PAGE 1
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 ..........March 31, 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)
201-948-3000
-------------------------------
(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 April 30, 1997:
14,666,305
PAGE 2
PART I FINANCIAL INFORMATION
==============================
Item 1. Financial Statements.
- ------------------------------
SELECTIVE INSURANCE GROUP, INC.
-------------------------------
Consolidated Balance Sheets
-------------------------------
(dollars in thousands)
(unaudited)
ASSETS March 31 December 31
- ------ 1997 1996
Investments: ------------ ----------
Debt securities, held-to-maturity -
at amortized cost (fair value of
$436,606-1997; $445,273-1996)......... $ 428,238 432,792
Debt securities, available-for-sale -
at fair value (amortized cost of
$1,004,491-1997; $965,965-1996)....... 1,006,919 985,372
Equity securities, available-for-sale -
at fair value (cost of
$100,512-1997; $99,383-1996).......... 166,027 161,096
Short-term investments
(at cost which approximates fair value) 34,953 33,924
Other investments (at cost which approximates
fair value)........................... 10,338 10,530
--------- ---------
Total investments ...................... 1,646,475 1,623,714
Interest and dividends due or accrued ..... 22,849 24,167
Premiums and other receivables............. 159,189 152,008
Reinsurance recoverable on paid losses
and loss expenses..................... 10,556 7,863
Reinsurance recoverable on unpaid losses and
loss expenses......................... 142,185 150,208
Prepaid reinsurance premiums............... 28,517 30,813
Deferred Federal income tax................ 34,012 30,771
Real estate, furniture and equipment....... 48,467 48,993
Deferred policy acquisition costs.......... 85,600 83,150
Excess of cost over fair value of net
assets acquired....................... 9,778 9,894
Other assets............................... 30,365 22,058
--------- ---------
Total assets............................ $ 2,217,993 2,183,639
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
- -----------
Reserve for losses......................... $ 1,003,242 1,015,601
Reserve for loss expenses.................. 174,546 174,192
Unearned premiums.......................... 334,347 332,040
Convertible subordinated debentures........ 6,882 6,912
Short-term debt ........................... 35,000 -
Notes payable.............................. 96,857 96,857
Current Federal income tax................. 4,937 3,729
Other liabilities ......................... 82,584 80,009
--------- ---------
Total liabilities....................... 1,738,395 1,709,340
--------- ---------
See accompanying notes to unaudited consolidated financial statements.
PAGE 3
Stockholders' Equity:
- --------------------
Common stock of $2 par value per share:
Authorized shares-90,000,000
Issued: 18,046,257-1997; 17,911,087-1996 . 36,093 35,822
Additional paid-in capital................. 59,208 53,882
Net unrealized gains on available-for-sale
securities, net of deferred income
tax effect............................ 44,163 52,728
Retained earnings.......................... 399,201 386,601
Treasury stock - at cost
(shares: 3,382,477-1997; 3,366,631-1996) (51,334) (50,680)
Deferred compensation expense and notes
receivable from stock sales................ (7,733) (4,054)
--------- ---------
Total stockholders' equity ............. 479,598 474,299
--------- ---------
Total liabilities and stockholders' equity $ 2,217,993 2,183,639
========= =========
See accompanying notes to unaudited consolidated financial statements.
PAGE 4
SELECTIVE INSURANCE GROUP, INC.
================================
Consolidated Statements of Income
(unaudited)
(in thousands, except per share data)
Quarter ended
March 31
1997 1996
------ ------
Revenues:
- --------
Net premiums written.................... $ 175,184 173,447
Net (increase) decrease in unearned
premiums and prepaid
reinsurance premiums .............. (4,603) 3,240
------- -------
Net premiums earned .................... 170,581 176,687
Net investment income earned............ 24,432 24,011
Net realized gains on investments....... 978 429
Other income............................ 1,175 758
------- -------
Total revenues....................... 197,166 201,885
------- -------
Expenses:
- --------
Losses incurred ........................ 99,541 115,396
Loss expenses incurred.................. 19,063 19,772
Policy acquisition costs................ 51,653 52,706
Dividends to policyholders.............. 1,205 1,428
Interest expense........................ 2,286 2,323
Other expenses.......................... 1,888 721
------- -------
Total expenses....................... 175,636 192,346
------- -------
Income before Federal income tax 21,530 9,539
------- -------
Federal income tax expense (benefit):
Current................................. 3,458 1,067
Deferred................................ 1,371 (418)
------- -------
Total Federal income tax
expense............................ 4,829 649
------- -------
Net income.............................. $ 16,701 8,890
======= =======
Earnings per share:
- ------------------
Net income-primary................... $ 1.14 0.61
Net income-fully diluted ............ $ 1.11 0.60
Dividends to stockholders............... $ 0.28 0.28
See accompanying notes to unaudited consolidated financial statements.
PAGE 4
SELECTIVE INSURANCE GROUP, INC.
