SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
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[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
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[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
FUND AMERICAN ENTERPRISES HOLDINGS, INC.
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(Name of Registrant as Specified In Its Charter)
FUND AMERICAN ENTERPRISES HOLDINGS, INC.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Notice of 19961997
Annual Meeting
of Shareholders
and Proxy Statement
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Table of Contents
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Page
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LETTER FROM THE CHAIRMAN........................................................CHAIRMAN.................................................... 1
NOTICE OF 19961997 ANNUAL MEETING OF SHAREHOLDERS...................................SHAREHOLDERS............................... 2
PROXY STATEMENT.................................................................STATEMENT............................................................. 3
PROPOSAL 1: ELECTION OF DIRECTORS.............................................DIRECTORS....................................... 3
Procedures for Nominating Directors.........................................Directors.................................... 5
Voting Securities and Principal Holders Thereof.............................Thereof........................ 6
Compensation of Directors...................................................Directors.............................................. 7
Compensation of Executive Officers..........................................Officers..................................... 8
Reports of the Compensation Committees on Executive Compensation............ 10Compensation....... 11
Shareholder Return Graph.................................................... 14Graph............................................... 15
Compensation Plans.......................................................... 15Plans..................................................... 16
Compensation Committee Interlocks and Insider Participation in
Compensation Decisions.................................................. 16Decisions................................................ 17
PROPOSAL 2: APPOINTMENT OF INDEPENDENT AUDITORS............................... 16AUDITORS......................... 18
OTHER MATTERS.................................................................. 17
=======================================================================================MATTERS............................................................ 18
================================================================================
Fund American Enterprises Holdings, Inc. (the "Company" and, together with its
subsidiaries, "Fund American") is a New Hampshire-based financial services
holding company. The Company's business activities are conducted principally
through its wholly-owned operating subsidiaries: (i) White Mountains Holdings,
Inc. (a newly formed insurance holding company) and its affiliates ("White Mountains") and (ii) Source One Mortgage
Services Corporation, (oneone of the nation's largest mortgage banking companies)companies,
and its subsidiaries ("Source One").
White Mountains' insurance operations principally include: (i) Valley
Insurance Company ("Valley"), an Oregon-based property and casualty insurance
company; (ii) Charter Indemnity Company ("Charter"), a Texas-based non-standard
automobile insurer; (iii) White Mountains Insurance Company ("WMIC"), a New
Hampshire-based commercial property and casualty insurer; (iv) a 19% voting25% economic
interest in Financial Security Assurance Holdings Ltd. ("FSA"), a New York-based
Aaa/AAA writer of financial guarantee insurance; (v) a 50% interest in
Folksamerica Holding Company, Inc. ("Folksamerica"), a New York-based broker-
market reinsurer; and (v)(vi) a 33% stake in Main Street America Holdings, Inc.
("MSA"), a unit of National Grange Mutual Insurance Company, a New Hampshire-basedHampshire-
based property and casualty insurer.
Fund American also owns ana passive investment portfolio consisting mainly of
common equity securities. Prospectively, management's primary strategic goal is
to either:either (i) reinvest Fund American's passive investments, together with other
resources available to Fund American, into operating businesses in which
management has knowledge and experience (if appropriate opportunities can be
found); or (ii) return excess capital to shareholders through common stock
repurchases. Fund American believes that this strategy will, over time, further
enhance shareholder value.
- --------
Fund
American John J. Byrne
Fund Chairman
American
- -------- Chairman
March 29, 199631, 1997
Dear Shareholders:
I would like to invite all shareholders to attend the 19961997 Annual Meeting of
Fund American Enterprises Holdings, Inc., to be held on Thursday, May 16,
1996,29, 1997,
at 9:00 a.m. This year's meeting will take place on the campus of Dartmouth
College, not far from our new corporate office in Hanover, New Hampshire. I welcome
you all to join me for the morning in our new home state.
We will begin the meeting with a discussion and shareholder vote on the
proposals set forth in the accompanying Proxy Statement and on such other
matters properly brought before the meeting. At the meeting you will be asked
to consider and vote on the following issues:
1) the election of twothree directors;
and
2) ratification of the appointment of our independent auditors.
Whether or not you plan to attend the meeting, you can ensure that your shares
are properly represented at the meeting by promptly completing, signing, dating
and returning your proxy card in the enclosed envelope.
Respectfully submitted,
John J. Byrne
Fund American Enterprises Holdings, Inc.
80 South Main Street
Hanover, New Hampshire 03755-2053
FUND AMERICAN ENTERPRISES HOLDINGS, INC.
NOTICE OF 19961997 ANNUAL MEETING OF SHAREHOLDERS
May 16, 199629, 1997
March 29, 199631, 1997
Notice is hereby given that the 19961997 Annual Meeting of Shareholders of Fund
American Enterprises Holdings, Inc. will be held on Thursday, May 16, 1996,29, 1997, at
9:00 a.m. at Byrne Hall, Amos Tuck School of Business at Dartmouth College,
Hanover, New Hampshire 03755-2053.03755. At the meeting you will be asked to consider and
vote upon the following proposals:
(a) to elect twothree directors to Class IIIII with terms ending in 1999;2000;
(b) to appoint Ernst & YoungKPMG Peat Marwick LLP as Independent Auditors for the 19961997
audit examination; and
(c) to transact such other business, if any, as may be properly brought before
the meeting.
Shareholders of record on the record date, March 18, 1996,31, 1997, (i) who are
individuals, may attend and vote at the meeting in person or by proxy or (ii)
which are corporations or other entities, may be represented and vote at the
meeting by a duly authorized representative or by proxy. A list of all
shareholders entitled to vote at the meeting will be open for public examination
by shareholders during regular business hours from April 22, 1996,May 5, 1997, until 12:00 noon
on May 16, 1996,29, 1997, at the corporate office of Fund American Enterprises Holdings,
Inc., 80 South Main Street, Hanover, New Hampshire 03755-2053.
All shareholders are cordially invited to attend this meeting.
By Order of the Board of Directors,
Dennis P. Beaulieu
Corporate Secretary
Shareholders are invited to complete and sign the accompanying proxy card to
be returned to Fund American Enterprises Holdings, Inc., c/o First Chicago Trust
Company of New York, Post Office Box 8085, Edison, New Jersey 08818-9052, in the
envelope provided, whether or not they expect to attend the meeting.
It is important that the enclosed proxy card be completed and returned
promptly.
2
FUND AMERICAN ENTERPRISES HOLDINGS, INC.
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Company's Board of Directors (the "Board") for the 19961997
Annual Meeting of Shareholders (the "1996"1997 Annual Meeting"), to be held on May
16, 1996.29, 1997. The solicitation of proxies will be made primarily by mail, and this
Proxy Statement and proxy materials will be distributed to registered
shareholders on or about April 1, 1996.4, 1997.
Holders of shares of the Company's Common Stock, par value $1.00 per share
("Shares"), registered in their name as of the close of business on March 18,
1996,31,
1997, the record date, are entitled to vote at the meeting. Holders of Shares
are entitled to one vote per Share.
You can ensure that your Shares are properly voted at the meeting by
completing, signing, dating and returning the enclosed proxy card in the
envelope provided. A shareholder has the right to appoint another person (who
need not be a shareholder) to represent the shareholder at the meeting by
completing an alternative form of proxy which can be obtained from the Corporate
Secretary or by notifying the Inspectors of Election. Shareholders have the
right to revoke their proxies, at any time prior to the time their shares are
actually voted, by (i) filing a written notice of revocation with the Corporate
Secretary, (ii) presenting another proxy with a later date or (iii) notifying
the Inspectors of Election in writing of such revocation. Sending in a signed
proxy will not affect your right to attend the meeting and vote. If a
shareholder attends the meeting and votes in person, his or her proxy is
considered revoked.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board is divided into three classes (each a "Class").
At the 19961997 Annual Meeting Messrs. ByrneClark, Jr., Cochran and GillespieZankel are
nominated to be elected to Class IIIII with terms ending in 1999.2000. The Board
recommends a vote FOR Proposal 1 which calls for the election of the 19961997
nominees.
The current members and terms of each Class are set forth below:
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Director
Director Age since
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Class I - Terms Ending in 1998
Howard L. Clark 8081 1985
K. Thomas Kemp 5556 1994
Gordon S. Macklin 6768 1987
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Class II - Terms Ending in 19961999
John J. Byrne* 63Byrne 64 1985
George J. Gillespie, III* 65III 66 1986
Frank A. Olson 64 1996
- ----------------------------------------------------------------------------------------------------------------
Class III - Terms Ending in 1997
Howard L. Clark, Jr. 52* 53 1986
Robert P. Cochran 46Cochran* 47 1994
Arthur Zankel 64Zankel* 65 1992
================================================================================================================
* Nominee*Nominee at the 19961997 Annual Meeting
The following information with respect to the principal occupation, business
experience and other affiliations of the nominees and directors has been
furnished to the Company by the nominees and directors.
