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Exhibit
(a)(1)(i)
Offer to
Purchase for Cash
All Outstanding Shares of Common Stock
of
CNA SURETY CORPORATION
at
$26.55 Net Per Share
by
SURETY ACQUISITION CORPORATION
an Indirect Wholly-Owned Subsidiary of
CNA FINANCIAL CORPORATION
All Outstanding Shares of Common Stock
of
CNA SURETY CORPORATION
at
$26.55 Net Per Share
by
SURETY ACQUISITION CORPORATION
an Indirect Wholly-Owned Subsidiary of
CNA FINANCIAL CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT,
NEW YORK CITY TIME, ON JUNE 8, 2011, UNLESS THE OFFER IS
EXTENDED
The offer is being made pursuant to the Agreement and Plan of
Merger, dated as of April 20, 2011 (as such agreement may
be amended or supplemented from time to time, the
“Merger Agreement”), by and among CNA Surety
Corporation (“CNA Surety”), CNA Financial
Corporation (“CNA Financial”) and Surety
Acquisition Corporation, a Delaware corporation and an indirect
wholly-owned subsidiary of CNA Financial
(“Purchaser”). Purchaser is offering to
purchase all of the outstanding shares of common stock, par
value $0.01 per share, of CNA Surety (the
“Shares”) that are not currently owned by CNA
Financial and its subsidiaries at a price of $26.55 per share in
cash without interest and less any applicable withholding taxes,
on the terms and subject to the conditions set forth in this
Offer to Purchase and the letter of transmittal enclosed with
this Offer to Purchase (which, together with any supplements or
amendments, collectively constitute the
“Offer”). Upon consummation of the Offer,
Purchaser intends to effect a second step merger (the
“Merger”) as promptly as practicable in
accordance with the terms of the Merger Agreement at the same
per Share price paid in the Offer.
A special committee comprised solely of independent and
disinterested directors of CNA Surety has unanimously determined
that the terms of the Merger Agreement and the transactions
contemplated by the Merger Agreement, including the Offer and
the Merger, are fair to and in the best interests of CNA Surety
and the holders of Shares (other than CNA Financial and its
affiliates) and recommends that CNA Surety’s stockholders
tender their Shares in the Offer.
The Offer is subject to, among other things, a non-waivable
“majority-of-the-minority”
condition that there shall have been validly tendered and not
withdrawn prior to the expiration of the Offer a number of
Shares representing at least a majority of the outstanding
Shares not owned by CNA Financial and its subsidiaries and
certain related persons. The Offer is not subject to any
financing condition. The offer is also subject to certain other
conditions set forth in this offer to purchase. See “The
Offer — Section 11. Conditions to the Offer”
in this Offer to Purchase.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of this
transaction, passed upon the merits or fairness of such
transaction or passed upon the adequacy or accuracy of the
information contained in this document. Any representation to
the contrary is a criminal offense.
The
Information Agent for the Offer is:
Innisfree M&A Incorporated
Innisfree M&A Incorporated
The Dealer Manager for the Offer is:
May 11,
2011
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IMPORTANT
If you wish to tender all or any portion of your Shares in the
Offer, you should either (a) complete and sign the Letter
of Transmittal for the Offer, which is enclosed with this Offer
to Purchase, in accordance with the instructions contained in
the Letter of Transmittal, and mail or deliver the Letter of
Transmittal and any other required documents to Wells Fargo
Bank, N.A., the Depositary for the Offer, and either deliver the
certificates for your Shares to the Depositary along with the
Letter of Transmittal or tender your Shares by book-entry
transfer by following the procedures described in “The
Offer — Section 3. Procedures for Accepting the
Offer and Tendering Shares”, in each case prior to the
expiration date, or (b) request that your broker, dealer,
commercial bank, trust company or other nominee effect this
transaction for you. If you hold Shares registered in the name
of a broker, dealer, commercial bank, trust company or other
nominee, you must contact that institution in order to tender
your Shares in the Offer.
If you desire to tender your Shares pursuant to the Offer and
the certificates representing your Shares are not immediately
available, or you cannot comply in a timely manner with the
procedures for tendering your Shares by book-entry transfer, or
you cannot deliver all required documents to the Depositary
prior to the expiration date, you may tender your Shares in the
Offer by following the guaranteed delivery procedures described
in “The Offer — Section 3. Procedures for
Accepting the Offer and Tendering Shares”.
The Letter of Transmittal, certificates for Shares and any
other documents must be received by the Depositary before the
expiration of the Offer, unless the procedures for guaranteed
delivery described in “The Offer —
Section 3. Procedures for Accepting the Offer and Tendering
Shares” are followed. The method of delivery of Shares, the
Letter of Transmittal and all other required documents is at the
election and risk of the tendering stockholder.
Questions and requests for assistance may be directed to the
Information Agent or the Dealer Manager at their respective
addresses and telephone numbers set forth on the back cover of
this Offer to Purchase. Requests for additional copies of this
Offer to Purchase, the Letter of Transmittal, the Notice of
Guaranteed Delivery and other tender offer materials may be
directed to the Information Agent. A stockholder may also
contact such stockholder’s broker, dealer, commercial bank,
trust company or other nominee for assistance.
This Offer to Purchase and the Letter of Transmittal contain
important information, and you should read both carefully and in
their entirety before making a decision with respect to the
Offer.
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SUMMARY
TERM SHEET
Surety Acquisition Corporation, or Purchaser, is offering to
purchase all outstanding shares of common stock, par value $0.01
per share, of CNA Surety Corporation not owned by CNA Financial
Corporation and its subsidiaries, for $26.55 per share, net to
the seller in cash, without interest and less any applicable
withholding of taxes, upon the terms and subject to the
conditions set forth in this Offer to Purchase and the related
Letter of Transmittal. This summary term sheet is not meant to
be a substitute for the information contained in the remainder
of this Offer to Purchase, and you should carefully read this
Offer to Purchase and the accompanying Letter of Transmittal in
their entirety because the information in this summary term
sheet is not complete and additional important information is
contained in the remainder of this Offer to Purchase and the
Letter of Transmittal. We have included in this summary term
sheet cross-references to the sections of the Offer to Purchase
containing a more complete description of the topics covered in
this summary term sheet. All dollar amounts set forth in this
Offer to Purchase are expressed in United States dollars and
references to “$,” and “dollars” are to
United States dollars.
Who is
offering to buy my securities?
Surety Acquisition Corporation is a Delaware corporation formed
for the purpose of making this tender offer. We are an indirect,
wholly-owned subsidiary of CNA Financial Corporation, a Delaware
corporation. As of the date of this offer to purchase,
subsidiaries of CNA Financial own approximately 61% of the
outstanding shares of CNA Surety common stock. See “The
Offer — Section 8. Certain Information Concerning
the CNA Financial Group.”
What
securities are you offering to purchase?
We are offering to purchase all of the outstanding shares of CNA
Surety common stock not owned by CNA Financial or subsidiaries
of CNA Financial. See “Introduction.”
How much
are you offering to pay and what is the form of
payment?
We are offering to pay $26.55 per share, net to the seller in
cash, without interest, and less any applicable withholding of
taxes.
Why are
you making the offer?
As of the date of this Offer to Purchase, subsidiaries of CNA
Financial beneficially own 27,425,147 shares of CNA Surety
common stock representing approximately 61% of the outstanding
shares of CNA Surety common stock. This Offer is being made to
acquire for cash as many outstanding Shares not owned by CNA
Financial or its subsidiaries as possible as a first step in
acquiring all of the shares of common stock of CNA Surety. See
“Special Factors — Section 2. Purpose of and
Reasons for the Offer; Plans for CNA Surety After the Offer and
the Merger.”
Will I
have to pay any fees or commissions? Is the payment subject to
withholding of taxes?
If you are the record owner of your shares of CNA Surety common
stock and you tender your shares to us in the Offer, you will
not have to pay brokerage fees or similar expenses. If you
beneficially own your shares of CNA Surety common stock through
a broker or other nominee, and your broker tenders your shares
on your behalf, your broker or nominee may charge you a fee for
doing so. You should consult your broker or nominee to determine
whether any charges will apply. See “Introduction.”
Payments in connection with the offer may also be subject to
backup United States federal income tax withholding at a rate of
28%, if certain requirements are not met. See “The
Offer — Section 3. Procedures for Accepting the
Offer and Tendering Shares” and “The Offer —
Section 5. Certain United States Federal Income Tax
Consequences.”
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Do you
have the financial resources to make payment?
Yes. We estimate the total amount of funds necessary to purchase
all of the outstanding shares of CNA Surety common stock that
are not currently owned by CNA Financial or its subsidiaries and
to make all other payments required to be made under the merger
agreement, including in respect of equity and incentive awards
for directors and employees of CNA Surety, and related
transaction fees and expenses, is estimated to be approximately
$480 million. See “The Offer —
Section 14. Fees and Expenses.” Continental Casualty
Company, a subsidiary of CNA Financial and the direct parent of
Purchaser, has sufficient cash and cash equivalents on hand,
which it will provide to us, to purchase all shares of CNA
Surety common stock validly tendered in the offer. The offer is
not subject to any financing condition. See “The
Offer — Section 9. Source and Amount of
Funds.”
What are
the most significant conditions to the offer?
The offer is conditioned upon, among other things, there being
validly tendered and not withdrawn prior to the expiration of
the offer a number of shares of CNA Surety common stock
representing at least a majority of the outstanding shares,
excluding shares owned by CNA Financial and its subsidiaries,
Loews Corporation, a Delaware corporation that owns
approximately 90% of the outstanding shares of common stock of
CNA Financial, and the directors and executive officers of CNA
Financial, Purchaser, Loews Corporation and CNA Surety. We refer
to this condition as the
“majority-of-the-minority”
condition. This condition is not waivable. The offer is also
subject to a number of other conditions described below in this
offer to purchase. The offer is not subject to a financing
condition. See “The Offer — Section 11.
Conditions to the Offer” and “The Offer —
Section 13. Certain Legal Matters; Regulatory
Approvals.”
Is there
an agreement governing the offer?
Yes. CNA Financial, Purchaser and CNA Surety have entered into
an Agreement and Plan of Merger, dated as of April 20,
2011, which we refer to as the merger agreement. The merger
agreement provides, among other things, for the terms and
conditions of this tender offer. In addition, if the offer is
completed, in accordance with the terms of the merger agreement,
CNA Financial will, as promptly as practicable, cause a second
step merger of Purchaser with and into CNA Surety in which all
remaining stockholders of CNA Surety would, without the need for
further action by any such stockholder, receive the same price
per share as was paid in the offer, without interest, and less
any applicable withholding of taxes. See “Special
Factors — Section 9. Summary of the Merger
Agreement.”
What does
the board of directors of CNA Surety think of the
offer?
CNA Surety’s board of directors established a special
committee comprised solely of independent and disinterested
directors to, among other things, review, evaluate, consider and
negotiate any proposal by CNA Financial to acquire Shares,
including the Offer, the second-step merger and the other
transactions contemplated by the merger agreement. At a meeting
held on April 20, 2011, the special committee unanimously
(i) determined that the terms of the merger agreement and
the transactions contemplated thereby are fair to and in the
best interests of the stockholders of CNA Surety (other than CNA
Financial and its affiliates), (ii) recommended to CNA
Surety’s board of directors that the board adopt
resolutions approving and declaring advisable the merger
agreement and the transactions contemplated thereby and
(iii) recommended that the holders of shares of common
stock of CNA Surety accept the Offer, tender their shares in the
Offer and, to the extent required by the General Corporation Law
of the State of Delaware (DGCL), vote to adopt the merger
agreement.
At a meeting held on April 20, 2011, the board of directors
of CNA Surety (with directors David Edelson, D. Craig Mense and
Peter Wilson abstaining from all votes due to their affiliation
with CNA Financial or Loews), based on the recommendation of the
special committee, by a unanimous vote of those directors not
abstaining (i) determined that the terms of the merger
agreement and the transactions contemplated thereby are fair to
and in the best interests of the stockholders of CNA Surety
(other than CNA Financial and its affiliates),
(ii) approved and declared advisable the merger agreement
and (iii) resolved to
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recommend to the holders of shares of common stock of CNA Surety
that such holders, to the extent required by the DGCL, vote to
adopt the merger agreement.
See “Introduction,” “Special Factors —
Section 1. Background” and “Special
Factors — Section 3. The Recommendation by the
Special Committee.” A description of the Special
Committee’s and the CNA Surety board of directors reasons
for approving the merger agreement and their recommendations to
CNA Surety stockholders is set forth in CNA Surety’s
Solicitation/Recommendation on
Schedule 14D-9,
which is being mailed to CNA Surety’s stockholders
concurrently with the mailing of this Offer to Purchase.
What is
the market value of my shares as of a recent date?
On October 29, 2010, the last trading day before CNA
Financial announced that it was proposing to acquire all of CNA
Surety’s common stock other than shares owned by
subsidiaries of CNA Financial, the per share closing price of
CNA Surety common stock reported on the New York Stock Exchange
was $19.25. On May 10, 2011, the last trading day before the
date we commenced this offer, the per share closing price of CNA
Surety common stock reported on the New York Stock Exchange was
$26.48. We encourage you to obtain a recent price for shares of
CNA Surety’s common stock in deciding whether to tender
your shares. See “The Offer — Section 6.
Price Range of the Shares; Dividends.”
Do you
have interests in the offer that are different from my interests
as a stockholder of CNA Surety?
Yes. Our interests in the offer and merger are different from
those of stockholders being asked to sell their shares. On the
one hand, if you sell shares in the offer or your shares are
converted in a second step merger, you will cease to have any
interest in CNA Surety and will not have the opportunity to
participate in the future earnings or growth, if any, of CNA
Surety. On the other hand, we will benefit from any future
increase in the value of CNA Surety. We will also bear the
burden of any future decrease in the value of CNA Surety. See
“Special Factors — Section 2. Purpose of and
Reasons for the Offer; Plans for CNA Surety After the Offer and
the Merger.”
Is this
the first step in a going-private transaction?
Yes. The purpose of the offer is to acquire as many of the
shares of CNA Surety common stock not currently owned by
subsidiaries of CNA Financial as possible as a first step in
acquiring all of the shares of common stock of CNA Surety. If we
are successful, shares of CNA Surety common stock will no longer
be publicly owned and will cease to be listed on the New York
Stock Exchange and CNA Surety will cease to make filings with
the SEC and to comply with the SEC’s rules relating to
public companies. See “The Offer —
Section 12. Effect of the Offer on the Market for the
Shares; NYSE Listing; Exchange Act Registration; Margin
Regulations.”
Will the
offer be followed by a merger if all the shares are not tendered
in the offer?
Pursuant to the terms of the merger agreement, if the offer is
completed, we will effect a second step merger as promptly as
practicable. In accordance with the terms of the merger
agreement, Purchaser will merge with and into CNA Surety, with
CNA Surety continuing as the surviving corporation. If,
following the consummation of the offer, including any
subsequent offering period, CNA Financial and its subsidiaries
own 90% or more of the outstanding shares of CNA Surety common
stock (including as a result of our exercise of the
top-up
option described below), we are required to consummate a
short-form merger in accordance with the terms of the merger
agreement without a vote of, or prior notice to, CNA
Surety’s stockholders. If CNA Financial and its
subsidiaries do not own 90% or more of the outstanding shares of
CNA Surety common stock following consummation of the offer,
subsidiaries of CNA Financial, as CNA Surety’s majority
stockholders, intend to approve the merger by written consent
without the affirmative vote of any other CNA Surety stockholder
in accordance with the merger agreement. When the merger takes
place, all remaining stockholders (other than CNA Financial, CNA
Surety and their respective subsidiaries and other than
stockholders properly exercising their appraisal rights) will
receive the same price per share as was paid in the
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offer, without interest, and less any applicable withholding of
taxes. See “Special Factors — Section 9.
Summary of the Merger Agreement.”
What is
the
“top-up
option” and when will it be exercised?
Under the merger agreement, if after consummation of the offer
(and any subsequent offering period), we own less than 90% of
the outstanding shares, we have the option to purchase from CNA
Surety a number of newly- issued shares of CNA Surety common
stock up to a number of shares that, when added to the number of
shares owned by CNA Financial and its subsidiaries (in each
case, only to the extent such Shares may be lawfully transferred
to Purchaser), constitutes no less than one share more than 90%
of the shares of CNA Surety common stock on a fully diluted
basis (taking into account the issuance of the shares pursuant
to the
top-up
option) at a price per share equal to the price per share paid
in the offer. The
top-up
option cannot be exercised if the number of
top-up
option shares would exceed the number of authorized but unissued
and unreserved shares or would result in Purchaser owning less
than 90% of the outstanding shares of CNA Surety common stock.
We may exercise the
top-up
option at any time after the consummation of the offer and prior
to the earlier of the effective time of the merger and the
termination of the merger agreement. If we exercise the
top-up
option and thereby obtain ownership of 90% of the outstanding
shares of CNA Surety common stock, we will be able to effect a
short-form merger under Delaware law, which means that we may
effect the merger without any further action by the stockholders
of CNA Surety. See “Special Factors —
Section 9. Summary of the Merger Agreement.”
If I
decide not to tender, how will the offer affect my
shares?
If the offer is successful, we will effect a second step merger
as soon as practicable thereafter, subject to the terms and
conditions of the merger agreement, and stockholders not
tendering in the offer (other than CNA Financial, CNA Surety and
their respective subsidiaries and other than those stockholders
properly exercising their appraisal rights) will receive as
merger consideration the same price per share as was paid in the
offer, without interest, and less any applicable withholding of
taxes. Therefore, if the offer is successful and CNA Financial
is able to consummate the short-form merger the only difference
to you between tendering your shares and not tendering your
shares in the offer is likely to be that you may be paid earlier
if you tender your shares in the offer, unless you seek an
appraisal for your shares. If the offer is successful, but CNA
Financial cannot complete the short-form merger, the number of
shares of CNA Surety common stock that trade publicly could be
reduced which could affect the liquidity or market value of the
shares, and could result in the shares being delisted from the
New York Stock Exchange. If and when we consummate the merger,
if you perfect your rights to appraisal under the Delaware
General Corporation Law, you may receive an amount that is
different from the consideration being paid in the merger. See
“Introduction,” “Special Factors —
Section 7. Effects of the Offer,” “Special
Factors — Section 10. Appraisal Rights;
Rule 13e-3”
and “The Offer — Section 12. Effect of the
Offer on the Market for the Shares; NYSE Listing; Exchange Act
Registration; Margin Regulations.”
Are
appraisal rights available in either the offer or any subsequent
merger?
Appraisal rights are not available in connection with the offer.
However, if the offer is successful, subject to the terms and
conditions of the merger agreement, a second step merger will be
consummated and appraisal rights will be available to holders of
shares at the time of the merger who have not tendered their
shares in the offer or voted in favor of or consented in writing
to the adoption of the merger agreement, who properly demand
appraisal of their shares and who otherwise comply with the
applicable statutory procedures under Delaware law. See
“Special Factors — Section 10. Appraisal
Rights;
Rule 13e-3.”
How long
do I have to decide whether to tender in the offer? Can the
offer be extended?
You will have until 12:00 Midnight, New York City time, on
June 8, 2011, to tender your shares of CNA Surety common
stock. Further, if you cannot deliver everything that is
required in order to make a valid tender by that time, you may
be able to use a guaranteed delivery procedure, which is
described in this offer to purchase. We also may elect to extend
the offer. If we extend the offer, we will inform Well Fargo
Bank,
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N.A., which is the depositary for the offer, of that fact and
will make a public announcement of the extension, not later than
9:00 a.m., New York City time, on the next business day
after the day on which the offer was scheduled to expire. We may
also decide to establish a subsequent offering period in certain
circumstances. See “The Offer — Section 1.
Terms of the Offer” and “The Offer —
Section 3. Procedures for Accepting the Offer and Tendering
Shares.”
How do I
tender my shares?
If you wish to tender all or any portion of your shares in the
offer, you should either (a) complete and sign the Letter
of Transmittal for the offer, which is enclosed with this Offer
to Purchase, in accordance with the instructions contained in
the Letter of Transmittal, and mail or deliver the Letter of
Transmittal and any other required documents to Wells Fargo
Bank, N.A., the Depositary for the offer, and either deliver the
certificates for your shares to the Depositary along with the
Letter of Transmittal or tender your shares by book-entry
transfer by following the procedures described in “The
Offer — Section 3. Procedures for Accepting the
Offer and Tendering
Shares”, in each case prior to the expiration date, or
(b) request that your broker, dealer, commercial bank,
trust company or other nominee effect this transaction for you.
If you hold shares registered in the name of a broker, dealer,
commercial bank, trust company or other nominee, you must
contact that institution in order to tender your shares in the
offer. See “The Offer — Section 3.
Procedures for Accepting the Offer and Tendering Shares.”
Until
what time may I withdraw previously tendered shares?
You may withdraw shares at any time prior to the expiration of
the offer and, if we have not accepted your shares for payment
by July 9, 2011, you may withdraw them at any time after
that date until we accept shares for payment. This right to
withdraw, however, will not apply to any subsequent offering
period if we elect to establish one. To withdraw shares, you
must deliver an executed written notice of withdrawal with the
required information to the Depositary while you still have the
right to withdraw the shares. See “The Offer —
Section 4. Withdrawal Rights.”
Generally,
what are the United States federal income tax consequences of
tendering shares or having shares exchanged for cash in the
second step merger?
If you are a U.S. Holder (as defined in “The
Offer — Section 5. Certain United States Federal
Income Tax Consequences”), the sale or exchange of your
shares pursuant to the offer or the second step merger will be a
taxable transaction for United States federal income tax
purposes. See “The Offer — Section 5.
Certain United States Federal Income Tax Consequences.”
If you are a
Non-U.S. Holder
(as defined in “The Offer — Section 5.
Certain United States Federal Income Tax Consequences”),
any gain realized upon the sale of your shares pursuant to the
offer or the second step merger generally will not be subject to
United States federal income tax. See “The
Offer — Section 5. Certain United States Federal
Income Tax Consequences.”
Holders of shares of CNA Surety’s common stock should
consult their tax advisors about the United States federal,
state, local and foreign tax consequences of participating in
the offer in light of their particular circumstances.
To whom
may I speak if I have questions about the tender
offer?
You may call Innisfree M&A Incorporated, the information
agent for the offer, at
(877) 717-3930
for assistance. Banks and brokers may call collect at
(212) 750-5833.
You may also call J.P. Morgan Securities LLC, the dealer
manager for the offer, at
(877) 371-5947.
See the back cover of this offer to purchase for additional
contact information.
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To the
Holders of Common Stock of CNA Surety:
INTRODUCTION
Surety Acquisition Corporation, a Delaware corporation
(“Purchaser”) and an indirect wholly-owned
subsidiary of CNA Financial Corporation (“CNA
Financial”), hereby offers to purchase all the issued
and outstanding shares of common stock, par value $0.01 per
share (the “Shares”), of CNA Surety
Corporation, a Delaware corporation (“CNA
Surety”), other than Shares owned by CNA Financial and
its subsidiaries, at a price of $26.55 per Share (such price, or
any higher price offered and paid by Purchaser or as may be
adjusted pursuant to the Merger Agreement, the “Offer
Price”), net to the seller in cash, without interest
but subject to any applicable withholding of taxes, upon the
terms and subject to the conditions set forth in this Offer to
Purchase (this “Offer to Purchase”) and in the
related Letter of Transmittal (the “Letter of
Transmittal”) (which, as amended or supplemented from
time to time, together constitute the “Offer”).
Tendering stockholders who are the record owners of Shares will
not be obligated to pay brokerage fees or commissions or, except
as set forth in Instruction 6 of the Letter of Transmittal,
stock transfer taxes on the purchase of Shares by Purchaser
pursuant to the Offer. Stockholders who hold their Shares
through a bank or broker should check with such institution as
to whether the institution will charge any service fees.
However, if you fail to provide an Internal Revenue Service
(“IRS”)
Form W-9
or the appropriate IRS
Form W-8,
as applicable, you may be subject to any required backup United
States federal income tax withholding at a rate of 28% of the
gross proceeds payable in the Offer. See “The
Offer — Section 3. Procedures for Accepting the
Offer and Tendering Shares” and “The Offer —
Section 5. Certain United States Federal Income Tax
Consequences.” CNA Financial or its subsidiaries will pay
all charges and expenses of J.P. Morgan Securities LLC
(“J.P. Morgan” or the “Dealer
Manager”), Wells Fargo Bank, N.A. (the
“Depositary”) and Innisfree M&A
Incorporated (the “Information Agent”) incurred
in connection with the Offer and in accordance with the terms of
the agreements entered into by and between Purchaser
and/or CNA
Financial and each such person. See “The Offer —
Section 14. Fees and Expenses.”
The Offer is conditioned upon, among other things, there
being validly tendered and not withdrawn a number of Shares that
will constitute at least a majority of the outstanding Shares as
of the date the Shares are accepted for payment pursuant to the
Offer (excluding the Shares owned by CNA Financial and its
subsidiaries, Loews Corporation, a Delaware corporation and the
owner of approximately 90% of the outstanding shares of common
stock of CNA Financial (“Loews”), and the directors
and executive officers of CNA Financial, Loews, Purchaser and
CNA Surety). This condition is referred to as the
“majority-of-the-minority”
condition. The
“majority-of-the-minority”
condition is not waivable. The Offer is also subject to certain
other conditions described in “The Offer —
Section 11. Conditions to the Offer.”
References in this Offer to Purchase to the “CNA
Financial Group” are collectively references to CNA
Financial, Purchaser, The Continental Corporation, a New York
corporation and a direct wholly-owned subsidiary of CNA
Financial (“TCC”), Continental Casualty
Company, an Illinois insurance company and a direct wholly-owned
subsidiary of TCC (“CCC”), and Loews. Because
subsidiaries of CNA Financial currently own approximately 61% of
the outstanding Shares, the transactions contemplated in this
Offer to Purchase constitute a “going private”
transaction under
Rule 13e-3
under the Exchange Act. Under the rules governing “going
private” transactions, CNA Financial, Purchaser, TCC and
CCC are deemed to be engaged in a “going private”
transaction and are therefore required to, among other things,
express their reasons for the transactions described in this
Offer to Purchase and their views as to the fairness of the
transactions to CNA Surety’s unaffiliated stockholders. In
addition, notwithstanding that CNA Financial and its
subsidiaries operate as separate standalone entities and conduct
their operations separate and apart from the operations of Loews
and its other subsidiaries, Loews could arguably be deemed to be
engaged in a “going private” transaction and would
therefore also be required to, among other things, express its
reasons for the transactions described in this Offer to Purchase
and its view as to the fairness of the transactions to CNA
Surety’s unaffiliated stockholders. Loews is included as a
member of the CNA Financial Group, and is making the statements
made
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by the CNA Financial Group in this Offer to Purchase, solely for
the purpose of complying with the requirements of
Rule 13e-3
and related rules under the Exchange Act.
Unless the context expressly implies otherwise, references in
this Offer to Purchase to “subsidiaries” or
“affiliates” of CNA Financial shall be deemed not to
include CNA Surety or any of its subsidiaries.
According to CNA Surety, as of the close of business on May 6,
2011 there were 44,986,541 Shares outstanding. As of the
date of this Offer to Purchase, subsidiaries of CNA Financial
own 27,425,147 Shares. To the best of our knowledge after
reasonable inquiry, directors and executive officers of CNA
Financial, Purchaser and Loews beneficially own 5,050
outstanding Shares as of the date of this Offer to Purchase.
Based on information from CNA Surety, CNA Financial and
Purchaser believe that, as of the date of this Offer to
Purchase, 13,288 outstanding Shares were beneficially owned by
directors and executive officers of CNA Surety (other than those
who are also directors or executive officers of CNA Financial,
Purchaser or Loews).
Based on the foregoing, CNA Financial and Purchaser believe
that, as of May 6, 2011, there were 17,543,056 Shares
outstanding, excluding Shares owned by CNA Financial and its
subsidiaries, Loews and the directors and executive officers of
CNA Financial, Loews, Purchaser and CNA Surety. Therefore,
Purchaser believes that the
“majority-of-the-minority”
condition would be satisfied if at least 8,771,529 Shares
are validly tendered prior to the expiration of the Offer.
The purpose of the Offer is to acquire for cash as many
outstanding Shares not owned by CNA Financial and subsidiaries
of CNA Financial as possible as a first step in acquiring all of
the shares of common stock of CNA Surety. The Offer is being
made pursuant to the Agreement and Plan of Merger, dated as of
April 20, 2011 by and among CNA Financial, Purchaser and
CNA Surety (as such agreement may be amended or supplemented
from time to time, the “Merger Agreement”).
If the Offer is completed, CNA Financial will, subject to the
terms and conditions of the Merger Agreement, cause a second
step merger of Purchaser with and into CNA Surety (the
“Merger”). In the Merger, each then issued and
outstanding Share (other than Shares held by CNA Financial, CNA
Surety and their respective subsidiaries and Shares held by
stockholders who validly perfect their appraisal rights under
the General Corporation Law of the State of Delaware (the
“DGCL”)) will be cancelled and converted into
and represent the right to receive the Offer Price.
Non-tendering stockholders will have appraisal rights, whereby
such stockholders may receive the “fair value” of
their shares, less any applicable withholding of taxes, as
determined by the Delaware Chancery Court, by following the
procedures required by the DGCL. See “Special
Factors — Section 10. Appraisal Rights;
Rule 13e-3.”
If following consummation of the Offer, including any subsequent
offering period, or upon exercise of the
top-up
option provided to Purchaser in the Merger Agreement,
subsidiaries of CNA Financial own a number of Shares
representing at least 90% of the outstanding Shares, CNA
Financial may, pursuant to the Merger Agreement, consummate the
Merger as a short-form merger of Purchaser and CNA Surety in
accordance with the applicable provisions of the DGCL. Under the
DGCL, such a Merger may be consummated without a vote of, or
prior notice to, CNA Surety’s stockholders or board of
directors. If the Offer is completed and subsidiaries of CNA
Financial do not own a number of Shares representing at least
90% of the Shares, subsidiaries of CNA Financial, as CNA
Surety’s majority stockholders, intend to adopt the Merger
Agreement by written consent without the affirmative vote of any
other CNA Surety stockholder in accordance with the Merger
Agreement.
