Exhibit 10.15

 

REPUBLIC COMPANIES GROUP, INC.

 

EQUITY-BASED COMPENSATION PLAN

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TABLE OF CONTENTS

 

1.    Purpose    1 2.    Definitions    1 3.    Administration    7      (a)  
Authority of the Committee    7      (b)   Manner of Exercise of Committee
Authority    7      (c)   Limitation of Liability    8 4.    Stock Subject to
Plan    8      (a)   Overall Number of Shares Available for Delivery    8     
(b)   Application of Limitation to Grants of Awards    9      (c)   Availability
of Shares Not Delivered under Awards    9      (d)   Stock Offered    9 5.   
Eligibility    9 6.    Specific Terms of Awards    9      (a)   General    9  
   (b)   Options    10      (c)   Stock Appreciation Rights    11      (d)  
Restricted Stock    13      (e)   Phantom Stock    14      (f)   Bonus Stock and
Awards in Lieu of Obligations    15      (g)   Dividend Equivalents    15     
(h)   Other Stock-Based Awards    15 7.    Certain Provisions Applicable to
Awards    16      (a)   Stand-Alone, Additional, Tandem, and Substitute Awards
   16      (b)   Term of Awards    16      (c)   Form and Timing of Payment
under Awards; Deferrals    16      (d)   Exemptions from Section 16(b) Liability
   17      (e)   Non-Competition Agreement    17 8.    Performance and Annual
Incentive Awards    17      (a)   Performance Conditions    17      (b)  
Performance Awards Granted to Designated Covered Employees    17      (c)  
Annual Incentive Awards Granted to Designated Covered Employees    19      (d)  
Written Determinations    21      (e)   Status of Section 8(b) and Section 8(c)
Awards under Section 162(m) of the Code    21

 

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9.    Recapitalization or Reorganization    21      (a)   Existence of Plans and
Awards    21      (b)   Subdivision or Consolidation of Shares    22      (c)  
Corporate Restructuring    23      (d)   Change in Control Price    24      (e)
  Non-Option Awards    24      (f)   Additional Issuances    24      (g)  
Restricted Stock Awards    24 10.    General Provisions    25      (a)  
Transferability.    25      (b)   Taxes    27      (c)   Changes to this Plan
and Awards    27      (d)   Limitation on Rights Conferred under Plan    27     
(e)   Unfunded Status of Awards    28      (f)   Nonexclusivity of this Plan   
28      (g)   Payments in the Event of Forfeitures; Fractional Shares    28     
(h)   Severability    28      (i)   Governing Law    29      (j)   Conditions to
Delivery of Stock    29      (k)   Plan Effective Date and Stockholder Approval
   29

 

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REPUBLIC COMPANIES GROUP, INC.

EQUITY-BASED COMPENSATION PLAN

 

1. Purpose. The purpose of the Republic Companies Group, Inc. Equity-Based
Compensation Plan (the “Plan”) is to provide a means through which Republic
Companies Group, Inc., a Delaware corporation (the “Company”), and its
Subsidiaries may attract and retain able persons as employees, directors and
consultants of the Company and its Subsidiaries and to provide a means whereby
those persons upon whom the responsibilities of the successful administration
and management of the Company rest, and whose present and potential
contributions to the welfare of the Company are of importance, can acquire and
maintain stock ownership, or awards the value of which is tied to the
performance of the Company’s stock, thereby strengthening their concern for the
welfare of the Company and its Subsidiaries and their desire to remain in its
employ. A further purpose of this Plan is to provide such employees and
directors with additional incentive and reward opportunities designed to enhance
the profitable growth of the Company. Accordingly, this Plan primarily provides
for granting Incentive Stock Options, options which do not constitute Incentive
Stock Options, Restricted Stock Awards, Stock Appreciation Rights, Phantom Stock
Awards or any combination of the foregoing, as is best suited to the
circumstances of the particular individual as provided herein.

 

2. Definitions. For purposes of this Plan, the following terms shall be defined
as set forth below, in addition to such terms defined in Section 1 hereof:

 

  (a) “Annual Incentive Award” means a conditional right granted to a
Participant under Section 8(c) hereof to receive a cash payment, Stock or other
Award, unless otherwise determined by the Committee, after the end of a
specified fiscal year.

 

  (b) “Award” means any Option, SAR (including Limited SAR), Restricted Stock
Award, Phantom Stock Award, Stock granted as a bonus or in lieu of another
award, Dividend Equivalent, Other Stock-Based Award, Performance Award or Annual
Incentive Award, together with any other right or interest granted to a
Participant under this Plan.

 

  (c) “Beneficiary” means one or more persons, trusts or other entities which
have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under this Plan upon such Participant’s death or to which Awards or
other rights are transferred if and to the extent permitted under Section 10(a)
hereof. If, upon a Participant’s death, there is no designated Beneficiary or
surviving designated Beneficiary, then the term Beneficiary means the persons,
trusts or other entities entitled by will or the laws of descent and
distribution to receive such benefits.

 

  (d) “Beneficial Owner” shall have the meaning ascribed to such term in Rule
13d-3 under the Exchange Act and any successor to such Rule.

 

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  (e) “Board” means the Company’s Board of Directors.

 

  (f) “Business Day” means any day other than a Saturday, a Sunday, or a day on
which banking institutions in the state of Texas are authorized or obligated by
law or executive order to close.

 

  (g) “Change in Control” means the occurrence of any of the following events:

 

  (i) The agreement to acquire or a tender offer for beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act by any
individual, entity or group (within the meaning of section 13(d)(3) or 14(d)(2)
of the Exchange Act) (a “Person”), of 50% or more of either (x) the then
outstanding shares of Stock (the “Outstanding Stock”) or (y) the combined voting
power of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the “Outstanding Company Voting
Securities”); provided, however, that for purposes of this subsection (i), the
following acquisitions shall not constitute a Change in Control: (A) any
acquisition directly from the Company, (B) any acquisition by the Company, (C)
any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (D)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (A), (B) and (C) of paragraph (iii) below; or

 

  (ii) Individuals who constitute the Incumbent Board cease for any reason to
constitute at least a majority of the Board; or

 

  (iii) Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Company or an
acquisition of assets of another corporation (a “Business Combination”), in each
case, unless, following such Business Combination, (A) the Outstanding Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination represent or are converted into or exchanged for securities which
represent or are convertible into more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company, or all or substantially all of the Company’s
assets either directly or through one or more Subsidiaries), (B) no Person
(excluding any employee benefit plan (or related trust) of the Company or the
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the

 

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corporation resulting from such Business Combination or the combined voting
power of the then outstanding voting securities of such corporation except to
the extent that such ownership of the Company existed prior to the Business
Combination and (C) at least a majority of the members of the board of directors
of the corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination; or

 

  (iv) Approval by the stockholders of the Company of a complete liquidation or
dissolution of the Company.

 

  (h) “Change in Control Price” means the amount calculated in accordance with
Section 9 of this Plan.

 

  (i) “Code” means the Internal Revenue Code of 1986, as amended from time to
time, including regulations thereunder and successor provisions and regulations
thereto.

 

  (j) “Committee” means a committee of two or more directors designated by the
Board to administer this Plan; provided, however, that, unless otherwise
determined by the Board, the Committee shall consist solely of two or more
directors, each of whom shall be (i) a “nonemployee director” within the meaning
of Rule 16b-3 under the Exchange Act, and (ii) an “outside director” as defined
under section 162(m) of the Code, unless administration of this Plan by “outside
directors” is not then required in order to qualify for tax deductibility under
section 162(m) of the Code.

 

  (k) “Covered Employee” means an Eligible Person who is a Covered Employee as
specified in Section 8(e) of this Plan.

 

  (l) “Dividend Equivalent” means a right, granted to a Participant under
Section 6(g), to receive cash, Stock, other Awards or other property equal in
value to dividends paid with respect to a specified number of shares of Stock,
or other periodic payments.

 

  (m) “Effective Date” means the date immediately prior to a firm commitment
underwritten public offering of the Stock for cash.

 

  (n) “Eligible Person” means all officers and employees of the Company or of
any Subsidiary, and other persons who provide services to the Company or any of
its Subsidiaries, including directors of the Company. An employee on leave of
absence may be considered as still in the employ of the Company or a Subsidiary
for purposes of eligibility for participation in this Plan.

 

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  (o) “Exchange Act” means the Securities Exchange Act of 1934, as amended from
time to time, including rules thereunder and successor provisions and rules
thereto.

 

  (p) “Executive Officer” means an executive officer of the Company as defined
under the Exchange Act.

