Exhibit 10
The Ohio Casualty Insurance Company
2004 Executive Management Team Annual Incentive Program
Overview
The 2004 Executive Management Team Annual Incentive Program ("Program") is
designed to give participants the opportunity to earn a bonus based on
criteria defined in Exhibit 1.
Eligibility for Participation
To be a participant, the employee must satisfy the eligibility requirements
specified in Exhibit 1.
Eligibility for Bonus Payment
Unless otherwise provided in Exhibit 1, the following rules shall govern a
participant's ability to receive a bonus payment under the Program.
Participants must meet the eligibility criteria as of the 15th day of the
month to be considered eligible in that month. Bonuses for participants who
are eligible for a bonus will be prorated (as described below) based on the
months in which the participant is considered eligible.
If a participant retires, dies, or becomes disabled prior to the bonus payment
date, he/she will be eligible for a prorated bonus only if he/she met the
eligibility criteria January 2004 through and including March 2004 (or full
bonus if he/she meets the eligibility criteria for all twelve months).
Participants who have been placed on disciplinary probation within the
12-month period preceding the bonus payment date are not eligible for the
bonus.
If a participant is displaced out of an eligible position (as defined
in Exhibit 1) in 2004, he/she is eligible for a prorated bonus if the
participant is an employee on December 31, 2004 (or full bonus if he/she
meets the eligibility criteria for all twelve months).
If a participant is demoted out of an eligible position in 2004, he/she is not
eligible for the bonus. If a participant is demoted out of an eligible
position after December 31, 2004 but before the bonus payment date, he/she is
eligible for the bonus earned.
Any bonus will be prorated for the period of time that a participant is on a
leave of absence in 2004 (except for any leave of absence covered under the
Family Medical Leave Act).
Participants must be in good standing at the time of payout to be eligible
for any bonus under this Program.
Participants must be employed at the time of payout to be eligible for any
bonus under this Program unless (i) the employee retires, dies, or becomes
disabled prior to the bonus payment date and the employee met the eligibility
criteria January 2004 through and including March 2004, or (ii) the employee
is displaced out of an eligible position prior to the bonus payment date and
was an employee on December 31, 2004.
Bonus Payments
The bonus amount will be calculated after all necessary data is available in
accordance with Exhibit 1. It is expected that the bonus will be paid in the
spring of 2005.
If Exhibit 1 provides that a portion of the bonus earned will be delayed, it
is expected that the deferred portion will be paid in the spring of 2006. Any
portion of the bonus to be paid in 2006 will be paid to those who met the
eligibility requirements for the 2005 payout, unless the participant is no
longer in good standing, has been placed on disciplinary probation within the
12-month period preceding the bonus payment date, or has terminated employment.
Terminated participants will remain eligible for the 2006 portion of the bonus
if (i) the employee retires, dies, or becomes disabled prior to the bonus
payment date and the employee met the eligibility criteria January 2004 through
and including March 2004, or (ii) the employee is displaced out of an eligible
position prior to the bonus payment date and was an employee on December 31,
2004.
A participant's prorated bonus shall be determined by multiplying the bonus
amount by x/12, with x being the number of whole months in the year during
which the person was "eligible for the bonus." A person is considered
"eligible for the bonus" for each month in which he/she meets the eligibility
requirements as of the 15th day of the month.
If a participant dies prior to payment of the earned bonus, the bonus will be
payable to the participant's estate.
Payment of a bonus to an employee on a leave of absence will not be made until
the employee returns from the leave of absence and will be forfeited if such
employee fails to return from the leave of absence.
The bonus payments will be considered a part of Final Average Compensation (as
defined in The Ohio Casualty Insurance Company Employees Retirement Plan) if
paid to the employee prior to his/her termination date.
The bonus payment will be included in a participant's Compensation (as defined
in The Ohio Casualty Insurance Company Employee Savings Plan ("ESP")) if paid
to the employee before his/her termination date to the extent permitted under
the ESP. If the employee is contributing to the ESP at the time a bonus is
paid and such bonus is included in his/her Compensation for such purposes of
the ESP, contributions to the ESP will be deducted from any amount payable to
the employee under this Program.
The Ohio Casualty Insurance Company ("OC") shall deduct from any amount
payable to the employee under this Program any taxes required to be withheld
under federal, state and local law.
Notwithstanding anything in this Program or Exhibit 1 to the contrary, but
subject to the terms of a written Change in Control Agreement and the sixth
paragraph under the Miscellaneous section of this document, the Executive
Compensation Committee of the Board of Directors of Ohio Casualty Corporation
(the "Compensation Committee") shall have the discretion to alter the amount,
timing or form of payment of any bonus amount for any participant(s) under
this
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Program in accordance with the guidelines established by the Compensation
Committee for such purpose.
