exv4w1







Exhibit 4.1




HCC INSURANCE HOLDINGS, INC.

2008 FLEXIBLE INCENTIVE PLAN




1. Purpose and Effect on Former Plans.




     1.1 Purpose. The purposes of the HCC Insurance Holdings, Inc. 2008 Flexible Incentive Plan
are to promote the interests of the Company and its Subsidiaries and Shareholders by enabling the
Company to attract, motivate and retain employees, directors, consultants, and other service
providers by offering such employees, directors, consultants, and service providers
performance-based stock incentives and other equity interests in the Company and other incentive
awards that recognize the creation of value for the Shareholders and promote the Company’s
long-term growth and success. To achieve these purposes, Participants may receive stock options,
Stock Appreciation Rights, Restricted Stock, Performance Awards, Dividend Equivalent Rights and any
other Awards, or any combination thereof, subject to the terms of the Plan set forth herein.



     1.2 Effect on Former Plans. If the Plan is approved by the Board and the Shareholders in
accordance with Section 15.1, the Former Plans shall terminate as of the Initial Effective Date, no
further awards shall be made under the Former Plans after such date, and Shares reserved for
issuance under such Former Plans shall become available for future awards under this Plan as of the
Initial Effective Date in accordance with Section 4.1.



2. Definitions.




     As used in the Plan, the following terms shall have the meanings set forth below unless the
context clearly requires otherwise:



     2.1 “Award” shall mean the grant of a stock option, Stock Appreciation Right, Restricted
Stock, Performance Award, Dividend Equivalent Right or any other award under the Plan.



     2.2 “Board” shall mean the Board of Directors of the Company, as the same may be constituted
from time to time.



     2.3 “Change in Control” shall mean, after the effective date of the Plan, the occurrence of
any one or more of the events described below:




     (a) a change in control of the Company that would be required to be reported in
response to Item 1 of a Form 8-K Current Report of the Company promulgated pursuant to
sections 13 and 15(d) of the Exchange Act;




     (b) any “person,” as such term is used in sections 13(d) and 14(d) of the Exchange Act
(other than the Company; any trustee or other fiduciary holding securities under any
employee benefit plan of the Company; or any company owned, directly or indirectly, by the
Shareholders in substantially the same proportions as their ownership of stock of the
Company), is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing fifty percent (50%)
or more of the combined voting power of the Company’s then outstanding securities;




     (c) the Shareholders approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation that would result in the voting securities
of the Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the surviving entity)
more than fifty percent (50%) of the combined voting power of the voting securities of the
surviving entity outstanding immediately after such merger or consolidation; provided,
however, that a Reorganization in which no “person” acquires more than twenty percent (20%)
of the combined voting power of the Company’s then outstanding securities shall not
constitute a Change in Control of the Company; or




     (d) 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.



 









 





     2.4 “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time and any
applicable regulations that may be promulgated thereunder.



     2.5 “Committee” shall mean the Compensation Committee of the Board, if such a separate
committee is appointed by the Board, or, in the absence of such a separate committee, it shall mean
the Board. If a separate committee is appointed, then to the extent required by Rule 16b-3
promulgated under the Exchange Act, the Committee members who approve Awards which would otherwise
not qualify for an exemption from Rule 16b-3 shall consist of two or more “non-employee directors”
as defined by Rule 16b-3. To the extent that Awards are intended to satisfy, and to the extent
required to satisfy, the “qualified performance-based compensation” exemption under section 162(m)
of the Code, the Committee members who approve Awards shall consist of two or more “outside
directors” as defined by such section of the Code. To the extent required to satisfy applicable
requirements of the Listing Standards, the Committee members who approve Awards shall meet the
independence requirements of such Listing Standards.



     2.6 “Common Stock” shall mean the Common Stock, $1.00 par value per share, of the Company.



     2.7 “Company” shall mean HCC Insurance Holdings, Inc. and any successor thereto.



     2.8 “Designated Beneficiary” shall mean the beneficiary designated by a Participant, in a
manner determined by the Committee, to exercise rights of the Participant in the event of the
Participant’s death. In the absence of an effective designation by a Participant, the Designated
Beneficiary shall be the Participant’s estate.



     2.9 “Disability” shall mean inability 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 that has lasted or can be expected to last for a continuous period of not less than twelve (12)
months. A Participant shall be considered to have a Disability (a) if he is determined to be
totally disabled by the Social Security Administration or (b) if he is determined to be disabled
under the Company’s long-term disability plan in which he participates and if such plan defines
“disability” in a manner that is consistent with the immediately preceding sentence. Subject to
the foregoing, determinations of “Disability” shall be made by the Committee in its discretion.



     2.10 “Dividend Equivalent Right” shall mean the right of the holder thereof to receive credits
based on the dividends or other distributions that would have been received had the Shares covered
by the Award been issued and outstanding on the dividend record date.



     2.11 “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to
time and any applicable regulations that may be promulgated thereunder.



     2.12 “Fair Market Value” shall mean with respect to the Shares, as of any date,




     (a) if the Common Stock is listed for trading on the NYSE, the closing sale price of
the Common Stock on such date, as reported on the NYSE composite tape or such other source
as the Committee deems reliable, or if no such reported sale of the Common Stock shall have
occurred on such date, on the last day prior to such date on which there was such a reported
sale; or




     (b) if the Common Stock is not so listed on the NYSE, but is listed on another national
securities exchange, the closing sale price of the Common Stock on such date as reported on
such exchange, or if no such reported sale of the Common Stock shall have occurred on such
date, on the last day prior to such date on which there was such a reported sale; or




     (c) if the Common Stock is not listed for trading on a national securities exchange but
nevertheless is publicly traded and reported (through the OTC Bulletin Board or otherwise),
the closing sale price of the Common Stock on such date, or if no such reported sale of the
Common Stock shall have occurred on such date, on the last day prior to such date on which
there was such a reported sale; or




     (d) if there is no public market for the Common Stock, the fair market value of the
Common Stock as determined (which determination shall be conclusive) in good faith by the
Committee, based upon the value of the Company as a going concern, as if such Common Stock
were publicly owned stock, but without any discount with respect to minority ownership.



 









 





     2.13 “Former Plans” shall mean the HCC Insurance Holdings, Inc. 2004 Flexible Incentive Plan
as amended and restated and as further amended as of the Initial Effective Date and the HCC
Insurance Holdings, Inc. 2001 Flexible Incentive Plan as amended and restated and as further
amended as of the Initial Effective Date.



     2.14 “Full Value Award” shall mean a grant of Restricted Stock or, to the extent settled in
Shares, a grant of Performance Shares, Dividend Equivalent Rights, or any other Award under Section
12.



     2.15 “Incentive Stock Option” shall mean any stock option awarded under the Plan which
qualifies as an “incentive stock option” under section 422 of the Code or any successor provision.



     2.16 “Initial Effective Date” shall mean the initial effective date specified in Section 15.1.



     2.17 “Listing Standards” shall mean the applicable listing standards of the NYSE or, if the
Common Stock is not listed on the NYSE, of any exchange or self-regulatory organization on which
the Common Stock of the Company is listed.



     2.18 “Non-Tandem Stock Appreciation Right” shall mean any Stock Appreciation Right granted
alone and not in connection with an Award which is a stock option.



     2.19 “Non-Qualified Stock Option” shall mean any stock option awarded under the Plan that does
not qualify as an Incentive Stock Option.



     2.20 “NYSE” shall mean the New York Stock Exchange (or any successor thereto).



     2.21 “Optionee” shall mean any Participant who has been granted a stock option under the Plan
and who has executed a written Award agreement with the Company reflecting the terms of such grant.



     2.22 “Participant” shall mean an individual who is eligible to receive an Award in accordance
with Section 5.



     2.23 “Performance Award” shall mean any Award hereunder of Shares; Restricted Stock units;
units or rights based upon, payable in, or otherwise related to, Shares (including Restricted
Stock); or cash of an equivalent value, as the Committee may determine, at the end of a specified
performance period established by the Committee.



     2.24 “Plan” shall mean the HCC Insurance Holdings, Inc. 2008 Flexible Incentive Plan, as set
forth herein and as may be amended from time to time.



