Execution Copy
EMPLOYMENT AGREEMENT
     This EMPLOYMENT AGREEMENT (the “Agreement”) is entered into on August 10,
2007 but effective as of the 1st day of June, 2007 (the “Effective Date”),
between HCC INSURANCE HOLDINGS, INC. (“HCC” or “Company”) and MICHAEL J. SCHELL
(“Executive”), sometimes collectively referred to herein as the “Parties.”
R E C I T A L S:
     WHEREAS, Executive is to be employed as Executive Vice President of HCC and
President, Chief Executive Officer, and Director of Houston Casualty Company
(“HC”);
     WHEREAS, it is the desire of the Board of Directors of HCC (the “Board”) to
(i) directly engage Executive as an officer of HCC and its subsidiaries; and
(ii) directly engage, if elected, the services of Executive as a director of its
subsidiaries or affiliates; and
     WHEREAS, Executive is desirous of committing himself to serve HCC on the
terms herein provided.
     NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements set forth below, the Parties agree as follows:
     1. Term. The Company hereby agrees to employ Executive as its Executive
Vice President and as President, Chief Executive Officer and Director of HC, and
Executive hereby agrees to accept such employment, on the terms and conditions
set forth herein, for the period (the “Term”) commencing on the Effective Date
and expiring at the earlier to occur of (a) 11:59 p.m. on June 30, 2011 (the
“Expiration Date”) and (b) the Termination Date (as hereinafter defined).
     2. Duties.
          (a) Duties as Employee of the Company. Executive shall, subject to the
supervision of HCC’s Chief Executive Officer (“CEO”), President and/or Chief
Operating Officer (“COO”), be responsible for all casualty business of the
Company in the ordinary course of its business with all such powers with respect
to such management and control as may be reasonably incident to such
responsibilities. Executive may also be responsible for special corporate
projects as designated by the CEO, President and/or COO, including any merger or
acquisition projects or the management of any acquired or merged subsidiaries.
During normal business hours, Executive shall devote substantially all of his
time and attention to diligently attending to the business of the Company.
During the Term, Executive shall not directly or indirectly render any services
of a business, commercial, or professional nature to any other person, firm,
corporation, or organization, whether for compensation or otherwise, without the
prior consent of the CEO. However, Executive shall have the right to engage in
such activities as may be appropriate in order to manage his personal
investments and in educational, charitable and philanthropic activities so long
as such activities do not interfere or conflict with the performance of his
duties to the Company hereunder. The conduct of such activity shall not be
deemed to materially interfere or conflict with Executive’s performance of his
duties until Executive has been notified in writing thereof and given a
reasonable period in which to cure same.

 

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          (b) Relinquishment. It is understood and agreed that Executive may be
asked to relinquish the position of President of HC to a qualified successor
appointed by the Board of Directors of HC and that such action shall in no way
(1) change the other current responsibilities of Executive or those which may be
added from time-to-time by the CEO, President and/or COO; (2) constitute “Good
Reason” or “Cause” (as hereinafter defined); or (3) otherwise affect this
Agreement.
          (c) Other Duties.
               (1) If elected, Executive agrees to serve in one or more
executive offices, managerial committees or director positions of any of HCC’s
subsidiaries, provided Executive is indemnified for serving in any and all such
capacities in a manner acceptable to the Company and Executive. Executive agrees
that while a full time employee he shall not be entitled to receive any
compensation, if elected, for serving in any capacities of HCC’s subsidiaries
other than the compensation to be paid to Executive by the Company pursuant to
this Agreement.
               (2) Executive acknowledges and agrees that he has read and
considered the written business policies and procedures of HCC as posted on
HCC’s intranet and that he will abide by such policies and procedures throughout
the term of his employment with the Company. Executive further agrees that he
will familiarize himself with any amendments to the policies and procedures and
that he will abide by such policies and procedures as they may change from time
to time.
     3. Compensation and Related Matters.
          (a) Base Salary. During the Term Executive shall receive a base salary
(the “Base Salary”) paid by the Company at the annual rate of $612,000, payable
not less frequently than in substantially equal monthly installments (or such
other, more frequent times as executives of HCC normally are paid).
          (b) Bonus Payments. During the Term, Executive shall be eligible to
receive, in addition to the Base Salary, an annual cash bonus payment in amounts
to be determined as follows:
               (1) If Executive is a participant under the 2007 Incentive
Compensation Plan (the “Incentive Plan”) for a calendar year during the Term,
then Executive’s bonus payment, if any, for such year shall be determined and
paid in accordance with the terms of the Incentive Plan.
               (2) If Executive is not a participant in the Incentive Plan for a
calendar year during the Term, then Executive’s bonus payment, if any, for such
year shall be determined in the sole discretion of the Compensation Committee of
the Board (the “Compensation Committee”) and payable in a lump sum within
30 days after the Compensation Committee’s determination of the amount of said
cash bonus. The Board or Compensation Committee may unilaterally reduce or
eliminate any such annual bonus payment, if any, up until the time the bonus is
actually paid (and notwithstanding any earlier, tentative determination of the
bonus amount). There shall be no minimum bonus payable to Executive under this
subsection (2), and, except as provided in Sections 4(c)(5) and 4(d)(4), no
bonus shall be payable to Executive pursuant to this subsection (2) for a year
if Executive’s Termination Date occurs at any time during such year.

