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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Huntington v Imagine Group Holdings Ltd & Anor [2007] EWHC 1603 (Comm) (13 July 2007) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2007/1603.html Cite as: [2007] EWHC 1603 (Comm) |
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QUEEN'S BENCH DIVISION
COMMERICAL COURT
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
| BRAD SCOTT HUNTINGTON |
Claimant |
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| - and - |
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| IMAGINE GROUP HOLDINGS LTD IMAGINE UNDERWRITING LTD |
Defendants |
____________________
Mr Alan Boyle QC & Mr David Wolfson (instructed by Fulbright & Jaworski LLP) appeared for the Defendants
Hearing dates: 19th - 29th March 2007
____________________
Crown Copyright ©
MR JUSTICE CHRISTOPHER CLARKE:
The history
Overview
(i) Imagine Group Holdings ("Holdings"), the first defendant, which is incorporated in Bermuda;
(ii) Imagine Insurance Company Limited ("Imagine Insurance"[1]), the operating subsidiary of Holdings, incorporated in Barbados; and
(iii) Imagine Underwriting Limited ("Imagine Underwriting"), the second defendant, an indirect subsidiary of Holdings.
For the most part it is not necessary to distinguish between Holdings and Imagine Insurance and, unless it is, I shall refer to them as "Imagine".
"the formation and operation of a worldwide finite risk insurance and reinsurance group focused on the provision of customized risk financing products to meet customers' risk, capital and asset management needs .."
"You shall be entitled to participate in the Corporation's Long Term Incentive Plan. Pursuant to this plan, you will be entitled to a 17.5% share of any amount paid to senior executives. The LTIP will serve to fund both Founder's/Key Man Profit Share and Long Term Bonus (see Definitions) for certain employees in the form of allocation of Stock Appreciation Rights ("SARs") to employees.
Your eligibility to participate in the LTIP as a combination of Founder's/Key Man Profit Share and Long Term Bonus will vest evenly over five years, commencing the first year immediately succeeding the current year. Allocations will be determined and finalized no later than 3 months after year-end using IIHL's annual audited financial statements.
One-fifth of the balance of any amount in the LTIP i.e. SARS shall be vested at the end of each year to the senior executives. The remaining unvested portion shall be retained as SARs and will vest rateably over time. All allocations shall be subject to Clawback (see Definitions).
At your option, you can elect to have up to 25% of your annual LTIP vest immediately and receive this portion in cash at the same time the yearly SARs are determined. The minimum 75% of your annual LTIP allocation will vest as SARs in accordance with the preceding paragraph.
The LTIP, both vested and unvested portions thereof, shall be paid in cash to you or your heirs on death or disability. If you decide to leave you shall forfeit any unvested amounts due to you under the LTIP.
"The LTIP shall be increased (decreased) at the end of each year by an amount equal to 20% of the "non-investment Adjusted Net Income (see definitions)" gained (lost) by the Corporation. Non-investment Adjusted Net Income shall be the Adjusted Net Income less the amount of interest, dividends or capital gains received and any investment foregone by virtue of investment constraints placed by Imagine on the assets relating to the Corporation's invested surplus."
"Adjusted Net Income for any financial year shall equal: (1) IICL's U.S. GAAP common shareholders equity[4] at the end of the respective year[5] as set forth on the relevant audited financial statements plus 100% of any positive adjustment or 100% of any negative adjustment, as appropriate, required to be made to bring US GAAP earnings into line with aggregate true economic valuation of contractual insurance premiums and liabilities on a present value basis using actual projected asset returns, less (ii) IICL's U.S. GAAP common shareholders equity at the start of the respective year as set forth on the relevant audited financial statements plus 100% of any positive adjustment or 100% of any negative adjustment as appropriate, required to be made to bring US GAAP earnings into line with aggregate true economic valuation of contractual insurance premiums and liabilities on a present value basis using actual projected asset returns and further adjusted for any capital contributions and withdrawals and dividends made during the year.
