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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:
[X] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[ ] 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 16, 2003
March 14, 2003
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 16, 2003, at 10:30 a.m., local time, for the following purposes:
(1a) To elect the following individuals as directors for a term expiring
in 2006 (Class I)
To Be Decided Jack E. Brown Robert A. Oakley Jan H. Suwinski
(1b) To elect the following individual as a director for a term expiring
in 2004 (Class II)
To Be Decided
(2) To approve an amendment to the Company's Code of Regulations to
change requirements for meetings of shareholders and directors.
(3) To approve an amendment to the Company's Code of Regulations to
eliminate the requirement that directors be holders of record of
at least 100 shares.
(4) To approve an amendment to the Company's Code of Regulations to make
changes to the stated duties and responsibilities of the Company's
officers.
(5) To transact such other business as may properly come before the Annual
Meeting or any adjournment or postponement of the Annual Meeting.
Holders of record of common shares of the Company as of the close of
business on March 1, 2003 are entitled to notice of and to vote at the Annual
Meeting and at any adjournment thereof. As of March 1, 2003, there were
___________ 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/ Debra K. Crane
Debra K. Crane, Senior Vice President,
General Counsel and 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 14, 2003.
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 16, 2003, and at any
adjournment thereof.
Who Can Vote
Record holders of the Company's common shares at the close of business
on March 1, 2003, are entitled to notice of and to vote at the Annual Meeting.
On the record date, ____________ 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.
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.
1
Other Items. For each other proposal in the proxy statement, the
affirmative vote of the holders of a majority of the issued and outstanding
shares as of the record date for the Annual Meeting, represented in person or
by proxy, 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 three proposals
to amend the Company's Code of Regulations.
- 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 24 hours a day, 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 website identified on the proxy card
and following the procedures described on the website.
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: Debra K. Crane,
Senior Vice President,
General Counsel and Secretary
Email to: debra.crane@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
Annual 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.
3
PRINCIPAL SHAREHOLDERS
The table below 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:
Name and Address Common Shares Percent of
of Beneficial Owner Beneficially Common
Owned Shares(1)
----- ---------
T. ROWE PRICE ASSOCIATES, INC. 5,331,900(2) 8.7%
100 E. Pratt Street
Baltimore, Maryland 21202
FMR CORPORATION 4,077,764(3) 6.67%
82 Devonshire Street
Boston, Massachusetts 02109
DIMENSIONAL FUND ADVISORS, INC. 4,032,473(4) 6.64%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
AMERICAN FINANCIAL GROUP, INC. 3,950,000(5) 6.5%
One East Fourth Street
Cincinnati, Ohio 45202
FIRST FINANCIAL BANCORP 3,139,429(6) 5.2%
300 High Street
Hamilton, Ohio 45011
__________________
(1) Based on the actual number of shares outstanding as of March 1, 2003.
(2) Based upon information contained in a Schedule 13G filed February 6, 2003
with the Securities and Exchange Commission ("SEC") by T. Rowe Price
Associates, Inc. According to the Schedule 13G filing, T. Rowe Price
reported that it has sole voting power for 946,800 shares and sole
dispositive power for 5,331,900 shares.
(3) Based upon information contained in a Schedule 13G filed February 14,
2003 with the SEC by FMR Corporation ("FMR") to report shareholdings by
the following subsidiaries of FMR: Fidelity Management & Research
Company; Fidelity Management Trust Company and Geode Capital Management
LLC. FMR reported sole voting power for 668,930 shares and sole
dispositive power for 4,077,764 shares. Beneficial ownership includes
395,424 shares resulting from the assumed conversion of the Ohio Casualty
Corporation 5.00% convertible notes owned by Fidelity Management and
Research Company.
4
(4) Based upon information contained in a Schedule 13G filed February 10,
2003, 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 4,032,473
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.
(5) Based upon information contained in a Schedule 13G/A filed January 27,
2003, with the SEC by American Financial Group, Inc. ("AFG"). According
to the Schedule 13G/A filing, AFG reported shared dispositive power for
3,950,000 shares. All of these shares are covered by unexercised
warrants 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 warrants is $22.505 per share,
and the warrants expire on November 30, 2003.
(6) Based upon information contained in a Schedule 13G/A filed January 31,
2003, 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
3,127,871 shares, sole dispositive power for 1,127,083 shares, and shared
dispositive power for 1,715,363 shares. Also included in these shares
are 93,176 shares that are held under a trust arrangement for one
director of the Company. These shares are also reported in the following
table, which shows share ownership by directors and executive officers of
the Company.
5
SHAREHOLDINGS OF DIRECTORS, EXECUTIVE OFFICERS
AND NOMINEES FOR ELECTION AS DIRECTOR
As of March 1, 2003, 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 6,014 27,000 1,336,964 33,014(6)
Jack E. Brown 11,562 33,000 1,336,964 44,562(6)
John S. Busby 15,630(5) 52,659 68,289(5)
Dan R. Carmichael 40,835(5) 400,000 440,834(5)
Catherine E. Dolan 3,562 39,000 1,336,964 42,562(6)
Jeffery L. Haniewich 1,758(5) 50,966 52,724(5)
Philip G. Heasley 1,751 6,000 1,336,964 7,751(6)
Stephen S. Marcum 600,659(4) 39,000 639,659(4) %
Donald F. McKee 12,237(5) 66,666 78,903(5)
Ralph S. Michael III 3,251 4,000 7,251
Robert A. Oakley 0 0 0
Stanley N. Pontius 9,644 39,000 48,644
Elizabeth M. Riczko 9,896(5) 84,966 94,862(5)
Howard L. Sloneker III 1,243,111(5) 121,300 1,364,411(5) %
Jan H. Suwinski 5,751 2,000 7,751
All Executive Officers, 2,210,684(5) 1,184,019 1,336,964 4,731,667(5) %
Current Directors and
Nominees as a
Group (23 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) Consists of 1,336,964 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, Brown, Heasley 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.
6
(4) Includes 159,030 shares owned by family members and 175,959 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.
(5) The share ownership for Messrs. Carmichael, McKee, Haniewich, Busby and
Sloneker includes 635, 1,237, 1,758, 12,323 and 5,932 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 2,656 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.
(6) Share ownership totals for Messrs. Baehr, Brown and Heasley and Ms. Dolan
do not include the shares held in the Company's Employees Retirement Plan.
ELECTION OF DIRECTORS
The Board of Directors intends that the 4 persons named under Class I
in the following table will be nominated for election at the Annual Meeting for
three-year terms expiring in 2006, and that the individual named as a nominee
under Class II will be nominated at the Annual Meeting for a one-year term
expiring in 2004. 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 5 nominees.