Class I
Howard L. Clark was a director of the Company from 1981 until 1983 and became
a director again in 1985. Mr. Clark served as an advisor to the Board of
Directors of American Express Company ("American Express") from 1979 to 1993 and
was that company's Chairman of the Executive Committee from 1977 to 1979, when
he retired, and Chief Executive Officer from 1960 to 1977. American Express and
its affiliates provide various services to Fund American from time to time.Mr. Clark's son,
Howard L. Clark, Jr., is also a director of the Company. See "Compensation
Committee Interlocks and Insider Participation in Compensation Decisions."
3
K. Thomas Kemp has been a director of the Company since November 1994. Mr. Kemp serves
as the Company's Executive Vice President and is also White Mountains' Chairman
and Chief Executive Officer. Mr. Kemp has also served as Executive Vice President, Treasurer and Secretary since
1993, as Vice President,
Treasurer and Secretary since 1991 and was a Vice President of Fireman's Fund
Insurance Company ("Fireman's Fund") from 1990 to January 2, 1991. Prior to
joining Fireman's Fund, Mr. Kemp was President of Resolute Reinsurance Company.
Mr. Kemp is also a director of FSA, White
Mountains, WMIC, Valley, Charter, Folksamerica,
American Direct Business Insurance, SDN Bancorp, Main Street America Holdings, Inc.MSA, and Fund American
Enterprises, Inc. ("FAE"), a wholly-owned subsidiary of the Company.
Gordon S. Macklin has been a director of the Company since 1987. Mr. Macklin
served as Chairman of Hambrecht &and Quist Inc.,Group, a venture capital and
investment banking company, from 1987 until 1992. Prior to that, Mr. Macklin
served as President of the National Association of Securities Dealers, Inc. from
1970. He is currently Chairman of White River Corporation ("White River"),; a
director of Source One, MCI Communications Corporation, InfoVest Corporation,
MedImmune Inc., Fusion Systems CorporationCCC
Information Services Group, Inc., Shoppers Express, Inc. and Spacehab, Inc. and
a trustee, director or managing general partner (as the case may be) of 53 of
the investment companies in the Franklin Templeton Group of Funds. White River
was formerly a subsidiary of the Company. See "Compensation Committee
Interlocks and Insider Participation in Compensation Decisions."
Class II
John J. Byrne has been Chairman of the Company since 1985. Mr. Byrne has also
served as President and Chief Executive Officer since 1990, as Chief Executive
Officer from 1985 to 1990 and was Chief Executive Officer of Fireman's Fund from
1989 through January 2, 1991. Prior to that, he was Chairman and Chief
Executive Officer of GEICO Corporation from 1976 to 1985. Mr. Byrne is also a
director of FAE, FSA, White Mountains, and Terra Nova (Bermuda) Holdings Ltd. and
Travelers Property Casualty Corp.
George J. Gillespie, III has been a director of the Company since 1986. He is
a Partner in the law firm of Cravath, Swaine & Moore, which position he has held
since 1963. He is also a director of The Washington Post Company. Cravath,
Swaine & Moore has been retained by Fund American from time to time to perform
legal services. See "Compensation Committee Interlocks and Insider Participation
in Compensation Decisions."
Frank A. Olson has been a director of the Company since November 1996. He is
Chairman and Chief Executive Officer of The Hertz Corporation and has been with
that company since 1964. He is also a director of Becton Dickinson and Company,
Cooper Industries and Commonwealth Edison Co. and was formerly Chairman and
Chief Executive Officer of Allegis Corporation and United Airlines.
Class III
Howard L. Clark, Jr. was a director of the Company from 1986 until 1990, and
was an advisor to the Board from 1990 to 1993 when he was re-elected as a
director. He is Vice Chairman of Lehman Brothers Inc. and was Chairman and Chief
Executive Officer 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 The
Maytag Corporation, Plasti-Line, Inc. and Walter Industries, Inc. Mr. Clark, Jr.
is the son of Howard L. Clark, who is also a director of the Company. Lehman
Brothers, Inc. provides various services to Fund American from time to time. See
"Compensation Committee Interlocks and Insider Participation in Compensation
Decisions."
Robert P. Cochran has been a director of the Company since November 1994. Mr. Cochran
was a founding principal of FSA and has served FSA in various capacities since
1985. He has been President and Chief Executive Officer and a director of FSA
since 1990. He is also Chairman of Financial Security Assurance Inc. and
Financial Security Assurance (U.K.) Ltd. and is a director of White Mountains.
FSA has been retained by Fund American to manage portions of its fixed maturity
investment portfolio. See "Compensation Committee Interlocks and Insider
Participation in Compensation Decisions."
Arthur Zankel has been a director of the Company since August 1992. He is presently
Co-Managing Partner of First Manhattan Co., an investment advisor and broker-dealer.broker-
4
dealer. He has been a General Partner at First Manhattan Co. since 1965. Mr.
Zankel is also a director of The Travelers Group Inc., Travelers Property Casualty
Corp. and VICORP Restaurants, Inc. First Manhattan Co. has been retained by Fund American from
time to time by Fund American to perform various brokerage and advisory
services. See "Compensation Committee Interlocks and Insider Participation in
Compensation Decisions."
4
Committees of the Board of Directors
The Audit Committee, comprised entirely of certain nonemployee directors (Messrs.
Clark; Clark, Jr.; Gillespie; MacklinOlson and Zankel), has general responsibility for the
oversight and surveillance of the accounting, reporting and financial control
practices of Fund American. The Audit Committee annually reviews the
qualifications of the Independent Auditors; makes recommendations to the Board
as to their selection; and reviews the plan, fees and results of their audit.
Mr. Clark, Jr. is Chairman of the Audit Committee.
The Human ResourcesCompensation Committee, comprised entirely of certain nonemployee directors
(Messrs. Clark; Clark, Jr.; Gillespie;Cochran; Macklin and Zankel)Olson), oversees Fund American's stock-
based compensation and benefit policies and programs, including administration
of the Long-Term Incentive Plan (the "Incentive Plan"), the Fund American
Voluntary Deferred Compensation Plan (the "Deferred Compensation Plan") and the
Fund American Deferred Benefit Plan (the "Deferred Benefit Plan"). Mr. Macklin
is Chairman of the Compensation Committee.
The Human Resources Committee, alsocomprised of certain nonemployee directors
(Messrs. Clark; Clark, Jr., Cochran; Gillespie, Macklin, Olson and Zankel), sets
the annual salaries and bonuses for elected officers and certain other key
employees. Mr. Macklin is Chairman of the Human Resources Committee.
Meetings of the Board of Directors
During 1996 the following meetings of the Board were held: fivefour meetings of
the full Board, including one special meeting;Board; two meetings of the Audit Committee; one meeting of the
Compensation Committee and twothree meetings of the Human Resources Committee. In
19951996 each director attended more than 75% of all meetings of the Board and each
member of the Audit Committee, Compensation Committee and the Human Resources
Committee attended more than 75% of all such committee meetings, except Mr.
Clark Jr. who was unable to attend two of the four Board meetings, one of the two
19951996 Audit Committee meetings, the Compensation Committee meeting and one of the
three Human Resources Committee meetings.
PROCEDURES FOR NOMINATING DIRECTORS
Under the Company's Bylaws, any shareholder entitled to vote for the election
of directors that is a qualified holder of record of Shares having an aggregate
market value of at least $1,000 may nominate persons for election as director,
but only if the following procedures are followed:
In general, the shareholder must give written notice to the Corporate
Secretary not later than (i) 90 days in advance of the meeting with respect to
an election to be held at an annual meeting of shareholders, and (ii) with
respect to an election to be held at a special meeting of shareholders, the
close of business on the seventh day following the date on which notice of such
meeting is first given to shareholders.
The notice must include: (i) the name and address of the shareholder who
intends to make the nomination and the name and address of the person or persons
to be nominated; (ii) a representation that the shareholder is a qualified
holder of record of Shares having an aggregate market value of at least $1,000
and that the shareholder intends to appear at the meeting, in person or by
proxy, to nominate the person or persons specified in the notice; (iii) a
description of all arrangements or understandings between the shareholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination, or nominations, are to be made by the
shareholder; (iv) such other information regarding each nominee proposed by such
shareholder as would have been required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission (the
"SEC") had each nominee been nominated, or intended to be nominated, by the
Company; and (v) the consent of each nominee to serve as a director of the
Company if so elected.
