THIS
EMPLOYMENT AGREEMENT (the “Agreement”) is made as of
the 7 th
day of April 2008 (the
“Effective Date”), by and between Continental Casualty
Company, an Illinois insurance company (the “Company”),
and Larry A. Haefner (“Executive”);
WHEREAS, the Company wishes to employ Executive as Executive
Vice President and Chief Actuary of the Company with senior
management level responsibility in the capacity of Chief Actuary
for the principal business units and subsidiaries of the Company,
being hereinafter referred to as the “CNA insurance
companies,” and Executive wishes to accept and agree to such
employment under the terms and conditions set forth
hereinbelow.
NOW, THEREFORE, in consideration of the foregoing premises
and the promises and covenants herein, the parties hereto agree as
follows:
1.
Employment Term . The Company and Executive agree that the
Company shall employ Executive to perform the duties of an
Executive Vice President and Chief Actuary of the CNA insurance
companies for the period commencing on Effective Date and ending on
April 30, 2011, or such earlier date as of which
Executive’s employment is terminated in accordance with
Section 6 hereof (said period the “Term”). The
covenants set forth in Sections 7, 8, 9, 10, 11, 12, 13, and
14 shall survive the employment term of this Agreement.
(a) Executive
shall perform the duties and responsibilities of an Executive Vice
President and Chief Actuary [or successor title] of the CNA
insurance companies as defined and directed by the Company’s
Chief Executive Officer (hereinafter “CEO”). Executive
shall report to the CEO. Executive may be elected to and shall
serve as a member of the Board of Directors of one or more of the
CNA insurance companies, and if so elected Executive agrees to
serve on such boards in such capacity without additional
compensation. Executive further agrees to resign any such
position(s) on such Boards upon the termination of his employment
with the Company for any reason; provided, however, that nothing in
this Agreement shall require that any CNA
insurance
companies elect Executive to its board of directors. Executive may
also be elected as an executive officer of CNA Financial
Corporation (“CNAF”), a publicly-traded company that is
the indirect parent of the Company, and if so elected Executive
agrees to serve in such capacity for the term of this Agreement or
any portion thereof without additional compensation; provided,
however, that nothing in this Agreement shall require that CNAF
elect or maintain Executive in any such position.
(b) Executive
shall diligently and to the best of his abilities assume, perform,
and discharge the duties and responsibilities of Executive Vice
President and Chief Actuary , as well as such other specific duties
and responsibilities as the CEO shall assign or designate to
Executive from time to time not inconsistent with Executive’s
status. Executive shall devote substantially all of his working
time to the performance of his duties as set forth herein and shall
not, without the prior written consent of the CEO, accept other
employment or render or perform other services, nor shall he have
any direct or indirect ownership interest in any other business
which is in competition with the business of the Company, the CNA
insurance companies or CNAF, other than in the form of
publicly-traded securities constituting less than five percent (5%)
of the outstanding securities of a corporation (determined by vote
or value) or limited partnership interests constituting less than
five percent (5%) of the value of any such partnership. The
foregoing shall not preclude Executive from engaging in charitable,
professional, and personal investment activities, provided that, in
the judgment of the CEO, such activities do not materially
interfere with the performance of his duties and responsibilities
hereunder.
(a) During
the Term, the Company shall pay to Executive for the period he is
employed by the Company hereunder, an annual base salary of
$500,000.00 (the “Base Compensation”). The Base
Compensation shall be payable not less frequently than in monthly
increments. At the discretion of the CEO and/or the Compensation
Committee (the “Committee”) of CNAF’s Board of
Directors, such salary rate may be increased annually during the
term of the Agreement, beginning in 2009, based on market
considerations, responsibilities and performance. In no event shall
Executive’s Base Compensation be reduced to an amount that is
less than the amount specified in this Section 3 (a) without
Executive’s written consent, or to an amount that
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is less than
the amount of Base Compensation that he was previously receiving
under this Agreement without Executive’s written
consent.
