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
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240.14a-12
WHITE MOUNTAINS INSURANCE GROUP, LTD.
-------------------------------------White Mountains Insurance Group
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(Name of Registrant as Specified In Its Charter)
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NOTICE OF 2001
ANNUAL GENERAL MEETING
OF SHAREHOLDERS
AND PROXY STATEMENT
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Notice of 2002
Annual General Meeting
of Members (Shareholders)
and Proxy Statement
-------------------------
[WHITE MOUNTAINS INSURANCE GROUP LOGO]
TABLE OF CONTENTS
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PAGEPage
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LETTER FROM JOHN J. BYRNE ...................................................... 1
NOTICE OF 20012002 ANNUAL GENERAL MEETING OF SHAREHOLDERS ..........................MEMBERS................................................. 2
PROXY STATEMENT ................................................................STATEMENT.................................................................................. 3
PROPOSAL 1: ELECTION OF COMPANY'S DIRECTORS OF THE COMPANY ............................................................................. 3
Procedures for Nominating Directors ........................................Directors....................................................... 6
Voting Securities and Principal Holders Thereof ............................Thereof........................................... 7
Compensation of Directors .................................................. 10Directors................................................................. 9
Compensation of Executive Officers .........................................Officers........................................................ 10
Compensation Plans .........................................................Plans........................................................................ 12
Reports of the Compensation Committees on Executive Compensation ...........Compensation....................................... 13
Report of the Audit Committee .............................................. 15Committee............................................................. 16
Fees Billed by the Company's Independent AuditorsAuditor for Services Performed in 2000 ........................................................ 15
Shareholder2001........... 16
Member Return Graph ................................................... 16Graph....................................................................... 17
Compensation Committee Interlocks and Insider Participation in Compensation Decisions ................................................... 1718
PROPOSAL 2: ELECTION OF DIRECTORS OF
FUND AMERICAN ENTERPRISES, LTD ........ 17REINSURANCE COMPANY, LTD................................... 18
PROPOSAL 3: AMENDMENTSELECTION OF DIRECTORS TO THE LONG-TERM INCENTIVE PLAN ..................... 17ANY
NEW NON-UNITED STATES OPERATING SUBSIDIARIES............................. 18
PROPOSAL 4: ISSUANCEAPPROVAL OF COMMON SHARES UPON CONVERSION OF CONVERTIBLE
PREFERENCE SHARES AND THE EXERCISE OF SERIES B WARRANTS ...... 18
PROPOSAL 5: APPOINTMENT OF INDEPENDENT AUDITORS ............................ 21AUDITOR............................... 18
OTHER MATTERS ............................................................... 21
AUDIT COMMITTEE CHARTER ................................................... Appendix I
WHITE MOUNTAINS INSURANCE GROUP, LTD. LONG-TERM INCENTIVE PLAN ............ Appendix II
================================================================================MATTERS................................................................................. 19
White Mountains Insurance Group, Ltd. (the "Company" and, together with its
subsidiaries, "White Mountains") is a Bermuda-domiciled insurance holding
company. White Mountains' insurance operations are conducted through its subsidiaries and
affiliates in the businesses of property and casualty insurance and reinsurance.
White Mountains' insurance operations principally include: (i) OneBeacon
CorporationInsurance Group LLC ("OneBeacon", formerly CGU Corporation), a Boston-based
property and casualty holding company and (ii) Folksamerica Holding Company,
Inc. ("Folksamerica"), a New York-based property and casualty reinsurance
holding company.
[WHITE MOUNTAINS INSURANCE GROUP LOGO]
JOHN J. BYRNE
CHAIRMAN
July 5, 2001
Dear Shareholder:
I am pleased to invite you to the 2001The 2002 Annual General Meeting of White
Mountains Insurance Group, Ltd.,will be confined to be held on August 23, 2001. This meeting
will take place at the Princess Hotel in Hamilton, Bermuda beginning at 12:00
noon Atlantic Time (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 shareholderMember
vote on the proposals set forth in the accompanyingthis Proxy Statement and on such other
matters properly brought before the meeting. At the meeting youAs in past years, management will
be asked to
considerprovide Members and vote on the following issues which are further described herein:
1) the election of five directors of the Company,
2) the election of two directors to a 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 upon the exercise of Series B Warrants, and
5) the ratification of the appointment of independent auditors for 2001.
Management expects to provide shareholdersall interested parties with a brief summary of White Mountains'
financial performance and OneBeacon'scurrent operations at the meeting.
For those of you unable to attend the meeting in Bermuda, we will repeat this
summary at an informational meeting to be held at 10:00 a.m. Eastern
Time on August 24, 2001 in the John Jacob Astor SalonThursday, May 23, 2002 at the Waldorf Astoria Hotel in New York 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 cardDetailed instructions for participating in the enclosed envelope. Shareholders who hold their common sharesinformational meeting, either in
a brokerage
account, an employee benefit planperson or through a nomineevia live web cast will likely havebe posted at www.whitemountains.com
approximately 30 days in advance of the added flexibility of voting their shares by telephone or over the internet.
Respectfully submitted,
JACK BYRNEmeeting.
1
WHITE MOUNTAINS INSURANCE GROUP, LTD.
NOTICE OF 20012002 ANNUAL GENERAL MEETING OF SHAREHOLDERS
AUGUST 23, 2001
July 5, 2001MEMBERS
TO BE HELD MAY 20, 2002
March 22, 2002
Notice is hereby given that the 20012002 Annual General Meeting of ShareholdersMembers of
White Mountains Insurance Group, Ltd. will be held on Thursday, August 23,
2001,Monday, May 20, 2002, at
12:9:00 noona.m. Atlantic Time at the Princess Hotel, Hamilton, Bermuda. At thethis
meeting you will be asked to consider and vote upon the following proposals:
1) to elect five of the Company's directors to Class III with a term
ending 2004,2005,
2) to elect two directors to the boardBoard of Directors of Fund American Enterprises,Reinsurance Company,
Ltd., a Bermudawholly-owned reinsurance company that we expect to form shortly,organised under the laws of
Bermuda,
3) to amendelect the Board of Directors of any new non-United States
subsidiary, as designated by 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 totalBoard 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 control provisions, including the
exemption of Berkshire Hathaway, Inc. ("Berkshire") from such
provisions,Directors,
4) to provide forapprove the issuanceappointment 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 the Company's
independent
auditorsIndependent Auditor for 2001.2002.
The Company's audited financial statements for the year ended December 31,
2000,2001, as approved by the Company's Board of Directors, will be presented at this
Annual General Meeting.
ShareholdersMembers of record of Common Shares on the record date, July 5, 2001,Friday, March 22,
2002, (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 representedhave their duly
authorised representative attend and vote at the meeting by a duly authorized representativein person or by proxy.
A list of all shareholdersMembers entitled to vote at the meeting will be open for public
examination during regular business hours from July 10, 2001, until 12:00 noon
on August 23, 2001,beginning April 1, 2002 at the
Company's registered office located at Clarendon House, 2 Church Street,
Hamilton HM DX, Bermuda.
All shareholdersMembers are invited to attend this meeting.
By Order of the Board of Directors,
DENNISDennis P. BEAULIEUBeaulieu
Corporate Secretary
SHAREHOLDERSMEMBERS ARE INVITED TO COMPLETE AND SIGN THE ACCOMPANYING PROXY CARD TO BE
RETURNED TO WHITE MOUNTAINS INSURANCE GROUP, LTD., C/O EQUISERVE TRUST COMPANY,
POST OFFICE BOX 8085,8643, EDISON, NEW JERSEY 08818-9052, IN THE ENVELOPE PROVIDED,
WHETHER OR NOT THEY EXPECT TO ATTEND THE MEETING. SHAREHOLDERSMEMBERS 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.
