<PAGE>
 
                                                                    EXHIBIT 10.3









                            STERLING SOFTWARE, INC.




                          DEFERRED COMPENSATION PLAN




                    (RESTATED EFFECTIVE NOVEMBER 21, 1997)
<PAGE>
 
                               TABLE OF CONTENTS



Section                                                                     Page
-------                                                                     ----



                                  ARTICLE I.
                             TITLE AND DEFINITIONS



1.1  Title ..............................................................   2
1.2  Definitions ........................................................   2



                                  ARTICLE II.
                                 PARTICIPATION



2.1  Participation.......................................................   5



                                 ARTICLE III.
                              DEFERRAL ELECTIONS



3.1  Elections to Defer Compensation.....................................  6
3.2  Investment Elections................................................  7
3.3  Match Funding.......................................................  8
 


                                  ARTICLE IV.
                                   ACCOUNTS



4.1  Participant Accounts................................................   8
4.2  Quarterly Statements................................................   9



                                  ARTICLE V.
                                   VESTING



5.1  Account.............................................................   9



                                  ARTICLE VI.
                                 DISTRIBUTIONS



6.1  Form and Time of Payment............................................   9
6.2  Death Benefits......................................................  10
6.3  Unscheduled Early Distributions.....................................  11
6.4  Scheduled Early Distributions.......................................  12



                                      (i)
<PAGE>
 
6.5  Change in Control Withdrawals.......................................  12
6.6  Financial Hardship Withdrawals......................................  12
6.7  Inability To Locate Participant.....................................  13
6.8  Directors and Consultants...........................................  13
6.9  Claims Procedure....................................................  14
 

                                 ARTICLE VII.
                                ADMINISTRATION


7.1  Committee...........................................................  15
7.2  Committee Action....................................................  15
7.3  Powers and Duties of the Committee..................................  15
7.4  Construction and Interpretation.....................................  16
7.5  Information.........................................................  16
7.6  Compensation, Expenses and Indemnity................................  17
 

                                 ARTICLE VIII.
                                 MISCELLANEOUS


 8.1  Unsecured General Creditor.........................................  17
 8.2  Restriction Against Assignment.....................................  18
 8.3  Withholding........................................................  18
 8.4  Amendment, Modification, Suspension or Termination.................  18
 8.5  Governing Law......................................................  19
 8.6  Receipt or Release.................................................  20
 8.7  Payments on Behalf of Persons Under Incapacity.....................  20
 8.8  Successors and Assigns.............................................  20
 8.9  No Employment Rights...............................................  20
 8.10 Headings, etc. Not Part of Agreement...............................  20
 


                                     (ii)
<PAGE>
 
                            STERLING SOFTWARE, INC.

                          DEFERRED COMPENSATION PLAN


  Sterling Software, Inc., a Delaware corporation (the "Company") acting on
behalf of itself and its designated subsidiaries, hereby adopts the provisions
of this restated plan document to govern the operation and administration of the
Sterling Software, Inc. Deferred Compensation Plan (the "Plan"), effective as of
November 21, 1997.



                                   RECITALS


     1.  Effective as of February 1, 1997, the Plan was adopted and established
by the Company, acting on behalf of itself and its designated subsidiaries, as
an unfunded supplemental retirement plan for the benefit of selected highly
compensated employees, directors and consultants and their respective
beneficiaries. Benefits under the Plan are to paid by the Company from its
general assets or from the assets of the trust hereinafter described.
 
     2.  Concurrently with the adoption and establishment of the Plan, the
Company entered into a trust agreement with First American Trust Company, as
trustee, and established a trust (the "Trust") to hold and manage certain assets
contributed by the Company in connection with the Plan. The Trust is intended to
qualify as a "grantor trust" under the Internal Revenue Code of 1986, as
amended, with the principal and income of the Trust to be treated as assets and
income of the Company for federal and state income tax purposes.
 
     3.  The assets of the Plan held in the Trust will at all times be subject
to the claims of the general creditors of the Company.

     4.  Effective as of October 27, 1997, the Plan was amended in certain
respects by the First Amendment thereto dated such date (the "First Amendment").
Also effective as of October 27, 1997, the Committee (as defined in the Plan)
authorized the substitution of the Aetna Variable Encore Fund in place of the
Janus Aspen Short-Term Bond Portfolio, as one of the Funds (as defined in the
Plan) available for hypothetical investment by Participants (as defined in the
Plan) in the Plan.

     5.  Solely for purposes of restating the Plan document to incorporate
therein the amendments to the Plan effected by the First Amendment and to
reflect the Fund substitution, all as described above, the Company has executed
and delivered this restated Plan document effective as of November 21, 1997.
<PAGE>
 
                                  ARTICLE I.

                             TITLE AND DEFINITIONS


1.1  Title.
     ----- 

     This Plan shall be known as the Sterling Software, Inc. Deferred
Compensation Plan.


1.2  Definitions.
     ----------- 

     Whenever the following words and phrases are used in this Plan, with the
first letter capitalized, they shall have the meanings specified below.

     (a)  "Account" means for each Participant the bookkeeping account
           -------
maintained by the Committee on the books of the Company that is credited with
amounts equal to (i) the portion of the Participant's Compensation that he or
she elects to defer, and (ii) the deemed earnings on such deferred Compensation
that are credited pursuant to Section 4.1(ii).

     (b)  "Beneficiary" or "Beneficiaries" means the beneficiary or
           -----------      -------------
beneficiaries last designated in writing by a Participant, in accordance with
procedures established by the Committee, to receive benefits under the Plan in
the event of the Participant's death. No beneficiary designation shall become
effective unless and until it is filed with the Committee during the
Participant's lifetime.

     (c)  "Board of Directors" or "Board" means the Board of Directors of
           ------------------      -----
Sterling Software, Inc. Any determination or other action specified in this Plan
to be made, taken or effectuated by the Board may be made, taken or effectuated
by the Executive Committee of the Board.

