Exhibit 10.1
October 7, 2002
Mr. Weston M. Hicks
56 Twin Oak Road
Short Hills, New Jersey 07078
Dear Wes:
This will confirm the terms of your employment with Alleghany
Corporation, a Delaware corporation ("Alleghany"), commencing October 7, 2002.
Position: Commencing October 7, 2002, you will serve as Executive
Vice President of Alleghany and will report directly to the President. As
Executive Vice President, you will perform the duties and exercise the powers
usually incident to such office and/or such other duties and powers as may be
assigned to you from time to time by the Board of Directors, the Chairman of the
Board or the President of Alleghany.
Base Salary: Alleghany will pay you an initial base salary at an
annual rate of $600,000, subject to normal withholding and other taxes, to be
paid in accordance with Alleghany's normal payroll practices. Your base salary
will be reviewed annually commencing December 2002 and for calendar year 2004
shall be at an annual rate of not less than $700,000.
Short-Term Incentive: Your annual bonus for 2002 will be $450,000
payable in March 2003, provided that you have not theretofore terminated your
employment with Alleghany. For 2003, you will participate in Alleghany's
Management Incentive Plan, with a target bonus opportunity of 50% of your annual
base salary.
Long Term Incentive: In December 2002, you will receive a grant of
performance shares under the Alleghany Corporation 2002 Long-Term Incentive Plan
(the "Plan") for a four-year award period ending December 31, 2006, which will
have a market value, as of the date or dates used by the Alleghany Compensation
Committee to set performance share awards to other officers, equal to 150% of
your 2003 annual base salary. These performance shares will have the same terms
as those granted to other officers for the four-year award period ending
December 31, 2006.
Additional Long-Term Incentive: The Compensation Committee has
granted you an award of 3,168.3 performance shares under the Plan for the
three-year award period ending December 31, 2005 (the "EVP Performance Shares")
effective
October 7, 2002, representing a number of performance shares equal to $600,000
divided by $189.375, being the fair market value (mean of high and low sales
price on NYSE) of one share of Alleghany common stock on such date. The EVP
Performance Shares will entitle you to payouts upon achievement of performance
measures comparable to those assigned to performance shares granted to other
officers for the award period ending December 31, 2005, as set forth on Exhibit
A hereto.
Challenge Grant: The Compensation Committee has awarded you,
effective October 7, 2002, a challenge grant of 30,000 performance-based
restricted shares of Alleghany common stock under the Plan pursuant to a
restricted stock award agreement in the form of Exhibit B hereto. In the event
that you are elected chief executive officer of Alleghany, you will receive at
the time of such election a second challenge grant of 25,000 performance-based
restricted shares of Alleghany common stock under the Plan, which will have
comparable terms and conditions as the first challenge grant, except that
performance measurement periods will commence at the time of the second
challenge grant.
Matching Grant: The Compensation Committee has awarded you,
effective October 7, 2002, a restricted stock unit matching grant under the Plan
pursuant to a restricted stock unit matching grant agreement in the form of
Exhibit C hereto.
Severance Protection: If your employment is terminated by Alleghany
other than for Cause or other than in the case of your Total Disability, or if
you are not elected chief executive officer of Alleghany by December 31, 2005
and a decision is made by you or Alleghany to terminate your employment with
Alleghany, Alleghany will continue to pay your base salary after such
termination until such payments aggregate $1,000,000 on a gross basis. Such
payments will be subject to normal withholding and other taxes, and will be paid
in accordance with Alleghany's normal payroll practices. For purposes of this
letter agreement, "Cause" shall mean conviction of a felony; willful failure to
implement reasonable directives of the President, Chairman or the Board of
Directors of Alleghany after written notice, which failure is not corrected
within ten days following notice thereof; or gross misconduct in connection with
the performance of any of your duties; and "Total Disability" shall mean your
inability to discharge your duties hereunder due to physical or mental illness
or accident for one or more periods totaling six months during any consecutive
twelve-month period.
Other Benefits: You will be eligible to participate in Alleghany's
Executive Retirement Plan and, effective January 1, 2003, Alleghany's Deferred
Compensation Plan, as well as all other employee benefit plans, programs,
practices or other arrangements in which other senior executives of Alleghany
are generally eligible to participate from time to time. In addition, you will
be entitled to all fringe benefits and perquisites which are generally made
available by Alleghany to its senior executives.
This letter agreement and the exhibits hereto contain the entire
understanding of you and Alleghany with respect to the subject matter hereof and
thereof and, except as specifically provided herein or therein, cancel and
supersede any and all
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other agreements between you and Alleghany with respect to the subject matter
hereof and thereof. Any amendment or modification of this letter agreement shall
not be binding unless in writing and signed by you and Alleghany.
This letter agreement shall be governed by and enforceable in
accordance with the laws of the State of New York, without giving effect to the
principles of conflict of laws thereof.
If the foregoing accurately expresses our mutual understanding,
please execute the enclosed copy of this letter in the space provided below, and
return it to me.
Sincerely yours,
ALLEGHANY CORPORATION
By: /s/John J. Burns, Jr.
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John J. Burns, Jr.
Attachments
AGREED AND ACCEPTED:
/s/Weston M. Hicks
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Weston M. Hicks
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Exhibit A
TERMS AND PROVISIONS GOVERNING
EVP PERFORMANCE SHARES AWARDED TO MR. WESTON HICKS
1. AWARDS
Award will be paid out in full or in part, on the basis of the Earnings
Per Share of Alleghany Corporation, a Delaware corporation (the "Company"), over
the three-year period 2003-05 (the "Award Period").
