<PAGE> 1
Prospectus Supplement to Prospectus dated August 22, 1997.
$200,000,000
CNA FINANCIAL CORPORATION
6.60% Notes due December 15, 2008
----------------------
CNA Financial Corporation will pay interest on the Notes on June 15 and
December 15 of each year. The first such payment will be made on June 15, 1999.
The Notes will mature on December 15, 2008 and are not redeemable prior to
maturity. The Notes will be issued only in denominations of $1,000 and integral
multiples of $1,000.
See "Risk Factors" on page S-7 to read about certain factors you should
consider before buying Notes.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------------
The underwriters have severally proposed to offer the Notes from time to
time for sale in negotiated transactions, or otherwise, at varying prices to be
determined at the time of each sale. The underwriters have severally agreed to
purchase the Notes from CNA Financial Corporation at 99.321% of their principal
amount (or $198,642,000 in aggregate proceeds to CNA Financial Corporation,
before deducting expenses payable by CNA Financial Corporation estimated at
$300,000), subject to the terms and conditions set forth in the underwriting
agreement.
----------------------
The underwriters are severally underwriting the Notes being offered. The
underwriters expect to deliver the Notes in book-entry form only through the
facilities of The Depository Trust Company against payment in New York, New York
on December 14, 1998.
GOLDMAN, SACHS & CO. LEHMAN BROTHERS
----------------------
Prospectus Supplement dated December 9, 1998.
<PAGE> 2
In this prospectus supplement, "CNAF" refers to CNA Financial Corporation,
the "CNA Companies" refers to CNAF and its subsidiaries, and "Notes" refers to
CNAF's 6.60% Notes due December 15, 2008 being offered by this prospectus
supplement.
FORWARD LOOKING STATEMENTS
This prospectus supplement and the attached prospectus include a number of
statements which relate to anticipated future events (forward-looking
statements) rather than actual present conditions or historical events. You can
identify forward-looking statements because generally they include words such as
"believes", "expects", "intends", "anticipates", "estimates", and similar
expressions. Forward-looking statements inherently are subject to a variety of
risks and uncertainties that could cause actual results to differ materially
from the results anticipated by the forward-looking statement. Many of these
risks and uncertainties cannot be controlled by the CNA Companies. Some examples
of these risks and uncertainties are:
- - general economic and business conditions;
- - competition;
- - changes in financial markets such as fluctuations in interest rates, credit
conditions and currency, commodity and stock prices;
- - changes in foreign, political, social and economic conditions; and
- - regulatory initiatives and compliance with governmental regulations, judicial
decisions and rulings.
See "Risk Factors", beginning on page S-7 of this prospectus supplement,
for a discussion of various additional risks which may affect the CNA Companies.
Any forward-looking statements made in this prospectus supplement or the
attached prospectus are made by the CNA Companies as of the date of this
prospectus supplement. The CNA Companies disclaim any obligation to update or
revise any forward-looking statement contained in this prospectus supplement or
the accompanying prospectus, even if the expectations of the CNA Companies or
any related facts or circumstances change.
THE COMPANY
CNAF is a holding company whose subsidiaries consist primarily of
property/casualty and life insurance companies. The CNA Companies collectively
are among the largest writers of commercial property/casualty insurance and one
of the ten largest insurance organizations in the United States. CNAF had assets
of approximately $62.57 billion and stockholders' equity of approximately $8.97
billion as of September 30, 1998. CNAF's common stock is traded on the New York
Stock Exchange. As of November 30, 1998, Loews Corporation ("Loews") owned
approximately 85% of CNAF's outstanding common stock.
CNAF was incorporated as a Delaware corporation in 1967. CNAF's principal
subsidiaries are Continental Casualty Company ("CCC"), incorporated in 1897,
Continental Assurance Company ("CAC"), incorporated in 1911, and The Continental
Corporation ("Continental"), which is the holding company of The Continental
Insurance Company ("CIC"), incorporated in 1853.
The principal business of the CNA Companies is insurance. CCC, CIC and
each of their property and casualty insurance affiliates generally conduct the
property and casualty insurance operations of the CNA Companies. CAC and Valley
Forge Life Insurance Company (a wholly owned subsidiary of CAC) generally
conduct the life insurance operations of the CNA Companies. The principal market
for insurance products offered by the CNA Companies is the United States.
S-2
<PAGE> 3
USE OF PROCEEDS
CNAF estimates that its net proceeds from the sale of the Notes will be
approximately $198,342,000. This estimate was calculated after deducting the
estimated offering expenses payable by CNAF.
CNAF intends to use the net proceeds from the sale of the Notes, as well
as the proceeds from the other parts of the Capital Plan described on page S-7,
to enhance the capital of CCC. CNAF will purchase certain assets of CCC and make
capital contributions to CCC. CCC intends to use such proceeds for general
corporate purposes.
S-3
<PAGE> 4
CAPITALIZATION
The following table sets forth the consolidated capitalization of CNAF as
of September 30, 1998 and as adjusted to reflect the sale of the Notes.
This table should be read in conjunction with CNAF's consolidated
financial statements and related notes which are incorporated by reference in
this prospectus supplement and the attached prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
----------------------
ACTUAL AS ADJUSTED
------ -----------
<S> <C> <C>
(In millions of dollars)
Long-term debt (net of unamortized discount):
Variable Debt:
Credit Facility -- CNAF................................... $ 85 $ 85
Commercial Paper.......................................... 650 650
Credit Facility -- CNA Surety Corporation(a).............. 118 118
Senior Notes:
8.25%, due April 15, 1999................................. 101 101
7.25%, due March 1, 2003.................................. 147 147
6.25%, due November 15, 2003.............................. 249 249
6.50%, due April 15, 2005................................. 497 497
6.75%, due November 15, 2006.............................. 248 248
6.45%, due January 15, 2008............................... 149 149
8.375%, due August 15, 2012............................... 98 98
6.95%, due January 15, 2018............................... 148 148
The Notes................................................. -- 198
7.25% Debentures, due November 15, 2023................... 247 247
11% Secured Mortgage Notes, due June 1, 2013................ 158 158
6.9%-16.29% Secured Capital Leases, due December 31, 2011... 46 46
Other debt, due 1998 through 2019 (rates of 1% to
12.71%)................................................. 26 26
------- -------
Total long-term debt.................................... $ 2,967 $ 3,165
------- -------
Stockholders' Equity:
Preferred Stock, without par value -- non-voting:
Authorized 12,500,000 shares;
Money Market Preferred, Series E; 750 shares authorized,
issued and outstanding;................................. 75 75
Money Market Preferred, Series F; 750 shares authorized,
issued and outstanding.................................. 75 75
Common Stock with par value of $2.50 per share -- voting
stock:
Authorized 200,000,000 shares; issued 185,525,907
shares, outstanding 183,704,086 shares.................. 464 464
Additional paid-in capital................................ 126 126
Retained earnings......................................... 7,408 7,408
Accumulated other comprehensive income.................... 892 892
Treasury stock, at cost................................... (67) (67)
------- -------
Total Stockholders' Equity.............................. 8,973 8,973
------- -------
Total Capitalization(b)................................. $11,940 $12,138
======= =======
</TABLE>
- ---------------
(a) CNA owns approximately 62% of the outstanding shares of CNA Surety
Corporation on a fully diluted basis.
(b) Total capitalization does not reflect the proposed offering of preferred
stock to Loews or the potential offering of additional securities described
in "Ratings of the CNA Companies" under "Risk Factors" on page S-7.
S-4
<PAGE> 5
SELECTED CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth the selected condensed consolidated
financial information of CNAF for the years ended December 31, 1997, December
31, 1996, December 31, 1995, December 31, 1994 and December 31, 1993, and for
the nine month periods ended September 30, 1998 and September 30, 1997. This
data is based upon and should be read in conjunction with CNAF's condensed
consolidated financial statements and related notes which are incorporated by
reference in this prospectus supplement and the attached prospectus. The data
for the nine months ended September 30, 1998 and 1997 are unaudited but, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the interim
information. The interim results of operations are not necessarily indicative of
the results for a full year.
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED ENDED
DECEMBER 31 SEPTEMBER 30
----------------------------------------------------- ------------------
1993 1994 1995(A) 1996 1997 1997 1998
---- ---- ------- ---- ---- ---- ----
(IN MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
Results of Operations:
Revenues................................ $11,011 $11,000 $14,700 $16,988 $17,072 $12,684 $12,886
------- ------- ------- ------- ------- ------- -------
Income (loss) before income tax......... $ 93 $ (134) $1,042 $ 1,345 $ 1,358 963 589
------- ------- ------- ------- ------- ------- -------
Net income (loss) excluding net realized
investment gains/losses............... $ (252) $ 187 $ 463 $ 578 $ 488 $ 383 111
Net realized investment gains
(losses).............................. 519 (151) 294 387 478 $ 304 318
------- ------- ------- ------- ------- ------- -------
Net income.............................. $ 267 $ 36 $ 757 $ 965 $ 966 $ 687 $ 429
======= ======= ======= ======= ======= ======= =======
Earnings per share:
Net income (loss) excluding net realized
investment gains (losses)............. $ (1.38) $ 0.98 $ 2.46 $ 3.08 $ 2.59 $ 2.04 $ 0.57
Net realized investment gains
(losses).............................. 2.80 (0.81) 1.59 2.09 2.58 1.64 1.72
------- ------- ------- ------- ------- ------- -------
Net income.............................. $ 1.42 $ 0.17 $ 4.05 $ 5.17 $ 5.17 $ 3.68 $ 2.29
======= ======= ======= ======= ======= ======= =======
Ratios:
Earnings to fixed charges(b)............ 2.7 (c) 5.6 6.8 6.8 6.4 3.9
Earnings to fixed charges and preferred
dividends(d).......................... 2.6 (e) 5.4 6.5 6.6 6.2 3.8
Net income, as adjusted to fixed charges
and preferred dividends(f)............ 7.6 1.5 5.8 7.4 7.1 6.9 4.2
Business Segment Data:
Net income (loss) excluding net realized
investment gains (losses):
Property/casualty -- commercial......... (242) $ 169 431 $ 586 $ 200 $ 230 $ 125
Property/casualty -- personal........... 13 (42) 22 (6) 184 57 54
Property/casualty -- involuntary
risks................................. (38) 21 4 (4) 117 98 (4)
Life-individual......................... 10 30 43 66 58 32 34
Life-group.............................. 34 57 61 44 42 39 (16)
Interest, other and intercompany
eliminations.......................... (29) (48) (98) (108) (113) (73) (82)
------- ------- ------- ------- ------- ------- -------
$ (252) $ 187 $ 463 $ 578 $ 488 $ 383 $ 111
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31 SEPTEMBER 30
--------------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets.............................. $41,912 $44,320 $60,360 $60,455 $61,269 62,489 $62,566
Debt.................................... 915 914 3,026 2,765 2,897 2,871 2,967
Stockholders' equity.................... 5,381 4,546 6,736 7,060 8,309 7,917 8,973
Book value per share.................... 28.22 23.71 35.52 37.27 44.01 41.90 47.63
Shares outstanding (in millions of
shares)............................... 185.4 185.4 185.4 185.4 185.4 185.4 183.7
</TABLE>
See corresponding notes on the following page.
S-5
<PAGE> 6
- ---------------
(a) Includes the results of Continental from May 10, 1995, as a result of a
merger consummated on May 10, 1995.
(b) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest and that
portion of operating lease rental expense which is deemed to be an interest
factor for such rentals.
(c) Earnings were insufficient to cover fixed charges for the year ended
December 31, 1994 by $134 million primarily due to capital losses of $246
million which exceeded operating income of $101 million.
(d) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest and that
portion of operating lease rental expense which is deemed to be an interest
factor for such rentals. Fixed charges were increased by the preferred stock
dividend amounts that would be required to meet such dividend payments.
(e) Earnings, as adjusted for interest expense and interest element of operating
leases, were insufficient to cover fixed charges for the year ended December
31, 1994 by $39 million primarily due to capital losses of $246 million
which exceeded operating income of $101 million.
(f) For purposes of computing this ratio, net income has been adjusted to
include fixed charges after tax. Fixed charges consist of interest and that
portion of operating lease rental expense which is deemed to be an interest
factor for such rentals. Fixed charges were increased by the preferred stock
dividend amounts that would be required to meet such dividend payments.
S-6
<PAGE> 7
RISK FACTORS
RATINGS OF THE CNA COMPANIES
In the past five years, several rating agencies have lowered debt and
claims paying ratings of the CNA Companies. The agencies have lowered the
ratings based upon a number of factors, including CCC's obligations under a
settlement of litigation involving Fibreboard Corporation in 1993 and the merger
with Continental in 1995. More recently, rating agencies have expressed concern
about the intensity of the competitive environment in the U.S. commercial
insurance markets.
During the fourth quarter of 1998, Standard & Poor's Ratings Services, a
division of the McGraw-Hill Companies, Inc. ("S&P"), informed the CNA Companies
that it was considering further lowering CCC's claims paying rating. CNAF, after
several discussions with S&P, proposed a $500 million capital enhancement plan
(the "Capital Plan"). The Capital Plan includes: (i) this offering, (ii) CNAF
selling approximately $200 million of a new issue of cumulative exchangeable
preferred stock to Loews and (iii) a potential offering of tax deductible
preferred securities. CNAF further committed to S&P that it would close this
offering and the issuance of preferred stock to Loews by the end of 1998. The
Capital Plan is one of a number of steps, including expense reduction measures,
that the CNA Companies intend to take to address the issue of ratings. Based
upon this commitment and these efforts, S&P affirmed CCC's rating.
CNAF and Loews are negotiating the terms of the preferred stock (the "New
Preferred") to be issued to Loews. CNAF expects to close the sale of the New
Preferred before the end of the year. Although the terms of the New Preferred
are not final, and are subject to change, CNAF currently expects that the New
Preferred will:
- - be exchangeable after five years by CNAF for notes in a principal amount equal
to the liquidation value of the exchanged shares, with a maturity date that is
the tenth anniversary of the date of issuance of the New Preferred, and
bearing market rate interest to make those notes trade at par as determined at
the time of issuance by an independent investment banking firm;
- - after one year, be callable in whole or in part by CNAF without premium;
- - have an aggregate liquidation value of $200 million plus accrued, unpaid
dividends;
- - accrue dividends at a floating rate equal to 3 month LIBOR plus a market
spread to be calculated on the date the New Preferred is first issued, with
the dividend rate increasing by 100 basis points after five years; and
- - have a dividend rate which will be reset every ten years to (a) 3 month LIBOR
plus (b) the then current market spread of a comparable preferred stock, as
determined by an investment banker agreed to by CNAF and Loews, plus (c) the
100 basis points added starting in the sixth year plus (d) an additional
number of basis points, yet to be negotiated, with such number increasing
every ten years by an amount or percentage yet to be negotiated.
Loews will have the right to require CNAF to redeem, at the original issue
price plus accrued, unpaid dividends, some or all of the New Preferred if:
- - CCC, directly or indirectly, receives cash proceeds from the sale of its
investment in Canary Wharf Holdings Limited ("Canary"). In this case Loews
will have the right to require CNAF to make redemptions for the net amount of
those cash proceeds; or
- - CCC receives cash proceeds from the sale of its investment in the common stock
of Global Crossing Ltd. ("GCL") and the sum (the "Total GCL Value") of those
net cash proceeds and the value of any remaining GCL common stock for
insurance company statutory accounting purposes is more than $500 million. In
this case Loews will have the right to require CNAF to make redemptions in the
amount by which the Total GCL Value exceeds $500 million.
S-7
<PAGE> 8
CNAF and Loews are discussing another possible redemption event based upon
an increase in the carrying value of CCC's investment in Canary for insurance
company statutory accounting purposes.
