Exhibit
10.20


 


OneBeacon Long-Term Incentive Plan


 


1. PURPOSE


 


The purpose of the
OneBeacon Long-Term Incentive Plan (the “Plan”) is to advance the interests of
OneBeacon Insurance Group, Ltd. (the “Company”) and its stockholders by
providing the ability to grant long-term incentives to certain key employees
and directors of the Company and of its subsidiaries.


 


2. ADMINISTRATION


 


The Plan shall be
administered by the Compensation Committee (the “Committee”) of the Board of
Directors (the “Board”) of the Company;  provided that each member of the
Committee qualifies as (a) a “non-employee director” under Rule 16b-3 of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and (b) an
“outside director” under Section 162(m) of the Internal Revenue Code of
1986, as amended (the “Code”). In the event that any member of the Committee
does not so qualify, the Plan shall be administered by a sub-committee of
Committee members who do so qualify. If it is later determined that one or more
members of the Committee do not so qualify, actions taken by the Committee
prior to such determination shall be valid despite such failure to qualify.


 


The Committee shall have
exclusive authority to select the employees and directors to be granted awards
under the Plan (“Awards”), to determine the type, size and terms of the Awards
and to prescribe the form of the instruments embodying Awards. With respect to
Awards made to directors, the Committee shall, and with respect to employees
may, specify the terms and conditions applicable to such Awards in an Award
agreement. The Committee shall be authorized to interpret the Plan and the
Awards granted under the Plan, to establish, amend and rescind any rules and
regulations relating to the Plan and to make any other determinations which it
believes necessary or advisable for the administration of the Plan. In
connected with any Award, the Committee in its sole discretion may provide for
vesting provisions that are different from the default vesting provisions that
are contained in the Plan and such alternative provisions shall not be deemed
to conflict with the Plan. The Committee may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any Award in the
manner and to the extent the Committee deems desirable to carry it into effect.
Any decision of the Committee in the administration of the Plan, as described
herein, shall be final and conclusive. The Committee may act only by a majority
of its members in office, except that the members thereof may authorize any one
or more of their number or any officer of the Company to execute and deliver
documents on behalf of the Committee. The Committee, in its discretion and
subject in all instances to applicable law, may delegate to one or more directors
or committees of the Board of Directors all or part of the Committee’s
authority and duties with respect to administering the Plan and granting
Awards. No member of the Company shall be liable for anything done or omitted
to be done by him or by any other member of the Committee in connection with
the Plan, except for his own willful misconduct or as expressly provided by
statute.


 


3. AWARDS


 


(a)                Eligible Participants.   Any employee or director of
the Company or any of its subsidiaries is eligible to receive an Award
hereunder. The Committee shall select which eligible employees, or directors
shall be granted Awards hereunder. No employee or director shall have a right
to receive an Award hereunder and the grant of an Award to an employee or
director shall not obligate the Committee to continue to grant Awards to such
employee or director in subsequent periods.


 


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(b)              Type of Awards.   Awards shall be limited to
the following five types: (i) “Stock Options,” (ii) “Stock Appreciation Rights,”
(iii) “Restricted Stock,” (iv) “Performance Shares” and (v) “Performance Units.” 
Stock Options, which include “Incentive Stock Options” and other stock options
or combinations thereof, are rights to purchase shares of Common Stock of the
Company (“Shares”). A Stock Appreciation Right is a right to receive, without
payment to the Company, cash and/or Shares in lieu of the purchase of Shares
under the Stock Option to which the Stock Appreciation Right relates.


 


(c)                Maximum Number of Shares That May Be
Issued.  
A maximum of 7,500,000 Shares (subject to adjustment as provided in Section 14)
may be issued as Restricted Stock awards or granted at target pursuant to
Awards made under the Plan and, accordingly, up to 15,000,000 Shares (subject
to adjustment as provided in Section 14) may be issued by the Company in
satisfaction of its obligations with respect to such Award grants. For purposes
of the foregoing, the exercise of a Stock Appreciation Right shall constitute
the issuance of Shares equal to the Shares covered by the related Stock Option.
If any Shares issued as Restricted Stock shall be repurchased pursuant to the
Company’s option described in Section 5 below, or if any Shares issued
under the Plan shall be reacquired pursuant to restrictions imposed at the time
of issuance, such Shares may again be issued under the Plan.


 


(d)               Rights With Respect to Shares.   A participant to whom
Restricted Stock has been issued shall have prior to the expiration of the
Restricted Period or the earlier repurchase of such Shares as herein provided,
ownership of such Shares, including the right to vote the same and to receive
dividends thereon, subject, however, to the options, restrictions and
limitations imposed thereon pursuant hereto.


 


(i)                  A participant to whom Stock Options, Stock
Appreciation Rights or Performance Shares are granted (and any person
succeeding to such participant’s rights pursuant to the Plan) shall have no
rights as a shareholder with respect to any Shares issuable pursuant thereto
until the date of the issuance of a stock certificate (whether or not
delivered) therefor. Except as provided in Section 14, no adjustment shall
be made for dividends, distributions or other rights (whether ordinary or
extraordinary, and whether in cash, securities or other property) the record
date for which is prior to the date such stock certificate is issued.


 


(ii)               The Company, in its discretion, may hold custody
during the Restricted Period of any Shares of Restricted Stock


 


4. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS


 


The Committee may grant
to participants Stock Options (including, in its discretion, Stock Appreciation
Rights). The maximum number of Shares with respect to which Stock Options and
Stock Appreciation Rights (not including Stock Appreciation Rights attached to
Stock Options) may be issued to a participant in one year is 1,000,000. Each
Stock Option shall comply with the following terms and conditions:


 


(a)                The per share exercise price shall not be less than
the greater of (i) the fair market value per Share at the time of grant, as
determined in good faith by the Committee, or (ii) the par value per Share.
However, the exercise price of an Incentive Stock Option granted to a
participant who owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or of a subsidiary (a “Ten
Percent Participant”) shall not be less than the greater of 110% of such fair
market value, or the par value per Share.