     2.25 “Pre-tax Income” means that amount equal to the Company’s earnings before income taxes as
reported in the Company’s audited consolidated financial statements, excluding (a) any losses from
discontinued operations; (b) extraordinary gains and losses, as such items are specifically
identified on such audited consolidated financial statements; and (c) the cumulative effect of
accounting changes during the fiscal year.



     2.26 “Reorganization” shall mean a reorganization or recapitalization of the Company or a
similar transaction with respect to the Company.



     2.27 “Restricted Stock” shall mean any Award of Shares under the Plan that is subject to
restrictions or risk of forfeiture.



     2.28 “Shareholders” shall mean the holders of Shares and/or, to the extent the context
requires, other equity securities of the Company.



     2.29 “Shares” shall mean shares of the Company’s Common Stock and any shares of capital stock
or other securities of the Company hereafter issued or issuable upon, in respect of or in
substitution or exchange for such Shares.



     2.30 “Stock Appreciation Right” shall mean the right of the holder thereof to receive an
amount in cash or Shares equal to the excess of the Fair Market Value of a Share on the date of
exercise over the specified exercise price for the right.



 









 





     2.31 “Subsidiary” shall mean any subsidiary of the Company, and any business venture
designated by the Committee in which the Company has a significant interest at the relevant time,
as determined in the discretion of the Committee, provided that for all purposes hereunder relating
to Incentive Stock Options, “Subsidiary” shall mean a “subsidiary corporation” of the Company at
the relevant time, as defined in section 424(f) of the Code.



     2.32 “Tandem Stock Appreciation Right” shall mean a Stock Appreciation Right granted in
connection with an Award which is a stock option.



3. Administration of the Plan




     3.1 Committee. The Plan shall be administered and interpreted by the Committee in its
discretion.



     3.2 Authority. Subject to the provisions of the Plan and directions from the Board, the
Committee is authorized to and has the complete power and discretion to:




     (a) determine the persons to whom Awards are to be granted;




     (b) determine the types and combinations of Awards to be granted; the number of Shares
to be covered by the Award; the pricing of the Award; the time or times when the Award shall
be granted and may be exercised; the terms, performance criteria or other conditions,
vesting periods or any restrictions for an Award; any restrictions on Shares acquired
pursuant to the exercise of an Award; and any other terms and conditions of an Award,
including, without limitation, provisions requiring the forfeiture of Awards and/or gains
from Awards if a Participant is terminated for cause or if a Participant or former
Participant violates any applicable affirmative or negative covenants regarding
confidentiality, non-solicitation, or non-competition;




     (c) conclusively interpret the provisions of the Plan and any agreement, instrument, or
other document relating to the Plan;




     (d) prescribe, amend and rescind the rules and regulations relating to the Plan or make
individual decisions as questions arise, or both;




     (e) determine whether, to what extent and under what circumstances to provide loans
and/or bonuses from the Company to Participants in connection with the exercise of Awards,
and the terms and conditions of such bonuses and/or loans, provided that loans shall not be
provided to a Participant to the extent prohibited by applicable law;




     (f) rely upon employees, consultants, and agents and legal counsel of the Company for
such administrative, clerical and record keeping duties as may be necessary in connection
with the administration of the Plan, including the Committee’s obligations under Section
3.4; and




     (g) make all other determinations and take all other actions necessary or advisable for
the administration of the Plan.



     3.3 Procedures. A majority of the Committee members shall constitute a quorum. All
determinations of the Committee shall be made by a majority of its members. No Committee member
shall act as a member of the Committee with respect to any dispute or matter specifically involving
the Committee member. If the Committee is unable to act (because a majority of its members are
disqualified from acting or abstain from acting) with respect to a matter, the Board shall assume
the authority and responsibility of the Committee with respect to such matter. Award grants shall
be made only at a meeting of the Committee (which may be held telephonically to the extent
permitted by the Committee’s charter or operating guidelines) and not by unanimous written consent.
The date of grant of an option shall be the date on which the Compensation Committee determines
and approves the number of Shares subject to the option and the material terms of the option Award.
Notice of such approval shall be provided to the Optionee within two weeks after the date of
grant. All questions of interpretation and application of the Plan or pertaining to any question
of fact or Award granted hereunder shall be decided by the Committee, whose decision shall be
final, conclusive and binding upon the Company and each other affected party.



 









 





     3.4 Legal Compliance. The Committee shall be responsible for ensuring compliance with
applicable laws and regulations with respect to the administration and operation of the Plan. The
Committee shall establish monitoring mechanisms and guidelines to assist in ensuring such
compliance.



     3.5 Delegation by the Committee. The Committee may delegate to officers of the Company,
pursuant to a written delegation, the authority to perform specified functions under the Plan;
provided, however, that the Committee may not delegate its authority to grant Awards. Any actions
taken by any officers of the Company pursuant to such written delegation of authority shall be
deemed to have been taken by the Committee.



     3.6 Foreign Participation. To ensure the viability of awards granted to Participants employed
in foreign countries, the Committee may provide for such special terms as it may consider necessary
or appropriate to accommodate differences in local law, tax policy or custom. Moreover, to the
extent permitted by applicable law and to the extent such authority would not adversely affect the
Plan, Participants, or Awards, the Committee may approve such supplements to, or amendments,
restatements or alternative versions of the Plan as it may consider necessary or appropriate for
such purposes without thereby affecting the terms of the Plan as in effect for any other purposes;
provided that, no such supplements, amendments, restatements or alternative versions shall increase
the Share limitations contained in Section 4 of the Plan or change the eligibility provisions of
Section 5 of the Plan; and provided further than any such supplement, amendment, restatement, or
alternative version shall be approved by the Shareholders to the extent required by Section 15.2(b)
or 15.2(c).



     3.7 Award Agreements. Each Award granted under the Plan shall be evidenced by a written Award
agreement. Each such agreement shall be subject to and incorporate, by reference or otherwise, the
applicable terms and conditions of the Plan, and any other terms and conditions, not inconsistent
with the Plan, as may be determined by the Committee, including without limitation, provisions
related to the consequences of a Participant’s termination of employment or service with the
Company and the Subsidiaries. A copy of such Agreement shall be provided to the Participant, and
the Committee may, but need not, require that the Participant sign (or otherwise acknowledge
receipt of) a copy of the Agreement or a copy of a notice of grant. Each Participant may be
required, as a condition to receiving an Award under this Plan, to enter into an agreement with the
Company containing such non-compete, confidentiality, and/or non-solicitation provisions as the
Committee may adopt and approve from time to time. The provisions of any such agreement may also
be included in, or incorporated by reference in, the written Award agreement.



4. Shares Subject to Plan




     4.1 Limitations. The Shares issued pursuant to the Plan may be authorized but unissued
Shares, or may be issued Shares which have been reacquired by the Company.




     (a) Subject to adjustment pursuant to Section 14, the maximum number of Shares that may
be issued with respect to Awards under the Plan shall not exceed (1) 4,000,000 plus (2) any
and all of the following Shares under the Former Plans: (A) Shares that remain available
for grant as awards under the Former Plans as of the Initial Effective Date (including
previously granted Shares that have become available again under the Former Plans due to the
forfeiture, cancellation, surrender, or expiration of the related award) and (B) Shares
represented by awards under the Former Plans that, on or after the Initial Effective Date,
are cancelled, forfeited, surrendered or terminated; expire unexercised; or are settled
without the delivery of Shares.




     (b) Of the Shares available for issuance under subsection (a) above, one hundred
percent (100%) may be, but are not required to be, issued pursuant to Incentive Stock
Options.




     (c) Of the Shares available for issuance under subsection (a) above, the maximum number
that may be issued pursuant to Full Value Awards shall not exceed (but may be less than) (1)
2,000,000 plus (2) any and all of the following Shares under the Former Plans: (A) Shares
that remain available for grant as awards under the Former Plans as of the Initial Effective
Date (including previously granted Shares that have become available again under the Former
Plans due to the forfeiture, cancellation, surrender, or expiration of the related award)
and (B) Shares represented by full value awards under the Former Plans that, on or after the
Initial Effective Date, are cancelled, forfeited, surrendered or terminated; expire
unexercised; or are settled without the delivery of Shares. For purposes of the preceding
sentence, an award under a Former Plan shall be considered a “full value award” if the award
would have been a Full



 









 






     Value Award had it been issued under this Plan. Such maximum number of Shares issuable
pursuant to Full Value Awards shall be subject to adjustment pursuant to Section 14.




