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                                                                    EXHIBIT 10.3

                                 INCENTIVE PLAN

                                       OF

                             CARRIZO OIL & GAS, INC.

(AS AMENDED AND RESTATED EFFECTIVE AS OF FEBRUARY 17, 2000, HOWEVER, THE CHANGES
     TO THE DEFINITION OF "INDEPENDENT CONTRACTOR" IN SECTION 3 AND TO THE
             NUMBER OF AUTHORIZED SHARES IN SECTION 5 ARE SUBJECT TO
                     SHAREHOLDER APPROVAL AT THE 2000 ANNUAL
                           MEETING OF SHAREHOLDERS.)

            1. Plan. This Incentive Plan of Carrizo Oil & Gas, Inc. (the "Plan")
was adopted by Carrizo Oil & Gas, Inc. to reward certain corporate officers and
key employees of Carrizo Oil & Gas, Inc. and certain independent consultants by
enabling them to acquire shares of common stock of Carrizo Oil & Gas, Inc.

            2. Objectives. This Plan is designed to attract and retain key
employees of the Company and its Subsidiaries (as hereinafter defined), to
attract and retain qualified directors of the Company, to attract and retain
consultants and other independent contractors, to encourage the sense of
proprietorship of such employees, directors and independent contractors and to
stimulate the active interest of such persons in the development and financial
success of the Company and its Subsidiaries. These objectives are to be
accomplished by making Awards (as hereinafter defined) under this Plan and
thereby providing Participants (as hereinafter defined) with a proprietary
interest in the growth and performance of the Company and its Subsidiaries.

            3. Definitions. As used herein, the terms set forth below shall have
the following respective meanings:

            "Annual Director Award Date" means, for each year beginning on or
after the IPO Closing Date, the first business day of the month next succeeding
the date upon which the annual meeting of stockholders of the Company is held in
such year.

            "Authorized Officer" means the Chairman of the Board or the Chief
Executive Officer of the Company (or any other senior officer of the Company to
whom either of them shall delegate the authority to execute any Award
Agreement).

            "Award" means an Employee Award, a Director Award or an Independent
Contractor Award.

            "Award Agreement" means any Employee Award Agreement, Director Award
Agreement or Independent Contractor Award Agreement.

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            "Board" means the Board of Directors of the Company.

            "Cash Award" means an award denominated in cash.

            "Code" means the Internal Revenue Code of 1986, as amended from time
to time.

            "Committee" means (i) the Compensation Committee of the Board or
(ii) such other committee of the Board as is designated by the Board to
administer the Plan or (iii) to the extent contemplated hereby, the Board.

            "Common Stock" means the Common Stock, par value $.01 per share, of
the Company.

            "Company" means Carrizo Oil & Gas, Inc., a Texas corporation.

            "Director" means an individual serving as a member of the Board.

            "Director Award" means the grant of a Director Option.

            "Director Award Agreement" means a written agreement between the
Company and a Participant who is a Nonemployee Director setting forth the terms,
conditions and limitations applicable to a Director Award.

            "Disability" means, with respect to a Nonemployee Director, the
inability to perform the duties of a Director for a continuous period of more
than three months by reason of any medically determinable physical or mental
impairment.

            "Dividend Equivalents" means, with respect to shares of Restricted
Stock that are to be issued at the end of the Restriction Period, an amount
equal to all dividends and other distributions (or the economic equivalent
thereof) that are payable to stockholders of record during the Restriction
Period on a like number of shares of Common Stock.

            "Employee" means an employee of the Company or any of its
Subsidiaries and an individual who has agreed to become an Employee of the
Company or any of its Subsidiaries and is expected to become such an Employee
within the following six months.

            "Employee Award" means the grant of any Option, SAR, Stock Award,
Cash Award or Performance Award, whether granted singly, in combination or in
tandem, to a Participant who is an Employee pursuant to such applicable terms,
conditions and limitations as the Committee may establish in order to fulfill
the objectives of the Plan.

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            "Employee Award Agreement" means a written agreement between the
Company and a Participant who is an Employee setting forth the terms, conditions
and limitations applicable to an Employee Award.

            "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.

            "Fair Market Value" of a share of Common Stock means, as of a
particular date, (i) if shares of Common Stock are listed on a national
securities exchange, the mean between the highest and lowest sales price per
share of Common Stock on the consolidated transaction reporting system for the
principal national securities exchange on which shares of Common Stock are
listed on that date, or, if there shall have been no such sale so reported on
that date, on the last preceding date on which such a sale was so reported, (ii)
if shares of Common Stock are not so listed but are quoted on the Nasdaq
National Market, the mean between the highest and lowest sales price per share
of Common Stock reported by the Nasdaq National Market on that date, or, if
there shall have been no such sale so reported on that date, on the last
preceding date on which such a sale was so reported, (iii) if the Common Stock
is not so listed or quoted, the mean between the closing bid and asked price on
that date, or, if there are no quotations available for such date, on the last
preceding date on which such quotations shall be available, as reported by the
Nasdaq Stock Market, or, if not reported by the Nasdaq Stock Market, by the
National Quotation Bureau Incorporated or (iv) if shares of Common Stock are not
publicly traded, the most recent value determined by an independent appraiser
appointed by the Company for such purpose; provided that, notwithstanding the
foregoing, "Fair Market Value" in the case of any Award made in connection with
the IPO, means the price per share to the public of the Common Stock in the IPO,
as set forth in the final prospectus relating to the IPO.

            "Incentive Option" means an Option that is intended to comply with
the requirements set forth in Section 422 of the Code.

            "Independent Contractor" means a person providing services to the
Company or any of its Subsidiaries, including an Employee or Nonemployee
Director.

            "Independent Contractor Award" means the grant of any Nonqualified
Stock Option, SAR, Stock Award, Cash Award or Performance Award, whether granted
singly, in combination or in tandem, to a Participant who is an Independent
Contractor pursuant to such applicable terms, conditions and limitations as the
Committee may establish in order to fulfill the objectives of the Plan.

            "Independent Contractor Award Agreement" means a written agreement
between the Company and a Participant who is an Independent Contractor setting
forth the terms, conditions and limitations applicable to an Independent
Contractor Award.

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            "IPO" means the first time a registration statement filed under the
Securities Act of 1933 and respecting an underwritten primary offering by the
Company of shares of Common Stock is declared effective under that Act and the
shares registered by that registration statement are issued and sold by the
Company (otherwise than pursuant to the exercise of any overallotment option).

            "IPO Closing Date" means the date on which the Company first
receives payment for the shares of Common Stock it sells in the IPO.

            "Nonemployee Director" has the meaning set forth in paragraph 4(b)
hereof.

            "Nonqualified Stock Option" means an Option that is not an Incentive
Option.

            "Option" means a right to purchase a specified number of shares of
Common Stock at a specified price.

            "Participant" means an Employee, Director or Independent Contractor
to whom an Award has been made under this Plan.

            "Performance Award" means an award made pursuant to this Plan to a
Participant who is an Employee or Independent Contractor who is subject to the
attainment of one or more Performance Goals.

            "Performance Goal" means a standard established by the Committee, to
determine in whole or in part whether a Performance Award shall be earned.

            "Restricted Stock" means any Common Stock that is restricted or
subject to forfeiture provisions.

            "Restriction Period" means a period of time beginning as of the date
upon which an Award of Restricted Stock is made pursuant to this Plan and ending
as of the date upon which the Common Stock subject to such Award is no longer
restricted or subject to forfeiture provisions.

            "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, or
any successor rule.

            "SAR" means a right to receive a payment, in cash or Common Stock,
equal to the excess of the Fair Market Value or other specified valuation of a
specified number of shares of Common Stock on the date the right is exercised
over a specified strike price, in each case, as determined by the Committee.

            "Stock Award" means an award in the form of shares of Common Stock
or units denominated in shares of Common Stock.

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            "Subsidiary" means (i) in the case of a corporation, any corporation
of which the Company directly or indirectly owns shares representing more than
50% of the combined voting power of the shares of all classes or series of
capital stock of such corporation which have the right to vote generally on
matters submitted to a vote of the stockholders of such corporation and (ii) in
the case of a partnership or other business entity not organized as a
corporation, any such business entity of which the Company directly or
indirectly owns more than 50% of the voting, capital or profits interests
(whether in the form of partnership interests, membership interests or
otherwise).

            4. Eligibility.

            (a) Employees. Key Employees eligible for Employee Awards under this
      Plan are those who hold positions of responsibility and whose performance,
      in the judgment of the Committee, can have a significant effect on the
      success of the Company and its Subsidiaries.

            (b) Directors. Directors eligible for Director Awards under this
      Plan are those who are not employees of the Company or any of its
      Subsidiaries ("Nonemployee Directors").

            (c) Independent Contractors. Independent Contractors eligible for
      Independent Contractor Awards under this Plan are those Independent
      Contractors providing services to, or who will provide services to, the
      Company or any of its Subsidiaries.

            5. Common Stock Available for Awards. Subject to the provisions of
paragraph 15 hereof, there shall be available for Awards under this Plan granted
wholly or partly in Common Stock (including rights or options that may be
exercised for or settled in Common Stock) an aggregate of 1,500,000 shares of
Common Stock, all of which shall be available for Incentive Options. The number
of shares of Common Stock that are the subject of Awards under this Plan, that
are forfeited or terminated, expire unexercised, are settled in cash in lieu of
Common Stock or in a manner such that all or some of the shares covered by an
Award are not issued to a Participant or are exchanged for Awards that do not
involve Common Stock, shall again immediately become available for Awards
hereunder. The Committee may from time to time adopt and observe such procedures
concerning the counting of shares against the Plan maximum as it may deem
appropriate. The Board and the appropriate officers of the Company shall from
time to time take whatever actions are necessary to file any required documents
with governmental authorities, stock exchanges and transaction reporting systems
to ensure that shares of Common Stock are available for issuance pursuant to
Awards.