Consolidated Statements of Cash Flows
(unaudited)
Quarter ended March 31
(in thousands) 1997 1996
---- ----
Operating Activities
- --------------------
Net income ................................ $ 16,701 8,890
------ ------
Adjustments to reconcile net income to
net cash provided by operating activities:
Increase (decrease) in reserves for losses
and loss expenses, net of reinsurance
recoverable on unpaid losses and
loss expenses ........................... (3,982) 21,094
Net increase (decrease) in unearned
premiums and prepaid reinsurance premiums 4,603 (3,240)
Decrease (increase) in net Federal income tax 2,579 (706)
Depreciation and amortization.............. 1,904 1,472
(Increase) decrease in premiums and other
receivables.............................. (7,181) 4,837
(Increase) decrease in deferred policy
acquisition costs ....................... (2,450) 515
Decrease in interest and dividends due
and accrued ............................. 1,318 302
Increase in reinsurance recoverable on paid
losses and expenses ..................... (2,693) (507)
Net realized gains on investments ......... (978) (429)
Other - net ............................... (8,566) (13,566)
------ ------
Net adjustments ........................... (15,446) 9,772
------ ------
Net cash provided by operating activities.. 1,255 18,662
------ ------
Investing Activities
- --------------------
Purchase of debt securities, held-to-maturity (8,980) (18,168)
Purchase of debt securities,
available-for-sale ...................... (59,632) (49,841)
Purchase of equity securities,
available-for-sale ...................... (2,270) (17,628)
Sale of debt securities, available-for-sale 16,001 11,200
Redemption and maturities of debt securities,
held-to-maturity ........................ 13,479 27,019
Redemption and maturities of debt securities,
available-for-sale ...................... 5,173 5,644
Sale of equity securities, available-for-sale 2,257 739
Proceeds of other investments ............. 196 47
Increase in net payable from security
transactions ............................ 2,810 1,845
Net additions to real estate, furniture and
equipment ............................... (814) (979)
------ ------
Net cash used in investing activities ..... $ (31,780) (40,122)
------ ------
PAGE 5
Financing Activities
- --------------------
Dividends to stockholders ................. $ (4,101) (4,058)
Acquisition of treasury stock ............. (654) (42)
Proceeds from short-term debt ............. 35,000 -
Net proceeds from dividend reinvestment plan 283 286
Net proceeds from stock purchase and
compensation plans ...................... 5,284 3,640
Increase in deferred compensation expense and
proceeds received on notes receivable from
stock sales ............................. (4,258) (2,777)
------ ------
Net cash provided by (used in) financing
activities .............................. 31,554 (2,951)
------ ------
Net increase (decrease) in short-term
investments ............................. 1,029 (24,411)
Short-term investments at beginning of year 33,924 47,306
------ ------
Short-term investments at end of period ... $ 34,953 22,895
====== ======
Supplemental disclosures of cash flow information
- -------------------------------------------------
Cash paid during the period for:
Interest .................................. $ 2,368 2,687
Federal income tax ........................ 2,250 1,355
Supplemental schedule of non-cash financing activity:
- ----------------------------------------------------
Conversion of convertible subordinated
debentures .............................. 30 10
See accompanying notes to unaudited consolidated financial statements.
PAGE 6
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
statement 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 also 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.
3. Lines of Credit
---------------
During the first quarter of 1997, the Company entered into a second
revolving line of credit with a bank under which it may borrow up to
$25,000,000, of which Selective may only borrow up to $20,000,000 of the
line. A commitment fee of .12% on the $25,000,000 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.
At March 31, 1997, there was $35,000,000 of short-term debt outstanding
under the two lines of credit that the Company has available. The weighted
average interest rate on these borrowings was 5.5%.
PAGE 7
4. Reinsurance
The following is a table of assumed and ceded amounts by income statement
caption:
Quarter ended March 31
(in thousands) 1997 1996
- -------------------------------------------------------------------------
Net premiums written:
Assumed $ 7,687 7,750
Ceded (18,230) (22,969)
Net premiums earned:
Assumed $ 5,795 8,449
Ceded (20,526) (25,370)
Losses incurred:
Assumed $ 3,121 3,395
Ceded (1) (3,423) (30,035)
Loss expenses incurred:
Assumed $ 489 518
Ceded (384) (1,416)
(1) The significant decrease in ceded losses incurred for the first
quarter of 1997 reflected flood and winter storm claims, in 1996,
which generated reinsurance loss recoveries in the first quarter
of 1996 of $13 million and $4 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.
PAGE 8
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.
