Document:

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                                                                   EXHIBIT 10.12

                           CHANGE OF CONTROL AGREEMENT

         This Change of Control Agreement (this "Agreement") is entered into and
deemed effective as of ____ __, 200_, by and between Grant Prideco, Inc., a
Delaware corporation (the "Company"), and _________(the "Employee").

                                   WITNESSETH:

         WHEREAS, the Employee has accepted an offer of employment with the
Company as Vice President and Chief Financial Officer; and

         WHEREAS, the terms of employment with the Company included an agreement
with the Employee that in the event there were to be a Change of Control (as
defined below) of the Company within three years from the date hereof, the
Employee would be entitled to certain enhanced severance benefits if the
employment of the Employee is terminated by the Company without Cause (as
defined below) or by the Employee for Good Reason (as defined below).

         NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

         1.       Certain Definitions.

                  (a) "Effective Date" shall mean the first date during the
Change of Control Period (as defined in Section 1(b)) on which a Change of
Control (as defined in Section 1(c)) occurs. Anything in this Agreement to the
contrary notwithstanding, if a Change of Control occurs and if the Employee's
employment with the Company is terminated prior to the date on which the Change
of Control occurs, and if it is reasonably demonstrated by the Employee that
such termination of employment (i) was at the request of a third party who has
taken steps reasonably calculated to effect a Change of Control or (ii)
otherwise arose in connection with or anticipation of a Change of Control, then
for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.

                  (b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the third anniversary of the date
hereof; provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three year(s) after such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Employee that the Change of Control Period shall not be so extended.

                  (c) A "Change of Control" shall mean:

                      (i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 50 percent or more of either (A) the then outstanding shares of common stock
of the Company (the "Outstanding Company Common Stock") or (B) 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 for purposes of this subsection (i), the
following acquisitions shall not constitute a Change of Control:

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                          (A) any acquisition directly from the Company; or

                          (B) any acquisition by the Company; or

                          (C) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any corporation
controlled by the Company; or

                          (D) any acquisition by any corporation pursuant to a
transaction that complies with clauses (A), (B) and (C) of subsection (iii) of
this Section 1(c); or

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

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

                      (iv) Approval by the stockholders of the Company of a
complete liquidation or dissolution of the Company.

                  (d) "Board" shall mean the Board of Directors of the Company.

         2. Employment Period. The Company hereby agrees that the Company or an
affiliated company will continue the Employee in its employ, and the Employee
hereby agrees to remain in the employ of the Company or an affiliate subject to
the terms and conditions of this Agreement, for the period commencing on the
Effective Date and ending on the third anniversary of such date (the "Employment
Period").

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         3.       Terms of Employment.

                  (a) Position and Duties. During the Employment Period, (i) the
Employee's position shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned at any time during
the 120-day period immediately preceding the Effective Date and (ii) the
Employee's services shall be performed at the Company's principal executive
offices in Houston, Texas or other locations less than 50 miles from downtown
Houston, Texas.

                  (b) Compensation.

                           (i) Base Salary. During the Employment Period, the
         Employee shall receive an annual base salary ("Annual Base Salary") at
         least equal to the annual base salary payable to the Employee by the
         Company and/or its affiliated companies immediately preceding the
         Effective Date; provided, however, that notwithstanding the foregoing,
         the Employee's Annual Base Salary shall be subject to any company-wide
         salary reduction that takes effect during the Employment Period. During
         the Employment Period, the Annual Base Salary shall be reviewed from
         time to time on the same basis as similarly situated employees;
         provided, however, that a salary increase shall not necessarily be
         awarded as a result of such review. Any increase in Annual Base Salary
         may not serve to limit or reduce any other obligation to the Employee
         under this Agreement. Annual Base Salary shall not be reduced after any
         such increase. The term Annual Base Salary as utilized in this
         Agreement shall refer to Annual Base Salary as so increased.

                           (ii) Annual Bonus. The Employee shall be eligible for
         an annual bonus (the "Annual Bonus") for each fiscal year ending during
         the Employment Period on the same basis as other key employees under
         the Company's annual incentive programs.

                           (iii) Incentive, Savings and Retirement Plans. During
         the Employment Period, the Employee shall be entitled to participate in
         all incentive, savings and retirement plans, practices, policies and
         programs applicable generally to the Employee's peer key employees of
         the Company and its affiliated companies. As used in this Agreement,
         the term "affiliated companies" shall include any company controlled
         by, controlling or under common control with the Company.

                           (iv) Welfare Benefit Plans. During the Employment
         Period, the Employee and/or the Employee's family, as the case may be,
         shall be eligible to participate in and shall receive all benefits
         under welfare benefit plans, practices, policies and programs provided
         by the Company and its affiliated companies (including, without
         limitation, medical, prescription, dental, disability, salary
         continuance, employee life, group life, accidental death and travel
         accident insurance plans and programs) to the extent applicable
         generally to the Employee's peer key employees of the Company and its
         affiliated companies.

                           (v) Fringe Benefits. During the Employment Period,
         the Employee shall be entitled to (A) payment of professional
         association dues, payment of state professional taxes and a car
         allowance and (B) such other fringe benefits as in effect generally at
         any time thereafter with respect to the Employee's peer key employees
         of the Company and its affiliated companies.

                           (vi) Vacation. During the Employment Period, the
         Employee shall be entitled to at least three weeks paid vacation or
         such greater amount of paid vacation as may be applicable to the
         Employee's peer key employees of the Company and its affiliated
         companies.

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                           (vii) Deferred Compensation Plan. During the
         Employment Period, the Employee shall be entitled to continue to
         participate in any deferred compensation or similar plans in which the
         Employee was participating in prior to the Employment Period subject to
         such changes thereto as may be necessary to reflect the effect of the
         Change of Control.

         4.       Termination of Employment.

                  (a) Death or Disability. The Employee's employment shall
terminate automatically upon the Employee's death during the Employment Period.
If the Company determines in good faith that the Disability of the Employee has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Employee written notice in accordance with
Section 11(b) of this Agreement of its intention to terminate the Employee's
employment. In such event, the Employee's employment with the Company shall
terminate effective 30 days after receipt of such notice by the Employee (the
"Disability Effective Date"), provided that within the 30-day period after such
receipt, the Employee shall not have returned to full-time performance of the
Employee's duties. For purposes of this Agreement, "Disability" shall mean the
absence of the Employee from the Employee's duties with the Company on a
full-time basis for 180 calendar days as a result of incapacity due to mental or
physical illness that is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Employee or the
Employee's legal representative.

                  (b) Cause. The Company may terminate the Employee's employment
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean:

                      (i) the failure of the Employee to perform the Employee's
duties with the Company or one of its affiliates (other than any such failure
resulting from incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to the Employee by the Company
that specifically identifies the manner in which the Employee has not performed
the Employee's duties;

                      (ii) the engaging by the Employee in illegal conduct or
misconduct that is materially and demonstrably injurious to the Company;

                      (iii) the conviction of the Employee of a crime involving
moral turpitude;

                      (iv) the misappropriation by the Employee of funds of the
Company or one of the its affiliates;

                      (v) the disparagement by the Employee of the Company or
one of its affiliates or of management thereof; or

                      (vi) any conduct that is materially detrimental to the
Company as determined in good faith by the Board of Directors of the Company, so
long as the Employee has received prior written notice that such conduct is
materially detrimental to the Company and will be grounds for termination for
"cause".

                  For purposes of this provision, no act, or failure to act, on
the part of the Employee shall be considered "willful" unless it is done, or
omitted to be done, by the Employee in bad faith or without reasonable belief
that the Employee's action or omission was in the best interests of the Company.
Any act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer of the Company or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by the Employee in
good faith and in the best interests of the Company.

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                  (c) Good Reason. The Employee's employment may be terminated
by the Employee during the Employment Period for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean:

                           (i) the assignment to the Employee of any duties
         inconsistent in any respect with the Employee's position (including
         status, offices, titles and reporting requirements), authority, duties
         or responsibilities as contemplated by Section 3(a) of this Agreement,
         or any other action by the Company that results in a diminution in such
         position, authority, duties or responsibilities, excluding for this
         purpose an isolated, insubstantial and inadvertent action not taken in
         bad faith and that is remedied by the Company promptly after receipt of
         notice thereof given by the Employee;

                           (ii) any failure by the Company to comply with any of
         the provisions of Section 3(b) of this Agreement, other than an
         isolated, insubstantial and inadvertent failure not occurring in bad
         faith and that is remedied by the Company promptly after receipt of
         notice thereof given by the Employee;

                           (iii) the Company's requiring the Employee to be
         based at any office or location other than as provided in Section
         3(a)(ii) hereof or the Company's requiring the Employee to travel on
         Company business to a substantially greater extent than required
         immediately prior to the Effective Date;

                           (iv) any purported termination by the Company of the
         Employee's employment otherwise than as expressly permitted by this
         Agreement; or

                           (v) any failure by the Company to comply with and
         satisfy Section 10(c) of this Agreement.

