<PAGE> 1         





                          SECURITIES AND EXCHANGE COMMISSION
                               Washington, D. C.  20549

                                      Form 10-Q
                                 ____________________

     (Mark One)
     (X)           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                        OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended September 30, 1998

                                          OR

     ( )          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                        OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the transition period from        to       

                            Commission file number 0-12757

                              TMBR/SHARP DRILLING, INC.               
                (Exact name of registrant as specified in its charter)

                     TEXAS                                    75-1835108     
         (State or other jurisdiction of                   (I.R.S. Employer
         incorporation or organization)                   Identification No.)

              4607 WEST INDUSTRIAL BLVD.
                    MIDLAND, TEXAS                                79703   
         (Address of principal executive offices)               (Zip Code)

               Registrant's telephone number (area code) (915) 699-5050

          Indicate  by check  mark  whether the  registrant  (1) has  filed  all
     reports  required to  be filed  by Section  13 or  15(d) of  the Securities
     Exchange Act  of 1934 during the  preceding 12 months (or  for such shorter
     period that the registrant was required to file such reports),  and (2) has
     been subject to such filing requirements for the past 90 days.

                              Yes   X    No      

          Indicate  the number  of shares  outstanding of  each of  the issuer's
     classes of common stock, as of the latest practicable date.

          Common Stock, $.10 Par Value         Outstanding at November 3, 1998
                (Title of Class)                         4,710,886








<PAGE> 2
                              TMBR/SHARP DRILLING, INC.
                                   FORM 10-Q REPORT

                                        INDEX



                                                                        Page No.

     Part I.  Financial Information (Unaudited)

       Item 1.  Financial Statements

                Balance Sheets, September 30, 1998 and 
                  March 31, 1998 . . . . . . . . . . . . . . . . . . . .   3

                Statements of Operations, Three Months
                  Ended September 30, 1998 and 1997 . .  . . . . . . . .   5

                Statements of Operations, Six Months
                  Ended September 30, 1998 and 1997  . . . . . . . . . .   7

                Statements of Stockholders'
                  Equity   . . . . . . . . . . . . . . . . . . . . . . .   9

                Statements of Cash Flows, Six Months
                  Ended September 30, 1998 and 1997 . .  . . . . . . . .  10

                Notes to Financial Statements  . . . . . . . . . . . . .  11

       Item 2.  Management's Discussion and Analysis of Financial
                  Condition and Results of Operations  . . . . . . . . .  16


     Part II.  Other Information

       Item 1.  Legal Proceedings  . . . . . . . . . . . . . . . . . . .  18

       Item 4.  Submission of Matters to a Vote of
                  Security Holders . . . . . . . . . . . . . . . . . . .  19

       Item 6.  Exhibits and Reports on Form 8-K . . . . . . . . . . . .  19











                                         -2-





<PAGE> 3
     PART ONE - FINANCIAL INFORMATION (UNAUDITED)

     Item 1.  FINANCIAL STATEMENTS


                              TMBR/SHARP DRILLING, INC.
                                    BALANCE SHEETS
                  September 30, 1998 (Unaudited) and March 31, 1998
                        (In thousands, except per share data)



                                                 September 30,
                                                     1998            March 31,  
       ASSETS                                     (Unaudited)          1998     
       ------                                    -------------      -----------

     Current assets:
       Cash and cash equivalents                   $  2,662         $   1,623 
       Marketable securities                             87                87 
       Trade receivables,
         net of allowance for doubtful
           accounts of $1,135 at both 
           September 30, and March 31, 1998           6,186             8,149 
       Inventories                                      123                82 
       Deposits                                         104                73 
       Other                                            572               664 
                                                    --------          --------
         Total current assets                         9,734            10,678 
                                                    --------          --------

     Property and equipment, at cost:
       Drilling equipment                            48,858            48,691 
       Oil and gas properties, based on
         successful efforts accounting               16,840            15,452 
       Other property and equipment                   3,750             3,786 
                                                    --------          --------
                                                     69,448            67,929 

     Less accumulated depreciation,
       depletion and amortization                   (55,496)          (54,132)
                                                    --------          --------

         Net property and equipment                  13,952            13,797 
                                                    --------          --------

     Other assets                                       174               173 
                                                    --------          --------
         Total assets                              $ 23,860          $ 24,648 
                                                    ========          ========

     See accompanying notes to financial statements.

                                         -3-





<PAGE> 4
                              TMBR/SHARP DRILLING, INC.
                                    BALANCE SHEETS
                  September 30, 1998 (Unaudited) and March 31, 1998
                        (In thousands, except per share data)


                                                September 30, 
                                                    1998            March 31, 
     LIABILITIES AND STOCKHOLDERS' EQUITY        (Unaudited)          1998    
     ------------------------------------       ------------       -----------

     Current liabilities:
       Trade payables                             $   2,541          $  2,622 
       Accrued workers' compensation                    239               411   
       Other                                            869             1,655  
                                                    --------          --------
          Total current liabilities                   3,649             4,688 
                                                    --------          --------


     Contingencies

     Stockholders' equity:
       Common stock, $0.10 par value
         Authorized, 50,000,000 shares;
         issued 5,979,625 shares at 
         September 30, and  March 31, 1998              598               598 
       Additional paid-in capital                    69,429            69,429 
       Accumulated deficit                          (49,666)          (49,917)
       Treasury stock-common, 1,268,739
         shares at September 30, and 
         March 31, 1998, at cost                       (150)             (150)
                                                    --------          --------
          Total stockholders' equity                 20,211            19,960 
                                                    --------          --------
          Total liabilities and
            stockholders' equity                  $  23,860         $  24,648 
                                                    ========          ========

     See accompanying notes to financial statements.













                                         -4-





<PAGE> 5
                              TMBR/SHARP DRILLING, INC.
                               STATEMENTS OF OPERATIONS
              Three months ended September 30, 1998 and 1997 (Unaudited)
                        (In thousands, except per share data)




                                                      Three months ended
                                                         September 30,  
                                                 -----------------------------
                                                    1998              1997    
                                                 -----------       -----------
       Revenues:
          Contract drilling                     $     3,293       $     9,253 
          Oil and gas                                   506               424 
                                                 -----------       -----------
              Total revenues                          3,799             9,677 
                                                 -----------       -----------

       Operating costs and expenses:
          Contract drilling                           2,515             6,070 
          Oil and gas production                        144               216 
          Dry holes and abandonments                    392               124 
          Depreciation, depletion and 
            amortization                                685               882 
          General and administrative                    562               512 
                                                 -----------       -----------
              Total operating costs
                and expenses                          4,298             7,804 
                                                 -----------       -----------
              Operating (loss) income                  (499)            1,873 
                                                 -----------       -----------

       Other income:
          Interest                                       51                35 
          Gain on sales of assets                        16                -- 
          Other, net                                     --               935 
                                                 -----------       -----------
          Total other income                             67               970 
                                                 -----------       -----------
       Net (loss) income before income
          tax benefit (provision)                      (432)            2,843 
       Benefit (provision) for
          income taxes                                    9               (60)
                                                 -----------       -----------

       Net (loss) income                         $     (423)      $     2,783 
                                                 ===========       ===========

     See accompanying notes to financial statements.





