SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
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ALLEGHANY CORPORATION
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ALLEGHANY CORPORATION
375 PARK AVENUE
NEW YORK, NEW YORK 10152
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
APRIL 22, 2005 AT 10:00 A.M., LOCAL TIME
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HARVARD CLUB OF NEW YORK CITY
35 WEST 44TH STREET
NEW YORK, NEW YORK
Notice is hereby given that the 2005 Annual Meeting of Stockholders of
Alleghany Corporation (the "Company") will be held at the Harvard Club of New
York City, 35 West 44th Street, New York, New York on Friday, April 22, 2005 at
10:00 a.m., local time, for the following purposes:
1. To elect one director for a term expiring in 2006 and three directors
for terms expiring in 2008.
2. To consider and take action upon a proposal to approve the Company's
2005 Directors' Stock Plan.
3. To consider and take action upon a proposal to approve the Company's
2005 Management Incentive Plan.
4. To consider and take action upon a proposal to ratify the selection of
KPMG LLP as the Company's independent registered public accounting firm
for the year 2005.
5. 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, 2005 as the record date
for the determination of stockholders entitled to notice of, and to vote at, the
2005 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
2005 Annual Meeting in person.
By order of the Board of Directors
ROBERT M. HART
Senior Vice President, General
Counsel and Secretary
March 9, 2005
ALLEGHANY CORPORATION
375 PARK AVENUE
NEW YORK, NEW YORK 10152
PROXY STATEMENT
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ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 22, 2005
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This proxy 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 2005 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 18, 2005.
The Board of Directors has fixed the close of business on March 1, 2005 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 2005 Annual Meeting.
On March 1, 2005, 7,689,927 shares of Common Stock were outstanding and
entitled to vote. The number of shares of Common Stock as of March 1, 2005, 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 22, 2005 to stockholders of record at the close of business on April 1,
2005.
PRINCIPAL STOCKHOLDERS
As of March 1, 2005, approximately 34.8 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.
---------------
* See Note (4) on page 3.
The following table sets forth, as of March 1, 2005, the beneficial
ownership of Common Stock of certain persons believed by the Company to be the
beneficial owners of more than five percent of the Company's outstanding Common
Stock.
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............................ 316,683 689,071 1,005,754(1) 13.1
17 DeHart Street
P.O. Box 151
Morristown, NJ 07963
Allan P. Kirby, Jr. .................. 540,715 -- 540,715(2) 7.0
14 E. Main Street
P.O. Box 90
Mendham, NJ 07945
Grace Kirby Culbertson................ 158,983 257,383 416,366(3) 5.4
Blue Mill Road
Morristown, NJ 07960
Estate of Ann Kirby Kirby............. 317,881 392,786 710,667(4) 9.2
c/o Carter, Ledyard & Milburn LLP
2 Wall Street
New York, NY 10005
Franklin Mutual Advisers, LLC......... 743,118 -- 743,118(5) 9.7
51 John F. Kennedy Parkway
Short Hills, NJ 07078
Royce & Associates, LLC............... 468,208 -- 468,208(6) 6.1
1414 Avenue of the Americas
New York, NY 10019
---------------
(1) Includes 110,344 shares of Common Stock held by F.M. Kirby as sole trustee
of trusts for the benefit of his children; 486,759 shares held by a trust of
which Mr. Kirby is co-trustee and primary beneficiary; and 202,312 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 206,339 shares
directly.
(2) Includes 305,655 shares held by a trust of which Allan P. Kirby, Jr. is
co-trustee (with the final right to vote) and beneficiary; and 13,511 shares
issuable under stock options granted
2
pursuant to the Amended and Restated Directors' Stock Option Plan and the 2000
Directors' Stock Option Plan (the "2000 Directors' Plan"). Mr. Kirby held
221,549 shares directly.
(3) Includes 47,163 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 158,983 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 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 2004
by Old Alleghany or the Company; if Mrs. Kirby, her estate and her
beneficiaries 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 324,629
shares.
(5) According to an amendment dated February 14, 2005 to a Schedule 13G
statement filed by Franklin Mutual Advisers, LLC ("Franklin"), Franklin had
sole voting power and sole dispositive power over 743,118 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 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 in or beneficial ownership of such shares.
3
(6) According to a Schedule 13G statement dated January 20, 2005 filed by Royce
& Associates, LLC ("Royce"), an investment advisor, Royce has sole voting
power over 468,208 shares.
1. ELECTION OF DIRECTORS
Pursuant to the Company's Restated 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. Effective December 31, 2004, the Board of Directors authorized
an increase in the number of directors from nine to ten directors.
F.M. Kirby, Rex D. Adams and Weston M. Hicks have been nominated by the
Board of Directors for election as directors at the 2005 Annual Meeting, each to
serve for a term of three years, until the 2008 Annual Meeting of Stockholders
and until his successor is duly elected and qualified. Roger Noall has been
nominated by the Board of Directors for election as a director at the 2005
Annual Meeting, to serve for a term of one year, until the 2006 Annual Meeting
of Stockholders and until his successor is duly elected and qualified. Mr. Noall
will then retire from the Board of Directors in accordance with the Company's
retirement policy, which is described below under the heading "Compensation of
Directors." Messrs. Kirby, Adams and Noall were last elected by the stockholders
of the Company at the 2002 Annual Meeting of Stockholders held on April 26,
2002. Mr. Hicks was elected a director of the Company by the Board of Directors
effective December 31, 2004, concurrently with his appointment as President and
chief executive officer of the Company.
Proxies in the enclosed form received from holders of Common Stock will be
voted for the election of the four 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 2005 Annual Meeting. Thus, those nominees who receive
the highest, second-highest, third-highest and fourth-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.
4
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 public company 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 2006 or 2007.
Nominee for election: Chairman of the Board, Alleghany
F.M. Kirby [PHOTO of F.M. Kirby] Corporation. Member of the Executive
Age 85 Committee.
Director since 1958
Dean Emeritus, Fuqua School of Business at
Duke University (education); Chairman,
Public Broadcasting System and Centre for
Nominee for election: Economic Policy Research; director,
Rex D. Adams [PHOTO of Rex D. Adams] AMVESCAP PLC and Vintage Petroleum, Inc.;
Age 65 trustee, Committee for Economic
Director since 1999 Development, Vera Institute of Justice and
Woods Hole Oceanographic Institution.
Member of the Audit Committee.
Nominee for election:
Weston M. Hicks [PHOTO of Weston M. President and chief executive officer,
Age 48 Hicks] Alleghany Corporation.
Director since 2004
Retired Executive, KeyCorp (banking);
Nominee for election: Chairman, The Victory Portfolios, The
Roger Noall [PHOTO of Roger Noall] Victory Institutional Funds and The
Age 69 Victory Variable Insurance Funds. Chairman
Director since 1996 of the Nominating and Governance Committee
and member of the Compensation Committee.
5
John J. Burns, Jr.
Age 73 [PHOTO of John J. Burns, Vice Chairman of the Board, Alleghany
Director since 1968 Jr.] Corporation; Member of the Executive
Term expires in 2006 Committee.
President and Chief Executive Officer,
Dan R. Carmichael Ohio Casualty Corporation (property and
Age 60 [PHOTO of Dan R. casualty insurance); director, Ohio
Director since 1993 Carmichael] Casualty Corporation and Platinum
Term expires in 2006 Underwriters Holdings, Ltd. Chairman of
the Compensation Committee and member of
the Audit Committee.
William K. Lavin Financial Consultant; Chairman and
Age 60 [PHOTO of William K. Secretary, Novex Systems International,
Director since 1992 Lavin] Inc. Chairman of the Audit Committee and
Term expires in 2006 member of the Compensation Committee.
Allan P. Kirby, Jr. President, Liberty Square, Inc.
Age 73 [PHOTO of Allan P. (investments); management of family and
Director since 1963 Kirby, Jr.] personal affairs. Chairman of the
Term expires in 2007 Executive Committee.
6
Retired Chairman and Chief Executive Officer,
GreenPoint Financial Corp. and its subsidiary
Thomas S. Johnson GreenPoint Bank (banking); director, R.R.
Age 64 [PHOTO of Thomas S. Donnelley & Sons Company, North Fork
Director since 1997 and Johnson] Bancorporation, Inc., The Phoenix Companies,
for 1992-1993 Inc., Federal Home Loan Mortgage Corporation
Term expires in 2007 and Lower Manhattan Development Corporation.
Member of the Audit and Nominating and
Governance Committees.
James F. Will President, Saint Vincent College (education);
Age 66 [PHOTO of James F. Will] Member of the Executive and Nominating and
Director since 1992 Governance Committees.
Term expires in 2007
All of the foregoing persons have had the principal occupations indicated
throughout the last five years, except as follows. Mr. Adams has been Dean
Emeritus at the Fuqua School of Business at Duke University since December 4,
2004; he was a Professor of Business Administration at the Fuqua School of
Business from July 1, 2001 through October 1, 2004, and was Dean of the Fuqua
School of Business prior thereto. Mr. Hicks was appointed President and chief
executive officer of the Company effective December 31, 2004; he was Executive
Vice President of the Company from October 7, 2002 through December 30, 2004,
was employed by The Chubb Corporation (property and casualty insurance) from
March 1, 2001 to October 4, 2002, initially as Senior Vice President and
Financial Assistant to the Chairman and subsequently as Chief Financial Officer
and Executive Vice President, and prior thereto was Senior Research Analyst (for
property-casualty, multiline and health insurance) and Managing Director of J.P.
Morgan Securities Inc. (financial services). Mr. Noall was an Executive of
KeyCorp until his retirement on March 1, 2000. Mr. Burns retired from his
position as President and chief executive officer of the Company effective
December 30, 2004. Mr. Burns continues as a director and was appointed Vice
Chairman of the Board of the Company, and serves as a non-executive employee of
the Company assisting the new President and chief executive officer on
investment matters. Mr. Carmichael has been President and Chief Executive
Officer of Ohio Casualty Corporation since December 12, 2000, and served as the
President and Chief Executive Officer of IVANS, Inc. (communications technology
and remarketer) prior thereto. Mr. Johnson was Chairman and Chief Executive
Officer of GreenPoint Financial Corp. and its subsidiary GreenPoint Bank until
his retirement on December 31, 2004. Mr. Will has been President of Saint
Vincent College since July 1, 2000.
7
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.
Pursuant to the approval of the Audit Committee of the Board of Directors,
on authority delegated by the Board without F.M. Kirby's participation, during
2003 the Company made investments aggregating $10.0 million in an investment
fund formed and managed by a limited liability company owned by Jefferson W.
Kirby, a son of F.M. Kirby. The limited liability company is entitled to an
annual fee equal to 20 percent of certain of the investment gains allocated to
an investor's account and a monthly management fee equal to 0.125 percent (1.5
percent annum) of the net assets of an investor's account. In 2004, the Company
paid a total of $45,000 in such fees to the limited liability company. In
addition, Jefferson W. Kirby is a director of World Minerals Inc., a subsidiary
of the Company ("World Minerals"), and in that capacity was paid fees of $19,900
during 2004.
The Board of Directors held eight meetings in 2004. 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 of Directors on which he
served that were held in 2004. There are two regularly scheduled executive
sessions for non-management directors of the Company and one regularly scheduled
executive session for independent directors each year. The independent
directors, other than committee chairs, preside at these executive sessions on a
rotating basis.
Pursuant to the New York Stock Exchange's listing standards, the Company is
required to have a majority of independent directors, and no director qualifies
as independent unless the Board of Directors affirmatively determines that the
director has no material relationship with the Company. The Board of Directors
has determined that Messrs. Adams, Noall, Carmichael, Lavin, Johnson and Will
have no material relationship with the Company other than in their capacities as
members of the Board and committees thereof, and thus are independent directors
of the Company. In the case of Mr. Will, who serves as non-executive Chairman
and a member of the Audit Committee of World Minerals, this determination was
based upon the non-executive nature of such positions, the level of compensation
received by Mr. Will for service in such positions and the insignificance of
such compensation to Mr. Will. In the case of the other independent directors,
this determination was based upon the fact that none of such directors has any
relationship with the Company other than as a director and member of committees
of the Board.
8
Interested parties may communicate directly with any individual director,
the non-management directors as a group or the Board as a whole by mailing such
communication to the Secretary of the Company at the Company's principal
executive offices (Alleghany Corporation, 375 Park Avenue, New York, NY 10152).
