<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [ ]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
CNA FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
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(4) Date filed:
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<PAGE> 2
CNA FINANCIAL CORPORATION
---------------
Notice of Annual Meeting -- May 5, 1999
To the Stockholders of
CNA FINANCIAL CORPORATION:
You are hereby notified that pursuant to the By-Laws of CNA Financial
Corporation, a Delaware corporation, the annual meeting of Stockholders will be
held at CNA Plaza (333 South Wabash Avenue), Room 207N, Chicago, Illinois, on
Wednesday, May 5, 1999, at 10:00 a.m., Chicago time, for the following purposes:
(1) To elect twelve Directors;
(2) To authorize an amendment to the Company's Certificate of Incorporation
to increase the amount of authorized common shares as more fully
described herein;
(3) To approve the Officer Stock Ownership Plan;
(4) To ratify the appointment of Deloitte & Touche LLP as independent
auditors for the Company; and
(5) To transact such other business as may properly come before the
meeting.
Only Stockholders of record at the close of business on March 15, 1999 are
entitled to notice of, and to vote at, this meeting.
It is desired that as many Stockholders as practicable be represented at
the meeting. Consequently, whether or not you now expect to be present, you are
requested to sign and date the enclosed proxy and return it promptly to the
Company. You may revoke the proxy at any time before the authority granted
therein is exercised.
By order of the Board of Directors,
JONATHAN D. KANTOR
Senior Vice President,
General Counsel and Secretary
Chicago, Illinois
March 30, 1999
<PAGE> 3
CNA FINANCIAL CORPORATION
CNA PLAZA, CHICAGO, ILLINOIS 60685
---------------
PROXY STATEMENT
ANNUAL MEETING -- MAY 5, 1999
The Board of Directors of CNA Financial Corporation ("CNA" or the
"Company") submits this statement in connection with the solicitation of proxies
from the Stockholders in the form enclosed.
The persons named in this statement as nominees for election as Directors
have been designated by the Board of Directors.
Any Stockholder giving a proxy has the power to revoke it at any time
before it is exercised. A subsequently dated proxy, duly received, will revoke
an earlier dated proxy. A Stockholder may also revoke his proxy and vote in
person at the Annual Meeting. Proxies will be voted in accordance with the
Stockholder's specifications and, if no specification is made, proxies will be
voted in accordance with the Board of Directors' recommendations. The
approximate date of mailing of this Proxy Statement is March 30, 1999.
On March 15, 1999, the Company had outstanding 183,889,569 shares of common
stock ("Common Stock"). The holders of Common Stock have one vote for each share
of stock held. Stockholders of record at the close of business on March 15, 1999
will be entitled to notice of, and to vote at, this meeting. The holders of a
majority of shares of Common Stock issued and outstanding and entitled to vote
when present in person or represented by proxy constitute a quorum at all
meetings of Stockholders.
In accordance with the Company's by-laws and applicable law, the election
of Directors will be determined by a plurality of the votes cast by the holders
of shares present in person or by proxy and entitled to vote. Consequently, the
twelve nominees who receive the greatest number of votes cast for election as
Directors will be elected as Directors of the Company. Shares present which are
properly withheld as to voting with respect to any one or more nominees, and
shares present with respect to which a broker indicates that it does not have
authority to vote ("broker non-votes"), will not be counted. The affirmative
vote of shares outstanding is required to approve the amendment to the Company's
Certificate of Incorporation. The affirmative vote of shares representing a
majority of the votes cast by the holders of shares present and entitled to vote
is required to approve the other matters to be voted on at the Annual Meeting.
Shares which are voted to abstain will be considered present at the meeting, but
since they are not affirmative votes for the matter they will have the same
effect as votes against the matter. Broker non-votes are not counted as present.
PRINCIPAL SHAREHOLDERS
The following table contains certain information as to all entities which,
to the knowledge of the Company, were the beneficial owners of 5% or more of the
outstanding shares of Common Stock as of
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<PAGE> 4
February 28, 1999 (unless otherwise noted). Except as noted below, each such
entity has sole voting and investment power with respect to the shares set
forth:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT BENEFICIALLY OWNED PERCENT OF CLASS
- ------------------------------------ ------------------------- ----------------
<S> <C> <C>
Loews Corporation ("Loews")........................... 156,456,480 85.1%
667 Madison Avenue
New York, New York 10021
The Equitable Companies Incorporated
("Equitable")(1).................................... 11,326,240 6.2%
787 Seventh Avenue
New York, New York 10019
</TABLE>
- ---------------
(1) This information is as of December 31, 1998 and is based on a report filed
with the Securities and Exchange Commission. According to the report the
shares were acquired for investment purposes and may be deemed to be
beneficially owned by certain subsidiaries of Equitable. Equitable states in
such report that it may be deemed to have sole voting power with respect to
4,904,096 shares and sole dispositive power with respect to 11,326,240
shares. The report states that it has been filed jointly on behalf of AXA,
and five French mutual insurance companies, as a group, as parent holding
companies.
Since Loews holds more than a majority of the outstanding Common Stock of
CNA, Loews has the power to approve matters submitted for consideration at the
Annual Meeting without regard to the votes of the other Stockholders. Loews
intends to vote FOR the election of management's nominees for the Board of
Directors, FOR the Amendment of the Certificate of Incorporation increasing the
number of authorized common shares, FOR the Officer Stock Ownership Plan and FOR
ratification of the appointment of Deloitte & Touche LLP as the Company's
independent auditors. There are no agreements between CNA and Loews with respect
to the election of CNA Directors or Officers or with respect to the other
matters to come before the meeting.
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<PAGE> 5
DIRECTOR AND OFFICER HOLDINGS
The following table sets forth certain information as to the shares of
Common Stock beneficially owned by each Director and nominee, and each Executive
Officer named in the Summary Compensation Table below, and by all Executive
Officers and Directors of the Company as a group as of March 10, 1999, based on
data furnished by them:
<TABLE>
<CAPTION>
SHARES OF THE SHARES OF SHARES OF CNA
COMPANY'S LOEWS CORPORATION SURETY CORPORATION
COMMON STOCK COMMON STOCK COMMON STOCK
NAME BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED
---- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Antoinette Cook Bush....................... 600 0 0
Dennis H. Chookaszian...................... 404,031 4,000 20,000
Philip L. Engel............................ 121,509 0 0
Robert P. Gwinn............................ 921 0 0
Bernard L. Hengesbaugh..................... 437,192 0 2,500
W. James MacGinnitie (1)................... 6,400 0 1,000
Walter F. Mondale.......................... 900 0 0
Edward J. Noha............................. 1,350 1,500 0
Joseph Rosenberg........................... 10,000 0 0
James S. Tisch............................. 0 80,000 0
Laurence A. Tisch.......................... 0 17,308,998(2) 0
Preston R. Tisch........................... 0 17,308,998(2) 0
Marvin Zonis............................... 150 0 0
All Officers and Directors as a group (13
persons including those listed above).... 983,053 34,703,496 23,500
</TABLE>
- ---------------
(1) Mr. MacGinnitie's wife holds 900 shares of CNA Common Stock and 1,000
shares of CNA Surety Common Stock in a revocable trust.
(2) Shares of Common Stock beneficially owned include 3,000,000 shares held by
each of the wives of Messrs. L.A. Tisch and P. R. Tisch.
Each holding represents less than 1% of the outstanding shares of Common
Stock. For information with respect to the stock holdings of Loews, see
"Principal Shareholders" above.
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<PAGE> 6
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
The By-Laws provide that the number of Directors that shall constitute the
whole Board shall be not greater than thirteen nor less than eleven. The
Directors shall be elected at the Annual Meeting of Stockholders and each
Director elected shall hold office until the next annual meeting of Stockholders
and until his successor is elected and qualified. Directors need not be
Stockholders. Unless authority to do so is withheld, the persons named in the
enclosed proxy intend to vote the shares represented by the proxies given to
them for the twelve nominees hereinafter named. All Directors except Mr.
Hengesbaugh were elected at the last Annual Meeting of Stockholders.
Should any nominee or nominees become unavailable, the proxy holders will
vote for the nominee or nominees designated by the Board of Directors. The Board
of Directors has no reason to believe that any of the nominees will become
unavailable.
On March 25, 1999, Mr. Engel announced his intention to retire as President
of the CNA Insurance Companies and as a Director of CNA. His retirement will
become effective on or about September 30, 1999.
Set forth below is the name, principal occupation and business experience
during the past five years and certain other information for each nominee:
ANTOINETTE COOK BUSH, Partner, Skadden, Arps, Slate, Meagher & Flom,
Washington, D. C. since 1993. Ms. Bush was Senior Counsel of the United States
Senate Committee on Commerce, Science and Transportation-Majority Staff from
January 1991 to October 1993. She has been a Director since 1993. She is a
member of the Executive, Finance and Audit Committees. Age 42.
DENNIS H. CHOOKASZIAN, Chairman of the Board and Chief Executive Officer of
the CNA Insurance Companies from September 1992 until February 9, 1999. He
serves on the boards of Loews and Mercury Finance Company. He serves on the
Finance Committee and is Chairman of the Executive Committee. Mr. Chookaszian
has served as a Director since 1990. Age 55.
PHILIP L. ENGEL, President of the CNA Insurance Companies since September
1992. He serves on the Executive and Finance Committees. Mr. Engel has served as
a Director since 1992. Age 58.
ROBERT P. GWINN, Retired Chairman of the Board and Chief Executive Officer
of Encyclopaedia Britannica. He is a director of Alberto Culver Company. He is a
member of the Incentive Compensation, Executive, Finance and Audit Committees.
Mr. Gwinn has served as a Director since 1967. Age 91.
