-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ZZvNlKcn3wEfbUqNMb8SyoxjW5rJodSUwkbkoTkKVAGwM1XK4Wo86RDmYClg1quq uRUYwsNps5DW7+K0XyrBtg== 0000024011-94-000038.txt : 19940330 0000024011-94-000038.hdr.sgml : 19940330 ACCESSION NUMBER: 0000024011-94-000038 CONFORMED SUBMISSION TYPE: DEFC14A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19940329 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CONTINENTAL CORP CENTRAL INDEX KEY: 0000024011 STANDARD INDUSTRIAL CLASSIFICATION: 6331 IRS NUMBER: 132610607 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEFC14A SEC ACT: 34 SEC FILE NUMBER: 001-05686 FILM NUMBER: 94518709 BUSINESS ADDRESS: STREET 1: 180 MAIDEN LN CITY: NEW YORK STATE: NY ZIP: 10038 BUSINESS PHONE: 2124403000 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: CONTINENTAL CORP CENTRAL INDEX KEY: 0000024011 STANDARD INDUSTRIAL CLASSIFICATION: 6331 IRS NUMBER: 132610607 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEFC14A BUSINESS ADDRESS: STREET 1: 180 MAIDEN LN CITY: NEW YORK STATE: NY ZIP: 10038 BUSINESS PHONE: 2124403000 DEFC14A 1 PROXY THE CONTINENTAL CORPORATION 180 MAIDEN LANE, NEW YORK, NEW YORK 10038 March 31, 1994 To Our Shareholders: We invite you to attend the 1994 Annual Meeting of Shareholders, which will be held at 10:30 A.M. on Wednesday, May 11, 1994 in the Ricker Auditorium (second floor) at 180 Maiden Lane, New York City. The accompanying Notice and Proxy Statement contain complete information concerning matters to be considered at the Meeting. Management will report on current Continental activities, and there will be opportunity for discussion of the Corporation and its operations. Whether or not you expect to attend, we urge you to participate in the Meeting by completing, signing and returning the enclosed proxy card as promptly as possible. We are also forwarding Continental's Annual Report for 1993, including the Corporation's financial statements. Sincerely, /s/ John P. Mascotte John P. Mascotte Chairman and Chief Executive Officer THE CONTINENTAL CORPORATION 180 MAIDEN LANE, NEW YORK, NEW YORK 10038 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS March 31, 1994 The Annual Meeting of Shareholders of the Corporation will be held in the Ricker Auditorium (second floor) at 180 Maiden Lane, New York City on Wednesday, May 11, 1994 at 10:30 A.M. for the following purposes: PROXY STATEMENT 1. To elect 13 Directors to hold office until the annual election of Directors in 1995 and until their successors are elected .... Pages 1-7 2. To act upon a proposal to ratify the appointment of independent auditors by the Board of Directors for the year 1994............ Page 17 3. To act upon a shareholder proposal regarding repurchases of shares, if such proposal is properly presented to the Meeting... Page 18 4. To transact such other business as may properly come before the Meeting or any adjournment thereof Only shareholders of record at the close of business on March 22, 1994 will be entitled to vote at the Meeting. By order of the Board of Directors, /s/ William F. Gleason, Jr. William F. Gleason, Jr. Senior Vice President, General Counsel and Secretary THE CONTINENTAL CORPORATION 180 MAIDEN LANE, NEW YORK, NEW YORK 10038 PROXY STATEMENT March 31, 1994 The accompanying proxy is solicited by the Board of Directors of The Continental Corporation ("Continental" or the "Corporation") for use at the 1994 Annual Meeting of Shareholders. Shares cannot be voted at the Meeting unless their owner is present or represented by proxy. If the proxy is properly executed and returned, the shares represented by the proxy will be voted in accordance with choices marked thereon by the shareholder. Unless a contrary choice is marked, the shares will be voted for election of the Director nominees listed in this Proxy Statement, for ratification of the appointment of KPMG Peat Marwick as independent auditors, and against the shareholder proposal regarding repurchases of shares. The proxy may be revoked at any time before it is voted, and it will be deemed revoked if the shareholder attends and votes at the Meeting. Directors of the Corporation are elected by a plurality of the votes cast at the Annual Meeting. Any other matters submitted to vote of the shareholders shall be determined by a majority of the votes cast. Absences from the Meeting and abstentions from voting (including abstentions by brokers who do not have instructions from the beneficial owner of shares held of record in their name and do not have discretionary authority to so vote) on the election of Directors or on any other matters will have no effect on the outcome of such votes, since they are determined on the basis of votes cast, and absences and abstentions are not counted as votes cast. On all matters, each shareholder will be entitled to one vote for each share of stock held of record by such person at the close of business on March 22, 1994. At that time there were issued and outstanding 55,412,428 shares entitled to vote on the election of Directors and the other matters brought before the Meeting, consisting of 55,357,754 common shares; 28,954 shares of $2.50 convertible preferred, Series A; and 25,720 shares of $2.50 convertible preferred, Series B. Continental's Board of Directors has adopted a policy of confidential shareholder voting. The policy provides that the tabulation of shareholder votes is to be by independent third parties, and that each shareholder proxy card, ballot and the shareholder's votes specified thereon are to be kept confidential until the final vote is tabulated at the Corporation's Annual Meeting of Shareholders, except that disclosure may be made as required by applicable law, in the case of proxy cards containing a shareholder comment or question, or in the event of a contested proxy solicitation. ELECTION OF DIRECTORS There are 13 nominees for election as Directors to hold office until the annual election of Directors in 1995. The shares represented by the accompanying proxy, if it is executed and returned, will be voted for these nominees unless the proxy directs otherwise. If any nominee should not continue to be available for election, the proxy holders