UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
--------------- ----------------
COMMISSION FILE NUMBER 0-8162
ACCEL INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 31-0788334
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
475 METRO PLACE NORTH, DUBLIN, OHIO 43017
(Address of principal executive offices) (Zip Code)
614-764-7000
(Registrant's Telephone Number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of each class
COMMON STOCK, $.10 PAR VALUE
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
---
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
The aggregate market value of Common Stock held by non-affiliates on January
31, 1996 was approximately $7,280,000.
As of January 31, 1996, there were 4,456,432 shares of Common Stock, $.10 par
value per share outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the definitive proxy statement furnished to stockholders of the
registrant in connection with the annual meeting of stockholders to be held on
June 11, 1996 are incorporated by reference into Part III.
Total sequentially numbered pages 57 Exhibit Index on page 45
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
ACCEL International Corporation ("ACCEL") is an insurance holding company
incorporated in Delaware in June 1978 as the successor to an Ohio corporation,
formerly Acceleration Corporation, organized in 1969. Unless the context
requires otherwise, the "Company" includes ACCEL and its subsidiaries. The
Company has been engaged in the sale and underwriting of credit life and
credit accident and health insurance, extended service contracts, vendor's
single interest and other specialty casualty products. The credit insurance
and extended service contract products continue to be offered to consumers,
principally through automobile dealers, financial institutions and other
business entities. From 1986 through 1991, the Company offered a realtors'
errors and omissions insurance product that was sold through an unaffiliated
marketing organization which provided various products and services to realtor
member entities; that product has been in run-off since 1991. The vendor's
single interest product was marketed by a managing general agent ("MGA") and
was discontinued in mid 1994. In 1990, the Company began offering farmowners'
multi-peril and ancillary inland marine coverages through a network of
selected agents. These coverages were discontinued in early 1995. See
NARRATIVE DESCRIPTION OF BUSINESS for further information.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Through 1995 the Company operated predominately in two industry segments:
life and health and property and casualty insurance. See "Note J" in the
Notes to Consolidated Financial Statements.
(c) NARRATIVE DESCRIPTION OF BUSINESS
GENERAL
The Company's life and health insurance segment primarily consists of
individual and group credit life and group credit accident and health
insurance, which is sold through automobile dealers and financial
institutions. The Company's property and casualty segment consists of
extended service contracts, sold primarily through automobile dealers, the
discontinued farmowners' multi-peril and ancillary inland marine coverages
("farmowners'"), which were marketed through independent agents. In 1996 the
Company began working with agents which control books of business ("program
business") that market long haul trucking, commercial buses and package
policies for auto dealers.
Credit insurance and extended service contracts, which represent a significant
portion of the Company's business, are affected by automobile sales. These
premiums accounted for approximately 90% of the Company's gross premiums
written in 1995.
The Company's principal subsidiary engaged in the life and health insurance
business is Acceleration Life Insurance Company ("ALIC"), which holds licenses
to do business in 40 states and the District of Columbia. Credit life and
credit accident and health insurance are the primary insurance products
written by ALIC. The Company's property and casualty business is conducted
through Acceleration National Insurance Company ("ANIC"). ANIC holds licenses
to do business in 47 states and the District of Columbia. Acceleration
National Service Corporation ("ANSC") administers the Company's extended
service contracts. The majority of the Company's direct premium revenue in
1995 was derived from sales in Ohio (47%), Virginia (13%), Michigan (7%),
Indiana (7%) and North Carolina (5%). As of March, 1996, ALIC and ANIC are no
longer licensed to write business in Michigan, and accordingly have
discontinued their writings in said state.
CREDIT INSURANCE
The Company sells credit insurance primarily in connection with consumer
credit transactions, of which the most significant to the Company are
automobile purchases. Credit life insurance provides funds, in the event of
the insured's death, for payment of a specified loan or loans which are
obligations of the insured. Similarly, credit accident and health insurance
provides for payments on such loans during the term of the insured's
disability. In most cases, the entire premium is paid at the time the
insurance is issued and such insurance is designed to cover the risk of loss
for the scheduled term of the indebtedness. Most credit insurance is written
on a decreasing term basis. The policy benefit is initially the amount of the
unpaid indebtedness and decreases in amounts corresponding to the repayment
schedule. The primary beneficiary under credit insurance is the lender.
Substantially all of the Company's credit insurance is group insurance. Group
credit insurance policies are issued to master policyholders (typically
automobile dealers or financial institutions). The master policy of insurance
authorizes the master policyholder to issue certificates representing
insurance sold to its customers. Premiums collected from customers are
remitted to the Company net of commissions. The Company uses good health
statements as part of its underwriting measures, which inquire about the
proposed insured's health at the time the insurance is to be issued. Although
medical examinations are not required, the good health statement is intended
to reduce the acceptance of certain risks. The Company also uses additional
health related questions on its applications related to specific medical
conditions. Because such conditions, if experienced within the twelve months
prior to the loan date, could be expected to result in claims during the term
of the loan, the applications are denied. In addition to other sales and
marketing services, the Company conducts related training programs for finance
and insurance managers, master policyholders and their salespeople,
independent agents and sales representatives employed by the Company.
The Company reinsures substantial percentages of its credit accident and
health premiums on a written basis. This reinsurance provides statutory
surplus relief, thereby increasing the Company's capacity to write credit
insurance. An effect of this reinsurance is, however, to reduce the profit
that the Company might otherwise realize on its credit insurance business.
The applicable agreement contains an experience adjustment computation which
results in the ultimate cost of this reinsurance being a stated percentage
related to the business ceded. Under such arrangements, a security fund is
usually maintained by the Company approximating the amount of ceded unearned
premiums less commissions retained, plus ceded insurance claims.
The Company has also entered into agreements to cede credit life and credit
accident and health insurance to reinsurance companies owned by certain
automobile dealers, financial institutions or agents. Under these
arrangements said entities and persons participate in the profits or losses of
the insurance sold through them, and the Company retains nominal percentages
of the related risk. These agreements generally provide that the Company
receive a ceding fee and be reimbursed for commissions and claims.
Approximately 76%, 73% and 44% of the Company's gross premiums written during
1995, 1994 and 1993, respectively, were derived from its credit insurance
business. The credit insurance business decreased 3.6% in 1995 compared to
1994, increased 4% in 1994 compared to 1993, and increased 22% in 1993
compared to 1992. Automobile purchases continue to be the most significant
consumer credit transaction for which credit insurance is sold by the Company.
Automobile purchases have been and will continue to be affected, directly and
indirectly, by auto prices, interest rates, the availability of consumer
credit and general economic conditions.
The primary states in which the Company's credit insurance is sold are Ohio,
Virginia, Indiana and West Virginia. The Company markets its credit insurance
through both independent agents and its own direct sales representatives. A
significant portion of the Company's gross credit insurance premiums were
attributable to the Company's independent agents. In 1987 the Company entered
into a joint marketing arrangement with Consumers Financial Corporation
("CFC") and transferred all of its Pennsylvania credit insurance accounts to
CFC's subsidiary, Consumers Life Insurance Company. This business had
previously been marketed by the Company's employees. The joint venture also
provides for the marketing of automobile extended service contracts in
Pennsylvania. The Company and CFC have combined their capabilities for
marketing these products to automobile dealer accounts which both parties have
serviced in the past and efforts continue to sign-up additional accounts.
NEW PROPERTY AND CASUALTY PRODUCTS
The Company has recently commenced new marketing initiatives in the Property
and Casualty markets which have resulted in new business being written in the
first quarter of 1996. These marketing efforts are directed toward agents who
control books of program business. The lines include long haul trucking,
commercial buses and package policies for auto dealers. The Company has
employed individuals with extensive experience in these lines of business. In
addition, two senior executives have considerable experience with these lines
and with the producing agents. The Company anticipates a positive
contribution from this business in 1996.
EXTENDED SERVICE CONTRACTS
Extended service contracts are sold under the name "Co$tGuard" and cover the
cost of labor and certain parts for the repair of automobiles, motorcycles and
watercraft. The Company's product covers towing, rental car reimbursement and
other benefits during the entire contract term and enables a purchaser to
obtain from the selling dealer a service contract covering the cost (in excess
of a deductible amount where applicable) of repairs to covered parts
subsequent to the expiration of the applicable manufacturer's warranty and the
cost of other services. Extended service contracts are primarily marketed
through the same group of automobile dealers who market the Company's credit
insurance. The extended service contract program is marketed on a net cost
basis to the automobile dealer who is free to establish the retail price for
the contract. The net cost paid by the dealer includes the premiums for a
contractual liability policy provided the dealer by ANIC, and administrative
and marketing fees. In 1995, this program accounted for approximately 97% of
ANIC's net retained premiums written.
In 1992 the Company began to reinsure a limited number of its extended service
contracts to reinsurance companies owned by automobile dealers. The Company
expects reinsurance to become a major marketing factor in the future.
REALTORS' ERRORS AND OMISSIONS INSURANCE
Since mid-1986 ANIC provided errors and omissions insurance to members of a
realtors' association in connection with their activities principally in
noncommercial real estate transactions. ANIC reinsured the risk to an
unaffiliated reinsurance company. An independent insurance broker was acting
as broker/agent for ANIC in connection with the issuance, administration and
policy services for this business. ANIC retained 25% of the premiums written
for its participation in this program.
On October 29, 1990, ANIC gave notice of termination to the broker/agent
through which the realtors' errors and omissions ("E&O") coverage was
marketed. The termination of this arrangement became effective January 31,
1991. In addition, the Company commuted the reinsurance agreement for this
program. See "Note F" in the Notes to Consolidated Financial Statements.
After termination, ANIC assumed responsibility for handling and processing all
claims related to this business and discovered certain matters which resulted
in litigation being commenced against the marketing organization and broker.
See "Certain Events" under MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
OTHER INSURANCE PRODUCTS
In early 1990, the Company introduced its farmowners' multi-peril and
ancillary inland marine coverage products. Premiums written for these
products were $97,000, $8,460,000 and $11,882,000 in 1995, 1994 and 1993,
respectively. The Company elected to discontinue offering these lines and
entered into an agreement whereby the Company ceded 100% of the in-force
business at December 31, 1994. Accordingly, any new business written after
January 1, 1995 was reinsured with an unaffiliated carrier. As of June 30,
1995, the Company ceased writing this business.
INVESTMENT IN RANDJILL GROUP LTD. ("RGL") AND GALAXY INSURANCE COMPANY
("GALAXY")
In 1986 the Company acquired a 20% interest in RGL, a company related through
common ownership by a shareholder and director of the Company, and in 1991
acquired the remaining 80% interest. The total amount invested in RGL was
approximately $10.3 million. Due to significant losses incurred, and the
insolvency of RGL's operating subsidiary, Galaxy, a New York domiciled
property and casualty insurance company, the Company wrote off its investment
in RGL during the second quarter of 1994. For further information regarding
RGL see "Note K" in the Notes to Consolidated Financial Statements.
EMPLOYEES
As of December 31, 1995, the Company employed 78 full-time equivalent
employees compared to 98 at December 31, 1994.
REINSURANCE WITH UNAFFILIATED INSURANCE COMPANIES
Reinsurance enables insurance companies to provide greater diversification of
risks and at the same time minimize risk exposure. The reinsurer reimburses
the Company for any claims on the reinsured portion of the risk. Although
reinsurance does not discharge the Company from primary liability to the
insured for the full amount of the insurance coverage, the industry and
regulatory practice is to exclude the reinsured portion of the risk from the
consolidated statements of operations.
The Company has an arrangement in place which covers a substantial portion of
its credit insurance business with an unaffiliated insurance company. The
effect of this agreement is that the Company ultimately retains a substantial
part of the insurance risk, the underwriting income or loss and the investment
income on net funds, all of which are retained by the Company, with the
reinsurers receiving a stated percentage of the ceded business. See "Note F"
in the Notes to Consolidated Financial Statements.
In 1993, the Company entered into reinsurance agreements with unaffiliated
reinsurers related to its discontinued health products. The effect of such
reinsurance arrangements was to transfer 100% of the related risk to the
reinsurers. Premiums ceded associated with these agreements and included in
the accompanying consolidated statements of operations amounted to $633,000,
$980,000 and $4,588,000 in 1995, 1994 and 1993, respectively.
REINSURANCE WITH PRODUCER-OWNED REINSURANCE COMPANIES
Certain automobile dealers, financial institutions and insurance agencies,
which generate credit insurance premiums and are master policyholders of the
Company, have formed Producer-owned Reinsurance Companies owned either wholly
or in part, directly or indirectly, by such master policyholders to reinsure
credit life and disability business generated by them. These arrangements are
structured to provide Producer-owned Reinsurance Companies with underwriting
income and a portion of investment income on the premiums ceded in connection
with such reinsurance. In these transactions the Company's revenue is limited
to a ceding fee and a portion of the investment income.
As of December 31, 1995, $10,813,000 of credit life and disability unearned
premium reserves were ceded by the Company to Producer-owned Reinsurance
Companies. However, most Producer-owned Reinsurance Companies are required to
deposit cash and marketable securities in a custodial account with an
independent financial institution. The minimum balance in each account is
generally required to be equal to the policy and claim reserves ceded to the
Producer-owned Reinsurance Companies. In the event a Producer-owned
Reinsurance Company fails to fulfill its obligation, the Company may withdraw
funds from the Producer-owned Reinsurance Company's account as reimbursement
for premium refunds and claim disbursements. On all insurance written by the
Company and reinsured with Producer-owned Reinsurance Companies, the Company
remains liable in the event of the insolvency of the reinsurers. As of
December 31, 1995, the Company had ceded approximately $281,195,000 of credit
life insurance in-force to Producer-owned Reinsurance Companies. See "Note F"
in the Notes to Consolidated Financial Statements.
COMPETITION
The Company's business is extremely competitive as to both price and service.
In the credit insurance business the Company's competitors include other
insurance companies, many of which are larger than the Company and have
greater resources. A significant competitive factor is the commission which
may be paid to licensed agents affiliated with master policyholders. The
Company, however, continues to compete by offering what it believes to be
realistic commissions and providing a high level of service including
training, consulting and related services to its master policyholders.
In the property and casualty segment, the Company competes with much larger
and established national and regional insurance companies and with automobile
manufacturers which provide service contracts to their dealers. The
automobile manufacturers have significantly greater resources than the Company
and have relationships with automobile dealers which extend beyond providing
service contracts. The principal competitive factors include price, profit
potential, type and quality of the products offered and the quality of
service. Many of the same master policyholders which sell the Company's
credit insurance also market its extended service contracts, and the
termination of the relationship in one segment could affect the Company's
relationship in the other segment.
REGULATION
The Company is subject to regulation in the states in which it does business.
The extent of such regulation varies from state to state; but in general, all
states have statutory restrictions and a supervisory agency which has broad
discretionary administrative powers. Such regulation is designed primarily to
protect policyholders and relates to the licensing of insurers and their
agents, the approval of policy forms, the methods of computing reserves, the
form and content of financial reports and the type and concentration of
permitted investments. Ohio and other jurisdictions in which the Company does
business have enacted legislation providing for specific regulation of the
relationship between licensed insurers and affiliated members of a holding
company group. Such legislation generally (1) establishes requirements and
procedures relative to the approval or disapproval of mergers and other
acquisitions of control, (2) prescribes the filing of registration statements
by insurers which are members of the holding company group, (3) subjects the
holding company to reporting requirements, (4) establishes standards for
transactions between insurers and their holding companies and between members
of a holding company group and (5) controls the payment of extraordinary
dividends. The dividends which the Company may receive from both its life and
property and casualty insurance subsidiaries are subject to regulatory
requirements as to minimum capital and surplus. In addition to regulatory
considerations, management takes into account the overall financial strength
of each operating entity before dividends are paid to the Company.
Additionally, the amount of dividends the Company's primary life insurance
subsidiary can pay is subject to certain tax considerations.
In 1993, the National Association of Insurance Commissioners ("NAIC") adopted
the life and health and property and casualty Risk-Based Capital ("RBC")
formulas. These model acts require every insurer to calculate its total
adjusted capital and RBC requirement, and provides for an insurance
commissioner to intervene if the insurer experiences financial difficulty.
These model acts will become law in Ohio, the Company's insurance
subsidiaries' state of domicile, in March, 1996. The formula includes
components for asset risk, liability risk, interest rate exposure, and other
factors. Each of the Company's insurance subsidiaries exceed all required RBC
levels as of December 31, 1995.
The tax considerations related to the life insurance subsidiary restrict the
amount of dividends that can be paid without incurring a tax. At December 31,
1995, the Company's life insurance subsidiary could pay an aggregate of
$2,549,000 from shareholders' surplus without incurring a tax. At December
31, 1995, any amounts to be paid from the life and property and casualty
insurance subsidiaries would require regulatory approval.
For information regarding certain federal income tax limitations on dividends,
see "Note G" in the Notes to Consolidated Financial Statements.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES
In 1982 the Company incorporated Dublin International Limited ("Dublin"), an
exempted Island of Nevis domiciled company. Dublin is a wholly-owned
subsidiary of ACCEL.
In 1986 Acceleration Insurance Company, Ltd. ("AICL"), a wholly-owned
subsidiary organized by ACCEL and domiciled in the United Kingdom, received
approval from regulatory authorities to commence operations. From mid-1986
through 1992, AICL offered specialty casualty products in the United Kingdom.
The assets and results of operations of these subsidiaries for the year ended
December 31, 1995 are not significant to the Company's consolidated financial
statements. See "Note M" in the Notes to Consolidated Financial Statements.
During 1995, the Company redeemed most of its shares of AICL, which resulted
in proceeds approximating the Company's original investment in AICL. The
transaction was approved by the Department of Trade and Insurance (United
Kingdom). On February 7, 1996, the Company received the final proceeds for
redemption of its remaining shares, and AICL ceased to exist.
ITEM 2. PROPERTIES
Since July 1981 the Company's executive offices have been located at 475 Metro
Place North, Dublin, Ohio. The four-story office building has been owned by
ALIC and consists of approximately 80,000 square feet of office space. The
industry segments as identified in "Note J" in the Notes to Consolidated
Financial Statements most recently utilized approximately 30,000 square feet
of the building. Approximately 45,000 square feet had been leased to
unaffiliated parties through year-end 1995. The remaining 5,000 square feet
remained available for lease. See "Note R" in the Notes to Consolidated
Financial Statements.
On March 21, 1996, the building was sold by ALIC for a price of $3.5 million.
The Company will remain in the building and occupy approximately 16,000 square
feet of home office space under a five-year lease at an annual rental of
approximately $256,000. In late 1995 the Company began renting approximately
6,000 square feet of office space in Stafford, Texas, to house its executive
offices. The annual rental on the five-year lease approximates $70,000.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR ACCEL'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
(a) ACCEL's common stock is traded over-the-counter National Market
Issues, under the NASDAQ symbol ACLE.
The following table sets forth the quarterly range of over-the-counter prices
for ACCEL's stock during the last two years. These prices have been adjusted
for common stock dividends and do not include retail mark-up, mark-down, or
commissions and do not always necessarily represent actual transactions.
1995 High Low 1994 High Low
---- ---- --- ---- ---- ---
4th Quarter $3.875 $2.375 4th Quarter $3.125 $1.750
3rd Quarter 4.875 2.750 3rd Quarter 3.750 2.250
2nd Quarter 3.125 2.000 2nd Quarter 5.000 3.000
1st Quarter 2.875 1.750 1st Quarter 6.000 3.750
(b) The approximate number of holders of record of ACCEL's common stock
($.10 par value) as of January 31, 1996, was 638 holders.
(c) Dividends paid on common stock:
1994 - -0- per share
1995 - -0- per share
Restrictions on present or future ability to pay dividends:
The Senior Notes issued December 29, 1995 (See Note D in the Notes to
Consolidated Financial Statements) contain certain covenants which restrict
the payment of dividends to not more than 50% of the cumulative consolidated
net income for the period from and after January 1, 1996 to and including the
date of making the dividend payment.
Since June 1992, ACCEL's Board of Directors suspended payment of cash
dividends on the common stock until the Company returns to a level of
profitability which will sustain such payments.
ITEM 6. SELECTED FINANCIAL DATA
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
1995** 1994** 1993** 1992 1991
------------------------------------------------
(Thousands of dollars,
except per share data & ratios)
Gross premiums written $ 55,443 $ 60,504 $ 95,766 $122,101 $130,239
Premiums ceded (12,147) (12,495) (30,261) (45,116) (48,828)
Net premiums written 43,296 48,009 65,505 76,985 81,411
Premiums earned 40,853 47,600 61,649 80,426 85,644
Net investment income:
Interest and dividends 6,488 6,678 8,397 11,831 13,129
Realized gains (losses) 455 808 1,336 701 462
Total revenue 50,475 57,519 74,810 96,043 102,131
Policy benefits 20,118 24,997 38,431 71,472 57,923
Income (loss) before taxes
and other items (1,101) (4,905) (5,626) (25,075) 150
Cumulative effect of change in
accounting for income taxes - - - (3,067) -
Net income (loss) (1,460) (5,238) (5,281) (22,124) 1,034
Per common share*:
Cumulative effect of change in
accounting for income taxes - - - (.69) -
Net income (loss) (.33) (1.18) (1.19) (4.98) .23
Cash dividends - - - .07 .24
At end of year:
Invested assets 63,297 98,189 126,590 139,244 161,861
Total assets 183,507 179,948 236,181 204,209 230,752
Policy reserves
and liabilities 104,852 106,936 146,257 90,616 96,268
Total debt 22,531 18,462 18,847 22,000 23,348
Redeemable preferred stock - - - 73 145
Common stockholders' equity 20,560 15,366 28,583 32,361 55,367
Return on average common
stockholders' equity (8.13)% (23.84)% (17.32)% (52.29)% 1.85%
Book value per common share $ 4.62 $ 3.46 $ 6.43 $ 7.28 $12.48
* Net income (loss) per common share is computed using the weighted average
number of common shares outstanding during the year after giving effect to
the preferred stock dividend requirement. The inclusion of common stock
equivalents (options) would not be dilutive.
** The 1995, 1994 and 1993 data reflects the adoption of the Financial
Accounting Standards Board's ("FASB") Statement No. 113, "Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration Contracts"
("Statement No. 113").
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OPERATING RESULTS FOR THE THREE YEARS ENDED DECEMBER 31, 1995
The loss before income taxes and other items for 1995 was $1,101,000. This
loss was primarily driven by three factors: Foremost was adverse loss
development on discontinued property and casualty products. This adverse
development aggregated $2,400,000 which included a $1,200,000 year end reserve
increase on the discontinued realtors' errors and omissions product. This
adverse development was partially offset by a $500,000 favorable development
on the discontinued medical business. The second factor was the incurral of
legal fees related to the E&O program litigation during 1995, including the
Company's legal action against the entities involved in the E&O program.
These actions caused the incurral of legal fees of $550,000 in 1995. The
Company was awarded $5.1 million against the marketing organization involved
in the E&O program. No amounts have been received by the Company on its
judgment and therefore the award has not been reflected in the 1995
consolidated statement of operations. Lastly, during 1995 the Company
incurred approximately $350,000 in severance expenses related to departed
employees.
The loss before income taxes and other items for 1994 was $4,905,000. A
significant portion of the 1994 loss is related to the write off of Galaxy
($3,829,000) and Galaxy's first quarter loss ($205,000), or a total Galaxy
loss of $4,034,000. In addition, several discontinued property and casualty
lines continued to show adverse loss development in 1994, partially offset by
positive results from the credit and extended service contract product lines.
The loss before income taxes and other items for 1993 was $5,626,000. The
1993 loss is primarily attributable to adverse loss development related to
Galaxy's lines of business and several discontinued lines of medical and
property and casualty business. The net underwriting losses and overhead in
1993 for these product lines were approximately; $3.1 million for Galaxy, $1.7
million for discontinued medical lines and $1.0 million for discontinued
property and casualty lines. In addition, the Company wrote off the remaining
goodwill ($1.6 million) associated with the original acquisition of Galaxy.
Partially offsetting these losses were gains of $1.7 million and $300,000
related to two of the Company's core product lines, credit insurance and
extended service contracts, respectively.
The Company made concerted efforts in the last three years to reduce general
and administrative expenses. Staffing has been reduced by 20%, 26% and 43% in
1995, 1994 and 1993, respectively. These expense control initiatives have
allowed the Company to concentrate on its traditional profit producing lines
of business (credit insurance and extended service contracts) and to begin
programs in selected Property & Casualty lines in which the current management
team has experience and expertise.
The primary causes for the fluctuation in operating income (loss) before
income taxes discussed above are easily identified by comparing policy
benefits (claims, loss and loss adjustment expenses) to premiums earned.
Except for general and administrative expenses, the remaining items are at
expected levels based upon premium levels and product mix. See Table I on
page 14.
REVENUE
Gross premium writings for 1995 were $55.4 million compared to $60.5 million
for 1994. The decrease in 1995 was primarily the result of decreases in
premium levels related to discontinued lines of business. See Table II on
page 15.
Gross premium writings for 1994 were $60.5 million compared to $95.8 million
for 1993. The decrease in 1994 can be attributed to the following: vendor's
single interest declined $13.1 million, medical products declined $8.7
million, discontinued property and casualty lines declined $3.4 million and
Galaxy declined $12.4 million. As noted in Table II, there was approximately
$5.5 million of return premium related to the VSI program. This was the
result of entering into assumption reinsurance treaties with unaffiliated
reinsurance companies, whereby the reinsurers assumed the in force unearned
premium reserve and related claim liabilities. Since the profit margin on
this line of business was minimal, the effect of this transaction had no
material effect on the statements of operations for the periods presented.
The credit and extended service contract products increased in 1994 by $2.4
million when compared to 1993.
The Company has also experienced decreases in net investment income, excluding
realized gains, since 1993. These decreases were caused by a decrease in
invested assets due primarily to the run off of discontinued lines of
business.
The Company plans to concentrate its efforts on growing the credit, extended
service contract and the newly introduced program product lines.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flows from operations have generally been adequate for its
current operating needs. Cash flows from operating activities in 1995 were
adversely impacted by the reinsurance transaction dated December 29, 1995
described in Note F in the Notes to Consolidated Financial Statements. The
Company's credit insurance policy terms and related liabilities are generally
limited to a four-year period during which the consumer makes payments on the
loan. The Company's liability on extended service contracts typically extends
for either one-year or five-year periods. The Company, therefore, maintains
liquidity in its investment portfolio to correspond with the liability
outstanding on its lines of business. At December 31, 1995, the average
maturity of investments in debt securities was approximately 4.8 years to the
nearest call date.
The Company's available for sale fixed maturity securities at December 31,
1995 include $26.9 million of mortgage-backed securities and $13.7 million of
asset-backed collateralized securities. The mortgage and asset-backed
securities are subject to risks associated with variable prepayments. As
such, those securities may have a different actual maturity and yield than
planned at the time of purchase. The degree to which a security is
susceptible to either gains or losses is influenced by the difference between
its amortized cost and par value, relative sensitivity of the underlying
mortgages to prepayment risk in a changing interest rate environment and
relative priority of the securities in the overall securitization.
The Company limits the extent of its risks on fixed maturity securities by
generally avoiding securities whose cost significantly exceeds par, by
purchasing securities which are backed by stable collateral, and by
concentrating on securities that are either planned amortization or sequential
pay classes. The collateralized mortgage obligations and asset backed
securities owned have primarily short to intermediate average lives. At
December 31, 1995, the Company did not have a significant amount of higher
risk mortgage or asset backed securities. There are negligible default risks
on the mortgage and asset backed security portfolio as a whole as the vast
majority of the assets are either guaranteed by U.S. government-sponsored
entities or are supported in the securitization structure by junior securities
enabling the assets to achieve high investment grade status.
Ohio domiciled insurance companies are subject to Ohio law which regulates the
ability of insurance companies to pay dividends. The regulation limits the
annual dividend or distribution of an insurer to the greater of (1) net income
of the previous year or (2) 10% of unassigned surplus as of the end of the
previous year. In addition, all dividends must come from earned surplus to
qualify as a non-extraordinary dividend. Amounts greater than this would be
considered extraordinary dividends and could not be paid without permission of
the Department of Insurance of the State of Ohio ("Ohio Department"). Based
on this regulation, ALIC could pay a dividend of $8,000 and ANIC would require
Ohio Department approval to pay any dividend to the registrant during 1996.
The Company's cash flow projections for 1996 assume that certain events will
take place in order to have sufficient cash to meet its debt service and other
requirements. These events include the liquidation of AICL. The liquidation
was in fact concluded in the first quarter of 1996. The Company will monitor
its current and future debt service requirements to coincide with cash flow
availability as well as explore various capital raising alternatives. The
Company intends to use any proceeds from a judgement entered in its favor in a
legal proceeding (see CERTAIN EVENTS) to repay $3,700,000 in advances received
in 1992 and 1993 from the registrant's subsidiaries which are eliminated in
consolidation.
In July 1991, ACCEL issued $5,848,000 of subordinated notes (the "Subordinated
Notes") in connection with the purchase of all outstanding common shares of
RGL. See "Note K" in the Notes to Consolidated Financial Statements. The
Subordinated Notes have a nine-year term with no principal payable until
maturity, and bear interest at 10.125% per annum. Effective June 30, 1992,
ACCEL amended the notes to permit the issuance of additional notes for the
purpose of making interest payments, provided, however, that ACCEL could at
its option pay cash in lieu of issuing additional notes in any denomination of
less than $1,000. As a result, ACCEL issued additional notes totaling
$569,000 and $515,000 for the 1995 and 1994 interest payments, respectively.
Of the Subordinated Notes described above, $5,371,000 were initially issued to
Ranger Insurance Company ("Ranger"), a company related through common
ownership by a stockholder and director of the Company. In 1993, Ranger sold
all of the subordinated notes held by it to Chase Insurance Holdings
Corporation ("CIHC"). Additional Subordinated Notes in the amount of $506,000
and $458,000 were issued to related parties for the 1995 and 1994 interest
payments, respectively.
The total outstanding Subordinated Notes were $6,031,000 and $5,462,000
($5,347,000 and $4,841,000 held by related parties at December 31, 1995 and
1994, respectively) and the fair value of these notes approximated $5,783,000
and $5,237,000 at December 31, 1995 and 1994, respectively.
At December 31, 1994, the Company had an outstanding loan balance of
$13,000,000 under the terms of a credit agreement (the "Credit Agreement")
with a bank, and the effective interest rate was 6.25%. During 1993, the
Company did not meet all the requirements contained in the various financial
tests under the covenants contained in the Credit Agreement. On March 30,
1994, the bank and the Company agreed to a waiver of certain covenants of the
Credit Agreement such that the Company would not be in default at December 31,
1993 and through January 1, 1995.
Proceeds from the Credit Agreement were partially used in the purchase of RGL,
and to fund general operating activities.
During September 1994, the revolving loans under the Credit Agreement were
converted to a $13,000,000 term loan, payable in full on September 23, 1998.
At December 31, 1994, the effective interest rate and outstanding loan balance
were 8.75% and $13,000,000, respectively. The fair value of this term loan
approximated $13,000,000 at December 31, 1994.
On February 7, 1995 the Company renegotiated the terms of its Credit
Agreement. Under the amended Credit Agreement, the quarterly principal
payments scheduled to begin in 1995 were waived. Specific principal payments
totaling up to $1.5 million were due on June 30, 1995 and December 31, 1995,
respectively, from the liquidation of AICL and the projected sale of the
building used as the corporate home office. The loan was to be payable in
full on June 30, 1997. The Credit Agreement also required that during the
period the loan was outstanding, the Company had to maintain consolidated
tangible net worth, as defined in the agreement. At December 31, 1994,
required tangible net worth was $13,000,000. At December 31, 1994, the
Company's consolidated tangible net worth, as defined, was $14,438,000.
On December 29, 1995, the Company issued new senior notes (the "Senior Notes")
totaling $16,500,000 at 9.50%, maturing on April 1, 2001. The proceeds from
these notes were used to retire the loan outstanding under the aforementioned
Credit Agreement and to liquidate an intercompany loan between ACCEL and an
insurance subsidiary. In addition, as of January 1, 1996 ALIC entered into a
reinsurance agreement with an unaffiliated company to reinsure its in-force
Credit Business. This agreement is structured, such, that as future profits
emerge on this block of business, a substantial portion of the Company's share
of the profits will be used over the next four to five years to pay the
interest thereon and redeem these Senior Notes.
ACCEL's Board of Directors approved an Employee Stock Ownership Plan ("ESOP")
during 1989. In 1990, the ESOP entered into an agreement with ALIC to borrow
up to $1,000,000 for the purchase of ACCEL's common stock. Company
contributions into the ESOP have been used to pay down the loan from ALIC and
release shares into the participants' accounts as the Company's matching
contribution. The ESOP purchased 136,887 shares (adjusted for the 1990 5%
common stock dividend) under this loan agreement with ALIC at a cost of
$1,000,000. In addition to the shares purchased under the loan agreement, the
ESOP purchased 90,088 common shares at a cost of $603,000. The loan bears
interest at 10%.
At December 31, 1995, the loan had an unpaid balance of $525,239. The market
value of the underlying shares was $161,000. The Company has revalued this
loan to market value as of December 31, 1995. This will allow the release of
shares to participants' accounts at an average price which more closely
approximates recent market values on the Company's stock. The decrease in the
loan has been reflected through a decrease in additional paid-in capital in
the accompanying consolidated balance sheets. The unpaid balance of the loan
($161,000 at December 31, 1995) has been reflected as a reduction in common
stockholders' equity in the accompanying consolidated financial statements.
During 1995, 1994 and 1993, the Company incurred ESOP contribution expenses of
$198,000, $178,000 and $160,000, respectively.
During November 1989, ACCEL's Board of Directors also approved a stock buy
back program to purchase up to 1,000,000 common shares in open market
purchases. As of December 31, 1995, ACCEL had purchased 229,185 shares at a
cost of $1,722,000 under this program. The buy back program had been funded
from internal funds. No shares have been purchased since 1992.
The Company currently has two business lines that are in run-off status: the
realtors' errors and omissions line and the farmowner's multi-peril and
ancillary inland marine products. Also, for information regarding Galaxy, see
"Note K" in the Notes to Consolidated Financial Statements.
The estimates for policy reserves are continually under review and adjusted as
necessary, and as experience develops or new information becomes known, such
adjustments are included in current operations. These liabilities are
necessarily subject to the impact of future changes in claim severity,
frequency and other factors. Although considerable variability is inherent in
such estimates, based on recent evaluations conducted by experienced
consultants and internal reviews, management believes that the current level
of policy reserves will be adequate to cover anticipated claim liabilities.
However, because the realtors' errors and omission risk was written from the
first quarter 1986 through the first quarter of 1991; and considering the
length of time involved in the settlement of some claims, there remains a lack
of credible experience needed to determine whether actual incurred policy
benefits will conform to the assumptions inherent in the determination of
these liabilities. Accordingly, the ultimate amounts required for settlement
of policy benefits may vary significantly from the amounts included in the
accompanying consolidated financial statements.
The Company has reviewed FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
which becomes effective in 1996. The Company has also reviewed FASB Statement
No. 123, "Accounting for Stock-Based Compensation" which becomes effective in
1996. The Company does not expect the impact of either of these FASB
Statements to be material to the financial condition of the Company.
Although the cumulative effects of inflation on premium growth cannot be fully
determined, increases in the retail price of automobiles have generally
resulted in increased amounts being financed which constitute the basis of
premiums charged for credit insurance. Anticipated increases in automobile
repairs also provides the primary basis for increases in extended service
contract premium rates.
CERTAIN EVENTS
AUTO LOAN INDEMNITY: The Company was one of multiple defendants in a lawsuit
which was settled in early 1994 in state court in Orange County, California,
involving the loan loss indemnity product marketed from 1986 through 1988.
The Company had previously settled with numerous other plaintiffs by a return
of applicable premium. The Company's accrued reserves for this litigation
were adequate to cover final settlement costs in 1994.
WRITE OFF OF INVESTMENT IN RGL AND GALAXY: During December 1986, ACCEL
invested $1,370,000 (a 20% interest) in RGL. RGL was formed to acquire all
the outstanding shares of Galaxy Reinsurance Company, the name was ultimately
changed to Galaxy. Galaxy was writing commercial property insurance, property
and casualty, and assumed treaty reinsurance.
During the second quarter of 1991, the Company purchased 11,000 additional
common shares of RGL at a cost of $992,000. The additional investment
increased the Company's ownership to 31% at June 30, 1991. In July 1991, the
Company purchased the remaining 69% of RGL for cash and subordinated notes
(see "Note D" in the Notes to Consolidated Financial Statements) of $2.1
million and $5.8 million, respectively. The purchase price included goodwill
of $1.2 million.
Members of CIHC held a 45% interest in RGL prior to the acquisition by ACCEL.
For the three years ended December 31, 1993, RGL recorded losses and Galaxy's
underwriting results deteriorated. The statutory capital and surplus of
Galaxy declined significantly (from $7.3 million to $6.1 million to $2.9
million at December 31, 1991, 1992 and 1993, respectively), resulting in the
New York Department of Insurance ("New York Department") placing a moratorium
on all new business as of February 28, 1994.
As a result of the unsatisfactory underwriting performance of Galaxy and the
moratorium placed on Galaxy's underwriting operations by the New York
Department, the Company elected to write-off the unamortized goodwill related
to Galaxy, which resulted in a charge to operations (general and
administrative expenses) for 1993 of $1,643,000. Due to significant loss
development during 1994 on Galaxy's liability lines of business, the Company
contracted with an independent actuarial consultant to review the adequacy of
Galaxy's loss and LAE reserves as of June 30, 1994. The findings of this
review indicated the need for additional reserves which resulted in the
statutory insolvency of Galaxy at June 30, 1994. Statutory capital and
surplus after the reserve strengthening was a negative $2.3 million.
Due to the significance of the statutory loss and the loss of the Company's
control of Galaxy as a result of the insolvency, the Company wrote off its
investment in RGL ($3.8 million) during the second quarter of 1994. As a
result of this action, the consolidated results of operations for 1994 include
a charge to operations of $3.8 million, representing the Company's net
investment in Galaxy as of April 1, 1994, in addition to operating losses of
$205,000 incurred during the first quarter. The Company wrote down its
investment in RGL to zero and deconsolidated RGL as of April 1, 1994.
