<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended: December 31, 1994
OR
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from___________________to____________________
Commission File Number: 0-4625
OLD REPUBLIC INTERNATIONAL CORPORATION
_____________________________________________________
(Exact name of registrant as specified in its charter)
Delaware No. 36-2678171
___________________________________ _________________________________
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
307 North Michigan Avenue, Chicago, Illinois 60601
____________________________________________ __________________________
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: 312-346-8100
Securities registered pursuant to Section 12(b) of the Act:
Share/Par Value Name of each
Outstanding exchange on
Title of each class February 28, 1995 which registered
___________________ _________________ _______________________
5 3/4% Convertible Subordinated
Debentures Due August 15, 2002 $110,000,000 New York Stock Exchange
8 3/4% Series H Cumulative
Preferred Stock 2,192,100 New York Stock Exchange
Common Stock/$1 par value 51,662,452* New York Stock Exchange
(*) Excludes 4,439,267 common shares issued, outstanding and held by an
affiliate, which are classified as treasury stock for financial accounting
purposes only.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes: X/No:
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part Ill of this Form 10-K or any
amendment to this Form 10-K. X
The aggregate market value of the Company's voting Common Stock held by
non-affiliates of the registrant computed by reference to the closing price
at which the stock was quoted as of February 28, 1995 was $1,278,645,687.
Documents incorporated by reference:
The following documents are incorporated by reference into that part of this
Form 10-K designated to the right of the document title.
Title Part
Proxy statement for the 1995 Annual
Meeting of Shareholders III, Items 10, 11, 12 and 13
Exhibits as specified in exhibit
index (page 51) IV, Item 14
_________________________________
There are 53 pages in this report
<PAGE>
PART I
Item 1-Business
(a) General Development of Business. Old Republic International Corporation
is a Chicago-based insurance holding company with subsidiaries engaged in the
general (property & liability), title, mortgage guaranty, and life (life &
disability) insurance businesses. In this report, "Old Republic", "the
Corporation", or "the Company" refers to Old Republic International
Corporation and its subsidiaries as the context requires. The aforementioned
insurance segments are organized as the Old Republic General, Title, Mortgage
Guaranty, and Life Groups, and references herein to such groups apply to the
Company's subsidiaries engaged in the respective segments of business.
Financial Information Relating to Segments of Business (a)
The contributions to net revenues, income (loss) before taxes and before
the cumulative effect of accounting changes of each Old Republic segment are
set forth below for the years shown, together with their respective assets at
the end of each year. The information below should be read in conjunction
with the consolidated financial statements, the notes thereto, and the
"Management Analysis of Financial Position and Results of Operations"
appearing elsewhere herein.
<TABLE>
($ in Millions)
-----------------------------------------------------
Years Ended December 31,
-----------------------------------------------------
Net Revenues (b) Income(Loss) Before Taxes
-------------------------- -------------------------
1994 1993 1992 1994 1993 1992
-------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
General. . . . . . . . . . $1,051.4 $1,058.5 $1,001.8 $ 154.2 $ 124.5 $ 118.7
Title. . . . . . . . . . . 404.7 467.9 412.8 (.2) 32.1 26.9
Mortgage Guaranty. . . . . 158.3 118.6 78.8 78.3 61.3 43.8
Life . . . . . . . . . . . 55.7 49.5 60.0 6.4 6.5 18.9
Other Operations - Net . . .9 1.3 .6 (20.6) (21.4) (20.5)
-------- -------- -------- ------- ------- --------
Subtotal . . . . . . . . . 1,671.2 1,696.0 1,554.2 218.1 203.0 187.9
Realized Investment Gains. 7.7 40.2 62.8 7.7 40.2 62.8
-------- -------- -------- ------- ------- --------
Total. . . . . . . . . . . $1,679.0 $1,736.3 $1,617.0 $ 225.8 $ 243.3 $ 250.7
======== ======== ======== ======= ======= ========
</TABLE>
<TABLE>
Assets at December 31,
----------------------------
1994(c) 1993(c) 1992
-------- -------- --------
<S> <C> <C> <C>
General. . . . . . . . . . . . . . . . . . . . . . . . $5,199.9 $5,075.1 $3,292.1
Title. . . . . . . . . . . . . . . . . . . . . . . . . 402.4 402.7 373.3
Mortgage Guaranty. . . . . . . . . . . . . . . . . . . 487.8 408.3 288.0
Life . . . . . . . . . . . . . . . . . . . . . . . . . 322.7 336.8 292.6
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . . . $6,262.9 $6,098.3 $4,141.6
======== ======== ========
----------
(a)Reference is made to the table in Note 7 of the Notes to Consolidated Financial Statements,
incorporated herein by reference, which shows the contribution of each subcategory to
consolidated net revenues and income or loss before income taxes of Old Republic's insurance
industry segments.
(b)Revenues consist of net premiums, fees, net investment and other income earned; realized
investment gains are shown in total for all groups combined.
(c)See Item 6 - Selected Financial Data, note (b)
</TABLE>
General Insurance Group
Through its General Insurance Group subsidiaries, the Corporation assumes
risks and performs related risk management and marketing services pertaining
to a large variety of property and liability commercial insurance coverages.
Old Republic does not have a meaningful participation in personal lines of
insurance.
Liability Coverages: Workers' compensation, general liability (including
the general liability portion of commercial package policies), and commercial
automobile full coverage protection are the major classes of insurance
underwritten for businesses and public entities such as municipalities.
Within these classes of insurance, Old Republic specializes in a number of
industries, most prominently the transportation, coal and energy services,
construction and forest product industries. Such business is primarily
produced through agency and brokerage channels.
<PAGE>
The rates charged for all workers' compensation insurance are generally
regulated by the various states. It is therefore possible that the rate
increases necessary to cover any expansion of benefits under state laws or
increases in claim frequency or severity may not always be granted soon
enough to enable insurers to fully recover the amount of the benefits they
must pay.
During the past ten years, the Corporation has steadily diversified its
General Insurance Group business. This diversification has been achieved
through a combination of internal growth, the establishment of new
subsidiaries, and through selective mergers with other companies. For 1994,
production of direct workers' compensation premiums accounted for 33.1% of
consolidated direct premiums written by the General Insurance Group. For the
same year, general liability and commercial automobile (principally trucking)
direct insurance premiums amounted to 11.2% and 33.9%, respectively, of
consolidated direct premiums written.
During the past decade, specialty programs have also been expanded or
initiated to insure corporations' exposures to directors' and officers' and
errors and omissions liability, to cover owners and operators of private
aircraft for hull and liability exposures, and to insure grain elevators and
LPG gas operations.
The Corporation assumes (on both treaty and facultative bases) a moderate
amount of reinsurance business underwritten by other insurance or reinsurance
companies. Most of this business encompasses workers' compensation, general
and automobile liability lines, as well as a moderate amount of property
exposures.
Property and Other Coverages: Old Republic's property insurance business
includes physical damage insurance on commercial automobile and trucking
risks. A small volume of business is represented by fire and other physical
perils for houses and commercial properties. All such insurance is produced
through agents or financial intermediaries, such as finance companies, and on
a reinsurance assumed basis.
Fidelity and surety coverages are underwritten through agents by the Old
Republic Surety Group, Inc.
Old Republic Insured Credit Services, Inc., a wholly-owned subsidiary, has
marketed loan and retail installment sales credit guaranty insurance since
1955 through commercial banks and thrift institutions. This coverage provides
lenders with a guaranty against defaults on home equity and home improvement
loans and installment sales contracts.
Auto Warranty and Home Warranty, while still relatively small businesses,
are marketed directly by Old Republic through its own employees.
Title Insurance Group
The title insurance business consists primarily of the issuance of
policies to real estate purchasers and investors based upon searches of the
public records which contain information concerning interests in real
property. The policy insures against losses arising out of defects, liens and
encumbrances affecting the insured title and not excluded or excepted from
the coverage of the policy.
There are two basic types of title insurance policies: lenders' policies
and owners' policies. Both are issued for a onetime premium. Most mortgages
made in the United States are extended by savings and loan associations,
mortgage bankers, savings and commercial banks, state and federal agencies,
and life insurance companies. The financial institutions secure title
insurance policies to protect their mortgagees' interest in the real
property. This protection remains in effect for as long as the mortgagee has
an interest in the property. A separate title insurance policy is issued
to the owner of the real estate. An owner's policy of title insurance
protects an owner's interest in the title to the property.
The premiums charged for the issuance of title insurance policies vary
with the policy amount and the type of policy issued. The premium is
collected in full when the real estate transaction is closed, there being no
recurring fee thereafter. In many areas, premiums charged on subsequent
policies on the same land may be reduced, depending generally upon the time
elapsed between issuance of the previous policies and the nature of the
transactions for which the policies are issued. Most of the charge to the
consumer relates to title services rendered in conjunction with the
issuance of a policy rather than to the possibility of loss due to risks
insured against. Accordingly, the service performed by a title insurer
relates for the most part to the prevention of loss rather than to the
assumption of the risk of loss.
In connection with its title insurance operations, the Corporation also
provides escrow facilities, services for the disbursement of construction
funds, and other services pertaining to real estate transfers.
Mortgage Guaranty Group
Real estate mortgage loan insurance protects lending institutions against
certain losses, generally to the extent of 10% to 30% of the sum of the
outstanding amount of each insured mortgage loan, and allowable costs
incurred in the event of default by the borrower. The Corporation insures
only first mortgage loans, primarily on residential properties having
one-to-four family dwelling units.
<PAGE>
Mortgage Guaranty Insurance premiums originate from savings and loan
associations, mortgage bankers and other lending institutions. The
Corporation's residential real estate loan insurance business is originated,
approximately 19% by savings and loan associations, 71% by commercial bankers
and the remaining 10% through other lenders. Increased failures of savings
and loan associations and other types of lending institutions have not had
and should not have a bearing on the mortgage guaranty or other coverages in
the Corporation's business since the profitability of its insurance products
is not tied to any significant degree to the financial well-being of these
institutions. While it is possible that the failure of a large number of
such institutions could increase the competition for sales of certain
insurance products to the surviving institutions, it is also likely that
other institutions or providers of financial services would emerge to take
their place. The Corporation's mortgage guaranty insurance in force at
December 31, 1994, was originally produced by approximately 3,200 different
lending institutions and about 1,900 such institutions originated business in
1994.
Annual, monthly and single premium plans for residential real estate loan
insurance are offered. Annual plans provide coverage on a year to year basis
with first year premiums being dependent on the loan-to-value ratio and the
coverage offered. Annual renewal premiums are charged on the basis of the
outstanding loan balance on the anniversary date, or, if selected, on the
original loan balance. Monthly plans provide coverage on a month-to-month
basis with premiums being dependent on the loan-to-value ratio and the
coverage offered. In the case of monthly premium plans, the first month and
all renewal months are charged on the basis of the outstanding loan amount on
the anniversary date or, if selected, on the original loan balance. Single
premium plans provide coverage for a period of three to fifteen years, or the
number of years required to amortize a standard mortgage to an 80%
loan-to-value ratio, if selected. The premium charged similarly depends on
the loan-to-value ratio, the coverage offered, the type of loan instrument
(whether fixed rate/fixed payment or an adjustable mortgage loan) and whether
the property is to be owner occupied. Approximately 85% of the residential
real estate loan insurance in force at December 31, 1994, has been written
under annual premium plans. However, the monthly premium plan, a new product
that was introduced last year, accounted for approximately 42% of the new
business written in 1994.
The Corporation limits its residential real estate insurance to lenders
approved by it and supervised or regulated by federal or state authorities in
order to obtain reasonable assurance as to the effectiveness of such
institutions' lending practices. A master policy is issued to each approved
lender, but the master policy does not obligate the Corporation to issue
insurance on any particular loan. To obtain insurance on a specific mortgage
loan, an approved lender submits an application, supported by a copy of the
borrower's loan application, an appraisal report on the property by either
the lender or an independent appraiser, a written credit report on the
borrower, an affidavit of the borrower's equity and certain other
information. The underwriting department reviews this material and approves
or rejects the application, usually on the day it is received. The
Corporation generally adheres to the underwriting guidelines published by the
Federal Home Loan Mortgage Corporation. Upon approval of an application for
insurance of a loan, the Corporation issues a commitment to insure the loan;
this is followed by a certificate of insurance when the loan is consummated.
Life Insurance Group
Credit & Other Life and Disability: Old Republic markets and writes
consumer credit life and disability insurance primarily through consumer
finance companies, banks, savings and loan associations and automobile
dealers. Approximately one-half of the borrowers insured under consumer
credit life insurance are also covered by consumer credit disability
protection. Credit life insurance provides for the repayment of a loan,
installment purchase, or other debt obligation in the event of the death of
the borrower, while credit disability insurance provides for the payment of
installments due on such debt while the borrower is disabled.
Old Republic has written various conventional life, disability/accident
and health insurance coverages for many years, principally on a direct
marketing basis through banks and other financial services institutions.
Ordinary term life insurance is sold through independent agents and brokers
for relatively large face amounts, in both the United States and Canada.
Marketing of term life insurance products is aimed principally toward
self-employed individuals, professionals, and owners of small businesses.
Annuities: In the past, Old Republic marketed annuity policies, some of
which remain outstanding, through securities dealers in New York State. These
policies provide for annuity benefits based on premiums paid and accumulating
with interest over time. Since 1985, the volume of annuity business has been
inconsequential because the Corporation has been unwilling to invest in
so-called "junk bonds" or illiquid investments to help assure higher, more
competitive guaranteed rates.
<PAGE>
Consolidated Underwriting Statistics
The following table reflects underwriting statistics covering: 1) premiums
together with loss, expense, and policyholders' dividend ratios for the major
coverages underwritten solely in the General, Title, and Mortgage Guaranty
insurance groups, and disability/accident & health coverages underwritten
directly or through reinsurance in both the Life and General Insurance
groups; 2) a summary of net retained life insurance in force at the end of
the years shown:
<TABLE>
--------------------------------------------------------------------------------
($ in Millions)
-----------------------------------
Years Ended December 31,
-----------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
General Insurance Group:
Overall Experience:
Net Premiums Written. . . . . . . . . . . . $ 851.6 $ 876.7 $ 799.8
Net Premiums Earned (a) . . . . . . . . . . $ 860.6 $ 866.3 $ 806.2
Loss Ratio. . . . . . . . . . . . . . . . . 76% 81% 76%
Policyholders' Dividend Ratio . . . . . . . 1% (1)% 5%
Expense Ratio(a). . . . . . . . . . . . . . 26% 26% 27%
--------- --------- ---------
Composite Ratio . . . . . . . . . . . . . . 103% 106% 108%
========= ========= =========
Experience by Major Coverages:
Workers' Compensation:
Net Premiums Earned (a) . . . . . . . . . . $ 239.4 $ 271.1 $ 261.2
Loss Ratio. . . . . . . . . . . . . . . . . 81% 96% 79%
Policyholders' Dividend Ratio . . . . . . . 4% (2)% 16%
========= ========= =========
Commercial Automobile (Principally trucking):
Net Premiums Earned (a) . . . . . . . . . . $ 321.2 $ 284.1 $ 251.5
Loss Ratio. . . . . . . . . . . . . . . . . 82% 77% 75%
========= ========= =========
General Liability:
Net Premiums Earned (a) . . . . . . . . . . $ 54.2 $ 54.0 $ 51.0
Loss Ratio. . . . . . . . . . . . . . . . . 84% 80% 79%
========= ========= =========
Property and Other Coverages:
Net Premiums Earned (a) . . . . . . . . . . $ 245.7 $ 257.3 $ 242.6
Loss Ratio. . . . . . . . . . . . . . . . . 62% 69% 74%
========= ========= =========
Title Insurance Group:(b)
Net Premiums Earned . . . . . . . . . . . . $ 244.4 $ 249.6 $ 206.1
Combined Net Premiums & Fees Earned . . . . $ 384.7 $ 449.4 $ 394.5
Loss Ratio:To Net Premiums Earned . . . . . 18% 26% 30%
:To Net Premiums & Fees Earned. . . 12% 15% 16%
========= ========= =========
Mortgage Guaranty Group:
Net Premiums Earned (b) . . . . . . . . . . $ 134.5 $ 96.8 $ 61.6
Loss Ratio (a) . . . . . . . . . . . . . . 28% 26% 23%
========= ========= =========
Disability/Accident & Health (c):
Net Premiums Earned . . . . . . . . . . . . $ 28.5 $ 20.6 $ 19.7
Loss Ratio. . . . . . . . . . . . . . . . . 46% 59% 45%
========= ========= =========
Net Retained Life Insurance In Force:
Ordinary Life . . . . . . . . . . . . . . . $ 4,230.0 $ 4,046.7 $ 3,188.8
Credit and Other Life . . . . . . . . . . . 193.3 239.8 326.5
--------- --------- ---------
Total . . . . . . . . . . . . . . . . . . $ 4,423.4 $ 4,286.7 $ 3,515.5
========= ========= =========
---------
(a)Statutory net premiums earned and expense ratios may vary from amounts calculated
pursuant to generally accepted accounting principles due to differences in the
calculation of unearned premium reserves and acquisition cost under each accounting
method.
(b)Amounts and ratios reported are determined pursuant to generally accepted accounting
principles.
(c)Disability/accident & health data reflect the composite experience of the Life and
General Insurance segments of business. Accordingly, the General Insurance Group
composite experience includes premiums and related costs for disability/accident &
health coverages underwritten directly or through reinsurance in such group.
</TABLE>
<PAGE>
Variations in the loss (including related claim settlement expense) ratios
are caused by changes in the frequency and severity of claims incurred,
changes in premium rates and the level of premium refunds, and periodic
changes in claim and claim expense reserve estimates resulting from ongoing
reevaluations of reported and unreported claims and claim expenses. Loss,
expense, policyholders' dividends, and composite ratios have been rounded to
the nearest percentage point. The loss ratios include loss adjustment
expenses where appropriate. Policyholders' dividends are a reflection of
changes in loss experience for individual or groups of policies, rather than
overall results, and should be viewed in conjunction with loss ratio trends;
policyholders' dividends apply principally to workers' compensation
insurance.
General Insurance Group loss ratios for workers' compensation and
liability insurance coverages in particular may fluctuate due to a variety of
factors. The inherent volatility of claims experience due to chance events in
any one year, greater loss costs emanating from involuntary business (i.e.
from industry-wide insurance pools and associations in which participation is
basically mandatory), and added provisions for loss costs not recoverable
from assuming reinsurers which have experienced financial difficulties are
some of the major factors influencing comparisons of loss ratios between
years. The Company generally underwrites concurrently workers' compensation,
commercial automobile (liability and physical damage), and general liability
insurance coverages for a large number of customers. Accordingly, an
evaluation of trends in premiums, loss and dividend ratios for these
coverages should take such concurrent underwriting assumptions into account.
The Title Insurance Group loss ratios for the years presented are
relatively the same as there has been no material change in frequency and
severity trends in the last three years. In 1993 and 1992, however,
additional claim provisions of $13.3 million and $15.0 million, respectively,
covering various escrow losses in process of final settlement increased the
loss ratio compared to premiums and fees earned by 3% and 4%, respectively.
The increase in the mortgage guaranty loss ratio is due to an increase in
claim frequency, mostly in the California market which has been affected by
an economic slowdown for the past several years.
The increases in net ordinary life insurance in force, is attributed to
the introduction beginning in 1990 of more favorably priced life products
that have received greater market acceptance.
General Insurance Claim Reserves
The Corporation's property and liability insurance subsidiaries establish
claim reserves which consist of estimates to settle: a) reported claims; b)
claims which have been incurred as of each balance sheet date but have not as
yet been reported ("IBNR") to the insurance subsidiaries; and c) the direct
costs, (such as attorneys' fees which are allocable to individual claims) and
indirect costs (such as salaries and rent applicable to the overall
administration of the claim department) to administer known and IBNR claims.
Such claim reserves, except as to classification in the Consolidated Balance
Sheets as of December 31, 1994 and 1993 in terms of gross and reinsured
portions, are reported for financial and regulatory reporting purposes at
amounts that are substantially the same.
The establishment of claim reserves by property and liability insurers,
such as the Corporation's General Insurance Group, is a reasonably complex
and dynamic process influenced by a large variety of factors. These include
past experience applicable to the anticipated costs of various types of
claims, continually evolving and changing legal theories emanating from the
judicial system, actuarial studies, the professional experience and expertise
of the Company's claim departments' personnel or attorneys and independent
adjusters retained to handle individual claims, the effect of inflationary
trends on future claim settlement costs, and periodic changes in claim
frequency patterns such as those caused by natural disasters, illnesses,
accidents, or work-related injuries. Consequently, the reserve-setting
process relies on the judgments and opinions of a large number of persons, on
historical precedent and trends, and on expectations as to future
developments. At any point in time, the Company and the industry are exposed
to possibly higher than anticipated claim costs due to the aforementioned
factors, the evolution, interpretation, and expansion of tort law, and the
effects of unexpected jury verdicts.