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          (c) Expenses. During the Term of this Agreement, Executive shall be
entitled to receive prompt reimbursement for all reasonable business expenses
incurred by him (in accordance with the policies and procedures established by
the Board for the Company’s senior executive officers) in performing services
hereunder, provided that Executive properly accounts therefor in accordance with
Company policy.
          (d) Medical and Other Benefits.
               (1) Other Benefits. From time to time the Company may make
available other compensation and employee benefit plans and arrangements. During
the Term Executive shall be eligible to participate in such other compensation
and employee benefit plans and arrangements, except the Company’s paid time off
policy, on the same basis as similarly situated senior executive officers and
key management employees of the Company, subject to and on a basis consistent
with the terms, conditions, and overall administration of such plans and
arrangements, as amended from time to time. Nothing in this Agreement shall be
deemed to confer upon Executive or any other person (including any beneficiary
or dependent of Executive) any rights under or with respect to any such plan or
arrangement or to amend any such plan or arrangement, and Executive and each
other person (including any beneficiary) shall be entitled to look only to the
express terms of any such plan or arrangement for his or her rights thereunder.
Nothing paid to Executive under any such plan or arrangement presently in effect
or made available in the future shall be deemed to be in lieu of the Base Salary
payable to Executive pursuant to Section 3(a).
               (2) Continuation of Health Coverage after a Voluntary Termination
or Termination for Cause. If Executive’s employment ceases pursuant to
Section 4(e), Executive and/or his “qualified beneficiaries” (as defined by the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”))
shall be eligible to continue coverage under the Company’s group health plans in
which they participate on the Termination Date (including any successor health
plans, the “Company Health Plans”) only to the extent permitted by the terms of
those plans in accordance with the requirements of COBRA. Executive and/or his
qualified beneficiaries shall pay the full cost of any Company Health Plan
coverage continued pursuant to the immediately preceding sentence.
               (3) Continuation of Health Coverage after Death.
          (i) If Executive’s employment ceases pursuant to Section 4(c), each
qualified beneficiary of Executive shall be eligible to continue coverage under
the Company Health Plans in which they participated on the Termination Date
until the expiration of the maximum required period for continuation coverage
under COBRA, determined as if such qualified beneficiary elected COBRA
continuation coverage and paid the required premium for such continuation
coverage. The Company shall pay the full required premium for such continuation
coverage, which shall satisfy any obligation to provide continuation coverage
under COBRA for such period.
          (ii) After the continuation coverage under subsection (i) above ends,
the Company shall reimburse Executive’s qualified beneficiaries who would have
been eligible for coverage under the Company Health Plans at such time had

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Executive continued to be an active employee of the Company for the cost of the
premium for (A) an individual health insurance policy or policies which provide
benefits during the Extended Coverage Period (as hereinafter defined) which are
comparable in the aggregate to the benefits provided under the Company Health
Plans (exclusive of the Company’s health flexible spending account plan) or
(B) health coverage under any other employer health plan which is available to
the qualified beneficiaries and which provides benefits during the Extended
Coverage Period which are comparable in the aggregate to the benefits provided
under the Company Health Plans (exclusive of the Company’s health flexible
spending account plan); provided, however, that the Company shall not reimburse
the cost of such health coverage for a qualified beneficiary (including
Executive’s spouse) to the extent that coverage extends beyond the Extended
Coverage Period for such qualified beneficiary. Such reimbursement shall be
subject to the requirements of Section 3(d)(5).
               (4) Continuation of Health Coverage after Other Termination
Events.
          (i) If Executive’s employment ceases pursuant to Section 4(b), 4(d),
or 4(f), or if Executive ceases to be an employee of the Company on or after
July 1, 2011 for any reason other than termination for Cause, Executive and each
of his qualified beneficiaries shall be eligible to continue coverage under the
Company Health Plans in which they participate on the Termination Date until the
expiration of the maximum required period for continuation coverage under COBRA,
determined as if Executive and each such qualified beneficiary elected COBRA
continuation coverage and paid the required premium for such continuation
coverage. The Company shall pay the full required premium for such continuation
coverage, which shall satisfy any obligation to provide continuation coverage
under COBRA for such period.
          (ii) After the continuation coverage under subsection (i) above ends,
the Company shall reimburse Executive for the cost of the premium for (A) an
individual health insurance policy or policies which provide benefits to
Executive and his qualified beneficiaries who would have been eligible for
coverage under the Company Health Plans at such time had Executive continued to
be an active employee of the Company during the Extended Coverage Period (as
hereinafter defined), which benefits are comparable in the aggregate to the
benefits provided under the Company Health Plans (exclusive of the Company’s
health flexible spending account plan and determined after applying the Company
Health Plan provisions regarding coordination of benefits if other health
coverage is available to Executive) or (B) health coverage under any other
employer health plan which is available to Executive and such qualified
beneficiaries and which provides benefits during the Extended Coverage Period
which are comparable in the aggregate to the benefits provided under the Company
Health Plans (exclusive of the Company’s health flexible spending account plan);
provided, however, that the Company shall not reimburse the cost of such health
coverage for Executive or for a qualified beneficiary (including Executive’s
spouse) to the extent such coverage extends

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beyond the Extended Coverage Period for Executive or for such qualified
beneficiary. Such reimbursement shall be subject to the requirements of
Section 3(d)(5).
               (5) The amount of expenses eligible for reimbursement under the
provisions of Sections 3(d)(3) and 3(d)(4) which refer to this Section 3(d)(5)
during the taxable year of the recipient of such reimbursements shall not affect
the expenses eligible for reimbursement in any other taxable year. The recipient
must submit such eligible expenses to the Company within a reasonable period of
time after the expenses are incurred, and payment for any such expenses must
occur on or before the last day of the recipient’s taxable year following the
taxable year in which the expense was incurred (expenses submitted after this
payment deadline shall not be eligible for reimbursement). The right to
reimbursement of such expenses is not subject to liquidation or exchange for any
other benefit.
               (6) The “Extended Coverage Period” for Executive or a qualified
beneficiary (including Executive’s spouse) is the period (i) beginning on the
date on which deemed COBRA continuation coverage ends and (ii) ending on the
earlier to occur of (A) in the case of Executive, the date Executive becomes
entitled to Medicare coverage and, in the case of Executive’s spouse, the date
Executive’s spouse becomes entitled to Medicare coverage and (B) the date on
which Executive’s qualified beneficiary (other than Executive’s spouse) would
have ceased to be eligible for coverage under the terms of the Company Health
Plans if Executive had continued to be an active employee of the Company.
          (e) Vacations. Executive shall be entitled to twenty-five (25) paid
vacation days per year during the Term, or such additional number as may be
determined by the Board from time to time, but in no event shall any unused
vacation days carry over from year-to-year. For purposes of this Section,
weekends shall not count as vacation days, and Executive shall also be entitled
to all paid holidays given by the Company to its senior executive officers.
          (f) Life Insurance. The Company shall provide to Executive a term life
insurance policy or policies in an aggregate face amount of $1,000,000 and an
accidental death and dismemberment insurance policy or policies in the aggregate
face amount of $1,000,000 and shall pay the premiums therefore during the Term.
Upon Executive’s cessation as an employee of the Company during or after the
Term for any reason other than death the Company shall assign such policy or
policies to Executive. The life insurance provided for in this Section 3(f)
shall be in addition to the group life insurance program covering Executive and
substantially all of the employees of the Company during the Term.
          (g) Proration. The Base Salary, bonus, and vacation payable to
Executive hereunder in respect of any calendar year during which Executive is
employed by the Company for less than the entire year, unless otherwise provided
in the applicable arrangement, shall be prorated in accordance with the number
of days in such calendar year during which he is so employed.
          (h) Air Travel. During the Term, Executive shall be entitled to
domestic first class and international business class air travel, where
available, when traveling on Company business, and Executive agrees to use any
upgrade programs or opportunities for such travel