     (d) Until the form of consideration to be paid is finally determined, Awards that may
be satisfied either by the issuance of Shares or by cash or other consideration shall be
counted against the maximum number of Shares that may be issued under the Plan pursuant to
subsections (a) – (c) above. If the Award is ultimately satisfied by the payment of
consideration other than Shares, as, for example, a cash settled Performance Award or a
stock option granted in tandem with a Stock Appreciation Right that is settled by a cash
payment of the stock appreciation, such Shares may again be made the subject of an Award
under the Plan. Awards shall not reduce the number of Shares that may be issued pursuant to
subsections (a) and (c) above if the settlement of the Award cannot result in the issuance
of Shares, such as a Stock Appreciation Right or Performance Award that can be satisfied
only by the payment of cash.




     (e) For purposes of applying the limits under subsections (a) – (c) above:




     (1) An option to acquire a Share shall be counted as one Share subject to an
Award (regardless of the actual number of Shares issues upon any net exercise).




     (2) Each Stock Appreciation Right that may be settled in Shares shall be
counted as one Share subject to an Award (regardless of the actual number of Shares
issued upon exercise).




     (3) A combination of Tandem Stock Appreciation Right and stock option, where
the exercise of the Tandem Stock Appreciation Right or option results in the
cancellation of the other, shall be counted as one Share subject to an Award
(regardless of the actual number of Shares issued upon exercise).




     (4) Each Share awarded as Restricted Stock shall be counted as one Share
subject to an Award.




     (5) Each other Full Value Award that may be settled in Shares shall be counted
as one Share subject to an Award, and if any such Full Value Award is expressed as a
dollar amount rather than a number of Shares, the number of Shares shall be
determined by dividing the value of the Full Value Award at grant by the Fair Market
Value of a Share at grant.



     4.2 Changes. To the extent that any Award under the Plan shall be forfeited, cancelled,
terminated, or surrendered or shall expire unexercised, in whole or in part, then the number of
Shares covered by the Award to the extent forfeited, cancelled, terminated, surrendered, or expired
may again be awarded pursuant to the provisions of the Plan without again counting against the
limitations specified in Section 4.1. To avoid the possibility of doubt, Sections 4.1(a)(2)(B) and
4.1(c)(2)(B) already provide for the availability for issuance under the Plan of Shares relating to
cancelled, forfeited, surrendered, terminated, expired, or non-Share settled awards under the
Former Plans.



5. Eligibility




     An individual shall be eligible to participate in the Plan and receive Awards hereunder if the
individual is an employee of the Company or a Subsidiary or if the individual otherwise provides
services to the Company or a Subsidiary as an officer, consultant or nonemployee Director or in any
other capacity; provided that Incentive Stock Options may only be awarded to individuals who are
employees of the Company or a Subsidiary. In making any determination as to persons to whom Awards
shall be granted, the type of Award, and/or the number of Shares to be covered by the Award, the
Committee shall consider the position and responsibilities of the Participant; his or her
importance to the Company and its Subsidiaries; the duties of such person; his or her past, present
and potential contributions to the growth and success of the Company and its Subsidiaries; and such
other factors as the Committee shall deem relevant in connection with accomplishing the purposes of
the Plan.



6. Stock Options




     6.1 Grants. The Committee may grant stock options alone or in addition to other Awards
granted under the Plan to any Participant. Each person so selected shall be offered an option to
purchase the number of
Shares determined by the Committee. The Committee shall specify whether such option is an
Incentive Stock



 









 




Option or Non-Qualified Stock Option and any other terms and conditions relating to
such Award, including whether the option is exercisable for Restricted Stock rather than
unrestricted Shares. Each such person so selected shall have a reasonable period of time within
which to accept or reject the offered option. Failure to accept within the period so fixed by the
Committee may be treated as a rejection. Each person who accepts an option shall enter into an
Award agreement setting forth the terms and conditions of the option (including the extent to which
the option is an Incentive Stock Option or Non-Qualified Stock Option), consistent with the
provisions of the Plan.





     (a) To the extent that any stock option does not qualify as an Incentive Stock Option
(whether because of its provisions or the time or manner of its exercise or otherwise), such
stock option or the portion thereof which does not qualify shall automatically constitute a
separate Non-Qualified Stock Option without any further action and notwithstanding the
original designation of the option as an Incentive Stock Option. Nothing in this Plan shall
be interpreted as a representation, guarantee, or other understanding on the part of the
Company that any particular option will be determined to be an Incentive Stock Option under
section 422 of the Code. At any time and from time to time, the Optionee and the Company
may agree to modify an option agreement so that an Incentive Stock Option may be converted
to a Non-Qualified Stock Option.




     (b) The Committee may require that an Optionee meet certain conditions before the
option or a portion thereof may vest or be exercised, as, for example, that the Optionee
remain in the employ or active service of the Company for a stated period or periods of time
before the option, or stated portions thereof, may vest or be exercised.



     6.2 Option Price. The option exercise price of the Shares covered by each stock option shall
be determined by the Committee; provided, however, that the option exercise price of a stock option
shall not be less than the greater of (a) the par value of such Shares and (b) one hundred percent
(100%) of the Fair Market Value of such Shares on the date of the grant of the stock option.
Subject to the provisions of Sections 14 and 16, the exercise price of a stock option issued in
accordance with this Plan shall not be adjusted or amended following the issuance of such stock
option.



     6.3 Incentive Stock Options Limitations.




     (a) To the extent required to comply with section 422 of the Code, in no event shall
any person be granted Incentive Stock Options to the extent that the Shares covered by such
options (and any Incentive Stock Options granted under any other plans of the Company and
its Subsidiaries) that may be exercised for the first time by such person in any calendar
year have an aggregate Fair Market Value in excess of $100,000. For this purpose, the Fair
Market Value of the Shares shall be determined as of the dates on which the Incentive Stock
Options are granted. It is intended that the limitation on Incentive Stock Options provided
in this subsection be the maximum limitation on options which may be considered Incentive
Stock Options under the Code, and this subsection shall be construed and applied in
accordance with section 422 of the Code.




     (b) Notwithstanding anything herein to the contrary, in no event shall any Participant
owning more than ten percent (10%) of the total combined voting power of the Company or any
Subsidiary be granted an Incentive Stock Option hereunder unless (1) the option exercise
price shall be at least one hundred ten percent (110%) of the Fair Market Value of the
Shares subject to such Incentive Stock Option on the date the Incentive Stock Option is
granted and (2) the term of such Incentive Stock Option shall not exceed five (5) years.



     6.4 Option Term. Subject to Section 6.3(b) hereof, the term of a stock option shall be for
such period of months or years from the date of its grant as may be determined by the Committee;
provided, however, that no stock option shall be exercisable later than ten (10) years from the
date of its grant. Subject to the foregoing, a stock option granted to a Participant who is not an
employee of the Company or any Subsidiary shall be exercisable at such time and to such extent
(including after termination of such Participant’s service for the Company) as is expressly
provided in the Award agreement. The extent to which a stock option that is granted to a
Participant who is an employee of the Company or any Subsidiary may be exercised by the Participant
or the Participant’s Designated Beneficiary after the Participant’s termination of employment with
the Company and all Subsidiaries (including by
reason of Disability) shall be determined by the Committee and incorporated into the terms of
the applicable Award agreement.



 









 





     6.5 Exercise of Stock Options.




     (a) Stock options may be exercised as to Shares only in amounts and at intervals of
time specified in the written option agreement between the Company and the Optionee. Each
exercise of a stock option, or any part thereof, shall be evidenced by a written notice to
the Company. The purchase price of the Shares as to which an option shall be exercised
shall be paid in full at the time of exercise, and may be paid to the Company either:




     (1) in cash (including check, bank draft or money order);




     (2) by the delivery of Shares having a Fair Market Value equal to the aggregate
purchase price;




     (3) by a combination of cash and Shares; or




     (4) by other consideration deemed acceptable by the Committee in its sole
discretion.




