Document:

Exhibit 10.8

 

MSO HOLDINGS, INC.

 

2004 EQUITY INCENTIVE PLAN

 

On May 26, 2005, MSO Holdings, Inc. assumed
the MSO Medical, Inc. 2004 Equity

Incentive Plan as a part of an Agreement and Plan of Merger and all share
amounts under

this Plan and all outstanding Awards were correspondingly adjusted.

 

1.                                      PURPOSE.  The
purpose of this Plan is to provide incentives to attract, retain and motivate
eligible persons whose present and potential contributions are important to the
success of the Company, its Parent and Subsidiaries, by offering them an
opportunity to participate in the Company’s future performance through awards
of Options and Restricted Stock. 
Capitalized terms not defined in the text are defined in Section 22
hereof.  Although this Plan is intended
to be a written compensatory benefit plan within the meaning of Rule 701
promulgated under the Securities Act, grants may be made pursuant to this plan
that do not qualify for exemption under Rule 701.

 

2.                                      SHARES SUBJECT TO THE PLAN.

 

2.1                               Number of Shares Available. 
Subject to Sections 2.2 and 17 hereof, the total number of Shares
reserved and available for grant and issuance pursuant to this Plan will be Two
Million Three Hundred Five Thousand Three Hundred Fifty Six (2,305,356) Shares
or such lesser number of Shares as permitted by applicable law.  Subject to Sections 2.2, 5.10 and 17
hereof, Shares subject to Awards previously granted will again be available for
grant and issuance in connection with future Awards under this Plan to the
extent such Shares:  (i) cease to be
subject to issuance upon exercise of an Option, other than due to exercise of
such Option; (ii) are subject to an Award granted hereunder but the Shares
subject to such Award are forfeited or repurchased by the Company at the
original issue price; or (iii) are subject to an Award that otherwise
terminates without Shares being issued. 
At all times the Company will reserve and keep available a sufficient
number of Shares as will be required to satisfy the requirements of all Awards
granted and outstanding under this Plan.

 

2.2                               Adjustment of Shares.  In
the event that the number of outstanding shares of the Company’s Common Stock
is changed by a stock dividend, recapitalization, stock split, reverse stock
split, subdivision, combination, reclassification or similar change in the
capital structure of the Company without consideration, then (i) the
number of Shares reserved for issuance under this Plan, (ii) the Exercise
Prices of and number of Shares subject to outstanding Options and (iii) the
Purchase Prices of and number of Shares subject to other outstanding Awards
will be proportionately adjusted, subject to any required action by the Board
or the stockholders of the Company and compliance with applicable securities
laws; provided, however, that fractions of a Share will not be issued but will
either be paid in cash at the Fair Market Value of such fraction of a Share or
will be rounded down to the nearest whole Share, as determined by the
Committee; and provided, further, that the Exercise Price of any Option may not
be decreased to below the par value of the Shares.

 

3.                                      ELIGIBILITY.  ISOs
(as defined in Section 5 hereof) may be granted only to employees
(including officers and directors who are also employees) of the Company or of
a

 

 

Parent or Subsidiary of the Company.  NQSOs (as defined in Section 5 hereof)
and Restricted Stock Awards may be granted to employees, officers, directors
and consultants of the Company or any Parent or Subsidiary of the Company;
provided such consultants render bona fide services not in connection with the
offer and sale of securities in a capital-raising transaction.  A person may be granted more than one Award
under this Plan.

 

4.                                      ADMINISTRATION.

 

4.1                               Committee Authority.  This
Plan will be administered by the Committee or the Board if no Committee is
created by the Board.  Subject to the
general purposes, terms and conditions of this Plan, and to the direction of
the Board, the Committee will have full power to implement and carry out this
Plan.  Without limitation, the Committee
will have the authority to:

 

(a)                                  construe and interpret this Plan, any Award
Agreement and any other agreement or document executed pursuant to this Plan;

 

(b)                                 prescribe, amend and rescind rules and
regulations relating to this Plan;

 

(c)                                  approve persons to receive Awards;

 

(d)                                 determine the form and terms of Awards;

 

(e)                                  determine the number of Shares or other
consideration subject to Awards;

 

(f)                                    determine whether Awards will be granted
singly, in combination with, in tandem with, in replacement of, or as
alternatives to, other Awards under this Plan or awards under any other
incentive or compensation plan of the Company or any Parent or Subsidiary of
the Company;

 

(g)                                 grant waivers of any conditions of this Plan
or any Award;

 

(h)                                 determine the terms of vesting,
exercisability and payment of Awards;

 

(i)                                     correct any defect, supply any omission, or
reconcile any inconsistency in this Plan, any Award, any Award Agreement, any
Exercise Agreement or any Restricted Stock Purchase Agreement;

 

(j)                                     determine whether an Award has been earned;

 

(k)                                  make all other determinations necessary or
advisable for the administration of this Plan; and

 

(l)                                     extend the vesting period beyond a
Participant’s Termination Date.

 

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4.2                               Committee Discretion. 
Unless in contravention of any express terms of this Plan or Award, any
determination made by the Committee with respect to any Award will be made in
its sole discretion either (i) at the time of grant of the Award, or (ii) subject
to Section 5.9 hereof, at any later time. 
Any such determination will be final and binding on the Company and on
all persons having an interest in any Award under this Plan.  The Committee may delegate to one or more
officers of the Company the authority to grant an Award under this Plan,
provided such officer or officers are members of the Board.

 

5.                                      OPTIONS.  The
Committee may grant Options to eligible persons described in Section 3
hereof and will determine whether such Options will be Incentive Stock Options
within the meaning of the Code (“ISOs”) or Nonqualified Stock Options (“NQSOs”), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:

 

5.1                               Form of Option Grant.  Each
Option granted under this Plan will be evidenced by an Award Agreement which
will expressly identify the Option as an ISO or an NQSO (“Stock Option Agreement”),
and will be in such form and contain such provisions (which need not be the
same for each Participant) as the Committee may from time to time approve, and
which will comply with and be subject to the terms and conditions of this Plan.

 

5.2                               Date of Grant.  The
date of grant of an Option will be the date on which the Committee makes the
determination to grant such Option, unless a later date is otherwise specified
by the Committee.  The Stock Option
Agreement and a copy of this Plan will be delivered to the Participant within a
reasonable time after the granting of the Option.

 

5.3                               Exercise Period. 
Options may be exercisable immediately but subject to repurchase
pursuant to Section 11 hereof or may be exercisable within the times or
upon the events determined by the Committee as set forth in the Stock Option
Agreement governing such Option; provided, however, that no Option will be
exercisable after the expiration of ten (10) years from the date the
Option is granted; and provided further that no ISO granted to a person who
directly or by attribution owns more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of any Parent
or Subsidiary of the Company (“Ten Percent Shareholder”) will be exercisable after the
expiration of five (5) years from the date the ISO is granted.  The Committee also may provide for Options to
become exercisable at one time or from time to time, periodically or otherwise,
in such number of Shares or percentage of Shares as the Committee determines.

