Exhibit (10)(H)
KEY EMPLOYEES PERFORMANCE RECOGNITION PLAN
BITCO CORPORATION
Bituminous Casualty Corporation
Bituminous Fire & Marine Insurance Company
January 1996
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KEY EMPLOYEES PERFORMANCE RECOGNITION PLAN
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ARTICLE ONE
PURPOSE AND EFFECTIVE DATE
1.1 The purpose of this Plan is to further the long term growth in earnings
of Bitco Corporation by offering long term incentives in addition to
current compensation to those officers and key employees of Bituminous
Casualty Corporation who have been or are expected to be largely
responsible for such growth.
1.2 This Plan is effective as of January 1, 1995.
ARTICLE TWO
2.1 "Plan" shall mean this Key Employees Performance Recognition Plan.
2.2 "Company" shall mean Bitco Corporation.
2.3 "Employer" shall mean the Company and each other corporation or
organization which is wholly or partially owned by the Company, either
directly or indirectly, and is designated by the Committee as an
Employer under this Plan. As of the effective date of this Plan the
Employer is Bituminous Casualty Corporation.
2.4 "Chief Executive Officer or CEO" shall mean the chief executive officer
of the Company.
2.5 "CEO, ORI" shall mean the chief executive officer of Old Republic
International Corporation.
2.6 "Committee" shall mean the Management Development & Compensation
Committee of the Board of Directors of the Company.
2.7 "Employee" shall mean any person who is employed by the Employer on a
full-time basis and who is compensated for such employment by a regular
salary. "Employee" shall include officers of the Employer but shall not
include directors who are not otherwise officers or employees.
2.8 "Eligible Employee" shall mean an Employee who pursuant to Section 5.1
hereof has been selected to share in the allocation of the Performance
Recognition Pool for any given year.
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2.9 "Year of Service" shall mean each year of continuous employment with
the Employer after first being designated as an Eligible Employee
pursuant to Section 5.1 hereof.
2.10 "Account" shall mean with respect to any Employee, the record of:
(a) credits, payments or forfeitures, if any, transferred to the
Plan from the Old Republic International Corporation Key
Employees Performance Recognition Plan prior to
1/1/95.
(b) credits in connection with the allocations, if any, credited
to such account pursuant to Article Five of the Plan;
(c) Payments to him under the Plan pursuant to Article Six of the
Plan, and
(d) forfeitures, if any, pursuant to Article Seven of the Plan.
2.11 "Calculation Year" shall mean the Company's fiscal year immediately
preceding the year for which the Performance Recognition Pool is being
calculated.
If there is an operating loss in the year prior to the Calculation
Year, the "prior year" to be used in the following definitions and for
Section 4.1 calculations is the first year prior to the Calculation
Year in which there was an operating profit.
2.12 "Minimum Return on Equity" shall mean a percentage applied to the
Company's average shareholders' equity (i.e., mean of beginning and
ending balances, adjusted for unrealized investment gains or losses net
of applicable income taxes, if any) for the calculation year. The
percentage shall be that percentage, obtained from public information,
equal to two times the mean of the five year average post-tax yield on
10 year and 30 year U.S. Treasury Securities. The Committee shall
annually compute and announce this value as it pertains to a
calculation year.
2.13 "Excess Return on Equity" shall mean the Calculation Year's
consolidated net operating income in excess of the Minimum Return on
Equity all calculated in accordance with generally accepted accounting
principles (GAAP). Net operating income shall exclude realized gains or
losses on sales of investment securities (irrespective of the treatment
of such amounts under GAAP) and extraordinary credits or charges.
2.14 "Minimum Annual Income" shall mean 112% of the prior year's
Consolidated Net Operating Income adjusted for dividend requirements on
preferred stock issued and outstanding during each year.
2.15 "Excess Earnings Growth" shall mean the Calculation Year's Consolidated
Net Operating Income adjusted for dividend requirements on preferred
stock issued and outstanding during such year in excess of the Minimum
Annual Income.
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2.16 "Base Salary" shall mean the Employee's annualized basic monthly salary
rate in effect at the end of the Calculation Year.
2.17 "Consolidated Net Operating Income" shall mean the Company's income
determined in accordance with generally accepted accounting principles
and adjusted for the payment of income taxes and for the income of
subsidiaries and affiliates carried on an equity basis. Net operating
income shall exclude realized gains or losses on sales of investment
securities (irrespective of the treatment of such amounts under GAAP)
and extraordinary credits or charges.
