Document:

Exhibit
10.4.7

 

 

ONEBEACON INSURANCE GROUP,
LTD.

 

NON-QUALIFIED STOCK OPTION
AGREEMENT

 

AGREEMENT made as of this ___th day of _____ 2006, by and
between OneBeacon Insurance Group, Ltd. (“the Company”), a Bermuda company
limited by shares (“the Company”), and ___________ (“the Optionee”).

 

 

W I T N E S S E T H :

 

 

WHEREAS, the Optionee is now employed by the Company or a
subsidiary of the Company and the Company desires to promote the interests of
the Company and its subsidiaries by providing the Optionee with incentives to
continue and increase his or her efforts with respect to, and remain in the
employ of, the Company and its subsidiaries and, as an inducement thereto, the
Company has determined to grant to the Optionee an option pursuant to the OneBeacon
Long-Term Incentive Plan (the “Plan”).

 

 

NOW, THEREFORE, it is agreed between the parties as follows:

 

1.  Grant of Option.  Subject to the terms and conditions hereof,
the Company hereby grants to the Optionee the right and option to purchase from
the Company up to, but not exceeding in the aggregate, ____ shares of the
Company’s Common Shares, $____ par value (the “Common Shares”), at an exercise
price of $____ per share (the “Option”). 
The Option is not intended to be an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended
(the “Code”).

 

2.  Vesting of Right to Exercise Option.  The Optionee may purchase from the Company
the following aggregate number of shares covered by the Option on and after
each of the following dates during the term of the Option:

 

	
   

  	
   

  	
   

  
	
  

  Date

  	
   

  	
  Number of Shares Available

  On a Cumulative Basis

  
	
   

  	
   

  	
   

  
	
  Third anniversary of the
  date the Company consummates the initial public offering of its

  Common Shares

  	
   

  	
  One-third of all option shares, rounded down to the nearest whole
  number of shares

  
	
   

  	
   

  	
   

  
	
  Fourth anniversary of the
  date the Company consummates the initial public offering of its 

  Common Shares

  	
   

  	
  Two-thirds of all option shares, rounded down to the nearest whole
  number of shares

  
	
   

  	
   

  	
   

  
	
  Fifth anniversary of the
  date the Company consummates the initial public offering of its

  Common Shares

  	
   

  	
  100% of all option shares

  

 

 

 

 

 

The Option, to the extent vested, shall be exercisable in
whole at any time or in part from time to time during the term of the
Option.  The term of the Option shall be five
(5) years and six (6) months from the date the Company consummates the initial
public offering of its Common Shares or such shorter period as is prescribed in
paragraph 3.  Notwithstanding anything in
this Agreement or the Plan to the contrary, this Option shall not be
exercisable unless, on or before the sixtieth day after the date of this award
agreement, the Company consummates the initial public offering of its Common
Shares.

 

3.  Termination of Employment.  If at any time the Optionee’s employment with
the Company or any subsidiary shall be terminated for any reason other than
death or Disability (as described below), the Optionee shall have the right to
exercise this Option to the extent of the shares with respect to which the
Option could have been exercised by the Optionee as of the date of his or her
termination of employment in accordance with its terms but in no event beyond
the earlier of (i) three months after the date of termination of employment
or (ii) the scheduled expiration of such Option.  If the Optionee shall voluntarily terminate
his or her employment with the Company (including retirement), the Board may
determine that the Optionee may exercise his or her Option with respect to some
or all of the shares subject to the Option as to which it would not otherwise
be exercisable on the date of his or her voluntary termination; provided,
however, that in no event may the Option be exercised after the
scheduled expiration of the Option.

 

If an Optionee shall become Disabled, he may, at any time
within three years of the date he becomes disabled (but in no event after the
scheduled expiration date of the Option) exercise the Option with respect to
(i) any shares as to which he could have exercised the Option on the date
he became Disabled and (ii) if the Option is not fully exercisable on the
date he becomes Disabled, the number of additional shares as to which the
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 Option.

 

If an Optionee shall die
while holding an 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 scheduled expiration of Option), may exercise the
Option with respect to (i) any shares as to which the decedent could have
exercised the Option at the time of his death, and (ii) if the Option is
not fully exercisable on the date of his death, the number of additional shares
as to which the 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 Option; provided, however, that if
death occurs during the three-year period following a Disability, the three-year
period following a retirement or any period following a voluntary termination
in respect of which the Board has exercised its discretion to grant continuing
exercise rights, the Option shall not become exercisable as to any shares in
addition to those as to which the decedent could have exercised the Option at
the time of his death.

 

If an Optionee ceases to be employed by the Company or one of
its subsidiaries by reason of Related Employment, he shall not be considered to
have incurred a termination of employment for purposes of this Agreement.

