SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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only (as permitted by Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
ProAssurance Corporation
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(Name of Registrant as Specified in Its Charter)
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PROASSURANCE CORPORATION
100 BROOKWOOD PLACE
BIRMINGHAM, ALABAMA 35209
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 22, 2002
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TO OUR STOCKHOLDERS:
The Annual Meeting of Stockholders (the "Annual Meeting") of ProAssurance
Corporation ("ProAssurance") will be held at 10:30 a.m., local time, on
Wednesday, May 22, 2002, at the Harbert Center, 2019 Fourth Avenue North,
Birmingham, Alabama 35203, for the following purposes:
(1) To elect three (3) directors of ProAssurance, each to serve until
the 2005 Annual Meeting and until his or her successor is elected and
qualified; and
(2) To approve the assumption by ProAssurance of the MAIC Holdings
(now Medical Assurance, Inc.) Incentive Compensation Stock Plan and certain
amendments thereto; and
(3) To transact such other business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.
The Board of Directors has set March 25, 2002, as the record date for the
Annual Meeting. Only holders of record of shares of ProAssurance's common stock
at the close of business on the record date will be entitled to notice of, and
to vote at, the Annual Meeting. The stock transfer books will not be closed.
The Annual Meeting may be adjourned from time to time without notice other
than announcement at the meeting or adjournments thereof, and any business for
which notice is hereby given may be transacted at any such adjournment.
Details concerning those matters to come before the Annual Meeting are
provided in the accompanying Proxy Statement. Whether you plan to attend the
Annual Meeting or not, please sign, date and return the enclosed proxy card in
the envelope provided. Returning your proxy card does not deprive you of your
right to attend the Annual Meeting and to vote your shares in person.
A copy of ProAssurance's Annual Report to the Stockholders for the year
ended December 31, 2001, is enclosed. We hope you will find it informative.
By order of the Board of Directors,
signature
Howard H. Friedman
Secretary
April 19, 2002
PROASSURANCE CORPORATION
100 BROOKWOOD PLACE
BIRMINGHAM, ALABAMA 35209
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PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 22, 2002
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SOLICITATION OF PROXIES
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of ProAssurance Corporation (sometimes
referred to as "ProAssurance") to be voted at the Annual Meeting of the
Stockholders (the "Annual Meeting") to be held at 10:30 a.m., local time, on
Wednesday, May 22, 2002, at the Harbert Center, 2019 Fourth Avenue North,
Birmingham, Alabama 35203, or at any adjournment or postponement thereof. The
Proxy Statement and proxy card are first being mailed to the stockholders of the
Company on or about April 19, 2002.
At the Annual Meeting, the stockholders will be asked to
- elect three (3) members to the Board of Directors of ProAssurance as
Class I Directors; and
- approve ProAssurance's assumption of the MAIC Holdings, Inc. (now Medical
Assurance, Inc.) Incentive Compensation Stock Plan and to rename it the
"ProAssurance Corporation Incentive Compensation Stock Plan" with certain
amendments thereto.
ProAssurance will bear the cost of solicitation of proxies. ProAssurance has
requested brokers or nominees to forward this Proxy Statement to their customers
and principals and will reimburse them for expenses incurred in so doing. If
deemed necessary, ProAssurance may also use its officers and regular employees,
without additional compensation, to solicit proxies personally or by telephone.
The Board of Directors has set March 25, 2002 as the record date for the
Annual Meeting. Only stockholders of record at the close of business on the
record date will be entitled to notice of and to vote at the Annual Meeting. At
the close of business on the record date there were 25,841,453 outstanding
shares of common stock of ProAssurance, par value $0.01 per share, with each
shareholder entitled to one vote in person or by proxy for each share of common
stock on all matters properly to come before the Annual Meeting.
ProAssurance was organized on October 20, 2000, to serve as the holding
company for Medical Assurance, Inc. (NYSE:MAI) and Professionals Group, Inc.
(NASDAQ:PICM). The consolidation was completed on June 27, 2001, at which time
each share of Medical Assurance common stock was converted into one share of
ProAssurance Common Stock, and each share of Professionals Group common stock
was converted, at the election of the holder, into either (i) 0.897 of a share
of ProAssurance common stock and $13.47 in cash or (ii) $27.47 in cash. Holders
of Medical Assurance common stock were not required to surrender certificates
for their shares as the certificates were automatically converted and treated as
representing the same number of shares of ProAssurance common stock after the
consolidation. Holders of Professionals Group common stock were required to
surrender their certificates prior to the consolidation in order to make their
election to receive either shares of ProAssurance common stock and cash or cash
only, and those holders who failed to surrender their certificates were
automatically treated as having made an election to receive ProAssurance common
stock and cash for their shares of Professionals Group stock. Any person who
held certificates for shares of Medical Assurance common stock or Professionals
Group common stock on the record date will be entitled to vote the number of
shares of ProAssurance common stock into which the shares evidenced by the
certificate have been converted.
PERSONS WHO HAVE NOT EXCHANGED THEIR CERTIFICATES FOR PROFESSIONALS GROUP
COMMON STOCK FOR PROASSURANCE COMMON STOCK AND CASH ARE ENCOURAGED TO DO SO.
ALTHOUGH SUCH PERSONS WILL BE ENTITLED TO
VOTE AS IF THEIR PROFESSIONALS GROUP SHARES HAVE BEEN CONVERTED INTO
PROASSURANCE SHARES, THEY WILL NOT RECEIVE THE CASH PAYMENTS FOR THEIR
PROFESSIONALS GROUP SHARES NOR WILL THEY RECEIVE ANY DIVIDENDS OR OTHER
DISTRIBUTIONS WITH RESPECT TO THEIR PROASSURANCE COMMON STOCK UNTIL THEIR
CERTIFICATES FOR SHARES OF PROFESSIONALS GROUP COMMON STOCK ARE SO SURRENDERED
AND EXCHANGED. FOR INFORMATION AS TO THE PROCEDURE FOR SURRENDERING CERTIFICATES
OF PROFESSIONALS GROUP COMMON STOCK IN EXCHANGE FOR CERTIFICATES FOR
PROASSURANCE COMMON STOCK AND CASH, PLEASE CONTACT FRANK O'NEIL, SENIOR VICE
PRESIDENT, PROASSURANCE CORPORATION, EITHER BY MAIL AT P.O. BOX 590009,
BIRMINGHAM, ALABAMA 35259-0009, OR BY TELEPHONE AT (205) 877-4400 OR (800)
282-6242.
VOTING INSTRUCTIONS
The record owners of ProAssurance common stock may vote their shares on
matters properly presented at the Annual Meeting in four ways:
- By signing and returning the enclosed proxy card in the enclosed
envelope; or
- By voting on the Internet at www.eproxy.com/pra/ in accordance with
instructions on the enclosed proxy card; or
- By telephone by calling 1-800-840-1208 on a touchtone telephone and
following the instructions on the enclosed proxy card; or
- By attending the meeting and voting in person.
Shares of common stock held in the name of a nominee such as a broker or bank
must be voted in accordance with instructions provided by the nominee.
All shares of ProAssurance common stock represented by proxies properly
received at or prior to the Annual Meeting and not revoked will be voted in
accordance with the instructions in the proxy. If no instructions are indicated
on the proxy, the shares represented by that proxy will be voted FOR the
election of each director nominee nominated by the Board of Directors and FOR
the approval of the assumption by ProAssurance of Medical Assurance's Incentive
Compensation Stock Plan, as it has been amended.
Proxies may be revoked prior to the Annual Meeting by either (i) submitting
to ProAssurance a properly executed proxy and bearing a later date, or (ii) by
voting by telephone or Internet at a later date or in person at the meeting, or
(iii) by giving written notice of revocation to the Secretary of ProAssurance.
The mailing address of ProAssurance is P.O. Box 590009, Birmingham, Alabama
35259-0009, and the street address is 100 Brookwood Place, Birmingham, Alabama
35209.
VOTE REQUIRED
The presence, in person or by proxy, of the holders of one-third of the
shares of ProAssurance common stock entitled to vote at the meeting will
constitute a quorum to conduct business at the Annual Meeting. Proxies received
but marked as abstentions and "broker non-votes" (which occur where shares held
by brokers or nominees for beneficial owners are not voted on a matter) will be
included in the calculation of the number of shares considered to be present at
the meeting.
Directors will be elected by a plurality of the votes cast in person or by
proxy at the Annual Meeting. With respect to the election of directors, a
shareholder may vote for all three nominees or withhold authority to vote for
any or all of the nominees. Because directors are elected by a plurality of the
votes cast, votes to withhold authority with respect to one or more nominees and
broker non-votes will have no effect on the outcome of the election.
The affirmative vote of a majority of the votes cast in person or by proxy
at the Annual Meeting will be required to approve the assumption and amendment
of Medical Assurance's Incentive Compensation Stock Plan. Abstentions and broker
non-votes will have the same effect as negative votes.
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PROPOSAL 1
ELECTION OF DIRECTORS
BOARD OF DIRECTORS
The Certificate of Incorporation of ProAssurance provides that the Board of
Directors is comprised of at least three and not more than twenty-four
directors, as determined by the Board of Directors. The Board of Directors
currently has eleven directors. The Certificate of Incorporation requires that
the directors be divided into three classes as nearly equal as possible and that
the directors serve staggered terms of three years. Any vacancies on the Board
of Directors resulting from the death, resignation or removal of a director or
from any increase in the number of directors may be filled by action of the
remaining directors. A Director elected by the directors to fill a vacancy on
the Board of Directors holds office until the next election of the class of
directors for which such director has been chosen.
The current Board of Directors of ProAssurance was appointed on June 26,
2001, in accordance with the provisions of the Agreement to Consolidate between
Medical Assurance and Professionals Group dated June 22, 2000, and amended
November 1, 2000 (the "Consolidation Agreement"). The Consolidation Agreement
provided that the initial Board of Directors of ProAssurance would be comprised
of eleven directors divided into three classes designated as Class I, Class II
and Class III. Four directors would be appointed as Class I Directors to serve
until the 2002 annual meeting; four directors would be appointed as Class II
Directors to serve until the 2003 annual meeting; and three directors would be
appointed as Class III Directors to serve until the 2004 annual meeting. The
Consolidation Agreement further provided that Professionals Group would have the
right to appoint one director to serve in each class for a total of three
directors and that Medical Assurance would have the right to appoint a total of
eight directors to be divided among the three classes of directors.
