Document:

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                          HCC INSURANCE HOLDINGS, INC.
                        1992 INCENTIVE STOCK OPTION PLAN,
                            AS AMENDED AND RESTATED

1.  PURPOSE

The purpose of the HCC Insurance Holdings, Inc. Amended and Restated 1992
Incentive Stock Option Plan is to provide a means through which HCC Insurance
Holdings, Inc., a Delaware corporation, and its Subsidiaries may attract able
persons to enter the employ of the Company and to provide a means whereby
those key employees upon whom the responsibilities of the successful
administration and management of the Company rest, and whose present and
potential contributions to the welfare of the Company are of importance, can
acquire and maintain stock ownership, thereby strengthening their concern for
the welfare of the Company and their desire to remain in its employ. A
further purpose of the Plan is to provide such key employees with additional
incentive and reward opportunities designed to enhance the profitable growth
of the Company.

2. DEFINITIONS

         Whenever used herein, the following terms shall have the meanings
set forth below:

                  "Board" means the Board of Directors of HCC Insurance
         Holdings, Inc.

                  "Code" means the Internal Revenue Code of 1986. Reference in
         the Plan to any Code section includes any amendments or successor
         provisions to such section and any regulations under such section.

                  "Committee" means not less than two members of the Board who
         are selected by the Board as provided in Section 4(a).

                  "Common Stock" means the Company's Common Stock, $1.00
         par value.

                  "Company" means HCC Insurance Holdings, Inc.

                  "Disability" means permanent and total disability within the
         meaning of Code Section 22 (e) (3).

                  "Fair Market Value" of a share of Common Stock on any date
         means the average of the high and low sales price of a share of Common
         Stock as reflected in the report of consolidated trading of the
         relevant exchange-listed securities for that date (or, if no such
         shares were publicly traded on that date, the next preceding date that
         such shares were so traded) published in The Wall Street Journal or in
         any other publication selected by the Committee; provided, however,
         that if shares of Common Stock shall not have been publicly traded for
         more than ten (10) days immediately preceding such date, the Fair
         Market Value of a share of Common Stock on any date means the value
         determined by

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         the Committee to be the value of the Common Stock on the day such
         value is to be determined, in the Committee's sole discretion.

                  "Grantee" means an employee of the Company or one of its
         Subsidiaries to whom an Incentive Stock Option is granted.

                  "Incentive Stock Option" means an Option described in Code
         Section 422(b).

                  "1934 Act" means the Securities Exchange Act of 1934.
         Reference in the Plan to any section or rule under the 1934 Act
         includes any amendments or successor provisions to such section or
         role.

                  "Option" means the right to purchase, at the price and for the
         Term fixed by the Committee in accordance with the Plan and subject to
         such other limitations and restrictions as the Plan and the Committee
         may impose, the number of shares of Common Stock specified by the
         Committee.

                  "Option Agreement" means a written agreement in a form
         approved by the Committee to be entered into by the Company and the
         Grantee of an Incentive Stock Option, as provided in Section 8 hereof.

                  "Plan" means the HCC Insurance Holdings, Inc. Amended and
         Restated 1992 Incentive Stock Option Plan.

                  "Subsidiary" means any entity of which, at the time such
         subsidiary status is to be determined, at least 50% of the total
         combined voting power of all classes of stock of such entity is held by
         the Company and its Subsidiaries (exclusive of ownership by the entity
         whose subsidiary status is being determined).

                  "Successor" means the legal representative of the estate of a
         deceased Grantee or the person or persons who shall acquire the right
         to exercise an Incentive Stock Option by bequest or inheritance or by
         reason of the death of the Grantee.

                  "Term" means the period during which a particular Incentive
         Stock Option may be exercised.

3. EFFECTIVE DATE OF PLAN

The Plan shall become effective when approved at a meeting of the Company's
shareholders by the holders of a majority of the outstanding shares entitled to
vote. No Incentive Stock Options may be granted under the Plan after 2002,
although Option Agreements outstanding after that date may be amended at any
time prior to the end of their Term in accordance with the Plan and the Plan
shall remain in effect until all Incentive Stock Options granted under the Plan
have been exercised or have expired by reason of lapsed time.

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4. ADMINISTRATION OF THE PLAN

         (a) The Plan shall be administered by the Committee which shall
consist of at least two directors of the Company selected and appointed by
the Board, each of whom shall be a "disinterested director" within the
meaning of Rule l6b-3 promulgated under the 1934 Act. Unless and until its
members are not qualified to serve on the Committee under the provisions of
the Plan, the Compensation Committee of the Board of Directors will function
as the Committee. The Committee shall have the power to construe and
interpret the Plan and the respective Option Agreements executed hereunder,
to establish and amend such rules and regulations as it deems necessary or
desirable for the proper administration of the Plan, and to determine the
terms, restrictions, and provisions of the respective Option Agreements
executed hereunder. The Committee may correct any defect, supply any
omission, or reconcile any inconsistency in the Plan or in any Option
Agreement executed hereunder in the manner and to the extent it shall deem
expedient to carry it into effect. A majority of the Committee shall
constitute a quorum. The Committee shall act by majority action at a meeting,
except that action permitted to be taken at a meeting may be taken without a
meeting if written consent thereto is given by all members of the Committee.
Any decision or action taken or to be taken by the Committee arising out of
or in connection with the construction, administration, interpretation, and
effect of the Plan and of its roles and regulations shall, to the extent
permitted by law, be within the Committee's absolute discretion (except as
otherwise specifically provided herein) and shall be conclusive and binding
upon all Grantees and any person claiming under or through any Grantee.

         (b) The Committee shall have plenary authority, subject to the
provisions of the Plan, to grant Incentive Stock Options and to determine to
whom Incentive Stock Options shall be granted and the number of shares
subject to and the Term of each Incentive Stock Option, provided that no
Incentive Stock Option shall be granted which is exercisable after the
expiration of ten (10) years from the date it is granted.