                                         
                                         -5-

<PAGE> 6
                              TMBR/SHARP DRILLING, INC.
                               STATEMENTS OF OPERATIONS
              Three months ended September 30, 1998 and 1997 (Unaudited)
                        (In thousands, except per share data)




                                                      Three months ended 
                                                         September 30,   
                                                 -----------------------------
                                                    1998              1997
                                                 -----------       -----------

     Net (loss) income per common share: 

       Basic                                  $       (.09)       $       .61 
       Diluted                                        (.09)               .54 
                                                 ===========       ===========

     Weighted average number of 
       common shares outstanding:

       Basic                                      4,710,886         4,579,244 
       Diluted                                    4,710,886         5,113,145 
                                                 ===========       ===========

     See accompanying notes to financial statements.



























                                         
                                         -6-


<PAGE> 7
                              TMBR/SHARP DRILLING, INC.
                               STATEMENTS OF OPERATIONS
               Six months ended September 30, 1998 and 1997 (Unaudited)
                        (In thousands, except per share data)




                                                       Six months ended
                                                         September 30,  
                                                 -----------------------------
                                                    1998              1997    
                                                 -----------       -----------
       Revenues:
          Contract drilling                      $    9,563       $    18,454 
          Oil and gas                                 1,004               953 
                                                 -----------       -----------
              Total revenues                         10,567            19,407 
                                                 -----------       -----------

       Operating costs and expenses:
          Contract drilling                           7,102            12,023 
          Oil and gas production                        319               415 
          Dry holes and abandonments                    587               134 
          Depreciation, depletion and 
            amortization                              1,405             1,711 
          General and administrative                  1,011               945 
                                                 -----------       -----------
              Total operating costs
                and expenses                         10,424            15,228 
                                                 -----------       -----------
              Operating income                          143             4,179 
                                                 -----------       -----------

       Other income:
          Interest                                       93                67 
          Gain on sales of assets                        20                84 
          Other, net                                     --               948 
                                                 -----------       -----------
          Total other income                            113             1,099 
                                                 -----------       -----------
       Net income before income
          tax provision                                 256             5,278 
       Provision for income taxes                        (5)             (110)
                                                 -----------       -----------

       Net income                                 $     251       $     5,168 
                                                 ===========       ===========

     See accompanying notes to financial statements.






                                         -7-


<PAGE> 8
                              TMBR/SHARP DRILLING, INC.
                               STATEMENTS OF OPERATIONS
               Six months ended September 30, 1998 and 1997 (Unaudited)
                        (In thousands, except per share data)




                                                       Six months ended 
                                                         September 30,   
                                                 -----------------------------
                                                    1998              1997
                                                 -----------       -----------

     Net income per common share: 

       Basic                                      $     .05       $      1.14 
       Diluted                                          .05              1.02 
                                                 ===========       ===========

     Weighted average number of 
       common shares outstanding:

       Basic                                      4,710,886         4,523,826 
       Diluted                                    5,311,259         5,050,339 
                                                 ===========       ===========

     See accompanying notes to financial statements.



























                                         
                                         -8-


<PAGE> 9


                              TMBR/SHARP DRILLING, INC.

                          STATEMENTS OF STOCKHOLDERS EQUITY

                 Six Months Ended September 30, 1998 (Unaudited) and

                         Year Ended March 31, 1998 (Audited)

                                   (In thousands)




<TABLE>                                                                                          
<CAPTION>                                                                                                  
                                       Common Stock     Additional                 Treasury Stock       Total
                                      --------------     Paid-In     Accumulated   --------------    Stockholders'
                                      Shares  Amount     Capital       Deficit     Shares  Amount       Equity
                                      ------  ------     -------     -----------   ------  ------    ------------
                 <S>                  <C>     <C>       <C>           <C>           <C>    <C>         <C>
                 Balance, 
                   March 31, 1998     5,980   $ 598     $ 69,429      $(49,917)     1,270  $(150)      $19,960

                 Net income              --      --           --           251         --     --           251
                                      -----    -----     --------      --------    -------  -----       -------

                 Balance, 
                   September 30,  
                     1998             5,980   $ 598     $ 69,429      $(49,666)     1,270  $(150)      $20,211
                                      =====    =====     ========      ========    =======  =====       =======
</TABLE>
          See accompanying notes to financial statements.





















                                         -9-



<PAGE> 10
                               TMBR/SHARP DRILLING, INC.
                               STATEMENTS OF CASH FLOWS
           For the six months ended September 30, 1998 and 1997 (Unaudited)
                                    (In thousands)


                                                  Six months ended September 30,
                                                  ------------------------------
                                                    1998                 1997
                                                  ---------            ---------
    Cash flows from operating activities:
      Net income                                    $  251             $  5,168 
      Adjustments to reconcile net income
      to net cash provided by
          operating activities:
           Depreciation, depletion and
            amortization                             1,405                1,711 
           Dry holes and abandonments                  587                  134 
           Gain on sales of assets                     (20)                 (84)
           Changes in assets and liabilities:
            Trade receivables                        1,963               (2,795)
            Deposits                                   (31)                 (32)
            Inventories and other assets                50                  (39)
            Trade payables                             (81)               2,314 
            Accrued interest and other liabilities    (958)                (583)
                                                   --------             --------
             Total adjustments                       2,915                  626 
                                                   --------             --------
             Net cash provided by
              operating activities                   3,166                5,794 

    Cash flows from investing activities:
      Additions to property and equipment           (2,196)              (4,661)
      Proceeds from sales of property and
        equipment                                       69                  171 
                                                   --------             --------
             Net cash required by
              investing activities                  (2,127)              (4,490)

    Cash flows from financing activities:
      Issuance of common stock                          --                  730 
                                                   --------             --------
             Net cash provided by
              financing activities                      --                  730 
                                                   --------             --------
             Net increase in cash
              and cash equivalents                   1,039                2,034 

    Cash and cash equivalents at beginning
      of period                                      1,623                1,048 
                                                   --------             --------
    Cash and cash equivalents at end of 
      period                                       $ 2,662              $ 3,082 
                                                   ========             ========

    See accompanying notes to financial statements.

                                         -10-

<PAGE> 11

                              TMBR/SHARP DRILLING, INC.
                            NOTES TO FINANCIAL STATEMENTS



          The amounts presented in the  balance sheet as of March 31,  1998 were
     derived from the  Company's audited  financial statements  included in  its
     Form  10-K Report  filed  for the  year  then  ended.   The  notes to  such
     statements are incorporated herein by reference.
      

     (1) Management's Representation

          In  the opinion  of management,  the accompanying  unaudited financial
     statements contain all adjustments (all of which are  of a normal recurring
     nature)  necessary to present fairly the Company's financial position as of
     September 30,  1998 and March 31,  1998, the results of  operations for the
     three and six months ended  September 30, 1998 and 1997, and the cash flows
     for the six month periods ended September 30, 1998 and 1997.

