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United America Indemnity DEF 14A 2007 Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
SCHEDULE 14A
Proxy
Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
United America Indemnity, Ltd.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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UNITED
AMERICA INDEMNITY, LTD.
Walker
House, 87 Mary Street
George Town, Grand Cayman KY1-9002
Cayman Islands
NOTICE OF EXTRAORDINARY GENERAL
MEETING OF SHAREHOLDERS
JANUARY 28, 2008
By Order of the Board of Directors
Larry A. Frakes
President and Chief Executive Officer
December 31, 2007
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Walker House, 87 Mary Street
George Town, Grand Cayman KY1-9002
Cayman Islands
www.uai.ky
December 31, 2007
The Extraordinary General Meeting of Shareholders of United
America Indemnity, Ltd. will be held at the Burnaby Building, 16
Burnaby Street, Hamilton, Bermuda, at 9:00 a.m., local
time, on Monday, January 28, 2008. We are mailing this
Proxy Statement on or about December 31, 2007 to each
holder of our issued and outstanding Class A common shares
and Class B common shares entitled to vote at the
Extraordinary General Meeting in order to furnish information
relating to the business to be transacted at the meeting.
Our Board of Directors has fixed the close of business on
December 14, 2007 as the record date for the Extraordinary
General Meeting. All shareholders of record at that time are
entitled to notice of and are entitled to vote in person or by
proxy at the Extraordinary General Meeting and any adjournment
or postponement thereof. On the record date, 22,457,013
Class A common shares and 12,687,500 Class B common
shares were outstanding.
It is important that your shares be voted at the Extraordinary
General Meeting. Please MARK, SIGN, DATE, and MAIL your proxy
PROMPTLY in the return envelope provided, even if you plan to
attend the Extraordinary General Meeting. If you later desire to
revoke your proxy for any reason, you may do so in the manner
described below. The envelope is addressed to our transfer agent
and requires no postage. If you receive more than one proxy
card — because you have multiple accounts —
you should sign and return all proxies received to be sure all
of your shares are voted.
On each matter voted on at the Extraordinary General Meeting and
any adjournment or postponement thereof, each record holder of
Class A common shares will be entitled to one vote per
share and each record holder of Class B common shares will
be entitled to ten votes per share. The holders of Class A
common shares and the holders of Class B common shares will
vote together as a single class.
The required quorum for the Extraordinary General Meeting
consists of one or more shareholders present in person or by
proxy and entitled to vote that hold in the aggregate at least a
majority of the votes entitled to be cast at the Extraordinary
General Meeting. Approval of the Proposal requires the
affirmative vote of a simple majority of the votes cast by the
shareholders present in person or by proxy at the Extraordinary
General Meeting and entitled to vote.
If you mark your proxy as “Withhold Authority” or
“Abstain” on any matter, or if you give specific
instructions that no vote be cast on any specific matter, the
shares represented by your proxy will not be voted on that
matter, but will count in determining whether a quorum is
present. Proxies submitted by brokers that do not indicate a
vote for some or all of the proposals because the brokers do not
have discretionary voting authority and have not received
instructions as to how to vote on those proposals (so called
“broker non-votes”) are also considered in determining
whether a quorum is present, but will not affect the outcome of
any vote.
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You may vote your shares at the Extraordinary General Meeting in
person or by proxy. All valid proxies received before the
Extraordinary General Meeting will be voted according to their
terms. If you complete your proxy properly, but do not provide
instructions as to how to vote your shares, your proxy will be
voted as follows:
If any other business is brought before the Extraordinary
General Meeting, proxies will be voted, to the extent permitted
by the rules and regulations of the Securities and Exchange
Commission, in accordance with the judgment of the persons
voting the proxies. After providing your proxy, you may revoke
it at any time before it is voted at the Extraordinary General
Meeting by (1) filing with our Chief Executive Officer an
instrument revoking it or a duly executed proxy bearing a later
date, or (2) by attending the Extraordinary General Meeting
and giving notice of revocation. Attendance at the Extraordinary
General Meeting, by itself, will not constitute revocation of a
proxy.
We will bear the cost of preparing and soliciting proxies,
including the reasonable charges and expenses of brokerage firms
or other nominees for forwarding proxy materials to
shareholders. In addition to solicitation by mail, certain of
our directors, officers, and employees may solicit proxies
personally or by telephone or other electronic means without
extra compensation, with the exception of reimbursement for
actual expenses incurred in connection with the solicitation.
The enclosed proxy is solicited by and on behalf of our Board of
Directors.
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Shareholders are being asked to approve Amendment No. 5 to
the United America Indemnity, Ltd. Share Incentive Plan
(“Amendment No. 5”), a copy of which is attached
as Appendix A to this Proxy Statement. Our Board of
Directors approved Amendment No. 5 on December 14,
2007. Amendment No. 5 allows the repricing, without
shareholder approval, of stock options and other stock-based
awards granted under the Share Incentive Plan. If Amendment
No. 5 is approved, we will amend and restate the employment
agreement with Larry A. Frakes, our President and Chief
Executive Officer, pursuant to which, among other things, we
will cancel and regrant certain stock options previously granted
to Mr. Frakes. See the discussion of the terms of this
proposed cancellation and regrant on page 8 below under
“Future Plan Awards”.
Our Board of Directors adopted our Share Incentive Plan (the
“Original Share Incentive Plan”) on September 15,
2003 and Amendment No. 1 to the Share Incentive Plan on
November 25, 2003. Both the Share Incentive Plan and
Amendment No. 1 were approved by our shareholders at the
May 4, 2004 Annual General Meeting. On March 21, 2005,
our Board of Directors adopted a further amendment to our
Original Share Incentive Plan which increased the number of
shares available for issuance under the Original Share Incentive
Plan, as amended, from 2,500,000 to 5,000,000 shares and
made certain other technical changes to the Original Share
Incentive Plan, as amended. This Amendment No. 2 was
approved by our shareholders at the May 4, 2005 Annual
General Meeting. On March 14, 2006, our Board of Directors
adopted Amendment No. 3 to the Original Share Incentive
Plan, as amended. Amendment No. 3 added to the performance
criteria pursuant to which equity awards may be granted, become
vested, or otherwise are awarded, along with two minor changes.
On March 28, 2006, the Section 162(m) Committee of our
Board of Directors approved the addition of the performance
criterion contained in Amendment No. 3. Amendment
No. 3 was approved by our shareholders at the May 25,
2006 Annual General Meeting. On April 25, 2007, our Board
of Directors adopted Amendment No. 4 to the Share Incentive
Plan. Amendment No. 4 (i) eliminated our Compensation
Committee’s discretion with respect to adjustments of
outstanding awards under the Original Share Incentive Plan, as
amended, following an equity restructuring and
(ii) provided that the performance criteria set forth under
the Original Share Incentive Plan, as amended, may be
supplemented by reference to per share determinations. On
April 25, 2007, the Section 162(m) Committee approved
the addition of the performance criterion contained in Amendment
No. 4. Amendment No. 4 was approved by our
shareholders at the May 25, 2007 Annual General Meeting. A
copy of the Share Incentive Plan, as amended and currently in
effect (the “Share Incentive Plan”), is attached as
Appendix B to this Proxy Statement.
The purpose of the Share Incentive Plan, as amended, is to give
us a competitive advantage in attracting, retaining, and
motivating officers, employees, consultants, and non-employee
directors, and to provide us with a share-based plan providing
incentives linked to our financial results and increases in
shareholder value. Set forth below is a general description of
the Share Incentive Plan, as amended and currently in effect,
and proposed Amendment No. 5. The description is qualified
in its entirety by reference to the Share Incentive Plan, as
amended, and Amendment No. 5, which are attached as
Appendices to this Proxy Statement.
The Share Incentive Plan is administered by our Compensation
Committee (the “Committee”), which is comprised of
Saul A. Fox and Stephen A. Cozen, except that certain specific
performance targets are approved by the Section 162(m)
Committee, comprised of Richard L. Duszak, James R. Kroner and
Michael J. Marchio, with respect to the executives covered by
Section 162(m) of the U.S. Internal Revenue Code of
1986, as amended (the “Code”). The Committee has full
authority to administer and supervise the Share Incentive Plan,
to determine the persons to whom awards will be granted, to
determine the terms and conditions of each award, to determine
the number of Class A common shares to be covered by each
award, and to interpret the terms and provisions of the Share
Incentive Plan and any award issued thereunder. Presently, the
Share Incentive Plan provides that the Committee must obtain
shareholder approval if it (a) reduces the exercise
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price of an outstanding option or other stock-based award, or
(b) simultaneously cancels an outstanding option with an
exercise price which is less than the then current fair market
value of a Class A common share and grants a new award with
an exercise price equal to the then current fair market value.
If approved, Amendment No. 5 will allow the Committee to
take either type of repricing action described in the preceding
sentence without obtaining shareholder approval.
Persons who are officers, directors, employees, or consultants
of our company or of our affiliates, or who are otherwise
performing services for our company or any of our affiliates,
are eligible to receive nonstatutory stock options, restricted
shares, and other share-based awards under the Share Incentive
Plan. All of our employees and employees of our affiliates that
qualify as subsidiaries or parent corporations (within the
meaning of Section 424 of the Code) are eligible to be
granted incentive stock options under the Share Incentive Plan.
As of December 14, 2007, we estimate that approximately
380 persons, including 5 executive officers and
6 directors who are not executive officers, were eligible
to receive stock options, restricted shares, and other
share-based awards under the Share Incentive Plan. The Committee
designates the employees to whom awards will be made, the times
at which awards will be granted, and the number of shares to be
granted.
The maximum number of Class A common shares with respect to
which awards may be granted under the Share Incentive Plan is
5,000,000, which may be either authorized and unissued
Class A common shares or Class A common shares held in
or acquired for treasury. As of December 14, 2007,
2,070,528 shares have been issued under the Share Incentive
Plan, including 242,067 unvested restricted shares, and
995,819 shares are subject to outstanding options granted
under the Share Incentive Plan. If any restricted shares or
other share-based awards are cancelled or if any option
terminates without being exercised, the Class A common
shares subject to such awards will again be available for
distribution in connection with awards under the Share Incentive
Plan. In addition, if Class A common shares have been
delivered or exchanged as full or partial payment to us for
payment of the exercise price of an award, or for payment of
withholding taxes associated with an award, or if the number of
Class A common shares otherwise deliverable has been
reduced for payment of the exercise price or for payment of
withholding taxes, the Class A common shares delivered,
exchanged or reduced will again be available for purposes of
granting awards under the Share Incentive Plan, except with
respect to the awards of incentive stock options.
The maximum number of Class A common shares subject to any
option which may be granted under the Share Incentive Plan to
any individual may not exceed 800,000 Class A common shares
(subject to certain adjustments) during any fiscal year (the
“Per Individual Limit”). To the extent that
Class A common shares for which awards are permitted to be
granted to an individual during a fiscal year are not covered by
an award in that fiscal year, the maximum number of Class A
common shares available for awards to such individual in
subsequent fiscal years will automatically increase by the
amount of Class A common shares not awarded until such
shares are later awarded. No individual may be granted in any
fiscal year awards which are contingent upon the attainment of
performance goals covering more than 400,000 Class A common
shares (subject to certain adjustments).
The number of Class A common shares available for future
awards or underlying any previous awards, as well as the Per
Individual Limit and the per fiscal year limit on awards which
are contingent upon the attainment of performance goals, may be
adjusted in the event of any merger, reorganization,
consolidation, recapitalization, spin-off, stock dividend, share
split, reverse share split, extraordinary dividend, sale or
transfer of all or part of our assets or business, or other
change in our corporate structure. The number of Class A
common shares covered by any award and the exercise price of an
award will be adjusted upon the occurrence of such events. On
December 14, 2007, the closing sale price of our
Class A common shares, as reported by the Nasdaq Global
Market, was $19.35 per share.
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The following types of awards are available under the Share
Incentive Plan:
Options. The Committee may grant
nonstatutory stock options and incentive stock options to
purchase our Class A common shares. The Committee has the
authority to determine the number of Class A common shares
subject to each option, the term of each option (which may not
exceed ten years (or five years in the case of an incentive
stock option granted to a ten percent shareholder)), the
exercise price, the vesting schedule (if any), and the other
material terms of each option. No incentive stock option may
have an exercise price less than the fair market value of our
Class A common shares at the time of grant (or, in the case
of an incentive stock option granted to a 10% shareholder, 110%
of fair market value). For nonstatutory stock options, the
exercise price is determined by the Committee. It has been the
Committee’s practice to grant all options under the Share
Incentive Plan with an exercise price no less than the fair
market value of our Class A common shares on the date of
grant, which is the grant date closing price.
Options will be exercisable at such time or times and subject to
such terms and conditions as determined by the Committee and the
exercisability of such options may be accelerated by the
Committee in its sole discretion. Participants may not transfer
any options received under the Share Incentive Plan other than
(1) by will or by the laws of descent and distribution or
(2) as otherwise expressly permitted under the applicable
option agreement.
Restricted Shares. The Committee may
award restricted Class A common shares under the Share
Incentive Plan. The Committee has the authority to determine the
persons to whom and the time or times at which restricted shares
will be awarded, the number of restricted shares to be awarded
to any individual, the purchase price, the conditions for
vesting, the time or times within which such awards may be
subject to cancellation, repurchase, and restriction on
transfer, and any other terms and conditions of the awards.
Recipients of restricted shares are required to enter into a
restricted share purchase or award agreement with us that states
the restrictions to which the shares are subject and the
criteria or date or dates on which such restrictions will lapse.
The Committee may waive such restrictions at any time. Upon the
award of restricted shares, the recipient will possess certain
rights of ownership during the restriction period, including,
without limitation, the right to vote the shares and the right
to receive any cash dividends or distributions with respect to
such shares. However, the Committee may provide in the
applicable restricted share agreement that the payment of cash
dividends and distributions will be automatically deferred and
reinvested in additional restricted shares, held subject to the
vesting of the underlying restricted shares, or held subject to
meeting conditions applicable only to dividends and
distributions.
Unless otherwise specified in a restricted share agreement, upon
an individual’s termination of employment with us for any
reason during the relevant restriction period, all unvested
restricted shares will be forfeited to us, without compensation.
Other Share-Based Awards. The Committee
may grant other share-based awards under the Share Incentive
Plan that are payable in, valued in whole or in part by
reference to, or otherwise based on or related to our
Class A common shares, including, without limitation,
Class A common shares awarded purely as a bonus and not
subject to any restrictions or conditions, Class A common
shares in payment of the amounts due under an incentive or
performance plan sponsored or maintained by us or a subsidiary,
share appreciation rights (either separately or in tandem with
options), share equivalent units, and awards valued by reference
to the book value of our Class A common shares.
The Committee has the authority to determine the persons to whom
and time or times at which such awards may be made, the number
of Class A common shares to be awarded pursuant to or
referenced by such awards, and all other conditions of the
awards. Class A common shares issued on a bonus basis may
be issued for no cash consideration. Class A common shares
purchased pursuant to an awarded purchase right will be priced
as determined by the Committee. Grants of other stock-based
awards may be subject to such conditions, restrictions, and
contingencies as the Committee may determine, which may include,
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without limitation, continuous service with us or one of our
affiliates
and/or the
achievement of certain performance goals based on one or more of
the performance criteria set forth in the Share Incentive Plan.
The Share Incentive Plan is scheduled by its terms to expire on
September 5, 2013. Awards outstanding as of the expiration
date will not be affected or impaired by the expiration and will
continue to be subject to the terms of the Share Incentive Plan.