     Without limiting the authority of the Committee under Section 3.2(e), the Company in
its sole and absolute discretion and at or about the time of exercise of a stock option may
pay a bonus to the Optionee or, to the extent permitted by applicable law, make a loan
available to the Optionee.




     (b) An Optionee shall not have any of the rights of a Shareholder with respect to the
Shares covered by a stock option except to the extent that one or more certificates
representing such Shares shall have been delivered to the Optionee, or the Optionee has been
determined to be a Shareholder of record by the Company’s transfer agent, upon due exercise
of the option.



7. Stock Appreciation Rights




     7.1 Grants. The Committee may grant to any Participant either Non-Tandem Stock Appreciation
Rights or Tandem Stock Appreciation Rights subject to such terms and conditions as the Committee
shall impose. A Stock Appreciation Right shall entitle the Participant, within the specified
exercise period, to exercise the Stock Appreciation Right and receive in exchange therefor a
payment having an aggregate value equal to the amount by which the Fair Market Value of a Share on
the exercise date exceeds the specified exercise price, times the number of shares with respect to
which the Stock Appreciation Right is exercised. The Committee may provide in the Award agreement
for automatic exercise on a certain date, for payment of the proceeds on a certain date, for
accelerated vesting and other rights upon the occurrence of events specified in the Award
agreement, and/or for exercise periods that do not begin until after a Change in Control or the
occurrence of such other event as the Committee may designate. Each Stock Appreciation Right grant
shall be evidenced by an Award agreement that shall specify the exercise price, the exercise
period, the number of Shares to which the Stock Appreciation Right pertains and such other
provisions as the Committee shall determine.



     7.2 Exercise Period. Each Stock Appreciation Right shall expire and cease to be exercisable
at such time as the Committee shall determine at the time of grant; provided, however, that no
Stock Appreciation Right shall be exercisable later than the tenth (10th) anniversary of its grant
date. If an Award agreement does not specify an expiration date, the Stock Appreciation Right
shall expire on the tenth (10th) anniversary of its grant date, provided that the Stock
Appreciation Right may expire earlier as provided in the Award agreement or in the Plan. The
extent to which a Stock Appreciation Right that is granted to a Participant may be exercised by the
Participant or the Participant’s Designated Beneficiary after the Participant’s termination of
employment or service with the Company and all Subsidiaries (including by reason of Disability)
shall be determined by the Committee and incorporated into the terms of the applicable Award
agreement.



     7.3 Exercise Price. The exercise price for each grant of a Stock Appreciation Right shall be
determined by the Committee; provided, however, that the exercise price for each Share subject to a
Stock Appreciation Right shall not be less than one hundred percent (100%) of the Fair Market Value
of a Share on the
date of grant of the Stock Appreciation Right (or, if greater, 100% of the exercise price of
the related stock option in the case of a Tandem Stock Appreciation Right). Subject to the
provisions of Sections 14 and 16, the exercise price of a Stock Appreciation Right shall not be
adjusted or amended following issuance.



 









 





     7.4 Tandem Stock Appreciation Rights. A Tandem Stock Appreciation Right shall entitle the
holder of the related stock option, within the period specified for the exercise of the stock
option, to surrender the unexercised stock option, or a portion thereof, and to receive in exchange
therefor a payment having an aggregate value equal to the amount by which the Fair Market Value of
a Share on the exercise date exceeds the stock option exercise price per Share, times the number of
Shares subject to the option, or portion thereof, which is surrendered.




     (a) Each Tandem Stock Appreciation Right shall be subject to the same terms and
conditions as the related stock option, including limitations on transferability and
vesting, and shall be exercisable only to the extent such option is exercisable and shall
terminate or lapse and cease to be exercisable when the related option terminates or lapses.
A Tandem Stock Appreciation Right may be granted at the time of the grant of the related
stock option or, if the related stock option is a Non-Qualified Stock Option, at any time
thereafter during the term of the stock option.




     (b) A Tandem Stock Appreciation Right granted in connection with an Incentive Stock
Option (i) may be exercised at, and only at, the times and to the extent the related
Incentive Stock Option is exercisable; (ii) expires upon the termination of the related
Incentive Stock Option; (iii) may not exceed 100% of the difference between the exercise
price of the related Incentive Stock Option and the Fair Market Value of the Shares subject
to the related Incentive Stock Option at the time the Tandem Stock Appreciation Right is
exercised (and otherwise does not have economic and tax consequences upon exercise that are
more favorable than exercise of the option followed by an immediate sale of the related
Shares); (iv) may be exercised at, and only at, such times as the Fair Market Value of the
Shares subject to the related Incentive Stock Option exceeds the exercise price of the
related Incentive Stock Option; and (v) may be transferred at, and only at, the times and to
the extent the related stock option is transferable.




     (c) If a Tandem Stock Appreciation Right is granted, there shall be surrendered and
canceled from the related option at the time of exercise of the Tandem Stock Appreciation
Right, in lieu of exercise under the related option, that number of Shares as shall equal
the number of Shares as to which the Tandem Stock Appreciation Right shall have been
exercised.



     7.5 Payment. The Committee shall have sole discretion to determine in each Award agreement
whether the payment with respect to the exercise of a Stock Appreciation Right will be in the form
of all cash, Shares, or any combination thereof. In the event of the exercise of a Stock
Appreciation Right payable in Shares, the holder of the Stock Appreciation Right shall receive that
number of whole Shares of stock of the Company having an aggregate Fair Market Value on the date of
exercise equal to the value obtained by multiplying (a) the excess of the Fair Market Value of a
Share on the date of exercise over the exercise price for the Stock Appreciation Right by (b) the
number of Shares as to which the Stock Appreciation Right is exercised. However, notwithstanding
the foregoing, the Committee, in its sole discretion, may place a ceiling on the amount payable
upon exercise of a Stock Appreciation Right, but any such limitation shall be specified at the time
that the Stock Appreciation Right is granted.



     7.6 Exercise of Stock Appreciation Rights. All Stock Appreciation Rights shall be exercised
automatically on the last day prior to the expiration date of the Stock Appreciation Right or, in
the case of Tandem Stock Appreciation Rights, any related stock option, so long as the Fair Market
Value of a Share on that date exceeds the exercise price per share of the Stock Appreciation Right
or any related stock option, as applicable. A Participant who receives a Stock Appreciation Right
shall not have any of the rights of a Shareholder with respect to the Shares covered by the right
except, in the case of a Stock Appreciation Right settled in Shares, to the extent that one or more
certificates representing such Shares shall have been delivered to the Participant, or the
Participant has been determined to be a Shareholder of record by the Company’s transfer agent, upon
due exercise of the right.



8. Vesting of Stock Options and Stock Appreciation Rights




     8.1 Vesting Schedule. Each stock option and Stock Appreciation Right granted hereunder may
only be exercised to the extent that the Participant is vested in such Award. Each such Award
shall vest separately in accordance with the vesting schedule, if any, determined by the Committee
in its sole discretion, which will be
incorporated in the Award agreement. The option vesting schedule will be accelerated if, in
the sole discretion of the Committee, the Committee determines that acceleration of the option
vesting schedule would be desirable for the Company.



 









 





     8.2 Dissolution or Liquidation. In the event of the dissolution or liquidation of the
Company, each stock option and Stock Appreciation Right granted under the Plan shall terminate as
of a date to be fixed by the Board; provided, however, that not less than thirty (30) days’ written
notice of the date so fixed shall be given to each Participant, and each such Participant shall be
fully vested in and shall have the right during such period to exercise the Award, even though such
Award would not otherwise be exercisable under the stated vesting schedule. At the end of such
period, any unexercised portion of the Award shall terminate and be of no other effect.



