Document:

Exhibit 10.13 - 1998 ESOP Plan

    

    Exhibit
      10.13

    

    Third
      Amended and Restated

    ICO,
      Inc.

    1998
      Stock Option Plan

    

    

    ARTICLE
      1

    

    Objectives

    

    ICO,
      Inc.
      (“ICO” or the “Company”) established the Plan effective January 12, 1998 as an
      incentive to the attraction and retention of dedicated and loyal employees
      of
      outstanding ability, to stimulate the efforts of such persons in meeting the
      Company’s objectives and to encourage ownership of the Company’s common stock by
      employees. 

    

    ARTICLE
      2

    

    Definitions

    

    
      	
              2.1

            	
              For
                purposes of the Plan the following terms shall have the definition
                which
                is attributed to them, unless another definition is clearly indicated
                by a
                particular usage and context.

            

    

    

    
      	 	
              A.

            	
              “Code”
                means the Internal Revenue Code of 1986, as
                amended.

            

    

    

    
      	 	
              B.

            	
              The
                “Company”
                means ICO and any subsidiary of ICO as the term “subsidiary” is defined in
                Section 424(f) of the Code.

            

    

    

    
      	 	
              C.

            	
              “Date
                of Exercise”
                means the date on which the Company has received a written notice
                of
                exercise of an Option, in such form as is acceptable to the Committee,
                and
                full payment of the purchase price.

            

    

    

    
      	 	
              D.

            	
              “Date
                of Grant”
                means the date on which the Committee makes an award of an
                Option.

            

    

    

    
      	 	
              E.

            	
              “Eligible
                Employee”
                means any individual who performs services for the Company and is
                treated
                as an employee for federal income tax
                purposes.

            

    

    

    
      	 	
              F.

            	
              “Fair
                Market Value”
                means the last sale price reported on any stock exchange or
                over-the-counter trading system on which Shares are trading on a
                specified
                date or, if no last sale price is reported, the average of the closing
                bid
                and asked prices for a Share on the last trading day prior to any
                specified date. If no sale has been made on such prior trading day,
                then
                prices on the last preceding day on which any such sale shall have
                been
                made shall be used in determining Fair Market Value prescribed in
                the
                previous sentence.

            

    

    

    
      	 	
              G.

            	
              “Incentive
                Stock Option”
                shall have the same meaning as given to that term by Section 422
                of the
                Code.

            

    

    

    
      	 	
              H.

            	
              “Nonqualified
                Stock Option”
                means any Option granted under the Plan which is not considered an
                Incentive Stock Option.

               

            

    

    
      	 	
              I.

            	
              “Option”
                means the right to purchase a stated number of Shares at a specified
                price. The option may be granted to an Eligible Employee subject
                to the
                terms of this Plan, and such other conditions and restrictions as
                the
                Committee deems appropriate. Each Option shall be designated by the
                Committee to be either an Incentive Stock Option or a Nonqualified
                Stock
                Option.

            

    

     

     

    
      
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              J.

            	
              “Option
                Price”
                means the purchase price per Share subject to an Option and shall
                be fixed
                by the Committee, but shall not be less than 100% of the Fair Market
                Value
                of a Share on the Date of Grant.

            

    

    

    
      	 	
              K.

            	
              “Permanent
                and Total Disability”
                means any medically determinable physical or mental impairment rendering
                an individual unable to engage in any substantial gainful activity,
                which
                disability can be expected to result in death or which has lasted
                or can
                be expected to last for a continuous period of not less than 12
                months.

            

    

    

    
      	 	
              L.

            	
              “Plan”
                means the ICO, Inc. 1998 Stock Option Plan as amended and restated
                on
                November 16, 2005, and as it may be amended from time to time thereafter.
                

            

    

    

    
      	 	
              M.

            	
              “Share”
                means one share of the common stock, no par value, of the
                Company.

            

    

    

    ARTICLE
      3

    

    Administration

    

    
      	
              3.1

            	
              The
                Plan shall be administered by a committee (the “Committee”) designated by
                the Board of Directors. The Committee shall be comprised solely of
                two (2)
                or more outside directors (within the meaning of the term “outside
                directors” as used in Section 162(m) of the Code and applicable
                interpretive authority thereunder (“Section 162(m)”) and within the
                meaning of “Nonemployee Director” as defined in Rule 16b-3, as currently
                in effect or as hereinafter modified or amended (“Rule 16b-3"),
                promulgated under the Securities Exchange Act of 1934, as amended
                (the
                “Act”). 

            

    

     

    Actions
      shall be taken by a majority of the Committee.

    

    
      	
              3.2

            	
              Except
                as specifically limited by the provisions of the Plan, the Committee
                in
                its discretion shall have the authority
                to:

            

    

    

    
      	 	
              A.

