UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For the Quarter Ended Commission File Number
March 31, 1995 1-8233
USF&G CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 52-1220567
(State of incorporation) (IRS employer identification no.)
100 Light Street, Baltimore, Maryland 21202
(Address of principal executive offices and zip code)
(410) 547-3000
(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 twelve (12) months, and (2) has been subject to such filing
requirements f or 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 $2.50; 106,596,322 shares outstanding as of
April 30, 1995.
U S F & G C o r p o r a t i o n
Contents
PART I. Financial Information
Item 1. Financial Statements:
Condensed Consolidated Statement of Financial Position 3
Condensed Consolidated Statement of Operations 4
Condensed Consolidated Statement of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Report of Independent Auditors 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 21
Exhibit 3 - Articles of Incorporation 21
Exhibit 11 - Computation of Earnings Per Share 22
Exhibit 12 - Computation of Ratio of Consolidated
Earnings to Fixed Charges and
Preferred Stock Dividends 23
Exhibit 15 - Letter Regarding Unaudited Interim
Financial Information 24
Signature 25
USF&G Corporation
Condensed Consolidated Statement of Financial Position (Unaudited)
At March 31 At December 31
(dollars in millions except per 1995 1994
share data)
Assets
Investments:
Fixed maturities:
Held to maturity, at amortized cost
(market, 1995, $4,412;
1994, $4,275) $ 4,631 $ 4,650
Available for sale, at market
(cost, 1995, $4,234;
1994, $4,160) 4,162 3,981
Common stocks, at market
(cost, 1995, $42; 1994, $51) 38 44
Preferred stocks, at market (cost,
1995, $27; 1994, $26) 27 26
Short-term investments 318 421
Mortgage loans 349 349
Real estate 637 662
Other invested assets 405 288
Total investments 10,567 10,421
Cash 82 67
Accounts, notes, and other receivables 623 697
Reinsurance receivables 651 554
Servicing carrier receivables 701 706
Deferred policy acquisition costs 476 495
Other assets 829 834
Total assets $13,929 $13,774
Liabilities
Unpaid losses, loss expenses,
and policy benefits $ 9,796 $ 9,904
Unearned premiums 947 931
Corporate debt 602 586
Real estate and other debt 30 30
Other liabilities 1,070 954
Total liabilities 12,445 12,405
Shareholders' Equity
Preferred stock, par value $50.00
(12,000,000 shares authorized;
shares issued, 1995, 5,299,910;
1994, 6,627,896) 265 331
Common stock, par value $2.50
(240,000,000 shares authorized;
shares issued, 1995, 101,208,661;
1994, 95,616,460) 253 239
Paid-in capital 1,114 1,062
Net unrealized gains (losses) on
investments and foreign currency (65) (144)
Minimum pension liability (63) (63)
Retained earnings (deficit) (20) (56)
Total shareholders' equity 1,484 1,369
Total liabilities and shareholders'
equity $13,929 $13,774
See Notes to Condensed Consolidated Financial Statements.
USF&G Corporation
Condensed Consolidated Statement of Operations (Unaudited)
Three Months Ended March 31
(dollars in millions except 1995 1994
per share data)
Revenues
Premiums earned $ 598 $ 570
Net investment income 184 183
Other 9 8
Revenues before realized gains 791 761
Net realized gains on investments 4 5
Total revenues 795 766
Expenses
Losses, loss expenses, and policy benefits 504 509
Underwriting, acquisition, and operating
expenses 237 224
Interest expense 11 9
Facilities exit costs (income) (6) -
Total expenses 746 742
Income from operations before income taxes 49 24
Provision for income taxes - 1
Net income $ 49 $ 23
Preferred stock dividend requirements 8 12
Net income available to common stock $ 41 $ 11
Primary Earnings Per Common Share $ .42 $ .13
Fully Diluted Earnings Per Common Share $ .39 $ .13
Weighted average common shares
outstanding (000s):
Primary 97,961 85,132
Fully diluted 119,890 85,132
Dividends declared per common share $ .05 $ .05
See Notes to Condensed Consolidated Financial Statements.
USF&G Corporation
Condensed Consolidated Statement of Cash Flows (Unaudited)
Three Months Ended March 31
(in millions) 1995 1994
Operating Activities
Direct premiums collected $ 506 $ 470
Net investment income collected 170 180
Direct losses, loss expenses and policy
benefits paid (436) (426)
Net reinsurance activity 65 13
Underwriting and operating expenses paid (236) (214)
Interest paid (11) (9)
Income taxes paid - -
Other items, net (10) (7)
Net cash provided from operating activities 48 7
Investing Activities
Net (purchases) sales and maturities of
short-term investments 92 (19)
Purchases of fixed maturities held to maturity - (197)
Sales of fixed maturities held to maturity - 13
Maturities/repayments of fixed maturities
held to maturity 26 159
Purchases of fixed maturities available
for sale (158) (49)
Sales of fixed maturities available for sale 23 17
Repayments of fixed maturities available for
sale 74 182
Purchases of equities and other investments (11) (113)
Sales, maturities, or repayments of equities
and other investments 65 150
Purchases of property and equipment (6) (7)
Disposals of property and equipment - 3
Net cash provided from investing activities 105 139
Financing Activities Deposits for universal
life and investment contracts 77 50
Withdrawals of universal life and investment
contracts (202) (153)
Long-term borrowings - 122
Repayments of long-term borrowings - (121)
Issuances of common stock 1 2
Cash dividends paid to shareholders (14) (16)
Net cash used in financing activities (138) (116)
Increase (decrease) in cash 15 30
Cash at beginning of period 67 17
Cash at end of period $ 82 $ 47
See Notes to Condensed Consolidated Financial Statements.
Note 1 Basis of Accounting
The condensed consolidated financial statements are prepared in accordance with
generally accepted accounting principles ("GAAP"). These statements include
the accounts of USF&G Corporation and its subsidiaries ("USF&G"). Intercompany
transactions are eliminated in consolidation. Certain 1994 amounts have been
reclassified to conform to the 1995 presentation. The interim financial
statements in this report should be read in conjunction with the consolidated
financial statements and notes thereto in USF&G's Annual Report to Shareholders
for the year ended December 31, 1994. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements contain the
necessary adjustments, all of which are of a normal recurring nature for
interim period reporting purposes, for a fair presentation of results for the
interim periods.
Note 2 Review of Independent Auditors
USF&G's independent auditors, Ernst & Young LLP, have performed a review of the
condensed consolidated financial statements in this Form 10-Q as to the three
month periods ended March 31, 1995 and 1994. Their limited review in accordance
with standards established by the American Institute of Certified Public
Accountants did not constitute an audit. Accordingly, they do not express an
opinion on this information.
Note 3 Earnings Per Common Share
Primary earnings per common share are based on income, after deduction of
preferred stock dividends, and the weighted average number of common shares
outstanding during the periods. Common stock equivalents were not included as
they were insignificant. Fully diluted earnings per common share assume the
conversion of all securities whose contingent issuance would have a dilutive
effect on earnings. Refer to the computation in Exhibit 11.
Note 4 Ratio of Consolidated Earnings to Fixed Charges
For purposes of computing the ratio of consolidated earnings to fixed charges
and preferred stock dividends, earnings consist of income before considering
income taxes and fixed charges. Fixed charges consist of interest and that
portion of rentals that is deemed to be an appropriate interest factor. Refer
to the computation in Exhibit 12.
Note 5 Supplemental Cash Flow Information
The Condensed Consolidated Statement of Cash Flows is presented using the
"direct method," which reports major classes of cash receipts and cash payments.
A reconciliation of net income to net cash provided from operating activities is
as follows:
Three Months Ended March 31
(in millions) 1995 1994
Operating Activities
Net income $ 49 $ 23
Adjustments to reconcile net income to net
cash provided from operating activities:
Realized gains on investments (4) (5)
Change in insurance liabilities 27 39
Change in deferred policy acquisition costs 20 (20)
Change in receivables (22) (62)
Change in other liabilities (9) (24)
Change in other assets (6) 40
Other items, net (7) 16
Net cash provided from operating activities $ 48 $ 7
Note 6 Unrealized Gains (Losses) on Investments
At March 31, 1995, gross unrealized losses pertaining to equity securities
totaled $7 million. In addition, gross unrealized gains and gross unrealized
losses on limited partnerships and other investments totaled $13 million and $6
million, respectively. At March 31, 1995, there were gross unrealized gains of
$25 million and gross unrealized losses of $96 million pertaining to fixed
maturities available for sale. There were also $6 million of gross unrealized
gains relating to a deferred policy acquisition cost ("DPAC") adjustment. This
DPAC adjustment was made to reflect assumptions about the effect of potential
asset sales of fixed maturities available for sale on future DPAC amortization.
The change in net unrealized gains (losses) o n investments and foreign currency
amounted to a gain of $79 million during the three months ended March 31, 1995,
compared with a loss of $163 million during the three months ended March 31,
1994.
Note 7 Proceeds From Sales of Fixed Maturity Investments
There were no sales of fixed maturities held to maturity during the three months
ended March 31, 1995. During the three month period ended March 31, 1994,
proceeds from sales of fixed maturities held to maturity were $13 million. Such
sales involved four different issuers and were based on evidence of
significant deterioration of the issuers' creditworthiness. Gross gains and
gross losses of $1 million were realized on those sales. Proceeds from sales of
fixed maturities available for sale were $23 million for the three months ended
March 31, 1995, compared with $17 million for the same period in 1994. Gross
gains and gross losses of less than $1 million were realized on such sales in
1995 and 1994.
Note 8 Facilities Exit Costs
During 1994, USF&G committed to a plan to consolidate its home office operations
in Baltimore, Maryland at its Mount Washington facility. Facilities exit costs
of $183 million were recorded in the fourth quarter of 1994, representing the
present value of the rent and other operating expenses to be incurred under the
lease on the Corporation's principal office building ("the Tower") from the time
USF&G vacates the building through the expiration of the lease in 2009.
Facilities exit costs recorded in 1994 did not consider any potential future
sublease income, as such income was neither probable nor reasonably estimable at
that time. To the extent that additional or extended subleases are subsequently
negotiated, the present value of income to be received over the term of those
subleases is recognizable in the period such income becomes probable and
reasonably estimable. Net income for the three months ended March 31, 1995
includes $6 million of sublease income recognized as a result of USF&G's
renegotiation in the first quarter of 1995 of a sublease with a tenant. The new
sublease covers two floors of the Tower already occupied by the tenant and
extends that occupancy through July 2009.
Note 9 Acquisitions
On April 13, 1995, USF&G consummated a merger with Discover Re Managers, Inc.
("Discover Re"). In the transaction, which will be accounted for as a pooling-
of-interests, USF&G exchanged 5.4 million shares of its common stock,
approximately $78.5 mil lion, for all of the outstanding equity of Discover Re.
Discover Re provides insurance, reinsurance and related services to the
alternative risk transfer market. Had the transaction closed on March 31, 1995,
the effect on USF&G's reported financial position and results of operations
would have been as follows:
(in millions except per share data) As Reported Discover Re Combined
Total assets $13,929 $107 $14,036
Revenue 795 8 803
Net income 49 - 49
Earnings per share:
Primary .42 1.37 .40
Fully diluted .39 N/A .37
In December 1994, USF&G entered into a definitive agreement to acquire all of
the outstanding stock of Victoria Financial Corporation ("Victoria") for
approximately 4.1 million shares or $55.3 million of USF&G's common stock,
depending on the average market price of USF&G's common stock over a specified
period preceding the closing of the transaction. Victoria is an insurance
holding company which specializes in nonstandard auto coverage. This
transaction is expected to close in the second quarter of 1995.
Note 10 Legal Contingencies
USF&G's insurance subsidiaries are routinely engaged in litigation in the normal
course of their business, including defending claims for punitive damages. As
a liability insurer, they defend third-party claims brought against their
insureds. As an insurer, they defend themselves against coverage claims.
Additional information regarding contingencies that may arise from insurance
regulatory matters and regulatory litigation matters may be found in the
Regulation section of Management's Discussion and Analysis of Financial
Condition and Results of Operations, as well as in USF&G's Annual Report to
Shareholders for the year ended December 31, 1994.
In the opinion of management, such litigation is not expected to have a material
adverse effect on USF&G's consolidated financial position, although it is
possible that the results of operations in a particular quarter or annual period
would be materially affected by an unfavorable outcome.
10.1. North Carolina workers' compensation litigation
On November 24, 1993, N.C. Steel, Inc. and six other North Carolina employers
filed a class action in the General Court of Justice, Superior Court Division,
Wake County, North Carolina against the National Council on Compensation
Insurance ("NCCI"), North Carolina Rate Bureau, USF&G and eleven other insurance
companies which served as servicing carriers for the North Carolina involuntary
workers' compensation market. On January 20, 1994, the plaintiffs filed an
amended complaint seeking to certify a class of all employers who purchased
workers' compensation insurance in the State of North Carolina after November
24, 1989. The amended complaint, which is captioned N.C. Steel, Inc., et al., v.
National Council on Compensation Insurance, et al ., alleges that the defendants
conspired to suppress competition with respect to the North Carolina voluntary
and involuntary workers' compensation business, thereby artificially inflating
the rates in such markets and the fees payable to the insurer s. The complaint
also alleges that the carriers agreed to improperly deny qualified companies
from acting as servicing carriers, improperly encourage agents to place
employers in the assigned risk pool, and improperly promote inefficient claims
handling. USF&G has acted as a servicing carrier in North Carolina since 1990.
The plaintiffs are pursuing their claims under various legal theories, including
violations of the North Carolina antitrust laws, unlawful conspiracy, breach of
fiduciary duty, breach of implied covenant of good faith and fair dealing,
unfair competition, constructive fraud, and unfair and deceptive trade
practices. The plaintiffs seek unspecified compensatory damages, punitive
damages for the alleged constructive fraud an d treble damages under the North
Carolina antitrust laws. On February 14, 1995, the trial court granted the
defendant's motion to dismiss the complaint. The plaintiffs have appealed the
trial court's dismissal of the case. USF&G believes that it has meritorious
defenses and has determined to defend the action vigorously.
10.2. Texas workers' compensation litigation
On April 18, 1994, Mi-De-Pizza, Inc. and ten other Texas insureds filed an
amended class action in the District Court of Dallas County, Texas against the
NCCI and all insurance companies and certain insurance brokers that wrote
workers' compensation insurance in Texas during the period 1987 to 1991. The
case, which was subsequently consolidated with another case to which USF&G was
not a party and is now captioned Weatherford Roofing Company, et al., v.
Employers National Insurance Company, et al ., alleges that the defendants
utilized rates and forms that had the effect of charging premium rates in excess
of the rates approved by law. The plaintiffs are pursuing recovery of these
alleged excess charges under various legal theories, including breach of
contract, fraud, civil conspiracy and violation of the Texas Insurance Code and
the Texas Business and Commerce Code. USF&G believes that it has meritorious
defenses and has determined to defend the action vigorously.
10.3. South Carolina workers compensation litigation
On August 22, 1994, the Attorney General of the State of South Carolina filed
suit in the County of Greenville, South Carolina on behalf of South Carolina
employers that have allegedly been damaged as a result of alleged unfair and
deceptive trade practices. Specifically, the Attorney General alleges that the
NCCI, the National Workers' Compensation Reinsurance Pool, USF&G and seven other
insurance companies which served as servicing carriers for the South Carolina
involuntary workers' compensation market, conspired to fix servicing carrier
fees at unreasonably high and noncompetitive levels in violation of the South
Carolina Uniform Trade Practices Act, allegedly causing inflated deficits in the
involuntary market and an excessive expansion of the residual market. The
Attorney General alleges that the conspiracy occurred for an unspecified period
of time prior to January 1994. The Attorney General has indicated that he
intends to pursue recovery on behalf of all South Carolina employers who have
suffered an ascertainable loss as a result of such alleged conduct, civil
penalties of $5,000 for each willful violation, and temporary and permanent
injunctive relief. USF&G believes that it has meritorious defenses and has
determined to defend the action vigorously.
10.4. Alabama workers' compensation litigation
On September 14, 1994, three Alabama employers filed a class action captioned
Four Way Plant Farm, Inc., et al., v. National Council on Compensation
Insurance, et al., in the Circuit Court of Bullock County, Alabama on behalf of
all Alabama employers that have allegedly been damaged as a result of an
alleged conspiracy by the NCCI, the National Workers' Compensation Reinsurance
Pool, USF&G and numerous other insurance companies which served as servicing
carriers for the Alabama involuntary workers' compensation market, to fix
servicing carrier fees at unreasonably high and noncompetitive levels in
violation of Alabama law. The plaintiffs allege that the conspiracy occurred
during the period January 1, 1985 to January 1, 1994, and caused inflated
deficits in the involuntary market and an alleged excessive expansion of the
workers' compensation residual market. The plaintiffs seek unspecified damages
on behalf of each member of the proposed class action. USF&G believes that it
has meritorious defenses and has determined to defend the action vigorously.
10.5. Proposition 103
In November 1988, voters in the State of California passed Proposition 103,
which required insurers doing business in California to rollback most
property/casualty premium prices in effect between November 1988 and November
1989 to November 1987 levels, less an additional 20 percent discount, unless an
insurer could establish that such rate levels threatened its solvency. In May
1989, the California Supreme Court ruled that an insurer does not have to face
insolvency in order to qualify for an exemption from the rollback requirements
and is entitled to a fair and reasonable return.
The California Insurance Department's authority to establish regulations setting
forth a basis for determining what constitutes a "fair and reasonable return"
has been the subject of significant controversy. In August 1994, the California
Supreme Court issued its opinion in 20th Century Insurance Company v.
Garamendi, affirming the California Insurance Department's authority to
establish a broad industry-wide formula for implementing Proposition 103. The
20th Century Insurance Company subsequently settled the matter with the
California Insurance Department, and on February 22, 1995, the United States
Supreme Court denied the writ of certiorari filed by the other litigants in the
proceedings. It is not clear how the current regulations adopt ed by the
California Insurance Department will apply to USF&G, and there are many issues
which remain unsettled. The range of liability to USF&G could be from less than
$10 million up to approximately $31 million, including interest. The ultimate
out come of this issue is not expected to have a material adverse effect on
USF&G's results of operations or financial position since any such liability is
not expected to materially exceed amounts already reserved.
10.6. Maine "Fresh Start" litigation
In 1987, the State of Maine adopted workers' compensation reform legislation
which was intended to rectify historic rate inadequacies and encourage insurance
companies to reenter the Maine voluntary workers' compensation market. This
legislation, which was popularly known as "Fresh Start," required the Maine
Superintendent of Insurance to annually determine whether the premiums collected
for policies written in the involuntary market and related investment income
were adequate on a policy-year basis. The Superintendent was required to assess
a surcharge on policies written in later policy years if it was determined that
rates were inadequate. Assessments were to be borne by workers' compensation
policyholders, except that for policy years beginning in 1989 the Superintendent
could require insurance carriers to absorb up to 50 percent of any deficits if
the Superintendent found that insurance carriers failed to make good faith
efforts to expand the voluntary market and depopulate the residual market.
Insurance carriers which served as servicing carriers for the involuntary market
would be obligated to pay 90 percent of the insurance industry's share. The
Maine Fresh Start statute requires the Superintendent to annually estimate each
year's deficit for seven years before making a final determination with respect
to that year.
In March 1993, the Superintendent affirmed a prior Decision and Order (known as
the "1992 Fresh Start Order") in which he found, among other things, that there
were deficits for the 1988, 1989 and 1990 policy years, and that insurance
carriers had no t made a good faith effort to expand the voluntary market and
consequently were required to bear 50 percent of any deficits relating to the
1989 and 1990 policy years. The Superintendent further found that a portion of
these deficits were attributable to servicing carrier inefficiencies and poor
investment practices and ordered that these costs be absorbed by insurance
carriers. Also, in May 1993, the Superintendent found that insurance carriers
would be liable for 50 percent of any deficits relating to the 1991 policy year
(the "1993 Fresh Start Order"), but indicated that he would make no further
determinations regarding the portions of any deficits attributable to alleged
servicing carrier inefficiencies and poor investment practices until his
authority to make such determinations was clarified in the various suits
involving prior Fresh Start orders.
USF&G was a servicing carrier for the Maine residual market in 1988 through
1991. USF&G withdrew from the Maine voluntary market and as a servicing carrier
effective December 31, 1991. USF&G joined in an appeal of the 1992 Fresh Start
Order which was filed April 5, 1993 in the Maine Superior Court. In addition to
The Hartford Accident and Indemnity Company and USF&G, the National Council of
Compensation Insurance ("NCCI") and several other insurance companies which
were servicing carriers during this time frame have instituted similar appeals.
Similar appeals of the Superintendent's 1993 Fresh Start Order have been filed
by USF&G, the NCCI and several other servicing carriers in the same court. The
appeals of the 1993 Fresh Start Order will be heard on a consolidated basis.
On October 17, 1994, the Superior Court of Maine upheld the Superintendent's
finding in the 1992 Fresh Start Order that the insurance carriers failed to
exercise their good faith best efforts to expand the voluntary market and
consequently were required to bear 50 percent of the deficit relating to the
1989 and 1990 policy years. The Superior Court also held that the Superintendent
improperly held that $40 million of the deficit should be attributed to the
carriers due to servicing carrier inefficiencies and poor investment practices.
USF&G and the other parties challenging the Super-intendent's order have
appealed to the Maine Law Court, the highest court in Maine, the Superior
Court's ruling on the carriers' lack of good faith, and the Superintendent may
likewise appeal the Superior Court ruling that it was improper to shift $40
million of the deficit to carriers due to alleged inefficiencies and poor
investment practices.
Estimates of the potential deficits vary widely and are continuously revised as
loss and claims data matures. If the Superintendent were to prevail on all
issues, then the range of ultimate liability for USF&G, based on the most recent
estimates provided by the Superintendent and the NCCI, respectively, could range
from approximately $12 million to approximately $21 million.
Board of Directors
USF&G Corporation
We have reviewed the accompanying condensed consolidated statement of financial
position of USF&G Corporation as of March 31, 1995 and the related condensed
consolidated statements of operations and cash flows for the three-month periods
ended March 31, 1995 and 1994. These financial statements are the
responsibility of the company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, which
will be performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of financial position of USF&G Corporation
as of December 31, 1994, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the year then ended (not presented
herein) and, in our report dated February 24, 1995, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated statement of
financial position as of December 31, 1994, is fairly stated in all material
respects in relation to the consolidated statement of financial position from
which it has been derived.
ERNST & YOUNG LLP
Baltimore, Maryland
May 12, 1995 This section provides an assessment of financial results and
material changes in financial position for USF&G Corporation and its
subsidiaries ("USF&G") and explains the results of operations for the quarter
ended March 31, 1995. The analysis focuses on the performance of USF&G's
business segments and its investment portfolio. This discussion updates the
"Management's Discussion and Analysis" in the 1994 Annual Report to
Shareholders and should be read in conjunction therewith. The results of
operations for the quarter ended March 31, 1995, are compared with those for
the same period of 1994, unless otherwise noted. Financial position at March
31, 1995, is compared with December 31, 1994. (Note: A glossary of certain
terms used in the discussion can be found at the end of this section. The terms
are italicized the first time they appear in text.)
Index
1. Consolidated Results 11
2. Property/Casualty Insurance Operations 12
3. Life Insurance Operations 15
4. Parent and Noninsurance Operations 17
5. Investments 17
6. Financial Condition 21
7. Liquidity 21
8. Regulation 22
9. Glossary of Terms 26
1. Consolidated Results
The table below shows the major components of net income.
Three Months Ended March 31
(in millions) 1995 1994
Income from operations before realized
gains, facilities exit costs, and income
taxes $39 $19
Net realized gains on investments 4 5
Facilities exit (costs) income 6 -
Income tax expense - (1)
Net income $49 $23
The table below shows the components by major business segment of income from
continuing operations before realized gains, facilities exit costs, and income
taxes.
Three Months Ended March 31
(in millions) 1995 1994
Property/casualty insurance $55 $ 33
Life insurance 5 4
Parent and noninsurance (21) (18)
Income from operations before realized
gains, facilities exit costs, and income
taxes $39 $19
Income from operations before realized gains, facilities exit costs, and income
taxes for the property/casualty insurance segment increased $22 million for the
quarter ended March 31, 1995, mainly due to improved underwriting results
primarily from lower catastrophes. The continued improvement in the life
insurance segment resulted principally from higher product sales and improved
profit margins. The major factor influencing the $3 million decrease for parent
and noninsurance operations was higher interest expense.
During 1994, USF&G developed and committed to a plan to consolidate its
Baltimore headquarters facilities. The plan encompasses relocating all USF&G
personnel currently residing at the 40-story office building ("the Tower") in
downtown Baltimore to the Mount Washington facilities in Baltimore which USF&G
owns. Implementation of the plan began in January 1995. The relocation of
Tower personnel will begin in mid-1995 and is expected to be substantially
completed by the end of 1996. Facilities exit costs recorded in the fourth
quarter of 1994 represented the present value of the rent and other operating
expenses incurred under the Tower lease from the time USF&G vacates the Tower
through the expiration of the lease in 2009. Potential future sublease income
was not considered in calculating the facilities exit costs as such income was
neither probable nor reasonably estimable at that time. In the first quarter of
1995, USF&G renegotiated and extended the terms of a sublease with a tenant.
The new lease, which covers the two floors of the Tower already occupied by the
tenant, expires in July 2009. The present value of the additional income to be
received over the term of the new lease, $6 million, was recognized in the first
quarter of 1995, and is shown as a separate item captioned "facilities exit
costs (income)" in the condensed consolidated statement of operations.
2. Property/Casualty Insurance Operations
Property/casualty insurance operations, the principal business segment,
accounted for 85 percent of USF&G's revenues in the first quarter of 1995
compared with 83 percent in the same period of 1994. Financial results for this
segment were as follows:
Three Months Ended March 31
(in millions) 1995 1994
Premiums earned* $ 561 $ 533
Losses and loss expenses incurred (411) (408)
Underwriting expenses (196) (187)
Net underwriting loss (46) (62)
Net investment income 109 100
Other revenues and expenses, net (8) (5)
Income from operations before realized
gains, facilities exit costs, and
income taxes $ 55 $ 33
*See Glossary of Terms
Improved underwriting results and increased net investment income were the
primary reasons for the increase in income from operations before realized
gains, facilities exit costs, and income taxes in the first quarter of 1995 when
compared with the first quarter of 1994. The underwriting improvement is
attributed to lower catastrophe losses and management's efforts over the last
several years to improve the overall quality of the book of business. Net
investment income improved primarily due t o the property/casualty segment's
share of earnings from an equity interest in Renaissance Reinsurance Ltd., an
offshore reinsurance company.
2.1. Premiums earned
Premiums earned totaled $561 million for the first quarter of 1995, compared
with $533 million for the same period in 1994. The following table shows the
major components of premiums earned and premiums written.
Three Months Ended March 31
1995 1994
Premiums Premiums
(in millions) Earned Written Earned Written
Branch office voluntary production:
Direct $ 483 $ 492 $ 467 $ 473
Ceded reinsurance (36) (40) (36) (37)
Net branch office voluntary 447 452 431 436
Voluntary pools and associations 3 (8) 13 13
Involuntary pools and associations* 13 11 27 25
Other premium adjustments 1 (4) (1) (9)
Total primary 464 451 470 465
Assumed reinsurance: Finite risk 26 48 23 38
Traditional risk 71 81 40 47
Total assumed 97 129 63 85
Total $ 561 $ 580 $ 533 $ 550
*See Glossary of Terms
Premiums earned for the quarter ended March 31, 1995, increased $28 million
compared with the same period in 1994. The increase is attributable to the
increases in branch office voluntary direct premiums and assumed reinsurance
premiums. These increases were offset somewhat by a decrease in premiums from
voluntary and involuntary pools and associations as a result of reduced
participation in these markets.
Branch office direct voluntary premiums written in the first quarter of 1995 are
four percent higher when compared with the corresponding period of 1994.