                  For purposes of this Section 4(c), any good faith
determination of "Good Reason" made by the Employee shall be conclusive.

                  (d) Notice of Termination. Any termination during the
Employment Period by the Company for Cause, or by the Employee for Good Reason,
shall be communicated by Notice of Termination to the other party hereto given
in accordance with Section 11(b) of the Agreement. For purposes of this
Agreement, a "Notice of Termination" means a written notice that (i) indicates
the specific termination provision in this Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Employee's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the
termination date (which date, in the case of a notice by the Company, shall be
not more than 30 days after the giving of such notice). The failure by the
Employee or the Company to set forth in the Notice of Termination any fact or
circumstance that contributes to a showing of Good Reason or Cause shall not
waive any right of the Employee or the Company, respectively, from asserting
such fact or circumstance in enforcing the Employee's or the Company's rights
hereunder.

                  (e) Date of Termination. "Date of Termination" shall mean:

                           (i) if the Employee's employment is terminated by the
         Company for Cause, or by the Employee for Good Reason, the date of
         receipt of the Notice of Termination or any later date specified
         therein, as the case may be;

                           (ii) if the Employee's employment is terminated by
         the Company other than for Cause, death or Disability, the Date of
         Termination shall be the date on which the Company notifies the
         Employee of such termination; and

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                           (iii) if the Employee's employment is terminated by
         reason of death or Disability, the Date of Termination shall be the
         date of death of the Employee or the Disability Effective Date, as the
         case may be.

         5.       Obligations of the Company Upon Termination.

                  (a) Good Reason; Other than For Cause, Death or Disability.
If, during the Employment Period, the Company terminates the Employee's
employment other than for Cause, death or Disability, or the Employee terminates
employment for Good Reason:

                           (i) The Company shall pay to the Employee in a lump
         sum in cash within 30 days after the Date of Termination the aggregate
         of the following amounts:

                                    (A) the sum of (1) the Employee's Annual
                  Base Salary through the Date of Termination to the extent not
                  theretofore paid, (2) the product of (x) the higher of (I) the
                  highest Annual Bonus received by the Employee over the
                  preceding three year period and (II) the Annual Bonus that
                  would be payable in respect of the current fiscal year, if any
                  (such higher amount being referred to as the "Highest Annual
                  Bonus") and (y) a fraction, the numerator of which is the
                  number of days in the current fiscal year through the Date of
                  Termination, and the denominator of which is 365, and (3) any
                  compensation previously deferred by the Employee under a plan
                  sponsored by the Company (together with any accrued interest
                  or earnings thereon), and any accrued vacation pay, in each
                  case to the extent not theretofore paid (the sum of the
                  amounts described in clauses (1), (2) and (3) shall be
                  hereinafter referred to as the "Accrued Obligations"); and

                                    (B) an amount equal to three times the sum
                  of (i) the then current Annual Base Salary of the Employee and
                  (ii) the Highest Annual Bonus; and

                                    (C) an amount equal to the total of the
                  employer basic and matching contributions credited to the
                  Employee under the Company's 401(k) Savings Plan (the "401(k)
                  Plan") and any other deferred compensation plan during the
                  12-month period immediately preceding the month of the
                  Employee's Date of Termination multiplied by three, such
                  amount to be grossed up so that the amount the Employee
                  actually receives after payment of any federal or state taxes
                  payable thereon equals the amount first described above; and

                                    (D) an amount equal to three times the total
                  amount of all fringe benefits received by Employee on an
                  annualized basis.

                           (ii) For a period of three years from the Employee's
         Date of Termination or such longer period as may be provided by the
         terms of the appropriate plan, program, practice or policy, the Company
         shall continue benefits to the Employee and/or the Employee's family
         equal to those that would have been provided to them in accordance with
         the plans, programs, practices and policies described in Section
         3(b)(iv) of this Agreement if the Employee's employment had not been
         terminated; provided, however, that with respect to any of such plans,
         programs, practices or policies requiring an employee contribution, the
         Employee shall continue to pay the monthly employee contribution for
         same, and provided further, that if the Employee becomes re-employed by
         another employer and is eligible to receive medical or other welfare
         benefits under another employer provided plan, the medical and other
         welfare benefits described herein shall be secondary to those provided
         under such other plan during such applicable period of eligibility;

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                           (iii) To the extent not theretofore paid or provided,
         the Company shall timely pay or provide to the Employee any other
         amounts or benefits required to be paid or provided or that the
         Employee is eligible to receive under any plan, program, policy or
         practice or contract or agreement of the Company and its affiliated
         companies (such other amounts and benefits shall be hereinafter
         referred to as the "Other Benefits"); and

                           (iv) The foregoing payments are intended to
         compensate the Employee for a breach of the Company's obligations and
         place Employee in substantially the same position had the employment of
         the Employee not been so terminated as a result of a breach by the
         Company. The payments shall be in lieu of any other severance payments
         that might be due to the Employee under the Company's severance and
         other similar plans.

                  (b) Death. If Employee's employment is terminated by reason of
the Employee's death during the Employment Period, this Agreement shall
terminate without further obligations to the Employee's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Employee's estate or beneficiaries, as applicable, in a lump sum in cash
within 30 days after the Date of Termination.

                  (c) Disability. If the Employee's employment is terminated by
reason of the Employee's Disability during the Employment Period, this Agreement
shall terminate without further obligations to the Employee, other than for
payment of Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Employee in a lump sum in
cash within 30 days after the Date of Termination.

                  (d) Cause; Other Than for Good Reason. If the Employee's
employment is terminated for Cause during the Employment Period, this Agreement
shall terminate without further obligations to the Employee under this
Agreement, other than the obligation to pay to the Employee (x) his or her
Annual Base Salary through the Date of Termination, (y) the amount of any
compensation previously deferred by the Employee, and (z) Other Benefits, in
each case to the extent theretofore unpaid. If the Employee voluntarily
terminates employment during the Employment Period, excluding a termination for
Good Reason, this Agreement shall terminate without further obligations to the
Employee under this Agreement, other than for Accrued Obligations and the timely
payment or provision of Other Benefits. In such case, all Accrued Obligations
shall be paid to the Employee in a lump sum in cash within 30 days after the
Date of Termination subject to such other options or restrictions as provided by
law.

         6. Other Rights. Except as provided hereinafter, nothing in this
Agreement shall prevent or limit the Employee's continuing or future
participation in any plan, program, policy or practice provided by the Company
or any of its affiliated companies and for which the Employee may qualify, nor
shall anything herein limit or otherwise affect such rights as the Employee may
have under any contract or agreement with the Company or any of its affiliated
companies. Except as provided hereinafter, amounts that are vested benefits or
that the Employee is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement. It is expressly agreed by the Employee that he or she shall have no
right to receive, and hereby waives any entitlement to, any severance pay or
similar benefit under any other plan, policy, practice or program of the
Company. In addition, if the Employee has an employment or similar agreement
with the Company at the Date of Termination, he or she agrees that he or she
shall have the right to receive all of the

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benefits provided under this Agreement or such other agreement, whichever one,
in its entirety, the Employee chooses, but not both agreements, and when the
Employee has made such election, the other agreement shall be superseded in its
entirety and shall be of no further force and effect. The Employee also agrees
that to the extent he or she may be eligible for any severance pay or similar
benefit under any laws providing for severance or termination benefits, such
other severance pay or similar benefit shall be coordinated with the benefits
owed hereunder, such that the Employee shall not receive duplicate benefits.

         7.       Full Settlement.

                  (a) No Rights of Offset. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action that the Company may have against the
Employee or others.

                  (b) No Mitigation Required. In no event shall the Employee be
obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to the Employee under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not the Employee
obtains other employment.

                  (c) Legal Fees. The Company agrees to pay as incurred, to the
full extent permitted by law, all legal fees and expenses that the Employee may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company or the Employee of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereto (including as a result of any contest by the Employee about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").

         8.       Certain Additional Payments by the Company.

                  (a) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Employee
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 8) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Employee with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Employee shall be entitled to receive
an additional payment (a "Gross-Up Payment") in an amount such that after
payment by the Employee of all taxes (including any interest or penalties
imposed with respect to such taxes), including without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Employee retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 8(a), if it shall be
determined that the Employee is entitled to a Gross-Up Payment, but that the
Employee, after taking into account the Payments and the Gross-Up Payment, would
not receive a net after-tax benefit of at least $50,000 (taking into account
both income taxes and any Excise Tax) as compared to the net after-tax proceeds
to the Employee resulting from an elimination of the Gross-Up Payment and a
reduction of the Payments, in the aggregate, to an amount (the "Reduced Amount")
such that the receipt of Payments would not give rise to any Excise Tax, then no
Gross-Up Payment shall be made to the Employee and the Payments, in the
aggregate, shall be reduced to the Reduced Amount.

