<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
CNA FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
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<PAGE> 2
CNA FINANCIAL CORPORATION
---------------
Notice of Annual Meeting -- May 7, 1997
To the Stockholders of
CNA FINANCIAL CORPORATION:
You are hereby notified that pursuant to the By-Laws of CNA Financial
Corporation, a Delaware corporation, the annual meeting of Stockholders will be
held at CNA Plaza (333 South Wabash Avenue), Room 207N, Chicago, Illinois, on
Wednesday, May 7, 1997 at 10:00 a.m., central standard time, for the following
purposes:
(1) To elect twelve Directors;
(2) To ratify the appointment of Deloitte & Touche LLP as independent
auditors for the Company; and
(3) To transact such other business as may properly come before the
meeting.
Only Stockholders of record at the close of business on March 17, 1997 are
entitled to notice of, and to vote at, this meeting.
It is desired that as many Stockholders as practicable be represented at
the meeting. Consequently, whether or not you now expect to be present, you are
requested to sign and date the enclosed proxy and return it promptly to the
Company. You may revoke the proxy at any time before the authority granted
therein is exercised.
By order of the Board of Directors,
DONALD M. LOWRY
Senior Vice President, Secretary
and General Counsel
Chicago, Illinois
March 28, 1997
<PAGE> 3
CNA FINANCIAL CORPORATION
ADMINISTRATIVE OFFICES: CNA PLAZA, CHICAGO, ILLINOIS 60685
---------------
PROXY STATEMENT
ANNUAL MEETING -- MAY 7, 1997
The Board of Directors of CNA Financial Corporation ("CNA" or the
"Company") submits this statement in connection with the solicitation of proxies
from the Stockholders in the form enclosed.
The persons named in this statement as nominees for election as Directors
have been designated by the Board of Directors.
Any Stockholder giving a proxy has the power to revoke it at any time
before it is exercised. A subsequently dated proxy, duly received, will revoke
an earlier dated proxy. A Stockholder may also revoke his proxy and vote in
person at the Annual Meeting. Proxies will be voted in accordance with the
Stockholder's specifications and, if no specification is made, proxies will be
voted in accordance with the Board of Directors' recommendations. The
approximate date of mailing of this Proxy Statement is March 28, 1997.
On March 17, 1997, the Company had outstanding 61,798,262 shares of common
stock ("Common Stock"). The holders of Common Stock have one vote for each share
of stock held. Stockholders of record at the close of business on March 17, 1997
will be entitled to notice of, and to vote at, this meeting. The holders of a
majority of Common Stock issued and outstanding and entitled to vote when
present in person or represented by proxy constitute a quorum at all meetings of
Stockholders.
In accordance with the Company's by-laws and applicable law, the election
of Directors will be determined by a plurality of the votes cast by the holders
of shares present in person or by proxy and entitled to vote. Consequently, the
twelve nominees who receive the greatest number of votes cast for election as
Directors will be elected as Directors of the Company. Shares present which are
properly withheld as to voting with respect to any one or more nominees, and
shares present with respect to which a broker indicates that it does not have
authority to vote ("broker non-votes") will not be counted. The affirmative vote
of shares representing a majority of the votes cast by the holders of shares
present and entitled to vote is required to approve the other matters to be
voted on at the Annual Meeting. Shares which are voted to abstain will be
considered present at the meeting, but since they are not affirmative votes for
the matter they will have the same effect as votes against the matter. Broker
non-votes are not counted as present.
1
<PAGE> 4
PRINCIPAL SHAREHOLDERS
The following table contains certain information as to all entities which,
to the knowledge of the Company, were the beneficial owners of 5% or more of the
outstanding shares of Common Stock as of February 28, 1997. Except as noted
below, each such entity has sole voting and investment power with respect to the
shares set forth:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT BENEFICIALLY OWNED PERCENT OF CLASS
------------------------------------ ------------------------- ----------------
<S> <C> <C>
Loews Corporation ("Loews")............................ 52,114,660 84.3%
667 Madison Avenue
New York, New York 10021
The Equitable Companies Incorporated................... 3,572,918 5.8%
("Equitable")(1)
787 Seventh Avenue
New York, New York 10019
</TABLE>
- ---------------
(1) This information is as of December 31, 1996 and is based on a report filed
with the Securities and Exchange Commission. According to the report the
shares were acquired for investment purposes and may be deemed to be
beneficially owned by certain subsidiaries of Equitable. Equitable states in
such report that it may be deemed to have sole voting power with respect to
3,568,251 shares and sole dispositive power with respect to 3,572,918
shares. The report states that it has been filed jointly on behalf of AXA,
and five French mutual insurance companies, as a group, as parent holding
companies.
Since Loews holds more than a majority of the outstanding Common Stock of
CNA, Loews has the power to approve matters submitted for consideration at the
Annual Meeting without regard to the votes of the other Stockholders. Loews
intends to vote FOR the election of management's nominees for the Board of
Directors' and FOR the ratification of the appointment of Deloitte & Touche LLP
as the Company's independent auditors. There are no agreements between CNA and
Loews with respect to the election of CNA Directors or Officers or with respect
to the other matters to come before the meeting.