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whenever feasible. Executive shall, upon approval of the CEO, have use of the
Company’s aircraft for business purposes.
          (i) Stock Options. Stock options, if any, issued to Executive during
the Term shall be issued under a stock option agreement containing terms with
respect to vesting and exercise upon the occurrence of certain termination
events that are substantially the same as those set forth on Exhibit 3(i)
hereto, subject to any then required approval by the Compensation Committee of
the Board.
     4. Termination.
          (a) Definitions.
               (1) “Cause” shall mean any of the following:
          (i) Material dishonesty by Executive which is not the result of an
inadvertent or innocent mistake of Executive with respect to the Company or any
of its subsidiaries;
          (ii) Willful misfeasance or nonfeasance of duty by Executive;
          (iii) Material violation by Executive of any material term of this
Agreement; or
          (iv) Conviction of Executive of any felony, any crime involving moral
turpitude, or any crime (other than a vehicular offense not involving DUI or
personal injury) which in some material fashion results in the injury of the
Company’s and any of its subsidiaries’ reputation, business, or business
relationships.
Executive may not be terminated for Cause unless and until there has been
delivered to Executive written notice from the CEO supplying the particulars of
Executive’s acts or omissions that the Board believes constitute Cause, a
reasonable period of time (not less than 30 days) has been given to Executive
after such notice to either cure the same or to meet with the CEO, with his
attorney if so desired by Executive, and following which the CEO reaffirms that
Executive has been terminated for Cause as of the date set forth in the final
notice to Executive.
               (2) A “Change of Control” shall be deemed to have occurred if:
          (i) Any “person” or “group” (within the meaning of sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company
becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934), directly or indirectly, of 50% or more of the Company’s
then outstanding voting common stock; or
          (ii) The shareholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than a merger or

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consolidation (a) in which a majority of the directors of the surviving entity
were directors of the Company prior to such consolidation or merger, and
(b) which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being changed into voting securities of the surviving entity)
more than 50% of the combined voting power of the voting securities of the
surviving entity outstanding immediately after such merger or consolidation; or
          (iii) The shareholders approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company’s assets.
               (3) A “Disability” shall mean the inability of Executive to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to result in
death or can be expected to last for a continuous period of not less than twelve
(12) months. Executive shall be considered to have a Disability (i) if he is
determined to be totally disabled by the Social Security Administration or
(ii) if he is determined to be disabled under HCC’s long-term disability plan in
which Executive participates and if such plan defines “disability” in a manner
that is consistent with the immediately preceding sentence.
               (4) A “Good Reason” shall mean any of the following (without
Executive’s express written consent):
          (i) A material diminution in Executive’s authority, duties, or
responsibilities;
          (ii) A material diminution in Executive’s Base Salary;
          (iii) A relocation of the Company’s principal executive offices, or
Executive’s relocation to any place other than the principal executive offices,
exceeding a distance of fifty (50) miles from the Company’s current executive
office located in Houston, Texas, except for reasonably required travel by
Executive on the Company’s business; or
          (iv) Any material breach by the Company of any provision of this
Agreement.
However, Good Reason shall exist with respect to a matter specified above only
if such matter is not corrected by the Company within thirty (30) days after the
Company’s receipt of written notice of such matter from Executive. Any such
notice from Executive must be provided within thirty (30) days after the initial
existence of the specified event. In no event shall a termination by Executive
occurring more than ninety (90) days following the initial date of the event
described above be a termination for Good Reason due to such event.
               (5) “Termination Date” shall mean the date Executive’s employment
with the Company terminates or is terminated for any reason pursuant to this
Agreement. For purposes of Sections 4(d) and 18(a), Executive’s employment with
the Company shall be considered

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terminated only if Executive has a “separation from service” with the Company
and its controlled subsidiaries and affiliates as such term is defined for
purposes of sections 409A(a)(2)(A)(i) and 409A(a)(2)(B)(i) of the Internal
Revenue Code of 1986, as amended (including any related Treasury regulations)
(the “Code”). To the extent permitted by Code section 409A, Executive may be
considered to have such a separation from service even if (i) he continues to
provide services as a non-employee director of the Company or any of its
controlled subsidiaries or affiliates and/or (ii) he continues to provide
limited services as an employee or independent contractor of the Company or any
of its controlled subsidiaries or affiliates.
          (b) Termination Without Cause or Termination For Good Reason:
Benefits. In the event the Company terminates Executive’s employment with the
Company without Cause during the Term, or if Executive terminates his employment
with the Company for Good Reason during the Term, this Agreement shall terminate
and Executive shall be entitled to the following severance benefits:
               (1) An amount equal to the Base Salary that would have been
payable after the Termination Date and before the Expiration Date payable in a
lump sum in cash, appropriately discounted for present value, at the rate of
return on 90-day Treasury bills in existence at the Termination Date. Such
amount shall be paid within thirty (30) days after the Termination Date and, in
any event, shall be paid after such Termination Date and before March 15 of the
year following the year containing such Termination Date;
               (2) If Executive is a participant in the Incentive Plan, his
entitlement to a bonus following the Termination Date shall be determined in
accordance with the terms of the Incentive Plan. If Executive is not a
participant in the Incentive Plan, he shall not be entitled to any bonus
payments after the Termination Date;
               (3) A lump sum cash payment in the amount of $1600.00 times the
number of months after the Termination Date and before the Expiration Date in
lieu of any other benefits that cease on the Termination Date. Such amount shall
be appropriately discounted for present value at the rate of return on 90-day
Treasury bills in existence at the Termination Date and shall be paid within
thirty (30) days after the Termination Date and, in any event, shall be paid
after such Termination Date and before March 15 of the year following the year
containing such Termination Date. Executive shall not be entitled to any
additional payments for such other benefits;
               (4) Health coverage or reimbursement for the cost of health
coverage, as provided in Section 3(d)(4);
               (5) All accrued Base Salary through the Termination Date and all
unreimbursed expenses through the Termination Date in accordance with
Section 3(c). Such amounts shall be paid to Executive in a lump sum in cash
within thirty (30) days after the Termination Date; and
               (6) Executive shall be free to accept other employment, and there
shall be no offset of any employment compensation earned by Executive in such
other employment against payments due Executive under this Section 4. Without
limiting the foregoing, there shall be no

