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
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
Amount and Nature Percent of Outstanding
Name of Beneficial Ownership Common Stock
<S> <C> <C>
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.
</TABLE>
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.
<TABLE>
<CAPTION>
Amount and Nature
Name/Address of Beneficial Ownership Percent of Class
_____________________________________________________________________
<S> <C> <C>
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.
</TABLE>
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.
<TABLE>
Comparison of Five-Year Cumulative Total Return
Among Continental Corp., S&P 500 and Peer Group
<CAPTION>
Continental S&P Peer
Corp. 500 Group
<S> <C> <C> <C>
1988 $100.00 $100.00 $100.00
1989 103.21 131.69 138.47
1990 91.20 127.60 126.12
1991 111.39 166.47 170.87
1992 116.77 179.16 201.17
1993 124.19 197.21 202.49
</TABLE>
EXECUTIVE COMPENSATION
The Summary Compensation Table, which appears below, provides
information concerning all forms of compensation for the three-year
period 1991-1993 for the CEO and the four other most highly compensated
Continental executive officers for services to the Corporation and its
subsidiaries in all capacities. The three tables following the Summary
Compensation Table provide further detail regarding compensation earned
by these executive officers in 1993.
<TABLE>
Summary Compensation Table
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
______________________________________________________
Other Number of
Annual Securities LTIP
Name and Compen- Underlying Pay- All/Other
Principal sation Options/ outs Compen-
Position Year Salary Bonus($) ($) SARs(#) ($) sation(a)
<S> <C> <C> <C> <C> <C> <C> <C>
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 $9,652.
</TABLE>
<TABLE>
Option/SAR Grants in Last Fiscal Year
<CAPTION>
Individual Grants Grant Date Value
Number of
Securities
Underlying % of Total
Options/ Options/SARs Exercise
SARs Granted to or Base Expira- Grant Date
Granted Employees in Price tion Present
Name (#) Fiscal Year ($/Sh) Date Value ($)(a)
<S> <C> <C> <C> <C> <C>
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 $27.625 closing price
for 12/31/93).
(b) Incentive and Non-Qualified stock options granted at fair market value
on 2/18/93 vest 50% after one year, 50% after the second year.
</TABLE>
<TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The Money
Options/SARs Options/SARs
at F.Y.-End (#) at F.Y.-End (a)
Shares Value
Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
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.
</TABLE>
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