COMPETITIVE ENVIRONMENT
All aspects of the insurance business are highly competitive. The CNA
Companies compete with a large number of stock and mutual insurance companies
and other entities for both producers and customers, and must continuously
allocate resources to refine and improve insurance products and services. The
CNA Companies expect that the results of operations will continue to reflect the
adverse effects of these continued competitive pressures. Under certain
circumstances the effect of competitive pressures, when combined with other
factors, could result in a net loss to the CNA Companies.
ENVIRONMENTAL POLLUTION
AND ASBESTOS-RELATED CLAIMS
Both the states and the federal government regulate environmental
pollution clean-up. There are thousands of potential waste sites subject to
clean-up. The Environmental Protection Agency (the "EPA") has identified
approximately 1,300 clean-up sites. The EPA continues to add new clean-up sites,
but at a slower rate than in past years. State authorities also have identified
many sites. However, the total number of waste sites needing clean-up is
unknown.
The insurance industry is involved in extensive litigation regarding
coverage issues. Judicial interpretations in many cases have expanded the scope
of coverage and liability beyond the original intent of the policies.
Many policyholders have made claims against various of the CNA Companies
for defense costs and indemnification in connection with environmental pollution
matters. The CNA Companies and other members of the insurance industry are
disputing coverage for many of these claims. Key coverage issues include whether
clean-up costs are considered damages under the policies, trigger of coverage,
applicability of pollution exclusions and owned property exclusions, the
potential for joint and several liability and definition of an occurrence. To
date, courts have been inconsistent in their rulings on these issues.
Environmental regulations are frequently changing at both the federal and
state levels. It is unclear what positions the branches of the federal
government will take in the future and what legislation, if any, will result.
Whether or not there is new legislation, the federal role in environmental
clean-up may be substantially reduced in favor of state action.
Significant changes in the federal statute or the activity of the EPA may
cause states to reconsider their environmental clean-up statutes and
regulations. At this point the CNA Companies cannot predict what, if any, new
regulations might be adopted.
Because of the inherent uncertainties described above, including the
inconsistency of court decisions, the number of waste sites subject to clean-up,
and the standards for clean-up and liability, the ultimate liability of the CNA
Companies for environmental pollution claims may vary substantially from the
amount currently recorded.
The claim and claim expense reserves, net of reinsurance recoverables, for
reported and unreported environmental pollution claims for the CNA Companies
were approximately $646 million as of September 30, 1998 and approximately $773
million as of December 31, 1997. None of the reserves relates to accident years
after 1988. In 1988 the CNA Companies adopted the Simplified Commercial General
Liability coverage form which included an absolute pollution exclusion.
The CNA Companies have exposure to asbestos claims, including those
attributable to CCC's litigation with Fibreboard Corporation. Estimation of
asbestos claim reserves involves many of the same uncertainties discussed above
for environmental pollution claims such as inconsistency of court decisions,
specific policy provisions, allocation of liability among insurers, missing
policies and proof of coverage. The claim and claim expense
S-8
<PAGE> 9
reserves, net of reinsurance recoverables, for reported and unreported
asbestos-related claims for the CNA Companies were approximately $1.46 billion
as of September 30, 1998 and approximately $1.40 billion as of December 31,
1997.
In the Fibreboard matter, CCC, another insurer, Fibreboard Corporation and
a committee of asbestos claimant attorneys reached a global settlement (the
"Global Agreement") at the end of 1993 to resolve all asbestos-related bodily
injury claims against Fibreboard Corporation. As a contingency, if the Global
Settlement is not approved, CCC, Fibreboard Corporation and the other insurer
have resolved all coverage issues in a separate agreement (the "Trilateral
Agreement"). Under the Global Agreement, CCC and the other insurer have placed
in escrow an aggregate of $1.53 billion which is to be released to a trust fund
for a class of all future asbestos claimants. An additional $10 million is to be
contributed to the trust fund by Fibreboard Corporation. The Trilateral
Agreement provides that if the Global Agreement does not receive final court
approval, CCC will pay $1.46 billion (with the other insurer paying an
additional $.54 billion) to Fibreboard Corporation in settlement of all present
and future claims for insurance for asbestos claims by Fibreboard Corporation.
Although court approval of the Global Agreement is pending before the U.S.
Supreme Court, court approval of the Trilateral Agreement has become final. As a
result, CCC believes that its maximum liability in the Fibreboard matter has
been determined. A detailed discussion of CCC's litigation with Fibreboard
Corporation regarding asbestos-related bodily injury claims can be found in
CNAF's Form 10-Q for the quarterly period ended September 30, 1998.
Environmental pollution and asbestos claims and claim expenses may
continue to affect adversely results of operations of the CNA Companies in
future years. Management will continue to monitor these liabilities and make
further adjustments as warranted.
The facts and circumstances regarding environmental pollution and asbestos
claims are frequently changing. To reflect these changes, the CNA Companies
adjust their reserves for those claims. These adjustments are referred to as
development. Increases in reserves are called adverse development. Decreases in
reserves are called favorable development. In the nine months ended September
30, 1998, the CNA Companies made adjustments of this type related to
environmental pollution claims by increasing its reserves (adverse development)
by $58 million. The CNA Companies recorded adverse development for environmental
pollution claims of $65 million for 1996 and $226 million for 1995. The CNA
Companies had no favorable or adverse development for environmental claims for
1997 or the first nine months of that year. In the nine months ended September
30, 1998, the CNA Companies made adjustments of this type related to asbestos
claims by increasing their reserves by $205 million. The CNA Companies recorded
adverse development for asbestos claims of $40 million in the first nine months
of 1997, $105 million for all of 1997, $51 million for 1996 and $274 million for
1995. These adjustments were offset in 1998 by favorable adjustments of $380
million in other insurance lines, with the largest adjustments in the commercial
and specialty coverage lines.
S-9
<PAGE> 10
The following table provides additional data related to environmental
pollution and asbestos-related claims reserves of the CNA Companies.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 SEPTEMBER 30, 1998
------------------------- -------------------------
ENVIRONMENTAL ENVIRONMENTAL
POLLUTION ASBESTOS POLLUTION ASBESTOS
------------- -------- ------------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
REPORTED CLAIMS:
Gross Reserves....................... $279 $1,198 $279 $1,308
Less reinsurance recoverable....... (36) (117) (52) (101)
---- ------ ---- ------
Net reported claims................ $243 $1,081 $227 $1,207
Net unreported claims.............. 530 319 419 248
---- ------ ---- ------
Net Reserves......................... $773 $1,400 $646 $1,455
==== ====== ==== ======
</TABLE>
TOBACCO LITIGATION
CNAF's primary property/casualty subsidiaries have been named as
defendants as part of a direct action lawsuit, Richard P. Ieyoub v. The American
Tobacco Company, et al. (the "Action") filed by the Attorney General for the
State of Louisiana, in state court, Calcasieu Parish, Louisiana. In that suit,
filed against certain tobacco manufacturers and distributors (the "Tobacco
Defendants") and over 100 insurance companies, the State of Louisiana seeks to
recover medical expenses allegedly incurred by the State as a result of
tobacco-related illnesses.
The Action was filed on March 13, 1996 against the Tobacco Defendants
only. The insurance companies were added to the suit in March 1997 under a
direct action statute in Louisiana. Under the direct action statute, the
Louisiana Attorney General is pursuing liability claims against the Tobacco
Defendants and their insurers in the same suit, even though none of the Tobacco
Defendants has made a claim for insurance coverage. The Action subsequently was
removed to the United States District Court for the Western District of
Louisiana, Lake Charles Division. The District Court's decision is currently on
appeal to the United States Fifth Circuit Court of Appeals.
On November 20, 1998, the Tobacco Defendants and the Attorneys General for
46 states (including Louisiana), the District of Columbia and four territories
announced that they had reached an agreement regarding the resolution of their
Medicaid reimbursement claims (the "Settlement"). Under the terms of the
Settlement, which is subject to court approval in various state courts, the
Tobacco Defendants would pay the states up to $206 billion over the next
twenty-five years. In exchange, the states would release any claims that they
may have against the Tobacco Defendants as well as tobacco distributors,
retailers, component part manufacturers and their insurers. None of these latter
entities are parties to the Settlement. The Attorney General of Louisiana and
the defendants in the Action, including CNAF's primary property/casualty
subsidiaries, currently are negotiating procedures for dismissing the Action.
The Settlement does not preclude the Tobacco Defendants, or other entities
named as defendants in the various Medicaid reimbursement lawsuits, from seeking
coverage under the insurance policies issued to those defendants. Nor does the
Settlement resolve the numerous class action and individual lawsuits filed
against the tobacco manufacturers. The CNA Companies are unable to forecast the
nature and extent of potential insurance exposure, if any, in connection with
tobacco related litigation and therefore are unable to determine whether the
impact, if any, of tobacco related claims would be material to them.
S-10
<PAGE> 11
IMPACT OF YEAR 2000
The widespread use of computer programs, both in the United States and
internationally, that rely on two digit date fields to perform computations and
decision-making functions may cause computer systems to malfunction when
processing information involving dates after 1999. Such malfunctions could lead
to business delays and disruptions. The CNA Companies are in the process of
replacing many of their legacy systems and is upgrading their systems to
accommodate business for the Year 2000 and beyond. Based upon its current
assessment, the CNA Companies estimate that the total cost to replace and
upgrade their systems to accommodate Year 2000 processing will be approximately
$60 to $70 million. As of September 30, 1998, the Companies have spent
approximately $48 million on Year 2000 compliance matters.
The Company believes that it will be able to resolve the Year 2000 issue
in a timely manner. As of December 1, 1998, the CNA Companies have certified
internally all of their internal applications and systems as being ready for the
Year 2000. However, due to the interdependent nature of computer systems, there
may be an adverse impact on the CNA Companies if vendors, insurance agents and
other business partners fail to successfully address the Year 2000 issue. To
mitigate this impact, the CNA Companies are communicating with their vendors,
insurance agents and business partners to coordinate the Year 2000 conversion. A
further discussion of the Year 2000 preparations by the CNA Companies can be
found in CNAF's Form 10-Q for the quarterly period ended September 30, 1998.
In addition, CNAF's property/casualty insurance affiliates may have
underwriting exposure from Year 2000 claims under insurance policies issued by
them. Although the CNA Companies have not received any claims for coverage from
its policyholders for Year 2000 related losses, it is possible that
policyholders will suffer losses of this type and seek coverage under policies
issued by the CNA Companies. If any claims are made, coverage, if any, will
depend upon the facts and circumstances of the claim and the provisions of the
policy. The range of potential insurance exposure created by the Year 2000
problem is sufficiently broad that it is impossible to estimate accurately the
extent to which various types of policies issued by the CNA Companies may afford
coverage for loss or claims. Because the CNA Companies do not have any current
Year 2000 claims experience, they are unable to forecast the nature and range of
losses, the availability of coverage for the losses, or the likelihood of
significant claims. As a result, the CNA Companies are unable to determine
whether the adverse impact, if any, of Year 2000 claims, would be material to
them.
HOLDING COMPANY STRUCTURE
EFFECT ON PRIORITY.
CNAF is a holding company which derives its operating income and operating
cash flow from its subsidiaries. CNAF relies upon distributions from its
subsidiaries as well as returns on its cash and invested assets to generate the
funds necessary to meet its obligations, including its payment of principal and
interest on its debt (such as the Notes) and dividends on its capital stock. The
ability of CNAF's subsidiaries to make such payments is subject to many factors,
including applicable state laws and any restrictions that may be contained in
credit agreements or other financing arrangements entered into by such
subsidiaries. Creditors of CNAF's subsidiaries will generally have priority as
to the assets of such subsidiaries over the claims of CNAF and the holders of
CNAF's indebtedness, including the Notes, and capital stock.
REGULATORY LIMITATIONS ON DIVIDENDS.
The insurance industry is subject to comprehensive and detailed regulation
and supervision throughout the United States. Each state has established
supervisory agencies with broad administrative power to license insurers and
agents, approve policy forms, establish reserve requirements, fix minimum
interest rates for accumulation of surrender values and maximum interest rates
of policy loans, prescribe the form and
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content of statutory financial reports, limit the payment of dividends by
insurance subsidiaries and regulate solvency and the type and amount of
investments permitted. Regulatory powers also extend to premium rate regulations
which require that rates not be excessive, inadequate or unfairly
discriminatory. In addition to regulations discussed above, intercompany
transfers of assets may require prior notice to or approval by various insurance
regulatory bodies, depending upon the size of such transfers and payments in
relation to the financial position of the insurance affiliates making the
transfer.
The payment of dividends to CNAF by its insurance affiliates without prior
approval of the affiliates' domiciliary state insurance commissioners is limited
to amounts determined by formula in accordance with the accounting practices
prescribed or permitted by the states' insurance departments. This formula
varies by state. The formula for the majority of the states is the greater of
10% of the prior year statutory surplus or the prior year statutory net income,
less the aggregate of all dividends paid during the twelve months prior to the
date of payment. Some states, however, have an additional stipulation that
dividends cannot exceed the prior year's earned surplus. Based upon the various
state formulas, approximately $677 million in dividends can be paid to CNAF by
its insurance affiliates in 1998 without prior approval. For the nine month
period ended September 30, 1998 CNAF received dividends in the amount of $410
million. All dividends must be reported to the domiciliary insurance department
prior to declaration and payment.
RISK BASED CAPITAL.
In addition to regulation of dividends by insurance subsidiaries, the
National Association of Insurance Commissioners ("NAIC") developed industry
minimum Risk-Based Capital ("RBC") requirements, established a formal state
accreditation process designed to regulate for solvency more closely, minimized
the diversity of approved statutory accounting and actuarial practices and
increased the annual statutory statement disclosure requirements.
The RBC formula is designed to identify an insurer's minimum capital
requirements based upon the inherent risks (e.g., asset default, credit and
underwriting) of its operations. In addition to the minimum capital
requirements, the RBC formula and related regulations identify various levels of
capital adequacy and corresponding actions that the state insurance departments
may initiate. The level of capital adequacy below which insurance departments
may take action is defined as the Company Action Level. As of September 30,
1998, all of CNAF's property/casualty and life insurance affiliates have
adjusted capital amounts in excess of Company Action Levels.
It is possible that, in the future, additional regulations may be adopted
which will restrict further the ability of CNAF's subsidiaries to pay dividends.
Any new regulations might prevent CNAF from using the assets of its subsidiaries
to pay principal or interest on its debt (including the Notes) or dividends on
its capital stock.
DESCRIPTION OF THE NOTES
The following description of the Notes supplements the more general
description of "Senior Debt Securities" and "Offered Securities" that appears in
the accompanying prospectus. If there are any inconsistencies between this
section and the prospectus, you should rely upon the information in this
section. Capitalized terms which are used in this section, but not otherwise
defined, have the meanings given to them in the prospectus or the Indenture
described below.
GENERAL
CNAF is issuing the Notes pursuant to an Indenture dated March 1, 1991
between CNAF and The First National Bank of Chicago, which was supplemented by a
supplemental indenture dated as of October 15, 1993. The Indenture does not
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limit the aggregate principal amount of Debt Securities that may be issued and
provides that Debt Securities may be issued from time to time in one or more
series. The aggregate principal amount of the Notes is $200 million, subject to
the Indenture.
MATURITY
The Notes will mature on December 15, 2008 and are not redeemable prior to
maturity. The Notes are not subject to any sinking fund provision. CNAF may buy
Notes in the open market or otherwise, but it makes no assurance as to the
existence or liquidity of any trading market for the Notes.
INTEREST
The Notes will bear interest at an annual rate of 6.60%, with interest
accruing from December 14, 1998. Interest on the Notes is payable on each June
15 and December 15. The first interest payment date is June 15, 1999. Interest
will be payable to the registered holders of the Notes at the close of business
on June 1 and December 1, as the case may be, prior to the payment date.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. If any interest payment is payable on a day other than a Business Day,
then interest will be payable on the next Business Day (and without any interest
or other payment becoming due because of that delay).