 

4.  Exercise of Option.  The Optionee, from time to time during the
period when the Option hereby granted may by its terms be exercised, may
exercise the Option by delivering to the Company a written notice signed by the
Optionee stating the number of 

 

 

 

shares that the Optionee has elected to purchase and the manner of
payment for such shares.  The notice
shall be accompanied by payment in full by (a) cash or check, or,
(b) delivery of shares of Common Shares, duly endorsed for transfer (or
with duly executed stock powers attached), (c) if there shall be a public
market for the Common Shares at such time, subject to such rules as may be
established by the Committee, through delivery of irrevocable instructions to a
broker to sell a number of Common Shares otherwise deliverable upon the
exercise of the Option and to deliver promptly to the Company an amount equal
to the exercise price or (d) any combination of the foregoing, for an amount
equal to the purchase price of the shares then to be purchased (including any
withholding taxes as determined by the Committee).  Common Shares surrendered as payment for
shares purchased pursuant to the exercise of this Option will be valued, for
such purposes, at fair market value (as determined by the Committee) on the
date of such Option exercise.  As soon as
practicable after receipt of the foregoing, the Company shall issue the shares
in the name of the Optionee and deliver the certificates therefor to the
Optionee.

 

Anything to the contrary herein notwithstanding, the Company’s
obligation to sell and deliver Common Shares under this Option is subject to
such compliance with Federal and state laws, rules and regulations applying to
the authorization, issuance or sale of securities as the Company deems
necessary or advisable.  The Company
shall not be required to sell and deliver stock pursuant hereto unless and
until it receives satisfactory proof that the provisions of the Securities Act
of 1933 or the Securities Exchange Act of 1934 or the rules and regulations of
the Securities and Exchange Commission promulgated thereunder or the provisions
of any state law governing the sale of securities, or that there has been
compliance with the provisions of such acts, rules, regulations and state laws.

 

5.  Non-Assignability.  The Option shall not be transferable by the
Optionee other than by will or the laws of descent and distribution and may be
exercised during the Optionee’s lifetime only by the Optionee or by his or her
guardian or legal representative.  Any
transferee of the Option shall be subject to the terms and conditions of this
Agreement.  No such transfer of the
Option shall be effective to bind the Company unless the Company shall have
been furnished with written notice thereof and a copy of the will and/or such
other evidence as the Company may deem necessary to establish the validity of
the transfer and the acceptance by the transferee or transferees of the terms
and conditions of this Agreement.  No
assignment or transfer of this Option, or of the rights represented thereby,
whether voluntary or involuntary, by operation of law or otherwise except a
transfer by the Optionee by will or by the laws of descent and distribution,
shall vest in the purported assignee or transferee any interest or right herein
whatsoever.

 

6.  Disputes.  As a condition of the granting of the Option,
the Optionee and the Optionee’s successors and assigns agree that any dispute
or disagreement which shall arise under or as a result of this Agreement shall
be determined by the Committee in its sole discretion and judgment and that any
such determination and any interpretation by such Committee of the terms of
this Agreement shall be final and shall be binding and conclusive for all
purposes.

 

7. Dilution and Other
Adjustments.  In the event of any
change in the Outstanding Shares of the Company by reason of any stock split,
stock dividend, recapitalization, merger, consolidation, reorganization,
combination or exchange of shares or other similar event, and if the Committee
shall determine, in its sole discretion, that such change equitably requires an
adjustment in the number of shares subject to, or the Option 

 

 

 

 

price per share under, any outstanding Option, which has been awarded
to any participant Optionee, then such adjustment shall be made by the
Committee and shall be conclusive and binding for all purposes of the Plan.

 

8.  Rights as Shareholder.  The Optionee shall have no rights as a
shareholder of the Company with respect to any of the unexercised shares until
the issuance of a stock certificate or certificates upon the exercise of the
Option in full or in part, and then only with respect to the shares represented
by such certificate or certificates.

 

9.  Notices.  Every notice relating to this Agree­ment
shall be in writing and if given by mail shall be given by registered or
certified mail with return receipt request­ed. 
All notices to the Company shall be delivered to the Committee or
addressed to the Compensation Committee of the Company at its offices at One
Beacon Street, Boston, Massachusetts 02108. 
All notices by the Company to the Optionee shall be delivered to the
Optionee personally or addressed to the Optionee at the Optionee’s last address
as then contained in the records of the Company or such other address as the
Optionee may designate.  Either party by
notice to the other may designate a different address to which notices shall be
addressed.  Any notice given by the
Company to the Optionee at the Optionee’s last designated address shall be
effective to bind any other person who shall acquire rights hereunder.

 

10.  Provisions of Plan Controlling.  The provisions hereof are subject to the
terms and conditions of the Plan.  In the
event of any conflict between the provisions of this Option and the provisions
of the Plan, the provisions of the Plan shall control.  All capitalized concerning this Agreement
shall have the same meaning, as in the Plan unless otherwise defined in this
Agreement.

 

*     *     *    
*     *

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.

