Document:

exv10w7

Exhibit 10.7

PROSPECTOR PARTNERS, LLC

INVESTMENT MANAGEMENT AGREEMENT

PROSPECTOR PARTNERS, LLC, a Delaware limited liability company (the “Adviser”), having an address
at 370 Church Street, Guilford, Connecticut 06437, and Symetra Financial Corporation, a Delaware
corporation (“Symetra”), having an address at 777 108th Avenue N.E., Suite 1200, Bellevue, WA
98004-5135, hereby enter into this Investment Management Agreement, effective as of July 1, 2010
(this “Agreement”), and hereby agree that the Adviser shall act as discretionary adviser with
respect to the specified assets of Symetra and/or each of its subsidiaries who are signatories to
this Agreement (each, a “Client”) on the following terms and conditions:

	 	1)	 	Investment Accounts. The investment account of each Client (each an
“Investment Account”) shall consist of cash and securities in an amount equal to at least
$50,000,000 (the “Minimum Account Amount”), or such other amount as may be agreed to by
the Adviser, initially furnished by the Client for investment pursuant to this Agreement,
as well as all other assets which become part of each Investment Account as a result of
trading therein or additions thereto, except for amounts withdrawn therefrom and paid to
the Client. Each Client may make additions to the Investment Account in amounts exceeding
$100,000, or in such other amount as may be agreed to by the Adviser; provided that the
Adviser shall have received prompt written notice of such additions. Each Client may make
withdrawals from its Investment Account in such amounts as it shall determine upon not
less than 30 days prior written notice thereof to the Adviser and provided that the
withdrawal shall not cause the assets in the Investment Account to fall below the Minimum
Account Amount, unless otherwise agreed to by the Adviser.
	 
	 	2)	 	Services of Adviser. By execution of this Agreement the Adviser accepts
appointment as adviser for each Investment Account with full discretion and agrees to
supervise and direct the investments of each Investment Account in accordance with the
investment objective, policies and restrictions attached hereto as Schedule 1, and as may
be modified from time to time (“Investment Guidelines”). Adviser acknowledges that
Clients are bound by state insurance laws regarding permissible investments and Clients’
own adopted Statement of Investment Policy, including any Addendums, attached hereto as
Schedule 2, and as may be modified from time to time, applicable to Clients’ aggregate
investable assets (the “Investment Policy”). Adviser has read the Investment Policy and
understands that Clients’ Investment Guidelines, to be furnished to Adviser from time to
time, will not deviate from the Investment Policy but will only summarize the provisions
and limitations applicable to each Investment Account. In the performance of its
services, the Adviser will not be liable for any error in judgment or any acts or
omissions to act except those resulting from the Adviser’s gross negligence, willful
misconduct or malfeasance. Nothing herein shall in any way constitute a waiver or
limitation of any right of any person under the federal securities laws. The Adviser
shall have no responsibility whatsoever for the management of any assets of Clients other
than such entities’ Investment Account.

 

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	 	3)	 	Discretionary Authority. Subject to the Investment Guidelines, the Adviser
shall have full discretion and authority, without obtaining any prior approval, as the
Client’s agent and attorney-in-fact: (a) to make all investment decisions in respect of
each Investment Account on the Client’s behalf and at the sole risk of the Client; (b) to
buy, sell, exchange, convert, liquidate or otherwise trade in any stock, bond and other
securities or financial instruments in respect of each Investment Account; (c) to place
orders with respect to, and to arrange for, any of the foregoing; and (d) in furtherance
of the foregoing, to do anything which the Adviser shall deem requisite, appropriate or
advisable in connection therewith, including, without limitation, the selection of such
brokers, dealers, and others as the Adviser shall determine in its absolute discretion.
	 
	 	4)	 	Custody. The assets of each Investment Account shall be held in one or more
separately identified accounts in the custody of one or more banks, trust companies,
brokerage firms or other entities designated by the Client and acceptable to the Adviser.
The Adviser will communicate its investment purchase, sale and delivery instructions
directly with the party identified by the Client or other qualified depositories. The
Client shall be responsible for all custodial arrangements and the payment of all
custodial charges and fees, and the Adviser shall have no responsibility or liability with
respect to custody arrangements or the acts, omissions or other conduct of the custodians.
	 
	 	5)	 	Brokerage. When placing orders for the execution of transactions for an
Investment Account, the Adviser may allocate all transactions to such brokers or dealers,
for execution on such markets, at such prices and commission rates, as are selected by the
Adviser in its sole discretion. In selecting brokers or dealers to execute transactions,
the Adviser need not solicit competitive bids and does not have an obligation to seek the
lowest available commission cost. It is not the Adviser’s practice to negotiate
“execution only” commission rates, and, in negotiating commission rates, the Adviser shall
take into account the financial stability and reputation of brokerage firms and brokerage
and research services provided by such brokers. An Investment Account may be deemed to be
paying for research provided or paid for by the broker which is included in the commission
rate although the Investment Account may not, in any particular instance, be the direct or
indirect beneficiary of the research services provided. Research furnished by brokers may
include, but is not limited to, written information and analyses concerning specific
securities, companies or sectors; market, finance and economic studies and forecasts;
financial publications; statistics and pricing services; discussions with research
personnel; and software and data bases utilized in the investment management process.
Symetra acknowledges on behalf of each Client that since commission rates are generally
negotiable, selecting brokers on the basis of considerations which are not limited to
applicable commission rates may at times result in higher transaction costs than would
otherwise be obtainable. The Adviser is hereby authorized to, and Symetra acknowledges on
behalf of each Client that the Adviser may aggregate orders on behalf of each Investment
Account with orders on behalf of other clients of the Adviser. In such event, allocation
of the securities purchased or sold, as well as expenses incurred in the transaction,
shall be made in a manner which the

 

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	 	 	 	Adviser considers to be the most fair and equitable to all of its clients, including the
Clients.

	 	6)	 	Representations and Warranties

	 	a)	 	Symetra represents, warrants and agrees that:

	 	i)	 	it has full legal power and authority to enter into this Agreement;
	 
	 	ii)	 	the appointment of the Adviser hereunder is permitted by each Client’s
governing documents and any investment management agreement between Symetra and
the Clients to this Agreement and has been duly authorized by all necessary
corporate or other action; and
	 
	 	iii)	 	it will indemnify the Adviser and hold it harmless against any and all
losses, costs, claims and liabilities which the Adviser may suffer or incur arising
out of any material breach of these representations and warranties of Symetra.

	 	b)	 	The Adviser represents, warrants and agrees that:

	 	i)	 	it has full legal power and authority to enter into this Agreement;
	 
	 	ii)	 	it is registered as an investment adviser with the Securities and
Exchange Commission pursuant to the Investment Advisers Act of 1940, as amended
(the “Advisers Act”);
	 
	 	iii)	 	entering into this Agreement has been duly authorized by all necessary
action; and
	 
	 	iv)	 	it will indemnify Symetra and hold it harmless against any and all
losses, costs, claims and liabilities which Symetra or any Client may suffer or
incur arising out of any material breach of any representations and warranties of
the Adviser.

	 	7)	 	Reports. The Adviser shall provide Symetra with reports containing the
status of the Investment Account at least monthly (i.e. “Flash Report”), and will provide
written advisory report letters on a quarterly basis. All records maintained pursuant to
this Agreement shall be subject to examination by Symetra and by persons authorized by it,
or by appropriate governmental authorities, at all times upon reasonable notice. The
Adviser shall provide copies of trade tickets, custodial reports and other records Symetra
reasonably requires for accounting, tax, regulatory, or audit purposes.
	 
	 	8)	 	Management Fee and Expenses

	 	a)	 	The Adviser will be paid a quarterly management fee (the “Management Fee”) for
its investment advisory services provided hereunder, determined in accordance with
Exhibit A to this Agreement. During the term of this Agreement, the Management Fee
shall be billed and payable in arrears on a quarterly basis within 10 days after the

 

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	 	 	 	last day of each calendar quarter based upon the value of the Investment Accounts as of
the last day of the immediately preceding calendar quarter, and showing that portion of
the Management Fee attributable to each Investment Account. The Management Fee shall be
pro-rated for any partial quarter. It is understood that, in the event that the
Management Fee is to be paid by the custodian out of the Investment Accounts, Symetra or
the Clients will provide written authorization to the custodian to pay the Management
Fee directly from the Investment Accounts.
	 
	 	b)	 	Each Investment Account shall be responsible for all expenses incurred directly
in connection with transactions effected on behalf of the Investment Account pursuant
to this Agreement and shall include: custodial fees; PAM accounting service fees,
investment expenses such as commissions; Infomediary transactions fees and other
expenses reasonably related to the purchase, sale or transmittal of Investment Account
assets (other than research fees and expenses with respect to the Investment Account).

	 	9)	 	Confidential Relationship.

	 	a)	 	The Parties hereby agree that all of the information provided to Symetra by the
Adviser and to the Adviser by Symetra shall be considered proprietary and confidential
in nature (hereinafter, the “Confidential Information”) and, as such, shall not be
disclosed or revealed or caused to be disclosed or revealed, in any manner, to any
non-party to this Agreement, except:

	 	i)	 	as may be required by law or any judicial, regulatory or
self-regulatory authority (including without limitation any required filing with
the SEC or any state insurance regulator), provided that notice of any such
disclosure is at the time sent to the other party, except that no notice will be
required for routine SEC or department of insurance filings,
	 
	 	ii)	 	as either party may consent to specifically in advance in writing;
provided, however, that
	 
	 	iii)	 	any such Confidential Information may be disclosed to each party’s
officers, directors, employees, consultants, contractors, advisors, and fiduciaries
(“Representatives”) who need to know such information in order to carry out the
purpose of the disclosure and so long as they agree to keep it confidential;
	 
	 	iv)	 	“Confidential Information” does not include any information which (A)
is or subsequently becomes published or available to the public other than by
breach of this Agreement, (B) is received by receiving party from a non-party not
in breach of any obligation of confidentiality, (C) is independently developed by
receiving party, or (D) was in receiving party’s possession or known to receiving
party before disclosing party disclosed it to receiving party; and
	 
	 	v)	 	Adviser Confidential Information does not include the identification of
Symetra

 

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	 	 	 	as a Client or a Client’s investments as of a given point in time (which is
consistent with (iv) (A) above).

	 	b)	 	Symetra agrees that:

	 	i)	 	Adviser may disclose that Symetra (and each of the Clients) is a client
of the Adviser and to the inclusion of Symetra on a list of representative clients
of the Adviser or in other marketing materials;
	 
	 	ii)	 	Adviser shall be permitted to retain copies of all documentation
necessary under the Advisers Act to support the track record or otherwise required
to be retained under the Advisers Act and related rules, but only for such period
as required to be retained; and
	 
	 	iii)	 	Symetra shall not allow the Confidential Information to be used to
purchase, sell, trade or invest in any securities, instruments or other investments
owned by the Account without obtaining the prior written consent of the Adviser,
unless such consent is impossible or impractical due to an event of force majeure
that interferes with Adviser’s performance under this Agreement; and further
acknowledges that:
	 
	 	iv)	 	the provisions of (b) are reasonable and necessary for the protection
of the Adviser and its affiliates, and
	 
	 	v)	 	the Adviser or its affiliates will be irrevocably damaged if the
covenants herein are not specifically enforced and, accordingly, Symetra hereby
further agrees that, in addition to any other relief or remedies available to the
Adviser, the Adviser shall be entitled to seek and obtain an appropriate injunction
or other equitable remedy from a court with proper jurisdiction for the purposes of
restraining Symetra from any actual or threatened breach of such covenant, and no
bond or security will be required in connection therewith. In any event, Symetra
shall be responsible for any breach of this Agreement by any of Symetra’s
Representatives, and Symetra agrees, at its sole expense, to take all reasonable
measures (including, without limitation, court proceedings) to restrain its
Representatives from prohibited or unauthorized disclosure or use of the
Confidential Information or any other breach of the terms of this Agreement.

	 	c)	 	Adviser agrees that:

	 	i)	 	Symetra shall be permitted to report the Investment Track Record (on a
stand-alone basis, as part of its total portfolio return or otherwise) with respect
to the Investment Accounts in any internal or external reports of it or its
affiliates; and
	 
	 	ii)	 	Symetra and/or its affiliates will be irrevocably damaged if the
covenants herein are not specifically enforced and, accordingly, Adviser hereby
further agrees that, in addition to any other relief or remedies available to
Symetra, Symetra shall be

 

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	 	 	 	entitled to seek and obtain an appropriate injunction or other equitable remedy from
a court with proper jurisdiction for the purposes of restraining Adviser from any
actual or threatened breach of such covenant, and no bond or security will be
required in connection therewith. In any event, Adviser shall be responsible for
any breach of this Agreement by any of its Representatives, and Adviser agrees, at
its sole expense, to take all reasonable measures (including, without limitation,
court proceedings) to restrain its Representatives from prohibited or unauthorized
disclosure or use of the Confidential Information or any other breach of the terms
of this Agreement.

	 	10)	 	Non-Assignability. No “assignment”, as that term is defined in the Advisers
Act, of this Agreement shall be made by the Adviser or Symetra without the written consent
of the other party.
	 
	 	11)	 	Directions to the Adviser. All directions by Symetra by or on behalf of the
Clients to the Adviser shall be in writing signed by or on behalf of Symetra. The Adviser
shall be fully protected in relying upon any such writing which the Adviser believes to be
genuine and signed or presented by the proper person or persons, shall be under no duty to
make any investigation or inquiry as to any statement contained therein and may accept the
same as conclusive evidence of the truth and accuracy of the statements therein contained.
	 
	 	12)	 	Consultation with Counsel. The Adviser may consult with legal counsel (who
may be counsel to Symetra) concerning any question that may arise with reference to its
duties under this Agreement, and the opinion of such counsel shall be full and complete
protection in respect of any action taken or omitted by the Adviser hereunder in good
faith and in accordance with such opinion.
	 
	 	13)	 	Services to Other Clients. It is understood that the Adviser acts as
investment adviser to other clients and may give advice and take action with respect to
such clients that differs from the advice given or the action taken with respect to the
Investment Accounts. Nothing in this Agreement shall restrict the right of the Adviser,
its members, managers, officers, employees or affiliates to perform investment management
or advisory services for any other person or entity, and the performance of such service
for others shall not be deemed to violate or give rise to any duty or obligation to the
Client.
	 
	 	14)	 	Investment by the Adviser for Its Own Account. Nothing in this Agreement
shall limit or restrict the Adviser or any of its members, managers, officers, employees
or affiliates from buying, selling or trading any securities for its or their own account
or accounts. Symetra on behalf of each Client acknowledges that the Adviser and its
members, managers, officers, employees, affiliates and other clients may at any time have,
acquire, increase, decrease or dispose of securities which are at or about the same time
acquired or disposed of for the account of a Client. The Adviser shall have no obligation
to purchase or sell for the Investment Accounts or to recommend for purchase or sale by
the Investment Accounts any security that the Adviser or its members, managers,

 

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	 	 	 	officers, employees or affiliates may purchase or sell for itself or themselves or for any
other client.
	 
	 	15)	 	Proxies. Subject to any other written instructions of Symetra, the Adviser
is hereby appointed Symetra’s agent and attorney-in-fact in its discretion to vote,
convert or tender in an exchange or tender offer any securities in the Investment
Accounts, to execute proxies, waivers, consents and other instruments with respect to such
securities, to endorse, transfer or deliver such securities and to participate in or
consent to any plan of reorganization, merger, combination, consolidation, liquidation or
similar plan with reference to such securities.
	 
	 	16)	 	Sarbanes-Oxley Compliance. Symetra is subject to certain regulations (“SOX”)
that require management to assess the effectiveness of its internal controls over
financial reporting and state in its annual report whether such internal controls are
effective. Because Adviser will perform trading execution functions for Symetra’s
Investment Accounts as described in this Agreement, certain procedures performed by
Adviser are relevant to Symetra’s evaluation of its internal controls. Having
acknowledged the foregoing, Adviser agrees to cooperate with Symetra as reasonably
necessary to facilitate Symetra’s ability to comply with its regulatory obligations.
	 
	 	17)	 	Operational Audits. Upon Symetra’s request, but no more often than once
annually except (a) as necessary for Symetra or Client to respond to any regulatory
requirement or inquiry, or (b) as deemed reasonably necessary by Symetra as a result of
Symetra’s good faith belief that Adviser has breached any of its obligations hereunder,
Adviser shall allow Symetra and/or any independent third party (“Third Party
Representatives”) selected by Symetra to perform operational audits with respect to
Adviser’s performance of its obligations hereunder. Adviser shall grant Symetra and its
Third Party Representatives access to Adviser’s facilities, personnel, and all books,
records and other documents of Adviser related to trade execution it performs for Symetra
under this Agreement (not otherwise provided under section 7) (“Documentation”) as may be
required in order for Symetra to ascertain that trades (i) are conducted by authorized
personnel, (ii) are completed, and (iii) reconcile to the accounting and custody records
of Symetra and its other service providers, and such other facts relative to Adviser’s
performance hereunder. Symetra acknowledges that to the extent such Documentation
contains aggregated data for multiple clients of Adviser, Adviser may redact certain
information contained in the Documentation as reasonably necessary to meet its
confidential obligations to other clients. Adviser shall provide Symetra, or its Third
Party Representatives, such information and assistance as requested in order to perform
such audits, including access to Adviser’s personnel to explain the control environment by
means of operational walk throughs or other means; provided, however, that the Parties
shall endeavor to arrange such assistance in such a way that it does not interfere with
Adviser’s performance of the Agreement. Notwithstanding anything to the contrary in
section 17, no amendment to this Agreement shall be required where the Parties mutually
agree to change the scope of audits under this section to permit Symetra to comply with
SOX and related laws as enacted or amended from time to time.

 

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	 	18)	 	Notices. All notices and instructions with respect to securities
transactions or any other matters contemplated by this Agreement shall be deemed duly
given when delivered in writing or deposited by first-class mail to the following
addresses: (a) if to the Adviser, at its address set forth above, Attention: Peter N.
Perugini, CFO, or (b) if to Symetra, at its address set forth above, Attention: Margaret
Meister, CFO. The Adviser or the Client may change its address or specify a different
manner of addressing itself by giving notice of such change in writing to the other party.
	 
	 	19)	 	Entire Agreement; Amendment. This Agreement sets forth the entire agreement
of the parties with respect to management of the Investment Account and shall not be
amended except by an instrument in writing signed by the parties hereto.
	 
