SANDERS MORRIS HARRIS GROUP INC.

 

CAPITAL INCENTIVE PROGRAM

 

(As Amended and Restated Effective November 1, 2001)

 

TABLE OF CONTENTS

 

 

 

 

 

 

 

Section 1.

Background and Purpose of the Program

 

 

 

 

Section 2.

Definitions

 

(a)

Adopting Employer

 

(b)

Award Date

 

(c)

Bonus

 

(d)

Company

 

(e)

Consultant

 

(f)

Elective Deferral Agreement

 

(g)

Elective Deferral Contribution

 

(h)

Employment

 

(i)

Fair Market Value

 

(j)

Participant

 

(k)

Payout

 

(l)

Plan

 

(m)

Program

 

(n)

Program Year

 

(o)

RSA Agreement

 

(p)

Restricted Period

 

(q)

Restricted Stock

 

(r)

Restricted Stock Award

 

(s)

Salary

 

(t)

Vesting Date

 

 

 

 

Section 3.

Eligibility

 

 

 

 

Section 4.

Elective Deferral Agreement

 

 

 

 

Section 5.

Revocation of Participant’s Salary or Bonus Deferrals

 

 

 

 

Section 6.

Restricted Stock Awards

 

(a)

Authority of Committee

 

(b)

Number of Restricted Shares Awarded to Employees

 

(c)

Number of Restricted Shares Awarded to Consultants

 

(d)

Stock Certificate and Legend

 

(e)

Restrictions on Stock

 

(f)

Voting of Restricted Stock

 

(g)

Post-Termination Forfeiture for Cause

 

 

 

 

Section 7.

Amendment and Termination

 

 

 

 

Section 8.

General Provisions

 

(a)

No Limitation on other Compensation Plans or Employment

 

(b)

Indemnification

 

(c)

Assignment

 

(d)

Tax Withholding

 

(e)

Severability

 

(f)

Applicability of Plan

 

 

 

 

SCHEDULE A

 

 

 

 

 

 

SANDERS MORRIS HARRIS GROUP INC.

CAPITAL INCENTIVE PROGRAM

 

(As Amended and Restated Effective November 1, 2001)

 

 

Section 1.                Background and Purpose of the Program.

 

The name of this program is the SANDERS MORRIS HARRIS GROUP INC. CAPITAL
INCENTIVE PROGRAM (the “Program”).  The Program is an amendment and restatement,
effective as of November 1, 2001, of the “Pinnacle Global Group, Inc. Capital
Incentive Program” which was originally effective January 1, 2001.  The Program
was amended and restated to (i) reflect the change in the name of the sponsoring
employer from Pinnacle Global Group, Inc. to Sanders Morris Harris Group Inc.
and (ii) allow participation in the Program by Consultants.

 

The Program permits the grants of Restricted Stock Awards to key Employees and
Consultants.  The Program was adopted by the Committee and being made available
pursuant to the authority granted to the Committee under the Pinnacle Global
Group, Inc. 1998 Incentive Plan, as it may be amended from time to time (the
“Plan”), particularly Section 3 of the Plan, “Restricted Stock,” which Plan is
incorporated by reference herein in its entirety.

 

The purpose of the Program is to enable Sanders Morris Harris Group Inc.  (the
“Company”) and its Subsidiaries to attract, retain and motivate key Employees
and Consultants to compensate them for their contributions to the growth and
profits of the Company, and to encourage their ownership of Common Stock in the
Company.  The Program provides incentives to participating Employees and
Consultants which are linked directly to increases in stockholder value and
should, therefore, inure to the benefit of the stockholders of the Company.

 

 

Section 2.                Definitions.

 

All capitalized terms used in the Program, unless otherwise defined herein,
shall have the meanings ascribed to such terms in the Plan.  The Program, in its
entirety, is incorporated by reference into the Plan.

 

(a)                Adopting Employer.  “Adopting Employer” means the Company and
each of its Subsidiaries which have been designated by the Committee as an
employer which has adopted the Program.

