ALLEGHANY CORPORATION
7 Times Square Tower
New York, New York 10036

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
April 23, 2010 at 10:00 a.m., Local Time

 

 

Harvard Club of New York City
35 West 44th Street
New York, New York

 

Alleghany Corporation (“Alleghany”) hereby gives notice that its 2010 Annual Meeting of Stockholders will be held at the Harvard Club of New York City, 35 West 44th Street, New York, New York on Friday, April 23, 2010 at 10:00 a.m., local time, for the following purposes:

 

 

Holders of Alleghany common stock at the close of business on March 1, 2010 are entitled to receive this Notice and vote for the election of directors and on each of the other matters set forth above at the 2010 Annual Meeting and any adjournments of this meeting.

 

You are cordially invited to be present. If you do not expect to attend in person, we ask that you sign and return the enclosed form of proxy in the envelope provided. You may revoke your proxy at any time prior to its being voted by written notice to the Secretary of Alleghany or by voting in person at the 2010 Annual Meeting.

 

By order of the Board of Directors

 

ROBERT M. HART
Senior Vice President — Law
and Secretary

 

March 17, 2010

 

Important Notice Regarding Internet Availability of Proxy Materials for the Alleghany Corporation 2010 Annual Meeting of Stockholders to be Held on April 23, 2010: Our proxy materials relating to our 2010 Annual Meeting (notice of meeting, proxy statement, proxy and 2009 Annual Report to Stockholders on Form 10-K) are also available on the Internet. Please go to www.alleghany.com to view and obtain the proxy materials online.

 

ALLEGHANY CORPORATION
7 Times Square Tower
New York, New York 10036

 

PROXY STATEMENT

 

 

2010 Annual Meeting of Stockholders to be held April 23, 2010

 

 

Alleghany Corporation, referred to in this proxy statement as “Alleghany,” “we,” “our,” or “us” is providing these proxy materials in connection with the solicitation of proxies by the Board of Directors of Alleghany, or the “Board,” from holders of Alleghany’s outstanding shares of common stock entitled to vote at our 2010 Annual Meeting of Stockholders, or the “2010 Annual Meeting,” and at any and all adjournments or postponements, for the purposes referred to below and in the accompanying Notice of 2010 Annual Meeting of Stockholders. These proxy materials are being mailed to stockholders on or about March 17, 2010.

 

Alleghany’s Board has fixed the close of business on March 1, 2010 as the record date for the determination of stockholders entitled to notice of, and to vote at, the 2010 Annual Meeting. Stockholders 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 2010 Annual Meeting.

 

On March 1, 2010, 8,860,073 shares of Alleghany’s common stock were outstanding and entitled to vote. The number of shares of Alleghany common stock as of March 1, 2010, and the share ownership information provided elsewhere in these proxy materials, do not include shares Alleghany will issue in connection with a common stock dividend, consisting of one share of Alleghany common stock for every 50 shares of outstanding Alleghany common stock. Alleghany will pay this common stock dividend on April 23, 2010 to stockholders of record at the close of business on April 1, 2010. References to “common stock” in this proxy statement refer to the common stock, par value $1.00 per share, of Alleghany unless the context otherwise requires.

 

TABLE OF CONTENTS

 

 

We believe that, as of March 1, 2010, approximately 22.5% (but see Note (1) below) of our outstanding common stock was beneficially owned by F.M. Kirby, Allan P. Kirby, Jr. and their sister, Grace Kirby Culbertson, primarily through a number of family trusts. The following table sets forth, as of March 1, 2010, such beneficial ownership of common stock of the foregoing members of the Kirby family, as well as other persons who, based upon filings made by them with the U.S. Securities and Exchange Commission, or the “SEC,” were the beneficial owners of more than five percent of our outstanding common stock.

 

 

 

 

 

 

 

Pursuant to Alleghany’s Restated Certificate of Incorporation and By-Laws, Alleghany’s Board 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. Currently, there are four standing committees of the Board, consisting of an Audit Committee, Compensation Committee, Nominating and Governance Committee and Executive Committee. Additional information regarding these committees is set out below.

 

Alleghany’s Board currently consists of twelve directors. At a meeting of the Board on December 15, 2009, Allan P. Kirby, Jr., a director of Alleghany since 1963, notified the Board that he would retire as a director of Alleghany effective as of the 2010 Annual Meeting, and, thus, that he would not stand for re-election as a director of Alleghany. At the same Board meeting, the Board increased the size of the Board from ten to twelve directors and elected Karen Brenner and Phillip M. Martineau to fill the vacancies on the Board created by such increase in size. Ms. Brenner and Mr. Martineau were elected for a term due to expire at the

2010 Annual Meeting. Each of Ms. Brenner and Mr. Martineau, as well as Thomas S. Johnson and James F. Will whose terms also expire at the 2010 Annual Meeting, are standing for election at the 2010 Annual Meeting. Since Allan P. Kirby, Jr. is retiring effective as of the 2010 Annual Meeting, if all of Ms. Brenner and Messrs. Johnson, Martineau and Will are elected, the size of the Board will be reduced effective at the 2010 Annual Meeting to eleven directors.

 

The Board held eight meetings in 2009. Each director attended more than 75% of the aggregate number of meetings of the Board and meetings of the committees of the Board on which he served that were held in 2009. There are two regularly scheduled executive sessions for non-management directors of Alleghany and one regularly scheduled executive session for independent directors each year. The independent directors annually designate an independent director to preside at these executive sessions. The independent director designated to preside over such executive sessions during 2009 was Mr. Will, and Mr. Will was designated to continue in such role during 2010. Alleghany does not have a policy with regard to attendance by directors at Annual Meetings of Stockholders. Three directors attended the 2009 Annual Meeting of Stockholders.

 

Pursuant to the New York Stock Exchange’s listing standards, Alleghany is required to have a majority of independent directors, and no director qualifies as independent unless the Board affirmatively determines that the director has no material relationship with Alleghany. The Board has determined that Rex D. Adams, Karen Brenner, Dan R. Carmichael, Allan P. Kirby, Jr., Jefferson W. Kirby, William K. Lavin, Thomas S. Johnson, Phillip M. Martineau, James F. Will and Raymond L.M. Wong have no material relationship with Alleghany other than in their capacities as members of the Board and committees thereof, and thus are independent directors of Alleghany, based upon the fact that none of such directors has any material relationship with Alleghany either directly or as a partner, shareholder or officer of an organization that has a relationship with Alleghany. As a result, ten of Alleghany’s current twelve directors are independent directors. Each of the four director nominees, Ms. Brenner and Messrs. Johnson, Martineau and Will, is independent. Since Allan P. Kirby, Jr. is retiring effective as of the 2010 Annual Meeting, if all of Ms. Brenner and Messrs. Johnson, Martineau and Will are elected, the size of the Board will be reduced effective at the 2010 Annual Meeting to eleven directors, of whom nine will be independent directors.

 

Currently the positions of Chairman, and President and chief executive officer, are separate. It is the policy of the Board that the Chairman should not be an Alleghany officer. The current Chairman, Mr. John J. Burns, Jr., is a former President and chief executive officer of Alleghany and is not an independent director as determined by the Board. When Mr. Burns was elected Chairman effective January 1, 2007, the Board considered it to be a transitional arrangement. The Board intends to consider, during 2010, the election of an independent director as Chairman. Pursuant to the Corporate Governance Guidelines of Alleghany, or the “Corporate Governance Guidelines,” the duties of the Chairman include providing leadership to the Board in managing the business of the Board and ensuring that there is an effective structure for the operations of the Board and its committees. The Board believes that its leadership structure is appropriate given the historical development of the composition of the Board and management and the Corporate Governance Guidelines, Alleghany’s long-term principal stockholders and the significant tenure of a majority of its members.

 

The Board oversees risk management directly and through its Audit Committee, Compensation Committee and Nominating and Governance Committee. Alleghany management has several committees that it uses group-wide to monitor and manage risk, including a Risk Management Committee, Reinsurance Security Committee, Investment Committee and Legal Compliance Committee. Alleghany management regularly reports to the Board and, as appropriate, to the committees of the Board on management’s activities and risk tolerances. Each year at the Board’s December or January meeting, the Board receives a formal report on enterprise risk management and, at the same meeting, considers Alleghany’s five-year strategic plan and the evaluation of the chief executive officer, allowing the Board to consider risk and risk management in the context of the strategic plan and management’s performance. At the Audit Committee’s June meeting, the Committee receives a formal report on enterprise risk management and legal compliance, which is also copied to the Board, and the Audit Committee subsequently reports thereon to the Board. The Board believes that risk oversight is a responsibility of the entire Board, and it does not look to any individual director or committee to lead it in discharging this responsibility.

 

Audit Committee

 

The current members of the Audit Committee are Messrs. Lavin (Chairman), Adams, Carmichael and Wong. The Board 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 is an audit committee financial expert as defined by the SEC. The Board 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 Audit Committee operates pursuant to a Charter, a copy of which is available on Alleghany’s website at www.alleghany.com or may be obtained, without charge, upon written request to the Secretary of Alleghany at Alleghany’s principal executive offices. Pursuant to its Charter, 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 permissible non-audit services to be provided by the independent registered public accounting firm. The Audit Committee is also directly responsible for the evaluation of such firm’s qualifications, performance and independence. The Audit Committee also reviews and makes reports and recommendations to the Board with respect to the following matters:

 

 

The Audit Committee held six meetings in 2009.