          While the Company believes that the disclosures presented are adequate
     to  make the  information  not  misleading,  it  is  suggested  that  these
     condensed financial  statements be read  in conjunction with  the financial
     statements and the related notes in the Company's Annual Report on Form 10-
     K for the fiscal year ended March 31, 1998.


     (2) Summary of Significant Accounting Policies

     Marketable Securities

          Under  SFAS No. 115,  "Accounting  for Certain Investments in Debt and
     Equity  Securities",   marketable securities,  such as  those owned  by the
     Company,  are  classified as  available-for-sale securities  and are  to be
     reported  at market value, with unrealized gains  and losses, net of income
     taxes,  excluded  from earnings  and reported  as  a separate  component of
     stockholders'  equity.  The market  value of these  securities at September
     30,  1998  was  not materially  different  from  the  historical cost,  and
     therefore, no unrealized gains or losses have been recorded.

     Inventories

          Inventories  consist  primarily of  casing  and tubing.    The Company
     values its inventories at  the lower of  cost or estimated net  recoverable
     value using the specific identification method.

     Property and Equipment

          Drilling  equipment is  depreciated  on  a units-of-production  method
     based  on the  monthly utilization  of the  equipment.   Drilling equipment
     which  is  not utilized  during  a  month is  depreciated  using a  minimum
     utilization rate  of approximately  twenty-five percent.   Estimated useful
     lives range  from four  to eight  years.  Other  property and  equipment is
     depreciated using  the straight-line method of  depreciation with estimated


                                         -11-

<PAGE> 12

     useful lives of three to seven years.

          Oil  and gas properties are accounted for using the successful efforts
     method.   Accordingly, the costs  incurred to acquire  property (proved and
     unproved),  all  development costs  and  successful  exploratory costs  are
     capitalized,  whereas  the  costs  of unsuccessful  exploratory  wells  are
     expensed.  Geological and  geophysical costs, including seismic  costs, are
     charged to  expense when  incurred.   In cases  where the  Company provides
     contract drilling services  related to oil and  gas properties in which  it
     has  an  ownership interest,  the  Company's proportionate  share  of costs
     related to  these properties  is capitalized as  stated above,  net of  the
     Company's working  interest  share of  profits  from the  related  drilling
     contracts.   Capitalized costs  of  undeveloped properties,  which are  not
     depleted until proved reserves  can be associated with the  properties, are
     periodically reviewed for possible impairment. 

          Depletion, depreciation  and amortization  of capitalized oil  and gas
     property costs was  provided using the units-of-production method  based on
     estimated proved or proved  developed oil and gas reserves,  as applicable,
     of the respective property units.

          Major  renewals and  betterments  are capitalized  in the  appropriate
     property accounts while the cost  of repairs and maintenance is  charged to
     operating expense in  the period  incurred.  For  assets sold or  otherwise
     retired, the cost and related accumulated  depreciation amounts are removed
     from the accounts and any resulting gain or loss is recognized.

     Net Income (Loss) Per Common Share

          On  April  1,  1997,  the  Company  adopted   Statement  of  Financial
     Accounting  Standards No.  128  ("SFAS  128")  "Earnings Per  Share"  which
     superseded Accounting  Principles Board Opinion No. 15 ("APB 15") "Earnings
     Per  Share". SFAS 128 simplifies earnings per share ("EPS") calculations by
     replacing  previously  reported  primary  EPS  with   basic  EPS  which  is
     calculated by  dividing reported earnings available  to common shareholders
     by  the weighted average shares  outstanding.  No  dilution for potentially
     dilutive  securities is included in  basic EPS.   Previously reported fully
     diluted EPS is called  diluted EPS which includes all  potentially dilutive
     securities.
      

     (3)  Debt

          Line of Credit

          On January 16, 1996,  the Company entered into  a loan agreement  with
     Norwest  Bank  Texas,  N.A.  ("Norwest") that  provided  for  a  $3,000,000
     revolving line of credit secured by the Company's drilling rigs and related
     equipment, accounts receivable and inventory.  Borrowings under the line of
     credit bore  interest at the  Norwest Bank Minnesota,  National Association
     base  rate and the interest was payable monthly.  The loan agreement had an
     extended maturity  date of April 15,  1998, at which time,  the outstanding
     principal and all of the accrued and unpaid interest were due and payable.



                                         -12-

<PAGE> 13

          In August, 1996, the Company entered into a second loan agreement with
     Norwest.  The  second loan  agreement provided for  a $2,000,000  revolving
     line of credit secured by substantially  all of the Company's producing oil
     and  gas properties.  Borrowings under the  line of credit bore interest at
     the  Norwest base rate and  the interest was payable  monthly.  The line of
     credit had an extended maturity date of April 15, 1998,  at which time, the
     principal  amount outstanding  was due  and payable,  plus any  accrued and
     unpaid interest.   The borrowings under  both loan agreements were  paid in
     full in February, 1997.

          On May  26, 1998,   the  Company renewed and  extended the  prior loan
     agreements  with Norwest.  The amended and restated loan agreement provides
     for a revolving  line of credit equal  to the lesser of  $5,000,000 or one-
     third of the  "borrowing base amount".  The borrowing  base is redetermined
     by Norwest  within 45  days after  the end  of each fiscal  quarter of  the
     Company.   At  September  30, 1998,  the  borrowing base  was  $21,249,950.
     Borrowings under the line  of credit are secured by  the Company's drilling
     rigs  and related equipment, accounts receivable and inventory.  Borrowings
     bear interest at Norwest's base rate and interest is payable  monthly.  The
     Company did not have any borrowings outstanding at September 30, 1998.  All
     amounts outstanding under the loan agreement mature on May 26, 2000.


     (4)  Stockholders' Equity
      
          1984 Stock Option Plan

          In  August 1984, the Company  adopted the 1984  Stock Option Plan (the
     "Plan") which initially  authorized 375,000 shares of  the Company's common
     stock to be issued as either  incentive stock options or nonqualified stock
     options.   This Plan was amended in  August 1986 to increase the authorized
     shares to 475,000  shares of the Company's common stock.   In January 1988,
     the Plan was amended to  reduce the option price on certain  options issued
     prior to March 31,  1986, to reflect the then current  fair market value of
     the Company's common stock.  The  Plan provides that options may be granted
     to key employees or  directors for various terms  at a price not less  than
     the fair market value of  the shares on the date of the grant.   Options to
     purchase 100,000 shares of common stock are currently outstanding under the
     Plan.   All of  these options are  earned and exercisable  at September 30,
     1998.  No additional shares are available for grant as the  Plan expired by
     its own terms in August 1994.   The options that were granted prior to  the
     expiration of the  Plan, and which are  outstanding, remain subject to  the
     terms of the Plan.

