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SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
OHIO CASUALTY CORPORATION
-------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(I)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: .....
(2) Aggregate number of securities to which transaction applies: ........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ..........
(4) Proposed maximum aggregate value of transaction: ....................
(5) Total fee paid: .....................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: .............................................
(2) Form, Schedule or Registration Statement: ...........................
(3) Filing Party: .......................................................
(4) Date Filed: .........................................................
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OHIO CASUALTY CORPORATION
9450 Seward Road
Fairfield, Ohio 45014
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
To Be Held April 17, 2002
March 8, 2002
To the Shareholders:
The Annual Meeting of Shareholders (the "Annual Meeting") of Ohio
Casualty Corporation (the "Company") will be held in the Ohio Casualty
University Auditorium, 9450 Seward Road, Fairfield, Ohio 45014, on Wednesday,
April 17, 2002, at 10:30 a.m., local time, for the following purposes:
(1a) To elect the following four directors for terms expiring in 2005
(Class III):
Terrence J. Baehr Dan R. Carmichael Catherine E. Dolan Phillip G. Heasley
(1b) To elect the following director for a term expiring in 2003 (Class I):
Jan H. Suwinski
(1c) To elect the following director for a term expiring in 2004 (Class II):
Ralph S. Michael III
(2) To consider and vote upon a proposal to approve the Ohio Casualty
Corporation 2002 Stock Incentive Plan.
(3) To consider and vote upon a proposal to approve the Ohio Casualty
Corporation 2002 Employee Stock Purchase Plan.
(4) In their discretion, to consider and vote upon such other matters as
may properly come before the Annual Meeting or any adjournment thereof.
Holders of record of common shares of the Company as of the close of
business on March 1, 2002 are entitled to notice of and to vote at the Annual
Meeting and at any adjournment thereof. As of March 1, 2002, there were
60,188,832 common shares outstanding. Each common share is entitled to one
vote on all matters properly brought before the Annual Meeting.
By Order of the Board of Directors,
/s/ Howard L. Sloneker III
Howard L. Sloneker III, Secretary
EVERY SHAREHOLDER'S VOTE IS IMPORTANT. IF YOU ARE UNABLE TO BE PRESENT AT
THE ANNUAL MEETING, YOU ARE REQUESTED TO COMPLETE AND PROMPTLY RETURN THE
ENCLOSED PROXY CARD SO THAT YOUR COMMON SHARES WILL BE REPRESENTED.
A POSTAGE PAID, ADDRESSED ENVELOPE FOR MAILING IS ENCLOSED FOR YOUR
CONVENIENCE. YOU MAY ALSO VOTE YOUR PROXY VIA THE INTERNET OR BY TELEPHONE.
INSTRUCTIONS ON DOING SO ARE PROVIDED IN THE PROXY STATEMENT AND ON THE
PROXY CARD.
OHIO CASUALTY CORPORATION
9450 Seward Road
Fairfield, Ohio 45014
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
You are receiving this proxy statement and proxy card from us because
you own common shares of Ohio Casualty Corporation (the "Company"). This
proxy statement describes the proposals on which we would like you to vote.
It also gives you information so that you can make an informed voting
decision. We will mail this proxy statement and the form of proxy to
shareholders beginning on or about March 8, 2002.
VOTING AT THE ANNUAL MEETING
Date, Time and Place of the Meeting
We will hold the Annual Meeting of Shareholders (the "Annual Meeting")
in the Ohio Casualty University Auditorium, 9450 Seward Road, Fairfield, Ohio
45014, at 10:30 a.m., local time, on Wednesday, April 17, 2002, and at any
adjournment thereof.
Who Can Vote
Record holders of the Company's common shares at the close of business
on March 1, 2002, are entitled to notice of and to vote at the Annual Meeting.
On the record date, 60,188,832 common shares were issued and outstanding.
Each outstanding common share will be entitled to one vote on each matter.
Common shares of the Company are referred to in this Proxy Statement as
"shares".
Quorum for the Meeting
A quorum of shareholders is necessary to take action at the Annual
Meeting. A majority of the outstanding shares of the Company, represented in
person or by proxy, will constitute a quorum. Votes cast by proxy or in
person at the Annual Meeting will be tabulated by the inspectors of election
appointed for the Annual Meeting. The inspectors of election will determine
whether a quorum is present at the Annual Meeting. In the event that a quorum
is not present at the Annual Meeting, we expect that the meeting will be
adjourned or postponed to solicit additional proxies.
-1-
Votes Required
Election of Directors. The nominees for director who receive the
greatest number of the votes cast in person or by proxy at the Annual Meeting
will be elected directors of the Company. Instructions to withhold authority
to vote will have no effect on the election of directors, because directors
are elected by a plurality of votes cast. A properly executed proxy marked
"WITHHELD" will be counted for purposes of determining whether there is a
quorum.
Other Items. For each other item, the affirmative vote of the holders
of a majority of the shares represented in person or by proxy and entitled to
vote on the item will be required for approval. A properly executed proxy
marked "ABSTAIN" with respect to any such matter will not be voted, although
it will be counted for purposes of determining whether there is a quorum.
Accordingly, an abstention will have the effect of a negative vote.
Participants in Dividend Reinvestment Plan and Employee Savings Plan.
If the shareholder is a participant in the Company's Dividend Reinvestment
Plan or a participant in The Ohio Casualty Insurance Company Employee Savings
Plan, the enclosed proxy represents the number of shares held on account of
the participant in those Plans as well as shares held of record by the
participant. With respect to participants in the Employee Savings Plan, the
proxy also serves as the voting instruction card to the Plan trustee and
represents the shareholder's proportional interest in shares beneficially held
by the Trustee.
Broker Non-Votes. If you hold your shares in "street name" through a broker
or other nominee, your broker or nominee may not be permitted to exercise
voting discretion with respect to some of the matters to be acted upon.
Thus, if you do not give your broker or nominee specific instructions, your
shares may not be voted on those matters and will not be counted in determining
the number of shares necessary for approval. Shares represented by such
"broker non-votes" will, however, be counted in determining whether there is
a quorum.
How You Can Vote
You may attend the Annual Meeting and vote your shares in person.
You also may choose to submit your proxies by any of the following methods:
- Voting by Mail. If you choose to vote by mail, simply complete
the enclosed proxy card, date and sign it, and return it in the postage-paid
envelope provided. If you sign your proxy card and return it without marking
any voting instructions, your shares will be voted FOR the election of the
nominees identified in this Proxy Statement and FOR the proposals to adopt
the Ohio Casualty Corporation 2002 Stock Incentive Plan and the 2002 Ohio
Casualty Corporation Employee Stock Purchase Plan.
- Voting by Telephone. You can vote your shares by telephone by
calling the toll-free telephone number provided on the proxy card. Telephone
voting is available, and the procedures are designed to authenticate votes
cast by using the personal control number located on your proxy card. If you
vote by telephone, you should not return your proxy card.
-2-
- Voting by World Wide Web. You can also vote on the World Wide Web by
signing on to the web site identified on the proxy card and following the
procedures described on the web site. Internet voting is available 24 hours
a day, and the procedures are designed to authenticate votes cast by using a
personal control number located on your proxy card. If you vote on the
World Wide Web, you should not return your proxy card.
How You May Revoke or Change Your Vote
You can revoke your proxy at any time before it is voted at the Annual
Meeting by any of the following methods:
- Submitting a later-dated proxy by mail, over the telephone or through
the World Wide Web.
- Sending a written notice, including by facsimile or electronic mail,
to the Secretary of the Company. You must send any written notice of a
revocation of a proxy so as to be delivered before the taking of the vote at
the Annual Meeting to:
Ohio Casualty Corporation
9450 Seward Road
Fairfield, Ohio 45014
Facsimile: (513) 603-7900
Attention: Howard L. Sloneker III, Secretary
Email to: howard.sloneker@ocas.com
- Attending the Annual Meeting and voting in person. Your attendance
at the Annual Meeting will not in and of itself revoke your proxy. You must
also vote your shares at the meeting. If your shares are held in the name
of a bank, broker or other holder of record, you must obtain a proxy, executed
in your favor, from the institution that holds your shares to be able to vote
at the Annual Meeting.
PRINCIPAL SHAREHOLDERS
The table on the next page identifies the only persons known to the
Company to own beneficially (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934) more than 5% of the Company's outstanding
shares as set forth in the table on the following page:
-3-
Common Shares Percent of
Name and Address Beneficially Common
of Beneficial Owner Owned Shares(1)
------------------- ----- ---------
AMERICAN FINANCIAL GROUP, INC. 6,000,000(2) 9.9%
One East Fourth Street
Cincinnati, Ohio 45202
DIMENSIONAL FUND ADVISORS INC. 4,141,578(3) 6.9%
1299 Ocean Avenue
Santa Monica, California 90401
FIRST FINANCIAL BANCORP 3,569,995(4) 5.9%
300 High Street
Hamilton, Ohio 45011
__________________
(1) Based on the actual number of shares outstanding as of March 1, 2002.
(2) Based upon information contained in a Schedule 13G filed February 6,
2002, with the Securities and Exchange Commission ("SEC") by American
Financial Group, Inc. ("AFG"). According to the Schedule 13G filing, AFG
reported shared dispositive power for 6,000,000 shares. All of these
shares are covered by an unexercised warrant issued by the Company to AFG
on December 1, 1998, in connection with the Company's acquisition of
substantially all of AFG's commercial lines business. The exercise price
of the warrant is $22.505 per share, and the warrant expires on November
30, 2003.
(3) Based upon information contained in a Schedule 13G filed February 12,
2002, filed with the SEC by Dimensional Fund Advisors Inc.
("Dimensional"). According to the Schedule 13G filing, Dimensional
reported sole voting power and sole dispositive power for 4,141,578
shares. Dimensional furnishes investment advice to four investment
companies registered under the Investment Company Act of 1940, and serves
as investment manager to certain other commingled group trusts and
separate accounts. In its role as investment advisor or manager,
Dimensional possesses voting and/or investment power over the reported
shares, and Dimensional disclaims beneficial ownership of such shares.
(4) Based upon information contained in a Schedule 13G filed February 13,
2002, with the SEC by First Financial Bancorp and its subsidiary, First
National Bank of Southwestern Ohio (the "Bank"). The Bank holds the
reported shares as trustee under various trust agreements and arrangements.
The Bank reported that it has sole voting power for 3,569,995 shares, sole
dispositive power for 1,498,980 shares, and shared dispositive power for
1,593,668 shares. Also included in these shares are 477,347 shares that
are held under trust arrangements for certain directors of the Company and
their respective spouses. These shares are also reported in the following
table, which shows share ownership by directors and executive officers of
the Company.
-4-
SHAREHOLDINGS OF DIRECTORS, EXECUTIVE OFFICERS
AND NOMINEES FOR ELECTION AS DIRECTOR
As of March 1, 2002, the directors of the Company, the nominees for
election as directors, the individuals named in the Summary Compensation
Table, and all executive officers and directors of the Company as a group,
beneficially owned shares of the Company as set forth in the table below:
Shared Investment/
Number of Options Voting Power
Common Shares Exercisable Over Employees
Name of Beneficially Within Retirement Percent
Individual or Group Owned(1) 60 Days Plan Shares(2) Total of Class(3)
- ------------------- -------- ------- -------------- ----- -----------
Terrence J. Baehr 5,263 21,000 1,684,464 1,710,727 2.84%
Arthur J. Bennert 33,967 33,000 66,967
Jack E. Brown 3,811 33,000 1,684,464 1,721,275 2.85%
John S. Busby 14,118(6) 35,000 49,118(6)
Dan R. Carmichael 25,082(6) 133,333 158,415(6)
Catherine E. Dolan 2,811 33,000 1,684,464 1,720,275 2.86%
Wayne Embry 2,011 39,000 41,011
Vaden Fitton 260,788(4) 33,000 293,788(4)
Jeffrey L. Haniewich 1,490(6) 23,000 24,490(6)
Phillip G. Heasley 0 0 0
Stephen S. Marcum 423,949(4)(5) 39,000 462,949(4)(5)
Ralph S. Michael III 0 0 0
Stanley N. Pontius 7,766 39,000 46,766
Elizabeth M. Riczko 9,652(6) 57,000 66,652(6)
Edward T. Roeding 1,263 6,000 7,263
Howard L. Sloneker III 1,242,831(6) 107,334 1,350,165(6) 2.24%
Jan H. Suwinski 5,000 0 5,000
All Executive Officers, 2,466,318(6) 764,667 1,684,464 4,915,449(6) 8.17%
Current Directors and
Nominees as a
Group (24 Persons)
________________________________
(1) Unless otherwise indicated, each named person has voting and investment
power over the listed shares, and such voting and investment power is
exercised solely by the named person or shared with a spouse.