 

5.4                               Exercise Price.  The
Exercise Price of an Option will be determined by the Committee when the Option
is granted and may not be less than eighty-five percent (85%) of the Fair
Market Value of the Shares on the date of grant; provided that (i) the
Exercise Price of an ISO will not be less than one hundred percent (100%) of
the Fair Market Value of the Shares on the date of grant and (ii) the
Exercise Price of any Option granted to a Ten Percent Shareholder will not be
less than one hundred ten percent (110%) of the Fair Market Value of the Shares
on the date of grant.  Payment for the
Shares purchased must be made in accordance with Section 7 hereof.

 

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5.5                               Method of Exercise. 
Options may be exercised only by delivery to the Company of a written
stock option exercise agreement (the “Exercise Agreement”) in a form approved by
the Committee (which need not be the same for each Participant).  The Exercise Agreement will state (i) the
number of Shares being purchased, (ii) the restrictions imposed on the
Shares purchased under such Exercise Agreement, if any, and (iii) such
representations and agreements regarding Participant’s investment intent and
access to information and other matters, if any, as may be required or
desirable by the Company to comply with applicable securities laws.  Participant shall execute and deliver to the
Company the Exercise Agreement together with payment in full of the Exercise
Price, and any applicable taxes, for the number of Shares being purchased.

 

5.6                               Termination. 
Subject to earlier termination pursuant to Sections 17 and 18
hereof and notwithstanding the exercise periods set forth in the Stock Option
Agreement, exercise of an Option will always be subject to the following:

 

(a)                                  If the Participant is Terminated for any
reason other than death, Disability or for Cause, then the Participant may
exercise such Participant’s Options only to the extent that such Options are
exercisable as to Vested Shares upon the Termination Date or as otherwise
determined by the Committee.  Such
Options must be exercised by the Participant, if at all, as to all or some of
the Vested Shares calculated as of the Termination Date or such other date
determined by the Committee, within three (3) months after the Termination
Date (or within such shorter time period, not less than thirty (30) days, or
within such longer time period, not exceeding five (5) years, after the
Termination Date as may be determined by the Committee, with any exercise
beyond three (3) months after the Termination Date deemed to be an NQSO)
but in any event, no later than the expiration date of the Options.

 

(b)                                 If the Participant is Terminated because of
Participant’s death or Disability (or the Participant dies within three (3) months
after a Termination other than for Cause), then Participant’s Options may be
exercised only to the extent that such Options are exercisable as to Vested
Shares by Participant on the Termination Date or as otherwise determined by the
Committee.  Such options must be
exercised by Participant (or Participant’s legal representative or authorized
assignee), if at all, as to all or some of the Vested Shares calculated as of
the Termination Date or such other date determined by the Committee, within twelve
(12) months after the Termination Date (or within such shorter time period, not
less than six (6) months, or within such longer time period, not exceeding
five (5) years, after the Termination Date as may be determined by the
Committee, with any exercise beyond (i) three (3) months after the
Termination Date when the Termination is for any reason other than the
Participant’s death or disability, within the meaning of Section 22(e)(3) of
the Code, or (ii) twelve (12) months after the Termination Date when the
Termination is for Participant’s disability, within the meaning of Section 22(e)(3) of
the Code, deemed to be an NQSO) but in any event no later than the expiration
date of the Options.

 

(c)                                  If the Participant is terminated for Cause,
the Participant may exercise such Participant’s Options, but not to an extent
greater than such Options are exercisable as to Vested Shares upon the
Termination Date and Participant’s Options shall expire on such Participant’s
Termination Date, or at such later time and on such conditions as are
determined by the Committee.

 

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5.7                               Limitations on Exercise.  The
Committee may specify a reasonable minimum number of Shares that may be
purchased on any exercise of an Option, provided that such minimum number will
not prevent Participant from exercising the Option for the full number of
Shares for which it is then exercisable.

 

5.8                               Limitations on ISOs.  The
aggregate Fair Market Value (determined as of the date of grant) of Shares with
respect to which ISOs are exercisable for the first time by a Participant
during any calendar year (under this Plan or under any other incentive stock
option plan of the Company or any Parent or Subsidiary of the Company) will not
exceed One Hundred Thousand Dollars ($100,000). 
If the Fair Market Value of Shares on the date of grant with respect to
which ISOs are exercisable for the first time by a Participant during any
calendar year exceeds One Hundred Thousand Dollars ($100,000), then the Options
for the first One Hundred Thousand Dollars ($100,000) worth of Shares to become
exercisable in such calendar year will be ISOs and the Options for the amount
in excess of One Hundred Thousand Dollars ($100,000) that become exercisable in
that calendar year will be NQSOs.  In the
event that the Code or the regulations promulgated thereunder are amended after
the Effective Date (as defined in Section 18 hereof) to provide for a
different limit on the Fair Market Value of Shares permitted to be subject to
ISOs, then such different limit will be automatically incorporated herein and
will apply to any Options granted after the effective date of such amendment.

 

5.9                               Modification, Extension or
Renewal.  The Committee may modify, extend or renew
outstanding Options and authorize the grant of new Options in substitution
therefor, provided that any such action may not, without the written consent of
a Participant, impair any of such Participant’s rights under any Option
previously granted.  Any outstanding ISO
that is modified, extended, renewed or otherwise altered will be treated in
accordance with Section 424(h) of the Code.  Subject to Section 5.10 hereof, the
Committee may reduce the Exercise Price of outstanding Options without the
consent of Participants by a written notice to them; provided, however, that
the Exercise Price may not be reduced below the minimum Exercise Price that
would be permitted under Section 5.4 hereof for Options granted on the
date the action is taken to reduce the Exercise Price; provided, further, that
the Exercise Price will not be reduced below the par value of the Shares, if
any.

 

5.10                        No Disqualification. 
Notwithstanding any other provision in this Plan, no term of this Plan
relating to ISOs will be interpreted, amended or altered, nor will any
discretion or authority granted under this Plan be exercised, so as to
disqualify this Plan under Section 422 of the Code or, without the consent
of the Participant, to disqualify any Participant’s ISO under Section 422
of the Code.  In no event shall the total
number of Shares issued (counting each reissuance of a Share that was
previously issued and then forfeited or repurchased by the Company as a
separate issuance) under the Plan upon exercise of ISOs exceed 5,500,000 Shares
(adjusted in proportion to any adjustments under Section 2.2 hereof) over
the term of the Plan.

 

6.                                      RESTRICTED STOCK.  A
Restricted Stock Award is an offer by the Company to sell to an eligible person
Shares that are subject to certain specified restrictions.  The Committee will determine to whom an offer
will be made, the number of Shares the person may purchase, the Purchase Price,
the restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:

 

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6.1                               Form of Restricted
Stock Award.  All purchases under a Restricted Stock Award
made pursuant to this Plan will be evidenced by an Award Agreement (“Restricted Stock Purchase Agreement”)
that will be in such form (which need not be the same for each Participant) as
the Committee will from time to time approve, and will comply with and be
subject to the terms and conditions of this Plan.  The Restricted Stock Award will be accepted
by the Participant’s execution and delivery of the Restricted Stock Purchase
Agreement and full payment for the Shares to the Company within thirty (30)
days from the date the Restricted Stock Purchase Agreement is delivered to the
person.  If such person does not execute
and deliver the Restricted Stock Purchase Agreement along with full payment for
the Shares to the Company within such thirty (30) days, then the offer will
terminate, unless otherwise determined by the Committee.

