Document:

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                         HCC INSURANCE HOLDINGS, INC.
                         1997 FLEXIBLE INCENTIVE PLAN,
                           AS AMENDED AND RESTATED

1.       PURPOSE

         The purposes of HCC Insurance Holdings, Inc. 1997 Flexible Incentive
Plan (the "1997 Flexible Plan") are to promote the interests of HCC Insurance
Holdings, Inc. and its subsidiaries (together with any successor thereto, the
"Company") and its Shareholders by enabling the Company to attract, motivate
and retain key employees by offering such key employees performance-based
stock incentives and other equity interests in the Company and other
incentive awards that recognize the creation of value for the Shareholders of
the Company and promote the Company's long-term growth and success. To
achieve these purposes, eligible persons may receive stock options, Stock
Appreciation Rights, Restricted Stock. Performance Awards, performance stock,
Dividend Equivalent Rights and any other Awards, or any combination thereof.

2.       DEFINITIONS

         As used in the 1997 Flexible Plan, the following terms shall have
the meanings set forth below unless the content otherwise requires:

         2.1 "AWARD" shall mean the grant of a stock option, a Stock
Appreciation Right, a Restricted Stock, a Performance Award, performance
stock, a Dividend Equivalent Right or any other Award under the 1997 Flexible
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
1997 Flexible Plan, (i) the occurrence of an event of a nature that would be
required to be reported in response to Item 1 or Item 2 of a Form 8-K Current
Report of the Company promulgated pursuant to Sections 13 and 15(d) of the
Exchange Act; provided that, without limitation, such a Change in Control
shall be deemed to have occurred if (a) 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 of the Company 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 or (b)
during any period of two consecutive years, individuals who at the beginning
of such period constitute the Board cease for any reason to constitute at
least a majority thereof, unless the election by the Board or the nomination
for election by the Company's Shareholders was approved by a vote of at least
two-thirds (2/3) of the Directors then still in office who either were
Directors at the beginning of the two-year period or whose election or
nomination for election was previously so approved; (ii) the Shareholders of
the Company 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

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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-one percent (51%) of the combined voting
power of the voting securities of the surviving entity outstanding
immediately after such merger or consolidation; provided, however, that a
merger or consolidation effected to implement a reorganization or
recapitalization of the Company, or a similar transaction (collectively, 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 (iii)
the Shareholders of the Company 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.

         2.5 "COMMITTEE" shall mean the Stock Option or Compensation
Committee, if such a separate committee is appointed by the Board, or, until
such time as a separate committee is appointed, it shall mean the Board. If a
separate committee is appointed, the Committee shall meet the applicable
requirements for "disinterested administration" within the requirements of
Rule 16b-3 promulgated under the Exchange Act and any successor thereunder
promulgated during the duration of the 1997 Flexible Plan. The Board may
amend the 1997 Flexible Plan to modify the definition of Committee within the
limits of Rule 16b-3 to assure that the 1997 Flexible Plan is administered in
compliance with Rule 16b-3. Initially, the Committee will consist of not less
than three (3) members of the Board who are appointed by, and serve at the
pleasure of, the Board and who are (i) "disinterested" within the meaning of
Rule 16b-3 and (ii) "outside directors," as required under Section 162(m) of
the Code and such Treasury Regulations as may be promulgated thereunder.

         2.6 "COMMON STOCK" shall mean the Common Stock, $1.00 par value per
share, of the Company.

         2.7 "DESIGNATED BENEFICIARY" shall mean the beneficiary designated
by an Optionee in a manner determined by the Committee, to exercise rights of
the Optionee in the event of the Optionee's death. In the absence of an
effective designation by an Optionee the Designated Beneficiary shall be the
Optionee's estate.

         2.8 "DISABILITY" shall mean permanent and total inability to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or
which has lasted or can be expected to last for a continuous period of not
less than twelve (12) months, as determined in the sole and absolute
discretion of the Committee.

         2.9 "DIVIDEND EQUIVALENT RIGHT" shall mean the right of the holder
thereof to receive credits based on the cash dividends that would have been
paid on the Shares specified in an Award granting Dividend Equivalent Rights
if the Shares subject to such Award were held by the person to whom the Award
is made.

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         2.10 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended from time to time.

         2.11 "FAIR MARKET VALUE" shall mean with respect to the Shares, as
of any date, (i) the last reported sales price on any stock exchange on which
the Common Stock is traded or, if not reported on such exchange, on the
composite tape, or, in case no such sale takes place on such day, the average
of the reported closing bid and asked quotations on such exchange; (ii) if
the Common Stock is not listed on a stock exchange or no such quotations are
available, the closing price of the Common Stock as reported by the National
Market System of the National Association of Securities Dealers, Inc., or, if
no such quotations are available, the average of the high bid and low asked
quotations in the over-the-counter market as reported by the National
Quotation Bureau Incorporated, or similar organization; or (iii) in the event
that there shall be 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.

         2.12 "INCENTIVE STOCK OPTION" shall mean any stock option awarded
under the 1997 Flexible Plan which qualifies as an "Incentive Stock Option"
under Section 422 of the Code or any successor provision.

         2.13 "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.

         2.14 "NON-QUALIFIED STOCK OPTION" shall mean any stock option
awarded under the 1997 Flexible Plan that does not qualify as an Incentive
Stock Option.

         2.15 "OPTIONEE" shall mean any person who has been granted a stock
option under the 1997 Flexible Plan and who has executed a written stock
option agreement with the Company reflecting the terms of such grant.

         2.16 "PERFORMANCE AWARD" shall mean any Award hereunder of Shares,
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.

         2.17 "1997 FLEXIBLE PLAN" shall mean the HCC Insurance Holdings,
Inc. 1997 Flexible Incentive Plan set forth herein.

         2.18 "RESTRICTED STOCK" shall mean any Award of Shares under the
1997 Flexible Plan that are subject to restrictions or risk of forfeiture.

         2.19 "RETIREMENT" unless otherwise defined herein or in any other
agreement regarding an Award, shall mean termination of employment other than
discharge for cause, after age 65 or on or before age 65 if pursuant to the
terms of any retirement plan maintained by the Company or any of its
Subsidiaries in which such person participates.

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         2.20 "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.