            6. Administration.

            (a) This Plan, as it applies to Participants who are Employees or
      Independent Contractors but not with respect to Participants who are
      Nonemployee Directors, shall be administered by the Committee. To the
      extent required in order for Employee Awards to be

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      exempt from Section 16 of the Exchange Act by virtue of the provisions of
      Rule 16b-3, (i) the Committee shall consist of at least two members of the
      Board who meet the requirements of the definition of "non-employee
      director" set forth in Rule 16b-3(b)(3)(i) promulgated under the Exchange
      Act or (ii) Awards may be granted by, and the Plan may be administered by,
      the Board.

            (b) Subject to the provisions hereof, insofar as this Plan relates
      to the Employee Awards or Independent Contractor Awards, the Committee
      shall have full and exclusive power and authority to administer this Plan
      and to take all actions that are specifically contemplated hereby or are
      necessary or appropriate in connection with the administration hereof.
      Insofar as this Plan relates to Employee Awards or Independent Contractor
      Awards, the Committee shall also have full and exclusive power to
      interpret this Plan and to adopt such rules, regulations and guidelines
      for carrying out this Plan as it may deem necessary or proper, all of
      which powers shall be exercised in the best interests of the Company and
      in keeping with the objectives of this Plan. The Committee may, in its
      discretion, provide for the extension of the exercisability of an Employee
      Award or Independent Contractor Award, accelerate the vesting or
      exercisability of an Employee Award or Independent Contractor Award,
      eliminate or make less restrictive any restrictions contained in an
      Employee Award or Independent Contractor Award, waive any restriction or
      other provision of this Plan (insofar as such provision relates to
      Employee Awards or to Independent Contractor Awards) or an Employee Award
      or Independent Contractor Award or otherwise amend or modify an Employee
      Award or Independent Contractor Award in any manner that is either (i) not
      adverse to the Participant to whom such Employee Award or Independent
      Contractor Award was granted or (ii) consented to by such Participant. The
      Committee may make an award to an individual who it expects to become an
      Employee of the Company or any of its Subsidiaries within the next six
      months, with such award being subject to the individual's actually
      becoming an Employee within such time period, and subject to such other
      terms and conditions as may be established by the Committee. The Committee
      may correct any defect or supply any omission or reconcile any
      inconsistency in this Plan or in any Employee Award or Independent
      Contractor Award in the manner and to the extent the Committee deems
      necessary or desirable to further the Plan purposes. Any decision of the
      Committee in the interpretation and administration of this Plan shall lie
      within its sole and absolute discretion and shall be final, conclusive and
      binding on all parties concerned.

            (c) No member of the Committee or officer of the Company to whom the
      Committee has delegated authority in accordance with the provisions of
      paragraph 7 of this Plan shall be liable for anything done or omitted to
      be done by him or her, by any member of the Committee or by any officer of
      the Company in connection with the performance of any duties under this
      Plan, except for his or her own willful misconduct or as expressly
      provided by statute.

            7. Delegation of Authority. The Committee may delegate to the Chief
Executive Officer and to other senior officers of the Company its duties under
this Plan pursuant to such

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conditions or limitations as the Committee may establish, except that the
Committee may not delegate to any person the authority to grant Awards to, or
take other action with respect to, Participants who are subject to Section 16 of
the Exchange Act.

            8. Employee and Independent Contractor Awards.

            (a) The Committee shall determine the type or types of Employee
      Awards to be made under this Plan and shall designate from time to time
      the Employees who are to be the recipients of such Awards. Each Employee
      Award may be embodied in an Employee Award Agreement, which shall contain
      such terms, conditions and limitations as shall be determined by the
      Committee in its sole discretion and shall be signed by the Participant to
      whom the Employee Award is made and by an Authorized Officer for and on
      behalf of the Company. Employee Awards may consist of those listed in this
      paragraph 8(a) hereof and may be granted singly, in combination or in
      tandem. Employee Awards may also be made in combination or in tandem with,
      in replacement of, or as alternatives to, grants or rights under this Plan
      or any other employee plan of the Company or any of its Subsidiaries,
      including the plan of any acquired entity. An Employee Award may provide
      for the grant or issuance of additional, replacement or alternative
      Employee Awards upon the occurrence of specified events, including the
      exercise of the original Employee Award granted to a Participant. All or
      part of an Employee Award may be subject to conditions established by the
      Committee, which may include, but are not limited to, continuous service
      with the Company and its Subsidiaries, achievement of specific business
      objectives, increases in specified indices, attainment of specified growth
      rates and other comparable measurements of performance. Upon the
      termination of employment by a Participant who is an Employee, any
      unexercised, deferred, unvested or unpaid Employee Awards shall be treated
      as set forth in the applicable Employee Award Agreement.

                  (i) Stock Option. An Employee Award may be in the form of an
            Option. An Option awarded pursuant to this Plan may consist of an
            Incentive Option or a Nonqualified Option. The price at which shares
            of Common Stock may be purchased upon the exercise of an Incentive
            Option shall be not less than the Fair Market Value of the Common
            Stock on the date of grant. The price at which shares of Common
            Stock may be purchased upon the exercise of a Nonqualified Option
            shall be not less than the Fair Market Value of the Common Stock on
            the date of grant. Subject to the foregoing provisions, the terms,
            conditions and limitations applicable to any Options awarded
            pursuant to this Plan, including the term of any Options and the
            date or dates upon which they become exercisable, shall be
            determined by the Committee.

                  (ii) Stock Appreciation Right. An Employee Award may be in the
            form of an SAR. The terms, conditions and limitations applicable to
            any SARs awarded pursuant to this Plan, including the term of any
            SARs and the date or dates upon which they become exercisable, shall
            be determined by the Committee.

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                  (iii) Stock Award. An Employee Award may be in the form of a
            Stock Award. The terms, conditions and limitations applicable to any
            Stock Awards granted pursuant to this Plan shall be determined by
            the Committee.

                  (iv) Cash Award. An Employee Award may be in the form of a
            Cash Award. The terms, conditions and limitations applicable to any
            Cash Awards granted pursuant to this Plan shall be determined by the
            Committee.

                  (v) Performance Award. Without limiting the type or number of
            Employee Awards that may be made under the other provisions of this
            Plan, an Employee Award may be in the form of a Performance Award. A
            Performance Award shall be paid, vested or otherwise deliverable
            solely on account of the attainment of one or more pre-established,
            objective Performance Goals established by the Committee prior to
            the earlier to occur of (x) 90 days after the commencement of the
            period of service to which the Performance Goal relates and (y) the
            lapse of 25% of the period of service (as scheduled in good faith at
            the time the goal is established), and in any event while the
            outcome is substantially uncertain. A Performance Goal is objective
            if a third party having knowledge of the relevant facts could
            determine whether the goal is met. Such a Performance Goal may be
            based on one or more business criteria that apply to the individual,
            one or more business units of the Company, or the Company as a
            whole, and may include one or more of the following: increased
            revenue, net income, stock price, market share, earnings per share,
            return on equity, return on assets or decrease in costs. Unless
            otherwise stated, such a Performance Goal need not be based upon an
            increase or positive result under a particular business criterion
            and could include, for example, maintaining the status quo or
            limiting economic losses (measured, in each case, by reference to
            specific business criteria). In interpreting Plan provisions
            applicable to Performance Goals and Performance Awards, it is the
            intent of the Plan to conform with the standards of Section 162(m)
            of the Code and Treasury Regulation ss. 1.162-27(e)(2)(i), and the
            Committee in establishinG such goals and interpreting the Plan shall
            be guided by such provisions. Prior to the payment of any
            compensation based on the achievement of Performance Goals, the
            Committee must certify in writing that applicable Performance Goals
            and any of the material terms thereof were, in fact, satisfied.
            Subject to the foregoing provisions, the terms, conditions and
            limitations applicable to any Performance Awards made pursuant to
            this Plan shall be determined by the Committee.

            (b) Notwithstanding anything to the contrary contained in this Plan,
      the following limitations shall apply to any Employee Awards made
      hereunder:

                  (i) no Participant may be granted, during any one-year period,
            Employee Awards consisting of Options or SARs that are exercisable
            for more than 250,000 shares of Common Stock;

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                  (ii) no Participant may be granted, during any one-year
            period, Stock Awards covering or relating to more than 50,000 shares
            of Common Stock (the limitation set forth in this clause (ii),
            together with the limitation set forth in clause (i) above, being
            hereinafter collectively referred to as the "Stock Based Awards
            Limitations"); and

                  (iii) no Participant may be granted Employee Awards consisting
            of cash or in any other form permitted under this Plan (other than
            Employee Awards consisting of Options or SARs or otherwise
            consisting of shares of Common Stock or units denominated in such
            shares) in respect of any one-year period having a value determined
            on the date of grant in excess of $500,000.

            (c) The Committee shall have the sole responsibility and authority
      to determine the type or types of Independent Contractor Awards to be made
      under this Plan and may make any such Awards as could be made to an
      Employee, other than Incentive Options.

            9. Director Awards. Each Nonemployee Director of the Company shall
be granted Director Awards in accordance with this paragraph 9 and subject to
the applicable terms, conditions and limitations set forth in this Plan and the
applicable Director Award Agreement. Notwithstanding anything to the contrary
contained herein, Director Awards shall not be made in any year in which a
sufficient number of shares of Common Stock are not available to make such
Awards under this Plan.

            (a) Initial Director Options. On the IPO Closing Date, each
      Nonemployee Director shall be automatically awarded a Director Option on
      10,000 shares of Common Stock.

            (b) Other Director Options. Effective upon the IPO Closing Date, on
      the date of his or her first appointment or election to the Board of
      Directors, a Nonemployee Director shall automatically be granted a
      Director Option that provides for the purchase of 10,000 shares of Common
      Stock. In addition, on each Annual Director Award Date, each Nonemployee
      Director shall automatically be granted a Director Option that provides
      for the purchase of 2,500 shares of Common Stock.

