<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
HCC INSURANCE HOLDINGS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
FRANK J. BRAMANTI
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box): No fee required.
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), OR 14A-6(i)(3).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
HCC INSURANCE HOLDINGS, INC.
13403 NORTHWEST FREEWAY
HOUSTON, TEXAS 77040-6094
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 22, 1997 AT 9:30 A.M.
------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of HCC
Insurance Holdings, Inc. (the "Company") will be held on Thursday, May 22, 1997
at 9:30 a.m. Houston time, at the offices of the Company, 13403 Northwest
Freeway, Houston, Texas, 77040 for the following purposes:
1. To elect nine (9) Directors to serve until the next Annual Meeting of
Shareholders and until their successors are elected and qualify;
2. To consider and vote upon a proposal to approve the 1997 Flexible
Incentive Plan (the "Flexible Plan") which will authorize the possible issuance
of 2,000,000 shares of Common Stock to certain employees;
3. To ratify the appointment by the Company's Board of Directors of Coopers
& Lybrand L.L.P. independent auditors, to audit the accounts of the Company and
its subsidiaries for 1997; and
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Board of Directors has fixed the close of business on April 24, 1997, as
the record date for determining those Shareholders who are entitled to notice
of, and to vote at, the meeting. A list of such Shareholders will be open to
examination by any Shareholder at the meeting and for a period of ten days prior
to the date of the meeting during ordinary business hours at 13403 Northwest
Freeway, Houston, Texas. A copy of the Annual Report of the Company on Form 10-K
for the fiscal year ended December 31, 1996 is enclosed.
By Order of the Board of Directors,
FRANK J. BRAMANTI
SECRETARY
Houston, Texas
April 30, 1997
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING, PLEASE MARK, SIGN
AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED PREPAID ENVELOPE TO
ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING. IF YOU ATTEND THE
MEETING, YOU MAY VOTE IN PERSON IF YOU WISH TO DO SO, EVEN IF YOU HAVE
PREVIOUSLY SENT IN YOUR PROXY.
<PAGE>
HCC INSURANCE HOLDINGS, INC.
13403 NORTHWEST FREEWAY
HOUSTON, TEXAS 77040-6094
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF SHAREHOLDERS
MAY 22, 1997
------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
This Proxy Statement is first being mailed on or about April 30, 1997 to
Shareholders of HCC Insurance Holdings, Inc. (the "Company"), in connection with
the solicitation by the Board of Directors of the Company of proxies to be voted
at the Annual Meeting of Shareholders to be held on Thursday, May 22, 1997, at
9:30 a.m. Houston time, at the offices of the Company, 13403 Northwest Freeway,
Houston, Texas 77040, or any adjournment thereof (the "Meeting"). The
Shareholder giving the proxy has the power to revoke the proxy at any time
before it is exercised. Such right of revocation is not limited by or subject to
compliance with any formal procedure.
The cost of soliciting proxies will be borne by the Company. Copies of
solicitation material may be furnished to brokers, custodians, nominees and
other fiduciaries for forwarding to beneficial owners of shares for the
Company's Common Stock, and normal handling charges may be paid for such
forwarding service. Solicitation of proxies may be made by mail, personal
interview, telephone and facsimile by officers and other management employees of
the Company, who will receive no additional compensation for their services.
Only Shareholders of record on April 24, 1997 (the "Record Date") will be
entitled to vote at the Meeting, and each share will have one vote. At the close
of business on the Record Date, there were 36,169,185 shares of Common Stock of
the Company outstanding and entitled to vote at the Meeting.
An affirmative vote of a majority of shares present and voting at the
Meeting is required for approval of all items being submitted to Shareholders
for their consideration, other than the election of Directors, which is
determined by a plurality of the votes cast if a quorum is present and voting. A
majority of the outstanding shares of Common Stock, represented in person or by
proxy will constitute a quorum at the Meeting.
Abstentions and broker non-votes, are each included in the determination of
the number of shares present and voting for purposes of determining the presence
of a quorum. Each is tabulated separately. A proxy submitted by a Shareholder
may indicate that all or a portion of the shares represented by such proxy are
not being voted by such Shareholder with respect to a particular matter. This
may occur, for example, when a broker is not permitted to vote stock held in
street name on certain matters in the absence of instructions from the
beneficial owner of the stock. The shares subject to any such proxy which are
not being voted with respect to a particular matter (the "Non-Voted Shares")
will be treated as shares not present and entitled to vote on such matter,
although such shares may be considered present and entitled to vote for other
purposes and will count for purposes of determining the presence of a quorum.
Shares voted to abstain as to a particular matter will not be considered
Non-Voted Shares. Approval of each matter specified in the notice of the meeting
requires the affirmative vote of a majority, or in the case of the election of
Directors a plurality, of the shares of Common Stock present in person or by
proxy at the Meeting and entitled to vote on such matter. Accordingly, Non-Voted
Shares with respect to such matters
3
<PAGE>
will not affect the determination of whether such matters are approved or the
outcome of the election of Directors. Insofar as the adoption of the amendments
to the Flexible Plan and the ratification of the Company's auditors require a
majority of all votes cast on each issue, ABSTENTIONS will have the same effect
as a vote AGAINST the matter.
STOCK OWNERSHIP OF CERTAIN PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the Record Date by (a) each person
known by the Company to be the beneficial owner of more than five percent (5%)
of the Company's Common Stock, (b) each Executive Officer of the Company named
in the Summary Compensation Table, (c) each director and nominee for director,
and (d) all directors, nominees and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
OF BENEFICIAL COMMON STOCK
NAME OWNERSHIP(1)(2) OUTSTANDING
- ------------------------------------------------------------------------------ ------------------ -----------------
<S> <C> <C>
Stephen L. Way ............................................................... 3,917,079 10.8%
13403 Northwest Freeway
Houston, Texas 77040-6094
Stephen J. Lockwood .......................................................... 3,993,790(3) 11.0%
401 Edgewater Place Suite 400
Wakefield, Massachusetts 01880
Putnam Investments, Inc. ..................................................... 3,436,651(4) 9.5%
One Post Office Square
Boston, MA 02109
Pilgrim Baxter & Associates, Inc. ............................................ 2,624,900(5) 7.3%
11255 Drummers Lane
Suite 300
Wayne, PA 19087
Wasef S. Jabsheh.............................................................. 1,492,321 4.1%
Walter L. Suydam.............................................................. 1,250,000 3.5%
Frank J. Bramanti............................................................. 370,376(6) 1.0%
Peter B. Smith................................................................ 290,425 *
Walter J. Lack................................................................ 147,500 *
Hugh T. Wilson................................................................ 85,000 *
Allan W. Fulkerson............................................................ 67,500(7) *
John L. Kavanaugh............................................................. 53,750 *
J. Robert Dickerson........................................................... 32,500 *
Edwin H. Frank, III........................................................... 25,000(8) *
James M. Berry................................................................ 21,250 *
Patrick B. Collins............................................................ 12,500 *
All directors, nominees and executive officers as a group (16 persons)........ 11,804,275 32.1%
</TABLE>
- ------------------------
* Less than 1%.
(1) Directors and officers have sole voting and investment powers of the shares
shown unless otherwise indicated.
4
<PAGE>
(2) Includes shares which directors and executive officers have the right to
acquire upon the exercise of options within 60 days from the Record Date,
including the following: Stephen L. Way--131,767 shares; Stephen J.
Lockwood--5,000 shares; Wasef S. Jabsheh--20,834 shares; Frank J. Bramanti--
139,082 shares; Peter B. Smith--214,625 shares; Mark A. Buechler--26,501
shares; Hugh T. Wilson, John L. Kavanaugh, J. Robert Dickerson, Edwin H.
Frank, III, and James M. Berry--10,000 shares each; Patrick B.
Collins--7,500 shares; all directors, nominees and executive officers as a
group-- 595,309 shares.
(3) Includes 93,200 owned of record by The Lockwood Family Limited Partnership,
a partnership of which Mr. Lockwood is the general partner.
(4) Putnam Investments, Inc., a wholly owned subsidiary of Marsh & McLennan
Companies, Inc., is a holding company which wholly owns two registered
investment advisers. Both subsidiaries have dispositive power over the
shares of the Company's Common Stock, with shared voting power over 532,578
shares of the Company's Common Stock. Putnam Investments, Inc. disclaims
beneficial ownership of these shares. The foregoing information was obtained
from a Schedule 13G dated January 27, 1997, filed with the SEC by Putnam
Investments, Inc.
(5) Pilgrim Baxter & Associates, Ltd. reported that it is an investment advisor
with sole dispositive power over 2,624,900 shares of the Company's Common
Stock with shared voting power over such shares. The foregoing information
was obtained from a Schedule 13G dated February 14, 1997, filed with the SEC
by Pilgrim Baxter & Associates, Inc.
(6) Includes 2,250 shares owned by Mr. Bramanti's wife in trust for his children
and 750 shares owned by his children. Mr. Bramanti disclaims beneficial
ownership of these shares.
(7) Mr. Fulkerson is a director, shareholder and President of Century Capital
Management, Inc., which exercises both voting and investment power with
respect to 67,500 shares owned of record by Century Capital Partners, L.P.
Although Mr. Fulkerson may be deemed to beneficially own the 67,500 shares
owned of record by Century Capital Partners, L.P., he disclaims beneficial
ownership of such shares except to the extent of his proportionate interest
therein.
(8) Includes 11,250 shares owned by a company in which Mr. Frank owns a 43%
interest.
5
<PAGE>
PROPOSAL I--ELECTION OF DIRECTORS
The Board of Directors has set the number of Directors to be elected at the
Meeting at nine (9), each Director to hold office until the next Annual Meeting
of Shareholders and until his successor is elected and qualified. It is intended
that the votes represented by the proxies will be cast for the election as
Directors of the persons listed below. A plurality of shares present at the
Meeting cast in favor of a nominee is required for the election of each of the
nominees listed below. Each of the nominees, except for Mr. Fulkerson, is
currently a Director of the Company.
