EXHIBIT 10.28
HCC INSURANCE HOLDINGS, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS

 

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HCC INSURANCE HOLDINGS, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS
Table of Contents

              Page  
ARTICLE 1 - DEFINITIONS
    1  
 
       
ARTICLE 2 - ELIGIBILITY
    5  
 
       
ARTICLE 3 - DEFERRAL ELECTIONS AND CONTRIBUTIONS
    6  
 
       
ARTICLE 4 - ADJUSTMENT OF ACCOUNT
    8  
 
       
ARTICLE 5 - PAYMENT OF BENEFITS
    10  
 
       
ARTICLE 6 - ADMINISTRATION OF THE PLAN
    12  
 
       
ARTICLE 7 - CLAIM REVIEW PROCEDURE
    13  
 
       
ARTICLE 8 - LIMITATION OF RIGHTS
    14  
 
       
ARTICLE 9 - FUNDING AND ASSIGNMENT
    14  
 
       
ARTICLE 10 - AMENDMENT OR TERMINATION OF THE PLAN
    15  
 
       
ARTICLE 11 - GENERAL AND MISCELLANEOUS
    15  
 
       
ARTICLE 12 - COMPLIANCE WITH CODE SECTION 409A
    18  

 

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HCC INSURANCE HOLDINGS, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS
PREAMBLE
          WHEREAS, the Company desires to establish an elective nonqualified
deferred compensation plan for the benefit of non-employee directors of the
Company; and
          WHEREAS, the Company intends that Plan Participants and Beneficiaries
shall have the status of unsecured general creditors of the Company with respect
to the Plan and that the Plan shall be exempt from the requirements of ERISA
because participation is limited to individuals who are not employees of the
Company or its Affiliates;
          NOW, THEREFORE, the Company hereby establishes the HCC Insurance
Holdings, Inc. Nonqualified Deferred Compensation Plan for Non-Employee
Directors, effective as of the Effective Date.
ARTICLE 1
DEFINITIONS
          1.1     “Account(s)” shall mean the record maintained by the Committee
showing the monetary value of the individual interest(s) in the Plan of a
Participant. The term “Account” shall refer only to a bookkeeping entry and
shall not be construed to require the segregation of assets on behalf of the
Participant. A separate Account shall be maintained for each separate Deferral
Election made by a Participant (except that the Committee may aggregate a
Participant’s Accounts that have both the same time of payment election under
Section 5.1 and the same Optional Form election under Section 5.2).
          1.2     “Affiliate” shall mean a member of the controlled group of
corporations (as defined in section 1563 of the Code) of which the Company is a
member. For purposes of Section 1.27, such term shall mean all persons with whom
the Company would be considered a single employer under Code section 414(b)
and/or under Code section 414(c), as modified by the first sentence of Treasury
regulation section 1.409A-1(h)(3).
          1.3     “Beneficiary” shall mean the beneficiary or beneficiaries
(including any contingent beneficiary or beneficiaries, if applicable)
designated by the Participant to receive death benefits, if any, hereunder.
          1.4     “Board” shall mean the Board of Directors of the Company, as
constituted from time to time.
          1.5     “Cash Compensation” shall mean the cash director’s fees and
other cash remuneration that would otherwise be payable to a Non-Employee
Director for service in that capacity if not deferred pursuant to Article 3.
          1.6     “Change of Control” shall mean a change in the ownership or
effective control of the Company or a change in the ownership of a substantial
portion of the assets of the Company within the meaning of Code section
409A(a)(2)(A)(v) and as further specified below. In determining stock ownership
for purposes of this Section, the ownership attribution rules of Treasury
regulation section 1.409A-3(i)(5)(iii) shall apply, and the term “more than one
person acting as a group” shall have the meaning specified by applicable
provisions of Treasury regulation section 1.409A-3(i)(5).
          (a)     A change in the ownership of the Company shall be considered
to occur on the date that any one person, or more than one person acting as a
group (other than a person or group which already owns more than 50% of the
total fair market value or total voting power of the stock of the Company or
which is already considered to effectively control the Company as defined in
subsection (b) below) acquires ownership of stock of the Company that, together
with stock held by such person or group, constitutes more than 50% of the total
fair market value or total voting power of the stock of the Company.
          (b)     A change in the effective control of the Company shall be
considered to occur on either of the following dates:

 

