Document:

Exhibit 10.3.2

 

PROSPECTOR PARTNERS, LLC

 

INVESTMENT MANAGEMENT
AGREEMENT

PROSPECTOR PARTNERS, LLC,
a Delaware limited liability company (the “Adviser”), having an address
at 370 Church Street, Guilford, Connecticut 06437, and OneBeacon Insurance
Group, Ltd., a Bermuda Corporation (“OneBeacon”), having an address at Bank of
Butterfield Building, 42 Reid Street, Hamilton HM 12, Bermuda, hereby enter
into this Investment Management Agreement, dated as of  [November 11, 2006] (this “Agreement”),
and hereby agree that the Adviser shall act as discretionary adviser with
respect to the specified assets of each subsidiary of OneBeacon identified on
Schedule A (each, a “Client”) to this Agreement as such schedule may be amended
from time to time to add new subsidiaries as Clients on the following terms and
conditions:

1.     Investment Accounts  The investment account of each of the
entities identified in Schedule A to this Agreement (each an “Investment
Account”) shall consist of cash and securities  in an amount equal to at least $30,000,000
(the “Minimum Account Amount”), or such other amount as may be agreed to by the
Adviser, initially furnished by the Client for investment pursuant to this
Agreement, as well as all other assets which become part of each Investment Account
as a result of trading therein or additions thereto, except for amounts
withdrawn there from and paid to the Client. 
Each Client may make additions to the Investment Account in amounts
exceeding $100,000, or in such other amount as may be agreed to by the Adviser,
provided that the Adviser shall have received prompt written notice of such
additions.  Each Client may make
withdrawals from its’ Investment Account in such amounts as it shall determine
upon not less than 30 days prior written notice thereof to the Adviser and
provided that the withdrawal shall not cause the assets in the Investment
Account to fall below the Minimum Account Amount, unless otherwise agreed to by
the Adviser.

2.     Services of Adviser  By execution of this Agreement the Adviser
accepts appointment as adviser for each Investment Account with full discretion
and agrees to supervise and direct the investments of each Investment Account
in accordance with the investment objective, policies and restrictions
described in the investment guidelines attached hereto as Schedule B (the “Investment
Guidelines”).  In the performance of its
services, the Adviser will not be liable for any error in judgment or any acts
or omissions to act except those resulting from the Adviser’s gross negligence,
willful misconduct or malfeasance. 
Nothing herein shall in any way constitute a waiver or limitation of any
right of any person under the federal securities laws.  The Adviser shall have no responsibility
whatsoever for the management of any assets of the entities identified in
Schedule A to this Agreement other than such entities’ Investment Account.

3.     Discretionary Authority  Subject to the Investment Guidelines, the
Adviser shall have full discretion and authority, without obtaining any prior
approval, as the Client’s agent and attorney-in-fact: (a) to
make all investment decisions in respect of each Investment Account on the
Client’s behalf and at the sole risk of the Client; (b) to buy, sell,
exchange, convert, liquidate or otherwise trade in any stock, bond and other
securities or financial instruments in respect of each Investment Account;
(c) to place orders with respect to, and to arrange for, any of the
foregoing; and (d) in furtherance of the foregoing, to do anything which
the Adviser shall deem requisite, appropriate or advisable in connection
therewith, including, without limitation, the selection of such brokers,
dealers, and others as the Adviser shall determine in its absolute discretion.

4.     Custody  The assets of each Investment Account shall
be held in one or more separately identified accounts in the custody of one or
more banks, trust companies, brokerage firms or other entities designated by
the Client and acceptable to the Adviser. 
The Adviser will communicate its investment purchase, sale and delivery
instructions directly with the party identified by the Client or other
qualified depositories.  The Client shall
be responsible for all custodial arrangements and the payment of all custodial
charges and fees, and the Adviser shall have no responsibility or liability
with respect to custody arrangements or the acts, omissions or other conduct of
the custodians.

