DYNEGY INC. 2002 LONG TERM INCENTIVE PLAN
 
                                  I. PURPOSE
 
   The purpose of the DYNEGY INC. 2002 LONG TERM INCENTIVE PLAN (the "Plan")
is to provide a means through which DYNEGY INC., an Illinois corporation (the
"Company"), and its Affiliates may attract able persons to serve as Directors
or Consultants or to enter the employ of the Company and its Affiliates and to
provide a means whereby those individuals upon whom the responsibilities of
the successful administration and management of the Company and its Affiliates
rest, and whose present and potential contributions to the Company and its
Affiliates are of importance, can acquire and maintain stock ownership,
thereby strengthening their concern for the welfare of the Company and its
Affiliates. A further purpose of the Plan is to provide such individuals with
additional incentive and reward opportunities designed to enhance the
profitable growth of the Company and its Affiliates. Accordingly, the Plan
provides for granting Incentive Stock Options, options that do not constitute
Incentive Stock Options, Restricted Stock Awards, Performance Awards, and
Phantom Stock Awards, or any combination of the foregoing, as is best suited
to the circumstances of the particular employee, Consultant, or Director as
provided herein.
 
                                II. DEFINITIONS
 
   The following definitions shall be applicable throughout the Plan unless
specifically modified by any paragraph:
 
   (a) "Affiliate" means any corporation, partnership, limited liability
company or partnership, association, trust or other organization which,
directly or indirectly, controls, is controlled by, or is under common control
with, the Company.
 
   (b) "Award" means, individually or collectively, any Option, Restricted
Stock Award, Performance Award or Phantom Stock Award.
 
   (c) "Board" means the Board of Directors of the Company.
 
   (d) "Code" means the Internal Revenue Code of 1986, as amended. Reference
in the Plan to any section of the Code shall be deemed to include any
amendments or successor provisions to such section and any regulations under
such section.
 
   (e) "Committee" means a committee of the Board that is selected by the
Board as provided in Paragraph IV(a).
 
   (f) "Common Stock" means the Class A common stock, no par value per share,
of the Company, or any security into which such common stock may be changed by
reason of any transaction or event of the type described in Paragraph XI.
 
   (g) "Company" means Dynegy Inc., an Illinois corporation.
 
   (h) "Consultant" means any person who is not an employee or a Director and
who is providing advisory or consulting services to the Company or any
Affiliate.
 
   (i) "Corporate Change" shall have the meaning assigned to such term in
Paragraph XI(c) of the Plan.
 
   (j) "Director" means an individual who is a member of the Board.
 
   (k) An "employee" means any person in an employment relationship with the
Company or any Affiliate.
 
   (l) "Fair Market Value" means, as of any specified date, the closing sales
price of the Common Stock reported on the stock exchange composite tape on
that date (or such other reporting service approved by the
 
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Committee), or, if no prices are reported on that date, on the last preceding
date on which such prices of the Common Stock are so reported. In the event
Common Stock is not publicly traded at the time a determination of its value
is required to be made hereunder, the determination of its fair market value
shall be made by the Committee in such manner as it deems appropriate.
 
   (m) "Incentive Stock Option" means an incentive stock option within the
meaning of section 422 of the Code.
 
   (n) "1934 Act" means the Securities Exchange Act of 1934, as amended.
 
   (o) "Option" means an Award granted under Paragraph VII of the Plan and
includes both Incentive Stock Options to purchase Common Stock and Options
that do not constitute Incentive Stock Options to purchase Common Stock.
 
   (p) "Option Agreement" means a written agreement between the Company and a
Participant with respect to an Option.
 
   (q) "Participant" means an employee, Consultant, or Director who has been
granted an Award.
 
   (r) "Performance Award" means an Award granted under Paragraph IX of the
Plan.
 
   (s) "Performance Award Agreement" means a written agreement between the
Company and a Participant with respect to a Performance Award.
 
   (t) "Phantom Stock Award" means an Award granted under Paragraph X of the
Plan.
 
   (u) "Phantom Stock Award Agreement" means a written agreement between the
Company and a Participant with respect to a Phantom Stock Award.
 
   (v) "Plan" means the Dynegy Inc. 2002 Long Term Incentive Plan, as amended
from time to time.
 
   (w) "Restricted Stock Agreement" means a written agreement between the
Company and a Participant with respect to a Restricted Stock Award.
 
   (x) "Restricted Stock Award" means an Award granted under Paragraph VIII of
the Plan.
 
   (y) "Rule 16b-3" means SEC Rule 16b-3 promulgated under the 1934 Act, as
such may be amended from time to time, and any successor rule, regulation or
statute fulfilling the same or a similar function.
 
