ALLEGHANY CORPORATION
375 PARK AVENUE
NEW YORK, NEW YORK 10152
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
APRIL 26, 2002 AT 10:00 A.M., LOCAL TIME
------------------------
HOTEL DU PONT
11TH AND MARKET STREETS
WILMINGTON, DELAWARE
Notice is hereby given that the 2002 Annual Meeting of Stockholders of
Alleghany Corporation (the "Company") will be held at the Hotel du Pont, 11th
and Market Streets, Wilmington, Delaware, on Friday, April 26, 2002 at 10:00
a.m., local time, for the following purposes:
1. To elect three directors for terms expiring in 2005.
2. To consider and take action upon a proposal to approve the Company's
2002 Long-Term Incentive Plan.
3. To consider and take action upon a proposal to ratify the selection of
KPMG LLP, independent certified public accountants, as independent
auditors for the Company for the year 2002.
4. To transact such other business as may properly come before the meeting,
or any adjournment or adjournments thereof.
Holders of common stock of the Company are entitled to vote for the election
of directors and on each of the other matters set forth above.
The stock transfer books of the Company will not be closed. The Board of
Directors has fixed the close of business on March 1, 2002 as the record date
for the determination of stockholders entitled to notice of, and to vote at, the
Annual Meeting and any adjournments thereof.
You are cordially invited to be present. Stockholders who do not expect to
attend in person are requested to sign and return the enclosed form of proxy in
the envelope provided. At any time prior to their being voted, proxies are
revocable by written notice to the Secretary of the Company or by voting at the
Annual Meeting in person.
By order of the Board of Directors
ROBERT M. HART
Senior Vice President, General
Counsel
and Secretary
March 25, 2002
ALLEGHANY CORPORATION
375 PARK AVENUE
NEW YORK, NEW YORK 10152
PROXY STATEMENT
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ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 26, 2002
------------------------
This statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Alleghany Corporation (the "Company") from holders
of the Company's outstanding shares of common stock ("Common Stock") entitled to
vote at the 2002 Annual Meeting of Stockholders of the Company (and at any and
all adjournments thereof) for the purposes referred to below and set forth in
the accompanying Notice of Annual Meeting of Stockholders. These proxy materials
are being mailed to stockholders on or about March 25, 2002.
The Board of Directors has fixed the close of business on March 1, 2002 as
the record date for the determination of stockholders entitled to notice of, and
to vote at, said meeting. Holders of Common Stock are entitled to one vote for
each share held of record on the record date with respect to each matter to be
acted on at the 2002 Annual Meeting.
On March 1, 2002, there were outstanding and entitled to vote 7,206,149
shares of Common Stock. The number of shares of Common Stock as of March 1,
2002, and the share ownership information provided elsewhere herein, do not
include shares to be issued by the Company in respect of the dividend of one
share of Common Stock for every 50 shares of Common Stock outstanding to be paid
by the Company on April 26, 2002 to stockholders of record at the close of
business on April 1, 2002.
PRINCIPAL STOCKHOLDERS
As of March 1, 2002, approximately 36.3 percent* of the Company's
outstanding Common Stock was believed to be beneficially owned by F.M. Kirby,
Allan P. Kirby, Jr., their sister, Grace Kirby Culbertson, and the estate or one
or more beneficiaries of the estate of Ann Kirby Kirby, the sister of Messrs.
Kirby and Mrs. Culbertson, primarily through a number of family trusts.
The following table sets forth the beneficial ownership of Common Stock as
of March 1, 2002 of certain persons believed by the Company to be the beneficial
owners of more than five percent of such class of securities.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
-------------------------------------------------------------
SOLE VOTING SHARED VOTING POWER
NAME AND ADDRESS POWER AND/OR SOLE AND/OR SHARED PERCENT
OF BENEFICIAL OWNER INVESTMENT POWER INVESTMENT POWER TOTAL OF CLASS
------------------- ----------------- ------------------- ------- --------
F.M. Kirby........................ 304,784 661,001 965,785(1) 13.4
17 DeHart Street
P.O. Box 151
Morristown, NJ 07963
Allan P. Kirby, Jr. .............. 538,611 -- 538,611(2) 7.5
14 E. Main Street
P.O. Box 90
Mendham, NJ 07945
Grace Kirby Culbertson............ 149,775 254,665 404,440(3) 5.6
Blue Mill Road
Morristown, NJ 07960
Estate of Ann Kirby Kirby......... 317,881 392,786 710,667(4) 9.9
c/o Carter, Ledyard & Milburn
2 Wall Street
New York, NY 10005
Southeastern Asset Management, (5) (5) 900,201(5) 12.5
Inc. ...........................
6075 Poplar Avenue
Suite 900
Memphis, TN 38119
Franklin Mutual Advisers, LLC..... 697,601 -- 697,601(6) 9.7
51 John F. Kennedy Parkway
Short Hills, NJ 07078
---------------
* See Note (4) on page 3.
2
(1) Includes 110,344 shares of Common Stock held by F.M. Kirby as sole trustee
of trusts for the benefit of his children; 458,685 shares held by a trust of
which Mr. Kirby is co-trustee and primary beneficiary; and 202,316 shares
held by trusts for the benefit of his children and his children's
descendants as to which Mr. Kirby was granted a proxy and, therefore, had
shared voting power. Mr. Kirby disclaims beneficial ownership of the Common
Stock held for the benefit of his children and for the benefit of his
children and his children's descendants. Mr. Kirby held 194,440 shares
directly.
(2) Includes 305,655 shares held by a trust of which of Allan P. Kirby, Jr. is
co-trustee and beneficiary; and 15,444 shares issuable under stock options
granted pursuant to the Directors' Stock Option Plan, the Amended and
Restated Directors' Stock Option Plan and the 2000 Directors' Stock Option
Plan. Mr. Kirby held 217,512 shares directly.
(3) Includes 44,445 shares of Common Stock held by Grace Kirby Culbertson as
co-trustee of trusts for the benefit of her children; and 210,220 shares
held by trusts for the benefit of Mrs. Culbertson and her descendants, of
which Mrs. Culbertson is co-trustee. Mrs. Culbertson held 149,775 shares
directly.
(4) Prior to her death in 1996, Ann Kirby Kirby had disclaimed being a
controlling person or member of a controlling group with respect to the
Company, and had declined to supply information with respect to her
ownership of Common Stock. Since her death, the representatives of the
estate of Mrs. Kirby have declined to supply information with respect to
ownership of the Company's Common Stock by her estate or its beneficiaries;
therefore, the Company does not know whether her estate or any beneficiary
of her estate beneficially owns more than five percent of its Common Stock.
However, Mrs. Kirby filed a statement on Schedule 13D dated April 5, 1982
with the Securities and Exchange Commission reporting beneficial ownership,
both direct and indirect through various trusts, of 710,667 shares of the
common stock of Alleghany Corporation, a Maryland corporation and the
predecessor of the Company ("Old Alleghany"). Upon the liquidation of Old
Alleghany in December 1986, stockholders received $43.05 in cash and one
share of Common Stock for each share of Old Alleghany common stock. The
stock ownership information provided herein as to the estate of Mrs. Kirby
is based solely on her statement on Schedule 13D and does not reflect the
two-percent stock dividends paid in each of the years 1985 through 1997 and
1999 through 2001 by Old Alleghany or the Company; if Mrs. Kirby, her estate
and the beneficiaries of her estate had continued to hold in the aggregate
710,667 shares together with all stock dividends received in consequence
through the date hereof, the beneficial ownership reported herein would have
increased by 264,918 shares.
(5) According to an amendment dated February 4, 2002 to a Schedule 13G statement
filed by Southeastern Asset Management, Inc. ("Southeastern"), an investment
advisor, South-
3
eastern had sole voting power over 423,977 shares, shared voting power over
376,100 shares and no voting power over 100,124 shares, for a total of
900,201 shares. Its dispositive power with respect to such shares was
reported as follows: sole dispositive power over 524,101 shares and shared
dispositive power over 376,100 shares. O. Mason Hawkins, Chairman of the
Board and Chief Executive Officer of Southeastern, joined in the filing of
Southeastern's amendment to its Schedule 13G statement in the event that he
could be deemed to be a controlling person of Southeastern as a result of
his official positions with, or ownership of, its voting securities. Mr.
Hawkins expressly disclaimed such control. Southeastern's amendment to its
Schedule 13G statement indicated that all shares set forth therein were
owned legally by clients of Southeastern and no such shares were owned
directly or indirectly by Southeastern or Mr. Hawkins, both of whom
disclaimed beneficial ownership of such shares. The statement also indicated
that 376,100 shares over which Southeastern had shared voting power and
shared dispositive power were owned by a series of Longleaf Partners Funds
Trust, an open-end management investment company registered under the
Investment Company Act of 1940, as amended.
(6) According to an amendment dated January 22, 2002 to a Schedule 13G statement
filed by Franklin Mutual Advisers, LLC ("Franklin"), Franklin had sole
voting power and sole dispositive power over 697,601 shares. The statement
indicated that such shares may be deemed to be beneficially owned by
Franklin, an investment advisory subsidiary of Franklin Resources, Inc.
("FRI"), and that, under Franklin's advisory contracts, all voting and
investment power over such shares was granted to Franklin. The statement
also indicated that Messrs. Charles B. Johnson and Rupert H. Johnson, Jr.
were the principal shareholders of FRI, but beneficial ownership of the
shares reported therein are not attributed to FRI or Messrs. Johnson because
Franklin exercises voting and investment powers over such shares
independently of FRI and Messrs. Johnson. Franklin disclaimed any economic
interest or beneficial ownership of such shares.
4
1. ELECTION OF DIRECTORS
Pursuant to the Company's certificate of incorporation and by-laws, the
Board of Directors is divided into three separate classes of directors, which
are required to be as nearly equal in number as practicable. At each annual
meeting of stockholders, one class of directors is elected to a term of three
years. The Board of Directors currently consists of nine directors.
F.M. Kirby, Roger Noall and Rex D. Adams have been nominated by the Board
of Directors for election as directors at the 2002 Annual Meeting, each to serve
for a term of three years, until the 2005 Annual Meeting of Stockholders and
until his successor is duly elected and qualified. Messrs. Kirby, Noall and
Adams were last elected by the stockholders of the Company at their Annual
Meeting on April 23, 1999.
Proxies in the enclosed form received from holders of Common Stock will be
voted for the election of the three nominees named above as directors of the
Company unless stockholders indicate otherwise. If any of the foregoing nominees
is unable to serve for any reason (which event is not anticipated), the shares
represented by the enclosed proxy may be voted for such other person or persons
as may be determined by the holders of such proxy unless stockholders indicate
otherwise. Directors will be elected by an affirmative vote of a plurality of
the shares of Common Stock present in person or represented by proxy and
entitled to vote at the 2002 Annual Meeting. Thus, those nominees who receive
the highest, second-highest and third-highest numbers of votes for their
election as directors will be elected, regardless of the number of shares that
are not voted for the election of such nominees. Shares with respect to which
authority to vote for any nominee or nominees is withheld will not be counted in
the total number of shares voted for such nominee or nominees.
The following information includes the age, the year in which first elected
a director of the Company or Old Alleghany, the principal occupation (in
italics), and other directorships of each of the nominees named for election as
directors, and of the other current directors of the Company whose terms will
not expire until 2003 or 2004.
5
Nominee for Election: Chairman of the Board, Alleghany
F.M. Kirby [PHOTO of F.M. Kirby] Corporation. Member of the Executive
Age 82 Committee.
Director since 1958
Retired Executive, KeyCorp (banking);
Nominee for Election: Chairman, Victory Funds and Victory
Roger Noall [PHOTO of Roger Noall] Variable Insurance Funds; director, Elite
Age 66 Information Systems, Inc. Member of the
Director since 1996 Compensation and Nominating Committees.
