<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 16, 2000
---------------------
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 the Company's business
offices located at CNA Plaza, 13-South, 333 S. Wabash, Chicago, IL 60685, on
Tuesday, May 16, 2000, 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 Employee Stock Purchase Plan;
3. To ratify the Board of Directors' appointment of the Company's
independent auditors, Deloitte & Touche LLP, for fiscal year 2000; 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 20, 2000,
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 27, 2000
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 27, 2000, 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 the Company's
business offices located at CNA Plaza, 13-South, 333 S. Wabash, Chicago,
Illinois 60685, at 9:00 A.M. CDT, on Tuesday, May 16, 2000, 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 approve the CNA Surety Corporation Employee Stock Purchase Plan;
(iii) To ratify the Board of Directors' appointment of the Company's
independent auditors, Deloitte & Touche LLP, for fiscal year 2000; 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, 2000.
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.
1999 ANNUAL REPORTS
Shareholders are concurrently being furnished with a copy of the Company's
1999 Annual Report to Shareholders which contains its audited financial
statements at December 31, 1999. Additional copies of the Company's Annual
Report and Form 10-K for the year ended December 31, 1999, 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 20, 2000 (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 42,945,960 shares of
the Company's Common Stock, $.01 par value, per share, 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 Employee Stock Purchase Plan, (iii) for ratification
of Deloitte & Touche LLP as the Company's Independent Auditors for fiscal year
2000; 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 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
Thomas F. Taylor
Adrian M. Tocklin
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 60; 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. and of Jones & Babson, Inc.
PHILIP H. BRITT, age 53; Director of the Company since March 3, 1998.
Senior Vice President, Insurance Industry Division of Bank One, NA (formerly
First Chicago NBD) since April 1988; various other positions with First Chicago
NBD and its predecessor from 1982 through April 1988. Bank One, NA participates
as a lender in the Company's unsecured revolving credit facility. Member of the
Association of Insurance and Financial Analysts.
ROD F. DAMMEYER, age 59; 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 Allied Riser Communications Corporation, ANTEC Corporation, GATX
Corporation, Groupo Azucarero Mexico, IMC Global Inc., Matria Healthcare, Inc.,
Stericycle, Inc., TeleTech Holdings, Inc., and Transmedia Network, Inc., and
Trustee of the Van Kampen Closed End Mutual Funds.
EDWARD DUNLOP, age 59; 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 67; Director of the Company since September 30, 1997.
Chairman and Chief Executive Officer since 1982 and various other positions of
the Graycor, Inc. Companies since 1962. Member of Board of Advisors of the
Construction Industry Institute.
JOE P. KIRBY, age 46; 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 36; Director of the Company since August 18, 1998.
Director of Merger & Acquisitions of EGI since January 1994. Director of
Danielson Holding Corporation.
3
<PAGE> 6
ROY E. POSNER, age 66; 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 1973 until
February 1997.
THOMAS F. TAYLOR, age 48; Director of the Company and Chairman of its Board
of Directors since June 17, 1999. President and Chief Operating Officer of CNA
Specialty Operations since February, 1998. Chief Operating Officer of CNA
Financial Insurance from 1995 to February, 1998. Director of R.V.I. Guaranty
Co., Ltd. and R.V.I. America Corporation.
ADRIAN M. TOCKLIN, age 48; 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 Continental Insurance Company and its property
and casualty affiliates ("CIC") and all of its insurance subsidiaries from June
1994 until May 1995; Executive Vice President of Continental Insurance Company
from September 1992 until June 1994; various other positions with CIC since
December 1974; Director of El Paso Energy Corp. and Trustee of George Washington
University.
MARK C. VONNAHME, age 50; 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 59; Senior Vice President and Chief Underwriting
Officer, Contract Surety of the Company since March 2, 1999, and President of
Universal Surety of America since June 30, 1999. Vice President and Chief
Underwriting Officer, Contract Surety of the Company from September 30, 1997,
until March 2, 1999. Vice President and Chief Underwriting Officer, Contract
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 41; 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 53; 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 61; 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 37; 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 53; 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 51; Vice President, Business Development since March 3,
1998, Secretary of the Company since May 1998, and General Counsel of the
Company since March 2, 1999; Assistant Secretary of the Company from March 1998
to May 1998. Practicing attorney from 1988 until l998 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
STEPHEN T. PATE, age 53; Senior Vice President of the Company since March
2, 1999, and Vice President of the Company from September 30, 1997, until 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.
DAVID F. PAUL, age 57; Vice President, International of the Company since
April 1999. Marketing Officer for International Surety with Willis from 1993 to
April 1999; with Seaboard Surety Company from 1978 to 1993, holding various
positions including head of its Canadian subsidiary and head of contract surety;
previously holding manager positions with SAFECO Insurance Company and with Crum
and Forester.
THOMAS A. POTTLE, age 40; Senior Vice President of the Company since March
2, 1999, and Chief Operations Officer of the Company since September 30, 1997.