2
WHITE MOUNTAINS INSURANCE GROUP, LTD.
PROXY STATEMENT
This Proxy Statement is being furnished in connection with the solicitation
of proxies on behalf of the Company's Board of Directors (the "Board") for the
20012002 Annual General Meeting of ShareholdersMembers (the "2001"2002 Annual Meeting"), to be held
on August 23, 2001May 20, 2002 at the Princess Hotel, Hamilton, Bermuda. The solicitation of
proxies will be made primarily by mail, and the Proxy Statement and related
proxy materials will be distributed to registered shareholdersMembers on or about July 6, 2001.April 1,
2002.
Holders of the Company's Common Shares,common shares ("Members"), par value $1.00 per
share ("Common Shares"), as of the close of business on July 5, 2001,Friday, March 22, 2002,
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. ShareholdersMembers 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
shareholderMember has the right to appoint another person (who need not be a shareholder)Member) to
represent the shareholderMember 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 21)19). Every personMember entitled to vote has the
right to do so either in person or by one or more persons authorizedauthorised by a
written proxy executed by such shareholderMember and filed with the Corporate Secretary.
Any proxy duly executed will continue in full force and effect unless revoked by
the person executing it in writing or by the filing of a subsequent proxy.
Sending in a signed proxy will not affect your right to attend the meeting
and vote. If a shareholderMember 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.
At the 20012002 Annual Meeting, Messrs. PatrickJohn J. Byrne, Fass, Kemp, MacklinMark J. Byrne, George J.
Gillespie, III, John D. Gillespie and SteinbergFrank A. Olson are nominated to be elected
to Class III with terms ending in 2004.2005. THE BOARD RECOMMENDS A VOTE FOR PROPOSAL
1 WHICH CALLS FOR THE ELECTION OF THE 20012002 NOMINEES.
The current membersMembers 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*2004
Patrick M. Byrne 3839 1997
Steven E. Fass 5556 2000
K. Thomas Kemp 6061 1994
Gordon S. Macklin 73 1987
Joseph S. Steinberg 5758 2001
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Class II - Term Ending in 20022002*
John J. ("Jack") Byrne 69 1985
Mark J. Byrne 40 2001
George J. Gillespie, III 71 1986
John D. Gillespie 4243 1999
Frank A. Olson 6869 1996
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Class III - Term Ending in 2003
Raymond Barrette 5051 2000
Howard L. Clark, Jr. 5758 1986
Robert P. Cochran 5152 1994
Arthur Zankel 6970 1992
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* Nominated at the 20012002 Annual Meeting to a term ending in 2004.2005.
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 Chairman 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), 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. Mr. Byrne's father, Jack Byrne, is Chairman of the son of Chairman Jack Byrne.Company.
STEVEN E. FASS was appointed tohas been a director of the Board inCompany since 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. Mr. Fass is a director of Olympus Re Holdings, Ltd.
K. THOMAS KEMP has served as President of the Company since June 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 2000 and served as Executive Vice President from 1993 to 1997 and its Vice
President, Treasurer and Secretary from 1991 to 1993 and was formerly a Vice
President of Fireman's Fund Insurance Company ("Fireman's Fund").1993. Mr. Kemp is also a
director of Fund American Reinsurance Company, Ltd., 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 has 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
Chairman of Fund American Reinsurance Company, Ltd., a director of 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 48 of the investment companies in the Franklin Templeton Group
of Funds.
JOSEPH S. STEINBERG was appointedhas been a director of the Company insince 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
Olympus Re Holdings, Ltd., Olympus Reinsurance Company Ltd. and HomeFed
Corporation.
CLASS II
JOHN J. ("JACK") BYRNE was appointed CEO of the Company in February 2002
and has served as Chairman of the Company since 1985 and
has served as Chairman of OneBeacon since June 2001.1985. Mr. Byrne formerly served
as Chairman of the Board of Managers of OneBeacon from June 2001 to December
2001, as CEO of the Company from January 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
manager of OneBeacon and also serves as a director of Folksamerica,
Overstock.com and Overstock.com.as Chairman of Montpelier Re Holdings Ltd. Two of Mr. Byrne's
son,sons, Patrick Byrne isand Mark Byrne, are also directors of the Company.
MARK J. BYRNE was appointed a director of the Company in November 2001. He
serves as President and Chief Executive Officer of West End Capital Management
Limited ("West End"). Mr Byrne was Chief Executive Officer of General Re
Financial Products from March 2000 to February 2002 and, prior to forming West
End, held a variety of trading and management positions at Salomon Brothers,
Pacific Investment Management Company, Lehman Brothers Inc. ("Lehman") and
Credit Suisse First Boston. He is a director of Markel Corporation. Mr. Byrne's
father, Jack Byrne, is Chairman 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 "Certain Relationships and Related Transactions" and "Compensation
Committee Interlocks and Insider Participation in Compensation Decisions."
Mr. Gillespie's son, John Gillespie, is also a director of the Company.
4
JOHN D. GILLESPIE has served as Managing Director of OneBeacon since June
2001 and has been a director of the Company 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. Mr. Gillespie is a manager of OneBeacon and also serves as
a director of Folksamerica and Montpelier Re Holdings Ltd. White Mountains owns
limited partnership investment interests which are managed by Mr. Gillespie. See
"Certain Relationships and Related Transactions".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, Amerada Hess Corporation and Warnaco Group.Becton Dickinson and Company.
CLASS III
RAYMOND BARRETTE has served as Managing Director and Chief Executive
Officer of OneBeacon since June 2001, serving as Chairman of its Board of
Managers since December 2001, and has been a director of the Company since 2000.
Mr. Barrette formerly served as President of the Company from 2000 to June 2001
and served as Executive Vice President and Chief Financial Officer of the
Company from 1997 to 2000. He was formerly a consultant with Tillinghast-Towers
Perrin from 1994 to 1996 and was with Fireman's Fund Insurance Company from 1973
to 1993. Mr. Barrette is also Chairman of Folksamerica.Folksamerica and serves as a director
of Montpelier Re Holdings Ltd.
HOWARD L. CLARK, JR.Jr. has been a director or advisor to the Board 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, Maytag
Corporation, H Power Corp. and Walter Industries, Inc. Lehman provides various
services to White Mountains from time to time. See "Certain Relationships and
Related Transactions" and "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 Financial 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.
ARTHUR ZANKEL has been a director or advisor to the boardBoard since 1992. He
served as a General Partner of First Manhattan Co. from 1965 to 1999 and was
Co-
ManagingCo-Managing Partner of First Manhattan from 1979 to 1997. Mr. Zankel is
currently Senior Managing Member of ZankelHigh Rise Capital Advisors, LLC in which White Mountains owns a
limited partnership investment interest.Management LP. See
"Certain Relationships and Related Transactions" and "Compensation Committee
Interlocks and Insider Participation in Compensation Decisions." Mr. Zankel is
also a director of Citigroup, Inc. and Able Co.AbleCo.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee, comprised of Messrs. Clark, Olson, Steinberg
(appointed June 1, 2001) and
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;Auditor,
makes recommendations to the Board as to their selection;selection and reviews the plan,
fees and results of their audit. Mr. Clark is Chairman of the Audit Committee.
5
The Compensation Committee, comprised of 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, oversees the Company's stock-basedWhite Mountains' share-based compensation
and benefit policies and programs, including administration of the White
Mountains Insurance Group Ltd. Long-Term Incentive Plan (the "Incentive Plan"). On June 1, 2001, and
related non-qualified deferred compensation plans. Mr. Cochran replaced Mr. Macklin asis Chairman of
the Compensation Committee.