 

  (q) “Fair Market Value” means, for a particular day:

 

  (i) if shares of Stock of the same class are listed or admitted to unlisted
trading privileges on any national or regional securities exchange at the date
of determining the Fair Market Value, then the last reported sale price, regular
way, on the composite tape of that exchange on that business day or, if no such
sale takes place on that business day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
unlisted trading privileges on that securities exchange or, if no such closing
prices are available for that day, the last reported sale price, regular way, on
the composite tape of that exchange on the last business day before the date in
question; or

 

  (ii) if shares of Stock of the same class are not listed or admitted to
unlisted trading privileges as provided in subparagraph (i) and if sales prices
for shares of Stock of the same class in the over-the-counter market are
reported by the National Association of Securities Dealers, Inc. Automated
Quotations, Inc. (“NASDAQ”) National Market System as of the date of determining
the Fair Market Value, then the last reported sales price so reported on that
business day or, if no such sale takes place on that business day, the average
of the high bid and low asked prices so reported or, if no such prices are
available for that day, the last reported sale price so reported on the last
business day before the date in question; or

 

  (iii) if shares of Stock of the same class are not listed or admitted to
unlisted trading privileges as provided in subparagraph (i) and sales prices for
shares of Stock of the same class are not reported by the NASDAQ National Market
System (or a similar system then in use) as provided in subparagraph (ii), and
if bid and asked prices for shares of Stock of the same class in the
over-the-counter market are reported by NASDAQ (or, if not so reported, by the
National Quotation Bureau Incorporated) as of the date of determining the Fair
Market Value, then the average of the high bid and low asked prices on that
business day or, if no such prices are available for that day, the average of
the high bid and low asked prices on the last business day before the date in
question; or

 

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  (iv) if shares of Stock of the same class are not listed or admitted to
unlisted trading privileges as provided in subparagraph (i) and sales prices or
bid and asked prices therefor are not reported by NASDAQ (or the National
Quotation Bureau Incorporated) as provided in subparagraph (ii) or subparagraph
(iii) as of the date of determining the Fair Market Value, then the value
determined in good faith by the Committee, which determination shall be
conclusive for all purposes; or

 

  (v) if shares of Stock of the same class are listed or admitted to unlisted
trading privileges as provided in subparagraph (i) or sales prices or bid and
asked prices therefor are reported by NASDAQ (or the National Quotation Bureau
Incorporated) as provided in subparagraph (ii) or subparagraph (iii) as of the
date of determining the Fair Market Value, but the volume of trading is so low
that the Board of Directors determines in good faith that such prices are not
indicative of the fair value of the Stock, then the value determined in good
faith by the Committee, which determination shall be conclusive for all purposes
notwithstanding the provisions of subparagraphs (i), (ii) or (iii).

 

For purposes of valuing Incentive Stock Options, the Fair Market Value of Stock
shall be determined without regard to any restriction other than one that, by
its terms, will never lapse.

 

  (r) “Incentive Stock Option” or “ISO” means any Option intended to be and
designated as an incentive stock option within the meaning of section 422 of the
Code or any successor provision thereto.

 

  (s) “Incumbent Board” shall mean individuals who constitute the Board as of
the Effective Date and any other individual who becomes a director of the
Company after that date and whose election or appointment by the Board or
nomination for election by the Company’s stockholders was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Incumbent Board.

 

  (t) “Limited SAR” means a right granted to a Participant under Section 6(c)
hereof.

 

  (u) “Option” means a right, granted to a Participant under Section 6(b)
hereof, to purchase Stock or other Awards at a specified price during specified
time periods.

 

  (v) “Other Stock-Based Awards” means Awards granted to a Participant under
Section 6(h) hereof.

 

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  (w) “Participant” means a person who has been granted an Award under this Plan
which remains outstanding, including a person who is no longer an Eligible
Person.

 

  (x) “Performance Award” means a right, granted to a Participant under Section
8 hereof, to receive Awards based upon performance criteria specified by the
Committee.

 

  (y) “Person” means any person or entity of any nature whatsoever, specifically
including an individual, a firm, a company, a corporation, a partnership, a
limited liability company, a trust or other entity; a Person, together with that
Person’s Affiliates and Associates (as those terms are defined in Rule 12b-2
under the Exchange Act), and any Persons acting as a partnership, limited
partnership, joint venture, association, syndicate or other group (whether or
not formally organized), or otherwise acting jointly or in concert or in a
coordinated or consciously parallel manner (whether or not pursuant to any
express agreement), for the purpose of acquiring, holding, voting or disposing
of securities of the Company with such Person, shall be deemed a single
“Person.”

 

  (z) “Phantom Stock” means a right, granted to a Participant under Section 6(e)
hereof, to receive Stock, cash or a combination thereof at the end of a
specified deferral period.

 

  (aa) “Qualified Member” means a member of the Committee who is a “Non-Employee
Director” within the meaning of Rule 16b-3(b)(3) and an “outside director”
within the meaning of regulation 1.162-27 under section 162(m) of the Code.

 

  (bb) “Restricted Stock” means Stock granted to a Participant under Section
6(d) hereof, that is subject to certain restrictions and to a risk of
forfeiture.

 

  (cc) “Rule 16b-3” means Rule 16b-3, promulgated by the Securities and Exchange
Commission under section 16 of the Exchange Act, as from time to time in effect
and applicable to this Plan and Participants.

 

  (dd) “Securities Act” means the Securities Act of 1933 and the rules and
regulations promulgated thereunder, or any successor law, as it may be amended
from time to time.

 

  (ee) “Stock” means the Company’s Common Stock, par value $.01 per share, and
such other securities as may be substituted (or resubstituted) for Stock
pursuant to Section 9.

 

  (ff) “Stock Appreciation Rights” or “SAR” means a right granted to a
Participant under Section 6(c) hereof.

 

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  (gg) “Subsidiary” means with respect to any Person, any corporation or other
entity of which a majority of the voting power of the voting equity securities
or equity interest is owned, directly or indirectly, by that Person.

 

3. Administration.

 

  (a) Authority of the Committee. This Plan shall be administered by the
Committee except to the extent the Board elects, in order to comply with Rule
16b-3 or for any other reason, to administer this Plan, in which case references
herein to the “Committee” shall be deemed to include references to the “Board.”
Subject to the express provisions of the Plan and Rule 16b-3, the Committee
shall have the authority, in its sole and absolute discretion, to (i) adopt,
amend, and rescind administrative and interpretive rules and regulations
relating to the Plan; (ii) determine the Eligible Persons to whom, and the time
or times at which, Awards shall be granted; (iii) determine the amount of cash
and the number of shares of Stock, Stock Appreciation Rights, Phantom Stock
Rights, or Restricted Stock Awards, or any combination thereof, that shall be
the subject of each Award; (iv) determine the terms and provisions of each Award
agreement (which need not be identical), including provisions defining or
otherwise relating to (A) the term and the period or periods and extent of
exercisability of the Options, (B) the extent to which the transferability of
shares of Stock issued or transferred pursuant to any Award is restricted, (C)
the effect of termination of employment of a Participant on the Award, and (D)
the effect of approved leaves of absence (consistent with any applicable
regulations of the Internal Revenue Service); (v) accelerate the time of
exercisability of any Option that has been granted; (vi) construe the respective
Award agreements and the Plan; (vii) make determinations of the Fair Market
Value of the Stock pursuant to the Plan; (viii) delegate its duties under the
Plan to such agents as it may appoint from time to time, provided that the
Committee may not delegate its duties with respect to making Awards to, or
otherwise with respect to Awards granted to, Eligible Persons who are subject to
section 16(b) of the Exchange Act or section 162(m) of the Code; (ix) subject to
ratification by the Board, terminate, modify, or amend the Plan; and (x) make
all other determinations, perform all other acts, and exercise all other powers
and authority necessary or advisable for administering the Plan, including the
delegation of those ministerial acts and responsibilities as the Committee deems
appropriate. Subject to Rule 16b-3 and section 162(m) of the Code, the Committee
may correct any defect, supply any omission, or reconcile any inconsistency in
the Plan, in any Award, or in any Award agreement in the manner and to the
extent it deems necessary or desirable to carry the Plan into effect, and the
Committee shall be the sole and final judge of that necessity or desirability.
The determinations of the Committee on the matters referred to in this Section
3(a) shall be final and conclusive.

