SCHEDULE 14A
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 Section 240.14a-12
CNA FINANCIAL CORPORATION
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(Name of Registrant as Specified in Its Charter)
CNA FINANCIAL CORPORATION
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[ ] 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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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CNA FINANCIAL CORPORATION
---------------
Notice of Annual Meeting -- May 8, 2002
To the Stockholders of
CNA FINANCIAL CORPORATION:
You are hereby notified that pursuant to the By-Laws of CNA Financial
Corporation, a Delaware corporation, the annual meeting of Stockholders will be
held at CNA Plaza (333 South Wabash Avenue), Room 207N, Chicago, Illinois, on
Wednesday, May 8, 2002, at 10:00 a.m., Chicago time, for the following purposes:
(1) To elect eleven Directors;
(2) To ratify the appointment of Deloitte & Touche LLP as independent
auditors for the Company; and
(3) To transact such other business as may properly come before the
meeting.
Only Stockholders of record at the close of business on March 18, 2002 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
Executive Vice President,
General Counsel and Secretary
Chicago, Illinois
March 27, 2002
CNA FINANCIAL CORPORATION
CNA PLAZA, CHICAGO, ILLINOIS 60685
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PROXY STATEMENT
ANNUAL MEETING -- MAY 8, 2002
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 27, 2002.
On March 18, 2002, the Company had outstanding 223,596,861 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 18, 2002
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
eleven 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
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, 2002 (unless otherwise
noted). Except as noted below, each such entity has sole voting and investment
power with respect to the shares set forth:
NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT BENEFICIALLY OWNED PERCENT OF CLASS
------------------------------------ ------------------------- ----------------
Loews Corporation ("Loews")........................... 198,575,624 88.81%
667 Madison Avenue
New York, New York 10021
Because Loews holds more than a majority of the outstanding Common Stock of
CNA, Loews has the power to approve matters submitted for consideration at the
Annual Meeting without regard to the votes of the other Stockholders. Loews
intends to vote FOR the election of management's nominees for the Board of
Directors and FOR 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
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, 2002, based
on data furnished by them:
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
---- ------------------ ------------------ ---------------------
Antoinette Cook Bush..................... 600 0 0
Robert V. Deutsch........................ 129,765(2) 2,000 0
Ronald L. Gallatin....................... 7,200 0 0
Walter L. Harris......................... 1,830 0 0
Bernard L. Hengesbaugh................... 485,086(3) 0 2,500
Stephen W. Lilienthal.................... 28,028 0 0
Edward J. Noha........................... 1,647 3,800(4) 0
Robert W. Patin.......................... 915 0 0
Don M. Randel............................ 0 0 0
Joseph Rosenberg......................... 12,200 0 0
James S. Tisch(5)........................ 6,100 2,940,500(6) 0
Laurence A. Tisch(5)..................... 0 18,617,996(7) 0
Preston R. Tisch(5)...................... 0 29,983,184(8) 0
Marvin Zonis............................. 183 0 0
All Officers and Directors as a group (15
persons including those listed
above)................................. 675,504 51,547,480(9) 2,500
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1. CNA, through its subsidiaries, owns approximately 64% of CNA Surety
Corporation.
2. Includes 18,750 shares issuable upon the exercise of options granted under
the CNA Financial Corporation 2000 Incentive Compensation Plan which are
currently exercisable.
3. Includes 41,250 shares issuable upon the exercise of options granted under
the CNA Financial Corporation 2000 Incentive Compensation Plan which are
currently exercisable.
4. Includes 800 shares of Loews Common Stock issuable upon the exercise of
options granted under the 2000 Loews Corporation Stock Option Plan (the
"Loews Stock Option Plan") which are currently exercisable.
5. Laurence A. Tisch and Preston R. Tisch are brothers. James S. Tisch is the
son of Mr. L. A. Tisch.
6. Includes 15,000 shares of Loews Common Stock issuable upon the exercise of
options granted under the Loews Stock Option Plan which are currently
exercisable. Also includes 2,765,500 shares of Loews Common Stock held by
trusts of which Mr. J. S. Tisch is managing trustee and beneficiary. In
addition, 100,000 shares of Loews Common Stock are held by a charitable
foundation as to which Mr. J. S. Tisch has shared voting and investment
power. Loews Common Stock shares held by Mr. J. S. Tisch represent 1.5% of
the outstanding shares of Loews Common Stock.
7. Includes 4,000,000 shares of Loews Common Stock held of record by the wife
of Mr. L. A. Tisch and 4,000,000 shares of Loews Common Stock held by Mr.
L. A. Tisch as trustee of a trust for the benefit of his wife, as to which
he has sole voting and investment power. Does not include an aggregate of
11,477,760 shares beneficially owned by Andrew H. Tisch, Daniel R. Tisch,
James S. Tisch and Thomas J. Tisch, each
3
of whom is a son of Mr. L. A. Tisch. Such shares were reported in a
Schedule 13D filed with the Securities and Exchange Commission by Mr. L. A.
