Exhibit 4.1


 


2008

OMNIBUS STOCK AND INCENTIVE PLAN

FOR

THOMAS GROUP, INC.


 

















 


TABLE
OF CONTENTS


 


	
  1.

  	
  Purpose

  	
  1

  
	
  2.

  	
  Definitions

  	
  1

  
	
   

  	
  (a)

  	
  “Administrator”

  	
  1

  
	
   

  	
  (b)

  	
  “Agreed Price”

  	
  1

  
	
   

  	
  (c)

  	
  “Applicable Laws”

  	
  1

  
	
   

  	
  (d)

  	
  “Award”

  	
  1

  
	
   

  	
  (e)

  	
  “Board”

  	
  1

  
	
   

  	
  (f)

  	
  “Cause”

  	
  1

  
	
   

  	
  (g)

  	
  “Change in Control”

  	
  1

  
	
   

  	
  (h)

  	
  “Change in Control
  Price”

  	
  2

  
	
   

  	
  (i)

  	
  “Code”

  	
  2

  
	
   

  	
  (j)

  	
  “Committee”

  	
  2

  
	
   

  	
  (k)

  	
  “Common Stock”

  	
  2

  
	
   

  	
  (l)

  	
  “Company”

  	
  2

  
	
   

  	
  (m)

  	
  “Consultant”

  	
  2

  
	
   

  	
  (n)

  	
  “Date of Grant”

  	
  2

  
	
   

  	
  (o)

  	
  “Director”

  	
  2

  
	
   

  	
  (p)

  	
  “Disability”

  	
  2

  
	
   

  	
  (q)

  	
  “Effective Date”

  	
  3

  
	
   

  	
  (r)

  	
  “Eligible Person(s)”

  	
  3

  
	
   

  	
  (s)

  	
  “Employee(s)”

  	
  3

  
	
   

  	
  (t)

  	
  “Fair Market Value”

  	
  3

  
	
   

  	
  (u)

  	
  “Holder”

  	
  3

  
	
   

  	
  (v)

  	
  “Incentive Stock Option”

  	
  3

  
	
   

  	
  (w)

  	
  “Non-Qualified Stock
  Option”

  	
  3

  
	
   

  	
  (x)

  	
  “Option”

  	
  3

  
	
   

  	
  (y)

  	
  “Option Price”

  	
  3

  
	
   

  	
  (z)

  	
  “Performance Award”

  	
  3

  
	
   

  	
  (aa)

  	
  “Performance Measures”

  	
  3

  
	
   

  	
  (bb)

  	
  “Performance Period”

  	
  3

  
	
   

  	
  (cc)

  	
  “Plan”

  	
  3

  
	
   

  	
  (dd)

  	
  “Plan Year”

  	
  3

  
	
   

  	
  (ee)

  	
  “Reserved Shares”

  	
  5

  
	
   

  	
  (ff)

  	
  “Restriction(s)”

  	
  4

  
	
   

  	
  (gg)

  	
  “Restricted Period”

  	
  4

  
	
   

  	
  (hh)

  	
  “Restricted Shares”

  	
  4

  
	
   

  	
  (ii)

  	
  “Restricted Share Award”

  	
  4

  
	
   

  	
  (jj)

  	
  “Restricted Share
  Distributions”

  	
  4

  
	
   

  	
  (kk)

  	
  “SAR”

  	
  4

  
	
   

  	
  (ll)

  	
  “Share(s)”

  	
  4

  
	
   

  	
  (mm)

  	
  “Shareholders”

  	
  4

  
	
   

  	
  (nn)

  	
  “Spread”

  	
  4

  
	
   

  	
  (oo)

  	
  “Separation”

  	
  4

  
	
   

  	
  (pp)

  	
  “Subsidiary”

  	
  4

  
	
   

  	
  (qq)

  	
  “1933 Act”

  	
  4

  
	
   

  	
  (rr)

  	
  “1934 Act”

  	
  4

  
	
   

  	
  (ss)

  	
  “Vested”

  	
  4

  
	
   

  	
  (tt)

  	
  “10% Person”

  	
  4

  
	
  3.

  	
  Award of Reserved
  Shares

  	
  5

  
	
  4.

  	
  Conditions for Grant of
  Awards

  	
  5

  
	
  5.

  	
  Grant of Options

  	
  5

  
	
  6.

  	
  Option Price

  	
  6

  



 

















 


	
  7.

  	
  Exercise of Options

  	
  6

  
	
  8.

  	
  Vesting of Award

  	
  6

  
	
  9.

  	
  Termination of Option
  Period

  	
  6

  
	
  10.

  	
  Acceleration

  	
  7

  
	
  11.

  	
  Adjustment of Reserved
  Shares

  	
  7

  
	
  12.

  	
  Transferability of
  Awards

  	
  8

  
	
  13.

  	
  Issuance of Reserved
  Shares

  	
  9

  
	
  14.

  	
  Exercise of Discretion
  and Administration of the Plan

  	
  9

  
	
  15.

  	
  Tax Withholding

  	
  10

  
	
  16.

  	
  Restricted Share Awards

  	
  10

  
	
  17.

  	
  Performance Awards

  	
  11

  
	
  18.

  	
  Stock Appreciation
  Rights

  	
  11

  
	
  19.

  	
  Section 83(b) Election

  	
  13

  
	
  20.

  	
  Interpretation

  	
  13

  
	
  21.

  	
  Amendment and
  Discontinuation of the Plan

  	
  13

  
	
  22.

  	
  Effective Date and
  Termination Date

  	
  13

  



 
















 


2008
OMNIBUS STOCK AND INCENTIVE PLAN FOR


 


THOMAS
GROUP, INC.


 


1.             Purpose.  The purpose of this Plan is to advance the
interests of Thomas Group, Inc., and increase Shareholder value by
providing additional incentives to attract, retain and motivate those qualified
and competent employees and consultants, upon whose efforts and judgment its
success is largely dependent.


 


2.             Definitions.  As used herein, the following terms shall
have the meaning indicated:


 


(a)           “Administrator” shall mean the person(s) designated
by the Committee to carry out nondiscretionary administrative duties with
respect to the Plan and Awards.


 


(b)           “Agreed
Price” shall
relate to the grant of an Award in the form of an SAR, and shall mean the value
assigned to the Award’s Reserved Shares which will form the basis for
calculating the Spread on the date of exercise of the SAR, which assigned value
shall be the Fair Market Value of such Reserved Shares on the Date of Grant.


