def14a
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 þ
Filed by a Party other than the Registrant o
Check the appropriate box:
o |
|
Preliminary Proxy Statement |
o |
|
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14a-6(e)(2)) |
þ |
|
Definitive Proxy Statement |
o |
|
Definitive Additional Materials |
o |
|
Soliciting Material Pursuant to Section 240.14a-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):
þ |
|
No fee required. |
|
o |
|
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. |
|
1) |
|
Title of each class of securities to which transaction applies: |
|
|
2) |
|
Aggregate number of securities to which transaction applies: |
|
|
3) |
|
Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and
state how it was determined): |
|
|
4) |
|
Proposed maximum aggregate value of transaction: |
|
|
5) |
|
Total fee paid: |
o |
|
Fee paid previously with preliminary materials. |
|
o |
|
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: |
CNA
SURETY CORPORATION
333 S. Wabash Ave., 41st
Floor
Chicago, Illinois 60604
(312) 822-5000
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
On April 28, 2011
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 Companys business offices located at
333 S. Wabash Ave., 41st Floor, Chicago, Illinois
60604, on Thursday, April 28, 2011, at
9:00 A.M. CDT, for the following purposes:
1. To elect seven directors;
|
|
|
|
2.
|
To ratify the appointment of the Companys independent
registered public accounting firm, Deloitte & Touche
LLP, for fiscal year 2011;
|
|
|
3.
|
To consider and act upon a proposal to approve the restated CNA
Surety Corporation Long-Term Equity Compensation Plan;
|
|
|
4.
|
To approve, on an advisory basis, the compensation of the Named
Executive Officers, as disclosed in the Companys Proxy
Statement for the 2011 Annual Meeting of Shareholders, including
the Compensation Discussion and Analysis, the 2010 Summary
Compensation Table, and the other related tables and disclosures;
|
|
|
5.
|
To elect the option of once every one year, two years, or three
years to be the preferred frequency with which the Company is to
hold a shareholder vote to approve, on an advisory basis, the
compensation of the Named Executive Officers; and
|
|
|
6.
|
To transact such other business as may properly come before the
meeting or any adjournment thereof.
|
Shareholders of record at the close of business on March 8,
2011 are entitled to notice of and to vote at the Companys
Annual Meeting or any adjournment thereof.
By Order of the Board of Directors
Rosemary Quinn
Senior Vice President, General Counsel and
Secretary
March 14, 2011
Chicago, Illinois
IMPORTANT:
PLEASE VOTE AS PROMPTLY AS POSSIBLE BY USING THE INTERNET OR
TELEPHONE, OR BY SIGNING, DATING, AND RETURNING THE PROXY CARD
INCLUDED WITH THIS NOTICE.
Important Notice Regarding the Availability of Proxy
Materials for the Shareholder Meeting to be held on
April 28, 2011. The Proxy Statement and the 2010 Annual
Report to Shareholders are available at
http://www.cnasurety.com/about/investor_information.htm.
CNA
Surety Corporation
333 S. Wabash Ave., 41st
Floor
Chicago, Illinois 60604
(312) 822-5000
PROXY
STATEMENT
INTRODUCTION
This Proxy Statement is being mailed or otherwise provided to
you on or about March 14, 2011 in connection with the
solicitation by our Board of Directors of proxies to be voted at
our Annual Meeting of Shareholders (the Annual
Meeting) which will be held on Thursday, April 28,
2011 at our business offices located at 333 S. Wabash
Ave., 41st Floor, Chicago, Illinois 60604, at
9:00 A.M. CDT. Please note that throughout this Proxy
Statement we refer to CNA Surety Corporation as the
Company, we, us, and
our.
MATTERS
TO BE CONSIDERED AT THE ANNUAL MEETING
At the Annual Meeting, shareholders of the Company will consider
and vote upon:
|
|
|
|
(i)
|
The election of seven directors to serve one-year terms;
|
|
|
(ii)
|
The ratification of the appointment of the Companys
independent registered public accounting firm,
Deloitte & Touche LLP, for fiscal year 2011;
|
|
|
(iii)
|
The approval of the restated CNA Surety Corporation Long-Term
Equity Compensation Plan;
|
|
|
(iv)
|
The approval, on an advisory basis, of the compensation of the
Named Executive Officers, as disclosed in the Companys
Proxy Statement for the 2011 Annual Meeting of Shareholders,
including the Compensation Discussion and Analysis, the 2010
Summary Compensation Table, and the other related tables and
disclosures;
|
|
|
(v)
|
To elect the option of once every one year, two years, or three
years to be the preferred frequency with which the Company is to
hold a shareholder vote, on an advisory basis, to approve the
compensation of the Named Executive Officers; and
|
|
|
(vi)
|
The transaction of such other business as may properly come
before the meeting or any adjournment thereof.
|
The date of this Proxy Statement is March 14, 2011.
VOTING
SECURITIES AND PROXIES
Only shareholders of record at the close of business on
March 8, 2011 (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,
44,850,470 shares of the Companys Common Stock
(Common Stock) were issued and outstanding. Each
outstanding share is entitled to one vote upon each matter to be
voted upon at the Annual Meeting. The shareholders of a majority
of the Companys Common Stock, present in person or
represented by proxy, shall constitute a quorum at the Annual
Meeting.
In accordance with applicable law, the affirmative vote of
shares representing a majority of our Common Stock present and
entitled to vote is required to approve any proposal, other than
the election of directors, to be voted on at this Annual
Meeting. Directors shall be elected by a plurality of the votes
of the shares of our Common Stock present in person or
represented by proxy at the Annual Meeting and entitled to vote
on the election of directors. Abstentions and broker non-votes
are counted as present for purposes of determining the presence
or absence of a quorum for the transaction of business. However,
shares that are voted to abstain with respect to any matter and
broker non-votes will not be counted and will have no effect on
the outcome of the voting for any matters to be considered at
the Annual Meeting. If a quorum is not present, the Annual
Meeting will reconvene at such time as a quorum is present or
represented 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.
All properly executed proxies received by us prior to the Annual
Meeting will be voted at the meeting. You may revoke your proxy
at any time before it is exercised at the Annual Meeting by
granting a proxy bearing a later date that is duly received by
the Company or by voting in person. The mere presence at the
Annual Meeting of a shareholder who appointed a proxy does not
itself revoke the appointment. If a proxy is duly executed and
returned, the shares of the Companys 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 in accordance
with the Board of Directors recommendations. Whether or
not you plan to attend the meeting, you may submit a proxy to
vote your shares by internet, telephone, or mail as described
below:
|
|
|
|
|
Internet: To submit your proxy by the internet, go
to www.proxyvote.com. You will need to have your proxy
card to obtain the information required to vote. You have until
11:59 P.M. EDT on April 27, 2011 to transmit your
voting instructions by the internet.
|
|
|
|
Telephone: To submit your proxy by telephone, dial
(800) 690-6903
and follow the instructions. You may use any touch-tone
telephone to transmit your voting instructions up until
11:59 P.M. EDT on April 27, 2011. You will need to
have your proxy card to obtain the information required to vote
by telephone.
|
|
|
|
Mail: You may submit your proxy by signing, dating,
and completing the proxy card provided and returning it by mail
in the enclosed self-addressed, postage-paid envelope or
returning it to Vote Processing,
c/o Broadridge,
51 Mercedes Way, Edgewood, NY 11717.
|
ELECTION
OF DIRECTORS
(PROPOSAL 1)
Our Board of Directors has fixed the number of directors
constituting the full Board at seven. Accordingly, at the Annual
Meeting seven 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. The
nominees are as follows:
Philip H.
Britt
Anthony S. Cleberg
David B. Edelson
D. Craig Mense
Robert A. Tinstman
John F. Welch
Peter W. Wilson
All of the nominees are currently serving as directors of the
Company. For information regarding each nominee, see the
Directors and Executive Officers of the Registrant
section of this Proxy Statement.
At the Annual Meeting, if a quorum is present, the vote of
holders of a majority of the Companys Common Stock having
the power to vote in person or represented by proxy shall elect
the directors. It is the present intention of John F. Corcoran
and Rosemary Quinn, who will serve as the Companys 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 has been
given or indicated, for the election of the nominees named
above. Our Board has no reason to believe that any of the
nominees will be unwilling or unable to serve as a director.
However, if prior to the election of directors any of the
nominees named above 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 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
NOMINEES.
2
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.
Philip H. Britt, age 64; Director of the Company
since 1998; Retired; Senior Vice President Insurance Industry
Division of Bank One, NA (formerly First Chicago NBD) from 1988
through 2002.
With his experience at Bank One, NA, Mr. Britt brings
valuable insight into the Companys investment management
strategy which is a key part of the Companys overall
strategy. In particular, Mr. Britt understands the
investment considerations that are unique to the surety and
insurance business and has the skills necessary to lead our
Investment Committee.
Anthony S. Cleberg, age 58; Director of the Company
since 2007; Chief Financial Officer (CFO) and
Executive Vice President of Black Hills Corp. since 2008;
Independent Consultant and Investor from 2002 to 2008.
As CFO of Black Hills Corp. and his prior service at Champion
Enterprises as CFO from 2000 to 2002, Mr. Cleberg has
experience dealing with accounting principles, financial
reporting rules and regulations, evaluating financial results,
and overseeing the financial reporting process of a
publicly-traded corporation. His knowledge and experience
positions him well to serve as the Chair of our Audit Committee.
John F. Corcoran, age 46; Senior Vice President and
CFO of the Company since 2004.
Michael A. Dougherty, age 52; Senior Vice President
and Chief Information Officer of the Company since 2007; Senior
Vice President Field Operations and Distribution from 2001 until
2007.
David B. Edelson, age 51; Director of the Company
since 2007 and Chairman since 2009; Since 2005, Senior Vice
President of Loews Corporation (Loews), the parent
corporation of CNA Financial Corporation (CNAF)
(that, through its insurance subsidiaries, owns 61.29% of the
Companys stock as of December 31, 2010); Executive
Vice President and Corporate Treasurer of JPMorgan
Chase & Co. from 2003 until 2005. Mr. Edelson
joined the Board of Directors of AutoNation, Inc. in 2008 and is
also a member of its Audit Committee.
With his years of experience at JPMorgan Chase & Co.
and Loews, Mr. Edelson has demonstrated leadership
capability and extensive knowledge of complex financial and
operational issues facing large organizations. His understanding
of financial strategy and the elements relevant to be a
successful publicly-traded company provide him the skills
necessary to serve as the Chairman of our Board of Directors.
Douglas W. Hinkle, age 58; Senior Vice President and
Chief Underwriting Officer of the Company since 2004.
D. Craig Mense, age 59; Director of the Company
since 2007; Executive Vice President and CFO of CNAF since 2004.
Mr. Mense possesses both financial and operational
knowledge of the insurance and surety industries through his
current CFO responsibilities at CNAF and his prior experience at
the executive level in certain insurance and surety operations
of Travelers Property Casualty Corporation.
Rosemary Quinn, age 56; Senior Vice President,
General Counsel and Secretary of the Company since 2008;
Assistant Vice President and Assistant General Counsel of the
Company from 2006 through 2008; General Counsel of GeoVera
Insurance Company from 2005 through 2006; Assistant Vice
President of St. Paul Travelers Bond Department from 2004
through 2005.
Robert A. Tinstman, age 64; Director of the Company
since 2004; Member of the Board of Directors of Primoris
Services Corporation since 2009; Member of the Board of
Directors of Home Federal Bancorp Inc. and Chairman of its Audit
Committee since 1999. He also serves on the Board of Directors
of IdaCorp., Inc. and Idaho Power Company and has been Chairman
of their Investment and Compensation Committees since 1999.
3
Mr. Tinstman was Executive Chairman of Angelo Iafrate
Construction Company and James Construction Group from 2002 to
2007.
Mr. Tinstman has extensive knowledge of the financial and
operational issues facing the types of construction firms that
are bonded by our Company based on his positions at Angelo
Iafrate Construction Company and James Construction Group as
well as prior executive positions in the construction industry.
Also, his leadership role on other boards of directors gives
Mr. Tinstman a deep understanding of the role of the Board
of Directors and provides him the skills to serve as the Chair
of our Compensation Committee.
John F. Welch, age 54; Director, President, and
Chief Executive Officer (CEO) of the Company since
2003.
In addition to his experience as our CEO and President,
Mr. Welch was previously the Chief Underwriting Officer of
the surety operations of the St. Paul Companies from 2002 until
2003 and the President of Afianzadora Insurgentes SA CA located
in Mexico City, Mexico from 2000 to 2002. His experience has
provided him a deep knowledge of the surety industry, which
includes the financial, operational, and regulatory aspects of
the business. This breadth of exposure to the surety business
positions him well to serve on our Board of Directors.
Peter W. Wilson, age 51; Director of the Company
since 2009; President and Chief Operating Officer of
U.S. Specialty Operations of CNAFs insurance
operations since 2009; Executive Vice President, Global
Specialty Lines of the insurance subsidiaries of CNAF from 2001
until 2009.
Mr. Wilson brings an understanding of the operational,
marketing, financial, and regulatory issues facing the insurance
industry, which includes surety. He also served as the
Companys Board Chairman from 2001 through 2003. His
demonstrated leadership capability and knowledge of the
Companys business provide him the skills to serve on our
Board of Directors.
CORPORATE
GOVERNANCE
Director
Independence
As provided by the listing standards of the New York Stock
Exchange (Exchange or NYSE), the Company
is a Controlled Company because more than 50% of the
voting shares of the Company are held by the insurance
subsidiaries of CNAF. Because the Company is a controlled
company, it is exempt from the Exchanges requirements
relating to maintenance of a majority of independent directors.
Nevertheless, our Board of Directors has determined that the
following directors are independent under the NYSEs
listing standards (each, an Independent Director and
collectively, the Independent Directors): Philip H.
Britt, Anthony S. Cleberg, and Robert A. Tinstman.
In determining independence, the Board affirmatively determined
whether or not each director or nominee has any material
relationship with the Company. In assessing materiality, the
Board considered all relevant facts and circumstances, not
merely from the standpoint of the director or nominee, but from
that of any person or organization with which the director or
nominee has an affiliation. The Board considers the frequency
and regularity of any services provided by or to, or other
transactions between the Company and the director or nominee or
affiliated organization, whether they are being carried out at
arms length in the ordinary course of business, and
whether they are being provided or conducted substantially on
the same terms as those prevailing at the time from unrelated
parties for comparable transactions. Material relationships can
include commercial banking, industrial, legal, accounting,
charitable, employment, and familial relationships.
Consistent with the listing requirements of the Exchange, the
Board follows the standards provided below to assist it in
determining director independence so that a director would not
be considered independent if any of the following relationships
exists: (i) the director is, or has been within the last
three years, an employee of the Company, or an immediate family
member is, or has been within the last three years, an executive
officer of the Company; (ii) the director has received, or
has an immediate family member who has received, during any
twelve-month period within the last three years, more than
$120,000 in direct compensation from the Company, other than
director and committee fees and pension or other forms of
deferred compensation for prior service (provided such
4
compensation is not contingent in any way on continued service);
(iii) the director is a current partner or employee or an
immediate family member is a current partner of a firm that is
the Companys internal or external auditor, or an immediate
family member is a current employee of such a firm and
personally works on the Companys audit, or within the last
three years, the director or an immediate family member was a
partner or employee of such a firm and personally worked on the
Companys audit within that time; (iv) the director or
an immediate family member is, or has been within the last three
years, employed as an executive officer of another company where
any of the Companys present executive officers at the same
time serves or served on that companys compensation
committee; or (v) the director is a current employee, or an
immediate family member is a current executive officer, of a
company that has made payments to, or received payments from,
the Company for property or services in an amount which, in any
of the last three fiscal years, exceeds the greater of
$1 million or 2% of such other companys consolidated
gross revenues.
Corporate
Governance Guidelines and Code of Business Conduct and
Ethics
The Board has adopted Corporate Governance Guidelines that
outline the responsibilities and operation of the Board to help
ensure that the effectiveness of policy and decision making of
the Board management are aligned with the interests of the
Companys shareholders. The Company also has a Code of
Business Conduct and Ethics that applies to all employees,
officers, and directors of the Company and its wholly-owned
subsidiaries, including, but not limited to, our executive
officers, principal financial officer, and principal accounting
officer.
Copies of the Corporate Governance Guidelines and the Code of
Business Conduct and Ethics are available on our website at
www.cnasurety.com and will be provided to any shareholder
at no charge upon request to Adrianne T. Baker,
representative of the Company, at 333 S. Wabash Ave.,
41st Floor, Chicago, Illinois 60604,
(312) 822-4971.
Board
Nomination Process
Our Board of Directors does not have a Nominating Committee.
Under the rules of the NYSE, companies like us that have a
controlling shareholder are not required to have a Nominating
Committee. Our Board of Directors, as a whole, performs the
functions of a Nominating Committee. The Board of Directors
considers shareholder director nominees under the same criteria
utilized by the Board of Directors to evaluate nominees proposed
by management or members of the Board of Directors. These
criteria include a potential nominees character, judgment,
business experience, and areas of expertise, among other
relevant considerations, such as requirements of the Exchange.
The Board seeks to create a Board that has a diversity of skills
and experience with respect to knowledge of the construction
industry, surety and insurance markets, finance and accounting,
investment management, and corporate governance. The unique
skills and experience that each nominee brings to the Board of
Directors is described earlier in this Proxy Statement in the
Directors and Executive Officers of the Registrant
section.
Board
Leadership Structure
The positions of Chairman of the Board and Chief Executive
Officer are held by separate people. This is due in part to the
fact that the Company has a controlling shareholder. Our current
Chairman is an executive officer of Loews which is the
controlling shareholder of CNAF. Our Board believes this
structure provides a balance of different perspectives which
fosters discussion during Board meetings. Also, the Chairman
serves as the liaison between the Board and the Companys
senior management which is beneficial when determining agenda
and providing information for the Board meetings.
Risk
Oversight
Our Board oversees an enterprise approach to risk management
that is intended to support the operational and strategic
objectives of the Company. The President reports to and seeks
the involvement of the full Board in setting the Companys
business goals and objectives. Through this process, the Board
and senior management assess the appropriate level of business
risk for the Company. The entire Board receives reports at each
meeting from the President and his executive team on the primary
areas of risk which include financial risk, investment risk,
legal/compliance risk, and operations/strategic risk. The
Company also reports to the full Board each quarter on the
credit risk of the Companys portfolio of bond customers.
5
While the Board has ultimate oversight responsibility, the
various committees of the Board also have responsibility for
risk management. In particular, the Audit Committee receives
reports at each of its regularly scheduled meetings from the
Companys CFO and the Companys external auditor on
financial risk and compliance with reporting requirements,
including internal controls. The Audit Committee also receives
reports at each quarterly meeting from the Companys
internal auditors.
In addition to setting compensation for the Companys
executive team, the Compensation Committee provides guidance on
the creation of Company-wide bonus programs that encourage
employee risk-taking consistent with the Companys business
strategy. The Investment Committee sets the strategy for the
Companys investment portfolio and meets with the
Companys investment adviser at each meeting to review the
performance of the portfolio. In addition to reviewing and
approving the investment transactions each quarter, the
Investment Committee considers whether the level of market risk
in the investment portfolio is consistent with the
Companys business strategy and whether modifications may
be appropriate.
BOARD OF
DIRECTORS AND BOARD COMMITTEES
General
Our business is managed under the direction of the Board of
Directors, which is currently comprised of seven members. The
Board of Directors and the Audit Committee annually review their
performance. The Audit Committee and Board of Directors
discussed their anonymous self-evaluations at their respective
meetings on February 2, 2011. The self-evaluations of both
the Audit Committee and the Board of Directors indicated that
they are functioning well and receive adequate access to and
information from Company management.
Committees
of the Board
The Board has an Executive Committee, an Audit Committee, a
Compensation Committee, and an Investment Committee. As
discussed under the Board Nomination Process section
of this Proxy Statement, the Company does not have a
nominating/corporate governance committee. Our Audit Committee
and Compensation Committee have written charters which can be
found on our website at www.cnasurety.com and are
available in print to any shareholder who requests a copy by
writing to our Corporate Secretary.
Executive Committee. The Executive Committee
is authorized to act on behalf of the full Board in the
management and business affairs of the Company during intervals
between the meetings of the Board. Any 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. The Executive
Committee did not meet during 2010. The members of the Executive
Committee are David B. Edelson, Robert A. Tinstman, and John F.
Welch.
Audit Committee. The Audit Committees
primary function is to assist the Board in fulfilling its
responsibility to monitor the Companys financial reporting
process and internal control system, the qualifications and
independence of our independent auditors, the performance of our
internal auditors and independent auditors, and our compliance
with legal and regulatory requirements. Our Audit Committee has
sole authority to retain, compensate, and evaluate the
Companys independent registered public accounting firm,
and the scope of and fees for their audits. The Audit Committee
also establishes the policy and procedures for the review and
approval of related party agreements and arrangements between
the Company and its affiliates.
The current members of the Audit Committee are Anthony S.
Cleberg (Chairman), Philip H. Britt, and Robert A. Tinstman,
each of whom is independent under SEC rules and NYSE
listing standards applicable to audit committee members. The
Board has determined that each of the Audit Committee members is
financially literate and that Mr. Cleberg is an audit
committee financial expert under the Exchange and SEC
standards. The Audit Committee held eight meetings during 2010.
The Audit Committee members are annually asked the number of
audit committees on which they serve and no director reported
serving on more than two audit committees during 2010.
6
Compensation Committee. The Compensation
Committee sets the Companys compensation policies and
reviews and administers all compensation matters for the
Companys executive officers including the five most highly
compensated executive officers. In addition, it reviews and
approves the availability of equity grants to all other eligible
Company employees. The current members of the Companys
Compensation Committee are Robert A. Tinstman (Chairman), Philip
H. Britt, and Anthony S. Cleberg. During 2010, the Compensation
Committee held seven meetings.
Investment Committee. The primary function of
the Investment Committee is to establish investment policies and
oversee the management of the Companys investment
portfolio. The current members of the Investment Committee are
Philip H. Britt (Chairman), David B. Edelson, and John F. Welch.
During 2010, the Investment Committee held four meetings.
Executive
Sessions of Non-Management Directors
The Board meets without management in Executive Session at its
regularly scheduled meetings. The members have decided that a
presiding director is not necessary and that the independent
directors will rotate the task of presiding over Executive
Sessions.
Director
Attendance at Meetings
The Board of Directors met six times during 2010. Each of the
directors attended not less than 75% of all Board meetings and
all meetings of all committees on which he served as a member.
All of our directors also attended the 2010 Annual Meeting of
Shareholders.
COMPENSATION
OF INDEPENDENT DIRECTORS
Our independent directors, who are not employees of the Company
or any of its affiliates or subsidiaries, receive an annual
retainer of $45,000 if the director serves on three committees
or $40,000 if the director serves on two committees. This
arrangement compensates the independent directors for four Board
meetings per year, each committee meeting four times per year,
plus up to four additional meetings per year by either the Board
or committees. If the number of Board
and/or
committee meetings exceeds the number covered by this
compensation structure, the director will be paid $1,500 for
each additional meeting. This additional meeting fee also
applies to any seminars that the independent directors may
attend at the request of the Company. In recognition of the
additional responsibilities associated with serving as chair of
a Board committee, the chairs of each committee receive the
following additional annual retainer: Audit Chair receives
$35,000 and the Investment and Compensation Chairs each receive
$30,000. In addition to the compensation described above, each
of the independent directors was compensated for their services
in connection with the Special Committee. The definition and
purpose of the Special Committee is found on page 23 of
this Proxy Statement under the heading CNAF
Proposal. Messrs. Cleberg and Tinstman were each paid
a fee of $100,000 and Mr. Britt, as chairman of the Special
Committee, was paid a fee of $120,000.
The table shown below reflects the compensation paid to our
independent directors for the year ended December 31, 2010.
This table includes fees earned in 2010 but paid in 2011 for
additional meetings and seminars that were subject to the
director payment arrangements described above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
Fees
|
|
|
|
|
|
|
|
Nonqualified
|
|
|
|
|
|
|
Earned or
|
|
|
|
|
|
Non-Equity
|
|
Deferred
|
|
|
|
|
|
|
Paid in
|
|
Stock
|
|
Option
|
|
Incentive Plan
|
|
Compensation
|
|
All Other
|
|
|
|
|
Cash
|
|
Awards
|
|
Awards
|
|
Compensation
|
|
Earnings
|
|
Compensation
|
|
Total
|
Name
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
Philip H. Britt
|
|
$
|
204,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
204,000
|
|
Anthony S. Cleberg
|
|
$
|
182,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
182,500
|
|
Robert A. Tinstman
|
|
$
|
177,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
177,500
|
|
7
AUDIT
COMMITTEE REPORT
As discussed above under the heading Committees of the
Board Audit Committee and more fully described
in its charter, the Audit Committees primary
responsibility is the oversight of the Companys financial
reporting process and management of its relationship with the
independent auditors. Management has
day-to-day
responsibility for the Companys financial reporting
process, including assuring that the Company develops and
maintains adequate financial controls and procedures and
monitoring and assessing compliance with those controls and
procedures, including internal control over financial reporting.
