Document:

Exhibit 10.12

 

WHITE MOUNTAINS RE LONG TERM INCENTIVE PLAN

 

1.             PURPOSE

 

The purpose of the White
Mountains Re Long Term Incentive Plan (the “Plan”) is to advance the interests
of White Mountains Re Group, Ltd. (the “Company”) by providing long-term
incentives to certain executives and key employees of the Company and certain
of its affiliates.

 

2.             ADMINISTRATION

 

The Plan shall be
administered by the Compensation Committee (the “Committee”) of the Board of
Directors of the Company (the “Board”). 
The Plan will govern the administration of all outstanding Awards, as
defined below, as of the date of Plan adoption and all future Awards through
the date of Plan termination.

 

The Committee shall have
exclusive authority to select the employees to be granted awards under the Plan
(“Awards”) and to determine the size and terms of the Awards.  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.  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.

 

All decisions pertaining to
the Plan reached by the Committee, as described herein, and, if required, the
compensation committee of the White Mountains Insurance Group, Ltd. (the “WTM
Group”) Board of Directors (the “WTM Comp Committee”) shall in all cases be
final and binding.

 

3.             PARTICIPATING AFFILIATES

 

If certain affiliates of the Company wish to
participate in the Plan and their participation shall have been approved by the
Board, the Board of Directors of the affiliate shall adopt a resolution in form
and substance satisfactory to the Committee authorizing participation by the
affiliate in the Plan.

 

Certain affiliates may cease to participate in the
Plan at any time by action of the Board or by action of the Board of Directors
of such affiliate, which latter action shall be effective not earlier than the
date of delivery to the Secretary of the Company of a certified copy of a
resolution of such affiliate’s Board of Directors taking such action.  Termination of participation in the Plan
shall not relieve such affiliate of any obligations theretofore incurred by it
under the Plan.

 

 

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4.             AWARDS

 

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

 

(b)                                 Type
of Award. 
Awards shall be in performance units (“Performance
Units”) and phantom performance shares (“Phantom Shares”).

 

5.             PERFORMANCE UNITS

 

The grant of a Performance Unit Award to a
Participant will entitle the Participant to receive, without payment to the
Company, all or part of a specified amount determined by the Committee, if the
terms and conditions specified herein and in the Award are satisfied.  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 after receiving recommendations from the Company’s Chief Executive
Officer and the Company or certain affiliate’s management team.  Performance Unit Awards may be granted in
different classes or series having different terms and conditions.

 

(b)                                 The period (the
“Award Period”) in respect of any grant of a Performance Unit Award shall be a
three year cycle or as the Committee shall otherwise determine.

 

(c)                                  Participants
are awarded Performance Units at a value of $1,000 per Performance Unit or the
foreign currency equivalent at the beginning of each Award Period (the “Initial
Value”).  For each Award Period, the
value of each Performance Unit shall be compounded forward from its Initial
Value through the end of the Award Period based on the weighted average
underwriting return on deployed capital (“UROC”) produced by the Company during
the Award Period (the “Payment Value”). 
For each Award Period the percentage of Performance Units paid (the “Payment
Percentage”) at the end of the Award Period may vary between 0% and 200% of the
initially awarded Performance Units based upon the actual annual compounded
UROC achieved by the Company and/or one or more affiliates of the Company
during the Award Period as compared to minimum, target and maximum UROC goals
established as of the date such Performance Units were awarded.  The Payment Percentage shall be (i) 0%
if actual UROC is less than or equal to the minimum goal, (ii) 100% if
actual UROC is equal to target, (iii) 200% if actual UROC is equal to or
greater than the maximum goal and (iv) determined by linear interpolation
for actual UROC results between minimum and target or for actual UROC results
between target and maximum.

 

(d)                                 For each Award
Period, the amount payable to a Participant who is qualified to receive such
payment at the end of the Award Period shall be equal to the product 

 

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of (i) the number of
Performance Units awarded to the Participant for the Award Period, (ii) the
Payment Value and (iii) the Payment Percentage.

 

(e)                                  Except as otherwise
determined by the Committee, Performance Units shall be cancelled if the
Participant’s continuous employment with the Company or certain of its
affiliates 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 8.