 

  (b) Manner of Exercise of Committee Authority. At any time that a member of
the Committee is not a Qualified Member, any action of the Committee relating to
an Award granted or to be granted to a Participant who is then subject to
section 16

 

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of the Exchange Act in respect of the Company, or relating to an Award intended
by the Committee to qualify as “performance-based compensation” within the
meaning of section 162(m) of the Code and regulations thereunder, may be taken
either (i) by a subcommittee, designated by the Committee, composed solely of
two or more Qualified Members, or (ii) by the Committee but with each such
member who is not a Qualified Member abstaining or recusing himself or herself
from such action; provided, however, that, upon such abstention or recusal, the
Committee remains composed solely of two or more Qualified Members. Such action,
authorized by such a subcommittee or by the Committee upon the abstention or
recusal of such non-Qualified Member(s), shall be the action of the Committee
for purposes of this Plan. Any action of the Committee shall be final,
conclusive and binding on all persons, including the Company, its Subsidiaries,
stockholders, Participants, Beneficiaries, and transferees under Section 10(a)
hereof or other persons claiming rights from or through a Participant. The
express grant of any specific power to the Committee, and the taking of any
action by the Committee, shall not be construed as limiting any power or
authority of the Committee. The Committee may delegate to officers or managers
of the Company or any Subsidiary, or committees thereof, the authority, subject
to such terms as the Committee shall determine, to perform such functions,
including administrative functions, as the Committee may determine, to the
extent that such delegation will not result in the loss of an exemption under
Rule 16b-3(d)(1) for Awards granted to Participants subject to section 16 of the
Exchange Act in respect of the Company and will not cause Awards intended to
qualify as “performance-based compensation” under section 162(m) of the Code to
fail to so qualify. The Committee may appoint agents to assist it in
administering this Plan.

 

  (c) Limitation of Liability. The Committee and each member thereof shall be
entitled to, in good faith, rely or act upon any report or other information
furnished to him or her by any officer or employee of the Company or a
Subsidiary, the Company’s legal counsel, independent auditors, consultants or
any other agents assisting in the administration of this Plan. Members of the
Committee and any officer or employee of the Company or a Subsidiary acting at
the direction or on behalf of the Committee shall not be personally liable for
any action or determination taken or made in good faith with respect to this
Plan, and shall, to the fullest extent permitted by law, be indemnified and held
harmless by the Company with respect to any such action or determination.

 

4. Stock Subject to Plan.

 

  (a) Overall Number of Shares Available for Delivery. Subject to adjustment in
a manner consistent with any adjustment made pursuant to Section 9, regardless
of whether such adjustment is made prior to the Effective Date of the Plan as
long as such adjustment is made on or after July 12, 2005, the total number of
shares of Stock reserved and available for delivery in connection with Awards
under this Plan shall not exceed 1,000,000 shares; provided, however, that any
shares issued pursuant to awards granted on or after July 12, 2005 under the
Republic Stock Plan, adjusted in a manner consistent with Section 9, shall count
against this limit.

 

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  (b) Application of Limitation to Grants of Awards. No Award may be granted if
the number of shares of Stock to be delivered in connection with such Award
exceeds the number of shares of Stock remaining available under this Plan minus
the number of shares of Stock issuable in settlement of or relating to
then-outstanding Awards. The Committee may adopt reasonable counting procedures
to ensure appropriate counting, avoid double counting (as, for example, in the
case of tandem or substitute awards) and make adjustments if the number of
shares of Stock actually delivered differs from the number of shares previously
counted in connection with an Award.

 

  (c) Availability of Shares Not Delivered under Awards. Shares of Stock subject
to an Award under this Plan that expire or are canceled, forfeited, settled in
cash or otherwise terminated without a delivery of shares to the Participant,
including (i) the number of shares withheld in payment of any exercise or
purchase price of an Award or taxes relating to Awards, and (ii) the number of
shares surrendered in payment of any exercise or purchase price of an Award or
taxes relating to any Award, will again be available for Awards under this Plan,
except that if any such shares could not again be available for Awards to a
particular Participant under any applicable law or regulation, such shares shall
be available exclusively for Awards to Participants who are not subject to such
limitation.

 

  (d) Stock Offered. The shares to be delivered under the Plan shall be made
available from (i) authorized but unissued shares of Stock, (ii) Stock held in
the treasury of the Company, or (iii) previously issued shares of Stock
reacquired by the Company, including shares purchased on the open market, in
each situation as the Board or the Committee may determine from time to time at
its sole option.

 

5. Eligibility. Awards may be granted under this Plan only to Eligible Persons.

 

6. Specific Terms of Awards.

 

  (a) General. Awards may be granted on the terms and conditions set forth in
this Section 6. In addition, the Committee may impose on any Award or the
exercise thereof, at the date of grant or thereafter (subject to Section 10(c)),
such additional terms and conditions, not inconsistent with the provisions of
this Plan, as the Committee shall determine, including terms requiring
forfeiture of Awards in the event of termination of employment by the
Participant and terms permitting a Participant to make elections relating to his
or her Award. The Committee shall retain full power and discretion to
accelerate, waive or modify, at any time, any term or condition of an Award that
is not mandatory under this Plan; provided, however, that the Committee shall
not have any discretion to accelerate, waive or modify any term or condition of
an Award that is intended to qualify as “performance-based compensation” for
purposes of section 162(m) of the Code if

 

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such discretion would cause the Award to not so qualify. Except in cases in
which the Committee is authorized to require other forms of consideration under
this Plan, or to the extent other forms of consideration must be paid to satisfy
the requirements of the Delaware General Corporation Law, no consideration other
than services may be required for the grant (but not the exercise) of any Award.

 

  (b) Options. The Committee is authorized to grant Options to Participants on
the following terms and conditions:

 

  (i) Exercise Price. Each Option agreement shall state the exercise price per
share of Stock (the “Exercise Price”); provided, however, that the Exercise
Price per share of Stock subject to an Incentive Stock Option shall not be less
than the greater of (A) the par value per share of the Stock or (B) 100% of the
Fair Market Value per share of the Stock on the date of grant of the Option or
in the case of an individual who owns stock possessing more than 10 percent of
the total combined voting power of all classes of stock of the Company or its
parent or any Subsidiary 110% of the Fair Market Value per share of the Stock on
the date of grant, and the exercise price per share of Stock subject to an
Option other than an Incentive Stock Option shall not be less than the par value
per share of the Stock (but may be less than the Fair Market Value of a share of
the Stock on the date of grant).

 

  (ii) Time and Method of Exercise. The Committee shall determine the time or
times at which or the circumstances under which an Option may be exercised in
whole or in part (including based on achievement of performance goals and/or
future service requirements), the methods by which such exercise price may be
paid or deemed to be paid, the form of such payment, including without
limitation cash, Stock, other Awards or awards granted under other plans of the
Company or any Subsidiary, or other property (including notes or other
contractual obligations of Participants to make payment on a deferred basis),
and the methods by or forms in which Stock will be delivered or deemed to be
delivered to Participants, including, but not limited to, the delivery of
Restricted Stock subject to Section 6(d). In the case of an exercise whereby the
Exercise Price is paid with Stock, such Stock shall be valued as of the date of
exercise.

 

  (iii) ISOs. The terms of any ISO granted under this Plan shall comply in all
respects with the provisions of section 422 of the Code. Anything in this Plan
to the contrary notwithstanding, no term of this Plan relating to ISOs
(including any SAR in tandem therewith) shall be interpreted, amended or
altered, nor shall any discretion or authority granted under this Plan be
exercised, so as to disqualify either this Plan or any ISO under section 422 of
the Code, unless the Participant has first requested the change that will result
in such disqualification. ISOs shall not be granted more than ten

 

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years after the earlier of the adoption of this Plan or the approval of this
Plan by the Company’s stockholders. Notwithstanding the foregoing, the Fair
Market Value of shares of Stock subject to an ISO and the aggregate Fair Market
Value of shares of stock of any parent or Subsidiary corporation (within the
meaning of sections 424(e) and (f) of the Code) subject to any other incentive
stock option (within the meaning of section 422 of the Code)) of the Company or
a parent or Subsidiary corporation (within the meaning of sections 424(e) and
(f) of the Code) that first becomes purchasable by a Participant in any calendar
year may not (with respect to that Participant) exceed $100,000, or such other
amount as may be prescribed under section 422 of the Code or applicable
regulations or rulings from time to time. As used in the previous sentence, Fair
Market Value shall be determined as of the date the incentive stock option is
granted. Failure to comply with this provision shall not impair the
enforceability or exercisability of any Option, but shall cause the excess
amount of shares to be reclassified in accordance with the Code.

 

  (c) Stock Appreciation Rights. The Committee is authorized to grant SARs to
Participants on the following terms and conditions:

 

  (i) Right to Payment. An SAR shall confer on the Participant to whom it is
granted a right to receive, upon exercise or settlement thereof, the excess of
(A) the Fair Market Value of one share of Stock on the date of exercise or
settlement (or, in the case of a “Limited SAR,” the Fair Market Value determined
by reference to the Change in Control Price, as defined under Section 2(h)
hereof) over (B) the grant price of the SAR as determined by the Committee.