Tisch and his sons which stated that the filing persons were filing jointly
solely for information purposes because of their family relationships.
However, they did not affirm that they constituted a "group" for any
purpose, and each such person expressly disclaimed beneficial ownership of
any shares beneficially owned by any other such person. Loews Common Stock
shares held by Mr. L. A. Tisch represent 9.7% of the outstanding shares of
Loews Common Stock.
8. Includes 440,000 shares of Loews Common Stock held of record by the wife of
Mr. P. R. Tisch. Also includes 5,755,188 shares held by Mr. P. R. Tisch as
trustee of a trust for the benefit of his wife, as to which he has sole
voting and investment power. Loews Common Stock shares held by Mr. P. R.
Tisch represent 15.7% of the outstanding shares of Loews Common Stock.
9. Includes 15,000 shares of Loews Common Stock issued upon the exercise of
options granted under the Loews Stock Option Plan which are currently
exercisable. Represents 27% of the outstanding shares of Loews Common
Stock.
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.
4
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 fewer 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 eleven nominees hereinafter named.
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, Executive Vice President of Northpoint Technology,
Ltd./Broadwave USA, Inc. since April 2000. From 1993 until April 2000, Partner,
Skadden, Arps, Slate, Meagher & Flom, Washington, D. C. 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 and Chairperson of the Incentive Compensation Committee. Age 45.
WALTER L. HARRIS, President and Chief Executive Officer, Tanenbaum-Harber
Co. Inc. & Affiliates since 1980. He is a member of the Audit, Executive and
Finance Committees. He is a director of Metropolitan National Bank and American
Progressive Life & Health Insurance Company. Mr. Harris was elected as a
Director in February of 2001. Age 50.
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 of the CNA insurance
companies 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 55.
STEPHEN W. LILIENTHAL, President and Chief Executive Officer, Property and
Casualty Operations of the CNA insurance companies since July, 2001. From June
1993 to June 1998, senior officer of USF&G Corporation ("USF&G"). In April 1998,
USF&G was acquired by the St. Paul Companies. Mr. Lilienthal was Executive Vice
President of the St. Paul Companies until July, 2001. He is a member of the
Executive and Finance Committees. Mr. Lilienthal was elected as a Director in
August of 2001. Age 52.
EDWARD J. NOHA, Chairman of the Board of CNA since September 1992. Prior to
that time and since February 1975, he was Chairman of the Board and Chief
Executive Officer of the CNA insurance companies. He 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 74.
DON M. RANDEL, President of the University of Chicago since July 2000. From
1995 to 2000, he was Provost and Professor of Musicology at Cornell University.
Prior to that time, he served at Cornell as Dean of the College of Arts and
Sciences from 1991 to 1995 and as Associate Dean from 1968 to 1991. Mr. Randel
is currently not a Director of the Company. Age 61.
5
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 68.
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., Baker, Fentress & Company 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 49.
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. Mr. Tisch has served as a Director since 1974 and is a member of the
Executive and Finance Committees. Age 79.
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 Bulova and
Hasbro, Inc. 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 75.
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 Executive and Finance Committees. Age 65.
COMMITTEES AND MEETINGS
The Company has an Audit, Incentive Compensation, Executive and Finance
Committee. The Company does not have a Nominating Committee.
The Incentive Compensation Committee administers the CNA Financial
Corporation 2000 Incentive Compensation Plan.
The Board of Directors, and Audit, Finance and Incentive Compensation
Committees met four times in 2001. 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.
In addition to those Directors identified above, Ronald L. Gallatin served
as a member of the Audit Committee. Mr. Gallatin is not standing for reelection
to the Board.
AUDIT COMMITTEE REPORT
The role of the Audit Committee is to assist the Board of Directors with
the responsibility of administering corporate policy in matters of accounting
and control in its oversight of the Company's financial reporting process. (The
Board of Directors, in its business judgment, has determined that all members of
the Committee are "independent", as required by applicable listing standards of
the New York Stock Exchange. The Committee operates pursuant to a Charter that
was adopted by the Board on May 11, 2000 and ratified on February 13, 2002). As
set forth in the Charter, management of the Company is responsible for the
preparation, presentation and integrity of the Company's financial statements,
the Company's accounting and financial reporting principles and internal
controls and procedures designed to assure compliance with
6
accounting standards and applicable laws and regulations. The Audit Committee
functions as the liaison with the Company's independent auditors and internal
audit. The independent auditors are responsible for auditing the Company's
financial statements and expressing an opinion as to their conformity with
accounting principles generally accepted in the United States of America. The
Committee met four times in 2001. The Committee also met four times with the
independent auditors in independent sessions.