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offset of any compensation received from such other employment against the Base
Salary set forth above, unless Executive accepts employment that is in violation
of his obligations under Section 5 of this Agreement.
          (c) Termination In Event of Death: Benefits. If Executive’s employment
is terminated by reason of Executive’s death during the Term, this Agreement
shall terminate without further obligation to Executive’s estate or legal
representatives under this Agreement, other than for
               (1) Payment of all accrued Base Salary and unreimbursed expenses
in accordance with Section 3(c) due through the date of death. Such amounts
shall be paid to Executive’s estate in a lump sum in cash within thirty
(30) days after the Termination Date;
               (2) Health coverage or reimbursement for the cost of health
coverage for Executive’s eligible qualified beneficiaries in accordance with
Section 3(d)(3);
               (3) A lump sum cash payment in the amount of $1600.00 times the
lesser of (i) eighteen (18) months or (ii) the number of months after
Executive’s death and before the Expiration Date in lieu of any other benefits
that cease on the date of Executive’s death. Such amount shall be appropriately
discounted for present value at the rate of return on 90-day Treasury bills in
existence at the Termination Date and shall be paid within thirty (30) days
after the Termination Date and, in any event, shall be paid after such
Termination Date and before March 15 of the year following the year containing
such Termination Date. Executive shall not be entitled to any additional
payments for such other benefits;
               (4) Payment of an additional amount equal to Executive’s Base
Salary for the lesser of (i) eighteen (18) months or (ii) the period from the
Termination Date to the Expiration Date. Such amount shall be appropriately
discounted for present value at the rate of return on 90-day Treasury bills in
existence at the Termination Date and shall be paid to Executive’s estate in a
lump sum in cash within thirty (30) days after the Termination Date; provided
that such amount shall, in any event, be paid after such Termination Date and
before March 15 of the year following the year containing such Termination Date;
and
               (5) If Executive is a participant in the Incentive Plan, his
entitlement to a bonus following the Termination Date shall be determined in
accordance with the terms of the Incentive Plan. If Executive is not a
participant in the Incentive Plan, he shall be entitled to consideration for a
bonus payment under Section 3(b)(2) with respect to the year in which Executive
dies; provided that the payment of any such bonus, if any, shall in any event
occur on or after such date of death and before March 15 of the year following
the year of death.
          (d) Termination In Event of Disability: Benefits. If Executive’s
employment is terminated by reason of Executive’s Disability during the Term,
this Agreement shall terminate and Executive shall be entitled to the following
benefits (without any reduction or offset for any long-term disability benefits
Executive actually receives):
               (1) Payment of all accrued Base Salary through the Termination
Date and all unreimbursed expenses through the Termination Date in accordance
with Section 3(c). Such

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amounts shall be paid to Executive in a lump sum in cash within thirty (30) days
after the Termination Date;
               (2) Health coverage or reimbursement for the cost of health
coverage as provided in Section 3(d)(4);
               (3) Payment of an amount equal to Executive’s Base Salary for the
lesser of (i) eighteen (18) months or (ii) the period from the Termination Date
to the Expiration Date. Such amount shall be appropriately discounted for
present value at the rate of return on 90-day Treasury bills in existence at the
Termination Date and shall be payable in a lump sum in cash within thirty (30)
days after the Termination Date; provided that such amount shall in any event be
paid after such Termination Date and before March 15 of the year following the
year containing such Termination Date;
               (4) If Executive is a participant in the Incentive Plan, his
entitlement to a bonus following the Termination Date shall be determined in
accordance with the terms of the Incentive Plan. If Executive is not a
participant in the Incentive Plan, he shall be entitled to consideration for a
bonus payment under Section 3(b)(2) with respect to the year in which
Executive’s employment terminates due to Disability; provided that any payment
of such bonus, if any, shall in any event occur on or after such Termination
Date and before March 15 of the year following the year containing such
Termination Date; and
               (5) A lump sum cash payment in the amount of $1600.00 times the
lesser of (i) eighteen (18) months or (ii) the number of months after
Executive’s Termination Date and before the Expiration Date in lieu of any other
benefits that cease on the date of Executive’s Termination Date. Such amount
shall be appropriately discounted for present value at the rate of return on
90-day Treasury bills in existence at the Termination Date and shall be paid
within thirty (30) days after the Termination Date and, in any event, shall be
paid after such Termination Date and before March 15 of the year following the
year containing such Termination Date. Executive shall not be entitled to any
additional payments for such other benefits.
          (e) Voluntary Termination by Executive and Termination for Cause:
Benefits. Executive may terminate his employment with the Company without Good
Reason (including without limitation a voluntary retirement from the Company on
or after July 1, 2011, but excluding a termination pursuant to Section 4(f)) by
giving written notice of his intent and stating an effective Termination Date at
least ninety (90) days after the date of such notice; provided, however, that
the Company may accelerate such effective date by paying Executive’s Base Salary
through the proposed Termination Date and also vesting awards (including stock
option awards granted on, before, or after the Effective Date) that would have
vested but for this acceleration of the proposed Termination Date. The
provisions of this Section 4(e) requiring the vesting of any stock options due
to the Company’s acceleration of the Termination Date constitute an amendment to
the terms of each applicable option agreement. Upon such a termination by
Executive or upon termination for Cause by the Company, this Agreement shall
terminate, and the Company shall pay to Executive
               (1) Payment of all accrued compensation and unreimbursed expenses
(in accordance with Section 3(c) through the Termination Date. Such amounts
shall be paid to Executive in a lump sum in cash within sixty (60) days after
the Termination Date.

