<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
CNA FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
CNA FINANCIAL CORPORATION
---------------
Notice of Annual Meeting -- May 11, 2000
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
Thursday, May 11, 2000, at 10:00 a.m., Chicago time, for the following purposes:
(1) To elect twelve Directors;
(2) To approve the CNA Financial Corporation 2000 Incentive Compensation
Plan;
(3) To ratify the appointment of Deloitte & Touche LLP as independent
auditors for the Company; and
(4) To transact such other business as may properly come before the
meeting.
Only Stockholders of record at the close of business on March 15, 2000 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, 2000
<PAGE> 3
CNA FINANCIAL CORPORATION
CNA PLAZA, CHICAGO, ILLINOIS 60685
---------------
PROXY STATEMENT
ANNUAL MEETING -- MAY 11, 2000
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, 2000.
On March 15, 2000, the Company had outstanding 183,742,531 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, 2000
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 as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum. The affirmative vote of shares representing a majority of the votes cast
by the holders of shares present and entitled to vote is required to approve the
other matters to be voted on at the Annual Meeting. Shares which are voted to
abstain will be considered present at the meeting, but since they are not
affirmative votes for the matter they will have the same effect as votes against
the matter. Broker non-votes are not counted as present.
1
<PAGE> 4
PRINCIPAL SHAREHOLDERS
The following table contains certain information as to all entities which,
to the knowledge of the Company, were the beneficial owners of 5% or more of the
outstanding shares of Common Stock as of February 28, 2000 (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")........................... 159,457,480 86.8%
667 Madison Avenue
New York, New York 10021
The Equitable Companies Incorporated
("Equitable")(1).................................... 10,587,230 5.8%
787 Seventh Avenue
New York, New York 10019
</TABLE>
- ---------------
(1) This information is as of December 31, 1999 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 4,897,736 shares and sole dispositive power with respect to 10,571,680
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 Incentive Compensation 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.
2
<PAGE> 5
DIRECTOR AND OFFICER HOLDINGS
The following table sets forth certain information as to the shares of
Common Stock beneficially owned by each Director and nominee, and each Executive
Officer named in the Summary Compensation Table below, and by all Executive
Officers and Directors of the Company as a group as of February 28, 2000, based
on data furnished by them:
<TABLE>
<CAPTION>
SHARES OF THE SHARES OF LOEWS SHARES OF CNA
COMPANY'S CORPORATION SURETY CORPORATION(1)
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
Robert V. Deutsch........................ 110,000 0 0
Ronald L. Gallatin....................... 6,000 4,000 0
Robert P. Gwinn.......................... 921 0 0
Bernard L.Hengesbaugh.................... 437,192 0 2,500
Jonathan D.Kantor........................ 21,483 0 0
Walter F. Mondale........................ 900 0 0
Edward J. Noha........................... 1,350 1,500 0
Joseph Rosenberg......................... 10,000 1,500 0
Thomas F. Taylor......................... 164,259 200 10,000
James S. Tisch........................... 0 1,080,000(2) 0
Laurence A. Tisch........................ 0 13,308,998(3)(4) 0
Preston R. Tisch......................... 0 17,308,998(4) 0
Marvin Zonis............................. 150 0 0
All Officers and Directors as a group (15
persons including those listed
above)................................. 1,156,886 31,709,196 32,500
</TABLE>
- ---------------
(1) CNA, through its subsidiaries, owns approximately 62% of CNA Surety
Corporation.
(2) Includes 1,000,000 shares held by a trust of which Mr. J. S. Tisch is the
managing trustee and beneficiary. In addition, 58,000 shares are held by a
charitable foundation as to which Mr. J. S. Tisch has shared voting and
investment power.
(3) Includes 2,000,000 shares held of record by the wife of Mr. L. A. Tisch.
(4) Includes 3,000,000 shares held by each of Messrs. L. A. Tisch and P. R.
Tisch as trustees of trusts, as to which they each have sole voting and
investment power, for the benefit of their respective wives.
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.
3
<PAGE> 6
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
The By-Laws provide that the number of Directors that shall constitute the
whole Board shall be 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.
Gallatin 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.
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. Effective April 15, 2000, Ms. Bush will be leaving
the law firm to become Executive Vice President of Northpoint Technology, Ltd.
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 43.
DENNIS H. CHOOKASZIAN, Chairman of the Board and Chief Executive Officer of
mPower since November, 1999. Prior to that he served as Chairman of the Board
and Chief Executive Officer of the CNA Insurance Companies from September 1992
until February 9, 1999. He is a Director of Loews. He serves on the Finance
Committee and is Chairman of the Executive Committee. Mr. Chookaszian has served
as a Director since 1990. Age 56.
RONALD L. GALLATIN, independent consultant. Until his retirement on
December 31, 1995, Mr. Gallatin served as a Managing Director of Lehman
Brothers, Inc., where he was a member of the firm's Operating Committee and its
director of Corporate Strategy and Product Development. He is a director of RTI
International Metals, Inc. and The First Mexico Income Fund N.V. He is a member
of the Audit, Executive, Finance and Incentive Compensation Committees. Mr.
Gallatin was elected as a Director in February of 2000. Age 54.
ROBERT P. GWINN, Chairman and Chief Executive Officer of Gwinn Oil Company.
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 92.
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 53.
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 &
4
<PAGE> 7
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 various BlackRock Trusts, BBT Subsidiary Inc., BNN
Subsidiary Inc., BBT Subsidiary Fund, Dain Rauscher Corporation, UnitedHealth
Group Corp., NWA Inc., and Northwest Airlines, Inc. He is a member of the Audit,
Executive and Finance Committees. He served as a Director from 1985 until 1993
and was reelected Director in February 1997. Age 72.
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 72.
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 Chairman of the Board and Chief Executive Officer of 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 47.
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 77.
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 73.
MARVIN ZONIS, Professor of International Political Economy at the Graduate
School of Business of the University of Chicago since 1989. Principal of Marvin
Zonis & Associates, Inc. He has been a Director since 1993. He is Chairman of
the Audit Committee and serves on the Incentive Compensation, Executive and
Finance Committees. Age 63.
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.
5
<PAGE> 8
The Incentive Compensation Committee administers the Incentive Compensation
Plan for Certain Executive Officers, the Incentive Compensation Plan and the CNA
Financial Corporation 2000 Incentive Compensation Plan (as hereinafter
described).
The Board of Directors, Audit and Finance Committees met four times in
1999. The Incentive Compensation Committee met twice. All of the current
Directors attended at least 75% of each of the Board of Directors meetings and
the committees of the Board on which each such director serves, with the
exception of Robert P. Gwinn who attended approximately 71% of such meetings.
DIRECTOR COMPENSATION
CNA directors who are not employees of CNA or any of its subsidiaries
received an annual retainer in 1999 of $25,000. In addition, members of
committees received the following annual retainers: Finance, $4,000, Executive,
$4,000, Incentive Compensation, $3,000 and Audit, $5,000 (Chairperson receives
$7,500). Messrs. Chookaszian 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
State Government Accountability Council, 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 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 $1,300,000 per year reduced by
the Retirement Plan Benefit and the Supplemental Retirement Plan Benefit. The
Agreement requires Mr. Chookaszian to maintain the confidentiality of
information concerning the Company's business during the term of the Agreement
with the Company and at all times thereafter and furthermore contains covenants
whereunder Mr. Chookaszian shall not compete with any of the Company's
businesses for specified periods of time.
6
<PAGE> 9
COMPENSATION OF EXECUTIVE OFFICERS
The following table includes compensation paid by the Company and its
subsidiaries for services rendered in all capacities for the years indicated for
the Chief Executive Officer, other most highly compensated executive officers of
the Company as of December 31, 1999 and two former executive officers of the
Company or its subsidiaries:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------- --------------------------------------
AWARDS PAYOUTS
----------------------- ------------
RESTRICTED SECURITIES
FISCAL BONUS OTHER ANNUAL STOCK UNDERLYING LONG-TERM
NAME AND PRINCIPAL POSITION YEAR SALARY(A) (B) COMPENSATION AWARD($) OPTIONS(#) COMPENSATION
--------------------------- ------ --------- ----- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Laurence A. Tisch(d)............. 1999 -- -- -- -- -- --
Chief Executive Officer 1998 -- -- -- -- -- --
CNA Financial Corporation 1997 -- -- -- -- -- --
Bernard L. Hengesbaugh........... 1999 $966,346 $950,000(f) -- -- 55,000 --
Chairman of the Board & 1998(g) 684,423 750,000(h) -- -- -- $ 42,500(j)
Chief Executive Officer 1997(g) 550,000 508,000 -- -- -- --
CNA Insurance Companies
Thomas F. Taylor................. 1999 $603,846 -- -- -- 33,000 $1,627,327(j)
Executive Vice President 1998 539,615 $250,000 -- -- -- 600,000
Property Liability 1997 400,000 40,000 -- -- -- 0
CNA Insurance Companies
Robert V. Deutsch(k)............. 1999 $179,808 $450,000 -- $365,300(i) 25,000 --
Senior Vice President &
Chief Financial Officer
CNA Insurance Companies
Jonathon D. Kantor............... 1999 $500,027 $375,000 -- -- 12,000 --
Senior Vice President, 1998 500,000 400,000 -- -- -- --
General Counsel & Secretary 1997 444,616 388,000 -- -- -- --
CNA Insurance Companies
Philip L. Engel(m)............... 1999 $605,808 $750,000 -- -- -- --
Former President 1998 800,000 -- -- -- -- 300,000(i)
CNA Insurance Companies 1997 800,000 -- -- -- -- 500,000(i)
W. James MacGinnitie(o).......... 1999 $394,231 $317,500 -- -- -- --
Former Senior Vice President & 1998 500,000 220,000 -- -- -- --
Chief Financial Officer 1997 123,077 317,000(q) -- -- -- --
CNA Insurance Companies
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL POSITION COMPENSATION(C)
--------------------------- ---------------
<S> <C>
Laurence A. Tisch(d)............. $ 33,000(e)
Chief Executive Officer 26,000(e)
CNA Financial Corporation 26,000(e)
Bernard L. Hengesbaugh........... $ 72,017
Chairman of the Board & 28,746
Chief Executive Officer 23,100
CNA Insurance Companies
Thomas F. Taylor................. $ 25,361
Executive Vice President 22,664
Property Liability 16,800
CNA Insurance Companies
Robert V. Deutsch(k)............. $ 3,554
Senior Vice President &
Chief Financial Officer
CNA Insurance Companies
Jonathon D. Kantor............... $ 21,000
Senior Vice President, 24,231
General Counsel & Secretary 18,674
CNA Insurance Companies
Philip L. Engel(m)............... $453,825(o)
Former President 67,794(n)
CNA Insurance Companies 62,226(n)
W. James MacGinnitie(o).......... $626,173(p)
Former Senior Vice President & 21,000
Chief Financial Officer 1,131
CNA Insurance Companies
</TABLE>
- ---------------
(a) Base salary includes compensation deferred under the CNA Savings Plan and
CNA Supplemental Savings Plan.
(b) Amounts disclosed are for bonus awards earned and accrued in the year
indicated under the Company's Annual Incentive Plan and supplemental bonus
plan hereinafter described. Bonus awards are typically paid in March of the
following year unless deferred.
(c) Represents amounts contributed or accrued to the named officers for the CNA
Savings Plan and CNA Supplemental Savings Plan.
(d) 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 was
$96,427 annually for 1999, 1998 and 1997.
(e) Represents director fees paid to Mr. Tisch. He is not a participant in the
Company's savings plans.
(f) Mr. Hengesbaugh's 1999 bonus will be deferred.
(g) Mr. Hengesbaugh's compensation from January 1, 1997 through February 4, 1998
was paid to him as Senior Vice President of CNA Insurance Companies.
7
<PAGE> 10
(h) Mr. Hengesbaugh was awarded a $750,000 retention recognition award, of which
$460,000 was deferred pursuant to the terms of his promotion.
(i) Represents payout under the Incentive Compensation Plan for Certain
Executive Officers.
(j) Represents a Business Unit Long-Term Incentive Award of $1,627,327, granted
prior to Mr. Taylor's promotion to Executive Vice President, of which
$341,973 was deferred.
(k) Mr. Deutsch was employed by the Company effective August 16, 1999.
Consequently, he received no compensation during 1998 and 1997.
(l) Mr. Deutsch was awarded a restricted stock grant of 10,000 shares upon
commencement of employment. The 10,000 shares vest in four equal parts
annually beginning December 31, 2000.
(m) On September 30, 1999, Mr. Engel retired as President of the CNA Insurance
Companies.
(n) Except in 1999, amounts include $12,584 and $11,260 of insurance premiums
paid by the Company on behalf of Mr. Engel for 1998 and 1997, respectively.
In 1999, amount includes payment to Mr. Engel as part of his retirement
package.
(o) Mr. MacGinnitie was employed by the Company from October 1, 1997 through
October 8, 1999.
(p) Includes severance payment paid to Mr. MacGinnitie.
(q) Includes $150,000 hiring bonus.
The following table includes individual grants of stock options awarded by
the Company for services rendered in all capacities for the Chief Executive
Officer, other most highly compensated executive officers of the Company as of
December 31, 1999 and two former executive officers of the Company or its
subsidiaries:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
---------------------------------------------------- ----------------------------
NUMBER OF % OF TOTAL
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE OF
OPTIONS DURING BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% 10%
---- ----------- ----------- ----------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Laurence A. Tisch(c)............... -- -- -- -- -- --
Bernard L. Hengesbaugh............. 55,000 18.7% $35.09 08/04/09 $1,213,735 $3,075,843
Thomas F. Taylor................... 33,000 11.2% $35.09 08/04/09 $ 728,241 $1,845,506
Robert V. Deutsch.................. 25,000 8.5% $36.53 08/15/09 $ 574,338 $1,455,485
Jonathan D. Kantor................. 12,000 4.1% $35.09 08/04/09 $ 264,815 $ 671,093
Philip L. Engel(c)................. -- -- -- -- -- --
W. James MacGinnitie(c)............ -- -- -- -- -- --
</TABLE>
- ---------------
(a) Options vest in cumulative installments of 25% on each anniversary of the
date of grant such that the options are fully exercisable on or after four
years from the date of grant.
(b) The exercise price shown for individual optionees is the fair market value
of the Company's common stock on the date of grant (calculated as the
average of its high and low sales prices on that date reported on the New
York Stock Exchange Composite Tape).
(c) Messrs. Tisch, Engel and MacGinnitie did not receive stock option grants in
1999.