 

 

	
   

  	
  ONEBEACON
  INSURANCE GROUP, LTD.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Its:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  OPTIONEE:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:Exhibit 10.7.1

 

 

 

TRUST AGREEMENT

 

 

Dated as of November    , 2006

 

 

between

 

 

FUND AMERICAN COMPANIES, INC.

 

 

and

 

 

WHITE MOUNTAINS CAPITAL, INC., as Trustee

 

 

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  
	
  ARTICLE I

  	
   

  
	
   

  	
   

  
	
  DEFINITIONS

  	
   

  
	
   

  	
   

  
	
  SECTION
  1.01.

  	
  Definitions

  	
  4

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
   

  
	
   

  	
   

  
	
  TRUST

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  2.01.

  	
  Establishment

  	
  5

  
	
  SECTION
  2.02.

  	
  Revocation

  	
  5

  
	
  SECTION
  2.03.

  	
  Grantor
  Trust

  	
  5

  
	
  SECTION
  2.04.

  	
  Trust Assets

  	
  5

  
	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
   

  
	
   

  	
   

  
	
  DISBURSEMENTS

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  3.01.

  	
  Disbursements
  to Berkshire

  	
  6

  
	
  SECTION
  3.02.

  	
  Limitations

  	
  6

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
   

  
	
   

  	
   

  
	
  INSOLVENCY OF THE COMPANY

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  4.01.

  	
  Insolvency

  	
  6

  
	
  SECTION
  4.02.

  	
  Procedures

  	
  6

  
	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
   

  
	
   

  	
   

  	
   

  
	
  PAYMENTS TO THE COMPANY

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  5.01.

  	
  Payments to
  the Company

  	
  7

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
   

  
	
   

  	
   

  
	
  INVESTMENT OF TRUST

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  6.01.

  	
  Limitations
  on Rights of Berkshire

  	
  7

  
	
  SECTION
  6.02.

  	
  Contributed
  Assets

  	
  7

  
				

 

 

	
  ARTICLE VII

  	
   

  
	
   

  	
   

  	
   

  
	
  RECORDKEEPING AND ADMINISTRATIVE SERVICES TO BE PERFORMED

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  7.01.

  	
  General

  	
  8

  
	
  SECTION
  7.02.

  	
  Accounts

  	
  8

  
	
  SECTION
  7.03.

  	
  Inspection
  and Audit

  	
  8

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  	
   

  
	
   

  	
   

  	
   

  
	
  TRUSTEE POWERS

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  8.01.

  	
  Trustee
  Powers

  	
  8

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX

  	
   

  
	
   

  	
   

  	
   

  
	
  COMPENSATION AND EXPENSES OF THE TRUSTEE

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  9.01.

  	
  Compensation
  and Expenses of the Trustee

  	
  9

  
	
   

  	
   

  	
   

  
	
  ARTICLE X

  	
   

  
	
   

  	
   

  	
   

  
	
  RESIGNATION OR REMOVAL OF THE TRUSTEE

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  10.01.

  	
  Resignation

  	
  10

  
	
  SECTION
  10.02.

  	
  Removal

  	
  10

  
	
  SECTION
  10.03.

  	
  Successor

  	
  10

  
	
   

  	
   

  	
   

  
	
  ARTICLE XI

  	
   

  
	
   

  	
   

  	
   

  
	
  SUCCESSOR TRUSTEE

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  11.01.

  	
  Appointment

  	
  10

  
	
  SECTION
  11.02.

  	
  Acceptance

  	
  10

  
	
  SECTION
  11.03.

  	
  Corporate
  Action

  	
  10

  
	
   

  	
   

  	
   

  
	
  ARTICLE XII

  	
   

  
	
   

  	
   

  	
   

  
	
  CONFIDENTIALITY

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  12.01.

  	
  Confidentiality

  	
  11

  
	
   

  	
   

  	
   

  
	
  ARTICLE XIII

  	
   

  
	
   

  	
   

  	
   

  
	
  AMENDMENT, REVOCATION OR TERMINATION

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  13.01.

  	
  Amendment

  	
  11

  
	
  SECTION
  13.02.

  	
  Revocation
  or Termination

  	
  11

  

 

 

	
  ARTICLE XIV

  	
   

  
	
   

  	
   

  	
   

  
	
  LIMITATION OF LIABILITY; INDEMNIFICATION

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  14.01.

  	
  Limitation
  of Liability

  	
  12

  
	
  SECTION
  14.02.

  	
  Indemnification

  	
  12

  
	
   

  	
   

  	
   

  
	
  ARTICLE XV

  	
   

  
	
   

  	
   

  	
   

  
	
  RESIGNATION, REMOVAL AND TERMINATION NOTICES

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  15.01.

  	
  Resignation,
  Removal and Termination Notices

  	
  12

  
	
   

  	
   

  	
   

  
	
  ARTICLE XVI

  	
   

  
	
   

  	
   

  	
   

  
	
  DURATION

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  16.01.