"To the extent that the true economic valuation used in the determination of any particular year's Adjusted Net Income proved to be materially overstated or understated as a result of adverse development of the assets and liabilities, then the number of unvested SARs allocated to an employee in respect of such year shall be restated so as to incorporate such development as if it had been properly reflected at the time of the initial determination of the Adjusted Net Income".
"Such amounts attributed to the LTIP shall be used to find Stock Appreciation Rights ("SARs") whose economic value shall mirror that of the common shares (including any dividends) of IICL. Such SARs shall vest to the employees over 5 years".
(a) at the end of each financial year a calculation would be made of two things (i) Imagine Insurance's GAAP[6] common shareholders equity plus (ii) the projected net present value ("NPV") of future income, such as premiums, less liabilities, such as claims.
(b) from the amount thus calculated there would be deducted the amount calculated on the same basis at the end of the previous financial year;
(c) the difference between the two would constitute the Adjusted Net Income
(d) from the Adjusted Net Income there would be deducted the amount of interest, dividends or capital gains received, and also a sum representing any investment income foregone on account of investment restraints placed on Imagine's use of assets representing its invested surplus. (This could, for instance, arise if Imagine had to retain capital in liquid or short term assets in order to support Imagine Insurance). The resulting amount is the non-investment Adjusted Net Income.
(e) The LTIP for the year would be 20% of the non investment Adjusted Net Income;
(f) Mr Huntington would be entitled to "17.5% of any amounts paid to senior executives". The parties are in dispute as to whether that means, as Mr Huntington contends, 17.5% of the LTIP pool for the year calculated as in (e), or, as Imagine contends, 17.5% of the portion of the LTIP pool habitually attributed by Imagine to senior executives, namely 17.5% of 50% of the LTIP (being 10% of the non investment Adjusted Net Income).
(g) Mr Huntington's entitlement was prima facie to be paid to him in SARs to be vested as to 20% in each of five years. If he decided to leave (as opposed to having his employment terminated or his terminating it for good reason) he would forfeit any unvested amounts;
(h) But he could elect to have up to 25% of his annual LTIP vest in cash, in which case the remainder would vest rateably over time, i.e. at the rate of 18.75% for the remaining 4 years.
(i) The unvested SARs in respect of any particular year were subject to restatement if the NPV used for the particular year's Adjusted Net Income turned out to be overstated.
"The Company has an incentive profit sharing plan to which your eligibility will be assessed on an annual basis. Allocations are purely discretionary and are determined based upon individual contributions to the bottom line profitability of Imagine. The profit sharing pool equates to 10% of the NPV contribution of deals completed during the year less total operating expenses."
In addition some employees, mainly those who had been acquired when Imagine had acquired other businesses had different bonus provisions in their contract entitling them to a bonus related to the performance of the business in relation to which they were employed.
The dispute
The Issues
"1 No longer alive.
2. It being agreed that it was a term of Mr Huntington's employment that he participate in a Long Term Incentive Plan ("LTIP"), what were the terms of that plan and, in particular:
a. were the terms those contained in the letter of 1st September 2000 (including the definition sheet referred to therein) attached to the Particulars of Claim.
b. Insofar as the terms were those in that letter at the time the contract of employment was entered into, when and how the same were varied (if at all)
c. To what percentage of the total LTIP allocation was Mr Huntington entitled
3. How should two particular transactions have been accounted for in relation to Mr Huntington's LTIP entitlement for 2004 (whatever the terms of the LTIP may be found to have been) namely those concerning (i) Danish Re and (ii) LION.
4. Whether D1 and D2 were in repudiatory breach of contract by:
a. failing to make any determination or allocation of Mr Huntington's LTIP entitlement for 2004. In that regard was any such failure consequent upon a failure by Mr Huntington promptly to prepare board papers necessary for the finalisation of the LTIP allocation and/or
b. maintaining an entitlement (and settled intention) to leave the Danish Re and LION transactions out of the accounting exercise to establish Mr Huntington's 2004 TIP entitlement and/or
c. maintaining its entitlement (and settled intention) unilaterally to remove from Mr Huntington's contract of employment his LTIP rights.