2
<PAGE> 5
DIRECTOR AND OFFICER HOLDINGS
The following table sets forth certain information as to the shares of
Common Stock beneficially owned by each Director and nominee, and each Executive
Officer named in the Summary Compensation Table below, and by all Executive
Officers and Directors of the Company as a group as of March 28, 1997, based on
data furnished by them:
<TABLE>
<CAPTION>
SHARES OF THE COMPANY'S
COMMON STOCK
NAME BENEFICIALLY OWNED
---- -----------------------
<S> <C>
Antoinette Cook Bush........................... 200
Dennis H. Chookaszian.......................... 1,000(a)
Philip L. Engel................................ 400
Robert P. Gwinn................................ 307
Bernard L. Hengesbaugh......................... 100
Walter F. Mondale.............................. 300
Carolyn L. Murphy.............................. 1,159
Edward J. Noha................................. 450(a)
Joseph Rosenberg............................... 2,000
Richard L. Thomas.............................. 1,700(b)
James S. Tisch................................. 0(a)
Laurence A. Tisch.............................. 0(c)
Preston R. Tisch............................... 0(c)
Marvin Zonis................................... 0
All Officers and Directors as a group (24
persons including those listed above)........ 7,616
</TABLE>
- ---------------
Each holding represents less than 1% of the outstanding shares of Common
Stock. For information with respect to the stock holdings of Loews, see
"Principal Shareholders" above.
(a) James S. Tisch owns 80,000 shares of Loews Common Stock which is less
than 1% of the outstanding stock of Loews. He is the son of Laurence A.
Tisch. Dennis H. Chookaszian owns 4,000 shares of Loews Common Stock.
Edward J. Noha owns 1,500 shares of Loews Common Stock.
(b) Mr. Thomas' wife owns 1,100 shares of CNA Common Stock and 3,000 shares
of Loews Common Stock in which he disclaims any beneficial interest.
Mr. Thomas owns 2,000 shares of Loews Common Stock. In addition, 700
shares of CNA Common Stock and 1,000 shares of Loews Common Stock are
held in a self-directed individual retirement account for Mr. Thomas.
(c) Laurence A. Tisch, and his brother, Preston R. Tisch, are the
beneficial owners of an aggregate of approximately 31% of the
outstanding stock of Loews.
3
<PAGE> 6
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
The By-Laws provide that the number of Directors that shall constitute the
whole Board shall be twelve. The Directors shall be elected at the Annual
Meeting of Stockholders and each Director elected shall hold office until the
next annual meeting of Stockholders and until his successor is elected and
qualified. Directors need not be Stockholders. Unless authority to do so is
withheld, the persons named in the enclosed proxy intend to vote the shares
represented by the proxies given to them for the twelve nominees hereinafter
named. All Directors, except Walter Mondale, were elected at the last Annual
Meeting of Stockholders. Mr. Mondale was reelected to the Board in February of
1997.
Should any nominee or nominees become unavailable, the proxy holders will
vote for the nominee or nominees designated by the Board of Directors. The Board
of Directors has no reason to believe that any of the nominees will become
unavailable.
Set forth below is the name, principal occupation and business experience
during the past five years and certain other information for each nominee:
ANTOINETTE COOK BUSH, Partner, Skadden, Arps, Slate, Meagher & Flom,
Washington, D. C. since 1993. Ms. Bush was Senior Counsel of the United States
Senate Committee on Commerce, Science and Transportation-Majority Staff from
January 1991 to October 1993. She was Staff Counsel of the Committee from March
1987 to December 1990. She has been a Director since 1993. She is a member of
the Executive, Finance and Audit Committees and Chairperson of the Incentive
Compensation Committee. Age 40.
DENNIS H. CHOOKASZIAN, Chairman of the Board and Chief Executive Officer of
the CNA Insurance Companies since September 1992. From November 1990 to
September 1992, Mr. Chookaszian was President and Chief Operating Officer of the
CNA Insurance Companies. Prior thereto, he was Vice President and Controller of
the Company and its insurance subsidiaries since 1975. He serves on the board of
Insurance Services Office, Inc., Loews and Mercury Finance Company. He serves on
the Executive and Finance Committees. Mr. Chookaszian has served as a Director
since 1990. Age 53.
PHILIP L. ENGEL, President of the CNA Insurance Companies since September
1992. From November 1990 until September 1992 he was Executive Vice President of
the CNA Insurance Companies. Prior thereto, Mr. Engel had been a Vice President
of the CNA Insurance Companies since 1977. He serves on the Executive and
Finance Committees. Mr. Engel has served as a Director since 1992. Age 56.
ROBERT P. GWINN, Retired Chairman of the Board and Chief Executive Officer
of Encyclopaedia Britannica. He is a member of the Incentive Compensation,
Executive, Finance and Audit Committees. Mr. Gwinn has served as a Director
since 1967. Age 89.
WALTER F. MONDALE, Partner in the Minneapolis, Minnesota law firm of Dorsey
& Whitney since December 1996. Mr. Mondale was United States Ambassador to Japan
from September 1993 until December 1996. From September 1987 until his
appointment as Ambassador, Mr. Mondale was a partner at Dorsey & Whitney. Mr.
