Exhibit 10.2
Name:
Address:
THIS FORM OF AWARD AGREEMENT IS PART OF A PROSPECTUS COVERING SECURITIES
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
OHIO CASUALTY CORPORATION
2005 INCENTIVE PLAN
PERFORMANCE-BASED STOCK UNIT AND CASH AWARD AGREEMENT
GRANTED TO ON FEBRUARY 20, 2007
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Ohio Casualty Corporation ("Company") and its shareholders believe that
their business interests are best served by extending to you an opportunity
to earn additional compensation based on the growth of the Company's
business. To this end, the Company and its shareholders adopted the Ohio
Casualty Corporation 2005 Incentive Plan ("Plan") as a means through which
you may share in the Company's success. This is done by granting Awards to
key employees like you. If you satisfy the conditions described in this
Agreement (and the Plan), your Award will mature into cash and common
shares of the Company.
This Award Agreement describes many features of your Award and the
conditions you must meet before you may receive the value associated with
your Award. To ensure you fully understand these terms and conditions, you
should:
- Carefully read the Plan and the Plan's prospectus to ensure you
understand how the Plan works;
- Read this Award Agreement carefully to ensure you understand what you
must do to earn your Award; and
- Contact the Compensation Department if you have any questions about
your Award.
Also, no later than April 23, 2007, you must return a signed copy of the
Award Agreement to Lynn C. Schoel in HR Management.
If you do not do this, your Award will be revoked automatically as of the
date it was granted and you will not be entitled to receive any amount on
account of the retroactively revoked Award.
Section 409A of the Internal Revenue Code ("Section 409A") imposes
substantial penalties on persons who receive some forms of deferred
compensation (see the Plan's prospectus for more information about these
penalties). Your Award has been designed to avoid these penalties.
However, because the Internal Revenue Service has not yet issued final
rules fully defining the effect of Section 409A, it is possible that your
Award and the Award Agreement must be revised after the IRS issues final
rules. As a condition of accepting this Award, you must agree to accept
those revisions, without any further consideration, even if those revisions
change the terms of your Award and reduce its value or potential value.
Nature of Your Award
You have been granted an Award consisting of an opportunity to earn stock
units, which will be converted to common shares of the Company, and cash
but only if you satisfy the conditions described in this Award Agreement.
Federal income tax rules apply to the payment of your Award. These and
other conditions affecting your Award are described in this Award
Agreement, the Plan and the Plan's prospectus, all of which you should read
carefully.
Grant Date: Your Award was issued on February 20, 2007.
Performance Period: The period that begins January 1, 2007 and ends
December 31, 2009.
Amount of Award: Your target award has a total value of $ and
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is comprised of two "components": cash equal to 50 percent of your target
award and stock units with a value equal to 50 percent of your target award
(the value of the stock units is based on the fair market value of the
Company's shares on the Grant Date). However, the actual amount you
receive will depend on two criteria:
- The Company's average operating return on equity for the period
between January 1, 2007 and December 31, 2009.
- The Company's total shareholder return ("TSR") for the period between
January 1, 2007 and December 31, 2009, relative to the total shareholder
return realized over the same period by comparable companies that the
Company has identified as members of the Company's peer group. TSR means
the rate of return over the three year period reflecting stock price
appreciation plus cash equivalent distributions and reinvestment of cash
dividends paid.
As of December 31, 2009, the Company's average operating return on equity
will be calculated and compared to the threshold, target, and maximum
performance levels. Average operating return on equity at the threshold
level will result in an initial calculation of 30% of your target award.
Average operating return on equity at target will result in an initial
calculation of 100% of your target award. Average operating return on
equity at the maximum performance level will result in an initial
calculation of 200% of your target award. For every 1% point increase in
operating return on equity performance between Threshold and -10% of
Target, the award will increase by 4.5%. For every 1% increase in
performance between -10% of Target and +10% of Target, the award will
increase by 2.5%. For every 1% increase in performance between +10% of
Target and +15% of Target, the award will increase by 5%. For every 1%
increase in performance between +15% of Target and Maximum, the award will
increase by 10%.