Results of Operations
- ---------------------
Comparison of First Quarter of 1997 to First Quarter of 1996
- ------------------------------------------------------------
Revenues
- --------
Net premiums written for the first quarter of 1997 increased 1%, or
$2 million, over the same period in 1996. This growth reflected an
increase of 4%, or $2 million, of net premiums written in the personal
lines Strategic Business Unit ("SBU"), while the commercial SBUs premium
volume remained relatively consistent. The 9% reduction in net premiums
written recorded during 1996, coupled with the modest 1% growth for the
first quarter of 1997, translated into a decline in total net premiums
earned of 3%, or $6 million, in the first quarter of 1997 over the same
period in 1996.
The commercial SBUs net premiums written decreased $424,000 in the first
quarter of 1997. The decrease primarily reflected a reduction in net
premiums written in all commercial SBUs due to: (i) agency terminations of
approximately $6 million; (ii) rate reductions of approximately $5 million
in the workers' compensation line of insurance, principally due to the
impact of improving loss trends; (iii) a reduction in existing business
(renewal retention) attributable to a highly competitive commercial lines
market place; and (iv) a trend towards self-insurance mechanisms and other
alternative markets, particularly in the public entities SBU, which reduced
net premiums written by approximately $6 million. These decreases were
partially offset by a $15 million increase in new business written and a
$5 million increase due to the increased retention of premiums written
resulting from changes in the Company's reinsurance programs.
Net investment income earned for the first quarter of 1997 increased 2% or
$421,000, over the same period in 1996. The modest increase was primarily
due to income generated from investments acquired from cash provided by
operating activities during 1996. The growth in investment income was
partially offset by redemptions and maturities of higher yielding debt
securities reinvested at lower fixed income yields currently available in
the marketplace during the first quarter of 1997 and throughout 1996.
These factors reduced the Company's overall annualized investment yield for
the quarter to 6.1% for 1997, down from 6.2% for the same period one year
ago.
Expenses
- --------
The ratio of losses and loss expenses incurred to net premiums earned for the
first quarter of 1997 was 69.5%, compared to 76.5% for the first quarter of
PAGE 9
1996. The 7.0 point decrease in the loss and loss expense ratio, for the
most part, reflected the numerous 1996 winter storm claims, which primarily
impacted the personal lines, mercantile and service, public entities, and
habitational and recreational SBUs. These weather-related claims, which
amounted to $9 million (net of $4 million of reinsurance) increased the
first quarter of 1996 loss and loss expense ratio by 5.4 points.
Excluding the effects of the 1996 winter storms, the personal lines SBU loss
and loss expense ratio increased from 71.0% for the first quarter of 1996,
to 72.8% for the same period in 1997. The 1.8 point increase was due to an
increase in the personal automobile loss and loss expense ratio, which was
partially offset by an improvement in the homeowners line of insurance due
to rate increases and lower reinsurance costs.
Absent the impact of the 1996 winter storms, the commercial SBUs loss and
loss expense ratio improved 3.1 points, to 68.0%, for the first quarter of
1997. Favorable loss experience in the workers' compensation line of
insurance was experienced throughout 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. In addition, the mild winter weather during the first
quarter of 1997, coupled with lower reinsurance costs were reflected in
improved commercial property results in most commercial SBUs.
The commercial SBUs with the most significant improvement in the loss and
loss expense ratio were the mercantile and service and habitational
recreational SBUs. This improvement was in most of their business segments
and throughout most of the commercial lines of insurance. These improvements
were partially offset by results in the heavy construction accounts written
through the contractors SBU and school board accounts written through the
public entities SBU, mainly due to the general liability and commercial
automobile lines of insurance. The manufacturing and processing SBU also
experienced unfavorable underwriting results due to one severe claim.
The ratio of policy acquisition costs to net premiums earned for the first
quarter of 1997 increased to 30.3% from 29.8% for the same period in 1996.
Operating expenses that do not directly vary with changes in premium volume,
(ie; labor costs, rent and equipment expense) remained relatively unchanged;
however, this ratio increased due to the lower levels of net premiums
earned.
Total Federal income tax expense increased by $4 million to $5 million for
the first quarter of 1997 compared to $1 million for the first quarter of
1996. The Company's effective tax rate was 22.4% for the first quarter of
1997, compared with 6.8% for the first quarter of 1996. The Company's
effective tax rate differs from the Federal corporate rate of 35% primarily
as a result of the tax-exempt investment income. The effective tax rate for
the first quarter of 1997 was higher than the first quarter of 1996 due to
the higher level of underwriting losses due to the winter storms in 1996.
PAGE 10
Income
- ------
The table below shows operating income, net realized gains, and net income,
including per share amounts for the quarters ended March 31, 1997 and 1996.