            (c) Terms. Each Director Option shall have a term of ten years from
      the date of grant, notwithstanding any earlier termination of the status
      of the holder as a Nonemployee Director. The purchase price of each share
      of Common Stock subject to a Director Option shall be equal to the Fair
      Market Value of the Common Stock on the date of grant. All Director
      Options shall vest and become exercisable in increments of one-third of
      the total number of shares of Common Stock that are subject thereto
      (rounded up to the nearest whole number) on the first and second
      anniversaries of the date of grant and of all remaining shares of Common
      Stock that are subject thereto on the third anniversary of the date of
      grant. All

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      unvested Director Options shall be forfeited if the Nonemployee Director
      resigns as a Director without the consent of a majority of the other
      Directors.

            (d) Agreements. Any Award of Director Options shall be embodied in a
      Director Award Agreement, which shall contain the terms, conditions and
      limitations set forth above and shall be signed by the Participant to whom
      the Director Options are granted and by an Authorized Officer for and on
      behalf of the Company.

            10. Payment of Awards.

            (a) General. Payment of Employee Awards or Independent Contractor
      Awards may be made in the form of cash or Common Stock, or a combination
      thereof, and may include such restrictions as the Committee shall
      determine, including, in the case of Common Stock, restrictions on
      transfer and forfeiture provisions. If payment of an Employee Award or
      Independent Contractor Award is made in the form of Restricted Stock, the
      applicable Award Agreement relating to such shares shall specify whether
      they are to be issued at the beginning or end of the Restriction Period.
      In the event that shares of Restricted Stock are to be issued at the
      beginning of the Restriction Period, the certificates evidencing such
      shares (to the extent that such shares are so evidenced) shall contain
      appropriate legends and restrictions that describe the terms and
      conditions of the restrictions applicable thereto. In the event that
      shares of Restricted Stock are to be issued at the end of the Restricted
      Period, the right to receive such shares shall be evidenced by book entry
      registration or in such other manner as the Committee may determine.

            (b) Deferral. With the approval of the Committee, amounts payable in
      respect of Employee Awards or Independent Contractor Awards may be
      deferred and paid either in the form of installments or as a lump-sum
      payment. The Committee may permit selected Participants to elect to defer
      payments of some or all types of Employee Awards or Independent Contractor
      Awards in accordance with procedures established by the Committee. Any
      deferred payment of an Employee Award or Independent Contractor Award,
      whether elected by the Participant or specified by the Award Agreement or
      by the Committee, may be forfeited if and to the extent that the Award
      Agreement so provides.

            (c) Dividends and Interest. Rights to dividends or Dividend
      Equivalents may be extended to and made part of any Employee Award or
      Independent Contractor Award consisting of shares of Common Stock or units
      denominated in shares of Common Stock, subject to such terms, conditions
      and restrictions as the Committee may establish. The Committee may also
      establish rules and procedures for the crediting of interest on deferred
      cash payments and Dividend Equivalents for Employee Awards or Independent
      Contractor Awards consisting of shares of Common Stock or units
      denominated in shares of Common Stock.

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            (d) Substitution of Awards. At the discretion of the Committee, a
      Participant who is an Employee or Independent Contractor may be offered an
      election to substitute an Employee Award or Independent Contractor Award
      for another Employee Award or Independent Contractor Award or Employee
      Awards or Independent Contractor Awards of the same or different type.

            11. Stock Option Exercise. The price at which shares of Common Stock
may be purchased under an Option shall be paid in full at the time of exercise
in cash or, if elected by the optionee, the optionee may purchase such shares by
means of tendering Common Stock or surrendering another Award, including
Restricted Stock or Director Restricted Stock, valued at Fair Market Value on
the date of exercise, or any combination thereof. The Committee shall determine
acceptable methods for Participants who are Employees or Independent Contractors
to tender Common Stock or other Employee Awards or Independent Contractor
Awards; provided that any Common Stock that is or was the subject of an Employee
Award or Independent Contractor Award may be so tendered only if it has been
held by the Participant for six months. The Committee may provide for procedures
to permit the exercise or purchase of such Awards by use of the proceeds to be
received from the sale of Common Stock issuable pursuant to an Employee Award or
Independent Contractor Award. Unless otherwise provided in the applicable Award
Agreement, in the event shares of Restricted Stock are tendered as consideration
for the exercise of an Option, a number of the shares issued upon the exercise
of the Option, equal to the number of shares of Restricted Stock or Director
Restricted Stock used as consideration therefor, shall be subject to the same
restrictions as the Restricted Stock or Director Restricted Stock so submitted
as well as any additional restrictions that may be imposed by the Committee.

            12. Taxes. The Company shall have the right to deduct applicable
taxes from any Employee Award payment and withhold, at the time of delivery or
vesting of cash or shares of Common Stock under this Plan, an appropriate amount
of cash or number of shares of Common Stock or a combination thereof for payment
of taxes required by law or to take such other action as may be necessary in the
opinion of the Company to satisfy all obligations for withholding of such taxes.
The Committee may also permit withholding to be satisfied by the transfer to the
Company of shares of Common Stock theretofore owned by the holder of the
Employee Award with respect to which withholding is required. If shares of
Common Stock are used to satisfy tax withholding, such shares shall be valued
based on the Fair Market Value when the tax withholding is required to be made.
The Committee may provide for loans, on either a short term or demand basis,
from the Company to a Participant who is an Employee or Independent Contractor
to permit the payment of taxes required by law.

            13. Amendment, Modification, Suspension or Termination. The Board
may amend, modify, suspend or terminate this Plan for the purpose of meeting or
addressing any changes in legal requirements or for any other purpose permitted
by law, except that (i) no amendment or alteration that would adversely affect
the rights of any Participant under any Award previously granted to such
Participant shall be made without the consent of such Participant and (ii) no
amendment or alteration shall be effective prior to its approval by the
stockholders of the Company

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to the extent such approval is then required pursuant to Rule 16b-3 in order to
preserve the applicability of any exemption provided by such rule to any Award
then outstanding (unless the holder of such Award consents) or to the extent
stockholder approval is otherwise required by applicable legal requirements.

            14. Assignability. Unless otherwise determined by the Committee and
provided in the Award Agreement, no Award or any other benefit under this Plan
constituting a derivative security within the meaning of Rule 16a-1(c) under the
Exchange Act shall be assignable or otherwise transferable except by will or the
laws of descent and distribution or pursuant to a qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement Income
Security Act, or the rules thereunder. The Committee may prescribe and include
in applicable Award Agreements other restrictions on transfer. Any attempted
assignment of an Award or any other benefit under this Plan in violation of this
paragraph 14 shall be null and void.

            15.   Adjustments.

            (a) The existence of outstanding Awards shall not affect in any
      manner 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 capital stock of the Company or its business or any
      merger or consolidation of the Company, or any issue of bonds, debentures,
      preferred or prior preference stock (whether or not such issue is prior
      to, on a parity with or junior to the Common Stock) 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 of any
      kind, whether or not of a character similar to that of the acts or
      proceedings enumerated above.

            (b) In the event of any subdivision or consolidation of outstanding
      shares of Common Stock, declaration of a dividend payable in shares of
      Common Stock or other stock split, then, except with respect to the
      Existing Options, (i) the number of shares of Common Stock reserved under
      this Plan, (ii) the number of shares of Common Stock covered by
      outstanding Awards in the form of Common Stock or units denominated in
      Common Stock, (iii) the exercise or other price in respect of such Awards,
      (iv) the appropriate Fair Market Value and other price determinations for
      such Awards, (v) the number of shares of Common Stock covered by Director
      Options automatically granted pursuant to paragraph 9 hereof and (vi) the
      Stock Based Awards Limitations shall each be proportionately adjusted by
      the Board to reflect such transaction. In the event of any other
      recapitalization or capital reorganization of the Company, any
      consolidation or merger of the Company with another corporation or entity,
      the adoption by the Company of any plan of exchange affecting the Common
      Stock or any distribution to holders of Common Stock of securities or
      property (other than normal cash dividends or dividends payable in Common
      Stock), the Board shall make appropriate adjustments to (i) the number of
      shares of Common Stock covered by Awards in the form of Common Stock or
      units denominated in Common Stock, (ii) the exercise or other price in
      respect of such Awards, (iii) the appropriate Fair Market Value and other
      price

                                      -12-
<PAGE>   13
      determinations for such Awards, (iv) the number of shares of Common Stock
      covered by Director Options automatically granted pursuant to paragraph 9
      hereof and (v) the Stock Based Awards Limitations to give effect to such
      transaction shall each be proportionately adjusted by the Board to reflect
      such transaction; provided that such adjustments shall only be such as are
      necessary to maintain the proportionate interest of the holders of the
      Awards and preserve, without exceeding, the value of such Awards. In the
      event of a corporate merger, consolidation, acquisition of property or
      stock, separation, reorganization or liquidation, the Board shall be
      authorized to issue or assume Awards by means of substitution of new
      Awards, as appropriate, for previously issued Awards or to assume
      previously issued Awards as part of such adjustment.

            (c) In the event of a corporate merger, consolidation, acquisition
      of property or stock, separation, reorganization or liquidation, the Board
      may make such adjustments to outstanding Awards or other provisions for
      the disposition of outstanding Awards as it deems equitable, and shall be
      authorized, in its discretion, (i) to provide for the substitution of a
      new Award or other arrangement (which, if applicable, may be exercisable
      for such property or stock as the Board determines) for an outstanding
      Award or the assumption of an outstanding Award, regardless of whether in
      a transaction to which Section 424(a) of the Code applies, (ii) to
      provide, prior to the transaction, for the acceleration of the vesting and
      exercisability of, or lapse of restrictions with respect to, the
      outstanding Award and, if the transaction is a cash merger, to provide for
      the termination of any portion of the Award that remains unexercised at
      the time of such transaction or (iii) to provide for the acceleration of
      the vesting and exercisability of an outstanding Award and the
      cancellation thereof in exchange for such payment as shall be mutually
      agreeable to the Participant and the Board.