Premiums from new business increased 26 percent in the first quarter of 1 995,
and retention ratios for both Commercial and Personal Lines improved when
compared to the same period in 1994. The table below shows premiums earned and
the statutory loss ratios by lines of property/casualty insurance.
Three Months Ended March 31
1995 1994
Premiums Statutory Premiums Statutory
(dollars in millions) Earned Loss Ratio Earned Loss Ratio
Commercial lines $290 73.1 % $301 74.6 %
Fidelity/Surety 32 37.7 28 28.3
Personal lines 142 79.5 141 98.4
Total primary 464 72.7 470 79.0
Assumed reinsurance 97 76.1 63 58.6
Total $561 73.3 % $533 76.5%
The decrease in the statutory loss ratio for primary businesses for the first
three months of the year, despite significantly higher statutory loss ratios in
voluntary and involuntary pools and associations, is primarily due to the lower
level of catastrophe losses incurred by those lines in the first quarter of 1995
when compared to the first quarter of 1994. The loss ratio for assumed
reinsurance increased in the first quarter of 1995 due primarily to estimated
catastrophe losses incurred related to the January 1995 Kobe, Japan earthquake,
as well as to unfavorable development from the February 1994 Los Angeles
earthquake.
2.2. Underwriting results
Underwriting results generally represent premiums earned less incurred losses,
loss adjustment expenses, and underwriting expenses. It is not unusual for
property/casualty insurance companies to have underwriting losses that are
offset by investment income.
Underwriting gains (losses) by major business category are as follows:
Three Months Ended March 31
(in millions) 1995 1994
Commercial $(28) $(30)
Fidelity/Surety 5 4
Personal (25) (46)
Total primary (48) (72)
Assumed reinsurance 2 10
Net underwriting losses $(46) $(62)
Voluntary $(38) $(59)
Involuntary (8) (3)
Net underwriting losses $(46) $(62)
Consolidated property/casualty underwriting ratios, calculated based on
generally accepted accounting principles ("GAAP") and statutory accounting
practices, are as follows:
Three Months Ended March 31
1995 1994
GAAP underwriting ratios:
Loss ratio 73.3 % 76.5 %
Expense ratio* 35.0 35.2
Combined ratio 108.3 111.7
Statutory underwriting ratios:
Loss ratio 73.3 76.5
Expense ratio 34.8 34.5
Combined ratio 108.1 111.0
*See Glossary of Terms
Underwriting results improved by $16 million in the first quarter 1995 when
compared with the same period of 1994 primarily due to lower catastrophe losses,
particularly in Personal Lines. In the first quarter of 1994, Personal Lines
underwriting results were also negatively affected by higher than normal weather
related losses not designated as catastrophe losses. Underwriting results for
the primary businesses for the first three months of 1995 also benefited from
the overall improvement in the quality and mix of business. However, this
improvement was partially offset by a $10 million increase in net underwriting
losses from voluntary and involuntary pools and associations, which included a
$3 million increase in case reserves from a pool for asbestos cases and a $2
million reserve for estimated losses incurred but not reported for the
Industrial Risk Insurance ("IRI") pool. USF&G reduced its participation in the
IRI pool from 5.5% in the first quarter of 1994 to 1.1% as of March 31, 1995,
thereby minimizing the effect of reserve increases reported by the IRI.
Underwriting results in the first quarter of 1995 included $23 million of net
catastrophe losses compared with $40 million in the same period of 1994. Gross
catastrophe losses were $27 million in the first quarter of 1995 compared with
$40 million i n the same period of 1994. The assumed reinsurance business
incurred most of the 1995 net catastrophe losses, recognizing estimated losses
of $15 million for the January 1995 Kobe, Japan earthquake and further
development of $7 million in losses on the February 1994 Los Angeles earthquake.
The catastrophe losses in the first quarter of 1994 were primarily incurred by
Personal and Commercial Lines and related to severe winter snow and ice storms
and the Los Angeles earthquake. Excluding catastrophe losses, the statutory
loss ratio of 69.3 for the first three months of 1995 was relatively consistent
with that of 69.1 for the first three months of 1994.
Underwriting results showed improvement despite continuing competitive
pressures, the inflationary claims environment, and the adverse impact of
involuntary markets. Competitive pressures continue to effect underwriting
results, especially in the pricing of Commercial Lines products.
2.3. Losses incurred and loss reserves
Losses and loss adjustment expenses incurred totaled $411 million for the three
months ended March 31, 1995, compared with $408 million for the same period in
1994.
Reserves for unpaid losses and loss expenses totaled $6.1 billion at March 31,
1995, and approximate the December 31, 1994 position. Exclusive of claims from
catastrophe losses, pending claims have been reduced by 16 percent and the
number of new claims reported has decreased 15 percent since the first quarter
of 1994.
USF&G categorizes environmental, asbestos and other long term exposures where
multiple claims relate to a similar cause of loss (excluding catastrophes) as
"common circumstance claims." Reserves for losses that have been reported and
certain legal expenses are established on the "case basis." Common circumstance
claims which have emerged, while substantial, are a relatively small portion of
total claim payments and reserves.
The most significant common circumstance claim exposures include negligent
construction, environmental, and asbestos claims. Case reserves for these
exposures are less than two percent of total reserves for unpaid losses and loss
expenses at March 31 , 1995. Other common circumstance claim categories stem
from a variety of situations such as lead paint, toxic fumes, breast implants,
sexual molestation and other disparate causes, provisions for which are included
in the total common circumstance case reserves. The following table sets forth
selected information for each of the three primary categories, net of ceded
reinsurance.
(in millions) Negligent
Construction Environmental Asbestos
Total case and bulk reserves
at December 31, 1994 $ 55 $329 $125
Losses incurred - 2 2
Claims (paid) recovered (3) (12) 1
Total case and bulk reserves
at March 31, 1995 $ 52 $319 $128
Management believes that USF&G's reserve position is adequate relative to its
exposure to environmental and asbestos matters, and compares favorably to other
large property/casualty insurers. USF&G's customer base generally does not
include large manufacturing companies, which tend to incur most of the known
environmental and asbestos exposures. Many of USF&G's environmental claims
relate to small industrial or transportation accidents which individually are
unlikely to involve material exposures. In addition, USF&G has traditionally
been a primary coverage carrier, having written relatively little high-level
excess coverage; therefore, liability exposures are generally restricted to
primary coverage limits. In a study published in 1994, A.M. Best Company, Inc.,
an insurance rating agency, measured the environmental and asbestos reserves
held by property/casualty insurers in terms of the number of years the reserves
could fund the current rate of claim payments, described as the "survival
ratio". A.M. Best extrapolated a projected 1994 industry average of 6.9 years
based on selected industry data, although its report noted that such estimate
was subject to variation depending on, among other things, the source
information included in the study and judgmental adjustments applied by A.M.
Best to exclude two large property/casualty insurers because of what A.M. Best
regarded as extraordinary reserve strengthening for asbestos claims in response
to specific asbestos litigation exposures those companies faced. USF&G
separately calculated its 1994 survival ratio to be approximately 13.5 years for
environmental and asbestos losses. USF&G's survival ratio using a five year
average of claims payments is 11.4 years.
The level of loss reserves for both current and prior years' claims is
continually monitored and adjusted for changing economic, social, judicial and
legislative conditions, as well as for changes in historical trends as
information regarding such conditions and actual claims develops. Management
believes that loss reserves are adequate, but establishing appropriate reserves,
particularly with respect to environmental, asbestos and other long-term
exposure claims, is highly judgmental and an inherently uncertain process. It
is possible that, as conditions change and claims experience develops,
additional reserves may be required in the future. There can be no assurance
that such adjustments will not have a material adverse effect on USF&G's
results of operations or financial condition.
3. Life Insurance Operations
Life insurance operations ("F&G Life") represent 14 percent of USF&G's total
revenues for the first quarter of 1995 compared with 15 percent for the same
period of 1994. F&G Life also represents 33 percent of the assets at March 31,
1995 and December 31, 1994.
F&G Life's financial results were as follows:
Three Months Ended March 31
(in millions) 1995 1994
Premiums $ 37 $ 37
Net investment income 77 83
Policy benefits (93) (101)
Underwriting and operating expenses (16) (15)
Income from operations before realized
gains, facilities exit costs, and income
taxes $ 5 $ 4
Income comparisons between the first quarters of 1995 and 1994 were affected by
lower investment income and policy benefits. Strong expense control efforts are
resulting in generally flat underwriting and operating expenses despite the
significant increase in sales. The decrease in policy benefits is due primarily
to lower interest credited costs from the lower policyholder base. Net
investment income when compared with the same period of the previous year
decreased primarily due to the sale of a majority of the timberland investment
recorded in the first quarter of 1994. Investment income for F&G life is
expected to decrease over the remainder of 1995 because of a declining asset
base resulting from annuities being surrendered. 3.1. Sales
The following table shows life insurance and annuity sales (premiums and
deposits) by distribution system and product type:
Three Months Ended March 31
(in millions) 1995 1994
Distribution System:
Direct-structured settlements $ 23 $ 21
Property/casualty brokerage 15 12
National brokerage 13 10
National wholesaler 24 14
Senior distribution 2 -
Other 7 8
Total $ 84 $ 65
Product Type:
Structured settlement annuities $ 23 $ 21
Single premium deferred annuities 28 17
Tax sheltered annuities 22 12
Other annuities 10 13
Life insurance 1 2
Total $ 84 $ 65
Sales increased in the first quarter of 1995 by 29 percent over the same period
in 1994. This increase was led by single premium deferred annuities ("SPDAs")
and tax sheltered annuities. F&G Life intends to continue to concentrate on the
expansion of its existing distribution channels while also developing other
marketing networks. F&G Life is also continuing the development of selected
products, and modifying current product offerings to meet customer needs.
Despite F&G Life's attention to e xpanding its distribution channels and to
product development, demand for its products is affected by fluctuating interest
rates and the relative attractiveness of alternative investment, annuity or
insurance products, as well as its credit ratings. As a result, there is no
assurance that the improved sales trend will continue at the same level. Total
life insurance in force was $11.7 billion at March 31, 1995 and $11.8 billion at
December 31, 1994.
3.2. Policy surrenders
Deferred annuities and universal life products are subject to surrender. Nearly
all of F&G Life's surrenderable annuity policies allow a refund of the cash
value balance less a surrender charge. The surrender charge varies by product.
Single premi um deferred annuities, which represent 65 percent of surrenderable
business, have surrender charges that decline from six percent in the first
policy year to zero percent in the seventh and later policy years. Newer
products that have been issued d uring 1994 and 1995 have surrender charges
that decline from nine percent in the first policy year to zero percent in the
tenth and later policy years. Such built-in surrender charges provide
protection against premature policy surrender.
Policy surrenders totaled $187 million for the three months ended March 31,
1995. This compares with $131 million for the same period in 1994. Surrender
activity has increased as a result of expiring surrender charges, primarily on
the national bro kerage block of SPDA, as policyholders seek other investment
alternatives.
Management has implemented a policy conservation program that provided
policyholders with a competitive renewal option within F&G Life once their
surrender charge period had expired. Due to the current interest rate
environment, this option was susp ended on January 1, 1995. As of March 31,
1995, policyholders representing approximately 22 percent of the expiring block
had elected this option. An additional 24 percent of the expiring block was
retained under the terms of the original contract, free of surrender charges and
at interest rates which are adjusted annually.
The total account value of F&G Life's deferred annuities is $2.2 billion, 16
percent of which is surrenderable at current account value (i.e., without
surrender charges). The surrender charge period on an additional $1.2 billion
of F&G Life's single premium deferred annuity products expires through the end
of 1997, of which $456 million expires during the remainder of 1995. The
experience thus far for $833 million of SPDAs where the surrender charge period
expired in the fourth quarter of 1993 through the first quarter of 1995
indicates that on average, 55 percent of the expiring block may surrender;
however, in the future, a larger percentage may surrender should interest rates
trend upward. While this will put pressure on F&G Life's ability to increase
assets, given the relatively high interest rates credited when these annuity
were issued, overall profit margins would continue to improve as they surrender
or rollover to new products with lower rates. Management believes that F &G
Life, with a liquid assets to surrender value ratio of 129 percent at March 31,
1995, continues to maintain a high degree of liquidity and has the ability to
meet surrender obligations for the foreseeable future.
4. Parent and Noninsurance Operations
Parent company interest and other unallocated expenses and net losses from
noninsurance operations were as follows:
Three Months Ended March 31
(in millions) 1995 1994
Parent Company Expenses:
Interest expense $(10) $(8)
Unallocated expense, net (11) (9)
Noninsurance Operations - (1)
Loss from operations before
realized gains, facilities exit costs,
and income taxes $(21) $(18)
The results for parent and noninsurance operations for the first quarter of 1995
show an increase in loss from operations of $3 million when compared to the
first quarter of 1994. This increase is primarily due to higher interest
expense as a result of the higher short-term interest rate environment and the
refinancing of corporate debt in 1994.
5. Investments
At March 31, 1995, USF&G's investment mix is comparable with year-end 1994.
Long-term fixed maturities comprise 83 percent of total investments at March 31,
1995 and December 31, 1994. The table below shows the distribution of USF&G's
investment po rtfolio.
(dollars in millions) At March 31, 1995 At December 31, 1994
Total investments $10,567 $10,421
Fixed maturities:
Held to maturity 44 % 45%
Available for sale 39 38
Total fixed maturities 83 83
Common and preferred stocks 2 1
Short-term investments 3 4
Mortgage loans and real estate 9 10
Other invested assets 4 2
Total 100 % 100 %
5.1. Net investment income
The following table shows the components of net investment income.
Three Months Ended March 31
(dollars in millions) 1995 1994
Net investment income from:
Fixed maturities $163 $170
Equity securities 1 -
Short-term investments 6 3
Real estate and mortgage loans 12 17
Other, less expenses 2 (7)
Total $184 $183
Average yields (annualized): 6.9% 6.6%
Investment income from fixed maturities has decreased due to an asset base which
declined in order to meet SPDA surrenders and other cash flow needs. Average
yields on fixed maturities were 7.4 percent and 7.3 percent for the quarters
ended March 3 1, 1995 and 1994, respectively. Interest on short-term
investments has increased due to higher short-term interest rates. Other income
less expenses improved primarily due to USF&G's share of earnings from an equity
interest in Renaissance Reinsurance Ltd. ("Renaissance Re"), an offshore
reinsurance company. USF&G recorded $8 million of net investment income from
Renaissance Re during the first quarter of 1995, compared with a loss of less
than $1 million for the first quarter 1994. Include d in investment income on
real estate and mortgage loans for the first quarter of 1994 is $8 million
related to timberland properties in F&G Life which were sold in 1994.
5.2. Realized gains (losses)
The components of net realized gains (losses) include the following:
Three Months Ended March 31
(in millions) 1995 1994
Net gains (losses) from sales:
Fixed maturities $ 1 $ 2
Equity securities 1 (1)
Real estate and other 5 12
Total net gains 7 13
Impairments:
Fixed maturities - -
Equity securities - -
Real estate and other (3) (8)
Total impairments (3) (8)
Net realized gains $ 4 $ 5
Other realized gains of $4 million for the first quarter of 1995 primarily
relate to USF&G's equity in the realized gains of certain limited partnership
investments. F&G Life's sale of timberland properties resulted in the majority
of the realized g ains from sales of real estate in the first quarter of 1994.
Provisions for impairment relate to certain investments, declines in the fair
value of which are judged to be other than temporary.
5.3. Unrealized gains (losses)
The components of the changes in unrealized gains (losses) were as follows:
Three Months Ended March 31
(dollars in millions) 1995
Fixed maturities available for sale $ 108
Deferred policy acquisition costs adjustment (27)
Equity securities 2
Other (4)
Total $ 79
Fixed maturity investments classified as "available for sale" are recorded at
market value with the unrealized gains/losses reported as a component of
shareholders' equity. An average interest rate decrease of 67 basis points
during the first quart er of 1995 reduced the prior year's unrealized loss on
fixed maturities available for sale from $179 million to $71 million at March
31, 1995. This was partially offset by a related change in F&G Life's DPAC
adjustment from the prior year's unrealized gain of $33 million to an unrealized
gain of $6 million at March 31, 1995. This adjustment is made to reflect
assumptions about the effect of potential asset sales of fixed maturities
available for sale on future DPAC amortization.
5.4. Fixed maturity investments
The tables below detail the composition of the fixed maturity portfolio.
(dollars in millions) At March 31, 1995 At December 31, 1994
Corporate investment-grade bonds $5,063 57% $5,017 57%
Mortgage-backed securities 1,896 21 1,915 22
Asset-backed securities 970 11 931 10
U.S. Government bonds 293 3 277 3
High-yield bonds* 596 7 616 7
Tax-exempt bonds 39 1 47 1
Other 7 - 7 -
Total fixed maturities at
amortized cost 8,864 100 8,810 100
Total market value of fixed
maturities 8,575 8,256
Net unrealized gains (losses) $ (289) $ (554)
Percent market-to-amortized cost 97% 94%
*See Glossary of Terms
At March 31, 1995 At December 31, 1994
Net Net
Amortized Market Unrealized Amortized Market Unrealized
(in millions) Cost Value (Loss) Cost Value (Loss)
Fixed maturities:
Held to maturity $4,630 $4,412 $(218) $4,650 $4,275 $(375)
Available for sale 4,234 4,163 (71) 4,160 3,981 (179)
Total $8,864 $8,575 $(289) $8,810 $8,256 $(554)
Decreasing interest rates, which resulted in rising bond prices, were
responsible for the three percentage point increase in the fixed maturity
portfolio's overall market-to-amortized cost ratio from December 31, 1994.
Debt obligations of the U.S. Government and its agencies and other investment-
grade bonds comprised 93 percent of the portfolio at March 31, 1995 and December
31, 1994. The following table shows the credit quality of the long-term fixed
maturity port folio as of March 31, 1995.
Percent
Market-
Amortized Market to-Amortized
(dollars inmillions) Cost Percent Value Cost
U.S. Government and
U.S.Government Agencies $2,064 23% $2,019 98%
AAA 1,392 16 1,369 98
AA 1,318 15 1,242 94
A 2,435 27 2,358 97
BBB 1,059 12 1,025 97
Below BBB 596 7 562 94
Total $8,864 100% $8,575 97%
USF&G's holdings in high-yield bonds comprised seven percent of the total fixed
maturity portfolio at March 31, 1995 and December 31, 1994. Of the total high-
yield bond portfolio, 71 percent is held by the life insurance segment,
representing 10 perc ent of F&G Life's total investments.
The table below illustrates the credit quality of USF&G's high-yield bond
portfolio as of March 31, 1995.
Percent
Market-
Amortized Market to-Amortized
(dollars in millions) Cost Percent Value Cost
BB $352 59% $327 93%
B 242 41 233 96
CCC and lower 2 - 2 100
Total $596 100% $562 94%
The information on credit quality in the preceding two tables is based upon the
higher of the rating assigned to each issue of fixed-income maturities by either
Standard & Poor's or Moody's. Where neither Standard & Poor's nor Moody's has
assigned a rating to a particular fixed maturity issue, classification is based
on 1) ratings available from other recognized rating services; 2) ratings
assigned by the NAIC; or 3) an internal assessment of the characteristics of the
individual security, if no other rating is available.
At March 31, 1995, USF&G's five largest investments in high-yield bonds totaled
$88 million in amortized cost and had a market value of $70 million. None of
these investments individually exceeded $30 million. USF&G's largest single
high-yield bond exposure represented five percent of the high-yield portfolio
and 0.3 percent of the total fixed maturity portfolio.
5.5. Real estate
The table below shows the components of USF&G's real estate portfolio:
(in millions) At March 31, 1995 At December 31, 1994
Mortgage loans $ 349 $ 349
Equity real estate 735 760
Reserves (98) (98)
Total $ 986 $1,011
The decrease in real estate from the prior year is primarily due to first
quarter 1995 sales of two properties.
USF&G's real estate investment strategy emphasizes diversification by geographic
region and property type. The diversification of USF&G's mortgage loan and real
estate portfolio at March 31, 1995, is as follows:
Geographic Region Type of Property Development Stage
Pacific/Mountain 35% Office 37% Operating property 74%
Midwest 20 Land 26 Land development 11
Southeast 15 Apartments 25 Land packaging 15
Mid-Atlantic 17 Retail/other 7
Southwest 8 Industrial 5
Northeast 5
Real estate investments are generally appraised at least once every three years.
Appraisals are obtained more frequently under certain circumstances such as
significant changes in property performance or market conditions. All of these
appraisals ar e performed by professionally certified appraisers.
At March 31, 1995, USF&G's five largest real estate investments had a book value
of $301 million. The largest single investment was a land development project
located in San Diego, California with a book value of $87 million, or nine
percent of the t otal real estate portfolio.
Mortgage loans and real estate investments not performing in accordance with
contractual terms, or performing significantly below expectation, are
categorized as nonperforming. The level of nonperforming real estate
investments at March 31, 1995 is consistent with December 31, 1994.
The book value of the components of nonperforming real estate are as follows:
(dollars in millions) At March 31, 1995 At December 31, 1994
Real estate acquired through
foreclosure or deed-in-lieu
of foreclosure* $117 $117
Land investments* 58 56
Nonperforming equity investments* 35 35
Total nonperforming real estate $208 $208
Real estate valuation allowance $(98) $(98)
Reserves/nonperforming real estate 47% 47%
*See Glossary of Terms
Valuation allowances are established for impairments of mortgage loans and real
estate equity values based on periodic evaluations of the operating performance
of the properties and their exposure to declines in value. The allowance totaled
$98 milli on, or ten percent of the entire real estate portfolio at March 31,
1995 and December 31, 1994. In light of USF&G's current plans with respect to
the portfolio, management believes the allowance at March 31, 1995 continues to
adequately reflect the current condition of the portfolio. Should deterioration
occur in the general real estate market or with respect to individual properties
in the future, additional reserves may be required. Prospectively, efforts will
continue to reduce risk and inc rease yields in the real estate portfolio by
selling equity real estate when it is advantageous to do so and reinvesting the
proceeds in medium-term mortgage loans.
6. Financial Condition
6.1. Assets
USF&G's assets totaled $13.9 billion at March 31, 1995, compared with $13.8
billion at December 31, 1994. The $0.1 billion increase is primarily due to a
$109 million increase in the market value of fixed maturity investments
available for sale.
6. 2. Debt
USF&G's debt totaled $602 million at March 31, 1995, compared with $586 million
at December 31, 1994. The increase in debt is primarily attributable to the $14
million of foreign currency translation adjustments from non-U.S. dollar
denominated debt . As a result of entering into currency forward agreements,
there was no effect on net income from translation of non-U.S. dollar
denominated debt. USF&G's real estate and other debt totaled $30 million at
March 31, 1995 and December 31, 1994.
On May 11, 1995, USF&G issued $150 million of 7% Senior Notes due 1998.
Interest on the debt is payable semiannually. Proceeds from the issuance will
be used to repay or repurchase outstanding indebtedness. Subject to market
conditions, USF&G plan s to refinance other outstanding debt over the next
several years.
6.3. Shareholders' equity
USF&G's shareholders' equity totaled $1.5 billion at March 31, 1995, compared
with $1.4 billion at December 31, 1994. The increase is primarily the result of
approximately $109 million increase in unrealized gains on fixed maturity
investments avail able for sale less a $27 million change in the related life
insurance segment DPAC adjustment. In addition, shareholders' equity increased
due to net income of $49 million less $13 million in common and preferred stock
dividends.
6.4. Capital strategy
During 1994, USF&G called for redemption 2.4 million shares of its Series C
Preferred Stock. The remaining shares were called for redemption effective
February 24, 1995. As a result of these calls, over 93 percent of the Series C
Preferred Stock co nverted into 14.7 million shares of common stock in
accordance with the terms of the Series C Preferred Stock. Pursuant to
arrangements the Corporation previously entered into with an unaffiliated
financial institution, USF&G sold 716,600 shares of common stock to this
institution to fund a portion of the cash redemptions resulting from these
calls.
On April 13, 1995, USF&G consummated a merger with Discover Re Managers, Inc.
("Discover Re"). In the transaction, which will be accounted for as a pooling-
of-interests, USF&G exchanged 5.4 million shares of its common stock,
approximately $78.5 mil lion, for all of the outstanding equity of Discover Re.
Discover Re provides insurance, reinsurance and related services to the
alternative risk transfer market.
In December 1994, USF&G entered into a definitive agreement to acquire all of
the outstanding stock of Victoria Financial Corporation ("Victoria") for
approximately 4.1 million shares or $55.3 million of USF&G's common stock,
depending on the average market price of USF&G's common stock over a specified
period preceding the closing of the transaction. Victoria is an insurance
holding company which specializes in nonstandard auto coverage. This
transaction is expected to close in second quarter of 1995.
7. Liquidity
7.1. Cash flow from operations
USF&G had cash flow from operations of $48 million and $7 million for the
quarters ended March 31, 1995 and 1994, respectively. The primary factor for
the increase is a $36 million increase in premiums collected, a $52 million
increase in net reinsu rance activity which relates to an increase in F&G Re's
written premium of $44 million over the prior quarter.
7.2. Credit facilities At March 31, 1995, USF&G maintained a $400 million
committed credit facility with a group of foreign and domestic banks.
Borrowings outstanding under the credit facility totaled $215 million at March
31, 1995 and December 31, 1994. The credit agree ment contains restrictive
covenants pertaining to indebtedness, tangible net worth, liens and other
matters. USF&G was in compliance with these covenants at March 31, 1995 and
December 31, 1994.
In addition, at March 31, 1995, USF&G maintained a $100 million foreign currency
credit facility and a $100 million letter of credit facility. At March 31,
1995, there were no borrowings on the foreign currency credit facility; the
balance outstandi ng on the letter of credit facility was $11 million.
7.3. Marketable securities
USF&G's fixed-income, equity security, and short-term investment portfolios are
liquid and represent substantial sources of cash. The market value of its
fixed-income securities was $8.6 billion at March 31, 1995, which represents 97
percent of its amortized cost. At March 31, 1995, equity securities, which are
reported at market value in the balance sheet, totaled $70 million. Short-term
investments totaled $421 million.
7.4. Liquidity restrictions
There are certain restrictions on payments of dividends by insurance
subsidiaries that may limit USF&G's ability to receive funds from its
subsidiaries. Under the Maryland Insurance Code, a Maryland insurance subsidiary
such as USF&G Company must pro vide the Maryland Insurance Commissioner with not
less than thirty days' prior written notice before payment of an "extraordinary
dividend" to its holding company. "Extraordinary dividends" are dividends
which, together with any dividends paid durin g the immediately preceding twelve
month period, would be in excess of 10% of the subsidiary's statutory
policyholders' surplus as of the prior calendar year end. Extraordinary
dividends may not be paid until either such thirty day period has expire d and
the Commissioner has not disapproved the payment or the Commissioner has
approved the payment within such period. In addition, ten days' prior notice of
any other dividend must be given to the Maryland Insurance Commissioner prior to
payment, and the Commissioner has the right to prevent payment of such dividend
if it is determined that such payment could impair the insurer's surplus or
financial condition. Dividends of approximately $157 million are currently
available for payment to USF&G Corporation from USF&G Company during 1995
without providing the notice required for extraordinary dividends.
8. Regulation
USF&G's insurance subsidiaries are subject to extensive regulatory oversight in
the jurisdictions where they do business. This regulatory structure, which
generally operates through state insurance departments, involves the licensing
of insurance com panies and agents, limitations on the nature and amount of
certain investments, restrictions on the amount of single insured risks,
approval of policy forms and rates, setting of capital requirements, limitations
on dividends, limitations on the abil ity to withdraw from certain lines of
business such as personal lines and workers' compensation, and other matters.
From time to time, the insurance regulatory framework has been the subject of
increased scrutiny. At any one time there may be numerou s initiatives within
state legislatures or state insurance departments to alter and, in many cases,
increase state authority to regulate insurance companies and their businesses.