Pursuant to an Order of Liquidation dated October 7, 1994, issued by the
Supreme Court of the State of New York, the Liquidation Bureau of the New York
Department took control of Galaxy on October 11, 1994.
ANIC, in the normal course of business, issued certain policy endorsements on
Galaxy policies in 1992, some of which had pending claims open at the time of
liquidation. Management believes that these endorsements will not have a
material impact on the Company's financial condition. As of December 31,
1995, ANIC had not incurred any costs related to these endorsements.
DISCONTINUED REALTORS' ERRORS AND OMISSIONS PROGRAM: As a result of the
losses sustained in the realtors' errors and omissions program, and in
particular, conduct discovered by the Company after it assumed responsibility
for claims processing and handling, the Company filed suit in November 1991
against the non-affiliated marketing organization and broker involved in the
program.
The lawsuit sought to recover funds improperly withdrawn from the account
established for the payment of claims under the program; for damages due to
business expenses improperly charged against such funds; and for improper
administration of the program. ACCEL and ANIC entered into an arrangement
whereby ANIC's rights under the lawsuit were transferred to the Company in
exchange for a $4,000,000 collateral loan issued to ANIC which was recorded as
a capital contribution. The transaction and related agreements were approved
by the Ohio Department. The loan agreement and accompanying promissory note
called for interest at the 13 week Treasury Bill rate plus 100 basis points.
The principal of $4,000,000 was paid in full on December 29, 1995.
ACCEL pursued the litigation vigorously and in late 1995 ANIC was awarded $5.3
million in damages with $5.1 million thereof being obtained against the
marketing organization. A settlement has been reached with the broker
defendant, however, the remaining defendant has indicated its intention to
appeal the verdict. The Company is aggressively pursuing efforts to collect
on the remaining judgement.
TABLE I
Several key operating ratios of the Company are as follows:
Consolidated Results
----------------------------
(Thousands of dollars, except ratios)
1995 1994 1993
-------- -------- --------
Gross premiums written $ 55,443 $ 60,504 $ 95,766
======== ======== ========
Net premiums earned $ 40,853 $ 47,600 $ 61,649
======== ======== ========
RATIOS:
Policy benefits to net premiums earned 49.2% 52.5% 62.3%
Commissions and selling expenses and
general and administrative expenses
to gross premiums written 52.9% 47.8% 46.2%
Commissions and selling expenses,
reinsurance expense recovery
and change in deferred policy
acquisition costs to net premiums
earned 49.3% 43.6% 38.3%
Taxes, licenses and fees to gross
premiums written 3.1% 3.1% 2.5%
<TABLE>
TABLE II
Changes in Gross Premiums Written
Year Ended December 31
----------------------
(Thousands of dollars, except ratios)
<CAPTION>
1995 1994
vs. % vs. %
Gross Premiums Written 1995 1994 1993 1994 Change 1993 Change
====================== ======== ======== ======== ======== ======= ======== ======
<S> <C> <C> <C> <C> <C> <C> <C>
Continuing lines of business:
Credit $42,338 $43,905 $42,331 $(1,567) -3.6% $ 1,574 3.7%
Extended service contracts 7,777 8,221 7,351 (444) -5.4% 870 11.8%
Other 58 42 53 16 38.1% (11) -20.8%
------- ------- ------- ------- ------ -------- ------
Total continuing lines 50,173 52,168 49,735 (1,995) -3.8% 2,433 4.9%
------- ------- ------- ------- ------ -------- ------
Discontinued lines of business:
Medical and miscellaneous
life & health 776 1,751 10,491 (975) -55.7% (8,740) -83.3%
Vendor's single interest (798) (5,451) 7,689 4,653 -85.4% (13,140) -170.9%
Agriculture and other
property & casualty 5,292 10,091 13,460 (4,799) -47.6% (3,369) -25.0%
Galaxy Insurance Company - 1,945 14,391 (1,945) -100.0% (12,446) -86.5%
------- ------- ------- ------- ------ -------- ------
Total discontinued
lines 5,270 8,336 46,031 (3,066) -36.8% (37,695) -81.9%
------- ------- ------- ------- ------ -------- ------
Gross premiums
written $55,443 $60,504 $95,766 $(5,061) -8.4% $(35,262) -36.8%
======= ======= ======= ======== ====== ======== =====
</TABLE>
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14 (a) (1) and (2), (c) and (d)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1995
ACCEL INTERNATIONAL CORPORATION
DUBLIN, OHIO
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
ACCEL International Corporation:
We have audited the consolidated financial statements of ACCEL International
Corporation and subsidiaries (the Company) as of December 31, 1995 and 1994,
and for each of the years in the two-year period ended December 31, 1995, as
listed in the accompanying index. In connection with our audits of the
consolidated financial statements, we also have audited the financial
statement schedules as of December 31, 1995 and 1994, and for each of the
years in the two-year period ended December 31, 1995, as listed in the
accompanying index. These consolidated financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed in Note D to the consolidated financial statements, on March 30,
1994, the Company and its principal lender agreed to waive compliance with
certain loan agreement covenants through January 1, 1995. On February 7, 1995
the Company and the lender again renegotiated the credit agreement and certain
of the covenants. The amended agreement stated that the loan was payable in
full on June 30, 1997. On December 29, 1995, the Company issued senior notes
with a different lender and retired the aforementioned credit agreement. The
most recent loan agreement requires that during the period the loan is
outstanding, the Company maintain consolidated tangible net worth, as defined.
At December 31, 1995, required tangible net worth was $15,000,000 and the
Company's consolidated tangible net worth, as defined, was $19,738,000.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of ACCEL International Corporation and subsidiaries as of December 31, 1995
and 1994, and the consolidated results of their operations and their cash
flows for each of the years in the two-year period ended December 31, 1995, in
conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedules as of December 31, 1995 and
1994, and for each of the years in the two-year period ended December 31,
1995, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
/S/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Columbus, Ohio
March 15, 1996
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
ACCEL International Corporation:
We have audited the consolidated financial statements of ACCEL International
Corporation and subsidiaries (the Company) for the year ended December 31,
1993, as listed in the accompanying index to financial statements (Item
14(a)). In connection with our audit of the consolidated financial
statements, we also have audited the financial statement schedules as of
December 31, 1993 and for the year then ended, as listed in the accompanying
index. These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedules
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
As more fully described in "Note D", at December 31, 1993, the Company did not
meet all the requirements of certain covenants contained in a loan agreement
with its principal lender. On March 30, 1994, the Company and the lender
agreed to waive compliance with these covenants at December 31, 1993 and
through January 1, 1995. The loan agreement also requires that during the
period the loan is outstanding, the Company maintain consolidated tangible net
worth, as defined in the agreement. At December 31, 1993, required tangible
net worth was $27,500,000. At December 31, 1993, the Company's consolidated
tangible net worth, as defined, was $27,549,000.
In our opinion, the financial statements of ACCEL International Corporation
and subsidiaries listed in the accompanying index to financial statements
(Item 14(a)) present fairly, in all material respects, the consolidated
results of their operations and their cash flows for the year ended December
31, 1993, in conformity with generally accepted accounting principles. Also
in our opinion, the related financial statement schedules as of December 31,
1993 and for the year ended December 31, 1993, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
As discussed in Note A to the consolidated financial statements, in 1993, the
Company adopted the provisions of Financial Accounting Standards Board
Statement No. 115 "Accounting for Certain Investments in Debt and Equity
Securities".
/S/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Columbus, Ohio
March 30, 1994
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1995 1994
--------- -------
(Thousands of dollars)
ASSETS
Investments--Notes B and F:
Investments available for sale, at fair value
Fixed maturities (cost: 1995--$53,427,000;
1994--$91,422,000) $ 53,204 $ 84,782
Equity securities (cost: 1995--$5,433,000;
1994--$5,191,000) 5,451 5,159
Short-term investments (cost: 1995--$4,278,000;
1994--$7,684,000) 4,278
7,684
Other invested assets (cost: 1995--$364,000;
1994--$564,000) 364 564
--------- ---------
63,297 98,189
Cash 5,039 1,044
Receivables:
Premiums in process of transmittal, less
allowance (1995--$279,000; 1994--$255,000) 1,779 3,592
Amounts due from reinsurers--Note F 9,119 7,826
Recoverable federal income taxes--Note G 70 -
--------- ---------
10,968 11,418
Accrued investment income 557 807
Prepaid reinsurance premiums--Note F 14,895 18,707
Reinsurance premium deposits--Note F 51,634 12,345
Deferred policy acquisition costs 31,839 31,089
Equipment--at cost, less accumulated
depreciation (1995--$564,000;
1994--$523,000) 187 232
Property occupied by the Company--at cost, less
accumulated depreciation (1995--$2,382,000;
1994--$2,226,000) 3,167 3,303
Other assets:
Cost in excess of fair value of net
assets of subsidiaries at dates of
acquisition ($4,448,000) less
accumulated amortization--Note K 822 929
Funds held under reinsurance agreements--Note F 829 1,098
Other 273 787
--------- ---------
1,924 2,814
--------- ---------
$ 183,507 $ 179,948
========= =========
See notes to consolidated financial statements.
(Continued)
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
December 31,
1995 1994
--------- --------
(Thousands of dollars)
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Policy Reserves and Liabilities:
Unearned premium reserves--Note F $ 82,080 $ 83,762
Insurance claims--Notes F and H 22,761 23,159
Other 11 15
-------- --------
104,852 106,936
Other Liabilities:
Funds held under reinsurance agreements--Note F 3,072 3,633
Accounts payable and other liabilities 2,353 2,257
Commissions payable 5,010 4,015
Amounts due reinsurers--Note F 4,442 6,459
Federal income taxes--Note G:
Current - 52
Deferred 5,024 4,938
Deferred reinsurance commissions--Note F 15,663 17,830
Notes payable--Note D 22,531 18,462
-------- --------
58,095 57,646
Commitments and Contingencies--Notes F and N
Redeemable Preferred Stock:
Authorized shares--1,000,000;
no issued or outstanding shares - -
Common stockholders' equity--Notes C, D, G and I:
Common stock, $.10 par value
Authorized shares--10,000,000
Issued shares--5,243,852 524 524
Additional paid-in capital 23,702 24,066
Retained earnings 3,299 4,759
Less 797,420 treasury shares at cost (6,599) (6,599)
ESOP loan--Note L (161) (627)
Net unrealized depreciation on investment
securities--Note B (205) (6,672)
Foreign currency translation adjustments--Note M - (85)
-------- --------
Net common stockholders' equity 20,560 15,366
-------- --------
$183,507 $179,948
======== ========
See notes to consolidated financial statements.
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
1995 1994 1993
---------- ---------- -------
(Thousands of dollars,
except per share data)
REVENUE:
Gross premiums written--Note F $ 55,443 $ 60,504 $ 95,766
Less reinsurance ceded--Note F 12,147 12,495 30,261
---------- ---------- ----------
Net premiums written 43,296 48,009 65,505
Increase in unearned premium reserves (2,443) (409) (3,856)
---------- ---------- ----------
Premiums earned--Note F 40,853 47,600 61,649
Net investment income--Note B:
Interest and dividends 6,488 6,678 8,397
Realized gains 455 808 1,336
Service fees on extended service
contracts 2,137 2,063 1,819
Other income 542 370 1,609
---------- --------- ----------
50,475 57,519 74,810
BENEFITS AND EXPENSES:
Policy benefits--Notes F and H 20,118 24,997 38,431
Commissions and selling expenses 21,526 19,612 29,929
Reinsurance expense recovery--Note F (626) (927) (4,276)
General and administrative--Note K 7,817 9,336 14,327
Taxes, licenses and fees 1,743 1,903 2,430
Interest--Note D 1,748 1,589 1,653
Decrease (increase) in deferred policy
acquisition costs (750) 2,085 (2,058)
Write off of subsidiary--Note K - 3,829 -
---------- ---------- ----------
51,576 62,424 80,436
---------- ---------- ----------
LOSS BEFORE FEDERAL INCOME TAXES (1,101) (4,905) (5,626)
Federal income taxes--Note G:
Current (benefit) 273 219 (703)
Deferred 86 114 358
---------- ---------- ----------
359 333 (345)
---------- ---------- ----------
NET LOSS $ (1,460) $ (5,238) $ (5,281)
========== ========== ==========
Net loss per common share $ (.33) $ (1.18) $ (1.19)
========== ========== ==========
Weighted average number of common
shares outstanding 4,446,432 4,446,432 4,446,432
========== ========== ==========
See notes to consolidated financial statements.
<TABLE>
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
Three Years Ended December 31, 1995
<CAPTION>
Net
unrealized
appreciation
(deprecia-
tion) Foreign
Addi- Common on invest- currency
tional stock ment translation
Common paid-in Retained held in ESOP secur- adjust-
stock capital earnings Treasury loan ities ments Net
(Thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1992 $524 $24,066 $15,282 $(6,599) $ (803) $ 36 $ (145) $32,361
Dividends on preferred stock - - (4) - - - - (4)
Payments on ESOP loan - - - - 83 - - 83
Change in unrealized
appreciation on
investment securities - - - - - 1,460 - 1,460
Change in foreign currency
translation adjustment - - - - - - (36) (36)
Net loss - - (5,281) - - - - (5,281)
---- ------- ------- ------- ----- ------ ------- -------
Balances at December 31, 1993 524 24,066 9,997 (6,599) (720) 1,496 (181) 28,583
Payments on ESOP loan - - - - 93 - - 93
Change in unrealized
depreciation on
investment securities - - - - - (8,168) - (8,168)
Change in foreign currency
translation adjustment - - - - - - 96 96
Net loss - - (5,238) - - - - (5,238)
---- ------- ------- ------- ----- ------ ------- -------
Balances at December 31, 1994 524 24,066 4,759 (6,599) (627) (6,672) (85) 15,366
Payments on and write down
of ESOP loan--Note L - (364) - - 466 - - 102
Change in unrealized
depreciation on
investment securities - - - - - 6,467 - 6,467
Change in foreign currency
translation adjustment - - - - - - 85 85
Net loss - - (1,460) - - - - (1,460)
---- ------- ------- ------- ----- ------ ------- -------
Balances at December 31, 1995 $524 $23,702 $ 3,299 $(6,599) $(161) $ (205) $ - $20,560
==== ======= ======= ======= ===== ====== ======= =======
<FN>
See notes to consolidated financial statements.
</TABLE>
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1995 1994 1993
-------- -------- -----
(Thousands of dollars)
OPERATING ACTIVITIES:
Net loss $ (1,460) $ (5,238) $ (5,281)
Adjustments to reconcile net loss to
net cash used in operating activities:
Change in premiums receivable 1,789 3,266 (3,100)
Change in accrued investment income 250 191 338
Change in prepaid reinsurance premiums 3,812 9,208 (27,915)
Change in reinsurance premium deposits (39,289) (1,251) (11,094)
Change in funds held under reinsurance
agreements (292) (1,196) (20,502)
Change in unearned premium reserves (1,682) (7,449) 52,437
Change in insurance claim reserves (398) (12,435) 3,205
Change in amounts due reinsurers
and amounts due from reinsurers (3,310) 7,298 (8,772)
Change in other assets, other
liabilities and accrued income taxes 1,683 (860) 5,606
Interest paid in kind 569 515 657
Accrual of discount on bonds (461) (128) (781)
Amortization of premium on bonds 172 116 306
Amortization of deferred policy
acquisition costs 20,743 24,414 25,518
Policy acquisition costs deferred (21,493) (22,329) (27,576)
Reinsurance commissions earned (13,329) (12,763) (13,775)
Reinsurance commissions received 11,162 11,708 16,786
Provision for depreciation and
amortization 412 528 2,334
Write off of subsidiary - 3,829 -
Net realized gains on investments (455) (808) (1,336)
-------- -------- --------
NET CASH USED IN OPERATING ACTIVITIES (41,577) (3,384) (12,945)
-------- -------- --------
INVESTING ACTIVITIES:
Sale of investments available for sale 49,159 38,103 82,345
Purchase of investments available for sale (7,067) (35,574) (68,406)
Other, net (122) (59) (29)
-------- -------- --------
NET CASH PROVIDED BY INVESTING ACTIVITIES 41,970 2,470 13,910
-------- -------- --------
FINANCING ACTIVITIES:
Payment on ESOP loan 102 93 83
Repayment of notes payable (13,000) - (1,000)
Issuance of notes payable 16,500 - -
Debentures redeemed - (900) (800)
Redemption of redeemable stock - - (73)
Cash dividends - - (6)
-------- -------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 3,602 (807) (1,796)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH 3,995 (1,721) (831)
Cash at beginning of year 1,044 2,765 3,596
-------- -------- --------
CASH AT END OF YEAR $ 5,039 $ 1,044 $ 2,765
======== ======== ========
See notes to consolidated financial statements.
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying consolidated financial statements of
ACCEL International Corporation ("ACCEL") and subsidiaries (collectively
referred to herein as the "Company") have been prepared in accordance with
generally accepted accounting principles which, as to the insurance company
subsidiaries, differ in some respects from statutory accounting practices
prescribed or permitted by state insurance departments. The significant
accounting policies followed by the Company that materially affect financial
reporting are summarized below.
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial
statements include the accounts of ACCEL and its wholly-owned subsidiaries,
except for Randjill Group Ltd. ("RGL") (see Note K). All significant
intercompany accounts and transactions have been eliminated in the
consolidated financial statements.
DESCRIPTION OF BUSINESS: ACCEL is an insurance holding company incorporated
in Delaware in June 1978 as the successor to an Ohio corporation, formerly
Acceleration Corporation, organized in 1969. The Company has been engaged in
the sale and underwriting of credit life and credit accident and health
insurance, extended service contracts, vendor's single interest and other
specialty casualty products. The credit insurance and extended service
contract products continue to be offered to consumers, principally through
automobile dealers, financial institutions and other business entities. The
Company is subject to competition from other insurers throughout the states in
which it writes business. The Company is also subject to regulation by the
Insurance Departments of states in which it is licensed, and undergoes
periodic examinations by those departments.
The following is a description of the most significant risks facing life and
health and property/casualty insurers and how the Company mitigates those
risks:
LEGAL/REGULATORY RISK is the risk that changes in the legal or regulatory
environment in which an insurer operates will create additional expenses not
anticipated by the insurer in pricing its products. That is, regulatory
initiatives designed to reduce insurer profits, new legal theories or
insurance company insolvencies through guaranty fund assessments may create
costs for the insurer beyond those currently recorded in the consolidated
financial statements. The Company mitigates this risk by operating
throughout the United States, thus reducing its exposure to any single
jurisdiction, and also by employing underwriting and loss adjusting
practices which identify and minimize the adverse impact of this risk.
CREDIT RISK is the risk that issuers of securities owned by the Company will
default or that other parties, including reinsurers, which owe the Company
money, will not pay. The Company minimizes this risk by adhering to a
conservative investment strategy, by maintaining sound reinsurance and
credit and collection policies and by providing for any amounts deemed
uncollectible.
INTEREST RATE RISK is the risk that interest rates will change and cause a
decrease in the value of an insurer's investments. The Company mitigates
this risk by attempting to match the maturity schedule of its assets with
the expected payouts of its liabilities. To the extent that liabilities
come due more quickly than assets mature, an insurer would have to borrow
funds or sell assets prior to maturity and potentially recognize a gain or
loss.
ACCOUNTING ESTIMATES: In preparing the consolidated financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosures of contingent
assets and liabilities as of the date of the consolidated financial statements
and revenues and expenses for the reporting period. Actual results could
differ significantly from those estimates.
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
The most significant estimates include those used in determining deferred
policy acquisition costs and the liability for unearned premium reserves and
insurance claims. Although some variability is inherent in these estimates,
management believes the amounts provided are adequate. The estimates are
continually reviewed and adjusted as necessary. Such adjustments are
generally reflected in current operations.
INVESTMENTS: The Company classifies all of its fixed maturity and equity
securities as available for sale, therefore these securities are carried at
fair value and the unrealized appreciation or depreciation is reported as a
separate component of common stockholders' equity after giving effect to
applicable income taxes.
Short-term investments which include U.S. Treasury securities, commercial
paper and certificates of deposit are carried at cost which approximates fair
value.
Other invested assets are carried at cost which approximates fair value.
Realized gains and losses on the disposal of investments are determined by
specific identification and are included in the consolidated statements of
operations.
When an other than temporary decline in value is recognized, the specific
investment is carried at estimated realizable value and its original book
value is reduced to reflect such impairment of the investment. Such
reductions in book value are reflected in realized investment losses for the
period in which they were written down. For mortgage backed securities, the
Company's accounting follows the provisions of Financial Accounting Standards
Board Emerging Issues Tasks Force ("EITF") Consensus No. 93-18. This EITF
requires that when the present value of estimated future cash flows discounted
at a risk-free rate of return is less than the cost basis of the investment an
impairment loss is to be recognized by writing the investment down to its fair
value.
FAIR VALUES OF FINANCIAL INSTRUMENTS: The fair value of a financial
instrument is the amount at which the financial instrument could be exchanged
in a current transaction between willing parties. In cases where quoted
market prices are not available, fair value is based on estimates using
present value or other valuation techniques.
These techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. Although fair value
estimates are calculated using assumptions that management believes are
appropriate, changes in assumptions could cause these estimates to vary
materially. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could
not be realized in the immediate settlement of the instruments. The
disclosure requirements related to financial instruments exclude certain
assets and liabilities. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
The tax ramifications of the related unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered in the
estimates.
The carrying amounts reported in the consolidated balance sheets for cash,
short-term investments, accrued investment income, premiums in process of
transmittal, and amounts due from reinsurers approximate their fair value.
Fair value for fixed maturity, equity and mortgage backed securities are based
on quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments at amortized value.
The fair value of notes payable is estimated using discounted cash flow
analyses, based on ACCEL's current incremental borrowing rates for similar
types of borrowing arrangements.
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
DEFERRED POLICY ACQUISITION COSTS: The costs (principally commissions and
certain expenses of policy issuance) of acquiring or renewing insurance
business, all of which vary with and are directly related to the production of
business, have been deferred. These deferred policy acquisition costs are
amortized in a manner related to the recognition of premiums earned.
Substantially all such deferred costs are amortized within a four-year
period. Anticipated investment income is considered in determining
recoverability of deferred costs.
EQUIPMENT AND DEPRECIATION: Equipment is carried at cost less accumulated
depreciation. Depreciation is provided using the straight-line method over an
estimated useful asset life of five years.
PROPERTY OCCUPIED BY COMPANY: Home office property is carried at cost less
accumulated depreciation. Depreciation is provided using the straight-line
method over an estimated life of thirty-five years.
GOODWILL AMORTIZATION: Cost in excess of fair value of net assets of
subsidiaries at dates of acquisition is being amortized primarily over a
thirty-five year period. It is the Company's policy to account for goodwill
at the lower of amortized cost or fair value. On an ongoing basis, management
reviews the valuation and amortization of its goodwill. As a part of its
ongoing review, management estimates the fair value of the Company's goodwill,
taking into consideration any events and circumstances which might have
diminished fair value. Believing such an event and circumstance had occurred
in 1993, management reduced the carrying amount of its goodwill at December
31, 1993 by $1.6 million. See Note K regarding the write down of goodwill.
PREMIUM INCOME RECOGNITION AND UNEARNED PREMIUM RESERVES: Unearned premium
reserves on credit life and credit accident and health insurance are
calculated primarily under the "Rule of 78's Method", which method results in
premium income being recognized in decreasing proportions over the terms of
the policies, which approximates the pattern of policy benefits incurred.
Unearned premium reserves on the extended service contracts are based on the
historical emergence pattern of claims. The Company's primary liability on
new car contracts exists subsequent to the expiration of manufacturers'
warranties. This method results in premium being recognized in direct
proportion to the emergence of benefits on these contracts.
Unearned premium reserves on property and casualty products are calculated on
the pro rata method.
INSURANCE CLAIMS: The liabilities for insurance claims are determined using
statistical analyses and represent estimates of the ultimate net cost of all
reported and unreported claims that are unpaid at year end. Considerable
variability is inherent in such estimates and actual results will likely
differ from those estimates.
FEDERAL INCOME TAXES: ACCEL and its subsidiaries file a consolidated federal
income tax return. The provision for income taxes is based on income for
financial reporting purposes, after permanent differences. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under this method, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. Valuation allowances are established when
necessary to reduce the deferred tax assets to the amounts expected to be
realized.
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
REINSURANCE: Reinsurance premiums ceded and reinsurance recoveries on policy
benefits incurred are deducted from the respective income and expense
accounts. Assets and liabilities related to reinsurance ceded are reported on
a gross basis. Amounts related to reinsurance contracts, where it is not
reasonably possible for the reinsurer to realize a significant loss, are
recorded based on the deposit accounting method.
DEFERRED REINSURANCE COMMISSIONS: Commissions and ceding fees received in
connection with premiums ceded are deferred and amortized in a manner related
to the recognition of premiums earned. Substantially all such commissions and
ceding fees are amortized within a four-year period. Earned ceding fees,
commissions and claims recovered are reported as reinsurance expense
recoveries in the consolidated statements of operations.
EARNINGS PER COMMON SHARE: Net income and net loss per common share are
computed using the weighted average number of common shares outstanding during
the period. The inclusion of common stock equivalents (options) would not be
dilutive.
RECLASSIFICATIONS: Certain amounts in the 1994 and 1993 consolidated
financial statements have been reclassified to conform with the 1995
presentation.
NOTE B--INVESTMENTS
At December 31, 1995 and 1994, investments in cash and securities with a
carrying value of $9,108,000 and $8,428,000, respectively, were on deposit
with state insurance departments to satisfy regulatory requirements. Cash and
securities with a carrying value of $19,879,000 and $39,710,000 at December
31, 1995 and 1994, respectively, were on deposit in security funds in
connection with reinsurance treaties.
The change in net unrealized gains (losses) on fixed maturity and equity
securities is summarized as follows:
Year Ended December 31,
1995 1994 1993
------- ------- -----
(Thousands of dollars)
Available for sale:
Fixed maturities $ 6,417 $(8,054) $ 1,603
Equity securities 50 (114) 103
Held for investment:
Fixed maturities - - (160)
Equity securities - - (245)
------- ------- -------
$ 6,467 $(8,168) $ 1,301
======= ======= =======
Realized gains (losses) on investments are summarized as follows:
Securities available for sale:
Fixed maturities:
Gross realized gains $ 607 $ 194 $ 1,479
Gross realized losses (284) (35) (184)
Equity securities:
Gross realized gains 106 148 41
Gross realized losses - - -
Other invested asset gains 26 501 -
------- ------- -------
$ 455 $ 808 $ 1,336
======= ======= =======
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE B--INVESTMENTS--(CONTINUED)
The major sources of investment income are summarized as follows:
Year Ended December 31,
1995 1994 1993
------- ------- -----
(Thousands of dollars)
Fixed maturities $ 5,669 $ 6,307 $ 8,079
Equity securities 181 113
47
Short-term investments 927 333 478
Other 431 469 402
------- ------- -------
7,208 7,222 9,006
Investment expenses (720) (544) (609)
------- ------- -------
Net investment income $ 6,488 $ 6,678 $ 8,397
======= ======= =======
The amortized cost and estimated fair value of fixed maturity securities by
category, all of which were available for sale, are as follows:
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
-------- ---------- ---------- --------
(Thousands of dollars)
December 31, 1995
-----------------
U.S. Treasury and U.S. government
agency securities $ 9,310 $ 274 $ - $ 9,584
State and political subdivision
securities 1,255 35 - 1,290
Mortgage-backed securities 41,214 322 (914)
40,622
U.S. corporate securities 1,000 26 - 1,026
Redeemable preferred stocks 648 34 - 682
-------- -------- -------- --------
Total $ 53,427 $ 691 $ (914) $ 53,204
======== ======== ======== ========
December 31, 1994
-----------------
U.S. Treasury and U.S. government
agency securities $ 11,465 $ 8 $ (355) $ 11,118
State and political subdivision
securities 1,515 - (35) 1,480
Mortgage-backed securities 72,002 7 (5,992)
66,017
U.S. corporate securities 5,691 - (360)
5,331
Redeemable preferred stocks 749 87 - 836
-------- -------- -------- --------
Total $ 91,422 $ 102 $ (6,742) $ 84,782
======== ======== ======== ========
The amortized cost and estimated fair value of fixed maturity securities, all
of which were available for sale, at December 31, 1995, by contractual
maturity, are summarized as follows:
Amortized Fair
Maturity cost value
-------- --------- --------
(Thousands of dollars)
Due in one year or less
$ 1,227 $ 1,240
Due after one year through five years 8,632 8,847
Due after five years through ten years 1,845 1,961
Due after ten years 509 534
Mortgage-backed securities 41,214 40,622
-------- --------
Total $ 53,427 $ 53,204
======== ========
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE B--INVESTMENTS--(CONTINUED)
The expected maturities in the foregoing table will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without penalty. Mortgage-backed securities owned have an expected
weighted average maturity of over 5 years.
Proceeds from the sale of securities available-for-sale during 1995, 1994 and
1993 were $45,531,000, $26,283,000 and $66,083,000, respectively. Gross
gains of $713,000 ($342,000 in 1994 and $1,520,000 in 1993) and gross losses
of $284,000 ($35,000 in 1994 and $184,000 in 1993) were realized on those
sales.
NOTE C--STOCKHOLDERS' EQUITY AND TRANSFER LIMITATIONS
Generally, the net assets of the consolidated insurance subsidiaries available
for transfer to ACCEL are limited to the amounts that the insurance
subsidiaries' net assets, as determined in accordance with statutory
accounting practices, exceed minimum statutory capital and surplus
requirements; however, payments of such amounts as dividends from each
insurance subsidiary are currently subject to regulation by Ohio law. Based
on this law, ALIC could pay a dividend of $8,000 and ANIC would require Ohio
Department approval to pay any dividend to the registrant during 1996. At
December 31, 1995, $18,047,000 of net assets, as determined in accordance with
prescribed and permitted statutory accounting practices, of the consolidated
insurance subsidiaries are available for transfer, subject to regulatory
approval, in the form of dividends, loans or advances to ACCEL (total
statutory net assets of the consolidated insurance subsidiaries was
$23,047,000 at December 31, 1995).
The statutory basis capital and surplus and net income (loss) of the
consolidated insurance subsidiaries, as reported to insurance regulatory
authorities, are summarized as follows:
Life/ Property/
Health Casualty
------ --------
(Thousands of dollars)
Statutory capital and surplus
at December 31:
1995 $13,010 $10,037
1994 13,841 14,190
Statutory net income (loss) for
year ended December 31:
1995 $ (713) $(2,574)
1994 1,165 (1,537)
1993 219 (3,503)
NOTE D--NOTES PAYABLE
In July 1991, ACCEL issued $5,848,000 of subordinated notes (the "Subordinated
Notes") in connection with the purchase of all outstanding common shares of
RGL (see Note K). The Subordinated Notes have a nine-year term with no
principal payable until maturity, and bear interest at 10.125% per annum.
Effective June 30, 1992, ACCEL amended the notes to permit the issuance of
additional notes for the purpose of making interest payments, provided,
however, that ACCEL may at its option pay cash in lieu of issuing additional
notes in any denomination of less than $1,000. As a result, ACCEL issued
additional notes totaling $569,000 and $515,000 for the 1995 and 1994 interest
payments, respectively.
Of the Subordinated Notes described above, $5,371,000 were initially issued to
Ranger Insurance Company ("Ranger"), a company related through common
ownership by a stockholder and director of the Company. In 1993, Ranger sold
all of the Subordinated Notes held by it to Chase Insurance Holdings
Corporation ("CIHC"), another company related through common ownership by a
stockholder and director of the Company. Additional Subordinated Notes in the
amount of $506,000 and $458,000 were issued to related parties for the 1995
and 1994 interest payments, respectively.
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE D--NOTES PAYABLE--(CONTINUED)
The total outstanding Subordinated Notes were $6,031,000 and $5,462,000
($5,347,000 and $4,841,000 held by related parties at December 31, 1995 and
1994, respectively) and the fair value of these notes approximated $5,783,000
and $5,237,000 at December 31, 1995 and 1994, respectively.
At December 31, 1994, the Company had an outstanding loan balance of
$13,000,000 under the terms of a credit agreement (the "Credit Agreement")
with a bank, and the effective interest rate was 6.25%. During 1993, the
Company did not meet all of the requirements contained in the various
financial tests under the covenants contained in the Credit Agreement. On
March 30, 1994, the bank and the Company agreed to a waiver of certain
covenants of the Credit Agreement such that the Company would not be in
default at December 31, 1993 and through January 1, 1995.
Proceeds from the Credit Agreement were partially used in the purchase of RGL,
and to fund general operating activities. During September 1994, the
revolving loans under the Credit Agreement were converted to a $13,000,000
term loan, payable in full on September 23, 1998. At December 31, 1994, the
effective interest rate and outstanding loan balance were 8.75% and
$13,000,000, respectively. The fair value of this term loan approximated
$13,000,000 at December 31, 1994.
On February 7, 1995 the Company renegotiated the terms of the Credit
Agreement. Under the amended Credit Agreement, the quarterly principal
payments scheduled to begin in 1995 were waived. Specific principal payments
totaling up to $1.5 million were due on June 30, 1995 and December 31, 1995,
respectively, from the liquidation of Acceleration Insurance Company Limited
("AICL"), a United Kingdom subsidiary, and the projected sale of the building
used as the corporate home office. The loan was to be payable in full on June
30, 1997. The Credit Agreement also required that during the period the loan
was outstanding, the Company maintain consolidated tangible net worth, as
defined in the agreement. At December 31, 1994, required tangible net worth
was $13,000,000. At December 31, 1994, the Company's consolidated tangible
net worth, as defined, was $14,438,000.
On December 29, 1995, the Company issued senior notes (the "Senior Notes")
totaling $16,500,000 at 9.50%, maturing on April 1, 2001. The proceeds from
these notes were used to retire the loan outstanding under the aforementioned
Credit Agreement and to liquidate an intercompany loan between ACCEL and an
insurance subsidiary. In addition, as of January 1, 1996, a subsidiary of the
Company entered into a reinsurance agreement with an unaffiliated company to
reinsure the in-force Credit Business. This agreement is structured, such,
that as future profits emerge on this block of business, the Company's share
of the profits will be used over the next four to five years to pay the
interest thereon and redeem these Senior Notes.
During 1995, 1994 and 1993, ACCEL paid interest on notes of $1,125,000,
$974,000 and $924,000, respectively.
NOTE E--DEBENTURES PAYABLE
At January 1, 1994, ACCEL had $900,000 principal amount of sinking fund
debentures outstanding bearing interest at 10 1/2% and maturing on September
1, 1994. These debentures were fully paid in 1994.
During 1994 and 1993, ACCEL paid interest on these debentures of $63,000 and
$151,000, respectively, and made mandatory sinking fund payments of $900,000
and $800,000 during 1994 and 1993, respectively.
NOTE F--REINSURANCE
The Company's reinsurance program includes an agreement covering certain of
its direct credit business, the reinsurance of other direct business ceded on
a quota share basis and direct business ceded to producer-owned reinsurance
companies.
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE F--REINSURANCE--(CONTINUED)
The ceding of insurance through reinsurance agreements does not discharge the
primary liability of the original underwriter to the insured, but it is the
practice of insurers to treat risks that have been reinsured with other
companies, to the extent of the reinsurance, as though they were not risks for
which the original insurer is liable. Should the reinsurer not be able to
meet its obligations, those obligations are the ultimate responsibility of the
Company. Therefore, in financial statement presentation, premiums and policy
benefits are presented net of that portion of risks reinsured with other
companies.
DIRECT BUSINESS CEDED--CREDIT BUSINESS QUOTA SHARE: The Company has an
agreement in place which covers a substantial portion of its credit insurance
business. The agreement contains an experience adjustment computation that
results in the ultimate cost of this agreement being a stated percentage
related to the business covered by the agreement. The Company ultimately
retains a substantial part of the insurance risk, the underwriting income or
loss and the investment income on net funds, all of which are retained by the
Company.
The Company determined that deposit accounting is the appropriate method of
accounting for this agreement since it is not reasonably possible for the
reinsurer to realize a significant loss from the transaction. The
consolidated financial statements have been prepared on this basis.
The other effect of this agreement is to increase statutory capital and
surplus of Acceleration Life Insurance Company ("ALIC"), a wholly owned
subsidiary of ACCEL, by $14,512,000 and $15,740,000 as of December 31, 1995
and 1994, respectively.
On January 1, 1996 the Company terminated this quota share reinsurance
agreement and elected to recapture the liabilities subject to this treaty.
The liabilities recaptured thereunder were then available for cession under
the treaty described below. The unearned premium reserves and claim
liabilities recaptured were $29,753,000 and $8,424,000, respectively.
Concurrent with this termination, the Company entered into a reinsurance
agreement with a different unaffiliated reinsurer (which is also the buyer of
the Senior Notes discussed in Note D) to reinsure a substantial portion of the
in-force credit life and accident and health insurance business, including the
amounts recaptured. This agreement is structured in such a way that as future
profits emerge on this block of business, a substantial portion of the
Company's share of the profits will be used over the next four to five years
to pay fees and interest to the reinsurer and redeem the new Senior Notes of
$16,500,000. In connection with this agreement, approximately $40,000,000 of
assets were transferred to the reinsurer on December 29, 1995, as agreed to by
all parties. The unearned premium reserves and liability for insurance claims
subject to cession under this treaty approximates $48,616,000 and $9,919,000,
respectively, as of January 1, 1996.
Prior to December 31, 1995, a security fund had been maintained, primarily
comprised of fixed maturities, for the benefit of the reinsurer. Pursuant to
the termination of the agreement effective January 1, 1996, as discussed
above, certain investments were liquidated from the security fund on December
29, 1995. Proceeds from this liquidation, along with other funds, were
transferred on December 29, 1995 to the reinsurer who is party to the
agreement dated January 1, 1996. These amounts are included in "Reinsurance
Premium Deposits" on the accompanying consolidated balance sheets as of
December 31, 1995.
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE F--REINSURANCE--(CONTINUED)
DIRECT BUSINESS CEDED--OTHER QUOTA SHARE: The Company reinsures a portion of
its group life and health care insurance with several unaffiliated companies.