5
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
As of March 18, 1996,31, 1997, there were 7,673,6226,894,691 Shares outstanding, each Share
entitled to one vote. To the knowledge of the Company, there was no person or
entity beneficially owning more than 5% of Shares outstanding as of March 18,
1996,31,
1997, except as shown below:
Principal Holders of Shares
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Number
of sharesShares
Name and address of beneficial owner owned Percent (d)
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JOHN J. BYRNE 80 South Main Street, Hanover, NH 03755 (a) 1,820,224 21.0%
HEINE SECURITIES CORPORATION 51 JFK Parkway Short Hills, NJ 070781,464,882 18.6%
FRANKLIN MUTUAL ADVISORS, INC. 777 Mariners Island Blvd., San Mateo, CA 94403 (b) 1,245,195 16.2%1,243,895 18.0%
GSB INVESTMENT MANAGEMENT, INC. 301 Commerce Street, Fort Worth, TX 76102 (b) 759,431 11.0%
ALLIANZ ASSET ACCUMULATION PLAN 777 San Marin Drive, Novato, CA 94998 (c) 861,394 11.2%
GSB INVESTMENT MANAGEMENT, INC. 301 Commerce Street, Fort Worth, TX 76102 (b) 804,530 10.5%
HARRIS ASSOCIATES L. P. 2 North LaSalle Street, Suite 500, Chicago, IL 60602 (b) 528,800 6.9%
=================================================================================================================736,260 10.7%
========================================================================================================================
(a) Includes warrants to purchase 1,000,000 Shares, which warrants Mr. Byrne
purchased from American Express in 1985. The warrants are exercisable at
$21.66 per Share through January 2, 2002; however, Mr. Byrne shall not
exercise any of the warrants until the day after his employment by the
Company is terminated. Mr. Byrne has sole voting and investment power (or
shares such power with his spouse) with respect to the Shares for which he
claims beneficial ownership. Does not include 176,500146,500 Shares donated to
charitable foundations for which Mr. Byrne disclaims beneficial ownership,
but for which his spouse retains voting power. Does not include vested cash-
only Share equivalents ("Phantom Shares") held pursuant to the Deferred
Compensation Plan and the Deferred Benefit Plan. See "Compensation Plans -
Fund American Retirement Plans".
(b) According to filings by such holders with the SEC, the Shares beneficially
owned by the holders named above were acquired solely for investment
purposes on behalf of client investment advisory accounts of such holders.
(c) Represents Shares beneficially owned by employees of Fireman's Fund pursuant
to an employee incentive savings plan. The trustee for such plan votes the
Shares held by the plan in accordance with directions given by the
participating Fireman's Fund employees to whose accounts Shares have been
allocated.
(d) Determined based on the beneficial ownership provisions specified in Rule
13d-3(d)(1) of the Securities Exchange Act of 1934 (the "Exchange Act").
6
Beneficial Stock Ownership of Directors and Executive Officers
The following table sets forth, as of March 18, 1996,31, 1997, beneficial ownership
of Shares by each director of the Company, by each of the "Named Executive
Officers" as defined herein currently holding office, and by all directors and
executive officers as a group.
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Number of
Name and address of beneficial owner Shares owned Percent (d)(e)
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TERRY L. BAXTER 80 South Main Street, Hanover, NH 03755 43(a) *
JOHN J. BYRNE 80 South Main Street, Hanover, NH 03755 1,820,224 (a) 21.0%1,464,882(a)(b) 18.6%
HOWARD L. CLARK 80 South Main Street, Hanover, NH 03755 2,000 *
HOWARD L. CLARK, JR. 80 South Main Street, Hanover, NH 03755 1,000 *
ROBERT P. COCHRAN 350 Park Avenue, New York, NY 10022 00(a) 0
JAMES A. CONRAD 27555 Farmington Road, Farmington Hills, MI 48334 836921 *
GEORGE J. GILLESPIE, III 80 South Main Street, Hanover, NH 03755 1,000 *
K. THOMAS KEMP 80 South Main Street, Hanover, NH 03755 23,537 (b)23,537(a)(c) .3%
GORDON S. MACKLIN 80 South Main Street, Hanover, NH 03755 8,000 .1%
ROBERT W. RICHARDS 27555 Farmington Road, Farmington Hills, MI 48334 894FRANK A. OLSON 80 South Main Street, Hanover, NH 03755 500 *
ALLAN L. WATERS 80 South Main Street, Hanover, NH 03755 6,900 (b)5,900(a) *
ARTHUR ZANKEL 80 South Main Street, Hanover, NH 03755 12,600 (c)12,600(d) .2%
All directors and executive officers as a group 1,877,712 (a)1,521,704(a)(b)(c) 21.6%
=================================================================================================================(d) 19.3%
=============================================================================================================
* Represents less than .1% of the outstanding Shares.
(a) Does not include Phantom Shares held pursuant to the Deferred Compensation
Plan and the Deferred Benefit Plan. See "Compensation Plans - Fund American
Retirement Plans".
(b) Includes warrants to purchase 1,000,000 Shares, which warrants Mr. Byrne
purchased from American Express in 1985. The warrants are exercisable at
$21.66 per Share through January 2, 2002; however, Mr. Byrne shall not
exercise any of the warrants until the day after his employment by the
Company is terminated. Mr. Byrne has sole voting and investment power (or
shares such power with his spouse) with respect to the Shares for which he
claims beneficial ownership. Does not include 176,500146,500 Shares donated to
charitable foundations for which Mr. Byrne disclaims beneficial ownership,
but for which his spouse retains voting power.
(b)(c) Includes currently exercisable stock options held by Mr. Kemp Mr. Waters
and all executive officers as a group to purchase
2,000 1,000 and 3,000
Shares, respectively.
(c)Shares.
(d) Does not include 15656 Shares for which Mr. Zankel disclaims beneficial
ownership. First Manhattan Co., a partnership in which Mr. Zankel is Co-
Managing Partner, has Investmentinvestment and/or voting discretion with respect to
such Shares.
(d)(e) Determined based on the beneficial ownership provisions specified in Rule
13d-3(d)(1) of the Exchange Act. Except to the extent indicated above, all
executive officers and directors have (or share with their spouse) sole
voting and investment power with respect to the Shares for which they claim
beneficial ownership.
COMPENSATION OF DIRECTORS
Directors who are not officers of Fund American received a retainer of
$45,000 for 19951996 and a fee of $1,000 for each Board meeting attended. Messrs.
Clark, Jr. and Macklin also received an additional retainer of $3,000 for 19951996
as Chairman of the Audit Committee and Chairman of the Compensation Committee
and Human Resources Committee, respectively. Each non-employee director also
received an additional $1,000 for each committee meeting attended. In addition,
Messrs. Cochran and Macklin received $16,000 and $33,500, respectively, for
their service as directors on certain Fund American subsidiary boards.
Any non-management director who retires from the Board with at least five
years of service as a director of the Company is entitled to an annual
retirement benefit equal to 50% of the amount of the annual retainer for the
year in which the retirement occurs. Eligible directors are entitled to receive
the annual benefit for a period of years equal to the number of years of service
or, if sooner, until death.
Directors who are officers of Fund American do not receive any compensation
for their services as directors.
7
COMPENSATION OF EXECUTIVE OFFICERS
The following tables set forth certain information regarding the salary,
incentive compensation and benefits paid by Fund American to its Chief Executive
Officer, andits four of its most highly compensated executive officers other than the
Chief Executive Officer and an executive officer who retired in 1996
(collectively, the "Named Executive Officers").
Summary Compensation Table
The following table reflects the cash and non-cash compensation for the Named
Executive Officers.
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Annual compensation Long-term compensation
---------------------------------- ------------------------------------------------------------------ --------------------------
Awards Payouts
------------ ------------------------ -----------
Other
annual
Name and compen- Options/ LTIP All other
principal position Year Salary Bonus sation SARs (#) payouts (a) compensation
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
John J. Byrne 1995 $550,000 $247,5001996 $425,000 $240,000 $ 0 0 $ 724,688 $202,370(c)$3,552,413 $139,288(c)
Chairman, President & 1995 550,000 247,500 0 0 724,688 202,370(c)
Chief Executive Officer 1994 550,000 74,000 0 0 0 139,999(c)
Chief Executive Officer 1993 550,000 165,000K. Thomas Kemp 1996 288,300 171,000 0 0 4,748,975 130,502(c)
K. Thomas Kemp1,896,300 135,455(c)
Executive Vice 1995 222,000 116,000 0 0 130,444 70,469(c)
Executive Vice87,094(c)
President 1994 180,000 30,000 0 0 0 30,366(c)
President 1993 135,000 59,400Allan L. Waters 1996 242,500 175,000 0 0 1,304,345 15,313(c)
Allan L. Waters1,817,093 76,760(c)
Senior Vice President & 1995 200,000 107,000 0 0 159,431 41,320(c)
Senior Vice President &Chief Financial Officer 1994 175,000 40,000 0 0 0 17,791(c)
Chief Financial Officer 1993 160,000 57,750Terry L. Baxter 1996 194,200 200,000 0 0 1,363,938 106,464(c)739,688 47,238(c)
President of FAE, 1995 162,500 63,000 0 0 0 49,944(c)
Non-Executive
Chairman of Source One 1994 150,000 24,000 0 0 0 33,536(c)
James A. Conrad 1995 222,627 38,000 40,034 (b)1996 237,936 110,000 7,481(b) 0 0 4,500(d)7,500(d)
President & Chief Executive 1994 219,212 75,000 32,718 (b)1995 222,627 38,000 40,034(b) 0 0 4,500(d)
Officer of Source One 1993 209,9581994 219,212 75,000 32,718(b) 0 191,261 (b) 26,123 0 04,500(d)
Robert W. Richards 1996 116,829 0 4,652(b) 0 0 442,500(e)
Chairman of 1995 218,059 36,000 32,099 (b) 0 0 4,500(d)
Chairman of 1994 211,528 72,000 25,295 (b)32,099(b) 0 0 4,500(d)
Source One 1993 202,728(retired 1996) 1994 211,528 72,000 25,295(b) 0 176,345 (b) 24,149 0 04,500(d)
==================================================================================================================================
(a) Includes cash payments and the total market value of awards distributed.