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          (i)     The date any one person or more than one person acting as a
group (other than a person or group which is already considered to effectively
control the Company) acquires (or has acquired during the 12-month period ending
on the date of the most recent acquisition by such person or persons) ownership
of stock of the Company possessing 50% or more of the total voting power of the
stock of the Company.
          (ii)     The date a majority of the members of the Board is replaced
during any 12-month period by directors whose appointment or election is not
endorsed by a majority of the members of the Board before the date of the
appointment or election, provided that this subsection (b)(ii) applies only if
no other corporation is a majority shareholder of the Company.
Notwithstanding the foregoing, if a person or more than one person acting as a
group is considered to effectively control the Company, the acquisition of
additional control of the Company by the same person or persons shall not be
considered to cause a change in the effective control of the Company within the
meaning of this subsection (b).
          (c)     A change in the ownership of a substantial portion of the
Company’s assets shall be considered to occur on the date that any one person,
or more than one person acting as a group, acquires (or has acquired during the
12-month period ending on the date of the most recent acquisition by such person
or persons) assets from the Company that have a total gross fair market value
equal to or exceeding 50% of the total gross fair market value of all of the
assets of the Company immediately before such acquisition or acquisitions. For
this purpose, “gross fair market value” means the value of the assets of the
Company, or the value of the assets being disposed of, determined without regard
to any liabilities associated with such assets. Notwithstanding the foregoing, a
change in the ownership of a substantial portion of the Company’s assets shall
not be considered to occurs if assets are transferred to an entity that is
controlled by the shareholders of the transferring corporation immediately after
the transfer, as provided in Treasury regulation section 1.409A-3(i)(5)(vii)(B).
          1.7     “Claimant” shall mean a Participant or Inactive Participant or
a Beneficiary of a deceased Participant or Inactive Participant.
          1.8     “Code” shall mean the Internal Revenue Code of 1986, as it may
be amended from time to time, and the rules and regulations promulgated
thereunder.
          1.9     “Committee” shall mean the Compensation Committee of the Board
or, if none, the Board. An individual who ceases to be a member of such
Compensation Committee (or Board, if applicable) shall automatically cease to be
a member of the Committee hereunder, and an individual who becomes a member of
such Compensation Committee (or Board, if applicable) shall automatically become
a member of the Committee hereunder.
          1.10     “Company” shall mean HCC Insurance Holdings, Inc., a Delaware
corporation, or its successor.
          1.11     “Company Stock” shall mean shares of common stock of the
Company (or any successor security).
          1.12     “Contribution” shall mean a bookkeeping entry which reflects
the accruals to the Participant’s Account, if any, as provided in 3.5 hereof.
          1.13     “Deferral Election” shall mean a written instrument in a form
acceptable to the Committee that is executed by the Participant and delivered to
the Committee specifying the Participant’s instructions regarding the matters
addressed by Article 3 and Sections 5.1 and 5.2.
          1.14     “Disability” shall mean the inability of the Participant 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
12 months. The Participant shall be considered to have a Disability for purposes
of the Plan if he is determined to be totally disabled by the United States
Social Security Administration.
          1.15     “Effective Date” shall mean May 9, 2007.
          1.16     “ERISA” shall mean the Employee Retirement Income Security
Act of 1974, as it may be amended from time to time, and the rules and
regulations promulgated thereunder.

 

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          1.17     “HCC Stock Rate” for a Valuation Date shall mean the
one-month total return, dividend reinvested, for Company Stock for the month
containing such Valuation Date, as determined in the sole discretion of the
Committee; provided that if Company Stock ceases to be publicly traded prior to
a Valuation Date, the HCC Stock Rate shall be equal to the S&P Rate for such
Valuation Date.
          1.18     “Inactive Participant” shall mean a Participant who has
ceased to be a Non-Employee Director (due to a Separation from Service or any
other reason) but who has not received a complete distribution of all amounts
credited to his Account.
          1.19     “Investment Election” shall mean a written instrument in a
form acceptable to the Committee that is executed by the Participant and
delivered to the Committee specifying the Participant’s instructions regarding
the matters addressed by Section 4.3(b).
          1.20     “Non-Employee Director” shall mean an individual who is a
member of the Board, who is not also an employee of the Company or any
Affiliate, and whose taxable year is the Plan Year.
          1.21     “Optional Form” shall mean an optional form of payment that
may be elected by a Participant as part of a Deferral Election in accordance
with Section 5.2.
          1.22     “Other Plans” shall mean all other plans required to be
aggregated with this Plan for purposes of determining compliance with applicable
requirements of Code section 409A.
          1.23     “Participant” shall mean a Non-Employee Director who is
eligible to make a Deferral Election pursuant to Section 2.1.
          1.24     “Plan” shall mean this HCC Insurance Holdings, Inc.
Nonqualified Deferred Compensation Plan for Non-Employee Directors, as amended
from time to time.
          1.25     “Plan Year” shall mean the annual period beginning January 1
and ending December 31, both dates inclusive of each year; provided that if the
taxable year of a Participant changes after the commencement of participation to
a year other than the Plan Year, the Plan Year for that Participant shall be
deemed to be the Participant’s taxable year.
          1.26     “Prime Rate” for a Valuation Date shall mean the latest
United States prime lending rate announced by Wells Fargo Bank, N.A. (or its
successor) on the business day that is coincident with or immediately precedes
such Valuation Date, as adjusted to reflect monthly compounding.
          1.27     “Restricted Company Stock” shall mean Company Stock that is
granted to a Participant subject to forfeiture if the Participant does not
continue to provide services to the Company for a period of at least 12 months
from the date of grant. Company Stock may be considered Restricted Company Stock
even if the right to payment becomes nonforfeitable earlier than 12 months after
the date of grant upon the death or Disability of the Participant or upon a
Change of Control.
          1.28     “Separation from Service” shall mean the Participant’s
“separation from service” with the Company and its Affiliates as such term is
defined for purposes of Code sections 409A(a)(2)(A)(i) and 409A(a)(2)(B)(i). To
the extent permitted by Treasury Regulation section 1.409A-1(h)(5), the
Participant may be considered to have such a separation from service even if he
continues to provide services as an employee of the Company or any of its
Affiliates.
          1.29     “Specified Employee” shall mean “specified employee” as
defined by Code section 409A(a)(2)(B)(i), 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 Committee and that
applies for purposes of all deferred compensation plans of the Company and its
Affiliates.
          1.30     “S&P Rate” for a Valuation Date shall mean the one-month
total return, cash dividend reinvested, for the S&P 500 Index for the month
containing such Valuation Date, as published by Standard & Poor’s (or any
successor).
          1.31     “Stock Compensation” shall mean remuneration in the form of
Company Stock that would otherwise be payable to a Non-Employee Director for
service in that capacity if not deferred pursuant to Article 3.
          1.32     “Valuation Date” shall mean the last calendar day of each
month during the Plan Year.