Professionals Group appointed Ann F. Putallaz as a Class I Director, William H.
Woodhams as a Class II Director and Victor T. Adamo as a Class III Director.
Medical Assurance appointed A. Derrill Crowe, Norton E. Cowart, and Robert E.
Flowers as Class I Directors; Richard V. Bradley, Leon C. Hamrick and John P.
North as Class II Directors; and Paul R. Butrus and Paul D. Everest as Class III
Directors. At the February meeting of the ProAssurance Board of Directors, John
J. McMahon, Jr. was elected as a Class II Director to fill a vacancy created
upon the resignation of Richard V. Bradley effective December 31, 2001, and
Drayton Nabers, Jr. was elected as a Class III Director to fill the vacancy
created upon the death of Paul D. Everest in December 2001.
The Consolidation Agreement requires the ProAssurance Board of Directors to
nominate a person selected by the directors nominated by Professionals Group to
fill the vacancy created upon the expiration of the first term of each director
nominated by Professionals Group. The Board of Directors is required to
recommend to the ProAssurance shareholders that the nominee so nominated be
elected to the Board of Directors and is further required to solicit proxies in
favor of the election of such nominee to the Board of Directors. Ann F. Putallaz
has been nominated by the directors nominated by Professionals Group to fill the
vacancy on the expiration of her term as a Class I Director. In addition to Ms.
Putallaz, the Board of Directors has nominated A. Derrill Crowe and Robert E.
Flowers for election as directors at the Annual Meeting to fill the vacancies
arising on the expiration of their terms as Class I Directors. The Board of
Directors did not nominate anyone for election to fill the vacancy arising upon
the expiration of the term of Norton E. Cowart as a Class I Director. The Board
of Directors may elect at a later date either to elect a director to fill the
vacancy in the Class I Directors or to reduce the size of the Board of
Directors.
The persons named in the enclosed Proxy have advised that, unless a
contrary direction is indicated on the enclosed Proxy, they intend to vote the
shares appointing them as proxies in favor of the nominees named herein. If the
nominees should be unable to serve, and the Board of Directors knows of no
reason to anticipate this will occur, the Proxies will be voted for a substitute
selected by the Board of Directors, or the Board of Directors may decide not to
elect an additional person as a director. The persons named in the enclosed
Proxy will have no authority to vote for the election of any person other than
the nominees or their substitutes in the election of directors.
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Biographical information regarding each nominee for election to the Board
of Directors and each of the other directors is set forth below and the stock
ownership with respect to each nominee and director is set forth in the table
under "Stock Ownership of Certain Beneficial Owners and Management."
NOMINEES FOR ELECTION AS CLASS I DIRECTORS (2005)
A. DERRILL CROWE, M.D. (Age 65) has served as a Director and as Chairman of
the Board and Chief Executive Officer of ProAssurance since the completion of
the consolidation on June 27, 2001. Dr. Crowe has served as a director and
Chairman, President and Chief Executive Officer of Medical Assurance, Inc. since
its organization in 1995 and as President and Chief Executive Officer and a
director of The Medical Assurance Company, Inc. (formerly Mutual Assurance,
Inc.) since its organization in 1976. Dr. Crowe is also Chairman and a director
of MEEMIC Holdings, Inc., a publicly traded insurance holding company of which
ProAssurance owns 84.0% of the outstanding voting stock.
ROBERT E. FLOWERS (Age 52) has served as a director of ProAssurance since
completion of the consolidation on June 27, 2001. Prior to that date, Dr.
Flowers served as a director of Medical Assurance, Inc. (since 1995) and as a
director of The Medical Assurance Company, Inc. (since 1985). Dr. Flowers
practiced as a physician with Gynecology Associates of Dothan P.C., Dothan,
Alabama, prior to his retirement in 2001.
ANN F. PUTALLAZ (Age 56) has served as a director of ProAssurance since the
completion of the consolidation on June 27, 2001. Prior to that time, Ms.
Putallaz served as a director of Professionals Group, Inc. (since 1996) and its
Vice Chairman (since 1999). For the past five years, Ms. Putallaz has been the
Vice President and director of marketing information services of Munder Capital
Management, an investment advisor to The Munder Funds, an open end investment
company registered under the Investment Company Act of 1940. Ms. Putallaz is a
director of MEEMIC Holdings, Inc.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
NOMINEES NOMINATED FOR ELECTION AS DIRECTORS BY THE BOARD OF DIRECTORS.
CLASS II DIRECTORS (2003)
LEON C. HAMRICK, M.D. (Age 76), has served as a director of ProAssurance
since completion of the consolidation on June 27, 2001. Prior to that time, Dr.
Hamrick served as a director of Medical Assurance (since 1995) and a director of
The Medical Assurance Company, Inc (since 1978). Dr. Hamrick is a general
surgeon with HealthSouth Metro West Hospital in Fairfield, Alabama (formerly
known as Tenet Lloyd Noland Hospital).
JOHN J. MCMAHON, JR. (Age 59) has served as a director of ProAssurance
since February 27, 2002. Since 1999, Mr. McMahon has served as Chairman of Ligon
Industries (manufacturer of wastewater treatment equipment and aluminum
castings) and as Chairman of the Executive Committee of McWane, Inc. (pipe and
valve manufacturing company) in Birmingham, Alabama. Prior to that time, Mr.
McMahon served as Chairman of the Board of McWane, Inc. Mr. McMahon also serves
as a director of John H. Harland Co., Protective Life Corporation, and Alabama
National Bancorporation.
JOHN P. NORTH, JR. (Age 66) has served as a Director of ProAssurance since
completion of the consolidation on June 27, 2001, and as a director of Medical
Assurance, Inc. since 1996. Mr. North is a certified public accountant who was a
partner of the accounting firm of Coopers & Lybrand LLP until his retirement in
September 1995.
WILLIAM H. WOODHAMS, M.D. (Age 64) has served as a director of ProAssurance
since the completion of the consolidation on June 27, 2001. Prior to that time,
Dr. Woodhams served as a director of Professionals Group, Inc. (since 1996) and
its Chairman (since 1999) and director of its subsidiary, ProNational Insurance
Company since 1980. Dr. Woodhams is a board certified family practice physician
and has been in private practice in Kalamazoo, Michigan since 1964.
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CLASS III DIRECTORS (2004)
VICTOR T. ADAMO, ESQ., CPCU (Age 54) has served as a director and Vice
Chairman, President and Chief Operating Officer of ProAssurance since completion
of the consolidation on June 27, 2001. Prior to that time, Mr. Adamo served as a
director and President and Chief Executive Officer of Professionals Group (since
1996) and in the same capacities for its subsidiary, ProNational Insurance
Company where he has been employed since 1985. Mr. Adamo currently serves as the
Chief Executive Officer of MEEMIC Holdings, and has been a director since 1999.
Prior to joining ProNational, Mr. Adamo was in private legal practice from 1975
to 1985.
PAUL R. BUTRUS (Age 61) has served as a director of ProAssurance since
completion of the consolidation on June 27, 2001 and was appointed its Vice
Chairman in September 2001. Prior to that time, Mr. Butrus was a director and
Executive Vice President and Chief Operating Officer of Medical Assurance, Inc.
(since 1995). Mr. Butrus has held various positions with The Medical Assurance
Company, Inc. since 1977.
DRAYTON NABERS, JR. (Age 61) has served as a director of ProAssurance since
February 27, 2002. Mr. Nabers has served as Chairman of the Board of Protective
Life Corporation (insurance holding company) since 1996 and its Chief Executive
Officer from 1996 through 2001. Mr. Nabers is also a director of Alabama
National Bancorporation, National Bank of Commerce of Birmingham, and Energen
Corporation.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The By-Laws of ProAssurance establish four standing committees of the Board
of Directors: the Executive Committee, the Nominating Committee, the
Compensation Committee and the Audit Committee.
Executive Committee. The Executive Committee has the authority during
intervals between the meetings of the Board of Directors to exercise all powers
and authority of the Board of Directors in the management of the business and
affairs of ProAssurance, except that the Executive Committee has no power or
authority to alter or repeal any resolution adopted by the Board of Directors
that by its terms is not subject to amendment or repeal by the Executive
Committee or any resolution relating to the establishment or membership of the
Executive Committee and the Executive Committee may not authorize matters
required by law to be passed upon by the full Board. The By-Laws provide that
the Executive Committee have at least three members including the Chairman and
Chief Executive Officer and the Vice Chairman of the Board. The members of the
Executive Committee are: A. Derrill Crowe, Chairman, Victor T. Adamo, Paul R.
Butrus, Robert E. Flowers and William H. Woodhams. The Executive Committee has
not met since the consolidation.
Nominating Committee. The Nominating Committee is responsible for fielding
a slate of candidates for election as directors at each annual meeting and to
fill vacancies otherwise created on the Board of Directors. The members of the
Nominating Committee are: Leon C. Hamrick, Chairman; John P. North; and William
H. Woodhams. The Nominating Committee has met one time since the consolidation,
and all members were present.
Compensation Committee. The Compensation Committee recommends to the Board
of Directors the compensation arrangements for the Chief Executive Officer as
well as other senior management personnel. The Compensation Committee is the
administrator of the ProAssurance Corporation Incentive Compensation Stock Plan.
The members of the Compensation Committee are: Robert E. Flowers, Chairman, and
Leon C. Hamrick. The Compensation Committee has had two meetings since the
consolidation, at which all members were present.
Audit Committee. The Board of Directors of ProAssurance has adopted a
written charter for its audit committee which is attached as Appendix A to this
Proxy Statement. The duties and responsibilities of the Audit Committee are set
forth in its charter and include the following: to recommend to the Board of
Directors the independent accountant to audit the consolidated financial
statements of ProAssurance and its subsidiaries; to serve as an independent and
objective party to assist the Board of Directors in its oversight of the
Company's financial reporting principles and policies and internal controls and
procedures; to provide an evaluation of the independence of the independent
auditors; to review the fees of the independent auditors for
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audit and non-audit services; and to review reports and other communications
between management and the independent auditors with respect to accounting
methods and systems of internal control. All of the members of the Audit
Committee are independent directors as defined in the listing standards of the
New York Stock Exchange, and they are: John P. North, Chairman; Leon C. Hamrick
and Ann F. Putallaz. The Audit Committee has met three times since the
consolidation and no member has missed more than 75% of the meetings.