The Companys independent auditors are responsible for
auditing the annual financial statements prepared by management,
expressing an opinion as to whether those financial statements
fairly present the financial position of the Company in
conformity with accounting principles generally accepted in the
United States (generally accepted accounting
principles) and discussing with the Audit Committee any
issues they believe should be raised. The independent auditors
are also responsible to the Audit Committee and the Board for
testing the integrity of the financial accounting and reporting
control systems, for issuing a report on the Companys
internal control over financial reporting, and for such other
matters as the Audit Committee and Board determine. At its
October 20, 2010 meeting, the Audit Committee also agreed
to be designated as the independent audit committee for each of
the Companys three insurance company subsidiaries, Western
Surety Company, Surety Bonding Company of America, and Universal
Surety of America, consistent with the requirements of the South
Dakota insurance laws and the National Association of Insurance
Commissioners Model Audit Rule on financial reporting. The
independent auditors did not provide non-audit services to the
Company in 2010.
In the performance of its oversight function, the Audit
Committee has reviewed and discussed the audited financial
statements with management and the Companys independent
registered public accounting firm. The Audit Committee has also
discussed with the independent auditors the matters required to
be discussed by the standard adopted or referenced by the Public
Company Accounting Oversight Board (PCAOB) including
the Statement on Auditing Standards No. 114, (Codification
of Statements on Auditing Standards, AU380), Communication
with Audit Committees, and SEC
Rule 2-07
as currently in effect. The independent auditors also had
discussions with the Audit Committee concerning the Corporate
Governance Listing Standards of the Exchange. The Audit
Committee has received the written disclosures and the letter
from our independent auditors as required by PCAOB Ethics and
Independence Rule 3526, Communication with Audit
Committees Concerning Independence, and has discussed with
Deloitte & Touche LLP its independence from the
Company.
The members of the Audit Committee rely, without independent
verification, on the information provided to them by management
and the independent registered public accounting firm and on
managements representation that our financial statements
have been prepared with integrity and objectivity. The Audit
Committee members do not provide any expert or special assurance
as to our financial statements or any professional certification
as to the independent registered public accounting firms
work. Accordingly, our Audit Committees oversight does not
provide an independent basis to determine that management has
applied appropriate accounting and financial reporting
principles or internal controls and procedures, that the audit
of our financial statements has been carried out in accordance
with the standards of the PCAOB, that our financial statements
are presented in accordance with generally accepted accounting
principles, or that our independent registered public accounting
firm is in fact independent.
Based upon the reports and discussions described in this report,
and subject to the limitations on the role and responsibilities
of the Audit Committee referred to above, the Audit Committee
recommended to the Board that the audited financial statements
be included in the Companys Annual Report on
Form 10-K
for the year ended December 31, 2010 filed with the SEC.
8
SUBMITTED
BY THE AUDIT COMMITTEE
OF THE COMPANYS BOARD OF DIRECTORS
Anthony
S. Cleberg
Philip H. Britt
Robert A. Tinstman
COMPENSATION
DISCUSSION AND ANALYSIS
Objectives
of Compensation Program
The Companys philosophy is to provide a compensation
package that attracts, motivates, and retains quality executive
talent. We aim to reward performance and hold executives
accountable for underperformance through financial consequences.
The compensation practice of the Company for its executive
officers (including those named in the Summary Compensation
Table (the Named Executive Officers, individually referred to as
NEO and collectively referred to as
NEOs)) is to pay base salaries, annual incentive
bonuses, and long term incentives in addition to other benefits
that are competitive, internally consistent, and recognize the
accomplishment of the Companys stated goals of building a
financial services business focusing on surety, fidelity, and
related products. We seek to link executive compensation to the
short and long term performance goals of the Company. As such,
NEOs and other Company executives have a higher percentage of
their total compensation weighted towards variable pay than
other Company managers as they have greater opportunity to
impact bottom line results.
For 2010, the Companys Compensation Committee (the
Compensation Committee) was composed entirely of
independent directors. The Compensation Committee administers
the Companys executive compensation program, oversees the
Companys compensation and benefit plans and policies,
administers our Long Term Incentive Plan (including approving
equity grants to employees), and approves annually all
compensation decisions relating to the Companys NEOs. The
Compensation Committees charter sets forth its general
responsibilities and is available on the Companys website
at www.cnasurety.com.
Setting
Compensation Benchmarking
The Process: The CEO, the Companys
Chief Human Resources Officer, and the Companys Chairman
of the Board make recommendations to the Committee on general
compensation philosophy and specific elements of compensation
and goals for the NEOs. Recommendations for the CEOs
compensation are made by the Companys Chairman of the
Board to the Committee.
Surveys Consulted: The Company reviews a
number of general business and property and casualty
compensation surveys. We are in a unique business situation in
that we are the only publicly-held surety company. All of the
Companys competitors are either privately-held or are
business units of a larger publicly-held insurance company.
Thus, there are no direct competitors who have CEOs and an
executive team with public company responsibilities. Because
there are no comparable publicly-held companies to use for
benchmarking purposes, the Company utilizes data collected from
an industry survey and broader property and casualty and
financial industry surveys. Those surveys are discussed in more
detail below.
Surety & Fidelity Association of America Salary
Survey: This survey is conducted annually and includes
approximately 25 surety and fidelity organizations. The
positions and data that we use for benchmarking NEO positions
include Top/Chief Bonding Officer, Top Underwriting Officer, and
Top Field Management Officer. In regards to this survey, we look
at the range of
50th to
75th
percentile taking into consideration the size of the
Companys surety writings compared to other surety
operations reflected in the survey.
P&C/Financial Surveys: As noted above,
the Compensation Committee reviews several surveys conducted by
consulting companies for the property and casualty and financial
industries. There are a wide range of companies and thus we
determine an appropriate benchmark based on the premium size of
the companies that participate in each survey. For the surveys
that include companies with less than $2 billion of direct
written premium, we use the 50th percentile. For surveys that
include companies with less than $25 billion of assets, we
discount the midpoint.
9
We consider this data for the Top Underwriting Executive, Chief
Financial Officer, Chief Information Officer, Top Field
Operations Executive, and the Top Legal Executive positions.
For each of the NEOs, the Compensation Committee considers each
compensation element separately and then considers the
NEOs total compensation. The Compensation Committee
reviews the salary surveys referenced above, as well as the
NEOs experience, individual professional performance, and
individual influence on the Companys current financial
results and long term strategies. The Compensation Committee
also considers internal equity in compensation and accordingly
considers each NEOs total compensation in reference to the
compensation of the Companys other officers. In setting
compensation, the Compensation Committee also considers the
amount of influence each NEO has on the Companys overall
business strategy as well as the abundance or scarcity of
qualified candidates, if finding a replacement should become
necessary.
The Compensation Committee discusses and approves any changes in
compensation to the NEOs at its first regularly scheduled
meeting of the year, which in 2010 was held in February. Any
changes in base compensation are effective in April (when base
salary increases for all of the Companys employees occur).
Also, at its first scheduled meeting of the year, the
Compensation Committee evaluates the Companys performance
versus its goals and the performance of each NEO, and then
approves all of the following variable compensation pay awards:
Annual Cash Bonuses, Long Term Cash Incentives, and equity
grants. The Compensation Committee also approves the aggregate
amount of annual bonuses paid to all bonus-eligible employees
based on the achievement of certain net income targets set by
the Compensation Committee. The 2010 targets and achievement are
discussed below under the individual Elements of
Compensation section of this Proxy Statement.
Adjustment
of Awards
The Compensation Committee does not have, and has no current
plans to have, a policy concerning retroactive adjustments to
any cash or equity based incentive compensation if the payment
of such compensation was based on financial performance measures
that were subsequently affected by a restatement. However, to
date, the Company has had no financial statement restatements
that resulted in a reduction of financial performance.
Tax
Considerations Deductibility of
Compensation
The Compensation Committee considers the impact of Internal
Revenue Code (IRC) Sections 409A and 162(m)
when determining forms and amounts of compensation. In 2005, the
Company adopted a nonqualified deferred compensation plan
(2005 Deferred Compensation Plan or the
Plan) intended to permit participants to avoid tax
penalties under IRC Section 409A. The 2005 Deferred
Compensation Plan was amended in 2009 to comply with final
regulations under IRC Section 409A. The 2005 Deferred
Compensation Plan is more fully described in the Deferred
Compensation section of this Proxy Statement. IRC
Section 162(m) places a limit on the tax deduction for
compensation in excess of $1 million paid to certain
executives. The Company does consider the deductibility of
compensation when considering compensation for the CEO, and
structures his annual cash bonus, as performance-based (with the
discretion to decrease the award even if the goal is achieved),
so as to retain the potential for a deduction. In addition, the
CEOs employment contract allows the Compensation Committee
to defer the payment of compensation that would not be
deductible by the Company under IRC Section 162(m) until
the CEOs separation from service. The compensation of the
remaining NEOs will not exceed $1 million for 2010, thus
compensation for the Companys NEOs is expected to be
deductible.
Elements
of Compensation
The core elements of the NEOs compensation, which are
discussed below, include base salary, benefits,
performance-based annual cash incentive awards, long term cash
based incentive awards, and long term equity.
Base
Salaries
The division between base salaries and cash incentive
compensation for both the CEO and the rest of the NEOs is
similar to the division between cash incentive compensation and
base salaries at many public and private insurers and sureties
that compete with the Company for executive talent. The
Compensation Committee uses the market
10
data discussed in the Setting
Compensation-Benchmarking section of this Proxy Statement,
as well as the salary history, individual performance, and
experience of the individual executive officer, when assessing
base salary. The base salaries of the NEOs and other officers
are reviewed on an annual basis. During such review in 2010, the
Compensation Committee recommended, and the Board approved, an
increase in the CEOs base salary from $470,000 to $500,000
in light of the Companys multi-year success.
Broadly-Available
Benefit Plans During 2010
Our NEOs participate in the same basic benefits package as all
other Company employees. This includes a basic benefits package
consisting of retirement, medical, dental, vision, paid time
off, life insurance and accident insurance plans, and short and
long term disability coverage, as well as flexible spending
arrangements for health care, dependent care, and transit
expenses.
Perquisites
The Company made available to the NEOs in 2010 a modest
allotment for reimbursements for club memberships and financial
counseling services. Please refer to the Executive
Perquisites column of the All Other Compensation
Table in the Executive Compensation section of
this Proxy Statement.
Annual
Cash Bonus
The Companys Annual Incentive Bonus (AIB) Plan
(AIB Plan) is a broad plan that covers eligible
employees, including the NEOs. The AIB Plan delivers short term
incentive compensation based on the Companys achievement
of Net Operating Income (NOI) against established
goals. Under the AIB Plan, the Company establishes a pool of 0%
to 150% of goal achievement for NEOs other than the CEO. The CEO
makes a recommendation to the Compensation Committee for
individual NEO bonus payments which is based primarily on the
NOI achievement and then considers overall individual
performance. The Compensation Committee may, in its discretion,
establish a bonus pool of up to 25% of the target bonus pool
that it may use to pay certain employees, including the NEOs, if
the threshold goal was not met. The Compensation Committee also
reserves discretion to adjust the bonus pool up or down, if
results were affected by unusual events that in the Compensation
Committees determination were beyond managements
control. The Compensation Committee retains the power to
exercise negative discretion with respect to each NEO even if
the Company achieves an NOI target.
As referenced above, the size of the bonus pool is dependent on
achievement of NOI. The NOI goals approved by the Committee for
the 2010 AIB Plan are below:
|
|
|
|
|
|
|
Achievement
|
|
NOI Achieved
|
|
% of Target
|
|
<$65 million
|
|
|
0
|
%
|
$65 million
|
|
|
50
|
%
|
$85-$95 million
|
|
|
100
|
%
|
$115 million
|
|
|
150
|
%
|
When the Compensation Committee set the target NOI for the AIB
Plan, it established a formula for adjusting the NOI in order to
recognize the impact of prior year reserve development. For
2010, the Companys adjusted NOI was $116.8 million.
The Committee voted at its February 2, 2011 meeting that
the 2010 annual cash bonus pool would be 150% of the target.
Annual
Cash Bonuses NEOs other than the CEO
The Compensation Committee considers both NOI and individual
performance when determining the compensation of the NEOs with
NOI being the material factor when determining the annual cash
bonus. The annual process for evaluating achievement of each
NEOs objectives consists of a performance evaluation by
the CEO that is presented to the Compensation Committee for
discussion. Although NOI is the material factor when determining
annual bonuses for the NEOs, the CEO evaluation includes an
analysis of each NEOs individual performance when
determining whether the AIB should be at, above, or below the
target bonus award reflected
11
below in the Executive Annual Incentive table of
this Proxy Statement. Following discussion of the CEOs
evaluation and recommendation, the Compensation Committee
approves, rejects, or modifies the CEOs recommendation.
Set forth below for each NEO, other than the CEO, is a summary
of the individual performance objectives which were considered,
in addition to NOI, by the Compensation Committee when
determining AIB.
For John Corcoran, the individual objectives in 2010, all
qualitative, were management of the Companys planning,
analysis and financial reporting functions, oversight of the
Companys investment portfolio and investment manager,
management of the Companys capital structure, stewardship
of key relationships with banks, rating agencies and regulators,
and execution of technology projects specific to Finance.
Mr. Welch reported to the Committee that Mr. Corcoran
successfully fulfilled all of his individual objectives. Also,
under Mr. Corcorans leadership our rating agency
relationships remain strong and the investment strategy
continues to perform well in a weak economy. The Compensation
Committee approved Mr. Welchs bonus recommendation
for Mr. Corcoran as reflected below in the Executive
Annual Incentive table of this Proxy Statement.
For Douglas Hinkle, the individual factors considered for his
2010 performance included adherence to the underwriting expense
plan, effective oversight of the underwriting strategy, and
marketing of key agents and customers. The underwriting expense
goal was $94.2 million and the actual was
$93.5 million, excluding additional incentive compensation
accruals. Numerical targets were not established for
Mr. Hinkles other performance factors. The CEO noted
that again in 2010 Mr. Hinkle successfully oversaw a sound
underwriting strategy and continued to maintain and expand his
strong agent and customer relationships. Mr. Hinkles
oversight of the Companys underwriting strategy for the
several previous years was credited for the Companys
strong NOI in 2010. The Compensation Committee approved
Mr. Welchs bonus recommendation for Mr. Hinkle
as reflected below in the Executive Annual Incentive
table of this Proxy Statement.
For Michael Dougherty, the individual objectives in 2010, all
qualitative in nature, included implementing several key IT
initiatives, managing the capital expense budget, developing and
executing on long term strategies for continued improvement in
business operations, and maintaining IT system performance and
stability for the Company. Under his leadership, key technology
and business process initiatives were successfully implemented.
Mr. Dougherty continues to execute on IT and business
operation strategies while maintaining a stable IT system for
the Company. The Compensation Committee approved
Mr. Welchs bonus recommendation for
Mr. Dougherty as reflected below in the Executive
Annual Incentive table of this Proxy Statement.
For Thomas Pottle, the primary individual objective prior to his
termination on November 26, 2010 was management of the
Companys field operations, branch audits, credit analysis
function, and implementation of branch technology improvements.
As provided by the General Release and Settlement Agreement
entered between Mr. Pottle and the Company,
Mr. Pottles short and long term bonuses would be
calculated as all other employee bonuses if the Company exceeded
100% of the performance targets established for 2010. Since the
Company exceeded 100% of the performance targets set for 2010
and in recognition of his performance achievements during 2010,
the Compensation Committee approved Mr. Welchs bonus
recommendation for Mr. Pottle as reflected below in the
Executive Annual Incentive table of this Proxy
Statement.
For Rosemary Quinn, the primary objectives in 2010 were all
qualitative in nature. The primary responsibilities were
facilitation of and communication with the Board of Directors,
providing high-level legal expertise for large contract and
commercial bonds, consulting with claims management regarding
legal issues that impact the industry as well as claim handling,
serving as legal advisor for all non-claim and litigation
matters, managing the Companys public affairs division,
and overseeing the Companys compliance practices based on
state and federal requirements. Ms. Quinn was successful in
following through on all objectives and the Compensation
Committee approved Mr. Welchs bonus recommendation as
reflected below in the Executive Annual Incentive
table of this Proxy Statement.
Annual
Cash Bonus CEO
The Compensation Committee believes that it is appropriate that
the CEOs incentive compensation, including the annual
target bonus and maximum annual bonus potential, be larger than
the other NEOs. Mr. Welchs annual
12
bonus parameters are determined by his employment contract and
by the yearly NOI goal set by the Compensation Committee. As
provided in his employment contract, Mr. Welch has a target
of 100% of his base salary of $500,000. At its February 3,
2010 meeting, the Compensation Committee established a maximum
for Mr. Welchs annual bonus of 2.25% of the
Companys actual NOI for the 2010 performance year.
However, the Compensation Committee retained discretion to
reduce the amount of his annual bonus based upon its evaluation
of his performance. After evaluating his 2010 performance at its
February 2, 2011 meeting, the Compensation Committee voted
to pay Mr. Welch an annual cash bonus of $1,000,000, or
200% of his base salary, which is the maximum target, based
primarily on the Companys 2010 adjusted NOI of
$116.8 million. Although the material factor used by the
Compensation Committee when determining Mr. Welchs
AIB is NOI, it also considers several qualitative factors which
include: strategic direction and leadership; talent management;
drive for results; and development of relationships with
customers, regulators, analysts, the Board, and the
Companys shareholders. The Compensation Committee
concluded that he consistently fulfilled all of these
qualitative factors since becoming the Companys CEO in
2003 which has resulted in the Companys financial strength
today. In recognition of the NOI achievement far in excess of
the 2010 goal, the Compensation Committee recommended, and the
Board approved, the bonus award reflected in the table below.
The 2010 annual cash bonus targets and awards for each NEO,
including the CEO, were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Annual Incentive Bonus
|
|
|
|
|
|
|
Actual
|
|
|
|
|
Target
|
|
|
|
Award as a
|
|
|
|
|
Payout as a
|
|
Target Award
|
|
% of
|
|
Actual Award
|
|
|
% of Salary
|
|
(Dollar Value)
|
|
Salary
|
|
(Dollar Value)
|
John F. Welch
|
|
|
100
|
%
|
|
$
|
500,000
|
|
|
|
200
|
%
|
|
$
|
1,000,000
|
|
John F. Corcoran
|
|
|
40
|
%
|
|
$
|
108,000
|
|
|
|
60
|
%
|
|
$
|
162,000
|
|
Douglas W. Hinkle
|
|
|
40
|
%
|
|
$
|
108,000
|
|
|
|
64
|
%
|
|
$
|
172,800
|
|
Michael A. Dougherty
|
|
|
40
|
%
|
|
$
|
92,400
|
|
|
|
56
|
%
|
|
$
|
129,360
|
|
Thomas A. Pottle
|
|
|
40
|
%
|
|
$
|
86,994
|
|
|
|
56
|
%
|
|
$
|
121,792
|
|
Rosemary Quinn
|
|
|
40
|
%
|
|
$
|
86,520
|
|
|
|
56
|
%
|
|
$
|
121,128
|
|
Long
Term Incentives
Long Term
Cash Incentive
The Companys Long Term Incentive (LTI) Plan
(LTI Plan) motivates executives to meet the
Companys long term performance objectives as well as
promotes executive continuity. Each year the Compensation
Committee approves an annual Return on Equity (ROE)
target. ROE, for the purposes of the LTI Plan, is operating
return on equity based upon the equity at the beginning of the
calendar year adjusted to exclude effects of any unrealized
gains and losses. The Compensation Committee does not use
individual performance measures for LTI bonuses under the LTI
Plan. All NEOs have a target LTI bonus of 20% of their base
salary, except Mr. Welch who has a target LTI bonus of 50%
of his base salary based on his employment agreement. As with
all variable compensation, the Compensation Committee believes
that the CEO has the ultimate responsibility for the
Companys results and believes a greater amount of his
compensation should be variable and dependent upon the
Companys financial results.
If the LTI Plan goals for a performance year are achieved, one
third of the payment attributable to that LTI Plan calendar year
will be paid out each year for the following three years
beginning with the first payment made in March of the year
immediately following the LTI Plan year in which the goal was
achieved. Each March, any LTI payment potentially consists of
portions of awards from three LTI Plan years. Thus, the LTI
payments made on March 11, 2011 represented payments for
performance in three years: 2008, 2009, and 2010 (1/3 of the
award for each year). The NEO must be actively employed on the
payment date to receive any LTI payment for the calendar year.
Pursuant to the terms of his employment agreement, if
Mr. Welchs employment is terminated by the Company
without cause or if he terminates his employment for good
reason, he will be entitled to an LTI payment for the calendar
year in which his employment is terminated based on actual
performance and prorated for the period of service through his
termination date.
13
At its February 3, 2010 meeting, the Compensation Committee
set the following ROE targets for 2010:
|
|
|
|
|
|
|
% of Target
|
ROE Achieved
|
|
LTI Payable
|
<6.8%
|
|
|
0
|
%
|
6.8% (threshold)
|
|
|
25
|
%
|
8.8% - 9.8% (target)
|
|
|
100
|
%
|
12.9% + (maximum)
|
|
|
200
|
%
|
The Compensation Committee reserves the discretion to adjust LTI
payments based on events beyond the NEOs control. In
addition, when the Compensation Committee set the ROE target, it
established a formula for adjusting the ROE in order to
recognize the impact of prior year reserve development. The
Companys adjusted ROE for 2010 was 13.1%. Accordingly, the
NEOs were eligible for an LTI payment of 200% of target for the
2010 performance year.
Long Term
Incentive-Equity
Equity-based long term incentive awards serve to align the
interests of executives with those of the Companys
shareholders because both shareholders and executives benefit
from any appreciation in the Companys stock price. The
Compensation Committee grants equity as part of total
compensation to executive officers, officers, and certain other
employees. As a general practice, each year the Compensation
Committee has granted the NEOs, with the exception of the CEO,
stock options equal to approximately 20% of their base salaries
based on a Black-Scholes valuation. Pursuant to his employment
contract, the Compensation Committee has granted the CEO stock
options equal to approximately 50% of his annual base salary
based on a Black-Scholes valuation.
The Compensation Committee approves all equity grants pursuant
to the LTI Plan. The Compensation Committee decides and approves
equity grants at its first regularly scheduled meeting of each
year in order to coincide with the awards of other variable
compensation. In 2010, NEOs received stock options as
outlined in the 2010 Grants of Plan-Based Awards Table.
During 2010, the Compensation Committee solicited the advice of
an outside consultant, Towers Watson Pennsylvania Inc.
(Towers Watson), to review the Companys LTI
Plan since it had been several years since it was subject to an
external review. Towers Watson offered recommendations for
adjusting the LTI Plan based on current best practices and
alignment with Company goals. The only change implemented by the
Committee for 2011 following such review was the use of
restricted stock as a replacement for stock options.
The Compensation Committees policy is to make no grants of
equity during the year other than those made at its first
regularly scheduled meeting of the year, except for grants to
certain newly-hired senior executives. In the event the
Compensation Committee determines that a newly-hired senior
executive should be awarded grants, the Compensation
Committees intention is to grant any such shares at the
Compensation Committees first regularly scheduled meeting
after commencement of such executives employment. Such
shares will be priced at the closing price of the Companys
stock on the day of the grant.
Stock
Ownership Requirements
The Company does not have formal share ownership guidelines or
requirements for any executive, employee, or director.
CNA
Surety Corporation 401(k) Plan
The CNA Surety Corporation 401(k) plan is a funded,
tax-qualified retirement savings plan. Participating employees
may contribute up to 75% of base salary on a before-tax basis
into the plan, subject to a maximum of $16,500 in 2010 ($22,000
for employees over age 50). In addition, the Company
matches an amount equal to one dollar for each dollar
contributed by participating employees on the first 3% of their
eligible compensation and fifty cents for each additional dollar
contributed on the next 3% of their eligible compensation.
Eligible compensation (base salary) does not include bonuses or
other contingent compensation. In addition, eligible
compensation for 2010 was capped at $245,000.
