-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B8f7RsNT7XpCtXaK76E2UFxlxzJ3w4uiF+FUXhgKAUJeAMgBRFoqo0xB6TeynfLW 9/tfSEVAuS5qKux/QRtJjg== 0000073952-03-000046.txt : 20030314 0000073952-03-000046.hdr.sgml : 20030314 20030314143121 ACCESSION NUMBER: 0000073952-03-000046 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030317 FILED AS OF DATE: 20030314 EFFECTIVENESS DATE: 20030314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OHIO CASUALTY CORP CENTRAL INDEX KEY: 0000073952 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 310783294 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-05544 FILM NUMBER: 03603918 BUSINESS ADDRESS: STREET 1: 9450 SEWARD ROAD CITY: FAIRFIELD STATE: OH ZIP: 45014 BUSINESS PHONE: 5136032600 MAIL ADDRESS: STREET 1: 9450 SEWARD ROAD CITY: FAIRFIELD STATE: OH ZIP: 45014 DEF 14A 1 defprox.txt DEFINITIVE PROXY NOTICE, STATEMENT AND CARD ============================================================================= SCHEDULE 14A (RULE 14a) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12 OHIO CASUALTY CORPORATION ------------------------- (NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------- (NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(I)(4) and 0-11. (1) Title of each class of securities to which transaction applies: ..... (2) Aggregate number of securities to which transaction applies: ........ (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): .......... (4) Proposed maximum aggregate value of transaction: .................... (5) Total fee paid: ..................................................... [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: ............................................. (2) Form, Schedule or Registration Statement: ........................... (3) Filing Party: ....................................................... (4) Date Filed: ......................................................... ============================================================================= OHIO CASUALTY CORPORATION 9450 Seward Road Fairfield, Ohio 45014 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS To Be Held April 16, 2003 March 17, 2003 To the Shareholders: The Annual Meeting of Shareholders (the "Annual Meeting") of Ohio Casualty Corporation (the "Company") will be held in the Ohio Casualty University Auditorium, 9450 Seward Road, Fairfield, Ohio 45014, on Wednesday, April 16, 2003, at 10:30 a.m., local time, for the following purposes: (1) To elect the following individuals as directors for a term expiring in 2006 (Class I) William P. Boardman Jack E. Brown Robert A. Oakley Jan H. Suwinski (2) To approve an amendment to the Company's Code of Regulations to change requirements for meetings of shareholders and directors. (3) To approve an amendment to the Company's Code of Regulations to eliminate the requirement that directors be holders of record of at least 100 shares. (4) To approve an amendment to the Company's Code of Regulations to make changes to the stated duties and responsibilities of the Company's officers. (5) To transact such other business as may properly come before the Annual Meeting or any adjournment or postponement of the Annual Meeting. Holders of record of common shares of the Company as of the close of business on March 1, 2003 are entitled to notice of and to vote at the Annual Meeting and at any adjournment thereof. As of March 1, 2003, there were 60,727,134 common shares outstanding. Each common share is entitled to one vote on all matters properly brought before the Annual Meeting. By Order of the Board of Directors, /s/ Debra K. Crane Debra K. Crane, Senior Vice President, General Counsel and Secretary EVERY SHAREHOLDER'S VOTE IS IMPORTANT. IF YOU ARE UNABLE TO BE PRESENT AT THE ANNUAL MEETING, YOU ARE REQUESTED TO COMPLETE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD SO THAT YOUR COMMON SHARES WILL BE REPRESENTED. A POSTAGE PAID, ADDRESSED ENVELOPE FOR MAILING IS ENCLOSED FOR YOUR CONVENIENCE. YOU MAY ALSO VOTE YOUR PROXY VIA THE INTERNET OR BY TELEPHONE. INSTRUCTIONS ON DOING SO ARE PROVIDED IN THE PROXY STATEMENT AND ON THE PROXY CARD. OHIO CASUALTY CORPORATION 9450 Seward Road Fairfield, Ohio 45014 PROXY STATEMENT --------------- ANNUAL MEETING OF SHAREHOLDERS You are receiving this proxy statement and proxy card from us because you own common shares of Ohio Casualty Corporation (the "Company"). This proxy statement describes the proposals on which we would like you to vote. It also gives you information so that you can make an informed voting decision. We will mail this proxy statement and the form of proxy to shareholders beginning on or about March 17, 2003. VOTING AT THE ANNUAL MEETING Date, Time and Place of the Meeting We will hold the Annual Meeting of Shareholders (the "Annual Meeting") in the Ohio Casualty University Auditorium, 9450 Seward Road, Fairfield, Ohio 45014, at 10:30 a.m., local time, on Wednesday, April 16, 2003, and at any adjournment thereof. Who Can Vote Record holders of the Company's common shares at the close of business on March 1, 2003, are entitled to notice of and to vote at the Annual Meeting. On the record date, 60,727,134 common shares were issued and outstanding. Each outstanding common share will be entitled to one vote on each matter. Common shares of the Company are referred to in this proxy statement as "shares". Quorum for the Meeting A quorum of shareholders is necessary to take action at the Annual Meeting. A majority of the outstanding shares of the Company, represented in person or by proxy, will constitute a quorum. Votes cast by proxy or in person at the Annual Meeting will be tabulated by the inspectors of election appointed for the Annual Meeting. The inspectors of election will determine whether a quorum is present at the Annual Meeting. In the event that a quorum is not present at the Annual Meeting, we expect that the meeting will be adjourned or postponed to solicit additional proxies. Votes Required Election of Directors. The nominees for director who receive the greatest number of the votes cast in person or by proxy at the Annual Meeting will be elected directors of the Company. Instructions to withhold authority to vote will have no effect on the election of directors, because directors are elected by a plurality of votes cast. A properly executed proxy marked "WITHHELD" will be counted for purposes of determining whether there is a quorum. 1 Other Items. For each other proposal in the proxy statement, the affirmative vote of the holders of a majority of the issued and outstanding shares as of the record date for the Annual Meeting, represented in person or by proxy, will be required for approval. A properly executed proxy marked "ABSTAIN" with respect to any such matter will not be voted, although it will be counted for purposes of determining whether there is a quorum. Accordingly, an abstention will have the effect of a negative vote. Participants in Dividend Reinvestment Plan and Employee Savings Plan. If the shareholder is a participant in the Company's Dividend Reinvestment Plan or a participant in The Ohio Casualty Insurance Company Employee Savings Plan, the enclosed proxy represents the number of shares held on account of the participant in those plans as well as shares held of record by the participant. With respect to participants in the Employee Savings Plan, the proxy also serves as the voting instruction card to the Plan trustee and represents the shareholder's proportional interest in shares beneficially held by the trustee. Broker Non-Votes. If you hold your shares in "street name" through a broker or other nominee, your broker or nominee may not be permitted to exercise voting discretion with respect to some of the matters to be acted upon. Thus, if you do not give your broker or nominee specific instructions, your shares may not be voted on those matters and will not be counted in determining the number of shares necessary for approval. Shares represented by such "broker non-votes" will, however, be counted in determining whether there is a quorum. How You Can Vote You may attend the Annual Meeting and vote your shares in person. You also may choose to submit your proxies by any of the following methods: - Voting by Mail. If you choose to vote by mail, simply complete the enclosed proxy card, date and sign it, and return it in the postage-paid envelope provided. If you sign your proxy card and return it without marking any voting instructions, your shares will be voted FOR the election of the nominees identified in this Proxy Statement, and FOR the three proposals to amend the Company's Code of Regulations. - Voting by Telephone. You can vote your shares by telephone by calling the toll-free telephone number provided on the proxy card. Telephone voting is available 24 hours a day, and the procedures are designed to authenticate votes cast by using the personal control number located on your proxy card. If you vote by telephone, you should not return your proxy card. 2 - Voting by World Wide Web. You can also vote on the World Wide Web by signing on to the website identified on the proxy card and following the procedures described on the website. Internet voting is available 24 hours a day, and the procedures are designed to authenticate votes cast by using a personal control number located on your proxy card. If you vote on the World Wide Web, you should not return your proxy card. How You May Revoke or Change Your Vote You can revoke your proxy at any time before it is voted at the Annual Meeting by any of the following methods: - Submitting a later-dated proxy by mail, over the telephone or through the World Wide Web. - Sending a written notice, including by facsimile or electronic mail, to the Secretary of the Company. You must send any written notice of a revocation of a proxy so as to be delivered before the taking of the vote at the Annual Meeting to: Ohio Casualty Corporation 9450 Seward Road Fairfield, Ohio 45014 Facsimile: (513) 603-7900 Attention: Debra K. Crane, Senior Vice President, General Counsel and Secretary Email to: debra.crane@ocas.com - Attending the Annual Meeting and voting in person. Your attendance at the Annual Meeting will not in and of itself revoke your proxy. You must also vote your shares at the Annual Meeting. If your shares are held in the name of a bank, broker or other holder of record, you must obtain a proxy, executed in your favor, from the institution that holds your shares to be able to vote at the Annual Meeting. 3 PRINCIPAL SHAREHOLDERS The table below identifies the only persons known to the Company to own beneficially (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) more than 5% of the Company's outstanding shares:
Name and Address Common Shares Percent of of Beneficial Owner Beneficially Common Owned Shares(1) ----- --------- T. ROWE PRICE ASSOCIATES, INC. 5,331,900(2) 8.8% 100 E. Pratt Street Baltimore, Maryland 21202 FMR CORPORATION 4,077,764(3) 6.7% 82 Devonshire Street Boston, Massachusetts 02109 DIMENSIONAL FUND ADVISORS, INC. 4,032,473(4) 6.6% 1299 Ocean Avenue, 11th Floor Santa Monica, California 90401 AMERICAN FINANCIAL GROUP, INC. 3,950,000(5) 6.1% One East Fourth Street Cincinnati, Ohio 45202 FIRST FINANCIAL BANCORP 3,139,429(6) 5.2% 300 High Street Hamilton, Ohio 45011 __________________
(1) Based on 60,727,134 shares, the actual number of shares outstanding as of March 1, 2003. (2) Based upon information contained in a Schedule 13G filed February 6, 2003 with the Securities and Exchange Commission ("SEC") by T. Rowe Price Associates, Inc. T. Rowe Price reported that it has sole voting power for 946,800 shares and sole dispositive power for 5,331,900 shares. (3) Based upon information contained in a Schedule 13G filed February 14, 2003 with the SEC by FMR Corporation ("FMR") to report shareholdings by the following subsidiaries of FMR: Fidelity Management & Research Company; Fidelity Management Trust Company and Geode Capital Management LLC. FMR reported sole voting power for 668,930 shares and sole dispositive power for 4,077,764 shares. Beneficial ownership includes 395,424 shares resulting from the assumed conversion of the Ohio Casualty Corporation 5.00% convertible notes owned by Fidelity Management and Research Company. 4 (4) Based upon information contained in a Schedule 13G filed February 10, 2003, filed with the SEC by Dimensional Fund Advisors Inc. ("Dimensional"). Dimensional reported sole voting power and sole dispositive power for 4,032,473 shares. Dimensional furnishes investment advice to four investment companies registered under the Investment Company Act of 1940, and serves as investment manager to certain other commingled group trusts and separate accounts. In its role as investment advisor or manager, Dimensional possesses voting and/or investment power over the reported shares, and Dimensional disclaims beneficial ownership of such shares. (5) Based upon information contained in a Schedule 13G/A filed January 27, 2003, with the SEC by American Financial Group, Inc. ("AFG"). AFG reported shared dispositive power for 3,950,000 shares. All of these shares are covered by unexercised warrants issued by the Company to AFG on December 1, 1998, in connection with the Company's acquisition of substantially all of AFG's commercial lines business. The exercise price of the warrants is $22.505 per share, and the warrants expire on November 30, 2003. (6) Based upon information contained in a Schedule 13G/A filed January 31, 2003, with the SEC by First Financial Bancorp and its subsidiary, First Financial Bank ("First Financial"). First Financial holds the reported shares as trustee under various trust agreements and arrangements. First Financial reported that it has sole voting power for 3,127,871 shares, sole dispositive power for 1,127,083 shares, and shared dispositive power for 1,715,363 shares. Also included in these shares are 93,176 shares that are held under a trust arrangement for one director of the Company. These shares are also reported in the following table, which shows share ownership by directors and executive officers of the Company. 5 SHAREHOLDINGS OF DIRECTORS, EXECUTIVE OFFICERS AND NOMINEES FOR ELECTION AS DIRECTOR As of March 1, 2003, the directors of the Company, the nominees for election as directors, the individuals named in the Summary Compensation Table, and all executive officers and directors of the Company as a group, beneficially owned shares of the Company as set forth in the table below:
Shared Investment/ Number of Options Voting Power Common Shares Exercisable Over Employees Name of Beneficially Within Retirement Percent Individual or Group Owned(1) 60 Days Plan Shares(2) Total of Class(3) - -------------------- -------- ------- -------------- ----- ----------- Terrence J. Baehr 6,014 27,000 1,336,964 33,014(6) William P. Boardman 0 0 Jack E. Brown 13,162 33,000 1,336,964 46,162(6) John S. Busby 15,669(5) 52,659 68,328(5) Dan R. Carmichael 40,837(5) 400,000 440,837(5) Catherine E. Dolan 3,562 39,000 1,336,964 42,562(6) Jeffery L. Haniewich 2,856(5) 50,966 53,822(5) Philip G. Heasley 1,751 6,000 1,336,964 7,751(6) Stephen S. Marcum 600,584(4) 39,000 639,584(4) 1.05% Donald F. McKee 12,794(5) 66,666 79,460(5) Ralph S. Michael III 3,251 4,000 7,251 Robert A. Oakley 500 0 500 Stanley N. Pontius 9,644 39,000 48,644 Elizabeth M. Riczko 9,904(5) 84,966 94,870(5) Howard L. Sloneker III 1,243,130(5) 121,300 1,364,430(5) 2.24% Jan H. Suwinski 5,751 2,000 7,751 All Executive Officers, 2,397,621(5) 1,184,020 1,336,964 4,918,605(5) 7.94% Current Directors and Nominees as a Group (22 Persons) ________________________________
(1) Unless otherwise indicated, each named person has voting and investment power over the listed shares, and such voting and investment power is exercised solely by the named person or shared with a spouse. (2) Consists of 1,336,964 shares held in the Company's Employees Retirement Plan as to which the named individuals share voting and investment power solely by reason of being members of the Executive Compensation Committee that administers such Plan. Messrs. Baehr, Brown, Heasley and Ms. Dolan disclaim beneficial ownership of these shares. (3) Percentages are listed only for those individuals who are the beneficial owners of more than 1% of the outstanding shares. 6 (4) Includes 159,030 shares owned by family members and 175,959 shares held as co-trustee of the Joseph L. and Sarah S. Marcum Foundation as to which voting and investment power is shared by Mr. Marcum. Beneficial ownership of these shares is disclaimed by Mr. Marcum. (5) The share ownership for Messrs. Carmichael, McKee, Haniewich, Busby and Sloneker includes 635, 1,237, 1,758, 12,323 and 5,932 shares, respectively, held for the accounts of these individuals by the trustee of the Company's Employee Savings Plan. Ms. Riczko's share ownership includes 2,656 shares held in an account in the same plan. Such persons have sole voting power with respect to these shares and also hold investment power subject to limitations in the Plan. (6) Share ownership totals for Messrs. Baehr, Brown and Heasley and Ms. Dolan do not include the shares held in the Company's Employees Retirement Plan. ELECTION OF DIRECTORS The Board of Directors intends that the 4 persons named under Class I in the following table will be nominated for election at the Annual Meeting for three-year terms expiring in 2006. In the event that any one or more of the nominees unexpectedly becomes unavailable for election, the shares represented by the proxies received will be voted in accordance with the best judgment of the proxy holders for the election of the remaining nominees and for the election of any substitute nominee or nominees designated by the Board of Directors. The proxies will not be voted for more than 4 nominees.