     8.3 Reorganization. In the event of a Reorganization:




     (a) If there is no plan or agreement respecting the Reorganization, or if such plan or
agreement does not specifically provide for the change, conversion or exchange of the Shares
under outstanding and unexercised stock options and Stock Appreciation Rights for other
securities then the provisions of Section 8.2 shall apply as if the Company had dissolved or
been liquidated on the effective date of the Reorganization; or




     (b) If there is a plan or agreement respecting the Reorganization, and if such plan or
agreement specifically provides for the change, conversion or exchange of the Shares under
outstanding and unexercised stock options and Stock Appreciation Rights for securities of
another corporation, then the Committee shall adjust the Shares under such outstanding and
unexercised stock options and Stock Appreciation Rights in a manner not inconsistent with
the provisions of such plan or agreement for the adjustment, change, conversion or exchange
of such Shares and such Awards.



     8.4 Change in Control. The Committee may provide in an option Award agreement and/or Stock
Appreciation Rights Award agreement that in the event of a Change in Control, (a) all or a portion
of the stock options and/or any Stock Appreciation Rights awarded under such agreement shall become
fully vested and immediately exercisable and/or (b) the vesting of all performance-based stock
options shall be determined as if the performance period or cycle applicable to such stock options
had ended immediately upon such Change in Control; provided, however, that if in the opinion of
counsel to the Company the immediate exercisability of options when taken into consideration with
all other “parachute payments” as defined in section 280G of the Code, would result in an “excess
parachute payment” as defined in such section as well as an excise tax imposed by section 4999 of
the Code, such options and any Stock Appreciation Rights shall become fully vested and immediately
exercisable, except as and to the extent the Committee in its sole discretion, shall otherwise
determine, which determination by the Committee shall be based solely upon maximizing the after-tax
benefits to be received by any such Optionee.



9. Restricted Stock




     9.1 Grants. The Committee may grant Awards of Restricted Stock for no cash consideration, for
such minimum consideration as may be required by applicable law, or for such other consideration as
may be specified by the Committee. The terms and conditions of the Restricted Stock shall be
specified in the Award agreement evidencing the Grant. The Committee, in its sole discretion, may
specify any particular rights which the person to whom an Award of Restricted Stock is made shall
have in the Restricted Stock during the restriction period and the restrictions applicable to the
particular Award, the vesting schedule (which may be based on service, performance or other
factors) and rights to acceleration of vesting (including, without limitation, whether non-vested
Shares are forfeited or vested upon termination of employment or service or upon a Change in
Control or Reorganization). Further, the Committee may award performance-based Restricted Stock by
conditioning the grant or vesting or such other factors, such as the release, expiration or lapse
of restrictions upon any such Award (including the acceleration of any such conditions or terms) of
such Restricted Stock, upon the attainment of specified performance goals or such other factors as
the Committee may determine. The Committee shall also determine when the restrictions shall lapse
or expire and the conditions, if any, under which the Restricted Stock will be forfeited or sold
back to the Company. Each Award of Restricted Stock may have different restrictions and
conditions. Subject to Section 16, the Committee, in its discretion, may prospectively change the
restriction period and the restrictions applicable to any particular Award of Restricted Stock.
Restricted Stock may not be transferred or disposed of by the Participant (other than by will or
the laws of descent and distribution) until the restrictions specified in the Award expire.



     9.2 Awards and Certificates. Any Restricted Stock issued hereunder may be evidenced in such
manner as the Committee, in its sole discretion, shall deem appropriate including, without
limitation, book-entry registration or issuance of a stock certificate or certificates. In the
event any stock certificate is issued in respect of Shares of Restricted Stock awarded hereunder,
such certificate shall bear an appropriate legend with respect to the




 











 




restrictions applicable to such Award. The Company may retain, at its option, the physical
custody of any stock certificate representing any awards of Restricted Stock during the restriction
period or require that the Restricted Stock be placed in escrow or trust, along with a stock power
endorsed in blank, until all restrictions are removed or expire. rajesh




10. Performance Awards




     10.1 Grants. A Performance Award may consist of either or both, as the Committee may
determine, (a) “Performance Shares” or the right to receive Shares, Restricted Stock or cash of an
equivalent value, or any combination thereof as the Committee may determine, or (b) “Performance
Units,” or the right to receive a fixed dollar amount payable in cash, Shares, Restricted Stock or
any combination thereof, as the Committee may determine. The Committee may grant Performance
Awards to any Participant for no cash consideration, for such minimum consideration as may be
required by applicable law or for such other consideration as may be specified at the time of the
grant. The terms and conditions of Performance Awards shall be specified at the time of the grant
and may include provisions establishing the performance period, the performance criteria to be
achieved during a performance period, the criteria used to determine vesting (including the
acceleration thereof), whether Performance Awards are forfeited or vest upon termination of
employment or service during a performance period and the maximum or minimum settlement values.
Each Performance Award shall have its own terms and conditions, which shall be determined at the
discretion of the Committee. If the Committee determines, in its sole discretion, that the
established performance measures or objectives are no longer suitable because of a change in the
Company’s business, operations, corporate structure or for other reasons that the Committee deems
satisfactory, the Committee may modify the performance measures or objectives and/or the
performance period.



     10.2 Terms and Conditions. Performance Awards may be valued by reference to the Fair Market
Value of a Share or according to any formula or method deemed appropriate by the Committee, in its
sole discretion, including, but not limited to, achievement of specific financial, production,
sales, cost or earnings performance objectives that the Committee believes to be relevant to the
Company’s business and for remaining in the employ or active service of the Company for a specified
period of time, or the Company’s performance or the performance of its Shares measured against the
performance of the market, the Company’s industry segment or its direct competitors. Performance
Awards may be paid in cash, Shares (including Restricted Stock) or other consideration, or any
combination thereof. If payable in Shares, the consideration for the issuance of the Shares may be
the achievement of the performance objective established at the time of the grant of the
Performance Award. Performance Awards may be payable in a single payment or in installments and
may be payable at a specified date or dates or upon attaining the performance objective, all at the
Committee’s discretion. The extent to which any applicable performance objective has been achieved
shall be conclusively determined by the Committee.



11. Dividend Equivalent Rights




     The Committee may grant a Dividend Equivalent Right either as a component of another Award or
as a separate Award, and, in general, each such holder of a Dividend Equivalent Right that is
outstanding on a dividend record date for the Company’s Common Stock shall be credited with an
amount equal to the cash or stock dividends or other distributions that would have been received
had the Shares covered by the Award been issued and outstanding on the dividend record date. The
terms and conditions of the Dividend Equivalent Right shall be specified by the grant. Dividend
equivalents credited to the holder of a Dividend Equivalent Right may be paid currently or may be
deemed to be reinvested in additional Shares (which may thereafter accrue additional Dividend
Equivalent Rights). Any such reinvestment shall be at the Fair Market Value of the Shares at the
time thereof. Dividend Equivalent Rights may be settled in cash or Shares, or a combination
thereof, in a single payment or in installments. A Dividend Equivalent Right granted as a
component of another Award may provide that such Dividend Equivalent Right shall be settled upon
exercise, settlement or payment for or lapse of restrictions on such other Award and that such
Dividend Equivalent Right shall expire or be forfeited or annulled under the same conditions as
such other Award. A Dividend Equivalent Right granted as a component of another Award may also
contain terms and conditions different from such other Award.



12. Other Awards




     The Committee may grant to any Participant cash or other bonus payments, whether related to
Shares or not, and/or other forms of Awards based upon, payable in or otherwise related to, in
whole or in part, Shares, if the Committee, in its sole discretion, determines that such other form
of Award is consistent with the purposes and



 









 




restrictions of the Plan. The terms and conditions of such other form of Award shall be
specified by the grant including, but not limited to, the price, if any, and the vesting schedule,
if any. Such Awards may be granted for no cash consideration, for such minimum consideration as
may be required by applicable law or for such other consideration as may be specified by the Award
agreement evidencing the Grant.