This initial calculation will be adjusted based on relative TSR. If
relative TSR is below the 50th percentile, the award will be reduced by 2%
for every percentile below the 50th percentile (with a maximum reduction of
50% of the initial calculation if relative TSR is at or below the 25th
percentile). If relative TSR is at the 50th percentile, the award will not
be modified. If relative TSR is above the 50th percentile, the award will
be increased by 2% for every percentile above the 50th percentile (with a
maximum increase of 50% of the initial calculation if relative TSR is at or
above the 75th percentile).
Average operating Initial Range of Modified
return on equity Calculation based Calculations (=
on operating Initial Calculation +/-
return on equity maximum of 50% based on
relative TSR)
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Below Threshold 0% of your target award 0% of your target award
Threshold: 9.28% 30% of your target award 15% - 45% of your target award
Target: 11.60% 100% or your target award 50% - 150% of your target award
Maximum: 13.92% 200% of your target award 100% - 300% of your target award
You will receive no payment if operating return on equity is below the
threshold of 9.28%.
If operating return on equity is at the threshold of 9.28% and TSR is at
the 25th percentile, you will receive 15% of your target award which is $
and shares
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To receive your target award, operating return on equity must be at the
target of 11.60% and TSR at the target of 50th percentile. You will
receive 100% of your target award which is $ and shares.
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To receive your maximum award, operating return on equity must be 13.92%
and TSR at the 75th percentile. You will receive 300% of your target award
which is $ and shares.
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The following are examples of how awards will be calculated:
EXAMPLE 1:
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The total target opportunity is determined by taking the pay class
midpoint multiplied by the target percent. Once the total target value
has been determined the value is divided with 50% in cash and 50%
converted to shares using the closing stock price on the day the board
approves the plan.
Assume an employee has a total target opportunity of $50,000; 50% in
cash ($25,000), 50% in shares (790), assuming an example stock price
was used of $31.65 on the grant date. At the end of the three year
performance period (2007-2009) average operating return on equity is
10% above the target level of 11.60% and relative TSR performance is
at the 65th percentile of the peer group.
Step 1: The preliminary award based on operating return on equity
would be interpolated between target and maximum performance. 10%
above target translates to a preliminary calculation of the cash and
shares at 125% of target or $31,250 and 990 shares.
Step 2: The relative TSR modifier would lead to an adjustment of the
award based on the 65th percentile performance. Since performance is
at 15 percentile points above the median, the award would be increased
by 30%. The final award would be comprised of $40,625 in cash
($31,250 x 130%) and 1,290 shares (990 x 130%). The final value of
shares depends on the closing stock price at the end of the
performance period.
When Your Award Will Be Settled
Settlement: At the end of the Performance Period, the cash portion of your
Award will be paid to you and your stock units will be converted to an
equal number of common shares of the Company or forfeited depending on the
extent to which the criteria described above have been met.
How Your Award Might Be Settled Earlier Than the Normal Settlement Date:
Your Award will be settled earlier than the end of the Performance Period
if there is a Business Combination (as defined in the Plan) during the
Performance Period. If this happens, your Award will be settled as of the
date of the Business Combination and you will receive a pro rata amount
equal to [1] your Award calculated at the "target level" (even if that
level is not met when the Business Combination occurs) or, if higher, the
Award level actually met as of the date of the Business Combination,
[2] multiplied by the number of whole calendar months between the beginning
of the Performance Period and the date of the Business Combination and
[3] divided by the whole number of calendar months in the Performance
Period. This amount will be paid to you in a manner that is consistent
with the nature of the Business Combination.
How Your Award May Be Forfeited: Regardless of the normal settlement
schedule just given:
- You will forfeit your Award if the criteria described above are not
met; and
- You may forfeit your Award if you terminate employment before the end
of the Performance Period. The effect of a termination of employment is
described in the Plan and in the Plan's prospectus.
Settling Your Award
If all applicable conditions have been met, your Award will be settled
automatically; you are not required to do anything on the Settlement Date.
Other Rules Affecting Your Award
Rights During the Performance Period: During the Performance Period you
may not cast any votes or receive any dividends otherwise associated with
the shares underlying your stock units. However, these rights will be
available when (and if) your stock units are converted to common
shares of the Company. Also, no interest will be credited on the cash
portion of your Award during the Performance Period.