 

Compensation Committee

 

The current members of the Compensation Committee are Messrs. Carmichael (Chairman), Lavin and Will, each of whom the Board has determined is independent as defined in the New York Stock Exchange’s listing standards. The Compensation Committee operates pursuant to a Charter, a copy of which is available on Alleghany’s website at www.alleghany.com or may be obtained, without charge, upon written request to the Secretary of Alleghany at Alleghany’s principal executive offices. Alleghany’s executive compensation program is administered by the Compensation Committee. Pursuant to its Charter, the Compensation Committee is, among other things, charged with:

 

 

In addition, the Compensation Committee also is responsible for reviewing the annual recommendations of the chief executive officer concerning:

 

 

The Compensation Committee provides a report on the actions described above to the Board and makes recommendations with respect to such actions to the Board as the Compensation Committee may deem appropriate. Compensation adjustments and awards are generally made annually by the Compensation Committee at a meeting in December or January.

 

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, and proposing changes, as appropriate, to the Board. The Compensation Committee also administers Alleghany’s 2002 Long-Term Incentive Plan, or the “2002 LTIP,” the 2007 Long-Term Incentive Plan, or the “2007 LTIP,” and the 2005 Management Incentive Plan, or the “2005 MIP.”

Alleghany’s Senior Vice President-Law and Secretary, Robert M. Hart, supports the Compensation Committee in its work. In addition, during 2009, the Compensation Committee engaged Grahall Partners, or the “Compensation Consultant,” as independent outside compensation consultant, to advise it on executive compensation matters. The Compensation Consultant also advised the Compensation Committee and management on various executive compensation matters involving Alleghany’s operating subsidiaries. The Chairman of the Compensation Committee reviews and approves all fees Alleghany pays to the Compensation Consultant. The Compensation Committee held six meetings in 2009.

 

Nominating and Governance Committee

 

The current members of the Nominating and Governance Committee are Messrs. Adams (Chairman), Johnson and Will, each of whom the Board has determined is independent as defined in the New York Stock Exchange’s listing standards. The Nominating and Governance Committee operates pursuant to a Charter, a copy of which is available on Alleghany’s website at www.alleghany.com or may be obtained, without charge, upon written request to the Secretary of Alleghany at Alleghany’s principal executive offices. Pursuant to its Charter, the Nominating and Governance Committee is charged with:

 

 

The Nominating and Governance Committee will receive at any time and will consider from time to time suggestions from stockholders as to proposed director candidates. In this regard, a stockholder may submit a recommendation regarding a proposed director nominee in writing to the Nominating and Governance Committee in care of the Secretary of Alleghany at Alleghany’s principal executive offices. Any such persons recommended by a stockholder will be evaluated in the same manner as persons identified by the Nominating and Governance Committee.

The Nominating and Governance Committee has not identified specific, minimum qualifications for director nominees. Except as described below regarding the recruitment of two new directors during 2009, the Nominating and Governance Committee has not identified any specific qualities or skills that it believes are necessary for one or more of Alleghany’s directors to possess. In this regard, the Board generally seeks members with diverse business and professional backgrounds and outstanding integrity and judgment, and such other skills and experience as will enhance the Board’s ability to best serve Alleghany’s interests. The Board, similar to the Nominating and Governance Committee, has not approved any specific criteria for nominees for director and believes that establishing such criteria is best left to an evaluation of Alleghany’s needs at the time that a nomination is to be considered.

 

In view of the infrequency of vacancies on the Board, the Nominating and Governance Committee does not have an established process for identifying and evaluating nominees for director. During 2009, at the request of the Board, the Nominating and Governance Committee undertook a process to identify two or more new directors to fill vacancies created by anticipated future director retirements over the next few years in accordance with the Board’s retirement policy. The Nominating and Governance Committee determined that it would seek to identify candidates who would be able to serve for several years before being required to retire under the Board’s retirement policy, that one candidate should have financial or legal transactional business experience, that one candidate should have operating business experience, and that at least one of such candidates should be a member of a minority group or female. Although the Nominating and Governance Committee considered diversity in setting its 2009 search criteria, the Nominating and Governance Committee does not have a formal diversity policy with respect to identifying director nominees. The Nominating and Governance Committee solicited directors to recommend possible candidates and also determined in April 2009 to engage SpencerStuart, a nationally recognized search firm, to assist the Nominating and Governance Committee in identifying and evaluating potential nominees, including assistance in evaluating potential nominees proposed by the directors. SpencerStuart provided background information to the Nominating and Governance Committee regarding over 40 potential candidates meeting its search criteria and regularly communicated with the Nominating and Governance Committee to discuss such potential candidates. The Nominating and Governance Committee also provided SpencerStuart with information regarding potential nominees recommended by Alleghany directors and asked SpencerStuart to evaluate such prospects pursuant to the same review process as that of the prospects identified by SpencerStuart. After review and discussion, the Nominating and Governance Committee and SpencerStuart identified potential nominees to be interviewed by SpencerStuart, and SpencerStuart reported to the Nominating and Governance Committee on such interviews. The Nominating and Governance Committee regularly reported to the Board

regarding the search’s progress. Three of the leading candidates were then interviewed by the members of the Nominating and Governance Committee and Weston M. Hicks, Alleghany’s President and chief executive officer. At its meeting on October 20, 2009, the Nominating and Governance Committee determined to recommend to the Board that:

 

 

 

The Board met Ms. Brenner and Mr. Martineau at its meeting on December 15, 2009, and thereafter elected them as directors, effective December 16, 2009, to serve until the 2010 Annual Meeting.

 

The Nominating and Governance Committee held nine meetings in 2009.

 

Executive Committee

 

The current members of the Executive Committee are Messrs. Allan P. Kirby, Jr. (Chairman), Burns, Hicks and Johnson. The Executive Committee of the Board may exercise certain powers of the Board regarding the management and direction of the business and affairs of Alleghany when the Board is not in session. The Executive Committee reports to the Board on all action it takes, and the Board reviews such action. The Executive Committee held no meetings in 2009.

 

 

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 Alleghany at Alleghany’s principal executive offices. Any such communications will be delivered unopened:

 

 

Alleghany’s retirement policy for directors was adopted by Old Alleghany in 1979 and by Alleghany upon its formation in 1986. In December 2008, the retirement policy was amended to provide that, except in respect of directors serving when the policy was first adopted, a director must retire from the Board at the next Annual Meeting of Stockholders following his or her 72nd birthday. Mr. Burns is not subject to this retirement policy because he was a director of Old Alleghany in 1979. Although not subject to the retirement policy, Allan P. Kirby, Jr. is retiring from the Board effective as of the 2010 Annual Meeting.

 

The Board has adopted a written Related Party Transaction Policy, or “the Policy.” Pursuant to the Policy, all related party transactions must be approved in advance by the Board. Under the Policy, a related party transaction means any transaction, other than compensation for services as an officer or director authorized and approved by the Compensation Committee or the Board, in which Alleghany or any of its subsidiaries is a participant and in which any:

 

 

has or will have a direct or indirect material interest. A person who has a position or relationship with a firm, corporation or other entity may be deemed to have an indirect interest in any transaction in which that entity engages. However, a person is not deemed to have an interest if such interest arises only from such person’s position as a director of another corporation and/or such person’s direct and indirect ownership of less than 10% of the equity of such firm, corporation, or other entity.

 

Under the Policy, all newly proposed related party transactions are referred to the Nominating and Governance Committee for review and consideration of its recommendation to the Board. Following this review, the related party transaction and the Nominating and Governance Committee’s analysis and recommendations are presented to the full Board (other than any directors interested in the transaction) for approval. The Nominating and Governance Committee reviews existing related party transactions annually, with the goals of ensuring that such transactions are being pursued in accordance with all of the understandings and

commitments made at the time they were approved, ensuring that payments being made with respect to such transactions are appropriately reviewed and documented, and reaffirming that such transactions remain in the best interests of Alleghany. The Nominating and Governance Committee reports any such findings to the Board.

 

 

Alleghany 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 the Corporate Governance Guidelines. Copies of each of these documents are available on Alleghany’s website at www.alleghany.com or may be obtained, without charge, upon written request to the Secretary of Alleghany at Alleghany’s principal executive offices.

 

Alleghany’s By-Laws provide for a majority voting standard for the election of directors for uncontested elections. In connection with such provision of the By-Laws, the Corporate Governance Guidelines provide that a director nominee, as a condition of his or her nomination, shall tender to the Board, at the time of nomination, an irrevocable resignation in the event that the director fails to receive the majority vote required by the By-Laws, effective upon the Board’s acceptance of such resignation. In the event that a director nominee fails to receive the requisite majority vote, the Nominating and Governance Committee will evaluate such resignation in light of Alleghany’s best interests and make a recommendation to the Board as to whether the Board should accept the resignation. In making its recommendation, the Nominating and Governance Committee may consider any factors it deems relevant, including:

 

 

The Board, by vote of independent directors other than the director whose resignation is being evaluated, will act on the tendered resignation and will publicly disclose its decision and rationale within 90 days following certification of the stockholder vote.