5. GRANT OF OPTIONS; NUMBER AND SOURCE OF SHARES SUBJECT TO THE PLAN

         (a) The Committee may from time to time grant Incentive Stock
Options under the Plan for not more than 528,500 shares of Common Stock
(subject to adjustment under Section 13), which shares will be provided from
Common Stock held in the Company's treasury which is not reserved for some
other purpose or from authorized and unissued Common Stock which is not
reserved for some other purpose.

         (b) The date of grant of an Incentive Stock Option shall be the date
on which the Committee's action is final or such later date as specified by
the Committee.

         (c) Shares as to which an Incentive Stock option previously granted
shall for any reason lapse, expire, or terminate shall be restored to the
total number available for grant of Incentive Stock Options under the Plan.

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         (d) Shares shall be deemed to have been issued under the Plan only
to the extent actually issued and delivered pursuant to an Incentive Stock
Option.

6. EMPLOYEES ELIGIBLE TO RECEIVE OPTIONS

         (a) Incentive Stock options may be granted under the Plan to key
employees of the Company or its Subsidiaries.

         (b) Any person who, immediately before the grant of an Incentive
Stock Option, is the owner, directly or indirectly, of more than 10% of the
total combined voting power of all classes of stock of the Company or its
Subsidiaries shall not be eligible to receive an Incentive Stock Option;
provided that, such person shall be eligible to receive an Incentive Stock
Option if (i) the price to be paid by the Grantee to the Company upon
exercise of the Incentive Stock Option is not less than one hundred ten
percent (110%) of the Fair Market Value of the shares subject to the
Incentive Stock Option on the date the Incentive Stock Option is granted, and
(ii) such Incentive Stock Option shall not be exercisable after the
expiration of five (5) years from the date of grant.

7. LIMITATION ON ANNUAL AWARDS

The aggregate Fair Market Value (determined as of the date an Incentive Stock
Option is granted) of the shares with respect to which Incentive Stock
Options are exercisable for the first time by the Grantee during any calendar
year (under the Plan or any other stock option plans maintained by the
Company or its Subsidiaries) shall not exceed $100,000 (or such other
individual grant limit under the Code as may be in effect with respect to
Incentive Stock Options on the date of grant).

8. OPTION AGREEMENT

         (a) The prospective Grantee of an Incentive Stock Option shall
execute an Option Agreement with the Company containing such terms and
conditions, not inconsistent with the Plan, as may be approved by the
Committee. The terms and conditions of Option Agreements may vary from
Grantee to Grantee.

         (b) An Option Agreement may require the Grantee (or his Successor)
to give satisfactory assurance, upon exercise of the Incentive Stock Option,
that the shares to be delivered are being acquired for the purchaser's own
account for investment and not with a view to, or for sale in connection
with, any distribution of the shares so purchased or, in the case of
acquisition by an estate, that the shares are being acquired for resale in a
transaction which, in the opinion of counsel for the Company, would not
violate any Federal or State law.

         (c) The Committee may amend an Option Agreement from time to time
and such amendment shall not be deemed to be a new grant of an incentive
Stock Option provided that such amendment does not materially increase the
value of the Incentive Stock Option to the Grantee.

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         (d) Appropriate officers of the Company are hereby authorized to
execute (by facsimile or manually affixed signature) and deliver Option
Agreements, and amendments thereto, in the name of the Company as directed
from time to time by the Committee.

9.  OPTION PRICE

The price to be paid by the Grantee to the Company upon exercise of an
Incentive Stock Option shall be determined by the Committee but, subject to
the provisions of Section 6(b) and to adjustment as provided in Section 13,
shall not be less than one hundred percent (100%) of the Fair Market Value of
the shares subject to the Incentive Stock Option on the date of grant.
Payment shall be made in cash or, with the consent of the Committee, in whole
or in part in Common Stock owned by the Grantee, which shall be valued at
Fair Market Value on the date the Incentive Stock Option is exercised. Any
payment in Common Stock shall be effected by delivery of shares to the
Company's Chief Financial Officer, endorsed in blank or accompanied by stock
powers executed in blank, together with any other documents as the Company
shall require.

10. TERMS AND INSTALLMENTS OF OPTIONS; EXERCISE OF OPTION DURING LIFE OF GRANTEE

         (a) Each Incentive Stock Option granted under the Plan shall be
exercisable only during a Term commencing on the date the Incentive Stock
Option was granted and ending (unless the Incentive Stock Option shall have
terminated earlier under other provisions of the Plan) on a date to be fixed
by the Committee, but in no event to exceed ten (10) years from the date of
grant.

         (b) The Committee shall have authority to grant Incentive Stock
Options exercisable in full at any time during their Term, or exercisable in
cumulative or noncumulative installments.

         (c) Incentive Stock Options shall be exercised in whole or in part
in accordance with the terms set forth in the Grantee's Option Agreement.

         (d) Upon compliance by the Grantee with such terms of exercise, the
Company shall promptly deliver to the Grantee a certificate or certificates
for the shares purchased, without charge to the Grantee for any issue or
transfer tax.

         (e) The Committee may postpone any exercise of an Incentive Stock
Option for such time as the Committee in its discretion may deem necessary in
order to permit the Company with reasonable diligence (i) to effect or
maintain registration of the Plan or the shares issuable upon the exercise of
the Incentive Stock Option under the Securities Act of 1933, as amended, or
the securities laws of any applicable jurisdiction, or (ii) to determine that
such shares and Plan are exempt from such registration. The Company shall not
be obligated by virtue of any Option Agreement or any provision of the Plan
to recognize the exercise of an Incentive Stock Option to sell or issue
shares in violation of said Act or of the law of any government having
jurisdiction thereof. Any such postponement shall extend the Term of an
Incentive Stock Option with respect to any shares as to which the Incentive
Stock Option would have lapsed because of such postponement; provided,
however, that in no case will any such postponement serve to extend

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the Term of the Incentive Stock Option to a date exceeding ten years from the
date the Incentive Stock Option was granted.