If the Offer is not completed for any reason (including a
failure to satisfy the
“majority-of-the-minority”
condition), CNA Financial will review its options. These options
include doing nothing, purchasing Shares in the open market or
in privately negotiated transactions, making a new tender offer
or seeking to negotiate a merger or other business combination
with CNA Surety. No assurance can be given as to the price per
share that may be paid in any such future acquisition of Shares,
which may be higher or lower than or the same as the Offer
Price. See “Special Factors — Section 7.
Effects of the Offer.” For a discussion of other actions
that CNA Financial and Purchaser may take if the Offer is not
completed, see “Special Factors — Section 8.
Conduct of CNA Surety’s Business if the Offer Is Not
Completed.”
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CNA Surety’s board of directors established a special
committee comprised solely of independent and disinterested
directors (the “Special Committee”) to, among
other things, review, evaluate, consider and negotiate any
proposal by CNA Financial to acquire Shares, including the
Offer, the Merger and the other transactions contemplated by the
Merger Agreement. At a meeting held on April 20, 2011, the
Special Committee unanimously (i) determined that the terms
of the Merger Agreement and the transactions contemplated
thereby are fair to and in the best interests of the
stockholders of CNA Surety (other than CNA Financial and its
affiliates), (ii) recommended to CNA Surety’s board of
directors that the board adopt resolutions approving and
declaring advisable the merger agreement and the transactions
contemplated thereby and (iii) recommended that the holders
of shares of common stock of CNA Surety accept the Offer, tender
their shares in the Offer and, to the extent required by the
DGCL, vote to adopt the merger agreement. A more complete
description of the Special Committee’s reasons for
approving the Offer and the Merger is set forth in CNA
Surety’s Solicitation/Recommendation Statement on
Schedule 14D-9,
which is being mailed to the stockholders of CNA Surety
concurrently with the mailing of this Offer to Purchase (the
“Schedule 14D-9”).
A copy of the
Schedule 14D-9
is also available at the SEC’s website at
http://www.sec.gov.
This Offer to Purchase includes certain forward-looking
statements. These statements appear throughout this Offer to
Purchase and include statements regarding the intent, belief or
current expectations of CNA Financial and Purchaser, including
statements concerning CNA Financial’s and Purchaser’s
plans with respect to the Shares or actions if the Offer is not
completed. Such forward-looking statements are not guarantees of
future performance or events and involve risks and
uncertainties. Actual results may differ materially from those
described in such forward-looking statements as a result of
various factors. Factors that might affect such forward-looking
statements include:
| • | whether the conditions to the Offer will be satisfied; | |
| • | general economic, capital markets and business conditions; | |
| • | competitive factors in the industries and markets in which each of CNA Surety and CNA Financial operates, and general industry trends; | |
| • | the effects of war, terrorism or catastrophic events; | |
| • | changes in government regulation; | |
| • | changes in tax law requirements, including tax rate changes, new tax laws and revised tax law interpretations; and | |
| • | the ability of CNA Financial to execute fully on its business strategy after taking CNA Surety private. |
For a detailed description of other risks and uncertainties
affecting CNA Financial, please refer to CNA Financial’s
filings with the SEC, available at www.cna.com.
This Offer to Purchase and the related Letter of Transmittal
contain important information and should be read carefully
before any decision is made with respect to the Offer.
This Offer to Purchase does not constitute a solicitation of
a proxy, consent or authorization for or with respect to any
meeting of, or action by written consent by, CNA Surety’s
stockholders.
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SPECIAL
FACTORS
| 1. | Background |
CNA Surety was formed through the 1997 combination of the surety
businesses of CNA Financial with Capsure Holding Corp.’s
insurance subsidiaries. In 2000, CNA Financial made a proposal
to CNA Surety to acquire all of the shares of CNA Surety not
owned by subsidiaries of CNA Financial but subsequently withdrew
the proposal. Since that time, CNA Financial, through its
subsidiaries, has maintained ownership of a majority of the
Shares and has reviewed, on a continuous basis, various factors
related to its investment in CNA Surety, including the price and
availability of the Shares, developments affecting the surety
business, other investment and business opportunities available
to CNA Financial and CNA Financial’s financial condition as
a whole, as well as general market and economic conditions.
Beginning in August 2010, senior management of CNA Financial
began considering the possibility of making a proposal to
acquire the Shares not owned by subsidiaries of CNA Financial.
In late September and early October 2010, CNA Financial engaged
Simpson Thacher & Bartlett LLP (“Simpson
Thacher”) and J.P. Morgan as its legal and
financial advisors to assist CNA Financial in its evaluation of
the feasibility of making a proposal to CNA Surety.
A regularly scheduled meeting of the board of directors of CNA
Financial was held on October 27, 2010. Representatives of
Simpson Thacher and J.P. Morgan also attended portions of
the meeting. At the meeting, senior management of CNA Financial
discussed with the board the possibility of making a proposal to
acquire the Shares not already owned by CNA Financial and its
subsidiaries. Senior management also noted for the board that
they were still considering whether it was desirable to make a
proposal as well as the potential timing of such a proposal and
they were not requesting that the board take any action at that
time. Representatives of J.P. Morgan also discussed with
the board certain financial considerations with respect to a
proposal.
A telephonic meeting of the board of directors of CNA Financial
was held on the afternoon of October 29, 2010 to consider
the submission of a proposal to acquire the Shares not owned by
subsidiaries of CNA Financial. Representatives of Simpson
Thacher and J.P. Morgan also attended portions of the
meeting. Representatives of J.P. Morgan discussed with the
board certain financial considerations with respect to a
proposal. Representatives of Simpson Thacher also discussed with
the board the board’s fiduciary duties in connection with a
proposal. Following the recommendation of senior management of
CNA Financial, the board authorized CNA Financial to make a
proposal to CNA Surety to purchase all of the outstanding Shares
not owned by subsidiaries of CNA Financial at a purchase price
of $22.00 per Share.
Later in the afternoon of October 29, 2010, D. Craig Mense,
Executive Vice President and Chief Financial Officer of CNA
Financial, met with John F. Welch, President and Chief Executive
Officer of CNA Surety. Mr. Mense informed Mr. Welch of
CNA Financial’s proposal and delivered to Mr. Welch a
letter, the text of which is as follows:
Mr. John F. Welch
President and Chief Executive Officer
CNA Surety Corporation
333 South Wabash Avenue
Chicago, Illinois 60604
October 29,
2010
Dear John:
CNA Financial Corporation (“CNA”) is pleased to
submit this proposal to acquire all of the outstanding shares of
common stock of CNA Surety Corporation (“Surety”) that
are not currently owned by subsidiaries of CNA at a purchase
price of $22.00 per share in cash.
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The $22.00 per share price represents a 14% premium over
Surety’s last closing price and a 13% premium to
Surety’s recent 52-week high. The proposed price also
represents a 24% premium over Surety’s closing price one
month ago and a 31% premium over Surety’s closing price
three months ago. The $22.00 per share price is a 1.17x multiple
of Surety’s tangible book value per share excluding net
unrealized gains as of September 30, 2010.
As you know, CNA, through its subsidiaries, currently owns
approximately 62% of the outstanding shares of Surety common
stock. Accordingly, we expect that the Surety board of directors
would form a special committee consisting of independent
directors to consider our proposed transaction. We would also
expect that the special committee would retain its own
independent legal and financial advisors to assist in its review
and negotiation of our proposed transaction.
We intend to implement the proposed transaction in a manner
that will ensure that Surety would become a wholly-owned
subsidiary of CNA and that all stockholders of Surety would
receive the same consideration for their shares. Our desire is
to achieve this result through a transaction that is supported
by the special committee and we are prepared to negotiate a
merger agreement with the special committee and its advisors
providing for the acquisition of the remaining shares.
Following completion of the proposed transaction, we expect
that Surety would continue to operate its business in a manner
that is generally consistent with its current operations.
Please note that we are interested only in acquiring the
remaining shares of Surety and we have no interest in a
disposition of our controlling interest.
We have engaged J.P. Morgan Securities LLC as financial
advisor and Simpson Thacher & Bartlett LLP as legal
advisor for the proposed transaction.
Due to our obligations under securities laws, we intend to
file a Schedule 13D amendment with the SEC and to issue a
press release announcing our proposal before the market opens on
Monday. A copy of the press release is attached for your
reference. We would request that you also promptly provide a
copy of this letter to Surety’s independent directors.
We believe that our proposal represents a unique opportunity
for Surety’s stockholders to monetize their investment at a
significant premium to Surety’s current and recent stock
price. We would welcome the opportunity to meet with the special
committee
and/or its
advisors as soon as possible to discuss our proposal.
We look forward to your response.
Sincerely,
D.Craig Mense
On the morning of November 1, 2010, CNA Financial issued a
press release announcing its proposal.
During the period from November 1, 2010 through
February 3, 2011, CNA Financial was informed by the Special
Committee and its advisors that the Special Committee was
evaluating the proposal and accordingly no negotiations
concerning the proposal occurred between the parties during this
time.
On February 3, 2011, Philip H. Britt, the Chairman of the
Special Committee, called Mr. Mense and informed him that
the Special Committee had determined that CNA Financial’s
$22.00 per Share proposal substantially undervalued the Company
and would not be supported by the Special Committee.
Mr. Britt informed Mr. Mense that a press release
would be issued to such effect and that the Special Committee
would welcome further discussions with CNA Financial regarding
the Special Committee’s conclusions as to CNA Surety’s
value and the terms of a transaction. On the same day,
representatives of Goldman, Sachs & Co., financial
advisor to the Special Committee (“Goldman
Sachs”) conveyed a similar message to representatives
of J.P. Morgan.
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On February 4, 2011, the Special Committee issued a press
release announcing that, after careful consideration and review,
with the assistance of its advisors, the Special Committee had
unanimously concluded that CNA Financial’s proposal to
acquire the outstanding Shares of CNA Surety that were not
currently owned by subsidiaries of CNA Financial for $22.00 per
Share in cash substantially undervalued CNA Surety.
On February 5, 2011, Mr. Mense called Mr. Britt
and informed him that CNA Financial was not then in a position
to respond to the Special Committee’s determination, but
that CNA Financial would inform the Special Committee if and
when it was prepared to discuss further the terms of a proposed
transaction.
On February 24, 2011, representatives of J.P. Morgan
called representatives of Goldman Sachs. During that call, the
representatives of J.P. Morgan indicated that CNA Financial
believed that the next appropriate step would be to meet with
CNA Surety’s management team to review CNA Surety’s
five-year financial forecast, which comprehensive five-year
financial forecast had not yet been provided to CNA Financial.
On the morning of March 8, 2011, representatives of Goldman
Sachs met with representatives of J.P. Morgan in Chicago,
Illinois and delivered a presentation to the representatives of
J.P. Morgan that discussed the Special Committee’s
determination that CNA Financial’s proposal to acquire the
outstanding Shares of CNA Surety other than the Shares owned by
CNA Financial and its subsidiaries for $22.00 per Share in cash
substantially undervalued CNA Surety. Later on March 8,
2011, representatives of CNA Financial and J.P. Morgan met
with members of CNA Surety’s senior management, Goldman
Sachs and Mr. Britt in Chicago, Illinois to discuss CNA
Surety’s financial forecasts, which were provided to CNA
Financial at this meeting. On the evening of March 8, 2011,
Mr. Mense called Mr. Britt to inform him that CNA
Financial was not as confident in the financial forecasts of CNA
Surety’s management and that CNA Financial did not intend
to rely on the projections for purposes of its valuation
analysis of CNA Surety.
On the morning of March 17, 2011, Mr. Mense called
Mr. Britt to invite him to discuss the proposed transaction
later that afternoon.
On the afternoon of March 17, 2011, Messrs. Mense and
Britt met in New York, New York. Mr. Mense reiterated CNA
Financial’s lack of confidence on CNA Surety’s
financial forecasts. Mr. Mense further stated that CNA
Financial believed the fair value of the Company to be $25.00
per Share, but that Mr. Mense thought that CNA
Financial’s board of directors would be willing to consider
a price of $25.20 per Share, which was approximately the
then-current market price per Share. Mr. Britt advised
Mr. Mense that the Special Committee would not likely
support a transaction at a price of $25.20 per Share, and that
CNA Financial should reconsider its proposal.
On March 18, 2011, representatives of J.P. Morgan met
with representatives of Goldman Sachs. The representatives of
J.P. Morgan presented CNA Financial’s analysis of CNA
Surety’s financial position and prospects and the impact of
an acquisition on CNA Financial’s statutory and GAAP
capital accounts. Neither J.P. Morgan nor Goldman Sachs
proposed a revised offer price.
On March 29, 2011, Mr. Britt and Robert A. Tinstman,
another member of the Special Committee, met with Mr. Mense
in Chicago, Illinois to discuss their differing views of CNA
Surety’s financial outlook, specifically with respect to
loss ratio projections. Messrs. Britt and Tinstman advised
Mr. Mense that the Special Committee would support a
transaction at a price of 1.2x CNA Surety’s book value, or
$27.79 per Share. Mr. Mense stated that he did not expect
CNA Financial would be willing to pay $27.79 per Share, and did
not offer an alternative price for the Special Committee to
consider. Messrs. Britt and Tinstman invited CNA Financial
to perform additional due diligence to better understand the
Special Committee’s position on CNA Surety’s value.
On the morning of March 30, 2011, Mr. Mense called
Mr. Britt to engage in a discussion regarding their
respective views on CNA Surety’s value. When Mr. Mense
requested that Mr. Britt provide a revised offer price at
which the Special Committee was willing to enter into the
proposed transaction, Mr. Britt declined to
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provide a revised price but stated that if CNA Financial decided
to deliver a revised proposal, the Special Committee would give
it careful consideration.
Later on the morning of March 30, 2011, representatives of
J.P. Morgan called representatives of Goldman Sachs to
discuss the Special Committee’s proposed price of $27.79
per Share and the assumptions underlying the Special
Committee’s view of value. No new proposal as to price was
made during either the call placed by Mr. Mense or
J.P. Morgan on March 30, 2011.
On the afternoon of March 31, 2011, Mr. Britt called
Mr. Mense and reiterated that the Special Committee was
prepared to enter into a transaction at a price of $27.79 per
Share, but that the Special Committee was prepared to be
constructive in order to reach an agreement at an appropriate
price. Mr. Mense responded that if $27.79 was the Special
Committee’s proposed price per Share, then CNA Financial
was not prepared to proceed with the proposed transaction.
On April 6, 2011, Mr. Mense called Mr. Britt to
discuss the proposed transaction. Mr. Britt stated that the
Special Committee was willing to consider a revised proposal
from CNA Financial. Mr. Mense stated that members of CNA
Financial’s senior management were interested in meeting
with the Special Committee to discuss whether the two parties
could come to an agreement regarding a price at which the
proposed transaction could be consummated.
On the morning of April 15, 2011, the Special Committee met
with Thomas Motamed, Chairman and Chief Executive Officer of CNA
Financial, and Mr. Mense at the offices of
Latham & Watkins LLP (“Latham”) the
Special Committee’s legal advisor, in New York, New York.
Messrs. Motamed and Mense informed the Special Committee
that they were willing to recommend to CNA Financial’s
board of directors a revised proposal of $26.20 per Share. The
Special Committee separately discussed the revised proposal and
responded with a price of $27.00 per Share. In response,
Mr. Motamed stated that CNA Financial would support a
revised proposal of $26.50 per Share. After separate
discussions, the Special Committee proposed a revised price of
$26.60 per Share. Mr. Motamed responded that CNA Financial
would not pay $26.60 per Share but that CNA Financial would,
subject to obtaining board approval, support a revised proposal
of $26.55 per Share. The Special Committee stated that it would
be willing to support a proposal of $26.55 per Share subject to
the negotiation of an agreement that was satisfactory to the
Special Committee, which Mr. Britt advised
Messrs. Motamed and Mense must (i) be structured as a
tender offer to allow stockholders to receive the cash
consideration in the most expeditious timeframe and
(ii) include a condition that a majority of the Shares of
the Company other than those held by CNA Financial and its
affiliates be tendered into the offer.
On the afternoon of April 15, 2011, representatives of
Simpson Thacher sent an initial draft of the Merger Agreement to
representatives of Latham, the Special Committee’s legal
advisor. Over the course of that evening and the following four
days, the Special Committee and CNA Financial and their
respective legal advisors negotiated the terms of the Merger
Agreement.
A telephonic meeting of the board of directors of CNA Financial
was held on the afternoon of April 20, 2011.
Representatives of Simpson Thacher and J.P. Morgan also
participated in the meeting. Senior management of CNA Financial
updated the board on the conversations that CNA Financial and
its advisors had engaged in with the Special Committee and its
advisors, including that the Special Committee had indicated
that it would support a transaction at a price per Share of
$26.55. Representatives of J.P. Morgan presented to the
board an overview of certain financial considerations in
connection with a transaction at that price. Representatives of
Simpson Thacher reviewed the boards’ fiduciary duties and
also discussed with the board the structure of the proposed
transaction and the terms of the merger agreement that had been
negotiated with the Special Committee and its advisors. The
board of directors of CNA Financial then unanimously determined
that it was advisable and in the best interests of CNA Financial
and its stockholders to enter into the Merger Agreement and to
consummate the transactions contemplated thereby, including the
Offer and the Merger.
Thereafter, the Merger Agreement was executed by CNA Financial,
CNA Surety and Purchaser on April 20, 2011.
On April 21, 2011, prior to the opening of trading on the
New York Stock Exchange (the “NYSE”), CNA
Financial and CNA Surety issued a press release announcing the
transaction.
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| 2. | Purpose of and Reasons for the Offer; Plans for CNA Surety After the Offer and the Merger |
The purpose of the Offer is for CNA Financial to increase its
direct and indirect ownership of the outstanding Shares from its
current level of approximately 61% to 100%, and accordingly
participate in 100% of the potential results of operations of
CNA Surety.
If the Offer is completed, CNA Financial will, subject to the
terms and conditions of the Merger Agreement, cause the Merger
to be effected, pursuant to which each then outstanding Share
(other than Shares owned by CNA Financial, CNA Surety and their
respective subsidiaries and Shares, if any, that are held by
stockholders who validly perfect their appraisal rights under
the DGCL), would be converted into and represent the right to
receive the Offer Price. The cash consideration to be paid in
the Merger would be the same as paid in the Offer. Upon the
completion of the Merger, CNA Financial would indirectly own
100% of the common stock of CNA Surety.
CNA Financial regularly undertakes a review of its insurance
business, operations and strategy with the goal of enhancing
stockholder value. CNA Financial’s core business is
reported in two business segments — commercial and
specialty. One of the strategic objectives of CNA Financial has
been to expand its specialty franchise. CNA Financial decided to
pursue the acquisition of the Shares not already owned by
subsidiaries of CNA Financial as it views the acquisition as the
next natural step for CNA Financial in that it allows CNA
Financial to further expand its specialty franchise by making an
investment in a business that it already knows well while at the
same time simplifying CNA Surety’s ownership structure. CNA
Financial also determined to pursue the acquisition based on CNA
Financial’s belief that CNA Surety will be better
positioned to deliver consistent underwriting profitability and
compete with the larger, diversified commercial lines companies
it faces in the surety market over the long term as a wholly
owned subsidiary of CNA Financial. CNA Financial believes that
CNA Surety’s competitive position will be improved as a
result of delisting its Shares from the NYSE and operating
privately within the broader ownership of CNA Financial.
Furthermore, by simplifying CNA Surety’s ownership
structure such that CNA Financial will own 100% of the common
stock of CNA Surety, CNA Surety’s ability to benefit from
the strong financial position, capital strength and risk
diversification of CNA Financial will be enhanced.
CNA Financial also does not wish to sell any of its interests in
CNA Surety because CNA Financial believes that CNA Surety’s
operations and business represent an important strategic
component of CNA Financial’s overall operations. For that
reason, CNA Financial did not view such a sale as a viable
alternative to its proposed acquisition of the remaining Shares.
Having come to a determination to pursue the acquisition of the
Shares, CNA Financial considered transaction structure
alternatives and determined to pursue the negotiation of a
merger agreement with the Special Committee providing for a cash
tender offer followed by a second step merger. In choosing a
negotiated transaction involving a tender offer followed by a
second step merger, CNA Financial considered the following
material factors:
| • | a tender offer followed by a second step merger is a common means of effecting a going-private transaction by a controlling stockholder; | |
| • | the potential benefits of negotiating a merger agreement and obtaining a favorable recommendation of the Special Committee, including under Delaware case law concerning the conduct of “going private” transactions; | |
| • | the unaffiliated stockholders of CNA Surety would likely receive the consideration in payment for their Shares sooner in a tender offer than if CNA Financial pursued a one-step merger transaction; | |
| • | stockholders who do not tender their Shares in the Offer or vote in favor of or consent in writing to the adoption of the Merger Agreement and who otherwise comply with applicable requirements may exercise appraisal rights in connection with the Merger pursuant to Section 262 of the DGCL; and |
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| • | for a controlling stockholder such as CNA Financial that is seeking to acquire shares from a large number of public stockholders, open-market or privately-negotiated purchases would be less efficient, more complex and more time consuming than a tender offer. |
CNA Financial currently intends that CNA Surety’s business
will continue to be run in a manner that is generally consistent
with its current operations and does not currently contemplate
making any significant changes in CNA Surety’s strategic or
operating philosophy following completion of the Offer. From
time to time following the Offer and the Merger, CNA Financial
will review CNA Surety’s assets, corporate structure,
capitalization, operations, properties, policies, management and
personnel to determine whether any changes may be necessary or
desirable to best organize and integrate the activities of CNA
Financial and CNA Surety. CNA Financial expressly reserves the
right to make any changes to its future plans that it deems
necessary or appropriate in light of its review or future
developments.
| 3. | The Recommendation by the Special Committee |
The Special Committee unanimously (1) determined that the
terms of the Merger Agreement and the transactions contemplated
by the Merger Agreement, including the Offer and the Merger, are
fair to and in the best interests of CNA Surety and the holders
of Shares (for the avoidance of doubt, other than CNA Financial
and its affiliates); (2) recommended to the board of
directors of CNA Surety that the board of directors of CNA
Surety adopt resolutions approving and declaring advisable the
Merger Agreement and the transactions contemplated by the Merger
Agreement, including the Offer and the Merger, and
(3) recommended that the holders of Shares accept the
Offer, tender their Shares in the Offer and, to the extent
required by the DGCL, vote to adopt the Merger Agreement (the
“Special Committee Recommendation”). The board
of directors of CNA Surety (with directors David Edelson, D.
Craig Mense and Peter Wilson abstaining from all votes due to
their affiliation with CNA Financial or Loews), based on the
Special Committee Recommendation, by a unanimous vote of those
directors not abstaining has (1) determined that the terms
of the Merger Agreement and the transactions contemplated by the
Merger Agreement, including the Offer and the Merger, are fair
to and in the best interests of CNA Surety and the holders of
Shares (other than CNA Financial and its affiliates);
(2) approved and declared advisable the Merger Agreement
and the transactions contemplated by the Merger Agreement,
including the Offer and the Merger, and (3) resolved to
recommend to the holders of Shares that such holders, to the
extent required by the DGCL, vote to adopt the Merger Agreement
(the “CNA Surety Board Recommendation”). CNA
Surety is filing a Solicitation/Recommendation Statement on
Schedule 14D-9
with the SEC indicating the approval of the transaction by its
board of directors and the Special Committee and recommending
that CNA Surety’s stockholders tender their Shares in the
Offer. A copy of the
Schedule 14D-9
is being mailed to the stockholders of CNA Surety concurrently
with the mailing of this Offer to Purchase.
| 4. | Position of the CNA Financial Group Regarding Fairness of the Offer and the Merger |
The members of the CNA Financial Group are, or, in the case of
Loews, under an interpretation of the “going private”
rules of the SEC, may be, required to express their belief as to
the fairness of the Offer and the Merger to the unaffiliated
stockholders of CNA Surety (that is, those stockholders of CNA
Surety that are not affiliated with CNA Financial and its
affiliates). The members of the CNA Financial Group are making
the statements included in this section solely for the purposes
of complying with the requirements of
Rule 13e-3
and related rules under the Exchange Act. The views of the CNA
Financial Group should not be construed as a recommendation to
any stockholder whether to tender their Shares in the Offer.
CNA Financial and Purchaser attempted to negotiate the terms of
the transaction that would be most favorable to them, and not
the unaffiliated stockholders of CNA Surety, and, accordingly,
did not negotiate the Merger Agreement with a goal of obtaining
terms that were fair to such stockholders. The unaffiliated
stockholders of CNA Surety were, as described elsewhere in this
Offer to Purchase and in CNA Surety’s
Schedule 14D-9,
represented by the Special Committee of independent and
disinterested directors that negotiated with CNA Financial and
Purchaser on behalf of the unaffiliated stockholders, with the
assistance of independent legal and financial advisors. The CNA
Financial Group did not participate in the deliberation process
of the Special Committee and none of them participated in the
conclusions of the Special Committee
14
Table of Contents
that the Offer and the Merger were fair to unaffiliated
stockholders of CNA Surety, nor did they undertake any
independent evaluation of the fairness of the Offer or the
Merger or engage a financial advisor for these purposes. The CNA
Financial Group did not receive advice from the Special
Committee’s legal or financial advisors as to the
substantive and procedural fairness of the Offer or the Merger.
However, the CNA Financial Group believes that the Offer and the
Merger are substantively and procedurally fair to the
unaffiliated stockholders of CNA Surety based upon the following
factors:
| • | The factors considered by, and the findings of, the Special Committee with respect to the substantive and the procedural fairness of the Offer and the Merger to such unaffiliated stockholders as set forth in the Schedule 14D-9 under “Item 4. The Solicitation or Recommendation — Reasons for the Special Committee’s Recommendation”, which findings and related analyses, the CNA Financial Group adopts; | |
| • | The analyses contained in the presentations provided by J.P. Morgan to CNA Financial, which presentations do not constitute a recommendation as to whether any holder of Shares should tender their Shares in the Offer. A summary of the J.P. Morgan presentations, which do not express an opinion with respect to the fairness of the Offer Price, is set forth below under “Special Factors — Section 5. Presentations of J.P. Morgan”; and | |
| • | The fact that CNA Surety already uses the underwriting capacity of CCC to serve larger accounts, is the beneficiary of the reinsurance arrangements described below under “Special Factors — Item 12. Certain Relationships Between the CNA Financial Group and CNA Surety” and receives operational support from CNA Financial and its subsidiaries, all of which the CNA Financial Group believes is taken into account in the trading price of the Shares and has resulted in a higher trading price than would have been the case if CNA Surety were not the beneficiary of these arrangements with, and support from, CNA Financial and its subsidiaries. |
No member of the CNA Financial Group found it practicable to
assign, nor did any of them assign, relative weights to the
individual factors considered in reaching their conclusion as to
fairness. The CNA Financial Group’s consideration of the
factors described above reflects their assessment of the
fairness of the Offer to CNA Surety’s unaffiliated
stockholders in relation to the going-concern value of CNA
Surety on a stand-alone basis. In reaching the conclusion as to
fairness, the CNA Financial Group did not consider the
liquidation value of CNA Surety because CNA Surety is a viable
going concern and CNA Financial has no plans to liquidate CNA
Surety. Therefore, the CNA Financial Group believes that the
liquidation value of CNA Surety is irrelevant to a determination
as to whether the Offer and the Merger are fair to unaffiliated
stockholders.
| 5. | Presentations of J.P. Morgan |
J.P. Morgan, as exclusive financial advisor to CNA Financial in
connection with the Offer, provided the following materials
(collectively, the “J.P. Morgan Materials”) in
connection with the Offer to CNA Financial, certain of its
affiliates
and/or to
Goldman Sachs, the Special Committee’s financial advisor:
| • | a presentation given by J.P. Morgan to the CNA Financial board of directors on April 20, 2011; | |
| • | materials prepared by J.P. Morgan and CNA Financial management and given to Goldman Sachs for a meeting between Goldman Sachs and J.P. Morgan on March 18, 2011; | |
| • | a presentation given by J.P. Morgan to certain members of the senior managements of Loews and CNA Financial on March 17, 2011; | |
| • | a presentation on surety industry benchmarking analyses developed by J.P. Morgan and CNA Financial management and discussed on March 10, 2011; | |
| • | a presentation given by J.P. Morgan to the CNA Financial board of directors on October 29, 2010 (presentation dated October 28, 2010); and | |
| • | a presentation given by J.P. Morgan to the CNA Financial board of directors on October 27, 2010. |
15
Table of Contents
The following is a summary of certain of the material financial
analyses contained in the J.P. Morgan Materials. The
following summary, however, does not purport to be a complete
description of the financial analysis performed by
J.P. Morgan. This summary includes information presented in
tabular format. The tables must be read together with the full
text of the summary and are alone not a complete description of
J.P. Morgan’s financial analyses. Considering the
information set forth in the tables without considering the full
narrative description of the financial analysis, including the
methodologies and assumptions underlying the analysis, could
create a misleading or incomplete view of the financial analyses
performed by J.P. Morgan. Except as otherwise noted, the
quantitative information, to the extent that it is based on
market data, is based on market data as it existed on or before
the respective presentation date and is not necessarily
indicative of current market conditions.
The preparation of financial analyses is a complex process
involving subjective judgments and is not necessarily
susceptible to partial analysis or summary description.
Considering only portions of the analyses or of the summaries
set forth below, without considering the analyses as a whole,
could create a misleading or incomplete view of the assumptions
and methodologies underlying J.P. Morgan’s financial
analyses. The fact that any specific analysis has been referred
to in the summaries below is not meant to indicate that such
analysis was viewed as any more or less significant or should be
given any greater weight than any other analysis by
J.P. Morgan. J.P. Morgan did not draw, in isolation,
conclusions from or with regard to any one factor or method of
analysis. The order of analyses described below does not
necessarily represent the relative importance or weight given to
those analyses by J.P. Morgan.