     (d) "Change in Control" means the occurrence of any of the following
          -----------------
events:

         (i)   the Company is merged, consolidated or reorganized into or with
     another corporation or other legal person, and as a result of such merger,
     consolidation or reorganization less than two-thirds of the combined voting
     power of the then-outstanding securities entitled to vote generally in the
     election of directors ("Voting Stock") of such corporation or person
     immediately after such transaction are held in the aggregate by the holders
     of Voting Stock of the Company immediately prior to such transaction;

         (ii)  the Company sells or otherwise transfers all or substantially all
     of its assets to another corporation or other legal person, and as a result
     of such sale or transfer less than two-thirds of the combined voting power
     of the then-outstanding Voting Stock of such corporation or person
     immediately after such sale or transfer is held in the aggregate by the
     holders of Voting Stock of the Company immediately prior to such sale or
     transfer;

         (iii) there is a report filed on Schedule 13D or Schedule 14D-1 (or
     any

                                       2
<PAGE>
 
     successor schedule, form or report), each as promulgated pursuant to the
     Secu rities Exchange Act of 1934 (the "Exchange Act"), disclosing that any
     person (as the term "person" is used in Section 13(d)(3) or Section
     14(d)(2) of the Exchange Act) has become the beneficial owner (as the term
     "beneficial owner" is defined under Rule 13d-3 or any successor rule or
     regulation promulgated under the Exchange Act) of securities representing
     20% or more of the combined voting power of the then-outstanding Voting
     Stock of the Company;

         (iv) the Company files a report or proxy statement with the Securities
     and Exchange Commission pursuant to the Exchange Act disclosing in response
     to Form 8-K or Schedule 14A (or any successor schedule, form or report or
     item therein) that a change in control of the Company has occurred or will
     occur in the future pursuant to any then-existing contract or transaction;
     or

         (v)  if, during any period of two consecutive years, individuals who at
     the beginning of any such period constitute the directors of the Company
     cease for any reason to constitute at least a majority thereof; provided,
     however, that for purposes of this clause (v) each director who is first
     elected, or first nominated for election by the Company's stockholders, by
     a vote of at least two-thirds of the directors of the Company (or a
     committee thereof) then still in office who were directors of the Company
     at the beginning of any such period will be deemed to have been a director
     of the Company at the beginning of such period.

Notwithstanding the foregoing provisions of clauses (iii) or (iv) above, unless
otherwise determined in a specific case by majority vote of the Board, a "Change
in Control" will not be deemed to have occurred for purposes of clause (iii) or
clause (iv) above solely because (A) the Company, (B) an entity in which the
Company directly or indirectly beneficially owns 50% or more of the outstanding
Voting Stock (a "Subsidiary"), or (C) any Company-sponsored employee stock
ownership plan or any other employee benefit plan of the Company or any
Subsidiary either files or becomes obligated to file a report or a proxy
statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or
Schedule 14A (or any successor schedule, form or report or item therein) under
the Exchange Act disclosing beneficial ownership by it of shares of Voting Stock
of the Company, whether in excess of 20% or otherwise, or because the Company
reports that a change in control of the Company has occurred or will occur in
the future by reason of such beneficial ownership or any increase or decrease
thereof.

         (e) "Code" means the Internal Revenue Code of 1986, as amended.
              ----                                                      

         (f)  "Committee" means the Administrative Committee appointed to
               ---------   
administer the Plan in accordance with Article VII.

         (g)  "Company" means Sterling Software, Inc., a Delaware corporation,
               -------
any successor corporation to Sterling Software, Inc. satisfying the requirements
of Section 8.8 and any entity that is directly or indirectly controlled by
Sterling Software, Inc. or in which Sterling Software, Inc. has a significant
equity or investment interest, as determined by the Board.

                                       3
<PAGE>
 
         (h)  "Compensation" means the following items of remuneration payable
               ------------ 
to an Eligible Individual for services rendered to the Company during a calendar
year: Salary, Incentive Bonus, annual retainer and meeting fees payable to
members of the Board and fees payable to consultants. An Eligible Individual's
Compensation shall be computed before giving effect to the Eligible Individual's
salary reduction elections under Code Sections 125 or 401(k) and the Eligible
Individual's deferral election under Section 3.1 of this Plan.

         (i) "Distributable Amount" means the balance of a Participant's Account
              --------------------
at any given time.

         (j) "Effective Date" means February 1, 1997.
              --------------                         

         (k) "Eligible Individual" for a Plan Year means (i) a common law
              ------------------- 
employee of the Company whose Compensation is paid on a United States payroll in
United States dollars and (A) whose Compensation equaled or exceeded the
Threshold Amount in the prior calendar year (or, in the case of an employee
employed only during a portion of such prior calendar year, whose annualized
Compensation would have equaled or exceeded the Threshold Amount), or (B) who
satisfied any alternative eligibility criteria established by the Committee
pursuant to Section 7.3(iv) of the Plan; (ii) a member of the Board of Directors
who is not a common law employee of the Company; or (iii) a consultant who is
not a common law employee of the Company and who is designated by the Committee
as eligible to participate in the Plan. An individual's status as an Eligible
Individual for a Plan Year shall be determined prior to the first day of such
Plan Year. Notwithstanding the foregoing, the Committee may in its discretion
(I) determine in writing that an otherwise Eligible Individual may not
participate in this Plan for one or more Plan Years, and (II) determine to admit
a newly hired employee (whether hired through an acquisition or otherwise) into
the Plan on a date other than the first day of a Plan Year and to establish
criteria for the admission of such newly hired employees in addition to or in
lieu of those set forth above, provided that such criteria are consistent with
the purpose of the Plan to provide benefits for a select group of management or
highly compensated employees. An individual who is classified by the Company as
an independent contractor whose compensation for services is reported by the
Company on a form other than Form W-2 or any successor form for reporting wages
paid to employees will not be an Eligible Individual, unless the Committee
specifically designates such individual by name as an Eligible Individual
pursuant to clause (iii) above.

         (l)  "Fund" or "Funds" means one or more of the investment funds or
               ----      -----
contracts selected by the Committee pursuant to Section 7.3(i).

         (m)  "Incentive Bonus" means any cash incentive compensation payable to
               ---------------
a Participant in addition to the Participant's Salary.

         (n)  "Initial Election Period" for an Eligible Individual means the 30-
               -----------------------
day period ending January 31, 1997.

         (o)  "Interest Rate" means, for any Fund and for any month, an amount
               -------------
expressed as a percentage equal to the net rate of gain or loss on the assets of
such Fund during such month.

                                       4
<PAGE>
 
         (p)  "Participant" means any Eligible Individual who elects to defer
               ----------- 
Compensation in accordance with Section 3.1.

         (q)  "Plan" means the Sterling Software, Inc. Deferred Compensation
               ----
Plan set forth herein, as amended from time to time in accordance with Section
8.4.

         (r)  "Plan Year" means the 12-consecutive month period beginning
               ---------
January 1 and ending December 31 of each year, provided that the first Plan Year
shall be a short year beginning February 1, 1997 and ending December 31, 1997.