The Human Resources Committee, comprised of 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, sets the annual salaries
and bonuses for elected officers and certain other key employees. On June 1, 2001,
Mr. Cochran replaced Mr. Macklin asis
Chairman of the Human Resources Committee.
5
The Investment Committee is an advisory committee to the Board and is
comprised of Messrs. Barrette, Jack Byrne, John Gillespie, Kemp, Zankel, certain
membersMembers 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 20002001 the following meetings of the Board were held: tensix meetings of
the full Board; two meetingsBoard, one meeting of the Audit Committee;Committee, two meetings of the
Compensation Committee, one meeting of the Human Resources Committee and three
meetingsone
meeting of the Investment Committee. In 20002001 each director attended more than
75% of all meetings of the Board including its various committees, except
Patrick ByrneMr. Barrette who was unable to attend three meetings of the full Board, two
meetings of the Compensation Committee and the meeting of the Human ResourcesInvestment Committee.
During 20002001 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 2000.2001.
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 shareholderMember entitled to vote for the election of
directors (a "Qualified Shareholder"Member"). A Qualified ShareholderMember may nominate persons for
election as directors only if written notice of such Qualified Shareholder'sMember'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 general meeting 90 days prior to
the anniversary date of the immediately preceding annual general meeting or not
later than 10 days after notice or public disclosure of the date of the annual
general meeting is given or made available to Qualified Shareholders,Members, 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 Qualified
Shareholders.Members.
Each such notice shall set forth: (a) the name and address of the Qualified
ShareholderMember who intends to make the nomination and of the person or persons to be
nominated; (b) a representation that the Qualified ShareholderMember 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
Qualified ShareholderMember 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 Qualified Shareholder;Member; (d) such other information regarding each
nominee proposed by such Qualified ShareholderMember 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 SHAREHOLDERSMEMBERS
As of July 5, 2001,March 22, 2002, there were 5,968,6658,284,181 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. ShareholdersMembers 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 shareholderMember which is a
"Byrne Entity" (as defined below) for any matter submitted to the vote of
shareholders,Members, except with respect to the election of directors. "Byrne Entity" means
any of John J.Mr. Jack Byrne, any foundation or trust established by John J.Messrs.
Jack Byrne, Mark 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 July 5,
2001,March 22, 2002, except as
shown 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 (a) Class (b)
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Jack Byrne 80 South Main Street, Hanover, NH 03755 (c) 1,182,959 19.8%
Berkshire Hathaway Inc. 1440 Kiewit Plaza, Omaha, NE 68131 1,170,000 16.4%1,714,285 17.1%
Franklin Mutual Advisers LLC 51 JFK Parkway, Short Hills, NJ 07078 (c) 1,184,246 14.3%
Jack Byrne 28 Gates Street, White River Junction, VT 05001 (d) 750,271 12.6%
Alliance Asset Accumulation Plan 777 San Marin Drive, Novato, CA 94998 (e) 354,424 5.9%
==========================================================================================================1,150,101 13.9%
- -----------------------------------------------------------------------------------------------------------------------
(a) The Common Shares shown as being beneficially owned by Berkshire Hathaway Inc.
("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,
2001March 22,
2002 for all holders shown above except Berkshire. For Berkshire, this
figure represents Berkshire's percentage of totalall Common Shares outstanding
assuming the exercise of its warrants to acquire 1,170,0001,714,285 Common Shares
which are currently exercisable.
(c) The Common Shares beneficially owned by Franklin Mutual Advisors LLC were
acquired for investment purposes on behalf of client investment advisory
accounts.
(d) 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 53,91325,000 unearned Restricted Common Shares ("Restricted
Shares") and 53,863 Common Shares contributed to trusts and charitable
foundations for which Mr. Byrne disclaims beneficial ownership, but for
which his spouse retains voting power.
(d) According to filings by such holders with the SEC, the Common Shares
beneficially owned by Franklin were acquired solely for investment purposes
on behalf of client investment advisory accounts of such holders. 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 July 5, 2001,March 22, 2002, beneficial ownership
of Common Shares by each director of the Company, by each ofcertain named Executive
Officers, (excluding Mr. Baxter, a former Executive Officer), and by all Directors and Executive Officers as a group.
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Common Shares owned
----------------------------------------------
Directors and Executive Officers Beneficially (a)Beneficially(a)(b) Economically (c)Economically(c)
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Raymond Barrette 29,433 96,86729,384 104,942
Jack Byrne (d) 1,182,959 1,232,9591,150,101 1,205,101
Mark J. Byrne 196,031 196,031
Patrick M. Byrne 236,008 236,008
Reid T. Campbell 902 19,502
Howard L. Clark, Jr. 1,000 1,000
Robert P. Cochran 0 025,000 25,000
Steven E. Fass (e) 4,4155,315 19,015
George J. Gillespie, III 1,000 1,000
John D. Gillespie 1,676 20,676(e) 101,676 135,676
K. Thomas Kemp 81,690 108,77993,141 111,227
Gordon S. Macklin 15,000 17,000
Frank A. Olson 3,000 3,000
David G. Staples 900 20,000James J. Ritchie 2 16,600
Joseph S. Steinberg (f) 0 0
Arthur Zankel 11,600 11,600
All Directors and Executive Officers as a group (18 persons) (e) 1,573,817 1,801,906
==================================================================================================================(g) 1,873,762 2,113,706
========================================================================================================================
(a) The Common Shares beneficially owned by Messrs Jack Byrne, Mark Byrne,
Patrick Byrne, John Gillespie, Kemp and all Directors and Executive
Officers as a group represent 19.8%13.9%, 4.0%2.4%, 1.4%2.8%, 1.2%, 1.1% and 26.3%22.6% of
the total Common Shares outstanding at July 5,
2001,March 22, 2002, respectively. All
other Directors and Executive Officers beneficially owned less than 1% of
the total Common Shares outstanding at that date. Represents beneficialBeneficial ownership
has been determined in accordance with Rule 13d-3(d)(1) of Common Shares as opposed to voting
power.the Securities
Exchange Act of 1934.
(b) Includes vested and unexercised options ("Options") to acquire 9001,465 and
1,800 Common Shares for each
of Messrs. Barrette and Fass, Campbell and Staples.respectively. Excludes
unearned Restricted Shares.
(c) Incremental Common Shares shown as economically owned by Directors and
Executive Officers represent unvestedunearned performance share awards, unvested
Option awards, unvested restricted stock awardsunearned Restricted Shares and earned phantom shares on
compensation deferred.
(d) Does not include 53,91353,863 Common Shares contributed to trusts and charitable
foundations for which Mr. Byrne disclaims beneficial ownership, but for
which his spouse retains voting power.
(e) Includes 100,000 Common Shares owned by various funds of Prospector in
which Mr. Gillespie is either general manager or investment manager.
Mr. Gillespie disclaims beneficial ownership of such Common Shares owned by
Prospector except to the extent of his pecuniary interest in such funds.
(f) Does not include any interest in 375,000 Common Shares (approximately 4.5%
of the total Common Shares outstanding) owned by Leucadia. Mr. Steinberg
is the President of Leucadia and, together with certain family members,
Mr. Steinberg currently beneficially owns approximately 16.7% of the
common shares of Leucadia. By virtue of his beneficial ownership of
Leucadia, Mr. Steinberg may be deemed to be the indirect beneficial
owner of his pro rata share of the Common Shares owned by Leucadia.
(g) Includes, in addition to the listed Directors and Executive Officers,
Common Shares owned byby: (i) John P. Cavoores, OneBeacon's President and
Chief Operating Officer who became an Executive Officer in February 2002,
(ii) Dennis P. Beaulieu, the Company's Treasurer and Corporate Secretary,
and (iii) J. Brian Palmer, the Company's Chief Accounting Officer and James J. Ritchie, OneBeacon's Managing Director and Chief
Financial Officer.