The following table presents information concerning persons nominated for
election as Directors of the Company, including current membership on committees
of the Board of Directors, principal occupation or affiliations during the last
five years and certain directorships held.
Although the Board of Directors does not contemplate that any of the
nominees will be unable to serve, if such a situation arises prior to the
Meeting, the persons named in the enclosed form of Proxy will vote in accordance
with their best judgment for a substitute nominee.
Mr. John L. Kavanaugh, who is currently serving as a Director, is not
standing for re-election but is expected to be appointed an Advisory Director
immediately after the Meeting.
INFORMATION REGARDING NOMINEES FOR DIRECTORS
<TABLE>
<CAPTION>
SERVED AS
PRINCIPAL OCCUPATION DIRECTOR
NAME DURING THE PAST FIVE YEARS AGE SINCE
- ------------------------------------ ----------------------------------------------------------- --- -----------
<S> <C> <C> <C>
Stephen L. Way...................... Mr. Way is the founder of the Company and has served as a 48 1974
Director, Chairman of the Board of Directors and Chief
Executive Officer of the Company since its organization. He
served as President from the Company's founding until May,
1996. Mr. Way has also served as a Director, Chairman of
the Board of Directors and President of Houston Casualty
Company (HCC), the Company's principal insurance company
subsidiary since its organization in 1981.
James M. Berry...................... Mr. Berry has served as a Director of the Company since 66 1992
March, 1992 and as a Director of HCC from December, 1993 to
May, 1996. Mr. Berry is the retired Vice Chairman of
NationsBank of Texas, N.A., a wholly owned subsidiary of
NationsBank N.A., having served in such capacity from
August, 1988 until December, 1992. He was Corporate
Executive Vice President of NCNB of North Carolina from
1983 to 1988. Mr. Berry also serves as a Director of
Williams-Sonoma, Inc., San Francisco, California.
Patrick B. Collins.................. Mr. Collins is a retired Partner of the international 68 1993
accounting firm of Coopers & Lybrand L.L.P. where he held
that position from 1967 through 1991. Mr. Collins was
appointed as a Director of the Company in December, 1993
and was a Director of HCC from the same date to May, 1996.
Mr. Collins is a member of the Audit Committee and the
Compensation Committee.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
SERVED AS
PRINCIPAL OCCUPATION DIRECTOR
NAME DURING THE PAST FIVE YEARS AGE SINCE
- ------------------------------------ ----------------------------------------------------------- --- -----------
J. Robert Dickerson................. Mr. Dickerson has served as a Director of the Company since 55 1981
its organization and is a member of the Audit Committee and
the Compensation Committee. He served as a Director of HCC
from its organization in 1981 through December 31, 1990 and
was re-elected as a Director of HCC in December, 1993 until
May, 1996. Mr. Dickerson is an attorney. From May, 1991 to
August, 1993 he was a member in the law firm of Dickerson,
Carmouche & Jones, A Professional Corporation.
<S> <C> <C> <C>
Edwin H. Frank, III................. Mr. Frank has served as a Director of the Company since 47 1993
May, 1993 and as a Director of HCC from December, 1993
until May, 1996. Mr. Frank is the President of Underwriters
Indemnity Company and Planet Indemnity Company having
served in such capacities since 1985. Both companies are
property and casualty insurance companies. Mr. Frank also
serves as a Director of Texas Commerce Bank-- Greenway
Plaza.
Allan W. Fulkerson.................. Mr. Fulkerson is President of Century Capital Management, 63 --
Inc., an investment management firm which specializes in
the insurance industry. In addition, he has been Chairman
of Century Shares Trust, a mutual fund which invests
exclusively in the stocks of larger insurance companies and
banks since 1976. Mr. Fulkerson is a Director of Mutual
Risk Management, Ltd., Risk Capital Holdings, Inc., Terra
Nova (Bermuda) Holdings, Ltd. and Wellington Underwriting
PLC.
Walter J. Lack...................... Mr. Lack has been a Director of the Company since its 49 1985
organization and has also served as a Director of HCC from
October, 1985 until May, 1996. Mr. Lack is an attorney and
a shareholder in the law firm of Engstrom, Lipscomb & Lack,
a professional corporation in Los Angeles, California.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
SERVED AS
PRINCIPAL OCCUPATION DIRECTOR
NAME DURING THE PAST FIVE YEARS AGE SINCE
- ------------------------------------ ----------------------------------------------------------- --- -----------
Stephen J. Lockwood................. Mr. Lockwood was elected President of the Company in May, 49 1985
1996 in connection with the Company's acquisition of the
Company he founded, LDG Management Company, Incorporated
(LDG). He has been Chairman, President and Chief Executive
Officer of LDG since 1988. Mr. Lockwood served as a
Director of the Company from its inception to May, 1993,
but did not stand for re-election in 1993 due to business
commitments. Mr. Lockwood was reappointed as a Director of
the Company in December, 1993 to fill a vacancy. He also
has served as a Director of HCC since October, 1985.
<S> <C> <C> <C>
Hugh T. Wilson...................... Mr. Wilson has served as a Director of the Company since 66 1981
its organization and is a member of the Audit Committee and
the Compensation Committee. He served as a Director of HCC
since its organization in 1981 until May, 1996. Mr. Wilson
is President of AON Risk Services of Texas, Inc., an
international insurance broker and subsidiary of AON
Corporation, having served in this capacity since October,
1987.
INFORMATION REGARDING EXECUTIVE OFFICERS WHO ARE NOT NOMINEES FOR DIRECTORS
<CAPTION>
SERVED AS
PRINCIPAL OCCUPATION OFFICER
NAME DURING THE PAST FIVE YEARS AGE SINCE
- ------------------------------------ ----------------------------------------------------------- --- -----------
<S> <C> <C> <C>
Frank J. Bramanti................... Mr. Bramanti has served as Executive Vice President, 40 1981
Secretary and Chief Financial Officer of the Company since
its organization and as a Director from its organization
until May, 1996. Mr. Bramanti has also served as Executive
Vice President of HCC since September, 1994, and as a
Director of HCC from March, 1982 to December, 1988 and from
December, 1990 to the present.
Mark A. Buechler.................... Mr. Buechler was elected Vice President of the Company in 45 1996
December, 1996. He was Vice President and Controller of HCC
from May, 1989 to May, 1996. Mr. Buechler is a certified
public accountant and a member of the AICPA and Texas
Society of Certified Public Accountants.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
SERVED AS
PRINCIPAL OCCUPATION OFFICER
NAME DURING THE PAST FIVE YEARS AGE SINCE
- ------------------------------------ ----------------------------------------------------------- --- -----------
Wasef S. Jabsheh.................... Mr. Jabsheh was elected Executive Vice President of the 52 1995
Company in December, 1995 and served as a Director of the
Company from December, 1994 until May, 1996. He founded IMG
Insurance Company Ltd. in 1991, was a majority shareholder
and has served as Chairman of the Board of Directors,
President and Chief Executive Officer since its founding.
Mr. Jabsheh founded Middle East Insurance Brokers Ltd. in
1989, was sole beneficial shareholder and has served as
Chairman of the Board of Directors, President and Chief
Executive Officer since its inception.
<S> <C> <C> <C>
Peter B. Smith...................... Mr. Smith was elected Vice President of the Company in 38 1990
January, 1993, Executive Vice President in December, 1994
and served as a Director of the Company from May, 1994
until May, 1996. Mr. Smith has served as Executive Vice
President of HCC since January, 1993, Senior Vice President
of HCC from September, 1990 to December, 1992, and has
served as President of HCC Underwriters, A Texas
Corporation from April, 1992 to date. Mr. Smith has served
as a Director of HCC from December, 1990 to December, 1993
and from August, 1994 to date.
Walter L. Suydam.................... Mr. Suydam was elected Senior Vice President of the Company 52 1996
in May, 1996. He has been Executive Vice President of LDG
since 1989. Mr. Suydam has served as a Director of HCC
since May, 1996.
L. Edward Tuffly.................... Mr. Tuffly was elected Senior Vice President and Treasurer 52 1994
of the Company in December, 1994 and served as a Director
from December, 1994 until May, 1996. He was also elected
Senior Vice President, Treasurer and a Director of HCC in
December, 1994. Prior to that, he was a partner in the tax
department of Coopers & Lybrand L.L.P. from December, 1988
to December, 1994. Mr. Tuffly is a CPA and was a former
member of the Auditing Standards Board of the American
Institute of Certified Public Accountants (AICPA).
</TABLE>
9
<PAGE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During 1996, the Board of Directors met five times. Each incumbent Director
attended 75% or more of the Board Meetings. The Board of Directors has standing
Audit and Compensation Committees. It does not have a standing Nominating
Committee.
AUDIT COMMITTEE
The Audit Committee is composed entirely of outside Directors who are not
officers or employees of the Company. In the opinion of the Board, these
Directors are independent of management and free of any relationship that would
interefere with their exercise of independent judgment as members of this
committee. The current members of the Audit Committee are Patrick B. Collins, J.
Robert Dickerson, and Hugh T. Wilson. The Audit Committee held three meetings in
1996.
The Audit Committee recommends to the Board of Directors the selection of
the Company's outside auditors and reviews with the independent auditors the
scope and results of the Company's audits, the Company's internal accounting
controls and the professional services furnished by the independent auditors to
the Company.