(b) AmountsThe amounts for 1996, 1995 and 1994, respectively, include $2,309, $32,578
and $23,661$25,638 for Messrs.Mr. Conrad, and $2,252, $23,661 and $18,611 for Mr.
Richards, respectively, reflecting interest reimbursements on amounts paid to purchase
investment contracts with stock appreciation rights ("SARs") and
reimbursements of automobile expenses.
Amounts for 1994 include
$25,638 and $18,611 for Messrs. Conrad and Richards, respectively,
reflecting interest reimbursements on amounts paid to purchase SARs and
reimbursements of automobile expenses. Amounts for 1993 include $156,414
and $149,495 for Messrs. Conrad and Richards, respectively, reflecting
reimbursements of individual income taxes resulting from exchanges of
shares of Common Stock of Source One ("Source One Shares") for SARs,
interest reimbursements on amounts paid to purchase Source One Shares and
reimbursements of automobile expenses.
(c) Amounts for 1996, 1995 and 1994 and 1993 principallyprimarily represent principal credited to
the Deferred Benefit Plan. The 1995, 1994 and 1993 amounts for Mr.
Byrne1996, 1995 and 1994,
respectively, also includeinclude: $0, $38,500 $35,500 and $34,500, respectively, and$35,500 for Mr. KempByrne; $54,230,
$16,625 and $0 for Mr. Kemp; $35,500, $0 and $0 respectively,for Mr. Waters and $22,380,
$16,000 and $0 for Mr. Baxter in annualized director fees paid by companies
for which Fund American is entitled to board representation as a result of
the Company's sizable ownership position in such companies.
For
Mr. Waters, the 1993 amount also includes reimbursements of $90,625 for
relocation expenses.
(d) Represents amounts allocated to the accounts of Messrs. Conrad and Richards
pursuant to Source One's employee stock ownership plan.
(e) Represents post-retirement consulting fees paid to Mr. Richards for the
period from June 1996 through December 1996 of $42,500 and a payment
pursuant to a agreement between Mr. Richards and Source One dated June 5,
1996. See "Other Compensation Arrangements".
8
Options and Warrants
The following table summarizes, for the Named Executive Officers, exercises
of stock options and warrants during the Company's latest fiscal year, and the
number and in-the-money value of stock options and warrants outstanding as of
the end of the fiscal year.
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
As of December 31, 1995
---------------------------------------------------------------1996
-------------------------------------------------------------------------
Stock option, warrant and SAR Number of unexercised stock In-the-money value of all
exercises during the year ended options, warrants outstanding stock options,
December 31, 1995 (a)1996(a) and SARs (a) warrants and SARs (a)
--------------------------------- ----------------------------- ------------------------------------------------------------ --------------------------- ---------------------------
Shares Value Not Not
Name acquired realized Exercisable exercisable Exercisable exercisable
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
John J. Byrne 150,000 $6,699,6380 $ 0 1,000,000 0 $51,714,250(e)$72,964,250(d) $0
K. Thomas Kemp 0 0 3,000(d)3,000(c) 0 123,000(d)181,500(c) 0
Allan L. Waters 6,188(b) 255,772 1,500(d) 0 55,000(d)0 1,500(c) 0 84,250(c) 0
Terry L. Baxter 0 0 0 0 0 0
James A. Conrad 9,323 0(c) 16,80012,800 92,432(b) 4,000 0 75,407121,909 0
Robert W. Richards 5,345 0(c) 18,804 151,020(b) 0 84,402 0 ==================================================================================================================================0 0
====================================================================================================================================
(a) Unless otherwise noted, amounts represent options, warrants or SARs
pertaining to Fund American Shares.
(b) Includes 2,063 stock options to acquire from the Company shares of Common
Stock of White River ("White River Shares"). Such stock options were issued
pursuant to certain anti-dilution provisions of the Incentive Plan which
were triggered by the distribution of approximately 74% of the outstanding
White River Shares to Fund American's shareholders on December 22, 1993
(the "Distribution").
(c) Represents the forfeitureexercise of an out-of-the-moneyin-the-money SAR attached to an investment
contract. The investment contracts were awarded to Messrs. Conrad and
Richards in 1993 in exchange for all their shares of Source One common
stock.
During 1995 Messrs. Conrad and Richards exercised a portion
of their investment contracts and, as a result, forfeited 9,323 and 5,345
out-of-the-money SARs, respectively.
(d)(c) Amounts include 1,000 and 500 stock options for Messrs. Kemp and Waters,
respectively, and $38,500$44,260 and $19,250$21,095 of in-the-money value for Messrs.
Kemp and Waters, respectively, pertaining to stock options to acquire from
the Company Shares of Common Stock of White River Shares.("White River Shares").
Such stock options were issued as a result of the Distribution.
(e)distribution of
approximately 74% of the outstanding White River Shares to Fund American's
shareholders in December 1993 (the "Distribution").
(d) Amount is presented net of Mr. Byrne's basis in his unexercised warrants.
The warrants are exercisable through January 2, 2002; however, Mr. Byrne
shall not exercise any of the warrants until the day after his employment
by the Company is terminated.
Long-Term Incentive Plans - Awards in Last Fiscal Year
The following table summarizes the Incentive Plan awards made to the Named
Executive Officers during the latest fiscal year. Such awards consisted
entirely of performance shares.
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Number of
performance Performance
shares period for Estimated future payouts in Shares:
Name awarded payout -----------------------------------
Name Threshold Target Maximum
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
John J. Byrne 10,000(a)5,000(a) 3 yrs. 0 10,000 10,0005,000 5,000
K. Thomas Kemp 8,928(a)15,000(a) 3 yrs. 0 8,928 8,92815,000 15,000
Allan L. Waters 7,500(a)11,000(a) 3 yrs. 0 7,500 7,50011,000 11,000
Terry L. Baxter 7,000(a) 3 yrs. 0 7,000 7,000
James A. Conrad 0 0 0 0 0
Robert W. Richards 0 0 0 0 0
=======================================================================================================================================================================================
(a) Such performance shares are payable upon completion of pre-defined business
goals and are payable in cash based on the market value of Shares at the
time of award.payment. The target performance criteria for Messrs. Byrne, Kemp,
Waters and Waters' 1995 performance share award and for 7,500 of Mr. Kemp's 1995Baxter's 1996 performance share award is the attainment of a
corporate annualized return on equity ("ROE") of 15%13%. The determination of
ROE considers the rate of growth of the book value, market value and
economic value of Shares with dividends reinvested. At a ROE equal to or in
excess of 15%13%, the performance shares will become 100% payable. At a ROE of
less than 15%13% the percentage of performance shares payable could decline to
0%.
For the
balance of Mr. Kemp's 1995 performance share award, the target performance
criteria is the attainment of various key insurance measures ("Insurance
Goals") applicable to White Mountains. Meeting or exceeding the Insurance
Goals will result in the such performance shares becoming 100% payable.
Insurance Goal shortfalls could cause the percentage of such performance
shares payable to decline to 0%.
9
Other Compensation Arrangements
Fund American has no formal severance policy. However, the Company has
guaranteed payment of the salaries for Messrs. Kemp and Waters through December
31, 1996. As of December 31, 1995, such guaranteed salary amounts totalled
$300,000 and $250,000 for Messrs. Kemp and Waters, respectively.
At the Company's 1995 Annual Meeting, shareholders approved a five-year
employment agreement between the Company and John J. Byrne (the "Agreement").
The Agreement principally calls for: (i) Mr. Byrne to continue to serve as
Chairman and Chief Executive Officer of the Company until December 31, 1999 at
an annual salary of no more than $550,000; (ii) an extension of the term of
1,000,000 warrants he currently holds to purchase Shares to January 2, 2002;
(iii) Mr. Byrne to forego the exercise of the 1,000,000 warrants extended until
the day after his employment by the Company has ended; and (iv) a Company
guarantee of a recourse loan obtained by Mr. Byrne from a third party, in an
amount up to $15.0 million. As of March 1, 1996, Mr. Byrne's annual salary was
set at $400,000.
