PAGE
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended . . . . . . .June 30, 1997. . . . . . .
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from . . . . . . . . . .to . . . . . . . . .
Commission file number: 0-8641
SELECTIVE INSURANCE GROUP, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-2168890
------------------------------ ----------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
40 Wantage Avenue, Branchville, New Jersey 07890
------------------------------------------ -----------
(Address of principal executive offices) (Zip Code)
973-948-3000
-------------------------------
(Registrant's telephone number,
including area code)
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 report), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
Common stock, par value $2 per share, outstanding as of July 31, 1997:
4,666,178
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Item 1. Financial Statements.
- ------------------------------
SELECTIVE INSURANCE GROUP, INC.
-------------------------------
Consolidated Balance Sheets
-------------------------------
(unaudited)
(dollars in thousands)
ASSETS June 30 December 31
- ------ 1997 1996
Investments: ------------ ----------
Debt securities, held-to-maturity -
at amortized cost (fair value of
$431,850-1997; $445,273-1996)......... $ 420,167 432,792
Debt securities, available-for-sale -
at fair value (amortized cost of
$998,615-1997; $965,965-1996)......... 1,015,122 985,372
Equity securities, available-for-sale -
at fair value (cost of
$110,164-1997; $99,383-1996).......... 200,072 161,096
Short-term investments
(at cost which approximates fair value) 2,231 33,924
Other investments (at cost which approximates
fair value)........................... 10,331 10,530
--------- ---------
Total investments ...................... 1,647,923 1,623,714
Cash....................................... 22,584 -
Interest and dividends due or accrued ..... 24,243 24,167
Premiums and other receivables............. 189,666 152,008
Reinsurance recoverable on paid losses
and loss expenses..................... 9,810 7,863
Reinsurance recoverable on unpaid losses and
loss expenses......................... 131,579 150,208
Prepaid reinsurance premiums............... 28,708 30,813
Deferred Federal income tax................ 19,502 30,771
Real estate, furniture and equipment....... 47,766 48,993
Deferred policy acquisition costs.......... 93,299 83,150
Excess of cost over fair value of net
assets acquired....................... 9,661 9,894
Other assets............................... 28,806 22,058
--------- ---------
Total assets............................ $ 2,253,547 2,183,639
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
- -----------
Reserve for losses......................... $ 995,166 1,015,601
Reserve for loss expenses.................. 176,149 174,192
Unearned premiums.......................... 362,545 332,040
Convertible subordinated debentures........ 6,879 6,912
Short-term debt ........................... 16,775 -
Notes payable.............................. 96,857 96,857
Current Federal income tax................. 3,199 3,729
Other liabilities ......................... 77,940 80,009
--------- ---------
Total liabilities....................... 1,735,510 1,709,340
--------- ---------
Stockholders' Equity:
- --------------------
Common stock of $2 par value per share:
Authorized shares-90,000,000
Issued: 18,106,199-1997; 17,911,087-1996 . 36,212 35,822
Additional paid-in capital................. 62,697 53,882
Net unrealized gains on available-for-sale
securities, net of deferred income
tax effect............................ 69,170 52,728
Retained earnings.......................... 412,198 386,601
Treasury stock - at cost
(shares: 3,445,682-1997; 3,366,631-1996) (54,147) (50,680)
Deferred compensation expense and notes
receivable from stock sales................ (8,093) (4,054)
--------- ---------
Total stockholders' equity ............. 518,037 474,299
--------- ---------
Total liabilities and stockholders' equity $ 2,253,547 2,183,639
========= =========
See accompanying notes to unaudited consolidated financial statements.
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SELECTIVE INSURANCE GROUP, INC.
================================
Consolidated Statements of Income
(unaudited)
(in thousands, except per share data)
Quarter ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
------ ------ ------ ------
Revenues:
- --------
Net premiums written.................$ 197,262 174,767 372,446 348,214
Decrease (increase) in unearned
premiums, net of prepaid
reinsurance premiums ........... (28,007) 1,307 (32,610) 4,547
------- ------- ------- -------
Net premiums earned ................. 169,255 176,074 339,836 352,761
Net investment income earned......... 24,694 23,783 49,126 47,794
Net realized gains on investments.... 991 934 1,969 1,363
Other income......................... 1,097 1,273 2,272 2,031
------- ------- ------- -------
Total revenues.................... 196,037 202,064 393,203 403,949
------- ------- ------- -------
Expenses:
- --------
Losses incurred ..................... 96,114 105,399 195,655 220,795
Loss expenses incurred............... 20,486 19,072 39,549 38,844
Policy acquisition costs............. 51,055 52,702 102,708 105,408
Dividends to policyholders........... 1,088 1,317 2,293 2,745
Interest expense..................... 2,453 2,323 4,739 4,646
Other expenses....................... 2,492 1,402 4,380 2,123
------- ------- ------- -------
Total expenses.................... 173,688 182,215 349,324 374,561
------- ------- ------- -------
Income before Federal income tax 22,349 19,849 43,879 29,388
------- ------- ------- -------
Federal income tax expense:
Current.............................. 4,202 3,569 7,660 4,636
Deferred............................. 1,044 710 2,415 292
------- ------- ------- -------
Total Federal income tax
expense......................... 5,246 4,279 10,075 4,928
------- ------- ------- -------
Net income...........................$ 17,103 15,570 33,804 24,460
======= ======= ======= =======
Earnings per share:
- ------------------
Net income-primary................$ 1.17 1.07 2.31 1.69
Net income-fully diluted .........$ 1.14 1.04 2.25 1.64
Dividends to stockholders............$ 0.28 0.28 0.56 0.56
See accompanying notes to unaudited consolidated financial statements.
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SELECTIVE INSURANCE GROUP, INC.
Consolidated Statements of Cash Flows
(unaudited)
Six months ended June 30
(in thousands) 1997 1996
---- ----
Operating Activities
- --------------------
Net income $ 33,804 24,460
Adjustments to reconcile net income to
net cash provided by operating activities:
Increase in interest and dividends due or accrued (76) (266)
Increase in premiums and other receivables (37,658) (2,259)
Increase in reinsurance recoverable on paid
losses and loss expenses (1,947) (1,922)
Increase in reserves for losses and loss
expenses, net of reinsurance recoverable on
unpaid losses and loss expenses 151 31,010
Increase (decrease) in unearned premiums, net of
prepaid reinsurance premiums 32,610 (4,547)
Decrease in net Federal income tax asset 1,886 1,474
Decrease (increase) in deferred policy acquisition
costs (10,149) 100
Depreciation and amortization 4,102 2,501
Net realized gains on investments (1,969) (1,363)
Other - net (16,143) (16,275)
------ ------
Net adjustments (29,193) 8,453
------ ------
Net cash provided by operating activities 4,611 32,913
------ ------
Investing Activities
Purchase of debt securities, held-to-maturity (16,070) (56,968)
Purchase of debt securities, available-for-sale (71,077) (51,841)
Purchase of equity securities, available-for-sale (14,502) (20,905)
Sale of debt securities, available-for-sale 29,058 11,200
Redemption and maturities of debt securities,
held-to-maturity 28,568 41,792
Redemption and maturities of debt securities,
available-for-sale 9,410 20,819
Sale of equity securities, available-for-sale 6,061 3,639
Proceeds from other investments 207 63
Increase in net payable from security
transactions 7,277 12,430
Net additions to real estate, furniture
and equipment (1,391) (1,919)
------ ------
Net cash used in investing activities $ (22,459) (41,690)
------ ------
See accompanying notes to unaudited consolidated financial statements.
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SELECTIVE INSURANCE GROUP, INC.
Consolidated Statements of Cash Flows, continued
(unaudited)
Six months ended June 30
(in thousands) 1997 1996
---- ----
Financing Activities
- --------------------
Dividends to stockholders $ (8,207) (8,124)
Acquisition of treasury stock (3,467) (68)
Proceeds from short-term debt 16,775 -
Net proceeds from dividend reinvestment plan 564 579
Net proceeds from stock purchase and
compensation plans 8,608 4,810
Increase in deferred compensation expense and
proceeds received on notes receivable from
stock sales (5,534) (2,659)
------ ------
Net cash provided by (used in) financing
activities 8,739 (5,462)
------ ------
Net decrease in short-term investments
and cash (9,109) (14,239)
Short-term investments at beginning of year 33,924 47,306
------ ------
Short-term investments and cash at
end of period $ 24,815 33,067
====== ======
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 4,301 4,966
Federal income tax 8,189 3,455
Supplemental schedule of
non-cash financing activity:
Conversion of convertible subordinated
debentures 33 10
See accompanying notes to unaudited consolidated financial statements.
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Notes to Unaudited Consolidated Financial Statements
- ----------------------------------------------------
1. Basis of Presentation
The interim financial statements are unaudited but reflect all adjustments
which, in the opinion of management, are necessary to provide a fair
presentation of the results of the Selective Insurance Group, Inc. and its
consolidated subsidiaries (collectively, the "Company") for the interim
periods presented. References herein to "Selective" are to Selective
Insurance Group, Inc. All such adjustments are of a normal recurring
nature. The results of operations for any interim period are not necessarily
indicative of results for the full year. These financial statements should
be read in conjunction with the financial statements and notes thereto
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
2. Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("FASB 128").
FASB 128 supersedes Accounting Principles Board Opinion No. 15 "Earnings
per Share" ("APB 15") and specifies the computation, presentation, and
disclosure requirements for earnings per share ("EPS") for entities with
publicly held common stock or potential common stock (that is, securities
such as options, warrants, convertible securities, or contingent stock
agreements). The objective of FASB 128 is to simplify the computation of
EPS and to make the United States standard for computing EPS more compatible
with the EPS standards of other countries and with that of the International
Accounting Standards Committee. FASB 128 will be effective for financial
statements for both interim and annual periods ending after December 15,
1997. The adoption of FASB 128 is not expected to have a material effect
on the Company's EPS disclosures.
The FASB issued Statement of Financial Accounting Standards No. 129,
"Disclosure of Information about Capital Structure" ("FASB 129"). FASB 129
specifies required disclosures about capital structure that had already been
included in a number of previously existing separate statements and opinions
and applies to all entities, public and non-public. FASB 129 will be
effective for financial statements for periods ending after December 15,
1997.
The FASB issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("FASB 130"). FASB 130 establishes
tandards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements.
Comprehensive income includes all changes in equity during a period except
those resulting from investments by owners and distribution to owners.
Under FASB 130 an enterprise will continue to display an amount for net
income, but will also be required to report other items that are included
in comprehensive income. FASB 130 will be effective for financial
statements for periods beginning after December 15, 1997. Early application
is permitted.
The FASB issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
("FASB 131"). FASB 131 establishes standards for the way that public
business enterprises report information about operating segments in
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their annual financial statements and requires that those enterprises report
selected financial information about operating segments in interim financial
reports issued to shareholders. Currently there is an "industry approach"
to segment disclosures whereas in FASB 131 segment disclosures are operating
segments. Operating segments are components of an enterprise that; (i)
engage in business activities from which it may earn revenues and incur
expenses; (ii) generate operating results which are regularly reviewed by
the enterprise's chief operating decision maker and (iii) have financial
information available. FASB 131 will be effective for financial statements
for periods beginning after December 15, 1997, although earlier application
is encouraged.
The Company's primary operating subsidiaries write property and casualty
insurance, and the Company presently classifies its business into two
operating segments, personal insurance and commercial insurance. The
business of the commercial insurance segment is conducted by seven customer-
focused Strategic Business Units ("SBUs"), which are contractors,
habitational and recreational, mercantile and service, manufacturing and
processing, public entities, bonding and selective risk managers. When FASB
131 is adopted, the Company will include SBUs in all its operating segment
disclosures.
3. Lines of Credit
During the quarter ended June 30, 1997, the Company increased its existing
revolving line of credit with a bank from $10 million to $25 million.
Selective itself may only borrow up to $20 million of the line. A
commitment fee of .12%, or $30,000, on the $25 million is payable annually.
The agreement provides that the principal outstanding on the revolving line
shall bear interest as selected by the Company under either a daily prime
rate quoted by the bank, the London Interbank Offer Rate ("Libor") plus
.28%, Libor loans may be made for interest periods of one, two, three, or
six months, or a daily money market rate quoted by the bank.
During the first quarter of 1997, the Company entered into an additional
revolving line of credit agreement with a bank under which it may borrow up
to $25 million, of which Selective itself may only borrow up to $20 million.
A commitment fee of .12% on the $25 million is payable annually. The
agreement provides that the principal outstanding on the revolving line
shall bear interest as selected by the Company under either a daily prime
rate quoted by the bank, Libor plus .28% (Libor loans may be made for
interest periods of one, two, three, or six months), or a daily money market
rate quoted by the bank.
At June 30, 1997, there was $16,775,000 of short-term debt outstanding under
the two lines of credit and the weighted average interest rate on these
borrowings was 5.96%.
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4. Reinsurance
The following is a table of assumed and ceded amounts by income statement
caption:
Quarter ended Six months ended
June 30 June 30
(in thousands) 1997 1996 1997 1996
- ------------------------------------------------------------------------
Net premiums written:
Assumed $ 3,425 6,897 11,112 14,647
Ceded (20,466) (24,484) (38,696) (47,453)
Net premiums earned:
Assumed $ 5,125 8,186 10,920 21,353
Ceded (20,274) (25,065) (40,800) (50,435)
Losses incurred:
Assumed $ 2,523 4,081 5,644 7,476
Ceded(1) (6,295) (11,130) (9,728) (41,165)
Loss expenses incurred:
Assumed $ 451 521 940 1,039
Ceded (486) (706) (870) (2,122)
(1) The significant decrease in ceded losses incurred for the six months
ended June 30, 1997 reflected the lower level of flood and winter storm
claims and one severe liability claim, which affected results in the six
months ended June 30, 1996, and which generated reinsurance loss recoveries
of $13 million, $5 million and $3 million, respectively. The flood business
is ceded 100% to the National Flood Insurance Program and therefore, the
Company is a servicer and not an underwriter of this type of insurance and
bears no risk of policyholder loss.
5. Reclassifications
Certain amounts in the Company's prior year consolidated financial
statements have been reclassified to conform with the 1997 presentation.