 


(c)           “Applicable
Laws” means the
requirements relating to the administration of stock option plans under U.S.
state corporate laws, U.S. federal and state securities laws, and the Code; and
the similar laws of any foreign country or jurisdiction where Options are, or
will be, granted.


 


(d)           “Award” shall mean either an Option, an SAR, a
Restricted Share Award, or a Performance Award, except that where it shall be
appropriate to identify the specific type of Award, reference shall be made to
the specific type of Award; and provided, further, that references to Award
shall be deemed to be references to the written agreement evidencing such
Award, and provided, finally, without limitation, that unless expressly
provided to the contrary in the terms of the Award, in the event of a conflict
between the terms of the Plan and the terms of an Award, the terms of the Plan
are controlling.


 


(e)           “Board” shall mean the Board of Directors of the
Company.


 


(f)            “Cause” shall mean the occurrence of any one or
more of the following: (i) Holder engages in any act of gross misconduct
that is injurious to the Company or its business: (ii) Holder engages in
any act of dishonesty, misconduct, fraud, misappropriation, embezzlement,
theft, moral turpitude or the like; (iii) Holder refuses to perform the
duties or responsibilities properly assigned to him by the Company, or the
dereliction of duty by Holder; or (iv) a material breach or a violation by
Holder of any material provision of Holder’s employment agreement.


 


(g)           “Change
in Control” shall mean the first date, if any, upon which any of the
following occurs:


 


(1)           any
individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act) (a “Person”) is or becomes the “beneficial
owner” (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 50 percent or more of the
combined voting power of the Company’s then outstanding securities; provided, however, that the term “Person”
shall not include (A) the Company, (B) any employee benefits plan of
the Company, (C) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company and acting in such capacity, (D) a
subsidiary of a corporation owned, directly or indirectly, by the Shareholders
in substantially the same proportions as their ownership of voting securities
of the Company, (E) any other person whose acquisitions of shares of
voting securities is approved in advance by a majority of the Board, or (F) General
John T. Chain, Jr. or Edward P. Evans;


 


(2)           individuals
who, as of March 1, 2008, constitute the Board (the “Incumbent Board”)
cease for any reason to constitute more than 50 percent of the members of the
Board; provided, however, that
any individual becoming a director subsequent to the date hereof whose election
or nomination for election by the Company’s Shareholders was approved by a vote
of at least two-thirds of the directors then 


 


1

















 


constituting
the Incumbent Board, shall be considered as though such individual were a member
of the Incumbent Board;


 


(3)           Shareholders
approve a merger, consolidation, or reorganization of the Company with or into
another corporation or other legal person and, as a result of such merger,
consolidation or reorganization, the holders of the Company’s Shares
immediately prior to such transaction do not have the same proportionate
ownership of the common stock of the surviving entity immediately after such
transaction;


 


(4)           Shareholders
approve a sale or disposition of all or substantially all of the Company’s
assets to any other corporation or other legal person and as a result of such
transaction, the holders of the Company’s Shares immediately prior to such
transaction do not have the same proportionate ownership of the common stock of
the surviving entity immediately after such transaction;


 


(5)           Shareholders
approve a plan of liquidation or dissolution of the Company;


 


(6)           a
public announcement is made of a tender or exchange offer by any Person for
fifty percent or more of the outstanding voting securities of the Company, and
the Board approves or fails to oppose that tender or exchange offer in its
statements in Schedule 14D-9 under the Exchange Act; or


 


(7)           in
a Title 11 Bankruptcy Proceeding, there is the appointment of a trustee or the
conversion of a case involving the Company to a case under Chapter 7.


 


(h)           “Change in
Control Price”
shall mean the higher of (i) the highest price per Share paid in any
transaction reported on the NASDAQ or such other exchange or market as is the
principal trading market for the Shares, or (ii) the highest price per
Share paid in any bona fide transaction related to a Change in Control, at any
time during the 60 day period immediately preceding such occurrence; with such
occurrence date to be determined by the Committee.


 


(i)            “Code” shall mean the Internal Revenue Code of
1986, as now or hereafter amended.


 


(j)            “Committee” shall mean the Compensation and
Corporate Governance Committee of the Board, provided, further, that in
granting Performance Awards, Committee shall refer to only those members of the
Compensation and Corporate Governance Committee who are “Outside Directors”
within the meaning of Section 162(m) of the Code.


 


(k)           “Common
Stock” shall mean
the common stock, par value $.01 per Share, of the Company.


 


(l)            “Company” shall mean the Thomas Group, Inc.


 


(m)          “Consultant” shall mean, any person or entity who or
which is engaged by the Company or a Subsidiary to render consulting services
and is compensated for such consulting services, and meets the definition of “employee”
as set forth in the instructions to Form S-8 Registration Statement under
the 1933 Act.


 


(n)           “Date of
Grant” shall mean
the date on which the Committee takes formal action to grant an Award, provided
that it is followed, as soon as reasonably practicable, by written notice to
the Eligible Person receiving the Award.


 


(o)           “Director” shall mean a member of the Board of the
Company.


 


(p)           “Disability” shall mean a Holder’s present incapacity
resulting from an injury or illness (either mental or physical) which, in the
reasonable opinion of the Committee based on such medical evidence as it deems
necessary, will result in death or can be expected to continue for a period of
at least twelve (12) months and will prevent the Holder from performing the
normal services required of the Holder by the Company; provided, however, 


 


2

















 


that such disability did
not result, in whole or in part:  (i) from
chronic alcoholism; (ii) from addiction to narcotics; (ii) from a
felonious undertaking; or (iv) from an intentional self inflicted wound.


 


(q)           “Effective
Date” shall mean March 1,
2008.


 


(r)           “Eligible
Person(s)” shall
mean those persons or entities, as applicable, who are Employees, or
Consultants.


 


(s)           “Employee(s)” shall mean each person who is designated
as an employee on the books of the Company, including, without limitation,
persons so designated who are employed by a Subsidiary.