         2.21 "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 Fair Market
Value of a Share on the date of the grant (or such other value as may be
specified in the agreement granting the Stock Appreciation Right).

         2.22 "SUBSIDIARY" shall mean a subsidiary corporation of the
Company, as defined in Section 424(f) of the Code.

         2.23 "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 1997 FLEXIBLE PLAN

         3.1 COMMITTEE. The 1997 Flexible Plan shall be administered and
interpreted by the Committee.

         3.2 AWARDS. Subject to the provisions of the 1997 Flexible Plan and
directions from the Board, the Committee is authorized 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;

         (c) conclusively interpret the provisions of the 1997 Flexible Plan;

         (d) prescribe, amend and rescind the rules and regulations relating
to the 1997 Flexible Plan or make individual decisions as questions arise, or
both;

         (e) determine whether, to what extent and under what circumstances
to provide loans from the Company to participants to purchase Shares subject
to Awards under the 1997 Flexible Plan, and the terms and conditions of such
loans;

         (f) rely upon employees of the Company for such clerical and record
keeping duties as may be necessary in connection with the administration of
the 1997 Flexible Plan; and

         (g) make all other determinations and take all other actions
necessary or advisable for the administration of the 1997 Flexible Plan.

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         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. All questions of interpretation and application of the 1997
Flexible 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.

4.       SHARES SUBJECT TO 1997 FLEXIBLE PLAN

         4.1 LIMITATIONS. The maximum number of Shares that may be issued
with respect to Awards under the 1997 Flexible Plan shall not exceed
4,000,000 unless such maximum shall be increased or decreased by reason of
changes in capitalization of the Company as hereinafter provided. The Shares
issued pursuant to the 1997 Flexible Plan may be authorized but unissued
Shares, or may be issued Shares which have been reacquired by the Company.

         4.2 CHANGES. To the extent that any Award under the 1997 Flexible
Plan, shall be forfeited, shall expire or shall be canceled, in whole or in
part, then the number of Shares covered by the Award or stock option so
forfeited, expired or canceled may again be awarded pursuant to the
provisions of the 1997 Flexible Plan. In the event that Shares are delivered
to the Company in full or partial payment of the exercise price for the
exercise of a stock option granted under the 1997 Flexible Plan, the number
of Shares available for future Awards under the 1997 Flexible Plan shall be
reduced only by the net number of Shares issued upon the exercise of the
option. Awards that may be satisfied either by the issuance of Shares or by
cash or other consideration shall, until the form of consideration to be paid
is finally determined, be counted against the maximum number of Shares that
may be issued under the 1997 Flexible Plan. If the Award is ultimately
satisfied by the payment of consideration other than Shares, as, for example,
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 1997 Flexible Plan. Awards will not
reduce the number of Shares that may be issued pursuant to the 1997 Flexible
Plan if the settlement of the Award will not require the issuance of Shares,
as, for example, a Stock Appreciation Right that can be satisfied only by the
payment of cash.

5.       ELIGIBILITY

         Eligibility for participation in the 1997 Flexible Plan shall be
confined to those persons who are employed by the Company, and who are
officers of the Company, or who are in managerial or other key positions
within the Company or are otherwise valuable employees of the Company. 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 person, his
or her importance to the Company, the duties of such person, his or her past,
present and potential contributions to the growth and success of the Company,
and such other factors as the Committee shall deem relevant in connection
with accomplishing the purposes of the 1997 Flexible Plan.

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6.       STOCK OPTIONS

         6.1 GRANTS. The Committee may grant stock options alone or in
addition to other Awards granted under the 1997 Flexible Plan to any eligible
officer or other key employee. 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. 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 constitute a separate Non-Qualified
Stock Option. 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 a written agreement with
the Company, in such form as the Committee may prescribe, setting forth the
terms and conditions of the option, consistent with the provisions of the
1997 Flexible Plan. The Optionee and the Company shall enter into option
agreements for Incentive Stock Options and Non-Qualified Stock Options. 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.

         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 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 an Incentive Stock Option shall not be less
than one hundred percent (100%) of the Fair Market Value of Shares on the
date of the grant of such Incentive Stock Option.

         6.3 INCENTIVE STOCK OPTIONS LIMITATIONS.

         (a) In no event shall any person be granted Incentive Stock Options
to the extent that the Shares covered by any Incentive Stock 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
6.3(a) be the maximum limitation on options which may be considered Incentive
Stock Options under the Code.

         (b) Notwithstanding anything herein to the contrary, in no event
shall any employee 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 the option exercise price shall

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be at least one hundred ten percent (110%) of the Fair Market Value of the
Shares subject to such Incentive Stock Option at the time that the Incentive
Stock Option is granted and the term of such Incentive Stock Option shall not
exceed five (5) years.

         6.4 OPTION TERM. Subject to subsection 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. Furthermore, no stock option may be exercised unless, at the time of
such exercise, the Optionee is, and has been continuously since the date of
grant of his or her stock option, employed by the Company, except that:

         (a) A stock option may, to the extent vested, be exercised within
the period of ninety (90) days after the date the Optionee ceases to be an
employee of the Company and the Subsidiaries for any reason other than as set
forth below (or within such lesser period as may be specified in the
applicable option agreement), provided that the option agreement may
designate a longer exercise period and that the exercise after such ninety
(90)-day period shall be treated as the exercise of a Non-Qualified Stock
Option under the 1997 Flexible Plan.