Position with Company and/or Principal Occupation or Employment Director Name and Age(1) During Last Five Years Since - --------------- --------------------------------------------- ------- Nominees: Class I: Term Expiring in 2006 William P. Boardman, Senior Advisor to Goldman, Sachs, an investment banking firm, 61 since September 2001. Vice Chairman and Director, Bank One Corporation from 1999 to retirement on March 1, 2001. Senior Executive Vice President of Bank One Corporation prior to 1999. Other directorships: VISA International (Chairman), VISA USA and Checkfree Holdings Corporation. Jack E. Brown, Executive Vice President, Global AC Nielsen, Covington, Kentucky 1994 59 since January, 2002; Chairman of the Board, AC Nielsen BASES since 1998; previously, Chairman of the Board, BBI Marketing Services, Inc., Cincinnati, Ohio, a marketing consulting firm, from 1986 to 1998. Other directorship: PNC Bank Ohio, N.A. Robert A. Oakley, Arthur Shepard Executive-in-Residence, Fisher College of Business, 56 The Ohio State University, Columbus, Ohio, since February 2003; previously, Executive Vice President and Chief Financial Officer, Nationwide Mutual Insurance Company and Nationwide Financial Services, Inc. from 1995 to January, 2003. Jan H. Suwinski, Professor of Business Operations, The Johnson Graduate School of 2002 61 Management at Cornell University in Ithaca, New York since 1997. Other directorships: Tellabs, Inc. and Thor Industries, Inc.
7
Position with Company and/or Principal Occupation or Employment Director Name and Age(1) During Last Five Years Since - --------------- --------------------------------------------- ------- Directors Whose Terms Continue Beyond the Annual Meeting: Class II: Terms Expiring in 2004 Stephen S. Marcum, Member of the law firm of Parrish, Fryman & Marcum Co., L.P.A., 1989 45 Hamilton, Ohio, since 1983. Other directorships: First Financial Bancorp and First Financial Bank. Ralph S. Michael III, Previously Group Executive, PNC Advisors and PNC Capital Markets, 2002 48 Pittsburgh, Pennsylvania, February 2001 to September 2002, and Chief Executive Officer, PNC Corporate Banking from 1996 to 2001. Stanley N. Pontius, President and Chief Executive Officer of First Financial Bancorp, 1994 56 Hamilton, Ohio since 1991 and Chairman of the Board of its principal subsidiary, First Financial Bank, Hamilton, Ohio since 1998. Previously, Chief Executive Officer of First Financial Bank since 1993. Other directorships: First Financial Bancorp and First Financial Bank. Class III: Terms Expiring in 2005 Terrence J. Baehr, Vice President, Sales, Americas East Region, IBM Corporation, White 1999 52 Plains, New York since June 2000. Previously, Vice President, Strategy and Solutions, Global Financial Services Sector for IBM Corporation January to June 2000, Vice President, Insurance Industry, North and South America for IBM, 1998 to 1999. Dan R. Carmichael, President, Chief Executive Officer and Director of the Company, The 2000 58 Ohio Casualty Insurance Company, West American Insurance Company, American Fire and Casualty Company, Ohio Security Insurance Company, Avomark Insurance Company, Ohio Casualty of New Jersey, Inc. and OCASCO Budget, Inc. since December 2000. Previously, President and Chief Executive Officer of IVANS, Inc., Greenwich, Connecticut from 1995 to 2000. Other directorships: Alleghany Corporation and Platinum Underwriters Holdings, Ltd. Catherine E. Dolan, Senior Vice President, First Union National Bank, Charlotte, North 1994 45 Carolina since 2000. Previously, Managing Director of the Financial Institutions Group, First Union National Bank, Charlotte, North Carolina from 1995 to 2000. Philip G. Heasley, Chairman and Chief Executive Officer of First USA, a subsidiary of 2002 53 Bank One since January 2001. Previously, President and Chief Operating Officer of U. S. Bancorp from 2000. Vice Chairman of U.S. Bancorp from 1994 to 1999. Other directorships: Chairman, VISA USA; director, VISA International, Fidelity National Financial, Inc. and Fair, Isaac and Company, Inc.
(1) Ages are listed as of the date of the Annual Meeting. RELATED TRANSACTIONS Mr. Pontius is a director and executive officer of First Financial Bancorp and its principal subsidiary, First Financial Bank ("First Financial"). First Financial is a member of a group of four banks that are parties to a credit agreement with the Company dated July 31, 2002, pursuant to which the Company secured a line of credit in a maximum principal amount of $80,000,000. The credit facility 8 fees paid in 2002 to First Financial are commercially reasonable and have been negotiated at arms-length, and are equivalent to those fees payable to other members of credit facilities with no comparable relationship. First Financial also provided banking services to the Company and its subsidiaries during the last fiscal year at commercially reasonable rates. Mr. Pontius received no special or indirect benefits as a result of the relationship between First Financial and the Company. MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD During 2002, the Board of Directors held ten meetings. All directors attended at least 75% of the aggregate number of meetings of the Board of Directors and the committees on which he or she served. The Board of Directors has standing Executive, Audit, Executive Compensation and Governance Committees. The Executive Committee held one meeting during 2002. Current members of the Executive Committee are Jack E. Brown, Dan R. Carmichael, Stanley N. Pontius (Chair) and Howard L. Sloneker III. The Executive Committee is empowered to exercise all the powers of the Board of Directors in the management of the Company between meetings of the Board of Directors, other than filling vacancies on the Board or any committee of the Board. The Audit Committee held twelve meetings during 2002. Current members of the Audit Committee are Catherine E. Dolan (Chair), Philip G. Heasley, Ralph S. Michael III, Stanley N. Pontius and Jan H. Suwinski. For a more detailed description of the role of the Audit Committee, see "Report of the Audit Committee" on page 22. The Executive Compensation Committee held six meetings during 2002. Current members of the Executive Compensation Committee are Terrence J. Baehr, Jack E. Brown (Chair), Catherine E. Dolan and Philip G. Heasley. The Executive Compensation Committee administers the Company's executive stock option plan and carries out the responsibilities described in the Report of the Executive Compensation Committee on page 20. The Governance Committee held six meetings during 2002. Current members of the Governance Committee are Terrence J. Baehr (Chair), Stephen S. Marcum, Stanley N. Pontius and Jan H. Suwinski. The Governance Committee promotes the effective operation of the Board of Directors through proper committee composition, nominee selection and efficient task distribution. The Governance Committee will consider nominees for director recommended by shareholders for the 2004 Annual Meeting of Shareholders provided that the names of such nominees are submitted not later than November 22, 2003, to Debra K. Crane, Senior Vice President, General Counsel and Secretary, 9450 Seward Road, Fairfield, Ohio 45014. Every submission must include a statement of the qualifications of the nominee, a consent signed by the nominee evidencing a willingness to serve as a director if elected, and a commitment by the nominee to meet personally with the Governance Committee members. 9 DIRECTORS' FEES AND OTHER COMPENSATION Each director who is not an employee of the Company, except for the Chairman of the Board, receives an annual retainer of $30,000 for services as a director of the Company. The Chairman of the Board receives an annual retainer of $75,000. In 2002, the annual retainer consisted of 50% cash and 50% in the form of shares of Ohio Casualty Corporation. Each non-employee director of the Company also receives $1,500 plus expenses for each meeting attended in person and $500 per meeting attended via teleconference. The Chairman of the Audit Committee receives an annual fee of $2,500 and the Chairmen of the Governance Committee and Executive Compensation Committee each receive an annual fee of $2,000 for such services. Non-employee directors may elect to defer all or a part of the cash compensation they earn for services as directors in performance shares or cash. In 2002, fees deferred in cash were credited with interest at a rate equal to the yield reported in the Company's annual report on Form 10-K for the taxable fixed income portfolio as of December 31, 2001. Performance shares are equivalent in value to the Company's shares, but the performance shares have no voting rights. All deferred fees and performance shares are payable only in cash. Under the Company's current stock option plan, any individual who becomes or is re-elected a non-employee director is automatically granted a non-qualified stock option (an "NQSO") to purchase 6,000 shares (pro-rated based on term) effective on the third business day following the first meeting of the Board of Directors after his/her election, re-election or appointment to the Board. The exercise price of each NQSO granted to a non-employee director is equal to the fair market value of the shares on the date of grant. NQSOs granted to non-employee directors have terms of ten years (subject to earlier termination in certain cases) and may not be exercised during the six months following their date of grant. On April 22, 2002, Terrence J. Baehr, Catherine E. Dolan and Philip G. Heasley were each granted an NQSO to purchase 6,000 shares of the Company, at an exercise price of $19.65 per share, the closing market price of the shares on the date of grant. On that same date, Jan H. Suwinski was granted an NQSO to purchase 2000 shares of the Company and Ralph S. Michael III was granted an NQSO to purchase 4000 shares of the Company, both grants at an exercise price of $19.65 per share, the closing market price of the shares on the date of grant. EXECUTIVE COMPENSATION Summary Compensation Table The table on the following page presents information concerning compensation provided by the Company to its Chief Executive Officer and to each of the Company's four most highly compensated executive officers, other than the Chief Executive Officer, for services rendered in all capacities for each of the Company's last three completed fiscal years: 10
Long-Term Annual Compensation Compensation Awards ------------------------------------------------------- --------------------- Other Securities Annual Restricted Underlying LTIP All Other Name and Salary Bonus Compensation Stock Options/ Payout Compensation Principal Position Year ($) ($) ($)(1) Awards($)(2) SARs(#) ($)(3) ($)(4) - ------------------ ---- --- --- ------ ------------ ------- ------ ------ Dan R. Carmichael 2002 700,000 525,000 0 0 400,000 0 223,471 President, Chief 2001 700,000 725,000 14,508 0 400,000 0 767,180 Executive Officer 2000 18,846 200,000 0 0 400,000 0 0 Donald F. McKee 2002 357,067 175,000 44,852 0 150,000 0 81,250 Executive Vice 2001 88,846 100,000 3,732 0 200,000 0 6,457 President (5) 2000 -- -- -- -- -- -- -- Jeffery L. Haniewich 2002 257,740 62,246 7,062 0 21,900 0 9,593 Executive Vice 2001 230,617 28,692 58,824 0 62,000 0 27,648 President 2000 190,008 150 10,716 0 15,000 0 5,777 Elizabeth M. Riczko 2002 261,106 47,062 109,494 88,725 21,900 4,200 8,774 Executive Vice 2001 233,154 25,900 11,359 0 62,000 0 10,349 President 2000 182,603 11,300 10,505 0 15,000 10,720 6,139 John S. Busby 2002 226,812 35,997 31,728 17,745 21,900 1,573 8,079 Executive Vice 2001 214,923 25,350 12,737 0 41,000 4,200 10,000 President 2000 180,516 40,940 13,029 0 15,000 10,720 6,169
___________________ (1) For 2002, includes value of company car benefits provided by the Company as follows: Ms. Riczko, $12,322 and Mr. Busby, $11,125. Also includes benefits provided by the Company for items such as financial planning, computer purchases and memberships ("officer benefits") in an amount of $4,700 each to Messrs. McKee, Haniewich and Busby and Ms. Riczko. Other Annual Compensation for 2002 also includes imputed taxes and a "gross-up" amount to pay such taxes with respect to company car, relocation expenses, officer benefits expenses and restricted stock awards as follows: Mr. McKee, $40,152, Mr. Haniewich, $2,362, Mr. Busby, $15,902 and Ms. Riczko, $92,472. For 2001, includes value of company car benefits provided by the Company as follows: Mr. Haniewich, $30,639, Mr. Busby, $5,052 and Ms. Riczko, $3,852. Also includes officer benefits provided in an amount of $4,700 each to Messrs. Carmichael, Haniewich, and Ms. Riczko, $1,175 to Mr. McKee and $4,697 to Mr. Busby. Other Annual Compensation for 2001 also includes imputed taxes and a "gross up" amount to pay such taxes with respect to company car, relocation expenses, officer benefits as follows: Mr. Carmichael, $9,808, Mr. McKee, $2,557, Mr. Haniewich, $23,485, Mr. Busby, $2,988 and Ms. Riczko, $2,807. For 2000, includes value of company car benefits provided by the Company as follows: Mr. Haniewich, $3,260, Mr. Busby, $5,397 and Ms. Riczko, $2,969. Also includes officer benefits provided in an amount of $4,700 each to Messrs. Haniewich, Busby and Ms. Riczko. Other Annual Compensation in 2000 also includes imputed taxes and a "gross up" amount to pay such taxes with respect to company car and officer benefits as follows: Mr. Haniewich, $2,756, Mr. Busby, $2,932 and Ms. Riczko, $2,836. (2) Ms. Riczko and Mr. Busby were issued 5,000 and 1,000 restricted shares, respectively, on February 21, 2002. All restrictions on these shares lapsed on August 21, 2002. (3) Amounts shown reflects the payout of Dividend Payment Rights granted to the named executive officers in 1997, 1998 and 1999. 11 (4) For 2002, includes contributions to the Company's Employee Savings Plan as follows: Mr. Carmichael, $5,868; Mr. McKee, $5,500; Mr. Haniewich, $5,561; Mr. Busby, $5,716 and Ms. Riczko, $5,407. Also includes amounts contributed to the Company's Supplemental Executive Savings Plan as follows: Mr. Carmichael, $30,750; Mr. McKee, $11,981; Mr. Haniewich, $3,600; Mr. Busby, $1,931 and Ms. Riczko $3,367. Includes company paid group life insurance in the amount of $432 each paid to Mr. McKee, Mr. Haniewich and Mr. Busby. Includes for Mr. Carmichael $175,000 paid pursuant to his employment agreement, and $11,853 toward interest, both credited to his deferred compensation account. Includes for Mr. McKee $63,337 for relocation expenses. (5) Donald F. McKee was not an employee of the Company in 2000. Option Grants in Last Fiscal Year The table below sets forth information concerning the grant of stock options during the last fiscal year to each of the executive officers of the Company named in the Summary Compensation Table. No stock appreciation rights were granted during the last fiscal year.
