EXHIBIT 99.1
HCC INSURANCE HOLDINGS, INC.
2001 FLEXIBLE INCENTIVE PLAN
1. PURPOSE
The purposes of the HCC Insurance Holdings, Inc. 2001 Flexible Incentive Plan
(the "2001 Flexible Plan") are to promote the interests of HCC Insurance
Holdings, Inc. (together with any successor thereto, the "Company") and its
subsidiaries and Shareholders by enabling the Company to attract, motivate and
retain employees, directors, consultants, and other service providers by
offering such employees, directors, consultants, and service providers
performance-based stock incentives and other equity interests in the Company and
other incentive awards that recognize the creation of value for the Shareholders
and promote the Company's long-term growth and success. To achieve these
purposes, Participants may receive stock options, Stock Appreciation Rights,
Restricted Stock, Performance Awards, Dividend Equivalent Rights and any other
Awards, or any combination thereof, subject to the terms of the Plan set forth
below.
2. DEFINITIONS
As used in the 2001 Flexible Plan, the following terms shall have the meanings
set forth below unless the content otherwise requires:
2.1 "Award" shall mean the grant of a stock option, a Stock Appreciation Right,
Restricted Stock, a Performance Award, a Dividend Equivalent Right or any other
award under the 2001 Flexible Plan.
2.2 "Board" shall mean the Board of Directors of the Company, as the same may
be constituted from time to time.
2.3 "Change in Control" shall mean, after the effective date of the 2001
Flexible Plan, (i) the occurrence of an event of a nature that would be required
to be reported in response to Item 1 of a Form 8-K Current Report of the Company
promulgated pursuant to Sections 13 and 15(d) of the Exchange Act; 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 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 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 approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation that would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the combined voting power of
the voting securities of the surviving entity outstanding immediately after such
merger or consolidation; provided, however, that a 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 approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets.
2.4 "Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
2.5 "Committee" shall mean the Stock Option or Compensation Committee of the
Company, if such a separate committee is appointed by the Board, or, in the
absence of such a separate committee, it shall mean the Board. If a separate
committee is appointed, then to the extent required by Rule 16b-3 promulgated
under the Exchange Act and any successor thereunder promulgated during the
duration of the 2001 Flexible Plan, the Committee members who approve Awards
which would otherwise not qualify for an exemption from Rule 16b-3 shall consist
of two or more "non-employee directors" as defined by Rule 16b-3. To the extent
that Awards are intended to satisfy, and to the extent required to satisfy, the
"qualified performance-based compensation" exemption under Section 162(m) of the
Code and such Treasury Regulations as may be promulgated thereunder, the
Committee members who approve Awards shall consist of two or more "outside
directors" as defined by such Section of the Code and such Treasury Regulations.
2.6 "Common Stock" shall mean the Common Stock, $1.00 par value per share, of
the Company.
2.7 "Designated Beneficiary" shall mean the beneficiary designated by an
Optionee in a manner determined by the Committee, to exercise rights of the
Optionee in the event of the Optionee's death. In the absence of an effective
designation by an Optionee the Designated Beneficiary shall be the Optionee's
estate.
2.8 "Disability" shall mean permanent and total inability to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or which has lasted
or can be expected to last for a continuous period of not less than twelve (12)
months, as determined in the sole and absolute discretion of the Committee.
2.9 "Dividend Equivalent Right" shall mean the right of the holder thereof to
receive credits based on the cash dividends that would have been paid on the
Shares specified in an Award granting Dividend Equivalent Rights if the Shares
subject to such Award were held by the person to whom the Award is made.
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
2001 Flexible Plan which qualifies as an "incentive stock option" under Section
422 of the Code or any successor provision.
2.13 "Non-Tandem Stock Appreciation Right" shall mean any Stock Appreciation
Right granted alone and not in connection with an Award which is a stock option.
2.14 "Non-Qualified Stock Option" shall mean any stock option awarded under the
2001 Flexible Plan that does not qualify as an Incentive Stock Option.
2.15 "Optionee" shall mean any Participant who has been granted a stock option
under the 2001 Flexible Plan and who has executed a written stock option
agreement with the Company reflecting the terms of such grant.
2.16 "Participant" shall mean an individual who is eligible to receive an Award
in accordance with Section 5.
2.17 "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.
2.18 "2001 Flexible Plan" shall mean the HCC Insurance Holdings, Inc. 2001
Flexible Incentive Plan, as amended and restated as set forth herein, and as may
be amended from time to time.