Director Compensation. Since July 2001, each non-employee director has
earned $1,000 per month and $500 for each day that the director attended a Board
Meeting. Non-employee directors are also reimbursed for travel time at the rate
of $100 per hour and ordinary and necessary expenses incurred in connection with
the attendance at such meetings. At the February 2002 meeting, the Board of
Directors approved an increase in the compensation of non-employee directors to
$2,000 per month and $1,000 for each day that a director attends a meeting.
Non-employee directors may elect to receive their director's compensation in
shares of ProAssurance common stock in lieu of cash. The shares are issued from
the shares of ProAssurance common stock reserved for issuance under the
ProAssurance Corporation Incentive Compensation Stock Plan.
Meetings of the Board. Since the appointment of the Board of Directors on
June 26, 2001, the Board had three meetings at which all directors were in
attendance.
PROPOSAL 2
ASSUMPTION OF
MEDICAL ASSURANCE'S INCENTIVE COMPENSATION STOCK PLAN
Under the terms of the Consolidation Agreement between Medical Assurance
and Professionals Group, ProAssurance assumed all of the options previously
granted under Medical Assurance's Incentive Compensation Stock Plan and
Professionals Group's 1996 Long-Term Stock Incentive Plan. Upon the completion
of the consolidation on June 27, 2001, outstanding options to acquire 398,625
shares of Medical Assurance common stock were each converted into an option to
acquire the same number of shares of ProAssurance common stock at the same
option price, and outstanding options to acquire shares of Professionals Group
common stock were converted into options to acquire 458,680 shares of
ProAssurance common stock. The Consolidation Agreement was approved by the
shareholders of each of Medical Assurance and Professionals Group immediately
preceding the completion of the consolidation.
On September 27, 2001, the Board of Directors of ProAssurance authorized
ProAssurance's assumption of Medical Assurance's Incentive Compensation Stock
Plan by amending the plan to substitute the name ProAssurance for the name
Medical Assurance, to substitute ProAssurance common stock as the stock subject
to the plan, and to change the name of the plan to the "ProAssurance Corporation
Incentive Compensation Stock Plan" (the "Stock Plan"). On that date there was a
total of 1,888,829 shares of ProAssurance common stock reserved for issuance
under the Stock Plan divided into 398,625 shares reserved for issuance pursuant
to the outstanding options assumed under the Consolidation Agreement and
1,491,204 reserved for future awards under the Stock Plan. The ProAssurance
Board of Directors assumed the Professionals Group 1996 Long-Term Stock
Incentive Plan only with respect to the outstanding options assumed under the
Consolidation Agreement and determined that no further awards will be granted
under this plan.
The Stock Plan was approved by the Medical Assurance shareholders at their
1996 Annual Meeting. The shares of ProAssurance common stock reserved for
issuance under the Stock Plan were originally approved for listing by the New
York Stock Exchange in 1996 and were included in the shares approved for listing
in the listing application for the ProAssurance common stock. The Board of
Directors does not believe that the assumption and amendment of the Stock Plan
requires shareholder approval since the amendments relate to the assumption of
the plan by a successor corporation in a merger and to the substitution of the
successor corporation's stock as contemplated by the terms of the Stock Plan.
Because the assumption and amendment of the Stock Plan by ProAssurance may
constitute material amendments to the Stock Plan, the Board of Directors has
recommended that the assumption and amendment of the Stock Plan be submitted to
the
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shareholders of ProAssurance for approval in order to comply with the exemption
provided by Rule 16b-3 of the Securities and Exchange Commission and to comply
with the requirements of Section 422 of the Internal Revenue Code with respect
to incentive stock options.
The following table sets forth information as of December 31, 2001, with
respect to equity securities authorized for issuance pursuant to compensation
plans previously approved by the shareholders of ProAssurance and compensation
plans not previously approved by the ProAssurance shareholders. For purpose of
this table, the shares to be issued pursuant to outstanding options assumed
under the Consolidation Agreement are considered the only shares to be issued
under a compensation plan approved by the ProAssurance shareholders and the
shares reserved for future issuance under the Stock Plan are the only shares
considered to be issued pursuant to a compensation plan not approved by the
ProAssurance shareholders:
EQUITY COMPENSATION PLAN INFORMATION
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
FUTURE ISSUANCE UNDER
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE EQUITY COMPENSATION
BE ISSUED UPON EXERCISE EXERCISE PRICE OF PLANS (EXCLUDING
OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, SECURITIES REFLECTED IN
WARRANTS AND RIGHTS WARRANTS AND RIGHTS COLUMN (A))
----------------------- --------------------- -----------------------
PLAN CATEGORY (A) (B) (C)
------------- ----------------------- --------------------- -----------------------
Equity compensation plans approved
by security holders.............. 719,313 $20.82 -0-
Equity compensation plans not
approved by security holders..... -0- 1,487,362
Total.................... 719,313 $20.82 1,487,362
The following constitutes a brief discussion of the material features of
the Stock Plan as it is proposed to be amended. A copy of the Assumption and
Amendment with respect to the Stock Plan is attached hereto as Appendix "B."
Purpose of Plan. The purpose of the Stock Plan is to secure or retain the
services of key employees who include officers and other employees of
ProAssurance and subsidiaries ("ProAssurance Group"). Awards will be granted to
those eligible to participate who are deemed to be important to the ProAssurance
Group's success by the Board of Directors of ProAssurance or a committee of not
less than two members of the Board of Directors appointed to administer the Plan
(collectively the "Committee"). The Board of Directors has designated its
Compensation Committee to serve as the Committee under the Stock Plan. The
Committee will have full authority, in its discretion, to grant awards under the
Stock Plan, to determine the eligible persons to whom awards shall be granted
and the number of shares to be covered by each award. Types of awards which the
Committee will have authority to grant consist of stock options (with or without
reload rights) and stock grants. Because awards under the Stock Plan are granted
in the discretion of the Committee, awards that may be granted to executive
officers and directors of ProAssurance are not presently determinable.
Eligibility. The Committee may, in its discretion, grant awards to
directors, officers and employees of ProAssurance and its subsidiaries
("Eligible Persons"). Directors and advisory directors are eligible to
participate in the Stock Plan but only to the extent they elect to receive stock
awards in lieu of their regular cash compensation.
Number of Shares. On June 27, 2001, there were a total of 1,888,829 shares
of ProAssurance common stock reserved for issuance under the Stock Plan subject
to adjustment to reflect any increase or decrease in the number of outstanding
shares resulting from payment of a dividend on the shares, a subdivision or
combination of shares, a reclassification of the shares, a merger or
consolidation, or other like changes in the shares. At March 31, 2002, there are
1,006,699 shares of ProAssurance common stock that are reserved for future
awards under the Stock Plan after giving effect to 398,625 shares that are
reserved for outstanding options assumed under the Consolidation Agreement,
415,000 shares that are reserved for options granted in
7
2002, and 68,505 shares that have been issued as stock grants under the Stock
Plan since the assumption of the plan by ProAssurance. ProAssurance common stock
utilized in connection with the Stock Plan may be derived from the authorized
but unissued shares of ProAssurance common stock or from the treasury shares, or
from ProAssurance common stock owned by a subsidiary of ProAssurance, and will
be available for awards under the Stock Plan in the form of non-qualified stock
options, incentive stock options, option reload rights, and stock grants. If any
outstanding stock option under the Stock Plan expires or is terminated for any
reason before the end of the term of the Stock Plan, the shares covered by the
expired or terminated stock option may be used to grant new stock options under
the Stock Plan.
Duration and Effective Date. The Stock Plan was originally adopted by The
Medical Assurance Company, Inc. (formerly Mutual Assurance, Inc.) on February
23, 1995. The Plan was assumed by Medical Assurance, Inc. (formerly MAIC
Holdings, Inc.) in 1996 after it became the parent holding company of The
Medical Assurance Company. The Plan will terminate on February 23, 2005.
Accordingly, awards may be granted pursuant to the Plan at any time prior to the
expiration date.
Stock Grants. In the discretion of the Committee, any Eligible Person may
be granted a stock grant. The stock grant may be governed by a Restriction
Agreement which may set forth any restrictions, terms and conditions as the
Committee may in its discretion determine. The Eligible Person to whom shares of
ProAssurance common stock are issued pursuant to a stock grant will have all the
rights of a shareholder with respect to such shares, including the right to vote
them and to receive all dividends and other distributions paid with respect to
them, provided, however, that the payment of dividends may be deferred and the
shares may be subject to the restrictions on transfer, all as may be determined
by the Committee at the time of the award.
Stock Options. The Committee may choose to grant an Eligible Person
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), options that fail to meet one or
more of the requirements of an incentive option (non-qualified stock options),
reload options, or any other stock options which are or may become permitted by
any applicable law. The Committee will have authority, subject to the terms of
the Stock Plan, to determine the date of grant, the types of options to be
granted, the number of shares, the exercise price and the other terms and
conditions of each option granted under the Stock Plan, including provisions
regarding the repurchase of options by ProAssurance.
Reload Option Rights. The Committee may in its discretion grant reload
option rights in conjunction with a stock option. An Eligible Person to whom
reload option rights are granted is entitled, upon exercise of a stock option
through the delivery of previously owned shares, to be automatically granted, on
the date of such exercise, a new non-incentive stock option (the "Reload
Option") (1) for a number of shares of ProAssurance common stock not exceeding
the number of shares of ProAssurance common stock delivered in payment of the
option price of the original option, (2) having an option price not less than
the fair market value of the ProAssurance common stock on the date of grant of
the Reload Option, (3) having an expiration date not later than the expiration
date of the original option, and (4) otherwise having terms permissible for an
original grant of an incentive stock option. In granting reload option rights,
the Committee may provide for successive grants of Reload Options upon the
exercise of Reload Options. Unless otherwise determined by the Committee, Reload
Options are granted only if the underlying option is exercised by the original
Eligible Person during employment with ProAssurance Group.
Because the number of shares covered by a Reload Option is limited to the
number of previously owned shares delivered in payment of the option price of
the original option, reload option rights will not increase the net number of
shares which may be acquired under a stock option. Because the option price of
the shares subject to a Reload Option may not be less than fair market value of
the shares of ProAssurance common stock on the date the underlying option is
exercised, reload option rights will not increase the total net value (excess of
fair market value over the option price) realizable under the original option.
However, since an Eligible Person who exercises an option before the end of his
term will not forfeit the potential for future market price appreciation, the
Board believes reload option rights will encourage earlier stock option
exercises, thereby promoting the identification with shareholder interest
resulting from ownership of ProAssurance common stock by Eligible Persons.