Position with Company and/or
Principal Occupation or Employment Director
Name and Age(1) During Last Five Years Since
- --------------- --------------------------------------------- -------
Nominees: Class I: Term Expiring in 2006
To Be Decided
Jack E. Brown, Executive Vice President, Global AC Nielsen, Covington, Kentucky 1994
59 since January, 2002; Chairman of the Board, AC Nielsen BASES
since 1998; previously, Chairman of the Board, BBI Marketing
Services, Inc., Cincinnati, Ohio, a marketing consulting firm,
from 1986 to 1998. Other directorship: PNC Bank Ohio, N.A.
Robert A. Oakley, Retired from position of Executive Vice President and Chief
56 Financial Officer, Nationwide Mutual Insurance Company and
Nationwide Financial Services, Inc. from 1995 to January, 2003.
Jan H. Suwinski, Professor of Business Operations, The Johnson Graduate School of 2002
61 Management at Cornell University in Ithaca, New York since 1997.
Other directorships: Tellabs, Inc. and Thor Industries, Inc.
Nominee: Class II: Term Expiring in 2004
To Be Decided
7
Position with Company and/or
Principal Occupation or Employment Director
Name and Age(1) During Last Five Years Since
- --------------- --------------------------------------------- -------
Directors Whose Terms Continue Beyond the Annual Meeting:
Class II: Terms Expiring in 2004
Stephen S. Marcum, Member of the law firm of Parrish, Fryman & Marcum Co., L.P.A., 1989
45 Hamilton, Ohio, since 1983. Other directorships: First Financial
Bancorp and First Financial Bank of Southwestern Ohio.
Ralph S. Michael III, Previously Group Executive, PNC Advisors and PNC Capital Markets, 2002
48 Pittsburgh, Pennsylvania, February 2001 to September 2002, and
Chief Executive Officer, PNC Corporate Banking from 1996 to 2001.
Stanley N. Pontius, President and Chief Executive Officer of First Financial Bancorp, 1994
56 Hamilton, Ohio since 1991 and Chairman of the Board of its
principal subsidiary, First Financial Bank of Southwestern Ohio,
Hamilton, Ohio since 1998. Previously, Chief Executive Officer of
First Financial Bank of Southwestern Ohio since 1993. Other
directorship: First Financial Bancorp.
Class III: Terms Expiring in 2005
Terrence J. Baehr, Vice President, Sales, Americas East Region, IBM Corporation, White 1999
52 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 to 1999.
Dan R. Carmichael, President, Chief Executive Officer and Director of the Company, The 2000
58 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 December 2000. Previously,
President and Chief Executive Officer of IVANS, Inc., Greenwich,
Connecticut from 1995 to 2000. Other directorships: Alleghany
Corporation, Platinum Underwriters Holdings, Ltd.
Catherine E. Dolan, Senior Vice President, First Union National Bank, Charlotte, North 1994
45 Carolina since 2000. Previously, Managing Director of the Financial
Institutions Group, First Union National Bank, Charlotte, North
Carolina from 1995 to 2000.
Philip G. Heasley, Chairman and Chief Executive Officer of First USA, a subsidiary of 2002
53 Bank One since January 2001. Previously, President and Chief
Operating Officer of U. S. Bancorp from 2000. Vice Chairman of
U.S. Bancorp from 1994 to 1999. Other directorships: Chairman,
VISA USA; director, VISA International, Fidelity National
Financial, Inc. and Fair, Isaac and Company, Inc.
(1) Ages are listed as of the date of the Annual Meeting.
RELATED TRANSACTIONS
Mr. Pontius is a director and executive officer of First Financial
Bancorp and its principal subsidiary, First Financial Bank of Southwestern
Ohio ("First Financial"). First Financial is a member of a group of four banks
that are parties to a credit agreement with the Company dated July 31, 2002,
pursuant to which the Company secured a line of credit in a maximum principal
amount of
8
$80,000,000. The credit facility fees paid in 2002 to First Financial are
commercially reasonable and have been negotiated at arms-length, and are
equivalent to those fees payable to other members of credit facilities with
no comparable relationship. First Financial also provided banking services
to the Company and its subsidiaries during the last fiscal year at commercially
reasonable rates. Mr. Pontius received no special or indirect benefits as a
result of the relationship between First Financial and the Company.
MEETINGS OF THE BOARD OF DIRECTORS
AND COMMITTEES OF THE BOARD
During 2002, the Board of Directors held ten 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 2002. Current members
of the Executive Committee are Jack E. Brown, Dan R. Carmichael, Stanley N.
Pontius (Chair) 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 twelve meetings during 2002. Current members
of the Audit Committee are Catherine E. Dolan (Chair), Philip G. Heasley, Ralph
S. Michael III, Stanley N. Pontius and Jan H. Suwinski. For a more detailed
description of the role of the Audit Committee, see "Report of the Audit
Committee" on page 22.
The Executive Compensation Committee held six meetings during 2002.
Current members of the Executive Compensation Committee are Terrence J. Baehr,
Jack E. Brown (Chair), Catherine E. Dolan and Philip G. Heasley. The Executive
Compensation Committee administers the Company's executive stock option plans
and carries out the responsibilities described in the Report of the Executive
Compensation Committee on page 20.
The Governance Committee held six meetings during 2002. Current
members of the Governance Committee are Terrence J. Baehr (Chair), Stephen S.
Marcum, Stanley N. Pontius and Jan H. Suwinski. 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 2004 Annual Meeting of Shareholders
provided that the names of such nominees are submitted not later than November
22, 2003, to Debra K. Crane, Senior Vice President, General Counsel and
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.
9
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. In 2002, the annual retainer consisted of 50% cash and
50% in the form of shares of Ohio Casualty Corporation. Each non-employee
director of the Company also receives $1,500 plus expenses for each meeting
attended in person and $500 per meeting attended via teleconference.
The Chairman of the Audit Committee receives an annual fee of $2,500
and the Chairmen of the Governance Committee and Executive Compensation
Committee each receive an annual fee of $2,000 for such services.
Non-employee directors may elect to defer all or a part of the cash
compensation they earn for services as directors in performance shares or cash.
In 2002, fees deferred in cash were credited with interest at a rate equal to
the yield reported in the Company's annual report on Form 10-K for the taxable
fixed income portfolio as of December 31, 2001. 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, 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 (pro-rated
based on term) effective on the third business day following the first meeting
of the Board of Directors after his/her election, re-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 22, 2002, Terrence J. Baehr,
Catherine E. Dolan and Philip G. Heasley were each granted an NQSO to purchase
6,000 shares of the Company, at an exercise price of $19.65 per share, the
closing market price of the shares on the date of grant. On that same date,
Jan H. Suwinski was granted an NQSO to purchase 2000 shares of the Company and
Ralph S. Michael III was granted an NQSO to purchase 4000 shares of the
Company, both grants at an exercise price of $19.65 per share, the closing
market price of the shares on the date of grant.