The effect of this reinsurance is to transfer the risk, the underwriting
income or loss, and the investment income related to the premiums ceded. In
1993, the Company entered into reinsurance agreements with unaffiliated
reinsurers related to certain additional product lines. The effect of such
reinsurance arrangements is to transfer 100% of the related risk to the
reinsurers. Premiums ceded associated with these agreements and included in
the accompanying consolidated statements of operations amounted to $694,000,
$980,000 and $4,588,000 in 1995, 1994 and 1993, respectively.
DIRECT BUSINESS CEDED--TO PRODUCER-OWNED REINSURANCE COMPANIES: The Company
has agreements to cede certain credit life and credit accident and health
insurance to reinsurance companies owned by certain automobile dealers,
financial institutions or agents. Under these arrangements, the assuming
entities participate in the profits or losses of the insurance produced by
them, and the Company may retain a nominal percentage of the applicable
business. These treaties generally provide that the Company receives a ceding
fee and is reimbursed for certain commissions and claims.
Written premiums included in the accompanying consolidated statements of
operations that have been ceded, or which are subject to cession under all
such agreements, amounted to $7,429,000, $10,284,000 and $8,855,000 in 1995,
1994 and 1993, respectively.
OTHER REINSURANCE: Credit life and credit accident and health premiums
assumed by the Company relating to business written in Pennsylvania by an
unaffiliated carrier, amounted to $6,308,000, $7,640,000 and $7,154,000 in
1995, 1994 and 1993, respectively. Unearned premium reserves and the
liability for insurance claims at December 31, 1995 include $10,904,000 and
$3,243,000, respectively ($11,460,000 and $3,208,000 at December 31, 1994,
respectively), for risks assumed under this agreement.
As of December 31, 1992, the Company entered into a reinsurance agreement with
unaffiliated reinsurers whereby the Company cedes 100% of the premiums written
in connection with vendor's single interest insurance. In mid 1994, a
substantial part of the remaining in-force business was assumed by an
unaffiliated reinsurer, and resulted in a return of premiums. The VSI product
was forced-placed when the borrower could not demonstrate coverage for the
automobile that was securing the loan with the lending institution. Premiums
ceded under this agreement were $(858,000), $(6,024,000) and $6,082,000 for
1995, 1994 and 1993, respectively. Policy benefit expense in 1995, 1994 and
1993, respectively, has been reduced by $104,000, $1,407,000 and $3,081,000 in
conjunction with these agreements.
The Company also entered into reinsurance agreements with several unaffiliated
reinsurers related to certain property and casualty lines of business written
by the Company. Unearned premium reserves and the liability for insurance
claims associated with these agreements at December 31, 1995 are $2,645,000
and $2,240,000, respectively ($6,242,000 and $889,000 at December 31, 1994,
respectively).
The following data summarizes certain aspects of the Company's reinsurance
activity for 1995, 1994 and 1993.
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE F--REINSURANCE--(CONTINUED)
Premiums written and earned in 1995, 1994 and 1993 are summarized as follows:
1995 1994 1993
Written Earned Written Earned Written Earned
-------- -------- -------- -------- -------- --------
(In thousands)
Direct $ 49,135 $ 50,265 $ 52,864 $ 59,789 $ 87,546 $ 78,773
Assumed 6,308 6,864 7,640 7,004 8,220 9,309
Ceded (12,147) (16,276) (12,495) (19,193) (30,261) (26,433)
-------- -------- -------- -------- -------- --------
Net premiums $ 43,296 $ 40,853 $ 48,009 $ 47,600 $ 65,505 $ 61,649
======== ======== ======== ======== ======== ========
Policy benefits incurred in 1995, 1994 and 1993 are summarized as follows:
1995 1994 1993
---- ---- ----
(In thousands)
Direct $ 24,900 $ 31,567 $ 44,952
Assumed 3,973 3,754 5,240
Ceded (8,755) (10,324) (11,761)
-------- -------- --------
Net policy benefits $ 20,118 $ 24,997 $ 38,431
======== ======== ========
NOTE G--FEDERAL INCOME TAXES
The Company files a consolidated income tax return with its subsidiaries,
including its life insurance subsidiary. For tax purposes, certain amounts
have been accumulated by the life insurance subsidiary in a memorandum tax
account designated as "policyholders' surplus" that will be taxed only when
distributed to shareholders. Policyholders' surplus on a tax basis was
$4,489,000 at December 31, 1995. Management considers the likelihood of
distributions from this account to be remote; therefore, no Federal income tax
has been provided for such distributions in the accompanying consolidated
financial statements. As of December 31, 1995, approximately $2,549,000 could
be distributed to shareholders before a distribution would be designated as
from the policyholders' surplus account.
The federal income tax expense for 1995 includes a credit of $11,000 of
foreign taxes related to AICL ($41,000 expense in 1994 and $36,000 credit in
1993).
In 1995 and 1994, the Company paid $410,000 and $140,000, respectively, in
federal income taxes. In 1993 the Company received a refund of $3,910,000 for
federal income taxes.
Total income tax expense (benefit) differed from the amount computed by
applying the statutory federal income tax rate to loss before taxes as
follows:
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE G--FEDERAL INCOME TAXES--(CONTINUED)
Year Ended December 31,
1995 1994 1993
-------- -------- ----
(Thousands of dollars)
Income tax (benefit) at statutory rate $ (374) $ (1,668) $ (1,913)
Amortization of goodwill 36 36 605
Dividends-received deduction (54) (38) (37)
Special deductions of life insurance
subsidiaries - (297) (41)
Tax-exempt interest (18) (21) (30)
Valuation allowance 66 (1,130) 745
Write off of subsidiary - 1,302 -
Benefit of non-life companies not
utilized 622 531 -
Other, net 81 1,618 326
-------- -------- --------
Federal income tax expense (benefit) $ 359 $ 333 $ (345)
======== ======== ========
The tax effects of temporary differences that give rise to significant
components of the net deferred tax liability at December 31, 1995 and 1994 are
summarized as follows:
December 31
1995 1994
---- ----
Deferred Tax Liabilities:
Deferred policy acquisition costs $ 10,656 $ 10,461
Other 2,621 3,631
-------- --------
13,277 14,092
-------- --------
Deferred Tax Assets:
Deferred reinsurance commissions 5,420 6,149
Net operating loss carryforward 1,370 741
Insurance reserves 1,029 1,231
Unrealized losses on investments 119 2,287
Service contracts 1,757 1,482
Other 95 902
-------- --------
Total deferred tax assets 9,790 12,792
Valuation allowance (1,537) (3,638)
-------- --------
Net deferred tax assets 8,253 9,154
-------- --------
Net deferred tax liability $ 5,024 $ 4,938
======== ========
The Company has determined the valuation allowance related to the deferred tax
assets based on its analysis of future deductible amounts. This analysis
included a schedule of the deductibility of nonlife items against life company
taxable income pursuant to Section 801 of the Internal Revenue Code and a
determination of the realization of losses generated by available for sale
securities.
The Company had recorded a valuation allowance of $2,484,000 and $1,739,000 as
of December 31, 1993 and January 1, 1993, respectively.
The Company has $4,028,000 of net operating losses that are available to
reduce future income taxes; $479,000, $35,000, $1,229,000 and $2,285,000 of
the losses expire in 2007, 2008, 2009 and 2010, respectively.
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE H--LIABILITY FOR INSURANCE CLAIMS
The following table provides a reconciliation of beginning and ending
liability balances for the Company's insurance claims for 1995, 1994 and 1993.
RECONCILIATION OF LIABILITY FOR INSURANCE CLAIMS
1995 1994 1993
--------------------------------
(In thousands)
Liability for insurance claims
at beginning of year $ 23,159 $ 49,919 $ 65,235
Less reinsurance recoverables (5,423) (11,801) (18,521)
-------- -------- --------
Net balances at beginning of year 17,736 38,118 46,714
Policy benefits incurred:
Policy benefits incurred for
events of the current year 19,602 24,914 40,915
Policy benefits incurred for
events of prior years 516 83 (2,484)
-------- --------- --------
Total policy benefits incurred 20,118 24,997 38,431
-------- --------- --------
Galaxy unpaid losses and LAE at
date of write off (see Note K) - 14,325 -
Payments:
Policy benefits for insured
events of the current year 10,860 20,556 30,960
Policy benefits for insured
events in prior years 10,097 10,498 16,067
-------- --------- --------
Total payments 20,957 31,054 47,027
-------- --------- --------
Net balances at end of year 16,897 17,736 38,118
Plus reinsurance recoverables 5,864 5,423 11,801
-------- --------- --------
Liability for insurance claims
at end of year $ 22,761 $ 23,159 $ 49,919
======== ========= ========
The table above reflects decreases in the liability for insurance claims
resulting from discontinued lines of business and the write off of Galaxy
Insurance Company ("Galaxy"), a wholly owned subsidiary of RGL (see Note K).
In 1995 and 1994, increases in policy benefits incurred for events of prior
years relate to management's reevaluation of discontinued lines of business.
In establishing the liability for insurance claims, management considers facts
currently known and the current state of the law and coverage litigation.
Liabilities are recognized for known claims (including the cost of related
litigation) when sufficient information has been developed to indicate the
involvement of a specific insurance policy, and management can reasonably
estimate its liability. In addition, liabilities have been established to
cover additional exposures on both known and unasserted claims. Estimates of
the liabilities are reviewed and updated continually.
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE I--COMMON STOCKS AND COMMON STOCK OPTIONS
On June 2, 1992, the Board of Directors voted to suspend payment of cash
dividends on the common stock until the Company returns to a level of
profitability that will sustain the payment of cash dividends.
ACCEL's Board of Directors approved an Employee Stock Ownership Plan ("ESOP")
during 1989. In 1990, the ESOP entered into an agreement with ALIC to borrow
up to $1,000,000 for the purchase of ACCEL's common stock. At December 31,
1995, the unpaid balance on this loan was $161,000.
During November 1989, ACCEL's Board of Directors also approved a stock buy
back program to repurchase up to 1,000,000 common shares in the open market.
ACCEL has purchased 229,185 shares at a cost of $1,722,000 under this program.
The buy back program was funded from internally generated funds. No shares
have been purchased since 1992.
During 1982, ACCEL adopted a stock option plan (the "82 Plan") under which
shares of common stock are available to eligible officers and key personnel.
Under the terms of the 82 Plan, the option price must be at least 100% of the
fair market value at the date of grant, and, accordingly, there have been no
charges to income resulting from grants. Options were granted at prices
ranging from $2.769 to $11.750 per share from April 1982 through April 1992.
The options become exercisable after one year of continuous employment in
installments of 50% at the end of the first and the second year from the date
of grant and expire ten years from the date of grant. A total of 300,000
(349,672 after giving effect to all subsequent stock dividends) shares have
been reserved for options under the 82 Plan. The following table summarizes
activity under this plan.
The 82 Plan 1995 1994 1993
----------- ---- ---- ----
Options lapsed 44,596 36,660 34,758
Of the 67,401 options outstanding under the 82 Plan at December 31, 1995,
67,401 were exercisable. No additional shares may be granted under the 82
Plan.
During 1987, ACCEL adopted the 1987 Incentive Stock Option Plan (the "87
Plan"). The 87 Plan provided for incentive stock options with respect to a
maximum of 300,000 (347,287 after giving effect to all subsequent stock
dividends) shares of common stock of ACCEL prior to the expiration of the 87
Plan in April 1997. During June of 1991, ACCEL's Board of Directors and
shareholders approved the First Restatement of the 1987 Stock Incentive Plan
(the "Restated Plan"). The Restated Plan replaced the 87 Plan except as to
options granted and outstanding under the 87 Plan. The Restated Plan reserved
an additional 450,000 shares for key employees and 50,000 shares for non-
employee directors. Options may be granted prior to expiration of the
Restated Plan covering shares subject to lapsed or terminated options. Of the
539,569 options outstanding under the Restated Plan, 455,819 were exercisable
at December 31, 1995. At December 31, 1995, 275,643 shares were reserved for
future grants. During May, 1995, two new Key Employees were granted stock
options under ACCEL's Restated Plan. Under the terms of their arrangement with
ACCEL, both were granted stock options for ACCEL's common stock in lieu of
salary for their first year of service. Options for 150,000 shares were
granted at an option price per share of $2.125, the fair value of ACCEL's
common stock on the date of grant. The options vest immediately and become
exercisable one year following the date of grant; however, they would become
exercisable immediately upon either a) a change of control of ACCEL, or b) an
involuntary termination. The options would be forfeited if employment with
ACCEL was voluntarily terminated prior to May 23, 1996. The options lapse five
years from the effective date of grant.
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE I--COMMON STOCK OPTIONS--(CONTINUED)
The following table summarizes activity under the Restated Plan.
The Restated Plan-Employees
- ----------------------------------
1995 1994 1993
---- ---- ----
Options granted 231,500 89,000 144,000
Average option price per share $ 2.125 $ 4.50 $ 3.8125
Options lapsed 25,000 118,759 51,842
Options exercised - - -
Average exercised price - - -
The Restated Plan-Non Employee Directors
----------------------------------------
1995 1994 1993
---- ---- ----
Options granted 9,000 8,000 8,000
Average option price per share $ 2.236 $ 4.50 $ 3.50
Options lapsed - - -
Options exercised - - -
Average exercised price - - -
NOTE J--SEGMENT INFORMATION
The Company operates primarily in the life/health and property/casualty
insurance industries. There are no intersegment sales.
The allocations of certain general expenses and investment income within
segments are based on a number of assumptions, and the reported operating
results would change if different methods were applied. Depreciation and
capital expenditures are not considered material.
Information relating to revenue, loss before income taxes, and identifiable
assets by segment are summarized as follows (see Note K regarding 1994
Property/Casualty amounts):
Year Ended December 31,
1995 1994 1993
-------- -------- ------
(Thousands of dollars)
Revenue:
Life/Health $ 38,878 $ 37,097 $ 45,093
Property/Casualty 11,454 20,185 29,282
Other 143 237 435
-------- -------- --------
Total $ 50,475 $ 57,519 $ 74,810
======== ======== ========
Loss before income taxes:
Life/Health $ 3,055 $ 3,123 $ 1,407
Property/Casualty (2,236) (6,333) (4,484)
Other (1,920) (1,695) (2,549)
-------- -------- --------
Total $ (1,101) $ (4,905) $ (5,626)
======== ======== ========
December 31,
1995 1994 1993
-------- -------- ------
(Thousands of dollars)
Identifiable assets:
Life/Health $144,164 $139,262 $139,557
Property/Casualty 38,977 40,428 94,983
Other 366 258 1,641
-------- -------- --------
Total $183,507 $179,948 $236,181
======== ======== ========
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE K--WRITE OFF OF INVESTMENT IN RANDJILL GROUP LTD. AND GALAXY INSURANCE
COMPANY
During December 1986, ACCEL invested $1,370,000 (a 20% interest) in RGL. RGL
was formed to acquire all the outstanding shares of Galaxy Reinsurance
Company, the name was ultimately changed to Galaxy, a New York domiciled
property and casualty insurance company. Galaxy wrote commercial property
insurance, property and casualty, and assumed treaty reinsurance.
During the second quarter of 1991, the Company purchased 11,000 additional
common shares of RGL at a cost of $992,000. The additional investment
increased the Company's ownership to 31% at June 30, 1991. In July 1991, the
Company purchased the remaining 69% of RGL for cash and subordinated notes
(see Note D) of $2.1 million and $5.8 million, respectively. The purchase
price included goodwill of $1.2 million.
Members of CIHC held a 45% interest in RGL prior to the acquisition by ACCEL.
For the three years ended December 31, 1993, RGL recorded losses and Galaxy's
underwriting results deteriorated. The statutory capital and surplus of
Galaxy declined significantly (from $7.3 million to $6.1 million to $2.9
million at December 31, 1991, 1992 and 1993, respectively), resulting in the
New York Department of Insurance ("New York Department") placing a moratorium
on all new business as of February 28, 1994.
As a result of the unsatisfactory underwriting performance of Galaxy and the
moratorium placed on Galaxy's underwriting operations by the New York
Department, the Company elected to write-off the unamortized goodwill related
to Galaxy, which resulted in a charge to operations (general and
administrative expenses) for 1993 of $1,643,000. Due to significant loss
development during 1994 on Galaxy's liability lines of business, the Company
contracted with an independent actuarial consultant to review the adequacy of
Galaxy's loss and loss adjustment expense reserves as of June 30, 1994. The
findings of this review indicated the need for additional reserves which
resulted in the statutory insolvency of Galaxy at June 30, 1994. Statutory
capital and surplus after the reserve strengthening was a negative $2.3
million.
Due to the significance of the statutory loss and the loss of the Company's
control of Galaxy as a result of the insolvency, the Company wrote off its
investment in RGL ($3.8 million) during the second quarter of 1994. As a
result of this action, the consolidated results of operations for 1994 include
a charge to operations of $3.8 million, representing the Company's net
investment in Galaxy as of April 1, 1994, in addition to operating losses of
$205,000 incurred during the first quarter. The Company wrote its investment
in RGL to zero and deconsolidated RGL as of April 1, 1994.
Pursuant to an Order of Liquidation dated October 7, 1994, issued by the
Supreme Court of the State of New York, the Liquidation Bureau of the New York
Department took control of Galaxy on October 11, 1994.
Acceleration National Insurance Company ("ANIC"), a wholly owned subsidiary of
ACCEL, in the normal course of business, issued certain policy endorsements on
Galaxy policies in 1992, some of which had pending claims open at the time of
liquidation. Management believes that these endorsements will not have a
material impact on the Company's financial condition. As of December 31,
1995, ANIC had not incurred any costs related to these endorsements.
NOTE L--RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
The Acceleration Retirement Savings Plan became effective in 1985. During
1989, ACCEL's Board of Directors approved changes to this plan to include an
ESOP and concurrently changed the plan name to the "Acceleration Retirement
Savings and Stock Ownership Plan" ("PLAN"). For 1993, ACCEL's Board of
Directors authorized a contribution to the plan of $160,000. For 1994 and
1995 the Board authorized contributions to the PLAN at a level that would fund
a 100% match of the first 6% of each participating employees tax deferred
contributions. The Company incurred a contribution expense for 1995, 1994 and
1993 of $198,000, $178,000 and $160,000, respectively.
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE L--RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN--(CONTINUED)
The PLAN allows all employees who meet certain eligibility requirements and
choose to participate to defer a percentage of their salary and contribute to
the PLAN on a tax deferred basis. The employee contributions to the PLAN are
used to fund the savings element of the PLAN. The Company contributions
become part of the Plan and are used to purchase shares of ACCEL's common
stock in the open market.
In 1990, the PLAN entered into an agreement with ALIC to borrow up to
$1,000,000 for the purchase of ACCEL's common stock. The PLAN purchased
136,887 shares (adjusted for the 1990 5% common stock dividend) under this
loan agreement with ALIC at a cost of $1,000,000. In addition to the shares
purchased under the loan agreement, the Plan has purchased 90,088 common
shares at a cost of $603,000. The loan, which bears interest at 10%, is being
repaid from Company contributions to the PLAN.
At December 31, 1995, the loan had an unpaid balance of $525,000. The market
value of the underlying shares was $161,000. The Company has revalued this
loan to market value as of December 31, 1995. This will release shares to
participants accounts at an average price which more closely approximates
recent market values on the Company's stock. The decrease in the loan has
been reflected through a decrease in paid in capital in the accompanying
consolidated balance sheets. The unpaid balance of the loan ($161,000 at
December 31, 1995), has been reflected as a reduction in common stockholders'
equity.
NOTE M--FOREIGN CURRENCY TRANSLATION AND OPERATING RESULTS
The financial statements of AICL have been translated into U.S. dollars using
the British pound as the functional currency. The balance sheets of AICL have
been translated into U.S. dollars using exchange rates at December 31, 1995
and 1994, respectively.
The operating results of AICL have been translated into U.S. dollars using the
average exchange rates in effect during the period. The consolidated results
of operations include $(137,000), $(82,000) and $25,000 of pre-tax income
(loss) from AICL for the years ended December 31, 1995, 1994 and 1993,
respectively.
Included in foreign currency translation adjustments are unrealized exchange
gains of $85,000 in 1995 and $96,000 in 1994.
During 1995, the Company redeemed most of its shares of AICL, which resulted
in proceeds approximating the Company's original investment in AICL. The
transaction was approved by the Department of Trade and Insurance (United
Kingdom). On February 7, 1996, the Company received the final proceeds for
redemption of its remaining shares, and AICL ceased to exist.
NOTE N--COMMITMENTS AND CONTINGENCIES
Due to the nature of its operations, the Company is at all times subject to
pending and threatened legal actions that arise in the normal course of its
activities. In management's opinion, based on the advice of outside counsel,
the accompanying consolidated financial statements would not be materially
affected by the ultimate outcome of any legal proceedings or contingent
liabilities.
In late 1995, the Company was awarded $5.3 million in damages related to
certain litigation involving the discontinued Realtors' Errors and Omissions
Program. $5.1 million of this award was obtained against the marketing
organization; the remainder against a broker defendant. A settlement has been
reached with the broker defendant, however, the remaining defendant has
indicated its intention to appeal the verdict. The Company is aggressively
pursuing efforts to collect on the remaining judgement. As the judgement is
currently under negotiation, no amounts have been recognized in the 1995
consolidated statement of operations.
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE N--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
The Company currently leases office space under an operating lease which
expires in 2000. The lease is accounted for as an operating lease. Minimum
rental commitments in effect at December 31, 1995 are as follows:
Year Payable Annual Minimum Rentals
------------ ----------------------
1996 $ 67,706
1997 69,308
1998 70,910
1999 72,513
2000 55,286
--------
Total $335,723
========
The amount of rent charged to operations was $19,902 in 1995.
NOTE O--RELATED PARTY TRANSACTIONS
At December 31, 1994, the Company had a $1,250,000 (256,200 shares, 17%)
investment in First International Bancorp. First International Bancorp is
affiliated with CIHC. During 1995, the Company sold its investment in First
International Bancorp to entities associated with CIHC. The sales price was
$1,250,000; no gain or loss was realized on the disposition.
As more fully described in Note D, the Company currently has subordinated
notes outstanding with CIHC. At December 31, 1995 and 1994, total
subordinated notes outstanding to related parties were 5,347,000 and
4,841,000, respectively. Interest expense on these subordinated notes was
$509,000, $461,000 and $608,000 for 1995, 1994 and 1993, respectively.
NOTE P--RISK BASED CAPITAL
In 1993, the National Association of Insurance Commissioners ("NAIC") adopted
the life and health and property and casualty Risk-Based Capital (RBC)
formulas. These model acts require every insurer to calculate its total
adjusted capital and RBC requirement, and provides for an insurance
commissioner to intervene if the insurer experiences financial difficulty.
These model acts will become law in Ohio, the Company's insurance
subsidiaries' state of domicile, in March, 1996. The formula includes
components for asset risk, liability risk, interest rate exposure, and other
factors. Each of the Company's insurance subsidiaries exceed all required RBC
levels as of December 31, 1995.
NOTE Q--QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)
Quarterly consolidated results of operations for 1995 and 1994 are summarized
as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(Thousands of dollars,
except per share data)
1995
----
Premiums written $13,247 $15,125 $15,297 $11,774
Premiums earned 9,787 9,833 10,321 10,912
Benefits and expenses 11,688 11,738 12,273 15,877
Net income (loss) 268 399 165 (2,292)
Net income (loss) per common share .06 .09 .04 (.52)
1994
----Premiums written $16,606 $16,990 $11,188 $15,720
Premiums earned 13,008 11,359 11,231 12,002
Benefits and expenses 15,792 17,834 13,894 14,904
Net income (loss) 255 (4,244) (662) (587)
Net income (loss) per common share .06 (.96) (.15) (.13)
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE R--SUBSEQUENT EVENT
On March 21, 1996, the property occupied by the Company was sold by ALIC for a
price of $3.5 million. The Company will remain in the building and occupy
approximately 16,000 square feet of home office space under a five-year lease
at an annual rental of approximately $256,000.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
In accordance with General Instruction G(3), the information
required by this Item 10 is incorporated by reference herein
from the material under the headings "Election of Directors"
and "Executive Compensation" contained in the Company's
definitive proxy statement filed with the Commission
relating to the annual meeting of stockholders to be held on
June 11, 1996.
The executive officers, their respective ages and business
experience are as follows: Thomas H. Friedberg (56),
Chairman of the Board, President and Chief Executive
Officer; Douglas J. Coats (62), Executive Vice President;
Nicholas Z. Alexander (60), Senior Vice President, Secretary
and General Counsel; Larry L. Main (47), Senior Vice
President-Auto After Market Group; Kurt L. Mueller (47),
Vice President and Controller; and Alan M. Weiner (45), Vice
President and Treasurer.
Mr. Friedberg joined the Company on May 23, 1995, when he
was appointed Chairman, President & CEO. Prior thereto, he
was Chairman, President and CEO of Ranger Insurance Company,
Houston, Texas for more than five years.
Mr. Coats joined the Company on May 23, 1995, when he was
appointed Executive Vice President and a member of the Board
of Directors. Prior thereto, he was Executive Vice
President of Ranger Insurance Company, Houston, Texas for
more than five years.
Mr. Alexander was named Senior Vice President, Secretary and
General Counsel of the Company in 1992 and prior thereto was
Vice President, Secretary and General Counsel of the Company
for more than five years.
Mr. Main was named Senior Vice President in 1992 and prior
thereto was Vice President of the Company for more than five
years.
Mr. Mueller was named Vice President and Controller of the
Company in 1994 and prior thereto had been Vice President-
General Accounting of the subsidiaries of the Company for
more than five years. Mr. Weiner was named Treasurer of the
Company in 1994 and prior thereto had been Vice President-
Reinsurance Accounting of the subsidiaries of the Company
for more than five years.
ITEM 11. EXECUTIVE COMPENSATION
In accordance with General Instruction G(3), the information
required by this Item 11 is incorporated by reference herein
from the material under the headings "Executive
Compensation" and "Incentive Stock Option Plans" contained
in the Company's definitive proxy statement filed with the
Commission relating to the Company's annual meeting of
stockholders to be held on June 11, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
In accordance with General Instruction G(3), the information
required by this Item 12 is incorporated by reference herein
from the material under the headings "Security Ownership and
Certain Beneficial Owners" contained in the Company's
definitive proxy statement filed with the Commission
relating to the Company's annual meeting of stockholders to
be held on June 11, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In accordance with General Instruction G(3), the information
required by this Item 13 is incorporated by reference herein
from the material under the heading "Certain Relationships"
contained in the Company's definitive proxy statement filed
with the Commission relating to the Company's annual meeting
of stockholders to be held on June 11, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
ITEM 14 (A) (L) AND (2)--INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES COVERED BY INDEPENDENT AUDITORS' REPORT
The following consolidated financial statements of ACCEL International
Corporation and subsidiaries are included in Item 8:
Independent Auditors' Reports
Consolidated balance sheets--December 31, 1995 and 1994
Consolidated statements of operations--Years ended
December 31, 1995, 1994 and 1993
Consolidated statements of common stockholders' equity--Years ended
December 31, 1995, 1994 and 1993
Consolidated statements of cash flows--Years ended
December 31, 1995, 1994, and 1993
Notes to consolidated financial statements
The following financial statement schedules of ACCEL International Corporation
and subsidiaries are included in Item 14 (d):
Schedule I -- Summary of Investments - Other than Investments in
Related Parties
Schedule II -- Condensed Financial Information of Registrant
Schedule III -- Supplementary Insurance Information
Schedule IV -- Reinsurance
All other schedules to the consolidated financial statements required by
Article 7 of Regulation S-X are not required under the related instructions or
are inapplicable or the required information is provided in the consolidated
financial statements, and the schedules therefore have been omitted.
ITEM 14 (C)--EXHIBITS
Page Numbers
Exhibit In Exhibit
Number Description Volume
- ------- ---------------------------------------------- ------------
(3) Articles of Incorporation and By-Laws.
1(a) Certificate of Incorporation, as
amended, of Registrant. (Incorporated by
reference to Exhibit A of Registrant's
definitive Proxy Statement as filed with the
Commission on June 9, 1978.)
1(b) Restated Certificate of Incorporation
of the Registrant. (Incorporated by
reference to Exhibit (3)1(g) of Registrant's
Report on Form 10-K for the year ended
December 31, 1989.)
2(a) By-laws of Registrant. (Incorporated
by reference to Exhibit B of the Registrant's
definitive Proxy Statement as filed with the
Commission on June 9, 1978.)
2(b) Amendment to Article III, Section 3.02
of the Registrant's By-Laws as passed by the
Board of Directors of the Registrant on
December 1, 1978. (Incorporated by
reference to Exhibit (9)(b) of the
Registrant's Report on Form 10-Q for the
quarter ended March 31, 1979.)
2(c) Amendment to Article II, Section 2.04
of the Registrant's By-Laws as passed by the
Board of Directors of the Registrant on
October 23, 1981. (Filed with the
Registrant's Amendment #1 to the Registration
Statement on Form S-7 as Exhibit (4)3(c) and
incorporated herein by reference.)
2(d) Amendment to Article II, Section 2.02
of the Registrant's By-Laws as approved by
the Board of Directors of the Registrant on
June 18, 1985. (Incorporated by reference to
Exhibit (3) 2(d) to Registrant's Report on
Form 10-K for the year ended December 31,
1985.)
2(e) Amendment to Article II, Section 2.02
of the Registrant's By-Laws as approved by
the Board of Directors of the Registrant on
March 29, 1988. (Incorporated by reference
to Exhibit (3)2(e) of Registrants Report on
Form 10-K for the year ended December 31,
1989.)
2(f) Amendment to Article VIII and the
redesignation and alteration of the former
Article VIII as Article IX. (Incorporated by
reference to Exhibit (3)2(f) of Registrant's
Report on Form 10-K for the year ended
December 31, 1989.)
(4) Instruments defining rights of security
holders.*
1. Certificate of Designation,
Preferences, Rights and Limitations of Series
A, 8% Cumulative Preferred Stock, $1 Par
Value, of Registrant, dated August 23, 1978.
(Incorporated by reference to Exhibit 3 to
Registrant's Report on Form 10-K for the year
ended December 31, 1979.)
(10) Material Contracts.
Previously filed Material Contracts which are
either terminated or deemed to be in the
ordinary course of business to the Registrant
are no longer identified.
1(a) Verification of coverage of current 1
Directors and Officers Liability Policy for
ACCEL International Corporation as issued by
Reliance Insurance Company, indicating
coverage for the period from June 1, 1994 to
June 1, 1995.
2. The Company's 1982 Incentive Stock
Option Plan. (Incorporated by reference to
Exhibit A to the Company's definitive Proxy
Statement for the 1982 annual meeting of
stockholders of the Company.)
3. The Company's 1987 Incentive Stock
Option Plan. (Incorporated by reference to
Exhibit (10) 7. to the Registrant's Report on
Form 10-K for the year ended December 31,
1987.)
3(a) The Company's first restatement of the
1987 Stock Incentive Plan. (Incorporated by
reference to Exhibit A to the Company's
definitive Proxy Statement for the 1990
annual meeting of stockholders of the
Company.)
4. The Company's Short Term Incentive
Compensation Plan, effective July 1, 1983.
(Incorporated by reference to Exhibit 28 to
Registrant's Report on Form 10-K for the year
ended December 31, 1986.)
5.(a) Stock Purchase Agreement by and between
United Coasts Corporation and Acceleration
National Insurance Company dated January 20,
1989. (Incorporated by reference to Exhibit
(10)8(a) to Registrant's Report on Form 10-K
for year ended December 31, 1988.)
5.(b) Stock Purchase Agreement by and between
ACMAT Corporation and Acceleration National
Insurance Company dated January 20, 1989.
(Incorporated by reference to Exhibit
(10)8(b) to Registrant's Report on Form 10-K
for year ended December 31, 1988.)
(10) 5. (c) Non-Competition Agreement by and
Cont. between ACCEL International Corporation and
United Coastal Insurance Company dated
January 20, 1989. (Incorporated by reference
to Exhibit (10)8(c) to Registrant's Report on
Form 10-K for year ended December 31, 1988.)
5. (d) Non-Competition Agreement by and
between ACCEL International Corporation and
ACMAT Corporation dated January 20, 1989.
(Incorporated by reference to Exhibit
(10)8(d) to Registrant's Report on Form 10-K
for year ended December 31, 1988.)
6(a) Joint Venture Agreement dated June 16,
1987 by and between Consumers Life Insurance
Company and Acceleration Life Insurance
Company of Pennsylvania and Acceleration
National Service Corporation with Exhibits E
and F. (Incorporated by reference to Exhibit
(10) 9(a) to Registrant's Report on Form 10-K
for year ended December 31, 1987.)
6(b) Quota Share Reinsurance Agreement dated
June 16, 1987 by and between Consumers Life
Insurance Company and Acceleration Life
Insurance Company. (Incorporated by
reference to Exhibit (10) 9(b) to
Registrant's Report on Form 10-K for year
ended December 31, 1987.)
6(b) 1. Amendment to the Quota Share
Reinsurance Agreement effective October 1,
1987. (Incorporated by reference to Exhibit
(10)9(b) of the Registrant's Report on Form
10-K for year ended December 31, 1988.)
6(c) Custodial Account Agreement effective
July 1, 1987 by and between Acceleration Life
Insurance Company, Consumers Life Insurance
Company, and Fifth-Third Bank. (Incorporated
by reference to Exhibit (10) 9(c) of the
Registrant's Report on Form 10-K for year
ended December 31, 1987.)
6(d) Service Contract, Agreement and
Schedules - Joint Venture Agreement Exhibit B
by and between Consumers Life Insurance
Company and Acceleration Life Insurance
Company. (Incorporated by reference to
Exhibit (10) 9(d) of the Registrant's Report
on Form 10-K for year ended December 31,
1987.)
6(e) Service Contract Settlement - Joint
Venture Agreement Exhibit C effective July 1,
1987 by and between Consumers Life Insurance
Company and Acceleration Life Insurance
Company. (Incorporated by reference to
Exhibit (10) 9(e) of the Registrant's Report
on Form 10-K for year ended December 31,
1987.)
(10) 6(f) Security Agreement - Joint Venture
Cont. Agreement effective July 1, 1987 by and
between Acceleration Life Insurance Company,
Consumers Life Insurance Company, and Fifth-
Third Bank. (Incorporated by reference to
Exhibit (10) 9(f) of the Registrant's Report
on Form 10-K for year ended December 31,
1987.)
6(g) Marketing Representation Agreement
dated June 16, 1987 by and between Consumers
Financial Corporation, ACCEL International
Corporation, and Pennsylvania Auto
Association Insurance Agency, Inc.
(Incorporated by reference to Exhibit (10)
9(g) of the Registrant's Report on Form 10-K
for year ended December 31, 1987.)
6(h) Unconditional Irrevocable Guaranty
dated June 16, 1987 by Consumers Financial
Corporation and Consumers Life Insurance
Company. (Incorporated by reference to
Exhibit (10) 9(h) of the Registrant's Report
on Form 10-K for year ended December 31,
1987.)
6(i) Unconditional Irrevocable Guaranty
dated June 16, 1987 by ACCEL International
Corporation. (Incorporated by reference to
Exhibit (10) 9(i) of the Registrant's Report
on Form 10-K for year ended December 31,
1987.)
7. Employment Agreement dated August 1, 1990
by and between ACCEL International
Corporation and R. Max Williamson, Chairman
of the Board, President and Chief Executive
Officer of Registrant. (Incorporated by
reference to Exhibit (10) 9 of the
Registrant's Report on Form 10-K for the year
ended December 31, 1990.)
8. Special Severance Policy of Key Employees
of ACCEL International Corporation dated
effective September 21, 1989. (Incorporated
by reference to Exhibit (10) 10 of the
Registrant's Report on Form 10-K for year
ended December 31, 1990.)
9. Stock Purchase Agreement dated December
20, 1990 by and between ACCEL International
Corporation and Eli I. Zborowski.
(Incorporated by reference to Exhibit (10) 11
of the Registrant's Report on Form 10-K for
year ended December 31, 1990.)
(10) 10. Purchase Agreement dated July 31, 1991
Cont. by and between ACCEL International
Corporation and Karl Albert, in connection
with Registrant's purchase of all remaining
shares outstanding of Randjill Group Ltd. A
total of six separate such agreements were
entered into as part of the described
transaction, with the agreements varying only
as to the number of shares being purchased,
total compensation being paid and whether
consideration constituted all cash, cash and
notes or all notes. Registrant hereby agrees
to furnish copies of the other agreements to
the Commission upon request. (Incorporated
by reference to Exhibit (10) 10 of the
Registrant's Report on Form 10-K for year
ended December 31, 1991.)
11. Credit Life and Accident and Health
Quota Share Reinsurance Contract effective
December 31, 1994 issued to Acceleration Life
Insurance Company.
The Company executed Amendment No. 3 to a
Credit Agreement with the Fifth Third Bank,
Cincinnati, Ohio, a copy of which is not
included herewith as an exhibit. Registrant
agrees to furnish to the Commission a copy
thereof upon request.
12. Note Agreement pertaining to $16,500,000 2-56
9.5% Senior Notes, due April 1, 2001, dated
as of December 15, 1995, with The Lincoln
National Life Insurance Company.
13. Reinsurance Agreement between 57-90
Acceleration Life Insurance Company and The
Lincoln National Life Insurance Company
executed December 29, 1995 and by amendment
thereto, made effective January 1, 1996.
(21) Subsidiaries of the Registrant 91-92
(1) See Organizational Chart - all such
Companies are incorporated herein by
reference and are presently doing business
under their respective INCORPORATED NAMES.
(23) Consent of Independent Auditors' 93
(24) Powers of Attorney 94-101
* The total amount of securities authorized
under any instrument with respect to long-
term debt does not exceed 10% of the total
assets of the Registrant and its subsidiaries
on a consolidated basis. The Registrant
hereby agrees to furnish a copy of any such
instrument to the Commission upon request.