Mondale was Vice President of the United States from 1977 until 1981. He was the
Democratic nominee for President of the United States in 1984. He serves on the
boards of Northwest Airlines Corp. and Blackrock Financial Management L.P. He is
a member of the Executive, Finance and Audit Committees. He served as a director
from 1985 until 1993 and was reelected director in February 1997. Age 69.
4
<PAGE> 7
EDWARD J. NOHA, Chairman of the Board of CNA since September 1992. Prior to
that time and since February 1975, Mr. Noha was Chairman of the Board and Chief
Executive Officer of the CNA Insurance Companies. Mr. Noha serves on the board
of Loews and Wheelabrator Technologies Inc. He is a member of the Executive and
Finance Committees. Mr. Noha has served as a Director since 1975. Age 69.
JOSEPH ROSENBERG, Senior Investment Strategist of Loews since 1995. Prior
to that, he was Chief Investment Officer of Loews since August 1973. He serves
on the Executive and Finance Committees. He has been a Director since August
1995. Age 64.
RICHARD L. THOMAS, Retired Chairman of the Board of First Chicago NBD
Corporation ("NBD"). He was Chairman of the Board of First Chicago Corporation
(the predecessor of NBD) from January 1992 through December 1995. He also serves
on the boards of NBD, Sara Lee Corporation, IMC Global, Inc., The PMI Group,
Inc. and The Sabre Group Holdings, Inc. He serves on the Executive, Finance and
Incentive Compensation Committees and is Chairman of the Audit Committee. Mr.
Thomas has served as a Director since 1970. Age 66.
JAMES S. TISCH, President and Chief Operating Officer of Loews since
October 1994. Prior to that, he was Executive Vice President of Loews. He is a
Director of Loews, Vail Resorts, Inc. and Diamond Offshore Drilling, Inc. He is
Chairman of the Finance Committee and serves on the Executive Committee. Mr.
Tisch has served as a Director since 1985. Age 44.
LAURENCE A. TISCH, Co-Chairman of the Board and Co-Chief Executive Officer
of Loews. He is the Chief Executive Officer of CNA. He is a director of
Automatic Data Processing, Inc. and Bulova Corporation ("Bulova") and was
Chairman of the Board, President and Chief Executive Officer of CBS Inc. until
November 1995. Mr. Tisch has served as a Director since 1974 and is a member of
the Executive and Finance Committees. Age 74.
PRESTON R. TISCH, Co-Chairman of the Board and Co-Chief Executive Officer
of Loews. Prior to October 1994, he was President and Co-Chief Executive Officer
of Loews since March 1988. He was Postmaster General of the United States from
August 1986 to February 1988. Prior thereto he had served as President and Chief
Operating Officer of Loews since 1969 and a Director since 1960. He is a
director of Bulova, Hasbro, Inc., and Rite Aid Corporation. Mr. Tisch served as
a Director of CNA from 1974 to 1986 and was reelected a Director in May of 1988.
He is Chairman of the Executive Committee and serves on the Finance Committee.
Age 70.
MARVIN ZONIS, Professor of international political economy at the Graduate
School of Business at the University of Chicago since 1989. He has been a
Director since 1993. He is a member of the Incentive Compensation, Executive,
Finance and Audit Committees. Age 60.
COMMITTEES AND MEETINGS
The Company has an Audit, Incentive Compensation, Executive and Finance
Committee. The Company does not have a nominating or compensation committee.
The Audit Committee is a standing committee and is charged with the
responsibility of administering corporate policy in matters of accounting and
control. The Audit Committee functions as the liaison with the Company's
independent auditors.
The Incentive Compensation Committee administers the Incentive Compensation
Plan for Certain Executive Officers (as hereinafter described).
5
<PAGE> 8
The Board of Directors and Finance Committee met four times in 1996. The
Audit Committee met two times in 1996 and the Incentive Compensation Committee
met once. All of the current Directors except Mr. Thomas and Mr. Mondale (who
was elected in February 1997) attended at least 75% of the Board of Directors
meetings and the committees of the Board on which such director serves.
DIRECTOR COMPENSATION
CNA directors who are not employees of CNA or any of its subsidiaries
received an annual retainer in 1996 of $20,000. In addition, members of
committees received the following annual retainers: Finance $3,000; Executive
$3,000; Incentive Compensation Committee $1,000; and Audit $1,500. Messrs.
Chookaszian and Engel, as employees of CNA, do not receive director retainer
fees. Directors are reimbursed for necessary and reasonable travel expenses
incurred in attending meetings.
Pursuant to a Continuing Service Agreement with CNA, expiring on September
20, 2002, Mr. Noha (or his estate in the event of his death) is paid a fee at
the rate of $1,570,000 per annum reduced by the retirement benefits payable to
Mr. Noha under his Employment Agreement and CNA's Retirement Plan and
Supplemental Retirement Plan. During the last fiscal year, services provided by
Mr. Noha under this Agreement consisted of providing the assistance and advice
as delineated in the Agreement and promoting and assisting the Company with
respect to its position in the Chicago business community. In this regard, Mr.
