Procentury Corp. DEF 14A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment
No. )
Filed by the Registrant þ
Filed by a Party other than the
Registrant o
Check the appropriate box:
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o Preliminary
Proxy Statement |
o Confidential,
for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)) |
þ Definitive Proxy
Statement |
o Definitive
Additional Materials |
o Soliciting
Material Pursuant to Section 240.14a-12 |
PROCENTURY CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
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No fee required. |
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Fee computed on table below per Exchange Act
Rules 14a-6(i)(1) and 0-11. |
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(1) |
Title of each class of securities to which transaction applies: |
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(2) |
Aggregate number of securities to which transaction applies: |
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(3) |
Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on
which the filing fee is calculated and state how it was
determined): |
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(4) |
Proposed maximum aggregate value of transaction: |
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing. |
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(1) |
Amount Previously Paid: |
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(2) |
Form, Schedule or Registration Statement No.: |
PROCENTURY CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Notice is hereby given that the Annual Meeting of Shareholders
of ProCentury Corporation, an Ohio corporation (the
Company), will be held at the Companys
corporate headquarters located at 465 Cleveland Avenue,
Westerville, Ohio 43082, on Monday, May 15, 2006, at
1:30 p.m., local time, for the following purposes:
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To elect three Class II directors, each to serve until the
2009 annual meeting of shareholders and until a successor has
been duly elected and qualified; and |
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To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof. |
Only shareholders of record at the close of business on
March 20, 2006 will be entitled to notice of and to vote at
the meeting or any adjournment or postponement of the meeting.
Shareholders are urged to complete, date and sign the enclosed
proxy and return it in the enclosed envelope.
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By order of the Board of Directors, |
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Christopher J. Timm |
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Secretary |
Dated: April 7, 2006
YOUR VOTE IS IMPORTANT. PLEASE SIGN, DATE AND RETURN YOUR
PROXY.
PROCENTURY CORPORATION
465 Cleveland Avenue
Westerville, Ohio 43082
PROXY STATEMENT FOR THE
2006 ANNUAL MEETING OF SHAREHOLDERS
General Information
This proxy statement and the enclosed proxy card are furnished
to you in connection with the solicitation of proxies by the
board of directors for use at the 2006 Annual Meeting of
Shareholders of ProCentury Corporation (the
Company). This proxy statement summarizes
information you need to know to vote at the Annual Meeting. The
Annual Meeting will be held at the Companys corporate
headquarters located at 465 Cleveland Avenue, Westerville, Ohio
43082, on Monday, May 15, 2006, at 1:30 p.m., local
time. However, you do not need to attend the Annual Meeting to
vote your shares. Instead, you may simply complete, date, sign
and return the enclosed proxy card.
The Company will begin sending this proxy statement, the
attached Notice of Annual Meeting of Shareholders and the
enclosed proxy card on or about April 7, 2006 to all
shareholders of record on March 20, 2006. The Company is
also sending its 2005 annual report to shareholders, which
includes the Companys consolidated financial statements,
with this proxy statement.
This solicitation of proxies is made by and on behalf of the
Companys board of directors. The Company will bear the
cost of the solicitation of proxies. In addition to the
solicitation of proxies by mail, regular employees of the
Company may solicit proxies by telephone or facsimile. Those
employees will not receive any additional compensation for their
participation in the solicitation. The Company has also retained
The Altman Group at an estimated cost of $3,500 plus
reimbursement of expenses, to assist in the solicitation of
proxies from brokers, nominees, institutions and individuals.
Voting Rights
Shareholders who owned the Companys common shares at the
close of business on March 20, 2006, the record date for
the Annual Meeting, are entitled to vote. On that date, there
were 13,211,019 common shares outstanding and each share is
entitled to one vote. Whether or not you plan to attend the
Annual Meeting, the Company urges you to complete, sign and date
the enclosed proxy card and to return it in the envelope
provided. Returning the proxy card will not affect your right to
attend the Annual Meeting.
If you properly complete your proxy card and send it to the
Company in time to vote, your proxy (one of the individuals
named in the proxy card) will vote your shares as you have
directed. If you sign the proxy card but do not make specific
choices, your proxy will vote your shares as recommended by the
board of directors to elect the three Class II director
nominees listed in Election of Directors.
If any other matter is presented, your proxy will vote in
accordance with his best judgment. As of the date of this proxy
statement, the Company is not aware of other matters to be acted
on at the Annual Meeting other than the election of three
Class II directors.
Revoking a Proxy
If you give a proxy, you may revoke it at any time before it is
exercised by giving written notice to the Company at its
principal executive offices located at 465 Cleveland Avenue,
Westerville, Ohio 43082, or by giving notice to the Company at
the Annual Meeting. It is important to note that your presence
at the Annual Meeting, without any further action on your part,
will not revoke your previously granted proxy.
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Quorum Requirement
The presence at the Annual Meeting, either in person or by
proxy, of the holders of a majority of the aggregate number of
common shares outstanding on the record date will represent a
quorum permitting the conduct of business at the meeting.
Proxies received by the Company marked as abstentions or broker
non-votes (shares held in street name by a broker or
nominee indicating on a proxy that it does not have authority to
vote with respect to the election of directors) will be included
in the calculation of the number of shares considered to be
present at the meeting.
Vote Required
The three Class II director nominees receiving the greatest
number of votes FOR election will be elected as
Class II directors. If you do not vote for a particular
nominee, or if you indicate Withhold Authority for a
particular nominee on your proxy card, your vote will not count
either for or against the nominee. Shares which abstain from
voting in the election of the Class II directors and broker
non-votes will not be voted in favor of the election of such
directors and also will not be counted as votes cast on the
election of directors. Accordingly, abstentions and broker
non-votes will have no effect on the voting in the election of
the Class II directors, because approval of such matter
requires the affirmative vote of a plurality of the votes cast.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of common shares of the Company as of
March 20, 2006, except as otherwise disclosed in the notes
below, by:
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each person who is known by the Company to own beneficially more
than 5% of the outstanding common shares based on a review of
filings with the Securities and Exchange Commission
(SEC); |
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the Companys Chief Executive Officer and the
Companys other executive officers named in the Summary
Compensation Table; |
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the Companys directors; and |
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the Companys current executive officers and directors as a
group. |
Except as otherwise described in the notes below, the following
beneficial owners have sole voting power and sole investment
power with respect to all common shares set forth opposite their
respective names:
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Number of | |
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Common Shares | |
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Percentage | |
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Beneficially Owned | |
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Ownership | |
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Wells Fargo & Company
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1,746,476 |
(1) |
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13.2 |
% |
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420 Montgomery Street
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San Francisco, California 94104
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Goldman Sachs Asset Management, L.P.
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1,121,232 |
(2) |
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8.5 |
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32 Old Slip
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New York, New York 10005
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T. Rowe Price Associates, Inc. and T. Rowe Price Small-Cap Value
Fund
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1,027,676 |
(3) |
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7.7 |
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100 East Pratt Street
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Baltimore, Maryland 21202
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Stonehenge Opportunity Fund, LLC
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878,571 |
(4)(12) |
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6.7 |
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191 W. Nationwide Blvd., Suite 600
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Columbus, Ohio 43215
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Flagg Street Capital LLC
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679,353 |
(5) |
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5.1 |
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44 Brattle Street
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Cambridge, Massachusetts 02138
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Number of | |
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Percentage | |
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Beneficially Owned | |
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Ownership | |
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The TCW Group, Inc., on behalf of The TCW Business Unit
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677,921 |
(6) |
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5.1 |
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865 South Figueroa Street
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Los Angeles, California 90017
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Greg D. Ewald
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43,708 |
(7) |
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Edward F. Feighan
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178,530 |
(8) |
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1.3 |
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Christopher J. Timm
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253,189 |
(9) |
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1.9 |
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Erin E. West
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6,074 |
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Charles D. Hamm, Jr.
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113,281 |
(11) |
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Michael J. Endres
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50,972 |
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Robert F. Fix
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8,972 |
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Jeffrey A. Maffett
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2,472 |
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Press C. Southworth III
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3,972 |
(13)(14) |
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Alan R. Weiler
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10,972 |
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Robert J. Woodward, Jr.
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1,972 |
(13) |
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All Current Executive Officers and Directors as a Group
(10 persons)
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560,833 |
(15) |
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4.2 |
% |
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(1) |
Information is as of December 31, 2005 and is based on a
report on Schedule 13G filed with the SEC on
February 2, 2006 by Wells Fargo & Company and its
subsidiaries, Wells Capital Management Incorporated, and Wells
Fargo Bank, National Association. According to the
Schedule 13G, Wells Fargo & Company and Wells
Capital Management Incorporated each have sole voting power with
respect to 1,559,976 common shares. Wells Fargo &
Company has sole dispositive power with respect to 1,746,476
common shares, and Wells Capital Management Incorporated has
sole dispositive power with respect to 1,716,376 common shares. |
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Information is as of December 31, 2005 and is based on a
report on Schedule 13G/ A filed with the SEC on
February 6, 2006 by Goldman Sachs Asset Management, L.P.