            	
              determine
                which Eligible Employees shall be granted
                Options;

            

    

    

    
      	 	
              B.

            	
              determine
                the number of Shares which may be subject to each
                Option;

            

    

    

    
      	 	
              C.

            	
              determine
                the Option Price;

            

    

    

    
      	 	
              D.

            	
              determine
                the term of each Option;

            

    

    

    
      	 	
              E.

            	
              determine
                whether each Option is an Incentive Stock Option or Nonqualified
                Stock
                Option;

            

    

    

    
      	 	
              F.

            	
              interpret
                the provisions of the Plan and decide all questions of fact arising
                in its
                application; and

            

    

    

    
      	 	
              G.

            	
              prescribe
                such rules and procedures for Plan administration as from time to
                time it
                may deem advisable.

            

    

    

    
      	
              3.3

            	
              Any
                action, decision, interpretation or determination by the Committee
                with
                respect to the application or administration of this Plan shall be
                final
                and binding upon all persons, and need not be uniform with respect
                to its
                determination of recipients, amount, timing, form, terms or provisions
                of
                Options.

            

    

     

     

    
      
        -2-

      

      
         

        
          

        

      

      
         

      

    

    
 

    
      	
              3.4

            	
              No
                member of the Committee shall be liable for any action or determination
                taken or made in good faith with respect to the Plan or any Option
                granted
                hereunder, and to the extent permitted by law, all members shall
                be
                indemnified by the Company for any liability and expenses which may
                occur
                through any claim or cause of
                action.

            

    

    

    ARTICLE
      4

    

    Shares
      Subject to Plan

    

    
      	
              4.1

            	
              The
                Shares that may be made subject to Options granted under the Plan
                shall
                not exceed 1,200,000 Shares in the aggregate. Except as provided
                in
                Section 4.2 and to the extent permitted under Rule 16b-3, upon lapse
                or
                termination of any Option for any reason without being completely
                exercised, the Shares which were subject to such Option may again
                be
                subject to other Options. The aggregate number of Shares which may
                be
                issued under the Plan shall be subject to adjustment in the same
                manner as
                provided in Article 12 hereof with respect to Shares subject to Options
                then outstanding. Exercise of an Option in any manner, shall result
                in a
                decrease in the number of Shares which may thereafter be available,
                both
                for purposes of the Plan and for sale to any one individual, by the
                number
                of shares as to which the Option is exercised. Separate stock certificates
                shall be issued by the Company for those Shares acquired pursuant
                to the
                exercise of an Incentive Stock Option and for those Shares acquired
                to the
                exercise of a Nonqualified Stock Option.

            

    

    

    
      	
              4.2

            	
              The
                maximum number of Shares with respect to which options may be granted
                to
                any employee during each fiscal year of the Company is 500,000 (subject
                to
                adjustment in the same manner as provided in Article 12 hereof with
                respect to Shares subject to Options then outstanding). The limitation
                set
                forth in the preceding sentence shall be applied in a manner which
                will
                permit compensation generated under the Plan to constitute
                “performance-based” compensation for purposes of Section 162(m),
                including, without limitation, counting against such maximum number
                of
                Shares, to the extent required under Section 162(m), any Shares subject
                to
                Options that are canceled or repriced.

            

    

    

    ARTICLE
      5

    

    Granting
      of Options

    

    Subject
      to the terms and conditions of the Plan, the Committee may, from time to time
      prior to January 12, 2008, grant Options to Eligible Employees on such terms
      and
      conditions as the Committee may determine. More than one Option may be granted
      to the same Eligible Employee.

    

    ARTICLE
      6

    

    Terms
      of Options

    

    
      	
              6.1

            	
              Subject
                to specific provisions relating to Incentive Stock Options set forth
                in
                Article 9, each Option shall be for a term of from one to ten years
                from
                the Date of Grant. The Committee, in its sole discretion, on or after
                the
                Date of Grant, may establish different exercise schedules and impose
                other
                conditions upon exercise and vesting for any particular Option or
                groups
                of Options. In addition, the Committee may, at any time, reclassify
                an
                Incentive Stock Option as a Nonqualified Stock Option.

               

            

    

    
      	
              6.2

            	
              Nothing
                contained in this Plan or in any Option granted pursuant to it shall
                confer upon any employee any right to continue in the employ of the
                Company or to interfere in any way with the right of the Company
                to
                terminate employment at any time. So long as a holder of an Option
                shall
                continue to be an employee of the Company, the Option shall not be
                affected by any change of the employee’s duties or
                position.