 

Notwithstanding the
foregoing, if prior to the end of an Award Period a Participant while in such
employment shall (i) retire at age 65 or older with not less than five (5) years
of service, (ii) die or (iii) become disabled as described in Section 7,
then such Participant’s Performance Units that are then outstanding for such
Award Period shall be immediately canceled and the Participant, or the
Participant’s legal representative, as the case may be, shall, following the
end of the year in which the death, disability or retirement occurred, receive
a cash payment in respect of such canceled Performance Units equal to the  product of (a) the number of Performance
Units awarded to the Participant for the Award Period, (b) the Payment
Value calculated through the end of the year that the death, disability or
retirement occurred, (c) the Payment Percentage calculated through the end
of the year that the death, disability or retirement occurred and (d) a fraction
equal to (x) the number of months from the beginning of the Award Period
through the end of the year in which the death, disability or retirement
occurred divided by (y) the total number of months in the Award Period.

 

The Committee, in its sole
discretion, may alter the terms of the retirement qualifications and
calculations without the consent of any Participant.

 

(f)                                   If within 24
months after a Change in Control as defined in Section 9:

 

i.                          there is a
Termination Without Cause, as defined in section 10, of the employment of a
Participant;

 

ii.                       there is
Constructive Termination, as defined in section 11, of the employment of a
Participant; or

 

iii.                    there is Adverse Change in
the LTIP, as defined in section 12, in respect of a Participant;

 

(any such occurrence following a Change in Control
under the above clauses (i), (ii) and (iii) is a “Trigger Event”),
then such Participant’s Performance Units that are then outstanding shall be
immediately canceled and the Participant, or the Participant’s legal representative,
as the case may be, shall receive a cash payment in respect of such canceled
Performance Units equal to the product of (a) the number of Performance
Units awarded to the Participant for the Award Period, (b) the Payment
Value calculated through the  end of the
quarter preceding the Trigger Event, (c) the Payment Percentage calculated
through the end of the quarter preceding the Trigger Event and (d) a
fraction equal to (x) the number of 

 

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whole months from the
beginning of the Award Period through the Trigger Event divided by (y) the
total number of months in the Award Period. 
For purposes of this Section 5 (f), the Payment Value calculated as
of the date of the Trigger Event shall include any gain or loss related to the
Change in Control recognized or to be recognized in the consolidated financial
statements prepared in accordance with United States Generally Accepted
Accounting Principles (“GAAP”) of the WTM Group.  For purposes of this Section 5 (f), the
Payment Percentage calculated as of the end of the quarter preceding the
Trigger Event shall be the greater of 100% or the Payment Percentage calculated
using actual financial results achieved through the end of the quarter
preceding the Trigger Event and including any gain or loss related to the
Change in Control as it relates to the Company, recognized or to be recognized
in the consolidated financial statements prepared in accordance with GAAP of
the WTM Group.

 

(g)                                  Except as
otherwise provided in Section 5(f), as soon as practicable after the end
of each Award Period or such earlier date as the Committee in its sole
discretion may designate, the Committee shall determine, based on the extent to
which the applicable performance objectives have been achieved, (i) the
Payment Value applicable to an Award of Performance Units and (ii) the
Payout Percentage of the Performance Unit Award, and shall certify all of the
foregoing to the Board.  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.

 

(h)                                 Unless payment
is deferred in accordance with an election made by the Participant in
accordance with procedures adopted by the Company, or certain affiliates
payment of any amount in respect of the Performance Units shall be made by the
Company as soon as administratively feasible and in any event no later than 2 1⁄2
months after the end of the Company or certain affiliates’ fiscal year in which
the Award Period ends for such Performance Units. Payment for Performance Units
shall be made in cash.

 

6.                                      PHANTOM PERFORMANCE
SHARES

 

The grant of a Phantom Shares 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.  Each Phantom Share shall be subject to the
following terms and conditions:

 

(a)                                 The Committee
shall determine the target number of Phantom Shares to be granted to a
Participant.  The maximum number of
Phantom Shares that may be earned by a Participant for any single Award Period
of one year or longer shall not exceed 50,000. 
Phantom Shares may be granted in different classes or series having
different terms and conditions.  The
Actual Value of a Phantom Share Award shall be the product of (i) the
target number of Phantom Shares subject to the Phantom Share Award, (ii) the
Performance Percentage (as determined below) applicable to the Phantom Share
Award and (iii) the market value of a common share of the WTM Group, par
value $1 per share (“Share”), on the date the Award 

 

 

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is paid or becomes payable
to the Participant. The “Performance Percentage” applicable to a Phantom 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.

