Document:

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                             NOBLE AFFILIATES, INC.

                              EMPLOYMENT AGREEMENT
                              --------------------

         This Employment Agreement (this "Agreement") is effective as of October
2, 2000 between NOBLE AFFILIATES, INC., a Delaware corporation (the "Company"),
and CHARLES D. DAVIDSON (the "Employee").

                              W I T N E S S E T H:

         WHEREAS, the Company desires to employ the Employee, and the Employee
desires to be employed by the Company, as President and Chief Executive Officer
in accordance with the terms and conditions set forth in this Agreement;

         NOW THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and subject to the
terms and conditions hereinafter set forth, the parties hereto agree as follows:

1.       DEFINITIONS.
         -----------

         In addition to the words and terms elsewhere defined in this Agreement,
the following words and terms as used herein shall have the following meanings,
unless the context or use indicates a different meaning:

         "Annualized Compensation Amount" means an amount equal to (i) the
annualized salary payable to the Employee pursuant to Subsection 4(a), plus (ii)
the target bonus established for the Employee pursuant to Subsection 4(b) of
this Agreement, both during the then-effective fiscal year of the Company.

         "Cause" means by reason of any of the following: (A) Employee's
conviction of, or plea of nolo contendere to, any felony or to any crime or
offense causing substantial harm to any of the Related Parties (defined below)
or involving acts of theft, fraud, embezzlement, moral turpitude or similar
conduct; (B) malfeasance in the conduct of Employee's duties, including, but not
limited to, (1) willful and intentional misuse or diversion of funds of any of
the Related Parties, (2) embezzlement, or (3) fraudulent or willful and material
misrepresentations or concealments on any written reports submitted to the
Related Parties; or (C) Employee's material breach of the provisions of this
Agreement or material failure to follow or comply with the reasonable and lawful
written directives of the Board of Directors of the Company, provided, however,
that as regards the foregoing clause (C), Employee shall have been informed, in
writing, of such material breach or failure and given a period of thirty (30)
days to remedy same.

         "Common Stock" means the Company's common stock, $3.33 - 1/3 par value
per share.

         An "Event of Default" means the occurrence of any of the following
events prior to a Triggering Event, unless remedied or otherwise cured within
thirty (30) days after the Company's receipt of written notice from the Employee
of such event: (a) without his prior concurrence, the

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Employee is assigned any duties or responsibilities that are inconsistent
with his position, duties, responsibilities or status at the commencement of
the term of this Agreement, or his reporting responsibilities in effect at
such time are changed, (b) the Employee's base salary is reduced, or (c) any
change in any employee benefit plans or arrangements in effect on the date
hereof in which the Employee participates (including without limitation any
annual incentive bonus plan, pension and retirement plan, savings and profit
sharing plan, stock ownership or purchase plan, stock option plan, or life,
medical or disability insurance plan), which would adversely affect the
Employee's rights or benefits thereunder, unless such change occurs pursuant
to a program or a plan amendment or termination that is applicable to all
senior executive officers of the Company and does not result in a
proportionately greater reduction in the rights of or benefits to the
Employee as compared to any other senior executive officer of the Company.

         "Good Reason" means the occurrence of a Triggering Event (as defined
below) AND: (a) without his prior concurrence, the Employee is assigned any
duties or responsibilities that are inconsistent with his position, duties,
responsibilities or status at the commencement of the term of this Agreement, or
his reporting responsibilities in effect at such time are changed, (b) the
Employee's base salary is reduced, or (c) any change in any employee benefit
plans or arrangements in effect on the date hereof in which the Employee
participates (including without limitation any annual incentive bonus plan,
pension and retirement plan, savings and profit sharing plan, stock ownership or
purchase plan, stock option plan, or life, medical or disability insurance
plan), which would adversely affect the Employee's rights or benefits
thereunder, unless such change occurs pursuant to a program or a plan amendment
or termination that is applicable to all senior executive officers of the
Company and does not result in a proportionately greater reduction in the rights
of or benefits to the Employee as compared to any other senior executive officer
of the Company.

         "Related Parties" means the Company and its subsidiaries and other
affiliates.

         A "Triggering Event" shall be deemed to have occurred if:

                  (i)   individuals who, as of the date hereof, constitute the
         Company's Board of Directors (the "Incumbent Board") cease for any
         reason to constitute at least fifty-one percent (51%) of the Company's
         Board, provided that any person becoming a director subsequent to the
         date hereof whose election, or nomination for election by the Company's
         stockholders, was approved by a vote of at least a majority of the
         directors then comprising the Incumbent Board shall be, for purposes of
         this Agreement, considered as though such person were a member of the
         Incumbent Board;

                  (ii)  the stockholders of the Company shall approve a
         reorganization, merger or consolidation, in any case, with respect to
         which persons who were the stockholders of the Company immediately
         prior to such reorganization, merger or consolidation do not,
         immediately thereafter, own outstanding voting securities representing
         at least fifty-one percent (51%) of the combined voting power entitled
         to vote generally in the election of the directors ("Voting
         Securities") of the resulting reorganized, merged or consolidated
         company;

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                  (iii) the stockholders of the Company shall approve a
         liquidation or dissolution of the Company or a sale of all or
         substantially all of the Company's assets to a non-Related Party; or

                  (iv)  any "person," as that term is defined in Section 3(a)(9)
         of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
         (other than the Company, any other Related Party, any employee benefit
         plan of the Company or any of its Related Parties, or any entity
         organized, appointed or established by the Company for or pursuant to
         the terms of such a plan), together with all "affiliates" and
         "associates" (as such terms are defined in Rule 12b-2 under the
         Exchange Act) of such person (as well as any "person" or "group" as
         those terms are used in Sections 13(d) and 14(d) of the Exchange Act
         and the rules promulgated thereunder), shall become the "beneficial
         owner" or "beneficial owners" (as defined in Rules 13d-3 and 13d-5
         under the Exchange Act), directly or indirectly, of securities of the
         Company representing in the aggregate twenty-five percent (25%) or more
         of either (A) the then outstanding shares of Common Stock or (B) the
         Voting Securities of the Company, in either such case other than solely
         as a result of acquisitions of such securities directly from the
         Company. Without limiting the foregoing, a person who, directly or
         indirectly, through any contract, arrangement, understanding,
         relationship or otherwise has or shares the power to vote, or to direct
         the voting of, or to dispose, or to direct the disposition of, Common
         Stock or other Voting Securities of the Company shall be deemed the
         beneficial owner of such Common Stock or Voting Securities.

         Notwithstanding the foregoing, a "Triggering Event" shall not be deemed
to have occurred for purposes of subparagraph (iv) of this definition solely as
the result of an acquisition of securities by the Company which, by reducing the
number of shares of Common Stock or other Voting Securities of the Company
outstanding, increases (i) the proportionate number of shares of Common Stock
beneficially owned by any person to twenty-five percent (25%) or more of the
shares of Common Stock then outstanding or (ii) the proportionate voting power
represented by the Voting Securities of the Company beneficially owned by any
person to twenty-five percent (25%) or more of the combined voting power of all
then outstanding Voting Securities; provided, however, that if any person
referred to in clause (i) or (ii) of this sentence shall thereafter become the
beneficial owner of any additional shares of Common Stock or other Voting
Securities of the Company (other than a result of a stock split, stock dividend
or similar transaction), then a Triggering Event shall be deemed to have
occurred.