         (b) In the event of the death of the Optionee while in the employ of
the Company or the Subsidiaries or within ninety (90) days after the date the
Optionee ceases to be an employee of the Company or the Subsidiaries (or
within such lesser period as may be specified in the applicable option
agreement, whichever is shorter), the stock option may, to the extent vested
and previously unexercised, be exercised by the Optionee's Designated
Beneficiary within the one-year period immediately following such date of
death (or within such lesser period as may be specified in the applicable
option agreement, whichever is shorter);

         (c) If the Optionee voluntarily terminates employment with the
Company without good reason (which determination shall be made in the sole
and absolute discretion of the Committee), the stock option may, to the
extent vested and previously unexercised by the Optionee within the period of
ten (10) days after the termination of employment of the Optionee (or within
such lesser period as may be specified in the applicable option agreement,
whichever is shorter);

         (d) If the Optionee ceases to be an employee of the Company by
reason of the Optionee's Disability, the stock option may be exercised by the
Optionee for the full number of shares or any portion thereof except as to
the issuance of fractional shares, to the full extent of this option less any
previously exercised shares at any time within the period of one year after
the date of Disability of the Optionee (or within such lesser period as may
be specified in the applicable option agreement, whichever is shorter);

         (e) If the employment of the Optionee is terminated for cause (which
determination shall be made in the sole and absolute discretion of the
Committee) the stock option may, to the extent vested and previously
unexercised, be exercised by the Optionee within the period of ten (10) days
after the termination of employment of the Optionee (or within such lesser
period as may be specified in the applicable option agreement, whichever is
shorter);

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         (f) In the event of the termination of the Optionee's employment on
or after the attainment of age 65 (or such other age as is permitted for the
Optionee by the Committee in its sole discretion) and provided Optionee does
not engage in full time employment with any other entity ("Retirement"), the
stock option may, to the extent vested and previously unexercised, be
exercised by the Optionee within the period of one (1) year after the
termination of employment by the Optionee (or within such lesser period as
may be specified in the applicable option agreement, whichever is shorter),
provided that the exercise of the option more than ninety (90) days after the
Optionee's termination of employment shall be treated as the exercise of a
Non-Qualified Option under the 1997 Flexible Plan.

         6.5 VESTING OF STOCK OPTIONS.

         (a) Each stock option granted hereunder may only be exercised to the
extent that the Optionee is vested in such option. Each stock option shall
vest separately in accordance with the option vesting schedule, if any,
determined by the Committee in its sole discretion, which will be
incorporated in the stock option agreement entered into between the Company
and each Optionee and only to the extent that the Optionee remains in the
continuous employ of the Company or a Subsidiary. 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.

         (b) In the event of the dissolution or liquidation of the Company,
each stock option granted under the 1997 Flexible 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
Optionee and each such Optionee shall be fully vested in and shall have the
right during such period to exercise the option, even though such option
would not otherwise be exercisable under the option vesting schedule. At the
end of such period, any unexercised option shall terminate and be of no other
effect.

         (c) In the event of a Reorganization (as defined in Section 2.3
hereof):

                  (1) 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 for other securities then the
         provisions of subsection 6.5(b) shall apply as if the Company had
         dissolved or been liquidated on the effective date of the
         Reorganization; or

                  (2) 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 for securities of another corporation, then
         the Board shall adjust the Shares under such outstanding and
         unexercised stock options (and shall adjust the Shares remaining under
         the 1997 Flexible Plan which are then available to be awarded under the
         1997 Flexible Plan, if such plan or agreement makes no specific
         provision therefore) 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 options.

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                  (3) The Committee may provide in an option agreement and/or
         Stock Appreciation Rights agreement that in the event of a Change in
         Control of the Company, (i) all or a portion of the stock options and
         any associated Stock Appreciation Rights awarded under such agreement
         shall become fully vested and immediately exercisable and/or (ii) 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, as
         amended, 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 associated 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.
         If the Committee does not provide for accelerated vesting in an option
         or Stock Appreciation Rights agreement pursuant to this Subsection
         6.5(c)(3), such option and/or Stock Appreciation Right shall vest, if
         at all, solely in accordance with the terms of the agreement and the
         other terms of this Plan.

         6.6      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 notice in writing 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); or

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

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

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

         (b) The amount, as determined by the Committee, of any Federal, state
or local tax required to be withheld by the Company due to the exercise of a
stock option shall be satisfied by payment by the Optionee to the Company of the
amount of such withholding obligation in cash or other consideration acceptable
to the Committee in its sole discretion.

         (c) An Optionee shall not have any of the rights of a Shareholder of
the Company 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

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has been determined to be a Shareholder of record by the Company's transfer
agent, upon due exercise of the option.

         6.7 DATE OF A STOCK OPTION GRANT. The granting of a stock option
shall take place only upon the execution and delivery by the Company and an
Optionee of an option agreement. Neither any action taken by the Board nor
anything contained in the 1997 Flexible Plan or in any resolution adopted or
to be adopted by the Board or the Shareholders of the Company shall
constitute the granting of a stock option under the 1997 Flexible Plan.

7.       STOCK APPRECIATION RIGHTS

         7.1 GRANTS. The Committee may grant to any eligible employee either
Non-Tandem Stock Appreciation Rights or Tandem Stock Appreciation Rights.
Stock Appreciation Rights shall be subject to such terms and conditions as
the Committee shall impose. The grant of the Stock Appreciation Right may
provide that the holder may be paid for the value of the Stock Appreciation
Right either in cash or in Shares, or a combination thereof, at the
discretion of the Committee. 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 (i) either (a) in the case of a Tandem Stock
Appreciation Right, the difference between the Fair Market Value of a Share
on the date of exercise over the per share exercise price of the related
option, or (b) in the case of a Non-Tandem Stock Appreciation Right the
difference between the Fair Market Value of a Share on the date of exercise
over the Fair Market Value on the date of the grant by (ii) 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.

         7.2 EXERCISABILITY. 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. 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 Plan 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 market price of the
Shares subject to the related Incentive Stock Option at the time the Tandem
Stock Appreciation Right is exercised and (iv) may be exercised at, and only
at, such times as the market price of the Shares subject to the related
Incentive Stock Option exceeds the exercise price of the related Incentive
Stock Option. The Tandem Stock Appreciation Right may be transferred at, and
only at, the times and to the extent the related stock option is
transferable. 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.

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         7.3 CERTAIN LIMITATIONS ON NON-TANDEM STOCK, APPRECIATION RIGHTS. A
Non-Tandem Stock Appreciation Right will be exercisable as provided by the
Committee and will have such other terms and conditions as the Committee may
determine. A Non-Tandem Stock Appreciation Right is subject to acceleration
of vesting or immediate termination in certain circumstances in the same
manner as stock options pursuant to subsections 6.4 and 6.5 of the 1997
Flexible Plan.

         7.4 LIMITED STOCK APPRECIATION RIGHTS. The Committee is also
authorized to grant "Limited Stock Appreciation Rights," either as Tandem
Stock Appreciation Rights or Non-Tandem Stock Appreciation Rights. Limited
Stock Appreciation Rights would become exercisable only upon the occurrence
of a Change in Control or such other event as the Committee may designate at
the time of grant or thereafter.