Messrs. Beaulieu and Palmer and Ritchie becamewere Executive Officers induring 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
Messrs. Patrick Byrne, Clark, Cochran, George Gillespie, John Gillespie,
Kemp, Macklin, Olson, Steinberg
and Zankel each received a retainer of $50,000$60,000 during 20002001 and fees of $1,000
for each Board meeting and Committeecommittee meeting attended.attended through October 2001 and
$2,000 per Board meeting and committee meeting thereafter. The annual retainer
relates to the twelve month period from May 20002001 to May 2001.2002. Mr. Mark Byrne
received a prorated retainer of $25,000 which relates to the five month period
from December 2001 to May 2002. Messrs. Clark John Gillespie and MacklinCochran also received
additional retainers of $3,000, $100,000$5,000 and $6,000$10,000 during 20002001 for their roles as
Chairman of the Audit
Committee, Chairman of the Investment Committee and Chairman of the Compensation and Human
Resources Committees, respectively. Mr. Fass was granted 9,000 Options
and 2,000 performance shares during 2000 on the same terms as Options and
performance shares granted to other Executive Officers. Messrs. Jack Byrne, Barrette, Fass,
John Gillespie, Kemp and BarretteMacklin did not receive compensation for their role as
a director during 2000.2001.
9
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following tables set forth certain information regarding the salary,
incentive compensation and benefits paid by White Mountains with respect to 2001
to its Chairman and
CEO,President (its Principal Executive Officer), its four most highly
compensated Executive Officers and onetwo former Executive OfficerOfficers (collectively,
the "Named Executive Officers").
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Long-Term Compensation
----------------------------------- ----------------------------------------------------------------------
Annual Compensation Awards Payouts
----------------------------------- -------------------- -------------------------------- -----------
Other Restricted
Annual RestrictedShare Securities All Other
Name and Compen- StockAwards Underlying LTIP Compen-
Principal Position Year Salary($) Bonus ($) sationsation($) ($) Awards ($)(a) Options (#) Payouts ($) sation ($) (a)(b)
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
JACK BYRNE 2000 $ 282,692 $ 350,000K. THOMAS KEMP 2001 $269,615 $ 0 $ 0 $1,896,000 0 $5,940,000 $ 63,247
President 2000 182,000 75,000 0 $0 0 0 129,900
1999 400,000 1,308,809 0 0 0 2,600,000 269,490
- ----------------------------------------------------------------------------------------------------------------------
JOHN D. GILLESPIE 2001 400,000 110,000 0 1,384,000 0 0 3,219
Managing Director of 2000 0 0 0 0 0 0 0
OneBeacon 1999 0 0 0 0 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
JACK BYRNE 2001 398,077 0 0 8,650,000 0 0 43,674
Chairman 2000 282,692 350,000 0 0 0 0 9,100
1999 0 0 0 0 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
RAYMOND BARRETTE 2001 398,077 0 0 7,044,500 0 3,960,000 44,766
Chairman and CEO (b)
RAYMOND BARRETTEof 2000 333,654 350,000 0 0 9,000 0 15,627
PresidentOneBeacon 1999 262,692 1,278,776 0 0 0 1,105,000 462,291
1998 250,000 217,000- ----------------------------------------------------------------------------------------------------------------------
JAMES J. RITCHIE 2001 300,422 0 0 346,000 0 0 40,167
Managing Director and CFO 2000 0 0 0 0 294,1750 0 0
OneBeacon 1999 0 0 0 0 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
DAVID G. STAPLES 2001 165,288 13,200 0 1,348,000 0 1,320,000 9,923
Vice President of 2000 147,308 150,000 0 0 9,000 0 5,169
Vice PresidentOneBeacon (c) 1999 135,077 1,081,313 0 0 0 520,000 19,489
1998 128,769 106,000 0 0 0 399,000 15,330- ----------------------------------------------------------------------------------------------------------------------
REID T. CAMPBELL 2001 124,519 15,000 0 1,348,000 0 1,320,000 7,807
Vice President of 2000 108,077 150,000 0 0 9,000 0 6,177
Vice PresidentOneBeacon (c) 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
1998 247,692 180,000 0 0 0 931,000 758,588
============================================================================================================================- ----------------------------------------------------------------------------------------------------------------------
(a) Represents the value of 2001 Restricted Share awards as of their respective
award dates. Restricted Shares vest approximately two years from the date
of grant based on continuous service by the employee throughout such
period. Holders of Restricted Shares are entitled to receive Common Share
dividends and such amounts are included in All Other Compensation above.
Restricted Shares awarded in February 2001 (vesting December 2002) to
Messrs. Kemp, Gillespie, Byrne, Barrette, Ritchie, Staples and Campbell
were 5,000; 0; 0; 3,750; 0; 1,000 and 1,000 shares, respectively.
Restricted Shares awarded in June 2001 (vesting June 2003) to
Messrs. Kemp, Gillespie, Byrne, Barrette, Ritchie, Staples and Campbell
were 1,000; 4,000; 25,000; 17,000; 1,000; 3,000 and 3,000 shares,
respectively. The aggregate value as of December 31, 2001 of all
outstanding Restricted Shares awarded during 2001 held by Messrs. Kemp,
Gillespie, Byrne, Barrette, Ritchie, Staples and Campbell were $2,088,000;
$1,392,000; $8,700,000; $7,221,000; $348,000; $1,392,000 and $1,392,000,
respectively.
(b) Amounts include, when applicable, 401(k) Savings Plan employer matching
contributions (which did not exceed $10,200 per individual), dividends on
Restricted Shares, principal credited to a former non-qualified deferred
compensation plan (applicable only for 1999), director fees and retainers
paid by companies forin which White Mountains is entitled to board
representation and certain other compensation.imputed income items relating to corporate-provided
housing, personal use of White Mountains' aircraft and the value of life
insurance provided in excess of $50,000 of coverage. The amounts for 2001
relating to such imputed income items for Messrs. Kemp, Gillespie, Byrne,
Barrette, Ritchie, Staples and Campbell were $2,095; $450; $43,674;
$30,816; $38,090; $250 and $139, respectively. The amounts for 2001, 2000
1999 and 1998, respectively,1999 relating to director fees and retainers of affiliates include:include
$45,952; $119,700 and $71,650 for Mr. Kemp, $0; $9,100 $0, and $0 for Mr. Byrne; $9,685;Byrne
and $0; $9,685 and $22,450
and $15,475 for Mr. Barrette; $119,700, $71,650 and $75,100 for Mr. Kemp
and $57,500, $41,342 and $21,700 for Mr. Baxter.Barrette. The 1999 and 1998 amountsamount for
Mr. Barrette also includeincludes $42,545 and $249,646, respectively, in reimbursements principally associated
with a Company-sponsored relocation.
The 1999 amounts for Messrs. Barretterelocation and Baxter also includea $351,917 in phantom stock awardsaward
resulting from the sale of Source One Mortgage
Services Corporation ("SOMSC"). The 1998 amount for Mr. Baxter also
includes $665,000 in incentive compensation as interim Chairman of SOMSC.
(b) In January 2000 Mr. Byrne replaced Mr. Kemp as CEOthe Company's former mortgage operations.
(c) As a result of the CompanyOneBeacon acquisition, on June 1, 2001 Messrs. Staples
and Mr.
Baxter retired from full-time service. The table above reflects Messrs.
Byrne and Baxter's total compensation for 2000.Campbell no longer met the definition of an Executive Officer.
10
OPTION GRANTS IN LAST FISCAL YEAR
The following table summarizes, for theNo Options were granted to Named Executive Officers options granted during the Company's latest fiscal year.
