section 6.1. Corporate Organization
	 	 	19	 
	 	Section 6.2. Corporate Authority
	 	 	19	 

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	SECTION	 	 	PAGE
	
	 	 	

	 	Section 6.3. US Liquids Stock
	 	 	19	 
	 	Section 6.4. No Conflicts
	 	 	20	 
	 	Section 6.5. Binding Agreement
	 	 	20	 
	ARTICLES 7. COVENANTS OF STOCKHOLDERS AND SELLER PRIOR TO CLOSING
	 	 	20	 
	 	Section 7.1. Access to Land and Records
	 	 	20	 
	 	Section 7.2. Activities of Seller Prior to Closing
	 	 	20	 
	 	Section 7.3. Prohibited Activities Prior to Closing
	 	 	21	 
	 	Section 7.4. Contact with Government Officials
	 	 	22	 
	 	Section 7.5. Notice of Developments
	 	 	22	 
	 	Section 7.6. Barge Surveys
	 	 	22	 
	 	Section 7.7 Venice
	 	 	22	 
	ARTICLE 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF GENERAL PARTNER &SELLER
	 	 	22	 
	 	Section 8.1. Representations and Warranties
	 	 	22	 
	 	Section 8.2. Consents
	 	 	22	 
	 	Section 8.3. No Adverse Proceeding
	 	 	23	 
	 	Section 8.4. Noncompetition Agreements
	 	 	23	 
	 	Section 8.5. Certificates
	 	 	23	 
	ARTICLE 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER & U S LIQUIDS
	 	 	23	 
	 	Section 9.1. Representations and Warranties
	 	 	23	 
	 	Section 9.2. Covenants
	 	 	23	 
	 	Section 9.3. No Adverse Proceeding
	 	 	23	 
	 	Section 9.4. No Adverse Change
	 	 	23	 
	 	Section 9.5. General Release
	 	 	23	 
	 	Section 9.6. Consents
	 	 	23	 
	 	Section 9.7. Good Standing Certificate
	 	 	23	 
	 	Section 9.8. Agreements
	 	 	24	 
	 	Section 9.9. Transferability of Permits
	 	 	24	 
	 	Section 9.10. Consents to Assignment of Real Estate Leases
	 	 	24	 
	 	Section 9.11. Environmental Review
	 	 	24	 
	 	Section 9.12. Due Diligence
	 	 	24	 
	 	Section 9.13. Barge Surveys
Section 9.14. Certificates
	 	 	24	 
	 	Section 9.15 Bank Approval
	 	 	24	 
	 	Section 9.16. General
	 	 	25	 
	ARTICLE 10. NON-ASSUMPTION OF LIABILITIES
	 	 	25	 
	ARTICLE 11. INDEMNIFICATION
	 	 	26	 
	 	Section 11.1. Indemnification by General Partner and Seller
	 	 	26	 
	 	Section 11.2. Indemnification by Buyer and U S Liquids
	 	 	26	 
	 	Section 11.3. Procedure for Indemnification with Respect to Third Party Claims
	 	 	26	 
	ARTICLE 12. TERMINATION OF AGREEMENT
	 	 	27	 
	 	Section 12.1. Termination by Buyer
	 	 	27	 
	 	Section 12.2. Termination by Seller
	 	 	28	 
	 	Section 12.3. Termination by Either Party
	 	 	28	 
	 	Section 12.4. Effect of Termination
	 	 	28	 
	ARTICLE 13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
	 	 	29	 
	 	Section 13.1. Nondisclosure by Seller and General Partner
	 	 	28	 
	 	Section 13.2. Nondisclosure by Buyer
	 	 	28	 

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	SECTION	 	 	PAGE
	
	 	 	

	ARTICLE 14. FEDERAL SECURITIES ACT AND CONTRACTUAL RESTRICTIONS ON STOCK
	 	 	29	 
	 	Section 14.1. U S Liquids Stock
	 	 	29	 
	 	Section 14.2. Compliance with Law
	 	 	29	 
	ARTICLE 15. GENERAL
	 	 	29	 
	 	Section 15.1. Assignment; Binding Effect; Amendment
	 	 	29	 
	 	Section 15.2. Third Party Beneficiary
	 	 	29	 
	 	Section 15.3. Entire Agreement
	 	 	29	 
	 	Section 15.4. Counterparts
	 	 	29	 
	 	Section 15.5. No Brokers
	 	 	29	 
	 	Section 15.6. Expenses of Transaction
	 	 	30	 
	 	Section 15.7. Notices
	 	 	30	 
	 	Section 15.8. Governing Law
	 	 	31	 
	 	Section 15.9. No Waiver
	 	 	31	 
	 	Section 15.10. Time of the Essence
	 	 	31	 
	 	Section 15.11. Captions
	 	 	31	 
	 	Section 15.12. Severability
	 	 	31	 
	 	Section 15.13. Construction
	 	 	31	 
	 	Section 15.14. Standstill Agreement
	 	 	31	 
	 	Section 15.15 Press Releases and Public Announcements
	 	 	32	 

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PURCHASE AND SALE OF ASSETS AGREEMENT

     This PURCHASE AND SALE OF ASSETS AGREEMENT (the “Agreement”) is executed
and delivered on this 15th day of July, 2002, among U S LIQUIDS LA., L.P., a
Delaware limited partnership (“Buyer”) and its parent company, U S LIQUIDS
INC., a Delaware corporation (“U S Liquids”); TRINITY STORAGE SERVICES, L.P., a
Texas Limited Partnership (“Seller”); and CCBS, INC., a Texas corporation, the
general partner of Seller (the “General Partner”).

WHEREAS, Seller is engaged in the business of operating docks and transfer
facilities for the collection, transfer and transportation for disposal of
liquid and semi-liquid wastes generated in connection with the drilling of oil
and gas wells (“Oilfield Waste”) in the Texas and Louisiana Gulf Coast area
(the “Business);

WHEREAS, in connection with operating the Business, Seller leases or controls
certain real property described in Exhibit A attached hereto and made a part
hereof (the “Land”), pursuant to written agreements which are attached hereto
as Exhibit B and made a part hereof (the “Real Estate Leases”), on which it
operates, or has the exclusive right to operate commercial transfer facilities
for handling Oilfield Waste (the “Transfer Stations”);

WHEREAS, Buyer desires to purchase and acquire certain assets, equipment and
contractual rights of Seller used in connection with the Business and Seller
desires to sell such assets, equipment and contractual rights to Buyer, all in
accordance with the terms and conditions set forth in this Agreement;

WHEREAS, General Partner desires that Seller sell such assets, equipment and
contractual rights to Buyer upon the terms and subject to the conditions set
forth in this Agreement and, in order to induce Buyer to enter into this
Agreement, are willing to make the covenants and promises herein set forth;

WHEREAS, Seller is unwilling to enter into this Agreement without the covenants
and promises of U S Liquids herein set forth;

WHEREAS, Buyer is unwilling to enter into this Agreement without the covenants
and promises of General Partner herein set forth; and

NOW, THEREFORE, in consideration of the mutual promises and covenants herein
contained and other good and valuable consideration, received to the full
satisfaction of each of them, the parties hereby agree as follows:

ARTICLE 1. SALE OF ASSETS

Section 1.1. Description of Assets. Upon the terms and subject to the
conditions set forth in this Agreement, Seller hereby agrees to convey, sell,
transfer and assign to Buyer the following assets, equipment and contractual
rights of Seller, wherever located, subject to the exclusions hereinafter set
forth:

	 	(a)	 	all of Seller’s right, title, estate and interest in and to the Real
Estate Leases and all improvements owned by Seller that are located on
the Land;
	 
	 	(b)	 	all governmental permits, franchises, licenses, orders, consents and
approvals of every kind held by Seller and necessary to operate the
Transfer Stations and the Business (the “Permits”);

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	 	(c)	 	all other permits, franchises, licenses, rights, consents and
approvals of every kind held by Seller and necessary to operate the
Business (the “Licenses”), including, without limitation, all licenses or
rights related to computer software and programs;
	 
	 	(d)	 	all equipment owned by Seller and used or for use in the Business
(the “Equipment”), including, without limitation, all equipment listed on
Schedule 1.1(d), attached hereto and made a part hereof;
	 
	 	(e)	 	all of the motor vehicles owned by Seller and used or for use in the
Business and all attachments, accessories and other equipment now located
in or on such motor vehicles (the “Motor Vehicles”), as the same are more
completely described by manufacturer, model number, model year and VIN on
Schedule 1.1(e), attached hereto and made a part hereof;
	 
	 	(f)	 	all of Seller’s right title, estate and interest in and to the
equipment leases to which Seller is a party (the “Equipment Leases”), as
the same are more completely described by lessor name, equipment
description, term and lease payment on Schedule 1.1(f), attached hereto
and made a part hereof;
	 
	 	(g)	 	all of Seller’s right title, estate and interest in and to the motor
vehicle leases to which Seller is a party (the “Motor Vehicle Leases”),
as the same are more completely described by lessor name, manufacturer,
model number, model year, VIN, term and lease payment on Schedule 1.1(g),
attached hereto and made a part hereof;
	 
	 	(h)	 	all computer hardware, software, programs and source codes (for both
internally and externally developed programs) (“Computers”) used or for
use in the Business, including, without limitation, all manual and
automated billing systems and components thereof;
	 
	 	(i)	 	all of Seller’s inventory of parts, tires and accessories of every
kind, nature, and description used or for use in the Business (the
“Inventory”);
	 
	 	(j)	 	all right, title and interest of Seller in and to all trade secrets
and proprietary information used in the Business and owned or licensed by
Seller (“Proprietary Rights”) ;
	 
	 	(k)	 	all contractual rights of Seller with Seller’s customers (whether
oral or in writing) relating to the operation of the Business (the
“Customer Contracts”), and all commitments, lists, leases, permits,
licenses, consents, approvals, franchises and other instruments relating
to the Customer Contracts (the “Related Approvals”), a complete and
accurate list of the Customer Contracts and the Related Approvals is set
forth on Schedule 1.1(k), attached hereto and made a part hereof;
	 
	 	(l)	 	all other contractual rights of Seller, other than the Permits,
Licenses, Equipment Leases, Motor Vehicle Leases and Customer Contracts,
used or for use in, or necessary to the operation of, the Business (the
“Contracts”), including, without limitation, all operating, management,
utilization or consulting agreements, a complete and accurate list of
which is set forth in Schedule 1.1(l) attached hereto and made a part
hereof;
	 
	 	(m)	 	all right, title, and interest of Seller in and to the telephone
numbers used in the operation of the Business;

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	 	(n)	 	all radio base stations, together with all radios, mobile
telephones/radios and other communications equipment used in connection
with the Business, wherever located;
	 
	 	(o)	 	all of Seller’s shop tools, nuts and bolts relating to the Business;
	 
	 	(p)	 	all of Seller’s existing documents, files and other material related
to all current or past customers and operations of the Business; and
	 
	 	(q)	 	all of the goodwill of the Business.

All of the foregoing assets, properties and contractual rights are hereinafter
sometimes collectively called the “Assets.”

Section 1.2. Excluded Assets. The parties agree that there shall be
excluded from the Assets the following which are not being sold to Buyer
pursuant to this Agreement (the “Excluded Assets”):

	 	(a)	 	all cash on hand and on deposit, except as set forth in Section 1.5
hereof, all cash equivalents (including marketable securities and
short-term investments) and all accounts receivable and notes receivable
of Seller (the “Receivables”), subject to Section 1.6 hereof;
	 
	 	(b)	 	the Moss Bluff Operating Agreement dated January 1, 2000 between
Seller and OGW Enterprises, Inc. (“OGW”) and the Anahuac dock and
transfer facility lease, and any assets owned or leased by Seller and
used solely in connection with the Moss Bluff Operating Agreement or the
Anahuac dock and transfer facility;
	 
	 	(c)	 	the promissory note executed by OGW and delivered to Seller in
connection with the Moss Bluff Operating Agreement and all agreements
securing payment of such promissory note;
	 
	 	(d)	 	all telephones, radios and other communications equipment used at the
Moss Bluff disposal facility, the Anahuac dock and transfer facility or
CCNG, Inc.’s Houston office, and all telephone numbers used at such
locations;
	 
	 	(e)	 	all, if any, real property and all buildings on and fixtures to all
real property of Seller other than that set forth in Section 1.1(a), (the
“Excluded Real Estate”);
	 
	 	(f)	 	all contracts and contract rights and obligations of Seller (whether
oral or in writing) not relating to the Business; and
	 
	 	(g)	 	all employment contracts to which Seller is a party or by which Seller
is bound;

Section 1.3. Non-Assignment of Certain Contracts and Leases.
Notwithstanding anything to the contrary in this Agreement, to the extent that
the assignment hereunder of any contract or lease shall require the consent of
any third party, neither this Agreement nor any action taken pursuant to its
provisions shall constitute an assignment, an agreement to assign or an
attempted assignment if such assignment, agreement to assign or attempted
assignment would constitute a breach thereof or result in the loss or
diminution thereof; provided, however, that in each such case, Seller and
General Partner shall use reasonable commercial efforts to obtain the consent
of such other party to such assignment to Buyer. If such consent is not
obtained, and if the Closing occurs, Seller and General Partner shall cooperate
with Buyer in any reasonable arrangement designed to provide for Buyer the
benefits under any such contract or lease, (provided, there shall be no
adjustment of the purchase price set forth in Section 2.1 hereof) and the
enforcement for the account and benefit of Buyer, of any and all rights of
Seller against any other

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 person arising out of the breach or cancellation of any such contract or
lease by such other person or otherwise. Attached hereto as Schedule 1.3 is a
list of all contracts or leases requiring consent to their assignment
(“Customer Contracts Requiring Consent”).

Section 1.4. Prepaid Services. Seller shall remit to Buyer all payments
received by Seller from customers prior to or after the date hereof for
services to be performed by Buyer on and after the date of Closing.

Section 1.5. Proration of Cash on Hand. The parties shall prorate, as of
the close of business on the Closing Date, all sums paid to Seller pursuant to
the advance billing practice of Seller or otherwise representing a prepayment
to Seller of services to be rendered after the Closing. Seller shall be
entitled to all such sums allocable to services performed on or before the
close of business on the date of Closing and Buyer shall be entitled to all
such sums allocable to services to be performed thereafter.

Section 1.6. Handling of Receivables. Seller shall diligently attempt to
collect the Receivables and shall apply the proceeds collected as follows:

	 	(a)	 	First, to discharge that certain Loan Agreement between Seller and
Bank of America, N.A. dated November 9, 2001 in the principal sum of
$1,200,000.00;
	 
	 	(b)	 	Then, to any portion of the Payables, if any, which Buyer has not
discharged pursuant to Section 2.1(a);
	 
	 	(c)	 	Then, to any accounts payable, notes payable or other financial
obligations of Seller relating to the Moss Bluff disposal facility and/or
the Anahuac dock and transfer facility.

To the extent that Seller fails or refuses to apply the proceeds derived from
the collection of the Receivables to item (b), above, Buyer may elect to do so
and shall be entitled to a credit against the sums payable under Section 2.2,
below, or, if said sums have already been fully paid, to a claim against Seller
and the General Partner. Buyer and Seller shall cooperate and provide
assistance to each other, to the extent reasonably possible, in connection with
Seller’s attempts to collect the Receivables. For purposes hereof, cooperation
and assistance shall include regular communications with each other to provide
updates on collection activities and reasonable advance notice to the other
party if one party intends to take any action related to a customer in
connection with a Receivable owing from that customer, which action could be
reasonably anticipated to hinder, make more difficult or otherwise cause
problems with either Seller’s attempts to collect that Receivable or Buyer’s
ongoing relationship with that customer. Any sums received by Buyer from a
customer shall be presumed to be payment for services rendered by Buyer and
shall be applied to that customer’s account balance with Buyer unless otherwise
specified by the customer.

ARTICLE 2. PURCHASE PRICE

Section 2.1. Purchase Price. At the Closing, Buyer shall pay to Seller
for the Assets as follows:

	 	(a)	 	At Closing, Buyer shall pay the sum of Two Million Five Hundred
Thousand Dollars ($2,500,000.00) toward the Payables (defined below), as
determined by Buyer; provided, however, that Buyer may set aside a
portion of the aforesaid sum (the “Holdback”), the amount of which shall
be reasonably determined by Buyer, for the payment of any outstanding
amounts due and owing to any vendor providing goods or services in
connection with the operation of the Transfer Stations or Transportation
(defined below) as to which Seller has not received an invoice as of the
Closing Date or as to which all or a portion may be in dispute. If the
amount of the

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	 	 	 	Payables paid by Buyer at Closing plus the amount of the Holdback is less
that $2,500,000.00, Buyer shall pay the difference to Seller at Closing
in immediately payable funds. Any such difference paid at Closing shall
be applied by Seller in the manner set forth in Section 1.6(a) — (c),
above. On the ninety-first (91st ) day after the Closing Date, Buyer
shall remit the unused portion of the Holdback to Seller; provided,
however, that in the event Buyer thereafter receives any invoices for
goods or services provided in connection with the operation of the
Transfer Stations or Transportation prior to the Closing Date, Buyer
shall submit such invoices to Seller and Seller shall be solely
responsible for the payment thereof. To the extent that Seller fails or
refuses to pay any such invoices, Buyer may elect to do so and shall be
entitled to a claim against the Seller and the General Partner. Each
party shall have the right to audit the payment by the other party of the
amounts provided in this section or any amounts required to be paid by
either party to any third party under this Agreement.
	 
	 	(b)	 	At Closing, U S Liquids shall issue Seller warrants to purchase
100,000 shares of the common stock of U S Liquids, par value $.01 per
share (“U S Liquids Stock”), with an expiration date of five years from
the Closing Date, with the following strike prices:

	 	 	 	 	 
	No. Shares	 	Strike Price
	
	 	

	50,000
	 	Closing Price
	50,000
	 	Closing Price x 1.25

	 	 	 	For purposes of the foregoing, the Closing Price would be the AMEX
closing price of said stock on the last day of trading prior to the
day on which a public announcement of the signing of this Agreement
by the parties occurs.

Section 2.2. Additional Consideration. Buyer shall pay Seller the sum of
$100,000.00 for each calendar month or portion thereof that elapses from July
1, 2002 until the earlier to occur of the Closing Date or the date this
Agreement is terminated (the “Monthly Payment”); provided, however, that in no
event shall Buyer be required to pay more than $450,000.00 in aggregate
Monthly Payments pursuant to this section. The Monthly Payment shall be due
and payable on the last day of each month beginning with July 31, 2002, except
that if the Closing occurs or if this Agreement is terminated on a date other
than the last day of a month, the due date shall be the Closing Date or the
termination date, whichever is applicable. Buyer shall pay Seller $25,000.00
on the date of this Agreement or as soon thereafter as said money can be wire
transferred, which amount shall be credited to the Monthly Payment due on July
31, 2002. In the event the Closing occurs prior to November 15, 2002, at the
Closing, Buyer shall pay Seller (in addition to the amounts due under Section
2.1, above) the difference between $450,000.00 and the total amount of the
Monthly Payments that have been paid (including any Monthly Payment then due
for the month in which the Closing occurs). In the event this Agreement is
terminated by either party pursuant to Article 12, Buyer shall have no further
obligation to make Monthly Payments hereunder except for the Monthly Payment
for the month in which such termination occurs and for any unpaid Monthly
Payments for any months prior thereto. All amounts payable under this Section
shall be paid by wire transfer of immediately available funds to an account
designated by Seller.

Section 2.3. Payment of Certain Accounts Payable. At the Closing, Buyer shall
pay the verified accounts payable and accrued liabilities directly relating to
the operation of the Transfer Stations or the transportation of Oilfield Waste
by barge from the Transfer Stations to the ultimate disposal site
(“Transportation”), subject to the terms of and in the manner described in
Section 2.1(a), above (the “Payables”). A detailed list of the creditors and
evidence of the Payables is set forth on Schedule 2.3. In addition, Buyer
shall assume all of Seller’s obligations under all of the Real Estate Leases,
Permits,

8

 

Licenses, Equipment Leases, Motor Vehicle Leases, Customer Contracts and
Contracts assigned to Buyer to the extent, and only to the extent, such
obligations first mature and are required to be performed subsequent to the
close of business on the Closing Date (the “Assumed Contracts Obligations”).
The Assumed Contracts Obligations are in addition to the Payables. U S Liquids
hereby guarantees the performance by Buyer of its obligations under this
Section 2.3.

ARTICLE 3. CLOSING

Section 3.1. Time and Place of Closing. This transaction shall be closed
on August 15, 2002, or on such other date and time as mutually agreed by the
parties, subject to the satisfaction of all of the conditions to closing set
forth in Articles 8 and 9 (the “Closing”). The Closing shall take place at a
location mutually agreeable to Buyer and Seller. The date on which the Closing
occurs shall be referred to as the “Closing Date.”

Section 3.2. Deliveries by Seller and General Partner. At the Closing,
Seller and General Partner shall deliver to Buyer, all duly executed:

	 	(a)	 	an assignment of each of the Real Estate Leases to Buyer, containing
the consent of the landlord and the landlord’s acknowledgment that no
defaults exist under said Real Estate Leases and an assumption by Buyer
of the Real Estate Leases in form and substance satisfactory to Buyer,
Seller and each landlord (the “Assignment and Assumption of Real Estate
Leases”);
	 
	 	(b)	 	a General Conveyance, Assignment, Bill of Sale and Assumption of
Certain Liabilities, in form and substance reasonably satisfactory to
Buyer and Seller, conveying, selling, transferring and assigning to Buyer
all of the Assets (other than the Real Estate Leases) and pursuant to
which Buyer assumes the Assumed Contracts Obligations (the “Bill of
Sale”);
	 
	 	(c)	 	consents by all governmental entities required for the transfer of the
Permits to Buyer;
	 
	 	(d)	 	all Certificates of Title and registrations to the Motor Vehicles;
	 
	 	(e)	 	certified copies of resolutions or consents of all of the partners
(including the General Partner and all limited partners) of Seller
authorizing the execution of this Agreement, the sale of the Assets to
Buyer, and the consummation of the transactions contemplated herein,
along with any evidence of authority that Buyer may reasonably require;
	 
	 	(f)	 	a non-competition agreement duly and properly executed by Seller, the
General Partner and each limited partner, in form and substance attached
hereto as Exhibit C and made a part hereof (the “Noncompetition
Agreements”);
	 
	 	(g)	 	fully executed consents to the assignment or transfer of the Customer
Contracts, Equipment Leases, Motor Vehicle Leases, Licenses, Proprietary
Rights and Contracts, in form and substance satisfactory to Buyer;
	 
	 	(h)	 	evidence of the payment in full of all debts encumbering the Assets
other than the Payables and the Assumed Contract Obligations; and
	 
	 	(i)	 	such other separate instruments of sale, assignment, or transfer
reasonably required by Buyer.

9

 

Section 3.3. Deliveries by Buyer. At the Closing, Buyer shall deliver to
Seller, all duly and properly executed (where applicable):

	 	(a)	 	the purchase price provided in Section 2.1;
	 
	 	(b)	 	the Assignment and Assumption of Real Estate Leases, the Bill of
Sale, the Noncompetition Agreement, all executed by Seller and Buyer.
	 
	 	(c)	 	certified copies of resolutions of the Director and Stockholders of
Seller authorizing the execution of this Agreement, the purchase of the
Assets by Buyer, and the consummation of the transactions contemplated
herein, along with any other evidence of authority that Seller may
reasonably require.

ARTICLE 4. POST CLOSING COVENANTS

Section 4.1. Further Assurance. From time to time on and after the
Closing and without further consideration, the parties hereto shall each
deliver or cause to be delivered to any other party at such times and places as
shall be reasonably requested, such additional instruments as any of the others
may reasonably request for the purpose of carrying out this Agreement and the
transaction contemplated hereby. General Partner and Seller, also without
further consideration, agree to cooperate with Buyer and to use their
reasonable efforts to have the officers and employees of Seller cooperate on
and after the Closing Date in furnishing to Buyer information, evidence,
testimony, and other assistance in connection with obtaining all necessary
permits and approvals and in connection with any actions, proceedings,
arrangements or disputes of any nature with respect to matters pertaining to
all periods prior to the Closing Date; provided that U S Liquids shall
reimburse Seller and General Partner for all reasonable and necessary expenses
incurred by them in connection with such cooperation.

Section 4.2. Transition. Neither Seller, the General Partner nor any
limited partner will take any action that is designed or intended to have the
effect of discouraging any customer or business associate of Seller from
maintaining the same business relationships with Buyer after the Closing that
it maintained with Seller before the Closing. Seller, the General Partner and
each limited partner will refer all customer inquiries relating to the Business
to Buyer from and after the Closing. Further, Seller, the General Partner and
each limited partner agree that for a period of 90 days following the Closing
Date, they will, without additional consideration, assist Buyer with the
orderly transition of the operations of the Business from Seller to Buyer;
provided, that U S Liquids shall reimburse Seller and General Partner for all
reasonable and necessary expenses incurred by them in connection with such
assistance.