 

(b)                                 At the time
each Phantom 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
established with respect to a Phantom 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) stock 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; and (xxiii) economic value per Share (computed based on book
value per Share determined in accordance with GAAP adjusted for changes in the
intrinsic value of assets and liabilities whose value differs from their GAAP
carrying value).The foregoing criteria may relate to WTM Group or 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, as
the Committee shall determine. In addition, the Performance Objectives may be
calculated without regard to extraordinary items.

 

(c)                                  The Award
Period in respect of any grant of a Phantom 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 Phantom 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.

 

(d)                                 Except as
otherwise determined by the Committee, Phantom 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 

 

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Period, except by reason of
a period of Related Employment as defined in Section 10 of the White
Mountains Insurance Group Long Term Incentive Plan (“WTM LTIP”), and except as
otherwise specified in this Section or in Section 7 (f) of the
WTM LTIP.

 

Notwithstanding the
foregoing and without regard to Section 7 (g) of the WTM LTIP, if a
Participant shall:

 

i.                          while in such
employment, die or become disabled as described in Section 9 of the WTM
LTIP prior to the end of an Award Period, the Phantom Shares 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 Phantom Shares equal to the product of (1) the
target number of Phantom Shares for such Award, (2) the market value of a
Share at the time of the death or disability and (3) a fraction, the
numerator of which is equal to the number of performance periods within the
Award Period during which the Participant was continuously employed by WTM
Group or its subsidiaries (including, for this purpose, the performance period
in which the death or disability occurs), and the denominator of which is equal
to the total number of performance periods within such Award Period; provided,
however, that no such continuation shall be deemed to have occurred for
purposes of applying Section 7(f) in the WTM LTIP in the event of an
Adverse Change in the Plan as defined in the WTM LTIP in respect of the
Participant following a Change in Control, as defined in section 11 (a) of
the WTM LTIP (“WTM Group Change in Control”); or

 

ii.                       retire prior to
the end of the Award Period the Phantom Shares shall be immediately canceled
and any payments made to the participant in respect of such canceled Phantom
Shares shall be in the sole discretion of the Committee, and

 

(e)                                  If within 24
months after a WTM Group Change in Control of the WTM Group LTIP:

 

i.                          there is a
Termination Without Cause, as defined in Section 12 of the WTM LTIP Plan,
of the employment of a Participant;

 

ii.                       there is a
Constructive Termination, as defined in Section 13 of the WTM LTIP Plan,
of the employment of a Participant; or

 

iii.                    there occurs an Adverse
Change in the Plan, as defined in Section 14 of the WTM LTIP Plan, in respect
of a participant (any such occurrence under the above clauses (i), (ii) or
(iii), a “WTM Group Trigger Event”),

 

then
with respect to Phantom Share Awards that were outstanding on the date of the
WTM Group Change of Control each, an “Applicable Award”, each such Award, to
the extent still outstanding at the time of the WTM Group Trigger 

 

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Event,
shall be canceled and, in respect of each Applicable Award (including those not
still outstanding), such Participant shall be entitled to receive a cash
payment equal to the sum of the amounts calculated under (A) and (B) below,
less any amounts, if any, previously paid in respect of such Applicable
Award (i.e., payments in respect of Awards outstanding as of the WTM Group
Change of Control and subsequently paid out by the Company prior to the
applicable  WTM Group Trigger Event ):

 

(A)                               A Participant
shall be entitled to receive the following with respect to each Applicable
Award: the product of (i) the Applicable Phantom Shares (as determined
below), (ii) 200% (representing the applicable Performance Percentage) and
(iii) the Applicable Share Value (as determined below).  For this purpose, (i) “Applicable
Phantom Shares” is equal to the number of target Phantom Shares for each
Applicable Award multiplied by a fraction, the numerator of which is the number
of full months elapsed since the first day of the applicable Award Period to
the end of the first month in which the applicable  WTM Group Trigger Event occurs and the
denominator of which is the total number of months in the Award Period (but
which fraction shall not in any event be greater than 1), and (ii) the “Applicable
Share Value” is equal to the greater of the market value of a Share immediately
prior to the Change in Control and the market value, if any, of a Share on the
date of the applicable  WTM Group Trigger
Event, and