 


(b)               The Committee shall initially determine the number of
Shares to be subject to each Stock Option. The number of Shares subject to a
Stock Option will subsequently be reduced on a Share-for-Share basis to the
extent that Shares under such Stock Option are used to calculate the


 


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cash and/or Shares
received pursuant to exercise of a Stock Appreciation Right attached to such
Stock Option.


 


(c)                The Stock Option shall not be transferable by the
optionee otherwise than by will or the laws of descent and distribution, and
shall be exercisable during his lifetime only by him.


 


(d)               The Stock Option shall not be exercisable:


 


(i)                  after the expiration of ten years from the date it is
granted (or such earlier date specified in the grant of the Stock Option) and
may be exercised during such period only at such time or times as the Committee
may establish;


 


(ii)               unless payment in full is made for the Shares being
acquired thereunder at the time of exercise (including any federal, state or
local income or other taxes which the Committee determines are required to be
withheld in respect of such shares); such payment shall be made (A) in United
States dollars by cash or check, (B) by tendering to the Company Shares owned
by the person exercising the Stock Option and having a fair market value equal
to the cash exercise price thereof, such fair market value to be determined in
such reasonable manner as may be provided for from time to time by the
Committee or as may be required in order to comply with or to conform to the
requirements of any applicable or relevant laws or regulations, (C) by the
Company delivering for sale to a registered securities broker acceptable to the
Company a number of the Shares being acquired by the person exercising the
Stock Option being sufficient, after brokerage commissions and, if the
participant so elects, withholding obligations, to cover the cash exercise
price thereof, together with instructions to the broker to remit to the Company
the aggregate exercise price and the remainder to the participant, or (D) by a
combination of United States dollars and Shares pursuant to (A), (B) and/or (C)
above;


 


(iii)            by participants who were employees of the Company or
one of its subsidiaries at the time of the grant of the Stock Option unless
such participant has been, at all times during the period beginning with the
date of grant of the Stock Option and ending on the date three months prior to
such exercise, an officer or employee of the Company or a subsidiary, or of a
corporation, or a parent or subsidiary of a corporation, issuing or assuming
the Stock Option in a transaction to which Section 424(a) of the Code is
applicable, except that:


 


(A)           if such person shall cease to be an officer or
employee of the Company or one of its subsidiary corporations solely by reason
of a period of Related Employment as defined in Section 9, he may, during
such period of Related Employment (but in no event after the Stock Option has
expired under the provisions of Section 4(d)(i) hereof), exercise such
Stock Option as if he continued to be such an officer or employee; or


 


(B)             if an optionee shall become disabled as defined in Section 8
he may, at any time within three years of the date he becomes disabled (but in
no event after the Stock Option has expired under the provisions of Section 4(d)(i)
hereof), exercise the Stock Option with respect to (i) any Shares as to which
he could have exercised the Stock Option on the date he became disabled and (ii)
if the Stock Option is not fully exercisable on the date he becomes disabled,
the number of additional Shares as to which the Stock Option would have become
exercisable had he remained an employee through the next date on which
additional Shares were scheduled to become exercisable under the Stock Option;
or


 


(C)             if an optionee shall die while holding a Stock Option,
his executors, administrators, heirs or distributees, as the case may be, at
any time within one year after the date of such death (but in no event after
the Stock Option has expired under the provisions of


 


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Section 4(d)(i) hereof),
may exercise the Stock Option with respect to (i) any Shares as to which the
decedent could have exercised the Stock Option at the time of his death, and if
the Stock Option is not fully exercisable on the date of his death, the number
of additional Shares as to which the Stock Option would have become exercisable
had he remained an employee through the next date on which additional Shares
were scheduled to become exercisable under the Stock Option; provided, however,
that if death occurs during the three-year period following a disability as
described in Section 4(d)(iii)(B) hereof or any period following a
voluntary termination (including retirement) in respect of which the Committee
has exercised its discretion to grant continuing exercise rights as provided in
Section 4(d)(iii)(D) hereof, the Stock Option shall not become exercisable
as to any Shares in addition to those as to which the decedent could have
exercised the Stock Option at the time of his death; or


 


(D)            if such person shall voluntarily terminate his
employment with the Company (including retirement), the Committee, in its sole
discretion, may determine that the optionee may exercise the Stock Option with
respect to some or all of the Shares subject to the Stock Option as to which it
would not otherwise be exercisable on the date of his voluntary termination
provided, however, that in no event may such exercise take place after the
Stock Option has expired under the provisions of Section 4(d)(i) hereof.


 


(e)                The aggregate market value of Shares (determined at
the time of grant of the Stock Option pursuant to Section 4(a) of the
Plan) with respect to which Incentive Stock Options granted to any participant under
the Plan are exercisable for the first time by such participant during any
calendar year may not exceed the maximum amount permitted under Section 422(d) of
the Code at the time of the Award grant. In the event this limitation would be
exceeded in any year, the optionee may elect either (i) to defer to a
succeeding year the date on which some or all of such Incentive Stock Options
would first become exercisable or (ii) convert some or all of such
Incentive Stock Options into non-qualified Stock Options.


 


(f)                  If the Committee, in its discretion, so determines,
there may be related to the Stock Option, either at the time of grant or by
amendment, a Stock Appreciation Right which shall be subject to such terms and
conditions, not inconsistent with the Plan, as the Committee shall impose,
including the following:


 


(i)                  A Stock Appreciation Right may be exercised only:


 


(A)           to the extent that the Stock Option to which it
relates is at the time exercisable, and


 


(B)             if


 


(1)                in the case of a Stock Option other than an Incentive
Stock Option only, such Stock Option will expire by its terms within 30 days
(90 days if the optionee is at the time an officer of the Company who is
required to file reports pursuant to Section 16(a) of the Exchange
Act);


 


(2)                the optionee has become disabled or ceased to be an
officer or employee by reason of his retirement with the approval of the
Committee in its sole discretion; or


 


(3)                the optionee has died.