(GSAM LP). According to the Schedule 13G, GSAM LP
has sole voting power with respect to 898,703 common shares and
sole dispositive power with respect to 1,121,232 common shares
and GSAM LP disclaims ownership of any securities managed on its
behalf by third parties. |
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Information is as of December 31, 2005 and is based on a
report on Schedule 13G/ A filed with the SEC on
February 14, 2006 by T. Rowe Price Associates, Inc. and T.
Rowe Price Small-Cap Value Fund. According to the
Schedule 13G, T. Rowe Price Associates, Inc. has sole
dispositive power with respect to 1,027,676 shares and T.
Rowe Price Small-Cap Value Fund has sole voting power with
respect to 1,027,676 common shares. |
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Information is based on a Schedule 13G filed with the SEC
on February 14, 2005 by Stonehenge Opportunity Fund, LLC
(Stonehenge Opportunity Fund). Bluestone Investors,
L.P. is the managing member of Stonehenge Opportunity Fund and
Stonehenge Financial Holdings, Inc. is the general partner of
Bluestone Investors, L.P., each of which may also be deemed to
have sole voting and dispositive power with respect to the
common shares held by Stonehenge Opportunity Fund. No change in
such ownership was reported by Stonehenge Opportunity Fund, LLC
as of December 31, 2005. Pursuant to Stonehenge Opportunity
Funds limited partnership agreement, it has certain rights
to the compensation provided to its principals who serve on the
boards of directors of companies in which it invests.
Accordingly, Stonehenge Opportunity Fund may also be deemed to
beneficially own 972 common shares subject to options issued to
Michael J. Endres. |
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Information is as of December 31, 2005 and is based on a
report on Schedule 13G filed with the SEC on
February 6, 2006 by Jonathan Starr, Flagg Street Capital
LLC, Flagg Street Partners LP, Flagg Street Partners Qualified
LP and Flagg Street Offshore LP. According to the
Schedule 13G, Flagg Street Partners |
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LP has sole voting and dispositive power of 104,706 shares,
Flagg Street Partners Qualified Partners Qualified LP has sole
voting and dispositive power of 169,406 shares and Flagg
Street Offshore LP has sole voting and dispositive power of
405,241 shares. According to the Schedule 13G, as the
sole general partner of each of Flagg Street Partners LP, Flagg
Street Partners Qualified LP and Flagg Street Offshore LP, Flagg
Street Capital LLC, and Mr. Starr as the manager of Flagg
Street Capital LLC, has the sole power to vote and dispose of
all common shares reported as beneficially owned pursuant to the
Schedule 13G. |
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Information is as of December 31, 2005 and is based on a
report on Schedule 13G/ A filed with the SEC on
February 13, 2006 by The TCW Group, Inc. (TCW),
on behalf of The TCW Business Unit. According to the
Schedule 13G, TCW is a parent holding company or control
person in accordance with
Rule 13d-1(b)(1)(ii)(G)
reporting beneficial ownership of the shares on behalf of its
subsidiaries, Trust Company of the West, TCW Asset Management
Company and TCW Investment Management Company, which
collectively constitute The TCW Business Unit (primarily engaged
in the provision of investment management services), and has
shared voting power with respect to 607,491 common shares and
shared dispositive power with respect to 677,921 common shares.
Also according to the Schedule 13G, the ultimate parent
company of TCW is Societe Generale, S.A. (SG), which
may be deemed ultimately to control TCW and the TCW Business
Unit. SG, its executive officers and directors, and its direct
and indirect subsidiaries (including all business units except
The TCW Business Unit), may beneficially own common shares of
the Company and such shares are not reported in this statement.
SG disclaims beneficial ownership of any common shares of the
Company and TCW disclaims beneficial ownership of such shares
beneficially owned by SG and any of SGs other business
units. |
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Includes 13,958 common shares subject to options currently
exercisable or exercisable within 60 days. |
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Includes 33,199 common shares subject to options currently
exercisable or exercisable within 60 days. |
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Includes 33,199 common shares subject to options currently
exercisable or exercisable within 60 days. |
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(10) |
Includes 5,624 common shares subject to options currently
exercisable or exercisable within 60 days. |
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Includes 38,847 common shares subject to options currently
exercisable or exercisable within 60 days. Mr. Hamm
resigned as an executive officer of the Company in October 2005. |
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Includes 972 common shares subject to options currently
exercisable or exercisable within 60 days. Mr. Endres
is a principal of Stonehenge Financial Holdings, Inc., an
affiliate of Stonehenge Opportunity Fund, and has an ownership
interest in Stonehenge Opportunity Fund. |
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Includes 972 common shares subject to options currently
exercisable or exercisable within 60 days. |
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Includes 1,000 common shares held by Mr. Southworths
family members. |
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Includes an aggregate of 91,812 common shares subject to options
currently exercisable or exercisable within 60 days owned
by the Companys executive officers and directors as a
group. |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934
requires the Companys directors and executive officers,
and owners of more than 10% of a registered class of the
Companys equity securities, to file with the SEC initial
reports of ownership and reports of changes in ownership of
common shares and other equity securities of the Company.
Executive officers, directors and owners of more than 10% of the
common shares are required by SEC regulations to furnish the
Company with copies of all forms they file pursuant to
Section 16(a).
To the Companys knowledge, based solely on review of the
copies of such reports furnished to the Company and written
representations that no other reports were required, during the
fiscal year ended December 31, 2005, all Section 16(a)
filing requirements applicable to its executive officers,
directors and greater than 10% beneficial owners were complied
with.
ELECTION OF DIRECTORS
The Company has a classified board of directors consisting of
three classes with three members each, and each class of
directors serves a three-year term. Currently, the Company has
two Class I directors, Michael J.
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Endres and Alan R. Weiler, whose terms expire at the 2008 annual
meeting, one Class I vacancy, three Class II
directors, Robert F. Fix, Christopher J. Timm and Robert J.
Woodward, Jr., whose terms expire at the 2006 annual
meeting, and three Class III directors, Edward F. Feighan,
Jeffrey A. Maffett and Press C. Southworth III, whose terms
expire at the 2007 annual meeting. John A. Marazza served as a
Class I director until his resignation in January 2005. No
decision has been made to fill this vacancy, nor have any
candidates been considered and approved by the board of
directors. However, the board of directors believes that it is
desirable to have this vacancy available, so that it could be
filled by action of the board of directors should a person who
could make a valuable contribution as a director of the Company
be identified during the year. At the Annual Meeting, unless you
specify otherwise, the common shares represented by your proxy
will be voted to re-elect Messrs. Fix, Timm and Woodward as
Class II directors. The three nominees receiving the most
votes will be elected as Class II directors. If elected,
each nominee will serve as a director until the 2009 annual
meeting of shareholders and until his successor is duly elected
and qualified.
If for any reason any of the nominees is not a candidate when
the election occurs (which is not expected), the board of
directors intends that proxies will be voted for the election of
a substitute nominee designated by the board of directors as
recommended by the nominating and corporate governance
committee. The following information is furnished with respect
to each person nominated for election as a Class II
director and each of the Companys other current directors:
Nominees for Election as Class II Directors (to hold
office for the term expiring at the 2009 annual meeting):
Robert F. Fix, age 59, has served as a
director of the Company since October 2000. Mr. Fix has
served as Vice Chairman, President and Chief Executive Officer
of the Richmond Mutual Bancorporation, Inc. and the Vice
Chairman of its primary subsidiary, First Bank Richmond NA since
2002. He has been the President and Chief Executive Officer of
the holding company since 1998, and served as President and
Chief Executive Officer of First Bank Richmond from 1989 to 2002.
Christopher J. Timm, age 49, was named
Executive Vice President and President of Century Surety Company
(Century), a subsidiary of the Company, in May 2003.
Since March 2000, he has served as a director and Vice President
of the Company and a senior officer and director of most
companies within the Century Insurance Group. From 1998 until
2000, following the sale of Environmental & Commercial
Insurance Agency, Inc., Mr. Timm complied with the terms of
a non-compete agreement and pursued non-insurance business
ventures. From 1990 through 1998, Mr. Timm was an owner and
President of Environmental & Commercial Insurance
Agency, Inc., a managing underwriting agency.
Robert J. Woodward, Jr., age 64, has
served as a director of the Company since April 2004.
Mr. Woodward served as Executive Vice President and Chief
Investment Officer of Nationwide Mutual Insurance Company from
1995 until his retirement in 2002. Mr. Woodward has served
as Chairman of Palmer-Donavin Manufacturing Co. since 1995 and
has been a Director of the Pension Management and Investment
Council of Battelle Memorial Institute since December 2002 and
of Duke Realty Co. since April 2002.
Class I Directors (holding office for the term expiring
at the 2008 annual meeting):
Michael J. Endres, age 58, has served as a
director of the Company since April 2004. Mr. Endres has
been a principal of Stonehenge Financial Holdings, Inc. and of
Stonehenge Partners, Inc., investment companies, since August
1999. From July 1990 until August 1999, Mr. Endres served
as Vice Chairman of Banc One Capital Corporation and Chairman of
Banc One Capital Partners. Mr. Endres serves as a director
of Worthington Industries and Huntington Bancshares Inc.
Alan R. Weiler, age 72, has served as
director of the Company since April 2004. Mr. Weiler has
been Chairman of Archer-Meek-Weiler Agency, Inc., an insurance
agency specializing in commercial and personal insurance,
bonding, risk management and risk financing alternatives, since
1999 and was President from 1970 until 1999. Mr. Weiler
serves as a director of Glimcher Realty Trust and Commerce
National Bank, a subsidiary of First Merchants Corporation.