                  (b) Subject to the provisions of Section 8(c), all
determinations required to be made under this Section 8, including whether and
when a Gross-Up Payment is required and the amount of such

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Gross-Up Payment and the assumptions to be utilized in arriving at such
determination shall be made by Arthur Andersen LLP or, as provided below, such
other certified public accounting firm as may be designated by the Employee (the
"Accounting Firm"), which shall provide detailed supporting calculations both to
the Company and the Employee within 15 business days after the receipt of notice
from the Employee that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting the Change
of Control, the Employee shall appoint another nationally recognized accounting
firm to make the determinations required hereunder (which accounting firm shall
then be referred to as the Accounting Firm hereunder). All fees and expenses of
the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
as determined pursuant to this Section 8, shall be paid by the Company to the
Employee within five days after the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Employee. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments that will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 8(c) and the Employee
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Employee.

                  (c) The Employee shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment (or an additional Gross-Up
Payment) in the event the IRS seeks higher payment. Such notification shall be
given as soon as practicable, but no later than ten business days after the
Employee is informed in writing of such claim, and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid. The Employee shall not pay such claim prior to the expiration of the
30-day period following the date on which he gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Employee in writing
prior to the expiration of such period that it desires to contest such claim,
the Employee shall:

                           (i) give the Company any information reasonably
         requested by the Company relating to such claim,

                           (ii) take such action in connection with contesting
         such claim as the Company shall reasonably request in writing from time
         to time, including without limitation, accepting legal representation
         with respect to such claim by an attorney reasonably selected by the
         Company,

                           (iii) cooperate with the Company in good faith in
         order to effectively contest such claim, and

                           (iv) permit the Company to participate in any
         proceedings relating to such claims; provided, however, that the
         Company shall bear and pay directly all costs and expenses (including
         additional interest and penalties) incurred in connection with such
         costs and shall indemnify and hold the Employee harmless, on an
         after-tax basis, for any Excise Tax or income tax (including interest
         and penalties with respect thereto) imposed as a result of such
         representation and payment of costs and expenses. Without limitation on
         the foregoing provisions of this Section 8(c), the Company shall
         control all proceedings taken in connection with such contest and, at
         its sole option, may pursue or forego any and all administrative
         appeals, proceedings, hearings and conferences with the taxing
         authority in respect of such claim and may, at its sole option, either
         direct the Employee to pay the tax claimed and sue for a refund or
         contest the claim in any permissible manner, and the Employee agrees to
         prosecute such contest to determination before any administrative
         tribunal, in a court of initial jurisdiction and in one or more
         appellate courts, as the Company shall determine; provided, however,
         that if the Company directs the Employee to pay such claim and sue for
         a refund, the Company shall

                                       9
<PAGE>

         advance the amount of such payment to the Employee, on an interest-free
         basis and shall indemnify and hold the Employee harmless, on an
         after-tax basis, from any Excise Tax or income tax (including interest
         or penalties with respect thereto) imposed with respect to such advance
         or with respect to any imputed income with respect to such advance; and
         further provided that any extension of the statute of limitations
         relating to payment of taxes for the taxable year of the Employee with
         respect to which such contested amount is claimed to be due is limited
         solely to such contested amount. Furthermore, the Company's control of
         the contest shall be limited to issues with respect to which a Gross-Up
         Payment would be payable hereunder and the Employee shall be entitled
         to settle or contest, as the case may be, any other issues raised by
         the Internal Revenue Service or any other taxing authority.

                  (d) If, after the receipt by the Employee of an amount
advanced by the Company pursuant to Section 8(c), the Employee becomes entitled
to receive any refund with respect to such claim, the Employee shall (subject to
the Company's complying with the requirements of Section 8(c)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Employee of an amount advanced by the Company pursuant to Section 8(c), a
determination is made that the Employee shall not be entitled to any refund with
respect to such claim and the Company does not notify the Employee in writing of
its intent to contest such denial of refund prior to the expiration of 30 days
after such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.

         9. Confidential Information. The Employee shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, that shall have been obtained by the Employee
during the Employee's employment by the Company or any of its affiliated
companies, provided that it shall not apply to information that is or shall
become public knowledge (other than by acts by the Employee or representatives
of the Employee in violation of this Agreement), information that is developed
by the Employee independently of such information, or knowledge or data or
information that is disclosed to the Employee by a third party under no
obligation of confidentiality to the Company. After termination of the
Employee's employment with the Company, the Employee shall not, without the
prior written consent of the Company or as may otherwise be required by law or
legal process, communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. In no event shall an
asserted violation of the provisions of this Section 9 constitute a basis for
deferring or withholding any amounts otherwise payable to the Employee under
this Agreement.

         10.      Successors.

                  (a) This Agreement is personal to the Employee and shall not
be assignable by the Employee otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Employee's legal representatives.

                  (b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.

                  (c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to (i) assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place and (ii) issue to the Employee substantially similar options to
purchase shares of equity in such successor in replacement of options held by
the Employee to purchase shares of common stock of the Company. As used in this
Agreement, "Company"

                                       10
<PAGE>

shall mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid that assumes and agrees to perform this Agreement by
operation of law, or otherwise.

         11.      Miscellaneous.

                  (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO PRINCIPLES
OF CONFLICT OF LAWS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not be
amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.

                  (b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:

                                         If to the Employee:

                  If to the Company:     Grant Prideco, Inc.
                                         1450 Lake Robbins Drive, Suite 600
                                         The Woodlands, Texas 77380
                                         Attention: President

or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.

                  (c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.

                  (d) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.

                  (e) The Employee's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Employee or the Company may have hereunder, including without
limitation, the right of the Employee to terminate employment for Good Reason
pursuant to Section 4(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.

                                       11
<PAGE>

         IN WITNESS WHEREOF, the Employee has hereunto set the Employee's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name and on its behalf, all as of
the day and year first above written.

                                    --------------------------------------------

                                    GRANT PRIDECO, INC.

                                    By
                                       -----------------------------------------
                                      Curtis W. Huff
                                      President and Chief Executive Officer

                                       12<PAGE>
                                                                   EXHIBIT 10.16

                               GRANT PRIDECO, INC.
                              2001 STOCK OPTION AND
                              RESTRICTED STOCK PLAN

<PAGE>

                               GRANT PRIDECO, INC.
                              2001 STOCK OPTION AND
                              RESTRICTED STOCK PLAN

                                TABLE OF CONTENTS

<Table>
<Caption>
                                                                        Section
                                                                        -------
<S>                                                                     <C>
ARTICLE I - PLAN
         Purpose............................................................1.1
         Effective Date of Plan.............................................1.2

ARTICLE II - DEFINITIONS
         Affiliate..........................................................2.1
         Agreement..........................................................2.2
         Award..............................................................2.3
         Board of Directors.................................................2.4
         Code...............................................................2.5
         Committee..........................................................2.6
         Company............................................................2.7
         Disability.........................................................2.8
         Employee...........................................................2.9
         Exchange Act......................................................2.10
         Fair Market Value.................................................2.11
         Holder............................................................2.12
         Mature Shares.....................................................2.13
         Non-Employee Director.............................................2.14
         Option............................................................2.15
         Plan..............................................................2.16
         Restricted Period.................................................2.17
         Restricted Stock..................................................2.18
         Restricted Stock Award............................................2.19
         Retained Distributions............................................2.20
         Stock.............................................................2.21

ARTICLE III - ELIGIBILITY

ARTICLE IV - STOCK SUBJECT TO THE PLAN

ARTICLE V - GENERAL PROVISIONS RELATING TO ALL OPTIONS
         Authority to Grant Options ........................................5.1
         Non-Transferability................................................5.2
         Changes in the Company's Capital Structure.........................5.3
         No Rights As a Stockholder.........................................5.4
         Tax Withholding....................................................5.5

ARTICLE VI - VARIABLE PROVISIONS RELATING TO SPECIFIC OPTIONS
         Option Price.......................................................6.1
         Duration of Options................................................6.2
         Amount Exercisable.................................................6.3

</Table>

                                      -i-
<PAGE>

<Table>
<S>                                                                        <C>
         Exercise of Options................................................6.4
         Exercise Following Termination of Employment or Affiliation
           Relationship.....................................................6.5
         Substitution Options...............................................6.6

ARTICLE VII - GENERAL PROVISIONS RELATING TO ALL RESTRICTED STOCK AWARDS
         Authority to Grant Awards..........................................7.1
         Transferability and Rights with Respect to Restricted Stock........7.2
         Withholding Tax....................................................7.3
         Changes in Company's Capital Structure.............................7.4