  	
  Duration

  	
  13

  
	
   

  	
   

  	
   

  
	
  ARTICLE XVII

  	
   

  
	
   

  	
   

  	
   

  
	
  GENERAL

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  17.01.

  	
  Performance
  by the Trustee, its Agents or Affiliates

  	
  13

  
	
  SECTION
  17.02.

  	
  Entire
  Agreement

  	
  13

  
	
  SECTION
  17.03.

  	
  Waiver

  	
  13

  
	
  SECTION
  17.04.

  	
  Non-Assignment

  	
  13

  
	
  SECTION
  17.05.

  	
  Successors
  and Assigns

  	
  13

  
	
  SECTION
  17.06.

  	
  Partial
  Invalidity

  	
  13

  
	
  SECTION
  17.07.

  	
  Section
  Headings

  	
  13

  
	
  SECTION
  17.08.

  	
  Counterparts

  	
  14

  
	
  SECTION
  17.09.

  	
  Facsimile
  and Electronic Communications Permitted

  	
  14

  
	
   

  	
   

  	
   

  
	
  ARTICLE XVIII

  	
   

  
	
   

  	
   

  	
   

  
	
  GOVERNING LAW

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  18.01.

  	
  Delaware Law
  Controls

  	
  14

  
	
  SECTION
  18.02.

  	
  Trust
  Agreement Controls

  	
  14

  

 

 

TRUST AGREEMENT dated as of November [•], 2006, between FUND
AMERICAN COMPANIES, INC., a Delaware corporation (the “Company”) and WHITE
MOUNTAINS CAPITAL, INC., a Delaware corporation (the “Trustee”).

 

W I T N E S S
E T H:

 

WHEREAS Berkshire owns $300 million liquidation preference of preferred
stock of the Company (“the Berkshire Preferred Stock”);

 

WHEREAS the Company wishes to establish a trust and to contribute to
the trust assets (the “Contributed Assets”) that shall be held therein, subject
to the claims of the Company’s creditors in the event of the Company’s
Insolvency (as herein defined), until paid to Berkshire in such manner and at
such times as specified under the terms of the Berkshire Preferred Stock; 

 

WHEREAS it is the intention of the parties that the Contributed Assets
be sufficient to pay when due all amounts required under the terms of the
Berkshire Preferred Stock; and

 

WHEREAS the Trustee is willing to hold the aforesaid Contributed Assets
in trust.

 

NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be composed, held and disposed of as follows:

 

ARTICLE I

DEFINITIONS

 

SECTION 1.01. Definitions.  The following terms as used in this Agreement
have the meaning indicated unless the context clearly requires otherwise:

 

 “Agreement” shall mean this
Trust Agreement, as the same may be amended and in effect from time to time.

 

“Berkshire” shall mean Berkshire Hathaway, Inc., a Delaware
Corporation.

 

“Berkshire Preferred Stock” shall mean the $300 million liquidation
preference of preferred stock of the Company owned by Berkshire.

 

“Code” shall mean the Internal Revenue Code of 1986, as it has been or
may be amended from time to time.

 

 

“Company” shall mean Fund American Companies, Inc., a Delaware
corporation, or any successor to all or substantially all its businesses that,
by agreement, operation of law or otherwise, assumes the responsibility of the
Company under this Agreement.

 

“Contributed Assets” shall mean the cash contributed to the Trust by
the Company, which cash will be used to acquire a portfolio of fixed maturity
securities issued by the U.S. government or government-sponsored enterprises,
the scheduled interest and principal payments of which are intended to be
sufficient to pay when due all amounts required under the terms of the
Berkshire Preferred Stock.

 

“Reporting Date” shall mean the last day of each calendar quarter and
the date as of which the Trustee resigns or is removed pursuant to this
Agreement.

 

“Trust” shall mean this Fund American Companies, Inc. Trust established
by the Company and the Trustee pursuant to the provisions of this Agreement.

 

“Trustee” shall mean White Mountains Capital, Inc., a Delaware
corporation, or any successor trustee appointed pursuant to Article XI to
the extent such successor agrees to serve as Trustee under this Agreement.

 

ARTICLE II

TRUST

 

SECTION 2.01. Establishment.  The Company hereby deposits with the Trustee
in trust the Contributed Assets, which shall become the principal of the Trust
to be held, administered and disposed of by the Trustee as provided in this
Agreement.  The Company may from time to
time deposit additional assets with the Trustee in trust that shall thereupon
be added to the principal of the Trust.

 

SECTION 2.02. Revocation.  The Trust hereby established shall not be
revocable by the Company.

 

SECTION 2.03. Grantor
Trust.  The Trust is intended to be a
grantor trust, of which the Company is the grantor, within the meaning of
subpart E, part I, subchapter J, chapter 1, subtitle A of the Code, and shall
be construed accordingly.