8
Stock Option Agreements. Stock options will be evidenced by agreements
approved by the Committee in the form and containing the terms and conditions as
it from time to time may determine. Stock option agreements will contain terms
and conditions including, but not limited to, the medium of payment, number of
shares, option price, term of the option, the date of exercise, and such other
provisions as provided in the Stock Plan.
The option price for shares covered by an incentive stock option may not be
less than 100% of the fair market value of the shares of ProAssurance common
stock on the date of grant as determined in good faith by the Committee, except
that the option price for an incentive stock option granted to an Eligible
Person who then owns more than 10% of the outstanding stock of ProAssurance (as
determined under applicable rules of the IRS) may not be less than 110% of the
fair market value of the shares on the date of grant.
Each stock option granted under the Plan will expire not more than ten (10)
years from the date of grant.
Termination of Employment. The Committee has the power to specify, with
respect to an award to a particular grantee, the effect of termination of such
grantee's employment, which effect may include forfeiture of all or part of the
award, and acceleration of exercise or vesting rights. In no event may an
incentive stock option be exercised more than three months after termination of
employment for any reason other than disability nor more than one year after
termination of employment by reason of disability.
Effect of a Merger or Acquisition. In the event of (a) a merger in which
ProAssurance is not the surviving corporation; (b) the sale or transfer of
substantially all of the assets of ProAssurance; or (c) the acquisition of the
outstanding shares of ProAssurance common stock, the Committee may declare all
outstanding options exercisable immediately, in which case all options not
exercised within 30 days of notice of exercisability will terminate, regardless
of any provisions contained in any Stock Option Agreements. Notwithstanding the
foregoing, options may remain outstanding if a successor corporation
contemplated in clause (a), (b) or (c) above agrees to assume the outstanding
options issued under the Stock Plan or to substitute substantially equivalent
options.
Amendment and Termination of the Stock Plan. The Board of Directors at any
time may amend the Stock Plan as deemed in the best interest of ProAssurance
except that the Board may not adopt any amendment that would (i) materially
increase the benefits accruing to Eligible Persons under the Stock Plan; (ii)
materially increase the number of securities which may be issued under the Plan;
or (iii) materially modify the requirements as to eligibility for participation
in the Stock Plan unless such amendment is ratified or approved by the
shareholders within 12 months of its adoption. No termination or amendment of
the Stock Plan may adversely affect the rights of any grantee under his stock
option agreement or stock restriction agreement without the consent of the
grantee.
The Board of Directors, at any time, may terminate the Stock Plan, without
stockholder approval, as deemed in the best interest of ProAssurance.
Federal Income Tax Consequences. The following is a brief summary of the
significant aspects of current federal income tax treatment of the awards that
may be granted under the Stock Plan. This summary does not cover the federal tax
effects if the described conditions are not met nor does this summary discuss
any tax effect, if any, of any state or local tax laws or any foreign tax laws.
The grant of a stock option will not result in tax consequences to
ProAssurance or the Eligible Person to whom it is granted. Upon the exercise of
an option and the transfer to the optionee of shares, the tax treatment depends
upon whether the option is a non-qualified option or an incentive stock option.
When a non-qualified option is exercised, the holder of the option will realize
compensation taxable as ordinary income in an amount equal to the difference
between the option price and the fair market value of the shares on the date of
exercise, and ProAssurance will have a deductible expense in the same amount.
The basis of the holder of such shares will generally be the fair market value
on the date of exercise. When he disposes of such shares, the difference between
the amount received and the fair market value of the shares on the date of
exercise will be treated as long-term or short-term capital gain or loss,
depending upon the holding period of the shares.
9
When an incentive stock option is exercised, the holder of the option will
not realize any income and ProAssurance will not be allowed any deduction if
certain conditions regarding such holder's period of employment with the
ProAssurance Group and the holding period of the option are met. The holder of
the incentive stock option must have been employed with the ProAssurance Group
at all times from the date of grant of the option until at least three months
prior to the exercise of the stock option and such holder must not have disposed
of the shares acquired upon the exercise of the option within two years from
date of grant or within one year from date of exercise. If these conditions are
satisfied, the basis in the shares acquired upon the exercise of an incentive
stock option will be the exercise price. In the event of a sale of the stock
after compliance with these conditions, the resulting gain or loss will
ordinarily be treated as long term capital gain or loss.
If the holder of an incentive stock option fails to comply with the
condition regarding his period of employment, or his holding period for the
shares, such holder will recognize taxable income upon exercise of the incentive
stock option as if he had exercised a non-qualified option. In such event,
ProAssurance will have a deductible expense upon exercise equal to the
compensation income recognized by such holder. Any gain in excess of the amount
treated as compensation will be treated as long-term or short-term capital gain
depending on the length of time the holder had held the shares at the time of
disposition. Depending upon individual circumstances, a person who exercises an
incentive stock option may be subject to the alternative minimum tax.
An Eligible Person who is granted a stock grant will recognize taxable
income for federal income tax purposes in the year of the grant of the award.
Unless the shares are subject to restrictions (that is, they are not
transferable or they are subject to a substantial risk of forfeiture), the
recipient of a stock grant will recognize compensation income in the year of the
grant in an amount equal to the difference between the price paid for such
restricted shares and the fair market value of the stock on the date of grant.
If the Eligible Person is subject to Section 16(b) of the Securities Exchange
Act of 1934 on the date of grant or the stock grant is subject to the
restrictions on transfer or subject to forfeiture under the restriction
agreement, the stock grant generally will be presumed to be subject to
appropriate restrictions to defer the recognition of compensation income. In
such event, the recipient will recognize income in the year in which the
restriction lapses in an amount equal to the difference between the price paid
for the restricted shares and the fair market value of such shares on the date
such restriction lapses. If the recipient of the stock grant subject to such
restriction makes a Section 83(b) election within 30 days of exercise, the
recipient will recognize compensation income in the year of grant in an amount
equal to the difference between the price and fair market value on date of
exercise. ProAssurance generally will be entitled to a deduction for the amount
recognized as compensation income by the recipient of the stock grant.
Section 162(m) Limitation. Section 162(m) of the Internal Revenue Code
prohibits ProAssurance from deducting executive compensation in excess of
$1,000,000 paid in any one year to its chief executive officer or to any of the
four highest compensated executive officers required to be named in the
compensation table in its proxy statement. Executive compensation includes base
salary, annual bonus, stock option exercises, transfers of property and benefits
paid under nonqualified plans, but excludes certain performance-based
compensation that meets the requirements of Code Section 162(m). The awards
granted under the Stock Plan will not be considered performance based
compensation under Code Section 162(m).
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid or
accrued by ProAssurance and its subsidiaries during each of the last three
fiscal years with respect to (i) the Company's Chief Executive Officer and (ii)
the four most highly compensated persons considered to be executive officers or
their equivalent. Because ProAssurance did not begin its business as the holding
company for Medical Assurance
10
and Professionals Group until June 27, 2001, the summary treats Medical
Assurance and Professionals Group as subsidiaries of ProAssurance as if the
consolidation occurred on January 1, 1999.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
------------------------------------------
ANNUAL COMPENSATION AWARDS
---------------------------------------- ---------- PAYOUT
OTHER ANNUAL RESTRICTED -----------
NAME AND COMPENSATION STOCK LTIP
PRINCIPAL POSITION YEAR SALARY BONUS(1) (2) AWARDS(3) OPTIONS/SARS(4) PAYOUT
----------------------------- ---- ------- -------- ------------ ---------- --------------- -----------
($) ($) ($) ($) (#) ($)
A. Derrill Crowe............. 2001 463,375 161,245 -0- -0- -0- -0-
Chairman and 2000 463,375 -0- -0- -0- -0- -0-
CEO of ProAssurance 1999 403,000 -0- -0- -0- 26,250 -0-
Victor T. Adamo.............. 2001 418,000 169,844 -0- -0- -0- -0-
Vice Chairman, COO and 2000 376,589 150,000 -0- -0- -0- -0-
President of ProAssurance 1999 300,000 125,000 -0- -0- 25,000 -0-
Paul R. Butrus............... 2001 436,425 26,874 -0- -0- -0-
Vice Chairman 2000 439,443 -0- -0- -0- -0- -0-
of ProAssurance 1999 380,000 -0- -0- -0- 26,250 -0-
Howard H. Friedman........... 2001 250,000 53,748 -0- 1,400 -0- -0-
Secretary, CFO and Senior 2000 181,060 -0- -0- 1,050 -0- -0-
Vice President --
ProAssurance
James J. Morello............. 2001 200,850 53,748 -0- 14,252 -0- -0-
Treasurer and Senior Vice 2000 203,668 -0- -0- 14,060 -0- -0-
President of ProAssurance 1999 197,563 24,375 -0- 12,600 2,403 -0-
NAME AND ALL OTHER
PRINCIPAL POSITION COMPENSATION(5)
----------------------------- ---------------
($)
A. Derrill Crowe............. 20,890
Chairman and 21,048
CEO of ProAssurance 19,706
Victor T. Adamo.............. 21,038
Vice Chairman, COO and 27,100
President of ProAssurance 32,802
Paul R. Butrus............... 122,652
Vice Chairman 21,048
of ProAssurance 19,706
Howard H. Friedman........... 20,890
Secretary, CFO and Senior 21,048
Vice President --
ProAssurance
James J. Morello............. 51,911
Treasurer and Senior Vice 21,048
President of ProAssurance 19,706
---------------
(1) The bonus compensation was paid in cash and ProAssurance common stock. The
shares of common stock have been issued as stock awards under the
ProAssurance Incentive Compensation Stock Plan and are valued as of January
15, 2002, the date of the award. The bonus compensation includes the
following number of shares of Common Stock for the Named Executive Officers:
Dr. Crowe -- 4,464 shares; Mr. Adamo -- 4,702 shares; Mr. Butrus 744 shares;
Mr. Friedman -- 1,488 shares; and Mr. Morello -- 1,488 shares.
(2) Excludes perquisites and other personal benefits, securities or property
paid to a Named Executive Officer in an aggregate amount equal to the lesser
of $50,000 or 10% of the annual salary and bonus of such executive.