 

6.2                               Purchase Price.  The
Purchase Price of Shares sold pursuant to a Restricted Stock Award will be
determined by the Committee and will be at least eighty-five percent (85%) of
the Fair Market Value of the Shares on the date the Restricted Stock Award is
granted or at the time the purchase is consummated, except in the case of a
sale to a Ten Percent Shareholder, in which case the Purchase Price will be one
hundred percent (100%) of the Fair Market Value on the date the Restricted
Stock Award is granted or at the time the purchase is consummated.  Payment of the Purchase Price must be made in
accordance with Section 7 hereof.

 

6.3                               Restrictions. 
Restricted Stock Awards may be subject to the restrictions set forth in Section 11
hereof.

 

7.                                      PAYMENT FOR SHARE PURCHASES.

 

7.1                               Payment. 
Payment for Shares purchased pursuant to this Plan may be made in cash
(by check) or, where expressly approved for the Participant by the Committee
and where permitted by law:

 

(a)                                  by cancellation of indebtedness of the
Company owed to the Participant;

 

(b)                                 by surrender of shares that:  (i) either (A) have been owned by
Participant for more than six (6) months and have been paid for within the
meaning of SEC Rule 144 (and, if such shares were purchased from the
Company by use of a promissory note, such note has been fully paid with respect
to such shares) or (B) were obtained by Participant in the public market
and (ii) are clear of all liens, claims, encumbrances or security
interests;

 

(c)                                  by tender of a full recourse promissory note
having such terms as may be approved by the Committee and bearing interest at a
rate sufficient to avoid (i) imputation of income under Sections 483
and 1274 of the Code and (ii) variable accounting treatment under
Financial Accounting Standards Board Interpretation No. 44 to APB No. 25;
provided, however, that Participants who are not employees or directors of the
Company will not be entitled to purchase Shares with a promissory note unless
the note is adequately secured by collateral other than the Shares; provided,
further, that the portion of the Exercise Price or

 

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Purchase Price, as the case may be, equal to the par
value of the Shares must be paid in cash or other legal consideration permitted
by Delaware General Corporation Law;

 

(d)                                 by waiver of compensation due or accrued to
the Participant from the Company for services rendered;

 

(e)                                  with respect only to purchases upon exercise
of an Option, and provided that a public market for the Company’s stock exists:

 

(i)                                     through a “same day sale” commitment from the
Participant and a broker-dealer that is a member of the National Association of
Securities Dealers (an “NASD
Dealer”) whereby the Participant irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased sufficient to pay
the total Exercise Price, and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the total Exercise Price directly to the
Company; or

 

(ii)                                  through a “margin” commitment from the
Participant and an NASD Dealer whereby the Participant irrevocably elects to
exercise the Option and to pledge the Shares so purchased to the NASD Dealer in
a margin account as security for a loan from the NASD Dealer in the amount of
the total Exercise Price, and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the total Exercise Price directly to the
Company; or

 

(f)                                    by any combination of the foregoing.

 

7.2                               Loan Guarantees.  The
Committee may, in its sole discretion, elect to assist the Participant in
paying for Shares purchased under this Plan by authorizing a guarantee by the
Company of a third-party loan to the Participant.

 

8.                                      WITHHOLDING TAXES.

 

8.1                               Withholding Generally. 
Whenever Shares are to be issued in satisfaction of Awards granted under
this Plan, the Company may require the Participant to remit to the Company an
amount sufficient to satisfy federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates for such
Shares.  Whenever, under this Plan,
payments in satisfaction of Awards are to be made in cash by the Company, such
payment will be net of an amount sufficient to satisfy federal, state, and
local withholding tax requirements.

 

8.2                               Stock Withholding. 
When, under applicable tax laws, a Participant incurs tax liability in
connection with the exercise or vesting of any Award that is subject to tax
withholding and the Participant is obligated to pay the Company the amount
required to be withheld, the Committee may in its sole discretion allow the
Participant to satisfy the minimum withholding tax obligation by electing to
have the Company withhold from the Shares to be issued that minimum number of
Shares having a Fair Market Value equal to the minimum amount required to be
withheld, determined on the date that the amount of tax to be withheld is to be
determined; but in no event will the Company withhold Shares if such
withholding would result in adverse accounting consequences to the
Company.  All elections by a Participant
to have Shares withheld for this purpose will be made in accordance with the
requirements

 

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established by the Committee for such elections and
be in writing in a form acceptable to the Committee.

 

9.                                      PRIVILEGES OF STOCK OWNERSHIP.

 

9.1                               Voting and Dividends.  No
Participant will have any of the rights of a stockholder with respect to any
Shares until the Shares are issued to the Participant.  After Shares are issued to the Participant,
the Participant will be a stockholder and have all the rights of a stockholder
with respect to such Shares, including the right to vote and receive all
dividends or other distributions made or paid with respect to such Shares;
provided, that if such Shares are Restricted Stock, then any new, additional or
different securities the Participant may become entitled to receive with
respect to such Shares by virtue of a stock dividend, stock split or any other
change in the corporate or capital structure of the Company will be subject to
the same restrictions as the Restricted Stock. 
The Participant will have no right to retain such stock dividends or
stock distributions with respect to Unvested Shares that are repurchased
pursuant to Section 11 hereof.

 

9.2                               Financial Statements.  The
Company will provide financial statements to each Participant annually during
the period such Participant has Awards outstanding.  Notwithstanding the foregoing, the Company
will not be required to provide such financial statements to Participants when
issuance of Awards is limited to key employees whose services in connection
with the Company assure them access to equivalent information.

 

10.                               TRANSFERABILITY. 
Except as permitted by the Committee, Awards granted under this Plan,
and any interest therein, will not be transferable or assignable by
Participant, other than by will or by the laws of descent and distribution,
and, with respect to NQSOs, by instrument to an inter vivos or testamentary
trust in which the options are to be passed to beneficiaries upon the death of the
trustor (settlor), or by gift to “immediate family” as that term is defined in
17 C.F.R. 240.16a-1(e), and may not be made subject to execution,
attachment or similar process.  During
the lifetime of the Participant an Award will be exercisable only by the
Participant or Participant’s legal representative and any elections with
respect to an Award may be made only by the Participant or Participant’s legal
representative.

 

11.                               RESTRICTIONS ON SHARES.

 

11.1                        Right of First Refusal.  At
the discretion of the Committee, the Company may reserve to itself and/or its
assignee(s) in the Award Agreement a right of first refusal to purchase all
Shares that a Participant (or a subsequent transferee) may propose to transfer
to a third party, provided that such right of first refusal terminates upon the
Company’s initial public offering of Common Stock pursuant to an effective
registration statement filed under the Securities Act.

