Exhibit 10.5
THE OHIO CASUALTY INSURANCE COMPANY
DEFERRED COMPENSATION PROGRAM
(Dan R. Carmichael)
Effective February 23, 2001
THE OHIO CASUALTY INSURANCE COMPANY
DEFERRED COMPENSATION PROGRAM
(Dan R. Carmichael)
1.00 Purpose
Effective February 23, 2001, The Ohio Casualty Insurance Company establishes
the Ohio Casualty Insurance Company Deferred Compensation Program to provide
the deferred compensation promised to Dan R. Carmichael in Sections 3.01[3]
and 3.02[3] of the Employment Agreement between Ohio Casualty Corporation
and Dan R. Carmichael dated December 12, 2000. Although it is not a direct
party to this Program, The Ohio Casualty Corporation joins in this Program
to the extent needed to enable the Corporation to discharge its obligations
under the Employment Agreement.
2.00 Definitions
Whenever used in this Program, the following words and phrases will have the
meanings given below. Other words and phrases also may be defined in the
Program text.
2.01 Account: Collectively, the Section 3.01[3] Account and the Section
3.02[3] Account.
2.02 Affiliate: Any entity that is related, through common control, to
the Corporation or the Company.
2.03 Beneficiary: The person the Executive names to receive any Program
benefits that are unpaid when the Executive dies. If the Executive has not
effectively named a Beneficiary or if all named Beneficiaries are dead, the
Executive's Beneficiary will be his surviving spouse, if any, or, if there
is no surviving spouse, his estate.
2.04 Board: The Company's board of directors.
2.05 Cause: Any act of fraud, intentional misrepresentation,
embezzlement, misappropriation or conversion by the Executive of the assets
or business opportunities of any Group member, conviction of the Executive
of a felony or intentional or repeated or continuing violations by the
Executive of the Company's written policies or procedures that occur after
the Company has given the Executive written notice that he has violated
these written policies or procedures.
2.06 Change in Control: The date after the Effective Date on which the
earliest of the following events occurs:
[1] Any entity or person [including a "group" as defined in
Section 13(d)(3) of the Exchange Act but excluding another Group
member] becomes the beneficial owner of, or obtains voting control
over 20 percent or more of the outstanding common shares of the
Corporation or the Company;
[2] The Corporation's shareholders approve a definitive
agreement [a] to merge or consolidate the Corporation with or into
another business entity (other than into the Company or another
Group member) in which the Corporation is not the continuing or
surviving entity or through which the Corporation's common shares
would be converted into cash, securities or other property of
another business entity, other than a merger of the Corporation in
which holders of its common shares immediately before the merger
have the same proportionate ownership of the survivor immediately
after the merger as immediately before the merger or [b] to sell or
otherwise dispose of substantially all the assets of the Corporation
or the Group to an entity that is not a Group member;
[3] The Company's shareholders approve a definitive agreement
[a] to merge or consolidate the Company with or into another
business entity (other than into another Group member) in which the
Company is not the continuing or surviving entity or through which
the Company's common shares would be converted into cash, securities
or other property of another business entity, other than a merger of
the Company in which holders of its common shares immediately before
the merger have the same proportionate ownership of the survivor
immediately after the merger as immediately before the merger or
[b] to sell or otherwise dispose of substantially all of the assets
of the Corporation or the Group to an entity that is not a Group
member;
[4] Within a 12-month period, there is a change in the majority
of the members of the Board; provided, however, that any new
director whose nomination for election by the Corporation's
shareholders was approved, or who was appointed or elected to that
Board, by the vote of two-thirds of the directors then still in
office who were in office at the beginning of the 12-month period
will be disregarded in determining if there has been a change in the
majority of the Board; and
[5] Within a 12-month period, there is a change in the majority
of the members of the Corporation's Board of Directors
("Corporation's Board"); provided, however, that any new director
whose nomination for election by the Corporation's shareholders was
approved, or who was appointed or elected to the Corporation's
Board, by the vote of two-thirds of the directors then still in
office who were in office at the beginning of the 12-month period
will be disregarded in determining if there has been a change in the
majority of the Company's Board.
2.07 Code: The Internal Revenue Code of 1986, as amended.
2.08 Committee: The Corporation's Compensation Committee.
2.09 Company: The Ohio Casualty Insurance Company, an Ohio corporation,
and any successor to it.