 

(b)                Award Date.  “Award Date” means (i) with respect to a
Restricted Stock Award relating to a Bonus deferral under the Program, the date
during a Program Year on which the Bonus would have been paid absent the
deferral election and (ii) with respect to a Restricted Stock Award relating to
a Salary deferral under the Program; the last day of each quarter during a
Program Year, i.e., March 31, June 30, September 30 and December 31.

 

(c)                Bonus.  “Bonus” means any amount attributable to the Employee
during a Program Year which is designated by the Adopting Employer as bonus
compensation.  In the event of any disagreement, the Committee, in its sole
discretion, shall determine whether any particular type or item of compensation
shall be deemed a “Bonus” for purposes of the Program.

 

(d)                Company.   “Company” means Sanders Morris Harris Group Inc.,
a corporation organized under the laws of the State of Texas, and any successor
in interest thereto.

 

(e)                Consultant.  “Consultant” means an independent agent,
consultant, contractor, an individual who has agreed to become an Employee
within the next six months, or any other individual who is not an outside
director or Employee of the Company (or any Parent or Subsidiary) and who, in
the opinion of the Committee, is in a position to contribute to the growth or
financial success of the Company (or any Parent or Subsidiary), (ii) is a
natural person and (iii) provides bona fide services to the Company (or any
Parent or Subsidiary), which services are not in connection with the offer or
sale of securities in a capital raising transaction, and do not directly or
indirectly promote or maintain a market for the Company’s securities.

 

(f)                Elective Deferral Agreement.  “Elective Deferral Agreement”
means a written agreement entered into by and between the Adopting Employer and
a Participant for a Program Year, which agreement describes the terms and
conditions of such Participant’s arrangement to defer (i) up to one hundred
percent (100%) of his Bonus that may be awarded with respect to such Program
Year and/or (ii) up to fifty percent (50%) of his Salary that would otherwise be
paid to the Participant during the Program Year absent his deferral election. 
The Elective Deferral Agreement shall be executed and dated by the Participant
and shall specify the amount of Bonus and/or Salary, by percentage or dollar
amount, to be deferred under the Program for the Program Year.

 

(g)                Elective Deferral Contribution.  “Elective Deferral
Contribution” means any amount of a Participant’s Salary and/or Bonus which he
elects to defer hereunder pursuant to an Elective Deferral Agreement and to have
such deferred amount applied to a Restricted Stock Award pursuant to Section 4.

 

If an Active Participant is authorized by his Adopting Employer to take a paid
leave of absence from Employment, the Participant shall continue to be
considered in Employment and his Elective Deferral Contributions shall continue
to be withheld during such paid leave of absence.

 

If an Active Participant is authorized by his Adopting Employer for any reason
to take an unpaid leave of absence from Employment, the Participant shall
continue to be considered in Employment and the Participant shall be excused
from making Elective Deferral Contributions from his Salary until the
Participant returns to a paid Employment status.  Upon his return, Elective
Deferral Contributions shall resume for the remaining portion of the Program
Year in which the expiration or return occurs, based on the Participant’s
Elective Deferral Agreement as in effect for that Program Year, i.e., the same
percentage or dollar amount of Salary that was being withheld prior to the
unpaid leave of absence shall resume after return to active service, but no
make-up elective contributions can be made for the leave period.  A leave of
absence shall not affect any Bonus deferral election made by the Participant
under his Elective Deferral Agreement.

 

(h)                Employment.  “Employment” with respect to an Employee means
employment as an Employee.  “Employment” with respect to a Consultant means
active service as a Consultant for an Adopting Employer.

 

(i)                Fair Market Value.  “Fair Market Value” means, as determined
by the Committee, the 20-day average of the closing sales prices for a Share of
the Company’s Common Stock, as reported on the National Association of
Securities Dealers Automated Quotation System (“NASDAQ”), ending as of the
business day immediately preceding the date on which the Share is being valued.

 

(j)                Participant.  “Participant” means an Employee or Consultant
who has (i) been selected to participate in the Program pursuant to Section 3
and (ii) received a Restricted Stock Award.