 

(B)                               For Awards
outstanding on the date of the WTM Group Trigger Event, the Company shall, in
addition to the amounts payable under (A) above, pay to the Participant an
amount equal to the product of (i) (x) the total number of target
Phantom Shares in the Award less (y) the Applicable Phantom Shares in the
Award (as determined above), (ii) the Applicable Share Value (as
determined above) and (iii) the applicable Performance Percentage
determined as follows:

 

(1)                                 Prior to the
consummation of any WTM Group Change in Control, the Committee shall determine
a Performance Percentage for each then outstanding Award Period based on the
extent to which the applicable Performance Objectives were being achieved for
each such Award Period to the date of the WTM Group Change in Control

 

(2)                                 If the
Performance Percentage for an Award Period was determined by the Committee
(pursuant to subsection (1) above) to be greater than 100%, then the
Performance Percentage applicable to the remaining Phantom Shares of such Award
Period shall be such determined Performance Percentage, and

 

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(3)                                 If the
Performance Percentage for an Award Period was determined by the Committee
(pursuant to subsection (1) above) to be less than or equal to 100%, then
the Performance Percentage applicable to the remaining Phantom Shares of such
Award Period shall be the greater of (x) such other Performance Percentage
which may be specified by the Committee (or any sub-committee of the Board
which performs duties comparable to the Committee) for such Award Period at the
time of the  WTM Group Trigger Event and (y) 100%.

 

(f)                                   Except as otherwise
provided in Section 7(f) of the WTM LTIP Plan as soon as practicable
after the end of the Award Period or such earlier date as the Committee in its
sole discretion may designate, the Committee shall determine, based on the
extent to which the applicable Performance Objectives have been achieved, the
Performance Percentage applicable to an Award of Phantom Shares, (i) calculate
the Actual Value of the Phantom  Share
Award and (ii) shall certify the foregoing to the Board and shall cause an
amount equal to the Actual Value of the Phantom Shares 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 Phantom Shares shall be made by the Company no later than 2 1/2
months after the end of the Company’s or certain affiliate’s fiscal year in
which such Phantom Shares are earned, and shall be made in cash.

 

7.                                      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
certain affiliates in which the Participant participates.

 

8.                                      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 certain affiliate provided: (i) such employment is
undertaken by the Participant and continued at the request of the Company or a
certain affiliate; (ii) immediately prior to undertaking such employment,
the Participant was an officer or employee of the Company or affiliate, 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 6. 
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.

 

 

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9.                                      CHANGE IN CONTROL

 

For purposes of this Plan, a “Change in Control” within the meaning of
this Section 9 shall occur if:

 

(a)                                 Any person or
group (within the meaning of Section 13(d) of the Securities Exchange
Act of 1934, other than the WTM Group of any of its wholly owned subsidiaries,
becomes the beneficial owner of 20% or more of the outstanding common stock of
the entity for which the Participant’s services are principally performed (or
any intermediate operating or holding company in the ownership chain between
the WTM Group and the entity for which the Participant’s services are
principally performed) and such percentage exceeds the beneficial ownership
percentage of the WTM Group; or

 

(b)                                 the business
for which the Participant’s services are principally performed is disposed of
by the WTM Group pursuant to a sale or other disposition of all or
substantially all of the business or business related assets of the business
for which the participant’s services are principally performed; or

 

(c)                                  there occurs a
Change of Control of the WTM Group as defined in the WTM LTIP Plan or any
similar or successor long-term incentive compensation plan of the WTM Group.

 

10.                               TERMINATION WITHOUT CAUSE

 

For purposes of this Plan, “Termination Without Cause”
shall mean a termination of the Participant’s employment with the Company or a
Company affiliate other than (i) for death or disability as described in Section 5
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
by the Company or by a certain affiliate which causes, or is likely to cause,
material loss or damage to the Company. 
Notwithstanding anything herein to the contrary, if the Participant’s
employment with the Company or one of its certain affiliates shall terminate
due to a Change in Control as described in Section 7 where the purchaser,
as described in such subsections, 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.”

 

11.                               CONSTRUCTIVE TERMINATION

 

“Constructive Termination” shall mean a termination
of employment with the Company or an affiliate at the initiative of the
Participant that the Participant declares by prior written notice delivered to
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 

 

9

 

occur within the meaning of this Section 9
until and unless 30 days have elapsed from the date the Company receives such
written notice without the Company curing or causing to be cured the
circumstance or circumstances described in this Section 9 on the basis of
which the declaration of Constructive Termination is given.