 

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ARTICLE 2
ELIGIBILITY
          2.1     Commencement of Participation.
           (a)    An individual who becomes a Participant in accordance with
this subsection (a) shall be eligible to make an initial Deferral Election under
Section 3.1, subsequent annual deferral elections under Section 3.2, and special
Deferral Elections under Section 3.3. Such elections may be made on or after the
date on which he becomes a Participant.
          (i)     An individual who is a Non-Employee Director on the Effective
Date shall become a Participant on such date.
          (ii)     An individual who becomes a Non-Employee Director after the
Effective Date and who has never been a Participant shall become a Participant
on the date on which he becomes a Non-Employee Director.
          (iii)     An individual who becomes a Non-Employee Director after the
Effective Date, who was previously a Participant, but who is no longer a
Participant or Inactive Participant due to the distribution of all amounts
credited to his prior Account(s) (and who, prior to the last date of such
distribution ceased to be eligible to participate in the Plan with respect to
periods after such last distribution date) shall become a Participant on the
date on which he again becomes a Non-Employee Director after such last
distribution date.
          (iv)     An individual who becomes a Non-Employee Director after the
Effective Date, who was previously a Participant, and who has been an Inactive
Participant at all times during the 24-month period ending on the date on which
he again becomes a Non-Employee Director shall become a Participant on such
date.
          (b)     An individual who becomes a Non-Employee Director after the
Effective Date, who was previously a Participant, and who is not described in
Section 2.1(a)(iii) or 2.1(a)(iv) shall become a Participant on the date on
which he again becomes a Non-Employee Director. Such a Participant shall be
eligible to make an annual Deferral Election under Section 3.2 with respect to a
subsequent Plan Year and special Deferral Elections under Section 3.3, and such
elections may be made on or after the date on which he becomes a Participant.
However, such a Participant shall not be eligible to make an initial Deferral
Election under Section 3.1 and shall be subject to any Deferral Election
previously made (if any) for the Plan Year in which he again becomes a
Participant in accordance with this subsection (b).
          2.2     Termination of Participation. An individual shall cease to be
a Participant on the date on which he has a Separation from Service or otherwise
ceases to be a Non-Employee Director. If such a former Participant retains one
or more Accounts under the Plan, he shall be an Inactive Participant. No
Contributions shall be credited to such a former Participant’s Account(s) with
respect to Cash Compensation and/or Stock Compensation for services after his
Separation from Service or other termination as a Non-Employee Director. The
Account(s) of an Inactive Participant shall continue to be adjusted for deemed
investment experience in accordance with Article 4. An individual shall cease to
be an Inactive Participant on the date on which no benefits are due under the
Plan to or with respect to that individual.
ARTICLE 3
DEFERRAL ELECTIONS AND CONTRIBUTIONS
          3.1     Initial Deferral Election. A Participant may elect to defer
all or part of the Cash Compensation and/or Stock Compensation payable with
respect to services performed after the date the Participant delivers an initial
Deferral Election to the Committee. The election shall be made in whole
percentage increments of each payment of Cash Compensation and Stock
Compensation, except that a deferral election with respect to Stock Compensation
shall be rounded down to the nearest whole share of such Stock Compensation. To
be effective, the initial Deferral Election must be made within 30 days after
becoming a Participant pursuant to Section 2.1(a). Upon receipt by the
Committee, a valid initial Deferral Election shall be irrevocable for the Plan
Year in which first effective. The Committee’s acceptance of an election to
defer Cash Compensation and/or Stock Compensation shall not affect the
contingent nature of such compensation. An initial Deferral Election shall
specify the time and form of payment under Article 5 for the amount deferred.

 

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          3.2     Annual Deferral Election. A Participant may elect to defer all
or part (or none in the case of a revocation of a prior election) of the Cash
Compensation and/or Stock Compensation payable with respect to services
performed in the Plan Year after the Plan Year in which the Participant delivers
an annual Deferral Election to the Committee. The election shall be made in
whole percentage increments of each payment of such Cash Compensation and/or
Stock Compensation, except that a deferral election with respect to Stock
Compensation shall be rounded down to the nearest whole share of such Stock
Compensation. In the case of a revocation of a prior election, the election
shall specify that no portion of such Cash Compensation and/or Stock
Compensation shall be deferred. To be effective for a Plan Year, the annual
Deferral Election must be made by December 31 of the immediately preceding Plan
Year. A valid annual Deferral Election shall become irrevocable with respect to
the Plan Year to which it applies on December 31 of the immediately preceding
Plan Year. An annual Deferral Election for a Plan Year may be revoked or changed
prior to becoming irrevocable for that Plan Year. The Committee’s acceptance of
an election to defer Cash Compensation and/or Stock Compensation shall not
affect the contingent nature of such compensation. An annual Deferral Election
shall specify the time and form of payment under Article 5 for the amount
deferred.
          3.3     Special Deferral Election for Restricted Company Stock. A
Participant who has not made a Deferral Election under Section 3.1 or 3.2 to
defer Stock Compensation with respect to services performed in a Plan Year and
who is granted Restricted Company Stock during such Plan Year, may elect to
defer all or part of the Stock Compensation attributable to such Restricted
Company Stock within 30 days after the date of grant of the Restricted Company
Stock; provided, however, that such election must also be made at least
12 months in advance of the earliest vesting date for such Restricted Company
Stock. The special Deferral Election shall be made in whole percentage
increments of each payment of such Stock Compensation, except that the election
shall be rounded down to the nearest whole share of such Stock Compensation. A
valid special Deferral Election shall become irrevocable with respect to the
Restricted Company Stock to which it applies on the earlier to occur of (a) the
30th day after the date of grant of the Restricted Company Stock subject to the
election and (b) the date that is 12 months in advance of the earliest vesting
date for such Restricted Company Stock. A special Deferral Election may be
revoked or changed prior to becoming irrevocable for the Restricted Company
Stock to which it relates. The Committee’s acceptance of an election to defer
Stock Compensation attributable to Restricted Company Stock shall not affect the
contingent nature of such compensation. A special Deferral Election shall
specify the time and form of payment under Article 5 for the amount deferred. If
a special Deferral Election is made with respect to Restricted Company Stock and
such stock becomes vested within 12 months after the date of grant due to the
Participant’s death or Disability or a Change of Control, such election shall be
given effect only if the election would have been valid under Section 3.1 or
3.2.
          3.4     Continuation of Deferral Election. A Deferral Election under
Section 3.1 or 3.2 shall remain in effect for Plan Years following the Plan Year
to which the election initially applies until the effective date of a new annual
Deferral Election that revokes or modifies the prior election. A valid, new
annual Deferral Election shall become effective on the day after the date the
election becomes irrevocable. A continued Deferral Election under this Section
shall become irrevocable with respect to a Plan Year on December 31 of the
immediately preceding Plan Year. A special Deferral Election under Section 3.3
shall apply solely to the Restricted Company Stock to which it relates and shall
not remain in effect with respect to subsequent grants of Restricted Company
Stock.
          3.5     Contribution of Deferred Amounts. The deferral percentage
elected by a Participant, if any, shall be applied to each payment of Cash
Compensation and/or Stock Compensation to which the Participant’s Deferral
Election applies. Each Valuation Date the Company shall credit the Participant’s
Account relating to such Deferral Election with the amount so deferred by the
Participant since the preceding Valuation Date.
ARTICLE 4
ADJUSTMENT OF ACCOUNT
          4.1     Contributions and Distributions. Contributions shall be
credited to the Account of the Participant in accordance with Section 3.5. All
distributions from the Account pursuant to Article 5 shall be charged against
the Account as of the date of such distribution.
          4.2     Deemed Investment Return.
           (a)    The Account(s) of a Participant or Inactive Participant shall
be adjusted each Valuation Date to reflect earnings (or losses) at the Prime
Rate, the HCC Stock Rate, and/or the S&P Rate as applicable under Section 4.3.