         (s)  "Salary" means for any calendar year (i) in the case of an
               ------
employee of the Company whose compensation from the Company does not include
commission income, the employee's base salary during the calendar year and (ii)
in the case of an employee of the Company whose compensation from the Company
includes commission income, the total of the employee's base salary plus
commissions during the calendar year. Salary excludes any other form of
compensation such as Incentive Bonuses, restricted stock, income from stock
options or stock appreciation rights, severance payments, moving expenses, car
or other special allowances, reimbursements for taxes or any other remuneration
for personal services included in an Eligible Individual's taxable income.

         (t)  "Threshold Amount" means, for the first Plan Year, the sum of
               ----------------
$120,000 and, for any subsequent Plan Year, such other amount as may be
determined by the Committee pursuant to Section 7.3.

         (u)  "Trust" means the trust established by the Trust Agreement.
               -----

         (v)  "Trust Agreement" means the Sterling Software, Inc. Deferred
               ---------------
Compensation Plan Trust Agreement dated as of February 1, 1997, by and between
the Company and First American Trust Company, as Trustee.

         (w)  "Trustee" means First American Trust Company or any successor
               -------
trustee appointed pursuant to the Trust Agreement.


                                  ARTICLE II.

                                 PARTICIPATION


2.1  Participation.
     ------------- 

     An Eligible Individual shall become a Participant in the Plan for a Plan
Year by electing to defer all or a portion of his or her Compensation for such
Plan Year in accordance with Section 3.1, by completing all required
applications for life insurance (as determined by the Committee in its
discretion), and by complying with any applicable medical underwriting
requirements of the issuer of any policy of insurance on the life of the
Eligible Individual.

                                       5
<PAGE>
 
                                 ARTICLE III.

                              DEFERRAL ELECTIONS


3.1  Elections to Defer Compensation.
     ------------------------------- 

     (a)  Elections. For the first Plan Year, each Eligible Individual may elect
          ---------
to defer Compensation by filing with the Committee an election that conforms to
the requirements of this Section 3.1, on a form provided by the Committee (an
"Election Form"), no later than the last day of the Initial Election Period. For
each subsequent Plan Year, an Eligible Individual may make an election to defer
Compensation by filing an Election Form with the Committee on or before the
December 31 preceding the Plan Year for which the election is to be effective
or, in the case of a newly hired employee who is admitted into the Plan on a
date other than the first day of a Plan Year, on or before the date such
employee receives his first payroll distribution from the Company. An Eligible
Individual who does not elect to defer Compensation for a Plan Year may become a
Participant with respect to a subsequent Plan Year by filing an Election Form
with the Committee on or before the December 31 preceding the Plan Year for
which the election is to be effective.

     (b)  General Rule. Subject to the limitations set forth in subsection (c)
          ------------
below, an Eligible Individual may elect to defer any whole percentage of his or
her Compensation up to 100%; provided, however, that if an Eligible Individual's
deferral election would reduce the Compensation paid to the Eligible Individual
to an amount that is less than (i) the amount necessary to satisfy the Eligible
Individual's portion of applicable employment taxes for the Plan Year, (ii)
amounts necessary to satisfy any other benefit plan elections or loan repayments
for the Plan Year under any other plan sponsored by the Company and (iii) any
income taxes payable with respect to taxable compensation that is not eligible
for deferral, then the Participant must remit to the Company, at the time or
times requested by the Company, any amounts necessary to permit the Company to
satisfy its obligation to withhold such taxes, implement such benefit plan
elections or deduct such loan repayments. In addition, a deferral election made
by an Eligible Individual will not be effective unless and until the Eligible
Individual completes all required applications for life insurance (as determined
by the Committee in its discretion).

     (c)  Minimum Deferrals. For each Plan Year during which an Eligible
          -----------------
Individual is a Participant, the minimum dollar amount of Compensation that may
be deferred by the Eligible Individual under the Plan is $5,000. To the extent
that a Participant's actual deferrals in a Plan Year are less than $5,000, such
deferrals, together with earnings or loss thereon through the last day of such
Plan Year, will be refunded as promptly as practicable after the end of such
Plan Year.

     (d)  Effect of Deferral Election. An election to defer Compensation shall
          ---------------------------
be first effective with respect to Salary or director or consultant fees earned
during the first pay period beginning after the end of the Initial Election
Period or, for Plan Years beginning after 1997, the

                                       6
<PAGE>
 
pay period beginning on the first day of the Plan Year, and with respect to the
Incentive Bonus payable for the Company's fiscal year ending within the Plan
Year (or for any fiscal quarters within such fiscal year) for which the election
is made.

     (e)  Duration of Compensation Deferral Election. Any deferral election made
          ------------------------------------------
under this Section 3.1 shall be irrevocable and shall apply only to the
Compensation payable with respect to services performed during the Plan Year for
which the election is made.


3.2  Investment Elections.
     -------------------- 

     (a)  The Committee shall provide each Participant with a list of multiple
Funds available for hypothetical investment and each Participant may designate,
on a form provided by the Committee, one or more of such Funds in which his or
her Account will be deemed to be invested for purposes of determining the amount
of earnings to be credited to such Account. The list shall consist of at least
five Funds, collectively offering a wide range of investment options (domestic
and international) with a spectrum of risk and return potential (from
conservative, low risk/low return potential to aggressive, high risk/high return
potential), comparable as a whole to the initial list of Funds attached hereto
as Exhibit A. The Committee may in its discretion change from time to time the
Funds available for hypothetical investment, provided Participants are given at
least 90 days' prior written notice of the effective date of the deletion of any
Fund (including, without limitation, the deletion of a Fund in connection with
the substitution of a new Fund in its place); it being understood, however, that
where the deletion of a Fund is beyond the control of the Committee (e.g., where
the provider of a Matching Investment unilaterally effects such a deletion), the
Committee's obligation shall be to give Participants written notice of the
effective date of such deletion as promptly as practicable after the Committee
obtains knowledge thereof. The Committee may in its discretion add new Funds at
any time and Participants shall be given written notice of such additions as
promptly as practicable after the Committee decides to add a new Fund.

     (b) In making the investment designation pursuant to this Section 3.2, the
Participant may specify that all, or any whole percentage, of his or her Account
will be deemed to be invested in one or more of the Funds designated by the
Committee (with a minimum of 5% of the Account balance deemed to be invested in
any one Fund and all such designations in the aggregate not to exceed 100% of
the Participant's Account balance). Effective as of the beginning of any
calendar month, a Participant may change the Fund designations made under this
Section 3.2 by filing a new designation, on a form provided by the Committee, at
least 15 days prior to the end of the immediately preceding calendar month.