   (z) "Stock Appreciation Right" shall have the meaning assigned to such term
in Paragraph VII(d) of the Plan.
 
                 III. EFFECTIVE DATE AND DURATION OF THE PLAN
 
   The Plan shall become effective upon the date of its adoption by the Board,
provided the Plan is approved by the stockholders of the Company within 12
months thereafter. Notwithstanding any provision in the Plan, no Option shall
be exercisable and no Performance Award, Phantom Stock Award or Restricted
Stock Award shall vest or become satisfiable prior to such stockholder
approval. No further Awards may be granted under the Plan after 10 years from
the date the Plan is adopted by the Board. The Plan shall remain in effect
until all Options granted under the Plan have been exercised or expired, all
Restricted Stock Awards granted under the Plan have vested or been forfeited,
and all Performance Awards and Phantom Stock Awards have been satisfied or
expired.
 
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                              IV. ADMINISTRATION
 
   (a) Composition of Committee. The Plan shall be administered by a committee
of, and appointed by, the Board that shall be comprised solely of two 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
and within the meaning of the term "Non-Employee Director" as defined in Rule
16b-3).
 
   (b) Powers. Subject to the express provisions of the Plan, the Committee
shall have authority, in its discretion, to determine which employees,
Consultants or Directors shall receive an Award, the time or times when such
Award shall be made, the type of Award that shall be made, the number of
shares to be subject to each Option or Restricted Stock Award, the number of
shares subject to or the value of each Performance Award, and the value of
each Phantom Stock Award. In making such determinations, the Committee shall
take into account the nature of the services rendered by the respective
employees, Consultants, or Directors, their present and potential contribution
to the Company's success and such other factors as the Committee in its sole
discretion shall deem relevant.
 
   (c) Additional Powers. The Committee shall have such additional powers as
are delegated to it by the other provisions of the Plan. Subject to the
express provisions of the Plan, this shall include the power to construe the
Plan and the respective agreements executed hereunder, to prescribe rules and
regulations relating to the Plan, and to determine the terms, restrictions and
provisions of the agreement relating to each Award, including such terms,
restrictions and provisions as shall be requisite in the judgment of the
Committee to cause designated Options to qualify as Incentive Stock Options,
and to make all other determinations necessary or advisable for administering
the Plan. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any agreement relating to an
Award in the manner and to the extent it shall deem expedient to carry it into
effect. The determinations of the Committee on the matters referred to in this
Paragraph IV shall be conclusive.
 
         V. SHARES SUBJECT TO THE PLAN; AWARD LIMITS; GRANT OF AWARDS
 
   (a) Shares Subject to the Plan and Award Limits. Subject to adjustment in
the same manner as provided in Paragraph XI with respect to shares of Common
Stock subject to Options then outstanding, the aggregate number of shares of
Common Stock that may be issued under the Plan shall not exceed 10,000,000
shares. Shares shall be deemed to have been issued under the Plan only (i) to
the extent actually issued and delivered pursuant to an Award or (ii) to the
extent an Award denominated in shares of Common Stock is settled in cash. To
the extent that an Award lapses or the rights of its holder terminate, any
shares of Common Stock subject to such Award shall again be available for the
grant of an Award under the Plan. Notwithstanding any provision in the Plan to
the contrary, (1) the maximum number of shares of Common Stock that may be
subject to Restricted Stock Awards and Performance Awards denominated in
shares of Common Stock is 2,500,000 shares of Common Stock (subject to
adjustment in the same manner as provided in Paragraph XI with respect to
shares of Common Stock subject to Options then outstanding), (2) the maximum
number of shares of Common Stock that may be subject to Options, Restricted
Stock Awards and Performance Awards denominated in shares of Common Stock
granted to any one individual during any calendar year may not exceed
1,500,000 shares of Common Stock (subject to adjustment in the same manner as
provided in Paragraph XI with respect to shares of Common Stock subject to
Options then outstanding), and (3) the maximum amount of compensation that may
be paid under all Performance Awards denominated in cash (including the Fair
Market Value of any shares of Common Stock paid in satisfaction of such
Performance Awards) granted to any one individual during any calendar year may
not exceed $5,000,000, and any payment due with respect to a Performance Award
shall be paid no later than 10 years after the date of grant of such
Performance Award. The limitations set forth in clauses (2) and (3) of the
preceding sentence shall be applied in a manner that will permit compensation
generated under the Plan to constitute "performance-based" compensation for
purposes of section 162(m) of the Code, including, without limitation,
counting against such maximum number of shares, to the extent required under
section 162(m) of the Code and applicable interpretive authority thereunder,
any shares subject to Options that are canceled or repriced.
 