may vote for a substitute nominee designated by the Board of Directors. No circumstances are known which would render any of the nominees unavailable. Of the 13 nominees, two are executive officers of the Corporation. All nominees are currently serving on Continental's Board of Directors. L. Edwin Smart, a member of the Board since 1978, has attained the retirement age for Continental Directors and, accordingly, is not nominated for election this year. Certain information concerning the nominees is set forth on the following pages. ____________________________ IVAN A. BURNS Former Executive Vice President CPC International Inc. Mr. Burns is a former Executive Vice President- Administration and Director (1985-90) of CPC International Inc., and was President of its Corn Wet Milling Division (1985-87). From 1983 to 1984 he had been Chairman of the Board and Chief Executive Officer of ACF Industries, Inc. He has been a Continental Director since 1983. Committees: Compensation, Nominating. Age 59. Shares: 3,600 ____________________________ ALEC FLAMM Former Vice Chairman Union Carbide Corporation Mr. Flamm is a former Vice Chairman (1985-86), President and Chief Operating Officer (1982-85) and Director (1981-86) of Union Carbide Corporation. Mr. Flamm has been a Continental Director since 1983. He is also a Director of Imcera Group, formerly the International Minerals and Chemicals Corporation. Committees: Audit, Compensation (Chair) and Executive. Age 67. Shares: 600 ____________________________ IRVINE O. HOCKADAY, JR. President and Chief Executive Officer Hallmark Cards, Inc. Mr. Hockaday has been President and Chief Executive Officer of Hallmark Cards, Inc. since 1986, and a Director since 1978. Prior to joining Hallmark, he was President and Chief Executive Officer of Kansas City Southern Industries, Inc. Mr. Hockaday has been a Continental Director since 1989. He also is a Director of The Ford Motor Company and Dow Jones Inc. Committees: Investment, Public Affairs. Age 57. Shares: 1,100 ____________________________ JOHN E. JACOB President and Chief Executive Officer National Urban League Mr. Jacob has been President and Chief Executive Officer of the National Urban League since 1982. He has been a Continental Director since 1985. Mr. Jacob is also a Director of Coca Cola Enterprises, Inc., National Westminster BanCorp Inc., the New York Telephone Company, Anheuser-Busch Companies, Inc. and LTV Corporation. Committees: Audit (Chair), Executive, Public Affairs. Age 59. Shares: 612 ___________________________ JOHN P. MASCOTTE Chairman of the Board and Chief Executive Officer The Continental Corporation Mr. Mascotte has been Chairman of the Board and Chief Executive Officer of Continental since 1982. In 1992 he became President, a position he previously held during the period 1981-1984. He is also the chief executive officer and a director of several subsidiaries of the Corporation. Mr. Mascotte has been a Continental Director since 1981. He is also a Director of Hallmark Cards, Inc., Chemical Banking Corporation, Chemical Bank and Business Men's Assurance Company of America. Committees: Executive (Chair). Age 54. Shares: 168,323 __________________________ JOHN F. MCGILLICUDDY Retired Chairman of the Board and Chief Executive Officer Chemical Banking Corporation Mr. McGillicuddy is the retired Chairman of the Board and Chief Executive Officer of Chemical Banking Corporation and Chemical Bank. Prior to the merger on January 1, 1992 of Manufacturers Hanover Corporation and Chemical Banking Corporation, Mr. McGillicuddy had been Chairman and Chief Executive Officer of Manufacturers Hanover Corporation and Manufacturers Hanover Trust Company, positions he had held since 1979. Mr. McGillicuddy is a Director of Chemical Banking Corporation and Chemical Bank. Mr. McGillicuddy has been a Continental Director since 1975. He is also a Director of UAL Corporation, USX Corporation, Empire Blue Cross and Blue Shield and Kelso & Company. Committees: Investment, Nominating. Age 63. Shares: 5,100 ___________________________ RICHARD DE J. OSBORNE Chairman, Chief Executive Officer and President ASARCO Incorporated Mr. Osborne has been Chairman, Chief Executive Officer and President of ASARCO Incorporated since 1985. He has been a Continental Director since 1992. Mr. Osborne is also a Director of ASARCO and Schering-Plough Corporation, Chairman and a Director of the American Mining Congress, a Director and former Chairman of the International Copper Association, Chairman and a Director of the Copper Development Association, and a Director of the United States Chamber of Commerce, the Americas Society and the Council of the Americas. He also is President and a Director of the American-Australian Association and a member of the Council on Foreign Relations, the Economic Club of New York and The Conference Board. Committees: Audit, Investment. Age 59. Shares: 1,100 __________________________ CHARLES A. PARKER Executive Vice President The Continental Corporation Mr. Parker has been Executive Vice President of Continental since 1983. He is Chairman and a Director of Continental Asset Management Corp., an SEC- registered investment adviser which is a Continental subsidiary. He also is an executive vice president of several subsidiaries of the Corporation. Mr. Parker has been a Continental Director since 1989. He is also a Director of TCW Convertible Securities Fund, Inc., and a Trustee of Pace University. Age 59. Shares: 87,283 ___________________________ JOHN W. ROWE, M.D. President Mount Sinai Medical Center Dr. Rowe has been President of Mount Sinai Medical Center and Mount Sinai School of Medicine since 1988. He was formerly a Professor of Medicine at Harvard Medical School (1974-1988). He has been a Continental Director since 1993. Dr. Rowe is a member of the Board of Directors of the American Board of Internal Medicine and the New York Academy of Medicine. He is a past President of the Gerontological Society of America and the American Federation for Aging Research, and a member of the Institute of Medicine of the National Academy of Sciences. Committees: Compensation, Public Affairs. Age: 49. Shares: 400 __________________________ PATRICIA CARRY STEWART Former Vice President The Edna McConnell Clark Foundation Ms. Stewart is a former Vice President of The Edna McConnell Clark Foundation (1974-1992). She has been a Continental Director since 1976. Ms. Stewart is also a Director of Bankers Trust Company, Bankers Trust N.Y. Corporation, Borden, Inc. and Melville Corporation. She serves as a Trustee of Cornell University and a member of the Council on Foreign Relations and the Community Foundation. Committees: Executive, Investment (Chair), Nominating. Age 65. Shares: 600 ___________________________ FRANCIS T. VINCENT, JR. Former Commissioner, Major League Baseball Mr. Vincent is a former Commissioner of Major League Baseball (1989-1992). From 1979 to 1989 he served as Executive Vice President of The Coca-Cola Company and Chief Executive Officer, Chairman and President of Columbia Pictures Industries, Inc., formerly a subsidiary of The Coca-Cola Company. Mr. Vincent has been a Continental Director since 1992. He is also a Director of Time-Warner Corp., Culbro Corp. and Oakwood Homes Corp. Committees: Compensation, Public Affairs. Age 55. Shares: 1,100 ____________________________ MICHAEL WEINTRAUB Private Investor Mr. Weintraub is a private investor. He has been a Continental Director since 1976. Mr. Weintraub is also a Director of NationsBank Corporation and IVAX Corporation and a Trustee of the Miami Heart Research Institute. Committees: Audit, Investment. Age 55. Shares: 7,100 ____________________________ ANNE WEXLER Chairman The Wexler Group Ms. Wexler has been Chairman of The Wexler Group, a Washington, D.C., government relations consulting firm, since 1981. She has been a Continental Director since 1990. Ms. Wexler is also a Director of American Cyanamid Corporation, Comcast Corporation, Dreyfus Index Funds and the New England Electric System. She is a member of the I.B.M. Public Responsibility Committee, the Board of Visitors of the University of Maryland School of Public Affairs, the Carter Center of Emory University, the Council on Foreign Relations and the Visiting Committee of the JFK School of Government at Harvard University. Committees: Compensation, Public Affairs (Chair). Age 64. Shares: 600 SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth information regarding beneficial ownership as of March 22, 1994 of Continental common stock of the Director nominees, the Corporation's five most highly compensated executive officers and the Directors and executive officers as a group.
Amount and Nature Percent of Outstanding Name of Beneficial Ownership Common Stock Ivan A. Burns 3,600 * Alec Flamm 600 * Irvine O. Hockaday 1,100 * John E. Jacob 612 * John P. Mascotte 168,323 (a) * John F. McGillicuddy 5,100 * Richard de J. Osborne 1,100 * Charles A. Parker 87,283 (a) * John W. Rowe 400 * Patricia Carry Stewart 600 * Francis T. Vincent, Jr. 1,100 * Michael Weintraub 7,100 * Anne Wexler 600 * Fred G. Marziano 83,816 (a) * Wayne H. Fisher 63,304 (a) * Steven J. Smith 67,586 (a) * All Directors and Executive 2,837,251 (b) 5.1% Officers as a group (27) (a) The numbers of Continental shares shown as beneficially owned by Messrs. Mascotte, Parker, Marziano, Fisher and Smith include 151,563, 81,432, 76,750, 59,850 and 61,102 stock options, respectively, granted under Continental's Long Term Incentive Plan to such executive officers, which are exercisable or become exercisable prior to May 31, 1994. (b) The number of Continental shares shown includes 1,968,398 shares held by Continental's Incentive Savings and Retirement Plans, for which a Continental subsidiary shares investment power. * Less than 1% of the Corporation's outstanding shares of common stock.
Mr. Osborne is Chairman, Chief Executive Officer and President of ASARCO Incorporated. ASARCO rents office space from Continental under a lease expiring April 30, 2002 with an annual rental of $3,063,117. Under Section 16 of the Securities Exchange Act of 1934, directors and executive officers of the Corporation are required to report their holdings of and transactions in the Corporation's stock to the Securities and Exchange Commission. In 1993, one statement of a change in beneficial ownership for Mr. Hockaday, relating to an acquisition of the Corporation's common stock, was filed late. OTHER OWNERSHIP OF CONTINENTAL STOCK The following table sets forth information as of February 28, 1994 concerning persons known to the Corporation to be the beneficial owners of more than 5% of the outstanding shares of its common stock.
Amount and Nature Name/Address of Beneficial Ownership Percent of Class _____________________________________________________________________ Norwest Corporation 6,060,135 (a) 11.0% Norwest Center Sixth and Marquette Minneapolis, Minnesota J. P. Morgan & Co. Incorporated 3,036,972 (b) 5.5% 60 Wall Street New York, New York Mellon Bank Corporation 3,824,000 (c) 6.9% One Mellon Bank Center Pittsburgh, Pennsylvania Prudential Insurance Company 4,975,100 (d) 9.0% of America Prudential Plaza Newark, New Jersey _____________________________ (a) Norwest Corporation reports that it has sole voting authority with respect to 4,324,511 shares, shared voting authority with respect to 44,456 shares, sole investment authority with respect to 4,575,191 shares and shared investment authority with respect to 20,226 shares. (b) J. P. Morgan reports that it has sole voting authority with respect to 1,617,818 shares, shared voting authority with respect to 3,654 shares, sole investment authority with respect to 3,033,318 shares and shared investment authority with respect to 3,654 shares. (c) Mellon Bank Corporation reports that it has sole voting authority with respect to 2,283,000 shares, shared voting authority with respect to 2,400 shares, sole investment authority with respect to 2,548,000 shares and shared investment authority with respect to 1,277,000 shares. (d) Prudential Insurance Company of America reports that it has sole voting authority with respect to 62,300 shares, shared voting authority with respect to 4,912,800 shares, sole investment authority with respect to 62,300 shares and shared investment authority with respect to 4,912,800 shares.
