<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)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ ] 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 11, 1999
---------------------
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,
Forty-fourth Floor South Conference Center, Chicago, IL 60685 on Tuesday, May
11, 1999, 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 ratify the Board of Directors' appointment of the Company's
independent auditors, Deloitte & Touche LLP, for fiscal year 1999; and
3. 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 15, 1999,
as 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
PAUL T. LIVELY
Secretary
March 26, 1999
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 30, 1999, 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, Forty-fourth Floor South Conference Center, Chicago, Illinois 60685 at
9:00 A.M. CDT, on Tuesday, May 11, 1999, and at any adjournment thereof.
Shareholders who, after reading this Proxy Statement, have any questions should
contact Paul T. Lively, Secretary of the Company, in Chicago at (312) 822-3895.
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 ratify the Board of Directors' appointment of the Company's
independent auditors, Deloitte & Touche LLP, for fiscal year 1999;
and
(iii) 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 26, 1999.
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.
1998 ANNUAL REPORTS
Shareholders are concurrently being furnished with a copy of the Company's
1998 Annual Report to Shareholders which contains its audited financial
statements at December 31, 1998. Additional copies of the Company's Annual
Report and Form 10-K for the year ended December 31, 1998, 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 15, 1999 (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, 44,101,463 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
ratification of Deloitte & Touche LLP as the Company's Independent Auditors for
fiscal year 1999; and (iii) 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 no
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
Rod F. Dammeyer
Edward Dunlop
Melvin Gray
Joe P. Kirby
William C. Pate
Roy E. Posner
Adrian M. Tocklin
Robert T. Van Gieson
Mark C. Vonnahme
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."
2
<PAGE> 5
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 Paul T. Lively, 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 59; Director of the Company since September 30, 1997.
Chairman and Chief Executive Officer, Business Men'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 3, 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.
ROD F. DAMMEYER, age 58; Director of the Company since September 30, 1997.
Managing partner 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., Matria Healthcare, Inc., Metal Management, Inc.,
Stericycle, Inc., TeleTech Holdings, Inc., Transmedia Network, Inc., and Trustee
of several Van Kampen Closed End Mutual Funds.
EDWARD DUNLOP, age 58; Retired. Director of the Company since November 17,
1998. Senior Vice President of The Chubb Corp. and Executive Vice President of
Chubb & Son, Inc., from 1993 until retirement at the end of 1997.
MELVIN GRAY, age 66; Director of the Company since September 30, 1997.
Chairman and Chief Executive Officer since 1982 and various other positions
since 1962 of Graycor, Inc. President and Chief Executive Officer of CCBC, Inc.
since 1985. Member Board of Advisors of the Construction Industry Institute.
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.
WILLIAM C. PATE, age 35; Director of the Company since August 18, 1998.
Director of Merger & Acquisitions of EGI since January 1994.
3
<PAGE> 6
ROY E. POSNER, age 65; Retired. Director of the Company since September 30,
1997. Chief Financial Officer and Senior Vice President of Loews Corporation,
the parent corporation of CNA Financial Corporation ("CNAF"), from 1985 until
February 1997.
ADRIAN M. TOCKLIN, age 47; Director since September 30, 1997 and Chairman
of the Board from September 30, 1997, until March 3, 1998. President and Chief
Executive Officer of Tocklin & Associates from January 1999 to present.
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 Continental Insurance Company and its property and casualty
affiliates ("CIC") since December 1974; Director of SONAT, Inc., and First
Insurance Company of Hawaii ("FICOH"), and Trustee of George Washington
University.
ROBERT T. VAN GIESON, age 54; Director of the Company and Chairman of the
Board since March 3, 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 FICOH, 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 Continental Casualty
Company ("CCC") and its property and casualty affiliates 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 58; Vice President and Chief Underwriting Officer,
Contract Surety of the Company since September 30, 1997, and Senior Vice
President of the Company since March 2, 1999. 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 40; 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. Midwest Regional Bond Manager, AIG
from August 1988 to April 1992. Various positions within the bond division of
the St. Paul Companies from June 1980 to August 1988.
MELITA H. GEOGHEGAN, age 52; 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 60; 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, and Treasurer of the Company since March 2,
1999. 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 52; 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 50; Vice President, Business Development, Assistant
Secretary of the Company from March 1998 to May 1998, Secretary of the Company
since May 1998, and General Counsel of the Company since March 2, 1999.
Practicing attorney from 1988 until l998 with Querrey & Harrow, Ltd.; from 1979
until
4
<PAGE> 7
1988 with O'Halloran, Lively & Walker; and from 1973 until 1978 with Bell, Boyd,
Lloyd, Haddad & Burns (now known as Bell, Boyd, & Lloyd).