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   (b) Grant of Awards. The Committee may from time to time grant Awards to
one or more employees, Consultants, or Directors determined by it to be
eligible for participation in the Plan in accordance with the terms of the
Plan.
 
   (c) Stock Offered. Subject to the limitations set forth in Paragraph V(a),
the stock to be offered pursuant to the grant of an Award may be authorized
but unissued Common Stock or Common Stock previously issued and outstanding
and reacquired by the Company. Any of such shares which remain unissued and
which are not subject to outstanding Awards at the termination of the Plan
shall cease to be subject to the Plan but, until termination of the Plan, the
Company shall at all times make available a sufficient number of shares to
meet the requirements of the Plan.
 
                                VI. ELIGIBILITY
 
   Awards may be granted only to persons who, at the time of grant, are
employees, Consultants, or Directors. An Award may be granted on more than one
occasion to the same person, and, subject to the limitations set forth in the
Plan, such Award may include an Incentive Stock Option, an Option that is not
an Incentive Stock Option, a Restricted Stock Award, a Performance Award, a
Phantom Stock Award, or any combination thereof.
 
                              VII. STOCK OPTIONS
 
   (a) Option Period. The term of each Option shall be as specified by the
Committee at the date of grant, but in no event shall an Option be exercisable
after the expiration of 10 years from the date of grant.
 
   (b) Limitations on Exercise of Option. An Option shall be exercisable in
whole or in such installments and at such times as determined by the
Committee.
 
   (c) Special Limitations on Incentive Stock Options. An Incentive Stock
Option may be granted only to an individual who is employed by the Company or
any parent or subsidiary corporation (as defined in section 424 of the Code)
at the time the Option is granted. To the extent that the aggregate Fair
Market Value (determined at the time the respective Incentive Stock Option is
granted) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by an individual during any calendar year under
all incentive stock option plans of the Company and its parent and subsidiary
corporations exceeds $100,000, such Incentive Stock Options shall be treated
as Options which do not constitute Incentive Stock Options. The Committee
shall determine, in accordance with applicable provisions of the Code,
Treasury Regulations and other administrative pronouncements, which of a
Participant's Incentive Stock Options will not constitute Incentive Stock
Options because of such limitation and shall notify the Participant of such
determination as soon as practicable after such determination. No Incentive
Stock Option shall be granted to an individual if, at the time the Option is
granted, such individual owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or of its parent
or subsidiary corporation, within the meaning of section 422(b)(6) of the
Code, unless (i) at the time such Option is granted the option price is at
least 110% of the Fair Market Value of the Common Stock subject to the Option
and (ii) such Option by its terms is not exercisable after the expiration of
five years from the date of grant. An Incentive Stock Option shall not be
transferable otherwise than by will or the laws of descent and distribution,
and shall be exercisable during the Participant's lifetime only by such
Participant or the Participant's guardian or legal representative.
 
   (d) Option Agreement. Each Option shall be evidenced by an Option Agreement
in such form and containing such provisions not inconsistent with the
provisions of the Plan as the Committee from time to time shall approve,
including, without limitation, provisions to qualify an Incentive Stock Option
under section 422 of the Code. Each Option Agreement shall specify the effect
of termination of (i) employment, (ii) the consulting or advisory
relationship, or (iii) membership on the Board, as applicable, on the
exercisability of the Option. An Option Agreement may provide for the payment
of the option price, in whole or in part, by the delivery of a
 
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number of shares of Common Stock (plus cash if necessary) having a Fair Market
Value equal to such option price. Moreover, an Option Agreement may provide
for a "cashless exercise" of the Option by establishing procedures
satisfactory to the Committee with respect thereto. Further, an Option
Agreement may provide for the surrender of the right to purchase shares under
the Option in return for a payment in cash or shares of Common Stock or a
combination of cash and shares of Common Stock equal in value to the excess of
the Fair Market Value of the shares with respect to which the right to
purchase is surrendered over the option price therefor ("Stock Appreciation
Rights"), on such terms and conditions as the Committee in its sole discretion
may prescribe. In the case of any such Stock Appreciation Right that is
granted in connection with an Incentive Stock Option, such right shall be
exercisable only when the Fair Market Value of the Common Stock exceeds the
price specified therefor in the Option or the portion thereof to be
surrendered. The terms and conditions of the respective Option Agreements need
not be identical. Subject to the consent of the Participant, the Committee
may, in its sole discretion, amend an outstanding Option Agreement from time
to time in any manner that is not inconsistent with the provisions of the Plan
(including, without limitation, an amendment that accelerates the time at
which the Option, or a portion thereof, may be exercisable).
 