            

    

     

     

    
      
        -3-

      

      
         

        
          

        

      

      
         

      

    

    
 

    
      	
              6.3

            	
              In
                the event that the Company shall, pursuant to action by its Board
                of
                Directors, at any time propose to merge into, consolidate with, or
                sell or
                otherwise transfer all or substantially all of its assets to another
                corporation and provision is not made pursuant to the terms of such
                transaction for the assumption by the surviving, resulting or acquiring
                corporation of outstanding Options under the Plan, or for the substitution
                of new options therefor, the Committee shall cause written notice
                of the
                proposed transaction to be given to each Optionee not less than 40
                days
                prior to the anticipated effective date of the proposed transaction,
                and
                his or her Option, unless otherwise provided under the terms of the
                Option, shall become fully (100%) vested and, prior to a date specified
                in
                such notice, which shall not be more than ten days prior to the
                anticipated effective date of the proposed transaction, each Optionee
                shall have the right to exercise his or her Option to purchase any
                or all
                Shares then subject to such Option (unless otherwise provided under
                the
                terms of the Option), including those, if any, which by reason of
                other
                provisions of the Plan have not then become available for purchase.
                Each
                Optionee, by so notifying the Company in writing, may, in exercising
                his
                or her Option, condition such exercise upon, and provide that such
                exercise shall become effective at the time of, but immediately prior
                to,
                the consummation of the transaction, in which event such Optionee
                need not
                make payment for the Shares to be purchased upon exercise of such
                Option
                until five days after written notice by the Company to such Optionee
                that
                the transaction has been consummated. If the transaction is consummated,
                each Option, to the extent not previously exercised prior to the
                date
                specified in the foregoing notice, shall terminate on the effective
                date
                of such consummation. If the transaction is abandoned, (i) any Shares
                not
                purchased upon exercise of such Option shall continue to be available
                for
                purchase in accordance with the other provisions of the Plan and
                (ii) to
                the extent that any Option not exercised prior to such abandonment
                shall
                have vested solely by operation of this paragraph, such vesting shall
                be
                deemed annulled, and the original vesting schedule set forth shall
                be
                reinstituted, as of the date of such
                abandonment.

            

    

    

    ARTICLE
      7

    

    Exercise
      of Options

    

    Any
      person entitled to exercise an Option in whole or in part, may do so by
      delivering a written notice of exercise to the Company, attention Corporate
      Secretary, at its principal office. The written notice shall specify the number
      of Shares for which an Option is being exercised and the grant date of the
      option being exercised and shall be accompanied by full payment of the Option
      Price for the Shares being purchased. Notwithstanding any provision in this
      Plan
      or in any Option, no Option shall be exercisable prior to the date the Plan
      is
      approved by the shareholders of the Company. 

    

    ARTICLE
      8

    

    Payment
      of Option Price

    

    
      	
              8.1

            	
              Payment
                of the Option price may be made in cash, by the tender of Shares,
                or both,
                or in such other form as may be determined by the Committee. Shares
                tendered shall be valued at their Fair Market Value on the Date of
                Exercise.

            

    

    

    
      	
              8.2

            	
              Payment
                through tender of Shares may be made by instruction from the Optionee
                to
                the Company to withhold from the Shares issuable upon exercise that
                number
                which have a Fair Market Value equal to the exercise price for the
                Option
                or portion thereof being exercised.

            

    

    

    

    
      
        
          

          -4-

          

          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    

    ARTICLE
      9

    

    Incentive
      Stock Options and Nonqualified Stock Options

    

    
      	
              9.1

            	
              The
                Committee in its discretion may designate whether an Option is to
                be
                considered an Incentive Stock Option or a Nonqualified Stock Option.
                The
                Committee may grant both an Incentive Stock Option and a Nonqualified
                Stock Option to the same individual. However, where both an Incentive
                Stock Option and a Nonqualified Stock Option are awarded at one time,
                such
                Options shall be deemed to have been awarded in separate grants,
                shall be
                clearly identified, and in no event will the exercise of one such
                Option
                affect the right to exercise the other such
                Option.

            

    

    

    
      	
              9.2

            	
              Any
                option designated by the Committee as an Incentive Stock Option will
                be
                subject to the general provisions applicable to all Options granted
                under
                the Plan. In addition, the Incentive Stock Option shall be subject
                to the
                following specific provisions:

            

    

    

    
      	 	
              A.

            	
              At
                the time the Incentive Stock Option is granted, if the Eligible Employee
                owns, directly or indirectly, stock representing more than 10% of
                (i) the
                total combined voting power of all classes of stock of the Company,
                or
                (ii) a corporation that owns 50% or more of the total combined voting
                power of all classes of stock of the Company,
                then:

            

    

    

    
      	 	
              (i)

            	
              the
                Option Price must equal at least 110% of the Fair Market value on
                the Date
                of Grant, and

            

    

    

    
      	 	
              (ii)

            	
              the
                term of the Option shall not be greater than five years from Date
                of
                Grant.