 

SECTION 2.04. Trust
Assets.  The principal of the Trust
and any earnings thereon shall be held separate and apart from funds of the
Company and shall be used exclusively for the uses and purposes described
herein and for the general creditors of the Company as herein set forth.  Berkshire shall have no preferred claim on,
or any beneficial ownership interest in, any assets of the Trust.  Any assets held by the Trust will be subject
to the claims of the Company’s general creditors under Federal and state law in
the event of Insolvency. 

 

 

ARTICLE III

DISBURSEMENTS

 

SECTION 3.01. Disbursements
to Berkshire.  The Company shall
deliver to the Trustee a schedule (the “Payment Schedule”) that indicates the
amounts payable by the Company in respect of the Berkshire Preferred Stock and
the dates for payments of such amounts. 
The Trustee shall, on behalf of the Company, disburse moneys from the
Trust to Berkshire in accordance with the Payment Schedule.  The Trustee shall have no responsibility to
ascertain whether the Payment Schedule complies with the terms of the Berkshire
Preferred Stock or of any applicable law. 
The Company shall be responsible for any Federal or state income tax
reporting or withholding arising out of any transactions relating to the Trust.

 

If the principal of the Trust, and any earnings thereon, are not
sufficient to make payments to Berkshire in accordance with the Payment
Schedule, the Trustee shall notify the Company.

 

SECTION 3.02. Limitations.  The Trustee shall not be required to make any
disbursement in excess of the net realizable value of the assets of the Trust
at the time of the disbursement.

 

ARTICLE IV

INSOLVENCY OF THE COMPANY

 

SECTION 4.01. Insolvency.  The Trustee shall cease disbursement of funds
to Berkshire if the Trustee has become aware of the Company’s Insolvency in
accordance with the procedures described in Section 4.02.  The Company shall be considered “Insolvent”
for purposes of this Agreement if (a) the Company is unable to pay its debts as
they become due or (b) the Company is subject to a pending proceeding as a
debtor under the United States Bankruptcy Code.

 

SECTION 4.02. Procedures.  At all times during the continuance of the
Trust, the principal and income of the Trust shall be subject to claims of
general creditors of the Company under Federal and state law as set forth
below.

 

(a)  The Board of Directors and the President of
the Company shall have the duty to inform the Trustee in writing of the
Company’s Insolvency.  If a person
claiming to be a creditor of the Company alleges in writing to the Trustee that
the Company has become Insolvent, the Trustee shall determine whether the
Company is Insolvent and, pending such determination, the Trustee shall
discontinue disbursements of funds to Berkshire.

 

(b)  Unless the Trustee has actual knowledge of
the Company’s Insolvency, or has received notice from the Company or a person
claiming to be a

 

 

creditor alleging that the Company is
Insolvent, the Trustee shall have no duty to inquire whether the Company is
Insolvent.  The Trustee may in all events
rely on such evidence concerning the Company’s solvency as may be furnished to
the Trustee and that provides the Trustee with a reasonable basis for making a
determination concerning the Company’s solvency; provided, however, that the
Trustee may in all events rely conclusively on the assertion of the Company as
to whether it is or is not Insolvent.

 

(c)  If at any time the Trustee has determined
that the Company is Insolvent, the Trustee shall discontinue disbursements of
funds to Berkshire and shall hold the assets of the Trust for the benefit of
the Company’s general creditors.

 

(d)  The Trustee shall resume disbursement of
funds to Berkshire in accordance with Article III only after the Trustee
has determined that the Company is not Insolvent (or is no longer Insolvent).

 

ARTICLE V

PAYMENTS TO THE COMPANY

 

SECTION 5.01. Payments
to the Company.  Except as provided
under Articles III and IV and Section 13.02(b) the Company shall have no right
to retain or divert to others any of the Trust assets.

 

ARTICLE VI

INVESTMENT OF TRUST

 

SECTION 6.01.Limitations
on Rights of Berkshire.  As provided
in Section 2.04, Berkshire will not have any preferential claim to or
beneficial ownership interest in any asset or investment of the Trust, and the
rights of Berkshire under the Trust are solely those rights afforded to
Berkshire with respect to the assets of the Company as the holder of the
Berkshire Preferred Stock.  Subject to
the other provisions of this Article VI, all rights associated with assets of
the Trust shall be exercised by the Trustee or the person designated by the
Trustee, and shall in no event be exercisable by or rest with any person,
including Berkshire and the Company.  

 

SECTION 6.02. Contributed
Assets.  

 

(a)  Investments.  The Trustee shall not invest the principal
and income of the Trust and shall hold the Contributed Assets and the scheduled
interest and principal payments thereon solely for the purpose of making
disbursements to Berkshire in accordance with the terms of the Berkshire
Preferred Stock; provided, that, the Trustee shall use the Contributed
Assets to acquire fixed maturity securities issued by the U.S. government or
government-sponsored enterprises as the Trustee is instructed in writing by the
Company from time to time.