Noha served as a member of numerous organizations including the Chicago
Manufacturing Center, Chairman of the Illinois Business Roundtable and Chairman
of the Economic Development Commission of the City of Chicago.
6
<PAGE> 9
COMPENSATION OF EXECUTIVE OFFICERS
The following table includes compensation paid by the Company and its
subsidiaries for services rendered in all capacities for the years indicated for
the Chief Executive Officer and the four most highly compensated Executive
Officers of the Company as of December 31, 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------
LONG-TERM
BONUS COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(B) (C) PAYOUTS(D) COMPENSATION
--------------------------- ---- --------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Laurence A. Tisch(a)................... 1996 -- -- -- $26,000(e)
Chief Executive Officer 1995 -- -- -- 26,000(e)
CNA Financial Corporation 1994 -- -- -- 26,000(e)
Dennis H. Chookaszian.................. 1996 $ 950,000 -- $1,450,000 51,362(f)
Chairman of the Board 1995 1,593,027 -- -- 66,587
Chief Executive Officer 1994 1,242,091 -- -- 51,939
CNA Insurance Companies
Philip L. Engel........................ 1996 800,000 400,000 40,131(f)
President 1995 962,587 -- -- 40,429
CNA Insurance Companies 1994 825,539 -- -- 34,661
Carolyn L. Murphy...................... 1996 600,000 317,000 -- 25,200
Senior Vice President 1995 562,307 206,000 -- 23,100
CNA Insurance Companies 1994 558,333 173,000 -- 23,380
Bernard L. Hengesbaugh................. 1996 550,000 250,000 -- 23,100
Senior Vice President 1995 500,082 170,000 -- 19,950
CNA Insurance Companies 1994 460,578 142,000 -- 18,900
</TABLE>
- ---------------
(a) Mr. Tisch does not receive a salary from the Company. CNA reimburses Loews
for Mr. Tisch's services, as well as other Loews officers and executives,
pursuant to the Services Agreement described below under "Certain
Transactions." The reimbursements for Mr. Tisch's services to CNA in 1996,
1995 and 1994 were $184,846, $82,418 and $57,693.
(b) Base salary includes compensation deferred under the CNA Savings Plan and
CNA Supplemental Savings Plan. For information with respect to awards
granted in 1996 under the Company's Incentive Compensation Plan for
Executive Officers (the "Incentive Compensation Plan"), see "Long-Term
Incentive Plan -- Awards in 1996," below.
(c) Amounts disclosed are for bonus awards earned and accrued in the year
indicated under the company's annual incentive plans hereinafter described.
Bonus awards are typically paid in March of the following year.
(d) Represents payout under the Incentive Compensation Plan.
(e) Represents director fees paid to Mr. Tisch. He is not a participant in the
company's savings plans.
(f) Includes $10,422 and $6,009 of Long Term Disability Insurance Premium paid
by the company on behalf of Mr. Chookaszian and Mr. Engel, respectively.
EMPLOYMENT CONTRACTS
The Company is party to employment agreements (the "Agreements") with each
of Dennis H. Chookaszian and Philip L. Engel. The Agreements expire December 31,
1998 and are at an annual Base Salary of $950,000 for Mr. Chookaszian and
$800,000 for Mr. Engel. The Agreements provide that they
7
<PAGE> 10
will participate in an Incentive Compensation Plan that will provide Mr.
Chookaszian and Mr. Engel with an opportunity to earn a bonus based on
performance and attainment of specified corporate goals. The Incentive
Compensation Plan was approved by shareholders on May 6, 1996.
Each of the Agreements requires the Company to provide long-term disability
coverage and permits the employee to participate in other benefit programs
offered by the Company to its employees. In the event of death or disability,
the employee is entitled to be paid the Base Salary to the end of the month in
which such death or disability occurs and a prorated amount based on assumed
attainment of the incentive compensation in effect at the time. Any incentive
compensation paid is included in the computation of pensionable earnings under
the Company's retirement plans. The employee may participate in the Qualified
and Supplemental Savings Plan established by the Company wherein the Company
pays a matching percentage of 70% of the first 6% of the employee's
contributions. This matching amount is also included in the computation of
pensionable earnings.
The Company may terminate each Agreement without cause at any time, in
which event the Company is required to continue to make payments to the employee
for a period of three years from the date of termination at a fixed rate based
on Base Salary and the incentive compensation in effect at the time of such
termination. Each Agreement contemplates negotiation of a renewal for an
additional three year period at the expiration of its term on December 31, 1998
and provides that if the parties have not reached an agreement before March 31,
1999 at a Base Salary and opportunity for incentive compensation of not less
than the amount of Base Salary and incentive compensation provided for the year
1998 at substantially the same terms as the expiring agreement, then the
employment shall be considered terminated by the Corporation and the employee
shall be entitled to termination pay for a period of three years based on the
combined Base Salary and the assumed incentive compensation for 1998. If a
renewal is not negotiated before December 31, 1998, the Executives shall become
employees-at-will for a three month period at an actual salary representing the
combined Base Salary and assumed incentive compensation for the year 1998.