 


(t)            “Fair
Market Value” per
Share shall be determined by the Committee and, on the date of reference, shall
be the Closing Price on such date, provided, further, that if the actual
transaction involving the Shares occurs at a time when the NASDAQ National
Market System (“NASDAQ”) (or other
exchange on which Shares are traded) is closed for regular trading, then it
shall be the most recent Closing Price; provided, further, that “Closing Price”
means the closing price of the Shares on the NASDAQ as reported in any
newspaper of general circulation, or in the absence of such report, as
reflected on the records of the system on which the Shares are reported or
quoted.


 


(u)           “Holder” shall mean, at each time of reference,
each person with respect to whom an Award is in effect; provided, further, that
following the death of a Holder, it shall refer to the person who succeeds to
the rights of such Holder.


 


(v)            “Incentive
Stock Option”
shall mean an Option that is an incentive stock option as defined in Section 422
of the Code.


 


(w)           “Non-Qualified
Stock Option”
shall mean an Option that is not an Incentive Stock Option.


 


(x)           “Option” (when capitalized) shall mean the grant
of the right to purchase Reserved Shares through the payment of the Option
Price and taking the form of either an Incentive Stock Option or a
Non-Qualified Stock Option; except that, where it shall be appropriate to
identify a specific type of Option, reference shall be made to the specific
type of Option; provided, further, without limitation, that a single Option may
include both Incentive Stock Option and Non-Qualified Stock Option provisions.


 


(y)           “Option
Price” shall mean
the price per Reserved Share which is required to be paid by the Holder in
order to exercise his or her right to acquire the Reserved Share under the
terms of the Option.


 


(z)           “Performance
Award” shall mean
the award which is granted contingent upon the attainment of the performance
objectives during the Performance Period, all as described more fully in Section 17.


 


(aa)         “Performance
Measures” shall
mean one or more of the following: (i) Share price (ii) earnings per
Share, (iii) return on average common equity, (iv) pre-tax income, (iv) pre-tax
operating income, (v) net revenue, (vi) net income, (vii) profits
before taxes, (viii) Fair Market Value per Share, (ix) net asset
value, (x) net asset value per Share, (xi) operating cost reductions, or
(xii) such other similar measures as the Committee may select, and provided
that such measures may be made before or after adjustments as determined by the
Committee at the time of the grant of the Award and designated in writing in
the Award, provided, without limitation, that while a performance standard can
include remaining in the employ of the Company for a period of time, it shall
not be based on merely remaining in the employ of the Company for a specified period
of time.


 


(bb)         “Performance
Period” shall
mean the period selected by the Committee with respect to which the performance
objectives relate or a measured.


 


(cc)         “Plan” shall mean this 2008 Omnibus Stock and
Incentive Plan for Thomas Group, Inc.


 


(dd)         “Plan Year” shall mean the calendar year.


 


3

















 


(ee)         “Reserved
Shares” shall
mean, at each time of reference, the total number of Shares described in Section 3 with respect to which the
Committee may grant an Award, all of which Reserved Shares shall be held in the
Company’s treasury or shall be made available from the Company’s authorized and
unissued Shares.


 


(ff)           “Restriction(s)”  “Restricted”
and similar terms shall mean the restrictions applicable to Reserved Shares
subject to an Award which constitute “a substantial risk of forfeiture” of such
Reserved Shares within the meaning of Section 83(a)(1) of the Code.


 


(gg)         “Restricted
Period” shall
mean the period during which Restricted Shares are subject to Restrictions.


 


(hh)         “Restricted
Shares” shall
mean the Reserved Shares granted to an Eligible Person which are subject to
Restrictions; provided, further, that the Committee may, in its sole
discretion, determine that the Restrictions which otherwise would have been
imposed have been fully satisfied on the Date of Grant by reason of prior
service and/or other considerations, and thus provide that such Restricted
Shares shall be fully Vested on the Date of Grant.


 


(ii)           “Restricted
Share Award”
shall mean the award of Restricted Shares.


 


(jj)           “Restricted
Share Distributions”
shall mean any amounts, whether Shares, cash or other property (other than
regular cash dividends) paid or distributed by the Company with respect to
Restricted Shares during a Restricted Period.


 


(kk)        “SAR” shall mean a stock appreciation right as
defined in Section 18 hereof.


 


(ll)           “Share(s)” shall mean a share or shares of Common
Stock.


 


(mm)       “Shareholders” shall mean persons owning one or more
Shares at the time of reference.


 


(nn)         “Spread” shall mean the difference between the
Option Price, or the Agreed Price, as the case may be, of the Share(s) on
the Date of Grant of the Award, and the Fair Market Value of such Share(s) on
the later date of reference.


 


(oo)         “Separation” shall mean the date on which a Holder
ceases to have an employment relationship with the Company for any reason,
including death or Disability; and provided, further, without limitation, such
employment relationship will cease, in the case of a consultant, upon his or her
ceasing to render services to the Company, as determined by the Committee in
its sole discretion; provided, however, that a Separation will not be
considered to have occurred while an Employee is on sick leave, military leave,
or any other leave of absence approved by the Company, if the period of such
leave does not exceed 90 days, or, if longer, so long as the Employee’s right
to redeployment with the Company is guaranteed either by statute or by
contract.


 


(pp)         “Subsidiary” shall mean, where the Award is an
Incentive Stock Option, a “subsidiary
corporation”, as defined in Section 424(f) of the Code, and where the
Award is not an Incentive Stock Option, any entity which would be a “subsidiary
corporation” as defined in Section 424(f) of the Code if it were a
corporation.


 


(qq)         “1933 Act” shall mean the Securities Act of 1933,
as amended.


 


(rr)         “1934 Act” shall mean the Securities Exchange Act
of 1934, as amended.


 


(ss)         “Vested” and similar terms shall mean the number
of Option Shares which have become nonforfeitable and the portion of an Award
on which the Restrictions have lapsed; provided, further, and without
limitation, that the lapse of Restrictions based on the attainment of
performance objectives may also be a Vesting event to the extent provided in the
Award.


 


(tt)           “10%
Person” shall
mean a person who owns directly (or indirectly through attribution under Section 424(d) of
the Code) at the Date of Grant of an Incentive Stock Option, stock possessing
more than 10% of 


 


4

















 


the total combined voting
power of all classes of voting stock (as defined in Section 424 of the
Code) of the Company on the Date of Grant.