JOHN L. MCREYNOLDS, JR., age 58; Vice President of the Company since March
1998. 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 52; Vice President of the Company since September 30,
1997, and Senior Vice President of the Company since March 2, 1999. 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 39; Vice President, Chief Operations Officer of the
Company since September 30, 1997, and Senior Vice President of the Company since
March 2, 1999. Secretary of the Company from September 30, 1997 to May 1998 and
Assistant Secretary since May 1998. 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, and Senior Vice President
of the Company since March 2, 1999. 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 met three times during
1998. 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 1998, the Audit Committee held nine meetings.
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 the Company and its affiliates, as well as any disputes
that may arise thereunder.
The Company also has a Compensation Committee which consists of Messrs.
Balzer, Britt and J. Kirby (Chair). During 1998, the Compensation Committee held
three meetings. The 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 Ms. Tocklin
(Chair) and Messrs. J. Kirby, Posner, Van Gieson and Vonnahme. During 1998, the
Investment Committee held five
5
<PAGE> 8
meetings. The Investment Committee establishes investment policies and oversees
the management of the Company's investment portfolios.
During 1998, four meetings of the Board were held. All then serving
directors were present for all meetings, other than one then director, David T.
Cumming, was not in attendance for one of the meetings.
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 1998: 1) Stephen T. Pate did not file a Form 4 due
for November 1998 but, instead, on February 10, 1999, filed a Form 5 which
reported the purchase of 1,000 shares for his individual retirement account, and
2) Dan L. Kirby and Joe P. Kirby each failed to file a Form 4 for October 1998
but instead filed them on or about March 5, 1999, for 20,137 shares and 5,125
shares, respectively, given as charitable donations.
EXECUTIVE COMPENSATION
The following table shows information with respect to the annual
compensation (including option grants) for services rendered to the Company (or
its predecessors) for the years ended December 31, 1998 and 1997 by the chief
executive officer and those persons who were, at December 31, 1998, 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 years prior to 1997 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.............. 1998 336,538 163,200 -- 31,300 9,421(13)
President and Chief
Executive 1997 264,519 114,700(2) 13,646(3) 30,000 27,461(4)
Officer of the Company
Stephen T. Pate............... 1998 272,596 50,000 -- 20,200 9,715(13)
President and Chief
Operating 1997 262,500 312,500(5) 5,970(6) 20,000 5,083(7)
Officer of Western Surety
Company
Robert E. Ayo................. 1998 232,692 70,000 -- 17,300 10,042(13)
Vice President and Chief 1997 165,384 99,100(2) 326(8) 20,000 13,296(9)
Underwriting Officer,
Contract Surety of the
Company
Dan L. Kirby.................. 1998 207,692 18,800 -- 11,500 9,338(13)
Vice President, Legislative 1997 239,807 125,000 444(10) 15,000 524,756(11)
Affairs of the Company
John L. McReynolds............ 1998 148,269 60,000 -- 11,500 9,064(13)
President and Chief
Operating 1997 94,265 65,660(5) -- 2,500 10,489(12)
Officer of Universal
Surety of America
</TABLE>
- ---------------
(1) 1997 information 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. Kirby, McReynolds and
Pate, respectively.
6
<PAGE> 9
(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, $922 of
CCC paid contributions on a life insurance policy owned by him and a $1,036
CCC paid retirement gift.
(5) Includes transaction and retention bonuses paid by Capsure of $312,500 for
Mr. Pate and $65,660 for Mr. McReynolds.
(6) Includes $384 of reimbursements of health club dues and $5,586 for Company
paid country club membership dues.
(7) Includes $4,800 for 401(k) plan Company matching contributions and $283
paid contributions on a life insurance policy.
(8) For CCC reimbursement of health club dues.
(9) 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,
$2,350 of paid contributions on a life insurance policy owned by him and a
$1,036 CCC paid retirement gift.
(10) For reimbursements of health club dues.
(11) Includes $519,757 in connection with the exercise of Capsure stock options,
$4,800 for 401(k) plan company matching contributions and $199 paid
contributions on a life insurance policy.
(12) Includes $9,500 of 401(k) plan Company matching contributions and $989
imputed interest on employee stock option loan.