Vice President of the Company from September 30, 1997, until 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 CCC
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 43; Senior Vice President and Chief Underwriting
Officer, Commercial Surety of the Company since March 2, 1999. Vice President
and Chief Underwriting Officer, Commercial Surety of the Company from November
1997, until 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 Messrs. Posner,
Taylor, and Vonnahme. The Executive Committee met four times during 1999. 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. Britt,
Dammeyer, Dunlop, Gray and Posner (Chair). During 1999, the Audit Committee held
four meetings. The Board at its March 7, 2000 meeting adopted a Charter to
govern the Audit Committee. A copy of the Charter is included in the Appendix to
this Proxy Statement. As described in the Charter, the Audit Committee is
authorized and has the power to review (a) the financial reports and other
financial information provided by the Corporation to governmental entities and
the public; the Corporation's systems of internal controls regarding finance,
accounting, internal audit, legal compliance and ethics that the Corporation's
management and the Board have established; and the Corporation's auditing,
accounting and financial reporting processes generally, (b) the procedures of
the Corporation and its subsidiaries regarding the appointment and the review of
the independent public accountants, and the scope of and fees for their audits,
and (c) any and all related party agreements and arrangements between the
Corporation and its affiliates and any disputes that may arise thereunder.
The Company also has a Compensation Committee which consists of Messrs.
Balzer, Britt, Dunlop, Dammeyer, and J. Kirby (Chair). During 1999, the
Compensation Committee held six 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.
5
<PAGE> 8
The Company also has an Investment Committee which consists of Ms. Tocklin
(Chair) and Messrs. Gray, J. Kirby, Pate, Posner, Taylor, and Vonnahme. During
1999, the Investment Committee held five meetings. The Investment Committee
establishes investment policies and oversees the management of the Company's
investment portfolios.
During 1999, four meetings of the Board were held.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
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, the Company believes that for 1999 all
reports required by Section 16(a) of the Exchange Act have been timely filed.
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, 1999 by the chief executive
officer and those persons who were, at December 31, 1999, the four other most
highly compensated executive officers of the Company.
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.............. 1999 350,000 275,000 -- 92,100 16,763(13)
President and Chief
Executive 1998 336,538 163,200 -- 31,300 9,421(12)
Officer of the Company 1997 264,519 114,700(2) 13,646(3) 30,000 27,461(4)
Stephen T. Pate............... 1999 262,500 82,700 -- 42,400 16,403(13)
Senior Vice President 1998 272,596 50,000 -- 20,200 9,715(12)
of the Company 1997 262,500 312,500(5) 5,970(6) 20,000 5,083(7)
Robert E. Ayo................. 1999 225,000 125,000 -- 36,400 16,733(13)
Senior Vice President of 1998 232,692 70,000 -- 17,300 10,042(12)
the Company 1997 165,384 99,100(2) 326(8) 20,000 13,296(9)
Dan L. Kirby.................. 1999 200,000 60,000 -- 25,100 16,142(13)
Vice President of the
Company 1998 207,692 18,800 -- 11,500 9,338(12)
1997 239,807 125,000 444(10) 15,000 524,756(11)
Michael A. Dougherty.......... 1999 169,000 75,600 -- 21,150 11,721(13)
Vice President of the
Company 1998 168,750 8,900 -- 9,400 3,652(12)
1997(14) 15,625 15,000 -- 15,000 17
</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, 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, $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.
6
<PAGE> 9
(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 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 reimbursement 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 $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. Except for Mr. Dougherty, whose 401(k) Plan
Company matching contribution was $3,413.
(13) Includes $6,720 for 401(k) plan Company matching contribution, $8,800 for
Profit Sharing contributions and paid contributions on life insurance
policy for each individual. Except for Mr. Dougherty whose Profit Sharing
contribution was $4,813.
(14) Partial year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------- VALUE AT ASSUMED
NUMBER % OF TOTAL ANNUAL RATES OF STOCK
OF SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE OR FOR OPTION TERM
OPTIONS DURING FISCAL BASE PRICE EXPIRATION ---------------------
NAME GRANTED(#) YEAR ($/SH) DATE 5% ($) 10% ($)
---- ------------- ------------- ----------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Mark C. Vonnahme......... 35,000 6.1% 11.06 03/02/09 243,863 617,313
57,100 10.0% 11.00 10/11/09 395,132 1,000,392
Robert E. Ayo............ 18,000 3.2% 11.06 03/02/09 125,415 317,475
18,400 3.2% 11.00 10/11/09 127,328 322,368
Michael A. Dougherty..... 10,150 1.8% 11.06 03/02/09 70,720 179,021
11,000 1.9% 11.00 10/11/09 76,120 192,720
Dan L. Kirby............. 12,000 2.1% 11.06 03/02/09 83,610 211,650
13,100 2.3% 11.00 10/11/09 90,652 229,512
Stephen T. Pate.......... 21,000 3.7% 11.06 03/02/09 146,318 370,388
21,400 3.8% 11.00 10/11/09 148,088 374,928
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES ACQUIRED VALUE OPTIONS AT FY-END(#) FY-END($)
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- --------------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Mark C. Vonnahme...... 0 0 20,867/132,533 0/182,013
Robert E. Ayo......... 0 0 11,534/62,166 0/71,675
Michael A.
