Xx. Xxxxxx X. Xxxxx
CNA Financial Corporation
000 X. Xxxxxx Xxxxxx
Xxxxxxx, XX 00000
Dear Phil:
You and CNA Financial Corporation (the "Company") entered into an
employment agreement dated December 31, 1995 (the "Agreement"). The third
paragraph of Paragraph Eighth of the Agreement (the "Non-Renewal Provisions")
specifies the terms that will apply if the Agreement is not extended or renewed
at the end of its term on December 31, 1998. Because the Agreement was not
extended or renewed, and your employment is continuing in 1999, the provisions
of Paragraph Seventh and the provisions of the first and second paragraphs of
Paragraph Eighth of the Agreement do not apply, and the Non-Renewal Provisions
will apply. Your employment with the Company in 1999 will be subject to the
following items (1) through (5):
1. Period of Employment. Under the Non-Renewal Provisions of the Agreement,
your employment with the Company is to automatically terminate on March 31, 1999
if the Agreement is not renewed by that date. You and the Company have agreed
that the automatic termination date will be deferred until September 30, 1999,
and this letter confirms that the Agreement is amended by substituting the date
"September 30, 1999" for the date "March 31, 1999" in each place the latter date
appears in the Non-Renewal Provisions.
2. Coverage under Plans. By letter dated January 19, 1999 (the "Prior
Letter"), we confirmed the understanding and agreement of you and of the Company
that, during the portion of 1999 while you are employed by the Company, the
terms of the Agreement that governed your benefits and perquisites prior to 1999
will continue to apply. For purposes of determining your right to benefits and
perquisites (including, without limitation, benefits under the CNA Employees'
Retirement Benefit Equalization Plan and the CNA Employees' Supplemental Savings
Plan), the annual rate of combined salary and bonus deemed to be payable to you
while you are employed by the Company during 1999 will be the sum of your salary
(as provided in item (3) of this letter) and bonus (as provided in item (5) of
this letter) for 1999. Further, matching contributions credited to your account
under the CNA Employees' Supplemental Savings Plan (including those credited by
reason of the preceding sentence) will be included in determining your benefits
under the CNA Employees' Retirement Benefit Equalization Plan. For the avoidance
of doubt, it is recited here that the amounts payable to you under items 3, 4,
and 5 below are pensionable.
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3. Salary Rate. Notwithstanding the Non-Renewal Provisions of the Agreement
and the provisions of the Prior Letter, your salary will be at the rate of
$800,000 per year for the period beginning January 1, 1999 and continuing until
your termination of employment with the Company. Beginning February 19, 1999,
your salary payments will reflect the rate of $800,000 per year. However,
because the $800,000 annual salary rate is less than the rate specified in the
Prior Letter, you have been paid until February 5, 1999 salary in excess of the
amount due to you under this letter. The salary payments in excess of the
$800,000 annual salary rate made between January 1, 1999 and February 5, 1999
(the "Excess Salary") will be repaid to the Company by making substantially
equal reductions to the salary payments otherwise due you under this letter for
the period beginning February 19, 1999 and ending September 30, 1999. If such
amounts are insufficient to fully repay the Excess Salary, any remaining
unrepaid Excess Salary will be repaid to the Company by an offset against and
reduction of amounts otherwise due to you from the Company.
4. 1998 Bonus. You will be paid $300,000 in settlement of your award under
the Company's Incentive Compensation Plan for 1998, which payment has been
approved by the Incentive Compensation Committee of the Company's board of
directors (the "Committee"), with such amount to be paid at the time specified
in the plan (which is expected to be on or about March 8, 1999); provided that
payment of any such amount will be subject to any applicable deferral elections
made by you. You have agreed that such payment is in full and final settlement
and satisfaction of all rights you have to receive payments under the Company's
Incentive Compensation Plan for fiscal year 1998.
5. 1999 Bonus. You will be entitled to a bonus award for calendar year
1999, in an amount equal to the lesser of $600,000 or 0.3% of the Net Income of
the Company and its subsidiaries (as defined below) for 1999, subject to a pro
rata reduction to reflect the portion of 1999 following your date of termination
with the Company. The bonus award described in this paragraph shall be payable
in a cash lump sum as soon as practicable after the end of 1999, and shall be
made after the Committee determines the amount to which you are entitled. You
will not be entitled to any bonus award under this paragraph if your employment
with the Company terminates prior to September 30, 1999 for Cause (as defined in
the Agreement) or your voluntary resignation. However, if your employment with
the Company terminates prior to September 30, 1999 for any other reason, the
bonus award described in this paragraph shall be $600,000 (regardless of the Net
Income), subject to a pro rata reduction to reflect the portion of 1999
following your date of termination with the Company, and shall be payable as
soon as practicable (but not more than 30 days) after your termination of
employment.
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You will be entitled to an additional bonus award for calendar year 1999,
in an amount equal to the lesser of $300,000 or 0.3% of the Net Income of the
Company and its subsidiaries for 1999. The bonus award described in this
paragraph shall be payable in a cash lump sum as soon as practicable after the
end of 1999, and shall be made after the Committee determines the amount to
which you are entitled. However, if your employment with the Company terminates
prior to September 30, 1999 for any reason, the bonus award described in this
paragraph shall be $300,000 (regardless of the Net Income), and shall be payable
as soon as practicable (but not more than 30 days) after your termination of
employment. For the avoidance of doubt, it is recited that the bonus amounts
described in this paragraph and the preceding paragraph are to be determined in
accordance with the applicable terms of the respective paragraph without any
discretionary adjustment.
For purposes of determining the bonus under this item 5, the term "Net
Income" of the Company and its subsidiaries for 1999 shall mean the after tax
Net Income of the Company and all of its subsidiaries for 1999 as reflected on
the companies' audited consolidated financial statements for such year as filed
with the Security and Exchange Commission less an amount equal to the "Net
Realized Investment Gains" included in Net Income as reported in the audited
consolidated financial statements, but increased by an amount equal to the "Net
Realized Investment Losses" included in Net Income as reported in the audited
financial statements. The foregoing notwithstanding, (I) the Net Income for 1999
shall be determined without taking into account any entry intended to reflect
the cumulative effect in prior periods of any change in accounting principles
used in preparing current period financial statements, and (II) the amount of
Net Income for 1999 shall be determined without including any adjustments
provided by SOP 97-3 (i.e., as though SOP 97-3 were inapplicable to any aspect
of such determination).
If this letter reflects your understanding of the terms of your employment
with the Company, please indicate your agreement by signing and returning a copy
of this letter to the undersigned.
Very truly yours,
CNA Financial Corporation
By: S/XXXXXXXX XXXXXX
-----------------------------------
Its: Senior Vice President, General
Counsel and Secretary
Accepted and agreed to this 17th day of February, 1999.
S/XXXXXX X. XXXXX
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Xxxxxx X. Xxxxx
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