 


However, if the Stock
Option to which the Stock Appreciation Right relates is exercisable and if the
optionee is at the time an officer of the Company who is required to file
reports pursuant to Section 16(a) of the Exchange Act, the Stock
Appreciation Right may, subject to the approval of the Committee, be exercised
during such periods, as may be specified by the Committee;


 


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(ii)               A Stock Appreciation Right shall entitle the optionee
(or any person entitled to act under the provisions of Section 4(d)(iii)(C) hereof)
to surrender unexercised the related Stock Option (or any portion of such
Option) to the Company and to receive from the Company in exchange therefor
that number of Shares having an aggregate market value equal to the excess of
the market value of one Share (provided that, if such value exceeds 150% of the
per share exercise price specified in such Stock Option, such value shall be
deemed to be 150% of such Stock Option price) over the exercise price of such
Stock Option price per share, times the number of Shares subject to the Stock
Option, or portion thereof, which is so surrendered. The Committee shall be
entitled to elect to settle the obligation arising out of the exercise of a
Stock Appreciation Right by the payment of cash equal to the aggregate value of
the Shares it would otherwise be obligated to deliver or partly by the payment
of cash and partly by the delivery of Shares. Any such election shall be made
within 15 business days after the receipt by the Committee of written notice of
the exercise of the Stock Appreciation Right. The market value of a Share for
this purpose shall be the market value thereof on the last business day
preceding the date of the election to exercise the Stock Appreciation Right,
provided that if notice of such election is received by the Committee more than
three business days after the date of such election (as such date of election
is stated in the notice of election), the Committee may, but need not,
determine the market value of a Share as of the day preceding the date on which
the notice of election is received;


 


(iii)            No fractional Shares shall be delivered under this Section 4(f),
but in lieu thereof a cash adjustment shall be made; and


 


(iv)           In the case of a Stock Appreciation Right attached to
an Incentive Stock Option, such Stock Appreciation Right shall only be
transferable when such Incentive Stock Option is transferable pursuant to Section 4(c) hereof.


 


(g)               Notwithstanding anything herein to the contrary, in
the event a Change in Control as defined in Section 10(a) occurs and
within 24 months thereafter: (A) there is a Termination Without Cause, as
defined in Section 11, of an optionee’s employment; or (B) there is a
Constructive Termination as defined in Section 12, of an optionee’s
employment; or (C) there occurs an Adverse Change in the Plan, as defined
in Section 13, in respect of an optionee affecting any Award held by such
optionee and if the optionee then holds a Stock Option,


 


(A)           in the case of a Termination Without Cause or a
Constructive Termination, the optionee may exercise the entire Stock Option, at
any time within 30 days of such Termination Without Cause or such Constructive
Termination (but in no event after the option has expired under the provisions
of Sections 4(d)(i)), and


 


(B)             in the case of an Adverse Change in the Plan, the
optionee may exercise the entire Stock Option at any time after such Adverse
Change in the Plan in respect of him and prior to the date 30 days following
his termination of employment as a result of a Termination Without Cause or a Constructive
Termination (but in no event after the option has expired under the provisions
of Section 4(d) (i)).


 


5. RESTRICTED STOCK


 


The Committee may grant
to participants Restricted Stock Awards, up to a maximum number of 500,000
Shares of Restricted Stock to a participant in one year. Each Award of
Restricted Stock shall comply with the following terms and conditions:


 


(a)                The Committee shall determine the number of Shares of
Restricted Stock to be issued to a participant.


 


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(b)              Shares of Restricted Stock issued may not be sold,
assigned, transferred, pledged, hypothecated or otherwise disposed of, except
by will or the laws of descent and distribution, for such period from the date
on which the Award is granted until the Award vests in accordance with the
terms established by the Committee (the “Restricted Period”). The Company shall
have the option to repurchase the Shares of Restricted Stock at such price as
the Committee shall have fixed, in its sole discretion, when the Award was
made, which option will be exercisable if the participant’s continuous
employment with the Company or a subsidiary shall terminate for any reason,
except solely by reason of an event described in Section 5(c), prior to
the expiration of the Restricted Period or the earlier lapse of the option.
Such option shall be exercisable on such terms, in such manner and during such
period as shall be determined by the Committee when the Award is made.
Certificates for Shares issued pursuant to Restricted Stock Awards shall bear
an appropriate legend referring to the foregoing option and other restrictions.
Any attempt to dispose of any such Shares in contravention of the foregoing
option and other restrictions shall be null and void and without effect. If
Shares issued pursuant to a Restricted Stock Award shall be repurchased
pursuant to the option described above, the participant to whom the Award was
granted, or in the event of his death after such option become exercisable, his
executor or administrator, shall forthwith deliver to the Secretary of the
Company any certificates for the Shares awarded to the participant, accompanied
by such instruments of transfer, if any, as may reasonably be required by the
Secretary of the Company. If the option described above is not exercised by the
Company, such option and the restriction imposed pursuant to the first sentence
of this Section 5(b) shall terminate and be of no further force and
effect. Notwithstanding anything to the contrary in this Section 5(b),
neither any Restricted Period nor any option shall lapse to the extent the
Company or any subsidiary would be unable to take a deduction with respect to
such lapse by reason of Section 162(m) of the Code.


 


(c)                If a participant who has been in the continuous
employment of the Company or of a subsidiary shall:


 


(i)                  die or become disabled (as defined in Section 8)
during the Restricted Period, the option of the Company to repurchase (and any
and all other restrictions on) a pro rata portion of the Shares awarded to him
under such Award shall lapse and cease to be effective as of the date on which
his death or disability occurs which shall be determined as follows: (A) the
number of Shares awarded under the Award
multiplied by (B) a percentage, the numerator of which is equal
to the number of months elapsed in the Restricted Period as of the date of
death or disability (counting the month in which the death or disability
occurred as a full month) and the denominator of which is equal to the number
of months in the Restricted Period.