2.10 Corporation: Ohio Casualty Corporation, an Ohio corporation, and
any successor to it.
2.11 Disability: Has the same meaning given to the term under the
Company's long-term disability plan as in effect on December 12, 2000,
whether or not the Executive has
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elected to participate in that plan and whether or not that plan has been
amended or terminated before the Executive's Disability arises.
2.12 Earnings: The One-Year Libor published in the Wall Street Journal
for the first business day of each Program Year.
2.13 Effective Date: February 23, 2001.
2.14 Employment Agreement: The employment agreement dated December 12,
2000 between the Corporation and the Executive.
2.15 Enrollment Form: The form described in Article 3.00 which the
Executive must complete before he may begin to accrue a Program benefit.
Although a copy of this form is attached to the Program, it is not a part of
the Program and may be modified by the Committee without separate action by
the Board and without regard to the restrictions described in Article 8.00.
2.16 Executive: Dan R. Carmichael.
2.17 Financial Emergency: A current and heavy financial expense
associated with:
[1] A sudden or unexpected illness or accident incurred by the
Executive or a member of the Executive's immediate family; or
[2] The loss of the Executive's property due to casualty or
other similar extraordinary and unforeseeable circumstance
attributable to events beyond the Executive's control.
2.18 Good Reason: Without the Executive's express prior written consent,
the occurrence of any one or more of the following events (the Executive
will be deemed to have given his written consent to any of these events if
he participates, or is entitled to participate, in the decision making
process that leads to the occurrence of any of the following events):
[1] A material reduction in the Executive's duties,
responsibilities or status with respect to the Corporation, as
compared to those in effect on December 12, 2000;
[2] Deprivation of the Executive of the title of President and
CEO of the Corporation;
[3] The permanent assignment to the Executive of duties
materially inconsistent with the Executive's office on December 12,
2000;
[4] A requirement that the Executive relocate his principal
office or worksite (or the indefinite assignment of the Executive)
to a location more than 50 miles distant from [i] the principal
office or worksite to which he was permanently assigned as of
December 12, 2000 or [ii] any location to which the Executive is
permanently assigned, without his consent, after December 12, 2000;
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[5] The failure of the Corporation to maintain the Executive's
relative level of coverage under the employee benefit or retirement
plans, policies, practices or arrangements described in Sections
3.01[4] and 3.01[5] of the Employment Agreement as in effect on
December 12, 2000, both in terms of the amount of benefits provided
and the relative level of the Executive's participation. However,
Good Reason will not arise under this subsection if the Corporation
eliminates and/or modifies any of these programs if (except as
required by law or as needed to preserve the tax-character of the
plan, policy, practice or arrangement) the Executive's level of
coverage under all these programs is at least as great as the
coverage provided to other senior executives of the Corporation; or
[6] Any material breach of the Employment Agreement by or on or
in behalf of the Corporation that is not cured by the Corporation
within 60 days of its receipt of written notice describing the
nature of the alleged breach.
2.19 Group: Collectively, the Corporation, the Company and all
Affiliates of either of them.
2.20 Program: The Ohio Casualty Insurance Company Deferred Compensation
Program, as described in this document and any amendments to it.
2.21 Program Year: The period beginning on the Effective Date and ending
December 31, 2001. Subsequent Program Years will be comprised of 12-
consecutive month periods beginning on January 1, 2002 and each subsequent
January 1 while the Program is in effect.
2.22 Retirement: The Executive's Termination of Employment for any
reason other than Disability, death or for Cause at or after the date the
Executive qualifies for early retirement under the terms of the
Corporation's tax-qualified defined benefit pension plan as in effect on
December 12, 2000, whether or not the Executive participates in the plan and
whether or not that plan has been amended or terminated before the
Executive's Retirement.
2.23 Section 3.01[3] Account: The recordkeeping account established
under Section 4.01 to which are credited amounts promised under Section
3.01[3] of the Employment Agreement.
2.24 Section 3.02[3] Account: The recordkeeping account established
under Section 4.01 to which are credited amounts promised under Section
3.02[3] of the Employment Agreement.