Dougherty........... 0 0 6,267/39,283 0/41,666
Dan L. Kirby.......... 0 0 22,667/43,933 132,500/49,450
Stephen T. Pate....... 0 0 28,467/69,133 150,000/83,488
</TABLE>
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
7
<PAGE> 10
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 has entered into employment agreements with Mr. Mark C.
Vonnahme and with certain other executive officers. The agreement with Mr.
Vonnahme runs from January 1, 2000 through December 31, 2001, 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 Company had
previously entered into an employment agreement with Mr. Vonnahme on October 3,
1997, which ran through December 31, 1999. The current agreement provides for a
minimum annual base salary of $375,000 for the first year and $400,000 for the
second year, an annual incentive bonus contingent on achievement of performance
criteria approved by the Compensation Committee, a long-term incentive
compensation program which includes participation in the Company's stock option
plan, and participation in Company benefit programs. In the event of Mr.
Vonnahme's termination because of voluntary resignation, for cause, or because
of death or disability, the agreement further provides for pro-rated salary and
benefits through the date of termination. The agreement also provides for a
severance benefit if his employment is terminated without cause by the Company,
with cause by Mr. Vonnahme for good reason, for non-renewal of the agreement, or
because of a change in control of the Company. A change in control of the
Company is deemed to occur because of any of the following events: (i) CCC and
any affiliates no longer are able collectively to elect a majority of the
Company's Board, (ii) a sale of all or substantially all of the Company's
assets, or (iii) a merger, consolidation or other business combination between
the Company and an unaffiliated third party is consummated in which the Company
is not the surviving corporation (collectively a "Change in Control"). The
severance benefit is to consist of payment of two years of Mr. Vonnahme's 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 payment
of certain bonuses and long term compensation awards held by him at the date of
termination. Additionally, if the termination occurs because of a Change in
Control, any unvested stock options held by him shall immediately vest and the
exercise period for such options shall extend for two years from the date of the
termination. In the event of any type of termination, the agreement additionally
requires the Company to pay Mr. Vonnahme an amount equal to any and all taxes
payable by him pursuant to any or all of Sections 280G and 4999 of the Internal
Revenue Code of 1986, as amended, and any similar federal, state, local, or
other law relative to the termination compensation. As part of the agreement,
Mr. Vonnahme agreed to certain confidentiality, non-competition, and
non-solicitation provisions.
The Company also entered into two-year employment agreements with Messrs.
Ayo, Dougherty, Heneghan, Pate, and Paul as executive officers, commencing
January 1, 2000, and ending December 31, 2001, with automatic one-year renewals
unless the Company or the officer provides the other party with thirty (30) days
written notice of intent not to renew. These agreements provide for an annual
base salary of $250,000 for Mr. Ayo, $180,000 for Mr. Dougherty, $180,000 for
Mr. Heneghan, $275,000 for Mr. Pate, and $180,000 for Mr. Paul which amounts are
subject to either the Compensation Committee's or the Board of Directors' annual
review, and provide for additional compensation in the form of an annual
incentive bonus contingent on achievement of performance criteria approved by
the Compensation Committee or, as to Messrs. Heneghan and Paul, by the Company's
President, a long-term incentive compensation program which includes
participation in the Company's stock option plan, and participation in Company
benefit programs. The agreements also provide for a severance benefit if the
officer's employment is terminated without cause by the Company, with cause by
the officer for good reason, for non-renewal of the agreement, or because of a
Change in Control. The severance benefit is to consist of payment of two years
of the officer's then annual base salary, continuation in all of the Company's
health benefit plans for up to two years, receipt of amounts in which the
officer is then vested or otherwise entitled to receive pursuant to any plan
maintained by the
8
<PAGE> 11
Company, plus payment of certain bonuses and long term compensation awards held
by the officer at the date of termination. Additionally, if the termination
occurs because of a Change in Control, any unvested stock options held by the
officer shall immediately vest and the exercise period for such options shall
extend for two years from the date of the termination. As part of the
agreements, these executive officers agreed to certain confidentiality,
non-competition, and non-solicitation provisions.
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
The members of the Company's Compensation Committee are Messrs. Balzer,
Britt, Dammeyer, Dunlop, 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 1999 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, annual bonuses, and long term incentives 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.
Effective January 1, 2000, the Company entered into employment agreements
with Mark C. Vonnahme and Robert E. Ayo, Michael A. Dougherty, John S. Heneghan,
Stephen T. Pate, and David F. Paul. See "Employment Contracts" for a description
of the agreements.