ARTICLE 5. REPRESENTATIONS AND WARRANTIES

OF SELLER AND GENERAL PARTNER.

Seller and the General Partner, jointly and severally, represent and warrant to
Buyer (i) that the statements contained in this Section 5 are correct and
complete as of the date of this Agreement and will be correct and complete as
of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 5, taking
into account all amendments and supplements thereto pursuant to Section 7.5
provided by Seller to Buyer prior to the Closing); (ii) that the schedules to
the subsections of this Section 5 delivered by Seller and General Partner to
Buyer on the date hereof (such schedules hereinafter collectively referred to
as the “Disclosure Schedules” and, individually, as a “Disclosure Schedule) are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section 5,
taking into account all amendments and supplements thereto pursuant to Section
7.5 provided by Seller to Buyer prior to the

10

 

Closing); and (iii) that said statements and Disclosure Schedules shall survive
the Closing for a period of two (2) years. Nothing in the Disclosure Schedules
shall be deemed adequate to disclose an exception to a representation or
warranty made herein, however, unless the Disclosure Schedule identifies the
exception with particularity and describes the relevant facts in detail;
provided, however, that anything disclosed in the Disclosure Schedules or any
amendments or supplements thereto shall be deemed adequate to disclose an
exception to a representation or warranty made herein if the item disclosed
would have placed a reasonably diligent person on notice that the
representations or warranties were qualified by such information. Wherever a
representation or warranty herein is qualified as having been made “to the best
of Seller’s or General Partner’ knowledge”, such phrase shall mean the actual
knowledge of Seller or General Partner, their respective officers, directors,
employees and representatives, after reasonable inquiry.

Section 5.1.Organization; Authority.

	 	(a)	 	Seller is a limited partnership duly organized, validly existing and
in good standing under the laws of the State of Texas and is now and has
been at all times since its inception, duly authorized, and qualified and
licensed under all laws, regulations, ordinances and orders of public
authorities to carry on its businesses in the places and in the manner as
conducted at the time such activities were conducted except for where
failure to be so authorized, qualified or licensed would not have a
material adverse affect on Seller’s business. Copies of Seller’s
Partnership Agreement and other documents pertinent to its organization
and existence, each as amended, are attached hereto as Schedule 5.1(a)
	 
	 	(b)	 	General Partner is a corporation duly organized, validly existing and
in good standing under the laws of the State of Texas and is now and has
been at all time since its inception, duly authorized, and qualified and
licensed under all laws, regulations, ordinances and orders of public
authorities to carry on its business in the places and in the manner as
conducted at the time such activities were conducted except for where
failure to be so authorized, qualified or licensed would not have a
material adverse affect on General Partner’s business. Copies of
Seller’s Articles of Incorporation (certified by the Secretary of State
of Texas) and Bylaws (certified by the Secretary of General Partner),
each as amended, are attached hereto as Schedule 5.1(b).
	 
	 	(c)	 	Seller and General Partner have full legal right, power and authority
to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. All action of Seller and all corporate
action of General Partner necessary to approve the sale of the Assets by
Seller have been taken, including approval of the limited partners and
director and shareholder approvals, if necessary.

Section 5.2. Binding Effect. This Agreement is the valid and binding
obligation of Seller and General Partner, enforceable against them in
accordance with its terms.

Section 5.3. Predecessor Entities; Trade Names. Set forth on Schedule
5.3 is a list of the names of all predecessors of Seller, all prior names of
Seller and all trade names and “doing business names” of Seller, including the
names of all entities substantially all of the assets of which were previously
acquired by Seller. Seller was formed solely to operate the Business and has
never conducted any other business or activity other than the Moss Bluff
Disposal Facility and the Anahuac dock and transfer facility.

Section 5.4. No Subsidiaries. Seller has never owned or controlled and
does not now own, of record or beneficially, or control, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association, partnership or other
business entity.

11

 

Section 5.5. Financial Statements. Attached as Schedule 5.5 are copies
of the following financial statements (together, the “Financial Statements”):

	 	(a)	 	Seller’s balance sheet as of December 31, 2001 (the “Balance Sheet
Date”), and a statement of income, cash flow and retained earnings for
the year then ended;
	 
	 	(b)	 	Seller’s balance sheet as of March 31, 2002, and a statement of
income for the three month period then ended; and
	 
	 	(c)	 	Seller’s monthly interim balance sheets and statements of income
commencing for the month ended April 30, 2002, and continuing for each
month end until the month ended immediately prior to the Closing Date.
	 
	 	(d)	 	Except as set forth on Schedule 5.5, (i) each of the Financial
Statements (including any footnotes thereto) has been prepared in
accordance with GAAP, applied on a consistent basis throughout the
periods indicated, (ii) each of the Financial Statements (including all
footnotes thereto) is true, complete and correct, (iii) each of the
balance sheets presents fairly the financial condition of Seller as of
the date indicated thereon and each of such statements of income presents
fairly on an accrual basis the results of the operations of Seller for
the period indicated thereon, (iv) each Financial Statement includes all
footnotes required by GAAP, each such footnote is complete and accurate,
and contains all information required by GAAP to be contained therein,
(v) all reserves for contingent risks have been estimated in accordance
with GAAP and are appropriate and sufficient to cover all costs
reasonably expected to be incurred from such risks, (vi) since its
inception, Seller has not (a) made any material change in its accounting
policies or (b) effected any prior period adjustment to, or other
restatement of, its financial statements for any period. And (vii) the
Financial Statements are consistent with the books and records of Seller
(which books and records are correct and complete).

Section 5.6. Non-Balance Sheet Liabilities. Attached hereto as Schedule
5.6 (“Non-Balance Sheet Liabilities”) is a complete and accurate list as of the
date hereof of all liabilities and obligations of Seller, excluding obligations
arising under this Agreement, which are not individually reflected in the
Financial Statements dated the Balance Sheet Date, but which would have been so
reflected in a full GAAP accounting (whether or not incurred in the ordinary
course of business) of any kind, character and description, whether known or
unknown, accrued or unaccrued, absolute or contingent, secured or unsecured,
liquidated or unliquidated, due or to become due, together with, in the case of
those liabilities and other obligations the amounts of which are not fixed, a
reasonable best estimate of the maximum amount which may be payable. For each
liability or obligation for which the amount is not fixed or is contested,
General Partner shall provide the following information:

	 	(a)	 	a summary description of the liability or other obligation together
with the following:

	 	(i)	 	copies of all relevant documentation relating thereto;
	 
	 	(ii)	 	amounts claimed and any other action or relief sought; and
	 
	 	(iii)	 	name of claimant and all other parties to the claim, suit or
proceeding, if any.

	 	(b)	 	the name of each court or agency before which a claim, suit or
proceeding is pending;
	 
	 	(c)	 	the date such claim, suit or proceeding was instituted;

12

 

	 	(d)	 	a reasonable best estimate by Seller and General Partner of
the maximum amount, if any, which is likely to become payable with
respect to each such liability or the cost of performance with
respect to each such other obligation.

Section 5.7. Permits; Environmental Documents.

	 	(a)	 	Attached as Schedule 5.7(a) is a complete and accurate list and
summary description as of the date hereof of all Permits, Licenses and
Proprietary Rights owned or held by Seller, and all applications,
disclosures and related documents (“Applications”), none of which
Permits, Licenses, Applications and Proprietary Rights infringe on the
rights of others and all of which are now valid, in good standing and in
full force and effect. Neither Seller nor General Partner are aware of
any other Permits, Licenses, Applications and Proprietary Rights required
for the operation of the Business as presently constituted;
	 
	 	(b)	 	In addition to the items set forth on Schedule 5.7(a), to Seller’s
and General Partner’s knowledge, Seller has delivered to Buyer, a
description of and copies, as of the date of this Agreement, of all
correspondence to or from government regulatory agencies, official
reports, notifications, environmental impact studies, assessments and
audits and all other official notifications from governmental agencies in
the possession or control of Seller or General Partner relating to: (a)
each actual and alleged violation of Applicable Laws (hereinafter
defined) by Seller or otherwise relating to the Business or the Assets
and all, if any, claims thereof; (b) the discharge, leakage, spillage,
transport, disposal or release of any material into the environment by
Seller; (c) the arrangement for transport, disposal or release of
material into the environment by Seller; and (d) health of employees of
Seller (whether direct or indirect), public health or the environment
(collectively, the “Environmental Documents”).

Section 5.8. Personal Property.

	 	(a)	 	Listed on Schedule 1.1(d) hereto is a complete and accurate list of
all Equipment. To Seller’s and General Partner’s knowledge, each piece
of Equipment is in good working order and has been maintained in a good
and proper manner, ordinary wear and tear excepted;
	 
	 	(b)	 	Listed on Schedule 1.1(e) hereto is a complete and accurate list of
all Motor Vehicles. To Seller’s and General Partner’s knowledge, each
motor vehicle, attachment, accessory and piece of materials handling
equipment comprising the Motor Vehicles is in good working order and has
been maintained in a good and proper manner, ordinary wear and tear
excepted.
	 
	 	(c)	 	All of the Assets are either owned by Seller or leased under an
agreement indicated on Exhibit B, Schedule 1.1(f) or Schedule 1.1(g).
All leases set forth on Exhibit B, Schedule 1.1(f) and 1.1(g) are in full
force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their
respective terms. Excluding the obligation to obtain the consent of
lessor to any assignment, and subject to the parties obtaining such
consent, no default by Seller or, to Seller’s and General Partner’s
knowledge, any other party to any of such leases exists or would exist
except for the passage of time or delivery of a notice or both.
	 
	 	(d)	 	At the Closing, Seller shall have good and marketable title to the
Assets, free and clear of all debts, lease payments (including lease-end
buyout payments), liens, encumbrances, security interests, equities or
restrictions whatsoever except the Payables and Assumed Contracts
Obligations and, by virtue of the grant, conveyance, sale, transfer, and
assignment of the Assets hereunder, Buyer shall receive good and
marketable title to the Assets, free and clear of all debts,

13

 

	 	 	 	lease payments (including lease-end buyout payments), liens,
encumbrances, security interests, equities or restrictions whatsoever
except the Payables and Assumed Contracts Obligations. The Assets
constitute all of the assets owned by Seller used in the Business.

Section 5.9. Title to Real Property.

	 	(a)	 	Seller has never owned, leased or otherwise occupied, had an interest
in or operated any real property other than the Land, the Real Estate
Leases and the Excluded Real Estate. Seller has good leasehold title to
the Land except as permitted under Article 3 hereof. Exhibit B contains
a true and complete copy of the Real Estate Leases and all amendments,
modifications or other changes thereto. Except as set forth on Schedule
5.9(a):

	 	(i)	 	At all times during the operation of the Business, the Land has
been licensed, permitted and authorized for the operation of the
Business under all Applicable Laws (hereinafter defined) relating
to the protection of the environment, the Land and the conduct of
the Business thereon (including, without limitation, all zoning
restrictions and land use requirements).
	 
	 	(ii)	 	The Land is usable for its current uses, and, subject only to
obtaining the consent of each landlord for the assignment of the
Real Estate Leases to Buyer, the Land can be used by Buyer after
the Closing in the manner currently operated by Seller, without
violating any Applicable Law or private restriction, and such uses
are legal conforming uses.
	 
	 	(iii)	 	General Partner and Seller have made available to Buyer all
engineering, geologic and other similar reports, documentation and
maps relating to the Land in the possession or control of any of
the General Partner or Seller.
	 
	 	(iv)	 	No third parties have any rights to drill or explore for,
collect, produce, mine, excavate, deliver or transport oil, gas,
coal, or other minerals or utilize any salt dome, salt cavern or
similar geologic structure in, on, beneath, across, over, through,
from or to any portion of the Land.
	 
	 	(v)	 	Neither the Land (to Seller’s and General Partner’s knowledge),
Seller nor the General Partner now is or ever has been involved in
any litigation or administrative proceeding seeking to impose
fines, penalties or other liabilities or seeking injunctive relief
for violation of any Applicable Laws relating to the environment.
	 
	 	(vi)	 	No party has a present or future right to possession of all or
any part of the Land except the landlords under the Real Estate
Leases.
	 
	 	(vii)	 	No portion of the Land contains any areas that could be
characterized as disturbed, undisturbed or man made wetlands or as
“waters of the United States” pursuant to any Applicable Laws or
the procedural manuals of the Environmental Protection Agency, U.S.
Army Corps of Engineers, the Louisiana Department of Environmental
Quality, the Texas Natural Resource Conservation Commission, the
Texas Railroad Commission or any other federal or state agency
having jurisdiction over the Land, whether such characterization
reflects current conditions or historic conditions which have been
altered without the necessary permits or approvals.

14

 

	 	(viii)	 	There are no mechanics’ liens affecting the Land and no work
has been performed on the Land within 120 days of the date hereof
for which a mechanics’ lien could be filed.
	 
	 	(ix)	 	There are no levied or pending special assessments affecting
all or any part of the Land owed to any governmental entity and
none is threatened.
	 
	 	(x)	 	There are no proceedings pending or, to the best of Seller’s
and General Partner’ knowledge, threatened by, any third party
which would result in a change in the allowable uses of the Land or
which would modify the right of Buyer to use the Land for its
current uses after the Closing Date.
	 
	 	(xi)	 	There are no pending or, to the best of General Partner’
knowledge, threatened condemnation or eminent domain proceedings
affecting all or any part of the Land.
	 
	 	(xii)	 	The Real Estate Leases are in full force and effect and
valid, binding and enforceable against the landlord thereunder.
Seller is not in default in, nor has there occurred an event or
condition (including, subject only to obtaining the consent of each
landlord to the assignment of the Real Estate Leases to Buyer,
Seller’s execution and delivery of or performance under this
Agreement) which with the passage of time or giving of notice (or
both) would constitute a default under the Real Estate Lease. To
the best of Seller’s and General Partner’s knowledge, no landlord
is in default in, nor has there occurred any event or condition
which with the passage of time or giving of notice (or both) would
constitute a default by any landlord under the Real Estate Leases.
	 
	 	(xiii)	 	There have been no spills, leaks, deposits or other releases
of Hazardous Materials into or onto the Land by Seller or, to the
best of Seller’s and General Partner’s knowledge, by any
predecessor of Seller. No portion of the Land is listed on the
CERCLIS list or the National Priorities List of Hazardous Waste
Sites or any similar list maintained by the State of Louisiana or
the State of Texas. The Land does not contain any underground or
above-ground storage tanks or transformers containing Hazardous
Materials, petroleum products or wastes or other hazardous
substances regulated by 40 CFR 280 or other Applicable Laws.
	 
	 	(xiv)	 	Seller has provided to the government agencies requiring the
same, all reports, notices, filings and other disclosures required
by Applicable Laws and all such reports, notices, filings and other
documents were complete and accurate in all material respects at
the time provided to said government agencies.

Section 5.10. Contracts. Listed on Schedule 1.1(k) hereto is a complete
and accurate list of the Customer Contracts and Related Approvals as of April
30, 2002, true and complete copies of which have been delivered to Buyer.
Except as set forth in Schedule 1.1(k), none of the Customer Contracts or
Related Approvals listed on Schedule 1.1(k) have been modified, altered,
terminated or otherwise amended and there have been no waivers, oral
agreements, representations or other statements with relation thereto. Except
as set forth on Schedule 1.3, all Customer Contracts are (and will be
immediately following the Closing) in full force and effect and are valid,
binding and enforceable against the respective parties thereto in accordance
with their respective provisions and Seller is not in default in, nor has there
occurred an event or condition (including, subject only to obtaining the
consent of each landlord to the assignment of the Real Estate Leases to Buyer,
Seller’s execution and delivery of or performance under this Agreement) which
with the passage of time or the giving of notice (or both) would constitute a
default, with regard to the payment or performance of any obligation under any
Customer Contract; no

15

 

 claim of such a default has been asserted and there is no reasonable basis
upon which such a claim could validly be made. Seller has not received any
notice that any person intends or desires to modify, waive, amend, rescind,
release, cancel or terminate any Customer Contract. By virtue of the grant,
conveyance, sale, transfer and assignment of the Customer Contracts by Seller
to Buyer hereunder, Buyer shall own and hold all right, title and interest of
Seller in and to the Customer Contracts, without the consent or approval of any
other person or entity.

Section 5.11. Insurance Policies. Attached as Schedule 5.11 are complete
and accurate copies as of the date hereof of all insurance policies carried by
Seller and an accurate list of all insurance loss runs and workers’
compensation claims received for the past three policy years. All insurance
policies are in full force and effect and shall remain in full force and effect
through the Closing Date. Seller’s insurance has never been cancelled and
Seller has not been denied coverage within the last three years.

Section 5.12. Employees; Compensation. Attached as Schedule 5.12 is a
complete and accurate list of all employees of Seller and their rate of
compensation as of the date hereof (including a breakdown of the portion
thereof attributable to salary, bonus and other compensation, respectively).
Each employee of Seller is an employee at will except as otherwise specified on
Schedule 5.12. Schedule 5.12 shall also include a copy of all employment
contracts between Seller and its employees. Seller shall retain, and Buyer
shall incur no liability nor assume any responsibility for, severance
obligations relating to the termination of any of Seller’s employees, whether
or not related directly or indirectly to the consummation of this transaction.

Section 5.13. Employee Relations and Benefit Plans. Set forth on
Schedule 5.13 is an accurate and complete list of all agreements of any kind
between Seller and its employees or group of employees, including, without
limitation, employment agreements, collective bargaining agreements and benefit
plans. Buyer shall not, by the execution and delivery of this Agreement or
otherwise, become obligated to employ any employee of Seller or assume any
liabilities or contractual obligations with respect to such employees or
otherwise become liable for or obligated in any manner (contractual or
otherwise) to any employee of Seller, including, without limiting the
generality of the foregoing, any liability or obligation pursuant to any
collective bargaining agreement, employment agreement, or pension, profit
sharing or other employee benefit plan (within the meaning of Section 3(3) of
the Employment Retirement Income Security Act of 1974, as amended) or any other
fringe benefit program maintained by Seller or to which Seller contributes or
any liability for the withdrawal or partial withdrawal from or termination of
any such plan or program by Seller.

Section 5.14. Compliance with Law; No Conflicts.

	 	(a)	 	Seller has in the past complied with, and is now in compliance with,
all federal, state and local statutes, laws, rules, regulations, orders,
permits (including, without limitation, zoning classifications and
restrictions, variances, special use permits and other land use
requirements) and licenses and all administrative and judicial judgments,
rulings, decisions and orders applicable to Seller or the Business
(collectively, the “Applicable Laws”). Neither Seller nor General
Partner has received any notice that Seller is under investigation or
other form of review with respect to any Applicable Law; and
	 
	 	(b)	 	Except as set forth in Schedule 5.14(b), the execution, delivery and
performance of this Agreement, the consummation of any transactions
herein referred to or contemplated hereby and the fulfillment of the
terms hereof and thereof will not:

16

 

	 	(i)	 	conflict with, or result in a breach or violation of the
Partnership Agreement or other organizational documents of Seller
or the Articles of Incorporation or Bylaws of General Partner;
	 
	 	(ii)	 	conflict with, or result in a breach under any document,
agreement or other instrument to which Seller or General Partner is
a party, or result in the creation or imposition of any lien,
charge or encumbrance on any properties of Seller or General
Partner pursuant to: (A) any law or regulation to which Seller or
General Partner, or any of their respective properties are subject,
or (B) any judgment, order or decree to which Seller or General
Partner is bound or any of their respective property is subject;
	 
	 	(iii)	 	result in termination or any impairment of any permit,
license, franchise, contractual right or other authorization of
Seller; or
	 
	 	(iv)	 	require notice to, or the consent or approval of, any
governmental authority or agency or other third party in order to
remain in full force and effect.

Section 5.15. Taxes. Seller and General Partner have filed, or will
file, in a timely manner all requisite federal, state, local and other tax
returns relating to the Business or the Assets due for all fiscal periods ended
on or before the date hereof and as of the Closing shall have filed in a timely
manner all such returns due for all periods ended on or before the Closing
Date. No federal, state, local or other tax returns or reports filed by Seller
(whether filed prior to, on or after the date hereof) with respect to the
Business or the Assets will result in any taxes, assessments, fees or other
governmental charges upon the Assets or Buyer, whether as a transferee of the
Assets or otherwise. All federal, state and local taxes due and payable with
respect to the Business or the Assets have been paid, including, without
limiting the generality of the foregoing, all federal, state and local income,
sales, use franchise, excise and property taxes. There are no state or federal
tax liens filed against the Land or the Assets, nor have Seller or General
Partner received any notice of intent to file any such liens. There are no
agreements to extend the statutory period for the assessment of any taxes,
examinations in progress or claims against Seller for federal, state, local and
other taxes (including penalties and interest) for any period or periods prior
to and including the date hereof (and as of the Closing Date) and no notice of
any claim, whether pending or threatened, for taxes has been received. Except
as set forth on Schedule 5.5, the amounts shown as accruals for taxes on the
Financial Statements are sufficient in accordance with GAAP for the payment of
all taxes of the kinds indicated (including penalties and interest) for all
fiscal periods ended on or before the Closing Date.

Section 5.16. Litigation. Except as set forth on Schedule 5.16, there is
no claim, litigation, action, suit or proceeding, formal arbitration, informal
arbitration or mediation, administrative, judicial or otherwise, pending or, to
the best of Seller’s and General Partner’s knowledge, threatened, or otherwise
relating to the Assets or Business, at law or in equity, before any federal,
state or local court or regulatory agency, or other governmental or private
authority; no notice of any of the above has been received by Seller or General
Partner; and, to the best of Seller’s and General Partner’s knowledge, no facts
or circumstances exist which would give rise to any of the foregoing.

Section 5.17. Absence of Price Renegotiation Contracts. Seller is not
now nor has ever been a party to any governmental contracts subject to price
redetermination or renegotiation.

Section 5.18. Conduct of Seller’s Business Since Balance Sheet Date.
Since the Balance Sheet Date, there has not been any:

17

 

	 	(a)	 	change in the authorized capital or equity ownership of Seller;
	 
	 	(b)	 	increase (other than normal increases in the ordinary course of
business) in the compensation, bonus, sales commissions or fee
arrangements payable or to become payable by Seller to any of its
partners, officers, directors, shareholders, employees, consultants or
agents;
	 
	 	(c)	 	work interruption, labor grievance or claim filed;
	 
	 	(d)	 	sale or transfer of, or any agreement to sell or transfer, any of the
Assets or any plan, agreement or arrangement granting any preferential
right to purchase or acquire any interest in Seller, the Business or any
of the Assets, or requiring consent of any party to the sale, transfer
and/or assignment of any interest in Seller, the Business or any of the
Assets;
	 
	 	(e)	 	waiver of any rights or claims of Seller;
	 
	 	(f)	 	breach, amendment or termination of any Real Estate Lease, Equipment
Lease, Motor Vehicle Lease, Permit, License, Customer Contract or
Contract;
	 
	 	(g)	 	transaction by Seller outside the ordinary course of its business;
	 
	 	(h)	 	amendment to the Partnership Agreement or any other organizational
documents of Seller;
	 
	 	(i)	 	any other material occurrence, event, incident, action or failure to
act outside the ordinary course of business of Seller; or
	 
	 	(j)	 	any action by Seller, General Partner, or any employee, officer or
agent of Seller or General Partner committing to do any of the foregoing.

Section 5.19. Hazardous Materials; Disposal Sites. Seller has never
generated, transported, stored, handled, recycled, reclaimed, disposed of, or
contracted for the transportation or disposal of, hazardous materials,
hazardous wastes, hazardous substances, toxic wastes or substances, infectious
or medical waste, radioactive waste or sewage sludges as those terms are
defined by the Resource Conservation and Recovery Act of 1976; the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(“CERCLA”); the Atomic Energy Act of 1954; the Toxic Substances Control Act;
the Occupational Health and Safety Act; any comparable or similar state
statute; any other Applicable Law or the rules and regulations promulgated
under any of the foregoing, as each of the foregoing may have been from time to
time amended (collectively, “Hazardous Materials”). There have been no spills,
leaks, deposits or other releases into the environment, or onto or under the
Land, of any Hazardous Materials during the terms of the Real Estate Leases.
No liens with respect to environmental liability have been imposed against
Seller or any of the Assets under CERCLA, any comparable state statute or other
Applicable Law, and no facts or circumstances exist which would give rise to
the same. Further, no portion of the Land is listed on the CERCLA list or the
National Priorities List of Hazardous Waste Sites or any similar list
maintained by the States of Texas and Louisiana and neither Seller nor General
Partner is listed as a potentially responsible party under CERCLA, any
comparable state statute or other Applicable Law, and neither Seller nor
General Partner has received a notice of such listing. Seller has never owned,
operated, had an interest in, engaged in and/or leased a waste transfer,
recycling, treatment, storage or disposal facility, business or activity other
than in connection with the Business. Seller has in place procedures intended
to detect an effort by third parties to transport Hazardous Materials in
connection with the Business and has obtained and maintained all necessary
records, signed by the applicable waste generators demonstrating the nature of
all waste transported in connection with the Business; which records are
accurate and

18

 

 complete. No employee, contractor or agent of Seller has, in the course
and scope of employment with Seller, been harmed by exposure to Hazardous
Materials. Included on Schedule 5.20 is a complete list of the names and
addresses of all disposal sites at any time now or in the past utilized by
Seller, none of which sites is listed on the CERCLA list or the National
Priorities List of hazardous waste sites or any comparable state list. Seller
has no direct or contingent liability or obligation for or in connection with
any claimed release, discharge or leak of any substance into the environment.