The full text of the J.P. Morgan Materials has been filed
as an exhibit to the Transaction Statement on
Schedule 13E-3
filed with the SEC in connection with the Offer and is
incorporated herein by reference. The description of the
J.P. Morgan Materials in this Offer to Purchase is
qualified in its entirety by reference to such exhibits. The
J.P. Morgan Materials may be examined at, and copies may be
obtained from, the SEC in the manner described in “The
Offer — Section 7. Certain Information Concerning
CNA Surety; Available Information.”
J.P. Morgan prepared the J.P. Morgan Materials for, and
delivered them to, their respective recipients as described
above. The J.P. Morgan Materials do not purport to be
appraisals, nor do they necessarily reflect the prices at which
businesses or securities actually may be sold. In preparing the
J.P. Morgan Materials, J.P. Morgan, among other things:
| • | reviewed certain publicly available financial statements and other business and financial information of CNA Financial and CNA Surety; | |
| • | reviewed certain internal financial statements and other financial and operating data concerning CNA Financial and CNA Surety; | |
| • | reviewed certain financial forecasts relating to CNA Surety prepared by CNA Surety and CNA Financial management; | |
| • | discussed CNA Surety’s past and current operations, financial condition and prospects with senior executives of CNA Financial, CNA Surety and Loews; | |
| • | reviewed the reported prices and trading activity of CNA Surety’s common stock; | |
| • | reviewed the premiums paid in selected minority buy-in transactions that J.P. Morgan deemed relevant; | |
| • | reviewed certain publicly available business and financial information of certain other companies engaged in surety and other related businesses; and | |
| • | reviewed other information, performed other analyses and considered other factors as J.P. Morgan deemed appropriate. |
In preparing the J.P. Morgan Materials, J.P. Morgan
assumed and relied on the accuracy and completeness of the
financial and other information reviewed by it. J.P. Morgan
did not independently verify (nor did J.P. Morgan assume
responsibility or liability for independently verifying) any
such information or its accuracy or completeness. No
representation or warranty, express or implied, was made by
J.P. Morgan in relation to
16
Table of Contents
the accuracy or completeness of the information presented in the
J.P. Morgan Materials or their suitability for any
particular purpose. J.P. Morgan did not conduct and was not
provided with any valuation or appraisal of any assets or
liabilities of CNA Financial, CNA Surety or any other company or
business, nor did J.P. Morgan evaluate the solvency of CNA
Financial, CNA Surety or any other company or business under any
state or federal laws relating to bankruptcy, insolvency or
similar matters. With respect to the financial forecasts of CNA
Surety prepared by CNA Financial management referenced above,
J.P. Morgan assumed, at CNA Financial’s direction,
that such forecasts were reasonably prepared on bases reflecting
the best then-available estimates and good faith judgments of
CNA Financial management as to CNA Surety’s future
financial performance. J.P. Morgan also received financial
forecasts of CNA Surety prepared by CNA Surety’s management
but was directed by CNA Financial to use the financial forecasts
of CNA Surety that were prepared by CNA Financial’s
management instead. J.P. Morgan expressed no view as to any
of the foregoing analyses or forecasts or the assumptions on
which they were based.
The matters considered by J.P. Morgan in its analyses and
reflected in the J.P. Morgan Materials were necessarily
based on economic, market, industry, operating and other
conditions as in effect on the respective dates of such
materials. Many such conditions are beyond the control of CNA
Financial, CNA Surety and J.P. Morgan. Accordingly, these
analyses are inherently subject to uncertainty, and none of CNA
Financial, CNA Surety, J.P. Morgan or any other person
assumes responsibility if future results are different from
those forecasted. J.P. Morgan did not assume any obligation
to update, revise or reaffirm its financial analyses or the
contents of the J.P. Morgan Materials.
The J.P. Morgan Materials were intended to assist the
respective recipients’ ongoing analysis of the Offer.
J.P. Morgan was not requested to provide, and
J.P. Morgan did not provide, to CNA Financial, CNA Surety,
Loews, the stockholders of CNA Financial or CNA Surety, or any
other person (i) any opinion as to the fairness of the
Offer or the Merger (including, without limitation, the fairness
of the Offer Price), (ii) any other valuation of CNA Surety
for the purpose of assessing the fairness of the Offer Price to
any such person or (iii) any recommendation as to whether
any holder of shares of CNA Surety should tender in the Offer or
how any such holder should vote on the Merger. Because
J.P. Morgan was not requested to, and did not, deliver a
fairness opinion in connection with the Offer, it did not follow
all of the procedures in preparing the J.P. Morgan
Materials that it would ordinarily follow in connection with
delivering an opinion.
The J.P. Morgan Materials were prepared solely for their
respective recipients and do not constitute a recommendation as
to whether any holder of Shares should tender in the Offer or
vote to adopt the Merger Agreement and should not be relied on
as the basis for any investment decision.
April 20,
2011, October 29, 2010 and October 27, 2010 Board
presentations
The following is a summary of certain of the financial analyses
contained in the presentations to the CNA Financial board of
directors given on April 20, 2011, October 29, 2010
and October 27, 2010.
Discounted
cash flow analyses
J.P. Morgan performed discounted cash flow analyses of CNA
Surety utilizing projections and other estimates prepared and
provided by CNA Financial management. These analyses were
performed in order to evaluate the implied fully-diluted equity
value per share of CNA Surety based on the current ownership
structure.
In preparing the October 27, 2010 and October 29, 2010
presentations, J.P. Morgan used a set of projections and
other estimates prepared and provided by CNA Financial’s
management that were referred to as the CNA Financial current
ownership case. For these presentations, J.P. Morgan
estimated the aggregate equity value for CNA Surety as the sum
of the present value of (1) CNA Surety’s estimated
future free cash flows for the years 2011 through 2019 and
(2) CNA Surety’s estimated terminal equity value in
2020, each derived using discount rates ranging from 10% to 12%.
CNA Financial’s estimated future free cash flows were
calculated assuming CNA Surety would pay annual dividends equal
to the greater of (a) 10% of statutory policyholder’s
surplus at the beginning of a given year and (b) 100% of
the prior year’s net income. 2011 estimated free cash flow
assumed an incremental dividend of currently available excess
capital. CNA Surety’s
17
Table of Contents
2020 terminal equity value was derived assuming 2020 estimated
free cash flow and a perpetuity growth rate ranging from 1.0% to
1.5%. CNA Surety’s aggregate equity value was divided by
its estimated total outstanding shares, including the impact of
restricted stock and stock options, as of the date of the
respective presentation. The resulting implied estimated
valuation levels were $19.12 to $23.13 per share.
J.P. Morgan also performed a discounted free cash flow
sensitivity analysis showing the sensitivity of the range of
discount rates from 10% to 12% to certain hypothetical changes
in (i) net written premium growth, which in the
October 29, 2010 presentation resulted in implied estimated
valuation levels of $18.12 to $25.18 per share, (ii) loss
ratio, which resulted in implied estimated valuation levels of
$17.05 to $25.96 per share, and (iii) 2011 estimated excess
capital, which resulted in implied estimated valuation levels of
$17.79 to $24.33 per share.
In preparing the April 20, 2011 presentation,
J.P. Morgan used the CNA Financial Management Prepared
Forecasts described below under “Special Factors.
Section 6. Financial Forecasts”. For this
presentation, J.P. Morgan estimated the aggregate equity
value for CNA Surety as the sum of the present value of
(1) CNA Surety’s estimated future free cash flows for
the years 2011 through 2020 and (2) CNA Surety’s
estimated terminal equity value in 2021, each derived using
discount rates ranging from 9.5% to 11.5%. CNA Financial’s
estimated future free cash flows were calculated assuming CNA
Surety would pay annual dividends equal to the greater of
(a) 10% of statutory policyholder’s surplus at the
beginning of a given year and (b) 100% of the prior
year’s net income. 2011 estimated free cash flow assumed an
incremental dividend of currently available excess capital. CNA
Surety’s 2021 terminal equity value was derived assuming
2021 estimated free cash flow and a perpetuity growth rate
ranging from 2.0% to 3.0%. CNA Surety’s aggregate equity
value was divided by its total outstanding shares, including the
impact of restricted stock and stock options, as of
April 18, 2011. The resulting implied estimated valuation
levels were $23.50 to $29.85 per share.
While the discounted cash flow analysis is a widely accepted and
practiced valuation methodology, it relies on a number of
assumptions, including growth rates, terminal values and
discount rates. The implied valuation range derived from the
discounted cash flow analysis is not necessarily indicative of
CNA Surety’s present or future value or results.
Minority
buy-in analyses
J.P. Morgan analyzed certain publicly available information
relating to (1) over 95 selected minority buy-in
transactions with transaction values in excess of
$25 million since 2001 (excluding pending or withdrawn
offers) and (2) 14 selected minority buy-in transactions
involving insurance companies with transaction values in excess
of $25 million since 1998 (excluding pending or withdrawn
offers). For each of the selected transactions, J.P. Morgan
compared the price per share proposed in the transaction to the
closing price of the target’s common stock (i) on the
last trading day immediately preceding the announcement of the
proposal; (ii) one week prior to the announcement of the
proposal; (iii) one month prior to the announcement of the
proposal; and (iv) on the date on which it achieved its
highest closing price in the 52 week period prior to
announcement of the proposal. The results of these analyses for
the April 20, 2011 presentation are summarized as follows:
| Premium/discount paid over prior trading days | ||||||||||||||||
| One day prior | One week prior | One month prior | 52-week high | |||||||||||||
|
All deals
|
32.1 | % | 32.6 | % | 32.1 | % | −1.3 | % | ||||||||
|
Insurance deals
|
30.5 | % | 30.3 | % | 32.9 | % | −0.8 | % | ||||||||
Implied transaction multiples and premium analyses
J.P. Morgan calculated various multiples and premiums related to
the Offer in each of the three presentations delivered to the
CNA Financial board of directors. These calculations were based
on information obtained from SEC filings, FactSet Research
Systems Inc. and certain financial analyses and projections for
CNA Surety prepared by CNA Financial management. Using the
$26.55 cash purchase price per share, the CNA Financial
Management Prepared Forecasts and, where applicable, market
information as of October 29,
18
Table of Contents
2010, the date of CNA Surety’s last unaffected stock price
prior to CNA Financial’s initial proposal, J.P. Morgan
calculated the following premiums and multiples for the
April 20, 2011 presentation:
|
$26.55 offer price |
||||
| per share | ||||
|
Premiums to historical price:
|
||||
|
October 29, 2010 closing price
|
37.9 | % | ||
|
One week prior to October 29, 2010 closing price
|
38.7 | % | ||
|
One month prior to October 29, 2010 closing price
|
46.9 | % | ||
|
Offer price multiples to:
|
||||
|
2011E operating income
|
15.1 | x | ||
|
2012E operating income
|
14.3 | x | ||
|
September 30, 2010 book value per share excluding after-tax
gains/(losses)
|
1.21 | x | ||
|
on available for sale securities (such excluded amounts referred
to as
|
||||
|
“FAS 115”)
|
||||
|
September 30, 2010 tangible book value per share excluding
FAS 115
|
1.41 | x | ||
|
December 31, 2010 book value per share excluding
FAS 115
|
1.15 | x | ||
|
December 31, 2010 tangible book value per share excluding
FAS 115
|
1.33 | x | ||
|
March 31, 2011 estimated book value per share excluding
FAS 115
|
1.13 | x | ||
|
March 31, 2011 estimated tangible book value per share
excluding FAS 115
|
1.30 | x | ||
|
December 31, 2011 estimated book value per share excluding
FAS 115
|
1.07 | x | ||
|
December 31, 2011 estimated tangible book value per share
excluding FAS 115
|
1.22 | x | ||
For the presentations on October 27, 2010 and
October 29, 2010, J.P. Morgan performed similar
analyses for various metrics at various hypothetical prices.
Historical
stock price performance
For purposes of its October 27, 2010 presentation,
J.P. Morgan reviewed the following historical stock price
performance and trading data for CNA Surety’s common stock:
|
Volume weighted |
||||||||||||||||
| Opening price | High price | Low price | average price | |||||||||||||
|
Time period
|
||||||||||||||||
|
10/1/97-12/31/97
|
$ | 15.00 | $ | 16.50 | $ | 14.31 | $ | 15.17 | ||||||||
|
1998
|
$ | 15.50 | $ | 16.75 | $ | 12.75 | $ | 14.65 | ||||||||
|
1999
|
$ | 15.31 | $ | 15.50 | $ | 9.75 | $ | 12.40 | ||||||||
|
2000
|
$ | 12.25 | $ | 14.88 | $ | 10.56 | $ | 12.43 | ||||||||
|
2001
|
$ | 13.75 | $ | 15.65 | $ | 12.55 | $ | 13.86 | ||||||||
|
2002
|
$ | 15.10 | $ | 16.40 | $ | 7.50 | $ | 12.34 | ||||||||
|
2003
|
$ | 8.05 | $ | 11.07 | $ | 6.67 | $ | 9.49 | ||||||||
|
2004
|
$ | 9.51 | $ | 13.93 | $ | 9.51 | $ | 11.23 | ||||||||
|
2005
|
$ | 13.21 | $ | 15.40 | $ | 12.50 | $ | 13.97 | ||||||||
|
2006
|
$ | 15.10 | $ | 22.29 | $ | 14.92 | $ | 18.40 | ||||||||
|
2007
|
$ | 21.49 | $ | 23.18 | $ | 16.00 | $ | 19.54 | ||||||||
|
2008
|
$ | 19.19 | $ | 20.50 | $ | 9.50 | $ | 14.99 | ||||||||
|
2009
|
$ | 19.01 | $ | 19.69 | $ | 11.81 | $ | 15.69 | ||||||||
|
1/1/10-10/26/10
|
$ | 15.06 | $ | 19.51 | $ | 13.87 | $ | 16.50 | ||||||||
For purposes of both the October 27, 2010 and
October 29, 2010 presentations, J.P. Morgan reviewed
certain trading and historical valuation data for CNA
Surety’s common stock from September 15, 2008
19
Table of Contents
through the date of each respective presentation. For the period
from September 15, 2008 through October 28, 2010,
J.P. Morgan observed:
| CNA Surety | ||||
|
Highest closing price on 9/19/08
|
$ | 20.50 | ||
|
Lowest closing price on 12/1/08
|
$ | 9.50 | ||
|
Average daily trading volume (000s)
|
77.8 | |||
|
Volume weighted average price
|
$ | 15.77 | ||
|
October 28, 2010 closing price to September 30, 2010
book value per share excluding FAS 115
|
0.87 | x | ||
|
October 28, 2010 closing price to September 30, 2010
tangible book value per share excluding FAS 115
|
1.02 | x | ||
For purposes of both the October 27, 2010 and
October 29, 2010 presentations, J.P. Morgan also
reviewed the number and percentage of trading days on which CNA
Surety’s stock closed at implied price to book value per
share (excluding FAS 115) and price to tangible book
value per share (excluding FAS 115) multiples above or
below certain observable thresholds. J.P. Morgan’s
analyses contained certain trading and historical valuation data
for CNA Surety’s common stock from September 15, 2008
through the date of each respective presentation. For the period
from September 15, 2008 through October 28, 2010,
J.P. Morgan observed:
|
Number of |
Percentage of total |
|||||||
| trading days | trading days | |||||||
|
Price to book value per share excluding FAS 115
|
||||||||
|
Less than 1.00x
|
480 | 90 | % | |||||
|
Between 1.00x and 1.10x
|
41 | 8 | % | |||||
|
Between 1.10x and 1.20x
|
10 | 2 | % | |||||
|
Between 1.20x and 1.30x
|
5 | <1 | % | |||||
|
Greater than 1.30x
|
0 | 0 | % | |||||
|
Price to tangible book value per share excluding FAS 115
|
||||||||
|
Less than 1.00x
|
294 | 55 | % | |||||
|
Between 1.00x and 1.10x
|
131 | 24 | % | |||||
|
Between 1.10x and 1.20x
|
51 | 10 | % | |||||
|
Between 1.20x and 1.30x
|
36 | 7 | % | |||||
|
Greater than 1.30x
|
24 | 4 | % | |||||
For purposes of the April 20, 2011 presentation,
J.P. Morgan reviewed the following historical stock price
performance and trading data for CNA Surety’s common stock
for the period between November 1, 2010 and April 19,
2011:
| CNA Surety | ||||
|
Total shares traded (000s)
|
14,977.9 | |||
|
% of public float
|
85.4 | % | ||
|
Average daily trading volume (000s)
|
126.9 | |||
|
% of public float
|
0.7 | % | ||
|
Volume weighted average price
|
$23.92 | |||
|
Highest trading price (intraday)
|
$25.93 | |||
|
Percentage of trading days closed between $22.00 and $23.00
|
0.0 | % | ||
|
Percentage of trading days closed between $23.00 and $24.00
|
49.2 | % | ||
|
Percentage of trading days closed between $24.00 and $25.00
|
6.8 | % | ||
|
Percentage of trading days closed between $25.00 and $25.93
|
44.1 | % | ||
Pro forma transaction impact to CNA Financial
20
Table of Contents
For purposes of its April 20, 2011 presentation,
J.P. Morgan analyzed the impact the proposed transaction
would have on CNA Financial’s 2011 and 2012 estimated
financial position, assuming a closing date of June 30,
2011, CNA Surety financial projections per the CNA Financial
Management Prepared Forecasts, CNA Financial’s financial
projections per consensus research analyst estimates and
transaction related synergies and costs as provided by CNA
Financial management. The results of this analysis are as
follows:
| 2011E | 2012E | |||||||
|
Pro forma earnings per share
|
||||||||
|
Accretion / (dilution) — $
|
$ | 0.02 | $ | 0.11 | ||||
|
Accretion / (dilution) — %
|
0.6 | % | 4.1 | % | ||||
|
Pro forma book value per share excluding FAS 115
|
||||||||
|
Accretion / (dilution) — $
|
$ | (0.16 | ) | $ | (0.05 | ) | ||
|
Accretion / (dilution) — %
|
(0.4 | )% | (0.1 | )% | ||||
|
Pro forma return on average equity excluding FAS 115
|
||||||||
|
Accretion / (dilution) — bps
|
5 bps | 27 bps | ||||||
Selected
publicly traded companies analyses
J.P. Morgan reviewed and analyzed certain publicly available
financial information and market trading data of select publicly
traded property & casualty insurance companies.
J.P. Morgan determined that such financial information and
market trading data was not sufficiently comparable to CNA
Surety due to differences in the business mix of CNA Surety, on
the one hand, and the selected publicly traded companies, on the
other hand, and it therefore provided such information for
reference purposes only.
March 18,
2011, March 17, 2011 and March 10, 2011
presentations
On March 18, 2011, J.P. Morgan met with Goldman Sachs
and presented analyses pertaining to expected macroeconomic
developments relating to the surety industry, CNA Surety’s
historical and projected financial results, and the impact an
acquisition would have on CNA Financial’s statutory and
GAAP capital accounts and capitalization under
A.M. Best’s and Standard & Poor’s
capital calculations. The analyses shared with Goldman Sachs
were developed jointly by J.P. Morgan and CNA Financial
management.
On March 17, 2011, J.P. Morgan made a presentation to
certain members of the senior management teams of CNA Financial
and Loews. J.P. Morgan’s presentation included
information pertaining to changes in CNA Surety’s financial
performance, common stock trading levels and shareholder
ownership since October 29, 2010. J.P. Morgan’s
presentation also included a summary of the projections for CNA
Surety that had been prepared by CNA Surety’s management as
well as the underlying assumptions for such projections. In
addition, J.P. Morgan’s presentation included
preliminary drafts of the minority buy-in, implied transaction
multiple and premium, and pro forma transaction impact to CNA
Financial analyses included in the April 20, 2011
presentation to the CNA Financial board of directors.
On March 10, 2011, J.P. Morgan and CNA Financial
management discussed a presentation that included surety
industry benchmarking analyses that examined a variety of
companies using a variety of metrics. The presentation also
included a comparison that had been prepared by CNA
Financial’s management of CNA Surety’s historical
forecasts to its actual results.
Miscellaneous
J.P. Morgan provided advice to the CNA Financial board of
directors and CNA Financial management in connection with the
Offer and the Merger. As described above, however,
J.P. Morgan was not asked to, and did not, render any
opinion relating to the Offer Price or the fairness of the
transactions contemplated by this Offer to Purchase.
J.P. Morgan’s financial analyses were one of many
factors taken into consideration by the CNA Financial board of
directors in deciding to approve the Offer and the Merger.
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Table of Contents
CNA Financial selected J.P. Morgan as its financial advisor
because of J.P. Morgan’s reputation as an
internationally recognized investment banking and advisory firm
with substantial experience in similar transactions and because
of J.P. Morgan’s familiarity with CNA Financial, CNA
Surety and their respective businesses. As part of
J.P. Morgan’s investment banking business,
J.P. Morgan is continuously engaged in the valuation of
businesses and their securities in connection with mergers and
acquisitions, leveraged buyouts, negotiated underwritings,
competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for
corporate and other purposes. Pursuant to an engagement letter
dated October 27, 2010, J.P. Morgan will receive a fee
of $2 million for its services, which is contingent upon
the consummation of the transaction. J.P. Morgan is also
acting as dealer manager in connection with the Offer for which
it has received a fee of $250,000. In addition, CNA Financial
has agreed to reimburse J.P. Morgan for its expenses and to
indemnify J.P. Morgan against certain liabilities arising
out of the engagement.
During the two years preceding the Offer, J.P. Morgan has
provided financial advisory and financing services to Loews, CNA
Financial
and/or one
or more of their affiliates, for which J.P. Morgan received
customary compensation. J.P. Morgan’s services to
Loews, CNA Financial
and/or one
or more of their affiliates have included acting as underwriter
on the following offerings: (1) a $400 million senior
notes offering by CNA Financial in February 2011; (2) a
$350 million senior notes offering by CNA Financial in
November 2009; (3) a $325 million senior notes
offering by Texas Gas Transmission LLC, a wholly-owned
subsidiary of Boardwalk Pipeline Partners, LP
(“Boardwalk”), itself a majority-owned affiliate of
Loews, in January 2011; (4) a $300 million common unit
offering by Boardwalk in February 2010; (5) a
$350 million senior notes offering by Boardwalk in August
2009; (6) a $167 million common unit offering by
Boardwalk in August 2009; and (7) a $500 million
senior notes offering by Diamond Offshore Drilling, Inc., a
majority-owned affiliate of Loews, in October 2009.
J.P. Morgan’s affiliate, JPMorgan Chase Bank NA, is also a
lender in CNA Financial’s $250 million revolving
credit facility maturing in August 2012, Boardwalk’s
$950 million revolving credit facility maturing in June
2012 and Diamond Offshore’s $285 million revolving
credit facility maturing in November 2011, for each of which it
receives customary compensation or other financial benefits.
In the ordinary course of their businesses, J.P. Morgan and
its affiliates may actively trade the debt and equity securities
of Loews, CNA Financial
and/or one
or more of their affiliates for their own account or for the
accounts of customers and, accordingly, they may at any time
hold long or short positions in such securities.
| 6. | Financial Forecasts |
Historically, management of CNA Surety has annually prepared a
one year financial forecast and has provided such financial
forecast to CNA Surety’s board of directors, including
those members of the board of directors that are affiliated with
CNA Financial and Loews, but has not as a matter of course
prepared detailed financial forecasts covering a longer period
aside from providing longer term cash flow forecasts which are
utilized by CNA Financial in connection with goodwill impairment
testing. These cash flow forecasts were, as has historically
been the case, provided to CNA Financial in January 2011. In
connection with the Special Committee’s review and
consideration of the proposal made by CNA Financial on
October 29, 2010, management of CNA Surety prepared a five
year financial forecast covering the five year period ending
2015 (the “CNA Surety Management Prepared
Forecasts”). The CNA Surety Management Prepared
Forecasts were made available to CNA Financial and its advisors
in March 2011. A summary of the CNA Surety Management Prepared
Forecasts is set forth in the
Schedule 14D-9.
In formulating its initial proposal in October 2010 and in light
of the fact that management of CNA Surety does not as a matter
of course provide CNA Financial with detailed long-term
financial forecasts, management of CNA Financial developed a ten
year financial forecast of CNA Surety covering the ten year
period ending 2020. Although CNA Financial received the CNA
Surety Management Prepared Forecasts in March 2011, management
of CNA Financial determined that the CNA Surety Management
Prepared Forecasts were, in the view of management of CNA
Financial, unlikely to be an accurate predictor of future
results of CNA Surety. This belief was based on management of
CNA Financial’s belief that the CNA Surety
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Management Prepared Forecasts did not fully consider either CNA
Surety’s historical results or certain macroeconomic and
market challenges now facing CNA Surety and its business.
Specifically, CNA Financial’s management was of the view
that CNA Surety’s historic growth over the last
10 years, which included the effect of significant market
hardening in the surety industry during the period from
2002-2003,
extensive growth in the construction industry during the period
from 2004 through 2007, and the effect of significant federal
stimulus programs enacted during 2008 and 2009, was not likely
to be repeated in the near term. CNA Financial’s management
believed that the expiration of various aspects of federal
stimulus programs in conjunction with ongoing budget constraints
at the federal, state, and local levels was likely to
significantly hinder near-term growth at CNA Surety. As such,
management of CNA Financial believed that CNA Surety was likely
to face suppressed growth rates for the business in the near
term, normalizing to a 3% growth rate over the longer term. In
addition, management of CNA Financial believed that CNA
Surety’s exclusion of losses related to a large principal
in the early 2000’s in estimating a long-term average loss
ratio used in the CNA Surety Management Prepared Forecasts was
overly optimistic as the surety industry is susceptible to
significant loss activity from time to time. Additionally, as
losses in the surety industry tend to lag downturns in the
construction industry by
18-24 months,
management of CNA Financial felt it was appropriate to use a
higher loss ratio over the near term in its forecasts.
For the foregoing reasons, management of CNA Financial did not
take into account the CNA Surety Management Prepared Forecasts
in reaching its views on the value of CNA Surety. Instead,
management of CNA Financial updated the ten year financial
forecast of CNA Surety it had prepared in October 2010 to take
into account the financial results of CNA Surety for the full
year of 2010 as well as additional information concerning the
business and operations of CNA Surety that management of CNA
Financial obtained as a result of conducting additional
diligence with respect to CNA Surety (such updated ten year
financial forecast, the “CNA Financial Management
Prepared Forecasts”). The CNA Financial Management
Prepared Forecasts were utilized in the analyses undertaken by
J.P. Morgan in certain of the presentations provided by
J.P. Morgan to CNA Financial (see “Special
Factors — Item 5. Presentations of
J.P. Morgan” above). A summary of the CNA Financial
Management Prepared Forecasts is set forth below.
|
$ millions, except per share
|
2011E | 2012E | 2013E | 2014E | 2015E | 2016E | 2017E | 2018E | 2019E | 2020E | ||||||||||||||||||||||||||||||
|
Net written premiums
|
$ | 423.3 | $ | 429.8 | $ | 438.1 | $ | 449.4 | $ | 461.8 | $ | 475.6 | $ | 489.9 | $ | 504.6 | $ | 519.7 | $ | 535.3 | ||||||||||||||||||||
|
growth %
|
1.7 | % | 1.5 | % | 1.9 | % | 2.6 | % | 2.7 | % | 3.0 | % | 3.0 | % | 3.0 | % | 3.0 | % | 3.0 | % | ||||||||||||||||||||
|
Net earned premiums
|
420.3 | 426.5 | 434.0 | 443.8 | 455.6 | 468.7 | 482.7 | 497.2 | 512.1 | 527.5 | ||||||||||||||||||||||||||||||
|
Total loss and expense
|
365.3 | 365.6 | 370.4 | 376.8 | 383.9 | 391.7 | 399.8 | 408.0 | 416.4 | 424.9 | ||||||||||||||||||||||||||||||
|
Loss ratio (ex. development)
|
31.1 | % | 31.1 | % | 30.6 | % | 30.0 | % | 29.4 | % | 28.8 | % | 28.1 | % | 27.5 | % | 26.9 | % | 26.3 | % | ||||||||||||||||||||
|
Loss ratio
|
31.1 | % | 31.1 | % | 30.6 | % | 30.0 | % | 29.4 | % | 28.8 | % | 28.1 | % | 27.5 | % | 26.9 | % | 26.3 | % | ||||||||||||||||||||
|
Expense
ratio1
|
54.3 | % | 54.6 | % | 54.8 | % | 54.9 | % | 54.9 | % | 54.8 | % | 54.7 | % | 54.5 | % | 54.4 | % | 54.3 | % | ||||||||||||||||||||
|
Combined ratio
|
85.4 | % | 85.7 | % | 85.4 | % | 84.9 | % | 84.3 | % | 83.6 | % | 82.8 | % | 82.1 | % | 81.3 | % | 80.6 | % | ||||||||||||||||||||
|
Underwriting income
|
$ | 55.0 | $ | 61.0 | $ | 63.6 | $ | 67.0 | $ | 71.7 | $ | 77.0 | $ | 83.0 | $ | 89.2 | $ | 95.7 | $ | 102.6 | ||||||||||||||||||||
|
Investment income
|
55.7 | 56.8 | 59.5 | 63.4 | 69.5 | 77.0 | 84.9 | 93.4 | 102.5 | 112.3 | ||||||||||||||||||||||||||||||
|
Investment yield (pre-tax)
|
4.0 | % | 3.9 | % | 3.9 | % | 3.9 | % | 4.0 | % | 4.2 | % | 4.3 | % | 4.5 | % | 4.6 | % | 4.7 | % | ||||||||||||||||||||
|
Interest expense
|
(1.1 | ) | (1.1 | ) | (1.1 | ) | (1.1 | ) | (1.1 | ) | (1.1 | ) | (1.1 | ) | (1.1 | ) | (1.1 | ) | (1.1 | ) | ||||||||||||||||||||
|
Income before tax
|
$ | 109.6 | $ | 116.6 | $ | 121.9 | $ | 129.3 | $ | 140.1 | $ | 152.9 | $ | 166.7 | $ | 181.5 | $ | 197.1 | $ | 213.8 | ||||||||||||||||||||
|
Tax rate
|
27.4 | % | 27.7 | % | 27.7 | % | 27.6 | % | 27.6 | % | 27.4 | % | 27.4 | % | 27.3 | % | 27.2 | % | 27.1 | % | ||||||||||||||||||||
|
Net income
|
$ | 79.6 | $ | 84.3 | $ | 88.1 | $ | 93.5 | $ | 101.5 | $ | 110.9 | $ | 121.1 | $ | 132.0 | $ | 143.5 | $ | 155.8 | ||||||||||||||||||||
| (1) | Transaction related expenses; excluded from expense ratio calculation. |
23
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The CNA Financial Management Prepared Forecasts summarized above
were prepared on the assumption that CNA Financial would
continue to own its current stake in CNA Surety through 2020 and
do not take into account any effects on the business and
operations of CNA Surety that may result from CNA Financial
acquiring a 100% interest in CNA Surety. In preparing the CNA
Financial Management Prepared Forecasts, management of CNA
Financial also made the following material assumptions:
| • | Gross written premiums are driven by long-term United States Gross Domestic Product growth rate assumption of 3.0%; | |
| • | Losses assume an increased level of activity in 2011 and 2012 based on historical trends in the surety industry where losses tend to lag declines in the construction industry by 18-24 months; 2013-2020 assumes a ratable decline in the loss ratio based on management of CNA Financial’s view of the long term performance of CNA Surety relative to the overall industry. |
The CNA Financial Management Prepared Forecasts have been
included in this Offer to Purchase for the limited purposes of
giving CNA Surety’s stockholders access to financial
forecasts that were prepared by CNA Financial’s management.