            

    

    

    
      	 	
              B.

            	
              The
                aggregate Fair Market Value of Shares (determined at the Date of
                Grant)
                with respect to which Incentive Stock Options are exercisable by
                an
                Eligible Employee for the first time during any calendar year under
                this
                Plan or any other plan maintained by the Company shall not exceed
                $100,000.

            

    

    

    
      	
              9.3

            	
              If
                any Option is not granted, exercised, or held pursuant to the provisions
                noted immediately above, it will be considered to be a Nonqualified
                Stock
                Option to the extent that the grant is in conflict with these
                restrictions.

            

    

    

    ARTICLE
      10

    

    Transferability
      of Option

    

    During
      the lifetime of an Eligible Employee to whom an Option has been granted, such
      Option is not transferable voluntarily or by operation of law and may be
      exercised only by such individual. Upon the death of an Eligible Employee to
      whom an Option has been granted, the Option may be transferred to the
      beneficiaries or heirs of the holder of the Option by will or by the laws of
      descent and distribution. In addition, the Committee may allow for the
      transferability of any Nonqualified Stock Options granted pursuant to this
      Plan.

     

    ARTICLE
      11

    

    Termination
      of Options

    

    
      	
              11.1

            	
              An
                Option may be terminated as
                follows:

            

    

     

     

    
      
        -5-

      

      
         

        
          

        

      

      
         

      

    

    
 

    
      	 	
              A.

            	
              During
                the period of continuous employment with the Company, an Option will
                be
                terminated only if it has been fully exercised or it has expired
                by its
                terms.

            

    

    

    
      	 	
              B.

            	
              Upon
                termination of employment for any reason, the then exercisable portion
                of
                any Option will terminate upon the earlier of (i) the first business
                day
                following expiration of the three month period after the date of
                termination, or (ii) the option expiration date set forth in the
                Option
                Agreement. The portion not exercisable will terminate on the date
                of
                termination of employment. For purposes of the Plan, a leave of absence
                approved by the Company shall not be deemed to be termination of
                employment.

            

    

    

    
      	 	
              C.

            	
              If
                an Eligible Employee holding an Option dies or becomes subject to
                a
                Permanent and Total Disability while employed or within three months
                after
                termination of employment, such Option may be exercised, to the extent
                exercisable on the date of the occurrence of the event which triggers
                the
                operation of this paragraph, at any time by the estate or guardian
                of such
                person or by those persons to whom the Option may have been transferred
                by
                will or by the laws of descent and distribution until the earlier
                of (i)
                the date which in one year after the date of such death or occurrence
                of
                Permanent and Total Disability, or (ii) the option expiration date
                set
                forth in the Option Agreement.

            

    

    

    
      	
              11.2

            	
              The
                Committee may at any time prior to three months after the date of
                termination of employment provide that particular options not be
                affected
                by such termination and continue in force whether or not exercisable
                at
                the date of such termination of employment until the option expiration
                date set forth in the Option Agreement or any date prior
                thereto.

            

    

    

    
      	
              11.3

            	
              Except
                as provided in Article 12 hereof, in no event will the continuation
                of the
                term of an Option beyond the date of termination of employment allow
                the
                eligible Employee, or his beneficiaries or heirs, to accrue additional
                rights under the Plan, or to purchase more Shares through the exercise
                of
                an Option that could have been purchased on the day that employment
                was
                terminated. In addition, notwithstanding anything contained herein,
                no
                option may be exercised in any event after the expiration of ten
                years
                from the date of grant of such
                option.

            

    

    

    ARTICLE
      12

    

    Adjustments
      to Shares and Option Price

    

    
      	
              12.1

            	
              In
                the event of changes in the outstanding common stock of the Company
                as a
                result of stock dividends, splitups, recapitalizations, combinations
                of
                Shares, exchanges of Shares or such other transaction, the number
                and
                class of Shares and price per share for each outstanding Option shall
                be
                correspondingly adjusted by the
                Committee.

            

    

    

    
      	
              12.2

            	
              The
                Committee shall make appropriate adjustments in the Option price
                to
                reflect any spin-off of assets, extraordinary dividends or other
                distributions to shareholders.

            

    

    

    
      	
              12.3

            	
              In
                the event of the dissolution or liquidation of the company or any
                merger,
                consolidation, exchange or other transaction in which the company
                is not
                the surviving corporation or in which the outstanding Shares of the
                Company are converted into cash, other securities or other property,
                each
                outstanding Option shall terminate as of a date fixed by the Committee
                provided that not less than 20 days written notice of the date of
                expiration shall be given to each holder of an Option and each such
                holder
                shall have the right during such period following notice to exercise
                the
                Option as to all or any part of the Shares for which it is exercisable
                at
                the time of such notice. The Committee, in its sole discretion, may
                provide that Options in such circumstances may be exercised to an
                extent
                greater than the number of shares for which they were exercisable
                at the
                time of such a notice.