2.18 If in any Calculation Year the Company acquires any other business
accounted for as a purchase whose earnings contribute 5% or more to
such Year's consolidated net operating income, the earnings of the
acquired Company for the year of acquisition and the next succeeding
year shall be eliminated (together with related purchase accounting
adjustments) in order to calculate the performance data described in
Sections 2.12 through 2.24 herein. No elimination from any year shall
be made when the acquired company has been owned by the Company for two
consecutive calendar years. Net operating income shall exclude realized
gains or losses on sales of investment securities (irrespective of the
treatment of such amounts under GAAP) and extraordinary credits or
charges.
2.19 "Earnings Per Share" shall mean earnings per share calculated in
accordance with AICPA Accounting Principles Board Opinion No. 15.
2.20 "Performance Multiplier" shall mean the number of percentage points by
which the Earnings Per Share for the Calculation Year exceeds 112% of
the Earnings Per Share for the prior year.
2.21 "Profit Sharing Base" shall mean the sum of:
(a) Earnings Growth multiplied by the Earnings Per Share Multiplier;
(b) 5% of Excess Return on Equity; and
(c) one and one-half percent (1-1/2%) of Eligible Employees' Base
Salaries.
2.22 All awards that may be granted to an eligible employee in any one
calendar year pursuant to Section 5.2 (a), 5.2 (b), 5.2 (c) and 5.2 (d)
herein, shall be paid in cash to the extent of 50% thereof; the
remaining 50% shall be credited to his account and become vested in
accordance with the vesting schedule set forth in Section 6.3 (b)
herein.
2.23 "Earnings Per Share Multiplier" shall mean a percentage of the increase
in the Earnings Per Share in the Calculation Year over the preceding
year as set forth in the following schedule:
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Percentage Increase Earnings
In Earnings Per Share Per Share Multiplier
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0 to 6.00% 0%
6.01 to 10.00% 10%
10.01 to 15.00% 20%
15.01 to 20.00% 30%
Over 20.00% 40%
2.24 "Earnings Growth" shall mean the Calculation Year's Consolidated Net
Operating Income adjusted for dividend requirements on preferred stock
issued and outstanding during such year in excess of the prior year's
Consolidated Net Operating Income.
ARTICLE THREE
ADMINISTRATION
3.1 The Plan shall be administered by the Committee which shall be
appointed by the Board of Directors of the Company from its own
members, the CEO of the Company and the CEO, ORI.
3.2 Authority to interpret the Plan, to establish and revise rules and
regulations relating to the Plan, and to make the determinations which
it believes necessary or advisable for the administration of the Plan
shall reside with the CEO, ORI.
ARTICLE FOUR
CALCULATION OF THE PERFORMANCE RECOGNITION POOL
4.1 Prior to each May 31, the Company shall calculate the amount of the
provisional amount of the Performance Recognition Pool for that year
and submit that calculation to the CEO, ORI, for review and approval.
The Performance Recognition Pool for any one year shall be equal to the
lesser of:
(a) the Profit Sharing Base for the Calculation Year; or
(b) a percentage of the Eligible Employees' Base Salaries, ranging
from 25% to 45%, inclusive, determined on the basis of the
following scale:
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Percent by Which Current Year's
Return on Equity Exceeds ROE
Target for the Year Salary Cap Spread
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0-10% 25%
25%-27.5%
10-20 + 0.25 point for each 1%
27.5%-30.5%
20-30 + 0.30 point for each 1%
30.5%-34%
30-40 + 0.35 point for each 1%
34%-38%
40-50 + 0.40 point for each 1%
38%-43%
50-60 + 0.50 point for each 1%
60% and Above: Uniform
60-70 45% Cap
70-100
100-130
130-160
160-190
Over 190%
4.2 Notwithstanding any provisions herein to the contrary, the Performance
Recognition Pool shall be zero for any year if the Company incurred a
net operating loss or a net loss in the Calculation Year.
ARTICLE FIVE
ALLOCATION OF THE PERFORMANCE RECOGNITION POOL
5.1 Prior to March 31 each year the CEO of the Company shall, in
consultation with the Committee, designate the Employees employed by
the Employer during any part of such Year who will be eligible to share
in the Performance Recognition Pool for that Year.