ITEM 14 (D)--SCHEDULES
SCHEDULE I - SUMMARY OF INVESTMENTS -
OTHER THAN INVESTMENTS IN RELATED PARTIES
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1995
____________________________________________________________________________
Column A Column B Column C Column D
____________________________________________________________________________
Amount at
Which
Shown
in the
Fair Balance
Type of Investment Cost* Value Sheet
____________________________________________________________________________
(Thousands of dollars)
Available for sale securities:
Fixed maturities:
United States Government and govern-
ment agencies and authorities $ 9,310 $ 9,584 $ 9,584
States, municipalities and
political subdivisions 1,255 1,290 1,290
Mortgage-backed securities 41,214 40,622 40,622
All other corporate bonds 1,000 1,026 1,026
Redeemable preferred stocks 648 682 682
--------- --------- ---------
Total 53,427 53,204 53,204
Equity securities:
Common stocks:
Banks, trusts and insurance companies 5,433 5,451 5,451
Other long-term investments 364 364 364
Short-term investments 4,278 4,278 4,278
--------- --------- ---------
Total investments $ 63,502 $ 63,297 $ 63,297
========= ========= =========
* Original cost of equity securities, adjusted for any permanent write down,
and, as to fixed maturities, original cost reduced by repayments and
adjusted for amortization of premiums or accrual of discounts.
See accompanying independent auditors' report.
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
ACCEL INTERNATIONAL CORPORATION (PARENT COMPANY)
December 31,
1995 1994
--------- ---------
(Thousands of dollars)
ASSETS
Investments $ 1 $ 50
Cash 443 203
Notes and receivables from
consolidated subsidiaries* 391 221
Deferred federal income tax 251 3
Investments in subsidiaries** 48,596 39,233
Other 4 5
--------- ---------
$ 49,686 $ 39,715
========= =========
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Accounts payable and other liabilities $ 296 $ 240
Accounts payable to subsidiaries* 5,954 5,302
Current federal income tax 345 345
Notes payable 22,531 18,462
--------- ---------
29,126 24,349
Common stockholders' equity:
Common stock 524 524
Additional paid-in capital 23,702 24,066
Retained earnings (including undistributed
earnings of subsidiaries and affiliates:
1995--$8,770,000; 1994--$8,803,000) 3,299 4,759
Treasury shares at cost (6,599) (6,599)
ESOP loan (161) (627)
Net unrealized depreciation on investment
securities (representing amounts
attributable to investments of subsidiaries
1995--($205,000); 1994--($6,672,000) (205) (6,672)
Foreign currency translation adjustment - (85)
--------- ---------
20,560 15,366
--------- ---------
$ 49,686 $ 39,715
========= =========
* Eliminated in consolidation
** Eliminated in consolidation except for portion related to goodwill and
ESOP loan.
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto of ACCEL International
Corporation and subsidiaries.
See accompanying independent auditors' report.
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
ACCEL INTERNATIONAL CORPORATION (PARENT COMPANY)
Year Ended December 31,
1995 1994 1993
-------- -------- -----
(Thousands of dollars)
INCOME
Net investment income:
Dividends from consolidated
subsidiaries* $ 803 $ 631 $ 650
Interest 1 13 58
Realized gains - 122 -
Other income 143 105 320
-------- -------- --------
947 871 1,028
EXPENSES
General and administrative 315 345 1,346
Interest 2,307 2,007 2,052
Loss on write-off of subsidiary - 3,829 -
-------- -------- --------
2,622 6,181 3,398
-------- -------- --------
LOSS BEFORE INCOME
TAXES AND OTHER ITEMS (1,675) (5,310) (2,370)
Federal income taxes (benefit) (248) - (191)
Other item--equity in undistributed net income
(loss) of consolidated subsidiaries* (33) 72 (3,102)
-------- -------- --------
NET LOSS $ (1,460) $ (5,238) $ (5,281)
======== ======== ========
* Eliminated in consolidation
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto of ACCEL International
Corporation and subsidiaries.
See accompanying independent auditors' report.
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
ACCEL INTERNATIONAL CORPORATION (PARENT COMPANY)
Year Ended December 31,
1995 1994 1993
-------- -------- --------
(Thousands of dollars)
OPERATING ACTIVITIES:
Net loss $(1,460) $(5,238) $(5,281)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Change in amounts due from consolidated
subsidiaries 830 118 24
Change in accounts payable to consolidated
subsidiaries 652 115 438
Change in other assets, other liabilities,
and accrued income taxes (191) (112) 336
Interest paid in kind 569 515 657
Amortization of premium on bonds - 5 33
Equity in gains losses of subsidiaries
and affiliates 33 (72) 3,102
Provision for amortization of goodwill 107 108 1,284
Write off of subsidiary - 3,829 -
Net realized gains on investments - (122)
-
------- ------- -------
TOTAL PROVIDED BY (USED IN) OPERATIONS 540 (854) 593
INVESTING ACTIVITIES:
Purchase of investments - - (1,437)
Investment in subsidiary (4,000) - -
Sale, maturity, or repayment of investments 49 1,599 1,143
------- ------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (3,951) 1,599 (294)
FINANCING ACTIVITIES:
Repayment of notes payable (13,000) - (1,000)
Issuance of notes payable 16,500 - -
Repayment of note to subsidiary (1,000) - -
Write down of ESOP Loan (364) - -
Stock redemption of subsidiary 1,483 - -
Cash dividends - - (6)
Debentures redeemed - (900) (800)
Redemption of redeemable stock - - (73)
Other net 32 366 -
------- ------ -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 3,651 (534) (1,879)
------- ------ -------
INCREASE (DECREASE) IN CASH 240 211 (1,580)
Cash (Overdraft) at beginning of year 203 (8) 1,572
------- ------ -------
CASH (OVERDRAFT) AT END OF YEAR $ 443 $ 203 $ (8)
======= ====== =======
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto of ACCEL International
Corporation and subsidiaries.
See accompanying independent auditors' report.
<TABLE>
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F Column G Column H Column I Column J Column K
- ---------------------------------------------------------------------------------------------------------------------------------
December 31, Year Ended December 31,
------------------------------------------ ----------------------------------------------------------------
Amorti-
Benefits, zation
claims, of
Reserve Other Net losses deferred
Deferred for policy invest- and policy Other
policy future claim and ment settle- acqui- oper-
acqui- policy Unearned benefits Premium in- ment sition ating Premiums
sition benefits premiums payable revenue come expenses costs expenses written
Segment costs (1) (2) (1)
- ----------------------------------------------------------------------------------------------------------------------------------
(Thousands of dollars)
1995
----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Life/Health $31,357 $ 11 $67,850 $15,568 $24,411 $ 5,172 $12,775 $(1,795) $24,843 $43,144
Property/Casualty 482 - 14,230 7,193 16,442 1,631 7,343 1,045 5,302 12,299
Other - - - - - 140 - - 2,063 -
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL $31,839 $ 11 $82,080 $22,761 $40,853 $ 6,943 $20,118 $ (750) $32,208 $55,443
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
1994
----
Life/Health $29,563 $ 15 $65,387 $16,781 $32,059 $ 4,972 $12,350 $(2,563) $24,188 $35,577
Property/Casualty 1,526 - 18,375 6,378 15,541 2,380 12,647 4,648 9,223 12,432
Other - - - - - 134 - - 1,932 -
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL $31,089 $ 15 $83,762 $23,159 $47,600 $ 7,486 $24,997 $ 2,085 $35,343 $48,009
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
1993
----
Life/Health $26,999 $ 775 $59,911 $18,091 $38,640 $ 5,426 $18,759 $(2,657) $27,583 $40,599
Property/Casualty 7,128 - 35,652 31,828 23,009 4,250 19,672 599 13,495 24,906
Other - - - - - 57 - - 2,985 -
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL $34,127 $ 775 $95,563 $49,919 $61,649 $ 9,733 $38,431 $(2,058) $44,063 $65,505
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
(1) Allocations of net investment income and other operating expenses are based on a number of assumptions and results would
change if different methods were applied. Net investment income includes realized gains and losses. Other operating
expenses at December 31, 1994 include the write off of Randjill Group Limited ($3,829,280).
(2) Represents the net (increase) decrease in deferred policy acquisition costs.
<FN>
See accompanying independent auditors' report.
</TABLE>
SCHEDULE IV - REINSURANCE
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Column A Column B Column C Column D Column E Column F
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
amount companies companies amount net
(Thousands of dollars)
Year Ended December 31, 1995
- ----------------------------
Life insurance in-force $1,523,926 $(432,311) $ 320,466 $1,412,081 22.7%
========== ========= ========= ==========
Premiums
Life $ 15,301 $ 2,604 $ 2,255 $ 14,952 15.1%
Accident and health 21,463 4,108 4,053 21,408 18.9%
Property and casualty 12,371 5,435 - 6,936 .0%
---------- --------- --------- ----------
Total premiums $ 49,135 $ 12,147 $ 6,308 $ 43,296 14.6%
========== ========= ========= ==========
Year Ended December 31, 1994
- ----------------------------
Life insurance in-force $1,172,278 $(290,673) $ 336,153 $1,217,758 27.6%
========== ========= ========= ==========
Premiums
Life $ 15,149 $ (4,932) $ 2,794 $ 13,011 21.4%
Accident and health 22,909 (5,189) 4,846 22,566 21.5%
Property and casualty 14,806 (2,374) - 12,432 .0%
---------- --------- --------- ----------
Total premiums $ 52,864 $ (12,495) $ 7,640 $ 48,009 15.9%
========== ========= ========= ==========
Year Ended December 31, 1993
- ----------------------------
Life insurance in-force $1,094,298 $(268,648) $ 331,834 $1,157,484 28.7%
========== ========= ========= ==========
Premiums
Life $ 16,320 $ (4,127) $ 2,745 $ 14,938 18.4%
Accident and health 28,578 (8,150) 5,232 25,660 20.4%
Property and casualty 42,648 (17,984) 243 24,907 1.0%
---------- --------- --------- ----------
Total premiums $ 87,546 $ (30,261) $ 8,220 $ 65,505 12.5%
========== ========= ========= ==========
See accompanying independent auditors' report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ACCEL INTERNATIONAL CORPORATION
BY: /S/ Kurt L. Mueller
-----------------------------------
Kurt L. Mueller
Vice President & Controller
DATE: March 28, 1996
-----------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ ------- --------------
Director
- ------------------------------ --------------
Robert Betagole
/S/ David T. Chase* Director March 11, 1996
- ------------------------------ --------------
David T. Chase
/S/ Douglas J. Coats* Director March 7, 1996
- ------------------------------ --------------
Douglas J. Coats
/S/ Raymond H. Deck* Director March 8, 1996
- ------------------------------ --------------
Raymond H. Deck
Director
- ------------------------------ --------------
Robert E. Fowler III
/S/ Thomas H. Friedberg* Director March 12, 1996
- ------------------------------ --------------
Thomas H. Friedberg
SIGNATURE TITLE DATE
- ------------------------------ ------- --------------
/S/ Kermit G. Hicks* Director March 9, 1996
- ------------------------------ --------------
Kermit G. Hicks
/S/ Stephen M. Qua* Director March 7, 1996
- ------------------------------ --------------
Stephen M. Qua
/S/ Milton J. Taylor, Sr.* Director March 8, 1996
- ------------------------------ --------------
Milton J. Taylor, Sr.
/S/ Paul R. Whitters* Director March 19, 1996
- ------------------------------ --------------
Paul R. Whitters
*By: /S/ Nicholas Z. Alexander March 28, 1996
----------------------------- --------------
Nicholas Z. Alexander
Attorney-in-Fact
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
EXHIBIT VOLUME
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
--------------- ----------------
COMMISSION FILE NUMBER 0-8162
ACCEL INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 31-0788334
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
475 METRO PLACE NORTH, DUBLIN, OHIO 43017
(Address of principal executive offices) (Zip Code)
614-764-7000
(Registrant's Telephone Number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of each class
COMMON STOCK, $.10 PAR VALUE
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
---
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
The aggregate market value of Common Stock held by non-affiliates on January
31, 1996 was approximately $7,280,000.
As of January 31, 1996, there were 4,456,432 shares of Common Stock, $.10 par
value per share outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the definitive proxy statement furnished to stockholders of the
registrant in connection with the annual meeting of stockholders to be held on
June 11, 1996 are incorporated by reference into Part III.
Page Numbers
Exhibit In Exhibit
Number Description Volume
- ------- ---------------------------------------------- ------------
(3) Articles of Incorporation and By-Laws.
1(a) Certificate of Incorporation, as
amended, of Registrant. (Incorporated by
reference to Exhibit A of Registrant's
definitive Proxy Statement as filed with the
Commission on June 9, 1978.)
1(b) Restated Certificate of Incorporation
of the Registrant. (Incorporated by
reference to Exhibit (3)1(g) of Registrant's
Report on Form 10-K for the year ended
December 31, 1989.)
2(a) By-laws of Registrant. (Incorporated
by reference to Exhibit B of the Registrant's
definitive Proxy Statement as filed with the
Commission on June 9, 1978.)
2(b) Amendment to Article III, Section 3.02
of the Registrant's By-Laws as passed by the
Board of Directors of the Registrant on
December 1, 1978. (Incorporated by
reference to Exhibit (9)(b) of the
Registrant's Report on Form 10-Q for the
quarter ended March 31, 1979.)
2(c) Amendment to Article II, Section 2.04
of the Registrant's By-Laws as passed by the
Board of Directors of the Registrant on
October 23, 1981. (Filed with the
Registrant's Amendment #1 to the Registration
Statement on Form S-7 as Exhibit (4)3(c) and
incorporated herein by reference.)
2(d) Amendment to Article II, Section 2.02
of the Registrant's By-Laws as approved by
the Board of Directors of the Registrant on
June 18, 1985. (Incorporated by reference to
Exhibit (3) 2(d) to Registrant's Report on
Form 10-K for the year ended December 31,
1985.)
2(e) Amendment to Article II, Section 2.02
of the Registrant's By-Laws as approved by
the Board of Directors of the Registrant on
March 29, 1988. (Incorporated by reference
to Exhibit (3)2(e) of Registrants Report on
Form 10-K for the year ended December 31,
1989.)
2(f) Amendment to Article VIII and the
redesignation and alteration of the former
Article VIII as Article IX. (Incorporated by
reference to Exhibit (3)2(f) of Registrant's
Report on Form 10-K for the year ended
December 31, 1989.)
(4) Instruments defining rights of security
holders.*
1. Certificate of Designation,
Preferences, Rights and Limitations of Series
A, 8% Cumulative Preferred Stock, $1 Par
Value, of Registrant, dated August 23, 1978.
(Incorporated by reference to Exhibit 3 to
Registrant's Report on Form 10-K for the year
ended December 31, 1979.)
(10) Material Contracts.
Previously filed Material Contracts which are
either terminated or deemed to be in the
ordinary course of business to the Registrant
are no longer identified.
1(a) Verification of coverage of current 1
Directors and Officers Liability Policy for
ACCEL International Corporation as issued by
Reliance Insurance Company, indicating
coverage for the period from June 1, 1994 to
June 1, 1995.
2. The Company's 1982 Incentive Stock
Option Plan. (Incorporated by reference to
Exhibit A to the Company's definitive Proxy
Statement for the 1982 annual meeting of
stockholders of the Company.)
3. The Company's 1987 Incentive Stock
Option Plan. (Incorporated by reference to
Exhibit (10) 7. to the Registrant's Report on
Form 10-K for the year ended December 31,
1987.)
3(a) The Company's first restatement of the
1987 Stock Incentive Plan. (Incorporated by
reference to Exhibit A to the Company's
definitive Proxy Statement for the 1990
annual meeting of stockholders of the
Company.)
4. The Company's Short Term Incentive
Compensation Plan, effective July 1, 1983.
(Incorporated by reference to Exhibit 28 to
Registrant's Report on Form 10-K for the year
ended December 31, 1986.)
5.(a) Stock Purchase Agreement by and between
United Coasts Corporation and Acceleration
National Insurance Company dated January 20,
1989. (Incorporated by reference to Exhibit
(10)8(a) to Registrant's Report on Form 10-K
for year ended December 31, 1988.)
5.(b) Stock Purchase Agreement by and between
ACMAT Corporation and Acceleration National
Insurance Company dated January 20, 1989.
(Incorporated by reference to Exhibit
(10)8(b) to Registrant's Report on Form 10-K
for year ended December 31, 1988.)
(10) 5. (c) Non-Competition Agreement by and
Cont. between ACCEL International Corporation and
United Coastal Insurance Company dated
January 20, 1989. (Incorporated by reference
to Exhibit (10)8(c) to Registrant's Report on
Form 10-K for year ended December 31, 1988.)
5. (d) Non-Competition Agreement by and
between ACCEL International Corporation and
ACMAT Corporation dated January 20, 1989.
(Incorporated by reference to Exhibit
(10)8(d) to Registrant's Report on Form 10-K
for year ended December 31, 1988.)
6(a) Joint Venture Agreement dated June 16,
1987 by and between Consumers Life Insurance
Company and Acceleration Life Insurance
Company of Pennsylvania and Acceleration
National Service Corporation with Exhibits E
and F. (Incorporated by reference to Exhibit
(10) 9(a) to Registrant's Report on Form 10-K
for year ended December 31, 1987.)
6(b) Quota Share Reinsurance Agreement dated
June 16, 1987 by and between Consumers Life
Insurance Company and Acceleration Life
Insurance Company. (Incorporated by
reference to Exhibit (10) 9(b) to
Registrant's Report on Form 10-K for year
ended December 31, 1987.)
6(b) 1. Amendment to the Quota Share
Reinsurance Agreement effective October 1,
1987. (Incorporated by reference to Exhibit
(10)9(b) of the Registrant's Report on Form
10-K for year ended December 31, 1988.)
6(c) Custodial Account Agreement effective
July 1, 1987 by and between Acceleration Life
Insurance Company, Consumers Life Insurance
Company, and Fifth-Third Bank. (Incorporated
by reference to Exhibit (10) 9(c) of the
Registrant's Report on Form 10-K for year
ended December 31, 1987.)
6(d) Service Contract, Agreement and
Schedules - Joint Venture Agreement Exhibit B
by and between Consumers Life Insurance
Company and Acceleration Life Insurance
Company. (Incorporated by reference to
Exhibit (10) 9(d) of the Registrant's Report
on Form 10-K for year ended December 31,
1987.)
6(e) Service Contract Settlement - Joint
Venture Agreement Exhibit C effective July 1,
1987 by and between Consumers Life Insurance
Company and Acceleration Life Insurance
Company. (Incorporated by reference to
Exhibit (10) 9(e) of the Registrant's Report
on Form 10-K for year ended December 31,
1987.)
(10) 6(f) Security Agreement - Joint Venture
Cont. Agreement effective July 1, 1987 by and
between Acceleration Life Insurance Company,
Consumers Life Insurance Company, and Fifth-
Third Bank. (Incorporated by reference to
Exhibit (10) 9(f) of the Registrant's Report
on Form 10-K for year ended December 31,
1987.)
6(g) Marketing Representation Agreement
dated June 16, 1987 by and between Consumers
Financial Corporation, ACCEL International
Corporation, and Pennsylvania Auto
Association Insurance Agency, Inc.
(Incorporated by reference to Exhibit (10)
9(g) of the Registrant's Report on Form 10-K
for year ended December 31, 1987.)
6(h) Unconditional Irrevocable Guaranty
dated June 16, 1987 by Consumers Financial
Corporation and Consumers Life Insurance
Company. (Incorporated by reference to
Exhibit (10) 9(h) of the Registrant's Report
on Form 10-K for year ended December 31,
1987.)
6(i) Unconditional Irrevocable Guaranty
dated June 16, 1987 by ACCEL International
Corporation. (Incorporated by reference to
Exhibit (10) 9(i) of the Registrant's Report
on Form 10-K for year ended December 31,
1987.)
7. Employment Agreement dated August 1, 1990
by and between ACCEL International
Corporation and R. Max Williamson, Chairman
of the Board, President and Chief Executive
Officer of Registrant. (Incorporated by
reference to Exhibit (10) 9 of the
Registrant's Report on Form 10-K for the year
ended December 31, 1990.)
8. Special Severance Policy of Key Employees
of ACCEL International Corporation dated
effective September 21, 1989. (Incorporated
by reference to Exhibit (10) 10 of the
Registrant's Report on Form 10-K for year
ended December 31, 1990.)
9. Stock Purchase Agreement dated December
20, 1990 by and between ACCEL International
Corporation and Eli I. Zborowski.
(Incorporated by reference to Exhibit (10) 11
of the Registrant's Report on Form 10-K for
year ended December 31, 1990.)
(10) 10. Purchase Agreement dated July 31, 1991
Cont. by and between ACCEL International
Corporation and Karl Albert, in connection
with Registrant's purchase of all remaining
shares outstanding of Randjill Group Ltd. A
total of six separate such agreements were
entered into as part of the described
transaction, with the agreements varying only
as to the number of shares being purchased,
total compensation being paid and whether
consideration constituted all cash, cash and
notes or all notes. Registrant hereby agrees
to furnish copies of the other agreements to
the Commission upon request. (Incorporated
by reference to Exhibit (10) 10 of the
Registrant's Report on Form 10-K for year
ended December 31, 1991.)
11. Credit Life and Accident and Health
Quota Share Reinsurance Contract effective
December 31, 1994 issued to Acceleration Life
Insurance Company.
The Company executed Amendment No. 3 to a
Credit Agreement with the Fifth Third Bank,
Cincinnati, Ohio, a copy of which is not
included herewith as an exhibit. Registrant
agrees to furnish to the Commission a copy
thereof upon request.
12. Note Agreement pertaining to $16,500,000 2-56
9.5% Senior Notes, due April 1, 2001, dated
as of December 15, 1995, with The Lincoln
National Life Insurance Company.
13. Reinsurance Agreement between 57-90
Acceleration Life Insurance Company and The
Lincoln National Life Insurance Company
executed December 29, 1995 and by amendment
thereto, made effective January 1, 1996.
(21) Subsidiaries of the Registrant 91-92
(1) See Organizational Chart - all such
Companies are incorporated herein by
reference and are presently doing business
under their respective INCORPORATED NAMES.
(23) Consent of Independent Auditors' 93
(24) Powers of Attorney 94-101
* The total amount of securities authorized
under any instrument with respect to long-
term debt does not exceed 10% of the total
assets of the Registrant and its subsidiaries
on a consolidated basis. The Registrant
hereby agrees to furnish a copy of any such
instrument to the Commission upon request.
ITEM 10 -1(a)
Discription of Document:
DIRECTORS AND OFFICERS LIABILITY POLICY ISSUED BY THE
RELIANCE INSURANCE GROUP.
POLICY NUMBER NDA 1363224-95
--------------
THIS IS A CLAIMS-MADE POLICY. COVERAGE OF POLICY IS
LIMITED TO LIABILITY FOR ACTS FOR WHICH CLAIMS ARE
FIRST MADE AGAINST THE INSURED WHILE THE POLICY IS IN
FORCE.
POLICY PERIOD: FROM 12:01 a.m. ON JUNE 1, 1995
TO 12:01 a.m. ON JUNE 1, 1996
ITEM 10-1(a)
Page 1
ACCEL INTERNATIONAL CORPORATION
NOTE AGREEMENT
Dated as of December 15, 1995
Re: $16,500,000 9.50% Senior Notes
Due April 1, 2001
ITEM 10 - 12
Page 2
TABLE OF CONTENTS
(Not a part of the Agreement)
SECTION HEADINGPAGE PAGE
Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1. DESCRIPTION OF NOTES AND COMMITMENT. . . . . . . . . . 1
Section 1.1. Description of Notes . . . . . . . . . . . . . . . 1
Section 1.2. Commitment, Closing Date . . . . . . . . . . . . . 1
SECTION 2. PREPAYMENT OF NOTES. . . . . . . . . . . . . . . . . . 2
Section 2.1. Optional Prepayment . . . . . . . . . . . . . . . 2
Section 2.2. Prepayment upon Change of Control . . . . . . . . 2
Section 2.3. Notice of Optional Prepayments . . . . . . . . . . 4
Section 2.4. Application of Prepayments . . . . . . . . . . . . 5
Section 2.5. Direct Payment . . . . . . . . . . . . . . . . . . 5
SECTION 3. REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . 5
Section 3.1. Representations of the Company . . . . . . . . . . 5
Section 3.2. Representations of the Purchaser . . . . . . . . . 5
SECTION 4. CLOSING CONDITIONS . . . . . . . . . . . . . . . . . . 6
Section 4.1. Conditions . . . . . . . . . . . . . . . . . . . . 6
Section 4.2. Waiver of Conditions . . . . . . . . . . . . . . . 7
SECTION 5. COMPANY COVENANTS . . . . . . . . . . . . . . . . . . . 7
Section 5.1. Corporate Existence, Etc . . . . . . . . . . . . . 7
Section 5.2. Insurance . . . . . . . . . . . . . . . . . . . . 7
Section 5.3. Taxes, Claims for Labor and Materials, Compliance with Laws7
Section 5.4. Maintenance, Etc . . . . . . . . . . . . . . . . . 8
Section 5.5. Nature of Business . . . . . . . . . . . . . . . . 8
Section 5.6. Consolidated Tangible Net Worth . . . . . . . . . 8
Section 5.7. Limitations on Indebtedness . . . . . . . . . . . 8
Section 5.8. Limitation on Liens . . . . . . . . . . . . . . . 9
Section 5.9. Limitation on Long-Term Leases and Sale and Leasebacks10
Section 5.10. Restricted Payments . . . . . . . . . . . . . . . 10
Section 5.11. Investments . . . . . . . . . . . . . . . . . . . 11
Section 5.12. Mergers, Consolidations and Sales of Assets . . . 12
Section 5.13. Guaranties . . . . . . . . . . . . . . . . . . . . 14
Section 5.14. Repurchase of Notes . . . . . . . . . . . . . . . 14
Section 5.15. Transactions with Affiliates . . . . . . . . . . . 14
ITEM 10 - 12
Page 3
Section 5.16.Termination of Pension Plans14
Section 5.17. Reports and Rights of Inspection . . . . . . . . . 14
Section 5.18. Information Required by Rule 144A . . . . . . . . 17
Section 5.19. Certain Subsidiary Restrictions . . . . . . . . . 17
Section 5.20. Amendment of Subordinated Notes . . . . . . . . . 18
SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR . . . . . . . 18
Section 6.1. Events of Default . . . . . . . . . . . . . . . . 18
Section 6.2. Notice to Holders . . . . . . . . . . . . . . . . 19
Section 6.3. Acceleration of Maturities . . . . . . . . . . . . 19
Section 6.4. Rescission of Acceleration . . . . . . . . . . . . 20
SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS . . . . . . . . . . 20
Section 7.1. Consent Required . . . . . . . . . . . . . . . . . 20
Section 7.2. Solicitation of Holders . . . . . . . . . . . . . 21
Section 7.3. Effect of Amendment or Waiver . . . . . . . . . . 21
SECTION 8. INTERPRETATION OF AGREEMENT; DEFINITIONS . . . . . . 21
Section 8.1. Definitions . . . . . . . . . . . . . . . . . . . 21
Section 8.2. Accounting Principles . . . . . . . . . . . . . . 27
Section 8.3. Directly or Indirectly . . . . . . . . . . . . . . 27
SECTION 9. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . 27
Section 9.1. Registered Notes . . . . . . . . . . . . . . . . . 27
Section 9.2. Exchange of Notes . . . . . . . . . . . . . . . . 28
Section 9.3. Loss, Theft, Etc. of Notes . . . . . . . . . . . . 28
Section 9.4. Expenses, Stamp Tax Indemnity . . . . . . . . . . 28
Section 9.5. Powers and Rights Not Waived; Remedies Cumulative 29
Section 9.6. Notices . . . . . . . . . . . . . . . . . . . . . 29
Section 9.7. Successors and Assigns . . . . . . . . . . . . . . 29
Section 9.8. Survival of Covenants and Representations . . . . 29
Section 9.9. Severability . . . . . . . . . . . . . . . . . . . 29
Section 9.10. Governing Law . . . . . . . . . . . . . . . . . . 30
Section 9.11. Captions . . . . . . . . . . . . . . . . . . . . . 30
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ITEM 10 - 12
Page 4
ATTACHMENTS TO NOTE AGREEMENT:
Schedule I - Liens Securing Funded Debt (including Capitalized Leases) as
of September 30, 1995
Exhibit A - Form of 9.50% Senior Note due April 1, 2001
Exhibit B - Representations and Warranties of the Company
Exhibit C - Description of Special Counsel's Closing Opinion
Exhibit D - Description of Closing Opinion of Counsel to the Company
Exhibit E - Subordination Provisions Applicable to Subordinated Funded
Debt
ITEM 10 - 12
Page 5
ACCEL INTERNATIONAL CORPORATION
475 METRO PLACE NORTH
DUBLIN, OHIO 43017-0701
NOTE AGREEMENT
Re: $16,500,000 9.50% Senior Notes
Due April 1, 2001
Dated as of
December 15, 1995
The Lincoln National Life Insurance Company
c/o Lincoln Investment Management, Inc.
200 East Berry Street
Fort Wayne, Indiana 46802
The undersigned, ACCEL INTERNATIONAL CORPORATION, a Delaware corporation (the
"Company"), agrees with the above named Purchaser (the "Purchaser") as
follows:
SECTION 1. DECSCRIPTION OF NOTES AND COMMITMENT.
Section 1.1. Description of Notes. The Company will authorize the
issue and sale of $16,500,000 aggregate principal amount of its 9.50% Senior
Notes (the "Notes") to be dated the date of issue, to bear interest from such
date at the rate of 9.50% per annum, payable annually on the first day of each
April in each year (commencing April 1, 1996) and at maturity and to bear
interest on overdue principal (including any overdue required or optional
prepayment of principal) and premium, if any, and (to the extent legally
enforceable) on any overdue installment of interest at the rate of 13.50% per
annum after the date due, whether by acceleration or otherwise, until paid, to
be expressed to mature on April 1, 2001, and to be substantially in the form
attached hereto as Exhibit A. Interest on the Notes shall be computed on the
basis of a 360-day year of twelve 30-day months. The Notes are subject to
prepayment or redemption at the option of the Company prior to maturity as set
forth in Section 2 of this Agreement. The term "Notes" as used herein shall
include each Note delivered pursuant to this Agreement.
Section 1.2. Commitment, Closing Date. Subject to the terms and
conditions hereof and on the basis of the representations and warranties
hereinafter set forth, the Company agrees to issue and sell to the Purchaser,
and the Purchaser agrees to purchase from the Company the entire issue of the
Notes at a price equal to the principal amount thereof on the Closing Date or
Dates hereinafter mentioned.
ITEM 10 - 12
Page 6
Delivery of the Notes will be made at the offices of Chapman and Cutler, 111
West Monroe Street, Chicago, Illinois 60603, against payment therefor in
Federal Reserve or other funds current and immediately available at the
principal office of The Fifth Third Bank in Columbus, Ohio for the account of
the Company in the amount of the purchase price at 10:00 a.m. Chicago time, on
January 12, 1996 or such earlier date as shall mutually be agreed upon by the
Company and the Purchaser in writing; provided that the parties may agree to
issue and close the purchase of the Notes in two installments, in which event
there will be two closings at the offices of Chapman and Cutler as herein
provided, the first closing to be on such date (the "First Closing Date") and
with respect to such principal amount of Notes as shall be mutually agreed
upon by the Company and the Purchaser in writing on or before such First
Closing Date and the second closing to be on January 12, 1996 or such earlier
date as shall be mutually agrees upon by the Company and the Purchaser in
writing on or before such second date (the "Second Closing Date"), on which
Second Closing Date the balance in principal amount of the Notes shall be
issued and delivered against payment therefor. Each date on which Notes are
to be so issued and delivered against payment therefor is referred to herein
as a "Closing Date" and each reference herein to a "Closing Date" means each
of the First Closing Date and the Second Closing Date if there are two Closing
Dates. The Notes delivered to the Purchaser on a Closing Date will be
delivered to the Purchaser in the form of a single registered Note in the form
attached hereto as Exhibit A for the full amount of the Purchaser's purchase
(unless different denominations are specified by the Purchaser), registered in
the Purchaser's name or in the name of the Purchaser's nominee, all as the
Purchaser may specify at any time prior to the date fixed for delivery.
SECTION 2. PREPAYMENT OF NOTES.
Section 2.1. Optional Prepayment. Upon compliance with Section 2.3 the
Company shall have the privilege, at any time and from time to time, of
prepaying the outstanding Notes, either in whole or in part (but if in part
then in a minimum principal amount of $250,000) by payment of the principal
amount of the Notes, or portion thereof to be prepaid, and accrued interest
thereon to the date of such prepayment, without any penalty or premium.
Section 2.2. Prepayment upon Change of Control. In the event the
Company has knowledge of a Change of Control or an impending Change of
Control, the Company will give written notice (a "Control Change Notice") of
such fact to all Holders at least 60 days prior to any proposed Change of
Control Date; provided, however, that if the Company shall not then have
knowledge of such fact, such Control Change Notice shall be delivered promptly
upon receipt of such knowledge, but in no event later than three (3) business
days after the Change of Control Date. The Control Change Notice shall (i)
describe the facts and circumstances of such Change of Control (including the
Change of Control Date or proposed Change of Control Date) in reasonable
detail, (ii) make reference to this Section 2.2 and the rights of the Holders
to require the Company to prepay their Notes on the terms and conditions
provided for herein, (iii) state that the Holder must make a declaration of
its intent to have the Notes held by it prepaid, and (iv) specify the outside
date (calculated as provided below) by which the Holder must respond to such
Control Change Notice pursuant to this Section 2.2 in order to make such
declaration.
ITEM 10 - 12
Page 7
Upon the receipt of such Control Change Notice or, if no Control Change Notice
is given, upon receipt of actual knowledge of a Change of Control, the Holder
of any Notes shall have the privilege, upon written notice (the "Declaration
Notice") to the Company, of declaring all Notes held by such Holder serving
such Declaration Notice to become due and payable and thereupon such Notes
shall become due and payable on such date (the "Control Change Payment Date")
as the Company shall specify in a written notice delivered to such Holder,
which notice shall be delivered by the Company to such Holder not later than
20 days prior to the Control Change Payment Date. The Control Change Payment
Date shall be not later than 30 days after the Change of Control Date, in the
event that such Declaration Notice is served on or prior to the Change of
Control Date or 20 days after the date such Declaration Notice is served, if
such Declaration Notice is not served on or prior to the Change of Control
Date. The Company covenants and agrees to prepay in full on the Control
Change Payment Date all Notes held by such Holder serving such Declaration
Notice to the Company. In the event that a Control Change Notice has in fact
been given as hereinabove required, such Declaration Notice shall be served
prior to 60 days after receipt of such Control Change Notice, and in the event
that a Control Change Notice has not been given as hereinabove required, such
Declaration Notice shall be served prior to 30 days after the Holder serving
such Declaration Notice shall have actual knowledge of such Change of Control.
In the event that a Control Change Notice is given and a Holder fails to
provide a Declaration Notice within the time period set forth above, the Notes
held by such Holder shall not become due and payable as a result of such
Change of Control.
In the event that any Holder shall have declared all of the Notes held
thereby to become due and payable pursuant to this Section 2.2, then the
Company shall promptly, but in any event within 15 days after the receipt of
the Declaration Notice, deliver written notice of such declaration to each
other Holder and, notwithstanding the provisions of the immediately preceding
paragraph, the right of each such other Holder to declare all of the Notes
held thereby to become due and payable pursuant to this Section 2.2 shall
remain in effect until the later to occur of (i) 60 days after receipt by such
Holders of the Control Change Notice and (ii) 30 days after receipt by such
Holders of the notice required to be delivered pursuant to this paragraph;
provided, however, that the provisions of this paragraph shall only apply with
respect to notices required to be delivered pursuant to this paragraph to the
extent that such notices relate to declarations made by Holders prior to the
expiration of the periods specified in the immediately preceding paragraph.
As used herein, the term "Change of Control" shall mean any of the
following events or circumstances:
(1) any "person" or "group" (as such terms are used in Section 13(d)
and 14(d) of the Exchange Act and the regulations thereunder), other than the
D.T. Chase Family, directly or indirectly purchases or otherwise becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) or has
the right to acquire such beneficial ownership (whether or not such right is
exercisable immediately, with the passage of time, or subject to any
condition), of Voting Stock representing at least a majority of the combined
voting power of all outstanding Voting Stock of the Company;
ITEM 10 - 12
Page 8
(2)during any period of two consecutive years, the individuals who at the
beginning of such period constitute the Company's Board of Directors (together
with any new director whose election by the Company's Board of Directors or
whose nomination for election by the Company's shareholders was approved by a
vote of at least a majority of the directors then still in office who either
were directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason (other than
death or disability) to constitute at least a majority of the members thereof
then in office;
(3) the shareholders of the Company shall approve an agreement to
merge or consolidate the Company with or into another corporation as a result
of which less than 50% of the outstanding Voting Stock of the surviving or
resulting entity are or are to be owned by the Persons who were the
shareholders of the Company immediately prior to the consummation of such
transaction;
(4) the shareholders of the Company shall approve the sale of all or
substantially all of the
Company's business and/or assets to a person or entity that is not a
Wholly-owned Subsidiary of the Company; or
(5) Thomas H. Friedberg shall cease to be the President and Chief
Operating Officer of the Company for any reason, including without limitation
his death or legal disability.
As used herein, the term "Change of Control Date" shall mean any date
upon which a Change of Control shall occur.
As used herein, the term "D.T. Chase Family" shall mean (i) David T.
Chase, Rhoda L. Chase and children of David T. and Rhoda L. Chase and trusts
for such children; (ii) the spouses, lineal descendants and spouses of the
lineal descendants of the persons named in clause (i); (iii) the estates or
legal representatives of the persons named in clause (i) and (ii); and (iv)
Chase Insurance Holdings Corporation so long as more than 51% of the Voting
Stock of such corporation is owned and controlled by the persons or their
estates or legal representatives described in clauses (i), (ii) and (iii).
All prepayments on the Notes pursuant to this Section 2.2 shall be made
by the payment of the aggregate principal amount remaining unpaid on such
Notes and accrued interest thereon to the date of such prepayment. Any
prepayment of less than all of the outstanding Notes made pursuant to this
Section 2.2 shall be applied to the payment in full of the Notes held by the
Holders providing a Declaration Notice.