% of Total Potential Realizable Options Value at Assumed Number of Granted Annual Rates of Stock Shares to Price Appreciation for Underlying Employees Exercise Option Term(1) Options in Fiscal Price Expiration ($) ($) Name Granted Year ($/Sh) Date 5% 10% ---- ------- --------- -------- --------- ------ ------- Dan R. Carmichael 400,000(2) 36.83% 13.26 12/12/12 3,335,657 8,453,210 Donald F. McKee 150,000(3) 13.81% 16.51 9/19/12 1,557,458 3,946,903 Jeffery L. Haniewich 21,900(4) 2.02% 17.70 2/21/12 243,778 617,782 Elizabeth M. Riczko 21,900(4) 2.02% 17.70 2/21/12 243,778 617,782 John S. Busby 21,900(4) 2.02% 17.70 2/21/12 243,778 617,782
(1) The dollar amounts under these columns are the result of calculations at the 5% and 10% annual appreciation rates set by the SEC for illustrative purposes, and therefore, are not intended to forecast future financial performance or possible future appreciation in the price of the Company's shares. Shareholders are, therefore, cautioned against drawing any conclusions from the appreciation data shown, aside from the fact that optionees will only realize value from the option grants shown when the price of the Company's shares appreciates, which benefits all shareholders commensurately. (2) Mr. Carmichael's option was granted pursuant to his Employment Agreement with the Company dated December 12, 2000. The option becomes exercisable as to one-third of the option shares on each of the first three anniversaries of the date of grant and has a term of ten years. Vesting of the stock options may be accelerated upon the occurrence of certain changes in control of the Company. 12 (3) Mr. McKee's option was granted under the 2002 Stock Incentive Plan, pursuant to his Employment Agreement with the Company dated September 19, 2001. The option becomes exercisable as to one-third of the option shares on each of the first three anniversaries of the date of grant and has a term of ten years. Vesting of the stock options may be accelerated upon the occurrence of certain changes in control of the Company. (4) These stock options were granted under the Ohio Casualty Corporation 1993 Stock Incentive Program at the fair market value of the underlying option shares on the date of grant. These options are subject to a six-month holding period and become exercisable as to one-third of the option shares on each of the first three anniversaries of the date of grant and have a term of ten years. In the event of a change in control of the Company, the stock options would become exercisable in full. Stock options reported consist of both Incentive Stock Options and Non-Qualified Stock Options. Option Exercises in Last Fiscal Year The following table sets forth for each of the executive officers of the Company named in the Summary Compensation Table, the fiscal year-end value of unexercised stock options held by such executive officer. None of these individuals exercised any stock options during 2002. Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Value ------------------------------------------------- Number of Shares Underlying Value of Unexercised Shares Unexercised Options at In-the-Money Options Acquired on Value Fiscal Year-End at Fiscal Year-End ($)(1) Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable ---- -------- -------- ----------- ------------- ---------------------------- Dan R. Carmichael 0 0 400,000 800,000 869,331 434,669 Donald F. McKee 0 0 66,666 283,334 120,665 241,335 Jeffery L. Haniewich 0 0 43,666 63,234 92,602 166,163 Elizabeth M. Riczko 0 0 77,666 63,234 92,602 166,163 John S. Busby 0 0 45,359 49,234 51,168 109,883
(1) "Value of Unexercised In-the-Money Options at Fiscal Year-End" is based upon the fair market value of the Company's shares on December 31, 2002 ($13.01), less the exercise price of in-the-money options on December 31, 2002. Exercise prices of these options on December 31, 2002 ranged from $8.990 to $23.469. 13 EQUITY COMPENSATION PLANS The following table summarizes share and exercise price information about the Company's equity compensation plans as of December 31, 2002:
(a) (b) (c) Plan Category Number of securities to Weighted-average Number of securities remaining be issued upon exercise exercise price of available for future issuance of outstanding options, outstanding options, under equity compensation plans warrants and rights warrants and rights (excluding securities reflected in column (a)) Equity 1,944,513 $10.31 5,148,109(1) compensation plans approved by security holders Equity 2,545,745 $10.04 2,437,550 compensation plans not approved by security holders(2) Total 4,490,258 $10.17 7,585,659
(1) Includes 3,148,109 shares available for issuance under the Ohio Casualty Corporation 2002 Stock Incentive Program and 2,000,000 shares available for issuance under the Ohio Casualty Corporation 2002 Employee Stock Purchase Plan, as of December 31, 2002. (2) Includes options granted under the following non-shareholder approved Plans: (a) Ohio Casualty Corporation 1999 Broad-Based Employee Stock Option Plan (the "1999 Plan"). (b) Stock Options Agreements, effective as of March 23, 2000 between Ohio Casualty Corporation and each of Terrence J. Baehr, Arthur J. Bennert, Jack E. Brown, Catherine E. Dolan, Wayne R. Embry, Vaden Fitton, Stephen S. Marcum, Stanley N. Pontius, Howard L. Sloneker III and William L. Woodall (the "Directors Plan"). (c) Employment Agreement effective as of December 12, 2000 between Ohio Casualty Corporation and Dan R. Carmichael (the "Carmichael Agreement"). (d) Employment Agreement, effective as of September 19, 2001 between Ohio Casualty Corporation and Donald F. McKee (the McKee Agreement"). (e) Ohio Casualty Corporation 2002 Broad-Based Employee Stock Option Plan (the "2002 Plan"). 14 Set forth below are the material features of the non-shareholder- approved plans: The 1999 Plan and the 2002 Plan were designed to assist the Company to retain and to incent non-officer employees of the Company. An aggregate of 1,500,000 shares and 2,000,000 shares were reserved for issuance under the 1999 Plan and the 2002 Plan respectively. Both plans provide for the award of non- qualified stock options at an exercise price of not less than the fair market value of common shares as of the day of the grant. Shares underlying the outstanding options vest over two equal annual installments and have a term of ten years. Options vest and become immediately exercisable upon retirement, death or disability or change in control (subject to a holding period of twelve months for the 1999 Plan). In the event of termination of a participant's employment for any reason other than death, disability and retirement, the options will expire immediately after such termination. As of December 31, 2002, the 1999 Plan and the 2002 Plan had 172,550 and 2,000,000 shares available for grant respectively. As of December 31, 2002, options to purchase 1,015,745 shares with a weighted average price of $13.41 were outstanding under the 1999 Plan. The Directors Plan was adopted by the Board of Directors in order to grant options pursuant to the Stock Option Agreements between the Company and its directors as of March 23, 2000. An aggregate of 165,000 shares were reserved for issuance under the Directors Plan of which 150,000 shares were awarded to the Directors of the Company on March 23, 2000. The Director Plan provides for the award of non-qualified stock options at an exercise price of not less than the fair market value of common shares as of the day of the grant. The options of 15,000 shares each granted to the directors vested over two equal annual installments and have a term of ten years. Subject to a 6-month holding period, options vest and become immediately exercisable upon retirement, death, disability or change in control. As of December 31, 2002, options to purchase 130,000 shares with a weighted average price of $13.13 were outstanding under the Directors Plan. The Carmichael Agreement was adopted by the Board of Directors in order to grant options pursuant to the Employment Agreement between the Company and Dan R. Carmichael. An aggregate of 1,200,000 shares were reserved for issuance under the Carmichael Agreement all of which had been awarded to Mr. Carmichael as of December 31, 2002 (see page 17 for a discussion of options granted to Mr. Carmichael). The Carmichael Agreement provides for the award of non-qualified stock options at an exercise price of not less than the fair market value of common shares as of the day of the grant. The options granted to Mr. Carmichael vest over three equal annual installments and are for a term of 10 years each. As of December 31, 2002, options to purchase 1,200,000 shares with a weighted average price of $12.46 were outstanding under the Carmichael Agreement. The McKee Agreement was adopted by the Board of Directors in order to grant options pursuant to the Employment Agreement between the Company and Donald F. McKee. An aggregate of 450,000 shares were reserved for issuance under the McKee Agreement out of which 200,000 shares had been awarded to Mr. McKee as of December 31, 2002, (see page 18 for a discussion of options granted to Mr. McKee). The McKee Agreement provides for the award of non-qualified stock options at an exercise price of not less than the fair market value of common shares as of the day of the grant. The options granted to Mr. McKee vest over three equal annual installments and are for a term of 10 years each. As of December 31, 2002, options to purchase 200,000 shares with a weighted average price of $11.20 were outstanding under the McKee Agreement. 15 EMPLOYMENT AGREEMENTS Dan R. Carmichael On December 12, 2000, the Company entered into a five-year Employment Agreement (the "Carmichael Agreement") with Dan R. Carmichael. The basic terms and conditions of the Carmichael Agreement include a minimum base salary of $700,000 per year, and annual bonuses for calendar years 2001 and 2002 equal to the greater of $525,000 or the bonus otherwise payable under any executive short-term bonus plan that is in effect. For calendar years after 2002, the bonus will be determined under the applicable short-term bonus plan then in effect. A long-term cash award of $175,000 was credited to Mr. Carmichael's deferred compensation account on March 31, 2002 (for fiscal year ending December 31, 2001). An additional amount of $175,000 will be credited on March 31, 2003 (for fiscal year ending December 31, 2002). These amounts will vest over a three-year period. For calendar years following 2002, Mr. Carmichael will participate in any long-term incentive program then offered by the Company. As an added inducement to joining the Company, Mr. Carmichael received payments of $200,000 on December 22, 2000, and on June 22, 2001. In addition, on April 12, 2001, the Company reimbursed Mr. Carmichael $171,604, which he forfeited under a previous employer's short term bonus program as a result of his accepting employment with the Company. The Company also credited to Mr. Carmichael's deferred compensation account $346,906, which he forfeited under a previous employer's long-term bonus plan. If prior to a Change in Control of the Company (as defined in the Carmichael Agreement), the Company terminates Mr. Carmichael's employment without Cause (as defined) or if Mr. Carmichael terminates his employment for Good Reason (as defined), the Company will be obligated to (i) continue to pay the Base Salary for a period of 36 months following the termination date; (ii) pay an amount equal to 300 percent of Mr. Carmichael's last annual bonus (or the amount of his minimum annual bonus for the year in which the termination occurs if that date precedes his receipt of his first annual bonus); (iii) pay an amount equal to 300 percent of the last annual long-term cash bonus amount credited to his deferred compensation account (or the amount of his minimum annual long-term cash amount for the year in which termination occurs if that date precedes receipt of his first long-term cash bonus payment); and (iv) vest in full all unvested stock options granted under the agreement. In certain cases, these payments will be reduced if Mr. Carmichael obtains other employment during the period in which the severance payments are required to be made. If following a Change in Control of the Company, the Company terminates Mr. Carmichael's employment without Cause or Mr. Carmichael terminates his employment for Good Reason, then the Company will be obligated to (i) pay to Mr. Carmichael the amounts that would have been payable to him if his employment had so terminated prior to a Change in Control, but in a lump sum without any discount applied to reflect the value of any acceleration of payment, and (ii) reimburse Mr. Carmichael for the cost of continued participation in all programs subject to the benefit provisions of the Consolidated Omnibus Budget Reconciliation Act ("COBRA") until the earlier of the date Mr. Carmichael obtains replacement coverage or the date the maximum coverage period prescribed by 16 COBRA ends. If the sum of these payments and any other payments or benefits constitute "excess parachute payments" under the Internal Revenue Code, then the Company will be obligated to reimburse Mr. Carmichael for any resulting excise tax or reduce the amounts paid so that the total parachute payment is less than the amount that would be an "excess parachute payment," whichever results in the larger after-tax amount to Mr. Carmichael. The Carmichael Agreement provides for a 24-month non-competition agreement. The Carmichael Agreement also provides for the grant of stock options for up to 1,200,000 shares of the Company at exercise prices equal to the market value of the Company's shares on the date of option grants. The first stock option for 400,000 shares was granted to Mr. Carmichael on December 12, 2000, at an exercise price of $9.75 per share. A second stock option for 400,000 shares was granted on December 12, 2001, at an exercise price of $14.38 per share, and a third stock option for 400,000 shares was granted on December 12, 2002, at an exercise price of $13.26 (the terms of this option are described in footnote 2 to the Option Grant Table on page 12). Each of the stock options will vest over a period of three years from the date of grant, and are for terms of 10 years. Vesting of the stock options may be accelerated upon the occurrence of certain changes in control of the Company, as well as termination of employment as a result of death, disability, retirement, or for Good Reason, or by the Company Without Cause, as stated in the Carmichael Agreement. Donald F. McKee On September 19, 2001, the Company entered into a five-year Employment Agreement (the "McKee Agreement") with Donald F. McKee. The basic terms and conditions of the McKee Agreement include a minimum base salary of $350,000 per year, and annual bonus for calendar year 2002 equal to the greater of $175,000 or a bonus amount targeted at 50% of base salary payable under the Company's Annual Incentive Program in effect. For calendar years after 2002, the bonus will be determined under the Company's Annual Incentive Program then in effect. In accordance with the McKee agreement, Mr. McKee received an annual bonus payment of $175,000 in March 2002. He also received $63,337 in 2002 towards relocation expenses. If prior to a Change in Control of the Company (as defined in the McKee Agreement), the Company terminates Mr. McKee's employment without Cause (as defined) or if Mr. McKee terminates his employment for Good Reason (as defined), the Company will be obligated to (i) continue to pay the Base Salary for a period of 24 months following the termination date; (ii) pay an amount equal to 200 percent of Mr. McKee's individual target bonus as defined in the Annual Incentive Program for the year in which the termination occurs; and (iii) vest in full all unvested stock options granted under the agreement. If following a Change in Control of the Company, the Company terminates Mr. McKee's employment without Cause or Mr. McKee terminates his employment for Good Reason, then the Company will be obligated to (i) pay to Mr. McKee the amounts that would have been payable to him if his employment had so terminated prior to a Change in Control, but in a lump sum without any discount applied to reflect the value of any acceleration of payment; (ii) reimburse Mr. McKee for the cost of continued participation in all programs subject to the benefit provisions of COBRA until the earlier of the date Mr. McKee obtains replacement coverage or the date the maximum coverage period prescribed 17 by COBRA ends; (iii) reimburse Mr. McKee for executive outplacement services until other employment is secured or up to $15,000; and (iv) provide a lump sum payment to include reimbursement for tax liabilities and any other Change in Control benefits. If the sum of these payments and any other payments or benefits constitute "excess parachute payments" under the Internal Revenue Code, then the Company will be obligated to reimburse Mr. McKee for any resulting excise tax or reduce the amounts paid so that the total parachute payment is less than the amount that would be an "excess parachute payment," whichever results in the larger after-tax amount to Mr. McKee. The McKee Agreement provides for a 24-month non-competition agreement. The McKee Agreement also provides for the grant of stock options for up to 450,000 shares of the Company at exercise prices equal to the market value of the Company's shares on the date of option grants. The first stock option for 200,000 shares was granted to Mr. McKee on September 19, 2001, at an exercise price of $11.20 per share. A second stock option for 150,000 shares was granted on September 19, 2002, at an exercise price of $16.51 per share (the terms of this option are described in footnote 3 to the Option Grant Table on page 12), and a third stock option for 100,000 shares will be granted on September 19, 2003, so long as Mr. McKee is an employee of the Company on that grant date. Each of the stock options will vest over a period of three years from the date of grant, and are for terms of 10 years. Beginning in 2004, Mr. McKee will participate in any long-term incentive plan offered by the Company. Vesting of the stock options may be accelerated upon the occurrence of certain changes in control of the Company, as well as termination of employment as a result of death, disability, retirement, or for Good Reason, or by the Company Without Cause, as stated in the McKee Agreement. CHANGE IN CONTROL AGREEMENTS The Company has entered into change in control agreements with Elizabeth M. Riczko, Jeffery L. Haniewich, and John S. Busby (each a "Change in Control Agreement"). Each Change in Control Agreement provides that if the employee's employment is terminated by the Company without Cause (as defined in the Change in Control Agreement), or by the employee for Good Reason (as defined), at any time during the 24 months following a Change in Control (as defined), the Company will (i) reimburse the employee for certain insurance and executive outplacement service costs, (ii) reimburse the employee for the cost of continued participation in all programs subject to the benefit provisions of COBRA until the earlier of the date replacement coverage is obtained or the date the maximum coverage period prescribed by COBRA ends, and (iii) pay the employee an amount equal to 200% of the greater of the employee's current annualized base salary rate or the highest annualized base salary rate the employee received at any time during the 24 months beginning on the date of the Change in Control. If the sum of these payments and any other payments or benefits constitute "excess parachute payments" under the Internal Revenue Code, then the Company will be obligated to reimburse the employee for any resulting excise tax or reduce the amounts paid so that the total parachute payment is less than the amount that would be an "excess parachute payment," whichever results in the greater after-tax amount to the employee. 18 PENSION PLANS The table below sets forth the estimated annual benefits payable under The Ohio Casualty Insurance Company Employees Retirement Plan (the "Employees Retirement Plan") and The Ohio Casualty Insurance Company Benefit Equalization Plan (the "Benefit Equalization Plan") to participants in such plans, including the executive officers named in the Summary Compensation Table, upon retirement in specified compensation and years of service classifications: PENSION PLANS TABLE
