UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to SectionPROXY STATEMENT PURSUANT TO SECTION 14(a) of
the Securities Exchange Act ofOF THE SECURITIES
EXCHANGE ACT OF 1934 (Amendment No. )
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/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
White Mountains Insurance Group Ltd.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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Notice of 2000
Annual Meeting
of Shareholders
and Proxy Statement
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NOTICE OF 2001
ANNUAL GENERAL MEETING
OF SHAREHOLDERS
AND PROXY STATEMENT
--------------------------------
[WHITE MOUNTAINS INSURANCE GROUP LOGO]
Table of ContentsTABLE OF CONTENTS
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PAGE
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LETTER FROM JOHN J. BYRNE.......................................................................BYRNE ...................................................... 1
NOTICE OF 20002001 ANNUAL GENERAL MEETING OF SHAREHOLDERS....................................................SHAREHOLDERS .......................... 2
PROXY STATEMENT..................................................................................STATEMENT ................................................................ 3
PROPOSAL 1: ELECTION OF DIRECTORS............................................................DIRECTORS OF THE COMPANY ............................ 3
Procedures for Nominating Directors.......................................................Directors ........................................ 6
Voting Securities and Principal Holders Thereof...........................................Thereof ............................ 7
Compensation of Directors.................................................................Directors .................................................. 10
Compensation of Executive Officers........................................................ 11Officers ......................................... 10
Compensation Plans ......................................................... 12
Reports of the Compensation Committees on Executive Compensation..........................Compensation ........... 13
Report of the Audit Committee .............................................. 15
Fees Billed by the Company's Independent Auditors for Services
Performed in 2000 ........................................................ 15
Shareholder Return Graph..................................................................Graph ................................................... 16
Compensation Plans........................................................................ 17
Compensation Committee Interlocks and Insider Participation in
Compensation Decisions ....................................................... 17
PROPOSAL 2: ELECTION OF DIRECTORS OF FUND AMERICAN ENTERPRISES, LTD ........ 17
PROPOSAL 3: AMENDMENTS TO THE LONG-TERM INCENTIVE PLAN ..................... 17
PROPOSAL 4: ISSUANCE OF COMMON SHARES UPON CONVERSION OF CONVERTIBLE
PREFERENCE SHARES AND THE EXERCISE OF SERIES B WARRANTS ...... 18
PROPOSAL 2:5: APPOINTMENT OF INDEPENDENT AUDITORS.............................................. 18AUDITORS ............................ 21
OTHER MATTERS................................................................................. 18MATTERS ............................................................... 21
AUDIT COMMITTEE CHARTER ................................................... Appendix I
WHITE MOUNTAINS INSURANCE GROUP, LTD. LONG-TERM INCENTIVE PLAN ............ Appendix II
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White Mountains Insurance Group, Ltd. (the "Company" and, together with its
subsidiaries, "White Mountains") is a Bermuda-domiciled financial servicesinsurance holding
company. White Mountains' insurance operations are conducted through its
subsidiaries and affiliates in the businesses of property and casualty insurance
reinsurance and financial guaranty insurance.reinsurance.
White Mountains' insurance operations principally include: (i) OneBeacon
Corporation ("OneBeacon", formerly CGU Corporation), a Boston-based property and
casualty holding company and (ii) Folksamerica Holding Company, Inc.
("Folksamerica"), a New York-based broker-market
reinsurer; (ii) Peninsula Insurance Company ("PIC"), a Maryland-based property and casualty insurer; (iii) American Centennial Insurance Company ("ACIC"), a
Delaware-based property and casualty insurer; (iv) British Insurance Company of
Cayman ("BICC"), a Cayman Island-based property and casualty insurer; (v) a 26%
economic interest in Financial Security Assurance Holdings Ltd. ("FSA"), a New
York-based Aaa/AAA writer of financial guarantee insurance; and (vi) a 50% stake
in Main Street America Holdings, Inc. ("MSA"), a unit of National Grange Mutual
Insurance Company, a New Hampshire-based property and casualty insurer.reinsurance holding
company.
[WHITE MOUNTAINS INSURANCE GROUP LOGO]
JOHN J. BYRNE
CHAIRMAN
March 24, 2000July 5, 2001
Dear Shareholder:
I am pleased to invite you to the 20002001 Annual General Meeting of White
Mountains Insurance Group, Ltd., to be held on Monday, May 22, 2000.August 23, 2001. This year's meeting
will take place at the Princess Hotel in Hamilton, Bermuda beginning at 9:12:00
a.m.noon Atlantic Time (8:(11:00 a.m. Eastern Time). I welcome you all to join me for
the morning in lovely Bermuda.
We will begin the meeting with a discussion and shareholder vote on the
proposals set forth in the accompanying Proxy Statement and on such other
matters properly brought before the meeting. At the meeting you will be asked to
consider and vote on the following issues:issues which are further described herein:
1) to elect one director to Class I, one director to Class II and fourthe election of five directors of the Company,
2) the election of two directors to Class IIIa Bermuda company we plan to form,
3) an amendment to the Company's Long-Term Incentive Plan,
4) the issuance of additional common shares upon conversion of Convertible
Preference Shares and 2) to ratifyupon the exercise of Series B Warrants, and
5) the ratification of the appointment of independent auditors for 2000.
The 2000 proposals are routine matters that are addressed annually and are
more fully described herein.2001.
Management expects to provide shareholders with a brief summary of each of
its major operating subsidiariesWhite
Mountains' financial performance and affiliatesOneBeacon's operations at the meeting.
For those of you unable to attend the 2000 Annual Meeting,meeting in Bermuda, we will repeat this
business
presentationsummary at an informational meeting to be held shortly thereafterat 10:00 a.m. Eastern Time on
August 24, 2001 in the John Jacob Astor Salon at the Waldorf Astoria Hotel in
New York City (details of which will follow at a later date).City. I hope to see you in either Bermuda or New York.
Your vote is important. Whether or not you plan to attend the meeting, you
can ensure that your common shares are properly represented at the meeting by
promptly completing, signing, dating and returning your proxy card in the
enclosed envelope. Shareholders who hold their common shares in a brokerage
account, an employee benefit plan or through a nominee will likely have the
added flexibility of voting their shares by telephone or over the internet.
Respectfully submitted,
JACK BYRNE
1
WHITE MOUNTAINS INSURANCE GROUP, LTD.
NOTICE OF 20002001 ANNUAL GENERAL MEETING OF SHAREHOLDERS
MAY 22, 2000
March 24, 2000AUGUST 23, 2001
July 5, 2001
Notice is hereby given that the 20002001 Annual General Meeting of Shareholders
of White Mountains Insurance Group, Ltd. will be held on Monday, May 22, 2000,Thursday, August 23,
2001, at 9:12:00 a.m.noon Atlantic Time at the Princess Hotel, Hamilton, Bermuda. At
the meeting you will be asked to consider and vote upon the following proposals:
(a)1) to elect one directorfive of the Company's directors to Class I with a term
ending in 2001, one
director2004,
2) to Class II with a term ending in 2002 and fourelect two directors to Class III with terms endingthe board of Fund American Enterprises,
Ltd., a Bermuda company that we expect to form shortly,
3) to amend the Company's Long-Term Incentive Plan by (i) extending its
current expiration date from May 24, 2005 to August 23, 2011, (ii)
increasing, to a total of 300,000, the number of the Company's common
shares which may be granted hereunder, (iii) broadening the scope of
performance objectives pursuant to awards made under the plan, and
(iv) amending certain change in 2003,
(b)control provisions, including the
exemption of Berkshire Hathaway, Inc. ("Berkshire") from such
provisions,
4) to provide for the issuance of up to 2,728,868 Common Shares upon the
conversion of Convertible Preference Shares and the exercise of Series
B Warrants, and
5) to appoint PricewaterhouseCoopers as Independent Auditorsthe Company's independent
auditors for 2001.
The Company's audited financial statements for the year ended December
31, 2000, audit examination; and
(c) to transact such other business, if any, as mayapproved by the Company's Board of Directors, will be properly brought
before the meeting.presented
at this Annual General Meeting.
Shareholders of record of Common Shares on the record date, March 24, 2000,July 5, 2001,
(i) who are individuals, may attend and vote at the meeting in person or by
proxy or (ii) which are corporations or other entities, may be represented and
vote at the meeting by a duly authorized representative or by proxy. A list of
all shareholders entitled to vote at the meeting will be open for public
examination during regular business hours from May 1, 2000,July 10, 2001, until 12:00 noon
on May 22,
2000,August 23, 2001, at White Mountains Insurance Group, Ltd.'sthe Company's registered office located at Clarendon
House, 122 Church Street, Suite 322, Hamilton HM 11,DX, Bermuda.
All shareholders are invited to attend this meeting.
By Order of the Board of Directors,
DENNIS P. BEAULIEU
Corporate Secretary
SHAREHOLDERS ARE INVITED TO COMPLETE AND SIGN THE ACCOMPANYING PROXY CARD
TO BE RETURNED TO WHITE MOUNTAINS INSURANCE GROUP, LTD., C/O FIRST CHICAGOEQUISERVE TRUST
COMPANY, OF NEW YORK A DIVISION OF EQUISERVE, POST OFFICE BOX 8085, EDISON, NEW JERSEY 08818-9052, IN THE ENVELOPE
PROVIDED, WHETHER OR NOT THEY EXPECT TO ATTEND THE MEETING. SHAREHOLDERS WHO
HOLD THEIR COMMON SHARES IN A BROKERAGE ACCOUNT, AN EMPLOYEE BENEFIT PLAN OR
THROUGH A NOMINEE WILL LIKELY HAVE THE ADDED FLEXIBILITY OF VOTING THEIR SHARES
BY TELEPHONE OR OVER THE INTERNET.
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WHITE MOUNTAINS INSURANCE GROUP, LTD.
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Company's Board of Directors (the "Board") for the
20002001 Annual General Meeting of Shareholders (the "2000"2001 Annual Meeting"), to
be held on May
22, 2000 inAugust 23, 2001 at the Princess Hotel, Hamilton, Bermuda. The
solicitation of proxies will be made primarily by mail, and thisthe Proxy
Statement and related proxy materials will be distributed to registered
shareholders on or about March 27, 2000.July 6, 2001.
Holders of shares of the Company's Common Stock,Shares, par value $1.00 per share ("Common
Shares"), as of the close of business on March 24, 2000,July 5, 2001, the record date, are
entitled to vote at the meeting. Holders of the Company's Convertible Preference
Shares are not entitled to vote at the meeting but are invited to attend this
meeting.
You can ensure that your Common Shares are properly voted at the meeting by
completing, signing, dating and returning the enclosed proxy card in the
envelope provided. Shareholders who hold their Common Shares in a brokerage
account, an employee benefit plan or through a nominee will likely have the
added flexibility of voting their Common Shares by telephone or over the
internet. A shareholder has the right to appoint another person (who need not be
a shareholder) to represent the shareholder at the meeting by completing an
alternative form of proxy which can be obtained from the Corporate Secretary or
by notifying the Inspectors of Election (see page 19)21). Shareholders haveEvery person entitled
to vote has the right to revoke their proxies, at any time prior to the time their Shares are
actually voted,do so either in person or by (i) filingone or more persons
authorized by a written notice of revocationproxy executed by such shareholder and filed with the
Corporate Secretary, (ii) presenting anotherSecretary. Any proxy with a later date or (iii) notifyingduly executed will continue in full force and
effect unless revoked by the Inspectors of Electionperson executing it in writing or by the filing
of such revocation.a subsequent proxy.
Sending in a signed proxy will not affect your right to attend the meeting
and vote. If a shareholder attends the meeting and votes in person, his or her
proxy is considered revoked.
PROPOSAL 1
ELECTION OF THE COMPANY'S DIRECTORS
The Board is divided into three classes (each a "Class"). Each Class serves
a three-year term.
Mr. Terry L. Baxter, currently a Class III director, will not stand for
re-election at the 2000 Annual Meeting.
At the 20002001 Annual Meeting, Mr.Messrs. Patrick Byrne, Fass, isKemp, Macklin and
Steinberg are nominated to be elected to Class I with a termterms ending in 2001, Mr. John Gillespie is nominated to be elected to
Class II with a term ending in 2002 and Messrs. Barrette, Clark, Cochran and
Zankel are nominated to be elected to Class III with terms ending 2003.2004. THE
BOARD RECOMMENDS A VOTE FOR PROPOSAL 1 WHICH CALLS FOR THE ELECTION OF THE 20002001
NOMINEES.
The current and proposed members of the Board and terms of each Class are set forth
below:
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Director
Director Age since
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Class I - Term Ending in 2001
Patrick M. Byrne 37 1997
Steven E. Fass* 54 2000
K. Thomas Kemp 59 1994
Gordon S. Macklin 71 1987
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Class II - Term Ending in 2002
John J. ("Jack") Byrne 67 1985
George J. Gillespie, III 69 1986
John D. Gillespie*
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Director
Director Age since
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Class I - Term Ending in 2001*
Patrick M. Byrne 38 1997
Steven E. Fass 55 2000
K. Thomas Kemp 60 1994
Gordon S. Macklin 73 1987
Joseph S. Steinberg 57 2001
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Class II - Term Ending in 2002
John J. ("Jack") Byrne 69 1985
George J. Gillespie, III 71 1986
John D. Gillespie 42 1999
Frank A. Olson 68 1996
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Class III - Term Ending in 2003
Raymond Barrette 50 2000
Howard L. Clark, Jr. 57 1986
Robert P. Cochran 51 1994
Arthur Zankel 69 1992
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* 41 1999
Frank A. Olson 67 1996
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Class III - Term Ending in 2000
Raymond Barrette*** 49 2000
Howard L. Clark, Jr.*** 56 1986
Robert P. Cochran*** 50 1994
Arthur Zankel*** 68 1992
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* NomineeNominated at the 20002001 Annual Meeting to a term ending in 2001.
** Nominee at the 2000 Annual Meeting to a term ending in 2002.
*** Nominee at the 2000 Annual Meeting to a term ending in 2003.
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2004.
The following information with respect to the principal occupation, business
experience, recent business activities involving White Mountains and other
affiliations of the nominees and directors has been furnished to the Company by
the nominees and directors.
3
CLASS I
PATRICK M. BYRNE has been a director of the Company since 1997. Mr. Byrne
serves as PresidentChairman and CEO of Overstock.com, an internet shopping service. Mr.
Byrne formerly served as President and CEO of Fecheimer Bros. Co. (a
wholly-owned subsidiary of Berkshire Hathaway Inc.)Berkshire), a manufacturer of uniforms and
accessories, from 1997 to 1999 and President and CEO of Centricut, LLC, a
manufacturer of industrial torch consumable parts, from 1994 to 1999. In
addition, since 1991, Mr. Byrne has been the managing general partner of a
number of limited partnerships investing in real estate, gaming, insurance and
international trade. Mr. Byrne
is the son of Chairman Jack Byrne.
STEVEN E. FASS was appointed to the Board in February 2000. Mr. Fass has served as
President and Chief Executive Officer of Folksamerica and its subsidiaries
including Folksamerica Reinsurance Company since 1984. He joined Folksamerica as
its Vice President, Treasurer and Chief Financial Officer in 1980.
K. THOMAS KEMP has served as Deputy ChairmanPresident of the Company since January
2000June 2001 and
has been a director since 1994. Mr. Kemp previously served as Deputy Chairman
from January 2000 to June 2001 and as the Company's President and CEO from 1997
to January 2000 and served as Executive Vice President from 1993 to 1997, Vice
President, Treasurer and Secretary from 1991 to 1993 and was formerly a Vice
President of Fireman's Fund Insurance Company ("Fireman's Fund"). Mr. Kemp is
also a director of FSA, Eldorado Bancshares,Folksamerica, Inc., Main Street America Holdings, Inc. and
Amlin plc.
GORDON S. MACKLIN has served as Deputy Chairman of the Company since June
2001 and has been a director of the Company since 1987. Mr.
Macklin is currently a corporate financial advisor. Mr. Macklin formerly
served as Chairman of White River Corporation, an information services company,
from 1993 to 1998, as Chairman of Hambrecht and Quist Group, a venture capital
and investment banking company, from 1987 until 1992, and as President of the
National Association of Securities Dealers, Inc. from 1970 until 1987. He is a
director of MCI Worldcom, Inc., Martek Biosciences Corporation, MedImmune Inc.,
Overstock.com and Spacehab, Inc., and is a trustee, director or managing general
partner (as the case may be) of 4748 of the investment companies in the Franklin
Templeton Group of Funds.
JOSEPH S. STEINBERG was appointed a director of the Company in June 2001.
Mr. Steinberg has served as the President of Leucadia National Corporation
("Leucadia") since 1978. Mr. Steinberg is also a director of Allcity Insurance
Company, MK Gold Company and Jordan Industries, Inc. In addition, Mr. Steinberg
is Chairman of HomeFed Corporation.
CLASS II
JOHN J. ("JACK") BYRNE has served as Chairman of the Company since 1985 and
has served as the Company's CEOChairman of OneBeacon since January 2000.June 2001. Mr. Byrne formerly served
as CEO of the Company from 2000 to June 2001, as President and CEO of the
Company from 1990 to 1997 and as CEO from 1985 to 1990. Mr. Byrne is a director
of Overstock.comFolksamerica and Markel Corp.Overstock.com. Mr. Byrne's son, Patrick Byrne, is also a
director of the Company.