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          (f) Voluntary Termination by Executive after a Change of Control:
Benefits. If Executive’s authority, duties, or responsibilities are materially
diminished within twelve (12) months after a Change of Control occurs, Executive
notifies the Company of such diminution within thirty (30) days, and the Company
does not fully correct the condition within thirty (30) days after receiving
such notice, Executive may voluntarily terminate his employment with the Company
and shall be entitled to the following severance benefits:
               (1) An amount equal to the Base Salary that would have been
payable after the Termination Date and before the Expiration Date, payable in a
lump sum in cash, appropriately discounted for present value at the rate of
return on 90-day Treasury bills in existence at the Termination Date. Such
amount shall be paid within thirty (30) days after the Termination Date and, in
any event, shall be paid after such Termination Date and before March 15 of the
year following the year containing such Termination Date;
               (2) If Executive is a participant in the Incentive Plan, his
entitlement to a bonus following the Termination Date shall be determined in
accordance with the terms of the Incentive Plan. If Executive is not a
participant in the Incentive Plan, he shall not be entitled to any bonus
payments after the Termination Date;
               (3) A lump sum cash payment in the amount of $1600.00 times the
number of months after the Termination Date and before the Expiration Date in
lieu of any other benefits that cease on the Termination Date. Such amount shall
be appropriately discounted for present value at the rate of return on 90-day
Treasury bills in existence at the Termination Date and shall be paid within
thirty (30) days after the Termination Date and, in any event, shall be paid
after such Termination Date and before March 15 of the year following the year
containing such Termination Date. Executive shall not be entitled to any
additional payments for such other benefits;
               (4) Health coverage or reimbursement for the cost of health
coverage as provided in Section 3(d)(4);
               (5) All accrued Base Salary through the Termination Date and all
unreimbursed expenses through the Termination Date in accordance with
Section 3(c). Such amounts shall be paid to Executive in a lump sum in cash
within thirty (30) days after the Termination Date; and
               (6) Executive shall be free to accept other employment, and there
shall be no offset of any employment compensation earned by Executive in such
other employment against payments due Executive under this Section 4. Without
limiting the foregoing, there shall be no offset of any compensation received
from such other employment against the Base Salary set forth above unless
Executive accepts employment that is in violation of his obligations under
Section 5 of this Agreement.
          (g) Director Positions. Upon termination of employment for any reason,
Executive shall immediately tender his resignation from any and all officer and
board of director positions held with the Company and/or any of its subsidiaries
and affiliates.

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     5. Non-Competition, Non-Solicitation and Confidentiality. At the inception
of this employment relationship, and continuing on an ongoing basis, the Company
agrees to give Executive Confidential Information (including, without
limitation, Confidential Information, as defined below, of the Company’s
affiliates) which Executive has not had access to or knowledge of before the
execution of this Agreement. At the time this Agreement is made, the Company
agrees to provide Executive with initial and ongoing Specialized Training, which
Executive has not had access to or knowledge of before the execution of this
Agreement. “Specialized Training” includes the training the Company provides to
its employees that is unique to its business and enhances Executive’s ability to
perform Executive’s job duties effectively. Specialized Training includes,
without limitation, orientation training; sales methods/techniques training;
operation methods training; and computer and systems training.
     In consideration of the foregoing, Executive agrees as follows:
          (a) Non-Competition During Employment. Executive agrees that, in
consideration for the Company’s promise to provide Executive with Confidential
Information and Specialized Training, during the Term he will not compete, or
prepare to compete, with the Company by engaging in the conception, design,
development, production, marketing, or servicing of any product or service that
is substantially similar to the products or services which the Company provides,
and that he will not work for, in any capacity, assist, or become affiliated
with as an owner, partner, etc., either directly or indirectly, any individual
or business which offers or performs services, or offers or provides products
substantially similar to the services and products provided by Company.
          (b) Conflicts of Interest. Executive agrees that during the Term, he
will not engage, either directly or indirectly, in any activity (a “Conflict of
Interest”) which might adversely affect the Company or its affiliates, including
ownership of a material interest in any supplier, contractor, distributor,
subcontractor, customer or other entity with which the Company does business or
accepting any material payment, service, loan, gift, trip, entertainment, or
other favor from a supplier, contractor, distributor, subcontractor, customer or
other entity with which the Company does business, and that Executive will
promptly inform the Chairman of the Board of the Company in writing as to each
offer received by Executive to engage in any such activity. Executive further
agrees to disclose to the Company any other facts of which Executive becomes
aware which might in Executive’s good faith judgment reasonably be expected to
involve or give rise to a Conflict of Interest or potential Conflict of
Interest.
          (c) Non-Competition After Termination. Executive agrees that Executive
shall not, at any time during the period of two (2) years after the termination
of the Term for any reason, within any of the markets in which the Company has
sold products or services or formulated a plan to sell products or services into
a market during the last twelve (12) months of Executive’s employ; engage in or
contribute Executive’s knowledge to any work which is competitive with or
similar to a product, process, apparatus, service, or development on which
Executive worked or with respect to which Executive had access to Confidential
Information while employed by the Company. Following the expiration of said two
(2) year period, Executive shall continue to be obligated under the Confidential
Information Section of this Agreement not to use or to disclose Confidential
Information of the Company so long as it shall not be publicly available. It is
understood that the