8.       RESTRICTED STOCK

         8.1 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
grant. The terms and conditions of the Restricted Stock shall be specified by
the grant agreement. 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). 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. The Committee, in its
discretion, may prospectively change the restriction period and the
restrictions applicable to any particular Award of Restricted Stock. Unless
otherwise set forth in the 1997 Flexible Plan, Restricted Stock may not be
disposed of by the recipient until the restrictions specified in the Award
expire.

         8.2 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.

                                       11
<PAGE>

9.       PERFORMANCE AWARDS

         9.1 GRANTS. A Performance Award may consist of either or both, as
the Committee may determine, of (i) "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 (ii) "Performance
Units," or the right to receive a fixed dollar amount payable in cash, Common
Stock, Restricted Stock or any combination thereof, as the Committee may
determine. The Committee may grant Performance Awards to any eligible
employee, 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 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.

         9.2 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 of the
Company for a specified period of time, or the Company's performance or the
performance of its Common Stock 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.

10.      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

                                       12
<PAGE>

additional Dividend Equivalent Rights). Any such reinvestment shall be at the
Fair Market Value 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.

11.      OTHER AWARDS

         The Committee may grant to any eligible employee 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 1997
Flexible 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
grant.

12.      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 national securities exchange. 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.

13.      ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR REORGANIZATION

         The value of an Award in Shares 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, and the exercise price, 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.

                                       13
<PAGE>

         (b) Subject to any required action by Shareholders, if the Company
shall be the surviving corporation in any Reorganization, merger or
consolidation, 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 relating to an Award
hereunder shall not be inconsistent with the terms of any such plan or
agreement.

         (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 1997 Flexible Plan.

         To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board, whose
determination shall be final, binding and conclusive.

         Except as hereinbefore expressly provided in the 1997 Flexible 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 1997 Flexible 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.

14.      AMENDMENT OR TERMINATION OF THE 1997 FLEXIBLE PLAN

         14.1 AMENDMENT OF THE 1997 FLEXIBLE PLAN. Notwithstanding anything
contained in the 1997 Flexible Plan to the contrary, all provisions of the
1997 Flexible Plan may at any time or from time to time be modified or
amended by the Board; provided, however, that no Award at any time
outstanding under the 1997 Flexible Plan may be modified, impaired or
canceled adversely to the holder of the Award without the consent of such
holder; and provided, further, that the 1997 Flexible Plan may not be amended
without approval by the holders of a majority of the Shares of the Company
represented and voted at a meeting of the Shareholders (a) to increase the
maximum number of Shares subject to the 1997 Flexible Plan, (b) to materially
modify the requirements as to eligibility for participation in the 1997
Flexible Plan, (c) to decrease the minimum exercise price for options, (d) to
otherwise materially increase the benefits accruing to persons to whom Awards
may be made under the 1997 Flexible Plan, as amended, or (e) if such

                                       14
<PAGE>

approval is otherwise necessary, to comply with Rule 16b-3 promulgated under
the Exchange Act as amended, or to comply with any other applicable laws,
regulations or listing requirements, or to qualify for an exemption or
characterization that is deemed desirable by the Board.

         14.2 TERMINATION OF THE 1997 FLEXIBLE PLAN. The Board may suspend or
terminate the 1997 Flexible Plan at any time, and such suspension or
termination may be retroactive or prospective. However, no Award may be
granted on or after the tenth anniversary of the adoption of the 1997
Flexible Plan. Termination of the 1997 Flexible 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.

15.      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 1997 Flexible 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 13 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
1997 Flexible Plan. Any provision of the 1997 Flexible Plan or any agreement
regarding an Award to the contrary notwithstanding, 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 equal in value to
the Fair Market Value of such canceled Award. The determinations of value
under this Section 15 shall be made by the Committee in its sole discretion.

16.      GENERAL PROVISIONS

         16.1 NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained
in the 1997 Flexible 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.

         16.2 NO RIGHT TO EMPLOYMENT. Nothing in the 1997 Flexible Plan or in
any Award, nor the grant of any Award, shall confer upon or be construed as
giving any recipient of an Award any right to remain in the employ of the
Company. Further, the Company may at any time dismiss an Optionee in the 1997
Flexible Plan from employment, free from any liability or any claim under the
1997 Flexible Plan, unless otherwise expressly provided in the 1997 Flexible
Plan or in any Award agreement. No employee, Optionee or other person shall
have any claim to be granted any Award, and there is no obligation for
uniformity or treatment of employees, participants or holders or
beneficiaries of Awards.

                                       15
<PAGE>

         16.3 GOVERNING LAW. THE VALIDITY, CONSTRUCTION AND EFFECT OF THE
1997 FLEXIBLE PLAN AND ANY RULES AND REGULATIONS RELATING TO THE 1997
FLEXIBLE PLAN SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS.

         16.4 SEVERABILITY. If any provision of the 1997 Flexible 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 1997
Flexible 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 1997
Flexible Plan or the Award, such provision shall be stricken as to such
jurisdiction, person or Award and the remainder of the 1997 Flexible Plan and
any such Award shall remain in full force and effect.

         16.5 NO FRACTIONAL SHARES. No fractional Shares shall be issued or
delivered pursuant to the 1997 Flexible 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.

         16.6 HEADINGS. Headings are given to the subsections of the 1997
Flexible 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 1997 Flexible Plan or any provision thereof.

         16.7 EFFECTIVE DATE. The 1997 Flexible Plan shall be effective as of
June 1, 1997 after its approval by the holders of a majority of the Shares of
the Company represented and voting at the Annual Meeting of Shareholders to
be held May 22, 1997. If the 1997 Flexible Plan is not approved by the
Shareholders at the 1997 Annual Meeting, the 1997 Flexible Plan shall be null
and void.

         16.8 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 Awards other than Incentive Stock Options may be transferred
(i) by the holder to a family member, trust, charity, or similar organization
for estate planning purposes or (ii) with the approval of the Committee, as
directed under a qualified domestic relations order.