- ------------------------------------------------------------------------------------------------------------------------------
% of Total Potential Realizable Value at
Options Assumed Annual Rates of Stock
Number of Securities Granted to Exercise Price Price Appreciation for Option Term
Underlying Options Employees in or Base Price
Name Granted (#) Fiscal Year ($/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.2001.
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 SharesOptions
exercised during the . Company's latest fiscal year, and the number and
in-the-money value of options for Common SharesOptions outstanding as of the end of the fiscal year.
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
As of December 31, 2000
-----------------------------------------------------------2001
-------------------------------- ------------------------------
Number of Securities Underlying Value of Unexercised Underlying In-the-Money Options atIn-the-
Unexercised Options at Fiscal Money Options at
Year ended December 31, 2001 Year-End (#) Fiscal Year-End ($)
Fiscal Year-End (#)
------------------------------- ----------------------------- ----------------------------------------------------------- -------------------------------- ------------------------------
Common Shares Value
Name Acquired Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
John J. ByrneK. Thomas Kemp 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 KempJohn D. Gillespie 0 0 0 0 0 0
Terry L. BaxterJohn J. Byrne 0 0 0 0 0 0
======================================================================================================================Raymond Barrette 335 78,005 1,465 7,200 336,627 1,654,412
James J. Ritchie 0 0 0 0 0 0
David G. Staples 0 0 1,800 7,200 413,603 1,654,412
Reid T. Campbell 0 0 1,800 7,200 413,603 1,654,412
- ---------------------------------------------------------------------------------------------------------------------------
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. Suchyear exclusive of awards of
Restricted Shares which have been presented in the Summary Compensation Table.
The Long-Term Incentive awards presented below consisted of performance shares.
A performance share derives its value from the market value of a Common Share
when earned.
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Performance Estimated Future Payouts (a)
Number of period for ---------------------------------------------------------------------------
Name Common Shares (#) payout Threshold (#) Target (#) Maximum (#)
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
John J. Byrne 10,000 3 yrs. 0 10,000 20,000
Raymond Barrette 10,000 3 yrs. 0 10,000 20,000
David G. Staples 2,000 3 yrs. 0 2,000 4,000
Reid T. Campbell 2,000 3 yrs. 0 2,000 4,000
K. Thomas Kemp 2,000 3 yrs. 0 2,000 4,000
Terry L. Baxter 2,000John D. Gillespie 15,000 3 yrs. 0 2,000 4,000
====================================================================================================================15,000 30,000
John J. Byrne 15,000 3 yrs. 0 15,000 30,000
Raymond Barrette 15,000 3 yrs. 0 15,000 30,000
James J. Ritchie 8,600 3 yrs. 0 8,600 17,200
David G. Staples 3,000 3 yrs. 0 3,000 6,000
Reid T. Campbell 2,500 3 yrs. 0 2,500 5,000
- ---------------------------------------------------------------------------------------------------------------------
(a) Such performancePerformance shares are payable upon completion of pre-defined business
goals and are payable in cash-basedvalued based on the market value of Common Shares at the time
awards are earned. With respect to all of payment, or Common Shares. Thethe 2001 performance shares
awarded to Messrs. Kemp, Staples and Campbell and 50% of the 2001
performance shares awarded to Messrs. Byrne, Barrette, Gillespie and
Ritchie, "Target" performance for the
2000 performance share award is the attainment of a corporate annualized
return on equity ("ROE") of 13%12.1% after tax. The determinationtax as measured by the Company's
growth in its intrinsic business value. With respect to 50% of ROEthe 2001
performance shares awarded to Messrs. Byrne, Barrette and Ritchie, "Target"
performance is generally basedthe attainment of an insurance operations trade ratio of
105% (the "Trade Ratio") on OneBeacon's core insurance operations. With
respect to 50% of the 2001 performance shares awarded to Mr. Gillespie,
"Target" performance is the attainment of a return on invested assets of
100 basis points over the applicable return on the economic valuetwo-year United States
treasury bill. See "Reports of Common Shares with dividends
reinvested. At an ROE of 6% or less ("Threshold") the percentageCompensation Committees on Executive
Compensation-Compensation Committee" for additional information concerning
the 2001 awards of performance shares payable will be 0%to the Named Executive Officers which
includes a discussion of the criteria for "Threshold" and at an ROE of 25% or more
("Maximum") the percentage of performance shares payable will become 200%
of Target."Maximum"
determinations.
11
COMPENSATION PLANS
RETIREMENTPENSION PLANS. Employees of OneBeacon are eligible to receive retirement
benefits under a qualified defined benefit pension plan sponsored by OneBeacon
(the "Pension Plan"). The Pension Plan provides OneBeacon's employees with
annual retirement income beginning at age 65 equal to the product of (x) the
total number of years of participation in the Pension Plan (but not more than 40
years) and (y) 1.3% of the average annual compensation for the highest
consecutive 60 month period in the 120 month period prior to retirement ("Final
Average Compensation") plus .45% of such Final Average Compensation in excess of
Social Security Covered Compensation as defined by the Internal Revenue Service.
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the United States Internal Revenue Code, impose maximum limitations on the
annual amount of pension benefits which may be paid under the Pension Plan. As a
result, OneBeacon also sponsors a non-qualified supplemental retirement plan
(the "Supplemental Pension Plan") which provides additional retirement benefits
to highly-paid employees and their beneficiaries. Retirement benefits provided
under the Supplemental Pension Plan represent the difference between (a) the
benefits which would be payable to such persons under the Pension Plan without
taking into consideration the limitations imposed by ERISA and the Internal
Revenue Code and (b) the maximum annual benefits to which such persons are
entitled under the Pension Plan by reason of such limitations.
Remuneration covered by the Pension Plan and the Supplemental Pension Plan
includes salary and, to a lesser extent annual bonus. Long-term incentive awards
under the Incentive Plan are excluded from all pension benefits provided by
OneBeacon. Due to the timing of the OneBeacon acquisition, at December 31, 2001,
Messrs. Gillespie, Byrne, Barrette, Ritchie, Staples and Campbell each had only
.6 years of credited service with OneBeacon for purposes of accruing pension
benefits, therefore, their respective accrued pension benefits were
insignificant. Mr. Kemp, as an employee of the Company, is not eligible to
receive pension benefits.
DEFERRED COMPENSATION PLANS. The Company did not provide pension benefits to itsNamed Executive Officers during 2000 underare eligible to
participate in various unfunded, nonqualified plans for the purpose of deferring
current compensation for retirement savings (the "Deferred Compensation Plans").
Pursuant to the Deferred Compensation Plans, participants may defer all or a
defined benefitportion of qualifying remuneration payable by the Company or actuarial plan. The
Company has previously provided non-qualified pension benefitsOneBeacon which can
be invested in various investment options generally available to its
Executive Officers under athe investment
community. Amounts credited to the deferred benefit plan but did not providecompensation accounts of such
benefits during 2000.
12
individuals have been included in the Summary Compensation Table.
OTHER COMPENSATION ARRANGEMENTS
Pursuant to the Incentive Plan, under some circumstances Options may become
fully exercisable, Restricted Shares may immediately vest and performance shares
may become partially or fully payable. Such circumstances are more fully
described in the Incentive Plan.
Pursuant to an employment agreement dated December 6, 2000, Mr. Ritchie is
entitled to receive his annual base salary of $300,000 should OneBeacon end his
employment for any reason prior to December 31, 2002.
Pursuant to an employment agreement dated January 1, 2001, Mr. John
Gillespie is entitled to receive an annual base salary of $400,000, an annual
bonus of up to 200% of his base salary, minimum grants of performance shares,
participation in employee benefit and fringe benefit plans and an indemnity.
