Exhibit 10-2
OHIO CASUALTY CORPORATION
2002 STOCK INCENTIVE PLAN
NON-QUALIFIED STOCK OPTION AGREEMENT
The Ohio Casualty Corporation ("Company") believes that its business interests
are best served by providing you an opportunity to share in the Company's
business successes. To this end, the Company adopted the Ohio Casualty 2002
Stock Incentive Plan ("Plan") as a means through which you may share in the
appreciation of the Company's stock. This is done by granting "Awards" to key
employees, like you. If you meet the conditions described in this Agreement
(and the Plan), these Awards will mature into an equity interest in the
Company.
There is no guarantee that the value of your Award will increase. This is
because the value of the Company's stock is affected by many factors. However,
the Company believes that your efforts affect the value of its stock and that
this Plan (and the Awards made through the Plan) are an appropriate means of
sharing with you the value of your contribution to the Company's business
success.
This Agreement describes the type of Award that you have been granted and the
conditions that must be met before you may realize the value associated with
your Award. To fully understand these terms and conditions, you should:
- Read this Award Agreement carefully; and
- Call Shareholder Relations at 513-603-2175 if you have any
questions about your Award or if you want a copy of the Plan.
- Sign both copies of the stock option agreement as the
"Optionee/Grantee", keeping one (1) copy for your file and
returning one (1) copy to Shareholder Relations in the enclosed
self addressed envelope by March 31, 2005. Please note, if the
executed stock option agreement is not received by March 31, 2005,
the stock option granted to you will be cancelled.
Thank you very much for your hard work and continued commitment to the
Company.
DESCRIPTION OF YOUR NONQUALIFIED STOCK OPTION
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Your Award Consists of Nonqualified Stock Options
You have been awarded Nonqualified Stock Options (or "NQSOs") through
which you may purchase Company stock. Your NQSOs are subject to the
following terms and to some general rules discussed later in this
Agreement.
Grant Date
Your NQSOs were issued on February 25, 2005. This is the date your
NQSOs were granted and the date on which the vesting schedule for your
NQSOs begins.
Award
You have been granted 25,000 NQSOs. You may purchase one Company share
for each NQSO granted, but only if you meet the terms and conditions
described in this Agreement and in the Plan.
Exercise Price
You may exercise each NQSO by paying $24.55 to purchase one Company
share. When you purchase Company shares by exercising a NQSO, the
option exercised is cancelled. You also may pay the exercise price by
surrendering Company shares you already have owned for at least six
months. The effect of this procedure is described later in this
Agreement.
Expiration Date
You must exercise all these NQSOs, if at all, by no later than February
25, 2015. If you do not exercise these NQSOs by this date they will
expire and may not be exercised at a later date.
LIMITS ON EXERCISING YOUR NQSOs
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Vesting
Normally, you may not exercise your NQSOs until they "vest." Your
NQSOs will vest (and may be exercised) at the following times:
8,333 NQSOs, anytime on or after February 25, 2006;
16,666 NQSOs, anytime on or after February 25, 2007; and
25,000 NQSOs, anytime on or after February 25, 2008.
This does not mean that you must exercise your NQSOs on these dates;
these are merely the first dates that you may do so. However, your
NQSOs will expire unless they are exercised before the Expiration Date.
Also, there are some special situations in which
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your options may vest earlier. These are described later in this
Agreement. And, normally, you may not exercise any NQSOs to purchase a
fractional Company share.
TAX TREATMENT OF YOUR NQSOs
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This brief discussion of the federal tax rules that affect your NQSOs is
provided as general information (not as personal tax advice) and is based on
the Company's understanding of federal tax laws and regulations in effect as
of the Grant Date.
You should consult with a tax or financial adviser to fully understand the
tax ramifications of your Award.
You are not required to pay ordinary income taxes on the value of a NQSO when
it is issued. However, you are required to pay income tax when you buy
Company stock by exercising a NQSO. This tax is calculated by applying
ordinary income tax rates to the difference between the value of Company
stock when the NQSO is exercised and the Exercise Price. Any gain you realize
when you sell the Company stock you purchased through a NQSO (i.e., the
difference between the sales price and the value of the Company stock on the
date the NQSO was exercised) after holding the shares for the applicable
capital gains period will normally be taxed at favorable capital gains rates.
You may increase the portion of your Award's value that is subject to capital
gains tax rates by making a special election [known as a Code Section 83(b)
election] within 30 days of the Grant Date. However, there are important tax
and investment issues that you must consider before making a Code Section
83(b) election. These should be discussed with your personal tax and
investment adviser.
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GENERAL TERMS AND CONDITIONS
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These terms and conditions apply to all Awards under this Award
Agreement
1.00 Conduct Leading to Forfeiture of Unexercised Awards: You may forfeit
any unexercised Award granted if, at any time, you:
- Agree to or actually serve in any capacity for a business or entity
that competes with the Company or any Subsidiary or provides
services to an entity that competes with the Company or any
Subsidiary;
- Refuse or fail to consult with, supply information to, or otherwise
cooperate with the Company after having been requested to do so; or
- Deliberately engage in any action that the Company decides has
caused or is likely to cause substantial harm to its interests or
the interests of any Subsidiary.
2.00 Effect of Terminating Employment: Subject to the Section 1.00:
[1] If you terminate employment any unexercised Awards will expire
on the earlier of:
- The Award's Expiration Date, even if you are employed on that date;
- The date your employment ends, if you are terminated by the Company
for cause (as defined in the Plan);
- Thirty days after your employment ends, if you are involuntarily
terminated by the Company for any reason other than cause;
- The date your employment ends, if you terminate your employment
voluntarily (other than for retirement, as defined in the Plan);
- Three months after your retirement (or 12 months after your
retirement if you die within three months after you retire), if you
terminate after reaching retirement age;
- Twelve months after your employment ends, if you terminate because
of a disability (as defined in the Plan); or
- Twelve months after your death, if you terminate because you die.