 

 

ARTICLE VII

RECORDKEEPING AND ADMINISTRATIVE SERVICES TO BE PERFORMED

 

SECTION 7.01. General.  The Trustee shall perform such recordkeeping
and administrative functions as are agreed to in writing between the Company
and the Trustee.

 

SECTION 7.02. Accounts.  The Trustee shall keep accurate accounts of
all investments, receipts, disbursements and other transactions hereunder, and
shall report the value of the assets held in the Trust as of the last day of
each fiscal quarter of the Company and, if not on the last day of a fiscal
quarter or the date on which the Trustee resigns or is removed as provided in
Article X or this Agreement is terminated as provided in Article
XIII.  Within 30 days following each
Reporting Date or within 60 days in the case of a Reporting Date caused by the
resignation or removal of the Trustee or the termination of this Agreement, the
Trustee shall provide to the Company a written account setting forth all
investments, receipts, disbursements and other transactions effected by the
Trustee between the Reporting Date and the prior Reporting Date, and setting
forth the value of the Trust as of the Reporting Date. 

 

SECTION 7.03. Inspection
and Audit.  All records generated by
the Trustee in accordance with Sections 7.01 and 7.02 shall be open to
inspection and audit, during the Trustee’s regular business hours prior to the
termination of this Agreement, by the Company or any person designated by the
Company. 

 

ARTICLE VIII

TRUSTEE POWERS

 

SECTION 8.01. Trustee
Powers.  The Trustee shall have the
following powers and authority:

 

(a)  to sell, exchange, convey,
transfer or otherwise dispose of any property held in the Trust, by private
contract or at public auction; no person dealing with the Trustee shall be
bound to see to the application of the purchase money or other property
delivered to the Trustee or to inquire into the validity, expediency or
propriety of any such sale or other disposition;

 

(b)  to cause any securities or
other property held as part of the Trust to be registered in the Trustee’s own
name, in the name of one or more of its nominees and to hold any investments in
bearer form, but the books and records of the Trustee shall at all times show
that all such investments are part of the Trust;

 

(c)  to keep that portion of the
Trust in cash or cash balances as the Trustee may, from time to time, deem to
be in the best interest of the Trust;

 

 

(d)  to make, execute,
acknowledge and deliver any and all documents of transfer or conveyance and to
carry out the powers herein granted;

 

(e)  to borrow funds from a bank
not affiliated with the Trustee in order to provide sufficient liquidity to
make disbursements to Berkshire in accordance with the Berkshire Preferred
Stock in a timely fashion;

 

(f)  to settle, compromise or
submit to arbitration any claims (other than claims of creditors of the Company
in the event of the Company’s Insolvency), debts or damages due to or arising
from the Trust; to commence or defend suits or legal or administrative
proceedings; to represent the Trust in all suits and legal and administrative
hearings; and to pay all reasonable expenses arising from any such action from
the Trust if not paid by the Company;

 

(g)  to employ legal, accounting,
clerical and other assistance as may be required in carrying out the provisions
of this Agreement and to pay their reasonable expenses and compensation from
the Trust if not paid by the Company; and

 

(h)  to do all other acts,
although not specifically mentioned herein, as the Trustee may deem necessary
to carry out any of the foregoing powers and the purposes of the Trust.

 

Notwithstanding any powers granted to the Trustee pursuant to this
Agreement or to applicable law, the Trustee shall not have any power that could
give the Trust the objective of carrying on a business and dividing the gains
therefrom, within the meaning of Section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Code.  The Company may provide the Trustee with an
opinion of counsel whether an annual fiduciary tax return should be filed for
the Trust; in the absence of such opinion, the Trustee may consult with counsel
to the extent it deems appropriate on such issue, and any resulting counsel
fees shall be charged to the Trust to the extent not paid by the Company.

 

ARTICLE IX

COMPENSATION AND EXPENSES OF THE TRUSTEE

 

SECTION 9.01. Compensation
and Expenses of the Trustee.  The
Company shall not be required to pay a fee to the Trustee in connection with
the services provided by the Trustee in accordance with this Agreement.

 

All expenses of the Trustee relating directly to the management of the
assets of the Trust and disbursement of funds to Berkshire shall be paid by the
Company.

 

 

The Company shall, from time to time, pay taxes of any and all kinds
whatsoever that at any time are lawfully levied or assessed upon or become
payable in respect of the assets of the Trust.

 

ARTICLE X

RESIGNATION OR REMOVAL OF THE TRUSTEE

 

SECTION 10.01.
Resignation.  The Trustee may
resign at any time upon 90 days’ notice in writing to the Company, unless a
shorter period of notice is agreed upon by the Company.

 

SECTION 10.02.
Removal.  The Company may not
remove the Trustee except in the event of gross negligence or willful
misconduct by the Trustee in connection with the performance of its obligations
under this Agreement and upon 90 days’ notice in writing to the Trustee, unless
a shorter period of notice is agreed upon by the Trustee.