5.     Brokerage  When placing orders for the execution of
transactions for an Investment 

Account, the
Adviser may allocate all transactions to such brokers or dealers, for execution
on such markets, at such prices and commission rates, as are selected by the
Adviser in its sole discretion.  In
selecting brokers or dealers to execute transactions, the Adviser need not
solicit competitive bids and does not have an obligation to seek the lowest
available commission cost.  It is not the
Adviser’s practice to negotiate “execution only” commission rates, and, in
negotiating commission rates, the Adviser shall take into account the financial
stability and reputation of brokerage firms and brokerage and research services
provided by such brokers.  An Investment
Account may be deemed to be paying for research provided or paid for by the
broker which is included in the commission rate although the Investment Account
may not, in any particular instance, be the direct or indirect beneficiary of
the research services provided.  Research
furnished by brokers may include, but is not limited to, written information
and analyses concerning specific securities, companies or sectors; market,
finance and economic studies and forecasts; financial publications; statistics
and pricing services; discussions with research personnel; and software and
data bases utilized in the investment management process.  OneBeacon acknowledges on behalf of each
Client that since commission rates are generally negotiable, selecting brokers
on the basis of considerations which are not limited to applicable commission
rates may at times result in higher transaction costs than would otherwise be
obtainable.  The Adviser is hereby
authorized to, and OneBeacon acknowledges on behalf of each Client that the
Adviser may aggregate orders on behalf of each Investment Account with orders
on behalf of other clients of the Adviser. 
In such event, allocation of the securities purchased or sold, as well
as expenses incurred in the transaction, shall be made in a manner which the
Adviser considers to be the most fair and equitable to all of its clients,
including the Clients.

6.     Representations and Warranties

(a)          OneBeacon represents, warrants and agrees
that:

(i)                                     it has full legal power and authority to
enter into this Agreement;

(ii)                                  the appointment of the Adviser hereunder is
permitted by each Client’s governing documents and any investment management
agreement between  OneBeacon and the Clients
to this Agreement and has been duly authorized by all necessary corporate or
other action; and

(iii)                               it will indemnify the Adviser and hold it
harmless against any and all losses, costs, claims and liabilities which the
Adviser may suffer or incur arising out of any material breach of these
representations and warranties of  OneBeacon.

 

(b)         The Adviser represents, warrants and
agrees that:

(i)             it has full legal power and authority to enter into this
Agreement;

(ii)                                  it is registered as an investment adviser
with the Securities and Exchange Commission pursuant to the Investment Advisers
Act of 1940, as amended (the “Advisers Act”);

(iii)                               entering into this Agreement has been
duly authorized by all necessary action; and

(iv)                              it will indemnify OneBeacon and hold it
harmless against any and all losses, costs, claims and liabilities which
OneBeacon or any Client may suffer or incur arising out of any material breach
of any representations and warranties of the Adviser.

 

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7.     Reports  The Adviser shall provide OneBeacon with reports
containing the status of the Investment Account at least monthly (i.e. “Flash
Report”), and will provide written advisory report letters on a quarterly
basis.  All records maintained pursuant
to this Agreement shall be subject to examination by OneBeacon and by persons
authorized by it, or by appropriate governmental authorities, at all times upon
reasonable notice.  The Adviser shall
provide copies of trade tickets, custodial reports and other records OneBeacon
reasonably requires for accounting or tax purposes.

8.     Management Fee and Expenses
The Adviser will be paid a quarterly management fee (the “Management Fee”) for
its investment advisory services provided hereunder, determined in accordance
with Schedule C to this Agreement. 
During the term of this Agreement, the Management Fee shall be billed
and payable in arrears on a quarterly basis within 10 days after the last day
of each calendar quarter based upon the value of the Investment Accounts as of
the last day of the immediately preceding calendar quarter.  The Management Fee shall be pro-rated for any
partial quarter.  It is understood that,
in the event that the Management Fee is to be paid by the custodian out of the
Investment Accounts, OneBeacon or the Clients will provide written
authorization to the custodian to pay the Management Fee directly from the
Investment Accounts.