- -----------------------------------------------------------------------------
Quarter ended
($ in thousands, March 31
except for per share data) 1997 1996
- -----------------------------------------------------------------------------
Operating income, excluding
net realized gains
(net of tax) (1) $ 16,065 8,611
Net realized gain,
net of tax 636 279
Net income (1) 16,701 8,890
Per primary share:
Operating income (1) 1.10 .59
Net realized gain .04 .02
Net income (1) 1.14 .61
- ----------------------------------------------------------------------------
(1) Operating and net income for the quarter ended March 31, 1996, include
weather-related storm losses of $6 million, or $.43 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 2%, or $34 million from December 31, 1996 to
March 31, 1997. The growth was due to: (i) an increase in total investments
of $23 million which included cash provided by operating activities of $1
million and the draw of $35 million on the Company's lines of credit,
partially offset by a $13 million decrease in net unrealized gains on
available-for-sale securities; (ii) an increase in premiums and other
receivables of $7 million; and (iii) a $3 million increase in deferred
Federal income taxes which, in part, reflected the benefits recognized on
the decrease in unrealized gains on available-for-sale securities.
The rise in total liabilities of 2%, or $29 million, from December 31, 1996
to March 31, 1997 was primarily attributable to the $35 million draw on the
Company's two lines of credit that the Company had outstanding at March 31,
PAGE 11
1997. During the first quarter, the Company expanded its lines of credit
from $10 million to $35 million. The lines of credit complement the cash
provided by operating activities and provide the Company with increased
flexibility in its cash management. This increase was partially offset by
a $12 million decrease in outstanding loss and loss expense reserves due to
an increased volume of outstanding claim files being closed with final
settlement as well as lower exposure due to the reduced premium volume in
1996. 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 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; capital
expenditures with respect to the Company's automation program; principal
payments on the senior notes and dividends to policyholders and stock-
holders. The insurance subsidiaries satisfy their obligations and cash
outflow through premium collections, interest and dividend income and
maturities. For the quarter ended March 31, 1997 and 1996, cash provided by
operating activities amounted to $1 million and $19 million, respectively.
The decrease in cash provided by operating activities was mainly a result of
the higher level of claim payments (approximately $11 million) associated
with the aforementioned CMS deployment and increased litigation settlement
activity. In addition, the lower levels of premiums written in 1996 has
also negatively impacted the cash flow from operations during the first
quarter of 1997. The Company expects to continue to generate cash from
operations over the balance of the year.
PAGE 12
Part II OTHER INFORMATION
- --------------------------
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
(a) The registrant's Annual Meeting of Stockholders (the "Annual Meeting")
was held on May 2, 1997.
(b) The names of the directors elected, and the votes cast for the election
of directors, were as follows:
Votes Broker
Name For Withheld Non-votes
- ---- --- -------- ---------
A. David Brown 11,869,454 588,037 0
William M. Kearns, Jr. 11,903,370 554,121 0
S. Griffin McClellan III 11,902,238 555,253 0
Russell R. Moffett 11,881,766 575,725 0
J. Brian Thebault 11,888,745 568,746 0
The names of the directors whose terms of office will continue after the
Annual Meeting are as follows:
Name
- ----
James W. Entringer
C. Edward Herder
William M. Rue
Thomas D. Sayles, Jr.
William A. Dolan, II
William C. Gray, D.V.M.
Frederick H. Jarvis
Joan M. Lamm-Tennant, Ph.D.
(c) The proposal to amend the Selective Stock Option Plan II in order to
increase by 1,000,000 the number of shares of Selective's common stock
available thereunder was approved, and the votes cast were as follows:
Broker
For Against Abstain Non-votes
--- ------- ------- ---------
8,109,515 2,725,301 188,871 1,433,804
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.
PAGE 13
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: May 15, 1996
By: /s/James W. Entringer
-------------------------------------
James W. Entringer,
Chairman of the Board, President, and
Chief Executive Officer
Date: May 15, 1996
By: /s/Gregory E. Murphy
-------------------------------------
Gregory E. Murphy,
Senior Vice President and
Chief Financial Officer
PAGE 14
SELECTIVE INSURANCE GROUP, INC.
INDEX TO EXHIBITS
Exhibit No.
10.1 Promissory Note of $25,000,000 Revolving Line of Credit
with State Street Bank and Trust Company
10.2 Commercial Loan Note of $10,000,000 Line of Credit
with Summit Bank
11 Statement Re Computation of per Share Earnings
27 Financial Data Schedule
PAGE
March 3, 1997
Selective Insurance Company of America
Selective Insurance Group, Inc.