Section 2.3. Notice of Optional Prepayments. The Company will give
notice of any prepayment of the Notes pursuant to Section 2.1 to each Holder
thereof not less than 30 days nor more than 60 days before the date fixed for
such optional prepayment specifying (i) such date, (ii) the principal amount
of the Holder's Notes to be prepaid on such date, (iii) that a premium is not
payable, and (iv) the accrued interest applicable to the prepayment. Notice
of prepayment having been so given, the aggregate principal amount of the
Notes specified
ITEM 10 - 12
Page 9
in such notice, together with accrued interest thereon and the premium, if
any, payable with respect thereto shall become due and payable on the
prepayment date specified in said notice.
Section 2.4. Application of Prepayments. All partial prepayments
pursuant to Section 2.1 shall be applied on all outstanding Notes ratably in
accordance with the unpaid principal amounts thereof.
Section 2.5. Direct Payment. Notwithstanding anything to the contrary
contained in this Agreement or the Notes, in the case of any Note owned by the
Purchaser or any Holder that is an Institutional Holder which has given
written notice to the Company requesting that the provisions of this Section
2.5 shall apply, the Company will punctually pay when due the principal
thereof, interest thereon and premium, if any, due with respect to said
principal, without any presentment thereof, directly to such Holder at its
address set forth herein or such other address as such Holder may from time to
time designate in writing to the Company or, if a bank account with a United
States bank is so designated for such Holder, the Company will make such
payments in immediately available funds to such bank account, marked for
attention as indicated, or in such other manner or to such other account in
any United States bank as such Holder may from time to time direct in writing.
SECTION 3. REPRESENTATIONS.
Section 3.1. Representations of the Company. The Company represents
and warrants that all representations and warranties set forth in Exhibit B
are true and correct as of the date hereof and are incorporated herein by
reference with the same force and effect as though herein set forth in full.
Section 3.2. Representations of the Purchaser. You represent, and in
entering into this Agreement, and in issuing the Notes hereunder and
thereunder the Company has relied and will be relying on its understanding
that you (i) are an "accredited investor" as such term is defined in Rule 501
of Regulation D promulgated under the Securities Act of 1933, as amended (the
"1933 Act"), (ii) have such knowledge and experience in financial and business
matters, alone or together with your advisors, that you are capable of
evaluating the merits and risks of the investment in the Notes to be made by
you hereunder, and (iii) are acquiring the Notes for the purpose of investment
and not with a view to the distribution thereof, have no present intention of
selling, negotiating or otherwise disposing of the Notes being acquired by you
hereunder and shall not sell, negotiate or otherwise dispose of such Notes
unless such sale is pursuant to an effective registration statement under the
1933 Act or is exempt from the registration requirements under the 1933 Act as
of the time of any proposed sale; it being understood, however, that the
disposition of your property shall at all times be and remain within your
control. You further represent that at least one of the following statements
is an accurate representation as to the source of funds to be used by you to
pay the purchase price of the Notes purchased by you hereunder:
(1) the source of funds to be used by you to pay the purchase price of
the Notes is an "insurance company general account" within the meaning of
Department of Labor Prohibited Transaction Exemption 95-60 ("PTE") (issued
July 12, 1995) and
ITEM 10 - 12
Page 10
there is no "employee benefit plan" (within the meaning of Section 3(3) of
ERISA or Section 4975(e)(1) of the Code), treating as a single plan, all plans
maintained by the same employer or employee organization, with respect to
which the amount of the general account reserves and liabilities for all
contracts held by or on behalf of such plan, exceed ten percent (10%) of the
total reserves and liabilities of such general account (exclusive of separate
account liabilities) plus surplus, as set forth in the National Association of
Insurance Commissioners Annual Statement filed with your state of domicile; or
(2) the source of funds to be used by you to pay the purchase price of
the Notes is an "insurance company general account" within the meaning of
Department of Labor Prohibited Transaction Exemption 95-60 ("PTE") (issued
July 12, 1995) and the purchase of the Original Notes by you is eligible for
and satisfies the requirements of PTE 95-60.
SECTION 4. CLOSING CONDITIONS.
Section 4.1. Conditions;. The obligation of the Purchaser to purchase
the Notes on a Closing Date shall be subject to the performance by the Company
of its agreements hereunder which by the terms hereof are to be performed at
or prior to the time of delivery of the Notes and to the following further
conditions precedent:
(a) Closing Certificate. The Purchaser shall have received a
certificate dated the Closing Date, signed by the President or a Vice
President of the Company, the truth and accuracy of which shall be a condition
to the Purchaser's obligation to purchase the Notes proposed to be sold to the
Purchaser on such Closing Date and to the effect that (i) the representations
and warranties of the Company set forth in Exhibit B hereto are true and
correct on and with respect to the Closing Date, (ii) the Company has
performed all of its obligations hereunder which are to be performed on or
prior to the Closing Date, and (iii) no Default or Event of Default has
occurred and is continuing.
(b) Legal Opinions. The Purchaser shall have received from Chapman
and Cutler, who are acting as special counsel to the Purchaser in this
transaction, and from Squire, Sanders & Dempsey, counsel for the Company, and
Nicholas Z. Alexander Senior Vice President, Secretary and General Counsel of
the Company, their respective opinions dated the Closing Date, in form and
substance satisfactory to the Purchaser, and covering the matters set forth in
Exhibits C and D, respectively, hereto.
(c) Reinsurance Agreement. Acceleration Life Insurance Company, a
Wholly-owned Subsidiary of the Company, shall have (i) entered into a
reinsurance agreement with the Purchaser on or before the earlier of December
28, 1995 or the First Closing Date, which reinsurance agreement shall be in
effect with no defaults thereunder as of the Closing Date and (ii) paid the
reinsurance premium due under Section B, paragraph 2 of that reinsurance
agreement to the Purchaser.
ITEM 10 - 12
Page 11
(d)Satisfactory Proceedings. All proceedings taken in connection with the
transactions contemplated by this Agreement, and all documents necessary to
the consummation thereof, shall be satisfactory in form and substance to the
Purchaser and the Purchaser's special counsel, and the Purchaser shall have
received a copy (executed or certified as may be appropriate) of all legal
documents or proceedings taken in connection with the consummation of said
transactions.
Section 4.2. Waiver of Conditions. If on a Closing Date the Company
fails to tender to the Purchaser the Notes to be issued to the Purchaser on
such date or if the conditions specified in Section 4.1 have not been
fulfilled, the Purchaser may thereupon elect to be relieved of all further
obligations under this Agreement. Without limiting the foregoing, if the
conditions specified in Section 4.1 have not been fulfilled, the Purchaser may
waive compliance by the Company with any such condition to such extent as the
Purchaser may in its sole discretion determine. Nothing in this Section 4.2
shall operate to relieve the Company of any of its obligations hereunder or to
waive the Purchaser's rights against the Company.
SECTION 5. COMPANY COVENANTS.
From and after the Closing Date, or the First Closing Date if there are
two Closing Dates, and continuing so long as any amount remains unpaid on any
Note:
Section 5.1. Corporate Existence, Etc. The Company will preserve and
keep in full force and effect, and will cause each Subsidiary to preserve and
keep in full force and effect, its corporate existence and all licenses and
permits necessary to the proper conduct of its business; provided, however,
that the foregoing shall not prevent any transaction permitted by Section
5.12.
Section 5.2. Insurance. The Company will maintain, and will cause each
Subsidiary to maintain, insurance coverage by financially sound and reputable
insurers in such forms and amounts and against such risks as are customary for
corporations of established reputation engaged in the same or a similar
business and owning and operating similar properties.
Section 5.3. Taxes, Claims for Labor and Materials, Compliance with
Laws. The Company will promptly pay and discharge, and will cause each
Subsidiary promptly to pay and discharge, all lawful taxes, assessments and
governmental charges or levies imposed upon the Company or such Subsidiary,
respectively, or upon or in respect of all or any part of the property or
business of the Company or such Subsidiary, all trade accounts payable in
accordance with usual and customary business terms, and all claims for work,
labor or materials, which if unpaid might become a Lien upon any property of
the Company or such Subsidiary; provided, however, that the Company or such
Subsidiary shall not be required to pay any such tax, assessment, charge,
levy, account payable or claim if (i) the validity, applicability or amount
thereof is being contested in good faith by appropriate actions or proceedings
which will prevent the forfeiture or sale of any property of the Company or
such Subsidiary or any material interference with the use thereof by the
Company or such Subsidiary, and (ii) the Company or such Subsidiary shall set
aside on its books, reserves
ITEM 10 - 12
Page 12
deemed by it to be adequate with respect thereto. The Company will promptly
comply and will cause each Subsidiary to comply with all laws, ordinances or
governmental rules and regulations to which it is subject including, without
limitation, the Occupational Safety and Health Act of 1970, as amended, ERISA
and all laws, ordinances, governmental rules and regulations relating to
environmental protection in all applicable jurisdictions, the violation of
which could materially and adversely affect the properties, business,
prospects, profits or condition of the Company and its Subsidiaries or would
result in any Lien not permitted under Section 5.8.
Section 5.4. Maintenance, Etc. The Company will maintain, preserve and
keep, and will cause each Subsidiary to maintain, preserve and keep, its
properties which are used or useful in the conduct of its business (whether
owned in fee or a leasehold interest) in good repair and working order and
from time to time will make all necessary repairs, replacements, renewals and
additions so that at all times the efficiency thereof shall be maintained.
Section 5.5. Nature of Business. Neither the Company nor any
Subsidiary will engage in any business if, as a result, the general nature of
the business, taken on a consolidated basis, which would then be engaged in by
the Company and its Subsidiaries would be substantially changed from the
general nature of the business engaged in by the Company and its Subsidiaries
on the date of this Agreement.
Section 5.6. Consolidated Tangible Net Worth. The Company will at all
times keep and maintain Consolidated Tangible Net Worth at an amount not less
than $15,000,000.
Section 5.7. Limitations on Indebtedness. (a) The Company will not,
and will not permit any Subsidiary to, create, assume or incur or in any
manner be or become liable in respect of any Indebtedness, except:
(1) Indebtedness evidenced by the Notes;
(2) Indebtedness of the Company (other than the Subordinated Notes)
and its Subsidiaries reflected on the consolidated balance sheet of the
Company and its Subsidiaries as at September 30, 1995 and outstanding as of
the date of this Agreement after application of the net proceeds from the sale
of the Notes as described in paragraph 14 of Exhibit B;
(3) Subordinated Funded Debt of the Company, provided, however, that
at the time of issuance thereof and after giving effect thereto and to the
application of the proceeds thereof the Consolidated Funded Debt of the
Company and its Subsidiaries shall not at any time exceed an amount equal to
$2,000,000; and
(4) The Subordinated Notes; provided that the aggregate principal
amount of the Subordinated Notes shall not at any time exceed the sum of (i)
the principal amount of the Subordinated Notes outstanding on the date hereof,
plus (ii) the amount of interest on the Subordinated Notes paid in additional
Subordinated Notes, less (iii) any amount paid on the Subordinated Notes.
ITEM 10 - 12
Page 13
(b)Any corporation which becomes a Subsidiary after the date hereof shall for
all purposes of this Section 5.7 be deemed to have created, assumed or
incurred at the time it becomes a Subsidiary all Funded Debt of such
corporation existing immediately after it becomes a Subsidiary.
(c) Indebtedness evidenced by the Subordinated Notes shall be amended
as provided in Section 5.20 hereof.
Section 5.8. Limitation on Liens. The Company will not, and will not
permit any Subsidiary to, create or incur, or suffer to be incurred or to
exist, any Lien on its or their property or assets, whether now owned or
hereafter acquired, or upon any income or profits therefrom, or transfer any
property for the purpose of subjecting the same to the payment of obligations
in priority to the payment of its or their general creditors, or acquire or
agree to acquire, or permit any Subsidiary to acquire, any property or assets
upon conditional sales agreements or other title retention devices, except:
(a) Liens for property taxes and assessments or governmental charges
or levies and Liens securing claims or demands of mechanics and materialmen,
provided payment thereof is not at the time required by Section 5.3;
(b) Liens of or resulting from any judgment or award, the time for the
appeal or petition for rehearing of which shall not have expired, or in
respect of which the Company or a Subsidiary shall at any time in good faith
be prosecuting an appeal or proceeding for a review and in respect of which a
stay of execution pending such appeal or proceeding for review shall have been
secured;
(c) Liens incidental to the conduct of business or the ownership of
properties and assets (including Liens in connection with worker's
compensation, unemployment insurance and other like laws, warehousemen's and
attorneys' liens and statutory landlords' liens) and Liens to secure the
performance of bids, tenders or trade contracts, or to secure statutory
obligations, surety or appeal bonds or other Liens of like general nature
incurred in the ordinary course of business and not in connection with the
borrowing of money; provided in each case, the obligation secured is not
overdue or, if overdue, is being contested in good faith by appropriate
actions or proceedings;
(d) minor survey exceptions or minor encumbrances, easements or
reservations, or rights of others for rights-of-way, utilities and other
similar purposes, or zoning or other restrictions as to the use of real
properties, which are necessary for the conduct of the activities of the
Company and its Subsidiaries or which customarily exist on properties of
corporations engaged in similar activities and similarly situated and which do
not in any event materially impair their use in the operation of the business
of the Company and its Subsidiaries; and
(e) Liens securing Indebtedness of a Subsidiary to the Company.
ITEM 10 - 12
Page 14
Section 5.9.Limitation on Long-Term Leases and Sale and Leasebacks. (a) The
Company will not, and will not permit any Subsidiary to, become obligated, as
lessee, under any Long-Term Lease if, at the time of entering into such
Long-Term Lease and after giving effect thereto, the aggregate Rentals payable
by the Company and all of its Subsidiaries on a consolidated basis in any one
fiscal year thereafter under all Long-Term Leases would exceed 5.0% of
Consolidated Tangible Net Worth.
(b) The Company will not, and will not permit any Subsidiary to, enter
into any arrangement whereby the Company or any Subsidiary shall sell or
transfer any property owned by the Company or any Subsidiary to any Person
other than the Company or a Subsidiary and thereupon the Company or any
Subsidiary shall lease or intend to lease, as lessee, the same property;
provided that this provision shall not prevent the Company from selling the
real estate and related properties constituting its headquarters building at
475 Metro Place North, Dublin, Ohio 43017-0701 (the "Metro Place Sale"), and
leasing back, pursuant to a customary office space lease, up to 30% of the
rental square feet in such building for its offices.
Section 5.10. Restricted Payments. The Company will not except as
hereinafter provided:
(a) Declare or pay any dividends, either in cash or property, on any
shares of its capital stock of any class (except dividends or other
distributions payable solely in shares of capital stock of the Company);
(b) Directly or indirectly, or through any Subsidiary, purchase,
redeem or retire any shares of its capital stock of any class or any warrants,
rights or options to purchase or acquire any shares of its capital stock
(other than in exchange for or out of the net cash proceeds to the Company
from the substantially concurrent issue or sale of other shares of capital
stock of the Company or warrants, rights or options to purchase or acquire any
shares of its capital stock);
(c) Make any other payment or distribution, either directly or
indirectly or through any Subsidiary, in respect of its capital stock; or
(d) Make, or permit any Subsidiary to make, any Restricted Investment;
(such declarations or payments of dividends, purchases, redemptions or
retirements of capital stock and warrants, rights or options and all such
other payments or distributions and such Restricted Investments are herein
collectively called "Restricted Payments"), if after giving effect thereto any
Default shall have occurred and be continuing or the sum of the aggregate
amount of Restricted Payments made during the period from and after January 1,
1996 to and including the date of the making of the Restricted Payment in
question, would exceed the sum of 50% of Consolidated Net Income for such
period, computed on a cumulative basis for said entire period (or if such
Consolidated Net Income is a deficit figure, then minus 100% of such deficit).
ITEM 10 - 12
Page 15
The Company will not declare any dividend which constitutes a Restricted
Payment payable more than 60 days after the date of declaration thereof.
For the purposes of this Section 5.10, the amount of any Restricted
Payment declared, paid or distributed in property shall be deemed to be the
greater of the book value of fair market value (as determined in good faith by
the Board of Directors of the Company) of such property at the time of the
making of the Restricted Payment in question.
Section 5.11. Investments. The Company will not, and will not permit
any Subsidiary to, make any Investments, other than:
(a) Investments by the Company and its Subsidiaries in and to
Subsidiaries, including any Investment in a corporation which, after giving
effect to such Investment, will become a Subsidiary, provided, however, that
so long as the Notes are outstanding and unpaid, the Company shall not have or
make Investments in any Subsidiaries which are not Wholly-owned Subsidiaries;
(b) Investments in commercial paper maturing in 270 days or less from
the date of issuance which, at the time of acquisition by the Company or any
Subsidiary, is accorded the highest rating by Standard & Poor's Ratings Group,
Moody's Investors Service, Inc. or other nationally recognized credit rating
agency of similar standing;
(c) Investments in direct obligations of the United States of America
or any agency or instrumentality of the United States of America, the payment
or guarantee of which constitutes a full faith and credit obligation of the
United States of America, in either case, maturing in twelve months or less
from the date of acquisition thereof;
(d) Investments in certificates of deposit maturing within one year
from the date of issuance thereof, issued by a bank or trust company organized
under the laws of the United States or any state thereof, having capital,
surplus and undivided profits aggregating at least $100,000,000 and whose
long-term certificates of deposit are, at the time of acquisition thereof by
the Company or a Subsidiary, rated AA or better by Standard & Poor's Ratings
Group or Aa or better by Moody's Investors Service, Inc.;
(e) loans or advances in the usual and ordinary course of business to
officers, directors and employees for expenses (including moving expenses
related to a transfer) incidental to carrying on the business of the Company
or any Subsidiary; and
(f) receivables arising from the sale of goods and services in the
ordinary course of business of the Company and its Subsidiaries;
(g) in the case the Company's insurance company Subsidiaries, any
Investments permitted by applicable law, provided that
(i) at least 70% of the total investments of any such
Subsidiaries shall be fixed income securities having an NAIC rating of 1 or 2;
ITEM 10 - 12
Page 16
(ii)no such Subsidiary shall make or hold any investment, directly or
indirectly, in any entities or ventures in which any Affiliate has a direct or
indirect interest;
(iii) no such Subsidiary shall invest or hold investments,
directly or indirectly, in real estate assets or investments in an aggregate
amount exceeding 8% of the total investments of such Subsidiary, including
investments in entities whose primary assets consist of, or whose primary
business is the investment in or management of, real estate; and
(iv) not more than 10% of the total investments of any such
Subsidiary shall be invested, directly or indirectly, in (A) investments that
do not have a rating from one or more nationally recognized statistical rating
organizations (as that term is used in Rule 15c3-1(c)(2)(vi)(F) under the
Securities Exchange Act of 1934), or that have such a rating but are not rated
in one of the four highest generic rating categories of any of such
organizations, (B) investments that have been designated by the Securities
Valuation Office of the NAIC as having a lower quality than 2, and (C)
investments (including without limitation debt or equity investments through
interests in stocks, bonds, preferred stock, debentures, partnership interests
or joint venture interests) that are not listed and traded on the New York
Stock Exchange, the American Stock Exchange or the National Association of
Securities Dealers Automated Quotation System; and
(h) in the case of a Metro Place Sale, a purchase money note (the
"Metro Place Sale Note") secured by a valid and perfected first and paramount
mortgage lien and security interests on the property sold in an amount not to
exceed 90% of the sale price and bearing interest at a market rate.
In valuing any Investments for the purpose of applying the limitations
set forth in this Section 5.11, such Investments shall be taken at the
original cost thereof, without allowance for any subsequent write-offs or
appreciation or depreciation therein, but less any amount repaid or recovered
on account of capital or principal.
For purposes of this Section 5.11, at any time when a corporation
becomes a Subsidiary, all Investments of such corporation at such time shall
be deemed to have been made by such corporation, as a Subsidiary, at such
time.
Section 5.12. Mergers, Consolidations and Sales of Assets. (a) The
Company will not, and will not permit any Subsidiary to, (i) consolidate with
or be a party to a merger with any other corporation or (ii) sell, lease or
otherwise dispose of all or any substantial part (as defined in paragraph (d)
of this Section 5.12) of the assets of the Company and its Subsidiaries;
provided, however, that:
(1) any Subsidiary may merge or consolidate with or into the Company
or any Wholly-owned Subsidiary so long as in any merger or consolidation
involving the Company, the Company shall be the surviving or continuing
corporation;
ITEM 10 - 12
Page 17
(2)the Company may consolidate or merge with any other corporation if (i) the
Company shall be the surviving or continuing corporation, (ii) at the time of
such consolidation or merger and after giving effect thereto no Default or
Event of Default shall have occurred and be continuing, and (iii) after giving
effect to such consolidation or merger the Company would be permitted to incur
at least $1.00 of additional Consolidated Funded Debt under the provisions of
Section 5.7; and
(3) any Subsidiary may sell, lease or otherwise dispose of all or any
substantial part of its assets to the Company or any Wholly-owned Subsidiary.
(b) The Company will not permit any Subsidiary to issue or sell any
shares of stock of any class (including as "stock" for the purposes of this
Section 5.12, any warrants, rights or options to purchase or otherwise acquire
stock or other Securities exchangeable for or convertible into stock) of such
Subsidiary to any Person other than the Company or a Wholly-owned Subsidiary,
except for the purpose of qualifying directors.
(c) The Company will not sell, transfer or otherwise dispose of any
shares of stock of any Subsidiary (except to qualify directors) or any
Indebtedness of any Subsidiary, and will not permit any Subsidiary to sell,
transfer or otherwise dispose of (except to the Company or a Wholly-owned
Subsidiary) any shares of stock or any Indebtedness of any other Subsidiary,
unless:
(1) simultaneously with such sale, transfer, or disposition, all
shares of stock and all Indebtedness of such Subsidiary at the time owned by
the Company and by every other Subsidiary shall be sold, transferred or
disposed of as an entirety;
(2) the Board of Directors of the Company shall have determined, as
evidenced by a resolution thereof, that the proposed sale, transfer or
disposition of said shares of stock and Indebtedness is in the best interests
of the Company;
(3) said shares of stock and Indebtedness are sold, transferred or
otherwise disposed of to a Person, for a cash consideration and on terms
reasonably deemed by the Board of Directors to be adequate and satisfactory;
(4) the Subsidiary being disposed of shall not have any continuing
investment in the Company or any other Subsidiary not being simultaneously
disposed of; and
(5) such sale or other disposition does not involve a substantial part
(as hereinafter defined) of the assets of the Company and its Subsidiaries.
(d) As used in this Section 5.12, a sale, lease or other disposition
of assets shall be deemed to be a "substantial part" of the assets of the
Company and its Subsidiaries if the book value of such assets, when added to
the book value of all other assets sold, leased or otherwise disposed of by
the Company and its Subsidiaries (other than in the ordinary course of
business) during the 12-month period ending with the date of such sale, lease
or other
ITEM 10 - 12
Page 18
disposition, exceeds 10% of the Consolidated Tangible Net Worth, determined as
of the end of the immediately preceding fiscal year.
Section 5.13. Guaranties. The Company will not, and will not permit any
Subsidiary to, become or be liable in respect of any Guaranty except
Guaranties by the Company or a Subsidiary which are limited in amount to a
stated maximum dollar exposure and which are incurred in compliance with the
provisions of this Agreement.
Section 5.14. Repurchase of Notes. Neither the Company nor any
Subsidiary or Affiliate, directly or indirectly, may repurchase or make any
offer to repurchase any Notes unless an offer has been made to repurchase
Notes, pro rata, from all Holders at the same time and upon the same terms.
In case the Company repurchases or otherwise acquires any Notes, such Notes
shall immediately thereafter be canceled and no Notes shall be issued in
substitution therefor. Without limiting the foregoing, upon the repurchase or
other acquisition of any Notes by the Company, any Subsidiary or any Affiliate
(or upon the agreement of Company, any Subsidiary or any Affiliate to purchase
or otherwise acquire any Notes), such Notes shall no longer be outstanding for
purposes of any section of this Agreement relating to the taking by the
Holders of any actions with respect hereto, including, without limitation,
Section 6.3, Section 6.4 and Section 7.1.
Section 5.15. Transactions with Affiliates. The Company will not, and
will not permit any Subsidiary to, enter into or be a party to any transaction
or arrangement with any Affiliate (including, without limitation, the purchase
from, sale to or exchange of property with, or the rendering of any service by
or for, any Affiliate), except in the ordinary course of and pursuant to the
reasonable requirements of the Company's or such Subsidiary's business and
upon fair and reasonable terms no less favorable to the Company or such
Subsidiary than would obtain in a comparable arm's-length transaction with a
Person other than an Affiliate.
Section 5.16. Termination of Pension Plans. The Company will not and
will not permit any Subsidiary to withdraw from any Multiemployer Plan or
permit any employee benefit plan maintained by it to be terminated if such
withdrawal or termination could result in withdrawal liability (as described
in Part 1 of Subtitle E of Title IV of ERISA) or the imposition of a Lien on
any property of the Company or any Subsidiary pursuant to Section 4068 of
ERISA.
Section 5.17. Reports and Rights of Inspection. The Company will keep,
and will cause each Subsidiary to keep, proper books of record and account in
which full and correct entries will be made of all dealings or transactions
of, or in relation to, the business and affairs of the Company or such
Subsidiary, in accordance with GAAP consistently applied (except for changes
disclosed in the financial statements furnished to the Holders pursuant to
this Section 5.17 and concurred in by the independent public accountants
referred to in Section 5.17(B) hereof), and will furnish to each Institutional
Holder (in duplicate if so specified below or otherwise requested):
ITEM 10 - 12
Page 19
(a)Quarterly Statements. As soon as available and in any event within 45 days
after the end of each quarterly fiscal period (except the last) of each fiscal
year, copies of:
(1) consolidated and consolidating balance sheets of the Company and
its Subsidiaries as of the close of such quarterly fiscal period, setting
forth in comparative form the consolidated figures for the fiscal year then
most recently ended;
(2) consolidated and consolidating statements of income of the Company
and its Subsidiaries for such quarterly fiscal period and for the portion of
the fiscal year ending with such quarterly fiscal period, in each case setting
forth in comparative form the consolidated figures for the corresponding
periods of the preceding fiscal year; and
(3) consolidated and consolidating statements of cash flows of the
Company and its Subsidiaries for the portion of the fiscal year ending with
such quarterly fiscal period, setting forth in comparative form the
consolidated figures for the corresponding period of the preceding fiscal
year.
all in reasonable detail and certified as complete and correct by an
authorized financial officer of the Company;
(b) Annual Statements. As soon as available and in any event within
90 days after the close of each fiscal year of the Company, copies of:
(1) consolidated and consolidating balance sheets of the Company and
its Subsidiaries as of the close of such fiscal year, and
(2) consolidated and consolidating statements of income and retained
earnings and cash flows of the Company and its Subsidiaries for such fiscal
year,
in each case setting forth in comparative form the consolidated figures for
the preceding fiscal year, all in reasonable detail and accompanied by a
report thereon of a firm of independent public accountants of recognized
national standing selected by the Company to the effect that the consolidated
financial statements present fairly, in all material respects, the
consolidated financial position of the Company and its Subsidiaries as of the
end of the fiscal year being reported on and the consolidated results of the
operations and cash flows for said year in conformity with GAAP and that the
examination of such accountants in connection with such financial statements
has been conducted in accordance with generally accepted auditing standards
and included such tests of the accounting records and such other auditing
procedures as said accountants deemed necessary in the circumstances;
ITEM 10 - 12
Page 20
(c)Audit Reports. Promptly upon receipt thereof, one copy of each interim or
special audit made by independent accountants of the books of the Company or
any Subsidiary and any management letter received from such accountants;
(d) Insurance Regulatory Reports. As soon as available and in any
event within 45 days after the end of each quarterly fiscal period, copies of
the Quarterly Reports filed by the Company and its Subsidiaries with the
Insurance Regulators, and as soon as available and in any event within 90 days
after the end of each fiscal year, copies of the Annual Reports filed by the
Company and its Subsidiaries with the Insurance Regulators;
(e) SEC and Other Reports. Promptly upon their becoming available,
one copy of each financial statement, report, notice or proxy statement sent
by the Company to stockholders generally and of each regular, periodic or
special report, schedule or other material and any registration statement or
prospectus required to be filed by the Company or any Subsidiary with any
Insurance Regulator or any securities exchange or the Securities and Exchange
Commission (the "SEC") or any successor agency, and copies of any orders in
any proceedings to which the Company or any of its Subsidiaries is a party,
issued by any governmental agency, Federal or state, having jurisdiction over
the Company or any of its Subsidiaries and, copies of all examinations,
reports or other material (other than routine correspondence) sent or received
by the Company or any Subsidiary to or from the SEC, any Insurance Regulators
or the National Association of Insurance Commissioners (the "NAIC"), and news
releases sent to financial analysts or stockholders and annual reports
relating to the Company and any of its Subsidiaries;
(f) ERISA Reports. Promptly upon the occurrence thereof, written
notice of (i) a Reportable Event with respect to any Plan; (ii) the
institution of any steps by the Company, any ERISA Affiliate, the PBGC or any
other person to terminate any Plan; (iii) the institution of any steps by the
Company or any ERISA Affiliate to withdraw from any Plan; (iv) a non-exempt
"prohibited transaction" within the meaning of Section 406 of ERISA in
connection with any Plan; (v) any material increase in the contingent
liability of the Company or any Subsidiary with respect to any post-retirement
welfare liability; or (vi) the taking of any action by, or the threatening of
the taking of any action by, the Internal Revenue Service, the Department of
Labor or the PBGC with respect to any of the foregoing;
(g) Officer's Certificates. Within the periods provided in paragraphs
(a) and (b) above, a certificate of an authorized financial officer of the
Company stating that such officer has reviewed the provisions of this
Agreement and setting forth: (i) the information and (except in the case of
Section 5.14) computations (in sufficient detail) required in order to
establish whether the Company was in compliance with the requirements of
Section 5.6 through Section 5.16 at the end of the period covered by the
financial statements then being furnished, and (ii) whether there existed as
of the date of such financial statements and whether, to the best of such
officer's knowledge, there exists on the date of the certificate or existed at
any time during the period covered by such
ITEM 10 - 12
Page 21
financial statements any Default or Event of Default and, if any such
condition or event exists on the date of the certificate, specifying the
nature and period of existence thereof and the action the Company is taking
and proposes to take with respect thereto;
(h) Accountant's Certificates. Within the period provided in
paragraph (b) above, a certificate of the accountants who render an opinion
with respect to such financial statements, stating that they have reviewed
this Agreement and stating further whether, in making their audit, such
accountants have become aware of any Default or Event of Default under any of
the terms or provisions of this Agreement insofar as any such terms or
provisions pertain to or involve accounting matters or determinations, and if
any such condition or event then exists, specifying the nature and period of
existence thereof;
(i) Requested Information. With reasonable promptness, such other
data and information as such Institutional Holder may reasonably request.
Without limiting the foregoing, the Company will permit each Institutional
Holder (or such Persons as such Institutional Holder may designate), to visit
and inspect, under the Company's guidance, any of the properties of the
Company or any Subsidiary, to examine all of their books of account, records,
reports and other papers, to make copies and extracts therefrom and to discuss
their respective affairs, finances and accounts with their respective
officers, employees, and independent public accountants (and by this provision
the Company authorizes said accountants to discuss with any Institutional
Holder the finances and affairs of the Company and its Subsidiaries) all at
such reasonable times and as often as may be reasonably requested. The
Company shall not be required to pay or reimburse any Holder for expenses
which such Holder may incur in connection with any such visitation or
inspection, except that if such visitation or inspection is made during any
period when a Default or an Event of Default shall have occurred and be
continuing, the Company agrees to reimburse such Holder for all such expenses
promptly upon demand.
Section 5.18. Information Required by Rule 144A. The Company covenants
that it will, upon the request of the holder of any Note, provide such holder,
and any qualified institutional buyer designated by such holder, such
financial and other information as such holder may reasonably determine to be
necessary in order to permit compliance with the information requirements of
Rule 144A under the Securities Act in connection with the resale of Notes,
except at such times as the Company is subject to and in compliance with the
reporting requirements of section 13 or 15(d) of the Exchange Act, provided
that the necessary information is disclosed in such reports. For the purpose
of this Section 5.18, the term "qualified institutional buyer" shall have the
meaning specified in Rule 144A under the Securities Act.
Section 5.19. Certain Subsidiary Restrictions. The Company covenants
that it will not and it will not permit any Subsidiary to enter into any
agreement which would limit or restrict the ability of the Subsidiary to pay
dividends to the Company or any other Subsidiary.
ITEM 10 - 12
Page 22
Section 5.20.Amendment of Subordinated Notes. If any Notes are outstanding
and unpaid as of December 31, 1999, then, on or before January 15, 2000, the
Subordinated Notes shall be amended to extend the maturity thereof to provide
that no payments of principal will be due or payable prior to October 1, 2001;
provided, that, (i) in the event the Company is unable to obtain the extension
of the maturity of any of the Subordinated Notes as specified above by January
15, 2000, the entire remaining principal amount of the Notes and all interest
accrued and unpaid thereon through January 15, 2000 shall become due and
payable on January 15, 2000, and (ii) without the prior written consent of the
Holders holding at least 66 2/3% in aggregate principal amount of the
outstanding Notes, no payment of principal on the Subordinated Notes shall be
made prior to the payment of the Notes in full in cash.
SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR.
Section 6.1. Events of Default. Any one or more of the following shall
constitute an "Event of Default" as such term is used herein:
(a) Default shall occur in the payment of interest on any Note when
the same shall have become due and such default shall continue for more than
five days; or
(b) Default shall occur in the making of any required prepayment on
any of the Notes as provided in Section 2.2; or
(c) Default shall occur in the making of any other payment of the
principal of any Note or premium, if any, thereon at the expressed or any
accelerated maturity date or at any date fixed for prepayment; or
(d) Default shall be made in the payment when due (whether by lapse of
time, by declaration, by call for redemption or otherwise) of the principal of
or interest on any Funded Debt or Current Debt (other than the Notes) of the
Company or any Subsidiary and such default shall continue beyond the period of
grace, if any, allowed with respect thereto; or
(e) Default or the happening of any event shall occur under any
indenture, agreement or other instrument under which any Funded Debt or
Current Debt of the Company or any Subsidiary may be issued and such default
or event shall continue for a period of time sufficient to permit the
acceleration of the maturity of any Funded Debt or Current Debt of the Company
or any Subsidiary outstanding thereunder; or
(f) Default shall occur in the observance or performance of any
covenant or agreement contained in Section 5.6 through Section 5.16 or Section
5.20; or
(g) Default shall occur in the observance or performance of any other
provision of this Agreement which is not remedied within 30 days after the
earlier of (i) the day on which the Company first obtains knowledge of such
default, or (ii) the day on which written notice thereof is given to the
Company by any Holder, provided that if such Default is curable but can not be
cured with diligence within such 30-day period, then the same shall not
constitute an Event of Default hereunder if corrective
ITEM 10 - 12
Page 23
action is instituted by the Company within such 30-day period and is
diligently pursued so that the Default is cured within not more than an
additional 60 days; or
(h) Any representation or warranty made by the Company herein, or made
by the Company in any statement or certificate furnished by the Company in
connection with the consummation of the issuance and delivery of the Notes or
furnished by the Company pursuant hereto, is untrue in any material respect as
of the date of the issuance or making thereof; or
(i) Final judgment or judgments for the payment of money aggregating
in excess of $100,000 is or are outstanding against the Company or any
Subsidiary or against any property or assets of either and any one of such
judgments has remained unpaid, unvacated, unbonded or unstayed by appeal or
otherwise for a period of 30 days from the date of its entry; or
(j) A custodian, liquidator, trustee or receiver is appointed for the
Company or any Subsidiary or for the major part of the property of either and
is not discharged within 30 days after such appointment; or
(k) The Company or any Subsidiary becomes insolvent or bankrupt, is
generally not paying its debts as they become due or makes an assignment for
the benefit of creditors, or the Company or any Subsidiary applies for or
consents to the appointment of a custodian, liquidator, trustee or receiver
for the Company or such Subsidiary or for the major part of the property of
either; or
(l) Bankruptcy, reorganization, arrangement or insolvency proceedings,
or other proceedings for relief under any bankruptcy or similar law or laws
for the relief of debtors, are instituted by or against the Company or any
Subsidiary and, if instituted against the Company or any Subsidiary, are
consented to or are not dismissed within 60 days after such institution.
Section 6.2. Notice to Holders. When any Event of Default described in
the foregoing Section 6.1 has occurred, or if any Holder or the holder of any
other evidence of Funded Debt or Current Debt of the Company gives any notice
or takes any other action with respect to a claimed default, the Company
agrees to give notice within three business days of such event to all Holders.
Section 6.3. Acceleration of Maturities. When any Event of Default
described in paragraph (a), (b) or (c) of Section 6.1 has happened and is
continuing, any Holder may, and when any Event of Default described in
paragraphs (d) through (j), inclusive, of said Section 6.1 has happened and is
continuing, any Holder or Holders holding 25% or more of the principal amount
of Notes at the time outstanding may, by notice to the Company, declare the
entire principal and all interest accrued on all Notes to be, and all Notes
shall thereupon become, forthwith due and payable, without any presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived. When any Event of Default described in paragraph (k) or (l) of
Section 6.1 has occurred, then all outstanding Notes shall immediately
ITEM 10 - 12
Page 24
become due and payable without presentment, demand or notice of any kind.
Upon the Notes becoming due and payable as a result of any Event of Default as
aforesaid, the Company will forthwith pay to the Holders, the entire principal
and interest accrued on the Notes. No course of dealing on the part of the
Holder or Holders nor any delay or failure on the part of any Holder to
exercise any right shall operate as a waiver of such right or otherwise
prejudice such Holder's rights, powers and remedies. The Company further
agrees, to the extent permitted by law, to pay to the Holder or Holders all
costs and expenses incurred by them in the collection of any Notes upon any
default hereunder or thereon, including reasonable compensation to such
Holder's or Holders' attorneys for all services rendered in connection
therewith.