         (f) All Incentive Stock Options granted under the Plan shall be
nontransferable other than by will or by the law of descent and distribution.
An Incentive Stock Option may be exercised during the lifetime of the Grantee
only by the Grantee.

         (g) Upon the exercise of an Incentive Stock Option by the Grantee,
the stock certificate or certificates may, at the request of the Grantee, be
issued in the Grantee's name and the name of another person as joint tenants
with right of survivorship.

         (h) The Committee may provide in an option agreement that in the
event of a Change in Control (as hereinafter defined) of the Company, all or
a portion of the Options awarded to a Grantee shall become fully vested and
immediately exercisable. "Change in Control" shall mean (i) the occurrence of
an event of a nature that would be required to be reported in response to
Item 1 or Item 2 of a Form 8-K Current Report of the Company promulgated
pursuant to Sections 13 and 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"); provided that, without limitation, such a
Change in Control shall be deemed to have occurred if (a) any "person", as
such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than
the Company, any trustee or other fiduciary holding securities under any
employee benefit plan of the Company, or any company owned, directly or
indirectly, by the shareholders of the Company in substantially the same
proportions as their ownership of stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing fifty
percent (50%) or more of the combined voting power of the Company's then
outstanding securities or (b) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board cease
for any reason to constitute at least a majority thereof, unless the election
by the Board or the nomination for election by the Company's shareholders was
approved by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors at the beginning of the two-year period
of whose election or nomination for election was previously so approved; (ii)
the shareholders of the Company approve a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
that would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than fifty-one percent (51%) of the combined voting power of the
voting securities of the surviving entity outstanding immediately after such
merger or consolidation; provided, however, that a merger or consolidation
effected to implement a reorganization or recapitalization of the Company, or
a similar transaction, in which no "person" acquires more than twenty percent
(20%) of the combined voting power of the Company's then outstanding
securities shall not constitute a Change in Control of the Company; or (iii)
the shareholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets. If the Committee does not provide
for accelerated vesting in an option agreement pursuant to this Section
10(h), such Option shall vest, if at all, solely in accordance with the terms
of the agreement and the other terms of this Plan.

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11. EXERCISE OF OPTION BY GRANTEE ON CESSATION OF EMPLOYMENT

Incentive Stock Options shall terminate immediately upon the cessation of
employment of the Grantee unless the Committee has provided in the Grantee's
Option Agreement, subject to the limitations set forth below, for exercise of
Incentive Stock Options following cessation of employment. Employment for the
purposes of this section shall mean continuous full-time salaried employment
with the Company or a Subsidiary, except that vacations, sick leaves, and
other approved absences and severance pay periods shall be disregarded, but
only to the extent allowed by the Code. The following limitations shall apply
to any provisions the Committee shall make in an Option Agreement for
exercise of Incentive Stock Options following cessation of employment.

         (a) If cessation of employment is the result of death or Disability
of the Grantee, no exercise may occur more than one (1) year following such
cessation of employment.

         (b) If cessation of employment is for a reason other than death or
Disability of the Grantee, no exercise may occur more than three (3) months
following such cessation of employment; provided that, if the Grantee dies
during such three (3) month period, Incentive Stock Options may be exercised
within one (1) year after the date of death.

         (c) Notwithstanding anything to the contrary contained in
Subsections (a) and (b) above, no exercise may occur after expiration of the
Term of the Incentive Stock Option.

         (d) No installment which had not become exercisable at the time of
cessation of employment may be exercised thereafter.

         (e) If the Grantee's employment has been terminated for deliberate
willful, or gross misconduct, as determined by the Committee, all Incentive
Stock Options shall terminate upon notice to Grantee of his termination.

12. SHAREHOLDERS' RIGHTS

No person shall have any rights of a shareholder by virtue of the grant of an
Incentive Stock Option except with respect to shares actually issued to that
person upon the exercise thereof, and for which certificates of stock have
been registered in that person's name.

13. ADJUSTMENT FOR CHANGES IN CAPITALIZATION

Any increase in the number of outstanding shares of Common Stock of the
Company occurring through stock splits or stock dividends after the adoption
of the Plan shall be reflected proportionately as an increase in the
aggregate number of shares of Common Stock then available for the grant of
Incentive Stock Options under the Plan and in the number of shares of Common
Stock subject to Incentive Stock Options then outstanding, and a
proportionate

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reduction shall be made in the per share price as to any outstanding
Incentive Stock Options. Any fractional shares resulting from such
adjustments shall be eliminated. If changes in capitalization other than
those considered above shall occur, the Committee shall make such adjustment
in the number and class of shares for which Incentive Stock Options may
thereafter be granted, in the number and class of shares remaining subject to
Incentive Stock Options then outstanding, and in the per share price as the
Committee in its discretion may consider appropriate, and all such
adjustments shall be conclusive upon all persons. No change shall be made in
the terms of an Incentive Stock Option which would cause such Incentive Stock
Option to fail to constitute an incentive stock option within the meaning of
Code Section 422.

14. CORPORATE MERGERS AND ACQUISITIONS

The Committee may grant Incentive Stock Options having terms and provisions
which vary from those specified in this Plan provided that any Incentive
Stock Options granted pursuant to this section are granted in substitution
for, or in connection with the assumption of, existing options granted by
another corporation and assumed or otherwise agreed to be provided for by the
Company pursuant to or by reason of a transaction involving a corporate
merger, consolidation, acquisition of property or stock, separation,
reorganization, or liquidation to which the Company or a Subsidiary is a
party.

