<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
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 Rule 14a-11(c) or Rule 14a-12
CNA SURETY CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
CNA SURETY CORPORATION
- --------------------------------------------------------------------------------
(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)(1) 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 no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
CNA SURETY CORPORATION
CNA PLAZA
333 S. WABASH
CHICAGO, ILLINOIS 60685
(312) 822-5000
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
ON MAY 19, 1998
---------------------
To: The Shareholders of CNA Surety Corporation
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of CNA
Surety Corporation (the "Company") will be held at CNA Plaza, 333 S. Wabash, Two
South Conference Center, Chicago, IL 60685 on Tuesday, May 19, 1998, at 9:00
a.m. CDT, for the following purposes:
1. To elect eleven directors to serve one-year terms, commencing
immediately upon their election, or to serve until their respective
successors are duly elected and qualified;
2. To approve the CNA Surety Corporation Non-Employee Directors Deferred
Compensation Plan;
3. To ratify the Board of Directors' appointment of the Company's
independent auditors, Deloitte & Touche LLP, for fiscal year 1998; and
4. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on March 23, 1998,
as the record date (the "Record Date") for the determination of shareholders
entitled to notice of, and to vote at, the Annual Meeting. You are cordially
invited to attend the meeting. In the event you will be unable to attend, you
are respectfully requested to fill in, date, sign and return the enclosed proxy
at your earliest convenience in the enclosed return envelope.
By Order of the Board of Directors
THOMAS A. POTTLE
Secretary
March 27, 1998
Chicago, Illinois
IMPORTANT:
PLEASE FILL IN, DATE, SIGN AND PROMPTLY MAIL THE ENCLOSED PROXY CARD IN THE
POSTPAID ENVELOPE PROVIDED TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE
MEETING. IF YOU ATTEND THE MEETING YOU MAY VOTE IN PERSON IF YOU WISH TO DO SO
EVEN THOUGH YOU HAVE SENT IN YOUR PROXY.
<PAGE> 3
CNA SURETY CORPORATION
CNA PLAZA
333 S. WABASH
CHICAGO, ILLINOIS 60685
(312) 822-5000
---------------------
PROXY STATEMENT
---------------------
INTRODUCTION
This Proxy Statement is being mailed or otherwise furnished to shareholders
of CNA Surety Corporation, a Delaware corporation (the "Company"), on or about
March 31, 1998, in connection with the solicitation by the Board of Directors of
the Company (the "Board") of proxies to be voted at the Annual Meeting of
Shareholders ("Annual Meeting") of the Company to be held at CNA Plaza, 333 S.
Wabash, Two South Conference Center, Chicago, Illinois 60685 at 9:00 A.M. CDT,
on Tuesday, May 19, 1998, and at any adjournment thereof. Shareholders who,
after reading this Proxy Statement, have any questions should contact Thomas A.
Pottle, Secretary of the Company, in Chicago at (312) 822-5787.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
At the Annual Meeting, shareholders of the Company will consider and vote
upon:
(i) To elect eleven directors to serve one-year terms, commencing
immediately upon their election, or to serve until their respective
successors are duly elected and qualified;
(ii) To approve the CNA Surety Corporation Non-Employee Directors Deferred
Compensation Plan;
(iii) To ratify the Board of Directors' appointment of the Company's
independent auditors, Deloitte & Touche LLP, for fiscal year 1998;
and
(iv) To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
The date of this Proxy Statement is March 27, 1998.
PROXY SOLICITATION
The enclosed proxy is solicited by the Board. The cost of this proxy
solicitation is anticipated to be nominal and will be borne by the Company,
including charges and expenses of brokerage firms and others for forwarding
solicitation material to beneficial owners of the Company's Common Stock. The
solicitation generally will be effected by mail and such cost will include the
cost of preparing and mailing the proxy materials. In addition to the use of the
mails, proxies also may be solicited by personal interview, telephone,
telegraph, telecopy, or other similar means. Although solicitation will be made
primarily through the use of the mail, officers, directors, or employees of the
Company may solicit proxies personally or by the above described means without
additional remuneration for such activity.
1997 ANNUAL REPORTS
Shareholders are concurrently being furnished with a copy of the Company's
1997 Annual Report which contains its audited financial statements at December
31, 1997. Additional copies of the Annual Report and of the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 as filed with the
Securities and Exchange Commission (the "SEC") may be obtained by contacting
Ruth Jantz, representative of the Company at CNA Plaza, Chicago, Illinois 60685,
(312) 822-6841, and such copies will be furnished promptly at no additional
expense.
<PAGE> 4
VOTING SECURITIES AND PROXIES
Only shareholders of record at the close of business on March 23, 1998 (the
"Record Date"), have the right to receive notice of and to vote at the Annual
Meeting and any adjournment thereof. As of the Record Date 43,378,181 shares of
the Company's Common Stock, $.01 par value, were issued and outstanding. Each
share outstanding on the Record Date for the Annual Meeting entitles the holder
thereof to one vote upon each matter to be voted upon at the Annual Meeting. The
shareholders of a majority of the Company's issued and outstanding Common Stock,
present in person or represented by proxy, shall constitute a quorum at the
Annual Meeting. Abstentions and broker non-votes are counted for purposes of
determining the presence or absence of a quorum for the transaction of business.
If, however, a quorum is not present or represented at the Annual Meeting, the
shareholders entitled to vote at the Annual Meeting, whether present in person
or represented by proxy, shall only have the power to adjourn the Annual Meeting
until such time as a quorum is present or represented. At such time as a quorum
is present or represented by proxy, the Annual Meeting will reconvene without
notice to shareholders, other than an announcement at the prior adjournment of
the Annual Meeting, unless the adjournment is for more than thirty (30) days or
a new record date has been set.
If a proxy in the form enclosed is duly executed and returned, the shares
of the Company's Common Stock represented thereby will be voted in accordance
with the specifications made thereon by the shareholder. If no such
specifications are made, such proxy will be voted (i) for election of the
Management Nominees (as hereinafter defined) for directors; (ii) for approval of
the CNA Surety Corporation Non-Employee Directors Deferred Compensation Plan;
(iii) for ratification of Deloitte and Touche LLP as the Company's Independent
Auditors; and (iv) at the discretion of Proxy Agents (as hereinafter defined)
with respect to such other business as may properly come before the Annual
Meeting or any adjournment thereof. Abstentions are counted in tabulations of
the votes cast on proposals presented to shareholders, whereas broker non-votes
are not counted for purposes of determining whether a proposal has been
approved. Under applicable Delaware law, a broker non-vote will have the same
effect on the outcome of the election of directors. A proxy is revocable by
either a subsequently dated, properly executed proxy appointment which is
received by the Company prior to the time votes are counted at the Annual
Meeting, or by a shareholder giving notice of revocation to the Company in
writing or during the Annual Meeting prior to the time votes are counted. The
mere presence at the Annual Meeting of a shareholder who appointed a proxy does
not itself revoke the appointment.