14
The Company also makes contributions to the 401(k) plan called
the Basic Contribution for all employees, including
the NEOs, equal to 3% of eligible compensation (5% for employees
over age 45).
In addition, the Compensation Committee annually establishes
Company-wide performance targets which, if met, result in an
additional Company contribution called the Performance
Contribution. This Performance Contribution is made to
employee 401(k) accounts of each eligible participant and may
range from 0% to 2% of the participants eligible
compensation. The payment is based on Combined Ratio achievement
against established goals. For the definition of Combined Ratio,
please see Results of Operations in Item 7.,
Managements Discussion and Analysis of Financial Condition
and Results of Operations, in the Companys Annual Report
on
Form 10-K
for the year ended December 31, 2010. The NEOs, including
the CEO, fall under the same conditions of payout as all other
Company employees. The Combined Ratio target for a 2% payout in
2010 was 83.00% or better. Since the Companys 2010
Combined Ratio was better than 83.00%, the Compensation
Committee, at its February 2, 2011 meeting, approved a
Performance Contribution equal to 2% of salary to
participants accounts. Set forth below are the Performance
Contribution targets that were established by the Compensation
Committee for 2010:
|
|
|
|
|
Combined Ratio
|
|
% Achievement
|
|
83.00% or better
|
|
|
2.00
|
%
|
83.01 85.00%
|
|
|
1.75
|
%
|
85.01 87.00%
|
|
|
1.50
|
%
|
87.01 89.00%
|
|
|
1.25
|
%
|
89.01 91.00%
|
|
|
1.00
|
%
|
91.01% or higher
|
|
|
0.00
|
%
|
Deferred
Compensation
The NEOs and certain other officers may participate in the
Companys 2005 Deferred Compensation Plan. Refer to the
Tax Considerations-Deductibility of Compensation
section of this Proxy Statement for additional information
concerning this Plan. The Plan allows eligible officers to defer
receiving up to 20% of their compensation. The amount that the
Company may contribute to the NEOs 401(k) accounts for the
matching funds, Basic Contribution, and the Performance
Contribution is limited by federal legislation. The 2005
Deferred Compensation Plan also allows participants to receive
nonqualified Company contributions to their deferred
compensation accounts in amounts equal to the difference between
the amounts of these Company contributions that actually were
allocated to the participants 401(k) plan account and the
amounts that the participant would have received in the absence
of legislation limiting such additions to the participants
401(k) plan account. Participation in the Plan is not automatic.
The Compensation Committee must affirmatively vote that an
executive be allowed to participate in the Plan and the
executive must execute a deferral agreement prior to
participating in the Plan. Once the executive executes a
deferral agreement, the executive may not change or cease
participation in the Plan or change the deferral amounts during
the Plan year. Each December, Plan participants may change the
amount deferred or cease participation in the Plan for the
following year.
All funds in the Plan are general assets of the Company.
However, the Company has funded grantor trusts established to
make payments under the Plan. The assets of these trusts are
available to the Companys general creditors. These trusts
invest in the same mutual funds as are available through the
401(k) plan as chosen by the executives and consequently the
returns are not considered above market returns.
Participants in the Plan will receive the funds in their
deferred compensation account six months after their termination
of employment from the Company.
Change-In-Control
and Termination Benefits that would have been Payable as of
December 31, 2010
The compensation and benefit plans provided to our employees and
executive officers do not provide for any benefit in the event
of a
change-in-control.
However, under the CNA Surety Corporations 2006 Long Term
Equity Compensation Plan, the Compensation Committee has the
discretion to amend the terms of a stock option award in the
event of a
change-in-control.
15
The Company did have, as of December 31, 2010, liability
for severance benefits to those executive officers listed below
pursuant to contracts entered with such executives:
|
|
|
|
|
|
|
|
|
Change-in-
|
|
Termination
|
|
Executive
|
|
Control Benefit
|
|
Benefit
|
|
John F. Welch,
CEO(a)
|
|
None
|
|
$
|
2,944,500
|
|
John F. Corcoran,
CFO(b)
|
|
None
|
|
$
|
270,000
|
|
|
|
|
(a) |
|
See discussion below in Employment Agreements
section of this Proxy Statement. |
(b) |
|
See discussion below in Retention and Severance
Agreements section of this Proxy Statement. |
Employment
Agreement
The termination benefit shown above for Mr. Welch reflects
the maximum termination benefit payable at December 31,
2010 under his employment agreement. As provided under his
employment agreement, the above termination payment is comprised
of severance and earned but unpaid AIB and LTI payments as of
December 31, 2010. Under the terms of an employment
agreement, approved by the Compensation Committee,
Mr. Welch is entitled to a severance benefit if his
employment is terminated by the Company without cause or by
Mr. Welch for good reason contingent upon
Mr. Welchs execution of a general release and his
continuing compliance with the non-competition,
non-solicitation, and confidentiality provisions of the
agreement. In such event, the severance benefit Mr. Welch
will receive includes: any unpaid base salary prorated to the
termination date and earned but unpaid bonuses from the previous
year; plus his base salary and the target AIB and the target LTI
payments prorated through the end of the contract term which is
December 31, 2011, but in no event less than twelve months.
These severance payments would be paid in equal monthly
installments. In addition, after the Compensation
Committees review of actual performance results for the
year in which the termination occurs, Mr. Welch is eligible
to receive a prorated AIB and prorated LTI payment based on
actual performance for the year in which Mr. Welchs
employment is terminated. These payments would be made at the
same time that AIB and LTI payments are made to active
employees. Mr. Welch also would be eligible to continue to
participate in the Companys health benefit plan for the
period of severance running concurrently with any benefit
eligibility under COBRA. This agreement also provides that if
the Company fails to extend Mr. Welchs employment
agreement, then Mr. Welchs employment will terminate
on April 12, 2012 and he would receive severance benefits
consisting of (i) payment of one year of
Mr. Welchs then annual base salary, one year target
AIB, and target LTI award payable in twelve monthly
installments; (ii) continuation in the Companys
health benefit plan for the period of severance running
concurrently with any benefit eligibility under COBRA; and
(iii) prorated AIB and LTI payments (based on actual
performance) for the year in which his employment is terminated,
payable when AIB and LTI payments are made to active employees.
To the extent that any portion of Mr. Welchs
severance benefit constitutes deferred compensation for purposes
of IRC Section 409A, the payment of such portion of his
severance benefit will be delayed until six months after his
separation from service.
Retention
and Severance Agreements
The Company entered into a retention bonus agreement with
Mr. Hinkle on April 1, 2010, with Compensation
Committee approval that provides for a retention bonus of
$250,000, paid out over four installments, to induce
Mr. Hinkle to remain employed with the Company through
April 15, 2014. As provided by the agreement, the Company
paid Mr. Hinkle the first installment of the bonus in the
amount of $50,000 on April 15, 2010. The Company will pay
Mr. Hinkle the second and third installments of the bonus
of $50,000 in April 2011 and 2012 and the final installment of
$100,000 in April 2013. If Mr. Hinkle terminates his
employment with the Company, Mr. Hinkle must repay any
bonus payments paid to him within twelve months prior to his
termination. The agreement also contains certain non-competition
and non-solicitation provisions.
The Company extended the existing severance agreement entered
into with Mr. Corcoran, with the approval of the
Compensation Committee. This agreement provides that in the
event the Company terminates Mr. Corcorans employment
prior to April 1, 2013, other than for cause, death or
disability, Mr. Corcoran will receive a lump-sum severance
payment equal to one year of his base salary. In addition, he
will be eligible to continue in the Companys
16
group health plan for a period of one year from the date of
termination running concurrently with any benefit eligibility
under COBRA.
Compensation
Committee Interlocks and Insider Participation
The Compensation Committee met seven times in 2010. In 2010, the
Companys Compensation Committee was comprised of Robert A.
Tinstman (Chairman), Philip H. Britt, and Anthony S. Cleberg,
all of whom are independent directors and none of whom had any
relationship requiring disclosure by the Company under the
Certain Relationships and Related Transactions
section of this Proxy Statement. The Board adopted a
Compensation Committee Charter which governs the Compensation
Committee and is available on the Company website at
www.cnasurety.com and will be provided to any shareholder
upon request by contacting Adrianne T. Baker, representative of
the Company, at 333 S. Wabash Ave., 41st Floor,
Chicago, Illinois 60604,
(312) 822-4971.
COMPENSATION
COMMITTEE REPORT
The Committee reviewed and discussed the Compensation Discussion
and Analysis set forth above with the management of the Company,
and, based on such review and discussion, recommended to the
Board that the Compensation Discussion and Analysis be included
in this Proxy Statement.
SUBMITTED
BY THE COMPENSATION COMMITTEE
OF THE COMPANYS BOARD OF DIRECTORS
Robert
A. Tinstman
Philip H. Britt
Anthony S. Cleberg
EXECUTIVE
COMPENSATION
The following tables show information with respect to the annual
compensation (including stock option awards) for services
rendered to the Company for the years ended December 31,
2010, December 31, 2009, and December 31, 2008 by the
Chief Executive Officer, the Chief Financial Officer, and other
NEOs as of December 31, 2010.
2010
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Non-Equity
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
Incentive Plan
|
|
Compensation
|
|
All Other
|
|
|
Name and Principal
|
|
|
|
Salary(a)
|
|
Bonus(b)
|
|
Awards
|
|
Awards(c)
|
|
Compensation(d)
|
|
Earnings
|
|
Compensation(e)
|
|
Total
|
Position
|
|
Year
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
$
|
John F. Welch
|
|
|
2010
|
|
|
$
|
493,077
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
190,675
|
|
|
$
|
1,500,000
|
|
|
$
|
|
|
|
$
|
151,414
|
|
|
$
|
2,335,165
|
|
President and Chief
|
|
|
2009
|
|
|
$
|
470,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
184,370
|
|
|
$
|
1,410,000
|
|
|
$
|
|
|
|
$
|
146,437
|
|
|
$
|
2,210,807
|
|
Executive Officer
|
|
|
2008
|
|
|
$
|
435,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
152,312
|
|
|
$
|
1,261,500
|
|
|
$
|
|
|
|
$
|
119,791
|
|
|
$
|
1,968,603
|
|
John F. Corcoran
|
|
|
2010
|
|
|
$
|
270,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
43,500
|
|
|
$
|
270,000
|
|
|
$
|
|
|
|
$
|
52,573
|
|
|
$
|
636,073
|
|
Chief Financial Officer
|
|
|
2009
|
|
|
$
|
275,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
39,380
|
|
|
$
|
270,000
|
|
|
$
|
|
|
|
$
|
43,664
|
|
|
$
|
628,044
|
|
|
|
|
2008
|
|
|
$
|
250,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
34,760
|
|
|
$
|
240,000
|
|
|
$
|
|
|
|
$
|
35,332
|
|
|
$
|
560,091
|
|
Douglas W. Hinkle
|
|
|
2010
|
|
|
$
|
265,384
|
|
|
$
|
50,000
|
|
|
$
|
|
|
|
$
|
40,600
|
|
|
$
|
280,800
|
|
|
$
|
|
|
|
$
|
53,223
|
|
|
$
|
690,007
|
|
Chief Underwriting Officer
|
|
|
2009
|
|
|
$
|
259,615
|
|
|
$
|
100,000
|
|
|
$
|
|
|
|
$
|
39,380
|
|
|
$
|
260,000
|
|
|
$
|
|
|
|
$
|
55,670
|
|
|
$
|
714,665
|
|
|
|
|
2008
|
|
|
$
|
250,000
|
|
|
$
|
50,000
|
|
|
$
|
|
|
|
$
|
34,760
|
|
|
$
|
250,000
|
|
|
$
|
|
|
|
$
|
45,857
|
|
|
$
|
630,617
|
|
Michael A. Dougherty
|
|
|
2010
|
|
|
$
|
231,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
37,700
|
|
|
$
|
221,760
|
|
|
$
|
|
|
|
$
|
45,243
|
|
|
$
|
535,703
|
|
Senior Vice President
|
|
|
2009
|
|
|
$
|
239,884
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
35,800
|
|
|
$
|
221,760
|
|
|
$
|
|
|
|
$
|
44,834
|
|
|
$
|
542,278
|
|
|
|
|
2008
|
|
|
$
|
228,038
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
30,968
|
|
|
$
|
207,900
|
|
|
$
|
|
|
|
$
|
40,389
|
|
|
$
|
507,296
|
|
Thomas A. Pottle(f)
|
|
|
2010
|
|
|
$
|
200,755
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
35,525
|
|
|
$
|
208,786
|
|
|
$
|
|
|
|
$
|
246,510
|
|
|
$
|
691,576
|
|
Senior Vice President
|
|
|
2009
|
|
|
$
|
224,144
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
33,115
|
|
|
$
|
208,786
|
|
|
$
|
|
|
|
$
|
39,558
|
|
|
$
|
505,603
|
|
|
|
|
2008
|
|
|
$
|
211,150
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
29,704
|
|
|
$
|
199,326
|
|
|
$
|
|
|
|
$
|
34,408
|
|
|
$
|
474,588
|
|
Rosemary Quinn(g)
|
|
|
2010
|
|
|
$
|
213,923
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
33,350
|
|
|
$
|
207,648
|
|
|
$
|
|
|
|
$
|
39,536
|
|
|
$
|
494,457
|
|
Senior Vice President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
(a) |
|
Due to the timing of pay periods during the 2009 calendar year,
the 2009 salary pay schedule included more pay periods than
calendar year 2010. |
|
(b) |
|
Amounts indicated for Mr. Hinkle reflect payments made
under a retention agreement. For a more detailed discussion,
please see Retention and Severance Agreements
section of this Proxy Statement. |
|
(c) |
|
This column reflects the aggregate grant date fair value of the
stock option awards computed in accordance with Accounting
Standards Codification 718. For a more detailed discussion of
the assumptions used in valuing the Companys stock option
awards, please see Note 11 Stockholders
Equity in the Companys Annual Report on
Form 10-K
for the year ended December 31, 2010. |
|
(d) |
|
The amounts reported in this column represent awards under the
AIB and LTI Plans for performance in 2008, 2009, and 2010. For
more information, please see the discussion under Annual
Cash Bonus and Long Term Cash Incentive
sections of the Compensation Discussion and Analysis
in this Proxy Statement. |
|
|
|
For John F. Welch 2010 Non-Equity Incentive Plan
Compensation includes: an AIB cash payment of $1,000,000 and an
LTI cash award of $500,000. Subject to LTI Plan guidelines, the
LTI amount will be paid out over three installments starting
with the March 11, 2011 payment. The actual amount paid to
Mr. Welch on March 11, 2011 for LTI was $453,833,
which is comprised of 1/3 payments for performance years 2008,
2009, and 2010. |
|
|
|
For John F. Corcoran 2010 Non-Equity Incentive Plan
Compensation includes: an AIB cash payment of $162,000 and an
LTI cash award of $108,000. Subject to LTI Plan guidelines, the
LTI amount will be paid out over three installments starting
with the March 11, 2011 payment. The actual amount paid to
Mr. Corcoran on March 11, 2011 for LTI was $102,000,
which is comprised of 1/3 payments for performance years 2008,
2009, and 2010. |
|
|
|
For Douglas W. Hinkle 2010 Non-Equity Incentive Plan
Compensation includes: an AIB cash payment of $172,800 and an
LTI cash award of $108,000. Subject to LTI Plan guidelines, the
LTI amount will be paid out over three installments starting
with the March 11, 2011 payment. The actual amount paid to
Mr. Hinkle on March 11, 2011 for LTI was $99,333,
which is comprised of 1/3 payments for performance years 2008,
2009, and 2010. |
|
|
|
For Michael A. Dougherty 2010 Non-Equity Incentive
Plan Compensation includes: an AIB cash payment of $129,360 and
an LTI cash award of $92,400. Subject to LTI Plan guidelines,
the LTI amount will be paid out over three installments starting
with the March 11, 2011 payment. The actual amount paid to
Mr. Dougherty on March 11, 2011 for LTI was $89,320,
which is comprised of 1/3 payments for performance years 2008,
2009, and 2010. |
|
|
|
For Thomas A. Pottle 2010 Non-Equity Incentive Plan
Compensation includes: an AIB cash payment of $121,792 and an
LTI cash award of $86,994. As provided by the General Release
and Settlement Agreement entered between Mr. Pottle and the
Company in 2010, the actual amount of LTI paid to
Mr. Pottle on March 11, 2011 was $170,332 which
represents all earned and unpaid LTI for performance years 2008,
2009, and 2010. |
|
|
|
For Rosemary Quinn 2010 Non-Equity Incentive Plan
Compensation includes: an AIB cash payment of $121,128 and an
LTI cash award of $86,520. Subject to LTI Plan guidelines, the
LTI amount will be paid out over three installments starting
with the March 11, 2011 payment. The actual amount paid to
Ms. Quinn on March 11, 2011 for LTI was $74,307, which
is comprised of 1/3 payments for performance years 2008, 2009,
and 2010 |
|
(e) |
|
Please refer to the All Other Compensation Table below for
additional information. |
|
(f) |
|
Mr. Pottles employment terminated on
November 26, 2010. The All Other Compensation Table for
Mr. Pottle includes a payment of $217,500 made pursuant to
the terms of the General Release and Settlement Agreement he
entered into with the Company in 2010. |
|
(g) |
|
Ms. Quinn became an NEO on November 26, 2010. |
18
The following table describes each component of the All Other
Compensation column in the Summary Compensation Table for the
year ended December 31, 2010.
All Other
Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
Executive
|
|
401(k) Plan
|
|
Compensation
|
|
|
|
|
|
|
Name
|
|
Perquisites
|
|
Contributions
|
|
Contributions
|
|
Life Insurance
|
|
Severance
|
|
Total
|
John F. Welch
|
|
$
|
2,905
|
|
|
$
|
28,175
|
|
|
$
|
119,506
|
|
|
$
|
828
|
|
|
$
|
|
|
|
$
|
151,414
|
|
John F. Corcoran
|
|
$
|
4,000
|
|
|
$
|
27,757
|
|
|
$
|
20,419
|
|
|
$
|
396
|
|
|
$
|
|
|
|
$
|
52,573
|
|
Douglas W. Hinkle
|
|
$
|
1,292
|
|
|
$
|
27,050
|
|
|
$
|
23,769
|
|
|
$
|
1,111
|
|
|
$
|
|
|
|
$
|
53,223
|
|
Michael A. Dougherty
|
|
$
|
4,000
|
|
|
$
|
26,945
|
|
|
$
|
13,798
|
|
|
$
|
499
|
|
|
$
|
|
|
|
$
|
45,243
|
|
Thomas A. Pottle
|
|
$
|
|
|
|
$
|
21,284
|
|
|
$
|
7,298
|
|
|
$
|
428
|
|
|
$
|
217,500
|
|
|
$
|
246,510
|
|
Rosemary Quinn
|
|
$
|
3,455
|
|
|
$
|
26,150
|
|
|
$
|
9,083
|
|
|
$
|
849
|
|
|
$
|
|
|
|
$
|
39,536
|
|
2010
Grants of Plan-Based Awards Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
All Other
|
|
|
|
|
|
Grant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Option
|
|
|
|
|
|
Date Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
Awards:
|
|
|
Exercise or
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Base Price
|
|
|
Stock
|
|
|
|
|
|
|
Estimated Future Payout Under
|
|
|
Shares of
|
|
|
Securities
|
|
|
of Option
|
|
|
Options
|
|
|
|
|
|
|
Non-Equity Incentive Plan Awards
|
|
|
Stock or
|
|
|
Underlying
|
|
|
Awards
|
|
|
and
|
|
|
|
Grant
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Units
|
|
|
Options
|
|
|
($ per
|
|
|
Awards
|
|
Name
|
|
Date
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
(#)
|
|
|
(#)
|
|
|
share)(a)
|
|
|
($)
|
|
John F. Welch
|
|
|
2/5/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,300
|
|
|
$
|
14.32
|
|
|
$
|
190,675
|
|
|
|
|
AIB
|
|
|
$
|
250,000
|
|
|
$
|
500,000
|
|
|
$
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTI
|
|
|
$
|
62,500
|
|
|
$
|
250,000
|
|
|
$
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John F. Corcoran
|
|
|
2/5/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
$
|
14.32
|
|
|
$
|
43,500
|
|
|
|
|
AIB
|
|
|
$
|
54,000
|
|
|
$
|
108,000
|
|
|
$
|
216,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTI
|
|
|
$
|
13,500
|
|
|
$
|
54,000
|
|
|
$
|
108,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas W. Hinkle
|
|
|
2/5/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,600
|
|
|
$
|
14.32
|
|
|
$
|
40,600
|
|
|
|
|
AIB
|
|
|
$
|
54,000
|
|
|
$
|
108,000
|
|
|
$
|
216,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTI
|
|
|
$
|
13,500
|
|
|
$
|
54,000
|
|
|
$
|
108,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael A. Dougherty
|
|
|
2/5/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,200
|
|
|
$
|
14.32
|
|
|
$
|
37,700
|
|
|
|
|
AIB
|
|
|
$
|
46,200
|
|
|
$
|
92,400
|
|
|
$
|
184,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTI
|
|
|
$
|
11,550
|
|
|
$
|
46,200
|
|
|
$
|
92,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas A. Pottle(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,900
|
|
|
$
|
14.32
|
|
|
$
|
35,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rosemary Quinn
|
|
|
2/5/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,600
|
|
|
$
|
14.32
|
|
|
$
|
33,350
|
|
|
|
|
AIB
|
|
|
$
|
43,260
|
|
|
$
|
86,520
|
|
|
$
|
173,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTI
|
|
|
$
|
10,815
|
|
|
$
|
43,260
|
|
|
$
|
86,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The exercise price shown is the closing price of the
Companys Common Stock on February 5, 2010 as reported
by the Exchange. |
|
(b) |
|
The Company paid Mr. Pottle all earned and unpaid
compensation on March 11, 2011 pursuant to the terms of the
General Release and Settlement Agreement entered between
Mr. Pottle and the Company in 2010. Accordingly, there is
no estimated future payout listed for Mr. Pottle. |
19
Outstanding
Equity Awards at Fiscal Year-End Table
The equity awards of the NEOs outstanding at December 31,
2010 are shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
Plan Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Stock Awards
|
|
|
Plan Awards:
|
|
|
Market or
|
|
|
|
|
|
|
Option
|
|
|
Option
|
|
|
Awards:
|
|
|
|
|
|
|
|
|
Awards
|
|
|
Market
|
|
|
Number of
|
|
|
Payout Value
|
|
|
|
|
|
|
Awards
|
|
|
Awards
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Value of
|
|
|
Unearned
|
|
|
of Unearned
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Shares or
|
|
|
Shares or
|
|
|
Shares, Units,
|
|
|
Shares, Units,
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
Units of
|
|
|
Units of
|
|
|
or Other
|
|
|
or Other
|
|
|
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
Unexercised
|
|
|
Option
|
|
|
|
|
|
Stock That
|
|
|
Stock That
|
|
|
Rights That
|
|
|
Rights That
|
|
|
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Unearned
|
|
|
Exercise
|
|
|
Option
|
|
|
Have Not
|
|
|
Have Not
|
|
|
Have Not
|
|
|
Have Not
|
|
|
|
Date of
|
|
|
Options (#)
|
|
|
Options (#)
|
|
|
Options
|
|
|
Price
|
|
|
Expiration
|
|
|
Vested
|
|
|
Vested
|
|
|
Vested
|
|
|
Vested
|
|
Name
|
|
Grant
|
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
(#)
|
|
|
($)
|
|
|
Date
|
|
|
(#)
|
|
|
($)
|
|
|
(#)
|
|
|
($)
|
|
John F. Welch
|
|
|
06/30/2003
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
$
|
9.85
|
|
|
|
06/30/2013
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
11/11/2003
|
|
|
|
18,600
|
|
|
|
|
|
|
|
|
|
|
$
|
9.42
|
|
|
|
11/11/2013
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
11/09/2004
|
|
|
|
29,700
|
|
|
|
|
|
|
|
|
|
|
$
|
12.06
|
|
|
|
11/09/2014
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
10/25/2005
|
|
|
|
26,500
|
|
|
|
|
|
|
|
|
|
|
$
|
13.07
|
|
|
|
10/25/2015
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
02/13/2007
|
|
|
|
14,025
|
|
|
|
4,675
|
|
|
|
|
|
|
$
|
20.70
|
|
|
|
02/13/2017
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
02/08/2008
|
|
|
|
12,050
|
|
|
|
12,050
|
|
|
|
|
|
|
$
|
16.35
|
|
|
|
02/08/2018
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
02/06/2009
|
|
|
|
5,150
|
|
|
|
15,450
|
|
|
|
|
|
|
$
|
18.85
|
|
|
|
02/06/2019
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
02/05/2010
|
|
|
|
|
|
|
|
26,300
|
|
|
|
|
|
|
$
|
14.32
|
|
|
|
02/05/2020
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
John F. Corcoran
|
|
|
11/11/2003
|
|
|
|
12,100
|
|
|
|
|
|
|
|
|
|
|
$
|
9.42
|
|
|
|
11/11/2013
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
11/09/2004
|
|
|
|
6,700
|
|
|
|
|
|
|
|
|
|
|
$
|
12.06
|
|
|
|
11/09/2014
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
10/25/2005
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
$
|
13.07
|
|
|
|
10/25/2015
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
02/13/2007
|
|
|
|
3,225
|
|
|
|
1,075
|
|
|
|
|
|
|
$
|
20.70
|
|
|
|
02/13/2017
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
02/08/2008
|
|
|
|
2,750
|
|
|
|
2,750
|
|
|
|
|
|
|
$
|
16.35
|
|
|
|
02/08/2018
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
02/06/2009
|
|
|
|
1,100
|
|
|
|
3,300
|
|
|
|
|
|
|
$
|
18.85
|
|
|
|
02/06/2019
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
02/05/2010
|
|
|
|
|
|
|
|
6,000
|
|
|
|
|
|
|
$
|
14.32
|
|
|
|
02/05/2020
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
Douglas W. Hinkle
|
|
|
08/11/2004
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
$
|
10.58
|
|
|
|
08/11/2014
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
11/09/2004
|
|
|
|
5,600
|
|
|
|
|
|
|
|
|
|
|
$
|
12.06
|
|
|
|
11/09/2014
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
10/25/2005
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
$
|
13.07
|
|
|
|
10/25/2015
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
02/13/2007
|
|
|
|
2,925
|
|
|
|
975
|
|
|
|
|
|
|
$
|
20.70
|
|
|
|
02/13/2017
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
02/08/2008
|
|
|
|
2,750
|
|
|
|
2,750
|
|
|
|
|
|
|
$
|
16.35
|
|
|
|
02/08/2018
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
02/06/2009
|
|
|
|
1,100
|
|
|
|
3,300
|
|
|
|
|
|
|
$
|
18.85
|
|
|
|
02/06/2019
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
02/05/2010
|
|
|
|
|
|
|
|
5,600
|
|
|
|
|
|
|
$
|
14.32
|
|
|
|
02/05/2020
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
Michael A. Dougherty
|
|
|
11/19/2002
|
|
|
|
1,950
|
|
|
|
|
|
|
|
|
|
|
$
|
9.35
|
|
|
|
11/19/2012
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
11/11/2003
|
|
|
|
3,850
|
|
|
|
|
|
|
|
|
|
|
$
|
9.42
|
|
|
|
11/11/2013
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
11/09/2004
|
|
|
|
4,650
|
|
|
|
|
|
|
|
|
|
|
$
|
12.06
|
|
|
|
11/09/2014
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
10/25/2005
|
|
|
|
5,500
|
|
|
|
|
|
|
|
|
|
|
$
|
13.07
|
|
|
|
10/25/2015
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
02/13/2007
|
|
|
|
2,700
|
|
|
|
900
|
|
|
|
|
|
|
$
|
20.70
|
|
|
|
02/13/2017
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
02/08/2008
|
|
|
|
2,450
|
|
|
|
2,450
|
|
|
|
|
|
|
$
|
16.35
|
|
|
|
02/08/2018
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
02/06/2009
|
|
|
|
1,000
|
|
|
|
3,000
|
|
|
|
|
|
|
$
|
18.85
|
|
|
|
02/06/2019
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
02/05/2010
|
|
|
|
|
|
|
|
5,200
|
|
|
|
|
|
|
$
|
14.32
|
|
|
|
02/05/2020
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
Thomas A. Pottle
|
|
|
02/13/2007
|
|
|
|
2,625
|
|
|
|
|
|
|
|
|
|
|
$
|
20.70
|
|
|
|
02/13/2017
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
02/06/2009
|
|
|
|
925
|
|
|
|
|
|
|
|
|
|
|
$
|
18.85
|
|
|
|
02/06/2019
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
Rosemary Quinn
|
|
|
02/13/2007
|
|
|
|
1,875
|
|
|
|
625
|
|
|
|
|
|
|
$
|
20.70
|
|
|
|
02/13/2017
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
02/08/2008
|
|
|
|
1,340
|
|
|
|
1,340
|
|
|
|
|
|
|
$
|
16.35
|
|
|
|
02/08/2018
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
02/06/2009
|
|
|
|
875
|
|
|
|
2,625
|
|
|
|
|
|
|
$
|
18.85
|
|
|
|
02/06/2019
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
02/05/2010
|
|
|
|
|
|
|
|
4,600
|
|
|
|
|
|
|
$
|
14.32
|
|
|
|
02/05/2020
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
For each grant, 25% of the shares vest annually one year from
the grant date, and then an additional 25% vests annually for
the next three years. For example, for the February 6, 2009
grant date, 25% of the shares granted vested on February 6,
2010, 25% of the shares vested on February 6, 2011, 25% of
the shares will vest on February 6, 2012, and the remaining
25% of the shares will vest on February 6, 2013. Stock
options are governed by the CNA Surety Corporation 2006 Long
Term Equity Compensation Plan which does not have an express
change-in-control
provision. In the event of a
change-in-control,
any changes to stock options would be decided by and
administered by the Compensation Committee.