15. TERMINATION, SUSPENSION, OR MODIFICATION OF PLAN

The Board may at any time terminate, suspend, or modify the Plan, except that
the Board shall not, without authorization of the holders of a majority of
the outstanding shares entitled to vote, effect any change (other than
through adjustment for changes in capitalization as hereinabove provided)
which: (a) increases the aggregate number of shares for which Incentive Stock
Options may be granted; (b) changes the class of employees eligible to be
granted Incentive Stock Options, (c) lowers the minimum per share price; (d)
extends the maximum Incentive Stock Option Term; (e) extends the maximum
period during which Incentive Stock Options may be granted under the Plan; or
(f) materially increases the benefits accruing to employees under the Plan.
No termination, suspension or modification of the Plan will adversely effect
any right acquired by any Grantee or any Successor under the terms of an
Incentive Stock Option granted before the date of such termination,
suspension or modification, unless such Grantee or Successor shall consent;
but it shall be conclusively presumed that any adjustment for changes in
capitalization as provided in Section 13 does not adversely affect any such
right.

16. APPLICATION OF PROCEEDS

The proceeds received by the Company, from the sale of its Shares under the
Plan will be used for general corporate purposes.

17. MISCELLANEOUS

         (a) This Plan and all rights hereunder shall be construed in
accordance with and governed by the laws of the State of Texas.

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         (b) Neither the adoption of this Plan nor any action of the Board or
the Committee shall be deemed to give a director or an employee any right to
be granted an Incentive Stock Option to purchase Common Stock except as may
be evidenced by an Option Agreement duly executed on behalf of the Company,
and then only to the extent and on the terms and conditions expressly set
forth therein.

         (c) Nothing contained in the Plan shall (i) confer upon any employee
any right with respect to continuation of employment with the Company, or
(ii) interfere in any way with the right of the Company to terminate his or
her employment at any time.

         (d) The terms of the Plan and of each related Option Agreement shall
be construed to qualify any Options granted under the Plan as Incentive Stock
Options.

         (e) With respect to persons subject to Section 16 of the 1934 Act,
transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent
any provision of the Plan or action by the Committee fails to so comply, it
will be void, to the extent permitted by law and deemed advisable by the
Committee.

         (f) The Company shall not be obligated to issue any shares of Common
Stock until there has been compliance with such laws and regulations as the
Company may deem applicable. No fractional shares of Common Stock shall be
delivered. The Company shall have the right to deduct any tax required by law
to be withheld and to require any prepayments required to enable it to
satisfy its withholding obligations.<PAGE>

                         HCC INSURANCE HOLDINGS, INC.
                         1995 FLEXIBLE INCENTIVE PLAN,
                            AS AMENDED AND RESTATED

1.       PURPOSE OF THE PLAN

         The purposes of HCC Insurance Holdings, Inc. 1995 Flexible Incentive
Plan (the "Plan") are to promote the interests of HCC Insurance Holdings,
Inc. and its subsidiaries (together with any successor thereto, the
"Company") and its Shareholders by enabling the Company to attract, motivate
and retain key employees by offering such key employees performance-based
stock incentives and other equity interests in the Company and other
incentive awards that recognize the creation of value for the Shareholders of
the Company and promote the Company's long-term growth and success. To
achieve these purposes, eligible persons may receive stock options, Stock
Appreciation Rights, Restricted Stock, Performance Awards, Performance Stock,
Dividend Equivalent Rights and any other Awards, or any combination thereof.

2.       DEFINITIONS

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

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

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

         2.3 "CHANGE IN CONTROL" shall mean, after the effective date of the
Plan, (i) the occurrence of an event of a nature that would be required to be
reported in response to Item 1 or Item 2 of a Form 8-K Current Report of the
Company promulgated pursuant to Sections 13 and 15(d) of the Exchange Act;
provided that, without limitation, such a Change in Control shall be deemed
to have occurred if (a) any "person," as such term is used in Sections 13(d)
and 14(d) of the Exchange Act (other than the Company, any trustee or other
fiduciary holding securities under any employee benefit plan of the Company,
or any company owned, directly or indirectly, by the Shareholders of the
Company in substantially the same proportions as their ownership of stock of
the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing twenty-five percent (25%) or more of the combined voting power
of the Company's then outstanding securities or (b) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board cease for any reason to constitute at least a majority thereof,
unless the election by the Board or the nomination for election by the
Company's Shareholders was approved by a vote of at least two-thirds (2/3) of
the Directors then still in office who either were Directors at the beginning
of the two-year period or whose election or nomination for election was
previously so approved; (ii) the Shareholders of the Company approve a merger
or consolidation of the Company with any other corporation, other than a
merger or consolidation that would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting

<PAGE>

securities of the surviving entity) more than eighty percent (80%) of the
combined voting power of the voting securities of the surviving entity
outstanding immediately after such merger or consolidation; provided,
however, that a merger or consolidation effected to implement a
reorganization or recapitalization of the Company, or a similar transaction
(collectively, a "Reorganization"), in which no "person" acquires more than
twenty percent (20%) of the combined voting power of the Company's then
outstanding securities shall not constitute a Change in Control of the
Company; or (iii) the Shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.

         2.4 "CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time.

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

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

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

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

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

                                       2
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         2.10 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended from time to time.

         2.11 "FAIR MARKET VALUE" shall mean with respect to the Shares, as
of any date, (i) the last reported sales price on any stock exchange on which
the Common Stock is traded or, if not reported on such exchange, on the
composite tape, or, in case no such sale takes place on such day, the average
of the reported closing bid and asked quotations on such exchange; (ii) if
the Common Stock is not listed on a stock exchange or no such quotations are
available, the closing price of the Common Stock as reported by the National
Market System of the National Association of Securities Dealers, Inc., or, if
no such quotations are available, the average of the high bid and low asked
quotations in the over-the-counter market as reported by the National
Quotation Bureau Incorporated, or similar organization; or (iii) in the event
that there shall be no public market for the Common Stock, the fair market
value of the Common Stock as determined (which determination shall be
conclusive) in good faith by the Committee, based upon the value of the
Company as a going concern, as if such Common Stock were publicly owned
stock, but without any discount with respect to minority ownership.

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

         2.13 "NON-TANDEM STOCK APPRECIATION RIGHT" shall mean any Stock
Appreciation Right granted alone and not in connection with an Award which is
a stock option.