17.      NAMED EXECUTIVE OFFICERS

         17.1 APPLICABILITY OF SECTION 17. The provisions of this Section 17
shall apply only to those Executive Officers (i) whose compensation is
required to be reported in the Company's proxy statement pursuant to Item
402(a)(3)(i) and (ii) of Regulation S-K under the general rules and
regulations under the Exchange Act, as amended, and (ii) whose total
compensation, including estimated Awards, is determined by the Committee to
possibly be subject to the

                                       16
<PAGE>

limitations on deductions imposed by Section 162(m) of the Code ("Named
Executive Officers"). In the event of any inconsistencies between this
Section 17 and the other 1997 Flexible Plan provisions as they pertain to
Named Executive Officers, the provisions of this Section 17 shall control.

         17.2 ESTABLISHMENT OF PERFORMANCE GOALS. Awards for Named Executive
Officers, other than stock options and Stock Appreciation Rights, shall be
based on the attainment of certain performance goals. No later than the
earlier of (i) 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 (ii) 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 for Named Executive Officers. 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 compensation payable to the Named Executive Officer 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 paid to the subject Named Executive Officer. The
material terms of the performance goals for Named Executive Officers and the
compensation payable thereunder shall be submitted to the Shareholders of the
Company for their review and approval. Shareholder approval shall be obtained
for such performance goals prior to any Award being paid to such Named
Executive Officer. If the Shareholders do not approve such performance goals,
no amount shall be paid to such Named Executive Officer for such applicable
Award Period under the 1997 Flexible Plan. The disclosure of the "material
terms" of a performance goal and the compensation payable thereunder shall be
determined under the guidelines set forth under Section 162(m) of the Code,
and the Treasury Regulations thereunder.

         17.3 COMPONENTS OF AWARDS. Each Award to a Named Executive Officer,
other than stock options and Stock Appreciation Rights, shall be based on
performance goals which are sufficiently objective so that a third party
having knowledge of the relevant facts could determine whether the goal was
met. Except as provided in subsection 17.8 herein, performance measures which
may serve as determinants of Named Executive Officers Awards shall be limited
to the following measures: earnings per share; return on assets; return on
equity; return on capital; net profit after taxes; net profit before taxes;
economic value added; operating profits; stock price; market share; and sales
or expenses. Within ninety (90) days following the end of each Award Period,
the Committee shall certify in writing that the performance goals, and any
other material terms were satisfied. Thereafter, Awards shall be made for
each Named Executive Officer as determined by the Committee. The Awards may
not vary from the pre-established amount based on the level of achievement.

         17.4 NO MID-YEAR CHANGE IN AWARDS. Except as provided in subsections
17.8 and 17.9 herein, each Named Executive Officers Awards shall be based
exclusively on the performance measures established by the Committee pursuant
to subsection 17.2.

         17.5 NO PARTIAL AWARD PERIOD PARTICIPATION. A Named Executive
Officer who becomes eligible to participate in the 1997 Flexible Plan after
performance goals have been

                                       17
<PAGE>

established in an Award Period pursuant to subsection 17.2 may not
participation in the 1997 Flexible Plan prior to the next succeeding Award
Period, except with respect to Awards which are stock options or Stock
Appreciation Rights.

         17.6 PERFORMANCE GOALS. Except as provided in subsection 17.8
herein, performance goals shall not be changed following their establishment,
and Named Executive Officers shall not receive any payout, except with
respect to Awards which are stock options or Stock Appreciation Rights, when
the minimum performance goals are not met or exceeded.

         17.7 INDIVIDUAL PERFORMANCE AND DISCRETIONARY ADJUSTMENTS. Except as
provided in subsection 17.8 herein, subjective evaluations of individual
performance of Named Executive Officers shall not be reflected in their
Awards, other than Awards which are stock options or Stock Appreciation
Rights. The payment of such Awards shall be entirely dependent upon the
attainment of the pre-established performance goals.

         17.8 AMENDMENTS. No amendment of the 1997 Flexible Plan with respect
to any Named Executive Officer may be made which would (i) increase the
maximum amount that can be paid to any one Optionee under the 1997 Flexible
Plan, (ii) change the specified performance goal for payment of Awards, or
(iii) modify the requirements as to eligibility for participation in the 1997
Flexible Plan, unless the Company's Shareholders have first approved such
amendment in a manner which would permit the deduction under Section 162(m)
of the Code of such payment in the fiscal year it is paid. The Committee
shall amend this Section 17 and such other provisions as it deems
appropriate, to cause amounts payable to Named Executive Officers to satisfy
the requirements of Section 162(m) and the Treasury Regulations promulgated
thereunder. The maximum number of Shares (or cash equivalent value) with
respect to which stock options or Stock Appreciation Rights may be granted
hereunder to any Named Executive Officer during any calendar year may not
exceed 4,000,000 shares, subject to adjustment as provided in Section 13
hereunder.

                                       18<PAGE>

                          HCC INSURANCE HOLDINGS, INC.
                  1996 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN,
                            AS AMENDED AND RESTATED

1.  PURPOSE

         The HCC INSURANCE HOLDINGS, INC. 1996 NONEMPLOYEE DIRECTOR STOCK
OPTION PLAN (the "1996 Directors' Plan") is intended to promote the interest
of HCC Insurance Holdings, Inc., a Delaware corporation (the "Company"), and
its Shareholders by helping to award and retain highly-qualified independent
directors, and allowing them to develop a sense of proprietorship and
personal involvement in the development and financial success of the Company.
Accordingly, the Company shall grant to members of the Board of Directors
(the "Board") of the Company who are not employees of the Company or any of
its subsidiaries ("Nonemployee Directors") the option ("Option") to purchase
shares of the common stock of the Company ("Stock"), as hereinafter set
forth. Options granted under the 1996 Directors' Plan shall be options which
do not constitute incentive stock options, within the meaning of Section
422(b) of the Internal Revenue Code of 1986, as amended.

2.  OPTION AGREEMENTS

         Each Option shall be evidenced by a written agreement in the form
attached to the 1996 Directors' Plan.