20
The following table provides additional information about the
value realized by the NEOs on stock option exercises and stock
awards vesting during the year ended December 31, 2010.
Option
Exercises and Stock Vesting Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards:
|
|
Option
|
|
Stock Awards:
|
|
Stock Awards:
|
|
|
Number of
|
|
Awards: Value
|
|
Number of
|
|
Value
|
|
|
Shares Acquired
|
|
Realized on
|
|
Shares Acquired
|
|
Realized on
|
|
|
on Exercise
|
|
Exercise
|
|
on Vesting
|
|
Vesting
|
Name
|
|
(#)
|
|
($)
|
|
(#)
|
|
($)
|
John F. Welch
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
John F. Corcoran
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
Douglas W. Hinkle
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
Michael A. Dougherty
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
Thomas A. Pottle
|
|
35,550
|
|
$
|
360,598
|
|
|
|
|
$
|
|
|
Rosemary Quinn
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
The value realized by a NEO upon the exercise of an option is
determined by multiplying the number of options exercised by the
difference between the fair market value on the date of exercise
and the exercise price.
The following table provides information on contributions,
earnings, and account balances for the NEOs in the
Companys 2005 Deferred Compensation Plan and the 2000
Deferred Compensation Plan as of December 31, 2010.
Non-Qualified
Deferred Compensation
The 2005 Deferred Compensation Plan was adopted to replace the
Companys 2000 Deferred Compensation Plan which after
December 31, 2004 no longer accepted contributions.
Accordingly, the 2000 Deferred Compensation Plan shown in the
below chart only shows Earnings and Aggregate Year End Balances
for Fiscal Year End 2010 (FYE 2010).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
Contributions
|
|
|
Registrant
|
|
|
Earnings in
|
|
|
Aggregate
|
|
|
Aggregate
|
|
|
|
in Last
|
|
|
Contributions in
|
|
|
Last Fiscal
|
|
|
Withdrawals/
|
|
|
Balance at Last
|
|
|
|
Fiscal Year
|
|
|
Last Fiscal Year
|
|
|
Year
|
|
|
Distributions
|
|
|
Fiscal Year End
|
|
Name
|
|
($)
|
|
|
($)(a)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
John F. Welch
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 Deferred Compensation Plan
|
|
$
|
29,585
|
|
|
$
|
119,506
|
|
|
$
|
11,378
|
|
|
$
|
|
|
|
$
|
567,720
|
|
2000 Deferred Compensation Plan
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,520
|
|
|
$
|
|
|
|
$
|
49,383
|
|
John F. Corcoran
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 Deferred Compensation Plan
|
|
$
|
27,000
|
|
|
$
|
20,419
|
|
|
$
|
13,834
|
|
|
$
|
|
|
|
$
|
228,157
|
|
2000 Deferred Compensation Plan
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,274
|
|
|
$
|
|
|
|
$
|
23,087
|
|
Douglas W. Hinkle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 Deferred Compensation Plan
|
|
$
|
26,538
|
|
|
$
|
23,769
|
|
|
$
|
6,172
|
|
|
$
|
|
|
|
$
|
182,506
|
|
2000 Deferred Compensation Plan
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Michael A. Dougherty
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 Deferred Compensation Plan
|
|
$
|
13,860
|
|
|
$
|
13,798
|
|
|
$
|
14,323
|
|
|
$
|
|
|
|
$
|
149,880
|
|
2000 Deferred Compensation Plan
|
|
$
|
|
|
|
$
|
|
|
|
$
|
31,362
|
|
|
$
|
|
|
|
$
|
317,953
|
|
Thomas A. Pottle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 Deferred Compensation Plan
|
|
$
|
|
|
|
$
|
7,298
|
|
|
$
|
4,195
|
|
|
$
|
|
|
|
$
|
43,405
|
|
2000 Deferred Compensation Plan
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,820
|
|
|
$
|
105,091
|
|
|
$
|
|
|
Rosemary Quinn
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 Deferred Compensation Plan
|
|
$
|
|
|
|
$
|
9,083
|
|
|
$
|
943
|
|
|
$
|
|
|
|
$
|
7,754
|
|
2000 Deferred Compensation Plan
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
(a) For the 2005 Deferred Compensation Plan, this column
includes the Companys Deferred Compensation Basic,
Matching, and Discretionary Contributions to the NEOs for FYE
2010. Additionally, the 2005 Deferred Compensation Plan amounts
are a component of the values listed in the All Other
Compensation Table of the Summary Compensation Table of
this Proxy Statement attributable to annual Company
contributions to defined contribution plans. For a more detailed
discussion of the 2005 Deferred Compensation Plan, refer to the
Deferred Compensation section of the
Compensation Discussion and Analysis section of this
Proxy Statement.
21
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal
Shareholders
The following table contains certain information as of
February 8, 2011 (unless otherwise noted) as to all
entities which, to the Companys knowledge, were the
beneficial owners of 5% or more of the outstanding shares of the
Companys Common Stock. Information in the table is based
upon reports filed with the SEC pursuant to Section 13(d)
and 16(a) under the Securities Exchange Act of 1934 (the
Exchange Act) and other written representations
received by the Company with respect to entities named in the
tables. Beneficial ownership is defined for this purpose as the
sole or shared power to vote or to direct the disposition of the
Common Stock. Unless otherwise noted, the persons in the
following table have sole voting and investment power with
respect to all shares shown as beneficially owned by them:
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Percent of
|
Name and Address of Beneficial Owner
|
|
Beneficially
Owned(a)
|
|
Class
|
Continental Casualty Company and Affiliates
|
|
|
27,425,147
|
|
|
|
61.29
|
%
|
333 S. Wabash Ave.
Chicago, Illinois 60604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dimensional Fund Advisors
LP(b)
|
|
|
3,107,406
|
|
|
|
6.94
|
%
|
Palisades West, Building One
Bee Cave Rd.
Austin, Texas 78746
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The number of shares of the Companys Common Stock
indicated as beneficially owned is reported on the basis of
regulations of the SEC governing the determination of beneficial
ownership of securities. |
|
(b) |
|
The ownership information for Dimensional Fund Advisors LP
is as of December 31, 2010. |
MANAGEMENT
AND DIRECTORS
The following table shows certain information, at
February 28, 2011, as to the shares of the Companys
Common Stock beneficially owned by each director and nominee,
each NEO named in the Summary Compensation Table, and all of the
Companys executive officers and directors as a group,
based on information furnished by them.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
Upon
|
|
|
|
|
|
|
Shares of
|
|
Deferred
|
|
Exercise of
|
|
|
|
|
|
|
Common
|
|
Stock
|
|
Stock
|
|
|
|
Percent of
|
Name of Beneficial Owner
|
|
Stock(a)
|
|
Units(b)
|
|
Options(c)
|
|
Total
|
|
Class
|
Philip H. Britt
|
|
|
3,097
|
|
|
|
9,919
|
|
|
|
|
|
|
|
13,016
|
|
|
|
|
*
|
Anthony S. Cleberg
|
|
|
3,291
|
|
|
|
|
|
|
|
|
|
|
|
3,291
|
|
|
|
|
*
|
John F. Corcoran
|
|
|
|
|
|
|
|
|
|
|
36,925
|
|
|
|
36,925
|
|
|
|
|
*
|
Michael A. Dougherty
|
|
|
6,900
|
|
|
|
|
|
|
|
26,525
|
|
|
|
33,425
|
|
|
|
|
*
|
David B.
Edelson(d)
|
|
|
3,200
|
|
|
|
|
|
|
|
|
|
|
|
3,200
|
|
|
|
|
*
|
Douglas W. Hinkle
|
|
|
|
|
|
|
|
|
|
|
25,725
|
|
|
|
25,725
|
|
|
|
|
*
|
D. Craig
Mense(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Thomas A. Pottle
|
|
|
500
|
|
|
|
|
|
|
|
2,625
|
|
|
|
3,125
|
|
|
|
|
*
|
Rosemary Quinn
|
|
|
|
|
|
|
|
|
|
|
7,410
|
|
|
|
7,410
|
|
|
|
|
*
|
Robert A. Tinstman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
John F. Welch
|
|
|
|
|
|
|
|
|
|
|
178,450
|
|
|
|
178,450
|
|
|
|
|
*
|
Peter W.
Wilson(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
All directors and executive officers as a group
|
|
|
16,988
|
|
|
|
9,919
|
|
|
|
277,660
|
|
|
|
304,567
|
|
|
|
|
*
|
|
|
|
* |
|
Less than 1% |
|
(a) |
|
Except as otherwise indicated, the persons listed as beneficial
owners of shares have sole voting and investment power with
respect to those shares. |
22
|
|
|
(b) |
|
In January 1998, the Company established the CNA Surety
Corporation Non-Employee Directors Deferred Compensation
Plan. Under this plan, each director who was not a full-time
employee of the Company or any of its affiliates could defer all
or a portion of the annual retainer fee that would otherwise
have been paid to such director. The deferral amount was deemed
vested in Common Stock Units equal to the deferred fees divided
by the fair market value of the Companys Common Stock as
of each quarterly meeting. The Compensation Committee voted to
eliminate the Non-Employee Director Compensation Plan effective
January 1, 2005. |
|
(c) |
|
Represents beneficial ownership of shares that may be acquired
by the exercise of stock options, which are currently
exercisable as of the date of this table. |
|
(d) |
|
Although not reflected in the above table, Mr. Edelson
currently has 157,496 Stock Appreciation Rights
(SARs) and 45,000 stock options exercisable for
Loews. Mr. Edelson currently owns 2,000 shares of CNAF
stock. |
|
(e) |
|
Although not reflected in the above table, Mr. Mense
currently has 50,000 stock options and 87,500 SARs exercisable
for CNAF stock. Mr. Mense currently owns 17,054 shares
of CNAF stock. |
|
(f) |
|
Although not reflected in the above table, Mr. Wilson
currently has 30,000 stock options and 65,000 SARs exercisable
for CNAF stock. |
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number Securities
|
|
|
|
|
|
|
|
|
|
to be Issued
|
|
|
Weighted-Average
|
|
|
Number of Securities
|
|
|
|
Upon Exercise of
|
|
|
Exercise Price of
|
|
|
Remaining Available for
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
Future Issuance Under
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Equity Compensation Plans
|
|
Equity compensation plans approved by security holders
|
|
|
1,093,181
|
|
|
$
|
15.67
|
|
|
|
2,009,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,093,181
|
|
|
$
|
15.67
|
|
|
|
2,009,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2006, the shareholders of the Company approved the CNA Surety
Corporation 2006 Long Term Equity Compensation Plan (2006
Plan). The 2006 Plan included 3,000,000 total shares
comprised of: 2,453,598 newly authorized shares and 546,402
carryover shares which were previously available for grant under
the CNA Surety Corporation 1997 Long Term Equity Compensation
Plan (1997 Plan). The 1,093,181 shares listed
above have been granted and are available for exercise, subject
to vesting rules, under the both the 2006 Plan and the 1997
Plan. A total of 281,260 stock options were granted in 2010.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
CNAF
Proposal
In October 2010, the Company received an unsolicited proposal
from CNAF to acquire all of the outstanding shares of common
stock that are not currently owned by subsidiaries of CNAF at a
purchase price of $22.00 per share in cash (the CNAF
Proposal). The Companys Board of Directors appointed
a special committee (the Special Committee),
comprised solely of the Companys three independent
directors, to review and evaluate the CNAF Proposal. The Special
Committee retained both legal and financial advisors to assist
in their consideration of the CNAF Proposal. On February 4,
2011, the Special Committee announced that it does not support
the terms of the proposal and advised CNAF that it is open to
alternate proposals.
Related
Party Transactions
It is our policy that any transaction involving the Company or
any of its subsidiaries in which any of our directors, executive
officers, or principal shareholders had or will have a direct or
indirect material interest be submitted to our Audit Committee
for its consideration. In each case, such consideration and
discussion is without the participation of any Audit Committee
member who may be involved in the transaction. The Audit
Committee, which consists entirely of Independent Directors,
considers all relevant facts in order to determine whether the
transaction is fair and reasonable to us and our shareholders,
including our minority shareholders. Although there is no
written statement of the review procedure, the Audit
Committees review, approval, or ratification of such
related party
23
transactions is reflected in the meeting records of the Audit
Committee. The last such review took place on February 2,
2011.
Related
Party Reinsurance
The Surety Quota Share Treaty (the Quota Share
Treaty), the Services and Indemnity Agreement, the
Aggregate Stop Loss Reinsurance Contract (the Stop Loss
Contract), and the Surety Excess of Loss Reinsurance
Contract (the Excess of Loss Contract) discussed
below were originally entered on September 30, 1997 (the
Merger Date). Although the contracts entered into on
the Merger Date have expired, some have been renewed on
different terms as discussed below.
Through the Quota Share Treaty, surety business, other than
Canadian business, written or renewed by Continental Casualty
Company (CCC) and Continental Insurance Company
(CIC) (CCC and CIC are subsidiaries of CNAF) after
the Merger Date is transferred to the Companys subsidiary,
Western Surety Company (Western Surety). The Quota
Share Treaty, which was renewed on January 1, 2010 and
expired on December 31, 2010, was renewed for one year on
January 1, 2011 on substantially the same terms as 2010.
CCC and CIC transfer the related liabilities of business covered
by this treaty and pay to Western Surety an amount equal to
CCCs and CICs 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 25% of net written
premiums written on all such business. Under the terms of the
Quota Share Treaty, CCC has guaranteed the loss and loss
adjustment expense reserves transferred to Western Surety as of
the Merger Date 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
re-estimated as of the end of such calendar quarter. There was
no adverse reserve development for the period from the Merger
Date through December 31, 2010.
The Services and Indemnity Agreement provides the Companys
insurance subsidiaries with the authority to perform various
administrative, management, underwriting, and claim functions
concerning the surety business of CCC and CIC ceded to Western
Surety under the Quota Share Treaty. As of December 31,
2010, there were no amounts due our insurance subsidiaries under
the Services and Indemnity Agreement. This Agreement was renewed
with the same terms on January 1, 2011 and expires on
December 31, 2011 and is annually renewable thereafter.
Through the Stop Loss Contract, the Companys insurance
subsidiaries were protected from adverse loss development on
certain business underwritten after the Merger Date. The Stop
Loss Contract between the Companys insurance subsidiaries
and CCC limited the insurance subsidiaries prospective net
loss ratios with respect to certain accounts and lines of
insured business for three full accident years following the
Merger Date. In the event the insurance subsidiaries
accident year net loss ratio exceeds 24% in any of the accident
years 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 Companys insurance subsidiaries a dollar
amount equal to (i) the amount, if any, by which the
Companys 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 Companys
insurance subsidiaries pay CCC an annual premium of $20,000.
Losses incurred under the Stop Loss Contract were
$47.2 million through December 31, 2010. At
December 31, 2010, the amount received under the Stop Loss
Contract included $2.7 million held by the Company for
losses covered by this contract that were incurred but not paid.
On January 1, 2010, the Company and CCC entered into two
separate agreements that provide for the transfer of the
Canadian surety business of CCC to Western Surety. These
agreements, which include a quota share treaty (the
Canadian Quota Share Treaty) and a services and
indemnity agreement (the Canadian Services and Indemnity
Agreement), are substantially similar to the Quota Share
Treaty and the Services and Indemnity Agreement discussed above.
The Canadian Services and Indemnity Agreement provides Western
Surety with the authority to supervise various administrative,
underwriting, and claim functions associated with the surety
business written by CCC, through its Canadian branch, on behalf
of Western Surety. Through the Canadian Quota Share Treaty, this
Canadian surety business is transferred to Western Surety.
Pursuant to these agreements, CCC will transfer the
24
subject premium and related liabilities of such business and pay
to Western Surety an amount equal to CCCs net written
premiums on all such business, minus a ceding commission of
33.5% of net written premiums. Further, Western Surety will pay
an additional ceding commission to CCC in the amount of actual
direct expense in producing such premium. These agreements,
which expired on December 31, 2010, were renewed on the
same terms on January 1, 2011 with an expiration of
December 31, 2011 and are annually renewable thereafter.
As of December 31, 2010, Western Surety had an insurance
receivable balance from CCC and CIC of $10.8 million,
comprised of premiums receivable. Western Surety had no
reinsurance payables to CCC and CIC as of December 31, 2010.
Under the terms of an excess of loss agreement with First
Insurance Company of Hawaii, Ltd. and its subsidiaries which
include First Indemnity Insurance of Hawaii, Inc., First Fire
and Casualty Insurance of Hawaii, Inc., and First Security
Insurance of Hawaii, Inc. (collectively, FICOH),
Western Surety assumed $0.1 million of premium in 2010.
This agreement provides that FICOH retains losses of
$2 million per principal and Western Surety assumes 80% of
$5 million per principal subject to an aggregate annual
limit of $8 million. CNAF, through its insurance
subsidiaries, owns approximately 50% of the outstanding common
stock of First Insurance Company of Hawaii, Ltd. This agreement
was renewed with the same terms on January 1, 2011 and
expires on December 31, 2011.
All agreements discussed above were approved by the Audit
Committee.
Other
Related Party Transactions
CNA Surety and CCC are parties to an Administrative Services
Agreement (ASA), which has been in effect since
July 1, 2004, that allows the Company to purchase
and/or have
access to certain services provided by CCC and its affiliates,
including the leasing of executive and branch offices. Pursuant
to the ASA, the Company paid CCC $4.6 million during 2010
for leased office space and services. The Company was also
charged $0.2 million in 2010 for the direct costs incurred
by CCC on the Companys behalf. As provided by the ASA, CCC
paid the Company $1.3 million for the year ended
December 31, 2010 for insurance agent licensing services
provided by the Company. This agreement shall remain in effect
until CNAF or its affiliates or shareholders cease being a
majority shareholder of CNA Surety unless otherwise terminated
by either party. This agreement is approved annually by the
Audit Committee.
Pursuant to procedures approved by the Audit Committee, Western
Surety from time to time provides license and permit bonds and
appeal bonds for CCC and its affiliates as well as for clients
of CCC and its affiliates. As of December 31, 2010, the
aggregate outstanding liability of these bonds was
$27.8 million. The premium for all such bonds written was
$0.3 million in 2010.
Western Surety also has liability, either directly or through
assumed reinsurance, under bonds written for Loews and certain
of its subsidiaries which include Diamond Offshore Drilling,
Inc. (Diamond Offshore) and Mexdrill Offshore, S. DE
R.L. DE C. V , which is a subsidiary of Diamond Offshore. As of
December 31, 2010, Loews owned 50.4% of Diamond Offshore.
As of December 31, 2010, the aggregate liability under all
such bonds was approximately $79.9 million and the premium
was less than $0.1 million in 2010. All bonds for Loews and
its subsidiaries were approved by the Audit Committee.
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the
Companys officers and directors, and persons who own more
than ten percent of the Companys outstanding Common Stock
(Reporting Persons), to file reports of ownership
and changes in ownership of such securities with the SEC.
Reporting Persons are required to deliver copies of all
Section 16(a) forms to the Company simultaneously for
filing with the SEC. Based solely upon review of the copies of
the forms furnished to the Company, and written representations
from certain Reporting Persons that no other reports were
required, the Company believes that for 2010 all reports
required by Section 16(a) of the Exchange Act have been
timely filed.