In establishing claim reserves, the possible increase in future loss
settlement costs caused by inflation is considered implicitly, along with the
many other factors cited above. Reserves are generally set to provide for the
ultimate cost of all claims. With regard to workers' compensation reserves,
however, the ultimate cost of long-term disability or pension-type claims is
discounted to present value based on interest rates ranging from 3.5% to 4%.
The Company, where applicable, uses only such discounted reserves in
evaluating the results of its operations, in pricing its products and
settling retrospective and reinsured accounts, in evaluating policy terms and
experience, and for other general business purposes. Solely to comply with
reporting rules mandated by the Securities and Exchange Commission, however,
Old Republic has made statistical studies of applicable workers' compensation
reserves to obtain estimates of the amounts by which claim and claim
adjustment expense reserves, net of reinsurance, have been discounted. These
studies have resulted in estimates of such amounts of approximately $169.1,
$154.3, and $149.1 million, as of December 31, 1994, 1993, and 1992,
respectively. It should be noted, however, that these differences between
discounted and non-discounted (terminal) reserves are, fundamentally, of an
informational nature, and are not indicative of an effect on operating
results for any one or series of years for the above-noted reasons, and for
the effect of retrospective rating and similar plans as discussed under
"Reserves, Reinsurance, and Retrospective Adjustments" elsewhere herein.
<PAGE>
The Company believes that its overall reserving practices have been
consistently applied over many years, and that its aggregate net reserves
have resulted in reasonable approximations of the ultimate net costs of
claims incurred. However, no representation is made that ultimate net claim
and related costs will not be greater or lower than previously established
reserves.
The following table shows a reconciliation of consolidated property and
liability beginning and ending claim reserves, and the indicated deficiencies
or redundancies for the years 1984 to 1994. In reviewing this tabular data,
it should be noted that prior periods' loss payment and development trends
may not be repeated in the future due to the large variety of factors
influencing the reserving process outlined herein above. With respect to the
1985 and 1986 data in particular, the indicated deficiency pertains largely
to adverse claim development for reinsurance assumed business which the
Company has de-emphasized since 1986 due to unacceptably high loss ratios.
Further, the reserve redundancies or deficiencies shown are not necessarily
indicative of the effect on reported results of any one or series of years
since retrospective premium and commission adjustments employed in various
parts of the Company's business tend to partially or fully offset or negate
such effects. (See "Consolidated Underwriting Statistics" above, and
"Reserves, Reinsurance, and Retrospective Adjustments" elsewhere herein).
The subject of property and liability insurance claim reserves has been
written about and analyzed extensively by a large number of professionals and
regulators. Accordingly, the above discussion summary must, of necessity, be
regarded as a basic outline of the subject and not as a definitive
presentation.
<TABLE>
($ in Millions/Percentages to Nearest Whole Point)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(a) As of December 31: 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
(b) Liability (1) for unpaid claims
and claim adjustment
expenses(2): $630 $743 $974 $1,130 $1,271 $1,335 $1,435 $1,540 $1,573 $1,700 $1,768
====================================================================================
(c) Paid (cumulative) as of (3):
--------------------------------
One year later 11% 25% 17% 18% 22% 21% 22% 25% 20% 19% -%
Two years later 31 34 34 33 35 35 38 37 33 - -
Three years later 35 43 45 43 45 46 46 46 - - -
Four years later 40 52 52 51 53 51 52 - - - -
Five years later 48 56 59 57 57 57 - - - - -
Six years later 52 62 63 61 61 - - - - - -
Seven years later 57 65 66 65 - - - - - - -
Eight years later 62 68 70 - - - - - - - -
Nine years later 64 71 - - - - - - - - -
Ten years later 67% - % - % - % - % - % - % - % - % - % -%
===================================================================================
(d) Liability reestimated (i.e.,
cumulative payments plus
reestimated ending liability)
as of (4):
-----------------------------
One year later 93% 109% 103% 104% 101% 98% 100% 99% 97% 95% -%
Two years later 97 120 111 104 97 99 100 97 94 - -
Three years later 103 117 110 100 98 98 99 96 - - -
Four years later 100 117 106 101 98 98 99 - - - -
Five years later 96 114 108 101 99 99 - - - - -
Six years later 93 116 108 102 99 - - - - - -
Seven years later 94 115 109 103 - - - - - - -
Eight years later 93 117 111 - - - - - - - -
Nine years later 95 118 - - - - - - - - -
Ten years later 97% -% - % - % - % - % - % - % -% - % -%
(e) Redundancy (deficiency)(5):
For each year-end at (a): 3% -18% -11% -3% 1% 1% 1% 4% 6% 5% -%
===================================================================================
Average for all year-ends
at (a): 0.2%
====
----------
(1)Amounts are reported net of reinsurance recoverable. (2) Excluding unallocated loss adjustment expense reserves. (3)
Percent of most recent reestimated liability (line d). Decreases in paid loss percentages may at times reflect the
reassumption by the Company of certain previously ceded loss reserves. (4) Percent of beginning liability (line b) for
unpaid claims and claim adjustment expenses. (5) Most current liability reestimated (line d) as a percent of beginning
liability (line b).
</TABLE>
<PAGE>
The following table shows an analysis of changes in aggregate reserves for
the Company's property and liability insurance claims and claim adjustment
expenses (1) for each of the years shown.
<TABLE>
($ in Millions)
(Years Ended December 31,)
----------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Amount of reserves for unpaid claims and claim adjustment expenses
at the beginning of each year, net of reinsurance losses recoverable. $1,700.8 $1,573.9 $1,540.5
-------- -------- --------
Incurred claims and claim adjustment expenses:
Provisions for insured events of the current year . . . . . . . . . 705.8 721.7 605.2
Change in provision for insured events of prior years . . . . . . . (89.1) (51.6) (20.4)
-------- -------- --------
Total incurred claims and claim adjustment expenses 616.7 670.0 584.8
-------- -------- --------
Payments:
Claims and claim adjustment expenses attributable to insured
events of the current year . . . . . . . . . . . . . . . . . . . . 236.6 246.2 186.0
Claims and claim adjustment expenses attributable to insured
events of prior years. . . . . . . . . . . . . . . . . . . . . . . 312.4 296.9 365.3
-------- -------- --------
Total payments. . . . . . . . . . . . . . . . . . . . . . . . . . 549.0 543.1 551.3
-------- -------- --------
Amount of reserves for unpaid claims and claim adjustment expenses
at the end of each year (2), net of reinsurance losses recoverable 1,768.3 1,700.8 1,573.9
Reinsurance losses recoverable (3) . . . . . . . . . . . . . . . . . . 1,407.4 1,403.0 -
-------- -------- --------
Amount of reserves for unpaid claims and claim adjustment expenses . . $3,175.7 $3,103.8 $1,573.9
======== ======== ========
---------
(1)Excluding unallocated loss adjustment expense reserves.
(2)Reserves for incurred but not reported losses amounted to approximately 30.4%, 30.7% and 28.4% of the totals shown as
of December 31, 1994, 1993 and 1992, respectively.
(3)See Item 6 - Selected Financial Data, note (b).
</TABLE>
The data in the two tables above, incorporates the Corporation's estimates
for various environmental impairment and asbestos-related claim or related
costs that have been filed in the normal course of business against a number
of its insurance subsidiaries. Such claims relate primarily to policies
issued prior to 1985, many during a short period between 1981 and 1982
pursuant to an agency agreement canceled in 1982. During all years and
through the current date, the Corporation's insurance subsidiaries have
typically issued general liability insurance policies with face amounts
ranging between $1 million and $2 million and rarely exceeding $10 million.
Such policies have, in turn, been subject to reinsurance cessions which have
typically reduced the Corporation's retentions to $500,000 or less as to
each claim.
The Corporation's reserving methods, particularly as they apply to
formula-based reserves, have been established to cover normal claim
occurrences as well as unusual exposures such as those pertaining to
environmental and asbestosis claims and related costs. At times, however,
the Corporation's insurance subsidiaries also establish specific formula and
other reserves as part of their overall claim and claim expense reserves.
These are intended to cover additional litigation and other costs that are
likely to be incurred to protect the Company's interests in litigated cases
in particular. At December 31, 1994 the Corporation's aggregate reserves
specifically identified with these environmental and asbestosis exposures
amounted to approximately $60.4 million gross, and $37.7 million net of
reinsurance. Through December 31, 1994 the Corporation's historical
indemnity and loss expense payments relative to these exposures have been
negligible in the context of loss and loss expense payments made for all
types of claims.
Old Republic disagrees with the allegations of liability on virtually all
environmental and asbestos-related claims of which it has knowledge on the
grounds that exclusions in the policies preclude coverage for nearly all such
claims, and that the Corporation never intended to assume such risks. Old
Republic's exposure on such claims cannot therefore be calculated by
conventional insurance reserving methods for this and a variety of reasons,
including: a) the absence of statistically valid data inasmuch as such
claims typically involve long reporting delays and very often uncertainty as
to the number and identity of insureds against whom such claims have arisen
or will arise; and b) the litigation history of such or similar claims for
other insurance industry members that has produced court decisions that have
been inconsistent with regard to such issues as when the alleged loss
occurred, which policies provide coverage, how a loss is to be allocated
among potentially responsible insureds and/or their insurance carriers, how
policy coverage exclusions are to be interpreted, what types of environmental
impairment or toxic tort claims are covered, when the insurer's duty to
defend is triggered, how policy limits are to be calculated, and whether
clean-up costs constitute property damage.
<PAGE>
Insurance industry associations, individual insurance companies, and
others who have evaluated the potential costs of litigating and settling
environmental and asbestos-type claims have noted with increasing concern the
probability that resolution of such claims, by applying liability
retroactively in the context of the existing insurance system, would likely
bankrupt or undermine seriously the financial condition of the property and
liability insurance industry. In the light of this substantial public policy
issue, the Corporation is of the view that the courts will not resolve in the
near future the litigation gridlock stemming from the non-resolution to date
of many environmental and asbestos-related claims. In recent times the
Executive Branch and/or the United States Congress have proposed changes in
the legislation and rules affecting these types of claims. As of December
31, 1994, however, there is no solid evidence suggesting that forthcoming
changes might mitigate or reduce some or all of these claims.
Because of all these issues and uncertainties, estimation of reserves for
losses and allocated loss adjustment expenses for the above noted types of
claims is extremely difficult or impossible. Accordingly, no representation
can be made that the Corporation's reserves for such claims and related costs
will not prove to be overstated or understated in the future.
(b) Investments. In common with other insurance organizations, Old Republic
invests most funds provided by operations in income-producing investment
securities and bank deposits.
All investments must comply with applicable insurance laws and regulations
which prescribe the nature, form, quality, and relative amounts of
investments which may be made by insurance companies. Generally, these laws
and regulations permit insurance companies to invest within varying
limitations in state, municipal and federal government obligations, corporate
obligations, preferred and common stocks, certain types of real estate, and
first mortgage loans. Old Republic's investment policies are also influenced
by the terms of the insurance coverages written, by its expectations as to
the timing of claim and benefit payments, and by income tax considerations.
The following tables show invested assets at the end of the last three years,
together with investment income for such years.
<TABLE>
Consolidated Investments
($ in Millions)
(December 31)
------------------------------------------------------------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Held to Maturity (a)
--------------------
Fixed Maturity Securities:
Taxable Bonds and Notes . . . . . . . . . . . $ 2,275.6 $ 2,231.6 $ 2,623.0
Tax-Exempt Bonds and Notes. . . . . . . . . . 450.7 276.9 218.0
Redeemable Preferred Stocks . . . . . . . . . .8 1.2 5.2
--------- --------- ---------
2,727.2 2,509.8 2,846.3
--------- --------- ---------
Other Invested Assets:
Mortgage Loans. . . . . . . . . . . . . . . . 14.0 17.0 17.2
Policy Loans. . . . . . . . . . . . . . . . . 2.1 2.1 2.1
Collateral Loans. . . . . . . . . . . . . . . .4 .5 .7
Sundry. . . . . . . . . . . . . . . . . . . . 10.7 - -
--------- --------- ---------
27.3 19.8 20.2
--------- --------- ---------
2,754.6 2,529.6 2,866.5
--------- --------- ---------
Available for Sale (a)
----------------------
Taxable Bonds and Notes (b) . . . . . . . . . 620.3 642.4 -
Equity Securities:
Perpetual Preferred Stocks. . . . . . . . . 4.5 3.8 .3
Common Stocks . . . . . . . . . . . . . . . 259.2 188.0 125.5
--------- --------- ---------
884.1 834.3 125.9
Short-term Investments. . . . . . . . . . . . 172.1 254.3 238.3
--------- --------- ---------
1,056.2 1,088.7 364.2
--------- --------- ---------
Total Investments. . . . . . . . . . . . . . . $ 3,810.8 $ 3,618.4 $ 3,230.8
========= ========= =========
----------
(a)As indicated in note 1(c) of the Notes to Consolidated Financial Statements, during
1993 the Company reexamined the classification of its invested assets. 1992 data has
not been reclassified similarly.
(b)Consists of U.S. Government bonds and notes and convertible bonds.
</TABLE>
<PAGE>
<TABLE>
--------------------------------------------------------------------------------------
Sources of Consolidated Investment Income
($ in Millions)
(Years Ended December 31)
--------------------------------------------------------------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Fixed Maturity Securities:
Taxable . . . . . . . . . . . . . . . . . . . $ 189.6 $ 192.6 $ 190.0
Tax-Exempt. . . . . . . . . . . . . . . . . . 18.6 12.5 14.8
Redeemable Preferred Stocks . . . . . . . . . - - .4
--------- --------- ---------
208.2 205.2 205.3
--------- --------- ---------
Equity Securities:
Perpetual Preferred Stocks. . . . . . . . . . .5 .2 -
Common Stocks . . . . . . . . . . . . . . . . 7.0 4.7 2.7
--------- --------- ---------
7.5 5.0 2.7
--------- --------- ---------
Other Investment Income:
Interest on Short-term Investments. . . . . . 9.7 8.7 9.8
Sundry. . . . . . . . . . . . . . . . . . . . 7.9 7.0 8.8
--------- --------- ---------
17.7 15.7 18.6
--------- --------- ---------
Gross Investment Income. . . . . . . . . . . . 233.6 226.0 226.7
Less: Investment Expenses (a) . . . . . . . . 6.0 5.2 5.1
--------- --------- ---------
Net Investment Income. . . . . . . . . . . . . $ 227.5 $ 220.7 $ 221.5
========= ========= =========
----------
(a)Investment expenses include interest expense of approximately $0.7 in 1994, $0.7 in
1993 and $1.0 in 1992, relating to reinsurance agreements and retrospective premium
adjustment contracts of insurance subsidiaries. Substantially all other expenses consist
of salaries and investment service fees.
</TABLE>
For at least the past 25 years, Old Republic's investment policy has been
to acquire and retain primarily investment grade, publicly traded, fixed
maturity securities. Accordingly, the Corporation's exposure to so-called
"junk bonds", private placements, real estate, mortgage loans, and
derivatives is immaterial or non-existent. Management considers
investment-grade securities to be those rated by Standard & Poor's
Corporation ("Standard & Poor's") or Moody's Investors Service, Inc.
("Moody's") that fall within the top four rating categories or securities
which are not rated but have characteristics similar to securities so rated.
At December 31, 1994 and December 31, 1993, total investments in default as
to principal and/or interest amounted to less than 1% of consolidated assets.
The Company's investment policies are not designed to encourage trading of
its securities or to maximize the realization of investment gains. While the
amount of portfolio turnover varies from year to year, dispositions of
portfolio investments held to maturity are generally caused by: 1) calls
prior to maturity by issuers; and 2) the Company's ongoing process of
monitoring its investments with a view toward maximizing the quality ratings
and diversification of its portfolio.
Effective January 1, 1993, the Company reevaluated the classification of
its invested assets as to those it (1) has the intent and ability to hold
until maturity (generally carried at amortized costs for fixed-maturity
securities), (2) has available for sale (carried at fair value with
adjustments to equity) or (3) has the intention of trading (carried at fair
value with adjustments to income). As a result, the Company's invested
assets have been reclassified as either "held to maturity" or "available for
sale" as of December 31, 1994 and 1993.
The independent credit quality ratings and maturity distribution for Old
Republic's consolidated fixed maturity investments, excluding short-term
investments, at December 31, 1994 and December 31, 1993, are shown in the
following tables. These investments, $3.3 billion and $3.1 billion at
December 31, 1994 and 1993, respectively, represented approximately 53% and
52%, respectively, of consolidated assets, and 69% and 66%, respectively, of
consolidated liabilities as of such dates.
<PAGE>
<TABLE>
-----------------------------------------------------------------------------------------------
Independent Ratings (a)
-----------------------------------------------------------------------------------------------
December 31,
------------------------------
1994 1993
---------- ----------
(% of total portfolio)
<S> <C> <C>
Aaa. . . . . . . . . . . . . . . . . . . . . . . . . . . 30.1% 30.2%
Aa . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.8 26.9
A. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33.1 33.8
Baa. . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9 8.2
---------- ----------
Total investment grade. . . . . . . . . . . . . . . . . 98.9 99.1
All others (b) . . . . . . . . . . . . . . . . . . . . . 1.1 .9
---------- ----------
Total.. . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0%
========== ==========
(a)Ratings are assigned primarily by Moody's with remaining ratings assigned by Standard &
Poor's and converted to the equivalent Moody's rating.
(b)"All others" include securities which when purchased were investment grade, non-investment
grade or non-rated convertible securities, and other non-rated securities such as small
issues of tax exempt bonds.
</TABLE>
<TABLE>
------------------------------------------------------------------------------------------
Maturity Distribution
-----------------------------------------------------------------------------------------------
December 31,
-------------------------------
1994 1993
---------- ----------
(% of total portfolio)
<S> <C> <C>
Due in one year or less. . . . . . . . . . . . . . . . . 5.2% 4.4%
Due after one year through five years. . . . . . . . . . 42.0 37.5
Due after five years through ten years . . . . . . . . . 50.1 55.9
Due after ten years through fifteen years. . . . . . . . 1.4 .9
Due after fifteen years. . . . . . . . . . . . . . . . . 1.3 1.3
--------- ---------
100.0% 100.0%
========= =========
Average life (years) . . . . . . . . . . . . . . . . . . 5.1 5.3
========= =========
-----------------------------------------------------------------------------------------------
</TABLE>
(c) Marketing. Workers' compensation, general liability and commercial
automobile insurance underwritten for larger commercial enterprises and
public entities is marketed primarily through independent insurance agents
and brokers with the assistance of Old Republic's trained sales,
underwriting, actuarial, and loss control personnel. The remaining property
and liability commercial insurance written by Old Republic is obtained
through insurance agents or brokers who are independent contractors and
generally represent other insurance companies, by direct sales, and through
marketing and underwriting joint ventures.
A small portion of Old Republic's consolidated insurance premium volume,
particularly in its General and Life Insurance Groups, is produced by the
mass marketing of specially designed insurance products through
consumer-oriented businesses such as consumer finance companies, banks,
savings and loan associations, mortgage bankers, automobile dealers, and
consumer products dealers. The Corporation has designed ancillary products,
such as credit disability, joint life, loan credit guaranty insurance, and
property insurance on loan collateral, for sale through the same sources as
its other products. Through the combination of these marketing channels, Old
Republic is afforded access to large volume markets without having to invest
large sums for mailing, advertising, and other acquisition expenses, or for
establishing and administering a large sales organization. No single source
accounted for over 10% of Old Republic's premium volume in 1994.
A substantial portion of the Company's title insurance business is
referred to it by title insurance agents, builders, lending institutions,
real estate developers, realtors, and lawyers. Title insurance is sold
through 217 Company offices located in 29 states and through agencies and
underwritten title companies in the District of Columbia and all states
except Iowa and Oregon. The issuing agents are authorized to issue binders
and title insurance policies based on their own search and examination, or on
the basis of abstracts and opinions of approved attorneys. Policies are also
issued through independent abstract companies (not themselves title insurers)
pursuant to underwriting agreements. These agreements generally provide that
the underwritten company may cause title policies of the Company to be
issued, and the latter is responsible under such policies for any payments to
the insured. Typically, the agency or underwritten title company deducts the
major portion of the title insurance charge to the consumer as its commission
and for the services. During 1994, approximately 54% of title insurance
premiums and fees was accounted for by policies issued by agents and
underwritten title companies.
<PAGE>
Existing differences in various parts of the country with respect to the
acceptance and use of title insurance in real estate sales and loan
transactions have a material effect on title insurance growth and operations
in the areas concerned. In the Western states and certain urban areas of the
East and Midwest, title insurance is widely accepted, with the result that
the potential volume of title insurance premium income is large in relation
to the volume of real estate activity in those areas. In some other parts of
the country, title insurance is not as generally used, particularly in
transactions involving residential real estate. Consequently, in those areas,
the growth of title insurance depends not only upon market share of the title
insurance business within the industry, but also upon the increased use of
title insurance in real estate transactions. The volume of real estate
activity is also affected by the availability and cost of financing,
population growth, family movements and other factors. Also, the title
insurance business is seasonal. During the winter months, new building
activity is reduced and, accordingly, the Company does less title insurance
business relative to new construction during such months than during the rest
of the year. The most important factor, insofar as Old Republic's title
business is concerned, however, is the rate of activity in the resale market
for residential properties.