(2) Includes 1,684,464 shares held in the Company's Employees Retirement
Plan as to which the named individuals share voting and investment power
solely by reason of being members of the Executive Compensation Committee that
administers such Plan. Messrs. Baehr and Brown and Ms. Dolan disclaim
beneficial ownership of these shares.
(3) Percentages are listed only for those individuals who are the
beneficial owners of more than 1% of the outstanding shares.
-5-
(4) Includes the following number of shares owned by family members as to
which beneficial ownership is disclaimed: Mr. Fitton, 177,745 and Mr.
Marcum, 159,030.
(5) Includes 185,612 shares held as co-trustee of the Joseph L. and Sarah
S. Marcum Foundation as to which voting and investment power is shared by Mr.
Marcum. Beneficial ownership of these shares is disclaimed by Mr. Marcum.
(6) The share ownership for Messrs. Carmichael, Haniewich, Sloneker and
Busby includes 482, 1,490, 5,802 and 11,876 shares, respectively, held for the
accounts of these individuals by the trustee of the Company's Employee
Savings Plan. Ms. Riczko's share ownership includes 2,412 shares held in
an account in the same plan. Such persons have sole voting power with
respect to these shares and also hold investment power subject to
limitations in the Plan.
ELECTION OF DIRECTORS
The Board of Directors intends that the four persons named under Class
III in the following table will be nominated for election at the Annual Meeting
for three-year terms expiring in 2005, that the individual named under Class I
will be nominated at the Annual Meeting for a one-year term expiring in 2003,
and that the individual named under Class II will be nominated at the Annual
Meeting for a two-year term expiring in 2004. The terms of the remaining
directors in Classes I and II will continue after the Annual Meeting. In the
event that any one or more of the nominees unexpectedly becomes unavailable
for election, the shares represented by the proxies received will be voted in
accordance with the best judgment of the proxy holders for the election of
the remaining nominees and for the election of any substitute nominee or
nominees designated by the Board of Directors. The proxies will not be voted
for more than six nominees.
Position with Company and/or
Principal Occupation or Employment Director
Name and Age(1) During Last Five Years(2) Since
- --------------- ---------------------------------------------------------- -------
Nominees: Class III: Terms Expiring in 2005
Terrence J. Baehr, Vice President, Sales, Americas East Region, IBM Corporation, 1999
51 White Plains, New York since June 2000. Previously Vice
President, Strategy and Solutions, Global Financial Services
Sector for IBM Corporation January to June 2000, Vice President,
Insurance Industry, North and South America for IBM, 1998-1999
and General Manager, Insurance Industry, North America, 1995-1997
for IBM Corporation.
Dan R. Carmichael President, Chief Executive Officer and Director of the Company, 2000
57 The Ohio Casualty Insurance Company, West American Insurance
Company, American Fire and Casualty Company, Ohio Security
Insurance Company, Avomark Insurance Company, Ohio Casualty of
New Jersey, Inc. and OCASCO Budget, Inc. Previously President
and Chief Executive Officer of IVANS, Inc., Greenwich,
Connecticut from 1995-2000.
Catherine E. Dolan, Senior Vice President, First Union National Bank, Charlotte, 1994
44 North Carolina. Previously Managing Director of the Financial
Institutions Group, First Union National Bank, Charlotte,
North Carolina from 1995-2000.
Phillip G. Heasley, Chairman and Chief Executive Officer of First USA, a subsidiary
52 of Bank One since January 2001. Previously President and Chief
Operating Officer of U. S. Bancorp.
-6-
Position with Company and/or
Principal Occupation or Employment Director
Name and Age(1) During Last Five Years(2) Since
- --------------- ---------------------------------------------------------- -------
Nominee: Class I: Term Expiring in 2003
Jan H. Suwinski, Professor of Business Operations, The Johnson Graduate School
60 of Management at Cornell University in Ithaca, New York since
1997. Previously, Executive Vice President, Opto-Electronics
Group of Corning Incorporated.
Nominee: Class II: Term Expiring in 2004
Ralph S. Michael III, Group Executive, PNC Advisors and PNC Capital Markets, Pittsburgh,
47 Pennsylvania since February 2001. Previously Chief Executive
Officer, PNC Corporate Banking from 1996-2001.
Directors Whose Terms Continue Beyond the Annual Meeting:
Class I: Terms Expiring in 2003:
Jack E. Brown, Executive Vice President, Global AC Nielsen, Covington, Kentucky 1994
58 since January, 2002; Chairman of the Board, AC Nielsen BASES
since 1999; previously Chairman of the Board, BBI Marketing
Services, Inc., Cincinnati, Ohio, a marketing consulting firm.
Howard L. Sloneker III, Senior Vice President, Secretary and Director of the Company, The 1983
45 Ohio Casualty Insurance Company, West American Insurance Company,
American Fire and Casualty Company, Ohio Security Insurance
Company, Avomark Insurance Company, Ohio Casualty of New Jersey, Inc.
and OCASCO Budget, Inc. since 1998. Previously Vice President,
Secretary and Director of the Company and its subsidiaries.
Class II: Terms Expiring in 2004
Stephen S. Marcum, Member of the law firm of Parrish, Fryman & Marcum Co., L.P.A., 1989
44 Hamilton, Ohio.
Stanley N. Pontius, President and Chief Executive Officer of First Financial Bancorp, 1994
55 Hamilton, Ohio since 1991 and Chairman of the Board of its
principal subsidiary, First National Bank of Southwestern Ohio,
Hamilton, Ohio since 1998. Previously Chief Executive Officer of
First National Bank of Southwestern Ohio since 1993.
Edward T. Roeding, President and Chief Operating Officer of E. H. Roeding & Co., Inc. 2001
61 Crestview Hills, Kentucky, a financial and insurance services
company.
(1) Ages are listed as of the date of the Annual Meeting.
(2) The Ohio Casualty Insurance Company, West American Insurance Company,
American Fire and Casualty Company, Ohio Security Insurance Company, Avomark
Insurance Company, Ohio Casualty of New Jersey, Inc. and OCASCO Budget, Inc.,
are subsidiaries of the Company.
OTHER DIRECTORSHIPS AND RELATED TRANSACTIONS
Dan R. Carmichael is also a director of Alleghany Corporation. Jack
E. Brown is also a director of PNC Bank Ohio, N.A. Phillip G. Heasley is
Chairman of the Board of Visa USA, and is also a director of Visa International,
Fidelity National Financial, Inc. and Fair, Isaac and Company, Inc. Stephen S.
Marcum and Stanley N. Pontius are also directors of First Financial Bancorp.
Jan H. Suwinski also serves as a director of Tellabs, Inc. and Thor Industries.
-7-
Edward T. Roeding is the President and Chief Operating Officer of E. H.
Roeding & Co., Inc. a financial and insurance services firm. During 2001, E.
H. Roeding & Co., Inc., served as a licensed agency for the insurance
subsidiaries of the Company and was paid $659,425 in commissions and credits
for such services. E. H. Roeding & Co., Inc. will also be paid in 2002 a
bonus of $186,794 based on the volume and profitability of business produced
in 2001. The Company expects that commissions will be paid to E. H. Roeding
& Co., Inc. in 2002.
MEETINGS OF THE BOARD OF DIRECTORS
AND COMMITTEES OF THE BOARD
During 2001, the Board of Directors held eleven meetings. All
directors attended at least 75% of the aggregate number of meetings of the
Board of Directors and the committees on which he or she served. The Board of
Directors has standing Executive, Audit, Executive Compensation and Governance
Committees.
The Executive Committee held one meeting during 2001. Current members
of the Executive Committee are Jack E. Brown, Dan R. Carmichael, Stanley N.
Pontius and Howard L. Sloneker III. The Executive Committee is empowered to
exercise all the powers of the Board of Directors in the management of the
Company between meetings of the Board of Directors, other than filling
vacancies on the Board or any committee of the Board.
The Audit Committee held eleven meetings during 2001. Current members
of the Audit Committee are Arthur J. Bennert, Catherine E. Dolan, Vaden Fitton
and Stanley N. Pontius. For a more detailed description of the role of the
Audit Committee, see "Report of the Audit Committee " on page 18.
The Executive Compensation Committee held nine meetings during 2001.
Current members of the Executive Compensation Committee are Terrence J. Baehr,
Jack E. Brown and Catherine E. Dolan. The Executive Compensation Committee
administers the Company stock option plans and carries out the responsibilities
described in the Report of the Executive Compensation Committee in this Proxy
Statement on page 16.
The Governance Committee held three meetings during 2001. Current
members of the Governance Committee are Terrence J. Baehr, Wayne Embry and
Stephen S. Marcum. The Governance Committee promotes the effective operation
of the Board of Directors through proper committee composition, nominee
selection and efficient task distribution.
The Governance Committee will consider nominees for director recommended
by shareholders for the 2003 Annual Meeting of Shareholders provided that the
names of such nominees are submitted not later than November 22, 2002, to
Howard L. Sloneker III, Secretary, 9450 Seward Road, Fairfield, Ohio 45014.
Every submission must include a statement of the qualifications of the nominee,
a consent signed by the nominee evidencing a willingness to serve as a director
if elected, and a commitment by the nominee to meet personally with the
Governance Committee members.
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DIRECTORS' FEES AND OTHER COMPENSATION
Each director who is not an employee of the Company, except for the
Chairman of the Board, receives an annual retainer of $30,000 for services as
a director of the Company. The Chairman of the Board receives an annual
retainer of $75,000. Each non-employee director of the Company also receives
$1,500 plus expenses for each meeting attended in person ($500 per meeting
attended via teleconference beginning in April 2001).
The Chairman of the Audit Committee receives an annual fee of $2,500
and Chairmen of the Governance Committee and Executive Compensation Committee
receive an annual fee of $2,000 for such services.
Directors may elect to defer all or a part of the cash compensation
they receive for services as directors in performance shares or cash.
Performance shares are equivalent in value to the Company's shares, but the
performance shares have no voting rights. All deferred fees and performance
shares are payable only in cash.
Under the Company's current stock option plan, which will terminate if
the 2002 Stock Incentive Plan is adopted, any individual who becomes or is re-
elected a non-employee director is automatically granted a non-qualified stock
option (an "NQSO") to purchase 6,000 shares effective on the third business day
following the first meeting of the Board of Directors after his/her election or
appointment to the Board. The exercise price of each NQSO granted to a non-
employee director is equal to the fair market value of the shares on the date
of grant. NQSOs granted to non-employee directors have terms of ten years
(subject to earlier termination in certain cases) and may not be exercised
during the six months following their date of grant. On April 23, 2001, Wayne
R. Embry, Stephen S. Marcum and Stanley N. Pontius were each granted an NQSO
to purchase 6,000 shares of the Company, at an exercise price of $8.60 per
share, the closing market price of the shares on the date of grant. On May
22, 2001, Edward T. Roeding, a non-employee director of the Company, was
granted an NQSO to purchase 6,000 shares of the Company, at an exercise price
of $9.07 per share, the closing market price of the shares on the date of
grant.
In addition, the Company has a retirement plan for certain directors.
Under this plan, a director who currently serves on the Board will receive a
payment of $25,000 per year for ten years if the director: (i) retires from
the Board on or before the 2002 Annual Shareholders Meeting; (ii) has served
as a director for at least ten years; and (iii) has attained age 65 at the
time of retirement from the Board. All newly elected directors, beginning
with the 2001 term, as well as the current directors who continue to serve
beyond the 2002 term, will not be eligible for any retirement benefits.