2.       EMPLOYMENT.
         ----------

         The Company hereby employs the Employee and the Employee hereby accepts
employment on the terms and conditions set forth herein.

3.       TERM.
         ----

         The initial term of this Agreement shall be from the date hereof until
the third anniversary hereof, unless sooner terminated in accordance with the
provisions herein regarding termination.

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Subject to earlier termination as provided herein, the initial three year
term of this Agreement shall be automatically extended for successive one
year extensions, beginning on the date of the first anniversary of this
Agreement and on each anniversary thereafter, unless either the Employee or
the Company gives written notice to the other at least six months prior to
such anniversary.

4.       COMPENSATION.
         ------------

         (a)  BASE SALARY. For all services rendered by the Employee under this
Agreement, the Company shall pay the Employee a base salary of Four Hundred
Seventy-Five Thousand Dollars ($475,000) per year. Such salary: (i) shall be
payable in equal installments in accordance with the customary payroll policies
of the Company in effect at the time such payment is made, or as otherwise
mutually agreed upon, and (ii) may, in the sole discretion of the Company's
Board of Directors, be increased in future years.

         (b)  ANNUAL TARGET BONUS. Effective for the Company's fiscal year
ending December 31, 2001 and continuing with respect to each subsequent
fiscal year thereafter during the term of this Agreement, Employee will be
eligible for a "target bonus," under the Company's annual incentive bonus
plan in effect at the applicable time, of up to seventy percent (70%) of
Employee's base salary in effect at the applicable time. For the Company's
fiscal year ending December 31, 2000, Employee's bonus shall not be less than
the mathematical product of Three Hundred Thousand Dollars ($300,000)
multiplied by a fraction of which (i) the numerator is the number of days
during such fiscal year that the Employee is employed by the Company and (ii)
the denominator is 365. The Employee's bonus pursuant to this Subsection 4(b)
shall be earned as of the end of the Company's relevant fiscal year and
payable in accordance with the customary policies of the Company in effect at
the time for the Company's other senior executive officers.

         (c)  BENEFITS. The Employee shall be entitled to participate in or
receive benefits under any employee benefit plan or arrangements made available
by the Company in the future to its senior executive officers, subject to and on
a basis consistent with the terms, conditions and overall administration of such
plan or arrangement. Nothing paid to the Employee under any plan or arrangement
presently in effect or made available in the future shall be deemed to be in
lieu of the salary and bonuses payable to the Employee pursuant to Subsections
4(a) and 4(b).

         (d)  STOCK OPTION. In consideration of the Employee's execution of this
Agreement, the Company will grant a non-qualified stock option to purchase
Eighty Thousand (80,000) shares of the Common Stock to the Employee (the
"Initial Options") pursuant to the Noble Affiliates, Inc. 1992 Stock Option and
Restricted Stock Plan (the "Option Plan"). Such option shall vest and become
exercisable in three equal annual installments. The exercise price for such
option will be the Fair Market Value (as determined under the Option Plan) of
the Common Stock on the date of grant, such grant to be made within one week
following the commencement of the Employee's employment with the Company. The
option to purchase 80,000 shares of the Common Stock is intended to encompass
Employee's option grants during the calendar year 2000, and, while the Board of
Directors could award additional options to the Employee during such period,
there is no present intention to do so even though options may be awarded to
other executives of the Company

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during such time period. Beginning with calendar year 2001, Employee will be
eligible to participate in the Option Plan under the same terms and
conditions in effect for the Company's other senior executive officers.

         (e)  EXPENSES. Upon receipt of itemized vouchers, expense account
reports, and supporting documents submitted to the Company in accordance with
the Company's procedures from time to time in effect, the Company shall
reimburse Employee for all reasonable and necessary travel, entertainment, and
other reasonable and necessary business expenses incurred ordinarily and
necessarily by Employee in connection with the performance of his duties
hereunder.

         (f)  VACATION. Employee shall be entitled to a minimum of five
(5) weeks paid vacation during each twelve month period commencing on the
effective date of this Agreement.

5.       POSITION, DUTIES, EXTENT OF SERVICES AND SITUS.
         ----------------------------------------------

         (a)  POSITION AND DUTIES. Employee shall serve as the President and
Chief Executive Officer of the Company.

         (b)  EXTENT OF SERVICES. The Employee shall devote all of his business
time, attention, and energy to the business and affairs of the Company and shall
not during the term of his employment under this Agreement engage in any other
business activity which could constitute a conflict of interest, whether or not
such business activity is pursued for gain, profit, or other pecuniary
advantage. This shall not be construed as preventing the Employee from serving
on the Boards of Directors of other companies or from managing his current
investments or investing his assets in such form or manner as will not require
any services on the part of the Employee in the operation and the affairs of the
companies in which such investments are made, subject to the provisions of
Section 6 hereof.

6.       NON-SOLICITATION; CONFIDENTIALITY AND PENDING PROSPECTS.
         -------------------------------------------------------

         (a)  The Employee acknowledges that (i) as a result of his position
with the Company he will receive specialized and unique knowledge concerning
the Company, its business, its customers and the industry in which it
competes, (ii) the Company's business, in large part, depends upon its
exclusive possession and use of its proprietary information, (iii) the
Company is entitled to protection against the unauthorized disclosure or use
by Employee of its proprietary information, and (iv) he has received in this
Agreement good and valuable consideration for the covenants he is making in
this Section 6.

         (b)  For a period of twenty-four (24) months after the termination of
Employee's employment with the Company, the Employee shall not, without the
written consent of the Company: solicit, entice, persuade or induce, directly or
indirectly, any individual (or person who within the preceding ninety (90) days
was an employee) of any of the Related Parties or any other person who is under
contract with or rendering services to any of the Related Parties, to (i)
terminate his or her employment by, or contractual relationship with, a Related
Party, (ii) refrain from

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extending or renewing the same (upon the same or new terms), (iii) refrain
from rendering services to or for a Related Party, (iv) become employed by or
to enter into contractual relations with any party other than a Related
Party, or (v) enter into a relationship with a competitor of any of the
Related Parties.

         (c)  Employee recognizes and acknowledges that the Company would suffer
irreparable harm and substantial loss if Employee violated any of the terms and
provisions of this Section 6 and that the actual damages which might be
sustained by the Company as the result of any breach of this Section 6 would be
difficult to ascertain. Employee agrees, at the election of the Company and in
addition to, and not in lieu of, the Company's right to terminate Employee's
employment and to seek all other remedies and damages which the Company may have
at law and/or equity for such breach, that the Company shall be entitled to an
injunction restraining Employee from breaching any of the terms or provisions of
this Section 6.