     (c) If a Participant fails to elect a Fund under this Section 3.2, or if
the Participant's investment designation is less than 100% of his or her Account
balance, for any portion of the Account balance for which no investment
designation has been made he or she shall be deemed to have designated the Fund
that the Committee determines in its sole judgment to have the least risk of
loss of principal.

                                       7
<PAGE>


3.3  Match Funding.
     ------------- 
 
  To the extent authorized by the Committee in its discretion, and in such case
to the fullest extent practicable, the Company shall match fund (in terms of
both timing and amount) all of its obligations to Participants under the Plan by
acquiring and contributing to the Trust, or by causing the Trustee to acquire or
maintain on behalf of the Trust, life insurance investments ("Matching
Investments") corresponding as closely as possible to amounts from time to time
allocated to the Investment Fund Subaccounts (as hereinafter defined) of all
Participants.  To the extent that the Company wishes to prefund Matching
Investments for a given Plan Year, such Matching Investments shall be maintained
in the Fund offering the least risk of loss of principal, or a conservative
money market fund, until such Matching Investments are periodically allocated to
investment options corresponding to the periodic deferral amounts of the
Participants.  Notwithstanding the foregoing, the Company and the Trustee may
maintain cash reserves in an amount reasonably necessary to pay benefits under
and administer this Plan.

  While the Plan is in existence the Company shall at all times comply with its
duties and obligations under the Trust Agreement, and all Participants and their
beneficiaries are expressly acknowledged by the Company to be bona fide third
party beneficiaries under the Trust Agreement.

                                  ARTICLE IV.

                                   ACCOUNTS


4.1  Participant Accounts.
     -------------------- 

     The Committee shall establish and maintain an Account for each Participant
under the Plan.  Each Participant's Account shall be further divided into
separate subaccounts ("Investment Fund Subaccounts"), each of which corresponds
to a Fund elected by the Participant pursuant to Section 3.2.  A Participant's
Account shall be debited and credited as follows:

        (i)   As of the last day of each month, the Committee shall credit the
     Investment Fund Subaccounts of the Participant's Account with an amount
     equal to any Compensation deferred by the Participant during all pay
     periods ending in that month in accordance with the Participant's election;
     that is, the portion of the Participant's deferred Compensation that the
     Participant has elected to be deferred and deemed to be invested in a
     certain Fund shall be credited to the Investment Fund Subaccount
     corresponding to that Fund.

        (ii)  As of the last day of each month, each Investment Fund Subaccount
     of a Participant's Account shall be credited with earnings in an amount
     determined by multiplying the balance credited to such Investment Fund
     Subaccount as of the last day of the preceding month by the Interest Rate
     for the corresponding Fund for the then current month. To the extent any
     such Interest Rate is negative in any month (due to a net loss in

                                       8
<PAGE>

     the applicable Fund), the applicable Investment Fund Subaccount will be
     debited in the same manner.

        (iii) As of the first day of each calendar quarter, each Investment Fund
     Subaccount will be debited or credited to appropriately reflect any change
     in Fund designations made by Participants pursuant to Section 3.2.

4.2  Quarterly Statements.
     -------------------- 

     Under procedures established by the Committee, a Participant shall receive
a statement with respect to such Participant's Account on a quarterly basis.


                                  ARTICLE V.

                                    VESTING


5.1  Account.
     ------- 

     A Participant's interest in his or her Account shall be 100% vested at all
times.


                                  ARTICLE VI.

                                 DISTRIBUTIONS

6.1  Form and Time of Payment.
     ------------------------ 

     (a)  Forms of Payment.  A Participant's Distributable Amount will be paid
          ----------------
either in quarterly installments over a period of 5, 10, 15 or 20 years, as the
Participant shall elect, or in a lump sum payment. All Participants will be
required to elect a form of payment; however, a Participant electing to have
that portion of the Distributable Amount attributable to any Plan Year paid in
quarterly installments will be so paid with respect to such portion only if the
Participant terminates employment with the Company (i) at or after attaining age
55; (ii) after having completed at least ten years of service; (iii) as a result
of a long-term disability, as defined in the Company's then-existing long-term
disability plan in which the Participant is eligible to participate; or (iv) as
a result of the Participant's death. The Distributable Amount payable to
Participants in all other circumstances will be paid in a lump sum payment,
unless the Participant requests in writing within 30 days after such termination
that the Committee permit the payment of his or her Distributable Amount in
quarterly installments over a period of 5, 10, 15 or 20 years. The Committee
shall have the full discretion and authority to grant or deny any such request.

     (b)  Payment Election. Each Participant shall elect, at the time of his or
          ----------------
her election to defer Compensation under the Plan for a Plan Year, to have that
portion of his or her

                                       9
<PAGE>
 
Distributable Amount attributable to such Plan Year paid in installments as
described in subsection (a) above or in a lump sum payment. A Participant's
installment payment election will be honored only if the Participant is eligible
for installment payments at his or her termination of employment or as permitted
by the Committee, all as provided in subsection (a) above. In the event a
Participant fails to make a payment election with respect to a Plan Year as
provided in this subsection (b) and is otherwise eligible for installment
payments at termination of employment, the Participant's Distributable Amount
attributable to such Plan Year will be paid to the Participant (or the
Participant's Beneficiary, if the Participant terminates employment by reason of
death) in quarterly installments payable over a period of 10 years.

     (c)  Payment Commencement Date. Unless a Participant receives an early
          -------------------------
distribution with respect to the Distributable Amount for a Plan Year pursuant
to Section 6.3, Section 6.4, Section 6.5 or Section 6.6, such Distributable
Amount (or remaining portion thereof) will be paid after the Participant
terminates employment with the Company. Lump sum payments will be paid as soon
as practicable following the Participant's termination of employment but in no
event later than 90 days after the date of such termination. Quarterly
installment payments will begin on the first business day of the second month of
the calendar quarter following the calendar quarter in which the Participant
terminates employment and will continue to be made on the second business day of
each subsequent calendar quarter until the applicable portion of the
Distributable Amount has been fully distributed. Each quarterly installment
payment will be made pro rata from the Participant's Investment Fund Subaccounts
according to the balances in such Subaccounts. During the period in which
quarterly installment payments are being made, the Participant's Account will
continue to be credited monthly with earnings pursuant to Section 4.1(ii) of the
Plan, the Participant (or his or her Beneficiary) may continue to change Fund
designations pursuant to Section 3.2 of the Plan, and quarterly installment
payments will be adjusted annually to reflect earnings, gains and losses until
all amounts credited to his or her Account under the Plan have been distributed.
To the fullest extent practicable, but subject to such annual adjustments,
quarterly installment payments shall be comparable in amount over the entire
distribution period.
        