 

(k)                Payout. “Payout” means a fee or other form of compensation
that is payable by the Company to a Consultant.

 

(l)                Plan.  “Plan” means the Pinnacle Global Group, Inc. 1998
Incentive Plan, as it may be amended from time to time.

 

(m)                Program.  “Program” means this Sanders Morris Harris Group
Inc. Capital Incentive Program (fka the Pinnacle Global Group Inc. Capital
Incentive Program) as set forth herein, and as it may be amended from time to
time.  The Program is incorporated into the Plan.

 

(n)                Program Year.  “Program Year” means the calendar year
commencing on January 1 and ending on December 31, with the first Program Year
commencing on January 1, 2001.

 

(o)                RSA Agreement.  “RSA Agreement” means a written agreement
entered into between the Company and the Participant setting forth the terms and
conditions pursuant to which a Restricted Stock Award is granted under the Plan.

 

(p)                Restricted Period.  “Restricted Period” means the period of
time determined by the Committee and set forth in the RSA Agreement during which
the transfer of Restricted Stock by the Participant is restricted.

 

(q)                Restricted Stock.  “Restricted Stock” means Shares of the
Company’s Common Stock that are granted to a Participant pursuant to a RSA
Agreement and have not yet vested thereunder.

 

(r)                Restricted Stock Award.   “Restricted Stock Award” means a
grant of Restricted Stock as evidenced by a RSA Agreement.

 

(s)                Salary.  “Salary” means the gross remuneration that is earned
by the Employee or Consultant from an Adopting Employer for compensatory
services as reportable on the Employee’s IRS form W-2 or the Consultant’s Form
1099, as the case may be, for a calendar year, including, without limitation,
commissions, and before such gross remuneration is reduced for (if any) (i)
deductions of payroll taxes and other standard deductions and (ii) Elective
Deferral Contributions hereunder, elective deferrals to a 401(k) plan or a
cafeteria plan, and other employee benefits deductions; provided, however, the
term “Salary” shall exclude any Bonuses (or other extraordinary compensation),
reimbursements of business, moving and other expenses, any income resulting from
stock option exercises, and any distributions from the Program and any other
qualified or non-qualified deferred compensation program.  The Committee, in its
discretion, shall determine whether any particular type or item of compensation
shall be deemed “Salary” for purposes of the Program.

 

(t)                Vesting Date.  “Vesting Date” means, with respect to a
Participant, the date on which the Restricted Stock Award, or a portion thereof,
becomes vested upon lapse of the Restricted Period.

 

 

Section 3.                Eligibility.

 

The Employees and Consultants who receive grants of Restricted Stock Awards
under the Program shall be selected from time to time by the Committee, in its
sole discretion, from among such persons.

 

This paragraph is only applicable to Employees, and not Consultants, who have
been selected as Participants.  Prior to the beginning of each Program Year (or
when an Employee is first designated as a Participant during a Program Year),
the Committee shall notify each designated Employee of his right to authorize
Elective Deferral Contributions for that Program Year (or remaining portion
thereof).  Each Employee who has been designated as a Participant for any
Program Year shall automatically remain eligible to authorize Elective Deferral
Contributions in that Program Year and for succeeding Program Years if he
remains an Employee, unless and until it is determined by the Committee, in its
sole discretion, that the Employee is no longer a Participant.  An Employee or
former Employee (or in the event of his death, his beneficiary) shall be
considered a Participant hereunder so long as he has a Restricted Stock Award
that has not fully vested.

 

Section 4.                Elective Deferral Agreement.

 

This Section 4 is only applicable to Employees (and not Consultants) who have
been selected as Participants.

 

After an Employee has been notified that he is eligible to authorize Elective
Deferral Contributions for a Program Year, such Employee must notify the
Committee (or its delegate) of his deferral election, if any, by completing and
executing an Elective Deferral Agreement.  Any Elective Deferral Agreement that
is not completed and signed by the Employee, and received and accepted by the
Committee (or its delegate), on or prior to (a) the last day of the Program Year
immediately preceding the Program Year for which the Elective Deferral Agreement
will be effective, or (b) the first day of the first payroll period for which
the Elective Deferral Agreement will be effective if the Employee first became a
Participant during that Program Year, shall be treated as the Employee’s
election not to defer any Salary or Bonus hereunder for that Program Year.