-9-
EXECUTIVE COMPENSATION
Summary Compensation Table
The table below presents information concerning compensation provided
by the Company to its Chief Executive Officer and to each of the Company's
four most highly compensated executive officers, other than the Chief Executive
Officer, for services rendered in all capacities for each of the Company's last
three completed fiscal years:
Long-Term
Annual Compensation Compensation Awards
--------------------------------------------------- ---------------------------------------------
Other Securities Dividend
Annual Restricted Underlying Dividend Payment
Name and Salary Bonus Compensation Stock Options/ Payment Rights
Principal Position Year ($) ($) ($)(1) Awards($)(2) SARs(#) Rights(#)(3) Payout($)(4)
- ------------------ ---- ------ ----- --------- ------------ ---------- ------------ -------------
Dan R. Carmichael 2001 700,000 725,000(5) 781,688 0 400,000 0 0
President, Chief 2000 18,846 200,000 0 0 400,000 0 0
Executive Officer 1999 -- -- -- -- -- -- --
Elizabeth M. Riczko 2001 233,154 25,900 10,349 0 62,000 0 0
Executive Vice 2000 182,603 11,300 6,138 0 15,000 0 10,720
President 1999 153,155 -- 5,032 11,804 24,000 24,000 10,240
Jeffrey L. 2001 230,617 28,692 86,471 0 62,000 0 0
Haniewich 2000 190,008 150 5,704 0 15,000 0 0
Executive Vice 1999 190,008 14,200 6,126 0 8,000 8,000 0
President
Howard L. 2001 224,602 30,220 0 0 31,000 0 13,999
Sloneker III (6) 2000 208,577 0 7,204 0 30,000 0 35,732
Senior Vice 1999 224,543 0 7,073 19,186 24,000 24,000 25,465
President,
Secretary
John S. Busby 2001 214,923 25,350 9,568 0 41,000 0 4,200
Executive Vice 2000 180,516 40,940 5,737 0 15,000 0 10,720
President 1999 142,706 8,416 4,534 9,289 8,000 8,000 10,240
___________________
(1) For 2001, includes for Messrs. Carmichael, Haniewich and Busby and Ms.
Riczko the amounts of $2,677, $5,100, $5,100 and $5,006, respectively,
contributed to the Company's Employee Savings Plan. Also includes for
Messrs. Carmichael, Haniewich and Busby and Ms. Riczko for 2001 the
amounts of $54,097, $5,358, $4,468 and $5,343, respectively, contributed
to the Company's Supplemental Executive Savings Plan. With respect to Mr.
Carmichael, also includes compensation pursuant to his Employment
Agreement consisting of $171,604 to reimburse Mr. Carmichael for an amount
forfeited under a previous employer's short-term bonus program and
$346,906 to reimburse Mr. Carmichael for the amount forfeited under a
previous employer's long-term bonus plan and $175,000 towards an annual
long-term cash award. With respect to Mr. Haniewich, also includes
$27,410 which represents the value of the company car provided to him and
$23,484 which represents imputed taxes and a "gross up" amount to pay such
taxes with respect to his Company car, relocation expenses and financial
planning expenses.
-10-
(2) The aggregate values of all outstanding restricted stock awards at
the end of the fiscal year 2001 were $9,341 for Ms. Riczko and $15,183 and
$7,351 for Messrs. Sloneker and Busby, respectively. The number of restricted
stock awards held by Ms. Riczko and Messrs. Sloneker and Busby at the end
of fiscal year 2001 were 582, 946 and 458, respectively. Such restricted
stock awards vest on the third anniversary of the date of the grant so
long as the executive officer is an employee on such date (with earlier
vesting occurring on retirement, death or disability or termination of
employment following a change of control). During the restriction period,
the executive officer is entitled to all dividends paid on the shares.
(3) Dividend Payment Rights were granted in 1999. One third of these
rights become effective on each anniversary of the grant date. These rights
entitle the holder, on the April 15th following the third anniversary of
the grant date, to receive for each dividend payment right, an amount in
cash equal to the aggregate amount of dividends that the Company has paid
on each share from the date on which such right becomes effective through
the payout date, subject to restrictions.
(4) Amount shown reflects the payout of Dividend Payment Rights granted to
the named executive officers in 1996, 1997 and 1998.
(5) Includes $200,000 representing the final payment of Mr. Carmichael's
sign-on bonus of $400,000. Also includes a $525,000 annual bonus payable
by March 31, 2002, pursuant to his Employment Agreement.
(6) Salary column includes directors' fees for Mr. Sloneker of $2,083 for
2001 and $25,000 for 1999.
Option Grants in Last Fiscal Year
The table below sets forth information concerning the grant of stock
options during the last fiscal year to each of the executive officers of the
Company named in the Summary Compensation Table. No stock appreciation rights
were granted during the last fiscal year.
% of Total Potential Realizable
Options Value at Assumed
Number of Granted Annual Rates of Stock
Shares to Price Appreciation for
Underlying Employees Exercise Option Term(1)
Options in Fiscal Price Expiration ($) ($)
Name Granted Year ($/Sh) Date 5% 10%
------ ---------- ----------- --------- ---------- --- ---
Dan R. Carmichael 400,000(2) 30.21% 14.38 12/12/11 2,452,689 6,215,596
Elizabeth M. Riczko 62,000(3) 4.68% 8.99 6/1/11 350,533 888,320
Jeffrey L. Haniewich 62,000(3) 4.68% 8.99 6/1/11 350,533 888,320
Howard L. Sloneker III 31,000(3) 2.34% 8.99 6/1/11 175,267 444,160
John S. Busby 41,000(3) 3.09% 8.99 6/1/11 231,804 587,438
-11-
(1) The dollar amounts under these columns are the result of calculations
at the 5% and 10% annual appreciation rates set by the SEC for illustrative
purposes, and therefore, are not intended to forecast future financial
performance or possible future appreciation in the price of the Company's
shares. Shareholders are, therefore, cautioned against drawing any
conclusions from the appreciation data shown, aside from the fact that
optionees will only realize value from the option grants shown when the
price of the Company's shares appreciates, which benefits all shareholders
commensurately.
(2) Mr. Carmichael's option was granted pursuant to his Employment Agreement
with the Company dated December 12, 2000. The option becomes exercisable as
to one-third of the option shares on each of the first three anniversaries
of the date of grant and has a term of ten years.
(3) These stock options were granted under the Ohio Casualty Corporation
1993 Stock Incentive Program at the fair market value of the underlying option
shares on the date of grant. These options are subject to a six-month
holding period and become exercisable as to one-third of the option shares
on each of the first three anniversaries of the date of grant and have a
term of ten years. In the event of a change in control of the Company, the
stock options would become exercisable in full. Stock options reported
consist of both Incentive Stock Options and Non-Qualified Stock Options.
Option Exercises in Last Fiscal Year
The following table sets forth for each of the executive officers of
the Company named in the Summary Compensation Table, the fiscal year-end value
of unexercised stock options held by such executive officer. None of these
individuals exercised any stock options during 2001.
Aggregated Option Exercises in
Last Fiscal Year and Fiscal Year-End Option Value
Number of Shares Underlying Value of Unexercised
Shares Unexercised Options at In-the-Money Options
Acquired on Value Fiscal Year-End at Fiscal Year-End ($)(1)
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
------ -------- -------- --------------------------- -----------------------------
Dan R. Carmichael 0 0 133,333 666,667 830,665 2,301,335
Elizabeth M. Riczko 0 0 41,500 77,500 27,038 460,418
Jeffery L. Haniewich 0 0 12,833 72,167 27,038 460,418
Howard L. Sloneker III 0 0 84,333 54,001 48,450 265,140
John S. Busby 0 0 24,833 51,167 27,038 313,628
(1) "Value of Unexercised In-the-Money Options at Fiscal Year-End" is based
upon the fair market value of the Company's shares on December 31, 2001
($15.98), less the exercise price of in-the-money options on December 31, 2001.
Exercise prices of these options on December 31, 2001 ranged from $8.990 to
$23.469.
EMPLOYMENT AGREEMENT
On December 12, 2000, the Company entered into a five-year Employment
Agreement (the "Carmichael Agreement") with Dan R. Carmichael. The basic
terms and conditions of the Carmichael
-12-
Agreement include a minimum base salary of $700,000 per year, and annual
bonuses for calendar years 2001 and 2002 equal to the greater of $525,000 or
the bonus otherwise payable under any executive short-term bonus plan that is
in effect. For calendar years after 2002, the bonus will be determined under
the applicable short-term bonus plan then in effect.
Annual long-term cash awards of $175,000 will be credited to Mr.
Carmichael's deferred compensation account on March 31, 2002 (for fiscal year
ending December 31, 2001) and March 31, 2003 (for fiscal year ending December
31, 2002). These amounts will vest over a three-year period. For calendar
years following 2002, Mr. Carmichael will participate in any long-term
incentive program then offered by the Company.
As an added inducement to joining the Company, Mr. Carmichael received
payments of $200,000 on December 22, 2000, and on June 22, 2001. In addition,
on April 12, 2001, the Company reimbursed Mr. Carmichael $171,604, which he
forfeited under a previous employer's short term bonus program as a result of
his accepting employment with the Company. The Company also credited to Mr.
Carmichael's deferred compensation account $346,906, which he forfeited under
a previous employer's long-term bonus plan.
If prior to a Change in Control of the Company (as defined in the
Carmichael Agreement), the Company terminates Mr. Carmichael's employment
without Cause (as defined) or if Mr. Carmichael terminates his employment for
Good Reason (as defined), the Company will be obligated to (i) continue to pay
the Base Salary for a period of 36 months following the termination date; (ii)
pay an amount equal to 300 percent of Mr. Carmichael's last annual bonus (or
the amount of his minimum annual bonus for the year in which the termination
occurs if that date precedes his receipt of his first annual bonus); (iii) pay
an amount equal to 300 percent of the last annual long-term cash bonus amount
credited to his deferred compensation account (or the amount of his minimum
annual long-term cash amount for the year in which termination occurs if that
date precedes receipt of his first long-term cash bonus payment); and (iv)
vest in full all unvested stock options granted under the agreement. In
certain cases, these payments will be reduced if Mr. Carmichael obtains other
employment during the period in which the severance payments are required to
be made.
If following a Change in Control of the Company, the Company terminates
Mr. Carmichael's employment without Cause or Mr. Carmichael terminates his
employment for Good Reason, then the Company will be obligated to (i) pay to
Mr. Carmichael the amounts that would have been payable to him if his
employment had so terminated prior to a Change in Control, but in a lump sum
without any discount applied to reflect the value of any acceleration of
payment, and (ii) reimburse Mr. Carmichael for the cost of continued
participation in all programs subject to the benefit provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1993 ("COBRA") until the
earlier of the date Mr. Carmichael obtains replacement coverage or the date
the maximum coverage period prescribed by COBRA ends. If the sum of these
payments and any other payments or benefits constitute "excess parachute
payments" under the Internal Revenue Code, then the Company will be obligated
to reimburse Mr. Carmichael for any resulting excise tax or reduce the amounts
paid so that the total parachute payment is less than the amount that would be
an "excess parachute payment," whichever results in the larger after-tax
amount to Mr. Carmichael.
The Carmichael Agreement provides for a 24-month non-competition
agreement.
-13-
The Carmichael Agreement also provides for the grant of stock options
for up to 1,200,000 shares of the Company at exercise prices equal to the
market value of the Company's shares on the date of option grants. The first
stock option for 400,000 shares was granted to Mr. Carmichael on December 12,
2000, at an exercise price of $9.75 per share. A second stock option for
400,000 shares was granted on December 12, 2001, at an exercise price of
$14.38 per share (the terms of this option are described in footnote 2 to the
Option Grant Table on page 11), and a third stock option for 400,000 shares
will be granted on December 12, 2002, so long as Mr. Carmichael is an employee
of the Company on that grant date. Each of the stock options will vest over
a period of three years from the date of grant, and are for terms of 10 years
each.