5. Whether:
a. the board of D1 was acting honestly and in good faith in excluding the Danish Re and Lion transactions from the 2004 LTIP
b. the fact that the board of D1was acting honestly and in good faith in that regard deprives what would otherwise amount to a repudiatory breach of contract (if that is established) of that quality
6. If D1 and D2 were in repudiatory breach of contract, did Mr Huntington accept that repudiatory breach in order to bring his contract of employment to an end with effect from 30th August 2005. Or, is it the case that by working from 18th May to 30th August 2005 Mr Huntington waived any material breach or breaches of contract as he might otherwise be able to establish and rely upon and/or he affirmed the contract.
7. In the circumstances of the termination of his contract of employment (as they are found to be) has Mr Huntington lost what was previously his entitlement to the unvested portions of previously awarded LTIP entitlements."
Does the contract give Mr Huntington an LTIP entitlement to share in the LTIP?
17.5% of what?
Pre-contract discussions
Post contract allocations
| Year | Producers % |
Producers $ |
Management % |
Management $ |
% of Total |
Total |
| 2001 | 14.78% | 409,270 | 39.44% | 1,092,000 | 27.11 | 1,500,000 |
| 2002 | 0% | 0 | 25.46% | 557,800 | 11.25 | 557,800 |
| 2003 | 4.96% | 500,000 | 35.18% | 3,500,000 | 20.11 | 4,000,000 |
| 2004 |
9.57% | 1,281,000 | 40.00% | 5,375,000 | 24.78% | 6,638.472 |
The allocation in respect of 2002
"Your LTIP allocation for 2002 totalled $ 550,000 being 17.5% of the Senior Management Pool. Of this amount 25% has vested and accordingly we will pay you $ 137,500 immediately".
"With respect to the LTIP allocations for the 2002 year there were various internal discussions between senior management about the allocations – these included proposed allocations to Tom [Gleeson] and myself in the range of $ 1.2 to $ 1.2m (sic). This was a reduction from the previous year and reflected the fact that Imagine had many, many more mouths to feed in 2002 than previously and it was going to be very, very difficult to give Tom and myself the same allocation as in 2001 (i.e. US$ 1.5m). The final decision made by the Board of Directors was to further reduce this amount for BOTH Tom and myself down to the minimum level which was contractually stated in our contracts (going from recollection I think this is 17.5% of the pool). There is some room for discussion about whether this should be applied to the entire pool (i.e. 20%) or to what had been the concept of a senior pool, which would have formed the top half (or 10%) of the total pool. The confusion arises because the contracts still refer to a Senior Pool but this concept was dropped and does not exist in the LTIP program adopted by Imagine. In any event, the dollar allocation to EACH of Tom and myself for the 2002 LTIP allocation was $ 557,800.00. It may be helpful to know that the highest allocation made to any employee for the 2002 LTIP year was US$ 1,000,000 – given to Mike Daly, as per my recommendation to the board."
"we did not give him any absolute assurance that we would make him whole on any amount with interest, but we certainly gave him every expectation that he would be treated fairly and generously and he had a very rosy future in our organisation going forward."
Was there a variation of the contract?
"Purpose
To provide management of Imagine with a long-term incentive reward plan. The Long Term Incentive Plan ("LTIP") will provide designated employees with a financial participation in specified businesses of the Imagine Group under their direct control.
Background
In 2000, Brascan Financial and the founders of Imagine (collectively the "Shareholders") collectively invested US$ 200 million cash to form the Imagine Group. With this initial capital, management has been charged with building and expanding Imagine's businesses. Such businesses shall include the finite risk insurance and reinsurance business and such other businesses as shall be explicitly agreed by the shareholders to be the subject of the LTIP ("the LTIP Business").