RETIREMENT PLANS
CNA provides funded, tax qualified, non-contributory retirement plans for
all salaried employees, including executive officers (the "Retirement Plans")
and an unfunded, non-qualified, non-contributory benefits equalization plan (the
"Supplemental Retirement Plan") that provides for the accrual and payment of
benefits that are not available under tax qualified plans such as the Retirement
Plans. The following description of the Retirement Plans gives effect to
benefits provided under the Supplemental Retirement Plan.
The Retirement Plans provide for retirement benefits based upon average
final compensation (i.e., based upon the highest average sixty consecutive
months compensation and years of credited service with CNA). Compensation under
the Retirement Plans consists of salary paid by the Company and its subsidiaries
included under "Salary," "Bonus" and "Long-Term Compensation Payouts" in the
Summary Compensation Table above. The following table shows estimated annual
benefits payable upon retirement under the Retirement Plans for various
compensation levels and years of credited service, based upon normal retirement
in 1996 and a straight life annuity form of benefit. In addition to a straight
life annuity, the Plans also allow the participant to elect payment to be made
in a Joint and Contingent (or Survivor) Annuitant form where the Contingent (or
Survivor) Annuitant would receive payment at 50%, 66 2/3% or 100% of the
participant's benefit amount.
8
<PAGE> 11
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ESTIMATED ANNUAL PENSION FOR
AVERAGE REPRESENTATIVE YEARS OF CREDITED SERVICE
ANNUAL ----------------------------------------------------------------------------------
COMPENSATION 15 20 25 30 35
- ------------ -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$ 700,000............... $206,855 $275,807 $ 344,758 $ 367,045 $ 389,331
800,000............... 236,855 315,807 394,758 420,378 445,998
900,000............... 266,855 355,807 444,758 473,712 502,665
1,000,000............... 296,855 395,807 494,758 527,045 559,332
1,100,000............... 326,855 435,807 544,758 580,379 615,999
1,200,000............... 356,855 475,807 594,758 633,712 672,666
1,300,000............... 386,855 515,807 644,758 687,046 729,333
1,400,000............... 416,658 555,545 694,431 739,986 785,541
1,500,000............... 446,658 595,545 744,431 793,319 842,208
1,600,000............... 476,658 635,545 794,431 846,653 898,875
1,700,000............... 506,658 675,545 844,431 899,986 955,542
1,800,000............... 536,658 715,545 894,431 953,320 1,012,209
1,900,000............... 566,658 755,545 944,431 1,006,653 1,068,876
2,000,000............... 596,658 795,545 994,431 1,059,987 1,125,543
2,100,000............... 626,658 835,545 1,044,431 1,113,320 1,182,210
2,200,000............... 656,658 875,545 1,094,431 1,166,654 1,238,877
2,300,000............... 686,658 915,545 1,144,431 1,219,987 1,295,544
2,400,000............... 716,658 955,545 1,194,431 1,273,321 1,352,211
</TABLE>
The amounts in the table reflect deductions for estimated Social Security
payments.
Mr. Chookaszian, Mr. Engel, Ms. Murphy and Mr. Hengesbaugh have 21, 31, 19
and 16 years of credited service, respectively.
9
<PAGE> 12
LONG-TERM INCENTIVE PLAN -- AWARDS IN 1996
The following table contains information with respect to awards made in
1996 under the Company's Incentive Compensation Plan to the Company's most
highly compensated executive officers:
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS --
NAME PERFORMANCE PERIOD(1) MAXIMUM(2)
---- --------------------- ---------------------------
<S> <C> <C>
Dennis H. Chookaszian............................ 1 year - 1996 $1,450,000
1 year - 1997 1,650,000
1 year - 1998 1,850,000
Philip L. Engel.................................. 1 year - 1996 $ 400,000
1 year - 1997 500,000
1 year - 1998 600,000
</TABLE>
- ---------------
(1) Pursuant to the Incentive Compensation Plan, in 1996 the Incentive
Compensation Committee granted three single year awards (each, an "Award")
to Dennis Chookaszian and Philip Engel for each of the years 1996, 1997 and
1998 (each year being a "Performance Period"). Each Award represents a
designated percentage of the Company's consolidated after-tax net income,
exclusive of realized investment gains and losses ("Net Operating Income")
for one or more Performance Periods. There is no award of units or
securities under the Incentive Compensation Plan.
(2) The Awards granted to Dennis Chookaszian were as follows: (a) for the 1996
Performance Period: 1% of Net Income; (b) for the 1997 Performance Period:
1/2% of 1996 Net Income plus 1/2% of 1997 Net Income; and (c) for the 1998
Performance Period: 1/3% of 1996 Net Income plus 1/3% of 1997 Net Income
plus 1/3% of 1998 Net Income. The Awards granted to Philip Engel were as
follows: (a) for the 1996 Performance Period: 1/4% of Net Income; (b) for
the 1997 Performance Period: 1/8% of 1996 Net Income plus 1/8% of 1997 Net
Income; and (c) for the 1998 Performance Period 1/12% of 1996 Net Income
plus 1/12% of 1997 Net Income plus 1/12% of 1998 Net Income. There is no
threshold or minimum level of Net Income or specific performance target with
respect to any Award. The Award for each Performance Period is subject to a
maximum amount which is set out in the foregoing table.