         (d)  During the time of Employee's employment with the Company and for
a period of one (1) year thereafter, Employee will not compete with the Company
for any acquisition, prospect or project that the Company was pursuing prior to
Employee's termination, and Employee shall hold in strict confidence and shall
not, directly or indirectly, disclose or reveal to any person, or use for his
own personal benefit or for the benefit of anyone else, any trade secrets,
confidential dealings, or other confidential or proprietary information of any
kind, nature, or description (whether or not acquired, learned, obtained, or
developed by Employee alone or in conjunction with others) belonging to or
concerning the Company or any other Related Party, except (i) with the prior
written consent of the Company duly authorized by its Board of Directors, (ii)
in the course of the proper performance of Employee's duties hereunder, (iii)
for information (x) that becomes generally available to the public other than as
a result of unauthorized disclosure by Employee or his affiliates or (y) that
becomes available to Employee on a non-confidential basis from a source, other
than the Company, who is not bound by a duty of confidentiality, or by any other
contractual, legal, or fiduciary obligation, to the Company, or (iv) as required
by applicable law or legal process.

7.       DISABILITY.
         ----------

         Employee shall be entitled to participate in, and receive coverage
under, as applicable, any disability plan made available to the Company's senior
executive officers from time to time. The Company shall have the right
immediately to terminate the Employee's employment under this Agreement upon the
"Complete Disability" of the Employee as hereinafter defined. The term "Complete
Disability" as used in this Section 7 shall mean (i) the total inability of the
Employee, despite any reasonable accommodation required by law, due to bodily
injury or disease or any other physical or mental incapacity, to perform the
services provided for hereunder for a period of one hundred twenty (120) days in
the aggregate, within any given period of one hundred eighty (180) consecutive
days during the term of this Agreement, in addition to any statutorily required
leave of absence, and (ii) where such inability will, in the opinion of a
qualified physician selected by the Company's Board of Directors, be permanent
and continuous during the remainder of Employee's life.

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8.       DEATH.
         -----

         If the Employee dies during the term of his employment, the Company
shall pay to such person as the Employee shall designate in a notice filed with
the Company, or, if no such person shall be designated, to Employee's estate as
a death benefit, any payments the Employee's spouse, beneficiaries, or estate
may be entitled to receive pursuant to any pension or employee benefit plan or
life insurance policy maintained by the Company at such time for its senior
executive officers, and, except for any obligations of the Company under
Sections 22 and 25, all other obligations of the Company hereunder shall cease
at the time of the Employee's death.

9.       TERMINATION.
         -----------

         9.1  TERMINATION PRIOR TO A TRIGGERING EVENT. (a) Upon at least thirty
(30) days' prior written notice to the Employee and prior to a Triggering Event,
the Company may terminate the Employee's employment with the Company under this
Agreement for Cause or in accordance with Section 7 and, subject to the
provisions of Sections 22 and 25, with no liability on its part for further
payments to the Employee (other than accrued and unpaid salary through the
termination date). The Company may effect a termination for Cause pursuant to
this Subsection 9.1(a) only by the affirmative vote of a majority of the members
of the Board of Directors of the Company. In voting upon such termination for
Cause, if the Employee is also a member of the Board of Directors of the
Company, then he may not vote on, and will not be considered present for any
purpose with respect to, a matter presented to the Board of Directors of the
Company pursuant to this Subsection 9.1(a).

         (b)  Prior to a Triggering Event, the Employee may terminate his
employment with the Company under this Agreement by giving at least six (6)
months' prior written notice of his desire to terminate employment to the Board
of Directors of the Company. If the Employee's employment with the Company under
this Agreement is terminated pursuant to this Subsection 9.1(b), the Employee
will continue to accrue and receive his base salary in effect at the time
pursuant to Subsection 4(a) through the date of termination specified in such
notice with no liability on the part of the Company for further payments to the
Employee, subject to the provisions of Sections 22 and 25.

         (c)  Prior to a Triggering Event, if the Employee's employment with the
Company is terminated by the Company without Cause or if the Employee terminates
his employment with the Company following the occurrence of an Event of Default
which has not been waived in writing by the Employee, the Employee will continue
to accrue and receive his base salary in effect at the time pursuant to
Subsection 4(a) through the date of termination and , unless the Employee's
employment is terminated in accordance with Section 7, will be entitled to
receive the benefits provided for under Subsection 10.1 with no liability on the
part of the Company for further payments to the Employee, subject to the
provisions of Sections 22 and 25.

         9.2  TERMINATION ON OR AFTER A TRIGGERING EVENT. (a) Upon at least
thirty (30) days' prior written notice to the Employee and on or after a
Triggering Event, the Company may terminate the Employee's employment with the
Company under this Agreement for Cause or in accordance with

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Section 7 and, subject to the provisions of Sections 22 and 25, with no
liability on its part for further payments to the Employee (other than
accrued and unpaid salary through the termination date). The Company may
effect a termination for Cause pursuant to this Subsection 9.2(a) only by the
affirmative vote of a majority of the members of the Board of Directors of
the Company. In voting upon such termination for Cause, if the Employee is
also a member of the Board of Directors of the Company, then he may not vote
on, and will not be considered present for any purpose with respect to, a
matter presented to the Board of Directors of the Company pursuant to this
Subsection 9.2(a).

         (b)   On or after a Triggering Event, if the Employee's employment
with the Company is terminated by the Company without Cause or if the Employee
terminates his employment with the Company for Good Reason, the Employee will
continue to accrue and receive his base salary in effect at the time pursuant to
Subsection 4(a) through the date of termination and, unless the Employee's
employment is terminated in accordance with Section 7, will be entitled to
receive the payments and benefits provided for under Subsections 10.2 and 10.3
with no liability on the part of the Company for further payments to the
Employee, subject to the provisions of Sections 22 and 25.

         (c)   On or after a Triggering Event, the Employee may, in his sole and
absolute discretion and without any prior approval by the Board of Directors of
the Company, and upon six (6) months' prior written notice to the Board of
Directors of the Company, terminate his employment with the Company under this
Agreement for any reason whatsoever. If the Employee's employment with the
Company under this Agreement is terminated pursuant to this Subsection 9.2(c),
the Employee will continue to accrue and receive his base salary in effect at
the time pursuant to Subsection 4(a) through the date of termination specified
in such notice with no liability on the part of the Company for further payments
to the Employee, subject to the provisions of Sections 22 and 25.

10.      COMPENSATION AFTER CERTAIN TERMINATIONS.
         ---------------------------------------

         10.1  REMAINING COMPENSATION. If the Employee's employment with the
Company is terminated pursuant to Subsection 9.1(c), then, within five days
after the date of such termination, the Remaining Compensation (as herein
defined) shall become due and payable and shall be paid to the Employee in a
single lump sum in cash. For purposes of this Subsection 10.1, the "Remaining
Compensation" shall mean the annual base salary for one year only payable to the
Employee pursuant to Subsection 4(a) at the time of termination plus an amount
representing any accrued and unpaid bonuses earned under Subsection 4(b).

         10.2  POST TRIGGERING EVENT SEVERANCE. If, at any time on or within
twenty-four (24) months after a Triggering Event, the Employee's employment with
the Company is terminated by the Company without Cause or if the Employee
terminates his employment with the Company for Good Reason, then:

         (i)   within five days after the date of such termination, the
               Company shall pay the Employee a lump sum amount in cash equal
               to two and one-half (2.5) times the Annualized Compensation
               Amount, and

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         (ii)  the vesting of all outstanding Initial Options then owned by
               Employee shall be accelerated so that all such options are
               immediately exercisable in accordance with their terms.