Proposals to adopt a federal regulatory framework have also been discus sed. It
is not possible to predict the future impact of increasing state or potential
federal regulation on USF&G's operations. Additional information regarding legal
and regulatory contingencies may be found in Note 10, "Legal Contingencies," to
the condensed consolidated financial statements, as well as in USF&G's Annual
Report to Shareholders for the year ended December 31, 1994.
8.1. Glass-Steagall reform
During the current session of Congress, legislative proposals to restructure the
U.S. financial services industry through repeal or modification of the Glass-
Steagall Act and the Bank Holding Company Act have been advanced in both Houses
of Congress and advocated by the Administration. The proposals would, to
varying degrees, allow banks to affiliate with other financial services
providers, including insurance companies. It is unclear whether or to what
extent any final legislation would addre ss bank insurance authority, and no
reliable prediction can be made at this time as to the ultimate outcome of the
legislative deliberations regarding restructuring of the financial services
industry or the effect such legislation may have on USF&G. 9. Glossary of
Terms
Account value: Deferred annuity cash value available to policyholders before
the assessment of surrender charges.
Catastrophe losses: Property/casualty insurance claim losses resulting from a
sudden calamitous event, such as a severe storm, are categorized as
catastrophes when they meet certain severity and other criteria determined by a
national organization .
Expense ratio: The ratio of underwriting expenses to net premiums written, if
determined in accordance with statutory accounting practices ("SAP"), or the
ratio of underwriting expenses (adjusted by deferred policy acquisition costs)
to earned premi ums, if determined in accordance with GAAP.
High-yield bonds: Fixed maturity investments with a credit rating below the
equivalent of Standard & Poor's "BBB". In addition, nonrated fixed maturities
that, in the judgment of USF&G, have credit characteristics similar to those of
a fixed maturi ty rated below BBB are considered high-yield bonds.
Involuntary pools and associations: Property/casualty insurance companies are
required by state laws to participate in a number of assigned risk pools,
automobile reinsurance facilities, and similar mandatory plans ("involuntary
market plans"). The se plans generally require coverage of less desirable
risks, principally for workers compensation and automobile liability, that do
not meet the companies' normal underwriting standards. As mandated by
legislative authorities, insurers generally par ticipate in such plans based
upon their shares of the total writings of certain classes of insurance.
Liquid assets to surrender value: GAAP liquid assets (publicly traded bonds,
stocks, cash, and short-term investments) divided by surrenderable policy
liabilities, net of surrender chargers. A measure of a life insurance company's
ability to meet liquidity needs in case of policy surrenders.
Loss ratio: The ratio of incurred losses and loss adjustment expenses to earned
premiums, determined in accordance with SAP or GAAP, as applicable. The
difference between SAP and GAAP relates to deposit accounting for GAAP related
to financial rein surance assumed. Nonperforming real estate: Mortgage loans
and real estate investments that are not performing in accordance with their
contractual terms or that are performing at an economic level significantly
below expectations. Included in the table of nonperforming real estate are the
following terms:
Deed-in-lieu of foreclosure: Real estate to which title has been obtained in
satisfaction of a mortgage loan receivable in order to prevent foreclosure
proceedings.
Land investments: Land investments that are held for future development where,
based on current market conditions, returns are projected to be significantly
below original expectations.
Nonperforming equity investments: Equity investments with cash and GAAP return
on book value less than five percent, but excluding land investments.
Policyholders' surplus: The net assets of an insurer as reported to regulatory
agencies based on accounting practices prescribed or permitted by the National
Association of Insurance Commissioners and the state of domicile.
Premiums earned: The portion of premiums written applicable to the expired
period of policies.
Premiums written: Premiums retained by an insurer.
Underwriting results: Property/casualty pretax operating results excluding
investment results, policyholders' dividends, and noninsurance activities;
generally, premiums earned less losses and loss expenses incurred and
"underwriting" expenses incurred.
U S F & G C o r p o r a t i o n
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 3. Articles of Incorporation.
Exhibit 11. Computation of Earnings per Share.
Exhibit 12. Computation of Ratio of Earnings to Fixed
Charges and Preferred Stock Dividends.
Exhibit 15. Letter Regarding Unaudited Interim Financial
Information.
(b) Reports on Form 8-K.
The Registrant filed a Form 8-K on January 12, 1995, reporting under Item 5,
Other Events, a press release announcing the signing of a definitive agreement
by which USF&G will acquire all of the outstanding Discover Re Managers, Inc.
equity for appro ximately $78.5 million of USF&G common stock and options.
The Registrant filed a Form 8-K on January 20, 1995, reporting under Item 5,
Other Events, a press release announcing information as to fourth quarter
earnings expectations in addition to an announcement relating to plans to
consolidate its Baltimore facilities.
The Registrant filed a Form 8-K on January 25, 1995, reporting under Item 5,
Other Events, a press release announcing its call for redemption of all
outstanding shares of Series C Cumulative Convertible Preferred Stock.
ARTICLES OF INCORPORATION
OF
USF&G CORPORATION
USF&G CORPORATION
ARTICLES OF INCORPORATION
FIRST: THE UNDERSIGNED, Elver T. Pearson, whose address is 100
Light Street, Baltimore, Maryland 21202, being at least eighteen
years of age, acting as incorporator, does hereby form a
corporation under the General Laws of the State of Maryland.
SECOND: The name of the corporation (which is hereinafter
called the "Corporation") is:
USF&G CORPORATION
THIRD: The purposes for which and any of which the Corporation
is formed and the business and objects to be carried on and
promoted by it are:
(1) To purchase, own, and hold the stock of other corporations,
and to do every act and thing covered generally by the
denomination "holding company";
(2) To purchase, subscribe for, acquire, own, hold, sell,
exchange, assign, transfer, create security interests in,
pledge, or otherwise dispose of shares, or voting trust
certificates for shares, of the capital stock of, or any bonds,
notes, securities, or evidences of indebtedness created by, any
other corporation or corporations organized under the laws of
this state or any other state or district, county, nation or
government; and
(3) To engage in any one or more businesses or transactions, or
to acquire all or any portion of any entity engaged in any one
or more businesses or transactions which the Board of Directors
may from time to time authorize or approve, whether or not
related to the business described elsewhere in this Article or
to any other business at the time or theretofore engaged in by
the Corporation.
The foregoing enumerated purposes and objects shall be in no
way limited or restricted by reference to, or inference from,
the terms of any other clause of this or any other Article of
the charter of the Corporation, and each shall be regarded as
independent; and they are intended to be and shall be construed
as powers as well as purposes and objects of the Corporation and
shall be in addition to and not in limitation of the general
powers of corporations under the General Laws of the State of
Maryland.
FOURTH: The present address of the principal office of the
Corporation in this state is 100 Light Street, Baltimore,
Maryland 21202.
FIFTH: The name and address of the resident agent of the
Corporation in this state are John A. MacColl, 100 Light Street,
Baltimore, Maryland 21202. Said resident agent is a citizen of
the State of Maryland who resides there.
SIXTH: The total number of shares of stock of all classes
which the Corporation has authority to issue is 252,000,000
having an aggregate par value of $1,200,000,000 of which
240,000,000 shares of the par value of $2.50 per share,
amounting in aggregate par value to $600,000,000, shall be
Common Stock, and 12,000,000 shares of the par value of $50.00
per share, amounting in aggregate par value to $600,000,000,
shall be Preferred Stock.
SEVENTH: The following is a description of the preferences,
conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and
conditions of redemption of the Common Stock and the Preferred
Stock of the Corporation:
COMMON STOCK
(1) The Common Stock shall not be subject to classification or
reclassification by the Board of Directors, and shall have the
rights and terms hereinafter specified, subject to the terms of
any other stock provided in the charter pursuant to
classification or reclassification by the Board of Directors or
otherwise in accordance with law.
(2) Each share of Common Stock shall have one vote, and, except
as otherwise provided in respect of any Preferred Stock, the
exclusive voting power for all purposes shall be vested in the
holders of the Common Stock.
(3) Subject to the provisions of law and any preferences of any
Preferred Stock, dividends may be paid on the Common Stock of
the Corporation at such time and in such amounts as the Board of
Directors may deem advisable.
(4) In the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the
holders of the Common Stock shall be entitled, after payment or
provision for payment of the debts and other liabilities of the
Corporation and the amount to which the holders of any Preferred
Stock shall be entitled, to share ratably in the remaining net
assets of the Corporation.
PREFERRED STOCK
(5) The Board of Directors shall have authority to classify and reclassify
any unissued shares of the Preferred stock from time
to time by setting or changing in any one or more respects the
preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, and qualifications,
or terms or conditions of redemption, of the Preferred Stock;
provided, that the Board of Directors shall not classify or
reclassify any of such shares into shares of the Common Stock,
or into any class or series of stock (i) which is not prior to
the Common Stock either as to dividends or upon liquidation and
(ii) which is not limited in some respects either as to
dividends or upon liquidation. Subject to the foregoing, the
power of the Board of Directors to classify and reclassify any
of the shares of Preferred Stock shall include, without
limitation, subject to the provisions of the charter, authority
to classify or reclassify any unissued shares of such stock into
a class or classes of preferred stock, preference stock, special
stock or other stock, and to divide and classify shares of any
class into one or more series of such class, by determining,
fixing or altering one or more of the following:
(a) The distinctive designation of such class or series and the
number of shares to constitute such class or series; provided
that, unless otherwise prohibited by the terms of such or any
other class or series, the number of shares of any class or
series may be decreased by the Board of Directors in connection
with any classification or reclassification of unissued shares
and the number of shares of such class or series may be
increased by the Board of Directors in connection with any such
classification or reclassification, and any shares of any class
or series which have been redeemed, purchased, otherwise
acquired or converted into shares of Common Stock or any other
class or series shall remain part of the authorized Preferred
Stock and be subject to classification and reclassification as
provided in this Section.
(b) Whether or not and, if so, the rates, amounts and times at which,
and the conditions under which, dividends shall be
payable on shares of such class or series, whether any such
dividends shall rank senior or junior to or on a parity with the dividends
payable on any other class or series of Preferred
Stock, and the status of any such dividends as cumulative,
cumulative to a limited extent, or non-cumulative and as
participating or non-participating.
(c) Whether or not shares of such class or series shall have
voting rights, in addition to any voting rights provided by law
and, if so, the terms of such voting rights.
(d) Whether or not shares of such class or series shall have
conversion or exchange privileges and, if so, the terms and
conditions thereof, including provision for adjustment of the
conversion or exchange rate in such events or at such times as
the Board of Directors shall determine.
(e) Whether or not shares of such class or series shall be
subject to redemption and, if so, the terms and conditions of
such redemption, including the date or dates upon or after which
they shall be redeemable and the amount per share payable in
case of redemption, which amount may vary under different
conditions and at different redemption dates; and whether or not
there shall be any sinking fund or purchase account in respect
thereof, and if so, the terms thereof.
(f) The rights of the holders of shares of such class or series upon
the liquidation, dissolution or winding up of the affairs
of, or upon any distribution of the assets of, the Corporation,
which rights may vary depending upon whether such liquidation, dissolution
or winding up is voluntary or involuntary and, if
voluntary, may vary at different dates, and whether such rights
shall rank senior or junior to or on a parity with such rights
of any other class of series of Preferred Stock.
(g) Whether or not there shall be any limitations applicable,
while shares of such class or series are outstanding, upon the
payment of dividends or making of distributions on, or the
acquisition of, or the use of moneys for purchase or redemption
of, any stock of the Corporation, or upon any other action of
the Corporation, including action under this Section, and, if
so, the terms and conditions thereof.
(h) Any other preferences, rights, restrictions, including
restrictions on transferability, and qualification of shares of
such class or series, not inconsistent with law and the charter
of the Corporation.
(6) For the purposes hereof and of any articles supplementary
to the charter providing for the classification or
reclassification of any shares of Preferred Stock or of any
other charter document of the Corporation (unless otherwise
provided in any such articles or documents), any class or series
of stock of the Corporation shall be deemed to rank:
(a) prior to another class or series either as to dividends or
upon liquidation, if the holders of such class or series shall
be entitled to the receipt of dividends or of amounts
distributable on liquidation, dissolution or winding up, as the
case may be, in preference or priority to holders of such other
class or series;
(b) on a parity with another class or series either as to
dividends or upon liquidation, whether or not the dividend
rates, dividend payment dates, or redemption or liquidation
price per share thereof be different from those of such others,
if the holders of such class or series of stock shall be
entitled to receipt of dividends or amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in
proportion to their respective dividend rates or redemption or liquidation
prices, without preferences or priority over the
holders of such other class or series; and
(c) junior to another class or series either as to dividends or upon
liquidation, if the rights of the holders of such class or
series shall be subject or subordinate to the rights of the
holders of such other class or series in respect of the receipt
of dividends or the amounts distributable upon liquidation,
dissolution or winding up, as the case may be.
EIGHTH: The number of directors of the Corporation shall be
three (3), which number may be increased or decreased pursuant
to the By-Laws of the Corporation, but shall never be less than
the minimum number permitted by the General Laws of the State of
Maryland now or hereafter in force. The names of the directors
who will serve until the first annual meeting and until their
successors are elected and qualify are as follows: Charles H.
Foelber, Jack Moseley and Larry P. Scriggins.
NINTH: The following provisions are hereby adopted for the
purpose of defining, limiting, and regulating the powers of the
Corporation and of the directors and stockholders:
(1) The Board of Directors is hereby empowered to authorize the
issuance from time to time of shares of its stock of any class,
whether now or hereafter authorized, or securities convertible
into shares of its stock of any class or classes, whether now or
hereafter authorized, for such consideration as may be deemed
advisable by the Board of Directors and without any action by
the stockholders.
(2) No holder of any stock or any other securities of the
Corporation, whether now or hereafter authorized, shall have any
preemptive right to subscribe for or purchase any stock or any
other securities of the Corporation other than such, if any, as
the Board of Directors, in its sole discretion, may determine
and at such price or prices and upon such other terms as the
Board of Directors, in its sole discretion, may fix; and any
stock or other securities which the Board of Directors may
determine to offer for subscription may, as the Board of
Directors in its sole discretion shall determine, be offered to
the holders of any class, series or type of stock or other
securities at the time outstanding to the exclusion of the
holders of any or all other classes, series or types of stock or
other securities at the time outstanding.
(3) The Board of Directors shall have power from time to time
and in its sole discretion to determine in accordance with sound
accounting practice, what constitutes annual or other net
profits, earnings, surplus, or net assets in excess of capital;
to fix and vary from time to time the amount to be reserved as
working capital, or determine that retained earnings or surplus
shall remain in the hands of the Corporation; to set apart out
of any funds of the Corporation such reserve or reserves in such
amount or amounts and for such proper purpose or purposes as it
shall determine and to abolish any such reserve or any part
thereof; to distribute and pay distributions or dividends in
stock, cash or other securities or property, out of surplus or
any other funds or amounts legally available therefor, at such
times and to the stockholders of record on such dates as it may,
from time to time, determine; and to determine whether and to
what extent and at what times and places and under what
conditions and regulations the books, accounts and documents of
the Corporation, or any of them shall be open to the inspection
of stockholders, except as otherwise provided by statute or by
the By-Laws, and, except as so provided, no stockholder shall
have any right to inspect any book, account or document of the
Corporation unless authorized so to do by resolution of the
Board of Directors.
(4) A contract or other transaction between the Corporation and
any of its directors or between the Corporation and any other
corporation, firm or other entity in which any of its directors
is a director or has a material financial interest is not void
or voidable solely because of any one or more of the following:
the common directorship or interest; the presence of the
director at the meeting of the Board of Directors which
authorizes, approves, or ratifies the contract or transaction;
or the counting of the vote of the director for the
authorization, approval, or ratification of the contract or
transaction. This Section applies if:
(a) the fact of the common directorship or interest is
disclosed or known to: the Board of Directors and the Board
authorizes, approves, or ratifies the contract or transaction by
the affirmative vote of a majority of disinterested directors,
even if the disinterested directors constitute less than a
quorum; or the stockholders entitled to vote, and the contract
or transaction is authorized, approved, or ratified by a
majority of the votes cast by the stockholders entitled to vote
other than the votes of shares owned of record or beneficially
by the interested director or corporation, firm, or other
entity; or
(b) the contract or transaction is fair and reasonable to the
Corporation.
Common or interested directors or the stock owned by them or by
an interested corporation, firm, or other entity may be counted
in determining the presence of a quorum at a meeting of the
Board of Directors or at a meeting of the stockholders, as the
case may be, at which the contract or transaction is authorized,
approved, or ratified. If a contract or transaction is not
authorized, approved, or ratified in one of the ways provided
for in clause (a) of the second sentence of this Section, the
person asserting the validity of the contract or transaction
bears the burden of proving that the contract or transaction was
fair and reasonable to the Corporation at the time it was
authorized, approved, or ratified. The procedures in this
Section do not apply to the fixing by the Board of Directors of
reasonable compensation for a director, whether as a director or
in any other capacity.
(5) The Corporation shall indemnify (a) its directors to the
full extent provided by the General Laws of the State of
Maryland now or hereafter in force, including the advance of
expenses under the procedures provided by such laws; (b) its
officers to the same extent it shall indemnify its directors;
and (c) its officers who are not directors to such further
extent as shall be authorized by the Board of Directors and be
consistent with law. The foregoing shall not limit the
authority of the Corporation to indemnify other employees and
agents consistent with law.
(6) The Corporation reserves the right from time to time to
make any amendments of its charter which may now or hereafter be
authorized by law, including any amendments changing the terms
or contract rights, as expressly set forth in its charter, of
any of its outstanding stock by classification, reclassification
or otherwise; but no such amendment which changes such terms or
contract rights of any of its outstanding stock shall be valid
unless such amendment shall have been authorized by not less
than a majority of the aggregate number of the votes entitled to
be cast thereon, by a vote at a meeting or in writing with or
without a meeting.
(7) To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, no director or
officer of this Corporation shall be personally liable to the
Corporation or its stockholders for money damages. No amendment
of the Charter of the Corporation or repeal of any of its
provisions shall limit or eliminate the benefits provided to
directors and officers under this provision with respect to any
act or omission which occurred prior to such amendment or repeal.
The enumeration and definition of particular powers of the
Board of Directors included in the foregoing shall in no way be
limited or restricted by reference to or inference from the
terms of any other clause of this or any other Article of the
charter of the Corporation, or construed as or deemed by
inference or otherwise in any manner to exclude or limit any
powers conferred upon the Board of Directors under the General
Laws of the State of Maryland now or hereafter in force.
TENTH: The duration of the Corporation shall be perpetual.
IN WITNESS WHEREOF, I have signed these Articles of
Incorporation acknowledging the same to be my act, on July 22,
1981.
Witness:
/SAMUEL H. McCOY, II/ /ELVER T. PEARSON/
<PAGE>
USF&G CORPORATION
ARTICLES OF AMENDMENT
USF&G CORPORATION, a Maryland corporation , having its
principal office in Baltimore City, Maryland (which is
hereinafter called the "Corporation"), hereby certifies to the
State Department of Assessments and Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended as
follows:
(a) By changing and reclassifying each one (1) share of Common Stock,
$2.50 par value, issued at the time of effectiveness of
this Amendment into two (2) shares of Common Stock, $2.50 par
value; and
(b) by deleting Article SIXTH of the Articles of Incorporation
in its entirety and in lieu thereof substituting the following:
"SIXTH: The total number of shares of stock of all
classes which the Corporation has authority to issue is
132,000,000 shares having an aggregate par value of $900,000,000,
of which 120,000,000 shares of the par value of $2.50 per share,
amounting in aggregate par value to $300,000,000, shall be
Common Stock, and 12,000,000 shares of the par value of $50.00
per share, amounting in aggregate par value to $600,000,000,
shall be Preferred Stock."
SECOND: (a) As of immediately before the amendment the total
number of shares of stock of all classes which the Corporation
has authority to issue is 44,000,000 shares, of which 4,000,000
shares are Preferred Stock (par value $50.00 per share) and
40,000,000 shares are Common Stock (par value $2.50 per share).
(b) As amended the total number of shares of stock of all classes
which the Corporation has authority to issue is
132,000,000 shares, of which 12,000,000 shares are Preferred
Stock (par value $50.00 per share) and 120,000,000 shares are
Common Stock (par value $2.50 per share).
(c) The aggregate par value of all shares having a par value
is $300,000,000 before the amendment and $900,000,000 as amended.
(d) The descriptions of each class of stock of the Corporation
are not changed by the amendment.
THIRD: The foregoing amendment to the Charter of the
Corporation has been advised by the Board of Directors and
approved by the stockholders of the Corporation.
FOURTH: The foregoing amendment to the Charter of the
Corporation shall be effective as of 5:00 p.m., Baltimore Time,
on May 14, 1984.
IN WITNESS WHEREOF, USF&G CORPORATION has caused these presents
to be signed in its name and on its behalf by its Chairman of
the Board and President and witnessed by its Secretary on May
14, 1984.
WITNESS: USF&G CORPORATION
By:
William F. Spliedt, Jack Moseley,
Secretary Chairman of the Board
and President
THE UNDERSIGNED, Chairman of the Board and President of USF&G
CORPORATION, who executed on behalf of the Corporation the
foregoing Articles of Amendment of which this certificate is
made a part, hereby acknowledges in the name and on behalf of
said Corporation the foregoing Articles of Amendment to be the
corporate act of said Corporation and hereby certifies that to
the best of his knowledge, information, and belief the matters
and facts set forth therein with respect to the authorization
and approval thereof are true in all material respects under the
penalties of perjury.
Jack Moseley,
Chairman of the Board
and President
<PAGE>
ARTICLES SUPPLEMENTARY
Junior Participating Preferred Stock
OF
USF&G CORPORATION
USF&G CORPORATION, a Maryland corporation, having its
principal office in Baltimore City, Maryland (hereinafter called
the "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: Pursuant to authority expressly vested in the Board of
Directors of the Corporation by Article Seventh of the Charter
of the Corporation, the Board of Directors has duly divided and
classified 1,200,000 shares of the Preferred Stock of the
Corporation into a series designated "Junior Participating
Preferred Stock" and has provided for the issuance of such
series.
SECOND: The terms of the Junior Participating Preferred Stock
as set by the Board of Directors are as follows:
1. Designation and Amount. The shares of such series shall be designated
as "Junior Participating Preferred Stock" (the
"Junior Preferred Stock") and the number of shares constituting
such series shall initially be 1,200,000, subject to increase or
decrease by action of the Board of Directors effectuated by
further Articles Supplementary.
2. Dividends and Distributions.
(i) The holders of shares of Junior Preferred Stock, in
preference to the holders of Common Stock and of any other
junior stock, shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash
on the last day of March, June, September and December in each
year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of a share or
fraction of a share of Junior Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of (a)
Sixty-Two dollars ($62.00) or (b) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per
share amount of all cash dividends, and 100 times the aggregate
per share amount (payable in kind) of all non-cash dividends or
other distributions other than a dividend payable in shares of
Common Stock of the Corporation or a subdivision of the
outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately
preceding Quarterly Dividend Payment Date or, with respect to
the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Junior Preferred
Stock. In the event the Corporation shall at any time after the
date hereof declare or pay any dividend on Common Stock payable
in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise) into a greater or
lesser number of shares of Common Stock, then in each such case
the amount to which holders of shares of Junior Preferred Stock
were entitled immediately prior to such event under clause (b)
of the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(ii) The Corporation shall declare a dividend or distribution
on the Junior Preferred Stock as provided in subparagraph (i) of
this paragraph 2 immediately after it declares a dividend or
distribution on the Common Stock (other than a dividend payable
in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a
dividend of Sixty-Two Dollars ($62.00) per share on the Junior
Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(iii) Dividends shall begin to accrue and be cumulative on
outstanding shares of Junior Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such
shares of Junior Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares
shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or
is a date after the record date for the determination of holders
of shares of Junior Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest.
Dividends paid on the shares of Junior Preferred Stock in an
amount less than the total amount of such dividends at the time
accrued and payable on such shares shall be allocated pro rata
on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Junior Preferred Stock
entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be not more than 60
days prior to the date fixed for the payment thereof.
3. Voting Rights. The holders of shares of Junior Preferred
Stock shall have the following voting rights:
(i) Subject to the provision for adjustment hereinafter set
forth, each share of Junior Preferred Stock shall entitle the
holder thereof to 100 votes on all matters submitted to a vote
of the shareholders of the Corporation. In the event the
Corporation shall at any time after the date hereof declare or
pay any dividend on Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification
or otherwise) into a greater or lesser number of shares of
Common Stock, then in each such case the number of votes per
share to which holders of shares of Junior Preferred Stock were
entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior
to such event.
(ii) Except as otherwise provided herein or by law, the
holders of shares of Junior Preferred Stock and the holders of
shares of Common Stock and any other capital stock of the
Corporation having general voting rights shall vote together as
one class on all matters submitted to a vote of shareholders of
the Corporation.
(iii) (a) If on the date used to determine stockholders of
record for any meeting of stockholders for the election of
directors, accrued dividends on the shares of Junior Preferred
Stock shall not have been paid in an aggregate amount equal to
or greater than six quarterly dividends on the shares of Junior
Preferred Stock at the time outstanding, then, and in any such
event, the number of Directors then constituting the entire
Board of Directors of the Corporation shall automatically be
increased by two Directors and the holders of shares of Junior
Preferred Stock and holders of any other shares of the Preferred
Stock of the Corporation then outstanding ranking on a parity
with the Junior Preferred Stock as to dividends and upon
liquidation ("Parity Stock"), voting together as a single class,
shall be entitled at such meeting to fill such newly created
directorships. Such right to vote as a single class to elect
two Directors shall, when vested, continue until all dividends
in default on the shares of Junior Preferred Stock shall have
been paid in full and, when so paid, such right to elect two
Directors separately as a class shall cease, subject, always, to
the same provisions for the vesting of such right to elect two
Directors separately as a class in the case of future dividend
defaults.
(b) So long as any shares of Junior Preferred Stock are outstanding
the number of Directors of the Corporation shall at
all times be such that the exercise, by the holders of shares of
Junior Preferred Stock and the holders of shares of Parity
Stock, of the right to elect Directors under the circumstances
provided in paragraph (a) of this subclause (iii) will not
contravene any provisions of the Maryland General Corporation
Law or the Charter of the Corporation.
(c) Directors elected pursuant to paragraph (a) of this
subclause (iii) shall serve until the earlier of (x) the next
annual meeting of the stockholders of the Corporation and the
election (by the holders of shares of Junior Preferred and
Parity Stock) and qualification of their respective successors
or (y) the date upon which all dividends in default on the
shares of Junior Preferred and such Parity Stock shall have been
paid in full. Directors elected pursuant to paragraph (a) of
this subclause (iii) may be removed by, and shall not be removed
except by, the vote of the holders of record of the outstanding
shares of Junior Preferred and Parity Stock, voting together as
a single class without regard to series, at a meeting of the stockholders,
or the holders of shares of Junior Preferred and
Parity Stock, called for that purpose. If, prior to the end of
the term of any Director elected as aforesaid, a vacancy in the
office of such Director shall occur during the continuance of a
default in dividends on the shares of Junior Preferred Stock by
reason other than removal, such vacancy shall be filled for the unexpired
term by the appointment by the remaining Director
elected as aforesaid of a new Director for the unexpired term of
such former Director.
(iv) Except as set forth herein, holders of Junior Preferred
Stock shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to
vote with holders of Common Stock and any other capital stock of
the Corporation having general voting rights as set forth
herein) for taking any corporate action.
4. Certain Restrictions.
(i) Whenever quarterly dividends or other dividends or
distributions payable on the Junior Preferred Stock as provided
in paragraph 2 of this Section are in arrears, thereafter and
until all accrued and unpaid dividends and distributions,
whether or not declared, on shares of Junior Preferred Stock
outstanding shall have been paid in full, the Corporation shall
not:
(a) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration
any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Junior
Preferred Stock;
(b) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either
as to dividends or upon liquidation, dissolution or winding up)
with the Junior Preferred Stock, except dividends paid ratably
on the Junior Preferred Stock and all such parity stock on which dividends
are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then
entitled;
(c) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior either as to dividends or
upon liquidation, dissolution or winding up) with the Junior
Preferred Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such junior
stock in exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Junior Preferred Stock; or
(d) purchase or otherwise acquire for consideration any
shares of Junior Preferred Stock, or any shares of stock ranking
on a parity with the Junior Preferred Stock, except in
accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith
will result in fair and equitable treatment among the respective
series or classes.