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5.2 Prior to June 1 each year, the Committee shall recommend to the CEO,
ORI, allocations of any pool, such recommendations to have considered
the recommendations to the Committee from the CEO of the Company. In
designating Eligible Employees and allocating the Performance
Recognition Pool among the Accounts of the Eligible Employees for any
Year pursuant to this Article, the Committee shall consider the
positions and responsibilities of Employees, their accomplishments
during the year, the value of such accomplishments to the Company, the
CEO's expectations as to the future contributions of individual
Employees to the continued success of the Company and such other
factors as the Committee shall, in their discretion and judgment, deem
appropriate.
(a) First, amounts shall be allocated among and credited to all or
such Accounts, as the Committee in their discretion and
judgment deem appropriate, of those Employees who have
Accounts in the Plan on the allocation date and are eligible
and actively employed by the Employer during that year. The
amount credited to each such Account shall equal the balance
in each such Account at the beginning of the Year multiplied
by the Performance Multiplier. In no event, however, shall
the aggregate amount so credited exceed the lesser of 15% of
the aggregate Account balances on the allocation date or 20%
of the Performance Recognition Pool for that year.
(b) Of the remaining portion, if any, of the Performance Recogni-
tion Pool, the CEO, ORI, may, in its discretion, reserve up to
50% of any one year's Pool which will not be allocated
currently. The CEO, ORI, may carry forward the unallocated
portion of the Performance Recognition Pool and allocate all
or a portion of it pursuant to this subparagraph (b) during
one or more of the next succeeding three years; provided
however that the total amount of any one year's carry forward
must be allocated by the end of the third year. The CEO shall
participate in any future allocation of such carry forwards as
may be approved by the Committee.
(c) Then, the Committee shall allocate for the account of the CEO
of the Company such individual award, if any, as the CEO, ORI,
shall determine.
(d) Finally, the Committee shall submit its recommendations to the
CEO, ORI, for the allocation of the available balance, if any,
of the current Pool to Eligible Employees.
ARTICLE SIX
DISTRIBUTIONS
6.1 The entire amount of the credit in the Account of a deceased Eligible
Employee or an Eligible Employee who attains age 55 or actually retires
for disability prior thereto, shall be paid to the person or persons
entitled thereto at the time and in the manner provided in Sections
6.4, 6.5, 6.6, and 6.8 thereof.
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6.2 An eligible employee will automatically withdraw and receive in cash
50% of any award granted to him or her in 1995 and subsequent years
pursuant to Section 5.2 (a), 5.2 (b), 5.2 (c) and 5.2 (d). An Eligible
Employee shall also automatically withdraw and receive in cash 50% of
any Performance Multiplier granted to him or her in 1995 and subsequent
years pursuant to Section 5.2(a). The remaining 50% of each such award
and each such Performance Multiplier shall be credited to his or her
Account as of such year and shall become vested in accordance with the
vesting schedule set forth in Section 6.3(b). The amounts so withdrawn
each year shall be paid to the Eligible Employees within ninety (90)
days of the date the CEO, ORI, approves the recommendations of the
Committee to make such awards or determine such Performance
Multipliers.
6.3 A portion of the amount of the credit in the Account of an Eligible
Employee as of the date he terminates his service for any reason other
than his death or retirement for age or disability shall be paid to the
person or persons entitled thereto at the times in the manner provided
by Section 6.5 hereof. The amount to be paid shall be known as a
"vested interest," and shall be equal to the following percentage of
the balance of his credit in his Account:
Completed Years To Be Paid
of Service in the Plan (Vested Interest)
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Less than One 0%
One 10%
Two 20%
Three 30%
Four 40%
Five 50%
Six 60%
Seven 70%
Eight 80%
Nine 90%
Ten 100%
Any amount not vested in an Employee shall be forfeited. Forfeitures
created during any year shall be allocated at the end of said year to
Employees actively employed by the Employer on December 31 of that year
in the ratio that the Account balance of each such Employee on January
1 of that year bears to the total Account balance of all such
Employees.
6.4 Amounts payable to an Eligible Employee who retires for age, after
attaining 55, shall be paid to the Employee in substantially equal
quarterly installments over a number of years (not to exceed 20 years)
selected by the Company, in its sole discretion, beginning on the first
day of the calendar quarter following the later of the Employee's
attaining age 55 or his termination of employment. In determining the
number of installments the Company may consult with the Eligible
Employee and may also consider as a guideline that the retirement
programs sponsored by the Employer hereunder should equal approximately
80% of the Eligible Employee's average compensation over his last three
years of employment.