         10.3  GROSS-UP PAYMENT. In the event that (i) the Employee becomes
entitled to the payment provided under Section 10.2 of this Agreement (the
"Change in Control Payment") and any of the Change in Control Payment will be
subject to the tax (the "Excise Tax") imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), or any successor provision, or
(ii) any payments or benefits received or to be received by the Employee
pursuant to the terms of any other plan, arrangement or agreement (the "Benefit
Payments") will be subject to the Excise Tax, the Company shall pay to the
Employee an additional amount (the "Gross-Up Payment") such that the net amount
retained by the Employee, after deduction of any Excise Tax on the Change in
Control Payment and the Benefit Payments, and any federal, state and local
income tax and Excise Tax upon the payment provided for by this Section 10.3,
shall be equal to the Change in Control Payment and the Benefit Payments,
provided, however, that in determining the amount of the Gross- Up Payment, any
Excise Tax on the Change in Control Payment and the Benefit Payments shall be
determined using a rate no higher than twenty percent (20%). For purposes of
determining whether any of the Change in Control Payment or the Benefit Payments
will be subject to the Excise Tax and the amount of such Excise Tax, (i) any
payments or benefits received or to be received by the Employee in connection
with a change in control of the Company or the Employee's termination of
employment (whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, any person whose actions result in
change in control or any person affiliated with the Company or such persons)
shall be treated as "parachute payments" within the meaning of Section
280G(b)(2) of the Code, and all "excess parachute payments" within the meaning
of Section 280G(b)(1) shall be treated as subject to the Excise Tax, except to
the extent that, in the opinion of tax counsel selected by the Board of
Directors of the Company, such payments or benefits (in whole or in part) do not
constitute parachute payments, or such excess payments (in whole or in part)
represent reasonable compensation for services actually rendered within the
meaning of Section 280G(b)(4) of the Code, (ii) the amount of the Change in
Control Payment and the Benefit Payments that shall be treated as subject to the
Excise Tax shall be equal to the lesser of (A) the total amount of the Change in
Control Payment and the Benefits Payments or (B) the amount of excess parachute
payments within the meaning of Sections 280G(b)(1) and (4) (after applying
clause (i), above) and (iii) the value of any non-cash benefits or any deferred
payment or benefit shall be determined by tax counsel, selected by the Board of
Directors of the Company, in accordance with the principles of Sections
280G(d)(3) and (4) of the Code. For purposes of determining the amount of the
Gross-Up Payment, the Employee shall be deemed to pay federal income taxes at
the highest marginal rate of federal income taxation in the calendar year in
which the Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rates of taxation in the state and locality of the Employee's
residence on the date of termination, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes. In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of termination of the
Employee's employment, the Employee shall repay to the Company at that time that
amount of such reduction in Excise Tax as is finally determined to be the
portion of the Gross-Up Payment attributable to such reduction plus interest on
the amount of such

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repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into
account hereunder at the time of the termination of the Employee's employment
(including by reason of any payment the existence or amount of which cannot
be determined at the time of the Gross-Up Payment), the Company shall make an
additional gross-up payment to the Employee in respect of such excess (plus
any interest payable with respect to such excess) at the time that the amount
of such excess is finally determined.

11.      MITIGATION.
         ----------

         The Employee shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise,
nor shall the amount of any payment provided for in this Agreement be reduced by
any compensation earned by the Employee as the result of employment by another
employer after the date of termination of Employee's employment with the
Company, or otherwise.

12.      ENTIRE AGREEMENT.
         ----------------

         This Agreement embodies the entire agreement and understanding between
the parties hereto with respect to the subject matter hereof and supersedes all
prior negotiations, agreements, and understandings relating to such subject
matter, and may be modified or amended only by an instrument in writing signed
by the parties hereto.

13.      LAW TO GOVERN.
         -------------

         This Agreement is executed and delivered in the State of Texas and
shall be governed, construed and, except as stated in Section 26, enforced in
accordance with the internal laws of the State of Texas without regard to
principles of conflicts of law that would require the application of the law of
another jurisdiction.

14.      ASSIGNMENT.
         ----------

         This Agreement is personal to the parties, and neither this Agreement
nor any interest herein may be assigned (other than by will or by the laws of
descent and distribution) without the prior written consent of the parties
hereto nor be subject to alienation, anticipation, sale, pledge, encumbrance,
execution, levy, or other legal process of any kind against the Employee or any
of his beneficiaries or any other person. Notwithstanding the foregoing, the
Company shall be permitted to assign this Agreement to any corporation or other
business entity succeeding to substantially all of the business and assets of
the Company by merger, consolidation, sale of assets, or otherwise, if the
Company obtains the assumption of this Agreement by such successor.

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15.      BINDING AGREEMENT.
         -----------------

         Subject to the provisions of Section 14 of this Agreement, this
Agreement shall be binding upon and shall inure to the benefit of the Company
and the Employee and their respective representatives, successors, and assigns.

16.      REFERENCES AND GENDER.
         ---------------------

         All references to "Sections" and "Subsections" contained herein are,
unless specifically indicated otherwise, references to sections and subsections
of this Agreement. Whenever herein the singular number is used, the same shall
include the plural where appropriate, and words of either gender shall include
the other gender where appropriate.

17.      WAIVER.
         ------

         No waiver of any right under this Agreement shall be deemed effective
unless the same is set forth in writing and signed by the party giving such
waiver, and no waiver of any right shall be deemed to be a waiver of any such
right in the future. Only the Board of Directors of the Company has authority to
waive any provision of this Agreement.

18.      NOTICES.
         -------

         Except as may be otherwise specifically provided in this Agreement, all
notices required or permitted hereunder shall be in writing and will be deemed
to be delivered on the third day following being deposited in the United States
mail, postage prepaid, registered or certified mail, return receipt requested,
and (i) if to the Company, to its principal business office to the attention of
the Chairman of the Board and (ii) if to the Executive, if addressed to his last
known home address, or at such other addresses as may have theretofore been
specified by written notice delivered in accordance herewith.

19.      OTHER INSTRUMENTS.
         -----------------

         The parties hereto covenant and agree that they will execute such other
and further instruments and documents as are or may become necessary or
convenient to effectuate and carry out the terms of this Agreement.

20.      HEADINGS.
         --------

         The headings used in this Agreement are used for reference purposes
only and do not constitute substantive matter to be considered the terms of this
Agreement.

21.      INVALID PROVISION.
         -----------------

         Any clause, sentence, provision, section, subsection, or paragraph of
this Agreement held by a court of competent jurisdiction to be invalid, illegal,
or ineffective shall not impair, invalidate, or nullify the remainder of this
Agreement, but the effect thereof shall be confined to the clause, sentence,
provision, section, subsection, or paragraph so held to be invalid, illegal or
ineffective.