ARTICLE VIII - VARIABLE PROVISIONS RELATING TO SPECIFIC RESTRICTED STOCK
               AWARDS
         Vesting of Restricted Stock........................................8.1
         Consequence of Vesting.............................................8.2

ARTICLE IX - REQUIREMENTS OF LAW

ARTICLE X - ADMINISTRATION

ARTICLE XI - AMENDMENT OR TERMINATION OF PLAN

ARTICLE XII - MISCELLANEOUS
         No Establishment of a Trust Fund..................................12.1
         No Employment or Affiliation......................................12.2
         Written Agreement.................................................12.3
         Indemnification of the Committee and the Board of Directors.......12.4
         Gender............................................................12.5
         Headings..........................................................12.6
         Other Compensation Plans..........................................12.7
         Other Awards......................................................12.8
         Section 83(b) Elections...........................................12.9
         Governing Law....................................................12.10
</Table>

                                    ARTICLE I

                                      PLAN

         I.1 PURPOSE. The Plan is maintained for certain non-employee directors
and employees (including directors employed by the Company or its Affiliates) of
the Company and its Affiliates and is intended to advance the best interests of
the Company, its Affiliates, and its stockholders by providing those persons who
have substantial responsibility for the management and growth of the Company and
its Affiliates with additional incentives and an opportunity to obtain or
increase their proprietary interest in the Company, thereby encouraging them to
continue in the employ of the Company or any of its Affiliates.

         I.2 EFFECTIVE DATE OF PLAN. The Plan is effective October 18, 2001. No
Award shall be granted pursuant to the Plan after October 18, 2011. Any Award
granted shall be subject to approval and listing of the Plan and underlying
shares by the New York Stock Exchange, or other exchange upon which the shares
of common stock of the Company may be listed.

                                      -ii-
<PAGE>

                                   ARTICLE II

                                   DEFINITIONS

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

         II.1 "AFFILIATE" means any parent corporation and any subsidiary
corporation. The term "parent corporation" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if, at the
time of the action or transaction, each of the corporations other than the
Company owns stock possessing 50 percent or more of the total combined voting
power of all classes of stock in one of the other corporations in the chain. The
term "subsidiary corporation" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if, at the time of
the action or transaction, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50 percent or more of
the total combined voting power of all classes of stock in one of the other
corporations in the chain.

         II.2 "AGREEMENT" means a written agreement setting forth the terms of
an Award.

         II.3 "AWARD" means an Option or a Restricted Stock Award granted under
the Plan.

         II.4 "BOARD OF DIRECTORS" means the board of directors of the Company.

         II.5 "CODE" means the Internal Revenue Code of 1986, as amended.

         II.6 "COMMITTEE" means the Compensation Committee of the Board of
Directors or other committee designated by the Board of Directors to administer
the Plan.

         II.7     "COMPANY" means Grant Prideco, Inc.

         II.8 "DISABILITY" means a mental or physical disability which, in the
opinion of a physician selected by the Committee, shall prevent the Holder (a)
who is an Employee, from earning a reasonable livelihood with the Company or any
Affiliate or (b) who is a Non-Employee Director, from adequately performing his
services as a director of the Company and which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months and which: (x) was not contracted, suffered or incurred
while the Holder was engaged in, or did not result from having engaged in, a
felonious criminal enterprise; (y) did not result from alcoholism or addiction
to narcotics; and (z) did not result from an injury incurred while a member of
the Armed Forces of the United States for which the Holder receives a military
pension.

         II.9 "EMPLOYEE" means a person employed by the Company or any Affiliate
as a common law employee, or as a consultant on a full-time or regular basis as
determined by the Committee.

                                       -3-
<PAGE>

         II.10 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

         II.11 "FAIR MARKET VALUE" of the Stock as of any date means (a) the
closing sales price of the Stock on that date on the principal securities
exchange on which the Stock is listed; or (b) if the Stock is not listed on a
securities exchange, the average of the high and low bid quotations for the
Stock on that date as reported by the National Association of Securities Dealers
Automated Quotation National Market System; or (c) if neither of the foregoing
is applicable, an amount determined by the Committee in its sole discretion.

         II.12 "HOLDER" means a person who has been granted an Award or any
person who is entitled to receive Stock under an Award.

         II.13 "MATURE SHARES" means shares of Stock that the Holder has held
for at least six months.

         II.14 "NON-EMPLOYEE DIRECTOR" means a member of the Board of Directors
who, while a director, is not an Employee.

         II.15 "OPTION" means the right to purchase Stock at a price to be
specified and upon terms to be designated by the Committee pursuant to the Plan.
All Options granted pursuant to the Plan shall be "nonqualified stock options"
that are not intended to meet the requirements of section 422 of the Code or any
successor provision.

         II.16 "PLAN" means the Grant Prideco, Inc. 2001 Stock Option and
Restricted Stock Plan, as set out in this document and as it may be amended from
time to time.

         II.17 "RESTRICTED PERIOD" means the period designated by the Committee
during which Restricted Stock may not be sold, assigned, transferred, pledged,
or otherwise encumbered.

         II.18 "RESTRICTED STOCK" means those shares of Stock issued pursuant to
a Restricted Stock Award which are subject to the restrictions, terms, and
conditions set forth in the related Agreement.

         II.19 "RESTRICTED STOCK AWARD" means an award of Restricted Stock
pursuant to Section 7.1.

         II.20 "RETAINED DISTRIBUTIONS" means any securities or other property
(other than regular cash dividends) distributed by the Company in respect of
Restricted Stock during any Restricted Period.

         II.21 "STOCK" means the common stock of the Company, $.01 par value (or
such other par value as may be designated by act of the Company's stockholders)
or, in the event that the outstanding shares of common stock are later changed
into or exchanged for a different class of stock or securities of the Company or
another corporation, that other stock or security.

                                       -4-
<PAGE>

                                   ARTICLE III

                                   ELIGIBILITY

         The individuals who shall be eligible to receive Awards shall be (1)
those Non-Employee Directors as the Board of Directors shall determine from time
to time and (2) those Employees as the Committee shall determine from time to
time, including without limitation all employees located in the United States
who are "exempt" employees. The Board of Directors may designate one or more
individuals who shall not be eligible to receive any Awards under the Plan.
Notwithstanding the foregoing, at least a majority of the shares of Stock
underlying Awards granted during any three-year period between the effective
date of the Plan and October 18, 2011 must be awarded to Employees who are not
(x) officers of the Company or (y) members of the Board of Directors.

                                   ARTICLE IV

                            STOCK SUBJECT TO THE PLAN

         The total amount of the Stock with respect to which Awards may be
granted shall not exceed in the aggregate 5,000,000 shares. The class and
aggregate number of shares which may be subject to the Options granted under the
Plan shall be subject to adjustment under Section 5.3. The class and aggregate
number of shares which may be subject to the Restricted Stock Awards granted
under the Plan shall also be subject to adjustment under Section 7.4. Shares may
be treasury shares or authorized but unissued shares. If any Award under the
Plan shall expire or terminate for any reason without having been exercised in
full, or if any Award shall be forfeited, the shares subject to the unexercised
or forfeited portion of such Award shall again be available for the purposes of
the Plan.

                                    ARTICLE V

                   GENERAL PROVISIONS RELATING TO ALL OPTIONS

         V.1 AUTHORITY TO GRANT OPTIONS. The Board of Directors may grant to
those Non-Employee Directors, as it shall from time to time determine, Options
under the terms and conditions of the Plan. The Committee may grant to those
Employees, as it shall from time to time determine, Options under the terms and
conditions of the Plan. Subject only to any applicable limitations set out in
the Plan, the number of shares of Stock to be covered by any Option to be
granted to a Non-Employee Director or Employee shall be as determined by the
Board of Directors or the Committee, respectively.

         V.2 NON-TRANSFERABILITY. Options shall not be transferable by the
Holder otherwise than by will or under the laws of descent and distribution or
pursuant to a domestic relations order, and shall be exercisable, during the
Holder's lifetime, only by the Holder.

         V.3 CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of
outstanding Options shall not affect in any way the right or power of the
Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issue of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Stock or 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.