GEORGE J. GILLESPIE, III has been a director of the Company since 1986. Mr.
Gillespie has been a Partner in the law firm of Cravath, Swaine & Moore ("CS&M")
since 1963. He is also a director of The Washington Post Company. CS&M has been
retained by White Mountains from time to time to perform legal services. See
"Compensation Committee Interlocks and Insider Participation in Compensation
Decisions." Mr. Gillespie's son, John Gillespie, is also a director of the
Company.
JOHN D. GILLESPIE was appointed tohas served as Managing Director of OneBeacon since June
2001 and has been a director of the board in AugustCompany since 1999. He is also the founder
and Managing Partner of his own investment firm, Prospector Partners, LLC
("Prospector"), in Hartford, Connecticut. Prior to forming Prospector Partners,
Mr. Gillespie was President of the T. Rowe Price Growth Stock Fund and the New
Age Media Fund, Inc. White Mountains owns limited partnership investment
interests which are managed by Mr. Gillespie. See "Certain Relationships and
Related Transactions". Mr. Gillespie's father, George Gillespie, is also a
director of the Company.
4
FRANK A. OLSON has been a director of the Company since 1996. He serves as
Chairman of The Hertz Corporation ("Hertz"). Mr. Olson served as the CEO of
Hertz from 1977 to 1999 and has been with that company since 1964. He is also a
director of Becton Dickinson and Company, Cooper Industries and Commonwealth
Edison Co. and was formerly Chairman and CEO of AllegisAmerada Hess Corporation and
United
Airlines.
4
Warnaco Group.
CLASS III
RAYMOND BARRETTE was appointed tohas served as Managing Director and Chief Executive
Officer of OneBeacon since June 2001 and has been a director of the board in FebruaryCompany
since 2000. Mr. Barrette hasformerly served as President of the Company since Januaryfrom 2000
to June 2001 and served as Executive Vice President and Chief Financial Officer
of the Company since 1997.from 1997 to 2000. He was formerly a consultant with
Tillinghast-Towers Perrin from 1994 to 1996 and was with Fireman's Fund from
1973 to 1993. Mr. Barrette is also a directorChairman of Folksamerica, PIC, ACIC and BICC.Folksamerica.
HOWARD L. CLARK, JR. has been a director or advisor to the boardBoard since
1986. He is currently Vice Chairman of Lehman Brothers Inc. ("Lehman") and was
Chairman and CEO of Shearson Lehman Brothers Inc. from 1990 to 1993. Prior to
joining Shearson Lehman Brothers Inc., Mr. Clark was Executive Vice President
and Chief Financial Officer of American Express. He is also a director of Lehman
Brothers, Inc., Maytag Corporation, MoneyTran.comH Power Corp. and Walter Industries, Inc. Lehman
provides various services to White Mountains from time to time. See
"Compensation Committee Interlocks and Insider Participation in Compensation
Decisions."
ROBERT P. COCHRAN has been a director of the Company since 1994. Mr.
Cochran was a founding principal of FSAFinancial Security Assurance Holdings Ltd.
("FSA") and has served FSA in various capacities since 1985. He has been
President and CEO and a director of FSA since 1990 and became Chairman in 1997.
He is also Chairman of Financial Security Assurance Inc. and Financial Security
Assurance (U.K.) Ltd. White Mountains has a 26%
economic interest in FSA. See "Compensation Committee Interlocks and Insider
Participation in Compensation Decisions."
ARTHUR ZANKEL has been a director or advisor to the board since 1992. He
served as a General Partner of First Manhattan Co. from 1965 to 1999 and was Co-
Managing Partner of First Manhattan from 1979 to 1997. Mr. Zankel is currently
Managing Member of Zankel Capital Advisors, LLC in which White Mountains owns a
limited partnership investment interest. See "Compensation Committee Interlocks
and Insider Participation in Compensation Decisions." Mr. Zankel is also a
director of Citigroup, Inc., Travelers Property Casualty
Corp. and VICORP Restaurants, Inc.Able Co.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee, comprised of certain nonemployee directors (Messrs.Messrs. Clark, Olson, Steinberg
(appointed June 1, 2001) and Zankel),Zankel, has general responsibility for the
oversight and surveillance of the accounting, reporting and financial control
practices of White Mountains. The Audit Committee annually reviews the
qualifications of the Independent Auditors; makes recommendations to the Board
as to their selection; and reviews the plan, fees and results of their audit.
Mr. Clark is Chairman of the Audit Committee.
The Compensation Committee, comprised of certain nonemployee directors
(Messrs.Messrs. Patrick Byrne, Cochran,
Macklin (who resigned from the Compensation Committee on June 1, 2001 upon
becoming Deputy Chairman of the Company), Olson, Steinberg (appointed June 1,
2001) and Zankel),Zankel, oversees White
Mountains'the Company's stock-based compensation and benefit
policies and programs, including administration of the White Mountains Insurance
Group, Ltd. Long-Term Incentive Plan (the "Incentive Plan"), the
Voluntary Deferred Compensation Plan (the "Deferred Compensation Plan") and the
Deferred Benefit Plan (the "Deferred Benefit Plan"). On June 1, 2001,
Mr. Cochran replaced Mr. Macklin isas Chairman of the Compensation Committee.
The Human Resources Committee, comprised of certain nonemployee directors
(Messrs.Messrs. Patrick Byrne, Clark,
Cochran, George Gillespie, Macklin (who resigned from the Human Resources
Committee on June 1, 2001 upon becoming Deputy Chairman of the Company), Olson,
Steinberg (appointed June 1, 2001) and Zankel),Zankel, sets the annual salaries and
bonuses for elected officers and certain other key employees. On June 1, 2001,
Mr. Cochran replaced Mr. Macklin isas Chairman of the Human Resources Committee.
The Finance Committee, comprised of Messrs. Jack Byrne, Clark, George
Gillespie, Kemp, Macklin and Zankel has general responsibility for the oversight
of all significant financing, tax and acquisition/ disposition activities of
White Mountains. Mr. Jack Byrne is Chairman of the Finance Committee.
5
The Investment Committee is an advisory committee to the Board and is
comprised of Messrs. Barrette, Jack Byrne, (emeritus), John Gillespie, Kemp, Zankel, certain
members of senior management and investment professionals. The Investment
Committee formulates the Company's investment policy and oversees all the
Company's significant investing activities. Mr. John Gillespie is Chairman of
the Investment Committee. On June 1, 2001 the responsibilities of the Investment
Committee were delegated to a new Investment Committee established at OneBeacon.
MEETINGS OF THE BOARD OF DIRECTORS
During 19992000 the following meetings of the Board were held: eightten meetings of
the full Board; two meetings of the Audit Committee; threetwo meetings of the
Compensation Committee, three meetingsone meeting of the Human Resources Committee one
meeting of the Finance Committee and one meetingthree
meetings of the Investment Committee. In 19992000 each director attended more than
75% of all meetings of the Board andincluding its various committees, except
Messrs. Macklin and Patrick Byrne who were unable to
attend one of the three Compensation Committee and Human Resources Committee
meetings and Mr. George Gillespie who was unable to attend three meetings of the Financefull Board, two
meetings of the Compensation Committee meeting.and the meeting of the Human Resources
Committee.
During 2000 there were three additional meetings of the Audit Committee
held solely to review the Company's quarterly financial information prior to the
release of such information to the public. At such meetings, the Company
encourages the participation of all members of the Audit Committee but only
requires participation by its Chairman. Mr. Clark attended all such meetings
during 2000.
PROCEDURES FOR NOMINATING DIRECTORS
Under the Company's Bye-laws, nominations for the election of directors may
be made by the Board or by any shareholder entitled to vote for the election of
directors (a "Qualified Shareholder"). A Qualified Shareholder may nominate
persons for election as directors only if written notice of such shareholder'sQualified
Shareholder's intent to make such nomination is delivered to the Secretary not
later than: (i) with respect to an election to be held at an Annual Meeting,annual general
meeting 90 days prior to the anniversary date of the immediately preceding
Annual Meetingannual general meeting or not later than 10 days after notice or public
disclosure of the date of the Annual Meetingannual general meeting is given or made available
to shareholders,Qualified Shareholders, whichever date is earlier, and (ii) with respect to
an election to be held at a special general meeting for the election of
directors, the close of business on the seventh day following the date on which
notice of such meeting is first given to shareholders.Qualified Shareholders.
Each such notice shall set forth: (a) the name and address of the shareholderQualified
Shareholder who intends to make the nomination and of the person or persons to
be nominated; (b) a representation that the shareholderQualified Shareholder is a holder of
record of Common Shares entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice; (c) a description of all arrangements or understandings between
the shareholderQualified Shareholder and each such nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination or nominations
are to be made by the shareholder;Qualified Shareholder; (d) such other information
regarding each nominee proposed by such shareholderQualified Shareholder as would have been
required to be included in a proxy statement filed pursuant to the proxy rules
of the United States Securities and Exchange Commission (the "SEC") had each
such nominee been nominated, or intended to be nominated, by the Board; and (e)
the consent of each such nominee to serve as a director of the Company if so
elected. The chairman of the meeting may refuse to acknowledge the nomination of
any person not made in compliance with the foregoing procedure.
6
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
VOTING RIGHTS OF SHAREHOLDERS
As of March 24, 2000,July 5, 2001, there were 5,904,5345,968,665 Common Shares outstanding and
2,184,583 Convertible Preference Shares outstanding. The holders of Convertible
Preference Shares are not entitled to vote at the meeting. Shareholders of
record of Common Shares shall be entitled to one vote per Common Share, provided
that if and so long as the votes conferred by "Controlled Common Shares" (as
defined below) of any person constitute ten percent (10%) or more of the votes
conferred by the outstanding Common Shares of the Company, each outstanding
Common Share comprised in such Controlled Common Shares shall confer only a
fraction of a vote that would otherwise be applicable according to the following
formula:
[(T divided by 10)-1] divided by C
Where: "T" is the aggregate number of votes conferred by all the
outstanding Common Shares; and "C" is the number of votes conferred by the
Controlled Common Shares of such person.
"Controlled Common Shares" in reference to any person means:
(i) all Common Shares directly, indirectly (i) all Common Shares
or constructively owned by such person within the meaning of
Section 958 of the Internal Revenue Code of 1986, as
amended, of the United States of America; and
(ii) all Common Shares directly, indirectly (ii) all Common
Shares directly or constructively owned by any person or
"group" of persons within the meaning of Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder; provided that
this clause (ii) shall not apply to (a) any person (or any
group that includes any person) that has been exempted from
the provisions of this clause or (b) any person or group
that the Board, by the affirmative vote of at least
seventy-five percent (75%) of the entire Board, may exempt
from the provisions of this clause.
The limitations set forth above do not apply to any shareholder which is a
"Byrne Entity" (as defined below) for any matter submitted to the vote of
shareholders, except with respect to the election of directors. "Byrne Entity"
means any of John J. Byrne, any foundation or trust established by John J.
Byrne, Patrick Byrne, and any associate or affiliate of any of them (or any
group of which any of them is a part), as defined under Section 13(d) of the
United States Securities Exchange Act of 1934, as amended.
If, as a result of giving effect to the forgoing provisions or otherwise,
the votes conferred by the Controlled Common Shares of any person would
otherwise represent 10% or more of the votes conferred by all the outstanding
Common Shares, the votes conferred by the Controlled Common Shares of such
person shall be reduced in accordance with the foregoing provisions. Such
process shall be repeated until the votes conferred by the Controlled Common
Shares of each person represent less than 10% of the votes conferred by all
Common Shares.
7
PRINCIPAL HOLDERS OF COMMON SHARES
To the knowledge of the Company, there was no person or entity
beneficially owning more than 5% of Common Shares outstanding as of March 24, 2000,July 5,
2001, except as shown below:below. Common Shares are the only class of the Company's
securities that are eligible to vote.
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Number of
Common
Shares
beneficially Percent of
Name and address of beneficial owner beneficially owned Percent(a) Class (b)
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
JACK BYRNEJack Byrne 80 South Main Street, Hanover, NH 03755 (a) 1,194,030 20.2%
FRANKLIN MUTUAL ADVISORS, INC. 777 Mariners Island Blvd., San Mateo, CA 94403 (c) 1,182,959 19.8%
Berkshire Hathaway Inc. 1440 Kiewit Plaza, Omaha, NE 68131 1,170,000 16.4%
Franklin Mutual Advisers LLC 51 JFK Parkway, Short Hills, NJ 07078 (d) 750,271 12.7%
ALLIANZ ASSET ACCUMULATION PLAN12.6%
Alliance Asset Accumulation Plan 777 San Marin Drive, Novato, CA 94998 (d) 431,945 7.3%
- ---------------------------------------------------------------------------------------------------------------------------(e) 354,424 5.9%
==========================================================================================================
(a) The Common Shares shown as being beneficially owned by Berkshire
represent Common Shares issuable upon the exercise of warrants to acquire
Common Shares. Berkshire cannot vote the Common Shares underlying the
warrants until they are exercised. Berkshire also holds warrants to
acquire an additional 544,285 Common Shares which are not currently
exercisable. See Proposal 4.
(b) Represents the percentage of total Common Shares outstanding at July 5,
2001 for all holders shown above except Berkshire. For Berkshire, this
figure represents Berkshire's percentage of total Common Shares
outstanding assuming the exercise of warrants to acquire 1,170,000
Common Shares which are currently exercisable.
(c) Includes 650,000 Common Shares owned directly by the Jack Byrne 2001 GRAT
No. 1 which are deemed to be indirectly beneficially owned by Mr. Byrne.
Does not include 53,50053,913 Common Shares donatedcontributed to trusts and charitable
foundations for which Mr. Byrne disclaims beneficial ownership, but for
which his spouse retains voting power.
(b) Represents voting power with respect to all proposals except the election
of directors. For the election of directors, Mr. Byrne's voting power will
be reduced to no more than 10% which would serve to increase the relative
voting power of all other shareholders with regard to such proposals. See
"Voting Rights of Shareholders".
(c)(d) According to filings by such holders with the SEC, the Common Shares
beneficially owned by Franklin Mutual Advisors, Inc. were acquired solely for investment purposes
on behalf of client investment advisory accounts of such holders. (d)Excludes
475,000 Convertible Preference Shares purchased by Franklin on June 1, 2001
which are not voting securities of the Company. See Proposal 4.
(e) Represents Common Shares beneficially owned by employees of Fireman's Fund
pursuant to an employee incentive savings plan. The trustee for such plan
generally votes the Common Shares held by the plan in accordance with
directions given by the participating Fireman's Fund employees to whose
accounts Common Shares have been allocated.
8
BENEFICIAL STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
COMMON SHARES
The following table sets forth, as of March 24, 2000,July 5, 2001, beneficial ownership of
Common Shares by each director of the Company, by each of the "Namednamed Executive
Officers" as defined herein currently holding office,Officers (excluding Mr. Baxter, a former Executive Officer), and by all
directorsDirectors and executive officersExecutive Officers as a group.
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Common Shares owned
----------------------------------------------------------------------------------------
Directors and Executive Officers Beneficially (a)(b) Economically (b)(c)
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
RAYMOND BARRETTE 27,192 59,745
TERRYRaymond Barrette 29,433 96,867
Jack Byrne (d) 1,182,959 1,232,959
Patrick M. Byrne 236,008 236,008
Reid T. Campbell 902 19,502
Howard L. BAXTER 18,742 33,288
JACK BYRNE (c) 1,194,030 1,204,030
PATRICK M. BYRNE 106,395 106,395
HOWARD L. CLARK, JR.Clark, Jr. 1,000 1,000
ROBERTRobert P. COCHRANCochran 0 0
MORGAN W. DAVIS 26,574 30,574
STEVENSteven E. FASS 1,446 1,446
GEORGEFass (e) 4,415 19,015
George J. GILLESPIE,Gillespie, III 1,000 1,000
JOHNJohn D. GILLESPIE 1,176 1,176Gillespie 1,676 20,676
K. THOMAS KEMPThomas Kemp 81,690 102,760
GORDON108,779
Gordon S. MACKLINMacklin 15,000 15,000
FRANK17,000
Frank A. OLSONOlson 3,000 3,000
MICHAELDavid G. Staples 900 20,000
Joseph S. PAQUETTE 12,371 25,871
DAVID G. STAPLES 4,283 17,283
ARTHUR ZANKELSteinberg 0 0
Arthur Zankel 11,600 11,600
All directorsDirectors and executive officersExecutive Officers as a group (17(18 persons) (c) 1,510,501 1,632,169
=================================================================================================================(e) 1,573,817 1,801,906
==================================================================================================================
(a) The beneficial ownership positions ofCommon Shares beneficially owned by Messrs Jack Byrne, Patrick Byrne,
Kemp and all directorsDirectors and executive officersExecutive Officers as a group represent 20.2%19.8%,
1.8%4.0%, 1.4% and 25.6%26.3% of the total Common Shares outstanding at March 24, 2000,July 5,
2001, respectively. All other directorsDirectors and executive officersExecutive Officers beneficially
owned less than 1% of the total Common Shares outstanding at that date.
Represents beneficial ownership of Common Shares as opposed to voting
power.
(b) Includes vested options ("Options") to acquire 900 Common Shares for each
of Messrs. Barrette, Fass, Campbell and Staples.