 

12.                               ADVERSE CHANGE IN THE PLAN

 

An “Adverse Change in the Plan” shall mean

 

(a)                                 Termination of
the Plan pursuant to Section 14; or

 

(b)                                 Amendment of
the Plan pursuant to Section 14 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.

 

13.                               DESIGNATION OF BENEFICIARY BY
PARTICIPANT

 

A Participant may name a beneficiary to receive any
payment to which he may be entitled in respect Performance Units 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 amount becomes
payable to a participant’s executors or administrators, the term “beneficiary”
as used in the Plan shall include such person or persons.

 

14.                               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 and certain affiliates.

 

(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)                                  The Company and
certain affiliates shall have the right to deduct from any payment made under
the Plan any federal, state or local income or other taxes 

 

10

 

required
by law to be withheld with respect to such payment.  It shall be a condition to the obligation of
the Company upon payment of a Performance Unit that the Participant (or any
beneficiary or person entitled to payment under this Plan) 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 such Units.

 

(d)                                 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.

 

(e)                                  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.

 

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

 

i.                          there is a
Termination Without Cause, as defined in section 10, of the employment of a
Participant;

 

ii.                       if such Award
results in payment of cash to the Participant, such affiliate shall pay to the
WTM Group an amount equal to such cash payment; and

 

iii.                    if the Award results in the
issuance to the Participant of Shares, such subsidiary shall pay to the WTM
Group an amount equal to fair market value thereof, as determined by the WTM
Comp Committee, on the date such Shares are issued.

 

15.                               AMENDMENT

 

The Plan may be amended at any time and from time to
time by the Board. Except as otherwise provided herein, 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.

 

16.                               TERMINATION

 

This Plan shall terminate upon the adoption of a
resolution of the Board terminating the Plan. 
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.

 

11Exhibit
10.13

 

Esurance Holdings, Inc.

Performance Unit Plan

2007-2009

 

The
Purpose of the Plan:

 

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

 

2.              Summary:  From time to time, the Board
of Directors of the Company (the “Board”) may grant to executives of, or
consultants to, the Company or its subsidiaries (each, a “Participant”) a
number of units (“Performance Units”) whose ultimate payment value (the “Award
Value”) is determined in relation to the economic performance of the Esurance
Segment over specified periods of time (each such period, an “Award Period”) as
set forth in this Plan.  Performance Units
granted for any Award Period ending prior to December 31, 2009 will have an
initial financial value of $1,000 which value will increase or decrease based
upon periodic Net EROAC (such value, as increased or decreased over time, the “Financial
Value”).  At the end of each Award Period,
the Board will determine (i) the final Financial Value of each Performance
Unit based upon annual Net EROAC over such Award Period, and (ii) the Economic
Combined Ratio for such Award Period.  If
the Economic Combined Ratio is less than or equal to 100% for such Award Period,
the Board in its sole discretion will assign a multiplier percentage from 0% to
100% (the “Harvest Percentage”) for such Award Period taking into account the growth
in direct written premium and gross Economic Value Added over the Award Period
relative to the Company’s plan for such period. 
If the Economic Combined Ratio is greater than 100%, then the Harvest
Percentage will be 0%.  The Award Value of
the matured Performance Units for an Award Period shall be equal to the product
of (x) the number of Performance Units in the applicable Grant, (y) the
Financial Value of a Performance Unit for the Award Period, and (z) the applicable
Harvest Percentage, all as finally determined by the Board.  Following such determinations, either a cash
payment will be made to the Participant equal to the Award Value of the Performance
Units (subject to applicable tax withholding) or, if the Participant shall have
so elected under terms permitted by the Company, a credit of all or a portion
of such amount will be made to a deferred compensation plan maintained by the Company.