 

Directors are expected to achieve ownership of common stock, or equivalent common stock units, with a value equal to at least five times the annual board retainer within five years of election to the Board, and to maintain such a level thereafter.

 

The following table sets forth, as of March 1, 2010, the beneficial ownership of common stock of each of the nominees named for election as a director, each of the other current directors, each of the executive officers named in the Summary Compensation Table on page 60, and all nominees, directors and executive officers as a group.

 

 

 

 

 

 

 

 

 

Alleghany has determined that, except as set forth below, no person who at any time during 2009 was a director, officer or beneficial owner of more than 10% of 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 2009. This determination is based solely upon Alleghany’s review of Forms 3, 4 and 5, and written representations that no Form 5 was required, which such persons submitted to Alleghany during or with respect to 2009. John J. Burns, Jr. filed a Form 4 report on March 31, 2009 reporting, among other things, four sale transactions for a total of 400 shares of common stock on March 25, 2009, all of which were held indirectly by Mr. Burns.

 

Karen Brenner, Thomas S. Johnson, Phillip M. Martineau and James F. Will have been nominated by the Board for election as directors at the 2010 Annual Meeting, each to serve for a term of three years, until the 2013 Annual Meeting of Stockholders and until his or her successor is duly elected and qualified. Messrs. Johnson and Will were last elected by stockholders at the 2007 Annual Meeting of Stockholders held on April 27, 2007.

 

At a meeting of the Board on December 15, 2009, Allan P. Kirby, Jr., a director of Alleghany since 1963, notified the Board that he would retire as a director of Alleghany effective as of the 2010 Annual Meeting, and, thus, that he would not stand for re-election as a director of Alleghany. At the same Board meeting, the Board increased the size of the Board from ten to twelve directors and elected Karen Brenner and Phillip M. Martineau to fill the vacancies on the Board created by such increase in size. Ms. Brenner and Mr. Martineau were elected for a term due to expire at the 2010 Annual Meeting. Each of Ms. Brenner and Messrs. Johnson, Martineau and Will are standing for election at the 2010 Annual Meeting. Since Allan P. Kirby, Jr. is retiring effective as of the 2010 Annual Meeting, if all of Ms. Brenner and Messrs. Johnson, Martineau and Will are elected, the size of the Board will be reduced effective at the 2010 Annual Meeting to eleven directors.

 

Proxies in the enclosed form received from Alleghany stockholders of record will be voted for the election of the four nominees named above as Alleghany directors unless such stockholders indicate otherwise. If any of the foregoing nominees is unable to serve for any reason, which 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. A nominee for director shall be elected to the Board if such nominee receives the affirmative vote of a majority of the votes cast with respect to the election of such nominee. A majority of votes cast means the number of votes cast “for” a nominee’s election must exceed the number of votes cast “against” the nominee’s election. “Abstentions” and “broker non-votes” do not count as votes cast “for” or “against” the nominee’s election. Abstentions and broker non-votes will be counted as present at the meeting for quorum purposes.

 

The following information includes the age, the year in which first elected as a director of Alleghany or Old Alleghany, the principal occupation and/or other business experience for the past five years, other public company directorships during the past five years, and the experience, qualifications, attributes and skills of each of the nominees named for election as director, and of the other directors of Alleghany. In addition to the information presented

below regarding the experience, qualifications, attributes and skills that led the Board to the conclusion that the persons named below should be directors of Alleghany, Alleghany also believes that each of the nominees named for election as director and the other directors have a reputation for integrity, honesty and for adherence to high ethical standards. Each has demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment to service to Alleghany and the Board.

 

Nominees for Election:

 

Other Alleghany Directors:

 

 

The information under this heading relates to the compensation during 2009 of those persons who served as directors of Alleghany at any time during 2009, except for Mr. Hicks, whose compensation is reflected in the Summary Compensation Table on page 60.

 

2009 Director Compensation

 

 

 

 

 

Fees Earned or Paid in Cash

 

Each director who is not an Alleghany officer or serving as Chairman of the Board (whose fees are described below) receives an annual retainer of $30,000, payable in cash, as well as $1,000 for each in person board meeting attended and $500 for each telephone conference meeting attended. The Chairman of the Executive Committee receives an annual fee of $25,000, and each other member who is not an Alleghany officer receives an annual fee of $7,500. The Chairman of the Audit Committee receives an annual fee of $30,000, and each other member receives an annual fee of $15,000. The Chairman of the Compensation Committee receives an annual fee of $15,000, and each other member receives an annual fee of $10,000. The Chairman of the Nominating and Governance Committee receives an annual fee of $12,000, and each other member receives an annual fee of $7,000.

 

Stock Awards and Option Awards

 

Pursuant to the 2005 Directors’ Plan, which expired on December 31, 2009, each year as of the first business day following the Annual Meeting of Stockholders, each individual who was elected, re-elected or continues as a member of the Board and who is not an employee of Alleghany or any of its subsidiaries receives:

 

 

 

On April 27, 2009, each eligible director received a stock option to purchase 500 shares of common stock at an exercise price of $225.37 per share and either (i) 250 shares of restricted common stock or (ii) 250 restricted stock units. Each director is permitted to defer payment of the restricted stock units, and all whole restricted stock units will be paid in the form of whole shares of common stock.

 

Arrangements with the Chairman of the Board

 

For his service as Chairman of the Board and a director, Mr. Burns receives an annual retainer of $400,000 from Alleghany. In addition, Mr. Burns is eligible for awards under the 2005 Directors’ Stock Plan but does not receive meeting or other director fees. In 2004, Alleghany established an office in New Canaan, Connecticut which Mr. Burns uses as his principal office for purposes of attending to Alleghany-related matters. As Mr. Burns also uses this office to attend to personal matters, Mr. Burns reimburses Alleghany for twenty-five percent of the annual rent and operating costs for this office, amounting to approximately $38,300 per year.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE NOMINEES TO THE BOARD OF DIRECTORS SET FORTH IN THIS PROPOSAL. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. EACH NOMINEE SHALL BE ELECTED BY THE AFFIRMATIVE VOTE OF A MAJORITY OF THE VOTES CAST WITH RESPECT TO THE ELECTION OF SUCH NOMINEE. A MAJORITY OF VOTES CAST MEANS THE NUMBER OF VOTES CAST “FOR” A NOMINEE’S ELECTION MUST EXCEED THE NUMBER OF VOTES CAST “AGAINST” THE NOMINEE’S ELECTION. “ABSTENTIONS” AND “BROKER NON-VOTES” DO NOT COUNT AS VOTES CAST “FOR” OR “AGAINST” THE NOMINEE’S ELECTION. ABSTENTIONS AND BROKER NON-VOTES WILL BE COUNTED AS PRESENT AT THE MEETING FOR QUORUM PURPOSES.

 

The 2005 Directors’ Plan, which provided for the annual grant, to each individual who was elected, re-elected or continued as a member of the Board and who was not an employee, of (i) a stock option to purchase 500 shares of common stock, subject to anti-dilution adjustments, at an exercise price equal to the fair market value of one share of common stock on the date of grant; and (ii) at the individual’s election, either (a) 250 shares of restricted common stock or (b) 250 restricted stock units, each equivalent to a share of common stock, expired on December 31, 2009. The Board believes it to be in the best interests of Alleghany and its stockholders to replace the 2005 Directors’ Plan with the 2010 Directors’ Stock Plan, or the “2010 Directors’ Plan,” which is substantially similar to the 2005 Directors’ Plan, in order to continue to attract and retain independent directors and to encourage them to increase and maintain their stock ownership in Alleghany consistent with director stock ownership guidelines in order to promote long-term stockholder value. Accordingly, the Board has adopted the 2010 Directors’ Plan, effective upon stockholder approval.

 

Description of the 2010 Directors’ Plan

 

Pursuant to the 2010 Directors’ Plan, each year as of the first business day following the Annual Meeting of Stockholders, each individual who is elected, re-elected or continues as a member of the Board and who is not an employee of Alleghany or any of its subsidiaries shall automatically be granted (i) a stock option to purchase 500 shares of common stock, or an “Option,” and (ii) at the individual’s election, either (a) 250 shares of restricted common stock, or “Restricted Common Stock,” or (b) 250 restricted stock units, or “Restricted Stock Units,” and together with Restricted Common Stock, “Restricted Shares,” each equivalent to a share 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. Non-employee individuals who are appointed to the Board between Annual Meetings of Stockholders (“Newly Appointed Directors”) will receive a pro-rated Option and Restricted Share grant.

 

The 2010 Directors’ Plan will be administered by the Board. The Board has the authority, within the limits of the 2010 Directors’ Plan, to construe the 2010 Directors’ Plan, to determine all questions arising thereunder and to adopt and amend the rules and regulations for the administration of the 2010 Directors’ Plan as it may deem desirable. It is expected that the Compensation Committee will periodically review grant amounts and recommend any changes, as appropriate, to the Board. Currently, Alleghany has ten non-employee directors (excluding Allan P. Kirby, Jr. who is retiring effective as of the 2010 Annual Meeting) who would be entitled to participate in the 2010 Directors’ Plan.