COMPENSATION COMMITTEE
The Board of Directors has a Compensation Committee which consists of three
Nonemployee Directors. The current members of the Compensation Committee are
Patrick B. Collins, J. Robert Dickerson and Hugh T. Wilson. The Compensation
Committee met five times during 1996. The Compensation Committee advises
management on matters pertaining to management development and corporate
organizational planning; monitors compensation arrangements for management
employees for consistency of corporate objectives with the interests of the
Company's Shareholders; approves salary and non-salary compensation for
management; and otherwise recommends to the Board of Directors bonus programs
and administers the Company's stock option plans. See "Report of the
Compensation Committee" below.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is or has been an officer or
employee of the Company or any of its subsidiaries or had any relationship
requiring disclosure pursuant to Item 404 of the SEC Regulation S-K. No
Executive Officer of the Company served as a member of the Compensation
Committee (or other board committee performing similar functions or, in the
absence of any such committee, the entire board of directors) of another
corporation, one of whose executive officers served on the Compensation
Committee. No Executive Officer of the Company served as a director of another
corporation, one of whose executive officers served on the Compensation
Committee. No Executive Officer of the Company served as a member of the
Compensation Committee. No Executive Officer of the Company served as a member
of the Compensation Committee (or other board committee performing equivalent
functions or, in the absence of any such committee, the entire board of
directors) of another corporation, one of whose executive officers served as a
Director of the Company.
COMPENSATION OF DIRECTORS
A Director who is an employee of the Company is not compensated for services
rendered as a member of the Board of Directors or any committee of the Board.
During 1996, the Nonemployee Directors received cash compensation consisting of
a fee of $2,500 for each meeting of the Board of Directors attended. An
additional fee of $500 is paid for each Audit or Compensation Committee meeting
attended. In addition, each Nonemployee Director received an option to purchase
5,000 shares of the Company's Common Stock. The Company also reimburses its
Directors for travel, lodging and related expenses incurred in attending Board
or committee meetings. Each Nonemployee Director will receive a
10
<PAGE>
yearly option to acquire 5,000 shares of the Company's Common Stock at a price
to be determined in accordance with the 1996 Nonemployee Director Stock Option
Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Underwriters Indemnity Holdings, Inc. ("UIHI") is a property and casualty
insurance group whose controlling shareholder, Mr. Frank, is a Director of the
Company. During 1996, HCC purchased 9.3% of UIHI, from unrelated parties. HCC is
in the process of increasing its ownership to approximately 20.7% through
additional purchases of stock from unrelated parties. In 1996, HCC ceded $16.3
million in written premium to UIHI. As of December 31, 1996, HCC had ceded
unearned premium of $9.1 million and reinsurance recoverables of $3.5 million
due from UIHI and reinsurance balances payable of $3.8 million due to UIHI. In
addition, during 1996, HCC assumed $871,000 in written premium from UIHI and had
$663,000 in outstanding losses due UIHI as of December 31, 1996.
The law firm of Engstrom, Lipscomb & Lack, A Professional Corporation,
represents the Company and certain of its insureds regarding claim-related
matters. Mr. Lack, a Director of the Company, is a shareholder of the firm. The
Company paid a total of $34,000 during 1996 to Engstrom, Lipscomb & Lack for
services rendered.
In May, 1996 the Company merged with LDG in exchange for 6,250,000 shares of
the Company's Common Stock. Mr. Lockwood, a Director of the Company at the time
of the merger, owned 80% of the stock of LDG and received 5,000,000 shares of
the Company's Common Stock and Mr. Suydam, who owned 20% of the stock of LDG,
received 1,250,000 shares of the Company's Common Stock. Mr. Lockwood
transferred 1,058,435 shares to certain employees of LDG in connection with the
acquisition of LDG by the Company, for which the Company recorded a tax
deductible compensation charge of $24.0 million and received a $9.6 million tax
benefit.
In June 1994, the Company entered into an arrangement with an entity owned
by Mr. Way, pursuant to which the Company pays the operating expenses for
providing transportation services to the Company. The Company, however, provides
its own employees to operate the equipment. During 1996, the Company paid
$996,000 to this entity. None of these funds were paid directly to Mr. Way.
In the opinion of management, the terms or such arrangements are fair and
reasonable and as favorable to the Company as could have been obtained from a
wholly unrelated party.
There are no family relationships among the Executive Officers and
Directors, and there are no arrangements or understandings between any officer
or any other person pursuant to which that officer was elected.
SECTION 16(a) BENEFICIAL OWERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act"),
requires the Company's Directors and Executive Officers and persons who own more
than 10% of a registered class of the Company's equity securities to file
initial reports of ownership and changes in ownership with the Securities and
Exchange Commission ("SEC"). Such officers, Directors and Shareholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file. Based solely on a review of the copies of such forms
furnished to the Company and written representations from the Company's
Directors and Executive Officers, all persons subject to the reporting
requirements of Section 16(a) filed a required report on a timely basis with the
exception of Mark A. Buechler who inadvertently failed to timely file a Form 3
and Stephen L. Way who inadvertently failed to timely report the cancellation of
a stock option and the receipt of another stock option. Mr. Buechler's Form 3
and Mr. Way's amended Form 4 have been filed.
11
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain information concerning compensation
paid or accrued by the Company to or on behalf of the Company's Chief Executive
Officer and the other five most highly compensated Executive Officers for 1996,
1995 and 1994. All share figures have been adjusted to reflect the five-for-two
stock split, issued in the form of a dividend, distributed to Shareholders on
May 15, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------------
AWARDS
ANNUAL COMPENSATION -------------------
----------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/SARS (#) COMPENSATION
- ----------------------------------------- --------- --------- --------- ------------- ------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Stephen L. Way........................... 1996 $ 600,000 $ 420,615 $ 99,303(1) -- $ 36,118(1)
Chairman of the Board of 1995 600,000 400,000 110,286(2) 125,000 54,070(2)
Directors and 1994 600,000 271,000 76,247(3) 23,600 35,202(3)
Chief Executive Officer
Stephen J. Lockwood(4)................... 1996 606,557 -- 17,056(5) -- 5,977(5)
Chairman of the Board of 1995 -- -- -- -- --
Directors, President and 1994 -- -- -- -- --
Chief Executive Officer of LDG
Wasef S. Jabsheh(6)...................... 1996 550,000 -- 20,400(7) -- 9,240(7)
Chairman of the Board of 1995 500,000 50,000 -- 25,000 --
Directors, President and 1994 125,000 -- -- -- --
Chief Executive Officer of IMG
Walter L. Suydam(4)...................... 1996 363,934 -- 9,853(8) -- 6,941(8)
Executive Vice President 1995 -- -- -- -- --
of LDG 1994 -- -- -- -- --
Peter B. Smith........................... 1996 250,000 56,210 25,782(9) -- 10,810(9)
Executive Vice President 1995 180,000 100,000 25,758(10) 75,000 10,080(10)
1994 165,000 75,000 26,118(11) 20,000 5,649(11)
Frank J. Bramanti........................ 1996 250,000 41,706 27,189(12) -- 11,350(12)
Executive Vice President, Secretary 1995 190,000 191,627 27,728(13) 75,000 10,637(13)
and Chief Financial Officer 1994 180,000 133,216 28,452(14) 16,250 6,292(14)
</TABLE>
- ------------------------
(1) Other annual compensation for 1996 includes personal travel expenses of
$23,256; automobile expenses of $34,570; and miscellaneous personal expenses
of $41,477. All other compensation for 1996 includes life and disability
insurance premiums of $27,118 and contributions of $9,000 by the Company
under the Company's 401(k) Plan. In addition, $108,600 of interest accrued
on Mr. Way's deferred compensation.
(2) Other annual compensation for 1995 includes personal travel expenses of
$33,500: automobile expenses of $35,068: and miscellaneous personal expenses
of $41,718. All other compensation for 1995 includes life and disability
premiums of $45,070, and contributions of $9,000 by the Company under the
Company's 401(K) plan. The Compensation Committee granted Mr. Way $750,000
deferred compensation payable in 10 years or upon retirement and bears
interest at 6% per annum. In addition, $60,000 of interest accrued on Mr.
Way's deferred compensation.
(3) Other annual compensation for 1994 includes personal travel expenses of
$13,118; automobile expenses of $35,069; and miscellaneous personal expenses
of $28,060. All other compensation for 1994 includes life and disability
premiums of $30,582 and contributions of $4,620 by the Company under the
Company's 401(k) Plan.
12
<PAGE>
In addition, the Compensation Committee granted Mr. Way $1,000,000 deferred
compensation payable in 10 years or upon retirement and bears interest at 6%
per annum.
(4) Includes all compensation paid to Mr. Lockwood and Mr. Suydam from May 24,
1996, the effective date of the acquisition of LDG. For information
concerning the Company's acquisition of LDG, see "Certain Relationships and
Related Transactions".
(5) Other annual compensation for 1996 was automobile expenses of $17,056. All
other compensation for 1996 includes life and disability premiums of $518
and contributions of $5,459 by the Company under the Company's 401(k) Plan.
(6) Includes all compensation paid to Mr. Jabsheh from October 1, 1994, the
effective date of the acquisitions of IMG Insurance Company Ltd. and Middle
East Insurance Brokers, Ltd.
(7) Other annual compensation for 1996 was automobile expenses of $20,400. All
other compensation for 1996 was contributions of $9,240 by the Company under
the Company's 401(k) Plan.
(8) Other annual compensation for 1996 was automobile expenses of $ 9,853. All
other compensation for 1996 was life, health and disability premiums of
$1,482 and contributions of $5,459 by the Company under the Company's 401(k)
Plan.
(9) Other annual compensation for 1996 includes automobile expenses of $25,379
and miscellaneous personal expenses of $403. In addition, all other
compensation for 1996 includes life and disability premiums of $1,810 and
contributions of $9,000 by the Company under the Company's 401(k) plan.
(10) Other annual compensation for 1995 includes automobile expenses of $25,372
and miscellaneous personal expenses of $386. In addition, all other
compensation for 1995 includes life and disability premiums of $1,080 and
contributions of $9,000 by the Company under the Company's 401(k) plan.
(11) Other annual compensation for 1994 includes automobile expenses of $25,404
and miscellaneous personal expenses of $714. In addition, all other
compensation for 1994 includes life and disability premiums of $1,029 and
contributions of $4,620 by the Company under the Company's 401(k) plan.
(12) Other annual compensation for 1996 includes automobile expenses of $25,752;
and miscellaneous personal expenses of $1,437. All other compensation for
1996 includes life and disability premiums of $2,350 and contributions of
$9,000 by the Company under the Company's 401(k) Plan.
