2010
Executive Incentive Plan


    


    Background
and Objectives

    


    The
overall executive compensation strategy of Sanders Morris Harris Group Inc.
(“SMH” or the
“Company”) is
to provide key executives with targeted total cash pay opportunities that
generally are competitive with median total cash pay opportunities in wealth and
asset management companies of similar size.  The two primary elements
of the SMH cash compensation program are base salary and the 2010 Executive
Incentive Plan (the “Plan” or “EIP”).  SMH
base salaries are designed to be broadly competitive with industry standards and
are used to reward an executive’s job performance over time.  All
awards under the Plan are determined and awarded at the sole discretion of the
Compensation Committee of the SMH Board of Directors (the “Committee”).

    


    The Plan
provides annual incentive compensation opportunity for key executives for
achieving critical financial and other goals of and for SMH.  The
following document defines Plan eligibility, the size of potential award
opportunities, performance measurement, form and timing of award payments,
administrative guidelines, and definitions for ongoing Plan
management.

    


    The Plan
does not include potential equity-based awards, which are covered by the
Company’s separate Restricted Stock Unit Plan a sub-plan under the SMHG
Long-Term Incentive Plan..

    


    Capitalized
terms that are used but not defined in the Plan shall have the meaning ascribed
to them in the SMHG Long-Term Incentive Plan.

    


    Eligibility

    


    Employees
who are eligible to participate in the Plan (“Participants”) will
be proposed by the Chairman of the Board, Chief Executive Officer, President,
and Chief Financial Officer of the Company (the “Plan Committee”) and
approved by the Compensation Committee at the beginning of each
performance/award period.  Generally, Participants will be selected
from key executives who primarily are responsible for the annual growth and
profitability of SMH, i.e., generally senior managers and
officers.  For 2010, 22 senior officers and executives are proposed as
Participants.

    


    Targeted
Award Opportunities

    


    At the
beginning of each fiscal year, each Participant will be assigned a targeted
award opportunity proposed by the Plan Committee and approved by the Committee
that can increase or decrease in value, based on actual performance
achievement.  Targeted award opportunities for Participants for 2010
are shown in Exhibit
1.  Plan targeted award opportunities may be re-defined from
time to time by the Plan Committee, as modifications are made in SMH’s executive
compensation strategy.

    


    Within 90
days after the end of each fiscal year, each Participant’s salary rate at the
end of the prior fiscal year (just ended) will be multiplied by his or her
actual EIP award percentage earned (determined by applying the performance
measures set forth below) to determine the dollar value of the award for the
prior performance cycle.

    


    Performance
Measures

    


    Four Plan
financial performance measures, totaling 80% by weight of all performance
measures, are proposed for the 2010 performance period, as follows:

    


    
      	
              ·

            	
              Adjusted cash flow from
      operations1 (“ACF”) — weighted 30%
      (target — 110% of 2009 ACF).

            


    

     

    
      
        

      

      
        	
                1

              	
                Cash
      flow from operations will be adjusted by excluding from the calculation
      any cash flow items related to (a) discontinued operations of the Company,
      (b) marketable securities owned, (c) securities sold, not yet purchased,
      and (d) other non-recurring and extraordinary
  items.

              


      

    


    
      
         


      

      
         


        
          

        

      

      
         


      

    

     


    
      	
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              2010
      Executive Incentive Plan

            	 
      


    

    


    
      	
              ·

            	
              Client investment
      results — weighted 20% (target — change in 60/402
      in 2010).

            


    

    
      	
              ·

            	
              Net new client money —
      weighted 20% (target— 4% increase over 2009 year-end client
      assets).

            


    

    
      	
              ·

            	
              Expenses adjusted for
      non-recurring and extraordinary items as a percentage of revenue —
      weighted 10% (target — no greater than
2009).

            


    

    


    The Plan
performance targets will be proposed by the Plan Committee and approved by the
Committee as soon as possible after the beginning of each fiscal
year.

    


    The final
20% portion of the performance measures will be determined on a discretionary
basis by the Committee for the Chief Executive Officer and by the Plan Committee
for the other Participants and will be based on the degree to which the
executive has mastered the primary duties and responsibilities of his or her
present job.