Under this agreement, Mr. Gillespie may continue his active involvement with his
investment management business, Prospector, so long as Mr. Gillespie devotes the
requisite time required to fulfill his responsibilities to OneBeacon. The
agreement specifies procedures pursuant to which Prospector's funds have the
ability to invest first in opportunities appropriate for both White Mountains
and such funds. Either party can terminate the employment agreement upon 30 days
notice, and upon termination Mr. Gillespie is entitled to accrued compensation
and a cash payment equal to a pro rated value of his unearned performance share
awards.
12
Pursuant to revenue sharing agreements, Mr. Gillespie has agreed to pay
White Mountains a portion of the revenues and distributions allocable to him in
connection with his investment management business, in return for White
Mountains agreeing to pay the operational expenses of his investment management
companies. During 2001, White Mountains received a net payment of $504,600 from
Mr. Gillespie under such revenue sharing agreements. In addition, in September
2001, White Mountains entered into a five-year lease at a market-based rate for
a building owned by Mr. Gillespie and trusts for the benefit of members of his
family. At December 31, 2001, White Mountains had $82 million invested in funds
managed by Prospector.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For corporate travel purposes White Mountains Holdings, Inc. jointly owned
two short-range aircraft with Haverford Utah, LLC ("Haverford"). Messrs. Jack
Byrne, Patrick Byrne and Kemp are principals of Haverford. Both aircraft were
sold to a third party in June 2000 at which time Haverford received its pro rata
share of the sale 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
arranger, the administrative agent and a lender under the $875.0 million credit
facility used to acquire OneBeacon.
Mr. George Gillespie is a 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 officerGillespie. See "Other Compensation Agreements."
At December 31, 2001, White Mountains had limited partnership investment
interests in High Rise Partners, L.P. White Mountains also owns investments that
are managed by High Rise Capital Management L.P., of OneBeacon and a director ofwhich Mr. Zankel is 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.senior Managing Member.
White Mountains believes that the above transactions were on terms that
were reasonable and 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 parties
involved. Additional transactions of this nature may be expected to take place
in the ordinary course of business in the future.
REPORTS OF THE COMPENSATION COMMITTEES ON EXECUTIVE COMPENSATION
The Human Resources Committee and the Compensation Committee (collectively,
the "Committees") are comprised entirely of non-employee directors. The
Committees are responsible for developing, administering and monitoring the
executive compensation policies of the Company. The Company's salaryCompany and OneBeacon. Salary and bonus
compensation for the Named executive Officers is established by the Human
Resources Committee. The Company's
stock basedShare-based compensation (performance shares, Options and
Options)Restricted Shares) is established by the Compensation Committee.
White Mountains' executive compensation policies are designed with one goal
in mind - maximization of shareholderMember value over long periods of time. The Committees
believe that this goal is best pursued by utilizingutilising a pay-for-performance
program which serves to attract and retain superior executive talent and provide
management with performance-based incentives to maximize shareholderMember value. Through
thethis compensation program, the Committees seek to maximize shareholderMember value by
aligning closely the financial interests of White Mountains' management with
those of the Company's shareholders.its Members.
The Committees believe that the most appropriate indicatormeasure of shareholder
returnMember value
created (or lost) is the Company's ROE as measured by growth in its intrinsic
value. In determining intrinsic value, the Committees will consider growth in
economic value per Common
Share,share with dividends reinvested.some attention to growth in tangible book value
per share, market value per share and such other relevant values, as the
Committees may determine, in reaching a balanced conclusion about performance.
This proprietary measure is viewed by management and the directors as being a
conservative measure of the intrinsiceconomic value of White Mountains.Mountains and includes the
cost of all projected compensation awards. The Committees believe that, over
long periods of time, maximizing the Company's ROE will optimize shareholderMember returns.
13
The Committees believe that the performance-based compensation of the
Company'sfor key
employees should be payable only if the Company achieves truly superior returns
for its shareholders.Members. 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-yeara ten- year
United States Treasury notesnote plus 700 basis points, or currently approximately 13%12%. The
Committees believe that this return is a challenging target for the Company in
its current form.
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 on or about March 1. When establishing base salaries of the Named
Executive Officers, the Human Resources Committee considers numerous factors
including:including each Named Executive Officer's qualifications, of the executive; the corporate
responsibilities, of
the executive; the executive's performance since his or hertheir last salary adjustment;adjustment and, except for all executives except
the CEO, the recommendations of the CEO.
ANNUAL BONUS. For 20002001 the target annual bonus pool for all officers of the CompanyNamed Executive
Officers was equal to 50% of eligible base salary at a 13%12.1% annual ROE and the
maximumwith no
bonus attainable was equal to 100%pool resulting from a ROE of eligible base salary at a 20%
annual ROE.5.1% or less. 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.CEO
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.employees. 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 typically receives an 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 2000 Mr. Byrne received a bonus that was determined using the average bonus
percentage.
For 20002001 the Human Resources Committee determined that the financial
results of the Company warranteddid not warrant a bonus pool equal to approximately 100% of
aggregate base salary.pool. The principal factor
considered by the Human Resources Committee in determining the size of the 2000 poolmaking this determination was the
Company's 20002001 ROE performance which was determined to be below the threshold of
37%5.1%, as measured by its change in economic value per Common Share, versus a
13%12.1% target ROE.
GORDON S. MACKLIN, ChairmanIn light of the completion of the OneBeacon transaction and favorable
investment results attained during 2001, the Human Resources Committee created a
modest special purpose bonus pool for a select group of employees pursuant to
which Messrs. John Gillespie, Staples and Campbell received $110,000, $13,200
and $15,000, respectively. No other Named Executive Officers received a bonus
for 2001.
ROBERT P. COCHRAN, CHAIRMAN
PATRICK M. BYRNE
HOWARD L. CLARK, JR.
ROBERT P. COCHRAN
GEORGE J. GILLESPIE, III
FRANK A. OLSON
JOSEPH S. STEINBERG
ARTHUR ZANKEL
COMPENSATION COMMITTEE
LONG-TERM INCENTIVE AWARDS. The Incentive Plan provides for granting various
types of share-based incentive awards including Restricted Shares, Options and
performance shares to the Named Executive Officers and certain other key
employees of the Company various types
of stock-based incentive awards including options to acquire Common Shares and performance shares.its subsidiaries.
Over the past several years the Company has consistently used performance
shares in its long-term compensation plans. Performance shares are conditional
grants (payable subject topayable only
upon completion of pre-defined business goals and are valued based on the achievement of specific financial goals) of a
specified maximum numbermarket
value of Common Shares payable generally at the end of a
three- year period or as otherwise determined by the Compensation Committee.
Performance sharestime awards 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.earned.
14
For 2000,2001, the Compensation Committee determined that an awardawards of OptionsRestricted
Shares would be an effective supplement to certain performance share grants and would
be a tax efficientprovide an effective means of providingretention in the form of long-term incentive
compensation to certain key employees.
The Compensation Committee believes that awards of performance shares made
pursuant to the Incentive Plan are
an attractive method of providing incentives for management to strive to
maximize shareholderMember value over the long term. The
Compensation Committee's conclusionThis belief is basedpredicated 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;Members; and (iii) performance shares are contingent upon the achievement of a
13%12.1% ROE over the applicable performance period which further aligns the
interests of management and the Company's shareholders.Members.