2.19 "Restricted Stock" shall mean any Award of Shares under the 2001 Flexible
Plan that are subject to restrictions or risk of forfeiture.
2.20 "Retirement" unless otherwise defined in any other agreement regarding an
Award, shall mean termination of a Participant's employment other than for cause
on or after the attainment of age 65 (or such other age as is permitted for the
Participant by the Committee in its sole discretion), provided the Participant
does not engage in full time employment with any other entity.
2.21 "Shareholders" shall mean the holders of Shares and/or, to the extent the
context requires, other equity securities of the Company.
2.22 "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.
2.23 "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).
2.24 "Subsidiary" shall mean any subsidiary of the Company, and any business
venture designated by the Committee in which the Company has a significant
interest, as determined in the discretion of the Committee, provided that for
all purposes hereunder relating to Incentive Stock Options, "Subsidiary" shall
mean a subsidiary corporation of the Company, as defined in Section 424(f) of
the Code.
2.25 "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 2001 FLEXIBLE PLAN
3.1 Committee. The 2001 Flexible Plan shall be administered and interpreted by
the Committee in its discretion.
3.2 Awards. Subject to the provisions of the 2001 Flexible Plan and directions
from the Board, the Committee is authorized to and has the complete power and
discretion to:
(a) determine the persons to whom Awards are to be granted;
(b) determine the types and combinations of Awards to be granted; the
number of Shares to be covered by the Award; the pricing of the Award; the time
or times when the Award shall be granted and may be exercised; the terms,
performance criteria or other conditions, vesting periods or any restrictions
for an Award; any restrictions on Shares acquired pursuant to the exercise of an
Award; and any other terms and conditions of an Award;
(c) conclusively interpret the provisions of the 2001 Flexible Plan and any
agreement, instrument, or other document relating to the 2001 Flexible Plan;
(d) prescribe, amend and rescind the rules and regulations relating to the
2001 Flexible Plan or make individual decisions as questions arise, or both;
(e) determine whether, to what extent and under what circumstances to
provide loans from the Company to participants to purchase Shares subject to
Awards under the 2001 Flexible Plan, and the terms and conditions of such loans;
(f) rely upon employees, consultants, and agents of the Company for such
clerical and record keeping duties as may be necessary in connection with the
administration of the 2001 Flexible Plan; and
(g) make all other determinations and take all other actions necessary or
advisable for the administration of the 2001 Flexible 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 2001 Flexible Plan or
pertaining to any question of fact or Award granted hereunder shall be decided
by the Committee, whose decision shall be final, conclusive and binding upon the
Company and each other affected party.
3.4 Delegation by the Committee. Subject to the last two sentences of Section
2.5, the Committee may delegate to officers of the Company, pursuant to a
written delegation, the authority to perform specified functions under the 2001
Flexible Plan. Any actions taken by any officers of the Company pursuant to such
written delegation of authority shall be deemed to have been taken by the
Committee.
3.5 Foreign Participation. To ensure the viability of awards granted to
Participants employed in foreign countries, the Committee may provide for such
special terms as it may consider necessary or appropriate to accommodate
differences in local law, tax policy or custom. Moreover, to the extent
permitted by applicable law and to the extent such authority would not adversely
affect the 2001 Flexible Plan, Participants, or Awards, the Committee may
approve such supplements to, or amendments, restatements or alternative versions
of the 2001 Flexible Plan as it may consider necessary or appropriate for such
purposes without thereby affecting the terms of the 2001 Flexible Plan as in
effect for any other purposes; provided that, no such supplements, amendments,
restatements or alternative versions shall increase the Share limitations
contained in Section 4 of the Plan or change the eligibility provisions of
Section 5 of the Plan.
4. SHARES SUBJECT TO 2001 FLEXIBLE PLAN
4.1 Limitations. The maximum number of Shares that may be issued with respect
to Awards under the 2001 Flexible Plan shall not exceed 5,500,000 unless such
maximum shall be increased or decreased by reason of changes in capitalization
of the Company as hereinafter provided. 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 Participant during any calendar year may
not exceed 500,000 Shares, subject to adjustment as provided in Section 13
hereunder. The Shares issued pursuant to the 2001 Flexible Plan may be
authorized but unissued Shares, or may be issued Shares which have been
reacquired by the Company.