(a)   Each Investment Account shall be responsible
for all expenses incurred directly in connection with transactions effected on
behalf of the Investment Account pursuant to this Agreement and shall include: custodial
fees; PAM accounting service fees, investment expenses such as commissions; and
other expenses reasonably related to the purchase, sale or transmittal of
Investment Account assets (other than research fees and expenses with respect
to the Investment Account).

9.     Confidential
Relationship  All information and
advice furnished by either party to the other party pursuant to this Agreement
shall be treated by the receiving party as confidential and shall not be
disclosed to third parties except as required by law; provided, however, that
the OneBeacon consents to the disclosure by the Adviser that OneBeacon (and
each of the Clients) is a client of the Adviser and to the inclusion of OneBeacon
on a list of representative clients of the Adviser or in other marketing
materials.  OneBeacon acknowledges that
the Adviser shall own and be permitted to use its investment track record with
respect to the Investment Accounts, and shall be permitted to retain copies of
all documentation necessary under the Advisers Act to support the track record
or otherwise required to be retained under the Advisers Act and related rules.
The Adviser acknowledges that OneBeacon shall be permitted to report the
investment track record (on a stand-alone basis, as part of its total portfolio
return or otherwise) with respect to the Investment Accounts in any internal or
external reports of it or its affiliates.

10.   Non-Assignability  No “assignment”, as that term is defined in
the Advisers Act, of this Agreement shall be made by the Adviser or OneBeacon
without the written consent of the other party.

11.   Directions to the Adviser  All directions by OneBeacon by or on behalf
of the Clients to the Adviser shall be in writing signed by or on behalf of OneBeacon.  The Adviser shall be fully protected in
relying upon any such writing which the Adviser believes to be genuine and signed
or presented by the proper person or persons, shall be under no duty to make
any investigation or inquiry as to any statement contained therein and may
accept the same as conclusive evidence of the truth and accuracy of the
statements therein contained.

12.   Consultation with Counsel  The Adviser may consult with legal counsel
(who may be counsel to OneBeacon) concerning any question that may arise with
reference to its duties under this Agreement, and the opinion of such counsel
shall be full and complete protection in respect of any action taken or omitted
by the Adviser hereunder in good faith and in accordance with such opinion.

13.   Services to Other Clients  It is understood that the Adviser acts as
investment adviser to other clients and may give advice and take action with
respect to such clients that differs from the 

 

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advice given or the action taken with respect to the Investment Accounts.  Nothing in this Agreement shall restrict the
right of the Adviser, its members, managers, officers, employees or affiliates
to perform investment management or advisory services for any other person or
entity, and the performance of such service for others shall not be deemed to
violate or give rise to any duty or obligation to the Client.

14.   Investment by the Adviser
for Its Own Account  Nothing in this
Agreement shall limit or restrict the Adviser or any of its members, managers,
officers, employees or affiliates from buying, selling or trading any
securities for its or their own account or accounts.  OneBeacon on behalf of each Client acknowledges
that the Adviser and its members, managers, officers, employees, affiliates and
other clients may at any time have, acquire, increase, decrease or dispose of
securities which are at or about the same time acquired or disposed of for the
account of a Client.  The Adviser shall
have no obligation to purchase or sell for the Investment Accounts or to
recommend for purchase or sale by the Investment Accounts any security that the
Adviser or its members, managers, officers, employees or affiliates may
purchase or sell for itself or themselves or for any other client.