 

Options.  No consideration will be paid to Alleghany upon the grant of Options under the 2010 Directors’ Plan. The 2010 Directors’ Plan provides that no Option granted under the 2010 Directors’ Plan shall be exercisable before the expiration of one year from the date of grant and that an Option granted under the 2010 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 (with certain minor exceptions for Newly Appointed Directors), provided that (i) the Option shall terminate upon the resignation of the non-employee director prior to the next succeeding Annual Meeting following the date of grant, (ii) the 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 or other termination of the non-employee director, the 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 termination for one year after such termination (but not beyond the stated term of the Option). Notwithstanding the above, vested Options granted to a non-employee director will remain exercisable for the remaining term of the Options following a non-employee director’s retirement from the Board at or after any Annual Meeting of Stockholders following his or her 72^nd birthday in accordance with Alleghany’s director retirement policy.

 

The 2010 Directors’ Plan provides that no Option granted under the 2010 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 Option granted under the 2010 Directors’ Plan shall be “fair market value,” which is defined in the 2010 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 an Option granted under the 2010 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 may permit the payment of the exercise price by Alleghany’s withholding of shares of common stock issuable upon such exercise.

 

Restricted Shares.  Restricted Shares granted to a non-employee director pursuant to the 2010 Directors’ Plan shall be issued for no consideration, but shall be forfeited to Alleghany (without the payment of any consideration) if such non-employee director resigns from the Board prior to the next succeeding Annual Meeting following the date of grant. In addition, Restricted Shares may not be sold, assigned, pledged or transferred to any person until the third anniversary of the date of grant (with certain minor exceptions for Newly Appointed

Directors), provided that such transfer restrictions shall no longer apply upon (i) a non-employee director’s death prior to the next succeeding Annual Meeting following the date of grant or (ii) a non-employee director’s 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, a director may elect to receive Restricted Stock Units, which are unfunded, bookkeeping units having a value equal to the value of, and being subject to the same terms and restrictions applicable to, shares of Restricted Common Stock. At the time of payment, the then-current value of common stock multiplied by the number of whole Restricted Stock Units (as adjusted for any dividends paid on the common stock) will be payable in the form of shares of common stock, and any fractional Restricted Stock Unit shall be paid in cash. Non-employee directors are permitted to defer payment of Restricted Stock Units to any time after the third anniversary of the date of grant or until such non-employee director retires from the Board (with certain minor exceptions for Newly Appointed Directors).

 

A maximum of 60,000 shares of common stock may be issued to non-employee directors under the 2010 Directors’ Plan and/or purchased pursuant to Options granted under the 2010 Directors’ Plan, subject to anti-dilution and other adjustments in certain events specified in the 2010 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, 2010, the fair market value (as defined in the 2010 Directors’ Plan) of shares of common stock was $275.32 per share, or $16,519,200 in the aggregate, for the 60,000 shares of common stock subject to the 2010 Directors’ Plan.

 

The Board, without the consent of any participant, may terminate or amend the 2010 Directors’ Plan at any time, including, without limitation, to increase or decrease the number of shares of common stock granted pursuant to Options or as Restricted Shares; provided, however, that no such action shall adversely affect any rights or obligations with respect to any awards theretofore made under the 2010 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 2010 Directors’ Plan, extend the period during which awards may be granted, increase the maximum term for which an Option may be issued under the 2010 Directors’ Plan, decrease the exercise price at which an Option may be granted under the 2010 Directors’ Plan, or modify the requirements for eligibility to participate in the 2010 Directors’ Plan.

 

The 2010 Directors’ Plan will be effective upon stockholder approval thereof at the 2010 Annual Meeting. If the 2010 Directors’ Plan is approved, awards will be made, commencing

in April 2010 and annually thereafter, on the first business day following the Annual Meeting of Stockholders of the Company in accordance with the 2010 Directors’ Plan (and on the first business day following the appointment of a Newly Appointed Director). The 2010 Directors’ Plan will terminate immediately preceding the 2015 Annual Meeting of Stockholders, unless sooner terminated by the Board in accordance with the terms of the 2010 Directors’ Plan. No awards may be granted under the 2010 Directors’ Plan after such termination, but such termination shall not affect the validity of any award theretofore granted.

 

A copy of the 2010 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 2010 Directors’ Plan, and is qualified by reference to the full text of the 2010 Directors’ Plan, which is incorporated by reference herein.

 

Federal Income Tax Consequences

 

The following description is a summary of the federal income tax treatment of awards under the 2010 Directors’ Plan; because the applicable tax rules are quite technical, the description is general in nature and does not purport to be complete.

 

A recipient of an Option under the 2010 Directors’ Plan will not recognize any taxable income at the time the Option is granted. Generally, upon exercise of the Option, the recipient will recognize ordinary income, and Alleghany 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, and Alleghany 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, 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.

 

If a director elects to receive Restricted Stock Units, such director will recognize ordinary income in an amount equal to the fair market value of common stock (Restricted Stock Units pay out in the form of shares of common stock) at the time the Restricted Stock Units are paid. Under the 2010 Directors’ Plan, a director is permitted to elect to defer payment of Restricted Stock Units to any time after the third anniversary of the date of grant or until the date that such director retires from the Board (with certain minor exceptions for Newly Appointed Directors). If a director does not specify a payment date when he or she elects to receive Restricted Stock Units, the payment date will be the third anniversary of the date of grant (with certain minor exceptions for Newly Appointed Directors). Restricted Stock Units are subject to the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), which provides certain restrictions on the payment of deferred compensation and imposes penalties (e.g., a 20% penalty tax and interest penalty) on the recipient of the deferred compensation for failing to comply with such requirements.

 

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 (and Alleghany will receive a corresponding deduction). In that case, the recipient will not recognize any income upon the vesting of such Restricted Common Stock, 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

 

 

 

 

Stockholder Approval of the 2010 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 2010 Annual Meeting is required to approve the 2010 Directors’ Plan. Shares which are voted against the approval of the 2010 Directors’ Plan, shares the holders of which abstain from voting for the approval of the 2010 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 2010 Directors’ Plan. Abstentions and broker non-votes will be counted as present at the meeting for quorum purposes.

 

In the event the 2010 Directors’ Plan is not approved by Alleghany stockholders, the Board will consider what action is advisable for the replacement of the 2005 Directors’ Plan, which expired on December 31, 2009.

 

THE BOARD RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE 2010 DIRECTORS’ PLAN. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE.

 

The Board believes it to be in the best interests of Alleghany and its stockholders to adopt a new management incentive plan, replacing the 2005 MIP, 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 Alleghany depends. Accordingly, the Board adopted the 2010 Management Incentive Plan, or the “2010 Management Plan,” subject to stockholder approval. The 2010 Management Plan will permit (i) incentive compensation bonus awards to be structured to qualify as “performance-based” compensation under Section 162(m) of the Code, or “Qualifying Incentives,” and (ii) incentive compensation bonus awards not intended to satisfy the requirements of Section 162(m) of the Code, or “Non-Qualifying Incentives.”

Background

 

Section 162(m) of the Code disallows a deduction to Alleghany 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 three other most highly compensated executive officers of Alleghany (other than the chief financial officer) who are in the employ of Alleghany 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 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 addition, when a committee retains the flexibility to develop compensation formulas from among stockholder-approved performance goals, Section 162(m) of the Code requires that those performance goals must be re-approved by stockholders every five years. Because the 2005 MIP was approved by stockholders at the 2005 Annual Meeting of Stockholders, no Qualifying Incentives may be awarded under the 2005 MIP after the 2010 Annual Meeting.

 

Under the 2005 Management Incentive Plan, or the “2005 MIP,” the Compensation Committee was limited to awarding annual incentive compensation bonuses that complied with the “performance-based compensation” rules of Section 162(m) of the Code. However, the 2005 MIP permitted the grant of separate bonuses outside of the 2005 MIP that would not be “performance-based compensation.” The 2010 Management Plan permits the Compensation Committee to award Qualifying Incentives and Non-Qualifying Incentives. The Board believes that it is in the best interests of Alleghany and its stockholders to provide the Compensation Committee with the flexibility to structure annual incentive compensation within a single plan as either Qualifying Incentives or Non-Qualifying Incentives.

 

Description of the 2010 Management Plan

 

The 2010 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 2010 Management Plan (after consideration of management’s recommendations), to establish the performance goals, to determine the amounts of incentive compensation bonus payable to any participant, and to determine whether such incentive compensation is intended to be a Qualifying Incentive or a Non-Qualifying Incentive.

Qualifying Incentives.  Qualifying Incentives shall be payable to a 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 Compensation Committee (a “Performance Period”). Prior to each Performance Period, 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. The Compensation Committee may provide that a Qualifying Incentive shall be determined as an amount or percentage of a specified incentive pool based upon operating income, cash flow, earnings before income taxes, net income or other measures constituting a performance goal with such adjustments or exclusions as the Compensation Committee may determine; provided, however, that if payment of a Qualifying Incentive is based upon the attainment of one or more performance goals established by the Compensation Committee, the Compensation Committee may determine the amount of the incentive pool by reference to any measure, whether or not constituting a performance goal, as the Compensation Committee deems appropriate. Performance goals may be based upon revenues; operating income; net operating income; cash flow; earnings before income taxes; net income; earnings per share; stockholders’ equity; return or net return on assets, net assets, investments, capital or equity; share price; share price appreciation; underwriting profits; gross or net premiums written; net premiums earned; compound growth in net loss and loss adjustment expense reserves; loss ratio or combined ratio of Alleghany’s insurance businesses; operating efficiency or strategic business objectives consisting of one or more objectives based on meeting specified cost targets; business expansion goals; goals relating to acquisitions or divestitures; and productivity improvements, all whether applicable to Alleghany or any subsidiary or business unit or entity in which Alleghany has a significant investment, or any combination thereof as the Compensation Committee may deem appropriate. A 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 Alleghany or any subsidiary (or any business unit thereof) and/or the past or current performance of other companies or indexes; may provide for the inclusion, exclusion or averaging of specified items in whole or in part, including without limitation, catastrophe losses, realized gains or losses on strategic investments, acquisitions and divestitures, currency fluctuations, discontinued operations, extraordinary items whether of income or expense, accounting and tax changes, and any 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. 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 Performance Period but before any incentive compensation bonuses are paid to the participants under the 2010 Management Plan, the Compensation Committee will certify in 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 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) of the Code.