(c) Incremental Common Shares shown as economically owned by directorsDirectors and
executive officers
includeExecutive Officers represent unvested performance share awards, outstanding, unvested
Option awards, unvested restricted stock options outstandingawards and earned phantom shares
on compensation deferred.
See
"Compensation Plans - White Mountains Retirement Plans." Each performance
share, stock option and phantom share are economically equivalent to one
Share. Unvested performance shares and stock options outstanding at March
24, 2000 represented 25,000, 8,000, 10,000, 4,000, 11,000, 13,500, 13,000
and 97,500 Shares for Messrs. Barrette, Baxter, Jack Byrne, Davis, Kemp,
Paquette, Staples and all directors and officers as a group, respectively.
(c)(d) Does not include 53,50053,913 Common Shares donatedcontributed to trusts and charitable
foundations for which Mr. Byrne disclaims beneficial ownership, but for
which his spouse retains voting power.
(e) Includes, in addition to the listed Directors and Executive Officers,
Common Shares owned by Dennis P. Beaulieu, the Company's Treasurer and
Corporate Secretary, J. Brian Palmer, the Company's Chief Accounting
Officer and James J. Ritchie, OneBeacon's Managing Director and Chief
Financial Officer. Messrs. Beaulieu, Palmer and Ritchie became Executive
Officers in 2001.
CONVERTIBLE PREFERENCE SHARES
On June 1, 2001, Mr. Cochran purchased 25,000 Convertible Preference
Shares (or 1.1% of the total number of Convertible Preference Shares
outstanding at July 5, 2001) through a deferred compensation plan of FSA.
Also on June 1, 2001 Prospector and Leucadia purchased 100,000 (or 4.6%) and
375,000 (or 17.2%) Convertible Preference Shares, respectively, which are
affiliated entities of Messrs. John Gillespie and Steinberg, respectively.
Mr. Steinberg disclaims beneficial ownership of such Convertible Preference
Shares and Mr. Gillespie is deemed to indirectly own Convertible Preference
through his affiliation with Prospector. See Proposal 4.
9
COMPENSATION OF DIRECTORS
COMPENSATION OF DIRECTORS
EXCEPT FOR JACK BYRNE
Messrs. Patrick Byrne, Clark, Cochran, George Gillespie, John Gillespie,
Kemp, Macklin, Olson and Zankel each received a retainer of $50,000 during 19992000
and fees of $1,000 for each Board meeting and Committee meeting attended. The
annual retainer relates to the twelve month period from May 19992000 to May 2000. Mr. John Gillespie
received a prorated retainer of $37,500 during 1999.2001.
Messrs. Clark, John Gillespie and Macklin also received additional retainers of
$3,000, $100,000 and $6,000 during 19992000 for their roles as Chairman of the Audit
Committee, Chairman of the Investment Committee and Chairman of the Compensation
and Human Resources Committees, respectively. Mr. Fass was granted 9,000 Options
and 2,000 performance shares during 2000 on the same terms as Options and
performance shares granted to other Executive Officers. Messrs. PatrickJack Byrne Cochran and
John Gillespie also
received meeting fees of $3,500, $5,250 and $5,250 in their capacity as
directors of White Mountains Holdings, Inc., an indirect wholly-owned subsidiary
of the Company. Directors who are also officers of White Mountains doBarrette did not receive compensation for their role as a director.
During 1999, the Company terminated its nonqualified director retirement
plan (the "Retirement Plan") whereby non-management directors retiring from the
Board with at least five years of service as a director of the Company would be
entitled to an annual retirement benefit equal to 50% of the amount of the
annual retainer for the year in which the retirement occurs. In connection with
the Retirement Plan termination, Messrs. Patrick Byrne, Clark, Cochran, George
Gillespie, Macklin, Olson and Zankel received $50,000, $275,000, $125,000,
$325,000, $300,000, $75,000 and $125,000, respectively, in Retirement Plan
benefits.
Through 1999, certain directors participated voluntarily in the Deferred
Compensation Plan, an unfunded, nonqualified, deferred compensation savings
plan. Pursuant to the Deferred Compensation Plan, directors could defer all or a
portion of qualifying remuneration payable by White Mountains. During 1999, the
Company terminated the Deferred Compensation Plan and paid-out account balances
to its participants. In connection with the early termination of the Deferred
Compensation Plan, Messrs. Patrick Byrne, Cochran and John Gillespie were paid a
special payment of $26,289, $72,807 and $26,289, respectively, in additional to
their plan balances in order to compensate them for the early termination.
COMPENSATION OF JACK BYRNE
Mr. Byrne has served as Chairman of the Company since 1985 and served as
CEO of the Company from 1985 to 1997. In January 2000, Mr. Byrne returned as CEO
of the Company.
As a director during 1999, Mr. Byrne received a $100,000 all-inclusive
annual retainer for his services as Chairman of the Board and his participation
in White Mountains' various committees and subsidiary boards of directors. In
connection with the Retirement Plan termination, Mr. Byrne received $50,000 in
Retirement Plan benefits.
As former President and CEO, Mr. Byrne received $650,000 in performance
shares during 1999 which were awarded to him in 1997 when he was Chairman and
CEO of the Company. See "Reports of the Compensation Committees on Executive
Compensation - Compensation Committee - Long-Term Incentive Awards." In
addition, as both an officer and a director, Mr. Byrne participated in the
Deferred Compensation Plan and the related Deferred Benefit Plan ("See
Compensation Plans - Retirement Plans"). During 1999, Mr. Byrne was paid
$2,769,398 in addition to his plan balances in connection with the termination
of the Deferred Compensation Plan and the Deferred Benefit Plan.
At the Board's request, in October 1999 Mr. Byrne exercised all of his
remaining warrants to acquire 1,000,000 Shares from the Company at a strike
price per share of $21.66. The warrants were awarded to him in 1985 and were
exercisable until January 2, 2002. In order to entice Mr. Byrne to exercise his
warrants early, the Company paid Mr. Byrne $6,000,000 to compensate him for the
estimated interest cost of borrowing to pay the strike price and the income tax
liability associated with his accelerated warrant exercise. The amount of income
realized by Mr. Byrne in exercising his warrants, including the $6,000,000
payment, was $102,460,000.
10
2000.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following tables set forth certain information regarding the salary,
incentive compensation and benefits paid by White Mountains to its Chairman and
CEO, its four most highly compensated executive officersExecutive Officers and one former
executive officerExecutive Officer (collectively, the "Named Executive Officers").
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Long-Term Compensation
----------------------------------- ----------------------------------
Annual compensation Long-term compensation
-------------------------------- ------------------------Compensation Awards Payouts
----------------------------------- -------------------- ----------
-------------
Other
Annual Restricted annual Stock,Securities All Other
Name and compen-Compen- Stock Underlying LTIP Compen-
Principal Position Year Salary($) Bonus ($) sation ($) Awards ($) Options LTIP All other
principal position Year Salary Bonus(a)(#) Payouts ($) sation SARs (#) payouts (b) compensation (c)($) (a)
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
K. THOMAS KEMP 1999 $400,000 $1,308,809
JACK BYRNE 2000 $ 282,692 $ 350,000 $ 0 $ 0 0 $2,600,000 $269,490
President$ 0 $ 9,100
Chairman and CEO 1998 386,923 304,000(b)
RAYMOND BARRETTE 2000 333,654 350,000 0 0 1,995,000 275,185
1997 312,692 241,5009,000 0 0 1,152,957 169,698
RAYMOND BARRETTE15,627
President 1999 262,692 1,278,776 0 0 0 1,105,000 462,291
Executive Vice President
1998 250,000 217,000 0 0 0 0 294,175
and CFO 1997 28,846 25,000DAVID G. STAPLES 2000 147,308 150,000 0 0 9,000 0 5,169
Vice President 1999 135,077 1,081,313 0 0 0 28,769
(began November 17, 1997)520,000 19,489
1998 128,769 106,000 0 0 0 399,000 15,330
REID T. CAMPBELL 2000 108,077 150,000 0 0 9,000 0 6,177
Vice President 1999 99,077 129,918 0 0 0 520,000 14,816
1998 91,769 84,000 0 0 0 399,000 12,326
K. THOMAS KEMP 2000 182,000 75,000 0 0 0 0 129,900
Deputy Chairman 1999 400,000 1,308,809 0 0 0 2,600,000 269,490
(former CEO) 1998 386,923 304,000 0 0 0 1,995,000 275,185
TERRY L. BAXTER 2000 156,039 80,000 0 0 0 0 66,862
Former Executive Officer (b) 1999 262,692 738,853 0 0 0 1,625,000 475,451
Executive Vice President
1998 247,692 180,000 0 0 0 931,000 758,588
1997 195,000 200,000 0 0 516,500 70,714
MORGAN W. DAVIS 1999 173,752 667,062 0 0 1,625,000 67,568
Former Executive Officer (d) 1998 247,692 205,000 0 0 1,197,000 52,821
1997 233,462 155,000 0 0 1,475,770 30,458
MICHAEL S. PAQUETTE 1999 144,539 341,368 0 0 858,000 28,356
Senior Vice President and 1998 139,308 94,000 0 0 532,000 30,223
Controller 1997 123,423 97,500 0 0 387,375 19,079
DAVID G. STAPLES 1999 135,077 1,081,313 0 0 520,000 19,489
Vice President 1998 128,769 106,000 0 0 399,000 15,330
1997 121,450 97,500 0 0 0 22,058
==============================================================================================================================================================================================================================================
(a) Represents the payment of 1999 regular bonuses as well as 1999 "special"
bonuses relating primarily to the Company's 1999 redomestication to Bermuda
(the "Redomestication"). See "Reports of the Compensation Committees on
Executive Compensation - Human Resources Committee Annual Bonus."
(b) Represents the payment of performance shares during 1999 relating to the
performance periods running from 1997 to 1999 and 1998 to 1999. See
"Reports of the Compensation Committees on Executive Compensation -
Compensation Committee - Long-Term Incentive Awards."
(c) Amounts for 1999, 1998 and 1997 represent principal credited to the
Deferred Benefit Plan,include, when applicable, 401(k) Savings Plan matching
contributions (which did not exceed $6,000$10,200 per individual), certainprincipal
credited to a former non-qualified deferred compensation plan, director
fees and retainers
(those paid by companies for which White Mountains is entitled
to board representation as a result of the Company's sizable ownership position in
such companies) and certain other compensation as described below.compensation. The amounts for
2000, 1999 1998 and 1997,1998, respectively, relating to director fees and retainers
of affiliates include: $71,650, $75,100 and $51,900 for Mr.
Kemp; $22,450, $15,475$9,100, $0, and $0 for Mr. Barrette; $41,342, $21,700,Byrne; $9,685; $22,450
and $20,300$15,475 for Mr. BaxterBarrette; $119,700, $71,650 and $21,000, $2,400, and $0$75,100 for Mr. Davis.Kemp
and $57,500, $41,342 and $21,700 for Mr. Baxter. The 1999 and 1998 amounts
for Mr. Barrette also include $42,545 and $249,646, respectively, in
reimbursements principally associated with a Company-sponsored relocation.
The 1999 amount for Mr. Davis includes
$21,268 in transportation reimbursements. The 1999 amounts for Messrs. Barrette and Baxter also include $351,917 in
phantom stock awards resulting from the sale of the mortgage banking assets of White MountainsSource One Mortgage
Services Corporation ("WMSC"SOMSC"). The 1998 amount for Mr. Baxter also
includes $665,000 in incentive compensation as interim Chairman of WMSC.
(d)SOMSC.
(b) In January 2000 Mr. Davis was formerly Executive Vice President of White Mountains
Holdings, Inc. which owned the Company's property and casualty insurance
operations. As a result of a sale of a substantial amountByrne replaced Mr. Kemp as CEO of the Company's
propertyCompany and casualty insurance operations, Mr.
Davis ceased to be an
Executive Officer during 1999.Baxter retired from full-time service. The Summary Compensation Tabletable above reflects Mr. Davis'Messrs.
Byrne and Baxter's total compensation for 1999.
112000.
10
OPTIONS AND WARRANTSOPTION GRANTS IN LAST FISCAL YEAR
The following table summarizes, for the Named Executive Officers,
stock
options and SARsgranted during the Company's latest fiscal year.
- ------------------------------------------------------------------------------------------------------------------------------
% of Total Potential Realizable Value at
Options Assumed Annual Rates of Stock
Number of Securities Granted to Exercise Price Price Appreciation for Option Term
Underlying Options Employees in or Base Price
Name Granted (#) Fiscal Year ($/Sh) Expiration Date 5% ($) 10% ($)
- ------------------------------------------------------------------------------------------------------------------------------
John J. Byrne 0 0% $ - - $ 0 $ 0
Raymond Barrette 9,000 11.1% 106.19(a) December 2009 0 704,567
David G. Staples 9,000 11.1% 106.19(a) December 2009 0 704,567
Reid T. Campbell 9,000 11.1% 106.19(a) December 2009 0 704,567
K. Thomas Kemp 0 0% - - 0 0
Terry L. Baxter 0 0% - - 0 0
==============================================================================================================================
(a) Represents the closing market value of Common Shares on the grant date of
February 28, 2000. The exercise price of the Options increases by 6% annually on
a pro rata basis. Options vest 10% per year through 2009. The Options are
considered to be Incentive Stock Options for income tax purposes.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES .
The following table summarizes, for the Named Executive Officers, options
for Common Shares exercised during the . Company's latest fiscal year, and the
number and in-the-money value of stock options for Common Shares outstanding as of the
end of the fiscal year.
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
As of December 31, 1999
----------------------------------------------------------
Stock options and SARs2000
-----------------------------------------------------------
Number of unexercised In-the-money valueSecurities Value of all
exercised during the year ended stock options outstanding stock
December 31, 1999 (a) and SARs (a) options and SARs (a)Unexercised
Underlying In-the-Money Options at
Unexercised Options at Fiscal Year-End ($)
Fiscal Year-End (#)
------------------------------- ---------------------------- --------------------------------------------------------- -----------------------------
Common Shares Value
Not Not
Name acquired realizedAcquired Realized ($) Exercisable exercisableUnexercisable Exercisable exercisableUnexercisable
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
John J. Byrne 0 $ 0 0 0 $ 0 $ 0
Raymond Barrette 0 0 900 8,100 186,737 1,680,634
David G. Staples 0 0 900 8,100 186,737 1,680,634
Reid T. Campbell 0 0 900 8,100 186,737 1,680,634
K. Thomas Kemp 2,000 $188,740 0 0 $0 $0
=====================================================================================================================0 0 0 0
Terry L. Baxter 0 0 0 0 0 0
======================================================================================================================
(a) No other Named Executive Officers had stock options or SAR's outstanding
during 1999.11
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
The following table summarizes the Incentive Plan awards made to the Named
Executive Officers during the latest fiscal year. Such awards consisted entirely
of performance shares. Since 1991, all long-term incentive compensation awards
have been in the form of
performance shares.
- --------------------------------------------------------------------------------------------------------------------
Performance Estimated Future Payouts (a)
Number of performance Performance Estimated future payouts in Shares:
shares period for -------------------------------------------------------------------------
Name awarded (a)Common Shares (#) payout Threshold (#) Target (#) Maximum (#)
- --------------------------------------------------------------------------------------------------------------------
K. Thomas Kemp 9,000John J. Byrne 10,000 3 yrs. 0 9,000 18,00010,000 20,000
Raymond Barrette 6,00010,000 3 yrs. 0 6,000 12,000
Terry L. Baxter 6,000 3 yrs. 0 6,000 12,000
Morgan W. Davis10,000 20,000
David G. Staples 2,000 3 yrs. 0 2,000 4,000
Michael S. Paquette 2,500Reid T. Campbell 2,000 3 yrs. 0 2,500 5,000
David G. Staples2,000 4,000
K. Thomas Kemp 2,000 3 yrs. 0 2,000 4,000
Terry L. Baxter 2,000 3 yrs. 0 2,000 4,000
====================================================================================================================
(a) Such performance shares are payable upon completion of pre-defined business
goals and are payable in cash basedcash-based on the market value of Common Shares at
the time of payment, or Common Shares. The "Target" performance for the
19992000 performance share award is the attainment of a corporate annualized
return on equity ("ROE") of 13% after tax. The determination of ROE is
generally based on the economic value of Common Shares with dividends
reinvested. At an ROE of 6% or less ("Threshold") the percentage of
performance shares payable will be 0% and at an ROE of 25% or more
("Maximum") the percentage of performance shares payable will become 200%
of Target.
COMPENSATION PLANS
RETIREMENT PLANS. The Company did not provide pension benefits to its
Executive Officers during 2000 under a defined benefit or actuarial plan. The
Company has previously provided non-qualified pension benefits to its
Executive Officers under a deferred benefit plan but did not provide such
benefits during 2000.
12
OTHER COMPENSATION ARRANGEMENTS
Pursuant to the Incentive Plan, under some circumstances such as a "Change
in Control" followed by a termination without cause, constructive termination or
an "Adverse Change" in the Incentive Plan, stock options will generallyOptions may become
fully exercisable and performance shares willmay become partially or fully payable.
Such circumstances are more fully described in the Incentive Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For corporate travel purposes White Mountains Holdings, Inc. jointly ownsowned
two short-range aircraft with Haverford Utah, LLC ("Haverford"). Messrs. Jack
Byrne, Patrick Byrne and Kemp are principals of Haverford. Both aircraft were
acquired from unaffiliatedsold to a third parties during 1996. In exchange for
Haverford's 20% ownership interestparty in the aircraft,June 2000 at which time Haverford contributed
capital equal to 20% of the total initial cost of the aircraft and pays areceived its pro rata
share of all fixed costs plus the direct operating costs when onboardsale proceeds.
