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THE AMERICAN FINANCIAL CORPORATION
BOOK VALUE INCENTIVE PLAN
SECTION 1. PURPOSE
The purpose of this Plan is to enable American Financial Corporation
and its subsidiaries to retain and attract personnel of the highest caliber who
by their position, ability and diligence are able to make important
contributions to the success of American Financial Corporation.
SECTION 2. CERTAIN DEFINITIONS
(a) "Adjusted Initial Value" shall mean the Initial Value of a
grantee's account as most recently adjusted to reflect changes
in the book value and number of outstanding shares of Common
Stock in accordance with Sections 7 and 13 hereof.
(b) "Board" or "Board of Directors" shall mean the Board of
Directors of American Financial Corporation.
(c) "Book Value" shall mean the equity attributable to Common
Stock determined in accordance with generally accepted
accounting principles as adjusted in accordance with Section
7.5 hereof.
(d) "Book Value Incentive Unit" or "Unit" shall mean the standard
of measurement used to determine the value credited to a
grantee's account in accordance with the Plan.
(e) "Committee" shall mean the Executive Committee of the Board of
Directors.
(f) "Common Stock" shall mean the Common Stock of American
Financial Corporation.
(g) "Company" shall mean American Financial Corporation or its
successors or assigns.
(h) "Dividend Units" shall mean an amount equal to the sum of all
cash, stock (other than Common Stock) or other property
distributed with respect to Common Stock to which the grantee
would have been entitled had he or she owned the number of
shares of Common Stock equal to the number of Book Value
Incentive Units then credited to the grantee's account or
accounts.
(i) "Initial Value" shall mean the value of the Book Value
Incentive Units when granted as determined in accordance with
Section 7.2 hereof.
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(j) "Maturity Value" shall mean the value of the Book Value
Incentive Units credited to the account of a grantee computed
in accordance with Section 7.4 hereof.
(k) "Plan" shall mean The American Financial Corporation Book Value
Incentive Plan.
(l) "Total Disability" shall mean the inability to perform the
duties of the grantee's occupation as defined in the Company's
Long-Term Disability Insurance Plan.
(m) "Valuation Date" shall mean the last day of each calendar
quarter or of the Company's fiscal quarter, if different.
SECTION 3. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Executive Committee of the Board
of Directors. Such Committee is authorized to interpret the terms and
provisions of the Plan and to adopt such rules and regulations of the Plan as
it may deem advisable. Subject to the terms, provisions and conditions of the
Plan, the Committee, in its sole discretion, is hereby authorized to (a) select
the employees to be granted Book Value Incentive Units (it being understood
that more than one award may be granted to the same person), (b) determine the
number of Units covered by each grant, (c) determine the time or times when
Book Value Incentive Units will be granted, (d) determine the time or times
when, and the conditions under which, amounts may become payable with respect
to Book Value Incentive Units or Dividend Units within the limits stated in
this Plan, (e) determine the form of payment as authorized in this Plan, and
(f) prescribe the form, which shall be consistent with this Plan, of the
instruments evidencing any Book Value Incentive Units granted under this Plan.
SECTION 4. ELIGIBILITY
Book Value Incentive Units may be granted only to persons who, at the
date of grant are officers, directors and/or employees (collectively referred
to hereinafter as "employees") of the Company or a subsidiary. While all
employees are eligible to be considered for the award of Units, it is
contemplated that generally only those employees who perform services of
special importance to the Company in the management, operation and development
of business will be awarded Book Value Incentive Units.
SECTION 5. LIMITATION ON GRANT OF UNITS AND DURATION OF THE PLAN
5.1 The number of Units which may be granted under this Plan shall
be limited to two million (2,000,000) Units. For purposes of this limitation,
however, any Units which are forfeited by the grantee, shall thereafter again
by available for grant.
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5.2 Unless previously terminated by the Board of Directors
pursuant to Section 15 hereof or unless extended by a majority vote of
shareholders voting at a regularly scheduled meeting of the shareholders, the
Plan shall, for purposes of new grants, automatically terminate on December 31,
1989. Notwithstanding any termination of the Plan, the terms and conditions of
the Plan shall remain in full force and effect with respect to any grants made
prior to the termination of the Plan.
SECTION 6. ACCOUNTING FOR BOOK VALUE INCENTIVE UNITS AND DIVIDEND UNITS
6.1 The Company shall record in an account with respect to each
grantee the number of Units awarded to such grantee and the Initial Value
thereof. A separate account shall be maintained with respect to each award of
Book Value Incentive Units to each grantee. The Company shall adjust the
Initial Value included in each such account to reflect Changes in Outstanding
Stock as provided in Section 13 hereof upon the happening of such a change.