Mortgage guaranty insurance is marketed primarily through a direct sales
force which calls on savings and loan associations, other lending
institutions, and mortgage bankers. No sales commissions or other forms of
remuneration are paid to the lending institutions and others for the
procurement or development of business.
The personal contacts, relationships, and reputations of Old Republic's
key executives are a vital element in obtaining and retaining business. Many
of the Company's customers produce large amounts of premiums and therefore
warrant substantial levels of top executive attention and involvement. In
this respect, Old Republic's mode of operation is similar to that of
professional reinsurers and commercial insurance brokers, and relies on the
marketing, underwriting, and management skills of relatively few key people.
Several types of insurance coverages underwritten by Old Republic, such as
credit life and disability, loan credit guaranty, title, and mortgage
guaranty insurance, are affected in varying degrees by changes in national
economic conditions. During periods of economic recession or rising interest
rates, operating and/or claim costs pertaining to such coverages tend to rise
disproportionately to revenues and generally result in reduced levels of
profitability.
At least one insurance subsidiary of Old Republic is licensed to do
business in each of the 50 states, the District of Columbia, Puerto Rico,
Virgin Islands, Guam, and each of the Canadian provinces; title insurance
operations, however, are licensed to do business in 48 states and the
District of Columbia, while mortgage insurance subsidiaries are licensed in
49 states and the District of Columbia. Consolidated direct premium volume
distributed among the various geographical regions shown was as follows for
the past three years:
<TABLE>
---------------------------------------------------------------------------------
Geographical Distribution of Direct Premiums Written
---------------------------------------------------------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
United States:
Northeast . . . . . . . . . . . . . . . . . . . 5.3% 4.7% 4.2%
Mid-Atlantic. . . . . . . . . . . . . . . . . . 10.0 10.6 11.2
Southeast . . . . . . . . . . . . . . . . . . . 16.2 15.5 15.5
Southwest . . . . . . . . . . . . . . . . . . . 14.3 14.1 13.5
East North Central. . . . . . . . . . . . . . . 16.2 14.7 14.7
West North Central. . . . . . . . . . . . . . . 15.2 16.3 16.0
Mountain. . . . . . . . . . . . . . . . . . . . 8.4 8.0 7.3
Western . . . . . . . . . . . . . . . . . . . . 12.5 14.6 15.8
Foreign (Principally Canada) . . . . . . . . . . 1.9 1.5 1.8
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
======== ======== ========
</TABLE>
<PAGE>
(d) Reserves, Reinsurance, and Retrospective Adjustments. Old Republic's
insurance subsidiaries establish reserves for future policy benefits,
unearned premiums, reported claims, claims incurred but not reported, and
claim adjustment expenses, as required in the circumstances. Such reserves
are based on regulatory accounting requirements and generally accepted
accounting principles. In accordance with insurance industry practices, claim
reserves are based on estimates of the amounts that will be paid over a
period of time and changes in such estimates are reflected in the financial
statements when they occur. See "General Insurance Claim Reserves" herein.
To maintain premium production within its capacity and limit maximum
losses and risks for which it might become liable under its policies, Old
Republic, as is the practice in the insurance industry, may cede a portion or
all of its premiums and liabilities on certain classes of insurance or blocks
of business to other insurers and reinsurers. Although the ceding of
insurance does not generally discharge an insurer from its direct liability
to a policyholder, it is industry practice to establish the reinsured part of
risks as the liability of the reinsurer. Old Republic also employs
retrospective premium adjustments, contingent commissions, agency profit and
risk-sharing arrangements, and joint ventures for parts of its business in
order to minimize losses for which it might become liable under its insurance
policies, and to afford its clients or producers a degree of participation in
the risks and rewards associated with such business. Under retrospective
arrangements, Old Republic collects additional premiums if losses are greater
than originally anticipated and refunds a portion of original premiums if
loss costs are lower. Pursuant to contingent commissions, agency profit and
other risk-sharing arrangements, the Company adjusts commissions or premiums
retroactively to likewise reflect deviations from originally expected loss
costs. The amount of premium, commission, or other retroactive adjustments
which may be made is either limited or unlimited depending on the Company's
evaluation of risks and related contractual arrangements. To the extent that
any reinsurance companies, retrospectively rated risks, or producers might be
unable to meet their obligations under existing reinsurance or retrospective
insurance and commission agreements, Old Republic would be liable for the
defaulted amounts. In these regards, however, the Company generally protects
itself by withholding funds, or by otherwise collateralizing reinsurance
obligations through irrevocable letters of credit, cash, and securities.
Old Republic's reinsurance practices with respect to portions of its
business also result from its desire to bring its sponsoring organizations
and clients into some degree of joint venture relationship. The Corporation
may, in exchange for a ceding commission, reinsure up to 100% of the
underwriting risk, and the premium applicable to such risk, to insurers owned
by or affiliated with lending institutions, sponsors whose customers are
insured by Old Republic, or individual clients who have formed "captive"
insurance companies. The ceding commissions received compensate Old Republic
for performing the direct insurer's functions of underwriting, actuarial,
claim settlement, loss control, legal, reinsurance, and administrative
services to comply with local and federal regulations, and for providing
appropriate risk management services.
Remaining portions of Old Republic's business are reinsured with
independent insurance or reinsurance companies under various quota share, and
excess of loss agreements.
Reinsurance protection on property and liability operations generally
limits the net loss on any one risk to a maximum of (in whole dollars): fire
and other physical perils-$300,000; accident and health-$15,000; workers'
compensation-$1,000,000; other liability coverages-$600,000; and loan credit
guaranty-$200,000. Title insurance risk assumptions, based on the title
insurance subsidiaries' financial resources, are limited to a maximum of
$25,000,000 as to any one policy. Substantially all the mortgage guaranty
insurance business is retained, with the exposure on any one risk currently
averaging less than $20,000. The maximum amount of ordinary life insurance
retained on any one life by the Life Insurance Group (without reinsurance) is
$250,000.
(e) Competition. The insurance business is highly competitive and Old
Republic competes with many stock and mutual insurance companies. Many of
these competitors offer more insurance coverages and have substantially
greater financial resources than the Corporation. The rates charged for many
of the insurance coverages in which the Corporation specializes, such as
credit life and disability insurance, workers' compensation insurance, other
property and liability insurance, and title insurance, are primarily
regulated by the states and are also subject to extensive competition among
major insurance organizations. The basic methods of competition available to
Old Republic, aside from rates, are service to customers, expertise in
tailoring insurance programs to the specific needs of its clients, efficiency
and flexibility of operations, personal involvement by its key executives,
and, as to title insurance, accuracy and timely delivery of evidences of
title issued. For certain types of coverages, including loan credit guaranty
and mortgage guaranty insurance, the Company also competes in varying degrees
with the Federal Housing Administration ("FHA") and the Veterans
Administration ("VA"). In these regards, the Corporation's insurance
subsidiaries compete with the FHA and VA by offering different coverages and
by establishing different requirements relative to such factors as interest
rates, closing costs, and loan processing charges. The Corporation believes
its experience and expertise have enabled it to develop a variety of
specialized insurance programs for its customers and to secure state
insurance departments' approval of these programs.
<PAGE>
(f) Government Regulation. In common with all insurance companies, the
Corporation's insurance subsidiaries are subject to the regulation and
supervision of the jurisdictions in which they do business. The method of
such regulation varies, but, generally, regulation has been delegated to
state insurance commissioners who are granted broad administrative powers
relating to: the licensing of insurers and their agents; the nature of and
limitations on investments; approval of policy forms; reserve requirements;
and trade practices. In addition to these types of regulation, many classes
of insurance, including most of the Corporation's insurance coverages, are
subject to rate regulations which require that rates be reasonable, adequate,
and not unfairly discriminatory.
The National Association of Insurance Commissioners has promulgated a
model law providing stringent regulation of credit life and disability
insurance which has been adopted in various forms by most states. An
important interpretation of the model law stipulates that a loss ratio below
60% would be construed as producing an excessive premium rate, thereby
indirectly defining the maximum rate that can be charged by an insurer. Some
states now require a substantially higher loss ratio on these coverages.
Although one of the general effects of the model law has been to reduce rates
significantly, in some states where the rates were excessively reduced, Old
Republic has been able in some cases to obtain higher rates by demonstrating
that actual loss ratios incurred have been in excess of a permissible loss
ratio required by regulatory authorities as a condition for obtaining rate
increases.
Credit life and disability insurance practices are further regulated by
the federal "Truth-in-Lending Law" which requires, among other things, that
a borrower be specifically informed of the existence and cost of credit life
and disability insurance, execute a written acknowledgement of his
understanding of such insurance, and give a written order for the insurance
as a condition of his incurring any charge for the coverage.
There have been various proposals from time to time with respect to
additional regulation of credit life and disability insurance which could
have an adverse effect on the consumer credit insurance business. The
financial institutions whose customers are insured by Old Republic are also
regulated by federal and state authorities whose regulations have a direct
effect on certain forms of credit life and disability insurance.
The Federal National Mortgage Association ("FNMA") and the Federal Home
Loan Mortgage Corporation ("FHLMC") have various qualifying requirements for
private mortgage guaranty insurers which write mortgage insurance on loans
acquired by the FNMA and FHLMC from mortgage lenders. These requirements
include a basic standard calling for the maintenance of a ratio of aggregate
insured risk to policyholders' surplus (defined as total statutory capital
and surplus plus statutory contingency reserves) of not more than 25 to 1.
Other qualifying requirements are designed to insure the financial stability
of a private mortgage insurance company by limiting the geographic
concentration of insurance risks, by limiting risks on nonresidential real
estate insurance to 10% of policyholders' surplus, by maintaining 85% of
total admitted assets in marketable securities and other highly liquid
investments, and by maintaining a minimum policyholders' surplus of $5
million.
Most of the Company's savings and loan association customers for mortgage
guaranty insurance are governed by the regulations of the Federal Home Loan
Bank Board. A regulation of that Board prohibits savings and loan
associations from insuring any loan with a mortgage insurance company if
certain relationships exist between such mortgage insurance company and the
savings and loan association. Generally, a savings and loan association may
not obtain insurance from any mortgage insurance company if (1) any
commission, fee or other compensation is paid to the savings and loan
association or any of its officers, directors, employees or affiliates, (2)
a savings account is maintained by the mortgage insurance company with such
savings and loan association, (3) any officer or employee of the mortgage
insurance company or its parent company is a director, officer or controlling
person of the savings and loan association, or (4) either (a) the association
or any director, officer, controlling person or affiliate holds equity
securities of the mortgage insurance company or any parent company thereof
having a cost in excess of $50,000 or representing more than one percent of
any class of equity securities of the company, if its assets are less than
$50 million, or one-half percent, if the assets equal or exceed $50 million,
or (b) the association and all of its directors, officers, controlling
persons or affiliates in the aggregate own equity securities of the mortgage
insurance company having a cost in excess of $100,000, or two percent of a
company the assets of which are less than $50 million, or one percent, if the
assets equal or exceed $50 million.
The majority of states have also enacted insurance holding company laws
which require registration and periodic reporting by insurance companies
controlled by other corporations licensed to transact business within their
respective jurisdictions. Old Republic's insurance subsidiaries are subject
to such legislation and are registered as controlled insurers in those
jurisdictions in which such registration is required. Such legislation varies
from state to state but typically requires periodic disclosure concerning the
corporation which controls the registered insurers, or ultimate holding
company, and all subsidiaries of the ultimate holding company, and prior
approval of certain intercorporate transfers of assets (including payments of
dividends in excess of specified amounts by the insurance subsidiary) within
the holding company system. Each state has established minimum capital and
surplus requirements to conduct an insurance business. All of the Company's
subsidiaries meet or exceed these requirements, which vary from state to
state.
<PAGE>
(g) Employees. As of December 31, 1994, Old Republic employed approximately
5,400 persons on a full time basis. Eligible full time employees participate
in various pension plans which provide annuity benefits payable upon
retirement. Eligible employees are also covered by hospitalization and major
medical insurance, group life insurance, and various profit sharing and
deferred compensation plans. The Company considers its employee relations to
be good.
Item 2-Properties
The principal executive offices of the Company are located in the Old
Republic Building in Chicago, Illinois. This Company owned building contains
151,000 square feet of floor space of which approximately 50% is occupied by
Old Republic, and the remainder is leased to others. In addition to the
Company-owned principal executive offices, a subsidiary of the Title
Insurance Group partially occupies its headquarters building. This building
contains 110,000 square feet of floor space of which approximately 62% is
occupied by the Old Republic National Title Insurance Company. The remainder
of the building is leased to others. Nine smaller buildings are owned by Old
Republic and its subsidiaries in various parts of the country and are
primarily used for its business. The carrying value of all buildings and
related land at December 31, 1994 was approximately $12.7 million, and
mortgages thereagainst aggregated $.2 million as of the same date.
Certain other operations of the Company and its subsidiaries are directed
from leased premises. See Note 5(b) of the Notes to Consolidated Financial
Statements for a summary of all material lease obligations.
Item 3-Legal Proceedings
There are no material legal proceedings against the Company other than
those arising in the normal course of business and which generally pertain to
claim matters related to insurance policies and contracts issued by the
Corporation's insurance subsidiaries.
Item 4-Submission of Matters to a Vote of Security Holders
None
Item 4(a)-Executive Officers of the Registrant
Name Age Position
------------------------ --- ----------------------------------
Paul D. Adams 49 Senior Vice President, Chief Financial
Officer since 1990 and Treasurer since
1993.
Anthony F. Colao 67 Senior Vice President, and Director
since 1987.
Spencer LeRoy, III 48 Senior Vice President, General Counsel,
and Secretary since 1992.
William F. Schumann 55 Senior Vice President since 1989.
President since 1974 of Old Republic
Insured Credit Services, Inc., a
wholly-owned subsidiary.
William A. Simpson 53 Senior Vice President/Mortgage
Guaranty, and Director since 1980.
President since 1972 of Republic
Mortgage Insurance Company, a
wholly-owned subsidiary.
A. C. Zucaro 55 Chief Executive Officer, President,
Director and Chairman of the Board
since 1990, 1981, 1976 and 1993,
respectively.
<PAGE>
The term of office of each officer of the Company expires on the date of
the annual meeting of the board of directors, which is generally held in May
of each year. There is no family relationship between any of the executive
officers named above. Each of these named officers, except Mr. LeRoy, has
been employed in executive capacities with the Company and/or its
subsidiaries for the past five years.
PART II
Item 5-Market for the Registrant's Common Stock and Related Security Holder
Matters
The Company's common stock is traded on the New York Stock Exchange under
the symbol "ORI". The high and low closing prices as reported on the New
York Stock Exchange, and cash dividends declared for each quarterly period
during the past two years were as follows:
<TABLE>
Closing Price Cash
----------------
High Low Dividends
------ ------ ---------
<S> <C> <C> <C>
1st quarter 1993 . . . . . . . . . . . . . . . . . $27.00 $24.50 $ .10
2nd quarter 1993 . . . . . . . . . . . . . . . . . 26.13 21.63 .11
3rd quarter 1993 . . . . . . . . . . . . . . . . . 27.38 23.00 .11
4th quarter 1993 . . . . . . . . . . . . . . . . . $25.50 $21.88 $ .11
====== ====== =======
1st quarter 1994 . . . . . . . . . . . . . . . . . $24.38 $22.00 $ .11
2nd quarter 1994 . . . . . . . . . . . . . . . . . 23.38 21.88 .12
3rd quarter 1994 . . . . . . . . . . . . . . . . . 23.00 20.88 .12
4th quarter 1994 . . . . . . . . . . . . . . . . . $21.88 $18.88 $ .12
====== ====== =======
</TABLE>
As of January 31, 1995, there were 3,799 registered holders of the
Company's Common Stock. See Notes 4(b) and 4(c) of the Notes to Consolidated
Financial Statements for a description of certain regulatory restrictions on
the payment of dividends by Old Republic's insurance subsidiaries and certain
restrictions under the terms of Old Republic's loan agreements. Closing
prices have been restated, as necessary, to reflect all stock dividends and
splits declared through December 31, 1994.
<PAGE>
Item 6-Selected Financial Data
(All amounts, except common share data, are expressed in millions)
(Years Ended December 31)
<TABLE>
---------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Cash and Invested Assets (a) $ 3,906.4 $ 3,723.0 $ 3,332.5 $ 2,933.7 $ 2,614.7
Other Assets (b) . . . . 2,356.5 2,375.3 809.1 779.5 713.7
Total Assets . . . . 6,262.9 6,098.3 4,141.6 3,713.2 3,328.5
Liabilities, Other than Debt (b) 4,543.4 4,480.5 2,698.0 2,503.0 2,318.3
Debt and Debt Equivalents 314.7 282.7 277.8 247.6 220.7
Total Liabilities. . 4,858.1 4,763.3 2,975.8 2,750.6 2,539.1
Preferred Stock . . . . . 75.4 78.0 80.8 80.8 24.5
Common Shareholders' Equity 1,329.3 1,256.9 1,084.9 881.7 764.8
Total Capitalization (c) $ 1,719.5 $ 1,617.7 $ 1,443.6 $ 1,210.2 $ 1,010.1
========== ========== ========== ========== ==========
---------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS:
Net Premiums and Fees Earned $ 1,423.2 $ 1,445.7 $ 1,291.9 $ 1,113.4 $ 1,013.4
Net Investment and Other Income 248.0 250.2 262.3 239.9 228.2
Realized Investment Gains 7.7 40.2 62.8 21.1 1.0
Net Revenues . . . . 1,679.0 1,736.3 1,617.0 1,374.5 1,242.7
Benefits, Claims, Settlement
Expenses and Dividends . 761.2 811.3 752.1 691.8 632.9
Underwriting and Other Expenses 691.9 681.6 614.2 507.3 476.9
Income Taxes (d) . . 73.4 78.0 75.0 45.2 28.9
Income Before Item Below. 151.0 166.4 174.7 131.0 104.6
Accounting Changes (e). . - 8.6 - - -
---------- ---------- ---------- ---------- ----------
Net Income . . . . . $ 151.0 $ 175.1 $ 174.7 $ 131.0 $ 104.6
========== ========== ========== ========== ==========
---------------------------------------------------------------------------------------------------
COMMON SHARE DATA (f):
Net Income:
Primary Earnings (g):
Income Before Item Below $ 2.55 $ 2.83 $ 3.09 $ 2.48 $ 2.02
Accounting Changes . . . - .15 - - -
---------- ---------- ---------- ---------- ----------
Net Income . . . . . $ 2.55 $ 2.98 $ 3.09 $ 2.48 $ 2.02
========== ========== ========== ========== ==========
Fully Diluted Earnings (h):
Income Before Item Below $ 2.44 $ 2.69 $ 2.95 $ 2.36 $ 1.93
Accounting Changes . . . - .14 - - -
---------- ---------- ---------- ---------- ----------
Net Income . . . . . $ 2.44 $ 2.83 $ 2.95 $ 2.36 $ 1.93
========== ========== ========== ========== ==========
Average Common and Equivalent
Shares Outstanding:Primary 57,207,702 57,077,542 54,516,581 52,408,404 51,206,038
Fully Diluted 61,657,490 61,519,432 58,317,906 56,480,042 55,524,178
========== ========== ========== ========== ==========
Dividends:Cash. . . . . . $ .47 $ .43 $ .39 $ .37 $ .34
========== ========== ========== ========== ==========
Stock. . . . . . -% -% 100% 10% 5%
========== ========== ========== ========== ==========
Book Value. . . . . . . . $ 25.79 $ 24.25 $ 21.40 $ 18.81 $ 16.55
========== ========== ========== ========== ==========
Common Shares Outstanding. 51,536,412 51,844,001 50,692,562 46,896,184 46,220,734
========== ========== ========== ========== ==========
---------------------------------------------------------------------------------------------------
See Notes on Following Page
</TABLE>
<PAGE>
(a)Consists of cash, investments and investment income due and accrued;
(b)As indicated in note 1(g) of the Notes to Consolidated Financial
Statements, the adoption by the Company of certain reporting changes
mandated by accounting regulatory authorities served to increase assets
and liabilities by equal amounts of approximately $1.5 billion at December
31, 1994 and 1993. As permitted, prior years' reports have not been
changed retroactively for these changes which became effective in 1993;
(c)Total capitalization consists of debt and debt equivalents, preferred
stock, and common shareholders'equity;
(d)Income taxes were decreased, and net income correspondingly increased by
$1.9 ($.03 per share) in 1992, $3.6 ($.07 per share) in 1991 and $5.5
($.11 per share) in 1990, as a result of amortized fresh start deferred
income tax credits all of which resulted from changes in tax regulations
effective January 1,1987;
(e)See notes 1(h) and (l) of the Notes to Consolidated Financial Statements
and note (b) above, for an explanation of accounting changes mandated by
accounting regulatory authorities. As permitted, prior year reports have
not been changed retroactively for these changes which became effective in
1993;
(f)Common share data has been retroactively adjusted for all stock dividends
and splits declared through December 31, 1994. Excludes 4,439,267 issued
and outstanding common shares, held by a consolidated affiliate, which are
eliminated in consolidation and in the calculation of outstanding shares
for financial accounting purposes only;
(g)Calculated after deduction of preferred stock dividend requirements of
$5.1 in 1994, $5.2 in 1993, $6.0 in 1992, $1.3 in 1991 and $1.5 in 1990;
(h)Calculated after deduction of preferred stock dividend requirements and
after adjustment for post-tax convertible debentures interest of $.9 in
1994, $1.0 in 1993, $2.6 in 1992, $(1.9) in 1991 and $(2.1) in 1990.