Subject to the terms and conditions of this LTIP, in each and every year twenty percent (hereinafter the "Specified Percentage") of the Income (as hereinafter defined) earned from the LTIP Business will be credited to the global LTIP fund. Of this amount, one half (or 10%) would ordinarily be expected to be allocated specifically to individuals and team members directly involved in the production of income.
All income earned and capital gains realised on the capital funds provided by the shareholders shall be for the sole account of the Shareholders and shall not form part of the LTIP incentives hereunder. In addition, to the extent that explicit capital support from one or more of the Shareholders is required to support the LTIP Business (related to bank lines, letters of credit, guarantees or other forms of explicit capital support) the Shareholder(s) providing such support will be entitled to charge the LTIP and be paid a market rate for the use of such support.
…………….
Eligibility
Participation in the LTIP will be open to key employees of Imagine designated by the Board of Directors as participants from time to time. At the end of each year, the amount to be credited to the LTIP in respect of that year's performance shall be allocated among the participants having regard to economic performance and such other criteria as shall be determined by the Imagine Board of Directors from time to time. A separate balance shall be maintained for each participant under the LTIP. All allocations to individuals in the LTIP will be recommended by the senior management of Imagine and shall be subject to the final approval of the Board of Directors of Imagine, whose decision shall be final and binding.
Vesting
No later than 120 days after the end of each calendar year, an amount equal to the Specified Percentage of the Income of the LTIP Business for that year will be credited to the LTIP. The Specified Percentage annual credit will be allocated to all LTIP participants as approved by the Imagine Board. Allocations shall vest over a five-year period on each annual scheduled payment date for distributions. The vesting shall be calculated at twenty five per cent (25%) at the time of allocation of a subject years LTIP with the other seventy five percent (75%) vesting in four equal parts over the remaining four years of the five year vesting term.
……….
Income Calculation
Following receipt by Imagine of the annual audited financial statements a calculation shall be performed to determine the amount to be credited under this LTIP. The amount to be credited to the LTIP in each year (the "Income" as used in this document) will be calculated each year using the accounting net income, before tax, of the LTIP Business determined in accordance with International Accounting Standards GAAP subject to a number of adjustments. The effect of these adjustments will be to exclude from Income any investment earned on the shareholders capital account and include any provision for reserves, as deemed necessary by the Board of Directors of Imagine, to provide for unforeseeable future events.
Election of Allocation
Within thirty days of each allocation, each participant shall irrevocably elect one of the following alternatives with regard to the prior underwriting year's allocation to their LTIP account: (i) with respect to vested and unvested amounts, to apply their allocation, in whole or in part, to acquire a long-term equity like component – called Phantom Equity Appreciation Rights ("PEARS"), or (ii) with respect to vested and unvested amounts, to elect a short term liquid option (the "Short Term Option") – via a deposit of their allocation, in whole or in part, into a notional account which shall accrue interest at a short term government bond yield designated by the Board of Directors of Imagine until distributed. If there is a failure to elect, alternative (ii) will be the default option ……
Phantom Equity Appreciation Rights
Participants in the LTIP who elect to receive PEARs shall be granted Pear's equal to the monetary value of their allocation to PEARs (their "LTIP Entitlement"). The number of PEARs to be issued shall be equal to the LTIP Entitlement divided by the year-end book value per common share of Imagine, according to the GAAP financial statements as determined by the Board of Imagine after reflecting the issuance of the PEARs. Participants will lose all PEARs compounding if they leave the company (other than for reasons as set out in the second paragraph of the Termination section) during their first five years of their employment (vesting of the capital portion over the five year period remains unaffected by this provision - i.e. Unvested portions of capital will also be lost). After five years, compounding on unvested portions (only) will be lost if they leave their employment (other than for reasons as set out in the second paragraph of the Terminations section) and go to work for a competitor within a twelve month period after leaving their employment with Imagine (employees who retire or exit the industry will not be penalized).