Professor of Business Administration,
Fuqua School of Business at Duke
University (education); Chairman, Centre
Nominee for Election: for Economic Policy Research and Public
Rex D. Adams [PHOTO of Rex D. Adams] Broadcasting System; director, AMVESCAP
Age 62 PLC; trustee, Committee for Economic
Director since 1999 Development, Vera Institute of Justice and
Woods Hole Oceanographic Institution.
Member of the Audit Committee.
President, Alleghany Corporation;
John J. Burns, Jr. director, Burlington Northern Santa Fe
Age 70 [PHOTO of John J. Burns, Corporation, Fidelity National Financial,
Director since 1968 Jr.] Inc., Mineral Holdings Inc. and World
Term expires in 2003 Minerals Inc. Chairman of the Nominating
Committee and member of the Executive
Committee.
President and Chief Executive Officer,
Dan R. Carmichael Ohio Casualty Corporation (property and
Age 57 [PHOTO of Dan R. casualty insurance); director, Ohio
Director since 1993 Carmichael] Casualty Corporation and IVANS, Inc.
Term expires in 2003 Chairman of the Compensation Committee and
member of the Audit Committee.
6
William K. Lavin Financial Consultant; Chairman and Secretary,
Age 57 [PHOTO of William K. Novex Systems International, Inc.; Chairman,
Director since 1992 Lavin] eRSVP.com. Chairman of the Audit Committee and
Term expires in 2003 member of the Compensation Committee.
Allan P. Kirby, Jr.
Age 70 [PHOTO of Allan P. President, Liberty Square, Inc. (investments);
Director since 1963 Kirby, Jr.] management of family and personal affairs.
Term expires in 2004 Chairman of the Executive Committee.
Chairman and Chief Executive Officer,
Thomas S. Johnson GreenPoint Financial Corp. and its subsidiary
Age 61 [PHOTO of Thomas S. GreenPoint Bank (banking); director, R.R.
Director since 1997 and Johnson] Donnelley & Sons Company, Online Resources &
for 1992-1993 Communications Corporation and The Phoenix
Term expires in 2004 Companies, Inc. Member of the Audit Committee.
President, Saint Vincent College (education);
James F. Will Vice Chairman, World Minerals Inc. and
Age 63 [PHOTO of James F. Will] Chairman, Specialty Steel Industry of North
Director since 1992 America; director, Breeze Industrial Products
Term expires in 2004 Corporation. Member of the Executive and
Nominating Committees.
All of the foregoing persons have had the principal occupations indicated
throughout the last five years, except as follows. Mr. Noall was an Executive of
KeyCorp from January 1, 1997 until his retirement on March 1, 2000, and served
as Senior Executive Vice President and Chief Administrative Officer, and as
General Counsel and Secretary, of KeyCorp prior thereto. Mr. Adams has been a
Professor of Business Administration at the Fuqua School of Business at Duke
University since July 1, 2001, and was Dean of the Fuqua School of Business
prior thereto. Mr. Carmichael has been President and Chief Executive Officer of
Ohio Casualty
7
Corporation since December 12, 2000, and served as the President and Chief
Executive Officer of IVANS, Inc. (communications technology and remarketer)
prior thereto. Mr. Will has been President of Saint Vincent College since July
1, 2000. Prior thereto, Mr. Will was President and Chief Executive Officer of
Armco Inc. (steel manufacturing and metals processing) until his retirement on
September 30, 1999.
F.M. Kirby and Allan P. Kirby, Jr. are brothers.
The Board of Directors held eight meetings in 2001. Each director attended
more than 75 percent of the aggregate number of meetings of the Board of
Directors and meetings of the committees of the Board on which he served that
were held in 2001.
The Executive Committee may exercise certain powers of the Board of
Directors regarding the management and direction of the business and affairs of
the Company when the Board of Directors is not in session. All action taken by
the Executive Committee is reported to and reviewed by the Board of Directors.
This committee held twelve meetings in 2001.
The Audit Committee of the Board of Directors reviews and makes reports and
recommendations to the Board of Directors with respect to the following matters:
(i) the selection of the independent auditors of the Company and its
subsidiaries, (ii) the arrangements for and the scope of the audits to be
performed by the independent auditors, (iii) the audited consolidated annual
financial statements of the Company and its subsidiaries and management's
discussion and analysis thereof to be incorporated in the Company's Annual
Report on Form 10-K to the Securities and Exchange Commission, and whether to
recommend such incorporation, (iv) such other financial statements and financial
information published by the Company or included by it in filings with the
Securities and Exchange Commission as the Committee may in its discretion deem
feasible and desirable, (v) the annual summary of non-audit services provided by
the Corporation's independent auditors, and (vi) the internal audit activities,
accounting procedures and controls of the Company and its subsidiaries. This
committee held three meetings in 2001.
The Compensation Committee of the Board of Directors reviews the annual
recommendations of the chief executive officer and the Chairman of the Board
concerning the compensation of officers of the Company and makes recommendations
to the Board of Directors with respect thereto; and reviews the annual
adjustments proposed to be made to the compensation of the most highly paid
officers of the Company's subsidiaries, reports to the Board of Directors with
respect thereto, and makes such recommendations to the Board of Directors with
respect thereto as the committee may deem appropriate. This committee, which
held four meetings in 2001, also administers the Company's 1993 Long-Term
Incentive Plan.
8
The Nominating Committee of the Board of Directors screens candidates and
makes recommendations to the Board of Directors as to persons to be nominated by
the Board of Directors for election thereto by the stockholders or to be chosen
by the Board of Directors to fill newly created directorships or vacancies on
the Board of Directors. This committee held no meetings in 2001.
SECURITIES OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the beneficial ownership of Common Stock as
of March 1, 2002 of each of the nominees named for election as a director, each
of the other current directors and each of the executive officers named in the
Summary Compensation Table below.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
------------------------------------------------------------------
SOLE VOTING SHARED VOTING POWER
POWER AND SOLE AND/OR SHARED PERCENT
NAME OF BENEFICIAL OWNER INVESTMENT POWER INVESTMENT POWER TOTAL OF CLASS
------------------------ ---------------- ------------------- ------- --------
F.M. Kirby............... 304,784 661,001 965,785(1) 13.40
Roger Noall.............. 9,457 -- 9,457(2) 0.13
Rex D. Adams............. 2,927 -- 2,927(2) 0.04
John J. Burns, Jr........ 74,482 -- 74,482(3) 1.03
Dan R. Carmichael........ 12,633 324 12,957(2)(4) 0.18
William K. Lavin......... 12,345 -- 12,345(2) 0.17
Allan P. Kirby, Jr....... 538,611 -- 538,611(5) 7.46
Thomas S. Johnson........ 7,415 -- 7,415(2) 0.10
James F. Will............ 13,996 -- 13,996(2) 0.19
David B. Cuming.......... 40,010 -- 40,010 0.56
Robert M. Hart........... 14,055 -- 14,055 0.20
Peter R. Sismondo........ 8,772 -- 8,772(6) 0.12
---------------
(1) See Note (1) on page 3.
(2) Includes 7,978 shares of Common Stock in the case of Mr. Noall, 2,720 shares
in the case of Mr. Adams, 11,637 shares of Common Stock in the case of Mr.
Carmichael, 11,637 shares of Common Stock in the case of Mr. Lavin, 6,202
shares of Common Stock in the case of Mr. Johnson and 13,521 shares of
Common Stock in the case of Mr. Will, issuable under stock options granted
pursuant to the Amended and Restated Directors' Stock Option Plan and the
2000 Directors' Stock Option Plan.
9
(3) Includes 732 shares of Common Stock owned by Mr. Burns's wife. Mr. Burns had
no voting or investment power over these shares, and he disclaims beneficial
ownership of them. Also includes (i) 7,803 shares of Common Stock
representing the vesting of 7,803 performance shares in settlement of a
special award of performance shares (as adjusted for stock dividends) made
to Mr. Burns in 1999, and (ii) 15,669 shares of Common Stock representing
the vesting of 15,669 performance shares in settlement of a special award of
performance shares (as adjusted for stock dividends and to reflect the
spin-off by the Company of Chicago Title Corporation in June 1998) made to
Mr. Burns in 1996. In each case, the payout in respect of the vested
performance shares was deferred pursuant to the terms of the special award
until Mr. Burns's retirement as an officer of the Company, and will be made
one-half in shares of Common Stock and one-half in cash (based upon the fair
market value of one share of Common Stock on the payout date for each
performance share).
(4) Includes 224 shares of Common Stock owned by Mr. Carmichael's wife. Mr.
Carmichael had no voting or investment power over these shares, and he
disclaims beneficial ownership of them.
(5) See Note (2) on page 3.
(6) Includes 3,224 shares of Common Stock owned by Mr. Sismondo's wife. Mr.
Sismondo had no voting or investment power over these shares, and he
disclaims beneficial ownership of them.
All nominees named for election as a director, directors and executive
officers as a group (12 persons) beneficially owned 1,700,812 shares, or 23.38
percent, of the outstanding Common Stock, adjusted to include shares of Common
Stock issuable within 60 days upon exercise of stock options held by such
nominees, directors and executive officers; such nominees, directors and
executive officers had sole voting and investment power with respect to
1,035,307 shares, shared voting and/or investment power with respect to 661,325
shares and no voting or investment power with respect to 4,180 shares.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company has determined that, except as set forth below, no person who
at any time during 2001 was a director, officer or beneficial owner of more than
ten percent of the Company's Common Stock failed to file on a timely basis
reports required by Section 16(a) of the Securities Exchange Act of 1934, as
amended, during 2001. Such determination is based solely upon the Company's
review of Forms 3, 4 and 5, and written representations that no Form 5 was
required, submitted to it during or with respect to 2001. With regard to Ann
Kirby
10
Kirby who, prior to her death in 1996, was believed by the Company to be a
beneficial owner of more than ten percent of the Company's Common Stock based on
her Schedule 13D statement filed with the Securities and Exchange Commission in
1982, the Company had not received any reports from Mrs. Kirby regarding changes
in her ownership of the Company's Common Stock, and the representatives of the
estate of Mrs. Kirby have declined to supply information with respect to
ownership of the Company's Common Stock by her estate or beneficiaries;
therefore, the Company does not know whether she, her estate, or any beneficiary
of her estate beneficially owned more than ten percent of its Common Stock
during 2001 nor whether any such person was required to file reports required by
Section 16(a).
COMPENSATION OF DIRECTORS
Each director of the Company who is not an officer thereof receives an
annual retainer of $26,000, payable one-half in cash and one-half in shares of
the Company's Common Stock as more fully explained below, as well as $1,000 for
each board meeting attended in person and $500 for each conference telephone
meeting attended. In addition, the Chairman of the Executive Committee receives
an annual fee of $25,000, and each other member thereof who is not an officer of
the Company receives an annual fee of $7,500. The Chairman of the Audit
Committee receives an annual fee of $6,000, and each other member thereof
receives an annual fee of $4,500. The Chairman of the Compensation Committee
receives an annual fee of $3,500, and each other member thereof receives an
annual fee of $3,000. Each member of the Nominating Committee who is not an
officer of the Company receives $1,000 for each meeting attended and $500 for
each conference telephone meeting attended.
Pursuant to the Directors' Equity Compensation Plan, each director of the
Company who is not an employee of the Company or any of its subsidiaries
receives his retainer in the beginning of each year of his term for the
following twelve-months' service as a director, exclusive of any per meeting
fees, committee fees or expense reimbursements, payable one-half in shares of
the Company's Common Stock, based on the market value (as defined in the plan)
of such shares on the date of payment, and one-half in cash. On May 1, 2001,
each eligible director received sixty-five shares of Common Stock in respect of
the twelve-months' service beginning with the 2001 Annual Meeting of
Stockholders.