Mr. Clark is Vice Chairman of Lehman. Lehman has, for a number of years,
provided investment banking services to White Mountains. Lehman was the
aircraft pursuantarranger, the administrative agent and a lender under the $875.0 million credit
facility used to acquire OneBeacon.
Mr. George Gillespie is a Joint Ownership Agreement.partner at CS&M. CS&M has, for many years,
provided legal services to White Mountains.
White Mountains owns limited partnership investment interests which are
managed by Mr. John Gillespie, an officer of OneBeacon and a director of the
Company, and Arthur Zankel, a director of the Company.
On June 1, 2001 Mr. Cochran acquired 25,000 Convertible Preference Shares
for $5,000,000 indirectly through a deferred compensation plan of FSA. See
Proposal 4.
On June 1, 2001 Prospector and Leucadia acquired 100,000 and 375,000
Convertible Preference Shares for $20,000,000 and $75,000,000, respectively.
Prospector and Leucadia are affiliated entities of Messrs. John Gillespie and
Steinberg, respectively. See Proposal 4.
White Mountains believes that the above transactions were on terms that
were reasonable and competitive.
DEDUCTIBILITY OF COMPENSATION - SECTION 162(M) OF THE INTERNAL REVENUE CODE
Section 162(m)competitive and, in the case of Lehman, were obtained
through a competitive bid process. White Mountains believes that such
transactions did not serve to impair the independence of any of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to public companies for certain compensation over $1
million. The Company has determined that approximately 80%parties
involved. Additional transactions of all compensation
paid to the Named Executive Officers during 1999 isthis nature may be expected to be tax
deductible. Effective upontake place
in the "Redomestication",ordinary course of business in the Company will no longer be
entitled to a tax deduction on compensation as the Company is no longer subject
to United States income tax.future.
REPORTS OF THE COMPENSATION COMMITTEES
ON EXECUTIVE COMPENSATION
The Human Resources Committee and the Compensation Committee (collectively,
the "Committees") are comprised entirely of certain non-employee directors. The
Committees are responsible for developing, administering and monitoring the
executive compensation policies of the Company. White Mountains'The Company's salary and bonus
compensation is established by the Human Resources Committee of the Board.
White Mountains'Committee. The Company's
stock based compensation (performance shares stock options and warrants)Options) is established by the
Compensation Committee of the Board.Committee.
White Mountains' executive compensation policies are designed with one goal
in mind - maximization of shareholder value over long periods of time. The
Committees believe that this goal is best pursued by utilizing a
pay-for-performance program which serves to attract and retain superior
executive talent and provide management with performance-based incentives to
maximize shareholder value. Through the compensation program, the Committees
seek to maximize shareholder value by aligning closely the financial interests
of White Mountains' management with those of the Company's shareholders.
The Committees believe that the most appropriate indicator of shareholder
return is the Company's ROE as measured by growth in economic value per Common
Share,
measured with dividends reinvested. This proprietary measure is viewed by
management and the directors as being a conservative measure of the intrinsic
value of White Mountains. The Committees believe that, over long periods of
time, maximizing the Company's ROE will optimize shareholder returns.
13
The Committees believe that the performance-based compensation of the
Company's key employees should be payable only if the Company achieves truly
superior returns for its shareholders. Therefore, the target of many of White
Mountains' performance-based compensation programs are directly linked to
achievement of an annualized ROE for the Company at least equal to the market
yield available from ten-year United States Treasury notes plus 700 basis
points, or currently approximately 13%. The Committees believe that this return
is a challenging target for the Company in its current form.
13
Compensation of White Mountains' management team, including the Named
Executive Officers, consists primarily of three components: base salary, annual
bonus and long-term incentive awards.
HUMAN RESOURCES COMMITTEE
BASE SALARY. Base salary for each Named Executive Officer is established annually,
generally as ofon or about March 1. When establishing base salaries of the Named
Executive Officers, the Human Resources Committee considers numerous factors
including: qualifications of the executive; the corporate responsibilities of
the executive; the executive's performance since his or her last salary
adjustment; and, for all executives except the CEO, the recommendations of the
CEO.
ANNUAL BONUS. For 19992000 the target annual bonus pool for all officers of the
Company was equal to 50% of eligible base salary at a 13% annual ROE and the
maximum bonus attainable was equal to 100% of eligible base salary at a 20%
annual ROE. When establishing the aggregate size of the annual bonus pool, the
Human Resources Committee considers numerous factors including performance
versus the objectives set forth in the Company's Annual Business Plan, in
particular the Company's financial performance for the latest fiscal year as
measured by ROE, and the recommendations of the CEO. The Human Resources
Committee reviews and approves the Annual Business Plan with management near the
beginning of the year and approves the plan after changes required by the Human Resources
Committee, if any, are made.year.
After establishing the aggregate size of the annual bonus pool, the Human
Resources Committee then considers the distribution of the bonus pool among the
key employees of the Company. Each participant's allocation of the pool is
determined after considering numerous factors including individual achievements
as compared to objectives included in the Annual Business Plan, the contribution
of such achievements to the Company's overall financial performance, and the
recommendations of the CEO.
The CEO receives annual bonuses, as a percent of his salary in effect at
the time the bonus percentage is determined, equal to the average bonus
percentage received by all officers eligible to participate in the bonus pool.
For 1999,2000 Mr. KempByrne received a bonus that was determined using the average bonus
percentage.
For 19992000 the Human Resources Committee determined that the financial
results of the Company warranted a bonus pool equal to 50%approximately 100% of
aggregate base salary. The principal factorsfactor considered by the Human Resources
Committee in determining the size of the 19992000 pool were: (i)was the Company's 19992000 ROE
performance of 12.1%37%, as measured by change in economic value per Common Share,
versus a 13% target ROE (the predominant factor); (ii) the Company's significant
repurchases of its common stock during 1999 at an average price per share less
than its current economic value; and (iii) overall favorable results versus
certain specific objectives contained in the 1999 Annual Business Plan.
SPECIAL BONUS. During 1999 the Human Resources Committee also approved special
bonuses to Messrs. Kemp, Barrette, Baxter, Davis, Paquette and Staples in the
amounts of $1,109,000, $1,146,000, $606,000, $605,000, $269,000 and $1,013,000
which were based primarily on the contributions of these individuals in
accomplishing the Redomestication. The amount of such special bonuses were
determined by the Human Resources Committee.ROE.
GORDON S. MACKLIN, Chairman
PATRICK M. BYRNE
HOWARD L. CLARK, JR.
ROBERT P. COCHRAN
GEORGE J. GILLESPIE, III
FRANK A. OLSON
ARTHUR ZANKEL
COMPENSATION COMMITTEE
LONG-TERM INCENTIVE AWARDS. The Incentive Plan provides for granting to
executive officersExecutive Officers and certain other key employees of the Company various types
of stock-based incentive awards including stock options to acquire Common Shares and
performance shares.
Over the past several years the Company has predominantlyconsistently used performance
shares in its long-term compensation plans. Performance shares are conditional
grants (payable subject to the achievement of specific financial goals) of a
specified maximum number of Common Shares, payable generally at the end of a
three-yearthree- year period or as otherwise determined by the Compensation Committee.
Performance shares are denominated in Common Shares at market value and are
payable in cash, Common Shares or a combination thereof at the discretion of the
Compensation Committee.
14
For 2000, the Compensation Committee determined that an award of Options
would be an effective supplement to certain performance share grants and would
be a tax efficient means of providing long-term incentive compensation to
certain key employees.
The Compensation Committee believes that awards of performance share awardsshares made
pursuant to the Incentive Plan are an effectiveattractive method of providing incentives
for management to strive to maximize shareholder value over the long term. The
Compensation Committee's conclusion is based on the following factors: (i) such
awards vest or are earned over multi-year periods; (ii) such awards are
generally made in the form of Common Shares or derivatives thereof, which helps
to align the interests of management with those of the Company's shareholders;
and (iii) the Incentive Plan awards made over the last
three fiscal years were linked toperformance shares are contingent upon the achievement of a 13% ROE
over the applicable performance period.period which further aligns the interests of
management and the Company's shareholders.
In 19992000 Messrs. Byrne, Barrette, Staples, Campbell, Kemp Barrette,and Baxter Davis, Paquette and Staples were
granted 9,000, 6,000, 6,000,10,000, 10,000, 2,000, 2,5002,000, 2,000 and 2,000 performance shares,
respectively, by the Compensation Committee. The performance period for such
awards began on January 1, 19992000 and will continue through December 31, 2001.2002. The
"target" performance for the 19992000 performance share award is the attainment of a
ROE of 13%. The determination of ROE considers the rate of growth of the
economic value of Common Shares with dividends reinvested. At a "threshold" ROE
of 6% or less the percentage of performance shares payable will be 0% and at a
"maximum" ROE of 25% or more the percentage of performance shares payable will
become 200% of target.
During 1999In 2000 Messrs. Kemp, Barrette, Baxter, Davis, PaquetteStaples and Staples
had, pursuant toCampbell were also each granted 9,000
Options. Such Options vest 10% annually through 2009 and were awarded at a
1997 grantstrike price of performance shares, 10,000, 1,000, 6,000,
6,000, 2,600 and 2,000 performance shares eligible for payout, respectively,$106 3/16 which was the closing market value on December 31, 1999 subject to the attainment of a 13% target ROE. During the 1997
to 1999 performance period, the Company attained an ROE of 12.0% as measured by
the change economic value calculated in accordance with the Incentive Plan. In
lightdate of the
ROE attained and in consideration ofaward. Such strike price is to escalate by 6% annually on a pro rata basis until
the perceived benefits
resulting from the Redomestication which are not reflected in this return, the
Compensation Committee determined that 100% of such performance shares would
become immediately payable and were paid on October 22, 1999. In determining the
ROE attained, the Compensation Committee adjusted the Company's 1999 performance
for certain long-term expenditures which were accelerated into the current
period in order to provide the Company with increased tax deductible expenses.
The performance share payouts are included in the Summary Compensation Table.
During 1999 Messrs. Kemp, Barrette, Baxter, Davis, Paquette and Staples
had, pursuant to a 1997 grant of performance shares, 10,000, 7,500, 6,500,
6,500, 4,000 and 2,000 performance shares eligible for payout, respectively, on
December 31, 2000 subject to the attainment of a 13% target ROE. During the 1998
to 1999 performance period, the Company attained an ROE of 11.5% as measured by
the change economic value calculated in accordance with the Incentive Plan. In
light of the ROE attained and in consideration of the perceived benefits
resulting from the Redomestication which are not reflected in this return, the
Compensation Committee determined that 100% of such performance shares would
become immediately payable and were paid on October 22, 1999. In determining the
ROE attained, the Compensation Committee adjusted the Company's 2000 performance
for certain long-term expenditures which were accelerated into the current
period in order to provide the Company with increased tax deductible expenses.
The performance share payouts are included in the Summary Compensation Table.
As of October 22, 1999 Mr. Jack Byrne had, pursuant to a 1997 grant of
performance shares, 5,000 performance shares eligible for payout on December 31,
1999 which also became immediately payable and were paid on October 22, 1999.option is exercised.
GORDON S. MACKLIN, Chairman
PARTRICKPATRICK M. BYRNE
ROBERT P. COCHRAN
FRANK A. OLSON
ARTHUR ZANKEL
REPORT OF THE AUDIT COMMITTEE
In connection with audit of the Company's financial statements for the year
ended December 31, 2000 the Audit Committee has: (1) reviewed and discussed the
audited financial statements with management; (2) reviewed and discussed with
the Independent Auditors the matters required by Statement of Auditing Standards
No. 61; and (3) reviewed and discussed with the Independent Auditors the matters
required by Independence Standards Board Statement No. 1. Based on these reviews
and discussions, the Audit Committee has determined the Independent Auditors to
be independent and have recommended to the Board that the audited financial
statements be included in the Annual Report on Form 10-K for filing with the
SEC.
The Audit Committee has established a Charter which outlines its primary
duties and responsibilities. The Audit Committee Charter, which has been
approved by the Board, is reviewed at least annually and is updated as
necessary. The Charter has been provided herewith as Appendix I.
HOWARD L. CLARK Jr., Chairman
FRANK A. OLSON
ARTHUR ZANKEL
FEES BILLED BY THE COMPANY'S
INDEPENDENT AUDITORS FOR SERVICES
PERFORMED IN 2000
AUDIT FEES. Aggregate fees billed for the 2000 audit of
the Company's financial statements including quarterly
reviews totalled $644,200.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES . No such services
were performed during 2000.
ALL OTHER FEES. Aggregate fees billed for all other services performed in 2000
totalled $1,935,000. These fees related primarily to tax compliance and
consulting services for existing companies and consulting and tax structuring
services relating to acquisition activities including OneBeacon.
15
SHAREHOLDER RETURN GRAPH
The following graph shows the five-year cumulative total return for a
shareholder who invested $100 in Common Shares (New York Stock Exchange(NYSE symbol "WTM") as of the
close of business on January 1,December 31, 1995, assuming re-investment of dividends.
Cumulative returns for the five-year period ended December 31, 19992000 are also
shown for the Standard & Poor's 500 Stocks (Property & Casualty) Capitalization
Weighted Index ("S&P P&C") and the Standard & Poor's 500 Stocks Capitalization
Weighted Index ("S&P 500") for comparison.
As stated herein, the Company's various compensation plans are based on its
growth in its economic value which is believed to be a conservative proxy for
its perceived intrinsic business value. The Company's long-term goal is to
maximize White Mountains' intrinsic business value per Common Share which will,
in turn, affect its market value per Common Share.
Management believes that the Company's growth in
intrinsic value over the past five years has exceeded that of its market value.
(TABULAR REPRESENTATION OF LINE CHART)
FIVE-YEAR CUMULATIVE TOTAL RETURN
(value of $100 invested December 31, 1994)
1995 1996 1997 1998 1999
WTM $103.4 $134.1 $170.8 $200.0 $174.1
S&P P&C 135.4 135.4 239.3 222.7 166.0
S&P 500 137.6 137.6 225.6 290.1 351.1
16
COMPENSATION PLANS
RETIREMENT PLANS
In 1999 Messrs. Kemp, Barrette, Baxter, Davis, Paquette and Staples
received retirement benefits pursuant to the Deferred Benefit Plan, an unfunded,
nonqualified, defined contribution plan established for the purpose of providing
retirement and postretirement benefits. The amount of annual contributions to
the Deferred Benefit Plan are determined using actuarial assumptions and are
based on the present value of the benefit table figures presented below.
- -------------------------------------------------------------------------------------------------------------------
Eligible compensation Gross annual benefit paid as a straight-life annuity
- -------------------------------------------------- ---------------------------------------------------------------
15 years 20 years 25 years 30 years 35 years
---------- ---------- ---------- ---------- ----------
$125,000 $ 24,540 $ 33,137 $ 42,984 $ 52,831 $ 62,678
150,000 29,915 40,387 52,359 64,331 76,303
175,000 35,290 47,637 61,734 75,831 89,928
200,000 40,665 54,887 71,109 87,331 103,553
225,000 46,040 62,137 80,484 98,831 117,178
250,000 51,415 69,387 89,859 110,331 130,803
300,000 62,165 83,887 108,609 133,331 158,053
400,000 83,665 112,887 146,109 179,331 212,553
450,000 94,415 127,387 164,859 202,331 239,803
500,000 105,165 141,887 183,609 225,331 267,053
===================================================================================================================WTM $129.7 $165.2 $193.4 $168.4 $449.0
S&P P&C 121.5 176.8 164.5 122.6 191.0
S&P 500 123.0 164.0 210.9 255.2 232.0
Eligible compensation (which includes salary and bonus) is computed as the
average of the five highest paid consecutive years in the last ten years of
service. Participants in the Deferred Benefit Plan may choose between four
investment options for their plan balances including phantom shares. Amounts
credited to the Deferred Benefit Plan accounts of such individuals have been
included in the Summary Compensation Table. During 1999, the Company terminated
the Deferred Benefit Plan and paid-out all account balances to its participants.
Also in 1999 Messrs. Kemp, Barrette, Baxter, Davis, Paquette and Staples
participated voluntarily in the Deferred Compensation Plan, an unfunded,
nonqualified, deferred compensation savings plan. Pursuant to the Deferred
Compensation Plan, executive officers and directors may defer all or a portion
of qualifying remuneration payable by White Mountains. Amounts deferred pursuant
to the Deferred Compensation Plan are included in the Summary Compensation
Table. Participants in the Deferred Compensation Plan may choose between four
investment options including phantom shares for their plan balances. During
1999, the Company terminated the Deferred Compensation Plan and paid-out account
balances to its participants.
At the request of the Board, Messrs. Kemp, Barrette and Baxter deferred
$1,300,000, $975,000 and $845,000 of their 1999 compensation in phantom shares
for a period of no less than one year. These compensation amounts are included
in the Summary Compensation Table.