 


3.             Award
of Reserved Shares.


 


(a)           As of the Effective Date, One Million
(1,000,000) Shares shall automatically, and without further action, become
Reserved Shares.  To the extent any Award
shall terminate, expire or be canceled, the Reserved Shares subject to such
Award (or with respect to which the Award is measured), shall remain Reserved
Shares.  Where an Award is settled on a
basis other than the issuance of Reserved Shares, the Reserved Shares which
measured the amount of such Award settlement shall be canceled and no longer
considered Reserved Shares.


 


(b)           Notwithstanding any provision in this Plan
to the contrary, in order to insure that Performance Awards are
performance-based compensation within the meaning of Section 162(m) of
the Code, no person whose compensation may be subject to the limitations on
deductibility under Section 162(m) of the Code shall be eligible for
a grant during a single calendar year of an Award with respect to, or measured
by, more than Seven Hundred Thousand (700,000) Reserved Shares.  The limitation under this Section 3(b) shall be construed
so as to comply with the requirements of Section 162(m) of the Code.


 


4.             Conditions
for Grant of Awards.


 


(a)           Without limiting the generality of the
provisions hereof which deal specifically with each form of Award, Awards shall
only be granted to such one or more Eligible Persons as shall be selected by
the Committee.


 


(b)           In granting Awards, the Committee shall
take into consideration the contribution the Eligible Person has made or may be
reasonably expected to make to the success of the Company and such other
factors as the Committee shall determine. 
The Committee shall also have the authority to consult with and receive
recommendations from officers and other personnel of the Company with regard to
these matters.  The Committee may from
time to time in granting Awards under the Plan prescribe such terms and
conditions concerning such Awards as it deems appropriate, including, without
limitation, relating an Award to achievement of specific goals established by
the Committee or to the continued employment of the Eligible Person for a
specified period of time, provided that such terms and conditions are not
inconsistent with the provisions of this Plan.


 


(c)           Incentive Stock Options may be granted
only to Employees, and all other Awards may be granted to any Eligible Person.


 


(d)           The Plan shall not confer upon any Holder
any right with respect to continuation of employment by the Company, or any
right to provide services to the Company, nor shall it interfere in any way
with his or her right or the Company’s right to terminate his or her employment
at any time.


 


(e)           The Awards granted to Eligible Persons
shall be in addition to regular salaries, pension, life insurance or other
benefits (if any) related to their service to the Company, and nothing herein
shall be deemed to limit the ability of the Company to enter into any other
compensation arrangements with any Eligible Person.


 


(f)            The Committee shall determine in each
case whether periods of military or government service shall constitute a
continuation of employment or service for the purposes of this Plan or any
Award.


 


(g)           Notwithstanding any provision hereof to
the contrary, each Award which in whole or in part involves the issuance of
Reserved Shares may provide for the issuance of such Reserved Shares for
consideration consisting of cash or cash equivalents, or such other
consideration as the Committee may determine, including (without limitation) as
compensation for past services rendered.


 


5.             Grant
of Options.


 


(a)           The Committee may grant Options to
Eligible Persons from time to time, alone, in addition to, or in tandem with,
other Awards granted under the Plan.  An
Option granted hereunder shall be either an Incentive Stock Option or a
Non-Qualified Stock Option, and shall clearly state whether it is (in whole or
in part) an Incentive 


 


5

















 


Stock Option or a
Non-Qualified Stock Option; provided, further, that failure of an Option
designated as an Incentive Stock Option to qualify as an Incentive Stock Option
will not affect its validity, and the portion which does not qualify as an
Incentive Stock Option shall be a Non-Qualified Stock Option.


 


(b)           If both Incentive Stock Options and
Non-Qualified Stock Options are granted to a Holder, the right to exercise, to
the full extent thereof, Options of either type shall not be contingent in
whole or in part upon the exercise of, or failure to exercise, Options of the
other type.


 


(c)           The aggregate Fair Market Value
(determined as of the Date of Grant) of the Reserved Shares with respect to
which any Incentive Stock Option is exercisable for the first time by a Holder
during any calendar year under the Plan and all such plans of the Company (as
defined in Section 424 of the Code) shall not exceed $100,000; provided,
further, without limitation, that any portion of an Option designated as an
Incentive Stock Option which exceeds such $100,000 limit will, notwithstanding
such designation, be a validly granted Non-Qualified Stock Option.


 


(d)           The Committee may at any time offer to
buy out for a payment in cash, an Option previously granted, based on such
terms and conditions as the Committee shall establish and as communicated to
the Holder by the Committee at the time that such offer is made.


 


6.             Option
Price.


 


(a)           The Option Price shall be any price
determined by the Committee which is not less than one hundred percent (100%)
of the Fair Market Value per Share as determined under the terms of the Plan on
the Date of Grant; provided, however, that in the case of an Incentive Stock
Option granted to a 10% Person the Option Price shall not be less than 110% of
the Fair Market Value per Share as determined under the terms of the Plan on
the Date of Grant.  The Committee shall
determine the Fair Market Value per Share.


 


(b)           Unless further limited by the Committee
in any Option, the Option Price may be paid in cash, by certified or cashier’s
check, by wire transfer, by money order, through a Broker Assisted Exercise,
with Shares (but with Shares only if expressly permitted by the terms of the
Option), or by a combination of the above; provided, however, that the
Committee may accept a personal check in full or partial payment.  If the
Option Price is permitted to be, and is, paid in whole or in part with Shares,
the value of the Shares surrendered shall be the Shares’ Fair Market Value on
the date delivered to the Administrator.


 


7.             Exercise
of Options.  An Option
shall be deemed exercised when (i) the Administrator has received written
notice of such exercise in accordance with the terms of the Option, and (ii) full
payment of the aggregate Option Price plus required withholding tax amounts, if
any, described in Section 15,
of the Reserved Shares as to which the Option is exercised has been made.  Separate stock certificates shall be issued
by the Company for any Reserved Shares acquired as a result of exercising an
Incentive Stock Option and a Non-Qualified Stock Option.


 


8.             Vesting
of Award


 


(a)           Without limitation, each Award shall Vest
in whole or in part, and shall expire, according to the terms of the Award.


 


(b)           The Committee, in its sole discretion,
may accelerate the date on which all or any portion of an otherwise unvested
Award shall Vest.