Pursuant to the 2000 Directors' Stock Option Plan, each director of the
Company who is not an employee of the Company or any of its subsidiaries
receives annually, as of the first business day after the conclusion of each
Annual Meeting of Stockholders of the Company, an option to purchase 1,000
shares of Common Stock (subject to antidilution adjustments) at a price equal to
the fair market value (as defined in the plan) of such shares on the date of
11
grant. On April 30, 2001, each eligible director received an option to purchase
1,000 shares of Common Stock at a price of $201.10 per share.
Pursuant to the Non-Employee Directors' Retirement Plan, each person who
has served as a non-employee director of the Company after July 1, 1990 is
entitled to receive, after his retirement from the Board of Directors, an annual
retirement benefit payable in cash equal to the annual retainer payable to
directors of the Company at the time of such retirement. To be entitled to this
benefit, the director must have served as such for at least five years, and must
have continued so to serve either until the time he is required to retire by the
Company's retirement policy for directors or until he has attained age 70. The
Company's retirement policy for directors was adopted by Old Alleghany in 1979
and by the Company upon its formation in 1986. The retirement policy provides
that, except in respect of directors serving when the policy was first adopted,
the Board of Directors shall not select a person as a nominee for the Board of
Directors for a term that would anticipate such nominee serving beyond his or
her seventy-second birthday. Messrs. Burns, Allan P. Kirby, Jr. and F.M. Kirby
are not subject to such retirement policy since each of them was a director of
Old Alleghany in 1979. The benefit is paid from the date of the director's
retirement from the Board of Directors until the end of a period equal to his
length of service thereon or until his death, whichever occurs sooner.
Each of the non-employee directors of the Company's subsidiary World
Minerals Inc. ("World Minerals") and its subsidiaries, including Mr. Will, was
entitled to receive an annual retainer of $15,000 for his services as such, as
well as $600 for each board meeting or conference telephone meeting attended. As
a member of the Audit Committee of the World Minerals board, Mr. Will received
$500 for each committee meeting attended. As Vice Chairman of the World Minerals
board, Mr. Will was also entitled to receive $25,000. In 2001, Mr. Will received
a total of $43,300 for services in these capacities.
12
EXECUTIVE COMPENSATION
The information under this heading relates to the chief executive officer
and the four other most highly compensated executive officers of the Company
serving as executive officers at the end of 2001.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
------------------------------------ LONG TERM
OTHER ANNUAL INCENTIVE ALL OTHER
NAME AND PRINCIPAL BONUS COMPENSATION PLAN PAYOUTS COMPENSATION
POSITION YEAR SALARY (1) (2) (3) (6)
------------------ ---- -------- ---------- ------------ ------------ ------------
John J. Burns, Jr.,..... 2001 $933,139 $ 142,647 $ 18,729 $3,204,931(4) $168,652
President and chief 2000 880,320 394,745 24,251 1,397,497 158,779
executive officer 1999 838,400 512,657 25,648 5,336,099(5) 154,854
F.M. Kirby,............. 2001 $438,616 $ -- $ 22,128 $ -- $ 92,033
Chairman of the Board 2000 413,789 -- 15,751 -- 80,372
1999 394,085 -- 17,067 -- 78,967
David B. Cuming,........ 2001 $420,133 $ 888,359 $796,479 $ 766,326 $ 81,459
Senior Vice President 2000 396,352 142,008 16,584 664,577 76,279
1999 377,478 181,874 14,829 755,764 71,905
Robert M. Hart.......... 2001 $420,133 $1,092,488 $884,790 $ 766,326 $ 73,264
Senior Vice 2000 396,352 141,572 9,263 664,577 68,996
President, General 1999 377,478 188,671 5,948 755,764 63,391
Counsel and Secretary
Peter R. Sismondo....... 2001 $204,687 $ 452,829 $355,551 $ 393,613 $ 36,097
Vice President, 2000 193,101 55,014 4,889 341,171 33,886
Controller, 1999 183,906 70,068 2,524 387,712 30,420
Assistant Secretary
and Treasurer
---------------
(1) These amounts represent (i) bonuses earned under the Company's Management
Incentive Plan, which is a short-term incentive plan designed to reward
officers for achieving specified net earnings per share and/or individual
objectives; and (ii) for each of Messrs. Cuming, Hart and Sismondo, an
additional amount representing a special award in 2001 of shares of Common
Stock under the Company's 1993 Long-Term Incentive Plan (the "1993 Plan"),
valued at $815,760, $1,019,700 and $407,880, respectively.
13
(2) These amounts represent payments for reimbursement of taxes including
reimbursement of taxes incurred in respect of the special awards of shares
of Common Stock under the 1993 Plan as described in Note (1) above, and the
reimbursement itself.
(3) These amounts represent payouts in settlement of performance shares awarded
under the 1993 Plan. Performance shares entitle the holder thereof to
payouts of cash and/or Common Stock (in such proportion as is determined by
the Compensation Committee) up to a maximum amount equal to the value of one
share of Common Stock on the payout date for each performance share,
depending upon the average annual compound growth in the Company's Earnings
Per Share (as defined by the Compensation Committee pursuant to the 1993
Plan) in a four-year award period commencing with the year following that in
which the performance shares were awarded; payouts have been made one-half
in cash and one-half in Common Stock.
(4) This amount includes a payout of $1,593,802 in respect of one-half of a
special award of an aggregate 31,212 performance shares made to Mr. Burns
under the 1993 Plan in 1999, as adjusted for stock dividends. These
performance shares entitled Mr. Burns to a payout one-half in cash and
one-half in Common Stock up to a maximum amount equal to the value of one
share of Common Stock on the payout date for each performance share,
depending upon the stockholders' equity per share equaling or exceeding $234
(as adjusted for stock dividends) as at the end of any fiscal quarter ending
on or before June 30, 2002 and occurring while Mr. Burns was chief executive
officer of the Company. This goal was achieved in the quarter ending March
31, 2001. Payout of 7,803 of these performance shares was deferred pursuant
to the terms of the special award until Mr. Burns's retirement as an officer
of the Company.
(5) This amount includes a payout of $3,763,750 in respect of one-half of a
special award of an aggregate 40,966 performance shares made to Mr. Burns
under the 1993 Plan in 1996, as adjusted for stock dividends and to reflect
the spin-off of Chicago Title Corporation. These performance shares entitled
Mr. Burns to a payout one-half in cash and one-half in Common Stock up to a
maximum amount equal to the value of one share of Common Stock on the payout
date for each performance share, depending upon the stockholders' equity per
share equaling or exceeding $314 (as adjusted for stock dividends) as at the
end of any year ending on or before December 31, 1999 and occurring while
Mr. Burns was chief executive officer of the Company. This goal was achieved
in the year ending December 31, 1999. Payout of 8,151 of these performance
shares was deferred pursuant to the terms of the special award until Mr.
Burns's retirement as an officer of the Company.
(6) The 2001 amounts listed for Messrs. Burns, Kirby, Cuming, Hart and Sismondo
include (i) savings benefits of $139,641, $65,637, $62,871, $62,871 and
$30,631, respectively,
14
credited pursuant to the Company's Deferred Compensation Plan; and (ii)
benefits, valued at $22,080, $26,396, $11,360, $3,462 and $737,
respectively, pursuant to Securities and Exchange Commission rules, of life
insurance maintained by the Company on their behalf. Such life insurance
policies provide a death benefit to an executive officer who is an employee
at the time of his death equal to four times (or, in the case of Mr. Kirby,
two times) the amount of such executive officer's annual salary at January 1
of the year of his death. In the case of Mr. Burns, at his election, such
death benefit shall not exceed $3,000,000. The 2001 amounts listed for
Messrs. Burns, Cuming, Hart and Sismondo also include compensation of
$6,931, $7,228, $6,931 and $4,729, respectively, in respect of other
insurance coverage.
LONG-TERM INCENTIVE PLAN -- AWARDS IN 2001
PERFORMANCE
OR OTHER ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF PERIOD UNTIL NON-STOCK PRICE-BASED PLANS
SHARES, UNITS OR MATURATION -------------------------------
NAME OTHER RIGHTS OR PAYMENT THRESHOLD TARGET MAXIMUM
---- ---------------- ------------ --------- ------ ----------
John J. Burns, Jr. ............. 7,505(1) 2002-2005 $3,525 -- $1,409,927
F.M. Kirby...................... -- -- -- -- --
David B. Cuming................. 3,100(1) 2002-2005 $1,456 -- $ 582,382
Robert M. Hart.................. 3,100(1) 2002-2005 $1,456 -- $ 582,382
Peter R. Sismondo............... 1,593(1) 2002-2005 $ 748 -- $ 299,269
---------------
(1) These amounts represent performance shares awarded under the Company's 1993
Plan. These performance shares entitle the holder thereof to payouts of cash
and/or Common Stock (in such proportion as is determined by the Compensation
Committee) up to a maximum amount equal to the value of one share of Common
Stock on the payout date for each performance share awarded. Maximum payouts
will be made in respect of these performance shares only if average annual
compound growth in the Company's Earnings Per Share (as defined by the
Compensation Committee pursuant to the 1993 Plan) equals or exceeds 12
percent in the award period, measured from a base of $9.50 in respect of
performance shares for the 2002-2005 award period. No payouts will be made
if such growth is 8 percent or less; payouts for growth between 8 percent
and 12 percent will be determined by interpolation. There is no estimated
future target payout because under the 1993 Plan no performance target for
these performance shares is specified.
15
EQUITY COMPENSATION PLAN INFORMATION
(C)
NUMBER OF SECURITIES
(A) (B) REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE FUTURE ISSUANCE UNDER
BE ISSUED UPON EXERCISE EXERCISE PRICE OF EQUITY COMPENSATION PLANS
OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN(A))
------------- ----------------------- -------------------- -------------------------
Equity compensation
plans approved by
security holders(1)... 60,445(2) $127.64 479,178
Equity compensation
plans not approved by
security holders(3)... 150,811 $ 87.25 9,838
------- ------- -------
Total................... 211,256(2) -- 489,016
======= ======= =======
---------------
(1) These plans consist of: (i) the Directors' Stock Option Plan, (ii) the
Amended and Restated Directors' Stock Option Plan, (iii) the 2000 Directors'
Stock Option Plan, (iv) the Directors' Equity Compensation Plan and (v) the
1993 Plan.
(2) This amount does not include 137,985 performance shares outstanding under
the 1993 Plan. Performance shares do not have an exercise price because
their value is dependent upon the achievement of certain performance goals
over a period of time. Performance shares are typically paid one-half in
cash and one-half in Common Stock.
(3) These plans consist of: (i) the Subsidiary Directors' Stock Option Plan (the
"Subsidiary Option Plan"), (ii) the Underwriters Re Group, Inc. 1998 Stock
Option Plan (the "URG 1998 Plan") and (iii) the Underwriters Re Group, Inc.