   (e) Option Price and Payment. The price at which a share of Common Stock
may be purchased upon exercise of an Option shall be determined by the
Committee but, subject to adjustment as provided in Paragraph XI, such
purchase price shall not be less than the Fair Market Value of a share of
Common Stock on the date such Option is granted. The Option or portion thereof
may be exercised by delivery of an irrevocable notice of exercise to the
Company, as specified by the Committee. The purchase price of the Option or
portion thereof shall be paid in full in the manner prescribed by the
Committee. 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 pursuant to the exercise of any Option that does
not constitute an Incentive Stock Option.
 
   (f) Restrictions on Repricing of Options. Except as provided in Paragraph
XI, the Committee may not, without approval of the stockholders of the
Company, amend any outstanding Option Agreement to lower the option price.
 
   (g) Stockholder Rights and Privileges. The Participant shall be entitled to
all the privileges and rights of a stockholder only with respect to such
shares of Common Stock as have been purchased under the Option and for which
certificates of stock have been registered in the Participant's name.
 
   (h) Options and Rights in Substitution for Options Granted by Other
Employers. Options and Stock Appreciation Rights may be granted under the Plan
from time to time in substitution for options held by individuals providing
services to corporations or other entities who become employees, Consultants,
or Directors as a result of a merger or consolidation or other business
transaction with the Company or any Affiliate.
 
                         VIII. RESTRICTED STOCK AWARDS
 
   (a) Forfeiture Restrictions To Be Established by the Committee. Shares of
Common Stock that are the subject of a Restricted Stock Award shall be subject
to restrictions on disposition by the Participant and an obligation of the
Participant to forfeit and surrender the shares to the Company under certain
circumstances (the "Forfeiture Restrictions"). The Forfeiture Restrictions
shall be determined by the Committee in its sole discretion, and the Committee
may provide that the Forfeiture Restrictions shall lapse upon (i) the
attainment of one or more performance measures established by the Committee
that are based on (1) the price of a share of Common Stock, (2) the Company's
earnings per share, (3) the return on capital employed by the Company, (4) the
return on capital employed by a business unit of the Company designated by the
Committee, (5) the Company's sales, (6) the sales of a business unit of the
Company designated by the Committee, (7) the net income (before or after
taxes) of the Company or any business unit of the Company designated by the
Committee, (8) the cash flow return on investment of the Company or any
business unit of the Company designated by the Committee, (9) the earnings
before or after interest, taxes, depreciation, and/or amortization of the
Company or any business unit of the Company designated by the Committee, (10)
the economic value added,
 
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(11) the return on stockholders' equity achieved by the Company, or (12) the
total stockholders' return achieved by the Company, (ii) the Participant's
continued employment with the Company or continued service as a Consultant or
Director for a specified period of time, (iii) the occurrence of any event or
the satisfaction of any other condition specified by the Committee in its sole
discretion, or (iv) a combination of any of the foregoing. The performance
measures described in clause (i) of the preceding sentence may be subject to
adjustment for specified significant extraordinary items or events, and may be
absolute, relative to one or more other companies, or relative to one or more
indexes, and may be contingent upon future performance of the Company or any
Affiliate, division, or department thereof. Each Restricted Stock Award may
have different Forfeiture Restrictions, in the discretion of the Committee.
 
   (b) Other Terms and Conditions. Common Stock awarded pursuant to a
Restricted Stock Award shall be represented by a stock certificate registered
in the name of the Participant. Unless provided otherwise in a Restricted
Stock Agreement, the Participant shall have the right to receive dividends
with respect to Common Stock subject to a Restricted Stock Award, to vote
Common Stock subject thereto and to enjoy all other stockholder rights, except
that (i) the Participant shall not be entitled to delivery of the stock
certificate until the Forfeiture Restrictions have expired, (ii) the Company
shall retain custody of the stock until the Forfeiture Restrictions have
expired, (iii) the Participant may not sell, transfer, pledge, exchange,
hypothecate or otherwise dispose of the stock until the Forfeiture
Restrictions have expired, and (iv) a breach of the terms and conditions
established by the Committee pursuant to the Restricted Stock Agreement shall
cause a forfeiture of the Restricted Stock Award. At the time of such Award,
the Committee may, in its sole discretion, prescribe additional terms,
conditions or restrictions relating to Restricted Stock Awards, including, but
not limited to, rules pertaining to the termination of employment or service
as a Consultant or Director (by retirement, disability, death or otherwise) of
a Participant prior to expiration of the Forfeitures Restrictions. Such
additional terms, conditions or restrictions shall be set forth in a
Restricted Stock Agreement made in conjunction with the Award.
 