            16. Restrictions. No Common Stock or other form of payment shall be
issued with respect to any Award unless the Company shall be satisfied based on
the advice of its counsel that such issuance will be in compliance with
applicable federal and state securities laws. It is the intent of the Company
that grants of Awards under this Plan comply with Rule 16b-3 with respect to
persons subject to Section 16 of the Exchange Act unless otherwise provided
herein or in an Award Agreement, that any ambiguities or inconsistencies in the
construction of such an Award or this Plan be interpreted to give effect to such
intention. Certificates evidencing shares of Common Stock delivered under this
Plan (to the extent that such shares are so evidenced) may be subject to such
stop transfer orders and other restrictions as the Committee may deem advisable
under the rules, regulations and other requirements of the Securities and
Exchange Commission, any securities exchange or transaction reporting system
upon which the Common Stock is then listed or to which it is admitted for
quotation and any applicable federal or state securities law. The Committee may
cause a legend or legends to be placed upon such certificates (if any) to make
appropriate reference to such restrictions.

            17. Unfunded Plan. Insofar as it provides for Awards of cash, Common
Stock or rights thereto, this Plan shall be unfunded. Although bookkeeping
accounts may be established with respect to Participants who are entitled to
cash, Common Stock or rights thereto under this Plan,

                                      -13-
<PAGE>   14
any such accounts shall be used merely as a bookkeeping convenience. The Company
shall not be required to segregate any assets that may at any time be
represented by cash, Common Stock or rights thereto, nor shall this Plan be
construed as providing for such segregation, nor shall the Company, the Board or
the Committee be deemed to be a trustee of any cash, Common Stock or rights
thereto to be granted under this Plan. Any liability or obligation of the
Company to any Participant with respect to an Award of cash, Common Stock or
rights thereto under this Plan shall be based solely upon any contractual
obligations that may be created by this Plan and any Award Agreement, and no
such liability or obligation of the Company shall be deemed to be secured by any
pledge or other encumbrance on any property of the Company. Neither the Company
nor the Board nor the Committee shall be required to give any security or bond
for the performance of any obligation that may be created by this Plan.

            18. Governing Law. This Plan and all determinations made and actions
taken pursuant hereto, to the extent not otherwise governed by mandatory
provisions of the Code or the securities laws of the United States, shall be
governed by and construed in accordance with the laws of the State of Texas.

            19. Effectiveness. The Plan as hereby amended and restated shall be
effective as of February 17, 2000, except for the change to the definition of
"Independent Contractor" and to the number of authorized shares in Section 5,
which shall become effective upon shareholder approval at the 2000 Annual
Meeting of Shareholders.

                                      -14-<PAGE>   1
                                                                   EXHIBIT 10.1

                                  AZURIX CORP.

                                 1999 STOCK PLAN
                (AS AMENDED AND RESTATED EFFECTIVE JUNE 13, 2000)

                                    ARTICLE 1

                              PURPOSES OF THE PLAN

             1.1 Purposes. The purposes of the Plan are (a) to enhance the
         Company's ability to attract and retain the services of qualified key
         employees, officers and directors upon whose judgment, initiative and
         efforts the successful conduct and development of the Company's
         business largely depends, and (b) to provide additional incentives to
         such persons or entities to devote their utmost effort and skill to the
         advancement and betterment of the Company, by providing them an
         opportunity to participate in the ownership of the Company and thereby
         have an interest in the success and increased value of the Company.

                                    ARTICLE 2

                                   DEFINITIONS

         For purposes of this Plan, the following terms shall have the meanings
         indicated:

             2.1 Administrator. "Administrator" means the Human Resources and
         Compensation Committee of the Board.

             2.2 Affiliate. "Affiliate" shall mean (i) any entity that directly
         or through one or more intermediaries is controlled by the Company,
         (ii) any entity in which the Company has a significant equity interest
         as determined by the Committee, or (iii) as used in Article 8 and in
         the term "Associate", as the term "affiliate" is defined in Rule 12b-2
         under the Securities Exchange Act of 1934, as amended, or any successor
         rule or regulation.

             2.3 Affiliated Company. "Affiliated Company" means Enron Corp. or
         "subsidiary corporation" of the Company or Enron Corp., whether now
         existing or hereafter created or acquired, as those terms are defined
         in Sections 424(e) and 424(f) of the Code, respectively.

             2.4 Associate. "Associate" is used to indicate a relationship with
         a specified person and shall mean (i) any corporation, partnership or
         other organization to which such specified person is an officer or
         partner or is, directly or indirectly, the Beneficial Owner of ten
         percent (10%) or more of any class of equity securities, (ii) any trust
         or other estate in which such specified person has a substantial
         beneficial interest or as to which such specified person serves as
         trustee or in a similar fiduciary capacity, (iii) any relative or
         spouse of such specified person, or any relative of such spouse, who
         has the same home as such specified person or who is a Director or
         officer of the Company or any of its parents or Affiliates, and (iv)
         any person who is a director or officer of such specified person or any
         of its parents or Affiliates (other than the Company or any
         wholly-owned subsidiary of the Company).

<PAGE>   2

             2.5 Beneficial Owner. "Beneficial Owner" shall be defined by
         reference to Rule 13d-3 under the Securities Exchange Act of 1934, as
         amended, or any successor rule or regulation; provided, however, and
         without limitation, any individual, corporation, partnership, group,
         association or other person or entity which has the right to acquire
         any capital stock of the Company at any time in the future, whether
         such right is contingent or absolute, pursuant to any agreement,
         arrangement or understanding or upon exercise of conversion rights,
         warrants or options, or otherwise, shall be the Beneficial Owner of
         such capital stock.

             2.6 Board. "Board" means the Board of Directors of the Company.

             2.7 Change in Control. "Change in Control" means any of the events
         or circumstances described in Article 8.

             2.8 Code. "Code" means the Internal Revenue Code of 1986, as
         amended from time to time.

             2.9 Committee. "Committee" means a committee of two or more members
         of the Board appointed to administer the Plan, as set forth in Section
         7.1 hereof.

             2.10 Common Stock. "Common Stock" means the Common Stock of the
         Company, subject to adjustment pursuant to Section 4.3 hereof.

             2.11 Disability. "Disability" means permanent and total disability
         as defined in the long term disability benefit plan covering employees
         of the Company, or if a Participant is not covered by such a plan, as
         determined by the Administrator. The Administrator's determination of a
         Disability or the absence thereof shall be binding on all interested
         parties.

             2.12 Effective Date. "Effective Date" as to this restatement of the
         Plan means June 13, 2000, or if later, the date the Plan is approved by
         shareholders of the Company. No grants of Options or Restricted Stock
         shall be made under the Plan prior to the Effective Date; provided,
         however, that this restatement of the Plan shall not invalidate Options
         or Restricted Stock granted on or before May 1, 2000.

             2.13 Exercise Price. "Exercise Price" means the purchase price per
         share of Common Stock payable upon exercise of an Option.

             2.14 Fair Market Value. "Fair Market Value" shall mean, with
         respect to any property (including, without limitation, any Common
         Stock or other securities), the value of such property determined by
         such methods or procedures as shall be established from time to time by
         the Committee; provided, that so long as the closing price of Common
         Stock as reported in the "NYSE-Composite Transactions" section of the
         Midwest edition of The Wall Street Journal is reported, Fair Market
         Value with respect to a share of Common Stock on a particular date
         shall mean such closing price of such Common Stock as so reported for
         such date (or, if no prices are quoted for that date, as so quoted for
         the last preceding date for which such prices were so quoted).

                                       2
<PAGE>   3

             2.15 Incentive Option. "Incentive Option" means any Option
         designated and qualified as an "incentive stock option" as defined in
         Section 422 of the Code.

             2.16 Incentive Option Agreement. "Incentive Option Agreement" means
         an Option Agreement with respect to an Incentive Option.

             2.17 Nonqualified Option. "Nonqualified Option" means any Option
         that is not an Incentive Option. To the extent that any Option
         designated as an Incentive Option fails in whole or in part to qualify
         as an Incentive Option, including, without limitation, for failure to
         meet the limitations applicable to a 10% Shareholder or because it
         exceeds the annual limit provided for in Section 5.6 below, it shall to
         that extent constitute a Nonqualified Option.

             2.18 Nonqualified Option Agreement. "Nonqualified Option Agreement"
         means an Option Agreement with respect to a Nonqualified Option.

             2.19 Option. "Option" means any option to purchase Common Stock
         granted pursuant to the Plan.

             2.20 Option Agreement. "Option Agreement" means the written
         agreement entered into between the Company and the Optionee with
         respect to an Option granted under the Plan.

             2.21 Optionee. "Optionee" means a Participant who holds an Option.

             2.22 Participant. "Participant" means an individual or entity that
         has received a grant of an Option or a grant of Restricted Stock under
         the Plan, and where permitted under the Plan, includes such person's
         successors and assigns.

             2.23 Restricted Stock. "Restricted Stock" means shares of Common
         Stock issued pursuant to Article 6 hereof, subject to any restrictions
         and conditions as are established pursuant to such Article 6.

             2.24 Restricted Stock Agreement. "Restricted Stock Agreement" means
         the written agreement entered into between the Company and a
         Participant with respect to a grant of Restricted Stock offered under
         the Plan.

             2.25 10% Shareholder. "10% Shareholder" means a person who, as of a
         relevant date, owns or is deemed to own (by reason of the attribution
         rules applicable under Section 424(d) of the Code) stock possessing
         more than 10% of the total combined voting power of all classes of
         stock of the Company or of an Affiliated Company.

             2.26 Company. "Company" means Azurix Corp.

                                       3
<PAGE>   4

                                    ARTICLE 3

                                   ELIGIBILITY

             3.1 General. Any employee of the Company (including employees who
         are residents of the United Kingdom) or an Affiliated Company who is
         designated by the Committee to receive a grant of an Option and/or a
         grant of Restricted Stock under the Plan, and any individual who is a
         Director of the Company duly elected by stockholders of the Company who
         is not an employee of the Company at the time a grant is made, shall be
         eligible to be designated a Participant. However, subject to the
         foregoing, only employees of the Company or an Affiliated Company,
         within the meaning of section 424(e) or (f) of the Code, shall be
         eligible to receive grants of Incentive Stock Options under the Plan.
         Grants may be made to the same individual on more than one occasion.