(b) The
Executive shall be eligible for an annual incentive cash award
(“Bonus”) pursuant to the CNA Financial Corporation
2000 Incentive Compensation Plan (the “Plan”). Subject
to the approval of the Committee, the Executive’s target
Bonus opportunity thereunder shall not be less than the rate of
one-hundred percent (100%) of his Base Compensation for each twelve
month bonus period. In no event shall the target Bonus opportunity
be reduced without the Executive’s written consent. The
amount of the Bonus shall be based on the assessment by the CEO
and/or the Committee of Executive’s performance, and shall be
determined and payable in accordance with the terms of the Plan as
set forth in the Plan documents; however, if Executive is a
proxy-named officer, the amount of the Bonus shall be based on the
Committee’s assessment in its sole discretion of
Executive’s performance and the net operating income goals
(or other applicable measures ) set annually by the Committee, and
shall be determined and payable in accordance with the terms of the
Plan, as set forth in the Plan documents. The Committee shall also
have unlimited negative discretion under the Plan and this
Agreement to decrease the amount of Executive’s Bonus for any
year.
(c) Subject
to the approval of the Committee, Executive shall be eligible to
receive a long-term Incentive cash award, in accordance with the
terms of the Plan, as may be in effect during the Term or such
other long term incentive plan as the Company may from time to time
adopt for its senior officers. The Executive’s target
long-term incentive cash award shall be twenty percent (20%) of his
Base Compensation during any applicable three year performance
period as determined by the Company and/or the Committee, beginning
with the 2008 performance year and prorated for time of
participation for that 2008 performance year; that is,
(a) effective for the 2008 performance year of the 2006-2008
cycle, (b) effective for the 2008 and 2009 performance years
of the 2007-2009 cycle and (c) effective for all covered years
in each subsequent performance cycle. In no event shall the target
award be reduced without the Executive’s written consent.
Actual payout of the long-term incentive cash award may range from
0% to 200% of target, based on the Company’s overall business
results and performance as determined by the Committee in its sole
discretion.
(d) Subject
to the approval of the Committee, Executive shall be awarded a
minimum grant of 10,000 stock appreciation rights paid in stock
(“SARs”) of CNA Financial Corporation
3
(“CNAF”) common stock or equivalent
stock options annually, beginning with the 2009 performance year
(awarded in February of 2009), during the term of Executive’s
employment under this Agreement. Such annual grant may be increased
at the recommendation of the CEO and upon approval of the
Committee, subject to share availability. Executive’s rights
with respect to shares awarded hereunder shall be subject to the
terms of the Plan, share availability and approval by the
Committee.
(e) Executive
shall be awarded a Signing Bonus (the “Signing Bonus”)
in the amount of $400,000, less applicable withholding taxes,
payable within first 45 days of the Effective Date. Executive
shall also be awarded a special grant of 15,000 SARs of CNAF common
stock on the later to occur of the first day of employment or the
first date when both Executive and the Company have signed this
Agreement, subject to Committee approval, and pursuant to the terms
and conditions set forth in the attached Addendum (the
“Addendum”), which is incorporated by reference into
this Agreement. The Signing Bonus shall be subject to the terms and
provisions of that certain New Hire Bonus Payback Agreement
(“Payback Agreement”) of even date herewith between
Executive and the Company.
(f) For
avoidance of doubt respecting awards to Executive under
Section 3 (b), 3 (c), 3 (d), 3 (e) and 3 (f) hereof,
the Committee shall retain such discretion as may be provided under
the Plan to satisfy Section 162(m) of the Internal Revenue Code of
1986 (“Code”) or any successor provision. The Company
will defer until the first tax year in which it reasonably
anticipates, or should reasonably anticipate, that deductibility is
not limited by said Section 162(m) the payment of all compensation
to which Executive is entitled under this Agreement which the
Company reasonably anticipates would be non-deductible under said
Section 162(m) or any successor provision with respect to
deductibility of executive compensation if paid in the tax year in
which it would otherwise be payable. Subject to Section 162(m) of
the Code and any other applicable laws or regulations as
interpreted by the Company, deferred compensation may be credited
to the Executive’s SES-CAP account and, if so credited, shall
be subject to the terms thereof and of the Company’s SES-CAP
Plan.