(3) The shares acquired with loan proceeds under the Medical Assurance Thrift
Plan are treated as restricted stock awards in the Summary Compensation
Table and the amount reflected in the table represents the amount of the
loans made to the Named Executive Officers under the plan during 2001, 2000
and 1999. At December 31, 2001, ProAssurance had outstanding loans under the
Thrift Plan to Mr. Friedman in the approximate amount of $13,878.70 that
have been used to purchase 582 shares having a market value of $10,226 on
that date and to Mr. Morello in the approximate amount of $46,252 that have
been used to purchase 1,883 shares having a market value of $33,103 on that
date. At December 31, 2001, Mr. Adamo has 12,700 restricted shares of MEEMIC
Holdings common stock previously granted under the MEEMIC Insurance Company
Incentive Plan and Trust that are restricted until December 31, 2002 and
that had an approximate value of $277,368 on December 31, 2001.
(4) The table reflects options granted to Messrs. Crowe, Butrus and Morello
under Medical Assurance's Incentive Compensation Stock Plan and options
granted to Mr. Adamo under MEEMIC Holdings' Stock Compensation Plan, in each
case in the year the options were granted. The table does not reflect
options for ProAssurance common stock that were substituted under the
Consolidation Agreement for the then outstanding options to purchase Medical
Assurance common stock and Professionals Group common stock.
(5) Other compensation includes (i) compensation paid to certain of the Named
Executive Officers in 2001 for accrued and unused vacation in connection
with the adoption of a new vacation policy effective January 1, 2002, as
follows: Mr. Butrus -- $35,621 in cash and 4,469 shares of ProAssurance
common
11
stock having a value of $66,141, and Mr. Morello -- $10,863 in cash and
1,362 shares of ProAssurance common stock having a value of $20,158; (ii)
matching contributions for purchases of common stock to Mr. Adamo under the
Professionals Group Stock Purchase Plan of $4,000 for 2001 and $5,000 for
each of 2000 and 1999; (iii) contributions under the Medical Assurance
Pension Plan, a qualified defined contribution retirement plan, to each of
Messrs. Crowe, Butrus, Morello and Friedman (2001 and 2000 only) in the
following amounts -- $20,890 for 2001, $21,048 for 2000, and $19,706 for
1999; and (iv) contributions for the account of Mr. Adamo under the
ProNational Insurance Company Stock Ownership Plan, a qualified profit
sharing retirement plan, and the ProNational Insurance Company Employees'
Savings and Retirement Plan, a Section 401(k) contributory retirement plan
with discretionary matching contributions, in the following amounts: $17,000
for 2001, $22,100 for 2000 and $27,802 for 1999.
OPTION GRANTS IN 2001
There were no stock options granted to the Named Executive Officers for the
year ended December 31, 2001, under the ProAssurance Corporation Incentive
Compensation Stock Plan as assumed and amended by the ProAssurance Board of
Directors on September 27, 2001. The Stock Plan is described under "PROPOSAL 2:
ASSUMPTION OF MEDICAL ASSURANCE'S INCENTIVE COMPENSATION STOCK PLAN."
OPTION EXERCISES AND OPTION VALUES FOR 2001
The following table sets forth information with respect to exercisable and
unexercisable options held by the Named Executive Officers for the year ended
December 31, 2001. For years prior to 2001, the options were granted to the
Named Executive Officers (except Mr. Adamo) under the Medical Assurance
Incentive Compensation Stock Plan and were converted into options to acquire
ProAssurance common stock under the Consolidation Agreement. Options granted to
Mr. Adamo prior to 2001 were granted under Professionals Group's 1996 Long-Term
Stock Incentive Plan and were converted into options to acquire ProAssurance
common stock under the Consolidation Agreement.
NUMBER OF
SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT FISCAL
SHARES VALUE FISCAL YEAR-END (#) YEAR-END ($)
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($) UNEXERCISABLE(1) UNEXERCISABLE(1)
---- ------------ -------- ---------------------- ----------------------
A. Derrill Crowe................... -0- -0- 168,517 -0-
Victor T. Adamo.................... -0- -0- 127,776 $25,555
Paul R. Butrus..................... -0- -0- 168,738 -0-
James J. Morello................... -0- -0- 7,950 -0-
---------------
(1) Based on the closing price of $17.58 as reported on the New York Stock
Exchange on December 31, 2001. All outstanding options were exercisable at
December 31, 2001.
12
The following table sets forth certain information concerning stock
options/SARs granted to the named executive officers under the MEEMIC Holdings,
Inc. Stock Compensation Plan.
NUMBER OF
SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT FISCAL
SHARES VALUE FISCAL YEAR-END (#) YEAR-END ($)
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($) UNEXERCISABLE(1) UNEXERCISABLE(1)
---- ------------ -------- ---------------------- ----------------------
Victor T. Adamo.................... -0- -0- 20,000 $236,800
---------------
(1) Based on the closing price of $21.84 as reported by NASDAQ on December 31,
2001. All unexercised options became exercisable on June 27, 2001 at a per
share price of $10.00 as a result of the change of control of MEEMIC
Holdings, Inc. upon completion of the consolidation
STOCK PURCHASE PLAN
At its meeting in December 2001, the Board of Directors of ProAssurance
amended and restated the Medical Assurance, Inc. Thrift Plan to reflect the
assumption and amendment of the plan by ProAssurance under the name of the
ProAssurance Corporation Stock Ownership Plan (the "Stock Purchase Plan").
Effective January 1, 2002, each employee and director of ProAssurance and its
wholly-owned subsidiaries who has completed six months of service is eligible to
participate in the Stock Purchase Plan at his or her election. ProAssurance
loans participating employees an amount equal to 100% of the first $2,000
deposited by the participating employee under the Stock Purchase Plan and 50% of
the next $8,000 deposited by the participating employee during a calendar year.
The deposits and loan proceeds are used to purchase ProAssurance common stock in
the open market for the account of the employees participating in the Stock
Purchase Plan. The shares purchased and any dividends paid thereon are pledged
as security for the loans to the participating employees who are entitled to
vote the shares. Each loan is forgiven and the shares purchased with the
deposits and loan proceeds are released after three years if the employee
remains employed with ProAssurance. For periods prior to January 1, 2002,
Medical Assurance loaned $.35 for each $.65 deposited by a participating
employee under the Medical Assurance Thrift Plan, and the loan was forgiven if
the employee remained employed with Medical Assurance or a subsidiary for four
years.
EMPLOYMENT AGREEMENT
Effective January 1, 2000, Dr. Crowe's employment agreement with Medical
Assurance was automatically renewed for a term of three (3) years. The
employment agreement provides for an annual salary to be established by the
Board of Directors each year. Medical Assurance may terminate the employment
agreement only for "good cause," which is defined in the employment agreement as
(i) the failure or refusal of Dr. Crowe faithfully or diligently to perform the
usual and customary duties of his employment and the continuance of such failure
or refusal after receipt by Dr. Crowe of written notice from the Board of
Directors directing Dr. Crowe to remedy such failure or refusal, (ii) any breach
by Dr. Crowe of the covenants not to compete contained in the employment
agreement, (iii) embezzlement, theft, misappropriations or conversion of the
Company's assets, or (iv) indictment and arraignment on a state or federal
felony charge. If Medical Assurance terminates Dr. Crowe's employment agreement
other than for "good cause," Medical Assurance is obligated to pay to Dr. Crowe,
for the remainder of the term of his employment agreement, monthly payments each
equal to one-twelfth of Dr. Crowe's salary for the year prior to such
termination. If the Board of Directors selects someone other than Dr. Crowe as
Chief Executive Officer of Medical Assurance or substantially changes Dr.
Crowe's duties without his consent or agreement, except for "good cause," Dr.
Crowe's employment agreement shall be deemed to have been terminated and Medical
Assurance is obligated to pay to Dr. Crowe eight monthly payments each equal to
one-twelfth of Dr. Crowe's salary for the year prior to such termination.
13
SEVERANCE AGREEMENTS
ProAssurance has entered into a Release and Severance Compensation
Agreement ("Severance Agreement") with the Named Executive Officers (other than
Dr. Crowe) and several other key executives of ProAssurance and its
subsidiaries.
The Severance Agreement with each of the Named Executive Officers (other
than Dr. Crowe) provides that in the event that the executive is terminated
without cause, or voluntary resigns for "good reason," the executive, upon
signing a release of all claims, will be eligible for certain benefits
including: an amount equal to the executive's annual base salary; an amount
equal to the executive's average annual incentive award (generally calculated as
the average of the prior three years); continuation of health care benefits for
12 months; and, outplacement services. The executive may assert good reason in
certain enumerated circumstances including demotion to a non-executive position,
relocation, a reduction in base salary, or the failure of any successor of
ProAssurance to assume the Severance Agreement.
The terms of the Severance Agreement with Victor T. Adamo are similar in
format, but more expansive that those described above. His severance benefits
are established at two times base salary and average bonus, and include health
care benefits for 18 months. Also during the initial two years of Mr. Adamo's
Severance Agreement through June 27, 2003, good reason includes the voluntary
and unilateral termination of employment by Mr. Adamo.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors of ProAssurance
reviews and recommends compensation policies and practices to the Board of
Directors. The Compensation Committee, which is comprised entirely of
non-employee directors, establishes all elements of compensation for the Chief
Executive Officer and, in conjunction with the Chief Executive Officer,
establishes the elements of compensation for other senior officers of
ProAssurance. The Compensation Committee administers the ProAssurance
Corporation Incentive Compensation Stock Plan which is available to provide
incentive awards to selected executives and key employees of ProAssurance and
its subsidiaries. The Compensation Committee establishes policies for the Chief
Executive Officer to establish compensation levels for other executive officers
of ProAssurance and its subsidiaries.
The executive compensation policy of ProAssurance is to offer competitive
compensation in comparison to market practices to attract and retain individuals
and to reward individuals based on performance. There are three components of
executive compensation:
- Base salary compensation
- Annual incentive compensation
- Long-term incentive compensation.
Historically, both Medical Assurance and Professionals Group have
established salaries at a level intended to reflect on the executive's level of
responsibilities in comparison to compensation survey data for other insurance
companies and publicly traded insurance groups of similar size and product
lines. The annual and long-term incentive compensation awards to executives of
both companies have been significantly related to performance. The Compensation
Committee intends to follow these practices.
The Committee believes that 2001 presented a unique situation for
compensation of executives of ProAssurance. Although the performance of the
operating subsidiaries was not at desired levels, the executive officers of both
Medical Assurance and Professionals Group spent a substantial amount of time
over the last two years in effecting the combination of Medical Assurance and
Professionals Group under ProAssurance and at the same time have maintained
performance levels that exceeded the performance of many other insurance
companies in the medical professional liability insurance industry. The
Committee believes that it is appropriate to provide executives of both
companies annual incentive bonuses for 2001 to reward them for their efforts
primarily in accomplishing the consolidation and integrating the operations of
the two companies.