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

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

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

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

         2.18 "RELOAD OPTION" shall mean a stock option as deemed in
subsection 6.6(b) herein.

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

         2.20 "RETIREMENT" unless otherwise defined herein or as defined in
any other agreement regarding an Award, shall mean termination of employment
other than discharge for cause, after

                                       3
<PAGE>

age 65 or on or before age 65 if pursuant to the terms of any retirement plan
maintained by the Company or any of its Subsidiaries in which such person
participates.

         2.21 "SHARES" shall mean shares of the Company's Common Stock and
any shares of capital stock or other securities of the Company hereafter
issued or issuable upon, in respect of or in substitution or exchange for
such Shares.

         2.22 "STOCK APPRECIATION RIGHT" shall mean the right of the holder
thereof to receive an amount in cash or Shares equal to the excess of the
Fair Market Value of a Share on the date of exercise over the Fair Market
Value of a Share on the date of the grant (or such other value as may be
specified in the agreement granting the Stock Appreciation Right).

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

         2.24 "TANDEM STOCK APPRECIATION RIGHT" shall mean a Stock
Appreciation Right granted in connection with an Award which is a stock
option.

3.       ADMINISTRATION OF THE PLAN

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

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

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

         (b) determine the types and combinations of Awards to be granted,
the number of Shares to be covered by the Award, the pricing of the Award,
the time or times when the Award shall be granted and may be exercised, the
terms, performance criteria or other conditions, vesting periods or any
restrictions for an Award, any restrictions on Shares acquired pursuant to
the exercise of an Award and any other terms and conditions of an Award;

         (c) conclusively interpret the provisions of the Plan;

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

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

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

                                       4
<PAGE>

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

         3.3 PROCEDURES. A majority of the Committee members shall constitute
a quorum. All determinations of the Committee shall be made by a majority of
its members. All questions of interpretation and application of the Plan or
pertaining to any question of fact or Award granted hereunder shall be
decided by the Committee, whose decision shall be final, conclusive and
binding upon the Company and each other affected party.

4.       SHARES SUBJECT TO PLAN

         4.1 LIMITATIONS. The maximum number of Shares that may be issued
with respect to Awards under the Plan shall not exceed 450,000 unless such
maximum shall be increased or decreased by reason of changes in
capitalization of the Company as hereinafter provided. The Shares issued
pursuant to the Plan may be authorized but unissued Shares, or may be issued
Shares which have been reacquired by the Company.

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

5.       ELIGIBILITY

         Eligibility for participation in the Plan shall be confined to those
persons who are employed by the Company, and who are officers of the Company,
or who are in managerial or other key positions within the Company or are
otherwise valuable employees of the Company. In making any determination as
to persons to whom Awards shall be granted, the type of Award, and/or the
number of Shares to be covered by the Award, the Committee shall consider the
position and responsibilities of the person, his or her importance to the
Company, the duties of such person, his or her past, present and potential
contributions to the growth and success of the Company, and such other
factors as the Committee shall deem relevant in connection with accomplishing
the purposes of the Plan.

                                       5
<PAGE>

6.       STOCK OPTIONS

         6.1 GRANTS. The Committee may grant stock options alone or in
addition to other Awards granted under the Plan to any eligible officer,
director or other key employee. Each person so selected shall be offered an
option to purchase the number of Shares determined by the Committee. The
Committee shall specify whether such option is an Incentive Stock Option or
Non-Qualified Stock Option and any other terms and conditions relating to
such Award. To the extent that any stock option does not qualify as an
Incentive Stock Option (whether because of its provisions or the time or
manner of its exercise or otherwise), such stock option or the portion
thereof which does not qualify shall constitute a separate Non-Qualified
Stock Option. Each such person so selected shall have a reasonable period of
time within which to accept or reject the offered option. Failure to accept
within the period so fixed by the Committee may be treated as a rejection.
Each person who accepts an option shall enter into a written agreement with
the Company, in such form as the Committee may prescribe, setting forth the
terms and conditions of the option, consistent with the provisions of the
Plan. The Optionee and the Company shall enter into option agreements for
Incentive Stock Options and Non-Qualified Stock Options. At any time and from
time to time, the Optionee and the Company may agree to modify an option
agreement so that an Incentive Stock Option may be converted to a
Non-Qualified Stock Option.

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

         6.2 OPTION PRICE. The option exercise price of the Shares covered by
each stock option shall be determined by the Committee; provided, however,
that the option exercise price of an Incentive Stock Option shall not be less
than one hundred percent (100%) of the Fair Market Value of Shares on the
date of the grant of such Incentive Stock Option.

         6.3 INCENTIVE STOCK OPTIONS LIMITATIONS.

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

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

                                       6
<PAGE>

         6.4 OPTION TERM. Subject to subsection 6.3(b) hereof, the term of a
stock option shall be for such period of months or years from the date of its
grant as may be determined by the Committee; provided, however, that no
Incentive Stock Option shall be exercisable later than ten (10) years from
the date of its grant. Furthermore, no stock option may be exercised unless,
at the time of such exercise, the Optionee is; and has been continuously
since the date of grant of his or her Incentive Stock Option, employed by the
Company, except that:

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

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

         (c) If the Optionee ceases to be an employee of the Company by
reason of the Optionee's Disability, the Incentive Stock Option may be
exercised within the period of one year after the date of Disability (or
within such lesser period as may be specified in the applicable option
agreement);

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

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

         (f) In the event of the termination of the Optionee's employment on
or after the attainment of age 65 (or such other age as is permitted for the
Optionee by the Committee in its sole discretion) and provided Optionee does
not engage in full time employment with any other entity ("Retirement"), the
stock option may, to the extent vested and previously unexercised, be
exercised by the Optionee within the period of one (1) year after the
termination of employment

                                       7
<PAGE>

by the Optionee (or within such lesser period as may be specified in the
applicable option agreement, whichever is shorter), provided that the
exercise of the option more than ninety (90) days after the Optionee's
termination of employment shall be treated as the exercise of a Non-Qualified
Option under the Plan.