 

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          (i)     The portion of the Account(s) (if any) deemed invested at the
Prime Rate shall be credited with an amount equal to the balance of such portion
(if any) as of the close of the immediately preceding Valuation Date multiplied
by the Prime Rate for the current Valuation Date.
          (ii)     The portion of the Account(s) (if any) deemed invested at the
HCC Stock Rate shall be credited with an amount equal to the balance of such
portion (if any) as of the close of the immediately preceding Valuation Date
multiplied by the HCC Stock Rate for the current Valuation Date.
          (iii)     The portion of the Account(s) (if any) deemed invested at
the S&P Rate shall be credited (or debited) with an amount equal to the balance
of such portion (if any) as of the close of the immediately preceding Valuation
Date multiplied by the S&P Rate for the current Valuation Date.
          (b)     Contributions to a Participant’s Account shall not be adjusted
for deemed investment experience for periods prior to the Valuation Date on
which the Contributions are credited to the Account (even if the Contribution
amount is known prior to such date). No amount shall be adjusted for deemed
investment experience after the Valuation Date coincident with or immediately
preceding the date on which the amount is distributed from the Participant’s or
Inactive Participant’s Account.
          (c)     The crediting of earnings and losses under the Plan does not
mean and shall not be construed to mean that the Account(s) of a Participant or
Inactive Participant are actually invested in any security, fund or other
investment, and no Participant, Inactive Participant, or Beneficiary shall have
any security or other interest in any security, fund or investment, even if the
Company maintains actual investments that mirror or are substantially similar to
liabilities under the Plan.
          4.3     Investment Election.
          (a)     The portion of a Participant’s or Inactive Participant’s
Account(s) attributable to deferrals from Stock Compensation (and related
earnings) shall be deemed invested in the HCC Stock Rate option. If, however,
Company Stock ceases to be publicly traded, the Participant or Inactive
Participant (or his Beneficiary in the event of his death) may direct the deemed
investment of such portion of his Account(s) in accordance with subsection
(b) below.
          (b)     Each Participant and Inactive Participant (and each
Beneficiary in the event of the death of a Participant or Inactive Participant)
shall be permitted to determine the manner in which amounts in his Account(s)
attributable to deferrals from Cash Compensation (and, to the extent provided in
subsection (a) above after Company Stock ceases to be publicly traded, amounts
attributable to deferrals from Stock Compensation) (and related earnings) are
deemed invested in the Prime Rate option, the HCC Stock Rate option, and the S&P
Rate option by delivering an Investment Election to the Committee. The
Investment Election shall specify the portion of such amounts in his Account(s)
(in a whole percentage of the total balance of all such amounts) to which each
such option applies. The same election must apply to all such amounts in the
Account(s) of the Participant, Inactive Participant, or Beneficiary (as
applicable). A Participant’s initial Investment Election shall be effective as
of the date he becomes a Participant, provided the election is received by the
Committee on or before such date. A subsequent Investment Election by a
Participant or Inactive Participant (or Beneficiary of a deceased Participant or
Inactive Participant) shall be effective as of the first day of the calendar
quarter next following the date on which the election is received by the
Committee (so that the election shall apply in determining earnings for the
calendar quarter following the calendar quarter in which the election is
received). An Investment Election shall remain in effect with respect to such
amounts in the Account(s) of a Participant, Inactive Participant, or Beneficiary
(as applicable) (including subsequent Contributions (if any) and earnings
credited to the Account) until the effective date of a subsequent Investment
Election (which may be filed by the Participant, Inactive Participant, or
Beneficiary, as applicable, at any time). In the absence of an effective
Investment Election with respect to all or a portion of such amounts in the
Account(s) of a Participant, Inactive Participant, or Beneficiary (as
applicable), such amounts (or such portion, as applicable) shall be deemed
invested in the Prime Rate option.