In connection with the June 1996 retirement of Mr. Richards as Chairman of
Source One and pursuant to a certain agreement among him and Source One dated
June 5, 1996, Source One agreed to pay Mr. Richards (who is currently 54 years
of age) the following: (i) retirement benefits that would have accrued to Mr.
Richard's benefit under Source One's qualified pension plan as if he had retired
at age 58 (representing 30 years of credited service), (ii) a consulting fee of
$5,000 per month from June 1996 to December 1996, (iii) a lump sum payment of
not less than $400,000 in satisfaction of any claims he would have been entitled
to pursuant to Source One's various incentive compensation plans, and (iv)
certain medical and dental benefits.
Pursuant to the Incentive Plan, under some circumstances such as a "Change in
Control" followed by a termination without cause, constructive termination or an
"Adverse Change" in the Incentive Plan, stock options will generally become
fully exercisable and performance shares will become partially or fully payable.
Such circumstances are more fully described in the Incentive Plan.
Certain Transactions
For corporate travel purposes Fund American has entered intojointly owns two short-range
aircraft with Haverford Utah, LLC ("Haverford"). Messrs. Byrne and Kemp
are principals of Haverford. Both aircraft were acquired from unaffiliated
third parties during 1996. In exchange for Haverford's 20% ownership interest
in the aircraft, Haverford contributed capital equal to 20% of the total initial
cost of the aircraft and Haverford bears the full costs of its usage and
maintenance of the aircraft pursuant to a Joint Ownership Agreement dated
September 16, 1996.
Prior to the Joint Ownership Agreement, Fund American was a party to a "dry
lease" agreement dated January 2, 1995 for the use of aircraft owned by
Haverford Transportation Inc. ("HTI") for corporate travel purposes. Messrs.
Byrne and Kemp are the sole shareholders of HTI. During 1996, 1995 and 1994
Fund American paid HTI a total of $279,739, $183,563 and $190,150, respectively,
pursuant to the dry lease arrangement. The terms of the agreement provided for
the use of HTI's aircraft (excluding pilot and fuel) for a fixed hourly charge
of $200 for a single engine piston aircraft and $800 to $1,000 for a twin engine
turbine aircraft. Based on the Company's experience in operating comparable
aircraft, the hourly operating charges incurred by Fund American pursuant to the
HTI dry lease are considered to be representative of the actual hourly costs of
operating HTI's aircraft. Fund American believes that its arrangement with HTI
iswas on terms that are morewere no less favorable to Fund American than would generally
be available if secured through an arrangement with an unaffiliated third party.
Source One has made mortgage loans in the ordinary course of business to
employees of Fund American, including certain of its Named Executive Officers.
The terms of such mortgage loans made to Named Executive Officers are
substantially similar to those provided to other employees of Fund American and
to the public.
In December 1993, BYRNE & sons, l.p. ("BYRNE & sons"), a partnership in which
Mr. Byrne is the sole general partner, made its initialan investment in the Merastar
Partners Limited Partnership and the Southern Heritage Limited Partnership (the
"Partnerships"). The Partnerships are involved in various property and casualty
insurance ventures. Shortly after making its initial
investment, BYRNE & sons offered
one-third of its interestthe investment in the Partnerships to Fund American on equal terms
and conditions. In May 1994 Fund American accepted the offer and paid BYRNE &
sons a total of $338,558 representing reimbursement for one-third of Byrne &
sons' cost for its investment in the Partnerships including interest of $5,225
at a 6.0% annual rate.
10
Compliance With Section 162(m) of the Internal Revenue Code
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to public companies for certain compensation over $1
million. The Compensation Committee intends to preserve the Company's deduction
for compensation paid by mandating that all Named Executive Officers
automatically defer any potentially nondeductible compensation payable in any
given year in excess of $1 million into the Deferred Compensation Plan until
such a time as the compensation would be fully deductible by the Company.
REPORTS OF THE COMPENSATION
COMMITTEES ON EXECUTIVE
COMPENSATION
CompensationSalary and bonus compensation for Messrs. Byrne, Kemp, Waters and WatersBaxter is
established by the Human Resources Committee of the Board (the "Committee").Board. Stock based
compensation for Messrs. Byrne, Kemp, Waters and Baxter is established by the
Compensation Committee of the Board. All compensation matters for Messrs.
Conrad and Richards isare established by the Human Resources Committee of the
Source One Board of Directors (the "Source One Committee") which is comprised of
Messrs. Gordon S. Macklin, Terry L. Baxter, (President of FAE)Gordon S. Macklin and Roger K. Taylor (Chief Operating
Officer of FSA).
Fund American Compensation
The Human Resources Committee Theand the Compensation Committee is(collectively,
the "Committees") are comprised solelyentirely of certain non-employee directors. The
Committee
hasCommittees have responsibility for developing, administering and monitoring the
executive compensation policies of the Company.
10
Fund American's executive compensation policies are designed with one goal in
mind - maximization of shareholder value over long periods of time. The Committee believesCommittees
believe that this goal is best pursued by utilizing a pay-for-
performancepay-for-performance
program which serves to attract and retain superior executive talent and provide
management with performance-based incentives to maximize shareholder value.
Through the compensation program, the Committee seeksCommittees seek to maximize shareholder
value by aligning closely the financial interests of Fund American's management
with those of the Company's shareholders.
The Committee believesCommittees believe that the most appropriate indicator of shareholder
return is the Company's ROE as measured by growth in market value, book value
and economic value per Share.Share, each measured with dividends reinvested. The
Committee believesCommittees believe that, over long periods of time, maximizing the Company's ROE
will optimize shareholder returns.
The Committee believesCommittees believe that the performance-based compensation of the
Company's executive officers should be payable only if the Company achieves
truly superior returns for its shareholders. Therefore, many of Fund American's
performance-based compensation programs are directly linked to achievement of an
annualized ROE for the Company ofat least equal to the market yield available from
ten-year United States Treasury notes plus 700 basis points, a total return
which has been in the 13% to 15%. range in recent years. The Committee believesCommittees believe
that such returns are a challenging target for the Company in its current form.
Compensation of Fund American's management team, including the Named Executive
Officers, consists primarily of three components: base salary, annual bonus and
long-term incentive awards. When establishing each element of compensation, the
Committee considersCommittees consider the total compensation earned by or potentially available to
each member of management.
Human Resources Committee
- -------------------------
Base Salary. Base salary for each Named Executive Officer is established
annually, generally as of March 1. When establishing base salaries of the Named
Executive Officers, the Human Resources Committee considers numerous factors
including: qualifications of the executive; the corporate responsibilities of
the executive; the executive's performance since his or her last salary
adjustment; and, for all executives except Mr. Byrne, the recommendations of Mr.
Byrne.
11
Annual Bonus. For 19951996 the target annual bonus pool for all eligible employees
of the Company was equal to 50% of eligible base salary at a 15%13% annual ROE.
The aggregate size of the annual bonus pool could vary from 0% to 100% of
eligible salary. 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 Mr. Byrne. The Human Resources
Committee reviews the Annual Business Plan with management near the beginning of
the year and approves the plan after changes required by the Human Resources
Committee, if any, are made.
After establishing the aggregate size of the annual bonus pool, the Human
Resources Committee then considers the distribution of the bonus pool among the
executive officers and certain other key employees of the Company. Each
participant's allocation of the pool is determined after considering numerous
factors including individual achievements as compared to objectives included in
the Annual Business Plan, the contribution of such achievements to the Company's
overall financial performance, and the recommendations of Mr. Byrne. Mr. Byrne
receives an annual bonus, as a percent of his salary, equal to no more than the
average bonus percentage received by all other employees eligible to participate
in the bonus pool.
For 19951996 the Human Resources Committee determined that the financial results
of the Company warranted a bonus pool equal to 45.0%60% of aggregate base salary.
The principal factors considered by the Human Resources Committee in determining
the size of the 19951996 pool were: (i) the Company's superior 19951996 ROE performance of 21.1%27.4%,
as measured by change in bookeconomic value per share, with dividends reinvested, versus a 15%13% target ROE (the
predominant factor); (ii) the Company's 1996 ROE performance of 29.6% as
measured by change in market value per share; (iii) the progress made in re-deployingre-
deploying the Company's passive investment portfolio into strategic operating
investments; and (iii)(iv) overall favorable results versus certain specific
objectives contained in the 19951996 Annual Business Plan, partially offset by; (iv)(v)
less than favorabletarget ROE performance of 10.0%, as measured by change in market value per share and economicbook value
per share.
11
Gordon S. Macklin, Chairman
Howard L. Clark
Howard L. Clark, Jr.
Robert P. Cochran
George J. Gillespie, III
Frank A. Olson
Arthur Zankel
Compensation Committee
- ----------------------
Long-Term Incentive Awards. The Incentive Plan provides for granting to
executive officers and certain other key employees of the Company various types
of stock-based incentive awards including stock options and performance shares.
