Exhibit
10.14


 


Esurance Holdings, Inc.


Performance Unit Plan


2008-2010


 


The
Purpose of the Plan:


 


1.              The purpose of the Plan: is to advance
the interest of Esurance Holdings, Inc. (the “Company”) and its owners by
providing incentives to service providers and by providing for a reasonable
sharing of the financial performance of the enterprise between owners and
service providers.


 


2.              Summary:  From time to time, the Board
of Directors of the Company (the “Board”) may grant to executives of, or
consultants to, the Company or its subsidiaries (each, a “Participant”) a
number of units (“Performance Units”) whose ultimate payment value (the “Award
Value”) is determined in relation to the economic performance of the Esurance
Segment over specified periods of time (each such period, an “Award Period”) as
set forth in this Plan.  Performance Units
granted for any Award Period ending prior to December 31, 2010 will have an
initial financial value of $1,000 which value will increase or decrease based
upon periodic Net EROC (such value, as increased or decreased over time, the “Financial
Value”).  At the end of each Award Period,
the Board will determine (i) the final Financial Value of each Performance
Unit based upon annual Net EROC over such Award Period, and (ii) the Economic
Combined Ratio for such Award Period.  If
the Economic Combined Ratio is less than or equal to 102% for such Award Period,
the Board in its sole discretion will assign a multiplier percentage from 0% to
100% (the “Harvest Percentage”) for such Award Period taking into account the growth
in direct written premium and gross Economic Value Added over the Award Period
relative to the Company’s plan for such period. 
If the Economic Combined Ratio is greater than 102%, then the Harvest
Percentage will be 0%.  The Award Value of
the matured Performance Units for an Award Period shall be equal to the product
of (x) the number of Performance Units in the applicable Grant, (y) the
Financial Value of a Performance Unit for the Award Period, and (z) the
applicable Harvest Percentage, all as finally determined by the Board.  Following such determinations, either a cash
payment will be made to the Participant equal to the Award Value of the Performance
Units (subject to applicable tax withholding) or, if the Participant shall have
so elected under terms permitted by the Company, a credit of all or a portion
of such amount will be made to a deferred compensation plan maintained by the Company.


 


3.              Administration:  The Plan shall be administered by the Board,
or by persons or committees designated by the Board from time to time to whom
the Board may delegate any of its rights, powers or authorities under this
Plan.  The Board shall have the authority
to select the Participants, to determine the size and terms of the Grants, to
modify the terms of any Grant, to determine the time when grants will be made,
to determine the Award Periods applicable to a Grant, to determine the Harvest
Percentages applicable to a Grant, to determine the terms of a 


 


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Participant’s Grant (which need not be identical or uniform), to
establish economic performance thresholds, targets or goals to be attained
during the Award Periods (“Performance Goals”), to certify whether such
Performance Goals were attained and to make such other determinations that are
not prohibited by this Plan.  The Board
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 Board in the interpretation and administration of the Plan
shall lie within its sole and absolute discretion and shall be final conclusive
and binding on all parties concerned. 
Determinations made by the Board under the plan need not be uniform and
may be made selectively among Participants regardless of whether such Participants
are similarly situated. The Company shall have the right to deduct from any
payment made under the Plan any taxes required by law to be withheld with
respect to such payment.


 


4.              Eligibility and Participation:  The Board shall select the Participants from
among the executives and consultants who are in a position to have a material
impact on the financial results of the Company. 
The designation of the Participants may be made individually or by
groups or classifications of executives or consultants, as the Board deems
appropriate.  No executive or consultant
shall have any right to be designated as a Participant and the designation of an
executive or consultant as a Participant shall not obligate the Board to
continue such executive or consultant as a Participant in subsequent periods.


 


5.              Grants:


 


(a)           Grant:  Each Grant shall specify at least (i) the
number of Performance Units granted, (ii) the Award Period, (iii) the
Performance Goals to be attained within the Award Period, and (iv) the
method for determining the Award Value of Performance Units based upon the
attainment of such Performance Goals.


 


(b)           Performance
Measures:  The performance
measures and the method for determining the Award Value of Performance Units for
any Grant shall be as determined by the Board and as stated in the Grant, which
determinations shall be final, binding and not subject to challenge by Participants.