ELECTION OF DIRECTORS
(PROPOSAL I)
VOTING AND THE MANAGEMENT NOMINEES
At the Annual Meeting eleven directors will be elected to serve one-year
terms commencing immediately upon their election, or to serve until their
respective successors are duly elected and qualified. Management's nominees for
the eleven director positions to be filled by vote at the Annual Meeting are
(the "Management Nominees"):
Giorgio Balzer
Philip H. Britt
David T. Cumming
Rod F. Dammeyer
Bruce A. Esselborn
Melvin Gray
Joe P. Kirby
Roy E. Posner
Adrian M. Tocklin
Robert T. Van Gieson
Mark C. Vonnahme
2
<PAGE> 5
All of the Management Nominees are currently serving as directors of the
Company. For information regarding the Management Nominees, see "Directors and
Executive Officers of the Registrant."
At the Annual Meeting, if a quorum is present, the vote of a majority of
the Company's Common Stock held by shareholders present in person or represented
by proxy shall elect the directors. It is the present intention of John S.
Heneghan and Thomas A. Pottle, who will serve as the Company's proxy agents at
the Annual Meeting (the "Proxy Agents"), to vote the proxies which have been
duly executed, dated and delivered and which have not been revoked, in
accordance with the instructions set forth thereon or if no instruction had been
given or indicated to elect the Management Nominees as directors. The Board does
not believe that any of the Management Nominees will be unwilling or unable to
serve as a director. However, if prior to the election of directors, any of the
management Nominees becomes unavailable or unable to serve, the Board reserves
the right to name a substitute nominee or nominees and the Proxy Agents expect
to vote the proxies for the election of such substituted nominee or nominees.
THE BOARD RECOMMENDS A VOTE IN FAVOR OF THE MANAGEMENT NOMINEES. IF A
CHOICE IS SPECIFIED ON THE PROXY BY A SHAREHOLDER, THE SHARES WILL BE VOTED AS
SPECIFIED. IF NO SPECIFICATION IS MADE, THE SHARES WILL BE VOTED "FOR" THE
MANAGEMENT NOMINEES.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth the name, age, position and offices with the
Company, present principal occupation or employment and material occupations and
employment for the past five years of each person who is presently a director, a
nominee for director or an executive officer of the Company.
GIORGIO BALZER, age 58; Director of the Company since September 30, 1997.
Chairman and Chief Executive Officer, Businessmen's Assurance Company of America
since 1990; U.S. representative for Assicurazioni Generali, S.p.A. Director of
Commerce Bancshares, Inc.
PHILIP H. BRITT, age 52; Director of the Company since March 1998. Senior
Vice President, Insurance Industry Division of First Chicago NBD since April
1988; various other positions with First Chicago from 1982 through April 1988.
Member of the Association of Insurance and Financial Analysts.
DAVID T. CUMMING, age 54; Director of the Company since December 1996.
Secretary of the Company from December 1996 until September 30, 1997; Executive
Vice President Mergers and Acquisitions, CNA Commercial Insurance since January
1998; Deputy General Counsel of all insurance subsidiaries of CNA Financial
Corporation ("CNAF"), including Continental Casualty Company ("CCC") and The
Continental Insurance Company ("CIC"), acquired on May 10, 1995, from 1993 until
January 1998; and Vice President of Leucadia National Corporation from 1978
until 1992.
ROD F. DAMMEYER, age 58; Director of the Company since September 30, 1997.
Managing Director of EGI Corporate Investments, a division of Equity Group
Investments, Inc. ("EGI"), since January 1996; Vice Chairman of Anixter
International, Inc. ("Anixter") since February 1998; President and a director
since 1985 and Chief Executive Officer since 1993 of Anixter; Director of
Capsure Holdings Corp. ("Capsure") from January 1993 until September 30, 1997.
Director of ANTEC Corporation, Groupo Azucarero Mexico, IMC Global Inc., Jacor
Communications, Inc., Lukens Inc., Metal Management, Inc., TeleTech Holdings,
Inc., Transmedia Network, Inc., and Trustee of several Van Kampen Merritt, Inc.
Closed End Mutual Funds.
BRUCE A. ESSELBORN, age 55; Director of the Company since September 30,
1997. Director of Capsure from February 1990 and President of Capsure from June
1992 until September 30, 1997; Chairman of the Board from 1988 until May 1996
and President and Chief Executive Officer from 1986 until May 1996 of United
Capitol Holding Company and United Capitol Insurance Company.
MELVIN GRAY, age 65; Director of the Company since September 30, 1997.
Chairman and Chief Executive Officer since 1982 and various other positions
since 1962 of Graycor, Inc. Member Board of Advisors of the Construction
Industry Institute.
3
<PAGE> 6
JOE P. KIRBY, age 44; Director of the Company since September 30, 1997.
Director of Western Surety Company ("Western Surety") since 1979; Director of
Capsure from May 1993 until September 30, 1997; President from 1979 until 1995
and Chief Executive Officer of Western Surety from 1979 until September 30,
1997. Mr. Kirby is the brother of Dan L. Kirby.
ROY E. POSNER, age 64; Retired. Director of the Company since September 30,
1997. Chief Financial Officer and Senior Vice President of Loews Corporation,
the parent corporation of CNAF, from 1985 until February 1997.
ADRIAN M. TOCKLIN, age 46; Director and Chairman of the Board of the
Company since September 30, 1997 and Chairman until March 1998. President, CNA
Diversified Operations from May 1995 until April 1998. President and Chief
Operating Officer of The Continental Corporation ("Continental") and all of its
insurance subsidiaries from June 1994 until May 1995; Executive Vice President
of Continental from September 1992 until June 1994; various other positions with
CIC since December 1974; Director of SONAT, Inc. and Trustee of George
Washington University.
ROBERT T. VAN GIESON, age 53; Director of the Company and Chairman of the
Board since March 1998. President and Chief Executive Officer, CNA Global
Operations since December 1997; President and Chief Executive Officer, CNA
Global Operations Group from July 1996 until December 1997; Chairman and Chief
Executive Officer of Chubb Insurance Co. of Europe from 1990 until 1996;
Chairman and Chief Operations Officer of Chubb Canada from 1983 until 1990;
Director of First Insurance Company of Hawaii, Associated Aviation Underwriters,
and International Insurance Society.