BERNARD L. HENGESBAUGH, Chairman of the Board and Chief Executive Officer
of the CNA Insurance Companies since February 1999. Mr. Hengesbaugh was elected
Executive Vice President and Chief Operating Officer in February 1998. From 1990
until 1998, he was Senior Vice President of the CNA Insurance Companies. Prior
thereto, Mr. Hengesbaugh had been a Vice President of the CNA Insurance
Companies since 1980. He is a member of the Executive and Finance Committees.
Mr. Hengesbaugh was elected as a Director in February of 1999. Age 52.
WALTER F. MONDALE, Partner in the Minneapolis, Minnesota law firm of Dorsey
& Whitney since December 1996. Mr. Mondale was United States Ambassador to Japan
from September 1993 until December 1996. From September 1987 until his
appointment as Ambassador, Mr. Mondale was a partner at Dorsey & Whitney. Mr.
Mondale was Vice President of the United States from 1977 until 1981. He was the
Democratic nominee for President of the United States in 1984. He serves on the
boards of The BlackRock Income Trust Inc., The BlackRock Target Term Trust Inc.,
The BlackRock Advantage Term Trust Inc., The BlackRock Strategic Term Trust
Inc., The BlackRock 1998 Term Trust Inc., BBT Subsidiary Inc., The BlackRock
Municipal Target Term Trust Inc., The BlackRock North American Government Income
Trust Inc., The
4
<PAGE> 7
BlackRock Insured Municipal Term Trust Inc., The BlackRock Investment Quality
Term Trust Inc., The BlackRock 2001 Term Trust Inc., The BlackRock Insured
Municipal 2008 Term Trust Inc., The BlackRock California Insured Municipal 2008
Term Trust Inc., The BlackRock New York Insured Municipal 2008 Term Trust Inc.,
The BlackRock Florida Insured Municipal 2008 Term Trust, The BlackRock 1999 Term
Trust Inc., BNN Subsidiary Inc., BBT Subsidiary Fund, The BlackRock Investment
Quality Municipal Trust Inc., The BlackRock Florida Investment Quality Municipal
Trust, The BlackRock California Investment Quality Municipal Trust, Inc., The
BlackRock New York Investment Quality Municipal Trust Inc., The BlackRock New
Jersey Investment Quality Municipal Trust Inc., The BlackRock Broad Investment
Grade 2009 Term Trust Inc., Dain Rauscher Corporation, St. Jude Medical Inc.,
United Healthcare Corp., NWA Inc., and Northwest Airlines, Inc. He is a member
of the Executive, Finance and Audit Committees. He served as a Director from
1985 until 1993 and was reelected Director in February 1997. Age 71.
EDWARD J. NOHA, Chairman of the Board of CNA since September 1992. Prior to
that time and since February 1975, Mr. Noha was Chairman of the Board and Chief
Executive Officer of the CNA Insurance Companies. Mr. Noha serves on the board
of Loews. He is a member of the Executive and Finance Committees. Mr. Noha has
served as a Director since 1975. Age 71.
JOSEPH ROSENBERG, Chief Investment Strategist of Loews since 1995. Prior to
that, he was Chief Investment Officer of Loews since August 1973. He serves on
the Executive and Finance Committees. He has been a Director since August 1995.
Age 66.
JAMES S. TISCH, President and Chief Executive Officer of Loews since
January 1999. Prior to that, he was President and Chief Operating Officer of
Loews from October 18, 1994 to January 1999. He is a Director of Loews, Vail
Resorts, Inc. and Diamond Offshore Drilling, Inc. He is Chairman of the Finance
Committee and serves on the Executive Committee. Mr. Tisch has served as a
Director since 1985. Age 46.
LAURENCE A. TISCH, Co-Chairman of the Board of Loews since January 1999. He
is the Chief Executive Officer of CNA. He is a director of Automatic Data
Processing, Inc. and Bulova Corporation ("Bulova"). Prior to 1999, Mr. Tisch had
been Co-Chairman of the Board and Co-Chief Executive Officer of Loews since
1994. In addition, he served as Chairman of the Board, President and Chief
Executive Officer of CBS, Inc. from January 1987 until November 24, 1995. Mr.
Tisch has served as a Director since 1974 and is a member of the Executive and
Finance Committees. Age 76.
PRESTON R. TISCH, Co-Chairman of the Board of Loews since January 1999.
Prior to 1999, he was Co-Chairman of the Board and Co-Chief Executive Officer of
Loews since 1994. Mr. Tisch served as Postmaster General of the United States
from August 15, 1986 to February 26, 1988. Prior thereto he had served as
President and Chief Operating Officer of Loews. He is a director of Hasbro, Inc.
and Rite Aid Corporation. Mr. Tisch served as a Director of CNA from 1974 to
1986 and was reelected a Director in May of 1988. He serves on the Executive and
Finance Committees. Age 72.
MARVIN ZONIS, Professor of international political economy at the Graduate
School of Business of the University of Chicago since 1989. He has been a
Director since 1993. He is a member of the Incentive Compensation, Executive,
Finance and Audit Committees. Age 62.
COMMITTEES AND MEETINGS
The Company has an Audit, Incentive Compensation, Executive and Finance
Committee. The Company does not have a nominating committee.
The Audit Committee is a standing committee and is charged with the
responsibility of administering corporate policy in matters of accounting and
control. The Audit Committee functions as the liaison with the Company's
independent auditors.
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<PAGE> 8
The Incentive Compensation Committee administers the Incentive Compensation
Plan for Certain Executive Officers (as hereinafter described).
The Board of Directors, Audit and Finance Committees met four times in
1998. The Incentive Compensation Committee met once. All of the current
Directors except Walter Mondale attended at least 75% of each of the Board of
Directors meetings and the committees of the Board on which each such director
serves.
DIRECTOR COMPENSATION
CNA directors who are not employees of CNA or any of its subsidiaries
received an annual retainer in 1998 of $20,000. In addition, members of
committees received the following annual retainers: Finance $3,000; Executive
$3,000; Incentive Compensation $1,000; and Audit $1,500. Effective January 1,
1999, the annual retainer was increased to $25,000. Committee retainers were
increased to: Finance, $4,000, Executive, $4,000, Incentive Compensation, $3,000
(Chairperson receives $4,000) and Audit, $5,000 (Chairperson receives $7,500).
Messrs. Chookaszian, Engel and Hengesbaugh do not receive director retainer
fees. Directors are reimbursed for necessary and reasonable travel expenses
incurred in attending meetings.
Pursuant to a Continuing Service Agreement with CNA, expiring on September
20, 2002, Mr. Noha (or his estate in the event of his death) is paid a fee at
the rate of $1,570,000 per annum reduced by the retirement benefits payable to
Mr. Noha under his Employment Agreement and CNA's Retirement Plan and
Supplemental Retirement Plan. During the last fiscal year, services provided by
Mr. Noha under this Agreement consisted of providing the assistance and advice
as delineated in the Agreement and promoting and assisting the Company with
respect to its position in the Chicago business community. In this regard, Mr.
Noha served as a member of numerous organizations including Chairman of the
Chicago Manufacturing Center, Chairman of the Economic Development Commission of
the City of Chicago, Chairman of the NIST Manufacturing Extension Partnership
National Advisory Board and member of the Illinois Business Roundtable.
On February 9, 1999 Mr. Chookaszian retired from the position of Chairman
and Chief Executive Officer of CNA Insurance Companies and subsequently was
elected Chairman of the Executive Committee of the Company. The Company entered
into a Continuing Service Agreement (the "Agreement") with Mr. Chookaszian, for
an initial term beginning April 1, 1999 and ending September 19, 2008. During
the service period Mr. Chookaszian shall provide such services to the Company as
the Chief Executive Officer of CNA Insurance Companies may reasonably request
including assistance with strategic initiatives and industry trade association
activities. The Agreement will provide Mr. Chookaszian with a Consulting Fee at
a rate of $2,722,708 per year reduced by the retirement benefits payable to Mr.
Chookaszian under CNA's Retirement Plan and Supplemental Retirement Plan.
Beginning September 19, 2008, Mr. Chookaszian shall receive a Retirement Plan
Benefit which will credit him with 32 years of service. In the event of death
prior to 2008, Mr. Chookaszian's estate shall be entitled to supplemental
survivor benefit payments at the rate equal to $1,300,000 per year reduced by
the Supplemental Retirement Plan Benefit and the Retirement Plan Benefit. The
Agreement requires Mr. Chookaszian to maintain the confidentiality of
information concerning the Company's business during the term of the Agreement
with the Company and at all times thereafter and furthermore contains covenants
whereunder Mr. Chookaszian shall not compete with any of the Company's
businesses for specified periods of time.
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<PAGE> 9
COMPENSATION OF EXECUTIVE OFFICERS
The following table includes compensation paid by the Company and its
subsidiaries for services rendered in all capacities for the years indicated for
the Chief Executive Officer and the four most highly compensated Executive
Officers of the Company as of December 31, 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
-------------------- ALL OTHER LONG-TERM
BONUS ANNUAL COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(B) (C) COMPENSATION PAYOUTS(D) COMPENSATION(E)
--------------------------- ---- --------- ----- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Laurence A. Tisch(a)......... 1998 -- -- -- -- $ 26,000(f)
Chief Executive Officer of 1997 -- -- -- -- 26,000(f)
CNA Financial Corporation 1996 -- -- -- -- 26,000(f)
Dennis H. Chookaszian(g)..... 1998 $950,000 -- 71,358(h) $ 900,000 140,423(i)
Chairman of the Board and 1997 950,000 -- -- 1,650,000 129,288(j)
Chief Executive Officer of 1996 950,000 -- -- 1,450,000 51,362(k)
CNA Insurance Companies
Philip L. Engel(l)........... 1998 800,000 -- 300,000 67,794(i)
President 1997 800,000 -- -- 500,000 62,226(j)
CNA Insurance Companies 1996 800,000 -- -- 400,000 40,131(k)
Bernard L. Hengesbaugh(m).... 1998 684,423 $750,000(n) -- 42,500 28,746
Executive Vice President & 1997 550,000 508,000 23,100
Chief Operating Officer 1996 550,000 250,000 -- -- 23,100
CNA Insurance Companies
W. James MacGinnitie(o)...... 1998 500,000 220,000 -- -- 21,000
Senior Vice President & 1997 123,077 317,000(p) -- -- 1,131
Chief Financial Officer
CNA Insurance Companies
</TABLE>
- ---------------
(a) Mr. Tisch does not receive a salary from the Company. CNA reimburses Loews
for Mr. Tisch's services, as well as other Loews officers and executives,
pursuant to the Services Agreement described below under "Certain
Transactions." The Loews reimbursement for Mr. Tisch's services to CNA in
1998, 1997 and 1996 was $96,427, $96,427, $128,365, respectively.