PRIORITY
The Notes represent unsecured and unsubordinated debt of CNAF and will
rank equally with CNAF's other unsecured and unsubordinated indebtedness.
However, because CNAF is a holding company, the Note holders have no direct
claims against CNAF's subsidiaries. See "Risk Factors -- Holding Company
Structure". As of September 30, 1998, CNAF had approximately $2.029 billion of
senior indebtedness outstanding, none of which was secured. In addition, CNAF's
subsidiaries had approximately $691 million of indebtedness outstanding.
BOOK-ENTRY SYSTEM, DELIVERY AND FORM
CNAF will issue the Notes in registered form only, without interest
coupons attached. The Notes will be represented by one or more Global Securities
registered in the name of The Depository Trust Company ("DTC"), as Depositary,
or its nominee (collectively referred to as the "Depositary"). No Global
Security may be transferred except as a whole by the Depositary to a successor
or a different nominee.
Except as otherwise provided in this section, owners of beneficial
interests in a Global Security representing Notes will not be entitled to
receive physical delivery of certificated Notes and will not be considered the
holders of the Notes for any purpose under the Indenture. The laws of some
states require that certain purchasers of securities take physical delivery of
the actual securities. These limits and laws may impair the ability of certain
purchasers to own, pledge or transfer beneficial interests in a Global Security.
CNAF will issue certificated Notes in exchange for Global Securities
representing the Notes only if (i) the Depositary notifies CNAF that it is
unwilling or unable to continue as Depositary for the Global Securities and CNAF
does not appoint a successor Depositary within 90 days or (ii) CNAF, in its sole
discretion, determines that the Global Securities shall be exchangeable for
certificated Notes. Upon such exchange, the certificated Notes will be
registered in the names of the owners of beneficial interests in the Global
Security representing the Notes, as provided by the Depositary's relevant
participants to the Trustee.
The following is based on information furnished by DTC:
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934. DTC holds securities
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that its participants deposit with DTC. DTC also facilitates the settlement
among participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes to
participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct participants of DTC include securities brokers
and dealers (including the Underwriters), banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock Exchange,
Inc., the Nasdaq-Amex Market Group, Inc. and the National Association of
Securities Dealers, Inc. Access to DTC's system is also available to others,
such as securities brokers and dealers, banks and trust companies that clear
through or maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants"). The rules applicable to DTC
and its participants are on file with the Securities and Exchange Commission.
Purchases of Notes under DTC's system must be made by or through Direct
Participants, which will receive credit for such Notes on DTC's records. The
ownership interest of each actual purchaser of each Note represented by a Global
Security (a "beneficial owner") is in turn to be recorded on the Direct and
Indirect Participants' records. Beneficial owners will not receive written
confirmation from DTC of their purchase, but are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect Participants through
which such beneficial owners entered into the transaction. Transfers of
ownership interests in the Global Securities representing the Notes will be
accomplished by entries made on the books of participants acting on behalf of
beneficial owners.
To facilitate subsequent transfers, all Global Securities representing the
Notes which are deposited with, or on behalf of, DTC are registered in the name
of DTC's nominee, Cede & Co. The deposit of Global Securities with, or on behalf
of, DTC and their registration in the name of Cede & Co. effect no change in
beneficial ownership. DTC has no knowledge of the actual beneficial owners of
the Global Securities representing the Notes; the DTC's records reflect only the
identity of the Direct Participants to whose accounts such Notes are credited,
which may or may not be the beneficial owners. The participants will remain
responsible for keeping account of their holdings on behalf of their customers.
CNAF will make payments of principal of and interest on Global Securities
to the Depositary. DTC and the Direct and Indirect Participants will be solely
responsible for ensuring that beneficial owners of Notes receive the appropriate
proportionate amount of all such payments based upon the principal amount of
Notes which they beneficially own. After payment to DTC, none of CNAF, the
Trustee, the Paying Agent or the Security Registrar will have any responsibility
for ensuring appropriate payment to beneficial owners.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the
Registered Global Securities representing the Notes. Under its usual procedure,
DTC mails an omnibus proxy to CNAF as soon as possible after the applicable
record date. The omnibus proxy assigns Cede & Co.'s consenting or voting rights
to those Direct Participants to whose accounts the Notes are credited on the
applicable record date (identified in a listing attached to the omnibus proxy).
DTC management is aware that some computer applications, systems, and the
like for processing data ("Systems") that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its participants and other members of the financial
community (the
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"Industry") that it has developed and is implementing a program so that its
Systems, as the same relate to the timely payment of distributions (including
principal and interest payments) to securityholders, book-entry deliveries, and
settlement of trades within DTC ("DTC Services"), continue to function
appropriately. This program includes a technical assessment and a remediation
plan, each of which is complete. Additionally, DTC's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
However, DTC's ability to perform its services properly is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as DTC's Direct and Indirect Participants and third party vendors from whom
DTC licenses software and hardware, and third party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the Industry for informational purposes only and is not intended to
serve as a representation, warranty, or contract modification of any kind.
SAME DAY SETTLEMENT AND PAYMENT
The Underwriters will make settlement for the Notes in immediately
available funds. CNAF will make all payments of principal and interest in
immediately available funds. The Notes will trade in the Depositary's settlement
system until maturity, and secondary market trading activity in the Notes will
therefore be required by the Depositary to settle in immediately available
funds.
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<PAGE> 16
UNDERWRITING
CNAF and the underwriters for the offering (the "Underwriters") named
below have entered into an underwriting agreement and a pricing agreement with
respect to the Notes. Subject to certain conditions, each Underwriter has
severally agreed to purchase the principal amount of Notes indicated in the
following table.
<TABLE>
<CAPTION>
Underwriters Principal Amount of Notes
------------ -------------------------
<S> <C>
Goldman, Sachs & Co......................................... $160,000,000
Lehman Brothers Inc. ....................................... 40,000,000
------------
Total.................................................. $200,000,000
============
</TABLE>
----------------------
The Underwriters propose to offer the Notes from time to time for sale in
negotiated transactions, or otherwise, at varying prices to be determined at the
time of each sale. In connection with the sale of the Notes, the Underwriters
may be deemed to have received compensation from CNAF in the form of
underwriting discounts.
The Notes are a new issue of securities with no established trading
market. CNAF has been advised by the Underwriters that the Underwriters intend
to make a market in the Notes but are not obligated to do so and may discontinue
market making at any time without notice. No assurance can be given as to the
existence or liquidity of any trading market for the Notes.
In connection with this offering, the Underwriters may purchase and sell
Notes in the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the Underwriters of a greater principal
amount of Notes than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the Notes while the
offering is in progress.
The Underwriters also may impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discount received by it because Goldman, Sachs & Co., acting on behalf of the
Underwriters, has repurchased Notes sold by or for the account of such
Underwriter in a stabilizing or short covering transaction.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the Notes. As a result, the price of the Notes may be
higher than the price that otherwise might exist in the open market. If these
activities are commenced, they may be discontinued by the Underwriters at any
time. These transactions may be effected in the over-the-counter market or
otherwise.
CNAF estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$300,000.
CNAF has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
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LEGAL MATTERS
The legality of the Notes will be passed upon for CNAF by Jonathan D.
Kantor, Senior Vice President, Secretary and General Counsel of CNAF and by
Sonnenschein Nath & Rosenthal, Chicago, Illinois and for the Underwriters by
Brown & Wood LLP, New York, New York.
EXPERTS
The consolidated financial statements and the related consolidated
financial statement schedules, incorporated by reference in this prospectus
supplement and the accompanying prospectus from CNAF's Annual Report on Form
10-K for the year ended December 31, 1997 have been audited by Deloitte &
Touche, independent auditors, as stated in their reports, which are incorporated
herein by reference, and have been so incorporated in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
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<PAGE> 18
PROSPECTUS
$1,000,000,000
CNA FINANCIAL CORPORATION
DEBT SECURITIES
CNA Financial Corporation (the "Company") may offer from time to time its
debt securities consisting of debentures, notes and/or other evidences of senior
unsecured indebtedness (the "Senior Debt Securities"), subordinated unsecured
debt securities ("Subordinated Debt Securities," and together with the Senior
Debt Securities, the "Debt Securities"), or shares of preferred stock
("Preferred Stock," and together with the Debt Securities, the "Securities").
The Debt Securities and shares of Preferred Stock may be offered as separate
series in amounts, at prices and on terms to be determined at the time of sale
and to be set forth in a supplement to this Prospectus (a "Prospectus
Supplement"). The Debt Securities may be offered in one or more series with the
same or various maturities, at par or with an original issue discount and may be
denominated either in U.S. dollars or foreign currencies, including the European
Currency Units ("ECU"). The Securities will be sold directly, through agents
designated from time to time or through one or more underwriters or dealers, or
a group of underwriters, see "Plan of Distribution."
Certain terms of the Securities in respect of which this Prospectus is
being delivered (the "Offered Securities"), such as (i) in the case of the Debt
Securities, the specific designation, currency in which the debt Securities are
denominated, aggregate principal amount, denominations, maturity (which may be
fixed or extendible), interest rate or rates (which may be fixed or variable),
if any, and time of payment of interest, if any, terms for redemption at the
option of the Company or the holder, terms for exchange at the option of the
Company or the holder into common stock of the Company, terms for sinking or
purchase fund payment, and the application, if any, of restrictive covenants or
events of default that are in addition to or different from those described
herein, (ii) in the case of the Preferred Stock, the specific title, number of
shares or fractional interests therein, any dividend, liquidation, redemption,
exchange, voting and other rights, preferences and privileges, and (iii) in the
case of any Security, the public offering price, the names of any underwriters
or agents, the amounts to be purchased by underwriters and the compensation of
such underwriters or agents, and the other terms in connection with the offering
and sale of the Offered Securities, in each case, will be set forth in the
accompanying Prospectus Supplement. See "Description of Securities." The
Prospectus Supplement will also contain information, where applicable, about
certain United States federal income tax considerations relating to Offered
Securities covered by the Prospectus Supplement. All or a portion of the
Securities may be issued in permanent or temporary global form (each a "Global
Security").
The Debt Securities will be effectively subordinated to all existing and
future obligations of the Company's subsidiaries, including claims of
policyholders of the Company's insurance subsidiaries. The Company's
subsidiaries had approximately $791.1 million aggregate principal amount of
total indebtedness for borrowed money outstanding as of June 30, 1997. In
addition, as of June 30, 1997, approximately $1,724.4 million aggregate
principal amount of existing indebtedness for borrowed money of the Company
would rank pari passu with the Senior Debt Securities and senior to the
Subordinated Debt Securities. As of June 30, 1997, the Company had $247.1
million in aggregate principal amount of existing indebtedness for borrowed
money that would rank pari passu with the Subordinated Debt Securities.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATIONS TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------------------
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE A SALE OF SECURITIES UNLESS
ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
------------------------
The date of this Prospectus is August 22, 1997.
<PAGE> 19
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the Public Reference Room of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the public reference
facilities maintained by the Commission at Seven World Trade Center, 13th Floor,
New York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials can be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 or from the Commission's worldwide
web site at http://www.sec.gov. Documents filed by the Company can also be
inspected at the offices of the New York Stock Exchange, Inc. (the "New York
Stock Exchange"), 20 Broad Street, New York, New York 10005, the Chicago Stock
Exchange, 440 South LaSalle Street, Chicago, Illinois 60605 and the Pacific
Stock Exchange, 301 Pine Street, San Francisco, California 94104.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(the "Registration Statement") filed by the Company with the Commission under
the Securities Act of 1933, as amended (the "Securities Act"), relating to the
Securities offered hereby. This Prospectus omits certain of the information
contained in the Registration Statement, and reference is hereby made to the
Registration Statement and to the exhibits thereto for further information with
respect to the Company and the Securities offered hereby. Any statements
contained herein concerning the provisions of any document are not necessarily
complete, and in each instance reference is made to the copy of such document
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission (file no.
1-5823) are incorporated in this Prospectus by reference and hereby made a part
hereof:
1. The Company's Current Reports on Form 8-K dated August 5, 1997;
2. The Company's Annual Report on Form 10-K for the year ended
December 31, 1996, as amended; and
3. The Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, 1997 and June 30, 1997.
All reports and other documents subsequently filed by the Company pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the
termination of the offering of the Securities, shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of the
filing of such reports and documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is incorporated or deemed to be incorporated by reference herein modifies
or supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of any such
person, a copy of any or all of the documents incorporated herein by reference,
other than exhibits to such documents (except for exhibits that are specifically
incorporated by reference herein). Requests for such copies should be directed
to the Company's principal executive offices located at CNA Plaza, 43S, Chicago,
Illinois 60685, Attention: Secretary (telephone (312) 822-5000).
------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS OR IN THE PROSPECTUS SUPPLEMENT IN CONNECTION
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<PAGE> 20
WITH THE OFFER CONTAINED IN THIS PROSPECTUS OR IN THE PROSPECTUS SUPPLEMENT,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER, DEALER OR
AGENT. THIS PROSPECTUS AND THE PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN
OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION IN SUCH JURISDICTION. THE DELIVERY OF THIS PROSPECTUS AND
THE PROSPECTUS SUPPLEMENT AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
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<PAGE> 21
THE COMPANY
CNA Financial Corporation ("CNA") was incorporated in 1967 as the parent
company of Continental Casualty Company ("CCC"), incorporated in 1897, and
Continental Assurance Company ("CAC"), incorporated in 1911. In 1975, CAC became
a wholly-owned subsidiary of CCC. On May 10, 1995, CNA acquired all the
outstanding common stock of The Continental Corporation ("Continental") and it
became a wholly-owned subsidiary of CNA. The Continental Corporation, a New York
corporation incorporated in 1968, is an insurance holding company. Its principal
subsidiary, The Continental Insurance Company ("CIC") was organized in 1853. The
principal business of Continental is the ownership of a group of property and
casualty insurance companies.
CNA's property and casualty insurance operations are conducted by CCC and
its property and casualty insurance affiliates and CIC and its property and
casualty insurance affiliates. Life insurance operations are conducted by CAC
and its life insurance affiliates. CNA's principal business is insurance
conducted through its insurance subsidiaries. As multiple-line insurers, the
insurance companies underwrite property, casualty, life and accident and health
coverages, as well as pension products and annuities. Their principal market for
insurance products is the United States.
USE OF PROCEEDS
Unless otherwise specified in the accompanying Prospectus Supplement, a
portion of the net proceeds will be used to pay down borrowings outstanding
under the Company's revolving credit facility and/or commercial paper program.
The revolving credit facility matures in May 2001, and bears interest at the
rate of LIBOR plus .25% (5.89% as of July 31, 1997). The remaining proceeds will
be added to the Company's general funds and used for general corporate purposes,
which may include, but are not limited to, prepayment of other debt, and capital
contributions to the Company's subsidiaries to strengthen such subsidiaries'
continuing operations.
DESCRIPTION OF SENIOR DEBT SECURITIES
The Senior Debt Securities will be issued under an Indenture, dated March
1, 1991, between the Company and The First National Bank of Chicago, a national
banking association, as trustee (referred to herein under the caption
"Description of Senior Debt Securities" as the "Trustee"), as supplemented by a
supplemental indenture, dated as of October 15, 1993 (as so supplemented, the
"Senior Indenture"), copies of which are incorporated by reference as or filed
as exhibits to the Registration Statement. The Company believes that the
following summary of certain provisions of the Senior Indenture is a complete
discussion of all material terms necessary to understand the Senior Indenture.
Capitalized terms not otherwise defined under the heading "Description of Senior
Debt Securities" have the meaning given to them in the Senior Indenture. As used
in this section "Description of Senior Debt Securities," unless the context
indicates otherwise, the term "Company" means CNA Financial Corporation and does
not include any of its subsidiaries.