 

Notwithstanding the immediately preceding paragraph, if after the commencement
of a Program Year an Employee is designated as a Participant for the first time
then, in order to make a deferral election hereunder, the Participant must
complete and execute an Elective Deferral Agreement and return it to the
Committee (or its delegate) within thirty (30) days from the effective date on
which he first became eligible to participate.  Such Elective Deferral Agreement
shall only apply to defer not-yet-earned Salary and Bonus for services to be
performed by the Participant (a) for the remainder of the Program Year and
(b) subsequent to receipt and acceptance of his Elective Deferral Agreement by
the Committee (or its delegate).

 

The amount of Salary deferred hereunder, pursuant to the Participant’s
authorization in his Elective Deferral Agreement, shall be withheld on a pro
rata basis from the Participant’s regular payments of Salary for each pay period
during the Program Year (or portion thereof during which such Elective Deferral
Agreement is in effect).  The dollar amount of a Bonus that the Participant
elects to defer pursuant to his Elective Deferral Agreement shall be deferred in
a lump sum on the date that the deferred portion of the Bonus would have been
paid to the Participant in the absence of his deferral election.

 

In accordance with this Section 4 and Section 7.6 of the Plan, the Committee
shall permit a Participant to elect, under the procedures described in this
paragraph, to further defer (the “Additional Deferral Election”) the vesting and
receipt of shares of Restricted Stock that would otherwise vest and be issuable
to such Participant.  The Additional Deferral Election shall (i) be in writing
and in the form adopted by the Company, (ii) be made by the Participant and
received by the Company, at least one full year and a day, prior to the date
that the vesting restrictions on the shares of Restricted Stock are scheduled to
lapse or any additional one-year extension thereof as described below (the
“Twelve Month Vesting Date”), (iii) apply to all (and not less than all) of the
shares of Restricted Stock scheduled to vest on the Twelve Month Vesting Date
(the “Extended Restricted Shares”), and (iv) have the effect of deferring the
Vesting Date of the Extended Restricted Shares for 12 months after the Twelve
Month Vesting Date (the “Extended Vesting Date”).  The Participant shall be
permitted to make successive annual one-year deferral elections with respect to
all (but not less than all) the Extended Restricted Shares provided that each
such election satisfies the requirements described above.  Until the Extended
Vesting Date, the Extended Restricted Shares shall be subject to all
restrictions described in the RSA Agreement for unvested shares of Restricted
Stock including, without limitation, all forfeiture provisions.

 

Section 5.                Revocation of Participant’s Salary or Bonus Deferrals.

 

This Section 5 is only applicable to Employees (and not Consultants) who have
been selected as Participants.

 

The Participant’s Elective Deferral Agreement, if any, shall continue in effect
during the Program Year while he remains a Participant unless and until he files
with the Committee a written notice of discontinuance of his Elective Deferral
Agreement and such notice is received and accepted by the Committee in its
discretion.  The notice of discontinuance must be filed and accepted at least
thirty (30) days prior to the first day of a subsequent  month.  The revocation
of deferrals shall be effective on the first day of the payroll period beginning
in the designated subsequent month.  A notice of discontinuance shall be
effective only with respect to Salary and Bonus amounts (a) attributable to
services not yet performed by the Participant and (b) not earned by the
Participant before the notice of discontinuance becomes effective.  This
determination shall be made by the Committee.