Section 5.20. Underground Storage Tanks. Seller has never owned, leased
or operated any real property having any underground or above-ground storage
tanks containing Hazardous Materials, petroleum products or wastes or other
hazardous substances regulated by 40 CFR 280 or other Applicable Law.

Section 5.21. Corrupt Practices. Neither Seller nor General Partner has
ever made, offered or agreed to offer anything of value to any employees of any
customers of Seller for the purpose of attracting business to Seller or to any
foreign or domestic governmental official, political party or candidate for
government office or any of their employees or representatives, nor have they
otherwise taken any action which would cause it to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended.

Section 5.22. Complete Disclosure. This Agreement and the schedules
hereto, taken as a whole, do not and will not include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein not misleading.

Section 5.23. Due Diligence Disclosure. The documents and written information
furnished to Buyer and its representatives pursuant to the due diligence
investigations of Buyer or its employees or representatives, taken as a whole,
do not knowingly or intentionally contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein
not misleading.

ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF BUYER AND U S LIQUIDS.

Buyer and U S Liquids, jointly and severally, represent and warrant that the
statements contained in this Section 6: (i) are correct and complete as of the
date of this Agreement; (ii) will be correct and complete as of the Closing
Date (as though made then and as though the Closing Date were substituted for
the date of this Agreement throughout this Section 6); and (iii) shall survive
the Closing.

Section 6.1. Corporate Organization. U S Liquids is duly incorporated,
validly existing and in good standing under the laws of the State of Delaware.
Buyer is a limited partnership, duly organized, validly existing and in good
standing under the laws of the State of Delaware and is duly authorized,
qualified and licensed under all applicable laws, regulations and ordinances of
public authorities to carry on its businesses in the places and in the manner
as now conducted except for where the failure to be so authorized, qualified or
licensed would not have a material adverse affect on such businesses.

Section 6.2. Corporate Authority. The officers of Buyer’s general
partner and of U S Liquids executing this Agreement have the corporate
authority to enter into and bind Buyer and U S Liquids to the terms of this
Agreement and Buyer’s general partner and U S Liquids have taken all necessary
corporate action to authorize the execution, delivery and performance of this
Agreement. All corporate action by Buyer’s general partner and U S Liquids
necessary to approve the transaction, including both shareholder and director
approvals (if required), have been taken.

Section 6.3. US Liquids Stock. Upon exercise by Seller of the warrants
described in Section 2.1(b), the US Liquids Stock to be delivered to Seller in
accordance with the terms of this Agreement, will constitute valid and legally
issued shares, fully paid and nonassessable and will be free from any lien,
security

19

 

 interest or other restriction on transfer other than restrictions imposed
by the Act or the regulations promulgated thereunder.

Section 6.4. No Conflicts. The execution, delivery and performance of
this Agreement, the consummation of any transactions herein referred to or
contemplated hereby and the fulfillment of the terms hereof and thereof will
not:

	 	(a)	 	conflict with, or result in a breach or violation of the Articles of
Incorporation or Bylaws of U S Liquids or the Partnership Agreement of
Buyer;
	 
	 	(b)	 	conflict with, or result in a material breach under any document,
agreement or other instrument to which Buyer or U S Liquids is a party,
or result in the creation or imposition of any lien, charge or
encumbrance on any properties of Buyer or U S Liquids pursuant to: (i)
any law or regulation to which Buyer or U S Liquids or any of their
property is subject, or (ii) any judgment, order or decree to which Buyer
or U S Liquids is bound or any of its property is subject;
	 
	 	(c)	 	result in termination or any impairment of any material permit,
license, franchise, contractual right or other authorization of Buyer or
U S Liquids; or
	 
	 	(d)	 	require the consent of, or the filing with any governmental authority
or agency or any other third party in order to remain in full force and
effect.

Section 6.5. Binding Agreement. This Agreement is the binding and valid
obligation of Buyer and U S Liquids, enforceable against them in accordance
with its terms.

ARTICLES 7. COVENANTS OF STOCKHOLDERS AND SELLER PRIOR TO CLOSING

Section 7.1. Access to Land and Records. Between the date of this
Agreement and the Closing Date, General Partner and Seller will provide the
officers and authorized representatives of Buyer access to all of the Land
(including, without limitation, for the purpose of performing all testing,
inspections and other procedures considered desirable by Buyer), Assets, books
and records of Seller, including, without limitation, the Environmental
Documents, at all reasonable times and upon reasonable notice and will furnish
Buyer with such additional financial and operating data and other information
as to the business and properties, both current and former, of Seller as Buyer
may from time to time reasonably request. Seller will cooperate with Buyer,
its representatives, engineers, auditors and counsel in the preparation of any
documents or other material which may be required in connection with any
documents or materials required by any governmental agency. Buyer will cause
all information obtained in connection with the negotiation of this Agreement
to be treated as confidential in accordance with the provisions of Article 13
hereof.

Section 7.2. Activities of Seller Prior to Closing. Between the date of
this Agreement and the Closing Date, General Partner and Seller will use
reasonable commercial efforts:

	 	(a)	 	to maintain the Assets in as good working order and condition as at
present, ordinary wear and tear excepted;
	 
	 	(b)	 	to perform all of its obligations under the Real Estate Leases,
Equipment Leases, Motor Vehicle Leases, Permits, Licenses, Customer
Contracts and Related Approvals and Contracts;

20

 

	 	(c)	 	to keep in full force and effect present insurance policies or other
comparable insurance coverage with reputable insurers;
	 
	 	(d)	 	to use reasonable efforts to maintain its relationships with
suppliers, customers, consultants, independent contractors and others
having business relations with Seller;
	 
	 	(e)	 	to maintain compliance with all Applicable Laws;
	 
	 	(f)	 	to maintain and perform present debt and lease instruments in
accordance with their terms and not enter into new or amended debt or
lease instruments, without the prior written consent of Buyer;
	 
	 	(g)	 	to provide the interim financial statements required by Section 5.5;
and
	 
	 	(h)	 	to make or obtain all necessary notices, filings and third party
consents and otherwise provide all reasonable assistance to Buyer to
provide for an orderly transfer of the Assets from Seller to Buyer.

Section 7.3. Prohibited Activities Prior to Closing. Between the date of
this Agreement and the Closing Date, General Partner and Seller agree not,
without the prior written consent of Buyer:

	 	(a)	 	to change the Partnership Agreement or other organizational
documents, admit new partners or permit the withdrawal of existing
partners of Seller, or grant any options, rights or commitments relating
to its equity or partnership interests of any kind;
	 
	 	(b)	 	to enter into any contract or commitment related to the Business or
the Assets that would bind Buyer after Closing;
	 
	 	(c)	 	to incur or agree to incur any debt or other financial obligation or
make any capital expenditures related to the Assets in excess of an
aggregate of $25,000;
	 
	 	(d)	 	to increase the aggregate amount of the Payables or to add any new
accounts payable except to the extent necessary to ensure Seller’s
ability to carry on the Business in the ordinary course, and then only
upon prior notice to Buyer;
	 
	 	(d)	 	to create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any Assets;
	 
	 	(e)	 	to cause a material breach of, or to amend or terminate, any Real
Estate Lease, Equipment Lease, Motor Vehicle Lease, Permit, License,
Customer Contract or Related Approvals or Contract;
	 
	 	(f)	 	to enter into any other transaction outside the ordinary course of
the business of Seller or otherwise prohibited hereunder; or
	 
	 	(g)	 	to use reasonable commercial efforts not to take or allow to be taken
any other action or omission, or series of actions or omissions, by
Seller or General Partner that would cause a representation and warranty
of Seller and General Partner made in Section 5.19 of this Agreement to
be untrue on the Closing Date.

21

 

Section 7.4. Contact with Government Officials. Seller and General
Partner shall each use reasonable commercial efforts to cooperate with Buyer in
making contact with the appropriate governmental agencies and officials having
information about or jurisdiction over Seller, the General Partner or the Land,
Assets or any obligations or rights of Seller, including, without limitation,
environmental and land use agencies and officials, in order to assist Buyer in
completing its regulatory evaluation of Seller and its obligations.

Section 7.5 Notice of Developments.

	 	(a)	 	Between the date of execution of this Agreement and the Closing,
Seller shall notify Buyer of any development or any information coming to
Seller’s attention that would cause a breach of any of its
representations and warranties in Article 5 above. Any such written
notice pursuant to this Section will be deemed to have amended the
applicable representation or warranty, and to have cured any
misrepresentation or breach of warranty that otherwise might have existed
hereunder by reason of the development or information.
	 
	 	(b)	 	Each party will give prompt written notice to the other party of any
development occurring, or any information coming to its attention, prior
to Closing that causes a breach of any of its own or any other party’s
representations and warranties in Articles 5 or 6.

Section 7.6 Barge Surveys. Seller will provide Buyer and Buyer’s
representatives with reasonable access to barges used by Seller in connection
with Transportation for the purpose of conducting surveys of the condition of
said barges and determining the extent, if any, of any damages to said barges
requiring repair and the estimated cost of such repairs. Seller understands
and acknowledges that in order for such surveys to be done the barges must be
empty and hereby waives any claim against Buyer for any rental charges or other
costs incurred in connection with such surveys which arises as a result of any
of the barges being held empty, other than in the ordinary course, while such
surveys are completed.

Section 7.7 Venice. Seller will use its reasonable best efforts to assist
Buyer in obtaining a new lease or other legally binding document for dock space
and a transfer facility at Venice, Louisiana, on terms reasonably acceptable to
Buyer, to replace the existing Shorebase Operation and Management Agreement and
the existing Shorebase Utilization Agreement to which Seller is a party and
which are included in Exhibit B, attached hereto.

ARTICLE 8. CONDITIONS PRECEDENT TO OBLIGATIONS

OF GENERAL PARTNER AND SELLER

The obligations of General Partner and Seller hereunder are subject to the
completion, satisfaction, or at their option, waiver, on or prior to the
Closing Date, of the following conditions.

Section 8.1. Representations and Warranties. The representations and
warranties of Buyer and U S Liquids contained in this Agreement shall be
accurate on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date; and each
and all of the terms, covenants and conditions of this Agreement to be complied
with and performed by Buyer and U S Liquids on or before the Closing Date shall
have been duly complied with and performed.

Section 8.2. Consents. All necessary notices to, consents of and filings
with any governmental authority or agency or other third party relating to the
consummation of the Closing or the other transactions contemplated herein shall
have been obtained and made.

22

 

Section 8.3. No Adverse Proceeding. No action or proceeding before a
court or any other governmental agency or body shall have been instituted or
threatened to restrain or prohibit any of the transactions contemplated by this
Agreement.

Section 8.4. Agreements. Buyer shall have executed and delivered at the
Closing the Noncompetition Agreement in the form attached hereto as Exhibit C.

Section 8.5. Certificates. Buyer and U S Liquids shall have delivered to
Seller a certificate to the effect that each of the conditions specified in
8.1, 8.2 and 8.3 above have been satisfied in all respects.

ARTICLE 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER

The obligations of Buyer and U S Liquids hereunder are subject to the
completion, satisfaction or, at its option, waiver, on or prior to the Closing
Date, of the following conditions.

Section 9.1. Representations and Warranties. The representations and
warranties of Seller and General Partner contained in this Agreement shall be
accurate in all material respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
such date, and a certificate to the foregoing effect, or setting forth any
discrepancies in such representations and warranties which have arisen since
the date of this Agreement, dated the Closing Date and signed by Seller and
General Partner shall have been delivered to Buyer. The foregoing
notwithstanding, Seller and General Partner agree that no limitation of any
representation or warranty shall restrict Buyer’s right to terminate this
Agreement if any such representation or warranty as set forth in Article 5 is
inaccurate in any material respect as of the Closing Date.

Section 9.2. Covenants. Each and all of the terms, covenants and
conditions of this Agreement to be complied with and performed by Seller and
General Partner on or before the Closing Date shall have been duly complied
with and performed in all material respects.

Section 9.3. No Adverse Proceeding. No action or proceeding before a
court or any other governmental agency or body shall have been instituted or
threatened to restrain or prohibit any of the transactions contemplated by this
Agreement.

Section 9.4. No Adverse Change. No material and adverse change in the
results of operations, financial condition or business of Seller shall have
occurred since the Balance Sheet Date. Seller shall not have suffered any loss
or damage to any of its properties or assets, whether or not covered by
insurance, since the Balance Sheet Date, which change, loss or damage would
materially affect or impair the ability of Buyer to operate the Business.

Section 9.5. General Release. Seller and General Partner shall have
delivered to Buyer an instrument dated the Closing Date releasing Buyer and US
Liquids from any and all claims of Seller and General Partner against Buyer
arising out of events which occurred prior to the Closing (but not including
any claims pursuant to this Agreement).

Section 9.6. Consents. All necessary notices to, consents of and filings
with any governmental authority or agency or other third party relating to the
consummation of the transactions contemplated herein shall have been obtained
and made.

Section 9.7. Good Standing Certificate. General Partner shall have
delivered to Buyer a certificate, dated as of a date no earlier than 10 days
prior to the Closing Date, duly issued by the appropriate governmental

23

 

 authority or authorities showing that Seller is in good standing in its
state of incorporation and is authorized to do business in the States of Texas
and Louisiana.

Section 9.8. Agreements. The Noncompetition Agreement shall have been
executed and delivered by all parties thereto at the Closing in the form
attached hereto as Exhibit C.

Section 9.9. Transferability of Permits. All of the Permits required for
the operation of the Business shall have been transferred to Buyer, subject to
restrictions and limitations and with covenants and undertakings imposed upon
or required of Buyer which are reasonably satisfactory to Buyer and U S
Liquids, or Buyer shall have determined that they can be so transferred without
public hearing or other regulatory re-approval process,.

Section 9.10 Consents to Assignment of Real Estate Leases. All consents to
the assignment of the Real Estate Leases to Buyer shall have been obtained on
terms and conditions (including, without limitation, changes in the amount of
rent or any other amount or type of consideration required to be paid to obtain
each such consent) reasonably acceptable to Buyer and U S Liquids.

Section 9.11. Environmental Review. Buyer and U S Liquids, through their
authorized representatives, shall have completed a review (including, without
limitation, all testing, inspections and other procedures, review of existing
files of, and discussions with, governmental agencies and officials having
jurisdiction over Seller or the Assets) of the environmental and land use
practices, procedures, operations and activities of Seller; the results of
which review, without limiting the generality of the foregoing, reflects
compliance with all Applicable Laws governing the operations of Seller,
discloses no actual or probable material violations or compliance problems, and
reveals no required capital expenditures, remediation or clean-up costs
exceeding, in the aggregate, $75,000.00, or any other substantial environmental
related concerns.

Section 9.12. Due Diligence. Buyer and U S Liquids, through their authorized
representatives, shall have completed a review of Seller’s Financial
Statements, other financial and accounting documents and related and supporting
accounting and financial records and data; the Real Estate Leases, Equipment
Leases, Motor Vehicle Leases, Permits, Licenses, Customer Contracts and Related
Approvals, Contracts, Proprietary Rights, Receivables and Computers, an
inspection of the Land, Equipment (including the leased equipment), Motor
Vehicles (including the leased motor vehicles), Inventory, Computers, and a
review of Seller’s legal, insurance and risk management, health and safety,
operations, human resources, tax and information systems records, documents,
practices, procedures and activities; the results of which review, and
inspection, discloses no actual or probable material problems, required capital
expenditures or facility repairs exceeding, in the aggregate, $75,000.00 or any
other substantial concerns and are otherwise satisfactory in all material
respects to Buyer and U S Liquids in their reasonable judgment.

Section 9.13. Barge Surveys. All barge surveys described in Section 7.6 shall
have been completed and the results thereof shall be reasonably satisfactory
to Buyer.

Section 9.14. Certificates. Seller and General Partner shall have
delivered to Buyer a certificate to the effect that each of the conditions
specified in 9.1, 9.3, 9.4 and 9.6 above have been satisfied in all respects.

Section 9.15 Bank Approval. Buyer and U S Liquids shall have obtained the
approvals required under Section 10.11 of its Second Amended and Restated
Credit Agreement dated February 3, 1999, as amended; provided, however, that in
the event Buyer fails to obtain such approvals by July 31, 2002 such failure
shall be considered an uncured breach under Section 12.2 and Seller may elect
to terminate this Agreement pursuant to that Section.

24

 

Section 9.16. General. All actions taken by General Partner and Seller
in connection with the consummation of the transactions contemplated hereby and
all certificates, opinions and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to Buyer.

ARTICLE 10. NON-ASSUMPTION OF LIABILITIES

Except as explicitly set forth in Section 2.3, above, neither Buyer nor U S
Liquids shall by the execution and performance of this Agreement or otherwise,
assume, become responsible for or incur any liability or obligation of any
nature of Seller or General Partner, whether legal or equitable, matured or
contingent, known or unknown, foreseen or unforeseen, ordinary or
extraordinary, patent or latent, whether arising out of occurrences prior to,
at or after the date of this Agreement, including, without limiting the
generality of the foregoing, any liability or obligation arising out of or
relating to:

	 	(a)	 	any occurrence or circumstance (whether known or unknown) which
occurs or exists on or prior to the date of this Agreement and which
constitutes, or which by the lapse of time or giving notice (or both)
would constitute, a breach or default under any lease, contract, or other
instrument or agreement (whether written or oral) other than the Customer
Contracts;
	 
	 	(b)	 	injury to or death of any person or damage to or destruction of any
property, whether based on negligence, breach of warranty, or any other
theory;
	 
	 	(c)	 	violation of the requirements of any governmental authority or of the
rights of any third person, including, without limitation, any
requirements relating to the reporting and payment of federal, state,
local or other income, sales, use, franchise, excise or property tax
liabilities of Seller or General Partner;
	 
	 	(d)	 	the generation, collection, transportation, storage or disposal by
Seller of any materials, including, without limitation, Hazardous
Materials;
	 
	 	(e)	 	any agreement or arrangement between Seller and the employees of
Seller or any labor or collective bargaining unit representing any such
employees;
	 
	 	(f)	 	any severance pay obligation of Seller or General Partner or any
employee benefit plan (within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended) or any other fringe
benefit program maintained or sponsored by Seller or to which Seller
contributes or any contributions, benefits or liabilities therefor or any
liability for the withdrawal or partial withdrawal from or termination of
any such plan or program by Seller;
	 
	 	(g)	 	any obligations related to any of the Excluded Assets (including,
without limitation, the Excluded Real Estate);
	 
	 	(h)	 	any debts or obligations of Seller or General Partner other than the
Assumed Payables and Assumed Contracts Obligations; and
	 
	 	(i)	 	liabilities or obligations of Seller or General Partner for brokerage
or other commissions relative to this Agreement or the transactions
contemplated hereunder.

Seller and General Partner hereby jointly and severally agree to indemnify
Buyer, its successors and assigns from and against all of the above liabilities
and obligations in accordance with Section 11.1 below.

25

 

ARTICLE 11. INDEMNIFICATION

Section 11.1. Indemnification by General Partner and Seller. Seller and
General Partner agree that they will each, jointly and severally, indemnify,
defend (as to third party claims only), protect and hold harmless Buyer, U S
Liquids and their respective officers, shareholders, directors, divisions,
subdivisions, affiliates, subsidiaries, parent, agents, employees, successors
and assigns at all times from and after the date of this Agreement from and
against all liabilities, claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, penalties, losses, costs and expenses whatsoever
(including specifically, but without limitation, court costs, reasonable
attorneys’ fees and expenses and expenses of investigation) whether equitable
or legal, matured or contingent, known or unknown, foreseen or unforeseen,
ordinary or extraordinary, patent or latent, whether arising out of occurrences
prior to, at or after the date of this Agreement, incurred as a result of or
incident to: (a) any breach of, misrepresentation in, untruth in or inaccuracy
in the representations and warranties by Seller or any Stockholder (including,
without limitation, those relating to Seller’s environmental compliance), set
forth herein or in the Schedules, Exhibits or certificates attached hereto or
delivered pursuant hereto; (b) nonfulfillment or nonperformance of any
agreement, covenant or condition on the part of General Partner or Seller made
in this Agreement; (c) the matters set forth in Article 10; (d) the existence
of liabilities of Seller in excess of the liabilities represented by General
Partner and Seller; (e) the imposition upon Buyer of any liability or
obligation of Seller or General Partner resulting from any pending or
threatened lawsuits, legal or regulatory proceedings, investigations or
judgments or (f) any claim by a third party that, if true, would mean that a
condition for indemnification set forth in subsections (a) through (f) of this
Section 11.1 had been satisfied.

Section 11.2. Indemnification by Buyer and U S Liquids. Buyer and U S
Liquids agree that they will each, jointly and severally, indemnify, defend (as
to third party claims only), protect and hold harmless Seller and General
Partner at all times from and after the Closing Date from and against all
liabilities, claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, penalties, losses, costs and expenses whatsoever
(including specifically, but without limitation, court costs, reasonable
attorneys’ fees and expenses and expenses of investigation) whether equitable
or legal, matured or contingent, known or unknown, foreseen or unforeseen,
ordinary or extra-ordinary, patent or latent, incurred by Seller or General
Partner as a result of or incident to: (a) any breach of, misrepresentation
in, untruth in or inaccuracy in the representations and warranties set forth
herein, or in the Schedules or certificates attached hereto or delivered
pursuant hereto by Buyer or U S Liquids; (b) nonfulfillment or nonperformance
of any agreement, covenant or condition on the part of Buyer or U S Liquids
made in this Agreement (including, without limitation, the covenant to perform
the Customer Contracts set forth in Section 2.3); and (c) any claim by a third
party that, if true, would mean that a condition for indemnification set forth
in subsections (i) or (ii) of this Section 11.2 had been satisfied.

Section 11.3. Procedure for Indemnification with Respect to Third Party
Claims.

	 	(a)	 	If any third party shall notify a party to this Agreement (the
“Indemnified Party”) with respect to any matter (a “Third Party Claim”)
that may give rise to a claim for indemnification against any other party
to this Agreement (the “Indemnifying Party”) or if any party who may make
a claim for indemnification under this Agreement otherwise becomes aware
of any matter that may give rise to such a claim or wishes to make such a
claim (whether or not related to a Third Party Claim), then the
Indemnified Party shall promptly notify each Indemnifying party thereof
in writing; provided, however, that no delay on the part of the
Indemnified Party in notifying any Indemnifying Party shall relieve the
Indemnifying Party from any obligation hereunder unless (and then solely
to the extent) the Indemnifying Party is thereby prejudiced.

26

 

	 	(b)	 	Any Indemnifying Party will have the right to defend the Indemnified
Party against a Third Party Claim with counsel of its choice satisfactory
to the Indemnified Party so long as (i) the Indemnifying Party notifies
the Indemnified Party in writing within a reasonable time after the
Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party will indemnify the Indemnified Party from and against
the entirety of any adverse consequences (which will include, without
limitation, all losses, claims, liens, and attorneys’ fees and related
expenses) the Indemnified Party may suffer resulting from, arising out
of, relating to, in the nature of, or caused by the Third Party Claim,
(ii) the Indemnifying Party provides the Indemnified Party with evidence
acceptable to the Indemnified Party that the Indemnifying Party will have
the financial resources to defend against the Third Party Claim and
fulfill its indemnification obligations hereunder, (iii) the Third Party
Claim involves only monetary damages and does not seek an injunction or
equitable relief, (iv) settlement of, or adverse judgment with respect to
the Third Party Claim is not, in the good faith judgment of the
Indemnified Party, likely to establish a precedential custom or practice
adverse to the continuing business interests of the Indemnified Party,
and (v) the Indemnifying Party conducts the defense of the Third Party
Claim actively and diligently.
	 
	 	(c)	 	So long as the Indemnifying Party is conducting the defense of the
Third Party Claim in accordance with Section 11.3(b) above, (i) the
Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (ii) the
Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnifying Party (which will not be
unreasonably withheld) and (iii) the Indemnifying Party will not consent
to the entry of any judgment or enter into any settlement with respect to
the Third Party Claim without the prior written consent of the
Indemnified Party (which will not be unreasonably withheld).
	 