 

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ARTICLE 5
PAYMENT OF BENEFITS
          5.1     Time of Benefit Payment.
          (a)     Payment of the Account balance of a Participant or Inactive
Participant shall commence at the time designated on the Deferral Election
relating to that Account. If a Participant does not designate a time of payment
on a Deferral Election, the Participant shall be deemed to have elected payment
of the entire Account subject to such election on or as soon as administratively
practicable after the first Valuation Date that is at least 30 days after
Separation from Service, subject to Section 12.2. A Participant or Inactive
Participant may not subsequently elect to defer the date of distribution elected
or deemed elected on a Deferral Election.
          (b)     For purposes of this Article 5, a payment made as soon as
administratively practicable after the specified Valuation Date for payment
shall in any event be made within 90 days after such Valuation Date, and no
Participant, Inactive Participant, or Beneficiary shall have a right to
designate the taxable year of the administratively delayed payment.
          5.2     Form of Benefit Payment.
          (a)     Payment of the Account balance of a Participant or Inactive
Participant shall occur in the Optional Form designated on the Deferral Election
relating to that Account. If a Participant does not designate an Optional Form
on a Deferral Election, the Participant shall be deemed to have elected payment
of the entire Account subject to such election in the form of a single lump sum
cash payment. A Participant or Inactive Participant may not subsequently elect
to change the Optional Form elected or deemed elected on a Deferral Election.
          (b)     Each installment under an installment Optional Form shall be
calculated by dividing the Account balance as of the preceding Valuation Date by
the total number of installments remaining to be paid. Annual installments shall
be paid on the designated payment date and each anniversary of that date.
Quarterly installments shall be paid on the last day of each calendar quarter,
commencing with the calendar quarter containing the designated payment date. For
purposes of Code section 409A, the entitlement to a series of installment
payments is treated as the entitlement to a single payment.
          (c)     Deferrals from Cash Compensation (and related earnings) shall
be paid in cash. Deferrals from Stock Compensation (and related earnings) shall
be paid in shares of Company Stock; provided, however, that (i) such amounts
shall be paid in cash if Company Stock ceases to be publicly traded and (ii) any
partial shares of Company Stock shall be paid in cash.
          5.3     Death. In the event of the death of a Participant or Inactive
Participant, his Beneficiary shall be entitled to the entire value of all
amounts credited to his Account(s). Payment of such death benefit shall occur in
accordance with Sections 5.1 and 5.2. The Beneficiary may not elect to defer the
date of distribution or change the form of payment of the distribution.
          (a)     A Participant or Inactive Participant may designate one or
more Beneficiaries to receive any benefits payable under the Plan after the
death of the Participant or Inactive Participant. A Participant or Inactive
Participant may revoke or change a prior Beneficiary designation at any time
prior to his death by filing a new Beneficiary designation with the Committee.
To be effective, any Beneficiary designation or revocation of a Beneficiary
designation must be in writing on a form acceptable to the Committee, must be
signed by the Participant or Inactive Participant, and must be received by the
Committee prior to the death of the Participant or Inactive Participant.
          (b)     Any designation of a person as a Beneficiary shall be deemed
to be contingent upon the person’s surviving the Participant or Inactive
Participant. Any designation of a class or group of Beneficiaries shall be
deemed to be a designation of only those members of the class or group who are
living at the time of the Participant’s or Inactive Participant’s death. Any
designation of a trust as a Beneficiary shall be invalid if the trust is not in
existence at the time of the Participant’s or Inactive Participant’s death. A
Participant or Inactive Participant may designate (in the manner provided in
subsection (a), above) one or more persons as a contingent Beneficiary or
Beneficiaries to receive, upon the Participant’s or Inactive Participant’s
death, the benefit that the primary Beneficiary would have received had the
primary Beneficiary survived the Participant or Inactive Participant.

 

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          (c)     If a Participant or Inactive Participant does not make an
effective Beneficiary designation prior to death, or if all Beneficiaries
(primary and contingent) designated by the Participant or Inactive Participant
predecease him, the entire death benefit under this Section shall be paid to the
Participant’s or Inactive Participant’s estate. If a Beneficiary dies after the
Participant or Inactive Participant and after becoming entitled to a benefit
hereunder, but before the designated payment date for such benefit, such benefit
shall be paid to the Beneficiary’s estate.
          (d)     References hereunder to a benefit payable to or with respect
to a Participant or Inactive Participant include any benefit payable to the
Participant’s or Inactive Participant’s Beneficiary or estate, as applicable.
          5.4     Cashout of Small Benefits. If payment has commenced or is to
commence under this Article 5 (including commencement to a Beneficiary after the
death of a Participant or Inactive Participant), then notwithstanding any
contrary election under Section 5.2, all remaining payments shall be accelerated
and paid in the form of a single lump sum if the following requirements are
satisfied as of the date of payment:
          (a)     the value of the aggregate benefit of the Participant or
Inactive Participant under this Plan and all Other Plans does not exceed the
applicable dollar amount under Code section 402(g)(1)(B) (as adjusted from time
to time); and
          (b)     the accelerated lump sum payment (and payments made at the
same time under any Other Plans) results in the termination and liquidation of
the entirety of the Participant’s or Inactive Participant’s benefits under this
Plan and all Other Plans.
ARTICLE 6
ADMINISTRATION OF THE PLAN
          6.1     The Plan shall be administered by the Committee. The members
of the Committee shall not receive compensation with respect to their services
for the Plan. The members of the Committee shall serve without bond or security
for the performance of their duties hereunder unless applicable law makes the
furnishing of such bond or security mandatory or unless required by the Company.
          6.2     The Committee shall perform any act which the Plan authorizes
expressed by a vote at a meeting or in a writing signed by a majority of its
members without a meeting. The Committee may, by a writing signed by a majority
of its members, appoint any member of the Committee to act on behalf of the
Committee.
          6.3     The Committee may designate in writing other persons to carry
out its responsibilities under the Plan, and may remove any person designated to
carry out its responsibilities under the Plan by notice in writing to that
person. The Committee may employ persons to render advice with regard to any of
its responsibilities. All usual and reasonable expenses of the Committee shall
be paid by the Company. The Company shall indemnify and hold harmless each
member of the Committee from and against any and all claims and expenses
(including, without limitation, attorney’s fees and related costs), in
connection with the performance by such member of his duties in that capacity,
other than any of the foregoing arising in connection with the willful neglect
or willful misconduct of the person so acting.
          6.4     The Committee shall establish rules, not contrary to the
provisions of the Plan, for the administration of the Plan and the transaction
of its business. The Committee shall interpret the Plan in its sole and absolute
discretion, and shall determine all questions arising in the administration,
interpretation, and application of the Plan. All determinations of the Committee
shall be conclusive and binding on all concerned.
          6.5     Any action to be taken hereunder by the Company shall be taken
by resolution adopted by the Board or an executive committee thereof; provided,
however, that by resolution, the Board or an executive committee thereof may
delegate to any officer of the Company the authority to take any actions
hereunder, other than the power to amend or terminate the Plan.