[2] If you are a Director (and not also an employee), your Awards:
- May be exercised any time within three months after you leave the
Board (except Awards with an earlier Expiration Date); and
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- If you die within three months of the date you leave the Board,
your Awards will expire on the earlier of the Award's Expiration
Date or 12 months after the date your directorship ends.
Note, it is your responsibility to keep track of when your Awards expire.
3.00 Buy Out of Awards by Company: The Company may decide at any time to
buy out your Award. This may happen without your consent and at any
time. If the Company decides to buy out your Awards, it will pay you
the difference between the fair market value of each Award to be
cancelled and the exercise price of the Award.
4.00 Acceleration of Vesting: All Awards will be fully vested (and be
exercisable) and all restrictions will lapse:
[1] If the Company undergoes a merger or consolidation or if there
is a reclassification of Stock or the exchange of Stock for the
securities of another entity (other than a Subsidiary) that has
acquired the Company's assets or which is in control of an entity that
has acquired the Company's assets and the terms of that plan or
agreement are binding on all holders of Stock (except to the extent
that dissenting shareholders are entitled to relief under applicable
law). Upon payment of the exercise price, you will receive the
applicable securities or cash equal to those you would have received
prior to the events listed in this section; or
[2] If your employment terminates because you are disabled or
because you die, you terminate employment after reaching retirement age
or you are involuntarily terminated by the Company for any reason other
than cause.
5.00 Transferring Awards: Normally Awards may not be transferred except by
will or applicable laws of descent and distribution and, during your
lifetime, may be exercised only by you or your guardian or legal
representative. However, the Company may allow you to place your NQSOs
into a trust established for your benefit or the benefit of your
family. Contact us at the number shown below if you are interested in
doing this.
6.00 Restrictions on Transfers of Stock: The Company may impose
restrictions on any shares of Company stock you acquire by exercising
an Option, including restrictions related to applicable securities
laws, the rules of any national securities exchange or system on which
Company stock is listed or traded.
7.00 Section 16 of the Exchange Act: If you are subject to the requirements
of Section 16 of the Securities Exchange Act, you are responsible for
ensuring that all requirements of Section 16 are met, including the
holding of securities purchased under this Agreement for a minimum of
six months before disposition.
8.00 Beneficiary Designation: You may name a Beneficiary or Beneficiaries
to receive or to exercise any vested Award that is unpaid or
unexercised if you die. If you have not made an effective Beneficiary
designation, your Beneficiary will be your surviving spouse or, if you
do not have a surviving spouse, your estate. A Beneficiary form may be
completed for each Award and will be effective only when in writing and
filed with the Committee.
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9.00 Tax Withholding: In some cases, income taxes must be withheld on the
value of your Award exercised. These taxes may be paid in one of
several ways, including:
- The Company may withhold this amount from other amounts owed to you
(e.g., your salary); or
- You may pay these taxes by giving the Company cash equal to the
amount that must be withheld or by giving the Company other shares
of Company stock (that you have owned for at least six months) with
a value equal to the taxes due.
You may choose the approach you prefer when the Award is payable,
although the Company may reject your preferred method for any reason
(or for no reason). If this happens, you must pay these taxes in the
way the Company specifies.
10.00 Exercising Awards: Awards will be exercised through the Company's
Shareholders Relations Office and your broker. Options may be
exercised by paying cash or a personal check immediately payable to the
Company. The Exercise Price due on an option also may be paid by
giving the Company other shares of Company stock having a value equal
to the Exercise Price due (but only if you have owned those shares for
at least six months). Complicated tax rules apply if you do this and
you should discuss these rules with your personal investment or tax
advisor.
Generally, if your surrender Company shares to pay the Exercise Price,
your basis in the surrendered shares will carry over to a like number
of shares you buy through this procedure. The rest of the Company
shares you buy at that time will have no tax basis.
Example: Assume that you already own 100 Company shares with a
combined value of $2,000 ($20 for each share) and that you want to
exercise options to buy 200 Company shares. To do this, you must pay
an Exercise Price of $2,000. Instead of paying cash to exercise the
option, you decide to surrender the Company shares you already own (and
have owned for at least six months). After the option is exercised,
you will own 200 Company shares, 100 of which will have a tax basis of
$20, the carryover basis from the Company shares you surrendered, and
the rest of the Company shares bought through the option exercise will
have a basis of $0.
More complicated rules apply if you are surrendering shares you bought
through an earlier option exercise. Be sure you discuss these rules
(and the consequences of surrendering already owned Company shares to
pay the Exercise Price) with your personal investment or tax advisor.
11.00 Governing Law: This agreement will be construed in accordance with and
governed by the laws (other than laws governing conflicts of laws) of
the United States and of the State of Ohio.
12.00 Other Agreements: Your Awards will be subject to the terms of any
other agreements between you and the Company.
13.00 Adjustments to Awards: The number of your Awards will be adjusted to
reflect any change to the Company's capital structure (e.g., a stock
split).
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14.00 Conflict: In the event of conflict between the terms of this agreement
and the Plan, the terms of the Plan govern.
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You must sign this Agreement; if you do not your Award will be cancelled. By
signing this Agreement you acknowledge that this Award is granted under and is
subject to the terms and conditions described in this Agreement and in the
Plan.
OPTIONEE/GRANTEE OHIO CASUALTY CORPORATION
/s/Dan R. Carmichael
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Michael A. Winner Dan R. Carmichael
President & CEO
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