14
The Compensation Committee believes that ProAssurance should encourage
stock ownership among its senior executives. In that regard, the Committee has
directed that approximately one-half of the annual incentive compensation
payable to executives be in the form of stock awards under The Incentive
Compensation Stock Plan. The Committee also believes that executives of
ProAssurance should be awarded long-term incentive compensation in the form of
stock options under the Incentive Compensation Stock Plan in an effort to retain
the new management team for ProAssurance and to align long-term interests of the
management team with those of the ProAssurance shareholders. Additionally, all
executives of ProAssurance and its subsidiaries are eligible to participate in
an open market stock purchase plan that features matching contributions by
ProAssurance.
The compensation for the Chairman and Chief Executive Officer for 2001 and
2002 was reviewed by the Compensation Committee. The size of the business
doubled in 2001 to $2 billion in total assets resulting in greater
responsibilities for its Chief Executive Officer. The salary of the Chairman for
2001 was lower than the comparable salaries of CEO's of publicly traded
insurance companies of comparable size. These salaries fall in a salary range
between $500,000 and $600,000. The Committee recommended that the Chairman's
annual salary be increased from $463,375 to $550,000 in 2002. The Committee also
authorized annual incentive compensation to the Chairman for 2001 in the amount
of $150,000 to reward him for his efforts in the successful completion of the
consolidation.
Under Section 162(m) of the Internal Revenue Code and subject to certain
exemptions (including exceptions relating to "performance-based" compensation if
certain conditions are met), ProAssurance may not deduct compensation in excess
of $1 million paid to any executive named in the Summary Compensation Table in
ProAssurance's proxy statement for that year. For 2001, the compensation paid to
each of the executive officers named in the Summary Compensation Table was well
below $1 million and the Committee expects the same will be true for the current
year. Consequently, the Compensation Committee has decided to defer
consideration of any compensation policies relating to Section 162(m) of the
Internal Revenue Code.
The Compensation Committee
Robert E. Flowers, Chairman
Leon C. Hamrick
April 16, 2002
The Compensation Committee Report does not constitute soliciting material.
It is not considered filed by ProAssurance and shall not be incorporated by
reference in any other filings by ProAssurance under the Securities Act of 1933
or the Securities Exchange Act of 1934, unless specifically provided by
ProAssurance.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee in 2001 were Robert E. Flowers,
Chairman; Leon C. Hamrick, and Paul D. Everest. Dr. Everest died in December
2001.
No executive officer of ProAssurance served as a member of the Compensation
Committee (or other board committee performing equivalent functions or, in the
absence of such committee, the entire board) of another entity, one of whose
executive officers served on the compensation committee of ProAssurance. No
executive officer of ProAssurance served as a director of another entity, one of
whose executive officers served on the compensation committee of ProAssurance.
Victor T. Adamo, a director, Vice Chairman and President of ProAssurance,
also serves as Chief Executive Officer and a director of MEEMIC Holdings, Inc.,
a publicly traded subsidiary of ProAssurance, and sits on the compensation
committee of its board of directors. A. Derrill Crowe, a director, Chairman and
Chief Executive Officer of ProAssurance also serves as a director and chairman
of MEEMIC Holdings and Ann F. Putallaz, a director of ProAssurance, also serves
as a director of MEEMIC Holdings, Inc.
STOCK PERFORMANCE GRAPH
The following graphs are included to assess the performance of management by
comparing the market value of ProAssurance Common Stock with other public
companies and public companies in the insurance industry. Upon
15
consummation of the consolidation on June 27, 2001, each outstanding share of
Medical Assurance common stock was converted into a share of ProAssurance common
stock; the Medical Assurance common stock was delisted on the New York Stock
Exchange; and the ProAssurance common stock began trading on the New York Stock
Exchange on the next business day. The consolidation of Medical Assurance into
ProAssurance was treated as a corporate reorganization similar to a pooling of
interests for accounting purposes and was treated as a corporate name change
from Medical Assurance to ProAssurance for listing purposes on the New York
Stock Exchange. Accordingly the Stock Performance Graph tracks the market value
of a share of Medical Assurance common stock for periods prior to June 27, 2001.
The graph sets forth the cumulative total shareholder return (assuming
reinvestment of dividends) to shareholders during the five years ended December
31, 2001, as well as an overall stock market index (Russell 2000) and a peer
group index (SNL Property & Casualty) for the five years ended December 31,
2001. The market and peer group indices have been changed from those used by
Medical Assurance last year because management believes that the size of
ProAssurance and the market for its capital stock are more comparable with
companies listed in the Russell 2000 and SNL Property & Casualty than in the
prior indices. In accordance with the requirements of the Securities and
Exchange Commission, the graph includes the overall stock market index used by
Medical Assurance last year (the Dow Jones Equity Market Index) and the peer
group index used by Medical Assurance last year (Dow Jones Insurance Index).
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* AMONG PROASSURANCE CORPORATION,
THE DOW JONES US TOTAL MARKET, THE RUSSELL 2000, THE DOW JONES US
INSURANCE-PROPERTY/CASUALTY, AND SNL PROPERTY & CASUALTY
(PERFORMANCE GRAPH)
-------------------------------------------------------------------------------------
12/96 12/97 12/98 12/99 12/00 12/01
-------------------------------------------------------------------------------------
ProAssurance Corp. 100.00 176.01 238.99 153.15 126.66 133.43
Dow Jones US Total
Market 100.00 131.81 164.63 202.04 183.31 161.46
Russell 2000 100.00 122.36 119.25 144.60 140.23 143.71
Dow Jones US
Insurance-Property/Casualty 100.00 141.41 133.95 99.46 162.32 155.93
SNL Property & Casualty 100.00 145.59 160.29 119.44 173.10 173.07
* $100 invested on 12/31/96 in stock or index -- including reinvestment of
dividends. Fiscal year ending December 31.
16
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 25, 2002, information regarding
the ownership of Common Stock (i) by each person known by management of
ProAssurance who beneficially owns more than 5% of the outstanding Common Stock
("Principal Stockholders"), (ii) by the executive officers named in the "Summary
Compensation Table" under Executive Compensation ("Named Executive Officers"),
(iii) by each of the Company's directors, and (iv) by all directors and officers
of the Company as a group.
AMOUNT & NATURE
OF BENEFICIAL PERCENT
OWNERSHIP(1) OF CLASS
--------------- --------
PRINCIPAL STOCKHOLDERS(2)
T. Rowe Price Associates, Inc.(3)........................... 1,434,894 5.4%
100 East Pratt Street
Baltimore, Maryland 21202
Dimensional Fund Advisors, Inc.(4).......................... 1,491,071 5.6%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Royce & Associates, Inc.(5)................................. 2,341,577 8.8%
1414 Avenue of the Americas
New York, New York 10019
DIRECTORS
Victor T. Adamo, Esq., CPCU(6).............................. 152,030 *
Paul R. Butrus(6)........................................... 391,874 1.5%
A. Derrill Crowe, M.D.(6)(7)................................ 2,492,492 9.4%
Robert E. Flowers, M.D...................................... 29,690 *
Leon C. Hamrick, M.D........................................ 3,651 *
John J. McMahon............................................. 1,000 *
Drayton Nabers, Jr.......................................... 1,000 *
John P. North............................................... 1,803 *
Ann F. Putallaz............................................. 8,325 *
William H. Woodhams, M.D.................................... 8,109 *
OTHER NAMED EXECUTIVE OFFICERS
Howard H. Friedman.......................................... 3,134 *
James J. Morello(6)......................................... 31,463 *
All Directors and Officers as a Group (15 Persons).......... 3,136,864 11.8%
---------------
* Less than 1%.
(1) Except as otherwise indicated, the persons named in the above table have
sole voting power and investment power with respect to all shares of common
stock shown as beneficially owned by them. The information as to beneficial
ownership of common stock has been furnished by the respective persons
listed in the above table. Unless otherwise indicated, the information also
includes the number of shares that may be acquired pursuant to unexercised
options on or before May 25, 2002.
(2) A. Derrill Crowe, M.D., the President and Chief Executive Officer, is a
beneficial owner of over five percent (5%) of the common stock, a Named
Executive Officer, and a director of ProAssurance. Each of Victor T. Adamo,
Vice Chairman, President and Chief Operating Officer, and Paul R. Butrus,
Vice Chairman, is a Named Executive Officer and a director of ProAssurance.
The share ownership of each of Dr. Crowe, Mr. Adamo and Mr. Butrus is
reflected in their capacities as directors in the above table.
(3) In a Schedule 13G filed with the SEC, T. Rowe Price Associates, Inc., an
investment adviser, disclosed that as of December 31, 2001, it had sole
voting power with respect to 367,000 shares and sole dispositive power with
respect to 1,434,894 shares.
(4) In a Schedule 13G filed with the SEC, Dimensional Fund Advisors, Inc., an
investment adviser, disclosed that it furnishes investment advice to four
investment companies registered under the Investment Company Act of 1940 and
serves as investment manager to certain other commingled group trusts and
separate accounts and that as of December 31, 2001, it had sole voting power
and sole dispositive power with respect to 1,491,071 shares owned by such
entities.
(5) In a Schedule 13G filed with the SEC, Royce & Associates, Inc., an
investment adviser, disclosed that as of December 31, 2001, it had sole
voting power and sole dispositive power with respect to 2,341,577 shares.
(6) Includes the following shares that may be acquired upon exercise of stock
options on or before May 25, 2002: Dr. Crowe -- 168,517 shares; Mr.
Adamo -- 127,776 shares; Mr. Butrus -- 168,738 shares; and
17
Mr. Morello -- 7,950 shares. Also includes the following shares owned of
record by the Company's Pension Plan: 11,742 shares for the account of Dr.
Crowe, 9,164 shares for the account of Mr. Butrus, and 4,755 shares for the
account of Mr. Morello.