4.2 Changes. To the extent that any Award under the 2001 Flexible Plan, shall
be forfeited, shall expire unexercised or shall be canceled, in whole or in
part, then the number of Shares covered by the Award to the extent forfeited,
expired or canceled may again be awarded pursuant to the provisions of the 2001
Flexible Plan. Notwithstanding the foregoing, to the extent required for Awards
intended to constitute -- "qualified performance-based compensation" under Code
Section 162(m) to satisfy such requirements of Code Section 162(m), Shares
subject to a stock option or Stock Appreciation Right that is cancelled shall
not again be available under the Plan for purposes of the second sentence of
Section 4.1 and such other purposes, if any, as are required to satisfy such
requirements under Code Section 162(m). 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 2001 Flexible Plan, the number of Shares
available for future Awards under the 2001 Flexible Plan shall be reduced only
by the net number of Shares issued upon the exercise of the option. Awards that
may be satisfied either by the issuance of Shares or by cash or other
consideration shall, until the form of consideration to be paid is finally
determined, be counted against the
maximum number of Shares that may be issued under the 2001 Flexible Plan. If the
Award is ultimately satisfied by the payment of consideration other than Shares,
as, for example, a stock option granted in tandem with a Stock Appreciation
Right that is settled by a cash payment of the stock appreciation, such Shares
may again be made the subject of an Award under the 2001 Flexible Plan. Awards
will not reduce the number of Shares that may be issued pursuant to the 2001
Flexible Plan if the settlement of the Award will not require the issuance of
Shares, as, for example, a Stock Appreciation Right that can be satisfied only
by the payment of cash.
5. ELIGIBILITY
An individual shall be eligible to participate in the Plan and receive Awards
hereunder if the individual is an employee of the Company or a Subsidiary or if
the individual otherwise provides services to the Company or a Subsidiary as an
officer, consultant or nonemployee director or in any other capacity; provided
that Incentive Stock Options may only be awarded to individuals who are
employees of the Company or a Subsidiary. In making any determination as to
persons to whom Awards shall be granted, the type of Award, and/or the number of
Shares to be covered by the Award, the Committee shall consider the position and
responsibilities of the Participant; his or her importance to the Company and
its Subsidiaries; the duties of such person; his or her past, present and
potential contributions to the growth and success of the Company and its
Subsidiaries; and such other factors as the Committee shall deem relevant in
connection with accomplishing the purposes of the 2001 Flexible Plan.
6. STOCK OPTIONS
6.1 Grants. The Committee may grant stock options alone or in addition to
other Awards granted under the 2001 Flexible Plan to any Participant. Each
person so selected shall be offered an option to purchase the number of Shares
determined by the Committee. The Committee shall specify whether such option is
an Incentive Stock Option or Non-Qualified Stock Option and any other terms and
conditions relating to such Award. 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 2001 Flexible Plan. The
Optionee and the Company shall enter into option agreements for Incentive Stock
Options and Non-Qualified Stock Options. At any time and from time to time, the
Optionee and the Company may agree to modify an option agreement so that an
Incentive Stock Option may be converted to a Non-Qualified Stock Option. The
Committee may require that an Optionee meet certain conditions before the option
or a portion thereof may vest or be exercised, as, for example, that the
Optionee remain in the employ or active service of the Company for a stated
period or periods of time before the option, or stated portions thereof, may
vest or be exercised.
6.2 Option Price. The option exercise price of the Shares covered by each
stock option shall be determined by the Committee; provided, however, that the
option exercise price of 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. Subject to the provisions of Section 13,
the exercise price of a stock option issued in accordance with this 2001
Flexible Plan shall not be adjusted or amended following the issuance of such
stock option.
6.3 Incentive Stock Options Limitations.
(a) To the extent required by Section 422 of the Code, 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
Participant owning more than ten percent (10%) of the total combined voting
power of the Company or any Subsidiary be granted an Incentive Stock Option
hereunder unless 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.
6.4 Option Term. Subject to Subsection 6.3(b) hereof, the term of a stock
option shall be for such period of months or years from the date of its grant as
may be determined by the Committee; provided, however, that no stock option
shall be exercisable later than ten (10) years from the date of its grant.
Subject to the foregoing, a stock option granted to a Participant who is not an
employee of the Company or any Subsidiary shall be exercisable at such time and
to such extent (including after termination of such Participant's service for
the Company) as is expressly provided in the option agreement. The extent to
which a stock option that is granted to a Participant who is an employee of the
Company or any Subsidiary may be exercised by the Participant or the
Participant's Designated Beneficiary after the Participant's termination of
employment with the Company and all Subsidiaries (including by reason of
Disability) shall be determined by the Committee and incorporated into the terms
of the applicable option agreement.