Our Board of Directors or our Committee may at any time amend
any or all of the provisions of the Share Incentive Plan, or
suspend or terminate it entirely, prospectively or
retroactively. However, unless otherwise required by law or
specifically provided in the Share Incentive Plan, the rights of
a participant with respect to awards granted prior to such
amendment, suspension, or termination may not be impaired
without such participant’s consent. In addition, without
the approval of our shareholders, to the extent that approval is
required by
Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), or Section 162(m) of the Code,
or, with respect to incentive stock options, to the extent the
approval is required by Section 422 of the Code, no
amendment to the Share Incentive Plan may be made that would:
(1) increase the aggregate number of Class A common
shares that may be issued; (2) increase the maximum
individual participant share limitations for a fiscal year;
(3) change the classification of participants eligible to
receive awards; (4) decrease the minimum exercise price of
any option; (5) extend the maximum option term; or
(6) require shareholder approval in order for the Share
Incentive Plan to continue to comply with the applicable
provisions, if any, of
Rule 16b-3
under the Exchange Act, Section 162(m) of the Code, or, to
the extent applicable to incentive stock options,
Section 422 of the Code. If approved, Amendment No. 5
will allow the Committee to decrease the minimum exercise price
of an option to an amount equal to or greater than market price
at the time of regrant without obtaining shareholder approval.
The rules concerning the U.S. federal income tax
consequences with respect to options granted and to be granted
pursuant to the Share Incentive Plan are quite technical.
Moreover, the applicable statutory provisions are subject to
change, as are their interpretations and applications that may
vary in individual circumstances. Therefore, the following is
designed to provide a general understanding of the
U.S. federal income tax consequences to the recipient and
to us of the issuance and exercise of options under the Share
Incentive Plan. In addition, the following discussion does not
set forth any gift, estate, social security, or state or local
tax consequences that may be applicable and is limited to the
U.S. federal income tax consequences to individuals who are
citizens or residents of the U.S., other than those individuals
who are taxed on a residence basis in a foreign country.
Nonstatutory Stock Options. A recipient
will not realize any taxable income upon the grant of a
nonstatutory stock option and, with respect to nonstatutory
options granted to persons who are officers, directors,
employees, or consultants of our U.S. subsidiaries, our
U.S. subsidiaries will not receive a deduction at the time
of such grant. Upon exercise of a nonstatutory stock option, the
recipient generally will realize ordinary income in an amount
equal to the excess of the fair market value of the Class A
common shares on the date of exercise over the exercise price.
Upon a subsequent sale of the Class A common shares by the
recipient, the recipient will recognize short-term or long-term
capital gain or loss depending upon his or her holding period
for Class A common shares.
The ordinary income recognized with respect to the issuance of
shares upon the exercise of a nonstatutory stock option granted
to an employee or director of one of our U.S. subsidiaries
may be subject to withholding taxes and information reporting.
The tax basis of Class A common shares acquired on the
exercise of a nonstatutory stock option will be equal to the
amount of any cash paid on exercise, plus the amount of ordinary
income recognized by the recipient as a result of the receipt of
such Class A common shares. The holding period for such
Class A common shares for purposes of determining short or
long-term capital gain will generally begin upon the exercise of
the option.
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If a recipient exercises a nonstatutory stock option by
delivering other Class A common shares previously owned by
him or her, the recipient will not recognize gain or loss with
respect to the exchange of such Class A common shares, even
if their then fair market value is different from the
recipient’s tax basis. Such recipient, however, will be
taxed as described above with respect to the exercise of a
nonstatutory stock option as if the recipient had paid the
exercise price in cash, and to the extent the recipient is
employed by one of our U.S. subsidiaries, such
U.S. subsidiary generally will be entitled to an equivalent
tax deduction. So long as the recipient receives a separate
identifiable share certificate therefore, the tax basis and the
holding period for the number of Class A common shares
received on such exercise that is equal to the number of shares
surrendered on such exercise will be equal to the tax basis and
include the holding period of those shares surrendered. The
recipient’s tax basis and holding period for the additional
Class A common shares received on exercise of the option
paid for, in whole or in part, with Class A common shares
will be the same as if the recipient had exercised the option
solely for cash.
To the extent that a recipient is employed by one of our
U.S. subsidiaries, such U.S. subsidiary generally will
be entitled, subject to the possible application of
Sections 162(m) and 280G of the Code, to a deduction in
connection with the exercise of a nonstatutory stock option in
an amount equal to the income recognized by the recipient.
Incentive Stock Options. In general,
neither the grant nor the exercise of an incentive stock option
will result in taxable income to the recipient (except possible
alternative minimum tax upon an exercise) or a deduction to our
U.S. subsidiaries, provided that the recipient was employed
by us or one of our U.S. subsidiaries at all times during
the period beginning on the date of the grant of the option and
ending on the day three months before the date of such exercise.
However, the exercise of an incentive stock option may have
implications in the computation of alternative minimum taxable
income. The aggregate fair market value of our Class A
common shares (determined at the date of grant) with respect to
which incentive stock options can be exercisable for the first
time by a recipient during any calendar year cannot exceed
$100,000. Any excess will be treated as a nonstatutory stock
option.
If the recipient does not sell the Class A common shares
received pursuant to the exercise of the incentive stock option
within either (1) two years after the date of the grant of
the incentive stock option or (2) one year after the date
of exercise, then any gain or loss realized on a subsequent
disposition of the Class A common shares will be treated as
long-term capital gain or loss. The amount of the capital gain
or loss will be equal to the difference between the amount
realized on the disposition and the exercise price. Under such
circumstances, the U.S. subsidiary for which the recipient
was employed will not be entitled to any deduction for
U.S. federal income tax purposes.
If the recipient disposes of the Class A common shares
acquired upon exercise of the incentive stock option within
either of the above mentioned time periods, the recipient will
generally realize as ordinary income an amount equal to the
lesser of (1) the amount by which the fair market value of
the Class A common shares on the date of exercise exceeds
the exercise price or (2) the amount by which the amount
realized upon disposition exceeds the exercise price. Any gain
realized in excess of the amount of ordinary income recognized
or the loss, if any, will be treated as a capital gain or loss.
To the extent the recipient was employed by one of our
U.S. subsidiaries, such U.S. subsidiary will be
entitled to a corresponding tax deduction for the ordinary
income recognized by the recipient, subject to the application
of Sections 162(m) and 280G of the Code.
All Options. With regard to both
incentive stock options and nonstatutory stock options, the
following also apply: (1) any of our officers and directors
subject to Section 16(b) of the Exchange Act may be subject
to special tax rules regarding the income tax consequences
concerning their nonstatutory stock options, (2) our
entitlement to a tax deduction is subject to applicable tax
rules (including, without limitation, Section 162(m) of the
Code regarding the $1 million limitation on deductible
compensation), and (3) if the exercisability or vesting of
any award is accelerated because of a change of control,
payments relating to the awards (or a portion thereof), either
alone or together with certain other payments, may constitute
parachute payments under Section 280G of the Code, which
amounts may be subject to excise taxes.
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In general, Section 162(m) of the Code denies a publicly
held corporation a deduction for U.S. federal income tax
purposes for compensation in excess of $1,000,000 per year per
person to its chief executive officer and its three other most
highly compensated executive officers whose compensation is
disclosed in its proxy statement, subject to certain exceptions.
Options will generally qualify under one of these exceptions if
they are granted under a plan that states the maximum number of
shares with respect to which options may be granted to any
recipient during a specified period (such as the Per Individual
Limit) or the plan under which the options are granted is
approved by shareholders and is administered by a compensation
committee comprised of outside directors. The Share Incentive
Plan is intended to satisfy these requirements with respect to
all awards of options. Shareholder approval is being requested
to approve Amendment No. 5 to the Share Incentive Plan in
order to comply with the shareholder approval requirements of
Code Section 162(m).
Because future awards under the Share Incentive Plan will be
based upon a range of prospective factors including the nature
of services to be rendered by prospective officers, directors,
employees, or consultants, and their achievement of identified
performance goals and potential contributions to the success of
our company, actual awards cannot be determined at this time,
except as otherwise described below with respect to
Mr. Frakes.
As described on page 3 above in the introductory language
to this proposal, if this Amendment No. 5 is approved, we
will amend and restate the employment agreement with
Mr. Frakes dated May 10, 2007. Pursuant to the
employment agreement, Mr. Frakes agreed to purchase
$1,000,000 of our Class A common shares. As of this date,
Mr. Frakes has fulfilled this requirement, as he has
purchased 50,000 shares at an aggregate price of $1,002,330
(an average price of approximately $20.0466 per share). The
employment agreement also required us to grant Mr. Frakes
options to purchase $10,000,000 of our Class A common
shares. On May 17, 2007, we granted Mr. Frakes options
to purchase an aggregate of 394,946 of our Class A common
shares at a price of $25.32 per share (the “Prior
Options”).
As amended and restated, the employment agreement will provide
for the cancellation of the Prior Options and regrant of new
stock options (“New Options”). As a result, the number
of option shares will be the average price at which
Mr. Frakes purchased the $1,000,000 worth of shares. The
per share option price will be the higher of the market price on
the date this amendment is approved or the average purchase
price at which Mr. Frakes purchased his Class A common
shares. Except as otherwise described below, the New Options
will have the same terms and conditions of the Prior Options,
including vesting. The material new terms of the New Options are
as follows:
Number of Shares. The number of shares
subject to the New Options will be 498,837, which is equal to
$10,000,000 divided by $20.0466, the average price at which
Mr. Frakes purchased his Class A common shares, with
the result rounded down to the nearest whole share.
Exercise Price. The exercise price will
be the higher of the grant date closing price or $20.05 (the
average share purchase price rounded up to the nearest whole
cent).
Deferred Compensation
Opportunity. Because the Committee does not
grant stock options with an exercise price which is less than
the grant date closing price, Mr. Frakes will have a
deferred compensation opportunity if the grant date closing
price is more than $20.05.
Amount. For each share subject to the New
Options, the amount of the deferred compensation opportunity
will be equal to the excess of the grant date closing price over
$20.05.
Credit/Vesting. We will credit the deferred
compensation opportunity to a deferred compensation account for
Mr. Frakes as the underlying shares subject to the New
Options vest. We will treat the deferred compensation credits as
an unfunded obligation and Mr. Frakes will be treated as a
general creditor to the extent such amounts become payable.
Payout. Payout of the deferred compensation
credits will be the earliest of (1) the date 10 years
after the grant date of the New Options, (2) the effective
date of a change of control, or (3) the date of
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Mr. Frakes’ separation from service with us. In order
to receive a payout, the closing price or value on the payout
date must exceed $20.05.
No exercise of the New Options is required to receive the
payout. For each deferred compensation credit, the payout will
be made in a lump sum in an amount equal to (1) the lesser
of the grant date closing price or the closing price or value on
the payout date, over (2) $20.05. Any deferred compensation
credits which are not paid out under this formula will be
forfeited.
The following table provides information concerning our equity
compensation plans as of December 31, 2006:
The affirmative vote of a simple majority of the votes cast by
the shareholders present in person or by proxy at the
Extraordinary General Meeting will be required for the approval
of Amendment No. 5 to our Share Incentive Plan.
THE BOARD
OF DIRECTORS RECOMMENDS VOTING “FOR”
APPROVAL OF THE AMENDMENT TO OUR SHARE INCENTIVE PLAN.
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The Compensation Committee has reviewed the following
Compensation Discussion and Analysis with our management, and
has recommended to the Board of Directors that the Compensation
Discussion and Analysis be included in this proxy statement.
The Compensation Committee — Fiscal Year 2006
Stephen A. Cozen, Chairperson
Saul A. Fox
The Compensation Discussion and Analysis focuses on the
compensation of the executive officers (the “named
officers”) listed in the Summary Compensation Table that
follows. The named officers for 2006 were Robert M. Fishman,
former President and Chief Executive Officer, United America
Insurance Group and former Chief Executive Officer of United
America Indemnity, Ltd.; Kevin L. Tate, Chief Financial Officer,
United America Indemnity, Ltd.; David R. Whiting, President and
Chief Executive Officer of Wind River Reinsurance Company, Ltd.;
Richard S. March, Senior Vice President and General Counsel,
United America Insurance Group; Joseph F. Morris, former
President, United America Indemnity, Ltd.; William F. Schmidt,
former President and Chief Executive Officer, United America
Insurance Group, which consists of the insurance and related
operations conducted by American Insurance Service, Inc.’s
affiliates and subsidiaries, including American Insurance
Adjustment Agency, Inc., International Underwriters, LLC, J.H.
Ferguson & Associates, LLC, the United National
Insurance Companies and the
Penn-America
Insurance Companies; and Robert Cohen, former President, Penn
Independent Corporation.
Effective August 25, 2006, Mr. Morris resigned. On
September 30, 2006, Mr. Cohen’s employment with
us was terminated in connection with the sale by Penn
Independent Corporation of substantially all of its assets to
Brown & Brown, Inc. Effective February 5, 2007,
Mr. Schmidt resigned. In response, on February 8,
2007, our Board of Directors appointed Saul A. Fox as Chief
Executive Officer of United America Indemnity, Ltd., which was
the role previously held by Mr. Fishman, and
Mr. Fishman was appointed President and Chief Executive
Officer of United America Insurance Group. Effective May 8,
2007, Mr. Fishman’s employment with us terminated. On
May 9, 2007, Larry A. Frakes was appointed as our President
and Chief Operating Officer. Effective June 28, 2007,
Mr. Frakes’ was named as our President and Chief
Executive Officer, replacing Mr. Fox who remains the
Chairman of our Board of Directors.
The following is a discussion regarding our objectives and
philosophies regarding executive officer and director
compensation, as well as the actions taken in 2006 and the
compensation paid to executive officers with respect to 2006.
Our primary goals in structuring compensation opportunities for
our executive officers and directors are: (i) fostering
achievement of corporate performance objectives;
(ii) recognizing participants’ contributions to
corporate success; and (iii) attracting and retaining
quality professionals. We apply a consistent compensation
philosophy for all executive officers and directors. This
philosophy is based on the premise that our achievements result
from the coordinated efforts of all employees, including our
executive officers and directors working toward our business
objectives. The Compensation Committee designs the executive
compensation program to support the overall objective of
maximizing long-term shareholder value by aligning
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the interests of executives with the interests of shareholders
and by rewarding executives for achieving corporate and
individual objectives.
Generally, we structure our executives’ total compensation
packages to be within the range of compensation paid by peer
companies to their executives. We consider our peer companies to
be those who are similarly-sized, operating in the insurance
industry and emphasizing long-term incentive compensation in
structuring their own executives’ compensation packages. We
believe that such benchmarking provides a suitable balance
between the competitive nature of our business, the need to
recruit and retain talented executives, and the Compensation
Committee’s strong desire to ensure our executives do not
receive compensation in excess of their peers or their
contribution to our long-term success and shareholder value. We
believe, however, that our emphasis on performance and
shareholder return with a long-term perspective may result in
compensation opportunities which differentiate our practices
from those of our peers. In short, our executives will be well
compensated if, and only if, they create value for our
shareholders over a period of several years.
We use three primary components of executive compensation to
satisfy our compensation objectives: base salary,
performance-based annual cash bonus incentives through our
Annual Incentive Awards Program, and long-term incentive
opportunities through options and awards of restricted shares
pursuant to our Share Incentive Plan. Our policies with respect
to these components are discussed below.
The Compensation Committee uses base salary to compensate
executives at salary levels comparable to the levels used within
our peer group. Individual salaries set within a competitive
range are also based upon an evaluation of other factors such as
individual past performance, potential with us, level and scope
of responsibility, and internal equity. Base salaries are
reviewed annually by the Compensation Committee to determine if
such salaries continue to fall within a competitive range
relative to our peer group. Base salaries for each of the
executive officers named below in the Summary Compensation Table
were set initially in the officers’ employment agreements
with us and have been increased in subsequent years in
connection with across-the-board salary increases to account for
general cost of living adjustments as well as enhanced
professional responsibilities.
Our annual cash bonus opportunities are generally designed to
motivate executives to focus on the performance of the division,
subsidiary, or unit for which they have primary responsibility.