GENERAL
The Senior Debt Securities will rank equally with all other unsecured and
unsubordinated indebtedness of the Company. As of June 30, 1997, approximately
$1,724.4 million aggregate principal amount of indebtedness for borrowed money
of the Company would rank pari passu with the Senior Debt Securities. The Senior
Indenture does not limit the amount of debt, either secured or unsecured, that
may be issued by the Company under the Senior Indenture or otherwise. The Senior
Debt Securities may be issued in one or more series with the same or various
maturities and may be sold at par, a premium or an original issue discount.
Senior Debt Securities sold at an original issue discount may bear no interest
or interest at a rate that is below market rates.
Because the Company is a holding company, the right of the Company, and
hence the rights of creditors and shareholders of the Company, to participate in
any distribution of assets of any subsidiary upon its liquidation or
reorganization or otherwise is accordingly subject to prior claims of creditors
of the subsidiary
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<PAGE> 22
and (in the case of an insurance subsidiary) its policyholders, except to the
extent that claims of the Company itself as a creditor of the subsidiary may be
recognized. The subsidiaries are separate and distinct legal entities and have
no obligations, contingent or otherwise, to pay any amounts due pursuant to the
Senior Debt Securities or to make any funds available therefor, whether by
dividends, loans or other payments. The payment of dividends or the making of
loans and advances to the Company by its subsidiaries may be subject to
statutory restrictions, are contingent upon the earnings of those subsidiaries
and are subject to insurance regulations and various business considerations.
Reference is made to the Prospectus Supplement for the following terms of
the offered Senior Debt Securities (to the extent such terms are applicable to
such Senior Debt Securities): (i) the title of such Senior Debt Securities or
the particular series thereof; (ii) any limit on the aggregate principal amount
of such Senior Debt Securities; (iii) whether such Senior Debt Securities are to
be issuable as Registered Securities or Bearer Securities or both, whether any
of such Senior Debt Securities are to be issuable initially in temporary global
form and whether any of such Senior Debt Securities are to be issuable in
permanent global form; (iv) the price or prices (generally expressed as a
percentage of the aggregate principal amount thereof) at which such Senior Debt
Securities will be issued; (v) the date or dates on which such Senior Debt
Securities will mature; (vi) the rate or rates per annum, or the formula by
which such rate or rates shall be determined, at which such Senior Debt
Securities will bear interest, if any, the dates from which any such interest
will accrue and the circumstances, if any, under which such interest rate or
interest rate formula may be reset at the option of the Company; (vii) the
Interest Payment Dates on which any such interest on such Senior Debt Securities
will be payable, the Regular Record Date for any interest payable on such Senior
Debt Securities that are Registered Securities on any Interest Payment Date, and
the extent to which, or the manner in which any interest payable on a Global
Security on an Interest Payment Date will be paid if other than in the manner
described below under "Global Securities;" (viii) the person to whom any
Registered Security of such series will be payable, if other than the person in
whose name such Senior Debt Security (or one or more predecessor Senior Debt
Securities) is registered at the close of business on the Regular Record Date
for such interest, and the manner in which, or the person to whom, any interest
on any Bearer Security of such series will be payable, if otherwise than upon
presentation and surrender of the coupons thereto; (ix) if other than the
principal amount of such Senior Debt Securities, the portion of the principal
amount of such Senior Debt Securities which shall be payable upon declaration of
acceleration of the maturity thereof or provable in bankruptcy; (x) any
mandatory or optional sinking fund or analogous provisions; (xi) each office or
agency where, subject to the terms of the Senior Indenture as described below
under "Payments and Paying Agents," the principal of and any interest on such
Senior Debt Securities will be payable and each office or agency where, subject
to the terms of the Senior Indenture as described below under "Denominations,
Registration and Transfer," such Senior Debt Securities may be presented for
registration of transfer or exchange; (xii) the date, if any, after which and
the price or prices at which such Senior Debt Securities may, pursuant to any
optional or mandatory redemption provisions, be redeemed, in whole or in part,
and the other detailed terms and provisions of any such optional or mandatory
redemption provisions; (xiii) the denominations in which such Senior Debt
Securities which are Registered Securities will be issuable, if other than
denominations of U.S. $1,000 and any integral multiple thereof, and the
denomination in which such Senior Debt Securities which are Bearer Securities
will be issuable, if other than denominations of U.S. $5,000; (xiv) the currency
or currencies of payment of principal of and any premium and interest on such
Senior Debt Securities; (xv) any index used to determine the amount of payments
of principal of and any interest on such Senior Debt Securities; (xvi) the
application, if any, of any restrictive covenants or events of default that are
in addition to or different from those described herein; (xvii) the form of such
Senior Debt Security; and (xviii) any other terms and provisions of such Senior
Debt Securities not inconsistent with the terms and provisions of the Senior
Indenture. Any such Prospectus Supplement will also describe any special
provisions for the payment of additional amounts with respect to such Senior
Debt Securities. Senior Debt Securities of any series may be issued in one or
more tranches as described in the applicable Prospectus Supplement.
If the purchase price of any of the offered Senior Debt Securities is
denominated in a foreign currency or currencies or foreign currency unit or
units or if the principal of and any premium and interest on any series of
Senior Debt Securities is payable in a foreign currency or currencies or foreign
currency unit or units, the restrictions, elections, general tax considerations,
specific terms and other information with respect to such
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issue of Senior Debt Securities and such foreign currency or currencies or
foreign currency unit or units will be set forth in the applicable Prospectus
Supplement.
DENOMINATIONS, REGISTRATION AND TRANSFER
The Senior Debt Securities will be issuable as Registered Securities,
Bearer Securities or both. Senior Debt Securities may be issuable in the form of
one or more Global Securities, as described below under "Global Securities."
Unless otherwise provided in the applicable Prospectus Supplement, Registered
Securities denominated in U.S. dollars will be issued only in denominations of
$1,000 or any integral multiple thereof and Bearer Securities denominated in
U.S. dollars will be issued only in denominations of $5,000 with coupons
attached. A Global Security will be issued in a denomination equal to the
aggregate principal amount of outstanding Senior Debt Securities represented by
such Global Security. The Prospectus Supplement relating to Senior Debt
Securities denominated in a foreign or composite currency will specify the
denominations thereof.
In connection with its original issuance, no Bearer Security shall be
mailed or otherwise delivered to any location in the United States (as defined
below under "Limitations on Issuance of Bearer Security") and a Bearer Security
may be delivered in connection with its original issuance only if the person
entitled to receive such Bearer Security furnishes written certification, in the
form required by the Senior Indenture, to the effect that such Bearer Security
is not being acquired by or on behalf of a United States person (as defined
below under "Limitations on Issuance of Bearer Securities"), or, if a beneficial
interest in such Bearer Security is being acquired by or on behalf of a United
States person, that such United States person is a financial institution (as
defined in Treasury Regulation Section 1.165-12(c)(1)(v)) that is purchasing for
its own account or for the account of a customer and which agrees to comply with
the requirements of Section 165(j)(3)(A), (B) or (C) of the United States
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
thereunder. See "Global Securities" and "Limitations on Issuance of Bearer
Securities" below.
Registered Securities of any series will be exchangeable for other
Registered Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations. In addition, if Senior
Debt Securities of any series are issuable as both Registered Securities and as
Bearer Securities, at the option of the holder upon request confirmed in
writing, and subject to the terms of the Senior Indenture, Bearer Securities
(with all unmatured coupons, except as provided below, and all matured coupons
in default attached) of such series will be exchangeable for Registered
Securities of the same series of any authorized denominations and of a like
aggregate principal amount and tenor. Unless otherwise indicated in an
applicable Prospectus Supplement, any Bearer Security surrendered in exchange
for a Registered Security between a record date and the relevant date for
payment of interest shall be surrendered without the coupon relating to such
date for payment of interest attached and interest will not be payable in
respect of the Registered Security issued in exchange for such Bearer Security,
but will be payable only to the holder of such coupon when due in accordance
with the terms of the Senior Indenture. Except as provided in an applicable
Prospectus Supplement, Bearer Securities will not be issued in exchange for
Registered Securities.
Senior Debt Securities may be presented for exchange as provided above, and
Registered Securities (other than a Global Security) may be presented for
registration of transfer (with the form of transfer duly executed), at the
office of the security registrar designated by the Company or at the office of
any transfer agent designated by the Company for such purpose with respect to
any series of Senior Debt Securities and referred to in an applicable Prospectus
Supplement, without service charge and upon payment of any taxes and other
governmental charges as described in the Senior Indenture. Such transfer or
exchange will be effected upon the security registrar or such transfer agent, as
the case may be, being satisfied with the documents of title and identity of the
person making the request. The Company has initially appointed the Trustee as
the security registrar under the Senior Indenture. If a Prospectus Supplement
refers to any transfer agent (in addition to the security registrar) initially
designated by the Company with respect to any series of Senior Debt Securities,
the Company may at any time rescind the designation of any such transfer agent
or approve a change in the location through which any such transfer agent acts,
except that, if Senior Debt Securities of a series are issuable only as
Registered Securities, the Company will be required to maintain a
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transfer agent in each Place of Payment for such series and, if Senior Debt
Securities of a series are issuable as Bearer Securities, the Company will be
required to maintain (in addition to the security registrar) a transfer agent in
a Place of Payment for such series located outside the United States. The
Company may at any time designate additional transfer agents with respect to any
series of Senior Debt Securities.
In the event of any redemption in part, the Company shall not be required
to (i) issue, register the transfer of or exchange Senior Debt Securities of any
series during a period beginning at the opening of business 15 days before the
day of the mailing of a notice of redemption of Senior Debt Securities of that
series selected to be redeemed and ending at the close of business on (a) if
Senior Debt Securities of the series are issuable only as Registered Securities,
the day of mailing of the relevant notice of redemption, and (b) if Senior Debt
Securities of the series are issuable as Bearer Securities, the day of the first
publication of the relevant notice of redemption or, if Senior Debt Securities
of that series are also issuable as Registered Securities and there is no
publication, the mailing of the relevant notice of redemption; (ii) register the
transfer of or exchange any Registered Security, or portion thereof, called for
redemption, except the unredeemed portion of any Registered Security being
redeemed in part; or (iii) exchange any Bearer Security called for redemption,
except to exchange such Bearer Security for a Registered Security of that series
and like tenor which is immediately surrendered for redemption.
PAYMENTS AND PAYING AGENTS
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of and any interest on Registered Securities (other than a Global
Security) will be made at the office of such Paying Agent or Paying Agents as
the Company may designate from time to time, except that, at the option of the
Company, payment of any interest may be made by check mailed to the address of
the payee entitled thereto as such address shall appear in the Security
Register. Unless otherwise indicated in an applicable Prospectus Supplement,
payment of any installment of interest on Registered Securities will be made to
the person in whose name such Registered Security is registered at the close of
business on the Regular Record Date for such interest payment.
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of and any premium and interest on Bearer Securities will be
payable (subject to applicable laws and regulations) at the offices of such
Paying Agent or Paying Agents outside the United States as the Company may
designate from time to time, except that, at the option of the Company, payment
of any interest may be made by check or by wire transfer to an account
maintained by the payee outside the United States. Unless otherwise indicated in
an applicable Prospectus Supplement, payment of interest on Bearer Securities on
any Interest Payment Date will be made only against surrender of the coupon
relating to such Interest Payment Date. No payment with respect to any Bearer
Security will be made at any office or agency of the Company in the United
States or by check mailed to any address in the United States or by wire
transfer to an account maintained in the United States. Payments will not be
made in respect of Bearer Securities or coupons appertaining thereto pursuant to
presentation to the Company or its Paying Agents within the United States.
Notwithstanding the foregoing, payment of principal of and any interest on
Bearer Securities denominated and payable in U.S. dollars will be made at the
office of the Company's Paying Agent in the United States if, and only if,
payment of the full amount thereof in U.S. dollars at all offices or agencies
outside the United States is illegal or effectively precluded by exchange
controls or other similar restrictions and the Company has delivered to the
Trustee an opinion of counsel to that effect.
Unless otherwise indicated in an applicable Prospectus Supplement, the
principal office of the Trustee in The City of New York will be designated as
the Company's sole Paying Agent for payments with respect to Senior Debt
Securities which are issuable solely as Registered Securities. Any Paying Agent
outside the United States and any other Paying Agent in the United States
initially designated by the Company for the Senior Debt Securities will be named
in the applicable Prospectus Supplement. The Company may at any time designate
additional Paying Agents or rescind the designation of any Paying Agent or
approve a change in the office through which any Paying Agent acts, except that,
if Senior Debt Securities of a series are issuable only as Registered
Securities, the Company will be required to maintain a Paying Agent in each
Place of Payment for such series and, if Senior Debt Securities of a series are
issuable as Bearer Securities, the
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Company will be required to maintain (i) a Paying Agent in each Place of Payment
for such series in the United States for payments with respect to any Registered
Securities of such series (and for payments with respect to Bearer Securities of
such series in the circumstances described above, but not otherwise), (ii) a
Paying Agent in each Place of Payment located outside the United States where
Senior Debt Securities of such series and any coupons appertaining thereto may
be presented and surrendered for payment; provided that if the Senior Debt
Securities of such series are listed on The International Stock Exchange, London
or the Luxembourg Stock Exchange or any other stock exchange located outside the
United States and such stock exchange shall so require, the Company will
maintain a Paying Agent in London or Luxembourg City or any other required city
located outside the United States, as the case may be, for Senior Debt
Securities of such series, and (iii) a Paying Agent in each Place of Payment
located outside the United States where (subject to applicable laws and
regulations) Registered Securities of such series may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company may be served.
All monies paid by the Company to a Paying Agent for the payment of
principal of and any interest on any Senior Debt Security that remains unclaimed
at the end of two years after such principal, premium or interest shall have
become due and payable will be repaid to the Company and thereafter the holder
of such Senior Debt Security or any coupon appertaining thereto will look only
to the Company for payment thereof.
GLOBAL SECURITIES
The Senior Debt Securities of a series may be issued in whole or in part in
the form of one or more Global Securities that will be deposited with, or on
behalf of, a depository (the "Depository") identified in the Prospectus
Supplement relating to such series. Global Securities may be issued only in
fully registered form and may be issued in either temporary or permanent form.
Unless and until it is exchanged in whole or in part for the individual Senior
Debt Securities represented thereby, a Global Security may not be transferred
except as a whole by the Depository for such Global Security to a nominee of
such Depository or by a nominee of such Depository to such Depository or another
nominee of such Depository or by the Depository or any nominee of such
Depository to a successor Depository or any nominee of such successor.
The specific terms of the depository arrangement with respect to a series
of Senior Debt Securities will be described in the Prospectus Supplement
relating to such series. The Company anticipates that the following provisions
will generally apply to depository arrangements.
Upon the issuance of a Global Security, the Depository for such Global
Security or its nominee will credit on its book-entry registration and transfer
system the respective principal amounts of the individual Senior Debt Securities
represented by such Global Security to the accounts of persons that have
accounts with such Depository ("Participants"). Such accounts shall be
designated by the underwriters, dealers or agents with respect to such Senior
Debt Securities or by the Company if such Senior Debt Securities are offered and
sold directly by the Company. Ownership of beneficial interests in a Global
Security will be limited to Participants or persons that may hold interests
through Participants. Ownership of beneficial interests in such Global Security
will be shown on, and the transfer of that ownership will be effected only
through, records maintained by the applicable Depository or its nominee (with
respect to interests of Participants) and records of Participants (with respect
to interests of persons who hold through Participants). The laws of some states
require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and such laws may impair the ability
to own, pledge or transfer beneficial interest in a Global Security.
So long as the Depository for a Global Security or its nominee is the
registered owner of such Global Security, such Depository or such nominee, as
the case may be, will be considered the sole owner or holder of the Senior Debt
Securities represented by such Global Security for all purposes under the Senior
Indenture. Except as provided below, owners of beneficial interests in a Global
Security will not be entitled to have any of the individual Senior Debt
Securities of the series represented by such Global Security registered in their
names, will not receive or be entitled to receive physical delivery of any such
Senior Debt Securities of such series in definitive form and will not be
considered the owners or holders thereof under the Securities Indenture.