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 or service 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 2001 Flexible Plan shall terminate as of a date
to be fixed by the Board; provided, however, that not less than thirty (30)
days' written notice of the date so fixed shall be given to each Optionee and
each such Optionee shall be fully vested in and shall have the right during such
period to exercise the option, even though such option would not otherwise be
exercisable under the option vesting schedule. At the end of such period, any
unexercised option shall terminate and be of no other effect.
(c) In the event of a Reorganization (as defined in Section 2.3 hereof):
(1) If there is no plan or agreement respecting the Reorganization, or
if such plan or agreement does not specifically provide for the change,
conversion or exchange of the Shares under outstanding and unexercised
stock options for other securities then the provisions of Subsection 6.5(b)
shall apply as if the Company had dissolved or been liquidated on the
effective date of the Reorganization; or
(2) If there is a plan or agreement respecting the Reorganization, and
if such plan or agreement specifically provides for the change, conversion
or exchange of the Shares under outstanding and unexercised stock options
for securities of another corporation, then the Board shall adjust the
Shares under such outstanding and unexercised stock options (and shall
adjust the Shares remaining under the 2001 Flexible Plan which are then
available to be awarded under the 2001 Flexible Plan, if such plan or
agreement makes no specific provision therefor) 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.
(3) The Committee may provide in an option agreement and/or Stock
Appreciation Rights agreement that in the event of a Change in Control of
the Company, (i) all or a portion of the stock options and any associated
Stock Appreciation Rights awarded under such agreement shall become fully
vested and immediately exercisable and/or (ii) the vesting of all
performance-based stock options shall be determined as if the performance
period or cycle applicable to such stock options had ended immediately upon
such Change in Control; provided, however, that if in the opinion of
counsel to the Company the immediate exercisability of options when taken
into consideration with all other "parachute payments" as defined in
Section 280G of the Code, would result in an "excess parachute payment" as
defined in such section as well as an excise tax imposed by Section 4999 of
the Code, such options and any associated Stock Appreciation Rights shall
become fully vested and immediately exercisable, except as and to the
extent the Committee in its sole discretion, shall otherwise determine,
which determination by the Committee shall be based solely upon maximizing
the after-tax benefits to be received by any such Optionee. If the
Committee does not provide for accelerated vesting in an option or Stock
Appreciation Rights agreement pursuant to this Subsection 6.5(c)(3), such
option and/or Stock Appreciation Right shall vest, if at all, solely in
accordance with the terms of the agreement and the other terms of this
Plan.
6.6 Exercise of Stock Options.
(a) Stock options may be exercised as to Shares only in amounts and at
intervals of time specified in the written option agreement between the Company
and the Optionee. Each exercise of a stock option, or any part thereof, shall be
evidenced by a notice in writing to the Company. The purchase price of the
Shares as to which an option shall be exercised shall be paid in full at the
time of exercise, and may be paid to the Company either:
(1) in cash (including check, bank draft or money order);
(2) by the delivery of Shares having a Fair Market Value equal to the
aggregate purchase price;
(3) by a combination of cash and Shares; or
(4) by other consideration deemed acceptable by the Committee in its
sole discretion.
(b) An Optionee shall not have any of the rights of a Shareholder with
respect to the Shares covered by a stock option except to the extent that one or
more certificates representing such Shares shall have been delivered to the
Optionee, or the Optionee has been determined to be a Shareholder of record by
the Company's transfer agent, upon due exercise of the option.
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 2001 Flexible Plan or in any resolution adopted or to be adopted by the
Board or the Shareholders shall constitute the granting of a stock option under
the 2001 Flexible Plan.
7. STOCK APPRECIATION RIGHTS
7.1 Grants. The Committee may grant to any Participant either Non-Tandem Stock
Appreciation Rights or Tandem Stock Appreciation Rights. 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 Stock Option is exercisable, (ii) expires upon
the termination of the related Incentive Stock Option, (iii) may not exceed 100%
of the difference between the exercise price of the related Incentive Stock
Option and the Fair Market Value of the Shares subject to the related Incentive
Stock Option at the time the Tandem Stock Appreciation Right is exercised and
(iv) may be exercised at, and only at, such times as the Fair Market Value of
the Shares subject to the related Incentive Stock Option exceeds the exercise
price of the related Incentive Stock Option. 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 Sections 6.4 and 6.5 of the 2001 Flexible Plan.