                                       -5-
<PAGE>

         If the Company shall effect a subdivision or consolidation of shares or
other capital adjustment of, or the payment of a dividend in capital stock or
other equity securities of the Company on its Stock, or other increase or
reduction of the number of shares of the Stock without receiving consideration
therefor in money, services, or property, or the reclassification of its Stock,
in whole or in part, into other equity securities of the Company, then (a) the
number, class and per share price of shares of Stock subject to outstanding
Options hereunder shall be appropriately adjusted (or in the case of the
issuance of other equity securities as a dividend on, or in a reclassification
of, the Stock, the Options shall extend to such other securities) in such a
manner as to entitle a Holder to receive, upon exercise of an Option, for the
same aggregate cash consideration, the same total number and class or classes of
shares (or in the case of a dividend of, or reclassification into, other equity
securities, such other securities) he would have held after such adjustment if
he had exercised his Option in full immediately prior to the event requiring the
adjustment, or, if applicable, the record date for determining stockholders to
be affected by such adjustment; and (b) the number and class of shares then
reserved for issuance under the Plan (or in the case of a dividend of, or
reclassification into, other equity securities, such other securities) shall be
adjusted by substituting for the total number and class of shares of stock then
received, the number and class or classes of shares of stock (or in the case of
a dividend of, or reclassification into, other equity securities, such other
securities) that would have been received by the owner of an equal number of
outstanding shares of Stock as a result of the event requiring the adjustment.
Comparable rights shall accrue to each Holder in the event of successive
subdivisions, consolidations, capital adjustments, dividends or
reclassifications of the character described above.

         If the Company shall distribute to all holders of its shares of Stock
(including any such distribution made to non-dissenting stockholders in
connection with a consolidation or merger in which the Company is the surviving
corporation and in which holders of shares of Stock continue to hold shares of
Stock after such merger or consolidation) evidences of indebtedness or cash or
other assets (other than cash dividends payable out of consolidated retained
earnings not in excess of, in any one year period, the greater of (a) an amount
per share of Stock equal to $.01 per share of Stock (as the same may be adjusted
from time to time by the Board of Directors to reflect the effect of changes in
capitalization) and (b) two times the aggregate amount of dividends per share
paid during the preceding calendar year and dividends or distributions payable
in shares of Stock or other equity securities of the Company described in the
immediately preceding paragraph, but including stock or other securities of any
corporation or other entity owned by the Company, then in each case the Option
price shall be adjusted by reducing the Option price in effect immediately prior
to the record date for the determination of stockholders entitled to receive
such distribution by the fair market value, as determined in good faith by the
Board of Directors (whose determination shall be described in a statement filed
in the Company's corporate records and be available for inspection by any holder
of an Option) of the portion of the evidence of indebtedness or cash or other
assets so to be distributed applicable to one share of Stock; provided that in
no event shall the Option price be less than the par value of a share of Stock.
In the event such adjustment would result in the Option price being less than
the par value of a share of Stock but for the foregoing proviso, the terms of
the Option shall be appropriately adjusted so as to maintain the economic value
of the Option, including through an adjustment to the number of shares of Stock
subject to the Option and through a provision allowing the holder of the Option
to receive the evidence of indebtedness or cash or other assets so to be
distributed applicable to one share of Stock for each share of Stock that may be
purchased on the exercise of the Option. Such adjustment shall be made whenever
any such

                                       -6-
<PAGE>
distribution is made, and shall become effective on the date of the distribution
retroactive to the record date for the determination of the stockholders
entitled to receive such distribution. In addition, in the event the Company
distributes shares or other securities of a subsidiary corporation or other
entity to the holders of the Stock, the Board of Directors may, in lieu of the
adjustment provided above, make provision allowing the holder of the Option to
receive the shares or securities of the corporation or entity that is subject to
the distribution. Comparable adjustments shall be made in the event of
successive distributions of the character described above.

         If the Company shall make a tender offer for, or grant to all of its
holders of its shares of Stock the right to require the Company or any
subsidiary of the Company to acquire from such stockholders shares of Stock, at
a price in excess of the Fair Market Value (a "Put Right"), or the Company shall
grant to all of its holders of its shares of Stock the right to acquire shares
of Stock for less than the Fair Market Value (a "Purchase Right") then, in the
case of a Put Right, the Option price shall be adjusted by multiplying the
Option price in effect immediately prior to the record date for the
determination of stockholders entitled to receive such Put Right by a fraction,
the numerator of which shall be the number of shares of Stock then outstanding
minus the number of shares of Stock which could be purchased at the Fair Market
Value for the aggregate amount which would be paid if all Put Rights are
exercised and the denominator of which is the number of shares of Stock which
would be outstanding if all Put Rights are exercised; and, in the case of a
Purchase Right, the Option price shall be adjusted by multiplying the Option
price in effect immediately prior to the record date for the determination of
the stockholders entitled to receive such Purchase Right by a fraction, the
numerator of which shall be the number of shares of Stock then outstanding plus
the number of shares of Stock which could be purchased at the Fair Market Value
for the aggregate amount which would be paid if all Purchase Rights are
exercised and the denominator of which is the number of shares of Stock which
would be outstanding if all Purchase Rights are exercised. In addition, the
number of shares subject to the Option shall be increased by multiplying the
number of shares then subject to the Option by a fraction which is the inverse
of the fraction used to adjust the Option price. Notwithstanding the foregoing,
if any such Put Rights or Purchase Rights shall terminate without being
exercised, the Option price and number of shares subject to the Option shall be
appropriately readjusted to reflect the Option price and number of shares
subject to the Option which would have been in effect if such unexercised Put
Rights or Purchase Rights had never existed. Comparable adjustments shall be
made in the event of successive transactions of the character described above.

         After the merger of one or more corporations into the Company, after
any consolidation of the Company and any one or more corporations, or after any
other corporate transaction described in section 424(a) of the Code in which the
Company shall be the surviving corporation, each Holder, at no additional cost,
shall be entitled to receive, upon any exercise of his Option, in lieu of the
number of shares as to which the Option shall then be so exercised, the number
and class of shares of stock or other equity securities to which the Holder
would have been entitled pursuant to the terms of the agreement of merger or
consolidation if at the time of such merger or consolidation such Holder had
been a holder of a number of shares of Stock equal to the number of shares as to
which the Option shall then be so exercised and, if as a result of such merger,
consolidation or other transaction, the holders of Stock are not entitled to
receive any shares of Stock pursuant to the terms thereof, each Holder, at no
additional cost, shall be entitled to receive, upon exercise of his Option, such
other assets and property, including cash, to which he would have been entitled
if at the time of such merger, consolidation or other transaction he had been
the holder of the number of shares

                                       -7-
<PAGE>
of Stock equal to the number of shares as to which the Option shall then be so
exercised. Comparable rights shall accrue to each Holder in the event of
successive mergers or consolidations of the character described above.

         After a merger of the Company into one or more corporations, after any
consolidation of the Company and any one or more corporations, or after any
other corporate transaction described in section 424(a) of the Code in which the
Company is not the surviving corporation, each Holder shall, at no additional
cost, be entitled, at the option of the surviving corporation, (i) to have his
then existing Option assumed or to have a new option substituted for the
existing Option by the surviving corporation to the transaction which is then
employing him, or a parent or subsidiary of such corporation, on a basis where
the excess of the aggregate fair market value of the shares subject to the
option immediately after the substitution or assumption over the aggregate
option price of such option is equal to the excess of the aggregate fair market
value of all shares subject to the Option immediately before such substitution
or assumption over the aggregate Option price of such shares, provided that the
shares subject to the new option must be traded on the New York or American
Stock Exchange or quoted on the National Association of Securities Dealers
Automated Quotation National Market System (or successor system) or (ii) to
receive upon any exercise of his Option, in lieu of the number of shares as to
which the Option shall then be so exercised, the securities, property and other
assets, including cash, to which the Holder would have been entitled pursuant to
the terms of the agreement or merger or consolidation or the agreement giving
rise to the other corporate transaction if at the time of such merger,
consolidation or other transaction such Holder had been the holder of the number
of shares of Stock equal to the number of shares as to which the Option shall
then be so exercised.

         If a corporate transaction described in section 424(a) of the Code
which involves the Company is to take place and there is to be no surviving
corporation while an Option remains in whole or in part unexercised, it shall be
cancelled by the Board of Directors as of the effective date of any such
corporate transaction but before such cancellation date each Holder shall be
provided with a notice of such cancellation and each Holder shall have the right
to exercise such Option in full (without regard to any limitations on exercise
set forth in or imposed by the Agreement pursuant to which such Option was
granted) to the extent it is then still unexercised during a 30-day period
preceding the effective date of such corporate transaction.

         In the event (i) the Company were to distribute to its stockholders or
otherwise divest of a majority of the stock of a subsidiary corporation that is
the principal employer of the Employee and (ii) following such distribution or
divestment the stock of the subsidiary corporation or any parent corporation of
such subsidiary corporation is listed or authorized for listing on a national
securities exchange or authorized for quotation on the National Association of
Securities Dealers Automated Quotation National Market System (or successor
system), the Board of Directors may, but shall not be required to, adjust the
terms of the Option to provide that such Option shall only represent a right to
purchase shares in such subsidiary corporation or parent corporation and the
number of shares and exercise price will be appropriately adjusted so as to
maintain the economic value of the Option. This adjustment would be in lieu of
any adjustment that might otherwise be required under this Section 5.4 for that
transaction.