 

If a Participant files a written notice of discontinuance of his Elective
Deferral Agreement, he may not enter into a new Elective Deferral Agreement, and
he cannot revoke such notice of discontinuance, for the remainder of the Program
Year.  Such Participant will be eligible to make a new Elective Deferral
Contribution effective as of the first day of the next Program Year if, and only
if, he is designated as a Participant for that Program Year pursuant to Section
3.  No such designation of future participation is required to be made by the
Committee pursuant to Section 3.  Only a complete and total cessation of
Elective Deferral Contributions shall be permitted hereunder during a Program
Year; therefore, requested changes by a Participant during a Program Year to
either increase or reduce his Elective Deferral Contributions shall not be
permitted (unless the reduction is to zero) if such change is to be effective
before the first day of the next Program Year.

 

Section 6.                Restricted Stock Awards.

 

(a)                Authority of Committee.  Restricted Stock Awards shall be
determined by the Committee and granted to Participants at such time or times as
the Committee may determine, in its sole discretion, pursuant to the terms and
conditions of the Program.  The Committee shall have the full and unilateral
authority to construe and interpret the Program and make all determinations
hereunder in its discretion.

 

(b)                Number of Restricted Shares Awarded to Employees.  The number
of shares of Restricted Stock to be awarded to an Employee who is a Participant
will be determined by a formula or formulas approved by the Committee in its
discretion.  The Committee, in its discretion, may change the formula from time
to time.  In order to reflect the impact of the restrictions on the value of the
Restricted Stock, as well as the possibility of forfeiture of Restricted Stock,
the Fair Market Value of the Common Stock (determined in the manner described
below) shall be discounted at a rate of thirty-three and one-third percent
(33_%) in determining the number of shares of Restricted Stock to be awarded. 
The Committee may, when deemed appropriate in its sole discretion, provide for
an alternative discount rate.

 

The dollar value of a Restricted Stock Award will be divided by the discounted
Fair Market Value to determine the number of shares of Common Stock in the
Restricted Stock Award.  The value of fractional shares will be paid to the
Participant in cash.  Unless otherwise determined by the Committee in its
discretion, Restricted Stock Awards shall be granted as of each Award Date based
on the formula prescribed by the Committee pursuant to the foregoing provisions
of this Section 6, and the aggregate amount of the Participant’s Elective
Deferral Contributions that were deferred (i) as of the Award Date with respect
to the Bonus deferral and (ii) as of the quarter ending as of the Award Date
with respect to the Salary deferral.

 

(c)                Number of Restricted Shares Awarded to Consultants.   The
number of shares of Restricted Stock to be awarded to a Consultant who is a
Participant, and the terms and conditions of such grant, will be determined by
the Committee in its discretion.

 

(d)                Stock Certificate and Legend.  Unless the Committee
determines otherwise, a Participant shall not have any rights with respect to
his Restricted Stock Award, unless and  until he has executed a RSA Agreement
and has delivered a fully executed copy thereof to the Company.  Each
Participant who is awarded Restricted Stock shall be issued a stock certificate
in respect of such shares of Restricted Stock.  Each certificate registered in
the name of a Participant shall bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such Restricted Stock Award,
substantially in the following form:

 

“The transferability of the certificate and the shares of stock represented
hereby are subject to the terms and conditions (including forfeiture) of the
Pinnacle Global Group Inc. 1998 Incentive Plan and Capital Incentive Program and
a Restricted Stock Award Agreement entered into between the registered owner and
Pinnacle Global Group Inc.  Copies of such Plan, Program and Agreement are on
file in the offices of Pinnacle Global Group Inc.”

 

The Committee shall require that any stock certificate issued in the name of a
Participant evidencing shares of Restricted Stock be held in the custody of the
Company until the restrictions thereon have lapsed and as a condition of such
issuance of a certificate for Restricted Stock, that the Participant deliver a
stock power, endorsed in blank, relating to the shares covered by such
certificate.  As soon as practicable after the restrictions have lapsed with
respect to shares of Restricted Stock, the Company shall issue, and deliver to
the Participant, a stock certificate registered in the name of the Participant
free of the restrictive legend set forth above.