Such communications will be delivered unopened (1) if addressed to a director,
to the director, (2) if addressed to the non-management directors, to the
Chairman of the Nominating and Governance Committee who will report thereon to
the non-management directors, or (3) if addressed to the Board, to the Chairman
of the Board who will report thereon to the Board.
The Company does not have a policy with regard to attendance by directors
at Annual Meetings of Stockholders. Two directors attended the 2004 Annual
Meeting of Stockholders.
The Executive Committee of the Board of Directors (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. The Executive
Committee held no meetings in 2004.
The Audit Committee of the Board of Directors (the "Audit Committee") is
directly responsible for the appointment, compensation, retention and oversight
of the work of the independent registered public accounting firm (including
approving in advance all audit services and permissable non-audit services to be
provided by the independent registered public accounting firm) and for the
evaluation of its qualifications, performance and independence. The Audit
Committee also reviews and makes reports and recommendations to the Board of
Directors with respect to the following matters: (i) the audited consolidated
annual financial statements of the Company and its subsidiaries, including the
Company's specific disclosures under management's discussion and analysis of
financial condition and results of operation and critical accounting policies,
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, (ii) the
unaudited consolidated quarterly financial statements of the Company and its
subsidiaries, including management's discussion and analysis thereof, to be
included in the Company's Quarterly Reports on Form 10-Q to the Securities and
Exchange Commission, (iii) the Company's policies with respect to risk
assessment and risk management, (iv) the adequacy and effectiveness of the
Company's internal controls, disclosure controls and procedures and internal
auditors, and (v) the quality and acceptability of the Company's accounting
policies, including critical accounting policies and practices and the estimates
and assumptions used by management in the preparation of the Company's financial
statements.
9
The Audit Committee held eight meetings in 2004. A copy of the Audit Committee
Charter is available on the Company's website at www.alleghany.com or may be
obtained, without charge, upon written request to the Secretary of the Company
at the Company's principal executive offices.
The current members of the Audit Committee are Messrs. Lavin, Adams,
Carmichael and Johnson. The Board of Directors has determined that each of these
members has the qualifications set forth in the New York Stock Exchange's
listing standards regarding financial literacy and accounting or related
financial management expertise, and that Mr. Lavin, the Chairman of the Audit
Committee, is an audit committee financial expert, as defined by the Securities
and Exchange Commission. The Board of Directors has also determined that each of
the members of the Audit Committee is independent, as defined in the New York
Stock Exchange's listing standards.
The Compensation Committee of the Board of Directors (the "Compensation
Committee") is charged with reviewing and approving the financial goals and
objectives relevant to the compensation of the chief executive officer,
evaluating the chief executive officer's performance in light of such goals and
objectives, and determining the chief executive officer's compensation based on
such evaluation, after having reviewed the recommendations submitted to it by
the Chairman of the Board with respect thereto. The Compensation Committee also
is responsible for reviewing the recommendations of the chief executive officer
concerning the compensation of the other officers of the Company and determining
such officers' compensation, and for reviewing the adjustments proposed to be
made to the compensation of the most highly paid officers of each operating unit
of the Company, reporting to the Board of Directors with respect thereto, and
making such recommendations to the Board of Directors with respect thereto as
the Compensation Committee may deem appropriate. In addition, the Compensation
Committee is responsible for reviewing the compensation of the directors on an
annual basis, including compensation for service on committees of the Board of
Directors, and proposing changes, as appropriate, to the Board of Directors. The
Compensation Committee also administers the 2002 Long-Term Incentive Plan (the
"2002 Plan"). The Compensation Committee held five meetings in 2004. A copy of
the Compensation Committee Charter is available on the Company's website at
www.alleghany.com or may be obtained, without charge, upon written request to
the Secretary of the Company at the Company's principal executive offices.
The current members of the Compensation Committee are Messrs. Carmichael,
Lavin and Noall. The Board of Directors has determined that each of these
members is independent as defined in the New York Stock Exchange's listing
standards.
10
The Nominating and Governance Committee of the Board of Directors (the
"Nominating and Governance Committee") is charged with identifying and screening
candidates, consistent with criteria approved by the Board of Directors, and
making 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. In addition, the Nominating and Governance
Committee is responsible for developing and recommending to the Board of
Directors a set of corporate governance principles applicable to the Company and
overseeing the evaluation of the Board of Directors and the Company's
management. The Nominating and Governance Committee held eight meetings in 2004.
A copy of the Nominating and Governance Committee Charter is available on the
Company's website at www.alleghany.com or may be obtained, without charge, upon
written request to the Secretary of the Company at the Company's principal
executive offices.
The current members of the Nominating and Governance Committee are Messrs.
Noall, Johnson and Will. The Board of Directors has determined that each of
these members is independent as defined in the New York Stock Exchange's listing
standards.
The Company has adopted a Financial Personnel Code of Ethics for its chief
executive officer, chief financial officer, chief accounting officer, vice
president for tax matters and all professionals serving in a finance,
accounting, treasury or tax role, a Code of Ethics and Business Conduct for its
directors, officers and employees, and Corporate Governance Guidelines. The
Corporate Governance Guidelines were recently amended to include Common Stock
ownership guidelines for directors, providing that directors are expected to
achieve ownership of Common Stock, or equivalent deferred Common Stock units,
with a value equal to at least five times the annual retainer within five years
of election to the Board of Directors, and to maintain such a level thereafter.
Copies of each of these documents are available on the Company's website at
www.alleghany.com or may be obtained, without charge, upon written request to
the Secretary of the Company at the Company's principal executive offices.
SECURITIES OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of March 1, 2005, the beneficial
ownership of Common Stock 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 on page 16 of this proxy statement.
11
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.............. 316,683 689,071 1,005,754(1) 13.08
Rex D. Adams............ 6,457 -- 6,457(2) 0.08
Weston M. Hicks......... 67,422 -- 67,422(3) 0.88
Roger Noall............. 15,154 -- 15,154(2) 0.20
John J. Burns, Jr. ..... 81,651 -- 81,651(4) 0.90
Dan R. Carmichael....... 16,754 342 17,096(2)(5) 0.22
William K. Lavin........ 12,570 -- 12,570(2) 0.16
Allan P. Kirby, Jr. .... 540,715 -- 540,715(6) 7.03
Thomas S. Johnson....... 11,163 -- 11,163(2) 0.15
James F. Will........... 21,674 1,497 23,171(2) 0.30
David B. Cuming......... 47,184 -- 47,184 0.61
Robert M. Hart.......... 16,827 -- 16,827 0.22
James P. Slattery....... 811 -- 811 0.01
Peter R. Sismondo....... 10,750 400 11,150(7) 0.14
---------------
(1) See Note (1) on page 2.
(2) Includes 6,009 shares of Common Stock in the case of Mr. Adams, 11,589
shares of Common Stock in the case of Mr. Noall, 13,511 shares of Common
Stock in the case of Mr. Carmichael, 11,589 shares of Common Stock in the
case of Mr. Lavin, 9,704 shares of Common Stock in the case of Mr. Johnson,
and 13,511 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' Plan.
(3) Includes 57,222 shares representing restricted stock awards and subsequent
stock dividends in respect thereof, which are subject to Mr. Hicks's
continuing employment with the Company and the achievement of certain
performance goals, but does not include any shares that may be paid pursuant
to outstanding restricted stock units held by Mr. Hicks; the foregoing
awards are more fully described below under "Employment Arrangements."
(4) Includes 775 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 12,790 shares of Common Stock issued to Mr.
Burns in January 2005 in settlement of 25,580 performance shares
constituting portions of special awards made to Mr. Burns in 1996 and 1999
which had vested but payment with respect to which had been deferred until
Mr. Burns's retirement as an executive officer.
12
(5) Includes 236 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.
(6) See Note (2) on page 2.
(7) Includes 4,850 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.
As of March 1, 2005, all nominees named for election as a director,
directors and executive officers as a group (14 persons) beneficially owned
1,857,125 shares, or 23.9% 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 1,159,954 shares, shared voting and/or investment power with respect
to 691,310 shares and no voting or investment power with respect to 5,861
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 2004 was a director, officer or beneficial owner of more than
10 percent of the 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
2004. 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, which were
submitted to it during or with respect to 2004. With regard to Ann Kirby Kirby
who, prior to her death in 1996, was believed by the Company to be a beneficial
owner of more than 10 percent of the 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 Common Stock, and the representatives of the estate of Mrs. Kirby have
declined to supply information with respect to ownership of Common Stock by her
estate or beneficiaries; therefore, the Company does not know whether her estate
or any beneficiary of her estate beneficially owned more than 10 percent of the
Common Stock during 2004 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 $30,000, payable one-half in cash and one-half in shares of
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
13
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 $15,000, and each other member
thereof receives an annual fee of $11,000. The Chairman of the Audit Committee
also receives a fee of $1,000 for each audit committee meeting of a Company
operating unit which he attends. The Chairman of the Compensation Committee
receives an annual fee of $8,000, and each other member thereof receives an
annual fee of $6,000. The Chairman of the Nominating and Governance Committee
receives an annual fee of $6,500, and each other member thereof receives an
annual fee of $5,000.
Pursuant to the Directors' Equity Compensation Plan (the "Directors' Equity
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 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. Each eligible director
received 57 shares of Common Stock on May 19, 2004.
Pursuant to the 2000 Directors' 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 grant. On April 26, 2004,
each eligible director received an option to purchase 1,000 shares of Common
Stock at a price of $265.00 per share. The 2000 Directors' Plan expired on
December 31, 2004.
As discussed in more detail under Proposal 2 beginning on page 33 of this
proxy statement, in December 2004, the Board of Directors adopted the 2005
Directors' Stock Plan, which is being submitted to the stockholders of the
Company for their approval at the 2005 Annual Meeting. Upon such stockholder
approval, the Directors' Equity Plan will be terminated.
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 his retirement. 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. 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
14
Company's retirement policy for directors or until he has attained age 70. In
January 2005, the Directors' Retirement Plan was amended to "freeze" the Plan at
December 31, 2004. Under the Directors' Retirement Plan as amended, no new
non-employee director will be eligible to participate in the Directors'
Retirement Plan, a director's service after December 31, 2004 is no longer
included in measuring how long the director's annual retirement benefit will be
payable, and the annual retirement benefit for directors who retire after
December 31, 2004 is limited to $30,000, which is the current annual retainer.
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 because each of them was a
director of Old Alleghany in 1979.
As Chairman of the Board of the Company, Mr. F.M. Kirby received in respect
of 2004 $342,121 in salary, $21,721 representing payments for reimbursement of
taxes and the reimbursement itself, and $81,760 representing (i) a savings
benefit of $51,318 credited pursuant to the Alleghany Corporation Officers,
Highly Compensated Employees and Directors' Deferred Compensation Plan (the
"Deferred Compensation Plan"); and (ii) a benefit, valued at $30,442 pursuant to
Securities and Exchange Commission rules, of life insurance maintained by the
Company on his behalf. Such life insurance policy provides a death benefit to
Mr. F.M. Kirby if he is an employee at the time of his death equal to four times
the amount of his annual salary at January 1 of the year of his death.
After his retirement as President and chief executive officer of the
Company effective December 30, 2004 and pursuant to action taken by the Board of
Directors, Mr. Burns is continuing as a director, serving as Vice Chairman of
the Board, and as a non-executive employee of the Company. As an employee, Mr.
Burns receives the compensation described below under the heading "Employment
Arrangements" and is not entitled to receive any director or committee fees and
does not participate in any non-employee directors' equity or retirement plans.
As non-executive Chairman of the board of directors of World Minerals, Mr.
Will was entitled to receive an annual retainer of $40,000 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 was entitled to receive
$500 for each committee meeting attended. In 2004, Mr. Will was paid fees of
$44,900 for services in these capacities.
15
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 2004, and John J. Burns, Jr., who
served as President and chief executive officer of the Company during 2004 until
his retirement from these positions effective December 30, 2004.