     (d)  Change in Payment Election. A Participant who has not terminated
          --------------------------
employment with the Company may change his or her form of payment with respect
to the portion of the Distributable Amount attributable to one or more Plan
Years to one of the payment forms permitted by the Plan, provided the
Participant files a written election with the Committee to change such payment
form at least one year prior to the date that payment of such portion of his or
her Distributable Amount would otherwise be made. In addition, a Participant who
has elected scheduled early distributions pursuant to Section 6.4 may defer the
scheduled distribution dates in accordance with Section 6.4. A Participant's
payment election with respect to a given Plan Year may not be changed after
payment of that portion of the Distributable Amount attributable to such Plan
Year has been made or has begun.

     (e)  Exception for Small Benefits. Notwithstanding the foregoing provisions
          ----------------------------
of this Section 6.1 or of Section 6.2, if a Participant's Distributable Amount
does not exceed $25,000, the Distributable Amount shall automatically be
distributed in the form of a lump sum payment.

6.2  Death Benefits.  If a Participant dies while employed by the Company, or
     --------------                                                          
after termination of employment, the Participant's Distributable Amount shall be
paid to the Participant's


                                       10
<PAGE>
 
Beneficiary in the same form and in accordance with the same payment schedule
under which the Distributable Amount was being or would have been paid to the
Participant.


6.3  Unscheduled Early Distributions.  Subject to paragraph (vi) below,
     -------------------------------                                   
Participants shall be permitted to request to withdraw amounts from their
Accounts at any time ("Early Distributions").  Upon receiving a withdrawal
request, the Committee shall determine, in its sole discretion, whether to
permit any such withdrawal and the amount, if any, to be withdrawn, subject to
the following restrictions:



        (i)   The election to take an Early Distribution shall be made by filing
     a form provided by and filed with the Committee.

        (ii)  The maximum amount payable to a Participant in connection with an
     Early Distribution shall in all cases equal 90% of the amount requested by
     the Participant (which requested amount must be not less than $10,000 or
     the Participant's entire Distributable Amount if less than $10,000);
     provided, however, that the maximum amount payable to a Participant in
     connection with an Early Distribution shall be 90% of the Distributable
     Amount as of the end of the calendar month in which the Early Distribution
     request is received by the Committee.

        (iii) The amount described in paragraph (ii) above shall be paid in a
     single lump sum by the end of the calendar month next following the
     calendar month in which the Early Distribution request is received by the
     Committee. A distribution pursuant to this Section 6.3 of less than the
     Participant's entire interest in the Plan will be made pro rata from his or
     her Investment Fund Subaccounts according to the balances in such
     Subaccounts.

        (iv)  If a Participant receives an Early Distribution, the remaining
     portion of the requested or approved amount, as applicable, in excess of
     the amount payable under paragraph (ii) above (i.e., 10% of such amount),
                                                    ----
     shall be permanently forfeited and the Company shall have no obligation to
     the Participant or his or her Beneficiary with respect to such forfeited
     amount.

        (v)   If a Participant receives an Early Distribution, the Participant
     shall be ineligible to participate in the Plan for the balance of the Plan
     Year in which the Early Distribution occurs and for the immediately
     following Plan Year.

        (vi)  A Participant shall be limited to a maximum of two Early
     Distributions during all of his or her periods of Plan participation.

                                       11
<PAGE>
 
6.4  Scheduled Early Distributions.  Participants may elect to have benefit
     -----------------------------                                         
payments in respect of Compensation deferred during a given Plan Year be made on
a future date while still employed, provided the payment date is at least 2
years after the date such Plan Year commences.  This election shall apply to the
Compensation deferred for the Plan Year specified by the Participant on his or
her election form and the earnings credited thereto until the payment date.  A
Participant may elect a different payment date for the Compensation deferred for
each Plan Year.  In addition, payment dates elected pursuant to this Section 6.4
may be deferred by at least one year, by filing with the Committee written
notice at least 12 months prior to the payment date to be deferred.  A
distribution pursuant to this Section 6.4 of less than the Participant's entire
interest in the Plan shall be made pro rata from his or her Investment Fund
Subaccounts according to the balances in such Subaccounts.  Notwithstanding the
foregoing, if a Participant terminates employment with the Company for any
reason prior to the date on which a payment is scheduled to be made pursuant to
this Section 6.4, the Participant's entire Distributable Amount will be paid
pursuant to the provisions of Section 6.1.

6.5  Change in Control Withdrawals.  At any time up to one year after a Change
     -----------------------------                                            
in Control of the Company, a Participant may elect in writing to receive a
payment of his or her entire Account balance without penalty and without regard
to whether the Participant has terminated employment with the Company or whether
installment payments have commenced.  The requested payment will be made as soon
as practicable following the receipt by the Committee of the Participant's
election and will be made in a lump sum payment or in quarterly installments
over 5, 10, 15 or 20 years, as elected by the Participant.  A Participant's
election pursuant to this Section 6.5 will supersede any prior payment election.
A Participant who elects to receive payment under this Section 6.5 will, upon
receipt of the Participant's election by the Committee, cease to participate in
the Plan for the balance of the Plan Year in which such receipt occurs.

6.6  Financial Hardship Withdrawals.  The Committee may, pursuant to rules or
     ------------------------------                                          
policies from time to time adopted by it and applied in a consistent manner,
accelerate the date of distribution of all or any portion of a Participant's
Account balance because of a financial hardship.  A financial hardship means an
unforeseeable, severe financial emergency resulting from (a) a sudden and
unexpected illness or accident of the Participant or his or her dependents (as
defined in Section 152(a) of the Code); (b) loss of the Participant's property
due to casualty; or (c) other similar extraordinary and unforeseeable
circumstances arising out of events beyond the control of the Participant, which
may not be relieved through other available resources of the Participant, as
determined by the Committee in accordance with such rules and policies.  A
distribution pursuant to this Section 6.6 of less than the Participant's entire
interest in the Plan shall be made pro rata from his or her Investment Fund
Subaccounts according to the balances in such Subaccounts.  Subject to the
foregoing, payment of any amount with respect to which a Participant has filed a
request under this Section 6.6 shall be made as soon as practicable after
approval of such request by the Committee.  Distributions made pursuant to this
Section 6.6 shall be without penalty.

