SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 4)
North East Insurance Company
(Name of issuer)
Common Stock, par value $1.00 per share
(Title of class of securities)
659164107
(CUSIP number)
Murry N. Gunty
Ballantrae Partners, L.L.C.
75 West End Avenue
R-12E
New York, New York 10023
(212) 957-1337
with copy to
Lawrence T. Yanowitch, Esq.
Tucker, Flyer & Lewis
a professional corporation
1615 L Street, N.W.
Suite 400
Washington, D.C. 20036-5612
(202) 429-3254
(Name, address and telephone number of person
authorized to receive notices and communications)
July 8, 1996
(Date of event which requires filing of this statement)
If the filing person has previously filed a statement on
Schedule 13G to report the acquisition which is the subject of
this Schedule 13D, and is filing this schedule because of Rule
13d-1(b)(3) or (4), check the following box [ ].
Check the following box if a fee is being paid with the
statement [ ].
(Continued on following pages)
(Page __ of __ Pages)
CUSIP No. 659164107 13D Page __ of __ Pages
1. NAME OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
Ballantrae Partners, L.L.C.
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [ ]
3. SEC USE ONLY
4. SOURCE OF FUNDS*
WC
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) OR 2(e)
[ ]
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
NUMBER 7. SOLE VOTING POWER
OF - 0 -
SHARES 8. SHARED VOTING POWER
BENEFICIALLY - 0 -
OWNED BY 9. SOLE DISPOSITIVE POWER
EACH - 0 -
REPORTING 10. SHARED DISPOSITIVE POWER
PERSON WITH - 0 -
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
- 0 -
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES*
[x]
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
- 0 -
14. TYPE OF REPORTING PERSON*
OO
*SEE INSTRUCTIONS BEFORE FILLING OUT!
This Amendment No. 4 amends and supplements the statement on
Schedule 13D (the "Schedule 13D"), previously filed on behalf of
Ballantrae Partners, L.L.C., a Delaware limited liability company
("Ballantrae"), relating to the Common Stock, par value $1.00 per
share (the "Common Stock"), of North East Insurance Company, a
Maine corporation (the "Company"). Capitalized terms not
otherwise defined herein shall have the meanings set forth in the
Schedule 13D.
Item 4. Purpose of Transaction.
Item 4 is hereby amended and supplemented by adding the
following immediately prior to the last paragraph thereof:
On July 8, 1996, Ballantrae sent to the Company a
letter (the "July 8 Letter"), a copy of which is
attached hereto as Exhibit 4.1 and is incorporated
herein by reference. The following description of the
July 8 Letter is qualified in its entirety by reference
to the July 8 Letter.
The July 8 Letter describes a proposal offered by
Ballantrae to raise capital for the Company. Under
Ballantrae's proposal, the Company would initiate a
rights offering of 800,000 shares of Common Stock at
$2.00 per share open to all existing shareholders pro-
rata in accordance with their current ownership.
Ballantrae would invest a minimum of its pro-rata
shares of 27% of all shares so issued and would
consider purchasing all 800,000 shares ($1.6 million)
to the extent that no other shareholders desire to
participate in the offering. This transaction would be
subject to approval of Ballantrae's Form A application
process with the State of Maine and the State of New
York.
Ballantrae states in the July 8 Letter that to the
extent that the Company requires a portion of the $1.6
million immediately (before the Form A process is
finalized), Ballantrae would consider making a bridge
loan to the Company. Ballantrae also states that it is
willing to discuss with the Company and assist the
Company with any other reasonable financing
transaction.
Item 7. Material to be Filed as Exhibits.
Exhibit 4.1. Letter dated July 8, 1996, from
Ballantrae Partners, L.L.C. to North East Insurance Company.
SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this
statement is true, complete and correct.
July 9, 1996
(Date)
/s/ Murry N. Gunty
(Signature)
Murry N. Gunty
Managing Director
(Name/Title)
Exhibit Index
Exhibit Page
4.1. Letter dated July 8, 1996, from Ballantrae
Partners, L.L.C. to North East Insurance
Company 5
Exhibit 4.1
BALLANTRAE PARTNERS, L.L.C.