         6.5 VESTING OF STOCK OPTIONS.

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

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

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

                  (1) If there is no plan or agreement respecting the
         Reorganization, or if such plan or agreement does not specifically
         provide for the change, conversion or exchange of the Shares under
         outstanding and unexercised stock options for other securities then
         the provisions of subsection 6.5(b) shall apply as if the Company had
         dissolved or been liquidated on the effective date of the
         Reorganization; or

                  (2) If there is a plan or agreement respecting the
         Reorganization, and if such plan or agreement specifically provides for
         the change, conversion or exchange of the Shares under outstanding and
         unexercised stock options for securities of another corporation, then
         the Board shall adjust the Shares under such outstanding and
         unexercised stock options (and shall adjust the Shares remaining under
         the Plan which are then available to be awarded under the Plan, if such
         plan or agreement makes no specific provision therefore) in a manner
         not inconsistent with the provisions of such plan or agreement for the
         adjustment, change, conversion or exchange of such Shares and such
         options.

         (d) The Committee may provide in an option agreement and/or Stock
Appreciation Rights agreement that in the event of a Change in Control of the
Company, (1) all or a portion of the stock options and any associated Stock
Appreciation Rights awarded under such agreement shall become fully vested and
immediately exercisable and/or (2) the vesting of all performance-

                                       8
<PAGE>

based stock options shall be determined as if the performance period or cycle
applicable to such options had ended immediately upon such Change in Control;
provided, however, that if in the opinion of counsel to the Company the
immediate exercisability of options when taken into consideration with all
other "parachute payments" as defined in Section 280G of the Code, as
amended, would result in an "excess parachute payment" as defined in such
section as well as an excise tax imposed by Section 4999 of the Code, such
options and any associated Stock Appreciation Rights shall become fully
vested and immediately exercisable, except as and to the extent the Committee
in its sole discretion, shall otherwise determine, which determination by the
Committee shall be based solely upon maximizing the after-tax benefits to be
received by any such Optionee. If the Committee does not provide for
accelerated vesting in an option or Stock Appreciation Rights agreement
pursuant to this Subsection 6.5(d), such option and/or Stock Appreciation
Right shall vest, if at all, solely in accordance with the terms of the
agreement and the other terms of this Plan.

         6.6 EXERCISE OF STOCK OPTIONS.

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

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

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

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

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

         (b) If an Optionee delivers Shares (including Shares of Restricted
Stock) already owned by him or her in full or partial payment of the exercise
price for any stock option granted under the Plan or any prior incentive plan
of the Company, or if the Optionee elects to have the Company reflect that
number of Shares out of the Shares being acquired through the exercise of the
option having a Fair Market Value equal to the exercise price of the stock
option being exercised, the Committee may authorize the automatic grant of a
new option (a "Reload Option") for that number of Shares as shall equal the
number of already owned Shares surrendered (including Shares of Restricted
Stock) or newly acquired Shares being retained in payment of the option
exercise price of the underlying stock option being exercised. The grant of a
Reload Option will become effective upon the exercise of the underlying stock
option. The option exercise price of the Reload Option shall be the Fair
Market Value of a Share on the effective date of the grant of the Reload
Option. Each Reload Option shall be exercisable no earlier than six (6)
months from the date of its grant and no later than the time when the
underlying stock option being exercised could be last exercised. The
Committee may also specify additional

                                       9
<PAGE>

terms, conditions and restrictions for the Reload Option and the Shares to be
acquired upon the exercise thereof.

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

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

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

7.       STOCK APPRECIATION RIGHTS

         7.1 GRANTS. The Committee may grant to any eligible employee either
Non-Tandem Stock Appreciation Rights or Tandem Stock Appreciation Rights.
Stock Appreciation Rights shall be subject to such terms and conditions as
the Committee shall impose. The grant of the Stock Appreciation Right may
provide that the holder may be paid for the value of the Stock Appreciation
Right either in cash or in Shares, or a combination thereof, at the
discretion of the Committee. In the event of the exercise of a Stock
Appreciation Right payable in Shares, the holder of the Stock Appreciation
Right shall receive that number of whole Shares of stock of the Company
having an aggregate Fair Market Value on the date of exercise equal to the
value obtained by multiplying (i) either (a) in the case of a Tandem Stock
Appreciation Right, the difference between the Fair Market Value of a Share
on the date of exercise over the per share exercise price of the related
option, or (b) in the case of a Non-Tandem Stock Appreciation Right the
difference between the Fair Market Value of a Share on the date of exercise
over the Fair Market Value on the date of the grant by (ii) the number of
Shares as to which the Stock Appreciation Right is exercised. However,
notwithstanding the foregoing, the Committee, in its sole discretion, may
place a ceiling on the amount payable upon exercise of a Stock Appreciation
Right but any such limitation shall be specified at the time that the Stock
Appreciation Right is granted.

         7.2 EXERCISABILITY. A Tandem Stock Appreciation Right may be granted
at the time of the grant of the related stock option or, if the related stock
option is a Non-Qualified Stock Option, at any time thereafter during the
term of the stock option. A Tandem Stock Appreciation Right granted in
connection with an Incentive Stock Option (i) may be exercised at, and only
at, the times and to the extent the related Incentive Plan Stock Option is
exercisable, (ii) expires upon the termination of the related Incentive Stock
Option, (iii) may not exceed 100% of the

                                       10
<PAGE>

difference between the exercise price of the related Incentive Stock Option
and the market price of the Shares subject to the related Incentive Stock
Option at the time the Tandem Stock Appreciation Right is exercised and (iv)
may be exercised at, and only at, such times as the market price of the
Shares subject to the related Incentive Stock Option exceeds the exercise
price of the related Incentive Stock Option. The Tandem Stock Appreciation
Right may be transferred at, and only at, the times and to the extent the
related stock option is transferable. If a Tandem Stock Appreciation Right is
granted, there shall be surrendered and canceled from the related option at
the time of exercise of the Tandem Stock Appreciation Right, in lieu of
exercise under the related option, that number of Shares as shall equal the
number of Shares as to which the Tandem Stock Appreciation Right shall have
been exercised.