             3.2 Grants to Non-employee Directors. Any grant, and the provisions
         applicable thereto, made under the Plan to an eligible non-employee
         director must be approved by the Board.

                                    ARTICLE 4

                                   PLAN SHARES

             4.1 Shares Subject to the Plan. A total of 17,583,284, subject to
         adjustment as to number and kind of shares in the same manner as
         pursuant to Section 4.3 hereof, of the Company's authorized shares of
         Common Stock may be issued under the Plan, of which twenty five percent
         (25%) may be granted in the form of Restricted Stock and Options for up
         to 7,500,000 shares may be granted in the form of Incentive Options,
         subject to adjustment as to the number and kind of shares in the same
         manner as pursuant to Section 4.3 hereof.

             For purposes of this limitation, in the event that (a) all or any
         portion of any Option or Restricted Stock granted or offered under the
         Plan can no longer under any circumstances be exercised, or (b) any
         shares of Common Stock are reacquired by the Company pursuant to an
         Incentive Option Agreement, Nonqualified Option Agreement or Restricted
         Stock Agreement, the shares of Common Stock allocable to the
         unexercised portion of such Option or such grant of Restricted Stock,
         shall again be available for grant or issuance under the Plan.

             4.2 Accounting for Grants. For purposes of this Article 4, if a
         grant under this Plan is denominated in shares of Common Stock, the
         number of shares covered by such grant, or to which such grant relates,
         shall be counted on the date of grant against the aggregate number of
         shares of Common Stock available for making grants under the Plan;
         provided, however, that grants that operate in tandem with (whether
         granted simultaneously with or at a different time from) other grants
         may be counted or not counted under procedures adopted by the Committee
         in order to avoid double counting.

             4.3 Adjustments. In the event that the Committee shall determine
         that any dividend or other distribution (whether in the form of cash,
         shares of Common Stock, other securities or other

                                       4
<PAGE>   5

         property), recapitalization, stock split, reverse stock split,
         reorganization, merger, consolidation, split-up, spin-off, combination,
         repurchase or exchange of shares of Common Stock or other securities of
         the Company, issuance of warrants or other rights to purchase shares of
         Common Stock or other securities of the Company (or other similar
         corporate transaction or event) affects the shares of Common Stock such
         that an adjustment is determined by the Committee to be appropriate in
         order to prevent dilution or enlargement of the benefits or potential
         benefits intended to be made available under the Plan, then the
         Committee may, subject to Section 4.4, in such manner as it may deem
         equitable, adjust any or all of (a) the number and type of shares of
         Common Stock (or other securities or property) which thereafter may be
         made the subject of grants made under the Plan, (b) the number and type
         of shares of Common Stock (or other securities or property) subject to
         outstanding grants made under the Plan, and (c) the purchase or
         exercise price with respect to any grant made under the Plan, or, if
         deemed appropriate, make provision for a cash payment to the holder of
         an outstanding grant made under the Plan; provided, however, that with
         respect to grants of Incentive Stock Options, no such adjustment shall
         be authorized to the extent that such adjustment would cause the Plan
         to violate Section 422(b)(1) of the Code or any successor provision
         thereto; and provided further, that the number of shares of Common
         Stock subject to any grant made under the Plan denominated in shares of
         Common Stock shall always be a whole number.

             4.4 If, and whenever, prior to the expiration of a grant
         theretofore made, the Company shall effect a subdivision or
         consolidation of shares of Common Stock or the payment of a stock
         dividend on shares of Common Stock without receipt of consideration by
         the Company, the number of shares of Common Stock with respect to which
         such grant may thereafter be vested or exercised (a) in the event of an
         increase in the number of outstanding shares of Common Stock shall be
         proportionately increased, and if the grant is an Option the purchase
         price per share shall be proportionately reduced, and (b) in the event
         of a reduction in the number of outstanding shares of Common Stock
         shall be proportionately reduced, and if the grant is an Option the
         purchase price per share shall be proportionately increased.

                                    ARTICLE 5

                                     OPTIONS

             5.1 Option Agreement. Each Option granted pursuant to this Plan
         shall be evidenced by an Option Agreement which shall specify the
         number of shares subject thereto, vesting provisions relating to such
         Option, the Exercise Price per share, and whether the Option is an
         Incentive Option or Nonqualified Option. As soon as is practical
         following the grant of an Option, an Option Agreement shall be duly
         executed and delivered by or on behalf of the Company to the Optionee
         to whom such Option was granted. Each Option Agreement shall be in such
         form and contain such additional terms and conditions, not inconsistent
         with the provisions of this Plan, as the Administrator shall, from time
         to time, deem desirable. Each Option Agreement may be different from
         each other Option Agreement. No individual shall be granted Options
         totaling more than 2,000,000 shares of Common Stock in any single
         calendar year.

                                       5
<PAGE>   6

             5.2 Exercise Price. The Exercise Price per share of Common Stock
         covered by each Option shall be determined by the Administrator,
         subject to the following: (a) the Exercise Price of an Incentive Option
         shall not be less than 100% of Fair Market Value on the date the
         Incentive Option is granted, (b) the Exercise Price of a Nonqualified
         Option shall not be less than 100% of Fair Market Value on the date the
         Nonqualified Option is granted, and (c) if the person to whom an Option
         is granted is a 10% Shareholder on the date of grant, the Exercise
         Price of an Incentive Option shall not be less than 110% of Fair Market
         Value on the date the Option is granted.

             5.3 Time and Method of Exercise. Subject to the provisions
         contained in the Plan and in a Participant's Option Agreement,
         unexercised vested shares of Common Stock under an Option may be
         exercised in whole or in part from time to time by request to the
         Company. Payment of the exercise price and any applicable tax
         withholding amounts must be made at the time of exercise, in whole or
         in part, by delivery of a cashier's check or shares of Common Stock, or
         any combination thereof having a Fair Market Value equal to such
         exercise price provided that the Fair Market Value of shares of Common
         Stock so delivered shall be equal to the closing price of such shares
         as reported in the "NYSE -- Composite Transaction" section of the
         Midwest Edition of the Wall Street Journal on the date of actual
         receipt by the Company of the notice exercising the Option or, if no
         prices are so reported on such day, on the last preceding day on which
         such prices of shares of Common Stock are so reported. An Option may be
         exercised through a broker financed exercise pursuant to the provisions
         of Regulation T of the Federal Reserve Board. If the Company receives
         payment of the purchase price for the exercise of the Option through a
         broker financed exercise before the end of the third business day
         following the broker's execution of the sale of shares of Common Stock
         for the financed exercise, the exercise shall be effective at the time
         of such sale. Otherwise, the exercise shall be effective when the
         Company receives payment of the purchase price.

             5.4 Term and Termination of Options. The term and provisions for
         termination of each Option shall be as fixed by the Administrator, but
         no Option may be exercisable more than ten (10) years after the date it
         is granted.

             5.5 Vesting and Exercise of Options. Each Option shall vest and
         become exercisable in one or more installments at such time or times,
         and subject to such conditions for accelerated vesting, including
         without limitation the achievement of specified performance goals or
         objectives, as may be determined by the Administrator.

             5.6 Annual Limit on Incentive Options. To the extent required for
         "incentive stock option" treatment under Section 422 of the Code, the
         aggregate Fair Market Value (determined as of the time of grant) of the
         Common Stock shall not, with respect to which Incentive Options granted
         under this Plan and any other plan of the Company or any Affiliated
         Company become exercisable for the first time by an Optionee during any
         calendar year, exceed $100,000.

             5.7 Nontransferability of Options. No Option shall be assignable or
         transferable except pursuant to the provisions of Section 11.1 of this
         Plan and no Incentive Option may be transferred by the Optionee other
         than by will or the laws of descent and distribution.

                                       6
<PAGE>   7

             5.8 Rights as Shareholder. An Optionee or permitted transferee of
         an Option shall have no rights or privileges as a shareholder with
         respect to any shares covered by an Option until such Option has been
         duly exercised and certificates representing shares purchased upon such
         exercise have been issued to such person.

             5.9 Grants to Residents and Citizens of Foreign Countries.
         Notwithstanding anything to the contrary in this Article 5, the
         Committee may, in its discretion, grant Options to residents and to
         citizens of countries other than the United States of America with the
         requirement that the exercise thereof be required to be made through a
         broker financed exercise as referenced in Section 5.3 above.

                                    ARTICLE 6

                                RESTRICTED STOCK

             6.1 Grants of Restricted Stock. A grant of Restricted Stock
         pursuant to a Restricted Stock Agreement entitles the recipient to
         acquire shares of Common Stock subject to such terms, restrictions and
         conditions as the Administrator may determine at the time of grant.

             6.2 Grants of Performance Based Restricted Stock. The Committee is
         authorized to make grants of Restricted Stock which qualify as
         performance-based compensation under Code Section 162(m), such that a)
         the issuance is contingent upon attainment of pre-established
         performance criteria; or b) restrictions lapse contingent upon
         attainment of pre-established performance criteria. The performance
         criteria to be used with such grants shall be recurring after-tax net
         income and/or cash flow, at the Company and/or subsidiary level, and
         earnings per share and/or total shareholder return, at the Company
         level, as determined at the sole discretion of the Committee.
         Performance criteria will be established by the Committee prior to the
         beginning of each performance period, defined as January 1 of each
         year, or such later date as permitted under the Code, or applicable
         regulations. Notwithstanding any other provision of the Plan, no
         individual shall receive a grant of Restricted Stock under this Section
         6.2 totaling more than 100,000 shares of Common Stock in any single
         calendar year. Recurring after-tax net income means after-tax net
         income subject to adjustment by the Committee in its sole discretion
         for what the Committee considers an unordinary or nonrecurring items of
         after-tax net income.

             6.3 Restricted Stock Agreement. Each Restricted Stock Agreement
         shall be in such form, and shall set forth the terms, conditions and
         restrictions of the Restricted Stock, not inconsistent with the
         provisions of this Plan, as the Administrator shall, from time to time,
         deem desirable. Each Restricted Stock Agreement may be different from
         each other Restricted Stock Agreement.