<PAGE>
Item 7-Management Analysis of Financial Position and Results of Operations
($ in Millions, Except Share Data)
OVERVIEW
This analysis pertains to the consolidated accounts of Old Republic
International Corporation. The Company conducts its business through four
major segments, namely its General (property and liability coverages), Title,
Mortgage Guaranty, and Life insurance groups.
CHANGES IN ACCOUNTING POLICIES
In 1993, the Company adopted several changes in accounting policies to
comply with Financial Accounting Standards Board (FASB) pronouncements. The
resulting adoption of the asset and liability method for calculating deferred
income taxes and the recognition of present value liabilities pertaining to
post-retirement health benefits under retirement plans maintained by a few
Old Republic subsidiaries increased net income by $8.6 or 15 cents per share
(14 cents fully diluted) in the first quarter of 1993. Accounting for
reinsurance ceded transactions affected the Company's balance sheet but not
the consolidated income statement; assets and liabilities at December 31,
1993, were increased by corresponding amounts of approximately $1,524.2 due
to the reclassification change for these transactions. Finally, the Company
reexamined the classification of its invested assets which led to reporting
such assets as either "held to maturity" or "available for sale"; the effect
of these classification changes was to increase assets and the liability for
deferred taxes by $25.2 and $8.7, respectively, and common shareholders'
equity for the net unrealized appreciation of securities newly reclassified
at fair value by $16.4 or 32 cents per common share as of December 31, 1993.
See Note 1 of the Notes to Consolidated Financial Statements for further
details relating to these changes. As permitted by the pertinent FASB
pronouncements, prior years' financial statements have not been restated nor
reclassified to reflect these changes.
FINANCIAL POSITION
Old Republic's financial position at December 31, 1994 reflected increases
in assets of 2.7%, liabilities of 2.0%, and common shareholders' equity of
5.8% when compared to the immediately preceding year-end. At December 31,
1994 and 1993, cash and invested assets represented 62.4% and 61.0% of
consolidated assets, respectively. Relatively high short-term investment
positions were maintained as of the most recent year-ends to provide
necessary liquidity for specific operating needs, and flexibility in
investment strategy. Changes in short-term investments reflect a variety of
seasonal and intermediate-term factors including seasonal operating cash
needs, investment strategy, and expectations as to trends in interest yields.
Accordingly, the future level of short-term investments will vary and respond
to the dynamics of these factors and may, as a result, increase or decrease
from current levels. During 1994 and 1993, the Corporation committed
substantially all investable funds in short to intermediate-term fixed
maturity securities. In the latter regard, Old Republic continues to adhere
to its long-term policy of investing primarily in investment grade,
marketable securities; the Corporation has not directed its investable funds
to so-called "junk bonds" or derivative types of securities. During 1994,
Old Republic also increased its commitment to common stock investments which
rose by 37.9% vis-a-vis the related invested balance at year-end 1993. As of
December 31, 1994, the carrying value of fixed maturity securities in default
as to principal or interest was immaterial in relation to consolidated assets
or shareholders' equity.
Consolidated operations produced positive cash flows for the latest three
years. The decline in cash flow from operations in 1994 was due mainly to a
substantial drop in title segment revenues and profitability, and a small
decline in property and liability insurance premiums. The parent holding
company has met its liquidity and capital needs for the past three years
through dividends paid by its subsidiaries and through the issuance of debt
and equity securities. The insurance subsidiaries' ability to pay cash
dividends to the parent company is generally restricted by law or subject to
approval of the insurance regulatory authorities of the states in which they
are domiciled. Additionally, the terms of guarantees by the Company of bank
loans to the trustee of the Company's Employees Savings and Stock Ownership
Plan require the Company to maintain a minimum consolidated tangible net
worth and restrict the amount of debt the Company may incur, both of which
covenants are being met.
Old Republic's capitalization of $1,719.5 at December 31, 1994 consisted
of debt and debt equivalents of $314.7, redeemable convertible preferred
stock of $16.8 (excluding $13.8 of such stock classified as a debt
equivalent), convertible preferred stock of $3.8, cumulative preferred stock
of $54.8, and common shareholders' equity of $1,329.3. The rise in the
common shareholders' equity account during the past three years reflects
primarily the retention of earnings in excess of dividends declared on
outstanding preferred and common shares, and the conversion of debt and
preferred stock to common stock. During 1994, the Corporation acquired $8.5
of common stock and $2.6 of cumulative preferred stock in open market
transactions. As of year-end 1994, a standing authorization by the Company's
Board of Directors permits it to reacquire additional amounts of such shares
for a total of up to $38.9 through May 1996.
RESULTS OF OPERATIONS
Revenues:
Net premiums and fees earned decreased by 1.6% in 1994 and increased by
11.9% and 16.0% in 1993 and 1992, respectively. In 1993 and 1992, property
and liability insurance premium increases were due to varying levels of
growth in certain parts of the Company's business, but principally among
liability coverages. In 1994, lower premium growth due to a continuation of
a soft premium rate environment for most insurance coverages, lower
participation in involuntary market pools, and the 1993 cancellation of a
crop insurance program served to reduce slightly the premium volume. Rising
mortgage rates, especially poor conditions in the large California housing
and mortgage lending market, and nearly extinct refinancing activity
nationwide during most of the year resulted in lower title insurance revenues
in 1994. Greater real estate financing activity during 1993 and 1992 led to
higher revenues in the title segment. For the past three years, mortgage
guaranty premiums increased due to a rise in the amount of renewal and new
business, and greater market penetration. Life and disability premium volume
increased moderately during the last three years as a result of greater term
life and accident insurance production.
Net investment income grew by 3.1% in 1994, was relatively flat in 1993
and grew by 1.0% in 1992. For each of the past three years, the growth in
this revenue source was bolstered by positive consolidated operating cash
flows and a concentration of investable assets in interest-bearing, fixed
maturity securities. The average annual yield on investments was 6.1%, 6.4%,
and 7.3% for the years ended December 31, 1994, 1993 and 1992, respectively.
This pattern of declining yields reflects at once the relatively short
maturity of Old Republic's fixed maturity securities portfolio and a
generally declining interest rate environment through the early part of 1994.
While the Company's investment policies have not been designed to maximize
realized investment gains, during 1992 and 1993 such gains were much higher
than those realized in 1994. In the past two years, dispositions of
securities have been caused principally by: (1) calls prior to maturity by
issuers, (2) a desire to extend moderately the average life of the portfolio,
and (3) the Company's ongoing process of continually monitoring its
investments with a view toward maximizing the quality ratings and
diversification of its portfolio. In 1994, approximately 64% of total
dispositions represented maturities and early calls of existing holdings; for
the year 1993 these amounted to approximately 58% of all securities sales and
dispositions.
Expenses:
Consolidated benefit, claim, and related settlement costs, as a percentage
of net premiums and fees earned, were approximately 53% in 1994, 56% in 1993
and 58% in 1992. This consolidated ratio was affected principally by an
improving claim ratio for property and liability insurance coverages. Through
1993 the Corporation's property and liability insurance subsidiaries, along
with other companies in the industry, sustained higher loss assessments for
residual market (assigned risk) business. In 1994, provisions for such
assessments declined as a result of the aforementioned reduction in residual
market participations by the Company's subsidiaries and by moderately
improving premium rates for workers compensation insurance. Additionally,
Old Republic's general insurance results for 1994 benefitted from improved
underwriting performance in its property and other non-liability lines due to
lower loss ratios. Policyholders' dividends incurred mainly for the
Corporation's workers compensation insurance coverages for each year reflect
changes in the loss ratio for individual experience-rated policies. The
title insurance loss ratio was affected by higher than normal claim
provisions in both 1993 and 1992 which added approximately 3.0% and 3.8%,
respectively, to this group's loss ratio. The loss ratio rose in 1994 and
1993 in the mortgage guaranty insurance line due to a rise in frequency of
claim occurrences, mostly in the California market which has been affected by
an economic slowdown for the past several years.
The ratio of consolidated underwriting, acquisition, and insurance
expenses to net premiums and fees earned was approximately 47% in 1994, 45%
in 1993 and 46% in 1992. Variations in these ratios reflect a continually
changing mix of coverages sold and attendant costs of producing business. In
years during which title insurance premiums and fees grow significantly, as
in 1993 and 1992 in particular, the consolidated expense ratio tends to rise
as production costs for this line are higher than those for most other types
of insurance sold by the Company. The ratio's rise during 1994 was due to a
significant degree to a 14% drop in title premiums and fees which was not
accompanied by a proportional reduction in production and underwriting
expenses.
Pre-Tax and Net Income:
During 1992 the Company's Title Insurance Group established greater than
normal loss provisions of $15.0 as additional funding for various title
escrow claims in process of disposition. In the same year, the Company's life
insurance subsidiaries recorded previously unrecognized tax recoveries of
$1.1 and related interest credits of approximately $12.4 stemming from
resolution of various long-standing Internal Revenue Service disputes
applicable to taxable years 1969 to 1981. These charges and credits served to
increase consolidated revenues by $12.4 and claim costs by $15.0, and to
record net current and deferred income tax credits of $1.1. Above normal
additions to Title Insurance Group claim reserves during 1993 also affected
adversely pre-tax income by approximately $13.3.
Income before taxes decreased by 7% and 3% in 1994 and 1993, respectively,
and increased by 43% in 1992. General insurance results have trended up
during the past five years and have continued as the major contributor to
consolidated earnings, principally as a result of greater investment income.
In 1994, however, improved earnings in this segment were favorably affected
by better underwriting results. Title insurance operating results declined
materially in 1994 due to the previously noted decline in revenues, while
they increased in 1993 and 1992 as a result of much greater mortgage
refinancing activity. The mortgage guaranty segment reflected significantly
improved results in each of the last three years due to increased revenues
and favorable overall claims experience, while life and disability operations
have posted a secular downward trend in the past three years. Consolidated
pre-tax income for 1993 and 1992 was also affected positively by greater than
normal realization of investment gains.
The effective consolidated income tax rates were 33% in 1994, 32% in 1993,
and 30% in 1992. The rates for each year reflect primarily the varying
proportions of pre-tax operating income derived from tax-exempt investment
income, on the one hand, and the combination of fully taxable investment
income, realized investment gains, and underwriting and service income, on
the other hand. In August 1993, the corporate federal income tax rate was
increased from 34% to 35% retroactive to January 1, 1993. In recent years
the Corporation has emphasized purchases of taxable investment securities.
Amortization of fresh start benefits stemming from the Tax Reform Act of 1986
(the "TRA") reduced income taxes by $1.9 in 1992.
The Revenue Reconciliation Act of 1990 (the "RRA") provided for a number
of changes affecting the taxation of the Corporation and a number of its
subsidiaries. Among such changes were the accelerated recognition of salvage
and subrogation recoveries, and the deferral of costs associated with the
production of life and disability business followed by the subsequent
amortization of those costs. The TRA also provided for a number of changes
affecting the taxation of the Corporation and a number of its subsidiaries.
Among such changes were reductions in corporate tax rates, the discounting of
loss reserves, the acceleration of premium income recognition, and the
inclusion in taxable income of a portion of certain tax-exempt investment
income previously not subject to tax. In addition, the TRA called for the
calculation of an alternative minimum tax. The RRA and TRA are likely to
result in accelerated payment of federal income taxes. However, most of the
additional tax payments are treated as timing differences for financial
accounting purposes. Consequently, such payments are expected to have minimal
effects on consolidated results of operations and financial position
determined in accordance with generally accepted accounting principles.
OTHER INFORMATION
Reference is here made to "Financial Information Relating to Segments of
Business" appearing elsewhere herein.
Historical data pertaining to the operating results, liquidity, and other
financial matters applicable to an insurance enterprise such as the
Corporation, are not necessarily indicative of results to be achieved in
succeeding years. The long-term nature of the insurance business, seasonal
and annual patterns in premium production and incidence of claims, changes in
yields obtained on invested assets, and changes in government policies and
free markets affecting inflation rates and general economic conditions, and
changes in legal precedents or the application of law affecting the
settlement of disputed claims are some of the factors which have a bearing on
year-to-year comparisons and future operating results.<PAGE>
<PAGE>
Item 8-Financial Statements
Listed below are the financial statements included herein:
OLD REPUBLIC INTERNATIONAL CORPORATION AND SUBSIDIARIES
Page No.
--------
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . 23
Consolidated Statements of Income . . . . . . . . . . . . . . . . 25
Consolidated Statements of Preferred Stock and
Common Shareholders' Equity . . . . . . . . . . . . . . . . . . 26
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . 27
Notes to Consolidated Financial Statements. . . . . . . . . . . . 28
Report of Independent Accountants . . . . . . . . . . . . . . . . 47
<PAGE>
<TABLE>
Old Republic International Corporation and Subsidiaries
Consolidated Balance Sheets ($ in millions)
----------------------------------------------------------------------------------------------------
December 31,
---------------------
1994 1993
--------- ---------
<S> <C> <C>
Assets
Investments:
Held to maturity:
Fixed maturity securities (at amortized cost) (fair value: $2,582.6
and $2,599.3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,727.2 $ 2,509.8
Other long-term investments (at cost) . . . . . . . . . . . . . . . . . . 27.3 19.8
--------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,754.6 2,529.6
========= =========
Available for sale:
Fixed maturity securities (at fair value) (cost: $646.8 and $616.5). . . 620.3 642.4
Equity securities (at fair value) (cost: $254.7 and $180.5) . . . . . . . 263.8 191.9
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . 172.1 254.3
--------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,056.2 1,088.7
--------- ---------
3,810.8 3,618.4
--------- ---------
Other Assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.1 43.9
Securities and indebtedness of related parties . . . . . . . . . . . . . 41.1 52.3
Accrued investment income . . . . . . . . . . . . . . . . . . . . . . . . 64.3 60.6
Accounts and notes receivable . . . . . . . . . . . . . . . . . . . . . . 244.0 236.0
Federal income tax recoverable:Current . . . . . . . . . . . . . . . . . 4.8 -
Deferred . . . . . . . . . . . . . . . . . 72.4 83.2
Reinsurance balances and funds held . . . . . . . . . . . . . . . . . . . 142.4 165.8
Reinsurance recoverable:Paid losses . . . . . . . . . . . . . . . . . . . 25.6 20.2
Policy and claim reserves . . . . . . . . . . . . 1,526.3 1,524.2
Deferred policy acquisition costs . . . . . . . . . . . . . . . . . . . . 101.3 95.5
Sundry assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198.1 197.7
--------- ---------
2,452.0 2,479.8
--------- ---------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,262.9 $ 6,098.3
========= =========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Old Republic International Corporation and Subsidiaries
Consolidated Balance Sheets ($ in millions) (Continued)
-------------------------------------------------------------------------------------------------
December 31,
---------------------
1994 1993
--------- ---------
<S> <C> <C>
Liabilities, Preferred Stock, and Common Shareholders' Equity
Liabilities:
Future policy benefits . . . . . . . . . . . . . . . . . . $ 184.9 $ 190.1
Losses, claims and settlement expenses . . . . . . . . . . 3,514.7 3,405.6
Unearned premiums. . . . . . . . . . . . . . . . . . . . . 405.5 419.2
Other policyholders' benefits and funds. . . . . . . . . . 79.1 82.9
--------- ---------
Total policy liabilities and accruals . . . . . . . . . . 4,184.3 4,097.9
Commissions, expenses, fees and taxes. . . . . . . . . . . 106.3 105.8
Reinsurance balances and funds . . . . . . . . . . . . . . 162.2 169.5
Federal income tax payable-current . . . . . . . . . . . . - 14.8
Debt and debt equivalents. . . . . . . . . . . . . . . . . 314.7 282.7
Sundry liabilities . . . . . . . . . . . . . . . . . . . . 90.4 92.4
Commitments and contingent liabilities . . . . . . . . . . - -
--------- ---------
Total Liabilities. . . . . . . . . . . . . . . . . . . . 4,858.1 4,763.3
--------- ---------
Preferred Stock:
Redeemable convertible preferred stock (*) . . . . . . . . 16.8 16.6
Convertible preferred stock (*). . . . . . . . . . . . . . 3.8 3.9
Cumulative preferred stock (*) . . . . . . . . . . . . . . 54.8 57.5
--------- ---------
Total Preferred Stock. . . . . . . . . . . . . . . . . . 75.4 78.0
--------- ---------
Common Shareholders' Equity:
Common stock(*). . . . . . . . . . . . . . . . . . . . . . 57.6 57.5
Additional paid-in capital . . . . . . . . . . . . . . . . 456.9 455.2
Net unrealized appreciation (depreciation) of securities . (10.4) 25.2
Retained earnings. . . . . . . . . . . . . . . . . . . . . 865.0 750.2
Treasury stock (at cost) . . . . . . . . . . . . . . . . . (39.8) (31.3)
--------- ---------
Total Common Shareholders' Equity. . . . . . . . . . . . 1,329.3 1,256.9
--------- ---------
Total Liabilities, Preferred Stock and Common Shareholders' Equity $ 6,262.9 $ 6,098.3
========= =========
----------
(*) At December 31, 1994 and 1993, there were 75,000,000 and 50,000,000 shares of $0.01 and no par
value preferred stock authorized, respectively, of which 25,632,708 in 1994 and 25,730,906 in
1993 were redeemable and/or convertible and cumulative preferred shares issued and outstanding.
As of the same dates, there were 250,000,000 and 100,000,000 shares of common stock, $1.00 par
value, authorized, respectively, of which 57,661,291 in 1994 and 57,538,872 in 1993 were issued.
At December 31, 1994 and 1993 there were 50,000,000 and 20,000,000 shares of Class B Common Stock,
$1.00 par value, authorized, respectively, of which 0 shares were issued. Common shares classified
as treasury stock were 6,124,879 and 5,694,871 as of December 31, 1994 and 1993, respectively.