(ii) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration
any shares of stock of the Corporation unless the Corporation
could, under subparagraph (i) of this paragraph 4, purchase or
otherwise acquire such shares at such time and in such manner.
5. Reacquired Shares. Any shares of Junior Preferred Stock
purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred
Stock and may be classified again and reissued as part of a new
series or class of Preferred Stock to be created by the Board of
Directors pursuant to its power contained in the Charter,
subject to the conditions and restrictions on issuance set forth
herein.
6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (a) to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Junior Preferred Stock unless,
prior thereto, the holders of shares of Junior Preferred Stock
shall have received One Hundred Forty dollars ($140) per share,
plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of
such payment, provided that the holders of shares of Junior
Preferred Stock shall be entitled to receive an aggregate amount
per share, subject to the provision for adjustment hereinafter
set forth, equal to 100 times the aggregate amount to be
distributed per share to holders of Common Stock, or (b) to the
holders of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Junior
Preferred Stock, except distributions made ratably on the Junior
Preferred Stock and all other such parity stock in proportion to
the total amounts to which the holders of all such shares are
entitled upon such liquidation, dissolution or winding up. In
the event the Corporation shall at any time after the date
hereof declare or pay any dividend on Common Stock payable in
shares of Common Stock, or effect a subdivision or combination
or consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate
amount to which holders of shares of Junior Preferred Stock were
entitled immediately prior to such event under the proviso in
clause (a) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior
to such event.
7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, share exchange,
combination or other transaction in which the shares of Common
Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such
case the shares of Junior Preferred Stock shall at the same time
be similarly exchanged or changed in an amount per share
(subject to the provision for adjustment hereinafter set forth)
equal to 100 times the aggregate amount of stock, securities,
cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is
changed or exchanged. In the event the Corporation shall at any
time after the date hereof declare or pay any dividend on Common
Stock payable in shares of Common Stock, or effect a subdivision
or combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise) into a greater
or lesser number of shares of Common Stock, then in each such
case the amount set forth in the preceding sentence with respect
to the exchange or change of shares of Junior Preferred Stock
shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
8. No Redemption. The shares of Junior Preferred Stock shall
not be redeemable.
9. Rank. The Junior Preferred Stock shall rank junior with
respect to payment of dividends and on liquidation to all other
Preferred Stock of the Corporation unless the terms of any other
Preferred Stock specifically provide that it shall rank junior
to, or on a parity with, the Junior Preferred Stock.
10. Amendment. The Charter of the Corporation shall not be
amended in any manner that would materially alter or change the
powers, preferences or special rights of the Junior Preferred
Stock so as to affect them adversely without the affirmative
vote of the holders of two-thirds of the outstanding shares of
Junior Preferred Stock, voting together as a single class.
IN WITNESS WHEREOF, USF&G Corporation has caused these presents
to be signed in its name and on its behalf by its Executive Vice
President and witnessed by its Secretary on October 1, 1987.
WITNESS: USF&G CORPORATION
By
William F. Spliedt, Secretary Paul J. Scheel
Executive Vice President
THE UNDERSIGNED, Executive Vice President of USF&G
Corporation, who executed on behalf of the Corporation Articles
Supplementary of which this Certificate is made a part, hereby
acknowledges in the name and on behalf of said Corporation the
foregoing Articles Supplementary to be the corporate act of said
Corporation and hereby certifies that the matters and facts set
forth herein with respect to the authorization and approval
thereof are true in all material respects under the penalties of
perjury.
Paul J. Scheel
Executive Vice President
<PAGE>
ARTICLES SUPPLEMENTARY
$4.10 SERIES A CONVERTIBLE EXCHANGEABLE
PREFERRED STOCK
OF
USF&G CORPORATION
USF&G CORPORATION, a Maryland corporation, having its principal office
in Baltimore City, Maryland (the "Corporation"), hereby certifies to the
Maryland State Department of Assessments and Taxation that:
FIRST: Pursuant to authority expressly vested in the Board of Directors
of the Corporation by Article Seventh of the Charter of the Corporation, the
Board of Directors has duly divided and classified 4,000,000 shares of the
Preferred Stock of the Corporation into a series designated $4.10 Series A
Convertible Exchangeable Preferred Stock and has provided for the issuance
of such series.
SECOND: The terms of the $4.10 Series A Convertible Exchangeable Preferred
Stock are as follows:
(i) Designation and Amount. The designation of said series of the
Preferred Stock shall be "$4.10 Series A Convertible Exchangeable Preferred
Stock" (the "Series A"). The number of shares of Series A shall initially be
4,000,000, subject to increase or decrease by action of the Board of Directors
effectuated by further Articles Supplementary.
(ii) Dividends. Holders of shares of Series A will be entitled to
receive, when, as and if declared by the Board of Directors out of funds legally
available therefor, dividends from the date of issue thereof at the annual rate
of $4.10 per share, payable quarterly, in arrears, on January 31, April 30, July
31 and October 31, (a "Dividend Payment Date") in each year, commencing on
October 31, 1986. Such dividends shall be cumulative with respect to each share
from the date of original issuance, whether or not earned or declared. The
holders of Series A will not be entitled to any dividends other than the cash
dividends described in this Clause (ii).
Unless full cumulative dividends on all outstanding shares of Series A
or any other class of preferred stock ranking on a parity with the Series A
as to dividends and upon liquidation at the time such dividends are payable
("Parity Stock") have been paid or are contemporaneously declared and paid
(or declared and a sum sufficient for the payment thereof is set apart for such
payment), the Corporation will not (a) declare or pay any dividend on
the Common Stock, $2.50 par value (the "Common Stock"), of the Corporation or on
any other class of stock ranking junior to the Series A as to dividends
and upon liquidation (the Common Stock and any such junior class being
the "Junior Stock") or make any payment on account of, or set apart money
for, a sinking or other analogous fund for, the purchase, redemption or other
retirement of, any Junior Stock or make any distribution in respect thereof,
either directly or indirectly and whether in cash or property or in obligations
or shares of the Corporation (other than in shares of Junior Stock) or (b)
purchase any shares of Series A or Parity Stock (except
for consideration payable in Junior Stock) or redeem fewer than
all of the shares of Series A or Parity Stock then outstanding.
Unless and until all dividends accrued and payable but unpaid on
the Series A and any Parity Stock at the time outstanding have
been paid in full, all dividends declared by the Corporation
upon such Series A or Parity Stock shall be declared pro rata
with respect to all Series A and Parity Stock then outstanding,
so that the amounts of any dividends declared on the Series A
and such Parity Stock shall in all cases bear to each other the
same ratio that, at the time of such declaration, all accrued
and payable but unpaid dividends on the Series A and such other
Parity Stock, respectively, bear to each other.
(iii) Optional Redemptions for Cash. Shares of Series A shall be
redeemable at the option of the Corporation at any time on or after
October 31, 1989 at the following redemption prices per share, if redeemed
during the 12-month period beginning October 31 in each of the following years:
<TABLE>
<CAPTION>
Redemption Redemption
Year Price Year Price
<S> <C> <C> <C> <C>
1989 $52.87 1993 $51.23
1990 52.46 1994 50.82
1991 52.05 1995 50.41
1992 51.64
</TABLE>
and on or after October 31, 1996 at $50 per share, plus, in each case,
any accrued and unpaid dividends thereon.
The Corporation may not purchase or redeem less than all the Series A
and Parity Stock then outstanding if, as of such time, the Corporation has
failed to pay all accrued and unpaid dividends thereon, whether or not
earned or declared.
The Corporation will mail notice of redemption to each holder of record
of Series A to be redeemed no less than 20 nor more than 60 days prior to
the redemption date. Such notice shall specify the time and place of such
redemption, the number of shares to be redeemed and the Conversion Price as
defined in Clause (vi) below, the date on which the right to convert the Series
A to be redeemed will terminate and the place or places where such Series A may
be surrendered for conversion. Such notice shall be given by first class mail,
postage prepaid, to the holders of record of the shares
of Series A to be redeemed at their respective addresses as the same shall
appear on the books of the Corporation, but neither failure to mail such notice,
nor any defect therein or in the mailing thereof, to any particular holder shall
affect the sufficiency of the notice or the validity of the proceedings for
redemption with respect to the other holders. Any notice which was mailed in
the manner herein provided shall be conclusively
presumed to have been duly given whether or not the holder receives the notice.
If fewer than all of the shares of Series A are to be redeemed, the shares to
be redeemed shall be selected by lot or pro rata or in some other
equitable manner determined by the Corporation.
If a notice of redemption has been given pursuant to this
Clause (iii) and if, on or before the date fixed for redemption,
the funds necessary for such redemption shall have been set
aside by the Corporation, separate and apart from its other
funds, in trust for the pro rata benefit of the holders of the
shares so called for redemption, then on and after the
redemption date, notwithstanding that any certificates for such
shares have not been surrendered for cancellation, dividends
shall cease to accrue on the shares of Series A to be redeemed,
such shares shall no longer be deemed to be outstanding and all
rights of the holders of such shares as stockholders of the
Corporation shall cease except the right to receive the moneys
payable upon such redemption, without interest, upon surrender
of the certificates evidencing such shares.
(iv) Optional Redemption Through Debenture Exchange.
(A) Shares of Series A shall be redeemable at the option of
the Corporation, in whole but not in part, on any Dividend Payment Date
beginning October 31, 1989, to and including October 31, 2011, through the
issuance of the Corporation's 8.2% Convertible Subordinated Debentures due
October 31, 2011 (hereinafter referred to as the "Debentures") in redemption of
and in exchange for the shares of Series A, in the manner provided in
this Clause (iv).
(B) Holders of Series A will be entitled to receive $50 principal
amount of the Debentures for each share of Series A
held by them on the Exchange Date (as hereinafter defined).
(C) The Corporation will mail notice of its intention to
redeem through such an exchange to each holder of record of the
shares of Series A no less than 20 nor more than 60 days prior
to the redemption date. Such notice shall be given by first
class mail, postage prepaid to the holders of record of shares
of Series A at their respective addresses as the same shall
appear on the books of the Corporation, specifying the effective
date of the exchange (the "Exchange Date") and the place where
certificates for shares of Series A are to be surrendered for
Debentures and stating that dividends on shares of Series A will
cease to accrue on the Exchange Date, but neither failure to
mail such notice, nor any defect therein or in the mailing
thereof, to any particular holder shall affect the sufficiency
of the notice or the validity of the proceedings for redemption
and exchange with respect to the other holders. Any notice
which was mailed in the manner herein provided shall be
conclusively presumed to have been duly given whether or not the
holder received the notice.
If notice of redemption and exchange has been given pursuant
to this Clause (iv) then on or after the Exchange Date (unless
the Corporation shall default in issuing Debentures in
redemption of and in exchange for shares of Series A) and
notwithstanding that any certificates for shares of this series
have not been surrendered for exchange, the rights of the
holders of the Series A as stockholders of the Corporation shall
cease (except the right to receive accrued and unpaid dividends
to the date of redemption, whether or not earned or declared),
and the person or persons entitled to receive the Debentures
issuable upon such redemption and exchange shall be treated for
all purposes as the registered holder or holders of such
Debentures. Upon the surrender (and endorsement, if required by
the Corporation) in accordance with such notice of the
certificates for shares of Series A, such certificates shall be
exchanged for Debentures and such accrued dividends in
accordance with this Clause (iv).
(D) Prior to issuance of the Debentures, the Corporation will use
reasonable efforts to list the Debentures for trading on the
New York Stock Exchange or, if they cannot be so listed, the
Corporation will use reasonable efforts to list the Debentures
on another principal national securities exchange or include
them on a national quotations system.
(v) Liquidation.
(A) In case of the voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, the holders of any
shares of Series A are entitled to receive a liquidation
preference of $50 per share, plus an amount equal to the
dividends accrued and unpaid thereon to the payment date, before
any distribution is made to the holders of Junior Stock.
(B) The holders of shares of Series A and all Parity Stock
shall share ratably, in accordance with the respective amounts
payable thereon, in any such distribution which is not
sufficient to pay in full the aggregate of the amounts payable
thereon. After payment in full of the liquidation price to
which the holders of shares of Series A are entitled, the
holders of shares of Series A will not be entitled to any
further participation in any distribution of assets by the
Corporation.
(C) Neither a consolidation or merger of the Corporation with
or into any other corporation, nor a merger of any other
corporation with or into the Corporation, nor a sale or transfer
of all or substantially all of the Corporation's assets for cash
or securities nor a statutory share exchange in which
stockholders of the Corporation may participate shall be
considered a liquidation, dissolution or winding-up of the
Corporation within the meaning of this Clause (v).
(vi) Conversion.
(A) Subject to the provisions for adjustment hereinafter set
forth, each share of Series A shall be convertible at the option
of the holder thereof, in the manner hereinafter set forth, into
fully paid and nonassessable shares of Common Stock at the
conversion price, determined as hereinafter provided, in effect
on the date of conversion, provided that if any of the Series A
is called for redemption (whether for cash or Debentures), the
conversion rights pertaining thereto will terminate at the close
of business on the redemption date. The price at which shares
of Common Stock shall be delivered upon conversion (hereinafter
referred to as the "Conversion Price") shall be initially $46.00
per share of Common Stock. The Conversion Price shall be
adjusted in certain instances as provided in subclause (B) of
this Clause (vi).
Any holder of shares of Series A desiring to convert the same
into shares of Common Stock shall surrender the certificate or
certificates for the shares of Series A being converted, duly
endorsed or assigned to the Corporation or in blank, at the
principal office of the Corporation or at a bank or trust
company appointed by the Corporation for that purpose,
accompanied by a written notice of conversion specifying the
number (in whole shares) of shares of Series A to be converted
and the name or names in which such holder wishes the
certificate or certificates for shares of Common Stock to be
issued; in case such notice shall specify a name or names other
than that of such holder, such notice shall be accompanied by
payment of all transfer taxes payable upon the issue of shares
of Common Stock in such name or names. In case less than all of
the shares of Series A represented by a certificate are to be
converted by a holder, upon such conversion the Corporation
shall issue and deliver or cause to be issued and delivered, to
the holder a certificate or certificates for the shares of
Series A not so converted. The holders of shares of Series A at
the close of business on a dividend payment record date shall be
entitled to receive the dividend payable on such shares (except
shares called for redemption on a redemption date between such
record date and the Dividend Payment Date) on the corresponding
dividend payment date notwithstanding the conversion thereof or
the Corporation's default on payment of the dividend due on such
Dividend Payment Date. However, shares of Series A surrendered
for conversion during the period from the close of business on
any dividend payment record date for the Series A to the opening
of business on the corresponding Dividend Payment Date (except
shares called for redemption on a redemption date during such
period) must be accompanied by payment of an amount equal to the
dividend payable on such shares on such Dividend Payment Date.
A holder of shares of Series A on a dividend payment record date
who (or whose transferee) converts shares of Series A on a
dividend payment date will receive the dividend payable on such
shares by the Corporation on such date, and the converting
holder need not include payment in the amount of such dividend
upon surrender of shares of Series A for conversion. Except as
provided above, no payment or adjustment will be made on account
of accrued or unpaid dividends upon the conversion of shares of
Series A.
(B) The Conversion Price shall be adjusted from time to time
as follows:
(1) on any class of capital stock of the Corporation in
shares of Common Stock, the Conversion Price in
effect at the opening of business on the day following
the date fixed for the determination of stockholders
entitled to receive such dividend or other distribution
shall be reduced by multiplying such Conversion Price by
a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of
business on the date fixed for such determination and
the denominator shall be the sum of such number of
shares and the total number of shares constituting such
dividend or other distribution, such reduction to become
effective immediately after the opening of business on
the day following the date fixed for such determination.
(2) In case the Corporation shall issue rights or warrants
to all holders of its shares of Common Stock entitling
them to subscribe for or purchase Common Stock at a
price per share less than the current market price per
share (determined as provided in subclause (C)) of the
Common Stock on the date fixed for the determination of
stockholders entitled to receive such rights or
warrants, the Conversion Price in effect at the opening
of business on the day following the date fixed for such
determination shall be reduced by multiplying such
Conversion Price by a fraction of which the numerator
shall be the number of shares
of Common Stock outstanding at the close of business on
the date fixed for such determination plus the number of
shares of Common Stock which the aggregate of the
offering price of the total number of shares
of Common Stock so offered for subscription or purchase
would purchase at such current market
price and the denominator shall be the number of shares
of Common Stock outstanding at the close of business on
the date fixed for such determination
plus the number of shares of Common Stock so offered for
subscription or purchase, such reduction to
become effective immediately after the opening of
business on the day following the date fixed for
such determination.
(3) In case the outstanding shares of Common Stock shall be
subdivided into a greater number of shares, the
Conversion Price in effect at the opening of business on
the day following the day upon which such subdivision
becomes effective shall be
proportionately reduced, and, conversely, in case
outstanding shares of Common Stock shall each be
combined into a smaller number of shares, the Conversion
Price in effect at the opening of business on the day
following the day upon which such combination becomes
effective shall be
proportionately increased, such reduction or increase,
as the case may be, to become effective immediately
after the opening of business on the day following
the day upon which such subdivision or combination
becomes effective.
(4) In case the Corporation shall, by dividend or otherwise,
distribute to all holders of shares of Common Stock
evidences of indebtedness or assets (including
securities, but excluding any rights or warrants
referred to in subclause (B)(2), any
dividend or distribution paid in cash out of the earned
surplus of the Corporation and any dividend
or distribution referred to in subclause (B)(1)),
the Conversion Price shall be adjusted so that the same
shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the
close of business on the date fixed for the
determination of stockholders entitled to receive
such distribution by a fraction of which the
numerator shall be the current market price per
share (determined as provided in subclause (C))
of the Common Stock on the date fixed for such
determination less the then fair market value
(as determined by the Board of Directors, whose
determination shall be conclusive) of the portion
of the assets or evidences of indebtedness so
distributed allocable to one share of Common Stock
and the denominator shall be such current market
price per share of the Common Stock, such adjustment to
become effective immediately prior to the opening of
business on the day following the date fixed
for the determination of stockholders entitled to
receive such distribution.
(5) The reclassification of Common Stock into securities
other than Common Stock (other than any reclassification
upon a consolidation or merger to which subclause (F)
applies) shall be deemed to involve (a) a distribution
of such securities other than Common Stock to all
holders of Common Stock
(and the effective date of such reclassification
shall be deemed to be "the date fixed for the
determination of stockholders entitled to receive
such distribution" and the "date fixed for such
determination" within the meaning of subclause
(B)(4), and (b) a subdivision or combination, as
the case may be, of the number of shares of Common Stock
outstanding immediately prior to such reclassification
into the number of shares of Common Stock outstanding
immediately thereafter (and the effective date of such
reclassification shall be deemed to be "the day upon
which such subdivision becomes effective", or "the day
upon which such combination becomes effective", as the
case may be, and "the day upon which such subdivision or
combination becomes effective" within the meaning
of subclause (B)(3) of this Section).
(C) For the purpose of any computation under subclauses
(B)(2) and (B)(4), the current market price per share of Common Stock
on any day shall be deemed to be the average of the daily
Closing Prices for the 15 consecutive Business Days selected by
the Board of Directors commencing not less than 20 nor more than
30 Business Days before the day in question. The term "Closing
Price" on any day shall mean the reported last sale price or, in
case no such reported sale takes place on such day, the average
of the reported closing bid and asked prices regular way, in
either case on the New York Stock Exchange, or, if the Common
Stock is not listed or admitted to trading on such Exchange, on
the principal national securities exchange on which the Common
Stock is listed or admitted to trading or, if not listed or
admitted to trading on any national securities exchange, on the
National Association of Securities Dealers Automated Quotations
National Market System or, if the Common Stock is not listed or
admitted to trading on any national securities exchange or
quoted on such National Market System, the average of the
closing bid and asked prices in the over-the-counter market as
furnished by any New York Stock Exchange member firm selected
from time to time by the Board of Directors for that purpose;
and the term "Businesss Day" shall mean each Monday, Tuesday,
Wednesday, Thursday, and Friday which is not a day on which
banking institutions in The City of New York are authorized or
obligated by law or executive order to close.
(D) Notwithstanding the provisions of subclause (B) above, no
adjustment in the Conversion Price shall be required unless such
adjustment (plus any adjustments not previously made by reason
of this subclause (D)) would require an increase or decrease of
at least 1% in such price; provided, however, that any
adjustments which by reason of this subclause (D) are not
required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under
this Clause (vi) shall be made to the nearest cent.
(E) The Corporation may make such reductions in the Conversion
Price, in addition to those required by this Clause (vi), as it
considers to be advisable in order to avoid or diminish any
income tax to any holder of shares of Common Stock resulting
from any dividend or distribution of stock or issuance of rights
or warrants to purchase or subscribe for stock or from any event
treated as such for income tax purposes or for any other
reasons. The Corporation shall have the power to resolve any
ambiguity or correct any error in this Clause (vi) and its
actions in so doing shall be final and conclusive.
(F) In case the Corporation shall effect any capital
reorganization of the Common Stock (other than a subdivision,
combination, capital reorganization or reclassification provided
for in subclause (B)) or shall consolidate, merge or engage in a
statutory share exchange with or into any other corporation
(other than a consolidation, merger or share exchange in which
the Corporation is the surviving corporation and each share of
Common Stock outstanding immediately prior to such consolidation
or merger is to remain outstanding immediately after such
consolidation or merger) or shall sell or transfer all or
substantially all its assets to any other corporation, lawful
provision shall be made as a part of the terms of such
transaction whereby the holders of shares of Series A shall
receive upon conversion thereof, in lieu of each share of Common
Stock which would have been issuable upon conversion of such
shares if converted immediately prior to the consummation of
such transaction, the same kind and amount of stock (or other
securities, cash or property, if any) as may be issuable or
distributable in connection with such transaction with respect
to each share of Common Stock outstanding at the effective time
of such transaction, subject to subsequent adjustments for
subsequent stock dividends and distributions, subdivisions or
combinations of shares, capital reorganizations,
reclassifications, consolidations mergers or share exchanges as
nearly equivalent as possible to the adjustments provided for in
this Clause (vi).
(G) Whenever the Conversion Price is adjusted as herein provided:
(1) the Corporation shall compute the adjusted
Conversion Price and shall cause to be prepared a
certificate signed by the chief financial or accounting
officer of the Corporation setting
forth the adjusted Conversion Price and showing in
reasonable detail the facts upon which such
adjustment is based and the computation thereof
and such certificate shall forthwith be filed with each
transfer agent for the shares of Series A; and
(2) a notice stating that the Conversion Price has been
adjusted and setting forth the adjusted Conversion Price
shall, as soon as practicable, be mailed to the holders
of record of outstanding shares of Series A.
(H) In case:
(1) the Corporation shall declare a dividend or other
distribution on its shares of Common Stock otherwise
than in cash out of its earned surplus;
(2) the Corporation shall authorize the granting to the
holders of its shares of Common Stock of rights or
warrants entitling them to subscribe for or purchase any
shares of capital stock of any class or of any other
rights;
(3) of any reclassification of the shares of Common Stock
(other than a subdivision or combination of its
outstanding shares of Common Stock), or of any
consolidation, merger or share exchange to which
the Corporation is a party and for which approval
of any stockholders of the Corporation is required,
or of the sale or transfer of all or substantially
all the assets of the Corporation; or
(4) of the voluntary or involuntary liquidation, dissolution
or winding-up of the Corporation;
then the Corporation shall cause to be mailed to each transfer
agent for the shares of Series A and to the holders of record of
the outstanding shares of Series A, at least 20 days (or 10 days
in any case specified in subclauses (1) or (2) above) prior to
the applicable record or effective date hereinafter specified, a
notice stating (x) the date as of which the holders of record of
shares of Common Stock to be entitled to such dividend,
distribution, rights or warrants are to be determined, or (y)
the date on which such reclassification, consolidation, merger,
share exchange, sale, transfer, liquidation, dissolution or
winding-up is expected to become effective and the date as of
which it is expected that holders of record of shares of Common
Stock shall be entitled to exchange their shares for securities
or other property, if any, deliverable upon such
reclassification, consolidation, merger, share exchange, sale,
transfer, liquidation, dissolution or winding-up. Such notice
shall also state whether such transaction will result in any
adjustment in the Conversion Price applicable to the shares of
Series A and, if so, shall state what the adjusted Conversion
Price will be and when it will become effective. Neither the
failure to give the notice required by this subclause (H), nor
any defect therein, to any particular holder shall affect the
sufficiency of the notice or the legality or validity of the
proceedings described in subclauses (H)(1) through (H)(4).
(I) The Corporation shall at all times reserve and keep available
out of its authorized but unissued shares of Common
Stock, for the purpose of issuance upon conversion of shares of
Series A, the full number of shares of Common Stock then
issuable upon the conversion of all shares of Series A then
outstanding and shall take all action necessary so that shares
of Common Stock so issued will be validly issued, fully paid and nonassessable.
(J) The Corporation will pay any and all stamp or similar
taxes that may be payable in respect of the issuance or delivery
of shares of Common Stock on conversion of shares of Series A.
The Corporation shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the
issuance and delivery of shares of Common Stock in a name other
than that in which the shares of Series A so converted were
registered, and no such issuance or delivery shall be made
unless and until the person requesting such issuance has paid to
the Corporation the amount of any such tax or has established to
the satisfaction of the Corporation that such tax has been paid.
(K) No fractional shares or scrip representing fractional
shares shall be issued upon the conversion of shares of Series
A. If any such conversion would otherwise require the issuance
of a fractional share an amount equal to such fraction
multiplied by the Closing Price per share of Common Stock
(determined as provided in subclause (C) above) on the day of
conversion shall be paid to the holder in cash by the
Corporation.
(L) The certificate of any independent firm of public accountants
of recognized standing selected by the Board of
Directors shall be presumptive evidence of the correctness of
any computation made under this Clause (vi).
(vii) Voting Rights. Except as otherwise required by law,
holders of shares of Series A shall have no voting rights;
provided, however, that:
(A) Dividend Defaults.
(1) If on the date used to determine stockholders of record
for any meeting of stockholders for the election of
directors, accrued dividends on the
shares of Series A or any Parity Stock shall not
have been paid in an aggregate amount equal to or
qreater than six quarterly dividends on the shares
of Series A or such Parity Stock at the time
outstanding, then, and in any such event, the
number of Directors then constituting the entire
Board of Directors of the Corporation shall
automatically be increased by two Directors and the
holders of shares of Series A and the holders of shares
of Parity Stock, voting together as a
single class, shall be entitled at such meeting to fill
such newly created directorships. Such right
to vote as a single class to elect two Directors shall,
when vested, continue until all dividends
in default on the shares of Series A and such
Parity Stock, as the case may be, shall have been
paid in full and, when so paid, such right to elect two
Directors separately as a class shall cease, subject,
always, to the same provisions for the vesting of such
right to elect two Directors separately as a class in
the case of future
dividend defaults.
(2) So long as any shares of Series A are outstanding
the number of Directors of the Corporation shall at all
times be such that the exercise, by the holders
of shares of Series A and the holders of shares of
Parity Stock, of the right to elect Directors under the
circumstances provided in paragraph (1) of
this subclause (A) will not contravene any
provisions of the Maryland General Corporation Law
or the Charter of the Corporation.