 


(ii)               voluntarily terminate his employment with the Company
(including retirement) during the Restricted Period, the Committee may
determine that all or any portion of the option to repurchase and any and all
other restrictions on some or all of the Shares awarded to him under such
Award, if such option and other restrictions are still in effect, shall lapse
and cease to be effective as the date on which such voluntary termination or
retirement occurs.


 


(d)               In the event within 24 months after a Change in
Control as defined in Section 10(a) and during the Restricted Period:


 


(i)                  there is a Termination Without Cause, as defined in Section 11,
of the employment of a participant;


 


(ii)               there is a Constructive Termination, as defined in Section 12,
of the employment of a participant; or


 


(iii)            there occurs an Adverse Change in the Plan, as defined
in Section 13, in respect of a participant, then


 


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the option to repurchase
(and any and all other restrictions on) all Shares awarded to him under his
Award shall lapse and cease to be effective as of the date on which such event
occurs.


 


6. PERFORMANCE SHARES


 


The grant of a
Performance Share Award to a participant will entitle him to receive, without
payment to the Company, all or part of a specified amount (the “Actual Value”)
determined by the Committee, if the terms and conditions specified herein and
in the Award are satisfied. Payment in respect of an Award shall be made as
provided in Section 6(h). Each Performance Share Award shall be subject to
the following terms and conditions:


 


(a)                The Committee shall determine the target number of
Performance Shares to be granted to a participant. The maximum number of
Performance Shares that may be earned by a participant for any single Award
Period of one year or longer shall not exceed 500,000. Performance Share Awards
may be granted in different classes or series having different terms and
conditions.


 


(b)               The Actual Value of a Performance Share Award shall be
the product of (i) the target number of Performance Shares subject to the
Performance Share Award, (ii) the Performance Percentage (as determined
below) applicable to the Performance Share Award and (iii) the market
value of a Share on the date the Award is approved and becomes payable to the
participant. The “Performance Percentage” applicable to a Performance Share
Award shall be a percentage of no less than 0% and no more than 200%, which
percentage shall be determined by the Committee based upon the extent to which
the Performance Objectives (as determined below) established for such Award are
achieved during the Award Period. The method for determining the applicable
Performance Percentage shall also be established by the Committee.


 


(c)                At the time each Performance Share Award is granted,
the Committee shall establish performance objectives (“Performance Objectives”)
to be attained within the Award Period as the means of determining the
Performance Percentage applicable to such Award. The Performance Objectives
shall be approved by the Committee (i) while the outcome for that Award
Period is substantially uncertain and (ii) no more than 90 days after the
commencement of the Award Period to which the Performance Objective relates or,
if less than 90 days, the number of days which is equal to 25 percent of the
relevant Award Period. The Performance Objectives established with respect to a
Performance Share Award shall be specific performance targets established by
the Committee with respect to one or more of the following criteria selected by
the Committee: (i) consolidated earnings before or after taxes (including
earnings before interest, taxes, depreciation and amortization); (ii) net
income; (iii) operating income; (iv) earnings per Share; (v) book
value per Share; (vi) return on stockholders’ equity; (vii) expense
management; (viii) return on investment; (ix) improvements in capital
structure; (x) share price; (xi) combined ratio; (xii) operating ratio;
(xiii) profitability of an identifiable business unit or product; (xiv)
maintenance or improvement of profit margins; (xv) market share; (xvi) revenues
or sales; (xvii) costs; (xviii) cash flow; (xix) working capital; (xx) return
on assets; (xxi) customer satisfaction; (xxii) employee satisfaction; (xxiii)
economic value per Share, (xxiv) underwriting return on capital and (xxv)
underwriting return on equity. The foregoing criteria may relate to the
Company, one or more of its subsidiaries or one or more of its divisions,
units, partnerships, joint ventures or minority investments, product lines or
products or any combination of the foregoing, and may be applied on an absolute
basis and/or be relative to one or more peer group companies or indices, or any
combination thereof, all as the Committee shall determine. In addition, to the
degree consistent with Section 162(m) of the Code (or any successor
section thereto), the Performance Objectives may be calculated without regard
to extraordinary items.


 


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(d)              The award period (the “Award Period”) in respect of
any grant of a Performance Share Award shall be such period as the Committee
shall determine commencing as of the beginning of the fiscal year of the
Company in which such grant is made. An Award Period may contain a number of
performance periods; each performance period shall commence on or after the
first day of the Award Period and shall end no later than the last day of the
Award Period. If the Committee does not specify in a Performance Share Award
agreement or elsewhere the performance periods contained in an Award Period,
each 12-month period beginning with the first day of such Award Period shall be
deemed to be a performance period.


 


(e)                Except as otherwise determined by the Committee,
Performance Shares shall be canceled if the participant’s continuous employment
with the Company or any of its subsidiaries shall terminate for any reason
prior to the end of the Award Period, except by reason of a period of Related
Employment as defined in Section 9, and except as otherwise specified in
this Section 6(e) or in Section 6(f). Notwithstanding the
foregoing and without regard to Section 6(g), if an employee participant
shall:


 


(i)                  while in such employment, die or become disabled as
described in Section 8 prior to the end of an Award Period, the
Performance Share Award for such Award Period shall be immediately canceled and
he, or his legal representative, as the case may be, shall receive as soon as
administratively feasible a payment in respect of such canceled Performance
Share Award equal to the product of (A)(i) the target number of
Performance Shares for such Award multiplied by (ii) a fraction, the
numerator of which is equal to the number of full or partial months within the
Award Period during which employee was continuously employed by the Company or
its subsidiaries (including, for this purpose, the month in which the death or
disability occurs), and the denominator of which is equal to the total number
of months within such Award Period,  multiplied by (B) the market
value of a Share on the last day of the performance period in which the death
or disability occurred,  multiplied by (C) the
Performance Percentage determined by the Board to have been achieved through
the end of the performance period in which the death or disability occurred
(but which in no event shall be less than 50%); provided, however, that no such
continuation shall be deemed to have occurred for purposes of applying Section 7(f) in
the event of an Adverse Change in the Plan in respect of the participant
following a Change in Control; or