	 	(d)	 	In the event or to the extent that any of the conditions set forth in
Section 11.3(b) above is or becomes unsatisfied, however, (i) the
Indemnified Party may defend against, and consent to the entry of any
judgment or enter into any settlement with respect to, the Third Party
Claim and any matter it may deem appropriate in its sole discretion and
the Indemnified Party need not consult with, or obtain any consent from,
any Indemnifying Party in connection therewith (but will keep the
Indemnifying Party reasonably informed regarding the progress and
anticipated cost thereof), (ii) the Indemnifying Party will reimburse the
Indemnified Party promptly and periodically for the cost of defending
against the Third Party Claim (including attorneys’ fees and expenses),
(iii) the Indemnifying Party will remain responsible for any adverse
consequences the Indemnified Party may suffer resulting from, arising out
of, relating to, in the nature of, or caused by the Third Party Claim to
the fullest extent provided in this Section 11, and (iv) the Indemnifying
Party shall be deemed to have waived any claim that its indemnification
obligation should be reduced because of the manner in which the counsel
for the Indemnified Party handled the Third Party Claim.

ARTICLE 12. TERMINATION OF AGREEMENT

Section 12.1. Termination by Buyer.

	 	(a)	 	Buyer, by notice in the manner hereinafter provided on or before the
Closing Date, may terminate this Agreement in the event of a breach by
General Partner or Seller in the observance or in the due and timely
performance of any of the agreements or conditions contained herein on
their part to be performed, and such breach shall not have been cured on
or before the Closing Date.

27

 

	 	(b)	 	Buyer may terminate this Agreement by giving written notice to Seller
at any time prior to the Closing in the event that Seller has given Buyer
any notice pursuant to Section 7.5 above and the development or
information that is the subject of the notice has had or would be likely
to have a material adverse effect on the financial condition of Seller,
the financial prospects of the Business or the ability to continue the
operation of the Business after the Closing in substantially the same
manner as Buyer reasonably contemplated prior to becoming aware of the
development or information.

Section 12.2. Termination by Seller. Seller may, by notice in the manner
hereinafter provided on or before the Closing Date, terminate this Agreement in
the event of a breach by Buyer in the observance or in the due and timely
performance of any of the covenants, agreements or conditions contained herein
on its part to be performed, and such breach shall not have been cured on or
before the Closing Date.

Section 12.3 Termination by Either Party. Any party may terminate this
Agreement by giving written notice to the other parties at any time prior to
the Closing if the Closing shall not have occurred on or before November 15,
2002, or such party has reasonably determined that it can not occur by such
date, by reason of the failure of any condition precedent under Articles 8 or
9 (unless the failure results primarily from such party itself breaching any
representation, warranty or covenant contained in this Agreement).

Section 12.4 Effect of Termination. If any party terminates this Agreement
pursuant to this Article 12, all rights and obligations of the parties
hereunder shall terminate without any liability of any party to any other party
(except for any liability of any party then in breach); provided, however, that
the confidentiality provisions contained in Article 13 shall survive
termination.

ARTICLE 13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION

Section 13.1. Nondisclosure by Seller and General Partner. Seller and
General Partner recognize and acknowledge that they had in the past, currently
have, and in the future may possibly have, access to certain confidential
information of Buyer, such as lists of customers, operational policies, and
pricing and cost policies that are valuable, special and unique assets of Buyer
and its businesses. Seller and General Partner each agree that, except as may
be required by Applicable Laws or other legal process, they will not disclose
such confidential information to any person, firm, corporation, association or
other entity for any purpose or reason whatsoever, except to authorized
representatives of Buyer, unless such information becomes known to the public
generally through no fault of Seller or any Stockholder. In the case of a
disclosure required by Applicable Laws or other legal process, Seller and
General Partner shall make no disclosure without prior written notice to Buyer.
In the event of a breach or threatened breach by Seller or one of the General
Partner of the provisions of this Section, Buyer shall be entitled to an
injunction restraining such party from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
Buyer from pursuing any other available remedy for such breach or threatened
breach, including, without limitation, the recovery of damages. The provisions
of this Section shall apply at all times prior to the Closing Date and for a
period of one year following the termination of this Agreement without a
Closing having occurred.

Section 13.2. Nondisclosure by Buyer. Buyer and U S Liquids recognize
and acknowledge that they have in the past, currently have, and prior to the
Closing Date, will have access to certain confidential information of Seller,
such as lists of customers, operational policies, and pricing and cost policies
that are valuable, special and unique assets of Seller. Buyer and U S Liquids
agree that they will not, except as may be required by Applicable Laws or valid
legal process, disclose such confidential information to any person, firm,
corporation, association, or other entity for any purpose or reason whatsoever,
prior to the Closing Date without Seller’s prior written consent. In the case
of a disclosure required by Applicable

28

 

 Laws or other legal process, Seller and General Partner shall make no
disclosure without prior written notice to Buyer. In the event of a breach or
threatened breach by Buyer or U S Liquids of the provisions of this Section,
Seller shall be entitled to an injunction restraining such party from
disclosing, in whole or in part, such confidential information. Nothing
contained herein shall be construed as prohibiting Seller from pursuing any
other available remedy for such breach or threatened breach, including, without
limitation, the recovery of damages. The provisions of this Section shall
apply at all times prior to the Closing Date and for a period of one year
following the termination of this Agreement without a Closing having occurred.

ARTICLE 14. FEDERAL SECURITIES ACT AND RESTRICTIONS ON STOCK

Section 14.1. U S Liquids Stock. Buyer and U S Liquids, jointly and
severally, represent and warrant to Seller and Seller acknowledges that all of
the shares of US Liquids Stock to be delivered to Seller upon Seller’s exercise
of the warrants delivered pursuant this Agreement will be validly and legally
issued under Delaware law and will not be registered under the Securities Act
of 1933, as amended (the “Act”) or any applicable state securities laws, prior
to delivery to Seller.

Section 14.2. Compliance with Law. Seller covenants, warrants and
represents that none of the shares of US Liquids Stock will be offered, sold,
assigned, pledged, hypothecated, transferred or otherwise disposed of except in
full compliance with the Act and the rules and regulations promulgated
thereunder.

ARTICLE 15. GENERAL

Section 15.1. Assignment; Binding Effect; Amendment. This Agreement and
the rights of the parties hereunder may not be assigned (except by operation of
law) and shall be binding upon and shall inure to the benefit of the parties
hereto, the successors of Buyer and Seller, and the respective heirs and legal
representatives of General Partner. This Agreement, upon execution and
delivery, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by all parties hereto.

Section 15.2. Third Party Beneficiary. Each of the parties hereto
intends that US Liquids shall be a third party beneficiary to this Agreement,
shall be entitled to the benefits hereof and shall have the ability to exercise
the rights granted to Buyer herein as fully as if it were a direct signatory
hereto. The parties agree that no other entity shall be a third party
beneficiary to this Agreement.

Section 15.3. Entire Agreement. This Agreement is the final, complete
and exclusive statement and expression of the agreement among the parties
hereto with relation to the subject matter of this Agreement, it being
understood that there are no oral representations, understandings or agreements
covering the same subject matter as this Agreement. This Agreement supersedes,
and cannot be varied, contradicted or supplemented by evidence of any prior or
contemporaneous discussions, correspondence, or oral or written agreements of
any kind.

Section 15.4. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original and all of which together shall constitute but one and the same
instrument.

Section 15.5. No Brokers. Seller and General Partner represent and
warrant to Buyer and Buyer represents to Seller and General Partner that the
warranting party has had no dealings with any broker or agent so as to entitle
such broker or agent to a commission or fee in connection with the within
transaction. If for any reason a commission or fee shall become due, the party
dealing with such agent or broker shall pay such commission or fee and agrees
to indemnify and save harmless each of the other

29

 

 parties from all claims for such commission or fee and from all attorneys’
fees, litigation costs and other expenses relating to such claim.

Section 15.6. Expenses of Transaction. Whether or not the transactions
herein contemplated shall be consummated: (a) Buyer will pay the fees, expenses
and disbursements of Buyer and its agents, representatives, accountants and
counsel incurred in connection with the subject matter of this Agreement and
any amendments hereto and all other costs and expenses incurred in the
performance and compliance with all conditions to be performed by Buyer under
this Agreement; and (b) Seller will pay the fees, expenses and disbursements of
Seller and General Partner and their respective agents, representatives,
accountants and counsel incurred in connection with the subject matter of this
Agreement and any amendments hereto and all other costs and expenses incurred
in the performance and compliance with all conditions to be performed by
General Partner and Seller under this Agreement. All such fees, expenses and
disbursements of General Partner and Seller shall be paid by Seller prior to
the Closing so that the Assets will not be charged with or diminished by any
such fee, cost or expense. General Partner and Seller represent and warrant to
Buyer that General Partner and Seller have relied on their own advisors for all
legal, accounting, tax or other advice whatsoever with respect to this
Agreement and the transactions contemplated hereby.

Section 15.7. Notices. All notices or other communications required or
permitted hereunder shall be in writing and may be given by depositing the same
in United States mail, addressed to the party to be notified, postage prepaid
and registered or certified with return receipt requested, by overnight courier
or by delivering the same in person to such party.

	 	(a)	 	If to Buyer, addressed to it at:

	 	U S Liquids of LA, L.P.

11079 Triangle Shell Road

Jennings, Louisiana 70546

Attn: Divisional Vice President

	 	 	 	with a copy to:

	 	U S Liquids, Inc.

411 N. Sam Houston Parkway E., Suite 400

Houston, Texas 77060

Attn: General Counsel

	 	(b)	 	If to Seller, addressed to it at:

	 	Trinity Storage Services, L.P.

13453 Highway 71

Bee Cave, Texas 78738

Attn: Daniel B. Porter

	 	 	 	with a copy to:

	 	Matthews & Branscomb

802 Carancahua, Suite 1900

Corpus Christi, Texas 78470

Attn: Jeffrey S. Dickerson & Mark J. Hulings

30

 

Notice shall be deemed given and effective the day personally delivered, the
day after being sent by overnight courier, subject to signature verification,
and three business days after the deposit in the U.S. mail of a writing
addressed as above and sent first class mail, certified, return receipt
requested, or when actually received, if earlier. Any party may change the
address for notice by notifying the other parties of such change in accordance
with this Section.

Section 15.8. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Texas, without
giving effect to any choice or conflict of law provision or rule (whether of
the State of Texas or any other jurisdiction) that would cause the application
of the laws of any jurisdiction other than the State of Texas.

Section 15.9. No Waiver. No delay of or omission in the exercise of any
right, power or remedy accruing to any party as a result of any breach or
default by any other party under this Agreement shall impair any such right,
power or remedy, nor shall it be construed as a waiver of or acquiescence in
any such breach or default, or of or in any similar breach or default occurring
later; nor shall any waiver of any single breach or default be deemed a waiver
of any other breach of default occurring before or after that waiver.

Section 15.10. Time of the Essence. Time is of the essence of this
Agreement.

Section 15.11. Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.

Section 15.12. Severability. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, it shall, to the extent possible,
be modified in such manner as to be valid, legal and enforceable but so as most
nearly to retain the intent of the parties. If such modification is not
possible, such provision shall be severed from this Agreement. In either case
the validity, legality and enforceability of the remaining provisions of this
Agreement shall not in any way be affected or impaired thereby.

Section 15.13. Construction. The parties have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof
shall arise favoring or disfavoring any party by virtue of the authorship of
any of the provisions of this Agreement. Any reference to any federal, state,
local or foreign statute shall be deemed to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise. The word
“including” means including, without limitation. The parties intend that
representation, warranty and covenant contained herein shall have independent
significance. If any party has breached any representation, warranty or
covenant contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) that the party has not
breached shall not detract from or mitigate the fact the party is in breach of
the first representation, warranty or covenant.

Section 15.14. Standstill Agreement. Unless and until this Agreement is
terminated pursuant to Article 12 hereof without the Closing having taken
place, Seller will not directly or indirectly solicit offers for the stock or
the assets of Seller or for a merger or consolidation involving Seller, or
respond to inquiries from, share information with, negotiate with or in any way
facilitate inquiries or offers from, third parties who express or who have
heretofore expressed an interest in acquiring Seller by merger, consolidation
or other combination or acquiring any of the Assets of Seller; nor will any
Stockholder permit Seller to do any of the foregoing.

31

 

Section 15.15. Press Releases and Public Announcements. No party shall issue
any press release or make any public announcement relating to the subject
matter of this Agreement without the prior written approval of the other party;
provided, however, that any party may make any public disclosure it believes in
good faith to be required by applicable law, rule or regulation or any listing
or trading agreement concerning its publicly traded securities (in which case
the disclosing party will use reasonable efforts to advise the other party
prior to making such disclosure).

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.

	 	 	 	 	 	 	 
	
U S LIQUIDS OF LA, L.P.	 	TRINITY STORAGE SYSTEMS, L.P.
	 	 	 	 	 	 	 
	By:	 	
MBO, Inc., Its General Partner
	 	By:
	 	CCBS, Inc., its General Partner
	 	 	 	 	 	 	 
	By:	 	 	 	By:	 	 
	 	 	
	 	 	 	

	 	 	 	 	 	 	 
	
U S LIQUIDS INC
	 	CCBS, INC
	 	 	 	 	 	 	 
	By:	 	 	 	By:	 	 
	 	 	
	 	 	 	

32

 

LIST OF SCHEDULES

	 	 	 	 	 
	Schedule 1.1(d)	 	
—
	 	Equipment
	Schedule 1.1(e)	 	
—
	 	Motor Vehicles
	Schedule 1.1(f)	 	
—
	 	Equipment Leases
	Schedule 1.1(g)	 	
—
	 	Motor Vehicle Leases
	Schedule 1.1(k)	 	
—
	 	Customer Contracts and Related Approvals
	Schedule 1.1(l)	 	
—
	 	Contracts
	Schedule 1.3	 	
—
	 	Customer Contracts Requiring Consent to Assignment
	Schedule 2.3	 	
—
	 	Seller’s Debt
	Schedule 5.1(a)	 	
—
	 	Partnership Agreement and Related Documents of Seller
	Schedule 5.1(b)	 	
—
	 	Articles of Incorporation and Bylaws of General Partner
	Schedule 5.3	 	
—
	 	Predecessors
	Schedule 5.5	 	
—
	 	Financial Statements
	Schedule 5.6	 	
—
	 	Non-Balance Sheet Liabilities
	Schedule 5.7(a)	 	
—
	 	Permits; Licenses; Applications; Proprietary Rights
	Schedule 5.9(a)	 	
—
	 	Real Property Disclosure
	Schedule 5.11	 	
—
	 	Insurance Policies
	Schedule 5.12	 	
—
	 	Employees
	Schedule 5.13	 	
—
	 	Employee Plans
	Schedule 5.14(b)	 	
—
	 	Compliance with Laws
	Schedule 5.16	 	
—
	 	Litigation
	Schedule 5.19	 	
—
	 	List of Disposal Sites

33

 

LIST OF EXHIBITS

	 	 	 	 	 
	Exhibit A	 	
—
	 	Description of the Real Property
	Exhibit B	 	
—
	 	Real Estate Leases
	Exhibit C	 	
—
	 	Noncompetition Agreement

34<PAGE>
                                                                     EXHIBIT 4.1

                               T3 ENERGY SERVICES
                            2002 STOCK INCENTIVE PLAN

                (AS AMENDED AND RESTATED EFFECTIVE JULY 30, 2002)

<PAGE>

                                TABLE OF CONTENTS

<Table>
<Caption>
                                                                                                                Page
                                                                                                                ----
<S>                                                                                                             <C>
SECTION 1.   GENERAL PROVISIONS RELATING TO PLAN GOVERNANCE, COVERAGE AND BENEFITS................................1
         1.1      Background and Purpose..........................................................................1
         1.2      Definitions.....................................................................................2
                  (a)      Appreciation...........................................................................2
                  (b)      Authorized Officer.....................................................................3
                  (c)      Board..................................................................................3
                  (d)      Cause..................................................................................3
                  (e)      CEO....................................................................................3
                  (f)      Change in Control......................................................................3
                  (g)      Code...................................................................................3
                  (h)      Committee..............................................................................3
                  (i)      Common Stock...........................................................................4
                  (j)      Company................................................................................4
                  (k)      Consultant.............................................................................4
                  (l)      Covered Employee.......................................................................4
                  (m)      Deferred Stock.........................................................................4
                  (n)      Disability.............................................................................4
                  (o)      Employee...............................................................................5
                  (p)      Employment.............................................................................5
                  (q)      Exchange Act...........................................................................5
                  (r)      Fair Market Value......................................................................5
                  (s)      Grantee................................................................................6
                  (t)      Immediate Family.......................................................................6
                  (u)      Incentive Award........................................................................6
                  (v)      Incentive Agreement....................................................................6
                  (w)      Incentive Stock Option or ISO..........................................................6
                  (x)      Independent SAR........................................................................6
                  (y)      Insider................................................................................6
                  (z)      Nonstatutory Stock Option..............................................................6
                  (aa)     Option Price...........................................................................6
                  (bb)     Other Stock-Based Award................................................................7
                  (cc)     Outside Director.......................................................................7
                  (dd)     Parent.................................................................................7
                  (ee)     Performance-Based Exception............................................................7
                  (ff)     Performance Period.....................................................................7
                  (gg)     Performance Share or Performance Unit..................................................7
                  (hh)     Plan...................................................................................7
                  (ii)     Publicly Held Corporation..............................................................7
                  (jj)     Restricted Stock.......................................................................7
                  (kk)     Restricted Stock Award.................................................................7
                  (ll)     Restriction Period.....................................................................7
</Table>

                                        i
<PAGE>

<Table>
<S>                                                                                                              <C>
                  (mm)     Retirement.............................................................................7
                  (nn)     Share..................................................................................7
                  (oo)     Share Pool.............................................................................8
                  (pp)     Spread.................................................................................8
                  (qq)     Stock Appreciation Right or SAR........................................................8
                  (rr)     Stock Option or Option.................................................................8
                  (ss)     Subsidiary.............................................................................8
                  (tt)     Supplemental Payment...................................................................8
                  (uu)     Tandem SAR.............................................................................8
         1.3      Plan Administration.............................................................................8
                  (a)      Authority of the Committee.............................................................8
                  (b)      Meetings...............................................................................8
                  (c)      Decisions Binding......................................................................9
                  (d)      Modification of Outstanding Incentive Awards...........................................9
                  (e)      Delegation of Authority................................................................9
                  (f)      Expenses of Committee..................................................................9
                  (g)      Surrender of Previous Incentive Awards.................................................9
                  (h)      Indemnification.......................................................................10
         1.4      Shares of Common Stock Available for Incentive Awards..........................................10
         1.5      Share Pool Adjustments for Awards and Payouts..................................................11
         1.6      Common Stock Available.........................................................................12
         1.7      Participation..................................................................................12
                  (a)      Eligibility...........................................................................12
                  (b)      Incentive Stock Option Eligibility....................................................12
         1.8      Types of Incentive Awards......................................................................12

SECTION 2.   STOCK OPTIONS AND STOCK APPRECIATION RIGHTS.........................................................13
         2.1      Grant of Stock Options.........................................................................13
         2.2      Stock Option Terms.............................................................................13
                  (a)      Written Agreement.....................................................................13
                  (b)      Number of Shares......................................................................13
                  (c)      Exercise Price........................................................................13
                  (d)      Term..................................................................................13
                  (e)      Exercise..............................................................................13
                  (f)      $100,000 Annual Limit on Incentive Stock Options......................................14
         2.3      Stock Option Exercises.........................................................................14
                  (a)      Method of Exercise and Payment........................................................14
                  (b)      Restrictions on Share Transferability.................................................15
                  (c)      Notification of Disqualifying Disposition of Shares from Incentive Stock
                           Options...............................................................................16
                  (d)      Proceeds of Option Exercise...........................................................16
         2.4      Stock Appreciation Rights in Tandem with Nonstatutory Stock Options............................16
                  (a)      Grant.................................................................................16
                  (b)      General Provisions....................................................................16
                  (c)      Exercise..............................................................................16
                  (d)      Settlement............................................................................16
         2.5      Stock Appreciation Rights Independent of Nonstatutory Stock Options............................17
</Table>

                                       ii
<PAGE>

<Table>
<S>                                                                                                             <C>
                  (a)      Grant.................................................................................17
                  (b)      General Provisions....................................................................17
                  (c)      Exercise..............................................................................17
                  (d)      Settlement............................................................................17
         2.6      Reload Options.................................................................................17
         2.7      Supplemental Payment on Exercise of Nonstatutory Stock Options or Stock Appreciation
                  Rights.........................................................................................17

SECTION 3.   RESTRICTED STOCK....................................................................................18
         3.1      Award of Restricted Stock......................................................................18

                  (a)      Grant.................................................................................18

                  (b)      Immediate Transfer Without Immediate Delivery of Restricted Stock.....................18

         3.2      Restrictions...................................................................................19

                  (a)      Forfeiture of Restricted Stock........................................................19
                  (b)      Issuance of Certificates..............................................................19
                  (c)      Removal of Restrictions...............................................................20
         3.3      Delivery of Shares of Common Stock.............................................................20
         3.4      Supplemental Payment on Vesting of Restricted Stock............................................20

SECTION 4.   PERFORMANCE UNITS AND PERFORMANCE SHARES............................................................20
         4.1      Performance Based Awards.......................................................................20

                  (a)      Grant.................................................................................20
                  (b)      Performance Criteria..................................................................20
                  (c)      Modification..........................................................................21
                  (d)      Payment...............................................................................21
                  (e)      Special Rule for Covered Employees....................................................21
         4.2      Supplemental Payment on Vesting of Performance Units or Performance Shares.....................21

SECTION 5.   OTHER STOCK-BASED AWARDS............................................................................22
         5.1      Grant of Other Stock-Based Awards..............................................................22
         5.2      Other Stock-Based Award Terms..................................................................22
                  (a)      Written Agreement.....................................................................22
                  (b)      Purchase Price........................................................................22
                  (c)      Performance Criteria and Other Terms..................................................22
                  (d)      Payment...............................................................................22
                  (e)      Dividends.............................................................................23

SECTION 6.   PROVISIONS RELATING TO PLAN PARTICIPATION...........................................................23
         6.1      Plan Conditions................................................................................23
                  (a)      Incentive Agreement...................................................................23
                  (b)      No Right to Employment................................................................23
                  (c)      Securities Requirements...............................................................23
         6.2      Transferability................................................................................24
         6.3      Rights as a Stockholder........................................................................25
                  (a)      No Stockholder Rights.................................................................25
</Table>

                                      iii
<PAGE>

<Table>
<S>                                                                                                             <C>
                  (b)      Representation of Ownership...........................................................25
         6.4      Listing and Registration of Shares of Common Stock.............................................25
         6.5      Change in Stock and Adjustments................................................................26
                  (a)      Changes in Law or Circumstances.......................................................26
                  (b)      Exercise of Corporate Powers..........................................................26
                  (c)      Recapitalization of the Company.......................................................26
                  (d)      Issue of Common Stock by the Company..................................................27
                  (e)      Assumption under the Plan of Outstanding Stock Options................................27
                  (f)      Assumption of Incentive Awards by a Successor.........................................27
         6.6      Termination of Employment, Death, Disability and Retirement....................................28
                  (a)      Termination of Employment.............................................................28
                  (b)      Termination of Employment for Cause...................................................29
                  (c)      Retirement............................................................................29
                  (d)      Disability or Death...................................................................29
                  (e)      Continuation..........................................................................29
         6.7      Change in Control..............................................................................30
         6.8      Exchange of Incentive Awards...................................................................32
         6.9      Financing......................................................................................32

SECTION 7 .  GENERAL.............................................................................................32

         7.1      Effective Date and Grant Period................................................................32
         7.2      Funding and Liability of Company...............................................................32
         7.3      Withholding Taxes..............................................................................33

                  (a)      Tax Withholding.......................................................................33
                  (b)      Share Withholding.....................................................................33
                  (c)      Incentive Stock Options...............................................................33
                  (d)      Loans.................................................................................33
         7.4      No Guarantee of Tax Consequences...............................................................33
         7.5      Designation of Beneficiary by Participant......................................................33
         7.6      Deferrals......................................................................................34
         7.7      Amendment and Termination......................................................................34
         7.8      Requirements of Law............................................................................35
                  (a)      Governmental Entities and Securities Exchanges........................................35
                  (b)      Securities Act Rule 701...............................................................35
         7.9      Rule 16b-3 Securities Law Compliance for Insiders..............................................35
         7.10     Compliance with Code Section 162(m) for Publicly Held Corporation..............................36
         7.11     Notices........................................................................................36
         7.12     Pre-Clearance Agreement with Brokers...........................................................36
         7.13     Successors to Company..........................................................................36
         7.14     Miscellaneous Provisions.......................................................................37
         7.15     Severability...................................................................................37
         7.16     Gender, Tense and Headings.....................................................................37
         7.17     Governing Law..................................................................................37
</Table>

                                       iv
<PAGE>

                               T3 ENERGY SERVICES
                            2002 STOCK INCENTIVE PLAN

                                   SECTION 1.