	 	20)	 	Termination. This Agreement shall continue in force from the date hereof for
an initial fixed term of three years (“initial term”), which may be extended by Symetra in
its sole discretion for an additional one year (“fourth year extension”) at/prior to the
end of the second year of the initial term, and if so extended, then, again in Symetra’s
sole discretion, for an additional year (“fifth year extension”) at/prior to the end of
the initial term. Notwithstanding the foregoing, during the initial term and any
extensions, this Agreement shall be terminable without penalty by Symetra upon written
notice to the Adviser at least thirty (30) days prior to the date upon which such
termination is to become effective (i) for cause (including material non-performance by
the Adviser), (ii) if either John Gillespie or Richard Howard are no-longer affiliated
with the Adviser, or (iii) if there is a change in control of the Adviser. Following the
end of the initial term and any extensions, this Agreement may be terminated without
penalty by either party on 60 days written notice. Each Client shall honor any trades
executed but not settled before the date of any termination under this Agreement. The fee
for the calendar quarter during which any termination of this Agreement shall occur shall
be paid as of the date of termination and prorated if the effective date does not coincide
with the end of the quarter.
	 
	 	21)	 	Governing Law. To the extent that the interpretation or effect of this
Agreement shall depend on state law, this Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut.
	 
	 	22)	 	Effective Date. This Agreement shall become effective on the date first
written above.
	 
	 	23)	 	Receipt of Disclosure Statement. Symetra acknowledges receipt of a copy of
Part II of the Adviser’s Form ADV in compliance with Rule 204-3(b) under the Advisers Act
more than 48 hours prior to the date of execution of this Agreement. The Adviser shall
annually and without charge, upon request by Symetra, deliver to Symetra the current
version of such form or a written document containing at least the information then
required to be contained in such form.
	 
	 	24)	 	Counterparts. This Agreement may be executed in two counterparts, each one
of which shall be deemed to be an original.

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their
respective duly authorized representatives as of the date first written above.

	 	 	 
	ADVISER:

	 	CLIENT:
	 
	 	 
	PROSPECTOR PARTNERS, LLC

	 	SYMETRA FINANCIAL CORPORATION
	 
	 	 
	By:  /s/ John D. Gillespie

	 	By:  /s/ Margaret A. Meister
	 
	 	 
	John D. Gillespie

	 	Margaret A. Meister
	 
	 	 
	Title: Managing Member

	 	Executive Vice President, Chief Financial 
Officer
	 
	 	 
	Date: June 29, 2010

	 	Date: 06/29/2010
	 
	 	 
	 

	 	 
	 
	 

	 	SYMETRA LIFE INSURANCE COMPANY
	 
	 	 
	 

	 	By: /s/ Margaret A. Meister
	 
	 	 
	 

	 	Margaret A. Meister
	 
	 	 
	 

	 	Executive Vice President, Chief Financial Officer
	 
	 	 
	 

	 	Date: 06/29/2010
	 
	 	 
	 

	 	 

 

 

EXHIBIT A

FEE SCHEDULE TO THE INVESTMENT MANAGEMENT AGREEMENT,

EFFECTIVE JULY 1, 2010 BETWEEN PROSPECTOR PARTNERS, L.L.C. AND

SYMETRA FINANCIAL CORPORATION

     Each term used in this Exhibit A but not defined herein shall have the meaning assigned to
that term in the Investment Management Agreement, effective July 1, 2010 (the “Agreement”), between
Symetra Financial Corporation (“Symetra”) and Prospector Partners, L.L.C., the adviser (the
“Adviser”).

          1. The Adviser shall be paid a Management Fee (pro rated for periods less than a
full calendar quarter) computed in accordance with the table below based on the value of the
aggregate net assets (including cash and cash equivalents) of all Investment Accounts and the net
assets of each Client (such collective aggregate net assets shall be referred to as the “Aggregate
Net Assets”), determined in accordance with paragraph Section 2 below. Each Client will bear and
be billed its proportionate share of the Management Fee.

	 	 	 	 	 	 	 	 	 
	Aggregate Net Assets	 	Annual Fee	 	Quarterly Fee
	Up to $200 million
	 	100 basis points	 	25 basis points
	 
	 	(1.00% or 0.0100)	 	(0.25% or 0.00250)
	 
	 	 	 	 	 	 	 	 
	Greater than $200 million
	 	50 basis points	 	12.50 basis points

          2. For all purposes under the Agreement, including the determination of the
Management Fee, the market value of securities shall be as follows: securities that are listed on a
national securities exchange shall be valued at their last sales price on the date of determination
and securities that are not so listed shall be valued at their last sales price on the date of
determination, or if no sales of such securities occurred on the date of determination, such
securities shall be valued at the last “bid” price at the close of business on such day (or if sold
short at the last “asked” price at the close of business on such day) quoted by the National

 

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Association of Securities Dealers, Inc.’s Automatic Quotation System or, if not quoted on such
system, by one of the principal market makers in such securities selected by the Adviser.
Notwithstanding the foregoing, if the securities to be valued constitute a block which, in the
judgment of the Adviser, could not be liquidated in a reasonable time without depressing the
market, such block shall then be valued by the Adviser but not at a unit value in excess of the
quoted market price for such security. All other assets of the Investment Accounts shall be
assigned such value as the Adviser may reasonably determine.

 

 

Schedule 1

TO INVESTMENT MANAGEMENT AGREEMENT, EFFECTIVE JULY 1, 2010

BETWEEN PROSPECTOR PARTNERS, L.L.C. AND SYMETRA FINANCIAL

CORPORATION

Investment Guidelines

Investment Objective

The Adviser’s objective is to achieve consistent positive returns and to maximize long-term total
returns within prudent levels of risk through capital appreciation on a diversified portfolio of
investments.

Performance Objectives

The Adviser will report to Symetra on a quarterly basis to review the Adviser’s total investment
performance. It is understood that there are likely to be short-term periods during which
performance deviates from market indices. During such times, greater emphasis shall be placed on
performance comparisons with investment managers employing similar styles. The overall performance
of the Adviser’s Investment Accounts will be measured by referencing broad equity market indices
over a 3-year rolling period.

Guidelines

The Adviser must remain a registered adviser under the Investment Advisors Act of 1940. Whenever
these guidelines contain a limitation expressed as a percentage of the portfolio assets, that
percentage shall be measured solely with reference to the assets that are under the Adviser’s
control. Subject to these guidelines, the Adviser shall have full discretion, subject to Symetra’s
written notice of limitation constraints, to manage each Investment Account’s assets.

	 	1)	 	The Adviser may not purchase securities on margin, sell short, or enter into derivative
transactions in an Investment Account without the written consent of Symetra.
	 
	 	2)	 	The Adviser may purchase Rule 144A securities provided such securities are judged by
the Adviser to be liquid and do not in the aggregate exceed 20% of the market value of each
Investment Account. The Adviser shall also be able to purchase securities if such
securities are convertible into publicly traded securities.
	 
	 	3)	 	At least 95% of each Investment Account will consist of securities of companies having
a market capitalization of $100 million or greater.
	 
	 	4)	 	Each Investment Account may include domestic and non-domestic securities (common
stocks, bonds, securities that are convertible to common stocks, preferred stocks, warrants
and rights to subscribe to common stocks) that are listed on registered exchanges or
actively traded in the over-the-counter market.

 

 

	 	5)	 	Issuers of securities located in countries other than the United States, including
emerging market countries, shall not exceed 40% of the market value of each Investment
Account.
	 
	 	6)	 	In terms of diversification, investments shall be allocated with the intent to minimize
the risk of large losses to each Investment Account. The maximum total investment in any
one security shall be limited to 10% of an Investment Account at the time of purchase, and
25% of the market value of such Investment Account.
	 
	 	7)	 	If the aggregate investment in an Investment Account of the equity securities of any
one company exceeds 5% of that company’s outstanding shares of all classes of stock of that
issuer, the Adviser will notify Symetra.

Additional State Law Guidelines for Insurance Company Investment Accounts

	 	1)	 	Investment in preferred stock with voting rights plus common stock in the same issuer
is limited to 15% of the issuer’s outstanding shares having voting rights.
	 
	 	2)	 	Investment is limited to 10% of the outstanding common stock of the same issuer.
	 
	 	3)	 	No investment in the securities issued by an insolvent corporation is permitted. For
purposes of this section 3, “insolvent corporation” is a corporation for which bankruptcy,
receivership, insolvency, reorganization or other similar proceedings have been instituted
by or against such corporation under any section or chapter of the United States Bankruptcy
Code, as amended, or under any similar laws or statutes of the United States (or any state
thereof).

 

 

SECURITIES LENDING PROGRAM

First Symetra National Life Insurance Company of New York, Symetra Life Insurance Company, and
Symetra National Life Insurance Company (collectively “the Companies”) have adopted this Securities
Lending Program to supplement the Companies’ Statement of Investment Policy. The Companies and
their agents will adhere to the following procedures under the Program to govern their securities
lending practices:

(1) The Companies shall receive collateral having a fair value as of the transaction date at least
equal to 102 percent (or as otherwise established by the Statements of Statutory Accounting
Principles (“SSAP”)) of the fair value of the loaned securities at that date. If at any time the
fair value of the collateral is less than 100 percent of the fair value of the loaned securities,
the counterparty shall be obligated to deliver additional collateral, the fair value of which,
together with the fair value of all collateral then held in connection with the transaction at
least equals 102 percent (or as otherwise established by the SSAP) of the fair value of the loaned
securities. The collateral may consist of cash, letters of credit from authorized banks, or
securities issued or guaranteed by the United States government or one of its agencies or
instrumentalities, or any combination thereof. The collateral will be received by the Companies’
custodian concurrently with delivery of the loaned securities and kept in a segregated account.
The Companies will monitor collateral levels via reports provided by the custodian on a monthly
basis. Any non-compliance issues will be elevated to the Chief Financial Officer or his designee
and to the custodian for corrective action.

(2) Loans may be made only to reputable borrowers that, in the Companies’ opinion, are of sound
financial condition. The custodian will maintain a list of approved borrowers and will monitor the
creditworthiness of such approved borrowers on an on-going basis. The Companies will obtain an
updated borrower list on a quarterly basis. Any deletions required will be communicated to the
custodian using the agreed upon methodology as outlined in the agreement.

(3) No loan of securities may be made to any borrower if, within the meaning of the Insurance
Company Holding Act, such borrower would be an affiliated person of the Companies.

(4) Loans must be callable at any time. If a loan is terminated by the Companies, the borrower must
return the loaned securities within five business days. If the borrower fails to deliver the loaned
securities within five days after receipt of notice of termination, the Companies may use the
collateral to replace the securities and hold the borrower liable for the excess of replacement
cost exceeding the collateral.

(5) The Companies may pay fees to a lending agent or other intermediary for the following: (a)
reasonable custodial fees; and (b) fees for the arranging of portfolio loans, provided that the
Companies have determined in each case that the fee is reasonable and based solely on the services
rendered. In addition, the Companies must receive a reasonable fee for lending their securities.

(6) Loans of securities must be made pursuant to written contracts which have been approved and
executed on behalf of each Company by a duly authorized officer and which are designed to assure
that these procedures will be complied with in connection with such loans. Information concerning
each loan will be provided by the custodian upon request.

(7) The Companies’ board will periodically review lending activities affecting the Companies’
portfolios.

Board of Directors’ Approval:

SFC: 8/24/2004

SLIC and SNLIC: 12/6/2004

FSNLIC: 4/8/2005

 

 

Schedule 2

Statement of Investment Policy

Symetra Financial

Overview

This investment policy and its associated guidelines apply in aggregate to the investable general
account and guaranteed separate account assets of Symetra Financial Corporation and its
subsidiaries (“Symetra Financial”). These guidelines are established by the boards of directors,
or their designated committees, of Symetra Financial companies. These guidelines should be used in
conjunction with any specific supplementary guidelines established for each major business line, as
well as any additional investment guidelines for certain separate account contracts (e.g. BOLI).
Any deviations from these guidelines must be approved by the appropriate company’s board of
directors or by its designee and reported to the Symetra Financial Corporation board of directors
quarterly.

Investment Objective

Support optimizing the economic value of the company across a broad range of interest rate and
economic environments, while complying with applicable regulations, management initiatives and
rating agency requirements.

The management of the portfolio will be primarily driven by asset/liability management, regulatory
and general management considerations rather than total return benchmarks or other measures.
However, to aid in the assessment of investment performance, the total return for the overall
portfolio will be compared over multiple timeframes with relevant customized benchmarks having
duration and yield characteristics consistent with the liabilities.

Duration/Convexity

Duration and convexity management are particularly important for liabilities with cash flows that
can not be adjusted to reflect investment experience, but whose profitability is driven by the net
interest spread (“fixed liabilities”). For example, fixed liabilities include structured
settlements, income annuities, and fixed annuities with a set crediting rate for a specified period
of time (not including annuities with regular credited rate resets). Many other Retirement
Services and Life liabilities require less precise, although still fairly constrained, duration and
convexity characteristics. Many of these other liabilities have regular credited rate resets,
minimum credited rate guarantees as well as the option to withdraw the cash value at book value,
with or without a fixed surrender charge.

For fixed liabilities (defined above) other than the very long duration structured
settlements/income annuities, the effective asset duration should be within +/- 0.5 of the
effective liability duration. For parallel yield curve shocks of +/- 1%, this difference should be
no more than +/- 0.75. Larger parallel yield curve shocks will also be monitored for potential
dislocations. Also, although there are currently no set guidelines, partial asset and liability
durations at significant points along the yield curve will be monitored to ensure a reasonable
balance. For non-fixed Retirement Services and Life liabilities as well as for structured
settlements and income annuities, the effective asset duration should be within +/- 1.0 of the
target portfolio duration for each major liability group (determined in conjunction with each
business line and summarized in a separate

 

 

document). For parallel yield curve shocks of +/- 1%, this difference should be no more than +/-
1.25.

Unlike most of the Company’s other liabilities, the products in the Group business line are driven
by underwriting rather than investment results. Also, projected liability cash flows (including
new premium) are positive in most plausible scenarios. Because of these attributes, additional
flexibility around portfolio duration is reasonable. The effective asset duration should be
within +/- 2.0 of the Group portfolio’s target duration. As with other business lines, parallel
and non-parallel yield curve shock analysis will be performed to test for possible dislocations.

The Corporate Surplus portfolio will not have pre-set duration targets. It will be driven by
overall corporate requirements and any additional needs of the business lines.

Asset Allocation

Asset allocation is driven by the interest sensitive or guaranteed nature of many of the company’s
liabilities, regulatory and rating agency requirements as well as the need for reasonably
consistent income and surplus growth. Given these considerations, the portfolio will consist
mostly of a diversified mix of investment grade fixed income securities. As capital levels and
rating agency considerations permit, relatively small allocations to equities, alternatives and
high yield will be used to increase expected returns, diversify risks and better match very long
duration liabilities (e.g. structured settlements). The following asset allocation limits are
based on market values.

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Illustrative
	 	 	Maximum	 	Long-term
	Asset Type	 	Allocation	 	Target*
	Fixed Income
	 	 	100	%	 	 	96	%
	Corporate Bonds
	 	 	70	%	 	 	55	%
	MBS/CMO
	 	 	20	%	 	 	10	%
	Asset Backed
Securities
	 	 	15	%	 	 	12	%
	CMBS
	 	 	12	%	 	 	7	%
	Commercial Mortgages
	 	 	10	%	 	 	7	%
	Other Investment
Grade
	 	 	10	%	 	 	2	%
	Below Investment
Grade
	 	 	7	%	 	 	3	%
	 
	 	 	 	 	 	 	 	 
	Equity/Alternatives
	 	 	5	%	 	 	4	%
	Public/Private
Equity
	 	 	3	%	 	 	1.5	%
	Hedge Funds
	 	 	3	%	 	 	1.5	%
	Real Estate
	 	 	2	%	 	 	0.5	%
	Other
	 	 	2	%	 	 	0.5	%
	 
	 	 	 	 	 	 	 	 
	Cash & short-term
purchases
	 	 	2	%	 	 	0	%

 

			
	*	 	Illustrative long-term targets are based on the 2004 liability mix.

 2

 

 

Liquidity

Cash on hand plus projected asset cash flows will be greater in aggregate than projected cash flows
on current liabilities over the next 12 months. In addition, reasonable overall portfolio
liquidity will be maintained to cover unanticipated liability cash flows and portfolio rebalancing
needs. Specifically, liquid assets will comprise at least 50% of the Corporate Surplus and
Structured Settlement/Income Annuity portfolios. All other portfolios will have at least 75%
liquid assets (except BOLI separate accounts, which will have at least 90% liquid assets),
recognizing the surrenderable nature of many of the other liabilities. Liquid assets are defined
as government/agency, public investment grade fixed income and public equity securities which are
sellable within 90 days for at least 95% of the most recently traded price.

Asset Quality

Fixed income investments will be focused on investment grade securities. The market value of
BBB-rated fixed income securities (excluding commercial mortgage whole loans) will not exceed 40%
of the aggregate market value of the portfolio. Similarly, the market value BB and B-rated (and
lower) fixed income securities will not exceed 5% and 2%, respectively, of the aggregate market
value of the portfolio. Purchases will not be made which either cause a quality limit to be
violated or increase exposure in cases where the limit is already exceeded. In the event that
quality downgrades cause a limit to be exceeded, the investment manager will use reasonable
judgment in reducing exposure below the limit as market conditions permit.

Ratings used in these guidelines are from Moody’s if available, then S&P, Fitch and the NAIC, in
that order. If none of these ratings are available, an internal rating generally consistent with
the methodology used by these major rating agencies will be used.

Concentration Limits

The following concentration limits deal with diversification by individual entity. As with the
asset quality limits, purchases will not be made which either cause a concentration limit to be
violated or increase exposure in cases where the limit is already exceeded. In the event that a
quality downgrade causes a limit to be exceeded, the investment manager will use reasonable
judgment in reducing exposure below the limit as market conditions permit.

Issuer — Fixed Income

Management will closely monitor firm-wide investment concentrations in individual issuers (U.S.
Government and GSE securities excepted) to ensure adequate diversification. The limits below apply
to the senior debt rating of the issuer, and are based on the aggregate market value of all fixed
income securities from a single issuer as a percentage of the Company’s Statutory Surplus plus
Asset Valuation Reserve (AVR). In addition, any fixed income securities of an issuer rated below
its senior debt rating (“junior securities”) must also comply with the limits below, based on the
ratings of the junior securities. Also, in the case of securitized investments backed by
collateral pools, the credit rating of each individual security will be used in the table below,
provided that the aggregate market value of fixed income securities backed by any single pool of

 3

 

 

collateral does not exceed the AAA limit below. Ratings are defined as described in the Asset
Quality section above.