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Payments of principal of and any premium and any interest on individual
Senior Debt Securities represented by a Global Security registered in the name
of a Depository or its nominee will be made to the Depository or its nominee, as
the case may be, as the registered owner of the Global Security representing
such Senior Debt Securities. None of the Company, the Trustee, any Paying Agent
or the Security Registrar for such Senior Debt Securities will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global
Security for such Senior Debt Securities or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
The Company expects that the Depository for a series of Senior Debt
Securities or its nominee, upon receipt of any payment of principal, premium or
interest in respect of a permanent Global Security representing any of such
Senior Debt Securities, immediately will credit Participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such Global Security for such Senior Debt Securities as
shown on the records of such Depository or its nominee. The Company also expects
that payments by Participants to owners of beneficial interests in such Global
Security held through such Participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name."
Such payments will be the responsibility of such Participants.
If a Depository for a series of Senior Debt Securities is at any time
unwilling, unable or ineligible to continue as depository and a successor
depository is not appointed by the Company within 90 days, the Company will
issue individual Senior Debt Securities of such series in exchange for the
Global Security representing such series of Senior Debt Securities. In addition,
the Company may, at any time and in its sole discretion, subject to any
limitations described in the Prospectus Supplement relating to such Senior Debt
Securities, determine not to have any Senior Debt Securities of such series
represented by one or more Global Securities and, in such event, will issue
individual Senior Debt Securities of such series in exchange for the Global
Security or Securities representing such series of Senior Debt Securities.
Individual Senior Debt Securities of such series so issued will be issued in
denominations, unless otherwise specified by the Company, of $1,000 and integral
multiples thereof.
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES
In compliance with United States federal tax laws and regulations, Bearer
Securities may not be offered, sold, resold or delivered in connection with
their original issuance in the United States or to United States persons (each
as defined below) other than to a Qualifying Branch of a United States Financial
Institution (as defined below), and any underwriters, agents and dealers
participating in the offering of Senior Debt Securities must agree that they
will not offer any Bearer Securities for sale or resale in the United States or
to United States persons (other than a Qualifying Branch of a United States
Financial Institution) nor deliver Bearer Securities within the United States.
In addition, any such underwriters, agents and dealers must agree to send
confirmations to each purchaser of a Bearer Security confirming that such
purchaser represents that it is not a United States person or is a Qualifying
Branch of a United States Financial Institution and, if such person is a dealer,
that it will send similar confirmations to purchasers from it. The term
"Qualifying Foreign Branch of a United States Financial Institution" means a
branch located outside the United States of a United States securities clearing
organization, bank or other financial institution listed under Treasury
Regulation Section 1.165-12(c)(1)(v) that agrees to comply with the requirements
of Section 165(j)(3)(A), (B) or (C) of the Code and the regulations thereunder.
Bearer Securities and any coupons appertaining thereto will bear a legend
substantially to the following effect: "Any United States person who holds this
obligation will be subject to limitations under the United States income tax
laws, including the limitations provided in Sections 165(j) and 1287(a) of the
Internal Revenue Code." Under Sections 165(j) and 1287(a) of the Code, holders
that are United States persons, with certain exceptions, will not be entitled to
deduct any loss on Bearer Securities and must treat as ordinary income any gain
realized on the sale or other disposition (including the receipt of principal)
of Bearer Securities.
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The term "United States person" means a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in or
under the laws of the United States or of any political subdivision thereof, an
estate or, for taxable years beginning before January 1, 1997, a trust the
income of which is subject to United States federal income taxation regardless
of its source or, for taxable years beginning after December 31, 1996, a trust
if a U.S. court is able to exercise primary supervision over the administration
of the trust and one or more U.S. fiduciaries have the authority to control all
substantial decisions of the trust, and the term "United States" means the
United States of America (including the states and the District of Columbia),
its territories, its possessions and other areas subject to its jurisdiction
(including the Commonwealth of Puerto Rico).
DEFEASANCE
The Senior Indenture provides that the Company will be discharged from any
and all obligations in respect of the Senior Debt Securities of any series
(except for certain obligations to register the transfer or exchange of Senior
Debt Securities of such series, to replace stolen, lost or mutilated Senior Debt
Securities of such series, to maintain paying agencies and to hold monies for
payment in trust) upon the deposit with the Trustee for such series of Senior
Debt Securities in trust of money and/or U.S. Government Obligations (as defined
below) which through the payment of interest and principal in respect thereof in
accordance with their terms will provide money in an amount sufficient to pay
the principal of and each installment of interest, if any, on the Senior Debt
Securities of such series on the maturity of such payments in accordance with
the terms of the Senior Indenture and the Senior Debt Securities of such series.
Such a trust may only be established if, among other things, the Company has
delivered to such Trustee an Opinion of Counsel (who may be counsel for the
Company) to the effect that (i) holders of the Senior Debt Securities of such
series will not recognize income, gain or loss for federal income tax purposes
as a result of such deposit, defeasance and discharge and will be subject to
federal income tax on the same amounts and in the same manner and at the same
times, as would have been the case if such deposit, defeasance and discharge had
not occurred, and (ii) the Senior Debt Securities of such series, if then listed
on The New York Stock Exchange, will not be delisted as a result of such
deposit, defeasance and discharge.
The Senior Indenture provides that, if applicable, the Company may omit to
comply with any additional restrictive covenants imposed on the Company in
connection with the establishment of any series of Senior Debt Securities and
that clause (d) under "Events of Default" with respect to such restrictive
covenants and clause (e) under "Events of Default" shall not be deemed to be an
Event of Default under the Senior Indenture and the Senior Debt Securities of
any series, upon the deposit with the Trustee under the Senior Indenture, in
trust of money and/or U.S. Government Obligations which through the payment of
interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of, and each
installment of interest, if any, on the Senior Debt Securities of such series on
the maturity of such payments in accordance with the terms of the Senior
Indenture and the Senior Debt Securities of such series. The obligations of the
Company under the Senior Indenture and Senior Debt Securities of such series
other than with respect to the covenants referred to above and the Events of
Default other than the Events of Default referred to above shall remain in full
force and effect. Such a trust may only be established if, among other things,
the Company has delivered to the Trustee an Opinion of Counsel (who may be
counsel for the Company) to the effect that (i) the holders of the Senior Debt
Securities of such series will not recognize income, gain or loss for federal
income tax purposes as a result of such deposit and defeasance of certain
covenants and Events of Default and will be subject to federal income tax on the
same amounts and in the same manner and at the same times, as would have been
the case if such deposit and defeasance had not occurred, and (ii) the Senior
Debt Securities of such series, if then listed on The New York Stock Exchange,
will not be delisted as a result of such deposit and defeasance.
In the event the Company exercises its option to omit compliance with
certain covenants of the Senior Indenture with respect to the Senior Debt
Securities of any series as described above and the Senior Debt Securities of
such series are declared due and payable because of the occurrence of any Event
of Default other than an Event of Default described in clauses (d) or (e) under
"Events of Default," the amount of money and U.S. Government Obligations on
deposit with the Trustee will be sufficient to pay amounts due on the Senior
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Debt Securities of such series at the time of their stated maturity but may not
be sufficient to pay amounts due on the Senior Debt Securities of such series at
the time of the acceleration resulting from such Event of Default. However, the
Company will remain liable for such payments.
The term "U.S. Government Obligation" means direct noncallable obligations
of, or noncallable obligations guaranteed by, the United States or an agency
thereof for the payment of which guarantee or obligation, the full faith and
credit of the United States is pledged.
MODIFICATION OF THE SENIOR INDENTURE
The Senior Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of a majority of the principal amount
of the Senior Debt Securities of each series then outstanding, to execute
supplemental indentures adding any provisions to or changing or eliminating any
of the provisions of the Senior Indenture or modifying the rights of the holders
of the Senior Debt Securities of such series, except that no such supplemental
indenture may, among other things, (i) extend the final maturity of any Senior
Debt Securities, or reduce the rate or extend the time of payment of interest
thereon, or reduce the principal amount thereof, impair the right to institute
suit for payment thereof or reduce any amount payable upon any redemption
thereof without the consent of the holder of the Senior Debt Security so
affected, or (ii) reduce the aforesaid percentage of Senior Debt Securities, the
consent of the holders of which is required for any such supplemental indenture,
without the consent of the holders of all outstanding Senior Debt Securities.
The Board of Directors of the Company does not have the power to waive any of
the covenants of the Senior Indenture including those relating to consolidation,
merger or sale of assets.
EVENTS OF DEFAULT
An Event of Default with respect to any series of Senior Debt Securities is
defined in the Senior Indenture as being: (a) default by the Company for 30 days
in the payment of any installment of interest on the Senior Debt Securities of
such series; (b) default by the Company in the payment of any principal on the
Senior Debt Securities of such series; (c) default by the Company in the payment
of any sinking fund installment with respect to such series of Senior Debt
Securities; (d) default by the Company in the performance of any of the
agreements in the Indenture contained therein for the benefit of the Senior Debt
Securities of such series which shall not have been remedied within a period of
60 days after receipt of written notice by the Company from the Trustee for such
series of Senior Debt Securities or by the Company and such Trustee from the
holders of not less than 25% in principal amount of the Senior Debt Securities
of such series then outstanding; (e) with respect to any series of Senior Debt
Securities (unless otherwise specified in the accompanying Prospectus
Supplement), the acceleration, or failure to pay at maturity, of any
indebtedness for money borrowed of the Company exceeding $20,000,000 in
principal amount, which acceleration is not rescinded or annulled or
indebtedness paid within 15 days after the date on which written notice thereof
shall have first been given to the Company as provided in the Senior Indenture;
(f) certain events of bankruptcy, insolvency or reorganization of the Company;
or (g) any other Event of Default established in accordance with the Senior
Indenture with respect to any series of Senior Debt Securities. No Event of
Default (other than an Event of Default under clause (f)) described above with
respect to a particular series of Senior Debt Securities necessarily constitutes
an Event of Default with respect to any other series of Senior Debt Securities.
The Senior Indenture provides that if an Event of Default with respect to
any series of Senior Debt Securities shall have occurred and be continuing,
either the Trustee with respect to the Senior Debt Securities of that series or
the holders of at least 25% in aggregate principal amount of Senior Debt
Securities of that series then outstanding may declare the principal amount (or,
if the Senior Debt Securities of that series were sold at an original issue
discount, such portion of the principal amount as may be specified in the terms
of that series) of all the Senior Debt Securities of that series and interest,
if any, accrued thereon to be due and payable immediately, but upon certain
conditions such declaration may be annulled and past defaults (except, unless
theretofore cured, a default in payment of principal of or interest on Senior
Debt Securities of that series) may be waived by the holders of a majority in
principal amount of the Senior Debt Securities of that series then outstanding.
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The Senior Indenture contains a provision entitling the Trustee with
respect to any series of Senior Debt Securities, subject to the duty of the
Trustee during default to act with the required standard of care, to be
indemnified by the holders of Senior Debt Securities of such series before
proceeding to exercise any right or power under the Senior Indenture at the
request of the holders of such Senior Debt Securities. The Senior Indenture also
provides that the holders of a majority in principal amount of the outstanding
Senior Debt Securities of any series may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee for such
series of Senior Debt Securities, or exercising any trust or power conferred on
such Trustee, with respect to the Senior Debt Securities of such series. The
Senior Indenture contains a covenant that the Company will file annually with
the Trustee a certificate as to the absence of any default or specifying any
default that exists.
No holder of any Senior Debt Security of any series will have any right to
institute any proceeding with respect to the Senior Indenture or for any remedy
thereunder, unless such holder shall have previously given the Trustee for such
series of Senior Debt Securities written notice of an Event of Default with
respect to Senior Debt Securities of that series and unless also the holders of
at least 25% in aggregate principal amount of the outstanding Senior Debt
Securities of that series shall have made written request, and offered
reasonable indemnity, to such Trustee to institute such proceeding as trustee,
and such Trustee shall not have received from the holders of a majority in
aggregate principal amount of the outstanding Senior Debt Securities of that
series a direction inconsistent with such request and shall have failed to
institute such proceeding within 60 days. However, any right of a holder of any
Senior Debt Security to receive payment of the principal of and any interest on
such Senior Debt Security on or after the due dates expressed in such Senior
Debt Security and to institute suit for the enforcement of any such payment on
or after such dates shall not be impaired or affected without the consent of
such holder.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company covenants that it will not merge or consolidate with any other
corporation or sell or convey all or substantially all of its assets to any
Person, unless (i) either the Company shall be the continuing corporation, or
the successor corporation or the Person which acquires by sale or conveyance
substantially all of the assets of the Company (if other than the Company) shall
be a corporation organized under the laws of the United States or any state
thereof and shall expressly assume the due and punctual payment of the principal
of and interest on all the Senior Debt Securities, according to their tenor, and
the due and punctual performance and observance of all of the covenants and
conditions of the Senior Indenture to be performed or observed by the Company,
by supplemental indenture satisfactory to the Trustee, executed and delivered to
the Trustee by such corporation, and (ii) the Company or such successor
corporation, as the case may be, shall not, immediately after such merger or
consolidation, or such sale or conveyance, be in default in the performance of
any such covenants or condition.
Other than the covenants described above, or as set forth in any
accompanying Prospectus Supplement, the Senior Indenture and the Senior Debt
Securities do not contain any covenants or other provisions designed to afford
holders of the Senior Debt Securities protection in the event of a takeover,
recapitalization or highly leveraged transaction involving the Company.
NO PERSONAL LIABILITY
No past, present or future director, officer, employee or stockholder, as
such, of the Company or any successor thereof shall have any liability for any
obligations of the Company under the Senior Debt Securities or the Senior
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder of Debt Securities by accepting such
Senior Debt Security waives and releases all such liability. The waiver and
release are part of the consideration for the issue of the Senior Debt
Securities.
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THE TRUSTEE
The Trustee in its individual or any other capacity may become the owner or
pledgee of Senior Debt Securities and may otherwise deal with the Company or its
Affiliates with the same rights it would have if it were not the Trustee
provided it complies with the terms of the Senior Indenture.
DESCRIPTION OF SUBORDINATED DEBT SECURITIES
The Subordinated Debt Securities will be issued under an Indenture (the
"Subordinated Indenture"), between the Company and The First National Bank of
Chicago, a national banking association, as trustee (referred to herein under
"Description of Subordinated Debt Securities" as the "Trustee"), a copy of the
form of which is filed as an exhibit to the Registration Statement. The Company
believes that the following summary of certain provisions of the Subordinated
Indenture is a complete discussion of all material terms necessary to understand
the Subordinated Indenture. Capitalized terms not otherwise defined under the
heading "Description of Subordinated Debt Securities" have the meaning given to
them in the Indenture. As used in this section "Description of Subordinated Debt
Securities," unless the context indicates otherwise, the term "Company" means
CNA Financial Corporation and does not include any of its subsidiaries.
GENERAL
The Subordinated Debt Securities will rank equally with all other unsecured
and subordinated indebtedness for borrowed money of the Company. As of June 30,
1997, approximately $1,724.4 million aggregate principal amount of indebtedness
for borrowed money of the Company would rank senior to the Subordinated Debt
Securities. As of June 30, 1997, the Company had $247.1 million in aggregate
principal amount of existing indebtedness for borrowed money that would rank
pari passu with the Subordinated Debt Securities. The Subordinated Indenture
does not limit the amount of debt, either secured or unsecured, that may be
issued by the Company which would be senior to the Subordinated Debt Securities
or that may be issued under the Subordinated Indenture or otherwise. The
Subordinated Debt Securities may be issued in one or more series with the same
or various maturities and may be sold at par, a premium or an original issue
discount. Subordinated Debt Securities sold at an original issue discount may
bear no interest or interest at a rate that is below market rates.