With respect to Mr. Vonnahme's compensation as reported for the year ended
December 31, 1999, in addition to base compensation, he was paid an annual
incentive bonus for performance for the year ended December 31, 1998, targeted
at fifty percent of his 1998 base salary, and was granted stock options as part
of the Company's Long Term Incentive Program which were capable of vesting in
1999.
To assess Mr. Vonnahme's entitlement to receive the annual incentive bonus
for 1998 performance, the Committee set corporate shared goals and individual
goals for him. The former goals measured performance of the enterprise-wide (1)
combination of loss and expense ratios and (2) gross written premium production.
The latter goals included development and implementation of growth and capital
strategies which are intended to yield targeted ranges of return on equity. Mr.
Vonnahme achieved the goals established for 1998 and in 1999 was paid an
incentive bonus of $275,000.
Additionally, on March 2, 1998, Mr. Vonnahme was granted 31,300 stock
options, representing an option value, at the time granted, equivalent to
approximately fifty percent of his 1998 base salary compensation. Of these
options, 15,650 are to vest in equal amounts over a three year period commencing
March 2, 1998 (the "time vested options"), and 15,650 are to vest if the
Company's annual return on equity achieved 16.2 percent by December 31, 2000
(the "performance vested options"). In 1999, the Committee determined that the
required annual return on equity had been achieved. Accordingly, during 1999,
Mr. Vonnahme became vested with 5,217 time vested options and 15,650 performance
vested options.
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
Rod F. Dammeyer
Edward Dunlop
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, 1999 with a broad equity market index, the S&P 500, and a published
industry index, the S&P Property and Casualty Insurance Index, as required by
the rules of the SEC.
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
10/1/97 12/31/97 3/31/98 6/30/98 9/30/98 12/31/98 3/31/99 6/30/99 9/30/99
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
CNA Surety Corporation 100.00 102.92 106.25 98.33 96.67 105.00 82.50 102.08 87.50
- ----------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index 100.00 102.87 116.31 119.69 107.36 129.76 136.01 144.91 135.41
- ----------------------------------------------------------------------------------------------------------------------------------
Property-Casualty Insurance 100.00 108.05 111.57 112.35 94.76 98.88 81.14 85.71 70.39
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------ ------------
12/31/99
<S> <C> <C>
- ------------------------------------------------------
CNA Surety Corporation 86.67
- -----------------------------------------------------------
S&P 500 Index 155.10
- ----------------------------------------------------------------
Property-Casualty Insurance 72.33
- ---------------------------------------------------------------------
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 10, 2000, 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 63.0%
CNA Plaza
Chicago, IL 60685
Samuel R. Shapiro, Shapiro Capital Management
Company, Inc.,........................................ 4,130,232(3) 9.6%
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
10
<PAGE> 13
agreements with its clients, Shapiro Capital. has the authority to direct
the investments of its advisory 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) As of January 15, 2000, includes 121,800 shares which are owned by
Kleidoscope Fund L.P.
SECURITY OWNERSHIP OF MANAGEMENT
The following information is furnished as of March 10, 2000 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 3,359 0 6,359 *
Rod F. Dammeyer................ 0 3,359 0 3,359 *
Edward Dunlop.................. 0 498 0 498 *
Melvin Gray.................... 1,000(4) 3,359 0 4,359 *
Joe P. Kirby................... 44,209 3,359 15,000 62,568 *
William C. Pate................ 0 2,033 0 2,033 *
Roy E. Posner.................. 250 1,326 0 1,576 *
Thomas F. Taylor(5)............ 10,000 0 0 10,000 *
Adrian M. Tocklin.............. 1,000 0 0 1,000 *
Mark C. Vonnahme............... 8,500(6) -- 37,752 46,252 *
Robert E. Ayo.................. 1,000 -- 20,417 21,417 *
Michael A. Dougherty........... 400 -- 11,218 11,618 *
Dan L. Kirby................... 11,674 -- 28,584 40,258 *
Stephen T. Pate................ 4,800 -- 38,834 43,634 *
All directors and executive
officers as a group (22
persons) including the
above-named persons.......... 101,451 17,291 215,123 333,865 0.8%
</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 the Company's 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) Mr. Taylor owns 164,259 shares of CNA Financial Corporation common stock and
200 shares of Loews Corporation common stock.
(6) Includes 1,000 shares owned jointly by Mr. Vonnahme and his wife with whom
he shares voting and investment power.
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 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 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 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, 1999.
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 transfer to Western Surety all
surety business written or renewed by CCC and CIC after the Merger Date. CCC and
CIC 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,
$103.8 million for the year ended December 31, 1999, $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, 1999 and
1998, CNA Surety had a reinsurance receivable balance from CCC and CIC of $57.1
million and $47.2 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. CNA Surety had reinsurance payables to CCC and CIC of
$6.9 million and $1.4 million as of December 31, 1999 and 1998, respectively,
primarily related to reinsured losses.