(g) Executive’s
pensionable earnings under the Savings & Capital Accumulation
Plan (“S-CAP”) and the CNA Supplemental Savings &
Capital Accumulation Plan (“SES-CAP”) will be
calculated and payable as specified in the respective plan
documents, as amended from time to time, and also subject to the
requirements of any other applicable laws or regulations
as
4
interpreted by
the Company. Any deferral elections available to Executive with
respect to such pensionable earnings shall be made prior to the
beginning of the year in which any amounts subject to such
elections are earned.
(h) All
payments due under this Agreement shall be subject to withholding
as required by law.
4.
Other Benefits . Executive shall be entitled to continue to
participate in the various benefit plans, programs or arrangements
established and maintained by the Company from time to time and
applicable to senior executives of the Company such as, but not by
way of limitation, medical benefits, dental benefits, life
insurance, long-term disability insurance, both qualified and
supplemental defined contribution plans, and to receive all fringe
benefits made available to senior executives of the Company,
including relocation assistance, club membership, and tax return
preparation. Executive’s entitlement to participate in any
such plan, program or arrangement shall in each case be subject to
the terms and conditions of the Company’s policies with
regard to such plans, programs or arrangements, as adjusted by the
Company from time to time in its sole discretion. Executive shall
not be eligible for paid time off (“PTO”) under the
Company’s PTO policy. In the event of termination of
employment, Executive’s available severance benefits shall be
determined solely in accordance with Section 6
hereof.
5.
Expense Reimbursement . Executive shall continue to be
entitled to reimbursement by the Company for all reasonable and
customary travel and other business expenses incurred by Executive
in carrying out his duties under this Agreement, in accordance with
the general travel and business reimbursement policies adopted by
the Company as adjusted from time to time. Executive shall report
all such expenditures not less frequently than monthly accompanied
by adequate records and such other documentary evidence as required
by the Company or by Federal or state tax statutes or regulations
governing the substantiation of such expenditures.
6.
Termination of Employment . If Executive’s employment
with the Company shall terminate during the term of this Agreement,
the following conditions set forth herein shall apply with respect
to the Executive’s compensation and benefits hereunder.
Either party may terminate Executive’s employment with the
Company during the term of this Agreement by written notice to the
other party, effective as of the date specified in such notice and
Executive’s employment shall automatically terminate in the
event of Executive’s death. Upon termination of
5
Executive’s employment during or at the
end of the term of this Agreement, the rights of the parties under
this Agreement shall be determined pursuant to this Section 6.
All payments to be made hereunder shall be made either to Executive
or to his personal representatives, heirs or beneficiaries, as the
case may be. In the event of Executive’s termination during
the term of this Agreement, unless otherwise specified in this
Agreement Executive’s rights, if any, under any of the
Company’s defined contribution, incentive or other benefit
plans of any nature shall be governed by the respective terms of
such plans.
6.1
Death and Disability . In the event of the death of
Executive or, at the Company’s election, in the event of his
Permanent Disability (as defined below) during the term of this
Agreement, provided it has not already terminated,
Executive’s employment shall terminate; provided, however,
that:
(a) The
Company shall pay to Executive or his personal representatives,
heirs or beneficiaries as the case may be, an amount equal to his:
(i) unpaid Base Compensation and current year’s target
Bonus prorated to the date of termination; (ii) any previous
year’s unpaid Bonus based upon actual or discretionary
payouts, if any; and (iii) unpaid cash entitlements, if any,
earned by Executive or payable to his beneficiaries as of the date
of termination which, pursuant to the terms of any applicable
Company plan or program (which unpaid cash entitlements shall not
include any unpaid Bonus or any unpaid long-term incentive cash
awards or other awards under the Incentive Compensation Plan),
accrued prior to the date of termination.