 

(e)                Restrictions on Stock.  The shares of Restricted Stock
awarded pursuant to this Section 6 shall be subject to the following
restrictions and conditions:

 

(i)                Subject to the provisions of the Program and the RSA
Agreement, during the Restricted Period, the Participant shall not be permitted
to sell, transfer, pledge or assign shares of Restricted Stock awarded under the
Program.  The Committee may, in its sole discretion, provide for the lapse of
any such restrictions in installments and accelerate or waive any such
restrictions in whole or in part based on such factors and such circumstances as
the Committee may determine, in its sole discretion, including, but not limited
to, the Participant’s Retirement, termination, death or Disability.  The terms,
conditions and restrictions applicable to shares of Restricted Stock granted to
an Employee in the event of the Employee’s termination of Employment, death,
Disability, Retirement, and/or Leave of Absence are set forth on Schedule A
attached hereto and incorporated in its entirety herein by this reference, which
terms, conditions and restrictions remain subject to amendment from time to time
by the Committee in its discretion.  With respect to Restricted Stock granted to
a Consultant, the terms, conditions and restrictions applicable to the
Restricted Stock shall be determined by the Committee in its discretion and set
forth in the RSA Agreement.

 

(ii)                Unless the Committee in its sole discretion shall determine
otherwise and so prescribe in the RSA Agreement as of the grant date of any
Restricted Stock Award, the Participant shall have the right to direct the vote
of his shares of Restricted Stock during the Restricted Period, in accordance
with Section 6(f) below.  During the Restricted Period, the Participant shall
have the right to receive any regular dividends on such shares of Restricted
Stock.  During the Restricted Period, the Committee shall, in its sole
discretion, determine the Participant’s rights with respect to extraordinary
dividends or distributions on the shares of Restricted Stock.

 

(iii)                Shares of Common Stock shall be delivered to the
Participant in certificate form promptly after the Vesting Date.

 

(f)                Voting of Restricted Stock.  Unless the Committee, in its
sole discretion, shall determine otherwise at or prior to the grant date of any
Restricted Stock Award, during the Restricted Period the shares of Restricted
Stock shall be voted by the Company’s senior administrative officer in charge of
administering the Plan, or such other person as the Committee may designate (the
“Plan Administrator”), provided that, the Plan Administrator shall vote such
shares in accordance with instructions received from Participants (unless to do
so would constitute a violation of applicable law as determined by the Plan
Administrator).  Shares as to which no instructions are received shall be voted
by the Plan Administrator in his sole discretion (unless to do so would
constitute a violation of applicable law as determined by the Plan
Administrator).

 

(g)                Post-Termination Forfeiture for Cause.  In any instance where
the vesting of a Restricted Stock Award extends past the termination date of a
Participant’s Employment, either pursuant to the terms of the Program or by
action of the Committee, the non-vested portion of the Restricted Stock Award
shall be forfeited if, in the determination of the Committee, at any time within
such remaining Restricted Period,  the Participant engages in any of the conduct
described in the definition of “Cause” under the Plan.

 

 

Section 7.                Amendment and Termination.

 

The Program may be amended or terminated at any time and from time to time by
the Committee; provided, however, no amendment shall be permitted to the extent
it conflicts with the Plan as may be determined by the Board; provided, further,
the Program and Plan shall be construed as mutually consistent to the maximum
possible extent.

 

 

Section 8.                General Provisions.

 

(a)                No Limitation on other Compensation Plans or Employment. 
Nothing contained in the Program shall prevent the Adopting Employer from
adopting other or additional compensation arrangements, subject to stockholder
approval if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases.  The adoption of the
Program shall not confer upon any Employee or Consultant any right to continued
Employment, nor shall it interfere in any way with the right of an Adopting
Employer to terminate the Employment of such person at any time.

 

(b)                Indemnification.  No member of the Board or the Committee,
nor any officer or employee of an Adopting Employer acting on behalf of the
Board or the Committee, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect to the
Program, and all members of the Board and the Committee and each and any officer
or employee of an Adopting Employer acting on their behalf shall, to the extent
permitted by law, be fully indemnified and protected by the Company in respect
of any such action, determination or interpretation.