 

SECTION 10.03.
Successor.  If the Trustee resigns
or is removed, a successor shall be appointed, in accordance with Article XI,
by the effective date of resignation or removal under Section 10.01 or
10.02.  If no such appointment has been
made, the Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. 
All expenses of the Trustee in connection with any such proceeding shall
be paid by the Company.

 

ARTICLE XI

SUCCESSOR TRUSTEE

 

SECTION 11.01.
Appointment.  If the office of
Trustee becomes vacant for any reason, the Company may in writing appoint a
successor trustee under this Agreement. 
The successor trustee shall have all the rights, powers, privileges,
obligations, duties, liabilities and immunities granted to the Trustee under
this Agreement.  The successor trustee
and predecessor trustee shall not be liable for the acts or omissions of the
other with respect to the Trust.

 

SECTION 11.02.
Acceptance.  When the successor
trustee accepts its appointment under this Agreement, title to and possession
of the Trust assets shall immediately vest in the successor trustee without any
further action on the part of the predecessor trustee.  The predecessor trustee shall execute all
instruments and do all acts that reasonably may be necessary or reasonably may
be requested in writing by the Company or the successor trustee to vest title
to all Trust assets in the successor trustee or to deliver all Trust assets to
the successor trustee.

 

SECTION 11.03.
Corporate Action.  Any successor
of the Trustee or successor trustee, through sale or transfer of the business
or trust department of the Trustee

 

 

or successor trustee, or through reorganization,
consolidation or merger, or any similar transaction, shall, upon consummation
of the transaction, become the successor trustee under this Agreement.

 

ARTICLE XII

CONFIDENTIALITY

 

SECTION 12.01.
Confidentiality.  The parties to
this Agreement recognize that, in the course of implementing and providing the
services defined herein, each party may disclose to the other confidential
information.  All such confidential
information and other proprietary information disclosed by any party shall
remain the sole property of the party disclosing the same, and any receiving
party shall have no interest or rights with respect thereto if so designated by
the disclosing party to the receiving party. 
Each party agrees to maintain all such confidential information in trust
and confidence to the same extent that it protects its own proprietary
information, and not to disclose such confidential information to any third
party without the written consent of the party that originally disclosed such
proprietary information.  Each party
further agrees to take all reasonable precautions to prevent any unauthorized
disclosure of such confidential information. 
In addition, each party agrees not to disclose or make public to anyone,
in any manner, the terms of this Agreement, except to its legal and accounting
advisers, or as required by law, or in connection with a potential corporate
transaction, without the prior written consent of the other parties.

 

All information received and all records prepared and maintained by the
Trustee shall be held in confidence by the Trustee, except as required by
applicable law.  Except to the extent
expressly authorized under this Agreement, the Trustee shall not hold itself
out as a representative or agent of the Company.

 

ARTICLE XIII

AMENDMENT, REVOCATION OR TERMINATION

 

SECTION 13.01.
Amendment.  This Agreement may not
be amended.

 

SECTION 13.02.
Revocation or Termination.

 

(a)  Except as set forth in paragraph (b) of this
Section 13.02, the Trust may not be revoked and this Agreement may not be
terminated.

 

(b)  On the date when the Berkshire Preferred
Stock is redeemed in full and the Company has no further obligations with
respect to such stock, the Trust shall automatically be revoked and this
Agreement shall terminate.  At such time,
the Trustee shall forthwith transfer and deliver to such individual or entity
as the Company shall designate in writing all cash and assets then constituting
the Trust.  If by the termination

 

 

date, the Company has not notified the
Trustee in writing as to whom the assets and cash are to be transferred and
delivered, the Trustee may bring an appropriate action or proceeding for leave
to deposit the assets and cash in a court of competent jurisdiction.  The Trustee shall be reimbursed by the
Company for all costs and expenses of the action or proceeding including,
without limitation, reasonable attorneys’ fees and disbursements.

 

ARTICLE XIV

LIMITATION OF LIABILITY; INDEMNIFICATION

 

SECTION 14.01.Limitation
of Liability.  Trustee shall not be
liable for any claims, losses, liabilities, damages or expenses (including
attorneys’ fees and expenses) (collectively referred to herein as “Losses”) or
action taken or omitted or for any loss or injury resulting from its actions or
its performance or lack of performance of its duties hereunder in the absence
of its gross negligence or willful misconduct. 
In no event shall Trustee be liable (i) for special, consequential or
punitive damages, or (ii) any Losses due to forces beyond the control of
Trustee, including without limitation strikes, work stoppages, acts of war or
terrorism, insurrection, revolution, nuclear or natural catastrophes or acts of
God, and interruptions, loss or malfunctions of utilities, communications or
computer (software and hardware) services.

