INTERNATIONAL ALLIANCE SERVICES, INC.AGENTS 1997 STOCK OPTION PLAN
1. Purpose of the Plan. This International Alliance Services, Inc. Agents 1997 Stock Option
Plan is intended to promote the interests of the Company and its stockholders. The purposes of
the Plan are to provide performance based compensation to certain agencies and/or individuals
providing quality surety business for Company Subsidiaries by giving them a permanent stake in
the growth and prosperity of the Company; to foster in participants a strong motivation to put
forth maximum effort for the continued production of business for the Company's Subsidiaries
that will further promote the success and advancement of the Company; and to aid in retaining
participants who put forth such efforts.
2. Definitions. When used herein, the following terms shall have the meanings set forth
below: 2.1 “Affiliate” means, with respect to any specified person or entity, a person or entity that
directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is
under common control with, the person or entity specified.
2.2 "Agency Agreement" means the agreement among the Agent, Commercial Surety
Agency, Inc. ("CSU") and Century Surety Company ("CSC") (together with other surety
companies including Gulf Insurance Company) for the production of surety business.
2.3 "Agent" or "Agents" mean any duly licensed agent, broker or solicitor (whether entity or
individual) who has provided a commitment acceptable to CSU. in its sole discretion for the
production of business.
2.4 "Board" means the Board of Directors of the Company.
2.5 "Code" means the Internal Revenue Code of 1986, as amended from time to time, and
reference to any specific provisions of the Code shall refer to the corresponding provisions of the
Code as it may hereafter be amended or replaced..
2.6 "Committee" means the Compensation Committee of the Board and/or any other
committee appointed by the Board whose members meet the requirements for eligibility to serve
set forth in Section 3 of this Plan and which is invested by the Board with responsibility for the
administration of this Plan: provided, however, that only those members of the Compensation
Committee of the Board who participate in decisions relative to Options under this Plan shall be
deemed to be part of the "Committee" for purposes of this Plan.
2.7 "Company" means International Alliance Services, Inc., a Delaware corporation,
collectively with its Subsidiaries, if any, where consistent with the context.
2.8 "Directors" means members of the Company's Board.
2.9 "ERISA" means the Employee Retirement Income Security Act of 1974, as in effect at
the time of reference, or any successor law which may hereafter be adopted in lieu thereof. and
any reference to any specific provisions of ERISA shall refer to the corresponding provisions of
ERISA as it may hereafter be amended or replaced.
2.10 "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to
time and reference to any specific provisions of the Exchange Act shall refer to the
corresponding provisions of the Exchange Act as it may hereafter be amended or replaced.
2.11 "Fair Market Value" means, except as otherwise determined by the Committee, with
respect to the Shares, the closing bid price for the Shares as reported on the national securities
exchange on which the Shares are traded, or, if applicable, as reported on the NASDAQ National
Market ("Nasdaq"), on the date for which the determination of fair market value is made, or if
there are no sales of Shares on that date, then on the next preceding date on which there were any
sales of Shares. If the Shares are not or cease to be traded on a national securities exchange or on
the Nasdaq National Market, the "Fair Market Value" of Shares shall be determined in the
manner prescribed by the Committee.
2.12 "Non-Qualified Stock Option" means an Option that is not of the type and does not meet
the requirements of Section 422 of the Code.
2.13 "Option" means the right to purchase, at a price and for a term fixed by the Committee in
accordance with this Plan, and subject to such other limitations and restrictions as this Plan and
the Committee impose, the number of Shares specified by the Committee.
2.14 "Option Agreement" means a written agreement in such form as may from time to time
be hereafter approved by the Committee, which Option Agreement shall set forth the terms and
conditions of an Option under this Plan, and be duly executed by the Company and the
Participant.
2.15 "Parent" means any corporation, other than the employer corporation of a Participant, in
an unbroken chain of corporations ending with the employer corporation of a Participant if each
of the corporations other than such employer corporation owns stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock in one of the other
corporations in the chain.