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) (4)
------------------ ---- ---------- -------- ------------ ------------ ------------
John J. Burns, Jr.,................ 2004 $1,009,284 $617,147 $24,175 $1,709,807 $183,850
Vice Chairman 2003 970,465 741,763 22,356 1,115,924 175,810
of the Board 2002 970,465 593,410 23,112 1,442,639 173,116
Weston M. Hicks,................... 2004 $ 700,000 $518,007 $ 5,104 $ -- $111,430
President and chief 2003 624,000 468,000 4,743 -- 99,866
executive officer(5) 2002 115,000 450,000 520 -- 625
David B. Cuming,................... 2004 $ 472,593 $273,984 $11,945 $ 706,485 $ 85,142
Senior Vice President 2003 454,416 259,356 12,566 460,788 83,179
2002 436,938 251,151 15,124 595,807 82,048
Robert M. Hart,.................... 2004 $ 472,593 $282,703 $ 6,787 $ 706,485 $ 79,956
Senior Vice President, 2003 454,416 268,149 6,304 460,788 76,581
General Counsel 2002 436,938 260,589 6,421 595,807 73,152
and Secretary
James P. Slattery,................. 2004 $ 416,000 $227,136 $ 4,756 $ 293,781 $ 68,733
Senior Vice President -- 2003 400,000 229,200 4,569 -- 66,024
Insurance 2002 250,000 127,125 2,212 -- 40,160
Peter R. Sismondo,................. 2004 $ 230,245 $103,749 $ 3,030 $ 363,114 $ 38,579
Vice President, Controller, 2003 221,389 101,485 2,867 236,940 37,034
Treasurer and Assistant 2002 212,874 95,666 2,894 306,221 35,358
Secretary
16
---------------
(1) These amounts represent bonuses earned in respect of the relevant year 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.
(2) These amounts represent payments for reimbursement of taxes.
(3) These amounts represent payouts in settlement of performance shares awarded
under the 1993 Long-Term Incentive Plan (the "1993 Plan"), which entitled
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 generally been made one-half in cash and one-half in Common
Stock.
(4) The 2004 amounts listed for Messrs. Burns, Hicks, Cuming, Hart, Slattery and
Sismondo include (i) savings benefits of $151,150, $104,526, $70,775,
$70,775, $62,300 and $34,481, respectively, credited pursuant to the
Deferred Compensation Plan; and (ii) benefits valued at $28,680, $2,884,
$10,347, $5,161, $2,413 and $1,013, respectively, pursuant to the 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 the amount of such executive officer's annual salary at January 1 of
the year of his death. The 2004 amounts listed for each of Messrs. Burns,
Hicks, Cuming, Hart and Slattery also include compensation of $4,020, and
the 2004 amount listed for Mr. Sismondo also includes compensation of
$3,085, in respect of other insurance coverage.
(5) Mr. Hicks was appointed President and chief executive officer of the Company
effective December 31, 2004, and was Executive Vice President of the Company
prior thereto.
17
LONG-TERM INCENTIVE PLAN -- AWARDS IN 2004
PERFORMANCE ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF OR OTHER NON-STOCK PRICE-BASED PLANS
SHARES, UNITS OR PERIOD UNTIL --------------------------------------------
OTHER RIGHTS MATURATION THRESHOLD ($ TARGET MAXIMUM
(1) OR PAYMENT OR #) ($ OR #) ($ OR #)
---------------- ------------ ------------ ------------- -------------
Weston M. Hicks...... 4,228 2005-2008 $355,786.20 $1,185,954.00 $1,778,931.00
Robert M. Hart....... 2,278 2005-2008 $191,693.70 $ 638,979.00 $ 958,468.50
James P. Slattery.... 2,005 2005-2008 $168,720.75 $ 562,402.50 $ 843,603.75
Peter R. Sismondo.... 1,171 2005-2008 $ 98,539.65 $ 328,465.50 $ 492,698.25
---------------
(1) These amounts represent performance shares awarded for the 2005-2008 award
period under the 2002 Long-Term Incentive Plan (the "2002 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 and one-half
shares 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 Book Value Per Share
(as defined by the Compensation Committee pursuant to the 2002 Plan) equals
or exceeds 10.5 percent in the award period, measured from a base of
$220.68. Target payouts will be made at 100 percent if such growth equals 7
percent. No payouts will be made if such growth is less than 3.5 percent;
payouts for growth between 3.5 percent and 10.5 percent will be determined
by interpolation. In light of Mr. Burns's retirement as President and chief
executive officer effective December 30, 2004, and Mr. Cuming's anticipated
retirement during 2005, no performance shares were awarded to them in 2004.
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 benefits, including a lump sum. A participant must have either
completed five years of service with the Company or a subsidiary thereof or
attained age 55 while employed by the Company or a subsidiary thereof before he
or she is vested in, and thus has a right to receive, any such benefits
following his or her termination of employment with the Company and all
subsidiaries thereof.
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
18
service, is equal to a net after-tax amount of 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 or, if applicable, shorter period of employment, plus (ii)
one-half of the highest average annual cash 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 is the amount that would be included in the
salary column of the Summary Compensation Table for the relevant years, and
annual bonus is the amount of the cash bonus earned under the Company's
management incentive plan that would be included in the bonus column 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. Because benefits under the
Retirement Plan prior to its amendment were funded in a legally separate trust,
the accumulated funds in that trust were currently taxable to each participant,
and so the Retirement Plan also provided for payments 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 Retirement Plan.
As a result of cumulative changes in the tax law, the Retirement Plan had
become tax inefficient for the Company, and in July the Compensation Committee
amended the Retirement Plan to reduce the accounting and tax costs associated
with the Retirement Plan. These amendments included changing the Retirement Plan
from a funded to an unfunded plan and precluding the payment of any retirement
benefits while a participant remained employed by the Company. The amendments to
the Retirement Plan did not change the amount of annual retirement benefits that
may be accrued by any participant, but the amendments did change the security
for such benefits and eliminated or restricted a number of elections previously
available to participants. The Retirement Plan as amended continues to provide a
retirement benefit that represents a net after-tax amount, except that the
payments are now made at the same times as the participants receive their
retirement benefits.
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
19
years of service through the actual date of retirement and the decreased period
over which the normal retirement benefit will be paid.
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 retirement on December
31, 2004 at age 65, had achieved the average compensation and years of service
indicated. The amounts shown assume payment in the form of a straight single
life annuity and include a gross-up for taxes based upon an estimate of the
income and employment taxes that might be imposed upon the participant at the
time his or her benefits are payable.
YEARS OF SERVICE
AVERAGE ----------------------------------
COMPENSATION 5 10 15 OR MORE
------------ -------- ---------- ----------
$ 125,000.......................... $ 37,873 $ 75,746 $ 113,619
150,000........................... 45,448 90,895 136,343
175,000........................... 53,022 106,045 159,067
200,000........................... 60,597 121,194 181,791
225,000........................... 68,172 136,343 204,515
250,000........................... 75,746 151,492 227,238
300,000........................... 90,895 181,791 272,686
400,000........................... 121,194 242,388 363,582
450,000........................... 136,343 272,686 409,029
500,000........................... 151,492 302,985 454,477
600,000........................... 181,791 363,582 545,372
700,000........................... 212,089 424,178 636,268
800,000........................... 242,388 484,775 727,163
900,000........................... 272,686 545,372 818,058
1,000,000.......................... 302,985 605,969 908,954
1,100,000.......................... 333,283 666,566 999,849
1,200,000.......................... 363,582 727,163 1,090,745
1,300,000.......................... 393,880 787,760 1,181,640
1,400,000.......................... 424,178 848,357 1,272,535
1,500,000.......................... 454,477 908,954 1,363,431
1,600,000.......................... 484,775 969,551 1,454,326
1,700,000.......................... 515,074 1,030,148 1,545,222
20
As of December 31, 2004, the credited years of service for Messrs. Hart and
Sismondo were 15 and 17 years, respectively. The average compensation of each of
Messrs. Hart and Sismondo for purposes of the Retirement Plan was $561,778 and
$264,256, respectively. As of December 31, 2004, Mr. Hicks had two years of
vesting service toward the five years of vesting service necessary to become
100% vested in his retirement benefits under the Retirement Plan. Mr. Slattery,
who has three years of vesting service, will vest in his retirement benefits
under the Retirement Plan upon his attainment of age 55 in 2006, as long as he
is employed by the Company or a subsidiary at such time. The Retirement Plan
previously provided that a participant over age 65 who is still in the employ of
the Company could 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 that provision, Mr. Burns and Mr. Cuming each elected in
February 2001 to receive their then accrued benefits under the Retirement Plan.
Any additional benefits that will accrue prior to their actual date of
retirement will be offset by the then equivalent value of the benefits
previously distributed. As a result, it is not likely that Messrs. Burns or
Cuming will receive any additional benefits from the Retirement Plan.
In connection with the change of the Retirement Plan to an unfunded plan,
the legally separate trust that funded those benefits was terminated, and the
accrued retirement benefits of vested participants were distributed, either as a
lump sum or in the form of an annuity contract issued by an insurance company,
as elected by the participant. For a participant who received a lump sum
distribution, the participant's annual retirement benefits upon retirement will
be reduced by the annual amount that would be payable pursuant to the single
life annuity that could then be purchased with the amount of the prior lump sum
distribution, increased by an interest factor from the date of the distribution.
For a participant who received an annuity contract, the participant's annual
retirement benefits upon retirement will be reduced by the annual amount that
would be payable pursuant to the single life annuity plus the annual amount that
would be payable pursuant to the single life annuity that could then be
purchased with the amount of the annuity payments received or receivable
pursuant to the annuity contract since its prior distribution.
Mr. Hart received a lump sum distribution upon termination of the trust in
the amount of $3,270,903, and Mr. Sismondo received an annuity contract
permitting him to elect among various annuity forms for which the premium was
$1,222,065. Mr. Hicks and Mr. Slattery are not currently vested in their accrued
retirement benefits, so neither received any distribution from the trust. Also,
as a result of having received prior distributions of their accrued benefits
under the Retirement Plan, neither Mr. Burns nor Mr. Cuming received any
distribution upon the termination of the trust.
21
EMPLOYMENT ARRANGEMENTS
On October 7, 2002, the Company entered into an employment agreement with
Mr. Hicks, pursuant to which Mr. Hicks agreed to serve as Executive Vice
President of the Company. Effective December 31, 2004, Mr. Hicks was appointed
President and chief executive officer of the Company. Under the terms of Mr.
Hicks's employment agreement, his initial base salary was at an annual rate of
$600,000 and for calendar year 2004 was to be at an annual rate of not less than
$700,000, and his base salary is to be reviewed annually. He was paid an annual
bonus of $450,000 for 2002 and was entitled to participate in the management
incentive plan for 2003 with a target bonus opportunity of 50 percent of his
annual base salary. In addition, pursuant to his employment agreement, Mr. Hicks
received an award of 5,305 performance shares (as adjusted for stock dividends)
under the 2002 Plan for the four-year award period ending December 31, 2006,
which entitle him to a payout 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 and one-half shares of Common Stock on the payout date for each
performance share awarded. A maximum payout will be made in respect of these
performance shares only if average annual compound growth in the Company's Book
Value Per Share (as defined by the Compensation Committee pursuant to the 2002
Plan) equals or exceeds 12 percent in the award period, measured from a base of
$189.36 (as adjusted for stock dividends). A target payout will be made at 100
percent if such growth equals 8 percent. No payout will be made if such growth
is less than 4 percent; payouts for growth between 4 percent and 12 percent will
be determined by interpolation. Mr. Hicks also received an award of 3,296
performance shares (as adjusted for stock dividends) under the 2002 Plan for the
three-year award period ending December 31, 2005, which entitle him to a payout
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. A maximum
payout 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 2002 Plan) equals or exceeds 12 percent
in the award period, measured from a base of $10.03 (as adjusted for stock
dividends). No payout will be made if such growth is 8 percent or less; a payout
for growth between 8 percent and 12 percent will be determined by interpolation.
If Mr. Hicks is terminated other than for Cause or Total Disability (as defined
in the employment agreement), the Company will continue to pay his base salary
after such termination until such payments total $1 million on a gross basis.
The employment agreement also provides that Mr. Hicks was eligible to
participate in the Company's Retirement Plan and, effective January 1, 2003, the
Deferred Compensation Plan, as well as all other employee
22
benefit plans, programs, practices or other arrangements in which other senior
executives of the Company are generally eligible to participate from time to
time.