40 Wantage Avenue
Branchville, NJ 07890-1000
RE: Loan Facility
-------------
Ladies and Gentlemen:
Street Bank and Trust Company (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 corporation organized under the laws of New Jersey
(the "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 A (the "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 either a
floating rate equal to the Bank's Prime Rate (Revolving Loans bearing
interest at such rate, "Prime Rate Loans"), or the Adjusted Libor Rate plus
28 basis points per annum (Revolving Loans bearing interest at such rate,
"Libor Rate Loans") or a money market rate quoted by the Bank for the amount
1
and duration of the requested loan plus 40 basis points per annum (each such
rate, a "Money Market Rate")(Revolving Loans bearing interest at such money
market rate, "Money Market Loans"). The Bank has no commitment hereunder to
quote a Money Market Rate for any particular loan duration or amount or for
each requested Revolving Loan. Libor Rate Loans may be made for interest
periods of 1, 2, 3 or 6 months and Money Market Loans may be made for
interest periods of 1 to 30 days, in each case the foregoing interest periods
shall be acceptable to the Bank and adjusted for month-end, weekend and
holiday periods. In no event shall any interest period extend beyond the
Revolving Maturity Date. Interest on each Revolving Loan shall be
calculated on the basis of a 360-day year for the actual number of days
elapsed. Interest on Prime Rate Loans shall be payable monthly in arrears
on the first business day of each month commencing on the first business day
of the month on which such Revolving Loan is made and 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. Interest on
Libor Rate Loans and Money Market Loans shall be payable in arrears at the
end of each interest period relating thereto, and for Libor Rate Loans
having interest periods exceeding 3 months, at the end of each 3 month
period and at the end of such interest period. 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. Prime Rate
Loans may be prepaid without penalty. Libor Rate Loans and Money Market
Loans may not be prepaid, and the Borrower shall pay all of the Bank's
losses, costs and expenses, excluding lost profits, arising in connection
with any prepayment of any Libor Rate Loan or Money Market Loan made prior
to the end of any interest period relating thereto, whether as a result of
acceleration or otherwise, which amount shall be calculated by the Bank
based on the amount, if any, by which the rate of interest which would have
been payable to the Bank on the prepaid amount had such prepayment not
occurred exceeds the rate of interest which would accrue to the Bank if such
prepaid amount was invested in a United States Treasury instrument selected
by the Bank of similar amount and maturity as the Loan amount which was
prepaid. 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 and Money Market 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 realized by the Bank as a result of
imposition of
2
PAGE
any of the foregoing which is not reflected in adjustments to
the Adjusted Libor Rate or Money Market 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 Libor Rate
Loan by the Bank is unlawful, the Borrower shall repay the amount of any
outstanding Libor Rate Loans and may reborrow such Libor Rate Loans as Prime
Rate Loans or, if applicable, Money Market Loans. 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, Libor Rate Loan and will provide to the Bank
adequate prior notice of its request for the Bank to make, or continue any
maturing, Money Market Loan, and in the event that the Bank does not receive
adequate prior notice as to any maturing Libor Rate Loan or Money Market
Loan, 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 or Money Market
Rate, 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 12 basis points per annum on the amount of the Revolving Line of
Credit which shall be payable quarterly in arrears on March 31, 1997 and
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 available
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
3
PAGE
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) That the Parent shall maintain a ratio of Indebtedness to
Capital of not more than .3 to 1 at all times;
b) Not to, and to ensure that its Subsidiaries will not,
create, incur, assume or suffer to exist any mortgage, pledge,
security interest, lien or other charge or encumbrance upon any
of its assets or properties, other than (i) those described on
Exhibit B, (ii) those in favor of the Bank, and (iii) those for
which the Bank has given its prior written approval, or execute
any document providing for such interest in the future or
prohibiting the granting of any such interest in favor of the
Bank;
c) Not to, and ensure that its Subsidiaries will not, create,
incur assume or guarantee other than (i) Indebtedness to the
Bank, (ii) Indebtedness existing as of the date of this
letter agreement and disclosed on Exhibit B and (iii)
Indebtedness for which the Bank has given its prior written
consent;
d) 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,
4
PAGE
(ii) maintain in full force and effect all 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 as 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 is then involved, 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;
e) 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;
f) 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;
g) 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
5
PAGE
the financial covenants described herein, (ii) within 90 days
of the end of each fiscal year of the Borrowers, annual
consolidated financial statements 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
h) To execute and deliver such additional instruments and
take such 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 C 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 Bank,
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 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, if so requested by the Bank.
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;
6
PAGE
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 undertaking 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 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.
The making of each Revolving Loan hereunder shall be deemed to be a
reaffirmation by the Borrower as to the representations and warranties
contained in this paragraph and confirmation that no Event of Default has
occurred hereunder.
7
PAGE
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 term, 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 Summit Bank or its successors or assigns
continuing beyond any applicable grace period; or
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
8
PAGE
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 providing 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 while such
Event of Default is continuing, at the Bank's option and upon the Bank's
declaration:
(a) The Revolving Line of Credit shall terminate;
9
PAGE
(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 properties or assets of
either Borrower.
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 State Street
Bank and Trust Company, 108 Myrtle Street, No. Quincy, Massachusetts 02171
Attn: Edward M. Anderson, 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 Commonwealth of Massachusetts.
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
10
PAGE
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" shall mean an amount equal to consolidated shareholders'
equity of the Parent and its Subsidiaries as shown on the most recent
financial statements delivered to the Bank hereunder, plus Indebtedness
of the Parent and its Subsidiaries at the time of determination.