(13) Includes $6,720 for 401(k) plan Company matching contribution, $1,721 for
profit sharing contributions and paid contributions on life insurance
policy for each individual.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------- VALUE AT ASSUMED
NUMBER % OF TOTAL ANNUAL RATES OF STOCK
OF SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE OR FOR OPTION TERM
OPTIONS DURING FISCAL BASE PRICE EXPIRATION ---------------------
NAME GRANTED(#)(1) YEAR(2) ($/SH) DATE 5% ($) 10% ($)
---- ------------- ------------- ----------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Mark C. Vonnahme......... 31,300 20.0% 15.50 03/02/08 305,175 773,736
Robert E. Ayo............ 17,300 11.0% 15.50 03/02/08 168,675 427,656
Dan L. Kirby............. 11,500 8.0% 15.50 03/02/08 112,125 284,280
John L. McReynolds....... 11,500 8.0% 15.50 03/02/08 112,125 284,280
Stephen T. Pate.......... 20,200 13.0% 15.50 03/02/08 196,950 499,344
</TABLE>
- ---------------
(1) One-half of the options granted during 1998 vest upon the achievement of
certain performance measures; the remaining one-half vest ratably over a
three year period.
(2) 153,200 non-qualified stock options were granted to officers of the Company
on March 2, 1998.
7
<PAGE> 10
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 0/61,300 0/7,825
Robert E. Ayo................ 0 0 0/37,300 0/4,325
Dan L. Kirby................. 0 0 15,000/26,500 173,750/2,875
John L. McReynolds........... 0 0 10,000/14,000 128,750/2,875
Stephen T. Pate.............. 0 0 15,000/40,200 191,250/5,050
</TABLE>
- ---------------
(1) Exercisable options for Messrs. D. Kirby, McReynolds 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.
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. The Company's Board of Directors and the Company's
shareholders have previously approved the CNA Surety Corporation Non-Employee
Directors Deferred Compensation Plan (the "Directors Stock Plan"). 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.
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 long-term
incentive compensation program, and stock options. The agreement also provides a
severance payment if the Company terminates his employment: without cause;
within 90 days of a material change in certain of his positions, duties, and
responsibilities or in the value of various benefits being provided to him by
the Company; within one year following the date upon which Continental Casualty
Company and any of its affiliates no longer are able collectively to elect a
majority of the Company's Board of Directors; or because of non-renewal of the
employment agreement. Any such payment is to consist of payment of two years of
his then annual base salary, continuation in all of the Company's health benefit
plans for up to two years, receipt of amounts in which he is then vested or
otherwise entitled to receive pursuant to any plan maintained by the Company,
plus certain bonuses and long-term incentive compensation awards held by him at
the date of termination. 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.
8
<PAGE> 11
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee are Messrs. Balzer,
Britt and J. Kirby.
Mr. J. Kirby is a director of the Company and was both a former officer and
a director 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.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
As was previously reported by the Committee in the March 1998 Proxy
Statement, 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 individuals and the Company's shareholders and
to assist in the retention of such officers. The level of responsibility was
used in determining the number of options granted.
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
Philip H. Britt
Joe P. Kirby
9
<PAGE> 12
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, 1998 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.
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
CNA SURETY PROPERTY CASUALTY
CORPORATION S&P 500 INDEX INSURANCE
----------- ------------- -----------------
<S> <C> <C> <C>
'10/1/97' 100.00 100.00 100.00
'12/31/97' 102.92 102.87 108.05
'3/31/98' 106.25 116.31 111.57
'6/30/98' 98.33 119.69 112.35
'9/30/98' 96.67 107.36 94.76
'12/31/98 105.00 129.76 98.88
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
10/1/97 12/31/97 3/31/98 6/30/98 9/30/98 12/31/98
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
CNA SURETY CORPORATION 100.00 102.92 106.25 98.33 96.67 105.00
- -----------------------------------------------------------------------------------------------------------------
S&P 500 INDEX 100.00 102.87 116.31 119.69 107.36 129.76
- -----------------------------------------------------------------------------------------------------------------
PROPERTY CASUALTY INSURANCE 100.00 108.05 111.57 112.35 94.76 98.88
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 5, 1999, 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............. 27,096,347 61.5%
CNA Plaza
Chicago, IL 60685
Samuel R. Shapiro, Shapiro Capital Management
Company, Inc.,........................................ 3,453,475(3) 7.8%
The Kleidoscope Fund, L.P.
3060 Peachtree Road, N.W
Atlanta, GA 30305(2)
</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) Shapiro Capital Management Company, Inc. ("Shapiro Capital") is a Georgia
corporation and an investment adviser under the Investment Advisers Act of
1940. One or more of Shapiro Capital's advisory clients is the legal owner
of the Company's Common Stock. Pursuant to the investment advisory
agreements with its clients, Shapiro Capital, has the authority to direct
the investments of its advisory
10
<PAGE> 13
clients, and consequently to authorize the disposition of the Company's
Common Stock. Mr. Shapiro is the president, a director, and majority
shareholder of Shapiro Capital and may be deemed to be an indirect
beneficial owner of the shares of the Company's Common Stock owned by
Shapiro Capital, but he disclaims such ownership of these shares. The
Kleidoscope Fund, L.P. is a Georgia limited partnership.