Pursuant to the terms of his employment agreement, Mr. Hicks and the
Company entered into a restricted stock award agreement dated as of October 7,
2002. Under this award agreement, Mr. Hicks received a restricted stock award of
31,212 shares of Common Stock (which includes shares received in subsequent
stock dividends which are similarly restricted) under the 2002 Plan, which will
vest (i) if the Company achieves average annual compound growth in Stockholders'
Equity Per Share (as defined in the award agreement) equal to 10 percent or more
as measured over a calendar year period commencing January 1, 2003 and ending on
December 31, 2006, 2007, 2008 or 2009, or (ii) if the performance goal set forth
in clause (i) above has not been achieved as of December 31, 2009, when the
Company achieves average annual compound growth in Stockholders' Equity Per
share equal to 7 percent or more as measured over a calendar year period
commencing January 1, 2003 and ending on December 31, 2010, 2011 or 2012. If the
performance goals are not achieved as of December 31, 2012, Mr. Hicks will
forfeit all of the restricted shares. If Mr. Hicks's employment with the Company
is terminated for any reason prior to the occurrence of any vesting date, he
shall forfeit his interest in any restricted shares that have not yet vested;
however, if the Company terminates Mr. Hicks's employment after December 31,
2004 other than for Cause or Total Disability (as defined in the award
agreement), and the performance goal set forth in clause (ii) above has been
satisfied in all respects except for the passage of the required period of time,
that number of restricted shares equal to 30,000 multiplied by a fraction, the
numerator of which is the number of full calendar years beginning January 1,
2003 and ending on or before the date of such termination, and the denominator
of which is ten, will vest. Upon his appointment as President and chief
executive officer of the Company, Mr. Hicks received a restricted stock award of
26,010 shares of Common Stock (as adjusted for stock dividends paid since the
date of his employment agreement) under the 2002 Plan as set forth in a
restricted stock award agreement dated as of December 31, 2004 between Mr. Hicks
and the Company. The new restricted stock award has comparable terms and
conditions as the first restricted stock award except that the performance
measurement periods commence on January 1, 2005 and end on December 31, 2008,
2009, 2010 or 2011 in the case of clause (i) above and end on December 31, 2012,
2013 and 2014 in the case of clause (ii) above. If the Company terminates Mr.
Hicks's employment after December 31, 2006 other than for Cause or Total
Disability (as defined in the new award agreement), and the performance goal set
forth in clause (ii) above has been satisfied in all respects except for the
passage of the period of time required under the new award agreement, that
number of restricted shares equal to 26,010 multiplied by a fraction, the
numerator of which is the number of full calendar years
23
beginning January 1, 2005 and ending on or before the date of such termination,
and the denominator of which is ten, will vest.
Pursuant to the terms of his employment agreement, Mr. Hicks and the
Company entered into a restricted stock unit matching grant agreement dated as
of October 7, 2002. Under this matching grant agreement, Mr. Hicks received a
restricted stock unit matching grant under the 2002 Plan of two restricted stock
units for every share of Common Stock purchased by Mr. Hicks or received by him
pursuant to stock dividends thereon (the "Owned Shares") on or before September
30, 2003 up to a maximum of 30,000 restricted stock units in respect of up to a
maximum of 15,000 Owned Shares (in each case subject to increase to reflect any
stock dividend paid in 2003). On August 25, 2003, Mr. Hicks purchased 10,000
shares of Common Stock and, accordingly, was credited with 20,400 restricted
stock units (as adjusted for stock dividends). The restricted stock units are
notional units of measurement denominated in shares of Common Stock and entitle
Mr. Hicks to payment on account of such restricted stock units in an amount
equal to the Fair Market Value (as defined in the matching grant agreement) on
the payment date of a number of shares of Common Stock equal to the number of
restricted stock units to which Mr. Hicks is entitled to payment. All of the
restricted stock units shall vest on October 7, 2012 and shall be paid in cash
and/or shares of Common Stock (as the Compensation Committee may determine) on
the date of the filing of the Company's Annual Report on Form 10-K in respect of
the year in which Mr. Hicks's employment is terminated for any reason. If Mr.
Hicks is terminated without Cause or by reason of his death or Total Disability
(as such terms are defined in the matching grant agreement) prior to October 7,
2012, a pro rata portion of the restricted stock units credited to him shall
vest and become nonforfeitable on the basis of 10 percent of such account for
each full year of employment with the Company measured from October 7, 2002. Mr.
Hicks shall have maintained unencumbered beneficial ownership of the Owned
Shares continuously throughout the period commencing with the initial purchase
of Owned Shares and ending October 7, 2012 or the earlier date of a pro rata
payout. To the extent that he fails to do so, he will forfeit two restricted
stock units for each Owned Share with respect to which he has not maintained
unencumbered beneficial ownership for the required period of time. If, prior to
October 7, 2012, Mr. Hicks voluntarily terminates his employment or the Company
terminates Mr. Hicks's employment for Cause, all of the restricted units shall
be forfeited. Mr. Hicks may not transfer the restricted stock units and has no
voting or other rights in respect of the restricted stock units.
After his retirement as President and chief executive officer of the
Company effective December 30, 2004 and pursuant to action taken by the Board of
Directors, Mr. Burns is continuing as a director and non-executive employee of
the Company and is serving as Vice Chairman of the Board. As an employee, Mr.
Burns receives an annual salary of $370,000 commencing January 1, 2005 for
assisting the new President and chief executive officer on
24
investment matters. As an employee, Mr. Burns is not entitled to receive any
director or committee fees, and does not participate in any non-employee
directors' equity or retirement plans. The Company has established an office in
New Canaan, Connecticut which Mr. Burns will use as his principal office for
purposes of attending to Company-related matters, and which may be used from
time to time by another officer of the Company for Company-related matters. As
Mr. Burns will also use this office to attend to personal matters, twenty-five
percent of the annual rent and operating costs for this office, amounting to
approximately $38,300 per year, are to be reimbursed to the Company by Mr.
Burns. The Company will also make available to Mr. Burns office space at the
Company's principal executive offices in New York, New York for Company-related
matters.
Mr. Burns continues to participate in the Deferred Compensation Plan,
Executive Retirement Plan and the medical, long-term disability and other
employee welfare plans of the Company, and the Company continues to maintain a
life insurance policy providing a death benefit to Mr. Burns if he is an
employee at the time of his death equal to four times the amount of his annual
salary as of January 1 of the year of his death.
Mr. Burns does not participate in the Company's management incentive plan
after 2004 and will not be granted any new performance shares or other awards
under the 2002 Plan. Performance shares held by Mr. Burns will continue to earn
out in accordance with their terms. Upon termination of Mr. Burns's employment
prior to the payout of any such performance shares, such performance shares will
be paid out on a pro rata basis in accordance with their terms. On January 3,
2005, the Company issued to Mr. Burns 12,790 shares of Common Stock and paid Mr.
Burns $3,660,050.50 in cash in settlement of 25,580 performance shares
constituting portions of special awards made to Mr. Burns in 1996 and 1999 which
had vested but payment with respect to which had been deferred until Mr. Burns's
retirement as an executive officer.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is currently composed of the three independent
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 used
information and advice furnished by a nationally recognized compensation
consulting firm.
25
Compensation paid to the executive officers of the Company in 2002, 2003,
and 2004 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 long-term incentive payouts of cash and Common Stock under the 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
and in the New York market, individual performance and internal comparability
considerations.
Annual cash bonuses are paid to executive officers under the management
incentive plan. This plan is designed to reward officers for the achievement of
specified financial and/or individual objectives.
Bonus opportunities for 2004 were adjusted from the prior year in
proportion to changes in salaries, which increased 12 percent in the case of Mr.
Hicks and 4 percent in the case of all other executive officers. Maximum bonus
opportunities for executive officers of the Company as a percentage of salaries
for 2004 ranged from 75 percent of salary for Mr. Hicks to 48 percent of salary
for the most junior executive officer of the Company. Target bonus opportunities
are equal to two-thirds of the maximum bonus opportunity 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
financial performance and long-term incentive compensation.
For 2004, the portion of the bonus opportunities which depended on
financial objectives ranged from 80 percent of Mr. Burns's bonus opportunity to
50 percent of the bonus opportunity of the most junior executive officer of the
Company. The financial objective under the management incentive plan was the
achievement by the Company of a specified level of net earnings per share, 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
2004-2008. Target bonus opportunities were to be earned if plan net earnings per
share were achieved, and maximum bonus opportunities 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 2004 net earnings per share
exceeded 110 percent of the plan for 2004; therefore, the maximum amount was
earned on that portion of the bonus opportunities that was dependent on
financial objectives.
26
The remainder of the bonus opportunities of the executive officers of the
Company for 2004 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 Compensation Committee, which received the
recommendation of the Chairman of the Board with respect thereto. No amount was
authorized in respect of Mr. Burns's individual objective for 2004 because such
objective was not achieved.
As discussed in more detail below under the heading "Section 162(m) of the
Internal Revenue Code of 1986" in this report, and in Proposal 3 beginning on
page 39 of this proxy statement, the Board of Directors of the Company, upon the
recommendation of the Compensation Committee, adopted the 2005 Management
Incentive Plan, under which, subject to the approval of the stockholders at the
2005 Annual Meeting, annual cash bonuses will be paid to executive officers
beginning with respect to 2005.
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
2002 Plan. The 2002 Plan provides for long-term incentives based upon objective,
quantifiable measures of the Company's performance over a period of time.
The performance shares awarded in 2004 entitled 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 and
one-half shares of Common Stock on the payout date for each performance share
awarded. Maximum payouts with respect to such performance shares will be made
only if average annual compound growth in the Company's Book Value Per Share (as
defined by the Compensation Committee pursuant to the 2002 Plan) equals or
exceeds 10.5 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, target payouts will be made at 100 percent if such growth equals 7
percent, and no payouts will be made if such growth is less than 3.5 percent;
payouts for growth between 3.5 percent and 10.5 percent will be determined by
interpolation. This performance scale was developed in consultation with the
nationally recognized compensation consulting firm referred to above; the target
was determined to represent superior performance based on the current economic
outlook. The specified base Book Value Per Share for the performance shares
granted in 2004 was determined by reference to the estimated book value for
year-end 2004.
27
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 2004 for the 2005-2008 award period was determined by
adjusting the prior year's award to reflect the increase in his salary from 2004
to 2005 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 financial performance and long-term
incentive compensation opportunities over short-term results and short-term
incentive compensation opportunities.
President and Chief Executive Officer
Mr. Burns was President and chief executive officer of the Company until
his retirement from those positions effective December 30, 2004. As discussed in
more detail above under the heading "Employment Arrangements," pursuant to
action taken by the Board of Directors, Mr. Burns is continuing as a director
and non-executive employee of the Company and is serving as Vice Chairman of the
Board. As an employee, Mr. Burns receives an annual salary of $370,000
commencing on January 1, 2005 for assisting the new President and chief
executive officer on investment matters. The arrangements relating to Mr.
Burns's continued employment with the Company were reviewed by the Compensation
Committee and recommended to the Board of Directors.
Mr. Hicks, who was Executive Vice President of the Company, became
President and chief executive officer of the Company effective December 31,
2004. In connection with this transition, and in consultation with the
nationally recognized compensation consulting firm referred to above, Mr.
Hicks's annual salary was increased from $700,000 to $800,000, and his target
annual bonus was increased from 50 percent to 75 percent of salary. In addition,
pursuant to his employment agreement with the Company, upon his appointment as
President and chief executive officer of the Company Mr. Hicks received a
restricted stock award of 26,010 shares of Common Stock (as adjusted for stock
dividends paid since the date of his employment agreement) under the 2002 Plan,
as set forth in a restricted stock award agreement dated as of December 31,
2004. The terms of this restricted stock award, as well as of Mr. Hicks's
employment agreement with the Company, are discussed in more detail above under
the heading "Employment Arrangements."
28
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
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 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
Company, the Committee also believes that appropriate consideration should be
given to seeking to maximize the deductibility of the compensation paid to
executive officers. As a result, in 2004, the Compensation Committee made
several recommendations for changes to the Company's plans so as to permit the
payments pursuant to those plans to executive officers to be deductible.
In December 2004, upon the recommendation of the Compensation Committee,
the Board of Directors adopted the 2005 Management Incentive Plan which, as
described in Proposal 3 beginning on page 39 of this proxy statement, is being
submitted to the stockholders of the Company for their approval at the 2005
Annual Meeting. If approved by stockholders, the 2005 Management Incentive Plan
would permit annual cash bonuses payable to executive officers to qualify as
"performance-based compensation" for purposes of Section 162(m) in that such
bonuses will be payable "solely on account of the attainment of one or more
preestablished, objective performance goals" pursuant to a plan meeting the
requirements of Section 162(m). These objective performance goals would
establish the maximum potential bonus to which any executive officer could be
entitled, which could be reduced (but not increased) by the Compensation
Committee based upon its evaluation of such employee's individual performance
goals. The Compensation Committee believes the annual cash bonuses payable under
the 2005 Management Incentive Plan will best serve the interests of the Company
and its stockholders by allowing the Company to recognize the full range of an
executive officer's contribution on a tax efficient basis.