25
RATIFICATION
OF APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
(PROPOSAL 2)
The Audit Committee has selected Deloitte & Touche LLP
as the Companys independent registered public accounting
firm for the 2011 fiscal year. Deloitte & Touche LLP
has served in this capacity since the last three months ended
December 31, 1997. A representative of Deloitte &
Touche LLP will be present at the Annual Meeting and will have
an opportunity to make a statement if he or she so desires and
will be available to respond to appropriate questions. A
description of the fees paid to Deloitte & Touche LLP
in fiscal year 2010 is outlined below.
At the Annual Meeting, if a quorum is present, the vote of
holders of a majority of the Companys Common Stock having
the power to vote in person or represented by proxy shall ratify
the appointment, by the Board of Directors, of
Deloitte & Touche LLP as the Companys
independent registered public accounting firm. It is the present
intention of the Companys 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, for the ratification of the appointment of
Deloitte & Touche LLP as the Companys
independent registered public accounting firm.
For the years ended December 31, 2010 and 2009,
professional services were performed by Deloitte &
Touche LLP.
Audit
Fees
The aggregate fees billed for the audit of the Companys
annual financial statements for the fiscal years ended
December 31, 2010 and 2009 and for the reviews of the
financial statements included in the Companys Quarterly
Reports on
Form 10-Q
were $1,165,000 and $1,357,801, respectively. The fees for the
fiscal year ended December 31, 2010 reflect those fees
billed by Deloitte & Touche LLP as of March 2,
2011.
Audit-Related
Fees
The aggregate fees billed for the audit-related services for the
years ended December 31, 2010 and 2009 were $0 and $12,000,
respectively. These fees generally include fees for consents and
comfort letters, accounting consultations, Sarbanes-Oxley Act
Section 404 advisory services, and SEC related matters.
Tax
Fees
None.
All Other
Fees
None.
The Audit Committee has established a pre-approval policy with
regard to audit, audit-related, and certain non-audit
engagements by the Company of its independent registered public
accounting firm. Under this policy, the Audit Committee annually
pre-approves certain limited, specified recurring services which
may be provided by Deloitte & Touche LLP, subject to
maximum dollar limitations. All other engagements for services
to be performed by Deloitte & Touche LLP must be
separately pre-approved by the Audit Committee. The Audit
Committee has also designated the Chairperson of the Committee
as having authority to pre-approve such engagements as allowed
by the policy, subject to reporting on such pre-approvals to the
Audit Committee at its next scheduled meeting. All audit fees
and audit related fees were pre-approved by the Audit Committee.
Vote
Required
The proposal to ratify the Audit Committees appointment of
the Companys independent registered public accounting
firm, Deloitte & Touche LLP, for fiscal year 2011
requires an affirmative vote of holders of a majority of the
voting power represented by shares of our Common Stock present
in person or represented by proxy and entitled to vote at the
Annual Meeting.
26
THE BOARD RECOMMENDS A VOTE FOR THE RATIFICATION
OF DELOITTE & TOUCHE LLP AS THE COMPANYS
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL YEAR
2011. IF A CHOICE IS SPECIFIED ON THE PROXY BY THE SHAREHOLDER,
THE SHARES WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION
IS MADE, SHARES WILL BE VOTED FOR RATIFICATION
OF DELOITTE & TOUCHE LLP AS THE COMPANYS
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
APPROVAL
OF THE RESTATED CNA SURETY CORPORATION
LONG-TERM EQUITY COMPENSATION PLAN
(PROPOSAL 3)
Introduction
In April 2006, the shareholders approved the 2006 Long-Term
Equity Compensation Plan (the 2006 Plan) which was
designed to reflect our commitment to best practices in
compensation and corporate governance. We are now asking our
shareholders to approve the restated 2006 Plan. Shareholder
approval of the restated 2006 Plan is necessary, among other
reasons, to allow performance-based awards made under the 2006
Plan to executive officers of the Company to be fully deductible
by the Company for federal income tax purposes under Code
Section 162(m) if and to the extent the Compensation
Committee of the Board (Committee) determines that
compliance with the performance-based exception to tax
deductibility limitations under Code Section 162(m) is
desirable.
A copy of the restated 2006 Plan is attached as Exhibit A
to this Proxy Statement. The summary below is qualified in its
entirety by the text of the restated 2006 Plan.
Purpose
of the 2006 Plan; Summary of Amendments
The 2006 Plan as restated is intended to allow selected
employees, directors and consultants of the Company and its
subsidiaries to acquire or increase equity ownership in the
Company, thereby strengthening their commitment to the success
of the Company and stimulating their efforts on behalf of the
Company, and to assist our Company and its subsidiaries in
attracting new employees, directors and consultants and
retaining existing employees, directors and consultants. The
restated 2006 Plan is also intended to optimize the
profitability and growth of the Company through incentives that
are competitive with the Companys goals; to provide
employees, directors and consultants with an incentive for
excellence in individual performance, and to promote teamwork
among employees, directors and consultants. The restated 2006
Plan is not intended to be the exclusive vehicle for providing
incentive or other compensation to employees and officers.
No substantive changes are proposed to the 2006 Plan. The only
changes included in the restated 2006 Plan are:
(1) addition of book value as a performance measure; and
(2) revised definition of retirement. While the
Company recognizes the value of the net operating income measure
utilized under the 2006 Plan, the Company proposes the inclusion
of a book value measure in order to provide a stronger linkage
to the creation of shareholder value. As further provided in the
restated 2006 Plan, the range of performance measures in the
restated 2006 Plan are listed below under
Performance-Based Awards. With the exception of book
value, all other performance measures are the same as those
found in the 2006 Plan that was previously approved by the
shareholders. The restated 2006 Plan revises the definition of
retirement by referencing the award agreement
entered between the Company and the grantee at the time of an
award.
Description
of Material Terms of Restated 2006 Plan
Administration
The restated 2006 Plan will be administered by the Committee
consisting of two or more members of the Board. If and to the
extent that compliance with
Rule 16b-3
under the Exchange Act or the performance-based exception to tax
deductibility limitations under Section 162(m) of the Code
is desirable, the Committee must be comprised of two or more
directors who qualify as non-employee directors
under
Rule 16b-3
and outside directors under Section 162(m) of
the Code. Subject to the terms of the restated 2006 Plan, the
Committee has full power and
27
discretion to select those persons to whom awards will be
granted; to determine the terms, conditions, sizes and types of
awards; to determine the consideration to be received (if any)
for restricted stock; to amend any award agreement; to cancel
awards and grant substitute awards; to accelerate exercisability
or waive other terms and conditions of any award; to cancel,
with the grantees consent, outstanding awards and to grant
new awards in substitution therefore; to make adjustments in the
terms and conditions of awards in recognition of unusual or
nonrecurring events; to construe and interpret the restated 2006
Plan and any award agreement; to establish, amend and revoke
rules and regulations for the administration of the restated
2006 Plan; and to take any other action with respect to matters
relating to the Plan for which it is responsible.
The Board may reserve to itself or delegate to another committee
of the Board consisting of one or more directors any or all of
its authority. Unless expressly provided to the contrary, such
delegation shall not extend to awards to executive officers or
awards that are intended to comply with the performance-based
exception to tax deductibility limitations under
Section 162(m) of the Code unless the committee to which
such authority is delegated consists of two or more directors
who qualify as non-employee directors under
Rule 16b-3
and outside directors under Section 162(m) of
the Code.
Eligibility
The Restated 2006 Plan provides for awards to employees
(including employees on leave of absence), directors of the
Company or any subsidiary, and consultants to the Company or a
subsidiary. Some awards will be provided to officers and others
who are deemed by the Company to be insiders for
purposes of Section 16 of the Exchange Act. As of
December 31, 2010, the Company and its Subsidiaries had
approximately 725 full-time employees (including officers),
all of whom will be eligible to participate in the restated 2006
Plan. A subsidiary is defined in the restated 2006 Plan (for
purposes other than the grant of incentive stock options) as a
corporation with respect to which the Company owns 50% or more
of the then-outstanding stock, or a limited liability company,
partnership, joint venture or other unincorporated entity with
respect to which the Company owns 50% or more of the
then-outstanding profits interest.
Shares Available
2,009,269 shares of the Companys common stock
($0.01 par value) are available under the terms of the
restated 2006 Plan for issuance in settlement of awards. On
March 8, 2011, the last reported sale price of the
Companys common stock on the New York Stock Exchange was
$25.39 per share.
The shares delivered to settle awards made under the restated
2006 Plan may be authorized and unissued shares or treasury
shares. If any shares subject to any award granted under the
restated 2006 Plan are forfeited or otherwise terminated without
delivery of shares, the shares subject to such awards will again
be available for issuance under the restated 2006 Plan. In
addition, any shares withheld or applied as payment for shares
issued upon exercise of an award, or (other than with respect to
restricted stock awards) for the withholding or payment of taxes
due upon exercise of the award, will again be available for
grant under the restated 2006 Plan. If a SAR is settled in
shares, only the number of shares delivered in settlement will
be charged against the number of available shares, regardless of
the number of shares with respect to which the SAR was
originally granted and exercised.
If a change in corporate capitalization (including a stock
split, share combination, merger, consolidation, separation,
spinoff, other distribution of shares, reorganization, partial
or complete liquidation, stock dividend or other distribution,
reorganization or partial or complete liquidation), affects the
shares such that an adjustment is appropriate in order to
prevent dilution or enlargement of the rights, the Committee in
its sole discretion will make an equitable change or adjustment
as it deems appropriate in the number and class of shares
and/or the
price of shares subject to outstanding awards, and in the number
of shares available as set forth above and in the limits on
particular awards and types of awards summarized below.
Limits
On Awards
The restated 2006 Plan limits the total number of shares that
may be granted as SARs to 1,000,000 shares, as restricted
stock to 1,000,000 shares, and as bonus shares to
300,000 shares. In addition, the restated 2006 Plan limits
28
the number of shares that may be granted annually to a single
grantee. This limit for options is 200,000 shares, for SARs
is 200,000 shares, for restricted stock is
100,000 shares, and for performance shares or performance
units is the value of 100,000 shares. The restated 2006
Plan also limits the maximum aggregate payout annually to a
single grantee for cash incentive awards to 300% of base salary
up to a maximum base salary of $1,000,000. If the performance
period for performance shares or performance units, or for
incentive awards, is more than one year, these per-grantee
limits apply to each
12-month
period in the performance period.
Summary
of Awards under the restated 2006 Plan
The restated 2006 Plan permits the granting of any or all of the
following types of awards to all grantees:
|
|
|
|
|
stock options, including incentive stock options
(ISOs), nonqualified stock options
(NQSOs), and performance based options ;
|
|
|
|
stock appreciation rights (SARs), and performance
based SARS;
|
|
|
|
restricted stock including restricted stock shares and
restricted stock units;
|
|
|
|
performance units and performance shares;
|
|
|
|
incentive awards including annual incentive awards and long-term
incentive awards; and
|
|
|
|
bonus shares.
|
Generally, awards under the restated 2006 Plan will be granted
for no consideration other than prior and future services.
Awards granted under the restated 2006 Plan may, in the
discretion of the Committee, be granted alone or in addition to,
in tandem with or in substitution for, any other award under the
restated 2006 Plan or other plan of the Company. The material
terms of each award, including the extent to which the grantee
may exercise the award after termination of employment or other
termination of affiliation, are set forth in a written award
agreement between the grantee and the Company. The term of an
option or SAR or other period during which any award may be
outstanding may not exceed 10 years from the grant date.
Awards are generally nontransferable except on death, subject to
a limited exception for NQSOs noted below.
Stock
Options
The Committee is authorized to grant stock options, including
ISOs. A stock option allows a grantee to purchase a specified
number of shares at a predetermined price during a fixed period
measured from the date of grant. The purchase price per share of
stock subject to a stock option (the option price)
is determined by the Committee and set forth in the award
agreement; provided that the option price must be a least 100%
of the fair market value per share on the date of grant (110% of
fair market value in the case of ISOs granted to a 10% owner).
The term of each option is determined by the Committee and set
forth in the award agreement, except that the term of a stock
option may not exceed ten years. Options are exercisable in
whole or in part at such time or times as determined by the
Committee and set forth in the award agreement. Options may be
exercised by payment of the purchase price in cash, by tender of
stock that was purchased in the open market or held for at least
six months, or with the approval of the Committee and subject to
applicable law, surrender of restricted stock held for at least
six months or cashless exercise through a broker. Options are
generally nontransferable except on death, and except that to
the extent provided in the award agreement, NQSOs may be
transferred as gifts to certain family members or their related
trusts.
SARs
The Committee is authorized to grant SARs. A SAR entitles the
grantee to receive the excess of the fair market value of a
share on the date of exercise over the strike price of the SAR.
The strike price of an SAR is determined by the Committee and
set forth in the award agreement; provided that the strike price
must be at least 100% of the fair market value per share on the
date of grant. SARs may be tandem SARs (granted in connection
with a related option
29
or other award expiring at the same time, where exercise of the
other award will cancel the SAR and exercise of the SAR will
cancel the other award), or free-standing SARs. Times and
methods of exercise and settlement and other terms of the SARs
are determined by the Committee, subject to the terms of the
Plan.
Restricted
Stock
The Committee may award restricted stock in the form of
restricted stock shares or restricted stock units. Restricted
stock shares are transferred at the time of the award but remain
subject to transfer restrictions and risk of forfeiture until
restrictions established by the Committee lapse. Restricted
stock units are unfunded rights to receive shares in the future,
subject to risk of forfeiture until certain restrictions
established by the Committee lapse. Restrictions may be
time-based or performance-based (or both). A grantee receiving
restricted stock shares may have the rights of a shareholder of
the Company, including the right to vote the shares and the
right to receive any dividends, in the discretion of the
Committee and to the extent set forth in the award agreement. A
grantee receiving restricted stock units may have the right to
receive any dividends, in the discretion of the Committee and to
the extent set forth in the award agreement, but not the right
to vote the shares (until actually delivered to the grantee).
Performance
Units/Shares
The Committee may grant performance units or performance shares,
which entitle a grantee to cash or shares conditioned upon the
fulfillment of certain performance conditions and other
restrictions as specified by the Committee and reflected in the
award agreement. The initial value of a performance unit is
determined by the Committee at the time of grant. The initial
value of a performance share is the fair market value of a share
on the grant date. The Committee will determine the terms and
conditions of such awards, including performance and other
restrictions placed on these awards, which will be reflected in
the award agreement. It is expected that the performance
measures for performance and shares units will generally be
selected from among those listed in the Plan and noted below.
A grantee receiving performance units or performance shares may
have the right to receive any dividends on shares earned from
the grants of performance units or performance shares in the
discretion of the Committee and to the extent set forth in the
award agreement; and may have the right to vote the shares in
the discretion of the Committee to the extent set forth in the
award agreement.
Incentive
Awards
The Committee may grant annual and long-term incentive awards
under the restated 2006 Plan for a fiscal year of the Company
(for annual awards) or other performance period (for long-term
awards). The Committee will determine the eligible employees who
are eligible to receive incentive awards. Generally, this
determination will be made within the first 90 days of the
fiscal year or other performance period, or if an employee is
hired or promoted to a position which warrants grant of an
incentive award after the first day of the year, within ninety
(90) days of such hiring or promotion but not later than
the lapse of 25% of the remainder of such fiscal year or other
performance period after such hiring or promotion.
For each fiscal year or other performance period, the Committee
will establish performance measures and performance goals and
the threshold, target and maximum bonus opportunity for the
grantee upon attainment of the performance goals. The Committee
has absolute discretion to reduce (but not increase) the amount
of a participants incentive award to any amount less than
maximum incentive award. A reduction in the amount of the annual
incentive award payable to any grantee will not affect the
annual incentive award payable to any other grantee. Except as
otherwise determined by the Committee in its discretion, a
participant will not be entitled to receive an annual incentive
award for a performance period if the grantees employment
terminates during the performance period.
As soon as practicable after the end of the fiscal year or other
performance period, but not later than March 15 of the calendar
year following the end of the performance period, the Committee
will determine and certify in writing the degree of attainment
of the performance goals, the Committee will determine the
amount of the incentive award to be paid to each grantee of an
incentive award, and the incentive awards will be paid. In the
discretion of the
30
Committee and as set forth in the award agreement, incentive
awards may be paid in cash, shares, restricted stock, options,
or other form of equity. In the discretion of the Committee, and
subject to applicable tax requirements, an award agreement may
provide for the deferral of incentive awards.
Bonus
Shares
Subject to the terms of the Plan, the Committee may grant bonus
shares to any eligible person in such amount, and upon such
terms and conditions, as the Committee determines.
Performance-Based
Awards
The Committee may require satisfaction of predetermined
performance goals, consisting of one or more business criteria
and a targeted performance level with respect to such criteria,
as a condition of awards being granted or becoming exercisable
or payable under the Plan, or as a condition to accelerating the
timing of such events.
The performance measure(s) to be used for purposes of any awards
(other than stock options or SARs) intended to satisfy the
performance based exception to tax deductibility
limitations under Code Section 162(m) will be chosen from
among the following (all of which may be determined on an
aggregate or per-share basis and on a pre-tax or after-tax
basis):
|
|
|
|
|
earnings;
|
|
|
|
net income;
|
|
|
|
net operating income;
|
|
|
|
cash flow provided by operations;
|
|
|
|
free cash flow;
|
|
|
|
return measures (including return on assets, equity or sales);
|
|
|
|
earnings before or after any of interest, taxes, depreciation or
amortization;
|
|
|
|
gross revenues;
|
|
|
|
book value;
|
|
|
|
share price (including growth measures and total shareholder
return or attainment of a specified value for a specified period
of time);
|
|
|
|
reductions in expense levels;
|
|
|
|
strategic business criteria based on objective standards of rate
adequacy, premium growth, market share retention, budget,
operating plan, customer/employee satisfaction,
customer/employee diversity, business development or special
projects);
|
|
|
|
combined ratio (or any of its components); and/or
|
|
|
|
gross or net written premiums.
|
The Committee has the discretion to adjust the determinations of
the degree of attainment of the predetermined performance goals.
However, awards which the Committee intends to qualify for the
performance-based exception to the tax deduction limitations
under Code Section 162(m) may not be adjusted upward unless
the Committee intends to amend the award to no longer qualify
for the performance-based exception. The Committee retains the
discretion to adjust such awards downward.
31
Amendment
and Termination of the Plan
The Board may amend, alter, suspend, or terminate the restated
2006 Plan without further shareholder approval, unless such
approval is required by law or regulation or under the rules of
any stock exchange or automated quotation system on which the
common stock is then listed or quoted. However the Board may not
without shareholder approval increase the total number of shares
reserved for the Plan or change the individuals eligible to
participate in the Plan.
In addition no amendment or termination of the restated 2006
Plan may materially and adversely affect the right of a grantee
under any award granted under the restated 2006 Plan without the
consent of the grantee, unless required by law (including tax
laws) or regulation or under the rules of any stock exchange or
automated quotation system on which the common stock is then
listed or quoted.
Unless earlier terminated by the Board, the Plan will terminate
when no shares remain reserved and available for issuance or, if
earlier, on December 31, 2015.
Federal
Income Tax Consequences
The Company believes that under present law the following are
the federal tax consequences generally arising with respect to
awards granted under the restated 2006 Plan. This summary is for
shareholder informative purposes and is not intended to provide
tax advice to grantees.
The grant of an option or SAR will create no tax consequences
for the grantee or the Company. The grantee will have no taxable
income upon exercising an ISO (except that the alternative
minimum tax may apply) and the Company will receive no deduction
at the time. Upon exercising an option other than an ISO, the
grantee must generally recognize ordinary income equal to the
difference between the exercise price and the fair market value
of the freely transferable and nonforfeitable stock acquired on
the date of exercise. Upon exercising an SAR, the grantee must
generally recognize ordinary income equal to the cash or the
fair market value of the freely transferable and nonforfeitable
stock received. In the case of SARs and options other than ISOs,
the Company will be entitled to a deduction for the amount
recognized as ordinary income by the grantee. The treatment to a
grantee of a disposition of shares acquired upon the exercise of
an SAR or option depends on how long the shares have been held
and on whether such shares are acquired by exercising an ISO or
by exercising an option other than an ISO. Generally, there will
be no tax consequences to the Company in connection with a
disposition of shares acquired under an option except that the
Company will be entitled to a deduction (and the grantee will
recognize ordinary taxable income) if shares acquired under an
ISO are disposed of before the applicable ISO holding periods
have been satisfied.
With respect to other awards granted under the restated 2006
Plan that may be settled either in cash, in stock or other
property that is either not subject to a substantial risk of
forfeiture or that may be transferred free of the risk of
forfeiture, the grantee must generally recognize ordinary income
equal to the cash or the fair market value of shares or other
property received. The Company will be entitled to a deduction
for the same amount. With respect to awards involving stock or
other property that is subject to a substantial risk of
forfeiture and restricted as to transferability, the grantee
must generally recognize ordinary income equal to the fair
market value of the shares or other property received at the
time the risk of forfeiture lapses or the property becomes
transferable free of the risk of forfeiture, whichever occurs
earlier. The Company will be entitled to a deduction for the
same amount. In certain circumstances, a grantee may elect to be
taxed at the time of receipt of shares or other property rather
than upon the lapse of restrictions on transferability or the
substantial risk of forfeiture.
The foregoing provides only a general description of the
application of federal income tax laws to certain types of
awards under the restated 2006 Plan. The summary does not
address the effects of foreign, state and local tax laws.
Because of the variety of awards that may be made under the
restated 2006 Plan and the complexities of the tax laws,
grantees are encouraged to consult a tax advisor as to their
individual circumstances.
32
Vote
Required
Adoption of the restated 2006 Plan must be approved by a
majority of the votes cast by our shareholders present in person
or represented by proxy and entitled to vote at the Annual
Meeting. If the shareholders do not approve the restated 2006
Plan, it will not become effective and the 2006 Plan will
continue to be in effect without amendment.
THE BOARD RECOMMENDS A VOTE FOR THE APPROVAL OF
THE RESTATED 2006 LONG-TERM EQUITY COMPENSATION PLAN.
ADVISORY
VOTE ON EXECUTIVE COMPENSATION
(PROPOSAL 4)
The recently enacted Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (the Dodd-Frank Act) enables
our shareholders to vote to approve, on an advisory (nonbinding)
basis, the compensation of our Named Executive Officers as
disclosed in this Proxy Statement. Our compensation programs are
designed to enable us to attract, motivate, and retain the
executives who are critical to the successful implementation of
our strategic business plan.
We invite you to review the Compensation Discussion and
Analysis and the related compensation tables that are
shown earlier in this Proxy Statement, including information
about the fiscal year 2010 compensation of our Named Executive
Officers. We are asking our shareholders to indicate their
support for our Named Executive Officer compensation as
described in this Proxy Statement. This proposal, commonly known
as a
say-on-pay
proposal, gives our shareholders the opportunity to express
their views on the compensation of our Named Executive Officers.
The
say-on-pay
vote is advisory and not binding on the Company, the
Compensation Committee, or our Board. However, our Board values
the opinions of our shareholders and will consider the results
of the vote in future compensation deliberations.
THE BOARD RECOMMENDS A VOTE FOR THE APPROVAL, ON
AN ADVISORY BASIS, OF THE COMPENSATION OF THE NAMED EXECUTIVE
OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT.
ADVISORY
VOTE ON THE FREQUENCY OF HOLDING A NON-BINDING ADVISORY VOTE ON
EXECUTIVE COMPENSATION
(PROPOSAL 5)
The Dodd-Frank Act also enables our shareholders to indicate how
frequently we should seek an advisory vote on the compensation
of our Named Executive Officers. Shareholders may indicate
whether they would prefer an advisory vote on Named Executive
Officer compensation once every one, two, or three years. After
careful consideration, our Board has determined that an advisory
vote on compensation of Named Executive Officers that occurs
every year is the most appropriate alternative for the Company,
and therefore recommends you vote for a one-year interval for
this vote.
THE BOARD RECOMMENDS 1 YEAR FOR THE FREQUENCY OF
THE SHAREHOLDER ADVISORY VOTE ON EXECUTIVE COMPENSATION.
SHAREHOLDERS
PROPOSALS FOR 2012 ANNUAL MEETING
If you wish to submit a proposal for the 2012 Annual Meeting, it
must be received by November 13, 2011 and addressed to the
Companys Corporate Secretary, CNA Surety Corporation,
333 S. Wabash Ave., 41st Floor, Chicago, Illinois
60604 in order to be eligible under the SECs shareholder
proposal rule
(Rule 14a-8)
for inclusion in the proxy materials for the 2012 Annual Meeting.