15.   Proxies  Subject to any other written instructions of OneBeacon,
the Adviser is hereby appointed  OneBeacon’s
agent and attorney-in-fact in its discretion to vote, convert or tender in an
exchange or tender offer any securities in the Investment Accounts, to execute
proxies, waivers, consents and other instruments with respect to such
securities, to endorse, transfer or deliver such securities and to participate
in or consent to any plan of reorganization, merger, combination,
consolidation, liquidation or similar plan with reference to such securities.

16.   Notices  All notices and instructions with respect to
securities transactions or any other matters contemplated by this Agreement
shall be deemed duly given when delivered in writing or deposited by
first-class mail to the following addresses: (a) if to the Adviser, at its
address set forth above, Attention: Peter N Perugini, CFO, or (b) if to OneBeacon,
at its address set forth above, Attention Paul McDonough, CFO.  The Adviser or the Client may change its
address or specify a different manner of addressing itself by giving notice of
such change in writing to the other party.

17.   Entire Agreement;
Amendment  This Agreement sets forth
the entire agreement of the parties with respect to management of the
Investment Account and shall not be amended except by an instrument in writing
signed by the parties hereto.

18.    Termination  This
Agreement shall continue in force from the
date hereof for an initial fixed term of three years, which will be extendible
by OneBeacon for an additional one year (a fourth year) at/prior to the end of
the second year of the term, and if so extended, for a second additional year
(a fifth year) at/prior to the end of the third year of the term.    Notwithstanding
the foregoing, this Agreement shall be terminable by OneBeacon upon written
notice to the Adviser at least thirty (30) days prior to the date upon which
such termination is to become effective (i) for cause (including material
non-performance by the Adviser), (ii) if either John Gillespie or Richard
Howard are no-longer affiliated with the Adviser, (iii) if there is a change in
control of the Adviser (change in control in this case shall mean a more than
50% change in the voting interest of the Adviser), or (iv) if White Mountains’
voting interest in OneBeacon falls below 50%.  Each Client shall
honor any trades executed but not settled before the date of any termination
under this Agreement.  The fee for the
calendar quarter during which any termination of this Agreement shall occur
shall be paid as of the date of termination and prorated if the effective date
does not coincide with the end of the quarter. 

19.   Governing Law  To the extent that the interpretation or
effect of this Agreement shall depend on state law, this Agreement shall be
governed by and construed in accordance with the laws of the State of New York.

20.   Effective Date  This Agreement shall become effective on the
date first written above.

21.   Receipt of Disclosure
Statement  OneBeacon acknowledges
receipt of a copy of Part II of the Adviser’s Form ADV in compliance with Rule
204-3(b) under the Advisers Act   more
than 48 hours prior to the date of execution of this Agreement.  The Adviser shall annually and without
charge, 

 

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upon request by OneBeacon, deliver to OneBeacon the current version of
such form or a written document containing at least the information then
required to be contained in such form.

22.   Counterparts  This Agreement may be executed in two
counterparts, each one of which shall be deemed to be an original.

IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be executed by their respective
duly authorized representatives as of the date first written above.

	
  ADVISER:

  	
  ONEBEACON:

  
	
   

  	
   

  
	
  PROSPECTOR PARTNERS, LLC

  	
  ONEBEACON INSURANCE GROUP, LTD.

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  

 

 

5

SCHEDULE A

SUBSIDIARIES
OF ONEBEACON INSURANCE GROUP, LTD. SUBJECT TO THIS INVESTMENT MANAGEMENT
AGREEMENT

 

 

Fund American Companies, Inc.

The Employers’ Fire Insurance Company

Homeland Insurance Company of New York

The Northern Assurance Company of America

OneBeacon America Insurance Company

OneBeacon Insurance Company

Pennsylvania General Insurance Company

 

 

6

SCHEDULE B

INVESTMENT GUIDELINES

Investment Objective

The Adviser’s objective
is to achieve consistent positive returns and to maximize long-term total
returns within prudent levels of risk through capital appreciation on a
diversified portfolio of equity investments.