 

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ARTICLE 7
CLAIM REVIEW PROCEDURE
          7.1     The Committee shall automatically direct the distribution of
all benefits to which a Claimant is entitled hereunder. In the event that a
Claimant believes that he has been denied benefits to which he is entitled under
the provisions of the Plan, the Committee shall, within 90 days after receiving
a written request from the Claimant, provide to the Claimant written notice of
the denial which shall set forth:
          (a)     the specific reason or reasons for the denial;
          (b)     specific references to pertinent Plan provisions on which the
Committee based its denial;
          (c)     a description of any additional material or information needed
for the Claimant to perfect the claim and an explanation of why the material or
information is needed;
          (d)     a statement that the Claimant or his authorized representative
may: (i) request a review upon written application to the Committee; (ii) review
pertinent Plan documents; and (iii) submit issues and comments in writing;
          (e)     a statement that any appeal the Claimant wishes to make of the
adverse determination must be made in writing to the Committee within 60 days
after receipt of the Committee’s notice of denial of benefits and that failure
to appeal the initial determination to the Committee in writing within such
60-day period will render the Committee’s determination final, binding, and
conclusive; and
          (f)     the address to which the Claimant must forward any request for
review.
          7.2     If the Claimant should appeal to the Committee, he, or his
duly authorized representative, may submit, in writing, whatever issues and
comments he, or his duly authorized representative, feels are pertinent. The
Committee shall re-examine all facts related to the appeal and make a final
determination as to whether the denial of the claim is justified under the
circumstances. The Committee shall advise the Claimant in writing of its
decision on appeal, the specific reasons for the decision, and the specific Plan
provisions on which the decision is based. The notice of the decision shall be
given within 60 days after the Claimant’s written request for review, unless
special circumstances (such as a hearing) would make the rendering of a decision
within such 60-day period impracticable. In such case, notice of an extension
shall be provided to the Claimant within the original 60-day period, and notice
of a final decision regarding the denial of a claim for benefits will be
provided within 120 days after its receipt of a request for review. If an
extension of time for review is required because of special circumstances,
written notice of the extension shall be furnished to the Claimant prior to the
date the extension period commences.
          7.3     A Claimant’s compliance with the foregoing provisions of this
Article is a mandatory prerequisite to a Claimant’s right to commence any legal
action with respect to any claim for benefits under this Plan, including
submission to mandatory arbitration in accordance with Section 11.7.
ARTICLE 8
LIMITATION OF RIGHTS
          The establishment of this Plan shall not be construed as giving any
Participant or Inactive Participant or any person claiming by, through, or on
behalf of a Participant or Inactive Participant, any legal, equitable or other
rights against the Company, any Affiliate, or the respective officers,
directors, employees, agents or shareholders of the Company or any Affiliate
except as expressly provided herein, or as giving to any Participant, Inactive
Participant, or Beneficiary, or any person claiming by, through, or on behalf of
a Participant, Inactive Participant, or Beneficiary, any equity or other
interest in the assets or business of the Company or any Affiliate or shares of
stock of the Company or any Affiliate, or as giving any Participant or Inactive
Participant the right to be retained in the employment of the Company or any of
its Affiliates.

 

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ARTICLE 9
FUNDING AND ASSIGNMENT
          9.1     No Assignment or Alienation of Benefits. Except as provided in
Section 12.3(a), no benefits which shall be payable under the Plan to a
Participant, Inactive Participant, or Beneficiary shall be subject in any manner
to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or
charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge,
encumber, charge or otherwise dispose of the same shall be void. No benefits
shall in any manner be subject to the debts, contracts, liabilities, engagements
or torts of any Participant, Inactive Participant, or Beneficiary, nor shall
they be subject to attachment or legal process for or against any person, except
to the extent required by law.
          9.2     No Trust or Fund Created. All benefits under the Plan shall be
paid from the general assets of the Company. Title to and beneficial ownership
of any funds represented by an Account will at all times remain in the Company,
and such funds will continue for all purposes to be a part of the general funds
of the Company and may be used for any corporate purpose. No assets will be
placed in trust or otherwise segregated from the general assets of the Company
or any Affiliate for the payment of obligations hereunder. Nothing herein and no
action taken hereunder requires or shall be construed to require the Company,
any Affiliate, or the Committee to establish or maintain any fund or trust or to
segregate any amount for the benefit of any Participant, Inactive Participant,
or Beneficiary; creates a trust or fiduciary relationship of any kind between
the Company and any Participant, Inactive Participant, Beneficiary, or other
person; or shall create any right to, title or interest whatsoever in or to any
assets of the Company or any Affiliate or any investment reserves, accounts, or
funds that the Company or any Affiliate may purchase, establish, or accumulate
to aid in providing benefits under the Plan.
          9.3     Unsecured Creditor Status. To the extent that any person
acquires a right to receive payments hereunder, such right shall be no greater
than the right of any unsecured general creditor of the Company.
ARTICLE 10
AMENDMENT OR TERMINATION OF THE PLAN
          10.1     Amendment. The Company reserves the right at any time to
amend the Plan in whole or in part by resolution of the Board. No amendment
shall have the effect of retroactively decreasing a Participant’s or Inactive
Participant’s Account or depriving any Participant, Inactive Participant, or
Beneficiary of rights already accrued under the Plan unless the Participant or
Inactive Participant (or a Beneficiary in the event of the death of the related
Participant or Inactive Participant prior to the adoption of the amendment)
consents to the amendment. In the event that the Company shall change its name,
the Plan shall be deemed to be amended to reflect the name change without
further action of the Company, and the language of the Plan shall be changed
accordingly. No amendment may be made to the Plan except in accordance with this
Section.
          10.2     Termination. The Company reserves the right at any time to
terminate the Plan by resolution of the Board. No Contributions shall be
credited to a Participant’s or Inactive Participant’s Account with respect to
periods after the termination of the Plan, but the Account shall continue to be
adjusted for deemed investment experience under Section 4.2. Except as provided
in Section 12.3(d), the termination of the Plan shall not accelerate the payment
of benefits under the Plan.
ARTICLE 11
GENERAL AND MISCELLANEOUS
          11.1     Severability. In the event that any provision of this Plan
shall be declared illegal or invalid for any reason, said illegality or
invalidity shall not affect the remaining provisions of this Plan but shall be
fully severable and this Plan shall be construed and enforced as if said illegal
or invalid provision had never been inserted herein.
          11.2     Construction. The section headings and numbers are included
only for convenience of reference and are not to be taken as limiting or
extending the meaning of any of the terms and provisions of this Plan. Whenever
appropriate, words used in the singular shall include the plural or the plural
may be read as the singular. The words “hereof,” “herein,” “hereunder” and other
similar compounds of the word “here” shall, unless otherwise specifically
stated, mean and refer to the entire Plan, not to any particular provision or
Section. The word “including” and words of similar import when used in this Plan
shall mean “including, without limitation,” unless the context otherwise
requires or unless otherwise specified. The word “or” shall not be exclusive.