In the performance of its oversight function, the Committee has considered
and discussed the audited financial statements with management and the
independent auditors. The Committee has also discussed with the independent
auditors the matters required to be discussed by Statement on Auditing Standards
No. 61, Communication with Audit Committees, as currently in effect. Finally,
the Committee has received the written disclosures and the letter from the
independent auditors required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees, as currently in effect, has also
received written confirmations from management with respect to information
technology consulting services relating to financial information systems design
and implementation and internal audit services provided by the auditors and has
considered whether the provision of such services by the independent auditors'
to the Company is compatible with maintaining the auditors' independence. The
Committee has discussed with the independent auditors the auditors'
independence.
The members of the Audit Committee are not professionally engaged in the
practice of auditing or accounting and are not experts in the fields of
accounting or auditing, including in respect of auditors' independence. Members
of the Committee rely without independent verification on the information
provided to them and on the representations made by management and the
independent auditors. Accordingly, the Audit Committee's oversight does not
provide an independent basis to determine that management has maintained
appropriate accounting and financial reporting principles or appropriate
internal control procedures designed to assure compliance with accounting
standards and applicable laws and regulations. Furthermore, the Audit
Committee's considerations and discussions referred to above do not assure that
the audit of the Company's financial statements has been carried out in
accordance with auditing standards generally accepted in the United States of
America, that the financial statements are presented in accordance with
accounting principles generally accepted in the United States of America or that
the Company's auditors are in fact "independent".
Based upon the reports and discussions described in this report, and
subject to the limitations on the role and responsibilities of the Committee
referred to above and in the Charter, the Committee recommended to the Board
that the audited financial statements be included in the Company's Annual Report
on Form 10-K for the year ended December 31, 2001 to be filed with the
Securities and Exchange Commission and considered whether the provision of
non-audit services by Deloitte & Touche LLP to the Company in 2001 was not
incompatible with maintaining the independence of Deloitte & Touche LLP in its
audit of the Company.
SUBMITTED BY THE AUDIT COMMITTEE
OF THE COMPANY'S BOARD OF DIRECTORS
Antoinette Cook Bush
Ronald L. Gallatin
Walter L. Harris
Marvin Zonis (Chairperson)
7
DIRECTOR COMPENSATION
CNA directors who are not employees of CNA or any of its subsidiaries
received an annual retainer in 2001 of $25,000. In addition, members of
committees received the following annual retainers: Finance, $4,000, Executive,
$4,000, Incentive Compensation, $3,000 (Chairperson receives $4,000) and Audit,
$5,000 (Chairperson receives $7,500). Messrs. Hengesbaugh and Lilienthal 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 $1,570,000 per annum reduced by the retirement benefits payable to
Mr. Noha under his Employment Agreement and the CNA Retirement Plan and CNA
Supplemental Executive Retirement Plan (the "SERP"). During the last fiscal
year, services provided by Mr. Noha under this Agreement consisted of providing
the assistance and advice as delineated in the Agreement and promoting and
assisting the Company with respect to its position in the Chicago business
community. In this regard, Mr. Noha served as a member of numerous organizations
including Chairman of the State Government Accountability Council, Chairman of
the Chicago Manufacturing Center, Chairman of the Economic Development
Commission of the City of Chicago, Chairman of the NIST Manufacturing Extension
Partnership National Advisory Board and member of the Illinois Business
Roundtable.
8
COMPENSATION OF EXECUTIVE OFFICERS
The following table includes compensation paid by the Company and its
subsidiaries for services rendered in all capacities for the years indicated for
the Chief Executive Officer and four other most highly compensated executive
officers of the Company as of December 31, 2001:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------- --------------------------------------
AWARDS PAYOUTS
----------------------- ------------
RESTRICTED SECURITIES
FISCAL STOCK UNDERLYING LONG-TERM ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(A) BONUS(B) AWARD($) OPTIONS(#) COMPENSATION COMPENSATION(C)
--------------------------- ------ --------- -------- ---------- ---------- ------------ ---------------
Laurence A. Tisch(d).................. 2001 -0- -0- -0- -0- -0- $ 33,000(e)
Chief Executive Officer of 2000 -0- -0- -0- -0- -0- 33,000(e)
CNA Financial Corporation 1999 -0- -0- -0- -0- -0- 33,000(e)
Bernard L. Hengesbaugh................ 2001 $950,000 $950,000(f) -0- 55,000 -0- $ 78,683
Chairman of the Board & 2000 950,000 923,400 -0- 55,000 -0- 39,900
Chief Executive Officer 1999 966,346 950,000 -0- 55,000 -0- 72,017
CNA insurance companies
Stephen W. Lilienthal(g).............. 2001 $296,154 $600,000(h) $780,019(i) 75,000 -0- $124,440(j)
President & CEO
CNA Property & Casualty Operations
CNA insurance companies
Robert V. Deutsch..................... 2001 $550,000 $935,000 -0- 25,000 $ 160,000 $ 91,868(l)
Executive Vice President & 2000 550,000 594,000 -0- 25,000 -0- 111,281(l)
Chief Financial Officer 1999 179,808 450,000 $365,300(k) 25,000 -0- 3,554
CNA Financial Corporation
Robert W. Patin (g)................... 2001 $459,615 $250,000 -0- -0- -0- $ 31,561
Chief Executive Officer
CNA Life and Group Operations
CNA insurance companies
---------------
Notes
(a) Base salary includes compensation deferred under the CNA Savings and Capital
Accumulation Plan (the "S-CAP") and the CNA Supplemental Executive Savings
and Capital Accumulation Plan (the "SES-CAP").