(13) Other annual compensation for 1995 includes automobile expenses of $26,494;
and miscellaneous personal expenses of $1,234. All other compensation for
1995 includes life and disability premiums of $1,637 and contributions of
$9,000 by the Company under the Company's 401(k) Plan.
(14) Other annual compensation for 1994 includes automobile expenses of $26,262;
and miscellaneous personal expenses of $2,190. All other compensation for
1994 includes life and disability premiums of $1,672 and contributions of
$4,620 by the Company under the Company's 401(k) Plan.
13
<PAGE>
STOCK OPTION EXERCISES AND HOLDINGS
The following table shows stock options exercised by Executive Officers
during 1996, including the aggregate value of gains on the date of exercise. In
addition this table includes the number of shares covered by both exercisable
and non-exercisable stock options as of the end of 1996. Also reported are the
values for "in-the-money" options which represent the positive spread between
the exercise price of any such existing stock options and the year-end price of
the Company's Common Stock. All share figures have been adjusted to reflect the
five-for-two stock split, issued in the form of a dividend, distributed to
shareholders on May 15, 1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES(2)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
SHARES OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END(1)
ACQUIRED ON VALUE -------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- ------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Stephen L. Way.............. 0 0 129,367 258,133 $ 1,611,342 $ 3,221,978
Stephen J. Lockwood......... 0 0 5,000 7,500 78,500 117,750
Wasef S. Jabsheh............ 0 0 20,834 41,666 243,758 487,492
Walter L. Suydam............ 0 0 0 0 0 0
Peter B. Smith.............. 74,125 $ 840,952 205,250 183,125 3,559,305 2,472,431
Frank J. Bramanti........... 3,888 80,268 127,364 181,248 1,985,891 2,457,456
</TABLE>
- ------------------------
(1) The values were determined on the basis of the closing stock price of $24.00
at fiscal year end December 31, 1996, and equal the aggregate amount by
which the market value of the option shares exceeds the exercise price of
such options.
(2) There were no options granted to Executive Officers in 1996 and, therefore,
the table reflecting such grants has been omitted. However, in January, 1997
the following options were granted to the Executive Officers listed in the
Summary Compensation Table: Stephen L. Way--387,500 shares; Stephen J.
Lockwood--137,500 shares; Wasef S. Jabsheh--75,000 shares; Walter L.
Suydam-- 45,000 shares; Peter B. Smith--45,000 shares; and Frank J.
Bramanti--45,000 shares.
14
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
During 1996, the Compensation Committee (the "Committee") consisted of
Patrick B. Collins, J. Robert Dickerson and Hugh T. Wilson.
All decisions by the Committee relating to the compensation of the Company's
Executive Officers are reviewed and approved by the full Board of Directors
except for decisions concerning grants under the Company's 1992 Option Plan and
the 1995 Flexible Incentive Plan which must be made solely by the Committee in
order for the grants to satisfy certain requirements under the Securities
Exchange Act of 1934.
The philosophy of the Company's compensation program is to employ, retain
and reward executives capable of leading the Company in achieving its business
objectives. These objectives include creating and then preserving strong
financial performance, increasing the assets of the Company, positioning the
Company's assets and business operations in geographic markets and industry
segments offering long-term growth opportunities, enhancing shareholder value
and ensuring the survival of the Company. The accomplishment of these objectives
is measured against conditions prevalent in the industry within which the
Company operates. In recent years these conditions reflect a highly competitive
market environment and rapidly changing overall industry market conditions.
The available forms of executive compensation include base salary, cash
bonus awards and stock options. Performance of the Company is a key
consideration. The Company's compensation policy recognizes, however, that stock
price performance is only one measure of performance and, given industry
business conditions and the long term strategic direction and goals of the
Company, it may not necessarily be the best current measure of executive
performance. Therefore, the Company's compensation policy also gives
consideration to the Company's achievement of business objectives when
determining Executive Officer compensation. An additional objective of the
Compensation Committee has been to reward Executive Officers with equity
compensation in addition to salary in keeping with the Company's overall
compensation philosophy, which attempts to place equity in the hands of its
employees in an effort to further instill shareholder considerations and values
in the actions of all the employees and Executive Officers.
Compensation paid to Executive Officers is based upon a Company wide salary
structure consistent for each position relative to its authority and
responsibility compared to industry peers. Stock option awards are used to
reward Executive Officers and to retain them through the potential of capital
gains and equity buildup in the Company. The number of stock options granted is
determined by the subjective evaluation of the executive's ability to influence
the Company's long term growth and profitability. The Board of Directors
believes the award of options represents an effective incentive to create value
for the shareholders.
The Committee's executive compensation policies are intended to provide
competitive levels of compensation in order to attract and retain qualified
officers. Compensation for each of the Executive Officers, as well as other
officers, consists of three basic elements: base salary, cash bonuses and
long-term incentive compensation. The base salaries have been fixed at levels
which the Committee believes are comparable to those of executives of similar
status in the property and casualty insurance industry. Each Executive Officer
is also eligible to receive an annual bonus dependent upon the Company's success
as well as an assessment of the performance and contribution of each Executive
Officer of the Company for the year. The Committee feels that longer-term
incentives are appropriate to motivate and retain key personnel and that stock
ownership by management is beneficial in aligning management and Shareholder
interests in the enhancement of Shareholder value.
The Committee reviews base salary and annual bonus recommendations made by
the Chief Executive Officer based upon his assessment of the performance of
individual Executive Officers and his assessment of each officer's past
performance and expectation as to future contributions. The Committee then
15
<PAGE>
formulates its own recommendations which are submitted for approval to the Board
of Directors. The Chief Executive Officer and other Executive Officers also make
recommendations to the Committee concerning the grant of stock options to other
officers.
During 1996, stock options covering 282,500 shares of Common Stock were
granted to 8 officers of the Company and its subsidiaries. No stock options were
granted to Executive Officers of the Company listed in the Summary Compensation
Table during 1996. However, in January, 1997 stock options covering 1,064,000
shares of Common Stock were granted to 8 Executive Officers, 54 other officers
and 19 employees of the Company and its subsidiaries.
CHIEF EXECUTIVE OFFICER COMPENSATION
The base salary of the Chief Executive Officer was established at the
beginning of 1996 and his bonus of $420,615 for 1996 was paid during December,
1996. As with other Executive Officers of the Company, the Committee did not
follow any specific formula nor any predetermined financial performance measures
to calculate the Chief Executive Officer's total compensation for 1996. The
Committee believes the Chief Executive Officer's cash compensation for 1996 is
warranted by the Company's continuing outstanding performance under his
leadership. The Company's underwriting experience continues to be exceptional
and during 1996 the Company's combined ratio was 72.0% as compared with the
industry's average of 105.9%. This places the Company's performance at the
uppermost performance levels, a position it has maintained since 1992. In
addition, the Company's assets increased by 9% during 1996 and shareholders'
equity increased by 23%. Total shares outstanding increased by 6.4 million
shares or 22% during 1995 and 1996, while the Company experienced no dilution in
book value or earnings per share for the period or during either year.
During 1996, the Company's stock price per share increased 62% as compared
to the 19% increase in the NYSE Composite Index during 1996.
Section 162(m) of the Internal Revenue Code of 1986 (the "Code"), generally
disallows a tax deduction to public companies for compensation over $1,000,000
paid to the corporation's Chief Executive Officer and the four other most highly
compensated Executive Officers. The Company believes that Section 162(m) does
not apply to stock options currently outstanding or subsequently granted under
the Company's existing stock option plans.
Section 162(m) further provides that qualifying performance-based
compensation will not be subject to the deduction limit if certain requirements
are met. The Company currently intends to structure grants under future stock
option plans in a manner that complies with this statute. The Company does not
currently intend to structure the discretionary annual bonus for Executive
Officers to comply with Section 162(m). Such bonuses do not meet Section
162(m)'s requirement that they be "payable solely on account of the attainment
of one or more performance goals." Therefore, the Committee believes the annual
discretionary bonuses, as currently structured, better serve the interests of
the Company's Shareholders, by allowing broader discretion in recognizing an
Executive Officer's contribution and performance.
In connection with the compensation of the Company's Executive Officers, the
Committee is aware of Section 162(m) of the Code as it relates to deductibility
of qualifying compensation paid to Executive Officers. The Committee believes
that compensation to be paid in 1997 may exceed the deductibility limitations on
non-excluded compensation to certain of the Company's Executive Officers.
Patrick B. Collins
J. Robert Dickerson
Hugh T. Wilson
16
<PAGE>
PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total returns for an
investment of $100 made on October 27, 1992 in the Common Stock of the Company,
the NYSE Composite Index and the NASDAQ Insurance Stock Index. The graph assumes
that all dividends were reinvested. Although the SEC requires the Company to
present such a graph for a five-year period, the Common Stock of the Company has
only been publicly traded since October 27, 1992 and, as a result, the following
graph commences as of such date.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HCC INSURANCE NYSE COMPOSITE NASDAQ INSURANCE
<S> <C> <C> <C>
Holdings, Inc. Index Stock Index
10/27/92 100 100 100
12/31/92 169 104 111
12/31/93 254 113 119
12/31/94 263 109 112
12/31/95 463 143 159
12/31/96 752 171 181
</TABLE>
PROPOSAL II--PROPOSAL TO APPROVE THE COMPANY'S
1997 FLEXIBLE INCENTIVE PLAN
In March, 1997, the Board of Directors approved the 1997 Flexible Incentive
Plan (the "Flexible Plan") to become effective as of June 1, 1997, subject to
the approval of Shareholders. A copy of the Plan is attached hereto as Exhibit
"A". The description of the Flexible Plan contained herein is not intended to be
complete and is qualified in its entirety by reference to Exhibit "A", which
contains the complete text of the Flexible Plan.