29
In addition, upon the recommendation of the Compensation Committee, the
Company's Retirement Plan was amended in July 2004, as more fully described
beginning on page 18 of this proxy statement, to permit the future retirement
benefits provided under the Retirement Plan to no longer be subject to the
limitation in Section 162(m). While the net after-tax retirement benefits
provided to participants were not changed, the Retirement Plan was converted
from a funded to an unfunded arrangement and participants are no longer allowed
to receive distributions of their retirement benefits while they remain employed
by the Company. Since under the Retirement Plan, as amended, retirement benefits
will no longer be provided to an executive officer until after the executive
officer is no longer an employee of the Company, Section 162(m) should not apply
to limit the deduction of the cost of providing retirement benefits to executive
officers under the Retirement Plan.
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 2002 Plan was submitted to
and approved by the stockholders of the Company at the 2002 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 2004 to Messrs. Hicks, Hart, Slattery 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).
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.
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
30
AUDIT COMMITTEE REPORT
The Audit Committee is currently composed of four independent directors
whose names appear at the end of this report.
Management is responsible for the Company's internal controls and the
financial reporting process. The Company's independent registered public
accounting firm is 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 registered public accounting firm. The
Audit Committee members are not acting as professional accountants or auditors,
and their responsibilities are not intended to duplicate or certify the
activities of management and the independent registered public accounting firm
or to certify the independence of the independent registered public accounting
firm under applicable rules.
In this context, the Audit Committee has met to review and discuss the
Company's audited financial statements as of December 31, 2004 and for the
fiscal year then ended, including the Company's specific disclosure under
management's discussion and analysis of financial condition and results of
operation and critical accounting policies, with management and KPMG LLP, the
Company's independent registered public accounting firm. 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 reported to the Audit Committee regarding the critical accounting
policies and practices and the estimates and assumptions used by management in
the preparation of the audited financial statements as of December 31, 2004 and
for the fiscal year then ended, all alternative treatments of financial
information within generally accepted accounting principles that have been
discussed with management, the ramifications of use of such alternative
treatments and the treatment preferred by KPMG LLP.
KPMG LLP provided a report to the Audit Committee describing KPMG LLP's
internal quality-control procedures and related matters. 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.
31
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, 2004 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 selected KPMG LLP as the Company's
independent registered public accounting firm for the year 2005, subject to
stockholder ratification.
William K. Lavin
Rex D. Adams
Dan R. Carmichael
Thomas S. Johnson
Audit Committee
of the Board of Directors
PERFORMANCE GRAPH
The following graph compares for the years 2000-2004 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"), the cumulative total return
on the Standard & Poor's 500 Property and Casualty Insurance Index (the "P&C
Index"), and the cumulative total return on the common stock of a group of
"peer" issuers. The graph shows the value at the end of each such year of $100
invested as of January 1, 2000 in the Common Stock, the S&P 500, the P&C Index
and the common stock of a group of "peer" issuers.
In 2004, the Company was a moderately diversified business enterprise with
revenues generated primarily by its operations in property and casualty
insurance and industrial minerals.
In past years, the Company had compared its performance to a group of
"peer" issuers. "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. In addition to the Company, the "peer" issuers
consisted of American Financial Group, Inc., Loews Corporation, Old Republic
International Corporation and Leucadia National Corporation (collectively, the
"Old Peer Group").
Given that a substantial majority of the Company's business and assets are
attributable to property and casualty insurance resulting from the acquisition
of property and casualty insurer RSUI Group, Inc., and the establishment of
specialty liability insurer Darwin Professional
32
Underwriters, Inc. in 2003 and the sale of steel fastener importer Heads &
Threads International LLC in 2004, the Company has determined to use the P&C
Index rather than the Old Peer Group for comparison purposes.
[LINE GRAPH]
ALLEGHANY S&P 500 P&C INDEX OLD PEER GROUP
--------- ------- --------- --------------
2000 113.00 90.90 155.85 165.70
2001 107.94 80.09 143.35 165.17
2002 101.54 62.39 127.55 151.04
2003 129.83 80.29 161.24 183.99
2004 169.78 89.03 178.04 243.44
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 each of
the years 2000 through 2004 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.
2. 2005 DIRECTORS' STOCK PLAN
The 2000 Directors' Plan, which provided for the annual grant of an option
to purchase 1,000 shares of Common Stock (subject to antidilution adjustments)
to each director
33
who was not an employee of the Company or any of its subsidiaries, expired on
December 31, 2004. The Directors' Equity Plan, which provides for the payment of
a non-employee director's annual retainer for service as a director one-half in
shares of Common Stock (which are not subject to any forfeiture or transfer
restrictions) and one-half in cash, is due to expire on December 31, 2005. The
Company's Corporate Governance Guidelines were recently amended to include
Common Stock ownership guidelines for directors, providing that directors are
expected to achieve ownership of Common Stock, or equivalent deferred Common
Stock units, with a value equal to at least five times the annual retainer
within five years of election to the Board of Directors, and to maintain such a
level thereafter. The Board of Directors believes it to be in the best interests
of the Company and its stockholders to replace these two plans with one
simplified plan that provides for both options and restricted Common Stock in
order to continue to attract and retain independent directors and to encourage
them to increase and maintain their stock ownership in the Company consistent
with the new Common Stock ownership guidelines in order to promote long-term
stockholder value. Accordingly, the Board of Directors has adopted the 2005
Directors' Stock Plan (the "2005 Directors' Plan"), effective upon stockholder
approval. Upon such stockholder approval, the Directors' Equity Plan will be
terminated.
Description of the 2005 Directors' Plan
Pursuant to the 2005 Directors' Plan, each year as of the first business
day following the Annual Meeting of Stockholders, each individual who was
elected, reelected or continues as a member of the Board of Directors and who is
not an employee of the Company or any of its subsidiaries shall automatically be
granted (i) a stock option to purchase 500 shares of Common Stock and (ii) 250
shares of Common Stock which are subject to potential forfeiture until the first
Annual Meeting following the date of grant and restrictions upon transfer until
the third anniversary of the date of grant ("Restricted Common Stock").
The Board of Directors may, without the consent of any non-employee
director, at any time terminate or from time to time amend the 2005 Directors'
Plan in whole or in part, including, without limitation, to increase or decrease
the number of shares of Common Stock granted as an option or as Restricted
Common Stock. In this regard, it is expected that the Compensation Committee
will periodically review grant amounts and recommend any changes, as
appropriate, to the Board of Directors.
The 2005 Directors' Plan will be administered by the Board of Directors.
The Board of Directors has the authority, within the limits of the 2005
Directors' Plan, to construe the 2005 Directors' Plan, to determine all
questions arising thereunder and to adopt and amend the rules and regulations
for the administration of the 2005 Directors' Plan as it may deem
34
desirable. Currently, the Company has seven non-employee directors who would be
entitled to participate in the 2005 Directors' Plan.
Stock Options. No consideration will be paid to the Company upon the grant
of stock options under the 2005 Directors' Plan. The 2005 Directors' Plan
provides that no stock option granted under the 2005 Directors' Plan shall be
exercisable before the expiration of one year from the date of grant and that
any stock option granted under the 2005 Directors' Plan shall become exercisable
as to one-third of the total number of shares of Common Stock covered thereby on
each of the first, second and third anniversaries of the date of grant, provided
that (i) such stock option shall terminate upon the resignation of the
non-employee director prior to the next succeeding Annual Meeting following the
date of grant, (ii) such stock option shall become immediately exercisable in
full for one year after the non-employee director ceases to be a director for
any reason other than resignation prior to the next succeeding Annual Meeting
following the date of grant, and (iii) in the event of the death of the
non-employee director, such stock option shall continue to be exercisable for
such shares of Common Stock as to which the non-employee director could have
exercised the Option at the time of such death for one year after such death.
The 2005 Directors' Plan provides that no stock option granted under the
2005 Directors' Plan shall be exercisable more than ten years after the date of
grant. The price at which shares of Common Stock may be purchased under any
stock option granted under the 2005 Directors' Plan shall be "fair market
value," which is defined in the 2005 Directors' Plan as the average of the high
and low sales prices of Common Stock as reported on the New York Stock Exchange
Composite Transactions Tape on the date of grant or, if no such sales are
reported on that date, the average prices on the last preceding date on which
such sales were reported. Upon exercise of a stock option granted under the 2005
Directors' Plan, the exercise price may be paid in cash, 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. In addition, the Board of
Directors may permit the payment of the exercise price by the Company's
withholding of shares of Common Stock issuable upon such exercise.
Restricted Common Stock. Shares of Restricted Common Stock granted to a
non-employee director pursuant to the 2005 Directors' Plan shall be issued for
no consideration, but shall be forfeited to the Company (without the payment of
any consideration) if such non-employee director resigns from the Board of
Directors prior to the next succeeding Annual Meeting following the date of
grant. In addition, shares of Restricted Common Stock may not be sold, assigned,
pledged or transferred to any person until the third anniversary of the date of
grant, provided that such transfer restrictions shall no longer apply upon (i) a
non-employee director's death prior to the next succeeding Annual Meeting or
(ii) a non-employee director's
35
ceasing to be a director for any reason after the next succeeding Annual Meeting
following the date of grant.
In lieu of the issuance of shares of Restricted Common Stock, the Board of
Directors may provide for or permit the grant of unfunded, bookkeeping units
having a value equal to the value of, and being subject to the same terms and
restrictions applicable to, such shares of Restricted Common Stock. At the time
of payment, the then-current value of Common Stock times the number of units (as
adjusted for any dividends paid on such Common Stock) will be payable in cash or
shares of Common Stock or a combination thereof. Any such bookkeeping units may
be established under, and paid pursuant to, a plan that is a supplement to, or
that is separate from, the 2005 Directors' Plan (and may contain other terms,
conditions and provisions in addition to, but not inconsistent with, the 2005
Directors' Plan), but any Common Stock represented by such bookkeeping units
shall be deemed to have been issued under the 2005 Directors' Plan.
A maximum of 50,000 shares of Common Stock may be issued to non-employee
directors under the 2005 Directors' Plan and/or purchased pursuant to stock
options granted under the 2005 Directors' Plan, subject to antidilution and
other adjustments in certain events specified in the 2005 Directors' Plan. Such
shares of Common Stock may be original issue shares of Common Stock, treasury
stock, shares of Common Stock purchased in the open market or otherwise. On
March 1, 2005, the fair market value (as defined in the 2005 Directors' Plan) of
shares of Common Stock was $272.00 per share, or $13,600,000 in the aggregate
for the 50,000 shares of Common Stock subject to the 2005 Directors' Plan.
The Board of Directors, without the consent of any participant, may
terminate or amend the 2005 Directors' Plan at any time, including, without
limitation, to increase or decrease the number of shares of Common Stock granted
as an option or as Restricted Common Stock; provided, however, that no such
action shall adversely affect any rights or obligations with respect to any
awards theretofore made under the 2005 Directors' Plan, and provided further,
that no such amendment, without the 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 2005 Directors' Plan, extend the
period during which awards may be granted, increase the maximum terms for which
stock options may be issued under the 2005 Directors' Plan, decrease the
exercise price at which stock options may be granted under the 2005 Directors'
Plan or modify the requirements for eligibility to participate in the 2005
Directors' Plan.
The 2005 Directors' Plan will be effective upon stockholder approval
thereof at the 2005 Annual Meeting. If the 2005 Directors' Plan is approved,
awards will be made, commencing in April 2005 and annually thereafter, on the
first business day following the Annual Meeting of
36
Stockholders of the Company in accordance with the 2005 Directors' Plan. The
2005 Directors' Plan will terminate on December 31, 2009, unless sooner
terminated by the Board of Directors in accordance with the terms of the 2005
Directors' Plan. No awards may be granted under the 2005 Directors' Plan after
such termination, but such termination shall not affect the validity of any
award theretofore granted.
A copy of the 2005 Directors' Plan is set forth in Exhibit A to this proxy
statement. The foregoing description is a summary of some, but not all, of the
essential provisions of the 2005 Directors' Plan, and is qualified by reference
to the full text of the 2005 Directors' Plan.