2.16 "Participant" means Agents who are selected by the Committee to participate in the Plan.
2.17 "Plan" means the Company's 1997 Agents Stock Option Plan.
2.18 "Regulation T" means Part 220, Chapter 11, Title 12 of the Code of Federal Regulations,
issued by the Board of Governors of the Federal Reserve System pursuant to the Exchange Act,
as amended from time to time. or any successor regulation which may hereafter be adopted in
lieu thereof. 2.19 "Securities Law" means the Securities Act of 1933, as amended, the Exchange Act, any
applicable state or local law or regulation or any administrative or quasi-administrative
requirement (including stock exchange requirements) applicable to the sale, issuance,
distribution or delivery of securities.2.20 "Share" or "Shares" means Common Shares, without par value, of the Company or, if by
reason of the adjustment provisions contained herein, any rights under an Option under this Plan
pertaining to any other security, such other security.
2.21 "Subsidiary" or "Subsidiaries" means with respect to any specified corporation any
corporation in an unbroken chain of corporations beginning with the specified corporation if
each of the corporations other than the last corporation in the unbroken chain owns stock
possessing fifty percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
2.22 "Successor" means the person or persons who shall acquire the right to exercise an
Option by transfer.
2.23 "Term" means the period during which a particular Option may be exercised.
3. Administration of the Plan. The Board shall appoint the Committee, which shall consist
of three (3) members who are members of the Board or executive officers of the Company.
Subject to the provisions of the Plan. the Committee shall have full authority, in its sole and
absolute discretion, to determine which Agents will become the Participants to whom Options
shall be granted, the number of Shares to be covered by each of the Options, and the terms and
provisions (including vesting schedule and restrictions on exercise) of the Option Agreements by
which Options shall be evidenced; to amend or cancel Options (subject to Section 15 of the
Plan); to interpret the Plan; to determine the requirements with respect to the transferability of
Options; and to prescribe, amend. and rescind rules and regulations relating to it, and generally to
interpret and determine any and all matters whatsoever relating to the administration of the Plan
and the granting of Options hereunder. The construction and interpretation by the Committee of
any provision of the Plan or any Option Agreement delivered pursuant to the Plan and any
determination by the Committee pursuant to any provision of the Plan or any Option Agreement
delivered pursuant to the Plan shall be final and conclusive. The Board may, from time to time,
appoint members to the Committee in substitution for or in addition to members previously
appointed and may fill vacancies, however caused, in the Committee. Any action of the
Committee may be taken by a written instrument signed by all of the members, and any action so
taken shall be fully as effective as if it had been taken by a vote of majority of the members at a
meeting duly called and held. The Committee shall make such rules and regulations for the
conduct of its business as it shall deem advisable and shall appoint a secretary who shall keep
minutes of its meetings and records of all action taken in writing without a meeting. In addition,
the Committee may authorize any one or more of their number or any officer of the Company to
execute and deliver documents on behalf of the Committee and the Committee may delegate to
one or more employees, agents or officers of the Company, or to one or more third party
consultants, accountants, lawyers or other advisors, such ministerial duties related to the
operation of the Plan as it may deem appropriate. No member of the Committee shall be liable in
the absence of bad faith, for any act or omission with respect to such member's service on the
Committee. The Committee shall from time to time adopt policies and procedures applicable t o
Options that will govern the rights of Participants and Successors upon the occurrence of any
other event determined by the Committee, in its sole and absolute discretion, to be appropriate.
4. Stock Subject to the Plan. There will be reserved for use, upon the exercise of Options to
be granted from time to time under the Plan an aggregate of up to One Million Two Hundred
Thousand (1,200,000) Shares, which Shares may be, in whole or in part, as the Board shall from
time to time determine, authorized but unissued Shares, issued Shares which shall have been
reacquired by the Company, or Shares acquired on the open market specifically for distribution
under the Plan. Any Shares subject to issuance upon exercise of an Option, but which are not
issued because of a surrender, lapse, expiration or termination of any such Option prior to
issuance of the Shares will be removed from aggregate of Shares reserved.