EXECUTIVE COMPENSATION
Summary Compensation Table
The table on the following page presents information concerning
compensation provided by the Company to its Chief Executive Officer and to
each of the Company's four most highly compensated executive officers, other
than the Chief Executive Officer, for services rendered in all capacities for
each of the Company's last three completed fiscal years:
10
Long-Term
Annual Compensation Compensation Awards
------------------------------------------------------- ---------------------
Other Securities
Annual Restricted Underlying LTIP All Other
Name and Salary Bonus Compensation Stock Options/ Payout Compensation
Principal Position Year ($) ($) ($)(1) Awards($)(2) SARs(#) ($)(3) ($)(4)
- ------------------ ---- --- --- ------ ------------ ------- ------ ------
Dan R. Carmichael 2002 700,000 525,000 0 0 400,000 0 223,471
President, Chief 2001 700,000 725,000 14,508 0 400,000 0 767,180
Executive Officer 2000 18,846 200,000 0 0 400,000 0 0
Donald F. McKee 2002 357,067 175,000 44,852 0 150,000 0 81,250
Executive Vice 2001 88,846 100,000 3,732 0 200,000 0 6,457
President (5) 2000 -- -- -- -- -- -- --
Jeffery L. Haniewich 2002 257,740 62,246 7,062 0 21,900 0 9,593
Executive Vice 2001 230,617 28,692 58,824 0 62,000 0 27,648
President 2000 190,008 150 10,716 0 15,000 0 5,777
Elizabeth M. Riczko 2002 261,106 47,062 109,494 88,725 21,900 4,200 8,774
Executive Vice 2001 233,154 25,900 11,359 0 62,000 0 10,349
President 2000 182,603 11,300 10,505 0 15,000 10,720 6,139
John S. Busby 2002 226,812 35,997 31,728 17,745 21,900 1,573 8,079
Executive Vice 2001 214,923 25,350 12,737 0 41,000 4,200 10,000
President 2000 180,516 40,940 13,029 0 15,000 10,720 6,169
___________________
(1) For 2002, includes value of company car benefits provided by the Company
as follows: Ms. Riczko, $12,322 and Mr. Busby, $11,125. Also includes
officer benefits provided by the Company for items such as financial
planning, computer purchases and memberships ("officer benefits") in an
amount of $4,700 each to Messrs. McKee, Haniewich and Busby and Ms. Riczko.
Other Annual Compensation for 2002 also includes imputed taxes and a
"gross-up" amount to pay such taxes with respect to company car, relocation
expenses, officer benefits expenses and restricted stock awards as follows:
Mr. McKee, $40,152, Mr. Haniewich, $2,362, Mr. Busby, $15,902 and Ms.
Riczko, $92,472. For 2001, includes value of company car benefits provided
by the Company as follows: Mr. Haniewich, $30,639, Mr. Busby, $5,052 and
Ms. Riczko, $3,852. Also includes officer benefits provided in an amount
of $4,700 each to Messrs. Carmichael, Haniewich, and Ms. Riczko, $1,175 to
Mr. McKee and $4,697 to Mr. Busby. Other Annual Compensation for 2001 also
includes imputed taxes and a "gross up" amount to pay such taxes with
respect to company car, relocation expenses, officer benefits as follows:
Mr. Carmichael, $9,808, Mr. McKee, $2,557, Mr. Haniewich, $23,485, Mr.
Busby, $2,988 and Ms. Riczko, $2,807. For 2000, includes value of company
car benefits provided by the Company as follows: Mr. Haniewich, $3,260,
Mr. Busby, $5,397 and Ms. Riczko, $2,969. Also includes officer benefits
provided in an amount of $4,700 each to Messrs. Haniewich, Busby and Ms.
Riczko. Other Annual Compensation in 2000 also includes imputed taxes
and a "gross up" amount to pay such taxes with respect to company car and
officer benefits as follows: Mr. Haniewich, $2,756, Mr. Busby, $2,932
and Ms. Riczko, $2,836.
(2) Ms. Riczko and Mr. Busby were issued 5,000 and 1,000 restricted shares,
respectively, on February 21, 2002. All restrictions on these shares
lapsed on August 21, 2002.
(3) Amounts shown reflects the payout of Dividend Payment Rights granted to
the named executive officers in 1997, 1998 and 1999.
11
(4) For 2002, includes contributions to the Company's Employee Savings Plan
as follows: Mr. Carmichael, $5,868; Mr. McKee, $5,500; Mr. Haniewich,
$5,561; Mr. Busby, $5,716 and Ms. Riczko, $5,407. Also includes amounts
contributed to the Company's Supplemental Executive Savings Plan as follows:
Mr. Carmichael, $30,750; Mr. McKee, $11,981; Mr. Haniewich, $3,600; Mr.
Busby, $1,931 and Ms. Riczko $3,367. Includes company paid group life
insurance in the amount of $432 each paid to Mr. McKee, Mr. Haniewich and
Mr. Busby. Includes for Mr. Carmichael $175,000 paid pursuant to his
employment agreement, and $11,853 toward interest, both credited to his
deferred compensation account. Includes for Mr. McKee $63,337 for
relocation expenses.
(5) Donald F. McKee was not an employee of the Company in 2000.
Option Grants in Last Fiscal Year
The table below sets forth information concerning the grant of stock
options during the last fiscal year to each of the executive officers of the
Company named in the Summary Compensation Table. No stock appreciation rights
were granted during the last fiscal year.
% of Total Potential Realizable
Options Value at Assumed
Number of Granted Annual Rates of Stock
Shares to Price Appreciation for
Underlying Employees Exercise Option Term(1)
Options in Fiscal Price Expiration ($) ($)
Name Granted Year ($/Sh) Date 5% 10%
---- ------- --------- -------- --------- ------ -------
Dan R. Carmichael 400,000(2) 36.83% 13.26 12/12/12 3,335,657 8,453,210
Donald F. McKee 150,000(3) 13.81% 16.51 9/19/12 1,557,458 3,946,903
Jeffery L. Haniewich 21,900(4) 2.02% 17.70 2/21/12 243,778 617,782
Elizabeth M. Riczko 21,900(4) 2.02% 17.70 2/21/12 243,778 617,782
John S. Busby 21,900(4) 2.02% 17.70 2/21/12 243,778 617,782
(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. Vesting
of the stock options may be accelerated upon the occurrence of certain
changes in control of the Company.
12
(3) Mr. McKee's option was granted under the 2002 Stock Incentive Plan,
pursuant to his Employment Agreement with the Company dated September 19,
2001. 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. Vesting of the stock options may be accelerated upon
the occurrence of certain changes in control of the Company.
(4) 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 2002.
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 0 400,000 800,000 869,331 434,669
Donald F. McKee 0 0 66,666 283,334 120,665 241,335
Jeffery L. Haniewich 0 0 43,666 63,234 92,602 166,163
Elizabeth M. Riczko 0 0 77,666 63,234 92,602 166,163
John S. Busby 0 0 45,359 49,234 51,168 109,883
(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, 2002
($13.01), less the exercise price of in-the-money options on December
31, 2002. Exercise prices of these options on December 31, 2002 ranged
from $8.990 to $23.469.