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6.5 If an Employee's employment with the Employer is terminated for reasons
other than death, disability, or retirement after attaining age 55, his
vested Account balance shall be paid to him in substantially equal
quarterly installments over a number of years (not to exceed 20 years)
selected by the Company beginning on the first day of the calendar
quarter following the later of (a) his attaining age 55 or (b) the 12th
month after his termination of employment.
6.6 If an employee becomes disabled while employed by the Employer but
prior to receiving his Account, his Account balance shall be paid to
him in 40 substantially equal quarterly installments beginning on the
first day of the calendar quarter following the month during which he
becomes disabled. For purposes of this Article an Employee shall be
deemed to be disabled if he is totally and permanently disabled within
the meaning of his Employer's group employee disability policy or
eligible for disability benefits under the Social Security Act.
6.7 If an Employee is eligible for no other benefits under this Plan, his
Account balance shall become nonforfeitable and be paid to him in a
lump sum on the first day of the calendar quarter following the date on
which occurs any of the following events:
(a) a dissolution or liquidation of the Company;
(b) the merger or consolidation of the Company with another
corporation in which the Company is not the surviving
corporation; or
(c) the change in any one year of more than 50% of the members of
the Board of Directors of the Company if one or more of the
new directors were not nominated by the Board of Directors of
the Company.
If there is a carry forward balance not allocated pursuant to Section
5.2 (b) when an event described in (a), (b) or (c) above occurs, such
carry forward balance shall be immediately allocated among the Accounts
of all Employees in the ratio that each such Employee's Account balance
bears to the total of all such Account balances. Said additional
amounts shall be 100% vested and paid in accordance with the provisions
of this Article. Any subsequent contributions allocated to an
Employee's Account during the two years following the occurrence of an
event described in paragraphs (b) or (c) of this Section because the
Plan is continued in accordance with Section 8.2 hereof shall be
non-forfeitable and shall be distributed immediately after such
allocation.
6.8 An Employee may designate in writing, on forms prescribed by and filed
with the Company, a beneficiary or beneficiaries to receive any
payments payable after his death. If an Employee dies while employed by
the Employer or after he has begun to receive his benefits under this
Plan, his Account balance (or the remainder of his Account balance if
his benefits had already commenced) shall be paid to the beneficiary or
beneficiaries designated by the Employee (or, in the absence of such
designation, to his legal representative). Such payments shall be made
in one of the following forms as determined by the Company: (i)
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substantially equal quarterly installments over a number of years (not
to exceed 10 years), (ii) a lump sum payment, or (iii) any combination
of the above options.
6.9 If an Employee is adjudged incompetent or if the Company deems him
unqualified to handle his own affairs, the Company may direct that any
payments which would otherwise be payable to the Employee shall be paid
(in the same amounts and on the same dates as such payments would have
been paid to the Employee) to the guardian or conservator of such
Employee or, if none has been appointed, the Company may, in its
discretion, direct that such payments be made to the Employee's spouse
or adult child or any other person or institution who is caring for
such Employee and any payments so made shall to the extent thereof
fully release and discharge the Company and the Employer from any
further liability to the Employee.
6.10 Notwithstanding any other provisions of this Plan to the contrary, the
Company may upon an Employee's death, disability, or termination of
employment distribute his Account balance to him (or his beneficiary in
the case of death, or his guardian or to the person or institution
caring for him in the event that he is adjudged incompetent or
considered by the Company to be unable to manage his own affairs) more
quickly than that called for in Sections 6.2 through 6.9 if the Company
in its sole discretion deems it is desirable to do so.
6.11 Notwithstanding any other provisions of this Plan to the contrary, the
Company may deduct from any payments under the Plan any taxes required
to be withheld by the Federal or any state or local government for the
account of such Employee.
ARTICLE SEVEN
FORFEITURES
7.1 As a condition to the continued receipt of benefits hereunder each Employee:
(a) shall be required for a period of three years after his
termination of employment with the Employer hereunder to hold
himself available to the Company and his Employer for
reasonable consultation insofar as his health permits.