         Except as hereinbefore expressly provided, 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

                                       -8-
<PAGE>
or services either upon direct sale or upon the exercise of rights or warrants
to subscribe therefor, or upon 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 or
price of shares of Stock then subject to outstanding Options.

         V.4 NO RIGHTS AS A STOCKHOLDER. No Holder shall have any rights as a
stockholder with respect to Stock covered by his Option until the date a stock
certificate is issued for the Stock.

         V.5 TAX WITHHOLDING. The Company or any Affiliate shall be entitled to
deduct from other compensation payable to each Employee any sums required by
federal, state, or local tax law to be withheld with respect to the grant or
exercise of an Option. In the alternative, the Company may require the Holder to
pay such sums for taxes directly to the Company or any Affiliate. If the Holder
is required to pay the sum directly, payment in cash or by check of such sums
for taxes shall be delivered within ten days after the date of exercise. The
Company shall have no obligation upon exercise of any Option until payment has
been received, unless withholding (or offset against a cash payment) as of or
prior to the date of exercise is sufficient to cover all sums due with respect
to that exercise. The Company and its Affiliates shall not be obligated to
advise a Holder of the existence of the tax or the amount which the employer
corporation will be required to withhold. The Company may also allow for the
retention of shares of Stock issuable upon the exercise of an Option to satisfy
such withholding as specified in Section 6.4.

                                   ARTICLE VI

                VARIABLE PROVISIONS RELATING TO SPECIFIC OPTIONS

         VI.1 OPTION PRICE. The price at which shares of Stock may be purchased
under an Option shall not be less than the aggregate par value of the shares of
Stock on the date the Option is granted. The Board of Directors or Committee, as
applicable, in its discretion may provide that the price at which shares of
Stock may be purchased under an Option may be more or less than 100 percent of
Fair Market Value on the date the Option is granted.

         VI.2 DURATION OF OPTIONS. Unless a shorter term is otherwise provided
in an Agreement, no Option shall be exercisable after ten years from the date
the Option was first exercisable. Unless the Holder's Agreement specifies
otherwise, an Option shall not continue to vest after the severance of the
employment or affiliation relationship with the Company and all Affiliates.

         VI.3 AMOUNT EXERCISABLE. Each Option may be exercised from time to
time, in whole or in part, in the manner and subject to the conditions the Board
of Directors or Committee, as applicable, in its sole discretion, may provide in
the Agreement, as long as the Option is valid and outstanding under the terms of
the Plan.

         VI.4 EXERCISE OF OPTIONS. A Holder may exercise his Option by
delivering to the Company a written notice stating (i) that he wishes to
exercise the Option on the date the notice is delivered, (ii) the number of
shares of Stock with respect to which the Option is to be exercised, (iii) the
address to which the certificate representing such shares of Stock should be
mailed, and (iv) his social security number. In order to be effective, such
written notice shall be accompanied

                                       -9-
<PAGE>
by (i) payment of the Option price of such shares of Stock and (ii) payment of
an amount of money necessary to satisfy any withholding tax liability that may
result from the exercise of the Option. Each such payment shall be made by
cashier's check drawn on a national banking association and payable to the order
of the Company in United States dollars.

         Unless otherwise provided in an Agreement, if, at the time of receipt
by the Company of such written notice, (i) the Company has unrestricted surplus
in an amount not less than the Option price of such shares of Stock, (ii) all
accrued cumulative preferential dividends and other current preferential
dividends on all outstanding shares of preferred stock of the Company have been
fully paid, (iii) the acquisition by the Company of its own shares of Stock for
the purpose of enabling such Holder to exercise such Option is otherwise
permitted by applicable law and without any vote or consent of any stockholder
of the Company, and (iv) there shall have been adopted, and there shall be in
full force and effect, a resolution of the Board of Directors authorizing the
acquisition by the Company of its own shares of Stock for such purpose, then the
Holder may deliver to the Company, in payment of the Option price of the shares
of Stock with respect to which the Option is exercised, (x) certificates
registered in the name of the Holder that represent a number of Mature Shares of
Stock legally and beneficially owned by the Holder (free of all liens, claims
and encumbrances of every kind) and having a fair market value on the date of
receipt by the Company of such written notice that is not greater than the
Option price of the shares of Stock with respect to which the Option is to be
exercised, such certificates to be accompanied by stock powers duly endorsed in
blank by the record holder of the Mature Shares represented by such
certificates, with the signature of such record holder guaranteed by a national
banking association (or in lieu of such certificates, other arrangements for the
transfer of such shares to the Company which are satisfactory to the Company),
and (y) if the Option price of the shares of Stock with respect to which such
Option is to be exercised exceeds such fair market value, a cashier's check
drawn on a national banking association and payable to the order of the Company
in an amount, in United States dollars, equal to the amount of such excess plus
the amount of money necessary to satisfy any withholding tax liability that may
result from the exercise of the Option. Notwithstanding the provisions of the
immediately preceding sentence, the Committee, in its sole discretion, may
refuse to accept Mature Shares in payment of the Option price of the shares of
Stock with respect to which the Option is to be exercised and, in that event,
any certificates representing Mature Shares that were received by the Company
with such written notice shall be returned to the Holder, together with notice
by the Company to the Holder of the refusal of the Committee to accept such
Mature Shares. Unless otherwise provided in the Agreement, the Company, upon
approval of the Committee and in its sole discretion, upon the request of the
Holder, may retain shares of Stock which would otherwise be issued upon exercise
of an Option to satisfy any withholding tax liability that may result from the
exercise of such Option; provided that the Fair Market Value of the shares held
back shall not exceed the Company's or the Affiliate's minimum statutory
withholding tax obligations. If, at the expiration of seven business days after
the delivery to the Holder of such written notice from the Company, the Holder
shall not have delivered to the Company a cashier's check drawn on a national
banking association and payable to the order of the Company in an amount, in
United States dollars, equal to the Option price of the shares of Stock with
respect to which the Option is to be exercised, such written notice from the
Holder to the Company shall be ineffective to exercise the Option.

         As promptly as practicable after the receipt by the Company of (i) such
written notice from the Holder, (ii) payment, in the form required by the
foregoing provisions of this Section 6.4, of the Option price of the shares of
Stock with respect to which the Option is to be exercised, and

                                      -10-
<PAGE>
(iii) payment, in the form required by the foregoing provisions of this Section
6.4, of an amount of money necessary to satisfy any withholding tax liability
that may result from the exercise of the Option, a certificate shall be issued
representing the number of shares of Stock with respect to which the Option has
been so exercised, reduced, to the extent applicable by the number of shares
retained by the Company as provided above to pay any required withholding tax,
such certificate to be registered in the name of the Holder, provided that such
delivery shall be considered to have been made when such certificate shall have
been mailed, postage prepaid, to such Holder at the address specified for such
purpose in such written notice from the Holder to the Company.

         VI.5 EXERCISE FOLLOWING TERMINATION OF EMPLOYMENT OR AFFILIATION
RELATIONSHIP. Unless it is expressly provided otherwise in the Agreement or
other written agreement with the Holder, Options shall terminate on the earlier
of (i) the date the Option is otherwise due to expire in accordance with Section
6.2 or (ii) the period of time specified in this Section 6.5:

         SEVERANCE OF EMPLOYMENT OR AFFILIATION RELATIONSHIP. If the Holder
severs employment or affiliation with the Company and all Affiliates prior to
three years from the date his Option was granted, for any reason, with or
without cause, other than for death, retirement under the then-established rules
of the Company or, in the case of a Non-Employee Director, the Board of
Directors, or Disability, his Option shall terminate and be immediately
forfeited. If the Holder severs employment or affiliation with the Company and
all Affiliates for any reason, with or without cause, other than for death,
retirement (as described above), or Disability on or after three years from the
date his Option was granted, the Option shall continue in effect until the date
the Option is otherwise due to expire in accordance with Section 6.2. Whether
authorized leave of absence or absence on military or government service shall
constitute severance of the employment or affiliation relationship of the Holder
shall be determined by the Committee at that time.

         In determining the employment or affiliation relationship between the
Company and the Holder, employment or affiliation with any Affiliate shall be
considered employment or affiliation with the Company, as shall employment or
affiliation with a corporation issuing or assuming a stock option in a
transaction to which section 424(a) of the Code applies, or with a parent
corporation or subsidiary corporation of the corporation issuing or assuming a
stock option (and for this purpose, the phrase "corporation issuing or assuming
a stock option" shall be substituted for the word "Company" in the definitions
of parent corporation and subsidiary corporation in Section 2.1, and the
parent-subsidiary relationship shall be determined at the time of the corporate
action described in section 424(a) of the Code).