(3) Includes 101,800 shares which are owned by Kleidoscope Fund L.P.
SECURITY OWNERSHIP OF MANAGEMENT
The following information is furnished as of March 5, 1999, 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 DEFERRED EXERCISE OF PERCENT OF
BENEFICIAL OWNER COMMON STOCK STOCK UNITS(1) STOCK OPTIONS(2) TOTAL(3) CLASS
---------------- ------------ -------------- ---------------- -------- ----------
<S> <C> <C> <C> <C> <C>
Giorgio Balzer................. 0 0 0 0 *
Philip H. Britt................ 3,000 1,860 0 4,860 *
Rod F. Dammeyer................ 0 1,860 0 1,860 *
Edward Dunlop.................. 0 202 0 202 *
Melvin Gray.................... 1,000(4) 1,860 0 2,860 *
Joe P. Kirby................... 56,785 1,860 15,000 73,645 *
William C. Pate................ 0 565 0 565 *
Roy E. Posner.................. 250 1,295 0 1,545 *
Adrian M. Tocklin.............. 1,000 0 0 1,000 *
Robert T. Van Gieson........... 300 0 0 300 *
Mark C. Vonnahme............... 6,100(5) 0 20,867 26,967 *
Robert E. Ayo.................. 1,000 0 11,533 12,533 *
Dan L. Kirby................... 43,115 0 22,667 65,782 *
John L. McReynolds............. 29,194 0 17,667 46,861 *
Stephen T. Pate................ 3,800 0 28,467 32,267 *
All directors and executive
officers as a group (22
persons) including the
above-named persons.......... 160,224 9,502 157,551 327,276 0.7%
</TABLE>
- ---------------
* Less than 1%
(1) In January 1998, the Company established the CNA Surety Corporation
Non-Employee Directors' Deferred Compensation Plan. Under this 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 will be deemed
vested in Common Stock Units equal to the deferred fees divided by the fair
market value of CNA Surety common stock as of each quarterly meeting.
(2) 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.
(3) 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.
(4) Shares are held in trust in Mr. Gray's name.
(5) Includes 1,000 shares owned jointly by Mr. Vonnahme and his wife with whom
he shares voting and investment power.
As reported to the Company, as of January 11, 1999, none of the directors
and executive officers owned CNAF Common Stock or Loews Corporation Common
Stock. Loews Corporation owns approximately 85% of the outstanding common stock
of CNAF.
11
<PAGE> 14
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 combined surety operations of CCC and CIC ("CCC
Surety Operations") reserves at the 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, provided for the initial transfer of the CCC
Surety Operations to the 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 the insurance subsidiaries
with the authority to perform various administrative, management, underwriting
and claim functions in order to conduct the business of the CCC Surety
Operations and to be reimbursed by CCC for services rendered. In consideration
for providing the foregoing services, CCC has agreed to pay the insurance
subsidiaries a quarterly fee of $50,000. There was no amount due to the CNA
Surety insurance subsidiaries as of December 31, 1998.
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 its 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, $100.8 million for the year ended
December 31, 1998 and $21.2 million during the period from September 30, 1997
(date of inception) through December 31, 1997. As of December 31, 1998 and 1997,
CNA Surety had a reinsurance receivable balance from CCC and CIC of $47.2
million and $47.9 million, respectively. 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, 1998. 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 CNA Surety insurance subsidiaries have paid CCC all
required annual premiums. There was no amount due to the CNA Surety insurance
subsidiaries from CCC under the Stop Loss Contract as of December 31, 1998.
