Exhibit
10.16


 


ONEBEACON
PERFORMANCE UNIT PLAN


 


1.  Purpose of the Plan.  The purpose of the Plan is to advance the
interests of the Company and its members by providing incentives in the form of
Performance Units to certain selected executives and key employees of the
Company and its Subsidiaries.


 


2.  Definitions.  The following capitalized terms used in the
Plan have the respective meanings set forth in this Section.


 


(a)  Actual Units.  The number of Target Units multiplied by the
applicable Performance Percentage.


 


(b)  Actual Value.  The value of each Actual Unit determined by
multiplying the Initial Value by the sum of (i) 100% and (ii) the aggregate
standard pre-tax insurance return-on-equity of the Company and its subsidiaries
over the Award Period, as determined in good faith by the Committee.  By way of example, if the standard pre-tax
insurance return-on-equity of the Company were to be 22% for each year in a
three-year Award Period, the aggregate standard pre-tax insurance
return-on-equity of the Company and its subsidiaries over the Award Period
would be 81.6% (i.e., 22% compounded annually in each of the three years
comprising the Award Period) and the Actual Value of each Actual Unit would be
$181.60 (i.e., $100 x 181.6%).


 


(c)  Adverse Change in the Plan.  The occurrence of any of the following
events:


 


(i)  termination of the Plan;


 


(ii)  amendment of the Plan 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 a plan or arrangement providing for the grant of long-term
incentive awards of comparable value to individual Participants in the Plan or
in the aggregate, as the case may be; or


 


(iii)  in respect of any holder of an Award, a
material diminution in his rights held under an 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.


 


(d)  Affiliate.  In respect of an entity or person, any entity under the control
of, in control of, or under common control with, such entity or person.


 


(e)  Award.  An award of Performance Units granted pursuant to the Plan.


 


(f)  Award Agreement.  The agreement between the Participant and
the Company specifying the applicable terms of an Award.


 


(g)  Award Period.  A period in respect of any Award, commencing
as of the beginning of the fiscal year of the Company in which such Award is
made.  An Award Period may contain any
number of Performance Periods.


 


(h)  Board.  The Board of Managers of the Company.


 


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(i)  Change in Control.  The occurrence of any of the following
events:


 


(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, an
underwriter temporarily holding Parent Shares in connection with a public
issuance thereof or an employee benefit plan of Parent or its Affiliates,
becomes the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of thirty-five percent (35%) or more of the then outstanding
Parent Shares;


 


(ii)  the Continuing Directors cease for any
reason to constitute a majority of the Board of Directors of Parent; or


 


(iii)  Parent or the Company disposes of the
business for which the Participant’s services are principally performed pursuant
to a sale or other disposition of all or substantially all of that business or
assets of Parent or the Company relating to that business (including stock of a
subsidiary of Parent or the Company).


 


(j)  Code.  The Internal Revenue Code of 1986, as amended, or any successor
thereto.


 


(k)  Committee.  The Human Resources Committee of the Board.


 


(l)  Company.  OneBeacon Insurance Group LLC.


 


(m)  Constructive Termination.  A termination of employment with the Company
and its Affiliates 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 an Affiliate and which follows
(i) a material decrease in his salary or (ii) a material diminution in the
authority, duties or responsibilities of his position as a result of which the
Participant determines 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, a Constructive Termination shall not occur
until and unless 30 days have elapsed from the date the Company receives such
written notice from the Participant and, during that period, the Company fails
to cure, or cause to be cured, the circumstance serving as the basis on which
the declaration of Constructive Termination is given.


 


(n)  Continuing Director.  A member of the Board of Directors of Parent
(i) who is not an employee of Parent or its subsidiaries or of a holder of, or
an employee or an Affiliate of an entity or group that holds, thirty-five (35%)
or more of the Parent Shares and (ii) who either was a member of the Board of
Directors of Parent on December 31, 2002, or who subsequently became a
director of the Parent and whose election, or nomination for election, by
Parent’s shareholders was approved by a vote of a majority of the Continuing
Directors then on Board of Directors of Parent (which term, for purposes of this
definition, shall mean the whole Board of Directors of Parent and not any
committee thereof).


 


(o)  Earned Payment.  With respect to each Award, the amount
determined pursuant to Section 5(c) or Section 7, as applicable.


 


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(p)  Employee.  Any employee of the Company or of any Subsidiary.


 


(q)  Exchange Act.  The Securities Exchange Act of 1934, as
amended.