13
EQUITY COMPENSATION PLANS
The following table summarizes share and exercise price information
about the Company's equity compensation plans as of December 31, 2002:
(a) (b) (c)
Plan Category Number of securities to Weighted-average Number of securities remaining
be issued upon exercise exercise price of available for future issuance
of outstanding options, outstanding options, under equity compensation plans
warrants and rights warrants and rights (excluding securities reflected
in column (a))
Equity 1,944,513 $10.31 5,148,109(1)
compensation plans
approved by
security holders
Equity 2,545,745 $10.04 2,438,550
compensation plans
not approved by
security holders(2)
Total 4,490,258 $10.17 7,586,659
(1) Includes 3,148,109 shares available for issuance under the Ohio Casualty
Corporation 2002 Stock Incentive Program and 2,000,000 shares available for
issuance under the Ohio Casualty Corporation 2002 Employee Stock Purchase
Plan, as of December 31, 2002.
(2) Includes options granted under the following non-shareholder
approved Plans:
(a) The Ohio Casualty Corporation 1999 Broad-Based Employee Stock Option Plan
(the "1999 Plan").
(b) Stock Options Agreements, effective as of March 23, 2000 between Ohio
Casualty Corporation and each of Terrence J. Baehr, Arthur J. Bennert, Jack E.
Brown, Catherine E. Dolan, Wayne R. Embry, Vaden Fitton, Stephen S. Marcum,
Stanley N. Pontius, Howard L. Sloneker III and William L. Woodall (the
"Directors Plan").
(c) Employment Agreement effective as of December 12, 2000 between Ohio
Casualty Corporation and Dan R. Carmichael (the "Carmichael Agreement").
(d) Employment Agreement, effective as of September 19, 2001 between Ohio
Casualty Corporation and Donald F. McKee (the McKee Agreement").
(e) Ohio Casualty Corporation 2002 Broad-Based Employee Stock Option Plan
(the "2002 Plan").
14
Set forth below are the material features of the non-shareholder-
approved plans:
The 1999 Plan and the 2002 Plan were designed to assist the Company to
retain and to incent non-officer employees of the Company. An aggregate of
1,500,000 shares and 2,000,000 shares were reserved for issuance under the 1999
Plan and the 2002 Plan respectively. Both plans provide for the award of non-
qualified stock options at an exercise price of not less than the fair market
value of common shares as of the day of the grant. Shares underlying the
outstanding options vest over two equal annual installments and have a term of
ten years. Options vest and become immediately exercisable upon retirement,
death or disability or change in control (subject to a holding period of twelve
months for the 1999 Plan). In the event of termination of a participant's
employment for any reason other than death, disability and retirement, the
options will expire immediately after such termination. As of December 31,
2002, the 1999 Plan and the 2002 Plan had 173,550 and 2,000,000 shares
available for grant respectively. As of December 31, 2002, options to purchase
1,015,745 shares with a weighted average price of $13.41 were outstanding
under the 1999 Plan.
The Directors Plan was adopted by the Board of Directors in order to
grant options pursuant to the Stock Option Agreements between the Company and
its directors as of March 23, 2000. An aggregate of 165,000 shares were
reserved for issuance under the Directors Plan of which 150,000 shares were
awarded to the Directors of the Company on March 23, 2000. The Director Plan
provides for the award of non-qualified stock options at an exercise price of
not less than the fair market value of common shares as of the day of the
grant. The options of 15,000 shares each granted to the directors vested over
two equal annual installments and have a term of ten years. Subject to a
6-month holding period, options vest and become immediately exercisable upon
retirement, death, disability or change in control. As of December 31, 2002,
options to purchase 130,000 shares with a weighted average price of $13.13 were
outstanding under the Directors Plan.
The Carmichael Agreement was adopted by the Board of Directors in order
to grant options pursuant to the Employment Agreement between the Company and
Dan R. Carmichael. An aggregate of 1,200,000 shares were reserved for issuance
under the Carmichael Agreement all of which had been awarded to Mr. Carmichael
as of December 31, 2002 (see page 18 for a discussion of options granted to Mr.
Carmichael). The Carmichael Agreement provides for the award of non-qualified
stock options at an exercise price of not less than the fair market value of
common shares as of the day of the grant. The options granted to Mr. Carmichael
vest over three equal annual installments and are for a term of 10 years each.
As of December 31, 2002, options to purchase 1,200,000 shares with a weighted
average price of $12.46 were outstanding under the Carmichael Agreement.
The McKee Agreement was adopted by the Board of Directors in order to
grant options pursuant to the Employment Agreement between the Company and
Donald F. McKee. An aggregate of 450,000 shares were reserved for issuance
under the McKee Agreement out of which 200,000 shares had been awarded to Mr.
McKee as of December 31, 2002, (see page 18 for a discussion of options granted
to Mr. McKee). The McKee Agreement provides for the award of non-qualified
stock options at an exercise price of not less than the fair market value of
common shares as of the day of the grant. The options granted to Mr. McKee
vest over three equal annual installments and are for a term of 10 years each.
As of December 31, 2002, options to purchase 200,000 shares with a weighted
average price of $11.20 were outstanding under the McKee Agreement.
15
EMPLOYMENT AGREEMENTS
Dan R. Carmichael
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 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.
A long-term cash award of $175,000 was credited to Mr. Carmichael's
deferred compensation account on March 31, 2002 (for fiscal year ending
December 31, 2001). An additional amount of $175,000 will be credited on
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 ("COBRA") until the
earlier of the date Mr. Carmichael obtains replacement coverage or the
date the maximum coverage period prescribed by
16
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.
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, and a third stock option for 400,000 shares was granted on December
12, 2002, at an exercise price of $13.26 (the terms of this option are
described in footnote 2 to the Option Grant Table on page 12). 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. Vesting of the stock options may be accelerated
upon the occurrence of certain changes in control of the Company, as well as
termination of employment as a result of death, disability, retirement, or for
Good Reason, or by the Company Without Cause, as stated in the Carmichael
Agreement.
Donald F. McKee
On September 19, 2001, the Company entered into a five-year Employment
Agreement (the "McKee Agreement") with Donald F. McKee. The basic terms and
conditions of the McKee Agreement include a minimum base salary of $350,000
per year, and annual bonus for calendar year 2002 equal to the greater of
$175,000 or a bonus amount targeted at 50% of base salary payable under the
Company's Annual Incentive Program in effect. For calendar years after 2002,
the bonus will be determined under the Company's Annual Incentive Program then
in effect.
In accordance with the McKee agreement, Mr. McKee received an annual
bonus payment of $175,000 in March 2002. He also received $63,337 in 2002
towards relocation expenses.