"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 the Bank in Boston, Massachusetts as its Prime Rate.
"Subsidiary" shall mean any corporation, association, or similar
organization of which 50% or more of the ordinary voting power for the
election of a majority of the board of directors or other governing body of
such entity is held or controlled by either Borrower or Subsidiary of such
Borrower; or any other such organization the management of which is directly
or indirectly controlled by either Borrower or a Subsidiary of such Borrower
through the exercise of voting power or otherwise; or any joint
11
page
venture, whether incorporated or not, in which the Borrower has a 50%
ownership interest.
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 Commonwealth
of Massachusetts effective when received by the Bank.
Sincerely,
STATE STREET BANK AND
TRUST COMPANY
By: /s/ Edward M. Anderson
-----------------------
Title: Vice President
Acknowledged and accepted:
SELECTIVE INSURANCE COMPANY OF AMERICA
By: /s/ Robert P. Rank
---------------------------
Title:Senior Vice President
Chief Investment Officer
By: /s/ Gregory E. Murphy
--------------------------
Title: Senior Vice President
Chief Financial Officer
SELECTIVE INSURANCE GROUP, INC.
By: /s/ Robert P. Rank
--------------------------
Title: Senior Vice President
Chief Investment Officer
By: /s/ Gregory E. Murphy
--------------------------
Title: Senior Vice President
Chief Financial Officer
Date: March 3, 1997
12
PAGE
SELECTIVE INSURANCE COMPANY OF AMERICA
SELECTIVE INSURANCE GROUP, INC.
PROMISSORY NOTE
$25,000,000 March 3, 1997
Boston, Massachusetts
For value received, the undersigned hereby each promises to pay to
State Street Bank and Trust Company (the "Bank"), or order, at the head
office of the Bank at 225 Franklin Street, Boston, Massachusetts 02110, on
the Revolving Maturity Date, as defined in the Letter Agreement described
below, the principal amount of Twenty Five Million Dollars ($25,000,000), or
such lesser amount of outstanding Revolving Loans, as described in the
Agreement as defined below, as such Borrower shall have borrowed and not
repaid under such Agreement, in immediately available funds, together with
interest on the unpaid principal amount of such Revolving Loans at the times
and at the rates described in the Agreement. The undersigned and the Bank
acknowledge and agree that the obligations of the undersigned hereunder are
not joint and several, and each obligor hereunder is responsible solely for
payment and performance of those obligations required to be performed by
such party hereunder or in connection with Loans made to such party
hereunder.
All loans hereunder and all payments on account of principal and
interest hereof shall be recorded by the Bank. The entries on the records
of the Bank (including any appearing on this Note) shall be prima facie
evidence of amounts outstanding hereunder.
Overdue payments of principal (whether at stated maturity by
acceleration or otherwise), and, to the extent permitted by law, overdue
interest, shall bear interest, compounded monthly and payable on demand in
immediately available funds, at a rate per annum equal to four percent (4%)
above the Bank's Prime Rate in effect from time to time as defined in the
Letter Agreement.
This Note is issued pursuant to, and entitled to the benefits of,
and is subject to, the provisions of a certain Letter Agreement dated as of
March 3, 1997 by and between the undersigned and the Bank (herein, as
the same may from time to time be amended or extended, referred to as the
"Agreement"), but neither this reference to the Agreement nor any provision
thereof shall affect or impair the absolute and unconditional obligation of
the undersigned maker of this Note to pay the principal of and interest on
this Note as herein provided. All terms not
1
PAGE
otherwise defined herein shall be used as defined in the Agreement.
In case an Event of Default (as defined in the Agreement) shall occur,
the aggregate unpaid principal plus accrued interest on this Note shall
become or may be declared to be due and payable in the manner and with the
effect provided in the Agreement.
The undersigned may at its option prepay all or any part of the
principal of this Note before maturity upon the terms provided in the
Agreement and may reborrow such principal subject to the Agreement.
Any deposits or other sums at any time credited by or due from the Bank
to either of the undersigned or any endorser or guarantor hereof and any
securities or other property of either of the undersigned or any endorser or
guarantor at any time in the possession of the Bank may be set off and
applied by the Bank against any obligations of such party to the Bank.
The undersigned maker and every endorser and guarantor hereof hereby
waives presentment, demand, notice, protest and all other demands and
notices in connection with the delivery, acceptance, performance, default or
enforcement hereof and consents that this Note may be extended from time to
time and that no such extension or other indulgence, and no substitution,
release or surrender of collateral and no discharge or release of any other
party primarily or secondarily liable hereon, shall discharge or otherwise
affect the liability of the undersigned, endorser or guarantor. No delay or
omission on the part of the Bank in exercising any right hereunder shall
operate as a waiver of such right or of any other right hereunder, and a
waiver of any such right on any one occasion shall not be construed as a bar
to or waiver of any such right on any future occasion.