Performance Objectives

The Adviser will report
to OneBeacon Insurance Group, Ltd. on a quarterly basis to review the Adviser’s
total investment performance.  It is
understood that there are likely to be short-term periods during which
performance deviates from market indices. 
During such times, greater emphasis shall be placed on performance
comparisons with investment managers employing similar styles.  The overall performance of the Adviser’s Investment
Accounts will be measured by referencing broad equity market indices over a
3-year rolling period.

Guidelines

The Adviser must remain a
registered adviser under the Investment Advisors Act of 1940.  Wherever these guidelines contain a
limitation expressed as a percentage of the portfolio assets, that percentage
shall be measured solely with reference to the assets that are under the Adviser’s
control. Subject to these guidelines, the Adviser shall have full discretion to
manage the Investment Account’s assets.

•                  The Adviser may not purchase securities on margin,
sell short, or enter into derivative transactions in the Investment Account
without the written consent of OneBeacon Insurance Group, Ltd.

 

•                  The Adviser may purchase Rule 144A securities provided
such securities are judged by the Adviser to be liquid and do not in the
aggregate exceed 20% of the market value of the Account. The Adviser shall also
be able to purchase securities if such securities are convertible into publicly
traded securities.

 

•                  At least 95% of the Investment Account will consist of
securities of companies having a market capitalization of $100 million or
greater.

 

•                  The Investment Account may include domestic and
non-domestic securities (common stocks, securities that are convertible into
common stocks, preferred stocks, warrants and rights to subscribe to common
stocks) that are listed on registered exchanges or actively traded in the
over-the-counter market.

 

•                  Issuers of securities located in countries other than
the United States, including emerging market countries, shall not exceed 40% of
the market value of the Investment Account.

 

•                  In terms of diversification, investments shall be
allocated with the intent to minimize the risk of large losses to the Investment
Account.  The maximum total investment of
any one equity shall be limited to 10% of the Investment Account at the time of
purchase, and 25% of the market value of the Investment Account.

 

•                  If the aggregate investment in the equity securities
in the Investment Account of any one company exceeds 5% of that company’s
outstanding shares of all classes of stock of that issuer, the Adviser  will notify OneBeacon Insurance Group, Ltd.

 

•                  Notwithstanding the foregoing, in no event shall the Adviser
acquire securities of White Mountains Insurance Group, Ltd. or any of its
affiliated companies.

 

 

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Exceptions

Any exceptions
taken to this Investment Guideline Statement must be submitted in writing to  OneBeacon Insurance Group, Ltd.

 

 

8

SCHEDULE C

FEE
SCHEDULE TO THE INVESTMENT MANAGEMENT AGREEMENT, DATED [November 11, 2006]
, BETWEEN PROSPECTOR PARTNERS, L.L.C. AND ONEBEACON INSURANCE GROUP, LTD.

Each term used in this
Schedule C but not defined herein shall have the meaning assigned to that term
in the Investment Management Agreement, dated [November 11, 2006] (the “Agreement”),
between OneBeacon Insurance Group, Ltd. and Prospector Partners, L.L.C., the
adviser (the “Adviser”).

1.     The
Adviser shall be paid a Management Fee (pro rated for periods less than a full
calendar quarter) computed in accordance with the table below based on the
value of the aggregate net assets (including cash and cash equivalents) of each
Investment Account and the net assets  of
each other client of the Adviser identified on Schedule D to this Agreement
(such collective aggregate net assets shall be referred to as the “Aggregate
Net Assets”), determined in accordance with paragraph Section 2
below.  Each entity identified in
Schedule A and each other client of the Adviser identified in Schedule D will
bear its proportionate share of the Management Fee.