 


(ii)               retire prior to the end of the Award Period, the
Performance Share Award for such Award Period shall be immediately canceled;
provided, however, that the Committee in its sole discretion may determine to
make a payment to the participant in respect of such canceled Performance Share
Award. Subject to the discretion of the Committee, a participant shall be
entitled to receive as soon as administratively feasible a cash payment equal
to the product of (A) (i) the target number of Performance Shares for
such Applicable Award multiplied by
(ii) a fraction, the numerator of which is equal to the number of full
months within the Award Period during which the participant was continuously
employed by the Company or its subsidiaries, and the denominator of which is
equal to the total number of months within such Award Period,  multiplied by
(B) the market value of a Share on the last day of the performance period
in which the retirement occurred,  multiplied by (C) the
Performance Percentage determined by the Committee to have been achieved
through the end of the performance period in which the retirement occurred;
provided, however, that no such continuation shall be deemed to have occurred
for purposes of applying Section 7(f) in the event of an Adverse
Change in the Plan in respect of the participant following a Change in Control.
For purposes of the Plan, “retire” and “retirement” shall mean termination of
service with the Company, other than for Cause, at any time after attaining age
sixty (60) or


 


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termination of service
under circumstances which the Committee deems equivalent to retirement.


 


(f)                  If within 24 months after a Change in Control as
defined in Section 10(a):


 


(i)                  there is a Termination Without Cause, as defined in Section 11,
of the employment of a participant;


 


(ii)               there is a Constructive Termination, as defined in Section 12,
of the employment of a participant; or


 


(iii)            there occurs an Adverse Change in the Plan, as defined
in Section 13, in respect of a participant (any such occurrence under the
above clauses (i), (ii) or (iii), a “Trigger Event”), then


 


with respect to
Performance Share Awards that were outstanding on the date of the Trigger Event
(each, an “Applicable Award”), each such Applicable Award shall be immediately
canceled and, in respect thereof, such participant shall be entitled to receive
a cash payment equal to the product of (A) (i) the target number of Performance
Shares for such Applicable Award multiplied
by (ii) a fraction, the numerator of which is equal to the
number of full months within the Award Period during which the participant was
continuously employed by the Company or its subsidiaries, and the denominator
of which is equal to the total number of months within such Award Period,  multiplied by
(B) the greater of (i) the market value of a Share immediately prior
to the Change in Control and (ii) the market value of a Share on the date
the applicable Trigger Event occurs,  multiplied by (C) a
Performance Percentage equal to 100%. 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 such Awards for which he
would have been paid had there not been a Change in Control and the Actual
Value shall be determined in accordance with Section 6(g) below.


 


(g)               Except as otherwise provided in Section 6(f), 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 (i) determine,
based on the extent to which the applicable Performance Objectives have been
achieved, the Performance Percentage applicable to an Award of Performance
Shares, (ii) calculate the Actual Value of the Performance Share Award and
(iii) shall certify the foregoing to the Board of Directors. The Committee
shall cause an amount equal to the Actual Value of the Performance Shares
earned by the participant to be paid to him or his beneficiary.


 


(h)               Unless payment is deferred in accordance with an
election made by the participant in accordance with procedures adopted by the
Company, payment of any amount in respect of the Performance Shares shall be
made by the Company no later than 2 1/2 months after the end of the Company’s
fiscal year in which such Performance Shares are earned. Performance Shares may
be settled in cash, in Shares or partly in cash and partly in Shares as
determined by the Committee.


 


7. PERFORMANCE UNITS


 


The grant of a
Performance Unit Award to a participant will entitle him to receive, without
payment to the Company, all or part of a specified amount (the “Earned Value”)
determined by the Committee, if the terms and conditions specified herein and
in the Award agreement are satisfied. Payment in respect of a Performance Unit
Award shall be made as provided in Section 7(g). Each Performance Unit
Award shall be subject to the following terms and conditions:


 


(a)                The Committee shall determine the target number of
Performance Units to be granted to a participant. The maximum Earned Value that
may be earned by a participant for Performance


 


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Units for any single
Award Period of one year or longer shall not exceed $25,000,000. Performance
Unit Awards may be granted in different classes or series having different
terms and conditions.


 


The Earned Value of an
Award of Performance Units shall be the product of (i) the target number
of Performance Units subject to the Performance Unit Award, (ii) the
Performance Percentage (as determined below) applicable to the Performance Unit
Award and (iii) the Value (as determined below) of a Unit on the date the
Award is paid or becomes payable to the employee. The “Performance Percentage”
applicable to a Performance Unit Award shall be a percentage of no less than 0%
and no more than 200%, which percentage shall be determined by the Committee
based upon the extent to which the Performance Objectives (as determined below)
established for such Award are achieved during the Award Period. The method for
determining the applicable Performance Percentage shall also be established by
the Committee. The method for calculating the Value of each Unit shall be
defined within the award agreement.