8
<PAGE> 11
The following table includes information concerning the exercise of stock
options during the last completed fiscal year for the Chief Executive Officer,
other most highly compensated executive officers of the Company as of December
31, 1999 and two former executive officers of the Company or its subsidiaries:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
VALUE NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
SHARES ACQUIRED REALIZED OPTIONS AT FY-END (#) MONEY OPTIONS AT FY-END
NAME ON EXERCISE (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(A)
---- --------------- -------- ------------------------- -----------------------------
<S> <C> <C> <C> <C>
Laurence A. Tisch(b)................ -- -- -- --
Bernard L. Hengesbaugh.............. 0 0 0/55,000 0/$211,750
Thomas F. Taylor.................... 0 0 0/33,000 0/$127,050
Robert V. Deutsch................... 0 0 0/25,000 0/$ 60,250
Jonathan D. Kantor.................. 0 0 0/12,000 0/$ 46,200
Philip L. Engel(b).................. -- -- -- --
W. James MacGinnitie(b)............. -- -- -- --
</TABLE>
- ---------------
(a) Value is based on the closing price of Company common stock on December 31,
1999 minus the exercise price.
(b) Messrs. Tisch, Engel and MacGinnitie did not receive stock options under the
plan.
EMPLOYMENT CONTRACTS
Each of Messrs. Hengesbaugh, Taylor and Deutsch currently has an employment
agreement with the Company (the "Employment Agreements") effective through
December 31, 2002 unless their employment is terminated earlier. The Employment
Agreements provide that each of these executive officers will serve the Company
at annual salary rates which are currently $950,000, $682,500 and $550,000 for
Messrs. Hengesbaugh, Taylor and Deutsch, respectively. Mr. Hengesbaugh's and Mr.
Deutsch's salaries are subject to annual review by the Incentive Compensation
Committee for possible increases. Mr. Taylor's salary will increase 5% each year
during the term of the Employment Agreement. The Employment Agreements also
provide that each executive officer will have the opportunity to earn annual
incentive compensation under the CNA Financial Corporation Incentive
Compensation Plan for Certain Executive Officers (the "Incentive Compensation
Plan") if certain annual net income targets are met. As defined in the Incentive
Compensation Plan, net income is calculated on an after-tax basis and excludes
realized investment gains or losses. The annual incentive compensation amounts
are capped at 200% of salaried compensation for each of these executive
officers. Each of Mr. Hengesbaugh, Mr. Taylor and Mr. Deutsch also participate
in the Incentive Compensation Plan ("ICP" as described in Proposal No. 2) and
will be awarded annual stock grants of 55,000, 33,000 and 25,000 shares,
respectively, during each of 2000, 2001 and 2002 subject to company and
individual performance. Mr. Taylor's cash award under the ICP will be targeted
at 30% of salary for each of the 2000 -- 2001, 2000 -2002, 2001 -- 2003 and
2002 -- 2004 performance cycles. Mr. Deutsch's cash award under the ICP will be
targeted at $160,000 for each of the 2000 -- 2002, 2001 -2003 and 2002 -- 2004
performance cycles and guaranteed at $160,000 for the 2000 -- 2001 cycle. For
assuming the role as the Company's Senior Vice President and Chief Financial
Officer, Mr. Deutsch also received a one-time award of 10,000 restricted shares
of the Company's common stock which will vest in four equal installments
beginning on December 31, 2000. The unvested portion of Mr. Deutsch's shares
will vest immediately if he is terminated without cause, Mr. Deutsch terminates
his employment for good reason or the Company fails to renew his Employment
Agreement. Additionally, under the Employment Agreements, all salary amounts and
annual cash incentive compensation amounts are considered earnings for the
purposes of the Company's retirement plan and
9
<PAGE> 12
supplemental savings plan. And, Mr. Hengesbaugh's salary amounts and annual cash
incentive compensation amounts are also considered eligible for the supplemental
savings plan.
The Employment Agreements also include certain provisions that are
effective if the executive officer's employment is terminated by the executive
officer for "good cause" or by the Company other than for "cause" (each as
defined in the Employment Agreements). In Mr. Hengesbaugh's case, he will
receive 300% of his salary for each of three years following the termination.
Under such circumstances, Mr. Taylor and Mr. Deutsch will receive a payment
equal to 100% of such executive officer's entire compensation (salary, targeted
annual incentive compensation, targeted ICP cash award and an amount using a
modified Black-Scholes methodology which values the shares to be awarded under
the LTIP (as hereinafter defined) at 48% of fair market value at the date of
termination) for each of two years following termination in Mr. Taylor's case
and for each of three years following termination in Mr. Deutsch's case.
Additionally, the Employment Agreements include a provision requiring the
Company to pay the executive officer the amounts described in the previous
sentences if that executive officer's Employment Agreement is not renewed at the
end of the term of the Employment Agreement.
The Company also agreed to pay each executive officer an amount necessary
to reimburse him, on an after-tax basis, for any excise tax due as a result of
any payment under the Employment Agreements being treated as an "excess
parachute payment" under Section 280G of the Internal Revenue Code.
Mr. Taylor's and Mr. Deutsch's Employment Agreements also contain
provisions relating to pension enhancements. Mr. Taylor's pension enhancement is
conditional and will only be provided to the extent necessary to have his total
pension benefits equal two-thirds of his base compensation at the time of his
retirement. The conditional pension enhancement will apply if i) Mr. Taylor is
terminated without cause, ii) he dies and is survived by his spouse or he
becomes disabled, iii) Mr. Taylor terminates his employment for good reason, iv)
his Employment Agreement is not renewed, or v) he rejects an offer comparable to
his current Employment Agreement and he has attained the age of 55 years. The
enhancement will provide, in addition to the normal pension benefit, an
immediate life only annuity beginning two years after his Employment Agreement
is terminated in an amount that can be purchased with a $2,000,000 premium at
Mr. Taylor's then attained age. Mr. Deutsch's pension enhancement provided from
the supplemental retirement plan is in the form of ten additional years of
credited service to be earned pro rata over four years of Company service. The
unvested portion of Mr. Deutsch's pension enhancement shall vest immediately if
he is terminated without cause, Mr. Deutsch terminates his employment for good
reason or the Company fails to renew his Employment Agreement.
The Employment Agreements contain provisions, effective during the period
of employment and for varying time periods thereafter as described below,
relating to non-competition with the Company's business (24 months),
non-disclosure of confidential information (no time limit), non-solicitation of
the Company's or its subsidiaries' employees or officers (36 months),
non-interference with the Company's or its subsidiaries business or
relationships (36 months) and assistance with claims of the Company and its
subsidiaries (60 months except in Mr. Hengesbaugh's case, 36 months). If Mr.
Deutsch voluntarily resigns, he will be bound by the non-competition,
non-solicitation and non-interference provisions for as many months as the
Company pays him an amount equal to his 1.5 times his monthly compensation (as
described in the third paragraph above) in the case of the non-competition
provision and 1.5 times the number of months of such payments in the case of the
non-solicitation and non-interference provisions. The Employment Agreements are
not assignable by either party, but are binding upon successors of the Company.
The Company was party to an employment agreement with Mr. Engel which
expired on September 30, 1999 at which time all compensation obligations of the
Company thereunder ceased.
10
<PAGE> 13
RETIREMENT PLANS
CNA maintains the CNA Retirement Plan, a funded, tax qualified,
non-contributory retirement plan for all salaried employees of Continental
Casualty Company, its wholly owned subsidiary, including executive officers (the
"Retirement Plan") and the CNA Supplemental Executive Retirement Plan, 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
Plan. The following description of the Retirement Plan also gives effect to
benefits provided under the Supplemental Retirement Plan. The Retirement Plan
was "frozen" with regard to additional accruals, service and compensation as of
December 31, 1999. During 2000, employees will be offered an election to resume
earning benefits under the Retirement Plan retroactively to January 1, 2000 or
to receive a higher level of employer contributions under the CNA Savings Plan,
a defined contribution plan with 401(k) features. In addition, employees hired
or rehired on or after January 1, 2000 will not be eligible to participate in
the Retirement Plan.
The Retirement Plan provides 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 Plan consists of salary paid by the Company 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 Plan for various compensation
levels and years of credited service, based upon normal retirement in 2000 and a
straight life annuity form of benefit. In addition to a straight life annuity,
the Plan also allows 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. The portion of a participant's benefit payable under the
Supplemental Retirement Plan may also be paid in the form of a lump sum payment
equal to the present value of the benefit with the consent of the Benefits
Committee.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
------------------------------------------------------------------------------------
AVERAGE ESTIMATED ANNUAL BENEFIT FOR REPRESENTATIVE
ANNUAL ------------------------------------------------------------------------------------
COMPENSATION 15 20 25 30 35
- ------------ -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 400,000.............. $116,389 $ 155,185 $ 193,981 $ 206,112 $ 218,242
600,000............. 176,389 235,185 293,981 312,779 331,576
800,000............. 236,389 315,185 393,981 419,446 444,910
1,000,000............. 296,389 395,185 493,981 526,113 558,244
1,200,000............. 356,389 475,185 593,981 632,780 671,578
1,400,000............. 416,389 555,185 693,981 739,447 784,912
1,600,000............. 476,389 635,185 793,981 846,114 898,246
1,800,000............. 536,389 715,185 893,981 952,781 1,011,580
2,000,000............. 596,389 795,185 993,981 1,059,448 1,124,914
2,200,000............. 656,389 875,185 1,093,981 1,166,115 1,238,248
2,400,000............. 716,389 955,185 1,193,981 1,272,782 1,351,582
2,600,000............. 776,389 1,035,185 1,293,981 1,379,449 1,464,916
2,800,000............. 836,389 1,115,185 1,393,981 1,486,116 1,578,250
</TABLE>
The amounts in the table reflect deductions for estimated Social Security
payments.
Mr. Hengesbaugh, Mr. Taylor and Mr. Kantor have nineteen, seven and five
years of credited service, respectively. Mr. Deutsch has fourteen months of
credited service.
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 (as hereinafter
described, the Board of Directors approved merger of this Plan into the ICP, see
Proposal No. 2 below) 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.
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, the Executive Vice President and the Chief
Financial Officer). 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 1999, the Senior Executives were provided total
compensation opportunities that approximated the 75(th) 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 may have a percentage established annually of their
incentive compensation based on the Corporate Goal and/or 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 is 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 1999, 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 1999 incentive bonuses
ranged from 50% to 182% of the incentive targets for the Senior Executives.
In August 1999 the Board of Directors adopted, subject to shareholder
approval, the CNA Financial 2000 Long-Term Incentive Compensation Plan (the
"LTIP"). The LTIP was amended by the Board of Directors in February 2000 to
merge the Incentive Compensation Plan for Certain Executives with the LTIP to
provide an omnibus plan renamed as the CNA Financial Corporation 2000 Incentive
Compensation Plan (the "ICP") which covers annual, long-term, cash and
share-related compensation for certain officers of the Company and its
subsidiaries. The amendment was also subject to shareholder approval. See
"Approval of Incentive Compensation Plan (Proposal No. 2) below.
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. Mr. Engel was not
awarded any Supplemental Bonus 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 Mr. 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 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
Ronald L. Gallatin 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 and B. L. Hengesbaugh, both 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
13
<PAGE> 16
that Loews will make available to CNA these services, together with general
corporate services, including financial, administrative and management
consulting services. Loews is reimbursed on the basis of an allocation of a
portion of the salaries and related payroll taxes and benefits of the officers
and executives performing the services, in addition to travel and similar
expenses incurred. The allocation may be adjusted in the event of any
substantial change in the services performed and the Services Agreement may be
terminated by CNA or Loews on the last day of any month. The Services Agreement
has been reviewed each year since 1975 by CNA's Audit Committee. The last such
review took place in February 2000 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 1999,
and $70,600 for travel and similar expenses incurred during that period. During
1999, Loews or its subsidiaries paid premiums on insurance and administrative
services to the CNA Insurance Companies at standard rates aggregating
approximately $4,714,139.
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 1999, 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 $287,800,000 to CNA for 1999 under the tax allocation
agreement.
CNA has also reimbursed to Loews or paid directly approximately $10,589,100
for expenses (consisting primarily of salaries and benefits and other
out-of-pocket costs) incurred or owed by Loews during 1999 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, Hengesbaugh,
Kantor, and Taylor to assist them with the purchase of common stock of the
Company. In March 1999 and August 1999 respectively Messrs. Hengesbaugh and
Taylor received additional loans from CNA to purchase additional shares from the
Company. Mr. Deutsch received a loan to purchase stock in August of 1999.
Interest on the loans extended in October 1998 is 5.39% (5.23% with respect to
the loan to Mr. Hengesbaugh in March 1999 and 6.14% with respect to the loan to
Mr. Taylor in August 1999 and 6.14% with respect to the loan to Mr. Deutsch),
compounded semi-annually, and will be added to the principal balances until the
loans are settled. The term of each loan is 10 years. Messrs. Chookaszian's,
Hengesbaugh's, Kantor's and Taylor's loans are unconditional with full recourse
against the maker. Mr. Deutsch's loan is non-recourse and is secured by
additional collateral. As of March 15, 2000, the outstanding amounts of the
loans were as follows: Mr. Chookaszian, $15,112,659, Mr. Hengesbaugh,
$16,861,039, Mr. Kantor, $809,576, Mr. Taylor, $6,083,197; and Mr. Deutsch,
$3,847,641.
Continental Casualty Company ("CCC"), a wholly-owned subsidiary of CNA, has
provided refundment guarantees for the repayment by Samsung Heavy Industries
Co., Ltd. ("Samsung") of advances made to it by Hellespont Shipping Corporation
("Hellespont") under four shipbuilding contracts between Hellespont and Samsung
in the event that Samsung fails to perform under such contracts. Each guarantee
is in the amount of
14
<PAGE> 17
approximately $55.4 million, plus interest at a rate of 8% per annum, and will
terminate on acceptance of the three ships by Hellespont, which are currently
scheduled for delivery in December 2001, March 2002, May 2002 and September
2002, respectively. Premiums written on these guarantees in 1999 totaled $1.29
million to Western Surety of which 28 percent was paid to CCC as a ceding
commission. These refundment guarantees were transferred to Western Surety
through the Quota Share Treaty and are covered by the Excess of Loss Contracts
provided by CCC. Majestic Shipping Corporation, a wholly-owned subsidiary of
Loews, owns 49% of Hellespont.