          1994 Stock Option Plan

          In July  1994, the  Company adopted  its 1994  Stock Option  Plan (the
     "1994 Plan")  which  authorized the  grant  of options  to purchase  up  to
     750,000 shares of the Company's common stock.  These options  may be issued
     as  either incentive or nonqualified stock options.  The 1994 Plan provides
     that  options may  be  granted to  key  employees (including  officers  and
     directors who are also key employees) for various terms at a price not less
     than the fair market  value of the shares on  the date of grant.   The 1994
     Plan was ratified and approved by the stockholders at  the Company's annual


                                         -13-

<PAGE> 14

     meeting of  stockholders held  on  August 30,  1994.   In  September  1998,
     options outstanding under the  plan were amended to reduce the option price
     to $4.125 per share.

          On  September  3,  1996,   the  Company  granted  465,000  shares   of
     nonqualified stock  options to  key employees  under  the 1994  Plan.   The
     following  sets forth  certain  information  concerning these  nonqualified
     options.

                                          Number          Option Price
                                            of         -------------------
                                          Shares       Per Share     Total
                                          ------       -------------------

          Outstanding March 31, 1998     337,500       $ 7.75     $ 2,615,625

          Forfeited                       (5,000)      $ 7.75     $   (38,750)
          Reduction in option price          --        $(3.625)   $(1,205,312)
                                         -------         -----      ---------

          Outstanding September 30,
            1998                         332,500        $4.125     $1,371,563
                                         =======         =====      =========

          All of the nonqualified stock options granted on September 3, 1996 are
     earned and exercisable as of May 1, 1997.

          On  September 1, 1998, the Company granted 240,000 shares of incentive
     stock options at a  price of $4.125 to  key employees under the  1994 Plan.
     On  March 9,  1999, 140,000  shares will  be earned  and exercisable.   The
     remaining 100,000 shares will become earned and exercisable over a three 
     year period.

          1998 Stock Option Plan

          In  September  1998,  the  Company  adopted,  subject  to  shareholder
     approval, its 1998 Stock Option Plan (the "1998 Plan") which authorizes the
     grant of options  to purchase up to 750,000 shares  of the Company's common
     stock.   These options may  be issued as  either incentive or  nonqualified
     stock  options.  The 1998 Plan provides that  options may be granted to key
     employees or directors from various terms at a price not less than the fair
     market value of  the shares  on the  date of  grant.   The Company  granted
     options to purchase 50,000 shares of common stock to  two outside directors
     under the 1998 Plan.  These nonqualified options were granted at $4.125 per
     share and  are exercisable on  the date  on which the  shareholders of  the
     Company approve and adopt the 1998 Plan.

          In connection with a private placement completed in February 1997, the
     Company issued and currently  has outstanding a warrant to  purchase 36,250
     common shares  with an exercise  price of $13.20  per share.   This warrant
     became exercisable on February 17, 1998  and expires on February 17,  2002.


                                         


                                         -14-

<PAGE> 15

     
     (6)  Employee Benefits

          Effective  May  1,  1995,   the  Company  established  the  TMBR/Sharp
     Drilling,  Inc. Employee Retirement Plan  which is a  401(K) profit sharing
     plan.   Company contributions are discretionary and have been currently set
     at  25% for  each dollar  contributed by  each eligible  employee, limited,
     however, to a maximum of 5% of the employee's compensation.

     (7)  Contingencies

          The Company is a defendant in various lawsuits generally incidental to
     its business.  The Company does not believe that the ultimate resolution of
     such litigation will have  a significant effect on the  Company's financial
     position or results of operations.

     (8)  Recently Issued Accounting Standards

          In  June  1997,  the FASB  issued  SFAS  No.  131, "Disclosures  about
     Segments of  an Enterprise  and  Related Information",   which  establishes
     standards  for the way public  enterprises are to  report information about
     operating  segments  in  annual   financial  statements  and  requires  the
     reporting  of  selected information  about  operating  segments in  interim
     financial  reports issued to shareholders.   SFAS No.  131 also establishes
     standards for  related disclosures about products  and services, geographic
     areas,  and  major  customers.   SFAS  No.  131  is effective  for  periods
     beginning after December 15, 1997, at which time the Company will adopt the
     provision.   This statement is not anticipated to have a material impact on
     the Company's financial disclosures.

























                                         -15-



<PAGE> 16
     Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
              RESULTS OF OPERATIONS

          In  addition  to  historical  information,  this  discussion  contains
     certain  forward-looking statements  that  involve risks  and uncertainties
     about the business, long-term  strategy, financial condition and  future of
     the Company.   Factors that may  affect future results are  included in the
     discussion  below and in Part I,  Items 1 and 2 of  the Company's Form 10-K
     for the year ended  March 31, 1998.  Although the Company believes that the
     expectations  reflected in such  forward-looking statements are reasonable,
     it  can give no  assurance that such  expectations will prove  to have been
     correct,  and actual  results could differ  materially from  those forward-
     looking statements.

     Results of Operations

          Total revenues were $3,799,000  and $10,567,000 for the three  and six
     months ended  September 30, 1998  which represents  a 61% and  46% decrease
     from the same periods in 1997.  Operating expenses as a percent of revenues
     were  113%  and 99% for the  three and six months ended  September 30, 1998
     versus  81% and 78% for the same periods  of the prior year.  The operating
     results were  negatively affected by a decrease in demand for the Company's
     contract  drilling services which resulted in a decrease in rig utilization
     rates.   The Company has also  experienced a decrease in  the average price
     received  for its contract drilling  services.  Rig  utilization rates were
     29% and 38% for the three and six months ended September  30, 1998 compared
     to 83% and 82% in the same periods in 1997.

          Oil and  gas revenues increased  by approximately   19% for  the three
     months ended September 30, 1998 and increased by approximately   5% for the
     six  months ended September 30, 1998.   In fiscal 1998,  the Company sold a
     group  of fourteen  wells in  Ector County,  Texas.   These wells  had high
     lifting costs on an equivalent barrel of oil ("EBO") basis.  As a result of
     this sale,  oil and gas  production expenses for  the three and  six months
     ended September  30, 1998  decreased by  33% and  23%, respectively,   when
     compared to the same periods in the prior year.  

          In  fiscal  1998,  the  Company   recognized  a  non-cash  charge   of
     approximately $3.1 million due to a writedown of the carrying  value of its
     oil  and gas  properties.   As a  result of  this writedown,  depreciation,
     depletion and amortization  expense decreased by approximately  22% and 18%
     respectively when compared to the three and six months  ended September 30,
     1997.

          In September  1997, the  Company recognized approximately  $659,000 as
     miscellaneous income relating to the settlement of a lawsuit.  In addition,
     the Company  recorded approximately  $236,000 of miscellaneous  income from
     the sale of junk drill bits in the same quarter.

          Net working capital was $6.1 million at September 30, 1998 compared to
     $6.0 million at March 31, 1998.  