Stock options are rights to purchase a specified number of Shares at or above
the fair market value of Shares at the time the option is granted. Stock
options generally vest over a four-year period and expire no later than ten
years after the date on which they are granted.
Performance shares are conditional grants (payable subject to the achievement
of specific financial goals) of a specified maximum amountnumber of cash,Shares, payable
generally at the end of three- to five-year periods or as otherwise determined
by the Compensation Committee. Although performance shares are denominated in
Shares at market value, they are generally paid in cash.
The Compensation Committee believes that stock-based awards made pursuant to
the Incentive Plan are the most effective method of providing incentives for
management to strive to maximize shareholder value over the long term. The
Compensation Committee's conclusion is based on the following factors: (i) such
awards vest or are earned over multi-year periods; (ii) such awards are
generally made in the form of Shares or derivatives thereof, which helps to
align the interests of management with those of the Company's shareholders; and
(iii) the majority of Incentive Plan awards made over the last three fiscal
years are linked to the achievement of a 13% to 15% ROE over the applicable
performance period.
12
In 19951996 Messrs. Byrne, Kemp, Waters and WatersBaxter were granted 10,000, 8,9285,000, 15,000,
11,000 and 7,5007,000 performance shares, respectively, which were awarded by the
Compensation Committee at its February 15, 199521, 1996 meeting. The performance period
for such awards began on January 1, 19951996 and will continue through December 31,
1997.1998. The target performance criteria for Messrs. Byrne, Kemp, Waters and
Waters' 1995 performance share award
and for 7,500 of Mr. Kemp's 1995Baxter's 1996 performance share award is the attainment of a 15%13% ROE. For the balance of Mr. Kemp's 1995 performance share award, the target
performance criteria is the attainment of various key insurance-based measures
applicable to White Mountains.
As of December 31, 19951996 Messrs. Byrne, Kemp, Waters and WatersBaxter had, 18,750, 3,375pursuant
to a 1993 grant of performance shares, 30,000, 5,400, 6,600 and 4,1250 performance
shares eligible for payout on December 31, 1995subject1996 subject to the attainment of a
15% target ROE. The performance shares eligible for payout in 1995 were part of a 1993 grant and1996 represented
50%60% of the performance shares outstanding pursuant to that grant. All remaining and unpaid performance shares
outstanding pursuant to the 1993 grant will be eligible for payout on December
31, 1996.originally granted in 1993. During the 1993 to
19951996 performance period, the Company attained an ROE of 9.1%15.2%, 16.0% and 10.4%
as measured by the change economic value (the predominant factor), market value
and book value, respectively, calculated in accordance with the Incentive Plan.
In light of the ROE shortfall to target,ROE's attained, the Compensation Committee at its February 21, 1996January 24,
1997 meeting determined that 40%91% of such performance shares would become
immediately payable.payable and that all unearned performance shares granted in 1993
would be cancelled. As a result of certain anti-dilution provisions of the
Incentive Plan which were triggered by the Distribution, thesuch performance shares
paid in February 1996January 1997 were valued as being equal to the market value of one Fund
American Share plus one-
halfone-half the market value of one White River Share.
As of December 31, 1996 Messrs. Byrne, Kemp, Waters and Baxter had, pursuant
to a 1994 grant of performance shares, 0, 17,000, 14,000 and 10,000 performance
shares eligible for payout on December 31, 1996 subject to the attainment of a
13% target ROE. The performance shares eligible for payout in 1996 represented
100% of the performance shares originally granted in 1994. During the 1994 to
1996 performance period, the Company attained an ROE of 14.3%, 8.4% and 6.8% as
measured by the change economic value (the predominant factor), market value and
book value, respectively, calculated in accordance with the Incentive Plan. In
light of the ROE's attained, the Compensation Committee at its January 24, 1997
meeting determined that 75% of such performance shares would become immediately
payable and that all unearned performance shares granted in 1994 would be
cancelled. Such performance shares paid in January 1997 were valued as being
equal to the market value of one Fund American Share.
Gordon S. Macklin, Chairman
Howard L. Clark
Howard L. Clark, Jr.
George J. Gillespie, III
Arthur ZankelRobert P. Cochran
Frank A. Olson
Source One CommitteeCompensation
Source One's compensation programs include three components: base salary,
annual bonus and long-term incentive awards. Emphasis is placed on the two
performance-based components -- annual bonus and long-term incentive awards.
Maximization of shareholder return, as measured by certain indicators of Source
One's financial performance selected by the Source One Committee, are the
primary factors used by the Source One Committee to determine pay-for-
performance compensation for Messrs. Conrad and Richards.
The Source One Committee also considers the relative achievement towards goals
established in Source One's Annual Business Plan when determining compensation
amounts for Messrs. Conrad and Richards. Source One's Annual Business Plan is
submitted to, reviewed by and approved by the Source One Board of Directors near
the beginning of each year. Copies of the Source One Annual Business Plan are
then provided to the Fund American Board.
12
Base Salary. The philosophy of Source One's salary program is to provide
individual salaries that properly reflect the responsibilities of each position
and assure that salary levels maintain a competitive relationship while offering
appropriate recognition for performance. The base salaries of Messrs. Conrad and
Richards are considered and established annually by the Source One Committee.
Among the factors considered by the Source One Committee are the qualifications
of the executive, the corporate responsibilities of the executive, the
performance of the executive since his or her last salary adjustment, and the
recommendations of Mr. Baxter.
13
Annual Bonus. Annual bonuses are paid under an executive incentive compensation plan
which is designed to attract and retain the services of selected key officers
who are in a position to make a material contribution to the successful
operation of Source One. Incentive compensation awards are made on the basis of
individual performance during the plan year from an award pool. When determining
the amounts to be awarded to a participant (including Messrs. Conrad and
Richards), the Source One Committee considers each individual's contribution
towards attainment of goals established in Source One's Annual Business Plan.
These goals are principally focused towards the achievement of specified
operating earnings and economic return on equity ("EROE") targets. For 1995,1996, the
Source One Committee determined that the financial results of Source One
warranted a bonus pool of 12.5%25%. The principal factors considered by the Source
One Committee in determining the size of the 19951996 bonus pool were: (i) an
unfavorableattained EROE for 19951996 of 14.3% (the predominant factor), partially offset by;
(ii) reported operating earnings exceedingbelow Source One's 19951996 Annual Business Plan;
and (iii) overall favorable results versus certain specific objectives contained
in Source One's 19951996 Annual Business Plan.
Long-Term Incentive Awards. These awards are made primarily pursuant to Source
One's performance share plan, the purpose of which is to advance the interests
of Source One's shareholder by providing equity-based incentives to certain key
employees. Payout of such awards is primarily based on the achievement of
certain predefined corporate EROE goals.
For 19951996 there were no new stock-based awards made to Messrs. Conrad and
Richards. As of December 31, 19951996 Messrs. Conrad and Richards held 16,8004,000 and 18,8040
SARs, respectively. The value of each SAR is equal to the positive difference
between (i) $86.625 and (ii) the closing price of one Share on the date
preceding the exercise of the SAR multiplied by a factor of 1.223. The SARs are
fully vested and expire upon termination of employment or upon exercise of their
related investment contracts to which the SAR is attached. The investment
contracts were awarded to Messrs. Conrad and Richards in 1993 in exchange for
all their shares of Source One common stock. During 19951996 Messrs. Conrad and
Richards exercised a portion of their investment contracts and, as a result,
forfeited 9,323realized $92,432 and 5,345 out-of-the-money$151,020 in the form of in-of-the-money SARs, respectively.
As of December 31, 19951996 Messrs. Conrad and Richards had 26,67720,007 and 19,0550
performance shares outstanding, respectively. The outstanding performance
shares may be earned based on a pre-defined fixed formula in four equal tranches
over fourthree overlapping three-year periods. Each tranche remaining represents
6,669 and 4,7640 performance shares at the target EROE for Messrs. Conrad and
Richards, respectively.
The actual EROE achieved for the first tranche, may be earnedas measured over the
performance period beginning January 1, 1994 and ending December 31, 1996. The target and maximum EROE's for1996, was
determined to be 5.6% which was less than the first tranche are 12.8% and 19.8%, respectively. Norequired minimum EROE of 6.8%.
Accordingly, no performance shares would be
payable from the first tranche if the EROE is less than 6.8%.were paid for 1996 and such performance
shares were cancelled. The performance period for the second tranche is January
1, 1995 through December 31, 1997, and the related minimum, target and maximum
EROE's are 8.8%, 14.8% and 21.8%, respectively. No
performance shares would be payable from the second tranche if the EROE is less
than 8.8%. The performance period for the
third tranche is January 1, 1996 through December 31, 1998, and the related
minimum, target and maximum EROE's are 6.6%, 12.6% and 18.6%19.6%, respectively. NoThe
performance shares would be payable fromperiod for the thirdfourth tranche ifis January 1, 1997 through December
31, 2000, and the EROE is less than 6.6%.related minimum, target and maximum EROE's are 7.4%, 13.4% and
20.4%, respectively.