 

  (ii) Rights Related to Options. A Stock Appreciation Right granted pursuant to
an Option shall entitle a Participant, upon exercise or settlement, to surrender
that Option or any portion thereof, to the extent unexercised or not settled,
and to receive payment of an amount computed pursuant to Subsection 6(c)(ii)(B).
That Option shall then cease to be exercisable or settleable to the extent
surrendered. Stock Appreciation Rights granted in connection with an Option
shall be subject to the terms of the Award agreement governing the Option, which
shall comply with the following provisions in addition to those applicable to
Options:

 

  (A) A Stock Appreciation Right granted in connection with an Option shall be
exercisable or settleable only at such time or times and only to the extent that
the related Option is exercisable and shall not be transferable except to the
extent that the related Option is transferable.

 

  (B) Upon the exercise or settlement of a Stock Appreciation Right related to
an Option, a Participant shall be entitled to receive

 

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payment from the Company of an amount determined by multiplying:

 

  (1) the difference obtained by subtracting the exercise price of a share of
Stock specified in the related Option from the Fair Market Value of a share of
Stock on the date of exercise or settlement of the Stock Appreciation Right, by

 

  (2) the number of shares as to which that Stock Appreciation Right has been
exercised or settled.

 

  (iii) Right Without Option. A Stock Appreciation Right granted independent of
an Option shall be exercisable or settleable as determined by the Committee and
set forth in the Award agreement governing the Stock Appreciation Right, which
Award agreement shall comply with the following provisions:

 

  (A) Each Award agreement shall state the total number of shares of Stock to
which the Stock Appreciation Right relates.

 

  (B) Each Award agreement shall state the time at which the Stock Appreciation
Right will vest, the time the Stock Appreciation Right will be settled, or the
time or periods in which the right to exercise the Stock Appreciation Right or a
portion thereof shall vest and the number of shares of Stock for which the right
to exercise the Stock Appreciation Right shall vest at each such time or period.

 

  (C) Each Award agreement shall state the date at which the Stock Appreciation
Rights shall expire if not previously exercised or settled.

 

  (D) Each Stock Appreciation Right shall entitle a Participant, upon exercise
or settlement thereof, to receive payment of an amount determined by
multiplying:

 

  (1) the difference obtained by subtracting the Fair Market Value of a share of
Stock on the date of grant of the Stock Appreciation Right from the Fair Market
Value of a share of Stock on the date of exercise or settlement of that Stock
Appreciation Right, by

 

  (2) the number of shares as to which the Stock Appreciation Right has been
exercised or settled.

 

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  (iv) Terms. The Committee shall determine at the date of grant or thereafter,
the time or times at which and the circumstances under which an SAR may be
exercised or settled in whole or in part (including based on achievement of
performance goals and/or future service requirements), the method of exercise,
method of settlement, form of consideration payable in settlement, method by or
forms in which Stock will be delivered or deemed to be delivered to
Participants, whether or not any SAR shall be in tandem or in combination with
any other Award, and any other terms and conditions of any SAR. Limited SARs
that may only be exercised in connection with a Change in Control or other event
as specified by the Committee may be granted on such terms, not inconsistent
with this Section 6(c), as the Committee may determine. SARs and Limited SARs
may be either freestanding or in tandem with other Awards.

 

  (d) Restricted Stock. The Committee is authorized to grant Restricted Stock to
Participants on the following terms and conditions:

 

  (i) Grant and Restrictions. Restricted Stock shall be subject to such
restrictions on transferability, risk of forfeiture and other restrictions, if
any, as the Committee may impose, which restrictions may lapse separately or in
combination at such times, under such circumstances (including based on
achievement of performance goals and/or future service requirements), in such
installments or otherwise, as the Committee may determine at the date of grant
or thereafter. Except to the extent restricted under the terms of this Plan and
any Award agreement relating to the Restricted Stock, a Participant granted
Restricted Stock shall have all of the rights of a stockholder, including the
right to vote the Restricted Stock and the right to receive dividends thereon
(subject to any mandatory reinvestment or other requirement imposed by the
Committee). During the restricted period applicable to the Restricted Stock, the
Restricted Stock may not be sold, transferred, pledged, hypothecated, margined
or otherwise encumbered by the Participant.

 

  (ii) Forfeiture. Except as otherwise determined by the Committee, upon
termination of employment during the applicable restriction period, Restricted
Stock that is at that time subject to restrictions shall be forfeited and
reacquired by the Company; provided that the Committee may provide, by rule or
regulation or in any Award agreement, or may determine in any individual case,
that restrictions or forfeiture conditions relating to Restricted Stock shall be
waived in whole or in part in the event of terminations resulting from specified
causes, and the Committee may in other cases waive in whole or in part the
forfeiture of Restricted Stock.

 

  (iii) Certificates for Stock. Restricted Stock granted under this Plan may be
evidenced in such manner as the Committee shall determine. If certificates
representing Restricted Stock are registered in the name of the

 

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Participant, the Committee may require that such certificates bear an
appropriate legend referring to the terms, conditions and restrictions
applicable to such Restricted Stock, that the Company retain physical possession
of the certificates, and that the Participant deliver a stock power to the
Company, endorsed in blank, relating to the Restricted Stock.

 

  (iv) Dividends and Splits. As a condition to the grant of an Award of
Restricted Stock, the Committee may require or permit a Participant to elect
that any cash dividends paid on a share of Restricted Stock be automatically
reinvested in additional shares of Restricted Stock or applied to the purchase
of additional Awards under this Plan. Unless otherwise determined by the
Committee, Stock distributed in connection with a Stock split or Stock dividend,
and other property distributed as a dividend, shall be subject to restrictions
and a risk of forfeiture to the same extent as the Restricted Stock with respect
to which such Stock or other property has been distributed.

 

  (e) Phantom Stock. The Committee is authorized to grant Phantom Stock to
Participants, which are rights to receive Stock, cash, or a combination thereof
at the end of a specified deferral period, subject to the following terms and
conditions:

 

  (i) Award and Restrictions. Satisfaction of an Award of Phantom Stock shall
occur upon expiration of the deferral period specified for such Phantom Stock by
the Committee (or, if permitted by the Committee, as elected by the
Participant). In addition, Phantom Stock shall be subject to such restrictions
(which may include a risk of forfeiture) as the Committee may impose, if any,
which restrictions may lapse at the expiration of the deferral period or at
earlier specified times (including based on achievement of performance goals
and/or future service requirements), separately or in combination, in
installments or otherwise, as the Committee may determine. Phantom Stock may be
satisfied by delivery of Stock, cash equal to the Fair Market Value of the
specified number of shares of Stock covered by the Phantom Stock, or a
combination thereof, as determined by the Committee at the date of grant or
thereafter.

 

  (ii) Forfeiture. Except as otherwise determined by the Committee, upon
termination of employment during the applicable deferral period or portion
thereof to which forfeiture conditions apply (as provided in the Award agreement
evidencing the Phantom Stock), all Phantom Stock that is at that time subject to
deferral (other than a deferral at the election of the Participant) shall be
forfeited; provided that the Committee may provide, by rule or regulation or in
any Award agreement, or may determine in any individual case, that restrictions
or forfeiture conditions relating to Phantom Stock shall be waived in whole or
in part in the event of terminations resulting from specified causes, and the
Committee may in other cases waive in whole or in part the forfeiture of Phantom
Stock.

 

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  (iii) Dividend Equivalents. Unless otherwise determined by the Committee at
date of grant, Dividend Equivalents on the specified number of shares of Stock
covered by an Award of Phantom Stock shall be either (A) paid with respect to
such Phantom Stock on the dividend payment date in cash or in shares of
unrestricted Stock having a Fair Market Value equal to the amount of such
dividends, or (B) deferred with respect to such Phantom Stock and the amount or
value thereof automatically deemed reinvested in additional Phantom Stock, other
Awards or other investment vehicles, as the Committee shall determine or permit
the Participant to elect.

 

  (f) Bonus Stock and Awards in Lieu of Obligations. The Committee is authorized
to grant Stock as a bonus, or to grant Stock or other Awards in lieu of
obligations to pay cash or deliver other property under this Plan or under other
plans or compensatory arrangements, provided that, in the case of Participants
subject to section 16 of the Exchange Act, the amount of such grants remains
within the discretion of the Committee to the extent necessary to ensure that
acquisitions of Stock or other Awards are exempt from liability under section
16(b) of the Exchange Act. Stock or Awards granted hereunder shall be subject to
such other terms as shall be determined by the Committee. In the case of any
grant of Stock to an officer of the Company or a Subsidiary in lieu of salary or
other cash compensation, the number of shares granted in place of such
compensation shall be reasonable, as determined by the Committee.