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Class III Directors (holding office for the term
expiring at the 2007 annual meeting):
Edward F. Feighan, age 58, has been Chairman,
President and Chief Executive Officer of the Company since
October 2003. Mr. Feighan was President of Avalon National
Corporation, a holding company for a workers compensation
insurance agency, from 1998 until 2000. From September 1998
until May 2003, Mr. Feighan was Managing Partner of
Alliance Financial, Ltd., a merchant banking firm specializing
in mergers and acquisitions. He has served as a director of the
Company and its insurance company subsidiaries from 1993 to 1996
and from 2000 to the present. Mr. Feighan has served at
times as the Companys Special Counsel.
Jeffrey A. Maffett, age 57, has served as a
director of the Company since October 2000. Mr. Maffett has
been Chairman, President and Chief Executive Officer of Oculina
Bank, a subsidiary of Colonial Banc Corp of Eaton, Ohio, since
November 2003. He has also has been Chairman of Colonial Banc
Corp since 2002. He was President and Chief Executive Officer of
Eaton National Bank & Trust Co., a subsidiary of
Colonial Banc Corp, from 1989 to 2003.
Press C. Southworth III, age 58, has
served as a director of the Company since April 2004.
Mr. Southworth was a partner of PricewaterhouseCoopers LLP
from 1998 until he retired in 2001. From 1985 until 1998,
Mr. Southworth was a partner of Coopers & Lybrand
LLP. Mr. Southworth is a certified public accountant.
CORPORATE GOVERNANCE
Board of Directors
As noted above, the Companys board of directors currently
consists of eight members, Messrs. Endres, Feighan, Fix,
Maffett, Southworth, Timm, Weiler and Woodward. The board of
directors has affirmatively determined that all of the
directors, except for Messrs. Feighan and Timm, are
independent directors within the meaning of the
Nasdaq National Markets listing standards. Additionally,
Mr. Fix, chairman of the Companys corporate
governance and nominating committee, was named lead director in
2005.
During the fiscal year ended December 31, 2005, the board
of directors held five meetings. Each director attended more
than 75% of the aggregate number of meetings of the board of
directors and committees on which he served in 2005. While the
Company does not have a formal policy requiring directors to
attend the annual meeting of shareholders, a meeting of the
board of directors may customarily be held on the same day as
the annual meeting and the Company expects directors to attend
the shareholder meeting. All of the Companys directors
attended the Companys annual shareholder meeting held in
2005.
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Committees of the Board of Directors |
The board of directors has a standing audit committee,
compensation committee and nominating and corporate governance
committee, each of which operates under a written charter.
Current copies of these charters are available to shareholders
on the Companys website, www.procentury.com, under
Governance Documents. Each committee member is an
independent director within the meaning of the
Nasdaq National Markets listing standards.
Audit Committee. The audit committee assists the board of
directors in fulfilling its oversight responsibilities for the
integrity of the Companys accounting, reporting and
financial control practices. The audit committee:
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reviews the qualifications of the independent registered public
accounting firm; |
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selects and engages the independent registered public accounting
firm; |
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reviews and approves the plan, fees and results of audits; |
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reviews the Companys internal controls; and |
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considers and pre-approves any non-audit services proposed to be
performed by the independent registered public accounting firm. |
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The audit committee consists of Messrs. Southworth
(chairman), Weiler and Woodward. The Companys board of
directors has determined that Mr. Southworth meets the
requirements for an audit committee financial expert under
Item 401 of
Regulation S-K
promulgated under the Securities Act of 1933. During 2005, the
audit committee held nine meetings.
Compensation Committee. The compensation committee
consists of Messrs. Endres (chairman), Maffett and
Woodward. The compensation committee oversees the Companys
compensation and employee benefit plans and practices, including
executive and board of directors compensation as well as all
incentive-compensation and equity-based plans, and the
evaluation of the Companys management. During 2005, the
compensation committee held three meetings.
Nominating and Corporate Governance Committee. The
nominating and corporate governance committee consists of
Messrs. Fix (chairman), Maffett and Weiler. The nominating
and corporate governance committee:
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identifies and recommends for nomination qualified individuals
for election as directors; |
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oversees the composition, structure and function of the
committees of the board of directors; |
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oversees periodic self-evaluation of the board of directors and
its committees; and |
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plans for management succession. |
During 2005, the nominating and corporate governance committee
held two meetings.
Shareholders may recommend individuals to the nominating and
corporate governance committee for consideration as potential
director candidates by submitting their names, together with
appropriate biographical information and background materials
and a statement as to whether the shareholder or group of
shareholders making the recommendation has beneficially owned
more than 5% of the Companys common shares for at least a
year as of the date such recommendation is made, c/o the
Companys Vice President of Corporate Governance at the
following address: ProCentury Corporation, 465 Cleveland Avenue,
Westerville, Ohio 43082. Any such recommendation should be
accompanied by a written statement from the candidate of his or
her consent to be named as a candidate and, if nominated and
elected, to serve as a director. Assuming that appropriate
biographical and background material has been provided on a
timely basis, the nominating and corporate governance committee
will evaluate shareholder-recommended candidates by following
substantially the same process, and applying substantially the
same criteria, as it follows for candidates submitted by others.
Shareholders also have the right under the Companys Code
of Regulations to directly nominate director candidates, without
any action or recommendation on the part of the nominating and
corporate governance committee or the board of directors, by
following the procedures set forth below under Shareholder
Proposals for 2007 Annual Meeting.
The nominating and corporate governance committee has not
established specific minimum qualifications a candidate must
have in order to be recommended to the board of directors.
However, in determining qualifications for new directors, the
committee will consider potential members qualifications
as independent under the Nasdaq National Markets listing
standards, integrity, judgment, business experience, diversity,
knowledge of insurance operations, finance or marketing and
whether such candidate will effectively serve shareholders
long-term interests and contribute to the Companys overall
corporate goals. The nominating and corporate governance
committee will consider a pool of potential board candidates
established from recommendations from shareholders and others,
including management and current directors. Although the
nominating and corporate governance committee may retain a board
search consultant to supplement the pool of potential board
candidates, it has not engaged a consultant at this time.
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Shareholder Communications with the Board of
Directors |
Any shareholder who desires to communicate with any of the
members of the Companys board of directors may do so
electronically by sending an email to
boardofdirectors@procentury.com. Alternatively, a shareholder
may communicate with the members of the Board by writing to the
Company, c/o Vice President of Corporate Governance,
ProCentury Corporation, 465 Cleveland Avenue, Westerville, Ohio
43082. Communications may be
7
addressed to an individual director, a board committee, the
non-management directors or the full board of directors.
Communications received by the Vice President of Corporate
Governance will be distributed to the appropriate directors.
Solicitations for the sale of merchandise, publications or
services of any kind will not be forwarded to the directors.
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Compensation of Directors |
Directors who are also employees receive no compensation for
serving as directors, and non-employee directors receive $20,000
annually. Non-employee directors also receive $1,000 for each
board meeting they attend in person and $500 for each telephonic
meeting they attend. Non-employee directors serving on the
compensation and nominating and corporate governance committees
receive $750 for each meeting they attend in person and $500 for
each telephonic meeting they attend. Audit committee members
receive $1,500 for each committee meeting they attend in person
and $1,000 for each telephonic meeting they attend. The chairman
of the audit committee receives $2,000 annually. The Company
also reimburses all directors for reasonable travel expenses
incurred in connection with their service as directors.
The Companys directors are also eligible to receive
additional stock options and awards when, as and if determined
by the compensation committee, pursuant to the terms of the 2004
Stock Option and Award Plan. See Executive
Compensation 2004 Stock Option and Award Plan
below. On March 22, 2005, each of the Companys
directors was granted an option to
purchase 1,000 shares, which vests as to 1/36 of the
total shares awarded at the end of each full month following the
grant date during which the director continues as a member of
the board of directors. The exercise price of the options is
$10.50, which was the fair market value of the shares on the
date of grant. In addition, effective as of March 22, 2005,
non-employee directors will receive an option to
purchase 1,000 common shares upon initial election to the
board of directors and an option to
purchase 2,000 shares following each annual
shareholder meeting, to be granted on the first day of the month
following the annual shareholder meeting, provided that such
non-employee director continues to serve as a director following
such meeting. The option to purchase 2,000 shares was granted to
each director on June 1, 2005, have an exercise price of
$10.20 and vest up to 1/36 of the total shares awarded beginning
at the end of the month of the grant.
Code of Business Conduct and Ethics
The Company has a Code of Business Conduct and Ethics that
addresses the Companys commitment to honesty, integrity
and the ethical behavior of the Companys employees,
officers and directors. This code governs the actions and
working relationships of the Companys employees, officers
and directors, including the chief executive officer, chief
financial officer, controllers, treasurer and chief internal
auditor, if any, of the Company, with current and potential
customers, consumers, fellow employees, competitors, government
and self-regulatory agencies, investors, the public, the media,
and anyone else with whom the Company has or may have contact.