Federal Income Tax Consequences
The following description is a summary of the federal income tax treatment
of awards under the 2005 Directors' Plan; because the applicable rules are quite
technical, the description is general in nature and does not purport to be
complete.
A recipient of a stock option under the 2005 Directors' Plan will not
recognize any taxable income at the time the option is granted. Generally, upon
exercise of the stock option, the recipient 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 recipient'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 recipient 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 recipient's holding period for
the shares of Common Stock.
Unless a recipient of shares of Restricted Common Stock makes the election
described below, the recipient will not recognize any income on the date that
the shares of Restricted Common Stock were received. Instead, the recipient
generally will recognize ordinary income in an amount equal to the fair market
value of the Restricted Common Stock on the date that the forfeiture restriction
with respect to such shares lapses, or the date of the director's death, if
earlier, and the Company will be entitled to a deduction equal to the amount
recognized by the recipient as ordinary income. The recipient'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 forfeiture restriction with respect to such shares lapsed, or the date
of the director's death, if earlier, and any subsequent gain or loss will
generally be
37
taxable as a capital gain or loss, short-term or long-term depending upon the
recipient's holding period for the shares of Common Stock.
A recipient may elect within thirty days after receipt of shares of
Restricted Common Stock to recognize ordinary income in an amount equal to the
fair market value of such shares as of the date of receipt. In that case, the
recipient's basis in the shares of Restricted Common Stock will be the fair
market value of the shares of Restricted 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
recipient's holding period for the shares of Common Stock. However, if the
shares of Restricted Common Stock are subsequently forfeited, the recipient will
not be entitled to any tax deduction.
New Plan Benefits
The dollar value of benefits to be received by non-employee directors of
the Company is not determinable as of the date hereof. However, if the 2005
Directors' Plan had been in effect in 2004, each of the two current non-employee
nominees for election as directors (Messrs. Adams and Noall) and each of the
five continuing non-employee directors of the Company (Messrs. Carmichael,
Lavin, Allan P. Kirby, Jr., Johnson and Will) would have received on April 26,
2004: (a) a stock option to purchase 500 shares (for a total 3,500 shares to all
non-employee directors) at an exercise price of $265.00 per share (which was the
fair market value of a share of Common Stock on such date) and (b) 250 shares of
Restricted Stock (for a total 1,750 shares to all non-employee directors).
Stockholder Approval of the 2005 Directors' 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 2005 Annual Meeting
is required to approve the 2005 Directors' Plan. Shares which are voted against
the approval of the 2005 Directors' Plan, shares the holders of which abstain
from voting for the approval of the 2005 Directors' 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
2005 Directors' Plan. Abstentions and broker non-votes will be counted as
present at the meeting for quorum purposes.
In the event the 2005 Directors' Plan is not approved by stockholders of
the Company, the Directors' Equity Plan will remain in effect until it
terminates in accordance with its terms on December 31, 2005, and the Board of
Directors will consider what action is advisable for the replacement of the
Directors' Equity Plan upon its termination as well as the 2000 Directors' Plan,
which expired on December 31, 2004.
38
The Board of Directors recommends a vote "FOR" the approval of the 2005
Directors' Plan. Proxies solicited by the Board of Directors will be so voted
unless stockholders specify a contrary vote.
3. 2005 MANAGEMENT INCENTIVE PLAN
The Board of Directors believes it to be in the best interests of the
Company and its stockholders to adopt a new management incentive plan at this
time in order to continue to reward, attract and retain highly qualified
officers upon whom, in large measure, the sustained progress, growth and
profitability of the Company depends, through the delivery of performance-based
compensation that is fully tax deductible to the Company. Accordingly, the Board
of Directors adopted the 2005 Management Incentive Plan (the "2005 Management
Plan"), subject to stockholder approval. The 2005 Management Plan will permit
incentive compensation bonus awards to be structured to qualify as
"performance-based" compensation under Section 162(m) of the Code.
Background
Section 162(m) 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 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.
In the past, the Company has paid its officers annual incentive
compensation bonuses under successive annual management incentive plans, which
are short-term incentive plans designed to reward officers for achieving a
combination of specific objective financial criteria and subjective individual
objectives during the plan year. The annual incentive compensation bonuses under
the current plan do not comply with the "performance-based compensation" rules
of Section 162(m).
As described above in the Compensation Committee report, the Compensation
Committee has endeavored to cause awards of long-term incentive compensation to
qualify as "performance-based compensation" under Section 162(m) by complying
with the requirements of Section 162(m) with respect to the 2002 Plan, under
which such awards may be granted.
39
The Board of Directors believes that it is in the best interests of the Company
and its stockholders to similarly qualify the incentive compensation bonuses, in
order to obtain the highest level of deductibility of compensation paid to
covered employees.
Description of the 2005 Management Plan
The 2005 Management Plan will be administered by the Compensation
Committee. The Compensation Committee has the authority to select the officers
(including officers who are directors) to participate in the 2005 Management
Plan (after consideration of management's recommendations), to establish the
performance goals and to determine the amounts of incentive compensation bonus
payable to any participant. Upon the adoption of the 2005 Management Plan by the
Board of Directors, the Compensation Committee made awards thereunder in respect
of 2005 to eight officers of the Company, which awards are subject to
stockholder approval of the 2005 Management Plan. The performance goal
established by the Compensation Committee for these awards is based on 2005
Adjusted (primarily in respect of catastrophe losses and realized gains)
Earnings Per Share as compared with Target Plan Earnings Per Share for that year
(as such terms are defined by the Compensation Committee pursuant to the 2005
Management Plan).
Prior to each calendar year, the Compensation Committee will establish a
target or range of incentive compensation bonus opportunity for each participant
based upon the attainment of one or more performance goals established by the
Compensation Committee. Performance goals may be based upon revenues, operating
income, cash flow, earnings before income taxes, net income, earnings per share,
stockholders' equity, return on equity, underwriting profits, compound growth in
net loss and loss adjustment expense reserves, loss ratio or combined ratio of
the Company's insurance businesses, operating efficiency or strategic business
objectives, applicable to the Company or any subsidiary or business unit or any
combination thereof as the Compensation Committee may deem appropriate. To the
extent that a performance goal is based on the Company's Common Stock (such as
increases in earnings per share or other similar measures), the performance goal
may be subject to antidilution and other adjustments in certain events specified
in the 2005 Management Plan. The Compensation Committee may provide a threshold
level of performance below which no incentive compensation bonus will be paid as
well as a maximum level of performance above which no additional incentive
compensation bonus will be paid. It also may provide for the payment of
differing amounts for different levels of performance.
As soon as practicable at the end of each calendar year or such other
period as designated by the Compensation Committee but before any incentive
compensation bonuses are paid to the participants under the 2005 Management
Plan, the Compensation Committee will certify in
40
writing whether the performance goal(s) were attained and the amount of the
incentive compensation bonus payable to each participant based on the attainment
of such specified performance goals. The Compensation Committee may determine to
grant a participant an incentive compensation bonus equal to, but not in excess
of, the amount specified in the such written certification. The Compensation
Committee also may reduce or eliminate the amount of any incentive compensation
bonus of any participant at any time prior to payment thereof, based on such
criteria as the Compensation Committee shall determine, including but not
limited to individual merit and attainment of, or the failure to attain,
specified personal goals established by the Compensation Committee. Under no
circumstances, however, may the Compensation Committee increase the amount of
the incentive compensation bonus otherwise payable to a participant beyond the
amount originally established, waive the attainment of the performance goals
established by the Compensation Committee or otherwise exercise its discretion
so as to cause any incentive compensation bonus not to qualify as "performance-
based compensation" under Section 162(m). However, the 2005 Management Plan does
not limit the authority of the Company to establish any other annual or other
incentive compensation plan or to pay cash bonuses or other additional incentive
compensation to employees of the Company, including to participants in the 2005
Management Plan, which do not qualify under Section 162(m).
The maximum incentive compensation bonus payable to any participant in a
single calendar year will not exceed $5.0 million. Incentive compensation
bonuses paid pursuant to the 2005 Management Plan will be paid in cash.
The Board of Directors, without the consent of any participant, may amend
or terminate the 2005 Management Plan at any time. However, no amendment that
would require the consent of the stockholders pursuant to Section 162(m) of the
Code shall be effective without such consent.
A copy of the 2005 Management Plan is set forth in Exhibit B to this proxy
statement. The foregoing description is a summary of some, but not all, of the
essential provisions of the 2005 Management Plan, and is qualified by reference
to the full text of the 2005 Management Plan.
New Plan Benefits
The following table sets forth the maximum dollar value of the annual bonus
awards made in respect of the year 2005 to participants in the 2005 Management
Plan, which awards are subject to stockholder approval of the 2005 Management
Plan. In light of Mr. Burns's retirement as President and chief executive
officer of the Company effective December 30,
41
2004, and Mr. Cuming's anticipated retirement during 2005, neither is a
participant in the 2005 Management Plan.
2005 MANAGEMENT PLAN
NAME AND POSITION DOLLAR VALUE($)
----------------- ---------------
Weston M. Hicks..................................... $ 900,000
President and chief
executive officer
Robert M. Hart...................................... $ 294,896
Senior Vice President,
General Counsel and
Secretary
James P. Slattery................................... $ 259,584
Senior Vice President --
Insurance
Peter R. Sismondo................................... $ 114,938
Vice President, Controller,
Treasurer and Assistant Secretary
Executive Officers as a group....................... $1,569,418
Non-executive officer directors as a group.......... --
Non-executive officer employees as a group.......... $ 598,298
Stockholder Approval of the 2005 Management 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 2005 Annual Meeting
is required to approve the 2005 Management Plan. Shares which are voted against
the approval of the 2005 Management Plan, shares the holders of which abstain
from voting for the approval of the 2005 Management Plan, and broker non-votes
will not be counted in the total number of shares voted for the approval of the
2005 Management Plan. Abstentions and broker non-votes will be counted as
present at the meeting for quorum purposes.
In the event the 2005 Management Plan is not approved by stockholders of
the Company, the awards made thereunder in respect of 2005 to officers of the
Company will be rescinded, and the Compensation Committee will consider the
establishment of another annual or other incentive compensation plan and the
grant of bonuses thereunder as appropriate.
42
The Board of Directors recommends a vote "FOR" the approval of the 2005
Management Plan. Proxies solicited by the Board of Directors will be so voted
unless stockholders specify a contrary vote.
4. RATIFICATION OF SELECTION OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has selected KPMG LLP as the Company's independent
registered public accounting firm, as independent auditors for the Company for
the year 2005. A resolution will be submitted to stockholders at the 2005 Annual
Meeting for ratification of such selection. Although ratification by
stockholders is not a prerequisite to the ability of the Audit Committee to
select KPMG LLP as the Company's independent registered public accounting firm,
the Company believes such ratification to be desirable. If the stockholders do
not ratify the selection of KPMG LLP, the selection of an independent registered
public accounting firm will be reconsidered by the Audit Committee; however, the
Audit Committee may select KPMG LLP notwithstanding the failure of the
stockholders to ratify its selection.
The following table summarizes the fees for professional audit services
rendered by KPMG LLP for the audit of the Company's annual financial statements
for the years 2004 and 2003, and fees billed for other services rendered by KPMG
LLP for the years ended December 31, 2004 and 2003:
2004 2003
---------- ----------
Audit Fees................................. $4,002,000 $2,157,900
Audit-Related Fees......................... 184,000 282,800
Tax Fees................................... 109,000 36,300
All Other Fees............................. 1,000 --
---------- ----------
Total...................................... $4,296,000 $2,477,000
The amounts shown for "Audit Fees" represent the aggregate fees for
professional services rendered by KPMG LLP for the audit of the Company's annual
financial statements for each of the last two fiscal years, and the reviews of
the Company's financial statements included in its Quarterly Reports on Form
10-Q, the consents for registration statements and the services provided in
connection with statutory and regulatory filings during each of the last two
fiscal years. In 2004, "Audit Fees" also include fees for professional services
rendered by KPMG LLP in that year for the audits of the effectiveness of
internal control over financial reporting and management's assessment of such
effectiveness. The amounts shown for "Audit-Related Fees" represent the
aggregate fees billed in each of the last two fiscal years by KPMG LLP for
assurance and related services that are reasonably related to the performance of
the audit or review of the Company's financial statements and that are not
reported under "Audit Fees."
