Exhibit 10.12
UNITED NATIONAL GROUP, LTD.
ANNUAL INCENTIVE AWARDS PROGRAM
(Effective as of January 1, 2003)
UNITED NATIONAL GROUP, LTD.
ANNUAL INCENTIVE AWARD PROGRAM
I. PURPOSE: The purposes of this Annual Incentive Award Program are:
1. To encourage increased efficiency and profitability of United National
Group, Ltd. (UNGL).
2. To reward participants' contributions to corporate success.
II. COMPENSATION PHILOSOPHY
United National Group, Ltd. wishes to provide a comprehensive, competitive
compensation program for its officers. This Annual Incentive Award Program is
intended to be an integral part of the total compensation opportunity offered by
the organization to these key employees. This incentive program is an adjunct to
other forms of compensation provided by UNGL.
III. DEFINITION OF TERMS
For purposes of this program, terms have meanings as follows:
A. "Base Salary" means a participant's W-2 wages for a calendar year
excluding any extraordinary compensation such as bonuses, stock options,
deferred compensation or benefits which are taxable for federal income
tax purposes. For purposes of this program base W-2 earnings shall
include, however, any salary deferrals which represent the employee's
portion of contributions to a qualified benefit plan or deferred
compensation plan offered by UNGL and subsidiaries.
B. "Beneficiary" or "Beneficiaries" means the person or persons designated
by the Participant to receive any payments due from this Annual
Incentive Award Program in the event of the Participant's death. Such a
designation may, without notice to the beneficiary, be changed or
revoked by the Participant at any time and from time to time. The
designation of the Beneficiary, and any change or revocation thereof,
shall be made in writing and shall not be effective unless and until
filed with and acknowledged by the Committee.
If a Participant fails to designate a Beneficiary, or if no designated
Beneficiary survives the Participant, the amount payable from the Annual
Incentive Award Program shall be paid to the Participant's Estate.
If a person designated as a Beneficiary shall be a minor or a person who
has been judged legally incompetent, UNGL shall make payment on behalf
of such Beneficiary to the Beneficiary's guardian or conservator, but
only if such guardian or conservator has provided to the Committee
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documentary evidence satisfactory to it as to the legal, valid and
continuing authority of such guardian or conservator to act on behalf of
such Beneficiary. Upon payment to such guardian or conservator, neither
the Board of Directors, UNGL, the Committee or any other agent, employee
or officer of any of them shall have any further liability for such
payment.
C. "Committee" means the Compensation Committee of UNGL, as designated from
time to time by the Board of Directors of UNGL.
D. "Annual Incentive Award" means the amount earned by a Participant
pursuant to the provisions of this Program.
E. "Annual Incentive Award Tables" means tables established by the
Committee for each Plan Year which correlate the performance of UNGL and
subsidiaries to the percentage of Incentive awards that may be earned.
F. "Net Income" means the audited GAAP net income of UNGL for a particular
Plan Year.
G. "Participant" means any officer of UNGL or subsidiary who has been
designated by the Compensation Committee to participate in this program.
H. "Plan Year" means a twelve month consecutive period commencing on each
January 1 and ending on each December 31.
I. "Shareholders" means the shareholders of UNGL.
IV. DESIGNATION OF PARTICIPANTS
A. The Participants in this program shall be those employees of UNGL and
subsidiaries who are designated by the Committee as being eligible to
participate in the plan. The following classifications of employees
shall be considered eligible for consideration by the Committee to
participate in this program:
1. President / Chief Executive Officer
2. Senior Vice Presidents
3. Vice Presidents
4. 2nd Vice Presidents and Assistant Vice Presidents
B. A Participant may participate only in one plan or program providing for
annual incentive payments or compensation. Should any individual be a
participant in another such plan or program, he/she will be excluded
from receiving any benefit under this program.
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C. In order to be eligible to be a Participant for any Plan Year, an
individual must meet the criteria set forth in this program both at the
beginning and the end of the Plan Year, except in those cases where a
Participant's employment with UNGL and subsidiaries has terminated due
to retirement, death or disability. Any deviation from this clause
requires the prior written approval of the Committee.
D. The Board of Directors of UNGL will be the sole determinant as to the
number of Participants in this plan.
V. ANNUAL INCENTIVE AWARDS FOR PARTICIPANTS
A. BASIS FOR EARNING ANNUAL INCENTIVE AWARDS: Participants will earn an
Annual Incentive Award as follows:
Tier I and Tier II Participants:
- Part I - Achievement of actual Net Income for the Plan Year
versus the budgeted Net Income for the Plan Year.
Tier III and Tier IV Participants:
- Part I - Achievement of actual Net Income for the Plan Year
versus the budgeted Net Income for the Plan Year
And
- Part II - Evaluation of the Participant's individual
contribution to the overall success of UNGL as measured by the
achievement of individual performance expectations of the
Participant for the Plan Year.