(b) Base salary includes compensation deferred under the CNA Savings Plan and
CNA Supplemental Savings Plan.
(c) Amounts disclosed are for bonus awards earned and accrued in the year
indicated under the Company's annual incentive Plans and the supplemental
incentive bonus ("Supplemental Bonus") hereinafter described. Bonus awards
are typically paid in March of the following year unless deferred.
(d) Represents payout under the Incentive Compensation Plan for Certain
Executive Officers.
(e) Represents amounts contributed or accrued to the named officers for the CNA
Savings Plan and CNA Supplemental Savings Plan.
(f) Represents director fees paid to Mr. Tisch. He is not a participant in the
Company's savings plans.
(g) On February 9, 1999, Mr. Chookaszian retired as Chairman and Chief Executive
Officer of CNA Insurance Companies and was succeeded by Mr. Hengesbaugh. See
"Director Compensation" above.
(h) Includes compensation for personal use of corporate transportation.
(i) Includes $30,004 and $12,584 of insurance premiums paid by the Company on
behalf of Messrs. Chookaszian and Engel, respectively.
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<PAGE> 10
(j) Includes $27,356 and $11,260 of insurance premiums paid by the Company on
behalf of Messrs. Chookaszian and Engel, respectively.
(k) Includes $10,422 and $6,009 of insurance premiums paid by the Company on
behalf of Messrs. Chookaszian and Engel, respectively.
(l) Mr. Engel has announced his intention to retire as President. See "Election
of Directors" above.
(m) Mr. Hengesbaugh's compensation for 1996, 1997 and through February 4, 1998
was paid to him as Senior Vice President of CNA Insurance Companies.
(n) Mr. Hengesbaugh was awarded a $750,000 retention and recognition award, of
which $460,000 will be deferred, pursuant to his promotion.
(o) Mr. MacGinnitie was employed by the Company effective October 1, 1997.
Consequently, he received no compensation from the Company during a portion
of 1997 and all of 1996.
(p) Includes $150,000 hiring bonus paid.
EMPLOYMENT CONTRACTS
The Company is party to employment agreements with each of Bernard L.
Hengesbaugh and Philip L. Engel.
The term of Mr. Hengesbaugh's agreement with the Company (the "Agreement")
expires on December 31, 2000. The Agreement provides that he will be paid an
annual Base Salary of $950,000. In addition, Mr. Hengesbaugh will participate in
an Incentive Compensation Plan that will provide him with an opportunity to earn
a bonus based on performance and the attainment of specified corporate goals as
approved by the Incentive Compensation Committee. The amount of the Incentive
Compensation Award for the calendar year 1999 shall be determined as follows:
(i) dividing the lesser of (a) the Net Operating Income for the 1999 calendar
year or (b) $100 million by (c) $100 million, and multiplying the resulting
percentage by $950,000; and (ii) dividing the lesser of (a) the Net Operating
Income for the calendar year in excess of $200 million for the calendar year or
(b) $300 million by (c) $300 million and multiplying the resulting percentage by
200% of $950,000 and adding the products of (i) and (ii) subject to a cap of
$2,850,000. For 2000, the award shall be determined as follows: (i) dividing the
lesser of (a) the Net Operating Income for the 2000 calendar year or (b) $200
million by (c) $200 million, and multiplying the resulting percentage by
$950,000, and (ii) dividing the lesser of (a) the Net Operating Income for the
calendar year in excess of $200 million for the calendar year or (b) $300
million by (c) $300 million and multiplying the resulting percentage by 200% of
$950,000 and adding the products of (i) and (ii) subject to a cap of $2,850,000.
Any incentive compensation paid is included in the computation of pensionable
earnings under the Company's retirement plans. Mr. Hengesbaugh may participate
in the Qualified and Supplemental Savings Plan established by the Company
wherein the Company pays a matching percentage of 70% of the first 6% of the
employee's contributions. The Agreement permits Mr. Hengesbaugh to participate
in other benefit programs offered by the Company to its employees. The Agreement
requires the Company to pay Mr. Hengesbaugh a one-time award of $750,000 for
assuming the position of Chairman and Chief Executive Officer. A portion of the
one-time award has been deferred.
The Company may terminate the Agreement without cause at any time, in which
event the Company is required to continue to make payments to Mr. Hengesbaugh
for a period of three years from the date of termination of three times his
annual rate of base salary. The Agreement contemplates negotiation of a renewal
and provides that if the parties have not reached an agreement before March 31,
2001 then the employment shall be considered terminated by the Company and Mr.
Hengesbaugh shall be entitled to termination pay of three times his annual rate
of base salary as of December 31, 2000 for a period of three years. The
Agreement requires Mr. Hengesbaugh to maintain the confidentiality of
information concerning the Company's business while he is employed by the
Company and at all times thereafter and contains
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<PAGE> 11
covenants whereunder Mr. Hengesbaugh shall not compete or interfere with any of
the Company's businesses for a specified period of time.
Mr. Engel's employment agreement with the Company (the "Agreement") expired
on December 31, 1998 and has been extended until September 30, 1999. Mr. Engel
will retire from his position with the Company on or about September 30, 1999.
See "Election of Directors" above. The Agreement provides that he will be paid
an annual Base Salary of $800,000. In addition, Mr. Engel will participate in an
Incentive Compensation Plan that will provide him with an opportunity to earn a
bonus based on performance and the attainment of specified corporate goals. The
amount of the award for 1999 shall consist of 0.3% of Net Operating Income
capped at $900,000. Any incentive compensation paid is included in the
computation of pensionable earnings under the Company's retirement plans. Mr.
Engel may participate in the Qualified and Supplemental Savings Plan established
by the Company wherein the Company pays a matching percentage of 70% of the
first 6% of the employee's contributions. This matching amount is also included
in the computation of pensionable earnings. The Company may terminate the
Agreement without cause at any time, in which event the Company is required to
continue to make payments to Mr. Engel for a period of three years from the date
of termination at a fixed rate based on base salary and the incentive
compensation in effect at the time of such termination.
The Company was party to an employment agreement with Mr. Chookaszian which
expired on December 31, 1998 at which time all compensation obligations of the
Company thereunder ceased. On February 9, 1999, the Company and Mr. Chookaszian
entered into a Continuing Service Agreement. See "Director Compensation" above
for a description of Mr. Chookaszian's Continuing Service Agreement with the
Company.
RETIREMENT PLANS
CNA provides funded, tax qualified, non-contributory retirement plans for
all salaried employees, including executive officers (the "Retirement Plans")
and an unfunded, non-qualified, non-contributory benefits equalization plan (the
"Supplemental Retirement Plan") that provides for the accrual and payment of
benefits that are not available under tax qualified plans such as the Retirement
Plans. The following description of the Retirement Plans also gives effect to
benefits provided under the Supplemental Retirement Plan.
The Retirement Plans provide for retirement benefits based upon average
final compensation (i.e., based upon the highest average sixty consecutive
months compensation and years of credited service with CNA). Compensation under
the Retirement Plans consists of salary paid by the Company and its subsidiaries
included under "Salary," "Bonus" and "Long-Term Compensation Payouts" in the
Summary Compensation Table above. The following table shows estimated annual
benefits payable upon retirement under the Retirement Plans for various
compensation levels and years of credited service, based upon normal retirement
in 1999 and a straight life annuity form of benefit. In addition to a straight
life annuity, the Plans also allow the participant to elect payment to be made
in a Joint and Contingent (or Survivor) Annuitant form where the Contingent (or
Survivor) Annuitant would receive payment at 50%, 66 2/3% or 100% of the
participant's benefit amount.