(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 under the
S-CAP and the SES-CAP.
(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
$78,977 for 2001 and $96,427 annually for 2000 and 1999.
(e) Represents director fees paid to Mr. Tisch. Mr. Tisch is not a participant
in the S-CAP or the SES-CAP.
(f) Mr. Hengesbaugh accepted a reduction of approximately 35% in the amount he
would have otherwise received.
(g) Messrs. Lilienthal and Patin were employed by the Company effective July 23,
2001 and January 22, 2001, respectively.
(h) Represents a hiring bonus paid to Mr. Lilienthal.
(i) Mr. Lilienthal was awarded a restricted stock grant of 28,028 shares upon
commencement of employment. The 28,028 shares vest in four equal parts
beginning July 31, 2002.
(j) Includes $103,414 of relocation expenses paid in 2001.
(k) 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
beginning December 31, 2000.
(l) Includes $68,768 and $95,289 of travel expenses and other related expenses
paid in 2001 and 2000, respectively.
9
The following table includes individual grants of stock options awarded by
the Company for services rendered in all capacities for the Chief Executive
Officer and the four other most highly compensated executive officers of the
Company as of December 31, 2001:
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
-------------------------------------------------------- -----------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION
NAME GRANTED (A) FISCAL YEAR (PER SHARE)(B) DATE 5%($) 10%($)
---- ----------- ------------ -------------- ---------- ----- ------
Laurence A. Tisch(c)...... -0- -0- -0- -0- -0- -0-
Bernard L. Hengesbaugh.... 55,000 10.7% $35.35 05/02/11 $1,222,728 $3,098,634
Stephen W. Lilienthal..... 75,000 14.6% $27.83 08/31/11 1,312,660 3,326,539
Robert V. Deutsch......... 25,000 4.9% $35.35 05/02/11 555,786 1,408,470
Robert W. Patin(c)........ -0- -0- -0- -0- -0- -0-
---------------
(a) Options vest in cumulative installments of 25% on each anniversary of the
date of grant, such that the options are fully exercisable on or after four
years from the date of grant.
(b) The exercise price shown for individual optionees is the fair market value
of the Company's common stock on the date of grant (calculated as the
average of its high and low sales prices on that date reported on the New
York Stock Exchange Composite Tape).
(c) Messrs. Tisch and Patin did not receive stock option grants in 2001.
The following table includes information concerning the exercise of stock
options during the last completed fiscal year for the Chief Executive Officer
and the four other most highly compensated executive officers of the Company as
of December 31, 2001:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUE
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE OPTIONS AT FISCAL YEAR END(#) FISCAL YEAR END($)(A)
ON EXERCISE REALIZED ------------------------------ ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ------------ -------------- ----------- -------------
Laurence A. Tisch (b)............. -0- -0- -0- -0- -0- -0-
Bernard L. Hengesbaugh............ -0- -0- 41,250 123,750 -0- -0-
Stephen W. Lilienthal............. -0- -0- -0- 75,000 -0- $100,500
Robert V. Deutsch................. -0- -0- 18,750 56,250 -0- -0-
Robert W. Patin (b)............... -0- -0- -0- -0- -0- -0-
---------------
(a) Value is based on the closing price of the Company common stock on December
31, 2001 minus the exercise price.
(b) Messrs. Tisch and Patin did not receive stock options under the plan.