The Corporation's management knows of no other beneficial owner of more than 5% of any class of voting security of the Corporation. THE BOARD AND ITS COMMITTEES The Continental Board of Directors has established the six Committees described below. With the exception of the Executive Committee, all Board Committees are comprised entirely of independent Directors. The Executive Committee is authorized, to the extent permitted by New York law, to exercise powers of the Board during intervals between Board meetings. The Executive Committee has five members: Messrs. Mascotte (Chair), Flamm, Jacob and Smart and Ms. Stewart. The Committee met two times in 1993. The Audit Committee consists of four members: Messrs. Jacob (Chair), Flamm, Osborne and Weintraub. This Committee reviews the annual financial statements of the Corporation, reviews the adequacy of its system of internal accounting controls and procedures, reviews the plan and scope of the annual audit of the Corporation, and considers other matters in relation to the internal and external auditing of Continental. The Committee meets with the Corporation's independent certified public accountants, internal auditors and financial and legal personnel in connection with the Committee reviews. It recommends to the Board the appointment of the independent certified public accountants. The Audit Committee met four times in 1993. The primary function of the Investment Committee is to review and evaluate the Corporation's investment policies and to recommend to the Board of Directors such changes as may be appropriate. The Committee, which met three times during 1993, has six members: Ms. Stewart (Chair) and Messrs. Hockaday, McGillicuddy, Osborne, Smart and Weintraub. The Compensation Committee is responsible for remuneration arrangements for Directors and senior management, for awards and other matters under Continental's Annual Management Incentive Plan and Long Term Incentive Plan and for compensation and benefit plans for Continental employees generally. The Committee met five times in 1993. Its five members are Messrs. Flamm (Chair), Burns, Vincent, Dr. Rowe and Ms. Wexler. The Nominating Committee recommends candidates as nominees for election as Directors of the Corporation at the Annual Meeting of Shareholders. The Committee, which met three times in 1993, has four members: Messrs. Smart (Chair), Burns and McGillicuddy and Ms. Stewart. The Committee will consider candidates recommended by shareholders. Shareholders who wish to make a recommendation are invited to do so if the candidate has approved submission of his or her name. Any such recommendation should state in detail the qualifications of the candidate for consideration by the Nominating Committee, and it should be addressed to the Chairman of the Nominating Committee, c/o William F. Gleason, Jr., Senior Vice President, General Counsel and Secretary, The Continental Corporation, 180 Maiden Lane, New York, N.Y. 10038. In accordance with the Company's by-laws, all submissions must be received by April 11, 1994. The Public Affairs Committee has five members: Ms. Wexler (Chair) and Messrs. Hockaday, Jacob, Vincent and Dr. Rowe. Its function is to review Continental's policies on public issues relating to its business, and to report to the Board its findings thereon. The Committee met four times in 1993. For 1994, the Board has scheduled eight regular meetings, and may hold special meetings on call. During 1993, the Board held eight meetings, and its Committees held a total of twenty-one meetings. With the exception of Mr. Vincent, each Director attended at least 75% of the aggregate number of meetings of the Board and Committees on which he or she served. The average attendance for all meetings was 93%. DIRECTORS' COMPENSATION Each Director who is not an executive officer of the Corporation receives an annual retainer of $25,000 and 100 shares of Continental common stock, and a meeting fee of $1,000 for each Board and Committee meeting which he or she attends. Chairpersons of Committees receive additional annual retainers as follows: Audit Committee--$6,000; Compensation, Investment, Nominating and Public Affairs Committees--$5,000. Directors who are also Continental executive officers receive no fees for serving as Directors of the Corporation. Each Director (who is not an executive officer) who retires from the Board after attaining the age of 70 with a minimum of five years' service as director receives thereafter, annually for the same number of years as the Director served on the Board, subject to a maximum of ten years, the sum of $25,000 plus the value of 100 shares of Continental common stock on the date of his or her last receipt of shares. Each former Director who was eligible and retired prior to January 1, 1991, receives $20,000 annually for the same number of years as the Director served on the Board, subject to a maximum of ten years. COMPENSATION COMMITTEE REPORT The Compensation Committee of the Board of Directors is responsible for establishing and administering the Corporation's executive compensation programs. This report by the Compensation Committee, which is comprised of the five undersigned independent Directors, describes the philosophies, plans and policies guiding compensation paid to Continental's executive officers for 1993. Executive Compensation Policies The Compensation Committee compares total compensation packages at Continental to those offered for comparable positions at other major insurance companies. These include five of the six companies which comprise the Standard & Poor's Property/ Casualty Index (which five companies also make up the peer company index against whose stock performance Continental has elected to compare its cumulative, five-year shareholder return), together with four other large insurance companies (Aetna, Cigna, CNA and Travelers) with which Continental routinely competes for executive talent. There are two types of executive pay at Continental which, when combined, allow Continental to attract and retain talented executives: 1) Fixed compensation (namely, a base salary), and 2) Variable at-risk compensation, which offers the potential, but not the certainty, for executives to earn more than their base salaries. These variable compensation opportunities tie a significant portion of total executive compensation to the achievement of specific corporate performance objectives. In 1993, variable compensation made up about half of each executive officer's total compensation package. Continental's performance relative to its predetermined objectives is the principal factor in determining how much variable compensation is actually paid. Fixed Compensation Base salary is the fixed part of each executive officer's total compensation package. Salary levels are set in relation to a range assigned to the officer's position, the midpoint of which is generally at the median for comparable positions at other major insurance companies. The