                                         -16-



<PAGE> 17

     Liquidity and Capital Resources

          In  January 1996,  the  Company entered  into  a loan  agreement  with
     Norwest providing for a  revolving credit facility (the  "Credit Facility")
     originally maturing on January 15, 1998.  The aggregate principal amount of
     the  Company's borrowings outstanding at  any one time  under the revolving
     facility  was limited  to the lesser  of $3.0  million or  one-third of the
     borrowing  base amount  then in  effect.   The  borrowing  base amount  was
     redetermined  by Norwest monthly.   The Credit Facility  was established to
     finance the Company's purchases  of drill pipe and oil and  gas exploration
     activities.  Interest  only was  payable monthly and  the entire  principal
     amount was due and payable on January 15, 1998, which was extended to April
     15, 1998.  The Credit Facility bore interest at Norwest's base rate and was
     secured by substantially all of the Company's accounts receivable, drilling
     rigs and related equipment.  

          In August 1996, the Company entered into a second loan  agreement with
     Norwest.   This second loan agreement provided for a $2.0 million revolving
     line  of credit (the "Line of Credit")  secured by substantially all of the
     Company's  producing oil  and  gas  properties.   The  Line  of Credit  was
     established to finance the Company's oil and gas exploration activities and
     for  general corporate  purposes.   The  Line  of Credit  bore interest  at
     Norwest's base rate,  with interest only to be paid  monthly.  The original
     maturity date of February  15, 1998, was  extended to April  15, 1998.   At
     that  time the principal amount then outstanding  was due and payable, plus
     any accrued and unpaid interest. 

          On  May 26, 1998, the  Company renewed, extended  and consolidated the
     prior  loan facilities  with  Norwest.    The  amended  and  restated  loan
     agreement provides  for a revolving line  of credit equal to  the lesser of
     $5.0 million  or one-third of the  "borrowing base amount".   The borrowing
     base is redetermined by Norwest within 45 days after the end of each fiscal
     quarter of  the Company.   At September  30, 1998, the  borrowing base  was
     $21.2  million.   Borrowings under the  line of  credit are  secured by the
     Company's  drilling rigs  and  related equipment,  accounts receivable  and
     inventory.  Borrowings bear interest at Norwest's base rate and interest is
     payable monthly.   The Company did  not have any borrowings  outstanding at
     September 30, 1998.  All amounts outstanding under the loan facility mature
     on May 26, 2000.  

          The Company  anticipates that funds  for its  capital expenditures  in
     fiscal 1999 will be available from  a combination of sources, including (i)
     borrowings under the line of credit, (ii) funds raised through issuances of
     equity  or debt  securities in  public or  private transactions,  and (iii)
     internally generated funds.

     Trends and Prices

          Although  the Company  achieved record  growth, profitability  and rig
     utilization in  fiscal 1998, the  contract drilling  industry is  currently
     experiencing decreased  demand and  declining prices for  contract drilling
     services due to  the declines in oil  and gas prices.  The  Company has and

                                         -17-




<PAGE> 18
     will continue to be affected by oil and gas industry  conditions but cannot
     predict  either  the  future level  of  demand  for  its contract  drilling
     services or future conditions in the contract drilling industry.

          In  recent years,  oil and  gas prices  have been  extremely volatile.
     Prices  are affected  by market  supply and  demand factors  as well  as by
     actions of state and  local agencies, the U.S. and  foreign governments and
     international cartels.  The Company has no way of accurately predicting the
     supply of and  demand for oil and gas, domestic  or international political
     events or  the effects of  any such factors  on the prices received  by the
     Company for its oil and gas.


     Year 2000 Issues

          The Company has reviewed the  effect of the year 2000 issues  relating
     to  its  information systems.    At September  30,  1998,  the Company  had
     completed  updating  and  testing  its information  systems  for  year 2000
     compliance and  has determined that  the year 2000 issues directly  related
     to its information systems will not have a material impact on its business,
     operations  nor its financial position.  The cost of planning, implementing
     and testing the Company's information systems was minimal and immaterial to
     its operations as a whole. 

           The Company believes that its greatest risk for year 2000 issues that
     may adversely effect the Company's operations is in the area of third party
     computer systems that are not  year 2000 compliant and which, as  a result,
     may cause interruptions  in the Company's  normal business operations.  The
     Company  does not currently have  any information concerning  the year 2000
     compliance status of its  vendors, customers and local, state,  federal and
     other U.S. government  entities.  In  the event that  any of the  Company's
     significant vendors,  customers and local,  state, federal  and other  U.S.
     government  entities  do not  successfully  and  timely  achieve year  2000
     compliance, the Company's business,  operations or financial position could
     be adversely affected. With respect to the uncertainty of the impact on the
     Company of third party vendors, suppliers and customers not being year 2000
     compliant,  the Company intends to  send inquiries to  third parties having
     significant relationships with the  Company.  Depending upon the  responses
     to the  inquiries and the outcome of the Company's assessment of such third
     parties'  state of  readiness  for the  year  2000, the  Company  will then
     address remediation  alternatives.    The Board  of Directors has  formed a
     committee to assist the Company in its year 2000 efforts.  


     PART TWO - OTHER INFORMATION

     Item 1.  Legal Proceedings

          The Company is a defendant in various lawsuits generally incidental to
     its business.  The Company does not believe that the ultimate resolution of
     such litigation will have  a significant effect on the  Company's financial
     position or results of operations.

                                         -18-





<PAGE> 19

     Item 4.  Submission of matters to a vote of security holders.

          The  Company's annual meeting of  stockholders was held  on August 28,
     1998.   At  the meeting,  the following  persons were  elected to  serve as
     Directors of the Company until the 1999 annual  meeting of stockholders and
     until  their respective  successors are  duly qualified  and elected:   (1)
     Thomas C. Brown, (2) Donald  L. Evans, (3) David N. Fitzgerald  and (4) Joe
     G. Roper.

          Set forth below is a tabulation of votes with respect  to each nominee
     for Director:

<TABLE>
<CAPTION>
                                                Votes       Votes
                                                Cast        Cast       Votes                         Broker
                      Name                      For         Against    Withheld     Abstentions      Non-Votes
                      ----                      -----       -------    --------     -----------      ---------
                      <S>                     <C>           <C>         <C>           <C>             <C>
                      Thomas C. Brown         4,156,633     18,171        --            --              --  
                      Donald L. Evans         4,156,659     18,145        --            --              --  
                      David N. Fitzgerald     4,156,659     18,145        --            --              -- 
                      Joe G. Roper            4,156,659     18,145        --            --              -- 
</TABLE>
          No other matters were voted upon at the annual meeting.


     Item 6.  Exhibits and reports on Form 8-K.

          (a)  Exhibits:
               10.1 - 1998 Stock Option Plan
               27 - Financial Data Schedule

          (b)  Reports on Form 8-K:

               No  reports on  Form  8-K were  filed  during the  quarter  ended
               September 30, 1998.
















                                         -19-




<PAGE> 20

                                      SIGNATURES




          Pursuant to the requirements  of the Securities Exchange Act  of 1934,
     the Registrant has duly  caused this report to be  signed on its behalf  by
     the undersigned thereunto duly authorized.



                                           TMBR/SHARP DRILLING, INC.            