MARK C. VONNAHME, age 49; Director, President and Chief Executive Officer
of the Company since December 1996. Group Vice President and Senior Surety
Officer of all CNAF insurance subsidiaries, including CCC and CIC, from August
1993 until September 30, 1997. Vice President, Contract Surety Division of CCC
from January 1993 until August 1993; and Assistant Vice President, Contract
Surety Division of CCC, from 1991 until January 1993. Director of Surety
Association of America.
ROBERT E. AYO, age 57; Vice President and Chief Underwriting Officer,
Contract Surety of the Company since September 30, 1997. Vice President and
Chief Contract Underwriting Officer, Surety of all insurance subsidiaries of
CNAF, including CCC and CIC, from March 1995 until September 30, 1997; Assistant
Vice President and Underwriting Manager, Contract Surety of CCC, from January
1993 until March 1995; Underwriting Manager, Contract Surety of CCC from 1985
until January 1993.
MICHAEL A. DOUGHERTY, age 39; Vice President and Chief Marketing Officer of
the Company since November 1997. Senior Vice President Aon Risk Services of
Illinois from April 1992 until November 1997.
MELITA H. GEOGHEGAN, age 51; Vice President and Chief Human Resources
Officer of the Company since September 30, 1997. Assistant Vice President of
Human Resources, Surety Division of CCC from 1996 until September 30, 1997, and
various positions with CCC from 1993 to 1996.
THOMAS P. GREASEL, age 59; Vice President and Chief Claims Officer of the
Company since September 30, 1997. Vice President and Director of Surety Claims
for CCC from 1993 until September 30, 1997.
JOHN S. HENEGHAN, age 36; Vice President and Chief Financial Officer of the
Company since September 30, 1997. Vice President of Capsure from December 1995
and Controller of Capsure from June 1994 until September 30, 1997; and various
positions, including Senior Audit Manager, with Deloitte & Touche LLP from 1984
until June 1994.
DAN L. KIRBY, age 51; Executive Vice President, Legislative Affairs of the
Company since September 30, 1997. Vice President, General Counsel and Secretary
of Western Surety from 1974 until September 30, 1997; and Director of Capsure
from May 1993 until September 30, 1997. Mr. Kirby is the brother of Joe P.
Kirby.
PAUL T. LIVELY, age 49; Vice President, Business Development, and Assistant
Secretary of the Company since March 1998. Practicing attorney from 1988 until
1997 with Querrey & Harrow, Ltd.; from 1979 until 1988 with O'Halloran, Lively &
Walker; and from 1973 until 1978 with Bell, Boyd, Lloyd, Haddad & Burns (now
known as Bell, Boyd, & Lloyd).
4
<PAGE> 7
JOHN L. MCREYNOLDS, age 57; President and Chief Operating Officer of
Universal Surety of America since January 1, 1998. Executive Vice President of
Universal Surety of America from 1984 until December 31, 1997.
STEPHEN T. PATE, age 51; President and Chief Operating Officer of Western
Surety since June 1995. Executive Vice President of Western Surety from October
1994 until June 1995; President, Surety Profit Center of CIC from April 1993
until October 1994; and Regional Vice President, Surety of CIC from June 1991
until April 1993.
THOMAS A. POTTLE, age 38; Vice President, Chief Operations Officer and
Secretary of the Company since September 30, 1997. Assistant Vice President and
Surety Controller of CNA from 1996 until September 30, 1997; Surety Controller
of CCC from September 1994 until 1996; and various positions with CCC from 1986
until September 1994.
SHARON A. SARTORI, age 42; Vice President and Chief Underwriting Officer,
Commercial Surety of the Company since November 1997. Commercial Surety
Territorial Underwriting Officer of the Company from September 30, 1997 until
November 1997; and various positions, including Assistant Vice President and
Territorial Underwriting Officer, of CCC from 1993 until September 30, 1997.
BOARD AND COMMITTEE MEETINGS
The Board has an Executive Committee which consists of Ms. Tocklin and
Messrs. Van Gieson and Vonnahme. The Executive Committee did not meet during
1997. The Executive Committee possesses and may exercise the full and complete
authority of the Board in the management and business affairs of the Company
during the intervals between the meetings of the Board. All action by the
Executive Committee is reported to the Board at its next meeting and such action
is subject to revision and alteration by the Board, provided that no rights of
third persons can be prejudicially affected by the subsequent action of the
Board. Vacancies on the Executive Committee are filled by the Board. However,
during the temporary absence of a member of the Executive Committee, due to
illness or inability to attend a meeting or for other cause, the remaining
member(s) of the Executive Committee may appoint a member of the Board to act in
the place and with all the authority of such absent member. The current members
of the Executive Committee will continue in office until the Committee is
dissolved, terminated or reorganized, or if such members are replaced.
The Company also has an Audit Committee which consists of Messrs. Dammeyer,
Gray and Posner (Chair). During 1997, the Audit Committee held one meeting. The
Audit Committee is authorized and has the power to review such procedures of the
Company and its subsidiaries regarding the appointment of the independent public
accountants, the scope and fees of prospective annual audits and results
thereof, compliance with the accounting and financial policies of the Company,
management's procedures and policies relative to the adequacy of CNA Surety's
internal accounting controls and review of any and all related party agreements
and arrangements between CNA Surety and its affiliates, as well as any disputes
that may arise thereunder.
The Company also has an Incentive Compensation Committee which consists of
Messrs. Balzer, Esselborn and J. Kirby (Chair). During 1997, the Incentive
Compensation Committee held three meetings. The Incentive Compensation Committee
reviews and administers all compensation matters for the five most highly
compensated executive officers of the Company as well as its stock option plans.
The Company also has an Investment Committee which consists of Messrs.
Esselborn (Chair), J. Kirby, Posner, Van Gieson and Vonnahme. During 1997, the
Investment Committee held three meetings. The Investment Committee establishes
investment policies and oversees the management of the Company's investment
portfolios.
During 1997, two meetings of the Board were held. All then serving
directors were present for one meeting and one then director, Peter E. Jokiel,
was not in attendance for the other meeting.