   (c) Payment for Restricted Stock. The Committee shall determine the amount
and form of any payment for Common Stock received pursuant to a Restricted
Stock Award, provided that in the absence of such a determination, a
Participant shall not be required to make any payment for Common Stock
received pursuant to a Restricted Stock Award, except to the extent otherwise
required by law.
 
   (d) Committee's Discretion to Accelerate Vesting of Restricted Stock
Awards. The Committee may, in its discretion and as of a date determined by
the Committee, fully vest any or all Common Stock awarded to a Participant
pursuant to a Restricted Stock Award and, upon such vesting, all restrictions
applicable to such Restricted Stock Award shall terminate as of such date. Any
action by the Committee pursuant to this Subparagraph may vary among
individual Participants and may vary among the Restricted Stock Awards held by
any individual Participant. Notwithstanding the preceding provisions of this
Subparagraph, the Committee may not take any action described in this
Subparagraph with respect to a Restricted Stock Award that has been granted to
a "covered employee" (within the meaning of Treasury Regulation section 1.162-
27(c)(2)) if such Award has been designed to meet the exception for
performance-based compensation under section 162(m) of the Code.
 
   (e) Restricted Stock Agreements. At the time any Award is made under this
Paragraph VIII, the Company and the Participant shall enter into a Restricted
Stock Agreement setting forth each of the matters contemplated hereby and such
other matters as the Committee may determine to be appropriate. The terms and
provisions of the respective Restricted Stock Agreements need not be
identical. Subject to the consent of the Participant and the restriction set
forth in the last sentence of Subparagraph (d) above, the Committee may, in
its sole discretion, amend an outstanding Restricted Stock Agreement from time
to time in any manner that is not inconsistent with the provisions of the
Plan.
 
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                            IX. PERFORMANCE AWARDS
 
   (a) Performance Period. The Committee shall establish, with respect to and
at the time of each Performance Award, the number of shares of Common Stock
subject to, or the maximum value of, the Performance Award and the performance
period over which the performance applicable to the Performance Award shall be
measured.
 
   (b) Performance Measures. A Performance Award shall be awarded to a
Participant contingent upon future performance of the Company or any
Affiliate, division, or department thereof during the performance period. The
Committee shall establish the performance measures applicable to such
performance either (i) prior to the beginning of the performance period or
(ii) within 90 days after the beginning of the performance period if the
outcome of the performance targets is substantially uncertain at the time such
targets are established, but not later than the date that 25% of the
performance period has elapsed; provided such measures may be made subject to
adjustment for specified significant extraordinary items or events. The
performance measures may be absolute, relative to one or more other companies,
or relative to one or more indexes. The performance measures established by
the Committee may be based upon (1) the price of a share of Common Stock, (2)
the Company's earnings per share, (3) the return on capital employed by the
Company, (4) the return on capital employed by a business unit of the Company
designated by the Committee, (5) the Company's sales, (6) the sales of a
business unit of the Company designated by the Committee, (7) the net income
(before or after taxes) of the Company or any business unit of the Company
designated by the Committee, (8) the cash flow return on investment of the
Company or any business unit of the Company designated by the Committee, (9)
the earnings before or after interest, taxes, depreciation, and/or
amortization of the Company or any business unit of the Company designated by
the Committee, (10) the economic value added, (11) the return on stockholders'
equity achieved by the Company, (12) the total stockholders' return achieved
by the Company, or (13) a combination of any of the foregoing. The Committee,
in its sole discretion, may provide for an adjustable Performance Award value
based upon the level of achievement of performance measures.
 
   (c) Awards Criteria. In determining the value of Performance Awards, the
Committee shall take into account a Participant's responsibility level,
performance, potential, other Awards, and such other considerations as it
deems appropriate. The Committee, in its sole discretion, may provide for a
reduction in the value of a Participant's Performance Award during the
performance period.
 
   (d) Payment. Following the end of the performance period, the holder of a
Performance Award shall be entitled to receive payment of an amount not
exceeding the number of shares of Common Stock subject to, or the maximum
value of, the Performance Award, based on the achievement of the performance
measures for such performance period, as determined and certified in writing
by the Committee. Payment of a Performance Award may be made in cash, Common
Stock, or a combination thereof, as determined by the Committee. Payment shall
be made in a lump sum or in installments as prescribed by the Committee. If a
Performance Award covering shares of Common Stock is to be paid in cash, such
payment shall be based on the Fair Market Value of the Common Stock on the
payment date.
 
   (e) Termination of Award. A Performance Award shall terminate if the
Participant does not remain continuously in the employ of the Company and its
Affiliates or does not continue to perform services as a Consultant or a
Director for the Company and its Affiliates at all times during the applicable
performance period, except as may be determined by the Committee.
 