     November 12, 1998                By:  /s/  Patricia R. Elledge             
     -----------------                     -------------------------
          Date                                  Patricia R. Elledge             
                                                Controller/Treasurer            

                                           (Ms. Elledge is the Chief Financial  
                                           Officer and has been duly authorized 
                                           to sign on behalf of the Registrant) 





























                                         -20-




<PAGE> 21
                                    Exhibit Index





     Exhibit
     Number              Description
     -------             -----------

       10.1         1998 Stock Option Plan
       27           Financial Data Schedule 









































                                         -21-





<PAGE> 22     

                              TMBR/SHARP DRILLING, INC.

                                1998 STOCK OPTION PLAN


                                I. Purpose of the Plan

          The TMBR/Sharp Drilling, Inc.  1998 Stock Option Plan (the  "Plan") is
     intended  to  provide  a means  whereby  certain  key  employees (including
     officers and directors who  are also key  employees) and directors who  are
     not employees  ("Nonemployee Directors"),  of TMBR/Sharp Drilling,  Inc., a
     Texas corporation (the "Company"), and its subsidiaries may develop a sense
     of proprietorship and personal involvement in the development and financial
     success of the  Company, and to  encourage them to  remain with and  devote
     their best efforts  to the business  of the Company, thereby  advancing the
     interests  of  the Company  and its  shareholders.   Accordingly,  the Plan
     provides for  granting certain key employees and  Nonemployee Directors (in
     each  case, "Optionee")  the option  ("Option") to  purchase shares  of the
     common stock of the  Company ("Stock"), as hereinafter set forth.   Options
     granted  under the  Plan  to key  employees may  be either  incentive stock
     options  ("Incentive Stock Options") within  the meaning of  Section 422 of
     the Internal  Revenue Code  of 1986,  as amended (the  "Code"), or  options
     which do not constitute Incentive Stock Options.  Options granted under the
     Plan  to  Nonemployee Directors  will be  options  which do  not constitute
     Incentive Stock Options.


                                 II.  Administration

          The  Plan  shall be  administered  by the  Board of  Directors  of the
     Company (the  "Board") or by a  committee (the "Committee") of  two or more
     directors of  the Company appointed  by the Board.   If a  Committee is not
     appointed  by the Board,  the Board shall  act as  and be deemed  to be the
     Committee for  all purposes of  the Plan.   The Committee  shall have  sole
     authority  (within  the limitations  described  herein) to  select  the key
     employees  and Nonemployee  Directors who  are to  be granted  Options from
     among those eligible hereunder and to establish the number of  shares which
     may  be issued to key employees and Nonemployee Directors under each Option
     and to  prescribe the  form of the  agreement embodying awards  of Options.
     The Committee is authorized to interpret the Plan and may from time to time
     adopt such rules  and regulations,  consistent with the  provisions of  the
     Plan, as it may deem advisable to  carry out the Plan.  All decisions  made
     by the Committee in  selecting the key employees and  Nonemployee Directors
     to whom  Options shall  be granted,  in establishing the  number of  shares
     which  may be issued to key employees  and Nonemployee Directors under each
     Option and in  construing the provisions of  the Plan shall  be final.   No
     member of the Board shall be liable for anything done or omitted to be done
     by such member  or by any other member of the  Board in connection with the
     Plan, except for such member s own willful misconduct.


                                         -22-






<PAGE> 23
                    III.  Option Agreements; Terms and Conditions

          Each Option granted  under the  Plan shall be  evidenced by a  written
     stock option agreement and shall contain such terms and conditions, and may
     be exercisable for such periods, as the Committee shall prescribe from time
     to time in accordance with  this Plan, and shall comply with  the following
     terms and conditions:  

          (a)  The Option exercise  price shall be the fair market  value of the
     Stock subject to the  Option on the date the  Option is granted.    For all
     purposes  under the  Plan,  the  fair market  of  a  share  of Stock  on  a
     particular date  shall be equal  to the average of  the high and  low sales
     prices of the Stock on the date of grant as reported on the Nasdaq National
     Market tier  of The Nasdaq Stock  Market ("NMS"), or on  the stock exchange
     composite tape if the Stock is traded on a  national stock exchange on that
     date, or if no prices are reported on that date, on the last preceding date
     on  which such prices of  the Stock are  so reported.  If  the Stock is not
     traded on  the NMS or other stock  exchange on that date,  but is otherwise
     traded  over the  counter at the  time a  determination of  its fair market
     value is  required to  be made  hereunder, its fair  market value  shall be
     deemed to be  equal to  the average between  the reported  high and low  or
     closing bid and asked prices of the Stock on the most recent date  on which
     the Stock was  publicly traded.  If the Stock is not publicly traded at the
     time  a determination of  its value is  required to be  made hereunder, the
     determination of  its fair market value  shall be made by  the Committee in
     such manner as it deems appropriate. 

          (b)  Each  Option and  all  rights  granted  thereunder shall  not  be
     transferable   otherwise  than  by  will   or  the  laws   of  descent  and
     distribution,  and may  be  exercised  only  by  the  Optionee  during  the
     Optionee s  lifetime and while the Optionee remains employed by the Company
     or as a director  of the Company, as the case may be,  except that:  (i) if
     the Optionee ceases to  be an employee or  director of the Company,  as the
     case may be, because of disability, the Option may be exercised in full  by
     the  Optionee (or  the Optionee s  estate or  the  person who  acquires the
     Option by  will or the  laws of  descent and distribution  or otherwise  by
     reason of the death of the Optionee)  at any time during the period of  one
     year following such  termination; (ii) if the Optionee dies  while he is an
     employee  or director of  the Company, as  the case may  be, the Optionee s
     estate, or  the person  who acquires  the Option  by will  or  the laws  of
     descent  and  distribution or  otherwise  by  reason of  the  death of  the
     Optionee,  may exercise the Option in full at any time during the period of
     one  year following  the date  of the  Optionee s death;  and (iii)  if the
     Optionee ceases to be an employee or director of the Company for any reason
     other than as described in clause (i) or (ii) above, unless the Optionee is
     removed for cause, the Option may be exercised  by the Optionee at any time
     during the period of three months following the date the Optionee ceases to
     be an employee or  director of the Company, as  the case may be, or  by the
     Optionee s estate (or  the person who  acquires the Option  by will or  the
     laws of descent and distribution or otherwise by reason of the death of the
     Optionee) during a period of one year following the Optionee s death if the
     Optionee  dies during such three-month period, but  in each case only as to

                                         -23-





<PAGE> 24
     the number of  shares the Optionee was entitled  to purchase hereunder upon
     exercise of the Option as of the date the Optionee ceases to be an employee
     or director of the Company, as the case may be. 

          (c)  The  Option shall  not  be exercisable  in  any event  after  the
     expiration of ten years from the date of grant.