	
  Aggregate
  Net Assets

  	
   

  	
  Annual Fee

  	
   

  	
  Quarterly Fee

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Up to $200
  million

  	
   

  	
  100 basis points

  (1.00% or 0.0100)

  	
   

  	
  25 basis points

  (0.25% or 0.00250)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Next $200
  million

  (From $200 million to $400 million)

  	
   

  	
  

  50 basis points

  	
   

  	
  

  12.50 basis points

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Amounts
  over $400 million

  	
   

  	
  25 basis points

  	
   

  	
  6.25 basis points

  

 

2.     For all
purposes under the Agreement, including the determination of the Management
Fee, the market value of securities shall be as follows: securities that are
listed on a national securities exchange shall be valued at their last sales
price on the date of determination and securities that are not so listed shall
be valued at their last sales price on the date of determination, or if no
sales of such securities occurred on the date of determination, such securities
shall be valued at the last “bid” price at the close of business on such day
(or if sold short at the last “asked” price at the close of business on such
day) quoted by the National Association of Securities Dealers, Inc.’s Automatic
Quotation System or, if not quoted on such system, by one of the principal
market makers in such securities selected by the Adviser.  Notwithstanding the foregoing, if the
securities to be valued constitute a block which, in the judgment of the
Adviser, could not be liquidated in a reasonable time without depressing the
market, such block shall then be valued by the Adviser but not at a unit value
in excess of the quoted market price for such security.  All other assets of the Investment Accounts
shall be assigned such value as the Adviser may reasonably determine.

 

9

SCHEDULE
D

CLIENTS
OF PROSPECTOR PARTNERS, LLC SUBJECT TO FEE SCHEDULE SET FORTH IN SCHEDULE C

Fund American Companies, Inc.

The Employers’ Fire Insurance Company

Homeland Insurance Company of New York

The Northern Assurance Company of America

OneBeacon America Insurance Company

OneBeacon Insurance Company

Pennsylvania General Insurance Company

OneBeacon Insurance Pension Plan

OneBeacon Insurance Savings Plan- Equity 401k

OneBeacon Insurance Savings Plan- Fully Managed

 

10Exhibit 10.4.1

 

ONEBEACON PERFORMANCE UNIT PLAN

(as amended)

 

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

 

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

 

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

 

(b) Actual Value. The method for calculating the Actual Value of
each Actual Unit shall be defined within the award agreement.

 

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

 

(i) termination of the Plan;

 

(ii) amendment of the Plan that materially diminishes the value of
Awards that may be granted under the Plan, either to individual Participants or
in the aggregate, unless there is substituted concurrently a plan or
arrangement providing for the grant of long-term incentive awards of comparable
value to individual Participants in the Plan or in the aggregate, as the case
may be; or

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(i) Any person or group (within the meaning of Section 13(d) and 14(d)(2)
of the Exchange Act), other than John J. Byrne, Berkshire Hathaway, Inc. or one
of its wholly owned subsidiaries, an underwriter temporarily holding Parent
Shares in connection with a public issuance thereof or an employee benefit plan
of Parent or its Affiliates, becomes the beneficial owner (within the meaning
of Rule 13d-3 under the Exchange Act) of thirty-five percent (35%) or more of
the then outstanding Parent Shares;

 

1

 

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

 

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

 

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

 

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

 

(l) Company. OneBeacon Insurance Group LLC.

 

(m) Constructive Termination. A termination of employment with
the Company and its Affiliates at the initiative of the Participant that the
Participant declares, by prior written notice delivered to the Secretary of the
Company, to be a Constructive Termination by the Company or an Affiliate and
which follows (i) a material decrease in his salary or (ii) a material
diminution in the authority, duties or responsibilities of his position as a
result of which the Participant determines in good faith that he cannot
continue to carry out his job in substantially the same manner as it was
intended to be carried out immediately before such diminution. Notwithstanding
anything herein to the contrary, a Constructive Termination shall not occur
until and unless 30 days have elapsed from the date the Company receives such
written notice from the Participant and, during that period, the Company fails
to cure, or cause to be cured, the circumstance serving as the basis on which
the declaration of Constructive Termination is given.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