If prior to a Change in Control of the Company (as defined in the McKee
Agreement), the Company terminates Mr. McKee's employment without Cause (as
defined) or if Mr. McKee 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 24 months following the termination date; (ii) pay an amount
equal to 200 percent of Mr. McKee's individual target bonus as defined in the
Annual Incentive Program for the year in which the termination occurs; and
(iii) vest in full all unvested stock options granted under the agreement.
If following a Change in Control of the Company, the Company terminates
Mr. McKee's employment without Cause or Mr. McKee terminates his employment
for Good Reason, then the Company will be obligated to (i) pay to Mr. McKee
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; (ii)
reimburse Mr. McKee for the cost of continued participation in all programs
subject to the benefit provisions of COBRA until the earlier of the date Mr.
McKee obtains replacement coverage or the date the maximum coverage period
prescribed
17
by COBRA ends; (iii) reimburse Mr. McKee for executive outplacement services
until other employment is secured or up to $15,000; and (iv) provide a lump
sum payment to include reimbursement for tax liabilities and any other Change
in Control benefits. 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. McKee 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. McKee.
The McKee Agreement provides for a 24-month non-competition agreement.
The McKee Agreement also provides for the grant of stock options for up
to 450,000 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 200,000 shares was granted to Mr. McKee on September 19, 2001, at an
exercise price of $11.20 per share. A second stock option for 150,000 shares
was granted on September 19, 2002, at an exercise price of $16.51 per share
(the terms of this option are described in footnote 3 to the Option Grant
Table on page 12), and a third stock option for 100,000 shares will be granted
on September 19, 2003, so long as Mr. McKee 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. Beginning in
2004, Mr. McKee will participate in any long-term incentive plan offered by
the Company. Vesting of the stock options may be accelerated upon the
occurrence of certain changes in control of the Company, as well as
termination of employment as a result of death, disability, retirement, or for
Good Reason, or by the Company Without Cause, as stated in the McKee
Agreement.
CHANGE IN CONTROL AGREEMENTS
The Company has entered into change in control agreements with
Elizabeth M. Riczko, Jeffery L. Haniewich, 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 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.
18
PENSION PLANS
The table below 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:
PENSION PLANS TABLE
15 20 25 30 35 40 45
Annual Earnings Years Years Years Years Years Years Years
- --------------- ----- ----- ----- ----- ----- ----- -----
$100,000 $21,209 $28,279 $35,349 $42,418 $49,488 $56,558 $63,627
200,000 45,209 60,279 75,349 90,418 105,488 120,558 135,627
300,000 69,209 92,279 115,349 138,418 161,488 184,558 207,627
400,000 93,209 124,279 155,349 186,418 217,488 248,558 279,627
500,000 117,209 156,279 195,349 234,418 273,488 312,558 351,627
600,000 141,209 188,279 235,349 282,418 329,488 376,558 423,627
700,000 165,209 220,279 275,349 330,418 385,488 440,558 495,627
800,000 189,209 252,279 315,349 378,418 441,488 504,558 567,627
900,000 213,209 284,279 355,349 426,418 497,488 568,558 639,627
1,000,000 237,209 316,279 395,349 474,418 553,488 632,558 711,627
1,100,000 261,209 348,279 435,349 522,418 609,488 696,558 783,627
1,200,000 285,209 380,279 475,349 570,418 665,488 760,558 855,627
1,300,000 309,209 412,279 515,349 618,418 721,488 824,558 927,627
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
$200,000 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.
19
At December 31, 2002, 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: Dan R. Carmichael, 1 year ($459,321); Donald F. McKee, 3 months
($144,183); Jeffery L. Haniewich, 4.0 years ($197,217); Elizabeth M. Riczko,
9.8 years ($217,715); and John S. Busby, 29.5 years ($197,564). The
compensation covered by the Employees Retirement Plan and the Benefit
Equalization Plan is the amount shown in the Summary Compensation Table as
salary.
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
The Executive Compensation Committee of the Board of Directors (the
"Committee") is composed entirely of non-employee directors. The Committee
recommends to the Board of Directors for approval all of the policies and
programs 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 addition to base salary, the 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 aligned with 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 Program design differs for officers who serve
in support areas, such as Accounting and Legal, versus officers who serve in
business units. These business units fall within the operating segments of
the Company's Commercial Lines, Personal Lines and Specialty Lines.
In 2002, the Annual Incentive Program provided 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 30% of base
salary to 60% of base salary. For officers in the support units, this amount
is adjusted up or down based on achievement of stated annual performance
objectives, including corporate before-tax operating income. For officers in
the business units, this amount is adjusted up or down based on stated annual
performance objectives, including corporate before-tax operating income,
accident year combined ratio and/or gross written premiums. Individual
performance was then taken into consideration, adjusting the initial bonus
calculation up or down.
20
A portion of the payments under the 2001 Annual Incentive Program
were made during the first quarter of 2002 with any remaining amounts
deferred pending recalculation of the accident year combined ratio. The
recalculation and payment of any resulting bonus (as called for by the
Annual Incentive Program) will occur in the first quarter of 2003. Certain
annual performance objectives including the before-tax operating income set
by the Committee for the 2002 Annual Incentive Program were not met. As a
result, no bonus payments will be made to the officers in the support units
under the 2002 Annual Incentive Program. Any bonuses payable to the business
units under the 2002 Annual Incentive Program will be made during the first
quarters of 2003 and 2004 based on the accident year results compared to the
plan for the business units.
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 during the first quarter 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 position with the Company. The Committee has also reviewed
recommendations from an outside consulting firm regarding the value of
long-term incentives, including stock options. The Committee has reserved the
right to eliminate future stock option awards or make other modifications in
the Long-Term Incentive Plan.
The Company granted stock options to all executive officers in February
2002. These grants vest over a period of three years, and are for a term of
10 years.
Basis for Chief Executive Officer Compensation
Dan R. Carmichael has served as President and Chief Executive Officer
of the Company since December 12, 2000. During 2002, 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 a bonus of $525,000 for 2002.
Although the Committee does 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 any bonus program or long term cash
award program then in effect for senior executives of the Company.
In accordance with the Carmichael Agreement, a long-term cash award of
$175,000 (for fiscal year ending December 31, 2001) was credited to Mr.
Carmichael's deferred compensation account. This
21
contribution will vest over a three-year period. This account will be credited
with earnings based on the One-Year Libor published in the Wall Street Journal
for the first business day of each Program Year. Distributions from this
account will be in five annual installments beginning on January 30 after Mr.
Carmichael's termination of employment (other than for Cause as defined in
the Carmichael Agreement).
Mr. Carmichael was granted on December 12, 2002, a non-qualified stock
option to purchase 400,000 shares at an exercise price of $13.26 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 Philip G. Heasley
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors of the Company is
comprised of five directors, four of whom are considered "independent" under
the listing standards of the National Association of Securities Dealers. The
members of the Audit Committee are Catherine E. Dolan (Chair), Philip G.