 


(c)           Payment:  As soon as practicable after the end of an Award
Period, the Board shall with respect to all Grants relating to such Award
Period (i) determine whether and the extent to which the applicable Performance
Goals have been attained, (ii) determine the Harvest Percentage for such
Award Period, and (iii) ascertain the Financial Value of a Performance
Unit.  Unless otherwise determined by the
Board or set forth in a Grant agreement, the Award Value of a Grant for an
Award Period shall be equal to the product of (x) the number of Performance
Units in the applicable Grant, (y) the Financial Value of a Performance
Unit for the applicable Award Period, and (z) the applicable Harvest
Percentage, all as finally determined by the Board.  Except as provided in Section 7, payment
in respect of a Participant’s Performance Units in whatever form 


 


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specified in the Grant agreement will be settled within 2 1⁄2 months
after the end of the Award Period.


 


(d)           “Stub
Period” Grants:  In
addition to standard three-year Award Period Grants, the Board may also issue “stub
period” Performance Unit Grants with Award Periods covering one or two years.


 


(e)           Number of
Performance Units:  With
respect to all Award Periods ending on or prior to December 31, 2010, the Board
is authorized to make Grants of up to the number of Performance Units specified
below:


 


	
  Award
  Period

  	
   

  	
  Performance Units

  	
   

  
	
  2008-2010

  	
   

  	
  7,362

  	
   

  



 


6.              Termination of Employment:  Except as set forth in Section 7 or
otherwise in a Grant agreement, a Participant shall immediately forfeit all
outstanding Grants upon any termination of employment with the Company and its
subsidiaries, and, if applicable, any termination of a Related Employment
assignment, prior to the end of the Award Period with respect to which such
Grants relate.


 


7.              Change in Control:


 


(a)   If a Qualifying Termination Event occurs with respect to a Participant
within 24 months after a Change in Control, then each Grant of Performance
Units made to a Participant prior to the Change of Control with respect to
which the payment of Award Value has not been made as of such Qualifying
Termination Event shall be canceled and such Participant shall be entitled to
receive in respect of each such canceled Grant a payment equal to the Participant’s
Pro Rata Portion of the Financial Value of the Performance Units determined as
follows:  (i) Financial Value of the
Performance Units shall be calculated from the beginning of the Award Period
through the Change in Control based on actual Net EROC for such period as
determined by the Board of Holdings immediately prior to the Change in Control,
(ii) Financial Value of the Performance Units shall be calculated from the
Change in Control through the date of the Qualifying Termination Event based on
actual Net EROC for such period as determined in good faith by the post-Change
in Control Board of Holdings, and (iii) Financial Value of the Performance
Units shall be calculated from the Qualifying Termination Event through the end
of the Award Period based on the target annual Net EROC for the Grant (as
determined by the Board at the time of the applicable Grant), in each case
using the reassessed Franchise Value Multiple as determined by the Board
immediately prior to the Change in Control. 
Such payment shall be made within 2 1⁄2 months of the Qualifying
Termination Event.  The Harvest
Percentage for all determinations of Award Value made under this Section 7
shall be 100%.


 


“Pro
Rata Portion” means a fraction, the numerator of which is the number of whole
months beginning with the start of the Award Period during which the
Participant was continuously employed by the Company or any its subsidiaries
(or in a Related 


 


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Employment
assignment) through the date of termination and the denominator of which is the
number of whole months in the Award Period.


 


(b)   Notwithstanding anything herein to the contrary, if, following a
Change in Control, a Participant’s employment with the Company or one of its
subsidiaries remains continuous through the end of an Award Period then the
Participant shall be paid with respect to those Grants for which he would have
been paid had there not been a Change in Control, and the Award Value of such Performance
Unit Grants shall be determined in accordance with Section 5 above.


 


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 rights or obligations under any then outstanding Grant to a Participant
without such Participant’s consent; provided, however, that the Board may amend
the Plan in such manner as it deems necessary to permit outstanding or future
Grants to comply with all applicable requirements of the Internal Revenue Code
of 1986, as amended, or any successor thereto, or other applicable laws.


 


9.              No Right to Employment or
Engagement:  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 Grants:  A Grant shall not be transferable or
assignable by the Participant, other than as described in Section 16 of
this Plan.