Under the terms of the Quota Share Treaty, 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, 1999.
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 any 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 31,1999.
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
12
<PAGE> 15
Contract provides $75 million of coverage in excess of the $55 million of
coverage provided to the insurance 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 two 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
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.
There were no amounts due to CCC under the Excess of Loss Contract and Second
Excess of Loss Contract as of December 31, 1999. 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 $5.5 million, $7.5 million, and $2.5 million for the year
ended December 31, 1999 and 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 $3.0 million and $2.2 million
for direct costs incurred by CCC on the Company's behalf during 1999 and 1998,
respectively. The Company paid CCC $8.7 million and owed $0.6 million which was
reflected in other liabilities in the Company's Consolidated Balance Sheet at
December 31, 1999.
Western Surety has entered into two series of business transactions with
entities in which either or both CCC or affiliates of CCC have an interest. One
series involves four separate refundment guarantees for the benefit of wholly
owned subsidiaries of Hellespont Shipping Corporation ("Hellespont"). Hellespont
is 49 percent owned by Majestic Shipping Corporation which is a wholly owned
subsidiary of Loews Corporation ("Loews"). Loews owns approximately 86 percent
of the outstanding stock of CNA Financial Corporation ("CNAF"), CNAF owns
approximately 63 percent of CNA Surety, and CCC is a principal operating
subsidiary of CNAF. As one of several sureties participating in the surety
program for Samsung Heavy Industries Co., Ltd., Seoul, Korea ("Samsung"), CCC
has provided refundment guarantees for repayment of advance payments made by
Hellespont or its subsidiaries on four ship building contracts between Samsung
and Hellespont's subsidiaries should Samsung not perform the contracts. Loews is
also a subordinated beneficiary of the guarantees. These refundment guarantees
were transferred to Western Surety through the Quota Share Treaty and are
covered by the Excess of Loss Contracts provided by CCC. Each guarantee is in
the amount of $55.4 million, plus interest, and will terminate on acceptance of
the ships by their buyers. These acceptances are currently anticipated to be
made upon delivery of the ships now scheduled for December 2001, March 2002, May
2002, and September 2002, respectively. Premiums written on the first two
guarantees totaled $1.29 million in 1999 and on the second two guarantees
totaled $1.07 in 2000 to Western Surety, of which 28 percent was paid to CCC as
a ceding commission.
The second series involves five separate real estate residual value
insurance policies issued by R.V.I. America Insurance Company ("RVI -- America")
reinsured by Western Surety through the Quota Share Treaty. RVI America is a
wholly owned subsidiary of R.V.I. America Corporation which is a wholly owned
13
<PAGE> 16
subsidiary of R.V.I. Guaranty Company Ltd. of Bermuda ("RVI -- Bermuda").
RVI -- Bermuda is 50 percent owned by CCC. The transactions involve policies
with limits totaling approximately $11.5 million. CCC is reinsuring the full
extent of RVI -- America's exposure on the policies. Pursuant to the Quota Share
Treaty, Western Surety is, in turn, reinsuring all of CCC's exposures on the
policies. Subject to future review and approval of the South Dakota Division of
Insurance, Western Surety is then reinsuring all of its exposure on the policies
with RVI-Bermuda, a non-admitted reinsurer. The policy limits range from
approximately $1.66 million to $2.95 million, with an average policy limit of
approximately $2.31 million and total limits of all policies of $11.54 million.
Net premium amounts to be retained in 2000 relative to these reinsurance
transactions total approximately $519,300 as follows: RVI -- America, $51,930;
CCC, $130,800; Western Surety, $84,900; and RVI -- Bermuda, $251,600.
Finally, on March 20, 2000, CNAF announced a proposal by CCC to acquire all
of the outstanding shares of the Company's Common Stock not currently owned by
CCC and its affiliates through a negotiated cash tender offer at a price of
$13.00 per share. CCC and its affiliates own approximately 63% of the
outstanding shares of the Company. The Company's Board of Directors has
appointed a special committee of independent directors to review the proposal.
The review is not yet completed, and the Company is not currently in a position
to make any recommendation to its shareholders concerning the proposed tender
offer.