5
<PAGE> 8
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Under the rules of the SEC, the Company is required to report, based on its
review of reports to the SEC about transactions in its Common Stock furnished to
the Company and written representations of its directors, executive officers and
10% shareholders, that for 1997: 1) Michael A. Dougherty and Sharon A. Sartori
filed a Form 3 late for December 1997 on December 30, 1997; and 2) Melvin Gray
filed a Form 4 late for November 1997 on February 11, 1998 which reported the
purchase of 1,000 shares for a trust in his name.
EXECUTIVE COMPENSATION
The following tables show information with respect to the annual
compensation (including option grants) for services rendered to the Company (or
its predecessors) for the year ended December 31, 1997 by the chief executive
officer and those persons who were, at December 31, 1997, the four other most
highly compensated executive officers of the Company. The Company was organized
in 1997 as a result of the merger of separate businesses pursuant to a
Reorganization Agreement. Accordingly, compensation for prior years is omitted.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER ANNUAL ALL OTHER
SALARY(1) BONUS(1) COMPENSATION(1) OPTIONS COMPENSATION(1)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
--------------------------- ---- --------- -------- --------------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Mark C. Vonnahme............. 1997 264,519 114,700(2) 13,646(3) 30,000 27,260(4)
President and Chief
Executive Officer of the
Company
John T. Knox................. 1997 253,120 300,000(5) 0 20,000 705,577(6)
Former President and Chief
Executive Officer of
Universal Surety of
America and Former
Director of the Company
Dan L. Kirby................. 1997 239,807 125,000 444(7) 15,000 524,557(8)
Vice President, Legislative
Affairs of the Company
Stephen T. Pate.............. 1997 262,500 312,500(5) 5,970(9) 20,000 4,800(10)
President and Chief
Operating Officer of
Western Surety Company
Robert E. Ayo................ 1997 165,384 99,100(2) 326(11) 20,000 12,984(12)
Vice President and Chief
Underwriting Officer,
Contract Surety of the
Company
</TABLE>
- ---------------
(1) Includes salary, bonus, other annual and all other compensation paid prior
to the merger, on September 30, 1997, by CCC and Capsure for Messrs.
Vonnahme and Ayo and for Messrs. Knox, Kirby and Pate, respectively.
(2) Includes transaction completion bonus of $4,700 for Mr. Vonnahme and $3,000
for Mr. Ayo.
(3) Includes $11,646 for health club and country club dues and $2,000 for
income tax preparation.
(4) Includes $15,173 of CCC distributions from the CNA supplemental savings
plan, $6,720 of 401(k) plan company matching contributions to both the CNA
and CNA Surety sponsored plans, $3,610 CCC paid automobile lease, $721 of
CCC paid contributions on a life insurance policy owned by him and a $1,036
CCC paid retirement gift.
6
<PAGE> 9
(5) Includes transaction and retention bonuses paid by Capsure of $250,000 for
Mr. Knox and $312,500 for Mr. Pate.
(6) Includes $671,216 paid by the Company in connection with the termination of
his employment contract, $22,782 for Company paid automobile lease, $6,959
for Company paid contributions on a life insurance policy owned by him and
$4,620 of 401(k) plan company matching contributions.
(7) Includes $444 of reimbursements of health club dues.
(8) Includes $519,757 in connection with the exercise of Capsure stock options
and $4,800 for 401(k) plan company matching contributions.
(9) Includes $384 of reimbursements of health club dues and $5,586 for Company
paid country club membership dues.
(10) For 401(k) plan Company matching contributions.
(11) For CCC reimbursement of health club dues.
(12) Includes $6,219 of 401(k) plan company matching contributions to both the
CNA and CNA Surety sponsored plans, $3,691 CCC paid automobile lease,
$2,038 of CCC paid contributions on a life insurance policy owned by him
and a $1,036 CCC paid retirement gift.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------- VALUE AT ASSUMED
NUMBER % OF TOTAL ANNUAL RATES OF STOCK
OF SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE OR FOR OPTION TERM
OPTIONS DURING FISCAL BASE PRICE EXPIRATION ---------------------
NAME GRANTED(#)(1) YEAR(2) ($/SH) DATE 5% ($) 10% ($)
---- ------------- ------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Mark C. Vonnahme......... 30,000 6.5% 15.875 10/03/07 299,550 758,550
Robert E. Ayo............ 20,000 4.3% 15.875 10/03/07 199,700 505,700
Dan L. Kirby............. 15,000 3.2% 15.875 10/03/07 149,775 379,275
John T. Knox............. 20,000(3) 4.3% 15.875 10/03/07 0(3) 0(3)
Stephen T. Pate.......... 20,000 4.3% 15.875 10/03/07 199,700 505,700
</TABLE>
- ---------------
(1) The options granted during 1997 are exercisable after October 3, 2000.
(2) 463,500 non-qualified stock options were granted to employees of the
Company during the three month period ending December 31, 1997.
(3) These options were forfeited as a result of Mr. Knox's resignation as
President and Chief Executive Officer of Universal Surety of America
effective December 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END(#) FY-END($)
SHARES ACQUIRED VALUE (1)EXERCISABLE/ (1)EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- --------------- ----------- ------------------- --------------------
<S> <C> <C> <C> <C>
Mark C. Vonnahme............. 0 0 0/30,000 0/0
Robert E. Ayo................ 0 0 0/20,000 0/0
Dan L. Kirby................. 39,190 519,757 15,000/15,000 169,064/0
John T. Knox................. 0 0 40,718/0 511,520/0
Stephen T. Pate.............. 0 0 11,250/23,750 139,922/46,641
</TABLE>
(1) Exercisable options for Messrs. D. Kirby, Knox and Pate relate to the
Company's Replacement Stock Option Plan in connection with the September 30,
1997 merger between CNAF's surety business and Capsure. The Replacement
Stock Option Plan reserved shares for issuance to former Capsure option
holders with the same price, rights, benefits, terms and conditions as the
Capsure options replaced.
7
<PAGE> 10
COMPENSATION OF DIRECTORS
Directors, except for employees of the Company or its affiliates, are
compensated at the annual rate of $25,000, paid in quarterly installments, and
receive $1,500 for each meeting of the Board and committees of the Board of the
Company which they attend.
EMPLOYMENT CONTRACTS
The Company entered into an employment agreement with Mr. Mark C. Vonnahme
on October 3, 1997. The agreement runs from October 1, 1997 through December 31,
1999, with automatic one-year renewals unless the Company or Mr. Vonnahme
provides the other party with thirty (30) day written notice of intent not to
renew. The agreement provides for a minimum annual base salary of $300,000 that
may be adjusted annually by the Board of Directors, an annual bonus, a longterm
incentive compensation program, and stock options. As part of the agreement, Mr.