Only the board of directors or one of its committees may waive
any provision of the code with respect to an executive officer
or director. This code is posted on the Companys website,
www.procentury.com, under Governance
Documents, and any amendment of the code or waiver of its
provisions with respect to an executive officer or director will
be promptly disclosed on the website and as otherwise may be
required by rule or regulation.
Audit Committee Report
In accordance with its written charter adopted by the board of
directors, the audit committee assists the board of directors in
fulfilling its responsibility for oversight of the quality and
integrity of the accounting, auditing and financial reporting
practices of the Company. The Board has determined that
Mr. Southworth is an audit committee financial
expert, as defined in SEC rules. The Board based its
determination on Mr. Southworths professional
experience, as previously described.
The audit committee reviewed and discussed the audited
consolidated financial statements of the Company for the year
ended December 31, 2005 with management and the independent
registered public accountants. Management has the responsibility
for the preparation of the Companys consolidated financial
statements, and
8
for determining that the financial statements are complete and
accurate and in accordance with U.S. generally accepted
accounting principles. The Companys independent registered
public accountants are responsible for planning and conducting
audits for the examination of those consolidated financial
statements.
The audit committee obtained the written disclosures and letter
required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees, and
discussed with the independent registered public accountants any
relationships that may impact their objectivity and
independence. The audit committee also reviewed and discussed
with the independent registered public accountants all
communications required by the Public Company Accounting
Oversight Board standards, including those described in
Statement on Auditing Standards No. 61, as amended,
Communication with Audit Committees, and reviewed
and discussed the results of the independent registered public
accountants audit of the consolidated financial statements.
Based on the above-described review and discussions with
management and the independent registered public accountants,
the audit committee recommended to the board of directors that
the Companys audited consolidated financial statements be
included in its Annual Report on
Form 10-K for the
year ended December 31, 2005.
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Audit Committee |
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Press C. Southworth III, Chairman |
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Alan R. Weiler |
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Robert J. Woodward, Jr. |
9
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the total
compensation received for services rendered to the Company
during 2005 by the Companys chief executive officer, its
three other highest paid executive officers and an additional
individual who previously served as an executive officer of the
company but was no longer serving as executive officer at the
end of 2005, all of whom are referred to in this proxy statement
as named executive officers.
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Long-Term | |
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Annual Compensation | |
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Compensation | |
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Awards | |
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Restricted | |
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Stock | |
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Securities | |
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All Other | |
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Other Annual | |
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Awards | |
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Underlying | |
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Compensation | |
Named Executive Officer |
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Year | |
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Salary | |
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Bonus | |
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Compensation | |
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(1)(2) | |
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Options | |
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(3) | |
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Edward F. Feighan
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2005 |
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$ |
284,000 |
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$ |
55,380 |
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$ |
6,300 |
(4) |
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$ |
203,333 |
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$ |
19,340 |
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Chairman of the Board, President
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2004 |
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$ |
285,135 |
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$ |
70,929 |
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$ |
11,367 |
(5) |
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$ |
265,650 |
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49,800 |
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$ |
19,340 |
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and Chief Executive Officer
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2003 |
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$ |
84,288 |
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$ |
87,500 |
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$ |
1,075 |
(4) |
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Christopher J. Timm
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2005 |
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$ |
264,000 |
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$ |
46,332 |
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$ |
3,808 |
(4) |
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$ |
189,000 |
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$ |
14,043 |
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Executive Vice President,
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2004 |
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$ |
266,183 |
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$ |
65,934 |
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$ |
4,859 |
(5) |
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$ |
265,650 |
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49,800 |
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$ |
14,043 |
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Secretary and Director
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2003 |
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$ |
220,288 |
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$ |
3,304 |
(4) |
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Greg D. Ewald
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2005 |
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$ |
229,513 |
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$ |
35,880 |
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$ |
6,300 |
(4) |
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Senior Vice President of
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2004 |
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$ |
215,569 |
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$ |
30,000 |
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$ |
6,467 |
(4) |
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$ |
312,375 |
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20,000 |
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Underwriting of Century Surety
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2003 |
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$ |
186,153 |
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$ |
30,000 |
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$ |
5,580 |
(4) |
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Company
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Erin E. West(6)
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2005 |
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$ |
160,234 |
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$ |
31,200 |
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$ |
4,807 |
(4) |
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Chief Financial Officer
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2004 |
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and Treasurer
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2003 |
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Charles D. Hamm, Jr.(7)
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2005 |
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$ |
209,146 |
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$ |
6,276 |
(4) |
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$ |
185,420 |
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$ |
13,810 |
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Former Chief Financial
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2004 |
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$ |
259,846 |
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$ |
64,685 |
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$ |
13,967 |
(5) |
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$ |
265,650 |
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49,800 |
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$ |
13,810 |
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Officer, Executive Vice
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2003 |
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$ |
218,365 |
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$ |
87,500 |
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$ |
5,657 |
(4) |
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President and Treasurer
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(1) |
On March 22, 2005 the following restricted stock grants
were awarded to the named executive officers: Mr. Feighan,
19,365 shares; Mr. Timm, 18,000 shares; and
Mr. Hamm, 17,659 shares. The value of the 2005
restricted stock awards is based on the closing sale price per
common share of $10.50, on March 22, 2005, the date of the
grant. The shares subject to the awards held by
Messrs. Feighan and Timm are subject to a four-year vesting
schedule in which 25% of the shares will vest on each
anniversary of the date of grant if a target return on equity
for the two fiscal years preceding the vesting date has been
achieved. In addition, the shares are subject to the provisions
set forth in the employment agreements entered into by the
Company with such executive officers described under
Employment Agreements below, which provide for the
full acceleration of vesting of equity awards granted to such
officers in the event of termination of employment by reason of
death, discharge by the Company other than for cause or the
officers resignation for good reason or if within twelve
months following a change of control, employment is terminated
by the Company other than for cause or the officer resigns for
good reason. With respect to Mr. Hamm, the shares subject
to the restricted stock award vest in twelve equal monthly
installments beginning on October 1, 2005, provided that
Mr. Hamm provides consulting services to the Company for
such months pursuant to the agreement between the Company and
Mr. Hamm described under Consulting Agreement with
Mr. Hamm below. |
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(2) |
The number and value of the aggregate restricted stock awards
held by the named executive officers at December 31, 2005,
based on the closing price of the companys common stock
price of $10.73 on December 30, 2005, was:
Mr. Feighan: 44,665 shares, $479,255; Mr. Timm:
43,300 shares, $464,609; Mr. Ewald:
29,750 shares, $319,218; and Mr. Hamm:
42,959 shares, $460,950. Dividends are payable on such
shares to the extent any dividends are declared and paid on the
Companys common shares. |
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(3) |
Amounts equal premiums for whole life insurance, which the
officers may elect to have paid by the Company on their behalf
for such insurance or paid to them in cash. Messrs. Hamm
and Timm have elected to receive the insurance policy and
Mr. Feighan elected to receive the cash payment. |
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(4) |
Represents matching contributions under the Companys
401(k) plan. |
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(5) |
Includes matching contributions under the Companys 401(k)
plan of $7,975, $3,743 and $7,364 for Messrs. Feighan, Timm
and Hamm, respectively, and payments by the Company of
automobile expenses for personal use of $3,392, $1,125 and
$1,603 for Messrs. Feighan, Timm and Hamm, respectively.
Also includes payment by the Company of medical expenses for
Mr. Hamm of $5,000. |
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(6) |
Ms. West became an executive officer of the Company in
October 2005. |
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(7) |
Mr. Hamm resigned as an executive officer of the Company in
October 2005. |
Option Grants in Last Fiscal Year
In 2005, there were no options to purchase common shares awarded
to any of the named executive officers.
Aggregate Option Exercises in 2005 and 2005 Year-End
Option Values
The following table sets forth information with respect to the
value of options held by the named executive officers on
December 31, 2005.
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Number of Securities | |
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Underlying Unexercised | |
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Value of Unexercised | |
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Options at | |
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In-The-Money Options | |
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Shares | |
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Fiscal Year End | |
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at Fiscal year End(1) | |
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Acquired | |
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Value | |
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Named Executive Officer |
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on Exercise | |
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Realized | |
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Exercisable/Unexercisable | |
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Exercisable/Unexercisable | |
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Edward F. Feighan
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27,666/22,134 |
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$ |
6,363/$5,091 |
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Christopher J. Timm
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27,666/22,134 |
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$ |
6,363/$5,091 |
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Greg D. Ewald
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11,111/8,889 |
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$ |
2,556/$2,044 |
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Erin E. West
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4,166/5,834 |
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$ |
958/$1,342 |
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Charles D. Hamm, Jr.
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30,086/19,714 |
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$ |
6,920/$4,534 |
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(1) |
Calculated based on the closing sale price of the Companys
common shares on December 30, 2005 of $10.73 per
share, without taking into account any taxes that may be payable
in connection with the transaction, multiplied by the number of
shares underlying the option, less the exercise price payable
for these shares. |
Employment Agreements with the Company
The Company entered into employment agreements with each of
Messrs. Feighan and Timm in December 2003 and with
Ms. West in February 2006. The Companys subsidiary,
Century Surety Company (Century), entered into an
employment agreement with Mr. Ewald in August 2004. The
employment agreements entered into by the Company with each of
John A. Marazza and Charles D. Hamm, Jr. in December 2003,
which generally had the same terms as the agreements with
Messrs. Feighan and Timm described below, were terminated
in January 2005 and October 2005, respectively. See
Separation Agreement with Mr. Marazza and
Consulting Agreement with Mr. Hamm below.
