<PAGE>
Exhibit 10.3
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 16, 2006
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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 March 31, 2006, 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.
<PAGE>
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 16, 2006.
Performance Period:
The period that begins January 1, 2006 and ends December
31, 2008.
Amount of Award: Your
target award has a total value of $ and is
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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 after-tax operating income for the period between
January 1,
2006 and December 31, 2008. After-tax operating income
means net
income excluding realized gains and losses, and the
cumulative
effect of accounting changes.
- The
Company's total shareholder return ("TSR") for the period
between
January 1,
2006 and December 31, 2008, 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, 2008, the Company's actual after-tax operating
income will
be calculated and compared to the threshold, target, and maximum
performance
levels. After-tax
operating income at the threshold level will result in an
initial calculation of 50% of your target award. After-tax operating income
at target will result in an initial calculation of 100% of your
target award.
After-tax operating income at the maximum performance level will
result in an
initial calculation of 150% of your target award. For every whole 1% point
increase in after-tax operating income performance between
threshold and
target, the award will increase by 1.667%. For every whole 1% point
increase
in performance between target and maximum, the award will increase
by 1.0%.
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).
2
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<TABLE>
<CAPION>
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After-Tax Operating
Initial Calculation
Range of Modified Calculation
Income
based on After-Tax
(= Initial Calculation
Operating Income
maximum of 50% based on
relative TSR)
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<S>
<C>
<C>
Below Threshold
0% of your target award
0% of your target award
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Threshold: $342 million 50% of your
target award 25% - 75% of
your target award
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Target: $488.6 million
100% or your target 50%
- 150% of your target award
award
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