                                       12
<PAGE>
 
6.7  Inability To Locate Participant.
     ------------------------------- 

     (a)  Forfeiture of Account. In the event that the Committee is unable to
          ---------------------
locate a Participant or, with respect to a Participant who has died, any
Beneficiary within two years following the date on which any payment of the
Participant's Distributable Amount is scheduled to be made or begin, the amount
allocated to the Participant's Account shall be forfeited. Following the date of
forfeiture, the Participant's Account which is forfeited shall be invested in
the Fund offering the least risk of loss of principal or conservative money
market funds. If, after such forfeiture and prior to the escheat of the
Participant's Account as provided in Section 6.7(b), the Participant or
Beneficiary later claims such benefit and establishes to the reasonable
satisfaction of the Committee such Participant's or Beneficiary's right to
receive same, such Account shall be reinstated at its balance at the date of
forfeiture without additional interest, earnings, gains or losses from the date
of forfeiture through the date of reinstatement. The Participant's restored
Account balance will be invested in the manner that the Participant or
Beneficiary elects pursuant to Section 3.2 and will be distributed to the
Participant or Beneficiary in accordance with the Participant's payment
elections made pursuant to this Article VI. In addition, any installment
payments that were scheduled to have been made during the period in which the
Participant or Beneficiary could not be located will be made to the Participant
or Beneficiary in a lump sum catch-up payment as soon as administratively
practicable.

        (b)  Escheat of Account. The Committee, in its discretion, may escheat,
             ------------------
or may cause the Trustee to escheat, to the state of Texas (or such other state
as the Committee, in its discretion, determines is appropriate) any
Participant's Account which was forfeited if either (i) the Committee has been
unable to locate the Participant or Beneficiary for a period of five years
following the date on which any payment of the Participant's Distributable
Amount is scheduled to be made or begin or (ii) the Plan is terminated and the
Committee has been unable to locate the Participant or Beneficiary for a period
of two years following the date on which any payment of the Participant's
Distributable Amount is scheduled to be made or begin. Upon the escheat of the
Participant's Account, the Participant or Beneficiary shall have no further
right to any benefits or payments under the Plan, and neither the Company, the
Committee nor the Trustee shall have any liability to such Participant or
Beneficiary for the amount of the Participant's Account.

6.8  Directors and Consultants.  For purposes of the preceding sections of this
     -------------------------                                                 
Article VI, a Participant who is a member of the Board or a consultant, but who
is not an employee of the Company, will be deemed to be employed by the Company
as long as he or she is a director or is engaged as a consultant and will be
deemed to have terminated employment when he or she is no longer a director or
is no longer engaged as a consultant and is not then an employee of the Company.

                                       13
<PAGE>
 
6.9  Claims Procedure.
     ---------------- 

     (a)  Claim for Benefits. If a Participant or Beneficiary does not receive
          ------------------
the benefits which the Participant or Beneficiary believes he or she is entitled
to receive under the Plan, the Participant or Beneficiary may file a claim for
benefits with the Committee. All claims shall be made in writing and shall be
signed by the claimant. If the claimant does not furnish sufficient information
to enable the Committee to process the claim, the Committee will indicate to the
claimant any additional information which is required.

     (b)  Notification by the Committee. Each claim will be approved or
          -----------------------------
disapproved by the Committee within 90 days following the receipt of the
information necessary to process the claim. In the event the Committee denies a
claim for benefits in whole or in part, the Committee will notify the claimant
in writing of the denial of the claim. Such notice by the Committee will also
set forth, in a manner calculated to be understood by the claimant, the specific
reason for such denial, the specific Plan provisions on which the denial is
based, a description of any additional material or information necessary for the
claim to be approved, if possible, with an explanation of why such material or
information is necessary, and an explanation of the Plan's claim review
procedure as set forth in subsection (c). If no action is taken by the Committee
on a claim within such 90 day period, the claim will be deemed to be denied for
purposes of the review procedure.

     (c)  Review Procedure. A claimant may appeal a denial of his or her claim
          ----------------
by requesting a review of the decision by the Committee or a person designated
by the Committee. An appeal must be submitted in writing within 60 days after
receipt by the claimant of written notification of the denial and must (i)
request a review of the claim for benefits under the Plan, (ii) set forth all of
the grounds upon which the claimant's request for review is based and any facts
in support thereof, and (iii) set forth any issues or comments which the
claimant deems pertinent to the appeal. The Committee or the person designated
by the Committee will make a full and fair review of each appeal and any written
materials submitted in connection with the appeal. The Committee or the person
designated by the Committee will act upon each appeal within 60 days after
receipt thereof unless special circumstances require an extension of the time
for processing, in which case a decision will be rendered as soon as possible
but not later than 120 days after the appeal is received. The claimant will be
given the opportunity to review documents or materials directly pertinent to the
appeal upon submission of a reasonable written request to the Committee or
person designated by the Committee, provided the Committee or person designated
by the Committee in its reasonable judgment finds the requested documents or
materials are directly pertinent to the appeal. On the basis of its review, the
Committee or person designated by the Committee will make an independent
determination of the claimant's eligibility for benefits under the Plan. The
decision of the Committee or person designated by the Committee on any claim for
benefits will be final and conclusive upon all parties thereto. In the event the
Committee or person designated by the Committee denies an appeal in whole or in
part, it will give written notice of the decision to the claimant, which notice
will set forth in a manner calculated to be understood by the claimant the
specific reasons for such denial and which will make specific reference to the
pertinent Plan provisions on which the decision was based.

                                       14
<PAGE>
 
                                 ARTICLE VII.

                                 ADMINISTRATION

7.1  Committee.
     --------- 

     The Committee for the Plan shall be appointed by, and serve at the pleasure
of, the Board.  The number of members comprising the Committee shall be
determined by the Board which may from time to time vary the number of members.
A member of the Committee may resign by delivering a written notice of
resignation to the Board.  The Board may remove any member with or without cause
by delivering a certified copy of its resolution of removal to such member.
Vacancies in the membership of the Committee shall be filled as soon as
practicable by the Board.

7.2  Committee Action.
     ---------------- 

     The Committee shall act at meetings by affirmative vote of a majority of
the members of the Committee. Any action permitted to be taken at a meeting may
be taken without a meeting if, prior to such action, a written consent to the
action is signed by all members of the Committee and such written consent is
filed with the minutes of the proceedings of the Committee. A member of the
Committee shall not vote or act upon any matter which relates solely to himself
or herself as a Participant. Any two members of the Committee may execute any
certificate or other written direction on behalf of the Committee.