10
EMPLOYMENT CONTRACTS
Each of Messrs. Deutsch and Hengesbaugh currently has an employment
agreement with the Company effective through December 31, 2002 unless their
employment is terminated earlier. Mr. Lilienthal has an employment agreement
effective through July 31, 2004 unless terminated earlier. The employment
agreements of Messrs. Deutsch, Hengesbaugh and Lilienthal shall hereafter be
collectively referred to as the "Employment Agreements". The Employment
Agreements provide that each of these executive officers will serve the Company
at annual salary rates which are currently $550,000, $950,000 and $700,000 for
Messrs. Deutsch, Hengesbaugh and Lilienthal, respectively. Mr. Hengesbaugh's and
Mr. Deutsch's salaries are subject to annual review by the Incentive
Compensation Committee for possible increases. Mr. Lilienthal's salary is
adjustable upwards annually at the discretion of the Chairman of the Board and
the Chief Executive Officer of the CNA insurance companies based upon market
considerations, responsibilities and performance. The Employment Agreements also
provide that each executive officer will have the opportunity to earn annual
incentive compensation under the CNA Financial Corporation 2000 Incentive
Compensation Plan (the "Incentive Compensation Plan") if certain annual net
operating income targets are met. The Company's Incentive Compensation Committee
will determine the definition of net operating income for these targets on an
annual basis. The annual incentive compensation amounts are capped at 200% of
salaried compensation for Messrs. Deutsch and Hengesbaugh. Mr. Lilienthal's
annual incentive target compensation shall not be less than 71% of his base
compensation as of his start date. For the year 2001 performance period, the
annual incentive compensation amounts for Messrs. Hengesbaugh and Deutsch
payable under the Incentive Compensation Plan were required to be determined
using a formula approved by the Incentive Compensation Committee and then
adjusted downward at the discretion of the Committee. Under this determination,
Messrs. Hengesbaugh and Deutsch were entitled to bonuses of $1,454,000 and
$935,000, respectively. In recognition of the poor financial results of the
Company in 2001, Mr. Hengesbaugh agreed to accept a bonus of $950,000,
representing a further 35% reduction. Pursuant to the terms of the Incentive
Compensation Plan, Messrs. Hengesbaugh and Deutsch each have been or will be
awarded annual stock grants of 55,000 and 25,000 shares, respectively, during
each of 2000, 2001 and 2002 subject to Company and individual performance. Mr.
Lilienthal also is entitled to an annual grant of stock options of 25,000 to
30,000 shares. Mr. Deutsch's cash award under the Incentive Compensation Plan
was or 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 Chief Financial
Officer, Mr. Deutsch also received a one-time award of 10,000 restricted shares
of the Company's Common Stock which vests 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, the Company fails to renew his Employment Agreement
or in the event of his death or disability. Under his Employment Agreement, Mr.
Hengesbaugh's salary amounts and annual cash incentive compensation amounts are
considered eligible compensation for purposes of SES-CAP (as defined below)
Company matching contributions. Mr. Lilienthal received a special stock option
grant of 75,000 shares of the Company's Common Stock and a special grant of
restricted shares of the Company's Common Stock in a number which approximates
the value of $780,000. Vesting of Mr. Lilienthal's stock option and restricted
stock occurs over a four-year period.
The Employment Agreements also include certain provisions that are
effective if the executive officer's employment is terminated by the executive
officer for "good reason" or by the Company other than for "cause" or death or
disability (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. Deutsch will receive a payment equal
to 100% of his total compensation (salary in effect on the date of termination,
targeted annual incentive compensation, targeted Incentive Compensation Plan
cash award and an amount using a modified Black-Scholes methodology which values
options to be awarded under the
11
Incentive Compensation Plan at 48% of the fair market value of the average of
the high and low sales price for the Company's Common Stock on the date of
termination) for each of three years following his termination. Mr. Lilienthal
will receive 200% of his then-current base compensation and Incentive
Compensation Plan target bonus and the special stock option and restricted
grants of the Company's common stock described above would vest immediately.
Additionally, Messrs. Deutsch and Hengesbaugh's Employment Agreements include a
provision requiring the Company to pay the executive officer the amounts
described above if such executive officer's Employment Agreement is not renewed
at the end of the term of the Employment Agreement. Mr. Lilienthal would receive
severance consisting of one-half of his then-current base compensation and
annual Incentive Compensation Plan target bonus in the event of the Company's
termination of his employment for any reason other than for cause or if the
Company failed to extend or renew his Employment Agreement prior to termination.
If the Company does not offer Mr. Lilienthal an extended or new employment
agreement in writing on or prior to January 31, 2004, his termination date under
the current Employment Agreement shall be extended for as many days thereafter
until such offer is made up to July 31, 2004.
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. Deutsch's Employment Agreement also contains provisions relating to
pension enhancements. Mr. Deutsch's pension enhancement, provided from the SERP,
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, or
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 for Messrs.
Deutsch and Hengesbaugh, for the term of his Employment Agreement in the case of
Mr. Lilienthal), non-disclosure of confidential information (no time limit),
non-solicitation of the Company's or its subsidiaries' employees or officers (36
months for Messrs. Deutsch and Hengesbaugh, 24 months for Mr. Lilienthal),
non-interference with the Company's or its subsidiaries' business or
relationships (36 months for Messrs. Deutsch and Hengesbaugh, 24 months for Mr.
Lilienthal) 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 1.5 times his monthly compensation (as described in the first 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.
RETIREMENT PLANS
CNA sponsors funded, tax-qualified retirement plans for salaried employees,
including executive officers (the "Qualified Plans") and unfunded, non-qualified
equalization plans (the "Non-Qualified Plans") which provide for accruals and
contributions not available under the tax-qualified plans. The following
description of the Qualified Plans also gives effect to the Non-Qualified Plans.