B. AWARD OPPORTUNITIES:
Part I - Award opportunities under this program are expressed as a
percentage of the Participant's Base Salary as defined in section III.
The award opportunities vary for each Participant depending on the tier
to which the Participant is assigned. These tiers and their respective
award opportunities are as follows:
Participant's Annual Award Opportunities (Part 1)
------------------------------------
Category Threshold Target Maximum
-------- --------- ------ -------
Tier I 20% 50% 75%
Tier II 15% 40% 60%
Tier III 10% 25% 45%
Tier IV 5% 10% 20%
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Part II - Award opportunities under this program are expressed as a
percentage of the Participant's Base Salary as defined in section III.
The award opportunities vary for each Participant depending on the
category to which the Participant is assigned. The categories and their
respective award opportunities are as follows:
Participant's Category Annual Award Opportunity (Part II)
---------------------- -----------------------------------
Tier I N/A
Tier II N/A
Tier III Up to 5%
Tier IV Up to 10%
C DETERMINATION OF ANNUAL INCENTIVE AWARDS EARNED:
Part I - The Compensation Committee will establish the budgeted Net Income
for the Plan Year that needs to be achieved in order for the Participant
to receive awards at various levels of performance. The performance
achievement is equal to actual Net Income for the Plan Year divided by the
budgeted Net Income for the Plan Year ("Performance Achievement"). The
following levels of Performance Achievement will be utilized as a basis
when determining the award for each Participant:
- - Threshold - The Participant will achieve the Threshold award if Performance
Achievement is equal to .90.
- - Target - The Participant will achieve the Target award if Performance
Achievement is equal to 1.00.
- - Maximum - The Participant will achieve the Maximum award if Performance
Achievement is equal to or greater than 1.20.
If Performance Achievement falls in-between the Threshold/Target/Maximum
levels, the Annual Incentive Award will be determined using the following
regression formulas, where appropriate:
Category Achievement to 100% Achievement Above 100%
-------- ------------------- ----------------------
- - Tier I - 300 (x) - 250 = Award % 125(x) - 75= Award %
- - Tier II - 250 (x) - 210 = Award % 100(x) - 60 = Award %
- - Tier III - 150 (x) - 125 = Award % 100(x) - 75 = Award %
- - Tier IV - 50 (x) - 40 = Award % 50(x) - 40 = Award %
Note: (x) equals the level of Performance Achievement
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When using the above formulas, if Performance Achievement is below .9 then
(x) equals zero and if Performance Achievement is greater than 1.2 then
(x) equals 1.2.
Part II - Tier III and Tier IV participants are eligible to earn an
additional discretionary award of up to 5% and 10%, respectively, of the
Participant's base salary based on the Participant's achievement of
individual performance goals for the Plan Year. This discretionary award
will be determined by the Participant's immediate manager and approved by
the Committee. No awards under Part II will be earned if Performance
Achievement is less than .8
VI. PAYMENT OF ANNUAL INCENTIVE AWARDS.
A Participant shall be entitled to receive payment in an amount equal to
his/her Annual Incentive Award no later than thirty days after receipt by
the Committee of the audited GAAP financial statements of UNGL and
subsidiaries. Notwithstanding the foregoing, in order to be eligible for
payment of an Annual Incentive Award amount for any Plan Year, a
Participant must be employed by UNGL and subsidiaries at the close of the
Plan Year, except in the case of a Participant whose employment terminates
on account of retirement, death, or disability. In the case of a
Participant whose employment has terminated during the Plan Year due to
retirement, death or disability, that Participant or his/her Beneficiary
will qualify for a pro-rated portion of the Participant's Annual Incentive
Award, based on the number of complete calendar months of service which
the Participant completed during that Plan Year. Any deviation from this
clause requires the prior authorization of the Committee.
Any payments due to Particpants' Beneficiaries under this program will be
paid at the time payment would otherwise have been made to the
Participant, provided the identity and validity of such Beneficiary has
been legally established.
Notwithstanding any other provision of this Plan, (A) if an individual's
employment with UNGL and subsidiaries is terminated on account of
conduct detrimental to UNGL's best interests, then the Committee, in its
sole discretion, may cancel payment of any Annual Incentive Awards that
have been earned under this program but have not yet been paid (
Determination of whether or not conduct is detrimental to the best
interest of UNGL and subsidiaries shall be solely the discretion of the
Compensation Committee and shall not be subject to challenge by the
Participant in any manner) and (B) if a Participant resigns for any
reason prior to the payment of an Annual Incentive Award, the
Participant shall not be entitled to any payment under the Plan.
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VII. PLAN ADMINISTRATION.