	 	 	 	 	 	 	 	 	 
	Senior	 	Market Value as a %	 	Approximate % of
	Debt Rating	 	Surplus + AVR	 	Total Market Value *
	AAA
	 	 	12	%	 	 	0.7	%
	AA
	 	 	10	%	 	 	0.6	%
	A
	 	 	8	%	 	 	0.5	%
	BBB
	 	 	6	%	 	 	0.4	%
	BB
	 	 	3	%	 	 	0.2	%
	< BB
	 	 	2	%	 	 	0.1	%

 

			
	*	 	As of 12/2003

Issuer — Equity

Equity securities of a single issuer are limited by the table below, which varies by the senior
debt rating class of the issuer.

	 	 	 	 	 	 	 	 	 
	Senior	 	Market Value as a %	 	Approximate % of
	Debt Rating	 	Surplus + AVR	 	Total Market Value *
	Investment Grade
	 	 	3	%	 	 	0.2	%
	Below Inv. Grade
	 	 	1	%	 	 	0.1	%

 

			
	*	 	As of 12/2003

Insurer

The aggregate market value of securities insured by a single entity is limited to 4 times the fixed
income issuer limit (above), based on the senior debt rating of the insurer. In the event that any
of the insured securities would not have an investment grade rating on a stand-alone basis (without
the insurance), the insurer’s fixed income issuer limit (before multiplying by the factor of 4)
will be reduced by the market value of such securities.

Servicer

The market value of non-US Government/GSE securities serviced by one servicing agent is limited to
25% of Statutory Surplus plus AVR.

Funds

Private fund investments such as private equity or hedge funds will be limited as follows.

	 	 	 	 	 
	 	 	Market Value as a %
	Type	 	Surplus + AVR
	Single Fund
	 	 	5	%
	Single Manager
	 	 	10	%

 4

 

 

Other Diversification

Within the corporate bond portfolio, the market value of securities within a single major industry
class will not exceed 20%. Although there are no pre-set limits, asset backed and commercial
mortgage backed securities will be reasonably diversified by collateral type. Also, commercial
mortgage exposure (CMBS and whole loan in aggregate) will be reasonably diversified by geographic
region.

Currency

The currency denomination of the assets (incorporating any currency hedges) will be the same as the
denomination of the associated liabilities, which in most if not all cases will be U.S. dollars.
The Surplus portfolio will also be denominated in U.S. dollars. However, up to an aggregate market
value of 1% of total assets may be denominated in un-hedged G-7 currencies.

Derivatives

The use of derivatives will be governed by the Derivatives Use Plan filed with, and approved by,
any appropriate insurance regulatory agencies as well as the boards of directors of Symetra
Financial companies.

Investment Managers

White Mountains Advisors LLC (“WMA”) will be the primary investment manager for Symetra Financial
and its affiliates. WMA may engage other investment managers to manage discrete portions of the
Symetra Financial portfolios. However, WMA will be responsible for engaging, monitoring and
terminating such managers, and for ensuring the overall portfolio is invested in accordance with
this investment policy. All transactions will be promptly and accurately recorded as they occur.

 5

 

 

ADDENDUM

TO

SYMETRA FINANCIAL CORPORATION

STATEMENT OF INVESTMENT POLICY

DERIVATIVES USE PLAN

Adopted by the Board of Directors on November 14, 2006

 

 

TABLE OF CONTENTS

	 	 	 	 	 

	I. POLICY
	 	 	1	 
	 
	II. DERIVATIVE INSTRUMENTS AND STRATEGIES
	 	 	1	 
	 
	A. DERIVATIVE INSTRUMENT DEFINITIONS
	 	 	1	 
	 
	B. EXCHANGE TRADED VERSUS OVER-THE-COUNTER TRANSACTIONS
	 	 	2	 
	 
	C. STRATEGIES
	 	 	3	 
	 
	D. DUTY TO CONSIDER RISKS INHERENT IN DERIVATIVE TRANSACTIONS
	 	 	4	 
	 
	E. RISK/EXPOSURE MEASUREMENT
	 	 	5	 
	 
	III. LIMITATIONS AND PARAMETERS
	 	 	5	 
	 
	A. QUANTITATIVE AND OTHER LIMITATIONS
	 	 	5	 
	 
	B. DOCUMENTATION OF OTC DERIVATIVE TRANSACTIONS
	 	 	7	 
	 
	IV. OVERSIGHT, INTERNAL CONTROL PROCEDURES AND REPORTING
	 	 	7	 
	 
	A. DELEGATION OF RESPONSIBILITY
	 	 	7	 
	 
	B. DAY-TO-DAY RESPONSIBILITY – INVESTMENT MANAGER
	 	 	8	 
	 
	C. INTERNAL CONTROL PROCEDURES – PROCESS FOR APPROVAL AND MONITORING
OF INDIVIDUAL TRANSACTIONS
	 	 	8	 
	 
	D. MANAGEMENT OVERSIGHT OF DERIVATIVES PROGRAM
	 	 	10	 
	 
	E. RECORDS AND DOCUMENTATION
	 	 	10	 
	 
	F. SEPARATION OF TRADING AND SETTLEMENT FUNCTIONS
	 	 	11	 
	 
	G. ACCOUNTING AND FINANCIAL REPORTING
	 	 	11	 
	 
	 	 	 	 
	EXHIBIT A — SAMPLE DERIVATIVE TRANSACTION CONTROL SHEET
	 	 	A-1	 
	 
	EXHIBIT B — LIST OF COMPANIES
	 	 	B-1	 
	 
	EXHIBIT C — SAMPLE EFFECTIVENESS SUMMARY
	 	 	C-1	 

 

 

I. POLICY

          The purpose of this Plan is to set forth the guidelines and parameters for the use of
derivative transactions by Symetra Financial Corporation, a state of Delaware-domiciled
corporation, and each of its subsidiaries identified on Exhibit B hereto (each a “Company” or
collectively the “Companies”). As contemplated in this Plan, the Companies’ use of derivative
transactions shall be in conformance with applicable law and with the Companies’ general philosophy
of managing their investments and overall balance sheet in a prudent and conservative manner, with
the goals of preserving the capital and financial strength of the Companies, while seeking adequate
returns on their investments and operations. In that regard, the Companies’ use of derivative
transactions under this Plan is expected to help manage the Companies’ investments. Derivatives,
however, will not be used for speculative purposes.

          The Companies recognize that, while derivative transactions are useful risk and portfolio
management tools, as with any investment practice, the use of derivative transactions exposes the
Companies to certain risks. Nevertheless, the risks associated with derivative transactions are
not inherently different than those present in other, more traditional forms of investments, and,
with proper use and careful management, such derivative transactions can be utilized safely, as
part of the overall investment and risk management strategy of the Companies. Therefore, in order
to ensure the proper use of derivative transactions and to mitigate the risks associated with such
use, this Plan establishes internal controls and reporting with respect to the use of derivative
transactions.

	II. DERIVATIVE INSTRUMENTS AND STRATEGIES

	 	A.	 	Derivative Instrument Definitions.

          Derivative instruments and transactions can be structured in numerous forms with various
characteristics. For the purposes of this Plan, the Companies recognize the two following industry
definitions of “derivative instrument”:

	 	1.	 	The definition according to Generally Accepted Accounting Principles
(GAAP):1
	 
	 	 	 	A financial instrument or other contract with all three of the following
characteristics:

	 	-	 	It has (1) one or more underlyings and (2) one or more notional amounts or
payment provisions or both.
	 
	 	-	 	It requires no initial net investment or an initial net investment that is
smaller than would be required for other types of contracts that would be expected to
have a similar response to changes in market factors.
	 
	 	-	 	Its terms require or permit net settlement, it can readily be settled net by a
means outside the contract, or it provides for delivery of an asset that puts the
recipient in a position not substantially different from net settlement.

	 	2.	 	The regulatory definition:2

     An agreement, option, instrument or a series or combination thereof:

 

			
	1	 	FASB statement No. 133 “Accounting for
Derivative Instruments and Hedging Activities.”
	 
	2	 	Based on the NAIC’s Derivative Instruments
Model Regulation and Statements of Statutory Accounting Principals (“SSAPs”).

1

 

	 	(a)	 	To make or take delivery of, or assume or relinquish, a specified amount of one
or more underlying interests, or to make a cash settlement in lieu thereof; or
	 
	 	(b)	 	That has a price, performance, value or cash flow based primarily upon the
actual or expected price, level, performance, value or cash flow of one or more
underlying interests.

Examples of derivative instruments include, but are not limited to, options, warrants used in a
hedging transaction and not attached to another financial instrument, caps, floors, collars, swaps,
swaptions, forwards, futures and other agreements, options or instruments substantially similar
thereto or any series or combination thereof. The following are regulatory definitions3
with respect to each of the foregoing instruments:

“Cap” means an agreement obligating the seller to make payments to the buyer with each
payment based on the amount by which a reference price or level or the performance or value
of one or more underlying interests exceeds a predetermined number, sometimes called the
strike rate or strike price.

“Collar” means an agreement to receive payments as the buyer of an option, cap or floor and
to make payments as the seller of a different option, cap or floor.

“Floor” means an agreement obligating the seller to make payments to the buyer in which each
payment is based on the amount by which a predetermined number, sometimes called the floor
rate or price, exceeds a reference price, a level, or the performance or value of one or
more underlying interests.

“Forward” means an agreement (other than a future) to make or take delivery of, or effect a
cash settlement based on the actual or expected price, level, performance or value of, one
or more underlying interests, but shall not mean or include spot transactions effected
within customary settlement periods, when-issued purchases, or other similar cash market
transactions.

“Future” means an agreement, traded on a qualified exchange or qualified foreign exchange,
to make or take delivery of, or effect a cash settlement based on the actual or expected
price, level, performance or value of, one or more underlying interests.

“Option” means an agreement giving the buyer the right to buy or receive (a “call option”),
sell or deliver (a “put option”), enter into, extend or terminate or effect a cash
settlement based on the actual or expected price, level, performance or value of one or more
underlying interests.

“Swap” means an agreement to exchange or to net payments at one or more times based on the
actual or expected price, level, performance or value of one or more underlying interests.

“Swaption” means an option to enter into a Swap.

“Warrant” means an instrument that gives the holder the right to purchase an underlying
financial instrument at a given price and time or at a series of prices and times outlined
in the warrant agreement. Warrants may be issued alone or in connection with the sale of
other securities, for example, as part of a merger or recapitalization agreement, or to
facilitate divestiture of the securities of another business entity.

	 	B.	 	Exchange Traded versus Over-the-Counter Transactions.

 

			
	3	 	These definitions are based in whole or in
part on definitions found in Washington state insurance laws as may be amended
from time to time.

2

 

          Derivative transactions may be traded through an exchange or through the more specialized
over-the-counter (“OTC”) market. While derivative exchanges provide ease of access to a ready
market for derivative transactions, a higher degree of liquidity and the mitigation or elimination
of counterparty credit risk, exchanges require uniformity of terms among transactions and
therefore, may not always accomplish the underlying investment objective. In contrast, while OTC
transactions are generally less liquid and expose the parties to counterparty credit risk, they
allow counterparties to structure more customized transactions to accomplish more closely the
objective for entering into the derivative transaction. In addition, the wide use of standardized
documentation, such as the forms of Master Agreements published by the International Swaps and
Derivatives Association, Inc. (“ISDA”), has created a certain degree of uniformity and
standardization in OTC transactions. The Investment Manager shall evaluate the characteristics of
an exchange-traded versus OTC derivative transaction, including underlying counterparty credit
exposure, before engaging in a derivative transaction.

          As a general rule, the Investment Manager will emphasize the use of exchange-traded
derivatives and reasonably liquid OTC derivatives, while taking advantage of less liquid,
customized OTC derivatives only when appropriate.

	 	C.	 	Strategies (All life insurance company strategies will conform to
applicable state statutes).

          Derivative instruments can be used in conjunction with various strategies to affect a desired
purpose or objective; however, as a general rule, derivative transactions are primarily focused on
three basic strategies: hedging (including replication), income generation, and speculation. The
Companies will be focused on hedging (including replication) strategies to manage exposure to
changes in interest rates, spreads, equity returns, currencies, and credit quality and on income
generation.

          1. Derivative Transactions for Hedging Purposes

          Derivative transactions are widely used as a tool to reduce and hedge against risks faced by
companies in the marketplace. In that regard, the use of hedging transactions is an important and
essential part of the Companies’ overall risk management program.

          For purposes of this Plan, the definition of “hedging transaction” is a derivative transaction
which is entered into and maintained to reduce:

	 	(a)	 	The risk of a change in the value, yield, price, cash flow, or quantity of
assets or liabilities that the insurer has acquired or incurred or anticipates
acquiring or incurring; or
	 
	 	(b)	 	The currency exchange rate risk or the degree of exposure as to assets or
liabilities that the insurer has acquired or incurred or anticipates acquiring or
incurring.

          The Companies’ use of derivative transactions for hedging purposes may also include
replication transactions. For purposes of this Plan, the definition of “replication transaction”
is “a derivative transaction or combination of derivative transactions effected either separately
or in conjunction with cash market investments included in the insurer’s investment portfolio in
order to replicate the investment characteristic of another authorized transaction, investment or
instrument and/or operate as a substitute for cash market transactions.” In certain circumstances,
replication transactions can provide a more cost-effective means of investing in a given asset or
group of assets, in effect, by synthetically replicating the characteristics and performance of the
assets. Replication transactions can also be used to replicate certain desired, rather than all,
characteristics of an asset. The Investment Manager shall structure the Companies’ replication
transactions so that the potential exposure with respect to a replication transaction is directly
related to the risks associated with the asset characteristics being replicated.

3

 

          Given the nature and purpose of a hedging transaction, the potential exposure associated with
such transactions is generally limited. If a hedging transaction is structured properly as an
effective hedge, any losses realized with respect to the asset or activity that was the subject of
the hedge should be matched or offset, entirely or in part, by gains in the transaction. In that
regard, a crucial element of the Companies maintaining a successful hedging program using
derivative transactions is the Companies’ implementation of appropriate procedures and guidelines
to evaluate the effectiveness or efficacy of specific hedging transactions (see Section IV G
Accounting and Financial Reporting for specific guidance).

          2. Income Generation

          Income generation transactions allow the Companies to earn income through the use of
derivative transactions. However, income generation for the purposes of this Plan will only be
permitted through the sale of call options on securities, provided that the Companies hold, or can
immediately acquire through the exercise of options, warrants or conversion rights already owned
during the entire period the option is outstanding (i.e., covered options).

	 	D.	 	Duty to Consider Risks Inherent in Derivative Transactions.

          As with any investment, the use of derivatives entails certain risks. At a minimum, the
following significant risks shall be considered by the Investment Manager prior to engaging in a
particular derivative transaction.

          1. Basis Risk

          The effectiveness of any hedging strategy is dependent upon the matching of the risks being
hedged with the instruments and strategies used to mitigate such risks, creating a corresponding
offsetting position. “Basis risk” is the risk of loss resulting from a hedging transaction that is
imperfectly matched or correlated to the subject risk exposure. The Investment Manager will
continuously monitor the Companies’ hedging transactions to ensure that they continue to be
effective. Should the effectiveness of the hedge position shift significantly the Investment
Manager will seek to either modify or terminate the transaction. The foregoing concept can also
apply to replication transactions, where basis risk can exist between the subject derivative
transaction and the asset/assets intended to be replicated.

          2. Counterparty Exposure Risk

          Counterparty exposure risk relates to the risk of loss resulting from a default by a
counterparty of its obligations under a derivative transaction. Where a derivative transaction is
entered into through a qualified exchange, the counterparty exposure risk is limited by the
financial stability of the exchange and its clearing system. Conversely, if a derivative
transaction is an OTC transaction, the counterparty exposure amount will depend largely upon the
creditworthiness of the counterparty to the transaction.

          With respect to OTC transactions and transactions entered through non-qualified exchanges, the
Investment Manager shall seek to mitigate counterparty exposure by (i) evaluating and monitoring
the financial qualifications of counterparties to ensure that they meet the counterparty
requirements set forth in Section IV.A of this Plan, and (ii) to the extent appropriate, requiring
counterparties to provide the Companies with sufficient collateral security and other financial
assurances, such as the posting of collateral or letters of credit. Specifically, the Investment
Manager shall request collateral in the event that total net exposure to such counterparty exceeds
an amount based on the following schedule:

	 	-	 	$25 million for a counterparty with a AAA rating
	 
	 	-	 	$20 million for a counterparty with a AA rating

4

 

	 	-	 	$15 million for a counterparty with a A rating
	 
	 	-	 	$5 million for a counterparty with a BBB+ rating
	 
	 	-	 	$2.5 million for a counterparty with a BBB rating
	 
	 	-	 	$0 for BBB- and lower

In the event that collateral is required, the Investment Manager will request either a letter
of credit from an acceptable bank or collateral consisting of cash or high quality securities for
at least 100% of the amount of net exposure exceeding the amount outlined above.

          3. Liquidity Risk

          As with any form of investment, derivative instruments pose a certain degree of liquidity
risk. Although exchange-traded derivatives are generally considered liquid instruments, certain
specialized or customized OTC derivatives may be relatively illiquid. The liquidity of a derivative
instrument also generally decreases during volatile market conditions, with the liquidity of
certain investments, such as OTC derivatives, being affected more severely during such volatile
market conditions, particularly when one wants to sell or close a position. While this is a risk in
the market, it can also be exploited as an opportunity.

          4. Systemic Risk

          Systemic risk is the risk that a major failure or disruption in one institution or segment of
the market will affect other institutions, leading ultimately to a breakdown of the financial
system. The use of derivative transactions and the potential of failures within the derivatives
markets can contribute to this overall systemic risk. Given the continued and increasing oversight
of the derivatives markets, this risk is fairly remote.

          5. Operational Risk

          The use of derivative instruments is also subject to the risk of human error, mismanagement
and system and control failures. To minimize its operational risks, the Companies and the
Investment Manager shall have in force at all times the internal control procedures set forth in
Section IV hereof, which provide multiple levels of oversight, appropriate checks and balances, and
periodic audits and reviews of specific transactions and the system. Furthermore, the Companies
and the Investment Manager shall utilize the knowledge of suitably qualified individuals who have
knowledge and experience in the use of derivative instruments.