 

(c)                Assignment.  A Participant’s rights and interest under the
Program may not be assigned or transferred in whole or in part either directly
or by operation of law or otherwise (except in the event of a Participant’s
death or as provided in Section 6(d)) including, without limitation, execution,
levy, garnishment, attachment, pledge, bankruptcy or in any other manner, and no
such right or interest of any Participant shall be subject to any obligation or
liability of such Participant.  Upon the death of a Participant, the
Participant’s estate shall succeed to the rights of the Participant with respect
to any Restricted Stock Awards previously granted to such Participant.

 

(d)                Tax Withholding.  The Company and its Subsidiaries shall have
the right to deduct from any payment made under the Program any federal, state
or local income or other taxes which are required by law to be withheld with
respect to such payment.  It shall be a condition to the obligation of the
Company to issue Common Stock upon the lapse of the Restricted Period that the
Participant (or his beneficiary in the event of death) pay to the Company, upon
its demand, such amount as requested by the Company for the purpose of
satisfying any liability to withhold any taxes.  If the amount requested is not
paid, the Company may refuse to issue Shares.  Unless the Committee shall in its
sole discretion determine otherwise, payment for taxes required to be withheld
may be made in whole or in part, in accordance with rules adopted by the
Committee from time to time, (i) in cash, in United States dollars, (ii) by
having the Company sell or withhold Shares of Common Stock otherwise issuable
pursuant to the Program having a Fair Market Value equal to such tax liability,
or (iii) by tendering to the Company shares of Common Stock owned by the
Participant (or his beneficiary in the event of his death), including Common
Stock owned jointly with the Participant’s spouse (with spousal consent), and
acquired at least six (6) months prior to such tender (excluding shares of
Restricted Stock awarded hereunder or under any other restricted stock program
of the Company) and having a Fair Market Value equal to such tax liability.

 

(e)                Severability.  If any term or provision of this Program or
the application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, then the remainder of the Program, or the application
of such term or provision to persons or circumstances other than those as to
which it is held invalid or unenforceable, shall not be affected thereby, and
each term and provision hereof shall be valid and be enforced to the fullest
extent permitted by applicable law.

 

(f)                Applicability of Plan.  The terms and provisions of the Plan
shall be applicable to the Program, except to the extent expressly set forth
under this Program and which do not conflict with the Plan; provided, however,
the definitions in Schedule A shall control in the event of any discrepancy with
the terms of the Plan.  The Plan, Program and RSA Agreement shall be construed
as mutually consistent to the maximum possible extent.  In addition, for
purposes of the Plan, this Program, together with the related RSA Agreement,
shall constitute the “Incentive Agreement.”

 

 

IN WITNESS WHEREOF, this amended and restated Program is hereby approved and
executed by each member of the Compensation Committee on this ______ day of
November, 2001, to be effective as of November 1, 2001.

 

 

SANDERS MORRIS HARRIS GROUP INC.

 

COMPENSATION COMMITTEE

 

 

 

 

 

 

 

W. Blair Waltrip

 

 

 

 

 

 

 

John H. Styles

 

 

 

SCHEDULE A

to the

SANDERS MORRIS HARRIS GROUP INC.

CAPITAL INCENTIVE PROGRAM

 

In the event of a Participant’s termination of Employment, death, Disability,
Retirement, Early Retirement, and/or Leave of Absence, the following terms,
conditions and restrictions shall apply to all Restricted Stock Awards granted
to all Employees who are Participants under the Program, except as may be
expressly provided otherwise in the Participant’s RSA Agreement in the sole
discretion of the Committee.  Capitalized terms used, but not otherwise defined
below or in Section 2 of the Program, shall have the meanings set forth in the
Plan.

 

1                Definitions.  For purposes of the Program and this Schedule A,
the following terms shall have the following meanings:

 

(a)                “Early Retirement” shall mean no longer being occupied within
one’s business or profession, and terminating active Employment after attaining
at least age fifty-five (55) and having completed at least five (5) years of
service in Employment with the Company and its Subsidiaries.