1716
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION IN
COMPENSATION DECISIONS
The Company notes the followingcertain relationships and transactions pertaining to
Messrs. Clark, Cochran, George Gillespie, John Gillespie and Zankel who are members of
the Compensation Committee and/or the Human Resources Committee. Mr. Clark is Vice Chairman of Lehman. Lehman has, from time to time,
provided various services to White Mountains including investment banking
services, brokerage services, underwriting of debtSee "Certain
Relationships and equity securities and
financial consulting services. The amounts paid or payable by White Mountains to
Lehman during 1999 were not material to either White Mountains or Lehman.
Mr. Cochran is Chairman and CEO of FSA. As of December 31, 1999 White
Mountains had a 26% economic interest in FSA. During 1999, Mr. Kemp served as
the Chairman of FSA's compensation committee which determines Mr. Cochran's
compensation.
Mr. George Gillespie is a partner in CS&M, which has been retained by White
Mountains from time to time to perform legal services. The amounts paid or
payable by White Mountains to CS&M during 1999 were not material to either White
Mountains or CS&M.
White Mountains owns a limited partnership investment interest which is
managed by Mr. Zankel. The amounts paid or payable by White Mountains to
Mr. Zankel during 1999 were not material to either White Mountains or
Mr. Zankel.
White Mountains believes that all the preceding transactions were on terms
that were reasonable and competitive and did not serve to impair the
independence of any of the parties involved. Additional transactions of this
nature may be expected to take place in the ordinary course of business in the
future.Related Transactions".
CERTAIN FILINGS UNDER SECTION 16
Pursuant to SEC rules relating to the reporting of changes in beneficial
ownership of Common Shares, the Company's Executive Officers, Directors and
greater than 10% shareholders are believed to have filed all reports required
under Section 16 on a timely basis during 2000.
PROPOSAL 2
ELECTION OF DIRECTORS OF
FUND AMERICAN ENTERPRISES, LTD.
The Company expects to form a new Bermuda- domiciled insurance company to
be named Fund American Enterprises Ltd. soon after the 2001 Annual Meeting. The
Company's Bye-law 77 calls for shareholders to elect all directors of its
subsidiaries that are organized under the laws of Bermuda.
Proposal 2 calls for the election of Messrs. Kemp and Macklin to the board
of directors of Fund American Enterprises, Ltd. Biographical information
relating to Messrs. Kemp and Macklin is presented under Proposal 1 "Election of
the Company's Directors".
THE BOARD RECOMMENDS A VOTE FOR PROPOSAL 2 WHICH CALLS FOR THE ELECTION OF
DIRECTORS OF FUND AMERICAN ENTERPRISES, LTD.
PROPOSAL 3
AMENDMENTS TO THE
LONG-TERM INCENTIVE PLAN
The Incentive Plan was adopted by the Board and approved by the Company's
sole shareholder in 1985 and subsequently by shareholders in 1995. On May 21,
2001, the Compensation Committee approved, subject to the approval of the
Company's shareholders, a series of amendments to the Incentive Plan to: (i)
extend its current expiration date from May 24, 2005 to August 23, 2011, (ii)
increase, to a total of 300,000, the number of Common Shares which may be
granted hereunder, (iii) broaden the scope of performance objectives pursuant to
awards made under the plan, and (iv) amend certain change in control provisions,
including the exemption of Berkshire from such provisions.
The purpose of the amendment is to allow the Company Mr. Macklin failed to filecontinue to have a
long-term incentive plan in force as a means by which to attract and retain its
current and future key employees. The Company believes that long-term
compensation should be based on "pay for performance" and further believes that
management should act as if they were owners. With these objectives in mind, the
Committee believes that the proposed amendments to the Incentive Plan will allow
the Company to continue to closely align the financial interests of management
with those of the Company's shareholders.
A complete copy of the Incentive Plan, reflecting the proposed amendments
thereto, has been provided herein as Appendix II. THE BOARD RECOMMENDS A VOTE
FOR PROPOSAL 3 WHICH CALLS FOR THE AMENDMENTS TO THE INCENTIVE PLAN.
17
PROPOSAL 4
ISSUANCE OF COMMON SHARES UPON THE
CONVERSION OF CONVERTIBLE PREFERENCE
SHARES AND THE EXERCISE OF
SERIES B WARRANTS
BACKGROUND
On June 1, 2001, White Mountains completed its acquisition of OneBeacon
(the "Acquisition"). In connection with the Acquisition, the Company raised
approximately $438 million in equity financing from a group of private investors
and $75 million from the issuance of 1,714,285 warrants ("Warrants") to acquire
Common Shares to Berkshire. The Company used the proceeds from these equity
issuances to partially fund the Acquisition. Under Bermuda law and the Company's
Bye-laws, the Acquisition and the issuance of additional equity securities to
partially fund the Acquisition did not require shareholder approval.
In contemplation of the Acquisition, it was the Company's desire to issue,
and the equity investors' preference to receive (or in the case of Berkshire to
be eligible to receive upon exercise of the Warrants), Common Shares as part of
the equity financing. However, the New York Stock Exchange, Inc. (the
"Exchange"), which lists the Common Shares, requires shareholder approval for
the issuance of listed voting shares in a private transaction if the issuance
results in an increase of 20% or more of the outstanding listed voting shares of
a company.
In evaluating the Acquisition, the Board determined that it was in your
interest, as shareholders of the Company, to consummate the Acquisition
immediately upon receipt of all regulatory approvals thereby minimizing the
potential adverse economic consequences from the operating uncertainty between
announcement and closing. Under a capital structure devised by the Company,
2,184,583 convertible preference shares (the "Convertible Preference Shares"),
convertible into 2,184,583 Common Shares upon shareholder approval, were issued
to private investors in lieu of Common Shares. Similarly, the Company issued the
Warrants to Berkshire in two series, the Series A Warrants consisting of
warrants to acquire 1,170,000 Common Shares and the Series B Warrants consisting
of warrants to acquire 544,285 Common Shares. The Series A Warrants have terms
comparable to the Series B Warrants, except that they are currently exercisable
for Common Shares (19.6% of the Common Shares outstanding at July 5, 2001). The
Series B Warrants are not exercisable until shareholders approve such exercise.
The Board would not have authorized the issuance of the Convertible Preference
Shares or the Series B Warrants if it had not believed that the Acquisition and
the issuance of such securities were clearly in the interest of the Company.
The Company agreed to seek shareholder approval for the conversion of
the Convertible Preference Shares and the issuance of Common Shares upon the
exercise of the Series B Warrants at the 2001 Annual Meeting. Approval by a
majority of the votes cast on this proposal will be required to approve the
issuances, PROVIDED that a quorum is present, in person or by proxy, at the
2001 Annual Meeting. The principal terms of the Convertible Preference Shares
and the Series B Warrants are described at the end of this proposal.
The Acquisition closed on June 1, 2001 and, accordingly, this proposal
will have no effect on that transaction.
CONSEQUENCES OF THE VOTE
Upon approval of this proposal, each Convertible Preference Share will
be repurchased and cancelled by the Company in consideration of the issuance
of one Common Share (the "Conversion"), and the Series B Warrants may be
exercised, beginning immediately, for Common Shares (the "Series B
Exercise"). Assuming Conversion and the Series B Exercise, the number of
outstanding Common Shares at July 5, 2001 would increase by approximately 46%.
If the required affirmative vote by the shareholders is not obtained, the
Convertible Preference Shares and the Series B Warrants will remain outstanding
in accordance with their respective current terms. Those terms, as described
below, provide that if the shareholders of the Company have not voted to approve
the Conversion or the Series B Exercise by March 31, 2003, holders of the
Convertible Preference Shares and the Series B Warrants will have the right to
receive cash in lieu of Common Shares upon any conversion or exercise.
18
REASONS FOR THE BOARD'S RECOMMENDATION
The Board believes that the Conversion benefits existing shareholders
for the following reasons: (i) Conversion eliminates the liquidation
preference holders of Convertible Preference Shares have over holders of
Common Shares; (ii) Conversion eliminates the dividend requirement of $2.00
annually per Convertible Preference Share; (iii) disapproval of the
Conversion does not benefit holders of Common Shares as the Convertible
Preference Shares derive the same economic benefit from any increase in the
value of the Company's Common Shares; and, (iv) although the Convertible
Preference Shares do not enjoy general voting rights, the Board believes that
this voting disadvantage is balanced by the special voting rights described
below. The Board does recognize that the Convertible Preference Shares and
the Series B Warrants are not listed on the Exchange and have no established
market. As such they may be less liquid than Common Shares; however, this
possible difference is not likely to produce a benefit for holders of Common
Shares since they can be redeemed for cash after March 31, 2003 in their
current form.
As described above, absent shareholder approval, the Company may be
required to pay cash, at the then market value of the Company's Common Shares,
for any Convertible Preference Shares converted or Series B Warrants exercised
after March 31, 2003, or upon the redemption of the Convertible Preference
Shares on June 1, 2011. Conversions, exercises or redemptions for cash could
create a strain on the Company's cash resources which could, in turn, hinder the
payment of cash dividends to common shareholders. Further, if the Company were
to borrow additional monies for such redemptions, the Company's debt to equity
ratios could increase to a level higher than the Company prefers to operate.
Finally, any cash used to convert or redeem the Convertible Preference Shares or
to fund the exercise of the Series B Warrants would not be available for other
corporate purposes.
Certain members of the Board may be deemed to be indirect beneficial owners
of the Convertible Preference Shares. See "Certain Relationships and Related
Transactions".
CONVERTIBLE PREFERENCE SHARES
The following summarizes the principal features of the Convertible
Preference Shares:
DIVIDENDS. Holders of Convertible Preference Shares, when and as
declared by the Board out of net profits or net assets of the Company legally
available for payment under Bermuda Law, are entitled to receive cumulative
dividends payable in cash at the annual rate of $2.00 per share, payable
semi-annually beginning on June 30, 2001. Past due and unpaid dividends will
accrue an additional dividend at an annual rate of 1% compounded each year.
The Company will not declare or pay dividends on its Common Shares as long as
dividends on the Convertible Preference Shares are past due and unpaid.
CONVERSION. Upon receipt of shareholder approval, Conversion will occur
at a conversion price of $200.00 per share, subject to certain standard
anti-dilution adjustments for issuances of and distributions on Common
Shares. The conversion price represents a 15% premium to the closing market
price for the Common Shares on September 22, 2000, the day the principal
holders of the Convertible Preference Shares committed to purchase such
shares. After March 31, 2003, and absent shareholder approval, each
Convertible Preference Share is convertible into cash equal to the then fair
market value of each Common Share.
REDEMPTION. Any Convertible Preference Shares outstanding on June 1, 2011
will be redeemed by the Company for $200.00 in cash per share, plus all accrued
dividends as of such date.
VOTING. The holders of the Convertible Preference Shares have no voting
rights EXCEPT for any voting rights provided in the Company's Bye-laws or
required by the Companies Act, 1981. In addition, the Company shall not amend,
alter or repeal its Memorandum of Continuance, Bye-laws or the terms and
conditions of the Convertible Preference Shares in a manner that adversely
affects the rights of the Convertible Preference Shares without first obtaining
the consent or approval of at least two-thirds of the then-outstanding
Convertible Preference Shares.
19
LIQUIDATION. In the event of any liquidation, dissolution, or winding up of
the Company, holders of the Convertible Preference Shares are entitled to
receive payment of $50.00 per share plus all accrued dividends before any
distribution is made to holders of Common Shares.
RESTRICTIONS ON TRANSFER. Convertible Preference Shares can only be
transferred, except to the extent required by applicable law, (i) with the
prior written consent of the Company, which consent shall not be unreasonably
withheld, (ii) by any initial holder to one of its affiliates or (iii) to the
Company or any initial holder of Convertible Preference Shares. The
Convertible Preference Shares have not been registered under the Securities
Act of 1933 and may not be offered or sold in the United States or to any
citizen or resident of the United States in absence of a valid registration
under the Securities Act of 1933 except in reliance on an exemption from the
registration requirements. Additionally, transfers of Convertible Preference
Shares may also be subject to approval of the Bermuda Monetary Authority.
REGISTRATION RIGHTS. Subject to certain limitations, holders of the
Convertible Preference Shares are entitled to up to three Form 4's relatingdemand registration
rights (in the aggregate) and unlimited piggyback rights for the registration of
the Common Shares issued upon Conversion.
SERIES B WARRANTS
The following summarizes the principal features of the Series B Warrants:
EXERCISE. The Series B Warrants entitle the holder thereof to openpurchase
544,285 Common Shares at a price of $175.00 per share, subject to certain
standard anti-dilution adjustments for issuances of and distributions on
Common Shares. The Series B Warrants become exercisable after the earlier of
(i) receipt of the shareholder approval and (ii) March 31, 2003, and may be
exercised until June 1, 2008. The exercise price of $175.00 per share
represented a 20% premium to the market purchasesprice for the Common Shares on the
day Berkshire originally committed to purchase the Warrants.
After March 31, 2003, and absent shareholder approval, each Series B
Warrant is exercisable for cash equal to the then fair market value of Shares made duringeach
Common Share less the fourth quarterexercise price. "Fair market value" is defined as the
average of 1999. Upon
discovering that no Form 4 filings had been madethe closing prices for a Common Share for the ten consecutive
trading days immediately prior to the determination date.
VOTING. The Series B Warrants do not (prior to exercise thereof) confer
voting rights upon the holders thereof.
CALL OPTION. At any time between June 1, 2005 and June 1, 2008, the Company
may purchase all or any portion of the outstanding Warrants (including the
Series B Warrants) for cash in an aggregate amount equal to $60 million, or a
pro rata portion of $60 million.
LIQUIDATION. In the event of any liquidation, dissolution, or winding up
of the Company, each registered holder of an outstanding Series B Warrant is
entitled to receive distributions with respect to such warrant on an equal
basis with the 1999
purchase transactions, Mr. Macklin promptly made all necessary filingsholders of Common Shares less the aggregate exercise price for
such warrant.
RESTRICTIONS ON TRANSFERS. Except to the extent required for antitrust
purposes, the Series B Warrants are not transferable, except to one or more
affiliates of the holder thereof. The Series B Warrants, and the Common Shares
issuable upon exercise, have not been registered under the Securities Act of
1933. Each holder has agreed that it will not resell, assign, distribute or
otherwise transfer any of its Series B Warrants or Common Shares issuable upon
the exercise except in January 2000.compliance with the registration requirements of the
Securities Act of 1933 and applicable state securities laws or pursuant to an
available exemption therefrom. Additionally, transfers of Series B Warrants
may also be subject to approval of the Bermuda Monetary Authority.
REGISTRATION RIGHTS. Subject to certain limitations, holders of the Series
B Warrants are entitled to up to two demand registration rights and unlimited
piggyback rights for the registration of the Common Shares issued upon the
exercise of the Series B Warrants.
THE BOARD RECOMMENDS A VOTE FOR PROPOSAL 24 APPROVING THE ISSUANCE OF COMMON
SHARES.
20
PROPOSAL 5
APPOINTMENT OF INDEPENDENT AUDITORS
Subject to shareholder approval, the Audit Committee of the Board has
appointed PricewaterhouseCoopers ("PwC"PWC") as White Mountains' Independent
Auditors for 2000.2001. Representatives from PwCPWC will attend the 20002001 Annual Meeting,
and
will be provided with the opportunity to make a statement and will be available
to answer appropriate questions.
PwCPWC has served as Folksamerica's Independent Auditors since 1981 and as the
Company's Independent Auditors since 1999.
THE BOARD RECOMMENDS A VOTE FOR PROPOSAL 25 APPROVING THE APPOINTMENT OF PWC
AS WHITE MOUNTAINS' INDEPENDENT AUDITORS FOR 2000.2001.
OTHER MATTERS
MANNER OF VOTING PROXIES
Common Shares represented by all valid proxies received will be voted in
the manner specified in the proxies. Where specific choices are not indicated,
the Common Shares represented by all valid proxies received will be voted for the electionFOR
each of the nomineesproposals named earlier in this Proxy Statement as directors and forStatement. Holders of
Convertible Preference Shares are not entitled to vote at the appointment of PwC as Independent Auditors.
18
meeting.
Should any matter not described above be acted upon at the meeting, the
persons named in the proxy card will vote in accordance with their judgment. The
Board knows of no other matters which are to be considered at the 20002001 Annual
Meeting.
VOTES REQUIRED FOR APPROVAL
TheUnless indicated otherwise above, the proposals require a favorablethe affirmative
vote of a majority of the votes actually
cast with respect thereto (excluding abstentions andvoting power held by holders of Common Shares
not voted).present at the 2001 Annual Meeting, in person or by proxy, provided that a
quorum is present.
INSPECTORS OF ELECTION
First ChicagoEquiServe Trust Company of New York, a division of EquiServe, P.O. Box 2500, Jersey City, New Jersey
07303-2500, has been appointed as Inspectors of Election for the 20002001 Annual
Meeting. Representatives of First ChicagoEquiServe will attend the 20002001 Annual Meeting to
receive votes and ballots, supervise the counting and tabulating of all votes
and ballots, and determine the results of the vote.
COSTS OF SOLICITATION
The solicitation of proxies will be made primarily by mail; however,
directors, officers, employees and agents of the Company may also solicit
proxies by telephone, telegram or personal interview. Solicitation costs will be
paid by the Company. Upon request, the Company will reimburse banks, brokerage
houses and other custodians, nominees and fiduciaries for their reasonable
expenses incurred in forwarding proxy materials to their principals.
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Exchange Act.Act of 1934. In accordance therewith, the Company files reports, proxy
statements and other information with the SEC.