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Old Republic International Corporation and Subsidiaries
Consolidated Statements of Income ($ in millions, Except Share Data)
--------------------------------------------------------------------------------------------------------------
Years Ended December 31,
------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Net premiums earned. . . . . . . . . . . . . . $ 1,282.9 $ 1,246.0 $ 1,103.5
Title, escrow, and other fees. . . . . . . . . 140.3 199.7 188.4
Net investment income. . . . . . . . . . . . . 227.5 220.7 221.5
Realized investment gains. . . . . . . . . . . 7.7 40.2 62.8
Other income . . . . . . . . . . . . . . . . . 20.4 29.5 40.7
---------- ---------- ----------
1,679.0 1,736.3 1,617.0
---------- ---------- ----------
Benefits, Losses and Expenses:
Benefits, claims, and settlement expenses. . . 753.5 817.8 709.6
Dividends to policyholders . . . . . . . . . . 7.6 (6.4) 42.4
Underwriting, acquisition, and insurance expenses 668.5 656.7 591.0
Interest and other charges . . . . . . . . . . 23.3 24.8 23.1
---------- ---------- ----------
1,453.1 1,492.9 1,366.3
---------- ---------- ----------
Income before income taxes and items below . . 225.8 243.3 250.7
---------- ---------- ----------
Income Taxes:Currently payable . . . . . . . . 41.8 68.3 54.4
Deferred . . . . . . . . . . . . . 31.5 9.6 20.5
---------- ---------- ----------
Total. . . . . . . . . . . . . . . 73.4 78.0 75.0
---------- ---------- ----------
Income before items below. . . . . . . . . . . 152.4 165.3 175.6
Equity in earnings of unconsolidated subsidiaries
and minority interests. . . . . . . . . . . . (1.4) 1.1 (.9)
---------- ---------- ----------
Income before cumulative effect of accounting changes 151.0 166.4 174.7
Cumulative effect of accounting changes. . . . - 8.6 -
---------- ---------- ----------
Net Income . . . . . . . . . . . . . . . . . . $ 151.0 $ 175.1 $ 174.7
========== ========== ==========
Net Income Per Share:
Primary:
Before cumulative effect of accounting changes $ 2.55 $ 2.83 $ 3.09
Cumulative effect of accounting changes. . . - .15 -
---------- ---------- ----------
Net income . . . . . . . . . . . . . . . . . $ 2.55 $ 2.98 $ 3.09
========== ========== ==========
Fully Diluted:
Before cumulative effect of accounting changes $ 2.44 $ 2.69 $ 2.95
Cumulative effect of accounting changes. . . - .14 -
---------- ---------- ----------
Net income . . . . . . . . . . . . . . . . . $ 2.44 $ 2.83 $ 2.95
========== ========== ==========
Average number of common and common
equivalent shares outstanding:Primary . . . . 57,207,702 57,077,542 54,516,581
========== ========== ==========
Fully Diluted . . . 61,657,490 61,519,432 58,317,906
========== ========== ==========
Dividends Per Common Share:
Cash. . . . . . . . . . . . . . . . . . . . . $ .47 $ .43 $ .39
Stock . . . . . . . . . . . . . . . . . . . . -% -% 100%
========== ========== ==========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Old Republic International Corporation and Subsidiaries
Consolidated Statements of Preferred Stock
and Common Shareholders' Equity ($ in millions)
------------------------------------------------------------------------------------------------------------
Years Ended December 31,
-----------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Redeemable Convertible Preferred Stock:
Balance, beginning of year. . . . . . . . . . $ 16.6 $ 18.7 $ 17.1
Amortization to redemption value capitalized (1.1) (1.0) (1.0)
Converted into common stock . . . . . . . . - (6.3) (1.5)
Reclassification from debt equivalent . . . 1.3 5.2 4.2
--------- --------- ---------
Balance, end of year. . . . . . . . . . . . . $ 16.8 $ 16.6 $ 18.7
========= ========= =========
Convertible Preferred Stock:
Balance, beginning of year. . . . . . . . . . $ 3.9 $ 4.5 $ 6.1
Exercise of stock options . . . . . . . . . .2 - -
Converted into common stock . . . . . . . . (.3) (.6) (1.6)
--------- --------- ---------
Balance, end of year. . . . . . . . . . . . . $ 3.8 $ 3.9 $ 4.5
========= ========= =========
Cumulative Preferred Stock:
Balance, beginning of year. . . . . . . . . . $ 57.5 $ 57.5 $ 57.5
Stock acquired during the year. . . . . . . (2.6) - -
--------- --------- ---------
Balance, end of year. . . . . . . . . . . . . $ 54.8 $ 57.5 $ 57.5
========= ========= =========
Common Stock:
Balance, beginning of year. . . . . . . . . . $ 57.5 $ 56.3 $ 26.2
Stock issued during the year:
Stock dividends . . . . . . . . . . . . . - - 26.3
Dividend reinvestment plan. . . . . . . . - - -
Exercise of stock options . . . . . . . . - .3 .6
Conversion of convertible debt. . . . . . . - - 2.6
Conversion of convertible preferred stock . - .8 .3
--------- --------- ---------
Balance, end of year. . . . . . . . . . . . . $ 57.6 $ 57.5 $ 56.3
========= ========= =========
Additional Paid-in Capital:
Balance, beginning of year. . . . . . . . . . $ 455.2 $ 444.6 $ 393.4
Stock issued during the year:
Stock dividends . . . . . . . . . . . . . - - -
Dividend reinvestment plan. . . . . . . . .4 .4 .4
Exercise of stock options . . . . . . . . .8 3.8 9.3
Conversion of convertible debt. . . . . . . - - 38.6
Conversion of convertible preferred stock . .3 6.2 2.8
--------- --------- ---------
Balance, end of year. . . . . . . . . . . . . $ 456.9 $ 455.2 $ 444.6
========= ========= =========
Net Unrealized Appreciation (Depreciation) of Securities:
Balance, beginning of year. . . . . . . . . . $ 25.2 $ 8.9 $ 4.1
Change for the year, net of deferred tax if any (35.7) 16.3 4.8
--------- --------- ---------
Balance, end of year. . . . . . . . . . . . . $ (10.4) $ 25.2 $ 8.9
========= ========= =========
Retained Earnings:
Balance, beginning of year. . . . . . . . . . $ 750.2 $ 606.3 $ 489.2
Net income. . . . . . . . . . . . . . . . . 151.0 175.1 174.7
Dividends on common stock:Cash. . . . . . . (24.5) (21.6) (19.0)
Stock . . . . . . . . - - (26.3)
Dividends on preferred stock. . . . . . . . (7.0) (7.2) (7.8)
Currency translation adjustments. . . . . . (4.6) (2.2) (4.3)
--------- --------- ---------
Balance, end of year. . . . . . . . . . . . . $ 865.0 $ 750.2 $ 606.3
========= ========= =========
Treasury Stock:
Balance, beginning of year. . . . . . . . . . $ (31.3) $ (31.3) $ (31.3)
Acquired during the year. . . . . . . . . . (8.5) - -
--------- --------- ---------
Balance, end of year. . . . . . . . . . . . . $ (39.8) $ (31.3) $ (31.3)
========= ========= =========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Old Republic International Corporation and Subsidiaries
Consolidated Statements of Cash Flows ($ in millions)
-------------------------------------------------------------------------------------------------------------
Years Ended December 31,
-----------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . . . . $ 151.0 $ 175.1 $ 174.7
Change in non-cash items:
Deferred policy acquisition costs . . . . . (5.7) (16.5) (11.5)
Premiums and other receivables. . . . . . . (7.8) (58.1) (16.8)
Unpaid claims and related items . . . . . . 107.5 154.0 50.8
Future policy benefits and policyholders' funds (18.6) 47.5 2.2
Income taxes. . . . . . . . . . . . . . . . 9.2 (.7) 20.9
Reinsurance balances and funds. . . . . . . 11.1 75.9 58.9
Accounts payable, accrued expenses and other 13.7 16.7 19.7
-------- --------- ---------
Total . . . . . . . . . . . . . . . . . . . . 260.4 394.0 299.0
-------- --------- ---------
Cash flows from investing activities:
Sales of fixed maturity securities:
Held to maturity:
Maturities and early calls. . . . . . . . . 159.3 366.1 543.3
Other . . . . . . . . . . . . . . . . . . . 23.4 133.6 929.6
Available for sale:
Maturities. . . . . . . . . . . . . . . . . 31.9 24.4 -
Other . . . . . . . . . . . . . . . . . . . 86.3 151.0 -
Sales of equity securities. . . . . . . . . . 30.2 69.3 5.1
Sales of other investments. . . . . . . . . . 4.7 6.3 7.1
Sales of fixed assets for company use . . . . 3.7 2.0 1.6
Purchases of fixed maturity securities:
Held to maturity. . . . . . . . . . . . . . (411.2) (828.3) (1,756.0)
Available for sale. . . . . . . . . . . . . (152.3) (140.1) -
Purchases of equity securities. . . . . . . . (100.8) (133.7) (72.3)
Purchases of other investments. . . . . . . . (12.2) (6.0) (10.9)
Purchases of fixed assets for company use . . (11.4) (12.1) (11.0)
Other-net . . . . . . . . . . . . . . . . . . 1.2 (1.7) (2.1)
-------- --------- --------
Total . . . . . . . . . . . . . . . . . . . . (347.0) (369.1) (365.5)
-------- --------- --------
Cash flows from financing activities:
Increase in term loans. . . . . . . . . . . . 34.0 17.4 1.6
Issuance of preferred and common stock. . . . 1.6 4.7 10.4
Issuance of debentures and notes. . . . . . . - - 131.0
Repayments of term loans. . . . . . . . . . . (.5) (6.9) (57.6)
Dividends on common shares. . . . . . . . . . (24.5) (21.6) (19.0)
Dividends on preferred shares . . . . . . . . (8.2) (8.3) (8.9)
Purchases of treasury stock . . . . . . . . . (8.5) - -
Purchases of cumulative preferred stock . . . (2.6) - -
Other-net . . . . . . . . . . . . . . . . . . .4 7.5 -
------- --------- -------
Total . . . . . . . . . . . . . . . . . . . . (8.4) (7.3) 57.3
------- --------- -------
Increase (decrease) in cash and short-term
investments . . . . . . . . . . . . . . . . . (95.0) 17.5 (9.2)
Cash and short-term investments, beginning of year 298.3 280.7 290.0
--------- --------- ---------
Cash and short-term investments, end of year. $ 203.3 $ 298.3 $ 280.7
========= ========= =========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
Old Republic International Corporation and Subsidiaries
Notes to Consolidated Financial Statements
($ in Millions, Except as Otherwise Indicated)
----------------------------------------------------------------------------
Note 1-Summary of Significant Accounting Policies-The significant accounting
policies employed by Old Republic International Corporation ("Old Republic",
"the Company", or "the Corporation") and its subsidiaries are set forth in
the following summary. See Note 7 for a discussion of the Company's business
segments.
(a) Consolidation Practices-The consolidated financial statements include the
accounts of the Corporation and those of its major insurance underwriting and
service subsidiaries. Non-consolidated insurance marketing and service
subsidiaries are insignificant and are reflected on the equity basis of
accounting.
(b) Accounting Principles-The Corporation's insurance underwriting
subsidiaries maintain their records in conformity with accounting practices
prescribed or permitted by state insurance regulatory authorities. In
consolidating such subsidiaries, adjustments have been made to conform their
accounts with generally accepted accounting principles.
(c) Investments-The Company classifies its invested assets in terms of those
assets relative to which it either (1) has the intent and ability to hold
until maturity (generally carried at amortized costs for fixed maturity
securities), (2) has available for sale (carried at fair value with
adjustments to equity) or (3) has the intention of trading (carried at fair
value with adjustments to income). The Company's invested assets are
classified as either "held to maturity" or "available for sale."
Bonds, notes and redeemable preferred stocks classified as "held to
maturity" are generally carried at amortized costs while bonds and notes
classified as "available for sale" in addition to other preferred and common
stocks (equity securities) are included at fair value. Fair values for fixed
maturity securities are based on quoted market prices or estimated using
values obtained from independent pricing services as applicable. Mortgage
and policy loans (other long-term investments) are carried on the basis of
the lower of unpaid principal balances or estimated realizable value. While
the aggregate fair value of fixed maturity securities -"held to maturity" at
December 31, 1994 was below their carrying values, the Company does not
currently expect the realization of such losses from a forced sale of all or
part of these securities.
The amortized cost and estimated fair values of fixed maturity securities
are as follows:
<TABLE>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Fixed Maturity Securities:
December 31, 1994:
Held to maturity:
Taxable bonds and notes . . . . $2,275.6 $ 2.0 $ 126.3 $2,151.4
Tax-exempt bonds and notes. . . 450.7 1.4 21.7 430.3
Redeemable preferred stocks . . .8 - - .7
-------- -------- -------- --------
$2,727.2 $ 3.5 $ 148.1 $2,582.6
======== ======== ======== ========
Available for sale:
Taxable bonds and notes (a) . . $ 646.8 $ 1.6 $ 28.1 $ 620.3
======== ======== ======== ========
December 31, 1993:
Held to maturity:
Taxable bonds and notes . . . . $2,231.6 $ 87.9 $ 6.4 $2,312.9
Tax-exempt bonds and notes. . . 276.9 8.5 .4 285.0
Redeemable preferred stocks . . 1.2 .1 - 1.3
-------- -------- -------- --------
$2,509.7 $ 96.5 $ 6.8 $2,599.3
======== ======== ======== ========
Available for sale:
Taxable bonds and notes (a) . . $ 616.5 $ 26.7 $ .8 $ 642.4
======== ======== ======== ========
----------
(a) Consists of U.S. Government bonds and notes and convertible bonds.
</TABLE>
<PAGE>
The amortized cost and estimated fair value at December 31, 1994, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
Estimated
Amortized Fair
Cost Value
-------- --------
<S> <C> <C>
Fixed Maturity Securities:
Held to Maturity:
Due in one year or less . . . . . . . . . . . . . . $ 122.7 $ 123.1
Due after one year through five years . . . . . . . 1,180.6 1,139.0
Due after five years through ten years. . . . . . . 1,374.5 1,272.3
Due after ten years . . . . . . . . . . . . . . . . 49.1 48.0
-------- --------
$2,727.2 $2,582.6
======== ========
Available for Sale:
Due in one year or less . . . . . . . . . . . . . . $ 51.6 $ 51.3
Due after one year through five years . . . . . . . 237.3 227.5
Due after five years through ten years. . . . . . . 314.9 299.6
Due after ten years . . . . . . . . . . . . . . . . 42.8 41.7
-------- --------
$ 646.8 $ 620.3
======== ========
</TABLE>
A summary of the Company's equity securities follows:
<TABLE>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Equity Securities:
December 31, 1994:
Common stocks . . . . . . . . . $ 250.0 $ 20.9 $ 11.7 $ 259.2
Non redeemable preferred stocks 4.6 - .1 4.5
-------- -------- -------- --------
$ 254.7 $ 20.9 $ 11.8 $ 263.8
======== ======== ======== ========
December 31, 1993:
Common stocks . . . . . . . . . $ 176.6 $ 18.4 $ 6.9 $ 188.0
Non redeemable preferred stocks 3.9 - .1 3.8
-------- -------- -------- --------
$ 180.5 $ 18.4 $ 7.0 $ 191.9
======== ======== ======== ========
</TABLE>
Investment income is reported net of allocated expenses and includes
appropriate adjustments for amortization of premium and accretion of discount
on fixed maturity securities acquired at other than par value. Dividends on
stock are credited to income on the ex-dividend date. Realized investment
gains and losses are reflected as revenues in the income statement and are
determined on the basis of amortized value at date of sale for fixed maturity
securities, and cost in regard to stocks; such bases apply to the specific
securities sold. Unrealized investment gains and losses, net of any deferred
income taxes, are recorded directly in a separate account of shareholders'
equity.
At December 31, 1994, the Corporation and its subsidiaries had non-income
producing investments aggregating $0.4.
<PAGE>
The following table reflects the composition of net investment income and
net realized and unrealized investment gains or losses for each of the years
shown:
<TABLE>
Years Ended December 31,
----------------------------
1994 1993 1992
------- ------- --------
<S> <C> <C> <C>
Investment income from:
Fixed maturity securities. . . . . . . . . $ 208.2 $ 205.2 $ 205.3
Equity securities. . . . . . . . . . . . . 7.5 5.0 2.7
Short-term investments . . . . . . . . . . 9.7 8.7 9.8
Other sources. . . . . . . . . . . . . . . 7.9 7.0 8.8
------- ------- -------
Gross investment income . . . . . . . . . 233.6 226.0 226.7
Investment expenses (1). . . . . . . . . . 6.0 5.2 5.1
------- ------- ------
Net investment income . . . . . . . . . . $ 227.5 $ 220.7 $ 221.5
======= ======= =======
Realized gains (losses) on:
Fixed maturity securities:
Held to maturity . . . . . . . . . . . . . $ 1.1 $ 11.3 $ 61.0
Available for Sale:
Gains . . . . . . . . . . . . . . . . . . 2.0 19.5 -
Losses. . . . . . . . . . . . . . . . . . (.3) (4.1) -
------- ------- -------
Net . . . . . . . . . . . . . . . . . . 1.7 15.4 -
------- ------- -------
Total . . . . . . . . . . . . . . . . . . 2.8 26.7 61.0
------- ------- -------
Equity securities. . . . . . . . . . . . . 5.3 13.6 1.7
Other assets . . . . . . . . . . . . . . . (.5) (.1) -
------- ------- -------
Total . . . . . . . . . . . . . . . . . . 7.7 40.2 62.8
Income taxes . . . . . . . . . . . . . . . 2.7 14.4 19.9
------- ------- -------
Net realized gains. . . . . . . . . . . . $ 5.0 $ 25.7 $ 42.8
======= ======= =======
Unrealized investment gains (losses) on:
Fixed maturity securities:
Held to Maturity (2). . . . . . . . . . . $(234.0) $ 37.8 $ (49.7)
======= ======= =======
Available for sale. . . . . . . . . . . . $ (50.8) $ 25.2 $ -
Less: Deferred income taxes. . . . . . . (17.4) 8.7 -
------- ------- -------
Net unrealized gains (losses) . . . . . $ (33.3) $ 16.4 $ -
======= ======= =======
Equity securities-available for sale . . . $ (3.2) $ (.7) $ 7.2
Less: Deferred income taxes (credits). . . ( .8) (.6) 2.4
------- ------- -------
Net unrealized gains (losses) . . . . . . $ (2.3) $ (.1) $ 4.8
======= ======= =======
----------
(1)Investment expenses include interest expense of $0.7 in 1994, $0.7 in
1993, and $1.0 in 1992, relating to reinsurance agreements and
retrospective premium adjustment contracts of insurance subsidiaries.
Substantially all other expenses consist of salaries and investment
service fees.
(2)Deferred income taxes do not apply since these securities are carried at
amortized cost.
</TABLE>
(d) Revenue Recognition-Pursuant to generally accepted accounting principles
applicable to the insurance industry, benefits, claims, and expenses are
associated with the related revenues by means of the provision for policy
benefits, the deferral and subsequent amortization of acquisition costs, and
the recognition of incurred benefits, claims and operating expenses.
General insurance (property and liability) and level-term credit life
insurance premiums are reflected in income on a pro-rata basis. Earned but
unbilled premiums are generally taken into income on the billing date, and
adjustments for retrospective premiums, commissions and similar charges are
accrued on the basis of periodic evaluations of current underwriting
experience and contractual obligations. Title insurance premiums are
recognized as income upon the substantial competition of the policy issuance
process. Title abstract, escrow, service, and other fees are taken into
income at the time that the services are performed. First year and renewal
mortgage guaranty premiums are recognized as income on a straight-line basis
except that a portion of first year premiums received for certain high risk
policies is deferred and reported as earned over the estimated policy life,
including renewal periods. Single premiums for mortgage guaranty policies
covering more than one year are earned on an accelerated basis over the
policy term. Ordinary life and annuity premiums are recognized as revenue
when due. Decreasing term credit life and credit disability/accident & health
insurance premiums are generally earned on a sum-of-the-years-digits or
similar method.
(e) Deferred Policy Acquisition Costs-The Corporation's insurance
subsidiaries, other than title companies, defer certain costs which vary with
and are primarily related to the production of business. Deferred costs
consist principally of commissions, premium taxes, marketing, and policy
issuance expenses. With respect to most coverages, deferred acquisition costs
are amortized on the same basis as the related premiums are earned or,
alternatively, over the periods during which premiums will be paid or
underwriting and claim services performed. The following table summarizes
deferred policy acquisition costs and related data for the years shown:
<TABLE>
Years Ended December 31,
---------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Deferred, beginning of year. . . . . . . . . $ 95.5 $ 78.9 $ 67.5
------- ------- -------
Acquisition costs deferred:
Commissions - net of reinsurance . . . . . 110.5 117.1 88.8
Premium taxes. . . . . . . . . . . . . . . 33.8 22.2 33.4
Salaries and other marketing expenses. . . 52.2 46.9 43.9
------- ------- -------
Total . . . . . . . . . . . . . . . . . . 196.8 186.2 166.4
Amortization charged to income . . . . . . . (191.0) (169.6) (154.9)
------- ------- -------
Change for the year . . . . . . . . . . . 5.6 16.6 11.4
------- ------- -------
Deferred, end of year. . . . . . . . . . . . $ 101.3 $ 95.5 $ 78.9
======= ======= =======
</TABLE>
(f) Future Policy Benefits/Unearned Premiums-See note 1(g) for discussion of
FAS No. 113 "Accounting and Reporting for Reinsurance of Short Duration and
Long-Duration Contracts". General insurance and level term credit life
insurance policy liabilities represent unearned premium reserves developed by
application of monthly pro-rata factors to premiums in force.
Disability/accident & health and decreasing term credit life insurance policy
liabilities are calculated primarily on a sum-of-the-years-digits method.
Mortgage guaranty unearned premium reserves are calculated primarily on a
pro-rata basis. Ordinary life policy liabilities are determined on a level
premium method and take into account mortality and withdrawal rates based
principally on anticipated company experience; assumed interest rates range
from 3.0% to 6.0%. With respect to annuity policies, the liabilities
represent the surrender value of such policies during deferral periods,
without adjustment for surrender charges; such values are deemed appropriate
to provide for ultimate benefit reserves in the event policyholders exercise
an annuity benefit option at a later date.