Section 6.4. Rescission of Acceleration. The provisions of Section 6.3
are subject to the condition that if the principal of and accrued interest on
all or any outstanding Notes have been declared immediately due and payable by
reason of the occurrence of any Event of Default described in paragraphs (a)
through (j), inclusive, of Section 6.1, the Holders holding 66-2/3% in
aggregate principal amount of the Notes then outstanding may, by written
instrument filed with the Company, rescind and annul such declaration and the
consequences thereof, provided that at the time such declaration is annulled
and rescinded:
(a) no judgment or decree has been entered for the payment of any
monies due pursuant to the Notes or this Agreement;
(b) all arrears of interest upon all the Notes and all other sums
payable under the Notes and under this Agreement (except any principal,
interest or premium on the Notes which has become due and payable solely by
reason of such declaration under Section 6.3) shall have been duly paid; and
(c) each and every other Default and Event of Default shall have been
made good, cured or waived pursuant to Section 7.1;
and provided further, that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default or impair any right
consequent thereto.
SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS.
Section 7.1. Consent Required. Any term, covenant, agreement or
condition of this Agreement may, with the consent of the Company, be amended
or compliance therewith may be waived (either generally or in a particular
instance and either retroactively or prospectively), if the Company shall have
obtained the consent in writing of the Holders holding at least 66-2/3% in
aggregate principal amount of outstanding Notes; provided, however, that
without the written consent of all of the Holders, no such amendment or waiver
shall be effective (i) which will change the time of payment of the principal
of or the interest on any Note or change the principal amount thereof or
change the rate of interest thereon, or (ii) which will change any of the
provisions with respect to optional prepayments, or (iii) which will change
the percentage of Holders required to consent to any such amendment or waiver
of any of the provisions of this Section 7 or Section 6.
ITEM 10 - 12
Page 25
Section 7.2.Solicitation of Holders. So long as there are any Notes
outstanding, the Company will not solicit, request or negotiate for or with
respect to any proposed waiver or amendment of any of the provisions of this
Agreement or the Notes unless each Holder (irrespective of the amount of Notes
then owned by it) shall be informed thereof by the Company and shall be
afforded the opportunity of considering the same and shall be supplied by the
Company with sufficient information to enable it to make an informed decision
with respect thereto. The Company will not, directly or indirectly, pay or
cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, to any Holder as consideration for or
as an inducement to entering into by any Holder of any waiver or amendment of
any of the terms and provisions of this Agreement or the Notes unless such
remuneration is concurrently offered, on the same terms, ratably to all
Holders.
Section 7.3. Effect of Amendment or Waiver. Any such amendment or
waiver shall apply equally to all of the Holders and shall be binding upon
them, upon each future Holder and upon the Company, whether or not any Note
shall have been marked to indicate such amendment or waiver. No such
amendment or waiver shall extend to or affect any obligation not expressly
amended or waived or impair any right consequent thereon.
SECTION 8. INTERPRETATION OF AGREEMENT; DEFINITIONS.
Section 8.1. Definitions. Unless the context otherwise requires, the
terms hereinafter set forth when used herein shall have the following meanings
and the following definitions shall be equally applicable to both the singular
and plural forms of any of the terms herein defined:
"Affiliate" shall mean any Person (other than a Subsidiary) (i)
which directly or indirectly through one or more intermediaries controls, or
is controlled by, or is under common control with, the Company, (ii) which
beneficially owns or holds 5% or more of any class of the Voting Stock of the
Company or (iii) 5% or more of the Voting Stock (or in the case of a Person
which is not a corporation, 5% or more of the equity interest) of which is
beneficially owned or held by the Company or a Subsidiary. The term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of Voting Stock, by contract or otherwise.
"Agreement" shall mean this Note Agreement.
"Capitalized Lease" shall mean any lease the obligation for Rentals with
respect to which is required to be capitalized on a consolidated balance sheet
of the lessee and its subsidiaries in accordance with GAAP.
"Capitalized Rentals" of any Person shall mean as of the date of any
determination thereof the amount at which the aggregate Rentals due and to
become due under all Capitalized Leases under which such Person is a lessee
would be reflected as a liability on a consolidated balance sheet of such
Person.
ITEM 10 - 12
Page 26
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall mean ACCEL International Corporation, a Delaware
corporation, and any Person who succeeds to all, or substantially all, of the
assets and business of ACCEL International Corporation.
"Consolidated Funded Debt" shall mean all Funded Debt of the Company and
its Subsidiaries, determined on a consolidated basis eliminating intercompany
items.
"Consolidated Net Income" for any period shall mean the gross revenues
of the Company and its Subsidiaries for such period less all expenses and
other proper charges (including taxes on income), determined on a consolidated
basis after eliminating earnings or losses attributable to outstanding
Minority Interests, but excluding in any event:
(a) any gains or losses on the sale or other disposition of
Investments or fixed or capital assets, and any taxes on such excluded gains
and any tax deductions or credits on account of any such excluded losses;
(b) the proceeds of any life insurance policy;
(c) net earnings and losses of any Subsidiary accrued prior to the
date it became a Subsidiary;
(d) net earnings and losses of any corporation (other than a
Subsidiary), substantially all the assets of which have been acquired in any
manner by the Company or any Subsidiary, realized by such corporation prior to
the date of such acquisition;
(e) net earnings and losses of any corporation (other than a
Subsidiary) with which the Company or a Subsidiary shall have consolidated or
which shall have merged into or with the Company or a Subsidiary prior to the
date of such consolidation or merger;
(f) net earnings of any business entity (other than a Subsidiary) in
which the Company or any Subsidiary has an ownership interest unless such net
earnings shall have actually been received by the Company or such Subsidiary
in the form of cash distributions;
(g) any portion of the net earnings of any Subsidiary which for any
reason is unavailable for payment of dividends to the Company or any other
Subsidiary;
(h) earnings resulting from any reappraisal, revaluation or write-up
of assets;
(i) any deferred or other credit representing any excess of the equity
in any Subsidiary at the date of acquisition thereof over the amount invested
in such Subsidiary;
ITEM 10 - 12
Page 27
(j)any gain arising from the acquisition of any Securities of the Company or
any Subsidiary; and
(k) any reversal of any contingency reserve, except to the extent that
provision for such contingency reserve shall have been made from income
arising during such period.
"Consolidated Net Tangible Assets" shall mean as of the date of any
determination thereof the total amount of all Tangible Assets of the Company
and its Subsidiaries after deducting therefrom all Restricted Investments and
all items which in accordance with GAAP would be included on the liability and
equity side of a consolidated balance sheet, except deferred income taxes,
deferred investment tax credits, capital stock of any class, surplus and
Consolidated Funded Debt.
"Consolidated Tangible Net Worth" shall mean as of the date of any
determination thereof Consolidated Net Tangible Assets less all outstanding
Funded Debt, deferred income taxes and deferred investment tax credits of the
Company and its Subsidiaries.
"Current Debt" of any Person shall mean as of the date of any
determination thereof (i) all Indebtedness of such Person for borrowed money
other than Funded Debt of such Person and (ii) Guaranties by such Person of
Current Debt of others.
"Default" shall mean any event or condition the occurrence of which
would, with the lapse of time or the giving of notice, or both, constitute an
Event of Default.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time.
References to sections of ERISA shall be construed to also refer to any
successor sections.
"ERISA Affiliate" shall mean any corporation, trade or business that is,
along with the Company, a member of a controlled group of corporations or a
controlled group of trades or businesses, as described in section 414(b) and
414(c), respectively, of the Code or Section 4001 of ERISA.
"Event of Default" shall have the meaning set forth in Section 6.1.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Funded Debt" of any Person shall mean (i) all Indebtedness of such
Person for borrowed money or which has been incurred in connection with the
acquisition of assets in each case having a final maturity of one or more than
one year from the date of origin thereof (or which is renewable or extendible
at the option of the obligor for a period or periods more than one year from
the date of origin), including all payments in respect thereof that are
required to be made within one year from the date of any determination of
Funded Debt, whether or not the obligation to make such payments shall
constitute a current
ITEM 10 - 12
Page 28
liability of the obligor under GAAP, (ii) all Capitalized Rentals of such
Person, and (iii) all Guaranties by such Person of Funded Debt of others.
"GAAP" shall mean generally accepted accounting principles at the time
in the United States.
"Guaranties" by any Person shall mean all obligations (other than (i)
endorsements in the ordinary course of business of negotiable instruments for
deposit or collection and (ii) guaranties and other obligations issued or
incurred by the Company or any Subsidiary pursuant to insurance contracts or
statutory assessments made or incurred in the ordinary course of conducting
its business as an insurance company) of such Person guaranteeing, or in
effect guaranteeing, any Indebtedness, dividend or other obligation of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, all obligations incurred through an
agreement, contingent or otherwise, by such Person: (i) to purchase such
Indebtedness or obligation or any property or assets constituting security
therefor, (ii) to advance or supply funds (x) for the purchase or payment of
such Indebtedness or obligation, (y) to maintain working capital or other
balance sheet condition or otherwise to advance or make available funds for
the purchase or payment of such Indebtedness or obligation, (iii) to lease
property or to purchase Securities or other property or services primarily for
the purpose of assuring the owner of such Indebtedness or obligation of the
ability of the primary obligor to make payment of the Indebtedness or
obligation, or (iv) otherwise to assure the owner of the Indebtedness or
obligation of the primary obligor against loss in respect thereof. For the
purposes of all computations made under this Agreement, a Guaranty in respect
of any Indebtedness for borrowed money shall be deemed to be Indebtedness
equal to the principal amount of such Indebtedness for borrowed money which
has been guaranteed, and a Guaranty in respect of any other obligation or
liability or any dividend shall be deemed to be Indebtedness equal to the
maximum aggregate amount of such obligation, liability or dividend.
"Holder" shall mean any Person which is, at the time of reference, the
registered Holder of any Note.
"Indebtedness" of any Person shall mean and include all obligations of
such Person which in accordance with GAAP shall be classified upon a balance
sheet of such Person as liabilities of such Person, and in any event shall
include all (i) obligations of such Person for borrowed money or which has
been incurred in connection with the acquisition of property or assets, (ii)
obligations secured by any Lien upon property or assets owned by such Person,
even though such Person has not assumed or become liable for the payment of
such obligations, (iii) obligations created or arising under any conditional
sale or other title retention agreement with respect to property acquired by
such Person, notwithstanding the fact that the rights and remedies of the
seller, lender or lessor under such agreement in the event of default are
limited to repossession or sale of property, (iv) Capitalized Rentals and (v)
Guaranties of obligations of others of the character referred to in this
definition.
"Institutional Holder" shall mean any Holder which is a Purchaser or an
insurance company, bank, savings and loan association, trust company,
investment company, charitable
ITEM 10 - 12
Page 29
foundation, employee benefit plan (as defined in ERISA) or other institutional
investor or financial institution and, for purposes of the direct payment
provisions of this Agreement, shall include any nominee of any such Holder.
"Investments" shall mean all investments, in cash or by delivery of
property made, directly or indirectly in any Person, whether by acquisition of
shares of capital stock, indebtedness or other obligations or Securities or by
loan, advance, capital contribution or otherwise; provided, however, that
"Investments" shall not mean or include routine investments in property to be
used or consumed in the ordinary course of business.
"Insurance Regulators" shall mean the office of the Superintendent of
Insurance of the State of Ohio and the comparable insurance regulatory
authority of each jurisdiction in which the Company or any Subsidiary of the
Company is domiciled or is licensed or authorized to offer insurance.
"Lien" shall mean any interest in property securing an obligation owed
to, or a claim by, a Person other than the owner of the property, whether such
interest is based on the common law, statute or contract, and including but
not limited to the security interest lien arising from a mortgage,
encumbrance, pledge, conditional sale or trust receipt or a lease, consignment
or bailment for security purposes. The term "Lien" shall include
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
(including, with respect to stock, stockholder agreements, voting trust
agreements, buy-back agreements and all similar arrangements) affecting
property. For the purposes of this Agreement, the Company or a Subsidiary
shall be deemed to be the owner of any property which it has acquired or holds
subject to a conditional sale agreement, Capitalized Lease or other
arrangement pursuant to which title to the property has been retained by or
vested in some other Person for security purposes and such retention or
vesting shall constitute a Lien.
"Long-Term Lease" shall mean any lease of real or personal property
(other than a Capitalized Lease) having an original term, including any period
for which the lease may be renewed or extended at the option of the lessor, of
more than three years.
"Minority Interests" shall mean any shares of stock of any class of a
Subsidiary (other than directors' qualifying shares as required by law) that
are not owned by the Company and/or one or more of its Subsidiaries. Minority
Interests shall be valued by valuing Minority Interests constituting preferred
stock at the voluntary or involuntary liquidating value of such preferred
stock, whichever is greater, and by valuing Minority Interests constituting
common stock at the book value of capital and surplus applicable thereto
adjusted, if necessary, to reflect any changes from the book value of such
common stock required by the foregoing method of valuing Minority Interests in
preferred stock.
"Multiemployer Plan" shall have the same meaning as in ERISA.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
ITEM 10 - 12
Page 30
"Person" shall mean an individual, partnership, corporation, trust or
unincorporated organization, and a government or agency or political
subdivision thereof.
"Plan" means a "pension plan," as such term is defined in ERISA,
established or maintained by the Company or any ERISA Affiliate or as to which
the Company or any ERISA Affiliate contributed or is a member or otherwise may
have any liability.
"Purchaser" shall have the meaning set forth in Section 1.1.
"Rentals" shall mean and include as of the date of any determination
thereof all fixed payments (including as such all payments which the lessee is
obligated to make to the lessor on termination of the lease or surrender of
the property) payable by the Company or a Subsidiary, as lessee or sublessee
under a lease of real or personal property, but shall be exclusive of any
amounts required to be paid by the Company or a Subsidiary (whether or not
designated as rents or additional rents) on account of maintenance, repairs,
insurance, taxes and similar charges. Fixed rents under any so-called
"percentage leases" shall be computed solely on the basis of the minimum
rents, if any, required to be paid by the lessee regardless of sales volume or
gross revenues.
"Reportable Event" shall have the same meaning as in ERISA.
"Restricted Investments" shall mean all Investments, other than
Investments described in clauses (a) through (f) of Section 5.11.
"Security" shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
"Senior Funded Debt" shall mean all Consolidated Funded Debt, other than
Subordinated Funded Debt.
"Subordinated Funded Debt" shall mean all unsecured Funded Debt of the
Company which shall contain or have applicable thereto subordination
provisions substantially in the form set forth in Exhibit E attached hereto
providing for the subordination thereof to other Funded Debt of the Company,
including, without limitation, the Notes, or such other provisions as may be
approved in writing by the Holders holding not less than 66-2/3% in aggregate
principal amount of the outstanding Notes.
"Subordinated Notes" shall mean the 10.125% Subordinate Notes of the
Company currently payable to the order of Chase Insurance Holdings Corporation
and Ranger Insurance Company and Alvin B. Moss in the aggregate principal
amount of $5,884,000 as of September 30, 1995, and all additional notes issued
in payment of interest thereof and all extensions, renewals, replacements and
substitutions therefor; provided that any such additional notes and any
extensions, renewals, replacements or substitutions therefor shall contain or
have applicable thereto substantially the same subordination provisions as
contained in such Subordinated Notes outstanding on the date hereof under
which the Notes
ITEM 10 - 12
Page 31
shall constitute Senior Indebtedness. It is expressly acknowledged, intended
and agreed that the Notes constitute "Senior Indebtedness" as defined in the
Subordinated Notes.
The term "subsidiary" shall mean as to any particular parent corporation
any corporation of which more than 50% (by number of votes) of the Voting
Stock shall be beneficially owned, directly or indirectly, by such parent
corporation. The term "Subsidiary" shall mean a subsidiary of the Company.
"Tangible Assets" shall mean as of the date of any determination thereof
the total amount of all assets of the Company and its Subsidiaries, at net
book value, after deducting depreciation, depletion and other properly
deductible valuation reserves and also after deducting good will, patents,
trade names, trade marks, copyrights, franchises, experimental expense,
organization expense, unamortized debt discount and expense, deferred assets
other than prepaid insurance and prepaid taxes, the excess of cost of shares
acquired over book value of related assets and such other assets as are
properly classified as "intangible assets" in accordance with GAAP.
"Voting Stock" shall mean Securities of any class or classes, the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).
"Wholly-owned" when used in connection with any Subsidiary shall mean a
Subsidiary of which all of the issued and outstanding shares of stock (except
shares required as directors' qualifying shares) and all Funded Debt and
Current Debt shall be owned by the Company and/or one or more of its
Wholly-owned Subsidiaries.
Section 8.2. Accounting Principles. Where the character or amount of
any asset or liability or item of income or expense is required to be
determined or any consolidation or other accounting computation is required to
be made for the purposes of this Agreement, the same shall be done in
accordance with GAAP, to the extent applicable, except where such principles
are inconsistent with the requirements of this Agreement.
Section 8.3. Directly or Indirectly. Where any provision in this
Agreement refers to action to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether the action
in question is taken directly or indirectly by such Person.
SECTION 9. MISCELLANEOUS.
Section 9.1. Registered Notes. The Company shall cause to be kept at
its principal office a register for the registration and transfer of the Notes
(hereinafter called the "Note Register"), and the Company will register or
transfer or cause to be registered or transferred as hereinafter provided any
Note issued pursuant to this Agreement.
At any time and from time to time any Holder of a Note which has been
duly registered as hereinabove provided may transfer such Note upon surrender
thereof at the
ITEM 10 - 12
Page 32
principal office of the Company duly endorsed or accompanied by a written
instrument of transfer duly executed by the Holder or its attorney duly
authorized in writing.
The Person in whose name any registered Note shall be registered shall
be deemed and treated as the owner and holder thereof and a Holder for all
purposes of this Agreement. Payment of or on account of the principal,
premium, if any, and interest on any registered Note shall be made to or upon
the written order of such Holder.
Section 9.2. Exchange of Notes. At any time and from time to time,
upon not less than ten days' notice to that effect given by the Holder of any
Note initially delivered or of any Note substituted therefor pursuant to
Section 9.1, this Section 9.2 or Section 9.3, and, upon surrender of such Note
at its office, the Company will deliver in exchange therefor, without expense
to such Holder, except as set forth below, a Note for the same aggregate
principal amount as the then unpaid principal amount of the Note so
surrendered, or Notes in the denomination of $100,000 or any amount in excess
thereof as such Holder shall specify, dated as of the date to which interest
has been paid on the Note so surrendered or, if such surrender is prior to the
payment of any interest thereon, then dated as of the date of issue,
registered in the name of such Person or Persons as may be designated by such
Holder, and otherwise of the same form and tenor as the Notes so surrendered
for exchange. The Company may require the payment of a sum sufficient to
cover any stamp tax or governmental charge imposed upon such exchange or
transfer.
Section 9.3. Loss, Theft, Etc. of Notes. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of
any Note, and in the case of any such loss, theft or destruction upon delivery
of a bond of indemnity in such form and amount as shall be reasonably
satisfactory to the Company, or in the event of such mutilation upon surrender
and cancellation of the Note, the Company will make and deliver without
expense to the Holder thereof, a new Note, of like tenor, in lieu of such
lost, stolen, destroyed or mutilated Note. If an Institutional Holder is the
owner of any such lost, stolen or destroyed Note, then the affidavit of an
authorized officer of such owner, setting forth the fact of loss, theft or
destruction and of its ownership of such Note at the time of such loss, theft
or destruction shall be accepted as satisfactory evidence thereof and no
further indemnity shall be required as a condition to the execution and
delivery of a new Note other than the written agreement of such owner to
indemnify the Company.
Section 9.4. Expenses, Stamp Tax Indemnity. Whether or not the
transactions herein contemplated shall be consummated, the Company agrees to
pay directly all of the Purchaser's out-of-pocket expenses in connection with
the preparation, execution and delivery of this Agreement and the transactions
contemplated hereby, including but not limited to the reasonable charges and
disbursements of Chapman and Cutler, special counsel to the Purchaser,
duplicating and printing costs and charges for shipping the Notes, adequately
insured to the Purchaser's home office or at such other place as the Purchaser
may designate, and all such expenses of the Holders relating to any amendment,
waivers or consents pursuant to the provisions hereof, including, without
limitation, any amendments, waivers, or consents resulting from any work-out,
renegotiation or restructuring relating to the performance by the Company of
its obligations under this Agreement and the Notes.
ITEM 10 - 12
Page 33
The Company also agrees that it will pay and save the Purchaser harmless
against any and all liability with respect to stamp and other taxes, if any,
which may be payable or which may be determined to be payable in connection
with the execution and delivery of this Agreement or the Notes, whether or not
any Notes are then outstanding. The Company agrees to protect and indemnify
the Purchaser against any liability for any and all brokerage fees and
commissions payable or claimed to be payable to any Person in connection with
the transactions contemplated by this Agreement.
Section 9.5. Powers and Rights Not Waived; Remedies Cumulative. No
delay or failure on the part of any Holder in the exercise of any power or
right shall operate as a waiver thereof; nor shall any single or partial
exercise of the same preclude any other or further exercise thereof, or the
exercise of any other power or right, and the rights and remedies of each
Holder are cumulative to, and are not exclusive of, any rights or remedies any
such Holder would otherwise have.
Section 9.6. Notices. All communications provided for hereunder shall
be in writing and, if to a Holder, delivered or mailed prepaid by registered
or certified mail or overnight air courier, or by facsimile communication, in
each case addressed to such Holder at its address appearing beneath its
signature at the foot of this Agreement or such other address as any Holder
may designate to the Company in writing, and if to the Company, delivered or
mailed by registered or certified mail or overnight air courier, or by
facsimile communication, to the Company at the address beneath its signature
at the foot of this Agreement or to such other address as the Company may in
writing designate to the Holders; provided, however, that a notice to a Holder
by overnight air courier shall only be effective if delivered to such Holder
at a street address designated for such purpose in accordance with this
Section 9.6, and a notice to such Holder by facsimile communication shall only
be effective if made by confirmed transmission to such Holder at a telephone
number designated for such purpose in accordance with this Section 9.6 and
promptly followed by the delivery of such notice by registered or certified
mail or overnight air courier, as set forth above.
Section 9.7. Successors and Assigns. This Agreement shall be binding
upon the Company and its successors and assigns and shall inure to the benefit
of the Purchaser and its successor and assigns, including each successive
Holder.
Section 9.8. Survival of Covenants and Representations. All covenants,
representations and warranties made by the Company herein and in any
certificates delivered pursuant hereto, whether or not in connection with the
Closing Date, shall survive the closing and the delivery of this Agreement and
the Notes.
Section 9.9. Severability. Should any part of this Agreement for any
reason be declared invalid or unenforceable, such decision shall not affect
the validity or enforceability of any remaining portion, which remaining
portion shall remain in force and effect as if this Agreement had been
executed with the invalid or unenforceable portion thereof eliminated and it
is hereby declared the intention of the parties hereto that they would have
executed the remaining portion of this Agreement without including therein any
such part, parts or portion which may, for any reason, be hereafter declared
invalid or unenforceable.
ITEM 10 - 12
Page 34
Section 9.10.Governing Law. This Agreement and the Notes issued and sold
hereunder shall be governed by and construed in accordance with Ohio law.
Section 9.11. Captions. The descriptive headings of the various
Sections or parts of this Agreement are for convenience only and shall not
affect the meaning or construction of any of the provisions hereof.
ITEM 10 - 12
Page 35
The execution hereof by the Purchaser shall constitute a contract among the
Company and the Purchaser for the uses and purposes hereinabove set forth.
This Agreement may be executed in any number of counterparts, each executed
counterpart constituting an original but all together only one agreement.
ACCEL INTERNATIONAL CORPORATION
By /S/ Thomas H. Friedberg
-----------------------
Its Chairman, Pres. & CEO
ACCEL INTERNATIONAL CORPORATION
475 Metro Place North
Dublin, Ohio 43017-0701
Attention:
Telefacsimile:
Confirmation:
ITEM 10 - 12
Page 36
Accepted as of December 15, 1995:
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
By /S/ Kenneth J. Clark
--------------------
Its Sr. VP
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
c/o Lincoln Investment Management, Inc.
200 East Berry Street
Fort Wayne, Indiana 46802
Attention: David Patch
with a copy to:
Kenneth J. Clark
Senior Vice President
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
One Reinsurance Place
1700 Magnavox Way
P.O. Box 7807
Fort Wayne, Indiana 46801-7808
ITEM 10 - 12
Page 37
LIENS SECURING FUNDED DEBT
(INCLUDING CAPITALIZED LEASES)
AS OF SEPTEMBER 30, 1995
NONE
ITEM 10 - 12
Page 38
ACCEL INTERNATIONAL CORPORATION
9.50% Senior Note
Due April 1, 2001
PPN: 004299A*4
----------No. R-1 December 29, 1995
$
ACCEL International Corporation, a Delaware corporation (the
"Company"), for value received, hereby promises to pay to
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
or registered assigns
on the first day of April, 2001
the principal amount of
SIXTEEN MILLION FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($16,500,000)
and to pay interest (computed on the basis of a 360-day year of twelve 30-day
months) on the principal amount from time to time remaining unpaid hereon at
the rate of 9.50% per annum from the date hereof until maturity, payable
annually on the first day of each April in each year (commencing on the first
such date after the date hereof) and at maturity. The Company agrees to pay
interest on overdue principal (including any overdue required or optional
prepayment of principal) and premium, if any, and (to the extent legally
enforceable) on any overdue installment of interest, at the rate of 13.50% per
annum after the due date, whether by acceleration or otherwise, until paid.
Both the principal hereof and interest hereon are payable at the principal
office of the Company in Dublin, Ohio in coin or currency of the United States
of America which at the time of payment shall be legal tender for the payment
of public and private debts.
This Note is one of the 9.50% Senior Notes due April 1, 2001 (the
"Notes") of the Company in the aggregate principal amount of $16,500,000
issued or to be issued under and pursuant to the terms and provisions of the
Note Agreement dated as of December 15, 1995 (the "Note Agreement"), entered
into by the Company with the original Purchaser therein referred to, and this
Note and the holder hereof are entitled equally and ratably with the holders
of all other Notes outstanding under the Note Agreement to all the benefits
provided for thereby or referred to therein. Reference is hereby made to the
Note Agreement for a statement of such rights and benefits.
ITEM 10 - 12
Page 39
This Note and the other Notes outstanding under the Note Agreement may be
declared due prior to their expressed maturity dates and certain prepayments
are required to be made thereon, all in the events, on the terms and in the
manner and amounts as provided in the Note Agreement.
The Notes are subject to prepayment at the option of the Company prior
to their expressed maturity dates without premium or penalty on the terms and
conditions and in the amounts set forth in the Note Agreement.
This Note is registered on the books of the Company and is transferable
only by surrender thereof at the principal office of the Company duly endorsed
or accompanied by a written instrument of transfer duly executed by the
registered holder of this Note or its attorney duly authorized in writing.
Payment of or on account of principal, premium, if any, and interest on this
Note shall be made only to or upon the order in writing of the registered
holder.
ACCEL INTERNATIONAL CORPORATION
By /S/ Thomas H. Friedberg
-----------------------
Its President and Chief Executive Officer
ITEM 10 - 12
Page 40
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Purchaser as follows:
1. Subsidiaries. Annex A attached hereto states the name of each of
the Company's Subsidiaries, its jurisdiction of incorporation and the
percentage of its Voting Stock owned by the Company and/or its Subsidiaries.
The Company and each Subsidiary has good and marketable title to all of the
shares it purports to own of the stock of each Subsidiary, free and clear in
each case of any Lien. All such shares have been duly issued and are fully
paid and non-assessable.
2. Corporate Organization and Authority. The Company, and each
Subsidiary,
(a) is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation;
(b) has all requisite power and authority and all necessary licenses
and permits to own and operate its properties and to carry on its
business as now conducted and as presently proposed to be conducted;
and
(c) is duly licensed or qualified and is in good standing as a foreign
corporation in each jurisdiction wherein the nature of the business
transacted by it or the nature of the property owned or leased by it
makes such licensing or qualification necessary.
3. Business and Property. The Purchaser has heretofore been
furnished with the following information generally describing the business
conducted and proposed to be conducted by the Company and its Subsidiaries
(the "Information").
(a) the 1994 Annual Statement of Acceleration Life Insurance Company
(the "Life Subsidiary");
(b) the 1994 Form 10-K of the Company;
(c) the September 30, 1995 Form 10-Q of the Company;
(d) the July, 1995 Actuarial Appraisal of the Acceleration Insurance
Group as of December 31, 1994, prepared by CreditRe Corporation, plus
attachments, plus updates dated October 18, November 8 and November 17;
(e) tax calculation for the Life Subsidiary dated November 27, 1995;
(f) financial projection of business assumed from Consumers Life
Insurance Company dated December 5, 1995;
ITEM 10 - 12
Page 41
(g)financial projection of direct written business dated November 16, 1995;
(h) facsimile from Angela Hammerly (CreditRe Corporation) dated
December 4, 1995, concerning Retroactive Accounts;
(i) printout of Life Subsidiary's Disability Claim Reserve
Development; and
(j) display of Life Subsidiary's business by original term as of
January 31, 1995.
4. Financial Statements. (a) The consolidated balance sheets of the
Company and its consolidated Subsidiaries as of December 31 in each of the
years 1990 to 1994, both inclusive, and the statements of income and retained
earnings and changes in financial position or cash flows for the fiscal years
ended on said dates, each accompanied by a report thereon containing an
opinion unqualified as to scope limitations imposed by the Company and
otherwise without qualification except as therein noted, by Ernst & Young (as
to years 1990 to 1993) and KPMG Peat Marwick LLP (as to year 1994), have been
prepared in accordance with GAAP consistently applied except as therein noted,
are correct and complete and present fairly the financial position of the
Company and its Subsidiaries as of such dates and the results of their
operations and changes in their financial position or cash flows for such
periods. The unaudited consolidated balance sheets of the Company and its
consolidated Subsidiaries as of September 30, 1995, and the unaudited
statements of income and retained earnings and cash flows for the nine-month
period ended on said date prepared by the Company have been prepared in
accordance with GAAP consistently applied, are correct and complete and
present fairly the financial position of the Company and its consolidated
Subsidiaries as of said date and the results of their operations and changes
in their financial position or cash flows for such period.
(b) Since December 31, 1994, there has been no change in the
condition, financial or otherwise, of the Company and its consolidated
Subsidiaries as shown on the consolidated balance sheet as of such date except
changes in the ordinary course of business, none of which individually or in
the aggregate has been materially adverse.
5. Indebtedness. Annex B attached hereto correctly describes all
Current Debt, Funded Debt, Capitalized Leases and Long-Term Leases of the
Company and its Subsidiaries outstanding on September 30, 1995.
6. Full Disclosure. Neither the financial statements referred to in
paragraph 4 hereof nor the Agreement, the Information or any other written
statement furnished by the Company to the Purchaser in connection with the
negotiation of the sale of the Notes, contains any untrue statement of a
material fact or omits a material fact necessary to make the statements
contained therein or herein not misleading. There is no fact peculiar to the
Company or its Subsidiaries which the Company has not disclosed to the
Purchaser in writing which materially affects adversely nor, so far as the
Company can now foresee, will materially affect adversely the properties,
business, prospects, profits or condition (financial or otherwise) of the
Company and its Subsidiaries, taken as a whole.
ITEM 10 - 12
Page 42
7.Pending Litigation. There are no proceedings pending or, to the knowledge
of the Company, threatened against or affecting the Company or any Subsidiary
in any court or before any governmental authority or arbitration board or
tribunal which involve the possibility of materially and adversely affecting
the properties, business, prospects, profits or condition (financial or
otherwise) of the Company and its Subsidiaries. There are ordinary course of
business claims pending under insurance policies written by the Company's
insurance Subsidiaries for which adequate reserves have been established and
will be maintained.
8. Title to Properties. The Company and each Subsidiary has good and
marketable title in fee simple (or its equivalent under applicable law) to all
material parcels of real property and has good title to all the other material
items of property it purports to own, including that reflected in the most
recent balance sheet referred to in paragraph 4 hereof, except as sold or
otherwise disposed of in the ordinary course of business and except for Liens
permitted by the Agreement.
9. Patents and Trademarks. The Company and each Subsidiary owns or
possesses all the patents, trademarks, trade names, service marks, copyright,
licenses and rights with respect to the foregoing necessary for the present
and planned future conduct of its business, without any known conflict with
the rights of others.
10. Sale is Legal and Authorized. The sale of the Notes and
compliance by the Company with all of the provisions of the Agreement and the
Notes -
(a) are within the corporate powers of the Company;
(b) will not violate any provisions of any law or any order of any
court or governmental authority or agency and will not conflict with or
result in any breach of any of the terms, conditions or provisions of,
or constitute a default under the Restated Certificate of Incorporation
or By-laws of the Company or any indenture or other agreement or
instrument to which the Company is a party or by which it may be bound
or result in the imposition of any Liens or encumbrances on any
property of the Company; and
(c) have been duly authorized by proper corporate action on the part
of the Company (no action by the stockholders of the Company being
required by law, by the Restated Certificate of Incorporation or
By-laws of the Company or otherwise), executed and delivered by the
Company and the Agreement and the Notes constitute the legal, valid and
binding obligations, contracts and agreements of the Company
enforceable in accordance with their respective terms.
11. No Defaults. No Default or Event of Default has occurred
and is continuing. Neither the Company nor any Subsidiary is in default in
the payment of principal or interest on any Funded Debt or Current Debt or is
in default under any instrument or instruments or agreements under and subject
to which any Funded Debt or Current Debt has been issued, and no event has
occurred and is continuing under the provisions of any such instrument or
ITEM 10 - 12
Page 43
agreement which with the lapse of time or the giving of notice, or both, would
constitute an event of default thereunder.
12. Governmental Consent. Other than the authorization of the
Superintendent of Insurance of the State of Ohio, which has been obtained and
is in full force and effect, no approval, consent or withholding of objection
on the part of any regulatory body, state, Federal or local, is necessary in
connection with the execution and delivery by the Company of the Agreement or
the Notes or compliance by the Company with any of the provisions of the
Agreement or the Notes.
13. Taxes. All tax returns required to be filed by the Company
or any Subsidiary in any jurisdiction have, in fact, been filed, and all
taxes, assessments, fees and other governmental charges upon the Company or
any Subsidiary or upon any of their respective properties, income or
franchises, which are shown to be due and payable in such returns have been
paid. For all taxable years ending on or before December 31, 1992, the
Federal income tax liability of the Company and its Subsidiaries has been
satisfied and either the period of limitations on assessment of additional
Federal income tax has expired or the Company and its Subsidiaries have
entered into an agreement with the Internal Revenue Service closing
conclusively the total tax liability for the taxable year. The Company does
not know of any proposed additional tax assessment against it for which
adequate provision has not been made on its accounts, and no material
controversy in respect of additional Federal or state income taxes due since
said date is pending or to the knowledge of the Company threatened. The
provisions for taxes on the books of the Company and each Subsidiary are
adequate for all open years, and for its current fiscal period.
14. Use of Proceeds. The net proceeds from the sale of the
Notes will be used to pay all Indebtedness due The Fifth Third Bank under its
Credit Agreement with the Issuer dated as of September 24, 1991, as amended,
and the Issuer's Amended and Restated Term Note dated September 23, 1994 and
restated February 7, 1995 issued thereunder, to pay all Indebtedness due
Acceleration National Insurance Company (a Wholly-owned Subsidiary of the
Company) and for other corporate purposes. None of the transactions
contemplated in the Agreement (including, without limitation thereof, the use
of proceeds from the issuance of the Notes) will violate or result in a
violation of Section 7 of the Securities Exchange Act of 1934, as amended, or
any regulation issued pursuant thereto, including, without limitation,
Regulations G, T and X of the Board of Governors of the Federal Reserve
System, 12 C.F.R., Chapter II. Neither the Company nor any Subsidiary owns or
intends to carry or purchase any "margin stock" within the meaning of said
Regulation G. None of the proceeds from the sale of the Notes will be used to
purchase, or refinance any borrowing the proceeds of which were used to
purchase, any "security" within the meaning of the Securities Exchange Act of
1934, as amended.
15. Private Offering. Neither the Company, directly or
indirectly, nor any agent on its behalf has offered or will offer the Notes or
any similar Security or has solicited or will solicit an offer to acquire the
Notes or any similar Security from or has otherwise approached or negotiated
or will approach or negotiate in respect of the Notes or any similar Security
with any Person other than the Purchaser. Neither the Company, directly or
ITEM 10 - 12
Page 44
indirectly, nor any agent on its behalf has offered or will offer the Notes or
any similar Security or has solicited or will solicit an offer to acquire the
Notes or any similar Security from any Person so as to bring the issuance and
sale of the Notes within the provisions of Section 5 of the Securities Act of
1933, as amended.
16. ERISA. The consummation of the transactions provided for in
the Agreement and compliance by the Company with the provisions thereof and
the Notes issued thereunder will not involve any prohibited transaction within
the meaning of ERISA or Section 4975 of the Internal Revenue Code of 1986, as
amended. Each Plan complies in all material respects with all applicable
statutes and governmental rules and regulations, and (a) no Reportable Event
has occurred and is continuing with respect to any Plan, (b) neither the
Company nor any ERISA Affiliate has withdrawn from any Plan or Multiemployer
Plan or instituted steps to do so, and (c) no steps have been instituted to
terminate any Plan. No condition exists or event or transaction has occurred
in connection with any Plan which could result in the incurrence by the
Company or any ERISA Affiliate of any material liability, fine or penalty.
Neither the Company nor any ERISA Affiliate has a "defined benefit" Plan as
defined in ERISA. Neither the Company nor any ERISA Affiliate has any
contingent liability with respect to any post-retirement "welfare benefit
plan" (as such term is defined in ERISA) except as has been disclosed to the
Purchaser.
17. Compliance with Law. Neither the Company nor any Subsidiary
(a) is in violation of any law, ordinance, franchise, governmental rule or
regulation to which it is subject; or (b) has failed to obtain any license,
permit, franchise or other governmental authorization necessary to the
ownership of its property or to the conduct of its business, which violation
or failure to obtain would materially adversely affect the business,
prospects, profits, properties or condition (financial or otherwise) of the
Company and its Subsidiaries, taken as a whole, or impair the ability of the
Company to perform its obligations contained in the Agreement or the Notes.
Neither the Company nor any Subsidiary is in default with respect to any order
of any court or governmental authority or arbitration board or tribunal.