Heasley, Ralph S. Michael, Stanley N. Pontius and Jan H. Suwinski. The Audit
Committee is responsible for overseeing the Company's accounting functions and
controls, investment administration and investment policy, 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 Charter was recently amended upon
review by the Audit Committee and is included as Exhibit A to this proxy
statement.
The Audit Committee reviewed and discussed with Ernst & Young LLP
("Ernst & Young") the results of its audit for 2002 and the matters required
to be discussed by Statement of Auditing Standard 61, as amended,
"Communication with Audit Committees". In fulfilling its oversight
responsibilities, the Audit Committee regularly 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 internal audits and 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 services provided by Ernst & Young are compatible with maintaining the
auditors' independence.
22
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, 2002, 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.
Mr. Pontius is not considered "independent" since the Chairman of the Board is
considered an officer under Ohio Law and the Company's current Code of
Regulations. However, 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 its strategic restructuring. Therefore, Mr.
Pontius will continue to be a member of the Audit Committee until April 2003.
The foregoing report of the Audit Committee is submitted by the Audit
Committee:
Catherine E. Dolan Philip G. Heasley Ralph S. Michael
Stanley N. Pontius Jan H. Suwinski
PRINCIPAL ACCOUNTANT FEES
The table below discloses the fees paid by the Company to Ernst &
Young for the fiscal years ended December 31, 2002 and December 21, 2001:
Type of Fees 2002 2001
Audit Fees $298,660 $147,025
Audit-Related Fees (1) 34,097 17,835
Tax fees (2) 1,042,066 1,567,000
All Other Fees (3) 37,567 1,079,341
Total $1,412,390 $2,811,201
(1) Audit-related Fees include benefit plan audits for 2002 and accounting
consultations concerning financial accounting and reporting standards
for 2001.
(2) Tax Fees include preparation of original and amended tax returns, claims
for refund and tax payment-planning services, tax planning and tax advice
relating to various audits and appeals and tax advice related to
restructuring, employee benefit plans and requests for rulings or
technical advice from taxing authorities for 2001 and 2002.
(3) All Other Fees include various technical research projects for 2002 as
well as actuarial and other services related to the implementation of the
Company's strategic plan for 2001.
POLICIES AND PROCEDURES REGARDING PRE-APPROVAL
OF ACCOUNTANT FEES
Beginning in February 2002, approval of the Audit Committee was
required for engagement of Accountants in amounts involving $100,000 or more.
Audit Committee approval was also required once the total projected costs for
Accountant engagements in any given quarter exceeded $300,000. In August
2002, the Committee revised its procedure to require pre-approval of every
engagement entered into by the Company with its Accountants.
23
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
The graph below 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
Value of $100 invested 5 years ago as of December 31, 1997
(Graph presented here)
1997 1998 1999 2000 2001 2002
------------------------------------------------------
DJ EQUITY MARKET INDEX 100.00 124.90 153.28 139.07 122.50 95.45
DJ INSURANCE P&C 100.00 94.72 70.33 114.78 110.26 102.58
OHIO CASUALTY CORP. 100.00 95.99 78.96 52.12 83.64 67.47
(1) The Dow Jones Insurance Index for Property and Casualty Companies is
comprised of 41 companies that are considered to be a peer group of
property and casualty insurance companies within the United States.
The companies making up the 2002 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, Commerce Group Inc., Erie Indemnity
Co. Cl A, Everest Re Group Ltd., Fidelity National Financial Inc.,
First American Corporation, Fremont General Corporation, HCC Insurance
Holdings Inc., Hilb Rogal & Hamilton Co., IPC Holdings Ltd., Leucadia
National Corporation, Loews Corporation, Markel Corporation, Marsh &
McLennan Companies, MBIA Inc., Mercury General Corporation, MGIC
Investment Corporation, 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., Travelers Property Casualty Corporation
Cl A, Travelers Property Casualty Corporation Cl B, Trenwick Group
Ltd., W. R. Berkley Corporation, White Mountains Insurance Group Ltd.
and XL Capital Ltd. Cl A.
24
ANNUAL REPORT
The Company's Annual Report for the fiscal year ended December 31,
2002, 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 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.
OTHER PROPOSALS
Shareholders are also requested to vote on the following proposals:
PROPOSAL 2: TO APPROVE AN AMENDMENT TO THE COMPANY'S CODE OF REGULATIONS TO
CHANGE REQUIREMENTS FOR MEETINGS OF SHAREHOLDERS AND DIRECTORS
The Board of Directors has approved, and recommends that the
shareholders adopt, amendments to the Company's Code of Regulations that (i)
revise the notice requirements for shareholder meetings and director meetings
to allow for notice to be given, and to allow waiver of notice of such
meetings to be given, through the use of communications equipment (such as
electronic mail) or by any other means permitted by Ohio law, (ii) allow for
meetings of shareholders to be held by means of communications equipment and
to provide that shareholders and proxyholders may participate in meetings of
shareholders held at a physical location by means of communications equipment,
(iii) revise the quorum requirements for meetings of shareholders to provide
that shareholders who participate in a meeting by use of communications
equipment will be treated as being present at the meeting for purposes of
determining the existence of a quorum, (iv) make other revisions to the Code
of Regulations to provide that directors and shareholders may participate in
meetings through the use of communications equipment and (v) eliminate the
current requirement that meetings of the directors be held on specific dates
during the year, and provide that meetings of the directors may be held on
such dates and times as may be determined by the Chairman of the Board, the
President, the Secretary or any four directors and in any manner or place
permitted by law. The text of these proposed amendments to the Code of
Regulations is attached to this Proxy Statement as Exhibit B. The Board of
Directors recommends that shareholders adopt these amendments.
Section 4 of Article I of the Company's Code of Regulations
provides that all notices of meetings of shareholders must be in writing and
either personally delivered or mailed to each shareholder entitled to notice
of the meeting. The Ohio General Corporation Law (Chapter 1701 of the Ohio
Revised Code) was amended in May 2002 to permit notice of meetings of
shareholders to be given by means other than personal delivery or mail. In
addition to personal delivery and mail, Ohio law now permits notice of
meetings of shareholders to be given by overnight delivery or by any means
of communication authorized by the shareholder to whom the notice is given.
Similarly, Section 7 of Article II of the
25
Company's Code of Regulations limits the manner in which notice of a directors'
meeting may be given. Ohio law was amended to permit notice of a directors'
meeting to be given through any means of communication authorized by the
director. The proposed amendments to Section 4 of Article I and Section 7 of
Article II will allow notices of meetings of shareholders and directors to be
given in any manner now, or in the future, permitted under Ohio law, which
includes electronic delivery through communications equipment. The proposed
amendments would also amend Section 5 of Article I and Section 8 of Article II
of the Code of Regulations to permit shareholders and directors to waive
notice of meetings by delivery of a waiver by electronic mail or through any
other communications equipment. The Board of Directors believes that these
proposed amendments are advisable in order to provide it with additional
flexibility in the calling of board meetings and to permit the Company to be
in the position to deliver notices of shareholders meetings electronically as
and when state law allows.