5. Grant of Op ions to Participants.
5.1 Definitions. For purposes of Sections 5,6 and 7 the following definitions apply:5.1.1 "Premium" shall mean the gross written premium booked by CSU including additional premiums, but less return premiums and cancellations for a
bond. For calculation purposes, no adjustments will be made with respect
to additional premiums, returned premiums or cancellations occurring
more than 60 days after the end of the Qualification Period.
5.1.2 "Bonds" will mean all bonds for surety written by a Participant which (i) are written pursuant to the authority and powers granted under the Agency
Agreement (excluding any bonds written under powers for bonds which
must be specially accepted by Gulf Insurance Company), (ii) were
underwritten by CSU where required by the Agency Agreement, and (iii)
have an effective date within the Qualification Period.
5.1.3 "Calculation Period" will mean with respect to any designated date, a period from the commencement of each referenced Underwriting Year until the
specified date.
5.1.4 "Commitment Amount" will mean an Agent's commitment as determined pursuant to Section 5.2 below.
5.1.5 "Loss Ratio (year)" will mean for any Calculation Period the ratio of the Incurred Losses (as of the end of the Calculation Period) for all Bonds written by
the Participant whose inception dates were within the specified
Underwriting Year(s) to the Premium on all such Bonds whose inception
dates were within the same Underwriting Year(s); where:
a. "Incurred Losses" are the sum of reserves for Unpaid Losses plus reserves for unpaid Allocated Claims Expenses. plus Paid Losses, plus paid
Allocated Claims Expenses, without any Incurred But Not
Reported.
b. "Paid Losses" are all payments for claims under the Bonds made by the Company plus all Allocated Claims Expense paid in connection
with Bonds whether or not related to claims paid, less recoveries
for salvage and subrogation, provided that the first Fifty Thousand
Dollars ($50,000) of Allocated Claims Expense paid will be
excluded.
c. "Unpaid Losses" are the reserve for liability for known losses which have occurred and have been reported.
d. "Allocated Claims Expense" are expenses that, under applicable accounting practices, directly allocates to a particular claim. These
expenses include but are not limited to fees for attorneys, adjustors
and consultants, court costs and related costs such as filing fees,
stenographic services, witnesses and summonses, copies of
documents and claim service fees.
e. "Incurred But Not Reported" is a reserve for liability for future payment on losses which have already occurred but have not yet been
reported and shall also include expected future development on
outstanding loss reserves..
Any Participant, at their option, may reduce their Loss Ratio by posting collateral with CSU of the type and form and in an amount acceptable to CSU, in its
sole discretion, to be applied to Incurred Losses.
5.1.6 “Minimum Commitment" is Three Hundred Thousand Dollars ($300,000) in Premium during the Qualification Period.
5.1.7 “Total Premium" will mean the actual amount of Premium on all Bonds produced by a Participant (includes all three years of the Qualification Period).
5.1.8 "Qualification Period" will mean the three year period beginning on January 1, 1997 and ending on December 3 1, 1999.
5.1.9 “Underwriting Year [year]" will mean with respect to a specified year, a twelve month period commencing on January I of the year and ending on
December 31 of the same year in which a particular Bond or group of
Bonds had an effective date.
5.2 Selection of Participants. Options may be granted pursuant to the Plan to any Agent
which the Committee, in its sole and absolute discretion, determines may be a Participant in the
Plan, provided such Agent signs an Option Agreement which commits the Agent to produce at
least Three Hundred Thousand Dollars ($300,000) of Premium during the Qualification Period.
The maximum amount of Premium to which an Agent will be permitted to commit will be
determined by the Committee in its sole discretion. The Option Agreement and commitment
must be signed in order for the grant to be effective.5.3 Grant of Options. The Committee will grant to all Participants who have fulfilled all
requirements for entry into the Plan, Options in a number equal to such Participant's
Commitment divided by one hundred dollars (i.e. one thousand options for each one hundred
thousand dollars of Premium). Option amounts will be rounded down to the nearest one hundred.