17
<PAGE>
The purposes of the Flexible Plan are to enable the Company to attract,
motivate and retain highly talented officers and employees by enabling the
Company to make awards that recognize the creation of long-term value for the
Company's Shareholders and promote the continued growth and success of the
Company. To accomplish this purpose, the Flexible Plan provides for the granting
to eligible persons of stock options, stock appreciation rights, restricted
stock, performance awards, performance stock, dividend equivalent rights and any
combination thereof. The Board of Directors deems the Flexible Plan to be in the
best interests of the Company in view of the flexibility the options will
provide to the Board of Directors to retain and attract key officers and
employees.
AVAILABLE SHARES
The aggregate number of shares of Common Stock which may be issued under the
Flexible Plan (or with respect to which awards may be granted) shall not exceed
2,000,000 shares. Shares issued under the Flexible Plan may be either authorized
and unissued Common Stock or Common Stock held in or acquired for the treasury
of the Company. Any shares of Common Stock subject to a stock option or stock
appreciation right that are not issued prior to the expiration of such awards,
or any restricted stock or performance shares that are forfeited, will again be
available for award under the Flexible Plan. In the event that shares of Common
Stock are delivered to the Company in payment of the exercise price with respect
to any stock option granted under the Flexible Plan, the number of shares
available for future awards under the Flexible Plan will be reduced only by the
net number of shares issued.
PERSONS ELIGIBLE TO PARTICIPATE
Eligibility for participation in the Flexible Plan is confined to key
employees of the Company and its subsidiaries, as determined by the Board of
Directors or its designated Compensation Committee (the "Committee") in its sole
discretion. Unless otherwise employed by the Company, Nonemployee Directors are
not entitled to participate in the Flexible Plan.
ADMINISTRATION
The Committee administers the Flexible Plan and has broad powers under the
Flexible Plan to, among other things, administer and interpret the Flexible
Plan, establish guidelines for the Flexible Plan's operation, select persons to
whom awards are to be made under the Flexible Plan, determine the types, sizes
and combinations of awards to be granted under the Flexible Plan, and determine
other terms and conditions of an award. In addition, except as set forth below
under "Amendment and Termination," the Committee also has the power to modify or
waive restrictions or limitations on the exercisability of awards and to
accelerate and extend existing awards. The Committee may also determine whether,
and to what extent and under what conditions to provide loans to eligible
participants to purchase Common Stock under the Flexible Plan. In addition, the
Committee has the power to modify the terms of existing awards.
TYPES OF AWARDS
The Flexible Plan provides for the grant of any or all of the following
types of awards: (1) stock options, including incentive stock options and
non-qualified stock options; (2) stock appreciation rights, either in tandem
with stock options or freestanding; (3) restricted stock awards; (4) performance
shares; (5) performance units; (6) dividend equivalent rights; and (7) other
stock-based awards. Each of these types of awards is discussed in more detail
below. Awards may be granted singly, in combination or in tandem, as determined
by the Committee. The specific amount of awards to be received by or allocated
to the officers or employees or any other participant under the Flexible Plan is
in the discretion of the Committee and is therefore not determinable for future
periods.
STOCK OPTIONS. Under the Flexible Plan, the Committee may grant awards in
the form of options to purchase shares of the Company's Common Stock. Options
may be in the form of incentive stock options
18
<PAGE>
or non-qualified stock options. The Committee will, with regard to each stock
option, determine the number of shares subject to the option, the term of the
option (which, for incentive stock options, shall not exceed ten years), the
exercise price per share of stock subject to the option (which, for incentive
stock options, must be not less than the fair market value of the Common Stock
at the time of grant), the vesting schedule (if any) and the other material
terms of the option. Any option granted in the form of an incentive stock option
must satisfy the applicable requirements of Section 422 of the Internal Revenue
Code of 1986, as amended. Non-qualified stock options may have an exercise price
that is less than fair market value (but not less than the par value of the
Common Stock).
The option price upon exercise may, to the extent determined by the
Committee at or after the time of grant, be paid by the Optionee in cash, in
shares of Common Stock owned by the Optionee, in shares of stock awarded under
the Flexible Plan, including restricted stock, by a reduction in the number of
shares of Common Stock issuable upon the exercise of the option or by other
consideration. The Committee may offer to buy an option previously granted on
such terms and conditions as the Committee shall establish.
Unless the Committee determines otherwise at the time of grant, the Flexible
Plan provides that upon termination of employment by reason of death or
disability, stock options will fully vest and will be exercisable for one year
or until the end of the option term, whichever is shorter. Unless the Committee
determines otherwise at the time of grant or thereafter, the Flexible Plan
provides that upon termination of employment for any reason other than death or
disability, stock options, to the extent vested, will be exercisable for two
months, or until the end of the option term, whichever is shorter.
STOCK APPRECIATION RIGHTS ("SARS"). The Flexible Plan authorizes the
Committee to grant SARs either with a stock option ("Tandem SARs") or
independent of a stock option ("Non-Tandem SARs"). An SAR is a right to receive
a payment either in cash or Common Stock, as the Committee may determine, equal
in value to the excess of the fair market value of a share of Common Stock on
the date of exercise over the reference price per share of Common Stock
established in connection with the grant of the SAR. The reference price per
share covered by an SAR will be the per share exercise price of the related
option in the case of a Tandem SAR and will be a percentage designated by the
Committee of the per share fair market value of the Common Stock on the date of
grant (or any other date chosen by the Committee) in the case of a Non-Tandem
SAR.
A Tandem SAR 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 SAR generally may
be exercised at and only at the times and to the extent the related stock option
is exercisable. A Tandem SAR is exercised by surrendering the same portion of
the related option. A Tandem SAR expires upon the termination of the related
stock option.
A Non-Tandem SAR will be exercisable as provided by the Committee and will
have such other terms and conditions as the Committee may determine. A
Non-Tandem SAR may have a term of no longer than ten years from its date of
grant. A Non-Tandem SAR is subject to acceleration of vesting or immediate
termination in certain circumstances, in the same manner as discussed above in
the case of stock options.
The Committee is also authorized to grant "limited SARs," either as Tandem
SARs or Non-Tandem SARs. Limited SARs would become exercisable only upon the
occurrence of a "Change in Control" (as defined in the Flexible Plan) or such
other event as the Committee may designate at the time of grant or thereafter.
RESTRICTED STOCK AWARDS. The Flexible Plan authorizes the Committee to
grant awards in the form of restricted shares of Common Stock. These awards may
be in such amounts and subject to such terms and conditions as the Committee may
determine, including, but not limited to, the price (if any) to be paid by the
recipient, the time or times within which such awards may be subject to
forfeiture, the vesting schedule (which may be based on service, performance or
other factors) and rights to acceleration of vesting (including whether
non-vested shares are forfeited or vested upon termination of employment). The
19
<PAGE>
Committee may award performance-based shares of restricted stock by conditioning
the grant, vesting or the release, expiration or lapse of restrictions of such
restricted stock, or the acceleration of any of such conditions, upon the
attainment of specified performance goals or such other factors as the Committee
may determine.
PERFORMANCE SHARES. The Flexible Plan permits the granting of "performance
shares," consisting of the right to receive Common Stock, 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. These awards may be
in such number of shares and subject to such additional terms and conditions as
the Committee may determine, including, but not limited to, the criteria to be
used to determine the vesting of performance shares and whether performance
shares are forfeited or vest upon termination of employment during the
performance period. The Committee may condition the grant of performance shares
upon the attainment of specified performance goals, such as the Company's
achievement of certain earnings levels or the Company's performance (or the
performance of its stock) measured against the performance of its competition,
or such other facts as the Committee may determine.
PERFORMANCE UNITS. The Flexible Plan permits the granting of "performance
units," consisting of the right to receive a fixed dollar amount payable in
cash, Common Stock or restricted stock, or any combination thereof, as the
Committee may determine, at the end of a performance cycle established by the
Committee. Except for the fact that the award is denominated in dollars rather
than shares, the provisions of the Flexible Plan regarding performance units are
substantially similar to those regarding performance shares, as described above.
DIVIDEND EQUIVALENT RIGHTS. The Committee may, in its discretion, provide
that any stock option, restricted stock, performance shares or units or other
stock-based awards under the Flexible Plan may earn dividend equivalent rights.
In respect of any such award which is outstanding on a dividend record date for
Common Stock, the Committee may credit the Optionee with an amount equal to the
cash or stock dividends or other distributions that would have been paid on the
shares of Common Stock covered by such award had such covered shares been issued
and outstanding on such dividend record date. The rules and procedures governing
the crediting of dividend equivalent rights, including the timing, form of
payment and payment contingencies thereof, shall be established by the
Committee.
OTHER STOCK-BASED AWARDS. The Flexible Plan also permits other awards of
Common Stock and other awards that are valued in whole or in part by reference
to, or are payable in cash or Common Stock, or otherwise based on Common Stock.
The terms and conditions of any such awards will be determined by the Committee,
including, but not limited to, the price, if any, and the vesting schedule, if
any. The Committee may provide for the grant of Common Stock under such an award
upon the completion of a specified performance period.
PAYMENT FOR AWARDS
The purchase price of any shares of Common Stock purchased pursuant to the
exercise of an award granted under the Flexible Plan shall be payable in full on
the exercise date in cash, by check, by surrender to the Company of shares of
Common Stock of the Company registered in the name of the Optionee, by delivery
to the Company of such other lawful consideration as the Committee may
determine, or by a combination of the foregoing. Any such shares so surrendered
shall be deemed to have a value per share equal to the fair market value of a
share of Common Stock on such date.
AMENDMENT AND TERMINATION
The Committee may at any time, and from time to time, amend, in whole or in
part, any or all of the provisions of the Flexible Plan or suspend or terminate
it entirely, retroactively or otherwise; provided, however, that unless
otherwise required by law or specifically provided in the Flexible Plan, the
rights of
20
<PAGE>
the Optionee with respect to options or other awards granted prior to such
amendment, suspension or termination may not be impaired without the consent of
such participants; and, provided further, that without the approval of the
Shareholders of the Company, no amendment may be made which would materially
increase the aggregate number of shares of Common Stock that may be issued under
the Flexible Plan; materially change the definition of employees eligible to
receive awards under the Flexible Plan; decrease the minimum option price
permitted under the Flexible Plan; increase the ten-year maximum option term
permitted under the Flexible Plan.