15 20 25 30 35 40 45 Annual Earnings Years Years Years Years Years Years Years - --------------- ----- ----- ----- ----- ----- ----- ----- $100,000 $21,209 $28,279 $35,349 $42,418 $49,488 $56,558 $63,627 200,000 45,209 60,279 75,349 90,418 105,488 120,558 135,627 300,000 69,209 92,279 115,349 138,418 161,488 184,558 207,627 400,000 93,209 124,279 155,349 186,418 217,488 248,558 279,627 500,000 117,209 156,279 195,349 234,418 273,488 312,558 351,627 600,000 141,209 188,279 235,349 282,418 329,488 376,558 423,627 700,000 165,209 220,279 275,349 330,418 385,488 440,558 495,627 800,000 189,209 252,279 315,349 378,418 441,488 504,558 567,627 900,000 213,209 284,279 355,349 426,418 497,488 568,558 639,627 1,000,000 237,209 316,279 395,349 474,418 553,488 632,558 711,627 1,100,000 261,209 348,279 435,349 522,418 609,488 696,558 783,627 1,200,000 285,209 380,279 475,349 570,418 665,488 760,558 855,627 1,300,000 309,209 412,279 515,349 618,418 721,488 824,558 927,627
Retirement benefits under the Employees Retirement Plan, a defined benefit plan qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), are generally payable to full-time and regular part-time employees upon retirement at age 65 so long as they have completed five years of vested service or in reduced amounts upon retirement prior to age 65 so long as they have completed ten years of vested service. A retiree's benefit amount is based upon his or her credited years of service and final average compensation for the five consecutive calendar years of highest salary during the last ten years of service immediately prior to age 65 or, if greater, the average annual compensation paid during the 60 consecutive month period immediately preceding retirement or other termination of employment. Such retirement benefits are calculated considering the retiree's Social Security-covered compensation. Benefits figures shown in the table above are computed on the assumption that participants retire at age 65 and are entitled to a single life annuity. Section 401(a)(17) of the Code limits compensation in excess of $200,000 from being taken into account in determining benefits payable under a qualified pension plan. As a result, the Benefit Equalization Plan was adopted for those employees who are adversely affected by these provisions of the Code. The Benefit Equalization Plan provides for payment of benefits that would have been payable under the Employees Retirement Plan but for the limitation on covered compensation imposed by the Code. Upon retirement, participants receive a lump sum payment equal to the actuarial equivalent present value of the benefit payable under the Benefit Equalization Plan. 19 At December 31, 2002, credited years of service and average annual compensation for purposes of the Employees Retirement Plan and the Benefit Equalization Plan for the executive officers named in the Summary Compensation Table were: Dan R. Carmichael, 1 year ($459,321); Donald F. McKee, 3 months ($144,183); Jeffery L. Haniewich, 4.0 years ($197,217); Elizabeth M. Riczko, 9.8 years ($217,715); and John S. Busby, 29.5 years ($197,564). The compensation covered by the Employees Retirement Plan and the Benefit Equalization Plan is the amount shown in the Summary Compensation Table as salary. REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE The Executive Compensation Committee of the Board of Directors (the "Committee") is composed entirely of non-employee directors. The Committee recommends to the Board of Directors for approval all of the policies and programs under which compensation is paid or awarded to the Company's executive officers. Historically, the Committee has sought to create executive compensation opportunities, including those for the Company's Chief Executive Officer (the "CEO"), that provide substantial incentives for superior performance and financial consequences for below-target performance. In addition to base salary, the compensation program includes both cash and stock-based elements. The Annual Incentive Program, which is an annual cash bonus plan, is designed to reward officers based on achievement of financial performance objectives while the Long-Term Incentive Plan offers stock-based compensation that is directly aligned with the interests of the Company's shareholders. Components of Compensation Base Salary. The Company sets the base salary range for each executive officer by reviewing the base salary for comparable positions at a broad group of companies participating in third party compensation surveys. Base salary ranges are targeted at the median of market on the basis of data available from these independent surveys. Individual salaries for each executive officer are set relative to the salary range based on individual performance and contribution to the Company's results. Cash Bonus. The Annual Incentive Program is designed to give officers of the Company and its subsidiaries the opportunity to earn a cash bonus based on corporate and individual performance. Bonus opportunities are targeted at the median of market for comparable positions in the survey companies. The Annual Incentive Program design differs for officers who serve in support areas, such as Accounting and Legal, versus officers who serve in business units. These business units fall within the operating segments of the Company's Commercial Lines, Personal Lines and Specialty Lines. In 2002, the Annual Incentive Program provided for a target bonus amount for each officer based on his or her position. The individual target bonus amount is stated as a percent of base salary ranging from 30% of base salary to 60% of base salary. For officers in the support units, this amount is adjusted up or down based on achievement of stated annual performance objectives, including corporate before-tax operating income. For officers in the business units, this amount is adjusted up or down based on stated annual performance objectives, including corporate before-tax operating income, accident year combined ratio and/or gross written premiums. Individual performance was then taken into consideration, adjusting the initial bonus calculation up or down. 20 A portion of the payments under the 2001 Annual Incentive Program were made during the first quarter of 2002 with any remaining amounts deferred pending recalculation of the accident year combined ratio. The recalculation and payment of any resulting bonus (as called for by the Annual Incentive Program) will occur in the first quarter of 2003. Certain annual performance objectives including the before-tax operating income set by the Committee for the 2002 Annual Incentive Program were not met. As a result, no bonus payments will be made to the officers in the support units under the 2002 Annual Incentive Program. Any bonuses payable to the business units under the 2002 Annual Incentive Program will be made during the first quarters of 2003 and 2004 based on the accident year results compared to the plan for the business units. Stock Incentives. The Long-Term Incentive Plan consists of Incentive Stock Options, Non-Qualified Stock Options or a combination of both. Stock options are granted at market value on the date of grant and increase in value only to the extent of appreciation of the Company's shares. Stock options expire at the end of ten years from the date of grant. Stock option grants are generally made during the first quarter of the fiscal year, although grants may be made at different times to participants who are promoted or newly hired. The number of stock options to be granted is based on the participant's position with the Company. The Committee has also reviewed recommendations from an outside consulting firm regarding the value of long-term incentives, including stock options. The Committee has reserved the right to eliminate future stock option awards or make other modifications in the Long-Term Incentive Plan. The Company granted stock options to all executive officers in February 2002. These grants vest over a period of three years, and are for a term of 10 years. Basis for Chief Executive Officer Compensation Dan R. Carmichael has served as President and Chief Executive Officer of the Company since December 12, 2000. During 2002, Mr. Carmichael received a base salary of $700,000 per year. The Committee evaluates Mr. Carmichael's performance on an annual basis and determines whether an increase in base salary is warranted based on the Committee's consideration of a number of objective and subjective criteria, including the Company's financial operations and Mr. Carmichael's overall leadership. Because the Carmichael Agreement requires that the Company pay Mr. Carmichael a minimum annual base salary, the Committee does not have the ability to reduce the base salary below that minimum. The minimum base salary was established by the Committee, based upon advice from the Company's compensation consulting firm that such minimum amount was consistent with similar compensation provided to CEOs of comparable companies in the insurance industry. The comparative data was compiled and provided by the Company's executive compensation consulting firm and may or may not have included the companies in the Performance Graph. The Carmichael Agreement provides for a bonus of $525,000 for 2002. Although the Committee does not have the ability to reduce the minimum cash bonus payable to Mr. Carmichael for 2002, bonuses for years after 2002 will be determined in accordance with any bonus program or long term cash award program then in effect for senior executives of the Company. In accordance with the Carmichael Agreement, a long-term cash award of $175,000 (for fiscal year ending December 31, 2001) was credited to Mr. Carmichael's deferred compensation account. This 21 contribution will vest over a three-year period. This account will be credited with earnings based on the One-Year Libor published in the Wall Street Journal for the first business day of each Program Year. Distributions from this account will be in five annual installments beginning on January 30 after Mr. Carmichael's termination of employment (other than for Cause as defined in the Carmichael Agreement). Mr. Carmichael was granted on December 12, 2002, a non-qualified stock option to purchase 400,000 shares at an exercise price of $13.26 per share, pursuant to the Carmichael Agreement. The Committee does not have a policy that requires its executive compensation programs to qualify as performance-based compensation under Section 162(m) of the Code, although the Committee continues to carefully consider the net cost and value to the Company and its shareholders of its compensation policies. Terrence J. Baehr Jack E. Brown Catherine E. Dolan Philip G. Heasley REPORT OF THE AUDIT COMMITTEE The Audit Committee of the Board of Directors of the Company is comprised of five directors, four of whom are considered "independent" under the listing standards of the National Association of Securities Dealers. The members of the Audit Committee are Catherine E. Dolan (Chair), Philip G. Heasley, Ralph S. Michael, Stanley N. Pontius and Jan H. Suwinski. The Audit Committee is responsible for overseeing the Company's accounting functions and controls, investment administration and investment policy, as well as recommending to the Board of Directors an accounting firm to audit the Company's financial statements. The Audit Committee operates under a written charter that sets forth its responsibilities, which is reviewed and assessed on an annual basis. The Audit Committee Charter was recently amended upon review by the Audit Committee and is included as Exhibit A to this proxy statement. The Audit Committee reviewed and discussed with Ernst & Young LLP ("Ernst & Young") the results of its audit for 2002 and the matters required to be discussed by Statement of Auditing Standard 61, as amended, "Communication with Audit Committees". In fulfilling its oversight responsibilities, the Audit Committee regularly discussed with representatives of Ernst & Young its responsibilities in accordance with generally accepted auditing standards; the selection and application of significant accounting policies; the existence of any significant audit adjustments or any disagreements with management; its judgment about the quality of the Company's accounting principles; and its responsibility for information prepared by management that is included in documents containing audited financial statements. The Audit Committee then reviewed internal audits and the audited financial statements with the management of the Company. In addition, the Audit Committee discussed with representatives of Ernst & Young the letter from Ernst & Young required by Independence Standards Board Standard No. 1 and the independence of Ernst & Young with respect to the Company. Pursuant to these discussions, the Audit Committee determined that the services provided by Ernst & Young are compatible with maintaining the auditors' independence. 22 Accordingly, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 2002, to be filed with the SEC. The only non-independent member of the Audit Committee is Stanley N. Pontius, who is also the Chairman of the Board of Directors of the Company. Mr. Pontius is not considered "independent" since the Chairman of the Board is considered an officer under Ohio Law and the Company's current Code of Regulations. However, the Board of Directors has determined that it is important to maintain the stability of the membership of the Audit Committee while the Company continues its strategic restructuring. Therefore, Mr. Pontius will continue to be a member of the Audit Committee until April 2003. The foregoing report of the Audit Committee is submitted by the Audit Committee: Catherine E. Dolan Philip G. Heasley Ralph S. Michael Stanley N. Pontius Jan H. Suwinski PRINCIPAL ACCOUNTANT FEES The table below discloses the fees paid by the Company to Ernst & Young for the fiscal years ended December 31, 2002 and December 21, 2001:
Type of Fees 2002 2001 Audit Fees $298,660 $147,025 Audit-Related Fees (1) 34,097 17,835 Tax fees (2) 1,042,066 1,567,000 All Other Fees (3) 37,567 1,079,341 Total $1,412,390 $2,811,201
(1) Audit-related Fees include benefit plan audits for 2002 and accounting consultations concerning financial accounting and reporting standards for 2001. (2) Tax Fees include preparation of original and amended tax returns, claims for refund and tax payment-planning services, tax planning and tax advice relating to various audits and appeals and tax advice related to restructuring, employee benefit plans and requests for rulings or technical advice from taxing authorities for 2001 and 2002. (3) All Other Fees include various technical research projects for 2002 as well as actuarial and other services related to the implementation of the Company's strategic plan for 2001. POLICIES AND PROCEDURES REGARDING PRE-APPROVAL OF ACCOUNTANT FEES Beginning in February 2002, approval of the Audit Committee was required for engagement of Ernst & Young in amounts involving $100,000 or more. Audit Committee approval was also required once the total projected costs for engagements in any given quarter exceeded $300,000. In August 2002, the Committee revised its procedure to require pre-approval of every engagement entered into by the Company with Ernst & Young. 23 COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN The graph below compares the five-year cumulative total shareholder return, including reinvested dividends, of the Company's shares with the Dow Jones Equity Market Index and the Dow Jones Insurance Index for Property and Casualty Companies (1): PERFORMANCE GRAPH FOR OHIO CASUALTY CORPORATION Value of $100 invested 5 years ago as of December 31, 1997 (Graph presented here)
1997 1998 1999 2000 2001 2002 ------------------------------------------------------ DJ EQUITY MARKET INDEX 100.00 124.90 153.28 139.07 122.50 95.45 DJ INSURANCE P&C 100.00 94.72 70.33 114.78 110.26 102.58 OHIO CASUALTY CORP. 100.00 95.99 78.96 52.12 83.64 67.47