 

11.2                        Right of Repurchase.  At
the discretion of the Committee, the Company may reserve to itself and/or its
assignee(s) in the Award Agreement a right to repurchase Unvested Shares held
by a Participant for cash and/or cancellation of purchase money indebtedness
owed to the Company by the Participant following such Participant’s Termination
at any time within the later of ninety (90) days after the Participant’s
Termination Date and the

 

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date the Participant purchases Shares under the Plan
at the Participant’s Exercise Price or Purchase Price, as the case may be.

 

12.                               CERTIFICATES.  All
certificates for Shares or other securities delivered under this Plan will be
subject to such stock transfer orders, legends and other restrictions as the
Committee may deem necessary or advisable, including restrictions under any
applicable federal, state or foreign securities law, or any rules, regulations
and other requirements of the SEC or any stock exchange or automated quotation
system upon which the Shares may be listed or quoted.

 

13.                               ESCROW; PLEDGE OF SHARES.  To
enforce any restrictions on a Participant’s Shares set forth in Section 11
hereof, the Committee may require the Participant to deposit all certificates
representing Shares, together with stock powers or other instruments of
transfer approved by the Committee, appropriately endorsed in blank, with the
Company or an agent designated by the Company to hold in escrow until such
restrictions have lapsed or terminated. 
The Committee may cause a legend or legends referencing such
restrictions to be placed on the certificates. 
Any Participant who is permitted to execute a promissory note as partial
or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant’s obligation to
the Company under the promissory note; provided, however, that the Committee
may require or accept other or additional forms of collateral to secure the
payment of such obligation and, in any event, the Company will have full
recourse against the Participant under the promissory note notwithstanding any
pledge of the Participant’s Shares or other collateral.  In connection with any pledge of the Shares,
Participant will be required to execute and deliver a written pledge agreement
in such form as the Committee will from time to time approve.  The Shares purchased with the promissory note
may be released from the pledge on a pro rata basis as the promissory note is
paid.

 

14.                               EXCHANGE AND BUYOUT OF
AWARDS.  The Committee may, at any time or from time
to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and
cancellation of any or all outstanding Awards. 
The Committee may at any time buy from a Participant an Award previously
granted with payment in cash, shares of Common Stock of the Company (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.

 

15.                               SECURITIES LAW AND OTHER
REGULATORY COMPLIANCE.  Although this Plan is intended to be a
written compensatory benefit plan within the meaning of Rule 701
promulgated under the Securities Act, grants may be made pursuant to this plan
which do not qualify for exemption under Rule 701.  An Award will not be effective unless such
Award is in compliance with all applicable federal and state securities laws, rules and
regulations of any governmental body, and the requirements of any stock
exchange or automated quotation system upon which the Shares may then be listed
or quoted, as they are in effect on the date of grant of the Award and also on
the date of exercise or other issuance. 
Notwithstanding any other provision in this Plan, the Company will have
no obligation to issue or deliver certificates for Shares under this Plan prior
to (i) obtaining any approvals from governmental agencies that the Company
determines are necessary or advisable, and/or (ii) compliance with any
exemption, completion of any registration or other qualification of such Shares
under any state or federal law

 

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or ruling of any governmental body that the Company
determines to be necessary or advisable. 
The Company will be under no obligation to register the Shares with the
SEC or to effect compliance with the exemption, registration, qualification or
listing requirements of any state securities laws, stock exchange or automated
quotation system, and the Company will have no liability for any inability or
failure to do so.

 

16.                               NO OBLIGATION TO EMPLOY. 
Nothing in this Plan or any Award granted under this Plan will confer or
be deemed to confer on any Participant any right to continue in the employ of,
or to continue any other relationship with, the Company or any Parent or
Subsidiary of the Company or limit in any way the right of the Company or any
Parent or Subsidiary of the Company to terminate Participant’s employment or
other relationship at any time, with or without Cause.

 

17.                               CORPORATE TRANSACTIONS.

 

17.1                        Assumption or Replacement of
Awards by Successor or Acquiring Company.  Subject to the express
provisions set forth in an Award Agreement, in the event of (i) a
dissolution or liquidation of the Company, (ii) any reorganization,
consolidation, merger or similar transaction or series of related transactions
(each, a “combination
transaction”)) in which the Company is a constituent corporation
or is a party if, as a result of such combination transaction, the voting
securities of the Company that are outstanding immediately prior to the
consummation of such combination transaction (other  than any such
securities that are held by an “Acquiring Stockholder”, as defined below) do
not represent, or are not converted into, securities of the surviving
corporation of such combination transaction (or such surviving corporation’s
parent corporation if the surviving corporation is owned by the parent
corporation) that, immediately after the consummation of such combination
transaction, together possess at least a majority of the total voting power of
all securities of such surviving corporation (or its parent corporation, if
applicable) that are outstanding immediately after the consummation of such
combination transaction, including securities of such surviving corporation (or
its parent corporation, if applicable) that are held by the Acquiring
Stockholder; or (iii) a sale of all or substantially all of the assets of
the Company, that is followed by the distribution of the proceeds to the
Company’s stockholders, (each of the events set forth in subsections (i), (ii) and
(iii) referred to herein as a “Change in Control”) any or all outstanding
Awards may be assumed, converted or replaced by the successor or acquiring
corporation (if any), which assumption, conversion or replacement will be
binding on all Participants.  In the
alternative, the successor or acquiring corporation may substitute equivalent
Awards or provide substantially similar consideration to Participants as was
provided to stockholders of the Company (after taking into account the existing
provisions of the Awards).  The successor
or acquiring corporation may also substitute by issuing, in place of
outstanding Shares of the Company held by the Participant, substantially similar
shares or other property subject to repurchase restrictions and other
provisions no less favorable to the Participant than those which applied to
such outstanding Shares immediately prior to such transaction described in this
Section 17.1.  For purposes of this Section 17.1,
an “Acquiring
Stockholder” means a stockholder or stockholders of the Company
that (i) merges or combines with the Company in such combination
transaction or (ii) owns or controls a majority of another
corporation that merges or combines with the Corporation in such combination
transaction. Subject to the express provisions set forth in an Award Agreement,
in the event such successor or acquiring corporation (if any) in a Change in
Control does not

 

10

 

assume, convert, replace or substitute Awards, as
provided above, pursuant to a transaction described in this Section 17.1,
then notwithstanding any other provision in this Plan to the contrary, the
Board, in it sole discretion may accelerate the vesting of such Awards such
that the Options become exercisable in full prior to the consummation of such
event at such times and on such conditions as the Board determines, and if such
Options are not exercised prior to the consummation of the Change in Control to
the extent vested, they shall terminate on the date of the consummation of such
Change in Control.

 

17.2                        Other Treatment of Awards. 
Subject to any greater rights granted to Participants under the
foregoing provisions of this Section 17, in the event of the occurrence of
any transaction described in Section 17.1 hereof, any outstanding Awards
will be treated as provided in the applicable agreement or plan of
reorganization, merger, consolidation, dissolution, liquidation or sale of assets.