At December 31, 1994 and 1993, the Life Insurance Group had $4,423.4 and
$4,286.7, respectively, of net life insurance in force. Future policy
liabilities and unearned premiums, consisted of the following:
<TABLE>
December 31,
-----------------------
1994 1993
-------- --------
<S> <C> <C>
General Insurance Group . . . . . . . . . . . . . $ 323.8 $ 337.6
-------- --------
Mortgage Guaranty Group . . . . . . . . . . . . . 81.6 81.5
-------- --------
Life Insurance Group:
Life insurance . . . . . . . . . . . . . . . . . 58.0 58.0
Annuities. . . . . . . . . . . . . . . . . . . . 91.3 98.5
Disability/accident & health . . . . . . . . . . 35.6 33.5
-------- --------
Sub-total. . . . . . . . . . . . . . . . . . . . 184.9 190.1
-------- --------
Consolidated. . . . . . . . . . . . . . . . . . . $ 590.4 $ 609.3
======== ========
</TABLE>
<PAGE>
The Company issues, directly or as a reinsurer, certain insurance policies
generally categorized as financial guarantees. The major types of guarantees
pertain to (a) state, municipal and other general or special revenue bonds,
(b) variable interest rate guarantees, and (c) insurance of the future
residual value of fixed assets. The types of risks involved include failure
by the bond issuer to make timely payment of principal and interest, changes
in interest rates, and changes in the future value of fixed assets. The
degree of risk pertaining to these insurance products is largely dependent on
the effects of general economic cycles and changes in the credit worthiness
of issuers whose obligations have been guaranteed. During the past three
years, new commitments have been limited to those identified at (a)
immediately above.
Premiums received for financial guarantee policies are generally earned
over the terms of the contract (which may range between 5 and 30 years) or on
the basis of current exposure relative to maximum exposure in force; with
respect to residual value insurance, that portion of the premium in excess of
certain initial underwriting costs is deferred and taken into income when all
events leading to the determination of exposure, if any, have occurred. Since
losses on financial guarantee insurance products cannot be predicted
reliably, the Company's unearned premium reserves serve as the primary income
recognition and loss reserving mechanism. When losses become known and
determinable, they are paid or placed in reserve and the remaining
directly-related unearned premiums are taken into income.
No assurance can be given that unearned premiums will be greater or less
than ultimate incurred losses on these policies.
The following table reflects certain data pertaining to net insurance in
force for the Company's financial guarantee business at the dates shown:
<TABLE>
Years Ended December 31,
------------------------
1994 1993
-------- ---------
<S> <C> <C>
Net Insurance in Force:
Bonds. . . . . . . . . . . . . . . . . . . . . . $2,342.8 $2,424.0
Variable interest rate . . . . . . . . . . . . . 1.0 1.7
Residual value . . . . . . . . . . . . . . . . . .8 1.0
Net Unearned Premiums:
Bonds. . . . . . . . . . . . . . . . . . . . . . 14.8 16.8
Variable interest rate . . . . . . . . . . . . . 1.0 1.7
Residual value . . . . . . . . . . . . . . . . . $ - $ -
======== ========
</TABLE>
With respect to mortgage guaranty insurance (net insurance in force of
$30,405.3 and $24,026.1, at December 31, 1994 and 1993, respectively) the
Company's reserving policies are set forth below in Note l(g).
(g) Losses, Claims and Settlement Expenses-Reserves are provided for the
ultimate expected cost of settling unpaid losses and claims reported at each
balance sheet date. Losses and claims incurred but not reported, as well as
expenses required to settle losses and claims are established on the basis of
various criteria, including historical cost experience and anticipated costs
of servicing reinsured and other risks. Long-term disability-type workers'
compensation reserves, however, are discounted to present value based on
interest rates ranging from 3.5% to 4%.
Effective January 1, 1993 the Company adopted Financial Accounting
Standard (FAS) No. 113 "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts" which changes the previous
reporting of assets and liabilities relating to reinsured contracts on a net
of reinsurance ceded balances basis. As a result, reinsured outstanding
losses and unearned premiums are to be reported as assets. Accordingly, at
December 31, 1994 and 1993, assets and liabilities were increased by
corresponding amounts of approximately $1.5 billion. FAS No. 113 did not
have any effect on the Company's results of operations and did not require
retroactive application to 1992 and prior years.
The following table shows an analysis of changes in aggregate reserves for
the Company's losses, claims and settlement expenses for each of the years
shown.
<PAGE>
<TABLE>
Years Ended December 31,
------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Amount of reserves for unpaid claims and claim adjustment
expenses at the beginning of each year, net of reinsurance
losses recoverable . . . . . . . . . . . . . $1,989.8 $1,836.4 $1,780.1
-------- -------- --------
Incurred claims and claim adjustment expenses:
Provisions for insured events of the current year 857.3 871.9 740.2
Change in provision for insured events of prior years (100.4) (54.5) (29.8)
-------- --------- --------
Total incurred claims and claim adjustment expenses 756.8 817.4 710.6
-------- -------- --------
Payments:
Claims and claim adjustment expenses attributable to insured
events of the current year. . . . . . . . . 279.9 295.4 235.5
Claims and claim adjustment expenses attributable to insured
events of prior years . . . . . . . . . . . 370.1 368.6 418.6
-------- -------- --------
Total payments. . . . . . . . . . . . . . 650.1 663.9 654.2
-------- -------- --------
Amount of reserves for unpaid claims and claim adjustment
expenses at the end of each year, net of reinsurance
losses recoverable . . . . . . . . . . . . . 2,096.5 1,989.8 1,836.4
Reinsurance losses recoverable. . . . . . . . 1,418.1 1,415.7 -
-------- -------- --------
Amount of reserves for unpaid claims and claim adjustment
expenses . . . . . . . . . . . . . . . . . . $3,514.7 $3,405.6 $1,836.4
======== ======== ========
</TABLE>
All reserves are necessarily based on estimates which are periodically
reviewed and evaluated in the light of emerging claim experience and existing
circumstances. The resulting changes in estimates are recorded in operations
of the periods during which they are made. Return and additional premiums
and policyholders dividends, all of which tend to be affected by development
of claims in future years, may offset in whole or in part developed claim
redundancies on deficiencies for certain coverages such as workers
compensation.
The data in the table above, incorporates the Corporation's estimates for
various environmental impairment and asbestos-related claim or related costs
that have been filed in the normal course of business against a number of its
insurance subsidiaries. Such claims relate primarily to policies issued
prior to 1985, many during a short period between 1981 and 1982 pursuant to
an agency agreement canceled in 1982. During all years and through the
current date, the Corporation's insurance subsidiaries have typically issued
general liability insurance policies with face amounts ranging between $1
million and $2 million and rarely exceeding $10 million. Such policies have,
in turn, been subject to reinsurance cessions which have typically reduced
the Corporation's retentions to $500,000 or less as to each claim.
The Corporation's reserving methods, particularly as they apply to
formula-based reserves, have been established to cover normal claim
occurrences as well as unusual exposures such as those pertaining to
environmental and asbestosis claims and related costs. At times, however,
the Corporation's insurance subsidiaries also establish specific formula and
other reserves as part of their overall claim and claim expense reserves.
These are intended to cover additional litigation and other costs that are
likely to be incurred to protect the Company's interests in litigated cases
in particular. At December 31, 1994 the Corporation's aggregate reserves
specifically identified with environmental and asbestosis exposures amounted
to approximately $60.4 million gross, and $37.7 million net of reinsurance.
Through December 31, 1994 the Corporation's historical indemnity and loss
expense payments relative to these exposures have been negligible in the
context of loss and loss expense payments made for all types of claims.
Old Republic disagrees with the allegations of liability on virtually all
environmental and asbestos-related claims of which it has knowledge on the
grounds that exclusions in the policies preclude coverage for nearly all such
claims, and that the Corporation never intended to assume such risks. Old
Republic's exposure on such claims cannot therefore be calculated by
conventional insurance reserving methods for this and a variety of reasons,
including: a) the absence of statistically valid data inasmuch as such
claims typically involve long reporting delays and very often uncertainty as
to the number and identity of insureds against whom such claims have arisen
or will arise; and b) the litigation history of such or similar claims for
the insurance industry has produced court decisions that have been
inconsistent with regard to such issues as when the alleged loss occurred,
which policies provide coverage, how a loss is to be allocated among
potentially responsible insureds and/or their insurance carriers, how policy
coverage exclusions are to be interpreted, what types of environmental
impairment or toxic tort claims are covered, when the insurer's duty to
defend is triggered, how policy limits are to be calculated, and whether
clean-up costs constitute property damage.
<PAGE>
Insurance industry associations, individual insurance companies, and
others who have evaluated the potential costs of litigating and settling
environmental and asbestos-type claims have noted with increasing concern the
probability that resolution of such claims, by applying liability
retroactively in the context of the existing insurance system, would likely
bankrupt or undermine seriously the financial condition of the property and
liability insurance industry. In the light of this substantial public policy
issue, the Corporation is of the view that the courts will not resolve in the
near future the litigation gridlock stemming from the non-resolution to date
of many environmental and asbestos-related claims. In recent times the
Executive Branch and/or the United States Congress have proposed changes in
the legislation and rules affecting these types of claims. As of December
31, 1994, however, there is no solid evidence suggesting that forthcoming
changes might mitigate or reduce some or all of these claims.
Because of all these issues and uncertainties, estimation of reserves for
losses and allocated loss adjustment expenses for the above noted types of
claims is extremely difficult or impossible. Accordingly, no representation
can be made that the Corporation's reserves for such claims and related costs
will not prove to be overstated or understated in the future.
(h) Income Taxes-The Corporation and most of its subsidiaries file a
consolidated tax return and provide for income taxes payable currently.
Deferred income taxes included in the accompanying consolidated financial
statements pursuant to generally accepted accounting principles will not
necessarily become payable/recoverable in the future. Effective January 1,
1993 the Company adopted Financial Accounting Standard (FAS) No. 109
"Accounting for Income Taxes" that required a change to the asset and
liability method of calculating deferred income taxes. The cumulative effect
of this change resulted in an increase in net income of $13.3, or $.23 per
share ($.22 fully diluted) in 1993. This method calls for the establishment
of a deferred tax, calculated at currently effective tax rates, for the
cumulative temporary differences between financial statement and tax bases of
assets and liabilities. Prior to January 1, 1993 deferred income taxes were
established for income and expense items reported in the consolidated
financial statements in different periods than for tax purposes.
The provision for combined current and deferred income taxes reflected in
the consolidated statements of income does not bear the usual relationship to
operating income before taxes as the result of permanent and other
differences between pre-tax income and taxable income determined under
existing tax regulations. The more significant differences, their effect on
the statutory income tax rate, and the resulting effective income tax rates
are summarized below:
<TABLE>
Years Ended December 31,
----------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Statutory tax rate . . . . . . . . . . . . . . 35.0% 35.0% 34.0%
Tax rate increases (decreases):
Tax-exempt interest . . . . . . . . . . . . (2.4) (1.4) (1.8)
Dividends received exclusion. . . . . . . . (.9) (.7) (.4)
Fresh start adjustment and amortization . . - - (.7)
Change in tax rate on beginning temporary differences - (1.2) -
Other items - net . . . . . . . . . . . . . .8 .4 (1.2)
-------- -------- --------
Effective tax rate . . . . . . . . . . . . . . 32.5% 32.0% 29.9%
======== ======== ========
</TABLE>
A summary of deferred income taxes applicable to the year ended
December 31, 1992, calculated on a historical basis prior to adoption
FAS 109 follows:
<TABLE>
1992
-------
<S> <C>
Deferred policy acquisition costs . . . . . . . . . . . . . . . . $ 5.7
Future policy benefits. . . . . . . . . . . . . . . . . . . . . . 3.5
Loss and unearned premium reserve discounting and
amortization. . . . . . . . . . . . . . . . . . . . . . . . . . (4.9)
Fresh start amortization of discounted loss reserves. . . . . . . (1.9)
Contingency reserves. . . . . . . . . . . . . . . . . . . . . . . 17.2
Other items - net . . . . . . . . . . . . . . . . . . . . . . . . .9
-------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20.5
=======
</TABLE>
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the Company's net deferred tax recoverable are as follows at the
dates shown:
<TABLE>
December 31, January 1,
----------------------
1994 1993 1993
--------- --------- ---------
<S> <C> <C> <C>
Deferred Tax Assets:
Future policy benefits . . . . . . . $ 3.1 $ 1.7 $ 1.5
Losses, claims, and settlement expenses 179.8 182.2 165.4
Unearned premium reserves. . . . . . 1.0 6.2 3.4
Other. . . . . . . . . . . . . . . . 8.7 8.7 8.6
--------- --------- --------
Total gross deferred tax assets. . 192.7 199.0 178.9
Less-valuation allowance . . . . . 1.4 3.9 4.1
--------- --------- --------
Net deferred tax assets. . . . . . 191.3 195.0 174.8
--------- --------- --------
Deferred Tax Liabilities:
Deferred policy acquisition costs. . 35.5 34.2 27.8
Mortgage guaranty insurers contingency reserves 67.2 43.2 25.1
Fixed maturity securities adjusted to costs 3.6 4.8 3.4
Unrealized investment gains (losses) (5.5) 10.2 2.6
Title plants and records . . . . . . 3.4 3.4 3.3
Other. . . . . . . . . . . . . . . . 14.5 15.7 18.8
--------- --------- --------
Total deferred tax liabilities . . 118.8 111.9 $ 81.3
--------- --------- --------
Net deferred tax asset . . . . . . $ 72.4 $ 83.2 $ 93.4
========= ========= ========
</TABLE>
Pursuant to special provisions of the Internal Revenue Code pertaining to
mortgage guaranty insurers, a contingency reserve (established in accordance
with insurance regulations designed to protect policyholders against
extraordinary volumes of claims) is deductible from gross income. The tax
benefits obtained from such deductions must, however, be invested in a
special type of non-interest bearing U.S. Government Tax and Loss Bond. For
Federal income tax purposes, the amounts deducted for the contingency reserve
are taken into gross statutory taxable income (a) when the contingency
reserve is permitted to be charged for losses under state law or regulation,
(b) in the event operating losses are incurred, or (c) in any event upon the
expiration of ten years.
Life Insurance companies domiciled in the United States and qualifying as
life insurers for tax purposes are taxed under special provisions of the
Internal Revenue Code. As a result of legislation, 1983 and prior years' tax
deferred earnings (cumulatively $20.7 at December 31, 1993) credited to the
former memorandum policyholders' surplus account" will not be taxed unless
they are subsequently distributed to shareholders. The Company does not
presently anticipate any distribution or payment of taxes on such earnings in
the future.
As a result of regular examinations of the tax returns for the Corporation
and its subsidiaries, the Internal Revenue Service ("IRS") has proposed
certain adjustments for additional taxes applicable to the years 1982 to
1990. The proposed adjustments pertain to the timing of certain deductions,
the IRS's contention that contractually obligated premium refunds should be
treated as dividends, deductions for certain loss and related reserves, a
reinsurance transaction, and several other issues not involving material
amounts. The Company and its tax counsel believe that substantially all of
the proposed material adjustments are without merit, that the Company will be
successful in vigorously defending its positions, and that the ultimate
adjustments, if any, will not significantly affect its financial condition or
results of operations. During 1994 and 1993, certain of the proposed
adjustments were finally settled for immaterial amounts. In 1992, the
Company's life insurance subsidiaries recorded previously unrecognized tax
recoveries of $1.1 and related interest credits of approximately $12.4
stemming from resolution of various long-standing Internal Revenue Service
disputes applicable to taxable years 1969 to 1981.
(i) Property and Equipment-Property and equipment is generally depreciated or
amortized over the estimated useful lives of the assets, (2 to 45 years),
substantially by the straight-line method. Expenditures for maintenance and
repairs are charged to income as incurred, and expenditures for major
renewals and additions are capitalized.
<PAGE>
(j) Title Plants and Records-Title plants and records are carried at original
cost or appraised value at date of purchase. Such values represent the cost
of producing or acquiring interests in title records and indexes and the
appraised value of purchased subsidiaries' title records and indexes at dates
of acquisition. The cost of maintaining, updating, and operating title
records is charged to income as incurred. Title records and indexes are not
being amortized since they have an indefinite life and do not diminish in
value.
(k) Goodwill-The costs of certain purchased subsidiaries in excess of related
book values (goodwill) at date of acquisition are being amortized against
operations principally over 40 years using the straight-line method.
Amortization of goodwill amounted to $3.1 in 1994, $3.2 in 1993 and $3.0 in
1992.
(l) Employee Benefit Plans- The Corporation has several pension plans
covering approximately half of its employees. The plans are defined benefit
plans pursuant to which pension payments are based primarily on years of
service and employee compensation near retirement. It is the Corporation's
policy to fund the plans' costs as they accrue. Plan assets are comprised
principally of bonds, common stocks and short-term investments.
The components of annual net periodic pension cost (credit) for the plans
consisted of the following:
<TABLE>
Years Ended December 31,
---------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Service cost . . . . . . . . . . . . . . . . $ 3.4 $ 3.0 $ 2.9
Interest cost. . . . . . . . . . . . . . . . 7.1 6.7 6.2
Return on assets . . . . . . . . . . . . . . (5.2) (8.0) (10.5)
Net amortization and deferral. . . . . . . . (4.9) (1.7) 1.4
------- ------- -------
Net cost (credit). . . . . . . . . . . . . . $ .3 $ - $ -
======= ======= =======
</TABLE>
The reconciliation of the funded status of the plans is as follows:
<TABLE>
December 31,
------------------
1994 1993
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligations . . . . . . . . . . . . . $ 83.4 $ 76.4
Nonvested benefit obligations. . . . . . . . . . . . 2.1 2.3
------- -------
Accumulated benefit obligations. . . . . . . . . . . 85.5 78.7
Excess of projected benefit obligations over
accumulated benefit obligations . . . . . . . . . . 15.0 14.2
------- -------
Projected benefit obligations. . . . . . . . . . . . . 100.5 92.9
Plans' assets at fair market value . . . . . . . . . . 106.7 104.2
------- -------
Plan assets in excess of projected benefit obligations 6.2 11.2
Unrecognized net loss. . . . . . . . . . . . . . . . . 5.5 .6
Prior service cost not yet recognized in net periodic pension cost .6 1.5
Remaining unrecognized transition net assets from
December 31, 1985. . . . . . . . . . . . . . . . . . (5.8) (7.4)
------- -------
Unfunded accrued pension asset recognized in the consolidated
balance sheet. . . . . . . . . . . . . . . . . . . . $ 6.5 $ 5.9
======= ========
</TABLE>
The projected benefit obligations for the plans were determined using the
following assumptions at the dates shown:
<TABLE>
December 31,
-----------------------
1994 1993
---------- ----------
<S> <C> <C>
Settlement discount rates. . . . . . . . . . . . . . .7.0 - 8.5% 7.5 - 8.0%
Rates of compensation increase . . . . . . . . . . . .4.0 - 5.5% 4.0 - 5.5%
Long-term rates of return on assets. . . . . . . . . .7.5 - 8.5% 8.0 - 9.0%
</TABLE>
<PAGE>
The Corporation has a number of profit sharing and other incentive
compensation programs for the benefit of a substantial number of its
employees. The costs related to such programs are summarized below:
<TABLE>
Years Ended December 31,
---------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Employees Savings and Stock Ownership Plan. . $ 5.2 $ 1.8 $ 4.3
Other profit sharing. . . . . . . . . . . . . 3.2 3.0 2.5
Deferred and incentive compensation . . . . . $ 8.2 $ 12.9 $ 15.3
======= ======= =======
</TABLE>
The Company adopted Financial Accounting Standard (FAS) No. 106
"Employers' Accounting for Post-retirement Benefits Other Than Pensions" for
health care and life insurance benefit plans as of January 1, 1993. A few
Old Republic subsidiaries make available post-retirement health benefits for
employees that retired prior to November 30, 1992. FAS No. 106 provides the
option of either recognizing the projected future costs of post-retirement
benefits as a liability, or amortizing such costs over the average remaining
life expectancy of plan participants. Previously such benefits were reported
as costs in the period during which they were provided. The Company
recognized the accumulated post-retirement benefit liability of $7.0 as of
January 1, 1993; this resulted in an after tax charge to net income of $4.6,
or $.08 per share ($.08 fully diluted).
The Company sponsors a leveraged Employee Savings and Stock Ownership Plan
(ESSOP) for a majority of its employees. The ESSOP acquired all of its stock
of the Company in 1987 and prior years. Accordingly, it is not required to
adopt the American Institute of Certified Public Accountants' SOP No. 93-6,
"Employers' Accounting for Employee Stock Ownership Plans." Shares' of the
Company stock owned by the ESSOP are released to participants based on a
formula prescribed by the Employee Retirement Income Security Act of 1974,
and dividends on released shares are allocated to participants as earnings.
The Company's contributions are based on a formula considering historical net
income per share. As of December 31, 1994, there were 22,256,680 Series "D"
Redeemable Preferred Shares and 479,449 Common Shares owned by the ESSOP of
which 5,877,584 Series "D" Redeemable Preferred Shares and 27,483 Common
Shares were unreleased and unallocated. There are no repurchase obligations
in existence. (See Note 3).
(m) Escrow Funds-Segregated cash deposit accounts and the offsetting
liabilities for escrow deposits in connection with Title Insurance Group real
estate transactions in the same amounts ($198.7 and $219.9 at December 31,
1994 and 1993, respectively) are not included as assets or liabilities in the
accompanying consolidated balance sheets as the escrow funds are not
available for regular operations.