The agreements with the current executive officers provide for
base salaries of at least $284,000, $264,000 and $228,000 for
Messrs. Feighan, Timm and Ewald, respectively, and at least
$200,000 until March 1, 2006 and at least $225,000
thereafter for Ms. West, and other customary executive
benefits, including:
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participation in retirement or welfare benefit plans, if any; |
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health, disability and other insurance plans; |
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whole life insurance, in the case of Messrs. Feighan, and
Timm and Ms. West; |
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sick leave; |
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reasonable vacation time; and |
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other benefits as may be approved by the Companys board of
directors or compensation committee on a case-by-case basis for
proper business purposes. |
The agreements with Messrs. Feighan, Timm and Ewald and
Ms. West also provide for annual performance based cash
incentive bonuses of up to 50.0%, 45.0%, 40.0% and 40% of their
respective base salaries in accordance with the Companys
annual incentive plan described below.
Pursuant to the employment agreements, the Company granted to
each of Messrs. Feighan and Timm 25,300 restricted common
shares and non-qualified stock options to purchase 49,800
common shares at the time of closing the Companys initial
public offering of its common shares (the IPO).
Pursuant to Mr. Ewalds agreement, he received 29,750
restricted common shares and non-qualified stock options to
purchase 20,000 common shares. Ms. West was granted a
non-qualified stock option to purchase 10,000 common shares
at the time of the IPO. The options have an exercise price equal
to the initial public offering price of $10.50 and vest as to
1/36, or 1/48 in the case of Ms. West, of the shares
subject to the option each month following the grant date during
which the executive officer has provided service to the Company.
All options will become fully exercisable for a period of not
less than 30 days, and all unvested shares available
pursuant to the options, if any, will become fully vested, upon
the termination of employment by reason of death, discharge by
the Company other than for cause, or, in the case of
Messrs. Feighan and Timm and Ms. West, the
officers resignation for good reason. The restricted
shares held by Messrs. Feighan and Timm vest as to 1/48 of
the total shares awarded each month following the grant date
during which the executive officer has provided service to the
Company. The restricted shares held by Mr. Ewald vest as to
1/5 of the total shares awarded each year following the grant
date during which the executive officer has provided service to
Century.
The employment agreements may be terminated at any time upon the
mutual agreement of the Company, or Century in the case of
Mr. Ewald, and the officer and will automatically terminate
upon his or her death. The Company (or Century) may terminate
the employment agreements at any time, without cause, upon
30 days prior written notice to the officer or for cause
immediately upon written notice of termination to the officer.
Each officer may terminate his or her employment agreement at
any time without good reason upon 30 days prior written
notice to the Company (or Century) or, in the case of
Messrs. Feighan and Timm and Ms. West, for good reason
upon 15 days prior written notice, provided that each
officer will not resign if, prior to the expiration of the
15 day notice period, the Company causes the facts or
events giving rise to the good reason to no longer exist. If the
officers employment agreement is terminated:
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by the Company (or Century) for cause, by the resignation of the
officer, other than for good reason, or if the officers
employment is terminated by death, he or she or his or her
estate will be entitled to receive any earned but unpaid base
salary through the effective date of termination, any award
under the Companys annual incentive plan which was awarded
prior to the effective date of termination, and, in the case of
Mr. Ewald, a pro-rata portion of his restricted shares
based on the number of months from the date of grant through the
termination date divided by 60, and in addition, if the
officers employment is terminated by death, his or her
estate will be entitled to receive (1) continued payment of his
or her base salary for 90 days following his or her death;
(2) an amount equal to the maximum bonus that he or she
could have been awarded under the Companys annual
incentive plan for the current performance year divided by the
number of days in the current performance year occurring prior
to and including the date of his death; and (3) continued
benefits for 90 days following his or her death; or |
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by the Company (or Century) other than for cause or, in the case
of Messrs. Feighan and Timm or Ms. West, if he or she
resigns for good reason, he or she will be entitled to receive
(1) any earned but unpaid base salary through the date of
such termination; (2) any award under the Companys
annual incentive plan that was awarded prior to the effective
date of termination; (3) continued payment of his or her
base salary for 12 months following the date of
termination; (4) in the case of Messrs. Feighan and
Timm and Ms. West, the maximum bonus that he could have
been awarded under the Companys annual |
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incentive plan for the current performance year; and
(5) continued benefits for 12 months following the
date of termination. |
Under the agreements between Messrs. Feighan and Timm and
Ms. West with the Company, if a change in control occurs,
as defined in the agreement, and within the 12 months
following a change of control, the Company discharges the
officer other than for cause or if the officer resigns for good
reason, he or she will be entitled to receive within
30 days of his or her termination of employment
(1) any earned but unpaid base salary through the date of
termination; (2) any award under the Companys annual
incentive plan that was awarded prior to the effective date of
termination; (3) the product of two times, or one times in
the case of Ms. West, his or her then current base salary
at the date of termination; and (4) the product of two
times the maximum bonus that he or she could have been awarded
under the Companys annual incentive plan. In addition, the
officer will be entitled to continued benefits for
24 months, or 12 months in the case of Ms. West,
following the date of termination.
Each officer has agreed not to compete with the Company (or
Century) or solicit its employees during the term of his or her
employment agreement and for a period of 12 months
following termination of the employment agreement or, if longer,
the entire period for which the officer is entitled to payments
of base salary, bonus or other incentive awards or other
benefits, other than payments and benefits the officer would be
entitled to receive in the event of a change in control.
Separation Agreement with Mr. Marazza
The Company entered into a separation agreement with
Mr. Marazza, effective January 28, 2005, setting forth
the terms of his departure from the Company and providing for
the payment to Mr. Marazza of the benefits to which he was
entitled pursuant to his employment agreement with the Company.
Such benefits consist of the payment of Mr. Marazzas
salary through April 2006, performance bonuses for 2004 and
2005, health insurance and related benefits through February
2006, continued payment of the value of whole life insurance
premiums (which Mr. Marazza elected to receive in cash in
lieu of insurance pursuant to the employment agreement) through
February 2006 and full vesting of Mr. Marazzas
restricted shares and options to purchase common shares, which
options will remain exercisable until the tenth anniversary of
the date of grant. Mr. Marazza agreed to provide consulting
services to the Company and its subsidiaries for no additional
consideration for a period of ninety days following his
departure. The separation agreement also provides for
termination of the employment agreement, except for the ongoing
obligations on Mr. Marazza concerning confidentiality,
non-solicitation and non-competition described above.
Consulting Agreement with Mr. Hamm
The Company entered into a consulting agreement with
Mr. Hamm, effective October 1, 2005 setting forth the
terms of his resignation from the Company and the aggregate of
up to 200 hours of consulting services that he is to
provide to the Company over the twelve month period following
his resignation. In exchange for such services, Mr. Hamm
receives hourly compensation at a rate of $350 per hour and
vesting on a monthly basis in equal portions over the
twelve-month term, provided that he continues to provide
consulting services, of the unvested portion of his 25,300
restricted share award and option to purchase 49,800 common
shares granted on April 20, 2004 and his performance based
17,659 restricted share award granted on March 22, 2005.
The performance shares were originally scheduled to vest in
equal installments over four years provided that annual
performance objectives were achieved. The consulting agreement
also provides that if a change in control of the Company occurs
during the term of the agreement or the agreement is terminated
by the Company following a change in the Chief Executive Officer
of the Company, the unvested portion of such option and
restricted shares will become fully vested as of the effective
date of such change in control or termination. Mr. Hamm
will continue to be bound by the confidentiality,
non-competition and non-solicitation provisions set forth in the
employment agreement he entered into with the Company, provided
that the non-competition and non-solicitation restrictions will
continue for a period of twelve months following the term of the
consulting agreement.
13
Annual Incentive Plan
In December 2003, the Companys board of directors adopted
and its shareholders approved the Companys annual
incentive plan. The purpose of the annual incentive plan is to
advance the Companys interests and its shareholders
interest by providing certain corporate officers and key
employees with annual incentive compensation that is tied to the
achievement of pre-established and objective performance goals.
The plan is administered by the Companys compensation
committee. Subject to the provisions of the plan, the
compensation committee has full and complete authority to:
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construe, interpret and implement the plan; |
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prescribe, amend and rescind rules relating to the plan; |
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make any factual determination that it believes necessary or
advisable for the administration of the plan; |
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determine the conditions subject to which incentive awards may
be made or payable; and |
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make any other determinations that it believes necessary or
advisable for the administration of the plan. |
Prior to each performance period, the compensation committee
designates, subject to approval by the Companys board of
directors, the employees who will be participants of the plan
for the performance period and the target incentive award for
each participant.
Payment of incentive awards is made in a cash lump sum payment,
or at the discretion of the compensation committee, in common
shares equal to the fair market value of the amount of the
incentive award, provided that a participants incentive
award determined for any performance period may not exceed
150.0% of the participants target award without board
approval. Payment of any amount of incentive award in excess of
150.0% of the target award will be made in common shares or
other property unless the board determines otherwise. The board
of directors may terminate or amend the plan at any time in its
sole discretion. However, no termination or amendment may be
made that will impair the right of a participant to receive an
incentive award for any performance period ending prior to the
year in which the termination or amendment is adopted, or if
later, effective and no amendment adopted after the start of a
performance period may directly or indirectly increase the
amount of the incentive award or alter the performance criteria
in a manner that will increase any incentive award for such
performance period.