                         GENERAL PROVISIONS RELATING TO
                     PLAN GOVERNANCE, COVERAGE AND BENEFITS

1.1      BACKGROUND AND PURPOSE

         T-3 Energy Services, Inc., a Delaware corporation ("T-3"), entered into
an Agreement and Plan of Merger, dated as of May 7, 2001, and as subsequently
amended, by and among T-3, Industrial Holdings, Inc., a Texas corporation
("IHI"), and First Reserve Fund VIII, Limited Partnership, a Delaware limited
partnership (the "MERGER AGREEMENT").

         Pursuant to the Merger Agreement, the parties entered into a business
combination effected by a merger of T-3 into IHI, as a result of which the
separate existence of T-3 ceased and IHI was the surviving corporation (the
"MERGER"). Immediately after the consummation of the Merger, IHI merged into a
Delaware corporation which was a wholly owned subsidiary of IHI, and the
subsidiary survived and its name was changed to T-3 Energy Services, Inc., a
Delaware corporation (the "COMPANY"). Pursuant to the Merger Agreement, the
outstanding options to purchase T-3 Common Stock (collectively, the "T-3
OPTIONS") were converted into stock options to purchase shares of the Company's
Common Stock pursuant to an exchange formula set forth in the Merger Agreement.

         T-3 had previously adopted the "T-3 Energy Services, Inc. 2000 Stock
Option Plan" (the "T-3 PLAN"). IHI had previously adopted the "Industrial
Holdings, Inc. 1998 Incentive Plan" (the "IHI 1998 PLAN") and the "Industrial
Holdings, Inc. 1994 Amended and Restated Incentive Stock Plan" (the "IHI 1994
PLAN").

         The outstanding T-3 Options at the time of the Merger were assumed
under the IHI 1998 Plan at such time. Coincident with the assumption of the
outstanding T-3 Options under the IHI 1998 Plan, the T-3 Plan was merged into
the IHI 1998 Plan but only to the extent necessary for the purpose of construing
the applicable terms and conditions of the individual stock option agreements
for the outstanding T-3 Options to the extent that specific terms of such
agreements incorporate particular provisions of the T-3 Plan by reference.

         The Company amended and restated the IHI Plan under the form of the
plan document entitled "T-3 Energy Services 2002 Stock Incentive Plan" (the
"PLAN"), effective as of January 1, 2002 (the "EFFECTIVE DATE"), to reflect the
reorganization of the plan sponsor and to incorporate various other amendments
for the benefit of the Company and the participants in the Plan.

         Effective as of the Effective Date, the outstanding stock options under
the IHI 1994 Plan (the "IHI 1994 OPTIONS") were assumed under the Plan.
Coincident with the assumption of the outstanding IHI 1994 Options under the
Plan, the IHI 1994 Plan was merged into the Plan but only to the extent
necessary for the purpose of construing the applicable terms and conditions of

<PAGE>

the individual stock option agreements for the outstanding IHI 1994 Options to
the extent that specific terms of such agreements incorporate particular
provisions of the IHI 1994 Plan by reference.

         As of the Effective Date, all outstanding stock options that were
previously granted by T-3 and IHI and assumed and continued under the Plan, as
amended and restated, shall be subject to the applicable terms and conditions of
the Plan, as it may further be amended, and the individual stock option
agreements for each such option grant.

         The Company hereby again amends and restates the Plan under the form of
this plan document entitled "T-3 Energy Services 2002 Stock Incentive Plan, as
amended and restated effective July 30, 2002" (hereafter the term "PLAN" shall
refer to this Plan document), primarily to incorporate changes made by the
Sarbanes-Oxley Act of 2002 which was effective July 30, 2002.

         The purpose of the Plan is to foster and promote the long-term
financial success of T-3 Energy Services, Inc. (the "COMPANY") and to increase
stockholder value by: (a) encouraging the commitment of selected key Employees,
Consultants and Outside Directors, (b) motivating superior performance of key
Employees, Consultants and Outside Directors by means of long-term performance
related incentives, (c) encouraging and providing key Employees, Consultants and
Outside Directors with a program for obtaining ownership interests in the
Company which link and align their personal interests to those of the Company's
stockholders, (d) attracting and retaining key Employees, Consultants and
Outside Directors by providing competitive compensation opportunities, and (e)
enabling key Employees, Consultants and Outside Directors to share in the
long-term growth and success of the Company.

         The Plan provides for payment of various forms of compensation. It is
not intended to be a plan that is subject to the Employee Retirement Income
Security Act of 1974, as amended (ERISA). The Plan will be interpreted,
construed and administered consistent with its status as a plan that is not
subject to ERISA.

         The Plan will remain in effect, subject to the right of the Board to
amend or terminate the Plan at any time pursuant to Section 7.7, until all
Shares subject to the Plan have been purchased or acquired according to its
provisions. However, in no event may an Incentive Stock Option be granted under
the Plan after the expiration of ten (10) years from the Effective Date.

1.2      DEFINITIONS

         The following terms shall have the meanings set forth below:

                  (a) APPRECIATION. The difference between the option exercise
         price per share of the Nonstatutory Stock Option to which a Tandem SAR
         relates and the Fair Market Value of a share of Common Stock on the
         date of exercise of the Tandem SAR.

                                       2
<PAGE>

                  (b) AUTHORIZED OFFICER. The Chairman of the Board, the CEO or
         any other senior officer of the Company to whom either of them delegate
         the authority to execute any Incentive Agreement for and on behalf of
         the Company. No officer or director shall be an Authorized Officer with
         respect to any Incentive Agreement for himself.

                  (c) BOARD. The Board of Directors of the Company.

                  (d) CAUSE. When used in connection with the termination of a
         Grantee's Employment, shall mean the termination of the Grantee's
         Employment by the Company or any Subsidiary by reason of (i) the
         conviction of the Grantee by a court of competent jurisdiction as to
         which no further appeal can be taken of a crime involving moral
         turpitude or a felony; (ii) the proven commission by the Grantee of a
         material act of fraud upon the Company or any Subsidiary, or any
         customer or supplier thereof; (iii) the misappropriation of any funds
         or property of the Company or any Subsidiary, or any customer or
         supplier thereof; (iv) the willful and continued failure by the Grantee
         to perform the material duties assigned to him that is not cured to the
         reasonable satisfaction of the Company within 30 days after written
         notice of such failure is provided to Grantee by the Board or CEO (or
         by another officer of the Company or a Subsidiary who has been
         designated by the Board or CEO for such purpose); (v) the knowing
         engagement by the Grantee in any direct and material conflict of
         interest with the Company or any Subsidiary without compliance with the
         Company's or Subsidiary's conflict of interest policy, if any, then in
         effect; or (vi) the knowing engagement by the Grantee, without the
         written approval of the Board or CEO, in any material activity which
         competes with the business of the Company or any Subsidiary or which
         would result in a material injury to the business, reputation or
         goodwill of the Company or any Subsidiary.

                  (e) CEO. The Chief Executive Officer of the Company.

                  (f) CHANGE IN CONTROL. Any of the events described in and
         subject to Section 6.7.

                  (g) CODE. The Internal Revenue Code of 1986, as amended, and
         the regulations and other authority promulgated thereunder by the
         appropriate governmental authority. References herein to any provision
         of the Code shall refer to any successor provision thereto.

                  (h) COMMITTEE. A committee appointed by the Board consisting
         of at least one member as appointed by the Board to administer the
         Plan. While the Company is a Publicly Held Corporation, the Plan shall
         be administered by a committee appointed by the Board consisting of not
         less than two directors who fulfill the "nonemployee director"
         requirements of Rule 16b-3 under the Exchange Act and the "outside
         director" requirements of Section 162(m) of the Code. In either case,
         the Committee may be the Compensation Committee of the Board, or any
         subcommittee of the Compensation Committee, provided that the members
         of the Committee satisfy the requirements of the previous provisions of
         this paragraph.

                                       3
<PAGE>

                  The Board shall have the power to fill vacancies on the
         Committee arising by resignation, death, removal or otherwise. The
         Board, in its sole discretion, may bifurcate the powers and duties of
         the Committee among one or more separate committees, or retain all
         powers and duties of the Committee in a single Committee. The members
         of the Committee shall serve at the discretion of the Board.

                  Notwithstanding the preceding paragraphs of this Section
         1.2(h), the term "Committee" as used in the Plan with respect to any
         Incentive Award for an Outside Director shall refer to the entire
         Board. In the case of an Incentive Award for an Outside Director, the
         Board shall have all the powers and responsibilities of the Committee
         hereunder as to such Incentive Award, and any actions as to such
         Incentive Award may be acted upon only by the Board (unless it
         otherwise designates in its discretion). When the Board exercises its
         authority to act in the capacity as the Committee hereunder with
         respect to an Incentive Award for an Outside Director, it shall so
         designate with respect to any action that it undertakes in its capacity
         as the Committee.

                  (i) COMMON STOCK. The common stock of the Company, $.001 par
         value per share, and any class of common stock into which such common
         shares may hereafter be converted, reclassified or recapitalized.

                  (j) COMPANY. T-3 Energy Services, Inc. a corporation organized
         under the laws of the State of Delaware, and any successor in interest
         thereto.

                  (k) CONSULTANT. AN INDEPENDENT AGENT, CONSULTANT, ATTORNEY, AN
         INDIVIDUAL WHO HAS AGREED TO BECOME AN EMPLOYEE WITHIN THE NEXT SIX
         MONTHS, OR ANY OTHER INDIVIDUAL WHO IS NOT AN OUTSIDE DIRECTOR OR
         EMPLOYEE OF THE COMPANY (OR ANY PARENT OR SUBSIDIARY) AND WHO, IN THE
         OPINION OF THE COMMITTEE, IS IN A POSITION TO CONTRIBUTE TO THE GROWTH
         OR FINANCIAL SUCCESS OF THE COMPANY (OR ANY PARENT OR SUBSIDIARY), (ii)
         IS A NATURAL PERSON AND (iii) PROVIDES BONA FIDE SERVICES TO THE
         COMPANY (OR ANY PARENT OR SUBSIDIARY), WHICH SERVICES ARE NOT IN
         CONNECTION WITH THE OFFER OR SALE OF SECURITIES IN A CAPITAL RAISING
         TRANSACTION, AND DO NOT DIRECTLY OR INDIRECTLY PROMOTE OR MAINTAIN A
         MARKET FOR THE COMPANY'S SECURITIES.

                  (l) COVERED EMPLOYEE. A named executive officer who is one of
         the group of covered employees, as defined in Section 162(m) of the
         Code and Treasury Regulation Section 1.162-27(c) (or its successor),
         during any period that the Company is a Publicly Held Corporation.

                  (m) DEFERRED STOCK. Shares of Common Stock to be issued or
         transferred to a Grantee under an Other Stock-Based Award granted
         pursuant to Section 5 at the end of a specified deferral period, as set
         forth in the Incentive Agreement pertaining thereto.

                  (n) DISABILITY. As determined by the Committee in its
         discretion exercised in good faith, a physical or mental condition of
         the Grantee that would entitle him to payment of disability income
         payments under the Company's long term disability insurance policy or
         plan for employees, as then effective, if any; or in the event that the
         Grantee is not covered, for whatever reason, under the Company's
         long-term disability

                                       4
<PAGE>

         insurance policy or plan, "Disability" means a permanent and total
         disability as defined in Section 22(e)(3) of the Code. A determination
         of Disability may be made by a physician selected or approved by the
         Committee and, in this respect, the Grantee shall submit to any
         reasonable examination by such physician upon request.

                  (o) EMPLOYEE. Any employee of the Company (or any Parent or
         Subsidiary) within the meaning of Section 3401 (c) of the Code who, in
         the opinion of the Committee, is in a position to contribute to the
         growth, development or financial success of the Company (or any Parent
         or Subsidiary), including, without limitation, officers who are members
         of the Board.

                  (p) EMPLOYMENT. Employment means that the individual is
         employed as an Employee, or engaged as a Consultant or Outside
         Director, by the Company (or any Parent or Subsidiary), or by any
         corporation issuing or assuming an Incentive Award in any transaction
         described in Section 424(a) of the Code, or by a parent corporation or
         a subsidiary corporation of such corporation issuing or assuming such
         Incentive Award, as the parent-subsidiary relationship shall be
         determined at the time of the corporate action described in Section
         424(a) of the Code. In this regard, neither the transfer of a Grantee
         from Employment by the Company to Employment by any Parent or
         Subsidiary, nor the transfer of a Grantee from Employment by any Parent
         or Subsidiary to Employment by the Company, shall be deemed to be a
         termination of Employment of the Grantee. Moreover, the Employment of a
         Grantee shall not be deemed to have been terminated because of an
         approved leave of absence from active Employment on account of
         temporary illness, authorized vacation or granted for reasons of
         professional advancement, education, or health, or during any period
         required to be treated as a leave of absence by virtue of any
         applicable statute, Company personnel policy or written agreement.

                  The term "Employment" for all purposes of the Plan shall
         include (i) active performance of agreed services by a Consultant for
         the Company (or any Parent or Subsidiary) and (ii) current membership
         on the Board by an Outside Director.

                  All determinations regarding Employment, and the termination
         of Employment hereunder, shall be determined by the Committee in its
         discretion.

                  (q) EXCHANGE ACT. The Securities Exchange Act of 1934, as
         amended.

                  (r) FAIR MARKET VALUE. While the Company is a Publicly Held
         Corporation, the Fair Market Value of one share of Common Stock on the
         date in question is deemed to be (i) the closing sales price on the
         immediately preceding business day of a share of Common Stock as
         reported on the New York Stock Exchange or other principal securities
         exchange on which Shares are then listed or admitted to trading, or
         (ii) the closing sales price for a Share on the date of grant as quoted
         on the National Association of Securities Dealers Automated Quotation
         System ("NASDAQ"), or (iii) if not quoted on NASDAQ, the average of the
         closing bid and asked prices for a Share as quoted by the National
         Quotation Bureau's "Pink Sheets" or the National Association of
         Securities Dealers' OTC Bulletin Board System. If there was no public
         trade of Common Stock on

                                       5
<PAGE>

         the date in question, Fair Market Value shall be determined by
         reference to the last preceding date on which such a trade was so
         reported.

                  If the Company is not a Publicly Held Corporation at the time
         a determination of the Fair Market Value of the Common Stock is
         required to be made hereunder, the determination of Fair Market Value
         for purposes of the Plan shall be made by the Committee in its sole and
         absolute discretion. In this respect, the Committee may rely on such
         financial data, appraisals, valuations, experts, and other sources as,
         in its sole and absolute discretion, it deems advisable under the
         circumstances.

                  (s) GRANTEE. Any Employee, Consultant or Outside Director who
         is granted an Incentive Award under the Plan.

                  (t) IMMEDIATE FAMILY. With respect to a Grantee, the Grantee's
         child, stepchild, grandchild, parent, stepparent, grandparent, spouse,
         former spouse, sibling, mother-in-law, father-in-law, son-in-law,
         daughter-in-law, brother-in-law, or sister-in-law, including adoptive
         relationships.

                  (u) INCENTIVE AWARD. A grant of an award under the Plan to a
         Grantee, including any Nonstatutory Stock Option, Incentive Stock
         Option, Reload Option, Stock Appreciation Right, Restricted Stock
         Award, Performance Unit, Performance Share, or Other Stock-Based Award,
         as well as any Supplemental Payment.

                  (v) INCENTIVE AGREEMENT. The written agreement entered into
         between the Company and the Grantee setting forth the terms and
         conditions pursuant to which an Incentive Award is granted under the
         Plan, as such agreement is further defined in Section 6.1(a).

                  (w) INCENTIVE STOCK OPTION OR ISO. A Stock Option granted by
         the Committee to an Employee under Section 2 which is designated by the
         Committee as an Incentive Stock Option and intended to qualify as an
         Incentive Stock Option under Section 422 of the Code.

                  (x) INDEPENDENT SAR. A Stock Appreciation Right described in
         Section 2.5.

                  (y) INSIDER. If the Company is a Publicly Held Corporation, an
         individual who is, on the relevant date, an officer, director or ten
         percent (10%) beneficial owner of any class of the Company's equity
         securities that is registered pursuant to Section 12 of the Exchange
         Act, all as defined under Section 16 of the Exchange Act.

                  (z) NONSTATUTORY STOCK OPTION. A Stock Option granted by the
         Committee to a Grantee under Section 2 that is not designated by the
         Committee as an Incentive Stock Option.

                  (aa) OPTION PRICE. The exercise price at which a Share may be
         purchased by the Grantee of a Stock Option.

                                       6
<PAGE>

                  (bb) OTHER STOCK-BASED AWARD. An award granted by the
         Committee to a Grantee under Section 5.1 that is valued in whole or in
         part by reference to, or is otherwise based upon, Common Stock.

                  (cc) OUTSIDE DIRECTOR. A member of the Board who is not, at
         the time of grant of an Incentive Award, an employee of the Company or
         any Parent or Subsidiary.

                  (dd) PARENT. Any corporation (whether now or hereafter
         existing) which constitutes a "parent" of the Company, as defined in
         Section 424(e) of the Code.

                  (ee) PERFORMANCE-BASED EXCEPTION. The performance-based
         exception from the tax deductibility limitations of Section 162(m) of
         the Code, as prescribed in Section 162(m) and Treasury Regulation
         Section 1.162-27(e) (or its successor), which is applicable during such
         period that the Company is a Publicly Held Corporation.

                  (ff) PERFORMANCE PERIOD. A period of time determined by the
         Committee over which performance is measured for the purpose of
         determining a Grantee's right to and the payment value of any
         Performance Unit, Performance Share or Other Stock-Based Award.

                  (gg) PERFORMANCE SHARE OR PERFORMANCE UNIT. An Incentive Award
         representing a contingent right to receive cash or shares of Common
         Stock (which may be Restricted Stock) at the end of a Performance
         Period and which, in the case of Performance Shares, is denominated in
         Common Stock, and, in the case of Performance Units, is denominated in
         cash values.

                  (hh) PLAN. T3 Energy Services 2002 Stock Incentive Plan, as
         effective January 1, 2002, as set forth herein and as it may be amended
         from time to time.

                  (ii) PUBLICLY HELD CORPORATION. A corporation issuing any
         class of common equity securities required to be registered under
         Section 12 of the Exchange Act.

                  (jj) RESTRICTED STOCK. Shares of Common Stock issued or
         transferred to a Grantee pursuant to Section 3.

                  (kk) RESTRICTED STOCK AWARD. An authorization by the Committee
         to issue or transfer Restricted Stock to a Grantee.

                  (ll) RESTRICTION PERIOD. The period of time determined by the
         Committee and set forth in the Incentive Agreement during which the
         transfer of Restricted Stock by the Grantee is restricted.

                  (mm) RETIREMENT. The voluntary termination of Employment from
         the Company or any Parent or Subsidiary constituting retirement for age
         on any date after the Employee attains the normal retirement age of 65
         years, or such other age as may be designated by the Committee in the
         Employee's Incentive Agreement.

                  (nn) SHARE. A share of the Common Stock of the Company.

                                       7
<PAGE>

                  (oo) SHARE POOL. The number of shares authorized for issuance
         under Section 1.4, as adjusted for awards and payouts under Section 1.5
         and as adjusted for changes in corporate capitalization under Section
         6.5.

                  (pp) SPREAD. The difference between the exercise price per
         Share specified in any Independent SAR grant and the Fair Market Value
         of a Share on the date of exercise of the Independent SAR.

                  (qq) STOCK APPRECIATION RIGHT OR SAR. A Tandem SAR described
         in Section 2.4 or an Independent SAR described in Section 2.5.

                  (rr) STOCK OPTION OR OPTION. Pursuant to Section 2, (i) an
         Incentive Stock Option granted to an Employee, or (ii) a Nonstatutory
         Stock Option granted to an Employee, Consultant or Outside Director,
         whereunder such option the Grantee has the right to purchase Shares of
         Common Stock. In accordance with Section 422 of the Code, only an
         Employee may be granted an Incentive Stock Option.

                  (ss) SUBSIDIARY. Any corporation (whether now or hereafter
         existing) which constitutes a "subsidiary" of the Company, as defined
         in Section 424(f) of the Code.

                  (tt) SUPPLEMENTAL PAYMENT. Any amount, as described in
         Sections 2.7. 3.4 and/or 4.2, that is dedicated to payment of income
         taxes which are payable by the Grantee resulting from an Incentive
         Award.

                  (uu) TANDEM SAR. A Stock Appreciation Right that is granted in
         connection with a related Stock Option pursuant to Section 2.4, the
         exercise of which shall require forfeiture of the right to purchase a
         Share under the related Stock Option (and when a Share is purchased
         under the Stock Option, the Tandem SAR shall similarly be canceled).

1.3      PLAN ADMINISTRATION

                  (a) AUTHORITY OF THE COMMITTEE. Except as may be limited by
         law and subject to the provisions herein, the Committee shall have full
         power to (i) select Grantees who shall participate in the Plan; (ii)
         determine the sizes, duration and types of Incentive Awards; (iii)
         determine the terms and conditions of Incentive Awards and Incentive
         Agreements; (iv) determine whether any Shares subject to Incentive
         Awards will be subject to any restrictions on transfer; (v) construe
         and interpret the Plan and any Incentive Agreement or other agreement
         entered into under the Plan; and (vi) establish, amend, or waive rules
         for the Plan's administration. Further, the Committee shall make all
         other determinations which may be necessary or advisable for the
         administration of the Plan.

                  (b) MEETINGS. The Committee shall designate a chairman from
         among its members who shall preside at all of its meetings, and shall
         designate a secretary, without regard to whether that person is a
         member of the Committee, who shall keep the minutes of the proceedings
         and all records, documents, and data pertaining to its administration
         of the Plan. Meetings shall be held at such times and places as shall
         be determined by the Committee and the Committee may hold telephonic
         meetings. The Committee may take

                                       8
<PAGE>

         any action otherwise proper under the Plan by the affirmative vote,
         taken with or without a meeting, of a majority of its members. The
         Committee may authorize any one or more of their members or any officer
         of the Company to execute and deliver documents on behalf of the
         Committee.

                  (c) DECISIONS BINDING. All determinations and decisions made
         by the Committee shall be made in its discretion pursuant to the
         provisions of the Plan, and shall be final, conclusive and binding on
         all persons including the Company, its shareholders, Employees,
         Grantees, and their estates and beneficiaries. The Committee's
         decisions and determinations with respect to any Incentive Award need
         not be uniform and may be made selectively among Incentive Awards and
         Grantees, whether or not such Incentive Awards are similar or such
         Grantees are similarly situated.

                  (d) MODIFICATION OF OUTSTANDING INCENTIVE AWARDS. Subject to
         the stockholder approval requirements of Section 7.7 if applicable, the
         Committee may, in its discretion, provide for the extension of the
         exercisability of an Incentive Award, accelerate the vesting or
         exercisability of an Incentive Award, eliminate or make less
         restrictive any restrictions contained in an Incentive Award, waive any
         restriction or other provisions of an Incentive Award, or otherwise
         amend or modify an Incentive Award in any manner that is either (i) not
         adverse to the Grantee to whom such Incentive Award was granted or (ii)
         consented to by such Grantee. With respect to an Incentive Award that
         is an incentive stock option (as described in Section 422 of the Code),
         no adjustment to such option shall be made to the extent constituting a
         "modification" within the meaning of Section 424(h)(3) of the Code
         unless otherwise agreed to by the optionee in writing.

                  (e) DELEGATION OF AUTHORITY. The Committee may delegate to
         designated officers or other employees of the Company any of its duties
         and authority under the Plan pursuant to such conditions or limitations
         as the Committee may establish from time to time; provided, however,
         the Committee may not delegate to any person the authority (i) to grant
         Incentive Awards or (ii) if the Company is a Publicly Held Corporation,
         to take any action which would contravene the requirements of Rule
         16b-3 under the Exchange Act, the Performance-Based Exception under
         Section 162(m) of the Code, or the Sarbanes-Oxley Act of 2002.

                  (f) EXPENSES OF COMMITTEE. The Committee may employ legal
         counsel, including, without limitation, independent legal counsel and
         counsel regularly employed by the Company, and other agents as the
         Committee may deem appropriate for the administration of the Plan. The
         Committee may rely upon any opinion or computation received from any
         such counsel or agent. All expenses incurred by the Committee in
         interpreting and administering the Plan, including, without limitation,
         meeting expenses and professional fees, shall be paid by the Company.

                  (g) SURRENDER OF PREVIOUS INCENTIVE AWARDS. The Committee may,
         in its absolute discretion, grant Incentive Awards to Grantees on the
         condition that such Grantees surrender to the Committee for
         cancellation such other Incentive Awards (including, without
         limitation, Incentive Awards with higher exercise prices) as the
         Committee directs. Incentive Awards granted on the condition precedent
         of surrender of

                                       9
<PAGE>

         outstanding Incentive Awards shall not count against the limits set
         forth in Section 1.4 until such time as such previous Incentive Awards
         are surrendered and cancelled.