No award or grant may be made under the Flexible Plan on or after June 1,
2007 (the tenth anniversary of the effective date of the Flexible Plan).
The Flexible Plan is not subject to any provision of ERISA and is not
qualified under Section 401(a) of the Internal Revenue Code of 1986.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE APPROVAL OF
THE 1997 FLEXIBLE INCENTIVE PLAN. YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY
OTHERWISE.
PROPOSAL III--PROPOSAL TO RATIFY THE APPOINTMENT OF
INDEPENDENT AUDITORS
The Shareholders are asked to ratify the appointment by the Board of
Directors of Coopers & Lybrand L.L.P., an independent certified public
accounting firm, to audit the accounts of the Company and its subsidiaries for
the fiscal year ended December 31, 1997. Coopers & Lybrand L.L.P. has audited
the books of the Company and its subsidiaries since January 1, 1987, and is
familiar with the affairs and financial procedures of the Company. To the
knowledge of management, neither such firm nor any of its members has any direct
or material indirect financial interest in the Company nor any connection with
the Company in any capacity otherwise than as independent accountants.
Representatives of Coopers & Lybrand L.L.P. are expected to be present at
the Meeting, will have an opportunity to make a statement if they desire to do
so and will be available to respond to appropriate questions from Shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE APPOINTMENT
OF COOPERS & LYBRAND L.L.P. AS THE COMPANY'S INDEPENDENT AUDITORS. YOUR PROXY
WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
OTHER BUSINESS
The Board of Directors has no knowledge of any other matters to be submitted
at the Meeting. If any other matters shall properly come before the Meeting, the
persons named in the Proxy will have discretionary authority to vote the shares
thereby represented in accordance with their best judgment.
SHAREHOLDER PROPOSALS
Any Shareholder proposal intended to be presented for consideration at the
1998 Annual Meeting of Shareholders and to be included in the Company's Proxy
Statement must be in proper form and received by the Secretary of the Company at
the principal executive offices of the Company by the close of business on
December 29, 1997. It is suggested that a proponent submit any proposal by
Certified Mail--Return Receipt Requested and all proposals should be sent to the
attention of the Secretary.
FORM 10-K
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS BEING
SOLICITED, UPON REQUEST OF ANY SUCH PERSON, A COPY OF THE ANNUAL REPORT OF THE
COMPANY ON FORM 10-K FOR THE FISCAL YEAR ENDED
21
<PAGE>
DECEMBER 31, 1996, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES THERETO BUT NOT THE EXHIBITS.
REQUESTS FOR COPIES OF SUCH REPORT SHOULD BE DIRECTED TO FRANK J. BRAMANTI,
CHIEF FINANCIAL OFFICER, HCC INSURANCE HOLDINGS, INC., 13403 NORTHWEST FREEWAY,
HOUSTON, TEXAS 77040-6094. COPIES OF ANY EXHIBIT TO THE FORM 10-K WILL BE
FORWARDED UPON RECEIPT OF A WRITTEN REQUEST THEREFORE ADDRESSED TO MR. BRAMANTI.
EACH SHAREHOLDER WHO DOES NOT EXPECT TO ATTEND THE ANNUAL MEETING OF
SHAREHOLDERS IN PERSON IS URGED TO EXECUTE THE PROXY CARD AND RETURN IT PROMPTLY
IN THE ENCLOSED ENVELOPE. NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED
STATES.
By Order of the Board of Directors,
FRANK J. BRAMANTI
SECRETARY
Dated April 30, 1997
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EXHIBIT "A"
HCC INSURANCE HOLDINGS, INC.
1997 FLEXIBLE INCENTIVE PLAN
1. PURPOSE
The purposes of HCC Insurance Holdings, Inc. 1997 Flexible Incentive Plan
(the "Flexible Plan") are to promote the interests of HCC Insurance Holdings,
Inc. and its subsidiaries (together with any successor thereto, the "Company")
and its Shareholders by enabling the Company to attract, motivate and retain key
employees by offering such key employees performance-based stock incentives and
other equity interests in the Company and other incentive awards that recognize
the creation of value for the Shareholders of the Company and promote the
Company's long-term growth and success. To achieve these purposes, eligible
persons may receive stock options, Stock Appreciation Rights, Restricted Stock,
Performance Awards, performance stock, Dividend Equivalent Rights and any other
Awards, or any combination thereof.
2. DEFINITIONS
As used in the Flexible Plan, the following terms shall have the meanings
set forth below unless the content otherwise requires:
2.1 "AWARD" shall mean the grant of a stock option, a Stock Appreciation
Right, a Restricted Stock, a Performance Award, performance stock, a Dividend
Equivalent Right or any other Award under the 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
Flexible Plan, (i) the occurrence of an event of a nature that would be required
to be reported in response to Item 1 or Item 2 of a Form 8-K Current Report of
the Company promulgated pursuant to Sections 13 and 15(d) of the Exchange Act;
provided that, without limitation, such a Change in Control shall be deemed to
have occurred if (a) any "person", as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Company, any trustee or other
fiduciary holding securities under any employee benefit plan of the Company, or
any company owned, directly or indirectly, by the Shareholders of the Company in
substantially the same proportions as their ownership of stock of the Company),
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
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 securities of the surviving entity) more than fifty-one
percent (51%) of the combined voting power of the voting securities of the
surviving entity outstanding immediately after such merger or consolidation;
provided, however, that a merger or consolidation effected to implement a
reorganization or recapitalization of the Company, or a similar transaction
(collectively, a "Reorganization"), in which no "person" acquires more than
twenty percent (20%) of the combined voting power of the Company's then
outstanding securities shall not constitute a Change in Control of the Company;
or
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(iii) the Shareholders of the Company approve a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
2.4 "CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
2.5 "COMMITTEE" shall mean the Stock Option or Compensation Committee, if
such a separate committee is appointed by the Board, or, until such time as a
separate committee is appointed, it shall mean the Board. If a separate
committee is appointed, the Committee shall meet the applicable requirements for
"disinterested administration" within the requirements of Rule 16b-3 promulgated
under the Exchange Act and any successor thereunder promulgated during the
duration of the Flexible Plan. The Board may amend the Flexible Plan to modify
the definition of Committee within the limits of Rule 16b-3 to assure that the
Flexible Plan is administered in compliance with Rule 16b-3. Initially, the
Committee will consist of not less than three (3) members of the Board who are
appointed by, and serve at the pleasure of, the Board and who are (i)
"disinterested" within the meaning of Rule 16b-3 and (ii) "outside directors,"
as required under Section 162(m) of the Code and such Treasury Regulations as
may be promulgated thereunder. 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 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 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.
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2.14 "NON-QUALIFIED STOCK OPTION" shall mean any stock option awarded
under the Flexible Plan that does not qualify as an Incentive Stock Option.
2.15 "OPTIONEE" shall mean any person who has been granted a stock option
under the Flexible Plan and who has executed a written stock option agreement
with the Company reflecting the terms of such grant.
2.16 "PERFORMANCE AWARD" shall mean any Award hereunder of Shares, units
or rights based upon, payable in, or otherwise related to, Shares (including
Restricted Stock), or cash of an equivalent value, as the Committee may
determine, at the end of a specified performance period established by the
Committee.
2.17 "FLEXIBLE PLAN" shall mean the HCC Insurance Holdings, Inc. 1997
Flexible Incentive Plan set forth herein.
2.18 "RESTRICTED STOCK" shall mean any Award of Shares under the Flexible
Plan that are subject to restrictions or risk of forfeiture.
2.19 "RETIREMENT" shall mean termination of employment other than
discharge for cause, after age 65 or on or before age 65 if pursuant to the
terms of any retirement plan maintained by the Company or any of its
Subsidiaries in which such person participates.
2.20 "SHARES" shall mean shares of the Company's Common Stock and any
shares of capital stock or other securities of the Company hereafter issued or
issuable upon, in respect of or in substitution or exchange for such Shares.
2.21 "STOCK APPRECIATION RIGHT" shall mean the right of the holder thereof
to receive an amount in cash or Shares equal to the excess of the Fair Market
Value of a Share on the date of exercise over the Fair Market Value of a Share
on the date of the grant (or such other value as may be specified in the
agreement granting the Stock Appreciation Right).
2.22 "SUBSIDIARY" shall mean a subsidiary corporation of the Company, as
defined in Section 424(f) of the Code.
2.23 "TANDEM STOCK APPRECIATION RIGHT" shall mean a Stock Appreciation
Right granted in connection with an Award which is a stock option.
3. ADMINISTRATION OF THE FLEXIBLE PLAN
3.1 COMMITTEE. The Flexible Plan shall be administered and interpreted by
the Committee.
3.2 AWARDS. Subject to the provisions of the Flexible Plan and directions
from the Board, the Committee is authorized to:
(a) determine the persons to whom Awards are to be granted;
(b) determine the types and combinations of Awards to be granted, the number
of Shares to be covered by the Award, the pricing of the Award, the time or
times when the Award shall be granted and may be exercised, the terms,
performance criteria or other conditions, vesting periods or any restrictions
for an Award, any restrictions on Shares acquired pursuant to the exercise of an
Award and any other terms and conditions of an Award;
(c) conclusively interpret the provisions of the Flexible Plan;
(d) prescribe, amend and rescind the rules and regulations relating to the
Flexible Plan or make individual decisions as questions arise, or both;
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(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 Flexible 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 Flexible
Plan; and
(g) make all other determinations and take all other actions necessary or
advisable for the administration of the 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 Flexible Plan or
pertaining to any question of fact or Award granted hereunder shall be decided
by the Committee, whose decision shall be final, conclusive and binding upon the
Company and each other affected party.