1997 Stock Option Plan (the "URG 1997 Plan"). Under the Subsidiary Option
Plan, which was adopted on July 21, 1998, the Compensation Committee of the
Company's Board of Directors selects non-employee directors of the Company's
subsidiaries to receive grants of nonqualified stock options. Not more than
25,000 shares of Common Stock (subject to adjustment by reason of any stock
split, stock dividend or other similar event) will be issued pursuant to
options granted under the Subsidiary Option Plan. As of December 31, 2001,
options to purchase 12,146 shares of the Company's Common Stock (subject to
adjustment by reason of any stock split, stock dividend or other similar
event) were outstanding, and 9,838 shares of the Company's Common Stock
(subject to adjustment by reason of any stock split, stock dividend or other
similar event) remained available for future option grants under the
Subsidiary Option Plan. Each option has a term of 10 years from the date it
is granted. One-third of the total number of shares of Common Stock covered
by each option becomes exercisable each year beginning with the first
anniversary of the date it is granted;
16
however, an option automatically becomes exercisable in full when the
non-employee subsidiary director ceases to be a non-employee subsidiary
director for any reason other than death as long as the person exercising
the option has been a non-employee subsidiary director at all times during
the period beginning with the option grant date until the date of the
exercise. If an optionholder dies while holding an option that has not been
fully exercised, his or her executors, administrators, heirs or
distributees, as the case may be, may exercise options which the decedent
could have exercised at the time of death within one year after the date of
such death. The Subsidiary Option Plan expires on July 31, 2003. Under the
URG 1998 Plan, which was adopted on or about October 23, 1998, options were
granted to certain employees of Venton Holdings Ltd. ("Venton") in exchange
for warrants or options to purchase Venton shares upon the acquisition of
Venton in October 1998 by Underwriters Re Group, Inc. ("URG"), a wholly
owned subsidiary of the Company until May 2000, when it was sold to Swiss Re
America Holding Corporation. As of December 31, 2001, options to purchase
11,786 shares of the Company's Common Stock (subject to adjustment by reason
of any stock split, stock dividend or other similar event) were outstanding,
and no shares of the Company's Common Stock remained available for future
grants, under the URG 1998 Plan. Under the URG 1997 Plan, which was adopted
on September 17, 1997, options were granted to certain members of URG
management in exchange for options to purchase shares of URG. As of December
31, 2001, options to purchase 126,879 shares of the Company's Common Stock
(subject to adjustment by reason of any stock split, stock dividend or other
similar event) were outstanding, and no shares of the Company's Common Stock
remained available for future option grants, under the URG 1997 Plan. Under
the URG 1998 Plan and the URG 1997 Plan, options expire if they are not
exercised prior to the earliest of (i) the tenth anniversary of the date of
grant of the original warrant or option to purchase Venton or URG common
stock, (ii) three months after termination of the optionee's employment with
Venton or URG or a subsidiary for any reason except death or a permanent
disability, or (iii) one year after termination of the optionee's employment
with Venton or URG or a subsidiary by reason of death or permanent
disability.
PENSION PLAN TABLE
The Company's Retirement Plan provides for designated employees, including
all of its current executive officers, retirement benefits in the form of an
annuity for the participant's life or, alternatively, actuarially equivalent
forms of benefit, including a lump sum.
The annual retirement benefit under the Company's Retirement Plan, if paid
in the form of a life annuity to a participant who retires on reaching age 65
with 15 or more years of
17
service, is equal to 52.7625 percent of the participant's average compensation,
which is defined as the sum of (i) the highest average annual base salary over a
consecutive three-year period during the last ten years of employment, plus (ii)
one-half of the highest average annual bonus over a consecutive five-year period
during the last ten years of employment; however, such benefit is reduced by
33.5 percent of his unreduced primary Social Security benefit and by 67 percent
of his accrued benefit under a previously terminated retirement plan of the
Company. (Annual base salary and annual bonus are the amounts that would appear
in the salary and bonus columns of the Summary Compensation Table for the
relevant years.) In the event a participant becomes totally disabled prior to
retirement, such participant's annual base salary shall equal his annual base
salary at the time of disability, and such participant's average annual bonus
shall be based on the average over the five consecutive years (or lesser period
of employment) prior to disability, each adjusted annually for inflation; such
participant's period of disability will be treated as continued employment for
all purposes under the Retirement Plan, including determining his years of
service.
Since the funds accumulated under the Company's Retirement Plan to provide
for each participant's annual retirement benefit are currently taxable to each
participant, the plan provides for the payment to the appropriate tax
authorities as withholding tax on behalf of each participant of an amount equal
to the income and employment tax liabilities imposed upon the participant by
reason of his participation in the plan. As a result, benefits payable in the
form of a lump sum are not taxable at the time of payment. Benefits payable in
the form of an annuity are taxable in part; the Retirement Plan provides that
such benefits will be increased to offset the impact of any such tax liability,
and the estimated benefits set forth in the table below include an estimate of
such increase.
A participant may retire as early as age 55, but the benefit payable at
that time will be reduced to reflect the commencement of benefit payments prior
to age 65. The benefit payable to a participant who retires after age 65 is
increased to reflect salary increases and additional years of service through
the actual date of retirement and the decreased period over which the normal
retirement benefit will be paid. The Retirement Plan also provides that a
participant over age 65 who is still in the employ of the Company may elect
prior to the actual date of retirement to receive the benefits to which he would
have been entitled had he retired on the date of such election. Pursuant to this
provision, Mr. Burns and Mr. Cuming each elected in February 2001 and Mr. Kirby
elected in 1996 to receive their benefits under, and to cease participating in,
the Retirement Plan.
The following table shows the estimated annual retirement benefit payable
under the Company's Retirement Plan (without giving effect to the Social
Security offset or the offset for benefits accrued under the previously
terminated retirement plan) to a participant who, upon
18
retirement on December 31, 2001 at age 65, had achieved the average compensation
and years of service indicated. The amounts shown assume payment in the form of
a straight life annuity.
YEARS OF SERVICE
AVERAGE ----------------------
COMPENSATION 10 15 OR MORE
------------ -------- ----------
$ 125,000.................................... $ 53,788 $ 80,682
150,000................................... 64,546 96,819
175,000................................... 75,303 112,955
200,000................................... 86,061 129,091
225,000................................... 96,819 145,228
250,000................................... 107,576 161,364
300,000................................... 129,091 193,637
400,000................................... 172,122 258,183
450,000................................... 193,637 290,456
500,000................................... 215,152 322,729
600,000................................... 258,183 387,274
700,000................................... 301,213 451,820
800,000................................... 344,244 516,366
900,000................................... 387,279 580,919
1,000,000................................... 430,310 645,466
1,100,000................................... 473,341 710,012
As of December 31, 2001, the credited years of service for Messrs. Hart and
Sismondo were 12 and 14, respectively. The average compensation of each of
Messrs. Hart and Sismondo for purposes of the Retirement Plan was $477,731 and
$220,768, respectively.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Compensation
Committee") is currently composed of the three non-employee directors whose
names appear at the end of this report.
An important objective of the Compensation Committee is to ensure that the
compensation practices of the Company are competitive and effectively designed
to attract, retain and motivate highly-qualified personnel. In performing its
functions, the Compensation Committee in recent years has obtained and utilized
information and advice furnished by a recognized national compensation
consulting firm.
19
Compensation paid to the executive officers of the Company in 1999, 2000
and 2001 consisted chiefly of salary, cash bonuses under the Management
Incentive Plan which in large part were tied to the financial results of the
Company, and payouts of cash and Common Stock under the Company's 1993 Plan
which were tied both to the price of the Common Stock and to the financial
results of the Company. These compensation practices help to link the interests
of the Company's executive officers with the interests of the Company's
stockholders.
Annual Compensation
Salary adjustments for executive officers are generally made annually and
are based on salaries for the prior year, executive salary movements nationally,
individual performance, length of service and internal comparability
considerations.
Annual cash bonuses are paid to executive officers under the Company's
Management Incentive Plan (except that Mr. Kirby did not receive any such
bonuses in respect of 1999, 2000 or 2001). This plan is designed to reward
officers for the achievement of specified corporate and/or individual
objectives. The bonus opportunity for 2001 for Mr. Burns was increased from the
prior year at the rate of 6.0 percent (which was in proportion to his change in
salary). Each of Messrs. Cuming and Hart had his 2001 maximum bonus opportunity
increased to 60 percent of his 2001 salary, and Mr. Sismondo's 2001 maximum
bonus opportunity was increased to 48 percent of his 2001 salary, such increases
in each case representing an increase of approximately 20 percent in bonus
opportunity from 2000. Such adjustments were made in consultation with the
Committee's compensation consultant and were intended to increase the
performance-based compensation of such officers' annual compensation. Bonus
opportunities for executive officers of the Company as a percentage of salaries
for 2001 ranged from 76 percent of salary for Mr. Burns to 40 percent of salary
for the most junior executive officer of the Company, and are believed to fall
at or below the median of prevailing practices in a broad cross-section of
American industry reflecting the Company's policy of emphasizing long-term
corporate performance and long-term incentive compensation. Bonus opportunities
for 2000 were adjusted from the prior year at the rate of 5.0 percent (which was
in proportion to changes in salaries). Bonus opportunities for 1999 for each of
Messrs. Burns, Cuming and Hart were adjusted from the prior year at the rate of
4.8 percent (which was in proportion to changes in salaries); Mr. Sismondo's
1999 maximum bonus opportunity was increased to 40 percent of his 1999 salary,
which represented a 54 percent increase in bonus opportunity from 1998, in
recognition of his increased responsibilities.
For 2001, the portion of the cash bonus opportunities which depended on
corporate objectives ranged from 80 percent of Mr. Burns's bonus opportunity to
50 percent of the cash bonus opportunity of the most junior executive officer of
the Company. The corporate objective
20
under the Management Incentive Plan was the achievement by the Company of a
specified level of net earnings per share, excluding gain on the sale of
Alleghany Asset Management, Inc., which was based on the planned net earnings
per share for the year as approved by the Board of Directors and included in the
Alleghany Corporation Strategic Plan 2001-2005. Target amounts were to be earned
if plan net earnings per share were achieved, and maximum amounts were to be
earned at 110 percent of plan. For any amounts to be earned, net earnings per
share were required to exceed 80 percent of plan. The Company's 2001 net
earnings per share did not exceed 80 percent of plan; therefore, no amounts were
earned on that portion of the cash bonus opportunities that was dependent on
corporate objectives.
The remainder of the cash bonus opportunities of the executive officers of
the Company for 2001 was based on achievement of individual objectives.
Individual objectives for the executive officers of the Company (other than Mr.
Burns) were determined, and the performance of such officers was assessed, by
the chief executive officer. Individual objectives for Mr. Burns were
determined, and his performance was assessed, by the Board of Directors upon the
recommendation of the Compensation Committee, which received the recommendation
of the Chairman of the Board with respect thereto. Mr. Burns earned the maximum
amount on that portion of his cash bonus opportunity for 2001 that was dependent
on individual objectives as a result of the Company's acquisitions of Capitol
Transamerica Corporation and a Nebraska-domiciled insurance company which
operates in conjunction with Capitol Transamerica Corporation.
Long-Term Incentive Compensation
In addition to annual compensation, the Company provides long-term
incentive compensation to its executive officers pursuant to awards under the
1993 Plan (except that Mr. Kirby did not receive any such awards in 1999, 2000
or 2001). This plan provides for long-term incentives based upon objective,
quantifiable measures of the Company's performance over a period of time. Most
of the long-term incentive awards to the Company's executive officers have been
made in the form of performance shares, which entitle the holder thereof to
payouts in cash and/or Common Stock (in such proportion as is determined by the
Compensation Committee) up to a maximum amount equal to the value of one share
of Common Stock on the payout date for each performance share awarded. Payouts
generally have been made one-half in cash and one-half in Common Stock. Maximum
payouts with respect to currently outstanding performance shares will be made
only if average annual compound growth in the Company's Earnings Per Share (as
defined by the Compensation Committee pursuant to the 1993 Plan) equals or
exceeds 12 percent as measured from a specified base in the four-year award
period commencing with the year following that in which the performance shares
were awarded, and no payouts will be made if such growth is 8 percent or less;
payouts for growth between
21
8 percent and 12 percent will be determined by interpolation. The Board of
Directors and its Compensation Committee have provided for antidilution
adjustments with respect to performance shares. The specified base Earnings Per
Share is determined by reference to the projected earnings per share for the
year in which the performance shares were awarded, as adjusted to eliminate
certain non-recurring items. Subject to certain limitations, the Compensation
Committee may provide for adjustments in the cash and/or Common Stock to be paid
with respect to performance share awards in order to adjust for the effect upon
Earnings Per Share of transactions of an extraordinary, unusual or non-recurring
nature, capital gains, or any purchase, pooling of interests, disposal or
discontinuance of any operations, change in accounting rules or practices,
retroactive restatement of earnings, or the like.