 

  (g) Dividend Equivalents. The Committee is authorized to grant Dividend
Equivalents to a Participant, entitling the Participant to receive cash, Stock,
other Awards, or other property equal in value to dividends paid with respect to
a specified number of shares of Stock, or other periodic payments. Dividend
Equivalents may be awarded on a free-standing basis or in connection with
another Award. The Committee may provide that Dividend Equivalents shall be paid
or distributed when accrued or shall be deemed to have been reinvested in
additional Stock, Awards, or other investment vehicles, and subject to such
restrictions on transferability and risks of forfeiture, as the Committee may
specify.

 

  (h) Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other Awards
that may be denominated or payable in, valued in whole or in part by reference
to, or otherwise based on, or related to, Stock, as deemed by the Committee to
be consistent with the purposes of this Plan, including without limitation bonus
Stock grants, Stock in lieu of salary or other compensation, convertible or
exchangeable debt securities, other rights convertible or exchangeable into
Stock, purchase rights for Stock, Awards with value and payment contingent upon
performance of the Company or any other factors designated by the Committee, and
Awards

 

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valued by reference to the book value of Stock or the value of securities of or
the performance of specified Subsidiaries. The Committee shall determine the
terms and conditions of such Awards. Stock delivered pursuant to an Award in the
nature of a purchase right granted under this Section 6(h) shall be purchased
for such consideration, paid for at such times, by such methods, and in such
forms, including, without limitation, cash, Stock, other Awards, or other
property, as the Committee shall determine. Cash awards, as an element of or
supplement to any other Award under this Plan, may also be granted pursuant to
this Section 6(h).

 

7. Certain Provisions Applicable to Awards.

 

  (a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards granted
under this Plan may, in the discretion of the Committee, be granted either alone
or in addition to, in tandem with, or in substitution or exchange for, any other
Award or any award granted under another plan of the Company, any Subsidiary, or
any business entity to be acquired by the Company or a Subsidiary, or any other
right of a Participant to receive payment from the Company or any Subsidiary.
Such additional, tandem and substitute or exchange Awards may be granted at any
time. If an Award is granted in substitution or exchange for another Award, the
Committee shall require the surrender of such other Award in consideration for
the grant of the new Award. In addition, Awards may be granted in lieu of cash
compensation, including in lieu of cash amounts payable under other plans of the
Company or any Subsidiary, in which the value of Stock subject to the Award is
equivalent in value to the cash compensation (for example, Phantom Stock or
Restricted Stock), or in which the exercise price, grant price or purchase price
of the Award in the nature of a right that may be exercised is equal to the Fair
Market Value of the underlying Stock minus the value of the cash compensation
surrendered (for example, Options granted with an exercise price “discounted” by
the amount of the cash compensation surrendered).

 

  (b) Term of Awards. The term of each Award shall be for such period as may be
determined by the Committee; provided that in no event shall the term of any
Option or SAR exceed a period of ten years (or such shorter term as may be
required in respect of an ISO under section 422 of the Code).

 

  (c) Form and Timing of Payment under Awards; Deferrals. Subject to the terms
of this Plan and any applicable Award agreement, payments to be made by the
Company or a Subsidiary upon the exercise of an Option or other Award or
settlement of an Award may be made in such forms as the Committee shall
determine, including without limitation cash, Stock, other Awards or other
property, and may be made in a single payment or transfer, in installments, or
on a deferred basis. The settlement of any Award may be accelerated, and cash
paid in lieu of Stock in connection with such settlement, in the discretion of
the Committee or upon occurrence of one or more specified events (in addition to
a Change in Control). Installment or deferred payments may be required by the
Committee (subject to Section 10(c) of this Plan, including the consent
provisions

 

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thereof in the case of any deferral of an outstanding Award not provided for in
the original Award agreement) or permitted at the election of the Participant on
terms and conditions established by the Committee. Payments may include, without
limitation, provisions for the payment or crediting of reasonable interest on
installment or deferred payments or the grant or crediting of Dividend
Equivalents or other amounts in respect of installment or deferred payments
denominated in Stock. Any deferral shall only be allowed as is provided in a
separate deferred compensation plan adopted by the Company. This Plan shall not
constitute an “employee benefit plan” for purposes of section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended.

 

  (d) Exemptions from Section 16(b) Liability. It is the intent of the Company
that the grant of any Awards to or other transaction by a Participant who is
subject to section 16 of the Exchange Act shall be exempt from section 16
pursuant to an applicable exemption (except for transactions acknowledged in
writing to be non-exempt by such Participant). Accordingly, if any provision of
this Plan or any Award agreement does not comply with the requirements of Rule
16b-3 as then applicable to any such transaction, such provision shall be
construed or deemed amended to the extent necessary to conform to the applicable
requirements of Rule 16b-3 so that such Participant shall avoid liability under
section 16(b).

 

  (e) Non-Competition Agreement. Each Participant to whom an Award is granted
under this Plan may be required to agree in writing as a condition to the
granting of such Award not to engage in conduct in competition with the Company
or any of its Subsidiaries for a period after the termination of such
Participant’s employment with the Company and its Subsidiaries as determined by
the Committee.

 

8. Performance and Annual Incentive Awards.

 

  (a) Performance Conditions. The right of a Participant to exercise or receive
a grant or settlement of any Award, and the timing thereof, may be subject to
such performance conditions as may be specified by the Committee. The Committee
may use such business criteria and other measures of performance as it may deem
appropriate in establishing any performance conditions, and may exercise its
discretion to reduce or increase the amounts payable under any Award subject to
performance conditions, except as limited under Sections 8(b) and 8(c) hereof in
the case of a Performance Award or Annual Incentive Award intended to qualify
under section 162(m) of the Code.

 

  (b) Performance Awards Granted to Designated Covered Employees. If the
Committee determines that a Performance Award to be granted to an Eligible
Person who is designated by the Committee as likely to be a Covered Employee
should qualify as “performance-based compensation” for purposes of section
162(m) of the Code, the grant, exercise and/or settlement of such Performance
Award may be contingent upon achievement of preestablished performance goals and
other terms set forth in this Section 8(b).

 

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  (i) Performance Goals Generally. The performance goals for such Performance
Awards shall consist of one or more business criteria or individual performance
criteria and a targeted level or levels of performance with respect to each of
such criteria, as specified by the Committee consistent with this Section 8(b).
Performance goals shall be objective and shall otherwise meet the requirements
of section 162(m) of the Code and regulations thereunder (including Treasury
Regulation §1.162-27 and successor regulations thereto), including the
requirement that the level or levels of performance targeted by the Committee
result in the achievement of performance goals being “substantially uncertain.”
The Committee may determine that such Performance Awards shall be granted,
exercised, and/or settled upon achievement of any one performance goal or that
two or more of the performance goals must be achieved as a condition to grant,
exercise and/or settlement of such Performance Awards. Performance goals may
differ for Performance Awards granted to any one Participant or to different
Participants.

 

  (ii) Business and Individual Performance Criteria.

 

  (A) Business Criteria. One or more of the following business criteria for the
Company, on a consolidated basis, and/or for specified Subsidiaries or business
or geographical units of the Company (except with respect to the total
stockholder return and earnings per share criteria), shall be used by the
Committee in establishing performance goals for such Performance Awards: (1)
earnings per share; (2) increase in revenues; (3) increase in cash flow; (4)
increase in cash flow return; (5) return on net assets, return on assets, return
on investment, return on capital, or return on equity; (6) economic value added;
(7) operating margin or contribution margin; (8) net income; pretax earnings;
pretax earnings before interest, depreciation and amortization; pretax operating
earnings after interest expense and before incentives, service fees, and
extraordinary or special items; or operating income; (9) total stockholder
return; (10) debt reduction; (11) combined ratio; (12) reduction in expense
ratio; and (13) any of the above goals determined on an absolute or relative
basis or as compared to the performance of a published or special index deemed
applicable by the Committee including, but not limited to, the Standard & Poor’s
500 Stock Index or a group of comparable companies. One or more of the foregoing
business criteria shall also be exclusively used in establishing performance
goals for Annual Incentive Awards granted to a Covered Employee under Section
8(c) hereof.

 

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  (B) Individual Performance Criteria. The grant, exercise and/or settlement of
Performance Awards may also be contingent upon individual performance goals
established by the Committee. If required for compliance with section 162(m) of
the Code, such criteria shall be approved by the stockholders of the Company.