9
<PAGE> 12
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ESTIMATED ANNUAL PENSION FOR
AVERAGE REPRESENTATIVE YEARS OF CREDITED SERVICE
ANNUAL ------------------------------------------------------------------------------------
COMPENSATION 15 20 25 30 35
- ------------ -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$ 400,000.............. $116,343 $ 155,125 $ 193,906 $ 206,021 $ 218,136
500,000............. 146,343 195,125 243,906 259,354 274,803
600,000............. 176,343 235,125 293,906 312,688 331,470
700,000............. 206,343 275,125 343,906 366,021 388,137
800,000............. 236,343 315,125 393,906 419,355 444,804
900,000............. 266,343 355,125 443,906 472,688 501,471
1,000,000............. 296,343 395,125 493,906 526,022 558,138
1,100,000............. 326,343 435,125 543,906 579,355 614,805
1,200,000............. 356,343 475,125 593,906 632,689 671,472
1,300,000............. 386,343 515,125 643,906 686,022 728,139
1,400,000............. 416,343 555,125 693,906 739,356 784,806
1,500,000............. 446,343 595,125 743,906 792,689 841,473
1,600,000............. 476,343 635,125 793,906 846,023 898,140
1,700,000............. 506,343 675,125 843,906 899,356 954,807
1,800,000............. 536,343 715,125 893,906 952,690 1,011,474
1,900,000............. 566,343 755,125 943,906 1,006,023 1,068,141
2,000,000............. 596,343 795,125 993,906 1,059,357 1,124,808
2,100,000............. 626,343 835,125 1,043,906 1,112,690 1,181,475
2,200,000............. 656,343 875,125 1,093,906 1,166,024 1,238,142
2,300,000............. 686,343 915,125 1,143,906 1,219,357 1,294,809
2,400,000............. 716,343 955,125 1,193,906 1,272,691 1,351,476
2,500,000............. 746,343 995,125 1,243,906 1,326,024 1,408,143
2,600,000............. 776,343 1,035,125 1,293,906 1,379,358 1,464,810
2,700,000............. 806,343 1,075,125 1,343,906 1,432,691 1,521,477
2,800,000............. 836,343 1,115,125 1,393,906 1,486,025 1,578,144
2,900,000............. 866,343 1,155,125 1,443,906 1,539,358 1,634,811
</TABLE>
The amounts in the table reflect deductions for estimated Social Security
payments.
Mr. Chookaszian, Mr. Engel, Mr. Hengesbaugh and Mr. MacGinnitie have 23,
33, 18 and 5 years of credited service, respectively.
10
<PAGE> 13
LONG-TERM INCENTIVE PLAN -- AWARDS IN 1998
The following table contains information with respect to awards made in
1998 under the Company's Incentive Compensation Plan and under the Company's
long-term award plan to the Company's most highly compensated executive
officers:
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
NAME PERFORMANCE PERIOD(1) MAXIMUM(2)
---- --------------------- ------------------------
<S> <C> <C>
Dennis H. Chookaszian.............................. 1 year - 1998 $900,000
Philip L. Engel.................................... 1 year - 1998 $300,000
Bernard L. Hengesbaugh............................. 1 year - 1998 $ 42,500
</TABLE>
- ---------------
(1) Pursuant to the Incentive Compensation Plan, in 1996 the Incentive
Compensation Committee granted three single year awards (each, an "Award")
to Dennis Chookaszian and Philip Engel for each of the years 1996, 1997 and
1998 (each year being a "Performance Period"). On February 4, 1998, Mr.
Hengesbaugh was approved as a participant in the Plan. Each Award represents
a designated percentage of the Company's consolidated after-tax net income,
exclusive of realized investment gains and losses ("Net Operating Income")
for one or more Performance Periods reduced by factors which in the judgment
of the Incentive Compensation Committee merited consideration. There is no
award of units or securities under the Incentive Compensation Plan. As
previously stated, Mr. Chookaszian's employment agreement expired on
December 31, 1998.
(2) The figures given for Messrs. Chookaszian, Engel and Hengesbaugh represent
actual payouts to those executives pursuant to the Incentive Compensation
Plan. The Estimated Future Payouts Maximum for Messrs. Chookaszian, Engel
and Hengesbaugh had been $1,850,000, $600,000 and $600,000 respectively. The
Performance Goal set for Dennis Chookaszian for the 1998 Performance Period
was 1/3% of 1996 Net Operating Income plus 1/3% of 1997 Net Operating Income
plus 1/3% of 1998 Net Operating Income. The Performance Goal set for Philip
Engel for the 1998 Performance Period was 1/12% of 1996 Net Operating Income
plus 1/12% of 1997 Net Operating Income plus 1/12% of 1998 Net Operating
Income. The Performance Goal set for Bernard Hengesbaugh for the 1998
Performance Period was 1/4% of 1998 Net Operating Income.
11
<PAGE> 14
BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION
CERTAIN EXECUTIVE OFFICERS
The Board of Directors believes that the future success of the Company and
its subsidiaries is dependent upon the quality of management, and that
compensation programs are important in attracting and retaining individuals of
superior ability and motivating their efforts on behalf of the Company and its
business interests.
Under Section 162(m) of the Internal Revenue Code and certain regulations
thereunder (together "the Code") the amount of compensation paid by a
publicly-held corporation to the five of its most highly compensated executive
officers during any year that may be deductible for federal income tax purposes
is limited to $1,000,000 per person per year except that compensation that is
"qualified performance-based compensation" will be deductible.
To the extent the Company's compensation policy can be implemented in a
manner that maximizes the deductibility of compensation paid by the Company, the
Board of Directors will seek to do so. Accordingly, in 1996, the Company adopted
the Incentive Compensation Plan for Certain Executive Officers (the "Plan"),
which is designed to qualify the amounts paid from time to time thereunder to
certain of the Corporation's Executive Officers as "qualified performance-based
compensation" under Section 162(m) of the Code (see "Long-Term Incentive
Plan -- Awards in 1998," above).
GENERAL
The Company's compensation program is designed to recognize individual
performance and contribution to CNA. This pay-for-performance philosophy is used
to reward employees whose work meets or exceeds CNA's standards of quality and
value-added customer service. It is CNA's objective to have a compensation
policy that is internally equitable and externally competitive, rewards
executives for long term strategic management, supports a performance-oriented
environment that stresses attainment of corporate goals and individual
expectations, and attracts and retains key executives critical to the Company's
long term success.
The Chairman and Chief Executive Officer of the CNA Insurance Companies
establishes the compensation for the other senior executives ("Senior
Executives"). (As used herein, "Senior Executives" does not include the Chairman
and Chief Executive Officer or the President of the CNA Insurance Companies.) He
is assisted in developing the plan by the Company's Human Resources staff. The
Human Resources staff is aided by an independent nationally recognized
compensation consulting organization. Information is obtained regarding the
Company's competitor group of companies. The competitor group of companies are
within the insurance industry and include three of the four companies in the
Standard & Poor's Multi-Line Insurance Index (see "Stock Price Performance
Graph" below.) These companies represent the organizations with which CNA
competes for key executives. This information, in conjunction with performance
judgments as to past and expected future contributions of the individual, is
used to develop an annual compensation plan. The Human Resources staff
periodically reviews the overall competitiveness of the salary plan with
independent compensation consultants. Because CNA uses this market pricing
approach to determine appropriate pay levels, CNA does not use formal salary
ranges, with attendant minimums, midpoints and maximums to determine pay levels
or annual increase amounts. In 1998, the Senior Executives were provided total
compensation opportunities that approximated the 75th percentile of total
compensation opportunities for comparable individuals at the Company's peer
group of competitors.
The Company has adopted an Annual Incentive Bonus Plan for its Senior
Executives, the awards for which are determined by performance compared to
preset goals in three categories: Corporate Goals; Shared Goals; and Individual
Goals. Participants have a percentage established annually of their incentive
compensation based on the Corporate Goal and the remainder based on the other
two goals. Generally, the
12
<PAGE> 15
pre-set goals have been developed to be quantifiable or definable to the extent
possible. The percentage was based, among other factors, on comparative salary
data as described above. Final approval of bonus payments are made by the
Chairman and Chief Executive Officer of the CNA Insurance Companies. The Company
reserves the right to make discretionary changes to the award amounts and
reserves the right to eliminate these bonuses, uniformly, due to adverse
financial conditions. In determining the annual incentive awards for 1998, the
Chairman and Chief Executive Officer of the CNA Insurance Companies evaluated
Company and business unit performance and individual performance against the
pre-set goal categories. Based upon his evaluation, the 1998 incentive bonuses
ranged from 60% to 183% of the incentive target for the Senior Executives.
In February 1998 the Chairman and Chief Executive Officer and the President
of the CNA Insurance Companies, advised by the Human Resources staff, awarded
Supplemental Bonuses of $100,000 payable in March 2000 to each of the Senior
Executives, except that the Chief Operating Officer was awarded $150,000. In
February 1999, the Chairman and Chief Executive Officer and the President
awarded Supplemental Bonuses payable in March 2001 to the Senior Executives
ranging in amounts from $50,000 to $648,000. Messrs. Chookaszian and Engel were
not awarded Supplemental Bonuses in 1998 or 1999 and Mr. Hengesbaugh was not
awarded any Supplemental Bonus in 1999. See "Employment Contracts" above for a
description of the Incentive Compensation Awards for Messrs. Engel and
Hengesbaugh.
As noted in the Summary Compensation Table, Laurence A. Tisch, the
Company's Chief Executive Officer, does not receive compensation from the
Company. Mr. Tisch is compensated by Loews, of which he is Co-Chairman of the
Board. CNA reimburses Loews for services of Mr. Tisch and other officers and
executives of Loews pursuant to the Services Agreement described under "Certain
Transactions," below.
<TABLE>
<S> <C> <C>
By the Board of Directors: Antoinette Cook Bush Edward J. Noha
Dennis H. Chookaszian Joseph Rosenberg
Philip L. Engel James S. Tisch
Bernard L. Hengesbaugh Laurence A. Tisch
Robert P. Gwinn Preston R. Tisch
Walter F. Mondale Marvin Zonis
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. L. A. Tisch, P. L. Engel and B. L. Hengesbaugh, each of whom are
Directors of the Company, also serve as officers of the Company or its
subsidiaries. In addition, Messrs. Noha and Chookaszian, Directors of the
Company, formerly served as officers of the Company or its subsidiaries. Mr. L.
A. Tisch, Director and Chief Executive Officer of the Company, also serves as a
Director and Co-Chairman of the Board of Loews. See "Certain Transactions,"
below, for information with respect to transactions between the Company and its
subsidiaries, and certain individuals and entities with which they are
affiliated.