Such PEARs shall be economic rights only and shall not entitle the holder to any security, shareholder or other similar right or interest in Imagine. An LTIP participant shall not be entitled to elect to receive PEARs to the extent that the granting of the PEARs or the receipt of the PEARs would be contrary to applicable law, including, without limitation, securities law
Liquidity
Vested amounts under the Short Term Option may be withdrawn at any time on 30 days written notice to the Company. Unvested amounts under Short Term Option elections may not be withdrawn until vesting has occurred. Any amounts (vested or unvested) elected under the PEARs option may only be cashed-in when Participants leave their employment with the Company or there is a Liquidity Event (as defined) However, LTIP participants may apply, and the Board of Imagine will consider on an ad hoc basis, making loans to individuals against the vested balance in their LTIP account (including PEARs) in certain circumstances if, and when, warranted. Any such loans shall be at the sole discretion of the Board of Directors of Imagine. Such loans will bear interest at the US dollar prime rate or relevant currency related equivalent and will be secured by the LTIP balance and other collateral acceptable to Imagine from time to time.
A "Liquidity Event" means (i) those events contemplated in the second paragraph of the Termination section of this LTIP, or (ii) the sale by Brascan Financial of more than 50% of the common shares of Imagine.
…..
Termination
LTIP or PEAR participants who are terminated for cause or voluntarily depart before a scheduled payment date will forfeit their entitlement to any and all unvested amounts (including Pear's and/or accrued interest) payable under the LTIP.
In the event of retirement, death, long-term disability, or termination by Imagine without cause, LTIP or PEAR participants will be entitled to receive any vested and unvested amounts when otherwise due.
Board Decisions
The Board of Directors of Imagine will have the right to construe, interpret, administer, amend or cancel the LTIP, at any time, provided that any amendment or cancellation of the LTIP will not affect the right of any participants to any payments under the LTIP that have been allocated or accrued to that date. The decision of the Board on any matter regarding the LTIP will be final and binding on the LTIP participants."
(i) The LTIP fund was to be 20% of the Income, which was to be the Income of the LTIP Business, being Imagine's finite risk insurance and reinsurance business and such other businesses as should be explicitly agreed by the Shareholders; Imagine contends that the LION and Dan Re transactions did not constitute finite risk insurance or reinsurance business.
(ii) The participants were to be key employees designated by Imagine Insurance's Board of Directors.
(iii) Allocations, approved by the board, were to vest as to 25% at the time of allocation and thereafter equally over the next four years.
(iv) Participants could choose to take their allocation in PEARs or a short term liquid option;
(v) Vested amounts under the short term option could be withdrawn on 30 days notice. Amounts elected under the PEARs option could only be cashed in on leaving employment or upon a liquidity event (as defined).
(vi) Voluntary departure or termination for cause would affect a forfeiture of any unvested amounts. Termination by Imagine without cause would entitle a participant to receive any vested or unvested amount when otherwise due.
(vii) The Board could cancel the LTIP at any time but this would not affect the right of any participants to any payment under the LTIP that had been allocated or accrued to that date.
The history of the May LTIP
"Subject to each Participant's relevant employment Agreement (which shall supercede the provisions hereof) in the event that a Participant is terminated by the Company without cause or the Participant terminates their employment with the Company for good reason (see definition) they will be entitled to any amounts due (both vested and unvested portions) under this LTIP Program/Senior LTIP Program, with any unvested amounts due as they vest ratably as set out above. Termination of a Participant for cause shall entitle the Participant only to the vested portions of any Stock Appreciation Rights under this [LTIP Program][Senior LTIP Program]".
"….continue until amended, repealed or terminated by the Company which events may occur at any time without the requirement of notice to Participants and which shall be in the sole discretion of the Company. Any amendment, repeal or termination of the LTIP/Senior LTIP Program shall not affect existing and outstanding allocations of interests, which shall continue in accordance with the provisions of Article VII and Article V above".