 

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          11.3     Governing Law. Except to the extent superseded by applicable
Federal law, the validity and effect of this Plan and the rights and obligations
of all persons affected hereby shall be construed and determined in accordance
with the laws of the State of Texas, without giving effect to conflict of laws
principles thereof.
          11.4     Taxes.
            (a)     All amounts payable hereunder shall be reduced by any and
all federal, state, and local taxes imposed upon a Participant, Inactive
Participant, or Beneficiary which are required to be paid or withheld by the
Plan, the Company, an Affiliate, or any fund from which such amounts are paid.
Each Participant, Inactive Participant, or Beneficiary, as applicable, shall be
responsible for the payment of all taxes relating to benefits accrued under or
payable from the Plan, including (without limitation) income, excise,
self-employment, payroll, Social Security, and Medicare taxes. To the extent
taxes of a Participant, Inactive Participant, or Beneficiary must be withheld or
paid by the Company or an Affiliate with respect to amounts not distributable
from the Plan, the Participant, Inactive Participant, or Beneficiary (as
applicable) shall pay such amount to the Company or Affiliate or shall permit
the Company or Affiliate to withhold such amount from any other remuneration
payable to the Participant, Inactive Participant, or Beneficiary (as
applicable).
            (b)     If any action or omission by the Company or any Affiliate
causes any benefit or payment under the Plan to be subject to an additional tax
(including any additional interest) under Code section 409A(a)(1)(B), the
Company shall pay a “tax gross-up” payment to each affected Participant or
Inactive Participant in the amount necessary to pay such additional tax
(including any additional interest) and to pay all Federal, state, and local
income, excise, self-employment, and other taxes (including any additional taxes
and interest under Code section 409A(a)(1)(B)) on such gross-up payment, such
that the affected Participant or Inactive Participant retains, after the payment
of all applicable taxes, the amount necessary to pay such additional tax
(including interest) under Code section 409A(a)(1)(B). Such tax gross-up payment
shall be paid to the affected Participant or Inactive Participant on or as soon
as administratively practicable after the Valuation Date next following the date
of such action or omission by the Company or any Affiliate and, in any event,
shall be paid by the end of the taxable year of the affected Participant or
Inactive Participant next following the taxable year in which the affected
Participant or Inactive Participant remits such additional tax (including any
additional interest).
          11.5     Waiver. Neither the failure nor any delay on the part of the
Company, any Affiliate, or the Committee to exercise any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise or waiver of any such right, power or privilege preclude any
other or further exercise thereof, or the exercise of any other right, power or
privilege available to the Company, its Affiliates, or the Committee at law or
in equity.
          11.6     Benefit Payments to Minors and Incompetents. Notwithstanding
Section 9.1, whenever any benefit which shall be payable under the Plan is to be
paid to or for the benefit of any person who is then a minor or is determined by
the Committee, on the basis of qualified medical advice, to be incompetent, the
Committee need not require the appointment of a guardian or custodian, but shall
be authorized to cause the same to be paid over to the person having custody of
the minor or incompetent, or to cause the same to be paid to the minor or
incompetent without the intervention of a guardian or custodian, or to cause the
same to be paid to a legal guardian or custodian of the minor or incompetent, if
one has been appointed, or to cause the same to be used for the benefit of the
minor or incompetent.
          11.7     Arbitration. Subject to exhaustion of the administrative
claim process under Article 7, any dispute controversy or claim arising out of
or relating to this Plan or the breach thereof, which cannot be resolved by the
Company, the Committee, and the Claimant, shall be submitted to final and
binding arbitration.
            (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 arbitrators will be requested from AAA, and the arbitrator will be
selected using alternate strikes with Claimant striking first. The cost of the
arbitration will be shared equally by the Claimant and the Company. 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 Claimant’s
participation in or benefits under the Plan. 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.