10
<PAGE> 13
BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION
CERTAIN EXECUTIVE OFFICERS
The Board of Directors believes that the future success of the Company and
its subsidiaries is dependent upon the quality of management, and that
compensation programs are important in attracting and retaining individuals of
superior ability and motivating their efforts on behalf of the Company and its
business interests.
Under Section 162(m) of the Internal Revenue Code and certain regulations
thereunder (together "the Code") the amount of compensation paid by a
publicly-held corporation to the five of its most highly compensated executive
officers during any year that may be deductible for federal income tax purposes
is limited to $1,000,000 per person per year except that compensation that is
"qualified performance-based compensation" will be deductible.
To the extent the Company's compensation policy can be implemented in a
manner that maximizes the deductibility of compensation paid by the Company, the
Board of Directors will seek to do so. Accordingly, in 1996, the Company adopted
the Incentive Compensation Plan for Certain Executive Officers (the "Plan"),
which is designed to qualify the amounts paid from time to time thereunder to
certain of the Corporation's Executive Officers as "qualified performance-based
compensation" under Section 162(m) of the Code (see "Long-Term Incentive Plan --
Awards in 1996," above).
GENERAL
The Company's compensation program is designed to recognize individual
performance and contribution to CNA. This pay-for-performance philosophy is used
to reward employees whose work meets or exceeds CNA's standards of quality and
value-added customer service. It is CNA's objective to have a compensation
policy that is internally equitable and externally competitive, rewards
executives for long term strategic management, supports a performance-oriented
environment that rewards individuals with respect to attainment of corporate
goals and individual expectations, and attracts and retains key executives
critical to the Company's long term success.
The Chairman and Chief Executive Officer of the CNA Insurance Companies
establishes the compensation for the other executives (except the President of
the CNA Insurance Companies) following a systematic process to establish an
annual compensation plan for the Company's senior executives. He is assisted in
developing the plan by the Company's Human Resources staff. The Human Resources
staff is aided by an independent nationally recognized compensation consulting
organization. Information is obtained regarding the Company's competitor group
of companies. The competitor group of companies consisted of 20 companies in the
insurance industry and included five of the six companies in the Standard &
Poor's Multi-Line Insurance Index (see "Stock Price Performance Graph" below).
These companies represent the organizations with which CNA competes for talent.
This information, in conjunction with performance judgments as to past and
expected future contributions of the individual executive, is used to develop an
annual compensation plan. The Human Resources staff periodically reviews with
independent compensation consultants the overall competitiveness of the salary
plan. Because CNA uses this market pricing approach to determine appropriate
executive pay levels, CNA does not use formal salary ranges, with attendant
minimums, midpoints and maximums to determine pay levels or annual increase
amounts. In 1996, senior executives were provided total annual cash compensation
opportunities (base salary plus annual incentives) that approximated the 75th
percentile of total annual cash compensation opportunities for comparable
11
<PAGE> 14
executives at the Company's competitors. Opportunities were set at these levels
in order to provide the Company's senior executives with a competitive level of
total compensation with their peers who, in general, receive total compensation
opportunities consisting of base salary and annual and long-term incentives.
Senior executives' base salaries are reviewed annually by the Chairman and
Chief Executive Officer of the CNA Insurance Companies. In connection with this
review the Chairman is provided with the comparative salary data described
above. Such data revealed that in 1996, the senior executives compensation was
at a significant disadvantage relative to CNA's peer companies of similar size.
Therefore in 1996, senior executives base salaries increased 14% in the
aggregate over 1995 levels.
The Company has adopted an Annual Incentive Bonus Plan for all officers
other than certain executive officers who are eligible to participate in the
Incentive Compensation Plan for Certain Executive Officers. The awards for the
Annual Incentive Bonus Plan are determined by performance compared to pre-set
goals in three categories: Corporate Goals; Shared Goals; and Individual Goals.
Participants have a minimum of 40% of their incentive compensation based on the
Corporate Goal and the remainder based on the other two goals. Generally, the
pre-set goals have been developed to be quantifiable or definable to the extent
possible. In 1996, the overall target annual incentive award for senior
executives was adjusted from 30% to 40% of base salary. This adjustment was made
based, among other factors, on comparative salary data as described above. Final
approval of bonus payments are made by the Chief Executive Officer of the CNA
Insurance Companies with participation by the President and with respect to the
Corporate Goal, the Chief Financial Officer. The Company reserves the right to
make discretionary changes to the award amounts and reserves the right to
eliminate these bonuses, uniformly, due to adverse financial conditions. In
determining the annual incentive award for 1996, the Chairman and Chief
Executive Officer and the President of the CNA Insurance Companies evaluated
Company and business unit performance and individual performance against the
pre-set goal categories. Based upon financial performance, customer service
levels, operating efficiencies and business growth, the 1996 incentive bonuses
ranged from 83% to 132% of the incentive target for the Company's senior
executives.