Because the Company is a holding company, the right of the Company, and
hence the rights of creditors and shareholders of the Company, to participate in
any distribution of assets of any subsidiary upon its liquidation or
reorganization or otherwise is accordingly subject to prior claims of creditors
of the subsidiary and (in the case of an insurance subsidiary) its
policyholders, except to the extent that claims of the Company itself as a
creditor of the subsidiary may be reorganized. The subsidiaries are separate and
distinct legal entities and have no obligation, contingent or otherwise, to pay
any amounts due pursuant to the Subordinated Debt Securities or to make any
funds available therefor, whether by dividends, loans or other payments. The
payment of dividends or the making of loans and advances to the Company by its
subsidiaries may be subject to statutory or regulatory restrictions, are
contingent upon the earnings of those subsidiaries and are subject to insurance
regulation and various business considerations.
Reference is made to the Prospectus Supplement for the following terms of
the offered Subordinated Debt Securities (to the extent such terms are
applicable to such Subordinated Debt Securities): (i) the title of such
Subordinated Debt Securities or the particular series thereof; (ii) any limit on
the aggregate principal amount of such Subordinated Debt Securities; (iii)
whether such Subordinated Debt Securities are to be issuable as Registered
Securities or Bearer Securities or both, whether any of such Subordinated Debt
Securities are to be issuable initially in temporary global form and whether any
of such Subordinated Debt Securities are to be issuable in permanent global
form; (iv) the price or prices (generally expressed as a percentage of the
aggregate principal amount thereof) at which such Subordinated Debt Securities
will be issued; (v) the date or dates on which such Subordinated Debt Securities
will mature; (vi) the rate or rates per annum, or the formula by which such rate
or rates shall be determined, at which such Subordinated Debt Securities will
bear interest, if any, the date from which any such interest will accrue and the
circumstances, if any, under which such interest rate or interest rate formula
may be reset at the option of the Company;
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(vii) the Interest Payment Dates on which any such interest on such Subordinated
Debt Securities will be payable, the Regular Record Date for any interest
payable on such Subordinated Debt Securities that are Registered Securities on
any Interest Payment Date, and the extent to which, or the manner in which any
interest payable on a Global Security on an Interest Payment Date will be paid
if other than in the manner described below under "Global Securities;" (viii)
the person to whom any Registered Security of such series will be payable, if
other than the person in whose name such Subordinated Debt Security (or one or
more predecessor Subordinated Debt Securities) is registered at the close of
business on the Regular Record Date of such interest, and the manner in which,
or the person to whom, any interest on any Bearer Security of such series will
be payable, if otherwise than upon presentation and surrender of the coupons
thereto; (ix) if other than the principal amount of such Subordinated Debt
Securities, the portion of the principal amount of such Subordinated Debt
Securities which shall be payable upon declaration of acceleration of the
maturity thereof or provable in bankruptcy; (x) any mandatory or optional
sinking fund or analogous provisions; (xi) each office or agency where, subject
to the terms of the Subordinated Indenture as described below under "Payments
and Paying Agents," the principal of and any interest on such Subordinated Debt
Securities will be payable and each office or agency where, subject to the terms
of the Subordinated Indenture as described below under "Denominations,
Registration and Transfer," such Subordinated Debt Securities may be presented
for registration of transfer or exchange; (xii) the date, if any, after which
and the price or prices at which such Subordinated Debt Securities may, pursuant
to any optional or mandatory redemption provisions, be redeemed, in whole or in
part, and the other detailed terms and provisions of any such optional or
mandatory redemption provisions; (xiii) the denominations in which such
Subordinated Debt Securities which are Registered Securities will be issuable,
if other than denominations of U.S. $1,000 and any integral multiple thereof,
and the denomination in which such Subordinated Debt Securities which are Bearer
Securities will be issuable, if other than denominations of U.S. $5,000; (xiv)
the currency or currencies of payment of principal of and any premium and
interest on such Subordinated Debt Securities; (xv) any index used to determine
the amount of payments of principal of and any interest on such Subordinated
Debt Securities; (xvi) the application, if any, of any restrictive covenants or
events of default that are in addition to or different from those described
herein; (xvii) the form of such Subordinated Debt Security; and (xviii) any
other terms and provisions of such Subordinated Debt Securities not inconsistent
with the terms and provisions of the Subordinated Indenture. Any such Prospectus
Supplement will also describe any special provisions for the payment of
additional amounts with respect to such Subordinated Debt Securities.
Subordinated Debt Securities of any series may be issued in one or more tranches
as described in the applicable Prospectus Supplement.
If the purchase price of any of the offered Subordinated Debt Securities is
denominated in a foreign currency or currencies or foreign currency unit or
units or if the principal of and any premium and interest on any series of
Subordinated Debt Securities is payable in a foreign currency or currencies or
foreign currency unit or units, the restrictions, elections, general tax
considerations, specific terms and other information with respect to such issue
of Subordinated Debt Securities and such foreign currency or currencies or
foreign currency unit or units will be set forth in the applicable Prospectus
Supplement.
SUBORDINATION
Indebtedness evidenced by the Subordinated Debt Securities will be
subordinated in right of payment, as set forth in the Subordinated Indenture, to
the prior payment in full of all existing and future Senior Indebtedness of the
Company. Senior Indebtedness is defined in the Subordinated Indenture as the
principal of and interest on (including any interest that accrues after or would
have accrued but for the filing of a petition initiating any proceeding pursuant
to any Bankruptcy Law, regardless of whether such interest is allowed or
permitted to the holder of such Debt against the bankruptcy or any other
insolvency estate of the Company in such proceeding) and other amounts due on or
in connection with any Debt incurred, assumed or guaranteed by the Company,
whether outstanding on the date of the Subordinated Indenture or thereafter
incurred, assumed or guaranteed, and all renewals, extensions and refundings of
any such Debt. Amounts outstanding under any Senior Debt Securities will be
included in Senior Indebtedness. Excluded from the definition of Senior
Indebtedness are the following: (a) any Debt which expressly provides (i) that
such Debt shall not be senior in right of payment to the Subordinated Debt
Securities, or (ii) that such Debt shall be
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subordinated to any other Debt of the Company, unless such Debt expressly
provides that such Debt shall be senior in right of payment to the Subordinated
Debt Securities; and (b) any Debt of the Company in respect of the Subordinated
Debt Securities.
By reason of such subordination, in the event of dissolution, insolvency,
bankruptcy or other similar proceedings, upon any distribution of assets, (i)
the holders of Subordinated Debt Securities will be required to pay over their
share of such distribution to the holders of Senior Indebtedness until such
Senior Indebtedness is paid in full; and (ii) creditors of the Company who are
not holders of Subordinated Debt Securities or holders of Senior Indebtedness
may recover less, ratably, than holders of Senior Indebtedness and may recover
more, ratably, than the holders of Subordinated Debt Securities.
In the event that the Subordinated Debt Securities are declared due and
payable prior to their Stated Maturity by reason of the occurrence of an Event
of Default, then the Company is obligated to notify promptly holders of Senior
Indebtedness of such acceleration. The Company may not pay the Subordinated Debt
Securities until 179 days have passed after such acceleration occurs and may
thereafter pay the Subordinated Debt Securities if the terms of the Subordinated
Indenture otherwise permit payment at that time.
No payment of the principal, issue price plus accrued original issue
discount (if any), redemption price, interest, if any, or any other amount
payable with respect to any Subordinated Debt Security may be made, nor may the
Company acquire any Subordinated Debt Securities except as set forth in the
Subordinated Indenture, if any default with respect to Senior Indebtedness
occurs and is continuing that permits the acceleration of the maturity thereof
and either such default is the subject of judicial proceedings or the Company
receives notice of the default, unless (a) 179 days pass after notice of the
default is given and such default is not then the subject of judicial
proceedings or the default with respect to the Senior Indebtedness is cured or
waived and (b) the terms of the Subordinated Indenture otherwise permit the
payment or acquisition of the Subordinated Debt Securities at that time.
DENOMINATIONS, REGISTRATION AND TRANSFER
The Subordinated Debt Securities will be issuable as Registered Securities,
Bearer Securities or both. Subordinated Debt Securities may be issuable in the
form of one or more Global Securities, as described below under "Global
Securities." Unless otherwise provided in the applicable Prospectus Supplement,
Registered Securities denominated in U.S. dollars will be issued only in
denominations of $1,000 or any integral multiple thereof and Bearer Securities
denominated in U.S. dollars will be issued only in denominations of $5,000 with
coupons attached. A Global Security will be issued in a denomination equal to
the aggregate principal amount of outstanding Subordinated Debt Securities
represented by such Global Security. The Prospectus Supplement relating to
Subordinated Debt Securities denominated in a foreign or composite currency will
specify the denominations thereof.
In connection with its original issuance, no Bearer Security shall be
mailed or otherwise delivered to any location in the United States (as defined
below under "Limitations on Issuance of Bearer Security") and a Bearer Security
may be delivered in connection with its original issuance only if the person
entitled to receive such Bearer Security furnishes written certification, in the
form required by the Subordinated Indenture, to the effect that such Bearer
Security is not being acquired by or on behalf of a United States person (as
defined below under "Limitations on Issuance of Bearer Securities"), or, if a
beneficial interest in such Bearer Security is being acquired by or on behalf of
a United States person, that such United States person is a financial
institution (as defined in Treasury Regulation Section 1.165-12(c)(1)(v)) that
is purchasing for its own account or for the account of a customer and which
agrees to comply with the requirements of Section 165(j)(3)(A), (B) or (C) of
the Code, and the regulations thereunder. See "Global Securities" and
"Limitations on Issuance of Bearer Securities" below.
Registered Securities of any series will be exchangeable for other
Registered Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations. In addition, if
Subordinated Debt Securities of any series are issuable as both Registered
Securities and as Bearer Securities, at the option of the holder upon request
confirmed in writing, and subject to the terms of the Subordinated Indenture,
Bearer Securities (with all unmatured coupons, except as provided below, and all
matured coupons
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in default attached) of such series will be exchangeable for Registered
Securities of the same series of any authorized denominations and of a like
aggregate principal amount and tenor. Unless otherwise indicated in an
applicable Prospectus Supplement, any Bearer Security surrendered in exchange
for a Registered Security between a record date and the relevant date for
payment of interest shall be surrendered without the coupon relating to such
date for payment of interest attached and interest will not be payable in
respect of the Registered Security issued in exchange for such Bearer Security,
but will be payable only to the holder of such coupon when due in accordance
with the terms of the Subordinated Indenture. Except as provided in an
applicable Prospectus Supplement, Bearer Securities will not be issued in
exchange for Registered Securities.
Subordinated Debt Securities may be presented for exchange as provided
above, and Registered Securities (other than a Global Security) may be presented
for registration of transfer (with the form of transfer duly executed), at the
office of the security registrar designated by the Company or at the office of
any transfer agent designated by the Company for such purpose with respect to
any series of Subordinated Debt Securities and referred to in an applicable
Prospectus Supplement, without service charge and upon payment of any taxes and
other governmental charges as described in the Subordinated Indenture. Such
transfer or exchange will be effected upon the security registrar or such
transfer agent, as the case may be, being satisfied with the documents of title
and identity of the person making the request. The Company has initially
appointed the Trustee as the security registrar under the Subordinated
Indenture. If a Prospectus Supplement refers to any transfer agent (in addition
to the security registrar) initially designated by the Company with respect to
any series of Subordinated Debt Securities, the Company may at any time rescind
the designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, except that, if Subordinated Debt
Securities of a series are issuable only as Registered Securities, the Company
will be required to maintain a transfer agent in each Place of Payment for such
series and, if Subordinated Debt Securities of a series are issuable as Bearer
Securities, the Company will be required to maintain (in addition to the
security registrar) a transfer agent in a Place of Payment for such series
located outside the United States. The Company may at any time designate
additional transfer agents with respect to any series of Subordinated Debt
Securities.
In the event of any redemption in part, the Company shall not be required
to (i) issue, register the transfer of or exchange Subordinated Debt Securities
of any series during a period beginning at the opening of business 15 days
before the day of the mailing of a notice of redemption of Subordinated Debt
Securities of that series selected to be redeemed and ending at the close of
business on (a) if Subordinated Debt Securities of the series are issuable only
as Registered Securities, the day of mailing of the relevant notice of
redemption, and (b) if Subordinated Debt Securities of the series are issuable
as Bearer Securities, the day of the first publication of the relevant notice of
redemption or, if Subordinated Debt Securities of that series are also issuable
as Registered Securities and there is no publication, the mailing of the
relevant notice of redemption; (ii) register the transfer of or exchange any
Registered Security, or portion thereof, called for redemption, except the
unredeemed portion of any Registered Security being redeemed in part; or (iii)
exchange any Bearer Security called for redemption, except to exchange such
Bearer Security for a Registered Security of that series and like tenor which is
immediately surrendered for redemption.
PAYMENTS AND PAYING AGENTS
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of and any interest on Registered Securities (other than a Global
Security) will be made at the office of such Paying Agent or Paying Agents as
the Company may designate from time to time, except that, at the option of the
Company, payment of any interest may be made by check mailed to the address of
the payee entitled thereto as such address shall appear in the Security
Register. Unless otherwise indicated in an applicable Prospectus Supplement,
payment of any installment of interest on Registered Securities will be made to
the person in whose name such Registered Security is registered at the close of
business on the Record Date for such interest payment.
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of and any premium and interest on Bearer Securities will be
payable (subject to applicable laws and regulations) at the offices of such
Paying Agent or Paying Agents outside the United States as the Company may
designate from
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time to time, except that, at the option of the Company, payment of any interest
may be made by check or by wire transfer to an account maintained by the payee
outside the United States. Unless otherwise indicated in an applicable
Prospectus Supplement, payment of interest on Bearer Securities on any Interest
Payment Date will be made only against surrender of the coupon relating to such
Interest Payment Date. No payment with respect to any Bearer Security will be
made at any office or agency of the Company in the United States or by check
mailed to any address in the United States or by wire transfer to an account
maintained in the United States. Payments will not be made in respect of Bearer
Securities or coupons appertaining thereto pursuant to presentation to the
Company or its Paying Agents within the United States. Notwithstanding the
foregoing, payment of principal of and any interest on Bearer Securities
denominated and payable in U.S. dollars will be made at the office of the
Company's Paying Agent in the United States if, and only if, payment of the full
amount thereof in U.S. dollars at all offices or agencies outside the United
States is illegal or effectively precluded by exchange controls or other similar
restrictions and the Company has delivered to the Trustee and opinion of counsel
to that effect.
Unless otherwise indicated in an applicable Prospectus Supplement, the
principal office of the Trustee in The City of New York will be designated as
the Company's sole Paying Agent for payments with respect to Subordinated Debt
Securities which are issuable solely as Registered Securities. Any Paying Agent
outside the United States and any other Paying Agent in the United States
initially designated by the Company for the Subordinated Debt Securities will be
named in the applicable Prospectus Supplement. The Company may at any time
designate additional Paying Agents or rescind the designation of any Paying
Agent or approve a change in the office through which any Paying Agent acts,
except that, if Subordinated Debt Securities of a series are issuable only as
Registered Securities, the Company will be required to maintain a Paying Agent
in each Place of Payment for such series and, if Subordinated Debt Securities of
a series are issuable as Bearer Securities, the Company will be required to
maintain (i) a Paying Agent in each Place of Payment for such series in the
United States for payments with respect to any Registered Securities of such
series (and for payments with respect to Bearer Securities of such series in the
circumstances described above, but not otherwise), (ii) a Paying Agent in each
Place of Payment located outside the United States where Subordinated Debt
Securities of such series and any coupons appertaining thereto may be presented
and surrendered for payment; provided that if the Subordinated Debt Securities
of such series are listed on The International Stock Exchange, London or the
Luxembourg Stock Exchange or any other stock exchange located outside the United
States and such stock exchange shall so require, the Company will maintain a
Paying Agent in London or Luxembourg City or any other required city located
outside the United States, as the case may be, for Subordinated Debt Securities
of such series, and (iii) a Paying Agent in each Place of Payment located
outside the United States where (subject to applicable laws and regulations)
Registered Securities of such series may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the Company may be
served.