(n) Earnings Per Share-Consolidated primary earnings per share are based upon
the weighted average number of shares outstanding during each year,
retroactively adjusted for all stock dividends and splits declared through
December 31, 1994. Dividend requirements of $5.1 in 1994, $5.2 in 1993 and
$6.0 in 1992 on preferred stock have been considered in per share
calculations. The average number of common shares used in 1994, 1993 and 1992
earnings per share calculations reflect the pro forma inclusion of 5,323,170,
5,476,047 and 5,704,688 incremental common shares, respectively, which would
be issued upon conversion and/or exercise of dilutive convertible preferred
and stock option shares. Fully diluted earnings per share are similarly
calculated with the inclusion of substantially all convertible securities and
stock options includable for each year; no such data is shown when the
calculations are anti-dilutive.
(o) Cash Flows-For purposes of the Consolidated Statements of Cash Flows, the
Company considers short-term investments, consisting of savings accounts,
money market funds, certificates of deposit, and commercial paper with
maturities of less than 90 days to be cash equivalents. These securities are
carried at cost which approximates fair value.
<TABLE>
Supplemental cash flow information: Years Ended December 31,
----------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Cash paid during the year for:
Interest. . . . . . . . . . . . . . . . $ 19.9 $ 20.0 $ 16.1
Income taxes. . . . . . . . . . . . . . 61.5 54.1 54.0
------- ------- -------
$ 81.4 $ 74.1 $ 70.1
======= ======= =======
</TABLE>
<PAGE>
(p) Concentration of Credit Risk-Excluding U.S. government bonds and notes,
the Company is not exposed to any significant credit concentration risk.
(q) Statement Presentation-Amounts shown in the consolidated financial
statements and applicable notes are stated (except as otherwise indicated and
as to share data) in millions, which amounts may not add to totals shown due
to rounding. Necessary reclassifications are made in prior periods' financial
statements whenever appropriate to conform to the most current presentation.
Note 2-Investments - Bonds and other investments carried at $161.6 as of
December 31, 1994 were on deposit with governmental authorities by the
Corporation's insurance subsidiaries to comply with insurance laws.
Note 3-Debt and Debt Equivalents-Consolidated debt of Old Republic and its
subsidiaries is summarized below:
<TABLE>
December 31
----------------------------------
1994 1993
--------------- ---------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ------ ------ ------
<S> <C> <C> <C> <C>
Commercial paper due within 180 days with an
average yield of 6.29% and 3.40% . . . . $ 83.2 $ 83.2 $ 49.6 $ 49.6
Convertible subordinated debentures maturing in
2002 at 5.75% (b). . . . . . . . . . . . 110.0 106.7 110.0 123.3
Debentures maturing in 2015 at 11.5%. . . 29.5 32.0 29.5 32.3
Debentures maturing in 2018 at 10.0%. . . 74.0 78.9 74.0 80.6
Other miscellaneous debt. . . . . . . . . 4.0 4.0 4.2 4.2
------ ------ ------ ------
Total debt. . . . . . . . . . . . . . . . 300.9 304.9 267.5 289.9
Redeemable preferred stock classified as a debt
equivalent See (a) below. . . . . . . . 13.8 13.8 15.1 15.1
------ ------ ------ ------
Total debt and debt equivalents . . . . . $314.7 $318.7 $282.7 $305.0
====== ====== ====== ======
</TABLE>
The carrying amount of the Company's commercial paper borrowings
approximates its fair value. The fair value of publicly traded debt is based
on its quoted market price.
Scheduled maturities of the above debt (including redeemable preferred
stock classified as a debt equivalent see (a)below) at December 31, 1994 are
as follows: 1995: $92.1; 1996: $5.5; 1997: $4.2; 1998: $2.5; 1999: $4.2; 2000
and after $210.3. During 1994, 1993 and 1992, $19.8, $20.0 and $18.1,
respectively, of interest expense on debt was charged to consolidated
operations.
---------
(a) The Company has guaranteed bank loans (balance at December 31, 1994 was
$13.8) to a Trust established by the Old Republic Employees Savings and
Stock Ownership Plan ("ESSOP"). The loans have been used to fund the
purchase of Series "B" and Series "D" Redeemable Preferred Stock from
the Company by the trust for the original amount of the loans. The
Trust's loan principal repayments (currently scheduled at $6.1 in 1995,
$3.9 in 1996, $2.7 in 1997, and $1.0 in 1998) are expected to be met by
annual profit sharing contributions by the Corporation and its
participating subsidiaries, while interest payments are to be covered by
Trust income, including dividends on the Corporation's stock held by the
ESSOP. The interest rate on the Trust's loans of $13.8 is set every six
months and ranges from 1-1/4% above the prime rate to approximately 75%
thereof. See Notes 4a and 4b.
(b) Each one thousand dollar convertible debenture maturing in 2002, may be
converted at any time into 39.024 common shares.
<PAGE>
Note 4-Shareholders' Equity - All common and preferred share data herein has
been retroactively adjusted as applicable for stock dividends or splits
declared through December 31, 1994.
(a) Preferred Stock-The following table shows certain information pertaining
to each of the Corporation's series of preferred shares issued and
outstanding:
<TABLE>
Redeemable convertible Convertible Cumulative
---------------------- ----------------------- ---------
Preferred Stock Series: "B" "D" "E" "G"(1) "H"
--------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Annual cumulative dividend rate
per share. . . . . . . $ .148 $ .130 $ 1.00 $ (1) 8 3/4%
Conversion ratio of preferred into
common shares (2). . . 5 for 1 5 for 1 1 for 3.52 1 for .95 -
Conversion right begins 1994 Anytime Anytime Anytime -
Redemption and liquidation
value per share. . . . $ 2.47 $ 1.30 $ 33.50 (1) $ 25.00
Redemption beginning in year 1994 1987 1995 (1) (4)
Total redemption value (millions) $ .95 $ 29.73 $ 3.59 (1) 54.80
Vote per share. . . . . one one one one -
Shares outstanding:
December 31, 1993(3) . 386,075 22,874,402 118,882 51,546 2,300,000
December 31, 1994(3) . 386,075 22,874,402 107,278 72,852 2,192,100
========= ========== ========== ========== ==========
----------
(1)The Corporation has authorized up to 1,000,000 shares of Series G
Convertible Preferred Stock for issuance pursuant to the Corporation's
Stock Option Plan. Series G has been issued under two different
designations; the most recent designation being Series G-2 (except as
otherwise stated, Series "G" and Series "G-2" are collectively referred to
as Series "G"). Management believes this designation will be the source
of all foreseeable issuances of Series G stock. Each share of Series G
pays a floating rate dividend based on the prime rate of interest. At
December 31, 1994, the annual dividend rate for Series G and Series G-2
was $.57 per share and $1.58 per share, respectively. Each share of
Series G is convertible at any time, after being held six months, into
0.95 shares of Common Stock (See 4(d) below). Series G shares may be
redeemed at the Corporation's sole option five years after their
issuance.
(2)In the event of a merger in which the Corporation is not the survivor,
each series of Preferred Stock must be redeemed at the above redemption
value per share (plus 10% in the case of Series "B"). In the event of
certain defined Business Combinations or the acquisition of 20% or more of
a class of the Corporation's voting securities in certain circumstances,
the Series D Preferred Stock is convertible into common shares at a ratio
ranging from 5 for 1 to 2.5 for 1.
(3)Series "B" and "D" preferred stock, substantially all of which are held by
the Corporation's employee benefit plans, are adjustable proportionately
as to redemption value, dividend rate, and number of shares to reflect any
stock dividends or splits declared on the Corporation's common stock, and
has a preference as to dividend payments and upon liquidation of the
Corporation. Series "E" preferred stock has preferences as to dividend
payments and upon liquidation its conversion ratio is adjustable
proportionately in the event stock dividends or splits are declared on the
common stock.
(4)On or after December 13, 1996 redeemable at the option of the Corporation,
in whole or in part, at a redemption price of $25.00 per share.
</TABLE>
(b) Cash Dividend Restrictions-The payment of cash dividends by the
Corporation is principally dependent upon the amount of its insurance
subsidiaries' statutory policyholders' surplus available for dividend
distribution. The insurance subsidiaries' ability to pay cash dividends to
the Corporation is in turn generally restricted by law or subject to approval
of the insurance regulatory authorities of the states in which they are
domiciled. These authorities recognize only statutory accounting practices
for determining financial position, results of operations, and the ability of
an insurer to pay dividends to its shareholders. Based on 1994 data, the
maximum amount of dividends payable to the Corporation by its insurance and
other wholly-owned subsidiaries during 1995 without the prior approval of
their respective regulatory authorities is approximately $167.1. However,
management does not expect to distribute all such dividends since reinvested
earnings are the Corporation's major source of capital to promote its growth
and support its obligations to policyholders.
<PAGE>
(c) Debt Restrictions-Under the most restrictive covenants, the terms of Old
Republic's guaranties relative to loan agreements described in Note 3(a)
provide that while loans under such agreements are outstanding, Old Republic
will maintain a minimum consolidated tangible net worth (excluding goodwill
and net unrealized investment gains or losses, but including title plants and
records) of at least $400.0. Such agreements also, among other things,
restrict Old Republic from permitting "Debt" to exceed 25% of its
consolidated tangible net worth (as adjusted for goodwill and net unrealized
investment gains or losses on equity securities) without approval of the
lenders.
(d) Stock Option Plans-The Corporation has had non-qualified, stock option
plans (the 1979, 1985 and 1992 plans) for its key employees and those of its
eligible subsidiaries since 1979. The plans provide for the issuance of
options for up to 5% of the Old Republic common stock issued and outstanding
at any one time. The term of each option is generally 10 years from the date
of grant. Under ordinary circumstances, options may be exercised to the
extent of 10% of the number of shares covered thereby on and after the date
of grant and cumulatively to the extent of an additional 10% on and after
each of the first through ninth anniversaries of the date of grant. The
Corporation may extend 15 year loans at a prevailing market rate of interest
for a portion of the exercise price. Amendments to the plans also enable
optionees to, alternatively, exercise their options into Series "G" or Series
"G-2" Convertible Preferred Stock. The exercise of options into such Series
"G" or Series "G-2" Convertible Preferred stock reduces by 5% the number of
equivalent common shares which would have otherwise been obtained from the
exercise of options.
Under the 1979 plan, the employees' right to exercise their options is
accelerated if the Corporation is dissolved or liquidated, merges or
consolidates with another company and the Corporation is not the surviving
corporation, or more than 50% of the members of the Board of Directors of the
Corporation change in any one year unless one or more of the new directors
was nominated by the Board of Directors of the Corporation.
Under the 1985 and 1992 plans, in the event the market price of Old
Republic common stock reaches a preestablished value ("vesting acceleration
price"), optionees may exercise their options to the extent of 10%
of the number of shares covered by the option for each year that the optionee
has been employed by the Corporation or its subsidiaries.
Changes in stock options and related information are reflected in the
following table (See Note 4(a)(1) above).
<TABLE>
As of and for the Years Ended December 31,
-----------------------------------------------------------------------------------------
1992 Plan 1985 Plan 1979 Plan
--------------------------- --------------------------- ---------------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Options outstanding 626,925 633,575 25,000 718,710 774,506 851,145 - 16,610 217,349
Price range:
High . . . . . $26.13 $26.13 $20.50 $12.62 $12.62 $ 12.62 $ - $ 5.14 $ 8.74
Low. . . . . . $20.50 $20.50 $20.50 $ 8.74 $ 8.74 $ 8.74 $ - $ 5.14 $ 5.14
Shares exercisable 127,805 65,858 2,500 628,433 651,644 696,057 - 16,610 206,738
Options granted. - 610,775 25,000 - - - - - -
Price of options granted:
High . . . . . $ - $26.13 $20.50 $ - $ - $ - $ - $ - $ -
Low. . . . . . $ - $25.13 $20.50 $ - $ - $ - $ - $ - $ -
Vesting acceleration price:
High . . . . . $39.19 $39.19 $30.75 $18.93 $18.93 $ 18.93 $ N/A $ N/A $ N/A
Low. . . . . . $30.75 $30.75 $30.75 $13.11 $13.11 $ 13.11 $ N/A $ N/A $ N/A
Options cancelled or forfeited 6,650 2,000 - 5,687 526 15,536 - 184 971
Options exercised - 200 - 50,109 76,113 412,939 16,610 200,555 232,098
Average price of options
exercised. . . $ - $25.13 $ - $11.11 $11.42 $ 11.14 $ 5.14 $ 7.13 $ 6.55
======= ======= ======= ======= ======= ======== ======= ======= =======
</TABLE>
Option prices represent the per share market price on the date of grant.
No charge is made to earnings in connection with the granting or exercise of
nonqualified stock options.
In conjunction with the purchase or merger of various companies, the
Corporation has assumed the stock option obligations under various qualified
and nonqualified stock option plans previously adopted by such companies.
These plans were terminated as of the merger dates, and existing options at
that date became exercisable into Old Republic common shares at their
original price adjusted for the appropriate exchange ratios pertaining to
each merger. At December 31, 1994, options for 5,576 shares were outstanding
and exercisable under the remaining plan at a price of $10.00 per share.
Options for 18,246; 24,568; and 74,440 were exercised for a total
consideration of approximately $0.1, $0.1, and $0.5 during 1994, 1993 and
1992, respectively.
<PAGE>
(e) Common Stock-There were 250,000,000 shares of common stock authorized at
December 31, 1994. At the same date, there were 50,000,000 shares of Class
"B" common stock authorized but none were issued or outstanding. Class "B"
common shares have the same rights as common shares except for being entitled
to 1/10th of a vote per share.
(f) Undistributed Earnings-The equity of the Corporation in the undistributed
earnings, determined in accordance with generally accepted accounting
principles, and in the net unrealized investment gains (losses) of its
respective subsidiaries at December 31, 1994 amounted to $1,020.9 and
$(11.3), respectively. Cash dividends declared during 1994, 1993 and 1992,
to the Corporation by its subsidiaries amounted to $55.4, $53.9 and $50.6,
respectively.
(g) Treasury Stock-A total of 5,540,360 common shares issued and outstanding
are held by consolidated affiliates. See "Related Party Transactions" herein.
(h) Statutory Data-The shareholders' equity and net income, determined in
accordance with statutory accounting practices, of the Corporation's
insurance subsidiaries was as follows at the dates and for the periods shown:
<TABLE>
Shareholders' Equity Net Income
------------------- ------------------------------
December 31, Years Ended December 31,
------------------- ------------------------------
1994 1993 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
General Insurance Group . . . $1,016.2 $ 934.5 $ 116.2 $ 93.2 $ 109.7
Title Insurance Group . . . . 123.5 122.4 6.0 19.2 14.6
Mortgage Guaranty Group . . . 107.6 104.6 74.7 56.3 38.1
Life Insurance Group. . . . . $ 82.5 $ 84.9 $ 6.9 $ 3.6 $ 8.9
======== ======== ======== ======== ========
</TABLE>
Note 5-Commitments and Contingent Liabilities:
(a) Reinsurance-In order to maintain premium production within their capacity
and to limit maximum losses for which they might become liable under policies
underwritten, Old Republic's insurance subsidiaries, as is the common
practice in the insurance industry, cede all or a portion of their premiums
and liabilities on certain classes of business to other insurers and
reinsurers. Although the ceding of insurance does not ordinarily discharge an
insurer from liability to a policyholder, it is industry practice to
establish the reinsured part of risks as the liability of the reinsurer. Old
Republic also employs retrospective premium, contingent commission, and
profit sharing arrangements for parts of its business in order to minimize
losses for which it might become liable under insurance policies underwritten
by it. To the extent that any reinsurance companies or retrospectively rated
risks or producers might be unable to meet their obligations under existing
reinsurance or retrospective insurance and agency agreements, Old Republic
would be liable for the defaulted amounts. As deemed necessary, reinsurance
ceded to other companies are secured by letters of credit, cash, and/or
securities.
Reinsurance protection for General Insurance operations generally limits
the net loss on any one risk as follows (in thousands): fire and other
physical perils-$300; accident and health-$15; workers' compensation-$1,000;
other liability-$600; and loan credit guaranty-$200. Title insurance risk
assumptions, based on the title insurance subsidiary's financial resources,
are currently limited to $25,000 as to any one policy. A substantial portion
of the mortgage guaranty insurance business is retained, with the exposure on
any one risk currently averaging less than $20. The maximum amount of
ordinary life insurance retained on any one life by the Life Insurance Group
(without reinsurance) is $250.
Most of the reinsurance ceded by the Corporation's insurance subsidiaries
in the ordinary course of business is placed on a quota share or excess of
loss basis. Under quota share reinsurance, the companies remit an agreed upon
percentage of their premiums written to assuming companies and are reimbursed
for a pro-rata share of claims and commissions incurred and for a ceding
commission to cover expenses and costs for underwriting and claim services
performed. Under excess of loss reinsurance agreements, the companies are
generally reimbursed for losses exceeding contractually agreed-upon levels.
<PAGE>
The following information relates to reinsurance and related data for the
General Insurance, Mortgage Guaranty and Life Insurance Groups for the three
years ended December 31, 1994. For the years 1992 to 1994, reinsurance
transactions of the Title Insurance Group have not been material.
<TABLE>
Years Ended December 31,
--------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
General Insurance Group
Written premiums:direct . . . . . . . . $ 1,170.2 $ 1,160.7 $ 1,100.4
assumed . . . . . . . 68.6 111.5 74.7
ceded . . . . . . . . $ 387.3 $ 396.1 $ 375.0
========= ========= =========
Earned premiums:direct. . . . . . . . . $ 1,174.6 $ 1,170.4 $ 1,086.6
assumed . . . . . . . . 78.1 107.6 82.4
ceded . . . . . . . . . $ 388.6 $ 411.4 $ 362.6
========= ========= =========
Claims ceded. . . . . . . . . . . . . . $ 277.2 $ 390.9 $ 168.7
========= ========= =========
Mortgage Guaranty Group
Written premiums:direct . . . . . . . . $ 138.4 $ 125.7 $ 88.1
assumed. . . . . . . . - - -
ceded . . . . . . . . $ 3.2 $ 4.6 $ 6.8
========= ========= =========
Earned premiums:direct. . . . . . . . . $ 138.3 $ 102.5 $ 70.2
assumed . . . . . . . . - - -
ceded . . . . . . . . . $ 3.8 $ 5.7 $ 8.5
========= ========= =========
Claims ceded. . . . . . . . . . . . . . $ 2.3 $ 3.3 $ 3.5
========= ========= =========
Mortgage guaranty insurance in force as of
December 31:direct. . . . . . . . . . . $31,415.8 $25,372.5 $18,591.8
assumed . . . . . . . . . . .1 .4 .6
ceded . . . . . . . . . . . $ 1,010.5 $ 1,346.8 $ 1,945.5
========= ========= =========
Life Insurance Group
Written premiums:direct . . . . . . . . $ 80.4 $ 64.5 $ 59.0
assumed. . . . . . . . .3 .3 .4
ceded. . . . . . . . . $ 43.3 $ 33.7 $ 34.6
========= ========= =========
Earned premiums:direct. . . . . . . . . $ 80.6 $ 71.0 $ 67.4
assumed . . . . . . . . .3 .3 .4
ceded . . . . . . . . . $ 41.0 $ 38.3 $ 38.5
========= ========= =========
Life insurance in force
as of December 31:direct. . . . . . . $ 8,742.4 $ 8,848.7 $ 7,669.6
assumed . . . . . . - - -
ceded . . . . . . . $ 4,318.9 $ 4,561.9 $ 4,154.1
========= ========= =========
Disability/accident and health insurance premiums
ceded on a quota share basis:
To affiliated companies . . . . . . . $ 3.0 $ 1.1 $ 2.3
To unaffiliated companies . . . . . . 24.5 18.1 18.8
--------- --------- ---------
Total. . . . . . . . . . . . . . . . $ 27.6 $ 19.3 $ 21.1
========= ========= =========
Percentage of direct and assumed premiums 49.9% 53.7% 57.6%
========= ======== =========
</TABLE>
(b) Leases-Some of the Corporation's subsidiaries maintain their offices in
leased premises. Certain of these leases provide for the payment of real
estate taxes, insurance, and other operating expenses. At December 31, 1994,
aggregate minimum rental commitments (net of expected sub-lease receipts)
under noncancellable operating leases of $106.2 are summarized as follows:
1995: $26.1; 1996: $19.8; 1997: $14.2; 1998: $10.1; 1999: $7.0; 2000 and
after: $28.7.
<PAGE>
(c) General-In the normal course of business, the Corporation and its
subsidiaries are subject to various contingent liabilities, including
possible income tax assessments resulting from tax law interpretations or
issues raised by taxing authorities in their regular examinations. Management
does not anticipate any significant losses or costs to result from any known
or existing contingencies.
(d) Legal Proceedings-There are no material legal proceedings other than
those arising in the normal course of business and which generally pertain to
claim matters related to insurance policies and contracts issued by the
Corporation's insurance subsidiaries.