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, 1999. The graph assumes that the value of the investment in the Company's
Common Stock and for each Index was $100 on December 31, 1994 and that dividends
were reinvested.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
94 95 96 97 98 99
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CNA FINANCIAL CORP 100.00 174.95 164.93 196.92 186.13 180.06
- -----------------------------------------------------------------------------------------------------------
S&P 500 INDEX 100.00 137.58 169.17 225.60 290.08 351.12
- -----------------------------------------------------------------------------------------------------------
MULTI-LINE INSURANCE 100.00 147.00 186.39 284.31 313.21 399.06
- -----------------------------------------------------------------------------------------------------------
</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
15
<PAGE> 18
to the Company, the Company believes that during the 1998 fiscal year all
Section 16(a) filing requirements were complied with.
APPROVAL OF CNA FINANCIAL CORPORATION 2000 INCENTIVE COMPENSATION PLAN
(PROPOSAL NO. 2)
The Company believes in providing opportunity for certain employees,
directors and consultants of the Company and its subsidiaries i) to attract and
to retain such persons as employees, directors or consultants of the Company or
its subsidiaries, ii) to motivate these persons by means of appropriate
incentives to achieve long-term Company goals and to reward them for achievement
of those goals, and (iii) to provide incentive compensation opportunities that
are competitive with those of other similar companies, which will promote the
financial interest of the Company and its Subsidiaries.
On August 4, 1999 the Board of Directors adopted, subject to shareholder
approval, the CNA Financial 2000 Long-Term Incentive Compensation Plan (the
"LTIP"). The LTIP was amended by the Board of Directors on February 23, 2000 to
merge the Incentive Compensation Plan for Certain Executives with the LTIP to
provide an omnibus compensation plan renamed as the CNA Financial Corporation
2000 Incentive Compensation Plan (the "ICP"). The ICP covers annual, long-term,
cash and share-related compensation for certain employees, directors and
consultants of the Company and its subsidiaries (see "Eligibility" below). The
amendment is also subject to shareholder approval. Stockholder approval is
required for certain awards under the plan to comply with the provisions of
Section 162(m) of the Internal Revenue Code, as amended (the "Code").
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 under 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. The Board of Directors believes that where the
Company's compensation policy can be implemented in a manner which maximizes the
deductibility for federal income tax purposes of compensation paid by the
Company, the Company should seek to do so. Accordingly, the Board of Directors
has directed that the ICP be submitted to the Company's shareholders for
approval at the Annual Meeting. If the ICP is not approved by the Company's
stockholders, the ICP 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 AWARDS
The Incentive Compensation Committee of the Company's Board of Directors
(the "Committee") granted options under the ICP on August 5, 1999 to forty
executive and non-executive officers of the Company's subsidiaries to purchase
shares of the Company's common stock (the "Stock"). The exercise price of the
options was set at $35.09, the average of the highest and lowest sales prices of
the Common Stock on August 5, 1999, as reported as the New York Stock
Exchange-Composite Transactions. These awards are contingent on shareholder
approval of the ICP. If shareholder approval is not granted, these awards will
be
16
<PAGE> 19
withdrawn. The following table sets forth certain information as to the August
5, 1999 grant of options to each of the Named Executive Officers and to each of
the other groups specified below. Each such option remains subject to
shareholder approval of the ICP and becomes exercisable thereafter at a rate of
25% per year beginning on the first anniversary of the grant date. No such
grants have been made to any of the Company's or subsidiaries' non-executive
directors, non-officer employees or consultants. All grants under the ICP have
been and will be made in consideration of services rendered or to be rendered to
the Company or any of its subsidiaries by optionees. As of the date hereof,
there has been no determination by the Committee with respect to future awards
under the ICP.
CNA FINANCIAL CORPORATION 2000
INCENTIVE COMPENSATION PLAN
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
NO. OF MARKET
SECURITIES VALUE OF
DOLLAR UNDERLYING EXERCISE UNDERLYING
VALUE OPTIONS PRICE EXPIRATION SECURITIES
NAME AND POSITION ($)(A) GRANTED ($/SHARE) DATE ($)(A)
- ----------------- ------ ---------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Laurence A. Tisch(b)................ -- -- -- -- --
Chief Executive Officer, Director
Bernard L. Hengesbaugh.............. $0 55,000 $35.09 08-04-09 $1,622,500
Chairman and Chief Executive
Officer of the CNA Insurance
companies, Director
Thomas F. Taylor,................... $0 33,000 $35.09 08-04-09 $ 973,500
Executive Vice President
Robert V. Deutsch,.................. $0 25,000 $35.09 08-04-09 $ 737,500
Senior Vice President and
Chief Financial Officer
Jonathan D. Kantor,................. $0 12,000 $35.09 08-04-09 $ 354,000
Senior Vice President, General
Counsel and Secretary
Executive Group..................... $0 125,000 $35.09 08-04-09 $3,687,500
Non-Executive Officer Group......... $0 169,900 $35.09 08-04-09 $5,012,050
</TABLE>
- ---------------
(a) Calculated as of the close of business on March 21, 2000.
(b) Mr. Tisch did not receive any options.
The Company filed a registration statement relating to the shares
underlying the ICP on August 4, 1999.
SUMMARY OF THE ICP
The principal features of the ICP are described below. This summary does
not provide all of the details of the ICP. Please review the complete text of
the ICP which is included as Exhibit A to this proxy statement. Terms which are
not defined in this summary are defined in the ICP.
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ADMINISTRATION
The ICP shall be administered by the Committee. Among other things, the
Committee shall have the authority, subject to the terms of the ICP, to
determine (i) the individuals from among the eligible employees to whom the
awards are granted, (ii) the performance goals and amounts payable under the
awards, (iii) the time or times the awards are granted, (iv) the type of awards
to be granted, (v) the terms, the terms of eligibility, conditions, performance
criteria, restrictions and other provisions of the awards, (vi) the performance
periods to which the awards relate, (vii) to delegate certain powers relating to
Performance Units or Performance Bonus Awards to the Chief Executive Officer of
the Company, other Company executive officers or the Board of Directors and
(viii) subject to certain conditions, whether to cancel, to amend or to suspend
awards. If an award under the ICP is intended to be "performance-based
compensation" as that term is used in Section 162(m) of the Code, those awards
shall be conditioned on the achievement of one or more Approved Performance
Measures. The "Approved Performance Measures" shall be any one or more of the
following Company, subsidiary, operating unit or division performance measures:
earnings (either in the aggregate or on a per-share basis, and if on a per-share
basis reflecting such dilution of shares outstanding as the Committee deems
appropriate) before or after interest and taxes; net income (as defined below);
net operating income (as defined below); return measures (including return or
net return on assets, net assets, investments, capital, equity, or gross sales);
stockholder returns (including growth measures and stockholder return or
attainment by the shares of the Company's common stock (the "Stock") of a
specified value for a specified period of time), share price or share price
appreciation; cash flow(s); dividends; gross revenues; gross or net premiums
written; net premiums earned; net investment income; losses and loss expenses,
loss ratios, expense ratios, or combined ratios; underwriting and administrative
expenses; operating expenses; stock price; satisfaction of specified business
expansion goals or goals relating to acquisitions or divestitures; expense or
cost levels; net economic value; or market share or market penetration with
respect to specific designated products or product groups. Each goal may be
expressed on an absolute and/or relative basis, may be based on or otherwise
employ comparisons based on internal targets, the past performance of the
Company, any subsidiary or any business unit thereof, and/or the past or current
performance of other companies. "Net Income" shall mean net income to be
reported to stockholders in the Company's annual report and "Net Operating
Income" shall mean Net Income adjusted to exclude all realized capital gains (or
losses) other than those related to a disposal of a segment of the business (in
whole or in part) or sale of a Subsidiary, net of tax. In addition, the
following items may also be excluded: (i) items of gain, loss, or expense
determined to be extraordinary or unusual in nature or infrequent in occurrence
or related to a change in accounting principles, all as determined in accordance
with standards established by opinions No. 20 and 30 of the Accounting
Principles Board, as amended; (ii) restructuring charges of subsidiaries whose
operations are not included in Net Income; and (iii) profit or loss attributable
to the business operations of any entity acquired during the year. However, the
Committee shall have authority to exercise negative discretion in determining
the amount of gain to be included as the result of the disposal of a segment of
the business (in whole or in part) or the sale of a subsidiary.
ELIGIBILITY
Employees who are eligible to participate in the ICP are employees,
directors and consultants of the Company or its subsidiaries (approximately
20,000 people), who in the opinion of the Committee, can materially influence
the long-term performance of the Company or its subsidiaries. The Committee
shall have the power and complete discretion to select those eligible persons
who are to receive awards.
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TYPE OF AWARDS
The Committee may grant Annual or Long-Term Performance Bonus Awards,
Options, Stock Appreciation Rights, Restricted Shares, Performance Units,
Performance Shares, Bonus Shares and Deferred Shares. Performance Bonus Awards
are cash awards based on attaining certain performance goals established by the
Committee during a performance period. Options permit a plan participant to
purchase shares of Stock at an exercise price established by the Committee,
which shall not be less than fair market value on the date of the grant. Stock
Appreciation Rights are rights to receive a payment in the future equal to the
increase in the price of shares of common stock of the Company from a specified
date. Restricted Shares are shares of the Company's common stock which are
subject to transfer restrictions and are subject to forfeiture if certain
conditions specified in the award are not satisfied. Performance Shares are
rights to receive shares of the Company's common stock dependent on the
fulfillment of certain performance conditions specified in the award.
Performance Units are the right to receive a payment based on the fulfillment of
certain performance conditions specified in the award. Bonus Shares are shares
of the Company's common stock that are awarded to a Grantee without cost and
without restrictions in recognition of past performance or as an incentive to
become an employee or consultant of the Company or a subsidiary. Deferred Shares
are shares of the Company's common stock which are awarded on a deferred basis
specified in the award.
AWARD LIMITS
The amount of Performance Units, and Performance Bonus Awards in any one
calendar year for a single ICP participant shall not exceed $5,000,000 in the
case of an annual award and $8,000,000 in the case of other awards.
The aggregate number of shares of Stock that may be delivered under the ICP
shall not exceed 2,000,000 shares of Stock and no participant shall be awarded
Option awards or Stock Appreciation Rights with respect to more than 400,000
shares of Stock in any one calendar year. To the extent that shares of Stock are
not delivered to an ICP participant, the shares of Stock shall not be considered
as delivered in calculating the maximum number of shares of Stock available for
delivery under the ICP.
The shares for the ICP may be authorized and unissued shares of Stock or
issued shares held as treasury shares including shares purchased on the open
market or in negotiated purchases.
ADJUSTMENT UPON CHANGE IN CAPITALIZATION, DISSOLUTION, LIQUIDATION, MERGER OR
ASSET SALE
In the event of a corporate transaction involving the Company (including,
without limitation, any stock dividend, stock split, extraordinary cash
dividend, recapitalization, reorganization, merger, consolidation, split-up,
spin-off, combination or exchange of shares), the Committee may adjust Awards to
preserve the benefits or potential benefits of the Awards. Action by the
Committee may include: (i) adjustment of the number and kind of shares which may
be delivered under the Plan; (ii) adjustment of the number and kind of shares
subject to outstanding Awards; (iii) adjustment of the Exercise Price of
outstanding Options or other awards based on the Stock; and (iv) any other
adjustments that the Committee determines to be equitable.
NON-TRANSFERABILITY OF AWARDS
Awards are unassignable and nontransferable in whole or in part except as
designated by the participant's will or by the laws relating to descent and
distribution; to immediate family members; to certain trusts used for estate
planning and to corporations controlled by the grantee or his immediate family
members.
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EFFECT OF ICP AWARDS ON THE COMPANY'S OTHER PLANS
Amounts payable under the ICP shall not be taken into account as
compensation for purposes of the Company's retirement or savings plans, except
to the extent otherwise provided by those plans, or by an agreement between the
affected Participant and the Company.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the principal federal income tax
consequences of options under the ICP based on current federal income tax laws.
This summary is not intended to be exhaustive and, among other things, does not
describe state, local or foreign tax consequences.
Nonqualified Stock Options("NQO"). In general, (i) an optionee will not be
subject to tax at the time an NQO is granted, and (ii) an optionee will include
in ordinary income in the taxable year in which he or she exercises an NQO an
amount equal to the difference between the exercise price and the fair market
value of the Stock on the date of exercise. Upon disposition of the Stock
acquired upon exercise, appreciation or depreciation after the date ordinary
income is recognized will be treated as capital gain (or loss). The Company
generally will be entitled to a deduction in an amount equal to a recipient's
ordinary income in the Company's taxable year in which the optionee includes
such amount in income. The exercise of NQO's is subject to withholding of all
applicable taxes.
Incentive Stock Option ("ISO"). No taxable income will be realized by an
option holder upon the grant or exercise of an ISO. If shares are issued to an
optionee pursuant to the exercise of an ISO granted under the ICP and if no
disposition of such shares is made by such optionee within two years after the
date of grant of the ISO or within one year after the receipt of such shares by
such optionee, then (i) upon a sale of such shares, any amount realized in
excess of the exercise price of the ISO will be taxed to such optionee as a
long-term capital gain and any loss sustained will be a long-term capital loss,
and (ii) no deduction will be allowed to the Company. However, if shares
acquired upon the exercise of an ISO are disposed of prior to the expiration of
either holding period described above, generally (i) the optionee will realize
ordinary income in the year of disposition in an amount equal to the excess (if
any) of the fair market value of the shares at exercise (or, if less, the amount
realized on the disposition of the shares) over the exercise price thereof, and
(ii) the Company will be entitled to deduct such amount. Any additional gain or
loss recognized by the option holder will be taxed as a short-term or long-term
capital gain or loss, as the case may be, and will not result in any deduction
by the Company. If an ISO is exercised at a time when it no longer qualifies as
an incentive stock option under the Internal Revenue Code, it will be treated as
an NQO.
AMENDMENT AND TERMINATION OF THE ICP
The ICP does not have a stated termination date. The Board of Directors may
amend, suspend or terminate the ICP at any time. No amendment, suspension or
termination of the ICP may, without the consent of the Participant, adversely
affect the right of any participant or beneficiary under any award granted under
the ICP prior to the date such amendment is adopted by the Board of Directors.
In the event of termination, the ICP shall remain in effect as long as any
awards under it are outstanding.
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 ICP. THE BOARD OF
DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR PROPOSAL NO. 2 TO APPROVE
THE ICP. PROXIES SOLICITED BY THE BOARD OF DIRECTORS
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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. 3)
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 2000. 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. 3.
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
facsimile. 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 2001 ANNUAL MEETING
Stockholder proposals for inclusion in proxy materials for the 2001 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, 2000. Proxies received in respect of Common Stock to be
voted at the 2001 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, 2001.