7.3  Powers and Duties of the Committee.
     ---------------------------------- 

     The Committee shall administer the Plan in accordance with its terms and
shall have all powers, authority and discretion necessary to accomplish its
purposes, including, but not by way of limitation, the authority and discretion
to:

        (i)   select the Funds and change the Funds from time to time pursuant
     to Section 3.2;

        (ii)  appoint a plan administrator or any other agent, and delegate to
     them such powers and duties in connection with the administration of the
     Plan as the Committee may from time to time prescribe;

        (iii) resolve all questions relating to the eligibility of employees,
     directors and consultants to be or become Eligible Individuals or
     Participants;

        (iv)  determine the Threshold Amount applicable to any Plan Year after
     the first Plan Year and establish alternative criteria, consistent with the
     purpose of the Plan to provide benefits to a select group of management or
     highly compensated employees, for what shall constitute an employee of the
     Company an Eligible Individual with respect to any given Plan Year, in
     addition to or in lieu of the eligibility criteria set forth in Section
     1.2(k) of the Plan;

                                       15
<PAGE>
 
        (v)    determine the amount of benefits payable to Participants or their
     Beneficiaries under this Plan, and determine the time and manner in which
     such benefits are to be paid;

        (vi)   authorize and direct all disbursements by the Trustee from the
     Trust;

        (vii)  engage any administrative, legal, accounting, clerical, or other
     services it deems appropriate in administering the Plan or the Trust
     Agreement;

        (viii) construe and interpret this Plan and the Trust Agreement, supply
     omissions from, correct deficiencies in, and resolve ambiguities in the
     language of this Plan and the Trust Agreement, and adopt rules for the
     administration of this Plan and the Trust Agreement that are not
     inconsistent with the terms of such documents;

        (ix)   compile and maintain all records it determines to be necessary,
     appropriate or convenient in connection with the administration of this
     Plan and of benefit payments hereunder;

        (x)    determine the disposition of assets in the Trust in the event
     this Plan is terminated;

        (xi)   review the performance of the Trustee with respect to the
     Trustee's administrative duties, responsibilities and obligations under
     this Plan and the Trust Agreement, report to the Board regarding such
     administrative performance of the Trustee, and recommend to the Board, if
     necessary, the removal of the Trustee and the appointment of a successor
     Trustee; and

        (xii)  resolve all questions relating to any matter for which it has
     administrative responsibility.

7.4  Construction and Interpretation.
     ------------------------------- 

     The Committee shall have full authority and discretion to construe and
interpret the terms and provisions of this Plan, which interpretation or
construction shall be final and binding on all parties, including but not
limited to the Company and any Eligible Individual, Participant or Beneficiary.
The Committee shall administer the Plan in a consistent and nondiscriminatory
manner and in full accordance with any and all laws applicable to the Plan.

7.5  Information.
     ----------- 

     To enable the Committee to perform its functions, the Company shall supply
full and timely information to the Committee on all matters relating to the
Compensation of all Participants, their death or other cause of termination, and
such other pertinent facts as the Committee may reasonably require.

                                       16
<PAGE>
 
7.6  Compensation, Expenses and Indemnity.
     ------------------------------------ 

     (a)  Expenses. The members of the Committee shall serve without
          --------
compensation for their services hereunder. All expenses and fees incurred in
connection with the administration of the Plan and the Trust shall be paid by
the Company.

     (b)  Indemnification. To the fullest extent permitted by applicable law,
          ---------------
the Company shall indemnify and save harmless the Committee and each member
thereof, the Board and any delegate of the Committee who is an employee of the
Company against any and all expenses, liabilities and claims, including legal
fees to defend against such liabilities and claims, arising out of their
discharge in good faith of responsibilities under or incident to the Plan, other
than expenses and liabilities arising out of willful misconduct. Without
limiting the generality of the foregoing, the Company shall, promptly upon
request, advance funds to persons entitled to indemnification hereunder to the
extent necessary to defray legal and other expenses incurred in the defense of
such liabilities and claims, as and when incurred. This indemnity shall not
preclude such further indemnities as may be available under insurance purchased
by the Company or provided by the Company under any bylaw, agreement or
otherwise.


                                 ARTICLE VIII.

                                 MISCELLANEOUS


8.1  Unsecured General Creditor.
     -------------------------- 

     Participants and their Beneficiaries, heirs, successors, and assigns shall
have no legal or equitable rights, claims, or interests in any Matching
Investments or in any other property or assets of the Company or the Trust.  No
assets of the Company shall be held as collateral security for the obligations
of the Company under this Plan.  Any and all assets of the Trust shall be and
shall remain unpledged and unencumbered.  The Company's obligation under the
Plan shall be merely that of an unfunded and unsecured promise of the Company to
pay money in the future, and the rights of the Participants and Beneficiaries
shall be no greater than those of unsecured general creditors.  The Company
shall maintain the Trust at all times during the term of the Plan.  All assets
of the Company and the Trust shall be subject to the claims of the Company's
creditors.

                                       17
<PAGE>
 
8.2  Restriction Against Assignment.
     ------------------------------ 

     The Company or the Trustee shall pay all amounts payable hereunder only to
the person or persons designated pursuant to the Plan and not to any other
person or entity. No part of a Participant's Account shall be liable for the
debts, contracts, or engagements of any Participant, his or her Beneficiary, or
successors in interest, nor shall a Participant's Account be subject to
execution by levy, attachment, or garnishment or by any other legal or equitable
proceeding, nor shall any such person have any right to alienate, anticipate,
commute, pledge, encumber, or assign any benefits or payments hereunder in any
manner whatsoever, without the prior written consent of the Committee, which may
be withheld in its sole discretion. If any Participant, Beneficiary or successor
in interest is adjudicated bankrupt or purports to anticipate, alienate, sell,
transfer, assign, pledge, encumber or charge any distribution or payment from
the Plan, voluntarily or involuntarily, the Committee, in its discretion, may
cancel such distribution or payment (or any part thereof) to or for the benefit
of such Participant, Beneficiary or successor in interest in such manner as the
Committee shall direct.

8.3  Withholding.
     ----------- 

     There shall be deducted from each payment made under the Plan all taxes
which are required to be withheld by the Company in respect to such payment.