             6.4 Rights as a Shareholder. Upon becoming vested in Restricted
         Stock, a Participant shall have the rights of a shareholder with
         respect to the Restricted Stock granted pursuant to the Restricted
         Stock Agreement, including voting and dividend rights, subject to the
         terms, restrictions and conditions as are set forth herein and in the
         Restricted Stock Agreement. Unless the Administrator shall determine
         otherwise, certificates evidencing shares of Restricted Stock shall
         remain in the possession of the Company until such shares have vested
         and are no longer

                                       7
<PAGE>   8

         subject to any restrictions on transfer in accordance with the terms of
         the Restricted Stock Agreement.

             6.5 Vesting of Restricted Stock. The Restricted Stock Agreement
         shall specify the date or dates, the performance goals or objectives
         that must be achieved, if any, and any other conditions on which the
         Restricted Stock may vest.

             6.6 Dividends. All dividends and distributions, or cash equivalent
         thereof (whether cash, stock or otherwise), on unvested Restricted
         Stock shall be withheld from the respective Participant and credited by
         the Company for the Participant's account. At such time as a
         Participant becomes vested in a portion of the grant of Restricted
         Stock, all accumulated credits for dividends and distributions, or cash
         equivalent thereof attributable to such vested Restricted Stock shall
         be released to the Participant. Interest shall not be paid on any
         dividends or distributions or cash equivalent thereof, credited by the
         Company for the account of a Participant. The Company shall have the
         option of paying such credits for accumulated dividends or
         distributions or cash equivalent thereof, in shares of Common Stock of
         the Company rather than in cash. If payment is made in shares, the
         conversion to shares shall be at the Fair Market Value. Dividends and
         distributions, or cash equivalent thereof credited on non-vested
         Restricted Stock shall be forfeited in the same manner and at the same
         time as the respective shares of Restricted Stock to which they are
         attributable are forfeited.

             6.7 Nonassignability of Rights. No Participant's right to acquire
         shares of Restricted Stock shall be assignable or transferable except
         pursuant to the provisions of Section 11.1 of this Plan.

                                    ARTICLE 7

                           ADMINISTRATION OF THE PLAN

             7.1 Administrator. Authority to control and manage the operation
         and administration of the Plan shall be vested in the Committee
         consisting of two (2) or more members of the Board who are
         "Non-Employee Directors" within the meaning of Rule 16b-3 under the
         Securities Exchange Act of 1934 and are "outside directors" as
         referenced in Regulation 1.162-27(e)(3) issued under the Code (the
         "Committee" or "Administrator"). Members of the Committee may be
         appointed from time to time by, and shall serve at the pleasure of, the
         Board.

             7.2 Powers of the Administrator. In addition to any other powers or
         authority conferred upon the Administrator elsewhere in the Plan or by
         law, the Administrator shall have full power and authority: (a) to
         determine the persons to whom, and the time or times at which,
         Incentive Options or Nonqualified Options and grants of Restricted
         Stock shall be granted, the number of shares to be represented by each
         Option and grant of Restricted Stock and the consideration, if any, to
         be received by the Company upon the exercise thereof; (b) to construe
         and interpret provisions of the Plan and other documents and agreements
         pertaining to the Plan; (c) to create, amend or rescind rules and
         regulations relating to the Plan; (d) to determine the terms,
         conditions and restrictions contained in, and the form of, Option
         Agreements and Restricted Stock Agreements; (e) to determine the
         identity or capacity of any persons who may be entitled to

                                       8
<PAGE>   9

         exercise a Participant's rights under any Option or Restricted Stock
         Agreement granted under the Plan; (f) to correct any defect or supply
         any omission or reconcile any inconsistency in the Plan or in any
         Option Agreement or Restricted Stock Agreement; (g) to accelerate the
         vesting of any Option or grant of Restricted Stock; (h) to extend the
         exercise date of any Option and vesting date of any grant of Restricted
         Stock; (i) except for changing the Exercise Price of a granted Option,
         to amend outstanding Option Agreements and Restricted Stock Agreements
         to provide for, among other things, any change or modification which
         the Administrator could have provided for upon the grant of an Option
         or Restricted Stock or in furtherance of the powers provided for
         herein; and (j) to make all other determinations necessary or advisable
         for the administration of the Plan, but only to the extent not contrary
         to the express provisions of the Plan. Any action, decision,
         interpretation or determination made in good faith by the Administrator
         in the exercise of its authority conferred upon it under the Plan shall
         be final and binding on the Company and all Participants.

             7.3 Limitation on Liability. No employee of the Company or member
         of the Board or Committee shall be subject to any liability with
         respect to duties under the Plan unless the person acts fraudulently or
         in bad faith. To the extent permitted by law, the Company shall
         indemnify each member of the Board or Committee, and any employee of
         the Company with duties under the Plan, who was or is a party, or is
         threatened to be made a party, to any threatened, pending or completed
         proceeding, whether civil, criminal, administrative or investigative,
         by reason of such person's conduct in the performance of duties under
         the Plan.

                                    ARTICLE 8

                                CHANGE IN CONTROL

             8.1 Change in Control of Enron Corp. If at any time after the date
         the Plan is adopted when Enron Corp. directly or indirectly owns thirty
         percent (30%) or more of the capital stock of the Company, a
         transaction occurs which is not approved, recommended or supported by a
         majority of the board of directors of Enron Corp. in actions taken
         prior to, and with respect to, such transaction in which:

             (i) Enron Corp. merges or consolidates with any other entity (other
         than one of Enron Corp.'s wholly owned subsidiaries) and is not the
         surviving entity (or survives only as the subsidiary of another person
         or entity),

             (ii) Enron Corp. sells all or substantially all of its assets to
         any other person or entity,

             (iii) Enron Corp. is dissolved,

             (iv) any third person or entity (other than the trustee or
         committee of any qualified employee benefit plan of Enron Corp.),
         together with its Affiliates and Associates, shall be, directly or
         indirectly, the Beneficial Owner of at least thirty percent (30%) of
         the outstanding capital stock of Enron Corp., or

                                       9
<PAGE>   10

             (v) the individuals who constitute the members of Enron Corp.'s
         board of directors on the date hereof (the "Incumbent Board") cease for
         any reason to constitute at least a majority thereof, provided that any
         person becoming a director subsequent to the date hereof whose election
         or nomination for election by Enron Corp.'s stockholders was approved
         by a vote of at least eighty percent (80%) of the directors comprising
         the Incumbent Board (either by a specific vote or by approval of the
         proxy statement of Enron Corp. in which such person is named as a
         nominee for director, without objection to such nomination) shall be,
         for purposes of this clause (v), considered as though such person were
         a member of the Incumbent Board,

         then within (a) ten days of the approval by the stockholders of Enron
         Corp. of such merger, consolidation, sale of assets or dissolution as
         described in clause (i), (ii) or (iii) of this Section 8.1, or (b)
         thirty (30) days of the occurrence of such change of Beneficial
         Ownership or Directors as described in clause (iv) or (v) of this
         Section 8.1, with respect to outstanding grants of Restricted Stock
         made under Article 6, all such grants of Restricted Stock, irrespective
         of whether they are then vested, shall be surrendered to the Company by
         each grantee thereof and such grants shall thereupon be canceled by the
         Company, and the grantee shall receive a cash payment by the Company in
         an amount equal to the number of Shares subject to the grant of
         Restricted Stock held by such grantee multiplied by the Fair Market
         Value of a Share on the date determined by the Administrator (as
         constituted prior to any change described in clause (iv) or (v)) to be
         the date of cancellation and surrender of such Options if any such
         change of Beneficial Ownership or Directors occurs other than pursuant
         to a tender or exchange offer, whichever is appropriate, and with
         respect to outstanding grants of Options made under Article 5, all such
         outstanding Options irrespective of whether they are then exercisable,
         shall be surrendered (at such time as may be necessary to comply with
         Rule 16b-3 under the Securities Exchange Act of 1934, as amended, if
         applicable) to the Company by each grantee thereof and such Options
         shall thereupon be cancelled by the Company, and the grantee shall
         receive a cash payment by the Company in an amount equal to the number
         of Shares subject to the Options held by such grantee multiplied by the
         difference between (x) and (y) where (y) equals the purchase price per
         Share covered by the Option, and (x) equals the Fair Market Value of a
         Share on the date determined by the Administrator (as constituted prior
         to any change described in clause (iv) or (v)) to be the date of
         cancellation and surrender of such Options if any such change of
         Beneficial Ownership or directors occurs other than pursuant to a
         tender or exchange offer, whichever is appropriate.