   (f) Performance Award Agreements. At the time any Award is made under this
Paragraph IX, the Company and the Participant shall enter into a Performance
Award Agreement setting forth each of the matters contemplated hereby, and
such additional matters as the Committee may determine to be appropriate. The
terms and provisions of the respective Performance Award Agreements need not
be identical.
 
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                            X. PHANTOM STOCK AWARDS
 
   (a) Phantom Stock Awards. Phantom Stock Awards are rights to receive shares
of Common Stock (or the Fair Market Value thereof), or rights to receive an
amount equal to any appreciation or increase in the Fair Market Value of
Common Stock over a specified period of time, which vest over a period of time
as established by the Committee, without satisfaction of any performance
criteria or objectives. The Committee may, in its discretion, require payment
or other conditions of the Participant respecting any Phantom Stock Award.
 
   (b) Award Period. The Committee shall establish, with respect to and at the
time of each Phantom Stock Award, a period over which the Award shall vest
with respect to the Participant.
 
   (c) Awards Criteria. In determining the value of Phantom Stock Awards, the
Committee shall take into account a Participant's responsibility level,
performance, potential, other Awards, and such other considerations as it
deems appropriate.
 
   (d) Payment. Following the end of the vesting period for a Phantom Stock
Award (or at such other time as the applicable Phantom Stock Award Agreement
may provide), the holder of a Phantom Stock Award shall be entitled to receive
payment of an amount, not exceeding the maximum value of the Phantom Stock
Award, based on the then vested value of the Award. Payment of a Phantom Stock
Award may be made in cash, Common Stock, or a combination thereof as
determined by the Committee. Payment shall be made in a lump sum or in
installments as prescribed by the Committee. Any payment to be made in cash
shall be based on the Fair Market Value of the Common Stock on the payment
date. Cash dividend equivalents may be paid during or after the vesting period
with respect to a Phantom Stock Award, as determined by the Committee.
 
   (e) Termination of Award. A Phantom Stock Award shall terminate if the
Participant does not remain continuously in the employ of the Company and its
Affiliates or does not continue to perform services as a Consultant or a
Director for the Company and its Affiliates at all times during the applicable
vesting period, except as may be otherwise determined by the Committee.
 
   (f) Phantom Stock Award Agreements. At the time any Award is made under
this Paragraph X, the Company and the Participant shall enter into a Phantom
Stock Award Agreement setting forth each of the matters contemplated hereby,
and such additional matters as the Committee may determine to be appropriate.
The terms and provisions of the respective Phantom Stock Award Agreements need
not be identical.
 
                    XI. RECAPITALIZATION OR REORGANIZATION
 
   (a) No Effect on Right or Power. The existence of the Plan and the Awards
granted hereunder shall not affect in any way the right or power of the Board
or the stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's or any
Affiliate's capital structure or its business, any merger or consolidation of
the Company or any Affiliate, any issue of debt or equity securities ahead of
or affecting Common Stock or the rights thereof, the dissolution or
liquidation of the Company or any Affiliate or any sale, lease, exchange or
other disposition of all or any part of its assets or business or any other
corporate act or proceeding.
 
   (b) Subdivision or Consolidation of Shares; Stock Dividends. The shares
with respect to which Awards may be granted are shares of Common Stock as
presently constituted, but if, and whenever, prior to the expiration of an
Award theretofore granted, the Company shall effect a subdivision or
consolidation of shares of Common Stock or the payment of a stock dividend on
Common Stock without receipt of consideration by the Company, the number of
shares of Common Stock with respect to which such Award may thereafter be
exercised or satisfied, as applicable (i) in the event of an increase in the
number of outstanding shares shall be proportionately increased, and the
purchase price per share shall be proportionately reduced, and (ii) in the
event of a reduction in the number of outstanding shares shall be
proportionately reduced, and the purchase price per share shall be
 
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proportionately increased. Any fractional share resulting from such adjustment
shall be rounded down to the next whole share.
 