2

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(ee) Termination Without Cause. A termination of the Participant’s
employment with the Company or a subsidiary by the Company or the subsidiary
other than (i) due to the Participant’s death or total permanent disability or
(ii) for Cause. A transfer of a Participant’s employment to an Affiliate of the
Company shall not, by itself, be considered a Termination without Cause
hereunder. For this purpose, “Cause” shall mean (a) an act or omission by the
Participant that constitutes a felony or any crime involving moral turpitude;
or (b) wilful gross negligence or wilful gross misconduct by the Participant in
connection with his employment by the Company or by a subsidiary which causes,
or is likely to cause, material loss or damage to the Company. Notwithstanding
anything herein to the contrary, a termination of a Participant’s employment
with the Company or one of its subsidiaries due solely to the consummation of a
corporate transaction described in clause (iii) of the definition of Change in
Control shall not be deemed to be a “Termination Without Cause” if the
purchaser formally assumes the Company’s obligations under this Plan or places
the Participant in a similar or like plan with no diminution of the value of
the awards granted.

 

3.
Administration. The Plan shall be administered by the Committee or such
other persons or entities designated by the Board. The Committee may delegate
its duties and powers in whole or in part to any subcommittee thereof or to the
Board of Directors of any Subsidiary. All references to the Committee hereafter
shall be deemed to be references to the Committee and/or the applicable other
persons, entities or subcommittee(s) to whom administrative duties and/or
powers hereunder have been so delegated. The Committee shall have the authority
to select the Employees who shall be Participants, to determine the size and
terms of an Award (subject to the limitations imposed on Awards in Section 5),
to modify the terms of any Award that has been granted, to determine the time
when Awards will be made, to determine the Award Periods and Performance
Periods applicable to an Award to determine the Performance Percentages
applicable to an Award, to determine the terms of a Participant’s Award
Agreement (which need not be identical or uniform), to establish Performance
Goals in respect of such Performance Periods, to certify whether such Performance
Goals were attained and to make such other

 

3

 

determinations that are not
prohibited by this Plan. The Committee is authorized to interpret the Plan, to
establish, amend and rescind any rules and regulations relating to the Plan,
and to make any other determinations that it deems necessary or desirable. Any
decision of the Committee in the interpretation and administration of the Plan,
as described herein, shall lie within its sole and absolute discretion and
shall be final, conclusive and binding on all parties concerned. Determinations
made by the Committee under the Plan need not be uniform and may be made
selectively among Participants, regardless of whether such Participants are
similarly situated. The Committee shall have the right to deduct from any
payment made under the Plan any federal, state, local or foreign income or
other taxes required by law to be withheld with respect to such payment.

 

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

 

5.
Awards.

 

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

 

(b) Performance Goals. The performance goals for any Award shall
be based upon one or more of the following criteria: (i) consolidated earnings
before or after taxes (including earnings before interest, taxes, depreciation
and amortization); (ii) net income; (iii) operating income; (iv) book value;
(v) return on stockholders’ equity; (vi) expense management; (vii) return on
investment; (viii) improvements in capital structure; (ix) combined ratios
(GAAP or SAP); (x) operating ratios; (xi) profitability of an identifiable
business unit or product; (xii) maintenance or improvement of profit margins;
(xiii) market share; (xiv) revenues or sales; (xv) costs; (xvi) cash flow;
(xvii) working capital; (xviii) return on assets; (xix) customer satisfaction;
(xx) employee satisfaction or (xxi) any other performance measure selected by
the Committee in its sole discretion. The foregoing criteria, as applicable,
may relate to the Company, one or more of its Affiliates, one or more of its
divisions, units, partnerships, joint venturers, minority investments, product
lines or products, or to any combination of the foregoing, and may be applied
on an absolute basis and/or be relative to one or more peer group companies or
indices, or any combination thereof, all as the Committee shall determine. In
addition, the Performance Goals may be calculated without regard to
extraordinary items.