	 	E.	 	Risk/Exposure Measurement.

          In order to quantify the various types of risks associated with derivative transactions, the
Investment Manager shall apply industry-accepted models to every applicable derivative transaction.
In that regard, the Investment Manager is authorized to use the models available through systems
such as Bloomberg, Derivative Solutions or other similar industry-accepted models.

	III. LIMITATIONS AND PARAMETERS

	 	A.	 	Quantitative and Other Limitations.

          The Companies recognize the importance of diversification and credit quality. Unless otherwise
provided for under the applicable law, the Companies’ limits for different derivative strategies
and instruments are as follows:

5

 

          1. Limitations Relating to Strategies and Instruments (to be applied on a
per-Company basis)

          In addition to the limitations relating to counterparties and the other limitations set forth
in subsection 2 below, the Companies and the Investment Manager shall comply with the limitations
set forth in subsections 1(a)-(c) below specifically applicable to the strategies of hedging,
replication and income generation. In addition, while the Companies do not have any guidelines
limiting the maximum allowed term for derivative transactions, to the extent possible, the
Investment Manager generally will have the term of the derivative transaction be less than or equal
to the anticipated duration of the risk.

	 	(a)	 	Hedging.

          The Companies may engage in hedging transactions, provided that the hedge continues to be
effective according to the Companies’ evaluation procedures (which will incorporate certain
derivative related information provided by the Investment Manager) and each Company complies with
the following quantitative limitations:

	 	•	 	The aggregate financial statement value of options, swaptions, caps,
floors and warrants not attached to another financial instrument that
are purchased by a Company and used in hedging transactions shall not
exceed 7.5% of the market value of such Company’s invested assets
(admitted assets for life insurance companies).
	 
	 	•	 	The aggregate financial statement value of options, swaptions, caps
and floors written by a Company for hedging transactions shall not
exceed 3% of the market value of the such Company’s invested assets
(admitted assets for life insurance companies).
	 
	 	•	 	The aggregate potential exposure of collars, swaps, swaptions,
forwards and futures used in hedging transactions shall not exceed 6.5%
of a Company’s invested assets (admitted assets for life insurance
companies).

	 	(b)	 	Replication.

          The Companies may engage in replication transactions provided that the Companies would
otherwise be authorized to invest their funds in the assets being replicated, the replication
continues to be effective and each Company complies with the following quantitative limitations:

	 	•	 	A Company shall aggregate all replicated investment positions with
their direct investments as if such Company had invested in the
replicated asset directly in determining its compliance with applicable
quantitative limitations.
	 
	 	•	 	The aggregate financial statement value of assets being replicated
shall not exceed 10% of the market value of a Company’s invested assets
(admitted assets for life insurance companies).

	 	(c)	 	Income Generation.

          A Company may engage in income generation transactions provided that such transactions may
only involve the sale of call options on securities that such Company holds (or can immediately
acquire through the exercise of options, warrants or conversion rights already owned) during the
entire period the option is outstanding (i.e., covered options), and each Company complies with the
following quantitative limitations:

6

 

	 	•	 	The aggregate financial statement value of options written by a
Company for income generation transactions shall not exceed 1% of the
market value of such Company’s invested assets (admitted assets for
life insurance companies).

          2. Limitations Relating to Counterparties

          The Investment Manager shall monitor the credit quality of counterparties and regularly
analyze and review the Companies’ counterparty exposure. The Investment Manager shall use a
mark-to-market value to determine a Company’s counterparty exposure, net of any collateral held.
The Investment Manager will also analyze “expected values” to determine total exposure.
Furthermore, a Company shall limit its individual counterparty exposure under one or more
derivative transactions to (a) 1% of its market value of invested assets (admitted assets for life
insurance companies) for any single counterparty rated less than AA-/Aa3 and (b) 3% of its market
value of invested assets for counterparties AA-/Aa3 or better. In addition, a Company’s
counterparty exposure shall be deemed to be an obligation of the institution to which such Company
is exposed to credit risk and shall be included in determining compliance with any single or
quantitative limitation applicable to such Company’s investments.

	 	B.	 	Documentation of OTC Derivative Transactions.

          All OTC derivative transactions entered into by the Companies shall be documented on an
appropriate form of the ISDA Master Agreement (“Master Agreement”). Each transaction shall be
based upon the Master Agreement and include negotiated schedules. Prior to the execution of any
OTC derivative transaction, a Master Agreement between the Company(ies) and the subject
counterparty must be in place. Each derivative transaction shall be documented on a standard
confirmation which references the Master Agreement between the Company(ies) and the counterparty.

	IV. OVERSIGHT, INTERNAL CONTROL PROCEDURES AND REPORTING

	 	A.	 	Delegation of Responsibility.

          The ultimate responsibility for the use of derivative transactions is vested in each Company’s
Board of Directors (“Board”). In discharging its duties with regard to derivative transactions,
each Board shall act in good faith with that degree of care that an ordinary, prudent person in
like circumstances would use under similar circumstances. This Plan may be amended only by the
Board.

          The Board may delegate the day-to-day oversight regarding the Company’s use of derivative
instruments as outlined in this Plan to an Investment Manager. The Board shall choose an
Investment Manager that possesses such expertise and experience necessary to appropriately manage
the day-to-day derivative operations in a prudent manner, in compliance with this Plan.

7

 

	 	B.	 	Day-to-Day Responsibility — Investment Manager.

          All oversight of day-to-day decisions regarding a Company’s use of derivative instruments will
be vested in the Investment Manager. In overseeing the day-to-day derivative activities of the
Companies, the Investment Manager will comply with all the terms of this Plan and the investment
policy established by each Company’s Board. In addition, the Investment Manager will provide
certain trade date documentation and derivative modeling results (described below) to help support
each Company’s accounting and reporting policies and responsibilities related to derivative
investments, both on a GAAP and Statutory accounting basis.

          1. Review and Documentation of Derivative Transactions

          A member of the Investment Manager authorized to initiate derivative transactions will review
each potential derivative transaction entered into by the Companies in accordance with the terms of
this Plan.

          The Investment Manager shall prepare reports pursuant to Section D hereof for the purpose of
facilitating the Companies’ review of such derivative transactions.

	 	C.	 	Internal Control Procedures — Process for Approval and Monitoring of
Individual Transactions.

          The Investment Manager will maintain a list of personnel authorized to initiate derivative
transactions. In examining whether a Company should engage in a particular derivative transaction,
an authorized member of the Investment Manager will consider (i) the guidelines set forth herein,
(ii) the intended purpose of the transaction, (iii) the incremental risk to the Company caused by
engaging in such derivative transaction, and (iv) alternative mechanisms for achieving the same
purpose. All proposed derivative transactions will be documented on the trade date on a Derivative
Transaction Control Sheet (“Control Sheet”), substantially in the form attached hereto as Exhibit
A. The Control Sheet may be updated from time to time to reflect changing information requirements
from regulators or as best practices evolve. A Control Sheet will not be deemed complete unless a
draft of the underlying confirmation is attached thereto and the Control Sheet contains the
following information:

	 	•	 	type of derivative instrument(s) to be used;
	 
	 	•	 	type of strategy to be undertaken;
	 
	 	•	 	underlying investment position or other balance sheet or income
statement item to which the derivative transaction relates;
	 
	 	•	 	description of the transaction, its purpose and its intended effect,
including a precise identification of the risks being hedged or
replicated, if applicable;
	 
	 	•	 	identity of the counterparty or, with respect to exchange-traded
transactions, the identity of the exchange and the name of the firm
that handled the trade;
	 
	 	•	 	notional amount of the transaction;
	 
	 	•	 	consideration for the transaction;
	 
	 	•	 	any additional collateral or other credit support taken or provided;
and

8

 

	 	•	 	Investment Manager’s recommendation for the most appropriate method
for assessing effectiveness based on acceptable choices provided by a
Company in the event hedge accounting is to be used (final
determination to be made by a Company for accounting/tax purposes).

          On the date of a derivative transaction, two members of the Investment Manager must sign the
Control Sheet, one of whom is authorized by the Investment Manager to initiate derivative
transactions and the other of whom is in the Operations area responsible for settling all
derivative transactions. Prior to the end of the day on which a derivative transaction has
occurred, the Investment Manager will ascertain that:

	 	•	 	the Control Sheet is complete;
	 
	 	•	 	the derivative transaction complies with this Plan, including a
Company’s established quantitative and qualitative limits/parameters;
	 
	 	•	 	the transaction is reasonably expected to perform as intended, as
demonstrated through stress testing and other techniques designed to
vary market performance and conditions as appropriate;
	 
	 	•	 	the counterparty is included on the Investment Manager’s list of
approved derivative counterparties for such Company;
	 
	 	•	 	Such Company has received a copy of the completed Control Sheet so
that it can complete any additional required hedge designation
documentation, including the anticipated accounting and tax treatment
for such derivative transactions. In the event that the transaction is
not of the type where standard language has been provided to the
Investment Manager by such Company, a minimum of 1 day prior notice
must be given to such Company to allow adequate time to complete the
derivative documentation in a timely manner. In all other cases the
Control Sheet will be provided to such Company by noon on the
transaction date.

          The Investment Manager will be responsible for ensuring the proper monitoring of the
performance of each derivative transaction during its duration to make certain that each derivative
transaction continues to perform as originally intended and each such transaction remains in
compliance with (i) all applicable laws and regulations, (ii) the terms of this Plan, and (iii) the
underlying transaction documentation. A derivatives committee established by the Investment
Manager will review the performance, potential risk and overall compliance of each derivative
transaction on at least a monthly basis. Committee meeting minutes will be kept with copies
provided to the Investment Manager and to the Companies. Any derivative transaction that is no
longer performing in a manner consistent with its original purpose or is no longer in compliance
with the aforementioned laws, regulations, Plan or underlying documentation will be terminated as
soon as practicable.

          The Investment Manager will be responsible for reviewing and approving its summary report
information generated with respect to all derivative transactions. The Investment Manager will
ensure information provided in such reports agrees with supporting documentation and systems backup
information used in its risk measurement. The Investment Manager will be responsible for ensuring
and assessing the effectiveness of internal controls over any models or system software used in the
derivative transactions.

          The Investment Manager will be responsible for providing certain information relating to
derivative transactions necessary for the Companies’ assessment of the effectiveness of internal
controls

9

 

over investment accounting and financial reporting (see Section IV.G Accounting and Financial
Reporting).

          Every quarter, the Investment Manager will be responsible to report any internal control
weaknesses or significant deficiencies as they relate to internal controls over the derivative
transaction process. The Investment Manager shall prepare and deliver to the Companies a detailed
plan that is reasonably acceptable to the Companies for promptly correcting all such deficiencies
and exceptions (“Corrective Plan”). The Investment Manager shall deliver such Corrective Plan to
the Companies promptly following the identification of the internal control weakness.

          In the event that either the Companies or Investment Manager identify any weaknesses in the
internal controls and procedures involving any material aspect of its respective derivative
responsibilities, such weaknesses will be promptly communicated to the other party and no
incremental derivative exposure effected by such weaknesses will be added until both the Investment
Manager and the Companies are satisfied that the weaknesses have been sufficiently addressed.

	 	D.	 	Management Oversight of Derivatives Program.

          In order to enable the Companies and the Investment Manager to meet the Companies’ management
and oversight standards as set forth in this Plan or required by law, the Companies and the
Investment Manager shall be responsible, through their designated personnel, for generating a
detailed Derivatives Report containing information pertaining to a Company’s derivative activities
during the prior quarter or other relevant period. The Report will contain a summary of each
derivative transaction and a copy of each Control Sheet with respect to each derivative transaction
effected during the relevant period. In addition, the Report will contain the following
information:

	 	•	 	outstanding derivative positions and unrealized gains or losses on
such positions, if any;
	 
	 	•	 	derivative transactions opened and/or closed during the quarter and
realized gains and losses on such transactions, if any;
	 
	 	•	 	a performance review of the derivative transactions;
	 
	 	•	 	an evaluation of the risks and benefits of the derivative
transactions, including whether a derivative transaction entered into
for hedging purposes continues to be an effective hedging tool;
	 
	 	•	 	an assessment of future or “potential” risk exposure;
	 
	 	•	 	a review of all counterparty exposure amounts outstanding;
	 
	 	•	 	a valuation of the derivative transactions, including a mechanism
for compensating for any lack of independence in valuing trading
positions;
	 
	 	•	 	any other reports, documentation or analysis deemed necessary by a
Company or the Investment Manager to ascertain whether all derivative
transactions have been made in accordance with the delegations,
standards, limitations and objectives contained in this Plan.

	 	E.	 	Records and Documentation.

          The Investment Manager will ensure that original documentation is maintained with respect to
each derivative transaction prior to and following the termination of each such transaction, in
accordance with a Company’s record retention policies and procedures. All reports and
documentation

10

 

maintained by a Company regarding its derivative transactions will be available for (i) review
by its Board, and (ii) independent audit and regulatory examination. The Investment Manager, under
Company direction, will use such records to prepare and maintain summary report information with
respect to all derivative transactions, in sufficient form and detail to allow the preparation of
the Companies’ Annual and Quarterly Statements in compliance with applicable laws and regulations.

	 	F.	 	Separation of Trading and Settlement Functions.

          The Investment Manager will maintain a clear separation of the trading and settlement
functions as another control measure. These two functions will be performed by separate areas and
personnel.

	 	G.	 	Accounting and Financial Reporting.

          The Companies will have responsibility for Accounting and Financial Reporting relating to
derivatives. The Companies will provide the Investment Manager with accounting and tax wording for
some of the more probable types of derivatives that will be used. This information will be
included in the Control Sheet. The Investment Manager will provide certain derivative related
information to the Companies to support these activities as outlined below:

	 	•	 	The Investment Manager will prepare and provide the Companies, on the
trade date, with copies of the completed Control Sheet (see Exhibit A)
relating to each derivative transaction. The Companies will use the
information on the Control Sheet as part of their hedge designation
documentation. The designation documentation supporting the hedge must be
formal, be contemporaneous (i.e., prepared at inception of the hedge),
identify the hedged item, the hedging instrument, the nature of the hedging
relationship (e.g. fair value, cash flow, net investment), the Companies’
overall risk management objectives and strategy for undertaking the hedge.
The Investment Manager will suggest the most appropriate method for
determining how hedge effectiveness will be assessed. As part of the
Financial Reporting designated documentation, a statement must be included
that identifies the hedging transaction for tax purposes. This will be
provided by the Companies.
	 
	 	•	 	The designation documentation must include support provided by the
Investment Manager (e.g., correlation statistics such as r-squared using
statistical analysis or observations of how effectively the hedging
instrument achieved the dollar offset with the hedged item in the income
statement) for why the hedge is expected to be “highly effective” at
inception and on a go-forward basis.
	 
	 	•	 	To be determined to be a “highly effective” hedging transaction, such
transaction must be measured on a dollar offset approach and recorded
within an 80-125% effectiveness range.
	 
	 	•	 	The designation documentation must define and document the method the
Companies (provided by the Companies) will use to assess the hedge
effectiveness for both prospective considerations and retrospective
considerations: either a dollar-offset approach or a regression or other
statistical analysis approach. However, when it comes to actually
recording the amount of ineffectiveness during a period, the dollar-offset
method must be used.
	 
	 	•	 	Investment Manager will provide the Companies with the data supporting
the amount of ineffectiveness and the ongoing assessment.

11

 

	 	•	 	The Companies will prepare a summary similar to Exhibit C summarizing
the measurement of hedge effectiveness / ineffectiveness on quarterly
basis. See Exhibit C.
	 
	 	•	 	Investment Manager will provide the Companies, when reasonably
requested, a quantitative and sensitivity analysis of the hedge transaction
and market risk (equity and interest risks) as required in Management
Discussion and Analysis.

12

 

EXHIBIT A

SAMPLE DERIVATIVE TRANSACTION

CONTROL SHEET

Attached Documentation

               Attach a copy of the draft confirmation (attach final as soon as it is available) of the
derivative transaction to this Control Sheet. Also attach any documentation specific to this
transaction that is in addition to the Master Agreement, schedule thereto and any credit support
agreement.

Description of the Transaction

               Please provide an appropriate answer to the information requested below regarding the subject
derivative transaction

	 	1.	 	Describe the derivative transaction, including the purpose (i.e., strategy) for
engaging in the derivative transaction and the intended effect.  

	 
	 	 	 	 

	 
	 	 	 	 

	 	a.	 	Describe the underlying investment position or other balance
sheet or income statement item to which the derivative transaction relates.  

	 
	 	 	 	 

	 
	 	 	 	 

	 
	 	b.	 	If the derivative transaction is entered into for hedging purposes, describe the
precise risk being hedged or replicated.  

	 
	 	 	 	 

	 
	 	 	 	 

	 	2.	 	Indicate the type of derivative instrument(s) used.  

	 
	 	 	 	 

	 
	 	 	 	 

	 
	 	3.	 	Indicate the notional amount of the derivative transaction.  

	 
	 	 	 	 

	 
	 	 	 	 

	 
	 	4.	 	Indicate the consideration paid/received in connection with the derivative
transaction.  

	 
	 	 	 	 

A-1

 

	 	5.	 	Identify the counterparty to the derivative transaction, or, if the derivative
instrument is exchange traded, identify the exchange and the brokerage firm that
handled the trade.  

	 
	 	 	 	 

	 
	 	 	 	 

	 
	 	6.	 	Describe any collateral or credit support given or received in relation to the
derivative transaction that is in addition to collateral required by the standard CSA.
	 
	 	 	 	 

	 
	 	 	 	 

	 
	 	 	 	 

	 
	 	7.	 	Investment Manager’s recommendation for most appropriate method for assessing
hedge effectiveness from Companies’ list of approved methods (Companies will make the
final determination of the method to be used for accounting/tax purposes)
	 
	 	 	 	 

	 
	 	 	 	 

Performance of the Derivative Transaction

     Attach any analysis or testing performed regarding the anticipated performance of the
derivative transaction.

Investment Manager Approval

     The undersigned (i) certify that, to the best of his/her knowledge, all of the statements
provided herein are true and correct in all material respects, (ii) certifies that the derivative
transaction is within the undersigned’s authority level to approve, and (iii) approves the
derivative transaction described herein and set forth in the documentation attached hereto.