By order of the Board of Directors,
JONATHAN D. KANTOR
Senior Vice President, General Counsel
and Secretary
Chicago, Illinois
March 30, 2000
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EXHIBIT A
CNA FINANCIAL CORPORATION
2000 INCENTIVE COMPENSATION PLAN
<PAGE> 25
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE 1. ESTABLISHMENT, OBJECTIVES AND DURATION........... 1
1.1. Establishment of the Plan............................ 1
1.2. Objectives of the Plan............................... 1
1.3. Duration of the Plan................................. 1
ARTICLE 2. DEFINITIONS...................................... 1
2.1. "Article"............................................ 1
2.2. "Award".............................................. 1
2.3. "Award Agreement".................................... 1
2.4. "Board".............................................. 1
2.5. "Bonus Shares"....................................... 2
2.6. "Cause".............................................. 2
2.7. "Code"............................................... 2
2.8. "Committee".......................................... 2
2.9. "Common Stock"....................................... 2
2.10. "Company"........................................... 2
2.11. "Deferred Shares"................................... 2
2.12. "Disability"........................................ 2
2.13. "Disqualifying Disposition"......................... 2
2.14. "Effective Date".................................... 2
2.15. "Eligible Person"................................... 2
2.16. "Fair Market Value"................................. 3
2.17. "Former Bonus Plan"................................. 3
2.18. "Freestanding SAR".................................. 3
2.19. "Grant Date"........................................ 3
2.20. "Grantee"........................................... 3
2.21. "Incentive Stock Option" or "ISO"................... 3
2.22. "including" or "includes"........................... 3
2.23. "Mature Shares"..................................... 3
2.24. "Non-Qualified Stock Option" or "NQSO".............. 3
2.25. "Option"............................................ 3
2.26. "Option Price"...................................... 3
2.27. "Option Term"....................................... 3
2.28. "Performance-Based Exception"....................... 3
2.29. "Performance Bonus"................................. 3
2.30. "Performance Period"................................ 3
2.31. "Performance Share" or "Performance Unit"........... 4
2.32. "Period of Restriction"............................. 4
2.33. "Person"............................................ 4
2.34. "Plan".............................................. 4
2.35. "Reload Option"..................................... 4
2.36. "Reorganization Transaction"........................ 4
2.37. "Required Withholding".............................. 4
2.38. "Restated Effective Date"........................... 4
2.39. "Restricted Executive".............................. 4
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
2.40. "Restricted Shares"................................. 4
2.41. "Retirement"........................................ 4
2.42. "SAR"............................................... 4
2.43. "Section"........................................... 4
2.44. "Share"............................................. 4
2.45. "Strike Price"...................................... 4
2.46. "Subsidiary"........................................ 5
2.47. "Substitute Award".................................. 5
2.48. "Surviving Corporation"............................. 5
2.49. "Tandem SAR"........................................ 5
2.50. "10% Owner"......................................... 5
2.51. "Termination of Affiliation"........................ 5
ARTICLE 3. ADMINISTRATION................................... 5
3.1. Committee............................................ 5
3.2. Powers of Committee.................................. 5
ARTICLE 4. SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS.... 7
4.1. Number of Shares Available........................... 7
4.2. Adjustments in Authorized Shares..................... 7
4.3. Performance Measures................................. 7
4.4. Compliance with Section 162(m) of the Code........... 9
ARTICLE 5. ELIGIBILITY AND GENERAL CONDITIONS OF AWARDS..... 9
5.1. Eligibility.......................................... 9
5.2. Grant Date........................................... 9
5.3. Maximum Term......................................... 9
5.4. Award Agreement...................................... 9
5.5. Restrictions on Share Transferability................ 10
5.6. Termination of Affiliation........................... 10
5.7. Nontransferability of Awards......................... 11
ARTICLE 6. STOCK OPTIONS.................................... 12
6.1. Grant of Options..................................... 12
6.2. Award Agreement...................................... 12
6.3. Option Price......................................... 12
6.4. Grant of Incentive Stock Options..................... 12
6.5. Grant of Reload Options.............................. 13
6.6. Conditions on Reload Options......................... 13
6.7. Payment.............................................. 13
ARTICLE 7. STOCK APPRECIATION RIGHTS........................ 14
7.1. Grant of SARs........................................ 14
7.2. Exercise of Tandem SARs.............................. 14
7.3. Payment of SAR Amount................................ 14
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 8. RESTRICTED SHARES................................ 14
8.1. Grant of Restricted Shares........................... 14
8.2. Award Agreement...................................... 15
8.3. Consideration........................................ 15
8.4. Effect of Forfeiture................................. 15
8.5. Escrow; Legends...................................... 15
8.6. Stockholder Rights in Restricted Shares.............. 15
ARTICLE 9. PERFORMANCE UNITS AND PERFORMANCE SHARES......... 15
9.1. Grant of Performance Units and Performance Shares.... 15
9.2. Value/Performance Goals.............................. 15
9.3. Earning of Performance Units and Performance
Shares................................................. 16
9.4. Form and Timing of Payment of Performance Units and
Performance Shares..................................... 16
ARTICLE 10. BONUS SHARES AND DEFERRED SHARES................ 16
10.1. Bonus Shares........................................ 16
10.2. Deferred Shares..................................... 16
ARTICLE 11. PERFORMANCE BONUS AWARDS........................ 16
11.1. Performance Bonus Awards............................ 16
11.2. Performance Periods, Measures and Goals.)........... 16
11.3. Determination of Performance Goals.................. 17
11.4. Adjustment of Goals................................. 17
11.5. Determination and Payment at Bonus.................. 17
ARTICLE 12. BENEFICIARY DESIGNATION......................... 17
12.1. Beneficiary Designation............................. 17
ARTICLE 13. DEFERRALS....................................... 18
13.1. Deferrals........................................... 18
ARTICLE 14. RIGHTS OF EMPLOYEES, CONSULTANTS AND
DIRECTORS................................................. 18
14.1. Employment.......................................... 18
14.2. Participation....................................... 18
ARTICLE 15. WITHHOLDING..................................... 18
15.1. Withholding......................................... 18
15.2. Notification under Section 83(b).................... 19
ARTICLE 16. CERTAIN EXTRAORDINARY EVENTS.................... 19
16.1. Certain Reorganization Transactions or Other
Events................................................. 19
16.2. Pooling of Interests Accounting..................... 20
16.3. Substituting Awards in Certain Corporate
Transactions........................................... 20
ARTICLE 17. AMENDMENT, MODIFICATION, AND TERMINATION........ 20
17.1. Amendment, Modification, and Termination............ 20
17.2. Adjustments Upon Certain Unusual or Nonrecurring
Events................................................. 20
17.3. Awards Previously Granted........................... 21
</TABLE>
iii
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE 18. ADDITIONAL PROVISIONS........................... 21
18.1. Successors.......................................... 21
18.2. Gender and Number................................... 21
18.3. Severability........................................ 21
18.4. Requirements of Law................................. 21
18.5. Securities Law Compliance........................... 21
18.6. No Rights as a Stockholder.......................... 22
18.7. Nature of Payments.................................. 22
18.8. Scope of Plan....................................... 22
18.9. Awards under Former Bonus Plan...................... 22
18.10. Governing Law...................................... 22
</TABLE>
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CNA FINANCIAL CORPORATION
2000 INCENTIVE COMPENSATION PLAN
ARTICLE 1. ESTABLISHMENT, OBJECTIVES AND DURATION
1.1. Establishment of the Plan. Effective as of January 1, 1996, CNA
Financial Corporation, a Delaware corporation (the "Company"), by duly adopted
resolution of its board of directors (the "Board") adopted the CNA Financial
Corporation Incentive Compensation Plan for Certain Executive Officers (the
"Former Bonus Plan"), subject to approval of the Company's stockholders, which
was obtained on May 1, 1996. Effective as of August 4, 1999 (the "Effective
Date"), the Company by duly adopted resolution of the Board adopted this CNA
Financial Corporation 2000 Incentive Compensation Plan (the "Plan") as the CNA
Financial Corporation 2000 Long-Term Incentive Plan, subject to approval of the
Plan by the Company's stockholders. The Company now desires to amend and restate
this Plan and amend and merge the Former Bonus Plan into this Plan as set forth
herein effective February 23, 2000 (the "Restated Effective Date"), subject to
the approval of the Company's stockholders.
1.2. Objectives of the Plan. The Plan is intended to allow employees,
directors and consultants of the Company and its Subsidiaries to obtain the
economic benefits of equity ownership in the Company, thereby strengthening
their commitment to the success of the Company and stimulating their efforts on
behalf of the Company, and to assist the Company and its Subsidiaries in
attracting new employees, directors and consultants and retaining existing
employees, directors and consultants. The Plan is also intended to optimize the
profitability and growth of the Company through incentives which are consistent
with the Company's goals; to motivate Eligible Persons, by means of appropriate
incentives, to achieve long-term Company goals, and reward Grantees for
achievement of those goals; provide incentive compensation opportunities that
are competitive with those of other similar companies, and thereby promote the
financial interest of the Company and its Subsidiaries; and, in the case of
annual incentives, to provide a means of rewarding certain Eligible Persons with
compensation which, when coupled with a base salary, produces a competitive
level of total compensation that reflects their contributions to the overall
long term enhancement of the value of the Company and its Subsidiaries.
1.3. Duration of the Plan. The Plan shall commence on the Effective Date
and shall remain in effect, until terminated by the Board pursuant to Article 17
hereof, provided, however, that no Incentive Stock Options may be granted under
the Plan more than 10 years from the Effective Date, and no Options, Restricted
Shares, Bonus Shares, Deferred Shares, SARs, or Performance Shares may be
granted under the Plan after all Shares reserved for delivery under the Plan
pursuant to Article 4 have been exhausted.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings set
forth below:
2.1. "Article" means an Article of the Plan.
2.2. "Award" means Options (including Reload Options), Restricted Shares,
Bonus Shares, Deferred Shares, stock appreciation rights (SARs), Performance
Units, Performance Shares, and Performance Bonus Awards granted under the Plan.
2.3. "Award Agreement" means a written agreement by which an Award is
evidenced.
2.4. "Board" has the meaning set forth in Section 1.1.
1
<PAGE> 30
2.5. "Bonus Shares" means Shares that are awarded to a Grantee without
cost and without restrictions in recognition of past performance (whether
determined by reference to another employee benefit plan of the Company or
otherwise), or as an incentive to become an employee or consultant of the
Company or a Subsidiary or otherwise.
2.6. "Cause" as to a Grantee means (a) "cause" for discharge from
employment as specified in an employment contract between the Grantee and the
Company or any Subsidiary; or (b) if there is no employment contract, "cause" as
defined in the Award Agreement; or (c) if "cause" is not otherwise defined in
such employment contract or Award Agreement as determined by the Committee:
(i) a Grantee's engaging in any act which is a felony or other
similar act involving fraud, dishonesty, moral turpitude, unlawful conduct
or breach of fiduciary duty;
(ii) a Grantee's willful or reckless material misconduct in the
performance of the Grantee's duties; or
(iii) a Grantee's habitual neglect of duties;
provided, however, that for purposes of clauses (ii) and (iii), Cause shall not
include any one or more of the following: bad judgment, negligence or any act or
omission believed by the Grantee in good faith to have been in or not opposed to
the interest of the Company (without intent of the Grantee to gain, directly or
indirectly, a profit to which the Grantee was not legally entitled). A Grantee
who agrees to resign from his affiliation with the Company or a Subsidiary in
lieu of being terminated for Cause may be deemed to have been terminated for
Cause for purposes of this Plan.
2.7. "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and regulations and rulings thereunder. References to a particular
section of the Code include references to successor provisions of the Code or
any successor statute.
2.8. "Committee" has the meaning set forth in Section 3.1.
2.9. "Common Stock" means the common stock, $2.50 par value, of the
Company.
2.10. "Company" has the meaning set forth in Section 1.1.
2.11. "Deferred Shares" means Shares that are awarded to a Grantee on a
deferred basis pursuant to Section 10.2.
2.12. "Disability" means a physical or mental condition of the Grantee
which, as determined by the Committee in its sole discretion based on all
available medical information, would qualify the Grantee for benefits under the
Company's long-term disability plan as in effect when the determination is made
(ignoring the requirements of any waiting period) if the Grantee were a
participant in such plan (whether or not the Grantee actually participates
therein). Notwithstanding the foregoing, if the Company has no long-term
disability plan, "Disability" means a physical or mental condition of the
Grantee which, as determined by the Committee in its sole discretion based on
all available medical information, is expected to continue indefinitely and
which renders the Grantee incapable of performing any substantial portion of the
service required of him by his employer.
2.13. "Disqualifying Disposition" has the meaning set forth in Section
6.4.
2.14. "Effective Date" has the meaning set forth in Section 1.1.
2.15. "Eligible Person" means (i) any employee (including any officer) of
the Company or any Subsidiary, including any such employee who is on an approved
leave of absence, layoff, or has been subject to a disability which does not
qualify as a Disability, (ii) any person performing services for the Company or
a
2
<PAGE> 31
Subsidiary in the capacity of a consultant, (iii) any person performing services
for the Company or a Subsidiary in the capacity of a member of the Board or as a
member of the board of directors of such Subsidiary, and (iv) any person for
whom the Committee determines an Award would provide a material inducement to
become an employee or director of or a consultant to the Company or a
Subsidiary.
2.16. "Fair Market Value" means (A) with respect to any property other
than Shares, the fair market value of such property determined by such methods
or procedures as shall be established from time to time by the Committee, and
(B) with respect to Shares, as of any date, (i) the average of the high and low
trading prices on such date on the New York Stock Exchange Composite
Transactions Tape (or, if no sale of Shares was reported for such date, on the
next preceding date on which a sale of Shares was reported), (ii) if the Shares
are not listed on the New York Stock Exchange, the average of the high and low
trading prices of the Shares on such other national exchange on which the Shares
are principally traded or as reported by the NASDAQ Stock Market, or similar
organization, or if no such quotations are available, the average of the high
bid and low asked quotations in the over-the-counter market; or (iii) in the
event that there shall be no public market for the Shares, the fair market value
of the Shares as determined by the Committee.
2.17. "Former Bonus Plan" has the meaning set forth in Section 1.1.
2.18. "Freestanding SAR" means an SAR that is granted independently of any
other Award.
2.19. "Grant Date" has the meaning set forth in Section 5.2.
2.20. "Grantee" means an individual who has been granted an Award.
2.21. "Incentive Stock Option" or "ISO" means an Option that (i) is
designated as an Incentive Stock Option in the Award Agreement granting such
Option; and (ii) is intended to met the requirements of Section 422 of the Code
for treatment as an Incentive Stock Option.
2.22. "including" or "includes" mean "including, without limitation," or
"includes, without limitation", respectively.