THE COMPANY WILL PROVIDE TO EACH PERSON TO WHOM A COPY OF THIS PROXY
STATEMENT IS DELIVERED, UPON REQUEST AND WITHOUT CHARGE, COPIES OF ALL DOCUMENTS
(EXCLUDING EXHIBITS UNLESS SPECIFICALLY REQUESTED) FILED BY THE COMPANY WITH THE
SEC. Written or telephone requests should be directed to the Corporate
Secretary, White Mountains Insurance Group, Ltd., 80 South Main Street, Hanover,
New Hampshire 03755-2053, telephone number (603) 643-1567. Additionally, copies
of all such documents are available at the Company's registered office at
Clarendon House, 2 Church Street, Hamilton, HM DX Bermuda.
21
OFFICES OF THE COMPANY
The Company's headquarters is located at Crawford House, 23 Church
Street, Hamilton, Bermuda HM 11 (with a mailing address of 12 Church Street,
Suite 332,322, Hamilton HM 11, Bermuda), its principal executive office is
located at 80 South Main Street, Hanover, New Hampshire, 03755-2053 and its
registered office is located at Clarendon House, 2 Church Street, Hamilton,
HM DX Bermuda.
WWW.WHITEMOUNTAINS.COM
All reports, including press releases, SEC filings and other information
for the Company, its subsidiaries and its affiliates are available for viewing
or download at our website.
PROPOSALS BY SHAREHOLDERS FOR THE 20012002 ANNUAL MEETING OF SHAREHOLDERS
Shareholder proposals (other than those proposals to nominate persons as
directors) must be received in writing by the Secretary of the Company no later
than December 31, 20002001 and must comply with the requirements of the SEC in order
to be considered for inclusion in the Company's proxy statement relating to the
Annual Meeting to be held in 2001.2002.
By Order of the Board of Directors
DENNIS P. BEAULIEU, Corporate Secretary
MarchJuly 5, 2001
22
APPENDIX I
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF
DIRECTORS WHITE MOUNTAINS INSURANCE
GROUP, LTD.
I. AUDIT COMMITTEE PURPOSE
The Audit Committee (the "Committee") is appointed by the Board of
Directors (the "Board") to assist the Board in fulfilling its oversight
responsibilities. The Committee's primary duties and responsibilities are
to:
(a) Monitor the integrity of the Company's financial reporting process and
systems of internal controls regarding finance, accounting and legal
compliance.
(b) Monitor the independence and performance of the Company's independent
auditors.
(c) Provide an avenue of communication among the independent auditors,
management and the Board.
The Committee has the authority to conduct any investigation appropriate to
fulfilling its responsibilities, and it has direct access to the
independent auditors as well as anyone in the organization. The Committee
has the ability to retain, at the Company's expense, special legal,
accounting, or other consultants or experts it deems necessary in the
performance of its duties.
II. AUDIT COMMITTEE COMPOSITION AND MEETINGS
Committee members shall meet the requirements set forth by the New York
Stock Exchange. The Committee shall be comprised of no less than three
directors, each of whom shall be independent non-executive directors, free
from any relationship that would interfere with the exercise of his or her
independent judgment. All members of the Committee shall have a basic
understanding of finance and accounting and be able to read and understand
fundamental financial statements, and at least one member of the Committee
shall have accounting or related financial management expertise.
Committee members shall be appointed by the Board. The Committee shall
formally meet at least one time annually, or more frequently as
circumstances dictate. The Chair of the Committee shall prepare and/or
approve an agenda in advance of each meeting. The Committee should meet
privately in executive session at least annually with management, the
independent auditors, and as a Committee to discuss any matters that the
Committee or each of these groups believe should be discussed. In addition,
the Committee, or at least its Chair, should communicate with management
and the independent auditors quarterly to review the Company's financial
statements and significant findings based upon the independent auditors
limited review procedures.
III. AUDIT COMMITTEE RESPONSIBILITIES AND DUTIES
REVIEW PROCEDURES
(a) Review and reassess the adequacy of this Charter at least annually.
Submit the Charter to the Board for approval and have the document
published at least every three years in accordance with regulations
set forth by the United States Securities and Exchange Commission.
(b) Review the Company's annual audited financial statements prior to
filing or distribution. Such reviews should include discussion with
management and independent auditors of significant issues regarding
accounting principles, practices and judgments. Based on the results
of this review, communicate to the Board the Audit Committee's
conclusion on whether the annual audited financial statements should
be included in the Company's Annual Report on Form 10-K.
I-1
(c) Review periodically the integrity of the Company's financial
reporting processes and controls with management and the independent
auditors.
(d) Review the Company's quarterly results prior to the release of
earnings and/or the Company's quarterly financial statements prior to
filing or distribution. Discuss any significant changes to the
Company's accounting principles and any items required to be
communicated by the independent auditors in accordance with Statement
of Auditing Standards No. 61 ("SAS 61"). The Chair of the Committee
may represent the entire Committee for purposes of this review.
INDEPENDENT AUDITORS
(e) The Committee shall review the performance of the auditors, and
annually recommend to the Board the appointment of the independent
auditors or approve any discharge of the independent auditors when
circumstances warrant.
(f) The Committee shall approve the fees and review other significant
compensation to be paid to the independent auditors.
(g) On an annual basis, the Committee shall review the written disclosure
and the letter from the independent accountants required by
Independence Standards Board Standard No.1 and discuss with the
independent auditors all significant relationships they have with the
Company that could impair the independent auditors' independence.
(h) Review the independent auditors' audit plan -- including scope,
staffing, locations, reliance upon management and the general audit
approach.
(i) Prior to releasing the year-end earnings, discuss the results of the
audit with the independent auditors. Discuss certain matters required
to be communicated in accordance with SAS 61.
(j) Consider the independent auditors judgments about the quality and
appropriateness of the Company's accounting principles as applied in
its financial reporting.
LEGAL COMPLIANCE
(k) On at least an annual basis, review with the Company's counsel (if so
requested by the Committee), any legal matters that could have a
significant impact on the organization's financial statements, the
Company's compliance with applicable laws and regulations, and
inquiries received from regulators or governmental agencies.
OTHER AUDIT COMMITTEE RESPONSIBILITIES
(l) Annually prepare a report to shareholders as required by the
Securities and Exchange Commission. The report should be included in
the Company's annual proxy statement.
(m) Perform any other activities consistent with this Charter, the
Company's Bye-laws and governing law, as the Committee or the Board
deems necessary or appropriate.
(n) Maintain minutes of meetings and periodically report to the Board on
significant results of the foregoing activities.
I-2
WHITE MOUNTAINS
LONG-TERM
INCENTIVE PLAN
(as amended)
1. PURPOSE
The purpose of the White Mountains Long-Term Incentive Plan (the "Plan") is
to advance the interests of White Mountains Insurance Group, Ltd. (the
"Company") and its stockholders by providing long-term incentives to
certain key executives of the Company and of its subsidiaries.
2. ADMINISTRATION
The Plan shall be administered by the Human Resources Committee (the
"Committee") of the Board of Directors (the "Board") of the Company. No
member of the Committee shall be an employee of the Company or a subsidiary
of the Company or shall have been eligible within one year prior to his
appointment to receive awards under the Plan ("Awards") or to receive
awards under any other plan of the Company or its subsidiaries under which
participants are entitled to acquire stock, stock options or stock
appreciation rights of the Company or any of its subsidiaries.
The Committee shall have exclusive authority to select the employees to be
granted Awards, to determine the type, size and terms of the Awards and to
prescribe the form of the instruments embodying Awards. The Committee shall
be authorized to interpret the Plan and the Awards granted under the Plan,
to establish, amend and rescind any rules and regulations relating to the
Plan and to make any other determinations which it believes necessary or
advisable for the administration of the Plan. The Committee may correct any
defect or supply any omission or reconcile any inconsistency in the Plan or
in any Award in the manner and to the extent the Committee deems desirable
to carry it into effect. Any decision of the Committee in the
administration of the Plan, as described herein, shall be final and
conclusive. The Committee may act only by a majority of its members in
office, except that the members thereof may authorize any one or more of
their number or any officer of the Company to execute and deliver documents
on behalf of the Committee. No member of the Company shall be liable for
anything done or omitted to be done by him or by any other member of the
Committee in connection with the Plan, except for his own willful
misconduct or as expressly provided by statute.
3. PARTICIPATING SUBSIDIARIES
If a subsidiary of the Company wishes to participate in the Plan and its
participation shall have been approved by the Board, the Board of Directors
of the subsidiary shall adopt a resolution in form and substance
satisfactory to the Committee authorizing participation by the subsidiary
in the Plan. As used herein, "subsidiary" shall mean a "subsidiary
corporation" as defined in Section 424 (f) of the Internal Revenue Code
of 1986, as amended (the "Code").
A subsidiary may cease to participate in the Plan at any time by action of
the Board or by action of the Board of Directors of such subsidiary, which
latter action shall be effective not earlier than the date of delivery to
the Secretary of the Company of a certified copy of a resolution of the
subsidiary's Board of Directors taking such action. Termination of
participation in the Plan shall not relieve a subsidiary of any obligations
theretofore incurred by it under the Plan.
II-1
4. AWARDS
(a) TYPE OF AWARDS. Awards shall be limited to the following four types:
(i) "Stock Options," (ii) "Stock Appreciation Rights", (iii)
"Restricted Stock" and (iv) "Performance Shares." Stock Options, which
include "Incentive Stock Options" and other stock options or
combinations thereof, are rights to purchase shares of Common Stock of
the Company having a par value of $1.00 per shares ("Shares"). A Stock
Appreciation Right is a right to receive, without payment to the
Company, cash and/or Shares in lieu of the purchase of Shares under
the Stock Option to which the Stock Appreciation Right relates.
(b) MAXIMUM NUMBER OF SHARES THAT MAY BE ISSUED. A maximum of 300,000
Shares, subject to adjustment as provided in paragraph 14, may be
issued under the Plan. For purposes of the foregoing, the exercise of a
Stock Appreciation Right shall constitute the issuance of Shares equal
to the Shares covered by the related Stock Option. If any Shares issued
as Restricted Stock shall be repurchased pursuant to the Company's
option described in paragraph 6 below, or if any Shares issued under
the Plan shall be reacquired pursuant to restrictions imposed at the
time of issuance, such Shares may again be issued under the Plan.
(c) RIGHTS WITH RESPECT TO SHARES.
(i) An employee to whom Restricted Stock has been issued shall have
prior to the expiration of the Restricted Period or the earlier
repurchase of such Shares as herein provided, ownership of such
Shares, including the right to vote the same and to receive
dividends thereon, subject, however, to the options, restrictions
and limitations imposed thereon pursuant hereto.
(ii) An employee to whom Stock Options, Stock Appreciation Rights or
Performance Shares are granted (and any person succeeding to such
employee's rights pursuant to the Plan) shall have no rights as a
shareholder with respect to any Shares issuable pursuant thereto
until the date of the issuance of a stock certificate (whether or
not delivered) therefor. Except as provided in paragraph 14, no
adjustment shall be made for dividends, distributions or other
rights (whether ordinary or extraordinary, and whether in cash,
securities or other property) the record date for which is prior
to the date such stock certificate is issued.
(iii) The Company, in its discretion, may hold custody during the
Restricted Period of any Shares of Restricted Stock.
5. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The Committee may grant Stock Options (including, in its discretion, Stock
Appreciation Rights) either alone or, as provided in paragraph 7, in
conjunction with Performance Shares. A maximum of 10,000 Stock Options and
Stock Appreciation Rights (not including Stock Appreciation Rights attached
to Stock Options) may be issued in one year to an employee. Each Stock
Option shall comply with the following terms and conditions:
(a) The exercise price shall not be less than the greater of (i) the fair
market value of the Shares subject to such Stock Option at the time of
grant, as determined in good faith by the Committee, or (ii) the par
value of such Shares. However, the exercise price of an Incentive
Stock Option granted to an employee who owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of
the Company or of a subsidiary (a "Ten Percent Employee") shall not be
less than the greater of 110% of such fair market value, or the par
value of such Shares.
II-2
(b) The Committee shall initially determine the number of Shares to be
subject to each Stock Option. The number of Shares subject to a Stock
Option will subsequently be reduced (i) on a share-for-share basis to
the extent that Shares under such Stock Option are used to calculate
the cash and/or Shares received pursuant to exercise of a Stock
Appreciation Right attached to such Stock Option, and (ii) on a
one-for-one basis to the extent that any Performance Shares granted in
conjunction with such Stock Option pursuant to subparagraph 7(a) are
paid, such reduction to be made in accordance with the provisions of
subparagraph 7(e)(ii).
(c) The Stock Option shall not be transferable by the optionee otherwise
than by will or the laws of descent and distribution, and shall be
exercisable during his lifetime only by him.
(d) The Stock Option shall not be exercisable:
(i) in case of any Incentive Stock Option as defined in Section 422
(b) of the Code, after the expiration of ten years from the date
it is granted, and in the case of any other Stock Option, after
the expiration of ten years from the date it is granted. Any
Stock Option may be exercised during such period only at such
time or times as the Committee may establish;
(ii) unless payment in full is made for the Shares being acquired
thereunder at the time of exercise (including any federal, state
or local income or other taxes which the Committee determines are
required to be withheld in respect of such shares); such payment
shall be made (A) in United States dollars by cash or check, or
(B) by tendering to the Company Shares owned by the person
exercising the Stock Option and having a fair market value equal
to the cash exercise price thereof, such fair market value to be
determined in such reasonable manner as may be provided for from
time to time by the Committee or as may be required in order to
comply with or to conform to the requirements of any applicable
or relevant laws or regulations, or (C) by a combination of
United States dollars and Shares as aforesaid;
(iii) unless the person exercising the Stock Option has been, at all
times during the period beginning with the date of grant of the
Stock Option and ending on the date three months prior to such
exercise, an officer or employee of the Company or a subsidiary,
or of a corporation, or a parent or subsidiary of a corporation,
issuing or assuming the Stock Option in a transaction to which
Section 424 (a) of the Code, is applicable, except that:
(A) if such person shall cease to be an officer or employee of
the Company or one of its subsidiary corporations solely by
reason of a period of Related Employment as defined in
paragraph 9, he may, during such period of Related
Employment (but in no event after the Stock Option has
expired under the provisions of subparagraph 5(d)(i)
hereof), exercise such Stock Option as if he continued to be
such an officer or employee; or
(B) if an optionee shall become disabled as defined in paragraph
8 he may, at any time within three years of the date he
becomes disabled (but in no event after the Stock Option has
expired under the provisions of subparagraph 5(d)(i)
hereof), exercise the Stock Option with respect to (i) any
Shares as to which he could have exercised the Stock Option
on the date he became disabled and (ii) if the Stock Option
is not fully exercisable on the date he becomes disabled,
the number of additional Shares as to which the Stock Option
would have become exercisable had he remained an employee
through the next two dates on which additional Shares were
scheduled to become exercisable under the Stock Option; or
II-3
(C) if an optionee shall die while holding a Stock Option, his
executors, administrators, heirs or distributees, as the
case may be, at any time within one year after the date of
such death (but in no event after the Stock Option has
expired under the provisions of subparagraph 5(d)(i)
hereof), may exercise the Stock Option with respect to (i)
any Shares as to which the decedent could have exercised the
Stock Option at the time of his death, and (ii) if the Stock
Option is not fully exercisable on the date of his death,
the number of additional Shares as to which the Stock Option
would have become exercisable had he remained an employee
through the next two dates on which additional Shares were
scheduled to become exercisable under the Stock Option
provided, however, that if death occurs during the
three-year period following a disability as described in
subparagraph 5(d)(iv)(B) hereof, the three-year period
following a retirement as described in subparagraph
5(d)(iv)(D) hereof or any period following a voluntary
termination in respect of which death, the number of
additional Shares as to which the Stock Option would have
become exercisable had he remained an employee through the
next date or, if applicable, two dates on which additional
Shares were scheduled to become exercisable under the Stock
Option provided, however, that if death occurs during the
three-year period following a disability as described in
subparagraph 5(d)(iv)(B) hereof, the three-year period
following a retirement as described in subparagraph
5(d)(iv)(D) hereof or any period following a voluntary
termination in respect of which the Board has exercised its
discretion to grant continuing exercise rights as provided
in subparagraph 5(d)(iv)(E) hereof, the Stock Option shall
not become exercisable as to any Shares in addition to those
as to which the decedent could have exercised the Stock
Option at the time of his death; or
(D) if such person shall retire under an approved retirement
program of the Company or a subsidiary (or such other plan
as may be approved by the Committee, in its sole discretion,
for this purpose) while holding a Stock Option which has not
expired and has not been fully exercised, such person, at
any time within three years after his retirement (but in no
event after the Stock Option has expired under the
provisions of subparagraph 5(d)(i) hereof), may exercise the
Stock Option with respect to any Shares as to which he could
have exercised the Stock Option on the date he retired; or
(E) if such person shall voluntarily terminate his employment
with the Company, the Board may determine that the optionee
may exercise the Stock Option with respect to some or all of
the Shares subject to the Stock Option as to which it would
not otherwise be exercisable on the date of his voluntary
termination provided, however, that in no event may such
exercise take place after the Stock Option has expired under
the provisions of subparagraph 5(d)(i) hereof.