This plan shall be administered by the Committee. The Committee shall have
the authority to interpret the plan in its sole and absolute discretion
based upon the Plan's provisions and to make all other determinations
necessary or desirable for the Plan's administration; and such decisions
of the Committee shall be final, conclusive and binding on all parties.
The designation of an individual as a Participant for a particular Plan
Year shall not confer upon such individual the right to be designated as a
Participant in a subsequent Plan Year.
An individual who has been designated by the Committee as a Participant
for a Plan Year shall be notified in writing no later than January 1 of
the Plan Year of such designation.
UNGL shall deduct from any distributions made to Participants or
Beneficiaries under this plan any applicable federal, state or local taxes
which UNGL may be required to deduct under the law and all amounts
distributed under this plan are stated herein before any such deductions.
No Participant or other person shall have an interest in any fund or any
specific assets of UNGL and subsidiaries by reason of being a Participant
in this plan or any right to receive any distribution under the plan
except and to the extent expressly provided in the plan.
The designation of an individual as a Participant under this plan shall
not be construed as conferring upon such individual any right to remain in
the employ of UNGL and subsidiaries. With respect to any Participant, UNGL
and subsidiaries' right to discipline, promote, demote, reassign or
terminate for any reason it deems fit shall not be affected in any manner
by reason of such individual's designation as a Participant in this plan.
All questions or controversies arising in any manner between the parties
or persons in connection with this plan or its operation, whether as to
any claim for benefits, or as to the construction of language or meaning
of the plan, or rules and regulations adopted by the Committee, or as to
any writing, decision, instrument or account in connection with the
operation of the plan or otherwise, shall be submitted to the Committee
for decision. The decision of the Committee shall be binding upon all
persons dealing with the plan.
IX. NO ASSIGNMENT OF ALIENATION
Except as otherwise required by law, no right or interest (which right
shall simply be a contractual right) of any Participant hereunder shall be
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assigned, transferred or pledged voluntarily or involuntarily and any
attempt to do so shall be void, nor shall such rights or interests be
subject to attachment or other claims of creditors.
X. GENERAL
All actions taken or determinations made by the Committee shall be final
and binding and all concerned and nothing in this plan shall be deemed to
give any Participant, Beneficiary, legal representatives or assigns any
right to participate in the plan except as determined by the Committee
pursuant to the provisions in the plan.
XI. PLAN AMENDMENT AND TERMINATION
The Company reserves the right in its Board (or a duly authorized
committee thereof) to amend, suspend or terminate the Plan or to adopt a
new plan in place of this Plan at any time; provided, that no such
amendment shall, without the prior approval of the Shareholders of the
Company in accordance with applicable law to the extent required under
Code Section 162(m): (i) materially alter the performance goals set forth
in Article V; (ii) change the class of eligible employees set forth in
Article IV; or (iii) implement any change to a provision of the Plan
requiring Shareholder approval in order for the Plan to comply with the
requirements of Code Section 162(m). Furthermore, no amendment, suspension
or termination shall, without the consent of the Participant, alter or
impair a Participant's right to receive payment of an Incentive Award for
a Plan Year otherwise payable hereunder.
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ANNEX A
UNITED NATIONAL GROUP
Key Personnel
TIER I
Seth Freudberg, President/CEO
TIER II
Richard March, Sr. Vice President, General Counsel
Kevin Tate, Sr. Vice President/CFO
Bill Schmidt, Sr. Vice President, Underwriting
Bob Cohen, Sr. Vice President, Marketing
Jonathan Ritz, Sr. Vice President, Ceded Reinsurance
Timothy Dwyer, Sr. Vice President
TIER III
Thomas McGeehan, Vice President, Finance & Accounting
Jerry Hart, Vice President, Claims
James McCreesh, Vice President/Chief Actuary
James Pye, Vice President, Underwriting
Viola Clements, Vice President, Underwritiing
George Morris, Vice President, Underwriting
William Scherr, Executive Vice President, JH Ferguson
Robert Glettler, Vice President, Diamond State Insurance Co.
Lynne Gerber-Saionz, Vice President, Associate General Counsel
Linda Hohn, Vice President Regulatory Affairs
Jack Freeston, Vice President, Information Systems
Kathleen Morris Rosati, Vice President HR and Office Administration
Steve Brodzinski, Vice President, Marketing
TIER IV
Debra Donnelly, AVP, Accounting
Michael Power, AVP, Reinsurance & Agency Accounting
Gerry Durkin, 2nd VP, Claims
Clarion Hesse, AVP Casualty Claims
Dominic Conicello, AVP Property Claims
Noreen Marshall, AVP Underwriting Operations
Dianne Sprague, AVP Underwriting
George Michaels, AVP Underwriting
Maribeth Finley, AVP Information Systems
* Daniel McFadden, Assistant Vice President, Financial Accounting
* Melissa Houck, Assistant Vice President, Actuarial
* Newly hired in September/October, 2003