2.25 Termination of Employment: Discontinuance of the Executive's status
as a common law employee of all Group members. For purposes of this
Program, the Executive will have Terminated Employment even if he continues
to serve as a consultant to or as an independent contractor with respect to
any Group member (including as a member of the Board or a Group member's
board of directors) after severing his common law employment relationship
with each Group member.
2.26 Year of Service: Each Program Year ending before the Executive's
Termination of Employment.
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3.00 Participation
The Executive may enter the Program as of the Effective Date but only after
completing an Enrollment Form in which the Executive acknowledges that this
document fully defines the Corporation's (and the Group's) liability to him
under Section 3.01[3] and 3.02[3] of the Employment Agreement.
4.00 Program Benefit
4.01 Accounts. As of the Effective Date, the Committee will establish a
Section 3.01[3] and a Section 3.02[3] Account in the Executive's name.
Subject to the terms of this Program:
[1] The Section 3.01[3] Account will:
[a] Be credited with the amount described in Section
4.02[1];
[b] Periodically be adjusted to reflect Earnings as
described in Section 4.03;
[c] Become nonforfeitable under the terms of Section
5.01[1]; and
[d] Will be distributed as provided in Section 5.02.
[2] The Section 3.02[3] Account will:
[a] Be credited with the amount described in Section
4.02[2];
[b] Periodically be adjusted to reflect Earnings as
described in Section 4.03;
[c] Become nonforfeitable under the terms of Section
5.01[2]; and
[d] Will be distributed as provided in Section 5.02.
4.02 Principal Credits to Accounts. The Company will credit each Account
with the following principal amounts:
[1] The Section 3.01[3] Account will be credited with $175,000
as of March 31, 2002 and $175,000 as of March 31, 2003 and will not
be credited with any other principal amounts but will be adjusted to
reflect Earnings as described in Section 4.03.
[2] The Section 3.02[3] Account will be credited with $346,906
as of the Effective Date and will not subsequently be credited with
any other principal amounts but will be adjusted to reflect Earnings
as described in Section 4.03.
4.03 Earnings Credited to Sections 3.01[3] and 3.02[3] Accounts. As of
the last day of each Program Year, the Committee will apply the Earnings
rate to the Accounts. The amount credited will be based on the Earnings
rate and the number of months during the preceding Program Year for which
the amount has been credited to the Accounts.
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5.00 Distribution of Program Benefits
5.01 Vesting. Amounts allocated to the Executive's Accounts will become
nonforfeitable under the following schedules:
[1] Subject to this section and the terms of the Program, the
Executive will earn a vested interest in amounts credited to his
Section 3.01[3] Account under the following schedule:
Year of Service Ending: Cumulative Vested Amount
---------------------- ------------------------
December 31, 2002 33-1/3 percent
December 31, 2003 66-2/3 percent
December 31, 2004 and later 100 percent
This vesting schedule will be applied separately to each principal
amount credited to the Section 3.01[3] Account.
[2] Subject to this section and the terms of the Program, the
Executive will earn a nonforfeitable interest in his Section 3.02[3]
Account under the following schedule:
Year of Service Ending: Cumulative Vested Amount
---------------------- ------------------------
December 31, 2002 25 percent
December 31, 2003 50 percent
December 31, 2004 75 percent
December 31, 2005 and later 100 percent
[3] Regardless of the vesting schedules described in Section
5.01[1] and [2]:
[a] the Executive will be fully vested [i] if he Terminates
Employment because of [A] death, [B] Retirement, [C]
Disability or for [D] Good Reason after a Change in Control
or [ii] if the Corporation terminates the Executive's
employment without Cause after a Change in Control; but
[b] The Executive will forfeit the undistributed balance
of the Accounts that is not vested (determined under the
schedules described in Sections 5.01[1] and 5.01[2]) if he
Terminates Employment for any reason not described in
Section 5.01[3][a] or if his employment is terminated for
Cause, whether before or after a Change in Control.
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5.02 Time and Form of Payment. Subject to this section and the terms of
this Program, the vested portion of the Executive's Account balances
(determined under the schedules described in Section 5.01) will be
distributed in five annual installments beginning on the January 30 after
the Executive's Termination of Employment and anniversaries of that date.