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
12
<PAGE> 15
subsidiaries by third party reinsurers, which is in turn in excess of the $5
million of coverage per principal to be retained by the CNA Surety insurance
subsidiaries. Subsequent to the Merger Date, the Company entered into a second
excess of loss contract with CCC ("Second Excess of Loss Contract"). The Second
Excess of Loss Contract provides additional coverage for principal losses that
exceed the foregoing coverage of $75 million per principal provided by the
Excess of Loss Contract, or aggregate losses per principal in excess of $135
million. The Excess of Loss Contracts collectively provide coverage for losses
discovered on surety bonds in force as of the Merger Date and for losses
discovered on new and renewal business written, renewed or assumed during the
term of the Excess of Loss Contracts. 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 CNA Surety insurance subsidiaries. In consideration for
the reinsurance coverage provided by the Excess of Loss Contracts, the insurance
subsidiaries 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 and $5,000 per quarter under the Excess of Loss Contract and
Second Excess of Loss Contract, respectively. The CNA Surety insurance
subsidiaries paid $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. CNA Surety insurance subsidiaries paid the remaining
$20,000 in premium for 1998 for Excess of Loss Contract and the $20,000 in
minimum quarterly premiums for the Second Excess of Loss Contract during the
year ended December 31, 1998. There were no amounts due to CCC under the Excess
of Loss Contract and Second Excess of Loss Contract as of December 31, 1998.
Both Excess of Loss Contracts commenced immediately following the Merger Date
and continue for a period 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 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. The
Company was charged $7.5 million and $2.5 million for the year ended December
31, 1998 and the period from September 30, 1997 to December 31, 1997,
respectively, for rents and services provided under the agreement. In addition,
the Company was charged $2.2 million for direct costs incurred by CCC on the
Company's behalf during 1998. The Company paid CCC $9.5 million and $0.8 million
which was reflected in other liabilities in the Company's Consolidated Balance
Sheet at December 31, 1998.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(PROPOSAL 2)
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 1999 fiscal year. Deloitte & Touche LLP has
audited the Company's financial statements as of and for the three months ended
December 31, 1997, and as of and for the year ended December 31, 1998, as well
as the financial statements of the CCC Surety Operations as of and 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.
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 Company's Proxy Agents to vote at the Annual Meeting 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.
13
<PAGE> 16
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 2000 ANNUAL MEETING
Under the rules of the SEC, the Company is required to disclose the
deadline for submitting shareholder proposals for inclusion in the Company's
proxy statement and form of proxy for the Company's next annual meeting,
calculated in the manner provided by the rule of the SEC and the date after
which notice of a proposal submitted outside the processes of the rule of the
SEC is considered untimely. Under the calculation provided by the rule of the
SEC, a proposal submitted by a shareholder for the 2000 Annual Meeting of
Shareholders of the Company must be received by the Secretary of the Company,
CNA Plaza, Chicago, Illinois 60685, by December 1, 1999, in order to be eligible
to be included in the Company's proxy statement for that meeting. Under the
Company's By-Laws, to be timely, a shareholder's notice of a shareholder
proposal must be delivered to or and received at the principal executive offices
of the Company, not less than fifty days nor more than seventy-five days prior
to the meeting; provided, however, that in the event that less than sixty-five
days' notice or prior public disclosure of the date of the meeting is given or
made to shareholders, notice by the shareholder to be timely must be so received
not later than the close of business on the fifteenth day following the day on
which such notice of the date of the annual meeting was mailed or such public
disclosure was made.
CONCLUSION
The Company knows of no business which will be presented at the Annual
Meeting other than the election of Directors to the Board, 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
PAUL T. LIVELY
Secretary
14
<PAGE> 17
NOTES
<PAGE> 18
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 19
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 20
CNA SURETY LOGO
SUR-PS-99
<PAGE> 21
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 11, 1999
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,
Forty-fourth South Conference Center, Chicago, Il 60685 on Tuesday, May 11,
1999, at 9:00 a.m. CDT.
The Board of Directors has fixed the close of business on March 15,
1999, 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> 22
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
[1686-CNA SURETY CORPORATION] [FILE NAME: CNA40A.ELX] [VERSION-3] [3/10/99]
CNA40A DETACH HERE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
[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.
<S> <C> <C> <C> <C> <C> <C>
1. Election of Directors:
Nominees: Giorgio Balzer, Philip H. Britt, Rod F. Dammeyer, FOR AGAINST ABSTAIN
Edward Dunlop, Melvin Gray, Joe P. Kirby, William C. Pate, 2. To ratify the Board of Directors: / / / / / /
Roy E. Posner, Adrian M. Tocklin, Robert T. Van Gleson, appointment of the Company's
Mark G. Vonnahme Independent auditors, Deloitte &
Touche LLP for fiscal year 1999.
/ / FOR / / WITHHELD
ALL FROM ALL
NOMINEES NOMINEES
In their discretion, the proxies are authorized to vote
Upon such other business as may properly come before the
meeting.
/ /
---------------------------------------
For all nominees except as noted above
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
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 hereon. Executors,
Administrators, Trustees, etc. should so indicate when
signing. Joint owners should each sign.
Signature: Date: Signature: Date:
------------------- ------------------------ ---------------------------------- ----------------
</TABLE>