CHANGE IN CONTROL AGREEMENTS
The Company has entered into change in control agreements with
Elizabeth M. Riczko, Jeffrey L. Haniewich, Howard L. Sloneker III and John S.
Busby (each a "Change in Control Agreement"). Each Change in Control
Agreement provides that if the employee's employment is terminated by the
Company without Cause (as defined in the Change in Control Agreement), or by
the employee for Good Reason (as defined), at any time during the 24 months
following a Change in Control (as defined), the Company will (i) reimburse the
employee for certain insurance and executive outplacement service costs, (ii)
reimburse the employee for the cost of continued participation in all programs
subject to the benefit provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1993 ("COBRA") until the earlier of the date replacement
coverage is obtained or the date the maximum coverage period prescribed by
COBRA ends, and (iii) pay the employee an amount equal to 200% of the greater
of the employee's current annualized base salary rate or the highest
annualized base salary rate the employee received at any time during the 24
months beginning on the date of the Change in Control.
If the sum of these payments and any other payments or benefits
constitute "excess parachute payments" under the Internal Revenue Code, then
the Company will be obligated to reimburse the employee for any resulting
excise tax or reduce the amounts paid so that the total parachute payment is
less than the amount that would be an "excess parachute payment," whichever
results in the greater after-tax amount to the employee.
PENSION PLANS
The table on the following page sets forth the estimated annual
benefits payable under The Ohio Casualty Insurance Company Employees Retirement
Plan (the "Employees Retirement Plan") and The Ohio Casualty Insurance Company
Benefit Equalization Plan (the "Benefit Equalization Plan") to participants
in such plans, including the executive officers named in the Summary
Compensation Table, upon retirement in specified compensation and years of
service classifications:
-14-
PENSION PLANS TABLE
15 20 25 30 35 40 45
Annual Earnings Years Years Years Years Years Years Years
- ---------------- ----- ----- ----- ----- ----- ----- -----
$125,000 $27,368 $36,490 $45,613 $54,735 $63,858 $72,980 $82,103
175,000 39,368 52,490 65,613 78,735 91,858 104,980 118,103
225,000 51,368 68,490 85,613 102,735 119,858 136,980 154,103
275,000 63,368 84,490 105,613 126,735 147,858 168,980 190,103
325,000 75,368 100,490 125,613 150,735 175,858 200,980 226,103
375,000 87,368 116,490 145,613 174,735 203,858 232,980 262,103
400,000 93,368 124,490 155,613 186,735 217,858 248,980 280,103
425,000 99,368 132,490 165,613 198,735 231,858 264,980 298,103
450,000 105,368 140,490 175,613 210,735 245,858 280,980 316,103
475,000 111,368 148,490 185,613 222,735 259,858 296,980 334,103
500,000 117,368 156,490 195,613 234,735 273,858 312,980 352,103
525,000 123,368 164,490 205,613 246,735 287,858 328,980 370,103
550,000 129,368 172,490 215,613 258,735 301,858 344,980 388,103
600,000 141,368 188,490 235,613 282,735 329,858 376,980 424,103
650,000 153,368 204,490 255,613 306,735 357,858 408,980 460,103
700,000 165,368 220,490 275,613 330,735 385,858 440,980 496,103
Retirement benefits under the Employees Retirement Plan, a defined
benefit plan qualified under Section 401(a) of the Internal Revenue Code of
1986, as amended (the "Code"), are generally payable to full-time and regular
part-time employees upon retirement at age 65 so long as they have completed
five years of vested service or in reduced amounts upon retirement prior to
age 65 so long as they have completed ten years of vested service. A retiree's
benefit amount is based upon his or her credited years of service and final
average compensation for the five consecutive calendar years of highest salary
during the last ten years of service immediately prior to age 65 or, if
greater, the average annual compensation paid during the 60 consecutive month
period immediately preceding retirement or other termination of employment.
Such retirement benefits are calculated considering the retiree's Social
Security-covered compensation. Benefits figures shown in the table above are
computed on the assumption that participants retire at age 65 and are entitled
to a single life annuity.
Section 401(a)(17) of the Code limits compensation in excess of
$170,000 from being taken into account in determining benefits payable under
a qualified pension plan. As a result, the Benefit Equalization Plan was
adopted for those employees who are adversely affected by these provisions of
the Code. The Benefit Equalization Plan provides for payment of benefits that
would have been payable under the Employees Retirement Plan but for the
limitation on covered compensation imposed by the Code. Upon retirement,
participants receive a lump sum payment equal to the actuarial equivalent
present value of the benefit payable under the Benefit Equalization Plan.
At December 31, 2001, credited years of service and average annual
compensation for purposes of the Employees Retirement Plan and the Benefit
Equalization Plan for the executive officers named in the Summary Compensation
Table were: Elizabeth M. Riczko, 8.8 years ($183,208); Jeffery L. Haniewich,
3.0 years ($133,220); Howard L. Sloneker III, 19.75 years ($224,263); and John
S. Busby, 28.5 years ($170,360). The compensation covered by the Employees
Retirement Plan and the Benefit Equalization Plan is the amount shown in the
Summary Compensation Table as salary, less any directors' fees.
-15-
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
The Executive Compensation Committee of the Board of Directors (the
"Committee") approves all of the policies under which compensation is paid or
awarded to the Company's executive officers. Historically, the Committee has
sought to create executive compensation opportunities, including those for the
Company's Chief Executive Officer (the "CEO"), that provide substantial
incentives for superior performance and financial consequences for below-
target performance. In 2001 the Committee developed a new executive
compensation program for the Company. In addition to base salary, the new
compensation program includes both cash and stock-based elements. The Annual
Incentive Program, which is an annual cash bonus plan, is designed to reward
officers based on achievement of financial performance objectives while the
Long-Term Incentive Plan offers stock-based compensation that is directly
linked to the interests of the Company's shareholders.
Components of Compensation
Base Salary. The Company sets the base salary range for each
executive officer by reviewing the base salary for comparable positions at a
broad group of companies participating in third party compensation surveys.
Base salary ranges are targeted at the median of market on the basis of data
available from these independent surveys. Individual salaries for each
executive officer are set relative to the salary range based on individual
performance and contribution to the Company's results.
Cash Bonus. The Annual Incentive Program is designed to give
officers of the Company and its subsidiaries the opportunity to earn a cash
bonus based on corporate and individual performance. Bonus opportunities are
targeted at the median of market for comparable positions in the survey
companies. The Annual Incentive Plan design differs for officers who serve in
support areas, such as Accounting and Legal, versus officers who serve in
business units. These business units include Standard Commercial Lines,
Personal Lines and Specialty Lines.
The Annual Incentive Plan provides for a target bonus amount for each
officer based on his or her position. The individual target bonus amount is
stated as a percent of base salary ranging from 15% of base salary to 60% of
base salary. This amount is adjusted up or down based on achievement of
stated annual performance objectives, including corporate after-tax operating
income for all officers and, for officers in the business units, the
additional objective of accident year combined ratio and/or premiums.
Individual performance is then taken into consideration, adjusting the initial
bonus calculation up or down.
In June, 2001, the Committee approved the fiscal year 2001 Annual
Incentive Plan. Payments will be made during the first quarter of 2002.
As of the date of this Proxy Statement, the bonus payouts had not yet been
determined.
Stock Incentives. The Long-Term Incentive Plan consists of Incentive
Stock Options, Non-Qualified Stock Options or a combination of both. Stock
options are granted at market value on the date of grant and increase in value
only to the extent of appreciation of the Company's shares. Stock options
expire at the end of ten years from the date of grant. Stock option grants
are generally made at the beginning of the fiscal year, although grants may be
made at different times to participants who are promoted or newly hired. The
number of stock options to be granted is based on the participant's
-16-
position with the Company. The Committee has reserved the right to eliminate
future stock option awards or make other modifications in the Long-Term
Incentive Plan.
In June, 2001, the Company granted stock options to all executive
officers. These grants vest over a period of three years, and are for a term
of 10 years.
Bases for Chief Executive Officer Compensation
Dan R. Carmichael has served as President and Chief Executive Officer
of the Company since December 12, 2000. During 2001, Mr. Carmichael received
a base salary of $700,000 per year. The Committee evaluates Mr. Carmichael's
performance on an annual basis and determines whether an increase in base
salary is warranted based on the Committee's consideration of a number of
objective and subjective criteria, including the Company's financial
operations and Mr. Carmichael's overall leadership. Because the Carmichael
Agreement requires that the Company pay Mr. Carmichael a minimum annual base
salary, the Committee does not have the ability to reduce the base salary
below that minimum. The minimum base salary was established by the Committee,
based upon advice from the Company's compensation consulting firm that such
minimum amount was consistent with similar compensation provided to CEOs of
comparable companies in the insurance industry. The comparative data was
compiled and provided by the Company's executive compensation consulting firm
and may or may not have included the companies in the Performance Graph.
The Carmichael Agreement provides for an annual bonus of $525,000 for
2001 and 2002. For years after 2002, Mr. Carmichael will receive an annual
bonus and annual long term cash award under the terms of any bonus program or
long-term cash award program then in effect for senior executives of the
Company. Although the Committee will not have the ability to reduce the
minimum cash bonus payable to Mr. Carmichael for 2002, bonuses for years after
2002 will be determined in accordance with the executive bonus plan then in
effect.
In accordance with the Carmichael Agreement, Mr. Carmichael received a
cash payment of $200,000 on June 22, 2001, as the final payment of his signing
bonus of $400,000. In addition, the Company reimbursed Mr. Carmichael
$171,604 for an amount he forfeited under a previous employer's short-term
program as a result of his accepting employment with the Company. In 2001 the
Company also credited to his deferred compensation account $346,906 that Mr.
Carmichael forfeited under a previous employer's long-term bonus plan. On
March 31, 2002, a long-term cash award of $175,000 (for fiscal year ending
December 31, 2001) will be credited to Mr. Carmichael's deferred compensation
account, which amount will vest over a three-year period.
Mr. Carmichael was granted on December 12, 2001, a non-qualified stock
option to purchase 400,000 shares at an exercise price of $14.38 per share,
pursuant to the Carmichael Agreement.
The Committee does not have a policy that requires its executive
compensation programs to qualify as performance-based compensation under
Section 162(m) of the Code, although the Committee continues to carefully
consider the net cost and value to the Company and its shareholders of its
compensation policies.
Terrence J. Baehr Jack E. Brown Catherine E. Dolan
-17-
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors of the Company is
comprised of four directors, three of whom are considered "independent" under
the listing standards of the National Association of Securities Dealers. The
Audit Committee is responsible for overseeing the Company's accounting
functions and controls, as well as recommending to the Board of Directors an
accounting firm to audit the Company's financial statements. The Audit
Committee operates under a written charter that sets forth its
responsibilities, which is reviewed and assessed on an annual basis.
The Audit Committee discussed with Ernst & Young LLP ("Ernst & Young")
the results of its audit for 2001 and the matters required to be discussed by
Statement of Auditing Standard 61. In fulfilling its oversight
responsibilities, the Audit Committee also discussed with representatives of
Ernst & Young its responsibilities in accordance with generally accepted
auditing standards; the selection and application of significant accounting
policies; the existence of any significant audit adjustments or any
disagreements with management; its judgment about the quality of the Company's
accounting principles; and its responsibility for information prepared by
management that is included in documents containing audited financial
statements. The Audit Committee then reviewed the audited financial
statements with the management of the Company.
In addition, the Audit Committee discussed with representatives of
Ernst & Young the letter from Ernst & Young required by Independence Standards
Board Standard No. 1 and the independence of Ernst & Young with respect to the
Company. Pursuant to these discussions, the Audit Committee determined that
the additional services provided by Ernst & Young (see discussion under "All
Other Fees" on page 13) are compatible with maintaining the auditors'
independence.
Based on its review of the financial statements and its discussions
with management and representatives of Ernst & Young, the Audit Committee did
not become aware of any material misstatements or omissions in the financial
statements. Accordingly, the Audit Committee recommended to the Board of
Directors that the audited financial statements be included in the Annual
Report on Form 10-K for the year ended December 31, 2001, to be filed with the
SEC.