 


11.       Reduction of Grants:  Notwithstanding anything to the contrary
herein, the Board, 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.       Claims Procedure:  In general, any claim for benefits under the
Plan shall be filed with the Board of Directors by a Participant or
beneficiary.  The Board will consider the
claim promptly.


 


13.       Miscellaneous Provisions:  The Company is the sponsor and legal obligor
under the Plan and shall make all payments hereunder.  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 unsecured creditors.  All
references to Sections herein shall be deemed to be references to the specified
sections of this Plan.


 


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14.       Taxes:  The Company and its subsidiaries shall have
the right to deduct from any payment made under the Plan any taxes required by
law to be withheld with respect to such payment.


 


15.       Choice of Law:  The Plan shall be governed by and construed
in accordance with the laws of the State of New York without regard to the
conflict of law principles thereof.


 


16.         Designation
of Beneficiary by Participant: 
A Participant may name a beneficiary to receive any payment to which he
or she may be entitled in respect of a Grant in the event of his or her
death.  A Participant may change his or her
beneficiary from time to time.  If the
Participant has not designated a beneficiary, or if no designated beneficiary
is living on the date on which any amount becomes payable, that amount shall be
paid to the Participant’s estate.


 


17.       Definitions:


 


Terms
used in the Plan or in a Grant shall have the following meanings:


 


“Affiliate” of any Person means any other
Person controlled by, controlling or under common control with such Person.


 


“After-Tax” means, with respect to any
amount, (i) such amount, multiplied by (ii) 1 minus the highest
marginal tax rate for corporations applicable under the Code.


 


“Average Deployed Capital” means, for any
period, the average daily amount of capital invested in, loaned to, or
guaranteed on behalf of (including reinsurance capital and sunk costs) the
Esurance Segment by its Affiliates in such period, as determined by the Board.  Capital deployed by Affiliates in the
Esurance Segment at January 1, 2008 was $562.5 million, consisting of
$374.3 million of equity and $188.2 million of sunk costs.


 


“Cause” means (i) an act or omission by
the Participant that constitutes a felony, (ii) willful gross negligence
or willful gross misconduct by the Participant in connection with his
employment by the Company or by a subsidiary which causes, or is likely to
cause, material loss or damage or substantial public disgrace or disrepute to
the Company, (iii) the commission of any other act or omission by the
Participant involving dishonesty, disloyalty or fraud with respect to the
Company or any of its subsidiaries, or (iv) the Participant’s substantial
and repeated failure to perform duties as reasonably directed by the executive
to whom Participant directly reports.


 


“Change in Control” shall have occurred when (i) any
person or group (within the meaning of sections 13(d) or 14(d)2 of the
Securities Exchange Act of 1934, as amended) other than White Mountains
Insurance Group, Ltd (“WTM”) or any of its subsidiary or affiliated companies,
an underwriter temporarily holding securities of the Company in connection with
a public issuance thereof, or an employee benefit plan of the Company or its
affiliates, shall become the beneficial owner (within the meaning of rule 13d-3
under the Exchange Act) of a greater number of shares of the 


 


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then
outstanding common stock of the Company than WTM and its subsidiary and affiliated
companies, or (ii) WTM and its subsidiary or affiliated companies are no
longer the beneficial owners of at least thirty-five percent or more of the
then outstanding common stock of the Company, or (iii) the Company has
disposed of all or substantially all of the assets of the Company to any person
or group other than WTM or its subsidiary and affiliate companies.


 


“Compensation Expenses” means (i) cash
long term incentive plan awards (including Grants made under this Plan), and (ii) appreciation
on all deferred compensation balances regardless of investment choice.


 


“Economic Combined Ratio” means, for any
period, the combined ratio of the Esurance Segment for such period determined
in accordance with GAAP, adjusted to (i) amortize insurance policy
acquisition expenses over the term of such policies and their expected renewals,
and (ii) offset insurance policy acquisition expenses with revenue
received from customer referrals, in each case as determined by the Board.


 


“Economic Net Income” means, for any period,
the After-Tax net income (after all Compensation Expenses) of the Esurance
Segment for such period determined in accordance with GAAP, adjusted to (i) standardize
investment returns at the ten-year treasury yield plus 100 basis points, and (ii) amortize
policy acquisition expenses over the term of the policy and its expected
renewals, in each case as determined by the Board.