The Options will be granted within three business days after the closing date of the purchase of
the assets of Midwest Indemnity Corporation by the Company's Subsidiary. The Options granted
will not be vested or exercisable upon their granting, and are subject to vesting, exercise and
termination in accordance with the terms of the Plan.
6. Options.
6.1 Types of Options. Options granted under this Plan will be Non-Qualified Stock Options
and will be treated by the Company and Participant as such for federal income tax purposes.6.2 Option Price. The option price per Share of any Option granted under the Plan will be the
Fair Market Value of the Shares covered by the Option on the day the Committee grants the
Options.6.3 Term of Options. Options granted hereunder shall be valid for not more than five and one
half years from the date of grant. Options must be exercised no later than the earlier of five and
one half years after the granting of the Options or one year after the date such Option vests (or
first becomes exercisable), but shall be subject to earlier termination as hereinafter provided.6.4 Termination of Options. Unless otherwise expressly provided in an Option Agreement
with the Participant to whom an Option is granted, and then only in such instance, the following
terms apply to Options granted under the Plan: 6.4.1 Termination of Unvested Options. If the Agency Agreement of a Participant to
whom an Option shall have been granted under this Plan is terminated
prior to the end of the Qualification Period, then all such Options or
portions of Options then held by such Participant shall terminate on the
date the Agency Agreement is terminated.
6.4.2 Immediate Termination of Entire Option. If the Agency Agreement of a
Participant to whom an Option shall have been granted under this Plan
could have been terminated as a result of such Participant's willful
misconduct, willful failure to follow underwriting guidelines, gross
negligence, bankruptcy, liquidation or any other event that would give
cause for termination which occurred during the Qualification Period, but
was discovered subsequent thereto; then anything to the contrary herein
notwithstanding, all such Options or portions of Options then held by such
Participant shall terminate on the date written notice is given to Participant
that such an event has been discovered.
6.4.3 Death of Participant. If a Participant who is an individual shall die or become
disabled as defined in Section 422(e)3 of the Code, then any Option
exercisable as of the date of death may be exercised by the Participant's
Successor at any time within one (1) year after the date of such
Participant's death (but not beyond the original term of the Option).
6.4.4 Termination of Agency Agreement. If the Agency Agreement of a Participant to
whom an Option shall have been granted shall terminate, other than as
provided in Sections 6.4.1, 6.4.2 or 6.4.3 hereof, then the Option (to the
extent exercisable on the date of termination) may be exercised at any time
within three (3) months after the date of such termination (but not beyond
the original term of the Option).
6.4.5 Continuation. If a Participant merges, reorganizes, changes its form of
organization, dissolves and reorganizes for purposes of removing a
partner, sells all or substantially all of its assets or suffers a change in
control, or if an individual Participant dies or becomes disabled and the
business is continued, the Committee, in its sole and absolute discretion,
may, but is not obligated to, allow assignment of the Option Agreement
and may establish procedures whereby the new or continued entity,
subject to any requirements established by the Committee, allow
assignment of the Option Agreement and rights thereunder to the
successor of the Participant.
7. Vesting of Options.
7.1 Conditions Precedent. No Option will become vested or eligible to be exercised unless
and until the Participant will have (i) had Total Premium satisfying the Minimum Commitment
for the Qualification Period, and~ (ii) scrupulously observed regulatory mandates, underwriting
and pricing guidelines, and exemplified the highest standards of ethics and service consistent
with surety professionalism during the Qualification Period. If a Participant fails to meet the
qualifications in (i) and (ii) above all Options of the Participant are terminated as of the end of
the Qualification Period and Sections 7.2 and 7.3 do not apply. 7.2 Initial Vesting. A determination will be made of the Participant's Loss Ratio for a
Calculation Period ending December 3 1, 1999 for Bonds written in Underwriting Years 1997
and 1998 within sixty (60) days after the end of the Qualification Period. 7.2.1 If such Loss Ratio is not more than 30%, the lesser of the following number of
Options will vest, and become exercisable in accordance with the terms of the Plan on March 1,
2000: (i) one half of the Participant's Options; or (ii) that number of Options equal to one half of
the Participant's Premium in Underwriting Years 1997 and 1998 divided by one hundred dollars.