2. RIGHT TO PAYMENTS ON ACCOUNT OF AWARDS
The percentage of the EVP Performance Shares awarded to Mr. Weston Hicks
with respect to which he shall be entitled to payment shall be dependent upon
the average annual compound growth in Earnings Per Share achieved by the Company
during the Award Period, measured from a base of $10.45, and taking into
consideration the Earnings Per Share in each year of the Award Period, as
follows (with appropriate interpolation):
Average Annual
Compound Growth
in the Company's Percentage
Earnings Per Share Payment
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8% or less 0
9% 25
10% 50
11% 75
12% or more 100
3. FORM AND TIMING OF PAYMENT
(a) Provided that the requirements set forth herein and in any applicable
rules and regulations adopted by the Compensation Committee (the "Committee") of
the Company's Board of Directors have been met, Mr. Hicks shall be entitled to
payment on account of the EVP Performance Shares in an amount equal to the Fair
Market Value on the payment date of a number of shares of the Company's common
stock, par value $1.00 per share (the "Common Stock"), equal to the
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percentage of the EVP Performance Shares (rounded to the nearest whole
Performance Share) with respect to which Mr. Hicks is entitled to payment.
(b) Payments to Mr. Hicks in respect of the EVP Performance Shares shall
be made in such combination of cash and shares of the Company's Common Stock
(valued at their Fair Market Value on the payment date), or all in cash or all
in stock, as the Committee shall determine. Notwithstanding the foregoing, if
Mr. Hicks has elected to defer any payments with respect to EVP Performance
Shares under the Alleghany Corporation Deferred Compensation Plan, he shall as
of the payment date only be entitled to receive cash with respect thereto.
Payments with respect to EVP Performance Shares shall be made by the Company as
soon as practicable after the completion of its audited financial statements for
the last year of the Award Period. Shares of Common Stock delivered on account
of EVP Performance Shares may be treasury shares, authorized and unissued
shares, or both.
(c) Except as the Committee may otherwise determine, payment of Mr. Hicks'
EVP Performance Shares in full shall be conditional upon Mr. Hicks' remaining
continuously in the employ of the Company, or a successor, subsidiary or
controlled company thereof, throughout the Award Period. In the event of service
in such capacity or capacities for less than the entire Award Period, Mr. Hicks'
payment (i) shall be reduced on a pro rata basis to reflect the portion of the
Award Period in which his service continued, (ii) shall be based upon the
average annual compound growth in Earnings Per Share during such portion of the
Award Period, as determined in good faith by the Committee (which determination
shall be conclusive and binding upon Mr. Hicks), and (iii) shall be made as
promptly as practicable after the termination of such service.
4. DILUTION AND OTHER ADJUSTMENTS
(a) In the event of any subdivision or combination of the outstanding
shares of Common Stock, stock dividend, capital reorganization, liquidation,
reclassification of shares, merger, consolidation or sale, lease or transfer of
substantially all the assets of the Company, the Committee shall make such
equitable adjustments as it may deem appropriate in the number of EVP
Performance Shares, the base from which growth in Earnings Per Share is to be
measured, the Earnings Per Share growth requirements, the length of the Award
Period, and the making of payment on account of the EVP Performance Shares.
(b) The Committee may provide for such increases or reductions in the cash
and/or stock to be paid with respect to the EVP Performance Shares as it may
deem advisable in order to adjust for the effect upon Earnings Per Share of
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transactions of an extraordinary, unusual or nonrecurring nature, capital gains,
or any purchase, pooling of interests, disposal or discontinuance of any
operations, change in accounting rules or practices, retroactive restatement of
earnings, or the like. Such increases or reductions may be provided for by the
Committee at any time or times prior to the payment date.
5. MISCELLANEOUS PROVISIONS
(a) As used herein, the following terms shall have the following meanings:
(i) "Earnings Per Share" shall mean the net earnings per share of
the Company and its consolidated subsidiaries, determined, except as
otherwise herein provided, on the basis of the same accounting
principles used in the preparation of the Company's consolidated
statement of earnings for the fiscal year in question which is
included in the Company's Annual Report to Stockholders for such
fiscal year; provided that net gains and losses on transactions in
investment securities (other than strategic investments) shall be
included only to the extent of 20 percent thereof, 100 percent of
net gains and losses on transactions in investment securities which
constitute strategic investments shall be included, 100 percent of
unrealized gains and losses as at the end of the relevant
measurement period on investment securities which constitute
strategic investments shall be included, subject to the right of the
Compensation Committee, in its sole discretion, to exclude all or
any part of such unrealized gains, and all costs resulting from
awards under the Company's 1993 Long-Term Incentive Plan and 2002
Long-Term Incentive Plan (including the EVP Performance Shares)
shall be excluded.
Except as provided in section 3(c) hereof, Earnings Per Share and
average annual compound growth in Earnings Per Share shall be
determined by the Committee, on the basis of the Company's
statements of earnings included in its Annual Reports to
Stockholders, with such adjustments as the Committee may deem to be
required or permitted by the provisions hereof; and the
determination of the Committee with respect thereto shall be final
and binding.
(ii) "Strategic investments" shall include the Company's and its
subsidiaries' investment in Burlington Northern Santa Fe
Corporation, and such other investments approved by the Board of
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Directors as having been made by the Company and its subsidiaries
for long-term strategic investment purposes and not for short-term
trading purposes.
(iii) "Fair Market Value" of a share of Common Stock of the Company
on a payment date shall mean the mean between the high and low
prices of such stock on that date as reported on the New York Stock
Exchange Composite Tape.
(b) The terms, construction and performance of the foregoing provisions,
and the rights conferred thereby, shall be governed in all respects by the
provisions of the Company's 2002 Long-Term Incentive Plan and, in the event of
any inconsistency, the provisions of such Plan shall be controlling.
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