(7) Includes 1,162,791 shares owned of record by Crowe Family Partners, Ltd., a
Colorado limited partnership of which Dr. Crowe is the sole general partner,
1,285 shares owned of record by Dr. Crowe's wife, and 46,928 shares owned of
record by four trusts which Dr. Crowe is named as a trustee that were
created in 1998 for the benefit of the minor children of Dr. Crowe and his
wife.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who beneficially own more than 10% of the
Common Stock ("Section 16 Insiders"), to file reports of ownership and changes
in ownership with the Securities and Exchange Commission ("SEC"). Section 16
Insiders are required by the SEC regulations to furnish the Company with copies
of all SEC forms required under Section 16(a) of the Securities Exchange Act of
1934 ("Section 16(a) Forms"). Based solely on a review of the Section 16(a)
Forms as furnished to the Company, all Section 16 Insiders filed their Section
16(a) Forms in a timely manner for 2001 except for the following individuals.
Each of Messrs. Kalinowski, Sabados and O'Neil were elected as executive
officers of ProAssurance after the completion of the consolidation and were late
in filing their initial reports on Form 3. Dr. Flowers was late in reporting the
sale of 1,175 shares of common stock by his former employer on July 26, 2001.
Dr. Flowers beneficially owned these shares through his affiliation with
Gynecology Associates of Dothan, P.C. and the shares were sold in connection
with his retirement.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of ProAssurance expects to select Ernst & Young LLP
as ProAssurance's independent public accountants for fiscal year 2002.
Representatives from Ernst & Young, LLP will be present at the annual meeting,
will have the opportunity to make a statement if they so desire, and will be
available to respond to appropriate questions.
The fees billed by Ernst & Young LLP to Medical Assurance and ProAssurance
for services rendered for the fiscal year ended December 31, 2001, include the
following:
Audit Fees. The estimated aggregate fees billed by Ernst & Young LLP for
professional services rendered for the audit of ProAssurance's annual financial
statements for the fiscal year ended December 31, 2001, and for the reviews of
the financial statements included in ProAssurance's Quarterly Reports on Form
10-Q for 2001 were $622,580.
Financial Information Systems Design and Implementation Fees. Ernst &
Young LLP did not bill any fees for professional services rendered for
information technology services relating to financial information systems design
and implementation for the fiscal year ended December 31, 2001.
All Other Fees. The estimated aggregate fees billed by Ernst & Young LLP
for other services in the fiscal year ended December 31, 2001, were
approximately $758,944, including audit-related services of $440,185.
Audit-related services consist of audits of ProAssurance's employee benefit
plans and accounting assistance in connection with the consolidation with
Professionals Group. The remaining fees of $318,759 consisted of $119,287 for
tax support in connection with the consolidation and approximately $199,472 for
other tax advice.
REPORT OF THE AUDIT COMMITTEE
The role of the Audit Committee, comprised of Messrs. North and Hamrick and
Ms. Putallaz for the year ended December 31, 2001, is to assist the Board of
Directors in its oversight of ProAssurance's financial reporting process. The
Board of Directors, in its business judgment, has determined that all members of
the Committee are "independent," as required by applicable listing standards of
the New York Stock Exchange. The Committee operates pursuant to a Charter that
is attached as Appendix A to this Proxy Statement. As set forth in the Audit
Committee's Charter, the management of ProAssurance is responsible for the
preparation, presentation and integrity of ProAssurance's financial statements,
ProAssurance's accounting and financial reporting principles, and internal
controls and procedures designed to assure compliance with accounting
18
standards and applicable laws and regulations. The independent accountants are
responsible for auditing ProAssurance's financial statements and expressing an
opinion as to their conformity with generally accepted accounting principles.
The Committee has reviewed and discussed with management the audited
financial statements of ProAssurance for the year ended December 31, 2001.
The Committee has discussed with Ernst & Young LLP, ProAssurance's
independent auditors, the matters required to be discussed by Statement of
Accounting Standards ("SAS") 61 (Communications with Audit Committee). SAS 61,
as amended, requires the independent auditors to provide ProAssurance with
additional information regarding the scope and results of their audit of
ProAssurance's financial statements, including with respect to (i) their
responsibility under generally accepted auditing standards, (ii) significant
accounting policies, including a discussion of their quality, not just their
acceptability, (iii) management judgments and estimates, (iv) any significant
audit adjustments, (v) any disagreements with management, and (vi) any
difficulties encountered in performing the audit.
The Committee has received from Ernst & Young LLP a letter providing the
disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees) with respect to any
relationships between Ernst & Young LLP and ProAssurance that in their
professional judgment may reasonably be thought to bear on independence. Ernst &
Young LLP has discussed its independence with the Committee, and has confirmed
in such letter that, in its professional judgment, it is independent of
ProAssurance within the meaning of the federal securities laws. The Committee
has considered whether the non-audit services rendered by ProAssurance's
independent auditors during ProAssurance's most recent fiscal year are
compatible with maintaining the independence of such auditors.
Members of the Committee rely without independent verification on the
information provided to them and on the representations made by management and
the independent accountants. Accordingly, the Committee's oversight does not
provide an independent basis to determine that management has maintained
appropriate accounting and financial reporting principles or appropriate
internal controls and procedures designed to assure compliance with accounting
standards and applicable laws and regulations. Furthermore, the Committee's
considerations and discussions referred to above do not assure that the audit of
ProAssurance's financial statements has been carried out in accordance with
generally accepted auditing standards, that the financial statements are
presented in accordance with generally accepted accounting principles or that
ProAssurance's auditors are in fact "independent."
Based on the reports and discussions described in this report, and subject
to the limitations on the role and responsibilities of the Committee referred to
above and in the Charter, the Committee recommended to the Board that the
audited financial statements be included in ProAssurance's Annual Report on Form
10-K for the year ended December 31, 2001, to be filed with the Securities and
Exchange Commission. The Committee has also recommended the selection of Ernst &
Young LLP to be ProAssurance's independent auditors for the fiscal year ending
December 31, 2002.
Audit Committee ProAssurance Corporation
John P. North, Chairman
Leon C. Hamrick
Ann F. Putallaz
April 16, 2002
ANNUAL REPORT
A copy of ProAssurance's Annual Report on Form 10-K for the year ended
December 31, 2001, is being mailed with this Notice of Annual Meeting and Proxy
Statement. The Annual Report includes all financial statements and financial
statements schedules required to be filed with the SEC for the year ended
December 31, 2001. The Annual Report includes only a list of the exhibits filed
with the SEC. A copy of the exhibits will be furnished without charge to any
shareholder of the company whose proxy is solicited by the foregoing proxy
statement, upon the written request of any such person addressed to Mr. Frank B.
O'Neil, Senior Vice President, ProAssurance, Post Office Box 590009, Birmingham,
Alabama 35259-0009. Such
19
requests must contain a good faith representation by the person making the
request that, as of March 25, 2001, such person was a beneficial owner of
ProAssurance's common stock.
OTHER MATTERS THAT MAY COME BEFORE THE ANNUAL MEETING
ProAssurance has no present knowledge of any other matters to be presented
at the Annual Meeting. If any other matters should properly come before the
Annual Meeting, or any adjournment or postponement thereof, it is the intention
of the persons named in the accompanying Proxy to vote such Proxy in the manner
they deem best.
PROPOSALS OF STOCKHOLDERS
SHAREHOLDER PROPOSALS IN PROASSURANCE'S PROXY STATEMENT
Any shareholder of ProAssurance desiring to make a proposal to be acted
upon at the 2003 Annual Meeting of Shareholders of ProAssurance must present
such proposal to ProAssurance at its principal office in Birmingham, Alabama not
later than December 1, 2002, in order for the proposal to be considered for
inclusion in the Proxy Statement for the 2003 Annual Meeting of Shareholders.
SHAREHOLDER PROPOSALS TO BE PRESENTED AT MEETINGS
ProAssurance's Bylaws require any shareholder who desires to propose any
business at the annual meeting of shareholders (other than the election of
directors) to give ProAssurance written notice not later than December 1 in the
year preceding the annual meeting at which the proposal is to be considered or
such other date as may be established by the Board for a particular annual
meeting by written notice to the shareholders. The shareholder's notice must set
forth (a) a brief description of the business desired to be brought before the
meeting and the reasons for considering such matter or matters at the meeting;
(b) the name and address of the shareholder who intends to propose such matter
or matters; (c) a representation that the shareholder has been a holder of
record of ProAssurance stock entitled to vote at such meeting for a period of
one year and intends to hold such shares through the date of the meeting and
appear in person or by proxy at such meeting to propose such matter or matters;
and (d) any material interest of the shareholder in such matter or matters; and
(e) a description of all understandings or relationships between the shareholder
and any other person(s) (naming such persons) with respect to the capital stock
of ProAssurance as to the matter specified in the notice. The proposal and any
accompanying statement may not exceed 500 words. Shareholders are not permitted
to submit proposals for consideration at special meetings.
STOCKHOLDER NOMINATIONS FOR DIRECTORS
ProAssurance's Bylaws also require that a shareholder who desires to
nominate directors at an annual meeting of shareholders must give ProAssurance
written notice of such shareholder's intent not later than December 1 in the
year preceding the annual meeting or such other date as may be established by
the Board for a particular annual meeting by written notice to the shareholders.
The shareholder's notice must set forth (a) the name and address of the
shareholder who intends to make the nomination and of the person or persons to
be nominated; (b) a representation that the shareholder is a holder of record at
the time of such notice and intends to be a holder of record on the record date
for such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the shareholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the shareholder; (d) such other
information regarding each nominee proposed by such shareholder as would have
been required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission had the Board solicited proxies
for the election of such nominee at the meeting; and (e) the consent of each
nominee to serve as a Director of ProAssurance if so elected.
The Chairman of the meeting may refuse to transact any business or to
acknowledge the nomination of any person if a shareholder has failed to comply
with the foregoing procedures.
A copy of ProAssurance's Bylaws may be obtained upon written request at its
principal place of business.
20
APPENDIX A
AUDIT COMMITTEE CHARTER
PROASSURANCE CORPORATION
ORGANIZATION
This charter governs the operation of the audit committee. The committee
shall review and reassess the charter at least annually and obtain the approval
of the board of directors. The committee shall be appointed by the board of
directors and shall comprise at least three directors, each of whom are
independent of management and the Company. Members of the committee shall be
considered independent if they have no relationship that may interfere with the
exercise of their independence from management and the Company. All committee
members shall become financially literate within a reasonable time after
appointment to the committee, and at least one member shall have accounting or
related financial management expertise.