 

17.3                        Assumption of Awards by the
Company.  The Company, from time to time, also may
substitute or assume outstanding awards granted by another company, whether in
connection with an acquisition of such other company or otherwise, by either (i) granting
an Award under this Plan in substitution of such other company’s award or (ii) assuming
such award as if it had been granted under this Plan if the terms of such
assumed award could be applied to an Award granted under this Plan.  Such substitution or assumption will be
permissible if the holder of the substituted or assumed award would have been
eligible to be granted an Award under this Plan if the other company had
applied the rules of this Plan to such grant.  In the event the Company assumes an award
granted by another company, the terms and conditions of such award will remain
unchanged (except that the exercise price and the number and nature of shares
issuable upon exercise of any such option will be adjusted appropriately
pursuant to Section 424(a) of the Code).  In the event the Company elects to grant a
new Option rather than assuming an existing option, such new Option may be
granted with a similarly adjusted Exercise Price.

 

18.                               ADOPTION AND STOCKHOLDER
APPROVAL.  This Plan will become effective on the date
that it is adopted by the Board (the “Effective Date”).  This Plan will be approved by the
stockholders of the Company (excluding Shares issued pursuant to this Plan),
consistent with applicable laws, within twelve (12) months before or after the
Effective Date.  Upon the Effective Date,
the Board may grant Awards pursuant to this Plan; provided, however, that:  (i) no Option may be exercised prior to
initial stockholder approval of this Plan; (ii) no Option granted pursuant
to an increase in the number of Shares approved by the Board shall be exercised
prior to the time such increase has been approved by the stockholders of the
Company; (iii) in the event that initial stockholder approval is not
obtained within the time period provided herein, all Awards granted hereunder
shall be canceled, any Shares issued pursuant to any Award shall be canceled
and any purchase of Shares issued hereunder shall be rescinded; and (iv) Awards
granted pursuant to an increase in the number of Shares approved by the Board
which increase is not timely approved by stockholders shall be canceled, any
Shares issued pursuant to any such Awards shall be canceled, and any purchase
of Shares subject to any such Award shall be rescinded.

 

19.                               TERM OF PLAN/GOVERNING LAW.  Unless
earlier terminated as provided herein, this Plan will terminate ten (10) years
from the Effective Date or, if earlier, the date of

 

11

 

stockholder approval.  This Plan and all agreements hereunder shall
be governed by and construed in accordance with the laws of the State of
Delaware.

 

20.                               AMENDMENT OR TERMINATION OF
PLAN.  Subject to Section 5.9 hereof, the Board
may at any time terminate or amend this Plan in any respect, including without
limitation amendment of any form of Award Agreement or instrument to be
executed pursuant to this Plan; provided, however, that the Board will not,
without the approval of the stockholders of the Company, amend this Plan in any
manner that requires such stockholder approval pursuant to the Code or the
regulations promulgated thereunder as such provisions apply to ISO plans.

 

21.                               NONEXCLUSIVITY OF THE PLAN. 
Neither the adoption of this Plan by the Board, the submission of this
Plan to the stockholders of the Company for approval, nor any provision of this
Plan will be construed as creating any limitations on the power of the Board to
adopt such additional compensation arrangements as it may deem desirable,
including, without limitation, the granting of stock options and other equity
awards otherwise than under this Plan, and such arrangements may be either
generally applicable or applicable only in specific cases.

 

22.                               DEFINITIONS.  As
used in this Plan, the following terms will have the following meanings:

 

“Award” means any
award under this Plan, including any Option or Restricted Stock Award.

 

“Award Agreement”
means, with respect to each Award, the signed written agreement between the
Company and the Participant setting forth the terms and conditions of the
Award, including the Stock Option Agreement and Restricted Stock Agreement.

 

“Board” means the
Board of Directors of the Company.

 

“Cause” means
Termination because of (i) any willful, material violation by the
Participant of any law or regulation applicable to the business of the Company
or a Parent or Subsidiary of the Company, the Participant’s conviction for, or
guilty plea to, a felony or a crime involving moral turpitude, or any willful
perpetration by the Participant of a common law fraud, (ii) the Participant’s
commission of an act of personal dishonesty which involves personal profit in
connection with the Company or any other entity having a business relationship
with the Company, (iii) any material breach by the Participant of any
provision of any agreement or understanding between the Company or any Parent
or Subsidiary of the Company and the Participant regarding the terms of the
Participant’s service as an employee, officer, director or consultant to the
Company or a Parent or Subsidiary of the Company, including without limitation,
the willful and continued failure or refusal of the Participant to perform the
material duties required of such Participant as an employee, officer, director
or consultant of the Company or a Parent or Subsidiary of the Company, other
than as a result of having a Disability, or a breach of any applicable
invention assignment and confidentiality agreement or similar agreement between
the Company or a Parent or Subsidiary of the Company and the Participant, (iv) Participant’s
disregard of the policies of the Company or any Parent or Subsidiary of the
Company so as to cause loss, damage or injury to the property, reputation or
employees of the Company or a Parent or Subsidiary of the Company, or (v) any
other misconduct by the

 

12

 

Participant which is materially injurious to
the financial condition or business reputation of, or is otherwise materially
injurious to, the Company or a Parent or Subsidiary of the Company.

 

“Code” means the
Internal Revenue Code of 1986, as amended.

 

“Committee” means the
committee created and appointed by the Board to administer this Plan, or if no
committee is created and appointed, the Board.

 

“Company” means MSO
Holdings, Inc., or any successor corporation.

 

“Disability” means a
disability, whether temporary or permanent, partial or total, as determined by
the Committee.

 

“Exercise Price” means
the price at which a holder of an Option may purchase the Shares issuable upon
exercise of the Option.

 

“Fair Market Value”
means, as of any date, the value of a share of the Company’s Common Stock
determined as follows:

 

(a)                                  if such Common Stock is then quoted on the
Nasdaq National Market, its closing price on the Nasdaq National Market on the
date of determination as reported in The Wall Street Journal;

 

(b)                                 if such Common Stock is publicly traded and
is then listed on a national securities exchange, its closing price on the date
of determination on the principal national securities exchange on which the
Common Stock is listed or admitted to trading as reported in The Wall Street
Journal;

 

(c)                                  if such Common Stock is publicly traded but
is not quoted on the Nasdaq National Market nor listed or admitted to trading
on a national securities exchange, the average of the closing bid and asked
prices on the date of determination as reported by The Wall Street Journal
(or, if not so reported, as otherwise reported by any newspaper or other source
as the Board may determine); or

 

(d)                                 if none of the foregoing is applicable, by
the Committee in good faith.

 

“Option” means an
award of an option to purchase Shares pursuant to Section 5 hereof.

 

“Parent” means any
corporation (other than the Company) in an unbroken chain of corporations
ending with the Company if each of such corporations other than the Company
owns stock representing fifty percent (50%) or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.

 

“Participant” means a
person who receives an Award under this Plan.

 

13

 

“Plan” means this MSO
Holdings, Inc. 2004 Equity Incentive Plan, as amended from time to time.

 

“Purchase Price” means
the price at which a Participant may purchase Restricted Stock.

 

“Restricted Stock”
means Shares purchased pursuant to a Restricted Stock Award.

 

“Restricted Stock Award”
means an award of Shares pursuant to Section 6 hereof.

 

“SEC” means the
Securities and Exchange Commission.