Any shareholder proposal to be considered at the Companys
2012 Annual Meeting, but not included in the proxy material,
must be received at the above address not less than fifty
(50) days nor more than seventy-five (75) days prior
to the 2012 Annual Meeting. However, in the event that less than
sixty-five (65) days notice or prior public
33
disclosure of the date of the 2012 Annual Meeting is given or
made to the shareholders, a shareholder proposal, in order 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. If your proposal is not timely, as defined
above, then proxies solicited by us for the 2012 Annual Meeting
may confer discretionary authority to us to vote on that
proposal.
OTHER
MATTERS
The Company knows of no business which will be presented at the
Annual Meeting, other than the election of Directors to the
Board, the ratification of the Companys independent
registered public accounting firm, approval of the
Companys amended and restated Long Term Equity
Compensation Plan, the advisory approval of the compensation of
the Named Executive Officers, and the advisory approval of the
frequency of shareholder consideration of the compensation of
the Named Executive Officers. 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.
The cost of this proxy solicitation is anticipated to be nominal
and will be borne by the Company. The solicitation generally
will be effected by mail but officers, directors, or employees
of the Company may solicit proxies personally or by telephone,
e-mail, or
facsimile without additional compensation for such activity. The
Company will arrange for brokerage houses, nominees, and other
custodians holding Common Stock of the Company to forward
proxy-soliciting material to the beneficial owners of such
shares, and will reimburse such record owners for the reasonable
out-of-pocket
expenses incurred by them.
Shareholders are concurrently being furnished with a copy of the
Companys 2010 Annual Report to Shareholders, which
contains the Companys audited financial statements for the
year ended December 31, 2010. Additional copies may be
obtained through the Companys website as provided below or
by contacting Adrianne T. Baker, representative of the Company,
at 333 S. Wabash Ave., 41st Floor, Chicago,
Illinois 60604,
(312) 822-4971,
and such copies will be furnished at no expense.
The Proxy Statement and the 2010 Annual Report to
Shareholders are available at
http://www.cnasurety.com/about/investor_information.htm.
COMMUNICATIONS
WITH US BY SHAREHOLDERS AND OTHERS
If any shareholder or any other interested party wishes to
communicate with our Board of Directors, you may do so by
writing to our General Counsel, 333 S. Wabash Ave.,
41st Floor, Chicago, Illinois, 60604. All such
communications will be delivered to the director or directors to
whom they are addressed.
By Order of the Board of Directors
Rosemary Quinn
Senior Vice President, General Counsel and
Secretary
34
Exhibit A
CNA
Surety Corporation
2006 Long-Term Equity Compensation Plan
Table of
Contents
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
Article 1.
|
|
Establishment, Effective Date, Objectives, and Duration
|
|
|
A-1
|
|
Article 2.
|
|
Definitions
|
|
|
A-1
|
|
Article 3.
|
|
Administration
|
|
|
A-5
|
|
Article 4.
|
|
Shares Subject to the Plan, Maximum Awards and
Section 162(m) Compliance
|
|
|
A-7
|
|
Article 5.
|
|
Eligibility and General Conditions of Awards
|
|
|
A-9
|
|
Article 6.
|
|
Stock Options
|
|
|
A-11
|
|
Article 7.
|
|
Stock Appreciation Rights
|
|
|
A-13
|
|
Article 8.
|
|
Restricted Stock
|
|
|
A-14
|
|
Article 9.
|
|
Performance Units and Performance Shares
|
|
|
A-15
|
|
Article 10.
|
|
Incentive Awards
|
|
|
A-16
|
|
Article 11.
|
|
Bonus Shares
|
|
|
A-17
|
|
Article 12.
|
|
Beneficiary Designation
|
|
|
A-17
|
|
Article 13.
|
|
Deferrals
|
|
|
A-17
|
|
Article 14.
|
|
Rights of Employees/Directors
|
|
|
A-17
|
|
Article 15.
|
|
Change in Control
|
|
|
A-18
|
|
Article 16.
|
|
Amendment, Modification, and Termination
|
|
|
A-18
|
|
Article 17.
|
|
Withholding
|
|
|
A-18
|
|
Article 18.
|
|
Successors
|
|
|
A-19
|
|
Article 19.
|
|
Additional Provisions
|
|
|
A-19
|
|
A-i
CNA
Surety Corporation 2006 Long-Term Equity
Compensation
Plan
Article 1.
Establishment,
Effective Date, Objectives, and Duration
1.1. Establishment of the Plan. CNA
Surety Corporation, a Delaware corporation (hereinafter referred
to as the Company), hereby establishes an
incentive compensation plan to be known as the CNA Surety
Corporation 2006 Long-Term Equity Compensation Plan
(hereinafter referred to as the Plan). The
Plan was approved by the Board of Directors of the Company on
February 13, 2006, and, subject to the approval of the
shareholders of the Company, shall be effective as of
January 1, 2006 (Effective Date).
1.2. Objectives of the Plan. The Plan is
intended to allow selected employees, directors and consultants
of the Company and its Subsidiaries to acquire or increase
equity ownership in the Company, thereby strengthening their
commitment to the success of the Company and stimulating their
efforts on behalf of the Company, and to assist the Company and
its Subsidiaries in attracting new employees, directors and
consultants and in retaining existing employees, directors, and
consultants. The Plan is also intended to optimize the
profitability and growth of the Company through incentives which
are consistent with the Companys goals; to provide
employees, directors, and consultants with an incentive for
excellence in individual performance; and to promote teamwork
among employees, directors, and consultants.
1.3. Duration of the Plan. The Plan shall
commence on the Effective Date and shall remain in effect,
subject to the right of the Board of Directors to amend or
terminate the Plan at any time pursuant to Article 16
hereof, until the earlier of December 31, 2015, or the date
all Shares subject to it shall have been purchased or acquired
and the restrictions on all Restricted Stock shall have lapsed
according to the Plans provisions. The termination of the
Plan shall not adversely affect any Awards outstanding on the
date of termination.
Article 2.
Definitions
Whenever used in the Plan, the following terms shall have the
meanings set forth below:
2.1. Award means Options,
including Incentive Stock Options and Non-Qualified Stock
Options, Restricted Stock, Bonus Shares, Stock Appreciation
Rights (SARs), Performance Units, Performance Shares, or
Incentive Awards granted under the Plan.
2.2. Award Agreement means the
written agreement by which an Award shall be evidenced.
2.3. Board or Board of
Directors means the Board of Directors of the Company.
2.4. Bonus Opportunity means the
threshold, target and maximum bonus opportunity for an Incentive
Award for an individual for a year or other Performance Period,
based on threshold, target and maximum bonus levels specified as
a percentage of the Grantees base salary in effect on the
first day of such year or other Performance Period (or such
later date as such person is designated as an eligible Grantee)
as determined by the Committee.
2.5. Bonus Shares means Shares
that are awarded to a Grantee without cost and without
restrictions in recognition of past performance (whether
determined by reference to another employee benefit plan of the
Company or otherwise) or as an incentive to become an employee,
director or consultant of the Company or a Subsidiary.
A-1
2.6. Cause means, unless otherwise
defined in an Award Agreement or in an employment agreement
between the Grantee and the Company, any one or more of the
following with respect to a Grantee:
(A) the Grantees commission of a crime which,
in the judgment of the Committee, is likely to result in injury
to the Company or a Subsidiary;
(B) the material violation by the Grantee of written
policies of the Company or a Subsidiary;
(C) the habitual neglect by the Grantee in the
performance of his or her duties to the Company or a Subsidiary;
(D) the action or inaction in connection with the
Grantees duties to the Company or a Subsidiary resulting,
in the judgment of the Committee, in a material injury to the
Company or a Subsidiary;
(E) the Grantees rendering of services for any
organization or engaging directly or indirectly in any business
which is or becomes competitive with the Company or a Subsidiary
or which organization or business, or the rendering of services
to such organization or business, is or becomes otherwise
prejudicial to or in conflict with the interests of the Company
or a Subsidiary;
(F) any attempt by the Grantee, directly or
indirectly, to induce any employee of the Company or a
Subsidiary to be employed or perform services elsewhere or any
attempt directly or indirectly to solicit the trade or business
of any current or prospective customer, supplier or partner of
the Company or a Subsidiary; or
(G) any other conduct by or act of the Grantee
determined by the Committee to be injurious, detrimental, or
prejudicial to any interest of the Company or a Subsidiary.
2.7. Code means the Internal
Revenue Code of 1986, as amended from time to time, and
regulations and rulings thereunder. References to a particular
section of the Code include references to successor provisions.
2.8. Committee means the committee
of the Board appointed pursuant to Article 3.
2.9. Common Stock means the common
stock, $.0l par value, of the Company.
2.10. Consultant means a
non-employee consultant or advisor to the Company or a
Subsidiary who is a natural person (other than a non-employee
director) providing bona fide services that are not in
connection with an offer or sale of Company equity securities in
a capital raising transaction; provided the individual
does not directly or indirectly maintain or promote a market in
Company securities.
2.11. Company has the meaning set
forth in Section 1.1.
2.12. Covered Employee means a
Grantee who, as of the last day of the fiscal year of inclusion
in income of the value of an Award is one of the group of
covered employees, within the meaning of
Section 162(m) of the Code, with respect to the Company.
2.13. Disability means, for
purposes of the exercise of an Incentive Stock Option alter
Termination of Affiliation, a disability within the meaning of
Code Section 22(e)(3), and for all other purposes, a mental
or physical condition which, in the judgment of the Committee,
renders a Grantee unable to perform any of the principal job
responsibilities which such Grantee held or the tasks to which
such Grantee was assigned at the time the disability was
incurred, and which condition is expected to be permanent or for
an indefinite duration exceeding two years.
2.14. Disqualifying Disposition
has the meaning set forth in Section 6.4.
2.15. Effective Date has the
meaning set forth in Section 1.1.
2.16. Eligible Person means
(i) any employee (including any officer) of the Company or
any Subsidiary, including any such employee who is on an
approved leave of absence, layoff, or has been subject to a
disability which does not qualify as a Disability; (ii) any
director of the Company or any Subsidiary; and (iii) any
person performing services for the Company or a Subsidiary as
Consultant.
A-2
2.17. Exchange Act means the
Securities Exchange Act of 1934, and regulations and rulings
thereunder. References to a particular section of, or rule
under, the Exchange Act include references to successor
provisions.
2.18. Fair Market Value of an
equity security means the closing price of such security on such
date (or, if no sale of such security was reported for such
date, on the next preceding date on which a sale of such
security was reported) as reported in the principal consolidated
transaction reporting system for the New York Stock Exchange
(or, if such security is not listed on the New York Stock
Exchange, on such other national exchange or
over-the-counter
market on which such security is principally traded); provided
that if such Fair Market Value as of any date cannot be so
determined, Fair Market Value shall be determined by the
Committee by whatever means or method it, in the good faith
exercise of its discretion, shall at such time deem appropriate.
Except as provided in the following sentence, the valuation of
an equity security on any date shall be determined as of that
date (or, if no sale of such security was reported for such
date, on the most recent trading day prior to such date on which
a sale of such other security was reported). On the exercise or
vesting date of an Award denominated in Shares, the valuation of
Shares shall be determined as of the last trading day preceding
the exercise or vesting of the Award.
2.19. Freestanding SAR means a SAR
that is granted independently of any other Award.
2.20. Grant Date has the meaning
set forth in Section 5.2.
2.21. Grantee means an individual
who has been granted an Award.
2.22. Incentive Award means an
Award under Section 10 of the Plan based on achievement of
Performance Goals over a Performance Period which may be one
fiscal year or less (Annual Incentive Awards)
or more than one fiscal year (Long-Term Incentive
Awards).
2.23. Incentive Stock Option or
ISO means an Option granted as an Award under
the Plan that is intended to meet the requirements of
Section 422 of the Code.
2.24. including or
includes means including, without
limitation, or includes, without limitation,
respectively.
2.25. Insider shall mean a person
who is subject to potential liability under Section 16(b)
of the Exchange Act with respect to transactions involving
equity securities of the Company.
2.26. Mature Shares means Shares
for which the holder thereof has good title, free and clear of
all liens and encumbrances, and which such holder either
(i) has held for at least six months or (ii) has
purchased on the open market.
2.27. Minimum Consideration means
$.O1 per Share or such other amount that is from time to time
considered to be capital for purposes of Section 154 of the
Delaware General Corporation Law.
2.28. Non-Qualified Stock Option
or NQSO means an Option granted as an Award
under the Plan that is not intended to meet the requirements of
Section 422 of the Code.
2.29. Option means an Incentive
Stock Option or a Non-Qualified Stock Option.
2.30. Option Price means the price
at which a Share may be purchased by a Grantee pursuant to an
Option.
2.31. Option Term means the period
beginning on the Grant Date of an Option and ending on the
expiration date of such Option, as specified in the Award
Agreement for such Option and as may, in the discretion of the
Committee and consistently with the provisions of the Plan, be
extended from time to time prior to the expiration date of such
Option then in effect.
2.32. Performance-Based Exception
means the performance-based exception from the tax deductibility
limitations of Code Section 162(m).
A-3
2.33. Performance Goals means the
objective or subjective criteria determined by the Committee,
the degree of attainment of which will affect (a) in the
case of an Award other than the Incentive Award, the amount of
the Award the Grantee is entitled to receive or retain, and
(h) in the case of an Incentive Award, the portion of the
individuals Bonus Opportunity potentially payable as an
Incentive Award. Performance Goals may contain threshold,
target, and maximum levels of achievement and, to the extent the
Committee intends an Award (including the Incentive Award) to
comply with the Performance-Based Exception, the Performance
Goals shall be chosen from among the measures (the
Performance Measures) set forth in
Section 4.4.
2.34. Performance Period means the
period over which achievement of Performance Goals is measured.
2.35. Period of Restriction means
the period during which the transfer or delivery of Restricted
Stock is limited in some way (based on the passage of time, the
achievement of performance goals, or upon the occurrence of
other events as determined by the Committee, in its discretion),
and the Restricted Stock is subject to a substantial risk of
forfeiture, as provided in Article 8 hereof
2.36. Person shall have the
meaning ascribed to such term in Section 3(a)(9) of the
Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a group as defined in Section 13(d)
thereof.
2.37. Plan has the meaning set forth in
the introductory paragraph.
2.38. Required Withholding has the
meaning set forth in Article 17.
2.39. Restricted Stock means Restricted
Stock Shares or Restricted Stock Units.
2.40. Restricted Stock Shares
means Shares that are granted as an Award under the Plan but
that are subject to forfeiture if the restrictions imposed by
the Committee and specified in the Award Agreement, which
restrictions may be time-based or performance-based, are not
satisfied.
2.41. Restricted Stock Units means
rights granted as an Award under the Plan to receive Shares,
that are subject to forfeiture if the restrictions imposed by
the Committee, which restrictions may be time-based or
performance-based, are not satisfied.
2.42. Rule 16b-3
means
Rule 16b-3
of the SEC under the Exchange Act, as amended from time to time,
together with any successor rule.
2.43. Retirement means for any
Grantee who is an employee, a Termination of Affiliation by the
Grantee upon attaining age 65 with at least five years of
service as an employee of the Company or a Subsidiary, unless
another definition is provided in an Award Agreement.
2.44. SEC means the Securities and
Exchange Commission.
2.45. Share means a share of
Common Stock.
2.46. Strike Price of any SAR
shall equal, for any Tandem SAR that is identified with an
Option, the Option Price of such option, or for any other SAR,
100% of the Fair Market Value of a Share on the Grant Date of
such SAR; provided that the Committee may specify a
higher Strike Price in the Award Agreement.
2.47. Stock Appreciation Right or
SAR means a right granted as an Award under
the Plan to receive, as of the date specified in the Award
Agreement, an amount equal to the number of Shares with respect
to which the SAR is exercised, multiplied by the excess of
(a) the Fair Market Value of one Share on the Exercise
Date, over (b) the Strike Price.
2.48. Subsidiary means, for
purposes of grants of Incentive Stock Options, a corporation as
defined in Code Section 424(f) (with the Company being
treated as the employer corporation for purposes of this
definition), and, for all other purposes, a United States or
foreign corporation with respect to which the Company owns,
directly or indirectly, 50% or more of the then-outstanding
common stock, or a limited liability company, partnership, joint
A-4
venture, or other unincorporated entity with respect to which
the Company owns, directly or indirectly, 50% or more of the
then-outstanding profits interest.
2.49. Tandem SAR means a SAR that
is granted in connection with a related Award, the exercise of
which shall require forfeiture of the right to purchase a Share
under the related Award (and when a Share is purchased under the
related Award, the Tandem SAR shall similarly he canceled).
2.50. 10% Owner means a person who
owns capital stock (including stock treated as owned under Code
Section 424(d)) possessing more than 10% of the total
combined voting power of all classes of capital stock of the
Company or any Subsidiary.
2.51. Termination of Affiliation
occurs on the first day on which an individual is for any reason
no longer providing services for the Company or any of its
Subsidiaries in the capacity of an employee, director or
Consultant, or with respect to an individual who is an employee
or director of or Consultant to Subsidiary, the first day on
which the Company no longer, directly or indirectly, owns voting
securities possessing at least 50% of the combined voting power
of the then-outstanding securities of a corporation entitled to
vote generally in the election of directors of such Subsidiary,
if a corporation, or at least 50% of the then-outstanding
profits interest of such Subsidiary if a limited liability
company, partnership, joint venture, or other unincorporated
entity.
Article 3.
Administration
3.1. Committee. Subject to
Section 3.2, the Plan shall be administered by a committee
(the Committee) which shall consist of two or more
directors of the Company. To the extent the Board considers it
desirable to comply with
Rule 16b-3
or to meet the Performance-Based Exception, all of the members
of the Committee shall qualify as outside directors
within the meaning of the regulations under Section 162(m)
of the Code and non-employee directors within the
meaning of
Rule 16b-3
in respect of the exemption of grants to Insiders from potential
liability under Section 16(b) of the Exchange Act. The
number of members of the Committee shall from time to time be
increased or decreased, and shall be subject to such other
conditions, in each case as the Board deems appropriate.
3.2. Delegation Authority. The Board may
reserve to itself or delegate to another committee of the Board
any or all of the authority of the Committee with respect to
Awards. Such other committee (the Management
Committee) may consist of one (or such greater number as
may from time to time be required by the bylaws of the Company)
or more directors who may, but need not be, officers or
employees of the Company or a Subsidiary. Unless such delegation
expressly provides to the contrary, such delegated authority
shall not extend to Awards intended to comply with the
Performance-Based Exception or Awards to Insiders intended to be
exempt under
Rule 16b-3,
unless the Management Committee meets the requirements of the
second sentence of Section 3.1. Unless such delegation
expressly provides to the contrary, such delegation shall not
prevent the Committee described in Section 3.1 from taking
any subsequent action that is required or permitted by the Plan
respecting an Award granted by the Management Committee. To the
extent that the Board has reserved to itself or delegated to
such Management Committee the authority of the Committee, all
references to the Committee in the Plan shall be to the Board or
such Management Committee. The Management Committee may not
grant Awards relating to an aggregate of more than
200,000 Shares in any calendar year unless the Board gives
its prior approval of a larger number of Shares.
3.3. Powers of Committee. Subject to the
express provisions of the Plan, the Committee has full and final
authority and sole discretion as follows:
(i) to determine when and to whom Awards should be
granted and the terms and conditions applicable to each Award
(which need not be identical), including conditions intended to
comply with Code Section 409A, the number of Shares or the
amount of cash or other property to which an Award will relate,
the term of the Award, any Option Price, Strike Price, any
limitation or restriction, any schedule for or performance
conditions relating to the earning of the Award or the lapse of
restrictions, forfeiture restrictions, restrictions on
A-5
exercisability or transferability, any Performance Measures and
Performance Goals including those relating to the Company
and/or a
Subsidiary, vesting based on the passage of time, the benefit
payable under any SAR, Performance Unit or Performance Share,
and whether or not specific Awards shall be identified with
other specific Awards, and if so whether they shall be
exercisable cumulatively with, or alternatively to, such other
specific Awards; based in each case on such considerations as
the Committee shall determine;
(ii) to determine the sizes and types of Awards;
(iii) to determine the amount, if any, that a Grantee
shall pay for Restricted Stock, whether to permit or require the
payment of cash dividends thereon to be deferred and the terms
related thereto, when Restricted Stock (including Restricted
Stock Shares acquired upon the exercise of an Option) shall be
forfeited and whether such shares shall be held in escrow;
(iv) to correct any defect or supply any omission or
reconcile any inconsistency, and to construe and interpret the
Plan, the rules and regulations, and Award Agreement or any
other instrument entered into or relating to an Award under the
Plan, and to make all determinations, including factual
determinations, necessary or advisable for the administration of
the Plan;
(v) to make, amend, and rescind rules relating to the
Plan, including rules with respect to the exercisability and
nonforfeitability of Awards upon the Termination of Affiliation
of a Grantee;
(vi) with the consent of the Grantee, to amend any
Award Agreement at any time, including an amendment to permit
transfers of such Awards to the extent permitted by the Plan;
provided that the consent of the Grantee shall not be
required for any amendment which (a) does not adversely
affect the rights of the Grantee, (b) is required by the
listing criteria of any exchange on which Shares are traded; or
(c) is necessary or advisable (as determined by the
Committee) to carry out the purpose of the Award as a result of
any new or change in existing applicable law (including any new
or changed requirement of the Code to obtain a tax benefit or to
avoid a tax or a tax penalty for either the Company or any
Grantee);
(vii) to cancel, with the consent of the Grantee,
outstanding Awards and to grant new Awards in substitution
therefor;
(viii) to accelerate the exercisability (including
exercisability within a period of less than one year after the
Grant Date) of, and to accelerate or waive any or all of the
terms and conditions applicable to, any Award or any group of
Awards for any reason and at any time, including in connection
with a Termination of Affiliation (other than for Cause),
provided that the Committee may not accelerate the
payment of any Award which is deferred compensation within the
meaning of Section 409A of the Code if such acceleration
would subject the Award to any additional tax under
Section 409A of the Code;
(ix) subject to Section 1.3 and
Section 5.3, to extend the time during which any Award or
group of Awards may be exercised;
(x) to make such adjustments or modifications to
Awards to Grantees working outside the United States as are
advisable to fulfill the purposes of the Plan;
(xi) to impose such additional terms and conditions
upon the grant, exercise or retention of Awards as the Committee
may, before or concurrently with the grant thereof, deem
appropriate, including limiting the percentage of Awards which
may from time to time be exercised by a Grantee;
(xii) to appoint such agents including without
limitation management of the Company, as the Committee may deem
necessary or advisable to assist the Committee in administration
of the Plan;
(xiii) without the consent of the Grantee, to make
adjustments in the terms and conditions of, and the criteria in,
Awards in recognition of unusual or nonrecurring events
(including events described in Section 4.4(a)) affecting
the Company or any Subsidiary or the financial statements of the
Company or any Subsidiary, or in response to changes in
applicable laws, regulations or accounting principles;
provided, however,
A-6
that in no event shall such adjustment increase the value of an
Award for a person expected to be a Covered Employee for whom
the Committee desires to have the Performance-Based Exception
apply; and
(xiv) to take any other action with respect to any
matters relating to the Plan for which it is responsible.
The determination of the Committee on all matters relating to
the Plan or any Award Agreement shall be final, conclusive and
binding on all Persons, except to the extent the Committee may
subsequently modify, or take further action not consistent with,
its prior action. If not specified in the Plan, the time at
which the Committee must or may make any determination shall be
determined by the Committee, and any such determination may
thereafter be modified by the Committee. This express grant of
any specific power to the Committee, and the taking of any
action by the Committee, shall not be construed as limiting any
power or authority of the Committee. No member of the Committee
shall be liable for any action or determination made in good
faith with respect to the Plan or any Award.
Article 4.
Shares Subject to the Plan, Maximum Awards and
Section 162(m) Compliance
4.1. Number of Shares Available for
Grants. Subject to adjustment as provided in
Section 4.2 hereof, the number of Shares hereby reserved
for issuance under the Plan shall be three million (3,000,000)
which shall consist of the sum of (a) 2,453,598, plus
(b) 546,402 remaining Shares as of the Effective Date of
this Plan under the CNA Surety Corporation 1997 Long-Term Equity
Compensation Plan (the 1997 Plan) not subject to
outstanding Awards under the 1997 Plan and not delivered out of
Shares reserved thereunder. If any Shares subject to an Award
granted hereunder are forfeited or such Award otherwise
terminates without the issuance of such Shares or of other
consideration in lieu of such Shares, the Shares subject to such
Award, to the extent of any such forfeiture or termination shall
again he available for grant under the Plan. If a SAR is settled
in Shares, only the number of Shares delivered in settlement of
a SAR shall cease to he available for grant under the Plan,
regardless of the number of Shares with respect to which the SAR
was exercised. If any Shares subject to an Award granted
hereunder are withheld or applied as payment in connection with
the exercise of an Award (including the withholding of Shares on
the exercise of a SAR that is settled in Shares) or, except with
respect to Restricted Stock, the withholding or payment of taxes
related thereto, such Shares shall again be available for grant
under the Plan. The Committee shall determine the appropriate
methodology for calculating the number of shares issued pursuant
to the Plan. Shares issued pursuant to the Plan may be treasury
Shares or newly issued Shares.