 

  (iii) Performance Period; Timing for Establishing Performance Goals.
Achievement of performance goals in respect of such Performance Awards shall be
measured over a performance period of up to ten years, as specified by the
Committee. Performance goals shall be established not later than 90 days after
the beginning of any performance period applicable to such Performance Awards,
or at such other date as may be required or permitted for “performance-based
compensation” under section 162(m) of the Code.

 

  (iv) Performance Award Pool. The Committee may establish a Performance Award
pool, which shall be an unfunded pool, for purposes of measuring performance of
the Company in connection with Performance Awards. The amount of such
Performance Award pool shall be based upon the achievement of a performance goal
or goals based on one or more of the criteria set forth in Section 8(b)(ii)
hereof during the given performance period, as specified by the Committee in
accordance with Section 8(b)(iii) hereof. The Committee may specify the amount
of the Performance Award pool as a percentage of any of such criteria, a
percentage thereof in excess of a threshold amount, or as another amount which
need not bear a strictly mathematical relationship to such criteria.

 

  (v) Settlement of Performance Awards; Other Terms. After the end of each
performance period, the Committee shall determine the amount, if any, of (A) the
Performance Award pool, and the maximum amount of potential Performance Award
payable to each Participant in the Performance Award pool, or (B) the amount of
potential Performance Award otherwise payable to each Participant. Settlement of
such Performance Awards shall be in cash, Stock, other Awards or other property,
in the discretion of the Committee. The Committee may, in its discretion, reduce
the amount of a settlement otherwise to be made in connection with such
Performance Awards, but may not exercise discretion to increase any such amount
payable to a Covered Employee in respect of a Performance Award subject to this
Section 8(b). The Committee shall specify the circumstances in which such
Performance Awards shall be paid or forfeited in the event of termination of
employment by the Participant prior to the end of a performance period or
settlement of Performance Awards.

 

  (c) Annual Incentive Awards Granted to Designated Covered Employees. If the
Committee determines that an Annual Incentive Award to be granted to an

 

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Eligible Person who is designated by the Committee as likely to be a Covered
Employee should qualify as “performance-based compensation” for purposes of
section 162(m) of the Code, the grant, exercise and/or settlement of such Annual
Incentive Award shall be contingent upon achievement of preestablished
performance goals and other terms set forth in this Section 8(c).

 

  (i) Annual Incentive Award Pool. The Committee may establish an Annual
Incentive Award pool, which shall be an unfunded pool, for purposes of measuring
performance of the Company in connection with Annual Incentive Awards. The
amount of such Annual Incentive Award pool shall be based upon the achievement
of a performance goal or goals based on one or more of the business criteria set
forth in Section 8(b)(ii) hereof during the given performance period, as
specified by the Committee in accordance with Section 8(b)(iii) hereof. The
Committee may specify the amount of the Annual Incentive Award pool as a
percentage of any of such business criteria, a percentage thereof in excess of a
threshold amount, or as another amount which need not bear a strictly
mathematical relationship to such business criteria.

 

  (ii) Potential Annual Incentive Awards. Not later than the end of the 90th day
of each fiscal year, or at such other date as may be required or permitted in
the case of Awards intended to be “performance-based compensation” under section
162(m) of the Code, the Committee shall determine the Eligible Persons who will
potentially receive Annual Incentive Awards, and the amounts potentially payable
thereunder, for that fiscal year, either out of an Annual Incentive Award pool
established by such date under Section 8(c)(i) hereof or as individual Annual
Incentive Awards. In the case of individual Annual Incentive Awards intended to
qualify under section 162(m) of the Code, the amount potentially payable shall
be based upon the achievement of a performance goal or goals based on one or
more of the business criteria set forth in Section 8(b)(ii) hereof in the given
performance year, as specified by the Committee; in other cases, such amount
shall be based on such criteria as shall be established by the Committee.

 

  (iii) Payout of Annual Incentive Awards. After the end of each fiscal year,
the Committee shall determine the amount, if any, of (A) the Annual Incentive
Award pool, and the maximum amount of potential Annual Incentive Award payable
to each Participant in the Annual Incentive Award pool, or (B) the amount of
potential Annual Incentive Award otherwise payable to each Participant. The
Committee may, in its discretion, determine that the amount payable to any
Participant as a final Annual Incentive Award shall be increased or reduced from
the amount of his or her potential Annual Incentive Award, including a
determination to make no final Award whatsoever, but may not exercise discretion
to increase any such amount in the case of an Annual Incentive Award intended to
qualify under

 

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section 162(m) of the Code. The Committee shall specify the circumstances in
which an Annual Incentive Award shall be paid or forfeited in the event of
termination of employment by the Participant prior to the end of a fiscal year
or settlement of such Annual Incentive Award.

 

  (d) Written Determinations. All determinations by the Committee as to the
establishment of performance goals, the amount of any Performance Award pool or
potential individual Performance Awards and as to the achievement of performance
goals relating to Performance Awards under Section 8(b), and the amount of any
Annual Incentive Award pool or potential individual Annual Incentive Awards and
the amount of final Annual Incentive Awards under Section 8(c), shall be made in
writing in the case of any Award intended to qualify under section 162(m) of the
Code. The Committee may not delegate any responsibility relating to such
Performance Awards or Annual Incentive Awards.

 

  (e) Status of Section 8(b) and Section 8(c) Awards under Section 162(m) of the
Code. It is the intent of the Company that Performance Awards and Annual
Incentive Awards under Sections 8(b) and 8(c) hereof granted to persons who are
designated by the Committee as likely to be Covered Employees within the meaning
of section 162(m) of the Code and regulations thereunder (including Treasury
Regulation §1.162-27 and successor regulations thereto) shall, if so designated
by the Committee, constitute “performance-based compensation” within the meaning
of section 162(m) of the Code and regulations thereunder. Accordingly, the terms
of Sections 8(b), (c), (d) and (e), including the definitions of Covered
Employee and other terms used therein, shall be interpreted in a manner
consistent with section 162(m) of the Code and regulations thereunder. The
foregoing notwithstanding, because the Committee cannot determine with certainty
whether a given Participant will be a Covered Employee with respect to a fiscal
year that has not yet been completed, the term Covered Employee as used herein
shall mean only a person designated by the Committee, at the time of grant of
Performance Awards or an Annual Incentive Award, who is likely to be a Covered
Employee with respect to that fiscal year. If any provision of this Plan as in
effect on the date of adoption or any agreements relating to Performance Awards
or Annual Incentive Awards that are designated as intended to comply with
section 162(m) of the Code does not comply or is inconsistent with the
requirements of section 162(m) of the Code or regulations thereunder, such
provision shall be construed or deemed amended to the extent necessary to
conform to such requirements.

 

9. Recapitalization or Reorganization.

 

  (a) Existence of Plans and Awards. The existence of this Plan and the Awards
granted hereunder shall not affect in any way the right or power of the Board or
the stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company’s capital
structure

 

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or its business, any merger or consolidation of the Company, any issue of debt
or equity securities ahead of or affecting 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) Subdivision or Consolidation of Shares. The terms of an Award and the
number of shares of Stock authorized pursuant to Section 4 for issuance under
the Plan shall be subject to adjustment from time to time, including after the
Plan is approved by stockholders regardless of whether such change is made prior
to the effective date of the Plan, in accordance with the following provisions:

 

  (i) If at any time, or from time to time, the Company shall subdivide as a
whole (by reclassification, by a Stock split, by the issuance of a distribution
on Stock payable in Stock, or otherwise) the number of shares of Stock then
outstanding into a greater number of shares of Stock, then (A) the maximum
number of shares of Stock available for the Plan as provided in Section 4 shall
be increased proportionately, and the kind of shares or other securities
available for the Plan shall be appropriately adjusted, (B) the number of shares
of Stock (or other kind of shares or securities) that may be acquired under any
Award shall be increased proportionately, and (C) the price (including the
exercise price) for each share of Stock (or other kind of shares or securities)
subject to then outstanding Awards shall be reduced proportionately, without
changing the aggregate purchase price or value as to which outstanding Awards
remain exercisable or subject to restrictions.

 

  (ii) If at any time, or from time to time, the Company shall consolidate as a
whole (by reclassification, reverse Stock split, or otherwise) the number of
shares of Stock then outstanding into a lesser number of shares of Stock, (A)
the maximum number of shares of Stock available for the Plan as provided in
Section 4 shall be decreased proportionately, and the kind of shares or other
securities available for the Plan shall be appropriately adjusted, (B) the
number of shares of Stock (or other kind of shares or securities) that may be
acquired under any Award shall be decreased proportionately, and (C) the price
(including the exercise price) for each share of Stock (or other kind of shares
or securities) subject to then outstanding Awards shall be increased
proportionately, without changing the aggregate purchase price or value as to
which outstanding Awards remain exercisable or subject to restrictions.