CERTAIN TRANSACTIONS
Loews makes available to CNA the services of certain officers and
executives of Loews. In February 1975 CNA entered into a management services
agreement (the "Services Agreement") with Loews which provides that Loews will
make available to CNA these services, together with general corporate services,
including financial, administrative and management consulting services. Loews is
reimbursed on the basis of an allocation of a portion of the salaries and
related payroll taxes and benefits of the officers and executives performing the
services, in addition to travel and similar expenses incurred. The allocation
may be adjusted in the event of any substantial change in the services performed
and the Services Agreement may be terminated
13
<PAGE> 16
by CNA or Loews on the last day of any month. The Services Agreement has been
reviewed each year since 1975 by CNA's Audit Committee. The last such review
took place in February 1999 and the Audit Committee recommended renewal of the
Services Agreement for the ensuing fiscal year, calling for a reimbursement
allocation of approximately $210,000 per month, which recommendation was
accepted by the Board of Directors. Under the Services Agreement CNA reimbursed
Loews $2,520,000 for services performed during 1998, and $19,600 for travel and
similar expenses incurred during that period. During 1998 Loews paid premiums on
insurance and administrative services to the CNA Insurance Companies at standard
rates aggregating approximately $5,758,494.
The Loews ownership of the voting securities of CNA has exceeded 80% since
1980 requiring the inclusion of CNA and its eligible subsidiaries in the
consolidated federal income tax returns filed by Loews. Accordingly, following
approval by CNA's Audit Committee and Board of Directors, CNA and Loews entered
into a tax allocation agreement that provides that CNA will (i) be paid by Loews
the amount, if any, by which the Loews consolidated federal income tax liability
is reduced by virtue of the inclusion of CNA and its subsidiaries in the Loews
consolidated federal income tax return, or (ii) pay to Loews an amount, if any,
equal to the federal income tax that would have been payable by CNA, if CNA and
its subsidiaries had filed a separate consolidated return. In the event that
Loews should have a net operating loss in the future computed on the basis of
filing a separate consolidated tax return without CNA and its eligible
subsidiaries, CNA may be required to repay tax recoveries previously received
from Loews. This agreement may be cancelled by CNA or Loews upon thirty days'
prior written notice. In 1998, the inclusion of CNA and its eligible
subsidiaries in the consolidated federal tax return of Loews resulted in a
decreased federal income tax liability for Loews. Accordingly, Loews has paid or
will pay approximately $83,430,000 to CNA for 1998 under the tax allocation
agreement.
CNA has also reimbursed to Loews or paid directly approximately $11,085,731
for expenses (consisting primarily of salaries and benefits and other
out-of-pocket costs) incurred or owed by Loews during 1998 in maintaining
investment facilities and services for CNA.
Pursuant to the terms of the Stock Ownership Plan as hereinafter described,
in October of 1998, CNA provided loans to Messrs. Chookaszian, Engel and
Hengesbaugh to assist them with the purchase of common stock of the Company. In
March 1999 Mr. Hengesbaugh received another loan from CNA to purchase additional
shares from the Company. Interest on the loans extended in October 1998 is 5.39%
(5.23% with respect to the loan to Mr. Hengesbaugh in March 1999), compounded
semi-annually, and will be added to the principal balance until the loans are
settled. The term of each loan is 10 years. The loans are unconditional with
full recourse against the maker. As of March 31, 1999, the outstanding amount of
the loans were as follows: Mr. Chookaszian, $14,359,719; Mr. Engel, $4,307,905;
and Mr. Hengesbaugh $16,039,300.
The Company is party to an agreement with W. James MacGinnitie that
provides that in the event of involuntary termination, for other than material
acts of dishonesty or breach of agreements relating to his employment, the
Company will provide Mr. MacGinnitie with severance benefits equal to twelve
months of Base Salary at the time of termination.
14
<PAGE> 17
STOCK PRICE PERFORMANCE GRAPH
The following graph compares the total return of the Company's common
stock, the Standard & Poor's 500 Composite Stock Index ("S&P 500") and the
Standard & Poor's Multi-Line Insurance Index for the five years ended December
31, 1998. The graph assumes that the value of the investment in the Company's
Common Stock and for each Index was $100 on December 31, 1993 and that dividends
were reinvested.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
93 94 95 96 97 98
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CNA FINANCIAL CORP 100.00 83.71 146.45 138.07 164.84 155.81
- -----------------------------------------------------------------------------------------------------------
S&P 500 INDEX 100.00 101.32 139.40 171.40 228.59 293.91
- -----------------------------------------------------------------------------------------------------------
MULTI-LINE INSURANCE 100.00 105.19 154.62 196.06 299.05 329.45
- -----------------------------------------------------------------------------------------------------------
</TABLE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the Commission initial
reports of ownership and reports of changes in ownership of common stock of the
Company. Officers, directors and greater than ten percent shareholders are
required by regulation to furnish the Company with copies of all Section 16(a)
forms they file. Based upon review of the information provided to the Company,
the Company believes that during the 1998 fiscal year all Section 16(a) filing
requirements were complied with except for a late Form 4 filing with respect to
the sale of 150 shares of common stock sold March 23, 1998 by Mr. Marvin Zonis,
a Director of the Company.
PROPOSED AMENDMENT TO CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED SHARES OF COMMON STOCK
(PROPOSAL NO. 2)
The Board of Directors has unanimously approved, subject to approval by the
stockholders at the annual meeting, an amendment to Article FOURTH of the
Company's Certificate of Incorporation to increase the authorized Common Stock
from 200,000,000 to 500,000,000.
15
<PAGE> 18
Approximately 183,889,569 shares of Common Stock are outstanding and only
approximately 16,110,431 shares are available for future issuance. If the
amendment is adopted, approximately 316,110,431 would be available for future
issuance. The additional shares of Common Stock would have the same voting and
other rights as the presently authorized common Stock.
The Company has no present plans, commitments or understandings for the
issuance of any shares of the new Common Stock. However, the Board of Directors
believes that it is desirable that the additional shares of Common Stock be made
available for future issuance by the Board of Directors for general corporate
purposes, without further shareholder approval, except as may be required by
applicable law or regulation. The additional shares of Common Stock would be
available for issuance in connection with stock splits, stock dividends,
financings, acquisitions and other corporate purposes.
The holders of Common Stock have no preemptive rights to subscribe for any
additional stock of the Company that may be issued.
The affirmative vote of shares representing a majority of the outstanding
Common Stock entitled to vote is required for approval of this amendment. If
this amendment is approved, the first sentence of Article FOURTH of the
Company's Certificate of Incorporation will be as follows:
"FOURTH. The total number of shares of all classes of capital stock which
the Corporation shall have authority to issue is Five Hundred Twelve Million
Five Hundred Thousand (512,500,000) shares which shall be divided into two
classes as follows: Twelve Million Five Hundred Thousand (12,500,000) shares of
Preferred Stock without par value (Preferred Stock) and Five Hundred Million
(500,000,000) shares of Common Stock of the par value of $2.50 per share (Common
Stock)."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR ADOPTION OF THE FOREGOING PROPOSAL AMENDING THE CERTIFICATE OF INCORPORATION
TO INCREASE THE AUTHORIZED COMMON STOCK.
APPROVAL OF OFFICER STOCK OWNERSHIP PLAN
(PROPOSAL NO. 3)
The Company believes in providing opportunity for certain officers of the
Company and its subsidiaries to obtain a proprietary interest in the common
stock of the Company. The purpose of the Officer Stock Ownership Plan (the
"Plan") is twofold: 1) to promote the long-term growth and financial success of
the Company in the interests of the Company and its stockholders, and 2) to
strengthen the link between management and stockholders by providing officers of
the Company and its subsidiaries with an opportunity to increase their ownership
of the Company's common stock to a significant degree.
To that end, on October 6, 1998, the Board of Directors adopted the Plan,
in which officers of the Company and its subsidiaries (see "Eligibility" below)
are eligible to participate. Stockholder approval is required for two aspects of
the Plan to be effective: 1) to qualify the Plan as an eligible plan for the
purchase of margin stock of the Company under Section 221.4 of Regulation U of
the Board of Governors of the Federal Reserve ("Regulation U"), and 2) to comply
with the provisions of Section 162(m) of the Internal Revenue Code, as amended
(the "Code").
REGULATION U
Regulation U prohibits a non-bank lender from having a borrower pledge as
collateral for a loan more than fifty percent (50%) of certain stock, if the
purpose of the loan is to buy such stock. Regulation U provides an "eligible
plan" exception to this regulation if the lender is a company making loans to
employees pursuant
16
<PAGE> 19
to a company stock ownership plan. This exception permits a company to have
borrowers under the plan pledge more than fifty percent (50%) of the purchased
stock as collateral. To qualify for the exception, the Plan must be approved by
the Company's stockholders. If the Plan is not approved by the Company's
stockholders, any awards exercised under the plan which are financed by a loan
from the Company may be collateralized to a maximum of fifty percent (50%) of
the loan with the common stock financed by that loan.
SECTION 162(m)
Section 162(m) of the Code prevents a publicly-traded corporation from
taking a tax deduction for certain compensation in excess of $1 million per year
which it or its subsidiaries pays to specified executives. Those specified
executives are the chief executive officer and the four next most highly
compensated executive officers for whom proxy disclosure is required ("Covered
Employees"). Certain compensation, including compensation based on the
attainment of performance goals, is excluded from the deduction limit and
therefore deductible, even if it exceeds $1 million per year. To qualify for
this performance-based exemption, the material terms pursuant to which the
compensation is to be paid, including the performance goals and the maximum
amount payable to the Covered Employees, must be approved by the stockholders
before the payments are made. Currently, it is not possible to determine the
number of executive officer participants or participant awards under the Plan
for future years. If the Plan is not approved by the Company's stockholders, the
Plan will not qualify under the provisions of Section 162(m) of the Code and any
performance-based awards in excess of $1 million per year which are paid to the
executive officers of the Company will be ineligible as a tax deduction for the
Company.