Confidential Information
At all times during employment with OC or any of its subsidiaries and
thereafter, employees shall not disclose, divulge, use or publish any
Confidential Information (as defined below) except in connection with the
employee's job responsibilities for OC or its subsidiaries or with the written
permission by an authorized senior officer of The Ohio Casualty Insurance
Company. For purposes of this section, Confidential Information means any and
all confidential and/or proprietary information, data or knowledge of the Ohio
Casualty Corporation ("OCC") or any of its subsidiaries including but not
limited to (i) information regarding research, development, new products,
marketing and selling strategies, operating plans and procedures, reinsurance,
policyholders and agents, (ii) information regarding business plans and
strategies, budgets, litigation and governmental proceedings, prices, costs and
expenses and premium data, (iii) skills and compensation of other employees,
and (iv) trade secrets, ideas, processes, source and object codes, data,
computer programs and software, and other intellectual property. Confidential
Information does not include information that is or becomes generally available
to the public other than as a result of a disclosure by an employee in
violation of this Program.
When an employee leaves the employ of OC (or at OC's earlier request), he or
she will deliver to OC any and all computer disks and tapes, notes, memoranda
and other documents, together with all copies thereof, and any other material
containing or disclosing any Confidential Information.
Breach of this section will result in appropriate disciplinary action by OC up
to and including termination of employment. OCC and OC shall have the right
to enforce this section by injunction, specific performance or other equitable
relief, without bond and without prejudice to any other rights and remedies
that OCC or OC may have for breach of this provision.
Miscellaneous
Full power and authority to construe, interpret and administer this Program,
including determining the eligibility and the amount of any bonus payments
hereunder will be vested in the Compensation Committee. The Compensation
Committee shall have the sole and exclusive discretion in making any and all
decisions regarding the Program's operation. In no circumstances may the
Program be construed or interpreted as guaranteeing bonus payments being made
to any eligible employee.
Since no employee has a guaranteed right to any bonus amount under this
Program, any attempt by such an employee to sell, transfer, assign, pledge, or
otherwise encumber any anticipated bonus amount shall be void and neither OCC
nor any of its subsidiaries shall be liable in any manner for, or subject to,
the debts, contracts, liabilities, engagements or torts of any such employee
who might anticipate a bonus under this Program.
Nothing in this Program shall confer upon any employee any right to continue
in the employment of OC or any subsidiary or limit in any way the right of OC
or any subsidiary to terminate the employment of the employee at any time.
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This Program shall at all times be entirely unfunded, and no provision shall
at any time be made with respect to segregating assets of OCC or any of its
subsidiaries for payment of any bonus amount under this Program. No employee
or any other person shall have any interest in any particular assets of OCC
or any of its subsidiaries by reason of the right to receive a bonus payment
under this Program and any such employee or any such other person shall have
only the rights of a general unsecured creditor of OC or its applicable
subsidiary regarding his or her rights under this Program.
OC reserves the right to amend or terminate the Program (in its sole
discretion) by action of the Compensation Committee. A termination of the
Program shall cause a discontinuance or forfeiture of any bonus amounts not
earned at the time of termination. Any amendment made to the Program shall be
effective as of the date such amendment is adopted and no such amendment shall
adversely affect the rights of any employee to bonus amounts earned prior to
the adoption of such amendment unless otherwise specified in such amendment.
If OCC or OC undergoes a sale, merger or consolidation or if there is a
reclassification of stock or the exchange of stock for securities of another
entity (other than a subsidiary of OCC or OC) that has acquired OCC's or OC's
assets or which is in control (as defined in Internal Revenue Code Section
368(c)) of an entity that has acquired OCC's or OC's assets and the terms of
that plan or agreement are binding on all holders of stock (except to the
extent that dissenting shareholders are entitled to relief under applicable
law), hereafter referred to as a "Change in Control", then OC shall (i) treat
the date on which the Change in Control occurred as the date of payout for
purposes of determining a participant's eligibility for a bonus under this
Program, (ii) treat participants who are employed on the date on which the
Change in Control occurred as being eligible for a bonus payment if the payout
date was the date on which the Change in Control occurred, (iii) calculate the
bonus payment to participants under this Program based on the prorated bonus
calculation provided that a participant will be considered "eligible for the
bonus" for the month in which the Change in Control occurred unless the
participant would not have otherwise been considered "eligible for the bonus"
for such month, (iv) determine the bonus amount based on the most recently
disclosed financial statements of OCC preceding the date on which the Change
in Control occurred, and (v) pay such bonus to eligible participants as soon
as administratively feasible following the date on which the Change in Control
occurred."