    


    SMH
performance calculations for the Plan shall exclude nonrecurring and
extraordinary items, which are defined at the sole discretion of the
Committee.  Performance goals for EIP awards may be adjusted during
the year if a major change occurs in the Company’s operations or capital
structure, e.g., an acquisition or merger.  In addition to the EIP
targets, the Committee and the Plan Committee jointly will establish minimum
acceptable and outstanding Plan goals, which are currently as
follows:

    


    
      	
              ·

            	
              Minimum Acceptable — The
      SMH performance level at or below which no
      incentive will be paid is 75% of the EIP
      performance measure target;

            


    

    
      	
              ·

            	
              Target — The SMH
      performance level where the Plan adjustment factor is 1X, with “X” equal
      to the target incentive, is 100% of the EIP
      performance measure target; and

            


    

    
      	
              ·

            	
              Outstanding — The SMH
      performance level at or above which the Plan adjustment factor is 2X, with
      “X” equal to the target incentive is 125% of the EIP
      performance measure target.

            


    

    


    EIP
awards will be interpolated for actual performance falling closest to the
nearest 5% increment between any of the foregoing goals.

    


    Exhibit 2 presents
the performance matrix for calculating EIP awards.  This performance
matrix may be revised by the Plan Committee with approval of the Committee if
the Company’s business strategy and performance focus changes.

    


    Form
and Timing of Awards

    


    EIP award
calculations will be finalized within 90 days after fiscal year
end.  All EIP awards will be paid in cash in quarterly installments in
the year immediately following a performance cycle, as follows:

    


    
      	
              ·

            	
              25%
      of the final award on February 15,
2011.

            


    

    
      	
              ·

            	
              25%
      of the final award on April 15,
2011.

            


    

    
      	
              ·

            	
              25%
      of the final award on August 15,
2011.

            


    

    
      	
              ·

            	
              25%
      of the final award on November 30,
2011.

            


    

    


    Each
installment will be deemed to be a separate payment for purposes of
Section 409A of the Internal Revenue Code of 1986, as amended and the
regulations thereunder (“Section 409A”).
 In no event will any payment of an award be made subsequent to December
31, 2011.

    


    Administrative
Guidelines and Definitions

     

    The Plan
operates at the discretion of the Committee.  The Committee may
exercise considerable discretion and judgment in interpreting the Plan, and
adopting, from time to time, rules and regulations that govern the
administration of the Plan. Once the Compensation Committee approves Plan
participants, award targets, and performance goals, the Plan Committee is
delegated authority to administer the Plan. All decisions of the Committee and
the Plan Committee are final, conclusive, and binding on all parties, including
the Company, its stockholders, and employees.

     

    
      
        

      

    

    
      
        
          	
                  2

                	
                  Investment
      performance of portfolio invested 60% in Standard & Poors 500 Index
      and 40% in Barclay’s Capital U.S. Aggregate Bond Index from January 1,
      2010 to December 31,
2010.

                


        

      

    


    
      
         


      

      
         


        
          

        

      

      
         


      

    

     


    
      	
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              2010
      Executive Incentive Plan

            	 
      


    

    


    
      	
              ·

            	
              Employee Termination
      —

            


    

    


    Termination during 2010.
Except as expressly set forth below, in the event a Participant’s
employment with SMH terminates for any reason prior to the end of the workday on
December 31, 2010, such Participant will be ineligible for any award under
the Plan. In other words, if a Participant is employed according to Company
records through the end of the workday on December 31, 2010, the
Participant will, subject to the following provisions, be eligible for any award
earned under the Plan for 2010.

        

    Any
Participant (or his or her estate) who ceases to be employed by the Company
prior to January 1, 2011, due to the Participant’s death, Disability, or
Retirement (as such terms are defined in the SMHG Long-Term Incentive Plan),
subject to the Participant’s execution of a waiver and release of claims in a
form and manner satisfactory to the Company, will be eligible to receive a EIP
award based on an adjusted annual base salary amount, but otherwise in the same
manner, to the same extent, and at the same time as the Participant would have
received such EIP award if such Participant’s employment had continued through
December 31, 2010 (i.e., based on achievement of
applicable performance measures).  The Participant’s annual base
salary will be the result of the following formula: X × Y/12,
where:

    


    X = the
Participant’s annual base salary as in effect as of the date of termination of
employment; and

    
      Y = the
number of calendar months the Participant was actively employed by the Company
during 2010, rounded up for any partial month.

    

    


    Termination on or after
January 1, 2011. Except as expressly set forth below, a Participant
who ceases to be employed by SMH for any reason on or after January 1, 2011,
will forfeit any unpaid EIP award.  Any Participant (or his or her
estate) who ceases to be employed by the Company subsequent to December 31,
2010, but prior to November 30, 2011, due to the Participant’s death,
Disability, or Retirement, subject to the Participant’s execution of a waiver
and release of claims in a form and manner satisfactory to the Company, will be
eligible to be paid all unpaid EIP awards in the same manner, to the same
extent, and at the same time as the Participant would have been paid such EIP
awards if such Participant’s employment had continued through November 30,
2011.