 

Non-Qualifying Incentives.  A Non-Qualifying Incentive may be awarded by the Compensation Committee to any participant (including covered employees) at any time before, during or following the completion of any Performance Period and may, but need not, be conditioned upon the achievement of any performance goals established by the Compensation Committee. The Compensation Committee may increase, decrease or eliminate the amount of any Non-Qualifying Incentive awarded to 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 or achieve, any performance goals or specified personal goals established by the Compensation Committee or management, and the Compensation Committee may waive the attainment of or modify the terms of any performance or personal goals established by the Compensation Committee or management or otherwise exercise its discretion in any manner with respect to any Non-Qualifying Incentive. Non-Qualifying Incentives may be payable to a participant as a result of the satisfaction of performance goals in respect of a Performance Period or as a result of the achievement of an individual objective or result, as determined by the Compensation Committee in its sole discretion. The grant or payment of a Non-Qualifying Incentive may not be made contingent on the failure of a participant to earn any Qualifying Incentive.

 

Anti-Dilution and Adjustments.  To the extent that a performance goal is based on common stock of Alleghany (such as increases in earnings per share or other similar

measures), a performance goal may be subject to anti-dilution and other adjustments in certain events specified in the 2010 Management Plan.

 

Other Terms.  The 2010 Management Plan does not limit the authority of Alleghany to establish any other annual or other incentive compensation plan or to pay cash bonuses or other additional incentive compensation to employees of Alleghany, including to participants in the 2010 Management Plan. The maximum Qualifying Incentive payable to any participant in a single calendar year will not exceed $5.0 million. Incentive compensation bonuses paid pursuant to the 2010 Management Plan will be paid in cash. The Board of Directors, without the consent of any participant, may amend or terminate the 2010 Management Plan at any time. However, no amendment with respect to, or affecting, Qualifying Incentives 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 2010 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 2010 Management Plan, and is qualified by reference to the full text of the 2010 Management Plan, which is incorporated by reference herein.

 

New Plan Benefits

 

Any awards under the 2010 Management Plan will be at the discretion of the Compensation Committee. Therefore, it is not possible at present to determine the amount or form of any award that will be granted to any individual during the term of the 2010 Management Plan or that would have been granted during 2009 had the 2010 Management Plan been in effect. For information regarding awards made in 2009 to our Named Executive Officers pursuant to the 2005 MIP, which the 2010 Management Plan is intended to replace, see the Summary Compensation Table on page 60. For all current executive officers as a group, consisting only of the Named Executive Officers, the maximum aggregate amount of awards made under the 2005 MIP for 2009 was $2,862,000. For all employees, including all current officers who are not executive officers, as a group, the maximum aggregate amount of awards made under the 2005 MIP for 2009 was $3,553,800. Directors of Alleghany who are not officers of Alleghany are not eligible to receive awards under the 2005 MIP or under the 2010 Management Plan.

 

Stockholder Approval of the 2010 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 2010 Annual Meeting is required to approve the 2010 Management Plan. Shares which are voted against the approval of the 2010

Management Plan, shares the holders of which abstain from voting for the approval of the 2010 Management Plan, and broker non-votes will not be counted in the total number of shares voted for the approval of the 2010 Management Plan. Abstentions and broker non-votes will be counted as present at the meeting for quorum purposes.

 

In the event the 2010 Management Plan is not approved by stockholders of Alleghany, the Compensation Committee will consider the establishment of another annual or other incentive compensation plan.

 

THE BOARD RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE 2010 MANAGEMENT PLAN. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE.

 

Proposal 4. Ratification of Selection of
Independent Registered Public Accounting Firm for the year 2010

 

The Audit Committee has selected KPMG LLP as Alleghany’s independent registered public accounting firm for the year 2010. Alleghany will submit a proposal to stockholders at the 2010 Annual Meeting for ratification of this selection. Although ratification by stockholders is not a prerequisite to the ability of the Audit Committee to select KPMG LLP as Alleghany’s independent registered public accounting firm, the Audit Committee and the Board believe that such ratification is desirable. If stockholders do not ratify the selection of KPMG LLP, the Audit Committee will reconsider its selection of an independent registered public accounting firm. The Audit Committee may, however, select KPMG LLP notwithstanding the failure of stockholders to ratify its selection.

 

KPMG LLP was Old Alleghany’s independent auditors from 1947 until its liquidation in 1986 and has been Alleghany’s independent auditors since its incorporation in November 1984. Alleghany expects that a representative of KPMG LLP will be present at the 2010 Annual Meeting, will have an opportunity to make a statement if he or she desires to do so and will be available to respond to appropriate questions.

 

The following table summarizes the fees for professional audit services rendered by KPMG LLP for the audit of Alleghany’s annual consolidated financial statements, and fees KPMG LLP billed for other services rendered to Alleghany, for 2009 and 2008:

 

The amounts shown for “Audit Fees” represent the aggregate fees for professional services KPMG LLP rendered for the audit of Alleghany’s annual consolidated financial statements for each of the last two fiscal years, the reviews of Alleghany’s financial statements included in its Quarterly Reports on Form 10-Q, and the services provided in connection with statutory and regulatory filings during each of the last two fiscal years. “Audit Fees” also include fees for professional services KPMG LLP rendered for the audit of the effectiveness of internal control over financial reporting. The amounts shown for “Audit-Related Fees” represent the aggregate fees KPMG LLP billed for each of the last two fiscal years for assurance and related services that are reasonably related to the performance of the audit or review of Alleghany’s financial statements and that are not reported under “Audit Fees.” These services include due diligence assistance in connection with acquisitions, the consents for registration statements, consultations on accounting and audit matters, and review of certain subsidiary material contracts. The amounts shown for “All Other Fees” represent the aggregate fees KPMG LLP billed for each of the last two fiscal years for access to its electronic database for accounting research.

 

Audit and permissible non-audit services that KPMG LLP may provide to Alleghany 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 Alleghany is compatible with maintaining the independence of KPMG LLP. All audit and permissible non-audit services rendered in 2009 and 2008 were pre-approved pursuant to these procedures.

 

THE BOARD RECOMMENDS A VOTE “FOR” THIS PROPOSAL. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. THE PROPOSAL SHALL BE ADOPTED BY THE AFFIRMATIVE VOTE OF A MAJORITY OF THE VOTES CAST WITH RESPECT TO THIS PROPOSAL.

 

The Audit Committee is currently composed of the four independent directors whose names appear at the end of this report. Management is responsible for Alleghany’s internal controls and the financial reporting process. Alleghany’s independent registered public accounting firm is responsible for performing an independent audit of Alleghany’s annual 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 Alleghany’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 Alleghany’s audited consolidated financial statements as of December 31, 2009 and for the fiscal year then ended, including Alleghany’s specific disclosure under management’s discussion and analysis of financial condition and results of operations and critical accounting estimates, with management and KPMG LLP, Alleghany’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, as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T. KPMG LLP reported to the Audit Committee regarding the critical accounting estimates and practices and the estimates and assumptions used by management in the preparation of the audited consolidated financial statements as of December 31, 2009 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 the applicable requirements of the Public Company Accounting Oversight Board regarding KPMG LLP’s communications with the Audit Committee concerning independence, 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 Alleghany is compatible with maintaining the independence of KPMG LLP. All audit and permissible non-audit services in 2009 and 2008 were pre-approved pursuant to these procedures.

Based on the reviews and discussions with management and KPMG LLP referred to above, the Audit Committee has recommended to the Board that the audited consolidated financial statements as of December 31, 2009 and for the fiscal year then ended be included in Alleghany’s Annual Report on Form 10-K for such fiscal year. The Audit Committee also selected KPMG LLP as Alleghany’s independent registered public accounting firm for the year 2010, subject to stockholder ratification.

 

William K. Lavin
Rex D. Adams
Dan R. Carmichael
Raymond L.M. Wong

 

Audit Committee
of the Board of Directors

 

As of the date of this proxy statement, the Board knows of no business that will be presented for consideration at the 2010 Annual Meeting other than that referred to above. As to other business, if any, that may come before the 2010 Annual Meeting, proxies in the enclosed form will be voted in accordance with the judgment of the person or persons voting the proxies.