PRIOR PURCHASE AWARDS
On October 9, 1998 under the Plan, awards of the Company's common stock
were purchased by sixteen officers of the Company's subsidiaries and financed by
loans from the Company. Because these awards do not qualify as compensation,
these awards are not contingent on stockholder approval of the Plan as specified
in Section 162(m) of the Code. However, until the stockholders of the Company
approve this Plan, the Company may collateralize the loans used to purchase this
stock with a maximum of fifty percent (50%) of the Company's common stock
financed by that loan. Currently, under applicable accounting rules, to the
extent that loans are outstanding to employees of the Company or its
subsidiaries to purchase the Company's common stock, the amount of those loans
are required to be subtracted from the Company's capitalization.
SUMMARY OF THE PLAN
The principal features of the Plan are described below. This summary does
not provide all of the details of the Plan. Please review the complete text of
the Plan which is included as Exhibit A to this proxy statement.
ADMINISTRATION
The Plan shall be administered by the Plan Administration Committee (the
"Committee") unless, and until, the Board of Directors appoints another
committee of the Board of Directors. Among other things, the Committee shall
have the authority, subject to the terms of the Plan, to determine (i) the
individuals to whom the purchase awards are granted, (ii) the time or times the
purchase awards are granted, (iii) the purchase dates for such purchase awards,
(iv) the availability of any direct or indirect financing by the Company or any
of its subsidiaries and (v) the forms, terms and provisions of the participation
agreement and any other documents under the Plan. The Committee also may
designate whether any purchase award being granted to any Plan participant is
intended to be "performance-based compensation" as that term is used in Section
162(m) of the Code. Any such purchase awards designated as intended to be
"performance-based compensation" shall be conditioned on the achievement of one
or more Performance Measures. The Perform-
17
<PAGE> 20
ance Measures that may be used by the Committee for such purchase awards may
include any one or more of the following, as selected by the Committee: cash
generation targets, net income or other profits, revenue and/or market share
targets, profitability targets as measured by return ratios and shareholder
returns, customer satisfaction, net margin as a percentage of revenue, and/or
debt to capitalization. The measurement may be based on absolute Company or
business unit performance and/or on performance as compared with that of other
publicly-traded companies.
ELIGIBILITY
All employees of the Company and its subsidiaries who are Grade 91 or above
and, in the opinion of the Committee, can materially influence the long-term
performance of the Company or its subsidiaries are eligible to receive a
purchase award as a participant under the Plan. The Committee shall have the
power and complete discretion to select those eligible employees who are to
receive purchase awards.
PARTICIPATION
Participation in the Plan is voluntary.
PURCHASE PRICE, SHARES PURCHASED
The aggregate number of shares of common stock that may be awarded and
exercised under the Plan at any time shall not exceed 9.9% of the outstanding
voting shares of the Company and no participant shall be awarded a single
purchase award with respect to more than 2.0% of the outstanding voting shares
of the Company during any one calendar year period.
The shares for the Plan may be authorized and unissued shares of common
stock, issued shares held as treasury shares or shares purchased for the
participants on the open market or in negotiated purchases. If the shares of
common stock are purchased for the participants on the open market or in
negotiated purchases, the Company shall negotiate the purchase of the shares on
behalf of the participants directly or through a designated broker. The shares
then will be purchased by the Participants on the settlement date at the
negotiated purchase price or the open market price in addition to any expenses
and commissions relating to such purchase, as the case may be.
If the purchased shares are treasury shares of the Company, the purchase
award shall be purchased at the average of the highest and lowest sales prices
of the common stock on the purchase date, as reported as the New York Stock
Exchange -- Composite Transactions for such day, or if the common stock was not
traded on the New York Stock Exchange on such day then on the next preceding day
on which the common stock was traded, all as reported by The Wall Street
Journal, mid-west edition under the heading New York Stock Exchange -- Composite
Transactions, or, if the common stock ceases to be listed on such exchange, as
reported on the principal national securities exchange or national automated
stock quotation system on which the common stock is traded or quoted, but in no
event shall the price be less than the par value of the common stock.
ADJUSTMENT UPON CHANGE IN CAPITALIZATION, DISSOLUTION, LIQUIDATION, MERGER OR
ASSET SALE
To the extent that any purchase awards which are not yet eligible to be
exercised are outstanding at a time when (a) the outstanding shares of common
stock, or any securities exchanged therefor or received in their place, are
exchanged for a different number or class of shares of stock or other securities
of the Company, or for shares of stock or other securities of any other
corporation; or (b) new, different or additional shares or other securities of
the Company or of any other corporation are received by the holders of
outstanding shares
18
<PAGE> 21
of common stock, then the total number of shares of common stock authorized
under this Plan, and the maximum number of shares with respect to which a
purchase award may be awarded to a participant, shall be appropriately adjusted
by the Committee in its discretion.
TERMINATION OF EMPLOYMENT
To be eligible to exercise a purchase award, a participant must be employed
by the Company or a subsidiary of the Company on the purchase date. However,
termination of employment with the Company or its subsidiaries shall not affect
the status of any outstanding loan from the Company or its subsidiaries to a
person who was a participant of the Plan at the time that the loan was made.
NON-TRANSFERABILITY OF PURCHASE AWARDS
Purchase awards which are not yet eligible for exercise are unassignable
and nontransferable in whole or in part.
AMENDMENT AND TERMINATION OF THE PLAN
The Board of Directors, upon the recommendation of the Committee, may
amend, suspend or terminate the Plan at any time. No amendment, suspension or
termination of the Plan may, without the consent of the Participant, adversely
affect such participant's rights under the Plan in any material respect. In
addition, no such amendment shall be made without the approval of the Company's
stockholders to the extent such approval is necessary under Regulation U or any
other law or agreement. The Plan shall terminate on December 31, 2020; provided,
that purchase loans outstanding as of such date shall not be affected or
impaired by the termination of the Plan.
VOTE REQUIRED
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING SHARES OF THE COMPANY
PRESENT AT THE ANNUAL MEETING IS REQUIRED TO APPROVE THE PLAN. THE BOARD OF
DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR PROPOSAL NO. 3 TO APPROVE
THE PLAN. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED FOR THAT
APPROVAL UNLESS A VOTE AGAINST APPROVAL OR AN ABSTENTION ON SUCH PROPOSAL IS
SPECIFICALLY INDICATED.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(PROPOSAL NO. 4)
The Board of Directors has appointed Deloitte & Touche LLP as auditors to
audit the consolidated financial statements of the Company and its consolidated
subsidiaries for the year 1999. Deloitte & Touche LLP are currently the auditors
of the consolidated financial statements of the Company and its consolidated
subsidiaries and are considered to be well qualified to perform this important
function. Representatives of Deloitte & Touche LLP are expected to be present at
the Annual Meeting with the opportunity to make a statement, if they desire to
do so, and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR PROPOSAL
NO. 4.
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OTHER MATTERS
The Company does not know of any other business to come before the meeting.
However, if any other matters come before the meeting, the persons named in the
proxies will act on behalf of the Stockholders they represent according to their
best judgment.
The cost of this solicitation of proxies will be borne by the Company.
Solicitation will be made primarily through use of the mails, but regular
employees of the Company may solicit proxies personally, by telephone or
telegram. Such employees will receive no special compensation for such
solicitation. Brokers and nominees will be requested to obtain voting
instructions of beneficial owners of stock registered in their names and will be
reimbursed for their out-of-pocket expenses and reasonable clerical expenses.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Stockholder proposals for inclusion in proxy materials for the 2000 Annual
Meeting should be addressed to the Company's Senior Vice President, General
Counsel and Secretary, CNA Plaza, 43S, Chicago, Illinois 60685, and must be
received by November 30, 1999. Proxies received in respect of Common Stock to be
voted at the 2000 Annual Meeting will be voted in accordance with the best
judgment of the persons appointed by such proxies with respect to any matters
properly before such meeting submitted by shareholders after February 15, 2000.
By order of the Board of Directors,
JONATHAN D. KANTOR
Senior Vice President, General Counsel
and Secretary
Chicago, Illinois
March 30, 1999
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EXHIBIT A
CNA FINANCIAL CORPORATION
OFFICER STOCK OWNERSHIP PLAN
1. PURPOSE
CNA Financial Officer Stock Ownership Plan (the "Plan") is intended to
promote the long-term growth and financial success of CNA Financial Corporation
(the "Company") in the interests of the Company and its stockholders and to
strengthen the link between management and stockholders by providing officers of
the Company and its Subsidiaries (as hereinafter defined) with an opportunity to
increase their ownership of Common Stock (as hereinafter defined) to a
significant degree.
2. DEFINITIONS
Except where the context otherwise indicates, the following definitions
apply:
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Plan Administration Committee of this Plan which
shall be appointed by the Chief Executive Officer of the insurance subsidiaries
of the Company unless, and until, the Board appoints another committee of the
Board.
"Common Stock" means the Common Stock, $2.50 par value per share, of the
Company.
"Effective Date" means October 1, 1998.
"Interest Rate" means the "applicable federal rate" in effect on the
Purchase Date with interest compounded semi-annually, as determined by Section
7872 of the Code or any successor provision to that section.
"Market Price" with respect to a given Security shall mean, for any given
date (or in the event such date is not a Trading Day with respect to such
Security, the last Trading Day prior to such date), the closing sale price of
such Security on such date, as reported as the New York Stock Exchange-Composite
Transactions for such day in The Wall Street Journal, mid-west edition, or, if
such Security ceases to be listed on such exchange, as reported on the principal
national securities exchange or national automated stock quotation system on
which such Security is traded or quoted.