                  (h) INDEMNIFICATION. Each person who is or was a member of the
         Committee, or of the Board, shall be indemnified by the Company against
         and from any damage, loss, liability, cost and expense that may be
         imposed upon or reasonably incurred by him in connection with or
         resulting from any claim, action, suit, or proceeding to which he may
         be a party or in which he may be involved by reason of any action taken
         or failure to act under the Plan, except for any such act or omission
         constituting willful misconduct or gross negligence. Such person shall
         be indemnified by the Company for all amounts paid by him in settlement
         thereof, with the Company's approval, or paid by him in satisfaction of
         any judgment in any such action, suit, or proceeding against him,
         provided he shall give the Company an opportunity, at its own expense,
         to handle and defend the same before he undertakes to handle and defend
         it on his own behalf. The foregoing right of indemnification shall not
         be exclusive of any other rights of indemnification to which such
         persons may be entitled under the Company's Articles or Certificate of
         Incorporation or Bylaws, as a matter of law, or otherwise, or any power
         that the Company may have to indemnify them or hold them harmless.

1.4      SHARES OF COMMON STOCK AVAILABLE FOR INCENTIVE AWARDS

         Subject to adjustment under Section 6.5, there shall be available for
Incentive Awards that are granted wholly or partly in Common Stock (including
rights or Stock Options that may be exercised for or settled in Common Stock)
One Million (1,000,000) Shares of Common Stock. The number of Shares of Common
Stock that are the subject of Incentive Awards under this Plan, which are
forfeited or terminated, expire unexercised, are settled in cash in lieu of
Common Stock or in a manner such that all or some of the Shares covered by an
Incentive Award are not issued to a Grantee or are exchanged for Incentive
Awards that do not involve Common Stock, shall again immediately become
available for Incentive Awards hereunder. The aggregate number of Shares which
may be issued upon exercise of ISOs shall be One Million (1,000,000) of the
Shares reserved pursuant to the first sentence of this paragraph. The Committee
may from time to time adopt and observe such procedures concerning the counting
of Shares against the Plan maximum as it may deem appropriate.

         During any period that the Company is a Publicly Held Corporation, then
unless and until the Committee determines that a particular Incentive Award
granted to a Covered Employee is not intended to comply with the
Performance-Based Exception, the following rules shall apply to grants of
Incentive Awards to Covered Employees:

                  (a) Subject to adjustment as provided in Section 6.5, the
         maximum aggregate number of Shares of Common Stock (including Stock
         Options, SARs, Restricted Stock, Performance Units and Performance
         Shares paid out in Shares, or Other Stock-Based Awards paid out in
         Shares) that may be granted or that may vest, as applicable, in any
         calendar year pursuant to any Incentive Award held by any individual
         Covered Employee shall be One Million (1,000,000) Shares.

                                       10
<PAGE>

                  (b) The maximum aggregate cash payout (including SARs,
         Performance Units and Performance Shares paid out in cash, or Other
         Stock-Based Awards paid out in cash) with respect to Incentive Awards
         granted in any calendar year which may be made to any Covered Employee
         shall be Twenty Million dollars ($20,000,000).

                  (c) With respect to any Stock Option or Stock Appreciation
         Right granted to a Covered Employee that is canceled or repriced, the
         number of Shares subject to such Stock Option or Stock Appreciation
         Right shall continue to count against the maximum number of Shares that
         may be the subject of Stock Options or Stock Appreciation Rights
         granted to such Covered Employee hereunder and, in this regard, such
         maximum number shall be determined in accordance with Section 162(m) of
         the Code.

                  (d) The limitations of subsections (a), (b) and (c) above
         shall be construed and administered so as to comply with the
         Performance-Based Exception.

1.5      SHARE POOL ADJUSTMENTS FOR AWARDS AND PAYOUTS.

         The following Incentive Awards and payouts shall reduce, on a one Share
for one Share basis, the number of Shares authorized for issuance under the
Share Pool:

                  (a)      Stock Option;

                  (b)      SAR (except a Tandem SAR);

                  (c)      Restricted Stock;

                  (d)      A payout of a Performance Share in Shares;

                  (e)      A payout of a Performance Unit in Shares; and

                  (f)      A payout of an Other Stock-Based Award in Shares.

         The following transactions shall restore, on a one Share for one Share
basis, the number of Shares authorized for issuance under the Share Pool:

                  (a) A Payout of a SAR, Tandem SAR, Restricted Stock Award, or
         Other Stock-Based Award in the form of cash;

                  (b) A cancellation, termination, expiration, forfeiture, or
         lapse for any reason (with the exception of the termination of a Tandem
         SAR upon exercise of the related Stock Option, or the termination of a
         related Stock Option upon exercise of the corresponding Tandem SAR) of
         any Shares subject to an Incentive Award; and

                  (c) Payment of an Option Price with previously acquired Shares
         or by withholding Shares which otherwise would be acquired on exercise
         (i.e., the Share Pool shall be increased by the number of Shares turned
         in or withheld as payment of the Option Price).

                                       11
<PAGE>

1.6      COMMON STOCK AVAILABLE.

         The Common Stock available for issuance or transfer under the Plan
shall be made available from Shares now or hereafter (a) held in the treasury of
the Company, (b) authorized but unissued shares, or (c) shares to be purchased
or acquired by the Company. No fractional shares shall be issued under the Plan;
payment for fractional shares shall be made in cash.

1.7      PARTICIPATION

                  (a) ELIGIBILITY. The Committee shall from time to time
         designate those Employees, Consultants and/or Outside Directors, if
         any, to be granted Incentive Awards under the Plan, the type of
         Incentive Awards granted, the number of Shares, Stock Options, rights
         or units, as the case may be, which shall be granted to each such
         person, and any other terms or conditions relating to the Incentive
         Awards as it may deem appropriate to the extent consistent with the
         provisions of the Plan. A Grantee who has been granted an Incentive
         Award may, if otherwise eligible, be granted additional Incentive
         Awards at any time. No Insider shall be eligible to be granted an
         Incentive Award that is subject to Rule 16a-3 under the Exchange Act
         unless and until such Insider has granted a limited power of attorney
         to those officers of the Company who have been designated by the
         Committee for purposes of future required filings under the Exchange
         Act.

                  (b) INCENTIVE STOCK OPTION ELIGIBILITY. No Consultant or
         Outside Director shall be eligible for the grant of any Incentive Stock
         Option. In addition, no Employee shall be eligible for the grant of any
         Incentive Stock Option who owns or would own immediately before the
         grant of such Incentive Stock Option, directly or indirectly, stock
         possessing more than ten percent (10%) of the total combined voting
         power of all classes of stock of the Company, or any Parent or
         Subsidiary. This restriction does not apply if, at the time such
         Incentive Stock Option is granted, the Incentive Stock Option exercise
         price is at least one hundred and ten percent (110%) of the Fair Market
         Value on the date of grant and the Incentive Stock Option by its terms
         is not exercisable after the expiration of five (5) years from the date
         of grant. For the purpose of the immediately preceding sentence, the
         attribution rules of Section 424(d) of the Code shall apply for the
         purpose of determining an Employee's percentage ownership in the
         Company or any Parent or Subsidiary. This paragraph shall be construed
         consistent with the requirements of Section 422 of the Code.

1.8      TYPES OF INCENTIVE AWARDS

         The types of Incentive Awards under the Plan are Stock Options, Stock
Appreciation Rights and Supplemental Payments as described in Section 2,
Restricted Stock and Supplemental Payments as described in Section 3,
Performance Units, Performance Shares and Supplemental Payments as described in
Section 4, Other Stock-Based Awards and Supplemental Payments as described in
Section 5, or any combination of the foregoing.

                                       12
<PAGE>

                                   SECTION 2.

                   STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

2.1      GRANT OF STOCK OPTIONS

         The Committee is authorized to grant (a) Nonstatutory Stock Options to
Employees, Consultants and/or Outside Directors and (b) Incentive Stock Options
to Employees only, in accordance with the terms and conditions of the Plan, and
with such additional terms and conditions, not inconsistent with the Plan, as
the Committee shall determine in its discretion. Successive grants may be made
to the same Grantee whether or not any Stock Option previously granted to such
person remains unexercised.

2.2      STOCK OPTION TERMS

                  (a) WRITTEN AGREEMENT. Each grant of a Stock Option shall be
         evidenced by a written Incentive Agreement. Among its other provisions,
         each Incentive Agreement shall set forth the extent to which the
         Grantee shall have the right to exercise the Stock Option following
         termination of the Grantee's Employment. Such provisions shall be
         determined in the discretion of the Committee, shall be included in the
         Grantee's Incentive Agreement, and need not be uniform among all Stock
         Options issued pursuant to the Plan.

                  (b) NUMBER OF SHARES. Each Stock Option shall specify the
         number of Shares of Common Stock to which it pertains.

                  (c) EXERCISE PRICE. The exercise price per Share of Common
         Stock under each Stock Option shall be determined by the Committee;
         provided, however, that in the case of an Incentive Stock Option, such
         exercise price shall not be less than 100% of the Fair Market Value per
         Share on the date the Incentive Stock Option is granted (110% for 10%
         or greater shareholders pursuant to Section 1.7(b)). To the extent that
         the Company is a Publicly Held Corporation and the Stock Option is
         intended to qualify for the Performance-Based Exception, the exercise
         price shall not be less than 100% of the Fair Market Value per Share on
         the date the Stock Option is granted. Each Stock Option shall specify
         the method of exercise which shall be consistent with the requirements
         of Section 2.3(a).

                  (d) TERM. In the Incentive Agreement, the Committee shall fix
         the term of each Stock Option (which shall be not more than ten (10)
         years from the date of grant for ISO grants; five (5) years for ISO
         grants to 10% or greater shareholders pursuant to Section 1.7(b)). In
         the event no term is fixed, such term shall be ten (10) years from the
         date of grant.

                  (e) EXERCISE. The Committee shall determine the time or times
         at which a Stock Option may be exercised in whole or in part. Each
         Stock Option may specify the required period of continuous Employment
         and/or the performance objectives to be achieved before the Stock
         Option or portion thereof will become exercisable. Each Stock Option,
         the exercise of which, or the timing of the exercise of which, is
         dependent, in

                                       13
<PAGE>

         whole or in part, on the achievement of designated performance
         objectives, may specify a minimum level of achievement in respect of
         the specified performance objectives below which no Stock Options will
         be exercisable and a method for determining the number of Stock Options
         that will be exercisable if performance is at or above such minimum but
         short of full achievement of the performance objectives. All such terms
         and conditions shall be set forth in the Incentive Agreement.

                  (f) $100,000 ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS.
         Notwithstanding any contrary provision in the Plan, to the extent that
         the aggregate Fair Market Value (determined as of the time the
         Incentive Stock Option is granted) of the Shares of Common Stock with
         respect to which Incentive Stock Options are exercisable for the first
         time by any Grantee during any single calendar year (under the Plan and
         any other stock option plans of the Company and its Subsidiaries or
         Parent) exceeds the sum of $100,000, such Incentive Stock Option shall
         be treated as a Nonstatutory Stock Option to the extent in excess of
         the $100,000 limit, and not an Incentive Stock Option, but all other
         terms and provisions of such Stock Option shall remain unchanged. This
         paragraph shall be applied by taking Incentive Stock Options into
         account in the order in which they were granted and shall be construed
         in accordance with Section 422(d) of the Code. In the absence of such
         regulations or other authority, or if such regulations or other
         authority require or permit a designation of the Options which shall
         cease to constitute Incentive Stock Options, then such Incentive Stock
         Options, only to the extent of such excess, shall automatically be
         deemed to be Nonstatutory Stock Options but all other terms and
         conditions of such Incentive Stock Options, and the corresponding
         Incentive Agreement, shall remain unchanged.

2.3      STOCK OPTION EXERCISES

                  (a) METHOD OF EXERCISE AND PAYMENT. Stock Options shall be
         exercised by the delivery of a signed written notice of exercise to the
         Company as of a date set by the Company in advance of the effective
         date of the proposed exercise. The notice shall set forth the number of
         Shares with respect to which the Option is to be exercised, accompanied
         by full payment for the Shares.

                  The Option Price upon exercise of any Stock Option shall be
         payable to the Company in full either: (i) in cash or its equivalent;
         or (ii) subject to prior approval by the Committee in its discretion,
         by tendering previously acquired Shares having an aggregate Fair Market
         Value at the time of exercise equal to the Option Price (provided that
         the Shares which are tendered must have been held by the Grantee for at
         least six (6) months prior to their tender to satisfy the Option
         Price); or (iii) subject to prior approval by the Committee in its
         discretion, by withholding Shares which otherwise would be acquired on
         exercise having an aggregate Fair Market Value at the time of exercise
         equal to the total Option Price; or (iv) subject to prior approval by
         the Committee in its discretion, by a combination of (i), (ii), and
         (iii) above.

                  Any payment in Shares shall be effected by the surrender of
         such Shares to the Company in good form for transfer and shall be
         valued at their Fair Market Value on the date when the Stock Option is
         exercised. Unless otherwise permitted by the Committee in

                                       14
<PAGE>

         its discretion, the Grantee shall not surrender, or attest to the
         ownership of, Shares in payment of the Option Price if such action
         would cause the Company to recognize compensation expense (or
         additional compensation expense) with respect to the Stock Option for
         financial reporting purposes.

                  The Committee, in its discretion, also may allow the Option
         Price to be paid with such other consideration as shall constitute
         lawful consideration for the issuance of Shares (including, without
         limitation, effecting a "cashless exercise" with a broker of the
         Option), subject to applicable securities law restrictions and tax
         withholdings, or by any other means which the Committee determines to
         be consistent with the Plan's purpose and applicable law. A "cashless
         exercise" of an Option is a procedure by which a broker provides the
         funds to the Grantee to effect an Option exercise, to the extent
         consented to by the Committee in its discretion. At the direction of
         the Grantee, the broker will either (i) sell all of the Shares received
         when the Option is exercised and pay the Grantee the proceeds of the
         sale (minus the Option Price, withholding taxes and any fees due to the
         broker); or (ii) sell enough of the Shares received upon exercise of
         the Option to cover the Option Price, withholding taxes and any fees
         due the broker and deliver to the Grantee (either directly or through
         the Company) a stock certificate for the remaining Shares. Dispositions
         to a broker effecting a cashless exercise are not exempt under Section
         16 of the Exchange Act if the Company is a Publicly Held Corporation.
         In no event will the Committee allow the Option Price to be paid with a
         form of consideration, including a loan or a "cashless exercise," if
         such form of consideration would violate the Sarbanes-Oxley Act of 2002
         as determined by the Committee in its discretion.

                  As soon as practicable after receipt of a written notification
         of exercise and full payment, the Company shall deliver, or cause to be
         delivered, to or on behalf of the Grantee, in the name of the Grantee
         or other appropriate recipient, evidence of ownership for the number of
         Shares purchased under the Stock Option.

                  Subject to Section 6.2, during the lifetime of a Grantee, each
         Option granted to him shall be exercisable only by the Grantee (or his
         legal guardian in the event of his Disability) or by a broker-dealer
         acting on his behalf pursuant to a cashless exercise under the
         foregoing provisions of this Section 2.3(a).

                  (b) RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may
         impose such restrictions on any grant of Stock Options or on any Shares
         acquired pursuant to the exercise of a Stock Option as it may deem
         advisable, including, without limitation, restrictions under (i) any
         stockholders' agreement, buy/sell agreement, right of first refusal,
         non-competition, and any other agreement between the Company and any of
         its securities holders or employees; (ii) any applicable federal
         securities laws; (iii) the requirements of any stock exchange or market
         upon which such Shares are then listed and/or traded; or (iv) any blue
         sky or state securities law applicable to such Shares. Any certificate
         issued to evidence Shares issued upon the exercise of an Incentive
         Award may bear such legends and statements as the Committee shall deem
         advisable to assure compliance with federal and state laws and
         regulations.

                                       15
<PAGE>

                  Any Grantee or other person exercising an Incentive Award may
         be required by the Committee to give a written representation that the
         Incentive Award and the Shares subject to the Incentive Award will be
         acquired for investment and not with a view to public distribution;
         provided, however, that the Committee, in its sole discretion, may
         release any person receiving an Incentive Award from any such
         representations either prior to or subsequent to the exercise of the
         Incentive Award.

                  (c) NOTIFICATION OF DISQUALIFYING DISPOSITION OF SHARES FROM
         INCENTIVE STOCK OPTIONS. Notwithstanding any other provision of the
         Plan, a Grantee who disposes of Shares of Common Stock acquired upon
         the exercise of an Incentive Stock Option by a sale or exchange either
         (i) within two (2) years after the date of the grant of the Incentive
         Stock Option under which the Shares were acquired or (ii) within one
         (1) year after the transfer of such Shares to him pursuant to exercise,
         shall promptly notify the Company of such disposition, the amount
         realized and his adjusted basis in such Shares.

                  (d) PROCEEDS OF OPTION EXERCISE. The proceeds received by the
         Company from the sale of Shares pursuant to Stock Options exercised
         under the Plan shall be used for general corporate purposes.

2.4      STOCK APPRECIATION RIGHTS IN TANDEM WITH NONSTATUTORY STOCK OPTIONS

                  (a) GRANT. The Committee may, at the time of grant of a
         Nonstatutory Stock Option, or at any time thereafter during the term of
         the Nonstatutory Stock Option, grant Stock Appreciation Rights with
         respect to all or any portion of the Shares of Common Stock covered by
         such Nonstatutory Stock Option. A Stock Appreciation Right in tandem
         with a Nonstatutory Stock Option is referred to herein as a "Tandem
         SAR."

                  (b) GENERAL PROVISIONS. The terms and conditions of each
         Tandem SAR shall be evidenced by an Incentive Agreement. The Option
         Price per Share of a Tandem SAR shall be fixed in the Incentive
         Agreement and shall not be less than one hundred percent (100%) of the
         Fair Market Value of a Share on the grant date of the Nonstatutory
         Stock Option to which it relates.

                  (c) EXERCISE. A Tandem SAR may be exercised at any time the
         Nonstatutory Stock Option to which it relates is then exercisable, but
         only to the extent such Nonstatutory Stock Option is exercisable, and
         shall otherwise be subject to the conditions applicable to such
         Nonstatutory Stock Option. When a Tandem SAR is exercised, the
         Nonstatutory Stock Option to which it relates shall terminate to the
         extent of the number of Shares with respect to which the Tandem SAR is
         exercised. Similarly, when a Nonstatutory Stock Option is exercised,
         the Tandem SARs relating to the Shares covered by such Nonstatutory
         Stock Option exercise shall terminate. Any Tandem SAR which is
         outstanding on the last day of the term of the related Nonstatutory
         Stock Option shall be automatically exercised on such date for cash,
         without the need for any action by the Grantee, to the extent of any
         Appreciation.

                  (d) SETTLEMENT. Upon exercise of a Tandem SAR, the holder
         shall receive, for each Share with respect to which the Tandem SAR is
         exercised, an amount equal to the

                                       16
<PAGE>

         Appreciation. The Appreciation shall be payable in cash, Common Stock,
         or a combination of both, as specified in the Incentive Agreement (or
         in the discretion of the Committee if not so specified). The
         Appreciation shall be paid within 30 calendar days of the exercise of
         the Tandem SAR. The number of Shares of Common Stock which shall be
         issuable upon exercise of a Tandem SAR shall be determined by dividing
         (1) by (2), where (1) is the number of Shares as to which the Tandem
         SAR is exercised multiplied by the Appreciation in such shares and (2)
         is the Fair Market Value of a Share on the exercise date.

2.5      STOCK APPRECIATION RIGHTS INDEPENDENT OF NONSTATUTORY STOCK OPTIONS

                  (a) GRANT. The Committee may grant Stock Appreciation Rights
         independent of Nonstatutory Stock Options ("Independent SARs").

                  (b) GENERAL PROVISIONS. The terms and conditions of each
         Independent SAR shall be evidenced by an Incentive Agreement. The
         exercise price per share of Common Stock shall be not less than one
         hundred percent (100%) of the Fair Market Value of a Share of Common
         Stock on the date of grant of the Independent SAR. The term of an
         Independent SAR shall be determined by the Committee.

                  (c) EXERCISE. Independent SARs shall be exercisable at such
         time and subject to such terms and conditions as the Committee shall
         specify in the Incentive Agreement for the Independent SAR grant.

                  (d) SETTLEMENT. Upon exercise of an Independent SAR, the
         holder shall receive, for each Share specified in the Independent SAR
         grant, an amount equal to the Spread. The Spread shall be payable in
         cash, Common Stock, or a combination of both, in the discretion of the
         Committee or as specified in the Incentive Agreement. The Spread shall
         be paid within 30 calendar days of the exercise of the Independent SAR.
         The number of Shares of Common Stock which shall be issuable upon
         exercise of an Independent SAR shall be determined by dividing (1) by
         (2), where (1) is the number of Shares as to which the Independent SAR
         is exercised multiplied by the Spread in such Shares and (2) is the
         Fair Market Value of a Share on the exercise date.

2.6      RELOAD OPTIONS

         At the discretion of the Committee, the Grantee may be granted under an
Incentive Agreement, replacement Stock Options under the Plan that permit the
Grantee to purchase an additional number of Shares equal to the number of
previously owned Shares surrendered by the Grantee to pay for all or a portion
of the Option Price upon exercise of his Stock Options. The terms and conditions
of such replacement Stock Options shall be set forth in the Incentive Agreement.

2.7      SUPPLEMENTAL PAYMENT ON EXERCISE OF NONSTATUTORY STOCK OPTIONS OR STOCK
         APPRECIATION RIGHTS

         The Committee, either at the time of grant or as of the time of
exercise of any Nonstatutory Stock Option or Stock Appreciation Right, may
provide in the Incentive

                                       17
<PAGE>

Agreement for a Supplemental Payment by the Company to the Grantee with respect
to the exercise of any Nonstatutory Stock Option or Stock Appreciation Right.
The Supplemental Payment shall be in the amount specified by the Committee,
which amount shall not exceed the amount necessary to pay the federal and state
income tax payable with respect to both the exercise of the Nonstatutory Stock
Option and/or Stock Appreciation Right and the receipt of the Supplemental
Payment, assuming the holder is taxed at either the maximum effective income tax
rate applicable thereto or at a lower tax rate as deemed appropriate by the
Committee in its discretion. The Committee shall have the discretion to grant
Supplemental Payments that are payable solely in cash or Supplemental Payments
that are payable in cash, Common Stock, or a combination of both, as determined
by the Committee at the time of payment.

                                   SECTION 3.

                                RESTRICTED STOCK

3.1      AWARD OF RESTRICTED STOCK

                  (a) GRANT. In consideration of the performance of Employment
         by any Grantee who is an Employee, Consultant or Outside Director,
         Shares of Restricted Stock may be awarded under the Plan by the
         Committee with such restrictions during the Restriction Period as the
         Committee may designate in its discretion, any of which restrictions
         may differ with respect to each particular Grantee. Restricted Stock
         shall be awarded for no additional consideration or such additional
         consideration as the Committee may determine, which consideration may
         be less than, equal to or more than the Fair Market Value of the shares
         of Restricted Stock on the grant date. The terms and conditions of each
         grant of Restricted Stock shall be evidenced by an Incentive Agreement.

                  (b) IMMEDIATE TRANSFER WITHOUT IMMEDIATE DELIVERY OF
         RESTRICTED STOCK. Unless otherwise specified in the Grantee's Incentive
         Agreement, each Restricted Stock Award shall constitute an immediate
         transfer of the record and beneficial ownership of the Shares of
         Restricted Stock to the Grantee in consideration of the performance of
         services as an Employee, Consultant or Outside Director, as applicable,
         entitling such Grantee to all voting and other ownership rights in such
         Shares.

                  As specified in the Incentive Agreement, a Restricted Stock
         Award may limit the Grantee's dividend rights during the Restriction
         Period in which the shares of Restricted Stock are subject to a
         "substantial risk of forfeiture" (within the meaning given to such term
         under Code Section 83) and restrictions on transfer. In the Incentive
         Agreement, the Committee may apply any restrictions to the dividends
         that the Committee deems appropriate. Without limiting the generality
         of the preceding sentence, if the grant or vesting of Shares of
         Restricted Stock granted to a Covered Employee, if applicable, is
         designed to comply with the requirements of the Performance-Based
         Exception, the Committee may apply any restrictions it deems
         appropriate to the payment of dividends declared with respect to such
         Shares of Restricted Stock, such that the dividends and/or the Shares
         of Restricted Stock maintain eligibility for the Performance-Based
         Exception. In the event that any dividend constitutes a derivative
         security or an equity security

                                       18
<PAGE>

         pursuant to the rules under Section 16 of the Exchange Act, if
         applicable, such dividend shall be subject to a vesting period equal to
         the remaining vesting period of the Shares of Restricted Stock with
         respect to which the dividend is paid.