13. Compliance with Securities and Other Laws




     In no event shall the Company be required to sell or issue Shares under any Award if the sale
or issuance thereof would constitute a violation of applicable Federal or state securities laws or
regulations or a violation of any other law or regulation of any governmental or regulatory agency
or authority or any applicable Listing Standards. As a condition to any sale or issuance of
Shares, the Company may place legends on Shares, issue stop transfer orders and require such
agreements or undertakings as the Company may deem necessary or advisable to assure compliance with
any such laws or regulations, including, if the Company or its counsel deems it appropriate,
representations from the person to whom an Award is granted that he or she is acquiring the Shares
solely for investment and not with a view to distribution and that no distribution of the Shares
will be made unless registered pursuant to applicable Federal and state securities laws, or in the
opinion of counsel of the Company, such registration is unnecessary.



14. Adjustments upon Changes in Capitalization or Reorganization




     The value of an Award in Shares, the number of Shares available for issuance hereunder, and
the maximum number of Shares that may be awarded to a Participant during a calendar year shall be
adjusted from time to time as follows:




     (a) Subject to any required action by Shareholders, the number of Shares covered by
each outstanding Award, the exercise price of such Award, the Shares available for issuance
as Awards hereunder and the maximum number of Shares that may be awarded to a Participant
during a calendar year, shall be proportionately adjusted for any increase or decrease in
the number of issued Shares of the Company resulting from a subdivision or consolidation of
Shares or the payment of a stock dividend (but only in Shares) or any other increase or
decrease in the number of Shares affected without receipt of consideration by the Company.




     (b) Subject to any required action by Shareholders, if the Company shall be the
surviving corporation in any Reorganization, merger or consolidation (or if the Company is
not the surviving corporation in such a transaction, but the transaction does not constitute
a Change in Control), each outstanding Award shall pertain to and apply to the securities to
which a holder of the number of Shares subject to the Award would have been entitled, and if
a plan or agreement reflecting any such event is in effect that specifically provides for
the change, conversion or exchange of Shares, then any adjustment to Shares or value
relating to an Award hereunder shall not be inconsistent with the terms of any such plan or
agreement, and, in appropriate cases, corresponding proportionate adjustments shall be made
to the number of Shares available for issuance hereunder and the maximum number of Shares
that may be awarded to a Participant during a calendar year.




     (c) In the event of a change in the Shares of the Company as presently constituted,
which is limited to a change of par value into the same number of Shares with a different
par value or without par value, the Shares resulting from any such change shall be deemed to
be the Shares within the meaning of the Plan.



     To the extent that the foregoing adjustments relate to stock or securities of the Company,
such adjustments shall occur automatically without any other required action by the Board, the
Committee, or any other person; provided that the Board shall have the authority to make or confirm
such adjustments, and its determination in that regard shall be final, binding and conclusive.



     Except as hereinbefore expressly provided in the Plan, any person to whom an Award is granted
shall have no rights by reason of any subdivision or consolidation of stock of any class or the
payment of any stock dividend or any other increase or decrease in the number of shares of stock of
any class or by reason of any dissolution, liquidation, Reorganization, merger or consolidation or
spin-off of assets or stock of another corporation, and any issue by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class, shall not affect and no
adjustment by reason thereof shall be made with respect to, the number or exercise price of Shares



 









 







subject to an Award. The grant of an Award pursuant to the Plan shall not affect in any way
the right or power of the Company to make adjustments, reclassifications, Reorganizations or
changes of its capital or business structure or to merge or to consolidate or to dissolve,
liquidate or sell or transfer all or any part of its business or assets.



15. Adoption, Amendment, and Termination of the Plan




     15.1 Effective Date and Shareholder Approval. The Plan, as amended, shall be effective as of
May 14, 2008, after its approval by the Board effective as of such date and its approval by the
Shareholders at the Annual Meeting of Shareholders to be held on such date. For purpose of this
Plan, including this Section and Sections 15.2 and 15.3, Shareholder approval shall be considered
obtained if such approval complies with (a) all applicable provisions of the articles of
incorporation and bylaws of the Company and applicable state law prescribing the method and degree
of stockholder approval required for the issuance of corporate stock or options (and if applicable
state law does not prescribe such method and degree of stockholder approval, such approval must
otherwise be obtained in accordance with Code section 422) and (b) any applicable Listing
Standards.



     15.2 Amendment of the Plan. Notwithstanding anything contained in the Plan to the contrary,
all provisions of the Plan may at any time or from time to time be modified or amended by the
Board; provided, however, that




     (a) no Award at any time outstanding under the Plan may be modified, impaired or
canceled adversely to the holder of the Award without the consent of such holder;




     (b) to the extent required to qualify stock options granted hereunder as Incentive
Stock Options under section 422 of the Code, any amendment which (1) increases the maximum
number of Shares that may be issued pursuant to the exercise of Incentive Stock Options
(other than an increase merely reflecting a change in the number of outstanding Shares, such
as a stock dividend or stock split), (2) modifies the individuals or classes of individuals
eligible to receive Awards, (3) changes the corporation with respect to which “Shares” are
defined, or (4) modifies the definition of “Company” to refer to another entity (other than
a successor to HCC Insurance Holdings, Inc.) must be approved by the Shareholders within the
twenty-four (24)-month period beginning twelve (12) months before the date the amendment is
adopted; and




     (c) to the extent required by the Listing Standards, any amendment which constitutes a
material revision of the Plan must be approved by the Shareholders in accordance with such
Listing Standards.



     15.3 Termination of the Plan; Maximum Plan Term. The Board may suspend or terminate the Plan
at any time, and such suspension or termination may be retroactive or prospective. No Award may be
granted on or after the tenth anniversary of the Initial Effective Date, and no Award subject to
Section 18.2 may be granted on or after the first Shareholders’ meeting that occurs in the fifth
year following the year containing the Initial Effective Date. However, if the Plan is amended or
restated and the Plan as so amended or restated is approved by the Shareholders or the Plan is
otherwise submitted for reapproval by the Shareholders, the Plan shall be deemed to be a new Plan
and the date on which the amended, restated, or reapproved Plan is adopted by the Board (or the
date of approval or reapproval by the Shareholders, if earlier) shall be substituted for the
Initial Effective Date in the immediately preceding sentence. Termination of the Plan shall not
impair or affect any Award previously granted hereunder and the rights of the holder of the Award
shall remain in effect until the Award has been exercised in its entirety or has expired or
otherwise has been terminated by the terms of such Award.



16. Amendments and Adjustments to Awards




     The Committee may amend, modify or terminate any outstanding Award with the Participant’s
consent at any time prior to payment or exercise in any manner not inconsistent with the terms of
the Plan, including, without limitation to change the date or dates as of which (a) an option
becomes exercisable or (b) a performance-based Award is deemed earned. The Committee is also
authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards
in recognition of unusual or non-recurring events (including, without limitation, the events
described in Section 14 hereof) affecting the Company, or the financial statements of the Company
or any Affiliate, or of changes in applicable laws, regulations or accounting principles, whenever
the Committee determines that such adjustments are appropriate in order to prevent reduction or
enlargement of the benefits or potential benefits intended to be made available under the Plan.
Notwithstanding Section 15.2(a) or any provision of the Plan



 









 







or any agreement regarding an Award to the contrary, the Committee may cause any Award granted
to be canceled in consideration of a cash payment or alternative Award made to the holder of such
canceled Award in an amount equal to the value of such canceled Award. For purposes of the
preceding sentence, the value of an option or Stock Appreciation Right shall be the Fair Market
Value of the related Shares on the cancellation date minus the exercise price of the Award (or
shall be zero if such result is a negative number), and the value of a Full Value Award shall be
the Fair Market Value of the related Shares on the cancellation date. If the exercise of an Award
results in the cancellation of another Award (such as a Tandem Stock Appreciation Right and stock
option, where the exercise of the Tandem Stock Appreciation Right or option results in the
cancellation of the other), value shall be determined based on the deemed exercise of one of the
Awards and the cancellation of the other Award. Subject to the foregoing, the determinations of
value under this Section 16 shall be made by the Committee.



17. General Provisions




     17.1 No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent
the Company from adopting or continuing in effect other compensation arrangements, and such
arrangements may be either generally applicable or applicable only in specific cases.