            

    

    

    

    
      
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    ARTICLE
      13

    

    Option
      Agreements

    

    
      	
              13.1

            	
              All
                Options granted under the Plan shall be evidenced by a written agreement
                in such form or forms as the Committee in its sole discretion may
                determine.

            

    

    

    
      	
              13.2

            	
              Each
                optionee, by acceptance of an Option under this Plan, shall be deemed
                to
                have consented to be bound, on the optionee’s own behalf and on behalf of
                the optionee’s heirs, assigns and legal representatives, by all terms and
                conditions of this Plan.

            

    

    

    ARTICLE
      14

    

    Amendment
      or Discontinuance of Plan

    

    
      	
              14.1

            	
              The
                Board of Directors may at any time amend, suspend, or discontinue
                the
                Plan; provided, however, that except as otherwise permitted by Rule
                16b-3,
                Section 162(m) or Section 422 of the Code, no amendments by the Board
                of
                Directors shall, without further approval of the shareholders of
                the
                Company:

            

    

    

    
      	 	
              A.

            	
              change
                the class of Eligible employees;

            

    

    

    
      	 	
              B.

            	
              except
                as provided in Articles 4 and 12 hereof, increase the number of Shares
                which may be subject to Options granted under the Plan;
                or

            

    

    

    
      	 	
              C.

            	
              cause
                the Plan or any Option granted under the Plan to fail to (i) qualify
                for
                exemption from Section 16(b) of the Act, (ii) be excluded from the
                $1
                million deduction limitation imposed by Section 162(m), or (iii)
                qualify
                as an “Incentive Stock Option” as defined by Section 422 of the Internal
                Revenue Code.

            

    

    

    
      	
              14.2

            	
              No
                amendment or discontinuance of the Plan shall alter or impair any
                Option
                granted under the Plan without the consent of the holder
                thereof.

            

    

    

    ARTICLE
      15

    

    Effective
      Date

    

    The
      Plan
      became effective on January 12, 1998, having been adopted by the Board of
      Directors on that date and approved by the shareholders of the Company within
      twelve (12) months thereafter. The Plan was amended and restated by the Board
      of
      Directors on December 18, 2001, and approved by the shareholders of the Company
      on March 15, 2002. The Plan was amended and restated by the Board of Directors
      on January 27, 2004, and approved by the shareholders of the Company on March
      5,
      2004. The Plan was amended by the Board of Directors on September 8, 2005 and
      was amended and restated by the Board of Directors on November 16, 2005 (without
      the necessity of shareholder approval for such amendments).

     

    

     

    

    
      
        
          -7-

          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

     

    ARTICLE
      16

    Miscellaneous

    

    
      	
              16.1

            	
              Nothing
                contained in this Plan or in any action taken by the Board of Directors
                or
                shareholders of the Company shall constitute the granting of an Option.
                An
                Option shall be granted only at such time as a written Option shall
                have
                been executed and delivered to the respective employee and the employee
                shall have executed an agreement respecting the Option in conformance
                with
                the provisions of the Plan.

            

    

    

    
      	
              16.2

            	
              Certificates
                for Shares purchased through exercise of Options will be issued in
                regular
                course after exercise of the Option and payment therefor as called
                for by
                the terms of the Option, but in no event shall the Company be obligated
                to
                issue certificates more often than once each quarter in each fiscal
                year.
                No persons holding an Option or entitled to exercise an Option granted
                under this Plan shall have any rights or privileges of a shareholder
                of
                the Company with respect to any Shares issuable upon exercise of
                such
                Option until certificates representing such Shares shall have been
                issued
                and delivered. No Shares shall be issued and delivered upon exercise
                of an
                Option unless and until the Company, in the opinion of its counsel,
                has
                complied with all applicable registration requirements of the Securities
                Act of 1933 and any applicable state securities laws and with any
                applicable listing requirements of any national securities exchange
                on
                which the Company securities may then be listed as well as any other
                requirements of law.

            

    

    

    
      	
              16.3

            	
              This
                Plan shall continue in effect until the expiration of all Options
                granted
                under the Plan unless terminated earlier in accordance with Article
                14;
                provided, however, that it shall otherwise terminate ten years after
                the
                Effective Date. 