	 	 	 	 	 

	 

	 	 

	 	 
	 

	 	Authorized Trader’s signature	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	 

	 	 

	 	 
	 

	 	Member of Operations/Compliance Area	 	 

A-2

 

EXHIBIT B

	 	 	 
	LIST OF COMPANIES	 	DATE ADOPTED BY THE BOARD
	 
	 	 
	Symetra Life Insurance Company

	 	December 5, 2006

B-1

 

EXHIBIT C

SAMPLE EFFECTIVENESS SUMMARY

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

	Company reporting date:

(Effectiveness must be assessed whenever financial statements or
earnings are reported, but at least every 3 months)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Company Calculation of:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Hedged Item Fair Value
	 	$	     	 	 	$	     	 	 	$	     	 	 	$	     	 
	Hedging Instrument Fair Value
	 	$	     	 	 	$	     	 	 	$	     	 	 	$	     	 
	Retrospective Effectiveness
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Prospective Effectiveness
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	For cash flow hedge of a forecasted transaction, is the hedged item
still probable of occurring? (yes or no)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Company performed and documented assessment of hedge effectiveness in
accordance with the method defined in the hedge designation
documentation? (yes or no)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Company concluded that hedge meets criteria for hedge accounting?
(yes or no)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Comments/working paper reference
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

C-1

 

Supplementary Investment Guidelines

Symetra Life Insurance Company

Adopted by the Board of Directors on December 6, 2005, as last amended 1/20/2009

This supplement to the Company’s Statement of Investment Policy is to promote compliance with
statutory requirements for purchases or acquisitions of investments by life insurers domiciled in
the state of Washington and to incorporate other Company investment policies as may be approved
from time to time by the Company’s Board of Directors. Statutory restrictions or investment limits
are in addition to any restrictions or limitations already required under the Company’s general
investment policies.

Chart of Statutory Investment Limits:

The Chart is intended as a summary only of the laws currently in force and does not obviate the
Company’s obligation to comply fully with all applicable laws at the time of each transaction.

	 	 	 	 	 
	Security	 	Requirement/Restriction	 	RCW
	General Qualifications: Interest
bearing or accruing or dividend or
income paying securities that are not
in default and not priced above market
value.

	 	100% of securities purchased or acquired must
satisfy these requirements. (Limited
exceptions may apply.)
	 	48.13.020 
	 
	 	 	 	 
	One Entity: Any combination of
investments in or loans upon the
security of the obligations, property,
and securities of any one person,
institution, or municipal corporation.

	 	Limited to 4% of assets without prior consent
from OIC. (Limit does not apply to general
obligations of the U.S. government or U.S.
state governments.)
	 	48.13.030(1) (See 48.13.273 for limits on
medium and lower grade obligations.)
	 
	 	 	 	 
	Depository Institutions: Voting
securities of a depository institution
or any company which controls a
depository institution.

	 	Limited to 5% of admitted assets without prior
consent from OIC.
	 	48.13.030(2)
	 
	 	 	 	 
	Public Obligations: Bonds or other
evidences of debt, not in default as
to principal or interest, that are
obligations issued, assumed or
guaranteed by the U.S. or by any U.S.
state or by any U.S. territory or
possession, or by the District of
Columbia or by any county, city, town,
village, municipality or district
therein or by any political
subdivision thereof or by any civil
division or public instrumentality of
one or more of the foregoing.

	 	Funds may be invested in public obligations
payable (1) from taxes levied or required to
be levied upon all taxable property or all
taxable income within the jurisdiction of such
governmental unit or, (2) from adequate
special revenues, but not including any
obligation payable solely out of special
assessments on properties benefited by local
improvements unless adequate security is
evidenced.
	 	48.13.040
	 
	 	 	 	 
	Corporate Obligations: Obligations
issued, assumed, or guaranteed by any
solvent institution created or
existing under the laws of the U.S. or
of any state, district or territory
thereof, and are qualified under any
of the following:

(1) Obligations which are secured by
adequate collateral security and bear
fixed interest.

(2) Fixed interest bearing obligations.

(3) Adjustment, income or other
contingent interest obligations.

	 	Section not applicable to mortgage related
investments authorized under RCW 48.13.110.

In determining the adequacy of collateral
security, not more than 1/3 of the total value
of such required collateral shall consist of
stock other than stock meeting the
requirements of RCW 48.13.080 (preferred or
guaranteed stocks).

Eligible corporate obligations are subject to
issuer earnings requirements under RCW
48.13.050(1), (2) or (3).
	 	48.13.050

See limits under 48.13.273, for medium and
lower grade obligations.

See 48.13.060 and .070 for definition of
“net earnings” and application of net
earnings test on securities of
merged/reorganized institutions.
	 
	 	 	 	 
	Preferred or Guaranteed Stocks:

Qualified preferred or guaranteed
stocks or shares (other than common
stock) of solvent U.S. institutions.

Stocks or shares are qualified if they
meet the requirements of RCW
48.13.080(1)(a) for preferred stocks,
or (b) for guaranteed stocks. In
addition, as of the date of
acquisition, all of the prior
obligations and prior preferred stocks
of the institution must be eligible
investments.

	 	Limited to 10% of assets.

Institutions must satisfy net earnings
requirements for preferred stock and RCW
48.13.050 for guaranteed stock.

Subject to limitations of RCW 48.13.030
(single issuer), investment in preferred stock
with voting rights plus common stock in same
issuer (other than investment in certain
subsidiaries of the insurer) is limited to 15%
of issuer’s outstanding shares having voting
rights.
	 	48.13.080

2

 

	 	 	 	 	 
	Security	 	Requirement/Restriction	 	RCW
	Trustees’ or Receivers’ Obligations: Certificates, notes or other
obligations issued by trustees or receivers of U.S. institutions
which, or the assets of which, are court administered and which
are adequately secured as to principal and interest.

	 	Limited to 2% of assets.
	 	48.13.090
	 
	 	 	 	 
	Equipment Trust Certificates: Equipment trust obligations or
certificates which are adequately secured, or in other adequately
secured instruments evidencing an interest in transportation
equipment wholly or in part within the U.S. and the right to
receive determined portions of rental, purchase or other fixed
obligatory payments for the use or purchase of such transportation
equipment.

	 	Limited to 10% of assets.
	 	48.13.100
	 
	 	 	 	 
	Mortgages, Deeds of Trust, Mortgage Bonds, Notes, Contracts:
(1)(a) Bonds or evidences of debt which are secured by first
mortgages or deeds of trust on improved unencumbered real property
located in the U.S.; (1)(b) chattel mortgages in connection
therewith; (1)(c) the equity of the seller of any such property in
the contract for a deed, covering the entire balance due on a bona
fide sale of such property. (2) Money mortgages or like securities
received upon the sale or exchange of real property acquired
pursuant to RCW 48.13.160. (3) Bonds or notes secured by mortgage
or trust deed guaranteed or insured by the FHA. (4) Bonds or
notes secured by mortgage or trust deed guaranteed or insured as
to principal in whole or in part by the VA. (5) Evidences of debt
secured by first mortgages or deeds of trust upon leasehold
estates, except agricultural leaseholds executed pursuant to RCW
79.11.010. (6) Evidences of debt secured by first mortgages or
deeds of trust upon agricultural leasehold estates executed
pursuant to RCW 79.11.010.

	 	(1)(b) Chattel mortgages are subject to
requirements of RCW 48.13.150.

(1)(c) Seller’s equity in any one such deed
covering the balance due on sale of such
property is limited to the greater of
$10,000 or the amount permissible under RCW
48.13.030.

(5) Leasehold estates must run for at least
15 years beyond the maturity of the loan as
made or as extended, in improved real
property, be otherwise unencumbered, and
the mortgagee must be entitled to be
subrogated to all the rights under the
leasehold.

(6) Agricultural leasehold estates must be
otherwise unencumbered, and the mortgagee
must be entitled to be subrogated to all
the rights under the leasehold.

Except for investments made under (3) and
(4) and guaranteed by FHA or VA,
investments are limited to 75% of the fair
value of the property as of the date of
investment (80% of market value for certain
loans secured by first mortgages on
single-family residential buildings). RCW
48.13.120

Exceptions for certain securities received
on the sale or exchange of real property
acquired under RCW 48.13.160.
	 	48.13.110

See 48.13.125 for
limitation on
amortization of
loans on one-family
dwellings.

See 48.13.130 for
definition of
encumbrance.

See 48.13.140 for
appraisal of
property, insurance
requirements and
the limit on loans
upon the security
of any one parcel
of real property
(the greater of
$25,000 or the
amount permissible
under 48.13.030.

See 48.13.265 for
limits on
investments secured
by real estate.
	 
	 	 	 	 
	Real Property Owned – Home Office Building: (1) insurer home and
branch office buildings; (2) real property acquired in
satisfaction or on account of loans, mortgages etc. previously
owing to the insurer in the course of its business; (3) real
property (a) required for convenient transaction of business;(b)
acquired by gift or devise; (c) acquired in exchange for real
property owned by insurer; (d) acquired through a lawful merger or
consolidation with it of another insurer, (e) requisite or
desirable for the protection or

	 	(1) OIC approval required if investment in
home office etc. exceeds 10% of assets.

(3) Investment in real property can include
repair, alteration, furnishing, or
improvement thereof and is subject to the
requirements of RCW 48.13.160(3). See
statute for complete description, including
when OIC approval may be required.

(4) Investment in income producing
	 	48.13.160

3

 

	 	 	 	 	 
	Security	 	Requirement/Restriction	 	RCW
	enhancement of the value of other
real property owned by the insurer; (4) income-producing property.

	 	property
is subject to the requirements of RCW
48.13.160(4). See statute for complete
description with respect to insurer asset
size, capital and surplus, and other
conditions for investment that must be met.	 	 
	 
	 	 	 	 
	Disposal of Real Property — Time Limit:
Real property acquired by an insurer pursuant to loans, mortgages,
liens, judgments, or other debts, or under RCW
48.13.160(3)(a);(b), (c), (d), and (e).

	 	Property acquired under RCW 48.13.160(3)(a)
must be disposed of within 5 years of
ceasing to be of use in the transaction of
business.

Property acquired pursuant to loans,
mortgages, liens, judgments, or other
debts, or under RCW 48.13.160(3)(b), (c),
(d), and (e) must be disposed of within 5
years of acquisition, unless OIC approves a
longer time.
	 	48.13.170
	 
	 	 	 	 
	Foreign Securities: Obligations of foreign governments including
provinces, counties, municipalities, or similar entities, and
obligations and securities of foreign corporations, which have not
been in default during the five years next preceding date of
acquisition, and if the foreign jurisdiction has a sovereign debt
rating of SVO 1.

	 	Limited to 10% of assets.

Investment made in any one foreign country
is limited to 5% of assets.
	 	48.13.180
	 
	 	 	 	 
	Policy Loans: Loans to policyholders upon the pledge of the policy
as collateral.

	 	Amount of respective loan cannot exceed the
legal reserve maintained on the policy.
	 	48.13.190
	 
	 	 	 	 
	Savings and Share Accounts: Share or savings accounts of savings
and loan associations or savings accounts of banks.

	 	Amount deposited in any one institution is
limited to amount insured by FSLIC or FDIC.
	 	48.13.200
	 
	 	 	 	 
	Insurance Stocks: Stocks of U.S. domiciled insurers that also meet
the qualifications for stocks under RCW 48.13.220.

	 	Limited to the lesser of 5% of assets or
25% of surplus over its capital stock and
other liabilities. Unless a subsidiary,
investment is limited to 5% of the voting
stock of any one insurer and RCW 48.13.030.
	 	48.13.210

Note: Limits do not
apply to OIC
approved mergers
and stock dividends
on shares already
owned.
	 
	 	 	 	 
	Limitation on Insurer Loans or Investments (Investment in
Non-Insurer Subsidiaries): Common stock, preferred stock, debt
obligations, and other securities of one or more subsidiaries as
defined in RCW 48.31B.005.

	 	Limited to the lesser of 10% of assets, or
50% of its surplus as regards
policyholders.
	 	48.13.218

Note: Subsidiaries
that are insurers,
healthcare service
providers and HMOs
are excluded.
	 
	 	 	 	 
	Common Stocks: Common shares of stock in solvent U.S. corporations
that qualify as a “sound investment.”

	 	Must first satisfy requirements of RCW
48.13.260 for investment of capital and
reserves.

Limited to 50% of surplus over the minimum
required surplus.

Subject to limitations of RCW 48.13.030
(single issuer), investment is limited to
10% of the outstanding common stock of same
issuer (exception for stock of certain
subsidiaries of the insurer).
	 	48.13.220

Note: 90 days
notice to OIC is
required prior to
acquisition of a
majority of the
total outstanding
common shares of
any corporation.
	 
	 	 	 	 
	Collateral Loans: Loans upon the pledge of securities or evidences
of debt eligible for investment.

	 	Limited to 90% of the market value of such
collateral pledged, except that loans upon
pledges of U.S. government bonds may be
equal to the market value of the bonds
pledged, subject to the maximums under RCW
48.13.030.
	 	48.13.230

4

 

	 	 	 	 	 
	Security	 	Requirement/Restriction	 	RCW
	Miscellaneous Investments: Loans or investments not otherwise
eligible for investment and not specifically prohibited by RCW
48.13.270 and not described in RCW 48.12.020 (non-allowable
assets).

	 	Limited to the lesser of 10% of assets or
50% of surplus over capital and other
liabilities.

Investment in or loan upon the security of
any one entity is limited to the lesser of
the limit described above or 1% of assets.
[Exceptions require special consent order
from OIC.]
	 	48.13.240

Note: The insurer
shall keep a
separate record of
all “miscellaneous”
investments.
	 
	 	 	 	 
	Special Consent Investments:
Investments not otherwise eligible, but still qualified under RCW
48.13.020 (general qualifications) and for which advance approval
from the OIC is obtained.

	 	The approval from the OIC will specify
whether the investment may be credited to
required minimum capital or surplus
investments, or to investments of reserves.
	 	48.13.250
	 
	 	 	 	 
	Required Investments for Capital and Reserves:

for Capital: Cash or investments eligible under RCW 48.13.040
(public obligations), and mortgage loans on real property located
within this state, pursuant to RCW 48.13.110.

	 	Not less than 100% of the investments
required for capital and reserves.
	 	48.13.260
	 
	 	 	 	 
	for Reserves: Cash or premiums in course of collection or
investments under RCW 48.13:
	 	 	 	 
	.040 (public obligations),
	 	 	 	 
	.050 (corporate obligations),
	 	 	 	 
	.080 (preferred or guaranteed stocks),
	 	 	 	 
	.090 (trustees’ or receivers’ obligations),
	 	 	 	 
	.100 (equipment trust certificates),
	 	 	 	 
	.110 (mortgages, loans and contracts),
	 	 	 	 
	.150 (auxiliary chattel mortgages),
	 	 	 	 
	.160 (real property home office bldg. etc.),
	 	 	 	 
	.180 (foreign securities),
	 	 	 	 
	.190 (policy loans),
	 	 	 	 
	.200 (savings and share accounts),
	 	 	 	 
	.220 (common stocks),
	 	 	 	 
	.230 (collateral loans),
	 	 	 	 
	.250 (special consent investments).
	 	 	 	 
	 
	 	 	 	 
	Investments Secured by Real Estate – Amount Restricted: real
estate, real estate contracts, and notes, bonds and other
evidences of debt secured by mortgage on real estate as described
in RCW 48.13.110 and .160.

	 	Limited to 65% of assets-all investments in
mortgage-backed securities qualifying under
the secondary mortgage market enhancement
act of 1984 are included in determining if
an insurer has exceeded the 65% limit.
	 	48.13.265
	 
	 	 	 	 
	Acquisition of Medium and Lower Grade Obligations: Medium
obligations are rated 3 by the NAIC’s securities valuation office.
Lower grade obligations are rated 4, 5 or 6 by the NAIC’s
securities valuation office.

	 	Investment in medium and lower grade
obligations is limited to 20% of admitted
assets. (Limited to 1% in obligations
issued, guaranteed, or insured by one
institution.)

Investment in lower grade obligations is
limited to 10% of admitted assets. (Limited
to 0.5% in obligations issued, guaranteed,
or insured by 1 institution.)

Investment in lower grade obligations rated
5 or 6 is limited to 3% of admitted assets.
Investment in lower grade obligations rated
6 is limited to 1% of admitted assets.
	 	48.13.273

Note: If insurer
intends to invest
more than 2% of
admitted assets in
medium and lower
grade obligations,
the BOD must
approve a written
plan for making
those investments.
	 
	 	 	 	 
	Obligations Rated by the Securities Valuation Office: Obligations
rated 1 or 2 by the NAIC’s securities valuation office.

	 	Investment subject to the limitations under
RCW 48.13.030 (single issuer).
	 	48.13.275

5

 

	 	 	 	 	 
	Security	 	Requirement/Restriction	 	RCW
	Derivative Transactions:
Options, warrants used in hedging transactions and not attached to
another financial instrument, caps, floors, collars, swaps,
forwards, futures, and any other agreements, options, or
instruments substantially similar thereto or any series or
combination thereof and any agreements, options, or instruments
permitted under rules adopted by the OIC.

Income generation transactions:

(1) Sales of covered call options on noncallable fixed income
securities, callable fixed income securities; (2) Sales of covered
call options on equity securities, (3) Sales of covered puts on
investments that the insurer is permitted to acquire under Chapter
13, (4) Sales of covered caps or floors.

	 	Aggregate statement value (“ASV”) of
options, caps, floors, and warrants not
attached to a financial instrument
purchased and used in hedging transactions
is limited to 7.5% of admitted assets.
(ASV of options, caps, and floors written
in hedging transactions is limited to 3% of
admitted assets.) The aggregate potential
exposure of collars, swaps, forwards, and
futures used in hedging transactions is
limited to 6.5% of admitted assets.
For income generation transactions, the ASV
of fixed income assets subject to call or
that generate cash flows for payments under
the caps or floors, plus the face value of
fixed income securities underlying a
derivative instrument subject to call, plus
the amount of the purchase obligations
under the puts, is limited to 10% of
admitted assets.

(1) Permitted if the option expires by its
terms prior to the end of the noncallable
period, or derivative instruments based on
fixed income securities.

(2) Permitted if the insurer holds or can
immediately acquire through the exercise of
options, warrants, or conversion rights
already owned, the equity securities
subject to call during the complete term of
the call option sold.