Deferred Compensation Plan
In October 2003, the Companys board of directors adopted,
and in December 2003 its shareholders approved, the
Companys deferred compensation plan. The purpose of the
deferred compensation plan is to allow the Companys key
employees and directors to elect to defer portions of their
compensation and to allow discretionary contributions by the
Company on behalf of selected participants for future payment to
the participants or their beneficiaries. The board of directors
or the compensation committee determines the participation and
benefits of key employees. The Company has established an
irrevocable Rabbi Trust to secure its obligations under the
deferred compensation plan. However, in the event of the
Companys bankruptcy, the assets of the trust will be
subject to the claims of general creditors.
2004 Stock Option and Award Plan
In December 2003, the Companys board of directors adopted
and its shareholders approved the Companys 2004 Stock
Option and Award Plan. The purpose of this plan is to promote
the commonality of the interests of the Companys
employees, directors and consultants with the interest of its
shareholders for the Companys increased growth, value and
profitability and to attract, retain and reward its employees
and consultants. The plan provides for a variety of awards,
including incentive or non-qualified stock options, restricted
shares, restricted share units, performance units, appreciation
rights or any combination of the foregoing.
The plan is administered by the Companys board of
directors, or the compensation committee, which have the
authority to determine the terms, conditions and restrictions
applicable to each award. Awards may only be
14
granted to existing or prospective employees, consultants and
directors as determined by the board of directors or
compensation committee.
The aggregate number of common shares that may be issued under
the plan is 1,179,108 shares. In the event of any stock
dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the
Companys capital structure, appropriate adjustments will
be made to (1) the number and class of shares subject to
the plan; (2) any outstanding award; (3) the exercise
price of any outstanding option; and (4) the base price of
any appreciation right.
Options. Options granted under the plan may be
incentive stock options, as defined in
Section 422 of the Internal Revenue Code of 1986, or
non-qualified stock options, which are not intended
to so qualify. No option may be granted or otherwise designated
as an incentive stock option after ten years from the date of
adoption of the plan by the Companys shareholders. An
incentive stock option must expire within 10 years from the
date it is granted or, if later, the date of designation as an
incentive stock option. The exercise price of any incentive
stock option must be at least equal to the fair market value of
a common share on the date it is granted. Each incentive stock
option will not be transferable by the participant, other than
by will or the laws of descent and distribution, and will be
exercisable during the participants lifetime only by the
participant. No incentive stock option may be granted to any
person if the person at the date of grant owns shares
representing more than ten percent of the total combined voting
power of all classes of shares of the Company or any of its
subsidiaries unless the exercise price of the incentive stock
option is at least 110% of the fair market value of such common
shares at the date of grant or designation and such incentive
stock option by its terms is not exercisable after the
expiration of five years from the date of grant. As long as the
$100,000 per year limitation remains applicable under the
Internal Revenue Code to incentive stock options granted to any
person, any portion of options that become exercisable by a
participant for the first time during any calendar year for
common shares having a fair market value greater than $100,000
will be treated as non-qualified stock options. If an option
designated as an incentive stock option fails for any reason to
qualify or continue its qualification as an incentive stock
option under the Internal Revenue Code, it will automatically be
a non-qualified stock option.
Restricted Share Units. A restricted share unit is a
right to receive one common share pursuant to the terms and
conditions of the 2004 Stock Option and Award Plan, subject to
any service vesting schedule, performance vesting schedule or
other restriction imposed by the plan or any instrument
evidencing the award of the restricted share unit.
Restricted Shares. Common shares granted under the plan
may have restrictions on the transfer or defer the date of
receipt of those shares. Each award will specify any applicable
restrictions or deferral date, the duration of those
restrictions, and the time at which the restrictions lapse.
Participants may be required to deposit shares with the Company
during the period of any restrictions.
Performance Units. A performance unit is a right to
receive payment in cash equal to the fair market value of one
common share at the date of vesting, pursuant to the terms and
conditions of the plan and any instrument evidencing the award
of the performance unit.
Appreciation Rights. An appreciation right may be granted
in connection with all or any portion of an option grant as well
as independent of any option grant. An appreciation
right means the appreciation, if any, measured by the
excess of the fair market value of a common share over
(1) the exercise price of shares subject to the option if
the appreciation right is exercisable in exchange for that
option or (2) the base price in the instrument evidencing
the appreciation right if the appreciation right is exercisable
on a stand-alone basis. Upon exercise of the appreciation right,
the appreciation will be paid in common shares equal in number
to the largest whole number resulting from dividing the
appreciation by the fair market value of a common share at the
date of exercise or, if the instrument evidencing the
appreciation right expressly so provides, in cash or any
combination of cash or common shares.
Change in Control. In the event of a change in control,
the acquiring corporation may either assume the Companys
rights and obligations under outstanding awards or substitute
substantially equivalent options for the acquiring
corporations shares. In the event the acquiring
corporation does not assume or substitute for the outstanding
awards, the unexercisable portion of any outstanding awards will
be immediately exercisable in full
15
as of the date ten days prior to the effective date of the
change in control. Any award that is neither (1) assumed,
nor substituted for, by the acquiring corporation, nor
(2) exercised as of the date of the change in control will
terminate and cease to be outstanding effective as of the date
of the change in control.
Lock-Up Agreement. In consideration for the grant of each
award to a participant and to facilitate the Companys
future financings, participants must agree on their behalf and
on behalf of their heirs, legal representatives, successors and
assigns that in the event of any underwritten public offering of
any of the Companys securities made by the Company
pursuant to an effective registration statement filed under the
Securities Act of 1933, they will not sell or dispose of,
directly or indirectly, any interest in any of such shares
awarded pursuant to the plan for the period of time from and
after the effective date of the registration statement as may be
required by the underwriter of any public offering; provided,
however, that the period of time will not exceed 180 days
from the effective date of the registration statement filed in
connection with the public offering or any other period
applicable in any
lock-up agreement to
which the Company or the participant as the Companys
affiliate is subject.
Termination and Amendment. The board of directors may
terminate or amend the plan at any time. However, without the
approval of the Companys shareholders, no termination or
amendment may be made that will (1) increase the maximum
aggregate number of common shares that may be granted under the
plan; (2) change the class of persons eligible to receive
incentive stock options; and (3) that would require
approval of the Companys shareholders under any applicable
law, regulation or rule. No termination or amendment of the plan
may adversely affect any then outstanding award or any
unexercised portion thereof, without the consent of the
participant unless the termination or amendment is required to
enable an incentive stock option to qualify as an incentive
stock option or is necessary to comply with any applicable law,
regulation or rule.
401(k) Plan and Trust
The Company has established a 401(k) plan for its employees that
is intended to qualify under Sections 401(a) and 401(k) of
the Internal Revenue Code of 1986, as amended. Generally, all
employees are eligible to participate in the 401(k) plan on the
first day of the month following completion of three months of
service. Employer matching and discretionary profit-sharing
contributions vest after three years of service.
Eligible employees electing to participate in the 401(k) plan
may defer from one percent of their compensation up to the
statutorily prescribed limit, on a pre-tax basis, by making a
contribution to the plan. The Company currently makes quarterly
discretionary matching contributions equal to 50.0% of each
participants contribution of up to 6.0% of the
participants salary, not to exceed 3.0% of the
participants compensation.
Report of the Compensation Committee of the Board of
Directors
The role of the compensation committee is to determine and
review annually the goals and terms of the Companys
executive compensation plans, conduct an annual performance
review in light of these goals of the Companys Chief
Executive Officer and other executives as delegated by the board
of directors, and set each executives compensation based
on his or her performance. The Company aims to offer total
compensation packages that attract, retain and motivate high
quality executives and that reward executives for profitability
and the enhancement of shareholder value. The components of
executive compensation discussed in more detail below have been
designed to meet these objectives.
The Company has entered into employment agreements with its
Chief Executive Officer and each of its other executive
officers, other than Mr. Ewald, who entered into an
employment agreement with Century in August 2004. The employment
agreements set such executives minimum base salary and
bonus potential and provided for equity awards upon completion
of the Companys initial public offering (other than for
Ms. West) and other customary executive benefits, including
participation in retirement or welfare benefit plans; health
disability and other insurance plans; whole life insurance
(other than for Mr. Ewald); sick leave; reasonable vacation
time; and other benefits as may be approved by the board of
directors or the compensation committee on a case-by-case basis
for proper business purposes. The compensation committee
determined the base salary, bonus and equity compensation
amounts in the employment agreements, in consultation with an
external compensation consultant selected by the board, based on
publicly accessible executive compensation data from a group of
comparable
16
insurance companies and, with respect to 2004 compensation,
taking into account the executives efforts in connection
with, and the anticipated impact on the Companys
performance of, its initial public offering. The comparable
insurance companies considered by the compensation committee
included smaller companies engaged in the specialty insurance
market, rather than the larger companies included in the S&P
Property and Casualty Index. The compensation provided for in
the employment agreements is generally within the middle of the
range of compensation levels paid by these companies to
executives with comparable duties and responsibilities.