The tender offer for the outstanding shares of the Company's Common Stock
described in the preceding paragraph has not yet commenced. After the tender
offer commences, the Company will file a solicitation/recommendation statement
with the Securities and Exchange Commission. The Company's shareholders should
read the solicitation/recommendation statement when it becomes available because
it will contain important information about the Company's position regarding the
tender offer. The Company's shareholders can obtain the
solicitation/recommendation statement and other documents that are filed with
the Securities and Exchange Commission for free on the Securities and Exchange
Commission's web site at http://www.sec.gov. Upon written or oral request, the
Company will send shareholders the solicitation/recommendation statement (except
for exhibits) for free when it is available. The Company's shareholders can call
the Company at (312) 822-5841 or write to the Company at:
CNA Surety Corporation
CNA Plaza
Chicago, IL 60685
Attention: Ms. Ruth Jantz
APPROVAL OF THE CNA SURETY CORPORATION
EMPLOYEE STOCK PURCHASE PLAN (PROPOSAL 2)
The Company's Board of Directors has approved, subject to the approval of
the Company's shareholders, the CNA Surety Corporation Employee Stock Purchase
Plan (the "Plan"), to become effective July 1, 2000, and to be administered by
or on behalf of the Company. The purpose of the Plan is to provide an
opportunity for employees to acquire a proprietary interest in the Company and
thereby, to have an additional incentive to contribute to the prosperity of the
Company. The Plan permits eligible employees to purchase shares of the Company's
Common Stock through accumulated payroll deductions. It is the intent of the
Company to have the Plan qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code of 1986 (the "Code"); the Company
believes that the Plan is not subject to any provisions of the federal Employee
Retirement Income Security Act of 1974, as amended.
An employee is eligible to participate in the Plan if the employee is
regularly employed by the Company or its designated subsidiaries; does not own,
directly or indirectly, an aggregate of five percent or more of the total
combined voting power or value of all outstanding shares of all classes of stock
of the Company; is not customarily employed by the Company's subsidiaries for
less than 20 hours per week or five months per year; or is not a highly
compensated employee within the meaning of Code Section 414(g); or does not file
statements pursuant to Section 16 of the Securities Exchange Act of 1934.
Employees' participation is voluntarily. A Plan participant elects to have the
Company take after-tax deductions regularly from the participant's compensation
and place the deductions in an account to purchase the Company's Common Stock
14
<PAGE> 17
for the participant during a purchase period. The deductions are not to exceed
ten percent of a participant's compensation, and no further contributions by the
participant and no contributions by the Company to the participant's account are
permitted. The participant's accumulated contributions are then used to purchase
shares of the Company's Common Stock at the lower of a percentage not less than
85 percent of the fair market value of the Company's Common Stock on either the
first or the last day of the purchase period. The Company will pay all expenses
incurred in the administration of the Plan, but the participant is responsible
for any fees on a future sale of the participant's shares. The Company will pay
all expenses incurred in administering the Plan and will not be entitled to an
income tax deduction for the discount received by the participant on the
purchase price of the shares. The Plan will continue until June 30, 2010,
subject to earlier modification or termination of the Plan by the Board of
Directors. Adoption of the Plan requires the issuance of 2.2 million of the
Company's authorized 100 million shares of Common Stock. The number of shares
issued and outstanding will increase as shares are purchased by participants. As
noted earlier in this Statement, as of the Record Date, there were 42,945,960
shares of the Company's Common Stock issued and outstanding.
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 Plan. 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 if no instruction had been given or
indicated, for approval of the Plan.
THE BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE CNA SURETY
CORPORATION EMPLOYEE STOCK PURCHASE 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 EMPLOYEE STOCK PURCHASE 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 2000 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 years ended December 31, 1998 and 1999,
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.
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 2001 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
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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 2001 Annual Meeting of
Shareholders of the Company must be received by the Secretary of the Company,
CNA Plaza, Chicago, Illinois 60685, by November 27, 2000, 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 mailed and received at, the principal
executive offices of the Company, not less than fifty (50) days nor more than
seventy-five (75) days prior to the meeting; provided, however, that in the
event that less than sixty-five (65) 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, the approval of the
CNA Surety Corporation Employee Stock Purchase 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
PAUL T. LIVELY
Secretary
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APPENDIX TO PROXY STATEMENT
CNA SURETY CORPORATION
---------------------
AUDIT COMMITTEE
CHARTER
---------------------
I. COMMITTEE PURPOSES
The essential functions of the Audit Committee (the "Committee") in
assisting the Board of Directors in fulfilling its oversight responsibilities
are to review (a) the financial reports and other financial information provided
by the Corporation to governmental entities and the public; the Corporation's
systems of internal controls regarding finance, accounting, internal audit,
legal compliance and ethics that the Corporation's management and the Board have
established; and the Corporation's auditing, accounting and financial reporting
processes generally, (b) the procedures of the Corporation and its subsidiaries
regarding the appointment of the independent public accountants, and the scope
of and fees for their audits, and (c) any and all related party agreements and
arrangements between the Corporation and its affiliates and any disputes that
may arise thereunder. The Committee's primary duties and responsibilities are
to:
- Serve as an independent and objective party to monitor the Corporation's
financial reporting process and internal control system.
- Review and appraise the audit efforts of the Corporation's independent
accountants and internal auditors.
- Provide an open avenue of communication among the independent
accountants, the Corporation's financial and senior management, the
internal auditors, and the Board of Directors.
- Review and appraise the fairness of related party transactions.