7.2.2 If such Loss Ratio is more than 30%, but less than 40% no Option will vest, but
Participant's Option grant will remain in effect for potential vesting under 7.3 below.
7.2.3 If the Loss Ratio exceeds 40%, one half of the Participant's Options terminate.
7.3 Second Vesting. A determination will be made of the Participant's Loss Ratio for a
Calculation Period ending December 3 1, 2000 for Bonds written in Underwriting Years 1997,
1998 and 1999 within sixty (60) days after the end of the year 2000.
7.3.1 If such Loss Ratio is not more than 30%, the lesser of the following number of
Options reduced by the number of Options vesting under 7.2 above, will vest, and become
exercisable in accordance with the terms of the Plan on March 1, 2001: (i) the Participant's
Options or (ii) that number of Options equal to the Participant's Actual Premium-divided by one
hundred dollars.
7.3.2 If such Loss Ratio exceeds 30%, all Options which have not previously vested
will terminate.
8. Exercise Rights Under Option.
8.1 Exercise of Options. Except as otherwise provided in Section 6.4, an Option may be
exercised only while the Participant to whom the Option was granted has in force an Agency
Agreement, and there is not pending under such Agency Agreement, a notice of default which
has not yet been cured.
8.2 Notice of Exercise. A Participant entitled to exercise an Option may do so by delivery of
a written notice to that effect specifying the number of Shares with respect to which the Option is
being exercised and any other information the Committee may prescribe. Except as provided in
Section 8.3 below, the notice shall be accompanied by payment in full by wire transfer of funds,
certified check or other means of payment approved by the Committee, of the purchase price of
any Shares to be purchased. No Shares shall be issued upon exercise of an Option until full
payment has been made therefor. The notice of exercise of an Option shall also be accompanied
by the Participant's copy of the Option Agreement evidencing the grant of the Option. All notices
or requests provided for herein shall be delivered to the Secretary of the Company.
9. Rights of Option Holders. The holder of an Option shall not have any of the rights of a
stockholder with respect to the Shares subject to purchase or issuance under such Option, except
to the extent that one or more certificates for such Shares shall have been delivered to the holder
upon due exercise of the Option.
10. Transferability of Options. Except as provided by Section 6.4.5, an Option shall not be
transferable by the Participant, and such Option may be exercised, only by such Participant, or in
the event of an individual Participant's death or disability, by the Participant's personal
representative. Notwithstanding the foregoing, at the discretion of the Committee, and subject to
such terms as it in its sole discretion establishes, an Option which by its terms has become
exercisable, shall be transferable (i) pursuant to a qualified domestic relations order, as defined in
the Code or ERISA or the rules thereunder; or (ii) to a individual Participant's spouse, lineal
descendants, spouses of lineal descendants or to a trust for their benefit or; (iii) to the equity
owners of Participant.
11. Date of Grant. The effective date of grant of an Option granted hereunder shall be the
date indicated by the Committee as part of its action granting the Option.
12. Adjustments Upon Changes in Capitalization. The number of Shares subject to the Plan
and to Options granted under the Plan shall be adjusted as follows: (i) in the event that the
outstanding Shares of the Company is changed by any stock dividend, stock split or combination
of Shares, the number of Shares subject to the Plan and to Options granted thereunder shall be
proportionately adjusted; (ii) in the event of any merger, consolidation or reorganization of the
Company with any other corporation or corporations, there shall be substituted, on an equitable
basis as determined by the Committee, for each Share that is subject to the Plan, whether or not
at the time subject to outstanding Options, the number and kind of shares of stock or other
securities to which the holders of Shares of the Company will be entitled pursuant to the
transaction; and (iii) in the event of any other relevant change in the capitalization of Company,
the Committee shall provide for an equitable adjustment in the number of Shares then subject to
the Plan, whether or not then subject to outstanding Options. In the event of any such adjustment
the option price per Share shall be proportionately adjusted.