The amount paid will be determined under the following schedule:
Date of Distribution Percentage of Section 3.03[3]
Account to be Distributed
-------------------- -----------------------------
First January 30 after 20 percent of vested balance as of
Termination of Employment the last day of the preceding
Program Year
Second January 30 after 25 percent of vested balance as of
Termination of Employment the last day of the preceding
Program Year
Third January 30 after 33-1/3 percent of vested balance as
Termination of Employment of the last day of the preceding
Program Year
Fourth January 30 after 50 percent of vested balance as of
Termination of Employment the last day of the preceding
Program Year
Fifth January 30 after 100 percent of vested balance as of
Termination of Employment the last day of the preceding
Program Year
5.03 Hardship Distribution. In its discretion, the Committee may allow
the Executive to withdraw vested amounts needed to meet a Financial
Emergency. However, this may be done only if the Executive describes the
nature and extent of the Financial Emergency. If an event constitutes a
Financial Emergency and also qualifies for an in-service hardship withdrawal
under any tax-qualified retirement plan maintained by the Corporation (or
any other Group member) and in which the Executive participates, the
Executive may not withdraw any amounts from the tax-qualified plan until he
first exhausts amounts available under this Program. A distribution based
on a Financial Emergency [1] will be taken proportionately from each of the
Executive's Accounts and [2] will not be larger than the smaller of [a] the
amount needed to meet the immediate financial need created by the hardship
or [b] the value of the Executive's vested Account balance as of the end of
the most recently completed Program Year.
5.04 Special Distribution. If any taxing authority finally establishes
that the Executive is constructively in receipt of any Program benefit that
has not actually been distributed and that the Executive is immediately
liable for any income or other taxes (other than any taxes within the scope
of Section 6.02) that normally would not be imposed until the Program
benefit is actually paid to the Executive, the Committee will immediately
distribute to the Executive a lump sum amount equal to that which the taxing
authority has deemed the Executive to have constructively received.
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5.05 Limit on Change in Control Benefits. If the sum of the payments
described in this Program and those provided under any other plan, program
or agreement between the Executive and any Group member constitute "excess
parachute payments" as defined in Code Section 280G(b)(1), the Company will
either:
[1] Reimburse the Executive for the amount of any excise tax due
under Code Section 4999, if this procedure provides the Executive
with an after-tax amount that is larger than the after-tax amount
produced under Section 5.05[2]; or
[2] Reduce the amounts paid to the Executive under this
Agreement so that his total "parachute payment" as defined in Code
Section 280G(b)(2)(A) under this and any other plan, program or
agreement will be $1.00 less than the amount that would be an "excess
parachute payment" if this procedure provides the Executive with an
after-tax amount that is larger than the after-tax amount produced
under Section 5.05[1].
6.00 Taxes
6.01 Withholding for Taxes Due on Program Payments. Regardless of any
other provision of this Program, any payment due under Article 5.00 will be
reduced by the amount of any federal, state and local income and wage taxes
the Company is required to withhold under any applicable law or regulation
from any payment made under Article 5.00.
6.02 Withholding for Taxes Due Before Payments Begin. The Committee and
the Executive will agree on the method to be applied to pay the Executive's
portion of any employment, wage and other taxes imposed under any applicable
law or regulation on any Program benefit before that benefit is paid to the
Executive. If the Committee and the Executive fail to agree on the method
to be applied, the Company will withhold the amount of the Executive's
liability from his other Compensation.
7.00 Administration
7.01 Appointment of Committee. The Program will be administered by the
Committee.
7.02 Powers and Duties. The Committee is fully empowered to exercise
complete discretion to administer the Program and to construe and apply all
of its provisions.
These powers and duties include:
[1] Subject to Section 7.07, resolving disputes that may arise
with regard to the rights of the Executive and his legal
representatives under the terms of the Program. The Committee's
decisions in these matters will be final in each case;
[2] Obtaining from the Company, each Group member and the
Executive information that the Committee needs to determine the
Executive's rights and benefits under the Program. The Committee
may rely conclusively upon any information furnished by the Company
or the Executive;
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[3] Compiling and maintaining all records it needs to administer
the Program;
[4] Upon request, furnishing the Company with reasonable and
appropriate reports of its administration of the Program;
[5] Authorizing the distribution of all benefits that are
payable under the Program;
[6] Engaging legal, administrative, actuarial, investment,
accounting, consulting and other professional services that the
Committee believes are necessary and appropriate;
[7] Adopting rules and regulations for the administration of the
Program that are not inconsistent with the terms of the Program; and
[8] Doing and performing any other acts provided for in the
Program.