The Qualified Plans and the Non-Qualified Plans both include defined
contribution plans and defined benefit plans. The qualified and non-qualified
defined contribution plans are the CNA Savings and Capital Accumulation Plan
(the "S-CAP") and the CNA Supplemental Executive Savings and Capital
Accumulation Plan (the "SES-CAP"), respectively. The qualified and non-qualified
defined benefit plans are the CNA Retirement Plan and the CNA Supplemental
Executive Retirement Plan (the "SERP"), respectively.
12
Prior to 2000, the CNA Retirement Plan provided a normal retirement pension
equal to 2% of a participant's final average compensation times his first 25
years of service, plus .6667% of his final average compensation times his next
15 years of participation, with the total reduced by 1.4% of his social security
benefit times his first 35 years of service. In 2000, the CNA Retirement Plan
was amended and employees of Continental Casualty Company ("CCC") who were
employed at December 31, 1999 and were still employed on April 24, 2000 were
required to make a choice regarding their future accruals in this plan.
Employees were given two choices: (1) to continue earning additional benefits
under the formula described above, or (2) to convert the present value of their
accrued benefit as of December 31, 1999 to an accrued pension account, which is
credited with interest at a rate based on 30 year treasury securities.
Employees who elected to forego earning additional benefits in the CNA
Retirement Plan and all employees hired by CCC on or after January 1, 2000
receive an annual basic Company contribution to the S-CAP of 3% or 5% of their
eligible compensation, depending on their age. In addition, these employees are
eligible to receive discretionary annual performance contributions of up to 2%
of eligible compensation and an additional Company match of up to 80% of the
first 6% of salary contributed by the employee. All eligible employees,
regardless of their choice, are entitled to a 70% Company matching contribution
to the S-CAP on the first 6% of eligible compensation contributed by the
employee. The Company matching contribution rates for employees during the first
year of service are 50% of the foregoing.
All salary amounts and annual cash incentive compensation amounts are
considered eligible compensation for purposes of the CNA Retirement Plan, the
SERP, and for basic and performance contributions to the S-CAP and SES-CAP. Only
salary is considered eligible compensation for purposes of Company matching
contributions to the S-CAP and SES-CAP.
The executive officers listed below all chose to continue to accrue
benefits under the CNA Retirement Plan and SERP.
PENSION PLAN TABLE
AVERAGE YEARS OF CREDITED SERVICE
ANNUAL ------------------------------------------------------------------------
COMPENSATION 15 20 25 30 35
------------ -- -- -- -- --
$ 400,000............ $116,129 $ 154,839 $ 193,549 $ 205,593 $ 217,636
600,000............ 176,129 234,839 293,549 312,260 330,970
800,000............ 236,129 314,839 393,549 418,927 444,304
1,000,000............ 296,129 394,839 493,549 525,594 557,638
1,200,000............ 356,129 474,839 593,549 632,261 670,972
1,400,000............ 416,129 554,839 693,549 738,928 784,306
1,600,000............ 476,129 634,839 793,549 845,595 897,640
1,800,000............ 536,129 714,839 893,549 952,262 1,010,974
2,000,000............ 596,129 794,839 993,549 1,058,929 1,124,308
2,200,000............ 656,129 874,839 1,093,549 1,165,596 1,237,642
2,400,000............ 716,129 954,839 1,193,549 1,272,263 1,350,976
2,600,000............ 776,129 1,034,839 1,293,549 1,378,930 1,464,310
2,800,000............ 836,129 1,114,839 1,393,549 1,485,597 1,577,644
The amounts in the table reflect deductions for estimated Social Security
payments.
Mr. Deutsch and Mr. Hengesbaugh have eight and twenty-one years of credited
service, respectively. Messrs. Lilienthal and Patin do not have any years of
credited service.
13
The following table includes information concerning long-term incentive
cash awards made in 2001 to the Chief Executive Officer and the four other most
highly compensated executive officers of the Company:
LONG-TERM INCENTIVE PLAN -- AWARDS IN 2001
ESTIMATED FUTURE PAYOUTS($)(A)
-------------------------------------
NAME PERFORMANCE PERIOD THRESHOLD TARGET MAXIMUM
---- ------------------ --------- ------ -------
Laurence A. Tisch(b)................. 2001-2003 -0- -0- -0-
Bernard L. Hengesbaugh(b)............ 2001-2003 -0- -0- -0-
Stephen W. Lilienthal(b)............. 2001-2003 -0- -0- -0-
Robert V. Deutsch.................... 2001-2003 $ 80,000 $ 160,000 $ 320,000
Robert W. Patin(c)................... 2001-2003 500,000 1,000,000 2,000,000
---------------
(a) The long-term incentive cash awards are made under the Incentive
Compensation Plan, which is administered by the Incentive Compensation
Committee. The long-term incentive cash awards are generally granted
annually and are earned based on net income targets or other selected
corporate financial goals for three-year performance periods and will
become payable only to the extent that specified performance goals are
achieved. The payouts can vary from 0% to 200% of the original target based
on the attainment of performance goals. Only awards related to the
2001-2003 performance cycle are included in this table.