                  Shares awarded pursuant to a grant of Restricted Stock may be
         issued in the name of the Grantee and held, together with a stock power
         endorsed in blank, by the Committee or Company (or their delegates) or
         in trust or in escrow pursuant to an agreement satisfactory to the
         Committee, as determined by the Committee, until such time as the
         restrictions on transfer have expired. All such terms and conditions
         shall be set forth in the particular Grantee's Incentive Agreement. The
         Company or Committee (or their delegates) shall issue to the Grantee a
         receipt evidencing the certificates held by it which are registered in
         the name of the Grantee.

3.2      RESTRICTIONS

                  (a) FORFEITURE OF RESTRICTED STOCK. Restricted Stock awarded
         to a Grantee may be subject to the following restrictions until the
         expiration of the Restriction Period: (i) a restriction that
         constitutes a "substantial risk of forfeiture" (as defined in Code
         Section 83), or a restriction on transferability; (ii) unless otherwise
         specified by the Committee in the Incentive Agreement, the Restricted
         Stock that is subject to restrictions which are not satisfied shall be
         forfeited and all rights of the Grantee to such Shares shall terminate;
         and (iii) any other restrictions that the Committee determines in
         advance are appropriate, including, without limitation, rights of
         repurchase or first refusal in the Company or provisions subjecting the
         Restricted Stock to a continuing substantial risk of forfeiture in the
         hands of any transferee. Any such restrictions shall be set forth in
         the particular Grantee's Incentive Agreement.

                  (b) ISSUANCE OF CERTIFICATES. Reasonably promptly after the
         date of grant with respect to Shares of Restricted Stock, the Company
         shall cause to be issued a stock certificate, registered in the name of
         the Grantee to whom such Shares of Restricted Stock were granted,
         evidencing such Shares; provided, however, that the Company shall not
         cause to be issued such a stock certificate unless it has received a
         stock power duly endorsed in blank with respect to such Shares. Each
         such stock certificate shall bear the following legend or any other
         legend approved by the Company:

                  The transferability of this certificate and the shares of
                  stock represented hereby are subject to the restrictions,
                  terms and conditions (including forfeiture and restrictions
                  against transfer) contained in the T3 Energy Services 2002
                  Stock Incentive Plan and an Incentive Agreement entered into
                  between the registered owner of such shares and T3 Energy
                  Services, Inc. A copy of the Plan and Incentive Agreement are
                  on file in the main corporate office of T3 Energy Services,
                  Inc.

         Such legend shall not be removed from the certificate evidencing such
         Shares of Restricted Stock until such Shares vest pursuant to the terms
         of the Incentive Agreement.

                                       19
<PAGE>

                  (c) REMOVAL OF RESTRICTIONS. The Committee, in its discretion,
         shall have the authority to remove any or all of the restrictions on
         the Restricted Stock if it determines that, by reason of a change in
         applicable law or another change in circumstance arising after the
         grant date of the Restricted Stock, such action is appropriate.

3.3      DELIVERY OF SHARES OF COMMON STOCK

         Subject to withholding taxes under Section 7.3 and to the terms of the
Incentive Agreement, a stock certificate evidencing the Shares of Restricted
Stock with respect to which the restrictions in the Incentive Agreement have
been satisfied shall be delivered to the Grantee or other appropriate recipient
free of restrictions.

3.4      SUPPLEMENTAL PAYMENT ON VESTING OF RESTRICTED STOCK

         The Committee, either at the time of grant or vesting of Restricted
Stock, may provide for a Supplemental Payment by the Company to the holder in an
amount specified by the Committee, which amount shall not exceed the amount
necessary to pay the federal and state income tax payable with respect to both
the vesting of the Restricted Stock and receipt of the Supplemental Payment,
assuming the Grantee is taxed at either the maximum effective income tax rate
applicable thereto or at a lower tax rate as deemed appropriate by the Committee
in its discretion. The Committee shall have the discretion to grant Supplemental
Payments that are payable solely in cash or Supplemental Payments that are
payable in cash, Common Stock, or a combination of both, as determined by the
Committee at the time of payment.

                                   SECTION 4.

                    PERFORMANCE UNITS AND PERFORMANCE SHARES

4.1      PERFORMANCE BASED AWARDS

                  (a) GRANT. The Committee is authorized to grant Performance
         Units and Performance Shares to selected Grantees who are Employees,
         Outside Directors or Consultants. Each grant of Performance Units
         and/or Performance Shares shall be evidenced by an Incentive Agreement
         in such amounts and upon such terms as shall be determined by the
         Committee. The Committee may make grants of Performance Units or
         Performance Shares in such a manner that more than one Performance
         Period is in progress concurrently. For each Performance Period, the
         Committee shall establish the number of Performance Units or
         Performance Shares and their contingent values which may vary depending
         on the degree to which performance criteria established by the
         Committee are met.

                  (b) PERFORMANCE CRITERIA. At the beginning of each Performance
         Period, the Committee shall (i) establish for such Performance Period
         specific financial or non-financial performance objectives that the
         Committee believes are relevant to the Company's business objectives;
         (ii) determine the value of a Performance Unit or the number of Shares
         under a Performance Share grant relative to performance objectives; and
         (iii) notify each Grantee in writing of the established performance
         objectives and, if

                                       20
<PAGE>

         applicable, the minimum, target, and maximum value of Performance Units
         or Performance Shares for such Performance Period.

                  (c) MODIFICATION. If the Committee determines, in its
         discretion exercised in good faith, that the established performance
         measures or objectives are no longer suitable to the Company's
         objectives because of a change in the Company's business, operations,
         corporate structure, capital structure, or other conditions the
         Committee deems to be appropriate, the Committee may modify the
         performance measures and objectives to the extent it considers to be
         necessary. The Committee shall determine whether any such modification
         would cause the Performance Unit or Performance Share to fail to
         qualify for the Performance-Based Exception, if applicable.

                  (d) PAYMENT. The basis for payment of Performance Units or
         Performance Shares for a given Performance Period shall be the
         achievement of those performance objectives determined by the Committee
         at the beginning of the Performance Period as specified in the
         Grantee's Incentive Agreement. If minimum performance is not achieved
         for a Performance Period, no payment shall be made and all contingent
         rights shall cease. If minimum performance is achieved or exceeded, the
         value of a Performance Unit or Performance Share may be based on the
         degree to which actual performance exceeded the preestablished minimum
         performance standards. The amount of payment shall be determined by
         multiplying the number of Performance Units or Performance Shares
         granted at the beginning of the Performance Period times the final
         Performance Unit or Performance Share value. Payments shall be made, in
         the discretion of the Committee as specified in the Incentive
         Agreement, solely in cash or Common Stock, or a combination of cash and
         Common Stock, following the close of the applicable Performance Period.

                  (e) SPECIAL RULE FOR COVERED EMPLOYEES. The Committee may
         establish performance goals applicable to Performance Units or
         Performance Shares awarded to Covered Employees in such a manner as
         shall permit payments with respect thereto to qualify for the
         Performance-Based Exception, if applicable. If a Performance Unit or
         Performance Share granted to a Covered Employee is intended to comply
         with the Performance-Based Exception, the Committee in establishing
         performance goals shall be guided by Treasury Regulation Section
         1.162-27(e)(2) (or its successor).

4.2      SUPPLEMENTAL PAYMENT ON VESTING OF PERFORMANCE UNITS OR PERFORMANCE
         SHARES

         The Committee, either at the time of grant or at the time of vesting of
Performance Units or Performance Shares, may provide for a Supplemental Payment
by the Company to the Grantee in an amount specified by the Committee, which
amount shall not exceed the amount necessary to pay the federal and state income
tax payable with respect to both the vesting of such Performance Units or
Performance Shares and receipt of the Supplemental Payment, assuming the Grantee
is taxed at either the maximum effective income tax rate applicable thereto or
at a lower tax rate as seemed appropriate by the Committee in its discretion.
The Committee shall have the discretion to grant Supplemental Payments that are
payable in cash, Common Stock, or a combination of both, as determined by the
Committee at the time of payment.

                                       21
<PAGE>

                                   SECTION 5.

                            OTHER STOCK-BASED AWARDS

5.1      GRANT OF OTHER STOCK-BASED AWARDS

         Other Stock-Based Awards may be awarded by the Committee to selected
Grantees that are denominated or payable in, valued in whole or in part by
reference to, or otherwise related to, Shares of Common Stock, as deemed by the
Committee to be consistent with the purposes of the Plan and the goals of the
Company. Other types of Stock-Based Awards include, without limitation, Deferred
Stock, purchase rights, Shares of Common Stock awarded which are not subject to
any restrictions or conditions, convertible or exchangeable debentures, other
rights convertible into Shares, Incentive Awards valued by reference to the
value of securities of or the performance of a specified Subsidiary, division or
department, and settlement in cancellation of rights of any person with a vested
interest in any other plan, fund, program or arrangement that is or was
sponsored, maintained or participated in by the Company or any Parent or
Subsidiary. As is the case with other Incentive Awards, Other Stock-Based Awards
may be awarded either alone or in addition to or in tandem with any other
Incentive Awards.

5.2      OTHER STOCK-BASED AWARD TERMS

                  (a) WRITTEN AGREEMENT. The terms and conditions of each grant
         of an Other Stock-Based Award shall be evidenced by an Incentive
         Agreement.

                  (b) PURCHASE PRICE. Except to the extent that an Other
         Stock-Based Award is granted in substitution for an outstanding
         Incentive Award or is delivered upon exercise of a Stock Option, the
         amount of consideration required to be received by the Company shall be
         either (i) no consideration other than services actually rendered (in
         the case of authorized and unissued shares) or to be rendered, or (ii)
         in the case of an Other Stock-Based Award in the nature of a purchase
         right, consideration (other than services rendered or to be rendered)
         at least equal to 25% of the Fair Market Value of the Shares covered by
         such grant on the date of grant (or such percentage higher than 25%
         that is required by any applicable tax or securities law).

                  (c) PERFORMANCE CRITERIA AND OTHER TERMS. In its discretion,
         the Committee may specify such criteria, periods or goals for vesting
         in Other Stock-Based Awards and payment thereof to the Grantee as it
         shall determine; and the extent to which such criteria, periods or
         goals have been met shall be determined by the Committee. All terms and
         conditions of Other Stock-Based Awards shall be determined by the
         Committee and set forth in the Incentive Agreement. The Committee may
         also provide for a Supplemental Payment similar to such payment as
         described in Section 4.2.

                  (d) PAYMENT. Other Stock-Based Awards may be paid in Shares of
         Common Stock or other consideration related to such Shares, in a single
         payment or in installments on such dates as determined by the
         Committee, all as specified in the Incentive Agreement.

                                       22
<PAGE>

                  (e) DIVIDENDS. The Grantee of an Other Stock-Based Award shall
         be entitled to receive, currently or on a deferred basis, dividends or
         dividend equivalents with respect to the number of Shares covered by
         the Other Stock-Based Award, as determined by the Committee and set
         forth in the Incentive Agreement. The Committee may also provide in the
         Incentive Agreement that such amounts (if any) shall be deemed to have
         been reinvested in additional Shares of Common Stock.

                                   SECTION 6.

                    PROVISIONS RELATING TO PLAN PARTICIPATION

6.1      PLAN CONDITIONS

                  (a) INCENTIVE AGREEMENT. Each Grantee to whom an Incentive
         Award is granted shall be required to enter into an Incentive Agreement
         with the Company, in such a form as is provided by the Committee. The
         Incentive Agreement shall contain specific terms as determined by the
         Committee, in its discretion, with respect to the Grantee's particular
         Incentive Award. Such terms need not be uniform among all Grantees or
         any similarly situated Grantees. The Incentive Agreement may include,
         without limitation, vesting, forfeiture and other provisions particular
         to the particular Grantee's Incentive Award, as well as, for example,
         provisions to the effect that the Grantee (i) shall not disclose any
         confidential information acquired during Employment with the Company,
         (ii) shall abide by all the terms and conditions of the Plan and such
         other terms and conditions as may be imposed by the Committee, (iii)
         shall not interfere with the employment or other service of any
         employee, (iv) shall not compete with the Company or become involved in
         a conflict of interest with the interests of the Company, (v) shall
         forfeit an Incentive Award if terminated for Cause, (vi) shall not be
         permitted to make an election under Section 83(b) of the Code when
         applicable, and (vii) shall be subject to any other agreement between
         the Grantee and the Company regarding Shares that may be acquired under
         an Incentive Award including, without limitation, a stockholders'
         agreement, buy-sell agreement, or other agreement restricting the
         transferability of Shares by Grantee. An Incentive Agreement shall
         include such terms and conditions as are determined by the Committee,
         in its discretion, to be appropriate with respect to any individual
         Grantee. The Incentive Agreement shall be signed by the Grantee to whom
         the Incentive Award is made and by an Authorized Officer.

                  (b) NO RIGHT TO EMPLOYMENT. Nothing in the Plan or any
         instrument executed pursuant to the Plan shall create any Employment
         rights (including without limitation, rights to continued Employment)
         in any Grantee or affect the right of the Company to terminate the
         Employment of any Grantee at any time without regard to the existence
         of the Plan.

                  (c) SECURITIES REQUIREMENTS. The Company shall be under no
         obligation to effect the registration pursuant to the Securities Act of
         1933 of any Shares of Common Stock to be issued hereunder or to effect
         similar compliance under any state laws. Notwithstanding anything
         herein to the contrary, the Company shall not be obligated to cause to
         be issued or delivered any certificates evidencing Shares pursuant to
         the Plan

                                       23
<PAGE>

         unless and until the Company is advised by its counsel that the
         issuance and delivery of such certificates is in compliance with all
         applicable laws, regulations of governmental authorities, and the
         requirements of any securities exchange on which Shares are traded. The
         Committee may require, as a condition of the issuance and delivery of
         certificates evidencing Shares of Common Stock pursuant to the terms
         hereof, that the recipient of such Shares make such covenants,
         agreements and representations, and that such certificates bear such
         legends, as the Committee, in its discretion, deems necessary or
         desirable.

                  If the Shares issuable on exercise of an Incentive Award are
         not registered under the Securities Act of 1933, the Company may
         imprint on the certificate for such Shares the following legend or any
         other legend which counsel for the Company considers necessary or
         advisable to comply with the Securities Act of 1933:

                  THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
         REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR THE
         SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY NOT BE TRANSFERRED
         EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
         AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO ANY APPLICABLE
         EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS
         OR PURSUANT TO A WRITTEN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
         THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

6.2      TRANSFERABILITY

         Incentive Awards granted under the Plan shall not be transferable or
assignable other than: (a) by will or the laws of descent and distribution or
(b) pursuant to a qualified domestic relations order (as defined by Section
414(p) of the Code); provided, however, only with respect to Incentive Awards
consisting of Nonstatutory Stock Options, the Committee may, in its discretion,
authorize all or a portion of the Nonstatutory Stock Options to be granted on
terms which permit transfer by the Grantee to (i) the members of the Grantee's
Immediate Family, (ii) a trust or trusts for the exclusive benefit of Immediate
Family members, (iii) a partnership in which such Immediate Family members are
the only partners, or (iv) any other entity owned solely by Immediate Family
members; provided that (A) there may be no consideration for any such transfer,
(B) the Incentive Agreement pursuant to which such Nonstatutory Stock Options
are granted must be approved by the Committee, and must expressly provide for
transferability in a manner consistent with this Section 6.2, and (C) subsequent
transfers of transferred Nonstatutory Stock Options shall be prohibited except
in accordance with clauses (a) and (b) (above) of this sentence. Following any
permitted transfer, the Nonstatutory Stock Option shall continue to be subject
to the same terms and conditions as were applicable immediately prior to
transfer, provided that the term "Grantee" shall be deemed to refer to the
transferee. The events of termination of employment, as set out in Section 6.6
and in the Incentive Agreement, shall continue to be applied with respect to the
original Grantee, and the Incentive Award shall be exercisable by the transferee
only to the extent, and for the periods, specified in the Incentive Agreement.

                                       24
<PAGE>

         Except as may otherwise be permitted under the Code, in the event of a
permitted transfer of a Nonstatutory Stock Option hereunder, the original
Grantee shall remain subject to withholding taxes upon exercise. In addition,
the Company and the Committee shall have no obligation to provide any notices to
any Grantee or transferee thereof, including, for example, notice of the
expiration of an Incentive Award following the original Grantee's termination of
employment.

         The designation by a Grantee of a beneficiary of an Incentive Award
shall not constitute transfer of the Incentive Award. No transfer by will or by
the laws of descent and distribution shall be effective to bind the Company
unless the Committee has been furnished with a copy of the deceased Grantee's
enforceable will or such other evidence as the Committee deems necessary to
establish the validity of the transfer. Any attempted transfer in violation of
this Section 6.2 shall be void and ineffective. All determinations under this
Section 6.2 shall be made by the Committee in its discretion.

6.3      RIGHTS AS A STOCKHOLDER

                  (a) NO STOCKHOLDER RIGHTS. Except as otherwise provided in
         Section 3.1(b) for grants of Restricted Stock, a Grantee of an
         Incentive Award (or a permitted transferee of such Grantee) shall have
         no rights as a stockholder with respect to any Shares of Common Stock
         until the issuance of a stock certificate or other record of ownership
         for such Shares.

                  (b) REPRESENTATION OF OWNERSHIP. In the case of the exercise
         of an Incentive Award by a person or estate acquiring the right to
         exercise such Incentive Award by reason of the death or Disability of a
         Grantee, the Committee may require reasonable evidence as to the
         ownership of such Incentive Award or the authority of such person. The
         Committee may also require such consents and releases of taxing
         authorities as it deems advisable.

6.4      LISTING AND REGISTRATION OF SHARES OF COMMON STOCK

         The exercise of any Incentive Award granted hereunder shall only be
effective at such time as counsel to the Company shall have determined that the
issuance and delivery of Shares of Common Stock pursuant to such exercise is in
compliance with all applicable laws, regulations of governmental authorities and
the requirements of any securities exchange on which Shares of Common Stock are
traded. The Committee may, in its discretion, defer the effectiveness of any
exercise of an Incentive Award in order to allow the issuance of Shares of
Common Stock to be made pursuant to registration or an exemption from
registration or other methods for compliance available under federal or state
securities laws. The Committee shall inform the Grantee in writing of its
decision to defer the effectiveness of the exercise of an Incentive Award.
During the period that the effectiveness of the exercise of an Incentive Award
has been deferred, the Grantee may, by written notice to the Committee, withdraw
such exercise and obtain the refund of any amount paid with respect thereto.

                                       25
<PAGE>

6.5      CHANGE IN STOCK AND ADJUSTMENTS

                  (a) CHANGES IN LAW OR CIRCUMSTANCES. Subject to Section 6.7
         (which only applies in the event of a Change in Control), in the event
         of any change in applicable law or any change in circumstances which
         results in or would result in any dilution of the rights granted under
         the Plan, or which otherwise warrants an equitable adjustment because
         it interferes with the intended operation of the Plan, then, if the
         Board or Committee should so determine, in its absolute discretion,
         that such change equitably requires an adjustment in the number or kind
         of shares of stock or other securities or property theretofore subject,
         or which may become subject, to issuance or transfer under the Plan or
         in the terms and conditions of outstanding Incentive Awards, such
         adjustment shall be made in accordance with such determination. Such
         adjustments may include changes with respect to (i) the aggregate
         number of Shares that may be issued under the Plan, (ii) the number of
         Shares subject to Incentive Awards, and (iii) the Option Price or other
         price per Share for outstanding Incentive Awards. Any adjustment under
         this paragraph of an outstanding Incentive Stock Option shall be made
         only to the extent not constituting a "modification" within the meaning
         of Section 424(h)(3) of the Code unless otherwise agreed to by the
         Grantee in writing. The Board or Committee shall give notice to each
         applicable Grantee of such adjustment which shall be effective and
         binding.

                  (b) EXERCISE OF CORPORATE POWERS. The existence of the Plan or
         outstanding Incentive Awards hereunder 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, reorganization 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 stocks ahead of or affecting
         the Common Stock or the rights thereof, 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.

                  (c) RECAPITALIZATION OF THE COMPANY. Subject to Section 6.7
         (which only applies in the event of a Change in Control), if while
         there are Incentive Awards outstanding, the Company shall effect any
         subdivision or consolidation of Shares of Common Stock or other capital
         readjustment, the payment of a stock dividend, stock split, combination
         of Shares, recapitalization or other increase or reduction in the
         number of Shares outstanding, without receiving compensation therefor
         in money, services or property, then the number of Shares available
         under the Plan and the number of Incentive Awards which may thereafter
         be exercised shall (i) in the event of an increase in the number of
         Shares outstanding, be proportionately increased and the Option Price
         or Fair Market Value of the Incentive Awards awarded shall be
         proportionately reduced; and (ii) in the event of a reduction in the
         number of Shares outstanding, be proportionately reduced, and the
         Option Price or Fair Market Value of the Incentive Awards awarded shall
         be proportionately increased. The Board or Committee shall take such
         action and whatever other action it deems appropriate, in its
         discretion, so that the value of each outstanding Incentive Award to
         the Grantee shall not be adversely affected by a corporate event
         described in this Section 6.5(c).

                                       26
<PAGE>

                  (d) ISSUE OF COMMON STOCK BY THE COMPANY. Except as
         hereinabove expressly provided in this Section 6.5 and subject to
         Section 6.7 in the event of a Change in Control, 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 therefor, or upon any conversion of shares or
         obligations of the Company convertible into such shares or other
         securities, shall not affect, and no adjustment by reason thereof shall
         be made with respect to, the number of, or Option Price or Fair Market
         Value of, any Incentive Awards then outstanding under previously
         granted Incentive Awards; provided, however, in such event, outstanding
         Shares of Restricted Stock shall be treated the same as outstanding
         unrestricted Shares of Common Stock.

                  (e) ASSUMPTION UNDER THE PLAN OF OUTSTANDING STOCK OPTIONS.
         Notwithstanding any other provision of the Plan, the Board or
         Committee, in its discretion, may authorize the assumption and
         continuation under the Plan of outstanding and unexercised stock
         options or other types of stock-based incentive awards that were
         granted under a stock option plan (or other type of stock incentive
         plan or agreement) that is or was maintained by a corporation or other
         entity that was merged into, consolidated with, or whose stock or
         assets were acquired by, the Company as the surviving corporation. Any
         such action shall be upon such terms and conditions as the Board or
         Committee, in its discretion, may deem appropriate, including
         provisions to preserve the holder's rights under the previously granted
         and unexercised stock option or other stock-based incentive award; such
         as, for example, retaining an existing exercise price under an
         outstanding stock option. Any such assumption and continuation of any
         such previously granted and unexercised incentive award shall be
         treated as an outstanding Incentive Award under the Plan and shall thus
         count against the number of Shares reserved for issuance pursuant to
         Section 1.4. In addition, any Shares issued by the Company through the
         assumption or substitution of outstanding grants from an acquired
         company shall reduce the Shares available for grants under Section 1.4.

                  (f) ASSUMPTION OF INCENTIVE AWARDS BY A SUCCESSOR. Subject to
         the accelerated vesting and other provisions of Section 6.7 that apply
         in the event of a Change in Control, in the event of a Corporate Event
         (defined below), each Grantee shall be entitled to receive, in lieu of
         the number of Shares subject to Incentive Awards, such shares of
         capital stock or other securities or property as may be issuable or
         payable with respect to or in exchange for the number of Shares which
         Grantee would have received had he exercised the Incentive Award
         immediately prior to such Corporate Event, together with any
         adjustments (including, without limitation, adjustments to the Option
         Price and the number of Shares issuable on exercise of outstanding
         Stock Options). For this purpose, Shares of Restricted Stock shall be
         treated the same as unrestricted outstanding Shares of Common Stock. A
         "Corporate Event" means any of the following: (i) a dissolution or
         liquidation of the Company, (ii) a sale of all or substantially all of
         the Company's assets, or (iii) a merger, consolidation or combination
         involving the Company (other than a merger, consolidation or
         combination (A) in which the Company is the continuing or surviving
         corporation and (B) which does not result in the outstanding Shares
         being converted into or exchanged for different securities, cash or
         other property, or any combination thereof). The Board or Committee
         shall take whatever other action it

                                       27
<PAGE>

         deems appropriate to preserve the rights of Grantees holding
         outstanding Incentive Awards.