 

“Securities Act” means
the Securities Act of 1933, as amended.

 

“Shares” means shares
of the Company’s Common Stock, par value $0.001 per share, reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 17
hereof, and any successor security.

 

“Subsidiary” means any
corporation (other than the Company) in an unbroken chain of corporations
beginning with the Company if each of the corporations other than the last
corporation in the unbroken chain owns stock representing fifty percent (50%)
or more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.

 

“Termination” or “Terminated” means,
for purposes of this Plan with respect to a Participant, that the Participant
has for any reason ceased to provide services as an employee, officer, director
or consultant to the Company or a Parent or Subsidiary of the Company.  A Participant will not be deemed to have
ceased to provide services in the case of (i) sick leave, (ii) military
leave, or (iii) any other leave of absence approved by the Committee,
provided that such leave is for a period of not more than ninety (90) days (a) unless
reinstatement (or, in the case of an employee with an ISO, reemployment) upon
the expiration of such leave is guaranteed by contract or statute, or (b) unless
provided otherwise pursuant to formal policy adopted from time to time by the
Company’s Board and issued and promulgated in writing.  In the case of any Participant on (i) sick
leave, (ii) military leave or (iii) an approved leave of absence, the
Committee may make such provisions respecting suspension of vesting of the
Award while on leave from the Company or a Parent or Subsidiary of the Company
as it may deem appropriate, except that in no event may an Option be exercised
after the expiration of the term set forth in the Stock Option Agreement.  The Committee will have sole discretion to
determine whether a Participant has ceased to provide services and the
effective date on which the Participant ceased to provide services (the “Termination Date”).

 

“Unvested Shares”
means shares subject to an Award that have not vested or become exercisable
pursuant to the Vesting Schedule set forth in the applicable Award
Agreement.

 

“Vested Shares” means
shares subject to an Award that have vested and become exercisable pursuant to
the Vesting Schedule set forth in the applicable Award Agreement.

 

14Exhibit 10.9

 

MSO HOLDINGS, INC.

2004 EQUITY INCENTIVE PLAN

NOTICE OF STOCK OPTION GRANT

 

You
have been granted the following Option to purchase shares of the Common Stock
of MSO Holdings, Inc., a Delaware corporation (the “Company”):

 

	
  Name
  of Participant:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Number
  of Shares:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Type
  of Option:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Per-Share
  Exercise Price:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date
  of Grant:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Vesting
  Commencement Date:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date
  Exercisable:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Expiration
  Date:

  	
   

  	
   

  

 

By
your signature below, and the signature of the Company’s representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Company’s 2004 Equity Incentive Plan and the Stock
Option Agreement, both of which are attached hereto and made a part of this
document.

 

	
  Date:

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Participant:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  MSO
  Holdings, Inc.

  	
   

  	
   

  	
   

  
	
  a
  Delaware corporation

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Print
  Name:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Print
  Title:

  	
   

  	
   

  	
   

  	
   

  	
   

  
										

 

 

THE OPTION GRANTED PURSUANT TO THIS AGREEMENT AND THE SHARES
ISSUABLE UPON THE EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED.

 

MSO HOLDINGS, INC.

2004 EQUITY INCENTIVE PLAN

STOCK OPTION AGREEMENT

 

1.             Signature
on Notice of Stock Option Agreement.  You
cannot exercise this Option unless you first sign this Agreement in the place
provided Notice of Stock Option Grant to which this Stock Option Agreement is
attached (the “Notice of Stock Option Grant”), and return it to the Secretary
of MSO Holdings, Inc., a Delaware corporation (the “Company”) before the
close of business on the twentieth (20th) day after the Date of Grant.  If you fail to do so, this Option will
terminate and be of no effect.  However, your signing and delivering the Notice of Stock Option Grant
will not bind you to purchase any of the shares subject to this Option.  Your signing and delivering of the Notice of
Stock Option Grant will, however, bind you to the terms and conditions of this
Stock Option Agreement and the Company’s 2004 Equity Incentive Plan (the “Plan”)
pursuant to which your Option has been granted. 
Capitalized terms utilized herein and not otherwise defined herein shall
have the definitions (if any) ascribed to such terms in the Plan.  The terms of the Plan are hereby incorporated
by this reference.

 

2.             Grant
of Option.  Upon the terms and conditions set forth in
the Notice of Stock Option Grant, this Agreement and the Plan, the Company
grants to the Participant on the Date of Grant the Option to purchase at the
Exercise Price the number of Shares, in each case, as are set forth in the Notice
of Stock Option Grant.  Such Exercise
Price is agreed to be at least equal to 100% of the Fair Market Value per Share
on the Date of Grant (110% of Fair Market Value if Section 5.4 of the Plan
applies).  This Option is intended to be
an ISO or Nonstatutory Option, as provided in the Notice of Stock Option
Grant.  Even if this Option is designated
in the Notice of Stock Option Grant as an ISO, it shall be deemed to be a
Nonstatutory Option to the extent required pursuant to Section 422(d) of
the Code (relating to the $100,000 per year limitation for ISOs).

 

3.             Right
to Exercise.  Except as otherwise
provided hereunder or in the Plan, all or part of the vested portion of this
Option may be exercised prior to its expiration at the time or times set forth
in the Notice of Stock Option Grant. 
Notwithstanding any other provision hereunder or in the Plan, no portion
of this Option shall be exercisable at any time prior to the approval of the
Plan by the Company’s stockholders.

 

4.             Method
of Exercising Option.

 

(a)           Notice
and Payment – General.  This Option may be exercised
by delivering to the Secretary of the Company payment in full in an amount
equal to the Exercise Price for the number of shares being purchased in cash,
certified or cashier’s check, personal

 

2

 

bank check or the equivalent thereof
acceptable to the Company, together with a written notice in the form attached
as Exhibit ”B” to this Agreement or such other
form satisfactory to the Company, signed by you specifying the number of shares
you then desire to purchase and the time of delivery thereof, which shall not
be less than fifteen (15) days and not more than thirty (30) days after the
giving of such notice.

 

(b)           Alternative
Forms of Payment.  The Company may, in its sole discretion,
agree to allow you to make payment of the Exercise Price in any one of the
following forms:

 

(i)            by delivery and surrender to the Company by
you, in a form satisfactory to the Committee and with a fair market value equal
to the exercise price, of other stock of the Company owned by you for more than
six (6) months, paid for within the meaning of SEC Rule 144, and free
and clear of all liens, claims or encumbrances;

 

(ii)           by your delivery of a full recourse
promissory note with such term, recourse, interest, security, and redemption
provisions as the Committee determines appropriate; provided, however, that if
you are not an Employee or Director, you will not be entitled to purchase
shares with a promissory note unless the note is adequately secured by
collateral other than the shares; and provided, further, that the portion of
the exercise price or purchase price, as the case may be, equal to the par
value of the shares must be paid in cash or other legal consideration permitted
by the Delaware General Corporation Law;

 

(iii)         by your surrender, in such form as is
satisfactory to the Committee in its sole and absolute discretion, of the right
to purchase that number of shares under this Option with a fair market value
equal to the exercise price; or

 

(iv)          by your waiver of compensation due or accrued
from the Company for services rendered.