Annual cash bonuses are paid through our Amended and Restated
Annual Incentive Awards Program, pursuant to which the
Compensation Committee and the Section 162(m) Committee
establish the criteria and objectives that must be met during
the applicable performance period in order to earn an annual
bonus. The criteria relate to certain objective performance
goals, such as net income per share, operating income and
underwriting income as well as individual performance
expectations. The amount of the annual bonuses payable to our
Chief Executive Officer, Chief Financial Officer and the three
most highly compensated officers (other than the CEO)
(collectively, the “named executive officers”) are
dependent, in large measure, on our performance with respect to
performance targets, and the extent to which actual performance
exceeds or falls short of target performance directly results in
a corresponding increase or decrease in the bonus payable.
With respect to 2006, the annual cash bonus opportunities
related to our operating income with respect to Joseph F.
Morris, our former President, and Kevin L. Tate, our Chief
Financial Officer, underwriting income with respect to William
F. Schmidt, the former President and Chief Executive Officer of
United America Insurance Group, Richard S. March, General
Counsel of United America Insurance Group, and David R. Whiting,
the President and Chief Executive Officer of Wind River
Reinsurance Company, Ltd., and net income of Penn Independent
with respect to Robert Cohen, the former President and Chief
Executive Officer of Penn Independent Corporation.
Mr. Whiting was also eligible for a cash bonus on the basis
of individual achievement of certain qualitative goals. Had
Mr. Fishman remained employed by us, his cash bonus
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opportunities would have been tied to net income per share
targets. These targets reflect each executive’s
responsibilities and a day-to-day emphasis on generating profits.
The Compensation Committee believes that the targets which are
set each year are challenging, but within reach of a talented
executive team. The Compensation Committee is also empowered to
exercise negative discretion and reduce the bonuses otherwise
payable to any of our employees in the event that the
Compensation Committee determines that particular corporate
results were achieved without significant personal contributions
by the particular employee. We may also clawback bonuses in
accordance with the Sarbanes-Oxley Act of 2002 in the event that
our financials are restated.
Because short-term results do not, by themselves, accurately
reflect the performance of a company in our industry or the
return realized by our shareholders, our executive officers are
also eligible to receive equity awards under the terms of our
Share Incentive Plan. Grants under the Share Incentive Plan are
an important component of our compensation policies and are
designed to motivate recipients to act from the perspective of a
long-term owner. We also believe that providing executive
officers with equity ownership: (i) serves to align the
interests of executive officers with shareholders by creating a
direct link between compensation and shareholder return;
(ii) creates a significant, long-term interest in our
success; and (iii) aids in the retention of key executive
officers in a competitive market for executive talent.
The Compensation Committee approves all grants of equity
compensation to our executive officers and employees as it deems
appropriate to achieve the goals set forth above and establishes
the time or times at which grants of restricted stock will be
awarded under our Share Incentive Plan. To promote our goals of
attracting and retaining talented executives, equity grants
usually vest over certain periods of time subject to continued
employment in good standing (or are subject to transferability
restrictions) which vesting is contingent in certain instances
on attainment of performance goals. Grants that are made upon an
executive’s commencement of employment are also often
contingent on the executive’s purchase of restricted shares
so that, from day one, the executive is a shareholder with a
significant personal stake in United America Indemnity, Ltd.
With respect to stock options, the Compensation Committee will
set the exercise price of an aggregate grant of options as of
the closing price of our stock on the date of grant. Neither
material nonpublic information nor the pending release of such
information is generally considered when selecting grant dates
or when convening a meeting of the Compensation Committee. While
our decision to hire Mr. Fishman constituted material
non-public information at the time he received his option grant
(the announcement of his hiring was made two business days
later), he began providing services to us on the option grant
date. Because of these services, the Compensation Committee
determined that the option grant and its effective date was
appropriate.
We have adopted certain policies with respect to equity
compensation, all of which apply to our executive officers and
directors, such as policies regarding insider trading policies
which prohibits trading during periods immediately preceding the
release of material non-public information. We also permit
officers to establish so-called
Rule 10b5-1
trading plans, subject to our prior approval.
We expect our executive officers to maintain a significant
personal stake in our company. While we have not yet established
stock ownership guidelines that are applicable to every
executive, we will consider adopting such guidelines in 2008.
Individual guidelines were established in connection with
Messrs. Fishman and Morris’ employment agreements.
Our executive officers are entitled to participate in the
various benefits made available to our employees generally,
including retirement plans, group health plans, paid vacation
and sick leave, basic life insurance and
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short-term and long-term disability benefits. Furthermore, all
of our officers and directors and the directors and officers of
our subsidiaries are covered by our directors and officers
liability insurance.
The form and amount of director compensation is determined by
the Board of Directors based on recommendations by our
Nominating and Governance Committee. We believe that director
compensation should not only be competitive, but also fair and
reasonable in light of our directors’ background and
experience, as well as the overall time, effort, and complexity
involved in carrying out their responsibilities as directors. In
determining the form and amount of consideration to be paid to
our non-employee directors, we strive to ensure that director
compensation does not exceed customary levels by critically
evaluating the amount and form of consideration that we directly
or indirectly pay to each director and to organizations with
which a director is affiliated, so as not to jeopardize any
director’s independence. In order to align the objectives
of our directors and our shareholders, as well as to retain
directors for an extended period, our directors receive annual
retainers and meeting fees in a combination of cash and
restricted shares or, if the director so elects, entirely in
restricted shares. The shares are not transferable for a period
of three years following their grant so as to ensure that our
directors maintain a long-term perspective when overseeing our
operations. Amounts earned by our directors are set forth in
Proposal One.
We have entered into employment agreements with each of our
executive officers, as described in more detail below following
the Summary Compensation Table. These agreements are important
to the future of our business because our success depends, in
part, upon the individual employees who represent us in dealings
with our producers and the investment community, execute our
business strategy, and identify and pursue strategic
opportunities and initiatives. We believe that such agreements
are helpful in providing our executives with some comfort
regarding their duties and compensation in exchange for
necessary restrictive covenants with respect to competitive
activity, non-solicitation, and confidentiality during and
following the officers’ employment with us. These covenants
are particularly important in protecting our interests in what
is an intensely competitive industry and in which leveraging the
personal relationships of our executives is critical to our
success. The employment agreements also dictate the level and
extent to which the officers receive post-termination
compensation.
We have established severance consistent with the market
practices of our peer companies. The Compensation Committee and
the Board of Directors approve appropriate severance policies
for each executive officer designed to (i) compensate an
executive who is involuntarily separated from us for reasons
other than for “cause” and (ii) compensate the
executive to the extent the executive is subject to a
post-termination non-compete agreement.
With respect to change in control policies, we have adopted a
limited change in control policy designed to incentivize our
executive officers to pursue transactions which benefit our
shareholders. Specifically, Messrs. March and Tate are
entitled to accelerated vesting of their options in the event
that we undergo a change in control while they are employed.
The Compensation Committee and the Section 162(m) Committee
met several times in 2006 and took a variety of actions relating
to the hiring, retention, 2006 compensation and separation of
our executives. Actions of the Compensation Committee and the
Section 162(m) Committee included: hiring a new Chief
Executive Officer; restructuring an integration bonus plan for
former
Penn-America
executives; approving increases in the base salaries of certain
executive officers; setting targets and thereafter reviewing and
approving incentive compensation with respect to 2006; approving
new equity incentive plans for our officers; approving
employment agreements and compensation packages for new
executive officers; working with a compensation
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consultant to review compensation packages for our officers;
reviewing and approving deal bonuses for certain executives in
connection with the sale of Penn Independent Corporation; and
approving separation agreements in connection with the departure
of certain executive officers. More detail on these activities
is set forth below.
In November 2006, we had hired Mr. Fishman to be our Chief
Executive Officer. In February 2007, our Board of Directors
appointed Mr. Fishman President and Chief Executive Officer
of United America Insurance Group.
In May 2007, we had hired Mr. Frakes to be our President
and Chief Operating Officer. In June 2007, our Board of
Directors appointed Mr. Frakes to be our President and
Chief Executive Officer.
From February 2007 through June 2007, Saul A. Fox served as our
Chief Executive Officer. Mr. Fox served in this position
without compensation. Mr. Fox continues to serve as the
Chairman of our Board of Directors.
At the beginning of 2006 the Compensation Committee approved
increases in base salary to Messrs. Morris, Schmidt and
Cohen. The salary increases were meant to reflect the increased
responsibilities that each of these officers assumed in
connection with the integration of our United National and
Penn-America
operations and the assignment of Mr. Schmidt to our
combined U.S. insurance operations, Mr. Morris to our
holding company operations and Mr. Cohen to Penn
Independent. Additionally, Mr. March received a base salary
increase based on an increase in the cost of living. The
Compensation Committee also felt that the previous performance
and hard work of these officers merited the increase in base
salaries.
The Compensation Committee also approved a restructuring of the
integration bonus opportunity with respect to certain former
Penn-America
executives, including Mr. Morris. First, the Compensation
Committee certified that the targets with respect to 2005 had
been achieved, and, accordingly, eligible participants became
vested in half of the integration bonus. Partly because the 2005
results also exceeded the targets previously established for
2006, the Compensation Committee decided to award the tranche
originally designed for 2006 performance in February 2006 on the
basis of (i) the superior performance for 2005,
(ii) the Compensation Committee’s recognition of the
earlier-than-anticipated consolidation of our
U.S. insurance operations, (iii) the Compensation
Committee’s determination that the
Penn-America
performance targets for 2006 were no longer appropriate
performance targets on which to base integration awards given
the earlier-than-anticipated consolidation, and (iv) the
Compensation Committee’s desire to achieve parity among the
integration plan participants and our other senior executives
who held time vesting options. While the award was granted
earlier than originally planned, the award as restructured vests
over a three-year period, with one hundred percent of the award
vesting at the end of such three-year period, rather than
immediately upon grant. This new vesting period added a
significant retention element to the integration award.
We also took significant steps in 2006 towards moving to a
system of smaller but more frequent awards of equity
compensation under our Share Incentive Plan to our executive
officers. Many of our senior executives, including
Messrs. Schmidt, March and Tate, had last received
significant equity grants in connection with the acquisition of
our predecessor (and the executives’ simultaneous purchase
of significant amounts of restricted shares), and vesting in the
remaining portion of these grants is tied to continued
employment. Beginning with 2006 and continuing in future years,
awards of equity will be made based on performance, and receipt
and full vesting in the awards will be subject to continued
employment.
Our senior executives were given the opportunity to participate
in two equity compensation plans with respect to 2006
performance. First, Messrs. Schmidt, Morris, March and Tate
are or were, while employed in
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good standing, eligible for an equity award based upon the
achievement of targets with respect to the operating income of
our U.S. operations. Because we derive the majority of our
income from our U.S. operations, we felt it was appropriate
to tie these awards to achievement of what we felt were
challenging income targets. Additionally, this award is not made
until after the 2009 accident year, and we feel that giving time
for 2006 accident year results to develop best reflects the
nature by which we realize profits and losses and provides a
powerful retention incentive for our senior executives.
The second opportunity was made available to the same
participants, along with Mr. Cohen while he was employed by
Penn Independent. It is dependent on achievement of certain
targets relative to our return on equity. We feel that this
target measures the efficiency and extent to which we employ our
assets in a manner that produces sustainable long-term growth.
The three-year vesting period associated with awards of
restricted shares pursuant to this opportunity provides an
incentive to recipients to remain with us following an award
grant.
Based on our 2006 return on equity program, Messrs. Schmidt
and Morris would have received, if still employed in good
standing, and Messrs. March and Tate did receive awards of
restricted stock that vest over a three year period.
Joseph F. Morris, our former principal executive officer and
President, resigned effective August 25, 2006. We entered
into a separation agreement which we view as favorable and
whereby we agreed to lift the transferability restrictions
placed on Mr. Morris’ integration bonus shares in
return for his general release of claims. We incurred no
severance costs in connection with his separation.
William F. Schmidt, the former President and Chief Executive
Officer, United America Insurance Group, resigned effected
February 5, 2007. As described below under Executive
Compensation — Employment Agreements, we filed a
lawsuit against Mr. Schmidt to enforce non-competition,
non-solicitation, confidentiality and certain other restrictive
covenants in Mr. Schmidt’s employment agreement. Under
the agreement to resolve our lawsuit, Mr. Schmidt agreed
(1) to relinquish all of his stock options in exchange for
or payments in amounts substantially less than the market value
of the underlying shares (less the relevant strike price) as of
March 28, 2007, to be paid in installments through
August 5, 2008 if Mr. Schmidt maintains compliance
with the injunction described under Executive
Compensation — Employment Agreements below,
(2) to relinquish all claims to any 2006 cash and equity
incentive compensation, and (3) relinquish any claims to
severance and unvested stock options.
Robert M. Fishman’s, our former Chief Executive Officer and
the former President and Chief Executive Officer, United America
Insurance Group, employment terminated effective May 8,
2007.
The material perquisites provided to our executives are
relatively limited. In 2006 we paid premiums on a life insurance
policy on behalf of Mr. Morris and an automobile allowance
to Mr. Morris while he was employed. These benefits were a
continuation of the arrangements maintained on
Mr. Morris’ behalf while he was an executive officer
of
Penn-America.
Given the relatively minimal cost of this policy and automobile
allowance relative to Mr. Morris’ contributions to
United America Indemnity, Ltd., the Compensation Committee felt
that continuation of this benefit was appropriate.
As shown below in the Summary Compensation Table,
Mr. Whiting receives housing and transportation allowances.
Such allowances are customary in Bermuda as methods of
recruiting executives due to the scarcity of local talent. The
Compensation Committee considered the cost of such allowances
when reviewing and approving both Mr. Whiting’s base
salary and his overall compensation package.
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As shown below in the Summary Compensation Table, in 2006 we
paid for Mr. Schmidt’s country club membership, which
Mr. Schmidt used to entertain current and potential
customers. The Compensation Committee considered the cost of the
membership an appropriate business development expense.
Lastly, Mr. Fishman was reimbursed for certain of his
commuting and living costs. This arrangement was temporary and
meant to make him whole with respect to moving from his former
residence in Illinois to the Philadelphia area. We felt that
reimbursement of these costs was appropriate in light of the
need (i) to recruit for executive talent on a nationwide
basis for senior executive talent and (ii) to incentivize
for Mr. Fishman to join us, since failure to reimburse
these costs would have diminished the value of
Mr. Fishman’s compensation package. In order to give
us protection, the relocation expenses are recoverable by us in
the event that Mr. Fishman resigns or is terminated for
cause prior to the first anniversary of his becoming CEO.
In 2006 our Compensation Committee retained Frederick W.
Cook & Co., Inc., an outside compensation consultant,
to perform a comparative study of the compensation packages of
certain executives, including those executive who were then our
four most highly paid executive officers, their terms and
conditions of employment with the packages, and the terms and
conditions of the executives among a peer group recommended by
the consultant. The peer group consisted of similarly-sized
publicly-traded companies with a similar business focus. The
consultant opined that (1) widespread change with respect
to our cash compensation opportunities was not needed,
(2) our practice of granting long-term incentive
compensation through restricted stock should be preserved, and
(3) current practices with respect to employment contracts,
perquisites and change in control benefits should be maintained.
The consultant also recommended that we make changes to the
stock ownership guidelines which we currently use. The
Compensation Committee found the consultant’s report to be
of great assistance, and will rely on it when making future
compensation decisions with respect to our senior executives.
In 2006 we also used data and advice from two different
consultants, Marsh Management Services (Bermuda) Ltd. and
Pricewaterhouse Coopers (Bermuda), relative to compensation paid
at similar companies in Bermuda in connection with our internal
review of the compensation paid to employees at Wind River
Reinsurance Company, Ltd.. We also used the data to establish
compensation packages for Mr. Whiting and other new hires
at Wind River Reinsurance Company, Ltd. and to ensure that the
compensation paid to our Wind River Reinsurance Company, Ltd.
employees was in line with other Bermuda-based insurance
operations and with our overall compensation philosophy.