Section 3 of Article I of the Code of Regulations states that all
meetings of shareholders shall be held at the principal office of the
Company, unless otherwise determined by the directors and that all meetings of
shareholders may be held at any place within or without the State of Ohio.
The Ohio General Corporation Law was amended in May 2002 to allow for meetings
of shareholders to be held by means of communication equipment. The proposed
amendment to Section 3 would provide that meetings of shareholders may be held
in any manner or place determined by the directors and permitted by Ohio law.
The amendment would permit the Company to call and hold a meeting of
shareholders exclusively by means of communications equipment. Under current
Ohio law, if the directors elect to permit shareholders to attend a
shareholders meeting through the use of communications equipment, the Ohio
Corporation Law specifies that any such communications equipment must enable
the shareholder or proxyholder to participate in the meeting and to vote on
matters submitted to the shareholders, including an opportunity to read or
hear the proceedings of the meeting and to speak or otherwise participate in
the proceedings contemporaneously with those physically present.
Section 6 of Article I of the Company's Code of Regulations
provides that the holders of a majority in amount of the voting shares of the
Company then outstanding and entitled to vote at a meeting of shareholders,
present in person or by proxy, shall constitute a quorum for such meeting. The
proposed amendments would amend Section 6 to allow for shares represented at a
meeting of shareholders through the use of communications equipment to be
counted for purposes of determining the existence of a quorum.
Various sections of the Code of Regulations make reference to the
holders of shares being present at a meeting of shareholders in person or by
proxy. The proposed amendments would add language to provide that the holders
of shares may also be present through the use of electronic communications
equipment such as electronic mail.
Section 6 of Article II of the Company's Code of Regulations
provides that "regular meetings of the directors shall be held four times in
each year, on the third Thursday in the months of February, May, August and
November, if not a legal holiday, but if a legal holiday, then on the next
business day, and at such other times as may be fixed by resolution of the
Board of Directors." The Board of Directors proposes to amend Section 6 to
provide that the directors may hold such meetings as may from time to time be
called by the Chairman of the Board, the President, the Secretary or any four
directors. The Board of Directors believes that this amendment is advisable
in order to give the Board flexibility in calling meetings of directors on
dates on which the maximum number of the directors can be present or otherwise
participate.
26
Section 2 of Article I of the Code of Regulations specifies the person
or persons who may call meetings of shareholders. Section 2 would be amended
to eliminate from the list of persons who have the right to call meetings of
shareholders the Executive Vice President of the Company. The Company does
not currently have a single Executive Vice President.
The Ohio General Corporation Law provides that, unless the articles of
incorporation or regulations prohibit the taking of action by shareholders or
directors without a meeting, any action which may be authorized or taken at a
meeting of the shareholders or directors may also be authorized or taken
without a meeting with the affirmative vote or approval of, and in a writing
or writings signed by all the shareholders who would be entitled to receive
notice of a meeting of shareholders held for such purpose, or all the
directors, respectively. The Board of Directors proposes to add a new Section
2 to Article VIII of the Code of Regulations that would state that shareholders
or directors may take any action without a meeting in a signed writing or
writings and provide, as now permitted by Ohio law, that a signed writing may
consist of electronic mail or any electronic or other transmission capable of
authentication. The heading of Article VIII of the Code would be changed from
"Amendments" to "Miscellaneous", and the existing text of Article VIII would
become Section 1 of that Article.
Under Ohio law and the Company's Articles of Incorporation, the
affirmative vote of the holders of shares entitling them to exercise a
majority of the voting power of the Company is required for the approval of
this proposal to amend Section 2 (Calling of Meetings), Section 3 (Place of
Meetings), Section 4 (Notice of Meetings), Section 5 (Waiver of Notice),
Section 6 (Quorum), and Section 8 (Order of Business) of Article I of the Code
of Regulations of the Company, to amend Section 6 (Meetings), Section 7
(Notice of Meetings) and Section 8 (Waiver of Notice) of Article II of the
Code of Regulations and to add a new Section 2 (Action by Shareholders or
Directors without a Meeting) to Article VIII (Miscellaneous) of the Code of
Regulations. Broker non-votes and abstentions will have the same effect as
votes against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
PROPOSAL 3: TO APPROVE AN AMENDMENT OF THE COMPANY'S CODE OF REGULATIONS TO
ELIMINATE THE REQUIREMENT THAT DIRECTORS BE HOLDERS OF RECORD OF AT LEAST 100
SHARES.
The Board of Directors has also approved, and recommends that the
shareholders adopt, amendments to the Company's Code of Regulations that would
eliminate the requirement that directors be holders of record of at least
100 common shares. The text of this proposed amendment to the Code of
Regulations is attached to this Proxy Statement as Exhibit B. The Board
recommends that the shareholders adopt these amendments.
Section 1 of Article II of the Company's Code of Regulations requires
that each director of the Company hold of record not less than 100 common
shares of the Company. All of the Company's directors currently own
substantially more than 100 shares. Moreover, the Board recently adopted a
new share ownership policy (to be effective in April 2003) that requires each
director of the company to hold a minimum of 1,000 shares within the first
year of election or appointment to the Board and 2,000 shares before the end
of the second year of directorship with the Company. The Board of Directors
proposes to
27
eliminate the current requirement that each director hold of record at least
100 shares because some directors prefer to hold their shares in nominee or
"street name" and circumstances may arise where the Board believes it is
important to fill a vacancy on the board quickly and desires that the newly-
appointed director assume office before he or she has had the opportunity to
acquire shares of the Company.
Under Ohio law and the Company's Articles of Incorporation, the
affirmative vote of the holders of shares entitling them to exercise a
majority of the voting power of the Company is required for the approval of
this proposal to amend Article II of the Company's Code of Regulations in the
manner described. Broker non-votes and abstentions will have the same effect
as votes against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
PROPOSAL 4: TO APPROVE AN AMENDMENT OF THE COMPANY'S CODE OF REGULATIONS TO
MAKE CHANGES TO THE STATED DUTIES AND RESPONSIBLITIES OF THE COMPANY'S
OFFICERS.
Section 1 of Article III of the Company's Code of Regulations
provides that the officers of the Company shall be a Chairman of the Board, a
Chief Executive Officer, a President, an Executive Vice President, one or more
Vice Presidents, a Secretary, a Treasurer and such other officers as the
directors may from time to time elect. The Board of Directors has approved,
and recommends that the shareholders adopt, an amendment to Section 1 that
would provide that the officers of the Company shall consist of a Chief
Executive Officer, a President (who may also be the Chief Executive Officer),
a Secretary and a Treasurer and, if desired by the Board of Directors, one or
more Vice Presidents (which may include one or more Executive Vice Presidents
and/or Senior Vice Presidents), as the directors may from time to time
determine, one or more Assistant Secretaries and/or Treasurers and such other
officers as the directors may from time to time elect. The proposed amendment
to Section 1 would provide that the officers of the Company may include a
Chairman of the Board, although the Board of Directors would not be required
to elect a Chairman of the Board. Although the Board of Directors has no
present plan to eliminate the office of the Chairman of the Board, the Board
believes that it should have the flexibility to do so. The text of these
proposed amendments to the Code of Regulations is attached to this proxy
statement as Exhibit B.