8.4  Amendment, Modification, Suspension or Termination.
     -------------------------------------------------- 

     (a)  The Committee may amend, modify, suspend or terminate the Plan in
whole or in part, provided that (i) no amendment, modification, suspension or
termination shall have any retroactive effect that would directly or indirectly
reduce any amounts allocated to a Participant's Account or otherwise deprive any
Participant of any benefits already vested under the Plan; (ii) any amendment,
modification, suspension or termination of the Plan that will significantly
increase costs to the Company shall be approved by the Board; (iii) no
amendment, modification, suspension or termination of the Plan shall have the
effect of causing any Participant's Account to be distributed earlier than the
time contemplated by the Plan and the Participant's elections without the prior
written consent of the Participant; (iv) no amendment or modification shall
materially and adversely affect the interests of Participants without the prior
written consent of at least 75% of the Participants (such percentage to be
determined by the number of Participants and not by their percentage interest in
all Account balances); and (v) for a period of two years following a Change in
Control, the Plan may not be amended, modified, suspended or terminated without
the prior written consent of at least 75% of the Participants (such percentage
to be determined by the number of Participants and not by their percentage
interest in all Account balances).

     (b)  Without limiting the generality of Section 8.4(a)(iv) above, any
amendment or modification which directly or indirectly has any of the following
effects shall be deemed to materially and adversely affect the interests of
Participants: (i) any amendment or modification to the defined term "Change in
Control" or any amendment or modification of the consequences under the Plan
resulting from a Change in Control; (ii) any amendment or modification that
would eliminate or reduce the Company's obligations under Sections 3.2 or 3.3;
(iii) any amendment or 

                                       18
<PAGE>
 
modification that would adversely affect the timing or circumstances under which
Participants may receive vested benefits under the Plan; or (iv) any amendment
or modification of this Section 8.4.

     (c)  Notwithstanding clauses (iii) and (iv) of Section 8.4(a) above, the
Company shall have the right (i) to unilaterally amend, modify or suspend the
Plan in the event that the Company determines in good faith that such action is
required in order to maintain or qualify the Trust as a grantor trust under
Section 671 of the Code or to maintain or qualify the Plan as an unfunded plan
maintained primarily to provide deferred compensation for a select group of
management or highly compensated employees as described in Section 201(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), provided,
however, that the Company shall amend, modify or suspend the Plan in such manner
as will have the least onerous overall effect on the vested interests of the
Participants; and (ii) to unilaterally terminate the Plan in the event that the
Company determines in good faith that continued compliance with the Code and
ERISA, as generally contemplated in clause (i) above, is not practicable or, if
practicable, would have a material adverse effect on the Participants.

     (d)  Notwithstanding anything to the contrary in this Section 8.4, the
Company may unilaterally amend the Plan at any time to cause the cessation of
deferrals of Compensation by the Participants in any future Plan Year or to
change the manner or terms of future deferrals in any such future Plan Year;
provided, however, that no such amendment under this Section 8.4(d) may be
effected for a period of two years following any Change in Control.

     (e)  As a condition precedent to the effectiveness of any amendment,
modification, suspension or termination of this Plan, the Trustee and the
Committee shall have received a written opinion of counsel (which counsel and
which opinion shall be satisfactory to each) to the effect that such action is
being validly and properly effected in accordance with the requirements of this
Section 8.4.

     (f)  In the event that this Plan is terminated in accordance with this
Section 8.4, the balance of each Participant's Account shall be distributed to
the Participant (or, in the event of the death of the Participant, to the
Participant's Beneficiary) in a lump sum payment as soon as administratively
feasible and in any event within 90 days of such termination.

8.5  GOVERNING LAW.
     ------------- 

     THE PLAN WILL BE CONSTRUED AND GOVERNED IN ALL RESPECTS IN ACCORDANCE WITH
APPLICABLE FEDERAL LAW AND, TO THE EXTENT NOT PREEMPTED BY SUCH FEDERAL LAW, IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, INCLUDING WITHOUT LIMITATION,
THE TEXAS STATUTE OF LIMITATIONS, BUT WITHOUT GIVING EFFECT TO THE PRINCIPLES OF
CONFLICTS OF LAWS OF SUCH STATE.

                                       19
<PAGE>
 
8.6  Receipt or Release.
     ------------------ 

     Any payment to a Participant or the Participant's Beneficiary in accordance
with the provisions of the Plan shall, to the extent thereof, be in full
satisfaction of all claims against the Committee and the Company with respect to
the amount paid.  The Committee may require such Participant or Beneficiary, as
a condition precedent to such payment, to execute a receipt and release to such
effect.

8.7  Payments on Behalf of Persons Under Incapacity.
     ---------------------------------------------- 

     In the event that any amount becomes payable under the Plan to a person
who, in the sole judgment of the Committee, is considered by reason of physical
or mental condition to be unable to give a valid receipt therefor, the Committee
may direct that such payment be made to any person found by the Committee, in
its sole judgment, to have assumed the care of such person. Any payment made
pursuant to such determination shall, to the extent thereof, constitute a full
release and discharge of the Committee and the Company with respect to the
amount paid.

8.8  Successors and Assigns.
     ---------------------- 

     The Company may not assign its obligations under this Plan, whether by
contract, merger, operation of law or otherwise, unless the assignment is to an
assignee or successor entity (in either case, hereafter called a "Successor")
that has stockholders' equity or the closest equivalent thereto (as measured by
the most recent audited financial statements of such Successor) equal to or
greater than the stockholders' equity of the Company (as measured immediately
prior to the event that causes such entity to become a Successor to the
Company).  The provisions of this Section 8.8 shall be binding upon each and
every Successor to the Company.

8.9  No Employment Rights.
     -------------------- 

     Participation in this Plan shall not confer upon any person any right to be
employed by the Company nor any other right not expressly provided hereunder.

8.10  Headings, etc. Not Part of Agreement.
      ------------------------------------ 

      Headings and subheadings in this Plan are inserted for convenience of
reference only and are not to be considered in the construction of the
provisions hereof.

                                       20
<PAGE>
 
  IN WITNESS WHEREOF, the Company has caused this document to be executed by its
duly authorized officer as of the 21st day of November, 1997.



                                STERLING SOFTWARE, INC.
 
 

                                By:    /s/ Don J. McDermett, Jr.
                                    ------------------------------------
                                Name:  Don J. McDermett, Jr.
                                Title: Senior Vice President and General
                                       Counsel

                                       21
<PAGE>
 
                                 EXHIBIT A



                     Fidelity VIP Equity Income Portfolio
                    Janus Aspen Aggressive Growth Portfolio
                        Janus Aspen Balanced Portfolio
                         Janus Aspen Growth Portfolio
                          Aetna Variable Encore Fund
                    Janus Aspen Worldwide Growth Portfolio
                            Maverick Fund USA, Ltd.

                                       22