The only non-independent member of the Audit Committee is Stanley N.
Pontius, who is also the Chairman of the Board of Directors of the Company.
Although Mr. Pontius is not considered "independent," as defined by the
National Association of Securities Dealers, the Board of Directors has
determined that it is important to maintain the stability of the membership of
the Audit Committee while the Company continues to undergo strategic
restructuring. Therefore, Mr. Pontius continues to be a member of the Audit
Committee.
The foregoing report of the Audit Committee is submitted by the Audit
Committee:
Arthur J. Bennert Catherine E. Dolan Vaden Fitton Stanley N. Pontius
AUDIT FEES
For the fiscal year ended December 31, 2001, Ernst & Young billed the
Company $130,000 for professional services in connection with the audit of the
Company's annual financial statements and the review of financial statements
included in the Company's Forms 10-Q.
-18-
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
During the 2001 fiscal year, Ernst & Young did not provide any
professional accounting services to design, implement or manage hardware or
software that collects or generates information significant to the Company's
financial statements.
ALL OTHER FEES
For the fiscal year ended December 31, 2001, the Company was billed
$2,681,201 in fees for services rendered by Ernst & Young, primarily for tax
and insurance-related services other than the services discussed in "Audit
Fees." This amount includes $1,567,000 for tax-related services, $999,008
for actuarial and other services related to the implementation of the
Company's new strategic plan and $115,193 for other audit-related services.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
The following graph compares the five-year cumulative total shareholder
return, including reinvested dividends, of the Company's shares with the Dow
Jones Equity Market Index and the Dow Jones Insurance Index for Property and
Casualty Companies (1):
PERFORMANCE GRAPH FOR
OHIO CASUALTY CORPORATION
1996 1997 1998 1999 2000 2001
------------------------------------------------------
DJ EQUITY MARKET INDEX 100.00 131.81 164.63 202.04 183.31 161.46
DJ INSURANCE P&C 100.00 141.41 133.95 99.46 162.32 155.93
OHIO CASUALTY CORP 100.00 130.52 125.28 103.06 68.02 109.17
-19-
(1) The Dow Jones Insurance Index for Property and Casualty Companies is
comprised of 38 companies that are considered to be a peer group of
property and casualty insurance companies within the United States.
The companies making up the 2001 Index are: Ace Ltd., Allstate
Corporation, AMBAC Financial Group Inc., American Financial Group,
Inc., Arthur J. Gallagher & Co., Brown & Brown Inc., Chubb Corporation,
Cincinnati Financial Corporation, CNA Financial Corporation, Commerce
Group Inc., Erie Indemnity Co., Everest Re Group Ltd., Fidelity
National Financial Inc., First American Corporation, Fremont General
Corporation, HCC Insurance Holdings Inc., Leucadia National Corporation,
Loews Corporation, Markel Corporation, MBIA Inc., Mercury General
Corporation, MGIC Investment Corporation, Mutual Risk Management Ltd.,
Ohio Casualty Corporation, Old Republic International Corporation,
PartnerRe Ltd., PMI Group Inc., Progressive Corporation, Radian Group
Inc., RenaissanceRe Holdings Ltd., Safeco Corporation, Selective
Insurance Group Inc., St. Paul Companies, Transatlantic Holdings Inc.,
Trenwick Group Ltd., W. R. Berkley Corporation, White Mountains
Insurance Group Ltd. and XL Capital Ltd.
ANNUAL REPORT
The Company's Annual Report for the fiscal year ended December 31,
2001, accompanies this Proxy Statement.
INDEPENDENT PUBLIC ACCOUNTANTS
The accounting firm of Ernst & Young LLP served as independent public
accountants of the Company and its subsidiaries for 2001 and will continue to
serve as independent public accountants for 2002. A representative of Ernst &
Young will be present at the Annual Meeting with the opportunity to make a
statement and/or respond to appropriate questions from the shareholders.
As previously disclosed in the Company's Form 8-K, filed with the SEC
on February 15, 2001, the Company informed PricewaterhouseCoopers LLP on
February 9, 2001, that it would be dismissed as the Company's independent
public accountant effective upon completion of the audit for the fiscal year
ended December 31, 2000. The decision to change accountants was recommended
by the Audit Committee and approved by the Company's Board of Directors.
The reports of PricewaterhouseCoopers LLP on the Company's consolidated
financial statements for the fiscal years ended December 31, 1999, and 2000
did not contain an adverse opinion or a disclaimer of opinion, nor was any
such report qualified or modified as to uncertainty, audit scope or accounting
principles. Further, during the Company's two fiscal years ended December 31,
2000 and through February 9, 2001, there were no disagreements between
PricewaterhouseCoopers LLP and the Company regarding any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure which, if not resolved to the satisfaction of the
PricewaterhouseCoopers LLP, would have caused it to make reference thereto in
its report on the financial statements for such years.
On February 9, 2001, the Company engaged Ernst & Young LLP as its
independent public accountant for the fiscal year ending December 31, 2001.
During the Company's two fiscal years ending December 31, 1999 and 2000, and
through February 9, 2001, the Company did not consult with Ernst & Young LLP
as to either the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the Company's financial statements and the Company did
not consult with Ernst & Young LLP as to any matter that was either the
subject of a disagreement or reportable event.
-20-
PROPOSAL TO APPROVE THE OHIO CASUALTY CORPORATION
2002 STOCK INCENTIVE PLAN
On February 21, 2002, the Board of Directors of the Company adopted,
subject to approval by the shareholders, the Ohio Casualty Corporation 2002
Stock Incentive Plan (the "2002 Plan") for employees and non-employee
directors of the Company ("Participants"). The 2002 Plan authorizes the
granting of (i) incentive stock options ("ISOs") as defined in Section 422 of
the Code, (ii) non-qualified stock options ("NQSOs"), (iii) stock appreciation
rights ("SARs") and (iv) restricted shares (ISOs, NQSOs, SARs and restricted
shares are referred to in the following discussion as "Awards"). The purposes
of the 2002 Plan are to foster the long-term success of the Company, increase
shareholder value by providing participants in the 2002 Plan with an
opportunity to acquire or increase an ownership interest in the Company, and
attract and retain the services of outstanding individuals upon whose judgment
and dedication the success of the Company is largely dependent.
Subject to adjustment as described below, there will be 3,000,000
shares available for issuance under the 2002 Plan, plus, as explained below,
certain additional shares which are currently authorized and available for
issuance under the Company's 1993 Stock Incentive Program (the "1993 Plan").
As of March 1, 2002, options, stock appreciation rights and restricted shares
had been granted under the 1993 Plan for an aggregate of 3,339,684 shares with
254,948 shares remaining available for new awards. Following approval of the
2002 Plan by the shareholders, awards will no longer be granted under the 1993
Plan. The shares reserved for issuance under the 1993 Plan in excess of the
number of shares as to which stock options or other awards have been awarded
as of the date of shareholder approval of the 2002 Plan will be added to the
3,000,000 shares authorized and reserved for issuance under the 2002 Plan. In
addition, any shares as to which stock options or other awards granted under
the 1993 Plan may lapse, expire, terminate or be cancelled after the date of
shareholder approval of the 2002 Plan will be reserved and available for
issuance under the 2002 Plan.
The Company also maintains the Ohio Casualty Corporation 1999 Broad
Based Employee Stock Option Plan ("1999 Plan"), which will remain in effect
following approval of the 2002 Plan. Whereas grants of awards under the 1993
Plan have been made primarily to key executives of the Company, grants under
the 1999 Plan have been made to employees who are not in key executive
positions. As of March 1, 2002, options for an aggregate of 1,677,950 shares
had been granted pursuant to the 1999 Plan with 110,250 shares remaining
available for new awards.
The shares subject to the 2002 Plan may either be authorized but
unissued shares or treasury shares. If any Award (other than restricted
shares) granted under the 2002 Plan is cancelled, terminated, forfeited or
otherwise settled without the payment of cash or the issuance of any shares,
such shares may be again granted under the 2002 Plan.
As of the date of this Proxy Statement, no determination has been made
regarding the identity of the Participants to whom Awards may be granted under
the 2002 Plan or the kinds of Awards or numbers of shares to be subject to
Awards that will be granted to such Participants. The Company anticipates that
awards under the 2002 Plan will be made to employees of the Company who are in
key executive positions and to directors, and that awards to employees who are
not officers will be made from the 1999 Plan. The Company estimates that
approximately 64 officers of the Company will be
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eligible to be granted Awards under the 2002 Plan, including the executive
officers named in the Summary Compensation Table. The table included under
"Option Grants in Last Fiscal Year" at page 11 shows the stock options granted
to the named executive officers during the 2001 fiscal year. During 2001,
stock options covering an aggregate of 1,000,000 shares were granted to all
current executive officers of the Company, stock options covering an aggregate
of 351,914 shares were granted to current officers who are not executive
officers of the Company and stock options covering an aggregate of 18,000
shares were granted to current directors who are not executive officers of the
Company. Because the granting of Awards under the 2002 Plan will be made by
the Executive Compensation Committee of the Board of Directors (the
"Committee") or the full Board (as discussed below) based on a subjective
determination of the relative current and future contribution that each
Participant has made or may make to the long-term welfare of the Company, past
grants may not be reflective of future grants of Awards under the 2002 Plan.
The following is a brief summary of the material features of the 2002
Plan. This summary is qualified in its entirety by reference to the full text
of the 2002 Plan, a copy of which is included as Exhibit A to this Proxy
Statement.
Summary of Operation of the 2002 Plan
Administration of the 2002 Plan
The 2002 Plan will be administered by the Committee which has the
authority to determine, among other things, the Participants to whom Awards
will be granted under the 2002 Plan, the time or times of the grants, the
amount and other terms and conditions of the Awards. The 2002 Plan requires
that the Committee consist of not less than three members (i) who are "outside
directors" within the meaning of Section 162(m) of the Code; (ii) who are
"non-employee directors" within the meaning of Rule 16b-3 under the Exchange
Act, and (iii) who do not receive payment from the Company in any capacity
other than as a director. In the case of the grant of an Award to a director
who is not an employee of the Company, the full Board will serve as the
Committee.
Options
ISOs and NQSOs (together, "Options") may be granted under the 2002
Plan. ISOs may be granted for terms of up to, but not exceeding, ten years
from the date of grant. In the discretion of the Committee, NQSOs may be
granted for terms in excess of 10 years as specified in the Participant's
award agreement. Any ISO which is granted to an individual who, on the
effective date of the grant, owns of record and beneficially more than 10% of
the total combined voting power of all classes of stock of the Company then
outstanding and entitled to vote, will not be exercisable more than five years
after it is granted. No person may be granted ISOs under the 2002 Plan if it
would cause the aggregate fair market value (determined as of the date an ISO
is granted) of the shares with respect to which all incentive stock options
held by such person are exercisable for the first time by such option holder
during any calendar year under the 2002 Plan and all other stock option plans
maintained by the Company to exceed $100,000. In addition, during the period
in which the 2002 Plan remains in effect, no person may, in one year, be
granted Options or SARs under the 2002 Plan covering more than 400,000 shares,
subject to adjustments upon changes in capitalization. ISOs may only be
granted to employees of the Company.
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Option Exercise Price
The option exercise price of each Option will be determined by the
Committee and may not be less than the fair market value of a share on the
effective date of the grant. For purposes of the 2002 Plan, the fair market
value of the Company's shares on a particular date will be the closing sale
price of the shares as shown on the NASDAQ National Market System on that
date. On March 1, 2002, the fair market value of the Company's shares was
$19.05. In the case of any ISO granted to an individual who, on the effective
date of the grant, owns of record and beneficially more than 10% of the total
combined voting power of all classes of stock of the Company then outstanding
and entitled to vote, however, the exercise price per share must be at least
110% of the fair market value of a share on the effective date of the ISO
grant.
Payment of Option Exercise Price
Payment of the exercise price may be made in cash or by check and, if
permitted by the Committee, in shares having a fair market value equal to the
exercise price of the Option, or a combination of shares and cash or check,
equal in the aggregate to the option price for the shares being purchased.