(3) Directors elected pursuant to paragraph (1) of
this subclause (A) shall serve until the earlier
of (x) the next annual meeting of the stockholders
of the Corporation and the election (by the holders
of shares of Series A and Parity Stock) and
qualification of their respective successors or
(y) the date upon which all dividends in default
on the shares of Series A and such Parity Stock
shall have been paid in full. Directors
elected pursuant to paragraph (1) of this
Subclause (A) may be removed by, and shall not
be removed except by, the vote of the holders
of record of the outstanding shares of Series A
and Parity Stock, voting together as a single
class without regard to series, at a meeting of
the stockholders, or the holders of shares of
Series A and Parity Stock, called for that purpose. If,
prior to the end of the term of any Director elected as
aforesaid, a vacancy in the office of
such Director shall occur during the continuance
of a default in dividends on the shares of Series
A or such Parity Stock by reason other than removal,
such vacancy shall be filled for the unexpired term
by the appointment by the remaining Director
elected as aforesaid of a new Director for the unexpired
term of such former Director.
(B) Miscellaneous.
(1) Without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of
Series A and Parity Stock, voting as a single
class, the Corporation may not:
(x) amend any provision of the Charter which
would materially adversely affect the voting
powers (except as such voting powers may be
affected by the authorization of any new
series of Parity Stock having the same voting
rights as Series A or by the authorization of any
other shares of any class which are not entitled
to vote together with Series A in
any class vote) or other rights or preferences of
holders of the shares of Series A; or
(y) authorize or create any class of stock senior
to the Series A as to dividends and upon
liquidation.
(2) Without the affirmative vote of the holders of at least
a majority of the outstanding shares of
Series A and Parity Stock, voting together as a
single class, the Corporation may not increase
the number of shares of Preferred Stock authorized
in Article SEVENTH of the Charter or create any
other class of capital stock of the Corporation ranking
on a parity with the Preferred Stock as
to dividends and upon liquidation.
IN WITNESS WHEREOF, USF&G Corporation has caused these presents
to be signed in its name and on its behalf by its President and
witnessed by its Secretary on , 1986.
WITNESS: USF&G CORPORATION
William F. Spliedt Jack Moseley
Secretary President, Chief Executive Officer
and Chairman of the Board
[CORPORATE SEAL]
THE UNDERSIGNED, Chairman of the Board and President of USF&G
Corporation, who executed on behalf of the Corporation Articles
Supplementary of which this Certificate is made a part, hereby
acknowledges in the name and on behalf of said Corporation the
foregoing Articles Supplementary to be the corporate act of said
Corporation and hereby certifies that the matters and facts set
forth herein with respect to the authorization and approval
thereof are true in all material respects under the penalties of
perjury.
_________________________________
Jack Moseley
President, Chief Executive Officer and
Chairman of the Board
<PAGE>
USF&G CORPORATION
ARTICLES OF AMENDMENT
USF&G CORPORATION, a Maryland corporation, having its principal
office in Baltimore City, Maryland (which is hereinafter called
the "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended as
follows:
Article NINTH of the Charter is amended by adding the following
paragraph (7) to said Article NINTH, as follows:
"(7) To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, no director or
officer of this Corporation shall be personally liable to the
Corporation or its stockholders for money damages. No amendment
of the Charter of the Corporation or repeal of any of its
provisions shall limit or eliminate the benefits provided to
directors and officers under this provision with respect to any
act or omission which occurred prior to such amendment or
repeal."
SECOND: The amendment does not increase the authorized stock of
the Corporation.
THIRD: The foregoing amendment to the Charter of the
Corporation has been advised by the Board of Directors and
approved by the stockholders of the Corporation.
IN WITNESS WHEREOF, USF&G CORPORATION has caused these presents
to be signed in its name and on its behalf by its Chairman of
the Board and President and witnessed by its Secretary on May 4,
1988.
WITNESS: USF&G CORPORATION
By:
William F. Spliedt, Secretary Jack Moseley, Chairman of the
Board and President
<PAGE>
Articles Supplementary
Series B Cumulative Convertible Preferred Stock
and 11% Preferred Stock of USF&G Corporation
USF&G Corporation, a Maryland Corporation, having its
principal office in Baltimore City, Maryland (the
"Corporation"), hereby certifies to the Maryland State
Department of Assessments and Taxation that:
FIRST: Pursuant to authority expressly vested in the
Board of Directors of the Corporation by Article SEVENTH of the
Charter of the Corporation, the Board of Directors has duly
divided and classified (i) 1,300,000 shares of the Preferred
Stock of the Corporation into a Series designated Series B
Cumulative Convertible Preferred Stock and has provided for the
issuance of such Series and (ii) 1,000 shares of the Preferred
Stock of the Corporation into a Series designated 11% Preferred
Stock and has provided for the issuance of such Series.
SECOND: The terms of the Series B Cumulative Convertible
Preferred Stock are as follows:
(i) Designation and Amount. The designation of the Series of
the Preferred Stock described in clause (i) of Article FIRST
hereof shall be "Series B Cumulative Convertible Preferred
Stock" (the "Series B Preferred Stock"), which shall be further
designated into three subseries, being the "Series B Cumulative
Convertible Preferred Stock 1995" (the "Series B Preferred Stock
1995"), the "Series B Cumulative Convertible Preferred Stock
1996" (the "Series B Preferred Stock 1996") and the "Series B
Cumulative Convertible Preferred Stock 1997" (the "Series B
Preferred Stock 1997"). The number of shares of Series B
Preferred Stock shall be 1,300,000, of which 650,000 shall be
Series B Preferred Stock 1995, 325,000 shall be Series B
Preferred Stock 1996 and 325,000 shall be Series B Preferred
Stock 1997.
(ii) Dividends. (a) Rate, etc. Except as such rate of
dividends may be otherwise increased pursuant to the final
sentence of this clause (ii), the holders of shares of Series B
Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally
available therefor, annual dividends from the date of issue
thereof at the rate of $10.25 per share, calculated on the basis
of a 360-day year of 12 30-day months, accruing on a daily
basis, payable quarterly, in arrears, on January 31, April 30,
July 31 and October 31 (a "Dividend Payment Date"), in each
year, commencing on July 31, 1991. Such dividends shall be
cumulative with respect to each share from the date of original
issuance, whether or not earned or declared. The rate per annum
shall be increased from $10.25 per share, as set forth in the
first sentence of this clause (ii), to $10.75 per share for the
dividend period commencing August 1, 1991; provided, however,
that this sentence shall be and become of no force and effect if
the Corporation shall have received gross proceeds (exclusive of
costs of issuance and underwriters' discounts and commissions)
("Gross Proceeds") of at least $170,000,000 pursuant to the
issuance and sale of capital stock of the Corporation after the
date of issuance of the Series B Preferred Stock and prior to
September 30, 1991.
(b) Rank, etc. The Series B Preferred Stock shall rank
on a parity with the Corporation's $4.10 Series A Convertible
Exchangeable Preferred Stock, 11% Preferred Stock (as defined in
Article Third (i)) and Series C Cumulative Convertible Preferred
Stock, $50.00 par value (the "Series C Preferred Stock"), if and
when such Series C Preferred Stock, or any other series of
Preferred Stock by its terms ranking on a parity with the Series
B Preferred Stock as to dividends and upon liquidation, is duly
divided and classified and so designated by the Board of
Directors, as to dividends and upon liquidation. Unless full
cumulative dividends on all outstanding shares of Series B
Preferred Stock or any other class of Preferred Stock ranking on
a parity with the Series B Preferred Stock as to dividends and
upon liquidation at the time such dividends are payable ("Parity
Stock") have been paid or are contemporaneously declared and
paid (or declared and a sum sufficient for the payment thereof
is set apart for such payment), the Corporation will not (1)
declare or pay any dividend on the Common Stock, $2.50 par value
(the "Common Stock"), of the Corporation or on any other class
of stock ranking junior to the Series B Preferred Stock as to
dividends and upon liquidation (the Common Stock and any such
junior class being the "Junior Stock") or make any payment on
account of, or set apart money for, a sinking or other analogous
fund for the purchase, redemption or other retirement of, any
Junior Stock or make any distribution in respect thereof, either
directly or indirectly and whether in cash or property or in
obligations or shares of the Corporation (other than in shares
of Junior Stock) or (2) purchase any shares of Series B
Preferred Stock or Parity Stock (except for consideration
payable in Junior Stock) or redeem fewer than all of the shares
of Series B Preferred Stock or Parity Stock then outstanding.
Unless and until all dividends accrued and payable but unpaid on
the Series B Preferred Stock and any Parity Stock at the time
outstanding have been paid in full, all dividends declared by
the Corporation upon such Series B Preferred Stock or Parity
Stock shall be declared with respect to all Series B Preferred
Stock and Parity Stock then outstanding, so that the amounts of
any dividends declared on the Series B Preferred Stock and such
Parity Stock shall in all cases bear to each other the same
ratio that, at the time of such declaration, all accrued and
payable but unpaid dividends on the Series B Preferred Stock and
such other Parity Stock, respectively, bear to each other.
(iii) Liquidation. (a) Preference on Liquidation. In the
event of any liquidation, dissolution or winding up of the
affairs of the Corporation (any or all of such events,
a"liquidation"), whether voluntary or involuntary, the holders
of shares of Series B Preferred Stock then outstanding shall be
entitled, pari passu as if members of a single class of
securities with the holders of other Parity Stock, to be paid
out of the assets of the Corporation, before any payment shall
be made to the holders of the Junior Stock or the holders of any
other capital stock of the Corporation, an amount equal to $100
per share of such Series B Preferred Stock (the "Liquidation
Value") plus an amount equal to the dividends accrued and unpaid
thereon to the payment date. Alternatively, a holder of shares
of Common Stock may convert any or all of such holder's shares
of Series B Preferred Stock into shares of Common Stock in
accordance with clause (vi) of this Article SECOND.
(b) Insufficient Assets. If, upon any liquidation of
the Corporation, the assets of the Corporation are insufficient
to pay the holders of shares of the Parity Stock then
outstanding the full amounts to which they shall be entitled,
such assets shall be distributed to the holders of the Parity
Stock pro rata in proportion to the amounts to which they shall
be entitled.
(c) Rights of Other Holders. In the event of any
liquidation, after payment shall have been made to the holders
of the Series B Preferred Stock and other Parity Stock of all
preferential amounts to which they shall be entitled, the
holders of shares of Junior Stock and other capital stock of the
Corporation shall receive such amounts as to which they are
entitled by the terms thereof.
(d) Consolidation, Merger or Sale of Assets. Neither a
consolidation or merger of the Corporation with or into any
other Corporation, nor a sale or transfer of all or
substantially all of the Corporation's assets for cash or
securities nor a statutory share exchange in which stockholders
of the Corporation may participate shall be considered a
liquidation, dissolution or winding-up of the Corporation within
the meaning of this clause (iii).
(iv) Redemption. (a) Special Redemption at Holders' Option
Upon Change in Control Event. Subject to and limited by the
provisions of this paragraph, the Series B Preferred Stock shall
be subject to redemption at the option of the holder exercisable
for a period ending 30 days subsequent to receipt by such holder
of notice from the Corporation to the effect that a Change in
Control Event (as hereinafter defined) has occurred, upon
written notice to the Corporation by such holder specifying the
number of shares and the subseries of Series B Preferred Stock
held by such holder to be redeemed. The Corporation shall give
notice of any Change in Control Event to the holders of Series B
Preferred Stock within five days of the occurrence of such
Change in Control Event. The Corporation shall redeem the
Series B Preferred Stock pursuant to the notice delivered by the
requesting holder at a redemption price per share equal to the
Liquidation Value plus the Redemption Premium (as hereinafter
defined) plus dividends accrued thereon to the date of
redemption (the "Special Redemption Price"). Anything in this
clause (iv)(a) to the contrary notwithstanding, the Corporation
shall be required to redeem such Series B Preferred Stock to,
and only to, the extent to which, after receiving notice from
the holder, the Corporation shall have, (1) using its best
efforts, offered for sale in one or more issuances,
non-redeemable (other than at the option of the Corporation)
capital stock of the Corporation and (2) received net proceeds
from the sale thereof equal to or greater than the Special
Redemption Price with respect to such Series B Preferred Stock
to be redeemed; provided, however, that to the extent such net
proceeds are less than the aggregate amount required to redeem
all such Series B Preferred Stock requested to be redeemed at
the Special Redemption Price, the Corporation shall, to the
extent of such net proceeds, redeem such Series B Preferred
Stock pro rata from the holders requesting such redemption.
For the purposes of this clause (iv) the following
definitions shall apply:
(A) "Change in Control Event" shall mean (i) the
acquisition in one or more related transactions by any Person of
beneficial ownership, direct or indirect, of securities of the
Corporation representing 50% or more of the combined voting
power of the Corporation's then outstanding voting securities,
(ii) the sale, transfer or other disposition in one or more
related transactions of all or substantially all of the assets
of the Corporation or (iii) the merger or consolidation of the
Corporation with or into another Person, other than a
wholly-owned subsidiary, unless such merger or consolidation
does not result in a reclassification, conversion, exchange or
cancellation of any outstanding shares of Common Stock of the
Corporation.
(B) "Redemption Premium" shall mean:
Period
June 1, 1991 to May 31, 1992 $10.250
June 1, 1992 to May 31, 1993 9.225
June 1, 1993 to May 31, 1994 8.200
June 1, 1994 to May 31, 1995 7.175
June 1, 1995 to May 31, 1996 6.150
June 1, 1996 to May 31, 1997 5.125
June 1, 1997 to May 31, 1998 4.100
June 1, 1998 to May 31, 1999 3.075
June 1, 1999 to May 31, 2000 2.050
June 1, 2000 to May 31, 2001 1.025
June 1, 2001 and thereafter 0
provided, however, that if the dividend rate on the Series B
Preferred Stock has been increased pursuant to the last sentence
of Article Second (ii), "Redemption Premium" shall mean:
Period
June 1, 1991 to May 31, 1992 $10.750
June 1, 1992 to May 31, 1993 9.675
June 1, 1993 to May 31, 1994 8.600
June 1, 1994 to May 31, 1995 7.525
June 1, 1995 to May 31, 1996 6.450
June 1, 1996 to May 31, 1997 5.375
June 1, 1997 to May 31, 1998 4.300
June 1, 1998 to May 31, 1999 3.225
June 1, 1999 to May 31, 2000 2.150
June 1, 2000 to May 31, 2001 1.075
June 1, 2001 and thereafter 0
(b) Optional Redemption Upon Satisfaction of Certain Conditions.
The Series B Preferred Stock shall be subject to
redemption, at the option of the Corporation, in whole or from
time to time in part, in each case as set forth in the second
proviso below, (i) at any time on or after June 1, 1994 and
prior to June 1, 1997, at a per share redemption price equal to
the Liquidation Value plus any dividends accrued thereon to the
date of redemption, and (ii) at any time on or after June 1,
1997, at a per share redemption price equal to the Special
Redemption Price; provided, however, that in the event of a
redemption described in clause (i), on the date notice of
redemption is given and for each of the twenty consecutive
trading days prior to such date, the closing price for a share
of Common Stock on the principal national securities exchange
for such Common Stock shall be equal to or greater than an
amount equal to 150% of the Conversion Price (as defined in
clause (vi) hereof) then in effect; provided, further, however,
that the Corporation may redeem (i) only Series B Preferred
Stock 1995 prior to June 1, 1995 and (ii) only Series B
Preferred Stock 1995 or Series B Preferred Stock 1996 on or
after June 1, 1995 and prior to June 1, 1996.
(c) Notice of Redemption. The Corporation shall give
each holder of Series B Preferred Stock written notice of each
redemption pursuant to clause (iv) (b) hereof not less than 30
days nor more than 45 days prior to any redemption date,
specifying such redemption date and the number of shares to be
redeemed on such date. Notice of redemption having been given
as aforesaid, the number of shares to be redeemed as specified
in such notice shall be so redeemed on the redemption date
specified, except to the extent that any share of Series B
Preferred Stock which is to be so redeemed shall have been
surrendered to the Corporation for conversion prior to such
redemption date in accordance with clause (vi) hereof.
(d) Effect of Redemption. On or after the date
established for redemption, all rights in respect of the shares
of Series B Preferred Stock to be redeemed, except the right to
receive the applicable redemption price, including premium, if
any, plus accrued dividends, if any, to the date of redemption,
shall (unless default shall be made by the Corporation in the
payment of the applicable redemption price, including premium,
if any, plus accrued dividends, if any, in which event such
rights shall be exercisable until such default is cured) cease
and terminate, and such shares shall no longer be deemed to be
outstanding, notwithstanding that any certificates representing
such shares shall not have been surrendered to the Corporation.
(e) Conversion Prior to Redemption. Anything to the
contrary in this clause (iv) of this Article SECOND
notwithstanding, the holders of Series B Preferred Stock shall
have the right, exercisable at any time prior to the date set
for redemption thereof, to convert all or any part of such
Series B Preferred Stock into shares of Common Stock pursuant to
clause (vi) hereof.
(v) Voting Rights. Excepting the rights specified below in
this clause (v), the holders of the Series B Preferred Stock
shall not be entitled to any voting rights. For purposes of
this clause (v) and in any case where the holders of the Series
B Preferred Stock are entitled to vote upon any matter together
with holders of Parity Stock as a single class, holders of
Series B Preferred Stock shall have a number of votes per share
determined by dividing the Liquidation Value of such share by
$50.00.
(a) Voting Rights Related to Unpaid Dividends.
(1) If on the date used to determine stockholders of record for
any meeting of stockholders for the election of directors, accrued
dividends on the shares of Series B Preferred Stock or any
Parity Stock shall not have been paid in an aggregate amount
equal to or greater than two quarterly dividends on the shares
of Series B Preferred Stock or such Parity Stock at the time
outstanding, then, and in any such event, the number of
Directors then constituting the entire Board of Directors of the
Corporation shall automatically be increased by two Directors
and the holders of shares of Series B Preferred Stock and the
holders of shares of Parity Stock, voting together as a single
class, shall be entitled at such meeting to fill such newly
created directorships. Such right to vote as a single class to
elect two Directors shall, when vested, continue until all
dividends in default on the shares of Series B Preferred Stock
and such Parity Stock, as the case may be, shall have been paid
in full and, when so paid, such right to elect two Directors
separately as a class shall cease, subject, always, to the same
provisions for the vesting of such right to elect two Directors
separately as a class in the case of future dividend defaults.
(2) So long as any shares of Series B Preferred Stock are outstanding
the number of Directors of the Corporation shall at
all times be such that the exercise, by the holders of shares of
Series B Preferred Stock and the holders of shares of Parity
Stock, of the right to elect Directors under the circumstances
provided in paragraph (1) of this subclause (a) will not
contravene any provisions of the Maryland General Corporation
Law or the Charter of the Corporation.
(3) Directors elected pursuant to paragraph (1) of this
subclause (a) shall serve until the earlier of (A) the next
annual meeting of the stockholders of the Corporation and the
election (by the holders of shares of Series B Preferred Stock
and Parity Stock) and qualification of their respective
successors or (B) the date upon which all dividends in default
on the shares of Series B Preferred Stock and such Parity Stock
shall have been paid in full. Directors elected pursuant to
paragraph (1) of this subclause (a) may be removed by, and shall
not be removed except by, the vote of the holders of record of
the outstanding shares of Series B Preferred Stock and Parity
Stock, voting together as a single class without regard to
Series, at a meeting of the stockholders, or the holders of
shares of Series B Preferred Stock and Parity Stock, called for
that purpose. If, prior to the end of the term of any Director
elected as aforesaid, a vacancy in the office of such Director
shall occur during the continuance of a default in dividends on
the shares of Series B Preferred Stock or such Parity Stock by
reason other than removal, such vacancy shall be filled for the
unexpired term by the appointment by the remaining Director
elected as aforesaid of a new Director for the unexpired term of
such former Director.
(b) Additional Capital Stock, etc. The Corporation
shall not, without the affirmative consent or approval of the
holders of shares representing at least 66-2/3% of the Series B
Preferred Stock then outstanding, voting as a single class (such
consent or approval to be given by written consent in lieu of a
meeting or by vote at a meeting called for such purpose for
which notice shall have been given to the holders of the Series
B Preferred Stock): (i) authorize the issuance of any new, or
increase the authorized number of shares of any existing, class
of capital stock of the Corporation which would be senior or
superior as to dividends and upon liquidation to the Series B
Preferred Stock, (ii) increase the number of shares of Preferred
Stock authorized in the Charter or create any other class of
stock (or any other Series of Preferred Stock) ranking on a
parity with the Series B Preferred Stock, 11% Preferred Stock,
Series C Preferred Stock and any other Parity Stock (which other
Parity Stock, together with the Series C Preferred Stock, shall
not exceed $170,000,000 in Liquidation Value plus an additional
$25,500,000 in Liquidation Value of such stock which may be
issued pursuant to an underwriter's over-allotment option)
issued or issuable as part of the Total Equity Financing (as
defined below) as to dividends and upon liquidation, (iii)
reissue any shares of Series B Preferred Stock that have been
redeemed or (iv) take any action to cause any amendment,
alteration or repeal of any of the provisions of the Charter
that would materially adversely affect the rights of holders of
Series B Preferred Stock.
(vi) Conversion Rights. (a) Optional Conversion of Series B
Preferred Stock. The holder of a share of Series B Preferred
Stock shall have the right, at such holder's option, at any time
or from time to time to convert such share of Series B
Preferred Stock into such number of fully paid and
nonassessable shares of Common Stock (the "Conversion Shares")
as is obtained by dividing the Liquidation Value by $12.025,
being a price equal to the sum of (i) the average of the closing
price for Common Stock on the New York Stock Exchange for each
of the 20 consecutive trading days immediately preceding the
date of issue of the Series B Preferred Stock (the "Average
Price") plus (ii) 15% of the Average Price (the "Initial
Conversion Price").
(b) If at any time after the date hereof and prior to
June 1, 1992 the Corporation (i) shall have issued or sold any
convertible security or instrument convertible into Common Stock
at less than the Initial Conversion Price or (ii) shall have
issued or sold any Common Stock at a price per share less than
the Average Price or (iii) shall have issued or sold warrants,
options or rights to purchase Common Stock at a price such that
the sum of such price and the price at which such instrument
maybe exercised is less than the Initial Conversion Price, then
the Initial Conversion Price shall be adjusted to (xx) the price
at which such convertible security or instrument may be
exercised or (yy) the sale price of such Common Stock plus 15%
of such sale price or (zz) the sum of the price of such
instrument and its exercise price, respectively; provided,
however, that there shall not be taken into account for the
purposes of such adjustment (A) stock, options or rights issued
to the officers or key employees of the Corporation and of its
subsidiaries or the issuance of any securities pursuant to
employee stock purchase plans or (B) any sale or issuance of
such securities, instruments, capital stock or warrants that
yields Gross Proceeds (including further proceeds, if any, upon
the exercise thereof) of less than $15,000,000 in the aggregate;
provided, further, however that in any case the Initial
Conversion Price shall not be less than $10.00. If the Initial
Conversion Price should be adjusted pursuant to clause (xx),
(yy) or (zz) above prior to December 31, 1991 and such
adjustment would result in the Series B Preferred Stock being
convertible into more shares of Common Stock than the
Corporation has authorized and reserved for such purpose, then
no such adjustment shall be made at such time; provided,
however, that the Corporation shall use its best efforts to
increase the number of authorized and reserved shares of Common
Stock to a number sufficient to effect such adjustment as
promptly as practicable; provided, further, however, that any
adjustment not made as a result of this sentence shall be made
immediately upon the increase of authorized shares of Common
Stock. The provisions of this paragraph (b) shall be of no
further force and effect and the adjustments to the Initial
Conversion Price required by this paragraph shall not be made
for any event that occurs from and after the date, if any, that
the Total Equity Financing (as hereinafter defined) exceeds
$250,000,000.
For the purposes of this clause (vi) of this Article Second,
"Total Equity Financing" shall at any date mean Gross Proceeds
(calculated using the Liquidation Value with respect to the
Series B Preferred Stock) from the sale, on and after the date
of issuance of the Series B Preferred Stock, of capital stock of
the Corporation (including Series B Preferred Stock and Series C
Preferred Stock, but excluding the issuance of any 11% Preferred
Stock) or any other securities convertible into or exchangeable
for capital stock of the Corporation.
(c) If the Initial Conversion Price would have been
reduced to less than $10.00 pursuant to any provision of clause
(vi) (b) above but for the provisos therein prohibiting any
Initial Conversion Price below $10.00 (the Initial Conversion
Price as so adjusted without regard to any prohibition on a
price below $10.00, being referred to as the "Fully Adjusted
Conversion Price"), the Corporation shall, without additional
consideration therefor, issue a number of shares of its 11%
Preferred Stock to each holder of Series B Preferred Stock
calculated pursuant to the following formula: Fully Adjusted
Conversion Price multiplied by Incremental Shares multiplied by
0.5, divided by $10,000. For the purposes of this paragraph (c)
"Incremental Shares" shall mean (A) that number of shares of
Common Stock that each holder of Series B Preferred Stock would
have received upon conversion of such Series B Preferred Stock
if the Initial Conversion Price had been the Fully Adjusted
Conversion Price, less (B) that number of shares of Common Stock
each holder will receive upon conversion assuming an Initial
Conversion Price of $10.00.
Initial Conversion Price and Fully Adjusted Conversion Price,
individually or collectively, as applicable, are hereinafter
referred to as the "Conversion Price." The Conversion Shares and
the Conversion Price are subject to certain adjustments as set
forth herein, and the terms Conversion Shares and Conversion
Price as used herein shall as of any time be deemed to include
all such adjustments to be given effect as of such time in
accordance with the terms hereof.
Upon the exercise of the option of the holder of any shares of
Series B Preferred Stock to convert Series B Preferred Stock
into Common Stock, the holder of such shares of Series B
Preferred Stock to be converted shall surrender the certificates
representing the shares of Series B Preferred Stock so to be
converted in the manner provided in clause (vi)(d) below.
(d) Delivery of Stock Certificates; No Fractional
Shares. The holder of any shares of Series B Preferred Stock may
exercise the conversion right pursuant to clause (vi) (a) above
by delivering to the Corporation during regular business hours
at the office of the Corporation the certificate or certificates
for the shares to be converted, duly endorsed or assigned either
in blank or to the Corporation (if required by it), accompanied
by written notice stating that such holder elects to convert
such shares. Conversion shall be deemed to have been effected
on the date when the aforesaid delivery is made, and such date
is referred to herein as the "Conversion Date." As promptly as
practicable thereafter the Corporation shall issue and deliver
to or upon the written order of such holder to the place
designated by such holder, a certificate or certificates for the
number of full shares of Common Stock to which such holder is
entitled and a check or cash in respect of any fractional
interest in a share of Common Stock, as provided below, payable
with respect to the shares of Series B Preferred Stock so
converted; provided, however, that in the case of a conversion
in connection with liquidation, no such certificates need be
issued. The person in whose name the certificate or
certificates for Common Stock are to be issued shall be deemed
to have become the stockholder of record in respect of such
Common Stock on the applicable Conversion Date unless the
transfer books of the Corporation are closed on that date, in
which event such holder shall be deemed to have become the
stockholder of record in respect of such Common Stock on the
next succeeding date on which the transfer books are open, but
the Conversion Price shall be that in effect on the Conversion
Date. Upon conversion of only a portion of the number of shares
covered by a certificate representing shares of Series B
Preferred Stock surrendered for conversion, the Corporation
shall issue and deliver to or upon the written order of the
holder of the certificate so surrendered for conversion, at the
expense of the Corporation, a new certificate covering the
number of shares of Series B Preferred Stock representing the
unconverted portion of the certificate so surrendered. If the
new certificate or certificates are to be issued to a person who
is not the registered holder of the certificate delivered for
conversion, any transfer taxes applicable to the transaction
shall be paid by such transferee.
(e) No Fractional Shares of Common Stock. (i) No
fractional shares of Common Stock shall be issued upon
conversion of shares of Series B Preferred Stock. Instead of
any fractional share of Common Stock which would otherwise be
issuable upon conversion of any shares of Series B Preferred
Stock, the Corporation shall pay a cash adjustment in respect
of such fractional interest in an amount equal to the then
current Market Price (as defined in clause (vi)(f)(8) below) of
a share of Common Stock multiplied by such fractional interest.