75 WEST END AVENUE R-12E
NEW YORK, NY 10023
TELEPHONE (212) 957-1337
July 8, 1996
Mr. Robert G. Schatz
Chairman of the Board
North East Insurance Company
482 Payne Road
Scarborough, ME 04074
Dear Bob:
Thank you for your cooperation in permitting us to
obtain a copy of the offering package for your proposed private
placement.
We are disappointed that we have not been given a
response to our letter dated July 2, which requested that the
Board reconsider this offering. It is clear from the offering
materials that our July 2 letter was accurate, and that NEIC is
in the process of massive and unprecedented stock offering at a
fire sale price and in a manner that disadvantages the
shareholders of NEIC (and therefore Ballantrae Partners as a
future shareholder of NEIC).
As our filings indicate, we would like to support you
and your team in the management of NEIC. Our only concern is
that you raise capital at the highest price in a manner fair to
all shareholders. The proposed offering, however, is not fair to
any shareholders. In particular, we have concerns about the
timing of the offering, the price of the offering and the manner
in which you are executing the offering.
TIMING
We do not understand your urgent need to raise capital
through the issuance of unregistered, illiquid securities in the
midst of our acquiring a 27% interest in the Company. Using
registered securities would involve a longer period of time, but
would in all likelihood allow the Company to raise capital at a
fair market value. It would seem to be a lot easier (and
therefore less costly) to raise this money once there is
resolution to our Form A process and the underlying value of the
Shares is unleashed. More importantly, though, there has been no
indication in your public filings (your 1995 10-KSB and March
1996 10-QSB) or at your annual meeting which occurred 14 days
prior to the date of the offering, that there is an urgent need
for capital. Nor does the PPM indicate any urgency to raise
capital at a seriously dilutive price. For a Company that has
not raised capital in the past 15 years, the timing of this
offering could be reasonably seen as an attempt to dilute our
future position.
PRICING
We recognize that NEIC could use more capital at some point
in time. In fact, we would like to support your efforts to raise
capital. However, we would propose to do so only at a fair
price. We believe NEIC's plan to issue stock at a price below
market and book value is extremely unfair and damaging for the
Company's shareholders.<F1> Ballantrae is disturbed that such a
punitive offering is being intentionally effectuated without even
offering the right to all shareholders to participate in the
offering pro-rata according to their current ownership position.
The timing, price and structure of the offering all indicate a
desire to dilute the existing shareholders. As we have told you
several times in the past, we would be willing to invest
substantial capital directly into NEIC at a fair price to
shareholders.
OFFERING METHOD
You are proposing to increase the number of outstanding
shares of NEIC by 50% by issuing unregistered stock that cannot
be traded for a number of years. The Company has long suffered
from having illiquid stock by virtue of the Gershuny shares and
we have all seen how this illiquidity has depressed the value of
the stock. We cannot understand why you would choose to offer
more illiquid stock in a way which is clearly not as helpful to
the Company as having all registered, tradable securities
outstanding, unless there are other motivations you have not
described in the offering materials.<F2>
ALTERNATIVE PROPOSAL TO RAISE CAPITAL
As we have mentioned in the past, we are prepared to
invest additional capital in NEIC. We would like to discuss with
you the following proposal:
1. NEIC would initiate a rights offering of 800,000
registered shares at $2.00 per share open to all
existing shareholders pro-rata to their current
ownership. Ballantrae would invest a minimum of
its pro-rata share of 27% of all shares so issued
and would consider purchasing all 800,000 shares
($1.6 million) to the extent that no other
shareholders wish to participate in the offering.
This transaction would be subject to approval of
our current Form A application process with the
State of Maine and the State of New York, but we
anticipate filing our Form A's with both states
this week, and we have been told that we will have
resolution to this process within 30-60 days
(roughly the same as the August 15, 1996
termination date of the offering).
2. To the extent that you require a portion of the
$1.6 million immediately (before we finalize the
Form A process), we would consider making a bridge
loan to NEIC. We understand that these funds
would not be admitted as surplus, but if you have
some undisclosed urgency that cannot wait for 30-
60 days, we want to be responsive. We note that
the Company has not disclosed in its public
filings that it is having immediate liquidity
problems.
Bob, we believe the foregoing is beneficial to NEIC because it
(1) eliminates costly underwriting commissions of $125,000-
150,000 (10%), (2) is non-dilutive to existing shareholders, and
(3) represents a fair price for the securities of NEIC.