 

 

The following table sets forth information about Alleghany’s equity compensation plans as of December 31, 2009:

 

 

 

 

 

 

The name, age, current position, date elected and five-year business history of each of Alleghany’s executive officers is as follows:

 

 

The Compensation Committee has met to review and discuss with Alleghany’s management the specific disclosure contained under the heading “Compensation Discussion and Analysis and Compensation Matters” appearing on pages 46 through 74 below. Based on its review and discussions with management regarding such disclosure, the Compensation Committee has recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference in Alleghany’s Annual Report on Form 10-K for the year ended December 31, 2009.

 

Dan R. Carmichael
William K. Lavin
James F. Will

 

Compensation Committee
of the Board of Directors

 

 

We are managed by a small professional staff, including our President, two Senior Vice Presidents and six Vice Presidents. Our executive compensation program is administered by the Compensation Committee which is composed entirely of independent directors. The Compensation Committee reviews and approves annually all compensation decisions relating to our officers, including Messrs. Hicks, Gorham, Hart, Borrelli and Dalrymple, each of whom are named in the Summary Compensation Table, or “Named Executive Officers.” Mr. Hicks, President of Alleghany, is our chief executive officer and chief operating officer. Subject to the control of the Board, Mr. Hicks has direct power and authority over the business and affairs of Alleghany. Mr. Gorham, Senior Vice President-Finance and Investments, is chief financial officer of Alleghany and his responsibilities include management and oversight of our group-wide fixed income portfolios. Mr. Hart, Senior Vice President-Law and Secretary, is the chief legal officer of Alleghany and his responsibilities include structuring and implementation of business acquisitions and dispositions, assisting the Compensation Committee with respect to group-wide executive compensation arrangements and advising the Board and its Committees regarding corporate governance matters. Mr. Borrelli, Vice President, is the chief accounting officer of Alleghany. Mr. Dalrymple, Vice President, General Counsel and Assistant Secretary, is the chief operating officer in the legal department and his responsibilities include those of chief compliance officer and disclosure monitor.

 

Compensation adjustments and awards are made annually by the Compensation Committee at a meeting in December or January. Mr. Hart supports the Compensation Committee in its work. In addition, the Compensation Committee has retained the Compensation Consultant to assist the Compensation Committee in its review of executive and director compensation practices, including the competitiveness of Alleghany executive salaries, executive compensation design matters, market trends and technical considerations. The nature and scope of services that the Compensation Consultant provides to the Compensation Committee include: competitive market compensation analyses, assistance with the redesign of any compensation or benefit programs as necessary or requested, assistance with respect to analyzing the impact of regulatory and/or accounting developments on Alleghany compensation plans and programs, and preparation for and attendance at selected Compensation Committee meetings. The Compensation Consultant also advises the Compensation Committee and management on various executive compensation matters involving Alleghany’s operating subsidiaries. The Chairman of the Compensation Committee

reviews and approves all services provided by the Compensation Consultant and fees Alleghany pays to the Compensation Consultant.

 

Our corporate objective is to create stockholder value through the ownership and management of a small group of operating subsidiaries and investments, anchored by a core position in the property and casualty insurance industry. In this regard, we seek to increase book value per share at double digit rates over the long term without employing excessive amounts of financial leverage or taking undue amounts of operating risk. The intent of our executive compensation program is to provide competitive total compensation to the Named Executive Officers on a basis, as discussed below, that links their interests with the interests of our stockholders in creating and preserving stockholder value.

 

In evaluating our executive compensation program, the Compensation Committee has been advised from time to time by the Compensation Consultant as to the compensation levels of other companies, including companies much larger than ours, that might compete with us for executive talent. Competitive market data has been periodically developed by the Compensation Consultant from several different sources, including proxy statements and various published compensation survey sources regarding various layers of the market to which Alleghany executives might be recruited, including larger companies, private equity and hedge funds. We do not seek to set our executive compensation to any benchmarks or peer group but use the competitive market data to provide insights into our compensation levels, mix and strategies. Our senior officers have all been recruited in mid-career, and our compensation must be reasonably competitive with that of their former employers. However, we do not seek to compete for executive talent solely on the basis of compensation. Rather, we also compete by offering a unique professional opportunity to work in a high integrity environment where the focus is on building long-term stockholder value.

 

Although we do not have a policy that a specified percentage of the Named Executive Officers’ compensation be performance-based, our objective is that a significant portion of the Named Executive Officers’ compensation be tied to Alleghany’s financial performance. We seek to incentivize achievement of realistic performance goals without employing excessive financial leverage or undue operating risk. Thus, annual cash incentive compensation under the 2005 MIP and long-term equity-based incentives under the 2002 LTIP and 2007 LTIP are “capped” at a maximum payout once a certain level of financial performance is attained. Finally, we do not grant stock options to our officers. Our goal is to promote risk-adjusted long-term growth in the intrinsic value of our common stock and not just its market price. We believe that over time intrinsic value should be reflected in the market price of our common stock.

The components of compensation paid to the Named Executive Officers in respect of 2009 consisted principally of:

 

 

The Compensation Committee determined 2009 salaries and incentive awards for the Named Executive Officers at a meeting in January 2009, which followed a December 2008 meeting of the Board, at which the Board reviewed and discussed an evaluation of Mr. Hicks’ 2008 performance and priorities for 2009, a report by Mr. Hicks on management succession and development throughout the Alleghany group and Alleghany’s strategic plan for 2009-2014. The Compensation Committee determined payouts of 2009 incentive awards for the Named Executive Officers at a meeting in February 2010, following a January 2010 meeting of the Board, at which the Board discussed and reviewed an evaluation of Mr. Hicks’ 2009 performance and priorities for 2010, a report by Mr. Hicks on management succession and development throughout the Alleghany group and Alleghany’s strategic plan for 2010-2015.

 

In determining Mr. Hicks’s 2009 compensation, the Compensation Committee reviewed Mr. Hicks’s 2008 performance and 2009 priorities, as described above, as well as all components of Mr. Hicks’s 2008 compensation, including annual salary, 2008 bonus, long-term incentive compensation under the 2002 LTIP and 2007 LTIP, values of previous awards of restricted stock and benefits under Alleghany’s Deferred Compensation Plan, Retirement Plan and the medical, long-term disability and other employee welfare plans.

 

Perquisites

 

Our general practice is to not provide perquisites or other personal benefits to our Named Executive Officers. In 2009, no Named Executive Officer received more than $10,000 in perquisites or other personal benefits.

 

Set out below in more detail is a description and analysis of the components of our compensation program.

Salary

 

We seek to pay salaries that are sufficiently competitive to attract and retain executive talent. The Compensation Committee generally makes salary adjustments annually, in consultation with the Compensation Consultant, based on salaries for the prior year, general inflation, individual performance and internal comparability considerations. In light of the global financial collapse in 2008, the Compensation Committee and senior management agreed that there would be no 2009 salary increase for the President and two Senior Vice Presidents. Mr. Borrelli received a salary increase of 3% and Mr. Dalrymple received a salary increase of 7%, based upon recommendations of Mr. Hicks, taking into account general inflation, individual performance, internal comparability considerations and increased responsibilities assumed by Mr. Dalrymple.

 

Annual Cash Incentive Compensation

 

We generally pay annual cash incentives to the Named Executive Officers under the 2005 MIP. Target annual incentive awards under the 2005 MIP are stated as a percentage of each Named Executive Officer’s base salary. Target annual incentive awards in respect of performance for 2009 were made by the Compensation Committee on January 19, 2009, and target bonus opportunities were 100% of salary for Mr. Hicks, 60% of salary for each of Messrs. Gorham and Hart and 40% for Messrs. Borrelli and Dalrymple. Maximum incentive opportunities for 2009 were 150% of target awards. The differing target awards as a percentage of salary reflect the Compensation Committee’s determinations of appropriate levels and mix of compensation components taking into account competitive considerations, varying levels of responsibility within Alleghany, internal comparability and the implicit impact of the various Named Executive Officer levels on the accomplishment of our financial, strategic and operational objectives. Payout of 2009 awards under the 2005 MIP was tied to the achievement of specified financial performance objectives subject to reduction in respect of Alleghany performance and/or individual performance of each Named Executive Officer.

 

The 2009 financial performance goal established by the Compensation Committee for annual incentive awards was based on “Adjusted Earnings Per Share” as compared with “Target Plan Earnings Per Share.”

 

 

 

The adjustment relating to the impact of catastrophe losses acknowledges that RSUI, Alleghany’s principal subsidiary, is a significant writer of catastrophe exposed property insurance and that management cannot predict the occurrence and severity of catastrophe losses in any year. The adjustment relating to realized gains and losses on strategic investments acknowledges that Alleghany has had significant unrealized gains on its strategic investment in Burlington Northern Santa Fe Corporation and that the strategic plan did not forecast when, or whether, any such gains or losses would be realized. Thus, the annual incentive financial performance goal measures management’s operational performance during the year against Alleghany’s operating plan. Since our long-term incentive awards are based upon growth in book value per share, the economic impact of catastrophe losses and gains and losses on strategic investments is reflected in our long-term incentive awards.

 

Target bonus opportunities for 2009 awards under the 2005 MIP were to be earned if Adjusted Earnings Per Share were equal to Target Plan Earnings Per Share. For any amounts to be earned, Adjusted Earnings Per Share were required to exceed 80% of Target Plan Earnings Per Share, and maximum bonus opportunities were to be earned if Adjusted Earnings Per Share were 110% of Target Plan Earnings Per Share. Alleghany’s Target Plan Earnings Per Share for 2009 were $10.42 per share and Adjusted Earnings Per Share for 2009 were $16.11 per share, or more than 110% of Target Plan Earnings Per Share for 2009. Thus, performance for maximum payout of 2009 awards under the 2005 MIP was achieved.