7.4 Limited Stock Appreciation Rights. The Committee is also authorized to
grant "Limited Stock Appreciation Rights," either as Tandem Stock Appreciation
Rights or Non-Tandem Stock Appreciation Rights. Limited Stock Appreciation
Rights would become exercisable only upon the occurrence of a Change in Control
or such other event as the Committee may designate at the time of grant or
thereafter.
8. RESTRICTED STOCK
8.1 Grants. The Committee may grant Awards of Restricted Stock for no cash
consideration, for such minimum consideration as may be required by applicable
law, or for such other consideration as may be specified by the grant. The terms
and conditions of the Restricted Stock shall be specified by the grant
agreement. The Committee, in its sole discretion, may specify any particular
rights which the person to whom an Award of Restricted Stock is made shall have
in the Restricted Stock during the restriction period and the restrictions
applicable to the particular Award, the vesting schedule (which may be based on
service, performance or other factors) and rights to acceleration of vesting
(including, without limitation, whether non-vested Shares are forfeited or
vested upon termination of employment or service). 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 2001 Flexible Plan,
Restricted Stock may not be disposed of by the recipient until the restrictions
specified in the Award expire.
8.2 Awards and Certificates. Any Restricted Stock issued hereunder may be
evidenced in such manner as the Committee, in its sole discretion, shall deem
appropriate including, without limitation, book-entry
registration or issuance of a stock certificate or certificates. In the event
any stock certificate is issued in respect of Shares of Restricted Stock awarded
hereunder, such certificate shall bear an appropriate legend with respect to the
restrictions applicable to such Award. The Company may retain, at its option,
the physical custody of any stock certificate representing any awards of
Restricted Stock during the restriction period or require that the Restricted
Stock be placed in escrow or trust, along with a stock power endorsed in blank,
until all restrictions are removed or expire.
9. PERFORMANCE AWARDS
9.1 Grants. A Performance Award may consist of either or both, as the
Committee may determine, (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, Shares, Restricted Stock
or any combination thereof, as the Committee may determine. The Committee may
grant Performance Awards to any Participant for no cash consideration, for such
minimum consideration as may be required by applicable law or for such other
consideration as may be specified at the time of the grant. The terms and
conditions of Performance Awards shall be specified at the time of the grant and
may include provisions establishing the performance period, the performance
criteria to be achieved during a performance period, the criteria used to
determine vesting (including the acceleration thereof), whether Performance
Awards are forfeited or vest upon termination of employment or service during a
performance period and the maximum or minimum settlement values. Each
Performance Award shall have its own terms and conditions, which shall be
determined at the discretion of the Committee. If the Committee determines, in
its sole discretion, that the established performance measures or objectives are
no longer suitable because of a change in the Company's business, operations,
corporate structure or for other reasons that the Committee deems satisfactory,
the Committee may modify the performance measures or objectives and/or the
performance period.
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 or active service of the
Company for a specified period of time, or the Company's performance or the
performance of its Shares measured against the performance of the market, the
Company's industry segment or its direct competitors. Performance Awards may be
paid in cash, Shares (including Restricted Stock) or other consideration, or any
combination thereof. If payable in Shares, the consideration for the issuance of
the Shares may be the achievement of the performance objective established at
the time of the grant of the Performance Award. Performance Awards may be
payable in a single payment or in installments and may be payable at a specified
date or dates or upon attaining the performance objective, all at the
Committee's discretion. The extent to which any applicable performance objective
has been achieved shall be conclusively determined by the Committee.
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 of
the Shares at the time thereof. Dividend Equivalent Rights may be settled in
cash or Shares, or a combination thereof, in a single payment or in
installments. A Dividend Equivalent Right granted as a component of another
Award may provide that such Dividend Equivalent Right shall be
settled upon exercise, settlement or payment for or lapse of restrictions on
such other Award, and that such Dividend Equivalent Right shall expire or be
forfeited or annulled under the same conditions as such other Award. A Dividend
Equivalent Right granted as a component of another Award may also contain terms
and conditions different from such other Award.
11. OTHER AWARDS
The Committee may grant to any Participant 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 2001 Flexible Plan. The
terms and conditions of such other form of Award shall be specified by the grant
including, but not limited to, the price, if any, and the vesting schedule, if
any. Such Awards may be granted for no cash consideration, for such minimum
consideration as may be required by applicable law or for such other
consideration as may be specified by the grant.