As noted in the Summary Compensation Table, Laurence A. Tisch, the
Company's Chief Executive Officer, does not receive compensation from the
Company. Mr. Tisch is compensated by Loews, of which he is Chairman of the Board
and Co-Chief Executive Officer. CNA reimburses Loews for services of Mr. Tisch
and other officers and executives of Loews pursuant to the Services Agreement
described under "Certain Transactions," below.
<TABLE>
<S> <C> <C>
By the Board of Directors: Antoinette Cook Bush Joseph Rosenberg
Dennis H. Chookaszian Richard L. Thomas
Philip L. Engel James S. Tisch
Robert P. Gwinn Laurence A. Tisch
Walter F. Mondale Preston R. Tisch
Edward J. Noha Marvin Zonis
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. L. A. Tisch, D. H. Chookaszian, and P. L. Engel, each of whom are
Directors of the Company, also serve as officers of the Company or its
subsidiaries. In addition, Mr. Noha, a Director of the Company, formerly served
as an officer of the Company or its subsidiaries. Mr. L. A. Tisch, Director and
Chief Executive Officer of the Company, also serves as a Director and Co-Chief
12
<PAGE> 15
Executive Officer of Loews. See "Certain Transactions," below, for information
with respect to transactions between the Company and its subsidiaries, and
certain individuals and entities with which they are affiliated.
CERTAIN TRANSACTIONS
During 1996 CNA paid NBD $892,261 for various trust and banking services,
including services as transfer agent and registrar for the Company's Common
Stock. NBD and certain affiliates paid premiums, at standard rates, and
administrative service fees to certain subsidiaries of CNA aggregating
approximately $1,509,700 (of which $317,499 represented contributions by
employees) and paid approximately $796,100 for various insurance coverages and
bonds.
Loews makes available to CNA the services of certain officers and
executives of Loews. In February 1975 CNA entered into a management services
agreement (the "Services Agreement") with Loews which provides that Loews will
make available to CNA these services, together with general corporate services,
including financial, administrative and management consulting services. Loews is
reimbursed on the basis of an allocation of a portion of the salaries and
related payroll taxes and benefits of the officers and executives performing the
services, in addition to travel and similar expenses incurred. The allocation
may be adjusted in the event of any substantial change in the services performed
and the Services Agreement may be terminated by CNA or Loews on the last day of
any month. The Services Agreement has been reviewed each year since 1975 by
CNA's Audit Committee. The last such review took place in February 1997 and the
Audit Committee recommended renewal of the Services Agreement for the ensuing
fiscal year, calling for a reimbursement allocation of approximately $210,000
per month, which recommendation was accepted by the Board of Directors. Under
the Services Agreement CNA reimbursed Loews $2,450,000 for services performed
during 1996, and $81,000 for travel and similar expenses incurred during that
period. During 1996 Loews paid premiums on insurance and administrative services
to the CNA Insurance Companies at standard rates aggregating approximately
$5,869,716.
The Loews ownership of the voting securities of CNA has exceeded 80% since
1980 requiring the inclusion of CNA and its eligible subsidiaries in the
consolidated federal income tax returns filed by Loews. Accordingly, following
approval by CNA's Audit Committee and Board of Directors, CNA and Loews entered
into a tax allocation agreement that provides that CNA will (i) be paid by Loews
the amount, if any, by which the Loews consolidated federal income tax liability
is reduced by virtue of the inclusion of CNA and its subsidiaries in the Loews
consolidated federal income tax return, or (ii) pay to Loews an amount, if any,
equal to the federal income tax that would have been payable by CNA if CNA and
its subsidiaries had filed a separate consolidated return. In the event that
Loews should have a net operating loss in the future computed on the basis of
filing a separate consolidated tax return without CNA and its eligible
subsidiaries, CNA may be required to repay tax recoveries previously received
from Loews. This agreement may be cancelled by CNA or Loews upon thirty days'
prior written notice. In 1996, the inclusion of CNA and its eligible
subsidiaries in the consolidated federal tax return of Loews resulted in
increased federal income tax liability for Loews. Accordingly, CNA has paid
approximately $99 million in 1996 to Loews under the tax allocation agreement.
CNA has also reimbursed to Loews approximately $10,218,800 for expenses
(consisting primarily of salaries and benefits and other out-of-pocket costs)
incurred by Loews during 1996 in maintaining investment facilities and services
for CNA.
13
<PAGE> 16
In December 1995, CNA Realty Corp. provided a $700,000 guaranty to an
executive officer not named in the Summary Compensation table above to assist
him with relocation costs. The guaranty was fully secured, and subsequently
assigned to CNA Financial Corp. in 1996.
In 1996, certain subsidiaries of CNA paid $351,804 in legal fees to the law
firm of Dorsey & Whitney. In addition, certain subsidiaries of CNA paid the firm
$285,531 in connection with defense of policyholders pursuant to the terms of
insurance policies issued by certain CNA subsidiaries. In many such situations,
the policyholder, not CNA or its subsidiaries, chose Dorsey & Whitney as the law
firm to provide such legal services. Mr. Mondale is a partner of this firm.