 


(r)  Initial Value.  The initial value of each Actual Unit, which
shall be $100 unless otherwise specified in the applicable Award Agreement.


 


(s)  Officer.  An Employee who is considered an officer of Parent under Rule
16a-1(f) (or any successor rule) promulgated under the Exchange Act.


 


(t)  Parent.  White Mountains Insurance Group, Ltd. or any successor thereto.


 


(u)  Parent Shares.  Common Shares, par value of $1.00, of
Parent.


 


(v)  Participant.  An Employee who is selected by the Committee
pursuant to Section 4 to participate in the Plan.


 


(w)  Performance Goal(s).  The applicable performance measure(s)
selected by the Committee to determine the applicable Performance Percentage.


 


(x)  Performance Percentage.  The percentage of Target Units earned by a
Participant, which shall be from 0% to 200%, based upon the level of
fulfillment of the Performance Goals(s) established with respect to an Award
for an Award Period.  The method of
determining the applicable Performance Percentage shall be determined by the
Committee and shall be specified in the applicable Award Agreement.


 


(y)  Performance Period.  The calendar year or any other period that
the Committee, in its sole discretion, may determine, provided that each
Performance Period must commence on or after the first day of the Award Period
and shall end no later than the last day of the Award Period.


 


(z)  Performance Units.  Notional units which represent the right to
receive cash if specified Performance Goals established by the Committee are
satisfied with respect to an Award.


 


(aa)  Plan.  This OneBeacon Performance Unit Plan, as amended from time to
time.


 


(bb)  Qualifying Event.  With respect to a Participant, the
occurrence of either (i) a Termination Without Cause; (ii) a Constructive
Termination; or (iii) an Adverse Change in the Plan.


 


(cc)  Subsidiary.  A subsidiary of the Company, as defined in Section 242(f) of
the Code (or any successor section thereto), or as determined by the
Committee, that in either case adopts the Plan in accordance with
Section 12.


 


(dd)  Target Units.  The number of Performance Units initially
awarded to a Participant on the date of grant with respect to an Award Period.


 


(ee)  Termination Without Cause.  A termination of the Participant’s
employment with the Company or a subsidiary by the Company or the subsidiary
other than (i) due to the Participant’s death or total permanent disability or
(ii) for Cause.   A transfer of a
Participant’s employment to an Affiliate of the Company shall not, by itself,
be considered


 


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a
Termination without Cause hereunder. 
For this purpose, “Cause” shall mean (a) an act or omission by the
Participant that constitutes a felony or any crime involving moral turpitude;
or (b) wilful gross negligence or wilful 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, a termination of a Participant’s employment with the Company or one
of its subsidiaries due solely to the consummation of a corporate transaction
described in clause (iii) of the definition of Change in Control shall not be
deemed to be a “Termination Without Cause” if the purchaser 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 granted.


 


3.  Administration.  The Plan shall be administered by the
Committee or such other persons or entities designated by the Board.  The Committee may delegate its duties and
powers in whole or in part to any subcommittee thereof or to the Board of
Directors of any Subsidiary.  All
references to the Committee hereafter shall be deemed to be references to the
Committee and/or the applicable other persons, entities or subcommittee(s) to
whom administrative duties and/or powers hereunder have been so delegated.  The Committee shall have the authority to
select the Employees who shall be Participants, to determine the size and terms
of an Award (subject to the limitations imposed on Awards in Section 5),
to modify the terms of any Award that has been granted, to determine the time
when Awards will be made, to determine the Award Periods and Performance
Periods applicable to an Award to determine the Performance Percentages applicable
to an Award,  to determine the terms of
a Participant’s Award Agreement (which need not be identical or uniform), to
establish Performance Goals in respect of such Performance Periods, to certify
whether such Performance Goals were attained and to make such other
determinations that are not prohibited by this Plan.  The Committee is authorized to interpret the Plan, to establish,
amend and rescind any rules and regulations relating to the Plan, and to make
any other determinations that it deems necessary or desirable.  Any decision of the Committee in the
interpretation and administration of the Plan, as described herein, shall lie
within its sole and absolute discretion and shall be final, conclusive and binding
on all parties concerned. Determinations made by the Committee under the Plan
need not be uniform and may be made selectively among Participants, regardless
of whether such Participants are similarly situated.  The Committee shall have the right to deduct from any payment
made under the Plan any federal, state, local or foreign income or other taxes
required by law to be withheld with respect to such payment.