The holders of fractional interests shall not be entitled to any
rights as stockholders of the Corporation in respect of such
fractional interests. In determining the number of shares of
Common Stock and the payment, if any, in lieu of fractional
shares that a holder of Series B Preferred Stock shall receive,
the total number of shares of Series B Preferred Stock
surrendered for conversion by such holder shall be aggregated.
(ii) The Corporation shall forthwith upon conversion of all
or any portion of the Series B Preferred Stock pay all dividends
accrued on such Series B Preferred Stock to the date of such
conversion.
(f) Adjustment of Conversion Price Upon Issuance of
Common Stock. If and whenever (i) after the date hereof and
prior to June 1, 1992, the Total Equity Financing shall have
yielded Gross Proceeds in excess of $250,000,000 and the
Corporation shall thereafter take any of the actions described
in subclauses (i), (ii) or (iii) of clause (b) above, (except
(xx) upon conversion of the Series B Preferred Stock (yy)
issuances subject to subclauses (A) and (B) of the first proviso
set forth in clause (b) and (zz) the term "Average Price" in
subclause (ii) of clause (b) shall mean the Conversion Price as
then in effect); or (ii) at any time after the date hereof the
Corporation takes any of the actions described in paragraphs (1)
through (4) below involving the deemed issuance of shares of
Common Stock for a consideration per share less than the Market
Price on the day immediately prior to such deemed issue or sale,
then, forthwith upon such actual or deemed issue or sale, as the
case may be, the Conversion Price shall be reduced (but not
increased, except as otherwise specifically provided in
paragraph (3) below) to the price (calculated to the nearest
cent) (or, where an event may occur which would require an
adjustment under more than one provision hereof, to the lower of
the prices) determined as follows:
(A) in the case of taking any of the actions described above
in subclause (i) of this clause (f), by dividing (i) an amount
equal to the sum of (A) the aggregate number of shares of Common
Stock outstanding immediately prior to such issue or sale
multiplied by the then existing Conversion Price and (B) the
consideration, if any, received by the Corporation upon such
issue or sale (determined, in the case of warrants, options,
rights or convertible securities, on the basis described below
in paragraphs (1) and (2) as the Rights Formula and the
Convertible Formula), by (ii) the aggregate number of shares of
Common Stock of all classes outstanding immediately after such
issue or sale (determined, in the case of warrants, options,
rights or convertible securities, on the basis described below
in paragraphs (1) and (2) as the Rights Formula and the
Convertible Formula); and
(B) in the case of taking any of the actions described above
in subclause (ii) of this clause (f), by multiplying the
Conversion Price in effect immediately prior to the time of such
deemed issue or sale by a fraction, the numerator of which shall
be the sum of (i) the aggregate number of shares of Common Stock
outstanding immediately prior to such issue or sale multiplied
by the Market Price on the day immediately prior to such issue
or sale plus (ii) the consideration received by the Corporation
upon such issue or sale, and the denominator of which shall be
the product of (iii) the aggregate number of shares of Common
Stock of all classes outstanding immediately after such issue or
sale, multiplied by (iv) the Market Price on the day immediately
prior to such issue or sale.
No adjustment of the Conversion Price, however, shall be made
in an amount less than $.10 per share, but any such lesser
adjustment shall be carried forward and taken into account at
the time of and together with the next subsequent adjustment.
For the purposes of subclause (ii) of this clause (vi)(f), the
following paragraphs (1) through (4) shall also be applicable;
and for purposes of this clause (vi)(f) generally, the following
paragraphs (5) through (10) shall be applicable:
(1) Issuance of Rights or Options - In case at any time after
the date hereof the Corporation shall in any manner grant
(whether directly or by assumption in a merger or otherwise,
except in the circumstances described in clause (vi)(g) below)
any rights to subscribe for or to purchase, or any options for
the purchase of, Common Stock or any stock or securities
convertible into or exchangeable for Common Stock (such
convertible or exchangeable stock or securities being herein
called "Convertible Securities"), whether or not such rights or
options or the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share
for which Common Stock is issuable upon the exercise of such
rights or options or upon conversion or exchange of such
Convertible Securities (determined by dividing (i) the total
amount, if any, received or receivable by the Corporation as
consideration for the granting of such rights or options, plus
the minimum aggregate amount of additional consideration, if
any, payable to the Corporation upon the exercise of such rights
or options, plus, in the case of such rights or options which
relate to Convertible Securities, the minimum aggregate amount
of additional consideration, if any, payable upon the issue or
sale of such Convertible Securities and upon the conversion or
exchange thereof, by (ii) the total maximum number of shares of
Common Stock issuable upon the exercise of such rights or
options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such rights
or options (the "Rights Formula")) shall be less than the Market
Price, determined as of the date of granting such rights or
options, then the total maximum number of shares of Common Stock
issuable upon the exercise of such rights or options or upon
conversion or exchange of all such Convertible Securities
issuable upon the exercise of such rights or options shall (as
of the date of granting of such rights or options) be deemed to
be outstanding and to have been issued for such price per share.
Except as provided in paragraph (3), no further adjustment of
the Conversion Price shall be made upon the actual issue of such
Common Stock or of such Convertible Securities upon exercise of
such rights or options or upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible Securities.
(2) Issuance of Convertible Securities - In case at any time
after the date hereof the Corporation shall in any manner issue
(whether directly or by assumption in a merger or otherwise) or
sell any Convertible Securities, whether or not the rights to
exchange or convert thereunder are immediately exercisable, and
the price per share for which Common Stock is issuable upon such
conversion or exchange (determined by dividing (i) the total
amount received or receivable by the Corporation as
consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (ii) the total maximum number
of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities (the "Convertible
Formula")) shall be less than the Market Price, determined as of
the date of such issue or sale of such Convertible Securities,
then the total maximum number of shares of Common Stock issuable
upon conversion or exchange of all such Convertible Securities
shall (as of the date of the issue or sale of such Convertible
Securities) be deemed to be outstanding and to have been issued
for such price per share; provided, however, that (a) except as
otherwise provided in paragraph (3), no further adjustment of
the Conversion Price shall be made upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible
Securities, and (b) if any such issue or sale of such
Convertible Securities is made upon exercise of any rights to
subscribe for or to purchase or any option to purchase any such
Convertible Securities for which adjustments of the Conversion
Price have been or are to be made pursuant to other provisions
of this clause (vi) (f), no further adjustment of the Conversion
Price shall be made by reason of such issue or sale.
(3) Change in Option Price or Conversion Rate - Upon the
happening of any of the following events, namely, if the
purchase price provided for in any right or option referred to
in paragraph (1), the additional consideration, if any, payable
upon the conversion or exchange of any Convertible Securities
referred to in paragraph (1) or (2), or the rate at which any
Convertible Securities referred to in paragraph (1) or (2) are
convertible into or exchangeable for Common Stock shall change
(other than under or by reason of provisions designed to protect
against dilution), the Conversion Price then in effect hereunder
shall forthwith be readjusted (increased or decreased, as the
case maybe) to the Conversion Price which would have been in
effect at such time had such rights, options or Convertible
Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case
may be, at the time initially granted, issued or sold. On the
expiration of any such option or right referred to in paragraph
(1) or the termination of any such right to convert or exchange
any such Convertible Securities referred to in paragraph (1) or
(2), the Conversion Price then in effect hereunder shall
forthwith be readjusted (increased or decreased, as the case may
be) to the Conversion Price which would have been in effect at
the time of such expiration or termination had such right,
option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination, never been
granted, issued or sold, and the Common Stock issuable
thereunder shall no longer be deemed to be outstanding. If the
purchase price provided for in any such right or option
referred to in paragraph (1) or the rate at which any
Convertible Securities referred to in paragraph (1) or (2) are
convertible into or exchangeable for Common Stock shall be
reduced at any time under or by reason of provisions with
respect thereto designed to protect against dilution, then in
case of the delivery of shares of Common Stock upon the exercise
of any such right or option or upon conversion or exchange of
any such Convertible Securities, the Conversion Price then in
effect hereunder shall, if not already adjusted, forthwith be
adjusted to such amount as would have obtained had such right,
option or Convertible Securities never been issued as to such
shares of Common Stock and had adjustments been made upon the
issuance of the shares of Common Stock delivered as aforesaid,
but only if as a result of such adjustment the Conversion Price
then in effect hereunder is thereby reduced.
(4) Stock Dividends - In case at any time the Corporation
shall declare a dividend or make any other distribution upon any
class or series of stock of the Corporation payable in shares of
Common Stock or Convertible Securities, any shares of Common
Stock or Convertible Securities, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to have
been issued or sold without consideration.
(5) Consideration for Stock - Anything herein to the contrary
notwithstanding, in case at any time any shares of Common Stock
or Convertible Securities or any rights or options to purchase
any such Common Stock or Convertible Securities shall be issued
or sold for cash, the consideration received therefor shall be
deemed to be the amount received by the Corporation therefor,
without deduction therefrom of any expenses incurred or any
underwriting discounts, commissions or concessions paid or
allowed by the Corporation in connection therewith.
In case at any time any shares of Common Stock or any class of
Convertible Securities or any rights or options to purchase any
such shares of Common Stock or Convertible Securities shall be
issued or sold for a consideration other than cash, the amount
of the consideration other than cash received by the Corporation
shall be deemed to be the fair value of such consideration as
determined reasonably and in good faith by the Board of
Directors of the Corporation, without deduction of any expenses
incurred or any underwriting discounts, commissions or
concessions paid or allowed by the Corporation in connection
therewith. In case at any time any shares of Common Stock or
any class or Convertible Securities or any rights or options to
purchase such shares of Common Stock or Convertible Securities
shall be issued in connection with any merger or consolidation
in which the Corporation is the surviving Corporation, the
amount of consideration received therefor shall be deemed to be
the fair value as determined reasonably and in good faith by the
Board of Directors of the Corporation of such portion of the
assets and business of the nonsurviving Corporation as such
Board may determine to be attributable to such shares of Common
Stock, Convertible Securities, rights or options, as the case
may be. In case at any time any rights or options to purchase
any shares of Common Stock or Convertible Securities shall be
issued in connection with the issue and sale of other securities
of the Corporation, together comprising one integral transaction
in which no consideration is allocated to such rights or options
by the parties thereto, such rights or options shall be deemed
to have been issued for an amount of consideration equal to the
fair value thereof as determined reasonably and in good faith by
the Board of Directors of the Corporation.
(6) Record Date - In case the Corporation shall take a record
of the holders of its Common Stock for the purpose of entitling
them (i) to receive a dividend or other distribution payable in
shares of Common Stock or in Convertible Securities, or (ii) to
subscribe for or purchase shares of Common Stock or Convertible
Securities, then such record date shall be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to
have been issued or sold as a result of the declaration of such
dividend or the making of such other distribution or the date of
the granting of such right of subscription or purchase,as the
case may be.
(7) Treasury Shares - The number of shares of Common Stock outstanding
at any given time shall not include shares owned or
held by or for the account of the Corporation, and the
disposition of any such shares shall be considered an issue or
sale of Common Stock for the purposes of this clause (vi)(f).
(8) Definition of Market Price - Unless otherwise set forth
in these Articles, "Market Price" shall mean, for any day, the
last sale price of the Common Stock on the principal national
securities exchange on which the Common Stock may at the time
be listed, or, if there shall have been no sales on any such
exchange on any such day, the average of the bid and asked
prices at the end of such day, or, if the Common Stock shall not
be so listed, the average of the bid and asked prices at the end
of the day in the domestic over-the-counter market. If at any
time the Common Stock is not listed on any exchange or quoted in
the domestic over-the-counter market, the "Market Price" shall
be deemed to be the higher of (aa) the book value thereof, as
determined (in accordance with generally accepted accounting
principles consistent with those then being applied by the
Corporation) by any firm of independent public accountants
(which may be the regular auditors of the Corporation) of
recognized national standing selected by the Board of Directors
of the Corporation, as of the last day of the month ending
within 31 days preceding the date as of which the determination
is to be made, and (bb) the fair value thereof, as determined in
good faith by the Board of Directors of the Corporation.
(9) Determination of Market Price under Certain
Circumstances- Anything herein to the contrary notwithstanding,
in case at any time after the date hereof the Corporation shall
issue any shares of Common Stock or Convertible Securities, or
any rights or options to purchase any such Common Stock or
Convertible Securities, in connection with the acquisition by
the Corporation of the stock or assets of any other Corporation
or the merger of any other Corporation into the Corporation
under circumstances where on the date of the issuance of such
shares of Common Stock or Convertible Securities or such rights
or options the consideration received for such Common Stock or
deemed to have been received for the Common Stock into which
such Convertible Securities or such rights or options are
convertible is less than the Market Price of the Common Stock
but on the date the number of shares of Common Stock or
Convertible Securities (or in the case of Convertible Securities
other than stock, the aggregate principal amount of Convertible
Securities) or the number of such rights or options was
determined (as set forth in a binding agreement between the
Corporation and the other party to the transaction) the
consideration received for such Common Stock or deemed to have
been received for the Common Stock into which such Convertible
Securities or such rights or options are convertible would not
have been less than the Market Price thereof, such shares of
Common Stock shall not be deemed to have been issued for less
than the Market Price of the Common Stock.
(10) Adjustment to Determination of Market Price. When making
the calculations and determinations described in clause (vi) (f)
(1) through clause (vi) (f) (9) hereof, the issuance to officers
or key employees of the Corporation and of its subsidiaries of
shares of Common Stock or warrants, options or rights for Common
Stock issued pursuant to any instruments or agreements or plans,
or shares issuable to employees under employee stock purchase
plans, shall not be taken into account.
(g) Liquidating Dividends; Purchase Rights.
(i) In case at any time after the date hereof the Corporation shall
declare a dividend upon the shares of Common Stock of any class payable
otherwise than in shares of Common Stock or Convertible
Securities, otherwise than out of consolidated earnings or
consolidated earned surplus (determined in accordance with
generally accepted accounting principles, but excepting
quarterly Common Stock dividends at the rate of $.05 per share
or increases therein out of consolidated net income of the
Corporation determined in accordance with generally accepted
accounting principles for the period from the end of the last
fiscal year to the date of the most recent consolidated
quarterly financial statements of the Corporation as at the time
of the declaration of the dividend), and otherwise than in the
securities to which the provisions of clause (ii) below apply,
the Corporation shall pay over to each holder of Series B
Preferred Stock, upon conversion thereof on or after the
dividend payment date, the securities and other property
(including cash) which such holder would have received (together
with all distributions thereon) if such holder had converted the
Series B Preferred Stock held by it on the record date fixed in
connection with such dividend, and the Corporation shall take
whatever steps are necessary or appropriate to keep in reserve
at all times such securities and other property as shall be
required to fulfill its obligations hereunder in respect of the
shares issuable upon the exercise or conversion of all the
Series B Preferred Stock.
(ii) If at any time or from time to time on or after the date hereof,
the Corporation shall grant, issue or sell any options
or rights (other than Convertible Securities) to purchase stock,
warrants, securities or other property pro rata to the holders
of Common Stock of all classes ("Purchase Rights"), and if the
holder shall be entitled to an adjustment pursuant to clause
(vi) (f) above, then in lieu of such adjustment, and if deemed
by the Board of Directors to be not materially adverse to the
interests of the holders of Series B Preferred Stock, the
Corporation shall reserve for distribution to holders of Series
B Preferred Stock upon conversion of the same and upon the
terms applicable to such Purchase Rights, the aggregate Purchase
Rights which such holder could have acquired if such holder had
held the number of shares of Common Stock issuable upon
conversion of such Series B Preferred Stock immediately prior to
the time or times at which the Corporation granted, issued or
sold such Purchase Rights.
(h) Subdivision or Combination of Stock. In case the
Corporation shall at any time subdivide its outstanding shares
of Common Stock into a greater number of shares, the Conversion
Price in effect immediately prior to such subdivision shall be
proportionately reduced, and conversely, in case the outstanding
shares of Common Stock of the Corporation shall be combined into
a smaller number of shares, the Conversion Price in effect
immediately prior to such combination shall be proportionately
increased.
(i) Changes in Common Stock. If any capital
reorganization or reclassification of the capital stock of the
Corporation, or consolidation or merger of the Corporation with
another Corporation, or the sale, transfer or other disposition
of all or substantially all of its properties to another
Corporation, shall be effected, then, as a condition of such
reorganization, reclassification, consolidation, merger, sale,
transfer or other disposition, lawful and adequate provision
shall be made whereby each holder of Series B Preferred Stock
shall thereafter have the right to purchase and receive upon the
basis and upon the terms and conditions herein specified and in
lieu of the shares of the Common Stock of the Corporation
immediately theretofore issuable upon conversion of the Series B
Preferred Stock, such shares of stock, securities or properties
as may be issuable or payable with respect to or in exchange for
a number of outstanding shares of such Common Stock equal to the
number of shares of such Common Stock immediately theretofore
issuable upon conversion of the Series B Preferred Stock had
such reorganization, reclassification, consolidation, merger,
sale, transfer or other disposition not taken place, and in any
such case appropriate provisions shall be made with respect to
the rights and interests of each holder of Series B Preferred
Stock to the end that the provisions hereof (including without
limitation provisions for adjustment of the Conversion Price)
shall thereafter be applicable, as nearly equivalent as may be
practicable in relation to any shares of stock, securities or
properties thereafter deliverable upon the exercise thereof.
The Corporation shall not effect any such consolidation, merger,
sale, transfer or other disposition, unless prior to or
simultaneously with the consummation thereof the successor
corporation (if other than the Corporation) resulting from such
consolidation or merger or the corporation purchasing or
otherwise acquiring such properties shall assume, by written
instrument executed and mailed or delivered to the holders of
Series B Preferred Stock at the last address of such holders
appearing on the books of the Corporation, the obligation to
deliver to such holders such shares of stock, securities or
properties as, in accordance with the foregoing provisions, such
holders may be entitled to acquire. The above provisions of
this subparagraph shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers,
sales, transfers, or other dispositions.
(j) Certain Events. If any event occurs as to which in
the opinion of the Board of Directors of the Corporation the
other provisions of this clause (vi) are not strictly applicable
or if strictly applicable would not fairly protect the
conversion rights of the holders of the Series B Preferred Stock
in accordance with the essential intent and principles of such
provisions, then such Board of Directors shall appoint a firm of
independent certified public accountants (which may be the
regular auditors of the Corporation) of recognized national
standing, which shall give their opinion upon the adjustment, if
any, on a basis consistent with such essential intent and
principles, necessary to preserve, without dilution, the rights
of the holders of the Series B Preferred Stock. Upon receipt of
such opinion by the Board of Directors, the Corporation shall
forthwith make the adjustments described therein; provided,
however, that no such adjustment shall have the effect of
increasing the Conversion Price as otherwise determined pursuant
to this clause (vi) except in the event of a combination of
shares of the type contemplated in clause (vi)(h) and then in no
event to an amount larger than the Conversion Price as adjusted
pursuant to clause (vi) (h).
(k) Prohibition of Certain Actions. The Corporation
will not (i) authorize or issue, or agree to authorize or issue,
any shares of its capital stock of any class preferred as to
dividends or as to the distribution of assets upon voluntary or
involuntary liquidation, dissolution or winding-up of the
Corporation unless the rights of the holders thereof shall be
limited to a fixed sum or percentage of par value in respect of
participation in dividends and in the distribution of such
assets, or (ii), except in accordance with clause (vi)(b), take
any action which would result in any adjustment of the
Conversion Price if the total number of shares of Common Stock
issuable after such action upon conversion of all of the Series
B Preferred Stock would exceed the total number of shares of
Common Stock then authorized by the Corporation's Charter.
(l) Stock to be Reserved. Except as otherwise provided
in clause (vi) (b) hereof, the Corporation will at all times
reserve and keep available out of its authorized Common Stock,
solely for the purpose of issue upon the conversion of Series B
Preferred Stock as herein provided, such number of shares of
Common Stock as shall then be issuable upon the conversion of
all outstanding Series B Preferred Stock, and the Corporation
will maintain at all times all other rights and privileges
sufficient to enable it to fulfill all its obligations
hereunder. The Corporation covenants that all shares of Common
Stock which shall be so issuable shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, free
from preemptive or similar rights on the part of the holders of
any shares of capital stock or securities of the Corporation,
and without limiting the generality of the foregoing, the
Corporation covenants that it will from time to time take all
such action as may be requisite to assure that the par value, if
any, per share of the Common Stock is at all times equal to or
less than the then effective Conversion Price. The Corporation
will use its best efforts to take all such action as may be
necessary to assure that such shares of Common Stock may be so
issued without violation by the Corporation of any applicable
law or regulation, or of any requirements of any domestic
securities exchange upon which the Common Stock may be listed.
(m) Registration and Listing of Common Stock. If any
shares of Common Stock required to be reserved for purposes of
conversion of Series B Preferred Stock hereunder require
registration with or approval of any governmental authority
under any Federal or state law (other than the Securities Act of
1933 or any state "blue sky" law) before such shares may be
issued upon conversion, the Corporation will, at its expense and
as expeditiously as possible, use its best efforts to cause such
shares to be duly registered or approved, as the case may be.
If and so long as the Common Stock is listed on any national
securities exchange, the Corporation will, at its expense, use
its best efforts to obtain promptly and maintain the approval
for listing on each such exchange upon official notice of
issuance, of shares of Common Stock issuable upon conversion of
the then outstanding Series B Preferred Stock and maintain the
listing of such shares after their issuance; and the Corporation
will also use its best efforts to list on such national
securities exchange, to register under the Securities Exchange
Act of 1934 and to maintain such listing of, any other
securities that at any time are issuable upon conversion of the
Series B Preferred Stock, if and at the time that any securities
of the same class shall be listed on such national securities
exchange by the Corporation.
(n) Closing of Books. The Corporation will at no time
close its transfer books against the transfer of any Preferred
Stock or of any shares of Common Stock issued or issuable upon
the conversion of any Series B Preferred Stock in any manner
which interferes with the timely conversion of such Series B
Preferred Stock.
(o) Statement of Adjustment of Conversion Price.
Whenever the Conversion Price shall be adjusted as provided in
clause (vi) (f) above, the Corporation shall forthwith file at
its office a statement, signed by its independent certified
public accountants, showing in detail the facts requiring such
adjustment and the Conversion Price that shall be in effect
after such adjustment. The Corporation shall also cause a copy
of such statement to be sent by certified mail, return receipt
requested, to each holder of shares of Series B Preferred Stock
to such holder's address appearing on the Corporation's records.
Where appropriate, such copy may be given in advance and may be
included as part of a notice required to be mailed under the
provisions of clause (vi) (p) below.
(p) Notice. In the event the Corporation shall propose
to take any action of the types described in clause (vi)(f)
above, the Corporation shall give notice to each holder of
shares of Series B Preferred Stock, in the manner set forth in
clause (vi) (o) above, which notice shall specify the record
date, if any, (or the method of determining the same) with
respect to any such action and the date (or the method of
determining the same) on which such action is to take place.
Such notice shall also set forth such facts with respect thereto
as shall be reasonably necessary to indicate the effect of such
action (to the extent such effect may be known at the date of
such notice) on the Conversion Price and the number, kind or
class of shares or other securities or property which shall be
deliverable or purchasable upon the occurrence of such action or
deliverable upon conversion of shares of Series B Preferred
Stock. In the case of any action which would require the fixing
of a record date, such notice shall be given at least 20 days
prior to the date so fixed, and in case of all other action,
such notice shall be given at least 30 days prior to the taking
of such proposed action.
(q) Taxes. The Corporation shall pay all documentary,
stamp or other transactional taxes attributable to the issuance
or delivery of shares of capital stock of the Corporation upon
conversion of any shares of Series B Preferred Stock.
THIRD: The terms of the 11% Preferred Stock are as
follows:
(i) Designation and Amount. The designation of the Series of
Preferred Stock described in clause (ii) of Article First hereof
shall be "11% Preferred Stock" (the "11% Preferred Stock"). The
number of shares of 11% Preferred Stock shall initially be 1,000.
(ii) Dividends. (a) Rate, etc. The holders of shares of 11%
Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors out of the funds legally
available therefor, annual dividends from the date of issue
thereof at the rate of $1,100.00 per share, calculated on the
basis of a 360-day year of 12 30-day months, accruing on a daily
basis, payable quarterly, in arrears, on each Dividend Payment
Date in each year commencing on the first Dividend Payment Date
subsequent to the issuance of any shares of such 11% Preferred
Stock. Such dividends shall be cumulative with respect to each
share from the date of original issuance, whether or not earned
or declared.
(b) Rank, etc. The 11% Preferred Stock shall rank on a
parity with the Corporation's $4.10 Series A Convertible
Exchangeable Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and any other Parity Stock as to dividends and
upon liquidation. Unless full cumulative dividends on all
outstanding shares of 11% Preferred Stock or any other class of
Parity Stock have been paid or are contemporaneously declared
and paid (or declared and a sum sufficient for the payment
thereof is set apart for such payment), the Corporation will not
(1) declare or pay any dividend on the Common Stock of the
Corporation or on any other class of Junior Stock or make any
payment on account of, or set apart money for, a sinking or
other analogous fund for the purchase, redemption or other
retirement of, any Junior Stock or make any distribution in
respect thereof, either directly or indirectly and whether in
cash or property or in obligations or shares of the Corporation
(other than in shares of Junior Stock) or (2) purchase any
shares of 11% Preferred Stock or Parity Stock (except for
consideration payable in Junior Stock) or redeem fewer than all
of the shares of 11% Preferred Stock or Parity Stock then
outstanding. Unless and until all dividends accrued and payable
but unpaid on the 11% Preferred Stock and any Parity Stock at
the time outstanding have been paid in full, all dividends
declared by the Corporation upon such 11% Preferred Stock or
Parity Stock shall be declared pro rata with respect to all 11%
Preferred Stock and Parity Stock then outstanding, so that the
amounts of any dividends declared on the 11% Preferred Stock and
such Parity Stock shall in all cases bear to each other the
same ratio that, at the time of such declaration, all accrued
and payable but unpaid dividends on the 11% Preferred Stock and
such other Parity Stock, respectively, bear to each other.
(iii) Liquidation. (a) Preference on Liquidation. In the
event of any liquidation, dissolution or winding up of the
affairs of the Corporation (any or all of such events, a
"liquidation"), whether voluntary or involuntary, the holders of
shares of 11% Preferred Stock then outstanding shall be
entitled, pari passu as if members of a single class of
securities with the holders of other Parity Stock, to be paid
out of the assets of the Corporation, before any payment shall
be made to the holders of the Junior Stock or the holders of any
other capital stock of the Corporation, an amount equal to
$10,000 per share of such 11% Preferred Stock plus an amount
equal to the dividends accrued and unpaid thereon to the payment
date.
(b) Insufficient Assets. If, upon any liquidation of
the Corporation, the assets of the Corporation are insufficient
to pay the holders of shares of the Parity Stock then
outstanding the full amounts to which they shall be entitled,
such assets shall be distributed to the holders of the Parity
Stock pro rata in proportion to the amounts to which they shall
be entitled.
(c) Rights of Other Holders. In the event of any
liquidation, after payment shall have been made to the holders
of the 11% Preferred Stock and other Parity Stock of all
preferential amounts to which they shall be entitled, the
holders of shares of Junior Stock and other capital stock of the
Corporation shall receive such amounts as to which they are
entitled by the terms thereof.
(d) Consolidation, Merger or Sale of Assets. Neither a
consolidation or merger of the Corporation with or into any
other Corporation, nor a sale or transfer of all or
substantially all of the Corporation's assets for cash or
securities nor a statutory share exchange in which stockholders
of the Corporation may participate shall be considered a
liquidation, dissolution or winding-up of the Corporation within
the meaning of this clause (iii).
(iv) Redemption. (a) Mandatory Redemption. On June 1, 2001,
the Corporation will redeem the 11% Preferred Stock then
outstanding at a redemption price equal to $10,000 per share,
together with dividends accrued thereon to the date of
redemption.