Nothwithstanding the provisions of the foregoing paragraph, the express terms
of a written Change in Control Agreement with a participant in the Program
shall govern the determination of an occurrence of a Change in Control as well
as the terms, calculation, form and payout amount, for any bonus amount for
such a participant under the Program.
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EXHIBIT 1
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2004 Executive Management Team Annual Incentive Program Details
Eligibility to Participate
To be a participant, an employee must be a member of the Executive Management
Team ("eligible position") on or after January 1, 2004 and on or before
December 15, 2004 ("eligible employee"). An eligible employee will become a
participant on the earliest date on or after January 1, 2004 on which he/she
becomes an eligible employee.
Program Design
A target bonus amount has been defined for each participant based on his or
her position. The target bonus amount is stated as a percent of base salary.
Annual base salary as of December 31, 2004 (or such other date as determined by
the Executive Compensation Committee of the Board of Directors of Ohio Casualty
Corporation (the "Compensation Committee")) will be used to calculate the
bonus.
The target bonus amount is divided into two components, one based on operating
income and one based on combined ratio and premium. The initial amount of
each component will be 50% of the total target bonus amount. No component of
the bonus will be paid under this program unless the minimum threshold for
corporate operating income is achieved.
Operating Income Component
To determine the operating income component of the bonus, the target
bonus amount will be multiplied by 50% (the weight of the component)
and adjusted up or down based on before-tax operating income as shown
in the Operating Income Matrix on the personalized sheet. Individual
performance (measured using the Overall Performance Rating on the
participant's 2004 Employee Evaluation form) is then used as a
modifier, adjusting the result from the preceding sentence up or down
as shown in the Individual Performance Matrix on the personalized
sheet.
Operating income will be measured by Ohio Casualty Corporation ("OCC")
2004 before-tax operating income, which may be adjusted to account for
an extraordinary event(s), but only if approved by the Compensation
Committee.
Combined Ratio Component
For both Support Areas and Business Units, payment of the combined
ratio component of the bonus is dependent on meeting the minimum
threshold for corporate operating income.
To determine the combined ratio component of the bonus, the target
bonus amount will be multiplied by 50% (the weight of the component)
and adjusted up or down based on the Combined Ratio Matrix on the
personalized sheet. Individual performance (measured
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using the Overall Performance Rating on the participant's 2004
Employee Evaluation form) is then used as a modifier, adjusting the
result from the preceding sentence up or down as shown in the
Individual Performance Matrix on the personalized sheet.
For Support Areas, the Combined Ratio Matrix will use 2004 corporate
calendar year combined ratio.
For Business Units, the Combined Ratio Matrix will use the business
unit's 2004 gross written premium and 2004 calendar year combined
ratio, depending on the business unit. The appropriate matrix is shown
on the personalized sheet.
The combined ratio and/or the gross written premium may be adjusted to
account for an extraordinary event(s), but only if approved by the
Compensation Committee.
The calendar year combined ratio is net of reinsurance, includes
residual markets and the effect of canceled agents, and includes
National Workers' Compensation Pool and Commercial Auto Insurance Pool.
Gross written premium excludes residual markets and National Workers'
Compensation Pool and Commercial Auto Insurance Pool, and is gross of
reinsurance.
For Home Office Commercial Lines, the accident year combined ratio is
all commercial lines, excluding bond and all umbrella. The gross
written premium is all commercial lines, excluding all bonds and
umbrellas.
Home Office Commercial Umbrella includes all commercial umbrellas.
Specifically, it is unsupported umbrellas written through umbrella-only
agents plus unsupported and supported commercial umbrellas written
through agents who are not umbrella-only agents.
Miscellaneous
If a participant has a job change in 2004 that does not affect eligibility for
participation in this Program but does affect the bonus amount or bonus
structure (for example, due to transfer from Support Area to Business Unit),
the bonus will be prorated for the portion of the year that was spent in each
eligible position. For example, if the participant spends part of the year in
a Support Area and part of the year in a Business Unit, he/she is eligible for
a prorated Support Area bonus and a prorated Business Unit bonus. The bonus
amounts would be prorated based on the number of months the participant spent
in the Support Area or Business Unit.
Any questions about the Executive Management Team Annual Incentive Program
should be directed to Lynn Schoel (extension 2029 in the Home Office) or any
other member of the Compensation Department.
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April 6, 2004