 


4.  Eligibility and Participation.  The Committee shall designate those
Employees who shall be Participants. 
Participants shall be selected from among the Employees who are in a
position to have a material impact on the results of the operations of the
Company or of one or more of its subsidiaries. 
The designation of the Participants may be made individually or by
groups or classifications of Employees, as the Committee deems
appropriate.  Employees shall not have a
right to be designated as Participants and the designation of an Employee as a
Participant shall not obligate the Committee to continue such Employee as a
Participant in subsequent periods.


 


5.  Awards.


 


(a)  Grant.  In each Award Agreement, the Committee shall specify (i) the
number of Target Units, (ii) the Performance Goal(s) to be attained within
specified Performance Periods and/or Award Period, (iii) the Award Period, and
(iv) the method for determining the applicable Performance Percentage based
upon the level of achievement of the applicable Performance Goal(s).


 


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(b)  Performance Goals.  The performance goals for any Award 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) book value; (v) return on stockholders’
equity; (vi) expense management; (vii) return on investment; (viii)
improvements in capital structure; (ix) combined ratios (GAAP or SAP); (x)
operating ratios; (xi) profitability of an identifiable business unit or
product; (xii) maintenance or improvement of profit margins; (xiii) market
share; (xiv) revenues or sales; (xv) costs; (xvi) cash flow; (xvii) working
capital; (xviii) return on assets; (xix) customer satisfaction; (xx) employee
satisfaction or (xxi) any other performance measure selected by the Committee
in its sole discretion.  The foregoing
criteria, as applicable, may relate to the Company, one or more of its
Affiliates, one or more of its divisions, units, partnerships, joint venturers,
minority investments, product lines or products, or to 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,
the Performance Goals may be calculated without regard to extraordinary items.


 


(c)  Payment.  As soon as practicable after the end of the Award Period or such
earlier date as the Committee in its sole discretion may designate, the
Committee shall determine and certify to the Board (i) whether the applicable
Performance Goal(s) have been attained in whole or in part with respect to a
given Participant’s Award and (ii) the Performance Percentage applicable to a
given Participant’s Award.  At the end
of the Award Period, the Committee shall ascertain the Actual Value and the
number of Actual Units.  Unless
otherwise determined by the Committee, a Participant’s Earned Payment with
respect to an Award shall be equal to the Actual Value multiplied by the number
of Actual Units.  A Participant’s Earned
Payment shall be settled through a cash payment to the Participant.  Payment of any Earned Payment shall be made
by the Company as promptly as practicable or deferred to such other time or
times as the Committee shall determine.


 


6.  Termination of Employment.   Except as set forth in Section 7 or
otherwise set forth in an Award Agreement, a Participant shall immediately
forfeit all outstanding Awards upon any termination of employment prior to the
end of the applicable Award Period.  The
Committee may, at its discretion, provide that if a Participant dies, retires,
is assigned to a different position, or is granted a leave of absence, or if
the Participant’s employment is otherwise terminated, during an Award Period,
then all or a portion of the Participant’s Award, as determined by the
Committee, may be paid to the Participant (or his or her beneficiary) after the
end of the Performance Period in which the such event occurs.


 


7.  Change in Control.


 


(a)  If a Qualifying Event occurs with respect to
a Participant after a Change in Control, then each Award held by such
Participant that was granted prior to the Change in Control shall be canceled
and such Participant shall be entitled to receive in respect of each such
canceled Award a payment equal to the product of (i) the Applicable Target
Units, (ii) the Applicable Performance Percentage and (iii) the Applicable
Actual Value.  For this purpose, (A) the
“Applicable Target Units” is equal to the number of Target Units for each
canceled Award multiplied by a fraction, the numerator of which is the number
of full months that has elapsed since the first day of the applicable Award
Period to the date of the applicable Qualifying Event and the denominator of
which is the total number of months in the Award Period, (B) the “Applicable
Performance Percentage” is equal to 100% and (C) the “Applicable Actual Value”
is equal to the greater of the Actual Value


 


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determined
as of the last day of the calendar quarter ending prior to the date of the
applicable Qualifying Event or the Actual Value determined by the Board in
connection with the Change in Control. 
Payment of any amount in respect of an Award as described above in
this Section 7(a) shall be made as promptly as possible after the
occurrence of the Qualifying Event.


 


(b)  Notwithstanding anything herein to the
contrary, if, following a Change in Control, a Participant’s employment remains
continuous through the end of an Award Period, then the Participant shall be
paid with respect to those Awards for which he would have been paid had there
not been a Change in Control and the Earned Payment shall be determined in
accordance with Section 5(c).