Obviously, to the extent that NEIC cooperates with Ballantrae in
the Form A proceedings, we could expedite the timing for our
investing additional capital.
We are also willing to discuss with you and assist NEIC
with any other reasonable financing transaction. What is most
confusing to us is your unwillingness to work with us. We would
think the Board (consistent with its fiduciary duties) would want
to raise capital at the highest price possible. Since we have
offered to invest substantial capital directly into the Company,
and would like to do so at a price higher than your existing
alternatives, we would think that you would be motivated to
cooperate with our Form A process.
FURTHER ACTIONS
It has now been almost a week since we sent you our
July 2 letter. In addition to the letter I sent to you, I
attempted to contact two of your directors on June 28, Joe
Hochadel (at work) and Ed Dilworth (at home) and neither has
responded. Under normal circumstances, I would find these lack
of responses peculiar given the size of our proposed investment.
Under the current circumstances, it is tantamount to a complete
disregard for interests of the shareholders of NEIC.<F3> We
believe that the proposed transaction would be a serious breach
of fiduciary duty by the Directors of NEIC and will likely
subject the Directors to personal liability. If the Company
insists on ignoring us, we are fully prepared to undertake all
options available to us to protect our investment.
Bob, we are disappointed with the way our relationship
has transpired. From the very beginning of our conversations we
have expressed our desire to work with you, the Directors and
Management to build a better North East Insurance Company. I
spent almost 20 years of my life in Maine and personally would
like nothing more than to be able to bring capital and jobs to
Maine companies. Our group is motivated to help create a company
that is safe for the insureds of NEIC, profitable for its
shareholders and a rewarding place to work. We continue to hope
these goals can be achieved with you and your team in place, and
would like to work with you toward that end.
We are prepared to meet with you and your
representatives (or have a conference call) as soon as tomorrow
morning to discuss the offering and our proposals further. If we
do not hear from you by the close of business on Wednesday, we
will assume that NEIC has chosen to continue to ignore our
concerns.
Sincerely,
/s/ Murry N. Gunty
Murry N. Gunty
Managing Director
Ballantrae Partners
cc: Tom Record, Maine Bureau of Insurance
Edward B. Batal, Director - North East Insurance Company
David D. Chase, Director - North East Insurance Company
Terrance P. Cummings, Director - North East Insurance
Company
Edward L. Dilworth, Jr., Director - North East Insurance
Company
Andrew Greenbaum, Director - North East Insurance Company
Robert A. Hancock, Director - North East Insurance Company
Wilson G. Hess, Director - North East Insurance Company
Joseph M. Hochadel, Director - North East Insurance Company
Bruce H. Suter, Director - North East Insurance Company
Jonathan S. Kern, Managing Director - Ballantrae Partners
Deborah L. Harmon, Managing Director - Ballantrae Partners
Lawrence T. Yanowitch, Tucker, Flyer & Lewis
Michael High, Drummond, Woodsum & MacMahon
Cynthia Shenker, Wilson, Elser, Moskowitz
Alex Clark, Advest Inc.
Gregory Fryer, Verrill and Dana
<F1> The dilution cost of this transaction to shareholders of
NEIC is $900,000, or 15% of the existing surplus and capital
of NEIC. Ballantrae's share of this dilution is $243,000
which represents 27% of the total. Derived as follows:
existing book value of approximately $5.9 million.
Additional capital raised equals $1.6 million based on 1.5
million shares at $1.20 per share, $150,000 in underwriting
expenses and $40,000 in legal fees. Total book value will
now equal approximately $7.6 million with 4.5 million shares
outstanding for a new book value per share of $1.69 per
share vs the existing book value of $1.98 per share at
3/31/96. This dilution of $.30 per share on the
approximately 3 million shares equals $900,000.
<F2> We also have concerns that the Private Placement Memorandum
contains an inadequate level of disclosure. We believe that
this exposes NEIC and its directors to unnecessary
securities law liability. We believe it would be a large
mistake to consummate the offering based upon the limited
disclosure provided in the PPM.
<F3> We note that senior management and the members of the Board
hardly own any shares of Common Stock and will therefore not
be harmed by the offering.