"I know you have been busy. Here is a list of issues I believe that are still outstanding from various e-mails and discussions I have had with you over the last few weeks. We should set some time aside, at your convenience and go through these. Please let me know how you want to proceed.
……
3. Finalization of the LTIP plans – documentation, Board UWR of Plan, employees execution of plans, notification to staff of allocation and payment of 2001 vested amounts. [Brad Huntington] – can't do anything till Trilon gets back to us on LTIP".
"3) "Value contribution" is GAAP – adjusted to reflect Present Value of transactions entered into during the year. The cash flows to be discounted should be;
a. for transactions where amounts are certain, the actual amounts;
b. for amounts which are uncertain, the average of all simulated outcomes (ie includes all loss scenarios)
c. asset returns should be estimated at risk free unless there is a contractually stipulated rate and/or the board has specifically approved a separate asset strategy for the transaction from which a different return profile can be estimated
6 Must reflect all value contributions created by management – not just in the reinsurance business.
….
9 As there will be a senior management and one or more operating unit pools, the senior pool should be defined as the 20% allocation minus anything that is allocated to the junior pools
10 Allocation to be made by senior management and approved by board"
"It was noted that the LTIP Plan components and calculations of the December 31 2001 final amounts were still being discussed among Tom Gleeson, Brad Huntington and representatives of Brascan Financial. The matter was therefore further deferred until discussions among all parties were finalized".
"Purpose
"To provide management of Imagine with a long-term incentive reward plan. The proposed Management Long Term Incentive Plan ("LTIP") will provide designated Imagine managing partners (currently Tom Gleeson, Brad Huntington and Mike Daly) and other senior executives with a financial participation in the finite-risk reinsurance business of Imagine under their direct management."
"In 1999, Trilon and Golden I (the "Shareholders") collectively invested $200 million cash to form Imagine. With this initial capital, management have been charged with building and expanding Imagine's finite-risk reinsurance business (the "LTIP Business")."
Under the heading "Eligibility" the draft stated:
"Participation in the LTIP will be open to designated managing partners and other senior executives of Imagine as selected by the Board of Imagine from time to time".
And under the heading "Distributions":
"At the end of each year, an amount equal to 20% of the Earned Income of the LTIP Business for that year will be credited to the LTIP."
"The Board of Directors of Imagine will have the right to construe, interpret, administer, amend or cancel the LTIP, at any time, provided that any amendment or cancellation of the LTIP will not affect the right of any participants to any payments under the LTIP which have accrued to date. The decision of the board on any matter regarding the LTIP will be final and binding on LTIP participants."
"I understand that Mike [Daly] is coming up to Toronto to see you later this week with a view to trying to finalize the LTIP plan for Imagine. Attached are our collective comments/revisions on the last draft of the plan – which I think encompasses all of the discussions we had in NY".
any change to the first paragraph, which still referred to the triumvirate.
(i) The wording of the first paragraph ("Purpose") was changed from:
"… a financial participation in the finite-risk reinsurance business of Imagine under their direct management …" to
"… a financial participation in the business of the Imagine Group under their direct management …"
(ii) The wording of the second paragraph ("Background") was changed
from:
"… have been charged with building and expanding Imagine's finite-risk reinsurance business ("the LTIP Business") …" to
"… have been charged with building and expanding Imagine's business ("the LTIP Business") …"
(iii) The wording of the third paragraph ("Eligibility") was changed from:
"Participation in the LTIP will be open to designated managing partners and other senior executives of Imagine as selected by the Board of Imagine from time to time." to
"Participation in the LTIP will be open to designated managing partners and other senior executives of Imagine as selected by the designated managing partners from time to time."