                                      11
<PAGE>

22.      RIGHTS UNDER PLANS AND PROGRAMS.
         -------------------------------

         Unless expressly provided in this Agreement, no provision of this
Agreement is intended, nor shall it be construed, to reduce or in any way
restrict any benefit to which the Employee otherwise may be independently
entitled under any other agreement, plan, arrangement, or program providing
benefits for the Employee, and to the extent such other agreement, plan,
arrangement, or program is made available to the Company's chief executive
officer and the available provisions conflict with a provision of this
Agreement, then such applicable provisions of such other agreement, plan,
arrangement, or program shall control.

23.      MULTIPLE COPIES.
         ---------------

         This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument. The terms of this Agreement
shall become binding upon each party from and after the time that he or it
executed a copy hereof. In like manner, from and after the time that any party
executes a consent or other document, such consent or other document shall be
binding upon such parties.

24.      WITHHOLDING OF TAXES.
         --------------------

         The Company may withhold from any amounts payable under this Agreement
all federal, state, city, or other taxes as shall be required pursuant to any
law or government regulation or ruling.

25.      LEGAL FEES AND EXPENSES.
         -----------------------

         Subject to Section 26 and any final, non-appealable determination by a
court of competent jurisdiction, each party shall pay and be responsible for its
legal fees and expenses incurred in connection with a dispute under this
Agreement, including as a result of a party contesting the validity or
enforceability of this Agreement.

26.      ARBITRATION.
         -----------

         ANY DISPUTE ARISING IN CONNECTION WITH THIS AGREEMENT OR IN ANY WAY
ARISING OUT OF OR RELATED TO THE EMPLOYMENT RELATIONSHIP BETWEEN THE EMPLOYEE
AND THE COMPANY, OR THE TERMINATION OF THAT RELATIONSHIP, INCLUDING ANY CLAIM OF
UNLAWFUL DISCRIMINATION, SHALL BE FINALLY RESOLVED BY ARBITRATION IN HOUSTON,
TEXAS, GOVERNED BY THE FEDERAL ARBITRATION ACT AND CONDUCTED PURSUANT TO AND IN
ACCORDANCE WITH THE NATIONAL RULES FOR THE RESOLUTION OF EMPLOYMENT DISPUTES OF
THE AMERICAN ARBITRATION ASSOCIATION. EITHER THE COMPANY OR THE EMPLOYEE MAY
REQUEST ARBITRATION BY SENDING WRITTEN NOTICE TO THE OTHER PARTY. IN ANY SUCH
ARBITRATION, THE ONLY ISSUES TO BE CONSIDERED AND DETERMINED BY THE
ARBITRATOR(S) SHALL BE ISSUES PERTAINING TO LEGAL AND EQUITABLE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND ANY APPLICABLE LAW. A
DECISION AND AWARD OF THE ARBITRATOR(S) SHALL BE FINAL, AND MAY BE ENTERED IN
ANY COURT HAVING JURISDICTION THEREOF, AND APPLICATION MAY BE MADE TO SUCH COURT
FOR JUDICIAL ACCEPTANCE AND/OR AN ORDER ENFORCING SUCH DECISION AND/OR AWARD.
JUDICIAL REVIEW

                                      12
<PAGE>

OF ANY DECISION OR AWARD SHALL BE IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT, EXCEPT THAT REVIEW OF ANY AWARD OF PUNITIVE OR EXEMPLARY DAMAGES SHALL
BE CONDUCTED AS IF THE AWARD OF SUCH DAMAGES WERE MADE BY A JURY SITTING IN A
FEDERAL DISTRICT COURT IN HOUSTON, TEXAS. IN THE EVENT THE ARBITRATOR(S)
DETERMINE THERE IS A PREVAILING PARTY IN THE ARBITRATION, THE PREVAILING
PARTY SHALL RECOVER FROM THE LOSING PARTY ALL COSTS OF ARBITRATION, INCLUDING
BUT NOT LIMITED TO THE FEES OF THE ARBITRATOR(S) AND REASONABLE ATTORNEYS'
FEES INCURRED BY THE PREVAILING PARTY. THE PROVISIONS OF THIS SECTION 26
SHALL NOT BE CONSTRUED TO LIMIT OR TO PRECLUDE EITHER PARTY FROM BRINGING AN
ACTION IN ANY COURT OF COMPETENT JURISDICTION FOR INJUNCTIVE RELIEF.

         IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.

                                  NOBLE AFFILIATES, INC.

                                  By:    /s/ Robert Kelley
                                      ------------------------------------------
                                      Name:  Robert Kelley
                                           -------------------------------------
                                      Title: Chairman of the Board
                                            ------------------------------------

                                      /s/ CHARLES D. DAVIDSON
                                      ------------------------------------------
                                      CHARLES D. DAVIDSON

                                      13<PAGE>

                             RUSH ENTERPRISES, INC.

                            LONG-TERM INCENTIVE PLAN

                               ARTICLE I: GENERAL

      SECTION 1.1 Purpose of the Plan. The Long-Term Incentive Plan (the "Plan")
of Rush Enterprises, Inc. (the "Company") is intended to advance the best
interests of the Company, its subsidiaries and its shareholders in order to
attract, retain and motivate employees by providing them with additional
incentives through (i) the grant of options ("Options") to purchase shares of
Common Stock, par value $.01 per share, of the Company ("Common Stock"), (ii)
the grant of stock appreciation rights ("Stock Appreciation Rights"), (iii) the
award of shares of restricted Common Stock ("Restricted Stock") and (iv) the
award of units payable in cash or shares of Common Stock based on performance
("Performance Awards"), thereby increasing the personal stake of such employees
in the continued success and growth of the Company.

      SECTION 1.2 Administration of the Plan. (a) The Plan shall be administered
by the Compensation Committee or other designated committee (the "Committee") of
the Board of Directors of the Company (the "Board of Directors") which shall
consist of at least two Outside Directors. The Committee shall have authority to
interpret conclusively the provisions of the Plan, to adopt such rules and
regulations for carrying out the Plan as it may deem advisable, to decide
conclusively all questions of fact arising in the application of the Plan, to
establish performance criteria in respect of Awards (as defined herein) under
the Plan, to certify that Plan requirements have been met for any participant in
the Plan, to submit such matters as it may deem advisable to the Company's
shareholders for their approval, and to make all other determinations and take
all other actions necessary or desirable for the administration of the Plan. The
Committee is expressly authorized to adopt rules and regulations limiting or
eliminating its discretion in respect of certain matters as it may deem
advisable to comply with or obtain preferential treatment under any applicable
tax or other law rule, or regulation. All decisions and acts of the Committee
shall be final and binding upon all affected Plan participants.

      For purposes of this Plan, "Outside Director" shall mean a non-employee
director of the Company who is "disinterested" within the meaning of Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").

      (b) The Committee shall designate the eligible employees, if any, to be
granted Awards and the type and amount of such Awards and the time when Awards
will be granted. All Awards granted under the Plan shall be on the terms and
subject to the conditions determined by the Committee consistent with the Plan.

                                       A-1
<PAGE>

      SECTION 1.3 Eligible Participants. Employees, including officers, of the
Company and its subsidiaries (all such subsidiaries being referred to as
"Subsidiaries") shall be eligible for Awards under the Plan.