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geographical area set forth in this covenant is divisible so that if this clause
is invalid or unenforceable in an included geographic area, that area is
severable and the clause remains in effect for the remaining included geographic
areas in which the clause is valid.
          (d) Non-Solicitation of Customers. Executive further agrees that for a
period of two (2) years after the termination of the Term, he will not solicit
or accept any business from any customer or client or prospective customer or
client with whom Executive dealt or solicited while employed by Company during
the last twelve (12) months of his employment.
          (e) Non-Solicitation of Employees. Executive agrees that for the
duration of the Term, and for a period of two (2) years after the termination of
the Term he will not either directly or indirectly, on his own behalf or on
behalf of others, solicit, attempt to hire, or hire any person employed by the
Company or any person that has been employed by the Company within the previous
six (6) months to work for Executive or for another entity, firm, corporation,
or individual.
          (f) Confidential Information. Executive further agrees that he will
not, except as the Company may otherwise consent or direct in writing, reveal or
disclose, sell, use, lecture upon, publish or otherwise disclose to any third
party any Confidential Information or proprietary information of the Company, or
authorize anyone else to do these things at any time either during or subsequent
to his employment with the Company. This Section shall continue in full force
and effect after termination of Executive’s employment and after the termination
of this Agreement. Executive’s obligations under this Section with respect to
any specific Confidential Information and proprietary information shall cease
when that specific portion of the Confidential Information and proprietary
information becomes publicly known, in its entirety and without combining
portions of such information obtained separately. It is understood that such
Confidential Information and proprietary information of the Company include
matters that Executive conceives or develops, as well as matters Executive
learns from other employees of Company. Confidential Information is defined to
include information: (1) disclosed to or known by Executive as a consequence of
or through his employment with the Company; (2) not generally known outside the
Company; and (3) which relates to any aspect of the Company or its business,
finances, operation plans, budgets, research, or strategic development.
“Confidential Information” includes, but is not limited to the Company’s trade
secrets, proprietary information, financial documents, long range plans,
customer lists, employer compensation, marketing strategy, data bases, costing
data, computer software developed by the Company, investments made by the
Company, and any information provided to the Company by a third party under
restrictions against disclosure or use by the Company or others.
          (g) Return of Documents, Equipment, Etc. All writings, records, and
other documents and things comprising, containing, describing, discussing,
explaining, or evidencing any Confidential Information, and all equipment,
components, parts, tools, and the like in Executive’s custody or possession that
have been obtained or prepared in the course of Executive’s employment with the
Company shall be the exclusive property of the Company, shall not be copied
and/or removed from the premises of the Company, except in pursuit of the
business of the Company, and shall be delivered to the Company, without
Executive retaining any copies, upon notification of the termination of
Executive’s employment or at any other time requested by the Company. The
Company shall have the right to retain, access, and inspect all property of
Executive of any kind in the office, work area, Executive’s residence or houses,
and on the premises of the Company upon

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termination of Executive’s employment and at any time during employment by the
Company to ensure compliance with the terms of this Agreement. All office
equipment, telecommunications equipment and equipment of a like or similar kind
installed by the Company at the residence of Executive to facilitate necessary
communication and assist Executive in the performance of his duties shall be
conveyed to Executive without the payment of consideration upon termination of
Executive’s employment for any reason and after an opportunity for inspection
and removal of Company information. The Parties understand and agree that the
materials described in this Section 5(g) exclude all of Executive’s personal
files, personal e-mail correspondence, personal notes and professional readers.
          (h) Reaffirm Obligations. Upon termination of his employment with the
Company, Executive, if requested by Company, shall reaffirm in writing
Executive’s recognition of the importance of maintaining the confidentiality of
the Company’s Confidential Information and proprietary information, and reaffirm
any other obligations set forth in this Agreement.
          (i) Prior Disclosure. Executive represents and warrants that he has
not used or disclosed any Confidential Information he may have obtained from the
Company prior to signing this Agreement, in any way inconsistent with the
provisions of this Agreement.
          (j) Confidential Information of Prior Companies. Executive will not
disclose or use during the period of his employment with the Company any
proprietary or Confidential Information or copyrighted works which Executive may
have acquired because of employment with an employer other than the Company or
acquired from any other third party, whether such information is in Executive’s
memory or embodied in a writing or other physical form.
          (k) Breach. Executive agrees that any breach of Sections 5(a), (c),
(d), (e) or (f) above cannot be remedied solely by money damages, and that in
addition to any other remedies the Company may have, the Company is entitled to
obtain injunctive relief against Executive. Nothing herein, however, shall be
construed as limiting Company’s right to pursue any other available remedy at
law or in equity, including recovery of damages and termination of this
Agreement and/or any payments that may be due pursuant to this Agreement.
          (l) Right to Enter Agreement. Executive represents and covenants to
Company that he has full power and authority to enter into this Agreement and
that the execution of this Agreement will not breach or constitute a default of
any other agreement or contract to which he is a party or by which he is bound.
          (m) Extension of Post-Employment Restrictions. In the event Executive
breaches Sections 5(c), (d), or (e) above, the restrictive time periods
contained in those provisions will be extended by the period of time Executive
was in violation of such provisions. The restrictive time periods contained in
Sections 5(c), (d), or (e) shall likewise be extended during any time period in
which litigation is pending by Executive against the Company or by the Company
against Executive with regard to the enforcement of the provisions of Section 5
of this Agreement.
          (n) Enforceability. The agreements contained in Section 5 are
independent of the other agreements contained herein. Accordingly, failure of
the Company to comply with any of