(3) Permitted if the insurer has escrowed,
or entered into a custodian agreement
segregating, cash or cash equivalents with
a market value equal to the amount of its
purchase obligations under the put during
the complete term of the put option sold.

(4) Permitted if the insurer holds the
investments generating the cash flow to
make the required payments under the caps
or floors during the complete term that the
cap or floor is outstanding.
	 	48.13.285

Note: Permitted
only to engage in
hedging
transactions and
certain income
generation
transactions, not
for speculation.

Insurer must be
able to demonstrate
to the OIC the
intended hedging
characteristics and
the ongoing
effectiveness of
the derivative
transaction(s)
through cash flow
testing or other
appropriate
analysis.
	 
	 	 	 	 
	Prohibited Investments:

	 	 	 	48.13.270
	(1) Issued shares of its own capital stock.	 	 
	(2) Securities issued by any corporation if a majority of its stock having voting power is owned directly or
indirectly by or for the benefit of any one or more of the insurer’s officers and directors.	 	 
	(3) Any investment or loan ineligible under the provisions of RCW 48.13.030 (single issuer or depository
institution).	 	 
	(4) Securities issued by any insolvent corporation.	 	 
	(5) Obligations contrary to the provisions of RCW 48.13.273 (medium and lower grade obligations).	 	 
	(6) Any investment or security found by the OIC to be designed to evade prohibition of the Insurance Code.	 	 
	 
	 	 	 	 
	Securities Underwriting, Agreements to Withhold or Repurchase – Prohibited:	 	48.13.280
	No insurer shall:	 	 
	(1) participate in the underwriting of the marketing of securities in advance of their issuance or enter into any
transaction for such underwriting for the account of such insurer jointly with any other person; or	 	 
	(2) enter into any agreement to withhold from sale any of its property, or to repurchase any property sold by it.	 	 

6

 

	 	 	 	 	 
	Security	 	Requirement/Restriction	 	RCW
	Disposal of Ineligible Property or Securities:	 	48.13.290
	(1) Any ineligible personal property or securities acquired by an insurer may be required to be disposed of within
the time not less than six months specified by order of the commissioner, unless before that time it attains the
standard of eligibility, if retention of such property or securities would be contrary to the policyholders or
public interest in that it tends to substantially lessen competition in the insurance business or threatens
impairment of the financial condition of the insurer.	 	 
	(2) Any personal property or securities acquired by an insurer contrary to RCW 48.13.270 shall be disposed of
forthwith or within any period specified by order of the commissioner.	 	 
	(3) Any property or securities ineligible only because of being excess of the amount permitted under Chapter 13 to
be invested in the category to which it belongs shall be ineligible only to the extent of such excess.	 	 
	 
	 	 	 	 
	Authorization of Investments:	 	48.13.340
	No investment, loan, sale or exchange thereof shall, except as to the policy loans of a life insurer, be made unless
authorized or approved by the insurer’s board of directors or by a committee charged by the board of directors or
the bylaws with the duty of making such investment, loan, sale or exchange. The minutes of any such committee shall
be recorded and reports thereof shall be submitted to the board of directors for approval or disapproval.	 	 
	 
	 	 	 	 
	Record of Investments:	 	48.13.350
	A written record in permanent form showing the authorization of each investment or loan shall be made and signed by
an officer of the insurer or by the chair of such committee authorizing the investment or loan. Records shall
contain:	 	 
	(a) In the case of loans: the name of the borrower; the location and legal description of the property; a physical
description, and the appraised value of the security; the amount of the loan, rate of interest and terms of
repayment.	 	 
	(b) In the case of securities: the name of the obligor; a description of the security and the record of earnings;
the amount invested, the rate of interest or dividend, the maturity and yield based upon the purchase price.	 	 
	(c) In the case of real estate: the location and legal description of the property; a physical description and the
appraised value; the purchase price and terms.	 	 
	(d) In the case of all investments:	 	 
	     (i) the amount of expenses and commissions if any incurred on account of any investment or loan and by whom and to
whom payable if not covered by contracts with mortgage loan representatives or correspondents which are part of the
insurer’s records;	 	 
	     (ii) the name of any officer or director of the insurer having any direct, indirect, or contingent interest in the
securities or loan representing the investment, or in the assets of the person in whose behalf the investment or
loan is made, and the nature of such interest.	 	 

Policy for Investment in Affiliates:

The Company will not invest in affiliates to the extent that such investment would be reportable
under the Insurer Holding Company Act or the Disclosure of Material Transactions Model Law, or to
the extent that such investment might, in the opinion of management, materially affect the overall
liquidity of the Company’s assets.

Approval Procedures for Mortgage Loans:

Subject to any statutory restrictions, any two members of the Mortgage Loan Committee may approve
mortgage loans less than or equal to $10 million.

Mortgage loans greater than $10 million and less than or equal to $20 million require the approval
of all Committee members.

Loans in excess of $20 million must be approved by the Company’s shareholder (in addition to the
general requirement of Board approval for all investments).

7exv10w16

Exhibit
10.16

Amended and Restated

August 11, 2010

Symetra Financial Corporation Equity Plan

	1.	 	PURPOSE
	 
	 	 	The purpose of the Symetra Financial Corporation Equity Plan (the “Plan”) is to advance the
interests of Symetra Financial Corporation (the “Company”) and its stockholders by providing
long-term incentives to certain employees, directors and consultants of the Company and its
subsidiaries.
	 
	2.	 	ADMINISTRATION
	 
	 	 	The Plan shall be administered by the Compensation Committee (the “Committee”) of the Board
of Directors (the “Board”) of the Company; provided that, following the initial public
offering of the Company’ common shares (the “IPO”), each member of the Committee shall
qualify as (a) a “non-employee director” under Rule 16b-3 of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), (b) an “outside director” under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the “Code”), and (c) otherwise meets the
independence requirements of the New York Stock Exchange (the “NYSE”). In the event that,
following the IPO, any member of the Committee does not so qualify, the Plan shall, to the
extent practicable, be administered by a sub-committee of Committee members who do so
qualify. If it is later determined that one or more members of the Committee do not so
qualify, actions taken by the Committee prior to such determination shall be valid despite
such failure to qualify.
	 
	 	 	The Committee shall have exclusive authority to select the employees, directors and
consultants to be granted awards under the Plan (“Awards”), to determine the type, size and
terms of the Awards and to prescribe the form of the instruments embodying Awards. With
respect to Awards made to directors and consultants, the Committee shall, and with respect
to employees may, specify the terms and conditions applicable to such Awards in an Award
agreement (each, an “Award Agreement”). The Committee is hereby authorized to interpret the
Plan, Award Agreements and the Awards granted under the Plan, to establish, amend and
rescind any rules and regulations relating to the Plan and to make any other determinations
which it believes necessary or advisable for the administration of the Plan. In connection
with any Award, the Committee in its sole discretion may provide for vesting provisions that
are different from the default vesting provisions that are contained in the Plan and such
alternative provisions shall not be deemed to conflict with the Plan. The Committee may
correct any defect or supply any omission or reconcile any inconsistency in the Plan or in
any Award or Award Agreement in the manner and to the extent the Committee deems desirable
to carry it into effect. Any decision of the Committee in the administration of the Plan,
as described herein, shall be final and conclusive. The Committee may act only by a
majority of its members, except that the members thereof may authorize any one or more of
their number or any officer of the Company to execute and deliver documents on behalf of the
Committee. No member of the Committee shall be liable for anything done or omitted to

 

 

	 	 	be done by him or her or by any other member of the Committee in connection with the Plan,
except for his or her own willful misconduct or as expressly provided by statute.

	 	 	The Committee may delegate, on such terms and conditions as it determines in its sole and
plenary discretion, to one or more executive officers of the Company the authority to make
grants of Awards to officers (other than executive officers), employees and consultants of
the Company and its affiliates (including any prospective officer, employee or consultant)
and all necessary and appropriate decisions and determinations with respect thereto.

	3.	 	PARTICIPATING SUBSIDIARIES
	 
	 	 	If a subsidiary of the Company wishes to participate in the Plan and its participation shall
have been approved by the Board, the Board of Directors of the subsidiary (the “Subsidiary
Board”) shall adopt a resolution in form and substance satisfactory to the Committee
authorizing participation by the subsidiary in the Plan. As used herein, “subsidiary” shall
mean a “subsidiary corporation” as defined in Section 424(f) of the Code.
	 
	 	 	A subsidiary may cease to participate in the Plan at any time by action of the Board or by
action of the Subsidiary Board, which latter action shall be effective not earlier than the
date of delivery to the Secretary of the Company of a certified copy of a resolution of the
Subsidiary Board taking such action. Termination of participation in the Plan shall not
relieve a subsidiary of any obligations theretofore incurred by it under the Plan.
	 
	4.	 	AWARDS

	 	(a)	 	Eligible Participants. Any employee, director or consultant of the Company or
any of its subsidiaries is eligible to receive an Award hereunder. The Committee shall
select which eligible employees, directors or consultants shall be granted Awards
hereunder. No employee, director or consultant shall have a right to receive an Award
hereunder and the grant of an Award to an employee, director or consultant shall not
obligate the Committee to continue to grant Awards to such employee, director or
consultant in subsequent periods or to grant Awards to any other person at any time.
	 
	 	(b)	 	Type of Awards. Awards shall be limited to the following seven types: (i)
“Stock Options,” (ii) “Stock Appreciation Rights,” (iii) “Restricted Stock,” (iv)
“Restricted Stock Units,” (v) “Performance Shares,” (vi) “Performance Units” and (vii)
other stock-based awards.
	 
	 	(c)	 	Maximum Number of Shares That May Be Issued. A maximum of seven million, eight
hundred and thirty thousand (7,830,000)1
 shares of common stock
of the Company, $0.01 par value (“Shares”), may be issued by the Company in
satisfaction of its obligations with respect to Award grants. The maximum aggregate
number of Shares with respect to which Awards may be issued to any participant in any
fiscal year of the Company is one million three hundred and twenty-five

 

			
	1	 	Increased from 900,000 to reflect the Company’s stock
dividend effective October 26, 2007.

-2-

 

	 	 	 	thousand (1,325,000)2, subject to adjustment as provided in Section 17.
For purposes of the foregoing, the exercise of a Stock Appreciation Right shall
constitute the issuance of Shares equal to the Shares delivered under such Stock
Appreciation Right. If any Shares issued as Restricted Stock shall be repurchased
pursuant to the Company’s option described in Section 6 below, or if any Shares
issued under the Plan shall be reacquired pursuant to restrictions imposed at the
time of issuance or pursuant to the satisfaction of tax withholding or related
obligations, such Shares may again be issued under the Plan.

	 	(d)	 	Rights With Respect to Shares.

	 	(i)	 	A participant to whom Restricted Stock has been issued shall
have, prior to the expiration of the Restricted Period or the earlier
repurchase of such Shares as herein provided, ownership of such Shares,
including the right to vote the same and to receive dividends thereon, subject,
however, to the options, restrictions and limitations imposed thereon pursuant
hereto.
	 
	 	(ii)	 	A participant to whom Stock Options, Stock Appreciation Rights,
Restricted Stock Units, Performance Shares or Performance Units are granted
(and any person succeeding to such participant’s rights pursuant to the Plan)
shall have no rights as a shareholder with respect to any Shares issuable
pursuant thereto until the date of the issuance of a stock certificate (whether
or not delivered) therefor. Except as provided in Section 17, no adjustment
shall be made for dividends, distributions or other rights (whether ordinary or
extraordinary, and whether in cash, securities or other property) the record
date for which is prior to the date such stock certificate is issued.
	 
	 	(iii)	 	The Company, in its discretion, may hold custody during the
Restricted Period of any Shares of Restricted Stock.

	5.	 	STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

	 	(a)	 	Stock Options, which include “Incentive Stock Options” and other stock options
or combinations thereof, are rights to purchase shares of Common Stock of the Company.
A Stock Appreciation Right is an unfunded and unsecured promise to deliver Shares,
cash, other securities, other Awards or other property equal in value to the excess, if
any, of the Fair Market Value per Share over the exercise price per Share of the Stock
Appreciation Right, subject to the terms of the applicable Award Agreement. The
maximum number of Shares with respect to which Incentive Stock Options may be issued to
a participant in one year is, four hundred and thirty-five thousand
(435,000)3 subject to adjustment pursuant to Section 17. Each Stock Option
shall comply with the following terms and conditions:

 

			
	2	 	Increased from 435,000 by action of the Board August
11, 2010. Previously increased from 50,000 to reflect the Company’s stock dividend effective October 26, 2007.
	 
	3	 	Increased from 50,000 to reflect the Company’s Stock
dividend effective October 26, 2007.

-3-

 

	 	(i)	 	The Committee shall determine the participants to whom Stock
Options shall be granted, the number of shares to be covered by each Stock
Option, whether the Stock Option will be an Incentive Stock Option and the
conditions and limitations applicable to the vesting and exercise of the
Option. Unless otherwise set forth in the applicable Award Agreement, the per
share exercise price shall not be less than the greater of (i) the Fair Market
Value per Share at the time of grant and (ii) the par value per Share.
However, the exercise price of an Incentive Stock Option granted to a
participant who owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or of a subsidiary (a “Ten
Percent Participant”) shall not be less than 110% of the greatest of (i) the
Fair Market Value per share at the time of grant, and (ii) the par value per
Share.
	 
	 	(ii)	 	The Stock Option shall not be transferable by the optionee
otherwise than by will or the laws of descent and distribution, and shall be
exercisable during such optionee’s lifetime only by such optionee, unless
otherwise set forth in the applicable Award Agreement.
	 
	 	(iii)	 	The Stock Option shall not be exercisable unless payment in
full is made for the Shares being acquired thereunder at the time of exercise
(including any Federal, state or local income or other taxes which the
Committee determines are required to be withheld in respect of such Shares),
and such payment shall be made in United States dollars by cash or check or, if
permitted by the Committee, (A) by tendering to the Company Shares owned by the
person exercising the Stock Option and having an aggregate Fair Market Value
equal to the aggregate cash exercise price thereof, (B) if there shall be a
public market for the Shares at such time, subject to such rules as may be
established by the Committee, through delivery of irrevocable instructions to a
broker to sell a number of Shares otherwise deliverable upon the exercise of
the Stock Option and to deliver promptly to the Company an amount equal to the
aggregate exercise price, or (C) by a combination of United States dollars and
Shares pursuant to (A) and/or (B) above.
	 
	 	(iv)	 	The aggregate Fair Market Value of Shares (determined at the
time of grant of the Stock Option pursuant to Section 5(a)(i) of the Plan) with
respect to which Incentive Stock Options granted to any participant under the
Plan are exercisable for the first time by such participant during any calendar
year may not exceed the maximum amount permitted under Section 422(d) of the
Code at the time of the Award grant. In the event this limitation would be
exceeded in any year, the optionee may elect either (i) to defer to a
succeeding year the date on which some or all of such Incentive Stock Options
would first become exercisable (but no longer than the term specified in
Section 5(c)(i) herein) or (ii) to convert some or all of such Incentive Stock
Options into non-qualified Stock Options.

-4-

 

	 	(b)	 	Each Stock Appreciation Right shall comply with the following terms and
conditions:

	 	(i)	 	The Committee shall determine the participants to whom Stock
Appreciation Rights shall be granted, the number of shares to be covered by
each Stock Appreciation Right and the conditions and limitations applicable to
the vesting and exercise of the Stock Appreciation Right. Unless otherwise set
forth in the applicable Award Agreement, the per share exercise price shall not
be less than the greater of (i) the Fair Market Value per Share at the time of
grant and (ii) the par value per Share.
	 
	 	(ii)	 	The Stock Appreciation Right shall not be transferable by the
awardee otherwise than by will or the laws of descent and distribution, and
shall be exercisable during such awardee’s lifetime only by such awardee,
unless otherwise set forth in the applicable Award Agreement.
	 
	 	(iii)	 	A Stock Appreciation Right shall entitle the Participant to
receive an amount equal to the excess, if any, of the Fair Market Value of a
Share on the date of exercise of the Stock Appreciation Right over the exercise
price thereof. The Committee shall determine, in its sole and plenary
discretion, whether a Stock Appreciation Right shall be settled in cash,
Shares, other securities, other Awards, other property or a combination of any
of the foregoing.
	 
	 	(iv)	 	No fractional Shares shall be delivered under this Section
5(b), but in lieu thereof a cash adjustment may be made as determined by the
Committee.