          (d)  The purchase price  of shares as to which the Option is exercised
     shall  be paid  in  full at  the  time  of exercise  (a)  in cash,  (b)  by
     delivering to the Company shares of Stock having a fair market value on the
     date of  delivery equal to  the purchase price,  or (c) any  combination of
     cash or Stock, as shall be established  by the Committee.  Unless and until
     a  certificate  or certificates  representing such  shares shall  have been
     issued by  the  Company  to  the  Optionee, the  Optionee  (or  the  person
     permitted to  exercise the  Option in  the event  of the  Optionee s death)
     shall not be  or have any of the  rights or privileges of a  shareholder of
     the Company  with respect  to  shares acquirable  upon an  exercise of  the
     Option.

          (e)  The  terms   and  conditions  of  the   respective  stock  option
     agreements need not be identical.


                             IV.  Eligibility of Optionee

          (a)  Subject  to the provisions of paragraph (b) below, Options may be
     granted  to  individuals  who  are key  employees  (including  officers and
     directors  who are  also key  employees) and  Nonemployee Directors  of the
     Company  or any parent or subsidiary corporation (as defined in Section 424
     of the Code) of the Company at the time the Option is granted.  Options may
     be granted to the same Optionee on more than one occasion.

          (b)  No Incentive Stock Option  shall be granted to an  individual if,
     at the time the  Option is granted,  such individual owns stock  possessing
     more than 10% of the total combined voting power of all classes of stock of
     the Company or of  its parent or subsidiary corporation, within the meaning
     of Section 422(b)(6) of  the Code, unless  (i) at the  time such Option  is
     granted the option price  is at least 110% of the fair  market value of the
     Stock  subject to  the Option  and  (ii) such  Option by  its terms  is not
     exercisable after the expiration  of five years from the date of grant.  To
     the extent that the aggregate fair market value (determined at the time the
     respective  Incentive Stock  Option is  granted) of  stock with  respect to
     which Incentive Stock  Options are  exercisable for  the first  time by  an
     individual  during any calendar year under all incentive stock option plans
     of the Company and its parent and subsidiary corporations exceeds $100,000,
     such  Incentive Stock  Options shall  be treated  as  options which  do not
     constitute Incentive  Stock Options.   The  Committee  shall determine,  in
     accordance with applicable provisions of the Code, Treasury Regulations and
     other  administrative  pronouncements,  which  of  an  employee  Optionee's
     Incentive Stock Options will not constitute Incentive Stock Options because
     of  such  limitation  and  shall  notify  the  employee  Optionee  of  such
     determination as soon as practicable after such determination.

                                         -24-





<PAGE> 25
                            V.  Shares Subject to the Plan

          The  aggregate  number of  shares which  may  be issued  under Options
     granted under  the Plan  shall not  exceed 750,000 shares  of Stock.   Such
     shares may consist of authorized but unissued shares of Stock or previously
     issued shares of Stock reacquired by the Company.  Any of such shares which
     remain unissued  and which  are not subject  to outstanding Options  at the
     termination of  the Plan shall cease to be  subject to the Plan, but, until
     termination of  the Plan, the Company  shall at all times  make available a
     sufficient number of  shares to meet the requirements of  the Plan.  Should
     any Option hereunder expire or terminate prior to its exercise in full, the
     shares theretofore subject to such Option may again be subject to an Option
     granted under the Plan.  The aggregate number of shares which may be issued
     under the  Plan  shall be  subject  to adjustment  in  the same  manner  as
     provided  in Article VII hereof with respect  to shares of Stock subject to
     Options then outstanding.  Exercise of an Option in any manner shall result
     in  a decrease  in the number  of shares  of Stock which  may thereafter be
     available,  both  for  purposes  of  the  Plan  and  for  sale  to any  one
     individual, by  the number of shares  as to which the  Option is exercised.
     Separate stock certificates shall be issued by the Company for those shares
     acquired pursuant  to the exercise  of an  Incentive Stock  Option and  for
     those shares acquired pursuant to the exercise of any Option which does not
     constitute an Incentive Stock Option.


                       VI.  Options Exchanged for Prior Options

          An Option may granted in exchange for an individual's right and option
     to purchase  shares of Stock  pursuant to  the terms of  an agreement  that
     existed  prior to  the date such  Option is  granted ("Prior  Option").  An
     Option agreement that grants an Option in exchange for a Prior Option shall
     provide  for the  surrender  and cancellation  of  the Prior  Option.   The
     purchase price  of Stock issued under  an Option granted in  exchange for a
     Prior Option  shall be determined by the Committee and, such purchase price
     may, without limitation, be equal to the price for which the Optionee could
     have purchased Stock under the Prior Option.

                                  VII.  Term of Plan

          (a)  The Plan  shall be  effective upon the  date of its  approval and
     adoption by  the Board, but no  Option granted under the  Plan shall become
     exercisable,  and no shares of Stock shall  be issued, unless and until the
     Plan  shall have  been  approved by  the Company's  shareholders.   If such
     shareholder approval is not obtained within twelve months after the date of
     the Board's adoption of the Plan, then all Options previously granted under
     the Plan shall terminate and no  further Options shall be granted.  Subject
     to such limitation, the Committee  may grant Options under the Plan  at any
     time  after  the  effective  date and  before  the  date  fixed  herein for
     termination of the Plan.

          (b)  Except with respect  to Options then  outstanding, if not  sooner

                                         -25-






<PAGE> 26
     terminated  under the provisions of  Subparagraph (a) above  or Article IX,
     the Plan shall terminate upon and no further Options shall be granted after
     the expiration of ten years from the date of its adoption by the Board.


                      VIII.  Recapitalization or Reorganization

          (a)  The existence of the Plan and the Options granted hereunder shall
     not affect in any way the  right or power of the Board or  the shareholders
     of  the  Company to  make  or authorize  any  adjustment, recapitalization,
     reorganization  or other change in  the Company's capital  structure or its
     business, any  merger or consolidation of the Company, any issue of debt or
     equity securities ahead  of or affecting the  Stock or the  rights thereof,
     the dissolution or liquidation of the  Company or any sale, lease, exchange
     or  other disposition of all  or any part of its  assets or business or any
     other corporate act or proceeding.

          (b)  The  shares  with respect  to which  Options  may be  granted are
     shares of Stock as  presently constituted, but if,  and whenever, prior  to
     the expiration of an Option theretofore granted, the Company shall effect a
     subdivision or consolidation of shares  of Stock or the payment of  a stock
     dividend  on Stock  without receipt  of consideration  by the  Company, the
     number of shares of Stock with  respect to which such Option may thereafter
     be exercised  (i) in the event of an increase  in the number of outstanding
     shares shall be proportionately increased, and the purchase price per share
     shall be proportionately  reduced, and (ii) in the event  of a reduction in
     the  number of outstanding shares shall be proportionately reduced, and the
     purchase price per share shall be proportionately increased.