(b) Optional Redemption. The 11% Preferred Stock shall
be subject to redemption, at the option of the Corporation, in
whole or from time to time in part, at any time on or after June
1, 1994 at a redemption price equal to $10,000 per share, plus
the Redemption Premium (as hereinafter defined), together with
dividends accrued thereon to the date of redemption.
For the purposes of this clause (iv) "Redemption Premium"
shall mean:
Period
June 1, 1994 to May 31, 1995 $770
June 1, 1995 to May 31, 1996 660
June 1, 1996 to May 31, 1997 550
June 1, 1997 to May 31, 1998 440
June 1, 1998 to May 31, 1999 330
June 1, 1999 to May 31, 2000 220
June 1, 2000 to May 31, 2001 110
June 1, 2001 and thereafter 0
(v) Voting Rights. Excepting the rights specified below in
this clause (v), the holders of the 11% Preferred Stock shall
not be entitled to any voting rights. For purposes of this
clause (v) and in any case where holders of the 11% Preferred
Stock are entitled to vote upon any matter together with holders
of Parity Stock as a single class, holders of 11% Preferred
Stock have a number of votes per share determined by dividing
$10,000 by $50.00.
(a) Voting Rights Relating to Unpaid Dividends. (1) If
on the date used to determine stockholders of record for any
meeting of stockholders for the election of directors, accrued
dividends on the shares of 11% Preferred Stock or any Parity
Stock shall not have been paid in an aggregate amount equal to
or greater than two quarterly dividends on the shares of 11%
Preferred Stock or such Parity Stock at the time outstanding,
then, and in any such event, the number of Directors then
constituting the entire Board of Directors of the Corporation
shall automatically be increased by two Directors and the
holders of shares of 11% Preferred Stock and the holders of
shares of Parity Stock, voting together as a single class, shall
be entitled at such meeting to fill such newly created
directorships. Such right to vote as a single class to elect
two Directors shall, when vested, continue until all dividends
in default on the shares of 11% Preferred Stock and such Parity
Stock, as the case may be, shall have been paid in full and,
when so paid, such right to elect two Directors separately as a
class shall cease, subject, always, to the same provisions for
the vesting of such right to elect two Directors separately as
a class in the case of future dividend defaults.
(2) So long as any shares of 11% Preferred Stock are outstanding
the number of Directors of the Corporation shall at
all times be such that the exercise, by the holders of shares of
11% Preferred Stock and the holders of shares of Parity Stock,
of the right to elect Directors under the circumstances provided
in paragraph (1) of this subclause (a) will not contravene any
provisions of the Maryland General Corporation Law or the
Charter of the Corporation.
(3) Directors elected pursuant to paragraph (1) of this
subclause (a) shall serve until the earlier of (A) the next
annual meeting of the stockholders of the Corporation and the
election (by the holders of shares of 11% Preferred Stock and
Parity Stock) and qualification of their respective successors
or (B) the date upon which all dividends in default on the
shares of 11% Preferred Stock and such Parity Stock shall have
been paid in full. Directors elected pursuant to paragraph (1)
of this subclause (a) may be removed by, and shall not be
removed except by, the vote of the holders of record of the
outstanding shares of 11% Preferred Stock and Parity Stock,
voting together as a single class without regard to Series, at a
meeting of the stockholders, or the holders of shares of 11%
Preferred Stock and Parity Stock, called for that purpose. If,
prior to the end of the term of any Director elected as
aforesaid, a vacancy in the office of such Director shall occur
during the continuance of a default in dividends on the shares
of 11% Preferred Stock or such Parity Stock by reason other than
removal, such vacancy shall be filled for the unexpired term by
the appointment by the remaining director elected as aforesaid
of a new Director for the unexpired term of such former Director.
(b) Additional Capital Stock, etc. The Corporation
shall not, without the affirmative consent or approval of the
holders of shares representing at least 66- 2/3% of the 11%
Preferred Stock and Parity Stock then outstanding, voting as a
single class (such consent or approval to be given by written
consent in lieu of a meeting or by vote at a meeting called for
such purpose for which notice shall have been given to the
holders of the 11% Preferred Stock and Parity Stock): (i)
authorize the issuance of any new, or increase the authorized
number of shares of any existing, class of capital stock of the
Corporation which would be senior or superior as to dividends
and upon liquidation to the 11% Preferred Stock, (ii) increase
the number of shares of Preferred Stock authorized in the
charter or create any other class of stock (but not any other
series of Preferred Stock) ranking on a parity with the 11%
Preferred Stock, Series B Preferred Stock and Parity Stock as to
dividends and upon liquidation, (iii) reissue any shares of 11%
Preferred Stock that have been redeemed or (iv) take any action
to cause any amendment, alteration or repeal of any of the
provisions of the Corporation's Charter that would materially
adversely affect the rights of holders of 11% Preferred Stock.
(vi) Exchange for Depositary Shares. The shares of 11%
Preferred Stock shall be subject to exchange, in whole or in
part, at the option of the holder thereof exercisable at any
time and from time to time in part, upon 30 days written notice
to the Corporation specifying the number of shares of 11%
Preferred Stock to be so exchanged. The Corporation shall
accept deposit of such shares and hold them in trust for the
benefit of the holders making such deposit and shall deliver to
such holders in exchange therefor depositary shares of the
Corporation (the "Depositary Shares") of equal aggregate
liquidation value to the shares of 11% Preferred Stock delivered
for deposit, each such Depositary Share having a liquidation
value of $25.00. On each Dividend Payment Date with respect to
the 11% Preferred Stock, upon any redemption thereof, and upon
any liquidation, dissolution or winding-up of the Corporation,
the holders of each Depositary Share shall be paid, from the
proceeds of any such dividend, redemption or payment upon
liquidation, dissolution or winding-up payable with respect to
the shares of 11% Preferred Stock so deposited, the portion of
such proceeds allocable to the Depositary Shares held by such
holder.
IN WITNESS WHEREOF, USF&G Corporation has caused these
presents to be signed in its name and on its behalf by its
Chairman of the Board and President and witnessed by its
Secretary on May 31, 1991.
WITNESS: USF&G Corporation
WILLIAM F. SPLIEDT By: NORMAN P. BLAKE, JR.
- - - - - - - ------------------ --------------------
William F. Spliedt Norman P. Blake, Jr.
Secretary Chairman of the Board
and President
THE UNDERSIGNED, Chairman of the Board and President of
USF&G Corporation, who executed on behalf of the Corporation
Articles Supplementary of which this certificate is made a part,
hereby acknowledges in the name and on behalf of said
Corporation the foregoing Articles Supplementary to be the
corporate act of said Corporation and hereby certifies that the
matters and facts set forth herein with respect to the
authorization and approval thereof are true in all material
respects under the penalties of perjury.
NORMAN P. BLAKE, JR.
--------------------
Norman P. Blake, Jr.
Chairman of the Board
and President
<PAGE>
ARTICLES SUPPLEMENTARY
$5.00 SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
USF&G CORPORATION
USF&G CORPORATION, a Maryland corporation, having its principal
office in Baltimore City, Maryland (the "Corporation"), hereby
certifies to the Maryland State Department of Assessments and
Taxation that:
FIRST: Pursuant to authority expressly vested in the Board of
Directors of the Corporation by Article SEVENTH of the Charter
of the Corporation, the Board of Directors has duly divided and
classified 3,800,000 shares of the Preferred Stock of the
Corporation into a series designated $5.00 Series C Cumulative
Convertible Preferred Stock and has provided for the issuance of
such series.
SECOND: The terms of the $5.00 Series C Cumulative Convertible Preferred
Stock are as follows:
(1) Designation and Amount.
The designation of said series of the Preferred Stock shall be
"$5.00 Series C Cumulative Convertible Preferred Stock" (the
"Series C Preferred Stock"). The number of shares of Series C
Preferred Stock shall initially be 3,800,000, subject to
increase or decrease by action of the Board of Directors
effectuated by further Articles Supplementary.
(2) Dividends.
(a) The holders of record of Series C Preferred Stock, on such respective
dates as shall be determined by the Board of
Directors in advance of the payment of each dividend provided
for herein, shall be entitled to receive, as and when declared
by the Board of Directors out of assets of the Corporation which
are by law available for the payment of dividends, cumulative
preferential cash dividends, at the rate of $5.00 per share per
annum payable quarterly on January 31, April 30, July 31, and
October 31 of each year, commencing on July 31, 1991 (each such
day being hereinafter called a "dividend date" and each
quarterly period ending on a dividend date being hereinafter
called a "dividend period"), which dividends on each share of
Series C Preferred Stock shall accrue from the date of issue
thereof. Each such dividend shall be payable to the holders of
record as they appear on the stock books of the Corporation on
such record dates, not exceeding forty-five (45) days preceding
the payment dates thereof, as shall be fixed by the Board of
Directors of the Corporation. Dividends on the Series C
Preferred Stock for any period greater or less than a full
dividend period shall be computed on the basis of a 360-day year
consisting of twelve 30-day months. Dividends on the Series C
Preferred Stock for each full dividend period shall be computed
by dividing the annual dividend rate by four.
(b) Dividends on the Series C Preferred Stock shall be
cumulative, whether or not in any dividend period or periods
there shall be funds of the Corporation legally available for
the payment of such dividends or whether or not earned or
declared.
(c) Accumulations of dividends on any shares of Series C
Preferred Stock shall not bear interest.
(d) All dividends declared on the Series C Preferred Stock for
any dividend period and on any class or series of stock ranking
on a parity with the Series C Preferred Stock as to dividends
and upon liquidation ("Parity Stock") shall be declared pro rata
so that the amounts of dividends per share declared for such
period on the Series C Preferred Stock and on any classes of
Parity Stock that were outstanding during such period shall in
all cases bear to each other the same proportions that the
respective dividend rates of such stock for such period bear to
each other.
(e) The Corporation shall not (i) declare or pay dividend or
other distribution with respect to any junior stock of the
Corporation or (ii) redeem or set apart funds for the purchase
or redemption of any junior stock through a sinking fund or
otherwise, unless (A) all cumulating and accrued dividends with
respect to the Series C Preferred Stock have been paid or funds
have been set apart for payment of such dividends and (B)
sufficient funds have been set apart for the payment of the
dividend for the current dividend period with respect to the
Series C Preferred Stock.
(f) As used herein the term "dividends" does not include
dividends payable solely in shares of junior stock, or rights to
holders of junior stock to subscribe for or purchase any junior
stock.
(g) As used herein, the phrase "set apart" in respect of the
payment of dividends or redemption prices shall require deposit
of any funds in a bank or trust company in a separate deposit
account maintained for the benefit of the holders of the Series
C Preferred Stock.
(h) As used herein, the term "junior stock" means the Common
Stock and any other class of capital stock of the Corporation
now or hereafter issued and outstanding which ranks junior in
priority to the Series C Preferred Stock as to dividends and
upon liquidation.
(i) As used herein, the term "cumulating or accrued" in
respect of dividends with respect to the Series C Preferred
Stock means an amount equal to dividends thereon at the rate of
$5.00 per share per annum, computed from the date on which such
dividends commenced to cumulate, and cumulating on each dividend
date thereafter, less the aggregate amount of all dividends
previously paid with respect to such Series C Preferred Stock.
(3) Liquidation Preference.
(a) The amount which the holders of Series C Preferred Stock
shall be entitled to receive in the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary
or involuntary, shall be $50 per share plus an amount per share
equal to all dividends cumulating or accrued and unpaid thereon
to the date of such liquidation, dissolution or winding up, and
no more.
(b) Upon any such liquidation, dissolution or winding up, the
preferential amounts with respect to the Series C Preferred
Stock and any class of Parity Stock shall be distributed pro
rata in accordance with the aggregate preferential amounts of
the Series C Preferred Stock and such other classes of Parity
Stock, if any, out of or to the extent of the net assets of the
Corporation legally available for such distribution, before any
distributions are made with respect to any junior stock.
(c) Neither a consolidation or merger of the Corporation with
or into any corporation nor a merger of any other corporation
with or into the Corporation, nor a sale or transfer of all or
substantially all of the Corporation's assets for cash or
securities nor a statutory share exchange in which stockholders
of the Corporation may participate shall be considered a
liquidation or dissolution or winding-up of the Corporation
within the meaning of this paragraph (3).
(4) Redemption.
(a) At any time on and after June 13, 1994 all the Series C
Preferred Stock, or any part thereof, at any time outstanding,
may be redeemed by the Corporation, at any time or from time to
time at its election expressed by resolution of the Board of
Directors upon not less than 30 nor more than 60 days previous
notice to the holders of record of the Series C Preferred Stock
to be redeemed, given by (i) registered or certified mail,
postage prepaid, and (ii) the single publication of such notice
in the The Wall Street Journal or similar daily financial
publication of general circulation in the United States, at the
redemption prices set forth below during the 12 month periods
beginning on June 13 of the years shown below, in each case plus
accrued and unpaid dividends to the date fixed for redemption
(the "redemption date").
<TABLE>
<CAPTION>
Year Redemption Price
<S> <C>
1994 $53.50
1995 53.00
1996 52.50
1997 52.00
1998 51.50
1999 51.00
2000 50.50
2001 and thereafter 50.00
</TABLE>
(b) Any notice of redemption mailed to a holder of Series C
Preferred Stock at his address as the same appears on the books
of the Corporation shall be conclusively presumed to have been
given whether or not the holder receives the notice. Each such
notice shall state the redemption date; the number of shares of
Series C Preferred Stock to be redeemed, and, if less than all
shares of Series C Preferred Stock held by such holder are to be
redeemed, the number of such shares to be redeemed from such
holder and the fact that a new certificate or certificates
representing any unredeemed shares shall be issued without cost
to such holder; the redemption price applicable to the shares to
be redeemed; the place or places where such shares are to be
surrendered; and that dividends on shares to be redeemed shall
cease to accrue and accumulate on the redemption date. No
defect in any such notice as to any shares of Series C Preferred
Stock shall affect the validity of the proceedings for the
redemption of any other shares of Series C Preferred Stock.
(c) The Corporation shall not give notice of redemption of
Series C Preferred Stock after the record date for the payment
of any dividend on the Common Stock payable for the dividend
period in which the redemption date occurs unless the record
date for the payment of dividends on the Series C Preferred
Stock is the same as the record date for the payment of
dividends on the Common Stock.
(d) The Corporation may not purchase or redeem less than all
of the outstanding shares of Series C Preferred Stock and any
other series of Parity Stock unless all cumulating or accrued
dividends with respect to the shares of Series C Preferred Stock
and any Parity Stock which shall not be so redeemed or purchased
have either been paid or set aside for payment.
(e) If less than all of the outstanding shares of Series C
Preferred Stock are to be redeemed, the redemption may be made
either pro rata or by lot or in some other equitable manner as
may be prescribed by resolution of the Board of Directors.
(f) Any shares of Series C Preferred Stock called for
redemption pursuant to this paragraph (4) shall not be deemed to
be outstanding for the purposes of voting, determining the total
number of shares entitled to vote, or payment of dividends
thereon on or after the date on which the notice of redemption
is mailed to the holders thereof and a sum sufficient to redeem
such shares has been set apart for payment of the redemption
price upon surrender of the certificates therefor. Any money
set apart for such payment which is not required to redeem such
shares because of conversions shall be promptly returned to the
Corporation. In addition, any money set apart for such payment
which remains unclaimed for a period of six years after the
redemption date shall be repaid to the Corporation upon the
request of the Corporation as expressed by a resolution of the
Board of Directors. The holders of record of the shares so
called for redemption who have not made a claim against such
moneys prior to such repayment to the Corporation shall be
deemed to be unsecured creditors of the Corporation for an
amount equivalent to the amount set apart for payment of the
redemption price and so repaid to the Corporation, but in no
event shall any such holder be entitled to any interest thereon.
The Corporation shall be entitled to receive any interest paid
from time to time on the money so set apart.
(5) Conversion.
(a) Subject to and upon compliance with the provisions of this paragraph
(5), the holder of a share of Series C Preferred
Stock, shall have the right, at his option, at any time after
the issue date thereof, to convert such share into that number
of fully paid and nonassessable shares of Common Stock obtained
by dividing $50.00 by the Conversion Price and by surrender of
such share so to be converted, such surrender to be made in the
manner provided in subparagraph (b) of this paragraph (5);
provided, however, that the right to convert shares called for
redemption pursuant to paragraph (4) shall terminate at the
close of business on the date fixed for such redemption, unless
the Corporation shall default in making payment of the amount
payable upon such redemption.
(b) In order to exercise the conversion privilege, the holder
of each share of Series C Preferred Stock to be converted shall
surrender the certificate representing such share, duly endorsed
or assigned to the Corporation or in blank, at the office of the
transfer agent for the Series C Preferred Stock in the Borough
of Manhattan, City of New York, or at the office of any agent or
agents of the Corporation as may be designated by the Board of
Directors (the "Transfer Agent") accompanied by written notice
to the Corporation that the holder thereof elects to convert the
Series C Preferred Stock. Unless the shares issuable on
conversion are to be issued in the same name as the name in
which such share of Series C Preferred Stock is registered, each
share surrendered for conversion shall be accompanied by
instruments of transfer, in form satisfactory to the
Corporation, duly executed by the holder or such holder's duly
authorized attorney and an amount sufficient to pay any transfer
or similar tax (or evidence reasonably satisfactory to the
Corporation demonstrating that such taxes have been paid). In
the event that some but not all of the shares of the Series C
Preferred Stock represented by certificates surrendered by a
holder are converted, the Corporation shall execute and deliver
to or on the order of the holder, at the expense of the
Corporation, a new certificate representing the number of shares
of Series C Preferred Stock which were not converted.
Upon conversion of the Series C Preferred Stock, (i) no payment
shall be made on account of any dividends cumulating or accrued
and unpaid on such Series C Preferred Stock to the conversion
date, and (ii) no adjustment in the conversion rate will be made
on account of any such dividends. Notwithstanding the
foregoing, if any share of Series C Preferred Stock is converted
after any record date for the payment of a dividends on the
Series C Preferred Stock but before the due date for payment
therefor then (i) such dividend shall be payable on such due
date to the record holder of such share on such record date, and
(ii) such share, when surrendered for conversion, shall be
accompanied by payment of an amount equal to the dividend
payable on such due date on such share (unless such share has
been called for redemption prior to the due date for payment
therefor).
As promptly as practicable after the surrender of the
certificates for shares of Series C Preferred Stock as
aforesaid, the Corporation shall issue and shall deliver at such
office to such holder, or on his written order, a certificate or
certificates for the number of full shares of Common Stock
issuable upon the conversion of such shares in accordance with
the provisions of this paragraph (5), and any fractional
interest in respect of a share of Common Stock arising upon such
conversion shall be settled as provided in subparagraph (c) of
this paragraph (5).
Each conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which
the certificates for shares of Series C Preferred Stock shall
have been surrendered and such notice received by the
Corporation as aforesaid, and the person or persons in whose
name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be
deemed to have become the holder or holders of record of the
shares represented thereby at such time on such date and such
conversion shall be at the Conversion Price in effect at such
time on such date, unless the stock transfer books of the
Corporation shall be closed on that date, in which event such
person or persons shall be deemed to have become such holder or
holders of record at the opening of business on the next
succeeding day on which such stock transfer books are open, but
such conversion shall be at the Conversion Price in effect on
the date upon which such shares shall have been surrendered and
such notice received by the Corporation. All shares of Common
Stock delivered upon conversions of the Series C Preferred Stock
will upon delivery be duly and validly issued and fully paid and nonassessable,
free of all liens and charges and not subject to
any preemptive rights.
(c) No fractional shares or script representing fractions of
shares of Common Stock shall be issued upon conversion of the
Series C Preferred Stock. Instead of any fractional interest in
a share of Common Stock which would otherwise be deliverable
upon the conversion of a share of Series C Preferred Stock, the
Corporation shall pay to the holder of such share an amount in
cash (computed to the nearest cent) based upon the last reported
sales price (as defined in subparagraph (d)(iv) of this
paragraph (5)) of the Common Stock on the date of conversion.
If more than one share shall be surrendered for conversion at
one time by the same holder, the number of full shares of Common
Stock issuable upon conversion thereof shall be computed on the
basis of the aggregate liquidation preference of the shares of
Series C Preferred Stock so surrendered.
(d) The Conversion Price shall be adjusted from time to time as follows:
(i) In case the Corporation shall after the issue date of
the Series C Preferred Stock (the "Issue Date") (A) pay a
dividend or make a distribution on its Common Stock in shares of
its Common Stock, (B) subdivide its outstanding Common Stock
into a greater number of shares, (C) combine its outstanding
Common Stock into a smaller number of shares or (D) issue any
shares of capital stock by reclassification of its Common Stock,
the Conversion Price in effect immediately prior thereto shall
be adjusted so that the holder of any share of Series C
preferred Stock thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock and
other shares of capital stock, if appropriate, of the
Corporation which such holder would have owned or have been
entitled to receive after the happening of any of the events
described above had such share been converted immediately prior
to the happening of such event or the record date therefor,
whichever is earlier. An adjustment made pursuant to this
clause (i) shall become effective immediately after the close of business
on the record date in the case of a dividend or
distribution (except as provided in subparagraph (i) below) and
shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification.
(ii) In case the Corporation shall issue after the Issue
Date rights or warrants to all holders of Common Stock entitling
them (for a period expiring within 45 days after the record date mentioned
below) to subscribe for or purchase Common Stock at a
price per share less than the then current market price per
share of Common Stock (as defined in clause (iv) below) at the
record date for the determination of shareholders entitled to
receive such rights or warrants, then in each such case the
Conversion Price in effect immediately prior thereto shall be
adjusted to equal the price determined by multiplying (I) the
Conversion Price in effect immediately prior to the date of
issuance of such rights or warrants by (II) a fraction, the
numerator of which shall be the sum of (A) the number of shares
of Common Stock outstanding on the record date for the issuance
of such rights or warrants and (B), the number of shares which
the aggregate proceeds from the exercise of such rights or
warrants for Common Stock would purchase at such current market
price, and the denominator of which shall be the sum of (A) the
number of shares of Common Stock outstanding on such record date
and (B), the number of additional shares of Common Stock offered
for subscription or purchase. Such adjustment shall be made successively
whenever any such rights or warrants are issued,
and shall become effective immediately after such record date
after the date of issuance thereof. In determining whether any
rights or warrants entitle the holders of Common Stock to
subscribe for or purchase shares of Common Stock at less than
such current market price, there shall be taken into account any
consideration received by the Corporation upon issuance and upon exercise
of such rights or warrants, the value of such consideration,
if other than cash, to be determined by the Board of Directors.
(iii) In case the Corporation shall distribute to all
holders of its Common Stock any shares of capital stock of the Corporation
(other than Common Stock) or evidences of its
indebtedness or assets (excluding cash dividends or
distributions paid from consolidated earnings or consolidated
earned surplus of the Corporation (determined in accordance with generally
accepted accounting principles, but excepting
quarterly Common Stock dividends at the rate of $.05 per share
or increases therein out of consolidated net income of the
Corporation determined in accordance with generally accepted
accounting principles for the period from the end of its most
recent fiscal year to the date of the most recent consolidated
quarterly financial statements of the Corporation as at the time
of the declaration of the dividend (herein called "Normal Cash
Dividends")) or rights or warrants to subscribe for or purchase
any of its securities (excluding those referred to in clause
(ii) above) (any of the foregoing being hereinafter in this
clause (iii) called the "Securities"), then in each such case,
unless the Corporation elects to reserve shares or other units
of such Securities for distribution to the holders of the Series
C Preferred Stock, upon the conversion of the shares of Series C Preferred
Stock, so that any such holder converting shares of
Series C Preferred Stock will receive upon such conversion, in
addition to the shares of the Common Stock to which such holder
is entitled, the amount and kind of such Securities which such
holder would have received if such holder had, immediately prior
to the record date for the distribution of the Securities,
converted its shares of Series C Preferred Stock into Common
Stock (such election to be based upon a determination by the
Board of Directors that such reservation will not materially
adversely affect the interests of any holder of Series C
Preferred Stock in any such reserved Securities), the Conversion
Price shall be adjusted so that the same shall equal the price determined
by multiplying (I) the Conversion Price in effect
immediately prior to the date of such distribution by (II) a
fraction, the numerator of which shall be the current market
price per share (as defined in clause (iv) below) of the Common
Stock on the record date mentioned below less the then fair
market value (as determined by the Board of Directors, whose determination
shall, if made in good faith, be conclusive) of
the portion of the capital stock or assets or evidences of
indebtedness so distributed or of such rights or warrants
applicable to one share of Common Stock, and the denominator of
which shall be the current market price per share (as defined in
clause (iv) below) of the Common Stock. Such adjustment shall
become effective immediately, except as provided in subparagraph
(i) below, after the record date for the determination of
shareholders entitled to receive such distribution.
(iv) For the purpose of any computation under clause (ii)
above, the current market price per share of Common Stock on any
date shall be deemed to be the average of the last reported
sales price for the thirty consecutive Trading Days commencing forty-five
Trading Days before the date in question. For the
purpose of any computation under clause (iii) above, the current
market price per share of Common Stock on any date shall be
deemed to be the average of the last reported sales price for
the ten consecutive Trading Days preceding the record date for
the distribution with respect to which such computation relates.
The last reported sales price for each day shall be the last
reported sales price regular way on The New York Stock Exchange,
or, if not reported for such Exchange, on the Composite Tape,
or, in case no such reported sale takes place one such day, the
average of the reported closing bid and asked quotations on The
New York Stock Exchange, or, if the Common Stock is not listed
on such Exchange or no such quotations are available, the
average of the high bid and low asked quotations in the
over-the-counter market as reported by the National Quotation
Bureau, Incorporated, or similar organization, or, if no such
quotations are available, the fair market value of such class of
stock as determined by a member firm of The New York Stock
Exchange selected by the Corporation.
(v) Notwithstanding anything in clauses (ii) or (iii) above,
if such rights or warrants shall by their terms provide for an
increase or increases with the passage of time or otherwise in
the price payable to the Corporation upon the exercise thereof,
the Conversion Price upon any such increase becoming effective
shall forthwith be readjusted (but to no greater extent than
originally adjusted by reason of such issuance or sale) to
reflect the same. Upon the expiration or termination of such
rights or warrants, if any such rights or warrants shall not
have been exercised, then the Conversion Price thereof shall
forthwith be readjusted and thereafter be the rate which it
would have been had an adjustment been made on the basis that
the only rights or warrants so issued or sold were those so
exercised and they were issued or sold for the consideration
actually received by the Corporation upon such exercise, plus
the consideration, if any, actually received by the Corporation
for the granting of all such rights or warrants whether or not exercised.
An adjustment made pursuant to this clause (v) shall
be made on the next Business Day following the date on which any
such issuance is made and shall be effective immediately after
the close of business on such date. For purposes of clauses
(ii) and (v), the aggregate consideration received by the
Corporation in connection with the issuance of rights or
warrants shall be deemed to be equal to the sum of the aggregate offering
price (before deduction of underwriting discounts or commissions and
expenses payable to third parties) of all such securities plus the minimum
aggregate amount, if any, payable
upon exercise of such rights or warrants.
(vi) No adjustment in the Conversion Price shall be required unless
such adjustment would require an increase or decrease of
at least 1% in such price; provided, however, that any
adjustments which by reason of this subparagraph (vi) are not
required to be made shall be carried forward and taken into
account in any subsequent adjustment; and provided, further, any
adjustment shall be required and made in accordance with the
provisions of this paragraph (5) (other than this clause (vi))
not later than such time as may be required in order to preserve
the tax-free nature of a distribution to the holders of shares
of Common Stock. All calculations under this paragraph (5)
shall be made to the nearest cent (with $.005 being rounded
upward) or to the nearest 1/100 of a share (with .005 of a share
being rounded upward), as the case may be. Anything in this subparagraph
(d) to the contrary notwithstanding, the
Corporation shall be entitled, to the extent permitted by law,
to make such reductions in the Conversion Price, in addition to
those required by this subparagraph (d), as it in its discretion
shall determine to be advisable in order that any stock,
dividends, subdivision of shares, distribution of rights or
warrants to purchase stock or securities, or a distribution of
other assets (other than cash dividends) hereafter made by the Corporation
to its stockholders shall not be taxable.