salary actually payable to each executive officer may be adjusted, usually on an annual basis, to reflect individual performance and/or promotions. For CEO Jake Mascotte and the four executive officers named in the compensation tables following this report, salary represents the only form of compensation whose payment is directly affected by individual, not just corporate, performance. Variable Compensation At Continental, variable compensation is very performance driven; that is, a greater part of total compensation is at risk than at other major insurance companies. Actual payment of variable compensation is determined by the Compensation Committee after reviewing corporate performance relative to the objectives it established at the beginning of the performance period. Payouts can range from no payment at all to above-average compensation for above-average performance. The variable part of each executive officer's total compensation package consists of one annual and two long-term parts: o the opportunity to receive a cash payment under the Annual Management Incentive Plan ("AMIP"); o the opportunity to benefit from an increase in the price of Continental's common stock through stock options granted under its Long Term Incentive Plan ("LTIP"); and o the opportunity to receive shares of Continental's common stock through grants of performance shares under the LTIP. Although individual LTIP grants may be greater or less than their target amounts to reflect differences in future potential, corporate performance is the exclusive measure for deciding AMIP and LTIP payouts for Jake Mascotte and the four named executive officers. Under the AMIP, executive officers are eligible each year for a cash award based on a percentage of the midpoint of the salary range for their position. These percentages presently range from 30% to 50% and have remained fixed since 1988. Actual payments to Jake Mascotte and the four named executive officers may be greater or less than the target amount depending upon the Committee's determination of how well Continental performed in meeting the predetermined objectives for the year. For 1993, the Committee set five corporate objectives for payment under the AMIP. These objectives consisted of goals for 1993 policy year gross written premiums, calendar year net written premiums, policy and calendar year combined ratios, and operating cash flow. Based on its review of Continental's performance against these five objectives, the Committee determined that a payment of 100% of AMIP target awards was appropriate for Continental's executive officers for 1993. This determination reflects the fact that Continental exceeded its goals for both measures of premium growth, as well as for operating cash flow, all of which are critical to further improvements in performance. Continental's combined ratio performance came within one percent of its objectives, despite a heavier-than-average level of catastrophic events. Under the LTIP, executive officers are eligible each year to receive grants of stock options and performance shares. Stock options give executive officers the opportunity to benefit from an increase in the price of Continental's common stock by allowing them to buy shares at a fixed price (the fair market value on the date of grant) for a fixed period of time. Any compensation actually received from these options therefore depends upon an increase in Continental's stock price. Performance share grants give executive officers the opportunity to receive shares of Continental common stock based on targets established for their position. (Each performance share is equal to one share of Continental's common stock.) The number of stock options and performance shares which executive officers are eligible to receive is determined in accordance with the Committee's analysis of total compensation offered for comparable positions at other major insurance companies. Individual grants may be greater or less than their target amounts to reflect variations in future potential. As stated earlier, only salary payouts are affected by individual performance; actual LTIP awards may be greater or less than performance share grants depending on the Committee's determination as to whether and to what extent Continental has achieved predetermined corporate objectives over a four-year period. Performance share awards are valued at the fair market value of Continental's common stock on the date of payment and are made in a combination of shares and cash, with the cash portion withheld for applicable taxes and the net award paid entirely in shares. On February 18, 1993, the Committee approved a special grant of stock options equal to about 80% of the amount targeted for grant in prior years. The purpose of the special grant was to retain and motivate key employees through a period of corporate transition. The target amounts for this special grant were determined based upon the number of employees key to the transition and the amount of shares remaining in the Plan; prior grants were not otherwise taken into consideration. These options become exercisable in two equal installments on the first and second anniversaries of the date of grant, and expire ten years from the date of grant. The exercise price for these options is $26.8125, the fair market value of a share of Continental's common stock on the date of grant. Any compensation which could be received from these options depends upon an increase in the price of Continental stock. Beginning with 1994, the Committee intends to use primarily performance shares for long-term variable compensation for its executive officers. Target amounts for performance share grants for the four-year period beginning January 1, 1994 were set to provide long-term compensation opportunities equal to those provided by a combination of stock options and performance shares for 1993. For the four-year period which began on January 1, 1990, the Committee determined that performance would be measured by growth in Continental's book value (with investments valued at market prices) and dividend yield, relative to those of the peer companies. Based on the Committee's review of Continental's performance for this period January 1, 1990 through December 31, 1993, no performance share awards were paid. Beginning in 1994, the Internal Revenue Service has limited the deductibility for federal income tax purposes of certain executive compensation payments in excess of $1,000,000. Because it is not expected that any individual executive officer's compensation for 1994 services will significantly exceed the one millon dollar limit, the Committee has taken no special action this year to revise its compensation programs or otherwise address this issue. The Committee will continue to review the matter and take action when it deems appropriate. Please note that for tax deduction purposes, the compensation for named executive officers is generally less than the compensation reported