Each Option will provide for appropriate arrangements for the satisfaction of
all tax withholding requirements applicable to the exercise of such Option.
If the Participant has not paid to the Company any required taxes, then the
Company may withhold from the value of the Awards any amount required to
comply with applicable law. A Participant may elect to pay applicable taxes
by having shares otherwise issuable under the 2002 Plan withheld by the
Company.
Stock Appreciation Rights
The Committee may, in its discretion, grant a SAR to a Participant
either alone or in tandem with any Option granted under the 2002 Plan. A SAR
granted in tandem with an Option may be granted at the time the Option is
granted or at a later date with respect to an existing Option. In the event
of the exercise of a SAR granted in tandem with an Option, the Option to which
the SAR relates (or the corresponding portion thereof) will be forfeited upon
payment of the SAR so exercised. The exercise price of a SAR granted in
tandem with an Option may not be less than 100% of the fair market value of
the shares subject to the Option or portion thereof surrendered by the
optionee. A SAR granted in tandem with an Option will expire, unless
previously exercised, no later than the expiration of the related Option. The
Committee may provide for the payment of a SAR in cash or in shares valued at
the fair market value as of the date of exercise, or in any combination
thereof. SARs may also be issued on a freestanding basis subject to the terms
specified in the award agreement. Freestanding SARs are not tied to a
specific Option, and the exercise of a freestanding SAR does not result in the
forfeiture of any Options.
Restricted Shares
Restricted share awards consist of shares transferred to eligible
employees, without other payment therefor (other than the payment of the par
value of such shares if required by applicable law), as additional
compensation for their services to the Company or one of its subsidiaries.
Restricted share awards will be subject to such terms and conditions as the
Committee determines appropriate including, without limitation, restrictions
on the sale or other disposition of such shares and rights of the Company
to acquire such shares upon termination of the employee's employment within
specified periods. Subject
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to such other restrictions as are imposed by the Committee, the shares covered
by a restricted share award may either be held by the Company in escrow during
the restricted period or issued to the recipient with a legend evidencing the
applicable restrictions.
Director's Stock
Each director of the Company will be granted shares from the Plan
having a value equal to the portion of his or her annual retainer that is
required by Board policy to be paid in shares.
Exercise of Awards; Expiration and Termination
If exercisable by their terms, Awards must be exercised before the
earlier of the date of termination of employment or the fixed expiration date,
unless otherwise provided below, or, with respect to NQSOs, except as
otherwise provided in the award agreement. In the case of the termination of
a Participant's employment for cause (as defined in the 2002 Plan), each of
the Participant's unexercised Awards will expire immediately upon such
termination. In the event of involuntary termination of a Participant's
employment other than for cause, the Participant's Awards will expire thirty
days after such termination. In case of the termination of employment due to
death (and, in the case of a Participant who terminates employment due to
retirement [as defined in the 2002 Plan], in the event of death within three
months after retirement), each of the Participant's unexercised Awards will
become immediately exercisable by his or her estate and will expire on the
earlier of (i) the fixed expiration date or (ii) twelve months after the date
of termination of employment. In the event of the permanent disability (as
defined in the 2002 Plan) of a Participant while in the employment of the
Company, each of the Participant's unexercised Awards will become immediately
exercisable and will expire on the earlier of (i) the fixed expiration date or
(ii) twelve months after termination of employment. In the case of
retirement (as such term is defined in the 2002 Plan) by a Participant who is
an employee of the Company, the Participant's unexercised Awards will expire
on the earlier of (i) the fixed expiration date of the Awards or (ii) three
months after the termination of employment. In the event a director who is
not an employee of the Company terminates service, his or her options will
expire on the earlier of (i) the fixed expiration date or (ii) three months
following termination of service, provided that if a director who is not an
employee of the Company dies while serving as a director or within three
months after termination of service as a director, each of the director's
unexercised Awards will become immediately exercisable by his or her estate
and will expire on the earlier of (i) the fixed expiration date or (ii) twelve
months after the date of termination of service. If the Company undergoes a
merger or consolidation of the Company (other than a merger or consolidation
to effect a reincorporation of the Company under the laws of another
jurisdiction) or in the event of the reclassification of Company shares or the
exchange of Company shares for the securities of another entity (other than a
subsidiary of the Company) that has acquired the Company's assets or which is
in control of an entity that has acquired the Company's assets and the terms
of that plan or agreement are binding on all holders of Company shares (except
to the extent that dissenting shareholders are entitled to relief under
applicable law), a Participant's right to receive Awards will be accelerated.
Also, the Committee may impose additional terms and conditions on awards,
including terms and conditions consistent with the Change in Control
Agreements discussed on page 14.
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Limitations on Transfer of Awards
With the permission of the Committee, a person who has been granted an
Award under the 2002 Plan may transfer such Award (other than an ISO) to a
revocable inter vivos trust as to which the Participant is the settlor or may
transfer such Award to a "Permissible Transferee." A Permissible Transferee is
any member of the immediate family of the Participant, any trust, whether
revocable or irrevocable, solely for the benefit of members of the
Participant's immediate family, or any partnership or limited liability company
whose only partners or members are members of the Participant's immediate
family. Any such transferee of an Award shall remain subject to all of the
terms and conditions applicable to such Award and subject to the rules and
regulations prescribed by the Committee. An Award may not be retransferred by
a Permissible Transferee except by will or the laws of descent and distribution
and then only to another Permissible Transferee. Other than as described
above, an Option, SAR, or restricted share award granted under the 2002 Plan
may not be transferred except by will or the laws of descent and distribution
and, during the lifetime of the employee to whom granted, may be exercised only
by such employee, his guardian or legal representative.
Adjustments Upon Changes in Capitalization
The number of shares available for Awards under the 2002 Plan and
subject to outstanding Awards will be adjusted upward or downward by the
Committee, as the case may be, in the event of any merger, consolidation,
recapitalization, reclassification, split-up, combination of shares, stock
dividend or other similar transaction affecting the outstanding shares of the
Company. The exercise price of an outstanding Award may also be adjusted in
the event of any transaction if such adjustment is deemed appropriate by the
Committee. The maximum number of shares that may be granted during any
calendar year to a Participant would also be adjusted by the Committee in the
event of any such transaction affecting the outstanding shares of the Company.
Amendment and Termination
The Board of Directors may terminate, amend or suspend the 2002 Plan in
whole or in part. However, the Board may not amend the 2002 Plan, without
shareholder approval, if such shareholder approval is required (i) to satisfy
the requirements of Rule 16b-3 under the Exchange Act, (ii) to satisfy
applicable requirements of the Code, or (iii) to satisfy applicable
requirements of any securities exchange on which are listed any of the
Company's equity securities. In addition, no amendment may result in the loss
of a Committee member's status as a "non-employee director" or, without the
consent of the Participant, adversely affect any Award issued before the
amendment, termination or suspension.
The 2002 Plan will expire by its terms ten years after the date it was
adopted by the Board of Directors.
Buy Out of Awards
In its discretion the Committee or the Board may, at any time and
without the consent of the Participant, cancel any or all outstanding Awards
by giving written notice to the Participant of the intent to buy out the
Award. In the event of such a buy out, the Company will pay to the
Participant the
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difference between the fair market value of each Award to be cancelled and the
exercise price of the Award. Unless otherwise specified in the Participant's
award agreement, payments will not be made for awards that are not exercisable
when cancelled. Payment for the buy out may be made in cash, shares or a
combination thereof, as determined by the Committee.
Federal Income Tax Consequences
Incentive Stock Options
A Participant does not realize income on the grant of an ISO. If a
Participant exercises an ISO in accordance with the terms of the Option and
does not dispose of the shares acquired within two years from the date of the
grant of the ISO or within one year from the date of exercise, the Participant
will not realize any ordinary taxable income by reason of the exercise and
neither the Company nor its subsidiaries will be allowed a deduction by reason
of the grant or exercise. The Participant's basis in the shares acquired upon
exercise will be the amount paid upon exercise. (See the discussion below for
the tax consequences of the exercise of an ISO with shares already owned by the
Participant and taxes imposed on tax preference items). Provided the
Participant holds the shares as a capital asset at the time of sale or other
disposition of the shares, the gain or loss, if any, recognized on the sale
or other disposition will be capital gain or loss. The amount of gain or loss
will be the difference between the amount realized on the disposition of the
shares and the Participant's basis in the shares. If a Participant disposes
of the shares within two years from the date of grant of the ISO or within one
year from the date of exercise (an "Early Disposition"), the Participant will
realize ordinary income at the time of disposition which will equal the excess,
if any, of the lesser of (a) the amount realized on the disposition, or (b) the
fair market value of the shares on the date of exercise, over the Participant's
basis in the shares. Also in this case, the Company or one of its subsidiaries
will be entitled to a deduction in an amount equal to such income. If the
Participant holds the shares as a capital asset at the time of disposition,
the excess, if any, of the amount realized on disposition of such shares over
the fair market value of the shares on the date of exercise will be long or
short-term capital gain, depending upon the holding period of the shares.
If a Participant disposes of such shares for less than his or her basis
in the shares, the difference between the amount realized and such basis will
be a long or short-term capital loss, depending upon the holding period of the
shares, provided the Participant holds the shares as a capital asset at the
time of disposition. The excess of the fair market value of the shares at the
time the ISO is exercised over the exercise price for the shares is treated
as a tax preference item (the "Incentive Stock Option Preference") unless the
Participant makes an Early Disposition of such shares. See "Taxation of
Preference Items" below.
Non-Qualified Stock Options
NQSOs do not receive the special tax treatment accorded to ISOs under
the Code. Although a Participant does not recognize income at the time of the
grant of the Option, he or she recognizes ordinary income upon the exercise of
an NQSO in an amount equal to the difference between the fair market value of
the shares on the date of exercise of the NQSO and the amount paid for the
shares.
The excess of the fair market value of the shares on the date of
exercise of an NQSO over the exercise price is not treated as an item of "tax
preference" as such term is used in the Code.
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Restricted Share Awards
A Participant who is granted a restricted share award will not be taxed
upon the acquisition of such shares so long as the interest in such shares is
subject to a substantial risk of forfeiture. Upon lapse or release of the
restriction, the Participant will be taxed at ordinary income tax rates on an
amount equal to either the current fair market value of the shares (in the
case of lapse or termination) or the sale price (in the case of a sale), less
any consideration paid for the shares. The Company will be entitled to a
corresponding deduction. The basis of restricted shares held after lapse or
termination of restrictions will be equal to their fair market value on the
date of lapse or termination of restrictions, and upon subsequent disposition,
any further gain or loss will be long-term or short-term capital gain or loss,
depending upon the length of time the shares are held.
A Participant who is granted a restricted share award may elect to be
taxed at ordinary income tax rates on the full fair market value of the
restricted shares at the time of issuance (less any consideration paid). The
basis of the shares so acquired will be equal to the fair market value at such
time. If the election is made, no tax will be payable upon the subsequent
lapse or release of the restrictions, and any gain or loss upon disposition
will be a capital gain or loss.
Payment in Shares
If the Participant exercises an Option by surrendering shares already
owned by him or her ("Old Shares"), the following rules apply:
1. To the extent the number of shares acquired ("New Shares") exceeds
the number of Old Shares exchanged, the Participant will recognize ordinary
income on the receipt of such additional shares (provided the Option is not
an ISO) in an amount equal to the fair market value of such additional shares
less any amount paid for them and the Company or one of its subsidiaries will
be entitled to a deduction in an amount equal to such income. The basis of
such additional shares will be equal to the fair market value of such shares
(or, in the case of an ISO, the amount, if any, paid for additional shares)
on the date of exercise, and the holding period for such additional shares
will commence on the date the Option is exercised.
2. Except as provided below, to the extent the number of New Shares
acquired does not exceed the number of Old Shares exchanged, no gain or loss
will be recognized on such exchange, the basis of the New Shares received will
be equal to the basis of the Old Shares surrendered, and the holding period
of the New Shares received will include the holding period of the Old Shares
surrendered. However, if the Participant exercises an ISO by surrendering
Old Shares that were acquired through the exercise of an ISO and if the
surrender occurs prior to the expiration of the holding period applicable to
ISOs, the surrender will be deemed to be an Early Disposition of the Old
Shares. The federal income tax consequences of an Early Disposition are
discussed above.