	 	(c)	 	Each Stock Option or Stock Appreciation Right shall not be exercisable:

	 	(i)	 	after the expiration of ten years from the date it is granted
(or such earlier date specified in the grant of the Stock Option or Stock
Appreciation Right or applicable Award Agreement) and may be exercised during
such period only at such time or times as the Committee may establish; or

	 	(ii)	 	unless otherwise set forth in the applicable Award Agreement,
by participants who were employees of the Company or one of its subsidiaries at
the time of the grant of the Stock Option or Stock Appreciation Right unless
such participant has been, at all times during the period beginning with the
date of grant of the Stock Option or Stock Appreciation Right and ending on the
date three months prior to such exercise, an officer or employee of the Company
or any of its subsidiaries, or of a corporation, or a parent or subsidiary of a
corporation, issuing or assuming the Stock Option or Stock Appreciation Right
in a transaction to which Section 424(a) of the Code is applicable, except
that:

	 	(A)	 	unless otherwise set forth in the applicable
Award Agreement, if such person shall cease to be an officer or
employee of the Company or one of its subsidiaries solely by reason of
a period of Related Employment (as defined in Section 12), he or she
may,

-5-

 

	 	 	 	during such period of Related Employment (but in no event after the
Stock Option or Stock Appreciation Right has expired under the
provisions of Section 5(c)(i) hereof), exercise such Stock Option or
Stock Appreciation Right as if he or she continued to be such an
officer or employee; or

	 	(B)	 	unless otherwise set forth in the applicable
Award Agreement, if an optionee shall become Disabled (as defined in
Section 10) he or she may, at any time within three years of the date
he or she becomes disabled (but in no event after the Stock Option or
Stock Appreciation Right has expired under the provisions of Section
5(c)(i) hereof), exercise the Stock Option or Stock Appreciation Right
with respect to (i) any Shares as to which he or she could have
exercised the Stock Option or Stock Appreciation Right on the date he
or she became disabled and (ii) if the Stock Option or Stock
Appreciation Right is not fully exercisable on the date he or she
becomes disabled, the number of additional Shares as to which the Stock
Option or Stock Appreciation Right would have become exercisable had he
or she remained an employee through the next date on which additional
Shares were scheduled to become exercisable under the Stock Option or
Stock Appreciation Right; or
	 
	 	(C)	 	unless otherwise set forth in the applicable
Award Agreement, if an optionee shall die while holding a Stock Option
or Stock Appreciation Right, his executors, administrators, heirs or
distributees, as the case may be, at any time within one year after the
date of such death (but in no event after the Stock Option or Stock
Appreciation Right has expired under the provisions of Section 5(c)(i)
hereof), may exercise the Stock Option or Stock Appreciation Right with
respect to any Shares as to which the decedent could have exercised the
Stock Option or Stock Appreciation Right at the time of his or her
death, and if the Stock Option or Stock Appreciation Right is not fully
exercisable on the date of his or her death, the number of additional
Shares as to which the Stock Option or Stock Appreciation Right would
have become exercisable had he or she remained an employee through the
next date on which additional Shares were scheduled to become
exercisable under the Stock Option or Stock Appreciation Right;
provided, however, that if death occurs during the three-year period
following a Disability as described in Section 5(c)(ii)(B) hereof or
any period following a voluntary termination (including retirement) in
respect of which the Committee has exercised its discretion to grant
continuing exercise rights as provided in Section 5(c)(ii)(D) hereof,
the Stock Option or Stock Appreciation Right shall not become
exercisable as to any Shares in addition to those as to which the
decedent could have 

-6-

 

	 	 	 	exercised the Stock Option or Stock Appreciation
Right at the time of his or her death; or

	 	(D)	 	unless otherwise set forth in the applicable
Award Agreement, if such person shall voluntarily terminate his or her
employment with the Company (including retirement), the Committee, in
its sole discretion, may determine that such optionee may exercise the
Stock Option or Stock Appreciation Right with respect to some or all of
the Shares subject to the Stock Option or Stock Appreciation Right as
to which it would not otherwise be exercisable on the date of his or
her voluntary termination provided, however, that in no event may such
exercise take place after the Stock Option or Stock Appreciation Right
has expired under the provisions of Section 5(c)(i) hereof.

	 	(E)	 	notwithstanding anything herein to the contrary
and subject to Section 13, unless otherwise set forth in the applicable
Award Agreement, in the event a Change in Control (as defined in
Section 13(a)) occurs and within 12 months thereafter: (A) there is a
Termination Without Cause (as defined in Section 14) of an optionee’s
or awardee’s employment or (B) there is a Constructive Termination (as
defined in Section 15) of an optionee’s or awardee’s employment (any
such Termination Without Cause or Constructive Termination, a “Trigger
Event”), the optionee or awardee may exercise the entire Stock Option
or Stock Appreciation Right at any time within 30 days following such
Trigger Event (but in no event after the Stock Option or Stock
Appreciation Right has expired under the provisions of Sections
5(c)(i)).

	6.	 	RESTRICTED STOCK
	 
	 	 	Each Award of Restricted Stock shall comply with the following terms and conditions, unless
otherwise set forth in the applicable Award Agreement:

	 	(a)	 	The Committee shall determine the number of Shares to be issued to a
participant pursuant to the Award.
	 
	 	(b)	 	Shares issued may not be sold, assigned, transferred, pledged, hypothecated or
otherwise disposed of, except by will or the laws of descent and distribution, for such
period from the date on which the Award is granted as the Committee shall determine
(the “Restricted Period”). The Company shall have the option to repurchase the Shares
subject to the Award at such price as the Committee shall have fixed (including zero
consideration), in its sole discretion, when the Award was made, which option will be
exercisable on such terms, in such manner and during such period as shall be determined
by the Committee when the Award is made (which may include, for illustration, the
participant’s cessation of continuous employment or the failure to satisfy performance
conditions). Certificates for Shares issued pursuant to Restricted Stock Awards shall
bear an 

-7-

 

	 	 	 	appropriate legend referring to the foregoing option and other restrictions.
Any attempt to dispose of any such Shares in contravention of the foregoing option and
other restrictions shall be null and void and without effect. If Shares issued
pursuant to a Restricted Stock Award shall be repurchased pursuant to the option
described above, the participant to whom the Award was granted, or in the event of
his or her death after such option became exercisable, his or her executor or
administrator, shall forthwith deliver to the Secretary of the Company any
certificates for the Shares awarded to the participant, accompanied by such
instruments of transfer, if any, as may reasonably be required by the Secretary of
the Company. If the option described above is not exercised by the Company, such
option and the restriction imposed pursuant to the first sentence of this Section
6(b) shall terminate and be of no further force and effect.

	 	(c)	 	Unless otherwise set forth in the applicable Award Agreement, if a participant
who has been in the continuous employment of the Company or of a subsidiary shall:

	 	(i)	 	die or become Disabled during the Restricted Period, the option
of the Company to repurchase (and any and all other restrictions on) a pro rata
portion of the Shares awarded to such participant under such Award shall lapse
and cease to be effective as of the date on which his or her death or
disability occurs which shall be determined as follows: (A) the number of
Shares awarded under the Award multiplied by (B) a percentage,
the numerator of which is equal to the number of months elapsed in the
Restricted Period as of the date of death or disability (counting the month in
which the death or disability occurred as a full month) and the denominator of
which is equal to the number of months in the Restricted Period; or
	 
	 	(ii)	 	voluntarily terminate his or her employment with the Company
(including retirement) during the Restricted Period, the Committee may
determine that all or any portion of the option to repurchase and any and all
other restrictions on some or all of the Shares awarded to him or her under
such Award, if such option and other restrictions are still in effect, shall
lapse and cease to be effective as the date on which such voluntary termination
or retirement occurs.

	 	(d)	 	Unless otherwise set forth in the applicable Award Agreement, in the event
within 12 months after a Change in Control and during the Restricted Period there is a
Trigger Event, then the option to repurchase (and any and all other restrictions on)
all Shares awarded to the participant under his or her Restricted Stock Award shall
lapse and cease to be effective as of the date on which such Trigger Event occurs.

	7.	 	RESTRICTED STOCK UNITS
	 
	 	 	The grant of a Restricted Stock Unit Award to a participant will entitle him or her to
receive, without payment to the Company, an amount equal to the number of Shares underlying
such Restricted Stock Unit Award multiplied by the Fair Market Value of a 

-8-

 

	 	 	Share on the date
of vesting of the Restricted Stock Unit Award, if the terms and conditions specified herein
and in the Award are satisfied. Payment in respect of a
Restricted Stock Unit Award shall be made as provided in Section 7(e). Each Restricted
Stock Unit Award shall be subject to the following terms and conditions:

	 	(a)	 	The Committee shall determine the number of Shares underlying the Restricted
Stock Units to be granted to a participant.
	 
	 	(b)	 	Restricted Stock Unit Awards shall be subject to the vesting schedule
determined by the Committee and set forth in the applicable Award Agreement. Payment
in respect of a vested Restricted Stock Unit may be made in cash, stock or any
combination thereof, as specified in the applicable Award Agreement.
	 
	 	(c)	 	Except as otherwise determined by the Committee or in an Award Agreement,
Restricted Stock Units shall be cancelled if the participant’s continuous employment
with the Company or any of its subsidiaries shall terminate for any reason prior to the
vesting of the Restricted Stock Units, except solely by reason of a period of Related
Employment, and except as otherwise specified in this Section 7(c) or in Section 7(d).
Notwithstanding the foregoing, unless otherwise set forth in the applicable Award
Agreement, if an employee participant shall:

	 	(i)	 	while in such employment, die or become Disabled prior to the
vesting of the Restricted Stock Units, such Restricted Stock Units shall be
immediately canceled and the participant, or the participant’s legal
representative, as the case may be, shall receive a payment in respect of such
canceled Restricted Stock Units equal to the product of (A)(i) the number of
Shares underlying such Restricted Stock Units multiplied by (ii) a fraction,
the numerator of which is equal to the number of full or partial months within
the period commencing on the grant date of such Restricted Stock Units and such
death or Disability (including, for this purpose, the month in which the death
or Disability occurs), and the denominator of which is equal to the total
number of months from the grant date to the date when such Restricted Stock
Units were intended to vest; or
	 
	 	(ii)	 	retire with the approval of the Committee in its sole
discretion prior to the vesting of the Restricted Stock Units, the Restricted
Stock Units shall be immediately canceled; provided that the Committee in its
sole discretion may determine to make a payment to the participant in respect
of some or all of such canceled Restricted Stock Units.

	 	(d)	 	Unless otherwise set forth in the applicable Award Agreement, if within 12
months after a Change in Control there is a Trigger Event, then with respect to
Restricted Stock Unit Awards that were outstanding on the date of the Trigger Event
(each, an “Applicable Award”), each such Applicable Award shall be immediately canceled
and, in respect thereof, such participant shall be entitled to receive a cash payment
equal to the product of (A) the number of Shares underlying such Applicable Awards and
(B) the Fair Market Value of a Share on the date the applicable Trigger Event occurs.

-9-

 

	 	(e)	 	Unless payment is deferred in accordance with an election made by the
participant in accordance with procedures adopted by the Company in its sole discretion
(if any), payment of any amount in respect of any Restricted Stock Units shall be made
by the Company no later than 60 days after the end of the calendar year in which such
Restricted Stock Units vest or become payable.

	8.	 	PERFORMANCE SHARES
	 
	 	 	The grant of a Performance Share Award to a participant will entitle such participant to
receive, without payment to the Company, all or part of the value (the “Actual Value”) of a
specified number of hypothetical Shares (“Performance Shares”) determined by the Committee,
if the terms and conditions specified herein and in the Award are satisfied. Payment in
respect of a Performance Share Award shall be made as provided in Section 8(h). Each
Performance Share Award shall be subject to the following terms and conditions:

	 	(a)	 	The Committee shall determine the target number of Performance Shares to be
granted to a participant. Performance Share Awards may be granted in different classes
or series having different terms and conditions.
	 
	 	(b)	 	The Actual Value of a Performance Share Award shall be the product of (i) the
target number of Performance Shares subject to the Performance Share Award, (ii) the
Performance Percentage (as determined below) applicable to the Performance Share Award
and (iii) the Fair Market Value of a Share on the date the Award is paid or becomes
payable to the participant. The “Performance Percentage” applicable to a Performance
Share Award shall be a percentage of no less than 0% and no more than 200%, which
percentage shall be determined by the Committee based upon the extent to which the
Performance Objectives (as determined below) established for such Award are achieved
during the Award Period (as defined below). The method for determining the applicable
Performance Percentage shall also be established by the Committee.
	 
	 	(c)	 	At the time each Performance Share Award is granted, the Committee shall
establish performance objectives (“Performance Objectives”) to be attained within the
Award Period as the means of determining the Performance Percentage applicable to such
Award. The Performance Objectives shall be approved by the Committee (i) while the
outcome for that Award Period is substantially uncertain and (ii) no more than 90 days
after the commencement of the Award Period to which the Performance Objective relates
or, if less than 90 days, the number of days which is equal to 25 percent of the
relevant Award Period. The Performance Objectives established with respect to a
Performance Share Award shall be specific performance targets established by the
Committee with respect to one or more of the following criteria selected by the
Committee: (i) consolidated earnings before or after taxes (including earnings before
interest, taxes, depreciation and amortization); (ii) net income; (iii) operating
income; (iv) earnings per Share; (v) book value per Share; (vi) return on stockholders’
equity; (vii) expense management; (viii) return on investment; (ix) improvements in
capital structure; (x) share price; (xi) combined ratio; (xii) operating ratio; (xiii)
profitability of an identifiable business unit or product; (xiv) maintenance or

-10-

 

	 	 	 	improvement of profit margins; (xv) market share; (xvi) revenues or sales; (xvii)
costs; (xviii) cash flow; (xix) working capital; (xx) return on assets; (xxi)
customer satisfaction; (xxii) employee satisfaction; (xxiii) economic value per
Share, (xxiv) underwriting return on capital and (xxv) underwriting return on
equity. The foregoing criteria may relate to the Company, one or more of its
subsidiaries or one or more of its divisions, units, partnerships, joint ventures or
minority investments, product lines or products or any combination of the foregoing,
and may be applied on an absolute basis and/or be relative to one or more peer group
companies or indices, or any combination thereof, all as the Committee shall
determine. In addition, to the degree consistent with Section 162(m) of the Code
(or any successor section thereto), the Performance Objectives may be calculated
without regard to extraordinary items.

	 	(d)	 	The award period (the “Award Period”) in respect of any grant of a Performance
Share Award shall be such period as the Committee shall determine commencing as of the
beginning of the fiscal year of the Company in which such grant is made. An Award
Period may contain a number of performance periods; each performance period shall
commence on or after the first day of the Award Period and shall end no later than the
last day of the Award Period. If the Committee does not specify in a Performance Share
Award agreement or elsewhere the performance periods contained in an Award Period, each
12-month period beginning with the first day of such Award Period shall be deemed to be
a performance period.
	 
	 	(e)	 	Except as otherwise determined by the Committee or in an Award Agreement,
Performance Shares shall be canceled if the participant’s continuous employment with
the Company or any of its subsidiaries shall terminate for any reason prior to the end
of the Award Period, except by reason of a period of Related Employment as defined in
Section 11, and except as otherwise specified in this Section 8(e) or in Section 8(f).
Notwithstanding the foregoing, unless otherwise set forth in the applicable Award
Agreement, if an employee participant shall:

	 	(i)	 	while in such employment, die or become Disabled prior to the
end of an Award Period, the Performance Share Award for such Award Period shall
be immediately canceled and he or she, or his or her legal representative, as
the case may be, shall receive a payment in respect of such canceled
Performance Share Award equal to the product of (A)(i) the target number of
Performance Shares for such Award multiplied by (ii) a fraction, the numerator
of which is equal to the number of full or partial months within the Award
Period during which employee was continuously employed by the Company or its
subsidiaries (including, for this purpose, the month in which the death or
Disability occurs), and the denominator of which is equal to the total number
of months within such Award Period, multiplied by (B) the Fair Market
Value of a Share on the last day of the performance period in which the death
or Disability occurred, multiplied by (C) the Performance Percentage
determined by the Board to have been achieved through the end of the
performance period in which the death or Disability occurred (but which in no
event shall be less than 50%); or

-11-

 

	 	(ii)	 	retire with the approval of the Committee in its sole
discretion prior to the end of the Award Period, the Performance Share Award
for such Award Period shall be immediately canceled; provided that the
Committee in its sole discretion may determine to make a payment to the
participant in respect of some or all of such canceled Performance Share Award.

	 	(f)	 	Unless otherwise set forth in the applicable Award Agreement, if within 12
months after a Change in Control there is a Trigger Event, then with respect to
Performance Share Awards that were outstanding on the date of the Trigger Event (each,
an “Applicable Award”), each such Applicable Award shall be immediately canceled and,
in respect thereof, such participant shall be entitled to receive a payment equal to
the product of (A) (i) the target number of Performance Shares for such Applicable
Award multiplied by (ii) a fraction, the numerator of which is equal to
the number of full months within the Award Period during which the participant was
continuously employed by the Company or its subsidiaries, and the denominator of which
is equal to the total number of months within such Award Period, multiplied
by (B) the Fair Market Value of a Share on the date the applicable Trigger
Event occurs, multiplied by (C) a Performance Percentage equal to 100%.
Unless otherwise set forth in the applicable Award Agreement, if following a Change in
Control, a Participant’s employment remains continuous through the end of an Award
Period, then the Participant shall be paid with respect to such Awards for which he
would have been paid had there not been a Change in Control and the Actual Value shall
be determined in accordance with Section 8(g) below.
	 
	 	(g)	 	Except as otherwise provided in Section 8(f), as soon as practicable after the
end of the Award Period or such earlier date as the Committee in its sole discretion
may designate, the Committee shall (i) determine, based on the extent to which the
applicable Performance Objectives have been achieved, the Performance Percentage
applicable to an Award of Performance Shares, (ii) calculate the Actual Value of the
Performance Share Award and (iii) shall certify the foregoing to the Board. The
Committee shall cause an amount equal to the Actual Value of the Performance Shares
earned by the participant to be paid to him or his beneficiary. The Committee shall
determine, in its sole and plenary discretion, whether Performance Shares shall be
settled in cash, Shares, other securities, other Awards, other property or a
combination of any of the foregoing.
	 
	 	(h)	 	Unless payment is deferred in accordance with an election made by the
participant in accordance with procedures adopted by the Company in its sole discretion
(if any), payment of any amount in respect of any Performance Shares shall be made by
the Company no later than 60 days after the end of the calendar year in which such
Performance Shares are earned.

	9.	 	PERFORMANCE UNITS
	 
	 	 	The grant of a Performance Unit Award to a participant will entitle such participant to
receive, without payment to the Company, all or part of a specified amount (the “Earned
Value”) determined by the Committee, if the terms and conditions specified herein and in the
Award are satisfied. Payment in respect of a Performance Unit Award shall be made

-12-

 

	 	 	as provided in Section 9(h). Each Performance Unit Award shall be subject to the following
terms and conditions:

	 	(a)	 	The Committee shall determine the target number of Performance Units to be
granted to a participant. The maximum Earned Value that may be earned by a participant
for Performance Units for any single Award Period of one year or longer shall not
exceed $25,000,000. Performance Unit Awards may be granted in different classes or
series having different terms and conditions.
	 
	 	(b)	 	The Earned Value of an Award of Performance Units shall be the product of (i)
the target number of Performance Units subject to the Performance Unit Award, (ii) the
Performance Percentage (as determined below) applicable to the Performance Unit Award
and (iii) the Value (as defined below) of a Performance Unit on the date the Award is
paid or becomes payable to the employee. The “Performance Percentage” applicable to a
Performance Unit Award shall be a percentage of no less than 0% and no more than 200%,
which percentage shall be determined by the Committee based upon the extent to which
the Performance Objectives (as determined below) established for such Award are
achieved during the Award Period (as defined below). The method for determining the
applicable Performance Percentage shall also be established by the Committee. The
“Value” of a Performance Unit shall be a fixed dollar value (or a dollar value
determined pursuant to a formula or similar process) specified by the Committee and set
forth in the applicable Award Agreement.
	 