Such reclassifications had no effect on the Company's net income or
stockholders' equity.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion relates to the Company's results of operations,
financial condition and liquidity for the interim periods indicated.
References herein to the "Company" are references to Selective Insurance
Group, Inc. and its consolidated subsidiaries, collectively. References
herein to "Selective" are to Selective Insurance Group, Inc.
The statements, other than historical information, contained in this
Form 10-Q including, without limitation, the statements under "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
are, or may be deemed to be, forward-looking statements. Such statements
are subject to risks, uncertainties and other factors that could cause
actual results to differ materially. Such factors include, without
limitation: (i) the competitive nature of the insurance industry,
(ii) the effects of changes in insurance laws and regulations, particularly
New Jersey personal automobile insurance, (iii) the frequency and scope of
storms and other casualties, and (iv) changes in self-insurance and other
alternatives to traditional insurance.
Results of Operations
- ---------------------
Comparison of Second Quarter and Six Months Ended June 30, 1997, to Second
Quarter and Six Months Ended June 30, 1996:
Revenues
Net premiums written for the second quarter and six months ended June 30,
1997 increased by 13%, or $22 million, and 7%, or $24 million, respectively,
over the same periods in 1996. Most of the growth in net premiums written
was in the personal lines Strategic Business Unit ("SBU"), which reflected
an increase in premium volume of 33%, or $18 million, for the quarter ended
June 30, 1997 and 19%, or $21 million, for the first six months of 1997.
This growth in net premiums written occurred in the New Jersey personal
automobile line of insurance. New Jersey personal automobile net premiums
written included the results of a conversion of six-month term policies to
one-year policies (the "Conversion"), effective April 1, 1997. The
Conversion increased net premiums written, unearned premiums and premiums
and other receivables by approximately $20 million for the quarter and six
months ended June 30, 1997, but had no effect on net premiums earned or cash
flow.
The commercial SBUs net premiums written for the second quarter and six
months ended June 30, 1997, increased by 3%, or $4 million, and 1%, or $3
million, respectively, over the same periods in 1996. The increase for the
quarter and six months ended June 30, 1997, was due to an approximately $15
million and $27 million increase, respectively, in new business written and
a $4 million and $9 million increase, respectively, due to the increased
retention of premiums written resulting from changes in the Company's
reinsurance programs. These increases were significantly offset by a
reduction in net premiums written in most commercial SBUs for the quarter
and six months ended June 30, 1997 due to: (i) agency terminations of
approximately $6 million and $10
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million, respectively; (ii) rate reductions of approximately $5 million and
$10 million, respectively, mainly in the workers' compensation line of
insurance, principally due to the impact of improving loss trends; and
(iii) a reduction in existing business (renewal retention) attributable to
a highly competitive commercial insurance market place. In addition the
public entities SBU net premiums written was impacted by a trend towards
self-insurance mechanisms and other alternative markets, which reduced net
premiums written during the six months ended June 30, 1997, by approximately
$6 million.
Excluding the effects of the Conversion, the modest growth of approximately
1%, or $2 million, and 1%, or $4 million, in net premiums written, for the
quarter and six months ended June 30, 1997, respectively, and the 9%
decrease in net premiums written recorded during 1996, resulted in a decline
in total net premiums earned of 4%, or $7 million, and 4%, or $13 million,
for the quarter and six months ended June 30, 1997, respectively.
Net investment income earned for the second quarter and six months ended
June 30, 1997 increased 4%, or $1 million, and 3%, or $1 million,
respectively, over the same period in 1996. The modest increases in the
second quarter and six months ended June 30, 1997, were primarily due to
income generated from investments acquired from cash provided by operating
activities during 1996 and the investment of proceeds from short-term
borrowings during 1997. The Company was able to invest the proceeds from
the short-term borrowings at a higher rate than the borrowing rate. The
Company's overall annualized investment yield was 6.1% for the six months
ended 1997 and 1996.
Expenses
The ratio of losses and loss expenses incurred to net premiums earned for
the second quarter ended June 30, 1997 was 68.9%, a 1.8 point decrease from
70.7% for the same period in 1996. The decrease in the net loss and loss
expense ratio reflected an overall improvement in both the mercantile and
service and public entities SBUs. These improvements were partially offset
by less favorable property results in the habitational and recreational and
manufacturing and processing SBUs.
The ratio of losses and loss expenses incurred to net premiums earned for
the six months ended June 30, 1997, was 69.2%, a 4.4 point decrease from
73.6% for the six months ended June 30, 1996. The decrease in 1997 in the
loss and loss expense ratio was primarily attributable to the numerous 1996
winter storm claims which primarily impacted the personal lines, mercantile
and service, public entities, and habitational and recreational SBUs in the
prior year. These weather-related claims, which amounted to $11 million
(net of $5 million of reinsurance), increased the six months ended June 30,
1996 loss and loss expense ratio by 3.0 points. In addition most of the
commercial SBUs ratios improved in the workers compensation line of
insurance. These improvements were partially offset by the less favorable
results from the manufacturing and processing SBU.
The personal lines SBU loss and loss expense ratio of 74.3% for the quarter
ended June 30, 1997, was fairly consistent compared to the same period in
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1996. The six months ended June 30, 1997, loss and loss expense ratio was
73.5%, a decrease of 2.1 points from 75.6% for the same period in 1996.
Absent the effects of the winter storms of 3.1 points, there was a 1.0 point
increase for the six months ended June 30, 1997, which was due to an
increase in the personal automobile loss and loss expense ratio which
included a provision for the New Jersey excess profits calculation. This
was partially offset by an improvement in the homeowners line of insurance
mainly due to rate increases and lower reinsurance costs.
The commercial SBU's loss and loss expense ratio improved 3 points to
66.4% for the quarter ended June 30, 1997. The commercial SBUs with the
most significant improvements in their loss and loss expense ratio for the
quarter ended June 30, 1997, were the mercantile and service and public
entities SBUs throughout most of their business classes and lines of
insurance. Favorable loss experience in the workers compensation line of
insurance impacted most of the commercial SBUs, with significant improvement
in the public entities SBU. The improved workers compensation results
reflect positive loss trends primarily attributable to: (i) lower average
medical costs due to managed care; (ii) programs which permit employees to
return to work earlier; and (iii) various favorable legislative reforms.
These improvements were partially offset by less favorable results in the
manufacturing and
processing SBU.
For the six months ended June 30, 1997, the loss and loss expense ratio for
the commercial SBUs decreased 5.8 points to 67.2% compared to 73.0% for the
same period in 1996. Absent the effects of the 1996 winter storms of 3.0
points, the loss and loss expense ratio decreased 2.8 points with the most
notable improvement in the mercantile and service SBU. This improvement was
in most business segments and commercial lines of insurance in this SBU.
This improvement was partially offset by less than favorable results in the
manufacturing and processing SBU.
The ratio of policy acquisition costs to net premiums earned for the quarter
and six months ended June 30, 1997, increased to 30.2% from 29.9% for the
same periods in 1996. Operating expenses that do not directly vary with
changes in premium volume, (ie; labor costs, rent and equipment expense)
increased slightly; however, this ratio increased mainly due to the lower
levels of net premiums earned.
Total Federal income tax expense increased by approximately $1 million to
$5 million for the quarter ended June 30, 1997, compared to $4 million for
the same period of 1996. For the six months ended June 30, 1997, the Federal
income tax expense increased approximately $5 million to $10 million,
compared to $5 million for the first six months in 1996. The Company's
effective tax rate was 23.0% for the six months ended June 30, 1997,
compared with 16.8% for the first six months of 1996. The effective tax
rate for the six months ended June 30, 1997, was higher than the six months
ended June 30, 1996, due primarily to the tax relief from the higher level
of underwriting losses due to the winter storms in 1996. The Company's
effective tax rate differs from the Federal corporate rate of 35% primarily
as a result of the tax-exempt investment income.
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Income
The table below shows operating income, net realized gains, and net income,
including per share amounts for the quarter and six months ended June 30,
1997 and 1996.
- --------------------------------------------------------------------------
($ in thousands, Quarter ended June Six months ended June
except for per share data) 1997 1996 1997 1996
- ---------------------------------------------------------------------------
Operating income, excluding
net realized gains
(net of tax) (1) $16,459 14,963 32,524 23,574
Net realized gain,
net of tax 644 607 1,280 886
Net income (1) 17,103 15,570 33,804 24,460
Per Primary Share:
Operating income (1) 1.12 1.03 2.22 1.63
Net realized gain .05 .04 .09 .06
Net income (1) 1.17 1.07 2.31 1.69
(1) Operating and net income for the six months ended June 30, 1996,
include $6.9 million of weather-related winter storm losses, or $.48 per
primary share.
Financial Condition, Liquidity and Capital Resources
Selective is an insurance holding company whose principal assets are its
investments in its insurance subsidiaries. As an insurance holding company,
Selective meets its cash requirements through proceeds from the sales of the
Company's common stock and dividends from its insurance subsidiaries, the
payments of which are subject to state regulatory requirements.
Total assets increased 3%, or $70 million from December 31, 1996 to June 30,
1997. The growth was due to: (i) an increase in total investments,
including cash, of $47 million which included cash provided by operating
activities of $5 million, the draw of $17 million on the Company's lines of
credit, and a $25 million increase in net unrealized gains on available-for-
sale securities; and (ii) an increase in premiums and other receivables of
$38 million and deferred acquisition costs of $10 million mainly due to the
Conversion. This was offset by an $11 million decrease in deferred Federal
income taxes which mainly reflected the associated deferred taxes on the
increase in unrealized gains on available-for-sale securities.
The rise in total liabilities of 2%, or $26 million, from December 31, 1996
to June 30, 1997 was primarily attributable to additional borrowings of $17
million on the two lines of credit which the Company had outstanding at June
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30, 1997. During the second quarter, the Company expanded its available
lines of credit from $35 million to $50 million by expanding its line of
credit agreement with a bank (see note 3). The lines of credit complement
the cash provided by operating activities and provide the Company with
increased flexibility in its cash management. Unearned premiums increased
primarily due to the Conversion of New Jersey personal automobile. These
increases were partially offset by an $18 million decrease in outstanding
loss and loss expense reserves mainly due to a decrease of $12 million in
the flood line of insurance, an increased volume of outstanding claim files
being closed with final settlements, as well as lower exposure due to the
reduced net premium earned in 1996 and 1997. The rate at which outstanding
claims are being closed has increased due, in part, to the implementation
of claims management specialists (CMSs) in the field and improved litigation
management. In preparation of placing CMSs in the field, the Company
actively settled certain of its liability claims in order that each CMS
would have a more manageable number of claims to handle in the field. In
addition, the Company is utilizing its litigation managers to more actively
settle claims. For the most part, this increased claim settlement was
experienced in the general liability, personal and commercial automobile
lines of insurance.
The overall obligations and cash outflow of the Company include: claim
settlements; commissions; labor costs; premium taxes; general and
administrative expenses; investment purchases; interest expenses; ongoing
capital expenditures with respect to the Company's automation programs;
principal payments on the senior notes and dividends to policyholders and
stockholders. The insurance subsidiaries satisfy their obligations and cash
outflow through premium collections, interest and dividend income and
maturities. The Company has authorized a share repurchase program under
which Selective may repurchase up to one million shares of its common stock,
depending on market conditions, through available cash and lines of credit.
Through this program, Selective has repurchased approximately 195,000 shares
at a total cost of $7 million; of which 67,000 shares, at a cost of $3
million, were acquired during the six months ended June 30, 1997. For the
six months ended June 30, 1997 and 1996, cash provided by operating
activities amounted to $5 million and $33 million, respectively. The
decrease in cash provided by operating activities was mainly a result of the
higher level of claim and claim expense payments (approximately $7 million)
associated with the aforementioned CMS deployment and increased litigation
settlement activity. In addition, the lower levels of premiums written in
1996 and modest growth in 1997 (excluding the effects of the Conversion) has
also impacted the cash flow from operations during the first six months of
1997. The Conversion does not have any impact on cash flow. The Company
expects to continue to generate cash from operations over the balance of the
year.
On June 30, 1997, the Governor of New Jersey signed into law an automobile
insurance reform bill. This legislation would (i) eliminate automatic
approval of cost-of-living increases in favor of "expedited rate filings" of
3% or less, which do not require prior approval from the insurance
commissioner; (ii) prohibiting insurers from non-renewing good drivers (good
drivers being defined as "no more than one at fault accident or four
insurance point moving violations within a five year period"); and (iii)
eliminate the bad driver surcharge system, in favor of a tier rating system.
In addition to the automobile insurance reform bill, on August 11, 1997,
Governor Whitman
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PAGE
announced she will be introducing in the legislature a program where the
insured may choose from four options encompassing varying levels of
coverage, so as to reduce their personal automobile rates. The Company
believes that there may be further legislative initiatives in New Jersey
with respect to personal automobile insurance reform. The Company cannot
presently predict the form or timing of any such initiatives, nor can the
Company estimate the financial effects, if any, that such initiatives may
have on the Company and its operations.
-14-
PAGE
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
The exhibits required by Item 601 of Regulation SK are listed in the
Exhibit Index, which immediately precedes the exhibits filed with this
Form 10-Q.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the period covered by
this report.
-15-
PAGE
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SELECTIVE INSURANCE GROUP, INC.
Registrant
Date: August 14, 1997
By: /s/James W. Entringer
---------------------
James W. Entringer,
Chairman of the Board, and
Chief Executive Officer
Date: August 14, 1997
By: /s/Gregory E. Murphy
--------------------
Gregory E. Murphy,
President and Chief Operating Officer
-16-
PAGE
SELECTIVE INSURANCE GROUP, INC.
INDEX TO EXHIBITS
Exhibit No.
10.1 Amendment, dated June 30, 1997, to the Promissory Note of
$25,000,000 Revolving Line of Credit with State Street Bank
and Trust Company, filed herewith.
10.2 Commercial Loan Note of $25,000,000 Line of Credit with Summit
Bank as amended through May 31, 1998, filed herewith.
10.3 Employment Agreement, dated May 2, 1997, between Selective
Insurance Company of America and James W. Coleman, Jr., filed
herewith.
10.4 Termination Agreement, dated May 2, 1997, between Selective
Insurance Company of America and James W. Coleman, Jr., filed
herewith.