12. COMPLIANCE WITH SECURITIES AND OTHER LAWS
In no event shall the Company be required to sell or issue Shares under any
Award if the sale or issuance thereof would constitute a violation of applicable
Federal or state securities laws or regulations or a violation of any other law
or regulation of any governmental or regulatory agency or authority or any
national securities exchange. As a condition to any sale or issuance of Shares,
the Company may place legends on Shares, issue stop transfer orders and require
such agreements or undertakings as the Company may deem necessary or advisable
to assure compliance with any such laws or regulations, including, if the
Company or its counsel deems it appropriate, representations from the person to
whom an Award is granted that he or she is acquiring the Shares solely for
investment and not with a view to distribution and that no distribution of the
Shares will be made unless registered pursuant to applicable Federal and state
securities laws, or in the opinion of counsel of the Company, such registration
is unnecessary.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR REORGANIZATION
The value of an Award in Shares and the number of Shares available for issuance
hereunder 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 (or if
the Company is not the surviving corporation in such a transaction, but the
transaction does not constitute a Change in Control), each outstanding Award
shall pertain to and apply to the securities to which a holder of the number of
Shares subject to the Award would have been entitled, and if a plan or agreement
reflecting any such event is in effect that specifically provides for the
change, conversion or exchange of Shares, then any adjustment to Shares 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
2001 Flexible Plan.
To the extent that the foregoing adjustments relate to stock or securities of
the Company, such adjustments shall be made by the Board, whose determination
shall be final, binding and conclusive.
Except as hereinbefore expressly provided in the 2001 Flexible Plan, any person
to whom an Award is granted shall have no rights by reason of any subdivision or
consolidation of stock of any class or the payment of any stock dividend or any
other increase or decrease in the number of shares of stock of any class or by
reason of any dissolution, liquidation, reorganization, merger or consolidation
or spin-off of assets or stock of another corporation, and any issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall not affect and no adjustment by reason thereof
shall be made with respect to, the number or exercise price of Shares subject to
an Award. The grant of an Award pursuant to the 2001 Flexible Plan shall not
affect in any way the right or power of the Company to make adjustments,
reclassifications, Reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell or
transfer all or any part of its business or assets.
14. AMENDMENT OR TERMINATION OF THE 2001 FLEXIBLE PLAN
14.1 Amendment of the 2001 Flexible Plan. Notwithstanding anything contained
in the 2001 Flexible Plan to the contrary, all provisions of the 2001 Flexible
Plan may at any time or from time to time be modified or amended by the Board;
provided, however, that no Award at any time outstanding under the 2001 Flexible
Plan may be modified, impaired or canceled adversely to the holder of the Award
without the consent of such holder; and provided, further, that the 2001
Flexible Plan may not be amended (a) to increase the maximum number of Shares
subject to the 2001 Flexible Plan or (b) to modify the requirements as to
eligibility to receive Incentive Stock Options without approval by the holders
of a majority of the Shares of the Company represented and voted at a meeting of
the Shareholders.
14.2 Termination of the 2001 Flexible Plan. The Board may suspend or terminate
the 2001 Flexible Plan at any time, and such suspension or termination may be
retroactive or prospective. However, no Award may be granted on or after the
tenth anniversary of the adoption of the 2001 Flexible Plan or of the adoption
of any amendment to or restatement of the Plan if the Plan as so amended or
restated is approved by the Shareholders in accordance with Section 14.1.
Termination of the 2001 Flexible Plan shall not impair or affect any Award
previously granted hereunder and the rights of the holder of the Award shall
remain in effect until the Award has been exercised in its entirety or has
expired or otherwise has been terminated by the terms of such Award.
15. AMENDMENTS AND ADJUSTMENTS TO AWARDS
The Committee may amend, modify or terminate any outstanding Award with the
Participant's consent at any time prior to payment or exercise in any manner not
inconsistent with the terms of the 2001 Flexible Plan, including, without
limitation to change the date or dates as of which (a) an option becomes
exercisable or (b) a performance-based Award is deemed earned. The Committee is
also authorized to make adjustments in the terms and conditions of, and the
criteria included in, Awards in recognition of unusual or non-recurring events
(including, without limitation, the events described in Section 13 hereof)
affecting the Company, or the financial statements of the Company or any
Affiliate, or of changes in applicable laws, regulations or accounting
principles, whenever the Committee determines that such adjustments are
appropriate in order to prevent reduction or enlargement of the benefits or
potential benefits intended to be made available under the 2001 Flexible Plan.