 


“Economic Return” means, for any period, (i) Economic
Net Income for such period plus (ii) Franchise Value Added for such
period.


 


“Economic Value Added” means, for any period,
(i) Economic Return for such period before Compensation Expenses minus (ii) the
product of (x) Average Deployed Capital for such period multiplied by (y) 4.04%.


 


“Esurance Segment” means the Company and its
subsidiaries on a consolidated basis, together with the assets and liabilities
of other direct or indirect subsidiaries of White Mountains Insurance Group,
Ltd. which are maintained in support of the business of the Company and its
subsidiaries (including, without limitation, quota shared business and
reinsurance).


 


“Franchise Value Added” means, for any
period, the product, After-Tax, of (i) the Franchise Value Multiple in
effect for such period, and (ii) the excess of the Esurance Segment’s direct
written premium as of the last day in the period over direct written premium as
of the last day in the prior period, as determined by the Board.


 


“Franchise Value Multiple” means, initially,
0.3, or such other number as is determined by the Board in its sole discretion
following any Reassessment Event.


 


“GAAP” means United States generally accepted
accounting principles, as in effect from time to time.


 


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“Grant” means an offer by the Board to an
executive or consultant to participate in the Performance Unit Plan. Such Grant
will specify the Award Period, the number of Performance Units being granted,
any applicable Performance Goals, the method for judging attainment of the Performance
Goals, and other relevant terms applicable to such Grant.


 


“Net EROC” initially means, for any period, a
fraction (which may be greater than or less than one), the numerator of which
is the Economic Return for such period and the denominator of which is the
Average Deployed Capital for such period.


 


“Participant” means a recipient of a Grant that
has not otherwise been rescinded, forfeited or settled.


 


“Person” means an individual, a partnership,
a corporation, a limited liability company, an association, a joint stock
company, a trust, a joint venture, an unincorporated organization and a
governmental entity or any department, agency or political subdivision thereof.


 


“Qualifying Termination Event” means, with
respect to a Participant, a Termination Without Cause or a Constructive
Termination, as defined below.


 


a.     Termination
Without Cause: A termination of the Participant’s employment with the
Company or its subsidiaries by the Company or any such subsidiary, or from
Related Employment by such employer, other than (i) due to the Participant’s
death or disability (as defined by the board of directors of the relevant
employer), or (ii) for Cause.  A
transfer of a Participant’s employment to a Related Employment assignment shall
not be considered a Termination without Cause hereunder.  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 the definition of Change in Control shall not be deemed to be a “Termination
Without Cause” if the Participant is employed by the acquiror or one of its Affiliates
and the acquiror or one of its Affiliates 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.


 


b.     Constructive
Termination.  A termination of
employment with the Company or its subsidiaries, or from a Related Employment
assignment, at the initiative of the Participant that the Participant declares,
by prior written notice delivered to the Secretary of the Company or Related
Employer (as applicable), to be a Constructive Termination by the Company or such
Related Employer and which follows (i) a material decrease in his or her base
salary or (ii) a material diminution in the authority, duties or
responsibilities of his or her position as a result of which the Participant
determines in good faith that he or she cannot continue to carry out his/her
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 or Related Employer receives such written notice from the 


 


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Participant
and, during that period, the Company or Related employer fails to cure, or
cause to be cured, the circumstance serving as the basis on which the declaration
of Constructive Termination is given.


 


“Reassessment Event” means one or more
events, transactions, facts or circumstances affecting the business of the
Esurance Segment which the Board in its sole discretion believes justifies a
change to the Franchise Value Multiple, but which in any event shall include
any Change in Control.


 


“Related Employer” mean an employer with
respect to any Related Employment.


 


“Related Employment” means the employment of
a Participant by an employer other than the Company or any of its subsidiaries,
where (i) such employment is undertaken by the Participant at the request
of the Company, and (ii) such employment is recognized by the Board, in
its sole discretion, as Related Employment for purposes of this Plan.


 


18.       Effective Date of the Plan:  The Plan shall be effective as of January 1,
2008.


 


 


IN WITNESS WHEREOF, Esurance Holdings, Inc. has caused this Plan
to be executed this 19th day of May, 2008.


 


 


	
   

  	
  ESURANCE HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
  Gary C. Tolman

  
	
   

  	
  Its:

  	
  President & CEO

  



 


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