 

  (iii) Whenever the number of shares of Stock subject to outstanding Awards and
the price for each share of Stock subject to outstanding Awards are required to
be adjusted as provided in this Section 9(b), the Committee shall promptly
prepare a notice setting forth, in reasonable detail, the event requiring
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated, and the change in price and the number of

 

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shares of Stock, other securities, cash, or property purchasable subject to each
Award after giving effect to the adjustments. The Committee shall promptly give
each Participant such a notice.

 

  (iv) Adjustments under Subsections 9(b)(i) and (ii) shall be made by the
Committee, and its determination as to what adjustments shall be made and the
extent thereof shall be final, binding, and conclusive. No fractional interest
shall be issued under the Plan on account of any such adjustments.

 

  (c) Corporate Restructuring. If the Company recapitalizes, reclassifies its
capital stock, or otherwise changes its capital structure (a
“recapitalization”), the number and class of shares of Stock covered by an
Option theretofore granted shall be adjusted so that such Option shall
thereafter cover the number and class of shares of stock and securities to which
the holder would have been entitled pursuant to the terms of the
recapitalization if, immediately prior to the recapitalization, the holder had
been the holder of record of the number of shares of Stock then covered by such
Option and the share limitations provided in Sections 4 and 5 shall be adjusted
in a manner consistent with the recapitalization. Upon a Change in Control the
Committee, acting in its sole discretion without the consent or approval of any
holder, shall effect one or more of the following alternatives, which may vary
among individual holders and which may vary among Options held by any individual
holder: (1) accelerate the time at which Options then outstanding may be
exercised so that such Options may be exercised in full for a limited period of
time on or before a specified date (before or after such Change in Control)
fixed by the Committee, after which specified date all unexercised Options and
all rights of holders thereunder shall terminate, (2) require the mandatory
surrender to the Company by selected holders of some or all of the outstanding
Options held by such holders (irrespective of whether such Options are then
exercisable under the provisions of this Plan) as of a date, before or after
such Change in Control, specified by the Committee, in which event the Committee
shall thereupon cancel such Options and pay to each holder an amount of cash per
share equal to the excess, if any, of the amount calculated in Section 9(d) (the
“Change in Control Price”) of the shares subject to such Option over the
exercise price(s) under such Options for such shares, or (3) make such
adjustments to Options then outstanding as the Committee deems appropriate to
reflect such Change in Control; provided, however, that the Committee may
determine in its sole discretion that no adjustment is necessary to Options then
outstanding; provided, further, that the right to make such adjustments shall
include, but not be limited to, the modification of an Option such that the
holder of the Option shall be entitled to purchase or receive (in lieu of the
total shares that the holder would otherwise be entitled to purchase or receive
under the Option (the “Total Shares”)), the number of shares of stock, other
securities, cash or property to which the Total Shares would have been entitled
to in connection with the Change in Control, at an aggregate exercise price
equal to the exercise price that would have been payable if the Total Shares had
been purchased upon the exercise of the Option immediately before the
consummation of the Change in Control.

 

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  (d) Change in Control Price. The “Change in Control Price” shall equal the
amount determined in clause (i), (ii), (iii), (iv) or (v), whichever is
applicable, as follows: (i) the per share price offered to holders of the same
class of Stock of the Company in any such merger or consolidation, (ii) the per
share value of the Stock immediately before the Change in Control without regard
to assets sold in the Change in Control and assuming the Company has received
the consideration paid for the assets in the case of a sale of the assets, (iii)
the amount distributed per share of Stock in a dissolution transaction, (iv) the
price per share offered to holders of the same class of Stock of the Company in
any tender offer or exchange offer whereby a Change in Control takes place, or
(v) if such Change in Control 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 stockholders of the
Company in any transaction described in this Section 9(d) or Section 9(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) Non-Option Awards. In the event of changes in the outstanding Stock by
reason of recapitalization, reorganizations, mergers, consolidations,
combinations, exchanges or other relevant changes in capitalization occurring
after the date of the grant of any Award and not otherwise provided for by this
Section 9, any outstanding Awards and any agreements evidencing such Awards
shall be subject to adjustment by the Committee at its discretion as to the
number and price of shares of Stock or other consideration subject to such
Awards. In the event of any such change in the outstanding Stock, the aggregate
number of shares available under this Plan may be appropriately adjusted by the
Committee, whose determination shall be conclusive.

 

  (f) Additional Issuances. 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
value, shall not affect, and no adjustment by reason thereof shall be made with
respect to, the number of shares of Stock subject to Awards theretofore granted
or the purchase price per share, if applicable.

 

  (g) Restricted Stock Awards. Plan provisions to the contrary notwithstanding,
with respect to any Restricted Stock Awards outstanding at the time a Change in
Control as described in Section 2(g) occurs, the Committee may, in its
discretion

 

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and as of a date determined by the Committee, fully vest any or all Stock
awarded to the holder pursuant to such Restricted Stock Award and then
outstanding and, upon such vesting, all restrictions applicable to such
Restricted Stock Award shall terminate as of such date. Any action by the
Committee pursuant to this Section 9(g) may vary among individual holders and
may vary among the Restricted Stock Awards held by any individual holder.

 

10. General Provisions.

 

  (a) Transferability.

 

  (i) Permitted Transferees. The Committee may, in its discretion, permit a
Participant to transfer all or any portion of an Option, Stock Appreciation
Right, Phantom Stock Award or Restricted Stock Award (if such Restricted Stock
Award does not require the transfer of consideration by the Participant or the
holder other than usual and customary service) after the Company’s initial
registration of the Stock under section 12(b) or 12(g) of the Exchange Act, or
authorize all or a portion of such Awards to be granted to an Eligible Person to
be on terms which permit transfer by such Participant; provided that, in either
case the transferee or transferees must be any child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships, in each case with respect to
the Participant, any person sharing the Participant’s household (other than a
tenant or employee of the Company), a trust in which these persons have more
than fifty percent of the beneficial interest, a foundation in which these
persons (or the Participant) control the management of assets, and any other
entity in which these persons (or the Participant) own more than fifty percent
of the voting interests (collectively, “Permitted Transferees”); provided
further that, (X) there may be no consideration for any such transfer and (Y)
subsequent transfers of Awards transferred as provided above shall be prohibited
except subsequent transfers back to the original holder of the Award and
transfers to other Permitted Transferees of the original holder. Agreements
evidencing Awards with respect to which such transferability is authorized at
the time of grant must be approved by the Committee, and must expressly provide
for transferability in a manner consistent with this Subsection 10(a)(i).

 

  (ii) Qualified Domestic Relations Orders. An Option, Stock Appreciation Right,
Phantom Stock Award or Restricted Stock Award (if such Restricted Stock Award
does not require the transfer of consideration by the Participant or the holder
other than usual and customary service) after the Company’s initial registration
of the Stock under section 12(b) or 12(g) of the Exchange Act, may be
transferred, to a Permitted Transferee, pursuant to a domestic relations order
entered or approved by a court of competent jurisdiction upon delivery to the
Company of written notice of such transfer and a certified copy of such order.

 

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  (iii) Other Transfers. Except as expressly permitted by Subsections 10(a)(i)
and 10(a)(ii), Awards shall not be transferable other than by will or the laws
of descent and distribution except that in the Committee’s discretion a Stock
Appreciation Right, Phantom Stock Award (if such Stock Appreciation Right or
Phantom Stock Award is not exercisable for Stock and not subject to the
Participant’s or holder’s discretion as to the timing or method of payment) or
Restricted Stock Award (if such Restricted Stock Award does not require the
transfer of consideration by the Participant or the holder other than usual and
customary service) may be transferable, however, not for consideration.
Notwithstanding anything to the contrary in this Section 10, an Incentive Stock
Option shall not be transferable other than by will or the laws of descent and
distribution.

 

  (iv) Effect of Transfer. Following the transfer of any Award as contemplated
by Subsections 10(a)(i), 10(a)(ii) and 10(a)(iii), (A) such Award shall continue
to be subject to the same terms and conditions as were applicable immediately
prior to transfer, provided that the term “Participant” shall be deemed to refer
to the Permitted Transferee, the recipient under a qualified domestic relations
order, the estate or heirs of a deceased Participant, or other transferee, as
applicable, to the extent appropriate to enable the Participant to exercise the
transferred Award in accordance with the terms of this Plan and applicable law
and (B) the provisions of the Award relating to exercisability hereof shall
continue to be applied with respect to the original Participant and, following
the occurrence of any such events described therein the Awards shall be
exercisable by the Permitted Transferee, the recipient under a qualified
domestic relations order, the estate or heirs of a deceased Participant, or
other transferee, as applicable, only to the extent and for the periods that
would have been applicable in the absence of the transfer.