Our Audit Committee has conducted a review of our equity
compensation polices and practices and reported the results of
its review to our Board of Directors. We have since concluded
that there were no outstanding issues relating to any option
“backdating” and that past practices with respect to
option grants were appropriate.
In connection with the sale of substantially all of the assets
of Penn Independent, Mr. Robert Cohen, then Chief Executive
Officer and President of Penn Independent, was paid a cash bonus
in connection with the sale, and he received accelerated vesting
of his unvested options. The Compensation Committee approved the
bonus payment and the option acceleration prior to the sale in
order to incentivize Mr. Cohen to complete the transaction
and because the value realized by the sale was in line with the
targets set by our management and by our Board of Directors. The
Compensation Committee also felt that this bonus was appropriate
due to Mr. Cohen’s considerable and valuable role in
negotiating, structuring and consummating the transaction and
his successful efforts in recruiting several key executives at
Penn Independent, whom the buyer deemed to be crucial to the
transaction.
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Other
Material Considerations
The post-employment benefits available to our executive officers
are subject to the terms of the officers’ employment
agreements. These benefits are meant to provide the officers
with protection in the event that they are forced to seek other
employment by virtue of a “without cause” or
“good reason” termination, and provide consideration
for their restrictive covenants. Our executive officers are not
provided with a supplemental retirement benefit plan or other
pension beyond that of our normal 401(k) plan and the matching
contributions therein.
Our non-employee directors are not provided with any
post-service benefits. The only material effect of a change in
control of United America Indemnity, Ltd. on our non-employee
directors’ compensation would be a lifting of the
transferability restrictions on their restricted shares.
With respect to taxes, Section 162(m) of the Internal
Revenue Code imposes a $1 million limit on the deduction
that we may claim in any tax year with respect to compensation
paid to the Chief Executive Officer, Chief Financial Officer and
certain other named executive officers. Accordingly, the
Compensation Committee and the Section 162(m) Committee
monitor which executive officers qualify as the so-called
“named executive officers” so that steps may be taken
to ensure that compensation paid to these officers is deductible
under Section 162(m).
Certain types of performance-based compensation are exempted
from the $1 million limit. Performance-based compensation
can include income from stock options, performance-based
restricted stock, and certain formula driven compensation that
meets the requirements of Section 162(m). The Compensation
Committee and the Section 162(m) Committee seek to
structure performance-based and equity compensation for our
named executive officers in a manner that complies with
Section 162(m) in order to provide for the deductibility of
such compensation. All compensation paid to our executive
officers with respect to 2006, except for a portion of the
$750,000 transaction bonus paid to Mr. Cohen, was
deductible for purposes of Section 162(m).
Compensation is also affected by Section 409A of the
Internal Revenue Code. Section 409A dictates the manner by
which deferred compensation opportunities are offered to our
employees and requires, among other things, that
“nonqualified deferred compensation” be structured in
a manner that limits employees’ abilities to accelerate or
further defer certain kinds of deferred compensation. We operate
our existing deferred compensation arrangements in accordance
with Section 409A, and we will continue to use the
transition period provided by the Internal Revenue Service to
amend our plans where necessary to maintain compliance with
Section 409A.
We also take into account Sections 280G and 4999 of the
Internal Revenue Code when structuring compensation. These two
sections relate to the imposition of excise taxes on executives
who receive, and the loss of deductibility for employers who
pay, “excess parachute payments” made in connection
with a change in control. Because these taxes dampen the
incentives we provide to our executives to pursue a beneficial
transaction for our shareholders, we often structure our
compensation opportunities in a manner which reduces the impact
of Sections 280G and 4999.
Lastly, another legal development — the SEC’s
promulgation of new rules regarding public companies’
disclosure of executive compensation — has helped us
provide relevant information to our shareholders regarding our
philosophy, procedures and actions. The new rules have also
helped to provoke discussion among Compensation Committee
members, management and outside advisors, and we expect that
this discussion will better enable us to recruit and retain the
best talent and to align such talent’s interests with the
interests of our shareholders.
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After careful review and analysis, we believe that each element
of compensation and the total compensation provided to each of
our named executive officers and directors is reasonable and
appropriate. The value of the compensation payable to our
executives and directors is heavily dependent on our performance
and the investment return realized by our shareholders.
Furthermore, our executives’ and directors’ total
compensation opportunities are comparable to our
competitors’ executives’ and directors’
opportunities. These compensation opportunities will allow us to
attract and retain talented executives and directors who have
helped and who will continue to help us grow as we look to the
years ahead.
Summary
Compensation Table
The following table shows information concerning the
compensation recorded by United America Indemnity, Ltd. for the
most recent fiscal year paid to principal executive officers,
Chief Financial Officer, and other named executive officers.
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Kevin
L. Tate
Mr. Tate has an executive employment agreement with United
National Insurance Company, or “UNIC,” an indirect
wholly-owned subsidiary of United America Indemnity, Ltd. The
agreement provides for an initial employment term through
December 31, 2008, with additional one-year renewal terms
unless either party gives 90 days’ prior written
notice of non-renewal to the other. If UNIC elects not to renew
the agreement at the end of the initial term, and Mr. Tate
has otherwise performed satisfactorily, he will receive,
conditioned upon execution of a general release and compliance
with post-termination obligations, monthly payments of base
salary until the earlier of six months following the date of
termination or the commencement of full-time employment with
another employer.
With respect to the annual cash compensation, the agreement
provides that Mr. Tate is entitled to an annual direct
salary of not less than $312,000, which is subject to review on
an annual basis. Mr. Tate is also eligible for an annual
bonus, conditioned on the achievement of performance targets
included in our Amended and Restated Annual Incentive Awards
Program.
Under the agreement, UNIC may also terminate Mr. Tate for
“cause” or if he becomes “disabled” (as such
terms are defined in the agreement) or upon his death of
Mr. Tate, in which case (1) Mr. Tate would not be
entitled to any separation payments in the case of a termination
for cause or death, and (2) in the case of disability,
Mr. Tate would be entitled to six months of base salary
payable monthly (subject to reduction for disability payments
otherwise received by Mr. Tate), and conditioned upon the
execution by Mr. Tate of a general release and compliance
with post-termination obligations.
If UNIC terminates Mr. Tate without “cause” or he
resigns as a result of the relocation of the principal executive
offices of UNIC or the business relocation of Mr. Tate (in
both cases without UNIC offering Mr. Tate a reasonable
relocation package), UNIC has agreed to severance pay of
18 months, payable monthly, and subject to the execution of
a general release and further adjustment for the equity
compensation package granted to such executive.
During this severance period, UNIC is also obligated to maintain
any medical, health, and accident plan or arrangement in which
Mr. Tate participates until the earlier of the end of the
severance period or Mr. Tate becoming eligible for coverage
by another employer and subject to Mr. Tate continuing to
bear his share of coverage costs.
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The agreement also imposes non-compete, non-solicitation, and
confidentiality obligations on Mr. Tate upon his
termination for any reason. The agreement provides that for a
period of 18 months following the termination of employment
for any reason (but in the case of termination for cause, only
after a determination by our Board of Directors of such
substantial failure to perform), Mr. Tate shall not engage
directly or indirectly, whether as owner, manager, operator, or
otherwise, in any property and casualty insurance or reinsurance
company that writes more than 15% of its written premium by
issuing commercial insurance policies for businesses through a
network of wholesale or managing general agents on a binding
authority basis. The agreement also contains non-solicitation
provisions that prohibit Mr. Tate, for a period of
18 months following termination of employment, from doing
business with any employee, officer, director, agent,
consultant, or independent contractor employed by or performing
services for UNIC, or engaging in insurance-related business
with any party who is or was a customer of UNIC during
Mr. Tate’s employment (or during such
18-month
period), or a business prospect of UNIC during
Mr. Tate’s employment. The agreement also provides
that Mr. Tate may elect to forego separation payments and
certain equity awards and in return no longer be subject to
certain provisions of the non-competition restrictions (such as
those prohibiting engaging in the specialty and casualty
insurance business or any business engaging in the insurance
agency or brokerage business), but still remain subject to the
other non-compete provisions, confidentiality provisions, and
non-solicitation provisions of the agreement. If Mr. Tate
violates his restrictive covenants or confidentiality
obligations, the employment agreement also permits UNIC to
recover gain realized by Mr. Tate upon the exercise of
options or sale of shares during a designated period, to
purchase his shares at the lesser of cost or fair market value
and for the forfeiture of any unexercised options.
Mr. Tate has been granted various options to purchase our
Class A Common Shares. The first set of options granted on
September 5, 2003 have an exercise price of $10 per share
and initially provided for vesting over time in 20% increments
over a five-year period, with any unvested options forfeitable
upon termination of Mr. Tate’s employment for any
reason (including cause). Mr. Tate was granted 39,375 of
these options. Effective December 31, 2005, the vesting
schedule was amended so that 20% vested as of December 31,
2004, 40% vested as of December 31, 2005, 52% is vested as
of December 31, 2006, 64% is vested as of December 31,
2007 and 100% is vested as of December 31, 2008. The second
set of options are performance-vesting options granted on
September 5, 2003, having an exercise price of $10 per
share and initially provided vesting in 25% increments over a
four-year period and conditioned upon our achieving various
operating targets. Mr. Tate was granted 65,625 of these
options. Effective December 31, 2005, the terms of these
performance-vesting options were amended in order to eliminate
the performance criteria. The performance hurdle with respect to
accelerated option vesting upon a change of control was also
eliminated. As a result, the options vest and become exercisable
in accordance with the following timetable, without regard to
performance criteria: 0% vested as of December 31, 2004,
50% vested as of December 31, 2005, 60% vested as of
December 31, 2006, 70% is vested as of December 31,
2007 and 100% is vested as of December 31, 2008. All of the
unvested options will become vested upon a change of control of
our company.
David
R. Whiting
Mr. Whiting entered into an employment agreement in May
2006 with Wind River Insurance Company (Bermuda), Ltd. (now
known as Wind River Reinsurance Company, Ltd., the
“Company”), an indirect, wholly owned subsidiary of
United America Indemnity, Ltd., effective as of April 1,
2006 (the “Effective Date”), pursuant to which
Mr. Whiting agreed to serve as President and Chief
Executive Officer of the Company. The agreement between
Mr. Whiting and the Company provides for an initial
employment term of three years from the Effective Date, with
additional one-year renewal terms, unless either party gives
written notice to the other at least ninety days prior to the
expiration of the then current term. Mr. Whiting receives a
base salary of $425,000 subject to adjustment (“base
salary”) and is eligible for an annual cash bonus. For
calendar year 2006, Mr. Whiting was eligible for (i) a
cash bonus ranging from twenty percent to forty-five percent of
his base salary based upon the Company achieving certain income
targets (excluding affiliated company cessions) and (ii) a
cash bonus equal to ten percent of his base salary if
Mr. Whiting achieved certain qualitative goals and
initiatives. For fiscal years after 2006 during which
Mr. Whiting is employed in good standing by the Company,
the bonus program shall be determined by the board of directors
of the Registrant; provided, however, that Mr. Whiting may
be entitled to an award of cash, if approved by the
Registrant’s board of
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directors, in an amount no less than forty percent of his base
salary as of December 31 of the calendar year for which a bonus
is awarded. During the employment term, Mr. Whiting is also
entitled to a housing allowance of $9,000 per month and a
transportation and travel allowance of $1,000 per month.
The agreement also imposes certain non-compete,
non-solicitation, no-hire and confidentiality obligations on
Mr. Whiting following the termination of his employment for
any reason.
Pursuant to the agreement, the Company may terminate
Mr. Whiting for “cause” (as such term is defined
it the agreement), upon his “permanent disability” (as
such term is defined in the agreement) or upon his death.
Mr. Whiting may terminate his employment with or without
“good reason” (as such term is defined in the
agreement) following forty-five days’ written notice to the
Company. If Mr. Whiting’s employment is terminated by
the Company because of death or permanent disability or for
cause, by Mr. Whiting without good reason or if the term
expires, the Company shall pay to Mr. Whiting his full base
salary plus housing, transportation and travel allowances
through the date of termination at the rate in effect at the
time of termination and the Company shall have no further
obligations to Mr. Whiting under the agreement. If
Mr. Whiting’s employment is terminated by the Company
without cause or by Mr. Whiting for good reason, then the
Company shall pay, subject to his execution of a general release
and his compliance with certain post-termination obligations, to
Mr. Whiting an amount equal to Mr. Whiting’s then
monthly base salary plus housing and transportation and travel
allowances multiplied by six, with such amount payable in equal
monthly installments, and shall maintain any medical or
health-and-accident
plan in effect for such time. During the twelve month period
following Mr. Whiting’s employment, Mr. Whiting
agrees to be available to the Company from time to time to
assist on matters he worked on during his employment at the
Company or its affiliates.
The Company has also agreed to indemnify Mr. Whiting for
all taxes levied, assessed or applied on the income or assets of
Mr. Whiting by any governmental authority other than the
Government of Bermuda, resulting from his employment activities
incurred at the direction of the Company.
Richard
S. March
Mr. March has an executive employment agreement with United
National Insurance Company, or “UNIC,” an indirect
wholly-owned subsidiary of United America Indemnity, Ltd. The
agreement provides for an initial employment term through
December 31, 2008, with additional one-year renewal terms
unless either party gives 90 days’ prior written
notice of non-renewal to the other. If UNIC elects not to renew
the agreement at the end of the initial term, and Mr. March
has otherwise performed satisfactorily, Mr. March will
receive, conditioned upon execution of a general release and
compliance with post-termination obligations, monthly payments
of base salary until the earlier of six months following the
date of termination or the commencement of full-time employment
with another employer.
With respect to the annual cash compensation, the agreement
provides that Mr. March is entitled to an annual direct
salary of not less than $320,000, which is subject to review on
an annual basis. Mr. March is also eligible for an annual
bonus, conditioned on the achievement of performance targets
included in our Amended and Restated Annual Incentive Awards
Program.
Under the agreement, UNIC may also terminate Mr. March for
“cause” or if Mr. March becomes
“disabled” (as such terms are defined in the
agreement) or upon the death of Mr. March, in which case
(1) Mr. March would not be entitled to any separation
payments in the case of a termination for cause or death, and
(2) in the case of disability, Mr. March would be
entitled to six months of base salary payable monthly (subject
to reduction for disability payments otherwise received by
Mr. March), and conditioned upon the execution by
Mr. March of a general release and compliance with
post-termination obligations.
If UNIC terminates the Mr. March without “cause”
or he resigns as a result of the relocation of the principal
executive offices of UNIC or the business relocation of
Mr. March (in each case without UNIC offering
Mr. March a reasonable relocation package), UNIC has agreed
to severance pay of 18 months, payable monthly, and subject
to the execution of a general release and further adjustment for
the equity compensation package granted to such executive.
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During this severance period, UNIC is also obligated to maintain
any medical, health, and accident plan or arrangement in which
Mr. March participates until the earlier of the end of the
severance period or Mr. March becoming eligible for
coverage by another employer and subject to Mr. March
continuing to bear his share of coverage costs.
The agreement also imposes non-compete, non-solicitation, and
confidentiality obligations on Mr. March upon his
termination for any reason. The agreement provides that for a
period of 18 months following the termination of employment
for any reason (but in the case of termination for cause, only
after a determination by our Board of Directors of such
substantial failure to perform), Mr. March shall not engage
directly or indirectly, whether as owner, manager, operator, or
otherwise, in any property and casualty insurance or reinsurance
company that writes more than 15% of its written premium by
issuing commercial insurance policies for businesses through a
network of wholesale or managing general agents on a binding
authority basis. The agreement also contains non-solicitation
provisions that prohibit Mr. March, for a period of
18 months following termination of employment, from doing
business with any employee, officer, director, agent,
consultant, or independent contractor employed by or performing
services for UNIC, or engaging in insurance-related business
with any party who is or was a customer of UNIC during
Mr. March’s employment (or during such
18-month
period), or a business prospect of UNIC during
Mr. March’s employment. The agreement also provides
that Mr. March may elect to forego separation payments and
certain equity awards and in return no longer be subject to
certain provisions of the non-competition restrictions (such as
those prohibiting engaging in the specialty and casualty
insurance business or any business engaging in the insurance
agency or brokerage business), but still remain subject to the
other non-compete provisions, confidentiality provisions, and
non-solicitation provisions of the agreement. If Mr. March
violates his restrictive covenants or confidentiality
obligations, the employment agreement also permits UNIC to
recover gain realized by Mr. March upon the exercise of
options or sale of shares during a designated period, to
purchase his shares at the lesser of cost or fair market value
and for the forfeiture of any unexercised options.