(iv) The wording of the fourth paragraph ("Distribution") was changed from:
"At the end of each year, an amount equal to 20% of the Earned Income of the LTIP Business for that year will be credited to the LTIP. Of this amount, one-quarter will be paid to the LTIP participants within 30 days after approval by the Board of Imagine together with one-fifth of the opening balance in the LTIP account for that year. The remaining three quarters will be added to the balance in the LTIP" to
"No later than 90 days after the end of each year, at the first Imagine Board meeting of each calendar year an amount equal to 20% of the Earned Income of the LTIP Business for that year will be credited to the LTIP. This 20% annual credit will be allocated to all LTIP participants as determined by the managing partners in consultation with the Imagine Board. The amount allocated to LTIP participants will vest evenly over a five-year period with the first such distribution payable 12 months after the initial allocation. For members of the Managing Partner Plan 25% of an individuals annual designated amount together with any accrued interest income may, at the participants option, be paid in cash to the Senior LTIP Pool participants within 30 days after approval by the Board of Imagine together with one-fifth of the opening balance in the LTIP account for that year. The remaining amount will be added to the individual's balance in the LTIP Plan account… "
(v) The re-draft also provided that:
"The Managing Partners may designate sub plans to individual business units under the Imagine Group (which plans shall be substantially on the same terms and conditions of this Plan) and any aggregate percentage allocation to such sub plans of the overall 20% hereunder shall be deducted from the participants' rights under this Managing Partners Plan".
(vi) Mr Myhal's definition of "Earned Income" was changed from:
"The net present value of any future cash flows over a five year term, calculated using conservative actuarial and discount rate assumptions, for reinsurance transactions completed during the year will be added to net income." to
"The net present value of any future cash flows, calculated using appropriate actuarial and discount rate assumptions, for all financial services transactions completed during the year will be added to net income."
"… .the LTIP plan that we are discussing is appropriate for the finite-risk reinsurance business but we are not comfortable extending this plan to other business activities until the precise nature of those activities has been determined".
Under the heading "Eligibility" he said:
"You have proposed the creation of two separate plans, one for the Managing Partners and one for all others. We don't understand the significance of having two plans. Our preference is to have one plan encompass everybody and not create two separate classes. We also need to make it explicit and clear that the Board will ultimately approve eligibility and allocation". [Underlining added].
"Everybody" plainly included the Managing Partners.
"4. Deferred Payout
As above, we feel that all people should be treated equally. We can either extend the immediate 25% vesting to everyone or have some combinations of your two proposals…. "
"Purpose
To provide management of Imagine with a long term incentive reward plan. The Management Long Term Incentive Plan ("LTIP") will provide designated key management with a financial participation in specified businesses of the Imagine Group under their direct control.
Background
In 2000 Trilon and Golden 1 ("the shareholders") collectively invested US$ 200 million cash to form the Imagine Group. With this initial capital, management has been charged with building and expanding Imagine's businesses. Such businesses shall include the finite risk insurance and reinsurance business and such other businesses as shall be explicitly agreed by the Shareholders to be the subject of this LTIP (the "LTIP Business").
……
Eligibility
Participation in the LTIP will be open to key management of Imagine designated by the Board of Directors as participants…."
"The LTIP plan components are still under discussion by Tom Gleeson, Brad Huntington and representatives of the shareholders."
The 25th September draft was part of those discussions.
"Mr Brad Huntingdon reported that he had presented a slightly revised LTIP document to the shareholder on November 19, 2002 in Bermuda. The shareholder did not see any issues which were not resolvable. The document was passed on to legal counsel for final review and concurrence."
"As part of our LTIP discussions with Brascan we need to determine whether they will accept (i) the setting up of sub-programs in the LTIP, and (ii) variance in vesting according to the duration of different types of liabilities."
.
"George, Bruce,
I have been trying to finalize letters to all our employees for the 2002 LTIP allocations which we have discussed a few times (and which we have previously approved the pool size … but not individual allocations at the board level). I have made a number of adjustments since we last talked and accordingly I wanted to run these by you. I also wanted to see if we could reach agreement on the "Plan document" narrative which we discussed last time in Toronto and which I would like to distribute to the employees."