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

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

8.       RESTRICTED STOCK

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

                                       11
<PAGE>

         8.2 AWARDS AND CERTIFICATES. Any Restricted Stock issued hereunder
may be evidenced such manner as the Committee, in its sole discretion, shall
deem appropriate including, without limitation, book-entry registration or
issuance of a stock certificate or certificates. In the event any stock
certificate is issued in respect of Shares of Restricted Stock awarded
hereunder, such certificate shall bear an appropriate legend with respect to
the restrictions applicable to such Award. The Company may retain, at its
option, the physical custody of any stock certificate representing any awards
of Restricted Stock during the restriction period or require that the
Restricted Stock be placed in escrow or trust, along with a stock power
endorsed in blank, until all restrictions are removed or expire.

9.       PERFORMANCE AWARDS

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

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

                                       12
<PAGE>

10.      DIVIDEND EQUIVALENT RIGHTS

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

11.      OTHER AWARDS

         The Committee may grant to any eligible employee other forms of
Awards based upon, payable in, or otherwise related to, in whole or in part,
Shares, if the Committee, in its sole discretion, determines that such other
form of Award is consistent with the purposes and restrictions of the Plan.
The terms and conditions of such other form of Award shall be specified by
the grant including, but not limited to, the price, if any, and the vesting
schedule, if any. Such Awards may be granted for no cash consideration, for
such minimum consideration as may be required by applicable law, or for such
other consideration as may be specified by the grant.

12.      COMPLIANCE WITH SECURITIES AND OTHER LAWS

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

                                       13
<PAGE>

13.      ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR REORGANIZATION

         The value of an Award in Shares shall be adjusted from time to time
as follows:

         (a) Subject to any required action by Shareholders, the number of
Shares covered by each outstanding Award, and the exercise price, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares of the Company resulting from a subdivision or consolidation of Shares
or the payment of a stock dividend (but only in Shares) or any other increase
or decrease in the number of Shares affected without receipt of consideration
by the Company.

         (b) Subject to any required action by Shareholders, if the Company
shall be the surviving corporation in any Reorganization, merger or
consolidation, each outstanding Award shall pertain to and apply to the
securities to which a holder of the number of Shares subject to the Award
would have been entitled, and if a plan or agreement reflecting any such
event is in effect that specifically provides for the change, conversion or
exchange of Shares, then any adjustment to Shares relating to an Award
hereunder shall not be inconsistent with the terms of any such plan or
agreement.

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

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

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

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

14.      AMENDMENT OR TERMINATION OF THE PLAN

         14.1 AMENDMENT OF THE PLAN. Notwithstanding anything contained in
the Plan to the contrary, all provisions of the Plan may at any time or from
time to time be modified or amended

                                       14
<PAGE>

by the Board; provided, however, that no Award at any time outstanding under
the Plan may be modified, unpaired or canceled adversely to the holder of the
Award without the consent of such holder; and provided, further, that the
Plan may not be amended without approval by the holders of a majority of the
Shares of the Company represented and voted at a meeting of the Shareholders
(a) to increase the maximum number of Shares subject to the Plan, (b) to
materially modify the requirements as to eligibility for participation in the
Plan, (c) to decrease the minimum exercise price for options, (d) to
otherwise materially increase the benefits accruing to persons to whom Awards
may be made under the Plan, as amended, or (e) if such approval is otherwise
necessary, to comply with Rule 16b-3 promulgated under the Exchange Act as
amended, or to comply with any other applicable laws, regulations or listing
requirements, or to qualify for an exemption or characterization that is
deemed desirable by the Board.

         14.2 TERMINATION OF THE PLAN. The Board may suspend or terminate the
Plan at any time, and such suspension or termination may be retroactive or
prospective. However, no Award may be granted on or after the tenth
anniversary of the adoption of the Plan. Termination of the Plan shall not
impair or affect any Award previously granted hereunder and the rights of the
holder of the Award shall remain in effect until the Award has been exercised
in its entirety or has expired or otherwise has been terminated by the terms
of such Award.

15.      AMENDMENTS AND ADJUSTMENTS TO AWARDS

         The Committee may amend, modify or terminate any outstanding Award
with the Participants consent at any time prior to payment or exercise in any
manner not inconsistent with the terms of the Plan, including, without
limitation, (i) to change the date or dates as of which (A) an option becomes
exercisable or (B) a performance-based Award is deemed earned, (ii) to amend
the terms of any outstanding Award to provide an exercise price per share
which is higher or lower than the then current exercise price per share of
such outstanding Award or (iii) to cancel an Award and grant a new Award in
substitution, therefore under such different terms and conditions as it
determines in its sole and complete discretion to be appropriate including,
but not limited to, having an exercise price per share which may be higher or
lower than the exercise price per share of the canceled Award. The Committee
is also authorized to make adjustments in the terms and conditions of, and
the criteria included in, Awards in recognition of unusual or non-recurring
events (including, without limitation, the events described in Section 13
hereof) affecting the Company, or the financial statements of the Company or
any Affiliate, or of changes in applicable laws, regulations or accounting
principles, whenever the Committee determines that such adjustments are
appropriate in order to prevent reduction or enlargement of the benefits or
potential benefits intended to be made available under the Plan. Any
provision of the Plan or any agreement regarding an Award to the contrary
notwithstanding, the Committee may cause any Award granted to be canceled in
consideration of a cash payment or alternative Award made to the holder of
such canceled Award equal in value to the Fair Market Value of such canceled
Award. The determinations of value under this Section 15 shall be made by the
Committee in its sole discretion.

                                       15
<PAGE>

16.      GENERAL PROVISIONS

         16.1 NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained
in the Plan shall prevent the Company from adopting or continuing in effect
other compensation arrangements, and such arrangements may be either
generally applicable or applicable only in specific cases.