             8.2 Change in Control of the Company. If a transaction occurs after
         the date the Plan is adopted in which as a result of a transaction that
         has not been approved, recommended or supported by a majority of the
         board of directors of the Company in actions taken prior to, and with
         respect to, such transaction:

             (i) the Company merges or consolidates with any other entity (other
         than one of the Company's wholly owned subsidiaries) and is not the
         surviving entity (or survives only as the subsidiary of another person
         or entity), or

             (ii) the individuals who constitute the members of Company's Board
         on the date hereof (the "Incumbent Board") cease for any reason to
         constitute at least a majority thereof, provided that

                                       10
<PAGE>   11

         any person becoming a Director subsequent to the date of the public
         offering whose election or nomination for election by the Company's
         stockholders was approved by a vote of at least eighty percent (80%) of
         the Directors comprising the Incumbent Board (either by a specific vote
         or by approval of the proxy statement of the Company in which such
         person is named as a nominee for Director, without objection to such
         nomination) shall be, for purposes of this clause (ii), considered as
         though such person were a member of the Incumbent Board,

         then within (a) ten days of the approval by the stockholders of the
         Company of such merger or consolidation as described in clause (i) of
         this Section 8.2 or (b) thirty (30) days of the occurrence of such
         change of Directors as described in clause (ii) of this Section 8.2,
         then with respect to outstanding grants of Restricted Stock made under
         Article 6, all such grants of Restricted Stock, irrespective of whether
         they are then vested, shall be surrendered to the Company by each
         grantee thereof and such grants shall thereupon be canceled by the
         Company, and the grantee shall receive a cash payment by the Company in
         an amount equal to the number of Shares subject to the grant of
         Restricted Stock held by such grantee multiplied by the Fair Market
         Value of a Share on the date determined by the Administrator (as
         constituted prior to any change described in clause (ii)) to be the
         date of cancellation and surrender of such Options, and with respect to
         outstanding grants of Options made under Article 5, all such
         outstanding Options, irrespective of whether they are then exercisable,
         shall be surrendered (at such time as may be necessary to comply with
         Rule 16b-3 under the Securities Exchange Act of 1934, as amended) to
         the Company by each grantee thereof and such Options shall thereupon be
         canceled by the Company, and the grantee shall receive a cash payment
         by the Company in an amount equal to the number of Shares subject to
         the Options held by such grantee multiplied by the difference between
         (x) and (y) where (y) equals the purchase price per Share covered by
         the Option, and (x) equals (1) the per share price offered to
         stockholders of the Company in any such merger or consolidation, or (2)
         the Fair Market Value of a Share on the date determined by the
         Administrator (as constituted prior to any change described in clause
         (ii)) to be the date of cancellation and surrender of such Options. In
         the event that the consideration offered to stockholders of the Company
         in any transaction described in this Section 8.2 consists of anything
         other than cash, the Administrator (as constituted prior to such
         transaction) shall determine the fair cash equivalent of the portion of
         the consideration offered which is other than cash.

                                    ARTICLE 9

                      AMENDMENT AND TERMINATION OF THE PLAN

             9.1 Amendments. The Board in its discretion may terminate the Plan
         at any time with respect to any shares of Common Stock for which a
         grant has not theretofore been made. The Board shall have the right to
         alter or amend the Plan or any part thereof from time to time;
         provided, that no change in any grant theretofore made may be made
         which would impair the rights of the recipient of a grant without the
         consent of such recipient; and provided further, that notwithstanding
         any other provision of the Plan or any grant agreement, without the
         approval of the stockholders of the Company no such amendment or
         alteration shall be made that would:

                                       11
<PAGE>   12

             (i) increase the total number of shares of Common Stock available
         for grants under the Plan, except as provided in Article 4 hereof;

             (ii) change the minimum exercise price for grant of Options;

             (iii) extend the maximum period during which grants may be made
         under the Plan; or

             (iv) increase the maximum number of shares of Common Stock for
         which Options may be granted under Section 5.1 or shares of
         performance-based Restricted Stock that may be granted under Section
         6.2 to any individual in any calendar year.

             The Board may alter or amend the Plan to comply with requirements
         under the Code relating to Incentive Options or other types of options
         which give Optionees more favorable tax treatment than that applicable
         to Options granted under this Plan as of its Effective Date. Upon any
         such alteration or amendment, any outstanding Option granted hereunder
         may, if the Administrator so determines and if permitted by applicable
         law, be subject to the more favorable tax treatment afforded to an
         Optionee pursuant to such terms and conditions.

             9.2 Plan Termination. Unless the Plan shall theretofore have been
         terminated, the Plan shall terminate on February 1, 2009 and no Options
         or grants of Restricted Stock may be granted under the Plan thereafter,
         but Option Agreements and Restricted Stock Agreements then outstanding
         shall continue in effect in accordance with their respective terms and
         provisions.

             9.3 Employees in Foreign Countries. The Board shall have the
         authority to adopt such modifications, procedures, and subplans as may
         be necessary or desirable to comply with provisions of the laws of
         foreign countries in which the Company or its Affiliated Companies may
         operate to assure the viability of the benefits from grants made to
         eligible employees employed in such countries and to meet the
         objectives of the Plan.

                                   ARTICLE 10

                                 TAX WITHHOLDING

             10.1 Withholding. The Company shall have the power to withhold, or
         require a Participant to remit to the Company, an amount sufficient to
         satisfy the minimum applicable Federal, state, and local tax
         withholding requirements with respect to any Options exercised or
         Restricted Stock issued under the Plan. To the extent permissible under
         applicable tax, securities and other laws, the Administrator may, in
         its sole discretion and upon such terms and conditions as it may deem
         appropriate, permit a Participant to satisfy his or her obligation to
         pay any such tax, up to an amount equivalent to settle the minimum
         statutory tax withholding rates for federal and state tax purposes
         including payroll taxes by (a) directing the Company to apply shares of
         Common Stock to which the Participant is entitled as a result of the
         exercise of an Option or as a result of the purchase of or lapse of
         restrictions on Restricted Stock or (b) delivering to the Company
         shares of Common Stock owned by the Participant. The shares of Common
         Stock so applied or delivered in satisfaction of the Participant's tax
         withholding obligation shall be valued at their

                                       12
<PAGE>   13

         Fair Market Value as of the date of measurement of the amount of income
         subject to withholding.

                                   ARTICLE 11

                                  MISCELLANEOUS

             11.1 Benefits Not Alienable. No grant of an Option or Restricted
         Stock and no right under any such grant shall be assignable, alienable,
         saleable or transferable by a Participant other than:

             (a) by will or by the laws of descent and distribution;

             (b) pursuant to a "domestic relations order" as defined in Section
         414 of the Code or Section 206 of the Employee Retirement Income
         Security Act of 1974, as amended;

             (c) by transfer by an eligible Participant, subject to such rules
         as the Committee may adopt to preserve the purposes of the Plan
         (including limiting such transfer to Participants who are directors or
         senior executives), to:

                    (I)   a member of his or her Immediate Family,

                    (II)  a trust solely for the benefit of the Participant and
                    his or her immediate Family, or

                    (III) a partnership or limited liability company whose only
                    partners or shareholders are the Participant and his or her
                    Immediate Family members,

             (d) by designation, in a manner established by the Committee, of a
         beneficiary or beneficiaries to exercise the rights of the Participant
         and to receive any property distributable with respect to any grant
         upon the death of the Participant.

             Each transferee described in (b) and (c) above is hereafter
         referred to as a "Permitted Transferee", provided that the Committee is
         notified in writing of the terms and conditions of any transfer
         intended to be described in (b) or (c) and the Committee determines
         that the transfer complies with the requirements of the Plan and the
         applicable grant agreement. Any purported assignment, alienation,
         pledge, attachment, sale, transfer or encumbrance that does not qualify
         under (a), (b), (c) or (d) shall be void and unenforceable against the
         Company. "Immediate Family" means, with respect to a particular
         Participant, the Participant's spouse, children or grandchildren
         (including adopted and stepchildren).

             The terms and provisions of Option Agreements and Restricted Stock
         Agreements shall be binding upon the beneficiaries, executors and
         administrators of the Participant and on the Permitted Transferees of
         the Participant (including the beneficiaries, executors and
         administrators of the Permitted Transferees), except that Permitted
         Transferees shall not reassign any such agreement other than by will or
         by the laws of descent and distribution. A grant and underlying
         agreement shall be exercised only by the Participant (or his or her
         attorney in fact or

                                       13
<PAGE>   14

         guardian) (including, in the case of a transferred grant and underlying
         agreement, by a Permitted Transferee), or, in the case of the
         Participant's death, by the Participant's executor or administrator
         (including, in the case of a transferred grant and underlying
         agreement, by the executor or administrator of the Permitted
         Transferee), and all exercises of a grant shall be accompanied by
         sufficient payment, as determined by the Company, to meet its
         withholding tax obligation on such exercise or by other arrangements
         satisfactory to the Committee to provide for such payment. Any
         unauthorized attempt at assignment, transfer, pledge or other
         disposition of a grant made under the Plan shall be without effect.

             11.2 No Enlargement or Employee Rights. This Plan is strictly a
         voluntary undertaking on of the Company and shall not be deemed to
         constitute a contract between the Company and any Participant to be
         consideration for, or an inducement to, or a condition of, the
         employment of any Participant. Nothing contained in the Plan shall be
         deemed to give the right to any Participant to be retained as an
         employee of the Company or any Affiliated Company or to interfere with
         the right of the Company or any Affiliated Company to discharge any
         Participant at any time.

             11.3 Application of Funds. Any proceeds received by the Company
         from the sale of Common Stock pursuant to Option Agreements, except as
         otherwise provided herein, will be used for general corporate purposes.

                                   ARTICLE 12

                APPROVED SHARE OPTION SCHEME FOR UK PARTICIPANTS

             12.1 Purpose. The Plan as modified by this Article 12 is intended
         to be approved by the Inland Revenue under Schedule 9 to the Act. The
         purpose of this Article 12 is to grant UK Inland Revenue Approved Share
         Options to UK Participants under the Plan. This Article 12 is to be
         read as a continuation of the Plan and modify the Options granted
         thereunder only in relation to UK resident Participants who are granted
         Options under this Article 12 of the Plan. This Article 12 does not add
         to or modify the Plan in respect of any other category of Participant.
         Where any conflict arises in the interpretation of the rules of the
         Plan and this Article 12 in relation to Approved Options granted under
         the Plan as modified by this Article 12, the provisions of this
         Article 12 shall prevail.

             12.2 Additional Definitions. The following additional capitalized
         definitions shall have the respective meanings set forth below:

             (a) "Act" shall mean the Income and Corporation Taxes Act 1988.

             (b) "Approved Option" shall mean an Option granted under the Plan
         as modified by this Article 12 to a UK Participant while the Plan as
         modified by this Article 12 is approved by the UK Inland Revenue under
         the Act.

             (c) "Limit" shall mean L30,000 or such other amount as may from
         time to time be specified in paragraph 28 of Schedule 9 to the Act.

                                       14
<PAGE>   15

             (d) "UK Participant" shall mean an employee or director of the
         Company or any participating Affiliate who satisfies the eligibility
         criteria in Article 3 of the Plan (as modified by Article 12).

             12.3 Modified Definitions. The following definitions in Article 2
         of the Plan shall be modified as set forth below in relation to
         Approved Options only and shall be so construed throughout the Plan:

             (a) "Affiliate" shall mean any company which is both a subsidiary
         of the Company (as defined by Section 736 of the Companies Act 1985)
         and under the control of the Company (as defined by Section 840 of the
         Act) and which is for the time being designated by the Committee as a
         participating Affiliate.