These forecasts were prepared by CNA Financial’s management
for internal use and not with a view to publication. These
forecasts were not prepared with a view to compliance with
published guidelines of the SEC or the guidelines established by
the American Institute of Certified Public Accountants regarding
forecasts or projections. Neither CNA Surety’s nor CNA
Financial’s independent registered public accounting firm,
nor any other independent accountants, have compiled, examined
or performed any procedures with respect to these forecasts, nor
have they expressed any opinion or other form of assurance on
such information or its achievability, and assume no
responsibility for, and disclaim any association with, these
forecasts. These forecasts were based on assumptions concerning
CNA Surety’s operations, business prospects and other
revenue and operating assumptions. Projected information and
forecasts of this type are forward-looking statements and are
based on estimates and assumptions that are inherently subject
to significant economic and competitive uncertainties and
contingencies, including those risks described in CNA
Surety’s filings with the SEC under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”)
and elsewhere in this Offer to Purchase. These uncertainties and
contingencies are difficult to predict, and many are beyond the
ability of CNA Surety and CNA Financial to control. Accordingly,
there can be no assurance that the forecasted results would be
realized or that actual results would not be significantly
higher or lower than those set forth above. The inclusion of the
forecasts herein should not be regarded as an indication that
CNA Financial, Purchaser or their respective affiliates or
representatives considered or consider such data to be a
reliable prediction of future events, and such data should not
be relied upon as such. None of CNA Financial, Purchaser or any
of their respective affiliates or representatives has made or
makes any representation to any person regarding the ultimate
performance of CNA Surety compared to the information contained
in the forecasts described above, and, to the knowledge of CNA
Financial and Purchaser, none of them intends to provide any
update or revision thereof to reflect circumstances existing
after the date when made or to reflect the occurrence of future
events, even in the event that any or all of the assumptions
underlying the forecasts are shown to be in error.
| 7. | Effects of the Offer |
If the Offer is completed, in accordance with the terms of the
Merger Agreement CNA Financial will, as promptly as practicable,
cause the second step merger of Purchaser and CNA Surety in
which all remaining stockholders (other than CNA Financial, CNA
Surety and their respective subsidiaries and stockholders that
validly perfect appraisal rights under the DGCL) would, without
the need for further action by such stockholder, receive the
same price per share as was paid in the Offer, without interest,
and less any applicable withholding of taxes. In connection with
the Merger, non-tendering stockholders will have the right to
demand appraisal of their Shares, whereby such stockholders may
receive the “fair value” of their shares, less any
applicable withholding of taxes, as determined by the Delaware
Chancery Court, by following the procedures required by the
DGCL. See “Special Factors — Section 10.
Appraisal Rights;
Rule 13e-3.”
If following consummation of the Offer and any subsequent
offering period, Purchaser owns at least 90% of the Shares (or
may achieve such ownership level solely through lawful actions
of CNA Financial and its
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Table of Contents
subsidiaries), CNA Financial, Purchaser and CNA Surety are
required to use their reasonable best efforts to consummate the
Merger as a short-form merger of Purchaser with and into CNA
Surety in accordance with the applicable provisions of the DGCL,
including by exercising the
top-up
option and, subject to applicable law, transferring to Purchaser
Shares that are held by other subsidiaries of CNA Financial.
Purchaser may also choose to make open market purchases of
Shares following the Offer in order to be able to complete the
Merger as a short-form merger. If Purchaser is not able to
complete the Merger as a short-form merger, subsidiaries of CNA
Financial, as CNA Surety’s majority stockholders, intend to
adopt the Merger Agreement by written consent in lieu of a
meeting of stockholders, without the affirmative vote of any
other CNA Surety stockholder, in accordance with the Merger
Agreement.
If the Offer is not completed for any reason (including a
failure to satisfy the
“majority-of-the-minority”
condition), CNA Financial will review its options. These include
doing nothing, purchasing Shares in the open market or in
privately negotiated transactions, making a new tender offer or
seeking to negotiate a merger or other business combination with
CNA Surety. No assurance can be given as to the price per Share
that may be paid in any such future acquisition of Shares, and
such price may be higher or lower than or the same as the Offer
Price.
As a result of the Offer, CNA Financial’s interest in CNA
Surety’s net book value and net earnings will increase to
the extent of the number of Shares acquired under the Offer. If
the Offer is completed, following consummation of the Merger,
CNA Financial’s indirect interest in such items will
increase to 100%, and CNA Financial and its subsidiaries will be
entitled to all benefits resulting from that interest, including
all income generated by CNA Surety’s operations and any
future increase in CNA Surety’s value. Based on CNA
Surety’s results for the fiscal year ended
December 31, 2010 and assuming completion of the Merger as
of December 31, 2010, this increase would result in CNA
Financial’s beneficial interest in CNA Surety’s net
book value and net income increasing by approximately
$417 million and $52 million, respectively. Similarly,
CNA Financial will also bear the risk of losses generated by CNA
Surety’s operations and any decrease in the value of CNA
Surety after the Merger. Accordingly, former stockholders will
not have the opportunity to participate in the earnings and
growth of CNA Surety after the Merger and will not have any
right to vote on corporate matters, but such former stockholders
will not face the risk of losses generated by CNA Surety’s
operations or a decline in the value of CNA Surety after the
Merger.
The Shares are currently registered under the Exchange Act and
listed on the New York Stock Exchange under the symbol
“SUR.” If the Offer is completed, as a result of the
consummation of the Merger following the Offer, there will be no
public market for the Shares. After the Merger, the Shares will
cease to be listed on the New York Stock Exchange, and prices
with respect to sales of Shares in the public market will no
longer be available. In addition, after the Merger, registration
of the Shares under the Exchange Act will be terminated and CNA
Surety will no longer be required to file periodic reports with
the SEC. See “The Offer — Section 12. Effect
of the Offer on the Market for the Shares; NYSE Listing;
Exchange Act Registration; Margin Regulations.”
| 8. | Conduct of CNA Surety’s Business if the Offer Is Not Completed |
If the Offer is not completed because the
“majority-of-the-minority”
condition is not satisfied or because another condition is not
satisfied or waived, CNA Financial and Purchaser will reevaluate
the role of CNA Surety within CNA Financial’s overall
corporate group. In particular, CNA Financial and Purchaser may
consider, among other things:
| • | not taking any action at that time, including not purchasing any additional Shares; | |
| • | purchasing Shares in the open market or in privately negotiated transactions; | |
| • | making a new tender offer; and | |
| • | consummating a merger or other business combination with CNA Surety, subject to compliance with applicable law. |
If CNA Financial and Purchaser were to pursue any of these
alternatives, it might take considerably longer for the
unaffiliated stockholders of CNA Surety to receive any
consideration for their Shares (other than
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through sales in the open market or otherwise) than if they had
tendered their Shares in the Offer. Any such transaction could
result in proceeds per Share to the public stockholders of CNA
Surety that are more or less than, or the same as, the Offer
Price or could result in the trading price of the Shares to
increase, decrease or be unchanged. CNA Financial may also
choose to keep outstanding the public minority interest in CNA
Surety, in which case the public stockholders of CNA Surety
would, absent a sale by them, retain their Shares and would have
the opportunity to participate in the earnings and growth of CNA
Surety but would also bear the risk of losses generated by CNA
Surety’s operations or a decline in the value of CNA Surety.
| 9. | Summary of the Merger Agreement |
The following is a summary of the material provisions of the
Merger Agreement and is qualified in its entirety by reference
to the full text of the Merger Agreement, a copy of which is
filed as an exhibit to the Tender Offer Statement on
Schedule TO filed with the SEC in connection with the
Offer, and is incorporated herein by reference. This summary of
terms has been included in this Offer to Purchase to provide you
with information regarding the terms of the Merger Agreement and
is not intended to modify or supplement any factual disclosures
about CNA Surety or CNA Financial (or their affiliates) in
public reports filed with the SEC. In particular, the Merger
Agreement and this summary of terms are not intended to be, and
should not be relied upon as, disclosures regarding any facts
and circumstances relating to CNA Surety, CNA Financial or
Purchaser (or their affiliates).
The
Offer
Under the terms of the Merger Agreement, the obligation of
Purchaser to accept for payment and pay for Shares tendered
pursuant to the Offer is subject only to (i) the
“majority-of-the-minority”
condition and (ii) the other conditions described in
“The Offer — Section 11. Conditions to the
Offer” in this Offer to Purchase (together with the
“majority-of-the-minority”
condition, the “Offer Conditions”). For
purposes of determining whether the
“majority-of-the-minority”
condition has been satisfied, CNA Financial and Purchaser have
the right to include or exclude for purposes of its
determination thereof Shares tendered in the Offer pursuant to
guaranteed delivery procedures (provided that if CNA Surety
notifies CNA Financial that it reasonably believes Shares that
are subject to guaranteed delivery procedures may not be
delivered to Merger Sub in accordance with such guaranteed
delivery procedures, then CNA Financial and Purchaser will not
include any such Shares in its determination of whether the
“majority-of-the-minority”
condition has been satisfied without the prior consent of CNA
Surety (acting pursuant to the direction of the Special
Committee)).
Under the terms of the Merger Agreement, Purchaser expressly
reserves the right to waive any of the Offer Conditions or
modify the terms of the Offer (other than the
“majority-of-the-minority”
condition which is non-waivable), except that, without the prior
written consent of CNA Surety (which consent must have been
approved by the Special Committee), Purchaser cannot do any of
the following: (A) decrease the Offer Price, change the
form of consideration to be paid in the Offer or decrease the
number of Shares subject to the Offer, (B) impose any
conditions to the Offer other than the Offer Conditions or
modify any of the Offer Conditions in any manner adverse to the
holders of Shares, (C) otherwise amend or modify the Offer
in a manner that would materially and adversely affect the
holders of Shares or (D) extend the Offer, except Purchaser
may, and upon request of CNA Surety, Purchaser is obligated to
(I) extend the Offer for one or more consecutive increments
of not more than ten business days each (or such longer period
as the parties to the Merger Agreement agree in writing), if any
of the Offer Conditions have not been satisfied or waived at the
scheduled Expiration Date (as defined below in “The
Offer — Section 1. Terms of the Offer”), and
(II) extend the Offer for any minimum period required by
any rule, regulation, interpretation or position of the SEC or
the staff thereof applicable to the Offer, except that Purchaser
is not obligated to extend the Offer beyond the Outside Date (as
defined under “— Termination” below). In
addition, if Shares have been accepted for payment but CNA
Financial and its subsidiaries own less than 90% of the Shares
on a fully diluted basis (without regard to Shares tendered
pursuant to guaranteed delivery procedures that have not yet
been delivered in settlement or satisfaction of such guarantee),
Purchaser may, and upon the request of CNA Surety at a time when
Purchaser has not exercised the
top-up
option described under
“— Top-up
Option” below, Purchaser is obligated to, provide a
“subsequent offering period” in accordance with
Rule 14d-11
of the Exchange Act. In the event that
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Table of Contents
all of the Offer Conditions (other than the condition concerning
the absence of a Change in Recommendation) are satisfied or
waived as of any otherwise scheduled Expiration Date, Purchaser
may not extend the Offer for more than ten business days without
the prior written consent of CNA Surety (which consent must be
approved by the Special Committee).
Tender
Offer Solicitation/Recommendation
Concurrently with the filing of the Schedule TO, CNA Surety
has agreed to file with the SEC a Tender Offer
Solicitation/Recommendation Statement on
Schedule 14D-9
and a
Schedule 13E-3
in each case with respect to the Offer containing the Special
Committee Recommendation and the CNA Surety Board
Recommendation. The
Schedule 14D-9
is being mailed to holders of Shares concurrently with the
mailing of this Offer to Purchase.
Directors
Following the time that Purchaser accepts for payment the Shares
tendered pursuant to the Offer (the “Acceptance
Time”) and until the effective time of the Merger (the
“Effective Time”), pursuant to the Merger
Agreement, the board of directors of CNA Surety will at all
times include the directors that currently comprise the Special
Committee, and none of CNA Financial, Purchaser and CNA Surety
will take any action to cause any change in the composition of
the Special Committee. As required under the Merger Agreement,
CNA Financial caused to be voted all Shares owned by
subsidiaries of CNA Financial in favor of the election of the
directors that currently comprise the Special Committee at CNA
Surety’s 2011 annual meeting of stockholders held on
April 28, 2011. CNA Financial and Purchaser have also
agreed in the Merger Agreement to vote or cause to be voted all
Shares owned by CNA Financial and its subsidiaries in favor of
the election of directors that currently comprise the Special
Committee at any other meeting (including any written consent in
lieu of a meeting) at which CNA Surety stockholders are
permitted to vote for the election or removal of the board of
directors of CNA Surety until the Effective Time. After the
Acceptance Time and prior to the Effective Time, in addition to
any approvals of the board of directors of CNA Surety or the
stockholders of CNA Surety as may be required by CNA
Surety’s certificate of incorporation, CNA Surety’s
bylaws or applicable law, and without limiting the other
requirements set forth in the Merger Agreement, the affirmative
vote of a majority of the members of the Special Committee will
be required:
| • | for CNA Surety to terminate the Merger Agreement or amend the Merger Agreement; |
| • | for CNA Surety to exercise or waive any of CNA Surety’s benefits, rights or remedies under the Merger Agreement; | |
| • | for CNA Surety to take any action that would prevent or materially delay the consummation of the Merger; |
| • | to amend the CNA Surety charter or the CNA Surety bylaws, except as expressly contemplated under the Merger Agreement; or | |
| • | for CNA Surety to take any action under the Merger Agreement, |
in each case, if such termination, amendment, exercise, waiver
or other action would reasonably be expected to adversely affect
the holders of Shares.
From and after the Acceptance Time, subject to the requirement
described above relating to maintenance of the Special committee
in office, CNA Financial shall be entitled to designate the
number of directors of CNA Surety that equals the product of
(i) the total number of directors on the CNA Surety board
(giving effect to the directors elected or designated by CNA
Financial under the Merger Agreement) and (ii) the
percentage that the number of shares of common stock of CNA
Surety beneficially owned by CNA Financial and its subsidiaries
(including Shares accepted for payment in the Offer) bears to
the total number of Shares outstanding and CNA Surety is
obligated to take all actions reasonably necessary to cause CNA
Financial’s designees to be elected or appointed to the
board of CNA Surety.
27
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Top-up
Option
Pursuant to the Merger Agreement, CNA Surety has irrevocably
granted to Purchaser an option to purchase a number of
newly-issued fully paid and nonassessable Shares equal to a
number of Shares that, when added to the number of Shares owned
by Purchaser and CNA Financial and its other subsidiaries (but,
in the case of other subsidiaries, only to the extent such
Shares may be lawfully transferred to Purchaser) at the time of
such exercise, will constitute no less than one Share more than
90% of the Shares on a fully-diluted basis, or, at the option of
Purchaser, such lesser number of shares as Purchaser may
request, at a price per share equal to the Offer Price. However,
in no event will the
top-up
option be exercisable for a number of Shares (A) that would
result in Purchaser owning less than ninety percent (90%) of the
Shares outstanding following the exercise of the
top-up
option or (B) in excess of CNA Surety’s then
authorized and unissued Shares (treating shares owned by CNA
Surety as treasury stock as unissued) and not reserved or
otherwise committed for issuance at the time of exercise of the
top-up
option.
The top-up
option may be exercised by Purchaser, in whole but not in part,
only once at any time after the Acceptance Time and prior to the
earlier to occur of (i) the Effective Time and
(ii) the termination of the Merger Agreement in accordance
with its terms. The aggregate purchase price payable for the
top-up
option Shares may be paid by Purchaser at Purchaser’s
option (i) in cash, by wire transfer of
same-day
funds or (ii) by (x) paying in cash, by wire transfer
of same-day
funds, an amount equal to not less than the aggregate par value
of the
top-up
option Shares and (y) executing and delivering to CNA
Surety a promissory note having a principal amount equal to the
aggregate purchase price for the
top-up
option Shares less the amount paid in cash pursuant to the
preceding clause (x) (the “Promissory Note”).
The Promissory Note (i) shall be due and payable on the
first anniversary of the
top-up
closing, (ii) shall bear simple interest of 5% per annum,
(iii) may be prepaid, in whole or in part, at any time
without premium or penalty, (iv) shall be secured by the
top-up
option Shares, (v) shall be full recourse against CNA
Financial and Purchaser, (vi) shall provide that in the
event that the Merger Agreement is terminated after the
top-up
option is exercised and prior to the Effective Time, all amounts
then owing pursuant to the Promissory Note (including all
interest) shall thereupon become immediately due and payable and
(vi) shall have only such other material terms as would be
customary in an arm’s-length transaction. At the
top-up
closing, CNA Surety is required to cause to be issued to
Purchaser a certificate (or other appropriate form of ownership,
including book entry) representing the
top-up
option Shares. Notwithstanding anything to the contrary
contained in the Merger Agreement, each of CNA Financial,
Purchaser and CNA Surety agree that in any appraisal proceeding
under Section 262 of the DGCL with respect to appraisal
shares and to the fullest extent permitted by applicable law,
the surviving corporation will not assert that the
top-up
option, the
top-up
option Shares or any cash or Promissory Note delivered by
Purchaser to CNA Surety as payment for any
top-up
option Shares should be considered in connection with the
determination of the fair value of the appraisal shares in
accordance with Section 262(h) of the DGCL.
The
Merger
The Merger will only occur if the Offer (which is the first step
of the two step acquisition) is completed. The Merger Agreement
provides that, at the Effective Time, Purchaser will be merged
with and into CNA Surety in accordance with the DGCL. At that
time, the separate existence of Purchaser will cease, and CNA
Surety will be the surviving corporation.
Under the terms of the Merger Agreement, at the Effective Time:
| • | each share of common stock of Purchaser issued and outstanding immediately prior to the Effective Time shall be converted into and become one validly issued, fully paid and nonassessable share of common stock of the surviving corporation; | |
| • | each Share owned by CNA Surety or Purchaser shall automatically be canceled and shall cease to exist, and no consideration shall be delivered in exchange therefor; | |
| • | each Share owned by CNA Financial or any of its subsidiaries (other than Purchaser) immediately prior to the Effective Time will remain outstanding after the Effective Time as shares of the surviving corporation; and |
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| • | each Share issued and outstanding immediately prior to the Effective Time (other than as described above and other than Shares for which appraisal demands are properly made in accordance with the DGCL) will be converted into the right to receive the Offer Price in cash, without interest and less any applicable withholding of taxes (the “Merger Consideration”) and cancelled. |
Short-Form Merger
The Merger Agreement provides that, if following the Offer and
the subsequent offering period (if any), the requirements for a
short form merger pursuant to Section 253 of the DGCL are
satisfied (or may be satisfied solely through lawful actions of
CNA Financial and its subsidiaries) such that the Merger may be
effected without a meeting, vote or written consent of the
stockholders of CNA Surety, each of the parties to the Merger
Agreement will use its reasonable best efforts, including the
exercise of the
top-up
option and, subject to applicable law, with respect to the
transfer to Purchaser of any Shares held by CNA Financial or its
subsidiaries (with any such transfer taking place on the same
day as, and as close as practicable to, the Effective Time), to
consummate the Merger pursuant to Section 253 of the DGCL
as soon as practicable after the satisfaction or waiver of the
conditions set forth in “— Conditions to the
Merger” below.
Employee-Based
Awards
The parties to the Merger Agreement have agreed that as of the
Effective Time:
| • | each option to purchase Shares (a “Stock Option”) granted under CNA Surety’s 2006 Long-Term Equity Compensation Plan, CNA Surety’s 1997 Long-Term Equity Compensation Plan and CNA Surety’s Replacement Stock Option Plan (the “Equity Plans”) outstanding immediately prior to the Effective Time, whether or not then vested and exercisable, will be cancelled and extinguished and the holder thereof will be entitled to receive from the surviving corporation as soon as practicable after the Effective Time an amount in cash (subject to any applicable withholding of taxes) equal to the product of (A) the number of Shares subject to such Stock Option and (B) the excess, if any, of the Merger Consideration over the exercise price per share of such Stock Option. For the avoidance of doubt, no consideration shall be paid in respect of the cancellation of any Stock Option with an exercise price per share equal to or greater than the Merger Consideration. CNA Surety is required to use its reasonable best efforts to cause each holder of a Stock Option to execute a payment acknowledgement in the form provided in the Merger Agreement. | |
| • | each common stock unit granted under CNA Surety’s Non-Employee Directors Deferred Compensation Plan outstanding immediately prior to the Effective Time, whether or not then vested, will be cancelled and extinguished and the holder thereof will be entitled to receive from the surviving corporation an amount in cash (subject to any applicable withholding of taxes) equal to the Merger Consideration, payable in accordance with CNA Surety’s Non-Employee Directors Deferred Compensation Plan. | |
| • | each restricted Share granted by CNA Surety under CNA Surety’s 2006 Long-Term Equity Compensation Plan that is unvested (the “Restricted Stock”) that is outstanding immediately prior to the Effective Time shall vest and shall be converted into the right to receive from the surviving corporation the Merger Consideration, subject to any applicable withholding of taxes. |
Representations
and Warranties
In the Merger Agreement, CNA Surety has made customary
representations and warranties to CNA Financial and Purchaser,
including representations relating to its corporate existence
and power, capitalization, corporate authorization, no
conflicts, governmental approvals, SEC filings, financial
statements, absence of undisclosed liabilities, information
supplied, litigation, compliance with laws, material contracts,
employee matters, insurance matters, environmental matters, the
opinion of the Special Committee’s financial advisor,
finders’ fees and anti-takeover statutes. Each of CNA
Financial and Purchaser has also made customary representations
and warranties to CNA Surety, including representations relating
to its corporate existence and power, corporate authorization,
no conflicts, governmental approvals, information supplied,
finders’ fees, available funds, litigation and the
operations of Purchaser.
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Certain of CNA Surety’s representations and warranties are
qualified as to materiality or “Material Adverse
Effect.” “Material Adverse Effect” means a
material adverse effect on the financial condition, business or
results of operations of CNA Surety and CNA Surety’s
subsidiaries, taken as a whole, except, that none of the
following, alone or in combination, shall be taken into account
in determining whether a Material Adverse Effect has occurred:
| • | changes in the economy or financial markets (including credit markets) in general; | |
| • | changes in the economic, business, financial or regulatory environment generally affecting any of the industries in which CNA Surety and its subsidiaries operate including those industries that CNA Surety or CNA Surety subsidiaries insure (including the construction industry); | |
| • | changes in law or applicable accounting regulations (including GAAP) or principles or interpretations thereof; | |
| • | acts of war (whether or not declared), the commencement, continuation or escalation of a war, acts of armed hostility, sabotage or terrorism or other international or national calamity or any material worsening of such conditions threatened or existing as of the date of the Merger Agreement; | |
| • | any change in CNA Surety’s stock price or trading volume or any failure, in and of itself, by CNA Surety to meet published revenue, earnings or loss ratio projections (it being understood that any change, effect, event, occurrence, condition or state of facts underlying such change or failure shall be taken into account in determining whether a Material Adverse Effect has occurred); | |
| • | changes that arise out of the announcement of the Merger Agreement, out of actions expressly required to be taken by CNA Surety under the Merger Agreement or out of actions taken by CNA Surety or CNA Surety’s subsidiaries at the written request of CNA Financial or Purchaser in connection with the Merger Agreement, including any loss or adverse change in the relationship of CNA Surety with its customers or agents caused by the pendency or announcement of the Merger Agreement; | |
| • | any actions, suits, claims, hearings, arbitrations or investigations or other proceedings relating to the Merger Agreement, the Offer, the Merger or the other transactions contemplated by the Merger Agreement by or before any governmental entity; or | |
| • | any downgrade in the rating accorded to CNA Surety or any of CNA Surety’s subsidiaries by any ratings agency, or any change in outlook with respect to, suspension or withdrawal of or other adverse action with respect to, the rating accorded to CNA Surety or any of its subsidiaries by any ratings agency (it being understood that any change, effect, event, occurrence, condition or state of facts underlying such change or failure shall be taken into account in determining whether a Material Adverse Effect has occurred). |
However, with respect to the first four bullets above only, to
the extent that the impact of such change or effect is
disproportionately adverse in any material respect to CNA Surety
and its subsidiaries taken as a whole compared to other
companies in the same industry, such change or effect shall be
taken into account in determining whether a Material Adverse
Effect has occurred.
The representations and warranties in the Merger Agreement will
not survive the Acceptance Time.
The representations and warranties have been negotiated with the
principal purpose of establishing the circumstances in which
Purchaser may have the right not to consummate the Offer or a
party may have the right to terminate the Merger Agreement, if
the representations and warranties of the other party prove to
be untrue, and to allocate risk between the parties, rather than
establish matters as facts. The representations and warranties
may also be subject to a contractual standard of materiality
different from those generally applicable under the securities
laws. Investors should not rely on the representations,
warranties and covenants or any description thereof as
characterizations of the actual state of facts of Purchaser, CNA
Financial, CNA Surety or any of their respective subsidiaries or
affiliates.
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Operating
Covenants
Under the terms of the Merger Agreement, CNA Surety agreed that,
from the date of the Merger Agreement until the Acceptance Time,
unless CNA Financial has provided its prior written consent
(such consent not to be unreasonably withheld, conditioned or
delayed) or as otherwise expressly contemplated by the Merger
Agreement:
| • | CNA Surety and its subsidiaries will conduct their business in the ordinary course of business consistent with past practice; | |
| • | CNA Surety and its subsidiaries will use their respective commercially reasonable efforts to preserve intact and maintain its business organization and goodwill of those having business relationships with any of them and to keep available the services of their present officers and employees on terms and conditions substantially comparable to those currently in effect; and | |
| • | CNA Surety will not, subject to limited exceptions set forth in the Merger Agreement, take other extraordinary actions, including the declaration or payment of any dividend or distribution, the issuance of any shares of capital stock or other securities, the acquisition or disposition of assets, or materially change any underwriting, claim handling, loss control, investment, actuarial, financial reporting or accounting methods, principles, policies or practices. |
Change
in Recommendation
The Special Committee and the board of directors of CNA Surety
are not permitted to withhold, withdraw, qualify or modify (or
publicly propose or resolve to withhold, withdraw, qualify or
modify), in a manner adverse to CNA Financial or Purchaser,
either the Special Committee Recommendation or the CNA Surety
Board Recommendation (a “Change in
Recommendation”) except that the Special Committee or
the board of directors of CNA Surety (upon the approval of the
Special Committee) may effect a Change in Recommendation at any
time prior to the Acceptance Time in response to a material
event or circumstance that was not known (or the consequences
thereof were not known) to the Special Committee or the board of
directors of CNA Surety, as applicable, on the date of the
Merger Agreement, which event or circumstance (or the
consequences thereof) becomes known to the Special Committee or
the board of directors of CNA Surety, as applicable, prior to
the Acceptance Time, if the Special Committee or the board of
directors of CNA Surety, as the case may be, determines in good
faith, after consultation with outside counsel, that failure to
take such action would be inconsistent with the directors’
fiduciary duties under applicable law; provided, however, that,
unless made within 48 hours of the Expiration Date, no
Change in Recommendation may be made until after at least
48 hours following CNA Financial’s receipt of notice
from CNA Surety advising that the Special Committee
and/or the
board of directors of CNA Surety intends to take such action and
the basis therefor and the Special Committee
and/or the
board of directors of CNA Surety considers any modifications
proposed by CNA Financial or Purchaser during such 48 hour
period in order to eliminate the need for such Change in
Recommendation.
Stockholder
Approval; Information Statement
If the affirmative vote of holders of a majority of the
outstanding Shares to adopt the Merger Agreement (the
“Stockholder Approval”) is required under the
DGCL in order to consummate the Merger, then the Merger
Agreement obligates CNA Surety to as promptly as practicable
after the consummation of the Offer seek the Stockholder
Approval with respect to such matters requiring the Stockholder
Approval by written consent of the subsidiaries of CNA Financial
holding Shares, including Purchaser (the “Written
Consent”). CNA Surety will prepare, date and deliver an
information statement pursuant to Section 14(c) of the
Exchange Act regarding the Merger and the other transactions
contemplated in the Merger Agreement, give prompt notice of the
taking of the actions described in the Written Consent in
accordance with the DGCL to all holders of Shares not executing
the Written Consent, together with any additional information
required by the DGCL, including a description of the appraisal
rights of holders of Shares available under Section 262 of
the DGCL, and comply with any other requirements of the DGCL,
the certificate of incorporation and bylaws of CNA Surety and
the NYSE.