10.5 Amendment, dated May 2, 1997, to the 1987 Employee Stock
Purchase Savings Plan, filed herewith.
10.6 Amendment No. 1, dated May 2, 1997, to the Selective Insurance
Retirement Savings Plan, filed herewith.
11 Statement Re Computation of Per Share Earnings, filed herewith.
27 Financial Data Schedule, filed herewith.
-17-
PAGE
EXHIBIT 10.1 - COVER LETTER
- ---------------------------
August 14, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Selective Insurance Group, Inc. Form 10Q for the period ending
June 30, 1997
Ladies and Gentlemen:
Accompanying this letter for filing pursuant to the Securities Act of 1933,
is an amendment to the Promissory Note of $25,000,000 Revolving Line of
Credit with State Street Bank and Trust Company. The note was initially
filed as an exhibit with the Form 10Q for the quarter ended March 31, 1997.
Very truly yours,
/s/ Marie A. Yorke
Marie A. Yorke
Administrative Assistant
Financial Accounting and Reporting
/MAY
Enclosures
PAGE
As of June 30, 1997
Selective Insurance Company of America
Selective Insurance Group, Inc.
40 Wantage Avenue
Branchville, NJ 07890-1000
RE: Loan Facility
Ladies and Gentlemen:
State Street Bank and Trust Company (the "Bank") has made available to
Selective Insurance Company of America, a corporation organized under the
laws of New Jersey (the "Company") and Selective Insurance Group, Inc., a
corporation organized under the laws of New Jersey (the "Parent")
(collectively, the Company and the Parent are hereinafter referred to as
the "Borrower") an aggregate $25,000,000 revolving line of credit as
described in a letter agreement dated March 3, 1997 (as amended, the
"Letter Agreement"). The Borrower has requested, and the Bank has agreed
to extend the Revolving Maturity Date as defined in the Letter Agreement.
Therefore, for good and valuable consideration, the receipt of which is
hereby acknowledged, the Borrower and the Bank hereby agree as follows:
1. The Letter Agreement is hereby amended by deleting the following from
paragraph 1 thereof: "June 30, 1997" and substituting the following
therefor: "June 30, 1998". All references to "Revolving Maturity Date"
in the Letter Agreement or any related document shall be deemed to refer
to June 30, 1998.
2. The Letter Agreement is hereby amended by deleting the following from
paragraph 6 thereof: "March 31, 1997 and June 30, 1997" and substituting
the following therefor: "the last day of March, June, September and
December of each year".
3. As amended hereby. All terms and conditions of the Letter Agreement
and Promissory Note executed in connection therewith remain in full force
and effect and are ratified and affirmed as of the date hereof and
extended to give effect to the terms hereof.
4. The Borrower represents to the Bank that no default or Event of
Default has occurred under the Letter Agreement or aforesaid Note.
PAGE
Selective Insurance Company
of America
Selective Insurance Group,
Inc.
As of June 30, 1997
Page 2
5. This letter agreement shall constitute an agreement executed under seal
to be governed by the laws of The Commonwealth of Massachusetts effective
as of June 30, 1997.
Sincerely,
State Steet Bank and Trust Company
By: /s/ Edward M. Anderson
----------------------
Edward M. Anderson
Title: Vice President
Acknowledged and accepted:
SELECTIVE INSURANCE COMPANY OF AMERICA
By: /s/ Gregory E. Murphy
---------------------
Title:President and Chief
Operating Officer
By: /s/ Robert P. Rank
---------------------
Title:Senior Vice President
and Chief Investment
Officer
SELECTIVE INSURANCE GROUP, INC.
By: /s/ Gregory E. Murphy
---------------------
Title:President and Chief
Operating Officer
By: /s/ Robert P. Rank
---------------------
Title:Senior Vice President
and Chief Investment
Officer
PAGE
June 30, 1997
Selective Insurance Company of America
Selective Insurance Group, Inc.
40 Wantage Avenue
Branchville, NJ 07890-1000
Re: Loan Facility
Ladies and Gentlemen:
Summit Bank (the "Bank") is pleased to make available to Selective
Insurance Company of America, a corporation organized under the laws of
New Jersey (the "Company") and Selective Insurance Group, Inc., a corpor-
ation organized under the laws of New Jersey (the "Parent") (collectively,
the Company and the Parent are hereinafter referred to as the "Borrower")
an aggregate $25,000,000 revolving line of credit (the "Revolving Line of
Credit") on the following terms and conditions:
1. Term. The Revolving Line of Credit shall commence on the date
hereof and expire on June 30, 1997 (the "Revolving Maturity Date"), unless
extended by mutual agreement.
2. Notice and Manner of Borrowings. Subject to the terms and
conditions hereof, and upon request by either Borrower, the Bank agrees to
make revolving loans to such Borrower provided for herein (each, a
"Revolving Loan") not to exceed $25,000,000 in aggregate of all outstanding
Revolving Loans to both Borrowers at any time and provided further that no
more than $20,000,000 of Revolving Loans shall be outstanding to the Parent
at any time.
3. Evidence of Indebtedness. All Revolving Loans will be evidenced
by a promissory note in the form attached hereto as Exhibit A1 as to the
Company and A2 as to the Parent (each a "Note"). Each Borrower hereby
authorizes the Bank to record each Revolving Loan and the corresponding
information on the schedule forming part of the Note, and, absent manifest
error, this record shall be conclusive and binding.
4. Interest Rate. Principal on each outstanding Revolving Loan
shall bear interest as selected by the applicable Borrower at a floating
rate equal to the Adjusted Libor Rate plus 28 basis points per annum.
Revolving Loans may be made for interest periods of 1 or 3 months, the
foregoing interest periods shall be acceptable to the Bank and adjusted
for month-end, weekend and holiday periods. An interest period shall
commence on the first day of each month and end one (1) or three (3)
months thereafter as selected by the Borrower. All borrowings hereunder
during each interest period shall be at the Adjusted Libor Rate as
determined at the beginning of the Interest Period, plus 28 basis points.
Interest on each Revolving Loan shall be calculated on the basis of a 360-
day year for the actual number of days elapsed. Interest shall be payable
monthly in arrears on the first day of each month. All accrued and unpaid
interest on all Revolving Loans shall be due and payable on the same day
when principal is payable, whether upon acceleration following an Event of
Default as defined herein or on the Revolving Maturity Date. Revolving
Loans may be prepaid without penalty. Revolving Loans which are repaid may
be reborrowed subject to the terms hereof.
5. Special Provisions Relating to Libor Rate Loans. All Adjusted
Libor Rates shall be adjusted to reflect deposit requirements, reserves,
capital, taxes and other charges assessed against the Bank in connection
with the Bank's offering such a pricing option and the Borrower agrees to
pay to the Bank upon demand any increase in cost or reduction in the rate
of return
-1-
PAGE
realized by the Bank as a result of imposition of any of the foregoing
which is not reflected in adjustments to the Adjusted Libor Rate. As of
the date hereof, the Bank is not aware of any adjustments for the foregoing
items which would be required to be made to the Adjusted Libor rates quoted
by the Bank hereunder, and the Bank will endeavor to give prior notice to
the Borrowers before making any adjustment as permitted by this paragraph,
provided however, that failure in good faith by the Bank to give such
notice shall not affect the Bank's rights to make any adjustment or the
obligation of the Borrowers to make any payments to reflect such adjustment
as provided herein. In the event that (a) the Bank is unable to offer an
Adjusted Libor Rate, (b) it is unlawful or impractical for the Bank to
offer such a rate, or (c) the Adjusted Libor Rate does not reflect the cost
to the Bank of offering such rate, then in any such event the Bank shall
have no further obligation to quote Adjusted Libor Rates until such event
ceases to be in effect, and in the event that the making or continuing of
any Revolving Loan with interest based on Adjusted Libor Rate by the Bank
is unlawful, the interest rate on all such Revolving Loans shall be
converted to a per annum interest rate equal to the Bank's Prime Rate in
effect from time to time (a "Prime Rate Loan"), with interest payable on
the first day of each month. the Borrower shall give to the Bank no less
than 3 days' prior notice of its request for the Bank to make, or continue
any maturing, Revolving Loan with interest based on Adjusted Libor Rate and
in the event that the Bank does not receive adequate prior notice as to any
maturing Revolving Loan with interestbased on Adjusted Libor Rate, the Bank
may roll over or continue any such Revolving Loan as a Prime Rate Loan or a
loan of similar type and interest period as the maturing Revolving Loan at
the then prevailing Adjusted Libor Rate plus 28 basis points, as the case
may be.
6. Commitment Fee. For the period from the date hereof through the
Revolving Maturity Date, the Borrower will pay to the Bank a commitment fee
equal to $30,000.00 per annum on the amount of the Revolving Line of Credit
which shall be payable quarterly in arrears commencing on June 30, 1997 and
on any date on which the commitment hereunder is terminated by the
Borrower.
7. Payments. Each Borrower shall pay interest and principal on the
amount of the Revolving Loans which it borrows hereunder as provided herein
and on the Revolving Maturity Date all unpaid Revolving Loans, together
with accrued and unpaid interest, shall be paid in full by such Borrower.
All payments of principal and interest shall be made in immediately avail-
able of United States dollars at the main office of the Bank without setoff
or deduction. The Borrowers and the Bank acknowledge and agree that the
obligations of the Borrowers hereunder are not joint and several, and each
Borrower is responsible solely for payment and performance of those
obligations required to be performed by such Borrower hereunder or in
connection with Loans made to such Borrower hereunder.
8. Covenants. Until all Obligations have been paid in full, each of
the Borrowers covenants and agrees:
a) To, and to ensure that each of its Subsidiaries will, (i) duly
observe and comply with all applicable laws, including without limitation,
those pertaining to environmental matters and the release or threat of
release of hazardous substances, and pension and retirement plans, and pay
all taxes and governmental charges prior to the time they become delinquent
other than those taxes and charges which are being contested in good faith
by appropriate proceedings as long as adequate book reserves required to be
maintained in accordance with generally accepted accounting principles or
statutory accounting principles have been established and maintained,
provided, however, that no reserves shall be required to be maintained by
the borrowers in connection with any amount payable in connection with the
Retaliatory Tax, as hereinafter defined, and so long as the title of the
Borrowers or the Subsidiary, as the case may be, to, and its rights to use,
the affected property is not materially adversely affected thereby, (ii)
maintain in full force and effect all
-2-
PAGE
licenses and permits necessary in any material respect for the proper
conduct of its business, (iii) keep its properties and assets in good
repair and insured in such amounts as is customary in the industry and as
the Bank may require, (iv) remain engaged substantially in the business in
which it is currently engaged and not engage in any merger or
consolidation, except that any Subsidiary may merge or consolidate with
any Subsidiary or with either Borrower so long s such Borrower is the
surviving entity, or sell substantially all of its assets, or acquire
substantially all of the assets of any other party unless at the time of
such acquisition and after giving effect thereto no Event of Default will
have occurred hereunder, and if such acquisition relates to a business
unrelated to the business in which the Borrower or such Subsidiary shall
have obtained the prior written consent of the Bank, (v) ensure that the
Company maintains a rating of no less favorable than A- or its equivalent
from the A.M. Best Company rating agency and promptly notify the Bank of
any change in any rating given by A.M. Best Company and (vi) comply with
all terms and provisions of all documents evidencing or securing any
Obligations or any Indebtedness other than to the bank, including under
any credit facility with Summit Bank, and immediately notify the Bank of
any default or event of default with respect to such Obligations or
Indebtedness;
b) To permit the Bank to visit and inspect the properties of the
Borrower and make copies or abstracts from the Borrower's books and
records;
c) To pay all fees, costs and expenses incurred or paid by the Bank
in connection with the enforcement of the Borrower's obligations to pay any
amounts payable under this letter agreement and Note or any other documents
executed in connection therewith;
d) Until the Maturity Date, to submit to the Bank: (i) within 45
days of the end of each fiscal quarter of the Borrowers, consolidated
financial statements of the Parent prepared by management, including
balance sheet and income statement, together with financial statements of
each subsidiary of the Parent as required by applicable law together with
a certificate of compliance executed by an authorized officer of the
Borrower in a form acceptable to the bank showing a calculation of the
financial covenants described herein, (ii) within 90 days of the end of
each fiscal year of the Borrowers, annual consolidated financial state-
ments of the Parent audited by a certified public accountant acceptable to
the Bank, which, unless otherwise notified by the Bank shall include any
of the so called "big 6" certified public accountant firms, and (iii) such
other financial statements and information as to either Borrower as the
Bank may reasonably request from time to time; and
e) To execute and deliver such additional instruments and take
further action as the Bank may reasonably request to effect the purpose of
this letter agreement and the Revolving Loans.
The Bank acknowledges that the Borrowers are currently contesting
payment of certain so called "Retaliatory Tax" impositions by the
Commonwealth of Pennsylvania in the amounts and for the years described on
Exhibit B attached hereto (such amounts, the "Retaliatory Tax". In
connection therewith, the Borrowers represent to the Bank that (i) the
Borrowers reasonably believe that they will prevail in this contest, (ii)
in the event that such contest is determined in a manner adverse to the
Borrower, such event will not have a material impact on the ability of the
Borrowers to pay and perform their obligations hereunder or their financial
condition and (iii)) in the event that the Commonwealth of Pennsylvania
-3-
PAGE
commences any action to foreclose on any lien on any property of either
of the Borrowers arising in its favor with respect to any Retaliatory Tax
amount, the Borrowers will either pay such amount or pay all Revolving
Loans and other amounts payable to the Bank hereunder,
f) Comply with the covenants set forth on the Addendum - Schedule B
annexed hereto with all references therein:
(i) to Company being deemed references to Parent.
(ii) to Notes being deemed references to the Notes to be
delivered to Bank hereunder.
All capitalized terms used in said Addendum shall have the meaning
ascribed to such terms in the $54,000,000.00, 8.77%, Senior Notes dated
August 1, 1998 issued by the Parent, as originally issued, and as may be
modified thereafter with the consent of Bank.
g) The Company and Parent shall pay all costs and expenses incurred
by Bank, including reasonable attorneys fees, in connection with the
preparation and execution of this Letter Agreement, the Notes and the
other documents and agreements to be executed and delivered by Company
and Parent hereunder.
h) The proceeds of the loans hereunder to the Company shall be used
solely for working capital. The proceeds of the loans hereunder to Parent
may be used to purchase capital stock of Parent, for bridge financing for
acquisition of other insurance companies; for arbitrage activity for a
period of no greater than 90 days; or for other general corporate purposes.
i) The parent shall maintain a ratio of Indebtedness to Capital of
not more than .3 to 1.0 at all times.