    


    
      	
              ·

            	
              New Hires — Employees
      must have a minimum of six months of service to be eligible for an award,
      unless waived by the Plan Committee.  EIP awards for new hires
      are earned on a pro-rata basis, based on their date of
      employment.

            


    

    
      	
              ·

            	
              Base Salary Rate — Base
      salary for EIP award calculations shall be the annualized base rate in
      effect on December 31, 2010.

            


    

    
      	
              ·

            	
              Support Documentation —
      The Chief Financial Officer of the Company shall be responsible for
      maintaining all necessary support documentation regarding performance and
      bonus calculations under the Plan.

            


    

    


    Amendment

    


    The
Committee may at any time suspend, terminate, modify, waive, or amend any
or all of the provisions of this Plan. In addition, the terms applicable to any
Participant will be subject in their entirety to the terms of any offer letter
or other document to which the Participant has agreed. The terms of such offer
letter or other document, if contrary to the terms of the Plan, shall govern the
rights of the corresponding Participant.

     

    Governing
Law

    


    The Plan
is governed by the laws of the State of Texas.

    


    Withholding
Taxes

    


    The
Company has the right to make such provisions as it deems necessary or
appropriate to satisfy any obligations it may have under law to withhold
federal, state or local income or other taxes incurred by reason of payments
pursuant to the Plan.

    


    Section
409A

    


    The Plan
is intended to comply with the applicable requirements of
Section 409A and will be limited, construed, and interpreted in
accordance with such intent. Notwithstanding anything to the contrary in the
Plan, to the extent that any amount paid hereunder in connection with a
termination of employment constitutes deferred compensation under
Section 409A and is paid to a “specified employee” as defined in
Section 409A, the payment of such amount will be delayed for six
months.


    
      
         


      

      
         


        
          

        

      

      
         


      

    

     


    
      	
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      Executive Incentive Plan

            	 
      


    

    


    Non-transferability
of Awards

    


    No award
under this Plan, and no rights or interests therein, will be assignable or
transferable by a Participant (or legal representative).

    


    Effective
Date

    


    This Plan
is effective as of January 1, 2010, and continues until terminated,
suspended, modified, or amended by the Committee.



    
      
         


      

      
         


        
          

        

      

      
         


      

    

     

    
      	
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              2010
      Executive Incentive Plan

            	 
      

 

    Exhibit
1

    


    Proposed
2010 Participants and Award Targets


    


    
      
        
          	
                  Title

                	 
      	
                  Targeted
      Award

                
	
                  SMH
      Chairman/Chief Executive Officer

                	 
      	
                  50%
      of SMH salary

                
	
                  SMH
      President (w/Sales responsibility)

                	 
      	
                  50%
      of SMH salary

                
	
                  SMH
      EVP High Net Worth

                	 
      	
                  80%
      of SMH salary

                
	
                  SMH
      Chief Compliance Officer

                	 
      	
                  50%
      of SMH salary

                
	
                  SMH
      Corporate Chief Financial Officer

                	 
      	
                  40%
      of SMH salary

                
	
                  SMH
      Legal Counsel

                	 
      	
                  40%
      of SMH salary

                
	
                  SMH
      EVP Corporate

                	 
      	
                  40%
      of SMH salary

                
	
                  SMH
      Controller

                	 
      	
                  40%
      of SMH salary

                
	
                  SMH
      IT Director

                	 
      	
                  35%
      of SMH salary

                
	
                  SMH
      SVP Operations

                	 
      	
                  20%
      of SMH salary

                
	
                  SMH
      Administrative Manager

                	 
      	
                  20%
      of SMH salary

                
	
                  SMH
      VP Human Resources

                	 
      	
                  20%
      of SMH salary

                
	
                  EFS
      Chairman/Chief Executive Officer

                	 
      	
                  100%
      of EFS salary

                
	
                  EFS
      Chief Compliance Officer

                	 
      	
                  50%
      of EFS salary

                
	
                  EFS
      VP Technology

                	 
      	
                  35%
      of EFS salary

                
	
                  EFS
      Chief Financial Officer (w/Division responsibility)

                	 
      	
                  30%
      of EFS salary

                
	
                  EFS  Chief
      of Staff (w/Operations responsibility)

                	 
      	
                  25%
      of EFS salary

                
	
                  EFS
      VP Broker Operations

                	 
      	