(e) (i) The aggregate fair market value of Shares (determined at the
time of grant of the Stock Option pursuant to subparagraph 5(a)
of the Plan) for which any employee may be granted Incentive
Stock Options under the Plan in any calendar year prior to 1987,
may not exceed $100,000, plus the applicable carryover amount.
The carryover amount for an employee from any prior year is
one-half of the amount by which $100,000 exceeds the aggregate
fair market value of Shares (at the time of grant) for which
Incentive Stock Options were granted to such employee in such
prior year, provided that (x) such amounts may be carried over
for no more than three years, and (y) Incentive Stock Options
granted in any year shall use up the $100,000 current year
limitation first, and then use up the carryover amount or amounts
from the year or years available, the earliest being taken first.
(ii) The aggregate fair market value of Shares (determined at the
time of grant of the Stock Option pursuant to subparagraph 5(a)
of the Plan) with respect to which Incentive Stock Options
granted after December 31, 1986, to any employee under the Plan
are exercisable, for the first time, by such employee during any
calendar year may not exceed $100,000.
II-4
(f) If the Committee, in its discretion, so determines, there may be
related to the Stock Option, either at the time of grant or by
amendment, a Stock Appreciation Right which shall be subject to such
terms and conditions, not inconsistent with the Plan, as the Committee
shall impose, including the following:
(i) A Stock Appreciation Right may be exercised only
(A) to the extent that the Stock Option to which it relates is
at the time exercisable, and
(B) if
(1) in the case of a Stock Option other than an Incentive
Stock Option only, such Stock Option will expire by its
terms within 30 days (90 days if the optionee is at the
time an officer of the Company who is required to file
reports pursuant to Section 16(a) of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"));
(2) the optionee has become disabled or ceased to be an
officer or employee by reason of his retirement under
an approved retirement program of the Company or a
subsidiary (or such other plan as may be approved by
the Committee, in its sole discretion, for this
purpose); or
(3) the optionee has died.
However, if the Stock Option to which the Stock
Appreciation Right relates is exercisable and if the
optionee is at the time an officer of the Company who
is required to file reports pursuant to Section 16(a)
of the Exchange Act, the Stock Appreciation Right may,
subject to the approval of the Committee, be exercised
during such periods, as may be specified by the
Committee;
(ii) A Stock Appreciation Right shall entitle the optionee (or any
person entitled to act under the provisions of subparagraph
5(d)(iv)(C) hereof) to surrender unexercised the related Stock
Option (or any portion of such Option) to the Company and to
receive from the Company in exchange therefor that number of
Shares having an aggregate value equal to the excess of the value
of one Share (provided that, if such value exceeds 150% of the
Stock Option price per share specified in such Stock Option, such
value shall be deemed to be 150% of such Stock Option price) over
the Stock Option price per share, times the number of Shares
subject to the Stock Option, or portion thereof, which is so
surrendered. The Committee shall be entitled to elect to settle
the obligation arising out of the exercise of a Stock
Appreciation Right by the payment of cash equal to the aggregate
value of the Shares it would otherwise be obligated to deliver or
partly by the payment of cash and partly by the delivery of
Shares. Any such election shall be made within 15 business days
after the receipt by the Committee of written notice of the
exercise of the Stock Appreciation Right. The value of a Share
for this purpose shall be the fair market value thereof on the
last business day preceding the date of the election to exercise
the Stock Appreciation Right, provided that if notice of such
election is received by the Committee more than three business
days after the date of such election (as such date of election is
stated in the notice of election), the Committee may, but need
not, determine the value of a Share as of the day preceding the
date on which the notice of election is received;
(iii) No fractional Shares shall be delivered under this subparagraph
5(f), but in lieu thereof a cash adjustment shall be made; and
(iv) In the case of a Stock Appreciation Right attached to an
Incentive Stock Option, such Stock Appreciation Right shall only be
transferable when such Incentive Stock Option is transferable pursuant
to Section 5 (c) hereof.
II-5
(g) Notwithstanding anything herein to the contrary:
(i) in the event an Unfriendly Change in Control of the Company, as
defined in subparagraph 10(b), occurs, then as of the
Acceleration Date, as defined in subparagraph 10(b), each Stock
Option granted hereunder shall be exercisable in full; provided,
however, that in the case of an officer subject to Section 16(b)
of the Exchange Act, no Stock Option shall become exercisable
until the expiration of the period ending six months after the
date of grant of the Stock Option hereunder; and
(ii) in the event a Change in Control as defined in subparagraph 10(a)
occurs and within 24 2000months thereafter: (A) there is a
Termination Without Cause, as defined in paragraph 11, of an
optionee's employment; or (B) there is a Constructive Termination
as defined in paragraph 12, of an optionee's employment; or (C)
there occurs an Adverse Change in the Plan, as defined in
paragraph 13, in respect of an optionee affecting any Award held
by such optionee and if the optionee then holds a Stock Option,
1. In the case of a Termination Without Cause or a Constructive
Termination, the optionee may exercise the entire Stock
Option, at any time within 30 days of such Termination
Without Cause or such Constructive Termination (but in no
event after the option has expired under the provisions of
subparagraphs (5)(d)(i)), and
2. in the case of an Adverse Change in the Plan, the optionee
may exercise the entire Stock Option at any time after such
Adverse Change in the Plan in respect of him and prior to
the date 30 days following his termination of employment as
a result of a Termination Without Cause or a Constructive
Termination (but in no event after the option has expired
under the provisions of subparagraph 5(d) (i)).
Notwithstanding anything in this subparagraph 5(g) to the
contrary, (x) in the case of an officer subject to Section
16(b) of the Exchange Act, no Stock Option shall become
exercisable until the expiration of the period ending six
months after the date of grant of the Stock Option
hereunder.
6. RESTRICTED STOCK
Each Award of Restricted Stock shall comply with the following terms and
conditions:
(a) The Committee shall determine the number of Shares to be issued to a
participant pursuant to the Award.
(b) Shares issued may not be sold, assigned, transferred, pledged,
hypothecated or otherwise disposed of, except by will or the laws of
descent and distribution, for such period from the date on which the
Award is granted (the "Restricted Period") as the Committee shall
determine. The Company shall have the option to repurchase the Shares
subject to the Award at such price as the Committee shall have fixed,
in its sole discretion, when the Award was made, which option will be
exercisable if the participant's continuous employment with the
Company or a subsidiary shall terminate for any reason, except solely
by reason of an event described in paragraph 6(c), prior to the
expiration of the Restricted Period or the earlier lapse of the
option. Such option shall be exercisable on such terms, in such manner
and during such period as shall be determined by the Committee when
the Award is made. Certificates for Shares issued pursuant to
Restricted Stock Awards shall bear an appropriate legend referring to
the foregoing option and other restrictions. Any attempt to dispose of
any such Shares in contravention of the foregoing option and other
restrictions shall be null and void and without effect. If Shares
issued pursuant to a Restricted Stock Award shall be repurchased
pursuant to the option described above, the participant to whom the
Award was granted, or in the event of his death after such option
become exercisable, his executor or administrator, shall forthwith
deliver to the Secretary of the Company any certificates for the
Shares awarded to the participant, accompanied by such instruments of
transfer, if any, as may reasonably be required by the Secretary of
the Company. If the option described above is not exercised by the
Company, such option and the restriction
II-6
imposed pursuant to the first sentence of this subparagraph 6(b) shall
terminate and be of no further force and effect. Notwithstanding
anything to the contrary in this paragraph 6 (b), neither any
Restricted Period nor any option shall lapse to the extent the Company
or any subsidiary would be unable to take a deduction with respect to
such lapse by reason of Section 162 (m) of the Code.
(c) If a participant who has been in the continuous employment of the
Company or of a subsidiary shall,
(i) die or become disabled (as defined in paragraph 8) during the
Restricted Period, the option of the Company to repurchase (and
any and all other restrictions on) all Shares awarded to him
under such Award shall lapse and cease to be effective as of the
date on which his death or disability occurs, or
(ii) voluntarily terminate his employment with the Company or retire
under an approved retirement plan of the Company or of a
subsidiary (or such other retirement plan as may be approved by
the Committee, in its sole discretion, for this purpose) during
Restricted Period, the Board may determine that the option to
repurchase and any and all other restrictions on some or all of
the Shares awarded to him under such Award, if such option and
other restrictions are still in effect, shall lapse and cease to
be effective as the date on which such voluntary termination or
retirement occurs.
(d) In the event within 24 months after a Change in Control as defined in
subparagraph 10(a) and during the Restricted Period
(i) there is a Termination Without Cause, as defined in paragraph 11,
of the employment of a participant;
(ii) there is a Constructive Termination, as defined in paragraph 12,
of the employment of a participant; or
(iii) there occurs an Adverse Change in the Plan, as defined in
paragraph 13, in respect of a participant, the option to
repurchase (and any and all other restrictions on) all Shares
awarded to him under his Award shall lapse and cease to be
effective as of the date on which such event occurs.
7. PERFORMANCE SHARES
The Award of Performance Shares to a participant will entitle him to
receive, without payment to the Company, all or part of a specified amount
(the "Actual Value") determined by the Committee, if the terms and
conditions specified herein and in the Award are satisfied. Payment in
respect of an Award shall be made as provided in subparagraph 7(e). Each
Award of Performance Shares shall be subject to the following terms and
conditions:
(a) The Committee shall determine the number of Performance Shares to be
granted to each participant and whether or not such Performance Shares
are granted in conjunction with a Stock Option (the "Associated Stock
Option"). The "Maximum Value" of each Performance Share shall be the
market value per Share on the date the award is paid or becomes
payable to participants. Performance Shares may be issued in different
classes or series having different terms and conditions. In the case
of any Performance Shares granted in conjunction with an Associated
Stock Option, the number of Performance Shares shall initially be
equal to the number of Shares which are subject to the Associated
Stock Option, but the number of such performance Shares shall be
reduced on a one for one basis to the extent that (A) Shares are
purchased upon exercise of the Associated Stock Option, or (B) Shares
may no longer be purchased under the Associated Stock Option because
the Associated Stock Option or a part thereof has been surrendered
unexercised pursuant to exercise of a Stock Appreciation Right
attached to such Associated Stock Option.
II-7
(b) The award period (the "Award Period") in respect of any Award of
Performance Shares shall be such period as the Committee shall
determine commencing as of the beginning of the fiscal year of the
Company in which such Award is made. An Award Period may contain a
number of performance periods; each performance period shall commence
on or after the first day of the Award Period and shall end no later
than the last day of the Award Period. At the time each Award is made,
the Committee shall establish performance objectives to be attained
within the performance periods as the means of determining Actual
Value. The performance objectives shall be approved by the Committee
(i) while the outcome for that performance period is substantially
uncertain and (ii) no more than 90 days after the commencement of the
performance period to which the performance objective relates or, if
less than 90 days, the number of days which is equal to 25 percent of
the relevant performance period. The performance objectives shall be
based upon one or more of the following criteria: (i) consolidated
earnings before or after taxes (including earnings before interest,
taxes, depreciation and amortization); (ii) net income; (iii)
operating income; (iv) earnings per Share; (v) book value per Share;
(vi) return on stockholders' equity; (vii) expense management; (viii)
return on investment; (ix) improvements in capital structure; (x)
stock price; (xi) combined ratio; (xii) operating ratio;
(xiii)profitability of an identifiable business unit or product; (xiv)
maintenance or improvement of profit margins; (xv) market share; (xvi)
revenues or sales; (xvii) costs; (xviii) cash flow; (xix) working
capital; (xx) return on assets; (xxi) customer satisfaction; and
(xxii) employee satisfaction. The foregoing criteria may relate to the
Company, one or more of its subsidiaries or one or more of its
divisions, units, partnerships, joint venturers or minority
investments, product lines or products or any combination of the
foregoing, and may be applied on an absolute basis and/or be relative
to one or more peer group companies or indices, or any combination
thereof, all as the Committee shall determine. In addition, to the
degree consistent with Section 162(m) of the Code (or any successor
section thereto), the performance objectives may be calculated without
regard to extraordinary items. The Actual Value of a Performance Share
shall be equal to its Maximum Value only if the performance objectives
are attained in full, but the Committee shall specify the manner in
which the Actual Value of a Performance Share shall be a portion of
such Maximum Value if the performance objectives are met in part. In
determining Actual Value, the Committee may either (i) multiply the
total number of Shares available for payout at that time with respect
to the participant by the Actual Value of each individual Share or
(ii) multiply the Maximum Value of each individual Share by a number
of Shares equal to or less than the total number of Shares available
for payout, provided that the products obtained in (i) or (ii) are the
same.
(c) Performance Shares shall be cancelled if the participant's continuous
employment with the Company or any of its subsidiaries shall terminate
for any reason prior to the end of the Award Period (in which event
the Associated Stock Option, if any, shall continue in effect in
accordance with its terms), except solely by reason of a period of
Related Employment as defined in paragraph 9, and except as otherwise
specified in this subparagraph 7(c) or in subparagraph 7(d).
Notwithstanding the foregoing an without regard to subparagraph 7(b),
if a participant shall,
(i) while in such employment, die or become disabled as described in
paragraph 8 prior to the end of the Award Period, the Performance
Shares shall be cancelled at the end of the next ending
performance period and he, or his legal representative, as the
case may be, shall receive payment in respect of such Shares
which he would have received had he been in continuous employment
with the Company through the end of that period and had the
individual performance objectives, if any, that were imposed been
achieved; provided, however, that no such continuation shall be
deemed to have occurred for purposes of applying subparagraph
7(d) in the event of an Adverse Change in the Plan in respect of
the participant following a Change in Control; or
(ii) retire under an approved retirement program of the Company or a
subsidiary (or such other plan as may be approved by the
Committee, in its sole discretion, for this purpose) prior to the
end of the Award Period, and
(A) at the time of his retirement, the participant is 65 years
old or older, the Performance Shares shall be cancelled at
the end of the next ending performance period, and he shall
receive the Maximum Value in respect to such Shares, at the
date of cancellation,
II-8
(B) at the time of his retirement the participant is less than
65 years old and his retirement occurs prior to the end of
the first performance period, and before 24 months have
elapsed since the first day of the Award Period, the
participant shall receive payment with respect to the Actual
Value of one-ninth of the Performance Shares awarded to him
under the Award, and
(C) at the time of his retirement the participant is less than
65 years old and his retirement occurs prior to the end of
the first performance period and after at least 24 months
have elapsed since the first day of the Award Period, the
participant shall receive payment with respect to the Actual
Value of two-ninths of the Performance Shares awarded to him
under the Award.
(d) If within 24 months after a Change in Control of the Company as
defined in subparagraph 10(a) and prior to the end of an Award Period:
(i) there is a Termination Without Cause, as defined in paragraph 11,
of the employment of a participant;
(ii) there is a Constructive Termination, as defined in paragraph 12,
of the employment of a participant; or
(iii) there occurs an Adverse Change in the Plan, as defined in
paragraph 13, in respect of a participant, then:
(A) the participant shall receive the Maximum Value of:
(1) that number of Performance Shares which is in the same
proportion to the total number of Performance Shares
awarded to the participant under such Award as
(x) the number of full months which have elapsed since
the first day of the Award Period to the end of
the first month in which occurs one of the events
described in clauses (i), (ii) or (iii) of
subparagraph 7(d) is to
(y) the total number of months in the Award Period,
less
(2) the number of Performance Shares awarded to the
participant under the Award in respect of which payment
has already been made to the participant, and
(B) if the number of Performance Shares determined pursuant to
subclause (1) of clause (A) is less than the number of
Performance Shares subject to the particular Award, the
participant shall receive the Actual Value of the remaining
Performance Shares. The Actual Value of the remaining
Performance Shares shall be determined as follows:
(x) if the Board shall have determined, prior to the Change
in Control and based on the most recent performance
status reports, that the performance objectives for the
particular Award were being met at the date of the
determination, the Actual Value of the remaining
Performance Shares subject to the particular Award
shall be equal to their Maximum Value, and
II-9
(y) if the determination of the Board was that the
performance objectives for the particular Award were
not being met at the date of the determination, the
Actual Value of the remaining Performance Shares
subject to the particular Award shall be such amount as
shall have been determined by the Board as provided
above in this subparagraph 7(d), but in no event shall
Actual Value be less than fifty percent (50%) of
Maximum Value. Payment of any amount in respect of
Performance Shares as described above in this
subparagraph 7(d) shall be made as promptly as possible
after the occurrence of one of the events described in
clauses 7(d)(i) through 7(d)(iii). Notwithstanding
anything herein to the contrary, if, following a Change
in Control of the Company as defined in subparagraph
10(a), a participant's employment remains continuous
through the end of a performance period, then the
participant shall be paid with respect to those
Performance Shares for which he would have been paid
had there not been a Change in Control and the Actual
Value of those Shares shall be determined in accordance
with subparagraph 7(e).