3.  ELIGIBILITY OF OPTIONEE

         Options may be granted only to individuals who are Nonemployee
Directors of the Company. Each Nonemployee Director who was serving on the
Board of Directors of the Company on December 14, 1995, shall receive, as of
such date and without the exercise of the discretion of any person or
persons, an Option exercisable for 5,000 shares of Stock. Each individual
becoming a Nonemployee Director (a "New Member") after April 1, 1997, shall
on the date of his first election receive an option exercisable for 12,500
shares of Stock (the "New Member Grant"). Such new Member Grant shall be
provided from this 1996 Directors' Plan or from such other stock option plan
which the Company has in effect. Each individual who is a Nonemployee
Director as of the January 1 immediately following the date of the last
regularly scheduled Board of Directors meeting to be held in each calendar
year and without the exercise of the discretion of any person or persons,
will be granted an additional Option exercisable for 10,000 shares of Stock
(subject to adjustment in the same manner as provided in Paragraph VII hereof
with respect to shares of Stock subject to Options then outstanding). Such
Option shall be granted on the date determined by the Compensation Committee
of the Board, which date shall be within the period beginning ten (10)
trading days before such January 1 (or the immediately preceding December 31)
and ending ten (10) trading days after such January 1 (or the immediately
preceding December 31) (the date on which such Option is granted shall be
referred to herein as the "Date of Grant"). Such Option shall be granted on
the date determined by the Compensation Committee of the Board, which date
shall be within the period beginning ten (10) trading days before such
January 1 (or the immediately preceding December 31) and ending ten (10)
trading days after such January 1 (or the immediately preceding December 31)
(the date on which such Option is granted shall be referred to herein as the
"Date of Grant") If, as of any date that the 1996 Directors' Plan is in
effect, there are not sufficient shares of Stock available under the 1996
Directors' Plan to allow for the grant to each Nonemployee Director of an
Option for the number of shares provided herein, each Nonemployee Director
shall receive an Option for a prorata

<PAGE>

share of the total number of shares of Stock then available under the 1996
Directors' Plan. All Options granted under the 1996 Directors' Plan shall be
at the Option price set forth in Paragraph 5 hereof and shall be subject to
adjustment as provided in Paragraph 7 hereof.

4.  SHARES SUBJECT TO THE 1996 DIRECTORS' PLAN

         The aggregate number of shares which may be issued under Options
granted under the 1996 Directors' Plan shall not exceed 450,000 shares of
Stock. Such shares may consist of authorized but unissued shares of Stock or
previously issued shares of Stock reacquired by the Company. Any of such
shares which remain unissued and which are not subject to outstanding Options
at the termination of the 1996 Directors' Plan shall cease to be subject to
the 1996 Directors' Plan, but, until termination of the 1996 Directors' Plan,
the Company shall at all times make available a sufficient number of shares
to meet the requirements of the 1996 Directors' Plan. Should any Option
hereunder expire or terminate prior to its exercise in full, the shares
theretofore subject to such Option may again be subject to an Option granted
under the 1996 Directors' Plan. The aggregate number of shares which may be
issued under the 1996 Directors' Plan shall be subject to adjustment in the
same manner as provided in Paragraph 7 hereof with respect to shares of
Stock subject to Options then outstanding. Exercise of an Option shall result
in a decrease in the number of shares of Stock which may thereafter be
available, both for purposes of the 1996 Directors' Plan and for sale to any
one individual, by the number of shares as to which the Option is exercised.

5.  OPTION PRICE AND PERIOD

         The purchase price of Stock issued under each Option shall be the
closing trading price of the Company's Common Stock on the New York Stock
Exchange ("NYSE") or, if not traded on the NYSE, any other securities
exchange on which the Stock is traded, for, other than for a new Member
Grant, the Date of Grant (or the immediately preceding trading day if the
Date of Grant is not a trading day) and for a New Member Grant, the trading
day immediate preceding the New Member's election to the Board of Directors.
In the event the Stock is not publicly traded at the time a determination of
the purchase price is required to be made hereunder, the determination of the
purchase price shall be made by the Board in such manner as it deems
appropriate."

         Except as otherwise provided herein, each option and all rights or
obligations thereunder shall expire on the tenth anniversary of the grant
date (the "Expiration Date"), and shall be subject to earlier termination as
hereinafter provided.

6.  TERM OF 1996 DIRECTORS' PLAN

         The 1996 Directors' Plan shall be effective on the date the 1996
Directors' Plan is approved by the Shareholders of the Company. Except with
respect to Options then outstanding, if not sooner terminated under the
provisions of Paragraph 7, the 1996 Directors' Plan shall terminate upon and
no further Options shall be granted after December 31, 2001.

                                       -2-
<PAGE>

7.  RECAPITALIZATION OR REORGANIZATION

         (a) The existence of the 1996 Directors' Plan and the Options
granted hereunder shall not affect in any way the right or power of the Board
or the Shareholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's capital
structure or its business, any merger or consolidation of the Company, any
issue of debt or equity securities, the dissolution or liquidation of the
Company or any sale, lease, exchange or other disposition of all or any part
of its assets or business or any other corporate act or proceeding.

         (b) The shares with respect to which Options may be granted are
shares of Stock as presently constituted, but if, and whenever, prior to the
expiration of an Option theretofore granted, the Company shall effect a
subdivision or consolidation of shares of Stock or the payment of a stock
dividend on Stock without receipt of consideration by the Company, the number
of shares of Stock with respect to which such Option may thereafter be
exercised (i) in the event of an increase in the number of outstanding shares
shall be proportionately increased, and the purchase price per share shall be
proportionately reduced, and (ii) in the event of a reduction in the number
of outstanding shares shall be proportionately reduced, and the purchase
price per share shall be proportionately increased.

         (c) If the Company merges or consolidates with one or more
corporations and the Company shall be the surviving corporation, thereafter
upon any exercise of this Option the Grantee shall be entitled to purchase
under this Option, in lieu of the number of shares of Stock as to which
Option shall then be exercisable, the number and class of shares of stock and
securities to which the Grantee would have been entitled pursuant to the
terms of the agreement of merger or consolidation if, immediately prior to
such merger or consolidation, the Grantee had been the holder of record of
the number of shares of Stock as to which this Option is then exercisable. If
the Company shall not be the surviving corporation in any merger of
consolidation, or if the Company is dissolved or liquidated, this Option
shall expire on the effective date of such merger or consolidation or such
dissolution or liquidation; provided, that nothing herein shall preclude a
surviving corporation or other corporation into which stock of the Company
may be converted from assuming or substituting new options for the Option
granted hereunder, which assumption or substitution may be made without the
consent of the holder of this Option to such assumption, substitution, merger
or consolidation, and further provided that immediately prior to such
expiration, the entire number of shares of Stock for which this Option may be
exercised shall be accelerated so that Grantee shall have the opportunity to
exercise the entire unexpired portion of this Option prior to its expiration.
The Company agrees to give at least 30 days prior notice to Grantee of the
effective date of any such merger, consolidation, dissolution or liquidation.
If the Company is acquired by another entity, in any manner, so that
following such acquisition the Company is a subsidiary of another entity, the
Company shall be deemed to be not the surviving corporation for purposes of
this subparagraph (c).