 

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

 

1

 

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

 

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

 

5.              Grants:

 

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

 

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

 

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

 

2

 

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

 

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

 

(e)           Number of
Performance Units:  With
respect to all Award Periods ending on or prior to December 31, 2009, the Board
is authorized to make Grants of up to the number of Performance Units specified
below:

 

	
  Award
  Period

  	
   

  	
  Performance Units

  	
   

  
	
  2007-2009

  	
   

  	
  9,897

  	
   

  

 

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

 

7.              Change in Control:

 

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

 

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

 

3

 

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

 

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

 

8.              Amendments or Termination:  The Board may amend, alter or discontinue the
Plan, but no amendment, alteration or discontinuation shall be made which would
impair any of the rights or obligations under any then outstanding Grant to a Participant
without such Participant’s consent; provided, however, that the Board may amend
the Plan in such manner as it deems necessary to permit outstanding or future
Grants to comply with all applicable requirements of the Internal Revenue Code
of 1986, as amended, or any successor thereto, or other applicable laws.

 

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

 

10.       Nontransferability of Grants:  A Grant shall not be transferable or
assignable by the Participant, other than as described in Section 16 of
this Plan.

 

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

 

12.       Claims Procedure:  In general, any claim for benefits under the
Plan shall be filed with the Board of Directors by a Participant or
beneficiary.  The Board will consider the
claim promptly.

 

13.       Miscellaneous Provisions:  The Company is the sponsor and legal obligor
under the Plan and shall make all payments hereunder.  The Plan is unfunded.  The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to ensure the payment of any amounts under the Plan, and the Participant’s
rights to any payment hereunder shall be no greater than the rights of the
Company’s unsecured creditors.  All
references to Sections herein shall be deemed to be references to the specified
sections of this Plan.

 

4

 

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

 

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

 

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

 

17.       Definitions:

 

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

 

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

 

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

 

“Average Deployed Capital” means, for any
period, the average daily amount of capital invested in, loaned to, or
guaranteed on behalf of (including reinsurance capital and sunk costs) the
Esurance Segment by its Affiliates in such period, as determined by the Board.  Capital deployed by Affiliates in the
Esurance Segment at December 31, 2006 was $449.6 million, consisting of $190.3
million of equity, $40.2 million of debt and accrued interest and $219.1
million of reinsurance capital.

 

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

 

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

 

5

 

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

 

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

 

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

 

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

 

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

 

“Economic Value Added” means, for any period,
(i) Economic Return for such period before Compensation Expenses minus (ii) the
product of (x) Average Deployed Capital for such period multiplied by (y) 4.70%.

 

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

 

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

 

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

 

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

 

6

 

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

 

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

 

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

 

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

 

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

 

a.     Termination
Without Cause: A termination of the Participant’s employment with the
Company or its subsidiaries by the Company or any such subsidiary, or from
Related Employment by such employer, other than (i) due to the Participant’s
death or disability (as defined by the board of directors of the relevant
employer), or (ii) for Cause.  A
transfer of a Participant’s employment to a Related Employment assignment shall
not be considered a Termination without Cause hereunder.  Notwithstanding anything herein to the
contrary, a termination of a Participant’s employment with the Company or one
of its subsidiaries due solely to the consummation of a corporate transaction
described in the definition of Change in Control shall not be deemed to be a “Termination
Without Cause” if the Participant is employed by the acquiror or one of its Affiliates
and the acquiror or one of its Affiliates formally assumes the Company’s obligations
under this Plan or places the Participant in a similar or like plan with no
diminution of the value of the awards granted.

 

b.     Constructive
Termination.  A termination of
employment with the Company or its subsidiaries, or from a Related Employment
assignment, at the initiative of the Participant that the Participant declares,
by prior written notice delivered to the Secretary of the Company or Related
Employer (as applicable), to be a Constructive Termination by the Company or such
Related Employer and which follows (i) a material decrease in his or her base
salary or (ii) a material diminution in the authority, duties or
responsibilities of his or her position as a result of which the Participant
determines in good faith that he or she cannot continue to carry out his/her
job in substantially the same manner as it was intended to be carried out
immediately before such diminution. 
Notwithstanding anything herein to the contrary, a Constructive
Termination shall not occur until and unless 30 days have elapsed from the date
the Company or Related Employer receives such written notice from the 

 

7

 

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

 

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

 

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

 

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

 

18.       Effective Date of the Plan:  The Plan shall be effective as of January 1,
2007.

 

8

 

IN WITNESS WHEREOF, Esurance Holdings, Inc. has caused this Plan
to be executed this 31st day of May, 2007.

 

 

	
   

  	
  ESURANCE HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
  Gary C. Tolman

  
	
   

  	
  Its:

  	
  President & CEO

  

 

9

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