13. Notice of Grant; Option Agreement. Nothing contained in the Plan nor any resolution
adopted or to be adopted by the Board or the stockholders of the Company shall constitute the
granting of any Option or any offer to participate in the Plan. An Option shall be granted
hereunder at such date or dates as the Committee may determine, subject to the Plan. Whenever
the Committee determines to grant an Option, the Chief Executive Officer or President of the
Company, or such other person as the Committee appoints, shall forthwith send notice thereof to
the Participant. in such form as the Committee approves, stating the number of Shares subject to
an Option, its Term, and the other provisions (including restrictions) and conditions thereof
provided by the terms of the Plan or the Option Agreement. "The notice shall be accompanied by
any prospectus, offering circular or other requirements of the securities laws, and a written
Option Agreement which shall have been duly executed by or on behalf of the Company.
Execution of an Option Agreement by the recipient Participant in accordance with the provisions
of the Plan shall be a condition precedent to the grant of any Option.
14. Withholding for Taxes. The Company shall have the right to require a Participant entitled
to receive Shares pursuant to the exercise of an Option under the Plan to pay the Company the
amount of any taxes which the Company is or believes it might be required to withhold with
respect to such Shares before the certificate for such Shares is delivered pursuant to the Option.
Furthermore, the Company may elect to deduct such taxes from any other amounts payable then
or any time thereafter in cash or Shares or other property to the Participant.
15. Amendment of the Plan. The Plan may be amended at any time and from time to time by
the Board.
16. Delivery of Shares on Exercise. Delivery of certificates for Shares pursuant to the grant
or exercise of an Option may be postponed by the Company for such period as may be required
for it with reasonable diligence to comply with any applicable Securities Law. The Committee
may, in its sole and absolute discretion, require a Participant to furnish the Company with
appropriate representations that he or she is acquiring the Shares as an investment and not with a
view to distribution thereof, if the Company, in its sole discretion determines that such
representation is required to insure that a resale or other disposition of the Shares would not
involve a violation of the Securities Act of 1933, as amended, or of applicable blue sky laws.
Any investment representation shall no longer be applicable at any time such representation is no
longer necessary for such purposes. The Company agrees that within one hundred fifty days
(150) after the end of a Calculation Period it will file a registration statement with the Securities
and Exchange Commission registering for resale those Shares that have vested for all
Participants under the Plan.
17. Fees and Costs. The Company shall pay all original issue taxes on the exercise of any
Option granted under the Plan and all other fees and expenses necessarily incurred by the
Company in connection therewith.
18. Other Provisions. As used in the Plan, and in Options and other documents prepared in
implementation of the Plan, references to the masculine pronoun shall be deemed to refer to the
feminine or neuter, and references in the singular or in the plural shall refer to the plural or the
singular, as the identity of the person or persons or entity or entities being referred to may
require. The captions used in the Plan and in such Options and other documents prepared in
implementation of the Plan are for convenience only and shall not affect the meaning of any
provision hereof or thereof
19. Law to Govern. This Plan shall be governed by and construed in accordance with the
laws of the State of Delaware.
20. Effectiveness of the Plan. The Plan was approved by the Company's Board of Director's
on December 9, 1996, and became effective on that date. Unless sooner terminated by the Board,
the Plan shall terminate on July 3 1, 2002. Any Options outstanding at the time of termination of
the Plan shall continue in full force and effect according to the terms and conditions of the
Option and this Plan.
International Alliance Services, Inc. 4/1/97