 

(b)                “Leave of Absence” shall mean a temporary cessation from
active Employment, as authorized in each individual case by the Adopting
Employer, in connection with military leave, personal leave or family and
medical leave, but such term shall not include such a cessation resulting from
or in connection with a Disability.

 

(c)                “Retirement” shall mean no longer being occupied in one’s
business or profession and terminating Employment after attaining a number of
years of service in Employment with the Company and its Subsidiaries which
number, when added together with the Employee’s age, shall not be less than
seventy–five (75).

 

2                Termination of Employment. The following provisions supplement
and remain subject to the Program:

 

(a)                Voluntary Termination.  In the event of a voluntary
termination of Employment, other than pursuant to Retirement, all Shares of
Restricted Stock shall be forfeited to the extent not vested on the termination
date.

 

(b)                Involuntary Termination for Cause.  In the event of an
involuntary termination of Employment for Cause, all Shares of Restricted Stock
shall be forfeited to the extent not vested on the termination date.

 

(c)                Involuntary Termination other than for Cause.  If a
Participant is involuntarily terminated from Employment other than for Cause,
such Participant shall receive in return the number of shares of unvested
Restricted Stock such that the total number of Shares of Restricted Stock
received by the Participant with respect to the corresponding Restricted Stock
Award (included previously vested shares) shall equal the sum of (i) sixty-six
and two-third percent (66_%) of the total number Shares of Restricted Stock
represented by the Restricted Stock Award and (ii) a pro-rata portion of the
remaining thirty-three and one-third percent (33_%) of the total number of
Shares of Restricted Stock represented by the Restricted Stock Award.  For
purposes of this paragraph, a “pro-rata portion” shall mean a fraction, the
numeration of which is the total number of full calendar months of Participant’s
Employment during the three-year Restricted Period related to a given Restricted
Stock Award and the denominor of which is 36.  No fractional shares of
Restricted Stock shall be issuable under this paragraph, but rather the value of
such fractional shares shall be paid to the Participant in cash.

 

(d)                Death.  Upon the death of a Participant, the Restricted
Period shall immediately lapse and such Shares of Restricted Stock shall become
fully vested.

 

(e)                Disability.  In the event of a Participant’s Disability prior
to the termination of Employment, the Restricted Period shall continue as
scheduled in the RSA Agreement provided (i) the Participant continues to meet
the definition of Disability and has not voluntarily terminated his Employment
or (ii) the Disability is discontinued and the Participant resumes active
Employment upon the earlier to occur of (A) the end of the Disability period or
(B) twelve (12) months after the onset of the Disability.  If the Disability
continues for more than 12 months and the Participant remains in Employment
during that 12-month period (except for an involuntary termination due to such
Disability), then the Restricted Period shall lapse on the  12-month anniversary
of the onset of the Disability on which date the Restricted Stock shall be fully
vested.  In the event that the Participant’s Employment is involuntarily
terminated due to Disability, as determined by the Committee in its discretion,
the Restricted Stock shall be fully vested on his termination date.

 

(f)                Retirement.  A Participant who meets the conditions for
Retirement shall become fully vested in his Shares of Restricted Stock upon
lapse of the Restricted Period, i.e., the vesting schedule applicable to such
Shares shall continue to apply as if the Participant was still in active
Employment.

 

(g)                Early Retirement.  A Participant who meets the conditions for
Early Retirement shall become fully vested, as of his termination date, in
two-thirds (2/3) of his Shares of Restricted Stock, if any, that were not vested
as of such termination date, and the remaining one-third (1/3) of such
non-vested Shares shall be forfeited as of such date.

 

(h)                Leave of Absence.  In the event a Participant takes an
authorized Leave of Absence, the Restricted Period will be extended for a period
equal to the length of the Leave of Absence provided the Participant resumes
active Employment within twelve (12) months of the commencement date of the
Leave of Absence, and remains in active Employment for a period equal to (i)
three (3) months or (ii) the length of the Leave of Absence, whichever is
shorter.  If the Participant remains on the Leave of Absence for more than 12
months, all non-vested Shares of Restricted Stock as of the date he began the
Leave of Absence shall be forfeited.