Vonnahme agrees to certain confidentiality, non-competition, and non-
solicitation provisions.
The Company also entered into a two-year employment agreement with Mr. Dan
L. Kirby, effective October 1, 1997. The agreement provides for an annual base
salary of $200,000 and provides for additional compensation in the form of an
annual bonus, a long-term incentive compensation program, and stock options. The
agreement also provides a severance payment, equal to the discounted present
value of the salary that Mr. Kirby would have received through the term of the
agreement, if the Company terminates his employment without cause. As part of
the agreement, Mr. Kirby agrees to certain confidentiality, non-competition, and
non-solicitation provisions.
The Company also maintained predecessor employment agreements with Messrs.
John T. Knox, Jr. and Stephen T. Pate, entitling each to annual base salaries of
$262,500. Mr. Knox resigned as President & Chief Executive Officer of Universal
Surety of America, effective December 31, 1997 and received payment in the
amount of $671,216 for the discounted value of the base salary on the remaining
term of his employment contract. The predecessor employment agreement with Mr.
Pate runs through April 14, 1998.
INCENTIVE COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Incentive Compensation Committee are Messrs.
Balzer, Esselborn and J. Kirby.
Messrs. Esselborn and J. Kirby are directors of the Company and were both
former officers and directors of Capsure. Mr. J. Kirby is the brother of D.
Kirby who is currently an officer of CNA Surety and was a director of Capsure.
INCENTIVE COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation policy of the Company for its executive officers
(including those named in the Summary Compensation Table) has been to pay base
salaries and annual bonuses that are both competitive and recognize the
accomplishment of the Company's stated goals of building a financial services
business primarily focusing on surety, fidelity and other related products. In
addition, the Company established the 1997 Long-Term Equity Compensation Plan to
provide long-term incentive opportunities for employees, officers and directors
of the Company.
During 1997, the Company entered into employment agreements with Mark C.
Vonnahme and Dan L. Kirby. See "Employment Contracts" for a description of the
agreements. The Company entered into these agreements shortly after the
completion of the acquisition of Capsure and the simultaneous merger of CNAF's
surety business with Capsure's insurance subsidiaries.
Long-term incentive opportunities were made available to each of the
executive officers in the form of significant grants of stock options at the
time of the Company's respective acquisition of Capsure and simultaneous merger
of CNAF's surety businesses with Capsure's insurance subsidiaries. These options
were designed to provide competitive compensation opportunities, promote the
long-term interests between such
8
<PAGE> 11
individuals and the Company's shareholders and to assist in the retention of
such officers. In determining the number of options granted, level of
responsibility was the determining factor.
It is the policy of the Company to structure its compensation in a manner
which will avoid the limitations imposed by the Omnibus Budget Reconciliation
Act of 1993 on the deductibility of executive compensation under Section 162 (m)
of the Internal Revenue Code of 1986, as amended, to the extent it can
reasonably do so consistent with its goal of retaining and motivating its
executives in a cost effective manner.
Giorgio Balzer
Bruce A. Esselborn
Joe P. Kirby
PERFORMANCE GRAPH
Below is a graph comparing total shareholder return on the Company's Common
Stock over the period from September 30, 1997 (date of inception) through
December 31, 1997 with a broad equity market index, the S&P Property and
Casualty Insurance Index, and a published industry index, the S&P 500, as
required by the rules of the SEC.
<TABLE>
<CAPTION>
CNA Surety S&P Property
Measurement Period Corporation & Casualty
(Fiscal Year Covered) ($) S&P 500 ($) ($)
<S> <C> <C> <C>
10/01/97 100.00 100.00 100.00
10/31/97 101.25 100.77 98.75
11/30/97 96.67 101.88 101.43
12/31/97 102.92 102.87 108.05
</TABLE>
9
<PAGE> 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 6, 1998, except as noted,
certain information with respect to each person or entity who is known by the
management of the Company to be the beneficial owner of more than 5% of the
outstanding shares of the Company's Common Stock:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP(1) PERCENT OF CLASS
------------------- -------------------------- ----------------
<S> <C> <C>
Continental Casualty Company and Affiliates............. 27,096,337(2) 62.5%(2)
CNA Plaza
Chicago, IL 60685
Equity Capsure Limited Partnership(3)................... 3,119,178(4) 7.2%
Two N. Riverside Plaza
Chicago, IL 60606
</TABLE>
- ---------------
(1) The number of shares of the Company's Common Stock indicated as beneficially
owned is reported on the basis of regulations of the SEC governing the
determination of beneficial ownership of securities.
(2) The Reorganization Agreement provides that CCC and affiliates are to
beneficially own 61.75% of the outstanding CNA Surety common stock, on a
fully-diluted basis. The beneficial ownership for CCC reported in this table
is higher than 61.75% because the rules under the Exchange Act require
disclosure of ownership on other than a fully-diluted basis.
(3) Equity Capsure Limited Partnership, an Illinois limited partnership ("Equity
Capsure"), is comprised of five partners: the Samuel Zell Revocable Trust
with Samuel Zell as Trustee; the Ann Lurie Revocable Trust with Ann Lurie
and Mark Slezak as Co-Trustees; LFT Partnership; Alphabet Partners and ZFT
Partnership. The Samuel Zell Revocable Trust, of which Samuel Zell, former
Chairman of the Board and Chief Executive Officer of Capsure, is trustee and
beneficiary, is the sole general partner of Equity Capsure. Mr. Zell may be
deemed to be the beneficial owner of the shares of the Company's Common
Stock owned by Equity Capsure but he disclaims beneficial ownership of these
shares.
(4) Includes options to purchase 65,000 shares which are currently exercisable
and beneficially owned by Mr. Zell.
10
<PAGE> 13
SECURITY OWNERSHIP OF MANAGEMENT
The following information is furnished as of March 6, 1998 with respect to
the shares of the Company's Common Stock beneficially owned by each director and
by those executive officers named in the Summary Compensation Table and by all
directors and executive officers as a group. Information concerning the
directors and officers and their security holdings has been furnished by them to
the Company.