for these officers in the proxy statement. This is because they often elect to defer a portion of their compensation through Continental's 401(k) Incentive Savings Plan, health plan, or deferred compensation programs. CEO Compensation Recommendations for all components of Jake Mascotte's compensation are made by the Committee and formally approved by all independent Directors of the full Board. He participates in the same programs as all of Continental's other senior executives. Recommendations with respect to his base salary, cash payment under the AMIP, and grants and payouts under the LTIP are consistent with methods used to determine the compensation for other Continental executive officers. Fixed Compensation On June 13, 1993, Mr. Mascotte's base salary was increased 5.9% to $715,000. This increase was his first in 27 months and brought his base salary to approximately 86% of the average salaries paid to CEOs and/or Chairmen at other major insurance companies. Variable Compensation A cash payment of $332,500 was made to the Chairman under the AMIP for 1993. This is equal to 100% of the AMIP target award, the same percentage as paid to the other named executive officers, based upon the Committee's review of Continental's performance relative to predetermined objectives. As discussed previously, the Committee found that Continental's performance exceeded three of its five objectives -- both measures of premium growth and operating cash flow, which are critical to further improvements in performance. On Continental's combined ratio, performance came within one percent of its objectives despite a heavier- than-average level of catastrophic events. Under the LTIP, on February 18, 1993, Mr. Mascotte received a special grant of 16,300 stock options, which amounted to 82% of his targeted stock option grant in prior years. The target amount was determined based upon the same criteria discussed previously for other grant recipients. These options also become exercisable in two equal installments on the first and second anniversaries of the date of grant, and expire ten years from the date of grant. The exercise price for these options is also $26.8125, the fair market value of a share of Continental's common stock on the date of grant. Jake Mascotte received no payment of performance shares for the four-year period January 1, 1990 through December 31, 1993 because, as discussed previously, the Committee determined that growth in Continental's book value and dividend yield did not merit a payout. For the four-year period beginning January 1, 1994, the Committee provided the Chairman with a grant of 22,000 performance shares. Jake Mascotte will not be eligible to receive any payment of common stock from this grant until after December 31, 1997. At that time, the Committee will determine the extent of any payment of shares based on its review of Continental's performance during the four-year period covered by the grant. This grant of 135% of the amount targeted for the CEO for 1994 underscores the philosophic emphasis the Committee has placed on variable compensation as the driver for long-term profitability. When combined with his lower-than-average base salary, the grant brings his total compensation opportunities to about the average total package provided to CEOs and/or Chairmen at other major insurance companies. I. BURNS A. FLAMM J. ROWE F. VINCENT, JR. A. WEXLER Performance Graph The following graph compares on a cumulative basis the yearly percentage change over the last five fiscal years in (a) the total stockholder return on the Corporation's Common Stock with (b) the total return on the Standard & Poor's 500 Index ("S&P 500") and (c) the total return on a Peer Group Index ("Peer Group"). Such yearly percentage change has been measured by dividing (i) the sum of (A) the amount of dividends for the measurement period, assuming dividend reinvestment, and (B) the difference between the price per share at the end and that at the beginning of the measurement period, by (ii) the price per share at the beginning of the measurement period. The S&P 500, in which the Corporation is included, has been selected as the broad equity market index. The Peer Group selected for the industry index includes Chubb, Continental, SAFECO, St. Paul and USF&G. These companies, with the addition of General Re, constitute the S&P Property/Casualty Index. (General Re has been excluded from the Peer Group because it is a reinsurance company and Continental has now exited the reinsurance business.) The Peer Group Index includes the capital- weighted performance results of those companies, which are also included in the S&P 500. The price of each unit has been set at $100 on December 31, 1988 for the preparation of the graph. Comparison of Five-Year Cumulative Total Return Among Continental Corp., S&P 500 and Peer Group
Continental S&P Peer Corp. 500 Group 1988 $100.00 $100.00 $100.00 1989 103.21 131.69 138.47 1990 91.20 127.60 126.12 1991 111.39 166.47 170.87 1992 116.77 179.16 201.17 1993 124.19 197.21 202.49
EXECUTIVE COMPENSATION The Summary Compensation Table, which appears below, provides information concerning all forms of compensation for the three-year period 1991-1993 for the CEO and the four other most highly compensated Continental executive officers for services to the Corporation and its subsidiaries in all capacities. The three tables following the Summary Compensation Table provide further detail regarding compensation earned by these executive officers in 1993. Summary Compensation Table
Long Term Compensation Annual Compensation Awards Payouts ______________________________________________________ Other Number of Annual Securities LTIP Name and Compen- Underlying Pay- All/Other Principal sation Options/ outs Compen- Position Year Salary Bonus($) ($) SARs(#) ($) sation(a) John P. Mascotte 1993 $696,538 332,500 $15,791 16,300 0 $41,792 Chairman, 1992 $675,000 0 $11,425 20,000 $40,500 President and CEO 1991 $670,192 0 20,000 0 Charles A. Parker 1993 $440,769 136,000 $21,311 7,500 0 $26,446 Executive Vice 1992 $430,000 0 $13,319 15,000 0 $25,800 President 1991 $424,231 0 10,000 0 Fred G. Marziano 1993 $418,077 136,000 $14,483 7,500 0 $25,085 Executive Vice 1992 $389,808 0 $ 9,608 30,000 0 $23,737 President 1991 $385,000 0 9,000 Wayne H. Fisher 1993 $333,077 128,000 $ 9,078 7,000 0 $19,985 Executive Vice 1992 $304,808 0 $ 6,790 24,000 0 $17,191 President 1991 $300,000 0 8,000 0 Steven J. Smith 1993 $310,769 128,000 $11,052 9,000 0 $18,646 Executive Vice 1992 $300,000 0 $ 7,821 9,000 0 $18,000 President 1991 $300,000 0 9,000 0 _________________________________ (a) Represents the Corporation's contributions to Incentive Savings Plan and Supplemental Savings Plan, respectively, on behalf of named executives which, in 1993, were as follows: Mr. Mascotte: $8,994 and $32,798; Mr. Parker: $8,994 and $17,452; Mr. Marziano: $8,994 and $16,091; Mr. Fisher: $8,994 and $10,991; and Mr. Smith: $8,994 and $9,652.