Also, the Committee may delegate any of the powers and duties described in
subsections 7.02[2] through [4] to any other person or organization, as it
deems appropriate.
7.03 Actions by the Committee. The Committee may act at a meeting, or in
writing without a meeting, by the vote or assent of a majority of its
members. The Committee will appoint one of its members to act as secretary
to record all Committee action. The Committee also may authorize one or
more of its members to execute papers and perform other ministerial duties
on behalf of the Committee.
7.04 Indemnification. The Committee will be indemnified to the fullest
extent permitted by the Corporation's certificate of incorporation and by-
laws.
7.05 Conclusiveness of Action. Subject to Section 7.07, any action on
matters within the discretion of the Committee will be conclusive, final and
binding upon the Executive and upon all persons claiming any rights under
the Program.
7.06 Payment of Expenses.
[1] Committee members will not be separately compensated for
their services as Committee members. However, the Company will
reimburse Committee members for all appropriate expenses they incur
while carrying out their Program duties.
[2] The compensation or fees of accountants, counsel and other
specialists and any other costs of administering the Program will be
paid by the Company.
7.07 Resolution of Disputes.
[1] Arbitration will be the exclusive means of resolving all
disputes or questions arising out of or relating to this Program.
Any arbitration proceeding will be conducted before a panel of three
arbitrators, one appointed by the Company, a second appointed by the
Executive and a third appointed by those two arbitrators. Any
arbitration may be initiated by either the Company or the
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Executive by written notice to the other specifying the subject of the
requested arbitration and appointing the initiating party's arbitrator.
[2] The arbitration will take place in Cincinnati, Ohio and will
be conducted in accordance with the rules of the American
Arbitration Association in effect when the arbitration begins. Any
determination or award made or approved by at least two of the
arbitrators will be final and binding on the Company and the
Executive. Judgment upon any award made in any arbitration may be
entered and enforced in any court having competent jurisdiction.
[3] The costs of arbitration will be borne solely by the person
by which they are incurred.
8.00 Program Amendment
The Company, by action of the Board, may modify, alter or amend the Program
at any time. However, no amendment may affect the Executive's right to
receive the value of benefits accrued under the Program before the effective
date of that amendment unless the Executive agrees to that reduction either
in a separate written agreement or by voting, as a member of the Board, for
the reduction in benefits.
9.00 Termination of Program
9.01 Right to Terminate. The Company, by action of the Board, may
terminate the Program in whole or in part at any time. However, no
termination may affect the Executive's right to receive the value of
benefits accrued under the Program before the effective date of that
termination unless the Executive agrees to that reduction either in a
separate written agreement or by voting, as a member of the Board, for the
reduction in benefits.
9.02 Automatic Termination. This Program will automatically terminate as
of the date the Executive has received all of the benefits he is entitled to
received under the terms of this document.
9.03 Merger and Consolidation. If the Program is merged into or
consolidated with any other plan, the Executive will be entitled to a
benefit immediately after the merger or consolidation (determined as if the
surviving plan had then terminated) at least equal to the benefit he had
accrued immediately before the merger or consolidation (determined as if the
Program terminated immediately before that merger or consolidation).
9.04 Successor Employer. If the Company dissolves, reorganizes, merges
into or consolidates with another business entity, provision may be made by
which the successor will continue the Program, in which case the successor
will be substituted for the Company under the terms and provisions of this
Program. The substitution of the successor for the Company will constitute
an assumption by the successor of all Program liabilities and the successor
will have all of the powers, duties and responsibilities of the Company
under the Program.
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10.00 Funding
This Program constitutes an unfunded, unsecured promise by the Company to
pay only those benefits that are accrued by the Executive under the terms of
the Program. Neither the Company nor any Group member will segregate any
assets into a fund established exclusively to pay Program benefits unless
the Company, in its sole discretion, establishes a trust for this purpose.
Neither the Company nor any Group member is liable for the payment of
Program benefits that are actually paid from a trust established for that
purpose. Also, the Executive has only the rights of a general unsecured
creditor and does not have any interest in or right to any specific asset of
the Company or any Group member. Nothing in this Program constitutes a
guaranty by the Company, any Group member or any other entity or person that
the assets of the Company, any Group member or any other entity will be
sufficient to pay Program benefits.