      SECTION 1.4 Awards Under the Plan. Awards to employees may be in the form
of (i) Options, (ii) Stock Appreciation Rights, which may be issued independent
of or in tandem with Options, (iii) shares of Restricted Stock, (iv) Performance
Awards, or (v) any combination of the foregoing (collectively, "Awards").

      SECTION 1.5 Shares Subject to the Plan. The aggregate number of shares of
Common Stock that may be issued under the Plan shall be 1,000,000. In addition,
as of January 1 of each year the Plan is in effect, if the total number of
shares of Common Stock issued and outstanding, not including any shares issued
under the Plan, exceeds the total number of shares of Common Stock issued and
outstanding as of January 1 of the preceding year (or, for 1996, as of the
commencement of the Plan), the number of shares that may be issued under the
Plan shall be increased by an amount such that the total number of shares of
Common Stock available for issuance under the Plan equals 5% of the total number
of shares of Common Stock outstanding, not including any shares issued under the
Plan. Shares distributed pursuant to the Plan may consist of authorized but
unissued shares or treasury shares of the Company, as shall be determined from
time to time by the Board of Directors.

      If any Award under the Plan shall expire, terminate or be cancelled
(including cancellation upon an Option holder's exercise of a related Stock
Appreciation Right) for any reason without having been exercised in full, or if
any Award shall be forfeited to the Company, the unexercised or forfeited Award
shall not count against the above limits and shall again become available for
Awards under the Plan (unless the holder of such Award received dividends or
other economic benefits with respect to such Award, which dividends or other
economic benefits are not forfeited, in which case the Award shall count against
the above limits). Shares of Common Stock equal in number to the shares
surrendered in payment of the option price, and shares of Common Stock which are
withheld in order to satisfy Federal, state or local tax liability, shall count
against the above limits. Only the number of shares of Common Stock actually
issued upon exercise of a Stock Appreciation Right shall count against the above
limits, and any shares which were estimated to be used for such purposes and
were not in fact so used shall again become available for Awards under the Plan.
Cash exercises of Stock Appreciation Rights and cash settlement of other Awards
will not count against the above limits.

      The aggregate number of shares of Common Stock subject to Options or Stock
Appreciation Rights that may be granted to any one participant in any one year
under the Plan shall be 100,000. The aggregate number of shares of Common Stock
that may be granted to any one participant in any one year in respect of
Restricted Stock shall be 100,000. The aggregate number of shares of Common
Stock that may be received by any one participant in any one year in respect of
a Performance Award shall be 100,000 and the aggregate amount of cash that may
be received by any one participant in any one year in respect to a Performance
Award shall be $500,000.

                                       A-2
<PAGE>

      The total number of Awards (or portions thereof) settled in cash under the
Plan, based on the number of shares covered by such Awards (e.g., 100 shares for
a Stock Appreciation Right with respect to 100 shares), shall not exceed a
number equal to (i) the number of shares initially available for issuance under
the Plan plus (ii) the number of shares that have become available for issuance
under the Plan pursuant to the first paragraph of this Section 1.5.

      The aggregate number of shares of Common Stock that are available under
the Plan for Options granted in accordance with Section 2.4(i) ("ISOs") is
1,000,000, subject to adjustments as provided in Section 5.2 of the Plan.

      SECTION 1.6 Other Compensation Programs. Nothing contained in the Plan
shall be construed to preempt or limit the authority of the Board of Directors
to exercise its corporate rights and powers, including, but not by way of
limitation, the right of the Board of Directors (i) to grant incentive awards
for proper corporate purposes otherwise than under the Plan to any employee,
officer, director or other person or entity or (ii) to grant incentive awards
to, or assume incentive awards of, any person or entity in connection with the
acquisition (whether by purchase, lease, merger, consolidation or otherwise) of
the business or assets (in whole or in part) of any person or entity.

      ARTICLE II: STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

      SECTION 2.1 Terms and Conditions of Options. Subject to the following
provisions, all Options granted under the Plan to employees of the Company and
its Subsidiaries shall be in such form and shall have such terms and conditions
as the Committee, in its discretion, may from time to time determine consistent
with the Plan.

      (a) Option Price. The option price per share shall be determined by the
Committee, except that in the case of an Option granted in accordance with
Section 2.4(i) the option price per share shall not be less than the fair market
value of a share of Common Stock (as determined by the Committee) on the date
the Option is granted (other than in the case of substitute or assumed Options
to the extent required to qualify such Options for preferential tax treatment
under the Code as in effect at the time of such grant).

      (b) Term of Option. The term of an Option shall be determined by the
Committee, except that in the case of an ISO the term of the Option shall not
exceed ten years from the date of grant, and, notwithstanding any other
provision of this Plan, no Option shall be exercised after the expiration of its
term.

      (c) Exercise of Options. Options shall be exercisable at such time or
times and subject to such terms and conditions as the Committee shall specify in
the Option grant. Unless the Option grant specifies otherwise, the Committee
shall have discretion at any time to accelerate such time or times and otherwise
waive or amend any conditions in respect of all or any portion of the Options

                                       A-3
<PAGE>

held by any optionee. An Option may be exercised in accordance with its terms as
to any or all shares purchasable thereunder.

      (d) Payment for Shares. The Committee may authorize payment for shares as
to which an Option is exercised to be made in cash, shares of Common Stock, a
combination thereof, by "cashless exercise" or in such other manner as the
Committee in its discretion may provide.

      (e) Shareholder Rights. The holder of an Option shall, as such, have none
of the rights of a shareholder.

      (f) Termination of Employment. The Committee shall have discretion to
specify in the Option grant, or, with the consent of the optionee, an amendment
thereof, provisions with respect to the period, not extending beyond the term of
the Option, during which the Option may be exercised following the optionee's
termination of employment.

      SECTION 2.2 Stock Appreciation Rights in Tandem with Options.

      (a) The Committee may, either at the time of grant of an Option or at any
time during the term of the Option, grant Stock Appreciation Rights ("Tandem
SARs") with respect to all or any portion of the shares of Common Stock covered
by such Option. A Tandem SAR may be exercised at any time the Option to which it
relates is then exercisable, but only to the extent the Option to which it
relates is exercisable, and shall be subject to the conditions applicable to
such Option. When a Tandem SAR is exercised, the Option to which it relates
shall cease to be exercisable to the extent of the number of shares with respect
to which the Tandem SAR is exercised. Similarly, when an Option is exercised,
the Tandem SARs relating to the shares covered by such Option exercise shall
terminate. Any Tandem SAR which is outstanding on the last day of the term of
the related Option (as determined pursuant to Section 2.1(b)) shall be
automatically exercised on such date for cash without any action by the
optionee.

      (b) Upon exercise of a Tandem SAR, the holder shall receive, for each
share with respect to which the Tandem SAR is exercised, an amount (the
"Appreciation") equal to the difference between the option price per share of
the Option to which the Tandem SAR relates and the fair market value (as
determined by the Committee) of a share of Common Stock on the date of exercise
of the Tandem SAR. The Appreciation shall be payable in cash, Common Stock, or a
combination of both, at the option of the Committee, and shall be paid within 30
days of the exercise of the Tandem SAR.