Option/SAR Grants in Last Fiscal Year
Individual Grants Grant Date Value Number of Securities Underlying % of Total Options/ Options/SARs Exercise SARs Granted to or Base Expira- Grant Date Granted Employees in Price tion Present Name (#) Fiscal Year ($/Sh) Date Value ($)(a) J. Mascotte 16,300 (b) 2.09% $26.8125 2/18/03 $93,888 C. Parker 7,500 (b) 0.96% $26.8125 2/18/03 $43,200 F. Marziano 7,500 (b) 0.96% $26.8125 2/18/03 $43,200 W. Fisher 7,000 (b) 0.90% $26.8125 2/18/03 $40,320 S. Smith 9,000 (b) 1.15% $26.8125 2/18/03 $51,840 (a) Calculated using the Black-Scholes method of determining present value, using the following assumptions: estimated future annual stock volatility of 17.8% (based on 12 months ending 10/31/93); risk-free rate of return 6% (based on 10-year Treasury bills); option term of 10 years; and estimated future dividend yield of 3.62% (based on 1993 dividend of $1.00 divided by $27.625 closing price for 12/31/93). (b) Incentive and Non-Qualified stock options granted at fair market value on 2/18/93 vest 50% after one year, 50% after the second year.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values
Number of Securities Value of Underlying Unexercised Unexercised In-The Money Options/SARs Options/SARs at F.Y.-End (#) at F.Y.-End (a) Shares Value Acquired on Realized Exercisable/ Exercisable/ Name Exercise (#) ($) Unexercisable Unexercisable J. Mascotte 0 $0 143,413/26,300 $131,250/$34,494 C. Parker 0 $0 77,682/15,000 $ 70,938/$22,031 F. Marziano 0 $0 73,000/22,500 $ 86,375/$42,969 W. Fisher 0 $0 56,350/19,000 $ 73,250/$34,938 S. Smith 0 $0 56,602/13,500 $ 56,875/$16,875 (a) Calculated at $27.625 closing price for 12/31/93.
Long Term Incentive Plans - Awards in Last Fiscal Year [C] Performance Estimated Future Payouts Number of or Other Under Non-Stock Shares, Units Period Until Price-Based Plans or Other Maturation Name Rights (#) (a) or Payout Target (b) [S] [C] [C] [C] J. Mascotte 22,000 4 years 22,000 C. Parker 9,000 4 years 9,000 F. Marziano 9,000 4 years 9,000 W. Fisher 7,300 4 years 7,300 S. Smith 7,300 4 years 7,300 (a) The number of performance shares granted on 12/16/93 for the 1994-97 cycle. (b) The number of performance shares which may be paid at the end of the 1994-97 cycle based upon the Compensation Committee's evaluation of performance. At the beginning of this cycle, the Compensation Committee determined that performance will be evaluated based on Continental's growth in book value plus dividend yield (with investments valued at market prices). No maximum payout is set by the Plan; the minimum potential payout is zero. The table below shows estimated annual retirement benefits payable under Continental's Retirement and Supplemental Retirement Plans as a straight life annuity to persons in specified compensation and years-of-service classifications. _____________________________________________________________________ Estimated Annual Retirement Benefits* _____________________________________________________________________ Final Five-Year Average Covered Compensation Years of Credited Service at Retirement 15 20 25 30 35 40 $1,300,000 $306,500 $408,700 $510,900 $613,100 $715,200 $715,200 1,200,000 282,800 377,100 471,400 565,700 659,900 659,900 1,100,000 259,100 345,500 431,900 518,300 604,600 604,600 1,000,000 235,400 313,900 392,400 470,900 549,300 549,300 900,000 211,700 282,300 352,900 423,500 494,000 494,000 800,000 188,000 250,700 313,400 376,100 438,700 438,700 750,000 176,200 234,900 293,600 352,400 411,100 411,100 700,000 164,300 219,100 273,900 328,700 383,400 383,400 650,000 152,500 203,300 254,100 305,000 355,800 355,800 600,000 140,600 187,500 234,400 281,300 328,100 328,100 550,000 128,800 171,700 214,600 257,600 300,500 300,500 500,000 116,900 155,900 194,900 233,900 272,800 272,800 450,000 105,100 140,100 175,100 210,200 245,200 245,200 400,000 93,200 124,300 155,400 186,500 217,500 217,500 _____________________________________________________________________ * Assumes employee retiring at age 65 with a straight life annuity. Please note that the final five year average covered compensation includes incentive compensation as well as base salary. The benefits listed in the preceding table are not subject to deduction for Social Security or other offset amount. For the executive officers named in the preceding compensation tables, the respective years of credited service at the end of 1993 are as follows: Mr. Mascotte: 22.9; Mr. Parker: 23.75; Mr. Marziano: 15; Mr. Fisher: 11.3; and Mr. Smith: 17.6. The years of credited service stated for such executive officers include eleven years, nine years, nine years, 0 years and seven years, respectively, credited by employment arrangements; supplemental benefits with respect to those years are to be paid from Continental's general funds. The Executive Severance Plan was established by the Board in 1988 to help assure a continuing dedication by certain senior executives of the Corporation to their duties notwithstanding any occurrence of a tender offer or other takeover bid. The Compensation Committee of the Board determines the senior executives who participate in the Plan. Presently, 16 executive officers are participants. If a change in control of Continental occurs and a participant's employment terminates within two years after such change of control for any reason other than retirement, disability, death or certain criminal convictions, under The Executive Severance Plan the participant shall receive a payment equal to 299.9% of the average of his or her annual compensation paid during the five preceding years minus the amount of benefits to which such participant is entitled under The Long Term Incentive Plan, the Annual Management Incentive Plan, or any other plan or agreement of the Corporation, and which are accelerated by, or contingent on, a change of control. The amount of such accelerated or contingent benefits for any participant could be determined only after any change of control. The average annual compensation paid during the five preceding years to the named executive officers is as follows: Mr. Mascotte: $813,781; Mr. Parker: $474,005; Mr. Marziano: $428,368; Mr. Fisher: $304,871; and Mr. Smith: $327,858. The Board may not amend or terminate the Plan to relieve the Corporation of its obligation to pay any amounts to which a participant has become entitled. No amendment or termination may become effective, without the consent of all the participants, within two years after a change of control of Continental or at any time after the Board has reason to believe a change of control may occur. Appointment of Auditors KPMG Peat Marwick, certified public accountants, who have provided accounting services to the Corporation and its subsidiaries continuously since 1960, have been appointed by the Board of Directors