In 1996, certain subsidiaries of CNA paid $1,228,067 in legal fees to the
law firm of Skadden, Arps, Slate, Meagher & Flom in connection with defense of
policyholders pursuant to the terms of insurance policies issued by certain CNA
subsidiaries. In many such situations, the policyholder, not CNA or its
subsidiaries chose Skadden, Arps, Slate, Meager & Flom as the law firm to
provide such legal services. Ms. Bush is a partner of this firm.
STOCK PRICE PERFORMANCE GRAPH
The following graph compares the total return of the Company's common
stock, the Standard & Poor's 500 Composite Stock Index ("S&P 500") and the
Standard & Poor's Multi-Line Insurance Index for the five years ended December
31, 1996. The graph assumes that the value of the investment in the Company's
Common Stock and for each Index was $100 on December 31, 1991 and that dividends
were reinvested.
<TABLE>
<CAPTION>
MEASUREMENT PERIOD CNA FINANCIAL S&P 500 INDEX MULTI-LINE
(FISCAL YEAR COVERED) CORP INSURANCE
<S> <C> <C> <C>
91 100.00 100.00 100.00
92 100.00 114.16 107.62
93 79.08 127.67 118.46
94 66.20 134.29 120.03
95 115.82 197.40 165.13
96 109.18 250.31 203.05
</TABLE>
14
<PAGE> 17
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(PROPOSAL NO. 2)
Deloitte & Touche LLP was CNA's independent auditing firm for the fiscal
year 1996 and has been recommended by the Audit Committee to perform the audit
for the 1997 fiscal year. This recommendation was accepted and approved by the
Board of Directors, subject to ratification by the Stockholders. The Board of
Directors recommends that the appointment of Deloitte & Touche LLP be ratified
by the Stockholders. If the appointment of the firm of Deloitte & Touche LLP is
not approved or if that firm shall decline to act or their employment be
otherwise discontinued, the Board of Directors will appoint other independent
auditors. Representatives of Deloitte & Touche LLP will be present at the Annual
Meeting and will be extended the opportunity to make a statement if they so
desire and will respond to appropriate questions raised at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR PROPOSAL
NO. 2.
OTHER MATTERS
The Company does not know of any other business to come before the meeting.
However, if any other matters come before the meeting, the persons named in the
proxies will act on behalf of the Stockholders they represent according to their
best judgment.
The cost of this solicitation of proxies will be borne by the Company.
Solicitation will be made primarily through use of the mails, but regular
employees of the Company may solicit proxies personally, by telephone or
telegram. Such employees will receive no special compensation for such
solicitation. Brokers and nominees will be requested to obtain voting
instructions of beneficial owners of stock registered in their names and will be
reimbursed for their out of pocket expenses and reasonable clerical expenses.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Stockholder proposals for inclusion in proxy materials for the 1998 Annual
Meeting should be addressed to the Company's Senior Vice President, Secretary
and General Counsel, CNA Plaza, 43S, Chicago, Illinois 60685, and must be
received before November 26, 1997.
By order of the Board of Directors,
DONALD M. LOWRY
Senior Vice President, Secretary
and General Counsel
Chicago, Illinois
March 28, 1997
15
<PAGE> 18
PROXY
CNA FINANCIAL CORPORATION PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING, MAY 7, 1997, CHICAGO, ILLINOIS
The undersigned hereby appoints L.A. Tisch, J.S. Tisch, and D.H. Chookaszian,
or any of them, with full power of substitution, to represent and to vote the
Common Stock of the undersigned at the annual meeting of stockholders of
CNA Financial Corporation, to be held at CNA Plaza, (333 South Wabash
Avenue), Chicago, Illinois, on May 7, 1997, at 10:00 A.M., or at any
adjournment thereof as follows:
Election of Directors. Nominees:
Antoinette Cook Bush, Dennis H. Chookaszian,
Philip L. Engel, Robert P. Gwinn, Walter F. Mondale, Edward J. Noha,
Joseph Rosenberg, Richard L. Thomas, James S. Tisch,
Laurence A. Tisch, Preston R. Tisch, Marvin Zonis.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES,
SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXY COMMITTEE
CANNOT VOTE YOUR SHARE UNLESS YOU SIGN AND RETURN THIS CARD. [SEE REVERSE SIDE]
<PAGE> 19
[X] PLEASE MARK YOUR 4952
VOTES AS IN THIS
EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ELECTION OF
DIRECTORS AND FOR PROPOSAL 2.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR the Election of Directors and FOR proposal 2.
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of 2. Approval of
Directors [ ] [ ] independent [ ] [ ] [ ]
(see reverse) accountants.
For, except vote withheld from the following nominee(s):
</TABLE>
- -------------------------------------------------------
SIGNATURE(S)____________________ DATE__________ The signer hereby revokes
NOTE: Pleas sign exactly as name appears hereon. all proxies heretofore given
Joint owners should each sign. When by the signer to vote at
signing as attorney, executor, said meeting or any
administrator, trustee or guardian, adjournments thereof.
please give full title as such.
