SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of earliest event
reported: September 22, 1994
THE CONTINENTAL CORPORATION
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(Exact name of registrant as specified in its charter)
New York 1-5686 13-2610607
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(State of (Commission File Number) (IRS Employer
Incorporation) Identification No.)
180 Maiden Lane New York, New York 10038
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(Address of principal executive offices) (Zip Code)
(212) 440-3000
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(Registrant's telephone number)
Page 1 of Pages
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Exhibit Index on Page
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Item 5. Other Events.
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On October 13, 1994, The Continental Corporation
issued the following press release:
CONTINENTAL ANNOUNCES NEW CAPITAL INFUSION, NEW CEO,
AND RESERVE STRENGTHENING
Insurance Partners, LP To Invest $200 Million in Preferred Stock
Haverland Named to Succeed Mascotte as Continental's
Chairman and CEO
$400 Million in Reserves Established for IBNR
Environmental Claims
New York, N.Y., October 13, 1994 -- The Continental
Corporation (NYSE: CIC) today announced that it has entered
into a definitive agreement to sell $200 million in
preferred stock, convertible into about 19.9% of its
currently outstanding common stock, to Insurance Partners,
L.P.
Continental also announced that its board of directors
has elected Richard M. Haverland vice chairman and a
director of Continental Corporation. Upon completion of the
proposed transaction, which is expected by year-end,
Haverland will be named chairman and chief executive
officer, succeeding John P. Mascotte, who will resign.
Continental announced that it will strengthen its
reserves by $400 million pre-tax by establishing, for the
first time, loss reserves for incurred but not reported
asbestos-related, environmental pollution and other toxic-
tort claims. The company also announced that it will take
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an additional pre-tax charge of $164 million for reinsurance
recoverables and other assets. These charges will be
reflected in its third quarter results, which the company
expects to report on November 2.
In a separate agreement, Insurance Partners and related
parties have agreed to buy for about $35 million the
operations of Continental Asset Management, the company's
investment management subsidiary.
Insurance Partners, L.P. is a $540 million investment
partnership formed in February 1994 to sponsor acquisitions,
recapitalizations, demutualizations, and other structured
transactions in the property/casualty and life insurance
industries in the U.S. and abroad. Principal partners
include Centre Reinsurance Holdings Ltd.; Keystone, Inc.
(formerly the Robert M. Bass Group); and the Chase Manhattan
Corporation. Insurance Partners Advisors, L.P., of New York
City, is the partnership's advisor.
"The capital infusion, reserve strengthening and sales
of assets, together with the actions taken by the company in
recent months to reduce expenses, exposure to catastrophes
and operating leverage, will all help to restore Continental
to its pre-eminent position in the property/casualty
industry," said Mr. Haverland. "I am looking forward to
leading that effort."
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"This strategic agreement will strengthen our capital
base and protect the value of Continental's franchise in the
property/casualty insurance market," said Mr. Mascotte.
"After two months of intensive review of the company,
we've developed great confidence in the fundamental strength
and value of Continental's operating franchise," said Daniel
Doctoroff, managing partner of Insurance Partners Advisors,
LP.
According to the agreement, Insurance Partners will
acquire for cash $200 million in liquidation value of two
series of cumulative preferred stock, each series paying an
annual cash dividend of 9.75%, along with an option to
acquire $125 million in liquidation preference of another
series of non-convertible preferred stock. Of the $200
million, about $165 million will be for a series of
convertible preferred stock, convertible into about 19.9% of
Continental's currently outstanding common shares, at a
conversion price of $15.00 a share. The balance, about $35
million, would be for a series of nonconvertible preferred
stock that would be redeemable under certain circumstances
at a price reflecting any increase in the per share price of
the common stock over $15.00. The two preferred issues will
mature in 15 years, but may be redeemed by the company after
seven years. The option and its underlying preferred stock
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will be redeemable under certain circumstances at a price
reflecting any increase in the per share price of the common
stock over $17.00.