	 	(c)	 	At the time each Performance Unit Award is granted the Committee shall
establish performance objectives (“Performance Objectives”) to be attained within the
Award Period as the means of determining the Performance Percentage applicable to such
Award. The Performance Objectives shall be approved by the Committee (i) while the
outcome for that Award Period is substantially uncertain and (ii) no more than 90 days
after the commencement of the performance period to which the performance objective
relates or, if less than 90 days, the number of days which is equal to 25 percent of
the relevant performance period. The Performance Objectives established with respect
to a Performance Unit Awards shall be specific performance targets established by the
Committee with respect to one or more of the following criteria selected by the
Committee: (i) consolidated earnings before or after taxes (including earnings before
interest, taxes, depreciation and amortization); (ii) net income; (iii) operating
income; (iv) earnings per Share; (v) book value per Share; (vi) return on stockholders’
equity; (vii) expense management; (viii) return on investment; (ix) improvements in
capital structure; (x) share price; (xi) combined ratio; (xii) operating ratio; (xiii)
profitability of an identifiable business unit or product; (xiv) maintenance or
improvement of profit margins; (xv) market share; (xvi) revenues or sales; (xvii)
costs; (xviii) cash flow; (xix) working capital; (xx) return on assets; (xxi) customer
satisfaction; (xxii) employee satisfaction; (xxiii) economic value per Share, (xxiv)
underwriting return on capital and (xxv) underwriting return on equity. The foregoing
criteria may relate to the Company, one or more of its subsidiaries or one or more of
its divisions, units, partnerships, joint ventures or minority investments, product
lines or products or any combination of the foregoing, and may be applied on an
absolute basis and/or be relative to one or

-13-

 

	 	 	 	more peer group companies or indices, or any combination thereof, all as the
Committee shall determine. In addition, to the degree consistent with Section
162(m) of the Code (or any successor section thereto), the Performance Objectives
may be calculated without regard to extraordinary items.

	 	(d)	 	The award period (the “Award Period”) in respect of any grant of a Performance
Unit Award shall be such period as the Committee shall determine commencing as of the
beginning of the fiscal year of the Company in which such grant is made. An Award
Period may contain a number of performance periods; each performance period shall
commence on or after the first day of the Award Period and shall end no later than the
last day of the Award Period. If the Committee does not specify in a Performance Unit
Award Agreement or elsewhere the performance periods contained in an Award Period, each
12-month period beginning with the first day of such Award Period shall be deemed to be
a performance period.
	 
	 	(e)	 	Except as otherwise determined by the Committee or in an Award Agreement,
Performance Units shall be cancelled if the participant’s continuous employment with
the Company or any of its subsidiaries shall terminate for any reason prior to the end
of the Award Period, except solely by reason of a period of Related Employment, and
except as otherwise specified in this Section 9(e) or in Section 9(f). Notwithstanding
the foregoing, unless otherwise set forth in the applicable Award Agreement, if an
employee participant shall:

	 	(i)	 	while in such employment, die or become Disabled prior to the
end of an Award Period, the Performance Unit Award for such Award Period shall
be immediately canceled and the participant, or his or her legal
representative, as the case may be, shall receive a payment in respect of such
canceled Performance Unit Award equal to the product of (A)(i) the target
number of Performance Units for such Award multiplied by (ii) a fraction, the
numerator of which is equal to the number of full or partial months within the
Award Period during which employee was continuously employed by the Company or
its subsidiaries (including, for this purpose, the month in which the death or
disability occurs), and the denominator of which is equal to the total number
of months within such Award Period, multiplied by (B) the value of a
Performance Unit on the last day of the performance period in which the death
or disability occurred, multiplied by (C) the Performance Percentage
determined by the Board to have been achieved through the end of the
performance period in which the death or disability occurred; or
	 
	 	(ii)	 	retire with the approval of the Committee in its sole
discretion prior to the end of the Award Period, the Performance Unit Award for
such Award Period shall be immediately canceled; provided that the Committee in
its sole discretion may determine to make a payment to the participant in
respect of some or all of such canceled Performance Unit Award.

	 	(f)	 	Unless otherwise set forth in the applicable Award Agreement, if within 12
months after a Change in Control there is a Trigger Event, then with respect to

-14-

 

	 	 	 	Performance Unit Awards that were outstanding on the date of the Trigger Event
(each, an “Applicable Award”), each such Applicable Award shall be immediately
canceled and, in respect thereof, such participant shall be entitled to receive a
payment equal to the product of (A) (i) the target number of Performance Units for
such Applicable Award multiplied by (ii) a fraction, the numerator
of which is equal to the number of full months within the Award Period during which
the participant was continuously employed by the Company or its subsidiaries, and
the denominator of which is equal to the total number of months within such Award
Period, multiplied by (B) the Value of a Performance Unit on the
date the applicable Trigger Event occurs, multiplied by (C) a
Performance Percentage equal to 100%. If following a Change in Control, unless
otherwise set forth in the applicable Award Agreement, a Participant’s employment
remains continuous through the end of an Award Period, then the Participant shall be
paid with respect to such Awards for which he or she would have been paid had there
not been a Change in Control and the Earned Value shall be determined in accordance
with Section 9(g) below.

	 	(g)	 	Except as otherwise provided in Section 9(f), as soon as practicable after the
end of the Award Period or such earlier date as the Committee in its sole discretion
may designate, the Committee shall (i) determine, based on the extent to which the
applicable Performance Objectives have been achieved, the Performance Percentage
applicable to an Award of Performance Units, (ii) calculate the Earned Value of the
Performance Unit Award and (iii) shall certify all of the foregoing to the Board of
Directors. The Committee shall cause an amount equal to the Earned Value of the
Performance Units earned by the participant to be paid to him or her or his or her
beneficiary. The Committee shall determine, in its sole and plenary discretion,
whether a Performance Unit shall be settled in cash, Shares, other securities, other
Awards, other property or a combination of any of the foregoing.
	 
	 	(h)	 	Unless payment is deferred in accordance with an election made by the
participant in accordance with procedures adopted by the Company in its sole discretion
(if any), payment of any amount in respect of any Performance Units shall be made by
the Company no later than 60 days after the end of the calendar year in which such
Performance Units are earned.

	10.	 	OTHER STOCK-BASED AWARDS
	 
	 	 	Subject to the provisions of the Plan, the Committee shall have the sole and plenary
authority to grant to participants other equity-based or equity-related Awards (including,
but not limited to, fully-vested Shares) in such amounts and subject to such terms and
conditions as the Committee shall determine.
	 
	11.	 	DISABILITY
	 
	 	 	For the purposes of this Plan, unless otherwise specified in the applicable Award Agreement,
a participant shall be deemed to be “Disabled” if the Committee shall determine that the
physical or mental condition of the participant is such as would entitle

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	 	 	him or her to payment of long-term disability benefits under any disability plan of the
Company or a subsidiary in which he or she is a participant.

	12.	 	RELATED EMPLOYMENT
	 
	 	 	For the purposes of this Plan, Related Employment shall mean the employment of a participant
by an employer which is neither the Company nor a subsidiary provided: (i) such employment
is undertaken by the participant and continued at the request of the Company or a
subsidiary; (ii) immediately prior to undertaking such employment, the participant was an
officer or employee of the Company or a subsidiary, or was engaged in Related Employment as
herein defined; and (iii) such employment is recognized by the Committee, in its sole
discretion, as Related Employment for the purposes of this Section 12. The death or
Disability of a participant during a period of Related Employment as herein defined shall be
treated, for purposes of this Plan, as if the death or onset of disability had occurred
while the participant was an officer or employee of the Company.
	 
	13.	 	CHANGE IN CONTROL

	 	(a)	 	For purposes of this Plan, unless otherwise specified in the applicable Award
Agreement, a “Change in Control” within the meaning of this Section 13(a) shall occur
if:

	 	(i)	 	Any person or group (within the meaning of Section 13(d) and
14(d)(2) of the Exchange Act), other than (x) White Mountains Insurance Group,
Ltd., Berkshire Hathaway, Inc. or the respective wholly owned subsidiaries
thereof, as applicable (the “Significant Investors”), (y) an underwriter
temporarily holding Shares in connection with a public issuance thereof or (z)
an employee benefit plan of the Company or its affiliates, becomes the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of
thirty-five percent (35%) or more of the Company’s then outstanding Shares and
such ownership percentage exceeds the beneficial ownership percentage of the
Significant Investors in the Company’s then outstanding Shares;
	 
	 	(ii)	 	the Continuing Directors, as defined in Section 13(b), cease
for any reason to constitute a majority of the Board of the Company; or
	 
	 	(iii)	 	the business of the Company and its subsidiaries is disposed
of by the Company pursuant to a sale or other disposition of all or
substantially all of the business or business-related assets of the Company and
its subsidiaries.

	 	(b)	 	For the purposes of this Plan, “Continuing Director” shall mean a member of the
Board who either was a member of the Board on the Effective Date (as defined below) or
subsequently became a director of the Company and whose election, or nomination for
election, by the Company’s shareholders was approved by a vote of a majority of the
Continuing Directors then on the Board (which term, for purposes of this definition,
shall mean the whole Board and not any committee 

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	 	 	 	thereof), but excluding any such
individual whose initial assumption of office
occurred pursuant to an actual or threatened proxy contest or consent solicitation
with respect to the election or removal of directors.

	 	(c)	 	In the event of a Change in Control, the Committee as constituted immediately
prior to the Change in Control shall determine the manner in which “Fair Market Value”
of Shares will be determined following the Change in Control.

	14.	 	TERMINATION WITHOUT CAUSE
	 
	 	 	For purposes of this Plan, unless otherwise specified in the applicable Award Agreement,
“Termination Without Cause” shall mean a termination of the participant’s employment with
the Company or subsidiary or business unit of the Company by the Company (or subsidiary or
business unit, as applicable) or, by a purchaser of the participant’s subsidiary or business
unit after a Change in Control as described in Subsection 13(a)(iii), other than (i) for
death or Disability or (ii) for Cause. “Cause” shall mean, unless otherwise set forth in
the applicable Award Agreement, (a) an act or omission by the participant that constitutes a
felony or any crime involving moral turpitude; or (b) willful gross negligence or willful
gross misconduct by the participant in connection with his employment which causes, or is
likely to cause, material loss or damage to the Company, subsidiary or business unit.
Notwithstanding anything herein to the contrary, if the participant’s employment with the
Company, subsidiary or business unit shall terminate due to a Change in Control as
described in Subsection 13(a)(iii), where the purchaser (the “Purchaser”), as described in
such subsection, formally assumes the Company’s obligations under this Plan or places the
participant in a similar or like plan with no diminution of the value of the awards, such
termination shall not be deemed to be a “Termination Without Cause.”
	 
	15.	 	CONSTRUCTIVE TERMINATION
	 
	 	 	“Constructive Termination” shall mean, unless otherwise set forth in the applicable Award
Agreement, a termination of employment with the Company or a subsidiary at the initiative of
the participant that the participant declares by prior written notice delivered to the
Secretary of the Company to be a Constructive Termination by the Company or a subsidiary and
which follows (a) a material decrease in his total compensation opportunity or (b) a
material diminution in the authority, duties or responsibilities of his position with the
result that the participant makes a determination in good faith that he or she cannot
continue to carry out his or her job in substantially the same manner as it was intended to
be carried out immediately before such diminution. Notwithstanding anything herein to the
contrary, Constructive Termination shall not occur within the meaning of this Section 15
until and unless (a) the participant provides 30 days written notice of termination to the
company of the occurrence of the circumstances described in this Section 15 within 30 days
following such occurrence and (b) 30 days have elapsed from the date the Company receives
such written notice from the participant without the Company curing or causing to be cured
the circumstance or circumstances described in this Section 15 on the basis of which the
declaration of Constructive Termination is given.

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	16.	 	[RESERVED]
	 
	17.	 	DILUTION AND OTHER ADJUSTMENTS

	 	(a)	 	In the event of any change in the outstanding Shares of the Company by reason
of any stock split, stock or extraordinary cash dividend, recapitalization, merger,
consolidation, reorganization, combination or exchange of Shares or other similar
event, and if the Committee shall determine, in its sole discretion, that such change
equitably requires an adjustment in the number or kind of Shares that may be issued
under the Plan pursuant to Section 4, in the number or kind of Shares subject to, or
the Stock Option or Stock Appreciation Right price per Share under, any outstanding
Award, in the number or kind of Shares which have been awarded as Restricted Stock or
in the repurchase option price per share relating thereto, in the target number of
Performance Shares or Performance Units which have been awarded to any participant, or
in any measure of performance, then such adjustment shall be made by the Committee and
shall be conclusive and binding for all purposes of the Plan.
	 
	 	(b)	 	The Committee is hereby authorized to make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, any extraordinary dividend or other
extraordinary distribution (whether in the form of cash, Shares, other securities or
other property), recapitalization, stock split, reverse stock split, split-up or
spin-off, merger, consolidation, stock sale, asset sale or the occurrence of a Change
of Control) affecting the Company, any affiliate, or the financial statements of the
Company or any affiliate, or of changes in applicable rules, rulings, regulations or
other requirements of any governmental body or securities exchange, accounting
principles or law (i) whenever the Committee, in its sole and plenary discretion,
determines that such adjustments are appropriate or desirable, including, without
limitation, providing for a substitution or assumption of Awards, accelerating the
exercisability of, lapse of restrictions on, or termination of, Awards or providing for
a period of time for exercise prior to the occurrence of such event, (ii) if deemed
appropriate or desirable by the Committee, in its sole and plenary discretion, by
providing for a cash payment to the holder of an Award in consideration for the
cancelation of such Award, including, in the case of an outstanding Option or Stock
Appreciation Right, a cash payment to the holder of such Option or Stock Appreciation
Right in consideration for the cancelation of such Option or Stock Appreciation Right
in an amount equal to the excess, if any, of the Fair Market Value (as of a date
specified by the Committee) of the Shares subject to such Option or Stock Appreciation
Right over the aggregate Exercise Price of such Option or Stock Appreciation Right and
(iii) if deemed appropriate or desirable by the Committee, in its sole and plenary
discretion, by canceling and terminating any Option or Stock Appreciation Right having
a per Share exercise price equal to, or in excess of, the Fair Market Value of a Share
subject to such Option or Stock Appreciation Right without any payment or consideration
therefor.

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	18.	 	DESIGNATION OF BENEFICIARY BY PARTICIPANT
	 
	 	 	A participant may name a beneficiary to receive any payment to which he may be entitled in
respect of Restricted Stock Units, Performance Shares, Performance Units or Stock
Appreciation Rights under the Plan in the event of his death, on a form to be provided by
the Committee. A participant may change his beneficiary from time to time in the same
manner. If no designated beneficiary is living on the date on which any amount becomes
payable to a participant’s executors or administrators, the term “beneficiary” as used in
the Plan shall include such person or persons.
	 
	19.	 	CERTAIN ADDITIONAL DEFINITIONS
	 
	 	 	As used in the Plan, the term “Fair Market Value” shall mean (a) with respect to any
property other than Shares, the fair market value of such property determined by such
methods or procedures as shall be established from time to time by the Committee and (b)
with respect to Shares, as of any date, (i) the closing per share sales price of the Shares
(A) as reported by the NYSE for such date or (B) if the Shares are listed on any other
national stock exchange, as reported on the stock exchange composite tape for securities
traded on such stock exchange for such date or, with respect to each of clauses (A) and (B),
if there were no sales on such date, on the closest preceding date on which there were sales
of Shares or (ii) in the event there shall be no public market for the Shares on such date,
the fair market value of the Shares as determined in good faith by the Committee.
	 
	20.	 	MISCELLANEOUS PROVISIONS

	 	(a)	 	No employee or other person shall have any claim or right to be granted an
Award under the Plan. Neither the Plan nor any action taken hereunder shall be
construed as giving an employee any right to be retained in the employ of the Company
or any subsidiary.
	 
	 	(b)	 	A participant’s rights and interest under the Plan may not be assigned or
transferred in whole or in part either directly or by operation of law or otherwise
(except in the event of a participant’s death), including but not limited to,
execution, levy, garnishment, attachment, pledge, bankruptcy or in any other manner and
no such right or interest of any participant in the Plan shall be subject to any
obligation or liability or such participant.
	 
	 	(c)	 	No Shares shall be issued hereunder unless counsel for the Company shall be
satisfied that such issuance will be in compliance with applicable Federal and state
securities laws.
	 
	 	(d)	 	The Company and its subsidiaries shall have the right to deduct from any
payment made under the Plan any Federal, state or local income or other taxes required
by law to be withheld with respect to such payment. It shall be a condition to the
obligation of the Company to issue Shares upon exercise of a Stock Option, upon
settlement of a Stock Appreciation Right, or upon payment of a Restricted Stock Unit,
Performance Share or a Performance Unit that the participant (or any beneficiary or
person entitled to payment under Section 5(c)(ii)(C) hereof) pay to

-19-

 

	 	 	 	the Company, upon its demand, such amount as may be required by the Company for the
purpose of satisfying any liability to withhold Federal, state or local income or
other taxes. If the amount requested is not paid, the Company may refuse to issue
Shares.

	 	(e)	 	The Plan shall be unfunded. The Company shall not be required to establish any
special or separate fund or to make any other segregation of assets to assure the
payment of any Award under the Plan.
	 
	 	(f)	 	By accepting any Award or other benefit under the Plan, each participant and
each person claiming under or through him or her shall be conclusively deemed to have
indicated his or her acceptance and ratification of, and consent to, any action taken
under the Plan by the Company, the Board or the Committee.

	21.	 	AMENDMENT
	 
	 	 	The Plan may be amended at any time and from time to time by the Board, but no amendment
which increases the aggregate number of Shares which may be issued pursuant to the Plan or
the class of employees eligible to participate shall be effective unless and until the same
is approved by the shareholders of the Company. No amendment of the Plan shall adversely
affect any right of any participant with respect to any Award previously granted without
such participant’s written consent.
	 
	22.	 	TERMINATION
	 
	 	 	This Plan shall terminate upon the earlier of the following dates or events to occur:

	 	(a)	 	the adoption of a resolution of the Board terminating the Plan; or
	 
	 	(b)	 	ten years from the Effective Date.

	 	 	No termination of the Plan shall alter or impair any of the rights or obligations of any
person, without his consent, under any Award previously granted under the Plan.

	23.	 	EFFECTIVE DATE
	 
	 	 	The Plan shall be effective as of the date of its adoption by the Board and approval by the
Company’s shareholders (such date, the “Effective Date”); provided,
however, that no Incentive Share Options may be granted under the Plan unless it is
approved by the Company’s shareholders within twelve (12) months before or after the date
the Plan is adopted by the Board.

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