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its obligations outside of this Section does not excuse Executive from complying
with the agreements contained herein.
          (o) Ownership in Publicly Traded Company. Executive’s ownership in a
publicly traded business entity in competition with the Company shall not be
regarded by the Parties as employment in a competitive activity in violation of
this Section, provided that Executive’s ownership interest in such company is
passive and constitutes no more than a two percent (2%) ownership in the stock
of such publicly traded company.
     6. Assignment. This Agreement cannot be assigned by Executive. The Company
may assign this Agreement only to a successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and assets of the Company provided such successor expressly agrees in
writing reasonably satisfactory to Executive to assume and perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession and assignment had taken place.
Failure of the Company to obtain such written agreement prior to the
effectiveness of any such succession shall be a material breach of this
Agreement. The Company shall obtain the assumption and performance of this
Agreement by any such successor; provided, however, that such commitment by the
Company (including a failure to satisfy such commitment) shall not give
Executive the right to object to or enjoin any transaction among the Company,
any of its affiliates, and any such successor. To the extent a failure by the
Company to satisfy the foregoing commitment constitutes a material breach of
this Agreement and to the extent not cured in accordance with Section 4(a)(4),
such failure shall constitute “Good Reason” pursuant to Section 4(a)(4)(iv).
     7. Binding Agreement. Executive understands that his obligations under this
Agreement are binding upon Executive’s heirs, successors, personal
representatives, and legal representatives.
     8. Survivability. The provisions of this Agreement which call for
performance after the end of the Term, including, without limitation, the
agreements contained in Section 3(d)(2)-(6), and Section 5, shall survive the
termination of this Agreement for any reason.
     9. Notices. All notices pursuant to this Agreement shall be in writing and
sent certified mail, return receipt requested, addressed as set forth below, or
by delivering the same in person to such party, or by transmission by facsimile
to the number set forth below. Notice deposited in the United States Mail,
mailed in the manner described herein above, shall be effective upon deposit.
Notice given in any other manner shall be effective only if and when received:

         
 
  If to Executive:   Michael J. Schell
 
      3 Hampton Court
 
      Houston, Texas 77024
 
      Fax: (713) 827-0642
 
       
 
  If to Company:   HCC Insurance Holdings, Inc.
 
      13403 Northwest Freeway
 
      Houston, Texas 77040
 
      Fax: (713) 462-2401

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      Attention: General Counsel

     10. Waiver. No waiver by either party to this Agreement of any right to
enforce any term or condition of this Agreement, or of any breach hereof, shall
be deemed a waiver of such right in the future or of any other right or remedy
available under this Agreement.
     11. Severability. If any provision of this Agreement is determined to be
void, invalid, unenforceable, or against public policy, such provisions shall be
deemed severable from the Agreement, and the remaining provisions of the
Agreement will remain unaffected and in full force and effect.
     12. Arbitration. Except as provided in subsection (d) below, in the event
any dispute arises out of or related to Executive’s employment with or by the
Company, or separation/termination therefrom, which cannot be resolved by the
Parties to this Agreement, such dispute shall be submitted to final and binding
arbitration. Except as provided in subsection (d) below, arbitration of such
disputes is mandatory and in lieu of any and all civil causes of action and
lawsuits either party may have against the other arising out of Executive’s
employment with the Company, or separation therefrom.
          (a) The arbitration shall be conducted in accordance with the National
Rules for the resolution of Employment Disputes of the American Arbitration
Association (“AAA”). If the Parties cannot agree on an arbitrator, a list of
seven (7) arbitrators will be requested from AAA, and the arbitrator will be
selected using alternate strikes with Executive striking first. Subject to
subsection (c) below, cost of the arbitration will be shared equally by
Executive and Company. Such arbitration shall be held in Houston, Texas.
          (b) Judgment on the award rendered by the arbitrator may be entered in
any court having jurisdiction thereof by the filing of a petition to enforce the
award. Costs of filing may be recovered by the party that initiates such action
to have the award enforced.
          (c) The Company shall promptly reimburse Executive for all eligible,
reasonable costs and expenses incurred in connection with any dispute,
controversy, or claim submitted to binding arbitration in accordance with this
Section in an amount up to, but not exceeding an amount equal to twenty percent
(20%) of Executive’s Base Salary per taxable year of Executive, unless Executive
was terminated for Cause, in which event Executive shall not be entitled to
reimbursement unless and until it is determined he was terminated other than for
Cause. To be eligible for reimbursement under this subsection (c), (1) the
expenses must be incurred during the period beginning on the Effective Date and
ending on the date that is ten (10) years after the end of the Term and (2) the
expenses must be submitted to the Company for reimbursement within ninety (90)
days after the end of the taxable year of Executive in which the expenses were
incurred. Amounts eligible for reimbursement shall be paid to Executive before
the last day of the taxable year of Executive following the taxable year in
which the expenses were incurred. The amount of expenses eligible for
reimbursement during Executive’s taxable year may not affect the expenses
eligible for reimbursement in any other taxable year of Executive. Executive’s
right to reimbursement under this subsection (c) may not be assigned, alienated,
or exchanged for any other benefit.

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          (d) It is specifically agreed by the Parties that any enforcement
action by the Company against Executive for equitable relief, including, but not
limited to, injunctive relief under Section 5 of this Agreement shall not be
subject to this Section requiring arbitration and that the Company shall not be
required to seek arbitration against Executive for any purported violation by
Executive of his obligations under Section 5 of this Agreement.
     13. Entire Agreement. The terms and provisions contained herein shall
constitute the entire agreement between the parties with respect to Executive’s
employment with Company during the time period covered by this Agreement. This
Agreement replaces and supersedes any and all existing Agreements entered into
between Executive and the Company relating generally to the same subject matter,
if any, and shall be binding upon Executive’s heirs, executors, administrators,
or other legal representatives or assigns.
     14. Modification of Agreement. This Agreement may not be changed or
modified or released or discharged or abandoned or otherwise terminated, in
whole or in part, except by an instrument in writing signed by Executive and an
officer or other authorized executive of Company.
     15. Effective Date. It is understood by the Parties that this Agreement
shall be effective as of the Effective Date when signed by both the Company and
Executive.
     16. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without regard to conflicts of
law principles.
     17. Jurisdiction and Venue. With respect to any litigation regarding this
Agreement, Executive agrees to venue in the state or federal courts in Harris
County, Texas, and agrees to waive and does hereby waive any defenses and/or
arguments based upon improper venue and/or lack of personal jurisdiction. By
entering into this Agreement, Executive agrees to personal jurisdiction in the
state and federal courts in Harris County, Texas.
18. Compliance With Section 409A.
          (a) Delay in Payments. Notwithstanding anything to the contrary in
this Agreement, (i) if upon the Termination Date Executive is a “specified
employee” within the meaning of Code section 409A (determined by applying the
default rules applicable under such Code section except to the extent such rules
are modified by a written resolution that is adopted by the Compensation
Committee and that applies for purposes of all deferred compensation plans of
the Company and its affiliates) and the deferral of any amounts otherwise
payable under this Agreement as a result of Executive’s termination of
employment is necessary in order to prevent any accelerated or additional tax to
Executive under Code section 409A, then the Company will defer the payment of
any such amounts hereunder until the date that is six months following the
Termination Date, at which time any such delayed amounts will be paid to
Executive in a single lump sum, with interest from the date otherwise payable at
the rate of return on 90-day Treasury bills in existence at the Termination
Date, and (ii) if any other payments of money or other benefits due to Executive
hereunder could cause the application of an accelerated or additional tax under
Code section 409A, such payments or other benefits shall be deferred if deferral
will make such payment or other benefits compliant under Code Section 409A.