            

    

    

    
      	
              16.4         

            	
              On
                March 5, 2004, the shareholders of
                the Company
                approved a one-time waiver of the provision (incorporated in the
                definition of “Option Price” in 2.1(J) of this Plan) requiring that each
                Option grant be made with an Option Price of no less than fair market
                value of the Shares on the date of the grant, such waiver to be used
                for
                the grants of Options to the Company’s President and Chief Executive
                Officer, W. Robert Parkey, Jr., immediately following the 2004 Annual
                Meeting of Shareholders, and to be effective only if the closing
                price of
                the Shares on the date of such grant is higher than the closing price
                of
                Shares on February 2, 2004. Accordingly, the Options to purchase
                an
                aggregate of 390,000 Shares granted to Mr. Parkey under this Plan,
                pursuant to three separate written option agreements dated March
                8, 2004,
                have been expressly approved by the shareholders notwithstanding
                the fact
                that the Option Price specified in those agreements is less than
                the fair
                market value of the Shares as of March 8,
                2004.

            

    

    
 

     

    -8-Exhibit 10-16 - Stock Option Agmt. between A.J. Knapp 10-18-05

    

      Exhibit
        10.16

      

      Summary
        Information

      Employee:
        A.
        John Knapp, Jr.

      Location:
        Corporate

      Date
        of
        Grant: November 18, 2005

      ESOP:
        1998

      Exercise
        Price: $2.40/Share

      Expiration:
        November 18, 2012, 12:00 a.m.

      Total
        #
        Shares subject to grant: 240,000

      Vesting:
        

      *
        120,000
        Shares vest on December 15, 2006 (provided that Knapp is employed on September
        30, 2006 and all of the conditions for vesting described in Exhibit A are
        satisfied. In the event that only a portion of the conditions described in
        Exhibit A are satisfied, a corresponding portion of the 120,000 Shares will
        vest
        in accordance with Exhibit A.)

      *
        120,000
        Shares vest on December 15, 2007 (provided that Knapp is employed on September
        30, 2006 and all of the conditions for vesting described in Exhibit B are
        satisfied. In the event that only a portion of the conditions described in
        Exhibit B are satisfied, a corresponding portion of the 120,000 Shares will
        vest
        in accordance with Exhibit B.)

       

      

      STOCK
        OPTION AGREEMENT

       

      This
        AGREEMENT is made and effective this 18th
        day of
        November, 2005 (the “Date of Grant”), between ICO, Inc., a Texas corporation
        (the “Company”), and A. John Knapp, Jr. (“Employee”), an employee of the Company
        or one of its subsidiaries. 

       

      To
        carry
        out the purposes of ICO, Inc.’s 1998 STOCK OPTION PLAN, (the “Plan”), by
        affording Employee the opportunity to purchase shares of the common stock
        of the
        Company (“Shares”), and in consideration of the mutual agreements and other
        matters set forth herein and in the Plan, the Company and Employee hereby
        agree
        as follows: 

       

      1. Grant
        of Option.
        The
        Company hereby grants to Employee the right to purchase all or any part of
        an
        aggregate of 240,000 Shares (such right to purchase 240,000 Shares at the
        purchase price set forth in paragraph 2 below being referred to herein as
        this
“Option”), on the terms and conditions set forth herein and in the Plan, as such
        Plan may be amended or supplemented from time to time, and which Plan is
        incorporated herein by reference as a part of this Agreement, and subject
        to the
        conditional vesting described below. This Option shall not
        be
        treated as an incentive stock option within the meaning of Section 422(b)
        of the
        Internal Revenue Code of 1986, as amended (the “Code”).

       

      2. Purchase
        Price.
        The
        purchase price of the Shares that may be purchased by Employee pursuant to
        the
        exercise of this Option shall be $2.40 per Share, which has been determined
        to
        be not less than the fair market value of the Shares on the Date of Grant
        of
        this Option. For the purpose of this Agreement, the “fair market value” of the
        Shares shall be determined in accordance with the definition of “fair market
        value” contained in the Plan. 

       

      3. Exercise
        of Option / Vesting Schedule.
        This
        Option shall vest and may be exercised, in whole or part, according to the
        schedule described below. 

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      This
        Option may be exercised in whole or part, by written notice to the Company
        at
        its principal executive office addressed to the attention of its General
        Counsel, at any time and from time to time after the Date of Grant hereof,
        provided that the Option or portion thereof has vested and may be purchased
        in
        accordance with the following schedule:

       

      
        	
                Vesting
                  Date 

              	
                Number
                  of Shares

                That
                  Vest and May Be Purchased

              
	
                December
                  15, 2006

              	
                Up
                  to 120,000 Shares, contingent upon achieving the objectives described
                  in
                  clause (a) below and Exhibit A

              
	
                December
                  15, 2007

              	
                Up
                  to 120,000 Shares, contingent upon achieving the objectives described
                  in
                  clause (b) below and Exhibit B

              

      

      

      (a) Options
        to purchase 120,000 Shares vest based on the Company’s fiscal year (“FY”) 2006
        performance/service:
        30,000
        of these Options vest on December 15, 2006, provided that service as President
        & Chief Executive Officer has continued through September 30, 2006. All or
        a
        portion of 90,000 of these Options will vest on December 15, 2006 based on
        the
        Company’s performance against target in FY 2006 on the three measurements
        described in Exhibit A and C, and also conditioned upon Employee’s continued
        service as President & Chief Executive Officer through September 30,
        2006.