(b) For
purposes of this Agreement, the term “Permanent
Disability” means a physical or mental condition of Executive
which, as determined by the CEO based on and consistent with
available medical information, is expected to continue beyond
26 weeks and which renders Executive incapable of performing
any substantial portion of the services contemplated hereunder,
with reasonable accommodation compatible with the fulfillment of
his duties as described in Section 2 hereinabove.
6.2
Termination for Cause by the Company . In the event that
Executive shall engage in any conduct which the CEO in his sole
discretion shall determine to be “ Cause ,” as
defined herein, he shall be subject to termination forthwith. For
purposes of this Agreement, Cause shall mean engaging in or
committing: (i) any act which would constitute a felony or
other act
6
involving
fraud, dishonesty, moral turpitude, unlawful conduct or breach of
fiduciary duty; (ii) a substantial breach of any provision of
this Agreement; (iii) willful or reckless material misconduct
in the performance of the Executive’s duties; or
(iv) the habitual neglect of duties; provided however, that,
for purposes of clauses (iii) and (iv), Cause shall not
include any one or more of the following: bad judgment, negligence
or any act or omission believed by the Executive in good faith to
have been in or not opposed to the interest of the Company (without
any intent by the Executive to gain, directly or indirectly, a
profit to which he was not legally entitled). If the Executive
agrees to resign from his employment with the Company in lieu of
being terminated for Cause, he may be deemed to have been
terminated for Cause for purposes of this Agreement.
Upon
terminating the Executive for Cause, other than paying the
Executive within 30 days of such termination his:
(i) unpaid Base Compensation prorated to the date of
termination and (ii) unpaid cash entitlements, if any, earned and
accrued pursuant to the terms of any applicable Company plan or
program (which unpaid cash entitlements shall not include any
unpaid Bonus or any unpaid long-term incentive cash awards or other
awards under the Incentive Compensation Plan) prior to the date of
the date of termination, the Company shall have no further
obligations whatsoever to Executive under this Agreement. In the
event of termination for Cause, Executive agrees to continue to be
bound by the covenants set forth herein at Sections 7 through
14 subsequent to the date of such termination, for such periods of
time as provided for in said Sections respectively.
6.3
Termination by the Company Without Cause/ Termination by
Executive for Good Reason . In the event Executive’s
employment is terminated by the Company “ Without
Cause” (as that term is defined hereinbelow), or in the
event Executive terminates his employment for “ Good
Reason ” (as that term is defined
hereinbelow):
(a) The
Company shall pay to Executive severance consisting of an amount
equal to the 12 months of the Executive’s Base Compensation
and one (1) times Executive’s target Bonus, or the
aggregate amount of unpaid Base Compensation due to Executive under
this Agreement, whichever is greater, in effect at the time of
termination. The severance shall be paid not less frequently than
in equal monthly installments following such termination. The
Company shall also pay the Executive (i) unpaid Base
Compensation, prorated to the date of termination;
(ii) current year’s Bonus, prorated to the date of
termination, and payable following the end of the performance year
based upon the Committee’s assessment of Executive’s
performance; (ii) any
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previous
year’s unpaid Bonus based upon actual or discretionary
payouts, if any; and (iii) within 30 days of his termination,
unpaid cash entitlements, if any, earned and accrued pursuant to
the terms of any applicable Company plan or program prior to the
date of the date of termination (which unpaid cash entitlements
under this Section 6.3 (a) (ii) shall not include any
unpaid Bonus or any unpaid long-term incentive cash awards or other
awards under the Plan). Executive agrees to be bound by the
covenants set forth herein prior to, as of and subsequent to the
termination date. In addition, Executive shall continue to
participate, at the active employee rates, in such health benefits
plans in which he is enrolled throughout the term of the payments
set forth in this Section 6.3 (a), up to a maximum of
12 months, with said period of participation to run
concurrently with any period of COBRA coverage to which Executive
may be entitled. To the extent such health benefit coverage extends
beyond the aforesaid period of COBRA coverage, the difference
between the premium paid by Executive for participation in such
health benefit plans and the premium that would be payable by an
employee receiving COBRA coverage shall constitute taxable income
to Exec
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