 


9.             Termination
of Option Period.


 


(a)           Unless the terms of an Option expressly
provide for a different date of termination, the unexercised portion of an
Option shall automatically and without notice terminate and become null and
void at the time of the earliest to occur of the following:


 


6

















 


(1)           on
the 90th day following Holder’s Separation for any reason except death,
Disability or for Cause; or


 


(2)           immediately
upon Separation as a result, in whole or in material part, of a discharge for
Cause; or


 


(3)           on
the one hundred-eightieth (180th) day following a Separation by reason of death
or Disability;


 


(4)           in
the case of a 10% Person, on the fifth (5th ) anniversary of the Date of Grant;
or


 


(5)           on
the tenth (10th) anniversary of the Date of Grant.


 


(b)           Notwithstanding any provision of the Plan
to the contrary, in the event of the proposed dissolution or liquidation of the
Company, or in the event of a proposed sale of all or substantially all of the
assets of the Company, or the proposed merger of the Company with or into
another corporation (collectively, the “Transaction”), unless otherwise
expressly provided (by express reference to this Section 9(b)) in the terms of an Option, after the public
announcement of the Transaction, the Committee may, in its sole discretion,
deliver a written notice (“Cancellation
Notice”) to any Holder of an Option, canceling the unexercised
Vested portion (including the portion which becomes Vested by reason of
acceleration), if any, of such Option, effective on the date specified in the
Cancellation Notice (“Cancellation Date”).  Notwithstanding the forgoing, the
Cancellation Date may not be earlier than the last to occur of (i) the
15th day following delivery of the Cancellation Notice, and (ii) the 60th
day prior to the proposed date for the consummation of the Transaction (“Proposed Date”).  Without limitation, the Cancellation Notice
will provide that, unless the Holder elects in writing to waive, in whole or in
part, a Conditional Exercise, the exercise of the Option will be a Conditional
Exercise.  A “Conditional Exercise” shall mean that in the event the
Transaction does not occur within 180 days of the Proposed Date, the exercising
Holder shall be refunded any amounts paid to exercise such Holder’s Option,
such Option will be reissued, and the purported exercise of such Option shall
be null and void ab intitio.


 


10.          Acceleration.  In the event of a Change in Control, in the
sole discretion of the Committee, the Committee may provide that an Award will
become fully or partially exercisable, Vested, or the Restricted Period shall
terminate, as the case may be (hereafter, in this Section 10, such Award shall be “accelerated”), and (ii) thereafter,
in the sole discretion of the Committee, the value of some or all Vested Awards
may be cashed out on the basis of the Change in Control Price, at any time
during the 60-day period immediately preceding any bona fide transaction
related to a Change in Control; provided, further, that if a date prior to such
occurrence is selected for a cash out, any subsequent increase in the Change in
Control Price shall be computed with respect to such Awards which have been
cashed out and will be paid to each Holder on the date of such occurrence, or
as soon thereafter as reasonably possible.


 


11.          Adjustment
of Reserved Shares.


 


(a)           If at any time while the Plan is in
effect or Awards with respect to Reserved Shares are outstanding, there shall
be any increase or decrease in the number of issued and outstanding Shares
through the declaration of a stock dividend or through any recapitalization
resulting in a stock split up, combination or exchange of Shares, then and in
such event:


 


(i)            appropriate
adjustment shall be made in the maximum number of Reserved Shares which may be
granted under Section 3, and
equitably in the Reserved Shares which are then subject to each Award, so that
the same proportion of the Company’s issued and outstanding Common Stock shall
continue to be subject to grant under Section 3,
and to such Award, and


 


(ii)           in
addition, and without limitation, in the case of each Award (including, without
limitation, Options) which requires the payment of consideration by the Holder
in order to acquire Reserved Shares, an appropriate equitable adjustment shall
be made in the consideration (including, without limitation the Option Price)
required to be paid to acquire the each Reserved Share, so that (i) the
aggregate consideration to acquire all of the Reserved Shares subject to the
Award remains the same and, 


 


7

















 


(ii) so far as possible, (and without disqualifying
an Incentive Stock Option) the relative cost of acquiring each Reserved Share
subject to such Award remains the same; and


 


(iii)          in
addition, shall make appropriate adjustment in the Performance Measures for
each Performance Award so as to reasonably insure that the same level of
performance will result in the same Vesting and other material rights and
benefits under the Performance Award.


 


All such determinations
shall be made by the Board in its sole discretion.


 


(b)           The Committee may change, or may direct
the Administrator to change, the terms of Awards outstanding under this Plan
when, in the Committee’s judgment, such adjustments become appropriate by
reason of a corporate transaction (as defined in Treasury Regulation § 1.424
1(a)(1)(ii)); provided, however, that if by reason of such corporate
transaction an Incentive Stock Option is assumed or a new Incentive Stock
Option is substituted therefor, the Committee, or at the direction of the
Committee, the Administrator, may only change the terms of such Incentive Stock
Option such that (i) the excess of the aggregate Fair Market Value of the
Reserved Shares subject to the substituted Incentive Stock Option immediately
after the substitution or assumption, over the aggregate Option Price of such
Reserved Shares at such time, is not more than the excess of the aggregate Fair
Market Value of all Reserved Shares subject to the Incentive Stock Option
immediately before such substitution or assumption over the aggregate Option
Price of such Reserved Shares at such time, and (ii) the substituted
Incentive Stock Option, or the assumption of the original Incentive Stock
Option does not give the Holder additional benefits which such Holder did not
have under the original Incentive Stock Option. 
Without limiting the generality of any other provisions hereof,
including, without limitation, Section 21,
except to the minimum extent, if any, required by Section 424(a) of
the Code with respect to Incentive Stock Options, no change made under the
authority of this Section 11(b) in
the terms of an Award shall alter such Award’s material provisions in a way
that makes such Award less valuable to its Holder.


 


(c)           Except as otherwise expressly provided
herein, the issuance by the Company of shares of its capital stock of any
class, or securities convertible into shares of capital stock of any class,
either in connection with direct sale for adequate consideration, or upon the
exercise of rights or warrants to subscribe therefore, or upon conversion of
Shares or obligations of the Company convertible into such Shares or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to, Reserved Shares subject to Awards granted under the Plan;
provided, further, that such issuance shall require the Committee to make such
adjustments as are required under Section 11(a)(iii).