The Company shall make available to each grantee and to the Committee a report
disclosing the Adjusted Initial Value, Maturity Value and the value of Dividend
Units of each such grantee account as of the next proceeding Valuation Date.
6.2 Whenever the Company shall pay any dividend (other than in
Common Stock) or make any distribution with respect to or upon issued and
outstanding Common Stock, there shall be credited to the account or accounts of
each grantee such number of Dividend Units as shall be allocable to such
grantee's account or accounts pursuant to Section 14 hereof.
6.3 Except as might otherwise be specifically provided in the
Plan, nothing contained in the Plan shall be construed as a requirement that
the Company shall fund, set aside or escrow funds and/or stock or other
property for the payment of any amounts with respect to any grantee's account
or accounts.
SECTION 7. VALUATION OF UNITS
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7.1 The amount payable to the grantee with respect to any account
established in his or her name under this Plan (the Maturity Value) shall be
determined i) as of the next succeeding Valuation Date if the grantee elects to
receive payment during the last two months of any fiscal quarter, or ii) as of
the next preceding Valuation Date if such election is made during the first
month of the fiscal quarter. Provided, however, that a grantee who gives
notice of his or her intention to elect to receive payment during the last two
months of any fiscal quarter, shall not be deemed to have made an election to
receive payment until such time, but in no event later than the end of such
fiscal quarter, he or she notifies the Committee in writing of his or her
irrevocable election to receive payment under the Plan. Such amount shall be
calculated only with respect to vested Book Value Incentive Units credited to
such account, and shall consist of the excess, if any, of the Maturity Value
over the Adjusted Initial Value of the Units credited to each such account,
less any amount which the Company is required to withhold with respect to such
payment under the applicable provisions of the Internal Revenue Code or state
or local income tax laws. Payment of such amounts shall be made in accordance
with Sections 9 and 10 hereof.
7.2 The Initial Value per Unit of the Units awarded to the grantee
shall generally be the Book Value per share of the Common Stock on the
Valuation Date next preceding the date on which the Book Value Incentive Units
are granted. However, the Committee may, in its sole discretion, reduce or
increase such Initial Value by as much as twenty percent (20%). Provided,
however, that at any time prior to December 31, 1983, the Committee may set as
the Initial Value the amount of $6.00 per unit, that amount the Committee
considers to be the fair value per share at the time of the Company's April 6,
1981 merger (as adjusted for the 5-for-1 split of December 1981).
7.3 The Adjusted Initial Value of the Units credited to the
grantee's account shall be the Initial Value as adjusted for Changes in
Outstanding Stock as provided in Section 13 hereof.
7.4 The Maturity Value per Unit of the Units credited to the
grantee's account shall be the Book Value per share of the Common Stock as
determined in accordance with Section 7.1 hereof. In the event no election is
made, the Maturity Value of the Units shall be computed as of the Valuation
Date next succeeding the tenth anniversary of the date of grant.
7.5 For purposes of this Section, Book Value shall mean the book
value of the Common Stock as determined in accordance with generally accepted
accounting principles except that such book value shall reflect all marketable
equity securities (including those categorized by the Company as "investees")
owned by the Company and/or its subsidiaries at market prices.
Appropriate adjustments shall be made to reflect accounting changes
which affect the reported book value of the Company by more than ten cents per
share in any fiscal year.
SECTION 8. VESTING
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8.1 One-fifth of each grant of Book Value Incentive Units shall
become vested on the first anniversary date of the grant of such Units and an
additional one-tenth shall vest at the end of each six month interval
thereafter until fully vested. Any Dividend Units credited to the account of
the grantee with respect to such Book Value Incentive Units shall be vested to
the same extent as such Units. Thus, Book Value Incentive Units and the
Dividend Units credited with respect thereto shall become vested in accordance
with the following schedule:
Date Vested Percentage
One Year after Grant 20%
One and One-Half Years after Grant 30%
Two Years after Grant 40%
Two and One-Half Years after Grant 50%
Three Years after Grant 60%
Three and One-Half Years after Grant 70%
Four Years after Grant 80%
Four and One-Half Years after Grant 90%
Five Years after Grant 100%
8.2 Vesting shall occur only if the grantee, on the date of
vesting, has continuously been an employee of the Company or a subsidiary of
the Company since the date of grant, unless otherwise determined by the
Committee. A leave of absence, unless otherwise determined by the Committee,
shall not constitute a cessation of employment.