9. Representations and Warranties. Each Borrower represents and
warrants that:
a) It is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has all
requisite corporate power and authority to own its property and conduct
its business as is now conducted, is duly qualified and in good standing
as a foreign corporation and is duly authorized to do business in each
jurisdiction where the nature of its properties or business requires such
qualification;
b) The execution, delivery and performance of this letter agreement,
the Note and any related documents (i) are, and will be, within its
corporate power and authority, (ii) have been authorized by all necessary
corporate proceedings, (iii) do not, and will not, require any consents or
approvals other than those which have already been received, (iv) will not
contravene any provision of the charter documents or by-laws of the
Borrower or any law, rule or regulation applicable to the Borrower, and (v)
will not constitute a default under any other agreement, order or under-
taking binding on the Borrower;
c) This Letter Agreement, the Note and related documents constitute
the legal, valid, binding and enforceable obligations of the Borrower,
except as the same may be limited by bankruptcy, insolvency, reorganization,
moratorium or other laws
-4-
PAGE
affecting the enforcement of creditors' rights generally and by general
equitable principles;
d) All financial statements previously furnished to the Bank by it
were prepared in accordance with generally accepted accounting principles
and statutory accounting principles and present fairly and completely the
financial position of the Borrower. Since the date of such statements,
there has been no material, adverse change in the assets, liabilities,
financial condition or business of the Borrower other than in the ordinary
course of business; and
e) Other than with respect to insurance subrogation claims and loss
claims which would not materially and adversely affect the ability of
either Borrower to pay or perform its obligations to the Bank hereunder
and under any related document, there is no litigation, arbitration,
proceeding or investigation pending, or to the best of such Borrower's
knowledge threatened, against either Borrower except those previously
disclosed by such Borrower to the Bank in writing.
f) It is not in default under any Indebtedness nor has any person
notified that it is in default under any such Indebtedness.
g) It holds all licenses, permits and approval required for the
conduct of its business.
Each request for a loan hereunder shall be deemed an affirmation
by Borrower that the representations and warranties contained herein are
true and accurate as of the date of such request and that as of said date
no Event of Default exists hereunder nor does any event exists which with
the giving of notice or passage of time or both would become an Event of
Default.
10. Events of Default. It will be an Event of Default hereunder and
under the Note if any of the following events occurs:
a) either Borrower fails to pay when due any amount of principal,
interest or fees payable hereunder or under the Note; or
b) either Borrower fails to perform any terms, covenant or agreement
contained in this letter agreement, the Note or any other agreement or
document executed in connection with this letter agreement; or
c) there shall occur any material adverse change in the assets,
liabilities, financial condition, business or prospects of either Borrower
as determined by the Bank acting in good faith; or
d) any representation or warranty of either Borrower made in this
letter agreement, the Note or any other document executed in connection
with this letter agreement shall prove to have been false in any material
respect upon the date when made or deemed to have been made; or
e) either Borrower fails to pay or perform (i) any Obligation or
(ii) any obligation to any other party with respect to any Indebtedness,
including, in any event the occurrence of a default or event of default
under any credit facility of either Borrower with State Street Bank and
Trust Company or its successors or assigns continuing beyond any applicable
grace period; or
-5-
PAGE
f) either Borrower (i) applies for or consents to the appointment
of, or the taking of possession by, a receiver, custodian, trustee,
liquidator or similar official of itself or of all or a substantial part
of its property, (ii) is generally not paying its debts as such debts
become due, (iii) makes a general assignment for the benefit of its
creditors, (iv) commences any case or proceeding under any law relating
to bankruptcy, insolvency, reorganization, winding-up or composition or
adjustment of debts, or any other law providing for the relief of debtors,
(v) fails to contest in a timely or appropriate manner, or acquiesces in
writing to, any petition filed against it in an involuntary case under the
Federal Bankruptcy Code or other law, or (vi) takes any action under the
laws of its jurisdiction of incorporation or organization similar to any
of the foregoing; or
g) a proceeding or case shall be commenced, without the application
or consent of either Borrower in any court of competent jurisdiction,
seeking (i) the liquidation, reorganization, dissolution, winding-up, or
composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of it or of all or
any substantial part of its assets, or (iii) similar relief in respect of
it, under any law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or adjustment of debts or any other law provid-
ing for the relief of debtors, and such proceeding or case shall continue
undismissed, or unstayed and in effect, for a period of 30 days; or an
order for relief shall be entered in an involuntary case under the Federal
Bankruptcy Code, against the Borrower or action under the laws of the
jurisdiction of incorporation or organization of the Borrower or similar to
any of the foregoing shall be taken with respect to the Borrower and shall
continue unstayed and in effect for any period of 30 days; or
h) a final judgment or final order for the payment of money is
entered against either Borrower by any court, or an execution or similar
process is issued or levied against property of the Borrower, that in the
aggregate exceeds $2,000,000, not including any judgment or order arising
in connection with the Retaliatory Tax, as defined herein, in value and
which is not fully covered by insurance, other than any applicable
deductible, and such judgment, order, warrant or process shall continue
undischarged or unstayed for 30 days; or
i) The Parent ceases to own 100% of the issued and outstanding shares
of the Company in the aggregate at any time.
11. Remedies. Upon the occurrence of an Event of Default described
in subsections 10(f) and (g), immediately and automatically, and upon the
occurrence of any other Event of Default, at any time thereafter at the
Bank's option and upon the Bank's declaration:
(a) The Revolving Line of Credit shall terminate;
(b) the unpaid principal amount of the Revolving Loans together with
accrued interest shall become immediately due and payable without
presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived, together with any prepayment penalties as
provided herein, if applicable; and
(c) the Bank may exercise any and all rights it has under this
Agreement and the Note and any other document executed in connection
herewith, and proceed to protect and enforce the Bank's rights against
either or both Borrowers by any action at law, in equity or other
appropriate proceeding including appointment of a receiver for the proper-
ties or assets of either Borrower.
-6-
PAGE
12. Notices. All notices hereunder shall be in writing and shall be
deemed to have been given when delivered by hand, when properly deposited
in the mails postage prepaid, when sent by facsimile or when delivered to
overnight courier. Notice to either Borrower shall be deemed to constitute
notice to the Borrower. Notices to the Bank shall be given to Summit Bank,
750 Walnut Street, Cranford, New Jersey 07016, ATTN: Richard Neale, Vice
President, and notice to the Borrower shall be deemed to have been given if
given at the address stated at the beginning of this letter agreement,
Attention: Gregory Murphy, Senior Vice President and Chief Financial
Officer.
13. Miscellaneous. No waivers shall be effective unless in writing.
All amendments hereto must be in writing signed by all parties hereto.
Any amounts owing from the Bank to either Borrower may be set off against
Obligations due and owing of such Borrower to the Bank. This letter and
the Note shall be governed by the laws of the State of New Jersey.
Neither Borrower may assign or transfer or participate any of its rights
hereunder or under the Note without the prior written consent of the Bank.
The Bank may participate or assign its rights hereunder, including as
collateral to any Federal Reserve Bank, without the prior consent of
either Borrower.
14. Definitions. Except as otherwise defined herein, all financial
terms shall be defined in accordance with generally accepted accounting
principles. The following defined terms as used herein shall have the
following meanings:
"Adjusted Libor Rate" shall mean the rate per annum quoted by the
Bank as its applicable rate of interest offered to the Bank by first class
banks for United States dollar deposits in the London interbank market in
which the Bank participates on the day of determination for the amount and
the interest period requested by the Borrower. The Bank expects that the
"Adjusted Libor Rate" as used herein shall be substantially similar to the
Libor Rate as quoted by The Wall Street Journal from time to time for the
applicable period, although the Bank makes no representation that such
rates will at all times be substantially similar interest rates.
"Capital" means the total Stockholders Equity determined in accordance
with GAAP.
"GAAP" means generally accepted accounting principles in effect from
time to time.
"Indebtedness" shall mean all obligations for borrowed money and
other extensions of credit to the Borrower, secured or unsecured, absolute
or contingent, whether or not evidenced by a note, bond or other instrument,
all guarantees, all obligations reflecting the deferred purchase price of
property or other accounts payable, and all obligations of the borrower
secured by a mortgage, lien, pledge or other security interest, together
with any interest, charges and fees payable on any of the foregoing.
"Obligations" means any and all obligations of either Borrower to
the Bank of every kind and description, direct or indirect, absolute or
contingent, primary or secondary, due or to become due, now existing or
hereafter arising, regardless of how they arise or by what agreement or
instrument, if any, and including obligations to perform acts and refrain
from taking action as well as obligations to pay money.
"Prime Rate" shall mean the rate of interest per annum announced from
time to time by Summit Bank as its prime rate.
-7-
PAGE
If the foregoing satisfactorily sets forth the terms and conditions
of this credit facility, please execute and return the enclosed copy of
this, letter agreement, the Note and such other documents and agreements
as the Bank may request each of which when received will be considered to
be an agreement executed under seal to be governed by the laws of The
State of New Jersey effective when received by the Bank.
EACH BORROWER WAIVES TRIAL BY JURY IN ALL ACTIONS AND PROCEEDINGS
UNDER OR RELATING TO THIS LETTER AGREEMENT AND THE NOTE AND OTHER
DOCUMENTS RELATING HERETO.
Sincerely,
SUMMIT BANK
By: /s/Richard P. Neale
----------------------
Name: Richard P. Neale
Title:Vice President
Acknowledged and accepted:
SELECTIVE INSURANCE COMPANY OF AMERICA
By:/s/ Gregory E. Murphy
---------------------------
Title:President and Chief
Operating Officer
By:/s/ Robert P. Rank
---------------------------
Title:Senior Vice President
and Chief Investment
Officer
SELECTIVE INSURANCE GROUP, INC.
By:/s/ Gregory E. Murphy
---------------------------
Title:President and Chief
Operating Officer
By:/s/ Robert P. Rank
---------------------------
Title:Senior Vice President
and Chief Investment
Officer
DATE:6/30/97
--------
-8-
PAGE
Exhibit A1
REVOLVING CREDIT MASTER
PROMISSORY NOTE
$20,000,000.00 Cranford, New Jersey
June 30,1997
FOR VALUE RECEIVED, the undersigned SELECTIVE INSURANCE GROUP, INC.
(the "Borrower") promises to pay to the order of SUMMIT BANK (herein
called "Bank") at 750 Walnut Street, Cranford, NJ 07016, such sum up to
Twenty Million and 00/100 Dollars ($20,000,000.00), together with interest
as hereinafter provided, as may be outstanding on loans by Bank to Borrower
under a letter agreement referred to below. The principal amount owing
hereunder shall be paid to the Bank on June 30,1997 (the "Maturity Date")
or as may otherwise be provided for in the letter agreement.
Interest on portions of the daily unpaid principal amount from time to
time outstanding hereunder shall be payable monthly on the first day of
each month during the term hereof and on the Maturity Date, at a fluctuat-
ing interest rate per annum of the Adjusted Libor Rate plus twenty-eight
28) basis points if, in accordance with the terms of the Loan Agreement,
interest on such portion is calculated based on the Adjusted Libor Rate.
This Note is issued in accordance with that certain letter agreement
of even date herewith between Borrower, Selective Insurance Company of
America and Bank (the "Letter Agreement"). Any capitalized term used
herein without definition shall have the definition contained in the Loan
Agreement. All the terms and conditions of the Letter Agreement are
incorporated herein as though fully set forth and the Borrower acknowledges
the reading and execution of said Letter Agreement.
In addition to all remedies provided by law upon default on payment of
this Note or any installment hereof, or upon an Event of Default under the
terms of the Letter Agreement or of any obligation heretofore or hereafter
incurred by the Borrower to Bank, Bank may, at its option:
(1) Declare this note and all other loans and Obligations owing Bank
from the Borrower to be forthwith due and payable;
(2) Collect interest on the principal balance owing hereon at a rate
of two (2%) in excess of the rate provided for above, and if this Note is
referred to an attorney for collection, collect reasonable attorneys' fees;
(3) Set off the amount owing hereunder against any money owed by Bank
in any capacity to the Borrower, whether due or not, and Bank shall be
deemed to have exercised such right of set off, and to have made a charge
against any such money immediately upon the occurrence of any default, even
though the actual book entries may be made at some time subsequent thereto;
and
(4) Exercise any and all remedies provided for in the Letter
Agreement or otherwise available by applicable law.
Bank shall not, by any act, delay, omission or otherwise be deemed to
have waived any of its rights or remedies hereunder and no waiver by Bank
of its rights or remedies hereunder shall be valid against Bank
PAGE
unless in writing, signed by a duly authorized officer of Bank, and then
only to the extent therein set forth. The waiver by Bank of any right or
remedy hereunder upon any one occasion shall not be construed as a bar to
any right or remedy which it would otherwise have had on any future
occasion.
If any payment required hereunder is not paid within 15 days of the
date due, the Borrower shall pay to Bank a late fee of 5% of the past due
amount.
The Borrower shall have the right to make prepayment of this Note, in
whole or in part, without premium or penalty. The Borrower hereby waives
presentment for payment, protest and notice of protest for non-payment of
this Note.
BORROWER WAIVES TRIAL BY JURY IN ANY ACTION UNDER OR RELATING TO THIS
NOTE AND THE LOANS EVIDENCED HEREBY.
SELECTIVE INSURANCE GROUP, INC.