(b) shall not for a period of three years after his termination of
employment with the Employer hereunder, either as an
individual on his own account, as a partner, joint venturer,
employee, agent, salesman for any person; as an officer,
director or stockholder (other than a beneficial holder of not
more than 1% of the outstanding voting stock of a company
having at least 500 holders of voting stock) of a corporation;
or otherwise directly or indirectly:
(i) enter into or engage in any business competitive with
that carried on by the Company or his Employer within
any area of the United States in which his Employer or
the Company is then doing business, providing Employee
has
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had access to any of the Company's or his Employer's
trade secrets, secret underwriting or business
information, programs, plans, data, processes,
techniques, or customer information; or
(ii) solicit or attempt to solicit any of his Employer's or
the Company's customers with whom Employee has had
contact as an Employee in the exercise of his duties
and responsibilities hereunder with the intent or
purpose to perform for such customer the same or
similar services or to sell to such customer the same
or similar products or policies which Employee
performed for or sold to such customer during the term
of his employment.
If the Committee determines that an Employee has refused to make
himself available for consultation or violated his agreement, the
Committee may, by written notice to such Employee, cause his benefits
to be immediately suspended for the duration of such refusal or
competition or if payment of benefits has not yet commenced, notify the
Employee that such continued conduct will cause a forfeiture of his
Account balance. If after the sending of such notice the Committee
finds that the Employee has continued to refuse to consult or continued
to compete with the Company or his Employer for a period of thirty (30)
days following such notice, the Committee may permanently cancel the
Employee's Account hereunder, and thereupon all rights of such Employee
under this Plan shall terminate. The foregoing forfeiture provisions
shall be inoperative if an event described in Section 6.7 (a), (b) or
(c) occurs.
7.2 Any amounts forfeited pursuant to Section 7.1 hereof shall be allocated
as a forfeiture in accordance with Section 6.3 hereof.
ARTICLE EIGHT
AMENDMENT AND TERMINATION
8.1 The Company shall have the power at any time and from time to time to
amend this Plan by resolution of its Board of Directors; provided,
however, that no amendment under any circumstances may be adopted the
effect of which would be to deprive any Participant of his then vested
interest, if any, in this Plan.
8.2 The Company reserves the right to terminate this Plan by resolution of
its Board of Directors. Upon termination of this Plan, the credits in
the Accounts of Employees shall become 100% vested and nonforfeitable.
Distribution of the balances in said Accounts shall be made in
accordance with Section 6.4 hereof upon the Employee's subsequent
retirement or termination of service. There shall be no increase in an
Account balance of an Employee between the date the Plan is terminated
and the date the Account balance is distributed. If an event described
in Section 6.7 (b) or (c) occurs, the Plan as it then exists must be
continued and contributions made for two years before it can be
terminated. Any unallocated balance carried forward shall be similarly
allocated prior to the expiration of this two-year
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period. All Accounts shall be fully vested and distribution shall be
made in accordance with Section 6.4 hereof.
ARTICLE NINE
MISCELLANEOUS
9.1 No Employee or any other person shall have any interest in any fund or
reserve account or in any specific asset or assets of the Company or
any Employer by reason of any credit to his Account under this Plan,
nor have the right to receive any distribution under this Plan except
as and to the extent expressly provided for in the Plan.
9.2 Nothing in the Plan shall be construed to:
(a) give any Employee any right to participate in the Plan, except
in accordance with the provisions of the Plan;
(b) limit in any way the right of the Employer to terminate an
Employee's employment; or
(c) be evidence of any agreement or understanding, express or
implied, that the Employer will employ an Employee in any
particular position or at any particular rate of remuneration.
9.3 No benefits under this Plan shall be pledged, assigned, transferred,
sold, or in any manner whatsoever anticipated, charged, or encumbered
by an Employee, former Employee, or their beneficiaries, or in any
manner be liable for the debts, contracts, obligations or engagements
of any person having a possible interest in the Plan, voluntary or
involuntary, or for any claims, legal or equitable, against any such
person, including claims for alimony or the support of any spouse.
9.4 This Plan shall be construed in accordance with the laws of the State
of Illinois in every respect including without limitation, validity in
interpretation and performance.
9.5 Article headings and numbers herein are included for convenience of
reference only, and this Plan is to be construed without any reference
thereto. If there be any conflict between such numbers and headings and
the text hereof, the text shall control.
9.6 Wherever appropriate, words used in this Plan in the singular include
the plural, and the masculine include the feminine.
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IN WITNESS HEREOF, the Company has caused this Plan, effective January 1, 1995,
to be signed by its duly qualified officers and caused its corporate seal to be
hereunto affixed on this 30th day of April, 1996.
BITUMINOUS CASUALTY CORPORATION
/s/ Peter Lardner
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Chief Executive Officer
Attest:
/s/ James E. Santry
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President
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