                    (b) "Option" shall mean Non-Qualified Options only and in
         the context of the Plan as modified by this Article 12 shall mean
         Approved Options.

             (c) "Common Stock" shall mean shares of Common Stock of the Company
         which satisfy the provisions of paragraph 10 to 14 inclusive of
         Schedule 9 to the Act.

             12.4 Omitted Definitions. The following definitions in Article 2
         shall be treated as having been omitted therefrom in relation to
         Approved Options only and the Plan shall accordingly be constructed
         throughout as if all references to such definitions had been omitted:

             (i)  "Incentive Option" and "Incentive Option Agreement".

             (ii) "Restricted Stock" and "Restricted Stock Agreement".

             12.5 Variation of Share Capital. Articles 4.3 and 4.4 of the Plan
         (adjustments) are replaced in relation to Approved Options with the
         following provision; "In the event of any variation of the shares of
         Common Stock of the Company by way of capitalization or rights issue,
         consolidation, subdivision or reduction of capital or otherwise, the
         number of shares of Common Stock subject to any Approved Option and the
         Exercise Price for each of those shares of Common Stock shall be
         adjusted in such manner as the Committee decides to be fair and
         reasonable provided that:

             (i) the aggregate amount payable on the exercise of an Approved
         Option in full is not increased

             (ii) the Exercise Price for a share of Common Stock is not reduced
         below its par value

             (iii) no adjustment shall be made without the prior approval of the
         Board of Inland Revenue and

             (iv) following the adjustment the shares of Common Stock continue
         to satisfy the conditions specified in paragraphs 10 to 14 inclusive of
         Schedule 9 to the Act."

                                       15
<PAGE>   16

             12.6 Eligibility. Article 3 shall be modified in relation to
         Approved Options by;

              (i)   deleting the words "or an Affiliated Company" commencing in
              line 1; and

              (ii)  inserting the following provisions;

                    (a) Approved Options may only be granted to employees or
         directors of the Company or any participating Affiliate;

                    (b) Directors of the Company or a participating Affiliate
         are only eligible to be designated a UK Participant if they are
         required to devote substantially the whole of their time to their
         duties and in any case not less than 25 hours per week (excluding meal
         breaks) to the Company and/or any participating Affiliate;

                    (c) Approved Options may only be granted to employees or
         directors of the Company or any participating Affiliate who are not
         ineligible to participate in the Plan by virtue of paragraph 8 of
         Schedule 9 to the Act (material interest in a close company); and

              (iii) omitting reference to Article 3.2.

              12.7  Approved Options.

                    (a) Option Agreement. Article 5.1 of the Plan shall be
         modified in relation to Approved Options by;

                        (i) deleting the words "..., and the Exercise Price per
         share, and whether the Option is an Incentive Option or a Nonqualified
         Option" and replacing them with ", and the Exercise Price per share.
         The Option Agreement shall specify that the Option is an Approved
         Option granted under Article 12 of the Plan." and;

                        (ii) inserting after the sentence "Each Option Agreement
         shall be in such form and contain such additional terms and conditions,
         not inconsistent with the provisions of this Plan, as the Administrator
         shall, from time to time, deem desirable" the following words:
         "PROVIDED that any such additional terms and conditions are first
         approved by the Inland Revenue."

                    (b) Exercise Price. Article 5.2 of the Plan shall be
         modified in relation to Approved Options by the addition of the
         following provision at 5.2(d);

         "and (d) the Exercise Price of an Approved Option shall not be less
         than 100% of the Fair Market Value on the date the Approved Option is
         granted."

                    (c) Time and Method of Exercise. Article 5.3 of the Plan
         shall be modified in relation to Approved Options by;

                                       16
<PAGE>   17

                           (i) deleting the words commencing "...from time to
         time by request to the Company..." through to "...provisions of
         Regulation T of the Federal Reserve Board" and replacing them with
         "...from time to time. An Approved Option may only be exercised by a UK
         Participant giving notice to the Company in writing of the number of
         shares of Common Stock in respect of which he wishes to exercise the
         Approved Option accompanied by the appropriate payment either in cash
         or by the delivery of irrevocable instructions to a broker to deliver
         promptly to the Company an amount equal to the relevant exercise
         price."; and

                           (ii) inserting the following provision at the end of
         Article 5.3; "No Approved Option may be exercised by a UK Participant
         who has become ineligible to participate in the Plan by virtue of
         paragraph 8 of Schedule 9 to the Act (material interest in a close
         company)."

                    (d) Vesting and Exercise of Approved Options. Article 5.5 of
         the Plan shall be modified in relation to Approved Options by the
         deletion of the words "and subject to such conditions for accelerated
         vesting".

                    (e) Limit on Approved Options. Article 5.6 of the Plan shall
         be deleted in relation to Approved Options and replaced by the
         following provision; "No Approved Options shall be granted to UK
         Participants if at the relevant date of grant the aggregate Exercise
         Price of all subsisting Approved Options granted under the Plan and any
         other plan established by the Company or any associated company as
         defined in Section 187 of the Act of the Company and approved by the
         Inland Revenue under the provisions of Schedule 9 to the Act (other
         than a savings-related share option scheme) would exceed the Limit."

              12.8 Additional Provisions in Article 5. Article 5 shall be
         modified in relation to Approved Options by the addition of the
         following provisions;

                    (i) Exercise of Approved Options on Termination of
         Employment. If a UK Participant's employment with the Company or a
         participating Affiliate terminates on account of death, disability,
         ill-health, injury, redundancy (within the meaning of the Employment
         Rights Act 1996) or early retirement by agreement with his employer or
         retirement at or after contractual retirement age, such UK Participant
         (or where appropriate, the personal representative of the UK
         Participant) may exercise their Approved Option, up to the number of
         unexercised vested shares of Common Stock such UK Participant is
         entitled to on the date of such termination as set out in the Notice of
         Grant of Stock Option, at any time during the period of twelve months
         following the date of such termination . If a UK Participant's
         employment ceases for any other reason, the Approved Option shall lapse
         upon such date of termination, unless the Notice of Grant and/or the
         Stock Option Grant Agreement in relation to such Approved Option
         specifies otherwise .

                    (ii) Issue or Transfer of Shares. The appropriate number of
         Shares shall be allotted or transferred (as the case may be) within 30
         days following the exercise of an Option.

              12.9  Article 6 shall not apply to Approved Options.

                                       17
<PAGE>   18

              12.10 Administration of the Plan. Article 7 of the Plan shall be
         modified in relation to Approved Options by;

                    (i) the deletion of Articles 7.2 (g) of the Plan
         (acceleration  of vesting), and 7.2 (h) of the Plan (extension of
         exercise date); and

                    (ii) inserting the following provision at the end of Article
         7.2 (c) (amendment of rules and regulations relating to the Plan);
         "PROVIDED that any creation, amendment or rescission in relation to
         Approved Options is subject to Article 12.12 below"; and

                    (iii) inserting the following provision at the end of
         Article 7.2(d) (determination of terms, conditions and restrictions);
         "PROVIDED that in relation to Approved Options, any such terms,
         conditions and restrictions are first approved by the Inland Revenue"
         and;

                    (iv) inserting the following provision at the end of Article
         7.2 (i) (amendment of terms of outstanding Option Agreement); ...powers
         provided for herein "PROVIDED that such power conferred by this Article
         7.2 (i) may only be exercised in relation to Approved Options pursuant
         to and in accordance with Article 12.6 above and/or in relation to the
         amendment, relaxation, waiver or substitution of any performance
         condition detailed in the Option Agreement, provided that such
         amendment, relaxation, waiver or substitution shall not result in that
         Approved Option being subject to constraints and/or conditions which
         are more difficult to satisfy than those which applied immediately
         prior to such amendment, relaxation, waiver or substitution."

              12.11 Change in Control. Article 8 of the plan is modified in
         relation to Approved Options by;

                    (i) replacing the paragraph at Article 8.1 commencing " then
         within (a) ten days of the approval by the stockholders..." through to
         "...other than pursuant to a tender or exchange offer, whichever is
         appropriate" with the following provision; "If any of the events listed
         in Article 8.1 (i), (ii), (iii), (iv) or (v) should occur, then upon
         the date of the approval by the stockholders of Enron Corp of the
         events listed at Article 8.1 (i), (ii) or (iii), or upon the date of
         the occurrence of an event listed at Article 8.1 (iv) or (v), all
         outstanding Approved Options shall immediately lapse."; and

                    (ii) replacing the paragraph at Article 8.2 commencing "
         then within (a) ten days of the approval by the stockholders..."
         through to "...the fair cash equivalent of the portion of the
         consideration offered which is other than cash" with the following
         provision; "If any of the events listed in Article 8.2 (i) or (ii)
         should occur, or if there is a change in control of the Company as
         defined by Section 840 of the Act, then upon the date of the approval
         by the stockholders of the Company of the event listed at Article 8.2
         (i) or upon the date of the occurrence of the event listed at Section
         8.2 (ii) or upon the date that the change in control of the Company as
         defined by Section 840 of the Act becomes effective, all outstanding
         Approved Options shall immediately lapse."

                                       18
<PAGE>   19

               12.12 Amendments to the Plan. Article 9 of the Plan is modified
         in relation to Approved Options by the addition of the following
         provision: "No amendment to the Plan which relates to an Approved
         Option shall be effective unless it is approved by the Inland Revenue."

               12.13 Limits on Transfer of Awards. The provisions of Article
         11.1(b) and Article 11.1(c) shall not apply to Approved Options.

     AZURIX CORP.

     By:   /s/ REBECCA P. MARK
         -----------------------------------------
     Name:  Rebecca P. Mark
     Title: Chairman and Chief Executive Officer

     ATTEST:

     /s/ NORMA A. TIDROW
     ---------------------------------------------
     Name:  Norma A. Tidrow
     Title: Secretary

                                       19

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