Terry L. Baxter, Chairman
Gordon S. Macklin
Roger K. Taylor
1314
SHAREHOLDER RETURN GRAPH
The following graph shows the five-year cumulative total return for a
shareholder who invested $100 in Shares (New York Stock Exchange symbol "FFC")
at the close of business on December 31, 1990,1991, assuming re-investment of
dividends. For comparison, cumulative returns for the five-year period ended
December 31, 1995,1996, are also shown for the Standard & Poor's 500 Stocks (Property
& Casualty) Capitalization Weighted Index ("S&P P&C") , the Standard & Poor's
500 Stocks Capitalization Weighted Index ("S&P 500") and the Standard & Poor's
Financial Services Index.Index ("S&P FIN").
The S&P P&C has been presented below for the first time in the 1997 Proxy
Statement. The Company believes that this index provides a more relevant
comparison against the Company's performance than the S&P FIN given the fact
that the Company's investment in Source One (which is primarily a financial
services company) has significantly decreased in recent years and the Company's
investment in White Mountains (primarily a property and casualty insurance
company) has significantly increased over the same period. The Company intends
to present its performance only against the S&P P&C and S&P 500 in its future
filings.
[LINE GRAPH APPEARS HERE]
Five-Year Cumulative Total Return
(value of $100 invested December 31, 1990)
[GRAPH APPEARS HERE]1991)
1990
1991 1992 1993 1994 1995 ------------------------------------------------------1996
------------------------------------------------
FFC $100.0 $136.0 $140.1 $183.5 $168.8 $174.6$103.0 $134.9 $124.1 $128.4 $166.5
S&P P&C 100.0 117.1 115.0 120.7 163.4 198.5
S&P 500 100.0 130.5 140.4 154.6 156.6 215.5107.6 118.5 120.0 165.1 203.1
S&P FIN 100.0 150.7 186.0 206.6 199.3 307.0
------------------------------------------------------123.4 137.1 132.2 204.1 275.9
------------------------------------------------
1415
COMPENSATION PLANS
Retirement Plans
All Named Executive Officers employed by the Company participate solely in
Fund American retirement plans. All Named Executive Officers employed by Source
One participate solely in Source One retirement plans.
Fund American Retirement Plans
In 19951996 Messrs. Byrne, Kemp, Waters and WatersBaxter participated in the Deferred
Benefit Plan, a nonqualified defined contribution plan established for the
purpose of providing retirement and postretirement benefits. The amount of
annual contributions to the Deferred Benefit Plan are determined using actuarial
assumptions which, through 1994, were similar to those of Source One's
Retirement Plans (which are described below). In 1995 the Committee eliminated
the limit on salary and bonus (previously equal to 135% of salary) which is
considered to calculate annual contributions to the Deferred Benefit Plan.
Participants in the Deferred Benefit Plan may choose between four investment
options for their plan balances. Amounts credited to the Deferred Benefit Plan
accounts of such individuals have been included in the Summary Compensation
Table.
Each of Messrs. Byrne, Cochran, Kemp, Waters and WatersBaxter may also participate
voluntarily in the Deferred Compensation Plan. Pursuant to the Deferred
Compensation Plan, participantsExecutive Officers and Directors may defer all or a portion
of qualifying remuneration payable by Fund American. Amounts deferred pursuant
to the Deferred Compensation Plan are included in the Summary Compensation
Table. Participants in the Deferred Compensation Plan may choose between four
investment options for their plan balances.
As of December 31, 19951996 the account balances of Messrs. Byrne, Cochran, Kemp,
Waters and WatersBaxter under both the Deferred Benefit Plan and Deferred Compensation
Plan included 25,496, 1,93227,171; 737; 4,436; 18,614 and 16,350 phantom shares, respectively, of which 5,115, 1,719,
and 1,103 phantom shares, respectively, are valued as being equal to the market
value of one Share with the balance of the phantom shares being equal to one
Share plus one-half White River Share.824 Phantom Shares, respectively.
Such phantom sharesPhantom Shares are payable only in cash.
Source One Retirement Plans
Messrs.Mr. Conrad and Richards participateparticipates in Source One retirement plans under which they are
entitled to receive estimated annual retirement benefits in accordance with the
table shown below. The level of benefits shown in the table does not reflect a
reduction to be made based on compensation for which social security taxes were
paid by Source One on behalf of each participant.
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Gross annual benefit paid as a straight-life annuity
Average eligible compensation for five (to be reduced by .485% of average salary up to covered
highest paid consecutive years compensation, that is, the average of social security
in the last ten years of service wage bases for the 35 years prior to retirement)
- ---------------------------------------- -------------------------------------------------------------------------------------------------- ---------------------------------------------------------------
15 years 20 years 25 years 30 years 35 years
-------- -------- -------- -------- --------
---------- --------- --------- --------- ---------
$100,000
$125,000 $ 24,000 $ 32,00030,000 $ 40,000 $ 48,00050,000 $ 56,00060,000 $ 70,000
150,000 36,000 48,000 60,000 72,000 84,000
175,000 42,000 56,000 70,000 84,000 98,000
200,000 48,000 64,000 80,000 96,000 112,000
225,000 54,000 72,000 90,000 108,000 126,000
250,000 60,000 80,000 100,000 120,000 140,000
300,000 72,000 96,000 120,000 144,000 168,000
400,000 96,000 128,000 160,000 192,000 224,000
450,000 108,000 144,000 180,000 216,000 252,000
500,000 120,000 160,000 200,000 240,000 280,000
===============================================================================================================================================================================================================
1516
Participants in the Source One retirement plans are eligible to receive normal
retirement benefits at age 65, reduced normal retirement benefits at age 55, or
a deferred vested benefit if they terminate employment prior to retirement but
after five years of service. Such benefits are based on each participant's
average eligible compensation for the five highest paid consecutive years in his
or her last ten years before retirement or termination and on total years of
credited service at retirement up to a maximum of 35 years. Annual eligible
compensation for Messrs.Mr. Conrad and Richards includes base salary plus bonus received, but is
limited to not more than one and one-third of base salary in total. Benefits
for Messrs.Mr. Conrad and Richards accrued under the Source One retirement plans are based on 19951996
eligible compensation amounts of $150,000.
Benefits under the Source One retirement plans for a single person are
computed on a straight-life basis and benefits for a married person are
generally computed on a joint and 50% survivor basis, subject to each
participant's right to elect alternative survivor benefits.
As of December 31, 1995 Messrs.1996 Mr. Conrad and Richards had 12 and 2413 whole years of credited service respectively, for
purposes of computing theirhis benefits under the Source One retirement plans.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION IN
COMPENSATION DECISIONS
Fund American Committee
The Human Resources Committee of the Board is composed of the independent
outside directors, namely, Messrs. Clark; Clark, Jr.; Gillespie; Macklin and
Zankel. The Company notes the following relationships and transactions pertaining to
American Express,Messrs. Clark, Jr., Cochran, Gillespie, Macklin and Zankel who are members of
the Compensation Committee and/or the Human Resources Committee.
Mr. Clark, Jr. is Vice Chairman of Lehman Brothers, Inc. Lehman Brothers Inc.
has, from time to time, provided various services to Fund American including
investment banking services, brokerage services, underwriting of debt and Messrs. Gillespie,
Macklinequity
securities and Zankel.financial consulting services.
Mr. Cochran is Chief Executive Officer of FSA. As of December 31, 1996 Fund
American had a 23.0% voting interest in FSA. During 1996, Mr. Kemp served as
the Chairman of FSA's compensation committee which determines Mr. Cochran's
compensation. FSA has also been retained by Fund American to manage portions of
its fixed maturity portfolio.
Mr. Gillespie is a Partner in the firm Cravath, Swaine & Moore, which has been
retained by Fund American from time to time to perform legal services.
Mr. Macklin is non-executive Chairman of White River. Through December 22,
1993 White River was
formerly a wholly-owned subsidiary of the Company. The Company currently owns
1,014,750 White River Shares, or approximately 20.7%20.8% of the outstanding White
River Shares. White River had outstanding a $50 million term
note and a $40 million revolving loan payable to the Company which were repaid
on various dates during 1995.
Mr. Zankel is Co-Managing Partner of First Manhattan Co. First Manhattan Co.
has provided brokerage, discretionary investment management and non-
discretionary investment advisory services to Fund American from time to time.
American Express and its former affiliate Lehman Brothers Inc. have, from time
to time, provided various services to Fund American including investment banking
services, brokerage services, underwriting of debt and equity securities and
financial consulting services. Mr. Clark was formerly Chairman of American
Express and Mr. Clark, Jr. is Vice Chairman of Lehman Brothers Inc.
Fund American believes that all the preceding transactions were on terms that
were reasonable and competitive. Additional transactions of this nature may be
expected to take place in the ordinary course of business in the future.