He enclosed a list of 2001 actual and 2002 proposed allocations (which included Mr Daly but not himself).
"Attached is some wording I would propose on the compounding of the LTIP. Does this coincide with what we discussed the other day? I am having staff meetings in Dublin commencing tomorrow and am hoping we can agree something before then. If you are in agreement, I would copy this into the two page document (the exec summary version) you produced on the LTIP previously."
"Finally, it should be clear that the availability of PEARs can be withdrawn at any time"
"I am also a little concerned about the statement the Board having the ability to withdraw the PEARS at any time. This is one of the main reasons I (and I assume others) joined. It is in my contract that PEARS (SARS) is part of my overall comp. package. Isn't [sic] a little harsh for the Board to have the unilateral ability to withdraw such a program or do you just mean accumulation mechanism."
"I have talked to Brad about it and he didn't have a big problem - the concept of the withdrawal of the plan is for clarity purposes only as the entire LTIP can be cancelled at any time as it is."
"Of this amount, one half, 10 per cent would ordinarily be expected to be allocated specifically to individuals"
The promulgation of the May LTIP
"I am pleased to enclose your LTIP allocation and supporting documentation".
The attachments were described as "allocation letter & election form.pdf" and "Imagine LTIP FINAL document.pdf". The latter document was the May LTIP. The accompanying letter began:
"The Board of Directors of Imagine Insurance Company Limited ("Imagine") has now approved both the aggregate and individual allocations[23] for the Imagine Long Term Incentive Plan ("LTIP") for the 2002 underwriting year. The LTIP program is attached for your reference and the detailed terms and conditions thereof shall govern all LTIP allocations."
Conclusions on the application of the May LTIP
" ..what is always implied in all of these discussions is that it relates to what we have been discussing, which is trying to get this general plan for employees finalised. It does not, in my view, and was never certainly addressed as meaning a negotiation of one plan that would override other potential plans or agreements that Imagine had at that point in time."
The letter of 8th May 2003
"The Board of Directors of Imagine Insurance Company Limited ("Imagine") has now approved both the aggregate and the individual allocations for the Imagine Long Term Incentive Plan ("LTIP") for the 2002 underwriting year. The LTIP program is attached for your reference and the detailed terms and conditions thereof shall govern all LTIP allocations.
Your allocation for the 2002 underwriting year is $ x" (Bold added).
(a) Mike Daly;
(b) Jason Fisher, Maria Nicholls and Patrick Grealy;
(c) Bob Forness;
(d) Steve Grill; Jeff Stevenson; David Koegel; Guy Cloutier, Morton
Helge, Hugh O'Donnell, Peter Norris and Jean Francois Bahier.
(e) Lars Dehn and David Dodson.
addressees who should not have received them; and that it was an act of sloppiness on his part that this occurred. I do not accept this. In my judgment Mr Huntington sent the letters to those to whom they should have been sent; namely those who were, or were treated as, entitled to participate in the Imagine LTIP – in Mr Forness' case a little prospectively.
Post May 2003 events
Vesting of allocations made in respect of 2001 - 2004
Conflict of interest
"Election of Allocation
Within thirty days of each allocation, each participant shall irrevocably elect one of the following alternatives with regard to the prior underwriting year's allocation to their LTIP account: (i) with respect to vested and unvested amounts, to apply their allocation, in whole or in part, to acquire a long-term equity like component – called Phantom Equity Appreciation Rights ("PEARS"), or (ii) with respect to vested and unvested amounts, to elect a short term liquid option (the "Short Term Option") – via a deposit of their allocation, in whole or in part, into a notional account which shall accrue interest at a short term government bond yield designated by the Board of Directors of Imagine until distributed. If there is a failure to elect, alternative (ii) will be the default option ……
"I am somewhat conflicted on the issue of interpretation of the LTIP plan due to how I have historically taken my allocations, but I enclose the relevant section of the final LTIP plan together with a legalistic view of the issues on both sides"
The share option plan