          (c)  If  the Company  recapitalizes or  otherwise changes  its capital
     structure, thereafter upon  any exercise of  an Option theretofore  granted
     the Optionee  shall be entitled to  purchase under such Option,  in lieu of
     the  number of  shares  of Stock  as  to which  such Option  shall  then be
     exercisable,  the number  and class  of shares of  stock and  securities to
     which the  Optionee would have been  entitled pursuant to the  terms of the
     recapitalization  if,  immediately  prior  to  such  recapitalization,  the
     Optionee had been the holder of record of the  number of shares of Stock as
     to which such Option is then exercisable.  If (i) the Company shall  not be
     the surviving  entity in any merger or consolidation (or survives only as a
     subsidiary  of an entity other than a previously wholly-owned subsidiary of
     the Company),  (ii) the  Company sells,  leases or  exchanges or agrees  to
     sell, lease or exchange all or substantially all of its assets to any other
     person or entity  (other than  a wholly-owned subsidiary  of the  Company),
     (iii) the  Company is to  be dissolved and  liquidated, (iv) any  person or
     entity,  including a  "group" as  contemplated by  Section 13(d)(3)  of the
     Securities Exchange Act of 1934, as amended, acquires or gains ownership or
     control (including, without limitation, power to  vote) of more than 50% of
     the outstanding shares of  Stock, or (v)  as a result  of or in  connection
     with  a contested election of directors,  the persons who were directors of
     the Company before such  election shall cease  to constitute a majority  of
     the Board (each such event,  a "Corporate Change"), then effective as  of a
     date selected by the Committee, the Committee acting in its sole discretion
     without the consent  or approval of any Optionee, shall  effect one or more


                                         -26-



<PAGE> 27
     of  the following alternatives with respect to the then outstanding Options
     held  by  Optionees,  which  may  vary  among  individual   Optionees:  (1)
     accelerate  the time at  which such Options  may be exercised  so that such
     Options may be exercised in full  on or before a specified date (before  or
     after  such Corporate Change) fixed by the Committee, after which specified
     date all unexercised Options  and all rights of Optionees  thereunder shall
     terminate, (2) require the  mandatory surrender to the Company  by selected
     Optionees of  some or  all of  such Options  (irrespective of whether  such
     Options are  then exercisable under  the provisions  of the Plan)  as of  a
     date, before or after such Corporate Change, specified by the Committee, in
     which event the  Committee shall thereupon  cancel such Options and  pay to
     each Optionee an amount of cash per share equal to the excess of the amount
     calculated in Subparagraph (d) below (the "Change of Control Value") of the
     shares subject to such Option over the exercise price(s) under such Options
     for such shares, (3) make such adjustments to such Options as the Committee
     deems appropriate to reflect such Corporate Change, (4) make no adjustments
     to such Options as the Committee  may determine in its sole discretion   or
     (5)  provide that  thereafter upon  any exercise  of an  Option theretofore
     granted the Optionee shall  be entitled to purchase  under such Option,  in
     lieu of the number of shares of Stock as to which such Option shall then be
     exercisable, the number and class of shares of stock or other securities or
     property to which  the Optionee would  have been entitled  pursuant to  the
     terms of  the agreement  of merger,  consolidation  or sale  of assets  and
     dissolution  if, immediately prior to such merger, consolidation or sale of
     assets  and dissolution, the Optionee had been  the holder of record of the
     number of shares of Stock as to which such Option is then exercisable.

          (d)  For  the purposes  of  clause (2)  in  paragraph (c)  above,  the
     "Change of  Control Value" shall equal the amount determined in clause (i),
     (ii) or  (iii), whichever is  applicable, as  follows:  (i)  the per  share
     price   offered  to  shareholders  of  the  Company  in  any  such  merger,
     consolidation, sale  of assets or  dissolution transaction, (ii)  the price
     per  share offered to  shareholders of the  Company in any  tender offer or
     exchange offer  whereby a Corporate  Change takes place,  or (iii) if  such
     Corporate Change occurs  other than pursuant to a tender or exchange offer,
     the fair market value per share of the shares into which such Options being
     surrendered are exercisable, as determined by the  Committee as of the date
     determined by the Committee to be the date of cancellation and surrender of
     such Options. In the  event that the consideration offered  to shareholders
     of  the Company  in any transaction  described in this  Subparagraph (d) or
     Subparagraph  (c) above consists of anything other than cash, the Committee
     shall   determine  the  fair  cash   equivalent  of  the   portion  of  the
     consideration offered which is other than cash.

          (e)  Any adjustment  provided for  in Subparagraphs  (b) or  (c) above
     shall be subject to any required shareholder action.

          (f)  Except as  hereinbefore expressly  provided, the issuance  by the
     Company of  shares of stock  of any  class or  securities convertible  into
     shares of stock  of any class, for cash, property,  labor or services, upon
     direct sale, upon the exercise of rights or warrants to subscribe therefor,
     or upon conversion of shares or obligations of the Company convertible into
     such  shares or other securities,  and in any case whether  or not for fair


                                         -27-



<PAGE> 28

     value, shall not affect, and no adjustment by reason thereof  shall be made
     with  respect to,  the  number  of  shares  of  Stock  subject  to  Options
     theretofore granted or the purchase price per share.




                      IX.  Amendment or Termination of the Plan

          The Board  in its discretion may  terminate the Plan at  any time with
     respect to any shares for which Options have not  theretofore been granted.
     The Board shall  have the  right to  alter or amend  the Plan  or any  part
     thereof  from time  to  time,  provided,  that  no  change  in  any  Option
     theretofore  granted  may be  made which  would  impair the  rights  of the
     Optionee without the consent of such Optionee.


                             X.  Miscellaneous Provisions

          (a)  Neither  the  Plan  nor  any  action  taken  hereunder  shall  be
     construed as giving any  key employee or Nonemployee Director any  right to
     be retained in the  service of the Company or  the right to have  an Option
     granted to such person.

          (b)  An  Optionee's  rights and  interest under  the  Plan may  not be
     assigned or transferred in whole or in part either directly or by operation
     of  law  or otherwise  (except  in  the event  of  an  Optionee s death  or
     disability,  by  will or  the  laws of  descent  and  distribution, all  as
     provided  in Article  III),  including,  but  not  by  way  of  limitation,
     execution,  levy, garnishment,  attachment, pledge,  bankruptcy, or  in any
     other manner, and no such right or interest of any participant  in the Plan
     shall be subject to any obligation or liability of such participant.

          (c)  No shares of Stock  shall be issued hereunder unless  counsel for
     the  Company shall  be satisfied that  such issuance will  be in compliance
     with applicable Federal, state, and other securities laws and regulations.

          (d)  It shall be a condition to the obligation of the Company to issue
     shares  of Stock  upon exercise  of an  Option, that  the Optionee  (or any
     beneficiary or person entitled to act under or through Optionee as provided
     herein)  pay  to the  Company,  upon  its demand,  such  amount  as may  be
     requested by  the Company for  the purpose  of satisfying any  liability to
     withhold  Federal, state, local, or foreign income  or other taxes.  If the
     amount requested  is not paid,  the Company may  refuse to issue  shares of
     Stock.

          (e)  By  accepting any Option under  the Plan, each  Optionee and each
     person claiming under or  through such person shall be  conclusively deemed
     to  have indicated his  or her acceptance and  ratification of, and consent
     to, any  action taken  under the  Plan by  the  Company, the  Board or  the
     Committee.


                                         -28-