Mr. March has been granted various options to purchase our
Class A common shares. The first set of options granted on
September 5, 2003 have an exercise price of $6.50 per share
and are fully vested. Mr. March was granted 56,074 options
from this set of options. The second set of options granted on
September 5, 2003 have an exercise price of $10 per share
and initially provided for vesting over time in 20% increments
over a five-year period, with any unvested options forfeitable
upon termination of Mr. March’s employment for any
reason (including cause). Mr. March was granted 39,375 of
these options. Effective December 31, 2005, the vesting
schedule was amended so that 20% vested as of December 31,
2004, 40% vested as of December 31, 2005, 52% is vested as
of December 31, 2006, 64% is vested as of December 31,
2007 and 100% is vested as of December 31, 2008. The third
set of options are performance-vesting options granted on
September 5, 2003, having an exercise price of $10 per
share and initially provided vesting in 25% increments over a
four-year period and conditioned upon our achieving various
operating targets. Mr. March was granted 65,625 of these
options. Effective December 31, 2005, the terms of these
performance-vesting options were amended in order to eliminate
the performance criteria. The performance hurdle with respect to
accelerated option vesting upon a change of control was also
eliminated. As a result, the options vest and become exercisable
in accordance with the following timetable, without regard to
performance criteria: 0% vested as of December 31, 2004,
50% vested as of December 31, 2005, 60% vested as of
December 31, 2006, 70% is vested as of December 31,
2007 and 100% is vested as of December 31, 2008. All of the
unvested options will become vested upon a change of control of
our company.
Robert
M. Fishman
Mr. Fishman, our former Chief Executive Officer and former
President and Chief Executive Officer of United America
Insurance Group, entered into an employment agreement with
United America Indemnity, Ltd. in November 2006.
Mr. Fishman’s employment terminated May 8, 2007.
William
F. Schmidt
Mr. Schmidt, former President and Chief Executive Officer
of United America Insurance Group, entered into an employment
agreement with United National Insurance Company in May 2004,
which was amended in
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January 2006. Mr. Schmidt resigned effective
February 5, 2007. On February 12, 2007, we filed a
lawsuit in state court in Montgomery County, Pennsylvania to
enforce non-competition, non-solicitation, confidentiality and
certain other restrictive covenants in Mr. Schmidt’s
employment agreement. On March 29, 2007, we agreed to
resolve our lawsuit against Mr. Schmidt on the following
basis:
(1) Mr. Schmidt agreed to be bound by a permanent,
stipulated injunction broader in scope than the restrictive
covenants and other terms and conditions in his employment
agreement (the “Injunction”). The parties submitted
the Injunction to the court on March 30, 2007. The
Injunction provides, in pertinent part, that (a) until
August 5, 2008, Mr. Schmidt may not compete, either
directly or indirectly, with our business; (b) until
August 5, 2008, Mr. Schmidt may not engage in
business, either directly or indirectly, with certain named
insurance
and/or
reinsurance companies and their affiliates; (c) until
August 5, 2008, Mr. Schmidt may not engage in any
insurance-related business with certain named agents, program
administrators and their affiliates; (d) until
August 5, 2008, Mr. Schmidt is prohibited from being
co-employed with Jonathan J. Ritz, former Senior Vice
President — COO of United America Insurance Group and
Gerould J. Goetz, former Senior Vice President —
Claims of United America Insurance Group;
(e) Mr. Schmidt is prohibited from disclosing to
anyone any confidential
and/or
proprietary information about us; (f) Mr. Schmidt must
certify that he has not disclosed information about or belonging
to us to anyone other than his counsel;
(g) Mr. Schmidt must turn over, delete
and/or
destroy, and must otherwise certify as to having turned over,
deleted
and/or
destroyed, any and all information about or belonging to us that
he took, whether in electronic or hard-copy form, that is in his
possession, custody or control or in the possession, custody or
control of his counsel; and (h) we agreed with
Mr. Schmidt agreed that in any proceeding to enforce the
Injunction
and/or
remedy a breach of the Injunction, the prevailing party shall be
entitled to reimbursement for attorneys’ fees and costs
incurred in the proceeding.
(2) Mr. Schmidt agreed to relinquish all of his
options to acquire our Class A Common Shares in exchange
for payments in amounts substantially less than the market value
of the underlying shares (less the relevant strike price) as of
March 28, 2007, to be paid in installments through
August 5, 2008 if Mr. Schmidt maintains compliance
with the Injunction.
(3) Mr. Schmidt relinquished all claims to any 2006
cash and equity incentive compensation. Mr. Schmidt also
relinquished any claims to severance and unvested stock options.
Robert
Cohen
On September 30, 2006, Mr. Cohen’s employment
with us was terminated in connection with the sale by Penn
Independent Corporation of substantially all of its assets to
Brown & Brown, Inc. Mr. Cohen had an executive
employment agreement with Penn Independent Corporation
(“PIC”) an indirect wholly-owned subsidiary of the
United America Indemnity, Ltd. In connection with the sale of
substantially all of the assets of PIC, Mr. Cohen was paid
a cash bonus and the vesting of his unvested options was
accelerated.
Joseph
F. Morris
Mr. Morris, former President of United America Indemnity,
Ltd. entered into an employment agreement in March 2006 with
United America Indemnity Group, Inc. (“UAIGI”), an
indirect, wholly owned subsidiary of United America Indemnity,
Ltd., under which Mr. Morris agreed to serve as our
President and as President of UAIGI. Mr. Morris resigned
effective August 25, 2006 and as a result his employment
agreement was terminated. On August 25, 2006,
Mr. Morris entered into a letter agreement with us, which
acknowledged his resignation and his post-termination
obligations, including certain confidentiality, non-competition
and non-solicitation obligations. Additionally, in consideration
for his executing the general release attached to the letter
agreement, certain transfer restrictions on certain shares held
by Mr. Morris were waived by United America Indemnity, Ltd.
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Grants
of Plan-Based Awards During 2006
The following table shows information concerning grants of
plan-based awards made by United America Indemnity, Ltd. in 2006
to its principal executive officers, Chief Financial Officer,
and other named executive officers. These awards were grants
under our Share Incentive Plan, which is described in the
Proposal.
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Outstanding
Equity Awards at December 31, 2006
The following table shows information concerning outstanding
equity awards at December 31, 2006 made by United America
Indemnity, Ltd. to its principal executive officers, Chief
Financial Officer and other named executive officers.
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The following table shows information concerning each 2006
exercise of options and each vesting of restricted shares
awarded to our principal executive officers, Chief Financial
Officer, and other named executive officers.
None of our named executive officers participate in or have
account balances in qualified or nonqualified defined benefit
plans sponsored by us.
None of our named executive officers participate in any
nonqualified defined contribution or other deferred compensation
plans maintained by us.
Potential
Payments Upon Termination or
Change-in-Control
The following is a summary of the agreements and plans that
provide for payment to a named executive officer at, following,
or in connection with any termination, including resignation,
severance, retirement or constructive termination, or with a
change in control or a change in the named executive
officer’s responsibilities.
Kevin
L. Tate and Richard S. March
Under the employment agreements of Mr. Tate and
Mr. March (each, the “Executive”) with United
National Insurance Company (“UNIC”), UNIC may
terminate the Executive’s employment with or without cause,
upon his death or disability.
Under each employment agreement, “cause” means
(i) the Executive substantially failing to perform his
duties after notice from UNIC and failure to cure such violation
within 10 days of the notice (to the extent our Board of
Directors reasonably determines such failure to perform is
curable and subject to notice) or violating any of our material
policies, including our corporate governance and ethics
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guidelines, conflicts of interests policies and code of conduct
applicable to all of our employees or senior executives,
(ii) the engaging by the Executive in any malfeasance,
fraud, dishonesty or gross misconduct adverse to our interests,
(iii) the material violation by the Executive of certain
provisions of his employment agreement or share/option
agreements after notice from UNIC and a failure to cure such
violation within 10 days of the notice, (iv) a breach
by the Executive of any representation or warranty in his
employment agreement or share/option agreements, (v) the
determination by our Board of Directors that the Executive has
exhibited incompetence or gross negligence in the performance of
his duties, (vi) receipt of a final written directive or
order of any governmental body or entity having jurisdiction
over us requiring termination or removal of the Executive, or
(vii) the Executive being charged with a felony or other
crime involving moral turpitude.
Under each employment agreement, “disabled” means that
the Executive is disabled as certified by a licensed physician
selected by us and is unable to perform or complete his duties
for a period of 180 consecutive days or 180 days within any
twelve-month period.
The agreement also provides that the Executive may elect to
forego separation payments and certain equity awards and in
return no longer be subject to certain provisions of the
non-competition restrictions (such as those prohibiting engaging
in the specialty and casualty insurance business or any business
engaging in the insurance agency or brokerage business), but
still remain subject to the other non-compete provisions,
confidentiality provisions, and non-solicitation provisions of
the agreement.
Assuming Mr. Tate’s employment was terminated under
each of these circumstances on December 31, 2006, and
without taking into account any value assigned to
Mr. Tate’s covenant not to compete, such payments and
benefits would have had an estimated value of:
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Assuming Mr. March’s employment was terminated under
each of these circumstances on December 31, 2006, and
without taking into account any value assigned to
Mr. March’s covenant not to compete, such payments and
benefits would have had an estimated value of:
David
R. Whiting
Under Mr. Whiting’s employment agreement with Wind
River Insurance Company (Bermuda), Ltd. (now known as Wind River
Reinsurance Company, Ltd., the “Company”), we may
terminate Mr. Whiting’s employment with or without
cause, upon his permanent disability or upon his death.
Mr. Whiting may terminate his employment with or without
good reason following 45 days’ written notice to us.
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Under Mr. Whiting’s employment agreement,
“cause” means any of (i) Mr. Whiting’s
substantially failing to perform his duties (other than as a
result of a permanent disability) after notice from the Company
and failure to cure such violation within 30 days of the
notice (to the extent our Board of Directors reasonably
determines such failure to perform is curable and subject to
notice) or violating any of our material policies, including our
corporate governance and ethics guidelines, conflicts of
interests policies and code of conduct applicable to all of our
employees or senior executives, (ii) the engaging by
Mr. Whiting in any malfeasance, fraud, dishonesty or gross
misconduct adverse to our interests, (iii) the material
violation by Mr. Whiting of certain provisions of his
employment agreement after notice from the Company and a failure
to cure such violation within 10 days of the notice,
(iv) a breach by Mr. Whiting of any representation or
warranty, (v) the determination by our Board of Directors
that Mr. Whiting has exhibited incompetence or gross
negligence in the performance of his duties, (vi) the
receipt of a final written directive or order of any
governmental body or entity requiring termination or removal of
Mr. Whiting,
and/or
(vii) Mr. Whiting being charged with a felony or other
crime involving moral turpitude.
Under Mr. Whiting’s employment agreement,
“permanent disability” means those circumstances where
Mr. Whiting is unable to continue to perform the usual
customary duties of his assigned job for a period of six
consecutive months or for 180 days in any six-month period
because of physical, mental or emotional incapacity resulting
from injury, sickness or disease.
Under Mr. Whiting’s employment agreement, “good
reason” means (i) a material reduction in the duties
or responsibilities of Mr. Whiting such that he is no
longer serving as an executive of the Company, (ii) a
reduction in his salary as in effect immediately prior to such
change; (iii) any requirement by us that Mr. Whiting
be based anywhere other than Bermuda; or (iv) the failure
by us to obtain an assumption agreement from any successor to
us. Mr. Whiting is required to notify the Company of his
intention to resign for good reason within 45 days of the
first occurrence of the event or action which constitutes good
reason. The Company then has 30 days to cure such event
giving rise to good reason. Mr. Whiting’s failure to
object to an event or action that constituted good reason within
such 45 day period will preclude him from alleging that
such event constituted good reason following this period.
Assuming Mr. Whiting’s employment was terminated under
each of these circumstances on December 31, 2006, and
without taking into account any value assigned to
Mr. Whiting’s covenant not to compete, such payments
and benefits would have had an estimated value of:
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The following table provides compensation information for the
one year period ended December 31, 2006 for each member of
our Board of Directors.
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Saul A. Fox and Stephen A. Cozen comprise the Compensation
Committee. Saul A. Fox is and was during 2006 a member of the
Compensation Committee. From February 2007 through June 2007,
Mr. Fox served as our Chief Executive Officer. No other
member of the Compensation Committee is or was during 2006 an
employee, or is or ever has been an officer of United America
Indemnity, Ltd. or its subsidiaries. No executive officer of
United America Indemnity, Ltd. served as a director or a member
of the compensation committee of another company, one of whose
executive officers serves as a member of our Board of Directors
or the Compensation Committee.
The table on the following page sets forth certain information
concerning the beneficial ownership of our common shares as of
December 14, 2007, including the percentage of our total
voting power such shares represent on an actual basis, by:
As of December 14, 2007, the following share capital of
United America Indemnity, Ltd. was issued and outstanding:
Based on the foregoing, and assuming each Class B common
share is converted into one Class A common share, as of
December 14, 2007, there would have been 35,144,513
Class A common shares issued and outstanding.
Except as otherwise set forth in the footnotes to the table, to
our knowledge each beneficial owner has the sole power to vote
and dispose all shares held by that beneficial owner.
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The information contained in this Proxy Statement under the
headings “Compensation Committee Report,” and
“Audit Committee Report” is not “soliciting
material,” nor is it “filed” with the Securities
and Exchange Commission, nor shall the information be
incorporated by reference into any future filing under the
Securities Act or the Exchange Act, except to the extent that we
specifically incorporate it by reference in a filing.
Under the Securities and Exchange Commission rules, certain
shareholder proposals may be included in our proxy statement.
Any shareholder desiring to have such a proposal included in our
proxy statement for the Annual General Meeting to be held in
2008 must deliver a proposal that complies with
Rule 14a-8
under the Exchange Act to our Chief Executive Officer
c/o United
America Indemnity, Ltd., Walker House, 87 Mary Street, George
Town, Grand Cayman KY1-9002, Cayman Islands on or before
January 5, 2008.
Where a shareholder does not seek inclusion of a proposal in the
proxy material and submits a proposal outside of the process
described in
Rule 14a-8
of the Exchange Act, the proposal must be received by our
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Chief Executive Officer
c/o United
America Indemnity, Ltd., Walker House, 87 Mary Street, George
Town, Grand Cayman KY1-9002, Cayman Islands on or before
March 20, 2008, or it will be deemed “untimely”
for purposes of
Rule 14a-4(c)
under the Exchange Act and, therefore, the proxies will have the
right to exercise discretionary authority with respect to such
proposal.
Our management knows of no matters to be presented at the
Extraordinary General Meeting other than those set forth above
and customary procedural matters. If any other matters should
properly come before the meeting, however, the enclosed proxy
confers discretionary authority with respect to these matters.
Some banks, brokers, and other nominee record holders may be
participating in the practice of “householding” proxy
statements. This means that only one copy of our proxy statement
may have been sent to multiple shareholders in your household.
We will promptly deliver a separate copy of our proxy statement
to you if you send a written request to our Chief Executive
Officer
c/o United
America Indemnity, Ltd., Walker House, 87 Mary Street, George
Town, Grand Cayman KY1-9002, Cayman Islands or request a copy by
calling
(345) 949-0100.