"Participant" means each eligible employee of the Company or any of its
Subsidiaries who is designated by the Committee to receive a Purchase Award.
"Participation Agreement" means the written agreement entered into between
the Company and a Participant to carry out the Plan with respect to the
Participant concerning a particular Purchase Award in accordance with the Plan's
terms and conditions. The Agreements need not be identical and shall be in the
form approved by the Committee.
"Purchase Award" means an award to a Participant permitting such
Participant to purchase shares of Common Stock pursuant to Section 6 of this
Plan at the Purchase Price, together with any related Purchase Loan.
"Purchase Date" means the date a Participant purchases shares of Common
Stock pursuant to a Purchase Award.
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"Purchase Loan" means an extension of credit to the Participant by the
Company evidenced by the Purchase Note and secured by a pledge of the shares of
Common Stock purchased by the Participant and any proceeds from the sale of the
Common Stock.
"Purchase Note" means a full recourse promissory note including the terms
determined by the Committee.
"Purchase Price" of a share of the Common Stock means the average of the
highest and lowest sales prices of the Common Stock on the Purchase Date, as
reported as the New York Stock Exchange-Composite Transactions for such day, or
if the Common Stock was not traded on the New York Stock Exchange on such day
then on the next preceding day on which the Common Stock was traded, all as
reported by The Wall Street Journal, mid-west edition under the heading New York
Stock Exchange-Composite Transactions, or, if the Common Stock ceases to be
listed on such exchange, as reported on the principal national securities
exchange or national automated stock quotation system on which the Common Stock
is traded or quoted, but in no event shall the price be less than the par value
of the Common Stock.
"Regulation U" shall mean Regulation U issued by the Board of Governors of
the Federal Reserve System of the United States of America, or any successor to
Regulation U.
"Security" shall mean the Common Stock.
"Service" means employment with the Company or its Subsidiaries.
"Subsidiary" means a corporation (or partnership, joint venture, or other
enterprise) of which the Company owns or controls, directly or indirectly, 50%
or more of the outstanding shares of stock normally entitled to vote for the
election of directors (or comparable equity participation or voting power).
"Total Purchase Price" means, with respect to each Participant, the total
of i) the Purchase Price multiplied by that Participant's pro rata share of the
number of shares of Common Stock purchased from the Company's treasury stock
plus ii) the price per share negotiated by the Company in open market or direct
transactions multiplied by that Participant's pro rata share of the number of
shares of Common Stock negotiated in open market or direct transactions in
addition to any expenses and commissions relating to such purchase. The total
dollar amount of such purchases by each Participant shall be no greater than the
dollar amount exercised by the Participant pursuant to the Purchase Award.
"Trading Day" means, with respect to a Security, a day on which such
Security is publicly traded.
3. SHARES SUBJECT TO THE PLAN
The aggregate number of shares of Common Stock that may be awarded and
exercised under the Plan at any time shall not exceed 9.9% of the outstanding
voting shares of the Company and no Participant shall be awarded a single
Purchase Award with respect to more than 2.0% of the outstanding voting shares
of the Company during any one calendar year period; provided, however, that in
the event that at any time after the Effective Date a stock dividend, stock
split, recapitalization, merger, consolidation, or other change in
capitalization, or a sale by the Company of all or part of its assets, or any
separation from the Company, including any spin-off or other distribution to
stockholders other than an ordinary cash dividend, results in (a) the
outstanding shares of Common Stock, or any securities exchanged therefor or
received in their place, being exchanged for a different number or class of
shares of stock or other securities of the Company, or for shares of stock or
other securities of any other corporation; or (b) new, different or additional
shares or other securities of the Company or of any other corporation being
received by the holders of outstanding shares of Common Stock, then the total
number of shares of Common Stock authorized under this Plan, and the maximum
number of shares with respect to which a Purchase Award may be awarded to a
Participant, shall be
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appropriately adjusted by the Committee in its discretion. Shares of Common
Stock that have been included in a Purchase Award but not exercised by a
Participant on the Purchase Date may again be awarded under the Plan.
The shares for the Plan may be authorized and unissued shares of Common
Stock, issued shares held as treasury shares or shares purchased for the
Participants on the open market or in negotiated purchases. If the shares of
Common Stock are purchased for the Participants on the open market or in
negotiated purchases, the Company shall negotiate the purchase of the shares on
behalf of the Participants directly or through a designated broker. The shares
then will be purchased by the Participants on the settlement date at the
negotiated purchase price or the open market price in addition to any expenses
and commissions relating to such purchase, as the case may be.
4. TERM OF THE PLAN
The Plan shall become effective on October 1, 1998. The Plan shall be
terminated on December 31, 2020; provided, that Purchase Loans outstanding as of
such date shall not be affected or impaired by the termination of the Plan;
provided further that no Purchase Awards will be granted after December 31,
2019.
5. ELIGIBLE EMPLOYEES
All employees of the Company and its Subsidiaries who are Grade 91 or above
and, in the opinion of the Committee, can materially influence the long-term
performance of the Company or its Subsidiaries are eligible to receive a
Purchase Award. The Committee shall have the power and complete discretion to
select those eligible employees who are to receive Purchase Awards.
6. STOCK PURCHASE
(a) Grant of Purchase Award. The number of shares or maximum dollar
commitment of Common Stock purchasable under a Purchase Award for any
Participant and the Purchase Date shall be determined by the Committee. The
Committee shall, with respect to each Purchase Award, give written notice
to each Participant receiving such Purchase Award stating (i) the maximum
number of shares or maximum dollar commitment of Common Stock that may be
purchased under the Purchase Award, (ii) the Purchase Date, (iii) the
performance criteria, if any, relating to the Purchase Award and (iv) the
Interest Rate and other terms pertaining to the Purchase Loan.
(b) Exercise of Purchase Award. A Participant shall exercise a Purchase
Award by delivering to the Company on or prior to the Purchase Date (i) a
notice stating the number of shares (less than or equal to the maximum
number specified in the Purchase Award) such Participant elects to purchase
on the Purchase Date, and (ii) an executed Participation Agreement,
Purchase Note in the amount of the Total Purchase Price and any other
documents required relating to the Purchase Loan or pursuant to the Plan,
or in lieu of a Purchase Note, a Participant may deliver cash in the amount
of the Total Purchase Price for the shares of Common Stock purchased
pursuant to the Purchase Award. To be eligible to exercise a Purchase
Award, a Participant must be employed by the Company or a Subsidiary of the
Company on the Purchase Date.
(c) Closing Time. The exercise of the Purchase Award, the delivery of the
Purchase Note and the issuance by the Company of the Common Stock purchased
pursuant to the Purchase Award shall be effective at 8:15 a.m., Chicago
time, on the business day following the Purchase Date (the "Closing Time").
After the Closing Time, such Participant shall be deemed a stockholder of
the Company and shall be entitled to all the rights as a stockholder but
subject to the terms of the Plan, the Purchase Loan and related documents,
to transfer the Common Stock. Notwithstanding anything herein to the
contrary, the
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Committee shall have the absolute right, in its sole discretion, to revoke
any Purchase Award, including, without limitation, any right to receive a
Purchase Loan related to such Purchase Award, prior to the Closing Time,
provided, that the failure to make such Purchase Loan shall be deemed to
revoke the exercise of the related Purchase Award unless otherwise
specified by the Participant.
7. LOAN PROVISIONS
(a) General. The Company may extend a Purchase Loan to a Participant upon
exercise of a Purchase Award subject to the terms and conditions set forth
in this Section 7. The original principal amount of the Purchase Loan shall
be equal to the Total Purchase Price plus any costs or commissions related
to the purchase of the Common Stock. Such Purchase Loan shall be evidenced
by the Purchase Note with full recourse against the maker. The obligations
of each Participant under a Purchase Note shall be unconditional and
absolute and, without limiting the generality of the foregoing, shall not
be released, discharged or otherwise affected by any change in the
existence, structure or ownership of the Company, or any insolvency,
bankruptcy, reorganization or other similar proceeding affecting the
Company or its assets or the market value of the Common Stock or any
resulting release or discharge of any obligation of the Company or the
existence of any claim, set-off or other rights which any Participant may
have at any time against the Company or any other person, whether in
connection with the Plan or with any unrelated transactions, provided that
nothing herein shall prevent the assertion of any such claim by separate
suit or counterclaim.
Notwithstanding anything to the contrary in this Section 7, the Company
shall not be required to make any Purchase Loan to a Participant if the making
of such Purchase Loan will (i) cause the Company to violate any covenant or
similar provision in any indenture, loan agreement or other agreement, or (ii)
violate any applicable federal, state or local law, provided, that the failure
to make such Purchase Loan shall be deemed to revoke the exercise of the related
Purchase Award unless otherwise specified by the Participant.
(b) Security. Payment of the Purchase Note shall be secured by a pledge of
all of the shares of Common Stock acquired by the Participant upon the
exercise of the Purchase Award to which the Purchase Loan relates. The
Participant shall effect such pledge by delivering to the Company (i) the
certificate or certificates for the shares of Common Stock acquired
pursuant to the Purchase Award, accompanied by a duly executed stock power
in blank (which stock may be reregistered in the name of the Company as
collateral agent for the collateral for the Purchase Loan), (ii) a properly
executed stock pledge agreement, and (iii) such other documents as may be
required by the Committee. A Participant shall always have the right to
sell shares of Common Stock acquired pursuant to a Purchase Award provided
that (i) such sales must be made in open-market transactions or at a price
not less than the Market Price on the Trading Day prior to the date of
sale, (ii) the Company shall have a security interest in the proceeds of
such sale to the extent of any outstanding Purchase Loan and (iii) any such
sales otherwise comply with the terms and provisions of any documents
relating to the Purchase Loan.