STATEMENT OF POLICY
The audit committee shall provide assistance to the board of directors in
fulfilling their responsibility to the shareholders, potential shareholders, and
investment community, and others relating to the Company's financial statements
and the reporting process, the systems of internal accounting and financial
controls, the internal audit function, the annual independent audit of the
Company's financial statements, and the legal compliance and ethics programs as
established by management and the board. In so doing, it is the responsibility
of the audit committee to maintain free and open communication between the
committee, independent auditors, the internal auditors, and the management of
the Company. In discharging its oversight role, the committee is empowered to
investigate any matter brought to its attention with full access to all books,
records, facilities, and personnel of the Company and the power to retain
outside counsel, or other experts for this purpose.
RESPONSIBILITIES AND PROCESSES
The primary responsibility of the audit committee is to oversee the
Company's financial reporting process on behalf of the board and report the
result of their activities to the board. Management is responsible for preparing
the Company's financial statements, and the independent auditors are responsible
for auditing those financial statements. The committee in carrying out its
responsibilities believes its policies and procedure should remain flexible, in
order to best react to changing conditions and circumstances. The committee
should take the appropriate actions to set the overall corporate "tone" for
quality financial reporting, sound business risk practices, and ethical
behavior.
The following shall be the principal recurring processes of the audit
committee in carrying out its oversight responsibilities. The processes are set
forth as a guide with the understanding that the committee may supplement them
as appropriate.
- The committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the board and the audit committee, as representatives of
the Company's shareholders. The committee shall have the ultimate
authority and responsibility to evaluate and, where appropriate, replace
the independent auditors. The committee shall discuss with the auditors
their independence from management and the Company and the matters
included in the written disclosures required by the Independence
Standards Board. Annually, the committee shall review and recommend to
the board the selection of the Company's independent auditor, subject to
the shareholders' approval.
- The committee shall discuss with the internal auditors and the
independent auditors the overall scope and plans for their respective
audits including the adequacy of staffing and compensation. Also, the
committee shall discuss with management, the internal auditors, and the
independent auditors the adequacy and effectiveness of the accounting and
financial controls, including the Company's system to monitor and manage
business risk, and legal and ethical compliance programs. Further, the
committee
A-1
shall meet separately with the internal auditors and the independent
auditors, with and without management present, to discuss the results of
their examinations.
- The committee shall review the interim financial statements with
management and the independent auditors prior to the filing of the
Company's Quarterly Report on Form 10-Q. Also, the committee shall
discuss the results of the quarterly review and any other matters
required to be communicated to the committee by the independent auditors
under generally accepted auditing standards. The chair of the committee
may represent the entire committee for the purposes of this review.
- The committee shall review with management and the independent auditors
the financial statements to be included in the Company's Annual Report on
Form 10-K (or the annual report to shareholders if distributed prior to
the filing of Form 10-K), including their judgement about the quality,
not just acceptability, of accounting principles, the reasonableness of
significant judgments, and the clarity of the disclosures in the
financial statements. Also, the committee shall discuss the result of the
annual audit and any other matters required to be communicated to the
committee by the independent auditors under generally accepted auditing
standards.
A-2
APPENDIX B
AMENDMENT AND ASSUMPTION AGREEMENT
THIS AGREEMENT is made and entered into by and between Medical Assurance,
Inc. ("Medical Assurance"), a Delaware corporation, and ProAssurance
Corporation, a Delaware corporation ("ProAssurance");
WITNESSETH:
WHEREAS, Medical Assurance assumed the Mutual Assurance, Inc. 1995 Stock
Award Plan under the terms and conditions of an Amendment and Assumption
Agreement, dated April 8, 1996, pursuant to which, among other things, the name
of the plan was changed to the "MAIC Holdings, Inc. [now Medical Assurance,
Inc.] Incentive Compensation Stock Plan (the "Stock Plan");
WHEREAS, on June 27, 2001, ProAssurance became the publicly owned holding
company for Medical Assurance and its subsidiaries and Medical Assurance became
a privately held wholly-owned subsidiary of ProAssurance;
WHEREAS, the Board of Directors of Medical Assurance has authorized Medical
Assurance to assign to ProAssurance the rights and obligations of Medical
Assurance under the Stock Plan, and the ProAssurance Board has authorized the
assumption of the Stock Plan by ProAssurance and has approved an amendment to
the Stock Plan to reflect such assumption;
WHEREAS, the Board of Directors of ProAssurance has also approved certain
amendments to the Stock Plan, including without limitation, the change of the
name of the Stock Plan to the "ProAssurance Corporation Incentive Compensation
Stock Plan;"
WHEREAS, Medical Assurance and ProAssurance desire to enter into an
agreement to reflect such assumption and amendments.
NOW, THEREFORE, THESE PREMISES CONSIDERED, Medical Assurance and
ProAssurance do hereby agree as follows:
1. Medical Assurance does hereby assign and delegate to ProAssurance,
and ProAssurance does hereby accept and assume, the rights and obligations
of Medical Assurance under the terms and conditions of the Stock Plan, as
heretofore amended and as amended hereby, effective September 27, 2001.
2. Medical Assurance and ProAssurance agree that the Stock Plan is
amended in the following respects:
(a) The Stock Plan is hereby amended to reflect the assumption of
the Stock Plan by ProAssurance by deleting Section 1.6 and Section 1.28
of the Stock Plan in their entirety therefrom and substituting in lieu
thereof the following:
1.6 "Company" shall mean ProAssurance, a Delaware corporation.
1.28 "Stock" shall mean the common stock of the Company as
adjusted pursuant to Section 5.2 hereof.
(b) The Stock Plan is hereby further amended to reflect the change
in its name to the "ProAssurance Corporation Incentive Compensation
Stock Plan" by deleting Sections 1.21 and 2.1 of the Stock Plan in their
entirety therefrom and substituting in lieu thereof the following:
1.21 "Plan" shall mean the ProAssurance Corporation Incentive
Compensation Stock Plan, the terms of which are set forth herein.
B-1
2.1 Name. This plan shall be known as the "ProAssurance
Corporation Incentive Compensation Stock Plan."
3. ProAssurance hereby designates the Compensation Committee of the
Board of Directors of ProAssurance as the Committee responsible for the
administration of the Stock Plan under Article IV of said Stock Plan.
4. ProAssurance hereby ratifies, confirms and approves the terms and
conditions of the Stock Plan as heretofore amended and as amended hereby.
5. This Agreement shall be binding upon and inure to the benefit of
the successors and assigns of the parties hereto.
IN WITNESS WHEREOF, the parties have duly executed this Assumption and
Amendment Agreement on this 19th day of November, 2001.
MEDICAL ASSURANCE, INC.
By: /s/ A. DERRILL CROWE, M.D.
------------------------------------
Its:
PROASSURANCE CORPORATION
By: /s/ VICTOR T. ADAMO, ESQ.
------------------------------------
Its: President
B-2
REVOCABLE PROXY
PROASSURANCE CORPORATION
PROXY SOLICITED ON BEHALF OF YOUR BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 22, 2002
The Shareholder executing this Proxy appoints Howard H. Friedman and
Frank B. O'Neil, and each of them, each with full power to appoint his or her
substitute, attorneys and proxies to represent the Shareholder and to vote and
act with respect to all shares of common stock of ProAssurance Corporation
("ProAssurance") that the Shareholder would be entitled to vote on all matters
which come before the Annual Meeting of Shareholders of ProAssurance referred to
above (the "Annual Meeting") and at any adjournment(s) or postponement(s) of the
Annual Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
PROASSURANCE CORPORATION. IF THIS PROXY IS PROPERLY EXECUTED, THE SHARES OF
PROASSURANCE COMMON STOCK REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY
THE UNDERSIGNED. IF NO DIRECTION IS MADE, SUCH SHARES WILL BE VOTED FOR THE
ELECTION AS DIRECTORS OF ALL NOMINEES LISTED HEREIN AND FOR THE APPROVAL OF THE
ASSUMPTION OF THE INCENTIVE COMPENSATION STOCK PLAN AND AMENDMENTS THERETO. THE
SHARES OF PROASSURANCE COMMON STOCK REPRESENTED BY THIS PROXY WILL BE VOTED IN
THE DISCRETION OF THE PROXIES ON ANY OTHER MATTERS WHICH MAY COME BEFORE THE
ANNUAL MEETING.
(Continued and to be signed on reverse side.)
--------------------------------------------------------------------------------
FOLD AND DETACH HERE
Please mark
your votes as
indicated in [X]
this example
FOR WITHHOLD FOR AGAINST ABSTAIN
all nominees AUTHORITY
1. ELECTION OF THREE (3) DIRECTORS, listed to the left to vote for all 2. Approval of the assumption [ ] [ ] [ ]
each to serve until the year 2005 (except as marked nominees by ProAssurance Corporation
or until his/her successor is to the contrary) listed to the left of the MAIC Holdings, Inc.
duly elected and qualified: (now Medical Assurance, Inc.)
Incentive Compensation Stock
01 A. Derrill Crowe M.D. [ ] [ ] Plan and certain amendments
thereto.
02 Robert E. Flowers M.D.
03 Ann F. Putallaz
NOTE: To withhold authority to vote for any individual
nominee strike a line through the nominee's name in the
list above.
Dated:,________________________2002
---------------------------------------------------
Signature
---------------------------------------------------
Signature if held jointly
Please sign exactly as name appears on this proxy.
When shares are held by joint tenants, both
should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give
full title as such. If a corporation, please
sign in full corporate name by an authorized
officer. If a partnership, please sign in
partnership name by authorized person.
-------------------------------------------------------------------------------
FOLD AND DETACH HERE
Vote by Internet or Telephone or Mail
24 Hours a Day, 7 Days a Week
Internet and telephone voting is available through 4PM Eastern Time
the business day prior to the annual meeting day.
YOUR INTERNET OR TELEPHONE VOTE AUTHORIZES THE NAMED PROXIES
TO VOTE YOUR SHARES IN THE SAME MANNER AS IF YOU
MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
INTERNET TELEPHONE MAIL
HTTP://WWW.EPROXY.COM/PRA 1-800-435-6710
Use the Internet to vote your Use any touch-tone telephone to Mark, sign and date
proxy. Have your proxy card in OR vote your proxy. Have your proxy OR your proxy card
hand when you access the web card in hand when you call. You and
site. You will be prompted to enter will be prompted to enter your return it in the
your control number, located in the control number, located in the box enclosed postage-paid
box below, to create and submit below, and then follow the envelope.
an electronic ballot. directions given.
IF YOU VOTE YOUR PROXY BY INTERNET OR BY TELEPHONE,
YOU DO NOT NEED TO MAIL BACK YOUR PROXY CARD.