If you want to receive separate copies proxy statement in the
future, or if you are receiving multiple copies and would like
to receive only one copy for your household, you should contact
your bank, broker or other nominee record holder, or you may
contact us at the above address or phone number.
* * *
December 31,
2007
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Appendix
A
UNITED AMERICA INDEMNITY,
LTD.
This AMENDMENT No. 5, dated December 14, 2007, amends
the terms and conditions of the United America Indemnity, Ltd.
Share Incentive Plan dated 5 September 2003, as amended
(the “Plan”).
WHEREAS, the Directors of United America Indemnity, Ltd., an
exempted company incorporated with limited liability under the
law of the Cayman Islands (the “Company”), desire to
effect the revisions to the Plan set forth herein effective as
of the date hereof, subject to the approval of the
Company’s shareholders.
NOW, THEREFORE, the Plan is amended as follows:
1. Section 2(e) of the Plan is amended in its entirety
to read as follows:
“(e) subject to Section 8 hereof, modify, amend or
adjust the terms and conditions of any Award, at any time or
from time to time, including, but not limited to, the authority
to either (1) reduce the Exercise Price of an outstanding
Stock Option or Other Share Based Award or
(2) simultaneously cancel Stock Options for which the
Exercise Price exceeds the then current Fair Market Value of the
underlying Common Shares and grant a new Award with an Exercise
Price equal to or greater than the then current Fair Market
Value of the underlying Common Shares.”
2. The second paragraph of Section 8 of the Plan is
amended in its entirety to read as follows:
“The Board or the Committee may at any time amend, suspend,
or terminate the Plan, prospectively or retroactively; provided,
however, that, unless otherwise required by law or specifically
provided herein, no amendment, suspension or termination shall
be made that is adverse to the rights of a Participant under an
Award theretofore granted without such Participant’s
consent; provided, further, without the approval of the
shareholders of the Company in accordance with applicable law,
to the extent required by the applicable provisions of
Rule 16b-3
or Section 162(m) of the Code or the rules of any exchange
or system on which the Common Shares are listed or traded, or,
with regard to Incentive Stock Options, Section 422 of the
Code, no amendment may be made which would (i) increase the
aggregate number of Common Shares that may be issued under this
Plan or the maximum individual Participant limitations under
Section 3; (ii) change the classification of
Participants eligible to receive Awards under this Plan;
(iii) extend the maximum Stock Option period or
(iv) require shareholder approval in order for the Plan to
continue to comply with the applicable provisions of
Rule 16b-3
or Section 162(m) of the Code, or, with regard to Incentive
Stock Options, Section 422 of the Code.”
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Appendix
B
UNITED
AMERICA INDEMNITY, LTD.
(As amended through May 25, 2007)
Section 1. Purpose;
Definitions
The purpose of the Plan is to give United America Indemnity,
Ltd., a Cayman Islands exempted company formed with limited
liability whose office is located
c/o Walkers
SPV Limited, Walker House, 87 Mary Street. Grand Cayman
KY1-9002, Cayman Islands (the “Company”), and its
Affiliates (as defined below) a competitive advantage in
attracting, retaining and motivating officers, employees,
consultants and non-employee directors, and to provide the
Company and its Affiliates with a share plan providing
incentives linked to the financial results of the Company’s
businesses and increases in shareholder value.
For purposes of the Plan, the following terms are defined as set
forth below:
“Affiliate” of a Person means a Person,
directly or indirectly, controlled by, controlling or under
common control with such Person and with respect to the Company,
includes without limitation its Subsidiaries and its Parent.
“Award” means any award under this Plan of any
Stock Option, Restricted Share, or Other Share-Based Award.
“Award Agreement” means a Restricted Share
Agreement or an Option Agreement. An Award Agreement may include
provisions included in an employment or consulting agreement of
the Company or any of its Affiliates.
“Board” means the Board of Directors of the
Company.
“California Participant” means, in the case of
individuals, any Participant residing in California or working
primarily in the California offices of the Company or an
Affiliate of the Company, or, in the case of an entity, any
Participant having its principal place of business in California.
“Cause” means, unless otherwise provided in the
Participant’s employment or consulting agreement with the
Company or any of its Affiliates, that (i) the Participant
is charged with or has committed a felony or other crime
involving moral turpitude or conduct adverse to the interests of
the Company, (ii) the Participant commits fraud,
embezzlement or other conduct adverse to the interests of the
Company or its Affiliates, (iii) the Participant
substantially fails to perform his duties or obligations to the
Company or its Affiliates, provided that he has been given
notice and an opportunity to cure not to exceed thirty
(30) days under circumstances in which the Board
determines, in its sole discretion, that such failure to perform
is in fact curable, or (iv) the Participant violates
Company policies or policies of its Affiliates or materially
breaches any representation made to the Company or its
Affiliates.
“Code” means the Internal Revenue Code of 1986,
as amended from time to time, and any successor thereto.
“Committee” means (a) (i) before an IPO or
date any class of common equity securities of the Company are
required to be registered under Section 12 of the Exchange
Act (a “Registration Event”), a committee (or
subcommittee) of the Board that the Board may designate to
administer or make decisions required to be made under the Plan,
and (ii) after a Registration Event, such committee (or
subcommittee) of the Board that the Board may designate to
administer or make decisions required to be made under the Plan,
whose membership shall be composed of not less than two
Non-Employee Directors and, to the extent required by
Section 162(m) of the Code and any regulations thereunder,
an “outside director” as defined under
Section 162(m) of the Code, each of whom shall be appointed
by and serve at the pleasure of the Board or (b) if at any
time no such committee of the Board is so designated by the
Board, the Board.
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“Common Shares” means the Class A common
shares, par value $0.0001 per share, of the Company having the
rights, preferences and privileges set out in the Company’s
Articles of Association, as amended from time to time.
“Company” has the meaning set forth in the
preamble hereto and any successors by operation of law.
“Disability” means permanent and total
disability as defined in Section 22(e)(3) of the Code. A
Disability shall only be deemed to occur at the time of the
determination by the Committee of the Disability.
“Employment” means, unless otherwise defined in
an applicable Award Agreement or employment or consulting
agreement, employment with, or service as a director or officer
of, or as a consultant to, the Company or any of its Affiliates.
“Exchange Act” means the Securities Exchange
Act of 1934, as amended from time to time, and any successor
thereto.
“Exercise Price” has the meaning set forth in
Section 5(a).
“Fair Market Value” of the Common Shares means
(unless otherwise provided in the applicable Award Agreement),
as of any given date, the closing price on the applicable date
of the Common Shares on the Nasdaq National Market or, if not
listed on such market, on any other national securities exchange
on which the Common Shares are listed or, if not so listed, on
The Nasdaq Stock Market, Inc. and, if not so quoted, the average
of the closing bid and ask prices for the Common Shares in the
over-the-counter market on which the Common Shares are actively
traded. If such sales prices are not so available or the Common
Shares are not actively traded, as determined by the Committee
in its sole discretion, the Fair Market Value of the Common
Shares shall mean the fair value as determined by the Committee
in light of all circumstances, including comparable recent bona
fide sales of applicable or similar securities. For purposes of
the grant of any Stock Option, the applicable date shall be the
date on which the Stock Option is granted.
“Family Member” means, solely to the extent
provided for in Rule 701 under the Securities Act or,
following the filing of a Securities Act
Form S-8
with respect to the Plan, solely to the extent provided for in
Securities Act
Form S-8,
any child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law,
father-in-law,
son-in-law,
daughter-in-law,
brother-in-law,
or
sister-in-law,
including adoptive relationships, any person sharing the
employee’s household (other than a tenant or employee), a
trust in which these persons have more than fifty percent (50%)
of the beneficial interest, a foundation in which these persons
(or the employee) control the management of assets, and any
other entity in which these persons (or the employee) own more
than fifty percent (50%) of the voting interests or as otherwise
defined in Rule 701 under the Securities Act or Securities
Act
Form S-8,
as applicable.
“FPC” means Fox Paine & Company, LLC,
its subsidiaries and related entities (including without
limitation Fox Paine Capital, LLC, Fox Paine Capital Fund, L.P.,
Fox Paine Capital Fund II GP, LLC, Fox Paine Capital
Fund II L.P., Fox Paine Capital Fund II International,
L.P., Fox Paine Capital Fund II Co-Investors International,
L.P.), and all Persons that are partners or shareholders or
members in any such related entities) and all partners, members,
directors, employees, shareholders and agents of any of the
foregoing.
“Incentive Stock Option” means a Stock Option
intended to qualify as an incentive stock option within the
meaning of Section 422 of the Code.
“IPO” means the consummation of a registered
underwritten public offering or offerings of Common Shares or
other equity security of the Company after the date hereof with
gross proceeds to the Company in the aggregate of at least
$60 million.
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“Management Shareholders’ Agreement” means
the Management Shareholders’ Agreement, dated as of
September 5, 2003, among the Company, the FPC Stockholder,
and the Management Investors, as defined therein, as amended
from time to time.
“Non-Employee Director” means a member of the
Board who qualifies as a Non-Employee Director (as defined in
Rule 16b-3(b)(3)
as promulgated by the SEC under the Exchange Act, or any
successor definition adopted by the SEC).
“Nonstatutory Stock Option” means a Stock
Option not intended to qualify as an Incentive Stock Option.
“Option Agreement” means an agreement setting
forth the terms and conditions of a Stock Option Award.
“Other Share-Based Award” means any Award
granted under Section 7.
“Parent” means any parent corporation of the
Company within the meaning of Section 424(e) of the Code.
“Participant” has the meaning set forth in
Section 4.
“Performance Criteria” has the meaning set
forth in Exhibit A.
“Performance Goal” means the objective
performance goals established by the Committee and, if desirable
for purposes of Section 162(m) of the Code, based on one or
more Performance Criteria.
“Performance Period” means three consecutive
fiscal years of the Company, or such shorter period as
determined by the Committee in its discretion.
“Person” means an individual, corporation,
partnership, limited liability company, joint venture, trust,
unincorporated organization, government (or any department or
agency thereof) or other entity.
“Plan” means the United America Indemnity, Ltd.
Share Incentive Plan, as set forth herein and as hereinafter
amended from time to time.
“Plan Shares” has the meaning set forth in
Section 10(a).
“Restricted Shares” means an Award of Common
Shares granted under Section 6.
“Restricted Share Purchase Agreement” means an
agreement setting forth the terms and conditions of an Award of
Restricted Shares.
“Retirement” means a Participant’s
Termination of Employment without Cause at or after age
fifty-five (55).
“SEC” means the Securities and Exchange
Commission or any successor agency.
“Securities Act” means the Securities Act of
1933, as amended from time to time, and any successor thereto.
“Share Award” means an Award consisting of
either shares of Common Shares or a right to receive Common
Shares in the future, each pursuant to Section 6 of the
Plan.
“Stock Option” means any Nonstatutory Stock
Option or Incentive Stock Option.
“Subsidiary” means any subsidiary corporation
of the Company within the meaning of Section 424(f) of the
Code.
“Termination of Employment” means (i) a
termination of service (for reasons other than a military or
personal leave of absence granted by the Company) of a
Participant from the Company or an Affiliate, unless the
Participant thereupon becomes employed by the Company or another
affiliate.
In addition, certain other terms used herein have definitions
otherwise ascribed to them herein.
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Section 2. Administration
This Plan shall be administered by the Committee.
Among other things, the Committee shall have the authority,
subject to the terms of the Plan, to:
(a) select the Participants to whom Awards may from time to
time be granted and designate the Affiliates of the Company for
purposes of the Plan;
(b) determine whether and to what extent Awards are to be
granted hereunder;
(c) determine the number of shares of Common Shares to be
covered by each Award granted hereunder;
(d) determine the terms and conditions of any Award granted
hereunder (including, but not limited to, the Exercise Price
(subject to Section 5(a)), any vesting conditions,
restrictions or limitations (which may be related to the
performance of the Participant, the Company or any of its
Affiliates)) and any acceleration of vesting or waiver or
cancellation regarding any Award and the shares of Common Shares
relating thereto, based on such factors as the Committee shall
determine;
(e) subject to Section 8 hereof, modify, amend or
adjust the terms and conditions of any Award, at any time or
from time to time; provided, however, that the Committee may
not, without shareholder approval, either (1) reduce the
Exercise Price of an outstanding Stock Option or Other Share
Based Award or (2) simultaneously cancel Stock Options for
which the Exercise Price exceeds the then current Fair Market
Value of the underlying Common Shares and grant a new Award with
an Exercise Price equal to or greater than the then current Fair
Market Value of the underlying Common Shares.
(f) determine to what extent and under what circumstances
Common Shares and other amounts payable with respect to an Award
shall be deferred;
(g) adopt, alter and repeal such administrative rules,
guidelines and practices governing the Plan as it shall from
time to time deem advisable;
(h) interpret the terms and provisions of the Plan and any
Award issued under the Plan (and any agreement, including, but
not limited to, an Award Agreement relating thereto);
(i) adopt any sub-plans applicable to residents of any
specified jurisdiction as it deems necessary or appropriate in
order to comply with or take advantage of any tax laws or other
laws applicable to the Company, its Affiliates, or to
Participants or to otherwise facilitate the administration of
the Plan, which sub-plans may include additional restrictions or
conditions applicable to Awards or Plan Shares acquired upon
exercise of Awards; and
(j) otherwise supervise and administer of the Plan.
The Committee may act only by a majority of its members then
serving thereon, except that, if permissible under applicable
law, the Committee may designate or allocate all or any portion
of its responsibilities and powers to any one or more of their
number or any officer of the Company. Any such designation or
allocation may be revoked by the Committee at any time.
Any dispute or disagreement which may arise under, or as a
result of, or in any way relate to, the interpretation,
construction or application of the Plan or an Award (or related
Award Agreement) granted hereunder shall be determined and
resolved by the Committee. Any determination or resolution made
by the Committee pursuant to the provisions of the Plan with
respect to the Plan, any Award or Award Agreement shall be made
in the sole discretion of the Committee and, with respect to an
Award, at the time of the grant of the Award or, unless in
contravention of any express term of the Plan or the Award
Agreement, at any time thereafter. Except as otherwise set forth
herein or in any Award Agreement, all decisions made by the
Committee in accordance with the terms of this Plan or the Award
Agreements shall be final, conclusive and binding on all
Persons, including the Company, its Affiliates and the
Participants.
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To the maximum extent permitted by applicable law and the
Articles of Association of the Company and to the extent not
covered by insurance directly insuring such person, each officer
and member or former member of the Committee or the Board shall
be indemnified and held harmless by the Company against any cost
or expense (including reasonable fees and expenses of counsel
reasonably acceptable to the Committee) or liability (including
any sum paid in settlement of a claim with the approval of the
Committee), and advanced amounts necessary to pay the foregoing
at the earliest time and to the fullest extent permitted,
arising out of any act or omission to act in connection with the
administration of this Plan, except to the extent arising out of
such officer’s, member’s or former member’s own
fraud or bad faith. Such indemnification shall be in addition to
any rights of indemnification the employees, officers, directors
or members or former officers, directors or members may have
under applicable law or under the Articles of Association of the
Company or any Affiliate. Notwithstanding anything else herein,
this indemnification will not apply to the actions or
determinations made by an individual with regard to Awards
granted to him or her under this Plan.
Section 3. Common
Shares Subject to Plan
The total number of Common Shares reserved and available for
grant under the Plan shall be 5,000,000 (subject to any increase
or decrease pursuant to this Section 3). Shares subject to
an Award under the Plan may be authorized and unissued shares of
Common Shares or Common Shares held in or acquired for the
treasury of the Company or both.