 


(d)           Without limiting the generality of the
foregoing, except for making the adjustments required under Section 11(a)(iii), the existence of
outstanding Awards with respect to Reserved Shares granted under the Plan shall
not affect in any manner the right or power of the Company to make, authorize
or consummate (1) any or all adjustments, recapitalizations,
reorganizations or other changes in the Company’s capital structure or its
business; (2) any merger or consolidation of the Company; (3) any
issue by the Company of debt securities, or preferred or preference stock which
would rank above the Reserved Shares subject to outstanding Awards; (4) the
dissolution or liquidation of the Company; (5) any sale, transfer or
assignment of all or any part of the assets or business of the Company; or (6) any
other corporate act or proceeding, whether of a similar character or otherwise.


 


12.          Transferability
of Awards.  Each Award
which is an Incentive Stock Option shall not be transferable by the Holder
otherwise than (i) by will or the laws of descent and distribution, or (ii) pursuant
to a domestic relations order as that term is defined in section 414(p)(1)(B) of
the Internal Revenue Code, provided that such order satisfies Section 414(p)(1)(A) of
the Internal Revenue Code; and in the case of each other Award, subject to the
same transfer restrictions in (i) and (ii) except that, if expressly
provided in the Award, it is transferable, in whole or in part, without payment
of consideration (i) to members of the Holder’s Immediate Family, (ii) to
trusts for such Immediate Family members, or (iii) to partnerships whose
only partners are such Immediately Family members, or (iv) except as prohibited
by Rule 16b-3, to a person or other entity for which the Holder is
entitled to a deduction for a “charitable contribution” under Section 170(a)(i) of
the Code (provided, in each such case that no further transfer by any such
permitted transferee(s) shall be permitted); provided, further that,
except for the right to exercise an Award which is subject to exercise, the
Holder retains all of the rights, duties and obligations under the Award
(including, without limitation, satisfaction of the Vesting requirements and
the payment of withholding.)


 


8

















 


13.          Issuance
of Reserved Shares.  No Holder
shall be, or have any of the rights or privileges of, the owner of Reserved
Shares subject to an Award unless and until certificates representing such
Shares shall have been issued and delivered to such Holder or, where Vested
Shares are held by the Company to ensure compliance with specific requirements
of an Award, to the extent expressly provided in the Award.  As a condition of any issuance of Shares, the
Administrator may obtain such agreements or undertakings, if any, as the
Administrator may deem necessary or advisable to assure compliance with any
such law or regulation or Shareholder agreement including, but not limited to,
a representation, warranty or agreement to be bound by any legends that are, in
the opinion of the Administrator, necessary or appropriate to comply with the
provisions of any securities law deemed by the Administrator to be applicable
to the issuance of the Reserved Shares and which are endorsed upon the Share
certificates.


 


Share certificates issued
to the Holder receiving such Reserved Shares who is a party to any Shareholders
agreement, voting trust, or any similar agreement shall bear the legends
contained in such agreements. 
Notwithstanding any provision hereof to the contrary, no Reserved Shares
shall be required to be issued with respect to an Award unless counsel for the  Company shall be reasonably satisfied
that such issuance will be in compliance with applicable federal or state
securities laws.


 


In no event shall the
Company be required to sell or issue Reserved Shares under any Award if the
sale or issuance thereof would constitute a violation of applicable federal or
state securities law or regulation or a violation of any other law or
regulation of any governmental authority or any national securities
exchange.  As a condition to any sale or
issuance of Reserved Shares, the Company may place legends on Reserved Shares,
issue stop transfer orders, and require such agreements or undertakings as the
Company may deem necessary or advisable to assure compliance with any such law
or regulation.


 


Without limitation, the
Company shall use its best efforts to register the Reserved Shares with the
Securities and Exchange Commission.


 


14.          Exercise
of Discretion and Administration of the Plan.


 


(a)           The Plan shall be administered by the
Administrator and, except for the powers expressly reserved to the Board and
the Committee, the Administrator shall have all of the administrative powers
under Plan.  Notwithstanding the
forgoing, except as provided in Section 13,
the Administrator shall only exercise nondiscretionary and purely ministerial
authority hereunder.


 


(b)           The Administrator, from time to time, may
adopt rules and regulations for carrying out the administrative purposes
of the Plan.  The determinations under,
and the interpretations of, any provision of the Plan or an Award by the
Committee (or the Administrator in the exercise of its administrative
authority) shall, in all cases, be in its sole discretion, and shall be final
and conclusive.


 


(c)           Any and all determinations and
interpretations of the Committee (and the Administrator solely in the exercise
of administrative authority) shall be made either (i) by a majority vote
of the members at a meeting duly called, with at least 2 days prior notice, or (ii) without
a meeting, by the written approval of all members.


 


(d)           No member of the Committee, or the
Administrator, shall be liable for any action taken or omitted to be taken by
such member or by any other member of the Committee or by the Administrator
with respect to the Plan, and to the extent of liabilities not otherwise
insured under a policy purchased by the Company, the Company does hereby
indemnify and agree to defend and save harmless any member of the Committee,
and the Administrator, with respect to any liabilities asserted or incurred in
connection with the exercise and performance of their powers and duties
hereunder, unless such liabilities are judicially determined to have arisen out
of such person’s gross negligence, fraud or bad faith.  Such indemnification shall include attorney’s
fees and all other costs and expenses reasonably incurred in defense of any
action arising from such act of commission or omission.  Nothing herein shall be deemed to limit the
Company’s ability to insure itself with respect to its obligations hereunder.


 


(e)           In particular, and without limitation,
except for the authority granted to the Administrator under Section 13, the Committee shall have
the sole authority, consistent with the terms of the Plan:


 


9

















 


(i)            to determine whether and to what
extent Awards are to be granted hereunder to one or more Eligible Persons;


 


(ii)           to
determine the number of Reserved Shares to be covered by each such Award
granted hereunder;


 


(iii)          to
determine the terms and conditions of any Award granted hereunder, and to amend
or waive any such terms and conditions except to the extent, if any, expressly
prohibited by the Plan;


 


(iv)          to
determine whether and under what circumstances an Option may be settled in
Restricted Shares instead of Reserved Shares;


 


(v)           to
determine whether, to what extent, and under what circumstances Awards under
the Plan are to be made, and operate, on a tandem basis vis-a-vis other Awards
under the Plan; and


 


(vi)          to
determine (or to delegate to the Administrator the authority to determine)
whether to permit payment of tax withholding requirements in Reserved Shares.