II. COMPOSITION
The Committee shall be comprised of three or more directors as determined
by the Board, each of whom shall be an Independent Director, as described in
Section V of this Charter, and otherwise free from any relationship that, in the
opinion of the Board, would interfere with the exercise of his or her
independent judgement as a member of the Committee.
All members of the Committee shall have a working familiarity with basic
finance and accounting practices including the ability to read and understand
fundamental financial statements, including the balance sheet, income statement,
and statement of cash flows. Committee members may enhance their familiarity
with finance and accounting by completing a basic financial accounting course as
offered by college or university business school programs or an equivalent
program sponsored by the Corporation.
At least one member of the Committee shall have accounting or related
financial expertise. Financial expertise includes past employment experience in
finance, banking, or accounting; requisite professional certification in
accounting; or prior comparable experience, such as being or having been charged
with financial oversight responsibilities, which results in the member's
financial sophistication.
The members of the Committee shall be elected by the Board at the annual
organizational meeting of the Board or until their successors shall be duly
elected and qualified. The members of the Committee may designate a Chair by
majority vote of the full Committee membership.
III. MEETINGS
The Committee shall meet at least four times annually, or more frequently
as circumstances dictate. As part of its job to foster open communication, the
Committee should meet at least annually with management, the director of the
internal auditing department and the independent accountants in separate
executive sessions to discuss any matters that the Committee or each of these
groups believe should be discussed
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privately. In addition, the Committee or at least its Chair should meet with the
independent accountants and management quarterly to review the Corporation's
financials as described in Section IV.2, below.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Committee shall:
DOCUMENTS/REPORTS REVIEW
1. Review this Charter at least annually for adequacy and update its
provisions, as conditions dictate.
2. Review with the Corporation's financial management and the independent
accountants any regular report to the Securities and Exchange Commission,
containing any report on the Corporation's consolidated financial
statements, prior to its filing or prior to the release of earnings. The
Chair of the Committee may represent the entire Committee for purposes of
this review.
3. Review the reports to the Corporation's management prepared by the internal
auditors and management's response to such reports.
INDEPENDENT ACCOUNTANTS
4. Recommend to the Board on the nomination of the independent accountants for
the Corporation shareholders' approval, considering independence and
effectiveness, and approve the fees and other compensation to be paid to
the independent accountants. The Committee is to require the independent
accountants to submit to the Committee on a periodic basis a formal written
statement delineating all relationships between the independent accountant
and the Corporation. On an annual basis, the Committee is to review and
discuss with the independent accountants all relationships the accountants
have with the Corporation that might affect the independent accountants'
objectivity and independence. In so doing, the Committee will request from
the independent accountants their written affirmation that they are in fact
independent with respect to the Corporation. The Committee shall recommend
to the Board any action to take to ensure the independence of the
independent accountant. The Committee is to advise the independent
accountant that the independent accountant is ultimately accountable to the
Board and the Committee as representatives of the Corporation's
shareholders.
5. Review, evaluate, and report to the Board on the performance of the
independent accountants, and when circumstances warrant, any proposed
discharge of the independent accountants.
6. Periodically consult with the independent accountants and internal auditors
out of the presence of the Corporation's management about internal controls
and the completeness and accuracy of the financial statements.
FINANCIAL REPORTING PROCESS
7. In consultation with the independent accountants and the internal auditors,
review the integrity of the Corporation's financial reporting processes,
both internal and external. Such review shall include the Corporation's and
subsidiaries' insurance regulatory reporting processes and any other
similar processes regarding the distribution of financial information to
other governmental bodies or the public.
8. Consider the independent accountant's judgments about the quality and
appropriateness of the Corporation's accounting principles as applied in
its financial reporting.
9. Consider and approve, if appropriate, major changes to the Corporation's
auditing and accounting principles and practices as suggested by the
independent accountants, management, or the internal auditors.
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<PAGE> 21
PROCESS IMPROVEMENT
10. Establish regular and separate systems of reporting to the Committee by each
of management, the independent accountants and the internal auditors
regarding any significant judgments made in Corporation management's
preparation of the financial statements and the view of each as to
appropriateness of such judgments.
11. Following completion of the annual audit, review separately with each of
management, the independent accountants, and the internal auditors any
significant difficulties encountered during the course of the audit,
including any restrictions on the scope of work or access to required
information.
12. Review any significant disagreement among management and the independent
accountants or the internal auditors in connection with the preparation of
the financial statements.
13. Review with the independent accountants, the internal auditors and
management the extent to which changes or improvements in financial or
accounting practices, as approved by the Committee, have been implemented.
This review should be conducted at an appropriate length of time subsequent
to implementation of changes or improvements, as decided by the Committee.
ETHICAL AND LEGAL COMPLIANCE
14. Review and periodically update the Corporation's Code of Employee
Professional Conduct and confirm that the Corporation's management has
established a system to monitor and enforce this Code.