<TABLE>
<CAPTION>
SHARES UPON
NAME OF SHARES OF EXERCISE OF PERCENT OF
BENEFICIAL OWNER COMMON STOCK STOCK OPTIONS(1) TOTAL(2) CLASS
---------------- ------------ ---------------- -------- ----------
<S> <C> <C> <C> <C>
Robert E. Ayo................................ 100 0 100 *
David T. Cumming............................. 3,500(3) 0 3,500 *
Bruce A. Esselborn........................... 83,507(4) 0 83,507 *
Melvin Gray.................................. 1,000(5) 0 1,000 *
Dan L. Kirby................................. 63,252 15,000 78,252 *
Joe P. Kirby................................. 61,910 15,000 76,910 *
John T. Knox(6).............................. 331,363 0 331,363 *
Stephen T. Pate.............................. 200 11,250 11,450 *
Roy E. Posner................................ 250 0 250 *
Adrian M. Tocklin............................ 1,000 0 1,000 *
Mark C. Vonnahme............................. 1,100(7) 0 1,100 *
Robert T. Van Gieson......................... 300 0 300 *
All directors and executive officers as a
group (23 persons) including the
above-named persons........................ 584,226 48,750 632,976 1.5%
</TABLE>
- ---------------
* Less than 1%
(1) Represents beneficial ownership of shares that may be acquired by the
exercise of stock options which are currently exercisable or exercisable
within sixty days of the date of this table.
(2) The amounts of the Company's Common Stock and stock options beneficially
owned are reported on the basis of regulations of the SEC governing the
determination of beneficial ownership of securities.
(3) Includes 1,000 shares beneficially owned by Mr. Cumming's daughter and 500
shares beneficially owned by his wife.
(4) Includes 8,500 shares beneficially owned by Mr. Esselborn's wife.
(5) Shares are held in trust in Mr. Gray's name.
(6) Mr. Knox resigned as President and Chief Executive Officer of Universal
Surety of America effective December 31, 1997 and resigned as Director of
the Company effective March of 1998.
(7) Includes 1,000 shares owned jointly by Mr. Vonnahme and his wife with whom
he shares voting and investment power.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CCC and the insurance subsidiaries of the Company have entered into various
reinsurance agreements designed to protect against adverse loss reserve
development related to the CCC Surety Operations reserves at September 30, 1997
("Merger Date"), and help preserve, through the year 2000, the profitability of
CCC Surety Operations and certain additional accounts. The reinsurance
agreements together with the Services and Indemnity Agreement, that is described
below, also affect the transfer of the CCC Surety Operations to CNA Surety's
insurance subsidiaries. The reinsurance agreements entered into at the Merger
Date are: (i) the Surety Quota Share Treaty (the "Quota Share Treaty"); (ii) the
Aggregate Stop Loss Reinsurance Contract (the "Stop Loss Contract"); and (iii)
the Surety Excess of Loss Reinsurance Contract (the "Excess of Loss Contract").
The Services and Indemnity Agreement provides CNA Surety's insurance
subsidiaries with the authority to perform various administrative, management,
underwriting and claim functions in order to conduct the
11
<PAGE> 14
business of the CCC Surety Operations and to be reimbursed by CCC for services
rendered. In consideration for the provision of the foregoing services, CCC has
agreed to pay the insurance subsidiaries a quarterly fee of $50,000. At December
31, 1997, CCC owed the insurance subsidiaries $50,000 for the period from
September 30, 1997 (date of inception) through December 31, 1997.
Through the Quota Share Treaty, CCC and CIC ceded, as of the Merger Date,
and subsequently paid on October 1, 1997, to Western Surety all of their net
unearned premiums and loss and loss adjustment expense reserves, net of $29.0
million of ceded commissions. The payment totaled $116.9 million.
Through the Quota Share Treaty CCC and CIC will also transfer to Western
Surety all of the CCC Surety Operations' business written or renewed by CCC and
CIC after the Merger Date. CCC and CIC will transfer the related liabilities of
such business and pay to Western Surety an amount in cash equal to CCC's and
CIC's net written premiums written on all such business, minus a quarterly
ceding commission to be retained by CCC and CIC equal to $50,000 plus 28% of net
written premiums written on such business. CCC and CIC paid Western Surety, net
of commissions and reinsured loss payments, $21.2 million during the period from
September 30, 1997 (date of inception) through December 31, 1997. As of December
31, 1997, CNA Surety had a reinsurance receivable balance from CCC of $47.9
million. This balance is primarily comprised of direct premium receivables of
CCC and CIC with respect to the surety business ceded to Western Surety.
CCC has guaranteed the loss and loss adjustment expenses transferred to
Western Surety by agreeing to pay Western Surety, within 30 days following the
end of each calendar quarter, the amount of any adverse development on such
reserves, as reestimated as of the end of such calendar quarter. There was not
any adverse reserve development for the period from September 30, 1997 (date of
inception) through December 31, 1997. The Quota Share Treaty has a term of five
years from the Merger Date.
The Stop Loss Contract protects the insurance subsidiaries from adverse
loss experience on certain business underwritten after the Merger Date. The Stop
Loss Contract between the insurance subsidiaries and CCC limits the insurance
subsidiaries' prospective net loss ratios with respect to certain accounts and
lines of insured business for at least three fiscal years following the Merger
Date. In the event the insurance subsidiaries' accident year net loss ratio
exceeds 24% in each of 1997 through 2000 on certain insured accounts (the "Loss
Ratio Cap"), the Stop Loss Contract requires CCC at the end of each calendar
quarter following the Merger Date, to pay to the insurance subsidiaries a dollar
amount equal to (i) the amount, if any, by which their actual accident year net
loss ratio exceeds the applicable Loss Ratio Cap, multiplied by (ii) the
applicable net earned premiums. In consideration for the coverage provided by
the Stop Loss Contract, the insurance subsidiaries will pay to CCC an annual
premium of $20,000. The insurance subsidiaries paid CCC the annual premium
during the period from September 30, 1997 (date of inception) through December
31, 1997. There was no amount due to the insurance subsidiaries from CCC under
the Stop Loss Contract for the period from September 30, 1997 (date of
inception) through December 31, 1997.
The Excess of Loss Contract provides the insurance subsidiaries of CNA
Surety with the capacity to underwrite large surety bond exposures by providing
reinsurance support from CCC. The Excess of Loss Contract provides $75 million
of coverage in excess of the $55 million of coverage provided to the insurance
subsidiaries by third party reinsurers for losses discovered on surety bonds in
force at the Merger Date and for losses discovered on new and renewal business
written or assumed during the term of the Excess of Loss Contract. CCC is also
obligated to act as a joint insurer, or "co-surety," for business covered by the
Excess of Loss Contract when requested by the insurance subsidiaries. In
consideration for the reinsurance coverage provided by the Excess of Loss
Contract, the insurance subsidiaries will pay to CCC, on a quarterly basis, a
premium equal to 1% of the net written premiums applicable to the Excess of Loss
Contract, subject to a minimum premium of $20,000 per quarter. The insurance
subsidiaries paid CCC $80,000 for all minimum quarterly premiums due through
September 30, 1998 during the period from September 30, 1997 (date of inception)
through December 31, 1997. The Excess of Loss Contract has a term of five years
from the Merger Date.