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Director
and Officer Liability
The Merger Agreement provides that, from and after the
Acceptance Time, and for a period of six years after the
Effective Time, each of CNA Financial, CNA Surety and the
surviving corporation will, to the fullest extent permitted by
law, indemnify, defend and hold harmless each present and former
director and officer of CNA Surety or any of CNA Surety’s
subsidiaries (acting in their capacity as such) against any
costs or expenses (including reasonable attorneys’ fees),
judgments, settlements, fines, losses, claims, damages,
liabilities or amounts paid in settlement incurred in connection
with any actual or threatened claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or
investigative, arising out of, relating to or in connection with
any matters existing or occurring at or prior to the Effective
Time, whether asserted or claimed prior to, at or after the
Effective Time, and CNA Financial, CNA Surety and the surviving
corporation will also be required to advance expenses as
incurred to the fullest extent permitted under applicable law,
in each case to the same extent that the indemnified persons are
indemnified or have the right to advancement of expenses
pursuant to the certificate of incorporation and bylaws of CNA
Surety and similar documents of any subsidiary of CNA Surety, in
each case, in effect on the date of the Merger Agreement.
CNA Financial and CNA Surety agree that, during the period
commencing at the Acceptance Time and ending on the sixth
anniversary of the Effective Time, all rights to
indemnification, advancement of expenses and exculpation now
existing in favor of each indemnified person as provided in the
CNA Surety charter and the CNA Surety bylaws, or in the
certificate or articles of incorporation, bylaws, or similar
documents of any CNA Surety subsidiary, in effect as of the date
of the Merger Agreement, shall, with respect to matters
occurring prior to the Effective Time, survive the Merger and
continue after the Effective Time. During the period commencing
at the Acceptance Time and ending on the sixth anniversary of
the Effective Time, the certificate of incorporation and bylaws
of the surviving corporation and the certificate or articles of
incorporation, bylaws or similar documents of CNA Surety
subsidiaries shall, with respect to matters occurring at or
prior to the Effective Time, contain provisions no less
favorable with respect to indemnification, advancement of
expenses and exculpation of the indemnified persons than are set
forth in the CNA Surety charter and the CNA Surety bylaws or in
the certificate or articles of incorporation, bylaws or similar
documents of CNA Surety subsidiaries in effect as of the date of
this Agreement, and such provisions shall not be amended,
repealed or otherwise modified after the Acceptance Time and
prior to the sixth anniversary of the Effective Time in any
manner that would materially adversely affect the rights
thereunder, as of the Effective Time, of any indemnified person,
with respect to matters occurring at or prior to the Effective
Time, subject to certain exceptions. To the maximum extent
permitted by applicable law, all such indemnification of
indemnified persons with respect to matters occurring before the
Effective Time shall be mandatory rather than permissive, and
CNA Surety or the surviving corporation and their subsidiaries,
as the case may be, shall also advance expenses as provided
hereinabove.
CNA Financial and CNA Surety further agree that all rights to
indemnification or advancement of expenses now existing in favor
of indemnified persons in any indemnification agreement between
such indemnified person and CNA Surety or any CNA Surety
subsidiary, as the case may be, shall survive the Merger and
continue in full force and effect in accordance with the terms
of such agreement.
The Merger Agreement provides that CNA Financial or the
surviving corporation will obtain and maintain directors’
and officers’ liability insurance policies for the
indemnified persons with respect to matters occurring prior to
the Effective Time for a period of six years from the Effective
Time on terms with respect to coverage and amount no less
favorable than those of the directors’ and officers’
liability insurance policy obtained by CNA Surety in effect on
the date of the Merger Agreement, subject to the limitation that
in no event will CNA Financial or the surviving corporation be
obligated to expend in order to obtain or maintain insurance
coverage any amount per annum in excess of 300% of the aggregate
premiums currently paid or payable by CNA Surety in 2011 (on an
annualized basis) for such purpose and, that if equivalent
coverage cannot be obtained, or can be obtained only by paying
an annual premium in excess of this cap, CNA Financial or the
surviving corporation will only be required to obtain as much
coverage as can be obtained by paying an annual premium equal to
this cap. Prior to the Effective Time, CNA Financial may, and if
requested by CNA Financial, CNA Surety will, purchase a six-year
“tail” prepaid policy on CNA Surety’s current
directors’ and officers’ liability insurance.
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Certain
Efforts
The Merger Agreement provides that, subject to the terms and
conditions of the Merger Agreement and applicable law, CNA
Surety, CNA Financial and Purchaser will cooperate and use their
reasonable best efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary,
proper or advisable to consummate and make effective as promptly
as practicable the transactions contemplated by the Offer, the
Merger and the Merger Agreement.
Conditions
to the Merger
Pursuant to the Merger Agreement, the obligations of CNA
Financial, Purchaser and CNA Surety to consummate the Merger are
subject to the satisfaction or waiver (by mutual written consent
of CNA Surety (acting pursuant to a resolution of the Special
Committee) and CNA Financial at or prior to the Effective Time)
of each of the following conditions:
| • | Purchaser will have accepted for payment all of the Shares validly tendered pursuant to the Offer and not properly withdrawn in accordance with the terms of the Merger Agreement and this Offer to Purchase; | |
| • | the Stockholder Approval will have been obtained or all conditions of applicable law required to be satisfied to effect the Merger as a short form merger will have been satisfied; and | |
| • | no order or law issued, enacted or promulgated by any court of competent jurisdiction or other governmental entity is in effect that restrains, enjoins or otherwise prohibits the consummation of the Merger or the other transactions contemplated in the Merger Agreement. |
Termination
The Merger Agreement may be terminated and the Offer and the
Merger may be abandoned at any time, whether before or after
receipt of the Stockholder Approval, if applicable:
| • | prior to the Acceptance Time, by mutual written consent of CNA Financial, Purchaser and CNA Surety (with respect to CNA Surety, pursuant to a resolution adopted by the Special Committee); | |
| • | by either CNA Financial or CNA Surety (with respect to CNA Surety, pursuant to a resolution adopted by the Special Committee) by action of its board of directors: |
| • | if Purchaser has not accepted Shares for payment pursuant to the Offer on or before 5 p.m. New York City Time on October 31, 2011 (the “Outside Date”), except that the right to terminate the Merger Agreement under this provision will not be available to either party if the failure of such party to perform any of its obligations under the Merger Agreement has been the cause of, or resulted in, the failure of the Offer to be consummated on or before the Outside Date; provided further that in the event that a party does not have the right to terminate the Merger Agreement as a result of the foregoing, then the other party (assuming such party does have the right to terminate the Merger Agreement) may, at its option by delivery of a written notice to the breaching party, extend the Outside Date to January 31, 2012 (or any earlier date); | |
| • | if any court of competent jurisdiction or other governmental entity has issued an order restraining, enjoining or otherwise prohibiting the Offer and/or the Merger and such order has become final and non-appealable, except that the right to terminate the Merger Agreement under this provision will not be available to any party if the failure of such party to perform any of its obligations under the Merger Agreement has been the cause of, or resulted in, the issuance, promulgation, enforcement or entry of any such order; or | |
| • | if the Offer has expired or will have been terminated in accordance with the terms set forth in the Merger Agreement without Purchaser being required to purchase any Shares pursuant to the Offer, except that the right to terminate the Merger Agreement under this provision will not be available to a party if the failure of such party to perform any of its obligations under the Merger Agreement has |
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| been the cause of, or resulted in, the failure of the Offer to be consummated or the expiration or termination of the Offer; |
| • | by CNA Financial, if, prior to Acceptance Time, CNA Surety has breached any of its representations or warranties or failed to perform any of its covenants or agreements set forth in the Merger Agreement, which breach or failure to perform (i) would give rise to the failure of any of the Offer Conditions set forth in the Merger Agreement specifically relating to CNA Surety’s representations and warranties and CNA Surety’s failure to perform or comply, in all material respects, with any of its covenants or agreements contained in the Merger Agreement and (ii) is incapable of being cured or, if capable of being cured, is not cured prior to the earlier of (A) one business day prior to the Outside Date or (B) the date that is 30 days from the date that CNA Surety is notified by CNA Financial of such breach, except that CNA Financial will not have the right to terminate the Merger Agreement pursuant to this provision if CNA Financial or Purchaser is then in material breach of any of its representations, warranties, covenants or agreements under the Merger Agreement; | |
| • | by CNA Surety (pursuant to a resolution adopted by the Special Committee), if, prior to the Acceptance Time, CNA Financial or Purchaser has breached any of its representations or warranties or failed to perform any of its covenants or agreements set forth in the Merger Agreement, which breach or failure to perform (i) would reasonably be expected to prevent the Acceptance Time from occurring prior to the Outside Date and (ii) is incapable of being cured or, if capable of being cured, is not cured prior to the earlier of (A) one business day prior to the Outside Date or (B) the date that is 30 days from the date that CNA Financial is notified by CNA Surety of such breach, except that CNA Surety will not have the right to terminate the Merger Agreement pursuant to this provision if CNA Surety is then in material breach of any of its representations, warranties, covenants or agreements under the Merger Agreement; or | |
| • | by CNA Financial, if the Special Committee or the board of directors of CNA Surety (acting based on the recommendation of the Special Committee) has made a Change in Recommendation prior to the Acceptance Time. |
Effect
of Termination
If the Merger Agreement is terminated in accordance with its
terms, the Merger Agreement will become void and have no effect
with no liability on the part of CNA Financial, Purchaser or CNA
Surety, except for certain provisions which will survive such
termination. However, this will not relieve any party from
liability for any willful or intentional breach of any of its
representations, warranties, covenants or agreements set forth
in the Merger Agreement.
Extension
and Waivers
At any time prior to the Effective Time, whether before or after
receipt of the Stockholder Approval, if applicable, the Special
Committee on behalf of CNA Surety may:
| • | extend the time for the performance of any of the obligations or other acts of CNA Financial and/or Purchaser; | |
| • | waive any inaccuracies in the representations and warranties contained in the Merger Agreement or in any document, certificate or writing delivered by CNA Financial and/or Purchaser pursuant to the Merger Agreement; or | |
| • | waive compliance by CNA Financial and/or Purchaser with any of the agreements or with any conditions to CNA Surety’s obligations. |
At any time prior to the Effective Time, whether before or after
receipt of the Stockholder Approval, if applicable, CNA
Financial may:
| • | extend the time for the performance of any of the obligations or other acts of CNA Surety; |
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| • | waive any inaccuracies in the representations and warranties contained in the Merger Agreement or in any document, certificate or writing delivered by CNA Surety pursuant to the Merger Agreement; or | |
| • | waive compliance by CNA Surety with any of the agreements or with any conditions to CNA Financial’s or Purchaser’s obligations (other than the “majority-of-the-minority” condition which shall be non-waivable). |
| 10. | Appraisal Rights; Rule 13e-3 |
Appraisal
Rights
Stockholders do not have appraisal rights as a result of the
Offer. However, if Purchaser purchases Shares in the Offer, and,
subject to the terms and conditions of the Merger Agreement, the
Merger is consummated, each stockholder who has neither voted in
favor of adoption of the Merger Agreement nor consented thereto
in writing will be entitled to demand and, upon satisfaction of
the specified statutory requirements, obtain an appraisal by the
Court of Chancery of the State of Delaware (the
“Delaware Chancery Court”) of the fair value of
the stockholder’s Shares, exclusive of any element of value
arising from the accomplishment or expectation of the Merger,
together with a fair rate of interest, if any, to be paid. In
determining such fair value, the court may consider all relevant
factors. The value so determined could be more or less than the
consideration to be paid in the Offer and the Merger. Any
judicial determination of the fair value could be based upon
considerations other than or in addition to the market value of
the Shares, including, among other things, asset values, earning
capacity and such other factors as the Delaware Chancery Court
may deem appropriate. Unless the Delaware Chancery Court
determines otherwise in its discretion for good cause shown,
interest from the effective date of the Merger through the date
of payment of the judgment shall be compounded quarterly and
shall accrue at 5% over the Federal Reserve discount rate
(including any surcharge) as established from time to time
during such period.
If any stockholder who demands appraisal under Section 262
of the DGCL fails to perfect, or effectively withdraws or loses,
his or her right to appraisal as provided in the DGCL, the
Shares of such stockholder will be converted into the right to
receive the consideration paid in the Merger. A stockholder may
withdraw his or her demand for appraisal by delivery of a
written withdrawal of his or her demand for appraisal and
acceptance of the Merger within 60 days after the effective
date of the Merger.
Failure to follow the steps required by Section 262 of the
DGCL for perfecting appraisal rights may result in the loss of
such rights.
The foregoing discussion is not a complete statement of law
pertaining to appraisal rights under the DGCL and is qualified
in its entirety by the full text of Section 262 of the
DGCL, which is set forth in Schedule C attached to this
Offer to Purchase.
Appraisal rights cannot be exercised at this
time. The information set forth above is for
informational purposes only with respect to alternatives
available to stockholders if the Merger is consummated.
Stockholders who will be entitled to appraisal rights in
connection with the Merger will receive additional information
concerning appraisal rights and the procedures to be followed in
connection therewith before such stockholders have to take any
action relating thereto.
Stockholders who tender shares in the Offer will not be
entitled to exercise appraisal rights with respect thereto but,
rather, will receive the price paid in the Offer therefor if the
Offer is completed.
Rule 13e-3
Because CNA Financial is an affiliate of CNA Surety, the
transactions contemplated herein constitute a “going
private” transaction under
Rule 13e-3
under the Exchange Act.
Rule 13e-3
requires, among other things, that certain financial information
concerning CNA Surety and certain information relating to the
fairness of the Offer and the Merger and the consideration
offered to unaffiliated stockholders be filed with the SEC and
disclosed to unaffiliated stockholders. CNA Financial has
provided such information in this Offer to Purchase and a Tender
Offer Statement on Schedule TO and a Transaction Statement
on
Schedule 13E-3
and the exhibits thereto filed
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with the SEC pursuant to
Rules 14d-3
and 13e-3
under the Exchange Act. CNA Financial does not presently intend
to file a Form 15 to evidence the termination of CNA
Surety’s duty to file reports pursuant to
Sections 13(a) or 15(d) of the Exchange Act in respect of
the Shares until after the Merger is completed.
| 11. | Transactions and Arrangements Concerning the Shares |
Except by reason of the Merger Agreement, no member of the CNA
Financial Group or, to the best of their knowledge, any person
listed in Schedule A hereto or any associate or
majority-owned subsidiary of any of the foregoing, beneficially
owns or has a right to acquire any Shares, has engaged in any
transactions in Shares during the past 60 days or is a
party to any agreement, arrangement or understanding with
respect to the Shares or any other securities of CNA Surety
(including, without limitation, any contract, arrangement,
understanding or relationship concerning the transfer or the
voting of such securities, joint ventures, loan or option
arrangements, puts or calls, guarantees of loans, guarantees
against loss or the giving or withholding of proxies, consents
or authorizations). In addition, no member of the CNA Financial
Group has purchased any Shares within the past two years.
As of the date of this Offer to Purchase, David B. Edelson, a
director of CNA Surety and a senior vice president of Loews, and
Ken Miller, a director of Loews, beneficially own
3,200 Shares and 1,850 Shares respectively.
Mr. Miller has indicated to CNA Financial that he intends,
subject to compliance with applicable law, to tender all Shares
beneficially owned pursuant to the Offer. Mr. Edelson has
indicated to CNA Financial that he intends to make a charitable
donation of his Shares prior to the consummation of the Offer
and he therefore does not intend to tender his Shares in the
Offer. CNA Surety has also informed CNA Financial that as of the
date of this Offer to Purchase, each of CNA Surety’s
directors and executive officers that beneficially own Shares
intends, subject to compliance with applicable law, including
Section 16(b) of the Exchange Act, to tender all Shares
beneficially owned pursuant to the Offer, except that Shares
that were issued to executive officers pursuant to compensation
plans of CNA Surety and are subject to restrictions on the
holder’s ability to sell or otherwise transfer those Shares
may not be tendered in the Offer. The Special Committee of CNA
Surety unanimously determined that the Merger Agreement and the
transactions contemplated by the Merger Agreement, including the
Offer and the Merger, are fair to and in the best interests of
CNA Surety and the holders of Shares (other than CNA Financial
and its affiliates), recommended that the CNA Surety board of
directors adopt resolutions approving and declaring the
advisability of the Merger Agreement and the transactions
contemplated by the Merger Agreement and recommended that CNA
Surety’s stockholders (other than CNA Financial and its
affiliates) tender their Shares in the Offer. The CNA Surety
board of directors, by a unanimous vote of all members not
abstaining due to their affiliation with CNA Financial or Loews,
determined that the Merger Agreement and the transactions
contemplated by the Merger Agreement, including the Merger, are
fair to and in the best interests of CNA Surety and the holders
of Shares (other than CNA Financial and its affiliates) and
recommended that CNA Surety’s stockholders, to the extent
required by the DGCL, vote to adopt the Merger Agreement. To
Purchaser’s knowledge, no other executive officers,
directors or affiliates of CNA Surety have made any public
recommendation with respect to the Offer or the Merger.
| 12. | Certain Relationships Between the CNA Financial Group and CNA Surety |
As of the date of this Offer to Purchase, subsidiaries of CNA
Financial own approximately 61% of the outstanding shares of CNA
Surety common stock. As a result, CNA Financial is able to elect
the entire board of directors and control the vote on all
matters submitted to a vote of CNA Surety’s stockholders.
Members of the CNA Financial Group are also parties to the
following agreements with CNA Surety and have the following
other relationships with CNA Surety.
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 “Entry Date”). Although the contracts
entered into on the Entry Date have expired, some have been
renewed on different terms as discussed below.
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Through the Quota Share Treaty, subsidiaries of CNA Financial
(CCC and The Continental Insurance Company
(“CIC”)) transfer to CNA Surety’s
subsidiary, Western Surety Company (“Western
Surety”) surety business written or renewed by CCC and
CIC after the Entry Date. The Quota Share Treaty was renewed on
January 1, 2011 and expires on December 31, 2011 and
is annually renewable thereafter. CCC and CIC transfer the
related liabilities of such business and pay to Western Surety
an amount in cash equal to CCC’s and CIC’s net written
premiums written on all such business, minus a quarterly ceding
commission to be retained by CCC and CIC equal to $50,000 plus
25% of net written premiums written on all such business. For
2010, this resulted in an override commission on their actual
direct acquisition costs of 4.7% to CCC and CIC. 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 Entry 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 Entry
Date through March 31, 2011.
Through the Stop Loss Contract, CNA Surety’s insurance
subsidiaries were protected from adverse loss development on
certain business underwritten after the Entry Date. The Stop
Loss Contract between CNA Surety’s 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
Entry 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
Entry Date, to pay to the insurance subsidiaries a dollar amount
equal to (i) the amount, if any, by which CNA Surety’s
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, CNA Surety’s insurance subsidiaries paid CCC
an annual premium of $20,000. The CNA Surety insurance
subsidiaries have paid CCC all required annual premiums. Through
March 31, 2011 and December 31, 2010, losses incurred
under the Stop Loss Contract were $47.2 million. At
March 31, 2011, the amount received under the Stop Loss
Contract included $2.8 million held by CNA Surety for
losses covered under this contract that were incurred but not
paid.
The Services and Indemnity Agreement provides CNA Surety’s
insurance subsidiaries with the authority to perform various
administrative, management, underwriting and claim functions in
order to conduct the surety business of CCC and CIC and to be
reimbursed by CCC for services rendered. In consideration for
providing the foregoing services, CCC has agreed to pay Western
Surety a quarterly fee of $50,000. This agreement was renewed on
January 1, 2011 and expires on December 31, 2011 and
is annually renewable thereafter. As of March 31, 2011,
there were no amounts due to CNA Surety’s insurance
subsidiaries under this agreement.
On January 1, 2010, CNA Surety and CCC entered into
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 CNA Surety. Through the Canadian Quota Share
Treaty, this Canadian surety business is transferred to Western
Surety. Pursuant to these agreements, CCC will transfer the
subject premium and related liabilities of such business and pay
to Western Surety an amount equal to CCC’s 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. This agreement was
renewed on January 1, 2011 and expires on December 31,
2011 and is annually renewable thereafter.
As of March 31, 2011 and December 31, 2010, CNA Surety
had an insurance receivable balance from CCC and CIC of
$8.9 million and $10.8 million, respectively,
comprised of premiums receivable. At March 31, 2011 and
December 31, 2010, CNA Surety had no reinsurance receivable
from affiliates. CNA Surety had no reinsurance payables to CCC
or CIC as of March 31, 2011 or December 31, 2010.
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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 premiums 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. CNA
Financial, 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.
Administration
Services Agreement
CNA Surety and CCC are parties to an Administrative Services
Agreement (“ASA”), which has been in effect
since July 1, 2004, that allows CNA Surety 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, CNA Surety paid CCC $4.6 million during 2010
for leased office space and services. CNA Surety was also
charged $0.2 million in 2010 for the direct costs incurred
by CCC on CNA Surety’s behalf. As provided by the ASA, CCC
paid CNA Surety $1.3 million for the year ended
December 31, 2010 for insurance agent licensing services
provided by CNA Surety. This agreement remains in effect until
CNA Financial or its affiliates or shareholders cease being a
majority stockholder of CNA Surety unless otherwise terminated
by either party. Under the terms of the Merger Agreement, CNA
Financial has agreed to cause CCC not to terminate, or amend in
a manner that is adverse to CNA Surety, the ASA prior to the
earlier of the Effective Time of the Merger or the termination
of the Merger Agreement.
Other
Relationships
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.
| 13. | Interest of Directors and Executive Officers in the Offer and the Merger |
In considering the fairness of the consideration to be received
in the Offer and the Merger, CNA Surety’s stockholders
should be aware that certain directors and executive officers of
CNA Surety have interests in the Offer and the Merger which may
present them with certain actual or potential conflicts of
interest. A description of these interests, including the
information required to be disclosed pursuant to
Item 402(t) of
Regulation S-K,
is included in the
Schedule 14D-9
under the captions “Item 3. “Arrangement between
the Company and its Executive Officers, Directors and
Affiliates” and “Item 8. Additional
Information”, which description and information is
incorporated herein by reference.
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THE
OFFER
| 1. | Terms of the Offer |
Upon the terms and subject to the conditions of the Offer
(including, if the Offer is extended or amended, the terms and
conditions of such extension or amendment), Purchaser will
accept for payment and pay for all Shares validly tendered prior
to the Expiration Date (as defined below) and not withdrawn in
accordance with “The Offer — Section 4.
Withdrawal Rights.” CCC will provide Purchaser with
sufficient funds to purchase all Shares validly tendered and not
withdrawn in the Offer. The term “Expiration
Date” means 12:00 Midnight, New York City time, on
June 8, 2011, unless and until Purchaser has extended the
period of time during which the Offer is open, in which event
the term “Expiration Date” will mean the latest time
and date at which the Offer, as so extended by Purchaser,
expires.
Subject to the applicable rules and regulations of the SEC and
the terms and conditions of the Merger Agreement, Purchaser
expressly reserves the right at any time or from time to time
to, and if at the Expiration Date any condition to the Offer is
not satisfied or waived, upon the request of CNA Surety,
Purchaser shall, extend the Offer by giving oral or written
notice of the extension to the Depositary and issuing a press
release announcing the extension in accordance with applicable
SEC rules. During any such extension of the Offer, all Shares
previously tendered will remain subject to the terms of the
Offer, including the right of a tendering stockholder to
withdraw the stockholder’s previously tendered Shares. See
“The Offer — Section 4. Withdrawal
Rights”. Subject to the applicable rules and
regulations of the SEC and the terms and conditions of the
Merger Agreement, Purchaser also expressly reserves the right,
in its sole discretion, at any time or from time to time,
(i) to delay acceptance for payment of or (regardless of
whether such Shares were theretofore accepted for payment)
payment for, any tendered Shares, or to terminate or amend the
Offer as to any Shares not then paid for, if any of the
conditions to the Offer are not then satisfied and (ii) to
waive any condition (other than the
“majority-of-the-minority”
condition) and to add, supplement or change any other term and
condition of the Offer, by giving oral or written notice of such
delay, termination, amendment, waiver or change to the
Depositary and by making a public announcement thereof.
Notwithstanding anything in this paragraph to the contrary, the
“majority-of-the-minority”
condition may not be waived. If Purchaser elects to provide a
Subsequent Offering Period, it expressly reserves the right, in
its sole discretion, at any time or from time to time, to extend
the Subsequent Offering Period (but not beyond a total of twenty
business days) by giving oral or written notice of such
extension to the Depositary. If Purchaser accepts any Shares for
payment pursuant to the terms of the Offer, it will accept for
payment all Shares validly tendered during the Offer and, on the
terms and subject to the conditions of the Offer, it will
promptly pay for all Shares so accepted for payment and will
immediately accept for payment and promptly pay for all Shares
as they are tendered in any Subsequent Offering Period.
Purchaser confirms that its reservation of the right to delay
payment for Shares which it has accepted for payment is limited
by
Rule 14e-1
under the Exchange Act, which requires that a tender offeror pay
the consideration offered or return the tendered securities
promptly after the termination or withdrawal of a tender offer.
Any extension, delay, termination, waiver or amendment will be
followed as promptly as practicable by a public announcement
thereof, which, in the case of an extension, will be made no
later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
Subject to applicable law (including
Rules 14d-4(d),
14d-6 and
14e-1 under
the Exchange Act, which require that material changes be
promptly disseminated to stockholders in a manner reasonably
designed to inform them of such changes), and without limiting
the manner in which Purchaser may choose to make any public
announcement, Purchaser will have no obligation to publish,
advertise or otherwise communicate any such public announcement
other than by issuing a press release or other announcement.
If Purchaser is delayed in its payment for the Shares or is
unable to pay for Shares pursuant to the Offer for any reason,
then, without prejudice to Purchaser’s rights under the
Offer, the Depositary may retain tendered Shares on behalf of
Purchaser, and such Shares may not be withdrawn except to the
extent tendering stockholders are entitled to withdrawal rights
as described in “The Offer — Section 4.
Withdrawal Rights.” However, the ability of Purchaser to
delay the payment for Shares which Purchaser has accepted for
payment is limited by Rule
l4e-1(c)
under the Exchange Act, which requires that a bidder pay the
consideration offered
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or return the securities deposited by, or on behalf of, holders
of securities promptly after the termination or withdrawal of
the Offer, unless such bidder elects to establish a subsequent
offering period (a “Subsequent Offering
Period”) and pays for Shares tendered during the
Subsequent Offering Period in accordance with
Rule 14d-11
under the Exchange Act.
Subject to the terms of the Merger Agreement, Purchaser may, at
any time and from time to time before the Expiration Date,
increase the Offer Price or make other changes to the terms and
conditions of the Offer, or waive conditions to the Offer (other
than the
majority-of-minority
condition), except that without the prior written consent of CNA
Surety (which must be approved by the Special Committee),
Purchaser may not:
| • | Decrease the Offer Price; | |
| • | Change the form or consideration payable in the Offer; | |
| • | Decrease the number of Shares to be purchased in the Offer; | |
| • | Impose conditions of the Offer other than the conditions described in “The Offer — Section 11. Conditions of the Offer”; or | |
| • | Extend the Offer other than as set forth in the Merger Agreement. |
If, pursuant to the Merger Agreement, Purchaser decreases the
percentage of Shares being sought or increases or decreases the
consideration to be paid for Shares pursuant to the Offer, such
increase or decrease will be applicable to all holders whose
Shares are accepted for payment pursuant to the Offer and, if
the Offer is scheduled to expire at any time before the
expiration of a period of ten business days from, and including,
the date that notice of such increase or decrease is first
published, sent or given to holders of Shares, the Offer will be
extended until the expiration of such ten business day period
(or such longer period as the parties may agree). If Purchaser
makes a material change in the terms of the Offer or the
information concerning the Offer, or if it waives a material
condition of the Offer (other than the
“majority-of-the-minority”
condition which is non-waivable), Purchaser will extend the
Offer to the extent required by
Rules 14d-4(d),
14d-6 and
14e-1 under
the Exchange Act. The minimum period during which the Offer must
remain open following material changes in the terms of the Offer
or information concerning the Offer, other than a change in
price or change in percentage of securities sought, will depend
upon the relevant facts and circumstances then existing,
including the relative materiality of the changed terms or
information. In a public release, the SEC has stated its view
that an offer must remain open for a minimum period of time
following a material change in the terms of the Offer and that
waiver of a material condition is a material change in the terms
of the Offer. The release states that an offer should remain
open for a minimum of five business days from the date a
material change is first published or sent or given to security
holders and that, if material changes are made with respect to
information that approaches the significance of price and
percentage of Shares sought, a minimum of ten business days may
be required to allow for adequate dissemination to stockholders
and investor response. For purposes of the Offer, a
“business day” means any day other than a Saturday,
Sunday or United States federal holiday, and consists of the
time period from 12:01 a.m. through 12:00 midnight, New
York City time.
After the expiration of the Offer, if all the conditions to the
Offer have been satisfied or waived (to the extent waivable),
pursuant to
Rule 14d-11
under the Exchange Act, and subject to certain other conditions,
Purchaser may elect, in its sole discretion, to provide a
Subsequent Offering Period pursuant to which Purchaser may add a
period of at least three business days to permit additional
tenders of Shares not tendered in the Offer prior to the
Expiration Date. If Purchaser decides to provide for a
Subsequent Offering Period, Purchaser will make an announcement
to that effect by issuing a press release no later than
9:00 a.m., New York City time, on the next business day
after the Expiration Date. If Purchaser elects to provide a
Subsequent Offering Period, it expressly reserves the right, in
its sole discretion, to extend the Subsequent Offering Period by
any period or periods by giving oral or written notice of such
extension to the Depositary. During a Subsequent Offering
Period, tendering stockholders will not have withdrawal rights.