 

The
Company shall be under no obligation to allow you to use any of these
alternative forms of payment of the purchase price.  Furthermore, the Company may place additional
conditions upon your use of these methods of payment of the Exercise Price if
it believes, in its sole discretion, that it is in the
best interests of the Company to do so.

 

(c)           Fractional
Shares.  The Company shall not be required to issue
fractional shares upon the exercise of this Option.

 

(d)           Securities
Laws Restrictions.  The Company has granted you this Option
pursuant to an exemption from the registration requirements of the Securities
Act of 1933 (the “Act”) set forth in Rule 701 (the “Rule”) promulgated
under the Act by the Securities and Exchange Commission (the “SEC”), and it is
anticipated that the exemption contained in that Rule will apply to your
exercise of this Option.  If for any
reason that Rule or a successor thereto is not available to the exercise
of this Option, this Option may not be exercised unless a registration
statement under the Act is in effect with respect to the shares issuable upon
exercise of this Option or, if in the opinion of counsel to the Company,
another exemption to the registration requirements is available.  The availability of any exemption to the
registration requirements may be conditioned, among other things, upon the
Company’s receipt of written

 

3

 

representations from you regarding your
investment experience, your receipt of financial and other information
regarding the Company, and representations from you that you will not resell or
otherwise dispose of the shares you are acquiring other than in accordance with
Rule 144 promulgated under the Act by the SEC.  If an exemption to the registration
requirements is not available, the Company shall be under no obligation to
register the shares you may receive under the Act.  As a result, it is possible that you may not
be able to exercise this Option when you desire to do so.

 

(e)           Withholding.  If
you incur a tax liability in connection with this Option, the Company may, in
its discretion, allow you to satisfy federal and state tax withholding
requirements by having the Company withhold from the shares to be issued to you
upon exercise of this Option that number of shares with a fair market value
equal to the amount of tax to be withheld. 
The value of the shares to be withheld shall be determined on the date
that the amount of tax to be withheld is ascertained.  You must make this election in writing on or
before the date that the amount of tax is determined and you may not revoke
this election after you make it.  If the
Company decides not to allow you to satisfy your withholding obligations in
this manner, the Company may require you as a condition to your exercise of
this Option to pay in cash or cash equivalent to the Company the amount of your
withholding obligations on or before the date that payment of withholding taxes
is due.

 

5.             Nontransferability
of Option.  This Option shall not be transferable except
as set forth in Section 10 of the Plan. 
Any purported transfer or assignment of this Option shall be void and of
no effect, and shall give the Company the right to terminate this Option as of
the date of such purported transfer or assignment.

 

6.             Termination
of Service.  Subject to earlier termination pursuant to
Sections 17 and 18 hereof and notwithstanding the exercise periods set
forth in the Stock Option Agreement, exercise of an Option will always be
subject to the following:

 

(a)           If the Participant is Terminated
for any reason other than death, Disability or for Cause, then the Participant
may exercise such Participant’s Options only to the extent that such Options
are exercisable as to Vested Shares upon the Termination Date or as otherwise
determined by the Committee.  Such
Options must be exercised by the Participant, if at all, as to all or some of
the Vested Shares calculated as of the Termination Date or such other date
determined by the Committee, within three (3) months after the Termination
Date (or within such shorter time period, not less than thirty (30) days, or
within such longer time period, not exceeding five (5) years, after the
Termination Date as may be determined by the Committee, with any exercise
beyond three (3) months after the Termination Date deemed to be an NQSO)
but in any event, no later than the expiration date of the Options.

 

(b)           If the Participant is Terminated because of
Participant’s death or Disability (or the Participant dies within three (3) months
after a Termination other than for Cause), then Participant’s Options may be
exercised only to the extent that such Options are exercisable as to Vested
Shares by Participant on the Termination Date or as otherwise determined by the
Committee.  Such options must be
exercised by Participant (or Participant’s legal representative or authorized
assignee), if at all, as to all or some of the Vested Shares calculated as of
the Termination Date or such other date determined by the Committee, within
twelve (12) months

 

4

 

after the Termination Date (or within such
shorter time period, not less than six (6) months, or within such longer
time period, not exceeding five (5) years, after the Termination Date as
may be determined by the Committee, with any exercise beyond (i) three (3) months
after the Termination Date when the Termination is for any reason other than
the Participant’s death or disability, within the meaning of Section 22(e)(3) of
the Code, or (ii) twelve (12) months after the Termination Date when the
Termination is for Participant’s disability, within the meaning of Section 22(e)(3) of
the Code, deemed to be an NQSO) but in any event no later than the expiration
date of the Options.

 

(c)           If the Participant is terminated for Cause,
the Participant may exercise such Participant’s Options, but not to an extent
greater than such Options are exercisable as to Vested Shares upon the
Termination Date and Participant’s Options shall expire on such Participant’s
Termination Date, or at such later time and on such conditions as are
determined by the Committee.

 

7.             Adjustment
of Shares.

 

(a)           General.  In
the event of a subdivision of the outstanding Stock, a declaration of a
dividend payable in Shares, a declaration of an extraordinary dividend payable
in a form other than Shares in an amount that has a material effect on the Fair
Market Value of the Stock, a combination or consolidation of the outstanding
Stock into a lesser number of Shares, a recapitalization, a spin-off, a
reclassification or a similar occurrence, the Board of Directors shall make
appropriate adjustments in (i) the number of Shares covered by this
Option, and (ii) the Exercise Price.

 

(b)           Change
in Control.  In the event of a Change in Control, (i) this
Option may be assumed, converted or replaced by the successor or acquiring
corporation (if any), which assumption, conversion or replacement will be
binding on the Participant; (ii) the successor or acquiring corporation
may substitute an equivalent Option or provide substantially similar
consideration, shares or other property subject to repurchase restrictions and
other provisions no less favorable to the Participant than those which applied
to this Option immediately prior to such Change in Control; or (iii) the
Board of Directors, in its sole discretion, may provide for the acceleration of
vesting of the unvested portion of this Option prior to such Change in
Control.  In the event of the occurrence
of any Change in Control, this Option will be treated as provided in the
applicable agreement or plan of reorganization, merger, consolidation,
dissolution, liquidation or sale of assets.

 

(c)           Reservation
of Rights.  Except as provided in this Section 7,
the Participant shall have no rights by reason of (i) any subdivision or
consolidation of shares of stock of any class, (ii) the payment of any
dividend, or (iii) any other increase or decrease in the number of shares
of stock of any class.  Any issuance by
the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number or Exercise Price of Shares subject
to this Option.

 

5

 

8.             Restrictions
on Sales under Securities Laws.

 

(a)           Federal
Securities Laws.  The shares which are issuable upon the
exercise of this Option have not been registered under the Securities Act.  As a consequence, you will not be able to
sell, pledge or otherwise transfer these shares unless they are registered
under the Securities Act or unless the sale complies with the requirements of
SEC Rule 701 or SEC Rule 144 or, in the opinion of counsel to the
Company, another exemption to the registration requirements is available to the
transaction.  You should be aware that
your ability to sell, pledge or otherwise transfer these shares may be subject
to substantial restrictions under the Securities Act and the rules of the
SEC.  No sale, pledge or other transfer
of these shares will be allowed unless you are able to demonstrate to the
satisfaction of the Company that the proposed transfer complies with the
Securities Act and the rules of the SEC. 
If you wish for information on whether a proposed transfer may violate
these restrictions, you should contact the Secretary of the Company or your own
counsel.