In determining the number of performance shares awarded each year, the
Compensation Committee has sought to achieve reasonable continuity in awards
from prior years. Also, the Compensation Committee considers changes in salaries
and the price of Common Stock. The number of performance shares awarded to an
executive officer in 2001 for the 2002-2005 award period was determined by
adjusting the prior year's award to reflect the increase in his salary from 2001
to 2002 and to reflect the movements in the price of the Common Stock.
In the case of the Company's most senior executive officers, long-term
incentive compensation opportunities are believed to be close to the prevailing
practices in a broad cross section of American industry; in the case of the
Company's most junior executive officer, such opportunity is believed to be
somewhat more generous than such prevailing practices. The awards reflect the
Company's policy of emphasizing long-term corporate performance and long-term
incentive compensation opportunities over short-term results and short-term
incentive compensation opportunities.
In 2001, the Compensation Committee also made special tax paid awards of
shares of Common Stock under the 1993 Plan to Messrs. Cuming, Hart and Sismondo
(which awards are reflected in the columns labeled "Bonus" and "Other Annual
Compensation" in the Summary Compensation Table) in recognition of their special
accomplishments over the preceding three years.
Section 162(m) of the Internal Revenue Code of 1986
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), disallows a deduction to the Company for any compensation paid to a
"covered employee" in excess of $1 million per year, subject to certain
exceptions. In general, "covered employees" include the chief executive officer
and the four other most highly compensated executive officers of the Company who
are in the employ of the Company and are officers at the end of the tax year.
Among other exceptions, the deduction limit does not apply to compensation that
22
meets the specified requirements for "performance-based compensation." In
general, those requirements include the establishment of objective performance
goals for the payment of such compensation by a committee of the Board of
Directors composed solely of two or more outside directors, stockholder approval
of the material terms of such compensation prior to payment, and certification
by the committee that the performance goals for the payment of such compensation
have been achieved. While the Compensation Committee believes that the Company
should seek to obtain maximum deductibility of compensation paid to executive
officers, the Compensation Committee also believes that the interests of the
Company and its stockholders are best served by assuring that appropriate
compensation arrangements are established to retain and incentivize executive
officers.
The Compensation Committee has endeavored, to the extent it deems
consistent with the best interests of the Company and its stockholders, to cause
awards of long-term incentive compensation to qualify as "performance-based
compensation" under Section 162(m). To that end, the 1993 Plan was amended and
submitted to and approved by the stockholders of the Company at the 1995 Annual
Meeting, and the material terms of certain awards under the 1993 Plan were
submitted to and approved by the stockholders of the Company at the 2000 Annual
Meeting, so that compensation payable pursuant to certain long-term incentive
awards may qualify for deductibility under Section 162(m). All of the
performance shares awarded in 2001 to Messrs. Burns, Cuming, Hart and Sismondo
described in Note (1) to the table relating to long-term incentive awards are
intended to qualify as "performance-based compensation" for purposes of Section
162(m).
The Compensation Committee does not currently intend to structure the
annual cash bonuses under the Management Incentive Plan to comply with the
"performance-based compensation" rules of Section 162(m). Such bonuses do not
meet the requirement of Section 162(m) that they be payable "solely on account
of the attainment of one or more preestablished, objective performance goals,"
since in most cases such bonuses also have subjective performance goals. In
addition, the material terms of bonuses under the Management Incentive Plan were
not submitted for the approval of the stockholders of the Company, as required
by Section 162(m). The Compensation Committee believes the annual cash bonuses,
as currently structured, best serve the interests of the Company and its
stockholders by allowing the Company to recognize an executive officer's
contribution.
With respect to other compensation that has been or may be paid to
executive officers of the Company, the Compensation Committee may consider the
requirements of Section 162(m) and make determinations regarding compliance with
Section 162(m) based upon the best interests of the Company and its
stockholders.
23
Other Benefits
The Company also provides to its executive officers other benefits, such as
retirement income, death benefits and savings credits, including those described
elsewhere in this proxy statement. The amounts of these benefits generally are
tied directly to salaries, as variously defined in the relevant plans. Such
additional benefits are believed to be typical of the benefits provided by other
public companies to their executives.
Dan R. Carmichael
William K. Lavin
Roger Noall
Compensation Committee
of the Board of Directors
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors (the "Audit Committee") is
responsible for reviewing the financial accounting, financial reporting and
internal controls of the Company and its subsidiaries. The Audit Committee also
recommends to the Board, subject to stockholder ratification, the selection of
the Company's independent auditors. The Audit Committee is currently composed of
four independent directors whose names appear at the end of this report. The
members are independent as defined in the New York Stock Exchange's listing
standards, which provide, among other things, that directors shall have no
relationship with the Company that may interfere with the exercise of their
independence from management and the Company. On March 21, 2000, the Board of
Directors adopted the Audit Committee Charter, which was included as an appendix
to the Company's proxy statement for the 2001 Annual Meeting of Stockholders.
Management is responsible for the Company's internal controls and the
financial reporting process. The independent auditors are responsible for
performing an independent audit of the Company's consolidated financial
statements in accordance with generally accepted auditing standards and for
issuing a report thereon. The Audit Committee's responsibility is to monitor and
review these processes and the activities of the Company's independent auditors.
The Audit Committee members are not acting as professional accountants or
auditors, and their functions are not intended to duplicate or certify the
activities of management and the independent auditors or to certify the
independence of the auditors under applicable rules.
24
In this context, the Audit Committee has reviewed and discussed the
Company's audited financial statements as of December 31, 2001 and for the
fiscal year then ended with management and KPMG LLP, the Company's independent
auditors. The Audit Committee has discussed with KPMG LLP the matters required
to be discussed by Statement on Auditing Standards No. 61, "Communication with
Audit Committees," as amended, as issued by the Auditing Standards Board of the
American Institute of Certified Public Accountants.
KPMG LLP also provided to the Audit Committee the written disclosures and
the letter required by Standard No. 1, "Independence Discussions with Audit
Committees," as adopted by the Independence Standards Board, and the Audit
Committee discussed with KPMG LLP its independence. When considering KPMG LLP's
independence, the Audit Committee considered, among other matters, whether KPMG
LLP's provision of non-audit services to the Company is compatible with
maintaining the independence of KPMG LLP.
Based on the reviews and discussions with management and KPMG LLP referred
to above, the Audit Committee has recommended to the Board of Directors that the
audited financial statements as of December 31, 2001 and for the fiscal year
then ended be included in the Company's Annual Report on Form 10-K for such
fiscal year. The Audit Committee also recommended to the Board of Directors that
KPMG LLP be selected as independent auditors of the Company for the year 2002,
subject to stockholder ratification.
William K. Lavin
Rex D. Adams
Dan R. Carmichael
Thomas S. Johnson
Audit Committee
of the Board of Directors
25
PERFORMANCE GRAPH
The following graph compares for the years 1997-2001 the cumulative total
stockholder return on the Common Stock, the cumulative total return on the
Standard & Poor's 500 Stock Index (the "S&P 500") and the cumulative total
return on the common stock of two groups of "peer" issuers.
In 2001, the Company was a moderately diversified business enterprise with
revenues generated by its operations in property and casualty insurance,
industrial minerals and steel fasteners.
"Peer" issuers for the Company are publicly held, diversified financial
services companies which have been selected for their similarities to the
Company in terms of lines of business, recent history of acquisitions and
dispositions, holding company structure and/or concentration of ownership,
although any "peer" issuer, in the Company's view, would be significantly
different from other "peer" issuers and from the Company due to the individual
character of its business. Last year, the Company compared its performance to a
group of "peer" issuers that, in addition to the Company, consisted of Loews
Corporation, Old Republic International Corporation, Lincoln National
Corporation, American Financial Group, Inc., and Reliance Group Holdings, Inc.
(collectively, the "Old Peer Group").
After the sale of Alleghany Asset Management, Inc. by the Company in
February 2001, Lincoln National Corporation and the Company no longer operate in
similar lines of business. In June 2001, Reliance Group Holdings, Inc. filed a
voluntary petition for relief under Chapter 11 of the United States Bankruptcy
Code in the United States Bankruptcy Court for the Southern District of New
York. As a result, Lincoln National and Reliance no longer satisfy the selection
criteria outlined above. Accordingly, the Company has constructed a new group of
"peer" issuers which, in addition to the Company, consists of American Financial
Group, Inc., Loews Corporation, Old Republic International Corporation and
Leucadia National Corporation (collectively, the "New Peer Group").
26
ALLEGHANY S&P 500 OLD PEER GROUP NEW PEER GROUP
--------- ------- -------------- --------------
1997 137.00 133.36 128.79 119.95
1998 145.04 171.48 128.03 115.48
1999 146.07 207.56 95.94 81.88
2000 165.05 188.66 136.74 135.67
2001 157.66 166.24 140.79 135.24
The foregoing performance graph is based on the following assumptions: (i)
cash dividends are reinvested on the ex-dividend date in respect of such
dividend; (ii) the two-percent stock dividends paid by the Company in 1997,
1999, 2000 and 2001 are included in the cumulative total stockholder return on
the Common Stock; and (iii) total returns on the common stock of "peer" issuers
are weighted by stock market capitalization at the beginning of each year. On
June 17, 1998, the Company distributed its shares of Chicago Title Corporation
to the Company's stockholders on a pro rata basis. Accordingly, of the five
years shown in the above graph, one year and five and one-half months represent
the performance of the Company prior to the spin-off and three years and six and
one-half months represent the performance of the Company after the spin-off. The
graph accounts for the spin-off as though it were paid in cash and reinvested in
Common Stock of the Company on the date of the spin-off.
27
2. 2002 LONG-TERM INCENTIVE PLAN
The Company's 1993 Long-Term Incentive Plan (the "1993 Plan"), which
provides for awards of long-term incentive compensation to key employees of the
Company and its subsidiaries, will terminate by its terms on December 31, 2002.
Currently, 427,523 shares of Common Stock which are available for award
thereunder have not been awarded. The Board of Directors believes it to be in
the best interests of the Company and its stockholders to adopt a new plan at
this time in order to be able to continue to provide long-term incentives to
employees who are responsible for the continued success and growth of the
Company and its subsidiaries without a gap after the expiration of the 1993 Plan
at year-end 2002. Adoption of a new plan at this time will also assure that
there will be an adequate supply of shares to fashion appropriate incentives for
any new senior level executives. To provide a continuation of those incentives
and to assist the Company in attracting and retaining executives of experience
and ability on a basis competitive with industry practices, the Board of
Directors has adopted the 2002 Long-Term Incentive Plan (the "2002 Plan"),
effective upon stockholder approval. The 2002 Plan permits the Company to
provide incentive compensation of the types commonly known as restricted stock,
stock options, stock appreciation rights, performance shares, performance units
and phantom stock, as well as other types of incentive compensation. Upon
stockholder approval of the 2002 Plan, the 1993 Plan will be terminated. No
awards may be granted under the 2002 Plan after December 31, 2006.
Description of the 2002 Plan
The 2002 Plan is administered by the Compensation Committee. No member of
the Compensation Committee, during the one-year period prior to such membership
or during such membership, shall be granted or awarded equity securities
pursuant to the 2002 Plan or any other plan of the Company or any of its
affiliates, except as permitted by Securities and Exchange Commission rules. The
Compensation Committee has authority to determine, within the limits of the 2002
Plan, the individuals to whom awards will be granted, and the type and size of
such awards, including any objectives or conditions for earning payment pursuant
to such awards.