If any Restricted Shares or Other Share-Based Awards are
forfeited to the Company or if any Stock Option terminates
without being exercised, the shares subject to such Awards shall
again be available for distribution in connection with Awards
under the Plan. In addition, in determining the number of Common
Shares available for Awards other than Incentive Stock Options,
if Common Shares have been delivered or exchanged by a
Participant as full or partial payment to the Company for
payment of the exercise price, or for payment of withholding
taxes, or if the number of Common Shares otherwise deliverable
has been reduced for payment of the exercise price or for
payment of withholding taxes, the number of Common Shares
exchanged or reduced as payment in connection with the exercise
or for withholding shall again be available for purposes of
Awards other than Incentive Stock Options under this Plan.
The total number of shares of Common Shares subject to any Stock
Option which may be granted under this Plan to each Participant
on and after a Registration Event shall not exceed
800,000 shares (subject to any increase or decrease
pursuant to this Section 3) during each fiscal year of
the Company. The individual Participant limitations set forth in
this Section 3 shall be cumulative; that is, to the extent
that Common Shares for which Options are permitted to be granted
to a Participant pursuant to this Section during a fiscal year
of the Company are not covered by a grant of an Option in the
Company’s fiscal year, such Common Shares available for
grants to such Participant automatically increase in the
subsequent fiscal years during the term of the Plan until used.
No individual may be granted in any fiscal year of the Company
Other Share-Based Awards that are contingent upon the attainment
of Performance Goals covering more than 400,000 Shares (as
such number may be adjusted from time to time).
In the event any merger, reorganization, consolidation,
recapitalization, spin-off, stock dividend, share split, reverse
share split, extraordinary distribution with respect to the
Common Shares, any sale or transfer of all or part of the
Company’s assets or business or other change in corporate
structure affecting the Common Shares occurs or is proposed
(such an event, an “Equity Restructuring”), the
Committee or the Board shall, effective as of the time of the
Equity Restructuring, make such substitution or adjustment in
the aggregate number and kind of shares or other property
reserved for issuance under the Plan or any limitations under
the Plan, in the number, kind and Exercise Price (as defined
herein) of shares or other property subject to outstanding Stock
Options, in the number and kind of shares or other property
subject to Restricted Share Awards or other Awards,
and/or such
other substitution or adjustments, in each case as the Committee
or the Board shall determine in its discretion to be
appropriate, such that the value of the adjusted shares or other
property immediately prior to the Equity Restructuring is the
same as the value of such adjusted shares or other property
immediately following the Equity Restructuring, provided that,
in no case shall such determination adversely affect in any
material respect the rights of a Participant hereunder or under
any Award
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Agreement. In connection with any event described in this
paragraph, the Committee may provide, in its sole discretion,
for the cancellation of any outstanding Stock Option and payment
in cash or other property in exchange therefor.
In the event of a merger or consolidation in which the Company
is not the surviving entity or in the event of any transaction
that results in the acquisition of substantially all of the
Company’s outstanding Common Shares by a single person or
entity or by a group of persons
and/or
entities acting in concert, or in the event of the sale or
transfer of all or substantially all of the Company’s
assets (all of the foregoing being referred to as
“Acquisition Events”), then the Committee may, in its
sole discretion, terminate all outstanding Stock Options,
effective as of the date of the Acquisition Event, by delivering
notice of termination to each Participant at least 20 days
prior to the date of consummation of the Acquisition Event, in
which case during the period from the date on which such notice
of termination is delivered to the consummation of the
Acquisition Event, each such Participant shall have the right to
exercise in full all of his or her Stock Options that are then
outstanding (without regard to any limitations on exercisability
otherwise contained in the Stock Option agreements), but any
such exercise shall be contingent upon and subject to the
occurrence of the Acquisition Event, and, provided that, if the
Acquisition Event does not take place within a specified period
after giving such notice for any reason whatsoever, the notice
and exercise pursuant thereto shall be null and void.
Section 4. Participants
The following persons shall be “Participants” eligible
to be granted Awards under the Plan: (i) Persons who are
officers, directors, employees or consultants of the Company
and/or any
of its Affiliates; (ii) Persons who at the time of grant
may be performing (or subject to being required to perform)
services for the Company or any of its Affiliates (including,
without limitation, officers, directors, employees, Affiliates
and consultants of FPC); and (iii) Non-Employee Directors
of the Company and its Affiliates who are responsible for or
contribute to the management, growth and profitability of the
business of the Company and its Affiliates. However, Incentive
Stock Options may be granted only to employees of the Company
its Subsidiaries or its Parent.
Section 5. Stock
Options
The Board or the Committee as its duly authorized delegate shall
have the authority to grant to Participants Stock Options. Stock
Options shall be evidenced by Option Agreements, which shall
include such terms and provisions as the Committee may determine
from time to time. The grant of a Stock Option shall occur on
the date the Committee by resolution selects an individual to
receive a grant of a Stock Option, determines the number of
Common Shares to be subject to such Stock Option to be granted
to such individual and specifies the terms and provisions of the
Stock Option, or on such other date as the Committee may
determine. The Company shall notify a Participant of any grant
of a Stock Option, and a written Option Agreement shall be duly
executed and delivered by the Company to the Participant. Such
Option Agreement shall become effective upon execution and
delivery by the Participant to the Company.
Stock Options shall be subject to the following terms and
conditions, and shall contain such additional terms and
conditions as the Committee shall deem desirable:
(a) Exercise Price. The price per
Common Share purchasable under a Stock Option shall be such
price as determined by the Committee and set forth in the Option
Agreement (the “Exercise Price”); provided that the
Exercise Price shall not be less than the nominal or par value
of the Common Shares, and:
(i) in the case of an Incentive Stock Option
(A) granted to an employee of the Company, its Subsidiaries
or its Parent who, at the time of the grant of such Incentive
Stock Option, owns shares representing more than ten percent
(10%) of the voting power of all share classes of the Company or
its Subsidiaries or its Parent (a “Ten
Percent Shareholder”), the per share Exercise Price
shall be no less than one hundred ten percent (110%) of the Fair
Market Value per share on the date of grant; and
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(B) granted to any employee of the Company, its
Subsidiaries or its Parent other than a Ten
Percent Shareholder, the per share Exercise Price shall be
no less than one hundred percent (100%) of the Fair Market Value
per share on the date of grant.
(ii) in the case of a Nonstatutory Stock Option, granted to
a California Participant
(A) who is a Ten Percent Shareholder, the per share
Exercise Price shall be no less than one hundred ten percent
(110%) of the Fair Market Value per share on the date of the
grant; and
(B) who is not a Ten Percent Shareholder, the per
share Exercise Price shall be no less than eighty-five percent
(85%) of the Fair Market Value per share on the date of grant.
(iii) in the case of any other Stock Option granted, the
per share Exercise Price as determined by the Committee.
(b) Option Term. The term of each
Stock Option shall be fixed by the Committee provided, however,
that no Stock Option shall be exercisable more than ten
(10) years after the date such Stock Option is granted.
Absent any such term being fixed by the Committee, pursuant to
an Option Agreement or otherwise, such term shall be ten
(10) years; provided, however, that the term of an
Incentive Stock Option granted to a Ten Percent Shareholder
shall not exceed five (5) years.
(c) Exercisability. Except as
otherwise provided herein, Stock Options shall be exercisable at
such time or times and subject to such terms and conditions as
shall be determined by the Committee; provided that Stock
Options granted to California Participants (other than an
officer, director, manager or consultant) shall become
exercisable at a rate of no less than twenty percent (20%) per
year over five (5) years from the date the Stock Options
are granted. If the Committee provides that any Stock Option is
exercisable only in installments, the Committee may at any time
waive such installment exercise provisions, in whole or in part,
based on such factors as the Committee may determine. In
addition, the Committee may at any time accelerate the
exercisability of any Stock Option.
(d) Method of Exercise. Subject to
the provisions of this Section 5, vested Stock Options may
be exercised, in whole or in part, at any time during the option
term by giving written notice of exercise to the Company
specifying the number of Common Shares subject to the Stock
Option to be purchased.
Such notice shall be accompanied by payment in full of the
Exercise Price per share by certified or bank check or such
other instrument or method of payment as the Committee may
accept. Unless determined otherwise by the Committee at the time
of grant and set forth in the Option Agreement, payment, in full
or in part, may also be made in the form of fully vested Common
Shares (other than Restricted Shares) already owned by the
Participant (for at least six months or such other period
necessary to avoid a charge, for accounting purposes, against
the Company’s earnings as reported in the Company’s
financial statements if acquired upon exercise of a Stock Option
or received upon the lapse of restrictions on an Award of
Restricted Shares) of the same class as the Common Shares
subject to the Stock Option (based on the Fair Market Value of
the Common Shares on the date the Stock Option is exercised) or,
if the Common Shares are traded on a national securities
exchange, The Nasdaq Stock Market, Inc. or quoted on a national
quotation system sponsored by the National Association of
Securities Dealers, and the Committee authorizes, to the extent
permitted by law, through a procedure whereby the Participant
delivers irrevocable instructions to a broker reasonably
acceptable to the Committee to deliver promptly to the Company
an amount equal to the purchase price.
No Common Shares shall be issued until full payment therefore
has been made. Except as otherwise provided in the Management
Shareholders’ Agreement, if the Participant is a party to
the Management Shareholders’ Agreement, and subject to
Sections 10(b), 10(e) and 10(h) hereof and the applicable
Option Agreement, a Participant shall have all of the rights of
a shareholder of the Company holding the class or series of
Common Shares that is subject to such Stock Option (including,
if applicable, the right to vote the shares and the right to
receive dividends and distributions), when the Participant has
given written notice of exercise, has paid in full for such
shares and, if requested, has given the representations referred
to in Section 10(b) or as may otherwise be required in
accordance with Sections 10(e) and 10(h).
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(e) Nontransferability of Stock
Options. No Stock Option shall be
transferable by the Participant other than (i) by will or
by the laws of descent and distribution, or (ii) as
otherwise expressly permitted under the applicable Option
Agreement, to a Family Member, subject to the restrictions in
the Management Shareholders’ Agreement. All Stock Options
granted to California Participants shall not be transferable by
such Participants except as permitted by the California Code of
Regulations Section 260.140.41(d). All Stock Options
granted to an individual shall be exercisable, subject to the
terms of the Plan, during the Participant’s lifetime, only
by the Participant or any Person to whom such Stock Option is
transferred pursuant to the preceding sentence, including such
Participant’s guardian, legal representative and other
transferee. The term “Participant” includes the estate
of the Participant or the legal representative of the
Participant named in the Option Agreement and any Person to whom
an Option is otherwise transferred in accordance with this
Section 5(e), by will or the laws of descent and
distribution; provided, however, that references herein to
Employment of a Participant or termination of Employment of a
Participant shall continue to refer to the Employment or
termination of Employment of the applicable grantee of an Award
hereunder.
(f) Termination of Employment.
(i) Termination for Any Reason (other than
Cause). Except as otherwise determined by the
Committee and expressly provided in the applicable Option
Agreement or applicable employment or consulting agreement, upon
the termination of the Participant’s Employment for any
reason (other than Cause), including death or Disability,
vesting ceases, the term of unvested stock options lapses and
vested and unvested options will become unexercisable, except
that such Participant shall have ninety (90) days to
exercise the portion of the Participant’s Stock Option that
is vested on the date of the Participant’s termination of
Employment. In no event shall the Committee grant a Stock Option
to a California Participant that provides the California
Participant with less than thirty (30) days after the date
of such California Participant’s termination of Employment
if such termination was caused by other than death, Disability
or Cause to exercise the Stock Option with respect to any vested
shares. Furthermore, in no event shall the Committee grant a
Stock Option to a California Participant that provides the
California Participant with less than six months after the
California Participant’s termination due to death or
Disability to exercise the Stock Option with respect to any
vested shares. Notwithstanding anything contained herein to the
contrary, the Participant shall not be permitted to exercise any
Stock Option at a time beyond the initial option term.
(ii) Termination for Cause. All outstanding and
unexercised Stock Options, whether vested or unvested, as of the
time the Participant is notified that his or her Employment is
terminated for Cause or at the time the Participant voluntarily
terminates employment within ninety (90) days after the
occurrence of an event that would be grounds for a termination
for Cause, will be cancelled immediately.
Section 6. Restricted
Shares
The Committee shall determine the Participants to whom and the
time or times at which grants of Restricted Shares will be
awarded, the number of shares to be awarded to any Participant,
the purchase price, the conditions for vesting, the time or
times within which such Awards may be subject to cancellation,
repurchase and restrictions on transfer and any other terms and
conditions of the Awards (including provisions (i) relating
to placing legends on certificates representing Restricted
Shares, (ii) permitting the Company to require that
Restricted Shares be held in custody by the Company with a share
transfer certificate from the owner thereof until restrictions
lapse and (iii) relating to any rights to repurchase
Restricted Shares on the part of the Company), in addition to
those contained in the Management Shareholders’ Agreement,
if the Participant is a party to the Management
Shareholders’ Agreement. Each Participant receiving
Restricted Shares shall be issued a share certificate in respect
of such Restricted Shares, unless the Committee elects to use
another system, such as book entries by the transfer agent, as
evidencing ownership of shares of Restricted Shares. Unless
otherwise specified in the Restricted Share Agreement, upon a
Participant’s termination for any reason during the
relevant restriction period, all unvested Restricted Shares will
be forfeited to the Company, without compensation.
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Any right of the Company to repurchase Restricted Shares from a
California Participant upon termination of Employment shall be
at a repurchase price that is at least equal to the lesser of
(x) the Fair Market Value of such shares on the date of
termination of Employment (provided that such repurchase right
shall terminate as of the Registration Event) or (y) the
original purchase price, provided that in the case of
(y) such repurchase right lapses at a rate of no less than
twenty percent (20%) of the shares per year over five years from
the date the Restricted Shares are granted; and provided that in
the case of both (x) and (y) such repurchase right is
exercised within ninety (90) days of termination of
Employment. Furthermore, in addition to the foregoing
restrictions, Restricted Shares held by an officer, director or
consultant of the Company or one of its Affiliate may be subject
to additional or greater restrictions and any restrictions set
forth in the Company’s Articles of Association. The terms
and conditions of Restricted Share Awards shall be set forth in
a Restricted Share Agreement, which shall include such terms and
provisions as the Committee may determine from time to time, and
which shall be duly executed and delivered by the Company to the
Participant and become effective upon execution and delivery by
the Participant to the Company. Except as provided in this
Section 6, the Restricted Share Agreement, the Management
Shareholders’ Agreement and any other relevant agreements,
the Participant shall have, with respect to the Restricted
Shares, all of the rights of a shareholder of the Company
holding the class or series of Common Shares that is the subject
of the Restricted Share Award, including, if applicable, the
right to vote the shares and, subject to the following sentence,
the right to receive any cash dividends or distributions (but,
subject to the third paragraph of Section 3, not the right
to receive non-cash dividends or distributions). If so
determined by the Committee in the applicable Restricted Share
Agreement, cash dividends and distributions on the class or
series of Common Shares that is the subject of the Restricted
Share Award shall be automatically deferred and reinvested in
additional Restricted Shares, held subject to the vesting of the
underlying Restricted Shares, or held subject to meeting
conditions applicable only to dividends and distributions.
Section 7. Other
Share-Based Awards
The Committee is authorized to grant to Participants Other
Share-Based Awards that are payable in, valued in whole or in
part by reference to, or otherwise based on or related to Common
Shares, including but not limited to, Common Shares awarded
purely as a bonus and not subject to any restrictions or
conditions, Common Shares in payment of the amounts due under an
incentive or performance plan sponsored or maintained by the
Company or a Subsidiary, share appreciation rights (either
separately or in tandem with Options), share equivalent units,
and Awards valued by reference to book value of Common Shares.