 

(b)           State
Securities Laws.  The shares issuable upon the exercise of this
Option have not been registered or qualified under the securities laws of any
other state.  If the securities laws of
any other state require that the Company place limitations on the transferability
of these shares, these shares may not be transferred unless you are able to
demonstrate to the satisfaction of the Company that the proposed transfer
complies with that state’s law.

 

9.             Restrictive
Legends.  The Company may place restrictive legends on
the certificate or certificates representing the shares issued upon exercise of
this Option, including any restrictions on transfer under federal and
applicable state securities laws.  Upon
the request of the Company, you shall promptly provide the Company with any and
all certificates representing shares acquired upon exercise of this Option in
order to allow the Company to attach applicable legends.  Unless the Company determines otherwise, the
legends which may be placed on the certificate or certificates representing the
shares may include, but are not limited to, the following:

 

THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THESE
SHARES MAY NOT BE SOLD, HYPOTHECATED, ASSIGNED OR OTHERWISE TRANSFERRED
UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO THESE
SHARES OR THE COMPANY RECEIVES EVIDENCE REASONABLY SATISFACTORY TO IT THAT THE
SALE, HYPOTHECATION, ASSIGNMENT OR OTHER TRANSFER IS EXEMPT FROM THE
REGISTRATION REQUIREMENT OF THE ACT.

 

10.          Market
Standoff Agreement.  In connection with any underwritten public
offering by the Company of its equity securities pursuant to an effective
registration statement filed under the Securities Act, including the Company’s
initial public offering, you agree that you shall not directly or indirectly
sell, make any short sale of, loan, hypothecate, pledge, offer,

 

6

 

grant or sell any Option or other contract for the
purchase of, purchase any Option or other contract for the sale of, or
otherwise dispose of or transfer or agree to engage in any of the foregoing
transactions with respect to, any Shares acquired under this Agreement without
the prior written consent of the Company and the Company’ s underwriters.  Such restriction (the “Market Standoff”)
shall be in effect for such period of time following the date of the final
prospectus for the offering as may be requested by the Company or such
underwriters.  In no event, however,
shall such period exceed 180 days.

 

11.          Investment
Intent.  You hereby represent to the Company and agree
that the Option is being acquired for investment and not with a view to the
sale or distribution thereof and that any Shares to be acquired upon exercise
of this Option will also be acquired for investment and not with a view to the
sale or distribution thereof.

 

12.          Taxes.  It
is hereby acknowledged and agreed that the Company has not provided you with
any tax advice or any assurances regarding the tax consequences of this Option
or the exercise thereof.  It is further
acknowledged and agreed that the Company has urged you to consult with your own
tax advisor regarding such tax consequences, including, but not limited to, any
requirements that must be met in the event this Option is intended to
constitute an ISO, the advisability and time period for the filing of a Section 83(b) election
with the Internal Revenue Service upon exercise of this Option, or otherwise.

 

13.          Not an
Employment Contract.  This Agreement shall not be deemed to be an
agreement to employ you for a specific term or to limit in any way the right of
the Company to terminate your employment at any time with or without Cause.

 

14.          Entire
Agreement.  This document, the Notice of Stock Option
Grant, the Plan and all attachments to this document contain the entire
agreement between you and the Company with respect to the subject matter
contained herein and supersede in their entirety any previous or
contemporaneous agreements, whether oral or written, with respect to that subject
matter.

 

15.          No
Waiver or Amendment.  This Agreement may not be amended or modified
except with the signed, written consent of the parties to such amendment or
modification.  No right shall be deemed
waived without the written consent of the party charged with waiving such
right.  The Company may at any time
terminate or amend the Plan; provided, however, that no such termination or
amendment may adversely affect your rights under this Agreement.

 

16.          Certain
Repurchase Rights.  Following any termination of your Service
with the Company (and/or any parent or subsidiary company of the Company) for
any reason, with or without cause, and without limitation upon any of the other
provisions of this Agreement, the Company shall have the right (but not the obligation)
to repurchase all or any portion of your Shares acquired pursuant to exercise
of this Option (the “Purchase Option”). 
The Purchase Option shall be exercised, if at all, any time, in whole or
in part, within forty-five (45) days of the expiration of your Options in
accordance with Section 6 above by provision of written notice to you or
your legal representative within such time. 
The purchase price for any Shares to be repurchased by the Company upon
exercise of the Purchase Option shall be an amount equal to the greater of the
Fair Market Value of such Shares (as defined in the Plan) as of the date of
such termination of service, or aggregate Exercise Price paid in cash by you
for such Shares upon

 

7

 

exercise of this Option.  The purchase price payable by the Company
upon exercise of the Purchase Option shall be payable in cash within thirty
(30) days of the Company’s election of exercise of such Purchase Option.

 

17.          Governing
Law.  This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, exclusive of
its conflicts of laws provisions.  Any
arbitration under this Agreement, however, or any dispute regarding the right
to arbitration shall be governed by the Federal Arbitration Act (9 U.S.C. § 1
et seq).

 

18.          Notices.  All
notices to be given under this Agreement shall be in writing and delivered
either personally or by first class mail, postage prepaid, to the addresses set
forth below the signatures of each party to the Agreement or to such other
address as the party designates in writing to the other party.

 

[Remainder of this Page Intentionally
Left Blank]

 

8

 

EXHIBIT A

 

VESTING SCHEDULE

 

A.

 

A-1

 

EXHIBIT B

 

Date: 
          ,
20  

 

	
  To:

  	
   

  	
  MSO
  Holdings, Inc.

  
	
   

  	
   

  	
  Attention:
  Corporate Secretary

  

 

Dear
Sir or Madam:

 

I
am hereby providing you with notice that I am exercising my Option to purchase
(          ) shares of Common
Stock at a price of $0.    per share, pursuant to the Incentive Stock
Option Agreement between myself and MSO Holdings, Inc. under the MSO
Holdings, Inc. 2004 Equity Incentive Plan. 
I enclose payment in full for the purchase price of the Common Stock.

 

In
making my decision to exercise my Option, I hereby represent that I have
received sufficient information regarding the Company to make an informed
decision as to whether to make this investment in the Company.  I further represent that I am purchasing
these shares for investment and not with a view toward their resale.  I understand that these shares are restricted
securities as defined in Rule 144 of the Securities and Exchange
Commission and that such rule places significant restrictions on my
ability to resell these shares.

 

Please
issue the certificate representing the shares as follows:

 

	
   

  	
   

  	
  Registered
  Owner:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Social
  Security No.:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

I
hereby agree that the foregoing is true and correct of my own knowledge.

 

Sincerely,

 

	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Participant:

  	
   

  	
   

  

 

B-1

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