By:/s/ Gregory E. Murphy
--------------------------
name: Gregory E. Murphy
title:President and Chief
Operating Officer
By:/s/ Robert P. Rank
--------------------------
name: Robert P. Rank
title:Senior Vice President
and Chief Investment
Officer
PAGE
Exhibit A2
REVOLVING CREDIT MASTER
PROMISSORY NOTE
$25,000,000.00
Cranford, New Jersey
June 30,1997
FOR VALUE RECEIVED, the undersigned SELECTIVE INSURANCE COMPANY OF AMERICA
(the "Borrower") promises to pay to the order of SUMMIT BANK (herein
called "Bank") at 750 Walnut Street, Cranford, NJ 07016, such sum up to
Twenty-Five Million and 00/100 Dollars ($25,000,000.00), together with
interest as hereinafter provided, as may be outstanding on loans by Bank
to Borrower under a letter agreement referred to below. The principal
amount owing hereunder shall be paid to the Bank on June 30,1997 (the
"Maturity Date") or as may otherwise be provided for in the letter
agreement. Interest on portions of the daily unpaid principal amount from
time to time outstanding hereunder shall be payable monthly on the first
day of each month during the term hereof and on the Maturity Date, at a
fluctuating interest rate per annum of the Adjusted Libor Rate plus twenty-
eight (28) basis points if, in accordance with the terms of the Letter
Agreement, interest on such portion is calculated based on the Adjusted
Libor Rate.
This Note is issued in accordance with that certain letter agreement
of even date herewith between Borrower, Selective Insurance Group, Inc.
and Bank (the "Letter Agreement"). Any capitalized term used herein
without definition shall have the definition contained in the Loan Agree-
ment. All the terms and conditions of the Letter Agreement are incorp-
orated herein as though fully set forth and the Borrower acknowledges the
reading and execution of said Letter Agreement.
In addition to all remedies provided by law upon default on payment
of this Note or any installment hereof, or upon an Event of Default under
the terms of the Letter Agreement or of any Obligation heretofore or
hereafter incurred by the Borrower to Bank, Bank may, at its option:
(1) Declare this note and all other loans and Obligations owing Bank
from the Borrower to be forthwith due and payable;
(2) Collect interest on the principal balance owing hereon at a rate
of two (2%) in excess of the rate provided for above, and if this Note is
referred to an attorney for collection, collect reasonable attorneys'
fees;
(3) Set off the amount owing hereunder against any money owed by
Bank in any capacity to the Borrower, whether due or not, and Bank shall
be deemed to have exercised such right of set off, and to have made a
charge against any such money immediately upon the occurrence of any
default, even though the actual book entries may be made at some time
subsequent thereto; and
(4) Exercise any and all remedies provided for in the Letter Agree-
ment or otherwise available by applicable law. Bank shall not, by any
act, delay, omission or otherwise be deemed to have waived any of its
rights or remedies hereunder and no waiver by Bank of its rights or
remedies hereunder shall be valid against Bank
PAGE
unless in writing, signed by a duly authorized officer of Bank, and then
only to the extent therein set forth. The waiver by Bank of any right
or remedy hereunder upon any one occasion shall not be construed as a bar
to any right or remedy which it would otherwise have had on any future
occasion.
If any payment required hereunder is not paid within 15 days of the
date due, the Borrower shall pay to Bank a late fee of 5% of the past due
amount.
The Borrower shall have the right to make prepayment of this Note,
in whole or in part, without premium or penalty. The Borrower hereby
waives presentment for payment, protest and notice of protest for non-pay-
ment of this Note.
BORROWER WAIVES TRIAL BY JURY IN ANY ACTION UNDER OR RELATING TO THIS
NOTE AND THE LOANS EVIDENCED HEREBY.
SELECTIVE INSURANCE COMPANY OF
AMERICA
By:/s/Gregory E. Murphy
-------------------------------
name: Gregory E. Murphy
title:President and Chief
Operating Officer
By:/s/ Robert P. Rank
-------------------------------
name: Robert P. Rank
title:Senior Vice President
and Chief Investment
Officer
PAGE
EXHIBIT B
---------
Retaliatory Tax Detail
The Pennsylvania Department of Revenue has notified Selective Way
Insurance Company ("Selective Way") and Selective Insurance Company of
America ("Selective"), Subsidiaries, of the following Retaliatory Tax
impositions on Selective Way and Selective, as applicable, for the following
years, which tax impositions are currently being contested:
Year Company Amount
1991 Selective $ 868,230
Selective Way 10,687
1990 Selective 1,508,362
1989 Selective 507,562
1988 Selective 386,496
1987 Selective 343,981
1986 Selective 223,452
1984 Selective 6,229
---------
$3,854,999
PAGE
as of June 30, 1997
Selective Insurance Company of America
Selective Insurance Group, Inc.
40 Wantage Avenue
Branchville, New Jersey 07890-1000
Re: Letter Loan Agreement dated June 30, 1997 (the "Loan Agreement")
Gentlemen:
This is to confirm our approval of your request for an extension
through May 31, 1998 of the expiration date of the $25,000,000.00
Revolving Line of Credit provided for in the Loan Agreement. Accordingly,
we have agreed to modify the defintion of Revolving Maturity Date to
provide that May 31, 1998 is the Revolving Maturity Date.
Our approval shall not constitute a waiver of any Events of Default,
if any so exist, or any future violation of any provisions of the Loan
Agreement or any other Loan Documents.
Capitalized terms not defined herein but defined in the Loan Agree-
ment shall have the same meaning ascribed to such terms in the Loan
Agreement. Your execution shall also act as your representation that the
execution of this letter agreement has been authorized by all required
corporate action, that this letter agreement constitutes the valid and
binding obligation of the Borrower, is enforceable in accordance with its
terms, that no Event of Default exists and that no material adverse change
of the Borrower has occurred.
Except as herein set forth, the Loan Agreement and all other Loan
Documents shall remain in full force and effect. Our agreement as
aforesaid is subject to your written agreement with the terms hereof by
signing and returning a copy hereof where so indicated below, along with
the enclosed Allonges, where so indicated below.
Summit Bank
By: /S/ Richard P. Neale
----------------------------
Name: Richard P. Neale
Title: Vice President
Agreed to:
Selective Insurance Company of America
By: /s/Gregory E. Murphy
---------------------
Name: Gregory E. Murphy
Title:President and Chief
Operating Officer
By: /s/Robert P. Rank
---------------------
Name: Robert P. Rank
Title:Senior Vice President
and Chief Investment Officer
Selective Insurance Group, Inc.
By: /s/Gregory E. Murphy
---------------------
Name: Gregory E. Murphy
Title:President and Chief
Operating Officer
By: /s/Robert P. Rank
---------------------
Name: Robert P. Rank
Title:Senior Vice President
and Chief Investment Officer
PAGE
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT dated as of May 2, 1997, by and between SELECTIVE INSURANCE
COMPANY OF AMERICA, a New Jersey corporation (the "Company"), having an
office at 40 Wantage Avenue, Branchville, New Jersey 07826, and JAMES W.
COLEMAN, JR., having an address of 83 Main Street, Ogdensburg, New Jersey
07439 (the "Executive").
In consideration of the premises and the mutual covenants hereinafter set
forth, the parties hereto agree as follows:
1. Employment. The Company agrees to employ the Executive, and the
Executive accepts employment with the Company, on the terms and
conditions set forth herein.
2. Term. The term of employment under this Agreement shall commence as
of the date hereof and, subject to Section 7 hereof, shall terminate
three (3) years after the date hereof.
3. Compensation. For all services rendered by the Executive under this
Agreement, the Company shall pay the Executive a fixed salary during
the term of employment under this Agreement at a rate of not less
than One Hundred Thirty Five Thousand Dollars ($135,000.00) per year
(the "Salary"), payable in installments in accordance with the
Company's policy from time to time in effect for payment of salary
to executives. The Salary shall be reviewed no less than
-1-
PAGE
annually by the Company's Board of Directors, and nothing contained
herein shall prevent the Company's Board of Directors from at any
time increasing the Salary or other benefits herein provided to be
paid or provided to Executive or from providing additional or
contingent benefits to Executive as it deems appropriate.
4. Duties.
(a) The Executive has been elected as a Senior Vice President of the
Company, and he agrees to serve as such during each year of the
term of this Agreement that he is elected to such office and
until his successor is elected and qualified. If at any time
prior to the expiration of this Agreement, the Board of
Directors of the Company shall fail to reelect Executive as a
Senior Vice President at the Company's Annual Organizational
Meeting (except as a result of termination pursuant to Section
7 hereof), Executive's employment hereunder shall terminate
ninety (90) days after the date of such meeting. During said
ninety-day (90-day) period the Executive shall continue to be
employed under this Agreement, shall cooperate fully with the
Company's Board of Directors and shall devote his full business
time and attention to such duties not inconsistent with the
provisions hereof as he shall be assigned by the Company's Board
of Directors. Upon termination of Executive's employment
hereunder pursuant to this Section 4(a), the Executive shall
resign as an officer
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PAGE
of the Company and each of its subsidiaries of which he shall
then be a director and/or officer. Notwithstanding any such
termination, the Executive, provided he does not violate the
provisions of Section 9 hereof, shall be entitled to receive
(i) as severance pay an amount equal to his Salary, at the rate
in effect at the time of termination of employment hereunder,
for a period of two (2) years after the date of such
termination, payable in monthly installments, and (ii) the
certain benefits provided for in Section 8 hereof, for a period
of two (2) years after the date of such termination or such
shorter period as provided in Section 8. If Executive's
employment hereunder shall terminate pursuant to this Section
4(a), such termination shall not prevent Executive from
accepting other employment with the Company or otherwise after
the effective date of such termination.
(b) The Executive agrees to devote his entire business time,
attention and services exclusively to the business and affairs
of the Company and its subsidiaries and to perform his duties
with fidelity and to the best of his ability. Executive may
accept directorships on the Board of Directors of profit and
nonprofit corporations with the prior consent of the Board of
Directors of the Company.
-3-
PAGE
5. Deferred Compensation.
(a) The Executive may, from time to time during the term of
employment hereunder, request that the Company defer the whole
or any part of his Salary payable under Section 3, provided that
such request is received by the Company on or before the
December 31 of the calendar year immediately preceding the
calendar year in respect of which such Salary is due (or such
other date as may be required from time to time by applicable
law). If so requested by the Executive, the Company shall defer
payment of the amount so specified and credit on the first day
of each month during the year in respect of which the deferred
Salary is due, the pro rata share of the amount of Salary
deferred for such year to a deferred compensation account
established on its corporate books of account. Such account
shall be called the "James W. Coleman, Jr. Deferred
Compensation Account" (the "Account") and shall be an unfunded,
unsecured liability of the Company to be satisfied from its
general corporate funds. The Company agrees to credit the
Account semiannually on June 30 and December 31 of each year
with interest at a rate equal to the rate announced from time to
time by Morgan Guaranty Trust Company of New York as its prime
rate.
(b) Except as herein provided in this Section 5b), the Company shall
distribute to the Executive all amounts credited to the Account
in ten (10) approximately equal
-4-
PAGE
annual installments commencing on the first day of January
immediately succeeding the date of termination of the
Executive's employment under this Agreement for any reason
whatsoever. In the event of the Executive's death prior to the
time he shall have received the full amount due under the
preceding sentence, the remaining payments due under such
sentence shall be paid on the respective due dates thereof to
any beneficiary or beneficiaries designated by the Executive to
the Company in writing or, in the absence of such designation,
to the Executive's legal representative. It is agreed that the
benefits to be paid as deferred compensation pursuant to this
Section 5 shall not be forfeited by the Executive.
(c) Nothing contained in this Section 5 and no action taken pursuant
to this Section 5 shall create or be construed to create a trust
of any kind for the benefit of any person or a fiduciary
relationship between the Company and any person.
6. Benefits During Employment. During the term of Executive's
employment under this Agreement, the Company shall (a) permit the
Executive to participate in the Selective Insurance Stock Option Plan
and the Selective Insurance Stock Option Plan II, Thrift Plan for
Employees of Selective Insurance Company of America and Subsidiaries,
and incentive compensation, stock option, stock appreciation right,
stock bonus, pension, group insurance and other benefit plans, if
any, in accordance with
-5-
PAGE
the respective provisions thereof, from time to time in effect
(collectively, the "Plans"), and (b) provide the Executive with
suitable offices, secretarial and other services, and other
perquisites applicable to executives of the Company, all in
accordance with the Company's policies with respect thereto from
time to time in effect. The Executive shall also be entitled,
during the term of his employment under this Agreement, to
vacations and reimbursements for ordinary and necessary travel and
entertainment expenses in accordance with the Company's policies on
such matters from time to time in effect.
7. Termination.
(a) The Executive's employment under this Agreement shall be
terminated upon the Executive's death or if the Executive
shall be adjudicated legally incompetent by a court of
competent jurisdiction. In such event, the Executive or
his legal representative shall be entitled to receive (i)
as severance pay an amount equal to Executive's Salary, at
the rate in effect at the time of termination of employment
hereunder, for a period of one (1) year after the date of such
termination, payable in monthly installments, and (ii) the
certain benefits provided for in Section 8 hereof, for a
period of one (1) year after the date of such termination or
such shorter period as provided in Section 8.
(b) The Company may, at its option, terminate the Executive's
employment under this Agreement if the Executive
-6-
PAGE
shall fail, or if the majority of the Board of Directors
shall find on the basis of medical evidence reasonably
satisfactory to it that the Executive is unable, by virtue
of or by reason of some physical or mental impairment, to
perform his duties hereunder for a period of ninety (90)
consecutive days or more or for a period of one hundred
eighty(180) days or more during any 270-day period. In the
event that this Agreement is terminated pursuant to this
paragraph 7(b), Executive shall be entitled to receive, in
monthly installments, for a period of one (1) year from the
date of such termination, an amount which, together with any
disability insurance benefits to which Executive is entitled
under disability insurance policies with respect to which the
premiums were paid by the Company, is equal to Executive's
Salary at the rate in effect at the time of such termination.
In that regard, Executive, following such termination of this
Agreement, shall be considered an employee solely for the
purpose of applying for and receiving disability payments
(both the temporary and long-term disability) in accordance
with the terms and conditions of such disability plans in
effect at the time.