2
PAGE
This instrument shall have the effect of an instrument executed under
seal and shall be governed by and construed in accordance with the laws of
The Commonwealth of Massachusetts (without giving effect to any conflicts of
laws provisions contained therein).
WITNESS: SELECTIVE INSURANCE
COMPANY OF AMERICA
Leo L. McConville, Jr. By:/s/ Robert P. Rank
- ----------------------- --------------------------
Title:Senior Vice President
Chief Investment Officer
By:/s/ Gregory E. Murphy
---------------------------
Title: Senior Vice President
Chief Financial Officer
SELECTIVE INSURANCE GROUP, INC.
Leo L. McConville, Jr. By: /s/ Robert P. Rank
- ----------------------- ---------------------------
Title:Senior Vice President
Chief Investment Officer
By: /s/ Gregory E. Murphy
---------------------------
Title: Senior Vice President
Chief Financial Officer
3
PAGE
SCHEDULE I TO NOTE DATED MARCH 3, 1997
FROM SELECTIVE INSURANCE COMPANY OF AMERICA
AND SELECTIVE INSURANCE GROUP, INC. TO THE BANK
Date Amount of Amount of Outstanding Notation
Made Loan Principal Principal By
Paid Balance
- ----------------------------------------------------------------------------
3/11/97 $15,500,000 15,500,000 Leo McConville, Jr.
3/31/97 9,500,000 25,000,000 Leo McConville, Jr.
PAGE
EXHIBIT B
---------
Liens and Encumbrances and Indebtedness
---------------------------------------
Indebtedness Indebtedness Debt Out-
Incurred by Owed to standing Facility
- ------------ ------------ --------- --------
Selective Insurance Publicly Traded $ 6,887,000 $6,887,000 (as of
Group, Inc. Security 1/31/97) 8-3/4%
Convertible
Subordinated
Debentures
Selective Insurance For detail by $42,857,000 $50,000,000 7.84%
Group, Inc. holder refer to Senior Notes Due
original note November 15, 2002
Selective Insurance For detail by $54,000,000 $54,000,000 8.77%
Group, Inc. holder refer to Senior Notes Due
original note August 1, 2005
Selective Insurance Summit Bank $ 9,200,000 $10,000,000 Line
Group, Inc. and/or of Credit
Selective Insurance
Company of America
PAGE
EXHIBIT C
---------
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 America, 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
COMMERCIAL LOAN NOTE
SUMMIT BANK
AMOUNT:$10,000,000.00
DATED:FEBRUARY l4, 1996
FOR VALUE RECEIVED, the undersigned SELECTIVE INSURANCE GROUP, INC.
(the "Borrower") promises to pay to SUMMIT BANK (the "Bank") at its offices
located at One Main Street, Chatham, New Jersey 07928 or at such other place
as the Bank may direct such sum up to Ten Million and 00/100
($10,000,000.00) Dollars, as may be outstanding on loans by Bank to
Borrower under a line of credit, together with interest, as set forth below.
1. TERM, INTEREST RATE - PAYMENT.
A. This Note evidences loans that may from time to time be made by Bank
to Borrower under a line of credit referred to in a confirmation letter
referred to below up to the aggregate outstandinq principal sum of
$10,000,000.00.
B. Each loan and advance hereunder and all accrued and unpaid interest
shall be deemed payable without notice or demand on December 31, 1996.
(the "Maturity Date").
C. Interest on the daily outstanding balance of each loan and advance
shall be computed on the basis of a 360 day year for the actual number
of days elapsed, shall be payable on the last day of each month and on
the Maturity Date and shall accrue at a rate equal to the LIBOR (London
Interbank Offering Rate) as published in the Wall Street Journal, as of
the first day of each month, plus one percent (1), said rate to be
determined and adjusted as of the first day of each month.
D. The loans hereunder may be prepaid at any time, in whole or in part,
without premium or penalty.
E. All payments shall be applied first to fees, then to accrued
interest and finally to unpaid principal.
2. LATE FEE. If the Bank does not receive the entire amount of any payment
required under this Note within 15 days after its due date, the Borrower
shall pay a late fee of 5~ of that entire amount.
3. DEFAULT. The Borrower shall be in default under this Note upon the
occurrence of any of the following events:
a) Failure to make any payment required under this Note when due;
b) Failure to observe and comply with any of the terms and conditions
of the confirmation letter from the Bank to the Borrower dated
February 7, 1996;
c) The default of Borrower under any other obligation to the
PAGE
Bank, or to any third party, now existing or hereafter arising,
which is not cured within any applicable grace or cure period;
d) Borrower ceases doing business;
e) There is a change in ownership of a controlling interest of the
voting capital stock of Borrower;
f) Borrower becomes insolvent or subject to bankruptcy, insolvency
or similar proceeding relating to creditor's rights or a party to any
proceeding providing for an adjustment to or relief from its debts;
g) Borrower makes or has made a false or misleading statement in
applying for or in connection with the loans evidenced by this Note or
any other transaction with the Bank or refuses, on request, to supply
financial or other information requested by the Bank;
h) Any event occurs which, in the Bank's absolute discretion, materially
impairs the financial responsibility or condition of the Borrower;
i) Entry of a judgment, issuance of any garnishment, attachment
or distraint, the filing of any lien or of any governmental attachment
against any property of Borrower which entry, issuance, attachment or
filing is not covered by insurance, is in excess of $1,000,000.00
and shall have continued unstayed and in effect for a period of thirty
(30) consecutive days other than Permitted Encumbrances which are liens
imposed by law such as carriers, warehousemen and mechanic liens, and
liens incurred in connection with the construction or other similar
liens arising in the ordinary course of business provided same are not
at the time due and payable.