The compensation committee considered the ranges of salaries
offered by companies in the Companys competitive market as
discussed above in setting the base salary amounts contained in
the executive employment agreements. The agreements provide that
such salary amounts are to be reviewed annually by the board of
directors or compensation committee in light of the
executives performance, compensation of similar executives
of similarly sized companies, among other factors it deems
appropriate. Actual salaries are then to be set by the
compensation committee, after considering individual performance
and job content in the context of the salary ranges offered by
comparable companies. The compensation committee did not make
any adjustments to the base salary amounts set forth in the
employment agreements for 2005.
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Performance Based Incentive Compensation |
The Company pays annual cash bonuses to the CEO and other
executive officers, under its performance based incentive
compensation plan, based on the achievement of certain return on
equity (ROE) objectives established by the
compensation committee. The performance based incentive bonus
encourages executives to manage and allocate Company capital to
products that generate competitive returns on equity thereby
enhancing the potential for appreciation of shareholder value.
The potential bonus amount is determined based on a percent of
each executives base salary, as set by the Compensation
Committee on an annual basis, and is payable based on the ROE
target achieved at year-end. For 2005, the ROE targets were set
forth in each executives employment agreement and resulted
in bonuses equal to approximately 39% of the potential amount.
Incentive stock options, non-qualified stock options and
restricted stock awards are other important elements of the
Companys compensation philosophy. The Company believes
options and restricted stock awards serve as incentives to
executives to maximize the long-term growth and profitability of
the Company, which will be reflected in the Companys share
price. Under the 2004 Stock Option and Award Plan adopted in
December 2003, the exercise price of any incentive option must
be at least equal to the fair market value of a common share on
the date of grant, so that recipients will recognize value from
the grants only if the common share price increases in the
future. In addition, in determining the long-term component of
the CEOs compensation, the compensation committees
charter provides that it will consider, among other factors, the
Companys performance and relative shareholder return, the
value of similar awards to chief executive officers of similar
companies and the awards given to the CEO in past years.
In 2005, the following restricted stock grants were awarded to
the named executive officers: Mr. Feighan,
19,365 shares; Mr. Timm, 18,000 shares; and
Mr. Hamm, 17,659 shares. For Messrs. Feighan and
Timm, the restricted share award will vest over a period of four
years and is subject to the continued achievement of specific
performance goals related to the Companys average ROE.
Accordingly, like the cash bonus arrangement, the executive
officers will only receive benefits from such awards if the
Company achieves these performance objectives. With respect to
the restricted shares awarded to Mr. Hamm, the vesting
schedule was amended in connection with the consulting agreement
entered into between Mr. Hamm and the Company to provide
for a time-based vesting schedule, which is contingent upon his
continuing to provide consulting services.
17
The Company has established a 401(k) plan for its employees that
is intended to qualify under Sections 401(a) and 401(k) of
the Internal Revenue Code of 1986, as amended. Generally, all
employees, including eligible executive officers, are eligible
to participate in the 401(k) plan on the first day of the month
following completion of three months of service. Employer
matching and discretionary profit-sharing contributions vest
after three years of service. The Company currently makes
quarterly discretionary matching contributions equal to 50.0% of
each participants contribution of up to 6.0% of the
participants salary, not to exceed 3.0% of the
participants compensation.
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Internal Revenue Code Section 162(m) |
The Company generally intends that total compensation, including
bonuses awarded pursuant to the performance based incentive
compensation plan, will satisfy the conditions necessary for
deductibility by the Company under Section 162(m) of the
Internal Revenue Code, which limits the ability of the Company
to deduct any compensation in excess of $1,000,000 per year
for federal income tax purposes unless such conditions are met.
Notwithstanding this general policy, the Compensation Committee
retains the authority to authorize payments and awards that may
not be deductible if it believes that they are in the best
interests of both the Company and its shareholders.
Compensation Committee
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Michael J. Endres, Chairman |
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Jeffrey A. Maffett |
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Robert J. Woodward, Jr. |
Compensation Committee Interlocks and Insider
Participation
None of the Companys executive officers or directors
serves or has served on the board of directors or compensation
committee of any entity that has one or more executive officers
serving as a member of the Companys board of directors or
compensation committee.
18
Performance Graph
Set forth below is a line graph comparing the cumulative total
return of a hypothetical investment in the Companys common
shares with the cumulative total return of a hypothetical
investment in each of the S&P Composite 500 Stock Index and
the S&P Property and Casualty Index based on the respective
market prices of each such investment on the dates shown below,
assuming an initial investment of $100 on April 20, 2004,
the date of the Companys IPO, and the reinvestment of
dividends.
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4/20/04 | |
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12/31/2004 | |
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12/31/2005 | |
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ProCentury Corporation
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$ |
100.00 |
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$ |
118.47 |
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$ |
103.38 |
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S&P Composite 500 Stock Index
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100.00 |
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108.37 |
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111.64 |
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S&P Property and Casualty Index
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100.00 |
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103.20 |
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116.60 |
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19
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Diamond Hill Capital Investment Management Agreement
In December 2002, the Company entered into an investment
management agreement with Diamond Hill Capital Management, Inc.,
pursuant to which Diamond Hill manages certain of the
Companys securities, which had an aggregate fair market
value of $36.4 million as of December 31, 2005. In
return for these services, the Company pays Diamond Hill a
management fee of 35 basis points of the fair market value
of the portfolio, which is calculated at various points during
the year, and, for the year ended December 31, 2005,
totaled $110,508. The Company expects to pay management fees in
2006 on the same basis. Mr. Endres, a member of the
Companys board of directors, owns an equity interest in
Diamond Hill Capital Management, Inc. of 1.6%.
Agreements Relating to the Evergreen and Continental
Transactions
In connection with the Companys IPO in April 2004, the
Company spun-off its subsidiaries, Evergreen National Indemnity
Company (Evergreen) and Continental Heritage
Insurance Company (Continental), to the
Companys Class A shareholders. Such Class A
shareholders included Messrs. Feighan and Timm, Stonehenge
Opportunity Fund, with which Mr. Endres is affiliated,
Colonial Banc Corp., of which Mr. Maffett is the Chairman,
President and Chief Executive Officer and in which he holds a
significant ownership interest, and Richmond Mutual
Bancorporation, Inc., of which Mr. Fix is Vice Chairman,
President and Chief Executive Officer and in which he holds an
ownership interest. Such parties collectively hold an ownership
interest of 46% in ProAlliance Corporation
(ProAlliance), an entity established by the
Companys former Class A shareholders to hold their
ownership interest in Evergreen and Continental, and therefore,
indirectly own 46% of Evergreen and Continental.
Messrs. Endres, Fix and Maffett are directors of
ProAlliance.
In connection with the spin-off, the Company entered into
several agreements with Evergreen which facilitated the
Evergreen and Continental transactions. The Companys board
of directors believes that these agreements are fair to the
Company and its shareholders.
Transitional Administrative Agreement. Prior to the
Evergreen and Continental dispositions, the Company provided
Evergreen and Continental with all executive, managerial,
supervisory, administrative, technical, claims handling,
investment management, regulatory affairs, legal, accounting,
financial reporting, professional and clerical services
necessary to operate their respective businesses. In order to
provide Evergreen and Continental with a transition period
before the cessation of these services, the Company entered into
a Transitional Administrative Agreement with Evergreen and
Continental pursuant to which the Company continued to provide
these services to Evergreen and Continental for an initial term
of 18 months in exchange for an annual fee of $900,000.
This agreement was renewed for one six-month term to expire on
December 31, 2005, without any changes in the terms
thereof. On December 29, 2005, the agreement was amended to
extend the term thereof to June 30, 2006, reduce the
administrative fee to $75,000 per calendar quarter payable
during the first month of each quarter and providing for
termination upon not less than thirty (30) days advance
written notice to the Company. For the year ended
December 31, 2005, the Company received $690,000 under this
agreement.
Reinsurance Agreements. The Company entered into loss
portfolio transfer reinsurance contracts that provided for
Century to reinsure Evergreen and Continental for business that
was written in Centurys name prior to December 31,
2003 and transferred to one of the other companies in connection
with the termination of an intercompany pooling agreement among
the parties and for Evergreen to reinsure Century in the same
manner. For example, Century will reinsure property business
transferred to it in connection with the termination of the
intercompany pooling agreement that had been written for it in
Evergreens name. These contracts will remain in force
until all outstanding loss and assignable loss adjustment
expense covered has been settled or commuted in accordance with
the provisions of the applicable contract. The Company ceded
$423,000 of reserves and assumed $2.9 million of reserves
under this contract in 2005.
Quota Share Reinsurance Agreements. The Company entered
into 100% quota share reinsurance contracts that provided for
Century to reinsure Evergreen and Continental for property and
casualty business that was written on Evergreen or
Continentals paper for Century in states that Century was
not licensed and for Evergreen to reinsure Century in the same
manner for bonding business. Under these contracts, the ceding
company is
20
entitled to receive a 5% commission and reimbursement of any
premium taxes or other direct costs such as boards and bureaus
fees. These fronting contracts will remain in force until
December 31, 2007. During 2005, the Company assumed
$723,000 of premiums and ceded $318,000 of premiums under this
contract.