Beneficiary Designation: You may name a Beneficiary or Beneficiaries to
receive any portion of your Award that is to be settled after you die.
This may be done only on the attached Beneficiary Designation Form and by
following the rules described in that form. This form need not be
completed now and is not required as a condition of receiving your Award.
If you die without completing a Beneficiary Designation Form or if you do
not complete that form properly, your Beneficiary will be your surviving
spouse or, if you do not have a surviving spouse, your estate.
Tax Withholding: Income taxes must be withheld when your Award is settled
(see the Plan's prospectus for a discussion of the tax treatment of your
Award). After the end of the Performance Period (and when the Company
calculates the amount of your Award that has been earned), you will be
contacted about how you want to meet this withholding obligation. You may
meet this withholding obligation in one of several ways. They are:
- The Company may withhold this amount from other amounts owed to you
(e.g., from your salary or from the cash portion of your Award).
- You may pay these taxes by giving the Company a check (payable to "The
Ohio Casualty Insurance Company") in an amount equal to the taxes that
must be withheld and that cannot be met through the cash portion of the
Award.
- By having the Company withhold a portion of the shares that otherwise
would be distributed. The number of shares withheld will have a fair
market value equal to the taxes that must be withheld.
- You may give the Company other shares of Company stock (that you have
owned for at least six months) with a value equal to the taxes that must
be withheld.
You may choose the approach you prefer. However, the Company may reject
your preferred method for any reason (or for no reason). If you do not
choose a method of meeting your withholding obligation (or if the Company
rejects your preferred method of meeting this obligation), the taxes due
will be withheld from cash otherwise due to you, including the cash portion
of your Award, or, if sufficient cash is not due when these taxes must be
paid, the Company will withhold a number of shares with a fair market value
equal to the additional amount that must be withheld.
Transferring Your Award: Normally your Award may not be transferred to
another person. However, you may complete a Beneficiary Designation Form
to name the person to receive the portion of your Award that is to be
settled after you die (see section titled "Beneficiary Designation" above).
Also, the Committee may allow you to place your stock units into a trust
established for your benefit or for the benefit of your family. Contact
the Employee Benefits Department at 1-800-843-6446, extension 7776, if you
are interested in doing this.
Governing Law: This Award Agreement will be construed in accordance with
and governed by the laws of the United States and of the State of Ohio
(other than laws governing conflicts of laws).
Other Agreements: Also, your Award will be subject to the terms of any
other written agreements between you and the Company.
Adjustments to Your Award: Your Award will be adjusted, if appropriate, to
reflect any change to the Company's capital structure (e.g., the number of
your stock units will be adjusted to reflect a stock split).
Other Rules: Your Award also is subject to more rules described in the
Plan and in the Plan's prospectus. You should read both of these documents
carefully to ensure you fully understand all the conditions of this Award.
Tax Treatment of Your Award
The federal income tax treatment of your Award is discussed in the Plan's
prospectus.
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Your Acknowledgment of Award Conditions
Note: You must sign and return a copy of this Award Agreement to Lynn C.
Schoel at the address given below no later than April 23, 2007.
By signing below, I acknowledge and agree that:
- A copy of the Plan has been made available to me;
- I have received a copy of the Plan's prospectus;
- I understand and accept the conditions placed on my Award and
understand what I must do to earn my Award;
- I will consent (in my own behalf and in behalf of my beneficiaries
and without any further consideration) to any change to my Award
or this Award Agreement so I can avoid paying penalties under
Section 409A of the Internal Revenue Code, even if those changes
affect the conditions of my Award and reduce its value or potential
value; and
- If I do not return a signed copy of this Award Agreement to the
address shown below on or before April 23, 2007, my Award will be
revoked automatically as of the date it was granted and I will not
be entitled to receive any amount on account of the retroactively
revoked Award.
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(signature)
Date signed:
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A signed copy of this form must be sent to Lynn C. Schoel, HR Management,
no later than April 23, 2007.
After it is received, the HR Management Department will acknowledge receipt
of your signed agreement.
THIS FORM OF AWARD AGREEMENT IS PART OF A PROSPECTUS COVERING SECURITIES
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.