(c) The Company may, at its option upon resolution of a majority
of the entire Board of Directors, terminate the Executive's
employment under this Agreement for cause, upon: (A) the
Executive's conviction of a felony
-7-
PAGE
(as evidenced by a binding and final judgment, order or
decree of a court of competent jurisdiction, in effect
after exhaustion or lapse of all rights of appeal), (B) the
continued willful failure by the Executive to perform
substantially his duties with the Company (other than any
such failure resulting from his incapacity due to physical
injury or physical or mental illness) for a period of thirty
(30) days after a demand for substantial performance
is delivered to the Executive by the Board of Directors of
the Company which specifically identifies the manner in which
the Board of Directors believes that the Executive has not
substantially performed his duties, or (c) willful misconduct
in the performance of the Executive's duties and obligations
to the Company which constitute common law fraud or other
gross malfeasance of duty. In the event of termination of the
Executive's employment pursuant to this paragraph 7(c),
Executive shall be entitled to receive (i) his Salary accrued
to the date of such termination and (ii) benefits accrued to
Executive under the Plans to the date of such termination, to
the extent that such benefits may be payable to Executive under
the provisions of the Plans in effect on the date of
termination of employment.
(d) Notwithstanding anything to the contrary in this Agreement,
the Company may, by action duly taken by the Board of
Directors, terminate the Executive's employment hereunder at
any time and for any reason.
-8-
PAGE
In such event, the Executive, provided he does not violate
the provisions of Section 9 hereof, shall be entitled to
receive (i) as severance pay an amount equal to his Salary,
at the rate in effect at the time of termination of employment
hereunder, for a period of two (2) years after the date of
such termination, payable in monthly installments, and (ii)
the certain benefits provided for in Section 8 hereof, for a
period of two (2) years after the date of such termination or
such shorter period as provided in Section 8.
8. Certain Benefits After Termination of Employment. Upon the
termination of Executive's employment pursuant to Section 4(a),
Section 7(a),Section 7(b) or Section 7(d) hereof, Executive (or his
legal representative) shall receive the benefits, if any, to which
Executive is entitled under the provisions of the Plans in effect at
the time of such termination. In addition, the Company shall
maintain in full force and effect for the continued benefit of the
Executive and his dependents for a period terminating on the earlier
of (i) the termination of the period of such post-termination
benefits set forth in Section 4(a), Section 7(a), Section 7(b) or
Section 7(d), as applicable, or (ii) the commencement date of
equivalent benefits from a new employer (the "Extended Benefit
Period"), all insured and self-insured employee welfare benefit
plans in which the Executive was entitled to participate
immediately prior to the date of termination, provided that the
Executive's continued participation is not barred
under the general terms and provisions of such plans.
-9-
PAGE
In the event that the Executive's participation in any such plan is
barred by its terms, the Company, at its sole cost and expense,
shall arrange to have issued for the benefit of the Executive and
his dependents individual policies of insurance providing benefits
substantially similar (on an after-tax basis) to those which the
Executive otherwise would have been entitled to receive under such
plans pursuant to this Section 8. If, at the end of the Extended
Benefit Period, the Executive has not previously received or is not
receiving equivalent benefits from a new employer, or is not
otherwise receiving such benefits, the Company shall arrange, at its
sole cost and expense, to enable him to convert his and his
dependents' coverage under such plans to individual policies or
programs upon the same terms as employees of the Company may apply
for such conversions upon termination of employment.
9. Nondisclosure of Confidential Information and Trade Secrets. The
Executive agrees that he will not, either during the term of
employment under this Agreement or thereafter, disclose to any
other person or entity any confidential information or trade secret
of the Company or its subsidiaries, except for disclosures to
directors, officers, key employees, independent accountants and
counsel of the Company and its subsidiaries as may be necessary or
appropriate in the performance of his duties hereunder. The
Executive agrees not to take with him upon leaving the employ of the
Company any document or paper relating to any confidential
information or trade secret of the Company and its subsidiaries.
-10-
PAGE
10. Other Employees. The Executive agrees that, for a period of two (2)
years after the termination of employment under this Agreement, he
will not directly or indirectly solicit or induce or attempt to
solicit or induce or cause any of the employees of the Company or
the Company's subsidiaries to leave the employ of the Company or
of such subsidiaries.
11. Injunctive Relief. The Executive acknowledges that monetary
damages will not adequately compensate the Company for any
violation of Sections 9 or 10 hereof and consents to the entry of
an injunction in any court of competent jurisdiction to enforce the
provisions of Section 9 or Section 10 hereof.
12. Representations. The Executive represents and warrants that neither
the execution and delivery of this Agreement nor the performance of
his duties hereunder violates the provisions of any other agreement
to which he is a party or by which he is bound.
13. Nonassignability. No right or benefit under this Agreement shall be
assigned, transferred, pledged or encumbered (a) by the Executive
except by a beneficiary designation made in the manner provided
herein or by will or the laws of descent and distribution, (b) by
any beneficiary designated in the manner provided herein except by
will or the laws of descent and distribution, or (c) by the Company
except that the Company may assign this Agreement and all of its
rights hereunder to any entity with which it may merge or
consolidate or to which
-11-
PAGE
it may sell all or substantially all of its assets provided said
entity shall assume (by contract or by operation of law) the Company
obligations hereunder. Subject to the foregoing, this Agreement
shall be binding upon and inure to the benefit of the Company, its
successors and assigns, and the Executive, his heirs, legal
representatives and any beneficiary or beneficiaries designated
hereunder.
14. Notice. Any notice, request, or other communication given
hereunder shall be in writing, and, if given by the Executive to
the Company, shall be delivered personally or sent by certified or
registered mail, return receipt requested, postage prepaid,
addressed to the Company at 40 Wantage Avenue, Branchville, New
Jersey 07890, Attention: President. If given by the Company to
the Executive, it shall be delivered personally or sent by
certified or registered mail, return receipt requested, postage
prepaid, addressed to the Executive at Executive's address
hereinabove set forth. Either party may change the address to
which notices, requests and other communications are to be
addressed by notice given to the other in accordance with the
provisions of this Section 14. Notices, requests and other
communications shall be deemed to be given when received, which,
in the case of notice given by mail, shall be the time indicated on
the receipt therefor.
15. Severability. If any provision of this Agreement shall be declared
to be invalid or unenforceable, in whole or in part, such invalidity
and unenforceability shall not affect
-12-
PAGE
the remaining provisions hereof which shall remain in full force
and effect.
16. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New Jersey applicable
to contracts made and performed in New Jersey.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
Executive and on behalf of the Company by its duly authorized officer, all
as of the day and year first above written.
SELECTIVE INSURANCE COMPANY OF AMERICA
By: /s/ James W. Entringer
-------------------------
James W. Entringer,
Chairman, President and
Chief Executive Officer
/s/ James W. Coleman, Jr.
-------------------------
James W. Coleman, Jr.
-13-
PAGE
In consideration of the covenants of the Executive hereinabove set
forth, Selective Insurance Group, Inc., holder of all of the issued and
outstanding capital stock of the Company, hereby guarantees to the
Executive the full performance by the Company of all of its obligations
under the foregoing Employment Agreement.
SELECTIVE INSURANCE GROUP, INC.
By: /s/ James W. Entringer
--------------------------
James W. Entringer,
Chairman, President and
Chief Executive Officer
-14-
PAGE
TERMINATION AGREEMENT
---------------------
TERMINATION AGREEMENT dated as of May 2, 1997, by and between
SELECTIVE INSURANCE COMPANY OF AMERICA (the "Company"), a New Jersey
corporation, having an office at 40 Wantage Avenue, Branchville, New Jersey
07826, and JAMES W. COLEMAN, JR. (the "Executive"), having an address of 83
Main Street, Ogdensburg, New Jersey 07439.
W I T N E S S E T H:
WHEREAS, the Company recognizes the Executive to be a valuable
management employee of the Company; and WHEREAS, the Company recognizes
that a change in control of Selective Insurance Group, Inc., the Company's
parent corporation ("Selective"), could occur in the future, and that it
is of importance to the Company and to Selective and its stockholders to
provide for the continuity of management and its uninterrupted attention
and dedication to the business affairs of the Company; and
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that appropriate steps should be taken to encourage the
continued attention and dedication of principal members of the Company's
management to their assigned duties in circumstances arising from the
possibility of a change in control of Selective; and
WHEREAS, the Company has determined that an arrangement of the type
set forth herein will serve the purpose of attracting desirable persons for
executive positions with the Company, will induce the Executive to remain
with the Company, and will enhance the Executive's ability to assess and
advise the Board as to whether any proposal involving a change in the
control would be in
-1-
PAGE
the best interests of the Company, Selective and its shareholders and to
take such other action regarding such proposal without being influenced by
the prospects of his own future employment with the Company; and
WHEREAS, the Company and the Executive wish to set forth their
agreements as to the subject and procedures contemplated hereunder
acknowledging, however, that this Agreement supplements any employment
agreement that may be in effect from time to time between the Executive
and the Company and sets forth the severance benefits which the Company
agrees will be provided to the Executive in the event the Executive's
employment with the Company is terminated subsequent to a change of
control of Selective under the circumstances hereinbelow described.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the Company and the Executive hereby agree as follows:
1. Term of Agreement.
The term of this Agreement (the "Term") shall commence on the date
hereof and shall continue in effect until May 2, 2000, provided, however,
that commencing on May 2, 2000 and each May 2 thereafter (each such May 2
being hereinafter referred to as an "Extension Date"), the Term shall
automatically be extended for one (1) additional year, unless at least
twenty-four (24) months prior to an Extension Date, the Company or the
Executive shall have given written notice in the manner hereinafter
prescribed that the Term shall not be extended as of the next Extension
Date; "and, provided further, that if a "Change in Control" of Selective,
as defined in Section 2 hereof, shall have occurred during the term, as
the same may be extended, this Agreement shall terminate on the last day
of the twenty-four (24) month period commencing on the date that such
Change in Control shall have occurred. Notwithstanding anything in this
Section 1 to the contrary, this Agreement shall terminate if the Executive
or the Company terminates the Executive's employment
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prior to the date on which a Change in Control shall occur.
2. Change in Control.
(a) For the purposes of this Agreement, a "change in control of
Selective" (a "Change in Control") shall mean the occurrence of an event of
a nature that would be required to be reported in response to Item 1(a) of
a Current Report on Form 8-K, as in effect on the date hereof, pursuant to
Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") provided, however, that a Change in Control shall, in
any event, conclusively be deemed to have occurred upon the first to occur
of any one of the following events:
(i) The acquisition by any person or group, including, without
limitation, any current shareholder or shareholders of
Selective, of securities of Selective resulting in such
person's or group's owning of record or beneficially
twenty-five percent (25%) or more, of any class of voting
securities of Selective;
(ii) The acquisition by any person or group, including, without
limitation, any current shareholder or shareholders of
Selective, of securities of Selective resulting in such
person's or group's owning of record or beneficially
twenty percent (20%) or more, but less than twenty-five
percent (25%), of class of voting securities of Selective,
if the Board adopts a resolution that such acquisition
constitutes a Change in Control;
(iii)The sale or disposition of all or substantially all of
the assets of Selective;
(iv) The reorganization, recapitalization, merger,
consolidation or other business
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combination involving Selective the result of which is
the ownership by the shareholders of Selective of less
than eighty percent (80%) of those voting securities of
the resulting or acquiring entity having the power to
elect a majority of the board of directors of such entity;
or
(v) A change in the membership in the Board of Directors of
Selective (the "Selective Board") which, taken in
conjunction with any other prior or concurrent changes,
results in twenty percent (20%) or more of the Selective
Board's membership being persons not nominated by
Selective's management or Selective's Board as set forth
in Selective's then most recent proxy statement, excluding
changes resulting from substitutions by Selective's Board
because of retirement or death of a director or directors,
removal of a director or directors by Selective's Board or
resignation of a director or directors due to demonstrated
disability or incapacity.
(b) Notwithstanding anything in the foregoing Section 2(a) to the
contrary, no Change in Control shall be deemed to have occurred for the
purposes of this Agreement by virtue of any transaction which results in the
Executive, or a group of persons which includes the Executive, acquiring,
directly or indirectly, voting securities of Selective.
(c) For the purpose of Section 2(a) the following definitions shall
apply:
(i) the terms "person" and "beneficial owner"
shall have the meanings set forth in Regulation 13D under
the Exchange Act, as such
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Regulation exists on the date hereof;
(ii) the term "voting security" shall include any security that
has, or may have upon an event of default or in respect to
any transaction, a right to vote on any matter upon which
the holder of any class of common stock of Selective would
have a right to vote;
(iii)the term "group" shall have the meaning set forth in
Section 13(d)(3) of the Exchange Act; and
(iv) the term "substantially all of the assets of Selective"
shall mean more than fifty percent (50%) of Selective's
assets on a consolidated basis, as shown in Selective's
most recent audited balance sheet.
3. Continuation of Employment.
Notwithstanding any termination date specified in the Executive's
Employment Agreement with the Company dated as of May 2, 1997, or any
amendment or modification thereof, or any other employment agreement between
the Company and the Executive from time to time (collectively, the
"Employment Agreement"), in the event of a Change in Control, the Company
agrees to continue to employ the Executive, and, subject to the provisions
of Section 4 hereof, the Executive agrees to continue in the employ of the
Company, in the capacity in which the Executive was serving, and with the
duties, responsibilities and status of the Executive immediately prior to
such Change in Control or in such other capacity as shall be agreeable to
the Executive, for a term commencing on the date on which the Change in
Control shall have occurred and ending three (3) years after the date on
which the Change in Control shall have occurred. Commencing on the date
three (3) years after the date on which the Change in Control shall have
occurred and each anniversary date of the Change in Control
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thereafter (each such date being hereinafter referred to as a "Renewal
Date"), the term of the Executive's employment shall automatically be
renewed for one (1) additional year unless at least twenty-four (24) months
prior to a Renewal Date the Company or the Executive shall have given
written notice in the manner hereinafter prescribed that such employment
shall not be renewed as of such Renewal Date. The provisions of this
Section 3 shall survive any termination of this Agreement pursuant to
Section 1 hereof after a Change in Control and shall continue in full force
and effect.
4. Termination of Employment Following Change in Control.
The Executive shall be entitled to the benefits provided in Section 5
hereof upon the termination of his employment during the term of this
Agreement, as the same may be extended, after a Change in Control has
occurred, unless such termination is: (a) due to the Executive's death or
Retirement, (b) by the Company for Cause or Disability, or (c) by the
Executive other than for Good Reason (as such foregoing capitalized terms
are hereinafter defined).