43
These services include due diligence assistance in connection with acquisitions,
consultations on accounting and audit matters, the verification of certain
incentive compensation calculations requested by the Board of Directors, and
audit work performed on certain of the Company's benefit plans. The amounts
shown for "Tax Fees" represent the aggregate fees billed in each of the last two
fiscal years by KPMG LLP for tax compliance and review regarding the accounting
treatment of various tax matters. The amount shown for "All Other Fees" in 2004
represents the aggregate fees billed in that year by KPMG LLP for access to its
electronic database for accounting research.
Audit and permissible non-audit services to be provided by KPMG LLP to the
Company must be pre-approved by the Audit Committee or, between meetings of the
Audit Committee, by its Chairman pursuant to authority delegated by the Audit
Committee. The Chairman reports all pre-approval decisions made by him at the
next meeting of the Audit Committee, and he has undertaken to confer with the
Audit Committee to the extent that any engagement for which his pre-approval is
sought is expected to generate fees for KPMG LLP in excess of $100,000.
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.
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
2005 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.
5. ALL OTHER MATTERS THAT MAY COME BEFORE THE
2005 ANNUAL MEETING
As of the date of this proxy statement, the Board of Directors knows of no
business that will be presented for consideration at the 2005 Annual Meeting
other than that referred to above. As to other business, if any, that may come
before the 2005 Annual Meeting, proxies in the enclosed form will be voted in
accordance with the judgment of the person or persons voting the proxies.
44
STOCKHOLDER NOMINATIONS AND PROPOSALS
The Nominating and Governance Committee 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. Any such stockholder recommendation should
be submitted in writing to the Nominating and Governance Committee in care of
the Secretary of the Company at the Company's principal executive offices.
The Board of Directors seeks members with diverse business and professional
backgrounds and outstanding integrity, judgment and such other skills and
experience as will enhance the Board's ability to best serve the interests of
the Company. The Board of Directors has not approved any criteria for nominees
for director and believes that establishing such criteria is best left to an
evaluation of the needs of the Company at the time that a nomination is to be
considered. Similarly, the Nominating and Governance Committee has not
identified specific, minimum qualifications for director nominees or any
specific qualities or skills that it believes are necessary for one or more of
the Company's directors to possess. In view of the infrequency of vacancies on
the Board of Directors, the Nominating and Governance Committee does not have an
established process for identifying and evaluating nominees for director.
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 the Company's principal
executive offices. The Company's By-laws also are available on the Company's
website at www.alleghany.com.
In accordance with the rules of the Securities and Exchange Commission, any
proposal of a stockholder intended to be presented at the Company's 2006 Annual
Meeting of Stockholders must be received by the Secretary of the Company by
November 8, 2005 in order for the proposal to be considered for inclusion in the
Company's notice of meeting, proxy statement and proxy relating to the 2006
Annual Meeting, scheduled for Friday, April 21, 2006.
45
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 2005
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
2005 Annual Meeting.
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 9, 2005
46
EXHIBIT A
2005 DIRECTORS' STOCK PLAN
1. PURPOSE. The purpose of the Alleghany Corporation 2005 Directors'
Stock Plan (the "Plan") is to advance the interests of Alleghany Corporation
(the "Company") and its stockholders by attracting and retaining highly
qualified individuals to serve as members of the Board of Directors (the
"Board") of the Company who are not employees of the Company or any of its
subsidiaries, and to encourage them to increase their stock ownership in order
to promote long-term stockholder value through ownership of the common stock,
$1.00 par value, of the Company ("Common Stock").
2. ADMINISTRATION. The Plan shall be administered by the Board. The Board
shall have all the powers vested in it by the terms of the Plan, such powers to
include the authority (within the limitations described herein) to construe the
Plan, to determine all questions arising thereunder and, subject to the
provisions of the Plan, to adopt and amend such rules and regulations for the
administration of the Plan as it may deem desirable. Any decision of the Board
in the administration of the Plan shall be final and conclusive. The Board may
authorize any one or more of their number or any officer of the Company to
exercise the Board's power over the day-to-day administration of the Plan,
including executing and delivering documents on behalf of the Company.
3. ANNUAL GRANT OF OPTIONS AND RESTRICTED STOCK. Each year, as of the
first business day following the conclusion of the Company's annual meeting of
stockholders (the "Annual Meeting"), each individual who was elected, reelected
or continues as a member of the Board and who is not an employee of the Company
or any subsidiary (a "Non-Employee Director") shall automatically be granted (a)
an option to purchase five hundred shares of Common Stock (an "Option"), on the
terms and subject to the conditions in Section 4, and (b) two-hundred and fifty
shares of Common Stock, subject to the potential forfeiture and restrictions on
transfer in Section 5 (the "Restricted Stock").
4. OPTIONS.
(a) Each Option granted under the Plan shall be evidenced by an agreement
(an "Option Agreement") which shall entitle the holder to purchase during its
term the Common Stock subject to the Option at an exercise price per share equal
to the Fair Market Value of Common Stock on the date such Option is granted. The
term of any Option shall be determined by the Board, but in no event shall any
Option be exercisable more than ten years after the date on which it was
granted. The term "Fair Market Value" shall mean the average of the high and the
low sales prices of Common Stock on the date the Option is granted, as
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reported on the New York Stock Exchange Composite Transactions Tape or, if no
sales of Common Stock are reported on the New York Stock Exchange Composite
Transactions Tape on that date, the average prices on the last preceding date on
which sales of Common Stock were reported on the New York Stock Exchange
Composite Transactions Tape.
(b) Each Option shall not be exercisable before the expiration of one year
from its date of grant and may be exercised during its term as follows:
one-third (33 1/3 percent) of the total number of shares of Common Stock covered
by the Option shall become exercisable each year beginning with the first
anniversary of the date the Option is granted; provided that if the Non-
Employee Director resigns as a director prior to the date of the Company's next
succeeding Annual Meeting following the date the Option was granted (the "Next
Annual Meeting"), the Option shall terminate simultaneously with his
resignation, and if the Non-Employee Director ceases to be a director prior to
the Next Annual Meeting for any reason other than resignation prior to the Next
Annual Meeting, the Option shall automatically become immediately exercisable in
full. If any Non-Employee Director shall cease to be a director for reasons
other than death, while holding an Option that has not terminated or expired and
has not been fully exercised, such Non-Employee Director, at any time within one
year of the date he ceased to be a director but not thereafter (and in no event
after the Option has expired), may exercise the Option with respect to any
shares of Common Stock as to which he has not exercised the Option on the date
he ceased to be a director; and if any Non-Employee Director to whom an Option
has been granted shall die holding an Option that has not been fully exercised,
his executors, administrators, heirs or distributees, as the case may be, may,
at any time within one year after the date of such death but not thereafter (and
in no event after the Option has expired), exercise the Option with respect to
any shares of Common Stock as to which the Non-Employee Director could have
exercised the Option at the time of his death.
(c) Payment in full of the exercise price for the Common Stock acquired
upon exercise of an Option shall be due at the time the Option is exercised,
with such payment being made in cash, by tendering shares of Common Stock
already owned by the person exercising the Option and having a fair market value
equal to the exercise price applicable to the shares of Common Stock being
acquired upon exercise of the Option or by any combination thereof in accordance
with such procedures as may be established by the Board. In addition, the Board
may permit the payment of the exercise price upon exercise of the Option by
allowing the Non-Employee Director to direct the Company to withhold that number
of shares of Common Stock that would be acquired upon exercise of the Option
having a fair market value equal to the exercise price.
(d) Option Agreements shall be in such form as the Board may from time to
time approve, and the provisions governing Options need not be the same with
respect to each Non-
A-2
Employee Director. Option Agreements shall be subject to the terms and
conditions set forth in this Plan and may contain such additional terms and
conditions, not inconsistent with the provisions of this Plan, as the Board
shall deem desirable. The Board may amend the terms of any Option Agreement,
prospectively or retroactively, but no such amendment shall materially and
adversely affect any right of any Non-Employee Director without his consent.
Except as provided in Section 7, the Board shall not have the authority to
cancel any outstanding Option and issue a new Option in its place with a lower
exercise price.
(e) A Non-Employee Director to whom an Option is granted (and any person
succeeding to such Non-Employee Director's rights pursuant to the Plan) shall
have no rights as a stockholder with respect to any shares of Common Stock
issuable pursuant to any such Option until the date of the issuance of a stock
certificate to him for such shares. Except as provided in Section 7, no
adjustment shall be made for dividends, distributions or other rights (whether
ordinary or extraordinary, and whether in cash, securities or other property)
for which the record date is prior to the date such stock certificate is issued.
(f) No Option or any right or interest therein shall be assignable or
transferable except, in the event of the Non-Employee Director's death, by will
or the laws of descent and distribution. Notwithstanding the foregoing, the
Board may, in its discretion, provide that an Option may be transferable,
without consideration, to a Non-Employee Director'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 may impose such terms and conditions on such
transferability as it may deem appropriate.
5. RESTRICTED STOCK.
(a) Restricted Stock granted under the Plan shall be issued for no
consideration but shall be forfeited to the Company (without the payment of any
consideration) if the Non-Employee Director resigns from the Board prior to the
Next Annual Meeting. In addition, Restricted Stock shall not be sold, assigned,
pledged or transferred to any person until the third anniversary of the date the
Restricted Stock is granted; provided that the Restricted Stock shall
automatically cease to be subject to the foregoing restrictions on sale,
assignment, pledge or transfer upon the director's death prior to the Next
Annual Meeting or, subsequent to the Next Annual Meeting, upon the date the
Non-Employee Director ceases to be a director for any reason.
(b) The Non-Employee Director to whom Restricted Stock is issued will have
the customary rights of a stockholder with respect to such shares of Common
Stock, including the right to vote the shares of Common Stock and to receive
cash dividends paid thereon. Prior to
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the date the Restricted Stock ceases to be subject to the restrictions on sale,
assignment, pledge or transfer in Section 5(a), dividends paid on such Common
Stock in the form of additional shares of Common Stock or as securities or other
property shall be subject to the same risk of forfeiture and other restrictions
as the underlying shares of Common Stock with respect to which the dividend was
paid.
(c) Any Restricted Stock issued under the Plan may be evidenced in such
manner as the Board in its sole discretion shall deem appropriate, including,
without limitation, book-entry registration or by the issuance of a stock
certificate or certificates. In the event any stock certificate is issued in
respect of Restricted Stock, such certificate shall be registered in the name of
the Non-Employee Director, and shall bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such Restricted Stock.
(d) In lieu of the issuance of Common Stock as Restricted Stock, the Board
may provide for or permit the grant of unfunded, bookkeeping units having a
value equal to the value of, and being subject to the same terms and
restrictions applicable to, Restricted Stock. At the time of payment, the
then-current value of Common Stock times the number of units (as adjusted for
any dividends paid on such Common Stock, whether in cash or in the form of
additional shares of Common Stock or as securities or other property) will be
payable in cash or shares of Common Stock or a combination thereof. Any such
bookkeeping units may be established under, and paid pursuant to, a plan that is
a supplement to, or that is separate from, this Plan (and may contain other
terms, conditions and provisions in addition to, but not inconsistent with, this
Plan), but any Common Stock represented by such bookkeeping units shall be
treated for purposes of Section 6 as Restricted Stock issued under this Plan.
6. AVAILABLE SHARES OF COMMON STOCK. There may be issued under the Plan
pursuant to the exercise of Options and granted as Restricted Stock an aggregate
of not more than 50,000 shares of Common Stock, subject to adjustment as
provided in Section 7.
7. DILUTION AND OTHER ADJUSTMENTS. In the event of any corporate
transaction involving the Company (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 Company), the number or kind
of shares that may be issued under the Plan as Options and Restricted Stock
pursuant to Section 3 and in the aggregate under Section 6 shall be
automatically adjusted to give effect to the occurrence of such event, and the
number or kind of shares subject to, or the Option price per share under, any
outstanding Option shall be automatically adjusted so that the proportionate
interest of the Non-Employee Director (and any person succeeding to such
Non-Employee Director's rights
A-4
pursuant to the Plan) shall be maintained as before the occurrence of such
event; such adjustment in outstanding Options shall be made without change in
the total Option exercise price applicable to the unexercised portion of such
Options and with a corresponding adjustment in the Option exercise price per
share, and such adjustment shall be conclusive and binding for all purposes of
the Plan. In the event that bookkeeping units have been established in lieu of
Restricted Stock, such bookkeeping units shall be subject to adjustment to the
same extent as Restricted Stock.