         (d) If the Company recapitalizes or otherwise changes its capital
structure, thereafter upon any exercise of an Option theretofore granted the
optionee shall be entitled to purchase under such Option, in lieu of the
number and class of shares of Stock then covered by such Option, the number
and class of shares of stock and securities to which the optionee would have
been entitled pursuant to the terms of the recapitalization if, immediately
prior to such recapitalization, the optionee had been the holder of record of
the number of shares of Stock then covered by such Option.

         (e) Any adjustment provided for in Subparagraphs (b), (c) or (d)
above shall be subject to any required Shareholder action.

                                      -3-
<PAGE>

         (f) Except as hereinbefore expressly provided, the issuance by the
Company of shares of stock of any class or securities convertible into shares
of stock of any class, for cash, property, labor or services, upon direct
sale, upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of share or obligations of the Company convertible into such
shares or other securities, and in any case whether or not for fair value,
shall not affect, and no adjustment by reason thereof shall be made with
respect to, the number of shares of Stock subject to Options theretofore
granted or the purchase price per share.

8.  AMENDMENT OR TERMINATION OF THE 1996 DIRECTORS' PLAN

         The Board in its discretion may terminate the 1996 Directors' Plan
at any time with respect to any shares for which Options have not theretofore
been granted. The Board shall have the right to alter or amend the 1996
Directors' Plan or any part thereof from time to time; provided, that no
change in any Option theretofore granted may be made which would impair the
rights of the optionee without the consent of such optionee; and provided,
further, that the Board may not make any alteration or amendment which would
materially increase the benefits accruing to participants under the 1996
Directors' Plan, increase the aggregate number of shares which may be issued
pursuant to the provisions of the 1996 Directors' Plan, change the class of
individuals eligible to receive Options under the 1996 Directors' Plan or
extend the term of the 1996 Directors' Plan, without the approval of the
Shareholders of the Company.

9.  SECURITIES LAWS

         (a) The Company shall not be obligated to issue any Stock pursuant
to any Option granted under the 1996 Directors' Plan at any time when the
offering of the shares covered by such Option have not been registered under
the Securities Act of 1933, as amended, (the "Act") and such other state and
federal laws, rules or regulations as the Company deems applicable and, in
the opinion of legal counsel for the Company, there is no exemption from the
registration requirements of such laws, rules or regulations available for
the offering and sale of such shares.

         (b) It is intended that the 1996 Directors' Plan and any grant of an
Option made to a person subject to Section 16 of the Securities Exchange Act
of 1934, as amended (the "1934 Act"), meet all of the requirements of Rule
16b-3, as currently in effect or as hereinafter modified or amended ("Rule
16b-3"), promulgated under the 1934 Act. If any provision of the 1996
Directors' Plan or any such Option would disqualify the 1996 Directors' Plan
or such Option under, or would otherwise not comply with, Rule 16b-3, such
provision or Option shall be construed or deemed amended to conform to Rule
16b-3.

10.  VESTING AND EXERCISE OF OPTIONS

         (a) (i) Except as set forth herein, any Option granted hereunder
shall be fully exercisable on the first anniversary of the Date of Grant.

                  (ii) A New Member Grant shall also be fully exercisable on the
         first anniversary of the Date of Grant in the year such New Member is
         elected to the Board of Directors (without regard to the date a New
         Member was first elected to the Board of Directors).

         (b) The purchase price of the Stock purchased upon exercise of an
option shall be paid in full at the time of each exercise of an option and may
be paid to the Company, either:

                                      -4-
<PAGE>

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

         (2) by the delivery of Stock having a fair market value equal to the
aggregate Option price; or

         (3) by a combination of cash and Stock.

No options shall be exercisable except in respect of whole shares of Stock. Upon
exercise of an option, the person exercising the option shall be entitled to one
(1) stock certificate evidencing the shares acquired upon such exercise.

         (c) An option granted under the 1996 Directors' Plan shall, by its
terms, be nontransferable by the Nonemployee Director other than by will or
the laws of descent and distribution; provided that an option may be
transferred by the Nonemployee Director to a family member, trust, charity,
or similar organization for estate planning purposes. During the Nonemployee
Director's lifetime, the option shall be exercisable only by the Nonemployee
Director or by the Nonemployee Director's duly appointed guardian or personal
representative.

         (d) If the directorship of the Nonemployee Director is terminated
for any reason other than (i) Disability (as hereinafter defined) of the
Nonemployee Director, (ii) death of the Nonemployee Director, (iii)
Retirement (as hereinafter defined) of the Nonemployee Director, or (iv) on
account of any act of fraud or intentional misrepresentation or embezzlement,
misappropriation or conversion of assets or opportunities of the Company, or
cause as determined by the Board of Directors, an Option (to the extent
otherwise exercisable by the Nonemployee Director on the date of such
termination) shall be exercisable by the Nonemployee Director at any time
prior to the Expiration Date of the Option or within two (2) months after the
date of such termination of the directorship, whichever is the shorter period.

         (e) If the Nonemployee Director's directorship is terminated by
reason of Disability, an Option (whether or not exercisable on the date of
the Nonemployee Director's termination of directorship by reason of
Disability) shall be exercisable by the Nonemployee Director at any time
prior to the Expiration Date of the Option or within twelve (12) months after
the date of such termination, whichever is the shorter period. As used
herein, the term "Disability" shall mean the inability to engage in any
substantial gainful activity by reason of any medically determinable physical
or mental impairment which can be expected to last for a continuous period of
not less than twelve (12) months. The determination of whether or not a
Nonemployee Director's directorship is terminated by reason of Disability
shall be in the sole and absolute discretion of the Board. An individual
shall not be considered Disabled unless he furnishes proof of the existence
thereof in such form and manner, and at such times, as the Board may require.