4. SHARES SUBJECT TO FLEXIBLE PLAN
4.1 LIMITATIONS. The maximum number of Shares that may be issued with
respect to Awards under the Flexible Plan shall not exceed 2,000,000 unless such
maximum shall be increased or decreased by reason of changes in capitalization
of the Company as hereinafter provided. The Shares issued pursuant to the
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 Flexible Plan, shall
be forfeited, shall expire or shall be cancelled, in whole or in part, then the
number of Shares covered by the Award or stock option so forfeited, expired or
cancelled may again be awarded pursuant to the provisions of the Flexible Plan.
In the event that Shares are delivered to the Company in full or partial payment
of the exercise price for the exercise of a stock option granted under the
Flexible Plan, the number of Shares available for future Awards under the
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 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 Flexible Plan. Awards will not reduce the number
of Shares that may be issued pursuant to the Flexible Plan if the settlement of
the Award will not require the issuance of Shares, as, for example, a Stock
Appreciation Right that can be satisfied only by the payment of cash.
5. ELIGIBILITY
Eligibility for participation in the Flexible Plan shall be confined to
those persons who are employed by the Company, and who are officers of the
Company, or who are in managerial or other key positions within the Company or
are otherwise valuable employees of the Company. In making any determination as
to persons to whom Awards shall be granted, the type of Award, and/or the number
of Shares to be covered by the Award, the Committee shall consider the position
and responsibilities of the person, his or her importance to the Company, the
duties of such person, his or her past, present and potential contributions to
the growth and success of the Company, and such other factors as the Committee
shall deem relevant in connection with accomplishing the purposes of the
Flexible Plan.
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6. STOCK OPTIONS
6.1 GRANTS. The Committee may grant stock options alone or in addition to
other Awards granted under the Flexible Plan to any eligible officer or other
key employee. Each person so selected shall be offered an option to purchase the
number of Shares determined by the Committee. The Committee shall specify
whether such option is an Incentive Stock Option or Non-Qualified Stock Option
and any other terms and conditions relating to such Award. To the extent that
any stock option does not qualify as an Incentive Stock Option (whether because
of its provisions or the time or manner of its exercise or otherwise), such
stock option or the portion thereof which does not qualify shall constitute a
separate Non-Qualified Stock Option. Each such person so selected shall have a
reasonable period of time within which to accept or reject the offered option.
Failure to accept within the period so fixed by the Committee may be treated as
a rejection. Each person who accepts an option shall enter into a written
agreement with the Company, in such form as the Committee may prescribe, setting
forth the terms and conditions of the option, consistent with the provisions of
the Flexible Plan. The Optionee and the Company shall enter into option
agreements for Incentive Stock Options and Non-Qualified Stock Options. At any
time and from time to time, the Optionee and the Company may agree to modify an
option agreement so that an Incentive Stock Option may be converted to a
Non-Qualified Stock Option.
The Committee may require that an Optionee meet certain conditions before
the option or a portion thereof may vest or be exercised, as, for example, that
the Optionee remain in the employ of the Company for a stated period or periods
of time before the option, or stated portions thereof, may vest or be exercised.
6.2 OPTION PRICE. The option exercise price of the Shares covered by each
stock option shall be determined by the Committee; provided, however, that the
option exercise price of an Incentive Stock Option shall not be less than one
hundred percent (100%) of the Fair Market Value of Shares on the date of the
grant of such Incentive Stock Option.
6.3 INCENTIVE STOCK OPTIONS LIMITATIONS.
(a) In no event shall any person be granted Incentive Stock Options to the
extent that the Shares covered by any Incentive Stock Options (and any Incentive
Stock Options granted under any other plans of the Company and its Subsidiaries)
that may be exercised for the first time by such person in any calendar year
have an aggregate Fair Market Value in excess of $100,000. For this purpose, the
Fair Market Value of the Shares shall be determined as of the dates on which the
Incentive Stock Options are granted. It is intended that the limitation on
Incentive Stock Options provided in this subsection 6.3(a) be the maximum
limitation on options which may be considered Incentive Stock Options under the
Code.
(b) Notwithstanding anything herein to the contrary, in no event shall any
employee owning more than ten percent (10%) of the total combined voting power
of the Company or any Subsidiary be granted an Incentive Stock Option hereunder
unless the option exercise price shall be at least one hundred ten percent
(110%) of the Fair Market Value of the Shares subject to such Incentive Stock
Option at the time that the Incentive Stock Option is granted and the term of
such Incentive Stock Option shall not exceed five (5) years.
6.4 OPTION TERM. Subject to subsection 6.3(b) hereof, the term of a stock
option shall be for such period of months or years from the date of its grant as
may be determined by the Committee; provided, however, that no stock option
shall be exercisable later than ten (10) years from the date of its grant.
Furthermore, no stock option may be exercised unless, at the time of such
exercise, the Optionee is, and has been continuously since the date of grant of
his or her stock option, employed by the Company, except that:
(a) A stock option may, to the extent vested, be exercised within the period
of two months after the date the Optionee ceases to be an employee of the
Company (or within such lesser period as may be specified in the applicable
option agreement), provided that the option agreement may designate a longer
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exercise period and that the exercise after such two-month period shall be
treated as the exercise of a Non-Qualified Stock Option under the Flexible Plan;
(b) If the Optionee dies within two months of the Optionee ceasing to be an
employee of the Company, the stock option may, to the extent vested and
previously unexercised, be exercised by the Optionee's Designated Beneficiary
within the period of one year after the date of death (or within such lesser
period as may be specified in the applicable option agreement, whichever is
shorter); and
(c) If the Optionee dies while in the employ of the Company, the stock
option may be exercised by the Optionee's Designated Beneficiary for the full
number of shares or any portion thereof except as to the issuance of fractional
shares, to the full extent of the option, less any previously exercised shares,
at any time within the period of one year after the date of death of the
Optionee (or within such lesser period as may be specified in the applicable
option agreement, whichever is shorter); and
(d) If the Optionee ceases to be an employee of the Company by reason of the
Optionee's Disability, the stock option may be exercised by the Optionee for the
full number of shares or any portion thereof except as to the issuance of
fractional shares, to the full extent of this option less any previously
exercised shares at any time within the period of one year after the date of
Disability of the Optionee (or within such lesser period as maybe specified in
the applicable option agreement, whichever is shorter).
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. 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 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 Flexible Plan which are then available
to be awarded under the 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) In the event of a Change in Control of the Company, all stock
options and any associated Stock Appreciation Rights shall become fully
vested and immediately exercisable and 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
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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, and which determination by the Committee shall be based
solely upon maximizing the after-tax benefits to be received by any such
Optionee.
6.6 EXERCISE OF STOCK OPTIONS.
(a) Stock options may be exercised as to Shares only in amounts and at
intervals of time specified in the written option agreement between the Company
and the Optionee. Each exercise of a stock option, or any part thereof, shall be
evidenced by a notice in writing to the Company. The purchase price of the
Shares as to which an option shall be exercised shall be paid in full at the
time of exercise, and may be paid to the Company either:
(1) in cash (including check, bank draft or money order); or
(2) by the delivery of Shares having a Fair Market Value equal to the
aggregate option rate;
(3) by a combination of cash and Shares; or
(4) by other consideration deemed acceptable by the Committee in its
sole discretion.
(b) The amount, as determined by the Committee, of any Federal, state or
local tax required to be withheld by the Company due to the exercise of a stock
option shall be satisfied by payment by the Optionee to the Company of the
amount of such withholding obligation in cash or other consideration acceptable
to the Committee in its sole discretion.
(c) An Optionee shall not have any of the rights of a Shareholder of the
Company with respect to the Shares covered by a stock option except to the
extent that one or more certificates representing such Shares shall have been
delivered to the Optionee, or the Optionee 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 Flexible Plan or in any resolution adopted or to be adopted by
the Board or the Shareholders of the Company shall constitute the granting of a
stock option under the Flexible Plan.
7. STOCK APPRECIATION RIGHTS
7.1 GRANTS. The Committee may grant to any eligible employee either
Non-Tandem Stock Appreciation Rights or Tandem Stock Appreciation Rights. Stock
Appreciation Rights shall be subject to such terms and conditions as the
Committee shall impose. The grant of the Stock Appreciation Right may provide
that the holder may be paid for the value of the Stock Appreciation Right either
in cash or in Shares, or a combination thereof, at the discretion of the
Committee. In the event of the exercise of a Stock Appreciation Right payable in
Shares, the holder of the Stock Appreciation Right shall receive that number of
whole Shares of stock of the Company having an aggregate Fair Market Value on
the date of exercise equal to the value obtained by multiplying (i) either (a)
in the case of a Tandem Stock Appreciation Right, the difference between the
Fair Market Value of a Share on the date of exercise over the per share exercise
price of the related option, or (b) in the case of a Non-Tandem Stock
Appreciation Right the difference between the Fair Market Value of a Share on
the date of exercise over the Fair Market Value on the date of the grant by (ii)
the number of Shares as to which the Stock Appreciation Right is exercised.
However, notwithstanding the foregoing, the Committee, in its sole discretion,
may
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place a ceiling on the amount payable upon exercise of a Stock Appreciation
Right but any such limitation shall be specified at the time that the Stock
Appreciation Right is granted.
7.2 EXERCISABILITY. A Tandem Stock Appreciation Right may be granted at
the time of the grant of the related stock option or, if the related stock
option is a Non-Qualified Stock Option, at any time thereafter during the term
of the stock option. A Tandem Stock Appreciation Right granted in connection
with an Incentive Stock Option (i) may be exercised at, and only at, the times
and to the extent the related Incentive Plan Stock Option is exercisable, (ii)
expires upon the termination of the related Incentive Stock Option, (iii) may
not exceed 100% of the difference between the exercise price of the related
Incentive Stock Option and the market price of the Shares subject to the related
Incentive Stock Option at the time the Tandem Stock Appreciation Right is
exercised and (iv) may be exercised at, and only at, such times as the market
price of the Shares subject to the related Incentive Stock Option exceeds the
exercise price of the related Incentive Stock Option. The Tandem Stock
Appreciation Right may be transferred at, and only at, the times and to the
extent the related stock option is transferable. If a Tandem Stock Appreciation
Right is granted, there shall be surrendered and cancelled 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 Flexible Plan.