The Board has also approved, and recommends that the shareholders
approve, additional amendments to Article III of the Code of Regulations to
update the duties specified for certain of the Company's officers so that they
are consistent with the duties and responsibilities currently assigned to
these individuals. The existing Code of Regulations was adopted by the
shareholders in 1969, and the responsibilities and duties of certain of the
Company's officers have changed since that time. Another purpose of the
amendments is to give the directors greater flexibility in assigning duties
and responsibilities to the various officers of the Company.
Section 4 of Article III of the Code of Regulations states that the
individual who occupies the office of Chief Executive Officer shall be entitled
to exercise the powers of the President of the Company and shall have such
other powers and duties as the directors shall from time to time assign to the
Chief Executive Officer. Section 5 of Article III states that the President
of the Company shall be the chief administrative officer of the Company and
exercise control over the business of the Company
28
in addition to having such other powers and duties assigned to the President
by the directors. Section 4 is proposed to be amended to eliminate the
reference to the Chief Executive Officer as having the powers of the President
and, instead would state that the Chief Executive Officer shall exercise
supervision over the other officers and have such other powers and duties as
the directors shall from time to time assign to the Chief Executive Officer.
Section 5 would be amended to provide that the President shall have such powers
and duties as the directors and, if the President is not also the Chief
Executive Officer, the Chief Executive Officer may from time to time assign
to the President, in addition to signing all documents and instruments and
taking any other action required to be signed or taken by the President of the
Company. In the absence of the Chairman of the Board and the Chief Executive
Officer, the President would preside at meetings of shareholders.
Section 6 of Article III specifies the duties of the Executive Vice
President. At the time of adoption of the Code of Regulations, the Company
had a single Executive Vice President who performed the duties of the
President in the absence of the President. The current structure of the
Company's management has changed and there are several Executive Vice
Presidents. The Board of Directors proposes to eliminate Section 6 of Article
III. Existing Section 7 of Article III, which addresses the duties of the
Vice Presidents, is proposed to be amended (and renumbered as Section 6) to
state that the Vice Presidents, including any Executive Vice Presidents and
Senior Vice Presidents, shall perform such duties as may from time to time be
assigned to them by the directors, the Chief Executive Officer or the
President.
The amendments to Article III of the Code of Regulations would also
eliminate the use of masculine pronouns in the text when referring to officers
of the Company.
Under Ohio law and the Company's Articles of Incorporation, the
affirmative vote of the holders of shares entitling them to exercise a
majority of the voting power of the Company is required for the approval of
this proposal to amend Article III of the Code of Regulations in the manner
described. Broker non-votes and abstentions will have the same effect as
votes against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
SHAREHOLDER PROPOSALS AND NOMINATIONS
Proposals of shareholders intended to be presented at the 2004 Annual
Meeting of Shareholders scheduled to be held on April 21, 2004, must be
received by the Company no later than November 14, 2003 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
29
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 2004 Annual
Meeting of Shareholders and does not notify the Company of such proposal by
January 29, 2004, or if a shareholder intends to nominate a director at the
2004 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: Debra K. Crane, Senior Vice President,
General Counsel and 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 executive 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.
Executive 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 executive officers and directors
complied with all filing requirements applicable to them with respect to
transactions during fiscal 2002, with the exception of Donald F. McKee. Mr.
McKee was granted, pursuant to his Employment Agreement, a stock option to
purchase 150,000 shares of Ohio Casualty Corporation that was reported seven
days late due to an administrative error.
30
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, 2002, WITHOUT CHARGE BY SUBMITTING A
WRITTEN REQUEST TO THE FOLLOWING ADDRESS:
OHIO CASUALTY CORPORATION
Attention: Debra K. Crane
Senior Vice President, General Counsel 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/ Debra K. Crane
Debra K. Crane, Senior Vice President,
General Counsel and Secretary
March 14, 2003
31
OHIO CASUALTY CORPORATION
This Proxy is solicited on behalf of the Board of Directors
ANNUAL MEETING OF SHAREHOLDERS APRIL 16, 2003
Each undersigned shareholder of Ohio Casualty Corporation (the "Company")
hereby constitutes and appoints Dan R. Carmichael and Debra K. Crane, 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 16, 2003, 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:
(1a) TO ELECT THE FOLLOWING FOUR (4) NOMINEES AS DIRECTORS TO SERVE TERMS
EXPIRING IN 2006 (CLASS I):
__ FOR all nominees listed below (except as marked to the contrary below) **
__ WITHHOLD AUTHORITY to vote for all nominees listed below
To Be Decided Jack E. Brown Robert A. Oakley Jan H. Suwinski
(1b) TO ELECT THE FOLLOWING NOMINEE AS A DIRECTOR TO SERVE A TERM
EXPIRING IN 2004 (CLASS II)
To Be Decided
** INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE IN
THE CLASSES LISTED ABOVE, WRITE THAT NOMINEE'S NAME IN THE SPACE BELOW
______________________________________________________________________
(2) TO APPROVE AN AMENDMENT TO THE COMPANY'S CODE OF REGULATIONS TO CHANGE
REQUIREMENTS FOR MEETINGS OF SHAREHOLDERS AND DIRECTORS.
__ FOR __ AGAINST __ ABSTAIN
(3) TO APPROVE AN AMENDMENT TO THE COMPANY'S CODE OF REGULATIONS TO
ELIMINATE THE REQUIREMENT THAT DIRECTORS BE HOLDERS OF RECORD OF
AT LEAST 100 SHARES.
__ FOR __ AGAINST __ ABSTAIN
(4) TO APPROVE AN AMENDMENT TO THE COMPANY'S CODE OF REGULATIONS TO MAKE
CHANGES TO THE STATED DUTIES AND RESPONSIBILITIES OF THE COMPANY'S
OFFICERS.
__ FOR __ AGAINST __ ABSTAIN
(5) TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL
MEETING OR ANY ADJOURNMENT OR POSTPONEMENT OF THE ANNUAL MEETING.
(Continued, and to be executed and dated on the reverse side.)
(Continued from other side)
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 AND 1B AND FOR PROPOSALS 2, 3 AND 4, 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 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 FOR SUCH
SUBSTITUTE NOMINEE(S) AS THE DIRECTORS MAY RECOMMEND.
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, 2002, is hereby acknowledged.
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.
Dated: ______________________, 2003
_________________________________
_________________________________
Signature(s) of Shareholder(s)
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.
-- 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 any time prior to April 16, 2003.
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.