      SECTION 2.3 Stock Appreciation Rights Independent of Options. Subject to
the following provisions, all Stock Appreciation Rights granted independent of
Options ("Independent SARs") under the Plan to employees of the Company and its
Subsidiaries shall be in such form and shall have such terms and conditions as
the Committee, in its discretion, may from time to time determine consistent
with the Plan.

                                       A-4
<PAGE>

      (a) Exercise Price. The exercise price per share shall be determined by
the Committee on the date the Independent SAR is granted.

      (b) Term of Independent SAR. The term of an Independent SAR shall be
determined by the Committee, and, notwithstanding any other provision of this
Plan, no Independent SAR shall be exercised after the expiration of its term.

      (c) Exercise of Independent SARs. Independent SARs shall be exercisable at
such time or times and subject to such terms and conditions as the Committee
shall specify in the Independent SAR grant. Unless the Independent SAR grant
specifies otherwise, the Committee shall have discretion at any time to
accelerate such time or times and otherwise waive or amend any conditions in
respect of all or any portion of the Independent SARs held by any participant.
Upon exercise of an Independent SAR, the holder shall receive, for each share
specified in the Independent SAR grant, an amount (the "Appreciation") equal to
the difference between the exercise price per share specified in the Independent
SAR grant and the fair market value (as determined by the Committee) of a share
of Common Stock on the date of exercise of the Independent SAR. The Appreciation
shall be payable in cash, Common Stock, or a combination of both, at the option
of the Committee, and shall be paid within 30 days of the exercise of the
Independent SAR.

      (d) Shareholder Rights. The holder of an Independent SAR shall, as such,
have none of the rights of a shareholder.

      (e) Termination of Employment. The Committee shall have discretion to
specify in the Independent SAR grant, or, with the consent of the holder, an
amendment thereof, provisions with respect to the period, not extending beyond
the term of the Independent SAR, during which the Independent SAR may be
exercised following the holder's termination of employment.

      SECTION 2.4 Statutory Options. Subject to the limitations on Option terms
set forth in Section 2.1, the Committee shall have the authority to grant (i)
ISOs within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and (ii) Options containing such terms and conditions as
shall be required to qualify such Options for preferential tax treatment under
the Code as in effect at the time of such grant, including, if then applicable,
limits with respect to minimum exercise price, duration and amounts and special
limitations applicable to any individual who, at the time the Option is granted,
owns stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company or any affiliate. Options granted pursuant to
this Section 2.4 may contain such other terms and conditions permitted by
Article II of this Plan as the Committee, in its discretion, may from time to
time determine (including, without limitation, provision for Stock Appreciation
Rights), to the extent that such terms and conditions do not cause the Options
to lose their preferential tax treatment. If an Option intended to be an ISO
ceases or is otherwise not eligible to be an ISO, such Option (or portion
thereof necessary to maintain the status of the remaining portion of the Option
as an ISO) shall remain valid but be treated as an Option other than an ISO.

                                       A-5
<PAGE>

                          ARTICLE III: RESTRICTED STOCK

      SECTION 3.1 Terms and Conditions of Restricted Stock Awards. Subject to
the following provisions, all Awards of Restricted Stock under the Plan to
employees of the Company and its Subsidiaries shall be in such form and shall
have such terms and conditions as the Committee, in its discretion, may from
time to time determine consistent with the Plan.

      (a) Restricted Stock Award. The Restricted Stock Award shall specify the
number of shares of Restricted Stock to be awarded, the price, if any, to be
paid by the recipient of the Restricted Stock, and the date or dates on which
the Restricted Stock will vest. The vesting and number of shares of Restricted
Stock may be conditioned upon the completion of a specified period of service
with the Company or its Subsidiaries, upon the attainment of specified
performance objectives, or upon such other criteria as the Committee may
determine in accordance with the provisions hereof. Performance objectives will
be based on increases in share prices, operating income, net income or cash flow
thresholds, return on common equity or any combination of the foregoing.

      (b) Restrictions on Transfer. Stock certificates representing the
Restricted Stock granted to an employee shall be registered in the employee's
name. Such certificates shall either be held by the Company on behalf of the
employee, or delivered to the employee bearing a legend to restrict transfer of
the certificate until the Restricted Stock has vested, as determined by the
Committee. The Committee shall determine whether the employee shall have the
right to vote and/or receive dividends on the Restricted Stock before it has
vested. No share of Restricted Stock may be sold, transferred, assigned, or
pledged by the employee until such share has vested in accordance with the terms
of the Restricted Stock Award. Unless the grant of a Restricted Stock Award
specifies otherwise, in the event of an employee's termination of employment
before all the employee's Restricted Stock has vested, or in the event other
conditions to the vesting of Restricted Stock have not been satisfied prior to
any deadline for the satisfaction of such conditions set forth in the Award, the
shares of Restricted Stock that have not vested shall be forfeited and any
purchase price paid by the employee shall be returned to the employee. At the
time Restricted Stock vests (and, if the employee has been issued legended
certificates of Restricted Stock, upon the return of such certificates to the
Company), a certificate for such vested shares shall be delivered to the
employee or the employee's estate, free of all restrictions.

      (c) Accelerated Vesting. Notwithstanding the vesting conditions set forth
in the Restricted Stock Award, unless the Restricted Stock grant specifies
otherwise, the Committee may in its discretion at any time accelerate the
vesting of Restricted Stock or otherwise waive or amend any conditions of a
grant of Restricted Stock.

                                       A-6
<PAGE>

                         ARTICLE IV: PERFORMANCE AWARDS

      SECTION 4.1 Terms and Conditions of Performance Awards. The Committee
shall be authorized to grant Performance Awards, which are payable in stock,
cash or a combination thereof, at the discretion of the Committee.

      (a) Performance Period. The Committee shall establish with respect to each
Performance Award a performance period over which the performance goal of such
Performance Award shall be measured. The performance period for a Performance
Award shall be established prior to the time such Performance Award is granted
and may overlap with performance periods relating to other Performance Awards
granted hereunder to the same employee.

      (b) Performance Objectives. The Committee shall establish a minimum level
of acceptable achievement for the holder at the time of each Award. Each
Performance Award shall be contingent upon future performances and achievement
of objectives described either in terms of Company-wide performance or in terms
that are related to performance of the employee or of the division, subsidiary,
department or function within the Company in which the employee is employed. The
Committee shall have the authority to establish the specific performance
objectives and measures applicable to such objectives. Such objectives, however,
shall be based on increases in share prices, operating income, net income or
cash flow thresholds, sales results, return on common equity or any combination
of the foregoing.

      (c) Size, Frequency and Vesting. The Committee shall have the authority to
determine at the time of the Award the maximum value of a Performance Award, the
frequency of Awards and the date or dates when Awards vest.