     17.2 No Right to Employment. Nothing in the Plan or in any Award, nor the grant of any Award,
shall confer upon or be construed as giving any person, including any recipient of an Award, any
right to remain in the employ or service of the Company or any Subsidiary. Further, the Company
and its Subsidiaries may at any time dismiss a Participant from employment or service, free from
any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in
any Award agreement. No Participant, employee, Optionee or other person shall have any claim to be
granted any Award, and there is no obligation for uniform treatment of employees, Participants or
holders or beneficiaries of Awards. Neither the establishment nor the existence of the Plan, nor
any modification thereof, shall operate or be construed so as to give any person any legal or
equitable right against the Company or any Subsidiary except as expressly provided herein or
required by law.



     17.3 Governing Law. Except to the extent that Federal law is controlling, the validity,
construction and effect of the Plan and any rules and regulations relating to the Plan shall be
determined in accordance with the laws of the State of Texas, without giving effect to the
conflicts of laws principles thereof.



     17.4 Severability. If any provision of the Plan or any Award is or becomes or is deemed to be
invalid, illegal or unenforceable in any jurisdiction or as to any person or Award, or would
disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision
shall be construed or deemed amended to conform to applicable laws, or if it cannot be construed or
deemed amended without, in the sole determination of the Committee, materially altering the intent
of the Plan or the Award, such provision shall be stricken as to such jurisdiction, person or Award
and the remainder of the Plan and any such Award shall remain in full force and effect.



     17.5 No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the
Plan or any Award, and the Committee shall determine whether cash, other securities or other
property shall be paid or transferred in lieu of any fractional Shares or whether such fractional
Shares or any rights thereto shall be canceled, terminated or otherwise eliminated.



     17.6 Headings. Headings are given to the Sections and subsections of the Plan solely as a
convenience to facilitate reference. Such headings shall not be deemed in any way material or
relevant to the construction or interpretation of the Plan or any provision thereof.



     17.7 Waiver. Neither the failure nor any delay on the part of the Company or the Committee to
exercise any right, power, or privilege hereunder shall operate as a waiver thereof. No term,
condition, or provision of the Plans shall be deemed waived, and there shall be no estoppel against
enforcing any provision of the Plans, except through a writing of the party to be charged by the
waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless explicitly
made so, and it shall operate only with regard to the specific term or condition waived, and shall
not be deemed to waive such term or condition in the future, or as to any act other than as
specifically waived. No person other than as named or described by class in the waiver shall be
entitled to rely on the waiver for any purpose.



     17.8 Non-Transferability of Awards. Awards shall be nontransferable other than by will or the
laws of descent and distribution, and Awards may be exercised, during the lifetime of the holder,
only by the holder (or the holder’s duly appointed guardian or personal representative); provided,
however, that except as provided otherwise



 









 







in an Award agreement, Awards other than Incentive Stock Options and non-vested Restricted
Stock may be transferred (a) by the holder to a family member, trust, charity, or similar
organization for estate planning purposes and (b) with the approval of the Committee, as directed
under a qualified domestic relations order. After the death of a Participant, the Participant’s
Designated Beneficiary shall be entitled to exercise the rights of the Participant under the Award,
and references herein to a Participant shall be deemed to include such Participant’s Designated
Beneficiary.



     17.9 Withholding. The Company shall have the right to withhold or require separate payment of
all Federal, state, local or other taxes or payments required by law to be withheld or paid with
respect to any Award or payment made under the Plan. Such amounts shall be withheld or paid prior
to the delivery of any certificate representing Shares or any other Award subject to such
withholding. Such a payment may be made by the delivery of cash (or other consideration acceptable
to the Company) to the Company in an amount that equals or exceeds the required withholding
obligation of the Company. In the event of a transfer of an Award, the Participant who assigns the
Award shall remain subject to withholding taxes or similar obligations upon exercise of the Award
by the transferee to the extent required by the Code or other applicable laws. All determinations
of withholding liability under this Section shall be made by the Company in its sole discretion and
shall be binding upon the Participant.



     17.10 Unfunded Plan. Unless otherwise determined by the Committee, the Plan shall be unfunded
and shall not create (or be construed to create) a trust or a separate fund or funds. The Plan
shall not establish any fiduciary relationship between the Company and any Participant or other
person. To the extent any person holds any rights by virtue of an Award granted under the Plan,
such rights shall be no greater than the rights of an unsecured general creditor of the Company.



     17.11 Writing Requirement; Notices. A requirement hereunder that an agreement, notice, or
other instrument be written will be considered satisfied if the instrument is provided in
electronic form that is approved by the Committee and that may be retained and reproduced in paper
form. Notices, reports, and statements sent by regular mail to a Participant shall be deemed duly
given, made or delivered, when deposited in the mail, addressed to the Participant’s last known
address.



     17.12 Interpretation. All references herein to a “Section” shall mean the appropriate Section
of the Plan, unless otherwise required by the context. Words in the singular shall be held to
include the plural and vice versa and words of one gender shall be held to include the other
genders as the context requires. The terms “hereof,” “herein,” and “herewith” and words of similar
import shall, unless otherwise stated, be construed to refer to this Plan as a whole and not to any
particular provision of the Plan. 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.



18. Code Section 162(m) Limitations




     18.1 Applicability. The provisions of this Section 18 shall apply to Awards to Participants
who are “covered employees” (as defined by Code section 162(m)(3)) and any other Participants whose
compensation the Committee, in its sole discretion, determines may reasonably be subject to (at the
time an Award is granted or in the future when an Award vests or is payable or exercisable) the
limitations on deductions imposed by Section 162(m) of the Code. References in this Section to
“Participants” and “Awards” shall not include any Awards or Participants not subject to this
Section. Notwithstanding the foregoing, if the Committee determines that it is advisable to grant
Awards which shall not qualify for the performance-based compensation exception from the
deductibility limitations of Code Section 162(m), the Committee may make such grants without
satisfying the requirements of Code Section 162(m) and this Section 18. Any Awards granted in
accordance with the immediately preceding sentence shall not be subject to this Section 18,
including Section 18.2. In the event of any inconsistencies between this Section 18 and the other
Plan provisions, the provisions of this Section 18 shall control.



     18.2 Establishment of Performance Goals. The grant, vesting, and/or payout (as determined by
the Committee at the time it determines the applicable performance goals) of Awards, other than
stock options and Stock Appreciation Rights, shall be based solely on account of the attainment of
performance goals established by the Committee in accordance with this Section. No later than the
earlier of (a) ninety (90) days after the commencement of the applicable fiscal year or such other
award period as may be established by the Committee (“Award Period”) and (b) the completion of
twenty-five percent (25%) of such Award Period, the Committee shall establish, in writing, the
performance goals applicable to each such Award. At the time the performance goals are established
by the



 









 







Committee, their outcome must be substantially uncertain. In addition, the performance goal
must state, in terms of an objective formula or standard, the method for computing the amount of
any Award to be granted, vested, or paid to the Participant if the goal is obtained. Such formula
or standard shall be sufficiently objective so that a third party with knowledge of the relevant
performance results could calculate the amount to be granted, vested, or paid with respect to the
Participant. Such formula or standard shall not be based upon subjective evaluations of individual
performance.



     18.3 Performance Measures. Unless amended with any required shareholder approval in
accordance with Section 18.6, performance measures which may serve as determinants of performance
goals under Section 18.2 shall be limited to the following measures (which may relate to the
Company or one or more business units, divisions or Subsidiaries and which may be adjusted):
earnings, earnings per share (EPS), consolidated pre-tax earnings, net earnings, operating income,
EBIT (earnings before interest and taxes), EBITDA (earnings before interest, taxes, depreciation
and amortization), gross margin, revenues, revenue growth, market value added, economic value
added, return on equity, return on investment, return on assets, return on net assets (RONA),
return on capital, return on invested capital (ROIC), total stockholder return, profit, economic
profit, operating profit, capitalized economic profit, net operating profit after tax (NOPAT), net
profit before taxes, pre-tax profit, cash flow measures, cash flow return, sales, comparable
division or product sales, stock price (and stock price appreciation, either in absolute terms or
in relationship to the appreciation among members of a peer group determined by the Committee),
market share, expenses, strategic milestones, or goals related to acquisitions or divestitures.
The performance measures established by the Committee for any Award Period may be expressed in
terms of attaining a specified level of the performance objective or the attainment of a percentage
increase or decrease in the particular objective, and may involve comparisons with respect to
historical results of the Company and its Subsidiaries and/or operating groups or segments thereof,
all as the Committee deems appropriate. The performance measures established by the Committee for
any Award Period may be applied to the performance of the Company relative to a market index, a
peer group of other companies or a combination thereof, all as determined by the Committee for such
Award Period.