 


(f)            Without limitation, Committee, and the
Administrator solely with respect to its ministerial duties, shall have the
authority to adopt, alter, and repeal any or all of its rules, guidelines, and
practices with respect to the Plan, and all questions of interpretation, with
respect to the Plan or any Award shall be decided by the Committee or, if
purely ministerial, by the Administrator, as the case maybe, whose decision
shall be final, conclusive and binding upon the Company and each other affected
party.


 


(g)           Without limitation, the Committee in its
sole discretion may limit the ministerial authority granted hereunder to the
Administrator by notifying the Administrator in writing of such limitation.


 


15.          Tax
Withholding.  On or
immediately prior to the date on which a payment is made to a Holder hereunder
or, if earlier, the date on which an amount is required to be included in the
income of the Holder as a result of the lapse of a restriction on an Award, the
Holder shall be required to pay to the Company, in cash, or in Shares (but in
Shares or Reserved Shares only if expressly permitted in the Award, or by
written authorization of the Administrator, and then only in the minimum amount
required to satisfy the minimum withholding requirements with respect to such
Award), the amount (if any) which the Company reasonably determines to be
necessary in order for the Company to comply with applicable federal or state
tax withholding requirements, and the collection of employment taxes; provided,
further, without limitation, that the Committee may require that such payment
be made in cash.


 


16.          Restricted
Share Awards.


 


(a)           The Committee may grant Awards of
Restricted Shares to any Eligible Person, for no cash consideration, for such
minimum consideration as may be required by applicable law, or for such other
consideration as may be specified in the grant.  The terms and conditions
of Restricted Shares shall be specified in the Award.  The Committee, in
its sole discretion, shall determine what rights, if any, the person to whom an
Award of Restricted Shares is made shall have in the Restricted Shares during
the Restriction Period and the Restrictions applicable to the particular Award,
including whether the holder of the Restricted Shares shall have the right to
vote the Restricted Shares and the extent, if any, of Holder’s right to receive
Restricted Share Distributions.  Unless otherwise provided in the
Restricted Share Award, upon the expiration of Restrictions, the Restricted
Shares shall cease to be Restricted Shares.


 


(b)           The Restrictions on Restricted Shares
shall lapse in whole, or in installments, over whatever Restricted Period shall
be selected by the Committee.


 


(c)           Without limitations, the Committee may
accelerate the date on which Restrictions lapse with respect to any Restricted
Shares.


 


10

















 


(d)           During the Restricted Period, the
certificates representing the Restricted Shares, and any Restricted Share
Distributions, shall be registered in the Holder’s name and bear a restrictive
legend disclosing the Restrictions, the existence of the Plan, and the
existence of such Restricted Share Award. 
Such certificates shall be deposited by the Holder with the Company, together
with stock powers or other instruments of assignment, each endorsed in blank,
which will permit the transfer to the Company of all or any portion of the
Restricted Shares, and any assets constituting Restricted Share Distributions,
which shall be forfeited in accordance with the terms of such Restricted Share
Award.  Restricted Shares shall
constitute issued and outstanding Common Stock for all corporate purposes and
the Holder shall have all rights, powers and privileges of a holder of unrestricted
Shares except those that are expressly excluded under the terms of the
Restricted Share Award, and Holder will not be entitled to delivery of the
stock certificates until all Restrictions shall have terminated and after such
period, for any additional period specified in the Award, and the Company will
retain custody of all related Restricted Share Distributions (which will be
subject to the same Restrictions, terms, and conditions as the related
Restricted Shares) until the conclusion of the Restricted Period with respect
to the related Restricted Shares or for such additional period as may be
provided in the Award; and provided, further, that any Restricted Share
Distributions shall not bear interest or be segregated into a separate account
but shall remain a general asset of the Company, subject to the claims of the
Company’s creditors, until the date of their distribution; and provided,
finally, that any material breach of any terms of the Restricted Share Award,
as reasonably determined by the Committee, will cause a forfeiture of both
Restricted Shares and Restricted Share Distributions.


 


17.          Performance
Awards.


 


(a)           Performance Awards during a Plan Year may
be granted to any Eligible Persons.


 


(b)           Without limitation, the Committee’s grant
of Performance Awards may, in its sole discretion, be made in Reserved Shares,
or in cash, or in a combination of Reserved Shares and cash, but the cash
portion of each such Award granted to each Eligible Person may not exceed
$1,000,000 in a Plan Year.


 


(c)           The Committee shall select the Performance
Measures which will be required to be satisfied during the Performance Period
in order to earn the Performance Award.  Such Performance Measures, and
the duration of any Performance Period, may differ with respect to each
Eligible Person, or with respect to separate Performance Awards issued to the
same Eligible Person.  The selected
Performance Measures, the Performance Period(s), and any other conditions to
the Company’s obligation to pay a Performance Award shall be set forth in each
Performance Award on or before the first to occur of (i) the 90th day of
the selected Performance Period, (ii) the first date on which more than
25% of the Performance Period has elapsed, and (iii) the first date, if
any, on which satisfaction of the Performance Measure(s) is no longer
substantially uncertain.


 


(d)           Performance Awards may be payable in a
single payment or in installments but may not be paid in whole or in part prior
to the date on which the Performance Measures are attained, except that such
payment may be accelerated upon the death or Disability of the Eligible Person,
or as a result of a Change in Control, it being understood that if such
acceleration events occur prior to the attainment of the Performance Measures,
the Performance Award will not be exempt from Section 162(m) of the
Code.


 


(e)           The extent to which any applicable
performance objective has been achieved shall be conclusively determined by the
Committee, but may be specifically delegated to the Administrator.  Without limitation, where an Eligible Person
has satisfied the Performance Measures with respect to a Performance Award, if
permitted under the terms of such Performance Award, the Committee, in its sole
discretion, may reduce the maximum amount payable under such Performance Award.


 


18.          Stock
Appreciation Rights.


 


(a)           The Committee shall have authority to
grant (i) an SAR with respect to Reserved Shares, including, without
limitation, Reserved Shares covered by any Option (“Related Option”), or a Performance Award (“Related Performance Award”).  An SAR granted with respect to a Related
Option or Related Performance Award must be granted on the Date of Grant of
such Related Option or Related Performance Award.