      

      (b) Options
        to purchase 120,000 Shares vest based on FY 2007
        performance/service:
        30,000
        of these Options vest on December 15, 2007, provided that service as President
        & Chief Executive Officer has continued through September 30, 2007. All or
        a
        portion of 90,000 of these Options will vest on December 15, 2007 based on
        the
        Company’s performance against target in FY 2007 on the three measurements
        described in Exhibit B and C, and also conditioned upon Employee’s continued
        service as President & Chief Executive Officer through September 30,
        2007.

      

      In
        the
        event that all or a portion of the Option does not vest because the conditions
        set forth herein or in Exhibits A and/or B are not satisfied, the portion
        of the
        Option that does not vest will be automatically terminated on the date when
        it
        would otherwise vest, and shall not be exercisable by Employee. No portion
        of
        this Option shall not be exercisable in any event after November 18, 2012
        at
        12:00 a.m. 

      

      4. Withholding
        of Tax.
        To the
        extent that the exercise of this Option or the disposition of Shares acquired
        by
        exercise of this Option results in compensation income or wages to Employee
        for
        federal, state, or local tax purposes, if requested by Company, Employee
        shall
        deliver to the Company at the time of such exercise or disposition such amount
        of money or Shares as the Company may require to meet its obligations under
        applicable tax laws or regulations, and, if Employee fails to do so, the
        Company
        is authorized to withhold from any cash or Share remuneration then or thereafter
        payable to Employee any tax required to be withheld by reason of such resulting
        compensation income. Upon an exercise of this Option, the Company is further
        authorized in its discretion to satisfy any such withholding requirements
        out of
        any cash or Shares distributable to Employee upon such exercise. 

       

       

      
        
          Page
            2 of 3

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      5. Binding
        Effect.
        This
        Agreement shall be binding upon and inure to the benefit of any successors
        to
        the Company and all persons lawfully claiming under Employee. In the event
        of
        conflict between any of the provisions in this Agreement and provisions in
        the
        Plan, the provisions of the Plan will govern. 

       

      6. Governing
        Law and Dispute Resolution.
        This
        Agreement and the Option granted hereunder, shall be governed by, and construed
        in accordance with the laws of the State of Texas, without regard to its
        principles of conflicts of law. Any and all controversies, claims and
        differences arising out of or relating to the Option granted under this
        Agreement which cannot be settled by good faith negotiation between the parties
        will be finally settled by binding arbitration brought within three (3) months
        of the termination of the Option, with the date of termination to be governed
        by
        the provisions of the Plan and this Agreement. The binding arbitration will
        be
        conducted in accordance with the then existing rules of the American Arbitration
        Association (“AAA”), by one arbitrator. In the event of any conflict between
        such rules and this paragraph, the provisions of this paragraph shall govern.
        Upon the written demand of either party, the parties shall appoint a single
        arbitrator acceptable to both parties. Arbitration proceedings shall be held
        in
        Houston, Texas. The decision of the arbitrator shall be final and binding
        upon
        the parties hereto, not subject to appeal, and shall deal with the questions
        of
        interest, cost of the arbitration, and all matters relevant thereto. Judgment
        upon the award or decision rendered by the arbitrator may be entered in any
        court having jurisdiction thereof, or application may be made to such court
        for
        a judicial recognition of the award or any order of enforcement thereof as
        the
        case may be.

       

      IN
        WITNESS WHEREOF,
        the
        Company has caused this Agreement to be duly executed by its officer thereunto
        and duly authorized, and Employee has executed this Agreement, to be effective
        as of the Date of Grant set forth above.

       

       

       

                                  ICO,
        INC.

      

      
        	
                By:

              	
                /s/
                  Jon C. Biro

              
	 	
                Jon
                  C. Biro

              
	 	
                Chief
                  Financial Officer

              

      

      
 

                                  EMPLOYEE

       

      
        	
                /s/
                  A. John Knapp, Jr.