See “The Offer — Section 4. Withdrawal
Rights.”
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CNA Financial has requested and received from CNA Surety a copy
of CNA Surety’s stockholder list and security position
listings for the purpose of disseminating the Offer to
stockholders and has commenced mailing of this Offer to
Purchase, the related Letter of Transmittal and other related
documents to record holders of Shares and to brokers, dealers,
commercial banks, trust companies and other nominees whose names
appear on the stockholder list or, if applicable, who are listed
as participants in a clearing agency’s security position
listing for subsequent transmittal to beneficial owners of
Shares.
| 2. | Acceptance for Payment and Payment for Shares |
Upon the terms and subject to the conditions of the Offer
(including, if the Offer is extended or amended, the terms and
conditions of any such extension or amendment), and the
satisfaction or waiver of all the conditions to the Offer
discussed in “The Offer — Section 11.
Conditions to the Offer” (if waivable), Purchaser will
accept for payment and will pay for all Shares validly tendered
on or prior to the Expiration Date and not withdrawn pursuant to
the Offer promptly after the Expiration Date, provided
that the Offer has not been terminated by such date. If
there is a Subsequent Offering Period following the Offer,
Purchaser will immediately accept and promptly pay for all
Shares as they are tendered in the Subsequent Offering Period.
Subject to compliance with Rule
l4e-1(c)
under the Exchange Act, Purchaser expressly reserves the right
to delay payment for Shares in order to comply in whole or in
part with any applicable law. See “The Offer —
Section 13. Certain Legal Matters; Regulatory
Approvals.”
In all cases, payment for Shares tendered and accepted for
payment pursuant to the Offer will be made only after timely
receipt by the Depositary of (i) the certificates
evidencing such Shares (the “Share
Certificates”) or confirmation (a “Book-Entry
Confirmation”) of a book-entry transfer of such Shares
into the Depositary’s account at The Depository
Trust Company (the “Book-Entry Transfer
Facility”) pursuant to the procedures discussed in
“The Offer — Section 3. Procedures for
Accepting the Offer and Tendering Shares,” (ii) the
Letter of Transmittal, properly completed and duly executed,
with any required signature guarantees or, in the case of a
book-entry transfer, an Agent’s Message (as defined in
“The Offer — Section 3. Procedures for
Accepting the Offer and Tendering Shares” of this Offer to
Purchase) in lieu of the Letter of Transmittal and
(iii) any other documents required by the Letter of
Transmittal.
Outstanding Shares that were issued pursuant to compensation
plans of CNA Surety and are subject to restrictions on the
holder’s ability to sell or otherwise transfer those Shares
may not be tendered in the Offer and will instead (subject to
the holder’s right to exercise appraisal rights under
Delaware law) be converted in the Merger into the right to
receive the same price per Share Purchaser paid in the Offer.
For purposes of the Offer, Purchaser will be deemed to have
accepted for payment, and thereby purchased, Shares validly
tendered and not withdrawn, if and when Purchaser gives written
notice to the Depositary of Purchaser’s acceptance for
payment of such Shares pursuant to the Offer. Upon the terms and
subject to the conditions of the Offer, payment for Shares
accepted for payment pursuant to the Offer will be made by
deposit of the Offer Price therefor with the Depositary, which
will act as agent for tendering stockholders for the purpose of
receiving payments from Purchaser and transmitting such payments
to tendering stockholders whose Shares have been accepted for
payment. If, for any reason whatsoever, acceptance for payment
of any Shares tendered pursuant to the Offer is delayed, or if
Purchaser is unable to accept for payment Shares tendered
pursuant to the Offer, then, without prejudice to
Purchaser’s rights discussed in “The Offer —
Section 1. Terms of the Offer,” the Depositary may
nevertheless retain tendered Shares on behalf of Purchaser, and
such Shares may not be withdrawn, except to the extent that the
tendering stockholders are entitled to withdrawal rights as
described in “The Offer — Section 4.
Withdrawal Rights” and as otherwise required by
Rule 14e-1(e)
under the Exchange Act. Under no circumstances will interest
on the Offer Price for Shares be paid, regardless of any delay
in making such payment.
If any tendered Shares are not accepted for payment for any
reason pursuant to the terms and conditions of the Offer, or if
Share Certificates are submitted evidencing more Shares than are
tendered, Share Certificates evidencing unpurchased Shares will
be returned, without expense to the tendering stockholder (or,
in the case of Shares tendered by book-entry transfer into the
Depositary’s account at the Book-Entry Transfer Facility
pursuant to the procedure discussed in “The
Offer — Section 3. Procedures for Accepting the
Offer
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and Tendering Shares,” such Shares will be credited to an
account maintained at the Book-Entry Transfer Facility), as
promptly as practicable following the expiration or termination
of the Offer.
Purchaser reserves the right to transfer or assign, in whole or
in part from time to time, to CNA Financial or any direct or
indirect wholly-owned subsidiary of CNA Financial, the right to
purchase all or any portion of the Shares tendered pursuant to
the Offer. Any such transfer or assignment will not relieve
Purchaser of its obligations under the Offer in the event of a
breach by the transferee or assignee and will in no way
prejudice the rights of tendering stockholders to receive
payment for Shares validly tendered and accepted for payment
pursuant to the Offer.
| 3. | Procedures for Accepting the Offer and Tendering Shares |
Valid Tenders. In order for a stockholder
validly to tender Shares pursuant to the Offer, either
(i) the Letter of Transmittal, properly completed and duly
executed, together with any required signature guarantees (or,
in the case of a book-entry transfer, an Agent’s Message in
lieu of the Letter of Transmittal), and any other documents
required by the Letter of Transmittal, must be received by the
Depositary at one of its addresses set forth on the back cover
of this Offer to Purchase, and either the Share Certificates
evidencing tendered Shares must be received by the Depositary at
such address or such Shares must be tendered pursuant to the
procedure for book-entry transfer described below and a
Book-Entry Confirmation must be received by the Depositary, on
or prior to the Expiration Date, or (ii) the tendering
stockholder must comply with the guaranteed delivery procedures
described below.
The term “Agent’s Message” means a
message transmitted by the Book-Entry Transfer Facility to, and
received by, the Depositary and forming a part of a Book-Entry
Confirmation. The Agent’s Message states that the
Book-Entry Transfer Facility has received an express
acknowledgment from the participant in the Book-Entry Transfer
Facility tendering the Shares that are the subject of such
Book-Entry Confirmation that such participant has received, and
agrees to be bound by, the terms of the Letter of Transmittal
and that Purchaser may enforce such agreement against such
participant.
Book-Entry Transfer. The Depositary will
establish an account with respect to the Shares at the
Book-Entry Transfer Facility for purposes of the Offer within
two business days after the date of this Offer to Purchase. Any
financial institution that is a participant in the system of the
Book-Entry Transfer Facility may make a book-entry delivery of
Shares by causing the Book-Entry Transfer Facility to transfer
such Shares into the Depositary’s account at the Book-Entry
Transfer Facility in accordance with the Book-Entry Transfer
Facility’s procedures for such transfer. However, although
delivery of Shares may be effected through book-entry transfer
at the Book-Entry Transfer Facility, either the Letter of
Transmittal , properly completed and duly executed, together
with any required signature guarantees, or an Agent’s
Message in lieu of the Letter of Transmittal, and any other
required documents, must, in any case, be received by the
Depositary at one of its addresses set forth on the back cover
of this Offer to Purchase prior to the Expiration Date, or the
tendering stockholder must comply with the guaranteed delivery
procedure described below.
Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Depositary.
Signature Guarantees. No signature guarantee
is required on the Letter of Transmittal if the (i) Letter
of Transmittal is signed by the registered holder of the Shares
tendered therewith, unless such holder has completed either the
box entitled “Special Delivery Instructions” or the
box entitled “Special Payment Instructions” on the
Letter of Transmittal or (ii) Shares are tendered for the
account of a firm that is participating in the Securities
Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or the Stock Exchange Medallion
Program or is otherwise an “eligible guarantor
institution,” as such term is defined in
Rule I7Ad-15
under the Exchange Act (each, an “Eligible
Institution,” and collectively, “Eligible
Institutions”). In all other cases, all signatures on a
Letter of Transmittal must be guaranteed by an Eligible
Institution. See Instruction 1 of the Letter of
Transmittal. If a Share Certificate is registered in the name of
a person other than the signatory of the Letter of Transmittal,
or if payment is to be made or delivered to, or a Share
Certificate not accepted for payment or not tendered is to be
issued, in the name of, a person other than the registered
holder, then the Share Certificate must be endorsed or
accompanied by appropriate duly executed stock powers, in either
case signed exactly as the name of the registered holder
42
Table of Contents
appears on the Share Certificate, with the signature on such
Share Certificate or stock powers guaranteed by an Eligible
Institution as provided in the Letter of Transmittal. See
Instructions 1 and 5 of the Letter of Transmittal.
Guaranteed Delivery. If a stockholder desires
to tender Shares pursuant to the Offer and the Share
Certificate(s) evidencing such stockholder’s Shares are not
immediately available, or if such stockholder cannot deliver the
Share Certificate(s) and all other required documents to the
Depositary prior to the Expiration Date, or if such stockholder
cannot complete the procedure for delivery by book-entry
transfer on a timely basis, such Shares may nevertheless be
tendered; provided that all of the following conditions
are satisfied:
| • | such tender is made by or through an Eligible Institution; | |
| • | a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by Purchaser, is received prior to the Expiration Date by the Depositary as provided below; and | |
| • | the Share Certificate(s) (or a Book-Entry Confirmation) evidencing all tendered Shares, in proper form for transfer, in each case together with the Letter of Transmittal, properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent’s Message), and any other documents required by the Letter of Transmittal, are received by the Depositary within three NYSE trading days after the date of such Notice of Guaranteed Delivery. |
The Notice of Guaranteed Delivery may be delivered by hand,
transmitted by facsimile transmission or mailed to the
Depositary and must include a guarantee by an Eligible
Institution substantially in the form set forth in the form of
Notice of Guaranteed Delivery made available by Purchaser.
In all cases, Shares will not be deemed validly tendered unless
a properly completed and duly executed Letter of Transmittal or,
in the case of a book-entry transfer, an Agent’s Message in
lieu of a Letter of Transmittal is received by the Depositary.
The method of delivery of Share Certificates, the Letter of
Transmittal and all other required documents, including delivery
through the Book-Entry Transfer Facility, is at the option and
risk of the tendering stockholder, and the delivery will be
deemed made only when actually received by the Depositary
(including, in the case of a book-entry transfer, receipt of a
Book-Entry Confirmation). If delivery is by mail, registered
mail with return receipt requested, properly insured, is
recommended. In all cases, sufficient time should be allowed to
ensure timely delivery.
Determination of Validity. All questions as to
the validity, form, eligibility (including time of receipt) and
acceptance for payment of any tender of Shares will be
determined by Purchaser in its sole discretion, which
determination will be final and binding on all parties.
Purchaser reserves the absolute right to reject any and all
tenders determined by it not to be in proper form or the
acceptance for payment of which may, in the opinion of its
counsel, be unlawful. Purchaser also reserves the absolute right
to waive any defect or irregularity in the tender of any Shares
of any particular stockholder, whether or not similar defects or
irregularities are waived in the case of other stockholders. No
tender of Shares will be deemed to have been validly made until
all defects and irregularities have been cured or waived to the
satisfaction of Purchaser. None of CNA Financial, Purchaser, CNA
Surety, the Dealer Manager, the Depositary, the Information
Agent nor any other person will be under any duty to give
notification of any defects or irregularities in tenders or
incur any liability for failure to give any such notification.
Purchaser’s interpretation of the terms and conditions of
the Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding.
Other Requirements. By executing the Letter of
Transmittal as set forth above, a tendering stockholder
irrevocably appoints designees of Purchaser as such
stockholder’s proxies, each with full power of
substitution, in the manner set forth in the Letter of
Transmittal, to the full extent of such stockholder’s
rights with respect to the Shares tendered by such stockholder
and accepted for payment by Purchaser (including, with respect
to any and all other Shares or other securities issued or
issuable in respect of such Shares, on or after the date of
43
Table of Contents
this Offer to Purchase). All such proxies will be considered
coupled with an interest in the tendered Shares. Such
appointment will be effective when, and only to the extent that,
Purchaser accepts such Shares for payment. Upon such acceptance
for payment, all prior proxies given by such stockholder with
respect to such Shares (and such other Shares and securities)
will be revoked without further action, and no subsequent
proxies may be given nor any subsequent written consent executed
by such stockholder (and, if given or executed, will not be
deemed to be effective) with respect thereto. The designees of
Purchaser will, with respect to the Shares and other securities
for which the appointment is effective, be empowered to exercise
all voting and other rights of such stockholder as they in their
sole discretion may deem proper at any annual or special meeting
of CNA Surety’s stockholders or any adjournment or
postponement thereof, by written consent in lieu of any such
meeting or otherwise. Purchaser reserves the right to require
that, in order for Shares to be deemed validly tendered,
immediately upon Purchaser’s payment for such Shares,
Purchaser must be able to exercise full voting rights with
respect to such Shares.
The tender of Shares pursuant to any one of the procedures
described above will constitute the tendering stockholder’s
acceptance of the Offer, as well as the tendering
stockholder’s representation and warranty that such
stockholder has the full power and authority to tender and
assign the Shares tendered, as specified in the Letter of
Transmittal. Purchaser’s acceptance for payment of Shares
tendered pursuant to the Offer will constitute a binding
agreement between the tendering stockholder and Purchaser upon
the terms and subject to the conditions of the Offer.
Backup Withholding. Under the backup
withholding provisions of United States federal income tax law,
the Depositary may be required to withhold 28% of the amount of
the gross proceeds of the Offer. In order to prevent backup
United States federal income tax withholding with respect to
payments to U.S. Holders (as defined under “The
Offer — Section 5. Certain United States Federal
Income Tax Consequences”) of the Offer Price for Shares
purchased pursuant to the Offer, each U.S. Holder must
provide the Depositary with such U.S. Holder’s correct
taxpayer identification number (“TIN”) and
certify that such U.S. Holder is not subject to backup
withholding by completing the IRS
Form W-9
in the Letter of Transmittal, or otherwise establish that such
U.S. Holder is not subject to backup withholding. Certain
U.S. Holders (including, among others, all corporations)
are not subject to backup withholding. If a U.S. Holder
does not provide its correct TIN or fails to provide the
certifications described above, the IRS may impose a penalty on
the U.S. Holder and the payment of cash to the
U.S. Holder pursuant to the Offer may be subject to backup
withholding.
Non-U.S. Holders
(as defined under “Section 5. Certain United States
Federal Income Tax Consequences”) should complete and sign
an applicable
Form W-8
(a copy of which may be obtained from the Depositary), or
otherwise establish that such
Non-U.S. Holder
is not subject to backup withholding, in order to avoid backup
withholding. See Instruction 8 of the Letter of Transmittal.
| 4. | Withdrawal Rights |
Tenders of Shares made pursuant to the Offer are irrevocable,
except that such Shares tendered pursuant to the Offer may be
withdrawn at any time prior to the Expiration Date and, unless
theretofore accepted for payment by Purchaser pursuant to the
Offer, may also be withdrawn at any time after July 9, 2011.
For a withdrawal to be effective, a written, telegraphic or
facsimile transmission notice of withdrawal must be timely
received by the Depositary at one of its addresses set forth on
the back cover page of this Offer to Purchase. Any such notice
of withdrawal must specify the name, address and TIN of the
person who tendered the Shares to be withdrawn, the number of
Shares to be withdrawn and the name of the registered holder of
such Shares, if different from that of the person who tendered
such Shares. If Shares have been tendered pursuant to the
procedure for book-entry transfer as discussed in “The
Offer — Section 3. Procedures for Accepting the
Offer and Tendering Shares,” any notice of withdrawal must
also specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn
Shares.
If Purchaser extends the Offer, is delayed in its acceptance for
payment of Shares or is unable to accept Shares for payment
pursuant to the Offer for any reason, then, without prejudice to
Purchaser’s rights under the Offer, the Depositary may,
nevertheless, on behalf of Purchaser, retain tendered Shares and
such Shares
44
Table of Contents
may not be withdrawn, except to the extent that tendering
stockholders are entitled to withdrawal rights as described
herein.
All questions as to the form and validity (including time of
receipt) of any notice of withdrawal will be determined by
Purchaser, in its sole discretion, whose determination will be
final and binding. None of CNA Financial, Purchaser, CNA Surety,
the Dealer Manager, the Depositary, the Information Agent or any
other person will be under duty to give notification of any
defects or irregularities in any notice of withdrawal or incur
any liability for failure to give any such notification.
Withdrawals of Shares may not be
rescinded. Any Shares properly withdrawn will
thereafter be deemed not to have been validly tendered for
purposes of the Offer. However, withdrawn Shares may be
re-tendered at any time prior to the Expiration Date or during
any Subsequent Offering Period by following one of the
procedures described in “The Offer —
Section 3. Procedures for Accepting the Offer and Tendering
Shares.”
No withdrawal rights will apply to Shares tendered during a
Subsequent Offering Period and no withdrawal rights apply during
the Subsequent Offering Period with respect to Shares tendered
in the Offer and accepted for payment. See “The
Offer — Section 1. Terms of the Offer.”
Purchaser expressly reserves the right, in its sole discretion,
to delay acceptance for payment of, or payment for, Shares in
order to comply in whole or in part with any applicable law. If
Purchaser is delayed in its acceptance for payment of, or
payment for, Shares or is unable to accept for payment or pay
for Shares pursuant to the Offer for any reason, then, without
prejudice to Purchaser’s rights under the Offer (including
such rights as are discussed in “The Offer —
Section 1. Terms of the Offer” and “The
Offer — Section 11. Conditions to the
Offer”) (but subject to compliance with
Rule 14e-1(c)
under the Exchange Act), the Depositary may, nevertheless, on
behalf of Purchaser, retain tendered Shares, and such Shares may
not be withdrawn except to the extent tendering stockholders are
entitled to exercise, and duly exercise, withdrawal rights as
described above.
| 5. | Certain United States Federal Income Tax Consequences |
The following is a summary of the material United States federal
income tax consequences of the Offer, a Subsequent Offering
Period and the Merger relevant to U.S. Holders and
Non-U.S. Holders
(each as defined below). The discussion is based on the
provisions of the Internal Revenue Code of 1986, as amended (the
“Code”), existing United States Treasury
regulations promulgated thereunder and administrative and
judicial interpretations thereof, all as in effect as of the
date hereof and all of which are subject to change (possibly
with retroactive effect). This discussion applies only to
U.S. Holders and
Non-U.S. Holders
that hold Shares as “capital assets” within the
meaning of Section 1221 of the Code (generally, property
held for investment) and does not apply to Shares acquired
pursuant to the exercise of employee stock options or otherwise
as compensation, Shares held as part of a “straddle,”
“hedge,” “conversion transaction,”
“synthetic security” or other integrated investment,
or to certain types of holders (including, without limitation,
financial institutions, insurance companies, partnerships and
other pass-through entities, United States expatriates, holders
subject to the alternative minimum tax under the Code, a person
who owns (actually or constructively) 5% or more of our Shares,
tax-exempt organizations and dealers in securities) that may be
subject to special rules. This discussion does not address the
effect of any United States federal estate or gift tax laws, as
well as any state, local,
non-United
States or other tax laws.
For the purposes of this discussion, a U.S. Holder is a
beneficial owner of Shares that tenders Shares in the Offer (or
a Subsequent Offering Period) and has such Shares accepted for
payment pursuant to the Offer (or such Subsequent Offering
Period), or exchanges Shares for cash pursuant to the Merger,
and is: (i) an individual who is a United States citizen or
resident for United States federal income tax purposes,
(ii) a corporation (or other entity treated as a
corporation for United States federal income tax purposes),
created or organized in or under the laws of the United States,
any state thereof or the District of Columbia, (iii) an
estate that is subject to United States federal income tax
regardless of its source, or (iv) a trust if (a) a
United States court is able to exercise primary supervision over
the administration of the trust and one or more United States
persons have the authority to control all substantial decisions
of the trust or (b) the trust has a valid election in
effect to be treated as a United States person for United States
federal income tax purposes. A
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Table of Contents
Non-U.S. Holder
is a beneficial owner of Shares that tenders Shares in the Offer
(or a Subsequent Offering Period) and has such Shares accepted
for payment pursuant to the Offer (or such Subsequent Offering
Period), or exchanges Shares for cash pursuant to the Merger,
and that is not a U.S. Holder or a partnership or other
pass-through entity.
EACH U.S. HOLDER AND
NON-U.S. HOLDER
SHOULD CONSULT ITS TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO IT OF THE OFFER, A SUBSEQUENT OFFERING PERIOD
AND THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF UNITED
STATES FEDERAL, STATE, LOCAL AND
NON-UNITED
STATES TAX LAWS AND POSSIBLE CHANGES IN TAX LAWS.
U.S.
Holders
Sale of Shares. The receipt of cash for Shares
pursuant to the Offer, a Subsequent Offering Period or the
Merger by a U.S. Holder will be a taxable transaction for
United States federal income tax purposes. For United States
federal income tax purposes, a U.S. Holder that sells
Shares pursuant to the Offer or a Subsequent Offering Period or
receives cash in exchange for Shares pursuant to the Merger will
recognize capital gain or loss equal to the difference (if any)
between the amount of cash received and the
U.S. Holder’s adjusted tax basis in the Shares sold
pursuant to the Offer or a Subsequent Offering Period or
exchanged in the Merger. Gain or loss must be determined
separately for each block of Shares sold pursuant to the Offer
or exchanged pursuant to the Merger (for example, Shares
acquired at the same cost in a single transaction). Such capital
gain or loss will be long-term capital gain or loss if the
Holder has held such Shares for more than one year at the time
of the completion of the Offer, a Subsequent Offering Period or
consummation of the Merger (as applicable). In general,
long-term capital gain of a non-corporate U.S. Holder
(including an individual U.S. Holder) will be subject to a
maximum United States federal income tax rate of 15%. There are
limitations on the deductibility of capital losses.
Backup Withholding. Payments to a
U.S. Holder in connection with the Offer, a Subsequent
Offering Period or Merger may be subject to backup withholding
at a rate of 28% unless such U.S. Holder (i) provides
a correct TIN (which, for an individual U.S. Holder, is the
U.S. Holder’s social security number) and any other
required information, or (ii) is a corporation or comes
within certain other exempt categories and, when required,
demonstrates this fact, and otherwise complies with applicable
requirements of the backup withholding rules. A U.S. Holder
that does not provide a correct TIN may be subject to penalties
imposed by the IRS. U.S. Holders may prevent backup
withholding by completing and signing the IRS
Form W-9
included as part of the Letter of Transmittal. Any amount paid
as backup withholding does not constitute an additional tax and
will be creditable against the U.S. Holder’s United
States federal income tax liability, provided that the
required information is given to the IRS in a timely manner. If
backup withholding results in an overpayment of taxes, a refund
may be obtained from the IRS. Each U.S. Holder should
consult its tax advisor as to such U.S. Holder’s
qualification for exemption from backup withholding and the
procedure for obtaining such exemption.
Non-U.S.
Holders
Sale of Shares. Any gain realized upon the
receipt of cash for Shares pursuant to the Offer, a Subsequent
Offering Period or the Merger by a
Non-U.S. Holder
will not be subject to United States federal income tax unless:
(i) the gain is effectively connected with the
Non-U.S. Holder’s
conduct of a trade or business in the United States, or if
required by an applicable income tax treaty, is attributable to
a permanent establishment maintained by the
Non-U.S. Holder
in the United States or (ii) the
Non-U.S. Holder
is a nonresident alien individual that will be present in the
United States for 183 days or more during the taxable year
of Offer, a Subsequent Offering Period or the Merger (as
applicable), and certain other requirements are met.
Unless an applicable income tax treaty provides otherwise, gain
described in (i) in the preceding paragraph will be subject
to United States federal income tax on a net income basis in the
same manner as if the
Non-U.S. Holder
recognizing such gain were a U.S. Holder (but such
Non-U.S. Holder
should provide an
46
Table of Contents
IRS
Form W-8ECI
instead of an IRS
Form W-9).
A
Non-U.S. Holder
that is a corporation also may be subject to a branch profits
tax equal to 30% (or such lower rate specified by an applicable
income tax treaty) of a portion of its effectively connected
earnings and profits for the taxable year.
Non-U.S. Holders
are urged to consult any applicable income tax treaties that may
provide for different rules. Gain recognized by an individual
Non-U.S. Holder
described in (ii) in the preceding paragraph will be
subject to United States federal income tax at a flat 30% rate
(unless an applicable income tax treaty provides otherwise), but
may be offset by United States source capital losses (even
though the individual is not considered a resident of the United
States for United States federal income tax purposes).
Backup Withholding. Payments to a
Non-U.S. Holder
in connection with the Offer, a Subsequent Offering Period or
Merger may be subject to backup withholding at a rate of 28%
unless such a
Non-U.S. Holder
furnishes the required certification as to its
non-United
States status by providing the applicable IRS
Form W-8
(a copy of which can be obtained from the Depositary) or by
otherwise establishing that such
Non-U.S. Holder
is not subject to backup withholding. Any amount paid as backup
withholding does not constitute an additional tax and will be
creditable against the
Non-U.S. Holder’s
United States federal income tax liability, if any, provided
that the required information is given to the IRS in a timely
manner. If backup withholding results in an overpayment of
taxes, a refund may be obtained from the IRS. Each
Non-U.S. Holder
should consult its tax advisor as to such
Non-U.S. Holder’s
qualification for exemption from backup withholding and the
procedure for obtaining such exemption.
| 6. | Price Range of the Shares; Dividends |
The Shares are listed on the NYSE under the symbol
“SUR.” The following table sets forth, for each of the
fiscal quarters indicated, the high and low sales prices per
Share on the NYSE.
| Common Stock | ||||||||
| High | Low | |||||||
|
Year ended December 31, 2009
|
||||||||
|
First Quarter
|
19.80 | 11.58 | ||||||
|
Second Quarter
|
19.81 | 13.03 | ||||||
|
Third Quarter
|
17.91 | 12.80 | ||||||
|
Fourth Quarter
|
17.10 | 13.24 | ||||||
|
Year ended December 31, 2010
|
||||||||
|
First Quarter
|
18.12 | 13.80 | ||||||
|
Second Quarter
|
18.09 | 15.45 | ||||||
|
Third Quarter
|
18.00 | 15.48 | ||||||
|
Fourth Quarter
|
24.00 | 17.24 | ||||||
|
Year ended December 31, 2011
|
||||||||
|
First Quarter
|
25.52 | 23.68 | ||||||
|
Second Quarter (through May 10, 2011)
|
26.51 | 25.20 | ||||||
On October 29, 2010, the last trading day before CNA
Financial announced that it was proposing to acquire all of CNA
Surety’s common stock that were not already owned by
subsidiaries of CNA Financial, the per share closing price of
CNA Surety common stock reported on the NYSE was $19.25. On
May 10, 2011, the last full trading day prior to the date
of the commencement of the Offer, the closing sales price of CNA
Surety common stock on the NYSE was $26.48 per Share.
Stockholders are urged to obtain a current market price for CNA
Surety common stock.
Effective November 21, 2002, CNA Surety suspended its cash
dividend and has not subsequently paid any cash dividends to its
stockholders.
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Table of Contents
| 7. | Certain Information Concerning CNA Surety |
General
CNA Surety’s principal offices are located at 333 South
Wabash Avenue, Chicago, Illinois 60604, and its telephone number
at such address is
(312) 822-5000.
CNA Surety Corporation is the largest publicly traded surety
company in the country. Through its principal subsidiary,
Western Surety Company, CNA Surety provides surety and fidelity
bonds in all 50 states through a combined network of
approximately 37,000 independent agencies. CNA Surety is a
Delaware Corporation.
Selected
Financial Information
The following table sets forth summary historical financial data
for CNA Surety as of and for the three months ended
March 31, 2011 and 2010 and for each of the fiscal years
ended December 31, 2010 and 2009.