Any provision of the 2001 Flexible Plan or any agreement regarding an Award to
the contrary notwithstanding, the Committee may cause any Award granted to be
canceled in consideration of a cash payment or alternative Award made to the
holder of such canceled Award equal in value to the Fair Market Value of such
canceled Award. The determinations of value under this Section 15 shall be made
by the Committee in its sole discretion.
16. GENERAL PROVISIONS
16.1 No Limit on Other Compensation Arrangements. Nothing contained in the
2001 Flexible Plan shall prevent the Company from adopting or continuing in
effect other compensation arrangements, and such arrangements may be either
generally applicable or applicable only in specific cases.
16.2 No Right to Employment. Nothing in the 2001 Flexible Plan or in any
Award, nor the grant of any Award, shall confer upon or be construed as giving
any recipient of an Award any right to remain in the employ or service of the
Company. Further, the Company may at any time dismiss an Optionee in the 2001
Flexible Plan from employment or service, free from any liability or any claim
under the 2001 Flexible Plan, unless otherwise expressly provided in the 2001
Flexible Plan or in any Award agreement. No Participant, employee, Optionee or
other person shall have any claim to be granted any Award, and there is no
obligation for uniformity or treatment of employees, Participants or holders or
beneficiaries of Awards.
16.3 Governing Law. The validity, construction and effect of the 2001 Flexible
Plan and any rules and regulations relating to the 2001 Flexible Plan shall be
determined in accordance with the laws of the State of Texas, without giving
effect to the conflicts of laws principles thereof.
16.4 Severability. If any provision of the 2001 Flexible Plan or any Award is
or becomes or is deemed to be invalid, illegal or unenforceable in any
jurisdiction or as to any person or Award, or would disqualify the 2001 Flexible
Plan or any Award under any law deemed applicable by the Committee, such
provision shall be construed or deemed amended to conform to applicable laws, or
if it cannot be construed or deemed amended without, in the sole determination
of the Committee, materially altering the intent of the 2001 Flexible Plan or
the Award, such provision shall be stricken as to such jurisdiction, person or
Award and the remainder of the 2001 Flexible Plan and any such Award shall
remain in full force and effect.
16.5 No Fractional Shares. No fractional Shares shall be issued or delivered
pursuant to the 2001 Flexible Plan or any Award, and the Committee shall
determine whether cash, other securities or other property shall be paid or
transferred in lieu of any fractional Shares or whether such fractional Shares
or any rights thereto shall be canceled, terminated or otherwise eliminated.
16.6 Headings. Headings are given to the Sections and Subsections of the 2001
Flexible Plan solely as a convenience to facilitate reference. Such headings
shall not be deemed in any way material or relevant to the construction or
interpretation of the 2001 Flexible Plan or any provision thereof.
16.7 Effective Date. The 2001 Flexible Plan, as amended, shall be effective as
of May 23, 2002 after its approval by the holders of a majority of the Shares of
the Company represented and voting at the Annual Meeting of Shareholders to be
held May 23, 2002. If the 2001 Flexible Plan, as amended, is not approved by the
Shareholders at the 2002 Annual Meeting, the amendments to 2001 Flexible Plan
(but not the 2001 Flexible Plan as approved by the Shareholders at the 2001
Annual Meeting) shall be null and void.
16.8 Non-Transferability of Awards. Awards shall be nontransferable other than
by will or the laws of descent and distribution, and Awards may be exercised,
during the lifetime of the holder, only by the holder (or the holder's duly
appointed guardian or personal representative); provided, however, that Awards
other than Incentive Stock Options may be transferred (i) by the holder to a
family member, trust, charity, or similar organization for estate planning
purposes or (ii) with the approval of the Committee, as directed under a
qualified domestic relations order.
16.9 Withholding. The Company shall have the right to withhold or require
separate payment of all Federal, state, local or other taxes or payments
required by law to be withheld or paid with respect to any Award or payment made
under the Plan. Such amounts shall be withheld or paid prior to the delivery of
any certificate representing shares of Common Stock or any other Award subject
to such withholding. Such a payment may be made by the delivery of cash (or
other consideration acceptable to the Company) to the Company in an amount that
equals or exceeds the required withholding obligation of the Company. In the
event of a transfer of an Award, the Participant who assigns the Award shall
remain subject to withholding taxes or similar obligations upon exercise of the
Award by the transferee to the extent required by the Code or other applicable
laws. All determinations of withholding liability under this Section shall be
made by the Company in its sole discretion and shall be binding upon the
Participant.