The Compensation Committee may select participants in the 2002 Plan from
among the employees of the Company and its subsidiaries. The term "employee," as
used in the 2002 Plan, means any person (including any officer or director)
employed by the Company or a subsidiary on a salaried basis, and the term
"subsidiary," as used in the 2002 Plan, means any corporation a majority of the
total combined voting power of whose stock is beneficially owned, directly or
indirectly, by the Company. The Company and its subsidiaries currently have
approximately 2,093 employees.
28
Awards under the 2002 Plan may include, but need not be limited to, cash
and/or shares of the Company's Common Stock, rights to receive cash and/or
Common Stock and options to purchase shares of Common Stock, including options
intended to qualify as incentive stock options under section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and options not intended so to
qualify. The Compensation Committee may also make any other type of award deemed
by it to be consistent with the purposes of the 2002 Plan.
The Compensation Committee may (but is not required to) grant an award to
any participant that is intended to qualify as "performance-based compensation"
within the meaning of Section 162(m) of the Code (a "Qualifying Award"). Awards
that are intended to be Qualifying Awards (other than stock options) must be
granted conditional upon the attainment of specific amounts of, or increases in,
one or more of the following performance goals established by the Compensation
Committee in writing at the time the award is granted: revenues, operating
income, cash flow, income before income taxes, net income, earnings per share,
net worth, stockholders' equity, return on equity or assets or total return to
stockholders, whether applicable to the Company or any relevant subsidiary or
business unit or entity in which the Company has a significant investment, or
any combination thereof, as the Compensation Committee may deem appropriate.
Prior to the payment of any Qualifying Award (other than stock options), the
Compensation Committee must certify in writing that the performance goals were
satisfied.
A maximum of 700,000 shares of Common Stock may be paid to participants
under the 2002 Plan and/or purchased pursuant to stock options granted under the
2002 Plan, subject to antidilution and other adjustments in certain events
specified in the 2002 Plan. Such shares of Common Stock may be either authorized
but unissued shares or shares held by the Company as treasury shares. In
addition, a maximum of 100,000 shares of Common Stock may be granted as
Qualifying Awards to any participant in any calendar year, subject to
antidilution and other adjustments in certain events specified in the 2002 Plan.
The 2002 Plan provides that no stock option granted under the 2002 Plan
shall be exercisable more than twelve years after its grant and the price at
which shares of Common Stock may be purchased under any such stock option shall
not be less than 100 percent of its "fair market value," as defined in the 2002
Plan, on the date of grant. "Fair market value" is defined in the 2002 Plan
generally as the mean of the high and low sales prices of the Common Stock on
the relevant date as reported on the stock exchange or market on which the
Common Stock is primarily traded, or, if no sale is made on such date, then fair
market value is the weighted average of the mean of the high and low sales
prices of the Common Stock on the next preceding day and the next succeeding day
on which such sales were made as reported on the stock exchange or market on
which the Common Stock is primarily traded. Upon
29
exercise of a stock option, the option price is required to be paid in cash, or,
at the discretion of the Compensation Committee, in shares of Common Stock
valued at the fair market value thereof on the date of payment, or in a
combination of cash and shares of Common Stock.
The 2002 Plan authorizes the Compensation Committee, in the event of any
tender offer or exchange offer (other than an offer by the Company) for shares
of Common Stock, to take such action as it may deem appropriate to enable
recipients of outstanding awards to avail themselves of the benefits of such
offer, including acceleration of payment or exercise dates and purchase of
outstanding stock options.
Under the 2002 Plan, no award may be assigned or transferred by a
participant other than by will or the laws of descent and distribution or as
designated in writing. However, the Compensation Committee may provide that
awards granted pursuant to the 2002 Plan (other than an option granted as an
incentive stock option) be transferable without consideration to a participant's
immediate family members (i.e. children, grandchildren or spouse), to trusts for
the benefit of such immediate family members, and to partnerships in which such
family members are the only partners.
The Board of Directors, without the consent of any participant, may amend
or terminate the 2002 Plan at any time, provided, however, that no such action
shall adversely affect any rights or obligations with respect to any awards
theretofore made under the 2002 Plan, and provided further, that no such
amendment, without approval of the holders of a majority of the shares of Common
Stock voted thereon in person or by proxy, shall increase the number of shares
of Common Stock subject to the 2002 Plan, extend the period during which awards
may be granted, increase the maximum term for which stock options may be issued
under the 2002 Plan, decrease the minimum price at which stock options may be
issued under the 2002 Plan, or materially modify the requirements for
eligibility to participate in the 2002 Plan.
The per share fair market value (as defined in the 2002 Plan) of the
Company's Common Stock on March 1, 2002 was $194.625 and the aggregate market
value on such date of the 700,000 shares of Common Stock subject to the 2002
Plan was $136,237,500. There is no limit specified in the 2002 Plan on the
amount of cash which may be paid pursuant to awards granted under the 2002 Plan.
The Company's Deferred Compensation Plan, which provides for unfunded
deferred compensation arrangements for directors and officers of the Company,
permits deferrals of all or a portion of any payments under the 2002 Plan or any
successor long-term incentive plan.
30
Federal Income Tax Consequences
The grant and payment of awards under the 2002 Plan may have varying tax
consequences to the Company and each participant, depending upon the nature of
the award and certain other considerations. The following description is a
summary of the federal income tax treatment of awards under the 2002 Plan;
because the applicable rules are quite technical, the description is general in
nature and does not purport to be complete.
A participant who is granted a non-qualified stock option under the 2002
Plan will not recognize any taxable income at the time the option is granted.
Generally, upon exercise of the non-qualified option, the participant will
recognize ordinary income, and the Company will be entitled to a deduction, in
an amount equal to the excess of the fair market value (on the date of exercise)
of the shares of Common Stock acquired upon exercise of the option over the
exercise price paid (excluding, for this calculation, any amount of the exercise
price paid with previously-acquired shares of Common Stock). The participant's
basis for purposes of determining gain or loss on a subsequent disposition of
the shares (or net shares) of Common Stock acquired upon exercise of the option
will be the fair market value of those shares on the date the participant
exercised the option, and any such subsequent gain or loss will generally be
taxable as a capital gain or loss, short-term or long-term depending upon the
participant's holding period for the shares of Common Stock.
If a participant is granted an option under the 2002 Plan that constitutes
an incentive stock option, the participant will not recognize any taxable income
either at the time the option is granted or upon exercise of the option,
provided the participant was an employee of the Company or a subsidiary of the
Company from the date the option was granted until three months prior to the
date the option was exercised, and the Company will not be entitled to any
deduction. However, the excess of the fair market value (on the date of
exercise) of the shares of Common Stock acquired upon exercise of the incentive
stock option over the exercise price paid will be an "item of tax preference"
that may subject the participant to alternative minimum tax liability.
If the participant does not dispose of the shares of Common Stock acquired
upon exercise of an incentive stock option for at least two years after the
incentive stock option was granted and at least one year after the shares were
acquired, all gain subsequently realized upon the disposition of the shares of
Common Stock will be treated as long-term capital gain, and any loss will be
treated as long-term capital loss. If these holding periods are met, the Company
will not be allowed any deduction with respect to the exercise of the incentive
stock option. If the participant disposes of the shares of Common Stock acquired
upon exercise of an incentive stock option within the one-year and two-year
periods specified above, the participant will recognize ordinary income, and the
Company will be entitled to a deduction in an amount
31
equal to the lesser of (i) the excess of the fair market value (on the date of
exercise) of the shares of Common Stock acquired over the exercise price paid,
or (ii) the gain recognized, provided the shares of Common Stock were disposed
of by sale or exchange. Any amount recognized in excess of the fair market value
(on the date of exercise) of the shares of Common Stock will be taxable as
long-term or short-term capital gain, depending upon the participant's holding
period for the shares of Common Stock.
A participant who is granted any other award entitling the participant to
receive cash or shares of Common Stock will generally not recognize any income
upon the grant of the award. However, upon the payment of any cash or the
delivery of any shares of Common Stock (other than "restricted" shares of Common
Stock), the participant generally will recognize ordinary income in an amount
equal to the sum of any cash paid and the fair market value of any Common Stock
received, and the Company will be entitled to a deduction equal to the amount
recognized by the participant as ordinary income.
If the shares of Common Stock received by a participant are restricted,
i.e., subject to a substantial risk of forfeiture, then, unless the participant
makes the election described below, the participant will not recognize any
income on the date that the shares of Common Stock were received. Instead, the
participant generally will recognize ordinary income in an amount equal to the
fair market value of the Common Stock on the date that the restrictions with
respect to such shares lapse, and the Company will be entitled to a deduction
equal to the amount recognized by the participant as ordinary income. The
participant's basis for purposes of determining gain or loss on a subsequent
disposition of the shares of Common Stock will be the fair market value of the
Common Stock on the date that the restrictions with respect to such shares
lapsed, and any subsequent gain or loss will generally be taxable as a capital
gain or loss, short-term or long-term depending upon the participant's holding
period for the shares of Common Stock.
However, a participant may elect within thirty days after receipt of the
restricted shares of Common Stock to recognize ordinary income in an amount
equal to the fair market value of such shares (less the amount, if any, paid
therefor) as of the date of receipt. In that case, the participant's basis in
the shares of Common Stock will be the fair market value of the shares of Common
Stock on the date that the shares were received, and any subsequent gain or loss
will generally be taxable as a capital gain or loss, short-term or long-term
depending upon the participant's holding period for the shares of Common Stock.
However, if the restricted shares of Common Stock are subsequently forfeited,
the participant will not be entitled to any tax deduction.
Under the federal income tax laws, special rules may apply to participants
in the 2002 Plan that are subject to restrictions on the resale of shares of
Common Stock acquired pursuant
32
to the 2002 Plan under Section 16(b) of the Securities Exchange Act of 1934, as
amended. These rules, which effectively take into account the Section 16(b)
restrictions, apply in limited circumstances and may impact the timing and/or
amount of income recognized by these participants with respect to certain
stock-based awards under the 2002 Plan.
The deductions by the Company for payments in cash or shares under the 2002
Plan may be affected by Section 162(m) of the Code which, as noted above,
disallows a deduction to the Company for any compensation paid to the Company's
chief executive officer and four other most highly compensated officers in
excess of $1 million for any taxable year of the Company, subject to certain
exceptions. Among other exceptions, the deduction limit does not apply to
compensation that meets certain specified requirements for "performance-based
compensation." Awards granted by the Compensation Committee which constitute
Qualifying Awards under the 2002 Plan are intended to qualify as
"performance-based compensation."
New Plan Benefits
The following table sets forth the dollar value and number of shares of
Common Stock and performance shares awarded in 2001 to participants in the 1993
Plan, which would have been awarded under the 2002 Plan if it had been in effect
in 2001.
NEW PLAN BENEFITS
2002 LONG-TERM INCENTIVE PLAN
DOLLAR VALUE
NAME AND POSITION ($)(1) NUMBER OF UNITS
----------------- ------------ ---------------
John J. Burns, Jr...................................... $1,409,927 7,505
President and chief executive officer
F.M. Kirby............................................. -- --
Chairman of the Board
David B. Cuming........................................ $2,184,086 7,100
Senior Vice President
Robert M. Hart......................................... $2,483,935 8,100
Senior Vice President, General Counsel and Secretary
Peter R. Sismondo...................................... $1,062,075 3,593
Vice President, Controller, Treasurer and Assistant
Secretary
Executive Officers as a group.......................... $7,140,023 26,298
Non-executive officer directors as a group............. -- --
Non-executive officer employees as a group(2).......... $4,227,059 13,334
33
---------------
(1) These amounts represent (i) in the case of Messrs. Cuming, Hart and
Sismondo, the aggregate value, as of the date of the award, of the shares of
Common Stock awarded in 2001 and the reimbursement of taxes incurred in
respect of such awards (as more fully described in Notes (1) and (2) to the
Summary Compensation Table), and (ii) in the case of Messrs. Burns, Cuming,
Hart and Sismondo, the maximum estimated future payouts with respect to
performance shares awarded in 2001 (as more fully described in Note (1) to
the table relating to long-term incentive plans).