Following the purchase of the preferred stock,
Insurance Partners will be entitled to nominate up to four
directors to serve on Continental's board. Continental has
agreed that it will continue not paying dividends on its
common stock for three years from the time the preferred
stock is sold.
The agreement also contemplates that, following the
investment by Insurance Partners, Continental will further
strengthen its capital base by raising $100 million to be,
at the company's option, in nonconvertible preferred stock
or debt.
The proposed transaction is subject to satisfaction of
closing conditions under the agreement, including regulatory
approvals and expiration of the Hart-Scott-Rodino act
waiting period. If the agreement is terminated by
Continental in order to enter into an agreement for a merger
or similar transaction, Insurance Partners would be paid a
termination fee of $17.5 million, or if higher, 1.875% of
the aggregate value of the other transaction.
Continental also announced that a number of actuarial
and analytical studies on environmental claims have enabled
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the company to develop a reasonable estimate of loss
reserves for IBNR (incurred but not reported) asbestos,
environmental pollution, and other toxic tort claims. The
company has historically posted reserves for known
environmental claims, but did not establish IBNR reserves,
due to the difficulty in estimating their future financial
impact. The company noted that its new $400 million IBNR
reserves, when combined with its current case reserves of
$200 million for known environmental claims, would comprise
approximately nine times its average annual paid loss for
such claims, a ratio which the company believes is well
above the industry average.
Also, Continental will conduct its regular annual in-
depth review of its core (non-environmental) reserves at
year-end. This review could result in substantial
additional reserve strengthening.
In a separate agreement, Insurance Partners and related
parties have agreed to buy the operations of Continental
Asset Management for about $35 million. Under the terms of
this agreement, Continental has an option to purchase a 20%
interest in these operations, and CAM will continue to
provide asset management services to Continental. The
proposed transaction is subject to satisfaction of closing
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conditions, including financing and applicable regulatory
approvals.
Continental Asset Management is an investment advisory
firm which manages Continental's investment portfolio and
provides investment management services for outside clients,
including property/casualty insurance companies.
Haverland, the CEO-designate of Continental, has almost
25 years of experience in the insurance business. For the
past three years, he has been Executive Vice President -
Insurance Operations of American Premier Underwriters, Inc.,
which wrote $1.4 billion in premiums in 1993. From 1984 to
1991, he was executive vice president of Great American
Insurance Company, and from 1970 to 1983, he was with the
Progressive Corporation, where he was president and chief
operating officer, beginning in 1979.
Continental has over the last six months undertaken a
series of actions to improve its profitability and financial
position. These actions include a dramatic reduction in
commercial and personal package insurance writings to
improve profitability and to lower the company's potential
exposure to catastrophe losses; transferring $40 million of
capital from the parent company into its domestic insurance
operations; entering into a personal lines quota-share
arrangement with an outside reinsurer to lower its operating
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leverage; cutting pre-tax annual expenses by over $100
million by eliminating 2,300 positions in the company, and,
most recently, reaching agreements to sell its Canadian
operations and Casualty Insurance unit. The company
announced that it had also increased its U.S. statutory
surplus by redeploying over $200 million to its domestic
insurance operations. These actions are expected to reduce
Continental's premium to surplus ratio from a high of about
3:1 earlier this year to below 2:1 in 1995.
The Continental Corporation is a property/casualty
insurance organization headquartered in New York City. Its
subsidiaries are leading writers of commercial and personal
package policies and select specialty coverages through
major independent agents and brokers.
* * *
On October 11, 1994, The Continental Corporation
issued the following press release:
CONTINENTAL TO SELL CASUALTY UNIT FOR $250 MILLION
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New York, N.Y., October 11, 1994 -- The Continental
Corporation (NYSE:CIC) announced today that it has agreed to
sell its Casualty Insurance unit to Fremont General
Corporation for $250 million in cash.
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Earlier in the year, Continental announced its intent
to sell Casualty Insurance as part of a multi-faceted effort
to strengthen Continental's capital base.
Casualty Insurance, based in Chicago, is the leading
writer of workers' compensation insurance in Illinois. The
unit also has facilities operating in Wisconsin, Indiana,
Michigan and California. In 1993, Casualty wrote $362
million in premiums, overwhelmingly in the midwest.