In addition, in 2005, the Company entered into 50% quota share
agreement with Evergreen whereby, the Company would assume
certain special surety bonds (including closure and post closure
solid waste industry bonds). During 2005, the Company recorded
approximately $2.4 million of assumed bonds.
Software License Agreement and Software Support and
Maintenance Agreement. Century has entered into a software
license agreement with Evergreen and Continental pursuant to
which Century granted to Evergreen and Continental a fully
paid-up, royalty free, non-exclusive perpetual license to use
certain of Centurys proprietary software that relates to
underwriting and claims processing and that has been developed
for the mutual benefit of the Company, Evergreen and
Continental. In addition, Century has entered into a software
support and maintenance agreement with Evergreen and
Continental, pursuant to which Century provides certain
technical support and maintenance services for the software in
return for an annual support and maintenance fee. For the year
ended December 31, 2005, this fee totaled $100,000. On
December 29, 2005, the software support and maintenance
agreement was amended to adjust the annual fee effective
January 1, 2006, to be at the rate of $50,000 per
calendar quarter payable during the first month of each quarter.
In all other respects, the agreement continues unchanged.
Evergreen and Continental may terminate the software support and
maintenance agreement by providing 90 days prior
written notice, and Century may terminate the agreement by
providing twelve months prior written notice.
INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FEES
During 2005 and 2004, the Company engaged KPMG LLP as its
independent registered public accountants. KPMG LLP has been
selected to serve as the Companys independent registered
public accountants for the fiscal year ending December 31,
2006. Representatives of KPMG LLP will be present at the Annual
Meeting, have an opportunity to make a statement if they desire
to do so and will be available to respond to appropriate
questions.
The Company paid KMPG LLP fees aggregating $718,470 and $245,000
in 2005 and 2004, respectively, as described in more detail
below. None of the time devoted by KPMG LLP on its engagement to
audit the Companys financial statements for the year ended
December 31, 2005 was attributable to work performed by
persons other than KPMG LLP employees.
Audit Fees. The aggregate fees billed for professional
services rendered by KPMG LLP for the audit of the
Companys annual consolidated financial statements for the
years ended December 31, 2005 and 2004, as well as
registration statement related services for 2004 were $718,470
and $245,000, respectively. Of these amounts, the registration
related services were $50,000 for 2004.
Audit-Related Fees. No fees were billed by KPMG LLP for
assurance or other services reasonably related to the
performance of the audit or review of the Companys
financial statements that are not reported under Audit
Fees above for the years ended December 31, 2005 and
2004.
Tax Fees. No fees were billed by KPMG LLP for
professional services for tax compliance and tax consulting
services for the years ended December 31, 2005 and 2004.
All Other Fees. No fees were billed by KPMG LLP for other
products and services provided by KPMG LLP for the years ended
December 31, 2005 and 2004.
Policy on Audit Committee Pre-Approval of Audit and
Permissible Non-Audit Services. The audit committee
pre-approves, on an individual basis, all audit and permissible
non-audit services provided by the independent registered public
accountants. These services may include audit services,
audit-related services, tax services and other services.
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OTHER MATTERS
Management does not know of any other matters which will be
presented for action at the meeting. If any other matters shall
properly come before the meeting, the persons named in the proxy
will vote thereon in accordance with their judgment.
Shareholder Proposals for 2007 Annual Meeting
Any shareholder proposals intended to be presented at the
Companys 2007 annual meeting of shareholders must be
received by the Secretary of the Company at 465 Cleveland
Avenue, Westerville, Ohio 43082, on or before December 7,
2006, for inclusion in the Companys proxy statement and
form of proxy relating to the 2007 annual meeting of
shareholders.
If a shareholder wishes to present a proposal or nominate a
director before the 2007 annual meeting, but does not wish to
have the proposal or nomination considered for inclusion in the
Companys proxy statement and proxy, such shareholder must
give written notice to the Companys board of directors on
or before February 21, 2007. To present a proposal, the
notice must set forth the business to be presented and the
purpose of such business. To nominate a director, the notice
must set forth the nominees name, qualifications and
background.
As to any proposal or director nomination that a shareholder
intends to present to shareholders other than by inclusion in
the Companys proxy statement for the 2007 annual meeting,
the proxies named in managements proxy for that meeting
will be entitled to exercise their discretionary voting
authority on that proposal unless the Company receives notice of
the matter to be proposed not later than February 21, 2007.
Even if proper notice is received on or prior to
February 21, 2007, the proxies named in the Companys
proxy for that meeting may nevertheless exercise their
discretionary authority with respect to such matter by advising
shareholders of that proposal and how they intend to exercise
their discretion to vote on such matter, unless the shareholder
making the proposal solicits proxies with respect to the
proposal to the extent required by
Rule 14a-4(c)(2)
under the Securities Exchange Act of 1934, as amended.
Householding
The SEC permits a single set of annual reports and proxy
statements to be sent to any household at which two or more
shareholders reside if they appear to be members of the same
family. Each shareholder continues to receive a separate proxy
card. This procedure, referred to as householding, reduces the
volume of duplicate information shareholders receive and reduces
mailing and printing costs. A number of brokerage firms have
instituted householding. Only one copy of this proxy statement
and the attached annual report will be sent to certain
beneficial shareholders who share a single address, unless any
shareholder residing at that address gave contrary instructions.
If any beneficiary shareholder residing at such an address
desires at this time to receive a separate copy of this proxy
statement and the attached annual report or if any such
shareholder wishes to receive a separate proxy statement and
annual report in the future, the shareholder should provide such
instructions to the Company by calling the manager of Investor
Relations, at (800) 878-7389, or by writing to ProCentury
Corporation, Investor Relations at 465 Cleveland Avenue,
Westerville, Ohio 43082.
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By order of the Board of Directors, |
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Christopher J. Timm |
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Secretary |
Dated: April 7, 2006
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c/o
National City Bank
Corporate Trust Operations
Locator 5352
P. O. Box 92301
Cleveland, OH 44101-4301
Vote by Telephone
Have your proxy card available when you
call the Toll-Free Number 1-888-693-8683
using a touch-tone phone and follow the
simple instructions to record your vote.
Vote by Internet
Have your proxy card available when you
access the website www.cesvote.com and
follow the simple instructions presented to
record your vote.
Vote by Mail
Please mark, sign and date your proxy card
and return it in the postage-paid envelope
provided or return to: National City Bank,
P.O. Box 535300, Pittsburgh, PA 15253.
Vote by Telephone
Call Toll-Free using a
Touch-Tone phone:
1-888-693-8683
Vote by Internet
Access the website and
cast your vote:
www.cesvote.com
Vote by Mail
Return your proxy
in the postage-paid
envelope provided.
Vote 24 hours a day, 7 days a week!
If you vote by telephone or Internet, please do not send your proxy by mail.
If voting by mail, Proxy must be signed and dated below.
ê Please fold and detach card at perforation before mailing. ê
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This Proxy is Solicited on
Behalf of the Board of Directors for the
Annual Meeting of Shareholders to be held on May 15, 2006
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The undersigned, revoking all prior proxies, hereby appoint(s) Edward F. Feighan and Nicholas Z. Alexander, and each of them, with full power
of substitution, as proxies to represent and vote, as designated
herein, all common shares of ProCentury Corporation (the Company) which the
undersigned would be entitled to vote if personally present at the
Annual Meeting of Shareholders of the Company to be held at the
Companys
headquarters, located at 465 Cleveland Avenue, Westerville, Ohio 43082, on Monday, May 15, 2006 at 1:30 p.m., local time, and at any
adjournment thereof (the Meeting). Receipt of Notice of Annual Meeting of Shareholders, the related Proxy Statement dated April 7, 2006 and
the Companys Annual Report to Shareholders for the fiscal year ended December 31, 2005 is hereby acknowledged.
In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the Meeting.
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Dated:
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, 2006 |
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Signature(s) of Shareholder(s) |
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Please sign as your name appears hereon. If shares are held
jointly, all holders must sign. When signing as attorney, executor,
administrator, trustee or guardian, please give your full corporate
name by president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
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PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
YOUR VOTE IS IMPORTANT
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Regardless of whether you plan to attend the Annual Meeting of
Shareholders, you can be sure your shares are represented at
the meeting by promptly returning your proxy in the enclosed
envelope. |
ê Please fold and detach card at perforation before mailing. ê
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PROCENTURY
CORPORATION
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PROXY/VOTING INSTRUCTION CARD |
This proxy, when properly executed, will be voted in the manner directed herein by the undersigned shareholder. If no
direction is given, this proxy will be voted FOR the nominees described in Item 1. Attendance of the undersigned at
the Meeting will not revoke this proxy. The undersigned may revoke this proxy by giving notice to the Company in
writing or in open meeting.
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1. |
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Election of Class II Directors |
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Nominees: |
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(1) Robert F. Fix
(2) Christopher J. Timm
(3) Robert J. Woodward, Jr.
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q FOR all nominees listed above |
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q WITHHOLD AUTHORITY |
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(except as marked to the contrary below) |
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to vote for all nominees listed above |
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Instruction:
to withhold authority to vote for any individual nominee, write that
nominees name in the space provided below. |
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2. |
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In their discretion, to vote upon such other business as may properly come before the meeting. |
(Continued on reverse side)