18. Compliance with Environmental Laws. Neither the Company nor
any Subsidiary is in violation of any applicable Federal, state, or local
laws, statutes, rules, regulations or ordinances relating to public health,
safety or the environment, including, without limitation, relating to
releases, discharges, emissions or disposals to air, water, land or ground
water, to the withdrawal or use of ground water, to the use, handling or
disposal of polychlorinated biphenyls (PCBs), asbestos or urea formaldehyde,
to the treatment, storage, disposal or management of hazardous substances
(including, without limitation, petroleum, crude oil or any fraction thereof,
or other hydrocarbons), pollutants or contaminants, to exposure to toxic,
hazardous or other controlled, prohibited or regulated substances which
violation could have a material adverse effect on the business, prospects,
profits, properties or condition (financial or otherwise) of the Company and
its Subsidiaries, taken as a whole. The Company does not know of any
liability or class of liability of the Company or any Subsidiary under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended (42 U.S.C. Section 9601 et seq.), or
ITEM 10 - 12
Page 45
the Resource Conservation and Recovery Act of 1976, as amended (42 U.S.C.
Section 6901 et seq.).
ITEM 10 - 12
Page 46
SUBSIDIARIES OF THE COMPANY
PERCENTAGE
OF
NAME OF SUBSIDIARY JURISDICTION OFVOTING STOCK
OWNED
INCORPORATION BY THE
COMPANY
Acceleration Life Insurance Company Ohio 100%
Acceleration National Service Corporation Ohio 100%
Acceleration National Insurance Company Ohio 100%
Acceleration Insurance Agency, Inc. Ohio 100%
Acceleration Insurance Agency of Indiana Indiana 100%
Dublin International Limited Turks and Caicos 100%
Acceleration Insurance Agency of Pennsylvania Pennsylvania 100%
Acceleration Insurance Company Limited United Kingdom 100%
Randjill Group Limited New York 100%
Acceleration Life Insurance Agency, Inc. Ohio 100%
ITEM 10 - 12
Page 47
DESCRIPTION OF DEBT AND LEASES
1. Current Debt of the Company and its Subsidiaries outstanding on September
30, 1995 is as follows:
Indebtedness to The Fifth Third Bank under Credit Agreement dated as of
September 24, 1991, as amended, in the aggregate principal amount of
$12,800,000 (the "Bank Debt").
Indebtedness to holders of Subordinated Notes in the aggregate principal
amount of $5,884,000.
Indebtedness to Acceleration National Insurance Company in the aggregate
principal amount of $4,000,000 (the "ANIC Debt").
The entire outstanding balance of the Bank Debt and the ANIC Debt will be paid
from the proceeds of the sale of the Notes and other funds of the Company.
2. Funded Debt (other than Capitalized Rentals) of the Company and its
Subsidiaries outstanding on September 30, 1995 is as follows:
None.
3. Long-Term Leases of the Company and its Subsidiaries outstanding on
September 30, 1995 are as follows:
Lessee: Acceleration Life Insurance Company/Signer
Acceleration National Service Corp./Payee
Lessor: Oliver Allen Corporation
Equipment Lease: AS/400 Computer Hardware
Lease Terms: 24 Month Lease beginning May 1994
Monthly payment $8,293. plus tax
Purchase Option at lease Expiration: Fair Market
Value
Lessee: Acceleration National Service Corp.
Lessor: Xerox Corporation
Equipment Lease: Xerox 4850 Highlight Color Laser Printer
Lease Terms: 54 Month Lease beginning June 1993
Monthly Payment: $3,187. plus tax
Purchase Option at lease Expiration: Fair Market
Value
ITEM 10 - 12
Page 48
Lessee: Acceleration National Service Corporation
Lessor: Norstan Financial Services
Equipment Lease: Rolm 9751 Model 10 Telephone System
Lease Terms: 60 Month Lease beginning August 1991
Monthly Payment: $2,287. plus tax
Purchase Option at lease Expiration: Fair Market
Value
Lessee: Acceleration Life Insurance Company/Signer
Acceleration National Service Corp./Payee
Lessor: Xerox Corporation
Equipment Lease: 5335 Copier
Lease Terms: One Year Automatic Renewal after original lease
expiration: Renewal period beginning October
1995. Monthly Payment: $416. plus tax
Lessee: Acceleration National Insurance Corporation
Lessor: NEC America, Inc.
Equipment Lease: Electra Prof level II Telephone System with
Voice Mail
60 Month Lease beginning November 1995
Lease Terms: Monthly Payment: $362.
Purchase Option at Lease Termination: $1.
Lessee: Acceleration National Insurance Corporation
Lessor: NEC America, Inc.
Equipment Lease: Prosignia 300 Model Computer System
Lease Terms: 36 Month Lease beginning November 1995
Monthly Payment: $1,272.
Purchase Option at Lease Termination: $1.
Lessee: Acceleration National Insurance Corporation
Lessor: Sanwa Leasing Corp.
Equipment Lease: Panasonic Copier/Sorter, Olympia Fax Machine, IBM
Typewrite
Lease Terms: 36 Month Lease beginning November 1995
Monthly Payment: $319.
One Year Automatic Renewal after original lease
expiration
Lessee: Acceleration National Insurance Corporation
Lessor: Pitney Bowes Credit Corporation
Equipment Lease: Mail/Postage Equipment
Lease Terms: Quarterly Payments: 4 Qtr. @ $271.
13 Qtr. @ $284.
Renewal Option after original lease expiration
ITEM 10 - 12
Page 49
Lessee: Acceleration National Insurance Corporation
Lessor: American Southwest Properties
Office Lease: 6410 Sq. Ft.: 12603 Southwest Freeway
Stafford, TX
Base Rental: $352,550. over Five (5) Years
4. Capitalized Leases of the Company and its Subsidiaries outstanding on
September 30, 1995 are as follows:
None
ITEM 10 - 12
Page 50
DESCRIPTION OF SPECIAL COUNSEL'S CLOSING OPINION
The closing opinion of Chapman and Cutler, special counsel to the
Purchaser, called for by Section 4.1 of the Note Agreement, shall be dated the
Closing Date and addressed to the Purchaser, shall be satisfactory in form and
substance to the Purchaser and shall be to the effect that:
1.
The Company is a corporation, validly existing and in good standing under the
laws of the State of Delaware and has the corporate power and the corporate
authority to execute and deliver the Note Agreement and to issue the Notes.
2.
The Note Agreement has been duly authorized by all necessary corporate action
on the part of the Company, has been duly executed and delivered by the
Company and constitutes the legal, valid and binding contract of the Company
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance and similar laws affecting creditors' rights generally,
and general principles of equity (regardless of whether the application of
such principles is considered in a proceeding in equity or at law).
3.
The Notes have been duly authorized by all necessary corporate action on the
part of the Company, and the Notes being delivered on the date hereof have
been duly executed and delivered by the Company and constitute the legal,
valid and binding obligations of the Company enforceable in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent conveyance and
similar laws affecting creditors' rights generally, and general principles of
equity (regardless of whether the application of such principles is considered
in a proceeding in equity or at law).
4.
The issuance, sale and delivery of the Notes under the circumstances
contemplated by the Note Agreement do not, under existing law, require the
registration of the Notes under the Securities Act of 1933, as amended, or the
qualification of an indenture under the Trust Indenture Act of 1939, as
amended.
The opinion of Chapman and Cutler shall also state that the opinion of
Squire, Sanders & Dempsey is satisfactory in scope and form to Chapman and
Cutler and that, in their opinion, the Purchaser is justified in relying
thereon.
In rendering the opinion set forth in paragraph 1 above, Chapman and
Cutler may rely, as to matters referred to in paragraph 1, solely upon an
examination of the Restated Certificate of Incorporation certified by, and a
certificate of good standing of the Company from, the Secretary of State of
the State of Delaware, the By-laws of the Company and the general business
corporation law of the State of Delaware. The opinion of Chapman and Cutler
is limited to the laws of the State of Illinois, the general business
corporation law of the State of Delaware and the Federal laws of the United
States.
ITEM 10 - 12
Page 51
With respect to matters of fact upon which such opinion is based, Chapman and
Cutler may rely on appropriate certificates of public officials and officers
of the Company and upon representations of the Company and the Purchaser
delivered in connection with the issuance and sale of the Notes.
ITEM 10 - 12
Page 52
DESCRIPTION OF CLOSING OPINION
OF COUNSEL TO THE COMPANY
The closing opinion of Squire, Sanders & Dempsey, counsel for the
Company, which is called for by Section 4.1 of the Note Agreement, shall be
dated the Closing Date and addressed to the Purchaser, shall be satisfactory
in scope and form to the Purchaser and shall be to the following effect;
provided that as to qualification, licensure and good standing in
jurisdictions other than Delaware and Ohio, the matters in paragraph 2 and
matters in paragraph 6 respecting agreements or instruments other than the
Company's Restated Certificate of Incorporation and By-laws, the Purchaser
will accept the opinion of Nicholas Z. Alexander, Senior Vice President,
Secretary and General Counsel of the Company.
1.
The Company is a corporation, duly incorporated, validly existing and in good
standing under the laws of the State of Delaware, has the corporate power and
the corporate authority to execute and perform the Note Agreement and to issue
the Notes and has the full corporate power and the corporate authority to
conduct the activities in which it is now engaged and is duly licensed or
qualified and is in good standing as a foreign corporation in each
jurisdiction in which the character of the properties owned or leased by it or
the nature of the business transacted by it makes such licensing or
qualification necessary.
2.
Each Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and is duly
licensed or qualified and is in good standing in each jurisdiction in which
the character of the properties owned or leased by it or the nature of the
business transacted by it makes such licensing or qualification necessary and
all of the issued and outstanding shares of capital stock of each such
Subsidiary have been duly issued, are fully paid and non-assessable and are
owned by the Company.
3.
The Note Agreement has been duly authorized by all necessary corporate action
on the part of the Company, has been duly executed and delivered by the
Company and constitutes the legal, valid and binding contract of the Company
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance and similar laws affecting creditors' rights generally,
and general principles of equity (regardless of whether the application of
such principles is considered in a proceeding in equity or at law).
4.
The Notes have been duly authorized by all necessary corporate action on the
part of the Company, have been duly executed and delivered by the Company and
constitute the legal, valid and binding obligations of the Company enforceable
in accordance with their terms, subject to bankruptcy, insolvency, fraudulent
conveyance and similar laws affecting creditors' rights generally, and general
principles of equity (regardless of whether the application of such principles
is considered in a proceeding in equity or at law).
ITEM 10 - 12
Page 53
5.Other than the authorization of the Superintendent of Insurance of the State
of Ohio, which has been obtained and is in full force and effect, no approval,
consent or withholding of objection on the part of, or filing, registration or
qualification with, any governmental body, Federal or state, is necessary in
connection with the execution and delivery of the Note Agreement or the Notes.
6.
The issuance and sale of the Notes and the execution, delivery and performance
by the Company of the Note Agreement do not conflict with or result in any
breach of any of the provisions of or constitute a default under or result in
the creation or imposition of any Lien upon any of the property of the Company
pursuant to the provisions of the Restated Certificate of Incorporation or
By-laws of the Company or any agreement or other instrument known to such
counsel to which the Company is a party or by which the Company may be bound.
7.
The issuance, sale and delivery of the Notes under the circumstances
contemplated by the Note Agreement do not, under existing law, require the
registration of the Notes under the Securities Act of 1933, as amended, or the
qualification of an indenture under the Trust Indenture Act of 1939, as
amended.
The opinion of Squire, Sanders & Dempsey shall cover such other matters
relating to the sale of the Notes as the Purchaser may reasonably request.
With respect to matters of fact on which such opinion is based, such counsel
shall be entitled to rely on appropriate certificates of public officials and
officers of the Company.
ITEM 10 - 12
Page 54
SUBORDINATION PROVISIONS APPLICABLE TO
SUBORDINATED FUNDED DEBT
(a) The indebtedness evidenced by the subordinated notes* and any renewals
or extensions thereof, shall at all times be wholly subordinate and junior in
right of payment to any and all indebtedness of the Company [here insert
description of indebtedness to which Subordinated Funded Debt is Subordinated
which in all events must include the Notes] (herein called "Superior
Indebtedness"), in the manner and with the force and effect hereafter set
forth:
(1) In the event of any liquidation, dissolution or winding up of the
Company, or of any execution, sale, receivership, insolvency, bankruptcy,
liquidation, readjustment, reorganization or other similar proceeding relative
to the Company or its property, all principal and interest owing on all
Superior Indebtedness shall first be paid in full before any payment is made
upon the indebtedness evidenced by the subordinated notes; and in any such
event any payment or distribution of any kind or character, whether in cash,
property or securities (other than in securities, including equity securities,
or other evidences of indebtedness, the payment of which is subordinated to
the payment of all Superior Indebtedness which may at the time be outstanding)
which shall be made upon or in respect of the subordinated notes shall be paid
over to the holders of such Superior Indebtedness, pro rata, for application
in payment thereof unless and until such Superior Indebtedness shall have been
paid or satisfied in full;
(2) In the event that the subordinated notes are declared or become due and
* Or debentures or other designation as may be appropriate.
payable because of the occurrence of any event of default hereunder (or under
the agreement or Indenture, as appropriate) or otherwise than at the option of
the Company, under circumstances when the foregoing clause (l) shall not be
applicable, the holders of the subordinated notes shall be entitled to
payments only after there shall first have been paid in full all Superior
Indebtedness outstanding at the time the subordinated notes so become due and
payable because of any such event, or payment shall have been provided for in
a manner satisfactory to the holders of such Superior Indebtedness; and
(3) During the continuance of any default with respect to any Superior
Indebtedness permitting the holders thereof to accelerate the maturity of such
Superior Indebtedness, no payment of principal, premium or interest shall be
made on the subordinated notes, if either (i) notice of such default in
writing or by telegram has been given to the Company by any holder or holders
of any Superior Indebtedness, provided that judicial proceedings shall be
commenced with respect to such default (x) within one hundred twenty (120)
days thereafter in the case such default relates to the non-payment of
principal, interest or premium on such Superior Indebtedness or (y) within 90
days after the giving of such notice in the case of any other event or
condition causing such default, or (ii) judicial proceedings shall be pending
in respect
ITEM 10 - 12
Page 55
of such default. The holders of Superior Indebtedness shall not be entitled
to give notice pursuant to this clause (3) more than once with respect to any
default which was specified in such a notice and which has continued without
interruption since the date such notice was given, nor shall such holders be
entitled to give a separate notice with respect to any default not so
specified which (to the knowledge of any holder giving such notice) was
existing on the date notice shall have been given pursuant to this clause (3)
and which has continued without interruption from the date such notice was
given. Upon receipt of any notice from the holders of Superior Indebtedness
pursuant to this clause (3), the Company shall forthwith send a copy thereof
to each holder of the subordinated notes at the time outstanding.
(b) The holder of each subordinated note undertakes and agrees for the
benefit of each holder of Superior Indebtedness to execute, verify, deliver
and file any proofs of claim which any holder of Superior Indebtedness may at
any time require in order to prove and realize upon any rights or claims
pertaining to the subordinated notes and to effectuate the full benefit of the
subordination contained herein; and upon failure of the holder of any
subordinated note so to do, any such holder of Superior Indebtedness shall be
deemed to be irrevocably appointed the agent and attorney-in-fact of the
holder of such note to execute, verify, deliver and file any such proofs of
claim.
(c) No right of any holder of any Superior Indebtedness to enforce
subordination as herein provided shall at any time or in any way be affected
or impaired by any failure to act on the part of the Company or the holders of
Superior Indebtedness, or by any noncompliance by the Company with any of the
terms, provisions and covenants of the subordinated notes or the agreement
under which they are issued, regardless of any knowledge thereof that any such
holder of Superior Indebtedness may have or be otherwise charged with.
(d) The Company agrees, for the benefit of the holders of Superior
Indebtedness, that in the event that any subordinated note is declared due and
payable before its expressed maturity because of the occurrence of a default
hereunder, (i) the Company will give prompt notice in writing of such
happening to the holders of Superior Indebtedness and (ii) all Superior
Indebtedness shall forthwith become immediately due and payable upon demand,
regardless of the expressed maturity thereof.
(e) The foregoing provisions are solely for the purpose of defining the
relative rights of the holders of Superior Indebtedness on the one hand, and
the holders of the subordinated notes on the other hand, and nothing herein
shall impair, as between the Company and the holders of the subordinated
notes, the obligation of the Company which is unconditional and absolute, to
pay the principal, premium, if any, and interest on the subordinated notes in
accordance with their terms, nor shall anything herein prevent the holders of
the subordinated notes from exercising all remedies otherwise permitted by
applicable law or hereunder upon default hereunder, subject to the rights of
the holders of Superior Indebtedness as herein provided for.
ITEM 10 - 12
Page 56
REINSURANCE AGREEMENT
Between
ACCELERATION LIFE INSURANCE COMPANY
of
Dublin, Ohio
and
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
of
Fort Wayne, Indiana
Inspected By
Date
Doc.
CCN/Agmt. No.
ITEM 10 - 13
Page 57
TABLE OF CONTENTS
Page
----
A. REINSURANCE COVERAGE 1
B. PAYMENTS BY CEDING COMPANY 1
C. PAYMENTS BY REINSURER 2
D. COINSURANCE AND MODIFIED COINSURANCE RESERVES 2
E. REPORTS AND ACCOUNTING FOR REINSURANCE 2
F. TERMS OF REINSURANCE 4
G. MATERIAL CHANGES 4
H. ARBITRATION 4
I. INSOLVENCY OF THE CEDING COMPANY 5
J. ACKNOWLEDGEMENTS 6
K. TERMINATION 7
L. PAYMENTS AND ACCOUNTING UPON TERMINATION OF AGREEMENT 8
M. INTERMEDIARY 9
N. OFFSET 9
O. MISCELLANEOUS 9
P. EXECUTION 11
DEFINITION OF TERMS 12
ITEM 10 - 13
Page 58
TABLE OF CONTENTS (CONTINUED)
SCHEDULE I
QUOTA SHARE AND POLICIES SUBJECT TO REINSURANCE 17
SCHEDULE II, PART A
SUMMARY OF MONETARY TRANSACTIONS 18
SCHEDULE II, PART B
SUMMARY OF MONETARY TRANSACTIONS 20
SCHEDULE III
ANNUAL REPORT 21
SCHEDULE IV
ALLOWANCES 22
SCHEDULE V
PROFIT SHARING 23
SCHEDULE VI
INVESTMENT INCOME RATE 25
SCHEDULE VII
ARBITRATION SCHEDULE 26
SCHEDULE VIII
SECTION 1.848-2(g) (8) ELECTION 28
SCHEDULE IX
DEFERRED PROFIT SHARING ACCOUNT 30
ITEM 10 - 13
Page 59
I N D E M N I T Y R E I N S U R A N C E A G R E E M E N T
between
ACCELERATION LIFE INSURANCE COMPANY
of
Dublin, Ohio,
referred to as the "CEDING COMPANY,"
and
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
of
Fort Wayne, Indiana,
Referred to as the "REINSURER."
A. REINSURANCE COVERAGE
1. The CEDING COMPANY shall cede, and the REINSURER shall accept,
reinsurance of a Quota Share of the Policies. Reinsurance shall be
ceded on a coinsurance and modified coinsurance basis.
2. The liability of the REINSURER shall begin simultaneously with that of
the CEDING COMPANY, but in no event prior to the Effective Date or until
this Agreement has been executed by both the CEDING COMPANY and
REINSURER.
3. The Effective Date of this Agreement is December 31, 1995.
4. Reinsurance of a Policy shall be maintained in force without reduction
so long as the liability of the CEDING COMPANY under such Policy remains
in force without reduction, unless reinsurance is terminated or reduced
as provided herein.
5. In no event shall reinsurance be in force under this Agreement for a
Policy unless the Policy's issue and delivery complies with the laws of
all applicable jurisdictions and the ISSUING INSURER'S corporate
charter.
B. PAYMENTS BY CEDING COMPANY
1. To effect reinsurance on Policies in force on the Effective Date, the
CEDING COMPANY shall pay the REINSURER an initial reinsurance premium on
the Execution Date equal to the Coinsurance Reserves as of the Effective
Date minus the Initial Policy Expense Allowance.
2. A preliminary estimate of the initial reinsurance premium shall be paid
by the CEDING COMPANY to the REINSURER in two installments. The first
ITEM 10 - 13
Page 60
installment in the amount of $27,500,000 shall be paid no later than December
28, 1995. The second installment in the amount of $12,500,000 shall be paid
no later than January 11, 1996.
3. For each Accounting Period the CEDING COMPANY shall pay the REINSURER a
reinsurance premium equal to:
(a) the Quota Share of the premiums written by the CEDING COMPANY
during an Accounting Period net of return premiums pursuant to the
Policies; plus
(b) any Adverse Development Premium; less
(c) the Mean Reserve Adjustment; less
(d) the Periodic Allowance; less
(e) the Quota Share of Unusual Expenses; less
(f) any earned distribution from the Deferred Profit Sharing Account
in accordance with Schedule IX;
provided that (g) each of the amounts listed above shall be computed
less similar amounts paid by the CEDING COMPANY pursuant to Other
Reinsurance; and (h) if the above calculation produces a negative
amount, the REINSURER shall pay the CEDING COMPANY the absolute value of
such amount.
C. PAYMENTS BY REINSURERS
The REINSURER shall reimburse its Quota Share of Benefits paid by the CEDING
COMPANY during the Accounting Period less any Benefits paid by the CEDING
COMPANY pursuant to Other Reinsurance.
D. COINSURANCE AND MODIFIED COINSURANCE RESERVES
Reinsurance shall be ceded on a combined coinsurance and modified coinsurance
basis. The CEDING COMPANY shall be responsible for the Modified Coinsurance
Reserves and the REINSURER shall be responsible for the Coinsurance Reserves.
The amount of total Reserves and Reserves attributable to coinsurance and
modified coinsurance shall be determined as of the last day of each Accounting
Period in accordance with the terms of this Agreement.
E. REPORTS AND ACCOUNTING FOR REINSURANCE
1. The CEDING COMPANY shall notify the REINSURER of reinsurance ceded
pursuant to this Agreement by means of the reports specified in this
section.
2. The CEDING COMPANY shall summarize all monetary transactions under this
Agreement by submitting a written report within thirty (30) days
following the end of each calendar quarter. The report shall be
ITEM 10 - 13
Page 61
formatted as set forth in Schedule II, parts A and B. If any amount cannot be
determined on an exact basis on the date the final monetary summary and
reconciliation is due, an estimated payment shall be made and any final
adjustments shall be made as soon as practicable. Any amounts shown in such
reports as due from the CEDING COMPANY shall be paid in cash by the CEDING
COMPANY when submitting the reports to the REINSURER. If a report shows an
amount due from the REINSURER, the amount shall be paid in cash by the
REINSURER within thirty (30) days of its receipt of such report.
Notwithstanding the above, amounts arising as distributions from the Deferred
Profit Sharing Account may be paid in kind either in whole or in part using
the ACCEL Note valued at the principal amount.
3. Amounts due from either party pursuant to this Agreement may be paid net
of amounts due from the other party.
4. The CEDING COMPANY shall provide the REINSURER with information which
the REINSURER may need to prepare its tax, statutory and GAAP financial
statements, including but not limited to information described in
Schedule II and III. Such information shall be submitted at the end of
each calendar year. A preliminary report shall be provided within ten
(10) days following the end of each calendar year and a final report
shall be provided within sixty (60) days following the end of the
calendar year.
5. The CEDING COMPANY shall provide the REINSURER with a copy of its most
recent financial reports prepared in accordance with GAAP and its most
recent statutory statement as soon as they are available.
6. If the CEDING COMPANY ever becomes aware that its summary of monetary
transactions for an Accounting Period as required in this section did
not accurately reflect the actual experience of the Policies during the
Accounting Period, it shall promptly submit a revised summary to the
REINSURER. Any amount shown by the revised summary as owed by either
the CEDING COMPANY or the REINSURER to the other shall be paid promptly.
7. The REINSURER may unilaterally change Schedules II and III in order to
obtain the data it reasonably needs to properly administer this
Agreement or to prepare its financial statements.
ITEM 10 - 13
Page 62
F. TERMS OF REINSURANCE
1. All monetary amounts expressed in this Agreement are expressed in United
States dollars and all amounts payable pursuant to this Agreement are
payable in United States dollars.
2. This is an Agreement for indemnity reinsurance solely between the CEDING
COMPANY and the REINSURER. The acceptance of reinsurance hereunder
shall not create any right or legal relation whatever between the
REINSURER and any person other than the CEDING COMPANY.
3. The parties elect to have this Agreement treated in accordance with
Section 1.848-2(g)(8) of the Income Tax Regulations issued December 1992
under Section 848 of the Internal Revenue Code of 1986. Specific
details of this election are set forth in Schedule VIII.
G. MATERIAL CHANGES
1. The CEDING COMPANY shall promptly notify the REINSURER of any Material
Change in the terms of the Policies, in the method used to calculate
Reserves for the Policies or in its Other Reinsurance.
2. Following a Material Change, the REINSURER may in its sole discretion
(a) continue to reinsure the Policies under current terms, (b) require
that an additional premium be paid to compensate for the Material
Change, or (c) implement any combination of (a) and (b).
H. ARBITRATION
1. If the CEDING COMPANY and the REINSURER cannot mutually resolve a
dispute regarding the interpretation or operation of this Agreement, the
dispute shall be decided through arbitration as set forth in the
Arbitration Schedule. The arbitrators shall base their decision on the
terms and conditions of this Agreement. However, if the terms and
conditions of this Agreement do not explicitly dispose of an issue in
dispute between the parties, the arbitrators may base their decision on
the customs and practices of the insurance and reinsurance industry
rather than solely on an interpretation of applicable law. The
arbitrators' decision shall take into account the right to offset mutual
debts and credits as provided in this Agreement. There shall be no
appeal from the arbitrators' decision. Any court having jurisdiction
over the subject matter and over the parties may reduce the arbitrators'
decision to judgment.
ITEM 10 - 13
Page 63
2.The parties intend this section to be enforceable in accordance with the
Federal Arbitration Act (9 U.S.C., Section 1) including any amendments to that
Act which are subsequently adopted. In the event that either party refuses to
submit to arbitration as required by paragraph 1, the other party may request
a United States Federal District Court to compel arbitration in accordance
with the Federal Arbitration Act. Both parties consent to the jurisdiction of
such court to enforce this section and to confirm and enforce the performance
of any award of the arbitrators.
I. INSOLVENCY OF THE CEDING COMPANY
1. The REINSURER'S liability, when such liability is ascertained, shall be
payable upon demand by the CEDING COMPANY at the same time as the CEDING
COMPANY shall pay its net retained portion of such an obligation, with
reasonable provision for verification before payment, and the
reinsurance shall be payable by the REINSURER on the basis of the
liability of the CEDING COMPANY under the Policies without diminution
because of the insolvency of the CEDING COMPANY. In the event of
insolvency and the appointment of a conservator, liquidator or statutory
successor of the CEDING COMPANY, such portion shall be payable to such
conservator, liquidator or statutory successor immediately upon demand,
with reasonable provisions for verification, on the basis of claims
allowed against the CEDING COMPANY by any court of competent
jurisdiction or by any conservator, liquidator or statutory successor of
the CEDING COMPANY having authority to allow such claims, without
diminution because of such insolvency or because such conservator,
liquidator or statutory successor has failed to pay all or a portion of
any claims.
2. The CEDING COMPANY'S conservator, liquidator, or statutory successor
shall give the REINSURER written notice of the pendency of a claim
against the CEDING COMPANY indicating the Policy, within a reasonable
time after such claim is filed. The REINSURER may interpose, at its own
expense, in the proceeding where such claim is to be adjudicated, any
defense or defenses which the REINSURER may deem available to the CEDING
COMPANY, or its conservator, liquidator or statutory successor.
3. Any expense incurred by the REINSURER pursuant to paragraph 2, above,
shall be payable subject to court approval out of the estate of the
CEDING COMPANY as part of the expense of conservation or liquidation to
ITEM 10 - 13
Page 64
the extent of the REINSURER'S liability of the benefit which may accrue to the
CEDING COMPANY in conservation or liquidation, solely as a result of the
defense undertaken by the REINSURER. Where two or more reinsurers are
participating in the same claim and a majority in interest elect to interpose
defense to such claim, the expense shall be apportioned in accordance with the
terms of this Agreement as though such expense had been incurred by the CEDING
COMPANY.
J. ACKNOWLEDGEMENTS
1. The CEDING COMPANY acknowledges having provided the REINSURER with the
following documents and materials prior to the Execution Date:
(a) the 1994 Annual Statement of the CEDING COMPANY;
(b) the 1994 Form 10-K of ACCEL International Corporation;
(c) the September 30, 1995, Form 10-Q of ACCEL International
Corporation;
(d) the July 1995 Actuarial Appraisal of the Acceleration Insurance
Group as of December 31, 1994, prepared by CreditRe Corporation,
plus attachments, plus updates dated October 18, November 8 and
November 17;
(e) tax calculation for the CEDING COMPANY dated November 27, 1995;
(f) financial projection of the net interest of the CEDING COMPANY in
the business assumed from Consumers Life Insurance Company dated
December 5, 1995;
(g) financial projection of direct written business dated November 16,
1995;
(h) facsimile from Angela Hammerly (CreditRe Corporation) dated
December 4, 1995, concerning Retroactive Accounts;
(i) printout of CEDING COMPANY'S Disability Claim Reserve Development;
(j) display of CEDING COMPANY'S business by original term as of
January 31, 1995; and
(k) facsimile dated December 15, 1995, of the breakdown of the CEDING
COMPANY'S statutory reserves as of June 30, 1995, representing
those reserves the CEDING COMPANY expected to cede to the
REINSURER.
2. The CEDING COMPANY affirms that all assumptions made in compiling the
documents and materials listed and described in paragraph 1 were based
upon informed judgment and are consistent with sound actuarial
ITEM 10 - 13
Page 65
principles. Further, the CEDING COMPANY affirms that all factual information
contained in these documents was, as of the date of their making, correct and
accurate.
3. The CEDING COMPANY affirms that there has been no Material Change in the
CEDING COMPANY'S financial condition and the expected profitability of
the Policies between the "as of" date of the documents listed and
described in paragraph 1 and the Execution Date.
4. The CEDING COMPANY acknowledges that the REINSURER has relied on the
accuracy of the information contained in the documents and materials
listed and described in paragraph 1 in entering into this Agreement.
5. The CEDING COMPANY acknowledges its responsibility for independently
forming its own conclusions regarding:
(a) the compliance of this Agreement with the laws and regulations of
any particular state or jurisdiction;
(b) the statutory or other accounting impact of this Agreement on the
CEDING COMPANY'S financial statements, and
(c) the tax impact of this Agreement on the CEDING COMPANY.
6. Unless otherwise explicitly provided for herein, the CEDING COMPANY and
the REINSURER shall each be solely responsible for determining and
discharging any state or federal income tax liability resulting from
this Agreement, including any tax liability resulting from the initial
monetary transactions.
K. TERMINATION
1. Except as otherwise provided in this section, this Agreement shall be
unlimited in duration.
2. Either the CEDING COMPANY or the REINSURER may terminate this Agreement
as of the end of any quarter but only with respect to reinsurance not
yet placed in force by giving the other party thirty (30) days' advance
written notice of termination.
3. The CEDING COMPANY may terminate this Agreement with respect to all
reinsurance hereunder as of the end of any calendar quarter in which
unearned premiums outstanding total less than $250,000 by giving the
REINSURER ninety (90) days' advance written notice of termination.
4. If none of the Policies are in force as of the end of any Accounting
Period, this Agreement shall automatically terminate as of the day the
last Policy terminated.
ITEM 10 - 13
Page 66
5.If the CEDING COMPANY fails to pay reinsurance premiums when due, the
REINSURER may terminate this Agreement with respect to all reinsurance
hereunder. To effect such termination, the REINSURER shall give the CEDING
COMPANY written notice of termination. The CEDING COMPANY may avoid
termination by paying all delinquent reinsurance premiums, plus all additional
reinsurance premiums that may have become due, within thirty (30) days
following its receipt of notice of termination. Termination shall be effective
as of the last date to which reinsurance premiums had been paid.
6. The termination of this Agreement or of any reinsurance hereunder shall
not affect any rights or obligations of either party applicable to the
period prior to the effective date of termination.
L. PAYMENTS AND ACCOUNTING UPON TERMINATION OF AGREEMENT
1. Except for termination with respect to reinsurance not yet placed in
force, if this Agreement is terminated, the CEDING COMPANY shall
summarize all monetary transactions for the Terminal Accounting Period
and report its summary to the REINSURER within thirty (30) days of the
later of the effective date of termination or of notice of termination.
The report shall be in the form of Schedule II, parts A and B.
2. A profit sharing for the Terminal Accounting Period shall be calculated
in accordance with Schedule V. If the terminal profit sharing
calculation produces a positive amount, such amount shall be paid by the
REINSURER to the CEDING COMPANY within thirty (30) days of the later of
(a) its receipt of the summary of monetary transactions for the Terminal
Accounting Period or (b) payment in full of the ACCEL Note. If the
terminal profit sharing calculation produces a negative amount, the
CEDING COMPANY shall pay the absolute value of such amount to the
REINSURER when submitting the summary of monetary transactions for the
Terminal Accounting Period. However, if this Agreement terminates
automatically because none of the Policies are in force at the end of an
Accounting Period and the terminal profit sharing calculation produces a
negative amount, the CEDING COMPANY shall not pay the absolute value of
such amount to the REINSURER.
3. Following the summarization of all monetary transactions and payment of
the amount due for the Terminal Accounting Period, including the
ITEM 10 - 13
Page 67
calculation and payment of the profit sharing for the Terminal Accounting
Period, neither the CEDING COMPANY nor the REINSURER shall owe the other any
additional payment or amount pursuant to this Agreement.
4. The CEDING COMPANY shall provide the REINSURER with information the
REINSURER may need to prepare its tax, statutory and GAAP financial
statements for the Terminal Accounting Period as required by section E.
5. If the CEDING COMPANY ever becomes aware that its summary of monetary
transactions for the Terminal Accounting Period as required in this
section did not accurately reflect the actual experience of the Policies
during the Terminal Accounting Period, it shall promptly submit a
revised summary to the REINSURER, and the terminal profit sharing shall
be recalculated. Any amount shown by the revised summary and
recalculated terminal profit sharing as owed by either the CEDING
COMPANY or the REINSURER to the other shall be paid promptly.
M. INTERMEDIARY
LINCOLN NATIONAL INTERMEDIARIES, INC., 1300 S. Clinton, Fort Wayne, Indiana,
46801 is hereby recognized as the intermediary negotiating this Agreement for
all reinsurance hereunder. All communications between the CEDING COMPANY and
the REINSURER relating to this Agreement shall be transmitted through Lincoln
National Intermediaries, Inc. Payments by the CEDING COMPANY to the
intermediary shall be deemed to constitute payment to the REINSURER. Payments
by the REINSURER to the intermediary shall be deemed to constitute payment to
the CEDING COMPANY only to the extent that such payments are actually received
by the CEDING COMPANY.
N. OFFSET
Any debts or credits, matured or unmatured, liquidated or unliquidated,
regardless of when they arose or were incurred, in favor of or against either
the CEDING COMPANY or the REINSURER with respect to this Agreement are deemed
to be mutual debts and credits and shall be set off and only the balance shall
be allowed or paid.
O. MISCELLANEOUS
1. Certain terms used in this Agreement are defined in the Definitions of
Terms schedule and are to be interpreted in accordance with such
ITEM 10 - 13
Page 68
definitions. In the absence of a specific definition, a term used in this
Agreement is to be interpreted in accordance with customary insurance and
reinsurance industry practices.
2. Any Error made by either the CEDING COMPANY or the REINSURER in the
administration of reinsurance under this Agreement shall be corrected by
submitting revised reports and restoring both the CEDING COMPANY and the
REINSURER to the positions they would have occupied had no Error
occurred.
3. The REINSURER may audit, at any reasonable time and at its own expense,
all records and procedures relating to reinsurance under this Agreement.
The CEDING COMPANY shall cooperate in the audit, including providing any
information requested by the REINSURER in advance of the audit. Further,
the CEDING COMPANY agrees to complete, at the request of the REINSURER
and in a manner acceptable to the REINSURER, a process which confirms
the existence of the Policies.
4. In the event that a significant portion of the Policies are continued
into Continuation Policies issued by the Issuing Insurer, its successor
or any of its affiliates, the Continuation Policies shall automatically
be reinsured under this Agreement unless the REINSURER, in its sole
discretion, chooses not to reinsure such Policies.
5. Neither the CEDING COMPANY nor the REINSURER may assign any of the
rights and obligations under this Agreement, nor may either party sell,
assumption reinsure or transfer the Policies without the prior written
consent of the other party. Consent will not be withheld if the
assignment, sale, assumption reinsurance or transfer does not have a
material effect on the risks transferred or the expected economic
results to the party requested to consent. This provision shall not
prohibit the REINSURER from reinsuring the Policies on an indemnity
basis.
6. This Agreement represents the entire agreement between the CEDING
COMPANY and the REINSURER and supersede, with respect to its subject
matter, any prior oral or written agreements between the parties.
7. No modification or waiver of any provision of this Agreement shall be
effective unless set forth in writing. A waiver shall constitute a
waiver only with respect to the particular circumstance for which it is
given and not a waiver of any future circumstance.
ITEM 10 - 13
Page 69
8.References in this Agreement to specific lines, pages and exhibits of the
statutory financial statement refer to such lines, pages and exhibits as of
the Effective Date. Changes in the statutory financial statement which affect
such items shall modify references in this Agreement so as to keep such
references current with the statutory financial statement, provided such
modification does not alter the rights and obligations of either party.
P. EXECUTION
IN WITNESS WHEREOF,
ACCELERATION LIFE INSURANCE COMPANY
of
Dublin, Ohio,
and
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
of
Fort Wayne, Indiana,
have by their respective officers executed this Agreement in duplicate on the
dates shown below.