   (c) Recapitalizations and Corporate Changes. If the Company recapitalizes,
reclassifies its capital stock, or otherwise changes its capital structure (a
"recapitalization"), the number and class of shares of Common Stock covered by
an Award theretofore granted shall be adjusted so that such Award shall
thereafter cover the number and class of shares of stock and securities to
which the Participant would have been entitled pursuant to the terms of the
recapitalization if, immediately prior to the recapitalization, the
Participant had been the holder of record of the number of shares of Common
Stock then covered by such Award. If (i) the Company shall not be the
surviving entity in any merger or consolidation (or survives only as a
subsidiary of an entity), (ii) the Company sells, leases or exchanges or
agrees to sell, lease or exchange all or substantially all of its assets to
any other person or entity, (iii) the Company is to be dissolved and
liquidated, (iv) any person or entity, including a "group" as contemplated by
Section 13(d)(3) of the 1934 Act, acquires or gains ownership or control
(including, without limitation, power to vote) of more than 50% of the
outstanding shares of the Company's voting stock (based upon voting power), or
(v) as a result of or in connection with a contested election of Directors,
the persons who were Directors of the Company before such election shall cease
to constitute a majority of the Board (each such event is referred to herein
as a "Corporate Change"), no later than (x) 10 days after the approval by the
stockholders of the Company of such merger, consolidation, reorganization,
sale, lease or exchange of assets or dissolution or such election of Directors
or (y) 30 days after a Corporate Change of the type described in clause (iv),
the Committee, acting in its sole discretion without the consent or approval
of any Participant, shall effect one or more of the following alternatives,
which alternatives may vary among individual Participants and which may vary
among Options held by any individual Participant: (1) accelerate the time at
which Options then outstanding may be exercised so that such Options may be
exercised in full for a limited period of time on or before a specified date
(before or after such Corporate Change) fixed by the Committee, after which
specified date all unexercised Options and all rights of Participants
thereunder shall terminate, (2) require the mandatory surrender to the Company
by selected Participants of some or all of the outstanding Options held by
such Participants (irrespective of whether such Options are then exercisable
under the provisions of the Plan) as of a date, before or after such Corporate
Change, specified by the Committee, in which event the Committee shall
thereupon cancel such Options and the Company shall pay (or cause to be paid)
to each Participant an amount of cash per share equal to the excess, if any,
of the amount calculated in Subparagraph (d) below (the "Change of Control
Value") of the shares subject to such Option over the exercise price(s) under
such Options for such shares, or (3) make such adjustments to Options then
outstanding as the Committee deems appropriate to reflect such Corporate
Change (provided, however, that the Committee may determine in its sole
discretion that no adjustment is necessary to Options then outstanding),
including, without limitation, adjusting an Option to provide that the number
and class of shares of Common Stock covered by such Option shall be adjusted
so that such Option shall thereafter cover securities of the surviving or
acquiring corporation or other property (including, without limitation, cash)
as determined by the Committee in its sole discretion.
 
   (d) Change of Control Value. For the purposes of clause (2) in Subparagraph
(c) above, the "Change of Control Value" shall equal the amount determined in
clause (i), (ii) or (iii), whichever is applicable, as follows: (i) the per
share price offered to stockholders of the Company in any such merger,
consolidation, sale of assets or dissolution transaction, (ii) the price per
share offered to stockholders of the Company in any tender offer or exchange
offer whereby a Corporate Change takes place, or (iii) if such Corporate
Change occurs other than pursuant to a tender or exchange offer, the fair
market value per share of the shares into which such Options being surrendered
are exercisable, as determined by the Committee as of the date determined by
the Committee to be the date of cancellation and surrender of such Options. In
the event that the consideration offered to stockholders of the Company in any
transaction described in this Subparagraph (d) or Subparagraph (c) above
consists of anything other than cash, the Committee shall determine the fair
cash equivalent of the portion of the consideration offered which is other
than cash.
 
   (e) Other Changes in the Common Stock. In the event of changes in the
outstanding Common Stock by reason of recapitalizations, reorganizations,
mergers, consolidations, combinations, split-ups, split-offs, spin-offs,
 
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<PAGE>
 
exchanges or other relevant changes in capitalization or distributions to the
holders of Common Stock occurring after the date of the grant of any Award and
not otherwise provided for by this Paragraph XI, such Award and any agreement
evidencing such Award shall be subject to adjustment by the Committee at its
sole discretion as to the number and price of shares of Common Stock or other
consideration subject to such Award. In the event of any such change in the
outstanding Common Stock or distribution to the holders of Common Stock, or
upon the occurrence of any other event described in this Paragraph XI, the
aggregate number of shares available under the Plan, the maximum number of
shares that may be subject to Restricted Stock Awards and Performance Awards
denominated in shares, and the maximum number of shares that may be subject to
Awards granted to any one individual may be appropriately adjusted to the
extent, if any, determined by the Committee, whose determination shall be
conclusive. Notwithstanding the foregoing, except as otherwise provided by the
Committee, upon the occurrence of a Corporate Change, the Committee, acting in
its sole discretion without the consent or approval of any Participant, may
require the mandatory surrender to the Company by selected Participants of
some or all of the outstanding Performance Awards and Phantom Stock Awards as
of a date, before or after such Corporate Change, specified by the Committee,
in which event the Committee shall thereupon cancel such Performance Awards
and Phantom Stock Awards and the Company shall pay (or cause to be paid) to
each Participant an amount of cash equal to the maximum value of such
Performance Award or Phantom Stock Award which, in the event the applicable
performance or vesting period set forth in such Performance Award or Phantom
Stock Award has not been completed, shall be multiplied by a fraction, the
numerator of which is the number of days during the period beginning on the
first day of the applicable performance or vesting period and ending on the
date of the surrender, and the denominator of which is the aggregate number of
days in the applicable performance or vesting period.
 