         (f) If a Nonemployee Director dies while serving as a member of the
Board or during the twelve (12)-month period described in Subparagraph (e)
above, the Option shall be exercisable (whether or not exercisable on the
date of the death of such Nonemployee Director) by the person or persons
entitled to do so under the Nonemployee Director's will, or, if the
Nonemployee Director shall fail to make testamentary disposition of said
Option or shall die intestate, by the Nonemployee Director's legal
representative or representatives, at any time prior to the Expiration Date
of the Option or within twelve

                                      -5-
<PAGE>

(12) months after the date of such death, whichever is the shorter period. If
a Nonemployee Director dies during the two-month period described in
subsection (d) above, the option shall be exercisable as described above.

         (g) The option of a Nonemployee Director shall automatically
terminate as of the date his directorship is terminated, if the directorship
is terminated on account of any act of (i) fraud or intentional
misrepresentation, or (ii) embezzlement, misappropriation or conversion of
assets or opportunities of the Company or (iii) cause as determined by the
Board of Directors.

         (h) If the directorship of the Nonemployee Director is terminated by
reason of Retirement (as hereinafter defined), an Option (to the extent
otherwise exercisable by the Nonemployee Director on the date of exercise)
shall be exercisable by the Nonemployee Director at any time prior to the
Expiration Date of the Option or within twelve (12) months after the date of
such termination of the directorship, whichever is the shorter period. As
used herein, the term `Retirement' shall mean a voluntary election by the
Nonemployee Director to resign as a director or to cease to stand for
election as a director.

11.  MISCELLANEOUS

         (a) Nothing contained in this 1996 Directors' Plan (nor in any
option granted pursuant to this 1996 Directors' Plan) shall confer upon any
Nonemployee Director any right to continue as a member of the Board or
constitute any contract or agreement or interfere in any way with the right
of the Company to remove such Nonemployee Director from the Board. Nothing
contained herein or in any Option Agreement shall affect any other
contractual rights of a Nonemployee Director.

         (b) An option shall be deemed to be exercised when the Secretary of
the Company receives written notice of such exercise from the person entitled
to exercise the option together with payment of the purchase price made in
accordance with this 1996 Directors' Plan.

         (c) The holder of an option shall not be entitled to the privilege
of stock ownership as to any shares of Stock not actually issued and
delivered to the holder. Subject to the provisions of Paragraph 9. above,
upon exercise of an option for Stock at a time when there is not in effect
under the Act a registration statement relating to the Stock issuable upon
exercise thereof or not available for delivery a prospectus meeting the
requirements of Section 10 of the Act, the holder of the option shall
represent and warrant in writing to the Company that, inter alia, the shares
of Stock purchased are being acquired for investment and not with a view to
the resale or distribution thereof. No shares of Stock shall be issued upon
the exercise of any option unless and until there shall have been compliance
with any then applicable requirements of the Securities and Exchange
Commission, other regulatory agencies having jurisdiction and any exchanges
upon which securities subject to the option may be listed.

         (d) The 1996 Directors' Plan and the options issued hereunder shall
be governed by, and construed and enforced in accordance with, the laws of
the State of Delaware applicable to contracts made and performed within that
State.

         (e) The proceeds received by the Company from the sale of shares
pursuant to options shall be used for general corporate purposes.

         (f) The members of the Board shall not be liable for any act,
omission or determination taken or made in good faith with respect to the
1996 Directors' Plan or any option granted under it.

                                      -6-
<PAGE>

         (g) Any payment or any issuance or transfer of shares of Stock to
the Nonemployee Director, or to his legal representative, heir, legatee or
distributee, in accordance with the provisions hereof, shall, to the extent
thereof, be in full satisfaction of all claims of such persons hereunder. The
Board may require any Nonemployee Director, legal representative, heir,
legatee or distributee, as a condition precedent to such payment, to execute
a release and receipt therefor in such form as it shall determine.

         (h) Neither the Board nor the Company guarantees the Stock of the
Company from loss or depreciation.

         (i) All expenses incident to the administration or termination of
the 1996 Directors' Plan, including, but not limited to, legal and accounting
fees, shall be paid by the Company.

         (j) Records of the Company regarding the Nonemployee Director's
period of service, termination or service and the reason therefor, leaves of
absence, and other matters shall be conclusive for all purposes hereunder,
unless determined by the Board to be incorrect.

         (k) The Company shall, upon request or as may be specifically
required hereunder, furnish or cause to be furnished all of the information
or documentation which is necessary or required by the Board to perform its
duties and functions under the 1996 Directors' Plan.

         (l) The Company assumes no obligation or responsibility to the
Nonemployee Director or his or her personal representatives, heirs, legatees
or distributees for any act of, or failure to act on the part of the Board.

         (m) Any action required of the Company shall be by resolution of the
Board or by a person authorized to act by Board resolution.

         (n) If any provision of this 1996 Directors' Plan shall be held to
be illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining provisions hereof, but shall be fully severable and the
1996 Directors' Plan shall be construed and enforced as if the illegal or
invalid provision had never been included herein.

         (o) Whenever any notice is required or permitted hereunder, such
notice must be in writing and personally delivered or sent by mail. Any
notice required or permitted to be delivered hereunder shall be deemed to be
delivered on the date on which it is personally delivered in accordance
herewith. The Company or a Nonemployee Director may change, at any time and
from time to time, by written notice to the other, the address which it or he
had theretofore specified for receiving notices. Until it is changed in
accordance herewith, the Company and each Nonemployee Director shall specify
as its and his address for receiving notices the address set forth in the
Option Agreement pertaining to the shares to which such notice relates.

         (p) Any person entitled to notice hereunder may waive such notice.

         (q) The 1996 Directors' Plan shall be binding upon the Nonemployee
Director, his or her heirs, legatees and legal representatives, upon the
Company, its successors and assigns and upon the Board and its successors.

                                      -7-
<PAGE>

         (r) The titles and headings of sections and paragraphs are included
for convenience of reference only and are not to be considered in
construction of the provisions hereof.

         (s) Words used in the masculine shall apply to the feminine where
applicable and, wherever the context of this 1996 Directors' Plan dictates,
the plural shall be read as the singular and the singular as the plural.

                                      -8-

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