(i) Termination by the Executive or by the Company of the
Executive's employment based on "Retirement" shall mean
termination: (A) at such age as shall be established by
the Board prior to a Change in Control for mandatory or
normal retirement of Company executives in general, which
shall not be less than age 65, or (B) at any other
retirement age set by mutual agreement of the Company and
the Executive and approved by the Board.
(ii) Termination by the Company of the Executive's employment
based on "Disability" shall mean termination because of
the Executive's physical injury or physical or mental
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illness which causes him to be absent from his duties with
the Company on a full-time basis for a continuous period
in excess of the greater of: (A) the period of disability
constituting permanent disability as specified under the
Company's long-term disability insurance coverage
applicable to the Executive prior to a Change in Control
or (B) six (6) calendar months, unless within thirty (30)
days after Notice of Termination (as hereinafter defined)
is thereafter given the Executive shall have returned to
the full-time performance of his duties.
(iii)Termination by the Company of the Executive's employment
based on "Cause" shall mean termination upon: (A) the
Executive's conviction of a felony (as evidenced by a
binding and final judgment, order or decree of a court of
competent jurisdiction, in effect after exhaustion or
lapse of all rights of appeal), (B) the continued willful
failure by the Executive to perform substantially his
duties with the Company (other than any such failure
resulting from his incapacity due to physical injury or
physical or mental illness) for a period of thirty (30)
days after a demand for substantial performance is
delivered to the Executive by the Board of Directors of
the Company which specifically identifies the manner in
which the Board of Directors believes that the Executive
has not substantially performed his duties, or (C) willful
misconduct in the performance of the
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Executive's duties and obligations to the Company
which constitute common law fraud or other gross
malfeasance of duty; provided, however, that no
termination for Cause pursuant to clauses (B) or
(C) shall occur unless and until there shall have
been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than
sixty-six and two thirds percent (66 2/3%) of the entire
membership of the Board, excluding the Executive, at a
meeting of the Board called and held for the purpose
(after reasonable notice to the Executive and an
opportunity for the Executive, together with his counsel,
to be heard before the Board), finding that in good faith
opinion of the Board the Executive was guilty of the
conduct set forth in such clause (B) or (C) and specifying
the particulars thereof in reasonable detail. For
purposes of this clause (iii), no act, or failure to act,
on the part of the Executive shall be considered "willful"
unless done or omitted to be done by the Executive in bad
faith and without reasonable belief that his action or
omission was in, or not opposed to, the best interests of
the Company. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by
the Board or based upon the advice of counsel for the
Company shall be conclusively presumed to have been done
or omitted to have been done by the Executive in good
faith and in the best
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interests of the Company.
(iv) Termination by the Executive of his employment for "Good
Reason" shall mean (A) termination by the Executive based
on: (1) any reduction in his base salary below the
annualized rate in effect on the date preceding the date
on which a Change in Control shall have occurred or the
Company's failure to increase (within 12 months of the
Executive's last increase in base salary) the Executive's
base salary after a Change in Control in an amount which
at least equals, on a percentage basis, changes in the
Consumer Price Index, all items, for New Jersey in the
preceding twelve (12) months; or (2) a failure by the
Company to continue in effect, or the material reduction
of any of Executive's benefits under, any Plan (as
hereinafter defined) in which the Executive was
participating on the date preceding the date on which a
Change in Control shall have occurred (or Plans providing
the Executive with at least substantially similar
benefits) other than as a result of the normal expiration
of any such Plan in accordance with its terms as in effect
on the date preceding the date on which a Change in
Control shall have occurred, or the taking of any action,
or the failure to act, by the Company which would
adversely affect the Executive's continued participation
in any of such Plans on at least as favorable a basis to
him as was the case on the date preceding the date on
which a Change in Control shall
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have occurred or which would materially reduce the
Executive's benefits in the future under any such Plans
or deprive the Executive of any material benefit enjoyed
by him at the time of the Change in Control; or (3)
without the Executive's express prior written consent,
the assignment to the Executive of any duties inconsistent
with his positions, duties, responsibilities and status
with the Company immediately prior to a Change in Control,
or any diminution in the Executive's responsibilities as an
executive of the Company as compared with those he had as an
executive of the Company immediately prior to a Change in
Control, or any change in the Executive's titles or office as
in effect immediately prior to a Change in Control, or any
removal of the Executive from, or failure to re-elect him
to, any of such positions, except in connection with the
termination of the Executive's employment for Cause,
Disability or Retirement or as a result of the Executive's
death or by his termination of his employment other than
for Good Reason; or (4) without the Executive's express
prior written consent, the imposition of a requirement by
the Company that the Executive be based anywhere other
than where the Executive's office is located on the date
preceding the date on which a Change in Control shall have
occurred; or (5) without the Executive's express prior
written consent, any reduction in the number of paid
vacation days to which the Executive was
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entitled as of the date preceding the date on which a Change
in Control shall have occurred; or (6) a failure by the Company
to provide the Executive with office, secretarial, computer
and other support services and facilities consistent with
his position in the Company and substantially equivalent
to those available to the Executive on the date preceding
the date on which a Change in Control shall have occurred;
or (7) the failure by the Company to obtain from any
successor to the business of the Company, as set forth in
Section 13, the assent to this Agreement, as described in
such Section 13; or (8) subsequent to a Change in Control,
any purported termination of the Executive's employment
which is not effected pursuant to a Notice of Termination
(as hereinafter defined) satisfying the requirements of
Section 4(v) (and, if applicable, Section 4(iii)), and for
purposes of this Agreement no such purported termination
shall be effective; or (9) any breach by the Company of
any of the terms and conditions of any employment
agreement between the Company and the Executive or any
agreement between the Company and the Executive providing
for incentive compensation, stock options, stock
appreciation rights, stock bonuses, pension benefits,
group insurance or any similar benefits; or (10) any
requirement by the Company that the Executive be absent
from Executive's office on business travel or otherwise
more than forty-five (45) days in
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any calendar year or for more than fourteen (14) consecutive
days at any time, or (B) a voluntary termination by the
Executive upon Notice of Termination given by the Executive
to the Company no later than six (6) months after the occurrence
of a Change in Control, provided that Executive shall not
thereafter violate the provisions, if any, of Executive's
Employment Agreement with the Company relating to nondisclosure
of confidential information or noncompetition with the Company.
For purposes of this Agreement, a "Plan" shall mean any plan,
contract, authorization or arrangement, whether or not set
forth in any formal written documents, providing for compensation,
incentive compensation, non-qualified supplemental retirement
benefits, stock options (whether or not in tandem with stock
appreciation rights), stock appreciation rights, long-term
incentives, stock bonuses or restricted stock grants or any
employee benefit plan such as a pension, retirement, profit
sharing, medical, disability, accident, life insurance
plan or a relocation plan or policy or any other plan,
program, policy or arrangement of the Company intended to
benefit the Executive or employees of the Company
generally.
(v) Any termination of the Executive's employment by the
Company or by the Executive shall be communicated by a
Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination"
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shall mean a written notice given in the manner
hereinafter prescribed which shall indicate the specific
termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circum-
stances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated
and shall specify the date of termination in accordance
with this Agreement.
(vi) "Date of Termination" following a Change in Control shall
mean: (A) if the employment is to be terminated by the
Company for Disability, thirty (30) days after Notice of
Termination is given (provided that the Executive shall
not have returned to the performance of the Executive's
duties on a full-time basis during such thirty (30) day
period), or (B) if the employment is to be terminated by
either party for any other reason, the date on which
Notice of Termination is given.
(vii)In the event of dispute as to the Executive's termination
under Section 4(iv) the matter shall be forthwith
submitted to binding arbitration as hereinafter provided.
5. Payment of Benefits.
(a) If an event has occurred pursuant to Section 4 hereof which
entitles the Executive to the benefits and rights set forth in this Section
5, the Executive shall receive from the Company, or from the Escrow Agent
(as hereinafter defined), as the case may be, within five (5) days following
the Date of Termination (except as otherwise provided) all of the following
benefits, other than those
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benefits which he specifically elects by written notice to the Company or to
the Escrow Agent, as the case may be, not to receive:
(i) earned but unpaid base salary through the Date of
Termination at the rate in effect immediately prior to
the time a Notice of Termination is given plus any
incentive compensation, benefits or awards (including
both the cash and stock components) which pursuant to
the terms of any Plans have been accrued, earned or have
become payable, but which have not yet been paid to the
Executive (including any amounts which previously had
been deferred at the Executive's request); and
(ii) as severance pay and in lieu of any further salary for
periods subsequent to the Date of Termination (including
any payments of salary provided for by any employment
agreement with the Company), an amount in cash equal to
the Executive's "annualized includible compensation for
the base period" (as defined in Section 280G(d)(1) of
the Internal Revenue Code of 1986, as amended (the
"Code")), multiplied by a factor of 2.99.
(b) If an event has occurred pursuant to Section 4 hereof which
entitles the Executive to the benefits and rights set forth in this Section
5, the Executive shall be entitled to the benefits of any stock options,
stock appreciation rights, restricted stock grants, stock bonuses or other
benefits theretofore granted by the Company to the Executive under any Plan,
whether or not provided for in any agreement with the Company, provided,
however, that, except to the extent requiring approval of Selective's
stockholders, (i) all unvested stock options, stock appreciation rights,
restricted stock grants, stock bonuses, long-term incentives and similar
benefits shall be deemed to be vested in full on the Date
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DATE
of Termination, notwithstanding any provision to the contrary or any
provision requiring any act or acts by the Executive in any agreement with
the Company or Selective or any Plan, and (ii) to the extent that any such
stock options, stock appreciation rights, restricted stock grants, stock
bonuses, long-term incentives or similar benefits shall require by its terms
the exercise thereof by the Executive, the last date to exercise the same
shall, notwithstanding any provision to the contrary in any agreement or any
Plan, shall be the later to occur of (A) the last date provided for such
exercise in any agreement or Plan evidencing any such stock options, stock
appreciation rights, restricted stock grants, stock bonuses, long-term
incentives or similar benefits or (B) the close of business on the date
which shall be one hundred twenty (120) days after the Date of Termination
and (iii) if the vesting pursuant hereto of any such stock options, stock
appreciation rights, restricted stock grants, stock bonuses, long-term
incentives or similar benefits shall have the effect of subjecting the
Executive to liability under Section 16(b) of the Exchange Act or any
similar provision of law, the vesting date thereof shall be deemed to be the
first day after the Termination Date on which such vesting may occur without
subjecting the Executive to such liability.
(c) If an event has occurred pursuant to Section 4 hereof which
entitles the Executive to the benefits and rights set forth in this Section
5, the Company shall maintain in full force and effect, for the continued
benefit of the Executive and his dependents for a period terminating on the
earliest of:
(i) three (3) years after the Date of Termination or (ii) the commencement
date of equivalent benefits from a new employer, all insured and
self-insured employee welfare benefit Plans in which the Executive was
entitled to participate immediately prior to the Date of Termination,
provided that the Executive's continued participation is not barred under
the general terms and provisions of such Plans.
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In the event that the Executive's participation in any such Plan is barred
by its terms, the Company, at its sole cost and expense, shall arrange to
have issued for the benefit of the Executive and his dependents individual
policies of insurance providing benefits substantially similar (on an
after-tax basis) to those which the Executive otherwise would have been
entitled to receive under such Plans pursuant to this Section 5(c). If, at
the end of three (3)years after the Termination Date, the Executive has not
previously received or is not receiving equivalent benefits from a new
employer, or is not otherwise receiving such benefits, the Company shall
arrange, at its sole cost and expense, to enable him to convert his and his
dependents' coverage under such Plans to individual policies or programs
upon the same terms as employees of the Company may apply for such
conversions upon termination of employment.
(d) Except as specifically provided in Section 5(c) above, the amount
of any payment provided for in this Section 5 shall not be reduced, offset
or subject to recovery by the Company by reason of any compensation earned
by the Executive as the result of employment by another employer after the
Date of Termination, or otherwise. The Executive shall not be required to
mitigate any amounts payable or benefits provided under this Agreement by
seeking or accepting other employment.
(e) The rights and benefits provided herein shall be in addition to,
and not (except as provided in this Agreement) to the exclusion of, any
other rights and benefits that may be available to the Executive in regard
to or arising out of the termination of the Executive's employment,
including claims for breach of contract or for violation of relevant
employment worker's compensation or employee benefits laws. The prosecution
or enforcement of rights granted by this Agreement or the election to take
benefits under this Agreement shall in no manner constitute an election of
rights or remedies by the Executive other than in respect of this
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Agreement.
(f) Notwithstanding anything in this Agreement to the contrary, if any
of the payments or benefits provided for in this Agreement, together with
any other payments or benefits which the Executive has the right to receive
from the Company (including, without limitation, any amounts payable under
any employment contract with the Company), would constitute a "parachute
payment"(as defined in Section 280G(b)(2) of the Code), the payments and
benefits due to the Executive shall be reduced, in such order of priority
and amount as the Executive shall elect, to the largest amount as will
result in no portion of such payments being subject to the excise tax
imposed by Section 4999 of the Code. Notwithstanding anything in the
foregoing to the contrary, any dispute or controversy regarding whether any
payments under this Agreement must be reduced pursuant to this Section 5(f)
shall be conclusively settled by an independent accounting firm acceptable
to each of the parties hereto, or, if no firm is acceptable to both parties
hereto, each of the Executive and the Company shall select an accounting
firm acceptable to it, and such accounting firms shall together designate
an independent accounting firm to settle such dispute or controversy, and
such settlement shall be binding upon both parties, provided, however, that
any accounting firm designated to settle any dispute or controversy
hereunder shall not have been previously retained by either party for a
period of at least two (2) years subsequent to the date of this settlement
of such dispute or controversy. The Company or the Escrow Agent, as the
case may be, may withhold from any benefits payable under this Agreement
all federal, state, city or other taxes as shall be required pursuant to
any law or governmental regulation or ruling.
(g) In the event that a court of competent jurisdiction shall determine
that any portion of the payment and benefits paid to the Executive pursuant
to this Agreement shall have constituted a "parachute payment" (as defined
in Section 280G(b)(2) of the
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Code) and subject to an excise tax under Section 4999(a) of the Code, the
Company shall pay to the Executive in cash such additional amount as is
necessary so that the total amount received by the Executive under this
Agreement, after payment of any applicable taxes on such total amount
(including, without limitation, federal, state or local income taxes, any
taxes imposed by Section 4999(a) of the Code and any taxes in respect of any
amount payable to the Executive under this Section 5(g)) shall not be less
than the net after tax amount that the Executive would have been entitled to
receive under this Agreement had such excise tax under Section 4999(a) not
been imposed. The Company shall pay such additional amount to the Executive
within thirty (30) days after the Executive gives written notice to the
Company that such determination has been made by a court of competent
jurisdiction.