3. If the Old Shares surrendered were acquired by the Participant by
exercise of an ISO, then the exchange will not constitute an Early Disposition
of the Old Shares unless the Option being exercised is an ISO and the holding
period applicable to an ISO has not been met at the time of the surrender.
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Stock Appreciation Rights
Although the recipient of a SAR does not recognize income at the time
the right is granted, in the year the right is exercised he or she recognizes
ordinary income in an amount equal to the cash and the fair market value of
the property received. The Company or one of its subsidiaries will be
entitled to deduct as compensation an amount equal to the income recognized by
the recipient, and such deduction shall be claimed in the Company's taxable
year in which the award becomes payable to the recipient.
The Company or one of its subsidiaries is entitled to deduct as
compensation the amount included in the recipient's gross income as a result
of the payment of the award in stock only in the taxable year in which the
recipient recognizes gross income. If a SAR is paid in stock, the recipient's
basis will be equal to the fair market value of the stock when received, and
the holding period will begin on that date.
Taxation of Long-Term Capital Gains
For capital assets held for more than 12 months, the maximum rate of
tax on net capital gains is 20%. A 10% rate applies to taxpayers in the 15%
ordinary income tax bracket. Gains on capital assets held for more than five
years are subject to a reduced rate. The 20% and 10% rates discussed above
are reduced to 18% and 8% respectively in such case.
Taxation of Preference Items
Section 55 of the Code imposes an Alternative Minimum Tax equal to the
excess, if any, of (1) 26% of the optionee's "alternative minimum taxable
income" up to $175,000 ($87,500 in the case of married taxpayers filing
separately) and 28% of alternative minimum taxable income in excess of
$175,000 ($87,500 in the case of married taxpayers filing separately) over
(2) his or her "regular" federal income tax. Alternative minimum taxable
income is determined by adding the optionee's Incentive Stock Option
preference and any other items of tax preference to his or her adjusted
gross income and then subtracting certain allowable deductions and an
exemption amount. The exemption amount is $35,750 for single taxpayers
($33,750 for taxable years 2005 and later), $49,000 for married taxpayers
filing jointly ($45,000 for taxable years 2005 and later) and $24,500 for
married taxpayers filing separately ($22,500 for taxable years 2005 and
later).
The foregoing is a summary of the federal income tax consequences to
the Participants in the Plan and to the Company, based upon current income tax
laws, regulations and rulings.
Other Matters
The 2002 Plan is intended to comply with Section 162(m) of the Code
with respect to Options and SARs granted thereunder. Section 162(m) of the
Code prohibits a publicly held corporation from claiming a deduction on its
federal income tax return for compensation in excess of $1 million paid for a
given fiscal year to the chief executive officer (or person acting in that
capacity) at the close of the corporation's fiscal year and the four most
highly compensated officers of the corporation, other than the chief executive
officer, at the end of the corporation's fiscal year. The $1 million
compensation
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deduction limitation does not apply to "performance-based compensation". The
final regulations issued by the Internal Revenue Service under Section 162(m)
in December of 1995 set forth a number of provisions which compensatory plans
must contain if the compensation paid thereunder is to qualify as
"performance-based" for purposes of Section 162(m). The 2002 Plan is intended
to satisfy the requirements of these IRS regulations with respect to Awards
and SARs granted thereunder. The Company is seeking shareholder approval of
the 2002 Plan in a good faith effort to qualify compensation received
thereunder as a result of Awards and SARs granted under the 2002 Plan as
"performance-based" for purposes of Section 162(m). If such shareholder
approval is not obtained, the 2002 Plan will be null and void.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
SHAREHOLDER APPROVAL OF THE 2002 PLAN WILL REQUIRE THE AFFIRMATIVE
VOTE OF THE HOLDERS OF A MAJORITY OF THE COMPANY'S COMMON SHARES, PRESENTED IN
PERSON OR BY PROXY, AND ENTITLED TO VOTE ON THE PROPOSAL TO APPROVE THE 2002
PLAN.
PROPOSAL TO APPROVE THE OHIO CASUALTY CORPORATION
2002 EMPLOYEE STOCK PURCHASE PLAN
On February 21, 2002, the Board of Directors adopted the Ohio Casualty
Corporation Employee Stock Purchase Plan (the "Purchase Plan"), subject to
approval by the Company's shareholders. The Purchase Plan is intended to
qualify as an "employee stock purchase plan" under Section 423 of the Code.
The Purchase Plan provides a means for employees to authorize payroll
deductions on a voluntary basis to be used for the periodic purchase of
Company shares. All employees participating in the Purchase Plan will have
equal rights and privileges. Under the Purchase Plan, eligible participants
will be able to purchase shares at a price equal to at least 85 percent of the
lesser of the fair market value of Company shares at either the beginning of
an offering period or at the end of the offering period.
The Board of Directors believes that the Purchase Plan will encourage
broader stock ownership by employees of the Company and thereby provide an
incentive for employees to contribute to the continued profitability and
success of the Company. In particular, the Board intends that the Purchase
Plan offer a convenient means for employees who might not otherwise purchase
and hold Company shares to do so and that the discounted sale feature of the
Purchase Plan provides a meaningful inducement to participate. The Board
believes that employees' continuing economic interest, as shareholders, in the
performance and success of the Company will enhance the entrepreneurial spirit
of the Company, which can greatly contribute to long-term profitability.
Summary of Plan
The following is a description of the material features of the Purchase
Plan. The full Purchase Plan is set forth as Exhibit B to this Proxy
Statement, and the following is qualified in its entirety by reference to
Exhibit B.
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The maximum number of shares that may be purchased under the Purchase
Plan is 2,000,000 shares, subject to appropriate adjustment in the case of any
share split, share dividend, reclassification or similar extraordinary
corporate event affecting the Company's outstanding shares. Shares delivered
under the Purchase Plan can be either previously unissued shares or treasury
shares previously acquired by the Company.
The Purchase Plan will be administered by the Executive Compensation
Committee of the Board of Directors of the Company (the "Committee"). The
Committee will have authority to interpret the Purchase Plan, construe its
terms, adopt rules and regulations, prescribe forms and make all
determinations under the Purchase Plan.
Any employee of the Company or any subsidiary (other than five percent
owners or employees who would become five percent owners by their
participation) who normally works at least 20 hours each week and who complies
with other provisions of the Plan will be eligible to participate in the
Purchase Plan after completing at least 90 days' employment. Approximately
3,300 employees currently could be eligible to participate.
An eligible employee may enroll for an offering period by filing an
enrollment form with the Company at least 45 days before the period commences.
After initial enrollment in the Purchase Plan, the employee will be
automatically re-enrolled for subsequent offering periods unless he or she
files a notice of withdrawal before a new offering period begins, terminates
employment or otherwise becomes ineligible to participate.
Upon enrollment in the Purchase Plan, the employee must elect the rate
at which he or she will make payroll contributions for the purchase of Company
shares. Elections may be in an amount not less than $20 per payroll period,
although an employee's contributions will be adjusted downward to the extent
necessary to ensure that he or she will not purchase Company shares having a
fair market value, as of the beginning of the offering period, in excess of
$25,000 in any single calendar year. All employee contributions will be made
by means of direct payroll deduction. The contribution rate elected by a
participant will continue in effect until modified by the participant, except
that an employee may not increase his or her previously elected contribution
rate more than once during an offering period.
An employee's contributions will be credited to an account maintained
on behalf of such employee. The Purchase Plan provides that each offering
period will consist of six months, unless a different period is established by
the Committee and announced to employees at the beginning of the offering
period, provided that offering periods will in all cases comply with
applicable limitations under Section 423 of the Code.
The Company will sell shares directly to the custodian for employees'
accounts at a price that will not be below the lesser of 85 percent of the
fair market value of Company shares at the beginning of the offering period or
85 percent of the fair market of the Company shares at the end of the offering
period. Shares purchased under the Purchase Plan will be credited to accounts
maintained by the custodian for each participant based upon the average cost
of all shares purchased. No interest will be credited on payroll contributions
pending investment in Company shares. Unless otherwise determined by the
Committee, dividends paid on Company shares credited to participants' accounts
will be automatically reinvested in additional shares by the custodian, either
through purchases in the market or directly from the Company (no discounts
will apply to such dividend reinvestment purchases).
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Participants will have the exclusive right to vote or direct the voting
of shares credited to their accounts, and will be permitted to withdraw,
transfer or sell their shares without restriction. Participants' rights under
the Purchase Plan are nontransferable, except pursuant to the laws of descent
and distribution.
A participant may terminate enrollment in the Purchase Plan at any
time, effective for payroll periods beginning no fewer than 10 days after the
filing of a notice of termination of enrollment. Enrollment will also
terminate upon termination of a participant's employment by the Company or one
of its subsidiaries. The custodian will continue to hold Company shares for
the account of such participant until the participant sells or withdraws the
Company shares, but in no event more than six months after the participant
ceases to be employed by the Company. No refunds from a participant's cash
account are permitted, except upon termination of enrollment due to
termination of employment.
If the Company undergoes a merger or consolidation (other than a merger
or consolidation to effect a reincorporation of the Company under the laws of
another jurisdiction) or in the event of the reclassification of Company
shares or the exchange of Company shares for the securities of another entity
(other than a subsidiary of the Company) that has acquired the Company's
assets or which is in control of an entity that has acquired the Company's
assets, and the terms of that plan or agreement are binding on all holders of
Company shares (except to the extent that dissenting shareholders are entitled
to relief under applicable law), then the Purchase Plan will terminate and
all plan accounts will be distributed to employees in accordance with the
terms of the Purchase Plan, and no Company shares will be sold through the
Purchase Plan for that offering period.
The Company will pay costs and expenses incurred in the administration
of the Purchase Plan and maintenance of accounts and will pay brokerage fees
and commissions for purchases. The Company will not pay brokerage fees and
expenses relating to sales of stock acquired under the Purchase Plan by
participants, and participants may be charged reasonable fees by the custodian
for withdrawals of share certificates and other specified services. The
custodian will be responsible for furnishing account statements to
participants.
The Board of Directors may amend, suspend or terminate the Purchase
Plan without further shareholder approval, except that shareholder approval
must be obtained within one year after the effectiveness of such action if
required by law or regulation or under the rules of any automated quotation
system or securities exchange on which the shares of the Company are then
quoted or listed, or if such shareholder approval is necessary in order for
the Purchase Plan to continue to meet the requirements of Section 423 of the
Code or Section 16b-3 of the Act. Shareholder approval will not necessarily
be required for amendments that might increase the cost of the Purchase Plan
or broaden eligibility. The Purchase Plan will continue until terminated by
action of the Board, although as noted above the number of shares authorized
under the Purchase Plan is limited.
On March 1, 2002, the last reported sale price of Company shares on the
NASDAQ National Market System was $19.05 per share.
Federal Income Tax Consequences
Rights to purchase shares under the Purchase Plan are intended to
constitute "options" issued pursuant to an "employee stock purchase plan"
within the meaning of Section 423 of the Code. The
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Company believes that under present law the following Federal income tax
consequences would generally result under the Purchase Plan:
(1) No taxable income results to the participant upon the grant of
a right to purchase or upon the purchase of shares for his or her account
under the Purchase Plan (although the amount of a participant's payroll
contributions under the Purchase Plan will be taxable as ordinary income as if
received by the participant).
(2) If the participant disposes of shares within two years after
the first day of an offering period with respect to which he or she purchased
the shares or within one year after the purchase date, then at that time the
participant will recognize ordinary income in an amount equal to the excess of
the fair market value of the shares on the date of purchase over the amount of
the participant's payroll deductions used to purchase the shares. The
participant will be considered to have disposed of a share if the participant
sells, exchanges, makes a gift or transfers (except by death) legal title to
the share.