Subject to the provisions of this Plan, the Committee shall have
authority to determine the persons to whom and the time or times
at which such Awards shall be made, the number of Common Shares
to be awarded pursuant to or referenced by such Awards, and all
other conditions of the Awards. Grants of Other Share-Based
Awards may be subject to such conditions, restrictions and
contingencies as the Committee may determine which may include,
but are not limited to, continuous service with the Company or
an Affiliate
and/or the
achievement of Performance Goals. Except as provided in the last
sentence of this paragraph, the criteria that may be used by the
Committee in granting Other Share-Based Awards contingent on
Performance Goals shall consist of the attainment of one or more
of the Performance Goals. The Committee may select one or more
Performance Goals for measuring performance and the measuring
may be stated in absolute terms or relative to comparable
companies. The measurements used in Performance Goals set under
the Plan shall be determined in accordance with Generally
Accepted Accounting Principles (“GAAP”), except, to
the extent that any objective Performance Goals are used, if any
measurements require deviation from GAAP, such deviation shall
be at the discretion of the Committee at the time the
Performance Goals are set or at such later time to the extent
permitted under Section 162(m) of the Code. Other
Performance Goals may be used to the extent such goals satisfy
Section 162(m) of the Code or the Other-Share Based Award
is not intended to satisfy the requirements of
Section 162(m) of the Code.
Other Share-Based Awards made pursuant to this Section 7
are subject to the following terms and conditions:
(a) Dividends. Unless otherwise
determined by the Committee at the time of Award, subject to the
provisions of the Award agreement and this Plan, the recipient
of an Award under this Section 7 shall be entitled to
receive, currently or on a deferred basis, dividends or dividend
equivalents with respect to the
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number of Common Shares covered by the Award, as determined at
the time of the Award by the Committee, in its sole discretion.
(b) Vesting. Any Award under this
Section 7 and any Common Shares covered by any such Award
shall vest or be forfeited to the extent so provided in the
Award agreement, as determined by the Committee, in its sole
discretion.
(c) Waiver of Limitation. In the
event of the Participant’s Retirement, Disability or death,
or in cases of special circumstances, the Committee may, in its
sole discretion, waive in whole or in part any or all of the
limitations imposed hereunder (if any) with respect to any or
all of an Award under this Article.
(d) Purchase Price. Common Shares
issued on a bonus basis under this Section 7 may be issued
for no cash consideration; Common Shares purchased pursuant to a
purchase right awarded under this Section 7 shall be priced
as determined by the Committee.
(e) Committee Certification. At
the expiration of the Performance Period, the Committee shall
determine and certify in writing the extent to which the
Performance Goals have been achieved.
Section 8. Term,
Amendment and Termination
This Plan will expire on September 5, 2013, ten years from
its adoption by the Board. Awards outstanding as of such date
shall not be affected or impaired by the expiration of the Plan
and shall be subject to the terms of the Plan.
The Board or the Committee may at any time amend, suspend, or
terminate the Plan, prospectively or retroactively; provided,
however, that, unless otherwise required by law or specifically
provided herein, no amendment, suspension or termination shall
be made that is adverse to the rights of a Participant under an
Award theretofore granted without such Participant’s
consent; provided, further, without the approval of the
shareholders of the Company in accordance with applicable law,
to the extent required by the applicable provisions of
Rule 16b-3
or Section 162(m) of the Code or the rules of any exchange
or system on which the Common Shares are listed or traded, or,
with regard to Incentive Stock Options, Section 422 of the
Code, no amendment may be made which would (i) increase the
aggregate number of shares of Common Shares that may be issued
under this Plan or the maximum individual Participant
limitations under Section 3; (ii) change the
classification of Participants eligible to receive Awards under
this Plan; (iii) decrease the minimum Exercise Price of any
Stock Option; (iv) extend the maximum Stock Option period
or (v) require shareholder approval in order for the Plan
to continue to comply with the applicable provisions of
Rule 16b-3
or Section 162(m) of the Code, or, with regard to Incentive
Stock Options, Section 422 of the Code.
The Committee may amend the terms of any Award theretofore
granted, prospectively or retroactively, but no such amendment
shall be made that is adverse to the rights of the Participant
thereunder without the Participant’s consent.
Section 9. Unfunded
Status of Plan
It is presently intended that the Plan constitute an
“unfunded” plan for incentive and deferred
compensation. The Committee may authorize the creation of trusts
or other arrangements to meet the obligations created under the
Plan to deliver Common Shares or make payments; provided,
however, that unless the Committee otherwise determines,
the existence of such trusts or other arrangements is consistent
with the “unfunded” status of the Plan.
Section 10. General
Provisions
(a) Awards and
Certificates. Shares of Restricted Shares and
Common Shares issuable upon the exercise of a Stock Option
(together, “Plan Shares”) shall be evidenced in such
manner as the Committee may deem appropriate, including book
entry registration or issuance of one or more share
certificates. Any certificate issued in respect of Plan Shares
shall be registered in the name of such Participant and shall
bear appropriate
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legends referring to the terms, conditions, and restrictions
applicable to such Award, substantially in the following form:
“The securities represented by this certificate have not
been registered under the Securities Act of 1933, as amended, or
under the securities laws of any state and may not be
transferred, sold or otherwise disposed of except while such a
registration is in effect or pursuant to an exemption from
registration under said Act and applicable state securities
laws.”
“The securities represented by this certificate are subject
to the terms and conditions set forth in a Management
Shareholders’ Agreement, dated as of September 5,
2003, as amended from time to time, copies of which may be
obtained from the issuer or from the holder of this security. No
transfer of such securities will be made on the books of the
issuer unless accompanied by evidence of compliance with the
terms of such agreement.”
Such Plan Shares may bear other legends to the extent the
Committee or the Board determines it to be necessary or
appropriate, including any required by the Management
Shareholders’ Agreement. If and when all restrictions
expire without a prior cancellation of the Plan Shares
theretofore subject to such restrictions, upon surrender of
legended certificates representing such shares new certificates
for such shares shall be delivered to the Participant without
the second legend listed above.
(b) Representations and
Warranties. The Committee may require each
Person purchasing or receiving Plan Shares to (i) represent
to and agree with the Company in writing that such Person is
acquiring the shares without a view to the distribution thereof
and (ii) make any other representations and warranties that
the Committee deems appropriate.
(c) Additional
Compensation. Nothing contained in the Plan
shall prevent the Company or any of its Affiliates from adopting
other or additional compensation arrangements for its employees.
(d) No Right of
Employment. Adoption of the Plan or grant of
any Award shall not confer upon any employee or any other
individual any right to continued Employment, nor shall it
interfere in any way with the right of the Company or any of its
Affiliates to terminate the Employment of any eligible
Participant at any time.
(e) Withholding Taxes. No later
than the date as of which an amount first becomes includible in
the gross income of a Participant for income tax purposes or
subject to Federal Insurance Contributions Act withholdings with
respect to any Award, including, without limitation, upon
exercise of any Stock Option, under the Plan, such Participant
shall pay to the Company or, if appropriate, one of its
Affiliates, or make arrangements satisfactory to the Committee
regarding the payment of, any United States federal, state or
local or foreign taxes of any kind required by law to be
withheld with respect to such amount. If approved by the
Committee, minimum required statutory withholding obligations
may be settled with Common Shares, including Common Shares that
are part of the Award that gives rise to the withholding
requirement. The obligations of the Company under the Plan shall
be conditional on such payment or arrangements, and the Company
and its Affiliates shall, to the extent permitted by law, have
the right to deduct any such taxes from any payment otherwise
due to the Participant. The Committee may establish such
procedures as it deems appropriate, including making irrevocable
elections, for the settlement of withholding obligations with
Common Shares.
(f) Beneficiaries. The Committee
shall establish such procedures as it deems appropriate for a
Participant to designate a beneficiary to whom any amounts
payable in the event of the Participant’s death are to be
paid or by whom any rights of the Participant, after the
Participant’s death, may be exercised.
(g) Governing Law. The Plan and
all Awards made and actions taken thereunder shall be governed
by and construed and enforced in accordance with the laws of the
State of Delaware without regard to the principles of conflicts
of law thereof.
(h) Compliance with Laws. If any
law or any regulation of any governmental body, commission or
agency having jurisdiction shall require the Company or a
Participant seeking to exercise Stock Options to take any action
with respect to the Plan Shares to be issued upon the exercise
of Stock Options then the date
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upon which the Company shall issue or cause to be issued the
Plan Shares or the rights associated therewith shall be
postponed until full compliance (as determined by the Committee
in its sole discretion) has been made with all such requirements
of law or regulation; provided, that the Company shall use its
reasonable efforts to take all necessary action to comply with
such requirements of law or regulation. Moreover, in the event
that the Company shall determine that, in compliance with the
Securities Act or other applicable statutes or regulations
(including state “Blue Sky” or other securities laws),
it is necessary to register any of the Plan Shares with respect
to which an exercise of a Stock Option has been made, or to
qualify any such Plan Shares (or the Company) for exemption from
any of the requirements of the Securities Act or any other
applicable statute or regulation, no Stock Options may be
exercised and no Plan Shares shall be issued to the exercising
Participant until the required action has been completed;
provided, that the Company shall use its reasonable efforts to
take all necessary action to comply with such requirements of
law or regulation. Notwithstanding anything to the contrary
contained herein, neither the Board nor the members of the
Committee owes a fiduciary duty to any Participant in his or her
capacity as such.
(i) Fractional Shares. No
fractional shares shall be issued under the Plan and no cash
settlements shall be made with respect to fractional shares
eliminated by rounding.
(j) Shareholder Approval. The Plan
shall be subject to approval by the shareholders of the Company
within twelve (12) months before or after the date the Plan
is adopted. Such shareholder approval shall be obtained in the
degree and manner required under applicable state and federal or
foreign law and the rules of any stock exchange upon which the
Company’s common shares are listed, quoted or actively
traded.
(k) Information to
Participants. The Company shall provide to
each California Participant, not less frequently than annually,
copies of annual financial statements. The Company shall also
provide such statements to each individual who acquires Common
Shares pursuant to the Plan while such individual owns such
Common Shares. The Company shall not be required to provide such
statements to key employees whose duties in connection with the
Company assure their access to equivalent information.
(l) Agreement. As a condition to
the grant of any Award, if requested by the Company and the lead
underwriter of any IPO (the “Lead Underwriter”), a
Participant shall irrevocably agree not to sell, contract to
sell, grant any option to purchase, transfer the economic risk
of ownership in, make any short sale of, pledge or otherwise
transfer or dispose of, any interest in any Common Shares or any
securities convertible into, derivative of, or exchangeable or
exercisable for, or any other rights to purchase or acquire
Common Shares (except Common Shares included in such IPO or
acquired on the public market after such offering) during such
period of time following the effective date of a registration
statement of the Company filed under the Securities Act that the
Lead Underwriter shall specify (the
“Lock-up
Period”). The Participant shall further agree to sign such
documents as may be requested by the Lead Underwriter to effect
the foregoing and agree that the Company may impose
stop-transfer instructions with respect to Common Shares
acquired pursuant to an Award until the end of such
Lock-up
Period.
(m) Management Shareholders’ Agreement and Other
Requirements. Notwithstanding anything herein
to the contrary, as a condition to the receipt of Plan Shares,
to the extent required by the Committee, the Participant shall
execute and deliver a shareholders’ agreement or such other
documentation which shall set forth certain restrictions on
transferability of the Plan Shares, a right of first refusal of
the Company with respect to Plan Shares, the right of the
Company to purchase Plan Shares and such other terms as the
Board or Committee shall from time to time establish. Such
shareholders’ agreement shall apply to all Plan Shares
acquired under the Plan. The Company may require, as a condition
of grant or exercise of any Award, the Participant to become a
party to any other existing shareholders’ agreement.
(n) California
Provisions. Notwithstanding anything herein
to the contrary, the provisions in the Plan applicable to Awards
granted to California Participants shall apply only to the
extent necessary to comply with Title 10 of the California
Code of Regulations at the time an Award is granted and shall
not apply if the Common Shares are an exempt security under
Section 25100 of the California Corporations Code.
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APPENDIX A
Performance Goals established for purposes of an Award of
Performance-Based Awards intended to comply with
Section 162(m) of the Code shall be based on one or more of
the following performance criteria (“Performance
Criteria”): (i) the attainment of certain target
levels of, or a specified percentage increase in, revenues,
income before taxes and extraordinary items, net income,
operating income, earnings before income tax, earnings before
interest, taxes, depreciation and amortization or a combination
of any or all of the foregoing; (ii) the attainment of
certain target levels of, or a percentage increase in, after-tax
or pre-tax profits including, without limitation, that
attributable to continuing
and/or other
operations; (iii) the attainment of certain target levels
of, or a specified increase in, operational cash flow;
(iv) the achievement of a certain level of, reduction of,
or other specified objectives with regard to limiting the level
of increase in, all or a portion of, the Company’s bank
debt or other long-term or short-term public or private debt or
other similar financial obligations of the Company, which may be
calculated net of such cash balances
and/or other
offsets and adjustments as may be established by the Committee;
(v) earnings per share or the attainment of a specified
percentage increase in earnings per share or earnings per share
from continuing operations; (vi) the attainment of certain
target levels of, or a specified increase in return on capital
employed or return on invested capital; (vii) the
attainment of certain target levels of, or a percentage increase
in, after-tax or pre-tax return on shareholders’ equity;
(viii) the attainment of certain target levels of, or a
specified increase in, economic value added targets based on a
cash flow return on investment formula; (ix) the attainment
of certain target levels in the fair market value of the shares
of the Company’s common shares; (x) the growth in the
value of an investment in the Company’s common shares
assuming the reinvestment of dividends; (xi) the attainment
of a certain level of, reduction of, or other specified
objectives with regard to limiting the level in or increase in,
all or a portion of controllable expenses or costs or other
expenses or costs; or (xii) achievement of certain targets
with respect to the Company’s book value, assets or
liabilities. For purposes of item (i) above,
“extraordinary items” shall mean all items of gain,
loss or expense for the fiscal year determined to be
extraordinary or unusual in nature or infrequent in occurrence
or related to a corporate transaction (including, without
limitation, a disposition or acquisition) or related to a change
in accounting principle, all as determined in accordance with
standards established by Opinion No. 30 of the Accounting
Principles Board.
In addition, such Performance Criteria may be based upon the
attainment of specified levels of Company (or subsidiary,
division or other operational unit of the Company) performance
under one or more of the measures described above relative to
the performance of other corporations. Furthermore, such
Performance Criteria may be supplemented by reference to per
share determinations. To the extent permitted under
Section 162(m) of the Code, but only to the extent
permitted under Section 162(m) of the Code (including,
without limitation, compliance with any requirements for
shareholder approval), the Committee may: (i) designate
additional business criteria on which the Performance Criteria
may be based or (ii) adjust, modify or amend the
aforementioned business criteria.
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PROXY
UNITED AMERICA INDEMNITY, LTD.
This Proxy is solicited on behalf of the Board of Directors.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
The undersigned, revoking all prior proxies, hereby appoints J. Nicole Pryor as the
undersigned’s proxy with full power of substitution, to vote all the Class A common shares and
Class B common shares held of record by the undersigned, at the close of business on December 14,
2007, at the Extraordinary General Meeting of Shareholders to be held on Monday, January 28, 2008,
at 9:00 a.m., local time, at the Burnaby Building, 16 Burnaby Street, Hamilton, Bermuda, or at any
adjournments thereof, with all the powers the undersigned would possess if personally present as
follows:
SEE REVERSE SIDE
*DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL*
PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE þ
THIS PROXY, WHEN PROPERLY EXECUTED AND TIMELY DELIVERED, WILL BE VOTED AS DIRECTED HEREIN. IF NO
DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED “FOR” THE PROPOSAL.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE FOLLOWING PROPOSAL, AS MORE FULLY SET FORTH IN
THE PROXY STATEMENT:
The signature on this proxy should correspond exactly with the shareholder’s name as printed to the
left. In the case of joint tenancies, co-executors or co-trustees, all should sign. Persons
signing as attorney, executor, administrator, trustee or guardian should indicate their full title.
Please sign, date and return this proxy in the enclosed postage paid envelope.
* FOLD AND DETACH HERE *
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