(e) Notwithstanding any other provision herein to the
contrary, if any Fundamental Change occurs, then the Conversion
Price in effect will be adjusted, in accordance with this
subparagraph (e), immediately after such Fundamental Change. In
addition, in the event of a Common Stock Fundamental Change,
each share of Series C Preferred Stock shall be convertible
solely into common stock of the kind received by holders of
Common Stock as the result of such Common Stock Fundamental
Change (the amount of such common stock to be determined in
accordance with this subparagraph (e)). The Corporation shall
not consent or agree to the occurrence of any Fundamental Change
until the Corporation has entered into an agreement with the
successor or purchasing entity, as the case may be, for the
benefit of the holders of the Series C Preferred Stock, which
shall contain provisions which will enable the holders of the
Series C Preferred Stock to convert into the consideration
received by holders of Common Stock at the Conversion Price
immediately after such Fundamental Change.
For purposes of calculating any adjustment to be made pursuant
to the preceding paragraph in the event of a Fundamental Change,
immediately after such Fundamental Change:
(A) in the case of a Non-Stock Fundamental Change, the
Conversion Price of the shares of Series C Preferred Stock shall
become the lower of (a) the then applicable Conversion Price
(after giving effect to any adjustments required pursuant to
subparagraph (d) of this paragraph (5) and (b) the result
obtained by multiplying the greater of the Applicable Price or
the then applicable Reference Market Price by (i) if such
Non-Stock Fundamental Change occurs on or after June 13, 1994 a
fraction of the numerator of which shall be $50.00 and the
denominator of which shall be the amount at which one share of
Series C Preferred Stock would be redeemed by the Corporation
pursuant to paragraph (4) if the redemption date were the date
of such Non-Stock Fundamental Change (such amount being the sum
of the redemption price set forth in paragraph (4) and any
accrued and accumulated and unpaid dividends); and (ii) if such
Non-Stock Fundamental Change occurs prior to June 13, 1994 a
fraction the numerator of which shall be $50.00 and the
denominator of which shall be the sum of the relevant amount
relating to one share of Series C Preferred Stock during the
twelve-month period beginning on June 13 in each of the
following years within which such Non-Stock Fundamental Change
occurs plus any accrued and accumulated and unpaid dividends:
<TABLE>
<CAPTION>
Year Amount
<S> <C>
1991 $55.00
1992 $54.50
1993 to and including June 12, 1994 $54.00
</TABLE>
(B) in the case of a Common Stock Fundamental Change, the
Conversion Price shall be the then applicable Conversion Price
after giving effect to any adjustment required pursuant to
subparagraph (d) of the paragraph (5) multiplied by a fraction,
the numerator of which is the Purchaser Stock Price and the
denominator of which is the Applied Price.
The provisions of this subparagraph (e) shall similarly apply
to successive Fundamental Changes.
(f) In case the Corporation shall be a party to any
transaction (including without limitation a merger,
consolidation, sale of all or substantially all of the
Corporation's assets, liquidation or recapitalization of the
Common Stock and excluding any transaction as to which
subparagraph d(i) of this paragraph (5) applies, each of the
foregoing being referred to as a "Transaction"), in each case
(except in the case of a Common Stock Fundamental Change) as a
result of which shares of Common Stock shall be converted into
the right to receive stock, securities or other property
(including cash or any combination thereof), each share of
Series C Preferred Stock shall thereafter be convertible into
the kind and amount of shares of stock and other securities and
property receivable (including cash) upon the consummation of
such Transaction by a holder of that number of shares of Common
Stock into which one share of Series C Preferred Stock was
convertible immediately prior to such Transaction (but after
giving effect to any adjustment required by subparagraph (e) of
this paragraph (5) if such Transaction constitutes a Fundamental
Change). The Corporation shall not be a party to any
Transaction unless the terms of such Transaction are consistent
with the provisions of this subparagraph (f) and it shall not
consent or agree to the occurrence of any Transaction until the
Corporation has entered into an agreement with the successor or
purchasing entity, as the case may be, for the benefit of the
holders of the Series C Preferred Stock which will contain
provisions enabling the holders of the Series C Preferred Stock
to convert into the consideration received by holders of Common
Stock at the Conversion Price immediately after such Transaction.
The provisions of this paragraph (f) shall similarly apply to
successive Transactions.
(g) If:
(i) the Corporation shall declare a dividend (or any other
distribution) on the Common Stock (other than in cash out of consolidated
earnings or consolidated earned surplus and Normal
Cash Dividends);
(ii) the Corporation shall authorize the granting to the
holders of the Common Stock of rights or warrants to subscribe
for or purchase any shares of any class or any other rights or
warrants; or
(iii) there shall be any reclassification of the Common Stock (other
than an event to which subparagraph (d)(i) of this
paragraph (5) applies) or any consolidation or merger to which
the Corporation is a party and for which approval of any
stockholders of the Corporation is required, or the sale or
transfer of all or substantially all of the assets of the
Corporation; or
(iv) there shall be any Fundamental Change;
then the Corporation shall cause to be filed with the Transfer
Agent for the Series C Preferred Stock, and shall cause to be
mailed to the holders of shares of the Series C Preferred Stock
at their addresses as shown on the stock books of the
Corporation, as promptly as possible, but at least 15 days,
prior to the applicable date hereinafter specified, a notice
stating (A) the date (or the manner of determining the date) on
which a record is to be taken for the purpose of such dividend,
distribution or rights or warrants, or, if a record is not to be
taken, the date (or the manner of determining the date) as of
which the holders of Common Stock of record to be entitled to
such dividend, distribution or rights or warrants are to be
determined or (B) the date on which such reclassification,
consolidation, merger, sale, transfer or Fundamental Change is
expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or Fundamental Change.
Failure to give such notice or any defect therein shall not
affect the legality or validity of the proceedings described in
this paragraph (5).
(h) Whenever the Conversion Price is adjusted, as herein
provided, the Corporation shall promptly file with any transfer
agent for the Series C Preferred Stock, an officers' certificate
setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such
adjustment. Promptly after delivery of such certificate, the
Corporation shall prepare a notice of such adjustment of the
Conversion Price setting forth the adjusted Conversion Price and
the date on which such adjustment became effective and shall
mail such notice of such adjustment of the Conversion Price to
the holder of each share of Series C Preferred Stock at his last
address as shown on the stock books of the Corporation.
(i) In any case in which subparagraph (d) of this paragraph (5) provides
that an adjustment shall become effective immediately
after a record date for an event, the Corporation may defer
until the occurrence of such event (A) issuing to the holder of
any share of Series C Preferred Stock, converted after such
record date and before the occurrence of such event the
additional shares of Common Stock issuable upon such conversion
by reason of the adjustment required by such event over and
above the Common Stock issuable upon such conversion before
giving effect to such adjustment and (B) paying to such holder
any amount in cash in lieu of any fraction pursuant to
subparagraph (c) of this paragraph (5).
(j) For purposes of this paragraph (5), the number of shares of
Common Stock at any time outstanding shall not include any
shares of Common Stock then owned or held by or for the account
of the Corporation.
(k) There shall be no adjustment of the Conversion Price in
case of the issuance of any stock of the Corporation in a
reorganization, acquisition or other similar transaction except
as specifically set forth in this paragraph (5). If any action
or transaction would require adjustment of the Conversion Price
pursuant to more than one subparagraph of this paragraph (5),
only one adjustment shall be made and such adjustment shall be
the amount of adjustment which has the highest absolute value.
(l) In case the Corporation shall take any action affecting the
Common Stock, other than action described in this paragraph (5),
which in the opinion of the Board of Directors would materially
adversely affect the conversion rights of the holders of the
shares of Series C Preferred Stock, the Conversion Price for the
Series C Preferred Stock may be adjusted, to the extent
permitted by law, in such manner, if any, and at such time, as
the Board of Directors may determine to be equitable in the
circumstances. Failure of the Board of Directors to provide for
any such adjustment prior to the effective date of any such
action by the Corporation affecting the Common Stock shall be
evidence that such Board of Directors has determined that it is
equitable to make no adjustment in the circumstances.
(m) The Corporation covenants that it will at all times reserve
and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued shares of Common Stock,
for the purpose of effecting conversion of the Series C
Preferred Stock, the full number of shares of Common Stock
deliverable upon the conversion of all outstanding shares of
Series C Preferred Stock not theretofore converted.
Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value (if any)
of the shares of Common Stock deliverable upon conversion of the
Series C Preferred Stock, the Corporation will take any
corporate action which may, in the opinion of its counsel, be
necessary in order that the Corporation may validly and legally
issue fully paid and nonassessable shares of Common Stock at
such adjusted Conversion Price.
The Corporation will endeavor to list the shares of Common
Stock required to be delivered upon conversion of the Series C
Preferred Stock, prior to such delivery, upon each national
securities exchange, if any, upon which the outstanding Common
Stock is listed at the time of delivery.
(n) The Corporation will pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issue
or delivery of shares of Common Stock on conversion of the
Series C Preferred Stock, pursuant hereto; provided, however,
that the Corporation shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issue
or delivery of shares of Common Stock in a name other than that
of the holder of the Series C Preferred Stock to be converted
and no such issue or delivery shall be made unless and until the
person requesting such issue or delivery has paid to the
Corporation the amount of any such tax or has established, to
the reasonable satisfaction of the Corporation, that such tax
has been paid.
(o) For purposes of this paragraph (5), the following terms
shall have the meanings indicated:
"Applicable Price" means (i) in the event of a Non-Stock Fundamental
Change in which the holders of the Common Stock
receive only cash, the amount of cash received by the holder of
one share of Common Stock, and (ii) in the event of any other
Non-Stock Fundamental Change or any Common Stock Fundamental
Change, the average of the last reported sales price for the
Common Stock during the ten Trading Days immediately prior to
the record date for the determination of the holders of Common
Stock entitled to receive cash, securities, property or other
assets in connection with such Non-Stock Fundamental Change and
Common Stock Fundamental Change, or, if there is no such record
date, the date upon which the holders of the Common Stock shall
have the right to receive such cash, securities, property or
other assets.
"Common Stock Fundamental Change" means any Fundamental Change
in which more than 50% (by value as determined in good faith by
the Board of Directors) of the consideration received by holders
of Common Stock consists of common stock that for the
consecutive ten Trading Days immediately prior to such
Fundamental Change has been admitted for listing or that
immediately prior to such Common Stock Fundamental Change has
been admitted for listing subject to notice of issuance on a
national securities exchange or quoted on the National Market of
the National Association of Securities Dealers, Inc. Automated Quotations
System.
"Conversion Price" shall mean the conversion price per share
of Common Stock for which the Series C Preferred Stock is
convertible, as such Conversion Price may be adjusted pursuant
to paragraph (5). The initial conversion Price will be $12.025
per share of Common Stock.
"Fundamental Change" means the occurrence of any transaction or
event in connection with a plan pursuant to which all or
substantially all the Common Stock shall be exchanged for,
converted into, acquired for or constitute solely the right to
receive, cash or securities, property or other assets (whether
by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification,
recapitalization or otherwise); provided that, in the case of a
plan involving more than one such transaction or event, for
purposes of adjustment of the Conversion Price, such Fundamental
Change shall be deemed to have occurred when substantially all
of the Common Stock of the Corporation shall be exchanged for,
converted into or acquired for or constitute solely the right to
receive cash, securities, property or other assets, but the
adjustment shall be based upon the consideration which the
holders of Common Stock received in such transaction or event as
a result of which more than 50% of the Common Stock of the
Corporation shall have been exchanged for, converted into or
acquired for or constitute solely the right to receive cash,
securities, property or other assets; provided, further,
however, that such term does not include (i) any such
transaction or event in which the Corporation and/or its
subsidiaries are the issuers of all the cash, securities,
property or other assets exchanged, acquired or otherwise issued
in such transaction or event, or (ii) any such transaction or
event in which the holders of Common Stock receive securities of
an issuer other than the Corporation if, immediately following
such transaction or event, the holders of Common Stock hold a
majority of the securities having the power to vote normally in
the election of directors of such other issuer outstanding
immediately following such transaction or other event.
"Non-Stock Fundamental Change" means any Fundamental Change
other than a Common Stock Fundamental Change.
"Purchaser Stock Price" means, with respect to any Common Stock
Fundamental Change, the average of the last reported sales price
(determined as set forth in subparagraph (d)(iv) of paragraph
(5)) for the common stock, on the principal national securities
exchange or National Market System on which such common stock is
listed, received in such Common Stock Fundamental Change during
the ten days which such exchange or system is open immediately
prior to the record date for the determination of the holders of
Common Stock entitled to receive such common stock, or if there
is no such record date, the date upon which the holders of the
Common Stock shall have the right to receive such common stock;
provided, however, if no such last reported sales price for the
common stock during the last ten days prior to the record date
exists, then the Purchaser Stock Price shall be set at a price
determined in good faith by the Board of Directors.
"Reference Market Price" shall initially mean $6.42 and in the
event of any adjustment to the Conversion Price pursuant to
paragraph (5) other than an adjustment pursuant to subparagraph
(e) thereof, the Reference Market Price shall also be adjusted
so that the ratio of the Reference Market Price to the
Conversion Price after giving effect to any such adjustment
shall always be the same as the ratio of $6.42 to the initial
Conversion Price (without regard to any adjustment thereto).
"Trading Day" means a day on which the principal national
securities exchange or National Market System on which the
Common Stock is listed or admitted to trading (currently the New
York Stock Exchange) is open for the transaction of business or,
if the Common Stock is not listed or admitted to trading on any
national securities exchange or National Market System, a
Business Day.
(6) Voting Rights.
Except as otherwise required by law, holders of shares of
Series C Preferred Stock shall have no voting rights; provided,
however, that:
(a)(i) If on the date used to determine stockholders of record
for any meeting of stockholders for the election of directors,
accrued dividends on the shares of Series C Preferred Stock or
any Parity Stock shall not have been paid in an aggregate amount
equal to or greater than two quarterly dividends on the shares
of Series C Preferred Stock or such Parity Stock at the time
outstanding, then and in any such event, the number of Directors
then constituting the entire Board of Directors of the
Corporation shall automatically be increased by two Directors
and the holders of shares of Series C Preferred Stock and the
holders of shares of Parity Stock, voting together as a single
class, shall be entitled at such meeting to fill such newly
created directorships. Such right to vote as a single class to
elect two Directors shall, when vested, continue until all
dividends in default on the shares of Series C Preferred Stock
and such Parity Stock, as the case may be, shall have been paid
in full and, when so paid, such right to elect two Directors
separately as a class shall cease, subject, always, to the same
provisions for the vesting of such right to elect two Directors
separately as a class in the case of future dividend defaults.
(ii) So long as any shares of Series C Preferred Stock are
outstanding the number of Directors of the Corporation shall at
all times be such that the exercise, by the holders of shares of
Series C Preferred Stock and the holders of shares of Parity
Stock, of the right to elect Directors under the circumstances
provided in clause (i) of this subparagraph (a) will not
contravene any provisions of the Maryland General Corporation
Law or the Charter of the Corporation.
(iii) Directors elected pursuant to clause (i) of this
subparagraph (a) shall serve until the earlier of (x) the next
annual meeting of the stockholders of the Corporation and the
election (by the holders of shares of Series C Preferred Stock
and Parity Stock) and qualification of their respective
successors or (y) the date upon which all dividends in default
on the shares of Series C Preferred Stock and such Parity Stock
shall have been paid in full. Directors elected pursuant to
clause (i) of this subparagraph (a) may be removed by, and shall
not be removed except by, the vote of the holders of record of
the outstanding shares of Series C Preferred Stock and Parity
Stock, voting together as a single class without regard to
series, at a meeting of the stockholders, or the holders of
shares of Series C Preferred Stock and Parity Stock, called for
that purpose. If, prior to the end of the term of any Director
elected as aforesaid, a vacancy in the office of such Director
shall occur during the continuance of a default in dividends on
the shares of Series C Preferred Stock or such Parity Stock by
reason other than removal, such vacancy shall be filled for the
unexpired term by the appointment by the remaining Director
elected as aforesaid of a new Director for the unexpired term of
such former Director.
(b)(i) Without the affirmative vote of the holders of at least two-
thirds of the votes entitled to be cast by the outstanding
shares of Series C Preferred Stock and Parity Stock, voting as a
single class, the Corporation may not:
(A) amend any provision of the Charter which would materially
adversely affect the voting powers (except as such voting powers may be
affected by the authorization of any new series of Parity Stock having
the same voting rights as the Series C Preferred Stock or by the
authorization of any other shares of any class which are not entitled to
vote together with the Series C Preferred Stock
in any class vote) or other rights or preferences of holders of the
shares of Series C Preferred Stock; or
(B) authorize or create any class of stock senior to the
Series C Preferred Stock as to dividends and upon liquidation.
(ii) Without the affirmative vote of the holders of at least a
majority of the votes entitled to be cast by the outstanding
shares of Series C Preferred Stock and Parity Stock, voting
together as a single class, the Corporation may not increase the
number of shares of Preferred Stock authorized in Article
SEVENTH of the Charter or create any other class of capital
stock of the Corporation ranking on a parity with the Preferred
Stock as to dividends and upon liquidation.
(c) For purposes of this paragraph (6) each share of Series C
Preferred Stock shall have one vote per share. Parity Stock
shall have the number of votes per share specified in the
Charter documents governing such Parity Stock.
(7) Reacquired Shares.
Shares of Series C Preferred Stock converted, redeemed, or
otherwise purchased or acquired by the Corporation shall be
restored to the status of authorized but unissued shares of
Preferred Stock without designation as to series.
(8) No Sinking Fund.
Shares of Series C Preferred Stock are not subject to the
operation of a sinking fund.
IN WITNESS WHEREOF, USF&G Corporation has caused these presents
to be signed in its name and on its behalf by its Chairman of
the Board and President and witnessed by its Secretary on June
18, 1991.
Witness: USF&G CORPORATION
William F. Spliedt Norman P. Blake, Jr.
Secretary Chairman of the Board and President
[CORPORATE SEAL]
THE UNDERSIGNED, Chairman of the Board and President of USF&G Corporation,
who executed on behalf of the Corporation Articles
Supplementary of which this certificate is made a part, hereby
acknowledges in the name and on behalf of said Corporation the
foregoing Articles Supplementary to be the corporate act of said
Corporation and hereby certifies that the matters and facts set
forth herein with respect to the authorization and approval
thereof are true in all material respects under the penalties of
perjury.
Norman P. Blake, Jr.
Chairman of the Board and President
<PAGE>
USF&G CORPORATION
ARTICLES OF AMENDMENT
USF&G CORPORATION, a Maryland corporation, having its principal
office in Baltimore City, Maryland (which is hereinafter called
the "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended by
deleting Article SIXTH of the Articles of Incorporation in its
entirety and in lieu thereof substituting the following:
"SIXTH: The total number of shares of stock of all classes
which the Corporation has authority to issue is 252,000,000
having an aggregate par value of $1,200,000,000 of which
240,000,000 shares of the par value of $2.50 per share,
amounting in aggregate par value to $600,000,000, shall be
Common Stock, and 12,000,000 shares of the par value of $50.00
per share, amounting in aggregate par value to $600,000,000,
shall be Preferred Stock."
SECOND: (a) As of immediately before the amendment the total
number of shares of stock of all classes which the Corporation
has authority to issue is 132,000,000, having an aggregate par
value of $900,000,000, of which 120,000,000 shares of the par
value of $2.50 per share, amounting to an aggregate par value of
$300,000,000, designated as Common Stock, and 12,000,000 shares
of the par value of $50.00 per share, amounting to an aggregate
par value of $600,000,000, designated as Preferred Stock.
(b) As amended, the total number of shares of stock of all
classes which the Corporation has authority to issue is
252,000,000, having an aggregate par value of $1,200,000,000, of
which 240,000,000 shares of the par value of $2.50 per share,
amounting in aggregate par value to $600,000,000, shall be
Common Stock, and 12,000,000 shares of the par value of $50.00
per share, amounting in aggregate par value to $600,000,000,
shall be Preferred Stock.
(c) The aggregate par value of all shares having a par value
is $900,000,000 before the amendment and $1,200,000,000 as
amended.
(d) The shares of stock of the Corporation are divided into
classes, but the descriptions of each class of stock of the
Corporation are not changed by the amendment.
THIRD: The foregoing amendment to the Charter of the
Corporation has been advised by the Board of Directors and
approved by the stockholders of the Corporation.
FOURTH: The foregoing amendment to the Charter of the
Corporation shall be effective at the time these Articles of
Amendment are accepted for recording by the Maryland State
Department of Assessments and Taxation.
IN WITNESS WHEREOF, USF&G CORPORATION has caused these presents
to be signed in its name and on its behalf by its Chairman of
the Board and President and witnessed by its Secretary on May 7,
1992.
WITNESS: USF&G CORPORATION
By
John F. Hoffen, Jr. Norman P. Blake, Jr.
Secretary Chairman of the Board and
President
CERTIFICATION
THE UNDERSIGNED, Chairman of the Board and President of USF&G
Corporation, who executed on behalf of the Corporation the
foregoing Articles of Amendment of which this certificate is
made a part, hereby acknowledges in the name and on behalf of
said Corporation the foregoing Articles of Amendment to be the
corporate act of said Corporation and hereby certifies that to
the best of his knowledge, information, and belief the matters
and facts set forth therein with respect to the authorization
and approval thereof are true in all material respects under the
penalties of perjury.
Norman P. Blake, Jr.
Chairman of the Board and
President
USF&G CORPORATION
ARTICLES SUPPLEMENTARY
USF&G CORPORATION, a Maryland corporation, having its principal
office in Baltimore City, Maryland (which is hereinafter called
the "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: Pursuant to the authority expressly vested in the
Board of Directors of the Corporation by Article Seventh of the
Charter of the Corporation, the Board of Directors has duly
divided and classified 1,200,000 shares of the Preferred Stock
of the Corporation into a series designated "Junior
Participating Preferred Stock" and designated and provided for
the issuance of such series pursuant to Articles Supplementary
dated October 1, 1987 (the "Articles Supplementary - Junior
Participating Preferred Stock") and filed with the State
Department of Assessment and Taxation of Maryland on October 7,
1987.
SECOND: Pursuant to the authority expressly vested in the
Board of Directors of the Corporation by Section 1 of Article
Second of the Articles Supplementary - Junior Participating
Preferred Stock, the Board of Directors has unanimously adopted
a resolution to authorize an increase in the number of shares
constituting such series.
THIRD: The terms of the Junior Participating Preferred Stock as
set forth by the Board of Directors are modified to increase
the number of shares constituting such series by deleting
Section 1 of Article Second of the Articles Supplementary Junior
Participating Preferred Stock in its entirety and in lieu
thereof substituting the following:
"1. Designation and Amount. The shares of such series shall
be designated as "Junior Participating Preferred Stock" (the
"Junior Preferred Stock") and the number of shares constituting
such series shall be 2,400,000, subject to increase or decrease
by action of the Board of Directors effectuated by further
Articles Supplementary."
FOURTH: The foregoing Articles Supplementary shall be
effective at the time these Articles Supplementary are accepted
for recording by the Maryland State Department of Assessments
and Taxation.
IN WITNESS WHEREOF, USF&G CORPORATION has caused these presents
to be signed in its name and on its behalf by its Chairman of
the Board and President and attested to by its Secretary on
April __, 1995.
ATTEST: USF&G CORPORATION
______________________ By___________________________
John F. Hoffen, Jr. Norman P. Blake, Jr.
Secretary Chairman of the Board
and
President
CERTIFICATION
THE UNDERSIGNED, Chairman of the Board and President of USF&G
Corporation, who executed on behalf of the Corporation the
foregoing Articles Supplementary of which this certificate is
made a part, hereby acknowledges in the name and on behalf of
said Corporation the foregoing Articles Supplementary to be the
corporate act of said Corporation and hereby certifies that to
the best of his knowledge, information, and belief the matters
and facts set forth therein with respect to the authorization
and approval thereof are true in all material respects under the
penalties of perjury.
___________________________
Norman P. Blake, Jr.
Chairman of the Board
and President
U S F & G C o r p o r a t i o n
Exhibit 11 - Computation of Earnings Per Share (Unaudited)
Three Months Ended March 31
(dollars in millions except per share data) 1995 1994
Net Income Available to Common Stock
Primary:
Net income $ 49 $ 23
Less preferred stock dividend requirements (8) (12)
Net income available to common stock $ 41 $ 11
Fully Diluted:
Net income $ 49 $ 23
Less preferred stock dividend requirements (4) (12)
Add interest expense on convertible notes 1 -
Net income available to common stock $ 46 $ 11
Weighted Average Shares Outstanding
Primary Common Shares 97,960,975 85,131,620
Fully Diluted:
Common shares 97,960,975 85,131,620
Assumed conversion of preferred stock 14,026,292 -
Assumed exercise of stock options 675,417 -
Assumed conversion of zero coupon
convertible subordinated notes 7,227,255 -
Total 119,889,939 85,131,620
Earnings Per Common Share
Primary (A) $ .42 $ .13
Fully Diluted (B) $ .39 $ .13
(A) Shares issuable under stock options (675,417 shares in 1995 and 874,404 in
1994) have not been used as common stock equivalents in the computation of
primary earnings per common share presented on the face of the Condensed
Consolidated Statement of Operations because the dilutive effect is not
material.
(B) Fully diluted earnings per common share amounts are calculated assuming the
conversion of all securities whose contingent issuance would have a dilutive
effect on earnings. The 1995 calculation assumes the conversion of preferred
stock series B and C and the zero coupon convertible subordinated notes, as well
as 675,417 shares issuable under stock options.
U S F & G C o r p o r a t i o n
Exhibit 12 - Computation of Ratio of Consolidated Earnings to Fixed Charges
and Preferred Stock Dividends
Three Months Ended March 31
(dollars in millions) 1995 1994
Fixed Charges
Interest expense $ 11 $ 9
Portion of rents representative of
interest 5 7
Total fixed charges 16 16
Preferred stock dividend requirements (A) 8 12
Combined Fixed Charges and Preferred Stock
Dividends $ 24 $ 28
Consolidated Earnings Available for Fixed
Charges and Preferred Stock Dividends
Income from operations before
income taxes $ 49 $ 24
Adjustments: Fixed charges 16 16
Consolidated earnings available for
fixed charges and preferred
stock dividends $ 65 $ 40
Ratio of Consolidated Earnings to Fixed
Charges 4.2 2.5
Ratio of Consolidated Earnings to
Combined Fixed Charges and Preferred
Stock Dividends 2.8 1.4
(A) Preferred stock dividend requirements of $8 million in 1995 and $12 million
in 1994 divided by 100% less the effective income tax rate of 0.5% in 1995 and
2.1% in 1994.
U S F & G C o r p o r a t i o n
Exhibit 15 - Letter Regarding Unaudited Interim Financial Information
USF&G Corporation
We are aware of the incorporation by reference in the Registration Statement
Numbers 33-20449, 33-9405, 33-33271, 33-21132, 33-50825, and 33-51859 on Form S-
3; Number 33-58601 on Form S-4; and Numbers 2-61626, 2-72026, 2-98232, 33-16111,
33-35095, 33 -38113, 33-43132, 33-45664, 33-45665, 33-61965, 33-55667, 33-55669,
and 33-55671 on Form S-8, of our report on the unaudited condensed consolidated
interim financial statements of USF&G Corporation which is included in its Form
10-Q for the quarter e nded March 31, 1995.
Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not a part
of the registration statements prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
ERNST & YOUNG LLP
Baltimore, Maryland
May 12, 1995
U S F & G C o r p o r a t i o n
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
USF&G Corporation
By Dan L. Hale
Executive Vice President and
Chief Financial Officer
Dated at Baltimore, Maryland
May 15, 1995
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<DEBT-HELD-FOR-SALE> 4,162
<DEBT-CARRYING-VALUE> 4,631
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<POLICY-LOSSES> 9,786
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0
265
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598
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