(3) If the participant (i) disposes of shares more than two years
after the first day of an offering period with respect to which he or she
purchased the shares and more than one year after the purchase date, or (ii)
dies at any time while holding shares acquired under the Purchase Plan, then
at the time the participant disposes of the shares or dies he or she will
recognize ordinary income in an amount equal to the lesser of (x) the fair
market value of the shares on the first day of the offering period, and (y)
the excess of the fair market value of the shares on the date of disposition
or death over the amount of the participant's payroll deductions used to
purchase the shares.
(4) In addition, the participant will recognize a long-term or
short-term capital gain or loss, as the case may be, in an amount equal to the
difference between the amount realized upon any sale of Company shares and the
participant's basis in the Company shares (i.e., the purchase price plus the
amount, if any, taxed to the participant as ordinary income, as described in
(2) and (3) above).
(5) If the holding periods described in (2) and (3) above are
satisfied, the Company will not receive any deduction for Federal income tax
purposes with respect to any discount in the sale price of shares purchased
under the Purchase Plan. If either of the holding periods is not satisfied,
the Company generally should be entitled to a tax deduction in an amount equal
to the amount taxed to the participant as ordinary income.
(6) Dividends, if any, on shares purchased pursuant to the Purchase
Plan will be taxable as ordinary income in the year paid.
The foregoing provides only a general description of the application of
Federal income tax laws to the Purchase Plan and does not purport to be
complete. The summary does not address the effects of other Federal taxes or
taxes imposed under state, local or foreign tax laws. Because of the
complexities of the tax laws, participants are urged to consult a tax advisor
as to their individual circumstances.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
SHAREHOLDER APPROVAL OF THE PURCHASE PLAN WILL REQUIRE THE AFFIRMATIVE
VOTE OF THE HOLDERS OF A MAJORITY OF THE COMPANY'S COMMON SHARES, PRESENTED IN
PERSON OR BY PROXY, AND ENTITLED TO VOTE ON THE PROPOSAL.
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SHAREHOLDER PROPOSALS AND NOMINATIONS
Proposals of shareholders intended to be presented at the 2003 Annual
Meeting of Shareholders scheduled to be held on April 16, 2003, must be
received by the Company no later than November 6, 2002 for inclusion in the
Company's proxy statement and proxy relating to that meeting. Upon receipt of
any such proposal, the Company will determine whether or not to include such
proposal in the proxy statement and proxy in accordance with applicable rules
and regulations promulgated by the SEC.
In order for a shareholder to nominate a candidate for director at a
meeting of shareholders, under the Company's Code of Regulations, timely
written notice of the nomination must be received by the Company in advance of
the meeting. Ordinarily, in the case of an annual meeting, such notice of a
proposed nomination must be received by the Company on or before the later of
(1) the first day of February immediately preceding such annual meeting or (2)
the sixtieth day prior to the first anniversary of the most recent annual
meeting of shareholders. The shareholder filing the notice of nomination must
describe various matters regarding the proposed nominee, including such
information as name, address, occupation and shares of the Company held. These
requirements are separate from the requirements a shareholder must meet in
order to have a proposed nominee considered by the Governance Committee of the
Company's Board of Directors for nomination by the Board of Directors and
inclusion as a nominee in the Company's proxy statement.
The SEC has promulgated rules relating to the exercise of discretionary
voting authority pursuant to proxies solicited by the Company's Board of
Directors. If a shareholder intends to present a proposal at the 2003 Annual
Meeting of Shareholders and does not notify the Company of such proposal by
January 20, 2003, or if a shareholder intends to nominate a director at the
2003 Annual Meeting and does not comply with the notification requirements
described in the preceding paragraph, the proxies solicited by the Company's
Board of Directors for use at the Annual Meeting may be voted on such proposal
or such nominee, as the case may be, without discussion of the proposal or
nominee in the proxy statement for that Annual Meeting.
In each case written notice must be given to the Secretary of the
Company, whose name and address are: Howard L. Sloneker III, Secretary, Ohio
Casualty Corporation, 9450 Seward Road, Fairfield, Ohio 45014.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the SEC. Officers,
directors and greater than ten percent shareholders are required by SEC
regulations to furnish the Company with copies of all Forms 3, 4 and 5 they
file.
Based on the Company's review of the copies of such forms it has
received, the Company believes that its officers and directors complied with
all filing requirements applicable to them with respect to transactions during
fiscal 2001 with the exception of John S. Kellington and Howard L. Sloneker
III. Mr. Kellington acquired 750 shares of Ohio Casualty Corporation in two
transactions in August 2001, which were not reported on a Form 4 filing due
to an administrative oversight. The transactions have since been reported.
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In 1994, Howard L. Sloneker III was appointed a co-trustee for the
Howard L. Sloneker Jr. Trust. Since that time, Mr. Sloneker inadvertently had
not reported his beneficial ownership of the shares in this trust. In
September 2001, Mr. Sloneker rectified this oversight by filing an amended
Form 4 with the SEC.
OTHER MATTERS
The Company files annually with the SEC an Annual Report on Form 10-K.
This report includes financial statements and financial statement schedules.
A SHAREHOLDER OF THE COMPANY MAY OBTAIN A COPY OF THE ANNUAL REPORT ON
FORM 10-K, INCLUDING FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES,
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001, WITHOUT CHARGE BY SUBMITTING A
WRITTEN REQUEST TO THE FOLLOWING ADDRESS:
OHIO CASUALTY CORPORATION
Attention: Howard L. Sloneker III
Senior Vice President and Secretary
9450 Seward Road
Fairfield, Ohio 45014
Management and the Board of Directors of the Company know of no
business to be brought before the Annual Meeting other than as set forth in
this Proxy Statement. However, if any matters other than those referred to
in this Proxy Statement should properly come before the Annual Meeting, it
is the intention of the persons named in the enclosed proxy card to vote the
common shares represented by such proxy card on such matters in accordance
with their best judgment.
EXPENSES OF SOLICITATION
The expense of proxy solicitation will be borne by the Company.
Proxies will be solicited by mail and may be solicited, for no additional
compensation, by officers, directors or employees of the Company or its
subsidiaries, by telephone, facsimile, electronic mail or in person. Brokerage
houses and other custodians, nominees and fiduciaries may be requested to
forward soliciting material to the beneficial owners of common shares of the
Company, and will be reimbursed for their related expenses. In addition, the
Company has retained Morrow & Co., Inc., a professional soliciting
organization, to assist in soliciting proxies from brokerage houses, custodians
and nominees. The fees and expenses of that firm in connection with such
solicitation are not expected to exceed $40,000.
By Order of the Board of Directors,
/s/ Howard L. Sloneker III
Howard L. Sloneker III, Secretary
March 8, 2002
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PROXY PROXY
2002 2002
OHIO CASUALTY CORPORATION
This Proxy is solicited on behalf of the Board of Directors
ANNUAL MEETING OF SHAREHOLDERS APRIL 17, 2002
Each undersigned shareholder of Ohio Casualty Corporation (the "Company")
hereby constitutes and appoints Dan R. Carmichael and Howard L. Sloneker III,
or either one of them, with full power of substitution in each of them, as
proxy or proxies of the undersigned to vote at the Annual Meeting of
Shareholders (the "Annual Meeting") of the Company to be held in the Ohio
Casualty University Auditorium at Ohio Casualty Corporation, 9450 Seward Road,
Fairfield, Ohio 45014, on Wednesday, April 17, 2002, at 10:30 a.m., local time,
and at any adjournment thereof, all of the common shares of the Company the
undersigned is entitled to vote at the Annual Meeting, or at any adjournment
thereof, including any common shares held on the undersigned's behalf in The
Ohio Casualty Insurance Company Employee Savings Plan, as follows:
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFIC INDICATION ABOVE. IN THE ABSENCE OF SUCH INDICATION, THIS PROXY WILL
BE VOTED FOR THE ELECTION OF EACH OF THE NOMINEES FOR DIRECTOR NAMED IN
PROPOSALS 1A, 1B, AND 1C AND FOR PROPOSALS 2 AND 3, EXCEPT FOR ANY SHARES THE
UNDERSIGNED HOLDS IN THE OHIO CASUALTY INSURANCE COMPANY EMPLOYEE SAVINGS PLAN,
WHICH WILL BE VOTED ACCORDING TO PLAN RULES. IF ANY OTHER MATTERS ARE BROUGHT
BEFORE THE MEETING, OR IF A NOMINEE FOR ELECTION AS A DIRECTOR NAMED IN THE
PROXY STATEMENT IS UNABLE TO SERVE OR FOR GOOD CAUSE WILL NOT SERVE, THE PROXY
WILL BE VOTED IN THE DISCRETION OF THE PROXIES ON SUCH MATTERS OR FOR SUCH
SUBSTITUTE NOMINEE(S) AS THE DIRECTORS MAY RECOMMEND.
SEE REVERSE SIDE
Please mark your
X votes as in this
_____ example.
The Board of Directors recommends a vote "FOR" Items 1, 2 and 3.
1. TO ELECT THE FOR WITHHELD a. Nominees for election for Term
FOLLOWING DIRECTORS expiring 2005 (Class III)
___ ____ 01. Terrence J. Baehr
02. Dan R. Carmichael
03. Catherine E. Dolan
04. Phillip G. Heasley
For, except vote withheld from b. Nominee for election for Term
the following Nominee(s): expiring 2003 (Class I)
05. Jan H. Suwinski
_____________________________________
c. Nominee for election for Term
expiring 2004 (Class II)
06. Ralph S. Michael III
FOR AGAINST WITHHELD
2. TO APPROVE THE OHIO CASUALTY
CORPORATION 2002 STOCK ____ ________ ________
INCENTIVE PLAN
3. TO APPROVE THE OHIO CASUALTY
CORPORATION 2002 EMPLOYEE
STOCK PURCHASE PLAN ____ ________ ________
4. IN THEIR DISCRETION, TO CONSIDER AND VOTE UPON SUCH OTHER MATTERS (NONE
KNOWN AT THE TIME OF SOLICITATION OF THIS PROXY) AS MAY PROPERLY COME
BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENT THEREOF.
All proxies previously given by the undersigned are hereby revoked. Receipt
of the accompanying Proxy Statement and the Annual Report of the Company
for the fiscal year ended December 31, 2001, is hereby acknowledged.
PLEASE MARK, DATE, SIGN AND RETURN PROMPTLY IN THE ENCLOSED STAMPED ENVELOPE.
SHOULD YOU PREFER TO CAST YOUR PROXY VIA TELEPHONE OR THE INTERNET,
SEE THE INSTRUCTIONS PRINTED ON THE ATTACHMENT TO THIS CARD.
SIGNATURE(S) _____________________________ DATE __________________
The signature or signatures to this proxy must be the same as the name or
names which appear hereon. Persons signing as attorneys, executors,
administrators, trustees or guardians should give full title as such.
FOLD AND DETACH HERE
Name
Address XXXXXXX
OHIO CASUALTY CORPORATION
PROXY VOTING INSTRUCTION CARD
Your vote is important. By casting your vote in one of the three ways
described on this instruction card, you will vote all of the common shares of
Ohio Casualty Corporation that you are entitled to vote, including any common
shares held on your behalf in the Ohio Casualty Insurance Company Employee
Savings Plan.
Please consider the issues in the proxy statement and cast your vote by:
- - Accessing the World Wide Web site http://www.eproxyvote.com/ocas to
vote via the Internet. You can also register at this site to
access future proxy materials electronically.
- - Using a touch-tone telephone to vote by phone toll free from the
U.S. or Canada. Simply dial 1-877-779-8683 and follow the
instructions. When you are finished voting, your vote will be
confirmed and the call will end.
- - Completing, dating, signing and mailing the proxy card in the
postage-paid envelope included with the proxy statement or sending
it to Ohio Casualty Corporation, c/o EquiServe, First Chicago Trust
Division, P.O. Box 8648, Edison, New Jersey
08818-9147.
You can vote by phone or via the Internet anytime prior to April 17, 2002.
You will need the control number printed at the top of this instruction card
opposite your name and address to vote by phone or via the Internet. If you
do so, you do not need to mail your proxy card.