Source One Committee
Source One had no instances of compensation committee interlocks or insider
participation in compensation matters during 1996.
Certain Filings
Pursuant to SEC rules relating to the reporting of changes in beneficial
ownership of the Company, Mr. Byrne inadvertently failed to file a Form 4
pertaining to shares he gifted in November 1995. Upon discovery of this
oversight, Mr. Byrne properly reported the transaction in 1996.
17
PROPOSAL 2
APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee of the Board has recommended Ernst & YoungKPMG Peat Marwick LLP
("Ernst &
Young"KPMG") for reappointmentappointment as the Independent Auditors of Fund American. Subject
to shareholder approval, the Board has appointed Ernst & YoungKPMG as Fund American's
Independent Auditors for 1996.1997. Representatives from KPMG and Ernst & Young has provided various
professional services to Fund American since 1974. A representative of Ernst &
YoungLLP
(the Company's auditors for 1996) will attend the 19961997 Annual Meeting, will be
provided with the opportunity to make a statement and will be available to
answer appropriate questions.
16
The Board recommends a vote FOR Proposal 2 approving the appointment of Ernst
& YoungKPMG
as Fund American's Independent Auditors for 1996.1997.
OTHER MATTERS
Manner of Voting Proxies
Shares represented by all valid proxies received will be voted in the manner
specified in the proxies. Where specific choices are not indicated, the Shares
represented by all valid proxies received will be voted: (i) for election of
the nominees named earlier in this Proxy Statement as directors; and (ii) for
the appointment of Ernst & YoungKPMG as Independent Auditors. 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 19961997 Annual Meeting.
Votes Required for Approval
The proposals require a favorable vote of a majority of the votes actually
cast with respect thereto (excluding abstentions and Shares not voted).
Inspectors of Election
First Chicago Trust Company of New York, P.O. Box 2532, Jersey City, New
Jersey 07303-2532, has been appointed as Inspectors of Election for the 19961997
Annual Meeting. Representatives of First Chicago Trust Company of New York will
attend the 19961997 Annual Meeting to receive votes and ballots, supervise the
counting and tabulating of all votes and ballots, and determine the results of
the vote.
Costs of Solicitation
The solicitation of proxies will be made primarily by mail; however,
directors, officers, employees and agents of the Company may also solicit
proxies by telephone, telegram or personal interview. Solicitation costs will be
paid by the Company. Upon request, the Company will reimburse banks, brokerage
houses and other custodians, nominees and fiduciaries for their reasonable
expenses incurred in forwarding proxy materials to their principals.
Available Information
The Company and Source One are subject to the informational reporting
requirements of the Exchange Act. In accordance therewith, the Company files
reports, proxy statements and other information with the SEC, and Source One
files reports 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) filed by the Company with the SEC. Written or telephone
requests should be directed to the Corporate Secretary, Fund American
Enterprises Holdings, Inc., 80 South Main Street, Hanover, New Hampshire 03755-2053,03755-
2053, telephone number (603) 643-1567.
18
Proposals by Shareholders for the 19971998 Annual Meeting of Shareholders
If any shareholder that is a qualified holder of record of Shares having an
aggregate market value of at least $1,000 wishes to present a proposal for
action at the 19971998 Annual Meeting of Shareholders, such proposal must be
received by the Corporate Secretary at 80 South Main Street, Hanover, New
Hampshire 03755-2053, no later than February 14, 199727, 1998 in order to be considered
for inclusion in the Company's 19971998 Proxy Statement. Under the Company's Bylaws,
a shareholder proposal shall include (in addition to any requirements of law):
(i) a brief description of the proposal and the reasons for action upon it at
the 19971998 Annual Meeting of Shareholders (and in the event that the proposal
includes an amendment to the Company's Certificate of Incorporation, the
language of the proposed amendment); (ii) the name and address of the
shareholder making the proposal; (iii) a representation that the shareholder is
a qualified holder of record of Shares having an aggregate market value of at
least $1,000 and that the shareholder intends to appear at the meeting, in
person or by proxy; and (iv) any material interest of the shareholder in such
proposal.
By Order of the Board of Directors
Dennis P. Beaulieu, Corporate Secretary
March 29, 1996
171997
19
PROXY
----- FUND AMERICAN ENTERPRISES HOLDINGS, INC.
P -----
R PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY FOR THE
O ANNUAL MEETING MAY 16, 199629, 1997
X
Y The undersigned hereby appoints John J. Byrne and Howard L. Clark,Gordon S. Macklin, and
each of them, proxies, with full power of substitution, to vote all Shares
of the undersigned at the 19961997 Annual Meeting of shareholders to be held
May 16, 1996,29, 1997, 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 ELECTION OF DIRECTORS, FOR THE APPOINTMENT OF ERNST &
YOUNGKPMG PEAT
MARWICK LLP AS INDEPENDENT AUDITORS, AND AT THEIR DISCRETION ON ANY OTHER
MATTER THAT MAY PROPERLY COME BEFORE THE MEETING.
(Change of
Address/Comments)
Your vote for the
Election of Directors may
be indicated on the ----------------
reverse. The --------------------------------
following ----------------
Directors are being ----------------
nominated at this meeting ----------------
for election to terms --------------------------------(If you have
ending in the year indicated.
--------------------------------
1999. John J. Byrne --------------------------------
George J. Gillespie, III (If you have written in the
indicated. above space,
please mark the
corresponding
box on the
reverse side of
this card).
2000. Howard L. Clark, Jr.
Robert P. Cochran
Arthur Zankel
YOUR VOTE IS IMPORTANT! PLEASE SIGN AND DATE
ON THE REVERSE SIDE AND RETURN PROMPTLY IN
THE ENCLOSED POSTAGE-PAID ENVELOPE OR
OTHERWISE TO FIRST CHICAGO TRUST COMPANY OF
NEW YORK, POST OFFICE BOX 8085, EDISON, NEW
JERSEY 08818-9052.
--------
SEE
REVERSE
SIDE
--------
PLEASE RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE
7612
[X]- --
X PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
This proxy when properly executed will
be voted in the manner directed herein.
If no directions are made, this proxy
will be voted FOR the Election of
Directors and FOR the Appointment of
Independent Auditors.
- -------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
- -------------------------------------------------------------------------------
1 Election of Directors (see reverse)
FOR WITHHELD
[_] [_]
FOR, except vote withheld from the following nominee(s)
- ---------------------------------------------------------
2. Appointment of Independent Auditors
FOR AGAINST ABSTAIN
[_] [_] [_]
Change of Address
Comments on [_]
Reverse Side
The signer hereby revokes all proxies heretofore given by the signer to vote
at said meeting or any adjournment thereof.
Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
- --------------------------------
- --------------------------------
SIGNATURE(S) DATE
PROXY
----- FUND AMERICAN ENTERPRISES HOLDINGS, INC. -----
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY FOR THE
ANNUAL MEETING MAY 16, 1996
The undersigned hereby appoints John J. Byrne and Howard L. Clark, and each
of them, proxies, with full power of substitution, to vote all Shares of
the undersigned at the 1996 Annual Meeting of shareholders to be held May
16, 1996, 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 ELECTION OF DIRECTORS, FOR THE APPOINTMENT OF ERNST &
YOUNG LLP AS INDEPENDENT AUDITORS, AND AT THEIR DISCRETION ON ANY OTHER
MATTER THAT MAY PROPERLY COME BEFORE THE MEETING.
(Change of Address/Comments)
Your vote for the Election of Directors
may be indicated on the reverse. The ----------------------------------
following Directors are being nominated
at this meeting for election to terms ----------------------------------
ending in the year indicated.
----------------------------------
1999. John J. Byrne
George J. Gillespie, III ----------------------------------
(If you have written in the above
space, please mark the
corresponding box on the reverse
side of this card).
YOUR VOTE IS IMPORTANT! PLEASE SIGN AND DATE ON THE REVERSE SIDE AND RETURN
PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE OR OTHERWISE TO FIRST CHICAGO
TRUST COMPANY OF NEW YORK, POST OFFICE BOX 8085, EDISON, NEW JERSEY 08818-9052.
-------
PLEASE RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE SEE
REVERSE
SIDE
-------
0278
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
This proxy when properly executed will be voted in the manner directed herein.
If no directions are made, this proxy will be voted FOR the Election of
Directors and FOR the Appointment of Independent Auditors.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
- --------------------------------------------------------------------------------
1FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of Directors
(see reverse)
FOR WITHHELD
[_] [_]2. Appointment of Independent Auditors
FOR, except vote withheld from the following nominee(s)
- -------------------------------------------------------
2. Appointment of Independent Auditors
FOR AGAINST ABSTAIN
[_] [_] [_]------------
Change
of
Address
Comments
on
Reverse
Side
The signer hereby revokes all proxies heretofore given by the signer to vote at
said meeting or any adjournment thereof.
Please sign exactly as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
SIGNATURE(S)DATE