In 20002001 Messrs. Kemp, Gillespie, Byrne, Barrette, Ritchie, Staples Campbell, Kemp and
BaxterCampbell were granted 10,000, 10,000, 2,000, 2,000, 2,0002,000; 15,000; 15,000; 15,000; 8,600; 3,000 and 2,0002,500
performance shares, respectively, by the Compensation Committee. The performance
period for such awards began on January 1, 20002001 and will continue through
December 31, 2002. The
"target"2003. With respect to the 2001 performance for the 2000shares awarded to
Messrs. Kemp, Staples and Campbell, performance share award is the attainment of a ROE of
13%12.1% after tax which would result in such performance shares being fully earned
("Target"). 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%5.1% or less, the percentage ofno such performance shares payable willwould be 0%earned
("Threshold") and at a "maximum"ROE at or above 23%, 200% of such performance shares
would be earned ("Maximum"). With respect to 50% of the 2001 performance shares
awarded to Messrs. Byrne, Barrette and Ritchie, performance is the attainment of
a ROE of 25%12.1% after tax as defined above. With respect to the remaining 50% of
the 2001 performance shares awarded to these individuals, performance is the
attainment of a OneBeacon core insurance operations Trade Ratio of 105%.
OneBeacon's Trade Ratio is similar to an insurance company's combined ratio but
has been modified to divide general operating expenses by earned premiums rather
than written premiums. With respect to the Trade Ratio aspect of the attainment
goals, at a Trade Ratio of 107% or more, the percentage ofno such performance shares payable will
becomewould be
earned ("Threshold") and at a Trade Ratio of 101% or less, 200% of target.such
performance shares would be earned ("Maximum").
With respect to 50% of the 2001 performance shares awarded to Mr.
Gillespie, performance is the attainment of a ROE of 12.1% after tax as defined
above. With respect to the remaining 50% of the 2001 performance shares awarded
to Mr. Gillespie, "Target" performance is the attainment of a return on invested
assets of 100 basis points over the applicable return on the applicable two-year
United States treasury bill. With respect to the investment return aspect of the
attainment goals, at an investment return equal to or less than the two-year
treasury, no such performance shares would be earned ("Threshold") and at an
investment return equal to or greater than 200 basis points over the two-year
treasury, 200% of such performance shares would be earned ("Maximum").
In 20002001 the Named Executive Officers received Restricted Shares which vest
approximately two years from the date of grant based on continuous service
throughout such period. Restricted Shares awarded in February 2001 (vesting
December 2002) to Messrs. Kemp, Gillespie, Byrne, Barrette, Ritchie, Staples and
Campbell were also each granted 9,000
Options. Such Options vest 10% annually through 20095,000; 0; 0; 3,750; 0; 1,000 and 1,000 shares, respectively.
Restricted Shares awarded in June 2001 (vesting June 2003) to Messrs. Kemp,
Gillespie, Byrne, Barrette, Ritchie, Staples and Campbell were awarded at1,000; 4,000;
25,000; 17,000; 1,000; 3,000 and 3,000 shares, respectively.
Messrs. Kemp, Gillespie, Byrne, Barrette, Ritchie, Staples and Campbell
had, pursuant to a strike price1999 grant, 9,000; 0; 0; 6,000; 0; 2,000 and 2,000
performance shares eligible for payout, respectively, subject to the attainment
of $106 3/16 which wasa 13% target ROE. During the closing market value on1999 to 2001 performance period, the dateCompany
attained a ROE of 28.2% calculated in accordance with the Incentive Plan. In
light of the award. Such strike price is to escalate by 6% annuallyexcellent ROE attained during the performance period, the
Compensation Committee determined that 200% of such performance shares were
fully earned on a pro rata basis untilFebruary 27, 2002. The dollar value of such performance shares
earned are included in the option is exercised.
GORDON S. MACKLIN, ChairmanSummary Compensation Table.
ROBERT P. COCHRAN, CHAIRMAN
PATRICK M. BYRNE
ROBERT P. COCHRAN
FRANK A. OLSON
JOSEPH S. STEINBERG
ARTHUR ZANKEL
15
REPORT OF THE AUDIT COMMITTEE
In connection with audit of the Company's financial statements for the year
ended December 31, 20002001, the Audit Committee has: (1) reviewed and discussed the
audited financial statements with management; (2) reviewed and discussed with
the Independent AuditorsAuditor the matters required by Statement of Auditing Standards
No. 61; and (3) reviewed and discussed with the Independent AuditorsAuditor the matters
required by Independence Standards Board Statement No. 1. Based on these reviews
and discussions, the Audit Committee has determined theits Independent AuditorsAuditor 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.SEC
and for presentation to the Members at the 2002 Annual Meeting.
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 Audit Committee Charter has been provided herewith as Appendix I.was furnished to the Company's Members in
its 2001 Proxy Statement.
HOWARD L. CLARK Jr.JR., ChairmanCHAIRMAN
FRANK A. OLSON
JOSEPH S. STEINBERG
ARTHUR ZANKEL
FEES BILLED BY THE COMPANY'S INDEPENDENT AUDITORSAUDITOR FOR SERVICES
PERFORMED IN 20002001
AUDIT FEES. Aggregate fees billed for the 20002001 audit of the Company's financial
statements including quarterly reviews totalled $644,200.$1,637,900.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES .FEES. No such services
were performed during 2000.2001.
ALL OTHER FEES. Aggregate fees billed for all other services performed in 20002001
totalled $1,935,000.$4,026,800. These fees related primarily toto: (i) tax compliance and
consulting services for existing companies and consulting and tax structuring
services relating to acquisition activities, including OneBeacon.
15(ii) information technology
feasibility studies and (iii) audit services related to capital raising
activities.
16
SHAREHOLDERMEMBER RETURN GRAPH
The following graph shows the five-year cumulative total return for a
shareholderMember who invested $100 in Common Shares (NYSE symbol "WTM") as of the close of
business on December 31, 1995,1996, assuming re-investment of dividends. Cumulative
returns for the five-year period ended December 31, 20002001 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'sWhite Mountains' 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'its intrinsic business value per Common Share which will, in turn, affect its
market value per Common Share.
[CHART OF FIVE-YEAR CUMULATIVE TOTAL RETURN]
1997 1998 1999 2000 2001
WTM $129.7 $165.2 $193.4 $168.4 $449.0$127.3 $149.1 $129.8 $346.1 $378.7
S&P P&C 121.5 176.8 164.5 122.6 191.0145.5 135.4 100.9 157.1 144.5
S&P 500 123.0 164.0 210.9 255.2 232.0133.4 171.5 207.6 188.7 166.2
1617
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION IN COMPENSATION DECISIONS
The Company notes certain relationships and transactions pertaining to
Messrs. Clark, George Gillespie John Gillespie and Zankel who are membersMembers of the Compensation
Committee and/or the Human Resources Committee. See "Certain Relationships and
Related Transactions".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% shareholdersMembers are believed to have filed all reports required under Section 16 on
a timely basis during 2000.2001.
PROPOSAL 2
ELECTION OF DIRECTORS OF FUND AMERICAN ENTERPRISES,REINSURANCE COMPANY, 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("FUND AMERICAN RE")
Bye-law 77 calls for shareholders to elect allof the Company provides that the boards of directors of its
subsidiaries that are organizedany
wholly-owned subsidiary of the Company incorporated under the laws of Bermuda.Bermuda,
such as Fund American Re, or any other company designated by the Board, be
elected by the Company's Members.
Proposal 2 calls for the election of Messrs. Kemp, Fass, Anders Henriksson
(President of Fund American Re) and MacklinMs. Sheila E. Nicoll, (President and Chief
Executive Officer of Olympus Re Holdings, Ltd, a reinsurance company organised
under the laws of Bermuda) to the board of directors of Fund American Enterprises, Ltd.Re. The
proposal also calls for the election of Ms. Elinor M. Lucas (an associate of
Conyers, Dill & Pearman, the Company's Bermuda counsel) as an alternative to any
one or more of the directors of Fund American Re.