                  20%
      of EFS salary

                
	
                  EFS
      Chief Marketing Officer

                	 
      	
                  20%
      of EFS salary

                
	
                  EFS
      VP Communications

                	 
      	
                  20%
      of EFS salary

                
	
                  EFS
      Executive Assistant

                	 
      	
                  20%
      of EFS salary

                
	
                  EFS
      Director Human Resources/Training

                	
                    

                	
                  15%
      of EFS salary

                


        

      

    
 

    
      
         


      

      
         


        
          

        

      

      
         


      

    


    
      	
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      Executive Incentive Plan

            	 
      


    

     

    Exhibit
2

    


    Proposed
2010 Performance Goals and Weights

    Versus
Award Opportunity Earned

    


    
      
        
          	
                  Level of

                  Performance

                  Achievement

                	
                  Adjusted

                  Cash Flow

                  from

                  Operations

                	
                  Client

                  Investment

                  Results

                	
                  Net New

                  Client

                  Money

                	
                  Expenses

                  as

                  Percentage

                  of Revenue

                	
                  %  of Target

                  Award Earned

                	
                  Discretionary

                
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                  (Weight)

                	
                  (30%)

                	
                  (20%)

                	
                  (20%)

                	
                  (10%)

                	 
      	
                  (20%)

                
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                  Outstanding

                	
                  125%

                	
                  125%

                	
                  125%

                	
                  75%

                	
                  200%

                	
                  100%

                
	 
      	
                  120%

                	
                  120%

                	
                  120%

                	
                  80%

                	
                  180%

                	
                  

                
	 
      	
                  115%

                	
                  115%

                	
                  115%

                	
                  85%

                	
                  160%

                
	 
      	
                  110%

                	
                  110%

                	
                  110%

                	
                  90%

                	
                  140%

                
	 
      	
                  105%

                	
                  105%

                	
                  105%

                	
                  95%

                	
                  120%

                
	
                  Target

                	
                  100%

                	
                  100%

                	
                  100%

                	
                  100%

                	
                  100%

                
	 
      	
                  95%

                	
                  95%

                	
                  95%

                	
                  105%

                	
                  80%

                
	 
      	
                  90%

                	
                  90%

                	
                  90%

                	
                  110%

                	
                  60%

                
	 
      	
                  85%

                	
                  85%

                	
                  85%

                	
                  115%

                	
                  40%

                
	 
      	
                  80%

                	
                  80%

                	
                  80%

                	
                  120%

                	
                  30%

                
	
                  Min
      Acceptable

                	
                  75%

                	
                  75%

                	
                  75%

                	
                  125%

                	
                  20%

                
	 
      	
                  >75%

                	
                  >75%

                	
                  >75%

                	
                  <125%

                	
                  0%

                	
                  0%

                


        

      

    
 

    
      
         


      

      
         


        
          

        

      

      
         


      

    

     

    
      	
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              2010
      Executive Incentive Plan

            	 
      


    

     

    Exhibit
3

    


    Sample
Award Calculation

    


    Assumptions:

    Executive’s
current salary is $200,000.

    Targeted
Plan award is 40% of salary or $80,000.

    Targeted
SMH performance goals achieved:

    
      	
              ·

            	
              110%
      of Cash Flow target, providing 140% of targeted award
    segment;

            


    

    
      	
              ·

            	
              100%
      of Client Investment Results target, providing 100% of targeted award
      segment;

            


    

    
      	
              ·

            	
              90%
      of Net New Client Money target, providing 60% of targeted award
      segment;

            


    

    
      	
              ·

            	
              90%
      of Expenses as Percentage of Revenue target, providing 140% of targeted
      award segment; and

            


    

    
      	
              ·

            	
              Plan
      Committee awards 100% of targeted amount based on personal goal
      achievement.

            


    

    


    
      
        
          
            
              	
                      Calculations:

                    	 
	
                      Current
      Salary:

                    	 	$	200,000	 
	
                      Incentive
      Target Percent:

                    	 	 	x
      .40	 
	
                      Incentive
      Target Amount:

                    	 	$	80,000	 


            

          

        

      

    

    


    
      
        
          
            	
                    A.

                  	
                    Component for SMH Cash
      Flow:

                  	 	 	 	 	 	 	 	 	 
	 
      	
                    Incentive
      Target:

                  	 	$	80,000	 	 	 	 	 	 	 
	 
      	
                    Cash
      Flow Performance Adjustment:

                  	 	 	x
      1.40	 	 	 	 	 	 	 
	 
      	
                    Non-weighted
      Cash Flow Allocation:

                  	 	 	 	 	 	$	112,000	 	 	 	 
	 
      	
                    Cash
      Flow Weighting:

                  	 	 	 	 	 	 	x
      .30	 	 	 	 
	 
      	
                    Weighted
      SMH Cash Flow Component:

                  	 	 	 	 	 	 	 	 	 	$	33,600	 
	 
      	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
                    B.