8. AMENDMENT OR TERMINATION. The Board, without the consent of any Non-
Employee Director, may at any time terminate or from time to time amend the Plan
in whole or in part, including, without limitation, to increase or decrease the
number of shares of Common Stock granted as an Option or as Restricted Stock in
Section 3; provided, however, that no such action shall adversely affect any
rights or obligations with respect to any Options or Restricted Stock granted
under the Plan; and provided, further, that no amendment, without further
approval by the stockholders of the Company in accordance with Section 10 below,
shall (i) increase the aggregate number of shares subject to the Plan (other
than increases pursuant to Section 7), (ii) extend the period during which
Options or Restricted Stock may be granted under the Plan, (iii) increase the
maximum term for which Options may be exercised under the Plan, (iv) decrease
the exercise price at which Options may be granted under the Plan (other than
pursuant to Section 7), or (v) modify the requirements for eligibility to
participate in the Plan.
9. MISCELLANEOUS PROVISIONS.
(a) Nothing in the Plan shall be deemed to create any obligation on the
part of the Board to nominate any director for re-election by the Company's
stockholders or to limit the rights of the stockholders to remove any director.
Except as expressly provided for in the Plan, no Non-Employee Director or other
person shall have any claim or right to be granted an Option or Restricted Stock
under the Plan.
(b) The Company shall have the right to require, prior to the issuance of
any shares of Common Stock pursuant to the Plan, the payment of, or provision
by, a Non-Employee Director of any taxes required by law to be withheld with
respect to the issuance of such shares. The Board shall be authorized to
establish procedures for elections by Non-Employee Directors to satisfy such
withholding taxes by delivery of, or directing the Company to retain, shares of
Common Stock.
(c) The obligation of the Company to issue shares of Common Stock upon the
exercise of Options or as Restricted Stock shall be subject to the satisfaction
of all applicable legal and securities exchange requirements, including, without
limitation, the provisions of the Securities
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Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended.
The Company 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 as Restricted Stock.
(d) No shares of Common Stock shall be issued hereunder unless counsel for
the Company shall be satisfied that such issuance will be in compliance with
applicable federal, state and other securities laws.
(e) Shares of Common Stock issued under the Plan may be original issue
shares of Common Stock, treasury stock, shares of Common Stock purchased in the
open market or otherwise.
10. EFFECTIVE DATE; TERM. 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 Company'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 December 31, 2009, unless
sooner terminated by action of the Board. No Option or Restricted Stock may be
granted hereunder after termination of the Plan, but such termination shall not
affect the validity of any Option or Restricted Stock theretofore granted.
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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EXHIBIT B
2005 MANAGEMENT INCENTIVE PLAN
1. PURPOSE OF THE PLAN. The purpose of the Alleghany Corporation
Management Incentive Plan (the "Plan") is to allow Alleghany Corporation (the
"Company") to provide performance-based incentive compensation that satisfies
the requirements for performance-based compensation in Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), consisting of incentive
compensation bonuses to its officers, upon whom, in large measure, the sustained
progress, growth and profitability of the Company depends.
2. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Compensation Committee of the Board of Directors of the Company (the
"Committee"). Subject to the provisions of the Plan, the Committee shall have
the exclusive authority to select the officers to participate in the Plan, to
establish performance goals for performance during each Performance Period (as
defined in Section 4), to determine the amount of the incentive compensation
bonus payable to any Participant (as defined in Section 3), and to make all
determinations and take all other actions necessary or appropriate for the
proper administration and operation of the Plan. Any determination by the
Committee on any matter relating to the Plan shall be made in its sole
discretion and need not be uniform among Participants. The Committee's
interpretation of the Plan shall be final, conclusive and binding on all parties
concerned, including the Company, its stockholders and any Participant.
3. ELIGIBILITY. Incentive compensation bonuses under the Plan may be paid
to those officers (including officers who are directors) of the Company who
shall be selected by the Committee after consideration of management's
recommendations ("the Participants"). Participants may receive multiple
incentive compensation bonuses during the same year under the Plan.
4. PERFORMANCE PERIODS. Incentive compensation bonuses may be payable to
each Participant as a result of the satisfaction of performance goals in respect
of the calendar year or such other period as is selected by the Committee (a
"Performance Period").
5. INCENTIVE COMPENSATION BONUSES.
(a) Target Incentive Compensation Bonuses. Prior to the beginning of each
Performance Period, or at such other time no later than such time as is
permitted by the applicable provisions of the Code, the Committee after
consideration of management's recommendations shall establish in writing the
target (or range of) incentive compensation bonus opportunity for each
Participant based upon the attainment of one or more performance goals
established by
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the Committee at such time. The Committee may provide for a threshold level of
performance below which no amount of incentive compensation bonus will be paid
and a maximum level of performance above which no additional incentive
compensation bonus will be paid, and it may provide for the payment of differing
amounts for different levels of performance.
(b) Performance Goals. Performance goals, which may vary from Participant
to Participant and target incentive compensation bonus opportunity to target
incentive compensation bonus opportunity, shall be based upon the attainment of
specific amounts of, or increases in, one or more of the following: revenues,
operating income, cash flow, earnings before income taxes, net income, earnings
per share, stockholders' equity, return on equity, underwriting profits,
compound growth in net loss and loss adjustment expense reserves, loss ratio or
combined ratio of the Company's insurance businesses, operating efficiency or
strategic business objectives consisting of one or more objectives based on
meeting specified cost targets, business expansion goals and goals relating to
acquisitions or divestitures, all 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 Committee may deem
appropriate.
Each performance goal may be expressed on an absolute and/or relative
basis, may be based on, or otherwise employ, comparisons based on internal
targets, the past performance of the Company and/or the past or current
performance of other companies, may provide for the inclusion, exclusion or
averaging of specified items in whole or in part, such as catastrophe losses,
realized gains or losses on strategic investments, discontinued operations,
extraordinary items, accounting changes, and unusual or nonrecurring items, and,
in the case of earnings-based measures, may use or employ comparisons relating
to capital, shareholders' equity and/or shares outstanding, assets or net
assets.
(c) Incentive Compensation Bonus Determination. As soon as practicable
after the end of each Performance Period but before any incentive compensation
bonuses are paid, the Committee shall certify in writing (i) whether the
performance goal or goals were attained and (ii) the amount of the incentive
compensation bonus payable to each Participant based upon the attainment of the
performance goals established by the Committee. The Committee may determine to
grant a Participant an incentive compensation bonus equal to, but not in excess
of, the amount specified in the foregoing certification. The Committee may also
reduce or eliminate the amount of any incentive compensation bonus of any
Participant at any time prior to payment thereof, based on such criteria as it
shall determine, including but not limited to individual merit and attainment
of, or the failure to attain, specified personal goals established by the
Committee. Under no circumstance may the Committee increase the amount of the
incentive compensation bonus otherwise payable to a Participant beyond the
amount originally established, waive the attainment of the performance goals
established by Committee or
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otherwise exercise its discretion so as to cause any incentive compensation
bonus not to qualify as performance-based compensation under Section 162(m) of
the Code.
(d) Payment. As soon as practicable following the Committee's
determination of the amount of any incentive compensation bonus payable to a
Participant, such incentive compensation bonus shall be paid by the Company in
cash to such Participant.
(e) Death, Disability, Etc. In the event a Participant shall die or become
disabled prior to the end of a Performance Period, the Participant (or in the
event of the Participant's death, the Participant's beneficiary) shall be
entitled to receive such pro-rata portion of the incentive compensation bonus
established for the Participant as shall be determined by the Committee, subject
to Section 7(a). In the event a Participant's employment with the Company is
otherwise terminated during the Performance Period, the Committee, in its
discretion, shall determine the amount, if any, of the incentive compensation
bonus that shall be payable to the Participant.
(f) Annual Maximum. The incentive compensation bonuses payable to any
Participant pursuant to the Plan in a single calendar year shall not exceed $5
million.
6. DILUTION AND OTHER ADJUSTMENTS. To the extent that a performance goal
is based on, or calculated with respect to, the Company's common stock (such as
increases in earnings per share or other similar measures), then in the event of
any corporate transaction involving the Company (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 Company), the Committee shall
make or provide for such adjustments in such performance goal as the Committee
may in good faith determine to be equitably required in order to prevent
dilution or enlargement of any increase or decrease in the rights of
Participants.
7. MISCELLANEOUS PROVISIONS.
(a) Right to Incentive Compensation Bonus. No officer or other person
shall have any claim or right to receive any incentive compensation bonus under
the Plan prior to the actual payment thereof.
(b) No Assurance of Employment. Neither the establishment of the Plan nor
any action taken thereunder shall be construed as giving any officer or other
person any right to be retained in the employ of the Company.
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(c) Withholding Taxes. The Company shall have the right to deduct from all
incentive compensation bonuses payable hereunder any federal, state, local or
foreign taxes required by law to be withheld with respect to such payments.
(d) No Transfers or Assignments. No incentive compensation bonus under the
Plan nor any rights or interests herein or therein shall be assigned,
transferred, 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 Company or any subsidiary), except, in the event of the Participant's death,
to his designated beneficiary as hereinafter provided.
(e) Beneficiary. Any payments on account of an incentive compensation
bonus payable 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 Company or in the absence of such designation, according to the
Participant's will or the laws of descent and distribution.
(f) Non-exclusivity of Plan. Nothing in the Plan shall be construed in any
way as limiting the authority of the Committee, the Board of Directors of the
Company, the Company or any subsidiary to establish any other annual or other
incentive compensation bonus plan or as limiting the authority of any of the
foregoing to pay cash bonuses or other supplemental or additional incentive
compensation to any persons employed by the Company, whether or not such person
is a Participant in this Plan and regardless of how the amount of such bonus or
compensation is determined.
8. AMENDMENT OR TERMINATION OF THE PLAN. The Board of Directors of the
Company, without the consent of any Participant, may at any time terminate or
from time to time amend or terminate the Plan in whole or in part, whether
prospectively or retroactively, including in any manner that adversely affects
the rights of Participants; provided, however, that no amendment that would
require the consent of the stockholders of the Company pursuant to Section
162(m) of the Code shall be effective without such consent.
9. LAW GOVERNING. The validity and construction of the Plan 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.
10. EFFECTIVE DATE. The Plan shall be effective commencing January 1,
2005, subject to approval by the stockholders of the Company in accordance with
Section 162(m) of the Code.
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[ ] Mark this box with an X if you have made changes
to your name or address information listed above.
ALLEGHANY CORPORATION - ANNUAL MEETING PROXY CARD
1 ELECTION OF DIRECTORS Use a black pen. Mark with an X inside the [ X ]
The Board of Directors recommends a vote FOR the listed nominees. boxes as shown in this example.
FOR WITHHOLD FOR WITHHOLD
01 - F.M. Kirby [ ] [ ] 03 - Weston M. Hicks [ ] [ ]
02 - Rex D. Adams [ ] [ ] 03 - Roger Noall [ ] [ ]
2 APPROVAL OF 2005 DIRECTORS' STOCK PLAN
The Board of Directors recommends a vote FOR the following proposal.
FOR AGAINST ABSTAIN
Proposal to approve the 2005 Directors' Stock Plan of [ ] [ ] [ ]
Alleghany Corporation.
3 APPROVAL OF 2005 MANAGEMENT INCENTIVE PLAN
The Board of Directors recommends a vote FOR the following proposal.
FOR AGAINST ABSTAIN
Proposal to approve the 2005 Management Incentive Plan [ ] [ ] [ ]
of Alleghany Corporation.
4 RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors recommends a vote FOR the following proposal.
FOR AGAINST ABSTAIN
Ratification of KPMG LLP as Alleghany Corporation's [ ] [ ] [ ]
independent registered public accounting firm for the year 2005.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH INSTRUCTIONS GIVEN. IF NO CHOICES
ARE INDICATED, THIS PROXY WILL BE VOTED FOR ITEMS 1, 2, 3 AND 4.
AUTHORIZED SIGNATURES - SIGN HERE - THIS SECTION MUST BE COMPLETED FOR YOUR
INSTRUCTIONS TO BE EXECUTED.
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 1 - Please keep signature within the box Signature 2 - Please keep signature within the box Date (mm/dd/yyyy)
/ /2005
-------------------------------------------------- -------------------------------------------------- -----------------
ALLEGHANY CORPORATION
PROXY FOR ANNUAL MEETING ON APRIL 22, 2005
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints F.M. Kirby, Weston M. Hicks 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
Harvard Club of New York City, 35 West 44th Street, New York, New York, on
Friday, April 22, 2005 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