Messrs. Kemp, Fass and Henriksson and Ms. Lucas will not receive any
compensation for their services as a director of Fund American Re. Ms. Nicoll is
expected to receive an annual director retainer of $5,000. Biographical
information relating to Messrs. Kemp and MacklinFass is presented under Proposal 1
"Election of the Company's Directors".Directors."
THE BOARD RECOMMENDS A VOTE FOR PROPOSAL 2 WHICH CALLS FOR THE ELECTION OF
THE DIRECTORS OF FUND AMERICAN ENTERPRISES, LTD.RE.
PROPOSAL 3
AMENDMENTSELECTION OF DIRECTORS TO THE
LONG-TERM INCENTIVE PLAN
The Incentive Plan was adoptedANY NEW NON- UNITED STATES OPERATING SUBSIDIARIES
Bye-law 77 of the Company provides that the boards of directors of any
wholly-owned subsidiary of the Company which is incorporated under the laws of
Bermuda, or any other company designated by the Board, and approvedbe elected by the
Company's sole shareholderMembers.
Proposal 3 calls for the election of Messrs. Kemp and Fass to any
wholly-owned, non-United States operating subsidiary that may be formed by the
Company in 1985the future. Messrs. Kemp and subsequently by shareholders in 1995. On May 21,
2001, the Compensation Committee approved, subjectFass will not receive any compensation
for their services as a director of any newly-formed, non-United States company.
Biographical information relating to the approvalMessrs. Kemp and Fass is presented under
Proposal 1 "Election 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 to continue 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.Directors."
THE BOARD RECOMMENDS A VOTE FOR PROPOSAL 3 WHICH CALLS FOR THE AMENDMENTSELECTION OF
MESSRS. KEMP AND FASS TO THE INCENTIVE PLAN.
17
ANY NEW NON-UNITED STATES OPERATING SUBSIDIARIES.
PROPOSAL 4
ISSUANCEAPPROVAL 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 demand 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 purchase
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 price 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 each
Common Share less the exercise price. "Fair market value" is defined as the
average of the 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 holders 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 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 4 APPROVING THE ISSUANCE OF COMMON
SHARES.
20
PROPOSAL 5 APPOINTMENT OF INDEPENDENT AUDITORSAUDITOR
Subject to shareholderMember approval, the Audit Committee of the Board has appointed
PricewaterhouseCoopers ("PWC"PwC") as White Mountains' Independent AuditorsAuditor for 2001.2002.
Representatives from PWCPwC will attend the 20012002 Annual Meeting, 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.Auditor for three years, as
Folksamerica's Independent Auditor for more than 20 years, and as OneBeacon's
Independent Auditor for more than 25 years.
THE BOARD RECOMMENDS A VOTE FOR PROPOSAL 54 APPROVING THE APPOINTMENT OF PWC
AS WHITE MOUNTAINS' INDEPENDENT AUDITORSAUDITOR FOR 2001.2002.
18
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
each of the proposals named earlier in this Proxy Statement.
Holders of
Convertible Preference Shares are not entitled to vote at the 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 20012002 Annual
Meeting.
VOTES REQUIRED FOR APPROVAL
Unless indicated otherwise above, theThe proposals require the affirmative vote of a majority of the voting
power held by holders of Common Shares present at the 20012002 Annual Meeting, in
person or by proxy, provided that a quorum is present.
INSPECTORS OF ELECTION
EquiServe Trust Company of New York, P.O. Box 2500, Jersey City, New Jersey
07303-2500, has been appointed as Inspectors of Election for the 20012002 Annual
Meeting. Representatives of EquiServe will attend the 20012002 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;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 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 Main28 Gates Street, Hanover,
New Hampshire 03755-2053,White River Junction, Vermont, 05001, telephone number
(603) 643-1567.(802) 295-4500. 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, Bermuda (with a mailing address of 12 Church Street, Suite 322,
Hamilton HM 11, Bermuda), its principal executive office is located at 80 South Main28 Gates
Street, Hanover, New Hampshire, 03755-2053White River Junction, Vermont, 05001, and its registered office is
located at Clarendon House, 2 Church Street, Hamilton, HM DX11, Bermuda.
WWW.WHITEMOUNTAINS.COMwww.whitemountains.com
All reports, including press releases, SEC filings and other information
for the Company, its subsidiaries and its affiliatesrelating to White Mountains are available for viewing or download at our
website.
PROPOSALS BY SHAREHOLDERSMEMBERS FOR THE 20022003 ANNUAL MEETING OF SHAREHOLDERS
ShareholderMEMBERS
Member 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, 20012002 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 2002.2003.
By Order of the Board of Directors,
DENNIS P. BEAULIEU, Corporate Secretary
July 5, 2001March 22, 2002
19
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 months 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
19. 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 YPROXY
WHITE MOUNTAINS INSURANCE GROUP, LTD.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR THE ANNUAL GENERAL MEETING TO BE HELD AUGUST 23, 2001MAY 20, 2002
The undersigned hereby appoints K. Thomas Kemp and Gordon S. Macklin, and each
of them, proxies with full power of substitution, to vote all Common Shares of
the undersigned at the 20012002 Annual General Meeting of ShareholdersMembers to be held August 23, 2001,May 20,
2002, 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 vote FOR the
Electionelection of the Company's Directors,directors, FOR the Election of Directorselection of Fund American Enterprises, Ltd.,Re's
directors, FOR the Amendments toelection of the Long-Term Incentive Plan,directors of any new non-United States
subsidiary and FOR the Issuanceapproval of Common Shares, FOR the Appointmentappointment of PricewaterhouseCoopers as
Independent Auditors,Auditor for 2002, and at their discretion on any other matter that
may properly come before the meeting.
Your vote for the Electionelection of the Company's Directorsdirectors may be indicated on the
reverse side. The following Directorsdirectors are being nominated at this meeting for
election to terms ending in 2004.2005.
John J. Byrne George J. Gillespie, III Frank A. Olson
Mark J. Byrne John D. Gillespie
Your vote for the election of Fund American Re's directors may be indicated on
the reverse side. The following directors are being nominated to serve until
their resignation or removal from office.
K. Thomas Kemp Anders Henriksson Elinor M. Lucas (alt.)
Steven E. Fass Sheila E. Nicoll
Your vote for the election of the directors of any new non-United States
subsidiary may be indicated on the reverse side. The following directors are
being nominated to serve until their resignation or removal from office.
K. Thomas Kemp Steven E. Fass
(Change of address/comments)
Patrick M. Byrne ------------------------------------------------
Steven E. Fass
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 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 Jersey 08818-9052.
SEE REVERSE
PLEASE RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE SEE REVERSE SIDE
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 Electionelection of the
Company's Directors,directors, FOR the Election of Directorselection of Fund American Enterprises,
Ltd.,Re's directors, FOR the
Amendments toelection of the Long-Term Incentive Plan, FOR the Issuancedirectors of Common Shares,any new non-United States subsidiary, and FOR the
Appointmentapproval of the appointment of PricewaterhouseCoopers as 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. 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
- --------------------------------------------------------------------------------Auditor for
2002.
- ------------------------------------------------------------------------------------------------------------------------------------
The Board of Directors recommends a vote "FOR" Proposals 1, 2, 3 and 4.
- ------------------------------------------------------------------------------------------------------------------------------------
FOR WITHHELD FOR WITHHELD FOR WITHHELD FOR AGAINST ABSTAIN
1. Election 2. Election of 3. Election of the 4. Approval of
of Company / / / / directors of / / / / directors of / / / / Independent / / / / / /
directors Fund American Re any new non-US Auditors
subsidiary
FOR, except vote withheld(?) FOR, except vote withheld FOR, except vote withheld from Change of Address
the following nominee(s) from the following nominee(s): the 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.
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SIGNATURE(S) DATE