(c) Interest. Interest on the principal balance of the Purchase Loan will
accrue semi-annually at the Interest Rate. Except as specified in the
Purchase Loan documents after an event of default, accrued interest shall
not be payable during the term of the Purchase Loan, but shall be added to
the principal balance of the Purchase Loan.
(d) Term. The term of the Purchase Loan for any Participant shall begin on
such Participant's Purchase Date, and absent an Event of Default, shall
have a final maturity date as determined by the Committee.
(e) Terms of the Purchase Loan. All other terms of the Purchase Loan shall
be determined by the Committee.
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8. PLAN ADMINISTRATION
The Plan shall be administered by the Committee. Subject to the provisions
of the Plan, the Committee shall interpret the Plan and make such rules and
procedures as it deems necessary for the proper administration of the Plan,
shall make all other determinations necessary or advisable for the
administration of the Plan and shall correct any defect or supply any omission
or reconcile any inconsistency in the Plan in the manner and to the extent that
the Committee deems desirable to carry the Plan into effect. Any action taken or
determination made by the Committee pursuant to this paragraph and the other
paragraphs of the Plan in which the Committee is given discretion shall be final
and conclusive on all parties. The act or determination of a majority of the
Committee shall be deemed to be the act or determination of the entire
Committee. The Committee may consult with counsel, who may be counsel to the
Company, and such other advisors as the Committee may deem necessary or
desirable, and the members of the Committee shall not incur any liability for
any action taken in good faith in reliance upon the advice of counsel or any
other advisor.
Among other things, the Committee shall have the authority, subject to the
terms of the Plan, to determine (i) the individuals to whom the Purchase Awards
are granted, (ii) the time or times the Purchase Awards are granted, (iii) the
Purchase Dates for such Purchase Awards, (iv) the availability of any direct or
indirect financing by the Company or any of its Subsidiaries and (v) the forms,
terms and provisions of the Participation Agreement and any other documents
under the Plan. The Committee also may designate whether any Purchase Award
being granted to any Participant is intended to be "performance-based
compensation" as that term is used in Section 162(m) of the Code. Any such
Purchase Awards designated as intended to be "performance-based compensation"
shall be conditioned on the achievement of one or more Performance Measures. The
Performance Measures that may be used by the Committee for such Purchase Awards
may include any one or more of the following, as selected by the Committee: cash
generation targets, net income or other profits, revenue and/or market share
targets, profitability targets as measured by return ratios and shareholder
returns, customer satisfaction, net margin as a percentage of revenue, and/or
debt to capitalization. The measurement may be based on absolute Company or
business unit performance and/or on performance as compared with that of other
publicly-traded companies.
9. AMENDMENT AND DISCONTINUANCE OF THE PLAN
The Board, upon the recommendation of the Committee, may amend, suspend or
terminate the Plan at any time, subject to the provisions of this Section 9. No
amendment, suspension or termination of the Plan may, without the consent of the
Participant, adversely affect such Participant's rights under the Plan in any
material respect. In addition, no such amendment shall be made without the
approval of the Company's stockholders to the extent such approval is necessary
under Regulation U or any other law or agreement.
10. MISCELLANEOUS PROVISIONS
(a) Unsecured Status of Claim. Participants and their beneficiaries, heirs,
successors and assigns shall have no legal or equitable rights, interests
or claims in any specific property or assets of the Company. No assets of
the Company shall be held under any trust for the benefit of Participants,
their beneficiaries, heirs, successors or assigns, or held in any way as
collateral security for the fulfillment of the Company's obligations under
the Plan.
Any and all of the Company's assets shall be, and shall remain, the general
unpledged and unrestricted assets of the Company. The Company's obligations
under the Plan shall be merely that of an unfunded and unsecured promise of the
Company to pay employee compensation benefits in the future, if any.
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<PAGE> 28
(b) Employment Not Guaranteed. Nothing contained in the Plan nor any
related Agreement nor any action taken in the administration of the Plan
shall be construed as a contract of employment or as giving a Participant
any right to be retained in the Service of the Company or its Subsidiaries.
(c) Nonassignability. No person shall have any right to commute, sell,
assign, transfer, pledge, anticipate, mortgage or otherwise encumber,
hypothecate or convey in advance of actual receipt any Purchase Award which
is deferred and not yet exercised, or any part thereof, or any interest
therein, which are, and all rights to which are, expressly declared to be
unassignable and nontransferable. No portion of such deferred Purchase
Award shall, prior to actual exercise, be subject to seizure, attachment,
lien or sequestration for the payment of any debts, judgments, alimony or
separate maintenance owed by a Participant or any other person, nor be
transferable by operation of law in the event of the Participant's or any
other person's bankruptcy or insolvency. Any such transfer or attempted
transfer in violation of the preceding provisions shall be considered null
and void.
(d) Disposition of Awards. Once a Participant purchases shares under the
Plan, the timing of sales of those shares is determined by the employee,
but remains subject at all times to the securities laws and any Company
securities compliance policy in effect at any time.
(e) Separability, Validity. In the event that any provision of the Plan,
the Participation Agreement or any agreement or document related to a
Purchase Loan is held to be invalid, void or unenforceable, the same shall
not affect, in any respect whatsoever, the validity of any other provision
of the Plan, Participation Agreement or aspect of any agreement or document
related to a Purchase Loan.
(f) Withholding Tax. The Company shall withhold from all benefits due under
the Plan an amount sufficient to satisfy any federal, state and local tax
withholding requirements, if any.
(g) Applicable Law. The Plan and any related Agreements shall be governed
in accordance with the laws of the State of Delaware without regard to the
application of the conflicts of law provisions thereof. The obligation of
the Company with respect to the grant and exercise of Purchase Awards shall
be subject to all applicable laws, rules and regulations and such approvals
by any governmental agencies as may be required, including, without
limitation, the effectiveness of any registration statement required under
the Securities Act of 1933, as amended, and the rules and regulations of
any securities exchange on which the Common Stock may be listed.
(h) Inurement of Rights and Obligations. The rights and obligations under
the Plan and any related Agreements shall inure to the benefit of, and
shall be binding upon, the Company, its successors and assigns, and the
Participants and their beneficiaries.
(i) Notice. All notices and other communications required or permitted to
be given under this Plan shall be in writing and shall be deemed to have
been duly given if delivered personally or mailed first class, postage
prepaid, as follows: (A) if to the Company--at its principal business
address to the attention of the Secretary; (B) if to any Participant--at
the last address of the Participant known to the sender at the time the
notice or other communication is sent.
(j) Exclusion from Pension and Other Benefit Plan Computation. By exercise
of a Purchase Award, each Participant shall be deemed to have agreed that
such Purchase Award, as applicable, is special incentive compensation that
will not be taken into account, in any manner, as salary, compensation or
bonus in determining the amount of any payment under any pension,
retirement or other employee benefit plan of the Company or any of its
Subsidiaries; provided, however, that the amount of any elective reduction
or deduction in compensation used to pay the Total Purchase Price for any
exercised Purchase Award shall be includible for purposes of any such plan
to the same extent that it would be in the absence of such election. In
addition, each beneficiary of a deceased Participant shall be deemed to
have agreed that such
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Purchase Award will not affect the amount of any life insurance coverage,
if any, provided by the Company or any of its Subsidiaries on the life of
the Participant which is payable to such beneficiary under any life
insurance plan covering employees of the Company or any of its
Subsidiaries; provided, however, that the amount of any elective reduction
or deduction in compensation used to pay the Total Purchase Price for any
exercised Purchase Award shall be includible for purposes of any such plan
to the same extent that it would be in the absence of such election.
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PROXY
CNA FINANCIAL CORPORATION PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING, MAY 5, 1999, CHICAGO, ILLINOIS
The undersigned hereby appoints L.A. Tisch, J.S. Tisch, and B.L. Hengesbaugh,
or any of them, with full power of substitution, to represent and to vote the
Common Stock of the undersigned at the annual meeting of stockholders of CNA
Financial Corporation, to be held at CNA Plaza, (333 South Wabash Avenue),
Chicago, Illinois, on May 5, 1999, at 10:00 A.M., or at any adjournment
thereof as follows:
Election of Directors. Nominees:
Antoinette Cook Bush, Dennis H. Chookaszian,
Philip L. Engel, Robert P. Gwinn, Walter F. Mondale, Edward J. Noha,
Joseph Rosenberg, Bernard L. Hengesbaugh, James S. Tisch,
Laurence A. Tisch, Preston R. Tisch, Marvin Zonis.
You are encouraged to specify your choices by marking the
appropriate boxes, SEE REVERSE SIDE, but you need not mark any
boxes if you wish to vote in accordance with the Board of -----------
Directors' recommendations. The Proxy Committee cannot vote SEE REVERSE
your share unless you sign and return this card. SIDE
-----------
<PAGE> 31
<TABLE>
<CAPTION>
[X] Please mark your
votes as in this
example.
This proxy when properly executed will be voted in the manner directed herein. If no direction is
made, this proxy will be voted FOR election of directors and FOR proposals 2, 3 and 4.
- ------------------------------------------------------------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR the Election of Directors and FOR proposals 2, 3 and 4.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
1. Election of / / / / 2. Approval of / / / / / / 3. Approval of / / / / / /
Directors Amendment Officer Stock
(See reverse) to Certificate of Ownership Plan.
Incorporation.
For, except vote withheld from the following nominees(s): 4. Approval of / / / / / /
independent
- --------------------------------------------------------- accountants.
SIGNATURE(S) DATE: The signer hereby revokes all proxies
----------------------------------------------- ---------------------- heretofore given by the signer to vote at
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign. When said meeting or any adjournments thereof.
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
</TABLE>