2.23. "Mature Shares" means Shares for which the holder thereof has good
title, free and clear of all liens and encumbrances, and which such holder
either (i) has held for at least six months or (ii) has purchased on the open
market.
2.24. "Non-Qualified Stock Option" or "NQSO" means an Option that is not
an Incentive Stock Option.
2.25. "Option" means an option (including either an Incentive Stock Option
or a Non-Qualified Stock Option) granted under Article 6 of the Plan.
2.26. "Option Price" means the price at which a Share may be purchased by
a Grantee pursuant to an Option.
2.27. "Option Term" means the period beginning on the Grant Date of an
Option and ending on the expiration date of such Option, as specified in the
Award Agreement for such Option and as may, consistent with the provisions of
the Plan, be extended from time to time by the Committee prior to the expiration
date of such Option then in effect.
2.28. "Performance-Based Exception" means the performance-based exception
from the tax deductibility limitations of Section 162(m) of the Code.
2.29. "Performance Bonus" means a cash bonus determined and awarded in
accordance with Article 11.
2.30. "Performance Period" means the time period during which performance
goals designated by the Committee shall be met.
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2.31. "Performance Share" or "Performance Unit" has the meaning set forth
in Article 9.
2.32. "Period of Restriction" means the period during which the transfer
of Restricted Shares is limited in some way (based on the passage of time, the
achievement of performance goals, or upon the occurrence of other events as
determined by the Committee) or the Shares are otherwise subject to a
substantial risk of forfeiture.
2.33. "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Securities Exchange Act of 1934 and used in Sections 13(d) and
14(d) thereof, including a "group" as defined in Section 13(d) thereof.
2.34. "Plan" has the meaning set forth in Section 1.1.
2.35. "Reload Option" has the meaning set forth in Section 6.5.
2.36. "Reorganization Transaction" means the earlier of the approval by
the Board or the approval by the stockholders of the Company of a merger,
reorganization, consolidation, or similar transaction, or a plan or agreement
for the sale or other disposition of all or substantially all of the
consolidated assets of the Company or a plan of liquidation of the Company.
2.37. "Required Withholding" has the meaning set forth in Article 15.
2.38. "Restated Effective Date" has the meaning set forth in Section 1.1.
2.39. "Restricted Executive" means a Grantee who is the Chief Executive
Officer of the Company, any officer of the Company who reports directly to the
Chief Executive Officer of the Company, and any other officer of the Company or
of a Subsidiary who is salary grade 96 or above; provided, however, that the
Committee may at the time of any Award to any Grantee determine that such
Grantee be treated as a Restricted Executive for purposes of that Award; and
further provided, however, that no Grantee shall be a Restricted Executive after
the last day of the calendar year in which he ceases to be an employee of the
Company (unless he is subsequently reemployed by the Company on terms and
conditions making him a Restricted Executive as defined in this Section).
2.40. "Restricted Shares" means Shares that are subject to transfer
restrictions and are subject to forfeiture if conditions specified in the Award
Agreement applicable to such Shares are not satisfied.
2.41. "Retirement" means a Termination of Affiliation on or after the date
a Grantee attains age 62 unless the Award Agreement or Committee provides
otherwise; and in the case of a Grantee who is an Eligible Person solely by
reason of clause (ii) or (iii) of Section 2.15, a Termination of Affiliation for
a reason other than death, Disability or Cause at or after the date the Grantee
attains age 62 unless the Award Agreement or Committee provides otherwise.
2.42. "SAR" means a stock appreciation right.
2.43. "Section" means, unless the context otherwise requires, a Section of
the Plan.
2.44. "Share" means a share of Common Stock.
2.45. "Strike Price" of any SAR shall equal, for any Tandem SAR (whether
granted at the same time as or after the grant of the related Option), the
Option Price of such Option, or for any other SAR, 100% of the Fair Market Value
of a Share on the Grant Date of such SAR; provided that the Committee may
specify a higher Strike Price in the Award Agreement; and further provided that
any SAR granted as a Substitute Award pursuant to Section 16.3 may be granted at
such Strike Price as the Committee determines to be necessary to achieve
preservation of economic value as provided in Section 16.3.
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2.46. "Subsidiary" means, for purposes of grants of Incentive Stock
Options, a corporation as defined in Section 424(f) of the Code (with the
Company being treated as the employer corporation for purposes of this
definition); and for all other purposes, with respect to any Person, any
business entity in which such Person has a direct or indirect interest (whether
in the form of stock ownership, voting power or participation in profits or
capital contribution) of more than 50%, as determined by the Committee.
2.47. "Substitute Award" has the meaning set forth in Section 16.3.
2.48. "Surviving Corporation" means the corporation resulting from a
Reorganization Transaction or, if securities of such corporation that are
entitled to vote generally in the election of directors (other than a class of
securities may have voting power by reason of the occurrence of a contingency)
representing at least 50% of the aggregate voting power of such resulting
corporation are directly or indirectly owned by another corporation, such other
corporation.
2.49. "Tandem SAR" means an SAR that is granted in connection with a
related Option, the exercise of which shall require cancellation of the right to
purchase a Share under the related Option (and when a Share is purchased under
the related Option, the Tandem SAR shall similarly be canceled).
2.50. "10% Owner" means a person who owns capital stock (including stock
treated as owned under Section 424(d) of the Code) possessing more than 10% of
the total combined voting power of all classes of capital stock of the Company
or any Subsidiary.
2.51. "Termination of Affiliation" occurs on the first day on which an
individual is for any reason no longer providing services to the Company or any
Subsidiary in the capacity of an employee, consultant, or director; or with
respect to an individual who is an employee of, or consultant to, or director
of, a Person which is a Subsidiary, the first day on which such Person ceases to
be a Subsidiary.
ARTICLE 3. ADMINISTRATION
3.1. Committee. The Plan shall be administered by the Incentive
Compensation Committee of the Board, or such other committee of the Board as the
Board shall appoint to administer the Plan (the "Committee"). The number of
members of the Committee shall be set and may from time to time be increased or
decreased, and shall be subject to such conditions, in each case as the Board
deems appropriate.
3.2. Powers of Committee. Subject to the express provisions of the Plan
and in addition to the authority and discretion granted elsewhere in the Plan,
the Committee has full and final authority and sole discretion as follows:
(a) to determine when, to whom and in what types and amounts Awards
should be granted and the terms and conditions applicable to each Award,
including the Option Price, the Option Term, the benefit payable under any
SAR, Performance Unit, Performance Share, or Performance Bonus Award, and
whether or not specific Awards shall be granted in connection with other
specific awards, and if so whether they shall be exercisable cumulatively
with, or alternatively to, such other specific Awards;
(b) to determine the amount, if any, that a Grantee shall pay for
Restricted Shares, whether and on what terms to permit or require the
payment of cash dividends thereon to be deferred, what restrictions shall
apply to Restricted Shares, when Restricted Shares (in cluding Restricted
Shares acquired upon the exercise of an Option) shall be forfeited and
whether such shares shall be held in escrow;
(c) to construe and interpret the Plan and to make all determinations
necessary or advisable for the administration of the Plan, including
determining whether a Termination of Affiliation is for Cause, Retirement,
death, Disability or other reason;
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(d) to make, amend, and rescind rules relating to the Plan, including
rules with respect to the exercisability and nonforfeitability of Awards
upon the Termination of Affiliation of a Grantee;
(e) to determine the terms and conditions of all Award Agreements
(which need not be identical) and, with the consent of the Grantee, to
amend any such Award Agreement at any time in any manner permitted for
Awards of such type by the Plan as then in effect; provided that the
consent of the Grantee shall not be required for any amendment which (i)
does not materially adversely affect the rights of the Grantee, or (ii) is
necessary or advisable (as determined by the Committee) to carry out the
purpose of the Award as a result of any new or change in existing
applicable law or generally accepted accounting principles;
(f) to cancel, with the consent of the Grantee, outstanding Awards
and to grant new Awards in substitution therefor;
(g) to accelerate the exercisability (including exercisability within
a period of less than six months after the Grant Date) of, and to
accelerate or waive any or all of the terms and conditions applicable to,
any Award or any group of Awards for any reason and at any time, including
in connection with a Termination of Affiliation;
(h) subject to Sections 1.3, 5.3, and 6.4, to extend the time during
which any Award or group of Awards may be exercised;
(i) to make such adjustments or modifications to Awards to Grantees
who are working outside the United States as are advisable to fulfill the
purposes of the Plan or to comply with applicable local law;
(j) to delegate to the Chief Executive Officer of the Company, other
executive officers of the Company, or other members or committees of the
Board, the power to grant Performance Units and Performance Bonus Awards
from time to time to specified categories of Eligible Persons in amounts
and on terms to be specified by the Committee, in which event the
Committee's delegates may exercise in their sole discretion all powers and
authority of the Committee with respect to such Awards except as otherwise
specified in this Plan or by the Committee;
(k) to delegate to officers, employees or independent contractors of
the Company matters involving the routine administration of the Plan and
which are not specifically required by any provision of this Plan to be
performed by the Committee;
(l) to impose such additional terms and conditions upon the grant,
exercise or retention of Awards as the Committee may, before or
concurrently with the grant thereof, deem appropriate, including limiting
the percentage of Awards which may from time to time be exercised by a
Grantee; and
(m) to take any other action with respect to any matters relating to
the Plan for which it is responsible.
All determinations on any matter relating to the Plan or any Award Agreement may
be made in the sole and absolute discretion of the Committee, and all such
determinations of the Committee shall be final, conclusive and binding on all
Persons. The determinations of the Committee in granting Awards need not be
uniform among Grantees and among Awards and no determination of the Committee
with respect to any Grantee or Award shall entitle that Grantee or any other
Grantee to the same determination with respect to any other Award; except that
the Committee shall construe the terms of the Plan and of any Award Agreement
consistently as to the meaning of the same language. No member of the Committee
shall be liable for any action or determination made with respect to the Plan or
any Award.
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ARTICLE 4. SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
4.1. Number of Shares Available. Subject to Section 4.4 and to adjustment
as provided in Section 4.2, the number of Shares hereby reserved for delivery
under the Plan is 2,000,000. If any Shares subject to an Award granted hereunder
are forfeited or an Award or any portion thereof otherwise terminates or is
settled without the issuance of Shares, the Shares subject to such Award, to the
extent of any such forfeiture, termination or settlement, shall again be
available for grant under the Plan. If any Shares (whether subject to or
received pursuant to an Award granted under this Plan or any other plan,
purchased on the open market, or otherwise obtained, and including Shares that
are deemed (by attestation or otherwise) to have been delivered to the Company
as payment for all or any portion of the Option Price of an Option pursuant to
Section 6.7) are withheld or applied as payment by the Company in connection
with the exercise of an Award hereunder or the withholding of taxes related
thereto, such Shares, to the extent of any such withholding or payment, shall
again be available or shall increase the number of Shares available, as
applicable, for grant under the Plan. The Committee may from time to time
determine the appropriate methodology consistent with this Section 4.1 for
calculating the number of Shares issued pursuant to the Plan. Shares issued
pursuant to the Plan may be treasury shares or newly-issued Shares.
4.2. Adjustments in Authorized Shares. In the event that the Committee
determines that any dividend or other distribution (whether in the form of cash,
Shares, other securities, or other property), recapitalization, stock split,
reverse stock split, subdivision, consolidation or reduction of capital,
reorganization, merger, scheme of arrangement, split-up, spin-off or combination
involving the Company or repurchase or exchange of Shares or other rights to
purchase Shares or other securities of the Company, or other similar corporate
transaction or event that occurs at any time after the Effective Date affects
the Shares such that any adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number and type of Shares (or other securities or property of the
Company or any Person that is a party to a Reorganization Transaction with the
Company) with respect to which Awards may be granted, (ii) the number and type
of Shares (or other securities or property of the Company or any Person that is
a party to a Reorganization Transaction with the Company) subject to outstanding
Awards, (iii) the grant price, strike price, or exercise price with respect to
any Award, and (iv) the limitations on the maximum number and type of Shares
available under the Plan and that may be granted as particular Awards as set
forth in Section 4.1; or, if deemed appropriate, apply the provisions of Article
16; provided, in each case that with respect to Awards of Incentive Stock
Options no such adjustment shall be authorized to the extent that such
adjustment would cause the Plan to violate Section 422(b)(1) of the Code or any
successor provision thereto; and provided further, that the number of Shares
subject to any Award denominated in Shares shall always be a whole number.
4.3. Performance Measures. Unless and until the Committee proposes for
stockholder vote and the stockholders of the Company approve a change in the
general performance measures set forth in this Section 4.3 the attainment of
which may determine the degree of payout and/or vesting with respect to Awards
granted to Restricted Executives which are designed to qualify for the
Performance-Based Exception, the performance measure(s) to be used for purposes
of such grants shall be chosen from among one or more or any combination of the
following performance measures relating to the Company, subsidiary, operating
unit or division:
(a) Earnings (either in the aggregate or on a per-share basis, and if
on a per-share basis reflecting such dilution of shares outstanding as the
Committee deems appropriate) before or after interest and taxes;
(b) Net Income (as defined below);
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(c) Net Operating Income (as defined below);
(d) Return measures (including return or net return on assets, net
assets, investments, capital, equity, or gross sales);
(e) Stockholder returns (including growth measures and stockholder
return or attainment by the Shares of a specified value for a specified
period of time), share price or share price appreciation;
(f) Cash flow(s);
(g) Dividends;
(h) Gross revenues;
(i) Gross or net premiums written;
(j) Net premiums earned;
(k) Net investment income;
(l) Losses and loss expenses, loss ratios, expense ratios, or
combined ratios;
(m) Underwriting and administrative expenses;
(n) Operating expenses;
(o) Stock price;
(p) Satisfaction of specified business expansion goals or goals
relating to acquisitions or divestitures;
(q) Expense or cost levels in each case, where applicable, determined
either on a Company-wide basis or in respect of any one or more specified
business units;
(r) Net economic value; or
(s) Market share or market penetration with respect to specific
designated products or product groups.
Each goal may be expressed on an absolute and/or relative basis, may be based on
or otherwise employ comparisons based on internal targets, the past performance
of the Company or any business unit thereof, and/or the past or current
performance of other companies.