(e) Except as otherwise provided in subparagraph 7(d), as soon as
practicable after the end of the performance period or such earlier
date as the Committee in its sole discretion may designate, the
Committee shall determine whether the conditions of subparagraphs 7(b)
and/or 7(c) hereof have been met and, if so, shall certify such fact
to the Board of Directors and shall ascertain the Actual Value of the
Performance Shares. If the Performance Shares:
(i) were not awarded in conjunction with an Associated Stock Option,
the Committee shall cause an amount equal to the Actual Value of
the Performance Shares earned by the participant to be paid to
him or his beneficiary; or
(ii) were awarded in conjunction with an Associated Stock Option, the
Committee shall determine, in accordance with criteria specified
by the Committee when the Award was made, (A) to cancel the
Performance Shares, in which event no amount in respect thereof
shall be paid to the participant or his beneficiary, and the
Associated Stock Option shall continue in effect in accordance
with its terms, (B) to pay the Actual Value of the Performance
Shares to the participant or his beneficiary, in which event the
Associated Stock Option shall be cancelled, or (C) to pay to the
participant or his beneficiary the Actual Value of only a portion
of the Performance Shares, in which event (1) all such
Performance Shares shall be cancelled and (2) the Associated
Stock Option shall be cancelled only as to a number of Shares
equal to the number of Performance Shares so paid. Such
determination by the Committee shall, if practicable, be made
during the three-month period following the end of the
performance period, or during such earlier period as shall be
designated by the Committee and shall be made pursuant to
criteria, specified by the Committee, which shall be uniform for
all Awards having the same performance period.
Payment of any amount in respect of the Performance Shares shall
be made by the Company as promptly as practicable or shall be
deferred to such other time or times as the Committee shall
determine, and may be made in cash, in Shares, or partly in cash
and partly in Shares as determined by the Committee. Such
deferred payments may be made by undertaking to pay cash in the
future, together with such additional amounts as may accrue
thereon until the date or dates of payment, as determined by the
Committee in its discretion.
8. DISABILITY
For the purposes of this Plan, a participant shall be deemed to be disabled
if the Committee shall determine that the physical or mental condition of
the participant is such as would entitle him to payment of monthly
disability benefits under any disability plan of the Company or a
subsidiary in which he is a participant .
II-10
9. RELATED EMPLOYMENT
For the purposes of this Plan, Related Employment shall mean the employment
of an individual by an employer which is neither the Company nor a
subsidiary provided: (i) such employment is undertaken by the individual
and continued at the request of the Company or a subsidiary; (ii)
immediately prior to undertaking such employment, the individual was an
officer or employee of the Company or a subsidiary, or was engaged in
Related Employment as herein defined; and (iii) such employment is
recognized by the Committee, in its sole discretion, as Related Employment
for the purposes of this paragraph 9. The death or disability of an
individual during a period of Related Employment as herein defined shall be
treated, for purposes of this Plan, as if the death or onset of disability
had occurred while the individual was an officer or employee of the
Company.
10. CHANGE IN CONTROL
(a) For purposes of this Plan, a "Change in Control of the Company" within
the meaning of this subparagraph 10(a) shall occur if:
(i) Any person or group (within the meaning of Section 13(d) and
14(d)(2) of the Exchange Act), other than John J. Byrne,
Berkshire Hathaway, Inc. or one of its wholly owned subsidiaries
or the Company, becomes the beneficial owner (within the meaning
of Rule 13d-3 under the Exchange Act) of thirty-five percent
(35%) or more of the Company's then outstanding Shares;
(ii) the Continuing Directors, as defined in subparagraph 10(c), cease
for any reason to constitute a majority of the Board of the
Company; or
(iii) the business of the Company for which the participant's services
are principally performed is disposed of by the Company pursuant to a
sale or other disposition of all or substantially all of the business
or business related assets of the Company (including stock of a
subsidiary of the Company). A Change in Control of the Company within
the meaning of this subparagraph 10(a) also may constitute an
Unfriendly Change in Control of the Company within the meaning of this
subparagraph 10(b).
(b) A Change in Control of the Company shall be deemed an "Unfriendly
Change in Control of the Company" if:
(i) any person or group (within the meaning of Section 13(d) and
14(d)(2) of the Exchange Act), other than American Express Company or
the Company, becomes the beneficial owner (within the meaning of Rule
13d-3 under the Exchange Act) of thirty-five percent (35%) or more of
the Company's then outstanding Shares through a transaction that is
opposed by the Company's Chairman and Chief Executive Officer, and
(ii) a majority of the Company's Continuing Directors, as defined in
subparagraph 10(c), by resolution adopted within 30 days following the
date the Company becomes aware that subparagraph 10(b)(i) has been
satisfied, determines that a Change in Control has occurred.
For purposes of subparagraph 5(g), "Acceleration Date" shall mean the date
on which a majority of the Company's Continuing Directors adopts a
resolution (or takes other action) making the determination that a Change
in Control of the Company has occurred.
II-11
(c) For the purposes of this Plan, "Continuing Director" shall mean a
member of the Board (A) who is not an employee of the Company or its
subsidiaries or of a holder of, or an employee or an affiliate of an
entity or group that holds, thirty-five percent (35%) or more of the
Company's Shares and (B) who either was a member of the Board on
September 4, 1985, or who subsequently became a director of the
Company and whose election, or nomination for election, by the
Company's shareholders was approved by a vote of a majority of the
Continuing Directors then on the Board (which term, for purposes of
this definition, shall mean the whole Board and not any committee
thereof). Any action, approval of which shall require the approval of
a majority of the Continuing Directors, may be authorized by one
Continuing Director, if he is the only Continuing Director on the
Board, but no such action may be taken if there are not Continuing
Directors on the Board.
11. TERMINATION WITHOUT CAUSE
For purposes of this Plan, "Termination Without Cause" shall mean a
termination of the participant's employment with the Company or a
subsidiary by the Company or the subsidiary other than (i) for disability
as described in paragraph 8 or (ii) for Cause. "Cause" shall mean (a) an
act or omission by the participant that constitutes a felony or any crime
involving moral turpitude; or (b) willful gross negligence or willful gross
misconduct by the participant in connection with his employment by the
Company or by a subsidiary which causes, or is likely to cause, material
loss or damage to the Company. Notwithstanding anything herein to the
contrary, if the participant's employment with the Company or one of its
subsidiaries shall terminate due to a Change in Control of the Company as
described in Subsection 10(a)(iii), where the purchaser, as described in
such subsection, formally assumes the Company's obligations under this Plan
or places the participant in a similar or like plan with no diminution of
the value of the awards, such termination shall not be deemed to be a
"Termination Without Cause."
12. CONSTRUCTIVE TERMINATION
"Constructive Termination" shall mean a termination of employment with the
Company or a subsidiary at the initiative of the participant that the
participant declares by prior written notice delivered to the Secretary of
the Company to be a Constructive Termination by the Company or a subsidiary
and which follows (a) a material decrease in his salary or (b) a material
diminution in the authority, duties or responsibilities of his position
with the result that the participant makes a determination in good faith
that he cannot continue to carry out his job in substantially the same
manner as it was intended to be carried out immediately before such
diminution. Notwithstanding anything herein to the contrary, Constructive
Termination shall not occur within the meaning of this paragraph 12 until
and unless 30 days have elapsed from the date the Company receives such
written notice without the Company curing or causing to be cured the
circumstance or circumstances described in this paragraph 12 on the basis
of which the declaration of Constructive Termination is given.
13. ADVERSE CHANGE IN THE PLAN
An "Adverse Change in the Plan" shall mean
(a) termination of the Plan pursuant to subparagraph 18(a);
(b) amendment of the Plan pursuant to paragraph 17 that materially
diminishes the value of Awards that may be granted under the Plan,
either to individual participants or in the aggregate, unless there is
substituted concurrently authority to grant long-term incentive awards
of comparable value to individual participants in the Plan or in the
aggregate, as the case may be; or
(c) in respect of any holder of an Award a material diminution in his
rights held under such Award (except as may occur under the terms of
the Award as originally granted) unless there is substituted
concurrently a long-term incentive award with a value at least
comparable to the loss in value attributable to such diminution in
rights.
II-12
14. DILUTION AND OTHER ADJUSTMENTS
In the event of any change in the Outstanding Shares of the Company by
reason of any stock split, stock dividend, recapitalization, merger,
consolidation, reorganization, combination or exchange of Shares or other
similar event, and if the Committee shall determine, in its sole
discretion, that such change equitably requires an adjustment in the number
or kind of Shares that may be issued under the Plan pursuant to
subparagraph 4(b), in the number or kind of Shares subject to, or the Stock
Option price per share under, any outstanding Stock Option, in the number
or kind of Shares which have been awarded as Restricted Stock or in the
repurchase option price per share relating thereto, in the number of
Maximum Value or Actual Value of Performance Shares which have been awarded
to any participant, or in any measure of performance, then such adjustment
shall be made by the Committee and shall be conclusive and binding for all
purposes of the Plan.
15. DESIGNATION OF BENEFICIARY BY PARTICIPANT
A participant may name a beneficiary to receive any payment to which he may
be entitled in respect of Performance Shares under the Plan in the event of
his death, on a form to be provided by the Committee. A participant may
change his beneficiary from time to time in the same manner. If no
designated beneficiary is living on the date on which any amount becomes
payable to a participant's executors or administrators, the term
"beneficiary" as used in the Plan shall include such person or persons.
16. MISCELLANEOUS PROVISIONS
(a) No employee or other person shall have any claim or right to be
granted an Award under the Plan. Neither the Plan nor any action taken
hereunder shall be construed as giving an employee any right to be
retained in the employ of the Company or any subsidiary.
(b) A participant's rights and interest under the Plan may not be assigned
or transferred in whole or in part either directly or by operation of
law or otherwise (except in the event of a participant's death),
including but not limited to, execution, levy, garnishment,
attachment, pledge, bankruptcy or in any other manner and no such
right or interest of any participant in the Plan shall be subject to
any obligation or liability or such participant.
(c) No Shares shall be issued hereunder unless counsel for the Company
shall be satisfied that such issuance will be in compliance with
applicable Federal and state securities laws and Bermuda Law.
II-13
(d) The Company and its subsidiaries shall have the right to deduct from
any payment made under the Plan any federal, state or local income or
other taxes required by law to be withheld with respect to such
payment. It shall be a condition to the obligation of the Company to
issue Shares upon exercise of a Stock Option, upon settlement of a
Stock Appreciation Right, or upon payment of a Performance Share that
the participant (or any beneficiary or person entitled to payment
under subparagraph 5(d)(iii)(C) hereof) pay to the Company, upon its
demand, such amount as may be required by the Company for the purpose
of satisfying any liability to withhold Federal, state or local income
or other taxes. If the amount requested is not paid, the Company may
refuse to issue Shares.
(e) The expenses of the Plan shall be borne by the Company. However, if an
Award is made to an employee of a subsidiary:
(i) if such Award results in payment of cash to the participant, such
subsidiary shall pay to the Company an amount equal to such cash
payment; and
(ii) if the Award results in the issuance to the participant of
Shares, such subsidiary shall pay to the Company an amount equal
to fair market value thereof, as determined by the Committee, on
the date such Shares are issued (or, in the case of issuance of
Restricted Stock or of Shares subject to transfer and forfeiture
conditions, equal to the fair market value thereof on the date on
which such Shares are no longer subject to applicable
restriction), minus the amount, if any received by the Company in
exchange for such Shares.
(f) The Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other
segregation of assets to assure the payment of any Award under the
Plan.
(g) By accepting any Award or other benefit under the Plan, each
participant and each person claiming under or through him shall be
conclusively deemed to have indicated his acceptance and ratification
of, and consent to, any action taken under the Plan by the Company,
the Board or the Committee.
17. AMENDMENT
The Plan may be amended at any time and from time to time by the Board, but
no amendment which increases the aggregate number of Shares which may be
issued pursuant to the Plan or the class of employees eligible to
participate shall be effective unless and until the same is approved by the
shareholders of the Company. No amendment of the Plan shall adversely
affect any right of any participant with respect to any Award previously
granted without such participant's written consent.
18. TERMINATION
This Plan shall terminate upon the earlier of the following dates or events
to occur:
(a) the adoption of a resolution of the Board terminating the Plan; or
(b) ten years from the date the Plan is initially or subsequently approved
and adopted by the shareholders of the Company in accordance with
paragraph 19 hereof.
No termination of the Plan shall alter or impair any of the rights or
obligations of any person, without his consent, under any Award previously
granted under the Plan.
II-14
PROXY19. SHAREHOLDER ADOPTION
The Plan shall be submitted to the shareholders of the Company for their
approval or adoption. The Plan shall not be effective and no Award shall be
made hereunder unless and until the Plan has been so approved and adopted
by the shareholders in the manner required by the laws of Bermuda and the
State of Delaware.
As originally approved by the Board of Directors,
September 4, 1985 and adopted by the sole shareholder
September 23, 1985. The Plan was amended by the Board of
Directors on August 13, 1986. The Plan was further amended
on February 15, 1995 and subsequently approved by
shareholders on May 24, 1995. The Plan was further amended
on May 21, 2001 and subsequently adopted by shareholders
on August 23, 2001.
II-15
P R O X Y
WHITE MOUNTAINS INSURANCE GROUP, LTD.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
FOR THE ANNUAL GENERAL MEETING MAY 22, 2000TO BE HELD AUGUST 23, 2001
The undersigned hereby appoints K. Thomas Kemp and George J. Gillespie, III,Gordon S. Macklin, and each
of them, proxies with full power of substitution, to vote all Common Shares of
the undersigned at the 20002001 Annual General Meeting of Shareholders to be held
May
22, 2000,August 23, 2001, and at any adjournment thereof, upon all subjects that may
properly come before the meeting including the matters described in the proxy
statement furnished herewith, subject to any directions indicated on the reverse
of this card or below. IF NO DIRECTIONS ARE GIVEN, THE PROXIES WILL
VOTEIf no directions are given, the proxies will vote FOR THE ELECTION OF DIRECTORS,the
Election of the Company's Directors, FOR THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS AS INDEPENDENT AUDITORS, AND AT THEIR DISCRETION
ON ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING.the Election of Directors of Fund
American Enterprises, Ltd., FOR the Amendments to the Long-Term Incentive Plan,
FOR the Issuance of Common Shares, FOR the Appointment of PricewaterhouseCoopers
as Independent Auditors, and at their discretion on any other matter that may
properly come before the meeting.
Your vote for the Election of the Company's Directors may be indicated on the
reverse.reverse side. The following Directors are being nominated at this meeting for
election to terms ending in the year indicated.2004.
(Change of address/comments)
2001.Patrick M. Byrne ------------------------------------------------
Steven E. Fass
---------------------------------------
2002. John D. Gillespie ---------------------------------------
2003. Raymond Barrette ---------------------------------------
Howard L. Clark, Jr. ---------------------------------------
Robert P. Cochran ---------------------------------------
Arthur Zankel ---------------------------------------K. Thomas Kemp ------------------------------------------------
Gordon S. Macklin
Joseph S. Steinberg ------------------------------------------------
------------------------------------------------
(If you have written in the above space, please
mark the corresponding
box on the reverse side of this card.)
YOUR VOTE IS IMPORTANT! PLEASE SIGN AND DATE ON THE REVERSE SIDE AND RETURN
PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE OR OTHERWISE TO FIRST CHICAGO
TRUST COMPANY OF NEW YORK, A DIVISION OF EQUISERVE, POST OFFICE BOXYour vote for the Election of Directors of Fund American Enterprises, Ltd. may
be indicated on the reverse side. The following Directors corresponding are
being nominated at this meeting for election to the Board of Directors until
their resignation or removal from office by the Company.
K. Thomas Kemp
Gordon S. Macklin
Your vote is important! Please sign and date on the reverse side and return
promptly in the enclosed postage-paid envelope or otherwise to White Mountains
Insurance Group, Ltd., c/o EquiServe Trust Company, Post Office Box 8085,
EDISON, NEW JERSEYEdison, New Jersey 08818-9052.
PLEASE RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE SEE REVERSE
SIDE
/X/ PLEASE MARK YOUR VOTES
AS IN THIS EXAMPLE.X Please mark your
votes as in this
example.
This proxy when properly executed will be voted in the manner directed herein.
If no directions are made, this proxy will be voted FOR the Election of the
Company's Directors, FOR the Election of Directors of Fund American Enterprises,
Ltd., FOR the Amendments to the Long-Term Incentive Plan, FOR the Issuance of
Common Shares, and FOR the Appointment of Independent Auditors.
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote "FOR" Proposals 1, 2, 3, 4 and 5.
- --------------------------------------------------------------------------------
FOR WITHHELD FOR WITHHELD
1. Election of / / / / 2.
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of / / / / 2. Appointment of / / / / / /
Directors Independent
(see reverse) Auditors
FOR, except vote withheld from the Change of Address / /
following nominee(s): Comments on
Reverse Side
- -------------------------------------
The signer hereby revokes all proxies heretofore
given by the signer to vote at said meeting or any
adjournment thereof.
Please sign exactly as name appears hereon. Joint
owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian,
please give full title as such.
---------------------------------------------------
---------------------------------------------------Election of / / / /
Company Directors of
Directors Fund American
Enterprises, Ltd.
FOR, except vote withheld from FOR, except vote withheld from the
the following nominee(s) following nominee(s):
- ---------------------------------- ----------------------------------
FOR AGAINST ABSTAIN
3. Amendments to / / / / / /
the Long-Term
Incentive Plan
FOR AGAINST ABSTAIN
4. Issuance of / / / / / /
Common
Shares
FOR AGAINST ABSTAIN
5. Appointment of / / / / / /
Independent
Auditors
Change of Address
Comments on Reverse / /
Side
- --------------------------------------------------------------------------------
The signer hereby revokes all proxies heretofore given by the signer to vote at
said meeting or any adjournment thereof.
Please sign exactly as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
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