      (d) Payment. Following the end of each performance period, the holder of
each Performance Award will be entitled to receive payment of an amount, not
exceeding the maximum value of the Performance Award, based on the achievement
of the performance measures for such performance period, as determined by the
Committee. If at the end of the performance period the specified objectives have
been attained, the employee shall be deemed to have fully earned the Performance
Award. If the employee exceeds the specified minimum level of acceptable
achievement but does not fully attain such objectives, the employee shall be
deemed to have partly earned the Performance Award, and shall become entitled to
receive a portion of the total Award, as determined by the Committee. If a
Performance Award is granted after the start of a performance period, the Award
shall be reduced to reflect the portion of the performance period during which
the Award was in effect. Unless the Award specifies otherwise, including
restrictions in order to satisfy the conditions under Section 162(m) of the
Code, the Committee may adjust the payment of Awards or the performance
objectives if events occur or circumstances arise which would cause a particular
payment or set of performance objectives to be inappropriate, as determined by
the Committee.

      (e) Termination of Employment. A recipient of a Performance Award who, by
reason of death, disability or retirement, terminates employment before the end
of the applicable

                                       A-7
<PAGE>

performance period shall be entitled to receive, to the extent earned, a portion
of the Award which is proportional to the portion of the performance period
during which the employee was employed. A recipient of a Performance Award who
terminates employment for any other reason shall not be entitled to any part of
the Award unless the Committee determines otherwise; however, the Committee may
in no event pay the employee more than that portion of the Award which is
proportional to his or her period of actual service.

      (f) Accelerated Vesting. Notwithstanding the vesting conditions set forth
in a Performance Award, unless the Award specifies otherwise, the Committee may
in its discretion at any time accelerate vesting of the Award or otherwise waive
or amend any conditions (including but not limited to performance objectives) in
respect of a Performance Award.

      (g) Shareholder Rights. The holder of a Performance Award shall, as such,
have none of the rights of a shareholder.

                        ARTICLE V: ADDITIONAL PROVISIONS

      SECTION 5.1 General Restrictions. Each Award under the Plan shall be
subject to the requirement that, if at any time the Committee shall determine
that (i) the listing, registration or qualification of the shares of Common
Stock subject or related thereto upon any securities exchange or under any state
or Federal law, or (ii) the consent or approval of any government regulatory
body, or (iii) an agreement by the recipient of an Award with respect to the
disposition of shares of Common Stock, is necessary or desirable (in connection
with any requirement or interpretation of any Federal or state securities law,
rule or regulation) as a condition of, or in connection with, the granting of
such Award or the issuance, purchase or delivery of shares of Common Stock
thereunder, such Award may not be consummated in whole or in part unless such
listing, registration, qualification, consent, approval or agreement shall have
been effected or obtained free of any conditions not acceptable to the
Committee.

      SECTION 5.2 Adjustments for Changes in Capitalization. In the event of any
stock dividends, stock splits, recapitalizations, combinations, exchanges of
shares, mergers, consolidation, liquidations, split-ups, split-offs, spin- offs,
or other similar changes in capitalization, or any distribution to shareholders,
including a rights offering, other than regular cash dividends, changes in the
outstanding stock of the Company by reason of any increase or decrease in the
number of issued shares of Common Stock resulting from a split-up or
consolidation of shares or any similar capital adjustment or the payment of any
stock dividend, any share repurchase at a price in excess of the market price of
the Common Stock at the time such repurchase is announced or other increase or
decrease in the number of such shares, the Committee shall make appropriate
adjustment in the number and kind of shares authorized by the Plan (including
shares available for ISOs), in the number, price or kind of shares covered by
the Awards and in any outstanding Awards under the Plan; provided, however, that
no such adjustment shall increase the aggregate value of any outstanding Award.

                                       A-8
<PAGE>

      In the event of any adjustment in the number of shares covered by any
Award, any fractional shares resulting from such adjustment shall be disregarded
and each such Award shall cover only the number of full shares resulting from
such adjustment.

      SECTION 5.3 Amendments. (a) The Board of Directors may at any time and
from time to time and in any respect amend or modify the Plan; provided,
however, that to the extent required to qualify the Plan under Rule 16b-3
promulgated under Section 16 of the Exchange Act, no such action of the Board of
Directors without approval of shareholders of the Company may (i) increase the
total number of shares of Common Stock available under Section 1.5 for the
implementation of Awards under the Plan except as contemplated in Section 5.2,
(ii) materially modify the requirements as to eligibility for participation
under the Plan or (iii) otherwise materially increase the benefits to
participants under the Plan.

      (b) The Committee shall have the authority to amend any Award to include
any provision which, at the time of such amendment, is authorized under the
terms of the Plan; however, no outstanding Award may be revoked or altered in a
manner unfavorable to the holder without the written consent of the holder.

      SECTION 5.4 Cancellation of Awards. Any Award granted under the Plan may
be cancelled at any time with the consent of the holder and a new Award may be
granted to such holder in lieu thereof, which Award may, in the discretion of
the Committee, be on more favorable terms and conditions than the cancelled
Award.

      SECTION 5.5 Withholding. Whenever the Company proposes or is required to
issue or transfer shares of Common Stock under the Plan, the Company shall have
the right to require the holder to pay an amount in cash or to retain or sell
without notice, or demand surrender of, shares of Common Stock in value
sufficient to satisfy any Federal, state or local withholding tax liability
("Withholding Tax") prior to the delivery of any certificate for such shares (or
remainder of shares if Common Stock is retained to satisfy such tax liability).
Whenever under the Plan payments are to be made in cash, such payments shall be
net of an amount sufficient to satisfy any federal, state or local withholding
tax liability.

      Whenever Common Stock is so retained or surrendered to satisfy Withholding
Tax, the value of shares of Common Stock so retained or surrendered shall be
determined by the Committee, and the value of shares of Common Stock so sold
shall be the net proceeds (after deduction of commissions) received by the
Company from such sale, as determined by the Committee.

      SECTION 5.6 Non-Assignability. Except as expressly provided in the Plan,
no Award under the Plan shall be assignable or transferable by the holder
thereof except by will or by the laws of descent and distribution. During the
life of the holder, Awards under the Plan shall be exercisable only by such
holder or by the guardian or legal representative of such holder.

                                       A-9
<PAGE>

      SECTION 5.7 Non-Uniform Determinations. Determinations by the Committee
under the Plan (including, without limitation, determinations of the persons to
receive Awards; the form, amount and timing of such Awards; the terms and
provisions of such Awards and the agreements evidencing same; and provisions
with respect to termination of employment) need not be uniform and may be made
by it selectively among persons who receive, or are eligible to receive, Awards
under the Plan, whether or not such persons are similarly situated.

      SECTION 5.8 No Guarantee of Employment. The grant of an Award under the
Plan shall not constitute an assurance of continued employment for any period or
any obligation of the Board of Directors to nominate any director for reelection
by the Company's shareholders.

      SECTION 5.9 Duration and Termination. (a) The Plan shall be of unlimited
duration. Notwithstanding the foregoing, no ISO (within the meaning of Section
422 of the Code) shall be granted under the Plan ten (10) years after the
effective date of the Plan, but Awards granted prior to such date may extend
beyond such date, and the terms of this Plan shall continue to apply to all
Awards granted hereunder.

      (b) The Board of Directors may suspend, discontinue or terminate the Plan
at any time. Such action shall not impair any of the rights of any holder of any
Award outstanding on the date of the Plan's suspension, discontinuance or
termination without the holder's written consent.

      SECTION 5.10 Effective Date. The Plan shall be effective as of April 1,
1996.

                                      A-10

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