CNA Surety also entered into an Administrative Services Agreement with CCC
as of the Merger Date. The agreement allows the Company continued use of certain
real and personal property owned or leased by
12
<PAGE> 15
CCC. The Company may cancel, without penalty, any lease under the agreement by
giving CCC sixty days notice. The Company can also purchase many of the
administrative services provided to the CCC Surety Operations by CCC. CNA
Surety, however, is under no obligation to purchase any services under the
Administrative Services Agreement. The aggregate maximum annual cost for the use
of real and personal property and for services available under the agreement is
approximately $7.9 million. Administrative services are provided at specified
rates, subject to inflationary increases. For the period from September 30, 1997
(date of inception) through December 31, 1997, the Company was charged $2.5
million for rents and services provided under the agreement. The Company paid
CCC $1.4 million and $1.1 million was reflected in other liabilities in the
Company's Consolidated Balance Sheet at December 31, 1997.
In the fourth quarter of 1997, National Fire Insurance Company of Hartford
("National Fire"), an affiliate of CCC, entered into a 50% US dollar quota share
reinsurance treaty with CNA Reinsurance Company Limited (London). The treaty is
effective January 1, 1997 and provides facultative or treaty reinsurance cover
on credit insurance, surety and guarantee, and fidelity and computer crime
classes of business, predominantly on European risks. The business assumed by
National Fire under this treaty will be retroceded to Western Surety Company
under terms of the Quota Share Treaty. For the period from September 30, 1997
(date of inception) through December 31, 1997, the Company assumed $10.1 million
in international premiums.
APPROVAL OF THE CNA SURETY CORPORATION
NON-EMPLOYEE DIRECTORS DEFERRED COMPENSATION PLAN
(PROPOSAL 2)
The Company's Board of Directors has approved, subject to the approval of
the Company's shareholders, the CNA Surety Corporation Non-Employee Directors
Deferred Compensation Plan (the "Directors Stock Plan"). As discussed under
"Compensation of Directors," directors who are not full-time employees of the
Company or its affiliates receive cash compensation in the form of an annual
retainer, paid quarterly, and meeting fees. The Directors Stock Plan provides
non-employee directors an opportunity to defer receipt of the annual retainer
fees and have them deemed invested in stock units, thereby enhancing the
long-term mutuality of interest between directors and shareholders.
Summary of the Directors Stock Plan. Under the Directors Stock Plan, each
director who is not a full-time employee of the Company or any of its affiliates
may defer all or a portion of the annual retainer fee that would otherwise be
paid to such director. The deferral amount, which must be in multiples of 10% of
the retainer fee, will be credited to a deferred compensation account and will
be deemed invested in Common Stock Units ("Stock Units"). Each director will be
fully vested in his or her deferred compensation amount.
Each Stock Unit maintained in the deferred compensation account under the
Directors Stock Plan represents the economic equivalent of one share of Company
Common Stock. Deferral amounts will be deemed to be invested in a number of
Stock Units equal to the amount of the deferral divided by the fair market value
of a share of the Company Common Stock as of the date the deferral amount would
otherwise have been paid. If the Company pays any dividends to the holders of
the outstanding shares of Common Stock, additional Stock Units will be credited
to the deferred compensation accounts in an amount equal to the number of Stock
Units in an account multiplied by the value of the per share dividend, divided
by the fair market value of the Common Stock on the dividend payment date.
A director will be entitled to receive distributions from his or her
deferred compensation account in a lump sum or in up to 10 annual installments.
Distributions will be made in shares of Common Stock (and cash for any
fractional shares) on the first business day of any calendar year more than 2
years from the date of deferral election or upon ceasing to be a director, as
elected by the director at the time of the deferral.
The timing, amount and eligibility for shares of Common Stock are set forth
in the Directors Stock Plan and there is no discretionary authority exercised by
any administrative body under the plan. Subject to the foregoing, the Directors
Stock Plan shall be construed, interpreted and, to the extent required,
administered by the full Board of Directors of the Company.
13
<PAGE> 16
The aggregate number of shares of Common Stock that may be issued under the
Directors Stock Plan may not exceed 160,000. The number of shares shall be
appropriately adjusted by the Board if Common Stock is affected by a stock
dividend or stock split, recapitalization, merger, consolidation, combination,
spin-off, distribution of assets to shareholders (other than cash), exchange of
shares or other similar corporate change. Except pursuant to valid deferral
elections, stock may not be issued under the plan after December 31, 2007.
The number of shares of Common Stock to be received by any one director
cannot be determined in advance because it is dependent on the amount of
director's fees payable to the director, the amount of deferral elected by a
director and the trading price of Common Stock at any given time. For further
information regarding the compensation of the directors, see "Compensation of
Directors".
The Board may alter, amend, suspend or terminate the plan, without
shareholder approval, except as may be required by certain stock exchange
requirements.
Certain Tax Consequences of the Directors Stock Plan. The following
discussion of the Federal tax consequences of the Directors Stock Plan is based
on the Internal Revenue Code provisions currently in effect, current
regulations, and administrative rulings of the Internal Revenue Service. The
discussion is limited to the tax consequences on United States citizens and does
not consider the potential impact of state tax laws. It is not intended to be a
complete discussion of all the United States income tax consequences of the plan
or of all of the requirements that must be satisfied to qualify for the tax
treatment described.
Directors who do not elect to defer receipt of all or part of their
retainer fees under the plan will recognize income upon the payment of cash
fees. This compensation will be taxable as ordinary income and will constitute
"personal service income" for purposes of Federal income taxes.
Directors who defer receipt of all or part of the cash payable as retainer
fees under the plan will not recognize income on the amount deferred at the time
of the deferral. Instead, these directors will recognize income when the shares
of Common Stock are actually issued to them at the end of the deferral period.
At that time, these directors will recognize compensation taxable as ordinary
income in an amount equal to the fair market value of the shares of Common Stock
issued plus cash received, if any. This income also will constitute "personal
service income" for purposes of Federal income taxes.