 


(1)           For
the purposes of this Section 18,
the following definitions shall apply:


 


11

















 


(i)          The
term “SAR” shall mean a right
granted under this Plan, including, without limitation, a right granted in
tandem with an Award, that shall entitle the Holder thereof to the number of
Reserved Shares which have a Fair Market Value equal to the SAR Spread payable
as described in Section 18(a)(ii).


 


(ii)         The
term “SAR Spread” shall mean with
respect to each SAR an amount equal to the product of (1) the excess of (A) the
Fair Market Value per Share on the date of exercise, over (B) (x) if
the SAR is granted in tandem with an Option, then the Option Price per Reserved
Share of the Related Option, (y) if the SAR is granted in tandem with a
Performance Award, the Agreed Price under the Related Performance Award, or (z) if
the SAR is granted by itself with respect to a designated number of Reserved
Shares, the Agreed Price which, without limitation, is the Fair Market Value of
the Reserved Shares on the Date of Grant, in each case multiplied by (2) the
number of Reserved Shares with respect to which such SAR is being exercised;
provided, however, without limitation, that with respect to any SAR granted in
tandem with an Incentive Stock Option, in no event shall the SAR Spread exceed
the amount permitted to be treated as the SAR Spread under applicable Treasury
Regulations or other legal authority without disqualifying the Option as an
Incentive Stock Option.


 


(b)           To exercise the SAR the Holder shall:


 


(i)            Give
written notice thereof to the Company, specifying the SAR being exercised and
the number or Reserved Shares with respect to which such SAR is being
exercised, and


 


(ii)           If
requested by the Company, deliver within a reasonable time the agreement
evidencing the SAR being exercised and, if applicable, the Related Option
agreement, or Related Performance Award agreement, to the Secretary of the
Company who shall endorse or cause to be endorsed thereon a notation of such
exercise and return all agreements to the Holder.


 


(c)           As soon as practicable after the exercise
of an SAR, the Company shall transfer to the Holder Reserved Shares having a
Fair Market Value on the date the SAR is exercised equal to either the SAR
Spread; provided, however, without limiting the generality of Section 15, that the Company, in its sole
discretion, may withhold from such transferred Reserved Shares any amount
necessary to satisfy the Company’s minimum obligation for federal and state
withholding taxes with respect to such exercise.


 


(d)           An SAR may be exercised only if and to
the extent that it is permitted under the terms of the Award which, in the case
of a Related Option, shall be only when such Related Option is eligible to be
exercised.


 


(e)           Upon the exercise or termination of a
Related Option, or the payment or termination of a Related Performance Award,
the SAR with respect to such Related Option or Related Performance Award
likewise shall terminate.


 


(f)            An SAR shall be transferable (i) only
to the extent, if any, provided in the agreement evidencing the SAR, or (ii) if
granted with respect to a Related Option, or Related Performance Award, only to
the extent, if any, that such Related Option, or Related Performance Award, is
transferable, and under the same conditions.


 


(g)           Each SAR shall be on such terms and
conditions not inconsistent with this Plan as the Committee may determine.


 


(h)           The Holder shall have no rights as a
stockholder with respect to the related Reserved Shares as a result of the
grant of an SAR.


 


(i)            With respect to a Holder who, on the date
of a proposed exercise of an SAR, is an officer (as that term is used in Rule 16a-1
promulgated under the 1934 Act or any similar rule which may subsequently
be in effect), such proposed exercise may only occur as permitted by Rule 16b-3,
including without limitation paragraph 


 


12

















 


(e)(3)(iii) (or any
similar rule which may subsequently be in effect promulgated pursuant to Section 16(b) of
the 1934 Act).


 


19.          Section 83(b) Election.  If as a result of receiving an Award, a Holder
receives Restricted Shares, then such Holder may elect under Section 83(b) of
the Code to include in his or her gross income, for his or her taxable year in
which the Restricted Shares are transferred to such Holder, the excess of the
Fair Market Value (determined without regard to any Restriction other than one
which by its terms will never lapse), of such Restricted Shares at the Date of
Grant, over the amount (if any) paid for the Restricted Shares.  If the
Holder makes the Section 83(b) election described above, the Holder
shall (i) make such election in a manner that is satisfactory to the
Administrator, (ii) provide the Administrator with a copy of such
election, (iii) agree to promptly notify the Company if any Internal
Revenue Service or state tax agent, on audit or otherwise, questions the
validity or correctness of such election or of the amount of income reportable
on account of such election, and (iv) agree to pay the withholding amounts
described in Section 15.


 


20.          Interpretation.


 


(a)           If any provision of the Plan is held
invalid for any reason, such holding shall not affect the remaining provisions
hereof, but instead the Plan shall be construed and enforced as if such
provision had never been included in the Plan.


 


(b)           THIS PLAN
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS.


 


(c)           Headings contained in this Agreement are
for convenience only and shall in no manner be construed as part of this Plan.


 


(d)           Any reference to the masculine, feminine,
or neuter gender shall be a reference to such other gender as is appropriate.


 


(e)           Nothing contained in this Plan shall
prevent the Board from adopting other or additional compensation arrangements,
subject to Shareholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in specific
cases.


 


21.          Amendment
and Discontinuation of the Plan.  The Board, or the Committee (subject to the
prior written authorization of the Board), may from time to time amend the Plan
or any Award; provided, however, that (except to the extent provided in Section 9(b)) no such amendment may,
without approval by the Shareholders, (a) increase the number of Reserved
Shares or change the class of Eligible Persons, (b) permit the granting of
Awards which expire beyond the maximum 10-year period described in Section 9(a)(5), or (c) make any
change for which applicable law or regulatory authority (including the
regulatory authority of the NASDAQ or any other market or exchange on which the
Common Stock is traded) would require Shareholder approval or for which
Shareholder approval would be required under Section 162(m) of the
Code to secure complete deductibility of all compensation paid as a result of
Awards; and provided, further, that no amendment or suspension of the Plan or
any Award issued hereunder shall, except as specifically permitted in this Plan
or under the terms of such Award, substantially impair any Award previously
granted to any Holder without the consent of such Holder.


 


22.          Effective
Date and Termination Date.  The
Plan shall be effective as of its Effective Date, and shall terminate on the
tenth anniversary of such Effective Date; provided, further, without
limitation, that unless otherwise expressly provided in an Award, the
termination of the Plan shall not terminate an Award which is outstanding on
such date.


 


13