8.3 Except as provided in Section 8.4 hereof, any Book Value
Incentive Units and Dividend Units credited to the account or accounts of a
grantee shall, to the extent not previously vested in accordance with this
Section 8, be fully cancelled with respect to such grantee as of the date he or
she ceases to be an employee of the Company or its subsidiaries.
8.4.1 In the event of the death or Total Disability of a grantee,
the account or accounts of such grantee shall become fully vested. The value
of the such account or accounts shall be determined as of the Valuation Date
coinciding with or next preceding his or her death, or the date he or she
ceases to be an employee as a result of Total Disability.
8.4.2 The Committee may, in its sole discretion, accelerate vesting,
entirely or partially, with respect to any grantee.
SECTION 9. PAYMENT OF VESTED ACCOUNT VALUE
9.1 A grantee may, no more than twice during each calendar year,
elect to receive payment in respect of all or any portion of the vested Book
Value Incentive Units and/or Dividend Units credited to his or her account.
Upon receipt of the grantee's written election to receive payment and, where
applicable, after the expiration of the period of time, if applicable, during
which a tentative election can be revoked, the Committee shall authorize the
payment of such amount in accordance with Section 9.3 hereof.
9.2 In the event the grantee does not so elect before the tenth
anniversary of the date of grant, or in the event the grantee
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ceases to be an employee of the Company or any of its subsidiaries, payments
in respect of vested Book Value Incentive Units and Dividend Units in such
account shall be made by the Company in accordance with Section 9.3 hereof.
9.3 As soon as practicable, but in any event not more than ninety
days after the Valuation Date used to determine the amount payable in
accordance with Section 7.1 hereof, the Company shall make the initial payment
in respect of such election. The initial payments shall be fifty percent (50%)
of the Maturity Value, less applicable taxes required to be withheld. On the
date corresponding to the date of the initial payment in each of the next
succeeding ten (10) years, deferred payments shall be made in accordance with
the following schedule:
Percentage of Maturity
Value Payable (before
Payment Date withholding taxes)
One Year after Initial Payment 5.600%
Two Years after Initial Payment 6.272%
Three Years after Initial Payment 7.025%
Four Years after Initial Payment 7.868%
Five Years after Initial Payment 8.812%
Six Years after Initial Payment 9.869%
Seven Years after Initial Payment 11.053%
Eight Years after Initial Payment 12.380%
Nine Years after Initial Payment 13.865%
Ten Years after Initial Payment 15.529%
If in its sole discretion the Committee should deem it appropriate, or
in the event of the death of the grantee, the Company shall accelerate the
payment in respect of such account in accordance with the following schedule:
Payment as a Percentage
Accelerated of Maturity Value (before
Payment Date withholding taxes)
Upon Election to Receive Payments 100.000%
One Year after Initial Payment 56.000%
Two Years after Initial Payment 56.448%
Three Years after Initial Payment 56.197%
Four Years after Initial Payment 55.073%
Five Years after Initial Payment 52.870%
Six Years after Initial Payment 49.346%
Seven Years after Initial Payment 44.214%
Eight Years after Initial Payment 37.139%
Nine Years after Initial Payment 27.731%
Ten Years after Initial Payment 15.529%
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Should it become necessary or, in the sole discretion of the
Committee, appropriate to make acceleration payments before the next applicable
annual accelerated payment date, the Company shall discount such payment at the
rate of twelve percent (12%) per annum.
SECTION 10. DEATH OF THE GRANTEE
10.1 In the event of the death of the grantee, the Maturity Value
of the Book Value Incentive Units and Dividend Units credited to the grantee's
account or accounts shall be paid (i) to such beneficiary which shall have been
designated in a written designation of the grantee delivered to the Company, or
(ii) in the absence of any such designation that is in effect at the time of
the death of the grantee, then to the executors or administrators of the
grantee's estate. Each grantee shall have the right, at any time, to designate
a beneficiary to receive the Maturity Value of Book Value Incentive Units and
Dividend Units credited to the account or accounts of such grantee, with such
designation to be on such form or forms as may be provided by the Company and
signed by such grantee. Any grantee may, in the same manner, revoke any such
designation previously made by such grantee and designate another beneficiary.
The last such designation received by the Company, in order of time (but prior
to the death of grantee), shall revoke all prior designations. Such payment of
the amount constituting the Maturity Value of Book Value Incentive Units and
Dividend Units credited to the grantee's account or accounts shall be made as
soon as practicable after the date of death of such grantee.