For purposes of this Section 4.3, "Net Income" shall mean net income to be
reported to stockholders in the Company's annual report and "Net Operating
Income" shall mean Net Income adjusted to exclude all realized capital gains (or
losses) other than those related to a disposal of a segment of the business (in
whole or in part) or sale of a Subsidiary, net of tax. In addition, the
following items may also be excluded: (i) items of gain, loss, or expense
determined to be extraordinary or unusual in nature or infrequent in occurrence
or related to a change in accounting principles, all as determined in accordance
with standards established by opinions No. 20 and 30 of the Accounting
Principles Board, as amended; (ii) restructuring charges of Subsidiaries whose
operations are not included in Net Income; and (iii) profit or loss attributable
to the business operations of any entity acquired during the year. However, the
Committee shall have authority to exercise negative discretion in determining
the amount of gain to be included as the result of the disposal of a segment of
the business (in whole or in part) or the sale of a Subsidiary.
The Committee shall have the discretion to adjust the Awards and the
determinations of the degree of attainment of the pre-established performance
goals; provided, however, the Awards which are designed to qualify for the
Performance-Based Exception, and which are held by Restricted Executives, may
not be
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adjusted upward. The Committee, however, shall retain the discretion to adjust
any Awards downward, except to the extent otherwise provided in the Award
Agreement or in a previously executed agreement between the Company and the
Grantee.
In the event that applicable tax and/or securities laws change to permit
Committee discretion to alter the governing performance measures without
obtaining stockholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining stockholder approval. In
addition, in the event that the Committee determines that it is advisable to
grant or pay Awards which shall not qualify for the Performance-Based Exception,
the Committee may make such grants or payments without satisfying the
requirements of Section 162(m) of the Code.
4.4. Compliance with Section 162(m) of the Code.
(a) Section 162(m) Compliance. At all times when Section 162(m) of
the Code is applicable, all Awards granted under this Plan to Restricted
Employees shall to the extent provided by the Committee comply with the
requirements of Section 162(m) of the Code; provided, however, that in the
event the Committee determines that such compliance is not desired with
respect to any Award or Awards available for grant under the Plan, then
compliance with Section 162(m) of the Code will not be required; provided
further that to the extent Section 162(m) or the regulations thereunder
require periodic stockholder approval of such performance measures such
approval shall not be required for the continuation of the Plan or as a
condition to grant any Award hereunder after such approval is required. In
addition, in the event that changes are made to Section 162(m) of the Code
to permit flexibility with respect to the Award or Awards available under
the Plan, the Committee may, subject to this Section 4.4, make any
adjustments to such Awards or otherwise it deems appropriate.
(b) Section 162(m) Maximum Individual Limits. Subject to adjustment
as provided in Section 4.2, the maximum aggregate number of Shares
(including as Shares, a number of Shares equal to the number of SARs
granted) for which Awards (other than Reload Options, Performance Units and
Performance Bonus Awards) may be granted to any Grantee in any calendar
year shall not exceed 400,000 and the number of Shares for which Reload
Options may be granted to any Grantee in any calendar year shall not exceed
400,000. The maximum aggregate value of Performance Units and Performance
Bonus Awards granted to any Grantee hereunder in any calendar year shall
not exceed in the case of annual awards, $5,000,000, and in the case of
other awards $8,000,000. Maximum Limits under this Section 4.4(b) shall be
calculated in accordance with Treasury Regulation
sec.1.162-27(e)(2)(vi)(B).
ARTICLE 5. ELIGIBILITY AND GENERAL CONDITIONS OF AWARDS
5.1. Eligibility. The Committee may grant Awards to any Eligible Person,
whether or not he or she has previously received an Award.
5.2. Grant Date. The Grant Date of an Award shall be the date on which the
Committee grants the Award or such later date as specified by the Committee in
the Award Agreement.
5.3. Maximum Term. The Option Term or other period during which an Award
may be outstanding, unless otherwise provided in the Award Agreement, shall not
extend more than 10 years after the Grant Date, and shall be subject to earlier
termination as herein specified; provided, that the Option Term of any ISO shall
not exceed 10 years; and provided, however, that any deferral of a cash payment
or of the delivery of Shares that is permitted or required by the Committee
pursuant to Article 12 may, if so permitted or required by the Committee, extend
more than 10 years after the Grant Date of the Award to which the deferral
relates.
5.4. Award Agreement. To the extent not set forth in the Plan, the terms
and conditions of each Award (which need not be the same for each grant or for
each Grantee) shall be set forth in an Award Agreement.
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5.5. Restrictions on Share Transferability. The Committee may include in
the Award Agreement such restrictions on transferability of any Shares acquired
pursuant to the exercise or vesting of an Award as it may deem advisable.
5.6. Termination of Affiliation. Except as otherwise provided in an Award
Agreement (including an Award Agreement as amended by the Committee pursuant to
Section 3.2), the extent to which the Grantee shall have the right to exercise,
vest in, or receive payment in respect of an Award following Termination of
Affiliation shall be determined in accordance with the following provisions of
this Section 5.6.
(a) For Cause. If a Grantee has a Termination of Affiliation for
Cause:
(i) the Grantee's Awards (including any Restricted Shares or
Deferred Shares) that are forfeitable immediately before such
Termination of Affiliation shall automatically be forfeited on such
Termination of Affiliation, subject in the case of Restricted Shares to
the provisions of Section 8.4 regarding repayment of certain amounts to
the Grantee;
(ii) the Grantee's Deferred Shares that were vested immediately
before such Termination of Affiliation shall promptly be settled by
delivery to such Grantee of a number of unrestricted Shares equal to the
aggregate number of such vested Deferred Shares, and
(iii) any unexercised Option or SAR, and any Performance Share,
Performance Unit or Performance Bonus Award with respect to which the
Performance Period has not ended immediately before such Termination of
Affiliation, shall terminate effective immediately upon such Termination
of Affiliation.
(b) On Account of Retirement, Death or Disability. If a Grantee has a
Termination of Affiliation on account of Retirement, death or Disability:
(i) the Grantee's Awards that were forfeitable immediately before
such Termination of Affiliation shall thereupon become nonforfeitable;
(ii) the Company shall promptly settle all Deferred Shares,
whether or not forfeitable, by delivery to the Grantee (or, after his or
her death, to his or her personal representative or beneficiary
designated in accordance with Article 11) of a number of unrestricted
Shares equal to the aggregate number of the Grantee's Deferred Shares;
(iii) any unexercised Option or SAR, whether or not exercisable
immediately before such Termination of Affiliation, may be exercised, in
whole or in part, at any time after such Termination of Affiliation (but
in either case only during the Option Term) by the Grantee (whether or
not, in the case of Disability, such exercise causes an Option to fail
to qualify as an ISO) or, after his or her death, by (A) his or her
personal representative or the person to whom the Option or SAR, as
applicable, is transferred by will or the applicable laws of descent and
distribution, or (B) the Grantee's beneficiary designated in accordance
with Article 12; and
(iv) the benefit payable with respect to any Performance Share or
Performance Unit with respect to which the Performance Period has not
ended immediately before such Termination of Affiliation shall be equal
to the product of the Fair Market Value of a Share as of the date of
such Termination of Affiliation or the value of the Performance Unit
specified in the Award Agreement (determined as of the date of such
Termination of Affiliation), as applicable, multiplied successively by
(1) and (2) below; and the benefit payable with respect to any
Performance Bonus Award with respect to which the Performance Period has
not ended immediately before such Termination of Affiliation shall be
equal to the product of (1) and (2) below; where:
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(1) is a fraction, the numerator of which is the number of
months that have elapsed since the beginning of such Performance
Period to and including the month in which occurs the date of such
Termination of Affiliation and the denominator of which is the number
of months in the Performance Period; and
(2) is a percentage determined by the Committee that would be
earned under the terms of the applicable Award Agreement assuming
that the rate at which the performance goals have been achieved as of
the date of such Termination of Affiliation would continue until the
end of the Performance Period, or, if the Committee elects to compute
the benefit after the end of the Performance Period, the performance
percentage, as determined by the Committee, attained during the
Performance Period.
(c) Any Other Reason. If a Grantee has a Termination of Affiliation
for any reason other than for Cause, Retirement, death or Disability, then:
(i) the Grantee's Awards, to the extent forfeitable under the Plan
or the Award Agreement immediately before such Termination of
Affiliation, shall thereupon automatically be forfeited, subject in the
case of Restricted Shares to the provisions of Section 8.4 regarding
repayment of certain amounts to the Grantee;
(ii) the Grantee's Deferred Shares that were not forfeitable
immediately before such Termination of Affiliation shall, unless
otherwise provided in an Award Agreement, promptly be settled by
delivery to the Grantee of a number of unrestricted Shares equal to the
aggregate number of the Grantee's vested Deferred Shares;
(iii) any unexercised Option or SAR, and any Performance Share,
Performance Unit or Performance Bonus Award with respect to which the
Performance Period has not ended immediately before such Termination of
Affiliation, shall terminate effective immediately upon such Termination
of Affiliation unless the Committee determines in writing otherwise.
(iv) any Performance Shares, Performance Units or Performance
Bonus with respect to which the Performance Period has not ended as of
the date of such Termination of Affiliation shall terminate immediately
upon such Termination of Affiliation unless the Committee determines in
writing otherwise.
5.7. Nontransferability of Awards.
(a) Except as provided in Section 5.7(c) below, each Award, and each
right under any Award, shall be nontransferable, and during the Grantee's
lifetime, shall be exercisable only by the Grantee, or, if permissible
under applicable law, by the Grantee's guardian or legal representative.
(b) Except as provided in Section 5.7(c) below, no Award (prior to
the time, if applicable, Shares are issued in respect of such Award), and
no right under any Award, may be assigned, alienated, pledged, attached,
sold or otherwise transferred or encumbered by a Grantee otherwise than by
will or by the laws of descent and distribution (or in the case of
Restricted Shares, to the Company) and any such purported assignment,
alienation, pledge, attachment, sale, transfer or encumbrance shall be void
and unenforceable against the Company or any Subsidiary; provided, however,
that the designation of a beneficiary in accordance with Article 12 shall
not constitute an assignment, alienation, pledge, attachment, sale,
transfer or encumbrance.
(c) To the extent and in the manner permitted by the Committee, and
subject to such terms and conditions as may be prescribed by the Committee,
a Grantee may transfer a Non-Qualified Stock
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(c) To the extent and in the manner permitted by the Committee, and
subject to such terms and conditions as may be prescribed by the Committee, a
Grantee may transfer a Non-Qualified Stock Option, SAR, Restricted Share, Bonus
Share, or Deferred Share Award to (i) a spouse, sibling, parent or Option, SAR,
Restricted Share, Bonus Share, or Deferred Share Award to (i) a spouse, sibling,
parent or lineal descendant (including a lineal descendant by adoption) (any of
the foregoing, an "Immediate Family Member") of the Grantee; (ii) a trust, the
primary beneficiaries of which consist exclusively of the Grantee or Immediate
Family Members of the Grantee or the spouses of such Immediate Family Members,
or (iii) a corporation, partnership or similar entity, the owners of which
consist exclusively of the Grantee or Immediate Family Members of the Grantee or
the spouses of such Immediate Family Members. This subsection (c) shall not be
construed to authorize a transfer of an Incentive Stock Option, Performance
Unit, Performance Share, or Performance Bonus Award.
ARTICLE 6. STOCK OPTIONS
6.1. Grant of Options. Subject to the terms and provisions of the Plan,
Options may be granted to any Eligible Person in such number, and upon such
terms, and at any time and from time to time as shall be determined by the
Committee. Without limiting the generality of the foregoing, the Committee may
grant to any Eligible Person, or permit any Eligible Person to elect to receive,
an Option in lieu of or in substitution for any other compensation (whether
payable currently or on a deferred basis, and whether payable under this Plan or
otherwise) which such Eligible Person may be eligible to receive from the
Company or a Subsidiary, which Option may have a value (as determined by the
Committee under Black-Scholes or any other option valuation method) that is
equal to or greater than the amount of such other compensation.
6.2. Award Agreement. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the Option Term, the number of
Shares to which the Option pertains, the time or times at which such Option
shall be exercisable and such other provisions as the Committee shall determine.
6.3. Option Price. The Option Price of an Option under this Plan shall be
determined by the Committee, and shall be no less than 100% of the Fair Market
Value of a Share on the Grant Date; provided, however, that any Option granted
as a Substitute Award pursuant to Section 16.3 may be granted at such Option
Price as the Committee determines to be necessary to achieve preservation of
economic value as provided in Section 16.3.
6.4. Grant of Incentive Stock Options. At the time of the grant of any
Option, the Committee may in its discretion designate such Option as an
Incentive Stock Option. Any Incentive Stock Option:
(a) shall, if granted to a 10% Owner, have an Option Price not less
than 110% of the Fair Market Value of a Share on its Grant Date;
(b) shall have an Option Term of not more than 10 years (five years
in the case of an Incentive Stock Option granted to a 10% Owner) from its
Grant Date, and shall be subject to earlier termination as provided herein
or in the applicable Award Agreement;
(c) shall not have an aggregate Fair Market Value (as of the Grant
Date of each Incentive Stock Option) of the Shares with respect to which
Incentive Stock Options (whether granted under the Plan or any other stock
option plan of the Grantee's employer or any parent or Subsidiary thereof
("Other Plans")) are exercisable for the first time by such Grantee during
any calendar year, determined in accordance with the provisions of Section
422 of the Code, which exceeds $100,000 (the "$100,000 Limit"); and to the
extent any Grant is in excess of such $100,000 Limit, a portion of such
Grant equal to the $100,000 Limit shall be designated as an ISO and the
remainder shall, notwithstanding its prior designation as an ISO, be
regarded as a NQSO.
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(d) shall be granted within 10 years from the earlier of the date the
Plan is adopted or the date the Plan is approved by the stockholders of the
Company;
(e) shall require the Grantee to notify the Committee of any
disposition of any Shares issued pursuant to the exercise of the Incentive
Stock Option under the circumstances described in Section 421(b) of the
Code (relating to certain disqualifying dispositions) (any such
circumstance, a "Disqualifying Disposition"), within 10 days of such
Disqualifying Disposition; and
(f) shall by its terms not be assignable or transferable other than
by will or the laws of descent and distribution and may be exercised,
during the Grantee's lifetime, only by the Grantee; provided, however, that
the Grantee may, to the extent provided in the Plan in any manner specified
by the Committee, designate in writing a beneficiary to exercise his or her
Incentive Stock Option after the Grantee's death.
Notwithstanding the foregoing, the Committee may, without the consent of
the Grantee, at any time before the exercise of an Option (whether or not an
Incentive Stock Option), take any action necessary to prevent such Option from
being treated as an Incentive Stock Option.