 

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            (c)     The Company shall promptly reimburse the Claimant 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 $250,000 per taxable year of the
Claimant, unless the Participant’s or Inactive Participant’s Separation from
Service was for cause, as determined by the Committee in its sole discretion, in
which event the Claimant 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), (i) the expenses must be incurred
during the period beginning on the Effective Date and ending on the date that is
ten years after the Participant’s or Inactive Participant’s Separation from
Service and (ii) the expenses must be submitted to the Committee for
reimbursement within 90 days after the end of the taxable year of the Claimant
in which the expenses were incurred. Amounts eligible for reimbursement shall be
paid to the Claimant before the last day of the taxable year of the Claimant
following the taxable year in which the expenses were incurred. The amount of
expenses eligible for reimbursement during the Claimant’s taxable year may not
affect the expenses eligible for reimbursement in any other taxable year of the
Claimant. The Claimant’s right to reimbursement under this subsection (c) may
not be assigned, alienated, or exchanged for any other benefit.
          11.8     Notices. All notices or elections required by or made in
accordance with this Plan shall be in writing and sent certified mail, return
receipt requested, addressed as set forth below (or to any successor address for
which notice is provided), or by delivering the same in person, or by
transmission by facsimile to the number set forth below (or to any successor
number for which notice is provided). 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 a Participant or other
          Claimant:
  To the Participant’s or other Claimant’s last know address on file with the
Committee
 
   
          If to the Committee:
  HCC Insurance Holdings, Inc.
 
  13403 Northwest Freeway
 
  Houston, Texas 77040
 
  Fax: (713) 462-2401
 
  Attention: Compensation Committee

ARTICLE 12
COMPLIANCE WITH CODE SECTION 409A
          12.1     Interpretation. The Plan and the provisions of this
Article 12 are intended to constitute good faith compliance with the
requirements of Code section 409A and shall be construed and applied in
accordance with such requirements. In the event of any conflict or inconsistency
between the provisions of this Article 12 and any other provisions of the Plan,
the provisions of this Article 12 shall be controlling.
          12.2     Delayed Payment to a Specified Employee. Payment to a
Participant or Inactive Participant on account of Separation from Service
pursuant to Section 5.1 shall be delayed to the extent required by Code section
409A(a)(2)(B)(i). Accordingly, if a Participant or Inactive Participant is a
Specified Employee, any payments which the a Participant or Inactive Participant
is otherwise entitled to receive under Section 5.1 on account of Separation from
Service during the six-month period beginning on the date of the Participant’s
or Inactive Participant’s Separation from Service shall be accumulated and paid
effective as of the earlier to occur of (a) the first Valuation Date that occurs
on or after the date that is six months after the date the Participant’s or
Inactive Participant’s Separation from Service or (b) the first Valuation Date
that is at least 30 days after the date of the Participant’s or Inactive
Participant’s death. The Participant’s or Inactive Participant’s Account(s),
including such delayed payments, shall be adjusted for investment experience in
accordance with Section 4.2 while payment is delayed pursuant to his Section.
Reimbursements under Sections 11.4(b) and 11.7(c) shall be subject to the
provisions of this Section to the extent required by Code section
409A(a)(2)(B)(i).
          12.3     No Acceleration of Benefit Payments. Except as provided in
this Section and Section 5.4 and notwithstanding anything herein to the
contrary, the payment of benefits under the Plan shall not be accelerated in a
manner that would cause such benefits to be includable in income under Code
section 409A.
            (a)     The Committee may establish a procedure for the Plan to
administer qualified domestic relations orders. Such procedure shall comply with
the applicable requirements of ERISA Sections 206(d)(3) and 514(b)(7). The
Committee

 

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may approve immediate payment to an alternative payee (who is not the
Participant or Inactive Participant) pursuant to the terms of a qualified
domestic relations order, as defined under ERISA sections 206(d)(3) and
514(b)(7). Any such payment shall not be prohibited by Section 9.1 and shall not
be subject to the limitation of Section 12.2.
            (b)     If a benefit hereunder is required to be included in the
income of a Participant or Inactive Participant under Code section 409A as a
result of the failure to comply with the requirements of Code section 409A, the
benefit amount so includable shall be paid to the Participant or Inactive
Participant as of the Valuation Date next following such compliance failure.
This subsection shall not accelerate the payment of a benefit that is subject to
the six-month delay under Section 12.2.
            (c)     The Committee may accelerate the payment of amounts credited
to a Participant’s or Inactive Participant’s Account (i) to the extent necessary
for any Federal officer or employee in the executive branch to comply with an
ethics agreement with the Federal government and (ii) to the extent reasonably
necessary to avoid the violation of an applicable Federal, state, local, or
foreign ethics law or conflicts of interest law. Any such payment shall be made
in a single lump sum cash payment to the Participant or Inactive Participant on
or as soon as administratively practicable after the first Valuation Date that
occurs on or after the Committee’s determination. Any such payment shall not be
subject to the limitation of Section 12.2.
            (d)     The entire amount credited to a Participant’s or Inactive
Participant’s Account shall be paid to the Participant if the Plan is terminated
in accordance with Section 10.2 and the Committee determines that the
requirements of Treasury Regulation 1.409A-3(j)(4)(ix) have been and will be
satisfied in connection with such termination. Any such payment shall be made in
a single lump sum cash payment to the Participant or Inactive Participant on or
as soon as administratively practicable after the first Valuation Date that
occurs on or after the Plan termination and the Committee’s determination. This
subsection shall not accelerate the payment of a benefit that is subject to the
six-month delay under Section 12.2.
          12.4     Overall Compliance. To the extent any provision of this Plan
or any omission from the Plan would (absent this Section 12.4) cause amounts to
be includable in income under Code section 409A(a)(1), the Plan shall be deemed
amended to the extent necessary to comply with the requirements of Code section
409A; provided, however, that this Section 12.4 shall not apply and shall not be
construed to amend any provision of the Plan to the extent this Section 12.4 or
any amendment required thereby would itself cause any amounts to be includable
in income under Code section 409A(a)(1).

 

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          IN WITNESS WHEREOF, the Company has caused its corporate seal to be
affixed hereto and these presents to be duly executed in its name and behalf by
a duly authorized officer on this 30th day of August, 2007.

                      COMPANY    
 
                    HCC INSURANCE HOLDINGS, INC.    
 
               
 
               
 
               
 
  By:       /s/ Frank J. Bramati                     Title:     CEO    
 
     
 
   

     
ATTEST:
   
 
   
 
   
/s/ Jay Simmons
 
Corporate Secretary
   
 
   
 
   
[CORPORATE SEAL]