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

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

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

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

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

         16.7 EFFECTIVE DATE. The Plan shall be effective as of the date of
its approval by the holders of a majority of the Shares of the Company
represented and voting at the next Annual Meeting of Shareholders. If the
Plan is not approved by the Shareholders at the 1995 Annual Meeting, after
such date, the Plan and all Awards granted thereunder, if any, shall be null
and void.

         16.8 NON-TRANSFERABILITY OF AWARDS. Awards shall be nontransferable
other than by will or the laws of descent and distribution, and Awards may be
exercised, during the lifetime of

                                       16
<PAGE>

the holder, only by the holder (or the holder's duly appointed guardian or
personal representative); provided, however, that Awards other than Incentive
Stock Options may be transferred (i) by the holder to a family member, trust,
charity, or similar organization for estate planning purposes or (ii) with
the approval of the Committee, as directed under a qualified domestic
relations order.

17.      NAMED EXECUTIVE OFFICERS

         17.1 APPLICABILITY OF SECTION 17. The provisions of this Section 17
shall apply only to those Executive Officers (i) whose compensation is
required to be reported in the Company's proxy statement pursuant to Item
402(a)(3)(i) and (ii) of Regulation S-K under the general rules and
regulations under the Exchange Act, as amended, and (ii) whose total
compensation, including estimated Awards, is determined by the Committee to
possibly be subject to the limitations on deductions imposed by Section
162(m) of the Code ("Named Executive Officers"). In the event of any
inconsistencies between this Section 17 and the other Plan provisions as they
pertain to Named Executive Officers, the provisions of this Section 17 shall
control.

         17.2 ESTABLISHMENT OF PERFORMANCE GOALS. Awards for Named Executive
Officers, other than stock options and Stock Appreciation Rights, shall be
based on the attainment of certain performance goals. No later than the
earlier of (i) ninety (90) days after the commencement of the applicable
fiscal year or such other award period as may be established by the Committee
("Award Period") and (ii) the completion of twenty-five percent (25%) of such
Award Period, the Committee shall establish, in writing, the performance
goals applicable to each such Award for Named Executive Officers. At the time
the performance goals are established by the Committee, their outcome must be
substantially uncertain. In addition, the performance goal must state, in
terms of an objective formula or standard, the method for computing the
amount of compensation payable to the Named Executive Officer if the goal is
obtained. Such formula or standard shall be sufficiently objective so that a
third party with knowledge of the relevant performance results could
calculate the amount to be paid to the subject Named Executive Officer. The
material terms of the performance goals for Named Executive Officers and the
compensation payable thereunder shall be submitted to the Shareholders of the
Company for their review and approval. Shareholder approval shall be obtained
for such performance goals prior to any Award being paid to such Named
Executive Officer. If the Shareholders do not approve such performance goals,
no amount shall be paid to such Named Executive Officer for such applicable
Award Period under the Plan. The disclosure of the "material terms" of a
performance goal and the compensation payable thereunder shall be determined
under the guidelines set forth under Section 162(m) of the Code, and the
Treasury Regulations thereunder.

         17.3 COMPONENTS OF AWARDS. Each Award to a Named Executive Officer,
other than stock options and Stock Appreciation Rights, shall be based on
performance goals which are sufficiently objective so that a third party
having knowledge of the relevant facts could determine whether the goal was
met. Except as provided in subsection 17.8 herein, performance measures which
may serve as determinants of Named Executive Officers Awards shall be limited
to the following measures: earnings per share; return on assets; return on
equity; return on capital; net profit after taxes; net profit before taxes;
economic value added; operating profits; stock price;

                                       17
<PAGE>

market share; and sales or expenses. Within ninety (90) days following the
end of each Award Period, the Committee shall certify in writing that the
performance goals, and any other material terms were satisfied. Thereafter,
Awards shall be made for each Named Executive Officer as determined by the
Committee. The Awards may not vary from the pre-established amount based on
the level of achievement.

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

         17.5 NO PARTIAL AWARD PERIOD PARTICIPATION. A Named Executive
Officer who becomes eligible to participate in the Plan after performance
goals have been established in an Award Period pursuant to subsection 17.2
may not participate in the Plan prior to the next succeeding Award Period,
except with respect to Awards which are stock options or Stock Appreciation
Rights.

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

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

         17.8 AMENDMENTS. No amendment of the Plan with respect to any Named
Executive Officer may be made which would (i) increase the maximum amount
that can be paid to any one Participant under the Plan, (ii) change the
specified performance goal for payment of Awards, or (iii) modify the
requirements as to eligibility for participation in the Plan, unless the
Company's Shareholders have first approved such amendment in a manner which
would permit the deduction under Section 162(m) of the Code of such payment
in the fiscal year it is paid. The Committee shall amend this Section 17 and
such other provisions as it deems appropriate, to cause amounts payable to
Named Executive Officers to satisfy the requirements of Section 162(m) and
the Treasury Regulations promulgated thereunder.

         17.9 STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. Notwithstanding
any provision of the Plan (including the provisions of this Section 17) to
the contrary, the amount of compensation which a Named Executive Officer may
receive with respect to stock options and Stock Appreciation Rights which are
granted hereunder is based solely on an increase in the value of the
applicable Shares after the date of grant of such Award. Thus, no stock
option may be granted hereunder to a Named Executive Officer with an exercise
price less than the Fair Market Value of Shares on the date of grant.
Furthermore, the maximum number of Shares (or cash equivalent value) with
respect to which stock options or Stock Appreciation Rights may be granted
hereunder to any Named Executive Officer during any calendar year may not
exceed

                                       18
<PAGE>

100,000 Shares, subject to adjustment as provided in Section 13 hereunder.

         17.10 MAXIMUM AMOUNT OF COMPENSATION. The maximum amount of
compensation payable as an Award (other than an Award which is a stock option
or Stock Appreciation Right) to any Named Executive Officer during any
calendar year may not exceed $1,000,000.

                                      19

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