 


(b)               At the time each Performance Unit Award is granted the
Committee shall establish performance objectives (“Performance Objectives”) to
be attained within the Award Period as the means of determining the Performance
Percentage applicable to such Award. The Performance Objectives shall be
approved by the Committee (i) while the outcome for that Award Period is
substantially uncertain and (ii) no more than 90 days after the
commencement of the performance period to which the performance objective
relates or, if less than 90 days, the number of days which is equal to 25
percent of the relevant performance period. The Performance Objectives
established with respect to a Performance Unit Awards shall be specific
performance targets established by the Committee with respect to one or more of
the following criteria selected by the Committee: (i) consolidated
earnings before or after taxes (including earnings before interest, taxes,
depreciation and amortization); (ii) net income; (iii) operating
income; (iv) earnings per Share; (v) book value per Share; (vi) return
on stockholders’ equity; (vii) expense management; (viii) return on
investment; (ix) improvements in capital structure; (x) share price;
(xi) combined ratio; (xii) operating ratio; (xiii) profitability of an
identifiable business unit or product; (xiv) maintenance or improvement of
profit margins; (xv) market share; (xvi) revenues or sales; (xvii) costs;
(xviii) cash flow; (xix) working capital; (xx) return on assets; (xxi) customer
satisfaction; (xxii) employee satisfaction; (xxiii) economic value per Share,
(xxiv) underwriting return on capital and (xxv) underwriting return on equity.
 The foregoing criteria may relate to the Company, one or more of its
subsidiaries or one or more of its divisions, units, partnerships, joint
ventures or minority investments, product lines or products or any combination
of the foregoing, and may be applied on an absolute basis and/or be relative to
one or more peer group companies or indices, or any combination thereof, all as
the Committee shall determine. In addition, to the degree consistent with Section 162(m) of
the Code (or any successor section thereto), the Performance Objectives may be
calculated without regard to extraordinary items.


 


(c)                The award period (the “Award Period”) in respect of
any grant of a Performance Unit Award shall be such period as the Committee
shall determine commencing as of the beginning of the fiscal year of the
Company in which such grant is made. An Award Period may contain a number of
performance periods; each performance period shall commence on or after the
first day of the Award Period and shall end no later than the last day of the
Award Period. If the Committee does not specify in a Performance Unit Award
agreement or elsewhere the performance periods contained in an Award Period,
each 12-month period beginning with the first day of such Award Period shall be
deemed to be a performance period.


 


10
















 


(d)              Except as otherwise determined by the Committee,
Performance Units shall be cancelled if the participant’s continuous employment
with the Company or any of its subsidiaries shall terminate for any reason
prior to the end of the Award Period, except solely by reason of a period of
Related Employment as defined in Section 10, and except as otherwise
specified in this Section 7(e) or in Section 7(f).
Notwithstanding the foregoing and without regard to Section 7(f), if an
employee participant shall:


 


(i)                  while in such employment, die or become disabled as
described in Section 8 prior to the end of an Award Period, the
Performance Unit Award for such Award Period shall be immediately canceled and
he, or his legal representative, as the case may be, shall receive as soon as
administratively feasible a payment in respect of such canceled Performance
Unit Award equal to the product of (A)(i) the target number of Performance
Units for such Award multiplied by (ii) a fraction, the numerator of which
is equal to the number of full or partial months within the Award Period during
which employee was continuously employed by the Company or its subsidiaries
(including, for this purpose, the month in which the death or disability
occurs), and the denominator of which is equal to the total number of months
within such Award Period,  multiplied by (B) the value
of a Performance Unit on the last day of the performance period in which the
death or disability occurred,  multiplied by (C) the
Performance Percentage determined by the Board to have been achieved through
the end of the performance period in which the death or disability occurred;
provided, however, that no such continuation shall be deemed to have occurred
for purposes of applying Section 7(f) in the event of an Adverse
Change in the Plan in respect of the participant following a Change in Control;
or


 


(ii)               retire with the approval of the Committee in its sole
discretion prior to the end of the Award Period; the Performance Unit Award for
such Award Period shall be immediately canceled; provided, however, that the
Committee in its sole discretion may determine to make a payment to the
participant in respect of such canceled Performance Unit Award. Subject to the
discretion of the Committee, the participant shall be entitled to receive as
soon as administratively feasible a payment in respect of such canceled
Performance Unit Award equal to the product of (A)(i) the target number of
Performance Units for such Award multiplied by (ii) a fraction, the
numerator of which is equal to the number of full or partial months within the
Award Period during which employee was continuously employed by the Company or
its subsidiaries, and the denominator of which is equal to the total number of
months within such Award Period,  multiplied by (B) the value
of a Performance Unit on the last day of the performance period in which the
retirement occurred,  multiplied by (C) the
Performance Percentage determined by the Board to have been achieved through
the end of the performance period in which the retirement occurred; provided,
however, that no such continuation shall be deemed to have occurred for
purposes of applying Section 8(f) in the event of an Adverse Change
in the Plan in respect of the participant following a Change in Control. For
purposes of the Plan, “retire” and “retirement” shall mean termination of
service with the Company, other than for Cause, at any time after attaining age
sixty (60) or termination of service under circumstances which the Committee
deems equivalent to retirement.


 


11

















 


(e)               If within 24 months after a Change in Control as
defined in Section 10(a), a Trigger Event occurs, then with respect to
Performance Unit Awards that were outstanding on the date of the Trigger Event
(each, an “Applicable Award”), each such Applicable Award shall be immediately
canceled and, in respect thereof, such participant shall be entitled to receive
a cash payment equal to the product of (A) (i) the target number of
Performance Units for such Applicable Award
multiplied by (ii) a fraction, the numerator of which is equal
to the number of full months within the Award Period during which the
participant was continuously employed by the Company or its subsidiaries, and
the denominator of which is equal to the total number of months within such
Award Period,  multiplied by (B) the greater
of (i) the value of a Performance Unit immediately prior to the Change in
Control and (ii) the value of Performance Unit on the date the applicable
Trigger Event occurs, multiplied by
(C) a Performance Percentage equal to 100%. 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 such Awards
for which he would have been paid had there not been a Change in Control and
the Actual Value shall be determined in accordance with Section 7(g) below.


 


(f)                 Except as otherwise provided in Section 7(f), 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 (i) determine,
based on the extent to which the applicable Performance Objectives have been
achieved, the Performance Percentage applicable to an Award of Performance
Units, (ii) calculate the Earned Value of the Performance Unit Award and (iii) shall
certify all of the foregoing to the Board of Directors. The Committee shall
cause an amount equal to the Earned Value of the Performance Units earned by
the participant to be paid to him or his beneficiary.