10.2 Within twelve months of the date that a grantee ceases to be
an employee as a result of Total Disability, the Committee shall determine the
extent, if any, to which vesting will be accelerated pursuant to Section 8.4.2
hereof and will authorize commencement of payments on such amount in accordance
with Section 9.3 hereof.
SECTION 11. RIGHT OF COMPANY TO TERMINATE EMPLOYMENT
Nothing contained in this Plan or in any grant pursuant to the Plan
shall interfere in any way with the right of the Company or a subsidiary to
terminate the employment of the grantee at any time for any reason.
SECTION 12. NON-TRANSFERABILITY
Neither the Book Value Incentive Units nor the Dividend Units granted
under this Plan nor any amounts payable under this Plan shall be transferable
by the grantee otherwise than by will or the laws of descent and distribution.
Furthermore, during the lifetime of a grantee, only such grantee shall be
entitled to elect to receive payments with respect to Units or Dividend Units
granted under this Plan.
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SECTION 13. CHANGES IN OUTSTANDING STOCK
In the event that i) the number of outstanding shares of Common Stock
shall be changed by reason of split-ups, combinations or shares,
recapitalizations, stock dividends, stock splits or otherwise, or ii) the
Common Stock is converted into or exchanged for other shares or other property
as a result of any merger of consolidation (including a sale of assets) or
other reorganization, the number of Units then credited to the account or
accounts of any grantee and the Initial Value (or Adjusted Initial Value) of
all Book Value Incentive Units credited thereto shall be appropriately adjusted
so as to reflect such changes.
SECTION 14. DIVIDENDS AND OTHER DISTRIBUTIONS
14.1 The Company shall credit to each grantee's account or accounts
the appropriate dollar amount, in the case of cash dividends, and in the sole
discretion of the Committee i) the appropriate number of shares of stock or
interest in other property, or ii) the appropriate dollar amount equivalent to
the value of such stock or property, as determined in the Committee's sole
discretion, distributed with respect to Common Stock (whether by dividend in
kind, spin-off, or otherwise). Such amounts credited to each grantee's account
or accounts shall correspond to the cash, shares of stock, or other property
which the grantee would have received had he or she been the owner of the
number of shares of Common Stock equal to the number of Units then credited to
the grantee's account or accounts.
14.2 With respect to a credit to a grantee's account or accounts
resulting from a distribution of stock or other property on Common Stock, any
dividends paid on or amounts earned with respect to such stock or other
property shall likewise be credited to the grantee's account or accounts.
14.3 The Company shall retain stock or other property, in the event
of such a distribution with respect to Common Stock equal to the credit to the
account or accounts of the grantees.
14.4 Any forfeitures of such amounts credited to the grantees'
accounts shall revert to the Company.
14.5 All property rights, including voting rights, with respect to
such stock or other property held by the Company, the value of which is
credited to the grantees' accounts, shall be exercised by, and in the sole
discretion of, the Committee.
SECTION 15. AMENDMENTS TO THE PLAN
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The Board of Directors may at any time terminate or from time to time
amend, modify or suspend this Plan. Provided, however, that the Board may not,
without shareholder approval, i) increase the limitation on the number of Units
which may be granted under this Plan, ii) extend the termination date of this
Plan, or iii) modify the Plan with respect to limitations on Initial Value as
set forth in Section 7.2 hereof.
SECTION 16. EXCLUSION FROM PENSION COMPUTATION
16.1 By acceptance of a grant under this Plan, each grantee shall
be deemed to agree that it is special incentive compensation and that it will
not be taken into account as "wages", "salary" or "covered compensation" in
determining the amount of any Company contribution to any pension, retirement
or deferred profit sharing plan or any other employee benefit plan of the
Company with respect to such grantee.
16.2 In addition, each beneficiary of a deceased grantee shall be
deemed to agree that such award will not affect the amount of any life
insurance coverage available to such beneficiary under any life insurance plan
covering employees of the Company or any subsidiary.
SECTION 17. GOVERNING LAW
This Plan shall be governed and construed in accordance with the laws
of the State of Ohio.
SECTION 18. EFFECTIVE DATE OF THE PLAN
This Plan shall be submitted to the stockholders of the Company at its
annual meeting in 1980 and, if approved by a majority of the stockholders
voting at such meeting, shall become effective retroactively to January 1,
1980.
(NK2-BVIP)