(1) The Dow Jones Insurance Index for Property and Casualty Companies is comprised of 41 companies that are considered to be a peer group of property and casualty insurance companies within the United States. The companies making up the 2002 Index are: ACE Ltd., Allstate Corporation, AMBAC Financial Group Inc., American Financial Group, Inc., Arthur J. Gallagher & Co., Brown & Brown Inc., Chubb Corporation, Cincinnati Financial Corporation, Commerce Group Inc., Erie Indemnity Co. Cl A, Everest Re Group Ltd., Fidelity National Financial Inc., First American Corporation, Fremont General Corporation, HCC Insurance Holdings Inc., Hilb Rogal & Hamilton Co., IPC Holdings Ltd., Leucadia National Corporation, Loews Corporation, Markel Corporation, Marsh & McLennan Companies, MBIA Inc., Mercury General Corporation, MGIC Investment Corporation, Ohio Casualty Corporation, Old Republic International Corporation, PartnerRe Ltd., PMI Group Inc., Progressive Corporation, Radian Group Inc., RenaissanceRe Holdings Ltd., Safeco Corporation, Selective Insurance Group Inc., St. Paul Companies, TransAtlantic Holdings Inc., Travelers Property Casualty Corporation Cl A, Travelers Property Casualty Corporation Cl B, Trenwick Group Ltd., W. R. Berkley Corporation, White Mountains Insurance Group Ltd. and XL Capital Ltd. Cl A. 24 ANNUAL REPORT The Company's Annual Report for the fiscal year ended December 31, 2002, accompanies this Proxy Statement. INDEPENDENT PUBLIC ACCOUNTANTS The accounting firm of Ernst & Young LLP served as independent public accountants of the Company and its subsidiaries for 2002. A representative of Ernst & Young will be present at the Annual Meeting with the opportunity to make a statement and/or respond to appropriate questions from the shareholders. OTHER PROPOSALS Shareholders are also requested to vote on the following proposals: PROPOSAL 2: TO APPROVE AN AMENDMENT TO THE COMPANY'S CODE OF REGULATIONS TO CHANGE REQUIREMENTS FOR MEETINGS OF SHAREHOLDERS AND DIRECTORS The Board of Directors has approved, and recommends that the shareholders adopt, amendments to the Company's Code of Regulations that (i) revise the notice requirements for shareholder meetings and director meetings to allow for notice to be given, and to allow waiver of notice of such meetings to be given, through the use of communications equipment (such as electronic mail) or by any other means permitted by Ohio law, (ii) allow for meetings of shareholders to be held by means of communications equipment and to provide that shareholders and proxyholders may participate in meetings of shareholders held at a physical location by means of communications equipment, (iii) revise the quorum requirements for meetings of shareholders to provide that shareholders who participate in a meeting by use of communications equipment will be treated as being present at the meeting for purposes of determining the existence of a quorum, (iv) make other revisions to the Code of Regulations to provide that directors and shareholders may participate in meetings through the use of communications equipment and (v) eliminate the current requirement that meetings of the directors be held on specific dates during the year, and provide that meetings of the directors may be held on such dates and times as may be determined by the Chairman of the Board, the President, the Secretary or any four directors and in any manner or place permitted by law. The text of these proposed amendments to the Code of Regulations is attached to this Proxy Statement as Exhibit B. The Board of Directors recommends that shareholders adopt these amendments. Section 4 of Article I of the Company's Code of Regulations provides that all notices of meetings of shareholders must be in writing and either personally delivered or mailed to each shareholder entitled to notice of the meeting. The Ohio General Corporation Law (Chapter 1701 of the Ohio Revised Code) was amended in May 2002 to permit notice of meetings of shareholders to be given by means other than personal delivery or mail. In addition to personal delivery and mail, Ohio law now permits notice of meetings of shareholders to be given by overnight delivery or by any means of communication authorized by the shareholder to whom the notice is given. Similarly, Section 7 of Article II of the 25 Company's Code of Regulations limits the manner in which notice of a directors' meeting may be given. Ohio law was amended to permit notice of a directors' meeting to be given through any means of communication authorized by the director. The proposed amendments to Section 4 of Article I and Section 7 of Article II will allow notices of meetings of shareholders and directors to be given in any manner now, or in the future, permitted under Ohio law, which includes electronic delivery through communications equipment. The proposed amendments would also amend Section 5 of Article I and Section 8 of Article II of the Code of Regulations to permit shareholders and directors to waive notice of meetings by delivery of a waiver by electronic mail or through any other communications equipment. The Board of Directors believes that these proposed amendments are advisable in order to provide it with additional flexibility in the calling of board meetings and to permit the Company to be in the position to deliver notices of shareholders meetings electronically as and when state law allows. Section 3 of Article I of the Code of Regulations states that all meetings of shareholders shall be held at the principal office of the Company, unless otherwise determined by the directors and that all meetings of shareholders may be held at any place within or without the State of Ohio. The Ohio General Corporation Law was amended in May 2002 to allow for meetings of shareholders to be held by means of communication equipment. The proposed amendment to Section 3 would provide that meetings of shareholders may be held in any manner or place determined by the directors and permitted by Ohio law. The amendment would permit the Company to call and hold a meeting of shareholders exclusively by means of communications equipment. Under current Ohio law, if the directors elect to permit shareholders to attend a shareholders meeting through the use of communications equipment, the Ohio Corporation Law specifies that any such communications equipment must enable the shareholder or proxyholder to participate in the meeting and to vote on matters submitted to the shareholders, including an opportunity to read or hear the proceedings of the meeting and to speak or otherwise participate in the proceedings contemporaneously with those physically present. Section 6 of Article I of the Company's Code of Regulations provides that the holders of a majority in amount of the voting shares of the Company then outstanding and entitled to vote at a meeting of shareholders, present in person or by proxy, shall constitute a quorum for such meeting. The proposed amendments would amend Section 6 to allow for shares represented at a meeting of shareholders through the use of communications equipment to be counted for purposes of determining the existence of a quorum. Various sections of the Code of Regulations make reference to the holders of shares being present at a meeting of shareholders in person or by proxy. The proposed amendments would add language to provide that the holders of shares may also be present through the use of electronic communications equipment such as electronic mail. Section 6 of Article II of the Company's Code of Regulations provides that "regular meetings of the directors shall be held four times each year, on the third Thursday in the months of February, May, August and November, if not a legal holiday, but if a legal holiday, then on the next business day, and at such other times as may be fixed by resolution of the Board of Directors." The Board of Directors proposes to amend Section 6 to provide that the directors may hold such meetings as may from time to time be called by the Chairman of the Board, the President, the Secretary or any four directors. The Board of Directors believes that this amendment is advisable in order to give the Board flexibility in calling meetings of directors on dates on which the maximum number of the directors can be present or otherwise participate. 26 Section 2 of Article I of the Code of Regulations specifies the person or persons who may call meetings of shareholders. Section 2 would be amended to eliminate from the list of persons who have the right to call meetings of shareholders the Executive Vice President of the Company. The Company does not currently have a single Executive Vice President. The Ohio General Corporation Law provides that, unless the articles of incorporation or regulations prohibit the taking of action by shareholders or directors without a meeting, any action which may be authorized or taken at a meeting of the shareholders or directors may also be authorized or taken without a meeting with the affirmative vote or approval of, and in a writing or writings signed by all the shareholders who would be entitled to receive notice of a meeting of shareholders held for such purpose, or all the directors, respectively. The Board of Directors proposes to add a new Section 2 to Article VIII of the Code of Regulations that would state that shareholders or directors may take any action without a meeting in a signed writing or writings and provide, as now permitted by Ohio law, that a signed writing may consist of electronic mail or any electronic or other transmission capable of authentication. The heading of Article VIII of the Code would be changed from "Amendments" to "Miscellaneous", and the existing text of Article VIII would become Section 1 of that Article. Under Ohio law and the Company's Articles of Incorporation, the affirmative vote of the holders of shares entitling them to exercise a majority of the voting power of the Company is required for the approval of this proposal to amend Section 2 (Calling of Meetings), Section 3 (Place of Meetings), Section 4 (Notice of Meetings), Section 5 (Waiver of Notice), Section 6 (Quorum), and Section 8 (Order of Business) of Article I of the Code of Regulations of the Company, to amend Section 6 (Meetings), Section 7 (Notice of Meetings) and Section 8 (Waiver of Notice) of Article II of the Code of Regulations and to add a new Section 2 (Action by Shareholders or Directors without a Meeting) to Article VIII (Miscellaneous) of the Code of Regulations. Broker non-votes and abstentions will have the same effect as votes against the proposal. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL. PROPOSAL 3: TO APPROVE AN AMENDMENT OF THE COMPANY'S CODE OF REGULATIONS TO ELIMINATE THE REQUIREMENT THAT DIRECTORS BE HOLDERS OF RECORD OF AT LEAST 100 SHARES. The Board of Directors has also approved, and recommends that the shareholders adopt, amendments to the Company's Code of Regulations that would eliminate the requirement that directors be holders of record of at least 100 common shares. The text of this proposed amendment to the Code of Regulations is attached to this Proxy Statement as Exhibit B. The Board recommends that the shareholders adopt these amendments. Section 1 of Article II of the Company's Code of Regulations requires that each director of the Company hold of record not less than 100 common shares of the Company. All of the Company's directors currently own substantially more than 100 shares. Moreover, the Board recently adopted a new share ownership policy (to be effective in April 2003) that requires each director of the company to hold a minimum of 1,000 shares within the first year of election or appointment to the Board and 2,000 shares before the end of the second year of directorship with the Company. The Board of Directors proposes to 27 eliminate the current requirement that each director hold of record at least 100 shares because some directors prefer to hold their shares in nominee or "street name" and circumstances may arise where the Board believes it is important to fill a vacancy on the Board quickly and desires that the newly- appointed director assume office before he or she has had the opportunity to acquire shares of the Company. Under Ohio law and the Company's Articles of Incorporation, the affirmative vote of the holders of shares entitling them to exercise a majority of the voting power of the Company is required for the approval of this proposal to amend Article II of the Company's Code of Regulations in the manner described. Broker non-votes and abstentions will have the same effect as votes against the proposal. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL. PROPOSAL 4: TO APPROVE AN AMENDMENT OF THE COMPANY'S CODE OF REGULATIONS TO MAKE CHANGES TO THE STATED DUTIES AND RESPONSIBLITIES OF THE COMPANY'S OFFICERS. Section 1 of Article III of the Company's Code of Regulations provides that the officers of the Company shall be a Chairman of the Board, a Chief Executive Officer, a President, an Executive Vice President, one or more Vice Presidents, a Secretary, a Treasurer and such other officers as the directors may from time to time elect. The Board of Directors has approved, and recommends that the shareholders adopt, an amendment to Section 1 that would provide that the officers of the Company shall consist of a Chief Executive Officer, a President (who may also be the Chief Executive Officer), a Secretary and a Treasurer and, if desired by the Board of Directors, one or more Vice Presidents (which may include one or more Executive Vice Presidents and/or Senior Vice Presidents), as the directors may from time to time determine, one or more Assistant Secretaries and/or Treasurers and such other officers as the directors may from time to time elect. The proposed amendment to Section 1 would provide that the officers of the Company may include a Chairman of the Board, although the Board of Directors would not be required to elect a Chairman of the Board. Although the Board of Directors has no present plan to eliminate the office of the Chairman of the Board, the Board believes that it should have the flexibility to do so. The text of these proposed amendments to the Code of Regulations is attached to this proxy statement as Exhibit B. The Board has also approved, and recommends that the shareholders approve, additional amendments to Article III of the Code of Regulations to update the duties specified for certain of the Company's officers so that they are consistent with the duties and responsibilities currently assigned to these individuals. The existing Code of Regulations was adopted by the shareholders in 1969, and the responsibilities and duties of certain of the Company's officers have changed since that time. Another purpose of the amendments is to give the directors greater flexibility in assigning duties and responsibilities to the various officers of the Company. Section 4 of Article III of the Code of Regulations states that the individual who occupies the office of Chief Executive Officer shall be entitled to exercise the powers of the President of the Company and shall have such other powers and duties as the directors shall from time to time assign to the Chief Executive Officer. Section 5 of Article III states that the President of the Company shall be the chief administrative officer of the Company and exercise control over the business of the Company 28 in addition to having such other powers and duties assigned to the President by the directors. Section 4 is proposed to be amended to eliminate the reference to the Chief Executive Officer as having the powers of the President and, instead would state that the Chief Executive Officer shall exercise supervision over the other officers and have such other powers and duties as the directors shall from time to time assign to the Chief Executive Officer. Section 5 would be amended to provide that the President shall have such powers and duties as the directors and, if the President is not also the Chief Executive Officer, the Chief Executive Officer may from time to time assign to the President, in addition to signing all documents and instruments and taking any other action required to be signed or taken by the President of the Company. In the absence of the Chairman of the Board and the Chief Executive Officer, the President would preside at meetings of shareholders. Section 6 of Article III specifies the duties of the Executive Vice President. At the time of adoption of the Code of Regulations, the Company had a single Executive Vice President who performed the duties of the President in the absence of the President. The current structure of the Company's management has changed and there are several Executive Vice Presidents. The Board of Directors proposes to eliminate Section 6 of Article III. Existing Section 7 of Article III, which addresses the duties of the Vice Presidents, is proposed to be amended (and renumbered as Section 6) to state that the Vice Presidents, including any Executive Vice Presidents and Senior Vice Presidents, shall perform such duties as may from time to time be assigned to them by the directors, the Chief Executive Officer or the President. The amendments to Article III of the Code of Regulations would also eliminate the use of masculine pronouns in the text when referring to officers of the Company. Under Ohio law and the Company's Articles of Incorporation, the affirmative vote of the holders of shares entitling them to exercise a majority of the voting power of the Company is required for the approval of this proposal to amend Article III of the Code of Regulations in the manner described. Broker non-votes and abstentions will have the same effect as votes against the proposal. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL. SHAREHOLDER PROPOSALS AND NOMINATIONS Proposals of shareholders intended to be presented at the 2004 Annual Meeting of Shareholders scheduled to be held on April 21, 2004, must be received by the Company no later than November 14, 2003 for inclusion in the Company's proxy statement and proxy relating to that meeting. Upon receipt of any such proposal, the Company will determine whether or not to include such proposal in the proxy statement and proxy in accordance with applicable rules and regulations promulgated by the SEC. In order for a shareholder to nominate a candidate for director at a meeting of shareholders, under the Company's Code of Regulations, timely written notice of the nomination must be received by the Company in advance of the meeting. Ordinarily, in the case of an annual meeting, such notice of a proposed nomination must be received by the Company on or before the later of (1) the first day of February immediately preceding such annual meeting or (2) the sixtieth day prior to the first anniversary of 29 the most recent annual meeting of shareholders. The shareholder filing the notice of nomination must describe various matters regarding the proposed nominee, including such information as name, address, occupation and shares of the Company held. These requirements are separate from the requirements a shareholder must meet in order to have a proposed nominee considered by the Governance Committee of the Company's Board of Directors for nomination by the Board of Directors and inclusion as a nominee in the Company's proxy statement. The SEC has promulgated rules relating to the exercise of discretionary voting authority pursuant to proxies solicited by the Company's Board of Directors. If a shareholder intends to present a proposal at the 2004 Annual Meeting of Shareholders and does not notify the Company of such proposal by January 29, 2004, or if a shareholder intends to nominate a director at the 2004 Annual Meeting and does not comply with the notification requirements described in the preceding paragraph, the proxies solicited by the Company's Board of Directors for use at the Annual Meeting may be voted on such proposal or such nominee, as the case may be, without discussion of the proposal or nominee in the proxy statement for that Annual Meeting. In each case, written notice must be given to the Secretary of the Company, whose name and address are: Debra K. Crane, Senior Vice President, General Counsel and Secretary, Ohio Casualty Corporation, 9450 Seward Road, Fairfield, Ohio 45014. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires the Company's executive officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC. Executive officers, directors and greater than ten percent shareholders are required by SEC regulations to furnish the Company with copies of all Forms 3, 4 and 5 they file. Based on the Company's review of the copies of such forms it has received, the Company believes that its executive officers and directors complied with all filing requirements applicable to them with respect to transactions during fiscal 2002, with the exception of Donald F. McKee. Mr. McKee was granted, pursuant to his Employment Agreement, a stock option to purchase 150,000 shares of Ohio Casualty Corporation that was reported seven days late due to an administrative error. 