 


(g)              Unless payment is deferred in accordance with an
election made by the participant in accordance with procedures adopted by the
Company, payment of any amount in respect of the Performance Units shall be
made by the Company no later than 2 1/2 months after the end of the Company’s
fiscal year in which such Performance Units are earned, and may be made in
cash, in Shares or partly in cash and partly in Shares as determined by the
Committee.


 


8. DISABILITY


 


For the purposes of this
Plan, a participant shall be deemed to be disabled if the Committee shall
determine that the physical or mental condition of the participant is such as
would entitle him to payment of long-term disability benefits under any disability
plan of the Company or a subsidiary in which he is a participant.


 


9. RELATED EMPLOYMENT


 


For the purposes of this
Plan, Related Employment shall mean the employment of a participant by an
employer which is neither the Company nor a subsidiary provided: (i) such
employment is undertaken by the participant and continued at the request of the
Company or a subsidiary; (ii) immediately prior to undertaking such
employment, the participant was an officer or employee of the Company or a
subsidiary, or was engaged in Related Employment as herein defined; and (iii) such
employment is recognized by the Committee, in its sole discretion, as Related
Employment for the purposes of this Section 9. The death or disability of
a participant during a period of Related Employment as herein defined shall be
treated, for purposes of this Plan, as if the death or onset of disability had
occurred while the participant was an officer or employee of the Company.


 


12

















 


10. CHANGE IN CONTROL


 


(a)                For purposes of this Plan, a “Change in Control”
within the meaning of this Section 11(a) shall occur if:


 


(i)                  Any person or group (within the meaning of Section 13(d) and
14(d)(2) of the Exchange Act), other than White Mountains Insurance Group,
Ltd. or one of its wholly owned subsidiaries, or an underwriter temporarily
holding Shares in connection with a public issuance thereof or an employee
benefit plan of the Company 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 Company’s then outstanding Shares and such
percentage exceeds the beneficial ownership percentage of the Company’s then
outstanding Shares attributed to White Mountains Insurance Group, Ltd.,
together with its wholly owned subsidiaries;


 


(ii)               the Continuing Directors, as defined in Section 10(b),
cease for any reason to constitute a majority of the Board of the Company; or


 


(iii)            the business of the Company for which the participant’s
services are principally performed is disposed of by the Company pursuant to a
sale or other disposition of all or substantially all of the business or
business-related assets of the Company (including stock of a subsidiary of the
Company).


 


(b)               For the purposes of this Plan, “Continuing Director”
shall mean a member of the Board (A) who is not an employee of the Company
or its subsidiaries or of a holder of, or an employee or an affiliate of an
entity or group that holds, thirty-five percent (35%) or more of the Company’s
Shares and (B) who either was a member of the Board on October 18,
2006, or who subsequently became a director of the Company and whose election,
or nomination for election, by the Company’s shareholders was approved by a
vote of a majority of the Continuing Directors then on the Board (which term,
for purposes of this definition, shall mean the whole Board and not any
committee thereof).


 


(c)                In the event of a Change in Control, the Committee as
constituted immediately prior to the Change in Control shall determine the
manner in which “market value” of Shares will be determined following the
Change in Control.


 


11. TERMINATION WITHOUT CAUSE


 


For purposes of this
Plan, “Termination Without Cause” shall mean a termination of the participant’s
employment with the Company or subsidiary or business unit of the Company by
the Company (or subsidiary or business unit, as applicable) or, by a purchaser
of the participant’s subsidiary or business unit after a Change in Control as
described in Subsection 10(a)(iii), other than (i) for death or disability
as described in Section 8 or (ii) for Cause. “Cause” shall mean (a) an
act or omission by the participant that constitutes a felony or any crime
involving moral turpitude; or (b) willful gross negligence or willful
gross misconduct by the participant in connection with his employment which
causes, or is likely to cause, material loss or damage to the Company,
subsidiary or business unit. Notwithstanding anything herein to the contrary,
if the participant’s employment with the Company, subsidiary or business unit
shall terminate due to a Change in Control as described in Subsection
10(a)(iii), where the purchaser (the “Purchaser”), as described in such
subsection, formally assumes the Company’s obligations under this Plan or
places the participant in a similar or like plan with no diminution of the
value of the awards, such termination shall not be deemed to be a “Termination
Without Cause.”


 


13

















 


12. CONSTRUCTIVE TERMINATION


 


“Constructive Termination”
shall mean a termination of employment with the Company or a subsidiary at the
initiative of the participant that the participant declares by prior written
notice delivered to the Secretary of the Company to be a Constructive
Termination by the Company or a subsidiary and which follows (a) a
material decrease in his total compensation opportunity or (b) a material
diminution in the authority, duties or responsibilities of his position with
the result that the participant makes a determination in good faith that he
cannot continue to carry out his job in substantially the same manner as it was
intended to be carried out immediately before such diminution. Notwithstanding
anything herein to the contrary, Constructive Termination shall not occur
within the meaning of this Section 13 until and unless 30 days have
elapsed from the date the Company receives such written notice from the
participant without the Company curing or causing to be cured the circumstance
or circumstances described in this Section 13 on the basis of which the
declaration of Constructive Termination is given.


 


13. ADVERSE CHANGE IN THE PLAN


 


An “Adverse Change in the
Plan” shall mean


 


(a)                termination of the Plan pursuant to Section 18(a);


 


(b)               amendment of the Plan pursuant to Section 17 that
materially diminishes the value of Awards that may be granted under the Plan,
either to individual participants or in the aggregate, unless there is
substituted concurrently authority to grant long-term incentive awards of
comparable value to individual participants in the Plan or in the aggregate, as
the case may be; or,


 


(c)                in respect of any holder of an Award a material
diminution in his rights held under such Award (except as may occur under the
terms of the Award as originally granted) unless there is substituted
concurrently a long-term incentive award with a value at least comparable to
the loss in value attributable to such diminution in rights.