All monies paid by the Company to a Paying Agent for the payment of
principal of and any interest on any Subordinated Debt Security that remains
unclaimed at the end of two years after such principal, premium or interest
shall have become due and payable will be repaid to the Company and thereafter
the holder of such Subordinated Debt Security or any coupon appertaining thereto
will look only to the Company for payment thereof.
GLOBAL SECURITIES
The Subordinated Debt Securities of a series may be issued in whole or in
part in the form of one or more Global Securities that will be deposited with,
or on behalf of, a depository (the "Depository") identified in the Prospectus
Supplement relating to such series. Global Securities may be issued only in
fully registered form and may be issued in either temporary or permanent form.
Unless and until it is exchanged in whole or in part for the individual
Subordinated Debt Securities represented thereby, a Global Security may not be
transferred except as a whole by the Depository for such Global Security to a
nominee of such Depository or by a nominee of such Depository to such Depository
or another nominee of such Depository or by the Depository or any nominee of
such Depository to a successor Depository or any nominee of such successor.
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The specific terms of the depository arrangement with respect to a series
of Subordinated Debt Securities will be described in the Prospectus Supplement
relating to such series. The Company anticipates that the following provisions
will generally apply to depository arrangements.
Upon the issuance of a Global Security, the Depository for such Global
Security or its nominee will credit on its book-entry registration and transfer
system the respective principal amounts of the individual Subordinated Debt
Securities represented by such Global Security to the accounts of persons that
have accounts with such Depository ("Participants"). Such accounts shall be
designated by the underwriters, dealers or agents with respect to such
Subordinated Debt Securities or by the Company if such Subordinated Debt
Securities are offered and sold directly by the Company. Ownership of beneficial
interests in a Global Security will be limited to Participants or persons that
may hold interest through Participants. Ownership of beneficial interests in
such Global Security will be shown on, and the transfer of that ownership will
be effected only through, records maintained by the applicable Depository or its
nominee (with respect to interests of Participants) and records of Participants
(with respect to interests of person who hold through Participants). The laws of
some states require that certain purchasers of securities take physical delivery
of such securities in definitive form. Such limits and such laws may impair the
ability to own, pledge or transfer beneficial interest in a Global Security.
So long as the Depository for a Global Security or its nominee is the
registered owner of such Global Security, such Depository or such nominee, as
the case may be, will be considered the sole owner or holder of the Subordinated
Debt Securities represented by such Global Security for all purposes under the
Subordinated Indenture. Except as provided below, owners of beneficial interests
in a Global Security will not be entitled to have any of the individual
Subordinated Debt Securities of the series represented by such Global Security
registered in their names, will not receive or be entitled to receive physical
delivery of any such Subordinated Debt Securities of such series in definitive
form and will not be considered the owners or holders thereof under the
Subordinated Indenture.
Payments of principal of and any premium and any interest on individual
Subordinated Debt Securities represented by a Global Security registered in the
name of a Depository or its nominee will be made to the Depository or its
nominee, as the case may be, as the registered owner of the Global Security
representing such Subordinated Debt Securities. None of the Company, the
Trustee, any Paying Agent or the Security Registrar for such Subordinated Debt
Securities will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership interest
in Global Security for such Subordinated Debt Securities or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that the Depository for a series of Subordinated Debt
Securities or its nominee, upon receipt of any payment of principal, premium or
interest in respect of a permanent Global Security representing any of such
Subordinated Debt Securities, immediately will credit Participants' accounts
with payments in amounts proportionate to their respective beneficial interests
in the principal amount of such Global Security for such Subordinated Debt
Securities as shown on the records of such Depository or its nominee. The
Company also expects that payments by Participants to owners of beneficial
interests in such Global Security held through such Participants will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form or registered
in "street name." Such payments will be the responsibility of such Participants.
If a Depository for a series of Subordinated Debt Securities is at any time
unwilling, unable or ineligible to continue as depository and a successor
depository is not appointed by the Company within 90 days, the Company will
issue individual Subordinated Debt Securities of such series in exchange for the
Global Security representing such series of Subordinated Debt Securities. In
addition, the Company may, at any time and in its sole discretion, subject to
any limitations described in the Prospectus Supplement relating to such
Subordinated Debt Securities, determine not to have any Subordinated Debt
Securities of such series represented by one or more Global Securities and, in
such event, will issue individual Subordinated Debt Securities of such series in
exchange for the Global Security or Securities representing such series of
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Subordinated Debt Securities. Individual Subordinated Debt Securities of such
series so issued will be issued in denominations, unless otherwise specified by
the Company, of $1,000 and integral multiples thereof.
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES
In compliance with United States federal tax laws and regulations, Bearer
Securities may not be offered, sold, resold or delivered in connection with
their original issuance in the United States or to United States persons (each
as defined below) other than to a Qualifying Branch of a United States Financial
Institution (as defined below), and any underwriters, agents and dealers
participating in the offering of Subordinated Debt Securities must agree that
they will not offer any Bearer Securities for sale or resale in the United
States or to United States persons (other than a Qualifying Branch of a United
States Financial Institution) nor deliver Bearer Securities within the United
States. In addition, any such underwriters, agents and dealers must agree to
send confirmations to each purchaser of a Bearer Security confirming that such
purchaser represents that it is not a United States person or is a Qualifying
Branch of a United States Financial Institution and, if such person is a dealer,
that it will send similar confirmations to purchasers from it. The term
"Qualifying Foreign Branch of a United States Financial Institution" means a
branch located outside the United States of a United States securities clearing
organization, bank or other financial institution listed under Treasury
Regulation Section 1.165-12(c)(1)(v) that agrees to comply with the requirements
of Section 165(j)(3)(A), (B) or (C) of the Code and the regulations thereunder.
Bearer Securities and any coupons appertaining thereto will bear a legend
substantially to the following effect: "Any United States person who holds this
obligation will be subject to limitations under the United States income tax
laws, including the limitations provided in Sections 165(j) and 1287(a) of the
Internal Revenue Code." Under Sections 165(j) and 1287(a) of the Code, holders
that are United States persons, with certain exceptions, will not be entitled to
deduct any loss on Bearer Securities and must treat as ordinary income any gain
realized on the sale or other disposition (including the receipt of principal)
of Bearer Securities.
The term "United States person" means a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in or
under the laws of the United States or of any political subdivision thereof, an
estate or, for taxable years beginning before January 1, 1997, a trust the
income of which is subject to United States federal income taxation regardless
of its source or, for taxable years beginning after December 31, 1996, a trust
if a U.S. court is able to exercise primary supervision over the administration
of the trust and one or more U.S. fiduciaries have the authority to control all
substantial decisions of the trust, and the term "United States" means the
United States of America (including the states and the District of Columbia),
its territories, its possessions and other areas subject to its jurisdiction
(including the Commonwealth of Puerto Rico).
DEFEASANCE
The Subordinated Indenture provides that the Company will be discharged
from any and all obligations in respect of the Subordinated Debt Securities of
any series (except for certain obligations to register the transfer or exchange
of Subordinated Debt Securities of such series, to replace stolen, lost or
mutilated Subordinated Debt Securities of such series, to maintain paying
agencies and to hold monies for payment in trust) upon the deposit with the
Trustee for such series of Subordinated Debt Securities in trust of money and/or
U.S. Government Obligations (as defined below) which through the payment of
interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of and each
installment of interest, if any, on the Subordinated Debt Securities of such
series on the maturity of such payments in accordance with the terms of the
Indenture and the Subordinated Debt Securities of such series. Such a trust may
only be established if, among other things, the Company has delivered to such
Trustee an Opinion of Counsel (who may be counsel for the Company) of the effect
that (i) holders of the Subordinated Debt Securities of such series will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit, defeasance and discharge and will be subject to federal income tax
on the same amounts and in the same manner and at the same times, as would has
been the case if such deposit, defeasance and discharge had not occurred, and
(ii) the Subordinated Debt Securities of such
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series, if then listed on The New York Stock Exchange, will not be delisted as a
result of such deposit, defeasance and discharge.
The Subordinated Indenture provides that, if applicable, the Company may
omit to comply with any additional restrictive covenants imposed on the Company
in connection with the establishment of any series of Subordinated Debt
Securities and that clause (d) under "Events of Default" with respect to such
restrictive covenants and clause (e) under "Events of Default" shall not be
deemed to be an Event of Default under the Subordinated Indenture and the
Subordinated Debt Securities of any series, upon the deposit with the Trustee
under the Subordinated Indenture, in trust of money and/or U.S. Government
Obligations which through the payment of interest and principal in respect
thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, and each installment of interest, if any, on
the Subordinated Debt Securities of such series on the maturity of such payments
in accordance with the terms of the Subordinated Indenture and the Subordinated
Debt Securities of such series. The obligations of the Company under the
Subordinated Indenture and the Subordinated Debt Securities of such series other
than with respect to the covenants referred to above and the Events of Default
other than the Events of Default referred to above shall remain in full force
and effect. Such a trust may only be established if, among other things, the
Company has delivered to the Trustee an Opinion of Counsel (who may be counsel
for the Company) to the effect that (i) the holders of the Subordinated Debt
Securities of such series will not recognize income, gain or loss for federal
income tax purposes as a result of such deposit and defeasance of certain
covenants and Events of Default and will be subject to federal income tax on the
same amounts and in the same manner and at the same times, as would have been
the case if such deposit and defeasance had not occurred, and (ii) the
Subordinated Debt Securities of such series, if then listed on The New York
Stock Exchange, will not be delisted as a result of such deposit and defeasance.
In the event the Company exercises its option to omit compliance with
certain covenants of the Subordinated Indenture with respect to the Subordinated
Debt Securities of any series as described above and the Subordinated Debt
Securities of such series are declared due and payable because of the occurrence
of any Event of Default other than an Event of Default described in clauses (d)
or (e) under "Events of Default," the amount of money and U.S. Government
Obligations on deposit with the Trustee will be sufficient to pay amounts due on
the Subordinated Debt Securities of such series at the time of their stated
maturity but may not be sufficient to pay amounts due on the Subordinated Debt
Securities of such series at the time of the acceleration resulting from such
Event of Default. However, the Company will remain liable for such payments.
The term "U.S. Government Obligation" means direct noncallable obligations
of, or noncallable obligations guaranteed by, the United States or an agency
thereof for the payment of which guarantee or obligation, the full faith and
credit of the United States is pledged.
MODIFICATION OF THE SUBORDINATED INDENTURE
The Subordinated Indenture contains provisions permitting the Company and
the Trustee, with the consent of the holders of a majority of the principal
amount of the Subordinated Debt Securities of each series then outstanding, to
execute supplemental indentures adding any provisions to or changing or
eliminating any of the provisions of the Subordinated Indenture or modifying the
rights of the holders of the Subordinated Debt Securities of such series, except
that no such supplemental indenture may, among other things, (i) extend the
final maturity of any Subordinated Debt Securities, or reduce the rate or extend
the time of payment of interest thereon, or reduce the principal amount thereof,
impair the right to institute suit for payment thereof or reduce any amount
payable upon any redemption thereof without the consent of the holder of the
Subordinated Debt Security so affected, or (ii) reduce the aforesaid percentage
of Subordinated Debt Securities, the consent of the holders of which is required
for any such supplemental indenture, without the consent of the holders of all
outstanding Subordinated Debt Securities. The Board of Directors of the Company
does not have the power to waive any of the covenants of the Subordinated
Indenture including those relating to consolidation, merger or sale of assets.
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<PAGE> 38
EVENTS OF DEFAULT
An Event of Default with respect to any series of Subordinated Debt
Securities is defined in the Subordinated Indenture as being: (a) default by the
Company for 30 days in the payment of any installment of interest on the
Subordinated Debt Securities of such series; (b) default by the Company in the
payment of any principal on the Subordinated Debt Securities of such series; (c)
default by the Company in the payment of any sinking fund installment with
respect to such series of Subordinated Debt Securities; (d) default by the
Company in the performance of any of the agreements in the Subordinated
Indenture contained therein for the benefit of the Debt Securities of such
series which shall not have been remedied within a period of 60 days after
receipt of written notice by the Company from the Trustee for such series of
Subordinated Debt Securities or by the Company and such Trustee from the holders
of not less than 25% in principal amount of the Subordinated Debt Securities of
such series then outstanding; (e) with respect to any series of Subordinated
Debt Securities (unless otherwise specified in the accompanying Prospectus
Supplement), the acceleration, or failure to pay at maturity, of any
indebtedness for money borrowed of the Company exceeding $20,000,000 in
principal amount, which acceleration is not rescinded or annulled or
indebtedness paid within 15 days after the date on which written notice thereof
shall have first been given to the Company as provided in the Subordinated
Indenture; (f) certain events of bankruptcy, insolvency or reorganization of the
Company; or (g) any other Event of Default established in accordance with the
Subordinated Indenture with respect to any series of Subordinated Debt
Securities. No Event of Default (other than an Event of Default under clause
(f)) described above with respect to a particular series of Subordinated Debt
Securities necessarily constitutes an Event of Default with respect to any other
series of Subordinated Debt Securities.
The Subordinated Indenture provides that if an Event of Default with
respect to any series of Subordinated Debt Securities shall have occurred and be
continuing, either the Trustee with respect to the Subordinated Debt Securities
of that series or the holders of at least 25% in aggregate principal amount of
Subordinated Debt Securities of that series then outstanding may declare the
principal amount (or, if the Subordinated Debt Securities of that series were
sold at an original issue discount, such portion of the principal amount as may
be specified in the terms of that series) of all the Subordinated Debt
Securities of that series and interest, if any, accrued thereon to be due and
payable immediately, but upon certain conditions such declaration may be
annulled and past defaults (except, unless theretofore cured, a default in
payment of principal of or interest on Subordinated Debt Securities of that
series) may be waived by the holders of a majority in principal amount of the
Subordinated Debt Securities of that series then outstanding.
The Subordinated Indenture contains a provision entitling the Trustee with
respect to any series of Subordinated Debt Securities, subject to the duty of
the Trustee during default to act with the required standard of care, to be
indemnified by the holders of Subordinated Debt Securities of such series before
proceeding to exercise any right or power under the Subordinated Indenture at
the request of the holders of such Subordinated Debt Securities. The
Subordinated Indenture also provides that the holders of a majority in principal
amount of the outstanding Subordinated Debt Securities of any series may direct
the time, method and place of conducting any proceeding for any remedy available
to the Trustee for such series of Subordinated Debt Securities, or exercising
any trust or power conferred on such Trustee, with respect to the Subordinated
Debt Securities of such series. The Subordinated Indenture contains a covenant
that the Company will file annually with the Trustee a certificate as to the
absence of any default or specifying any default that exists.