4.2. Maximum Awards. Awards shall be
subject to the following limits:
(a) Options: The maximum aggregate number of Shares
that may be granted in the form of Options, pursuant to any
Awards granted in any one calendar year to any one single
Grantee, shall be two hundred thousand (200,000).
(b) SARS: The maximum aggregate number of SARs
available under the Plan shall be one million (1,000,000), and
the maximum aggregate number of SARs that may be granted in any
one calendar year to any one single Grantee shall be two hundred
thousand (200,000).
(c) Restricted Stock: The maximum aggregate number of
Shares that may be granted as Restricted Stock under the Plan
shall be one million (1,000,000), and the maximum aggregate
grant with respect to Awards of Restricted Stock granted in any
one calendar year to any one Grantee shall be one hundred
thousand (100,000).
(d) Bonus Shares: The maximum number of Shares that
maybe granted as Bonus Shares under the Plan shall be 300,000.
(e) Performance Shares/Performance Units: The maximum
aggregate payout (determined as of the end of the applicable
performance period) with respect to Awards of Performance Shares
or Performance Units granted in any one calendar year to any one
Grantee shall be equal to the value of one hundred thousand
(100,000)
A-7
Shares; provided, however, that if the Performance Period
applicable to a Performance Unit exceeds twelve months, the
100,000 share limit shall apply to each
12-month
period in the Performance Period.
(f) Incentive Awards: The maximum aggregate payout
(determined as of the end of the applicable performance period)
with respect to Incentive Awards granted in any one calendar
year to any one Grantee shall be 300% of the Grantees base
salary (as in effect on the first day of the performance period
or, if later, the date the Grantee becomes an employee of the
Company or any Subsidiary) up to a maximum of $1 million in
base salary; provided, however, that if the Performance
Period applicable to an Incentive Award exceeds twelve months,
the foregoing limit shall apply to each
12-month
period in the Performance Period.
If an Award denominated in Shares is cancelled, the cancelled
Award continues to count against the maximum number of Shares
for which an Award denominated in Shares may be granted to a
Grantee in any calendar year. The Share limits of this
Section 4.2 shall be adjusted to the extent necessary to
reflect adjustments to Shares required by Section 4.3.
4.3. Adjustments in Authorized Shares. In
the event of any change in corporate capitalization, including a
stock split, or share combination or a corporate transaction,
including any merger, consolidation, separation, including a
spin-off, or other distribution of stock or property of the
Company, any reorganization (whether or not such reorganization
comes within the definition of such term in Code
Section 368) or any partial or complete liquidation of
the Company, such adjustment shall be made in the number and
class of Shares which may be delivered under Section 4.1,
in the number and class of
and/or price
of Shares subject to outstanding Awards granted under the Plan,
and in the Award limits set forth in Section 4.2, as may be
determined to be appropriate and equitable by the Committee, in
its sole discretion, to prevent dilution or enlargement of
rights; provided, however, that the number of Shares subject to
any Award shall always be a whole number.
4.4. Performance-Based Exception Under
Section 162(m).
(a) Performance Measures. Unless and
until the Committee proposes for shareholder vote and
shareholders approve a change in the general performance
measures set forth in this Section 4.4, the attainment of
which may determine the degree of payout
and/or
vesting with respect to Awards designed to qualify for the
Performance-Based Exception, the performance measure(s) to be
used for purposes of such Awards shall be chosen from among the
following and including any of the following in the aggregate or
on a per-Share basis and on a pre-tax or after-tax basis:
(i) Earnings;
(ii) Net income;
(iii) Net operating income;
(iv) Cash flow provided by operations;
(v) Free cash flow;
(vi) Return measures (including return on assets, equity,
or sales);
(vii) Earnings (before or after any of interest, taxes,
depreciation or amortization);
(viii) Gross revenues;
(ix) Share price (including growth measures and total
shareholder return or attainment by the Shares of a specified
value for a specified period of time);
(x) Reductions in expense levels;
(xi) Strategic business criteria, consisting of one or more
objectives based on meeting objective standards of rate
adequacy, premium growth, market share retention, budget,
operating plan, customer/employee satisfaction,
customer/employee diversity, business development or special
projects;
A-8
(xii) Combined ratio (or any of its components); and
(xiii) Gross or net written premiums.
(xiv) Book Value
provided that the Committee may, on the Grant Date of an
Award intended to comply with the Performance-Based Exception,
and in the case of other Awards, at any time, provide that the
formula for such Award may include or exclude items to measure
specific objectives, such as losses from discontinued
operations, extraordinary gains or losses, the cumulative effect
of accounting changes, acquisitions or divestitures, foreign
exchange impacts and any unusual, nonrecurring gain or loss.
(b) Flexibility as to Timing, Weighting,
Applicable Business Unit. For Awards intended to comply
with the Performance-Based Exception, the Committee shall set
the Performance Goals within the time period prescribed by
Section 162(m) of the Code. The levels of performance
required with respect to Performance Measures may be expressed
in absolute or relative levels and may be based upon a set
increase or rate of growth, set positive result, maintenance of
the status quo, set decrease or set negative result. Performance
Measures may differ for Awards to different Grantees. The
Committee shall specify the weighting (which may he the same or
different for multiple objectives) to be given to each
performance objective for purposes of determining the final
amount payable with respect to any such Award. Any one or more
of the Performance Measures may apply to the Company as a whole,
or to a Grantee, a department, unit, division or function within
the Company, or any one or more Subsidiaries; and may apply
either alone or relative to the performance of other businesses
or individuals (including industry or general market indices).
(c) Discretion to Adjust. The Committee
shall have the discretion to adjust the determinations of the
degree of attainment of the pre-established performance goals;
provided, however, that Awards which are designed to
qualify for the Performance-Based Exception may not (unless the
Committee determines to amend the Award so that it no longer
qualifies for the Performance-Based Exception) be adjusted
upward. The Committee shall retain the discretion to adjust such
Awards downward. All determinations by the Committee as to the
achievement of the Performance Measure(s) shall be certified in
writing prior to payment of the Award.
(d) Alteration of Performance
Measures. In the event that applicable laws change to
permit Committee discretion to alter the governing Performance
Measures without obtaining stockholder approval of such changes,
and still qualify for the Performance-Based Exception, the
Committee shall have sole discretion to make such changes
without obtaining stockholder approval.
Article 5.
Eligibility and General Conditions of Awards
5.1. Eligibility. The Committee may in
its discretion grant Awards to any Eligible Person, whether or
not he or she has previously received an Award.
5.2. Grant Date. The Grant Date of an
Award shall be the date on which the Committee grants the Award
or such later date as specified in advance by the Committee.
5.3. Maximum Term. Any provision of the
Plan to the contrary notwithstanding, the Option Term or other
period during which an Award may be outstanding shall under no
circumstances extend more than 10 years after the Grant
Date, and shall be subject to earlier termination as herein
provided.
5.4. Award Agreement. To the extent not
set forth in the Plan, the terms and conditions of each Award
(which need not be the same for each grant or for each Grantee)
shall he set forth in an Award Agreement, provided that
the terms and conditions of Incentive Awards may be set forth in
a resolution or other document adopted by the Committee and
generally applicable to all Grantees of Incentive Awards, which
resolution or other document shall be deemed an Award Agreement
for purposes of this Plan.
A-9
5.5. Restrictions on Share
Transferability. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of
an Option granted under the Plan as it may deem advisable,
including restrictions under applicable federal securities laws,
under the requirements of any stock exchange or market upon
which Shares are then listed or traded, and under any blue sky
or state securities laws applicable to such Shares.
5.6. Termination of Affiliation. Each
Grantees Award Agreement shall set forth the extent to
which the Grantee shall have the right to exercise the Award
following Termination of Affiliation. Such provisions shall be
determined in the sole discretion of the Committee, shall be
included in the Award Agreement, need not be uniform among all
Awards granted under the Plan, and may reflect distinctions
based on the reasons for Termination of Affiliation.
Notwithstanding the foregoing, vesting of Restricted Stock and
distributions or payments with respect to other Awards intended
to qualify for the Performance-Based Exception shall occur at
the time they would have, but for the Termination of
Affiliation, if such Termination of Affiliation is for a reason
other than death, Disability, or in connection with a change of
control of the Company or a Subsidiary.
5.7. Nontransferability of Awards.
(a) Each Award granted hereunder shall not be
assignable or transferable other than by will or the laws of
descent and distribution and may be exercised, during the
Grantees lifetime, only by the Grantee or his or her
guardian or legal representative, except that, a Grantee may, in
a manner and to the extent permitted by the Committee in its
discretion, designate in writing a beneficiary to exercise an
Award after the Grantees death in accordance with
Article 12, and Non-Qualified Stock Options may be
transferred in accordance with subsection (b).
(b) Notwithstanding subsection (a) above, to the
extent provided in the Award Agreement, Nonqualified Stock
Options may be transferred, without consideration, to a
Permitted Transferee. For this purpose, a Permitted
Transferee in respect of any Grantee means any member
of the Immediate Family of such Grantee, any trust of which all
of the primary beneficiaries are such Grantee or members of his
or her Immediate Family, or any partnership (including limited
liability companies and similar entities) of which all of the
partners or members are such Grantee or members of his or her
Immediate Family; and the Immediate Family of
a Grantee includes any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece,
nephew,
mother-in-law,
father-in-law,
son-in-law,
daughter-in-law,
brother-in-law,
or
sister-in-law,
including adoptive relationships, any person sharing the
employees household (other than a tenant or employee), a
trust in which these persons have more than fifty percent of the
beneficial interest, a foundation in which these persons (or the
employee) control the management of assets, and any other entity
in which these persons (or the employee) own more than fifty
percent of the voting interests. Such Award may he exercised by
such transferee in accordance with the terms of such Award.
(c) A transferee, beneficiary, guardian, legal
representative or other person claiming any rights under the
Plan from or through any Grantee shall be subject to the
provisions of the Plan and any applicable Award Agreement,
except to the extent the Plan and Award Agreement otherwise
provide with respect to such persons, and to any additional
restrictions or limitations deemed necessary or appropriate by
the Committee.
(d) Nothing herein shall be construed as requiring
the Committee to honor the order of a domestic relations court
regarding an Award, except to the extent required under
applicable law.
5.8. Cancellation and Rescission of Awards.
(a) Unless the Award Agreement specifies otherwise,
the Committee may cancel, rescind, suspend, withhold, or
otherwise limit or restrict any unexercised Award at any time if
the Grantee is not in compliance with all applicable provisions
of the Award Agreement and the Plan or if the Grantee has a
Termination of Affiliation for Cause.
(b) Upon exercise, payment, or delivery pursuant to
an option, the Grantee shall certify in a manner acceptable to
the Company that he or she is in compliance with the terms and
conditions of the Plan. In the event a Grantee fails to comply
with the provisions of this Section 5.8 prior to, or during
the six months after, any exercise, payment, or delivery
pursuant to an Award, such exercise, payment, or delivery may be
rescinded by the Committee within two years thereafter. In the
event of any such rescission, the Grantee shall pay to the
Company the
A-10
amount of any gain realized or payment received as a result of
the rescinded exercise, payment, or delivery in such manner and
on such terms and conditions as may be required, and the Company
shall be entitled to set-off against the amount of any such gain
any amount owed to the Grantee by the Company.
5.9. Exercise by Non-Grantee. If as
permitted by the Plan any Award is exercised by, or benefits
under an Award are to be paid to any person other than the
Grantee, references in this Plan to the Grantee shall include
such person, and such person shall provide at the time of
exercise of an Award or prior to payment of the Award such
documentation as may reasonably be required by the Committee,
including without limitation, evidence of authority of such
person or persons to exercise or receive payment of the Award
and if the Committee so specifies, evidence satisfactory to the
Company that any death taxes payable with respect to such Shares
have been paid or provided for.
5.10. No Cash Consideration for
Awards. Awards may be granted for no cash consideration
or for such minimal cash consideration as may be required by
applicable law.
5.11. No Fractional Shares. No fractional
Shares shall be issued or delivered pursuant to the Plan or any
Award, and the Committee shall determine whether cash, other
securities, or other property shall be paid or transferred in
lieu of any fractional Shares, or whether such fractional Shares
or any rights thereto shall be canceled, terminated, or
otherwise eliminated.
5.12. Tax Obligations. No Award shall be
settled, whether in cash or Shares, unless the applicable tax
withholding requirements have been met to the satisfaction of
the Committee.
Article 6.
Stock Options
6.1. Grant of Options. Subject to the
terms and provisions of the Plan, Options may be granted to any
Eligible Person in such number, and upon such terms, and at any
time and from time to time as shall be determined by the
Committee.
6.2. Award Agreement. Each Option grant
shall be evidenced by an Award Agreement that shall specify the
Option Price, the Option Term, the number of shares to which the
Option pertains, the time or times at which such Option shall be
exercisable and such other provisions as the Committee shall
determine.
6.3. Option Price. The Option Price of an
Option under this Plan shall be at least equal to one hundred
percent (100%) of the Fair Market Value of a Share on the Grant
Date.
6.4. Grant of Incentive Stock Options. At
the time of the grant of any Option, the Committee may in its
discretion designate that such Option shall be made subject to
additional restrictions to permit it to qualify as an Incentive
Stock Option. Any Option designated as an Incentive Stock Option:
(i) shall, if granted to a 10% Owner, have an Option
Price not less than 110% of the Fair Market Value of a Share on
the Grant Date;
(ii) shall be for a period of not more than
10 years (five years in the case of an Incentive Stock
Option granted to a 10% Owner) from the Grant Date, and shall be
subject to earlier termination as provided herein or in the
applicable Award Agreement;
(iii) shall not have an aggregate Fair Market Value
(determined for each Incentive Stock Option at its Grant Date)
of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by such Grantee during any
calendar year (under the Plan and any other stock option plan of
the Grantees employer or any parent or Subsidiary thereof
(Other Plans)), determined in accordance with the
provisions of Code Section 422, which exceeds $100,000 (the
$100,000 Limit);
(iv) shall, if the aggregate Fair Market Value of the
Shares (determined on the Grant Date) with respect to the
portion of such grant which is exercisable for the first time
during any calendar year (Current Grant)
A-11
and all Incentive Stock Options previously granted under the
Plan and any Other Plans which are exercisable for the first
time during a calendar year (Prior Grants) would
exceed the $100,000 Limit, be exercisable as follows:
(A) the portion of the Current Grant which would,
when added to any Prior Grants, be exercisable with respect to
Shares which would have an aggregate Fair Market Value
(determined as of the respective Grant Date for such options) in
excess of the $100,000 Limit shall, notwithstanding the terms of
the Current Grant, be exercisable for the first time by the
Grantee in the first subsequent calendar year or years in which
it could be exercisable for the first time by the Grantee when
added to all Prior Grants without exceeding the $100,000
Limit; and
(B) if, viewed as of the date of the Current Grant,
any portion of a Current Grant could not be exercised under the
preceding provisions of this Section during any calendar year
commencing with the calendar year in which it is first
exercisable through and including the last calendar year in
which it may by its terms be exercised, such portion of the
Current Grant shall not be an Incentive Stock Option, but shall
be exercisable as a separate Option at such date or dates as are
provided in the Current Grant;
(v) shall be granted within 10 years from the
earlier of the date the Plan is adopted or the date the Plan is
approved by the stockholders of the Company;
(vi) shall require the Grantee to notify the
Committee of any disposition of any Shares issued pursuant to
the exercise of the Incentive Stock Option under the
circumstances described in Code Section 421(b) (relating to
certain disqualifying dispositions) (any such circumstance, a
Disqualifying Disposition), within 10 days of
such Disqualifying Disposition; and
(vii) shall by its terms not be assignable or
transferable other than by will or the laws of descent and
distribution and maybe exercised, during the Grantees
lifetime, only by the Grantee; provided, however, that the
Grantee may, to the extent provided in Article 12 of the
Plan and in the manner specified by the Committee, designate in
writing a beneficiary to exercise his or her Incentive Stock
Option after the Grantees death; and
(viii) shall, if such Option nevertheless fails to
meet the foregoing requirements, or otherwise fails to meet the
requirements of Section 422 of the Code for an Incentive
Stock Option, be treated for all purposes of this Plan, except
as otherwise provided in subsections (i) and
(ii) above, as a Non-Qualified Stock Option.
Notwithstanding the foregoing, the Committee may, without the
consent of the Grantee, at any time before the exercise of an
Option (whether or not an Incentive Stock Option), take any
action necessary to prevent such option from being treated as an
Incentive Stock Option.
6.5. Exercise and Payment. Options
granted under this Article 6 shall be exercised by the
delivery of a written notice of exercise to the Company
identifying the Option being exercised and setting forth the
number of Shares with respect to which the Option is being
exercised, accompanied by full payment for the Shares.
(a) Payment of the Option Price may be made by any
one or more of the following means:
(i) cash, personal check or wire transfer;
(ii) Mature Shares, valued at their Fair Market Value
on the date of exercise;
(iii) with the approval of the Committee, Restricted
Stock held by the Grantee for at least six months prior to the
exercise of the option, each such share valued at the Fair
Market Value of a Share on the date of exercise; or
(iv) pursuant to procedures previously approved by
the Company, but subject to applicable law (including
Section 402 of the Sarbanes-Oxley Act of 2002 relating to
extensions of credit in the form of a loan to directors and
executive officers (or the equivalent thereof)), through the
sale of the Shares acquired on exercise of the Option through a
broker-dealer to whom the Grantee has submitted an irrevocable
notice of exercise and irrevocable instructions to deliver
promptly to the Company the amount of sale or loan proceeds
sufficient to pay for
A-12
such Shares, together with, if requested by the Company, the
amount of federal, state, local or foreign withholding taxes
payable by Grantee by reason of such exercise.
(b) The Committee may in its discretion specify that,
if any Restricted Stock Shares (Tendered Restricted
Shares) are used to pay the Option Price, (x) all the
Shares acquired on exercise of the option shall be subject to
the same restrictions as the Tendered Restricted Shares,
determined as of the date of exercise of the option, or
(y) a number of Shares acquired on exercise of the option
equal to the number of Tendered Restricted Shares shall be
subject to the same restrictions as the Tendered Restricted
Shares, determined as of the date of exercise of the option.
Article 7.
Stock Appreciation Rights
7.1. Grant of SARs. Subject to the terms
and conditions of the Plan, SARs maybe granted to any Eligible
Person at any time and from time to time as shall be determined
by the Committee. The Committee may grant Freestanding SARs,
Tandem SARs, or any combination thereof. Any SAR related to a
Non-Qualified Stock Option may be granted at the same time such
Option is granted or at any time thereafter before exercise or
expiration of such Option. Any SAR related to an Incentive Stock
Option must be granted at the same time such Option is granted.
7.2. Award Agreements. Each SAR shall be
evidenced by an Award Agreement in such form as the Committee
may approve, which shall contain such terms and conditions not
inconsistent with the provisions of the Plan as shall be
determined from time to time by the Committee. The Committee
shall have complete discretion in determining the number of SARs
granted to each Grantee (subject to Article 4), the Strike
Price thereof (subject to Section 7.3), and, consistent
with the provisions of the Plan, in determining the terms and
conditions pertaining to such SARs. The Committee may impose
such conditions or restrictions on the exercise of any SAR as it
shall deem appropriate.
7.3. Strike Price. The Strike Price of a
SAR under this Plan shall be at least equal to one hundred
percent (100%) of the Fair Market Value of a Share on the Grant
Date.
7.4. Exercise of Tandem SAR. Tandem SARs
may be exercised for all or part of the Shares subject to the
related Award upon the surrender of the right to exercise the
equivalent portion of the related Award. A Tandem SAR may be
exercised only with respect to the Shares for which its related
Award is then exercisable.
Notwithstanding any other provision of this Plan to the
contrary, with respect to a Tandem SAR granted in connection
with an ISO; (i) the Tandem SAR will expire no later than
the expiration of the underlying ISO; (ii) the value of the
payout with respect to the Tandem SAR may be for no more than
one hundred percent (100%) of the difference between the Option
Price of the underlying ISO and the Fair Market Value of the
Shares subject to the underling ISO at the time the Tandem SAR
is exercised; and (iii) the Tandem SAR may be exercised
only when the Fair Market Value of the Shares subject to the ISO
exceeds the Option Price of the ISO.
7.5. Exercise of Freestanding
SARs. Freestanding SARs may be exercised upon whatever
terms and conditions the Committee, in its sole discretion,
imposes upon them.
7.6. Exercise and Payment of SAR
Amount. SARs shall be exercised by the delivery of a
written notice to the Company identifying the SAR being
exercised and setting forth the number of Shares with respect to
which the SAR is being exercised. Upon exercise of a SAR, the
Grantee shall be entitled to receive payment from the Company in
an amount determined by multiplying:
(a) The difference between the Fair Market Value of a
Share on the date of exercise and the Strike Price, by
A-13
(b) The number of Shares with respect to which the
SAR is exercised; provided that the Committee may provide that
the benefit payable on exercise of any SAR shall not exceed such
percentage of The Fair Market Value of a Share on the Grant Date
as the Committee shall specify.
At the discretion of the Committee, the payment upon SAR
exercise may be in cash, in Shares of equivalent value, or in
some combination thereof, as set forth in the Award Agreement.
Article 8.
Restricted Stock
8.1. Grant of Restricted Stock. Subject
to the terms and provisions of the Plan, the Committee, at any
time and from time to time, may grant Restricted Stock to any
Eligible Person in such amounts as the Committee shall
determine. Restricted Stock may be granted as Restricted Stock
Shares or Restricted Stock Units.
8.2. Award Agreement. Each grant of
Restricted Stock shall be evidenced by an Award Agreement that
shall specify the Period(s) of Restriction, the number of
Restricted Stock Shares or Units granted, and such other
provisions as the Committee shall determine. The Committee shall
impose such other conditions
and/or
restrictions on any Restricted Stock granted pursuant to the
Plan as it may deem advisable, including restrictions based upon
the achievement of specific Performance Goals, time-based
restrictions on vesting following the attainment of the
Performance Goals,
and/or
restrictions under applicable federal or state securities laws.
8.3. Other Restrictions. The Committee
shall determine the amount, if any, that a Grantee shall pay for
Restricted Stock Shares, provided that except with
respect to Restricted Stock Shares issued from treasury shares,
for which no payment need be required, the Committee shall
require the Grantee to pay at least the Minimum Consideration
for each Restricted Stock Share. Such payment shall be made in
full by the Grantee before the delivery of the Shares and in any
event no later than 10 days after the Grant Date for
Restricted Stock Shares.
8.4. Effect of Forfeiture. If Restricted
Stock Shares are forfeited, then if the Grantee was required to
pay for such Restricted Stock or acquired such Restricted Stock
upon the exercise of an option, the Grantee shall be deemed to
have resold such Restricted Stock to the Company at a price
equal to the lesser of (x) the amount paid by the Grantee
for such Restricted Stock, or (y) the Fair Market Value of
the Shares on the date of such forfeiture. The Company shall pay
to the Grantee the required amount as soon as is
administratively practical. Restricted Stock Shares that have
been forfeited shall cease to be outstanding, and shall no
longer confer on the Grantee thereof any rights as a stockholder
of the Company, from and after the date of the event causing the
forfeiture, whether or not the Grantee accepts the
Companys tender of payment for such Restricted Stock.
8.5. Escrow; Legends. The Committee may
provide that the certificates for any Restricted Stock Shares
(x) shall be held (together with a stock power executed in
blank by the Grantee) in escrow by the Secretary of the Company
until such Restricted Stock Shares become nonforfeitable or are
forfeited or (y) shall bear an appropriate legend
restricting the transfer of such Restricted Stock Shares. If any
Restricted Stock Shares become nonforfeitable, the Company shall
cause certificates for such Shares to be issued without such
legend.