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          (b) Overall Compliance. To the extent any provision of this Agreement
or any omission from the Agreement would (absent this Section 18(b) cause
amounts to be includable in income under Code section 409A(a)(1), the Agreement
shall be deemed amended to the extent necessary to comply with the requirements
of Code section 409A; provided, however, that this Section 18(b) shall not apply
and shall not be construed to amend any provision of the Agreement to the extent
this Section 18(b) or any amendment required thereby would itself cause any
amounts to be includable in income under Code section 409A(a)(1).
          (c) Reformation. If any provision of this Agreement would cause
Executive to occur any additional tax under Code section 409A, the parties will
in good faith attempt to reform the provision in a manner that maintains, to the
extent possible, the original intent of the applicable provision without
violating the provisions of Code section 409A.
          (d) Code Section 409A Excise Tax Gross Up. If the terms of this
Agreement (as may be modified under Sections 18(b) and 18(c)) or any action or
omission by the Company in its performance under this Agreement, causes any
payment or benefit received or to be received by Executive from the Company
pursuant to this Agreement (the “Agreement Payments”) to be subject to the
excise tax and additional interest imposed by Code section 409A(a)(1)(B) (the
“409A Excise Tax”), the Company shall pay Executive, at the time specified
below, an additional amount (the “409A Gross-Up Payment”) such that the net
amount that Executive retains, after deduction of the 409A Excise Tax on the
Agreement Payments; any federal, state, and local income and employment taxes;
any additional 409A Excise Taxes upon the 409A Gross-Up Payment; and any
interest, penalties, or additions to tax payable by Executive with respect
thereto, shall be equal to the total present value (using the applicable federal
rate (as defined in section 1274(d) of the Code) in such calculation) of the
Agreement Payments at the time such payments are to be made. Payment of such
additional amount shall occur on or before the earlier to occur of (i) the date
which the Company is required to withhold any such taxes and (ii) the date on
which Executive remits such taxes to the Internal Revenue Service (to the extent
not withheld). For purposes of determining the amount of the 409A Gross-Up
Payment, Executive shall be deemed to pay federal income taxes at the highest
marginal rates of federal income taxation applicable to individuals in the
calendar year in which the 409A Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rates of taxation applicable to
individuals as are in effect in the state and locality of Executive’s residence
in the calendar year in which the 409A Gross-Up Payment is to be made, net of
the maximum reduction in federal income taxes that can be obtained from
deduction of such state and local taxes, taking into account any limitations
applicable to individuals subject to federal income tax at the highest marginal
rates. This Section 18(d) does not require the Company to pay, reimburse, or
gross up Executive with respect to excise taxes imposed under any other section
of the Code or under state or local law.

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     IN WITNESS WHEREOF, the Parties have executed this Agreement in multiple
copies, effective as of the Effective Date.

                  EXECUTIVE:       COMPANY:
HCC Insurance Holdings, Inc.    
 
               
/s/ Michael J. Schell
 
Michael J. Schell
      By:   /s/ Frank J. Bramanti
 
Frank J. Bramanti,    
 
          Chief Executive Officer    
 
                Date:  August 10, 2007       Date:  August 10, 2007    
 
                        Acknowledged by:    
 
               
 
      By:   /s/ John N. Molbeck, Jr.
 
John N. Molbeck, Jr.,    
 
          President and Chief Operating Officer    
 
                        Date:  August 10, 2007    

Signature Page
Employment Agreement — Schell

 

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Exhibit 3(i)
Option Vesting and Exercise Provisions
Termination of Employment.
1. In the event the employment of the Employee is terminated by the Employee for
Good Reason (as such term is defined in the Employment Agreement between the
Company and the Employee entered into on August 10, 2007 but effective as of the
1st day of March, 2007 (the “Employment Agreement”)) or by the Company without
Cause (as such term is defined in the Employment Agreement), the Employee shall
have the right to exercise this option for the full number of shares not
previously exercised or any portion thereof, except as to the issuance of
fractional shares, to the full extent of this option at any time within the
unexpired term of this option.
2. In the event the employment of the Employee is terminated for Cause or by
Employee without Good Reason, the Employee shall have the right at any time
within thirty (30) days after the termination of such employment or, if shorter,
during the unexpired term of this option, to exercise this option for the full
number of shares not previously exercised or any portion thereof, except as to
the issuance of fractional shares, but only to the extent this option was
otherwise exercisable in accordance with Paragraph 4 hereof as of the date of
such termination of employment.
3. In the event the employment of the Employee is terminated by reason of
Disability, then the Employee shall have the right to exercise this option for
the full number of shares not previously exercised or any portion thereof,
except as to the issuance of fractional shares, to the full extent of this
option at any time within the unexpired term of this option.
4. In the event of the death of the Employee while in the employ of the Company
or the Subsidiaries, this option may be exercised for the full number of shares
not previously exercised, or any portion thereof, except as to the issuance of
fractional shares, to the full extent of this option at any time within the
unexpired term of this option, by the person or persons to whom the Employee’s
rights under this option shall pass by the Employee’s will or by the laws of
descent and distribution, whichever is applicable.
5. In the event the Employee terminates his employment on a Change of Control
(as defined in the Employment Agreement), then the Employee shall have the right
to exercise this option for the full number of shares not previously exercised
or any portion thereof, except as to the issuance of fractional shares, to the
full extent of this option at any time within the unexpired term of this option.
Exhibit 3(i)