The following financial information for CNA Surety as of and for
the years ended December 31, 2010 and 2009 and as of and
for the three-month periods ended March 31, 2011 and 2010
has been derived from, and should be read in conjunction with,
the audited financial statements and other financial information
contained in CNA Surety’s Annual Report on
Form 10-K
for the years ended December 31, 2010 and 2009 and the
unaudited interim financial statements and other financial
information contained in CNA Surety’s Quarterly Report on
Form 10-Q
for the quarterly periods ended March 31, 2011 and 2010,
including the notes thereto. More comprehensive financial
information is included in such reports (including
management’s discussion and analysis of financial condition
and results of operation) and other documents filed by CNA
Surety with the SEC, and the following summary is qualified in
its entirety by reference to such reports and other documents
and all of the financial information and notes contained
therein. The financial statements included in CNA Surety’s
Annual Report on
Form 10-K
for the years ended December 31, 2010 and 2009 and CNA
Surety’s Quarterly Report on
Form 10-Q
for the quarterly periods ended March 31, 2011 and 2010,
are incorporated by reference into this Offer to Purchase. The
reports have been filed with the SEC and may be inspected at,
and copies thereof may be obtained from, the same places and in
the same manner set forth under “Available
Information” below.
|
Year Ended |
Three Months Ended |
|||||||||||||||
| December 31, | March 31, | |||||||||||||||
| 2010 | 2009 | 2011 | 2010 | |||||||||||||
| (In thousands, except share and per share data) | ||||||||||||||||
|
GAAP Consolidated Statements of Income:
|
||||||||||||||||
|
Gross written premiums
|
$ | 440,154 | $ | 438,305 | $ | 110,091 | $ | 112,527 | ||||||||
|
Net written premiums
|
$ | 416,274 | $ | 411,034 | $ | 104,630 | $ | 106,660 | ||||||||
|
Net earned premium
|
$ | 418,017 | $ | 421,872 | $ | 96,658 | $ | 98,252 | ||||||||
|
Net investment income
|
53,591 | 50,371 | 14,435 | 13,377 | ||||||||||||
|
Net realized investment gains (losses)
|
1,085 | 1,199 | 313 | 323 | ||||||||||||
|
Total revenues
|
$ | 472,693 | $ | 473,442 | $ | 111,406 | $ | 111,952 | ||||||||
|
Net losses and loss adjustment expenses(a)
|
45,235 | 69,416 | 28,031 | 28,581 | ||||||||||||
|
Net commissions, brokerage and other underwriting expenses
|
227,732 | 233,427 | 52,266 | 52,788 | ||||||||||||
|
Interest expense
|
1,164 | 1,391 | 284 | 281 | ||||||||||||
|
Other expense(b)
|
1,474 | — | 2,027 | — | ||||||||||||
|
Income before income taxes
|
197,088 | 169,208 | 28,798 | 30,302 | ||||||||||||
|
Income tax expense
|
62,668 | 51,347 | 8,041 | 9,497 | ||||||||||||
|
Net income
|
$ | 134,420 | $ | 117,861 | $ | 20,757 | $ | 20,805 | ||||||||
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Table of Contents
|
Year Ended |
Three Months Ended |
|||||||||||||||
| December 31, | March 31, | |||||||||||||||
| 2010 | 2009 | 2011 | 2010 | |||||||||||||
| (In thousands, except share and per share data) | ||||||||||||||||
|
Basic earnings per common share(c)
|
$ | 3.03 | $ | 2.66 | $ | 0.46 | $ | 0.47 | ||||||||
|
Basic weighted average common shares outstanding
|
44,376 | 44,247 | 44,810 | 44,280 | ||||||||||||
|
Diluted earnings per common share(d)
|
$ | 3.02 | $ | 2.65 | $ | 0.46 | $ | 0.47 | ||||||||
|
Diluted weighted average common shares outstanding
|
44,559 | 44,397 | 45,157 | 44,421 | ||||||||||||
|
GAAP Underwriting Ratios:
|
||||||||||||||||
|
Loss ratio(a)
|
10.8 | % | 16.5 | % | 29.0 | % | 29.1 | % | ||||||||
|
Expense ratio(b)
|
54.5 | 55.3 | 54.1 | 53.7 | ||||||||||||
|
Combined ratio(a)(b)
|
65.3 | % | 71.8 | % | 83.1 | % | 82.8 | % | ||||||||
|
GAAP Consolidated Balance Sheet Data:
|
||||||||||||||||
|
Invested assets and cash
|
$ | 1,466,693 | $ | 1,322,654 | $ | 1,481,811 | $ | 1,352,137 | ||||||||
|
Goodwill and other intangible assets, net of accumulated
amortization
|
138,785 | 138,785 | 138,785 | 138,785 | ||||||||||||
|
Total assets
|
1,837,734 | 1,709,035 | 1,857,635 | 1,749,124 | ||||||||||||
|
Insurance reserves
|
635,075 | 653,899 | 655,049 | 682,629 | ||||||||||||
|
Long-term debt
|
30,930 | 30,930 | 30,930 | 30,930 | ||||||||||||
|
Total liabilities
|
769,001 | 785,951 | 769,560 | 802,765 | ||||||||||||
|
Stockholders’ equity
|
1,068,733 | 923,084 | 1,088,075 | 946,359 | ||||||||||||
|
Book value per common share(e)
|
$ | 23.88 | $ | 20.85 | $ | 24.20 | $ | 21.36 | ||||||||
|
Common shares outstanding
|
44,748 | 44,268 | 44,970 | 44,298 | ||||||||||||
| (a) | Includes the effect of re-estimates of prior year reserves, known as reserve development. The dollar amount of these reserve reductions were $76.3 million and $54.3 million for the years ended December 31, 2010 and 2009, respectively. The percentage point effect of these reserve reductions on the loss and combined ratios for these years were 18.3 and 12.8 percentage points, respectively. There were no revisions of prior year reserves for the three months ended March 31, 2011 or 2010, respectively. | |
| (b) | Includes expenses of $1.5 million and $2.0 million for the year ended December 31, 2010 for the three months ended March 31, 2011 incurred related to the evaluation of the CNA Financial proposal. These expenses are shown as “Other expense” in the Statements of Income and are not included in the expense or combined ratios. | |
| (c) | Basic earnings per common share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. For the purpose of calculating basic earnings per share, restricted stock shares granted under CNA Surety’s stock-based compensation plan that have not yet vested are excluded from common shares outstanding. Restricted stock shares were first granted under CNA Surety’s stock-based compensation plan on February 4, 2011. These restricted stock shares vest ratably over the four-year period following the date of grant. None were vested at March 31, 2011. | |
| (d) | Diluted earnings per common share is computed based on the weighted average number of shares outstanding plus the dilutive effect of common stock equivalents, which includes restricted stock shares, computed using the treasury stock method. | |
| (e) | Book value per common share, a non-GAAP financial measure often used by investors, is calculated using total stockholders’ equity, a GAAP financial measure, divided by CNA Surety’s common shares outstanding. CNA Surety has no other classes of shares issued and outstanding. |
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Except as otherwise set forth herein, the information concerning
CNA Surety contained in this Offer to Purchase has been taken
from or based upon publicly available documents and records on
file with the SEC and other public sources and is qualified in
its entirety by reference thereto. CNA Financial, Purchaser, the
Information Agent and the Dealer Manager cannot and do not take
responsibility for the accuracy or completeness of the
information contained in such documents and records, or for any
failure by CNA Surety to disclose events which may have occurred
or may affect the significance or accuracy of any such
information but which are unknown to CNA Financial, Purchaser,
the Information Agent or the Dealer Manager. Purchaser, CNA
Financial, the Dealer Manager, the Information Agent and the
Depositary have relied upon the accuracy of the information
included in such publicly available documents and records and
other public sources and have not made any independent attempt
to verify the accuracy of such information.
Available
Information
CNA Surety’s common stock is registered under the Exchange
Act. Accordingly, CNA Surety is subject to the informational
reporting requirements of the Exchange Act and, in accordance
therewith, is required to file periodic reports, proxy
statements and other information with the SEC relating to its
business, financial condition and other matters. Information as
of particular dates concerning CNA Surety’s directors and
officers, their remuneration, stock options granted to them, the
principal holders of CNA Surety’s securities and any
material interest of such persons in transactions with CNA
Surety is required to be disclosed in proxy statements
distributed to CNA Surety’s stockholders and filed with the
SEC. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities
maintained by the SEC at 100 F Street, N.E.,
Washington, DC 20549. Information regarding the public reference
facilities may be obtained from the SEC by telephoning
1-800-SEC-0330.
CNA Surety’s filings are also available to the public on
the SEC’s website
(http://www.sec.gov).
Copies of such materials may also be obtained by mail from the
Public Reference Section of the SEC at 100 F Street,
N.E., Washington, D.C. 20549 at prescribed rates.
| 8. | Certain Information Concerning the CNA Financial Group |
CNA Financial. CNA Financial is a holding
company that derives substantially all of its operating income
and cash flows from its subsidiaries. Serving businesses and
professionals since 1897, CNA Financial, through its insurance
subsidiaries, is the country’s seventh largest commercial
insurance writer and the 13th largest property and casualty
company. CNA Financial’s insurance products include
standard commercial lines, specialty lines, surety, marine and
other property and casualty coverages. CNA Financial’s
services include risk management, information services,
underwriting, risk control and claims administration. CNA
Financial is a Delaware corporation. The principal offices of
CNA Financial are located at 333 South Wabash Avenue, Chicago,
Illinois 60604, and its telephone number at such address is
(312) 822-5000.
The Continental Corporation. TCC is a
wholly-owned subsidiary of CNA Financial. TCC is a holding
company which derives substantially all of its operating income
and cash flow from its subsidiaries, whose lines of business
include commercial property and casualty insurance and related
services. TCC is a New York corporation. The principal offices
of TCC are located at 333 South Wabash Avenue, Chicago, Illinois
60604, and its telephone number at such address is
(312) 822-5000.
Continental Casualty Company. CCC is a
property and casualty insurance company and wholly-owned
subsidiary of TCC. CCC is an Illinois insurance company. The
principal offices of CCC are located at 333 South Wabash Avenue,
Chicago, Illinois 60604, and its telephone number at such
address is
(312) 822-5000.
Surety Acquisition Corporation. Purchaser is a
newly formed wholly-owned subsidiary of CCC. Purchaser is a
Delaware corporation that was formed to acquire the Shares in
the Offer and to engage in the other transactions contemplated
by the Merger Agreement. The principal offices of Purchaser are
located at 333 South Wabash Avenue, Chicago, Illinois 60604, and
its telephone number at such address is
(312) 822-5000.
Loews Corporation. Loews is a holding company
which derives substantially all of its operating income and cash
flow from its subsidiaries. In addition to CNA Financial (a 90%
owned subsidiary), Loews’s subsidiaries are engaged in the
following lines of business: the operation of offshore oil and
gas drilling rigs
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(Diamond Offshore Drilling, Inc., a 50.4% owned subsidiary),
exploration, production and marketing of natural gas and natural
gas liquids (HighMount Exploration & Production LLC, a
wholly-owned subsidiary), the operation of interstate natural
gas transmission pipeline systems (Boardwalk Pipeline Partners,
LP, a 66% owned subsidiary) and the operation of hotels (Loews
Hotels Holding Corporation, a wholly-owned subsidiary). Loews is
a Delaware corporation. The principal offices of Loews are
located at 667 Madison Avenue, New York, New York
10065-8087,
and its telephone number at such address is
(212) 521-2000.
The name, citizenship, business address, business telephone
number, current principal occupation (including the name,
principal business and address of the organization in which such
occupation is conducted) and material positions held during the
past five years of each of the directors and executive officers
of each member of the CNA Financial Group is set forth in
Schedule A to this Offer to Purchase.
Purchaser and the other members of the CNA Financial Group have
made no arrangements in connection with the Offer to provide
holders of Shares access to their corporate files or to obtain
counsel or appraisal services at their expense. For a discussion
of appraisal rights, see “Special Factors —
Section 10. Appraisal Rights;
Rule 13e-3.”
| 9. | Source and Amount of Funds |
The total amount of funds necessary to purchase all of the
outstanding shares of CNA Surety common stock that are not
currently owned by CNA Financial or its subsidiaries and to make
all other payments required to be made under the merger
agreement, including in respect of equity and incentive awards
for directors and employees of CNA Surety and related
transaction fees and expenses, is estimated to be approximately
$480 million. See “The Offer —
Section 14. Fees and Expenses.” CCC, an indirect
wholly-owned subsidiary of CNA Financial and the direct parent
of Purchaser, has sufficient cash and cash equivalents on hand,
which it will provide to Purchaser, to purchase all shares of
CNA Surety common stock validly tendered in the offer. The offer
is not subject to any financing condition.
| 10. | Dividends and Distributions |
If, at any time on or after the date hereof, CNA Surety declares
or pays any dividend or other distribution (including, without
limitation, the issuance of additional Shares pursuant to a
stock dividend or stock split) with respect to the Shares that
is payable or distributable to stockholders of record on a date
occurring prior to the transfer to the name of Purchaser or its
nominees or transferees on CNA Surety’s stock transfer
records of the Shares purchased pursuant to the Offer, then,
without prejudice to Purchaser’s rights described in
“The Offer — Section 11. Conditions to the
Offer,” (i) the purchase price per Share payable by
Purchaser pursuant to the Offer will be reduced in the amount of
any such cash dividend or distribution and (ii) the whole
of any non-cash dividend or distribution (including, without
limitation, additional Shares) will be required to be remitted
promptly and transferred by each tendering stockholder to the
Depositary for the account of Purchaser accompanied by
appropriate documentation of transfer. Pending such remittance
or appropriate assurance thereof, Purchaser will be entitled to
all rights and privileges as owner of any such non-cash dividend
or distribution, as determined by Purchaser in its sole
discretion.
If, on or after the date hereof, CNA Surety should split the
Shares or combine or otherwise change the Shares or its
capitalization, then, without prejudice to Purchaser’s
rights described under the heading “The Offer —
Section 11. Conditions to the Offer,” appropriate
adjustments to reflect such split, combination or change may be
made by Purchaser in the purchase price and other terms of the
Offer, including, without limitation, the number or type of
securities offered to be purchased.
| 11. | Conditions to the Offer |
Notwithstanding any other provision of the Offer, and in
addition to (and not in limitation of) Purchaser’s rights
to extend, modify and amend the Offer pursuant to the Merger
Agreement, Purchaser will, subject to the terms of the Merger
Agreement, not be required to accept for payment, or, subject to
any applicable rules and
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regulations of the SEC, including
Rule 14e-1(c)
under the Exchange Act, to pay for, and may delay the acceptance
for payment of, any Shares tendered pursuant to the Offer, if:
| • | the “majority-of-the-minority” condition shall not have been satisfied; | |
| • | the Special Committee and/or the board of directors of CNA Surety (acting based on a recommendation of the Special Committee) shall have made a Change in Recommendation such that the Special Committee Recommendation or the CNA Surety Board Recommendation is not in effect as of the Expiration Date of the Offer; | |
| • | there shall be in effect any order, writ, injunction, judgment, decree, law, statute, rule, regulation, ordinance or code issued, enacted or promulgated by any court of competent jurisdiction or any other governmental or regulatory authority that restrains, enjoins or otherwise prohibits the consummation of the Offer or the Merger; | |
| • | (i) certain of the representations and warranties of CNA Surety set forth in the Merger Agreement relating to its capitalization and authority shall not be true and correct in all material respects as of the date of the Merger Agreement and as of the Expiration Date as though made on or as of such date, (ii) the representations and warranties of CNA Surety set forth in the Merger Agreement relating to an absence of a Material Adverse Effect shall not be true and correct as of the date of the Merger Agreement and as of the Expiration Date or (iii) the other representations and warranties of CNA Surety set forth in the Merger Agreement disregarding any exceptions therein relating to materiality or Material Adverse Effect, shall not be true and correct as of the date of the Merger Agreement and as of the Expiration Date as though made as of such date, except in the case of this clause (iii) for such failures to be so true and correct that, individually or in the aggregate, have not had and would not reasonably be expected to have, a Material Adverse Effect; | |
| • | CNA Surety shall not have performed or complied with, in all material respects, any of its covenants or agreements contained in the Merger Agreement at or prior to the Expiration Date, to the extent required to be performed at or prior to the Expiration Date, which failure to perform or comply shall not have been cured at or prior to the Expiration Date; | |
| • | Form D approval from the insurance regulatory authority in Illinois with respect to the Offer, the Merger and the other transactions contemplated by the Merger Agreement shall not have been received; or | |
| • | the Merger Agreement shall have been terminated in accordance with its terms. |
The foregoing conditions are for the benefit of CNA Financial
and Purchaser and, except for the
“majority-of-the-minority”
condition which is non-waivable, may be waived by CNA Financial
and Purchaser in whole or in part at any time and from time to
time in the sole discretion of CNA Financial or Purchaser, in
each case, subject to the applicable rules and regulations of
the SEC. The determination as to whether any condition has been
satisfied will be made in the exclusive judgment of CNA
Financial and Purchaser and will be final and binding. For
purposes of determining whether the
“majority-of-the-minority”
condition has been satisfied, CNA Financial and Purchaser have
the right to include or exclude for purposes of its
determination thereof Shares tendered in the Offer pursuant to
guaranteed delivery procedures (provided that if CNA Surety
notifies CNA Financial that it reasonably believes Shares that
are subject to guaranteed delivery procedures may not be
delivered to Merger Sub in accordance with such guaranteed
delivery procedures, then CNA Financial and Purchaser will not
include any such Shares in its determination of whether the
“majority-of-the-minority”
condition has been satisfied without the prior consent of CNA
Surety (acting pursuant to the direction of the Special
Committee)). The failure by CNA Financial or Purchaser at any
time to exercise its rights under any of the foregoing
conditions will not be deemed a waiver of any such rights and
each such right will be deemed an ongoing right which may be
asserted at any time or from time to time.
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| 12. | Effect of the Offer on the Market for the Shares; NYSE Listing; Exchange Act Registration; Margin Regulations |
Market for the Shares. The purchase of Shares
by Purchaser pursuant to the Offer will reduce the number of
holders of Shares and the number of Shares that might otherwise
trade publicly and, depending upon the number of Shares so
purchased, could adversely affect the liquidity and market value
of the remaining Shares held by the public. Purchaser cannot
predict whether the reduction in the number of Shares that might
otherwise trade publicly would have an adverse or beneficial
effect on the market price for, or the marketability of, the
Shares or whether it would cause future market prices to be
greater or less than or the same as the Offer Price. Because
Purchaser intends to complete the Merger promptly after it
consummates the Offer, any such effect on the market for Shares
will be temporary.
Stock Listing. The Shares are listed on the
NYSE. After completion of the Offer and depending upon the
aggregate market value and the per Share price of any Shares not
purchased pursuant to the Offer, the Shares may no longer meet
the requirements for continued listing on the NYSE. According to
the NYSE’s published guidelines, the NYSE may delist the
Shares if, among other things: (i) the number of total
stockholders falls below 400; (ii) the number of total
stockholders falls below 1,200 and the average monthly trading
volume is less than 100,000 shares (for the most recent
12 months); or (iii) the number of publicly held
Shares (exclusive of holdings of directors and officers of CNA
Surety and their immediate families and other concentrated
holdings of 10% or more) should fall below 600,000. If as a
result of the purchase of Shares pursuant to the Offer, the
Shares no longer meet the requirements of the NYSE for continued
listing and the listing of the Shares is discontinued, the
market for the Shares could be adversely affected.
If the NYSE were to delist the Shares, it is possible that the
Shares would continue to trade on other securities exchanges or
in the
over-the-counter
market and that price quotations would be reported by such
exchanges or through the Nasdaq Stock Market, Inc. or other
sources. The extent of the public market for the Shares and the
availability of such quotations would depend, however, upon such
factors as the number of stockholders
and/or the
aggregate market value of the publicly traded Shares remaining
at such time, the interest in maintaining a market in the Shares
on the part of securities firms, the possible termination of
registration under the Exchange Act as described below, and
other factors. Purchaser cannot predict whether the reduction in
the number of Shares that might otherwise trade publicly would
have an adverse or beneficial effect on the market price for, or
the marketability of, the Shares or whether it would cause
future market prices to be greater or lesser than the Offer
Price.
If the Offer is consummated, CNA Financial and Purchaser will
cause the Merger to be completed as soon as reasonably
practicable. After the Merger is completed, there will be no
public market for the Shares and no holders of the Shares other
than a subsidiary of CNA Financial, and the Shares will be
delisted from the NYSE.
Exchange Act Registration. CNA Surety’s
common stock is currently registered under the Exchange Act.
Registration of the common stock under the Exchange Act may be
terminated upon application of CNA Surety to the SEC, if the
Shares are neither listed on a national securities exchange nor
held by 300 or more holders of record. Termination of
registration of the common stock under the Exchange Act would
substantially reduce the information required to be furnished by
CNA Surety to its stockholders and to the SEC in respect of CNA
Surety’s common stock and would make certain provisions of
the Exchange Act no longer applicable to CNA Surety, such as the
short-swing profit recovery provisions of Section 16(b) and
the requirement of furnishing a proxy statement pursuant to
Section 14(a) in connection with stockholders’
meetings and the related requirement of furnishing an annual
report to stockholders. Furthermore, the ability of
“affiliates” of CNA Surety and persons holding
“restricted securities” of CNA Surety to dispose of
such securities pursuant to Rule 144 or Rule 144A
promulgated under the Securities Act may be impaired or
eliminated. Purchaser currently intends to seek the delisting of
CNA Surety’s common stock from the NYSE and to cause CNA
Surety to terminate the registration of the common stock under
the Exchange Act as soon as practicable after consummation of
the Merger if the requirements for such delisting and
termination of registration are met.
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Margin Regulations. The Shares are presently
“margin securities” under the regulations of the Board
of Governors of the Federal Reserve System (the “Federal
Reserve Board”), which status has the effect, among
other things, of allowing brokers to extend credit on the
collateral of the Shares. Depending upon factors similar to
those described above regarding stock exchange listing and
market quotations, it is possible that, following the Offer, the
Shares would no longer constitute “margin securities”
for the purposes of the margin regulations of the Federal
Reserve Board and, therefore, could no longer be used as
collateral for loans made by brokers. In addition, if
registration of CNA Surety’s common stock under the
Exchange Act were terminated, the Shares would no longer
constitute “margin securities.”
| 13. | Certain Legal Matters; Regulatory Approvals |
General. Neither CNA Financial nor Purchaser
is aware of (i) any license or regulatory permit that
appears to be material to the business of CNA Surety that might
be adversely affected by the acquisition of Shares by CNA
Financial or Purchaser pursuant to the Offer, the Merger or
otherwise, or (ii) except as discussed herein, any approval
or other action by any Governmental Entity that would be
required prior to the acquisition of Shares by Purchaser
pursuant to the Offer, the Merger or otherwise. Should any such
approval or other action be required, Purchaser and CNA
Financial presently contemplate that such approval or other
action will be sought. There can be no assurance that any such
approval or other action, if needed, would be obtained, or would
be obtained without substantial conditions, or that failure to
obtain any such approval or other action might not result in
consequences materially adverse to CNA Surety’s business in
the event that such approvals were not obtained or such other
actions were not taken. If certain types of adverse action are
taken with respect to the matters discussed below, Purchaser
could decline to accept for payment, or pay for, any Shares
tendered. See “The Offer — Section 11.
Conditions to the Offer” for certain conditions to the
Offer, including conditions with respect to governmental actions.
State Anti-takeover Statutes. A number of
states have adopted laws and regulations applicable to offers to
acquire shares of corporations that are incorporated or have
substantial assets, stockholders
and/or a
principal place of business in such states. CNA Surety is
incorporated under the laws of the State of Delaware. In
general, Section 203 of the DGCL prevents an
“interested stockholder” (generally defined as a
person beneficially owning 15% or more of a corporation’s
voting stock) from engaging in a “business
combination” (generally defined to include mergers and
certain other actions) with a Delaware corporation for a period
of three years following the time such person became an
interested stockholder, unless, among other things, prior to the
time the interested stockholder became such, the board of
directors of the corporation approved either the business
combination or the transaction in which the interested
stockholder became such. CNA Surety has not opted out of
Section 203 of the DGCL. Because CNA Financial became an
interested stockholder more than three years ago, CNA Financial
and Purchaser do not believe that Section 203 of the DGCL
would prevent Purchaser from consummating the Offer or the
Merger.
CNA Surety conducts business in a number of states throughout
the United States, some of which have enacted takeover laws. CNA
Financial and Purchaser do not believe that the anti-takeover
laws and regulations of any state will by their terms apply to
the Offer or the Merger, and neither CNA Financial nor Purchaser
has attempted to comply with any state anti-takeover statute or
regulation. CNA Financial and Purchaser reserve the right to
challenge the applicability or validity of any state law or
regulation purporting to apply to the Offer or the Merger, and
neither anything in this Offer to Purchase nor any action taken
in connection herewith is intended as a waiver of such right. In
the event it is asserted that one or more state takeover
statutes is applicable to the Offer or the Merger and an
appropriate court does not determine that such statute is
inapplicable or invalid as applied to the Offer or the Merger,
CNA Financial or Purchaser might be required to file certain
information with, or to receive approval from, the relevant
state authorities, and Purchaser might be unable to accept for
payment or pay for Shares tendered pursuant to the Offer, or be
delayed in completing the Offer. In addition, if enjoined,
Purchaser might be unable to accept for payment any Shares
tendered pursuant to the Offer, or be delayed in continuing or
completing the Offer and consummating the Merger. In such case,
Purchaser may not be obligated to accept for payment any Shares
tendered in the Offer. See “The Offer —
Section 11. Conditions to the Offer.”
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Antitrust. Under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the “HSR
Act”), and the rules that have been promulgated
thereunder by the Federal Trade Commission (the
“FTC”), certain acquisition transactions may
not be consummated unless certain information has been furnished
to the Antitrust Division of the Department of Justice (the
“DOJ”) and the FTC and certain waiting period
requirements have been satisfied. As explained more fully below,
however, the Offer is not a reportable transaction under the HSR
Act.
CNA Financial currently beneficially owns more than 50% of the
outstanding voting securities of CNA Surety. Under the HSR Act,
this level of ownership means that CNA Financial is in
“control” of CNA Surety for the purposes of such
regulations. Based on the foregoing, CNA Financial and Purchaser
believe no HSR Act filing is required in connection with the
Offer and the Merger.
Federal Reserve Board Regulations. Regulations
T, U and X (the “Margin Regulations”) of the
Federal Reserve Board restrict the extension or maintenance of
credit for the purpose of buying or carrying margin stock,
including the Shares, if the credit is secured directly or
indirectly by margin stock. CNA Financial is funding the
acquisition of the Shares from its internally available funds.
The Margin Regulations are thus inapplicable to the Offer.
State Insurance Regulatory
Approvals. Subsidiaries of CNA Financial and CNA
Surety are regulated by state insurance regulators. Completion
of the Offer and Merger may be subject to certain requirements
for prior notice to
and/or
approval by state insurance regulators applicable to
transactions between a domestic insurance company and its
affiliates (referred to as a “Form D
Notice”). Under the various state insurance laws a
domestic insurer may not enter into certain specified
transactions in excess of specified size thresholds with an
affiliate unless the insurer has provided state insurance
regulators thirty days’ prior notice and the transaction
has not been disapproved during that time. On May 4, 2011,
CCC submitted a Form D Notice to the insurance regulator in
Illinois notifying such regulator of the Offer, the Merger and
the other transactions contemplated by the Merger Agreement. The
approval of the insurance regulator in Illinois is a condition
to the obligation of Purchaser to consummate the Offer. If the
insurance regulator in Illinois does not disapprove of the Offer
on or before June 3, 2011, no further action of the
insurance regulator will be required in order for CNA Financial
and Purchaser to complete the Offer. If the approval (or
non-disapproval) of the insurance regulator in Illinois is not
obtained, Purchaser would not be obligated to accept for payment
any Shares tendered in the Offer.
| 14. | Fees and Expenses |
CNA Financial has engaged J.P. Morgan as its financial
advisor in connection with the Offer and the Merger and as the
Dealer Manager for the Offer. CNA Financial has agreed to pay
J.P. Morgan an aggregate fee of $2 million for its
financial advisory services, all of which is payable upon the
consummation of the Offer. CNA Financial has also agreed to pay
J.P. Morgan an additional $250,000 for serving as the
Dealer Manager for the Offer. CNA Financial has agreed to
reimburse J.P. Morgan for its reasonable travel and other
expenses incurred in connection with its engagement and to
indemnify J.P. Morgan and its affiliates against
liabilities and expenses relating to or arising out of its
engagement, including certain liabilities and expenses under the
federal securities laws. In the ordinary course of business,
J.P. Morgan and its respective affiliates may actively
trade or hold securities or loans of Loews, CNA Financial and
CNA Surety for their own accounts or for the accounts of
customers and, accordingly, J.P. Morgan
and/or its
respective affiliates may at any time hold long or short
positions in these securities or loans.
CNA Financial has also retained Innisfree M&A Incorporated
to serve as the Information Agent and Wells Fargo Bank, N.A. to
serve as the Depositary in connection with the Offer. The
Information Agent may contact holders of Shares by personal
interview, mail, telephone and other methods of electronic
communication and may request brokers, dealers, commercial
banks, trust companies and other nominees to forward the Offer
materials to beneficial holders. Each of the Information Agent
and the Depositary will receive reasonable and customary
compensation for their services, be reimbursed for certain
reasonable
out-of-pocket
expenses and be indemnified against certain liabilities in
connection with their services, including certain liabilities
and expenses under the federal securities laws.
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Except as discussed above, neither CNA Financial nor Purchaser
will pay any fees or commissions to any broker or dealer or
other person or entity in connection with the solicitation of
tenders of Shares pursuant to the Offer. Brokers, dealers, banks
and trust companies will be reimbursed by Purchaser for
customary mailing and handling expenses incurred by them in
forwarding the Offer materials to their customers.
The following is an estimate of fees and expenses to be incurred
by CNA Financial and Purchaser in connection with the Offer:
|
Financial Advisor/Dealer Manager Fees
|
$ | 2,250,000 | ||
|
Filing Fees
|
$ | 54,000 | ||
|
Paying Agent and Depositary Fees
|
$ | 50,000 | ||
|
Information Agent (including mailing)
|
$ | 25,000 | ||
|
Legal, Printing and Mailing and other Miscellaneous Fees and
Expenses
|
$ | 1,500,000 | ||
|
Total
|
$ | 3,879,000 |
In addition, CNA Surety will incur its own fees and expenses in
connection with the Offer.
| 15. | Miscellaneous |
The Offer is being made solely by this Offer to Purchase and the
related Letter of Transmittal and is being made to the holders
of Shares other than CNA Financial and its subsidiaries,
including Purchaser. Purchaser is not aware of any state where
the making of the Offer is prohibited by administrative or
judicial action pursuant to any valid state statute. If
Purchaser becomes aware of any valid state statute prohibiting
the making of the Offer or the acceptance of the Shares pursuant
thereto, Purchaser will make a good faith effort to comply with
such statute or seek to have such statute declared inapplicable
to the Offer. If, after such good faith effort, Purchaser cannot
comply with such state statute, the Offer will not be made to
(nor will tenders be accepted from or on behalf of) holders of
Shares in such state.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATION ON BEHALF OF CNA FINANCIAL OR PURCHASER
NOT CONTAINED HEREIN OR IN THE LETTER OF TRANSMITTAL AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED. NO BROKER, DEALER, BANK,
TRUST COMPANY, FIDUCIARY OR OTHER PERSON SHALL BE DEEMED TO
BE THE AGENT OF CNA FINANCIAL, PURCHASER, THE DEPOSITARY, THE
DEALER MANAGER OR THE INFORMATION AGENT FOR THE PURPOSE OF THE
OFFER.