                  	
                    Component for Client Investment
      Results (CIR):

                  	 	 	 	 	 	 	 	 	 	 	 	 
	 
      	
                    Incentive
      Target:

                  	 	$	80,000	 	 	 	 	 	 	 	 	 
	 
      	
                    CIR
      Performance Adjustment:

                  	 	 	x
      1.00	 	 	 	 	 	 	 	 	 
	 
      	
                    Non-weighted
      CIR Allocation:

                  	 	 	 	 	 	$	80,000	 	 	 	 	 
	 
      	
                    CIR
      Weighting:

                  	 	 	 	 	 	 	x
      .20	 	 	 	 	 
	 
      	
                    Weighted
      CIR Component:

                  	 	 	 	 	 	 	 	 	 	$	16,000	 
	 
      	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
                    C.

                  	
                    Component for Net New Client
      Money:

                  	 	 	 	 	 	 	 	 	 	 	 	 
	 
      	
                    Incentive
      Target:

                  	 	$	80,000	 	 	 	 	 	 	 	 	 
	 
      	
                    New
      Client Money Performance Adjustment:

                  	 	 	x
      .60	 	 	 	 	 	 	 	 	 
	 
      	
                    Non-weighted
      New Client Money Allocation:

                  	 	 	 	 	 	$	48,000	 	 	 	 	 
	 
      	
                    New
      Client Money Weighting:

                  	 	 	 	 	 	 	x
      .20	 	 	 	 	 
	 
      	
                    Weighted
      Net New Client Money Component:

                  	 	 	 	 	 	 	 	 	 	$	9,600	 
	 
      	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
                    D.

                  	
                    Component for Non-Recurring
      & Extraordinary Item (NREI) Expense Ratio:

                  	 	 	 	 	 	 	 	 	 	 	 	 
	 
      	
                    Incentive
      Target:

                  	 	$	80,000	 	 	 	 	 	 	 	 	 
	 
      	
                    NREI
      Performance Adjustment:

                  	 	 	x
      1.40	 	 	 	 	 	 	 	 	 
	 
      	
                    Non-weighted
      NREI Allocation:

                  	 	 	 	 	 	$	112,000	 	 	 	 	 
	 
      	
                    NREI
      Weighting:

                  	 	 	 	 	 	 	x
      .10	 	 	 	 	 
	 
      	
                    Weighted
      NREI Expense Ratio Component:

                  	 	 	 	 	 	 	 	 	 	$	11,200	 
	 
      	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
                    E.

                  	
                    Component for Personal Goal
      (PG) Achievement:

                  	 	 	 	 	 	 	 	 	 	 	 	 
	 
      	
                    Incentive
      Target:

                  	 	$	80,000	 	 	 	 	 	 	 	 	 
	 
      	
                    PG
      Performance Adjustment:

                  	 	 	x
      1.00	 	 	 	 	 	 	 	 	 
	 
      	
                    Non-weighted
      PG Allocation:

                  	 	 	 	 	 	$	80,000	 	 	 	 	 
	 
      	
                    PG
      Weighting:

                  	 	 	 	 	 	 	x
      .20	 	 	 	 	 
	 
      	
                    Weighted
      Personal Goal Component:

                  	 	 	 	 	 	 	 	 	 	$	16,000	 
	 
      	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
                    F.

                  	
                    Total Plan
      Award:

                  	 	 	 	 	 	 	 	 	 	$	86,400	 
	 
      	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
                    G.

                  	
                    Payout
      Schedule:

                  	 	 	 	 	 	 	 	 	 	 	 	 
	 
      	
                    First
      Installment on February 15, 2011

                  	 	 	 	 	 	$	21,600	 	 	 	 	 
	 
      	
                    Second
      Installment on April 15, 2011:

                  	 	 	 	 	 	$	21,600	 	 	 	 	 
	 
      	
                    Third
      Installment on August 15, 2011:

                  	 	 	 	 	 	$	21,600	 	 	 	 	 
	 
      	
                    Fourth
      Installment on November 30, 2011:

                  	 	 	 	 	 	$	21,600	 	 	 	 	 
	 
      	 
      	 	 	 	 	 	 	 	 	 	$	86,400