(b) Messrs. Tisch, Hengesbaugh and Lilienthal did not receive a Long-Term
Incentive Plan award in 2001.
(c) Mr. Patin only participates in the 2001-2003 performance cycle, in lieu of
stock option grants.
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 its five 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 2000, the Company adopted
the Incentive Compensation Plan, which is designed to qualify the amounts paid
from time to time thereunder to certain of the Company'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 President and Chief Executive Officer of
Property and Casualty Operations and the Chief Financial Officer). He is
assisted in developing the compensation 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 property/casualty insurance industry and include two of
the three companies in the Standard & Poor's Multi-Line Insurance Index (see
"Stock Price Performance Graph" below). These companies represent the
organizations against 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 2001, the Senior Executives
were provided total compensation opportunities that approximated a minimum of
the 50th 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 one or both of two categories: Shared Goals and Individual
Goals. Generally, the pre-set goals have been developed to be quantifiable or
definable to the extent possible. The percentage is based, among other factors,
on comparative salary data as described
15
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 2001, 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 median for 2001 incentive bonuses was 65% of the
incentive targets for the Senior Executives.
In 1999, the Company adopted the CNA Financial Corporation 2000 Long-Term
Incentive Compensation Plan (the "LTIP"). The LTIP was amended by the Board of
Directors in February 2000 (and subsequently approved by the shareholders) to
merge the Incentive Compensation Plan for Certain Executive Officers with the
LTIP to provide an omnibus plan renamed as the CNA Financial Corporation 2000
Incentive Compensation Plan which covers annual, long-term, cash and
share-related compensation for certain officers of the Company and its
subsidiaries.
In February 1999, the CNA insurance companies' Chairman and Chief Executive
Officer and the then President awarded Supplemental Bonuses payable in March
2001 to the Senior Executives ranging in amounts from $50,000 to $648,000. See
"Employment Contracts" above for a description of the Incentive Compensation
Awards for Messrs. Deutsch and Hengesbaugh.
As noted in the Summary Compensation Table, Laurence A. Tisch, the
Company's Chief Executive Officer, does not receive compensation from the
Company. Mr. Tisch is compensated by Loews, of which he is Co-Chairman of the
Board. CNA reimburses Loews for services of Mr. Tisch and other officers and
executives of Loews pursuant to the Services Agreement described under "Certain
Transactions," below.
By the Board of Directors: Antoinette Cook Bush Joseph Rosenberg
Ronald L. Gallatin James S. Tisch
Walter L. Harris Laurence A. Tisch
Bernard L. Hengesbaugh Preston R. Tisch
Stephen W. Lilienthal Marvin Zonis
Edward J. Noha
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. L. A. Tisch, B. L. Hengesbaugh and S. W. Lilienthal, all of whom
are Directors of the Company, also serve as officers of the Company or its
subsidiaries. In addition, Mr. Noha, a Director of the Company, formerly served
as an officer of the Company or its subsidiaries. Mr. L. A. Tisch, Director and
Chief Executive Officer of the Company, also serves as a Director and
Co-Chairman of the Board of Loews. See "Certain Transactions," below, for
information with respect to transactions between the Company and its
subsidiaries, and certain individuals and entities with which they are
affiliated.
CERTAIN TRANSACTIONS
Loews makes available to CNA the services of certain officers and
executives of Loews. In February 1975 CNA entered into a management services
agreement (the "Services Agreement") with Loews which provides that Loews will
make available to CNA these services, together with general corporate services,
including financial, administrative and management consulting services. Loews is
reimbursed on the basis of an allocation of a portion of the salaries and
related payroll taxes and benefits of the officers and executives performing
16
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
2002 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 2001, and $29,443 for travel and similar expenses incurred
during that period. During 2001, Loews or its subsidiaries paid premiums on
insurance and administrative services to the CNA insurance companies at standard
rates aggregating approximately $6,035,278.
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 2001, 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 $908,000,000 to CNA for 2001 under the tax allocation
agreement.
CNA has also reimbursed to Loews or paid directly approximately $13,058,274
for expenses (consisting primarily of salaries and benefits and other
out-of-pocket costs) incurred or owed by Loews during 2001 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 Mr. Hengesbaugh, to assist him with
the purchase of common stock of the Company. In March 1999 Mr. Hengesbaugh
received an additional loan 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 Mr. Deutsch
in August 1999), compounded semi-annually, and will be added to the principal
balances until the loans are settled. The term of each loan is 10 years. Mr.
Hengesbaugh's loan is unconditional with full recourse against the maker. Mr.
Deutsch's loan is non-recourse and is secured by additional collateral. As of
March 12, 2002, the outstanding amounts of the loans were as follows: Mr.