The proposed transaction is subject to completion of a
definitive agreement, regulatory approvals, and satisfaction
of other closing conditions under the agreement.
Fremont General Corporation is a diversified insurance
and financial services holding company. In 1993, its
California-based subsidiary Fremont Compensation Insurance
Company generated $431 million in direct voluntary workers'
compensation premiums in California and Arizona.
The Continental Corporation, headquartered in New York
City, is a property/casualty insurance organization with
about $4 billion in annual revenues. Its subsidiaries are
leading writers of commercial and personal package policies
and select specialty coverages through major independent
agents and brokers.
A Purchase Agreement was entered into on October 12,
1994, between The Continental Insurance Company of Canada, The
Dominion Insurance Corporation and Firemen's Insurance Company of
Newark, New Jersey and Continental Reinsurance Corporation and
Continental Reinsurance Corporation International Limited and The
Continental Corporation and Fairfax Financial Holdings Limited,
for the sale of the Continental Canada unit.
* * *
On September 22, 1994, The Continental Corporation
adopted an Executive Termination Program.
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Item 7. Exhibits
Exhibit 10(a) Securities Purchase Agreement, dated October
13, 1994 ("Securities Purchase Agreement"),
between The Continental Corporation and
TCC-PS Limited Partnership, a Delaware
limited partnership, with Schedule 1 and
Exhibits A through E.
Exhibit 10(b) Asset Purchase Agreement, dated October
13, 1994, among CAM Investment Management,
L.P., as Purchaser, The Continental
Corporation and Continental Asset Management
Corp., with Exhibits A through H.
Exhibit 10(c) Employment Agreement, dated as of October
13, 1994, by and between The Continental
Corporation and Mr. Richard M. Haverland.
Exhibit 10(d) Agreement in Principle, dated October 10,
1994, among Fremont Compensation Insurance
Company, Fremont General Corporation, The
Buckeye Union Insurance Company and The
Continental Corporation.
Exhibit 10(e) Executive Termination Program.
Exhibit 10(f) Purchase Agreement dated October 12, 1994 between
The Continental Insurance Company of Canada, The
Dominion Insurance Corporation and Firemen's
Insurance Company of Newark, New Jeresy and
Continental Reinsurance Corporation and
Continental Reinsurance Corporation International
Limited and the Continental Corporation and
Fairfax Financial Holdings Limited.
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SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned
hereunto duly authorized.
Dated: October 18, 1994
THE CONTINENTAL CORPORATION
By /s/ William F. Gleason, Jr.
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William F. Gleason, Jr.
Senior Vice President,
General Counsel and
Secretary
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Exhibit Index
Sequentially
Numbered
Page
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Exhibit 10(a) Securities Purchase Agreement, dated
October 13, 1994 ("Securities
Purchase Agreement"), between The
Continental Corporation and TCC-PS
Limited Partnership, a Delaware
limited partnership, with Schedule 1
and Exhibits A through E.
Exhibit 10(b) Asset Purchase Agreement, dated
October 13, 1994, among CAM
Investment Management, L.P., as
Purchaser, The Continental
Corporation and Continental Asset
Management Corp., with Exhibits A
through H.
Exhibit 10(c) Employment Agreement, dated as of
October 13, 1994, by and between The
Continental Corporation and Mr.
Richard M. Haverland.
Exhibit 10(d) Agreement in Principle, dated
October 10, 1994, among Fremont
Compensation Insurance Company,
Fremont General Corporation, The
Buckeye Union Insurance Company and
The Continental Corporation.
Exhibit 10(e) Executive Termination Program.
Exhibit 10(f) Purchase Agreement dated October 12,
1994 between The Continental Insurance
Company of Canada, The Dominion Insurance
Corporation and Firemen's Insurance Company
of Newark, New Jeresy and Continental
Reinsurance Corporation and Continental
Reinsurance Corporation International
Limited and the Continental Corporation and
Fairfax Financial Holdings Limited.
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