6. Escrow of Benefits.
(a) At any time after the occurrence of a Change in Control, the
Company shall, upon the written request of the Executive, promptly deliver
to a bank or other institution acceptable to the Executive, as escrow agent
(the "Escrow Agent"), an amount of cash or certificates of deposit, treasury
bills or irrevocable letters of credit adequate to fully fund the
obligations of the Company under this Agreement.
(b) The escrow agreement or arrangement between the Company and the
Escrow Agent shall provide that amounts payable to the Executive under this
Agreement shall be paid by the Escrow Agent to the Executive five (5) days
after written demand therefore by the Executive to the Escrow Agent, with a
copy to the Company, certifying that such amounts are due and payable under
this Agreement because of the occurrence of an event specified under
Section 4 hereof. Such escrow agreement or arrangements shall also provide
that if the Company shall, prior to payment by the Escrow Agent, object in
writing to the Escrow Agent, with a copy to the Executive, as to the payment
of any amounts demanded by the
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Executive under this Agreement, certifying that such amounts are not due and
payable to the Executive because an event specified in Section 4 hereof has
not occurred, such dispute shall be resolved by binding arbitration as
hereinafter set forth.
(c) Such escrow agreement or arrangements shall further provide that
any dispute described in Section 6(b) hereof shall be forthwith submitted to
binding arbitration as hereinafter provided.
7. Arbitration.
Any disputes arising under Section 4(iv) or Section 6(b) hereof shall be
forthwith submitted to binding arbitration by three (3) arbitrators in
Newark, New Jersey, under the expedited rules of the American Arbitration
Association then obtaining. One such arbitrator shall be selected by each
of the Company and the Executive, and the two arbitrators so selected shall
elect the third arbitrator. Selection of all three arbitrators shall be
made within thirty (30) days after the date the dispute arose. Such
arbitration shall be limited solely to a determination of whether or not an
event has occurred pursuant to Section 4 of this Agreement which entitles
the Executive to the benefits and rights set forth in Section 5 of this
Agreement. The written decision of the arbitrators shall be rendered within
ninety (90) days after selection of the third arbitrator. The decision of
the arbitrators shall be final and binding on the Company and the Executive
and may be entered by either party in any court having jurisdiction.
8. Enforcement of Rights.
The Company, and any survivor of any business combination with the
Company causing rights to accrue to the Executive under this Agreement,
shall pay all the Executive's legal, accounting and arbitration fees and
expenses and costs as they become due, which the Executive may become
obligated to pay in obtaining, enforcing, retaining or defending any right
or benefit provided by this Agreement, whether in respect of any enforcement
undertaken or demand made by the Executive that is successful or in respect
of
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any enforcement undertaken or demand made in good faith by the Executive
that is not successful. If judgment is rendered against any of such
persons, it will pay the Executive, unless expressly included in the
judgment, prejudgment interest from the date of the Notice of Termination
at the prime rate being charged by PNC Bank NA New Jersey on the date of
the Notice of Termination.
9. Executive's Commitment.
The Executive agrees that subsequent to his period of employment with
the Company, he will not at any time communicate or disclose to any
unauthorized person, without the written consent of the Company, any
proprietary or confidential information concerning the business affairs,
products or customers of the Company which, if disclosed, would have a
material adverse effect upon the business or operations of the Company and
its subsidiaries, taken as a whole; it being understood, however, that the
obligations of this Section 9 shall not apply to the extent that the
aforesaid matters: (a) are disclosed in circumstances where the Executive
is legally required to do so or (b) become generally known to and available
for use by the public otherwise than by the Executive's wrongful act or
omission.
10. Severability.
If any one or more of the provisions (or any part thereof) of this
Agreement would be, invalid, illegal or unenforceable in any respect under
applicable law, then such provision (or any part thereof) shall be deemed
modified to the extent necessary to render it valid while most nearly
preserving its original intent; no provision (or any part thereof) of this
Agreement shall be affected by another provision (or any part thereof) of
this Agreement being held invalid.
11. Notice.
For the purposes of this Agreement, notices, requests, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given: (i) when
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delivered personally, or (ii) three (3) days after having been mailed by
registered or certified mail, return receipt requested, or (iii) one (1)
day after having been sent by telegraph or mailed by express mail or other
overnight courier service, postage, telegraph, courier and registry fees,
as the case may be, prepaid and addressed to the addresses set forth in the
first paragraph of this Agreement or to such other address as either party
may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon receipt. All
notices to the Company shall be directed to the attention of the President
of the Company.
12. Merger; Amendment; Waiver.
(a) This Agreement supersedes all other agreements, arrangements and
understandings, and merges all negotiations and discussions, with respect to
the subject matter hereof; provided, however, that this Agreement shall not,
except to the extent specifically provided herein, supersede or limit the
rights, duties or obligations that the Executive may have under any written
employment agreement with the Company.
(b) This Agreement may be amended or modified only by a writing signed
by both parties. No further agreement between the parties shall be deemed
to supersede, amend or modify this Agreement unless a statement to that
effect is made in such future agreement or the enforcement of such agreement
would give rise to conflicting obligations between the Executive on the one
hand and the Company, its successor or other bound party on the other hand;
in the latter case, however, this Agreement shall be deemed to be
superseded, amended or modified only to the extent necessary to avoid such
conflict.
(c) The waiver of the non-performance of any obligation under this
Agreement shall apply to that non-performance only and shall not constitute
a waiver, modification or amendment of this provision giving rise to such
obligation.
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13. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or
indirect, by merger, consolidation or other combination other than a sale of
assets) to the business of the Company, by agreement in form and substance
satisfactory to the Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. Failure of
the Company to obtain such agreement prior to the effectiveness of any such
succession shall constitute Good Reason for termination by the Executive of
his employment, and, if a Change in Control shall have occurred, the
Executive shall be entitled to the benefits set forth in Section 5 of this
Agreement, except that for purposes of implementing the foregoing, the date.
On which any such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, the "Company" shall mean the
Company as hereinbefore defined, and any successor and assign to its
business as aforesaid which executes and delivers the agreement provided for
in this Section 13 or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the personal or legal representatives, executors, administrators,
successors, heirs, distributees, devises and legatees of the Executive. If
the Executive should die while any amount would still be payable to him
hereunder if he had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this
Agreement to the Executive's devisee, legatee or other designee or, if
there be no such designee, to his estate.
14. Governing Law.
This Agreement is being made in the State of New Jersey and shall be
governed by, and interpreted and construed with reference to, the laws of
New Jersey.
-22-
PAGE
15. Headings.
Headings in this Agreement are for convenience of reference only and
shall not be used to construe or interpret this Agreement.
16. Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereunder have executed this Agreement
as of the date first above written.
SELECTIVE INSURANCE COMPANY OF AMERICA
By: /s/ James W. Entringer
---------------------------
James W. Entringer,
Chairman, President and
Chief Executive Officer
/s/ James W. Coleman, Jr.
---------------------------
James W. Coleman, Jr.
-23-
PAGE
In consideration of the covenants of the Executive hereinabove set
forth, Selective hereby guarantees to the Executive the full performance by
the Company of all of its obligations under the foregoing Termination
Agreement.
SELECTIVE INSURANCE GROUP, INC.
By: /s/ James W. Entringer
-------------------------
James W. Entringer,
Chairman, President and
Chief Executive Officer
-24-
PAGE
EXHIBIT 10.5 - COVER LETTER
- ---------------------------
August 14, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Selective Insurance Group, Inc. Form 10Q for the period ending
June 30, 1997
Ladies and Gentlemen:
Accompanying this letter for filing pursuant to the Securities Act of 1933,
is an amendment to the 1987 Employee Stock Purchase Savings Plan. The plan
was initially filed as an exhibit with the Form 10K for the period ending
December 31, 1993.
Very truly yours,
/s/ Marie A. Yorke
Marie A. Yorke
Administrative Assistant
Financial Accounting and Reporting
/MAY
Enclosures
PAGE
SELECTIVE INSURANCE GROUP, INC.
-------------------------------
RESOLVED that effective May 2, 1997, Section 3.1 of the Employee Stock
Purchase Savings Plan be amended to read as follows:
ARTICLE III
Eligibility
3.1 Any Employee of the Company, on or prior to the commencement of an
Offering, shall be eligible to participate in such Offering, subject
to the limitations imposed by section 423 of the Code. For purposes
hereof, to the extent permitted under section 423 of the Code, service
with any corporation, partnership, or other entity acquired by the
company shall be deemed to be service with the Company if the Employee
is employed by the Company on the date of acquisition of such
corporation, partnership or other entity by the Company. For purposes
of the immediately preceding sentence, a corporation, partnership, or
other entity shall be deemed to have been acquired by the Company in
the event the Company has acquired a substantial amount of the assets
of such corporation, partnership, or other entity or in the event the
Company has acquired more than fifty percent (50%) of the voting stock
or other equity interest of any such corporation, partnership or other
entity.
PAGE
EXHIBIT 10.6 - COVER LETTER
- ---------------------------
August 14, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Selective Insurance Group, Inc. Form 10Q for the period ending
June 30, 1997
Ladies and Gentlemen:
Accompanying this letter for filing pursuant to the Securities Act of 1933,
is an amendment to the Selective Insurance Retirement Savings Plan. The
plan was initially filed as an exhibit to the Company's Registration
Statement on Form S-8 No. 333-10477.
Very truly yours,
/s/ Marie A. Yorke
Marie A. Yorke
Administrative Assistant
Financial Accounting
and Reporting
/MAY
Enclosures
PAGE
AMENDMENT NO. 1
SELECTIVE INSURANCE RETIREMENT SAVINGS PLAN
WHEREAS, Selective Insurance Company of America (the "Company")
maintains the Selective Insurance Retirement Savings Plan (the "Plan")
for the benefit of its employees; and
WHEREAS, Section 10.1 of Article X of the Plan provides in part that
the Plan may be amended at any time, and from time to time, by the Company;
and
WHEREAS, the Company desires to amend the definition of Fair Market
Value with respect to the Company Stock;
NOW, THEREFORE, be it
RESOLVED, that the Savings Plan is amended as follows:
1. Section 2.30 of Article II is hereby amended effective as of
May 2, 1997, by deleting the second sentence thereof and in its place
inserting the following:
"Notwithstanding the above, with respect to the purchase of
shares of Selective Insurance Group, Inc. common stock for
the Selective Insurance Stock Fund on any day, Fair market
Value' shall mean, (i) the closing price of a share of such
common stock as reported on the principal securities exchange
on which shares of such common stock are then listed or
admitted to trading on the date the transaction is executed,
(ii) if not reported on such day, the closing price at the
end of the next business day of a share of such common stock
as reported on such principal securities exchange, or (iii)
if not reported on such day, the fair market value of a share
of such common stock as determined in good faith by the
Committee in its absolute discretion."
PAGE
EXHIBIT 11
SELECTIVE INSURANCE GROUP, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Quarter ended Six months ended
($ in thousands, June 30 June 30
except per share data) 1997 1996 1997 1996
- -------------------------------------------------------------------------
Primary earnings per share:
Net income $ 17,103 15,570 33,804 24,460
Weighted average number of
shares of common stock
outstanding 14,668,869 14,531,303 14,649,277 14,496,228
Net income per share of
common stock $ 1.17 1.07 2.31 1.69
========== ========== ========== ==========
Fully diluted earnings per share:
Income applicable to common stock
on a fully diluted basis:
Net income $ 17,103 15,570 33,804 24,460
Interest on convertible
debentures 149 159 301 318
Amortization of other
debt expenses 2 2 4 4
Tax effect on interest
and debt expenses (53) (56) (107) (113)
---------- ---------- ---------- ----------
$ 17,201 15,675 34,002 24,669
========== ========== ========== ==========
Weighted average number of shares
outstanding on a fully diluted basis:
Weighted average number of common
shares outstanding 14,668,869 14,531,303 14,649,277 14,496,228
Additional shares assuming
conversion of debentures 485,481 513,907 485,913 514,000
---------- ---------- ---------- ----------
15,154,350 15,045,210 15,135,190 15,010,228
========== ========== ========== ==========
Fully diluted income per
share of common stock $ 1.14 1.04 2.25 1.64
========== ========== ========== ==========
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
June 30, 1997 10Q and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000230557
<NAME> SELECTIVE INS. GROUP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 1,015,122
<DEBT-CARRYING-VALUE> 420,167
<DEBT-MARKET-VALUE> 431,850
<EQUITIES> 200,072
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,647,923
<CASH> 22,584
<RECOVER-REINSURE> 9,810
<DEFERRED-ACQUISITION> 93,299
<TOTAL-ASSETS> 2,253,547
<POLICY-LOSSES> 1,171,315<F1>
<UNEARNED-PREMIUMS> 362,545
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 120,511<F2>
0
0
<COMMON> 36,212
<OTHER-SE> 481,825
<TOTAL-LIABILITY-AND-EQUITY> 2,253,547
339,836
<INVESTMENT-INCOME> 49,126
<INVESTMENT-GAINS> 1,969
<OTHER-INCOME> 2,272
<BENEFITS> 235,204<F3>
<UNDERWRITING-AMORTIZATION> 102,708
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 43,879
<INCOME-TAX> 10,075
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,804
<EPS-PRIMARY> 2.31
<EPS-DILUTED> 2.25
<RESERVE-OPEN> 1,189,793<F4>
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 1,171,315<F5>
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Equals the sum of Reserve for losses and the Reserve for loss expenses.
<F2>Equals the sum of Notes payable, Short-term debt, and Convertible
subordinated debentures.
<F3>Equals the sum of losses incurred and loss expenses incurred.
<F4>Equals the sum of Reserve for losses and Reserve for loss expenses
at the beginning of the year.
<F5>Equals the sum of Reserve for losses and Reserve for loss expenses at
the end of the period.
</FN>
</TABLE>