Purchaser and CNA Financial have filed with the SEC a Tender
Offer Statement on Schedule TO and Transaction Statement on
Schedule 13E-3
pursuant to
Rules 14d-3
and 13e-3
under the Exchange Act, together with all exhibits thereto,
furnishing certain additional information with respect to the
Offer. Such Schedule TO and
Schedule 13E-3
and any amendments thereto, including exhibits, should be
available for inspection and copies should be obtainable in the
same manner described in “The Offer —
Section 7. Certain Information Concerning CNA
Surety — Available Information.”
Surety Acquisition
Corporation
May 11, 2011
56
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SCHEDULE A
INFORMATION
CONCERNING DIRECTORS AND
EXECUTIVE OFFICERS OF THE CNA FINANCIAL GROUP
EXECUTIVE OFFICERS OF THE CNA FINANCIAL GROUP
1. Directors and Executive Officers of CNA
Financial. The following table sets forth the
name and present principal occupation or employment, and
material occupations, positions, offices or employments for the
past five years, of each director and executive officer of CNA
Financial. Unless otherwise indicated, each such person is a
U.S. citizen, the business address of each such person is
c/o CNA
Financial Corporation, 333 South Wabash Avenue, Chicago,
Illinois 60604 and the telephone number of each such person is
(312) 822-5000
and each such person has been engaged in CNA Financial’s or
its subsidiaries’ business actively and continuously for
the past five years. Neither CNA Financial nor any of the listed
persons, during the past five years, has been convicted in a
criminal proceeding (excluding traffic violations or similar
misdemeanors) or was a party to a civil proceeding of a judicial
or administrative body of competent jurisdiction as a result of
which such person was or is subject to a judgment, decree or
final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or
finding any violation of such laws.
|
Present Principal Occupation or Employment; |
||
| Name | Material Positions Held During the Past Five Years | |
|
Paul J. Liska (Director) |
From March 2008 until January 2009, Executive Vice President and Chief Financial Officer of Motorola, Inc. From 2006 until joining Motorola, industrial partner for various private equity firms including MidOcean Partners, CVC Capital Holdings and Ripplewood Holdings LLC. From 2004 to 2006, Executive Chairman of USF Corporation until its acquisition by Yellow Roadway Corporation and in various capacities with WRC Media, Inc., including Executive Chairman. | |
|
Jose O. Montemayor (Director) |
Principal of Black Diamond Capital Partners I since 2005. | |
|
Don M. Randel (Director) |
President of the Andrew W. Mellon Foundation since July 2006. Prior to that, President of the University of Chicago since July 2000. | |
|
Joseph Rosenberg (Director) |
Chief Investment Strategist of Loews since 1995. | |
|
Andrew H. Tisch (Director) |
Co-Chairman of the Board of Loews since 2006. Also, Chairman of the Executive Committee and a member of the Office of the President of Loews. | |
|
James S. Tisch (Director) |
President and Chief Executive Officer and a member of the Office of the President of Loews. | |
|
Marvin Zonis (Director) |
Professor Emeritus of International Political Economy, Leadership and E-Commerce at the Booth School of Business of the University of Chicago since 1989. | |
|
Thomas F. Motamed (Chairman and Chief Executive Officer) |
Chief Executive Officer of CNA Financial Corporation since January 1, 2009. From December 2002 to June 2008, Vice Chairman and Chief Operating Officer of The Chubb Corporation and President and Chief Operating Officer of Chubb & Son. | |
|
D. Craig Mense (Executive Vice President and Chief Financial Officer) |
E Executive Vice President and Chief Financial Officer of CNA Financial Corporation. | |
|
George R. Fay (Executive Vice President, Worldwide Property & Casualty Claim of the CNA insurance companies) |
Executive Vice President, Worldwide Property & Casualty Claim of the CNA insurance companies since July 2006. From July 1974 to July 2006, held various positions at The Chubb Corporation including Chief Services Officer. |
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|
Present Principal Occupation or Employment; |
||
| Name | Material Positions Held During the Past Five Years | |
|
Larry A. Haefner (Executive Vice President and Chief Actuary) |
Executive Vice President & Chief Actuary of the CNA insurance companies since April 2008. From October 2004 to April 2008, Vice President & Chief Actuary, Middle Market Business of The Travelers Insurance Companies. | |
|
Jonathan D. Kantor (Executive Vice President, General Counsel and Secretary) |
Executive Vice President, General Counsel and Secretary of CNA Financial Corporation. | |
|
Robert A. Lindemann (President and Chief Operating Officer, CNA Commercial of the CNA insurance companies) |
President and Chief Operating Officer, CNA Commercial of the CNA insurance companies since August 2009. From September 2004 to August 2009, Chief Operating Officer, Commercial Markets and President, Middle Markets of Zurich Financial Services North America. | |
|
Thomas Pontarelli (Executive Vice President and Chief Administrative Officer of the CNA insurance companies) |
Executive Vice President & Chief Administration Officer of the CNA insurance companies. | |
|
Timothy J. Szerling (President, Worldwide Field Operations of the CNA insurance companies) |
President, Worldwide Field Operations of the CNA insurance companies since September 2009. From June 1974 to August 2009, held various positions at The Chubb Corporation including Senior Vice President and Eastern U.S. Field Operations Officer. | |
|
Peter W. Wilson (President and Chief Operating Officer, CNA Specialty of the CNA insurance companies) |
P President and Chief Operating Officer, CNA Specialty of the CNA insurance companies since April 2009. From March 2002 to April 2009, Executive Vice President, Global Specialty Lines of the CNA insurance companies. |
2. Directors and Executive Officers of Continental
Casualty Company. The following table sets forth
the name and present principal occupation or employment, and
material occupations, positions, offices or employments for the
past five years, of each director and executive officer of CCC.
Unless otherwise indicated, each such person is a
U.S. citizen, the business address of each such person is
c/o Continental
Casualty Company, 333 South Wabash Avenue, Chicago, Illinois
60604 and the telephone number of each such person is
(312) 822-5000
and each such person has been engaged in CNA Financial’s or
its subsidiaries’ business actively and continuously for
the past five years. Neither CCC nor any of the listed persons,
during the past five years, has been convicted in a criminal
proceeding (excluding traffic violations or similar
misdemeanors) or was a party to a civil proceeding of a judicial
or administrative body of competent jurisdiction as a result of
which such person was or is subject to a judgment, decree or
final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or
finding any violation of such laws.
|
Present Principal Occupation or Employment; |
||
| Name | Material Positions Held During the Past Five Years | |
|
Thomas F. Motamed (Chairman of the Board, Chief Executive Officer & President) |
Chief Executive Officer of CNA Financial, TCC and the CNA insurance companies since January 1, 2009. From December 2002 to June 2008, Vice Chairman and Chief Operating Officer of The Chubb Corporation and President and Chief Operating Officer of Chubb & Son. | |
|
D. Craig Mense (Director, Executive Vice President & Chief Financial Officer) |
Executive Vice President & Chief Financial Officer of CNA Financial, TCC and the CNA insurance companies. | |
|
George R. Fay (Executive Vice President, Worldwide Property & Casualty, Claims) |
Executive Vice President, Worldwide Property & Casualty Claim of the CNA insurance companies since July 2006. From July 1974 to July 2006, held various positions at The Chubb Corporation including Chief Services Officer. |
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|
Present Principal Occupation or Employment; |
||
| Name | Material Positions Held During the Past Five Years | |
|
Larry A. Haefner (Director, Executive Vice President and Chief Actuary) |
Executive Vice President & Chief Actuary of the CNA insurance companies since April 2008. From October 2004 to April 2008, Vice President & Chief Actuary, Middle Market Business of The Travelers Insurance Companies. | |
|
Jonathan D. Kantor (Director, Executive Vice President, General Counsel & Secretary) |
Executive Vice President, General Counsel and Secretary of CNA Financial, TCC and the CNA insurance companies. | |
|
Robert A. Lindemann (President & Chief Operating Officer, CNA Commercial) |
President and Chief Operating Officer, CNA Commercial of the CNA insurance companies since August 2009. From September 2004 to August 2009, Chief Operating Officer, Commercial Markets and President, Middle Markets of Zurich Financial Services North America. | |
|
Thomas Pontarelli (Director, Executive Vice President and Chief Administrative Officer) |
Executive Vice President and Chief Administrative Officer of TCC and the CNA insurance companies. | |
|
Timothy J. Szerling (President, Worldwide Field Operations) |
President, Worldwide Field Operations of the CNA insurance companies since September 2009. From June 1974 to August 2009, held various positions at The Chubb Corporation including Senior Vice President and Eastern U.S. Field Operations Officer. | |
|
Peter W. Wilson (President & Chief Operating Officer, CNA Specialty) |
President and Chief Operating Officer, CNA Specialty of the CNA insurance companies since April 2009. From March 2002 to April 2009, Executive Vice President, Global Specialty Lines of the CNA insurance companies. |
3. Directors and Executive Officers of The Continental
Corporation. The following table sets forth the
name and present principal occupation or employment, and
material occupations, positions, offices or employments for the
past five years, of each director and executive officer of TCC.
Unless otherwise indicated, each such person is a
U.S. citizen, the business address of each such person is
c/o The
Continental Corporation, 333 South Wabash Avenue, Chicago,
Illinois 60604 and the telephone number of each such person is
(312) 822-5000
and each such person has been engaged in CNA Financial’s or
its subsidiaries’ business actively and continuously for
the past five years. Neither TCC nor any of the listed persons,
during the past five years, has been convicted in a criminal
proceeding (excluding traffic violations or similar
misdemeanors) or was a party to a civil proceeding of a judicial
or administrative body of competent jurisdiction as a result of
which such person was or is subject to a judgment, decree or
final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or
finding any violation of such laws.
|
Present Principal Occupation or Employment; |
||
| Name | Material Positions Held During the Past Five Years | |
|
Thomas F. Motamed (Chairman of the Board, Chief Executive Officer & President) |
Chief Executive Officer of CNA Financial, TCC and the CNA insurance companies since January 1, 2009. From December 2002 to June 2008, Vice Chairman and Chief Operating Officer of The Chubb Corporation and President and Chief Operating Officer of Chubb & Son. | |
|
D. Craig Mense (Director, Executive Vice President & Chief Financial Officer) |
Executive Vice President & Chief Financial Officer of CNA Financial, TCC and the CNA insurance companies. | |
|
Lawrence J. Boysen (Senior Vice President & Corporate Controller) |
Senior Vice President & Corporate Controller of CNA Financial, TCC and the CNA insurance companies. | |
|
Stathy Darcy (Senior Vice President & Deputy General Counsel) |
Senior Vice President & Deputy General Counsel of CNA Financial, TCC and the CNA insurance companies since October 2010. From May 2006 to October 2010, Deputy General Counsel-Mutual Funds of Calamos Investments. |
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|
Present Principal Occupation or Employment; |
||
| Name | Material Positions Held During the Past Five Years | |
|
Larry A. Haefner (Director) |
Executive Vice President & Chief Actuary of the CNA insurance companies since April 2008. From October 2004 to April 2008, Vice President & Chief Actuary, Middle Market Business of The Travelers Insurance Companies. | |
|
Jonathan D. Kantor (Director, Executive Vice President, General Counsel & Secretary) |
Executive Vice President, General Counsel and Secretary of CNA Financial, TCC and the CNA insurance companies. | |
|
Thomas Pontarelli (Director) |
Executive Vice President and Chief Administrative Officer of TCC and the CNA insurance companies. |
4. Directors and Executive Officers of
Purchaser. The following table sets forth the
name and present principal occupation or employment, and
material occupations, positions, offices or employments for the
past five years, of each director and executive officer of
Purchaser. Unless otherwise indicated, each such person is a
U.S. citizen, the business address of each such person is
c/o CNA
Financial Corporation, 333 South Wabash Avenue, Chicago,
Illinois 60604 and the telephone number of each such person is
(312) 822-5000
and each such person has been engaged in CNA Financial’s or
its subsidiaries’ business actively and continuously for
the past five years. Neither Purchaser nor any of the listed
persons, during the past five years, has been convicted in a
criminal proceeding (excluding traffic violations or similar
misdemeanors) or was a party to a civil proceeding of a judicial
or administrative body of competent jurisdiction as a result of
which such person was or is subject to a judgment, decree or
final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or
finding any violation of such laws. Unless otherwise indicated,
each such person has held his or her present occupation as set
forth below for the past five years.
|
Present Principal Occupation or Employment; |
||
| Name | Material Positions Held During the Past Five Years | |
|
Thomas F. Motamed (Chairman and Chief Executive Officer) |
Chairman of the Board and Chief Executive Officer of CNA Financial, TCC and the CNA insurance companies. From December 2002 to June 2008, Vice Chairman and Chief Operating Officer of The Chubb Corporation and President and Chief Operating Officer of Chubb & Son | |
|
D. Craig Mense (Director, Executive Vice President and Chief Financial Officer) |
Executive Vice President and Chief Financial Officer of CNA Financial. | |
|
Larry A. Haefner (Director, Executive Vice President and Chief Actuary) |
Executive Vice President & Chief Actuary of CNA Financial, TCC and the CNA insurance companies since April 2008. From October 2004 to April 2008, Vice President & Chief Actuary, Middle Market Business of The Travelers Insurance Companies. | |
|
Jonathan D. Kantor (Director, Executive Vice President, General Counsel and Secretary) |
Executive Vice President, General Counsel and Secretary of CNA Financial. | |
|
Thomas Pontarelli (Director, Executive Vice President and Chief Administrative Officer) |
Executive Vice President and Chief Administrative Officer of TCC and the CNA insurance companies. |
5. Directors and Executive Officers of
Loews. The following table sets forth the name
and present principal occupation or employment, and material
occupations, positions, offices or employments for the past five
years, of each director and executive officer of Loews. Unless
otherwise indicated, each such person is a U.S. citizen,
the business address of each such person is
c/o Loews
Corporation, is 667 Madison Avenue, New York, New York
10065-8087
and the telephone number of each such person is
(212) 521-2000
and, with respect to the executive officers, each such person
has been engaged in Loews business actively and continuously for
the past five years. Neither Loews nor any of the listed
persons, during the past five years, has been convicted in a
criminal proceeding (excluding traffic violations or similar
misdemeanors) or was a party to a civil proceeding of a judicial
or administrative body of competent jurisdiction as a result of
which such person was or is subject to a judgment, decree or
final order enjoining future violations of, or prohibiting
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activities subject to, federal or state securities laws or
finding any violation of such laws. Unless otherwise indicated,
each such person has held his or her present occupation as set
forth below for the past five years.
|
Present Principal Occupation or Employment; |
||
| Name | Material Positions Held During the Past Five Years | |
|
Ann E. Berman (Director) |
Retired; Served as senior advisor to the president of Harvard University from April 2006 until June 2009 and as Vice President of Finance and Chief Financial Officer of Harvard University from 2002 until April 2006 | |
|
Joseph L. Bower (Director) |
Baker Foundation Professor of Business Administration at Harvard University | |
|
Charles M. Diker (Director) |
Managing Partner of Diker Management LLC, a registered investment adviser | |
|
Jacob A. Frenkel (Director) |
Chairman of J.P. Morgan Chase International, the international unit of bank J.P. Morgan Chase & Co., and a member of the International Council of J.P. Morgan Chase & Co. since December 2009 and Chairman of the Group of Thirty, a nonprofit consultative group on international economic and monetary affairs. Served as Vice Chairman of insurer American International Group, Inc. from 2004 until October 2009. | |
|
Paul J. Fribourg (Director) |
Chairman of the Board, President and Chief Executive Officer of Continental Grain Company, a producer of pork and poultry products and provider of cattle feeding services. | |
|
Walter L. Harris (Director) |
Vice Chairman of Alliant Insurance Services, Inc. and President of its wholly-owned subsidiary, T&H Group, Inc., an insurance brokerage firm, since December 2010. Prior to December 2010, President and Chief Executive Officer of Tanenbaum-Harber Co., Inc., now known as T&H Brokers, Inc. and a wholly-owned subsidiary of Alliant. | |
|
Philip A. Laskawy (Director) |
Retired Chairman and Chief Executive Officer of Ernst & Young LLP, a professional services organization. | |
|
Ken Miller (Director) |
Managing Partner of Keylink Capital International, LLC, a consulting firm. Prior to 2010, served as President and Chief Executive Officer of Ken Miller Capital, LLC, a merchant banking firm. | |
|
Gloria R. Scott (Director) |
Owner of consulting services firm G. Randle Services. | |
|
David B. Edelson (Senior Vice President) |
Senior Vice President of Loews. | |
|
Gary W. Garson (Senior Vice President, General Counsel and Secretary) |
Senior Vice President, General Counsel and Secretary of Loews. | |
|
Herbert C. Hoffman (Senior Vice President) |
Senior Vice President of Loews. | |
|
Peter W. Keegan (Senior Vice President and Chief Financial Officer) |
Senior Vice President and Chief Financial Officer of Loews. | |
|
Richard W. Scott (Senior Vice President and Chief Investment Officer) |
Senior Vice President and Chief Investment Officer of Loews since 2010; prior to joining Loews, employed at American International Group, Inc. for more than five years, serving in various senior investment positions, including Chief Investment Officer — Insurance Portfolio Management. | |
|
Kenneth I. Siegel (Senior Vice President) |
Senior Vice President of Loews since 2009. Prior to joining Loews, employed as a Managing Director in the Mergers & Acquisitions Department at Lehman Brothers Holdings Inc. and in 2009 at Barclays Capital Inc. in a similar capacity. |
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|
Present Principal Occupation or Employment; |
||
| Name | Material Positions Held During the Past Five Years | |
|
Andrew H. Tisch (Office of the President, Co-Chairman of the Board and Chairman of the Executive Committee) |
Office of the President, Co-Chairman of the Board and Chairman of the Executive Committee of Loews. | |
|
James S. Tisch (Office of the President, President and Chief Executive Officer and Director) |
Office of the President, President and Chief Executive Officer of Loews. | |
|
Jonathan M. Tisch (Office of the President and Co-Chairman of the Board and Director) |
Office of the President and Co-Chairman of the Board of Loews. |
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SCHEDULE B
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth the current ownership of Shares
by the members of the CNA Financial Group and their respective
directors and executive officers and the directors and executive
officers of CNA Surety.
|
Person
|
Number | Percent | ||||||
|
Continental Casualty Company
|
27,425,147 | (1) | 61 | |||||
|
The Continental Corporation
|
27,425,147 | (2) | 61 | |||||
|
CNA Financial Corporation
|
27,425,147 | (3) | 61 | |||||
|
Loews Corporation
|
27,425,147 | (4) | 61 | |||||
|
Surety Acquisition Corporation
|
0 | 0 | ||||||
|
David Edelson, Senior Vice President of Loews Corporation and
Director of CNA Surety
|
3,200 | <1 | ||||||
|
Ken Miller, Director of Loews Corporation
|
1,850 | <1 | ||||||
|
All other directors and executive officers of CNA Financial,
Purchaser, CCC, TCC and Loews
|
0 | 0 | ||||||
| (1) | CCC owns 26,612,258 shares directly and 812,889 shares indirectly through its subsidiary The Continental Insurance Company. | |
| (2) | TCC holds none of the Shares directly and specifically disclaims beneficial ownership of the securities identified herein. | |
| (3) | CNA Financial holds none of the Shares directly and specifically disclaims beneficial ownership of the securities identified herein. | |
| (4) | Loews Corporation holds none of the Shares directly and specifically disclaims beneficial ownership of the securities identified herein. |
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SCHEDULE C
SECTION 262
OF THE DELAWARE GENERAL CORPORATION LAW
§ 262. Appraisal rights
(a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand
pursuant to subsection (d) of this section with respect to
such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor
consented thereto in writing pursuant to § 228 of this
title shall be entitled to an appraisal by the Court of Chancery
of the fair value of the stockholder’s shares of stock
under the circumstances described in subsections (b) and
(c) of this section. As used in this section, the word
“stockholder” means a holder of record of stock in a
corporation; the words “stock” and “share”
mean and include what is ordinarily meant by those words; and
the words “depository receipt” mean a receipt or other
instrument issued by a depository representing an interest in 1
or more shares, or fractions thereof, solely of stock of a
corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of
any class or series of stock of a constituent corporation in a
merger or consolidation to be effected pursuant to
§ 251 (other than a merger effected pursuant to
§ 251(g) of this title), § 252,
§ 254, § 255, § 256,
§ 257, § 258, § 263 or
§ 264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series
of stock, which stock, or depository receipts in respect
thereof, at the record date fixed to determine the stockholders
entitled to receive notice of the meeting of stockholders to act
upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or
(ii) held of record by more than 2,000 holders; and further
provided that no appraisal rights shall be available for any
shares of stock of the constituent corporation surviving a
merger if the merger did not require for its approval the vote
of the stockholders of the surviving corporation as provided in
§ 251(f) of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the
shares of any class or series of stock of a constituent
corporation if the holders thereof are required by the terms of
an agreement of merger or consolidation pursuant to
§§ 251, 252, 254, 255, 256, 257, 258, 263 and 264
of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository
receipts in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or
depository receipts in respect thereof) or depository receipts
at the effective date of the merger or consolidation will be
either listed on a national securities exchange or held of
record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.
and b. of this paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.,
b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under § 253 or
§ 267 of this title is not owned by the parent
immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be
available for the shares of any class or series of its stock as
a result of an amendment to its certificate of incorporation,
any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all
of the assets of the corporation. If the certificate of
incorporation contains such a
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provision, the procedures of this section, including those set
forth in subsections (d) and (e) of this section,
shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be
submitted for approval at a meeting of stockholders, the
corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record
date for notice of such meeting (or such members who received
notice in accordance with § 255(c) of this title) with
respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) of this section that
appraisal rights are available for any or all of the shares of
the constituent corporations, and shall include in such notice a
copy of this section and, if 1 of the constituent corporations
is a nonstock corporation, a copy of § 114 of this
title. Each stockholder electing to demand the appraisal of such
stockholder’s shares shall deliver to the corporation,
before the taking of the vote on the merger or consolidation, a
written demand for appraisal of such stockholder’s shares.
Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such
stockholder’s shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder
electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each
constituent corporation who has complied with this subsection
and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to
§ 228, § 253, or § 267 of this
title, then either a constituent corporation before the
effective date of the merger or consolidation or the surviving
or resulting corporation within 10 days thereafter shall
notify each of the holders of any class or series of stock of
such constituent corporation who are entitled to appraisal
rights of the approval of the merger or consolidation and that
appraisal rights are available for any or all shares of such
class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section and, if 1 of
the constituent corporations is a nonstock corporation, a copy
of § 114 of this title. Such notice may, and, if given
on or after the effective date of the merger or consolidation,
shall, also notify such stockholders of the effective date of
the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or
resulting corporation the appraisal of such holder’s
shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such
holder’s shares. If such notice did not notify stockholders
of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second
notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of
such constituent corporation that are entitled to appraisal
rights of the effective date of the merger or consolidation or
(ii) the surviving or resulting corporation shall send such
a second notice to all such holders on or within 10 days
after such effective date; provided, however, that if such
second notice is sent more than 20 days following the
sending of the first notice, such second notice need only be
sent to each stockholder who is entitled to appraisal rights and
who has demanded appraisal of such holder’s shares in
accordance with this subsection. An affidavit of the secretary
or assistant secretary or of the transfer agent of the
corporation that is required to give either notice that such
notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice,
each constituent corporation may fix, in advance, a record date
that shall be not more than 10 days prior to the date the
notice is given, provided, that if the notice is given on or
after the effective date of the merger or consolidation, the
record date shall be such effective date. If no record date is
fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the
merger or consolidation, the surviving or resulting corporation
or any stockholder who has complied with subsections (a)
and (d) of this section hereof and who
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is otherwise entitled to appraisal rights, may commence an
appraisal proceeding by filing a petition in the Court of
Chancery demanding a determination of the value of the stock of
all such stockholders. Notwithstanding the foregoing, at any
time within 60 days after the effective date of the merger
or consolidation, any stockholder who has not commenced an
appraisal proceeding or joined that proceeding as a named party
shall have the right to withdraw such stockholder’s demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied
with the requirements of subsections (a) and (d) of
this section hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting
from the consolidation a statement setting forth the aggregate
number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal
have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the
stockholder within 10 days after such stockholder’s
written request for such a statement is received by the
surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal
under subsection (d) of this section hereof, whichever is
later. Notwithstanding subsection (a) of this section, a
person who is the beneficial owner of shares of such stock held
either in a voting trust or by a nominee on behalf of such
person may, in such person’s own name, file a petition or
request from the corporation the statement described in this
subsection.
(f) Upon the filing of any such petition by a stockholder,
service of a copy thereof shall be made upon the surviving or
resulting corporation, which shall within 20 days after
such service file in the office of the Register in Chancery in
which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the
value of their shares have not been reached by the surviving or
resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the
time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting
corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1
or more publications at least 1 week before the day of the
hearing, in a newspaper of general circulation published in the
City of Wilmington, Delaware or such publication as the Court
deems advisable. The forms of the notices by mail and by
publication shall be approved by the Court, and the costs
thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall
determine the stockholders who have complied with this section
and who have become entitled to appraisal rights. The Court may
require the stockholders who have demanded an appraisal for
their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal
proceedings; and if any stockholder fails to comply with such
direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After the Court determines the stockholders entitled to
an appraisal, the appraisal proceeding shall be conducted in
accordance with the rules of the Court of Chancery, including
any rules specifically governing appraisal proceedings. Through
such proceeding the Court shall determine the fair value of the
shares exclusive of any element of value arising from the
accomplishment or expectation of the merger or consolidation,
together with interest, if any, to be paid upon the amount
determined to be the fair value. In determining such fair value,
the Court shall take into account all relevant factors. Unless
the Court in its discretion determines otherwise for good cause
shown, interest from the effective date of the merger through
the date of payment of the judgment shall be compounded
quarterly and shall accrue at 5% over the Federal Reserve
discount rate (including any surcharge) as established from time
to time during the period between the effective date of the
merger and the date of payment of the judgment. Upon application
by the surviving or resulting corporation or by any stockholder
entitled to participate in the appraisal proceeding, the Court
may, in its discretion, proceed to trial upon the appraisal
prior to the final determination of the stockholders entitled to
an appraisal. Any stockholder whose name appears on the list
filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted such
stockholder’s certificates of
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stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal
rights under this section.
(i) The Court shall direct the payment of the fair value of
the shares, together with interest, if any, by the surviving or
resulting corporation to the stockholders entitled thereto.
Payment shall be so made to each such stockholder, in the case
of holders of uncertificated stock forthwith, and the case of
holders of shares represented by certificates upon the surrender
to the corporation of the certificates representing such stock.
The Court’s decree may be enforced as other decrees in the
Court of Chancery may be enforced, whether such surviving or
resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the
Court and taxed upon the parties as the Court deems equitable in
the circumstances. Upon application of a stockholder, the Court
may order all or a portion of the expenses incurred by any
stockholder in connection with the appraisal proceeding,
including, without limitation, reasonable attorney’s fees
and the fees and expenses of experts, to be charged pro rata
against the value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded appraisal rights
as provided in subsection (d) of this section shall be
entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of
record at a date which is prior to the effective date of the
merger or consolidation); provided, however, that if no petition
for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a
written withdrawal of such stockholder’s demand for an
appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the
merger or consolidation as provided in subsection (e) of
this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval
may be conditioned upon such terms as the Court deems just;
provided, however that this provision shall not affect the right
of any stockholder who has not commenced an appraisal proceeding
or joined that proceeding as a named party to withdraw such
stockholder’s demand for appraisal and to accept the terms
offered upon the merger or consolidation within 60 days
after the effective date of the merger or consolidation, as set
forth in subsection (e) of this section.
(l) The shares of the surviving or resulting corporation to
which the shares of such objecting stockholders would have been
converted had they assented to the merger or consolidation shall
have the status of authorized and unissued shares of the
surviving or resulting corporation.
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The Letter of Transmittal, Share Certificates and any other
required documents should be sent or delivered by each
stockholder of CNA Surety or such stockholder’s broker,
dealer, commercial bank, trust company or other nominee to the
Depositary, at the applicable address set forth below:
The
Depositary for the Offer is:
Wells
Fargo Bank, N.A.
By
Mail:
Wells Fargo Bank, N.A.
Shareowner Services
Voluntary Corporate Actions
P.O. Box 64854
St. Paul, Minnesota 55164-0854
Wells Fargo Bank, N.A.
Shareowner Services
Voluntary Corporate Actions
P.O. Box 64854
St. Paul, Minnesota 55164-0854
By Hand
or Overnight Courier:
Wells Fargo Bank, N.A.
Shareowner Services
Voluntary Corporate Actions
161 North Concord Exchange
South St. Paul, Minnesota 55075
Wells Fargo Bank, N.A.
Shareowner Services
Voluntary Corporate Actions
161 North Concord Exchange
South St. Paul, Minnesota 55075
For additional information please contact our Shareowner
Relations Department at
(800) 380-1372.
By Facsimile Transmission for Notices of
Guaranteed Delivery and Withdrawals Only:
(866) 734-9952
(fax)
Confirm by Telephone:
(800) 468-9716
(phone)
Questions and requests for assistance may be directed to the
Information Agent or the Dealer Manager at their respective
addresses and telephone numbers set forth below. Requests for
additional copies of this Offer to Purchase, the Letter of
Transmittal, the Notice of Guaranteed Delivery and other tender
offer materials may be directed to the Information Agent. A
stockholder may also contact such stockholder’s broker,
dealer, commercial bank, trust company or other nominee for
assistance.
The Information Agent for the Offer is:
Innisfree M&A
Incorporated
501 Madison Avenue, 20th Floor
New York, NY 10022
Stockholders May Call:
(877) 717-3930
Banks & Brokers May Call Collect:
(212) 750-5833
The Dealer Manager for the Offer is:
J.P. Morgan Securities LLC
383 Madison Avenue, 5th Floor
New York, NY 10179
(877) 371-5947