11.00 Miscellaneous
11.01 Voluntary Program. The Program is purely voluntary on the part of
the Company; neither the establishment of the Program nor any amendment to
it nor the creation of any fund or account nor the payment of any benefits
may be construed as giving any person [1] a legal or equitable right against
the Company, any Group member or the Committee other than those specifically
granted under the Program or conferred by affirmative action of the
Committee or the Company or any Group member in a manner that is consistent
with the terms and provisions of this Program or [2] the right to be
retained as an employee.
11.02 Nonalienation of Benefits. The Executive's right to receive Program
benefits may not be assigned, transferred, pledged or encumbered, including
by will or by applicable laws of descent and distribution. Any attempt to
assign, transfer, pledge, encumber or devise a Program benefit will be null
and void and of no legal effect.
11.03 Inability to Receive Benefits. Any Program benefit payable to the
Executive after he is declared incompetent will be paid to the guardian,
conservator or other person legally charged with the care of his person or
estate. Also, if the Committee, in its sole discretion, concludes that the
Executive is unable to manage his financial affairs, the Committee may, but
is not required to, direct the Company to distribute Program benefits to any
one or more of his spouse, lineal ascendants or descendants or other close
living relatives of the Executive who demonstrates to the satisfaction of
the Committee the propriety of those distributions. Any payment made under
this section will completely discharge the Program's liability with respect
to that payment. The Committee is not required to see to the application of
any distribution made to any person.
11.04 Inability to Locate Executive. The Executive is obliged to keep the
Committee apprised of his current mailing address. The Committee's
obligation to search for the Executive is limited to sending a registered or
certified letter to the Executive's last known address. If the Executive
does not file a claim for benefits with the Committee, all unpaid Program
benefits will be forfeited no later than 12 months after benefits are
otherwise payable.
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11.05 Limitation of Rights. Nothing in the Program, expressed or implied,
is intended or may be construed as conferring upon or giving to any person,
firm or association (other than the Company, the Group and the Executive)
any right, remedy or claim under or by reason of this Program.
11.06 Invalid Provision. If any provision of this Program is held to be
illegal or invalid for any reason, the Program will be construed and
enforced as if the offending provision had not been included in the Program.
However, that determination will not affect the legality or validity of the
remaining parts of this Program.
11.07 One Program. This Program may be executed in any number of
counterparts, each of which will be deemed to be an original.
11.08 Governing Law. The Program will be governed by and construed in
accordance with the laws of the United States and, to the extent applicable,
the laws of Ohio.
11.09 Coordination With Other Programs. The Executive's right to any
benefits accrued or payable under this Program will be determined solely by
reference to the terms of this Program document and will be unaffected by
any other document or agreement between the Executive and the Company or any
other Group Member.
IN WITNESS WHEREOF, the undersigned authorized officer of the Company has
executed this Program to be effective as of February 23, 2001.
THE OHIO CASUALTY INSURANCE COMPANY
By:
------------------------------
Title:
--------------------------
OHIO CASUALTY CORPORATION
By:
------------------------------
Title:
--------------------------
DAN R. CARMICHAEL
------------------------------
Date:
--------------------------
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THE OHIO CASUALTY INSURANCE COMPANY
DEFERRED COMPENSATION PROGRAM
(Dan R. Carmichael)
Enrollment Form
By completing this application and signing below, I acknowledge that:
- The terms of The Ohio Casualty Insurance Company Deferred
Compensation Plan ("Plan") fully implements the commitment
described in Sections 3.01[3] and 3.02[2] of the employment
agreement ("Employment Agreement") dated December 12, 2000
between myself, The Ohio Casualty Insurance Company ("Company")
and Ohio Casualty Corporation ("Corporation");
- I have received a copy of, read and understand the Plan
document;
- Participation in this plan gives me no additional employment rights;
- No funds will be set aside into a trust or otherwise to pay Plan
benefits; these will be paid only from the Company's general
assets; and
- Any death benefit payable from the Plan will be paid to the
person I name on a separate beneficiary designation form.
----------------------------- ----------------------
Dan R. Carmichael (Date signed)
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