     18.4 Changes to Performance Goals. Performance goals shall not be changed following their
establishment; provided, however, that the Committee shall have the authority to adjust the
performance goals and objectives during an Award Period for such reasons as it deems equitable to
the extent permitted while still satisfying the requirements for qualified performance-based
compensation under Code Section 162(m). Specifically, to the extent permitted under Code Section
162(m), the Committee is authorized to make adjustments in the method of calculating attainment of
performance goals and objectives for a Award Period as follows: (a) to exclude the dilutive effects
of acquisitions or joint ventures; (b) to assume that any business divested by the Company achieved
performance objectives at targeted levels during the balance of a Award Period following such
divestiture; (c) to exclude restructuring and/or other nonrecurring charges; (d) to exclude
exchange rate effects, as applicable, for non-U.S. dollar denominated net sales and operating
earnings; (e) to exclude the effects of changes to generally accepted accounting principles (or
standards) required by the Financial Accounting Standards Board; (f) to exclude the effects to any
statutory adjustments to corporate tax rates; (g) to exclude the impact of any “extraordinary
items” as determined under generally accepted accounting principles; (h) to exclude the effect of
any change in the outstanding shares of Common Stock by reason of any stock dividend or split,
stock repurchase, reorganization, recapitalization, merger, consolidation, spin-off, combination or
exchange of shares or other similar corporate change, or any distributions to common stockholders
other than regular cash dividends; and (i) to exclude any other unusual, non-recurring gain or loss
or other extraordinary item.



     18.5 Satisfaction of Performance Goals. Within ninety (90) days following the end of each
Award Period, the Committee shall certify in writing whether the performance goals, and any other
material terms were satisfied. For this purpose, approved minutes of the Committee meeting at
which the certification is made shall be treated as a written certification. The amount granted,
vested, or paid after the completion of an Award Period may not vary from the pre-established
amount based on the level of achievement; provided, however, that the Committee shall retain the
discretion to adjust downward the grant, vesting, and/or payout with respect to an Award.



     18.6 Amendments. Any amendment of the Plan which would (a) increase the maximum number of
Shares with respect to which options or Stock Appreciation Rights can be granted under Section 18.7
or the maximum amount of compensation payable under Section 18.8, (b) change the specified
performance measures under Section 18.3, or (c) modify the requirements as to eligibility for
participation in the Plan shall not be effective with respect to any Awards or Participants subject
to this Section 18 unless the Shareholders approve such amendment in accordance with section 162(m)
of the Code. Notwithstanding the foregoing, if applicable tax and/or



 









 







securities laws change to permit Committee discretion to change the specified performance
measures without obtaining Shareholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining Shareholder approval.



     18.7 Stock Options and Stock Appreciation Rights.




     (a) The amount of compensation that a Participant may receive with respect to stock
options and Stock Appreciation Rights that are granted hereunder shall be based solely on an
increase in the value of the applicable Shares after the date of grant of such Award. Thus,
no stock option may be granted hereunder to a Participant with an exercise price less than
the Fair Market Value of Shares on the date of grant.




     (b) The maximum number of Shares with respect to which stock options or Stock
Appreciation Rights may be granted (regardless of when vested or settled) to any one
Participant during any calendar year may not exceed one hundred percent (100%) of the Shares
available for issuance under Section 4.1(a) as of the beginning of such calendar year (or as
of the Initial Effective Date, if later), subject to adjustment as provided in Section 14.
The provisions of Sections 4.1(d) and 4.1(e)(1) – (3) shall apply for purposes of applying
such limitation. Shares subject to a stock option or Stock Appreciation Right that is
cancelled shall not again be available under the Plan for purposes of applying this
limitation to the Participant whose Award was cancelled and for such other purposes, if any,
as are required to comply with the qualified performance-based compensation exception under
Code section 162(m). This provisions of this Section 18.7(b) apply solely for purposes of
satisfying the qualified performance-based compensation exception under Code section 162(m)
and shall not be construed to increase or modify the number of available Shares under
Section 4.1(a).



     18.8 Maximum Amount of Compensation for Awards other than Stock Options and Stock Appreciation
Rights.




     (a) The maximum number of Shares with respect to which Share denominated Awards other
than stock options and Stock Appreciation Rights (including Restricted Stock and Share
denominated Performance Awards or other Awards whether settled in Shares or cash) may be
granted (regardless of when vested or settled) to any one Participant during any calendar
year may not exceed one hundred percent (100%) of the Shares available for issuance under
Section 4.1(a) as of the beginning of such calendar year (or as of the Initial Effective
Date, if later), subject to adjustment as provided in Section 14. The provisions of
Sections 4.1(d), 4.1(e)(4) – (5), and 4.2 shall apply for purposes of applying such
limitation. If such Awards are denominated in Shares but may be settled in cash or other
property in lieu of delivery of Shares, the foregoing limit shall be applied based on the
methodology used by the Committee to convert the number of Shares into cash or other
property. This provisions of this Section 18.8(a) apply solely for purposes of satisfying
the qualified performance-based compensation exception under Code section 162(m) and shall
not be construed to increase or modify the number of available Shares under Section 4.1(a)
or Section 4.1(c).




     (b) If an Award is not determined by reference to Shares, the maximum amount of
compensation payable with respect to the Award to any Participant during any calendar year
may not exceed one percent (1%) of the Company’s Pre-tax Income. If such an Award is
denominated in cash or other property (other than Shares) but an equivalent amount of Shares
is delivered in lieu of delivery of cash or other property, the foregoing limit shall be
applied to the cash or other property based on the methodology used by the Committee to
convert the cash or other property into Shares.



19. Compliance with Code Section 409A




     19.1 Purpose and Interpretation. With respect to Participants subject to United States
federal income tax, the Plan is intended to comply with applicable requirements to avoid a plan
failure under Code section 409A and shall be construed and applied accordingly by the Committee.



     19.2 Service Recipient Stock. Subject to Section 3.6, no stock option or Stock Appreciation
Right shall be granted under this Plan to the extent the Shares that may be issued to the
Participant with respect to the Award do not constitute “service recipient stock” (as such term is
defined under Code section 409A) of the Company as of the date of grant.



 









 





     19.3 Compliance Amendments. To the extent any provision of this Plan or any omission from
this Plan would (absent this Section 19.3) cause amounts to be includable in income under Code
section 409A(a)(1), this Plan shall be deemed amended to the extent necessary to comply with the
requirements of Code section 409A; provided, however, that this Section 19.3 shall not apply and
shall not be construed to amend any provision of this Plan to the extent this Section 19.3 or any
amendment required thereby would itself cause any amounts to be includable in income under Code
section 409A(a)(1).



     19.4 Delay in Payment. Notwithstanding anything to the contrary in this Plan, (a) if upon the
date of a Participant’s “separation from service” (as defined for purposes of Code sections
409A(a)(2)(A)(i) and 409A(a)(2)(B)(i)) with the Company and its controlled subsidiaries and
affiliates the Participant 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 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 Plan as a result of Participant’s separation from
service is necessary to prevent any accelerated or additional tax to the Participant under Code
section 409A, then the Company shall defer the payment of any such amounts hereunder until the date
that is six months following the date of the Participant’s separation from service, at which time
any such delayed amounts shall be paid or provided to the Participant and (b) if any other payments
of money or other Awards or benefits due to a Participant hereunder could cause the application of
an accelerated or additional tax under Code section 409A, such payments or other benefits shall be
deferred and paid on the first day that would not result in the Participant incurring any tax
liability under Code section 409A if such deferral would make such payment or other benefits
compliant under section 409A of the Code.