 


In no event shall any
amendment of the Plan or an Award contemplated by Section 15 hereof be
deemed an Adverse Change in the Plan.


 


14. DILUTION AND OTHER ADJUSTMENTS


 


In the event of any
change in the Outstanding Shares of the Company by reason of any stock split,
stock or extraordinary cash dividend, recapitalization, merger, consolidation,
reorganization, combination or exchange of Shares or other similar event, or in
the event of an extraordinary cash dividend or other similar event, and if the
Committee shall determine, in its sole discretion, that such change equitably
requires an adjustment in the number or kind of Shares that may be issued under
the Plan pursuant to Section 3, in the number or kind of Shares subject
to, or the Stock Option price per share under, any outstanding Stock Option, in
the number or kind of Shares which have been awarded as Restricted Stock or in
the repurchase option price per share relating thereto, in the target number of
Performance Shares which have been awarded to any participant, or in any
measure of performance, then such adjustment shall be made by the Committee and
shall be conclusive and binding for all purposes of the Plan.


 


15. DESIGNATION OF BENEFICIARY BY PARTICIPANT


 


A participant may name a
beneficiary to receive any payment to which he may be entitled in respect of
Performance Shares, Performance Units or Stock Appreciation Rights under the
Plan in the event of his death, on a form to be provided by the Committee. A
participant may change his beneficiary from time to time in the same manner. If
no designated beneficiary is living on the date on which any


 


14

















 


amount becomes payable to
a participant’s executors or administrators, the term “beneficiary” as used in
the Plan shall include such person or persons.


 


16. MISCELLANEOUS PROVISIONS


 


(a)                No employee or other person shall have any claim or
right to be granted an Award under the Plan. Neither the Plan nor any action
taken hereunder shall be construed as giving an employee any right to be
retained in the employ of the Company or any subsidiary.


 


(b)               A participant’s rights and interest under the Plan may
not be assigned or transferred in whole or in part either directly or by
operation of law or otherwise (except in the event of a participant’s death),
including but not limited to, execution, levy, garnishment, attachment, pledge,
bankruptcy or in any other manner and no such right or interest of any
participant in the Plan shall be subject to any obligation or liability or such
participant.


 


(c)                No Shares shall be issued hereunder unless counsel for
the Company shall be satisfied that such issuance will be in compliance with
applicable Federal and state securities laws and Bermuda law.


 


(d)               The Company and its subsidiaries shall have the right
to deduct from any payment made under the Plan any federal, state or local
income or other taxes required by law to be withheld with respect to such
payment. It shall be a condition to the obligation of the Company to issue
Shares upon exercise of a Stock Option, upon settlement of a Stock Appreciation
Right, or upon payment of a Performance Share or a Performance Unit that the
participant (or any beneficiary or person entitled to payment under Section 4(d)(iii)(C) hereof)
pay to the Company, upon its demand, such amount as may be required by the
Company for the purpose of satisfying any liability to withhold Federal, state
or local income or other taxes. If the amount requested is not paid, the
Company may refuse to issue Shares.


 


(e)                The expenses of the Plan shall be borne by the
Company. However, if an Award is made to an employee of a subsidiary:


 


(i)                  if such Award results in payment of cash to the
participant, such subsidiary shall pay to the Company an amount equal to such
cash payment; and


 


(ii)               if the Award results in the issuance to the
participant of Shares, such subsidiary shall pay to the Company an amount equal
to fair market value thereof, as determined by the Committee, on the date such
Shares are issued (or, in the case of issuance of Restricted Stock or of Shares
subject to transfer and forfeiture conditions, equal to the fair market value
thereof on the date on which such Shares are no longer subject to applicable
restriction), minus the amount, if any received by the Company in exchange for
such Shares.


 


(f)                  The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make any other
segregation of assets to assure the payment of any Award under the Plan.


 


(g)               By accepting any Award or other benefit under the
Plan, each participant and each person claiming under or through him shall be
conclusively deemed to have indicated his acceptance and ratification of, and
consent to, any action taken under the Plan by the Company, the Board or the
Committee.


 


(h)               If a Purchaser of a subsidiary or business unit agrees
to fully assume the obligations of the Company under a Participant’s
outstanding Awards under the Plan or to replace them with similar or like
awards with no diminution of value of the Awards as described in Section 11,
then the Company shall be released from its obligations to such Participant
with respect to such Awards without the requirement of any action by or
approval of the Participant. If a Purchaser


 


15

















 


declines to assume or
replace such obligations, the Company shall remain obligated under the Awards
as provided in the Plan.


 


17. AMENDMENT


 


The Plan may be amended
at any time and from time to time by the Board subject to applicable law, but
no amendment which increases the aggregate number of Shares which may be issued
pursuant to the Plan or the class of employees eligible to participate shall be
effective unless and until the same is approved by the shareholders of the
Company. No amendment of the Plan shall adversely affect any right of any
participant with respect to any Award previously granted without such
participant’s written consent.


 


18. TERMINATION


 


This Plan shall terminate
upon the earlier of the following dates or events to occur:


 


(a)                the adoption of a resolution of the Board terminating
the Plan; or


 


(b)               ten years from the date the Plan is initially or
subsequently approved and adopted by the shareholders of the Company in
accordance with Section 19 hereof.


 


No termination of the
Plan shall alter or impair any of the rights or obligations of any person,
without his consent, under any Award previously granted under the Plan.


 


19. SHAREHOLDER ADOPTION


 


The Plan shall be
submitted to the shareholders of the Company for their approval or adoption.
The Plan shall not be effective and no Award shall be made hereunder unless and
until the Plan has been so approved and adopted by the shareholders.


 


20. GOVERNING LAW


 


This Plan shall be
governed by and construed in accordance with the laws of Bermuda.


 


16