         DEATH. If the Holder dies prior to three years from the date his Option
was granted, the Option shall be immediately exercisable and shall continue in
effect until ten years following the date of the Holder's death. If the Holder
dies on or after three years from the date his Option was granted, the Option
shall continue in effect until the date the Option is otherwise due to expire in
accordance with Section 6.2. After the death of the Holder, the Holder's
executors, administrators or any persons to whom his Option may be transferred
by will or by the laws of descent and distribution shall have the right, at any
time prior to the Option's expiration to exercise it.

         RETIREMENT. If the Holder retires in good standing from the employ or
affiliation with the Company and all Affiliates under the then-established rules
of the Company or, in the case of a Non-Employee Director, the Board of
Directors, prior to three years from the date his Option was granted,

                                      -11-
<PAGE>
the Holder shall become entitled to exercise that portion of his Option
determined by multiplying the number of shares of Stock subject to the Option by
a fraction, the numerator of which is the Holder's total whole years of service
since the Option was granted and the denominator of which is three. To the
extent that the Option is exercisable under the preceding sentence, the Option
shall be exercisable until ten years following the date of the Holder's
retirement in accordance with this Section 6.5, and the remainder of the Option
shall terminate immediately. If the Holder retires in good standing from the
employ or affiliation with the Company and all Affiliates under the
then-established rules of the Company or, in the case of a Non-Employee
Director, the Board of Directors on or after three years from the date his
Option was granted, such Option shall continue until the date the Option is
otherwise due to expire in accordance with Section 6.2.

         DISABILITY. If the Holder severs from the employ or affiliation with
the Company and all Affiliates as a result of his incurring a Disability prior
to three years from the date his Option was granted, the Option shall be
immediately exercisable and shall continue in effect until ten years following
the date he was severed from the employ or affiliation with the Company and all
Affiliates due to Disability. If the Employee severs from the employ or
affiliation with the Company and all Affiliates due to his Disability on or
after three years from the date his Option was granted, the Option shall
continue in effect until the date the Option is otherwise due to expire in
accordance with Section 6.2.

         VI.6 SUBSTITUTION OPTIONS. Options may be granted under the Plan from
time to time in substitution for stock options held by employees of other
corporations who are about to become employees of or affiliated with the
Company, or whose employer is about to become a parent or subsidiary corporation
of with the Company, conditioned upon the employee becoming an employee of or
affiliated with the Company or a parent or subsidiary corporation of the
Company, as a result of the merger or consolidation of the Company with another
corporation, or the acquisition by the Company of substantially all the assets
of another corporation, or the acquisition by the Company of at least 50 percent
of the issued and outstanding stock of another corporation as the result of
which it becomes a subsidiary of the Company. The terms and conditions of the
substitute Options so granted may vary from the terms and conditions set forth
in the Plan to such extent as the Board of Directors at the time of grant may
deem appropriate to conform, in whole or in part, to the provisions of the stock
options in substitution for which they are granted.

                                   ARTICLE VII

           GENERAL PROVISIONS RELATING TO ALL RESTRICTED STOCK AWARDS

         VII.1 AUTHORITY TO GRANT AWARDS. The Board of Directors may make an
award of Restricted Stock to selected eligible Non-Employee Directors. The
Committee may make an Award of Restricted Stock to selected eligible Employees.
The amount of each Restricted Stock Award and the respective terms and
conditions of each Award (which terms and conditions need not be the same in
each case) shall be determined by the Board of Directors or the Committee, as
applicable, in its sole discretion. However, the terms and conditions of an
Award shall not be inconsistent with the terms of the Plan.

         VII.2 TRANSFERABILITY AND RIGHTS WITH RESPECT TO RESTRICTED STOCK.
Except as provided herein, Restricted Stock may not be sold, assigned,
transferred, pledged, or otherwise encumbered

                                      -12-
<PAGE>
during a Restricted Period. Any attempted sale, assignment, transfer, pledge or
encumbrance of Restricted Stock in violation of the Plan shall be void and the
Company shall not be bound thereby.

         During the Restricted Period, certificates representing the Restricted
Stock and any Retained Distributions shall be registered in the recipient's name
and may bear a restrictive legend to the effect that ownership of such
Restricted Stock (and any such Retained Distributions), and the enjoyment of all
rights appurtenant thereto are subject to the restrictions, terms, and
conditions provided in the Plan and the applicable Agreement. Such certificates
shall be deposited by the recipient with the Company, together with stock powers
or other instruments of assignment, each endorsed in blank, which will permit
transfer to the Company of all or any portion of the Restricted Stock and any
securities constituting Retained Distributions which shall be forfeited in
accordance with the Plan and the applicable Agreement. Restricted Stock shall
constitute issued and outstanding shares of Stock for all corporate purposes.

         Subject to the terms of the Plan and the Agreement with respect to the
Award, the recipient shall have the right to vote the Restricted Stock awarded
to such recipient and to receive and retain all regular cash dividends, and to
exercise all other rights, powers and privileges of a holder of Stock, with
respect to such Restricted Stock, with the exception that (i) the recipient
shall not be entitled to delivery of the stock certificate or certificates
representing such Restricted Stock until the restrictions applicable thereto
shall have expired, (ii) the Company shall retain custody of all Retained
Distributions made or declared with respect to the Restricted Stock (and such
Retained Distributions shall be subject to the same restrictions, terms and
conditions as are applicable to the Restricted Stock) until such time, if ever,
as the Restricted Stock with respect to which such Retained Distributions shall
have been made, paid, or declared shall have become vested, and such Retained
Distributions shall not bear interest or be segregated in separate accounts and
(iii) the recipient may not sell, assign, transfer, pledge, exchange, encumber,
or dispose of the Restricted Stock or any Retained Distributions during the
Restricted Period. Nothing in this Section shall prevent transfers by will or by
the applicable laws of descent and distribution.

         VII.3 WITHHOLDING TAX. The Company or any Affiliate shall be entitled
to deduct from other compensation payable to each Employee any sums required by
federal, state or local tax law to be withheld with respect to Restricted Stock
Awards hereunder; or the Company may require the Holder to pay such sums
directly to the Company or any Affiliate.

         The Company or any Affiliate may meet its tax withholding obligations
under the Code and applicable state or local law arising upon the vesting of
Restricted Stock by delivering to the Restricted Stock recipient (or his estate,
if applicable) a reduced number of shares of Stock in the manner specified
below. At the time of vesting of shares of Restricted Stock, the Company shall
(i) calculate the amount of the Company's or the Affiliate's minimum statutory
tax withholding obligation on the assumption that all such vested shares of
Restricted Stock are made available for delivery, (ii) reduce the number of such
shares made available for delivery so that the Fair Market Value of the shares
withheld on the vesting date approximates the amount of tax the Company or an
Affiliate is obliged to withhold and (iii) in lieu of the withheld shares, remit
cash to the United States Treasury and other applicable governmental
authorities, on behalf of the Holder, in the amount of the withholding tax due.
The Company shall withhold only whole shares of Stock to satisfy its withholding
obligation. If the Fair Market Value of the withheld shares does not equal the
Company's withholding tax obligation, the Company shall withhold shares with a
Fair Market Value

                                      -13-
<PAGE>
slightly less than the amount of its withholding obligation and the Holder of
the Restricted Stock Award must satisfy the remaining withholding obligation by
paying such sum directly to the Company or any Affiliate in cash or by check
within ten days after the date of vesting. The withheld shares of Restricted
Stock not made available for delivery by the Company shall be retained as
treasury stock or will be cancelled and, in either case, the recipient's right,
title and interest in such Restricted Stock shall terminate. The Company shall
have no obligation upon the vesting of Restricted Stock until the Company or an
Affiliate has received payment sufficient to cover all tax withholding amounts
due. The Company and its Affiliates shall not be obligated to advise a Holder of
the existence of the tax or the amount which the employer corporation will be
required to withhold.

         VII.4 CHANGES IN COMPANY'S CAPITAL STRUCTURE. In the event that the
issued and outstanding shares of Stock should, as a result of any stock
dividend, stock split or spin-off, recapitalization, combination or exchange of
shares, merger, consolidation, acquisition of property or stock, separation,
reclassification, reorganization, liquidation, or other similar event, be
increased or decreased or changed into or exchanged for a different number or
kind of share of stock or other securities of the Company or of another
corporation, the number and class of additional shares or other securities which
may be issued pursuant to Restricted Stock Awards under the Plan will be
appropriately adjusted by the Committee to reflect such action. If any
adjustment shall result in a fractional share, the fraction shall be
disregarded.

                                  ARTICLE VIII

        VARIABLE PROVISIONS RELATING TO SPECIFIC RESTRICTED STOCK AWARDS

         VIII.1 VESTING OF RESTRICTED STOCK. Restricted Stock Awards shall be
subject to such vesting restrictions, if any, as the Board of Directors or the
Committee, as applicable, shall determine in its sole discretion. The vesting
restrictions shall be specified in the Agreements relating to the Awards.