(2) These amounts represent (i) the aggregate value, as of the date of the
award, of 9,000 shares of Common Stock awarded in 2001 to four non-executive
officers of the Company and the reimbursement of taxes incurred in respect
of such awards, and (ii) the maximum estimated future payouts (determined on
a basis consistent with performance shares awarded in 2001 to Messrs. Burns,
Cuming, Hart and Sismondo) with respect to 4,334 performance shares awarded
in 2001 to three non-executive officers of the Company.
Stockholder Approval of the 2002 Plan
An affirmative vote of a majority of the shares of Common Stock present in
person or represented by proxy and entitled to vote at the 2002 Annual Meeting
is required to approve the 2002 Plan. Shares which are voted against the
approval of the 2002 Plan, shares the holders of which abstain from voting for
the approval of the 2002 Plan, and shares held by brokers or nominees as to
which (i) such brokers or nominees do not have discretionary authority to vote
on this matter and (ii) instructions have not been received from the beneficial
owners of such shares ("broker non-votes") will not be counted in the total
number of shares voted for the approval of the 2002 Plan. Abstentions and broker
non-votes will be counted as present at the meeting for quorum purposes.
A copy of the 2002 Plan is set forth in full in Exhibit A to this proxy
statement. The foregoing description is a summary of some, but not all, of the
essential provisions of the 2002 Plan, and is qualified by reference to the full
text of the 2002 Plan.
In the event that the 2002 Plan is not approved by stockholders of the
Company, the 1993 Plan will remain in effect until it terminates by its terms on
December 31, 2002, and the Board of Directors will consider what action is
advisable for the replacement of the 1993 Plan upon its termination.
Management recommends a vote "FOR" the approval of the 2002 Plan. Proxies
solicited by the Board of Directors will be so voted unless stockholders specify
a contrary vote.
34
3. RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected KPMG LLP, independent certified public
accountants, as independent auditors for the Company for the year 2002. A
resolution will be submitted to stockholders at the Annual Meeting for
ratification of such selection. Although ratification by stockholders is not a
prerequisite to the ability of the Board of Directors to select KPMG LLP as the
Company's independent auditors, the Company believes such ratification to be
desirable. If the stockholders do not ratify the selection of KPMG LLP, the
selection of independent auditors will be reconsidered by the Board of
Directors; however, the Board of Directors may select KPMG LLP notwithstanding
the failure of the stockholders to ratify its selection.
The following table summarizes the aggregate fees billed by KPMG LLP for
services rendered for the year ended December 31, 2001:
Audit fees............................................. $1,270,300
Financial information systems design and implementation
fees................................................. --
All other fees......................................... 613,700
----------
Total.................................................. $1,884,000
The amount shown for "Audit fees" represents fees for professional services
rendered for the audit by KPMG LLP of Alleghany's annual financial statements
for 2001 and the reviews by KPMG LLP of Alleghany's financial statements
included in its Quarterly Reports on Form 10-Q during 2001. The amount shown for
"All other fees" represents audit related fees of $457,700 for professional
services rendered in connection with due diligence assistance in connection with
acquisitions, employee benefit plan audits, verification of calculations of
certain contractual payouts, consents for registration statements and other
matters, and fees for non-audit related services of $71,000 for tax compliance
and $85,000 for oversight assistance in connection with the implementation of
production information systems.
The Audit Committee has considered whether the provision of information
technology and non-audit services are compatible with maintaining the
independence of KPMG LLP.
The Board of Directors recommends a vote "FOR" this resolution. Proxies
solicited by the Board of Directors will be so voted unless stockholders specify
a contrary vote. The resolution may be adopted by a majority of the votes cast
with respect thereto.
KPMG LLP was Old Alleghany's independent auditors from 1947 and has been
the Company's independent auditors since its incorporation in November 1984.
It is expected that a representative of KPMG LLP will be present at the
Annual Meeting, will have an opportunity to make a statement if he desires to do
so, and will be available to respond to appropriate questions.
35
4. ALL OTHER MATTERS THAT MAY COME BEFORE THE ANNUAL MEETING
As of the date of this statement, the Board of Directors knows of no
business that will be presented for consideration at the Annual Meeting other
than that referred to above. As to other business, if any, that may come before
the Annual Meeting, proxies in the enclosed form will be voted in accordance
with the judgment of the person or persons voting the proxies.
STOCKHOLDER NOMINATIONS AND PROPOSALS
The Nominating Committee of the Board of Directors will receive at any time
and will consider from time to time suggestions from stockholders as to persons
to be nominated by the Board of Directors for election thereto by the
stockholders or to be chosen by the Board of Directors to fill newly created
directorships or vacancies on the Board of Directors.
The Company's by-laws require that there be furnished to the Company
written notice with respect to the nomination of a person for election as a
director (other than a person nominated by or at the direction of the Board of
Directors), as well as the submission of a proposal (other than a proposal
submitted by or at the direction of the Board of Directors), at a meeting of
stockholders. In order for any such nomination or submission to be proper, the
notice must contain certain information concerning the nominating or proposing
stockholder and the nominee or the proposal, as the case may be, and must be
furnished to the Company generally not less than 30 days prior to the meeting. A
copy of the applicable by-law provisions may be obtained, without charge, upon
written request to the Secretary of the Company at its principal executive
offices.
In accordance with the rules of the Securities and Exchange Commission, any
proposal of a stockholder intended to be presented at the Company's 2003 Annual
Meeting of Stockholders must be received by the Secretary of the Company by
November 27, 2002 in order for the proposal to be considered for inclusion in
the Company's notice of meeting, proxy statement and proxy relating to the 2003
Annual Meeting, scheduled for Friday, April 25, 2003.
ADDITIONAL INFORMATION
At any time prior to their being voted, the enclosed proxies are revocable
by written notice to the Secretary of the Company or by appearance at the Annual
Meeting and voting in person. A quorum comprising the holders of a majority of
the outstanding shares of Common Stock on the record date must be present in
person or represented by proxy for the transaction of business at the 2002
Annual Meeting.
36
Solicitation of proxies will be made by mail, telephone and, to the extent
necessary, by telegrams and personal interviews. Expenses in connection with the
solicitation of proxies will be borne by the Company. Brokers, custodians and
fiduciaries will be requested to transmit proxy material to the beneficial
owners of Common Stock held of record by such persons, at the expense of the
Company. The Company has retained Georgeson Shareholder Communications Inc. to
aid in the solicitation of proxies, and for its services the Company expects to
pay fees of approximately $9,000 plus expenses.
By order of the Board of Directors
ROBERT M. HART
Senior Vice President, General
Counsel
and Secretary
March 25, 2002
37
EXHIBIT A
ALLEGHANY CORPORATION
2002 LONG-TERM INCENTIVE PLAN
1. PURPOSES OF THE PLAN. The purposes of the Alleghany Corporation 2002
Long-Term Incentive Plan (the "Plan") are to further the long-term growth of
Alleghany Corporation (the "Corporation"), to the benefit of its stockholders,
by providing incentives to the officers and employees of the Corporation and its
subsidiaries who will be largely responsible for such growth, and to assist the
Corporation in attracting and retaining executives of experience and ability on
a basis competitive with industry practices. The Plan permits the Corporation to
provide incentive compensation of the types commonly known as restricted stock,
stock options, stock appreciation rights, performance shares, performance units
and phantom stock, as well as other types of incentive compensation.
2. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Compensation Committee of the Board of Directors of the Corporation (the
"Committee"). No member of the Committee, during the one year period prior to
such membership or during such membership, shall be granted or awarded equity
securities pursuant to the Plan or any other plan of the Corporation or any of
its affiliates, except as permitted by Rule 16b-3(c)(2)(i) promulgated under the
Securities Exchange Act of 1934, as amended, as such Rule may be amended from
time to time. Subject to the provisions of the Plan, the Committee shall have
exclusive power to select the employees to participate in the Plan, to determine
the type, size and terms of awards to be made to each participant selected, and
to determine the time or times when awards will be granted. The Committee's
interpretation of the Plan or of any awards granted thereunder shall be final
and binding on all parties concerned, including the Corporation and any
participant. The Committee shall have authority, subject to the provisions of
the Plan, to establish, adopt and revise such rules, regulations, guidelines,
forms of agreements and instruments relating to the Plan as it may deem
necessary or advisable for the administration of the Plan.
3. PARTICIPATION. Participants in the Plan shall be selected by the
Committee from among the employees of the Corporation and its subsidiaries. The
term "employee" shall mean any person (including any officer or director)
employed by the Corporation or a subsidiary on a salaried basis. The term
"subsidiary" shall mean any corporation a majority of the total combined voting
power of whose stock is beneficially owned, directly or indirectly, by the
Corporation. Participants may receive multiple awards under the Plan.
A-1
4. AWARDS.
(a) Types. Awards under the Plan may include, but need not be limited to,
cash and/or shares of the Corporation's common stock, $1.00 par value ("Common
Stock"), rights to receive cash and/or shares of Common Stock, and options
("Options") to purchase shares of Common Stock, including options intended to
qualify as incentive stock options under section 422 of the Internal Revenue
Code of 1986, as amended, and options not intended so to qualify. The Committee
may also make any other type of award deemed by it to be consistent with the
purposes of the Plan.
(b) Certain Qualifying Awards. The Committee, in its sole discretion, may
grant an award to any participant with the intent that such award qualifies as
"performance-based compensation" under Section 162(m) of the Internal Revenue
Code of 1986, as amended (a "Qualifying Award"). The right to receive (or
retain) any award granted as a Qualifying Award (other than an Option) shall be
conditional upon the achievement of performance goals established by the
Committee in writing at the time such award is granted. Such performance goals,
which may vary from participant to participant and award to award, shall be
based upon the attainment of specific amounts of, or increases in, one or more
of the following: revenues, operating income, cash flow, income before income
taxes, net income, earnings per share, net worth, stockholders' equity, return
on equity or assets or total return to stockholders, whether applicable to the
Corporation or any relevant subsidiary or business unit or entity in which the
Corporation has a significant investment, or any combination thereof as the
Committee may deem appropriate. Prior to the payment of any award granted as a
Qualifying Award, the Committee shall certify in writing that the performance
goals were satisfied. The maximum number of shares of Common Stock with respect
to which Qualifying Awards may be granted to any participant in any calendar
year shall be 100,000 shares of Common Stock, subject to adjustment as provided
in section 7(a) hereof.
(c) Deferred Payments. In awarding any right to receive cash and/or shares
of Common Stock, the Committee may specify that the payment of all or any
portion of such cash and/or shares of Common Stock shall be deferred until a
later date. Deferrals shall be for such periods and upon such other terms as the
Committee may determine.
(d) Vesting, Other Performance Requirements and Forfeiture. In awarding
any Options or any rights to receive cash and/or shares of Common Stock
(including Qualifying Awards), the Committee (i) may specify that the right to
exercise such Options or the right to receive payment of such cash and/or shares
of Common Stock shall be conditional upon the fulfillment of specified
conditions, including, without limitation, completion of specified periods of
service in the employ of the Corporation or its subsidiaries, and the
achievement of specified business and/or personal performance goals, and (ii)
may provide for the forfeiture of all or any portion
A-2
of any such Options or rights in specified circumstances. The Committee may also
specify by whom and/or in what manner the accomplishment of any such performance
goals shall be determined.