   (f) Stockholder Action. Any adjustment provided for in the above
Subparagraphs shall be subject to any required stockholder action.
 
   (g) No Adjustments unless Otherwise Provided. Except as hereinbefore
expressly provided, the issuance by the Company of shares of stock of any
class or securities convertible into shares of stock of any class, for cash,
property, labor or services, upon direct sale, upon the exercise of rights or
warrants to subscribe therefor, or upon conversion of shares or obligations of
the Company convertible into such shares or other securities, and in any case
whether or not for fair value, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number of shares of Common Stock
subject to Awards theretofore granted or the purchase price per share, if
applicable.
 
                  XII. AMENDMENT AND TERMINATION OF THE PLAN
 
   The Board in its discretion may terminate the Plan at any time with respect
to any shares of Common Stock for which Awards have not theretofore been
granted. The Board shall have the right to alter or amend the Plan or any part
thereof from time to time; provided that no change in the Plan may be made
that would impair the rights of a Participant with respect to an Award
theretofore granted without the consent of the Participant, and provided,
further, that the Board may not, without approval of the stockholders of the
Company, (a) amend the Plan to increase the maximum aggregate number of shares
that may be issued under the Plan or change the class of individuals eligible
to receive Awards under the Plan, or (b) amend or delete Paragraph VII(f).
 
                              XIII. MISCELLANEOUS
 
   (a) No Right To An Award. Neither the adoption of the Plan nor any action
of the Board or of the Committee shall be deemed to give any individual any
right to be granted an Option, a right to a Restricted Stock Award, a right to
a Performance Award or a right to a Phantom Stock Award, or any other rights
hereunder except as may be evidenced by an Award agreement duly executed on
behalf of the Company, and then only to the extent and on the terms and
conditions expressly set forth therein. The Plan shall be unfunded. The
Company shall not be required to establish any special or separate fund or to
make any other segregation of funds or assets to assure the performance of its
obligations under any Award.
 
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<PAGE>
 
   (b) No Employment/Membership Rights Conferred. Nothing contained in the
Plan shall (i) confer upon any employee or Consultant any right with respect
to continuation of employment or of a consulting or advisory relationship with
the Company or any Affiliate or (ii) interfere in any way with the right of
the Company or any Affiliate to terminate his or her employment or consulting
or advisory relationship at any time. Nothing contained in the Plan shall
confer upon any Director any right with respect to continuation of membership
on the Board.
 
   (c) Other Laws; Withholding. The Company shall not be obligated to issue
any Common Stock pursuant to any Award granted under the Plan at any time when
the shares covered by such Award have not been registered under the Securities
Act of 1933, as amended, and such other state and federal laws, rules and
regulations as the Company or the Committee deems applicable and, in the
opinion of legal counsel for the Company, there is no exemption from the
registration requirements of such laws, rules and regulations available for
the issuance and sale of such shares. No fractional shares of Common Stock
shall be delivered, nor shall any cash in lieu of fractional shares be paid.
The Company shall have the right to deduct in connection with all Awards any
taxes required by law to be withheld and to require any payments required to
enable it to satisfy its withholding obligations.
 
   (d) No Restriction on Corporate Action. Nothing contained in the Plan shall
be construed to prevent the Company or any Affiliate from taking any action
which is deemed by the Company or such Affiliate to be appropriate or in its
best interest, whether or not such action would have an adverse effect on the
Plan or any Award made under the Plan. No Participant, beneficiary or other
person shall have any claim against the Company or any Affiliate as a result
of any such action.
 
   (e) Restrictions on Transfer. An Award (other than an Incentive Stock
Option, which shall be subject to the transfer restrictions set forth in
Paragraph VII(c)) shall not be transferable otherwise than (i) by will or the
laws of descent and distribution, (ii) pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder, or (iii)
with the consent of the Committee.
 
   (f) Governing Law. The Plan shall be governed by, and construed in
accordance with, the laws of the State of Texas, without regard to conflicts
of laws principles thereof.
 
 
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