ACCELERATION LIFE INSURANCE COMPANY
Signed at Dublin, Ohio
-------------------
By /S/ Thomas H. Friedberg By /S/ Kurt L. Mueller
---------------------------- ---------------------------------------
Title Chairman, President & CEO Title Vice President & Controller
------------------------- ------------------------------------
Date December 27, 1995 Date December 27, 1995
-------------------------- -------------------------------------
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
Signed at Fort Wayne, Indiana
By /S/ Kenneth Clark By /S/ -----------------
---------------------------- ---------------------------------------
Sr. Vice President Assistant Secretary
Date December 29, 1995 Date December 29, 1995
-------------------------- -------------------------------------
ITEM 10 - 13
Page 70
DEFINITION OF TERMS
ACCEL Note - The 9.5% Senior Notes due April 1, 2001, issued by ACCEL
International Corporation and purchased by the REINSURER, and held by the
REINSURER, or any affiliate of the REINSURER, or any direct or indirect
retrocessionaire of the REINSURER.
Accounting Period - for the year in which this Agreement becomes effective,
the period beginning on the Effective Date and ending on the Last Day Of The
Current Accounting Period. Thereafter, the period beginning on the day
following the Last Day Of The Preceding Accounting Period and ending on the
Last Day Of The Current Accounting Period.
Adverse Development Premium - the amount equal to any adverse development from
the Effective Date in the amount of losses incurred prior to the Effective
Date, subject to a $1,000,000 cumulative cap over the life of this Agreement.
Agreement - this document and all Schedules and amendments to it.
Benefits - the life insurance and accident and health benefits provided or
reimbursed by the CEDING COMPANY pursuant to the Policies.
Coinsurance Reserves - the Reserves less the Modified Coinsurance Reserves.
Continuation Policy - a new Policy changing or replacing a Policy made or
issued either (1) in compliance with the terms of the Policy or (2) without
the same new underwriting information that the ISSUING INSURER would obtain in
the absence of the Policy, without a suicide exclusion period or contestable
period as long as those contained in new issues of the ISSUING INSURER, or
without the payment of the same commissions in the first year that the ISSUING
INSURER would have paid in the absence of the Policy.
Cumulative Reinsurance Profit - the sum, as of the Last Day Of The Current
Accounting Period, of all Reinsurance Profits from the Effective Date to the
Last Day Of The Current Accounting Period. ITEM 10 - 13
Page 71
DEFINITION OF TERMS (CONTINUED)
Deferred Profit Sharing Account - a fund maintained by the REINSURER out of
Reinsurance Profit as described in Schedule IX.
Effective Date - the date set forth in section A, paragraph 3.
Error - any isolated, inadvertent deviation from the terms of this Agreement
resulting from the act or omission of an employee of either the CEDING COMPANY
or the REINSURER whose principal function is administrative in nature.
Execution Date - the date this Agreement is signed by the last of the parties
to sign it.
Fixed Interest Rate - l.4375% per calendar quarter.
Increase in Coinsurance Reserves - shall be an amount equal to the Coinsurance
Reserve on the Last Day Of The Current Accounting Period less the Coinsurance
Reserve on the Last Day Of The Preceding Accounting Period.
Initial Policy Expense Allowance - the amount set forth in Schedule IV.
Interest Earned - Interest earned and received by the REINSURER on the ACCEL
Note less any capital losses on the ACCEL Note.
Interest on Deferred Profit Sharing Account - equals the Deferred Profit
Sharing Account as of the Last Day Of The Preceding Accounting Period times
the Fixed Interest Rate.
Interest on Net Coinsurance Reserves - equals the Fixed Interest Rate times
the arithmetic average of the Net Coinsurance Reserves as of the Last Day Of
The Preceding Accounting Period and the Net Coinsurance Reserves as of the
Last Day Of The Current Accounting Period.
Investment Income Rate - the interest rate set forth in Schedule VI which is
used in calculating the Mean Reserve Adjustment. ITEM 10 - 13
Page 72
DEFINITION OF TERMS (CONTINUED)
ISSUING INSURER - the CEDING COMPANY with respect to business directly written
and Consumers Life Insurance Company with respect to business assumed by the
CEDING COMPANY.
Last Day Of The Current Accounting Period - shall refer to the last day of the
calendar quarter for which the calculation is being made, except that for the
Terminal Accounting Period, such term shall refer to the moment Immediately
prior to termination.
Last Day Of The Preceding Accounting Period - shall refer to the last day of
the preceding calendar quarter, except that for the initial Accounting Period,
such term shall refer to the Effective Date.
Loss Carryforward - the absolute value of any negative Reinsurance Profit
after adjustment to the Deferred Profit Sharing Account.
Material Change - a change that a prudent insurance executive would consider
as likely to have a material impact on the REINSURER'S experience under this
Agreement.
Mean Reserve Adjustment - equals (a) minus (b) minus the quantity [(c) times
(d) times the sum of (a) plus (b)], where
(a) equals the Modified Coinsurance Reserves on the Last Day Of The
Current Accounting Period, and
(b) equals the Modified Coinsurance Reserves on the Last Day Of The
Preceding Accounting Period, and
(c) equals the Investment Income Rate, and
(d) equals one-half, except that for the initial Accounting Period,
(d) shall equal zero.
Modified Coinsurance Reserves - 70% of the Reserves on the Reinsurer's Quota
Share of the life insurance business reinsured hereunder.
Net Coinsurance Reserves - an amount equal to the Coinsurance Reserves minus
the book value of the ACCEL Note.
ITEM 10 - 13
Page 73
DEFINITION OF TERMS (CONTINUED)
Other Reinsurance - reinsurance other than portfolio quota share reinsurance
which inures to the CEDING COMPANY'S benefit with respect to the Policies.
Periodic Allowance - the amount described in Schedule IV.
Policy(ies) - the insurance policy(ies) identified in Schedule I which are
reinsured pursuant to this Agreement.
Quota Share - the percentage of the Policies set forth in Schedule I which is
ceded by the CEDING COMPANY to the REINSURER pursuant to this Agreement.
REINSURER'S Scheduled Charge - the amounts defined in Part C of Schedule V.
Reinsurance Profit - the amount described in Part B of Schedule V.
Reserves - shall equal the Quota Share of the CEDING COMPANY'S statutory
reserve liability (including, as appropriate, unearned premium reserves,
mortality reserves, claim reserves and liabilities, active life reserves,
disabled life reserves, accrued retroactive commissions and any other
liabilities for which the REINSURER is responsible) calculated on the basis
used by the CEDING COMPANY in compiling its statutory financial statement as
required by the laws of its state of domicile, net of Other Reinsurance.
Terminal Accounting Period - the period commencing on the day following the
Last Day Of The Preceding Accounting Period and ending on the effective date
of termination pursuant to any notice of termination given under this
Agreement or such other date as shall be mutually agreed to in writing.
ITEM 10 - 13
Page 74
DEFINITION OF TERMS (CONTINUED)
Unusual Expenses - non-routine charges incurred by the ISSUING INSURER in
defending or investigating a claim for policyholder benefits or in rescinding
a Policy, including penalties, attorney's fees, and interest imposed
automatically by statute against the ISSUING INSURER and arising solely out of
a judgment rendered against the ISSUING INSURER in a suit for policyholder
benefits, provided that the following categories of expenses or liabilities
shall not be considered "Unusual Expenses":
(a) routine investigative or administrative expenses;
(b) expenses incurred in connection with a dispute or contest arising
out of conflicting claims of entitlement to policyholder benefits
which the ISSUING INSURER admits are payable;
(c) expenses, fees, settlements, or judgments arising out of or in
connection with claims against the ISSUING INSURER for punitive or
exemplary damages;
(d) expenses, fees, settlements, or judgments arising out of or in
connection with claims made against the ISSUING INSURER and based
on alleged or actual bad faith, failure to exercise good faith, or
tortious conduct; and
(e) policy premium reimbursement or return arising out of or in
connection with an action of the type set forth in (c) or (d)
above.
ITEM 10 - 13
Page 75
SCHEDULE I
QUOTA SHARE AND POLICIES SUBJECT TO REINSURANCE
The Quota Share shall be 100% of all credit life and credit disability
insurance written by the CEDING COMPANY or accepted as reinsurance by the
CEDING COMPANY from Consumers Life Insurance Company of Camp Hill,
Pennsylvania, and in force as of the Effective Date except for all business
ceded directly or indirectly to producer-owned reinsurance companies.
ITEM 10 - 13
Page 76
SCHEDULE II, PART A
SUMMARY OF MONETARY TRANSACTIONS
for the period from to
------------------ ------------------
1. Initial reinsurance premium (first Accounting Period only)
2. Reinsurance Premium (Net of Other Reinsurance)
(a) Premiums, plus
(b) any Adverse Development Premium, less
(c) Mean Reserve Adjustment, less
(d) Periodic Allowance, less
(e) Unusual Expenses,
Subtotal: , less
-------------------------
(f) any earned distribution from Deferred Profit Sharing Account
Total Reinsurance Premium:
----------------------------------
3. Life Benefits
4. Accident and Health Benefits
5. Life Benefits - Other Reinsurance
6. Accident and Health Benefits - Other Reinsurance
7. Net Benefits [(3) + (4) - (5) - (6)]
8. Coinsurance Reserves - Last Day Of The Preceding Accounting Period
9. Coinsurance Reserves - Last Day Of The Current Accounting Period
10. Increase in Coinsurance Reserves [(9) - (8), except (9) First Accounting
Period only]
11. Book value of ACCEL Note - Last Day Of The Preceding Accounting Period
12. Book value of ACCEL Note - Last Day Of The Current Accounting Period
13. Fixed Interest Rate
14. Interest on Net Coinsurance Reserves [1/2 times (13) times ((8) + (9)
(11) - (12))]
15. Deferred Profit Sharing Account - Last Day Of The Preceding Accounting
Period
16. Deferred Profit Sharing Account - Last Day Of The Current Accounting
Period
17. Interest on Deferred Profit Sharing Account ((13) times (15))
18. Interest Earned
19. REINSURER'S Scheduled Charge
20. Loss Carryforward from Preceding Accounting Period
21. Interest on Loss Carryforward
22. Reinsurance Profit [(1) + (2 Subtotal) - (7) - (10) + (14) + (17) + (18)
- (19) - (20) - (21)]
ITEM 10 - 13
Page 77
SCHEDULE II, PART A (CONTINUED)
23. Cumulative Reinsurance Profit
24. Modified Coinsurance Reserves - Last Day Of The Preceding Accounting
Period
25. Modified Coinsurance Reserves - Last Day Of The Current Accounting
Period
26. Investment Income Rate
27. Investment Income [1/2 times (26) times ((24) + (25))]
28. Mean Reserve Adjustment [(25) - (24)] (first Accounting Period only)
[(25) - (24) - (27)] (all other Accounting Periods)
29. Reserves - Last Day Of The Current Accounting Period
30. Breakdown of Reserves - Last Day Of The Current Accounting Period
Unearned Premium Reserves
Claim Reserves
Claim Liabilities
Active Life Reserves
Disabled Life Reserves
Accrued Retroactive Commissions
Other
ITEM 10 - 13
Page 78
SCHEDULE II, PART B
SUMMARY OF MONETARY TRANSACTIONS
for the period from to
------------------ --------------------
1. Due REINSURER
Initial reinsurance premium (1) (first period only)
Reinsurance premiums (2)
Total Due - REINSURER
2. Due CEDING COMPANY
Net Benefits (5)
Total Due - CEDING COMPANY
3. Due REINSURER (1 less 2), if positive
4. Due CEDING COMPANY (2 less 1), if positive
ITEM 10 - 13
Page 79
SCHEDULE III
ANNUAL REPORT
The annual report shall provide the following information:
- - Exhibits 8, 9 and 11 from the NAIC-prescribed annual statement
- - Schedules H and O from the NAIC-prescribed annual statement
- - an actuarial opinion on the reported reserves
- - tax reserves and required interest
- - "Analysis of Increase in Reserves" from the NAIC-prescribed annual
statement
- - "Exhibit of Accident and Health Insurance" from the NAIC-prescribed
annual statement
- - "Exhibit of Life Insurance" from the NAIC-prescribed annual statement
ITEM 10 - 13
Page 80
SCHEDULE IV
ALLOWANCES
Initial Policy Expense Allowance
The Initial Policy Expense Allowance shall be equal to the excess of (a) over
(b), but in no event greater than $10,000,000, where
(a) equals 47.5% of the unearned premium reserves developed on the
rule of 78 basis for life business and mean basis for accident and
health business reinsured hereunder as of the Effective Date, and
(b) equals $16,500,000.
Periodic Allowance
The Periodic Allowance equals the sum of the Reinsurer's Quota Share of the
business reinsured hereunder of
(a) commissions paid net of return commissions, plus
(b) 2.25% of the premiums earned, plus
(c) premium taxes paid net of credit for return premiums.
ITEM 10 - 13
Page 81
SCHEDULE V
PROFIT SHARING
A. General
Beginning in 1996, a profit sharing calculation shall be made for each
Accounting Period. An amount equal to (a) times (b) shall be added to
the Deferred Profit Sharing Account if such amount is positive, and
subtracted from the account, if negative, where
(a) equals the Reinsurance Profit, and
(b) equals 95% for the first $20,000,000 of Cumulative
Reinsurance Profit, and 75% to the extent that Cumulative
Reinsurance Profit exceeds $20,000,000.
If the profit sharing calculation results in a negative balance for the
Deferred Profit Sharing Account, a Loss Carryforward equal to the
absolute value of such negative balance shall be created and the
Deferred Profit Sharing Account set to zero.
B. Reinsurance Profit
Reinsurance Profit for each Accounting Period shall equal the result of
the following computation determined with respect to such Accounting
Period:
(a) payments by the CEDING COMPANY as described in section B before
deduction for any earned distribution from the Deferred Profit
Sharing Account for the Accounting Period, plus
(b) Interest on Deferred Profit Sharing Account, plus
(c) Interest on Net Coinsurance Reserves, plus
(d) Interest Earned, less
(e) payments by the REINSURER as described in section C, less
(f) the Increase in Coinsurance Reserves, less
(g) the REINSURER'S Scheduled Charge, less
(h) any Loss Carryforward from the prior Accounting Period, accrued
with Interest for one Accounting Period at an annual rate of 10%,
less
(i) in the event this Agreement terminates, the total of any future
REINSURER'S Scheduled Charges scheduled to be charged against
profit sharing after the Last Day Of The Current Accounting
Period.
ITEM 10 - 13
Page 82
SCHEDULE V (CONTINUED)
C. REINSURER'S Scheduled Charge
The REINSURER'S Scheduled Charge shall be equal to the annual amounts
scheduled below. One-fourth of each year's REINSURER'S Scheduled Charge
shall be charged against profit sharing on a quarterly basis.
Year REINSURER'S Scheduled Charge
---- ----------------------------
1996 $6,500,000
1997 $4,000,000
1998 $2,500,000
1999 $1,000,000
2000+ $ 0
ITEM 10 - 13
Page 83
SCHEDULE VI
INVESTMENT INCOME RATE
The Investment Income Rate for the current Accounting Period shall be
calculated as follows:
Rate = 2 * (I + CG) * 25%
------------------
A+B-I-CG
Where, based on the CEDING COMPANY'S current year results,
I equals Net Investment Income (Exhibit 2, Line 16)
CG equals
(1) Realized Capital Gains and Losses on Investments (Exhibit 3, Line
10, Column 4), plus
(2) Unrealized Capital Gains and Losses on Investments (Exhibit 4,
Line 10, Column 4), and
A (Current Year) equals
(1) Subtotals, cash and invested assets (Page 2, Item 10A, Col. 1),
plus
(2) Investment income due and accrued (Page 2, Line 16, Col. 1), less
(3) Borrowed money (Page 3, Line 22, Col. 1)
B (Previous Year) equals
(1) Subtotals, cash and invested assets (Page 2, Line 10A, Col. 2),
plus
(2) Investment income due and accrued (Page 2, Line 16, Col. 2), less
(3) Borrowed money (Page 3, Line 22, Col. 2)
All references in this schedule to exhibits, lines, and pages are references
to the NAIC model statutory financial statement as in effect on December 31,
1995. All such references shall be deemed modified as necessary to correspond
to changes to the NAIC model statutory financial statement.
ITEM 10 - 13
Page 84
SCHEDULE VII
ARBITRATION SCHEDULE
To initiate arbitration, either the CEDING COMPANY or the REINSURER shall
notify the other party in writing of its desire to arbitrate, stating the
nature of its dispute and the remedy sought. The party to which the notice is
sent shall respond to the notification in writing within ten (10) days of its
receipt.
The arbitration hearing shall be before a panel of three arbitrators, each of
whom must be a present or former officer of a life insurance company. An
arbitrator may not be a present or former officer, attorney, or consultant of
the CEDING COMPANY or the REINSURER or either's affiliates.
The CEDING COMPANY and the REINSURER shall each name five (5) candidates to
serve as an arbitrator. The CEDING COMPANY and the REINSURER shall each
choose one candidate from the other party's list, and these two candidates
shall serve as the first two arbitrators. If one or more candidates so chosen
shall decline to serve as an arbitrator, the party which named such candidate
shall add an additional candidate to its list, and the other party shall again
choose one candidate from the list. This process shall continue until two
arbitrators have been chosen and have accepted. The CEDING COMPANY and the
REINSURER shall each present their initial lists of five (5) candidates by
written notification to the other party within twenty-five (25) days of the
date of the mailing of the notification initiating the arbitration. Any
subsequent additions to the list which are required shall be presented within
ten (10) days of the date the naming party receives notice that a candidate
that has been chosen declines to serve.
The two arbitrators shall then select the third arbitrator from the eight (8)
candidates remaining on the lists of the CEDING COMPANY and the REINSURER
within fourteen (14) days of the acceptance of their positions as arbitrators.
If the two arbitrators cannot agree on the choice of a third, then this choice
shall be referred back to the CEDING COMPANY and the REINSURER. The CEDING
COMPANY and the REINSURER shall take turns striking the name of one of the
remaining candidates from the initial eight (8) candidates until only one
candidate remains. If the candidate so chosen shall decline to serve as the
third arbitrator, the candidate whose name was stricken last shall be
nominated as the third arbitrator. This process shall continue until a
candidate has been chosen and has accepted. This candidate shall serve as the
third arbitrator. The first turn at striking the name of a candidate shall
belong to the party that is responding to the other party's initiation of the
arbitration. Once chosen, the arbitrators are empowered to decide all
substantive and procedural issues by a majority of votes.
It is agreed that each of the three arbitrators should be impartial regard-
ing the dispute and should resolve the dispute on the basis described in the
"ARBITRATION" section. Therefore, at no time will either the CEDING COMPANY
or the REINSURER contact or otherwise communicate with any person who is to be
or has been designated as a candidate to serve as an arbitrator concerning the
dispute, except upon the basis of jointly drafted communications (which may
include independently prepared statements) provided by both the CEDING COMPANY
and the REINSURER to inform those candidates actually chosen as arbitrators of
the nature and facts of the dispute. Likewise, any written or oral arguments
provided to the arbitrators concerning the dispute
ITEM 10 - 13
Page 85
SCHEDULE VII (CONTINUED)
shall be coordinated with the other party and shall be provided simultaneously
to the other party or shall take place in the presence of the other party.
Further, at no time shall any arbitrator be informed that the arbitrator has
been named or chosen by one party or the other.
The arbitration hearing shall be held on the date fixed by the arbitrators. In
no event shall this date be later than six (6) months after the appointment of
the third arbitrator. The arbitration hearing shall be held in the city where
the home office of the party responding to the arbitration is located. As
soon as possible, the arbitrators shall establish pre-arbitration procedures
as warranted by the facts and issues of the particular case. At least ten
(10) days prior to the arbitration hearing, each party shall provide the other
party and the arbitrators with a detailed statement of the facts and arguments
it will present at the arbitration hearing. The arbitrators may consider any
relevant evidence; they shall give the evidence such weight as they deem it
entitled to after consideration of any objections raised concerning it. The
party initiating the arbitration shall have the burden of proving its case by
a preponderance of the evidence. Each party may examine any witnesses who
testify at the arbitration hearing. Within twenty (20) days following the end
of the arbitration hearing, the arbitrators shall issue a written decision
which shall set forth their decision and the factual basis for their decision.
In their written decision the arbitrators shall demonstrate that they have
off-set mutual debts and credits as provided in this Agreement. In no event,
however, may the arbitrators award punitive or exemplary damages. In their
decision, the arbitrators shall also apportion the costs of arbitration, which
shall include, but not be limited to, their own fees and expenses.
ITEM 10 - 13
Page 86
SCHEDULE VIII
SECTION 1.848-2(G)(8) ELECTION
The CEDING COMPANY and the REINSURER agree to the following pursuant to
Section 1.848-2(g)(8) of the Income Tax Regulations issued December 1992 under
Section 848 of the Internal Revenue Code of 1986 (hereinafter "Section 1.848-
2(g)(8)").
1. As used below, the term "party" will refer to the CEDING COMPANY
or the REINSURER as appropriate.
2. As used below, the phrases "net positive consideration",
"capitalize specified policy acquisition expenses", "general
deductions limitation", and "net consideration" shall have the
meaning used in Section 1.848-2(g)(8).
3. The party with net positive consideration for this Agreement for
any taxable year beginning with the taxable year prescribed in
paragraph 5 below will capitalize specified policy acquisition
expenses with respect to this Agreement without regard to the
general deductions limitation.
4. The parties agree to exchange information pertaining to the amount
of net consideration under this Agreement to ensure consistency.
This will be accomplished as follows:
(a) The CEDING COMPANY shall submit to the REINSURER by the
fifteenth day of May in each year its calculation of the net
consideration for the preceding calendar year. Such
calculation will be accompanied by a statement signed by an
officer of the CEDING COMPANY stating that the CEDING
COMPANY will report such net consideration in its tax return
for the preceding calendar year.
(b) The REINSURER may contest such calculation by providing an
alternative calculation to the CEDING COMPANY in writing
within thirty (30) days of the REINSURER'S receipt of the
CEDING COMPANY'S calculation. If the REINSURER does not so
notify the CEDING COMPANY, the REINSURER will report the net
consideration as determined by the CEDING COMPANY in the
REINSURER'S tax return for the previous calendar year.
(c) If the REINSURER contests the CEDING COMPANY'S calculation
of the net consideration, the parties will act in good faith
to reach an agreement as to the current amount within thirty
(30) days of the date the REINSURER submits its alternative
calculation.
ITEM 10 - 13
Page 87
SCHEDULE VIII (CONTINUED)
If the CEDING COMPANY and the REINSURER reach agreement on
an amount of net consideration, each party shall report such
amount in their respective tax returns for the preceding
calendar year.
5. This election shall be effective for 1995 and all
subsequent taxable years for which the Reinsurance Agreement
remains in effect.
ITEM 10 - 13
Page 88
SCHEDULE IX
DEFERRED PROFIT SHARING ACCOUNT
The REINSURER shall maintain a Deferred Profit Sharing Account during the term
of this Agreement in the amount defined below.
The value of the Deferred Profit Sharing Account shall be zero as of the
Effective Date of this Agreement. Additions to and subtractions from the
Deferred Profit Sharing Account shall be made in accordance with Schedule V,
Part A; but in no event shall the resulting balance be less than zero nor
greater than the maximum amount.
The maximum amount shall be determined as (a) plus (b) minus (c) plus (d)
where
(a) equals the principal amount of the ACCEL Note held by the
REINSURER, its affiliates and/or its direct or indirect
retrocessionaires, and
(b) equals the total of the REINSURER'S Scheduled Charges across all
years, and
(c) equals the total of the REINSURER'S Scheduled Charges assessed to
date, and
(d) equals the Loss Carryforward, if any.
Should the calculated balance in the Deferred Profit Sharing Account exceed
the maximum amount, such excess amount over the maximum amount shall be paid
to the CEDING COMPANY in the form of a reduction of premium as provided for in
Section B, paragraph 2, of this Agreement. Only amounts in excess of the
maximum amount shall be deemed earned.
ITEM 10 - 13
Page 89
AMENDMENT
to the Reinsurance Agreement (the "Agreement")
effective December 31, 1995, between
ACCELERATION LIFE INSURANCE COMPANY of Dublin, Ohio,
hereinafter referred to as the "CEDING COMPANY,"
and
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY of Fort Wayne, Indiana,
hereinafter referred to as the "REINSURER."
1. The parties not having intended this Agreement to be effective
December 31, 1995, and wishing to correct this error, Section A, paragraph 3
is replaced with the following:
"3. The Effective Date of this Agreement is January 1, 1996."
2. The provisions of this amendment shall be subject to all the terms
and conditions of the Agreement which do not conflict with the terms hereof.
IN WITNESS WHEREOF the parties hereto have caused this amendment to be
executed in duplicate on the dates shown below.
ACCELERATION LIFE INSURANCE COMPANY
Signed at Dublin, Ohio
-------------------
By /S/ Thomas H. Friedberg By /S/ Kurt L. Mueller
------------------------------ ---------------------------------------
Title Chairman, President & CEO Title Vice President & Controller
-------------------------- -----------------------------------
Date January 4, 1996 Date January 4, 1996
---------------------------- -------------------------------------
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
Signed at Fort Wayne, Indiana
By /S/ Kenneth Clark By /S/ ------------------
------------------------ ---------------------------------------------
Sr. Vice President Assistant Secretary
Date January 5, 1996 Date January 5, 1996
------------------------------- -------------------------------
960005/2911/H10NIRL6
Agreement No. 5/Revision No. 1
ITEM 10 - 13
Page 90
ITEM 2. ORGANIZATIONAL CHART
The following sets forth organizational chart information for ACCEL as of
January 1, 1996:
(1) ACCEL International Corporation, a Delaware domiciled
insurance holding company
(2) Acceleration Life Insurance Company, an Ohio
domiciled, legal reserve life insurance company
(Directors qualifying shares outstanding)
(3) Acceleration National Service Corporation, an Ohio
corporation
(4) Acceleration National Insurance Company, an Ohio
domiciled, stock property and casualty company
formerly known as ACC Insurance Company
(5) Acceleration Insurance Agency, Inc., an Ohio
corporation
(6) Acceleration Insurance Agency of Indiana, Inc., an
Indiana corporation
(7) Dublin International Limited, an Exempted Turks and
Caicos domiciled company
(8) Acceleration Insurance Agency of Pennsylvania, Inc., a
Pennsylvania corporation
(9) Randjill Group Limited, a New York insurance holding
company
(10) Acceleration Life Insurance Agency, Inc., an Ohio
domiciled corporation
All corporations are wholly owned by the companies indicated on the following
chart except as noted.
(Report continued on following page)
ITEM 21
Page 91
ORGANIZATIONAL CHART
CHASE INSURANCE HOLDINGS CORPORATION (38.9%)
10 Acceleration Life Insurance Agency, Inc. (100%)
"ALIA"
9 Randjill Group Limited (100%)
"RANDJILL"
8 Acceleration Insurance Agency of Pennsylvania, Inc. (100%)
"AIA-PA"
7 Dublin International Limited (100%)
"DIL"
6 Acceleration Insurance Agency of Indiana, Inc. (100%)
"AIA-IN"
5 Acceleration Insurance Agency, Inc. (100%)
"AIA"
4 Acceleration National Insurance Company (100%)
"ANIC"
3 Acceleration National Service Corporation (100%)
"ANSC"
2 Acceleration Life Insurance Company (100%)
"ALIC"
1 ACCEL International Corporation
ITEM 21
Page 92
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS'
The Board of Directors
ACCEL International Corporation:
We consent to the incorporation by reference in Registration Statements (Forms
S-8 No. 33-48023, No. 33-19191 and No. 2-82736) pertaining to the First
Restatement of the 1987 Stock Incentive Plan, the 1987 Incentive Stock Option
Plan, and the 1982 Incentive Stock Option Plan, respectively, and in the
related Prospectus, of our report dated March 15, 1996, relating to the
consolidated financial statements of ACCEL International Corporation and
subsidiaries (the Company) as of December 31, 1995 and for the year then
ended, and all related schedules (all as listed in the index in Item 14(a) in
Form-10K), which report appears in the December 31, 1995 annual report on
Form-10K of ACCEL International Corporation and subsidiaries.
Our report dated March 15, 1996 contains an explanatory paragraph that states
that as discussed in Note D to the consolidated financial statements, on March
30, 1994, the Company and its principal lender agreed to waive compliance with
certain loan agreement covenants through January 1, 1995. On February 7, 1995
the Company and the lender again renegotiated the credit agreement and certain
of the covenants. The amended agreement stated that the loan was payable in
full on June 30, 1997. On December 29, 1995, the Company issued senior notes
with a different lender and retired the aforementioned credit agreement. The
most recent loan agreement requires that during the period the loan is
outstanding, the Company maintain consolidated tangible net worth, as defined.
At December 31, 1995, required tangible net worth was $15,000,000 and the
Company's consolidated tangible net worth, as defined, was $19,738,000.
/S/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Columbus, Ohio
March 15, 1996
ITEM 23
Page 93
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
ACCEL INTERNATIONAL CORPORATION
The undersigned officer and/or director of ACCEL International Corporation, a
Delaware corporation, which anticipates filing a Form 10-K under the
provisions of the Securities Act of 1934 with the Securities and Exchange
Commission, Washington, D.C., hereby constitutes and appoints Thomas H.
Friedberg and Nicholas Z. Alexander, and each of them, severally, with full
power of substitution and resubstitution, as attorneys or attorney to sign for
the undersigned in any and all capacities such Form 10-K and any and all
amendments thereto, and any and all applications or other documents to be
filed with the Securities and Exchange Commission pertaining to such Form 10-K
with full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, as fully to all
intents and purposes as the undersigned could do if personally present. The
undersigned hereby ratifies and confirms all that said attorneys-in-fact and
agents or their or his substitute or substitutes may lawfully do or cause to
be done by virtue hereof.
EXECUTED this 11th day of March , 1996.
------- -------
/S/ David T. Chase
------------------------------------
David T. Chase
Director
ITEM 24
Page 94
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
ACCEL INTERNATIONAL CORPORATION
The undersigned officer and/or director of ACCEL International Corporation, a
Delaware corporation, which anticipates filing a Form 10-K under the
provisions of the Securities Act of 1934 with the Securities and Exchange
Commission, Washington, D.C., hereby constitutes and appoints Thomas H.
Friedberg and Nicholas Z. Alexander, and each of them, severally, with full
power of substitution and resubstitution, as attorneys or attorney to sign for
the undersigned in any and all capacities such Form 10-K and any and all
amendments thereto, and any and all applications or other documents to be
filed with the Securities and Exchange Commission pertaining to such Form 10-K
with full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, as fully to all
intents and purposes as the undersigned could do if personally present. The
undersigned hereby ratifies and confirms all that said attorneys-in-fact and
agents or their or his substitute or substitutes may lawfully do or cause to
be done by virtue hereof.
EXECUTED this 7th day of March , 1996.
------- -------
/S/ Douglas J. Coats
------------------------------------
Douglas J. Coats
Director and Executive Vice President
ITEM 24
Page 95
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
ACCEL INTERNATIONAL CORPORATION
The undersigned officer and/or director of ACCEL International Corporation, a
Delaware corporation, which anticipates filing a Form 10-K under the
provisions of the Securities Act of 1934 with the Securities and Exchange
Commission, Washington, D.C., hereby constitutes and appoints Thomas H.
Friedberg and Nicholas Z. Alexander, and each of them, severally, with full
power of substitution and resubstitution, as attorneys or attorney to sign for
the undersigned in any and all capacities such Form 10-K and any and all
amendments thereto, and any and all applications or other documents to be
filed with the Securities and Exchange Commission pertaining to such Form 10-K
with full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, as fully to all
intents and purposes as the undersigned could do if personally present. The
undersigned hereby ratifies and confirms all that said attorneys-in-fact and
agents or their or his substitute or substitutes may lawfully do or cause to
be done by virtue hereof.
EXECUTED this 8th day of March , 1996.
------- -------
/S/ Raymond H. Deck
------------------------------------
Raymond H. Deck
Director
ITEM 24
Page 96
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
ACCEL INTERNATIONAL CORPORATION
The undersigned officer and/or director of ACCEL International Corporation, a
Delaware corporation, which anticipates filing a Form 10-K under the
provisions of the Securities Act of 1934 with the Securities and Exchange
Commission, Washington, D.C., hereby constitutes and appoints Thomas H.
Friedberg and Nicholas Z. Alexander, and each of them, severally, with full
power of substitution and resubstitution, as attorneys or attorney to sign for
the undersigned in any and all capacities such Form 10-K and any and all
amendments thereto, and any and all applications or other documents to be
filed with the Securities and Exchange Commission pertaining to such Form 10-K
with full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, as fully to all
intents and purposes as the undersigned could do if personally present. The
undersigned hereby ratifies and confirms all that said attorneys-in-fact and
agents or their or his substitute or substitutes may lawfully do or cause to
be done by virtue hereof.
EXECUTED this 12th day of March , 1996.
------- -------
/S/ Thomas H. Friedberg
------------------------------------
Thomas H. Friedberg
Chairman of the Board, President
and Chief Executive Officer
ITEM 24
Page 97
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
ACCEL INTERNATIONAL CORPORATION
The undersigned officer and/or director of ACCEL International Corporation, a
Delaware corporation, which anticipates filing a Form 10-K under the
provisions of the Securities Act of 1934 with the Securities and Exchange
Commission, Washington, D.C., hereby constitutes and appoints Thomas H.
Friedberg and Nicholas Z. Alexander, and each of them, severally, with full
power of substitution and resubstitution, as attorneys or attorney to sign for
the undersigned in any and all capacities such Form 10-K and any and all
amendments thereto, and any and all applications or other documents to be
filed with the Securities and Exchange Commission pertaining to such Form 10-K
with full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, as fully to all
intents and purposes as the undersigned could do if personally present. The
undersigned hereby ratifies and confirms all that said attorneys-in-fact and
agents or their or his substitute or substitutes may lawfully do or cause to
be done by virtue hereof.
EXECUTED this 9th day of March , 1996.
------- -------
/S/ Kermit G. Hicks
------------------------------------
Kermit G. Hicks
Director
ITEM 24
Page 98
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
ACCEL INTERNATIONAL CORPORATION
The undersigned officer and/or director of ACCEL International Corporation, a
Delaware corporation, which anticipates filing a Form 10-K under the
provisions of the Securities Act of 1934 with the Securities and Exchange
Commission, Washington, D.C., hereby constitutes and appoints Thomas H.
Friedberg and Nicholas Z. Alexander, and each of them, severally, with full
power of substitution and resubstitution, as attorneys or attorney to sign for
the undersigned in any and all capacities such Form 10-K and any and all
amendments thereto, and any and all applications or other documents to be
filed with the Securities and Exchange Commission pertaining to such Form 10-K
with full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, as fully to all
intents and purposes as the undersigned could do if personally present. The
undersigned hereby ratifies and confirms all that said attorneys-in-fact and
agents or their or his substitute or substitutes may lawfully do or cause to
be done by virtue hereof.
EXECUTED this 7th day of March , 1996.
------- -------
/S/ Stephen M. Qua
------------------------------------
Stephen M. Qua
Director
ITEM 24
Page 99
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
ACCEL INTERNATIONAL CORPORATION
The undersigned officer and/or director of ACCEL International Corporation, a
Delaware corporation, which anticipates filing a Form 10-K under the
provisions of the Securities Act of 1934 with the Securities and Exchange
Commission, Washington, D.C., hereby constitutes and appoints Thomas H.
Friedberg and Nicholas Z. Alexander, and each of them, severally, with full
power of substitution and resubstitution, as attorneys or attorney to sign for
the undersigned in any and all capacities such Form 10-K and any and all
amendments thereto, and any and all applications or other documents to be
filed with the Securities and Exchange Commission pertaining to such Form 10-K
with full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, as fully to all
intents and purposes as the undersigned could do if personally present. The
undersigned hereby ratifies and confirms all that said attorneys-in-fact and
agents or their or his substitute or substitutes may lawfully do or cause to
be done by virtue hereof.
EXECUTED this 8th day of March , 1996.
------- -------
/S/ Milton J. Taylor, Sr.
------------------------------------
Milton J. Taylor, Sr.
Director
ITEM 24
Page 100
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
ACCEL INTERNATIONAL CORPORATION
The undersigned officer and/or director of ACCEL International Corporation, a
Delaware corporation, which anticipates filing a Form 10-K under the
provisions of the Securities Act of 1934 with the Securities and Exchange
Commission, Washington, D.C., hereby constitutes and appoints Thomas H.
Friedberg and Nicholas Z. Alexander, and each of them, severally, with full
power of substitution and resubstitution, as attorneys or attorney to sign for
the undersigned in any and all capacities such Form 10-K and any and all
amendments thereto, and any and all applications or other documents to be
filed with the Securities and Exchange Commission pertaining to such Form 10-K
with full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, as fully to all
intents and purposes as the undersigned could do if personally present. The
undersigned hereby ratifies and confirms all that said attorneys-in-fact and
agents or their or his substitute or substitutes may lawfully do or cause to
be done by virtue hereof.
EXECUTED this 19th day of March , 1996.
------- -------
/S/ Paul R. Whitters
------------------------------------
Paul R. Whitters
Director
ITEM 24
Page 101
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary information extracted form ACCEL International
Corporation's Annual Report on Form 10-K for the year ended December 31, 1995,
and is qualified in its entirety by reference to such Form 10-K.
</LEGEND>
<CIK> 0000001985
<NAME> ACCEL INTERNATIONAL CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 0.00001
<DEBT-HELD-FOR-SALE> 53,204
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 5,451
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 63,297
<CASH> 5,039
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 31,839
<TOTAL-ASSETS> 183,507
<POLICY-LOSSES> 22,761
<UNEARNED-PREMIUMS> 82,080
<POLICY-OTHER> 11
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 22,531
<COMMON> 524
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 183,507
40,853
<INVESTMENT-INCOME> 6,488
<INVESTMENT-GAINS> 455
<OTHER-INCOME> 2,679
<BENEFITS> 20,118
<UNDERWRITING-AMORTIZATION> 31,458
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> (1,101)
<INCOME-TAX> 359
<INCOME-CONTINUING> (1,460)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,460)
<EPS-PRIMARY> (.33)
<EPS-DILUTED> 0
<RESERVE-OPEN> 23,159
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 22,761
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