as the auditors of the Corporation for the year 1994. The Board recommends that the shareholders ratify this appointment. If it is not ratified, the Board will reconsider the selection of auditors. A representative of KPMG Peat Marwick will attend the Annual Meeting. The representative may make a statement and will respond to appropriate questions. KPMG Peat Marwick provided audit services in connection with the examination of the Corporation's 1993 consolidated financial statements, including examination of financial statements of benefit plans, meetings with the Audit Committee and management, and consultation and assistance on accounting and related matters. During 1993, KPMG Peat Marwick also provided other services that were not related to the audit. Shareholder Proposal Regarding Repurchases of Shares Neal A. Pepper, Ph.D., Pepper Value Management, 19209 Stare Street, Northridge, California 91324, who states that he is the owner of 2,100 shares of common stock of the Corporation and that his investment management clients own a total of 14,200 shares of common stock of the Corporation, has informed the Corporation that he intends to present the following proposal at the Meeting: "PROPOSAL: The shareowners of Continental Corporation request that the Board of Directors REPURCHASE COMMON SHARES of the company whenever the average of the last 30 days' closing price of Continental Insurance (CIC) on the New York Stock Exchange falls below 90% of its stated shareowner net asset value per share on the books of the Company ("book value"). The shareowners request the Board to promptly repurchase shares in the open market at a rate not less than one percent per month of the then outstanding number of issued and outstanding, provided purchases can be made at prices below 90 percent of book value. "REASONS: Continental has a book value of about $40 a share - probably more! But CIC's stock price is below $24 a share today. Management has worked capably and hard. But the stock market today does not believe that the insurance business can earn a good enough return on assets to justify even so low a stock price as their book value. Less new re-investment should be made in the existing businesses. The money thus saved should be used to repurchase common shares. The overwhelmingly majority of CIC's book assets are readily marketable securities, so there is good reason to hope that at least book value would be realized if they were gradually sold, and the proceeds used to repurchase common shares of Continental. This will show the markets that management is serious about improving CIC's profitability. The Board of Directors should regularly reconsider how much shareowner money it is worthwhile to continue reinvesting into the business, when share repurchase is a very attractive alternative. It is the strongly held opinion of the offeror of this proposal that share repurchase will push the share price up toward at least its book value." YOUR BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL. The Corporation believes that the proposal, if passed, would undercut the Corporation's ability to conduct its business, which would be detrimental to shareholder interests. The Corporation has repurchased stock in the past, and will continue to consider repurchases of stock, under the appropriate circumstances. The Corporation believes that the MANNER in which this proposal calls for share repurchases - by an arbitrary, pre-determined formula triggered by changes in stock price - would undercut the Corporation's ability to conduct its business, which centers upon its ability to make long-term commitments to insurance agents and brokers, policyholders and regulators. The Corporation believes that decisions as to whether and when to repurchase stock require consideration of many factors, such as opportunities to write desirable business, relative cost of funds, liquidity, regulatory constraints, taxes, dividends and financial ratings. THEREFORE, YOUR BOARD URGES SHAREHOLDERS TO VOTE AGAINST THIS PROPOSAL. Shareholder Proposals Under the rules of the Securities and Exchange Commission, any proposal which a shareholder intends to present at the 1995 Annual Meeting of the Corporation and have included in the Proxy Statement and proxy for that Meeting must be received by December 1, 1994 at Continental's principal executive offices, 180 Maiden Lane, New York, N.Y. 10038. Any such proposal must be accompanied by the notice required by the rules of the Securities and Exchange Commission and must otherwise comply with those rules, and it should be addressed to the attention of the Secretary of the Corporation. Insurance Effective July 1, 1993, the insurance policies insuring the Directors and Officers of the Corporation and of its subsidiaries for primary and excess coverages against certain liabilities they may incur in the performance of their duties and insuring the Corporation against obligations to indemnify such persons against such liabilities were renewed for a one-year period ending June 30, 1994 with National Union Fire Insurance Company of Pittsburgh, Pa., Great American Insurance Company, Aetna Casualty & Surety Company, Columbia Casualty Company, Federal Insurance Company, Gulf Insurance Company, Zurich-American Insurance Group and certain Lloyd's of London syndicates and London Market companies, at an aggregate premium of $1,199,300. Notice to shareholders of this action is required by Section 726(d) of the New York Business Corporation Law. Other Information Continental will bear the cost of soliciting proxies. In addition to solicitations by mail, a number of regular employees of the Corporation and its subsidiaries may solicit proxies in person or by telephone. Continental may reimburse brokers and others who are record holders only of the Corporation's stock for their reasonable expenses incurred in obtaining voting instructions from beneficial owners of such stock. The Corporation has retained Kissel-Blake Inc., 25 Broadway, New York, N.Y. 10004, to aid in the solicitation of proxies. By personal interview, telephone, telegram and mail, that firm may request holders of record to forward soliciting materials to beneficial owners. Continental anticipates that the cost of such services will not exceed $11,000. The Board of Directors is not aware that any matters not mentioned in the Notice of Meeting will be presented for action at the 1994 Annual Meeting. If any other matters properly come before the Meeting, the persons designated in the accompanying proxy intend to vote the shares represented thereby in accordance with their best judgment. By order of the Board of Directors, /s/ William F. Gleason, Jr. William F. Gleason, Jr. Senior Vice President, General Counsel and Secretary March 31, 1994 -----END PRIVACY-ENHANCED MESSAGE-----