6.5. Grant of Reload Options. The Committee may in connection with the
grant of an Option or thereafter provide that a Grantee who (i) is an Eligible
Person when he or she exercises an Option ("Exercised Option") and (ii)
satisfies the Option Price or Required Withholding applicable thereto with
Shares (including Shares that are deemed to have been delivered as payment for
all or any portion of the Option Price of an Exercised Option by attestation or
otherwise) shall automatically be granted, subject to Article 4, an additional
option ("Reload Option") in an amount equal to the sum ("Reload Number") of the
number of Shares tendered (including Shares that are deemed to have been
tendered) to exercise the Exercised Option plus, if so provided by the
Committee, the number of Shares, if any, retained by the Company in connection
with the exercise of the Exercised Option to satisfy any federal, state, local
or foreign tax withholding requirements.
6.6. Conditions on Reload Options. Reload Options shall be subject to the
following terms and conditions:
(a) the Grant Date for each Reload Option shall be the date of
exercise of the Exercised Option to which it relates;
(b) subject to Section 6.6(c), the Reload Option may be exercised at
any time during the Option Term of the Exercised Option (subject to earlier
termination thereof as provided in the Plan or in the applicable Award
Agreement); and
(c) the terms of the Reload Option shall be the same as the terms of
the Exercised Option to which it relates, except that, unless otherwise
provided in the Award Agreement, the Option Price for the Reload Option
shall be 100% of the Fair Market Value of a Share on the Grant Date of the
Reload Option.
6.7. Payment. Options granted under this Article 6 shall be exercised by
the delivery of a written notice of exercise to the Company, setting forth the
number of Shares with respect to which the Option is to be exercised,
accompanied by full payment for the Shares made by cash, personal check or wire
transfer or, subject to the approval of the Committee, any one or more of the
following means:
(a) Tendering, either by actual tender or by attestation to ownership
of, Mature Shares, valued at their Fair Market Value on the date of
exercise;
(b) Tendering Restricted Shares held by the Grantee for at least six
months prior to the exercise of the Option, each such share valued at the
Fair Market Value of a Share on the date of exercise; or
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(c) Pursuant to procedures approved by the Committee, through the
sale of the Shares acquired on exercise of the Option through a
broker-dealer to whom the Grantee has submitted an irrevocable notice of
exercise and irrevocable instructions to deliver promptly to the Company
the amount of sale or loan proceeds sufficient to pay for such Shares,
together with, if requested by the Company, the amount of federal, state,
local or foreign withholding taxes payable by Grantee by reason of such
exercise.
If any Restricted Shares ("Tendered Restricted Shares") are used to pay the
Option Price, a number of Shares acquired on exercise of the Option equal to the
number of Tendered Restricted Shares shall be subject to the same restrictions
as the Tendered Restricted Shares, determined as of the date of exercise of the
Option.
If tender by attestation of ownership of Mature Shares is used to pay the
Option Price, the number of Shares delivered upon exercise of the Option shall
be limited to the difference between the number of Shares subject to the Option
and the number of Shares tendered by attestation.
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1. Grant of SARs. Subject to the terms and conditions of the Plan, SARs
may be granted to any Eligible Person at any time and from time to time as shall
be determined by the Committee. The Committee may grant Freestanding SARs,
Tandem SARs, or any combination thereof. The Committee shall determine the
number of SARs granted to each Grantee (subject to Article 4), the Strike Price
thereof, and, consistent with Section 7.2 and the other provisions of the Plan,
the other terms and conditions pertaining to such SARs.
7.2. Exercise of Tandem SARs. Tandem SARs may be exercised for all or part
of the Shares subject to the related Option upon the surrender of the right to
exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable.
Notwithstanding any other provision of this Plan to the contrary, with
respect to a Tandem SAR, (i) the Tandem SAR will expire no later than the
expiration of the underlying Option; (ii) the value of the payout with respect
to the Tandem SAR may be for no more than 100% of the difference between the
Option Price of the underlying Option and the Fair Market Value of the Shares
subject to the underlying Option at the time the Tandem SAR is exercised; and
(iii) the Tandem SAR may be exercised only when the Fair Market Value of the
Shares subject to the Option exceeds the Option Price of the Option.
7.3. Payment of SAR Amount. Upon exercise of an SAR, the Grantee shall be
entitled to receive payment from the Company in an amount determined by
multiplying:
(a) the excess of the Fair Market Value of a Share on the date of
exercise over the Strike Price; by
(b) the number of Shares with respect to which the SAR is exercised;
provided that the Committee may provide in the Award Agreement that the benefit
payable on exercise of an SAR shall not exceed such percentage of the Fair
Market Value of a Share on the Grant Date as the Committee shall specify. As
determined by the Committee, the payment upon SAR exercise may be in cash, in
Shares which have an aggregate Fair Market Value (as of the date of exercise of
the SAR) equal to the amount of the payment, or in some combination thereof, as
set forth in the Award Agreement.
ARTICLE 8. RESTRICTED SHARES
8.1. Grant of Restricted Shares. Subject to the terms and provisions of
the Plan, the Committee, at any time and from time to time, may grant Restricted
Shares to any Eligible Person in such amounts as the Committee shall determine.
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8.2. Award Agreement. Each grant of Restricted Shares shall be evidenced
by an Award Agreement that shall specify the Period(s) of Restriction, the
number of Restricted Shares granted, and such other provisions as the Committee
shall determine. The Committee may impose such conditions or restrictions on any
Restricted Shares as it may deem advisable, including restrictions based upon
the achievement of specific performance goals (Company-wide, divisional,
Subsidiary or individual), time-based restrictions on vesting or restrictions
under applicable securities laws.
8.3. Consideration. The Committee shall determine the amount, if any, that
a Grantee shall pay for Restricted Shares. Such payment shall be made in full by
the Grantee before the delivery of the shares and in any event no later than 10
business days after the Grant Date for such shares.
8.4. Effect of Forfeiture. If Restricted Shares are forfeited, and if the
Grantee was required to pay for such shares or acquired such Restricted Shares
upon the exercise of an Option, unless the Committee determines in writing
otherwise the Grantee shall be deemed to have resold such Restricted Shares to
the Company at a price equal to the lesser of (i) the amount paid by the Grantee
for such Restricted Shares, or (ii) the Fair Market Value of a Share on the date
of such forfeiture. The Company shall pay to the Grantee the required amount as
soon as is administratively practical. Such repurchased Restricted Shares shall
cease to be outstanding, and shall no longer confer on the Grantee thereof any
rights as a stockholder of the Company, from and after the date of the event
causing the forfeiture, whether or not the Grantee accepts the Company's tender
of payment for such Restricted Shares.
8.5. Escrow; Legends. The Committee may provide that the certificates for
any Restricted Shares (i) shall be held (together with a stock power executed in
blank by the Grantee) in escrow by the Secretary of the Company until such
Restricted Shares become nonforfeitable or are forfeited or (ii) shall bear an
appropriate legend restricting the transfer of such Restricted Shares. If any
Restricted Shares become nonforfeitable, the Company shall cause certificates
for such shares to be issued without such legend.
8.6. Stockholder Rights in Restricted Shares. Restricted Shares, whether
held by a Grantee or in escrow by the Secretary of the Company, shall confer on
the Grantee all rights of a stockholder of the Company, including, but not
limited to, the right to vote such Restricted Shares and the right to receive
dividends on such Restricted Shares, except as otherwise provided in the Plan or
Award Agreement. Any cash dividends that become payable on Restricted Shares
shall be paid currently except to the extent the Award Agreement provides
otherwise. Any stock dividends that become payable on Restricted Shares shall be
subject to the same restrictions and other terms as apply to the Restricted
Shares with respect to which such dividends are paid, except to the extent the
Award Agreement provides otherwise. The Award Agreement may, but need not,
provide for payment of interest on deferred dividends.
ARTICLE 9. PERFORMANCE UNITS AND PERFORMANCE SHARES
9.1. Grant of Performance Units and Performance Shares. Subject to the
terms of the Plan, Performance Units or Performance Shares may be granted to any
Eligible Person in such amounts and upon such terms, and at any time and from
time to time, as shall be determined by the Committee.
9.2. Value/Performance Goals. Each Performance Unit shall have an initial
value that is established by the Committee at the time of grant. Each
Performance Share shall have an initial value equal to the Fair Market Value of
a Share on the date of grant. The Committee shall set the beginning and ending
dates of the Performance Period, select Performance Measures from among those
set forth in Section 4.3, and set performance goals which, depending on the
extent to which they are met, will determine the number or value of Performance
Units or Performance Shares that will be paid out to the Grantee.
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9.3. Earning of Performance Units and Performance Shares. Subject to the
terms of this Plan, (including Section 4.3 regarding the Committee's discretion
to make downward adjustments) after the applicable Performance Period has ended,
the holder of Performance Units or Performance Shares shall be entitled to
receive a payout based on the number and value of Performance Units or
Performance Shares earned by the Grantee over the Performance Period, to be
determined as a function of the extent to which the corresponding performance
goals have been achieved.
If a Grantee is promoted, demoted or transferred to a different business
unit or a different position in the same business unit of the Company or a
Subsidiary during a Performance Period, then, to the extent the Committee
determines appropriate, the Committee may adjust, change or eliminate the
performance goals or the applicable Performance Period as it deems appropriate
in order to make them appropriate and comparable to the initial performance
goals or Performance Period.
9.4. Form and Timing of Payment of Performance Units and Performance
Shares. Unless the Committee provides for a different method of payment, earned
Performance Units or Performance Shares shall be paid in a lump sum following
the close of the applicable Performance Period or may be deferred pursuant to
Section 10.2 or Article 13. The Committee may pay earned Performance Units or
Performance Shares in cash or in Shares (or in a combination thereof) which have
an aggregate Fair Market Value equal to the value of the earned Performance
Units or Performance Shares at the close of the applicable Performance Period.
Such Shares may be granted subject to any restrictions deemed appropriate by the
Committee. The form of payout of such Awards shall be set forth in the Award
Agreement pertaining to the grant of the Award.
As determined by the Committee, a Grantee may be entitled to receive any
dividends declared with respect to Shares which have been earned in connection
with grants of Performance Units or Performance Shares but not yet distributed
to the Grantee. In addition, a Grantee may, as determined by the Committee, be
entitled to exercise his or her voting rights with respect to such Shares.
ARTICLE 10. BONUS SHARES AND DEFERRED SHARES
10.1. Bonus Shares. Subject to the terms of the Plan, the Committee may
grant Bonus Shares to any Eligible Person, in such amount and upon such terms
and at any time and from time to time as shall be determined by the Committee.
10.2. Deferred Shares. Subject to the terms and provisions of the Plan,
Deferred Shares may be granted to any Eligible Person in such amounts and upon
such terms, and at any time and from time to time, as shall be determined by the
Committee. The Committee may impose such conditions or restrictions on any
Deferred Shares as it may deem advisable, including time-vesting restrictions
and deferred payment features. The Committee may cause the Company to establish
a grantor trust to hold Shares subject to Deferred Share Awards. Without
limiting the generality of the foregoing, the Committee may grant to any
Eligible Person, or permit any Eligible Person to elect to receive, Deferred
Shares in lieu of or in substitution for any other compensation (whether payable
currently or on a deferred basis, and whether payable under this Plan or
otherwise) which such Eligible Person may be eligible to receive from the
Company or a Subsidiary.
ARTICLE 11. PERFORMANCE BONUS AWARDS
11.1. Performance Bonus Awards. Subject to the terms of the Plan, the
Committee may grant Performance Bonus Awards to any Eligible Person, in such
amount and upon such terms an at any time and from time to time as shall be
determined by the Committee.
11.2. Performance Periods, Measures and Goals. For each Performance Bonus
Award the Committee shall establish the beginning and ending dates of the
Performance Period, select the Performance Measures
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and establish the performance goals for that Performance Measure to be applied
for that Performance Period. The Committee may but shall not be required to,
establish one or more Performance Periods that begin before the last day of any
other Performance Periods; and may establish Performance Periods that extend for
more than one calendar year or may grant Performance Bonus Awards that extend
for more than one consecutive Performance Periods (a "Multiple Award Period.")
11.3. Determination of Performance Goals. A Performance Bonus Award shall
specify the payment amount or percentage of the Performance Bonus Award for the
Performance Period for each Grantee at designated levels of achievement of the
Performance Measures. In the case of a Performance Bonus Award to a Restricted
Executive, if the Committee intends such Performance Bonus Award to qualify for
the Performance Based Exception, (a) the selection of the Performance Measures,
establishment of the performance goals, and the determination of the amount or
percentage of the Performance Bonus Award payable at designated levels of
achievement of the Performance Measures, shall be made not later than the 90th
calendar day of the Performance Period; (b) in the case of a Multiple Award
Period, selection of the Performance Measures, establishment of the performance
goals, and the determination of the amount or percentage of the Performance
Bonus Award payable at designated levels of achievement of the Performance
Measures, shall be done not later than the 90th calendar day of the first
Performance Period, and (c) notwithstanding (a) and (b), the performance goal
shall be established while the outcome as to the performance goal is
substantially uncertain, and in no event shall the performance goal be
established after more than 25% of the Performance Period has elapsed.
11.4. Adjustment of Goals. The Committee may in its discretion (i)
decrease (or for a Grantee other than a Restricted Executive whose award is
intended to qualify for the Performance Based Exception, also increase) the
amount or percentage of the Performance Bonus Award payable for such Grantee at
designated levels of achievement of the Performance Measures, or (ii) increase
(or for a Grantee other than a Restricted Executive whose award is intended to
qualify for the Performance Based Exception, also decrease), the designated
level of achievement of the Performance Measures to make payable the stated
amount or percentage of the Performance Bonus Award, at any time during a
Performance Period including any Multiple Award Period.
11.5. Determination and Payment at Bonus. As soon as practicable after the
necessary financial data for a Performance Period are available to the
Committee, the Committee shall make a written determination of the extent of the
achievement of the performance goal for Performance Bonus Award for that
Performance Period, and shall make a written determination of the amount, if
any, to be distributable with respect to a Performance Bonus award for the
Performance Period. Distributions with respect to any Performance Bonus Award
shall be subject to the following.
(a) Except as otherwise specifically provided in the documents
reflecting the terms of a Performance Bonus Award, the Committee may in its
discretion, reduce the amount of any Performance Bonus Award or cancel the
Award for any reason whatsoever for any Grantee (including but not limited
to a Restricted Executive) at any time prior to payment, and
(b) Except as otherwise provided by the Committee, Performance Bonus
Awards shall be settled through cash payments, which shall be made as soon
as practicable after the Committee makes the determination described in
this Section 11.5.