 

The Compensation Committee believes that it has a responsibility to evaluate executive performance and to adjust compensation and incentives as needed to maintain their alignment with Alleghany’s strategy and risk tolerance. As discussed under “Tax Considerations,” Alleghany seeks to achieve deductibility of payouts of MIP Awards and long-term incentive awards by basing awards on objective performance goals that, at the time that they are set, the Compensation Committee believes are realistically attainable and consistent with Alleghany’s strategy and risk tolerance. Applicable tax requirements permit the Compensation Committee to make discretionary adjustments to performance goals that would reduce payouts but does not permit discretionary adjustments to performance goals that would increase payouts. The global economic recession and global financial collapse starting in late 2007 has demonstrated the limitations of rigid goals that can only be adjusted downward. In this regard, no cash incentives were earned in respect of 2008 awards under the 2005 MIP. However, based upon

the Compensation Committee’s evaluation of actual and relative performance, as discussed in the 2009 Proxy Statement, the Compensation Committee determined to authorize cash bonuses for 2008. At its meeting on February 25, 2010, the Compensation Committee determined that the goals for 2009 awards under the 2005 MIP were achieved for maximum payout. The Compensation Committee then evaluated individual performance of the President, the President’s recommendations regarding the individual performance of the other Named Executive Officers, and corporate performance in authorizing individual payouts.

 

Long-Term Equity Based Incentive Compensation

 

2009 Awards

 

We pay long-term incentive compensation to the Named Executive Officers under our 2002 LTIP and 2007 LTIP, the provisions of which are essentially the same. The 2002 LTIP expired on December 31, 2006 and in December 2006, the Board adopted the 2007 LTIP which was approved by our stockholders at their 2007 Annual Meeting. Historically, long-term incentive awards have been in the form of performance shares and, in a few cases, performance-based restricted stock, and have been structured to qualify as performance-based for purposes of Section 162(m) of the Code. For the 2009-2012 award period, the Compensation Committee based the number of performance shares awarded to the Named Executive Officers upon a percentage of such executive officer’s 2009 salary divided by the average closing price of our common stock for the 30-day period prior to the mailing of material for the meeting of the Compensation Committee at which such awards were made. Such percentages of 2009 salary were 200% for Mr. Hicks, 120% for each of Messrs. Gorham and Hart and 60% for each of Messrs. Borrelli and Dalrymple. The differing target awards as a percentage of salary reflect the Compensation Committee’s determinations of appropriate levels and mix of compensation components taking into account competitive considerations, varying levels of responsibility within Alleghany, internal comparability and the implicit impact of the various Named Executive Officer levels on the accomplishment of our financial, strategic and operational objectives.

 

Long-term incentive awards under the 2002 LTIP and 2007 LTIP, including awards for the award period beginning January 1, 2009, are intended to promote accomplishment of our stated principal financial objective to grow Alleghany’s book value per share of common stock at double digit rates over the long-term without employing excessive amounts of financial leverage or taking undue amounts of financial or operating risk. Although our long-term goal is double digit growth in book value, the Compensation Committee seeks to incentivize achievement of performance goals that are realistic under prevailing conditions and avoid incenting excess risk.

In making awards for the 2009-2012 period, the Compensation Committee at its meeting on January 19, 2009 took account of such stated financial objective and prevailing financial and economic conditions and uncertainties and made some adjustments to align performance goals with Alleghany’s near-term strategy, with a particular emphasis on avoiding excess risk and maintaining Alleghany’s financial strength. Taking into account such conditions, Alleghany’s strategy, the prevailing 10-year U.S. Treasury rates and prevailing equity risk premiums adjusted for Alleghany’s estimated stock volatility relative to the market, the Compensation Committee set the following performance goals for the 2009-2012 awards:

 

 

Provided that the average compound annual growth in Book Value Per Share for the 2009-2012 period, as adjusted for stock dividends, is positive, it will be adjusted to include the excess, if any, of such annual compound growth over the Total Return on the S&P 500 Index (whether positive or negative and as calculated by Bloomberg Finance) for such period. In setting the 2009-2012 performance share awards, the Compensation Committee considered that the awards should be appropriately adjusted for relative protection of stockholder value during periods of unusual financial market turmoil, maintenance of Alleghany’s financial strength and should avoid incenting excess risk taking. To the extent that the Total Return on the S&P 500 Index over a four-year period measures the U.S. earnings environment, growth in Alleghany’s Book Value Per Share at a greater rate may be considered a measure of Alleghany’s performance in preserving stockholder value. Since performance share awards are capped and tied to stock price, the Compensation Committee considered that the relative performance adjustment should not create any disconnect with Alleghany’s goal of increasing stockholder value. In this regard, the Compensation Committee considered that it has authority to exercise its negative discretion to reduce payouts in the event that it determines that the S&P 500 Index adjustment produces payouts inconsistent with Alleghany’s performance.

Compensation Policies and Practices Relating to Risk Management

 

Risk analysis has always been part of Alleghany’s review and design of its group-wide executive incentive plans and the Compensation Committee regularly monitors compensation policies, practices and outstanding awards to determine whether its risk management and incentive objectives are being met with respect to group-wide employee incentives. Alleghany’s material risks include investment risk (debt and equity), catastrophe losses at its RSUI operating subsidiary and material mispricing of risk at its RSUI and Capitol Transamerica Corporation, or “CATA,” insurance operating subsidiaries. The Board’s and management’s risk oversight is discussed on page 5. The Compensation Committee does not believe that risks arising from Alleghany’s group-wide compensation policies and practices for its employees are reasonably likely to have a material adverse effect on Alleghany. As discussed above, Alleghany’s annual incentive and performance shares are capped and are not intended to incent excess risk taking to achieve outsized payouts. The managements of RSUI and CATA are incented to write profitable business and have no incentives to grow premium volume by underpricing risk. The Compensation Committee seeks to set realistic incentive goals, monitors them in light of economic conditions and Alleghany’s strategy and risk tolerance and will consider appropriate adjustments in respect thereof in the event of any conflict between incentives and the Board’s strategy and risk tolerance.

 

Retirement Plan

 

We offer retirement plan benefits to all our employees. Retirement benefits for our Named Executive Officers are provided under the Retirement Plan. We believe the Retirement Plan provides a competitive advantage in helping Alleghany attract senior “mid-career” level talent. In addition, the benefits offered by the Retirement Plan provide an important stable component of total compensation. Under the Retirement Plan, a participant must have completed five years of service with Alleghany or a subsidiary of Alleghany before he or she is vested in, and thus has a right to receive, any retirement benefits following his or her termination of employment. The annual retirement benefit under the Retirement Plan, if paid in the form of a joint and survivor life annuity to a married participant who retires on reaching age 65 with 15 or more years of service, is equal to 67% of the participant’s highest average annual base salary and annual cash bonus over a consecutive three-year period during the last ten years or, if shorter, the full calendar years of employment. We do not take payouts of long-term incentives into account in computing retirement benefits.

Deferred Compensation Plan

 

Alleghany credits an amount equal to 15% of a Named Executive Officer’s base salary to the Deferred Compensation Plan each year. Entitlement to this savings benefit is not based on performance. As it is Alleghany’s intention that a significant portion of compensation for our Named Executive Officers be contingent on performance objectives, the savings benefit offered by the Deferred Compensation Plan provides a stable component of total compensation. In addition, the Deferred Compensation Plan permits our Named Executive Officers to defer the receipt, and thus the taxation, of all of their base salary and their bonus under the 2005 MIP, and to have the deferred amount credited either with interest or to be treated as invested in our common stock.

 

It is our Board’s policy that the Compensation Committee will, to the extent permitted by governing law, have the sole and absolute authority to make retroactive adjustments to any cash or equity based incentive compensation awarded or paid to any of our officers where the award or payment was predicated upon the achievement of performance measures that were subsequently the subject of a restatement or otherwise adjusted in a manner that would reduce the size of any such award or payment. In this regard, the Compensation Committee is authorized to have Alleghany seek to recover any amount the Compensation Committee determines was inappropriately received by any officer.

 

We expect our executive officers to achieve ownership of our common stock, having an aggregate market value or book value (whichever is higher), based upon a multiple of base salary; for our President and chief executive officer, the multiple is five times base salary; for Senior Vice Presidents, the multiple is three times base salary; and for Vice Presidents, the multiple is one times base salary. We expect our executive officers to retain 75% of the shares of common stock they receive (net of taxes) in respect of awards under our long-term incentive plans until they achieve their applicable ownership level, and they are expected to maintain such a level thereafter.

 

We are not allowed a deduction under the Code for any compensation paid to a “covered employee” in excess of $1.0 million per year, subject to certain exceptions. In general,

“covered employees” include our President and our three other most highly compensated executive officers (not including our chief financial officer) who are in our employ 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 have been achieved prior to the payment of such compensation. Such requirements permit the committee administering the plan to make discretionary adjustments to performance goals that would reduce payouts but does not permit discretionary adjustments to performance goals that would increase payouts. In this regard, the 2005 MIP, which is administered by the Compensation Committee, provides that it is not exclusive and does not limit the authority of the Compensation Committee or the Board “to pay cash bonuses or other supplemental or additional incentive compensation to any employee . . . regardless of how the amount of such bonus or compensation is determined.”