8.6. Crediting Restricted Stock Units. If
Restricted Stock Units are granted, the Company shall establish
an account (RSU Account) on its books for
each Eligible Person who receives a grant of Restricted Stock
Units. Restricted Stock Units shall be credited to the
Grantees RSU Account as of the Grant Date of such
Restricted Stock Units. RSU Accounts shall be maintained for
recordkeeping purposes only and the Company shall not be
obligated to segregate or set aside assets representing
securities or other amounts credited to RSU Accounts. The
obligation to make distribution of Shares or other amounts
credited to RSU Accounts shall be an unfunded unsecured
obligation of the Company.
8.7. Settlement of RSU Accounts. The
Company shall settle an RSU Account by delivering to the Grantee
a number of Shares equal to the whole number of Shares
underlying the Restricted Stock Units then credited to the
Grantees RSU Account (or a specified portion in the event
of any partial settlement); provided that any fractional
Shares underlying Restricted Stock Units remaining in the RSU
Account on the Settlement Date shall be distributed in cash in
an amount equal to the Fair Market Value of a Share as of the
Settlement Date multiplied by
A-14
the remaining fractional Restricted Stock Unit. Unless the
Settlement Date is deferred pursuant to Article 13, the
Settlement Date for all Restricted Stock
Units credited to a Grantees RSU Account shall be the
earlier of (a) the lapse of the Period of Restriction
applicable to an Award of Restricted Stock Units, or
(b) promptly following the Grantees death or
disability (as defined in Code Section 409A(a)(2)(C)(i)).
8.8. Voting and Dividend Equivalents. At
the discretion of the Committee and to the extent set forth in
the Award Agreement and consistent with the requirements of
Section 409A, a Grantee may be entitled to receive dividend
equivalents with respect to Shares in connection with grants of
Restricted Stock Shares or Restricted Stock Units which have
been awarded but not yet vested in the Grantee. In addition, a
Grantee may, at the discretion of the Committee and to the
extent set forth in the Award Agreement, be entitled to exercise
his or her voting rights with respect to Restricted Stock
Shares. No voting rights shall be exercised with respect to
Restricted Stock Units.
Article 9.
Performance Units and Performance Shares
9.1. Grant of Performance
Units/Shares. Subject to the terms of the Plan,
Performance Units
and/or
Performance Shares may be granted to any Eligible Person in such
amounts and upon such terms, and at any time and from time to
time as shall be determined by the Committee.
9.2. Value of Performance
Units/Shares. Each Performance Unit shall have an
initial value that is established by the Committee at the time
of grant. Each Performance Share shall have an initial value
equal to the Fair Market Value of a Share on the date of grant.
The Committee shall set Performance Goals in its discretion
which, depending on the extent to which they are met, will
determine the number and/ or value of Performance Units/Shares
that will be paid out to the Grantee. The Committee may set the
Performance Goals for Awards of Performance Units at threshold,
target and maximum performance levels, with the number or value
of the Performance Units payable tied to the degree of
attainment of the various performance levels during the
Performance Period. No payment shall be made with respect to a
Performance Unit if the threshold performance level is not
attained. If Performance Goals are attained between performance
levels (i.e., either between the threshold and target
performance levels or between the target and maximum performance
levels) the number or value of the Performance Unit at the end
of the Performance Period shall be determined by linear
interpolation, unless otherwise provided by the Committee at the
time of grant. To the extent the Committee deems it appropriate
to comply with Section 162(m) of the Code, all Performance
Goals shall he objective, and shall be based on Performance
Measures.
9.3. Earning of Performance
Units/Shares. Subject to the terms of this Plan, after
the applicable Performance Period has ended, the holder of
Performance Units/Shares shall be entitled to receive payout on
the number and value of Performance Units/Shares earned by the
Grantee over the Performance Period, to be determined as a
function of the extent to which the corresponding performance
goals have been achieved. If the Performance Unit Award is
intended to comply with the Performance-Based Exception, the
Committee shall certify the level of attainment of the
Performance Goals in writing before the Award is settled.
If a Grantee is promoted, demoted or transferred to a different
business unit of the Company during a Performance Period, then,
to the extent the Committee determines the performance goals or
Performance Period are no longer appropriate, the Committee may
adjust, change or eliminate the performance goals or the
applicable Performance Period as it deems appropriate in order
to make them appropriate and comparable to the initial
performance goals or Performance Period.
9.4. Form and Timing of Payment of Performance
Units/Shares. Payment of earned Performance
Units/Shares shall be made in a single lump sum following the
close of the applicable Performance Period. Subject to the terms
of this Plan, the Committee, in its sole discretion, may pay
earned Performance Units/Shares in the form of cash or in Shares
(or in a combination thereof) which have an aggregate Fair
Market Value equal to the value of the earned Performance
Units/Shares at the close of the applicable Performance Period.
Such Shares may he granted subject to any restrictions deemed
appropriate by the Committee. The determination of the Committee
with respect to the form of payout of such Awards shall be set
forth in the Award Agreement pertaining to the grant of the
Award.
A-15
At the discretion of the Committee and to the extent set forth
in the Award Agreement, a Grantee may be entitled to receive any
dividends declared with respect to Shares which have been earned
in connection with grants of Performance Units
and/or
Performance Shares which have been earned but not yet
distributed to the Grantee. In addition, a Grantee may, at the
discretion of the Committee and to the extent set forth in the
Award Agreement, be entitled to exercise his or her voting
rights with respect to such Shares.
Article 10.
Incentive Awards
10.1. Incentive Awards. Subject to and
consistent with the provisions of the Plan, Incentive Awards may
be granted to any Eligible Person in accordance with this
Article 10. Incentive Awards shall be based on achievement
of Performance Goals over a Performance Period which may be one
fiscal year or less (Annual Incentive Awards) or
more than one fiscal year (Long-Term Incentive
Awards). The Committee shall designate the individuals
eligible to be granted an Incentive Award for a year or other
Performance Period within the first ninety (90) days of
such year or other Performance Period or, in the case of a
newly-hired or newly-promoted Grantee, not later than the elapse
of 25% of the remainder of such year or other Performance Period
after such hiring or promotion. The Committee may designate an
Eligible Person as eligible for a full year or other Performance
Period or for a period of less than a full year or other
Performance Period. The opportunity for a Covered Employee to be
granted an Incentive Award shall be, and the opportunity for a
Grantee other than a Covered Employee may in the discretion of
the Committee be, evidenced by an Award Agreement, which shall
specify the individuals Bonus Opportunity, the Performance
Goals, and such other terms not inconsistent with the Plan as
the Committee shall determine.
10.2. Determination of Amount of Incentive
Awards.
(a) Aggregate Maximum. The Committee may
establish guidelines as to the maximum aggregate amount of
Incentive Awards payable for any year.
(b) Establishment of Performance Goals and Bonus
Opportunities. Within the first ninety (90) days
of each year or other Performance Period, the Committee shall
establish Performance Goals for the year or other Performance
Period(which may be the same or different for some or all
Eligible Persons) and shall establish the threshold, target and
maximum Bonus Opportunity for each Participant for the
attainment of specified threshold, target and maximum
Performance Goals. Performance Goals and Bonus Opportunities may
be weighted for different factors and measures as the Committee
shall determine.
(c) Committee Certification and Determination of
Amount of Annual incentive Award. The Committee shall
determine and certify in writing the degree of attainment of
Performance Goals as soon as administratively practicable after
the end of each year or other Performance Period but not later
than March 15 of the calendar year following the end of such
year or other Performance Period. The Committee shall determine
an individuals maximum annual Incentive Award based on the
level of attainment of the Performance Goals (as certified by
the Committee) and the individuals Bonus Opportunity. The
Committee reserves the discretion to reduce (but not below
zero), but not increase the amount of an individuals
Incentive Award below the maximum Incentive Award. The
determination of the Committee to reduce (or not pay) an
individuals Incentive Award for a year or other
Performance Period shall not affect the maximum Incentive Award
payable to any other individual. No Incentive Award shall be
payable to an individual unless at least the threshold
Performance Goal is attained.
(d) Termination of Affiliation. If an
individual has a Termination of Affiliation during the year or
other Performance Period, the Committee may authorize the
payment of an Incentive Award to such individual, and in the
absence of such authorization, the individual shall receive no
Incentive Award for such year or other Performance Period.
10.3. Time of Payment of Incentive
Awards. Incentive Awards shall be paid as soon as
administratively practicable after the Committee determines the
amount of the Incentive Award, but not later than March 15 of
the
A-16
calendar year following the year or other Performance Period for
which the Committee has certified the degree of attainment of
Performance Goals.
10.4. Form of Payment of Incentive
Awards. An individuals Incentive Award shall be
paid in cash, Shares, Restricted Stock, Options, or any other
form of equity or any combination thereof as is provided in the
Award Agreement. The Committee may provide in an Award Agreement
that payment of an Incentive Award may be deferred in accordance
with any rules or procedures that may be established by the
Committee from time to time in accordance with the Plan and
Section 409A of the Code, either before or after the
decision or election to defer is made.
Article 11.
Bonus Shares.
Subject to the terms of the Plan, the Committee may grant Bonus
Shares to any Eligible Person, in such amount and upon such
terms and at any time and from time to time as shall be
determined by the Committee.
Article 12.
Beneficiary Designation
Each Grantee under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or
successively) to whom any benefit under the Plan is to be paid
in case of his or her death before he or she receives any or all
of such benefit. Each such designation shall revoke all prior
designations by the same Grantee, shall be in a form prescribed
by the Company, and will be effective only when filed by the
Grantee in writing with the Company during the Grantees
lifetime. In the absence of any such designation or the survival
of any designated beneficiary, benefits remaining unpaid at the
Grantees death shall be paid to the Grantees
surviving spouse, if any, or if none then to the Grantees
surviving descendants per stirpes, or if neither
surviving spouse nor surviving descendants, then to the estate
of the last to die of the Grantee and any designated beneficiary.
Article 13.
Deferrals
At the discretion of the Committee and to the extent set forth
in the Award Agreement and consistent with the requirements of
Section 409A, the Committee may permit or require a Grantee
to defer receipt of the payment of cash or the delivery of
Shares that would otherwise be due by virtue of the exercise of
an Option or SAR, the lapse or waiver of restrictions with
respect to Restricted Stock, the satisfaction of any
requirements or goals with respect to Performance Units/Shares,
or an Incentive Award. If any such deferral is required or
permitted, the Committee shall, in its sole discretion,
establish rules and procedures for such payment deferrals that
are in accordance with the Plan and Section 409A of the
Code.
Article 14.
Rights of Employees/Directors
14.1. Employment. Nothing in the Plan
shall interfere with or limit in any way the right of the
Company to terminate any Grantees employment at any time,
nor confer upon any Grantees right to continue in the
employ of the Company.
14.2. Participation. No Employee or
Director shall have the right to be selected to receive an Award
under this Plan, or, having been so selected, to be selected to
receive a future Award.
A-17
Article 15.
Change in Control
15.1. Treatment of Outstanding
Awards. The Committee may provide in an Award Agreement
for different terms and conditions to apply prior to and after a
change in control of the Company or a Subsidiary.
15.2. Occurrence of Change of
Control. The Committee may set rules for determining
when a change of control of the Company or a Subsidiary has
occurred.
Article 16.
Amendment, Modification, and Termination
16.1. Amendment, Modification, and
Termination. Subject to the terms of the Plan, the
Board may at any time and from time to time, alter, amend,
suspend or terminate the Plan in whole or in part without the
approval of the Companys stockholders, except (i) as
such stockholder approval may be required under the listing
requirements of any securities exchange or national market
system on which are listed the Companys equity securities
and except that (ii) the Board may not without the approval
of the Companys stockholders amend the Plan to (x)
increase the total number of shares reserved for the purposes of
the Plan, or to (y) change the individuals or class of
individuals eligible to participate in the Plan.
16.2. Adjustment of Awards Upon the Occurrence of
Certain Unusual or Nonrecurring Events. The Committee
may make adjustments in the terms and conditions of, and the
criteria included in, Awards in recognition of unusual or
nonrecurring events (including the events described in
Section 4.3 hereof) affecting the Company or the financial
statements of the Company or of changes in applicable laws,
regulations, or accounting principles, whenever the Committee
determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan; provided
that no such adjustment to an Award intended to meet the
requirements of the Performance Based Exception shall be
authorized to the extent that such adjustment would be
inconsistent with the Awards meeting the requirements of
Section 162(m) of the Code.
16.3. Awards Previously
Granted. Notwithstanding any other provision of the
Plan to the contrary, no termination, amendment, or modification
or the Plan shall adversely affect in any material way any Award
previously granted under the Plan, without the written consent
of the Grantee of such Award unless such termination, amendment,
or modification is required by the listing criteria of any
exchange on which Shares of the Company are traded or is
necessary or advisable (as determined by the Committee) to carry
out the purposes of the Plan as a result of any new or change in
applicable law (including any requirement of the Code to obtain
a tax benefit or to avoid a tax or tax penalty for either the
Company or any Grantee).
Article 17.
Withholding
17.1. Withholding.
(a) Mandatory Tax Withholding.
(1) Whenever under the Plan, Shares are to be
delivered upon exercise or payment of an Award or upon
Restricted Stock Shares becoming nonforfeitable or Restricted
Stock Units becoming payable, or any other event with respect to
rights and benefits hereunder, the Company shall be entitled to
require (i) that the Grantee remit an amount in cash, or in
the Companys discretion, Mature Shares, sufficient to
satisfy all federal, state, and local tax withholding
requirements related thereto (Required Withholding),
(ii) the withholding of such Required Withholding from
compensation otherwise due to the Grantee or from any Shares due
to the Grantee under the Plan or (iii) any combination of
the foregoing.
A-18
(2) Any Grantee who makes a Disqualifying Disposition
or an election under Code Section 83(b) shall remit to the
Company an amount sufficient to satisfy all resulting Required
Withholding; provided that, in lieu of or in addition to
the foregoing, the Company shall have the right to withhold such
Required Withholding from compensation otherwise due to the
Grantee or from any Shares or other payment due to the Grantee
under the Plan.
(b) Elective Share Withholding.
(1) Subject to the following subsection, a Grantee
may elect the withholding (Share Withholding) by the
Company of a portion of the Shares otherwise deliverable to such
Grantee upon the exercise of an Award or upon Restricted Stock
Shares becoming nonforfeitable or Restricted Stock Units
becoming payable (each, a Taxable Event) having a
Fair Market Value equal to (i) the minimum amount necessary
to satisfy Required Withholding liability attributable to the
Taxable Event; or (ii) with the Committees prior
approval, a greater amount, not to exceed the estimated total
amount of such Grantees tax liability with respect to the
Taxable Event.
(2) Each Share Withholding election shall be subject
to the following conditions:
(i) any Grantees election shall be subject to
the Committees discretion to revoke the Grantees
right to elect Share Withholding at any time before the
Grantees election if the Committee has reserved the right
to do so in the Award Agreement;
(ii) the Grantees election must be made before
the date (the Tax Date) on which the amount of tax
to be withheld is determined; and
(iii) the Grantees election shall be
irrevocable.
17.2. Notification under Code
Section 83(b). If the Grantee, in connection with
the exercise of any option, or the grant of Restricted Stock
Shares, makes the election permitted under Code
Section 83(b) to include in such Grantees gross
income in the year of transfer the amounts specified in Code
Section 83(b), then such Grantee shall notify the Company
of such election within 10 days of filing the notice of the
election with the Internal Revenue Service, in addition to any
filing and notification required pursuant to regulations issued
under Code Section 83(b). The Committee may, in connection
with the grant of an Award or at any time thereafter, prohibit a
Grantee from making the election described above.
Article 18.
Successors
All obligations of the Company under the Plan with respect to
Awards granted hereunder shall be binding on any successor to
the Company, whether the existence of such successor is the
result of a direct or indirect purchase, merger, consolidation,
or otherwise of all or substantially all of the business
and/or
assets of the Company.
Article 19.
Additional Provisions
19.1. Gender and Number. Except where
otherwise indicated by the context, any masculine term used
herein also shall include the feminine; the plural shall include
the singular and the singular shall include the plural.
19.2. Severability. If any part of the
Plan is declared by any court or governmental authority to be
unlawful or invalid, such unlawfulness or invalidity shall not
invalidate any other part of the Plan. Any Section or part of a
Section so declared to be unlawful or invalid shall, if
possible, be construed in a manner which will give effect to the
terms of such Section or part of a Section to the fullest extent
possible while remaining lawful and valid.
19.3. Requirements of Law. The granting
of Awards and the issuance of Shares under the Plan shall be
subject to all applicable laws, rules, and regulations, and to
such approvals by any governmental agencies or national
A-19
securities exchanges as may be required. Notwithstanding any
provision of the Plan or any Award, Grantees shall not be
entitled to exercise, or receive benefits under, any Award, and
the Company shall not be obligated to deliver any Shares or
deliver benefits to a Grantee, if such exercise or delivery
would constitute a violation by the Grantee or the Company of
any applicable law or regulation.
19.4. Securities Law Compliance. If the
Committee deems necessary to comply with any applicable
securities law, the Committee may require a written investment
intent representation by the Grantee and may require that a
restrictive legend be affixed to certificates for Shares. If,
based upon the advice of counsel for the Company, the Committee
determines that the exercise or nonforfeitability of, or
delivery of benefits pursuant to, any Award would violate any
applicable provision of (i) federal or state securities
laws or (ii) the listing requirements of any national
securities exchange or national market system on which are
listed any of the Companys equity securities, then the
Committee may postpone any such exercise, nonforfeitability or
delivery, as applicable, but the Company shall use all
reasonable efforts to cause such exercise, nonforfeitability or
delivery to comply with all such provisions at the earliest
practicable date.
19.5. No Rights as a Shareholder. A
Grantee shall not have any rights as a shareholder of the
Company with respect to the Shares (other than Restricted Stock
Shares) which may be deliverable upon exercise or payment of
such Award until such shares have been delivered to him or her.
Restricted Stock Shares, whether held by a Grantee or in escrow
by the Secretary of the Company, shall confer on the Grantee all
rights of a shareholder of the Company, except as otherwise
provided in the Award Agreement or the Plan. At the time of a
grant of Restricted Stock Shares, the Committee may require the
payment of cash dividends thereon to be deferred and, if the
Committee so determines, reinvested in additional Restricted
Stock Shares. Stock dividends and deferred cash dividends issued
with respect to Restricted Stock Shares shall be subject to the
same restrictions and other terms as apply to the Restricted
Stock Shares with respect to which such dividends are issued.
The Committee may in its discretion provide for payment of
interest on deferred cash dividends.
19.6. Nature of Payments. Awards shall be
special incentive payments to the Grantee and shall not be taken
into account in computing the amount of salary or compensation
of the Grantee for purposes of determining any pension,
retirement, death, disability or other benefit under
(a) any pension, retirement, profit-sharing, bonus,
disability insurance or other employee benefit plan of the
Company or any Subsidiary, or any agreement between (i) the
Company or any Subsidiary and (ii) the Grantee, except as
such plan or agreement shall otherwise expressly provide.
19.7. Employment Agreement Supersedes Award
Agreement. In the event a Grantee is a party to an
employment agreement with the Company or Subsidiary, that
provides for annual incentive or for vesting, extended
exercisability or transferability of equity compensation awards
on terms more favorable to the Grantee than the Grantees
Award Agreement, the employment agreement shall be controlling;
provided that (a) if the Grantee is a
Section 16 Person, any terms in the employment
agreement requiring Compensation Committee, Board, or
shareholder approval in order for an exemption from
Section 16(b) of the Exchange Act to be available to such
terns shall have been approved by the Compensation Committee,
Board or shareholders, as applicable, and (b) the
employment agreement shall not be controlling to the extent the
Grantee and Grantees employer agree it shall not be
controlling.
19.8. Non-Exclusivity of Plan. Neither
the adoption of the Plan by the Board nor its submission to the
shareholders of the Company for approval shall be construed as
creating any limitations on the power of the Board to adopt such
other compensatory arrangements for employees as it may deem
desirable.
19.9. Unfunded Status of Awards; Creation of
Trusts. The Plan is intended to constitute an
unfunded plan for incentive and deferred
compensation. With respect to any payments not yet made to a
Grantee pursuant to an Award, nothing contained in the Plan or
any Award Agreement shall give any such Grantee any rights that
are greater than those of a general creditor of the Company;
provided, however, that the Committee may authorize the
creation of trusts or make other arrangements to meet the
Companys obligations under the Plan to deliver cash,
Shares or other property pursuant to any Award which trusts or
other arrangements shall be consistent with the
unfunded status of the Plan unless the Committee
otherwise determines.
A-20
19.10. Military Service. Awards shall be
administered in accordance with Section 414(u) of the Code
and the Uniformed Services Employment and Reemployment Rights
Act of 1994.
19.11. Obligations. Unless otherwise
specified in the Award Agreement, the obligation to deliver, pay
or transfer any amount of money or other property pursuant to
Awards under this Plan shall be the sole obligation of a
Grantees employer; provided that the obligation to
deliver or transfer any Shares pursuant to Awards under this
Plan shall be the sole obligation of the Company.
19.12. Shareholder Approval. All Awards
granted on or after the Effective Date and prior to the date the
Companys shareholders approve the amended and restated
Plan are expressly conditioned upon and subject to approval of
the amended and restated Plan by the Companys shareholders.
19.13. Governing Law. To the extent not
preempted by federal law, the Plan, and all agreements
hereunder, shall be construed in accordance with and governed by
the laws of the state of Illinois, other than its laws
respecting choice of law.
A-21
VOTE BY INTERNET www.proxyvote.com Use the Internet to transmit your voting instructions and
for electronic delivery of information up until 11:59 P.M. EDT on April 27, 2011. Have your proxy
card in hand when you access the web site and follow the instructions to obtain your records and to
create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you
would like to reduce the costs incurred by our company in mailing proxy materials, you can consent
to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail
or the Internet. To sign up for electronic delivery, please follow the instructions above to vote
using the Internet and, when prompted, indicate that you agree to receive or access proxy materials
electronically in future years. VOTE BY PHONE 1-800-690-6903 Use any touch-tone telephone to
transmit your voting instructions up until 11:59 P.M. EDT on April 27, 2011. Have your proxy card
in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy
card and return it in the postage-paid envelope we have provided or return it to Vote Processing,
c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK
INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY
CARD IS VALID ONLY WHEN SIGNED AND DATED. For Withhold For All To withhold authority to vote for
any All All Except individual nominee(s), mark For All The Board of Directors recommends you vote
Except and write the number(s) of the nominee(s) on the line below. FOR the following: 1. Election
of Directors Nominees 01 Philip H. Britt 02 Anthony S. Cleberg 03 David B. Edelson 04 D. Craig
Mense 05 Robert A. Tinstman 06 John F. Welch 07 Peter W. Wilson The Board of Directors recommends
you vote FOR proposals 2, 3 and 4. For Against Abstain 2. To ratify the Audit Committees
appointment of the Companys independent registered public accounting firm, Deloitte & Touche LLP,
for the fiscal year 2011. 3. To approve the restated CNA Surety Corporation 2006 Long-Term Equity
Compensation Plan. 4. To approve, on an advisory basis, the compensation of the Named Executive
Officers. The Board of Directors recommends you vote 1 YEAR on the following proposal: 1 year 2
years 3 years Abstain 5. To determine, on an advisory basis, the frequency with which the Company
is to hold a shareholder vote to approve the compensation of the Named Executive Officers. NOTE: To
transact such other business as may properly come before the meeting or any adjournment or
adjournments thereof. R1.0.0.11699 1 Please sign exactly as your name(s) appear(s) hereon. When
signing as 0000090995 attorney, executor, administrator, or other fiduciary, please give full title
as such. Joint owners should each sign personally. All holders must sign. If a corporation or
partnership, please sign in full corporate or partnership name, by authorized officer. Signature
[PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date |
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The
Notice & Proxy Statement, Annual Report is/ are available at www.proxyvote.com . CNA SURETY
CORPORATION Annual Meeting of Shareholders April 28, 2011 at 9:00 AM This proxy is solicited by the
Board of Directors The shareholders hereby appoint John F. Corcoran and Rosemary Quinn, or either
of them, as proxies, each with the power of substitution, and hereby authorize them to represent
and to vote, as designated on the reverse side of this ballot, all of the shares of Common Stock of
CNA SURETY CORPORATION that the shareholders are entitled to vote at the Annual Meeting of
Shareholders to be held at 09:00 AM, CDT on April 28, 2011, at the Companys business offices
located at 333 S. Wabash Avenue, 41st Floor Chicago, IL 60604, and any adjournment or postponement
thereof. This proxy, when properly executed, will be voted in the manner directed herein. If no
such direction is made, this proxy will be voted in accordance with the Board of Directors
recommendations. Continued and to be signed on reverse side |