At the Annual Meeting, if a quorum is present, the vote of a majority of
the Company's Common Stock held by shareholders present in person or represented
by proxy shall approve the CNA Surety Corporation Non-Employee Directors
Deferred Compensation Plan. It is the present intention of the Proxy Agents to
vote the proxies which have been duly executed, dated and delivered and which
have not been revoked, in accordance with the instructions set forth thereon or
if no instruction had been given or indicated to approve the Company's Director
Deferred Compensation Plan.
THE BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE CNA SURETY
CORPORATION NON-EMPLOYEE DIRECTORS DEFERRED COMPENSATION PLAN. IF A CHOICE IS
SPECIFIED ON THE PROXY BY THE SHAREHOLDER, THE SHARES WILL BE VOTED AS
SPECIFIED. IF NO CHOICE SPECIFICATION IS MADE, SHARES WILL BE VOTED "FOR"
APPROVAL OF THE CNA SURETY CORPORATION NON-EMPLOYEE DIRECTORS DEFERRED
COMPENSATION PLAN.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(PROPOSAL 3)
Upon the recommendation of the Audit Committee, the Board of Directors has
selected Deloitte & Touche LLP, independent auditors, to audit the financial
statements of the Company for the 1998 fiscal year. Deloitte & Touche LLP has
audited the Company's financial statements as of December 31, 1997 and for the
period from its inception (September 30, 1997) through December 31, 1997 and the
Predecessor's (The Company's Predecessor is defined in the Company's Form 10-K
for the fiscal year 1997, filed on March 27, 1998.) financial statements for the
three years ended December 31, 1996. A representative of Deloitte & Touche LLP
will be present at the meeting and be available to respond to appropriate
questions.
14
<PAGE> 17
At the Annual Meeting, if a quorum is present, the vote of a majority of
the Company's Common Stock held by shareholders present in person or represented
by proxy shall ratify the appointment, by the Board of Directors, of Deloitte &
Touche LLP as the Company's independent Auditors. It is the present intention of
the Proxy Agents to vote the proxies which have been duly executed, dated and
delivered and which have not been revoked, in accordance with the instructions
set forth thereon or if no instruction had been given or indicated, to ratify
the appointment of Deloitte & Touche LLP as the Company's independent auditors.
THE BOARD RECOMMENDS A VOTE "FOR" THE RATIFICATION OF DELOITTE & TOUCHE LLP
AS THE COMPANY'S INDEPENDENT AUDITORS. IF A CHOICE IS SPECIFIED ON THE PROXY BY
THE SHAREHOLDER, THE SHARES WILL BE VOTED AS SPECIFIED. IF NO CHOICE
SPECIFICATION IS MADE, SHARES WILL BE VOTED "FOR" RATIFICATION OF DELOITTE &
TOUCHE LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
SHAREHOLDERS' PROPOSALS FOR 1999 ANNUAL MEETING
A proposal submitted by a shareholder for the 1999 Annual Meeting of
Shareholders of the Company must be received by the Secretary of the Company,
CNA Plaza, Chicago, Illinois 60685, by December 1, 1998, in order to be eligible
to be included in the Company's proxy statement for that meeting.
CONCLUSION
The Company knows of no business which will be presented at the Annual
Meeting other than the election of Directors to the Board, the approval of the
CNA Surety Corporation Non-Employee Directors Deferred Compensation Plan and the
ratification of the Company's independent accountants. However, if other matters
properly come before the meeting, it is the intention of the Proxy Agents to
vote upon such matters in accordance with their good judgment in such matters.
By Order of the Board of Directors
THOMAS A. POTTLE
Secretary
15
<PAGE> 18
SUR-PS-98
<PAGE> 19
DETACH HERE
PROXY
CNA SURETY CORPORATION
CNA Plaza
333 S. Wabash
Chicago, Illinois 60685
(312) 822-5000
Notice of Annual Meeting of Shareholders
on May 19, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of CNA
Surety Corporation (the "Company") will be held at CNA Plaza, 333 S. Wabash,
Two South Conference Center, Chicago, IL 60685 on Tuesday, May 19, 1998, at
9:00 a.m. CDT.
The Board of Directors has fixed the close of business on March 23,
1998, as the record date (the "Record Date") for the determination of
shareholders entitled to notice of, and to vote at, the Annual Meeting. You
are cordially invited to attend the meeting. In the event you will be unable
to attend, you are respectfully requested to fill in, date, sign and return the
enclosed proxy at your earliest convenience in the enclosed envelope.
- ----------- -----------
SEE REVERSE SEE REVERSE
SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
- ----------- -----------
<PAGE> 20
---------------------------------------------------------------
THIS IS YOUR PROXY
YOUR VOTE IS IMPORTANT.
Regardless of whether you plan to attend the Annual Meeting of
Shareholders, you can be sure your shares are represented at
the Meeting by promptly returning your proxy (attached below)
in the enclosed envelope. Thank you for your attention to this
important matter.
---------------------------------------------------------------
DETACH HERE
[X] Please mark
votes as in
this example.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH YOUR SPECIFIC DIRECTIONS
BELOW. IF THE PROXY IS SIGNED AND RETURNED WITHOUT SUCH DIRECTIONS, IT
WILL BE VOTED FOR ALL PROPOSALS.
1. Election of Directors.
Nominees: Giorgio Balzer, Philip H. Britt, David T. Cumming,
Rod F. Dammeyer, Bruce A. Esselborn, Melvin Gray,
Joe P. Kirby, Roy E. Posner, Adrian M. Tocklin,
Robert T. Van Gieson, Mark C. Vonnahme
[ ] FOR [ ] WITHHELD
ALL FROM ALL
NOMINEES NOMINEES
MARK HERE
FOR ADDRESS
CHANGE AND
[ ] ________________________________________ NOTE BELOW [ ]
For all nominees except as noted above
2. To approve the CNA Surety Corporation Non-Employee Directors Deferred
Compensation Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. To ratify the Board of Directors' appointment of the Company's
independent auditors, Deloitte & Touche LLP, for fiscal year 1998.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
IMPORTANT: PLEASE FILL IN, DATE, SIGN AND PROMPTLY MAIL THE ENCLOSED PROXY CARD
IN THE POSTPAID ENVELOPE PROVIDED TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT
THE MEETING. IF YOU ATTEND THE MEETING YOU MAY VOTE IN PERSON IF YOU WISH TO
DO SO EVEN THOUGH YOU HAVE SENT IN YOUR PROXY.
Please sign exactly as name appears hereron. Executors, Administrators,
Trustees, etc. should so indicate when signing. Joint owners should each sign.
Signature: _____________________________ Date: ________________________
Signature: _____________________________ Date: ________________________