         VIII.2 CONSEQUENCE OF VESTING. Subject to Article IX, when shares of
Restricted Stock become vested, the Restricted Period shall be terminated as to
those shares, and the Company shall deliver to the Restricted Stock Award
recipient (or his estate, if applicable) a Stock certificate representing those
shares and all Retained Distributions made or declared with respect to those
shares, reduced as necessary to satisfy the Company's tax withholding
obligation.

                                   ARTICLE IX

                               REQUIREMENTS OF LAW

         The Company shall not be required to sell, issue or deliver any shares
of Stock under any Award if such sale, issuance or delivery shall constitute a
violation by the Award recipient or the Company of any provisions of any law or
regulation of any governmental authority. Each Award granted under the Plan
shall be subject to the requirements that, if at any time the Board of Directors
or the Committee shall determine that the listing, registration or qualification
of the shares upon any

                                      -14-
<PAGE>
securities exchange or under any state or federal law of the United States or of
any other country or governmental subdivision, or the consent or approval of any
governmental regulatory body, or investment or other representations, are
necessary or desirable in connection with the issue, or purchase or delivery of
shares subject to an Award, that Award shall not be exercised in whole or in
part and no shares shall be delivered pursuant to an Award unless the listing,
registration, qualification, consent, approval or representations shall have
been effected or obtained free of any conditions not acceptable to the Board of
Directors or the Committee, as applicable. Any determination in this connection
by the Board of Directors or the Committee shall be final. In the event the
shares issuable or deliverable on exercise or vesting of an Award are not
registered under the Securities Act of 1933, the Company may imprint on the
certificate for those 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 shares of stock represented by this certificate have not been
         registered under the Securities Act of 1933 or under the securities
         laws of any state and may not be sold or transferred except upon
         registration or upon receipt by the Corporation of an opinion of
         counsel satisfactory to the Corporation, in form and substance
         satisfactory to the Corporation, that registration is not required for
         a sale or transfer."

The Company may, but shall in no event be obligated to, register any securities
covered by the Plan under the Securities Act of 1933 (as now in effect or as
later amended) and, in the event any shares are registered, the Company may
remove any legend on certificates representing those shares. The Company shall
not be obligated to take any other affirmative action in order to cause the
exercise of an Award or the issuance or delivery of shares under the Award to
comply with any law or regulation of any governmental authority.

                                    ARTICLE X

                                 ADMINISTRATION

         The Plan shall be administered (1) by the Board of Directors, with
respect to Non-Employee Directors, and (2) by the Committee, with respect to all
other Holders. All questions of interpretation and application of the Plan and
Awards shall be subject to the determination of Board of Directors or the
Committee, as applicable. A majority of the members of the Board of Directors or
the Committee, as applicable, shall constitute a quorum. All determinations of
the Board of Directors or the Committee shall be made by a majority of its
members. Any decision or determination reduced to writing and signed by a
majority of the members shall be as effective as if it had been made by a
majority vote at a meeting properly called and held. In carrying out its
authority under the Plan, subject to the express terms of any outstanding Award
or other agreement with a Holder, the Board of Directors or the Committee, as
applicable, shall have full and final authority and discretion, including but
not limited to the following rights, powers and authorities, to:

                  (a) determine the Non-Employee Directors and Employees to whom
         and the time or times at which Awards will be made,

                                      -15-
<PAGE>

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

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

                  (d) accelerate the time at which any outstanding Option may be
         exercised or Restricted Stock Award will rest,

                  (e) define the effect, if any, on an Award of the death,
         Disability, retirement, or termination of employment or affiliation
         relationship of the Non-Employee Director or Employee,

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

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

The actions of the Board of Directors or the Committee, as applicable, in
exercising all of the rights, powers, and authorities set out in this Article
and all other Articles of the Plan, when performed in good faith and in its sole
judgment, shall be final, conclusive and binding on all parties.

                                   ARTICLE XI

                        AMENDMENT OR TERMINATION OF PLAN

         The Board of Directors may amend, terminate or suspend the Plan at any
time, in its sole and absolute discretion subject to the rights of holders of
outstanding Awards at the time of such amendment, termination or suspension.

                                   ARTICLE XII

                                  MISCELLANEOUS

         XII.1 NO ESTABLISHMENT OF A TRUST FUND. No property shall be set aside
nor shall a trust fund of any kind be established to secure the rights of any
Holder under the Plan. All Holders shall at all times rely solely upon the
general credit of the Company for the payment of any benefit which becomes
payable under the Plan.

         XII.2 NO EMPLOYMENT OR AFFILIATION OBLIGATION. The granting of any
Award shall not constitute an employment contract, express or implied, nor
impose upon the Company or any Affiliate any obligation to employ or continue to
employ or utilize the services of any Holder. The right of the Company or any
Affiliate to terminate the employment or affiliation relationship of any person
shall not be diminished or affected by reason of the fact that an Award has been
granted to him.

                                      -16-
<PAGE>

         The decision of the Committee as to the cause of the Holder's
discharge, the damage done to the Company or an Affiliate, and the extent of the
Holder's competitive activity shall be final. No decision of the Committee,
however, shall affect the finality of the discharge of the Holder by the Company
or an Affiliate in any manner.

         XII.3 WRITTEN AGREEMENT. Each Award shall be embodied in a written
Agreement which shall be subject to the terms and conditions of the Plan and
shall be signed by the Holder and the Company. The Agreement may contain any
other provisions that the Board of Directors or the Committee, as applicable, in
its discretion shall deem advisable.

         XII.4 INDEMNIFICATION OF THE COMMITTEE AND THE BOARD OF DIRECTORS. With
respect to administration of the Plan, the Company shall indemnify each present
and future member of the Committee and/or the Board of Directors against, and
each member of the Committee and/or the Board of Directors shall be entitled
without further act on his part to indemnity from the Company for, all expenses
(including attorney's fees, the amount of judgments and the amount of approved
settlements made with a view to the curtailment of costs of litigation, other
than amounts paid to the Company itself) reasonably incurred by him in
connection with or arising out of any action, suit, or proceeding in which he
may be involved by reason of his being or having been a member of the Committee
and/or the Board of Directors, whether or not he continues to be a member of the
Committee and/or the Board of Directors at the time of incurring the
expenses--including, without limitation, matters as to which he shall be finally
adjudged in any action, suit or proceeding to have been found to have been
negligent in the performance of his duty as a member of the Committee and/or the
Board of Directors. However, this indemnity shall not include any expenses
incurred by any member of the Committee and/or the Board of Directors in respect
of matters as to which he shall be finally adjudged in any action, suit or
proceeding to have been guilty of gross negligence or willful misconduct in the
performance of his duty as a member of the Committee and/or the Board of
Directors. In addition, no right of indemnification under the Plan shall be
available to or enforceable by any member of the Committee and/or the Board of
Directors unless, within 60 days after institution of any action, suit or
proceeding, he shall have offered the Company, in writing, the opportunity to
handle and defend same at its own expense. This right of indemnification shall
inure to the benefit of the heirs, executors or administrators of each member of
the Committee and/or the Board of Directors and shall be in addition to all
other rights to which a member of the Committee and/or the Board of Directors
may be entitled as a matter of law, contract, or otherwise.

         XII.5 GENDER. If the context requires, words of one gender when used in
the Plan shall include the other and words used in the singular or plural shall
include the other.

         XII.6 HEADINGS. Headings of Articles and Sections are included for
convenience of reference only and do not constitute part of the Plan and shall
not be used in construing the terms of the Plan.

         XII.7 OTHER COMPENSATION PLANS. The maintenance of the Plan shall not
affect any other stock option, incentive or other compensation or benefit plans
or arrangements, including any employment, change of control or severance
agreements, in effect with or for the Company or any Affiliate, nor shall the
maintenance of the Plan preclude the Company from establishing any other forms
of incentive or other compensation for Non-Employee Directors or Employees.

                                      -17-
<PAGE>

         XII.8 OTHER AWARDS. The grant of an Award shall not confer upon the
Holder the right to receive any future or other Awards under the Plan, whether
or not Awards may be granted to similarly situated Holders, or the right to
receive future Awards upon the same terms or conditions as previously granted.

         XII.9 SECTION 83(b) ELECTIONS. No Holder shall exercise the election
permitted under section 83(b) of the Code with respect to an Award without
written approval of the chief financial officer of the Company. If such an
election is permitted with respect to any Award, the Company shall require the
Holder to pay the Company an amount necessary to satisfy the Company's or any
Affiliate's tax withholding obligation. Any Holder who makes an election under
section 83(b) of the Code with respect to any Award without the written approval
of the chief financial officer of the Company may, in the discretion of the
Committee or the Board of Directors, forfeit any or all Awards granted to him or
her under the Plan.

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

                                      -18-

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