 


8.  Amendments or Termination.  The Board may amend, alter or discontinue
the Plan, but no amendment, alteration or discontinuation shall be made which
would impair any of the accrued rights or obligations under any Award
theretofore granted to a Participant without such Participant’s consent;
provided, however, that the Committee may amend the Plan in such manner as it
deems necessary to permit the granting of Awards meeting the requirements of
the Code or other applicable laws.


 


9.  No Right to Employment.  Neither the Plan nor any action taken
hereunder shall be construed as giving any Participant or other person any
right to continue to be employed by, or to continue to perform services for,
the Company or any subsidiary, and the right to terminate the employment of or
performance of services by any Participant at any time and for any reason is
specifically reserved to the Company and its subsidiaries.


 


10.  Nontransferability of Awards.  An Award shall not be transferable or
assignable by the Participant otherwise than by will or by the laws of descent
and distribution.


 


11.  Reduction of Awards.  Notwithstanding anything to the contrary
herein, the Committee, in its sole discretion (but subject to applicable law),
may reduce any amounts payable to any Participant hereunder in order to satisfy
any liabilities owed to the Company or any of its Subsidiaries by the
Participant.


 


12.  Participation of Subsidiaries.  If a subsidiary 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.  A Subsidiary that adopts the
Plan in accordance with the Section shall be permitted to rename the Plan
under the name of such Subsidiary.  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.  The Board in its discretion may waive
compliance with any provisions in this section.


 


13.  Claims Procedure.  In general, any claim for benefits under the
Plan shall be filed by a Participant or beneficiary (“claimant”) on the form
prescribed for such purpose with the Committee.  If a claim for benefits under the Plan is wholly or partially
denied, notice of the decision shall be furnished to the claimant by the
Committee within a reasonable period of time after receipt of the claim by the
Committee.  The claims procedure shall
be as follows:


 


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(a)  Any claimant who is denied a claim for
benefits shall be furnished written notice setting forth:


 


(i)  the specific reason or reasons for the
denial;


 


(ii)  specific reference to the pertinent
provision of the Plan upon which the denial is based;


 


(iii)  a description of any additional material or
information necessary for the claimant to perfect the claim; and


 


(iv)  an explanation of the claim review procedure
under the Plan.


 


(b)  In order that a claimant may appeal a denial
of a claim, the claimant’s duly authorized representative may:


 


(i)  request a review by written application to
the Committee, or its designate, no later than sixty (60) days after receipt by
the claimant of written notification of denial of a claim;


 


(ii)  review pertinent documents; and


 


(iii)  submit issues and comments in writing.


 


(c)  A decision on review of a denied claim shall
be made not later than sixty (60) days after receipt of a request for review,
unless special circumstances require an extension of time for processing, in
which case a decision shall be rendered within a reasonable period of time, but
not later than one hundred and twenty (120) days after receipt of a request for
review.  The decision on a review shall
be in writing and shall include the specific reason(s) for the decision and the
specific reference(s) to the pertinent provisions of the Plan on which the
decision is based.


 


14.  Miscellaneous Provisions.  The Company is the sponsor and legal obligor
under the Plan and shall make all payments hereunder, other than any payments
to be made by any of the Subsidiaries, as described below (in which case such
payments shall be made by such Subsidiary, as appropriate).  If a Subsidiary adopts the Plan in
accordance with Section 12, the Subsidiary shall be responsible for all
payments made under the Plan for Awards granted by the Board of Directors of
the Subsidiary including expenses involved in administering the Plan at the
Subsidiary level.  The Plan is
unfunded.  The Company shall not be
required to establish any special or separate fund or to make any other
segregation of assets to ensure the payment of any amounts under the Plan, and
the Participant’s rights to any payment hereunder shall be no greater than the
rights of the Company’s (or the applicable Subsidiary’s) unsecured
creditors.  All references to Sections
herein shall be deemed to be references to the specified sections of this Plan.


 


15.  Taxes.  The Company and its Subsidiaries shall have the right to deduct
from any payment made under the Plan 
any federal, state or local income, payroll or other taxes required by
law to be withheld with respect to such payment.


 


16.  Choice of Law.  The Plan shall be governed by and construed
in accordance with the laws of the Delaware applicable to contracts made and to
be performed in the State of New York.


 


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17.  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 Units or  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.


 


18.  Effectiveness of the Plan.  The Plan shall be effective as of
February 12, 2003.


 


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