30 OTHER MATTERS The Company files annually with the SEC an Annual Report on Form 10-K. This report includes financial statements and financial statement schedules. A SHAREHOLDER OF THE COMPANY MAY OBTAIN A COPY OF THE ANNUAL REPORT ON FORM 10-K, INCLUDING FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES, FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002, WITHOUT CHARGE BY SUBMITTING A WRITTEN REQUEST TO THE FOLLOWING ADDRESS: OHIO CASUALTY CORPORATION Attention: Debra K. Crane Senior Vice President, General Counsel and Secretary 9450 Seward Road Fairfield, Ohio 45014 Management and the Board of Directors of the Company know of no business to be brought before the Annual Meeting other than as set forth in this Proxy Statement. However, if any matters other than those referred to in this Proxy Statement should properly come before the Annual Meeting, it is the intention of the persons named in the enclosed proxy card to vote the common shares represented by such proxy card on such matters in accordance with their best judgment. EXPENSES OF SOLICITATION The expense of proxy solicitation will be borne by the Company. Proxies will be solicited by mail and may be solicited, for no additional compensation, by officers, directors or employees of the Company or its subsidiaries, by telephone, facsimile, electronic mail or in person. Brokerage houses and other custodians, nominees and fiduciaries may be requested to forward soliciting material to the beneficial owners of common shares of the Company, and will be reimbursed for their related expenses. In addition, the Company has retained Morrow & Co., Inc., a professional soliciting organization, to assist in soliciting proxies from brokerage houses, custodians and nominees. The fees and expenses of that firm in connection with such solicitation are not expected to exceed $40,000. By Order of the Board of Directors, /s/ Debra K. Crane Debra K. Crane, Senior Vice President, General Counsel and Secretary March 17, 2003 31 OHIO CASUALTY CORPORATION This Proxy is solicited on behalf of the Board of Directors ANNUAL MEETING OF SHAREHOLDERS APRIL 16, 2003 Each undersigned shareholder of Ohio Casualty Corporation (the "Company") hereby constitutes and appoints Dan R. Carmichael and Debra K. Crane, or either one of them, with full power of substitution in each of them, as proxy or proxies of the undersigned to vote at the Annual Meeting of Shareholders (the "Annual Meeting") of the Company to be held in the Ohio Casualty University Auditorium at Ohio Casualty Corporation, 9450 Seward Road, Fairfield, Ohio 45014, on Wednesday, April 16, 2003, at 10:30 a.m., local time, and at any adjournment thereof, all of the common shares of the Company the undersigned is entitled to vote at the Annual Meeting, or at any adjournment thereof, including any common shares held on the undersigned's behalf in The Ohio Casualty Insurance Company Employee Savings Plan, as follows: (1) TO ELECT THE FOLLOWING FOUR (4) NOMINEES AS DIRECTORS TO SERVE TERMS EXPIRING IN 2006 (CLASS I): William P. Boardman Jack E. Brown Robert A. Oakley Jan H. Suwinski __ FOR except vote withheld from the following Nominee(s): ______________________________________________________________________ (2) TO APPROVE AN AMENDMENT TO THE COMPANY'S CODE OF REGULATIONS TO CHANGE REQUIREMENTS FOR MEETINGS OF SHAREHOLDERS AND DIRECTORS. __ FOR __ AGAINST __ ABSTAIN (3) TO APPROVE AN AMENDMENT TO THE COMPANY'S CODE OF REGULATIONS TO ELIMINATE THE REQUIREMENT THAT DIRECTORS BE HOLDERS OF RECORD OF AT LEAST 100 SHARES. __ FOR __ AGAINST __ ABSTAIN (4) TO APPROVE AN AMENDMENT TO THE COMPANY'S CODE OF REGULATIONS TO MAKE CHANGES TO THE STATED DUTIES AND RESPONSIBILITIES OF THE COMPANY'S OFFICERS. __ FOR __ AGAINST __ ABSTAIN (5) TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT OF THE ANNUAL MEETING. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE SPECIFIC INDICATION. IN THE ABSENCE OF SUCH INDICATION, THIS PROXY WILL BE VOTED FOR THE ELECTION OF EACH OF THE NOMINEES FOR DIRECTOR NAMED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3 AND 4, EXCEPT FOR ANY SHARES THE UNDERSIGNED HOLDS IN THE OHIO CASUALTY INSURANCE COMPANY EMPLOYEE SAVINGS PLAN, WHICH WILL BE VOTED ACCORDING TO PLAN RULES. IF A NOMINEE FOR ELECTION AS A DIRECTOR NAMED IN THE PROXY STATEMENT IS UNABLE TO SERVE OR FOR GOOD CAUSE WILL NOT SERVE, THE PROXY WILL BE VOTED IN THE DISCRETION OF THE PROXIES FOR SUCH SUBSTITUTE NOMINEE(S) AS THE DIRECTORS MAY RECOMMEND. All proxies previously given by the undersigned are hereby revoked. Receipt of the accompanying Proxy Statement and the Annual Report of the Company for the fiscal year ended December 31, 2002, is hereby acknowledged. The signature or signatures to this proxy must be the same as the name or names which appear hereon. Persons signing as attorneys, executors, administrators, trustees or guardians should give full title as such. Dated: ______________________, 2003 _________________________________ _________________________________ Signature(s) of Shareholder(s) PLEASE MARK, DATE, SIGN AND RETURN PROMPTLY USING THE ENCLOSED STAMPED ENVELOPE. SHOULD YOU PREFER TO CAST YOUR PROXY VIA TELEPHONE OR THE INTERNET, SEE THE INSTRUCTIONS PRINTED ON THE ATTACHMENT TO THIS CARD. -- FOLD AND DETACH HERE -- Name Address XXXXXXX OHIO CASUALTY CORPORATION PROXY VOTING INSTRUCTION CARD Your vote is important. By casting your vote in one of the three ways described on this instruction card, you will vote all of the common shares of Ohio Casualty Corporation that you are entitled to vote, including any common shares held on your behalf in the Ohio Casualty Insurance Company Employee Savings Plan. Please consider the issues in the proxy statement and cast your vote by: - Accessing the World Wide Web site http://www.eproxyvote.com/ocas to vote via the Internet. You can also register at this site to access future proxy materials electronically. - Using a touch-tone telephone to vote by phone toll free from the U.S. or Canada. Simply dial 1-877-779-8683 and follow the instructions. When you are finished voting, your vote will be confirmed and the call will end. - Completing, dating, signing and mailing the proxy card in the postage-paid envelope included with the proxy statement or sending it to Ohio Casualty Corporation, c/o EquiServe, Trust Company, N.A. P.O. Box 8291, Edison, New Jersey 08818-9147. You can vote by phone or via the Internet any time prior to April 16, 2003. You will need the control number printed at the top of this instruction card opposite your name and address to vote by phone or via the Internet. If you do so, you do not need to mail your proxy card. EX-1 4 auditexa.txt EXHIBIT A, AUDIT COMITTEE CHARTER EXHIBIT A CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OF OHIO CASUALTY CORPORATION Revised February 13, 2003 This charter identifies the membership, purpose, authority and responsibilities of the Audit Committee of the Board of Directors of Ohio Casualty Corporation (the "Company"). I. MEMBERSHIP A. The Board of Directors shall appoint an Audit Committee (the "Committee") comprised of not less than three directors who shall meet the financial and independence requirements of the NASDAQ Stock Market, Inc. In addition, each director serving on the Committee shall have such qualification(s) and/or expertise as may from time to time be required by the applicable rules and standards of the SEC and/or the primary exchange upon which the Company's common shares are then traded (the "Applicable Rules and Standards"). The Board of Directors shall appoint one of the independent members of the Committee to be Chairman of the Committee. B. Members of the Committee shall serve at the discretion of the Board of Directors until their successors are appointed. II. MEETINGS A. The Committee shall meet at least quarterly, or more frequent as may be necessary or appropriate in its judgment. Minutes of each Committee meeting shall be submitted to the Board of Directors. At the discretion of the Board of Directors, the Chairman of the Committee will report orally to the full Board of Directors on matters discussed at the most recent Committee meeting. B. To provide access to the Committee for the internal auditors, independent accountants and key financial management, the Committee may request the attendance at its meetings of a representative of the independent accountants, the internal auditors, and such members of the Company's management as circumstances may require. At least annually, the Committee shall meet separately with the internal auditors and separately with the independent accountants without members of management present. 1 III. PURPOSE The purpose of the Committee is to represent the Board of Directors by providing an independent oversight of accounting and financial reporting practices and the Company's system of internal control. The Committee shall assist the Board of Directors in monitoring the independence and integrity in the financial reporting process and the adequacy of the internal control structure of the organization. The Committee shall review management's performance regarding financial reporting and shall make inquiry on a periodic basis of management, the internal auditors and the independent accountants with respect to the following: A. whether a fair presentation of published financial information is made in compliance with all applicable professional and regulatory requirements; B. whether an effective internal control structure has been established and maintained, including adequate policies and procedures over financial reporting, operations, and compliance with laws and regulations; C. whether the quality of internal and external audit efforts is adequate and the Company's public accountants are independent. IV. AUTHORITY The Committee is authorized by the Board of Directors to investigate any activity of the Company, which it deems relevant to the fulfillment of its responsibilities. This authority shall include the right to initiate special or additional audits or investigations and retain special counsel or other outside experts to achieve the purpose of this charter. All executives and employees are directed to cooperate as reasonably requested by members of the Committee or their designee. V. DUTIES AND RESPONSIBILITIES A. Financial Reporting and the Independent Accountants 1. Recommend to the Board of Directors the appointment of the independent accountants to be engaged for the examination of the consolidated financial statements of the Company and its subsidiaries for each fiscal year. 2. Review the independent accountants' proposed audit scope and approach, the fees therefor, and review and discuss the results of the audit for each fiscal year with the independent accountants, the head of Corporate Audit, and appropriate management representatives. 3. Review the quarterly reporting process and the controls that management has established to protect the integrity of such process. In doing so, the 2 Committee should discuss with the independent accountants their review of the Company's financial results prior to their release to the public, including but not limited to, the Company's Annual Report to shareholders, Forms 10-K and 10-Q and any other similar forms, as well as actual quarterly financial results that vary significantly from budgeted or projected results, significant transactions not a normal part of the Company's operations, changes, if any, during the year in the Company's accounting principles or their application, and significant adjustments proposed by the independent accountants. 4. Review and discuss the statements from the independent accountants concerning any relationships between the independent accountants and the Company or any other relationships that may adversely affect the independence of the independent accountants, and based on such review, assess the independence of the independent accountants. 5. Review and approve, in advance, management's plans for engaging the Company's independent accountants to perform non-audit services during the year. Such review should involve both the types of services rendered and the applicable fees. The Committee should weigh the effects such services may have on the continuing independence of the independent accountants. 6. Maintain open lines of communication with the Company's principal financial officer and the head of Corporate Audit. 7. Discuss with the independent accountants the matters required to be discussed by Statement on Auditing Standards No. 61 (as such Standard may be modified or supplemented) relating to the conduct of the audit. B. Oversight of Investment Committee 1. Approve the members of the Investment Committee. 2. Approve any hiring of external investment managers who are not certified by the Association for Investment Management and and Research (AIMR). 3. Review and approve annually the Investment Guidelines. 4. Review and approve any exceptions to the Investment Guidelines that exceed the parameters for approval delegated to the Investment Committee. 5. Review quarterly the investment performance of the Investment Department and external investment managers and significant changes in investment strategy. 3 C. Internal Controls and the Internal Audit Function 1. Review the internal auditors' involvement in the audit of the financial reporting process and the coordination of their activities with the independent accountants. 2. Review the activities and reports of the internal auditors and management's cooperation with the internal audit process. 3. Consult with the independent accountants, internal auditors and management, together or separately, as appropriate, regarding the adequacy of the Company's system of internal control and any control failures that may have been detected. 4. Review the scope of the internal auditors' responsibilities, including the annual audit plan, any change in the internal audit role or function, the resources committed to the internal audit function and the quality and depth of staffing. 5. Review and approve the appointment or dismissal of the head of Corporate Audit. D. Other Responsibilities 1. Provide a direct and, when necessary, confidential line of communication to the independent accountants, internal auditors, legal counsel and management. 2. Establish and maintain procedures to receive and address complaints, including confidential submissions made by employees, regarding accounting, internal accounting controls, or auditing matters. 3. Review policies and procedures as well as audit results associated with directors' and officers' expense accounts and perquisites. 4. Review and assess this Charter at least annually and recommend to the Board of Directors for adoption any revisions that the Committee believes are appropriate or necessary. In accordance with SEC rules and regulations, at least every three years, this Charter shall be filed, as an appendix to the Company's Proxy Statement. 5. Prepare for inclusion in the Company's Proxy Statement the annual report to shareholders required by the rules of the SEC. 4 6. Perform such other or additional duties and responsibilities as may be specified from time to time by the Board of Directors. E. Limits of Responsibility While the Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Committee to plan or conduct audits or to determine that the Company's financial statements are complete and accurate and are in accordance with generally accepted accounting principles. This is the responsibility of management and the independent accountants. Nor is it the duty of the Committee to conduct investigations, to resolve disagreements, if any, between management and the independent accountants or to ensure compliance with laws and regulations and the Company's internal rules, policies and codes of conduct. 5 EX-99.2 BYLAWS 5 codeexhb.txt EXHIBIT B, PROPOSED AMENDMENTS OF CODE OF REGULATIONS EXHIBIT B CODE OF REGULATIONS OF OHIO CASUALTY CORPORATION ARTICLE I MEETINGS OF SHAREHOLDERS Section 1. Annual Meetings. The annual meeting of the ---------------- shareholders for the election of directors, for the consideration of reports to be laid before such meeting and for the transaction of such other business as may properly come before such meeting, shall be held on the third Wednesday in April of each year, or on such other date as may from time to time be designated by the Board of Directors. Section 2. Calling of Meetings. Meetings of the shareholders may -------------------- be called only by the Chairman of the Board, by the President, by the Secretary, by the directors by action at a meeting, by a majority of the directors acting without a meeting or by the holders of at least 50% of all shares outstanding and entitled to vote thereat. Section 3. Place of Meetings. Meetings of shareholders may be ------------------ held at any place within or without the State of Ohio. Meetings of shareholders may be held in any manner or place, if any, determined by the directors and permitted by Ohio law. Section 4. Notice of Meetings. ------------------- (A) Written notice stating the time, place, if any, and purpose or purposes of a meeting of the shareholders, and the means, if any, by which shareholders can be present and vote at the meeting through the use of communications equipment, and any other matters related to the conduct of the meeting required by Ohio law to be specified in such notice shall be given by or at the direction of the Chairman of the Board, the President or the Secretary by personal delivery, by mail, by overnight delivery service or, if authorized by the shareholder to whom notice is given, any other means of communication. Any such notice shall be given not less than seven nor more than sixty days before the date of the meeting to each shareholder of record entitled to notice of the meeting. If mailed or sent by an overnight delivery service, such notice shall be sent to the shareholder at the shareholder's address as it appears on the records of the corporation. If sent by another means of communication authorized by the shareholder, notice shall be sent to the address furnished by the shareholder for such transmissions. (B) Notice of adjournment of a meeting need not be given if the time and place, if any, to which it is adjourned and the means, if any, by which shareholders can be 1 present and vote at the adjourned meeting through the use of communications equipment are fixed and announced at the meeting. (C) In the event of a transfer of shares after the record date for determining the shareholders who are entitled to receive notice of a meeting of shareholders, it shall not be necessary to give notice to the transferee. Nothing herein contained shall prevent the setting of a record date in the manner provided by law, the Articles or these Regulations for the determination of shareholders who are entitled to receive notice of or to vote at any meeting of shareholders or for any purpose required or permitted by law. (D) Following the receipt by the President or the Secretary of a request in writing, specifying the purpose or purposes for which the person or