15. Confirm that the Corporation's management has the proper review system in
place to ensure that Corporation's financial statements, reports and other
financial information disseminated to governmental organizations and the
public satisfy legal requirements.
16. Review activities, organizational structure, and qualifications of the
internal auditors.
17. Review, with the Corporation's general counsel, legal compliance matters.
18. Review with the Corporation's general counsel any legal matter that the
Committee understands could have a significant impact on the Corporation's
financial statements.
19. Conduct or authorize investigations into matters within the Committees scope
of responsibilities. The Committee is authorized to retain independent
counsel, accountants, or others to assist it in the conduct of any
investigation.
20. Perform any other activities, consistent with this Charter, the
Corporation's By-laws and governing law, as the Committee or the Board
deems necessary or appropriate.
RELATED PARTY TRANSACTIONS
21. Review for fairness to the Corporation and its subsidiaries, as applicable,
all proposed transactions or other arrangements between any affiliated or
related party and either or both the Corporation and its subsidiaries and
recommend to the Board whether the transactions or other arrangements
should be approved.
22. Review and make recommendations to the Board regarding any dispute between
any affiliated or related party and either or both the Corporation and its
subsidiaries.
LIMITATION OF RESPONSIBILITY
23. While the Audit Committee has the responsibilities and powers provided by
this Charter, it is not the duty of the Committee to plan or conduct audits
or to determine that the Corporation's financial statements are complete
and accurate and are in accordance with generally accepted accounting
principles. This is the responsibility of management and the independent
accountant. Similarly, it is not the duty of the Committee to conduct
investigations, to resolve disagreements, if any between
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<PAGE> 22
management and the independent accountant, or to assure compliance with
laws and regulations and the Corporation's Code of Employee Professional
Conduct.
V. INDEPENDENCE OF DIRECTORS
For purposes of this Charter, a director is deemed to be an Independent
Director according to the following requirements:
- A director who is an employee (including non-employee executive
officers) of the Corporation, its subsidiaries, or any of its affiliates
may not serve on the Committee until three years following termination
of employment. "Affiliate" includes a subsidiary, sibling company,
predecessor, parent company, or former parent company.
- A director who is a partner, controlling shareholder, or executive
officer of an organization that has, or within the preceding three years
has had, a business relationship with the Corporation or its
subsidiaries may serve on the Committee only if the Board of Directors,
determines in its business judgment that the relationship does not
interfere with the director's exercise of independent judgment. This
restriction does not apply if the director has terminated his or her
relationship with the organization more then three years preceding
appointment to the Committee. "Business relationships" can include
commercial, industrial, banking, consulting, legal, accounting, and
other relationships. A director can have this relationship directly with
the company, or the director can be a partner, officer, or employee of
an organization that has such a relationship.
- A director who has, or within the preceding three years has had, a
direct business relationship with the Corporation may serve on the
Committee only if the Board determines in its business judgment that the
relationship does not interfere with the director's exercise of
independent judgment.
- A director who is employed as an executive of another corporation where
any of the Corporation's executives serves on that corporation's
compensation committee may not serve on the Committee.
- A director who is an immediate family member of an individual who is, or
who was during the preceding three years, an executive officer of the
Corporation or any of its affiliates may not serve on the Committee.
"Immediate family" includes a person's spouse, parent, children,
siblings, in-laws and anyone (other than employees) who shares such
person's home.
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[ORIG. 03/06/00]
CNA78B 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 16, 2000
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of CNA
Surety Corporation (the "Company") will be held at CNA Plaza, 13 South, 333 S.
Wabash, Chicago, IL 60685 on Tuesday, May 16, 2000, at 9:00 a.m. CDT.
The Board of Directors has fixed the close of business on March 20, 2000,
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 CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- --------------- ---------------
<PAGE> 24
----------------------------------------------------------
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.
----------------------------------------------------------
CNA78A DETACH HERE
<TABLE>
<S> <C>
[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: (01) Giorgio Balzer, (02) Philip H. Britt, (03) Rod FOR AGAINST ABSTAIN
F. Dammeyer, (04) Edward Dunlop, (05) Melvin Gray, (06)
Joe P. Kirby, (07) William C. Pate, (08) Roy E. Posner, (09) 2. To approve the CNA Surety [ ] [ ] [ ]
Thomas F. Taylor, (10) Adrian M. Tocklin, (11) Mark C. Vonnahme Corporation Employee Stock
Purchase Plan.
FOR WITHHELD 3. To ratify the Board [ ] [ ] [ ]
[ ] ALL [ ] FROM ALL of Directors' appointment
NOMINEES NOMINEES of the Company's independent
auditors, Deloitte & Touche
LLP for fiscal year 2000.
4. To transact such other [ ] [ ] [ ]
[ ] business as may properly
--------------------------------------------- come before the meeting
For all nominees except as noted above or any adjournment thereof.
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>