                  Notwithstanding the previous paragraph of this Section 4.5(f),
         but subject to the accelerated vesting and other provisions of Section
         6.7 that apply in the event of a Change in Control, in the event of a
         Corporate Event (described in the previous paragraph), the Board or
         Committee, in its discretion, shall have the right and power to:

                           (i) cancel, effective immediately prior to the
                  occurrence of the Corporate Event, each outstanding Incentive
                  Award (whether or not then exercisable) and, in full
                  consideration of such cancellation, pay to the Grantee an
                  amount in cash equal to the excess of (A) the value, as
                  determined by the Board or Committee, of the property
                  (including cash) received by the holders of Common Stock as a
                  result of such Corporate Event over (B) the exercise price of
                  such Incentive Award, if any; provided, however, this
                  subsection (i) shall be inapplicable to an Incentive Award
                  granted within six (6) months before the occurrence of the
                  Corporate Event if the Grantee is an Insider and such
                  disposition is not exempt under Rule 16b-3 (or other rules
                  preventing liability of the Insider under Section 16(b) of the
                  Exchange Act) and, in that event, the provisions hereof shall
                  be applicable to such Incentive Award after the expiration of
                  six (6) months from the date of grant; or

                           (ii) provide for the exchange or substitution of each
                  Incentive Award outstanding immediately prior to such
                  Corporate Event (whether or not then exercisable) for another
                  award with respect to the Common Stock or other property for
                  which such Incentive Award is exchangeable and, incident
                  thereto, make an equitable adjustment as determined by the
                  Board or Committee, in its discretion, in the Option Price or
                  exercise price of the Incentive Award, if any, or in the
                  number of Shares or amount of property (including cash)
                  subject to the Incentive Award; or

                           (iii) provide for assumption of the Plan and such
                  outstanding Incentive Awards by the surviving entity or its
                  parent.

         The Board or Committee, in its discretion, shall have the authority to
         take whatever action it deems to be necessary or appropriate to
         effectuate the provisions of this Section 6.5(f).

6.6      TERMINATION OF EMPLOYMENT, DEATH, DISABILITY AND RETIREMENT

                  (a) TERMINATION OF EMPLOYMENT. Unless otherwise expressly
         provided in the Grantee's Incentive Agreement, if the Grantee's
         Employment is terminated for any reason other than due to his death,
         Disability, Retirement or for Cause, any non-vested portion of any
         Stock Option or other Incentive Award at the time of such termination
         shall automatically expire and terminate and no further vesting shall
         occur after the termination date. In such event, except as otherwise
         expressly provided in his Incentive Agreement, the Grantee shall be
         entitled to exercise his rights only with respect to the portion of the

                                       28
<PAGE>

         Incentive Award that was vested as of his termination of Employment
         date for a period that shall end on the earlier of (i) the expiration
         date set forth in the Incentive Agreement or (ii) ninety (90) days
         after the date of his termination of Employment.

                  (b) TERMINATION OF EMPLOYMENT FOR CAUSE. Unless otherwise
         expressly provided in the Grantee's Incentive Agreement, in the event
         of the termination of a Grantee's Employment for Cause, all vested and
         non-vested Stock Options and other Incentive Awards granted to such
         Grantee shall immediately expire, and shall not be exercisable to any
         extent, as of 12:01 a.m. (CST) on the date of such termination of
         Employment.

                  (c) RETIREMENT. Unless otherwise expressly provided in the
         Grantee's Incentive Agreement, upon the termination of Employment due
         to the Retirement of any Employee who is a Grantee:

                           (i) any non-vested portion of any outstanding Option
                  or other Incentive Award shall immediately terminate and no
                  further vesting shall occur; and

                           (ii) any vested Option or other Incentive Award shall
                  expire on the earlier of (A) the expiration date set forth in
                  the Incentive Agreement for such Incentive Award; or (B) the
                  expiration of (1) six months after the date of his termination
                  of Employment due to Retirement in the case of any Incentive
                  Award other than an Incentive Stock Option or (2) three months
                  after his termination date in the case of an Incentive Stock
                  Option.

                  (d) DISABILITY OR DEATH. Unless otherwise expressly provided
         in the Grantee's Incentive Agreement, upon termination of Employment as
         a result of the Grantee's Disability or death:

                           (i) any nonvested portion of any outstanding Option
                  or other Incentive Award shall immediately terminate upon
                  termination of Employment and no further vesting shall occur;
                  and

                           (ii) any vested Incentive Award shall expire on the
                  earlier of either (A) the expiration date set forth in the
                  Incentive Agreement or (B) the one year anniversary date of
                  the Grantee's termination of Employment date.

                  In the case of any vested Incentive Stock Option held by an
         Employee following termination of Employment, notwithstanding the
         definition of "Disability" in Section 1.2, whether the Employee has
         incurred a "Disability" for purposes of determining the length of the
         Option exercise period following termination of Employment under this
         Section 6.6(d) shall be determined by reference to Section 22(e)(3) of
         the Code to the extent required by Section 422(c)(6) of the Code. The
         Committee shall determine whether a Disability for purposes of this
         Section 6.6(d) has occurred.

                  (e) CONTINUATION. Subject to the conditions and limitations of
         the Plan and applicable law and regulation in the event that a Grantee
         ceases to be an Employee,

                                       29
<PAGE>

         Outside Director or Consultant, as applicable, for whatever reason, the
         Committee and Grantee may mutually agree with respect to any
         outstanding Option or other Incentive Award then held by the Grantee
         (i) for an acceleration or other adjustment in any vesting schedule
         applicable to the Incentive Award; (ii) for a continuation of the
         exercise period following termination for a longer period than is
         otherwise provided under such Incentive Award; or (iii) to any other
         change in the terms and conditions of the Incentive Award. In the event
         of any such change to an outstanding Incentive Award, a written
         amendment to the Grantee's Incentive Agreement shall be required.

6.7      CHANGE IN CONTROL

         Notwithstanding any contrary provision in the Plan, in the event of a
Change in Control (as defined below), the following actions shall automatically
occur as of the day immediately preceding the Change in Control date unless
expressly provided otherwise in the individual Grantee's Incentive Agreement:

                  (a) all of the Stock Options and Stock Appreciation Rights
         then outstanding shall become 100% vested and immediately and fully
         exercisable;

                  (b) all of the restrictions and conditions of any Restricted
         Stock and any Other Stock-Based Awards then outstanding shall be deemed
         satisfied, and the Restriction Period with respect thereto shall be
         deemed to have expired, and thus each such Incentive Award shall become
         free of all restrictions and fully vested; and

                  (c) all of the Performance Shares, Performance Units and any
         Other Stock-Based Awards shall become fully vested, deemed earned in
         full, and promptly paid within thirty (30) days to the affected
         Grantees without regard to payment schedules and notwithstanding that
         the applicable performance cycle, retention cycle or other restrictions
         and conditions have not been completed or satisfied.

         For all purposes of this Plan, a "Change in Control" of the Company
means the occurrence of any one or more of the following events:

                  (a) The acquisition by any individual, entity or group (within
         the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a
         "Person")) of beneficial ownership (within the meaning of Rule 13d-3
         promulgated under the Exchange Act) of fifty percent (50%) or more of
         either (i) the then outstanding shares of common stock of the Company
         (the "Outstanding Company 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 Company Voting
         Securities"); provided, however, that the following acquisitions shall
         not constitute a Change in Control: (i) any acquisition directly from
         the Company or any Subsidiary, (ii) any acquisition by the Company or
         any Subsidiary or by any employee benefit plan (or related trust)
         sponsored or maintained by the Company or any Subsidiary, or (iii) any
         acquisition by any corporation pursuant to a reorganization, merger,
         consolidation or similar business combination involving the Company (a
         "Merger"), if, following such Merger, the conditions described in
         clauses (i) and (ii) Section 6.7(c) (below) are satisfied;

                                       30
<PAGE>

                  (b) Individuals who, as of the Effective Date, constitute the
         Board of Directors of the Company (the "Incumbent Board") cease for any
         reason to constitute at least a majority of the Board; provided,
         however, that any individual becoming a director subsequent to the
         Effective Date whose election, or nomination for election by the
         Company's shareholders, 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 were a member of the Incumbent
         Board, but excluding, for this purpose, any such individual whose
         initial assumption of office occurs as a result of either an actual or
         threatened election contest (as such terms are used in Rule 14a-11 of
         Regulation 14A promulgated under the Exchange Act) or other actual or
         threatened solicitation of proxies or consents by or on behalf of a
         Person other than the Board;

                  (c) Approval by the shareholders of the Company of a Merger,
         unless immediately following such Merger, (i) substantially all of the
         holders of the Outstanding Company Voting Securities immediately prior
         to Merger beneficially own, directly or indirectly, more than 50% of
         the common stock of the corporation resulting from such Merger (or its
         parent corporation) in substantially the same proportions as their
         ownership of Outstanding Company Voting Securities immediately prior to
         such Merger and (ii) at least a majority of the members of the board of
         directors of the corporation resulting from such Merger (or its parent
         corporation) were members of the Incumbent Board at the time of the
         execution of the initial agreement providing for such Merger;

                  (d) The sale or other disposition of all or substantially all
         of the assets of the Company, unless immediately following such sale or
         other disposition, (i) substantially all of the holders of the
         Outstanding Company Voting Securities immediately prior to the
         consummation of such sale or other disposition beneficially own,
         directly or indirectly, more than 50% of the common stock of the
         corporation acquiring such assets in substantially the same proportions
         as their ownership of Outstanding Company Voting Securities immediately
         prior to the consummation of such sale or disposition, and (ii) at
         least a majority of the members of the board of directors of such
         corporation (or its parent corporation) were members of the Incumbent
         Board at the time of execution of the initial agreement or action of
         the Board providing for such sale or other disposition of assets of the
         Company;

                  (e) The adoption of any plan or proposal for the liquidation
         or dissolution of the Company; or

                  (f) Any other event that a majority of the Board, in its sole
         discretion, determines to constitute a Change in Control hereunder.

         Notwithstanding the occurrence of any of the foregoing events set out
in this Section 6.7 which would otherwise result in a Change in Control, the
Board may determine in its discretion, if it deems it to be in the best interest
of the Company, that an event or events otherwise constituting or reasonably
leading to a Change in Control shall not be deemed a Change in Control
hereunder. Such determination shall be effective only if it is made by the Board
(i) prior to the occurrence of an event that otherwise would be, or reasonably
lead to, a Change in Control, or (ii) after such event only if made by the Board
a majority of which is composed of

                                       31
<PAGE>

directors who were members of the Board immediately prior to the event that
otherwise would be, or reasonably lead to, a Change in Control.

6.8      EXCHANGE OF INCENTIVE AWARDS

         The Committee may, in its discretion, permit any Grantee to surrender
outstanding Incentive Awards in order to exercise or realize his rights under
other Incentive Awards or in exchange for the grant of new Incentive Awards, or
require holders of Incentive Awards to surrender outstanding Incentive Awards
(or comparable rights under other plans or arrangements) as a condition
precedent to the grant of new Incentive Awards.

6.9      FINANCING

         The Company may extend and maintain, or arrange for and guarantee, the
extension and maintenance of financing to any Grantee to purchase Shares
pursuant to exercise of an Incentive Award upon such terms as are approved by
the Committee in its discretion.

                                   SECTION 7.

                                     GENERAL

7.1      EFFECTIVE DATE AND GRANT PERIOD

         This Plan is adopted by the Board effective as of the Effective Date,
subject to the approval of the stockholders of the Company within one year from
the Effective Date. Incentive Awards may be granted under the Plan at any time
prior to receipt of such stockholder approval; provided, however, if the
requisite stockholder approval is not obtained then any Incentive Awards granted
hereunder shall automatically become null and void and of no force or effect. No
Incentive Stock Option may be granted under the Plan after ten (10) years from
the Effective Date.

7.2      FUNDING AND LIABILITY OF COMPANY

         No provision of the Plan shall require the Company, for the purpose of
satisfying any obligations under the Plan, to purchase assets or place any
assets in a trust or other entity to which contributions are made, or otherwise
to segregate any assets. In addition, the Company shall not be required to
maintain separate bank accounts, books, records or other evidence of the
existence of a segregated or separately maintained or administered fund for
purposes of the Plan. Although bookkeeping accounts may be established with
respect to Grantees who are entitled to cash, Common Stock or rights thereto
under the Plan, any such accounts shall be used merely as a bookkeeping
convenience. The Company shall not be required to segregate any assets that may
at any time be represented by cash, Common Stock or rights thereto. The Plan
shall not be construed as providing for such segregation, nor shall the Company,
the Board or the Committee be deemed to be a trustee of any cash, Common Stock
or rights thereto. Any liability or obligation of the Company to any Grantee
with respect to an Incentive Award shall be based solely upon any contractual
obligations that may be created by this Plan and any Incentive Agreement, and no
such liability or obligation of the Company shall be deemed to be secured by any
pledge or other encumbrance on any property of the Company. Neither the Company,
the

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Board nor the Committee shall be required to give any security or bond for the
performance of any obligation that may be created by the Plan.

7.3      WITHHOLDING TAXES

                  (a) TAX WITHHOLDING. The Company shall have the power and the
         right to deduct or withhold, or require a Grantee to remit to the
         Company, an amount sufficient to satisfy federal, state, and local
         taxes, domestic or foreign, required by law or regulation to be
         withheld with respect to any taxable event arising as a result of the
         Plan or an Incentive Award hereunder. Upon the lapse of restrictions on
         Restricted Stock, the Committee, in its discretion, may elect to
         satisfy the tax withholding requirement, in whole or in part, by having
         the Company withhold Shares having a Fair Market Value on the date the
         tax is to be determined equal to the minimum withholding taxes which
         could be imposed on the transaction as determined by the Committee.

                  (b) SHARE WITHHOLDING. With respect to tax withholding
         required upon the exercise of Stock Options or SARs, upon the lapse of
         restrictions on Restricted Stock, or upon any other taxable event
         arising as a result of any Incentive Awards, Grantees may elect,
         subject to the approval of the Committee in its discretion, to satisfy
         the withholding requirement, in whole or in part, by having the Company
         withhold Shares having a Fair Market Value on the date the tax is to be
         determined equal to the minimum withholding taxes which could be
         imposed on the transaction as determined by the Committee. All such
         elections shall be made in writing, signed by the Grantee, and shall be
         subject to any restrictions or limitations that the Committee, in its
         discretion, deems appropriate.

                  (c) INCENTIVE STOCK OPTIONS. With respect to Shares received
         by a Grantee pursuant to the exercise of an Incentive Stock Option, if
         such Grantee disposes of any such Shares within (i) two years from the
         date of grant of such Option or (ii) one year after the transfer of
         such shares to the Grantee, the Company shall have the right to
         withhold from any salary, wages or other compensation payable by the
         Company to the Grantee an amount sufficient to satisfy the minimum
         withholding taxes which could be imposed with respect to such
         disqualifying disposition.

                  (d) LOANS. To the extent permitted by the Sarbanes-Oxley Act
         of 2002 or other applicable law, the Committee may provide for loans,
         on either a short term or demand basis, from the Company to a Grantee
         who is an Employee or Consultant to permit the payment of taxes
         required by law.

7.4      NO GUARANTEE OF TAX CONSEQUENCES

         Neither the Company nor the Committee makes any commitment or guarantee
that any federal, state or local tax treatment will apply or be available to any
person participating or eligible to participate hereunder.

7.5      DESIGNATION OF BENEFICIARY BY PARTICIPANT

         Each Grantee may, from time to time, name any beneficiary or
beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case of

                                       33
<PAGE>

his death before he receives any or all of such benefit. Each such designation
shall revoke all prior designations by the same Grantee, shall be in a form
prescribed by the Committee, and will be effective only when filed by the
Grantee in writing with the Committee during the Grantee's lifetime. In the
absence of any such designation, benefits remaining unpaid at the Grantee's
death shall be paid to the Grantee's estate.

7.6      DEFERRALS

         The Committee may permit a Grantee to defer such Grantee's receipt of
the payment of cash or the delivery of Shares that would, otherwise be due to
such Grantee by virtue of the lapse or waiver of restrictions with respect to
Restricted Stock, or the satisfaction of any requirements or goals with respect
to Performance Units, Performance Shares or Other Stock-Based Awards. If any
such deferral election is permitted, the Committee shall, in its discretion,
establish rules and procedures for such payment deferrals to the extent required
for tax deferral of compensation under the Code.

7.7      AMENDMENT AND TERMINATION

         The Board shall have the power and authority to terminate or amend the
Plan at any time; provided, however, the Board shall not, without the approval
of the stockholders of the Company within the time period required by applicable
law:

                  (a) except as provided in Section 6.5, increase the maximum
         number of Shares which may be issued under the Plan pursuant to Section
         1.4;

                  (b) amend the requirements as to the class of Employees
         eligible to purchase Common Stock under the Plan;

                  (c) extend the term of the Plan; or,

                  (d) if the Company is a Publicly Held Corporation (i) increase
         the maximum limits on Incentive Awards to Covered Employees as set for
         compliance with the Performance-Based Exception or (ii) decrease the
         authority granted to the Committee under the Plan in contravention of
         Rule 16b-3 under the Exchange Act.

         No termination, amendment, or modification of the Plan shall adversely
affect in any material way any outstanding Incentive Award previously granted to
a Grantee under the Plan, without the written consent of such Grantee or other
designated holder of such Incentive Award.

         In addition, to the extent that the Committee determines that (a) the
listing for qualification requirements of any national securities exchange or
quotation system on which the Company's Common Stock is then listed or quoted,
if applicable, or (b) the Code (or regulations promulgated thereunder), require
stockholder approval in order to maintain compliance with such listing
requirements or to maintain any favorable tax advantages or qualifications, then
the Plan shall not be amended in such respect without approval of the Company's
stockholders.

                                       34
<PAGE>

7.8      REQUIREMENTS OF LAW

                  (a) GOVERNMENTAL ENTITIES AND SECURITIES EXCHANGES. The
         granting of Incentive Awards and the issuance of Shares under the Plan
         shall be subject to all applicable laws, rules, and regulations, and to
         such approvals by any governmental agencies or national securities
         exchanges as may be required. Certificates evidencing shares of Common
         Stock delivered under this Plan (to the extent that such shares are so
         evidenced) may be subject to such stop transfer orders and other
         restrictions as the Committee may deem advisable under the rules and
         regulations of the Securities and Exchange Commission, any securities
         exchange or transaction reporting system upon which the Common Stock is
         then listed or to which it is admitted for quotation, and any
         applicable federal or state securities law, if applicable. The
         Committee may cause a legend or legends to be placed upon such
         certificates (if any) to make appropriate reference to such
         restrictions.

                  (b) SECURITIES ACT RULE 701. If no class of the Company's
         securities is registered under Section 12 of the Exchange Act, then
         unless otherwise determined by the Committee, grants of Incentive
         Awards to "Rule 701 Grantees" (as defined below) and issuances of the
         underlying shares of Common Stock, if any, on the exercise or
         conversion of such Incentive Awards are intended to comply with all
         applicable conditions of Securities Act Rule 701 ("Rule 701 "),
         including, without limitation, the restrictions as to the amount of
         securities that may be offered and sold in reliance on Rule 701, so as
         to qualify for an exemption from the registration requirements of the
         Securities Act. Any ambiguities or inconsistencies in the construction
         of an Incentive Award or the Plan shall be interpreted to give effect
         to such intention. In accordance with Rule 701, each Grantee shall
         receive a copy of the Plan on or before the date an Incentive Award is
         granted to him, as well as the additional disclosure required by Rule
         701 (e) if the aggregate sales price or amount of securities sold
         during any consecutive 12-month period exceeds $5,000,000 as determined
         under Rule 701(e). If Rule 701 (or any successor provision) is amended
         to eliminate or otherwise modify any of the requirements specified in
         Rule 701, then the provisions of this Section 7.8(b) shall be
         interpreted and construed in accordance with Rule 701 as so amended.
         For purposes of this Section 7.8(b), as determined in accordance with
         Rule 701, "Rule 701 Grantees" shall mean any Grantee other than a
         director of the Company, the Company's chairman, chief executive
         officer, president, chief financial officer, controller and any vice
         president of the Company, and any other key employee of the Company who
         generally has access to financial and other business related
         information and possesses sufficient sophistication to understand and
         evaluate such information.

7.9      RULE 16b-3 SECURITIES LAW COMPLIANCE FOR INSIDERS

         If the Company is a Publicly Held Corporation, transactions under the
Plan with respect to Insiders are intended to comply with all applicable
conditions of Rule 16b-3 under the Exchange Act. Any ambiguities or
inconsistencies in the construction of an Incentive Award or the Plan shall be
interpreted to give effect to such intention, and to the extent any provision of
the Plan or action by the Committee fails to so comply, it shall be deemed null
and void to the extent permitted by law and deemed advisable by the Committee in
its discretion.

                                       35
<PAGE>

7.10     COMPLIANCE WITH CODE SECTION 162(m) FOR PUBLICLY HELD CORPORATION

         If the Company is a Publicly Held Corporation, unless otherwise
determined by the Committee with respect to any particular Incentive Award, it
is intended that the Plan shall comply fully with the applicable requirements so
that any Incentive Awards subject to Section 162(m) that are granted to Covered
Employees shall qualify for the Performance-Based Exception, except for grants
of Nonstatutory Stock Options with an Option Price set at less than the Fair
Market Value of a Share on the date of grant. If any provision of the Plan or an
Incentive Agreement would disqualify the Plan or would not otherwise permit the
Plan or Incentive Award to comply with the Performance-Based Exception as so
intended, such provision shall be construed or deemed to be amended to conform
to the requirements of the Performance-Based Exception to the extent permitted
by applicable law and deemed advisable by the Committee; provided, however, no
such construction or amendment shall have an adverse effect on the prior grant
of an Incentive Award or the economic value to a Grantee of any outstanding
Incentive Award.

7.11     NOTICES

                  (a) NOTICE FROM INSIDERS TO SECRETARY OF CHANGE IN BENEFICIAL
         OWNERSHIP. Within two business days after the date of a change in
         beneficial ownership of the Common Stock issued or delivered pursuant
         to this Plan, an Insider should report to the Secretary of the Company
         any such change to the beneficial ownership of Common Stock that is
         required to be reported with respect to such Insider under Rule 16(a)-3
         promulgated pursuant to the Exchange Act. Whenever reasonably feasible,
         Insiders will provide the Committee with advance notification of such
         change in beneficial ownership.

                  (b) NOTICE TO INSIDERS AND SECURITIES AND EXCHANGE COMMISSION.
         Effective January 26, 2003, the Company shall provide notice to any
         Insider, as well as to the Securities and Exchange Commission, of any
         "blackout period," as defined in Section 306(a)(4) of the
         Sarbanes-Oxley Act of 2002, in any case in which Insider is subject to
         the requirements of Section 304 of said Act in connection with such
         "blackout period."

7.12     PRE-CLEARANCE AGREEMENT WITH BROKERS

         Notwithstanding anything in the Plan to the contrary, no shares of
Common Stock issued pursuant to this Plan will be delivered to a broker or
dealer that receives such shares for the account of an Insider unless and until
the broker or dealer enters into a written agreement with the Company whereby
such broker or dealer agrees to report immediately to the Secretary of the
Company (or other designated person) a change in the beneficial ownership of
such shares.

7.13     SUCCESSORS TO COMPANY

         All obligations of the Company under the Plan with respect to Incentive
Awards granted hereunder shall be binding on any successor to the Company,
whether the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise, of all or substantially all of
the business and/or assets of the Company.

                                       36
<PAGE>

7.14     MISCELLANEOUS PROVISIONS

                  (a) No Employee, Consultant, Outside Director, or other person
         shall have any claim or right to be granted an Incentive Award under
         the Plan. Neither the Plan, nor any action taken hereunder, shall be
         construed as giving any Employee, Consultant, or Outside Director any
         right to be retained in the Employment or other service of the Company
         or any Parent or Subsidiary.

                  (b) The expenses of the Plan shall be borne by the Company.

                  (c) By accepting any Incentive Award, each Grantee and each
         person claiming by or through him shall be deemed to have indicated his
         acceptance of the Plan.

7.15     SEVERABILITY

         In the event that any provision of this Plan shall be held illegal,
invalid or unenforceable for any reason, such provision shall be fully
severable, but shall not affect the remaining provisions of the Plan, and the
Plan shall be construed and enforced as if the illegal, invalid, or
unenforceable provision was not included herein.

7.16     GENDER, TENSE AND HEADINGS

         Whenever the context so requires, words of the masculine gender used
herein shall include the feminine and neuter, and words used in the singular
shall include the plural. Section headings as used herein are inserted solely
for convenience and reference and constitute no part of the interpretation or
construction of the Plan.

7.17     GOVERNING LAW

         The Plan shall be interpreted, construed and constructed in accordance
with the laws of the State of Delaware without regard to its conflicts of law
provisions, except as may be superseded by applicable laws of the United States.

         IN WITNESS WHEREOF, the Company has caused this Plan to be duly
executed in its name and on its behalf by its duly authorized officer, effective
as of July 30, 2002.

                                  T-3 ENERGY SERVICES, INC.

                                  By:   /s/ Michael L. Stansberry
                                     -------------------------------------------
                                  Name:   Michael L. Stansberry
                                  Title:  President and Chief Executive Officer

                                       37

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