 

Although the Compensation Committee believes that establishing appropriate compensation arrangements to retain and incentivize our executive officers best serves our interests and the interests of our stockholders, the Compensation Committee also believes that appropriate consideration should be given to seeking to maximize the deductibility of the compensation paid to our executive officers. In this regard, all of the amounts identified under the Non-Equity Incentive Plan column of the Summary Compensation Table on page 60 paid to the Named Executive Officers, all of the performance shares awarded to the Named Executive Officers as well as restricted stock awards to such officers, are intended to qualify as “performance-based compensation” for purposes of Section 162(m). The cash bonuses paid in respect of 2008 and identified under the Bonus column of the Summary Compensation Table on page 60 paid to the Named Executive Officers do not qualify as “performance-based compensation” for purposes of Section 162(m).

 

Certain of our Named Executive Officers would be entitled to payments in the event of the termination of their employment. These payments, other than those that do not discriminate in scope, terms or operation in favor of the Named Executive Officers and that are generally available to all salaried employees, are described below.

 

Pursuant to his employment agreement with Alleghany, Mr. Hicks would be entitled to receive continued payments of his base salary until such payments aggregate $1.0 million on a gross basis, payable in accordance with our normal payroll and procedures, following termination of his employment other than for Cause or in the event of his death or Total Disability. As described in more detail on pages 64 through 66, the restricted stock award agreements with Messrs. Hicks and Gorham provide for pro rata payments in the event of termination of employment other than termination for Cause or Total Disability, if certain performance conditions have been met, and the restricted stock unit matching grant award agreement with Mr. Hicks provides for a pro rata payment in the event of the termination of employment without Cause or termination of employment by reason of Mr. Hicks’s death or Total Disability. The foregoing agreements generally define “Cause” to mean conviction of a felony; willful failure to implement reasonable directives of the Chairman or the Board of Directors of Alleghany, as well as the President in Mr. Gorham’s case, after written notice, which failure is not corrected within ten days following notice thereof; or gross misconduct in connection with the performance of any of their duties. “Total Disability” in the foregoing agreements generally is defined to mean inability to discharge duties due to physical or mental illness or accident for one or more periods totaling six months during any consecutive twelve-month period.

 

Other than the foregoing, there are no individual arrangements that would provide payments to our Named Executive Officers upon termination other than for cause or in the event of death or disability. Further, we do not have any arrangements with our Named Executive Officers that would provide for payments upon a change of control of Alleghany or upon a change of control and subsequent termination of employment.

 

A number of the plans described in this proxy statement have provisions that may result in payments upon termination of employment under certain circumstances as described below. Awards under our 2002 LTIP and 2007 LTIP provide for the pro rata payment of outstanding awards in the event of the termination of employment prior to the end of the award period. With respect to awards under the 2002 LTIP and 2007 LTIP, the pro rata payment would be based on the elapsed portion of the award period prior to termination and average annual compound growth in Book Value Per Share through the date of termination, as determined by the Compensation Committee.

Our 2005 MIP also provides for the pro rata payment of outstanding awards in the event of a participant’s death or disability prior to the end of the award period, as determined by the Compensation Committee in its discretion. The pro rata payment would be based on such factors as the Compensation Committee, in its discretion, determines, but generally would be based on the elapsed portion of the award period and the achievement of the objectives set for such award period. In addition, if a participant’s employment with Alleghany is otherwise terminated during an award period, the Compensation Committee, in its discretion, will determine the amount, if any, of the outstanding award payable to such participant. Whether such payments are made, and the determination of the amount of such payments based on the provisions of the 2005 MIP, are subject to the sole discretion of the Compensation Committee in its administration of the 2005 MIP.

 

Additional payments upon any termination of employment would be made under our Retirement Plan, and Executive Retiree Health Plan, or “Post-Retirement Medical Plan,” as long as the employee is eligible to receive benefits under the Retirement Plan at the time of the termination of employment. Our Deferred Compensation Plan also provides for payments of a participant’s vested savings benefit in the event of any termination of employment in the form previously elected by a participant subject to the provisions of Section 409A of the Code, as applicable, or if no election has been made, in a lump sum. A termination of employment will not cause an enhanced payment or other benefit to be made under the Deferred Compensation Plan. Information with respect to the Retirement Plan is set forth on pages 70 through 72, and information with respect to the Deferred Compensation Plan is set forth on pages 72 through 74.

 

The table below provides information regarding the amounts that Messrs. Hicks, Gorham, Hart, Borrelli and Dalrymple would be eligible to receive upon any termination of employment by Alleghany other than for cause, as if such termination of employment occurred on December 31, 2009:

 

 

 

 

 

 

 

 

 

 

The information under this heading relates to the compensation of Alleghany’s Named Executive Officers during 2009, 2008 and 2007. Alleghany does not use stock options to compensate its employees, including its Named Executive Officers. As a result, all tables contained under this heading “Executive Compensation” omit columns pertaining to stock options.

 

 

 

 

 

 

 

 

 

 

 

 

Employment Agreement with Weston M. Hicks

 

On October 7, 2002, Alleghany and Mr. Hicks entered into an employment agreement pursuant to which Mr. Hicks agreed to serve as Executive Vice President of Alleghany. Pursuant to the terms of this employment agreement:

 

 

 

The employment agreement was the result of an arm’s-length negotiation between the Executive Committee and Mr. Hicks and was approved by the Compensation Committee and the Board. The Executive Committee determined that such provisions were appropriate and helpful in recruiting Mr. Hicks, and the Compensation Committee and the Board approved such determination.

 

2002 Restricted Stock Unit Matching Grant Award to Mr. Hicks

 

On August 25, 2003, Mr. Hicks purchased 10,000 shares of common stock and, pursuant to the Matching Grant Agreement, Alleghany credited him with 22,523 restricted stock units, as adjusted for stock dividends.

 

These 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 vest on October 7, 2012 and are to be paid in cash and/or shares of common stock, as the Compensation Committee may determine, on the date of the filing of Alleghany’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% of such account for each full year of employment with Alleghany measured from October 7, 2002.

 

Mr. Hicks must maintain 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 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 Alleghany 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.

2004 Restricted Stock Award to Mr. Hicks

 

Upon his appointment as President and chief executive officer of Alleghany on December 31, 2004, Mr. Hicks received a restricted stock award of 28,717 shares of common stock (as adjusted for stock dividends paid since the date of his employment agreement) under the 2002 LTIP as set forth in a restricted stock award agreement dated as of December 31, 2004 between Mr. Hicks and Alleghany. Such shares of restricted stock will vest:

 

(i) if Alleghany achieves average annual compound growth in Stockholders’ Equity Per Share (as defined in the award agreement) equal to 10% or more as measured over a calendar year period commencing January 1, 2005 and ending on December 31, 2008, 2009, 2010 or 2011, or

 

(ii) if the performance goal set forth in clause (i) above has not been achieved as of December 31, 2011, when Alleghany achieves average annual compound growth in Stockholders’ Equity Per Share equal to 7% or more as measured over a calendar year period commencing January 1, 2005 and ending on December 31, 2012, 2013 or 2014.

 

The performance goal set forth in clause (i) above was not met as of December 31, 2009.

 

If the performance goals are not achieved as of December 31, 2014, Mr. Hicks will forfeit all of the restricted shares. If Alleghany terminates Mr. Hicks’s employment after December 31, 2006 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 period of time required under the new award agreement, that number of restricted shares equal to 28,717 multiplied by a fraction, the numerator of which is the number of full calendar years beginning January 1, 2005 and ending on or before the date of such termination, and the denominator of which is ten, will vest.

 

2004 Restricted Stock Award to Mr. Gorham

 

In connection with commencing employment with Alleghany as Senior Vice President — Finance, Alleghany and Mr. Gorham entered into a restricted stock award agreement dated as of December 21, 2004. Under this award agreement, Mr. Gorham received a restricted stock award of 3,936 shares of common stock (which includes shares received in subsequent stock dividends which are similarly restricted) under the 2002 LTIP, which will vest:

 

(i) if Alleghany achieves average annual compound growth in Stockholders’ Equity Per Share (as defined in the award agreement) equal to 10% or more as measured over a calendar year period commencing January 1, 2005 and ending on December 31, 2008, 2009, 2010 or 2011, or

(ii) if the performance goal set forth in clause (i) above has not been achieved as of December 31, 2011, when Alleghany achieves average annual compound growth in Stockholders’ Equity Per Share equal to 7% or more as measured over a calendar year period commencing January 1, 2005 and ending on December 31, 2012, 2013 or 2014.

 

The performance goal set forth in clause (i) above was not met as of December 31, 2009.

 

If the performance goals are not achieved as of December 31, 2014, Mr. Gorham will forfeit all of the restricted shares. If Mr. Gorham’s employment with Alleghany 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 Alleghany terminates Mr. Gorham’s employment after December 31, 2006 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 3,936 multiplied by a fraction, the numerator of which is the number of full calendar years beginning January 1, 2005 and ending on or before the date of such termination, and the denominator of which is ten, will vest.