persons properly making such request have called a meeting of the shareholders, delivered either in person or by registered mail to such officer by any person or persons entitled to call a meeting of shareholders, such officer shall cause to be given to the shareholders entitled thereto notice of a meeting to be held on a date not less than seven nor more than 105 days after the receipt of such request, as such officer may fix. If such notice is not given within 45 days after the receipt of such request by the President or the Secretary, then, and only then, the persons properly calling the meeting may fix the time of meeting and give notice thereof in accordance with the provisions of these Regulations. Section 5. Waiver of Notice. Notice of the time, place, if any, ----------------- and purpose or purposes of any meeting of shareholders may be waived in writing, either before or after the holding of such meeting, by any shareholder, which writing shall be filed with or entered upon the records of such meeting. The attendance of any shareholder, in person, by proxy or by the use of communications equipment, at any such meeting without protesting the lack of proper notice, prior to or at the commencement of the meeting shall be deemed to be a waiver by the shareholder of notice of such meeting. A telegram, cablegram, electronic mail, or an electronic or other transmission capable of authentication that appears to have been sent by a person described in this Section and that contains a waiver by such person is a writing for purposes of this Section 5. Section 6. Quorum. At any meeting of shareholders, the holders ------- of shares entitling them to exercise a majority of the voting power of the corporation then outstanding and entitled to vote thereat, present in person, by proxy, or by the use of communications equipment, shall constitute a quorum for such meeting. The holders of a majority of the voting power represented at a meeting, whether or not a quorum is present, or the Chairman of the Board, the President, the Secretary, or the officer of the corporation acting as chairman of the meeting, may adjourn such meeting from time to time, and at such adjourned meeting any business may be transacted as if the meeting had been held as originally called. Section 7. Votes Required. At all elections of directors, the --------------- candidates receiving the greatest number of votes shall be elected. Any other matter submitted to the shareholders for their vote shall be decided by the vote of such proportion of the shares, 2 or of any class of shares, or of each class, as is required by law, the Articles or the Code of Regulations. Section 8. Order of Business. The order of business at any ------------------ meeting of the shareholders shall be determined by the officer of the corporation acting as chairman of such meeting unless otherwise determined by a vote of the holders of a majority of the voting shares of the corporation then outstanding, present in person, by proxy or by the use of communications equipment. Section 9. Shareholders Entitled to Vote. Each shareholder of ------------------------------ record on the books of the corporation on the record date for determining the shareholders who are entitled to vote at a meeting of shareholders shall be entitled at such meeting to one vote for each share of the corporation standing in his name on the books of the corporation on such record date. The directors may fix a record date for the determination of the shareholders who are entitled to receive notice of or to vote at a meeting of shareholders, which record date shall not be a date earlier than the date on which the record date is fixed and which record date may be a maximum of 120 days preceding the date of the meeting of shareholders. Section 10. Proxies. At meetings of the shareholders, any -------- shareholder of record entitled to vote may be represented and may vote by proxy or proxies appointed by an instrument in writing signed by such shareholder or appointed in any manner permitted by Ohio law. Any such instrument in writing or record of any such appointment shall be filed with or received by the secretary of the meeting before the person holding such proxy shall be allowed to vote thereunder. No appointment of a proxy is valid after the expiration of eleven months after it is made unless the writing or other communication which appoints such proxy specifies the date on which it is to expire or the length of time it is to continue in force. Section 11. Inspectors of Election. In advance of any meeting of ----------------------- shareholders, the directors may appoint inspectors of election to act at such meeting or any adjournment thereof; if inspectors are not so appointed, the officer of the corporation acting as chairman of any such meeting may make such appointment. In case any person appointed as inspector fails to appear or act, the vacancy may be filled only by appointment made by the directors in advance of such meeting or, if not so filled, at the meeting by the officer of the corporation acting as chairman of such meeting. No other person or persons may appoint or require the appointment of inspectors of election. 3 ARTICLE II DIRECTORS Section 1. Authority. Except where the law, the Articles or ---------- these Regulations otherwise provide, all authority of the corporation shall be vested in and exercised by its directors. Directors need not be shareholders of the corporation. Section 2. Number of Directors and Terms of Office. ---------------------------------------- (A) Until changed in accordance with the provisions of the Code of Regulations, the number of directors of the corporation shall be twelve (12). The number of directors may be fixed or changed (i) at a meeting of shareholders called for the purpose of electing directors at which a quorum is present or (ii) by action of a majority of the whole authorized number of directors, but no reduction in the number of directors shall of itself have the effect of shortening the term of any incumbent director. (B) Until changed in accordance with law, the Board of Directors shall be divided into three (3) classes consisting of four (4) directors each (Class I, Class II and Class III). If the authorized number of directors is increased or decreased at any time, the directors may, by a resolution adopted by a majority of the whole authorized number of directors, determine the number of directors to be added or subtracted, as the case may be, from any class or classes of directors, and the effect of such increase or decrease need not be uniform; provided, however, (a) that the authorized number of directors of any class shall not exceed by more than four (4) the authorized number of directors of any other class, and (b) no class shall consist of fewer than three (3) directors. The election of each class of directors shall be a separate election. The term of office of Class I shall expire at the annual meeting of shareholders for 1988; the term of office of Class II shall expire at the annual meeting of shareholders for 1989; the term of office of Class III shall expire at the annual meeting of shareholders for 1987; and at each annual meeting of shareholders commencing with the year 1987, the successors to the directors of the class whose term shall expire in that year shall be elected for a term of three years, so that the term of office of one class of directors shall expire in each year commencing with the year 1987; provided, however, that each director elected at any time shall hold office until his successor is duly elected and shall qualify, or until his earlier death, resignation or removal. Section 3. Nomination and Election. ------------------------ (A) Any nominee for election as a director of the corporation may be proposed only by the Board of Directors or by any shareholder entitled to vote for the election of directors. No person, other than a nominee proposed by the Board of Directors, may be nominated for election as a director of the corporation unless such person shall have been proposed in a written notice, delivered or mailed by first-class United States mail, postage prepaid, to the Secretary of the corporation at its principal office. In the case of a 4 nominee proposed for election as a director at an annual meeting of shareholders, such written notice of a proposed nominee shall be received by the Secretary of the corporation on or before the later of (i) February 1, immediately preceding such annual meeting, or (ii) the sixtieth (60th) day prior to the first anniversary of the most recent annual meeting of shareholders of the corporation held for the election of directors; provided, however, that if the annual meeting for the election of directors in any year is not held on or before the thirty-first (31st) day next following such anniversary, then the written notice required by this subparagraph (A) shall be received by the Secretary within a reasonable time prior to the date of such annual meeting. In the case of a nominee proposed for election as a director at a special meeting of shareholders at which directors are to be elected, such written notice of a proposed nominee shall be received by the Secretary of the corporation no later than the close of business of the seventh day following the day on which notice of the special meeting was mailed to shareholders. Each such written notice of a proposed nominee shall set forth (1) the name, age, business or residence address of each nominee proposed in such notice, (2) the principal occupation or employment of each such nominee, and (3) the number of common shares of the corporation owned beneficially and/or of record by each such nominee and the length of time any such shares have been so owned. (B) If a shareholder shall attempt to nominate one or more persons for election as a director at any meeting at which directors are to be elected without having identified each such person in a written notice given as contemplated by, and/or without having provided therein the information specified in subparagraph (A) of this Section, each such attempted nomination shall be invalid and shall be disregarded unless the person acting as chairman of the meeting determines that the facts warrant the acceptance of such nomination. (C) The election of directors shall be by ballot whenever requested by the person acting as chairman of the meeting or by the holders of a majority of the voting shares outstanding, entitled to vote at such meeting and present in person or by proxy, but unless such request is made, the election shall be by voice vote. Section 4. Removal. A director or directors may be removed from -------- office, with or without assigning any cause, by the vote of the holders of shares entitling them to exercise not less than eighty percent (80%) of the voting power of the corporation to elect directors in place of those to be removed. In case of any such removal, a new director may be elected at the same meeting for the unexpired term of each director removed. Failure to elect a director to fill the unexpired term of any director removed shall be deemed to create a vacancy in the Board. Section 5. Vacancies. Vacancies, and newly created directorships ---------- resulting from any increase in the authorized number of directors, may be filled by a majority of the directors then in office, though less than a majority of the whole authorized number of directors, or in any other manner provided by law, the Articles or the Code of Regulations. 5 Section 6. Meetings. A meeting of the directors shall be held --------- immediately following the adjournment of each annual meeting of shareholders at which directors are elected, and notice of such meeting need not be given. The directors shall hold such other meetings as may from time to time be called, and such other meetings of directors may be called only by the Chairman of the Board, the President, the Secretary or any four directors. Meetings of directors may be held in any manner or place, if any, permitted by law. Section 7. Notice of Meetings. Notice of the place, if any, and ------------------- time of each meeting of directors for which the requirement of notice has not been dispensed with by the Articles, these Regulations or the Bylaws (as defined in Section 12) shall be given to each of the directors by at least one of the following methods: (A) By mail, telegram, cablegram, overnight delivery service, or by any other means of communication authorized by the director, not later than the day before the date on which such meeting is to be held; or (B) Personally or by telephone not later than the day before the date on which such meeting is to be held. Notice given to a director by any one of the methods specified in these Regulations shall be sufficient, and the method of giving notice to all directors need not be uniform. Notice of any meeting of directors may be given only by the Chairman of the Board, the President or the Secretary of the corporation. Unless otherwise required by law, any such notice need not specify the purpose or purposes of the meeting. Notice of adjournment of a meeting of directors need not be given if the place, if any, and time to which it is adjourned are fixed and announced at the meeting. Section 8. Waiver of Notice. Notice of any meeting of directors ----------------- may be waived in writing, either before or after the holding of such meeting, by any director, which writing shall be filed with or entered upon the records of the meeting. The attendance of any director at any meeting of directors without protesting, prior to or at the commencement of the meeting, the lack of proper notice, shall be deemed to be a waiver by such director of notice of such meeting. A telegram, cablegram, electronic mail, or an electronic or other transmission capable of authentication that appears to have been sent by a person and that contains a waiver by that person is a writing for purposes of this Section 8. Section 9. Quorum. A majority of the whole authorized number of ------- directors shall be necessary to constitute a quorum for a meeting of directors, except that a majority of the directors in office shall constitute a quorum for filling a vacancy in the Board. The act of a majority of the directors present at a meeting at which a quorum is present is the act of the Board, except as otherwise provided by law, the Articles or the Code of Regulations. 6 Section 10. Executive Committee. The directors may create an -------------------- Executive Committee or any other committee of directors, to consist of not less than three directors, and may authorize the delegation to such Executive Committee or other committees of any of the authority of the directors, however conferred, other than that of filling vacancies among the directors or in the Executive Committee or in any other committee of the directors. Such Executive Committee or any other committee of directors shall serve at the pleasure of the directors, shall act only in the intervals between meetings of the directors, and shall be subject to the control and direction of the directors. Such Executive Committee or other committee of directors may act by a majority of its members at a meeting or by a writing or writings signed by all of its members. A telegram, cablegram, electronic mail, or an electronic or other transmission capable of authentication that appears to have been sent by a director and that contains an affirmative vote or approval of that director is a signed writing for the purposes of this Section. The date on which that telegram, cablegram, electronic mail, or electronic or other transmission is sent is the date on which the writing is signed. Any act or authorization of an act by the Executive Committee or any other committee within the authority delegated to it shall be as effective for all purposes as the act or authorization of the directors. No notice of a meeting of the Executive Committee or of any other committee of directors shall be required. A meeting of the Executive Committee or any other committee of directors may be called by the Chairman of the Board, the President or by a member of the Executive Committee or such other committee of directors, as the case may be. Section 11. Compensation. Directors shall be entitled to receive ------------- as compensation for services rendered and expenses incurred as directors, such amounts as the directors may determine. Section 12. Bylaws. The directors may adopt, and amend from time ------- to time, Bylaws for their own government, which Bylaws shall not be inconsistent with the law, the Articles or the Code of Regulations. 