Upon the happening of any default, the entire amount of interest, principal,
and any other sums due under this Note shall become due and payable
immediately and interest shall accrue thereafter at a rate of interest equal
to 2% per annum in excess of the rate of interest (as that rate may change
from time to time) which would be payable on this Note if default had not
occurred.
The Bank does not give up its rights upon a default as a result of any delay
or any previous delay in declaring or failing to declare a default.
4. SET-OFF. If any amount owing under this Note is not paid when it becomes
due, the Bank may set-off all property held by it, and funds from any
account maintained with it, belong to Borrower.
5. WAIVERS. The Bank is not required to do any of the following before
enforcing its rights under this Note:
a) Demand payment of amounts due;
b) Give notice that amounts due have not been paid; or
c) obtain an official certificate of non-payment.
PAGE
6. NOTE BINDING ON BORROWER AND SUCCESSORS. All obligations under this Note
are the unconditional obligations of Borrower and all who succeed to its
riqhts and interests.
7. CHANGES. This Note can only be changed by an agreement in writinq
siqned by the Borrower and the Bank.
8. GOVERNING LAW. This Note shall be construed according to the laws of the
State of New Jersey and the Borrower consents to the jurisdiction of the
courts of the State of New Jersey to determine any questions of fact or law
arising under this Note.
9. ACTIONS INVOLVING THIS NOTE. If this Note is referred to any attorney
for collection, the Borrower agrees to pay all reasonable costs of
collection, including court costs and any attorneys' fees. The Borrower
hereby irrevocably waives its right to a trial by jury in any action arising
out of the loan evidenced by this Note and the transactions contemplated
hereunder.
Attested by: SELECTIVE INSURANCE GROUP, INC.
/s/ Susan R. Perretta By: /s/ Gregory E. Murphy
- --------------------- ----------------------
Gregory E. Murphy
Senior Vice President
EXHIBIT 11
SELECTIVE INSURANCE GROUP, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Quarter ended March 31
1997 1996
---- ----
(in thousands, except per share data)
- -------------------------------------------------------------------
Primary earnings per share:
Net income.............................. $ 16,701 8,890
Weighted average number of shares of
common stock outstanding.............. 14,629,241 14,460,498
Net income per share of common stock.... $ 1.14 .61
========== ==========
Fully diluted earnings per share:
Income applicable to common stock
on a fully diluted basis:
Net income.............................. $ 16,701 8,890
Interest on convertible debentures...... 152 158
Amortization of other debt expenses..... 2 2
Tax effect on interest and debt expenses (54) (56)
---------- ---------
$ 16,801 8,994
========== =========
Weighted average number of shares
outstanding on a fully diluted basis:
Weighted average number of shares of
common stock outstanding.............. 14,629,241 14,460,498
Additional shares assuming conversion
of debentures......................... 486,354 514,093
---------- ----------
15,115,595 14,974,591
---------- ----------
Fully diluted income per share of
common stock.......................... $ 1.11 .60
========== ==========
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
March 31, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 1,006,919
<DEBT-CARRYING-VALUE> 428,238
<DEBT-MARKET-VALUE> 436,606
<EQUITIES> 166,027
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,646,475
<CASH> 34,953
<RECOVER-REINSURE> 10,556
<DEFERRED-ACQUISITION> 85,600
<TOTAL-ASSETS> 2,217,993
<POLICY-LOSSES> 1,177,788<F1>
<UNEARNED-PREMIUMS> 334,347
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 138,739<F2>
0
0
<COMMON> 36,093
<OTHER-SE> 443,505
<TOTAL-LIABILITY-AND-EQUITY> 2,217,993
170,581
<INVESTMENT-INCOME> 24,432
<INVESTMENT-GAINS> 978
<OTHER-INCOME> 1,175
<BENEFITS> 118,604<F3>
<UNDERWRITING-AMORTIZATION> 51,653
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 21,530
<INCOME-TAX> 4,829
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,701
<EPS-PRIMARY> 1.14
<EPS-DILUTED> 1.11
<RESERVE-OPEN> 1,189,793<F4>
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 1,177,788<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>