 

SECTION 14.02.Indemnification.  The Company shall be liable for, and shall
indemnify Trustee and hold Trustee harmless from and against, any and all
Losses howsoever arising from or in connection with this Agreement or the
performance of Trustee’s duties hereunder, the enforcement of this Agreement
and disputes between the parties hereto, provided, however, that nothing
contained herein shall require that Trustee be indemnified for its gross
negligence or willful misconduct.

 

ARTICLE XV

RESIGNATION, REMOVAL AND TERMINATION NOTICES

 

SECTION 15.01.
Resignation, Removal and Termination Notices.  All notices of resignation, removal or
termination under this Agreement must be in writing and mailed to the party to
which the notice is being given by certified or registered mail, return receipt
requested, to the Company c/o Thomas L. Forsyth, Esq., OneBeacon Insurance
Group LLC, One Beacon Street, Boston, MA 02108, and to the Trustee c/o White
Mountains Capital, Inc., 80 South Main St., Hanover, NH 03755, or to such other
addresses as the parties have notified each other of in the foregoing manner.

 

 

ARTICLE XVI

DURATION

 

SECTION 16.01.
Duration.  The Trust shall
continue in effect until the Berkshire Preferred Stock is redeemed in full and
the Company has no further obligations with respect to such stock subject,
however, to the provisions of this Agreement relating to amendment or
termination.

 

ARTICLE XVII

GENERAL

 

SECTION 17.01.
Performance by the Trustee, its Agents or Affiliates.  The Company acknowledges and authorizes that
the services to be provided under this Agreement shall be provided by the
Trustee, its agents or affiliates, and that certain of such services may be
provided pursuant to one or more other contractual agreements or relationships.

 

SECTION 17.02.
Entire Agreement.  This Agreement
contains all the terms agreed upon between the parties with respect to the
subject matter hereof.

 

SECTION 17.03.
Waiver.  No waiver by either party
of any failure or refusal to comply with an obligation hereunder shall be
deemed a waiver of any other or subsequent failure or refusal to so comply.

 

SECTION 17.04.
Non-Assignment.  Payments to
Berkshire under the Trust, if any, may not be anticipated, assigned (either at
law or in equity), alienated, pledged, encumbered or subjected to attachment,
garnishment, levy, execution or other legal or equitable process.

 

SECTION 17.05.
Successors and Assigns.  The
stipulations in this Agreement shall inure to the benefit of, and shall bind,
the successors and assigns of the respective parties.

 

SECTION 17.06.
Partial Invalidity.  If any term
or provision of this Agreement or the application thereof to any person or
circumstances shall, to any extent, be invalid or unenforceable, the remainder
of this Agreement, or the application of such term or provision to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby, and each term and provision of this Agreement
shall be valid and enforceable to the fullest extent permitted by law.

 

SECTION 17.07.
Section Headings.  The headings of
the various sections and subsections of this Agreement have been inserted only
for the purposes of convenience and are not part of this Agreement and shall
not be deemed in any manner to modify, explain, expand or restrict any of the
provisions of this Agreement.

 

 

SECTION 17.08.
Counterparts.  This Agreement may
be executed in one or more counterparts (including via facsimile), each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument and shall become effective when one or
more counterparts have been signed by each party and delivered to the other
party.  The signature of any of the
parties to any counterpart or copy of this Agreement shall be sufficient
evidence of its joining in the creation of the Trust and of its designation of
the Trustee named herein.

 

SECTION 17.09.
Facsimile and Electronic Communications Permitted.  All requirements in this Agreement that
notifications, directions or other communications be in writing may be
satisfied by facsimile and/or electronic delivery to the facsimile number,
e-mail or other electronic address as shall have been provided by one party to
the other in writing, except for (a) the requirement relating to notices of
resignation, removal or termination as described in Section 15.01 and (b) the
initial notice by one party to the other of an acceptable facsimile number,
e-mail or other address.  Any changes by
one party to any facsimile number, e-mail or other address previously provided
to the other party pursuant to this Section 17.09 shall also be transmitted in
writing.  

 

ARTICLE XVIII

GOVERNING LAW

 

SECTION 18.01.
Delaware Law Controls.  This
Agreement is being made in the State of Delaware, and the Trust shall be
administered as a Delaware trust.  The
validity, construction, effect and administration of this Agreement shall be
governed by and interpreted in accordance with the laws of the State of Delaware.

 

SECTION 18.02.
Trust Agreement Controls.  The
Trustee is not subject to the terms of the Berkshire Preferred Stock and, in
the event of any conflict between the terms of the Berkshire Preferred Stock
and the provisions of this Agreement, the provisions of this Agreement shall
control.

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.

 

	
   

  	
  FUND AMERICAN COMPANIES, INC.,

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  
	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
				

 

 

	
   

  	
  WHITE MOUNTAINS CAPITAL, INC.

  (solely in its capacity as Trustee of the

  Trust),

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  
	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

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