 

  (v) Procedures and Restrictions. Any Participant desiring to transfer an Award
as permitted under Subsections 10(a)(i), 10(a)(ii) or 10(a)(iii) shall make
application therefor in the manner and time specified by the Committee and shall
comply with such other requirements as the Committee may require to assure
compliance with all applicable securities laws. The Committee shall not give
permission for such a transfer if (A) it would give rise to short-swing
liability under section 16(b) of the Exchange Act or (B) it may not be made in
compliance with all applicable federal, state and foreign securities laws.

 

  (vi) Registration. To the extent the issuance to any Permitted Transferee of
any shares of Stock issuable pursuant to Awards transferred as permitted in this
Section 10(a) is not registered pursuant to the effective registration

 

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statement of the Company generally covering the shares to be issued pursuant to
this Plan to initial holders of Awards, the Company shall not have any
obligation to register the issuance of any such shares of Stock to any such
transferee.

 

  (b) Taxes. The Company and any Subsidiary is authorized to withhold from any
Award granted, or any payment relating to an Award under this Plan, including
from a distribution of Stock, amounts of withholding and other taxes due or
potentially payable in connection with any transaction involving an Award, and
to take such other action as the Committee may deem advisable to enable the
Company and Participants to satisfy obligations for the payment of withholding
taxes and other tax obligations relating to any Award. This authority shall
include authority to withhold or receive Stock or other property and to make
cash payments in respect thereof in satisfaction of a Participant’s tax
obligations, either on a mandatory or elective basis in the discretion of the
Committee.

 

  (c) Changes to this Plan and Awards. The Board may amend, alter, suspend,
discontinue or terminate this Plan or the Committee’s authority to grant Awards
under this Plan without the consent of stockholders or Participants, except that
any amendment or alteration to this Plan, including any increase in any share
limitation, shall be subject to the approval of the Company’s stockholders not
later than the annual meeting next following such Board action if such
stockholder approval is required by any federal or state law or regulation or
the rules of any stock exchange or automated quotation system on which the Stock
may then be listed or quoted, and the Board may otherwise, in its discretion,
determine to submit other such changes to this Plan to stockholders for
approval; provided that, without the consent of an affected Participant, no such
Board action may materially and adversely affect the rights of such Participant
under any previously granted and outstanding Award. The Committee may waive any
conditions or rights under, or amend, alter, suspend, discontinue or terminate
any Award theretofore granted and any Award agreement relating thereto, except
as otherwise provided in this Plan; provided that, without the consent of an
affected Participant, no such Committee action may materially and adversely
affect the rights of such Participant under such Award.

 

  (d) Limitation on Rights Conferred under Plan. Neither this Plan nor any
action taken hereunder shall be construed as (i) giving any Eligible Person or
Participant the right to continue as an Eligible Person or Participant or in the
employ or service of the Company or a Subsidiary, (ii) interfering in any way
with the right of the Company or a Subsidiary to terminate any Eligible Person’s
or Participant’s employment or service at any time, (iii) giving an Eligible
Person or Participant any claim to be granted any Award under this Plan or to be
treated uniformly with other Participants and employees, or (iv) conferring on a
Participant any of the rights of a stockholder of the Company unless and until
the Participant is duly issued or transferred shares of Stock in accordance with
the terms of an Award.

 

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  (e) Unfunded Status of Awards. This Plan is intended to constitute an
“unfunded” plan for certain incentive awards.

 

  (f) Nonexclusivity of this Plan. Neither the adoption of this Plan by the
Board nor its submission to the stockholders of the Company for approval shall
be construed as creating any limitations on the power of the Board or a
committee thereof to adopt such other incentive arrangements as it may deem
desirable, including incentive arrangements and awards which do not qualify
under section 162(m) of the Code. Nothing contained in this Plan shall be
construed to prevent the Company or any Subsidiary from taking any corporate
action which is deemed by the Company or such Subsidiary to be appropriate or in
its best interest, whether or not such action would have an adverse effect on
this Plan or any Award made under this Plan. No employee, beneficiary or other
person shall have any claim against the Company or any Subsidiary as a result of
any such action.

 

  (g) Payments in the Event of Forfeitures; Fractional Shares. Unless otherwise
determined by the Committee, in the event of a forfeiture of an Award with
respect to which a Participant paid cash or other consideration to the Company
in exchange for such Award, the Participant shall be repaid the amount of such
cash or other consideration. No fractional shares of Stock shall be issued or
delivered pursuant to this Plan or any Award. The Committee shall determine
whether cash, other Awards or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.

 

  (h) Severability. If any provision of this Plan is held to be illegal or
invalid for any reason, the illegality or invalidity shall not affect the
remaining provisions hereof, but such provision shall be fully severable and the
Plan shall be construed and enforced as if the illegal or invalid provision had
never been included herein. If any of the terms or provisions of this Plan or
any Award agreement conflict with the requirements of Rule 16b-3 (as those terms
or provisions are applied to Eligible Persons who are subject to section 16(b)
of the Exchange Act) or section 422 of the Code (with respect to Incentive Stock
Options), then those conflicting terms or provisions shall be deemed inoperative
to the extent they so conflict with the requirements of Rule 16b-3 (unless the
Board or the Committee, as appropriate, has expressly determined that the Plan
or such Award should not comply with Rule 16b-3) or section 422 of the Code.
With respect to Incentive Stock Options, if this Plan does not contain any
provision required to be included herein under section 422 of the Code, that
provision shall be deemed to be incorporated herein with the same force and
effect as if that provision had been set out at length herein; provided,
further, that, to the extent any Option that is intended to qualify as an
Incentive Stock Option cannot so qualify, that Option (to that extent) shall be
deemed an Option not subject to section 422 of the Code for all purposes of the
Plan.

 

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  (i) Governing Law. All questions arising with respect to the provisions of the
Plan and Awards shall be determined by application of the laws of the State of
Delaware, without giving effect to any conflict of law provisions thereof,
except to the extent Delaware law is preempted by federal law. The obligation of
the Company to sell and deliver Stock hereunder is subject to applicable federal
and state laws and to the approval of any governmental authority required in
connection with the authorization, issuance, sale, or delivery of such Stock.

 

  (j) Conditions to Delivery of Stock. Nothing herein or in any Award granted
hereunder or any Award agreement shall require the Company to issue any shares
with respect to any Award if that issuance would, in the opinion of counsel for
the Company, constitute a violation of the Securities Act or any similar or
superseding statute or statutes, any other applicable statute or regulation, or
the rules of any applicable securities exchange or securities association, as
then in effect. At the time of any exercise of an Option or Stock Appreciation
Right, or at the time of any grant of a Restricted Stock Award, the Company may,
as a condition precedent to the exercise of such Option or Stock Appreciation
Right or vesting of any Restricted Stock Award, require from the Participant (or
in the event of his death, his legal representatives, heirs, legatees, or
distributees) such written representations, if any, concerning the holder’s
intentions with regard to the retention or disposition of the shares of Stock
being acquired pursuant to the Award and such written covenants and agreements,
if any, as to the manner of disposal of such shares as, in the opinion of
counsel to the Company, may be necessary to ensure that any disposition by that
holder (or in the event of the holder’s death, his legal representatives, heirs,
legatees, or distributees) will not involve a violation of the Securities Act or
any similar or superseding statute or statutes, any other applicable state or
federal statute or regulation, or any rule of any applicable securities exchange
or securities association, as then in effect. No Option or Stock Appreciation
Right shall be exercisable and no restriction on any Restricted Stock Award
shall lapse with respect to a Participant unless and until the holder thereof
shall have paid cash or property to, or performed services for, the Company or
any of its Subsidiaries that the Committee believes is equal to or greater in
value than the par value of the Stock subject to such Award.

 

  (k) Plan Effective Date and Stockholder Approval. This Plan has been adopted
by the Board and by the stockholders of the Company effective as of the date
immediately prior to a firm commitment underwritten public offering of Stock for
cash.

 

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EXECUTED this 8th day of August, 2005.

 

REPUBLIC COMPANIES GROUP, INC. By:  

/s/ Parker W. Rush

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Name:  

Parker W. Rush

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Title:  

President and Chief Executive Officer

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