7 ARTICLE III OFFICERS Section 1. Officers, Term and Compensation. The officers of the -------------------------------- corporation to be elected by the directors shall be a Chief Executive Officer, a President (who may also be the Chief Executive Officer), a Secretary and a Treasurer and, if desired, one or more Vice Presidents (which may include one or more Executive Vice Presidents and/or Senior Vice Presidents) as the directors may from time to time determine, one or more Assistant Secretaries, one or more Assistant Treasurers and such other officers as the directors may from time to time elect. The officers of the corporation may also include a Chairman of the Board, who shall be a director. Officers need not be shareholders of the corporation, and may be paid such compensation as the directors may determine. Any two or more offices may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity if such instrument is required by law, the Articles, these Regulations or the Bylaws to be executed, acknowledged or verified by two or more officers. Section 2. Tenure of Office. The officers of the corporation ----------------- shall hold office at the pleasure of the directors. Any officer of the corporation may be removed, either with or without cause, at any time, by the affirmative vote of a majority of all the directors then in office; such removal, however, shall be without prejudice to the contract rights of the persons so removed, if any. Section 3. Duties of the Chairman of the Board. The Chairman of ------------------------------------ the Board, if any, shall preside at all meetings of the directors and at all meetings of the shareholders, and shall have such other powers and duties as the directors shall from time to time assign to the Chairman of the Board. Section 4. Duties of the Chief Executive Officer. The Chief -------------------------------------- Executive Officer shall be the active executive officer of the corporation and shall exercise supervision over the other officers, subject, however, to the control of the directors. The Chief Executive Officer shall have such other powers and duties as the directors shall from time to time assign to the Chief Executive Officer. In the absence of the Chairman of the Board, or if there be no Chairman of the Board, the Chief Executive Officer shall preside at meetings of shareholders. Section 5. Duties of the President. The President shall, subject ------------------------ to the control of the directors and, if there be one who is not also the President, the Chief Executive Officer, exercise supervision over the business of the corporation and shall have, among such additional powers and duties as the directors or, if there be one who is not also the President, the Chief Executive Officer may from time to time assign, including the power and authority to sign all certificates evidencing shares of the corporation, deeds, mortgages, bonds, contracts, notes and other instruments requiring the signature of the President of the corporation. In the absence of the Chairman of the Board, if there be 8 one, and the Chief Executive Officer if there be one who is not also the President, it shall be the duty of the President to preside at all meetings of shareholders. Section 6. Duties of the Vice Presidents. The Vice Presidents ------------------------------ (which may include one or more Executive Vice Presidents and/or Senior Vice Presidents as determined by the directors) shall perform such duties as may from time to time be assigned to them by the directors, the Chief Executive Officer or the President. At the request of the President, or in the absence, death or disability of the President, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated) authorized to exercise the authority of the President may perform all the duties of the President, and when so acting, shall have all the powers of the President. Section 7. Duties of the Secretary. It shall be the duty of the ------------------------ Secretary, or of an Assistant Secretary, if any, in case of the absence or inability to act of the Secretary, to keep minutes of all the proceedings of the shareholders and the directors and to make a proper record of the same, which shall be attested by the Secretary; to sign all certificates for shares, and all deeds, mortgages, bonds, contracts, notes and other instruments requiring the Secretary's signature on behalf of the corporation, to perform such other duties as may be required by law, the Articles or these Regulations; to keep such books as may be required by the directors; to perform such other and further duties as may from time to time be assigned to the Secretary by the directors, the Chief Executive Officer or the President; and to deliver all books, paper and property of the corporation in the possession of the Secretary to such person's successor, to the Chief Executive Officer or to the President. Section 8. Duties of the Treasurer. The Treasurer or an ------------------------ Assistant Treasurer, if any, in case of the absence or inability to act of the Treasurer, shall receive and safely keep in charge all money, bills, notes, choses in action, securities, deeds, leases, mortgages and similar property belonging to the corporation, and shall do with or disburse the same as directed by the Chief Executive Officer, the President or the directors; shall keep an accurate account of the finances and business of the corporation, and hold the same open for inspection and examination by the directors; shall give bond in such sum with such security as the directors may require for the faithful performance of the Treasurer's duties; shall, upon the expiration of the Treasurer's term of office, deliver all money and other property of the corporation in the Treasurer's possession or custody to the Treasurer's successor, the Chief Executive Officer or the President; and shall perform such other duties as from time to time may be assigned to the Treasurer by the directors. 9 ARTICLE IV SHARES Section 1. Certificates. Certificates evidencing ownership of ------------- shares of the corporation shall be issued to those entitled to them. Each certificate evidencing shares of the corporation shall bear a distinguishing number, the signatures of the Chairman of the Board, the President, or a Vice President, and of the Secretary or an Assistant Secretary (except that when any such certificate is countersigned by an incorporated transfer agent or registrar, such signatures may be facsimile, engraved, stamped or printed), and such recitals as may be required or permitted by law. Certificates evidencing shares of the corporation shall be of such tenor and design as the directors may from time to time adopt. Section 2. Transfers. Where a certificate evidencing a share or ---------- shares of the corporation is presented to the corporation or its proper agents with a request to register transfer, the transfer shall be registered as requested if: 1. An appropriate person signs on each certificate so presented or signs on a separate document an assignment or transfer of shares evidenced by each such certificate, or signs a power to assign or transfer such shares, or when the signature of an appropriate person is written without more on the back of each such certificate; and 2. Reasonable assurance is given that the endorsement of each appropriate person is genuine and effective; the corporation or its agents may refuse to register a transfer of shares unless the signature of each appropriate person is guaranteed by a commercial bank or trust company having an office or a correspondent in the City of New York or by a firm having membership in the New York Stock Exchange; and 3. All applicable laws relating to the collection of transfer or other taxes have been complied with; and 4. The corporation or its agents are not otherwise required or permitted to refuse to register such transfer. Section 3. Transfer Agents and Registrars. The directors may ------------------------------- appoint one or more agents to transfer or to register shares of the corporation, or both. Section 4. Lost, Wrongfully Taken or Destroyed Certificates. ------------------------------------------------- Except as otherwise provided by law, where the owner of a certificate evidencing shares of the corporation claims that such certificate has been lost, destroyed or wrongfully taken, the directors must cause the corporation to issue a new certificate in place of the original certificate if the owner: 10 1. So requests before the corporation has notice that such original certificate has been acquired by a bona fide purchaser; and 2. Files with the corporation any indemnity bond, with surety or sureties satisfactory to the corporation, in such sum as the directors may, in their discretion, deem reasonably sufficient as indemnity against any loss or liability that the corporation may incur by reason of the issuance of each such new certificate; and 3. Satisfies any other reasonable requirements which may be imposed by the directors, in their discretion. ARTICLE V INDEMNIFICATION AND INSURANCE Section 1. Mandatory Indemnification. The corporation shall -------------------------- indemnify (A) any officer or director of the corporation and (B) any person (including an officer or director of the corporation) who has served or is serving at the request of the corporation as a director, trustee or officer of another corporation (domestic or foreign, nonprofit or for profit), partnership, joint venture, trust or other enterprise who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative (including, without limitation, any action threatened or instituted by or in the right of the corporation) by reason of the fact that he is or was a director, trustee, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee or agent of another corporation (domestic or foreign, nonprofit or for profit), partnership, joint venture, trust, or other enterprise, against expenses (including, without limitation, attorneys' fees, filing fees, court reporters' fees and transcript costs), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, he had no reasonable cause to believe his conduct was unlawful. A person claiming indemnification under this Section 1 shall be presumed in respect of any act or omission giving rise to such claim for indemnification, to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal matter, to have had no reasonable cause to believe his conduct was unlawful, and the termination of any action, suit or proceeding by judgment, order, settlement, or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, rebut such presumption. Section 2. Court-Approved Indemnification. Anything contained in ------------------------------- the Regulations or elsewhere to the contrary notwithstanding: 11 (A) the corporation shall not indemnify (i) any officer or director of the corporation, or (ii) any person (including an officer or director of the corporation) who has served or is serving at the request of the corporation as a director, trustee, or officer of another corporation (domestic or foreign, nonprofit or for profit), partnership, joint venture, trust or other enterprise who was a party to any completed action or suit instituted by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee or agent of another corporation (domestic or foreign, nonprofit or for profit), partnership, joint venture, trust or other enterprise, in respect of any claim, issue or matter asserted in such action or suit as to which he shall have been adjudged to be liable for gross negligence or misconduct (other than negligence) in the performance of his duty to the corporation unless and only to the extent that the Court of Common Pleas of Butler County, Ohio or the court in which such action or suit was brought shall determine upon application that despite such adjudication of liability, and in view of all the circumstances of the case, he is fairly and reasonably entitled to such indemnity as such Court of Common Pleas or such other court shall deem proper; and (B) the corporation shall promptly make any such unpaid indemnification as is determined by a court to be proper as contemplated by this Section 2. Section 3. Indemnification for Expenses. Anything contained in ----------------------------- the Regulations or elsewhere to the contrary notwithstanding, to the extent that an officer or director of the corporation or any person (including an officer or director of the corporation) who has served or is serving at the request of the corporation as a director, trustee or officer of another corporation (domestic or foreign, nonprofit or for profit), partnership, joint venture, trust or other enterprise has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1, or in defense of any claim, issue or matter therein, he shall be promptly indemnified by the corporation against expenses (including, without limitation, attorneys' fees, filing fees, court reporters' fees and transcript costs) actually and reasonably incurred by him in connection therewith. Section 4. Determination Required. Any indemnification required ----------------------- under Section 1 and not precluded under Section 2 shall be made by the corporation only upon a determination that such indemnification is proper in the circumstances because the person has met the applicable standard of conduct set forth in Section 1. Such determination may be made only (A) by a majority vote of a quorum consisting of directors of the corporation who were not and are not parties to, or threatened with, any such action, suit or proceeding or (B) if such a quorum is not obtainable or if a majority of a quorum of disinterested directors so directs, in a written opinion by independent legal counsel other than an attorney, or a firm having associated with it an attorney, who has been retained by or who has performed services for the corporation, or any person to be indemnified, within the past five years or (C) by the shareholders or (D) by the Court of Common Pleas of Butler County, Ohio or (if the corporation is a party thereto) the court in which 12 such action, suit or proceeding was brought, if any; any such determination may be made by a court under subparagraph (D) of this Section at any time (including, without limitation, any time before, during or after the time when any such determination may be requested of, be under consideration by or have been denied or disregarded by the disinterested directors under subparagraph (A) or by independent legal counsel under subparagraph (B) or by the shareholders under subparagraph (C) of this Section); and no failure for any reason to make any such determination, and no decision for any reason to deny any such determination, by the disinterested directors under subparagraph (A) or by independent legal counsel under subparagraph (B) or by shareholders under subparagraph (C) of this Section shall be evidence in rebuttal of the presumption recited in Section 1. Any determination made by the disinterested directors under subparagraph (A) of this Section or by independent legal counsel under subparagraph (B) of this Section to make indemnification in respect of any claim, issue or matter asserted in an action or suit threatened or brought by or in the right of the corporation shall be promptly communicated to the person who threatened or brought such action or suit, and within ten (10) days after receipt of such notification such person shall have the right to petition the Court of Common Pleas of Butler County, Ohio or the court in which such action or suit was brought, if any, to review the reasonableness of such determination. Section 5. Advances for Expenses. Expenses (including, without ---------------------- limitation, attorneys fees, filing fees, court reporters' fees and transcript costs) incurred in defending any action, suit or proceeding referred to in Section 1 shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding to or on behalf of the officer, Director or other person entitled to indemnity under Section 1 promptly as such expenses are incurred by him, but only if such officer, Director or other person shall first agree, in writing, to repay all amounts so paid in respect of any claim, issue or other matter asserted in such action, suit or proceeding in defense of which he shall not have been successful on the merits or otherwise: (A) unless it shall ultimately be determined as provided in Section 4 that he is not entitled to be indemnified by the corporation as provided under Section 1; or (B) if, in respect of any claim, issue or other matter asserted by or in the right of the corporation in such action or suit, he shall have been adjudged to be liable for gross negligence or misconduct (other than negligence) in the performance of his duty to the corporation, unless and only to the extent that the Court of Common Pleas of Butler County, Ohio or the court in which such action or suit was brought shall determine upon application that, despite such adjudication of liability, and in view of all the circumstances, he is fairly and reasonably entitled to all or part of such indemnification. Section 6. Article V Not Exclusive. The indemnification provided ------------------------ by this Article V shall not be deemed exclusive of any other rights to which any person seeking indemnification may be entitled under the Articles or the Regulations or any agreement, vote of shareholders of the corporation or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such 13 office, and shall continue as to a person who has ceased to be an officer or director of the corporation and shall inure to the benefit of the heirs, executors, and administrators of such a person. Section 7. Insurance. The corporation may purchase and maintain ---------- insurance on behalf of any person who is or was a director, trustee, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation (domestic or foreign, nonprofit or for profit), partnership, joint venture, trust, or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the obligation or the power to indemnify him against such liability under the provisions of this Article V. Section 8. Certain Definitions. For purposes of this Article V, -------------------- and as examples and not by way of limitation: (A) A person claiming indemnification under this Article V shall be deemed to have been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1, or in defense of any claim, issue or other matter therein, if such action, suit or proceeding shall be terminated as to such person, with or without prejudice, without the entry of a judgment or order against him, without a conviction of him, without the imposition of a fine upon him, and without his payment or agreement to pay any amount in settlement thereof (whether or not any such termination is based upon a judicial or other determination of lack of merit of the claims made against him or otherwise results in a vindication of him); and (B) References to an "other enterprise" shall include employee benefit plans; references to a "fine" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interest of the corporation" within the meaning of that term as used in this Article V. Section 9. Venue. Any action, suit or proceeding to determine a ------ claim for indemnification under this Article V may be maintained by the person claiming such indemnification, or by the corporation, in the Court of Common Pleas of Butler County, Ohio. The corporation and (by claiming such indemnification) each such person consent to the exercise of jurisdiction over its or his person by the Court of Common Pleas of Butler County, Ohio in any such action, suit or proceeding. 14 ARTICLE VI SEAL The seal of the corporation shall be circular, about two inches in diameter, with the name of the corporation engraved around the margin and the word "SEAL" engraved across the center. ARTICLE VII FISCAL YEAR The fiscal year shall begin on the first day of January and end on the 31st day of December in each year, or on such other dates as may from time to time be established by the directors. ARTICLE VIII MISCELLANEOUS Section 1. Amendments. These Regulations may be amended, or new ----------- regulations may be adopted, at a meeting of shareholders held for such purpose, or without a meeting by the written consent of the holders of shares entitling them to exercise not less than all (100%) of the voting power of the corporation on such proposal. Section 2. Action by Shareholders or Directors Without a Meeting. ------------------------------------------------------ Anything contained in these Regulations to the contrary notwithstanding, except as provided in Section 1 of this Article VIII, any action which may be authorized or taken at a meeting of the shareholders or of the directors or of a committee of the directors, as the case may be, may be authorized or taken without a meeting with the affirmative vote or approval of, and in writing or writings signed by, all the shareholders who would be entitled to notice of a meeting of shareholders held for such purpose, or all the directors, or all the members of such committee of directors, respectively, which writings shall be filed with or entered upon the records of the corporation. A telegram, cablegram, electronic mail, or an electronic or other transmission capable of authentication that appears to have been sent by a person described in this Section and that contains an affirmative vote or approval of that person is a signed writing for the purposes of this Section. The date on which that telegram, cablegram, electronic mail, or electronic or other transmission is sent is the date on which the writing is signed. 15 -----END PRIVACY-ENHANCED MESSAGE-----