 

(c) Payment. As soon as practicable after the end of the Award
Period or such earlier date as the Committee in its sole discretion may
designate, the Committee shall determine and certify to the Board (i) whether
the applicable Performance Goal(s) have been attained in whole or in part with
respect to a given Participant’s Award and (ii) the Performance Percentage
applicable to a given Participant’s Award. At the end of the Award Period, the
Committee shall ascertain the Actual Value and the number of Actual Units.
Unless otherwise determined by the Committee, a Participant’s Earned Payment
with respect to an Award shall be equal to the Actual Value multiplied by the
number of Actual Units. A Participant’s Earned Payment shall be settled through
a cash payment to the Participant. Unless payment is deferred in accordance
with an election made by a participant in accordance with procedures adopted by
the Company, payment of any amount in respect for the Performance Units shall
be made by the Company no later than 2 1/2 months after the end of the Company’s
fiscal year in which such Performance Units are earned, and may be made in
cash, in shares, or partly in cash and partly in shares as determined by the Committee.

 

4

 

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

 

7.
Change in Control.

 

(a) If a Qualifying Event occurs with respect to a Participant after a
Change in Control, then each Award held by such Participant that was granted
prior to the Change in Control shall be canceled and such Participant shall be
entitled to receive in respect of each such canceled Award a payment equal to
the product of (i) the Applicable Target Units, (ii) the Applicable Performance
Percentage and (iii) the Applicable Actual Value. For this purpose, (A) the “Applicable
Target Units” is equal to the number of Target Units for each canceled Award
multiplied by a fraction, the numerator of which is the number of full months
that has elapsed since the first day of the applicable Award Period to the date
of the applicable Qualifying Event and the denominator of which is the total
number of months in the Award Period, (B) the “Applicable Performance Percentage”
is equal to 100% and (C) the “Applicable Actual Value” is equal to the greater
of the Actual Value determined as of the last day of the calendar quarter
ending prior to the date of the applicable Qualifying Event or the Actual Value
determined by the Board in connection with the Change in Control. Payment of
any amount in respect of an Award as described above in this Section 7(a) shall
be made as promptly as possible after the occurrence of the Qualifying Event.

 

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

 

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

 

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

 

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

 

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

 

12.
Participation of Subsidiaries. If a subsidiary wishes to participate in
the Plan and its participation shall have been approved by the Board, the Board
of Directors of the Subsidiary shall adopt a resolution in form and substance
satisfactory to the Committee authorizing participation by the subsidiary in
the Plan. A Subsidiary that adopts the Plan in accordance with the Section
shall be permitted to rename

 

5

 

the Plan under the name of
such Subsidiary. A Subsidiary may cease to participate in the Plan at any time
by action of the Board or by action of the Board of Directors of such
Subsidiary, which latter action shall be effective not earlier than the date of
delivery to the Secretary of the Company of a certified copy of a resolution of
the Subsidiary’s Board of Directors taking such action. Termination of
participation in the Plan shall not relieve a Subsidiary of any obligations
theretofore incurred by it under the Plan. The Board in its discretion may
waive compliance with any provisions in this section.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(ii) review pertinent documents; and

 

(iii) submit issues and comments in writing.

 

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

 

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

 

6

 

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

 

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

 

17.
Designation of Beneficiary by Participant. A Participant may name a
beneficiary to receive any payment to which he may be entitled in respect of
Performance Units or in the event of his death, on a form to be provided by the
Committee. A Participant may change his beneficiary from time to time in the
same manner. If no designated beneficiary is living on the date on which any
amount becomes payable to a Participant’s executors or administrators, the term
“beneficiary” as used in the Plan shall include such person or persons.

 

18.
Effectiveness of the Plan. The Plan shall be effective as of February
12, 2003, and was amended February 9, 2005, and February 8, 2006.

 

7

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