              
	
                A.
                  John Knapp, Jr.

              
	 	 

      

      

       

      
        
          Page
            3 of 3

        

        
          
          

          
            

          

        

        
          
          

        

      

      Exhibit
        A to Stock Option Agreement

       

      Matrix
        for Vesting of FY 2006 Options

       

      

        
          	
                  Measurement

                	
                  Weighting

                	
                  FY
                    '06 Minimum

                	
                  FY
                    '06 Target

                	
                  CEO
                    pay-out at target

                
	
                  ICO,
                    Inc. consolidated Operating Income

                	 	 	 	
                  Vesting
                    of 30,000 options

                
	
                  ICO,
                    Inc. consolidated Investment turnover

                	 	 	 	
                  Vesting
                    of 30,000 options

                
	
                  ICO,
                    Inc. consolidated ROE

                	 	 	 	
                  Vesting
                    of 30,000 options

                
	
                  Vesting
                    over time

                	 	 	 	
                  Vesting
                    of 30,000 options

                
	
                  Total

                	 	 	 	
                  Vesting
                    of 120,000 options

                

      

      

      See
        Exhibit C for explanation of measurement definitions, vesting calculation
        information, and additional provisions regarding vesting.

      

      
        
          
          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
            

          

        

      

      Exhibit
        B to Stock Option Agreement

       

      Matrix
        for Vesting of FY 2007 Options

      

       

        	
                Measurement

              	
                Weighting

              	
                FY
                  '07 Minimum

              	
                FY
                  '07 Target

              	
                CEO
                  pay-out at target

              
	
                ICO,
                  Inc. consolidated Operating Income

              	 	 	 	
                Vesting
                  of 30,000 options

              
	
                ICO,
                  Inc. consolidated Investment turnover

              	 	 	 	
                Vesting
                  of 30,000 options

              
	
                ICO,
                  Inc. consolidated ROE

              	 	 	 	
                Vesting
                  of 30,000 options

              
	
                Vesting
                  over time

              	 	 	 	
                Vesting
                  of 30,000 options

              
	
                Total

              	 	 	 	
                Vesting
                  of 120,000 options

              

      

       

      
 

      See
        Exhibit C for explanation of measurement definitions, vesting calculation
        information, and additional provisions regarding vesting.

      

       

       

       

       

       

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Exhibit
        C to Stock Option Agreement

      

      Explanation
        of Measurement Definitions and Summary of Terms of Proposed Option
        Grants

      

      

      Measurement
        definitions

      

      
        	·  	
                “Operating
                  Income”:
                  Earnings before interest and taxes, excluding non-recurring charges.
                  Note
                  that Operating Income shall include expenses for bonuses payable
                  to the
                  CEO, Group Presidents and CFO pursuant to the incentive plans applicable
                  to them. Non-recurring charges that are excluded from the calculation
                  of
                  Operating Income shall consist of impairment, restructuring and
                  other
                  charges included in ICO's audited financial statements. Additionally,
                  Operating Income shall exclude, on a pro-forma basis, the effect
                  of
                  discontinued operations (including plants that are shut
                  down).

              

      

      

      
        	·  	
                “Investment
                  turnover”: Trailing
                  twelve months revenue divided by the “Average Invested Capital Base” for
                  the previous thirteen month-end periods. “Average Invested Capital Base”
                  is defined as the average total assets minus current liabilities,
                  excluding funded debt (i.e. interest bearing debt.), calculated
                  using the
                  previous thirteen month-end
                  periods.

              

      

      

      
        	·  	
                “ROE”:
                  Net income from continuing operations, minus preferred dividends
                  (whether
                  paid or accrued towards Convertible Preferred Stock liquidation
                  preference), divided by Stockholders' equity, less the liquidation
                  preference of Convertible Preferred Stock. For purposes of this
                  calculation, Stockholders' equity and liquidation preference balances
                  shall be averaged using the previous four (4) quarter-end balances,
                  plus
                  the prior year-end balance (e.g. for FY 2006 calculation the FY
                  2005
                  previous year end-balance plus the four quarter-end balances of
                  fiscal
                  year 2006).

              

      

      

      

      Additional
        Terms of Option Grants

      

      
        	·  	
                Actual
                  results between the "minimum" and "target" are interpolated assuming
                  zero
                  Options vest if the actual results equal the results described
                  in the
                  "minimum" column, and 100% of the Options in a given measurement
                  row vest
                  if the results equal or exceed the “target” column (therefore the midpoint
                  between the "minimum" and the "target" results in any given measurement
                  row result in 50% of the Options at target being vested).
                  

              

      

      

      
        	·  	
                Upon
                  the circumstances described in Section 6.1 of the 1998 Employee
                  Stock
                  Option Plan (sale or merger of the Company), unvested Options shall
                  vest
                  in accordance with Section 6.1, with the following exception: the
                  Options
                  referenced in the row in both Exhibits A and B entitled "Vesting
                  over
                  time" above shall only vest in proportion to service as CEO &
                  President as of the date of the sale or merger (e.g. if a sale
                  or merger
                  was to close on January 1, 2007, only 3/12ths of the CEO’s 30,000 Options
                  referenced in the row entitled “Vesting over time” for FY 2007 would
                  vest).

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