ARTICLE 12. BENEFICIARY DESIGNATION
12.1. Beneficiary Designation. Each Grantee under the Plan may, from time
to time, name any beneficiary or beneficiaries (who may be named contingently or
successively) to whom any benefit under the Plan is to be paid in case of his or
her death before he or she receives any or all of such benefit. Each such
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designation shall revoke all prior designations by the same Grantee, shall be in
a form prescribed by the Company, and will be effective only when filed by the
Grantee in writing with the Company during the Grantee's lifetime. In the
absence of any such designation, benefits remaining unpaid at the Grantee's
death shall be paid to the Grantee's surviving spouse, if any, or if none, then
to the Grantee's estate.
ARTICLE 13. DEFERRALS
13.1. Deferrals. The Committee may permit or require in an initial Award
Agreement, or permit with the consent of the Grantee in any amendment to the
Award Agreement, the Grantee to defer receipt of the payment of cash or the
delivery of Shares that would otherwise be due by virtue of the exercise of an
Option or SAR, the lapse or waiver of restrictions with respect to Restricted
Shares, the satisfaction of any requirements or goals with respect to
Performance Units, Performance Shares or Performance Bonus, the grant of Bonus
Shares or the expiration of the deferral period for Deferred Shares. In the case
of an Award to a Restricted Executive the Committee may require such deferral
after the initial Award without the consent of the Grantee; provided, however,
that if the Committee requires deferral without the consent of the Grantee of an
Award which is or may be payable in cash, the Committee shall cause the Company
to pay (at such time as such Award is paid) interest on the amount of such Award
for the period of required deferral at a rate not less from time to time than
the rate charged to the Company by its principal revolving credit lender, or if
none, than at the publicly announced prime lending rate of Citibank, N.A. plus
one percentage point. The Committee may require amounts relating to deferred
Awards to be held in a grantor trust created by the Company or a Subsidiary, and
shall establish such other rules and procedures for such deferrals consistent
with this Article 13 as the Committee in its discretion determines.
ARTICLE 14. RIGHTS OF EMPLOYEES, CONSULTANTS AND DIRECTORS
14.1. Employment. Nothing in the Plan shall interfere with or limit in any
way the right of the Company or any Subsidiary to terminate any Grantee's
employment, consultancy or service as a member of the Board of Directors at any
time, nor confer upon any Grantee the right to continue in the employ or as
consultant or as a director of the Company or any Subsidiary.
14.2. Participation. No employee, consultant or director shall have the
right to be selected to receive an Award, or, having been so selected, to be
selected to receive a future Award.
ARTICLE 15. WITHHOLDING
15.1. Withholding
(a) Mandatory Tax Withholding. Whenever under the Plan, Shares are to
be delivered upon exercise or payment of an Award or upon Restricted Shares
becoming nonforfeitable, or any other event with respect to rights and
benefits hereunder, including a Grantee's making an election under Section
83(b) of the Code, the Company shall be entitled to require (x) that the
Grantee remit an amount in cash, or if permitted by the Committee, Mature
Shares, sufficient to satisfy all federal, state, local and foreign tax
withholding requirements related thereto ("Required Withholding"), (y) the
withholding of such Required Withholding from compensation otherwise due to
the Grantee or from any Shares or other payment due to the Grantee under
the Plan or otherwise, or (z) any combination of the foregoing.
(b) Elective Share Withholding.
(i) Subject to subsection 15.1(b)(ii), a Grantee may elect the
withholding ("Share Withholding") by the Company of a portion of the
Shares subject to an Award upon the exercise of such Award or upon
Restricted Shares becoming non-forfeitable or upon making an election
under
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Section 83(b) of the Code (each, a "Taxable Event") having a Fair Market
Value equal to the minimum amount necessary to satisfy Required
Withholding liability attributable to the Taxable Event.
(ii) Each Share Withholding election shall be subject to the
following conditions:
(1) any Grantee's election shall be subject to the Committee's
discretion to revoke the Grantee's right to elect Share Withholding
at any time before the Grantee's election if the Committee has
reserved the right to do so in the Award Agreement;
(2) the Grantee's election must be made on or before the date
(the "Tax Date") on which the amount of tax to be withheld is
determined; and
(3) the Grantee's election shall be irrevocable.
15.2. Notification under Section 83(b). If the Grantee, in connection with
the exercise of any Option, or the grant of Restricted Shares, makes the
election permitted under Section 83(b) of the Code to include in such Grantee's
gross income in the year of transfer the amounts specified in Section 83(b) of
the Code, then such Grantee shall notify the Company of such election within 10
days of filing the notice of the election with the Internal Revenue Service, in
addition to any filing and notification required pursuant to regulations issued
under Section 83(b) of the Code. The Committee may, in connection with the grant
of an Award or at any time thereafter prior to such an election being made,
prohibit a Grantee from making the election described above.
ARTICLE 16. CERTAIN EXTRAORDINARY EVENTS
16.1. Certain Reorganization Transactions or Other Events. In the event of
a Reorganization Transaction or other transaction described in Section 4.2 as a
result of which (i) the Company is not the Surviving Corporation or the stock of
the Surviving Corporation will not be publicly traded, or (ii) in the
determination of the Committee, the attainment of Performance Measures
established as performance goals by in connection with restrictions on any
outstanding Restricted Shares, or any outstanding Performance Units, Performance
Shares, and Performance Bonus Awards, or any of them, will not reasonably be
ascertainable, the Committee may in its discretion cancel any or all Awards or
class of Awards without the consent of any Grantee; provided, however, that in
lieu of such Awards the Company shall pay the Grantee in cash as soon as
reasonably practicable after such determination by the Committee:
(a) with respect to any Restricted Share as to which the restrictions
have not lapsed in connection with such event, the Fair Market Value of a
Share (determined as nearly as practicable to the time of such
transaction),
(b) with respect to any Option or SAR, the positive difference (if
any) between the Fair Market Value of the Shares subject to the Option or
SAR (determined as nearly as practicable to the time of such transaction)
and the Option Price or Strike Price of the Option or SAR; provided,
however, that no duplicate payment will be made for Tandem SARs and further
provided, however, that the amount paid with respect to any Option shall
not be less than the fair value of the Option (determined as nearly as
practicable to the time of such transaction) under a recognized option
pricing model selected by the Committee; and
(c) with respect to any Performance Unit, Performance Share, or
Performance Bonus Award, the amount that would be payable to the Grantee
under Section 5.6(b) if he had Retired on the date of the transaction.
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16.2. Pooling of Interests Accounting. If the Committee determines:
(a) that the consummation of a sale or merger of the Company (a
"Closing") is reasonably likely to occur but for the circumstances
described in this Section;
(b) that, based on the advice of the Company's independent
accountants and such other factors that the Committee deems relevant, the
grant of any Award or exercise of some or all outstanding Options or SARs
would preclude the use of pooling of interests accounting ("pooling") after
the Closing; and
(c) the preclusion of pooling can reasonably be expected to have a
material adverse effect on the terms of such sale or merger or on the
likelihood of a Closing (a "Pooling Material Adverse Effect"),
then the Committee may:
(i) make adjustments to such Options, SARs or other Awards (including
the substitution, effective upon such Closing, of Options, SARs or other
Awards denominated in shares or other equity securities of another party to
such proposed sale or merger transaction) prior to the Closing so as to
permit pooling after the Closing,
(ii) cause the Company to pay the benefits attributable to such
Options, SARs or other Awards (including for this purpose not only the
spread between the then Fair Market Value of the Shares subject to such
Options or SARs and the Option Price or Strike Price applicable thereto,
but also the additional value of such Options or SARs in excess of such
spread, as determined by the Committee) in the form of Shares if such
payment would not cause the transaction to remain or become ineligible for
pooling; or provided that the Committee has determined, based on the advice
of the Company's independent accountants and such other factors that the
Committee deems relevant, that no reasonable alternative is available to
the Company to prevent such a Pooling Material Adverse Effect, cancel any
or all such Options, SARs or other Awards without the consent of any
affected Grantee; provided, however, that to the extent practicable without
a Pooling Material Adverse Effect, the Grantee shall receive in lieu of the
Award the amount payable upon cancellation of such Award as set forth in
Section 16.1.
16.3. Substituting Awards in Certain Corporate Transactions. In connection
with the Company's acquisition, however, effected, of another corporation or
entity (the "Acquired Entity") or the assets thereof, the Committee may, at its
discretion, grant Awards ("Substitute Awards") associated with the stock or
other equity interest in such Acquired Entity ("Acquired Entity Award") held by
such Grantee immediately prior to such Acquisition in order to preserve for the
Grantee the economic value of all or a portion of such Acquired Entity Award at
such price and on such terms as the Committee determines necessary to achieve
preservation of economic value.
ARTICLE 17. AMENDMENT, MODIFICATION, AND TERMINATION
17.1. Amendment, Modification, and Termination. Subject to the terms of
the Plan, the Board may at any time and from time to time, alter, amend, suspend
or terminate the Plan in whole or in part without the approval of the Company's
stockholders.
17.2. Adjustments Upon Certain Unusual or Nonrecurring Events. The
Committee may make adjustments in the terms and conditions of Awards in
recognition of unusual or nonrecurring events (including the events described in
Section 4.2) affecting the Company or the financial statements of the Company or
of changes in applicable laws, regulations, or accounting principles, whenever
the Committee determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan.
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17.3. Awards Previously Granted. Except as expressly provided in Section
3.2, Section 4.3; Section 6.4; Article 11, Section 13.1, or Article 16, no
termination, amendment or modification of the Plan and no modification of an
Award Agreement shall adversely affect in any material way any Award previously
granted under the Plan, without the written consent of the Grantee of such
Award, provided, however, that to the extent any Award shall be adversely
affected by any amendment or modification of the Plan, the provisions of the
Plan in toto as in effect as of the Grant Date of such Award shall prevail.
ARTICLE 18. ADDITIONAL PROVISIONS
18.1. Successors. All obligations of the Company under the Plan with
respect to Awards granted hereunder shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation, or otherwise of all or substantially
all of the business or assets of the Company.
18.2. Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
18.3. Severability. If any part of the Plan is declared by any court or
governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not invalidate any other part of the Plan. Any Section or part
of a Section so declared to be unlawful or invalid shall, if possible, be
construed in a manner which will give effect to the terms of such Section or
part of a Section to the fullest extent possible while remaining lawful and
valid.
18.4. Requirements of Law. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or stock
exchanges as may be required. Notwithstanding any provision of the Plan or any
Award, Grantees shall not be entitled to exercise, or receive benefits under,
any Award, and the Company shall not be obligated to deliver any Shares or other
benefits to a Grantee, if such exercise or delivery would constitute a violation
by the Grantee or the Company of any applicable law or regulation.
18.5. Securities Law Compliance.
(a) If the Committee deems it necessary to comply with any applicable
securities law, or the requirements of any stock exchange upon which Shares
may be listed, the Committee may impose any restriction on Shares acquired
pursuant to Awards under the Plan as it may deem advisable. All
certificates for Shares delivered under the Plan pursuant to any Award or
the exercise thereof shall be subject to such stop transfer orders and
other restrictions as the Committee may deem advisable under the rules,
regulations and other requirements of the SEC, any stock exchange upon
which Shares are then listed, any applicable securities law, and the
Committee may cause a legend or legends to be placed on any such
certificates to refer to such restrictions. If so requested by the Company,
the Grantee shall represent to the Company in writing that he or she will
not sell or offer to sell any Shares unless a registration statement shall
be in effect with respect to such Shares under the Securities Act of 1933
or unless he or she shall have furnished to the Company evidence
satisfactory to the Company that such registration is not required.
(b) If the Committee determines that the exercise of, or delivery of
benefits pursuant to, any Award would violate any applicable provision of
securities laws or the listing requirements of any stock exchange upon
which any of the Company's equity securities are then listed, then the
Committee may postpone any such exercise or delivery, as applicable, but
the Company shall use all reasonable efforts to cause such exercise or
delivery to comply with all such provisions at the earliest practicable
date.
21
<PAGE> 50
18.6. No Rights as a Stockholder. Subject to Section 8.6 regarding
Restricted Shares, a Grantee shall not have any rights as a stockholder with
respect to the Shares (other than Restricted Shares) which may be deliverable
upon exercise or payment of such Award until such shares have been delivered to
him or her.
18.7. Nature of Payments. Awards shall be special incentive payments to
the Grantee and shall not be taken into account in computing the amount of
salary or compensation of the Grantee for purposes of determining any pension,
retirement, death or other benefit under (a) any pension, retirement,
profit-sharing, bonus, insurance or other employee benefit plan of the Company
or any Subsidiary or (b) any agreement between (i) the Company or any Subsidiary
and (ii) the Grantee, except as such plan or agreement shall otherwise expressly
provide.
18.8. Scope of Plan. Nothing in this Plan shall be construed to prevent
the Board, the Committee, or any other officer of the Company or any Subsidiary
authorized to determine compensation of employees and consultants of the Company
or such Subsidiary, from awarding any cash bonus or other cash incentive or
achievement compensation to any person for such reasons and on such terms and
conditions, whether or not consistent with this Plan, as they in their
authorized discretion determine is appropriate.
18.9. Awards under Former Bonus Plan. Each Award under the Former Bonus
Plan that is outstanding on the Restated Effective Date shall continue in effect
as an Award under this Plan, but shall be administered subject to all the terms
and provisions of this Plan from and after the Restated Effective Date, except
to the extent application of any provision of this amended, restated and merged
Plan to such Award would violate the requirements of Section 17.3 hereof.
18.10. Governing Law. The Plan shall be construed in accordance with and
governed by the laws of the State of Illinois other than its laws respecting
choice of law.
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<PAGE> 51
CNA FINANCIAL CORPORATION PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING, MAY 11, 2000, CHICAGO, ILLINOIS
P
R
O
X
Y
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 11, 2000, at 10:00 A.M., or at any adjournment thereof
as follows:
Election of Directors. Nominees:
Antoinette Cook Bush, Dennis H. Chookaszian, Ronald L.
Gallatin 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
YOUR SHARE UNLESS YOU SIGN AND RETURN THIS CARD.
- ----------------
SEE REVERSE SIDE
- ----------------
<PAGE> 52
/x/ PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE. 4952
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 AND 3.
- -----------------------------------------------------------------------
The Board of Directors recommends a vote FOR the Election of Directors
and FOR proposals 2 and 3.
- -----------------------------------------------------------------------
1. Election of Directors (see reverse) FOR / / WITHHELD / /
For, except vote withheld from the following nominee(s):
_______________________
2. Approval of the CNA Financial Corporation
2000 Incentive Compensation Plan. FOR / / AGAINST / / ABSTAIN / /
3. Approval of independent accountants. FOR / / AGAINST / / ABSTAIN / /
SIGNATURE(S)________________________________ DATE____________
NOTE: -Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
The signer hereby revokes all proxies heretofore given by the signer to vote at
said meeting or any adjournments thereof.