16.10 Unfunded Plan. Unless otherwise determined by the Committee, the 2001
Flexible Plan shall be unfunded and shall not create (or be construed to create)
a trust or a separate fund or funds. The 2001 Flexible Plan shall not establish
any fiduciary relationship between the Company and any Participant or
other person. To the extent any person holds any rights by virtue of an award
granted under the 2001 Flexible Plan, such rights shall be no greater than the
rights of an unsecured general creditor of the Company.
17. CODE SECTION 162(M) LIMITATIONS
17.1 Applicability. In the event of any inconsistencies between this Section
17 and the other 2001 Flexible Plan provisions, the provisions of this Section
17 shall control.
17.2 Establishment of Performance Goals. Awards, 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. 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 Participant if the goal is obtained. Such formula or
standard shall be sufficiently objective so that a third party with knowledge of
the relevant performance results could calculate the amount to be paid to the
subject Participant. The material terms of the performance goals for
Participants and the compensation payable thereunder shall be submitted to the
Shareholders for their review and approval if and to the extent required for
such compensation to be deductible pursuant to Section 162(m) (or any successor
thereto) of the Code, and the Treasury Regulations thereunder. Shareholder
approval, if necessary, shall be obtained for such performance goals prior to
any Award being paid to such Participant. If Shareholder approval is required
and the Shareholders do not approve such performance goals, no amount shall be
paid to such Participant for such applicable Award Period under the 2001
Flexible Plan. The disclosure of the "material terms" of a performance goal and
the compensation payable thereunder shall be determined under the guidelines set
forth under Section 162(m) of the Code, and the Treasury Regulations thereunder.
17.3 Components of Awards. Each Award to a Participant, 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
Section 17.8 herein, performance measures which may serve as determinants of
Awards shall be limited to the following measures: earnings per share; return on
assets; return on equity; return on capital; net profit after taxes; net profit
before taxes; economic value added; operating profits; stock price; market
share; and sales or expenses. Within ninety (90) days following the end of each
Award Period, the Committee shall certify in writing that the performance goals,
and any other material terms were satisfied. Thereafter, Awards shall be made
for each Participant 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 Sections 17.8 and
17.9 herein, each Award, other than stock options and Stock Appreciation Rights,
shall be based exclusively on the performance measures established by the
Committee pursuant to Sections 17.2 and 17.3.
17.5 No Partial Award Period Participation. A Participant who becomes eligible
to participate in the 2001 Flexible Plan after performance goals have been
established in an Award Period pursuant to Sections 17.2 and 17.3 may not
participation in the 2001 Flexible Plan prior to the next succeeding Award
Period, except with respect to Awards which are stock options or Stock
Appreciation Rights.
17.6 Performance Goals. Except as provided in Section 17.8 herein, performance
goals shall not be changed following their establishment, and Participants 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 Section 17.8 herein, subjective evaluations of individual performance of the
Participants 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 2001 Flexible Plan with respect to any
Participant may be made which would (i) increase the maximum amount that can be
paid to any one Optionee under the 2001 Flexible Plan, (ii) change the specified
performance goal for payment of Awards, or (iii) modify the requirements as to
eligibility for participation in the 2001 Flexible Plan, unless the 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 Participants to satisfy the
requirements of Section 162(m) and the Treasury Regulations promulgated
thereunder.
17.9 Stock Options and Stock Appreciation Rights; Maximum Amount of
Compensation. Notwithstanding any provision of this 2001 Flexible Plan
(including the provisions of this Section 17) to the contrary, the amount of
compensation which a Participant may receive with respect to stock options and
Stock Appreciation Rights which are granted hereunder shall be based solely on
an increase in the value of the applicable Shares after the date of grant of
such Award. Thus, no stock option may be granted hereunder to a Participant with
an exercise price less than the Fair Market Value of Shares on the date of
grant. The maximum amount of compensation payable as an Award (other than an
Award which is a stock option or Stock Appreciation Right) to any Participant
during any calendar year may not exceed $1,000,000. Section 4.1 sets forth the
maximum number of Shares (or cash equivalent value) with respect to which stock
options or Stock Appreciation Rights may be granted to any Participant during
any calendar year.