7.4 LIMITED STOCK APPRECIATION RIGHTS. The Committee is also authorized to
grant "Limited Stock Appreciation Rights," either as Tandem Stock Appreciation
Rights or Non-Tandem Stock Appreciation Rights. Limited Stock Appreciation
Rights would become exercisable only upon the occurrence of a Change in Control
or such other event as the Committee may designate at the time of grant or
thereafter.
8. RESTRICTED STOCK
8.1 GRANTS. The Committee may grant Awards of Restricted Stock for no cash
consideration, for such minimum consideration as may be required by applicable
law, or for such other consideration as may be specified by the grant. The terms
and conditions of the Restricted Stock shall be specified by the grant
agreement. The Committee, in its sole discretion, may specify any particular
rights which the person to whom an Award of Restricted Stock is made shall have
in the Restricted Stock during the restriction period and the restrictions
applicable to the particular Award, the vesting schedule (which may be based on
service, performance or other factors) and rights to acceleration of vesting
(including, without limitation, whether non-vested Shares are forfeited or
vested upon termination of employment). Further, the Committee may award
performance-based Restricted Stock by conditioning the grant, or vesting or such
other factors, such as the release, expiration or lapse of restrictions upon any
such Award (including the acceleration of any such conditions or terms) of such
Restricted Stock upon the attainment of specified performance goals or such
other factors as the Committee may determine. The Committee shall also determine
when the restrictions shall lapse or expire and the conditions, if any, under
which the Restricted Stock will be forfeited or sold back to the Company. Each
Award of Restricted Stock may have different restrictions and conditions. The
Committee, in its discretion, may prospectively change the restriction period
and the restrictions applicable to any particular Award of Restricted Stock.
Unless otherwise set forth in the 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 such manner as the Committee, in its sole discretion, shall deem
appropriate including, without limitation, book-entry
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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.
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
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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 a 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 Flexible Plan. The terms
and conditions of such other form of Award shall be specified by the grant
including, but not limited to, the price, if any, and the vesting schedule, if
any. Such Awards may be granted for no cash consideration, for such minimum
consideration as may be required by applicable law or for such other
consideration as may be specified by the grant.
12. COMPLIANCE WITH SECURITIES AND OTHER LAWS
In no event shall the Company be required to sell or issue Shares under any
Award if the sale or issuance thereof would constitute a violation of applicable
Federal or state securities laws or regulations or a violation of any other law
or regulation of any governmental or regulatory agency or authority or any
national securities exchange. As a condition to any sale or issuance of Shares,
the Company may place legends on Shares, issue stop transfer orders and require
such agreements or undertakings as the Company may deem necessary or advisable
to assure compliance with any such laws or regulations, including, if the
Company or its counsel deems it appropriate, representations from the person to
whom an Award is granted that he or she is acquiring the Shares solely for
investment and not with a view to distribution and that no distribution of the
Shares will be made unless registered pursuant to applicable Federal and state
securities laws, or in the opinion of counsel of the Company, such registration
is unnecessary.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR REORGANIZATION
The value of an Award in Shares shall be adjusted from time to time as
follows:
(a) Subject to any required action by Shareholders, the number of Shares
covered by each outstanding Award, and the exercise price, shall be
proportionately adjusted for any increase or decrease in the number of
issued Shares of the Company resulting from a subdivision or consolidation
of Shares or the payment of a stock dividend (but only in Shares) or any
other increase or decrease in the number of Shares affected without receipt
of consideration by the Company.
(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 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.
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Except as hereinbefore expressly provided in the 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 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 FLEXIBLE PLAN
14.1 AMENDMENT OF THE FLEXIBLE PLAN. Notwithstanding anything contained in
the Flexible Plan to the contrary, all provisions of the 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 Flexible Plan may be
modified, impaired or cancelled adversely to the holder of the Award without the
consent of such holder; and provided, further, that the Flexible Plan may not be
amended without approval by the holders of a majority of the Shares of the
Company represented and voted at a meeting of the Shareholders (a) to increase
the maximum number of Shares subject to the Flexible Plan, (b) to materially
modify the requirements as to eligibility for participation in the Flexible
Plan, (c) to decrease the minimum exercise price for options, (d) to otherwise
materially increase the benefits accruing to persons to whom Awards may be made
under the Flexible 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 FLEXIBLE PLAN. The Board may suspend or terminate
the 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 Flexible Plan. Termination of the
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
Participants consent at any time prior to payment or exercise in any manner not
inconsistent with the terms of the 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 nonrecurring 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 Flexible Plan. Any provision of the Flexible Plan or any
agreement regarding an Award to the contrary notwithstanding, the Committee may
cause any Award granted to be cancelled in consideration of a cash payment or
alternative Award made to the holder of such cancelled Award equal in value to
the Fair Market Value of such cancelled Award. The determinations of value under
this Section 15 shall be made by the Committee in its sole discretion.
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16. GENERAL PROVISIONS
16.1 NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained in the
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 Flexible Plan or in any Award,
nor the grant of any Award, shall confer upon or be construed as giving any
recipient of an Award any right to remain in the employ of the Company. Further,
the Company may at any time dismiss an Optionee in the Flexible Plan from
employment, free from any liability or any claim under the Flexible Plan, unless
otherwise expressly provided in the Flexible Plan or in any Award agreement. No
employee, Optionee or other person shall have any claim to be granted any Award,
and there is no obligation for uniformity or treatment of employees,
participants or holders or beneficiaries of Awards.
16.3 GOVERNING LAW. THE VALIDITY, CONSTRUCTION AND EFFECT OF THE FLEXIBLE
PLAN AND ANY RULES AND REGULATIONS RELATING TO THE FLEXIBLE PLAN SHALL BE
DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
16.4 SEVERABILITY. If any provision of the 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 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 Flexible Plan or the Award,
such provision shall be stricken as to such jurisdiction, person or Award and
the remainder of the 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 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 cancelled, terminated or otherwise eliminated.
16.6 HEADINGS. Headings are given to the subsections of the 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 Flexible Plan or any provision thereof.
16.7 EFFECTIVE DATE. The Flexible Plan shall be effective as of June 1,
1997 after its approval by the holders of a majority of the Shares of the
Company represented and voting at the Annual Meeting of Shareholders to be held
May 22, 1997. If the Flexible Plan is not approved by the Shareholders at the
1997 Annual Meeting, the Flexible Plan shall be null and void.
16.8 NON-TRANSFERABILITY OF AWARDS. Awards shall not be transferable
otherwise 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; provided,
however, that with the approval of the Committee, Awards other than Incentive
Stock Options may be transferred as directed under a qualified domestic
relations order. Any attempted assignment, transfer, pledge, hypothecation or
other disposition of an Award contrary to the provisions hereof, or the levy of
any execution, attachment or similar process upon an Award shall be null and
void and without effect.
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HCC INSURANCE HOLDINGS, INC.
ANNUAL MEETING OF SHAREHOLDERS--TO BE HELD MAY 22, 1997
THE BOARD OF DIRECTORS SOLICITS THIS PROXY
The undersigned hereby constitutes and appoints ___________________________
and ___________________________ , and each of them, acting in the absence of
others, as proxies of the undersigned, with full power of substitution in the
premises to each of them, to appear and vote, as designated herein, all shares
of stock of the Common Stock of HCC Insurance Holdings, Inc. (the "Company")
held of record by the undersigned on April 24, 1997 at the Annual Meeting of
Shareholders of the Company to be held at the offices of the Company, 13403
Northwest Freeway, Houston, Texas 77040 on May 22, 1997, at 9:30 A.M., local
time, and at any and all postponements or adjournments thereof (the "Meeting").
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DESIGNATED BELOW BY THE
UNDERSIGNED. IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED "FOR" THE
ELECTION OF ALL NOMINEES FOR DIRECTOR LISTED BELOW, "FOR" PROPOSALS 2, AND 3
AND, ACCORDING TO THE DISCRETION OF THE PROXY HOLDERS, ON ANY OTHER MATTERS THAT
MAY PROPERLY COME BEFORE THE MEETING OR ANY AND ALL POSTPONEMENTS OR
ADJOURNMENTS THEREOF.
1. Election of Directors
/ / FOR all nominees listed / / WITHHOLD AUTHORITY TO VOTE
below (except as for all nominees listed
marked to the contrary below.
below).
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME ON THE LIST BELOW.)
James M. Berry, Patrick B. Collins, J. Robert Dickerson, Edwin H. Frank, III,
Allan W. Fulkerson,
Walter J. Lack, Stephen J. Lockwood, Stephen L. Way, Hugh T. Wilson
2. Approval of the 1997 Flexible Incentive Plan.
/ / FOR / / AGAINST / / ABSTAIN
<PAGE>
3. Ratification of the appointment of Coopers & Lybrand L.L.P. as independent
auditors of the Company.
/ / FOR / / AGAINST / / ABSTAIN
4. In their discretion, the proxies are authorized to vote upon such business
as may properly come before the Meeting or postponement or any adjournment
thereof.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Shareholders, the Proxy Statement for such meeting, and the Annual Report of
HCC Insurance Holdings, Inc. on Form 10K for the fiscal year ended December 31,
1996.
---------------------------------------------
SIGNATURE OF SHAREHOLDER
---------------------------------------------
SIGNATURE OF SHAREHOLDER
(if jointly held)
Dated --------------------------- , 1997
Note: Please sign exactly as your name
appears on this card. On joint accounts each
joint holder should sign. When signing as
attorney, executor, administrator, trustee,
or guardian, please give your full title as
such. If a corporation, please sign in full
corporate name by President or other
authorized person. If a partnership, please
sign in partnership name by authorized
person.
PLEASE MARK, SIGN, DATE, AND RETURN YOUR PROXY PROMPTLY IN THE ENCLOSED
ENVELOPE.