No holder of any Subordinated Debt Security of any series will have any
right to institute any proceeding with respect to the Subordinated Indenture or
for any remedy thereunder, unless such holder shall have previously given the
Trustee for such series of Subordinated Debt Securities written notice of an
Event of Default with respect to Subordinated Debt Securities of that series and
unless also the holders of at least 25% in aggregate principal amount of the
outstanding Subordinated Debt Securities of that series shall have made written
request, and offered reasonable indemnity, to such Trustee to institute such
proceeding as trustee, and such Trustee shall not have received from the holders
of a majority in aggregate principal amount of the outstanding Subordinated Debt
Securities of that series a direction inconsistent with such request and shall
have failed to institute such proceeding within 60 days. However, any right of a
holder of any Subordinated Debt Security to receive payment of the principal of
and any interest on such Subordinated
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<PAGE> 39
Debt Security on or after the due dates expressed in such Subordinated Debt
Security and to institute suit for the enforcement of any such payment on or
after such dates shall not be impaired or affected without the consent of such
holder.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company covenants that it will not merge or consolidate with any other
corporation or sell or convey all or substantially all of its assets to any
Person, unless (i) either the Company shall be the continuing corporation, or
the successor corporation or the Person which acquires by sale or conveyance
substantially all of the assets of the Company (if other than the Company) shall
be a corporation organized under the laws of the United States or any state
thereof and shall expressly assume the due and punctual payment of the principal
of and interest on all the Subordinated Debt Securities, according to their
tenor, and the due and punctual performance and observance of all of the
covenants and conditions of the Subordinated Indenture to be performed or
observed by the Company, by supplemental indenture satisfactory to the Trustee,
executed and delivered to the Trustee by such corporation, and (ii) the Company
or such successor corporation, as the case may be, shall not, immediately after
such merger or consolidation, or such sale or conveyance, be in default in the
performance of any such covenants or condition.
Other than the covenants described above, or as set forth in any
accompanying Prospectus Supplement, the Subordinated Indenture and the
Subordinated Debt Securities do not contain any covenants or other provisions
designed to afford holders of the Subordinated Debt Securities protection in the
event of a takeover, recapitalization or highly leveraged transaction involving
the Company.
NO PERSONAL LIABILITY
No past, present or future director, officer, employee or stockholder, as
such, of the Company or any successor thereof shall have any liability for any
obligations of the Company under the Subordinated Debt Securities or the
Subordinated Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each holder of Debt Securities by
accepting such Subordinated Debt Security waives and releases all such
liability. The waiver and release are part of the consideration for the issue of
the Debt Securities.
THE TRUSTEE
The Trustee in its individual or any other capacity may become the owner or
pledgee of Subordinated Debt Securities and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were not the Trustee
provided it complies with the terms of the Subordinated Indenture.
DESCRIPTION OF PREFERRED STOCK
The Company is authorized to issue up to 12,500,000 shares of Preferred
Stock, without par value, in one or more series. All shares of Preferred Stock,
irrespective of series, constitute one and the same class. The following
description of the terms of the Preferred Stock sets forth certain general terms
and provisions of the Preferred Stock. Certain terms of any series of Preferred
Stock offered by the Prospectus Supplement will be described in the Prospectus
Supplement relating to such series of Preferred Stock. If so indicated in the
Prospectus Supplement, the terms of any such series may differ from the terms
set forth below. The Company has outstanding 750 shares each of Money Market
Cumulative Preferred(TM) Stock, Series E and Series F with a liquidation
preference of $100,000 per share.
GENERAL
The Board of Directors is authorized to establish and designate series and
to fix the number of shares and the relative rights, preferences and limitations
of the respective series of Preferred Stock including: (1) the designation and
number of shares comprising such series, which may be increased or decreased
from time to time by the Board of Directors; (2) the dividend rate or rates on
the shares of such series and the relation
22
<PAGE> 40
which such dividends bear to the dividends payable on any other class or classes
or of any other series of capital stock, the terms and conditions upon which and
the periods in respect of which dividends shall be payable, whether and upon
what conditions such dividends shall be cumulative and, if cumulative the dates
from which dividends shall accumulate; (3) whether the shares of such series
shall be redeemable, the limitations and restrictions with respect to such
redemption, the time or times when, the price or prices at which and the manner
in which such shares shall be redeemable, including the manner of selecting
shares of such series for redemption if less than all shares are to be redeemed;
(4) the rights to which the holders of shares of such series shall be entitled,
and the preferences, if any, over any other series (or of any other series over
such series), upon the voluntary or involuntary liquidation, dissolution,
distribution of assets or winding-up of the Company, which rights may vary
depending on whether such liquidation, dissolution, distribution or winding-up
is voluntary or involuntary, and, if voluntary, may vary at different dates; (5)
whether the shares of such series shall be subject to the operation of a
purchase, retirement or sinking fund, and, if so, whether and upon what
conditions such purchase, retirement or sinking fund shall be cumulative or
noncumulative, the extent to which and the manner in which such fund shall be
applied to the purchase or redemption of the shares of such series for
retirement or to other corporate purposes and the terms and provisions relative
to the operation thereof; (6) whether the shares of such series shall be
convertible into or exchangeable for shares of any other class or classes or of
any other series of any class or classes of capital stock of the Company, and,
if so convertible or exchangeable, the price or prices or the rate or rates of
conversion or exchange and the method, if any, of adjusting the same, and any
other terms and conditions of such conversion or exchange; (7) the voting
powers, full and/or limited, if any, of the shares of such series; and whether
and under what conditions the shares of such series (alone or together with the
shares of one or more other series having similar provisions) shall be entitled
to vote separately as a single class, for the election of one or more additional
directors of the Company in case of dividend arrearages or other specified
events, or upon other matters; (8) whether the issuance of any additional shares
of such series, or of any shares of any other series, shall be subject to
restrictions as to issuance, or as to the powers, preferences or rights of any
such other series; and (9) any other preferences, privileges and powers, and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions of such series, as the Board of Directors may deem
advisable. Unless otherwise specifically set forth in the Prospectus Supplement
relating to a series of Preferred Stock, all shares of Preferred Stock shall be
equal rank, preference and priority as to dividends; when the stated dividends
are not paid in full, the shares of all series of the Preferred Stock shall
share ratably in any payment thereof; and upon liquidation, dissolution or
winding up, if assets are insufficient to pay in full all Preferred Stock, then
such assets shall be distributed among the holders ratably.
Because the Company is a holding company, the right of the Company, and
hence the rights of creditors and shareholders of the Company, to participate in
any distribution of assets of any subsidiary upon its liquidation or
reorganization or otherwise is accordingly subject to prior claims of creditors
of the subsidiary and (in the case of an insurance subsidiary) its
policyholders, except to the extent that claims of the Company itself as a
creditor of the subsidiary may be recognized. The subsidiaries are separate and
distinct legal entities and have no obligation, contingent or otherwise, to pay
dividends on the Preferred Stock or to make any funds available therefor,
whether by dividends, loans or other payments. The payment of dividends or the
making of loans and advances to the Company by its subsidiaries may be subject
to statutory or regulatory restrictions, are contingent upon the earnings of
those subsidiaries and are subject to insurance regulation and various business
considerations.
The description of certain provisions of the Preferred Stock set forth
below does not purport to be complete and is subject to and qualified in its
entirety by reference to the Restated Certificate of Incorporation and the
Certificate of Designations that relates to a particular series of Preferred
Stock which will be filed with the Commission at or prior to the time of the
sale of the related Preferred Stock.
DIVIDEND RIGHTS
Except as may be set forth in the Prospectus Supplement relating to a
series of Preferred Stock, the holders of Preferred Stock shall be entitled to
receive, but only when and as declared by the Board of Directors out of funds
legally available for that purpose, cash dividends at the rates and on the dates
set forth in the
23
<PAGE> 41
Prospectus Supplement relating to a particular series of Preferred Stock. Such
rate may be fixed or variable. Each such dividend will be payable to the holders
of record as they appear on the stock books of the Company on such record dates
as will be fixed by the Board of Directors of the Company or a duly authorized
committee thereof. Dividends payable on the Preferred Stock for any period less
than a full dividend period (being the period between such dividend payment
dates) will be computed on the bases of the actual number of days elapsed over a
360 day year and for a period of a full dividend period, will be computed on the
basis of a 360 day year consisting of twelve 30 day months. Except as may be set
forth in the Prospectus Supplement relating to a series of Preferred Stock, such
dividends shall be payable from, and shall be cumulative from, the date of
original issue of each share, so that if in any dividend period dividends at the
rate or rates as described in the Prospectus Supplement relating to such series
of Preferred Stock shall not have been declared and paid or set apart for
payment on all outstanding shares of Preferred Stock for such dividend period
and all preceding dividend periods from and after the first day from which
dividends are cumulative, then the aggregate deficiency shall be declared and
fully paid or set apart for payment, but without interest, before any dividends
shall be declared or paid or set apart for payment on the Common Stock by the
Company. After payment in full of all dividend arrearages on the Preferred
Stock, dividends on the Common Stock may be declared and paid out of funds
legally available for that purpose as the Board of Directors may determine.
REDEMPTION
The Company will have such rights, if any, to redeem shares of Preferred
Stock, and the holders of Preferred Stock will have such rights, if any, to
cause the Company to redeem shares of Preferred Stock, as may be set forth in
the Prospectus Supplement relating to a series of Preferred Stock.
CONVERSION OR EXCHANGE
The holders of Preferred Stock will have such rights, if any, to convert
such shares into or to exchange such shares for, shares of any other class or
classes, or of any other series of any class, of the capital stock of the
Company and/or other property or cash, as may be set forth in the Prospectus
Supplement relating to a series of Preferred Stock.
VOTING RIGHTS
The holders of Preferred Stock will have such voting rights, if any, as may
be set forth in the Prospectus Supplement relating to a series of Preferred
Stock. Unless and except to the extent required by law or provided by the Board
of Directors, holders of Preferred Stock shall have no voting power with respect
to any matter. In no event shall the Preferred Stock be entitled to more than
one vote per share in respect of each share of stock.
The holders of the outstanding shares of a series of Preferred Stock shall
be entitled to vote as a class upon a proposed amendment, whether or not
entitled to vote thereon by the Restated Certificate of Incorporation if the
amendment would increase or decrease the aggregate number of authorized shares
of such series of Preferred Stock, increase or decrease the par value of the
shares of such series of Preferred Stock, or alter or change the powers,
preferences, or special rights of the shares of such series of Preferred Stock
so as to affect them adversely. If any proposed amendment would alter or change
the powers, preferences, or special rights of one or more series of Preferred
Stock so as to affect them adversely, but shall not so affect the entire series,
then only the shares of the series so affected by the amendment shall be
considered a separate series for purposes of this paragraph. The number of
authorized shares of any such series of Preferred Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Company
entitled to vote irrespective of the previous two sentences, if so provided in
the Restated Certificate of Incorporation, in any amendment thereto which
created such series of Preferred Stock or which was adopted prior to the
issuance of any shares of any such series of Preferred Stock, or in any
amendment thereto which was authorized by a resolution or resolutions adopted by
the affirmative vote of the holders of a majority of such series of Preferred
Stock. This paragraph reflects legal requirements under current Delaware law and
is subject to any amendments to such law.
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<PAGE> 42
The foregoing voting provisions will not apply if, in connection with the
matters specified, provision is made for the redemption or retirement of all
outstanding Preferred Stock.
LIQUIDATION RIGHTS
Upon any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, holders of Preferred Stock will have such preferences
and priorities, if any, with respect to distribution of the assets of the
Company or the proceeds thereof as may be set forth in the Prospectus Supplement
relating to a series of Preferred Stock.
MISCELLANEOUS
The transfer agent, dividend disbursing agent and registrar for the
Preferred Stock issued in connection with the Prospectus will be as set forth in
the Prospectus Supplement. The holder of Preferred Stock, including any
Preferred Stock issued in connection with this Prospectus, will not have any
preemptive rights to purchase or subscribe for any shares of any class or other
securities of any type of the Company. When issued, the Preferred Stock will be
fully paid and nonassessable. The Certificate of Designations setting forth the
provisions of each series of Preferred Stock will become effective after the
date of this Prospectus but on or before issuance of the related series of
Preferred Stock.
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities: (i) through underwriters or
dealers; (ii) through agents; (iii) directly to one or more purchasers; or (iv)
through a combination of any such method of sale. The Prospectus Supplement with
respect to the Offered Securities will set forth the terms of the offering of
such Offered Securities, including the name or names of any underwriters,
dealers or agents, the purchase price of such Offered Securities and the
proceeds to the Company from such sale, any underwriter discounts and other
items constituting compensation to underwriters, dealers or agents, any initial
public offering price, any discounts or concessions allowed or reallowed or paid
by underwriters or dealers to other dealers and any securities exchanges on
which such Offered Securities may be listed.
If underwriters or dealers are used in the sale, the Offered Securities
will be acquired by the underwriters or dealers for their own accounts and may
be resold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price, which may be changed, or at
varying prices determined at the time of sale. The Offered Securities may be
offered to the public either through underwriting syndicates represented by one
or more managing underwriters or directly by one or more of such firms. Unless
otherwise set forth in the Prospectus Supplement, the obligations of the
underwriters to purchase such Offered Securities will be subject to certain
conditions precedent, and the underwriters will be obligated to purchase all of
such Offered Securities if any are purchased. Any initial public offering price
and any discounts or concessions allowed or reallowed or paid to dealers may be
changed from time to time.
If so indicated in the Prospectus Supplement, the Company will authorize
underwriters, dealers, or agents to solicit offers by certain specified
institutions to purchase Offered Securities from the Company at the public
offering price set forth in the Prospectus Supplement pursuant to delayed
delivery contracts providing for payment and delivery on a specified date in the
future. Such contracts will be subject only to those conditions set forth in the
Prospectus Supplement, and the Prospectus Supplement will set forth the
commission payable for solicitation of such contracts. The underwriters and
other persons soliciting such contracts will have no responsibility for the
validity of any such contracts.
Underwriters, dealers and agents may be entitled under agreements entered
into with the Company to indemnification by the Company against certain civil
liabilities, including liabilities under the Securities Act, or to contribution
by the Company to payments they may be required to make in respect thereof.
Underwriters, dealers and agents may be customers of, engage in transactions
with, or perform services for the Company in the ordinary course of business.
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<PAGE> 43
There is currently no market for the Securities. If the Securities are
traded after the initial issuance, they may trade at a discount from their
initial offering price, depending upon prevailing interest rates, the market for
similar securities and other factors. While it is possible that an underwriter
could inform the Company that it intended to make a market in the Securities,
such underwriter would not be obligated to do so, and any such market making
could be discontinued at any time without notice. Therefore, no assurance can be
given as to whether an active trading market will develop for the Securities.
Unless otherwise indicated in the applicable Prospectus Supplement, the Company
does not intend to apply for listing of the Securities on any securities
exchange or on the National Association of Securities Dealers, Inc. automated
quotation system.
LEGAL MATTERS
The validity of the issuance of the Securities and certain other legal
matters in connection with the securities offered hereby will be passed upon for
the Company by Donald M. Lowry, Senior Vice President, Secretary and General
Counsel of the Company and by Mayer, Brown & Platt, Chicago, Illinois.
EXPERTS
The consolidated financial statements and the related consolidated
financial statement schedules incorporated by reference in this Prospectus from
the Company's Annual Report on Form 10-K have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports which have been
incorporated herein by reference and have been so incorporated in reliance upon
the reports of such firm given on their authority as experts in accounting and
auditing.
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<PAGE> 44
================================================================================
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell or to buy only the Notes offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of its date.
----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Supplement
Forward Looking Statements.............. S-2
The Company............................. S-2
Use of Proceeds......................... S-3
Capitalization.......................... S-4
Selected Condensed Consolidated
Financial Information................. S-5
Risk Factors............................ S-7
Description of the Notes................ S-12
Underwriting............................ S-16
Legal Matters........................... S-17
Experts................................. S-17
Prospectus
Available Information................... 2
Incorporation of Certain Documents by
Reference............................. 2
The Company............................. 4
Use of Proceeds......................... 4
Description of Senior Debt Securities... 4
Description of Subordinated Debt
Securities............................ 13
Description of Preferred Stock.......... 22
Plan of Distribution.................... 25
Legal Matters........................... 26
Experts................................. 26
</TABLE>
================================================================================
================================================================================
$200,000,000
CNA FINANCIAL
CORPORATION
6.60% Notes
due December 15, 2008
----------------------
PROSPECTUS SUPPLEMENT
----------------------
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
================================================================================