(e) Agreements. Any award under the Plan may, in the Committee's
discretion, be evidenced by an agreement, which, subject to the provisions of
the Plan, may contain such terms and conditions as may be approved by the
Committee, and shall be executed by an officer on behalf of the Corporation and
by the recipient of the award.
5. SHARES OF STOCK SUBJECT TO THE PLAN. Subject to adjustment as provided
in section 7(a) hereof, the number of shares of Common Stock which may be paid
to participants under the Plan and/or purchased pursuant to Options granted
under the Plan shall not exceed an aggregate of 700,000 shares. Shares to be
delivered or purchased under the Plan may be either authorized but unissued
shares of Common Stock or shares of Common Stock held by the Corporation as
treasury shares.
6. OPTIONS.
(a) Term of Options. The term of any Option shall be determined by the
Committee, but in no event shall any Option be exercisable more than twelve
years after the date on which it was granted.
(b) Option Price; Fair Market Value. The price ("Option Price") at which
shares of Common Stock may be purchased pursuant to any Option shall be
determined by the Committee at the time the Option is granted, but in no event
shall the Option Price be less than 100 percent of the Fair Market Value of such
shares on the date the Option is granted. For purposes of the Plan, Fair Market
Value is the mean of the high and low sales prices of the Common Stock on the
relevant date as reported on the stock exchange or market on which the Common
Stock is primarily traded, or, if no sale is made on such date, then Fair Market
Value is the weighted average of the mean of the high and low sales prices of
the Common Stock on the next preceding day and the next succeeding day on which
such sales were made as reported on the stock exchange or market on which the
Common Stock is primarily traded.
(c) Payment Upon Exercise. Upon exercise of an Option, the Option Price
shall be payable to the Corporation in cash, or, at the discretion of the
Committee, in shares of Common Stock valued at the Fair Market Value thereof on
the date of payment, or in a combination of cash and shares of Common Stock.
(d) Surrender of Options. The Corporation may, if the Committee so
determines, accept the surrender by a participant, or the personal
representative of a participant, of an Option, in consideration of a payment by
the Corporation equal to the difference obtained by subtracting
A-3
the aggregate Option Price from the aggregate Fair Market Value of the Common
Stock covered by the Option on the date of such surrender, such payment to be in
cash, or, if the Committee so provides, in shares of Common Stock valued at Fair
Market Value on the date of such surrender, or partly in shares of Common Stock
and partly in cash.
(e) Effect of Expiration, Termination or Surrender of Options. If an
Option shall expire or terminate unexercised as to any shares of Common Stock
covered thereby, such shares of Common Stock shall not be deducted from the
number available under section 5 hereof. If an Option shall be surrendered as
provided in section 6(d) hereof, the shares of Common Stock (if any) paid in
consideration of such surrender, but not the shares which had been covered by
the Option, shall be deducted from the number available under section 5 hereof.
7. DILUTION AND OTHER ADJUSTMENTS.
(a) Changes in Capital Structure. In the event of any corporate
transaction involving the Corporation (including, without limitation, any
subdivision or combination or exchange of the outstanding shares of Common
Stock, stock dividend, stock split, spin-off, split-off, recapitalization,
capital reorganization, liquidation, reclassification of shares of Common Stock,
merger, consolidation, extraordinary cash distribution, or sale, lease or
transfer of substantially all of the assets of the Corporation), the Board of
Directors of the Corporation shall make such equitable adjustments as it may
deem appropriate in the Plan and the awards thereunder, including, without
limitation, an adjustment in the total number of shares of Common Stock which
may thereafter be delivered or purchased under the Plan and in the maximum
number of shares of Common Stock with respect to which awards may be granted to
any participant in any year under Section 4(b) hereof. Agreements evidencing
Options may include such provisions as the Committee may deem appropriate with
respect to the adjustments to be made to the terms of such Options upon the
occurrence of any of the foregoing events.
(b) Tender Offers and Exchange Offers. In the event of any tender offer or
exchange offer, by any person other than the Corporation, for shares of Common
Stock, the Committee may make such adjustments in outstanding awards and
authorize such further action as it may deem appropriate to enable the
recipients of outstanding awards to avail themselves of the benefits of such
offer, including, without limitation, acceleration of the exercise date of
outstanding Options so that they become immediately exercisable in whole or in
part, or offering to acquire all or any portion of specified categories of
Options for a price determined pursuant to section 6(d) hereof, or acceleration
of the payment of outstanding awards payable, in whole or in part, in shares of
Common Stock.
(c) Limits on Discretion to Make Adjustments. Notwithstanding any
provision of this section 7 to the contrary, no adjustment shall be made in any
outstanding Qualifying Awards to
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the extent that such adjustment would adversely affect the status of that
Qualifying Award as "performance-based compensation" under Section 162(m) of the
Internal Revenue Code of 1986, as amended.
8. MISCELLANEOUS PROVISIONS.
(a) Right to Awards. No employee or other person shall have any claim or
right to be granted any award under the Plan.
(b) Rights as Stockholders. A participant shall have no rights as a holder
of Common Stock by reason of awards under the Plan, unless and until
certificates for shares of Common Stock are issued to the participant.
(c) No Assurance of Employment. Neither the Plan nor any action taken
thereunder shall be construed as giving any employee any right to be retained in
the employ of the Corporation or any subsidiary.
(d) Costs and Expenses. All costs and expenses incurred in administering
the Plan shall be borne by the Corporation.
(e) Unfunded Plan. The Plan shall be unfunded. The Corporation shall not
be required to establish any special or separate fund nor to make any other
segregation of assets to assure the payment of any award under the Plan.
(f) Withholding Taxes. The Corporation shall have the right to deduct from
all awards hereunder paid in cash any federal, state, local or foreign taxes
required by law to be withheld with respect to such payments and, with respect
to awards paid in stock, to require the payment (through withholding from the
participant's salary or otherwise) of any such taxes, but the Committee may make
such arrangements for the payment of such taxes as the Committee in its
discretion shall determine, including payment with shares of Common Stock.
(g) Limits on Transferability. No awards under the Plan nor any rights or
interests therein shall be pledged, encumbered, or hypothecated to, or in favor
of, or subject to any lien, obligation, or liability of a participant to, any
party, other than the Corporation or any subsidiary, nor shall such awards or
any rights or interests therein be assignable or transferable by the recipient
thereof except, in the event of the recipient's death, to his designated
beneficiary as hereinafter provided, or by will or the laws of descent and
distribution. During the lifetime of the recipient, awards under the Plan
requiring exercise shall be exercisable only by such recipient or by the
guardian or legal representative of such recipient. Notwithstanding the
foregoing, the Committee may, in its discretion, provide that awards granted
pursuant to the Plan (other than an option granted as an incentive stock option)
be transferable, without consideration, to a participant's immediate family
members (i.e., children, grandchildren or
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spouse), to trusts for the benefit of such immediate family members and to
partnerships in which such family members are the only partners. The Committee
may impose such terms and conditions on such transferability as it may deem
appropriate.
(h) Beneficiary. Any payments on account of awards under the Plan to a
deceased participant shall be paid to such beneficiary as has been designated by
the participant in writing to the Secretary of the Corporation or, in the
absence of such designation, according to the participant's will or the laws of
descent and distribution.
(i) Nature of Benefits. Awards under the Plan, and payments made pursuant
thereto, are not a part of salary or base compensation.
(j) Compliance with Legal Requirements. The obligation of the Corporation
to issue or deliver shares of Common Stock upon exercise of Options or otherwise
shall be subject to satisfaction of all applicable legal and securities exchange
requirements, including, without limitation, the provisions of the Securities
Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended.
The Corporation shall endeavor to satisfy all such requirements in such a manner
as to permit at all times the exercise of all outstanding Options in accordance
with their terms, and to permit the issuance and delivery of shares of Common
Stock whenever provided for by the terms of any award made under the Plan.
9. AMENDMENT OR TERMINATION OF THE PLAN. The Board of Directors of the
Corporation, without the consent of any participant, may at any time terminate
or from time to time amend the Plan in whole or in part; provided, however, that
no such action shall adversely affect any rights or obligations with respect to
any awards theretofore made under the Plan; and provided, further, that no
amendment, without approval of the holders of Common Stock by an affirmative
vote of a majority of the shares of Common Stock voted thereon in person or by
proxy, shall (i) increase the aggregate number of shares subject to the Plan
(other than increases pursuant to section 7 hereof), (ii) extend the period
during which awards may be granted under the Plan, (iii) increase the maximum
term for which Options may be issued under the Plan, (iv) decrease the minimum
Option Price at which Options may be issued under the Plan, or (v) materially
modify the requirements for eligibility to participate in the Plan. With the
consent of the participants affected, the Committee may amend outstanding
agreements evidencing awards under the Plan, and may amend the terms of awards
not evidenced by such agreements, in any manner not inconsistent with the terms
of the Plan.
10. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective when
approved at a meeting of stockholders by a majority of the voting power of the
Voting Stock (all as defined in the Corporation's Restated Certificate of
Incorporation) present in person or represented by proxy and entitled to vote at
such meeting. The Plan shall terminate at the close of business on
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December 31, 2006, unless sooner terminated by action of the Board of Directors
of the Corporation. No award may be granted hereunder after termination of the
Plan, but such termination shall not affect the validity of any award then
outstanding.
11. LAW GOVERNING. The validity and construction of the Plan and any
agreements entered into thereunder shall be governed by the laws of the State of
New York, but without regard to the conflict laws of the State of New York
except to the extent that such conflict laws require application of the laws of
the State of Delaware.
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PROXY PROXY
ALLEGHANY CORPORATION
PROXY FOR ANNUAL MEETING ON APRIL 26, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints F.M. Kirby, John J. Burns, Jr. and
Robert M. Hart proxies, each with the power to appoint his substitute and with
authority in each to act in the absence of the other, to represent and to vote
all shares of stock of Alleghany Corporation which the undersigned is entitled
to vote at the Annual Meeting of Stockholders of Alleghany Corporation to be
held at the Hotel du Pont, 11th and Market Streets, Wilmington, Delaware, on
Friday, April 26, 2002 at 10:00 a.m., local time, and any adjournments thereof,
as indicated on the proposals described in the Proxy Statement, and all other
matters properly coming before the meeting.
IMPORTANT - THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE
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- FOLD AND DETACH HERE -
ALLEGHANY CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
AREA RESERVED FOR SCANNING INFORMATION
A VOTE FOR ITEMS 1, 2 AND 3 IS RECOMMENDED BY THE BOARD OF DIRECTORS
For All
For Withhold Except
1. Election of Directors:
Nominees: F.M. Kirby, Roger Noall, Rex D. Adams [ ] [ ] [ ]
INSTRUCTION: To withhold authority to vote for an individual nominee, write that
nominee's name in the following space:
For Against Abstain
2. Proposal to approve the Company's 2002
Long-Term Incentive Plan. [ ] [ ] [ ]
For Against Abstain
3. Ratification of KPMG LLP as independent
auditors for the Company for the year 2002. [ ] [ ] [ ]
Please sign exactly as your name
or names appear hereon. For
joint accounts, both owners
should sign. When signing as
executor, administrator,
attorney, trustee or guardian,
etc., please give your full
title.
----------------------------------
Signature
----------------------------------
Signature
Dated: , 2002
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THIS PROXY WILL BE VOTED IN ACCORDANCE WITH SPECIFICATIONS MADE.
IF NO CHOICES ARE INDICATED, THIS PROXY WILL BE VOTED FOR ITEMS 1, 2 and 3.
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- FOLD AND DETACH HERE -