Hengesbaugh, $18,697,618 and Mr. Deutsch, $4,337,672.
17
STOCK PRICE PERFORMANCE GRAPH
The following graph compares the total return of the Company's common
stock, the Standard & Poor's 500 Composite Stock Index ("S&P 500") and the
Standard & Poor's Multi-Line Insurance Index for the five years ended December
31, 2001. The graph assumes that the value of the investment in the Company's
Common Stock and for each Index was $100 on December 31, 1996 and that dividends
were reinvested.
[STOCK PRICE PERFORMANCE GRAPH]
-------------------------------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001
-------------------------------------------------------------------------------------------------------
CNA FINANCIAL CORP. 100.00 119.39 112.85 109.17 108.64 83.73
-------------------------------------------------------------------------------------------------------
S&P 500 INDEX 100.00 133.36 171.48 207.56 188.66 166.24
-------------------------------------------------------------------------------------------------------
MULTI-LINE INSURANCE 100.00 152.53 168.04 214.09 301.19 248.22
-------------------------------------------------------------------------------------------------------
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(PROPOSAL NO. 2)
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 2002. 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.
AUDIT FEES
The aggregate fees billed by Deloitte & Touche LLP, the member firms of
Deloitte & Touche Tohmatsu, and their respective affiliates (collectively,
"Deloitte & Touche") for professional services rendered for the audit of the
Company's annual financial statements for the fiscal year ended 2001 and for the
reviews of the financial statements included in the Company's Quarterly Reports
on Form 10-Q for that fiscal year were $4,804,000.
18
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
Deloitte & Touche was not engaged to perform any professional services for
information technology services relating to financial information systems design
and implementation for the fiscal year ended 2001.
ALL OTHER FEES
The aggregate fees billed by Deloitte & Touche for services rendered to the
Company, other than the services described above under "Audit Fees", for the
fiscal year ended 2001 were $11,528,000, including audit related services of
approximately $1,724,000 and non-audit services of $9,804,000. Audit related
services generally include fees for consents and comfort letters, audits of the
Company's employee benefit plans, accounting consultations, and work on SEC
registration statements.
All Other Fees include $7,264,000 of fees billed by Deloitte Consulting.
Deloitte & Touche has recently announced its intent to separate Deloitte
Consulting from the firm.
The Audit Committee has considered whether the provision of other services
is compatible with maintaining the principal auditors' independence.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR PROPOSAL
NO. 2.
OTHER MATTERS
The Company does not know of any other business to come before the meeting.
However, if any other matters come before the meeting, the persons named in the
proxies will act on behalf of the Stockholders they represent according to their
best judgment.
The cost of this solicitation of proxies will be borne by the Company.
Solicitation will be made primarily through use of the mails, but regular
employees of the Company may solicit proxies personally, by telephone or
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 2003 ANNUAL MEETING
Stockholder proposals for inclusion in proxy materials for the 2003 Annual
Meeting should be addressed to the Company's Executive Vice President, General
Counsel and Secretary, CNA Plaza, 43S, Chicago, Illinois 60685, and must be
received by November 27, 2002. Proxies received in respect of Common Stock to be
voted at the 2003 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 1, 2003.
By order of the Board of Directors,
JONATHAN D. KANTOR
Executive Vice President, General
Counsel
and Secretary
Chicago, Illinois
March 27, 2002
19
PLEASE MARK |
[X] VOTES AS IN |
THIS EXAMPLE. |_______
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS AND FOR PROPOSAL 2.
FOR AGAINST ABSTAIN
1. Election of Directors 2. Approval of independent accountants [ ] [ ] [ ]
(see reverse)
FOR WITHHELD
[ ] [ ]
THIS PROXY WHEN PROPERTY EXECUTED WILL BE VOTED IN THE MANNER
[ ] ________________________________________________ DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
For, except vote withheld from the above nominee(s): FOR ELECTION OF DIRECTORS AND FOR PROPOSAL 2.
The signor hereby revokes all proxies heretofore given by the
signor to vote at said meeting or any adjournments thereof.
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.
Signature: ____________________________ Date: _____________________ Signature: ___________________________ Date: _________________
CNA FINANCIAL CORPORATION PROXY
P SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING, MAY 8, 2002, CHICAGO, ILLINOIS
R
O 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 or
X stockholders of CNA Financial Corporation, to be held at CNA Plaza, (333 South Wabash Avenue), Chicago,
Illinois, on May 8, 2002, at 10:00 A.M., or at any adjournment thereof as follows:
Y
Election of Directors, Nominees:
Antoinette Cook Bush, Walter L. Harris, Stephen W. Lilienthal,
Edward J. Noha, Don M. Randel, Joseph Rosenberg, Bernard Hengesbaugh,
James S. Tisch, Lawrence 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 | SEE REVERSE |
Committee cannot vote your shares unless you sign and return this card. | SIDE |
---------------------