Note 6-Consolidated Quarterly Results-Unaudited - Old Republic's consolidated
quarterly operating data for the two years ended December 31, 1994 is
presented below. In the opinion of management, all adjustments consisting of
normal recurring adjustments necessary to a fair presentation of quarterly
results have been reflected in the data which follows. It is also
management's opinion, however, that quarterly operating data for insurance
enterprises is not indicative of results to be achieved in succeeding
quarters or years. The long-term nature of the insurance business, seasonal
patterns in premium production and incidence of claims, and changes in yields
on invested assets are some of the factors necessitating a review of
operating results, changes in shareholders' equity, and cash flows for
periods of several years to obtain a proper indicator of performance. The
data below should be read in conjunction with the "Management Analysis of
Financial Position and Results of Operations":
<TABLE>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1994:
Operating Summary:
Net premiums, fees, and other income $ 379.5 $ 368.9 $ 346.1 $ 348.6
Net investment income and realized gains 58.3 57.7 57.6 61.2
Total revenues. . . . . . . . . . 438.0 426.9 403.9 410.0
Benefits, claims, and expenses. . 387.7 373.1 347.2 345.0
Net income. . . . . . . . . . . . $ 34.0 $ 36.0 $ 37.8 $ 43.0
========== ========== ========== ==========
Net income per share:Primary. . . $ .57 $ .61 $ .64 $ .73
Fully Diluted. . . $ .55 $ .58 $ .61 $ .70
========== ========== ========== ==========
Average common and equivalent shares outstanding:
Primary . . . . . . . . . . . . . 57,264,289 57,264,182 57,219,840 57,124,416
========== ========== ========== ==========
Fully Diluted . . . . . . . . . . 61,693,146 61,692,856 61,669,829 61,588,211
========== ========== ========== ==========
</TABLE>
<TABLE>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1993:
Operating Summary:
Net premiums, fees, and other income $ 339.2 $ 346.6 $ 374.7 $ 414.3
Net investment income and realized gains 63.7 63.9 61.4 71.5
Total revenues. . . . . . . . . . 403.1 410.8 436.2 486.0
Benefits, claims, and expenses. . 358.5 347.2 376.9 410.1
Income before cumulative effect of accounting
changes . . . . . . . . . . . . . 31.4 43.0 41.4 50.3
Cumulative effect of accounting changes 8.6 - - -
Net income. . . . . . . . . . . . $ 40.1 $ 43.0 $ 41.4 $ 50.3
========== ========== ========== ==========
Net income per share:
Primary:
Before cumulative effect of accounting changes $ .53 $ .73 $ .70 $ .86
Cumulative effect of accounting changes .15 - - -
Net Income. . . . . . . . . . . . $ .68 $ .73 $ .70 $ .86
========== ========== ========== ==========
Fully Diluted:
Before cumulative effect of accounting changes $ .51 $ .70 $ .67 $ .81
Cumulative effect of accounting changes .14 - - -
Net Income. . . . . . . . . . . . $ .65 $ .70 $ .67 $ .81
========== ========== ========== ==========
Average common and equivalent shares outstanding:
Primary . . . . . . . . . . . . . 57,121,667 57,148,698 57,180,690 57,224,970
========== ========== ========== ==========
Fully Diluted . . . . . . . . . . 61,601,784 61,582,297 61,620,439 61,654,879
========== ========== ========== ==========
</TABLE>
<PAGE>
Note 7-Information About Segments of Business - The contributions of Old
Republic's insurance industry segments to consolidated revenues and operating
results, and certain balance sheet data pertaining thereto are shown in the
following tables on the basis of generally accepted accounting principles
("GAAP"). Each of the Corporation's segments underwrites and services only
those insurance coverages which may be written by it pursuant to state
insurance regulations and corporate charter provisions, although
disability/accident & health coverages may be written directly or indirectly
through reinsurance in either the General or Life Insurance segments.
In computing the profit or loss before taxes for each segment, the
following items have not been added or deducted: general corporate revenues
and expenses, parent company interest expense, income taxes, and equity in
operating results of, or dividends from, unconsolidated subsidiaries and
affiliates. To reconcile the total assets shown for the General, Title,
Mortgage Guaranty and Life Groups with total consolidated assets at December
31, 1994 and 1993, adjustments must be made for the parent company assets of
$1,745.2 and $1,650.1, and consolidating eliminations of $2,143.0 and
$2,022.9, respectively.
Revenues and assets connected with foreign operations are not significant
in relation to consolidated totals.
<TABLE>
Net Revenues
-------------------------------------------------------------------------------
Years Ended December 31,
----------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
General Insurance Group:
Net premiums earned:
Liability coverages . . . . . . . . . . $ 509.8 $ 517.5 $ 477.2
Property and other coverages. . . . . . 354.2 349.0 329.1
Net investment (a) and other income . . . 187.4 192.0 195.4
--------- --------- ---------
Total. . . . . . . . . . . . . . . . . 1,051.4 1,058.5 1,001.8
--------- --------- ---------
Title Insurance Group:
Net premiums earned . . . . . . . . . . . 244.4 249.6 206.1
Title, escrow and other fees. . . . . . . 140.2 199.7 188.4
--------- --------- ---------
Sub-total . . . . . . . . . . . . . . . 384.7 449.4 394.5
Net investment (a) and other income . . . 20.0 18.5 18.3
--------- --------- ---------
Total. . . . . . . . . . . . . . . . . 404.7 467.9 412.8
--------- --------- ---------
Mortgage Guaranty Group:
Net premiums earned . . . . . . . . . . . 134.5 96.8 61.6
Net investment (a) and other income . . . 23.8 21.8 17.1
--------- --------- ---------
Total. . . . . . . . . . . . . . . . . 158.3 118.6 78.8
--------- --------- ---------
Life Insurance Group:
Annuities:
Net premiums earned . . . . . . . . . . - .1 .2
Net investment income . . . . . . . . . 6.4 6.5 7.7
--------- --------- ---------
Sub-total . . . . . . . . . . . . . . . 6.4 6.6 7.9
--------- --------- ---------
Credit and other life and disability:
Net premiums earned . . . . . . . . . . 40.0 32.9 29.0
Net investment (a) and other income . . 9.2 9.9 23.0
--------- --------- ---------
Sub-total . . . . . . . . . . . . . . . 49.3 42.9 52.1
--------- --------- ---------
Total. . . . . . . . . . . . . . . . . 55.7 49.5 60.0
--------- --------- ---------
Other Operations - Net (b): . . . . . . . .9 1.3 .6
--------- --------- ---------
Consolidated sub-total. . . . . . . . . 1,671.2 1,696.0 1,554.2
Net Realized Gains. . . . . . . . . . . . 7.7 40.2 62.8
--------- --------- ---------
Consolidated. . . . . . . . . . . . . . $ 1,679.0 $ 1,736.3 $ 1,617.0
========= ========= =========
</TABLE>
<PAGE>
<TABLE>
Income (Loss) Before Taxes (c)
-------------------------------------------------------------------------------
Years Ended December 31,
---------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
General Insurance Group:
Underwriting/service income (loss):
Liability coverages . . . . . . . . . $ (65.0) $ (67.4) $ (71.4)
Property and other coverages. . . . . 45.4 21.9 16.8
Net investment income (a) . . . . . . . 173.8 170.1 173.3
--------- --------- ---------
Total . . . . . . . . . . . . . . . . . 154.2 124.5 118.7
--------- --------- ---------
Title Insurance Group:
Underwriting/service income (loss) . . (16.9) 16.2 11.4
Net investment income (a) . . . . . . . 16.7 15.8 15.5
--------- --------- ---------
Total . . . . . . . . . . . . . . . . (.2) 32.1 26.9
--------- --------- ---------
Mortgage Guaranty Group:
Underwriting/service income . . . . . . 57.7 43.8 30.0
Net investment income (a) . . . . . . . 20.6 17.5 13.7
--------- --------- ---------
Total . . . . . . . . . . . . . . . . 78.3 61.3 43.8
--------- --------- ---------
Life Insurance Group:
Annuities . . . . . . . . . . . . . . . 2.4 (.2) .6
Other coverages and net investment income (a) 3.9 6.7 18.2
--------- --------- ---------
Total . . . . . . . . . . . . . . . . 6.4 6.5 18.9
--------- --------- ---------
Other Sources - Net (b):. . . . . . . . (20.6) (21.4) (20.5)
--------- --------- ---------
Consolidated sub-total. . . . . . . . 218.1 203.0 187.9
Net Realized Gains. . . . . . . . . . . 7.7 40.2 62.8
--------- --------- ---------
Consolidated. . . . . . . . . . . . . $ 225.8 $ 243.3 $ 250.7
========= ========= =========
In the above tables, net premiums earned on a GAAP basis differ from
statutory amounts as a result of differences in the calculations of unearned
premium reserves under each accounting method. (a) Including unallocated
investment income derived from invested capital and surplus funds./(b)
Represents results of holding company parent, consolidation eliminating
adjustments, and general corporate expenses, as applicable./(c) Before
cumulative effect of accounting changes as indicated in notes 1(h) and (l).
</TABLE>
<TABLE>
Assets At Year End
-----------------------------------------------------------------------------
December 31,
--------------------------
1994 1993
--------- ---------
<S> <C> <C>
General Insurance Group . . . . . . . . . . . . $ 5,199.9 $ 5,075.1
Title Insurance Group . . . . . . . . . . . . . 402.4 402.7
Mortgage Guaranty Group . . . . . . . . . . . . 487.8 408.3
Life Insurance Group. . . . . . . . . . . . . . 322.7 336.8
Consolidated. . . . . . . . . . . . . . . . . . $ 6,262.9 $ 6,098.3
========= =========
</TABLE>
Note 8-Related Party Transactions - At December 31, 1994 and 1993, the
Corporation owned 98.85% of the non-voting common shares, and 40% of the
voting common and preferred shares of the American Business & Mercantile
Insurance Group, Inc., ("AB&M Group" or "Group"), an affiliated insurance
holding company engaged in the property and liability reinsurance business.
As of the same dates, the American Business & Mercantile Insurance Mutual,
Inc. ("Mutual"), a property & liability mutual insurer owned by its
policyholders, held directly or through a subsidiary .04% of the non-voting
common shares and 60% of the Group's voting common and preferred shares. At
both dates, 1.11% of the Group's non-voting common shares were held by public
shareholders.
<PAGE>
Pursuant to underwriting and investment management agreements, Old
Republic receives management fees for administering the affairs of the
Group's reinsurance subsidiary and those of the Mutual. Pursuant to
reinsurance treaties, the Group and the Mutual are quota share participants
in various types of primary or assumed reinsurance contracts produced through
Old Republic underwriting facilities. Fees received in the past three years
by Old Republic were immaterial. The following table shows reinsurance
cessions, retrocessions, and assumptions to or from the Group's reinsurance
subsidiary and the Mutual for the last three years.
<TABLE>
Ceded to Group Assumed from Mutual Ceded to Mutual
---------------------- -------------------- ----------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
------ ------ ------ ------ ------ ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Premiums written . $ 12.5 $ 11.2 $ 10.7 $ - $ - $ (.2) $ 3.6 $ 3.6 $ 3.6
Commissions and fees .7 .6 .6 - - (.1) - - -
Losses and loss expenses 14.8 9.9 12.0 (.1) (.3) (.6) 4.3 3.5 1.2
Loss and loss expense
reserves. . . . . 51.1 46.4 46.4 20.2 22.5 25.6 6.9 5.6 5.6
Unearned premiums. $ .9 $ .7 $ .4 $ - $ - $ - $ .3 $ .2 $ .2
====== ====== ====== ====== ===== ===== ====== ====== ======
</TABLE>
Certain subsidiaries of the Company have sold various accounts receivable
to a finance company subsidiary of the Mutual. Total receivables sold as of
December 31, 1994 and 1993 amounted to approximately $6.6 and $8.5,
respectively.
At December 31, 1994 and 1993, the Group held approximately 8.0% of Old
Republic's issued and outstanding common shares. For financial accounting
purposes only, 4,439,267 of such shares have been treated as treasury shares
at each respective date in consolidating the Group's accounts with those of
the Corporation.
In the normal course of business, the Company cedes, on the same terms as
apply to unrelated reinsurers, certain parts of its outgoing reinsurance to
a foreign reinsurer in which it has an equity interest. Total premiums ceded
to this reinsurer amounted to approximately $6.1 in 1994, $5.6 in 1993 and
$5.8 in 1992. As of December 31, 1994 and 1993, total premium and loss
reserve credits taken on account of cumulative cessions aggregated $67.1 and
$63.7, respectively, all of which credits were collateralized by cash,
investments and funds held amounting to $69.0 and $70.7, respectively.
At December 31, 1994, the Corporation owned 90% of the voting common stock
of Employers General Insurance Group, Inc. ("EGI") an affiliated insurance
holding company engaged in the property and liability insurance and
reinsurance business, primarily in Texas. At such date, 10% of EGI's voting
common stock was held by public shareholders.
Pursuant to a branch management agreement, EGI supervises the solicitation
and underwriting of all lines of insurance that two insurance subsidiaries of
Old Republic are authorized to write. EGI's Texas domiciled insurance
subsidiary has entered into a quota share reinsurance treaty with an
insurance subsidiary of Old Republic. Under the reinsurance treaty, EGI's
insurance subsidiary reinsures the net retained amount of business produced
by EGI and its subsidiaries.
EGI commenced operations in May, 1992, its insurance subsidiary received
its license in December, 1993. The following table is a summary of
intercompany transactions:
<TABLE>
Ceded to EGI
---------------------------
1994 1993 1992
------- ------- ------
<S> <C> <C> <C>
Premiums written. . . . . . . . . . . . . . . $ 29.7 $ 47.6 $ -
Losses and loss expenses. . . . . . . . . . . 22.6 30.4 -
Loss and loss expense reserves. . . . . . . . 33.3 22.9 -
Unearned premiums . . . . . . . . . . . . . . $ 12.3 $ 13.1 $ -
======= ======= ======
</TABLE>
EGI has also entered into an investment counsel agreement with Old
Republic, pursuant to which Old Republic provides investment advice,
accounting services and assistance to EGI in executing purchases and sales of
investments. Fees received by Old Republic were immaterial.<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------------------------------------------------
To the Board of Directors and Shareholders of
Old Republic International Corporation
Chicago, Illinois
We have audited the accompanying consolidated balance sheets of Old
Republic International Corporation and subsidiaries (the "Company") as of
December 31, 1994 and 1993, and the related consolidated statements of
income, preferred stock and common shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Old
Republic International Corporation and subsidiaries as of December 31, 1994
and 1993, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1994 in
conformity with generally accepted accounting principles.
As discussed in footnote 1(g), 1(h) and 1(l) to the consolidated
financial statements, the Company changed its method of accounting for ceded
reinsurance, income taxes and post retirement benefits other than pensions in
1993.
Coopers & Lybrand L.L.P.
Chicago, Illinois
March 14, 1995
<PAGE>
Item 9-Disagreements on Accounting and Financial Disclosure
None.
PART III
Item 10-Directors and Executive Officers of the Registrant
Omitted pursuant to General Instruction G(3). The Company will file with
the Commission prior to April 1, 1995 a definitive proxy statement pursuant
to Regulation 14A in connection with its Annual Meeting of shareholders to be
held on May 12, 1995. See also Item 4(a) in Part I of this report. A list of
Directors appears on the "Signature" page of this report.
Item 11-Executive Compensation
Omitted pursuant to General Instruction G(3). The Company will file with
the Commission prior to April 1, 1995 a definitive proxy statement pursuant
to Regulation 14A in connection with its Annual Meeting of shareholders to be
held on May 12, 1995.
Item 12-Security Ownership of Certain Beneficial Owners and Management
Omitted pursuant to General Instruction G(3). The Company will file with
the Commission prior to April 1, 1995 a definitive proxy statement pursuant
to Regulation 14A in connection with its Annual Meeting of shareholders to be
held on May 12, 1995.
Item 13-Certain Relationships and Related Transactions
Omitted pursuant to General Instruction G(3). The Company will file with
the Commission prior to April 1, 1995 a definitive proxy statement pursuant
to Regulation 14A in connection with its Annual Meeting of shareholders to be
held on May 12, 1995.
PART IV
Item 14-Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)Documents filed as a part of this report:
1. Financial statements: See Item 8, Index to Financial Statements.
2. Financial statement schedules will be filed on or before April 30,
1995 under cover of Form 8.
3. See exhibit index on page 51 of this report.
(b)Reports on Form 8-K:
1. No reports on Form 8-K were filed during the fourth quarter of 1994.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized (Name, Title or
Principal Capacity, and Date).
(Registrant):Old Republic International Corporation
By : ___/s/ A. C. Zucaro ______________________ ___3/15/95___
A. C. Zucaro, Chairman of the Board, Date
Chief Executive Officer, President and Director
By : ___/s/ Paul D. Adams____________________ ___3/15/95___
Paul D. Adams, Senior Vice President, Date
Chief Financial Officer and Treasurer
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated (Name, Title or
Principal Capacity, and Date).
_____/s/ A.C. Zucaro__________ _____/s/ A.C. Zucaro___________
Anthony F. Colao, Director* John W. Popp, Director*
Senior Vice President
_____/s/ A.C. Zucaro__________ _____/s/A.C.Zucaro_____________
John C. Collopy, Director* William A. Simpson, Director*
President of Republic Mortgage
Insurance Company
_____/s/ A.C. Zucaro__________ _____/s/A.C.Zucaro_____________
Jimmy A. Dew, Director* Arnold L. Steiner, Director*
Executive Vice President of Republic
Mortgage Insurance Company
_____/s/ A.C. Zucaro__________ _____/s/A.C.Zucaro_____________
Darrel M. Holt, Director* William R. Stover, Director*
_____/s/ A.C. Zucaro__________ _____/s/A.C.Zucaro____________
Kurt W. Kreyling, Director* David Sursa, Director*
_____/s/ A.C. Zucaro__________ _____/s/A.C.Zucaro___________
Peter Lardner, Director* William G. White, Jr., Director*
President of Bituminous
Casualty Corporation
_____/s/ A.C. Zucaro__________
Wilbur S. Legg, Director*
* By/S/A. C. Zucaro
Attorney-in-fact
Date: March 15, 1995
<PAGE>
EXHIBIT INDEX
An index of exhibits required by item 601 of Regulation S-K follows:
(3) Articles of incorporation and by-laws.
(A) Restated Certificate of Incorporation, as amended.
(B) * By-laws, as amended (Exhibit 3(b) to Registrant's Annual Report on
Form 10-K for 1993).
(4) Instruments defining the rights of security holders, including
indentures.
(A) * Certificates of Designations, as amended, with respect to Series B
Cumulative Convertible Preferred Stock, Series D Cumulative
Convertible Preferred Stock, Series E Cumulative Convertible
Preferred Stock, Series G Convertible Preferred Stock, Series G-2
Convertible Preferred Stock and Series H Cumulative Preferred
Stock.
(B) * Form of Indenture dated June 1, 1985 between Old Republic
International Corporation and Morgan Guaranty Trust Company of New
York, as Trustee, regarding the 11 1/2% Sinking Fund Debentures due
2015 (Exhibit 4.3 to Form S-3 Registration Statement No. 2-98167).
(C) * Form of Indenture dated as of January 15, 1988 between Old Republic
International Corporation and Morgan Guaranty Trust Company of New
York, as Trustee, regarding the 10% Sinking Fund Debentures due 2018
(Exhibit 4(D) to Registrant's Annual Report on Form 10-K for 1987).
(D) * Agreement to furnish certain long term debt instruments to the
Securities & Exchange Commission upon request (Exhibit 4(D) on Form
8 dated August 28, 1987).
(E) * Rights Agreement dated as of June 26, 1987 between Old Republic
International Corporation and Morgan Shareholder Services Trust
Company (Exhibit 4 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1987).
(F) * Form of Indenture dated as of August 15, 1992 between Old Republic
International Corporation and Wilmington Trust Company, as Trustee,
regarding the 5 3/4% Convertible Subordinated Debentures due August
15, 2002. (Exhibit 4(G) to Registrant's Annual Report on Form 10-K
for 1993).
(10) Material contracts.
(A) * Copy of Old Republic International Corporation Employees Savings and
Stock Ownership Plan (Exhibit 10(A) to Registrant's Annual Report on
Form 10-K for 1991).
(B) Form 11 - K Annual Report of the Old Republic International
Employees Savings and Stock Ownership Plan for the year ended
December 31, 1994 (To be filed by amendment on Form 10-K).
** (C) * Copy of Old Republic International Corporation Key Employees
Performance Recognition Plan, as restated and amended (Exhibit 10(C)
to Registrant's Annual Report on Form 10-K for 1991).
** (D) * Copy of Old Republic International Corporation Non-qualified Stock
Option Plan (Exhibit to Form S-8 Registration Statement No.
2-66302).
** (E) * Amendments to Old Republic International Corporation Non-qualified
Stock Option Plan (Exhibit 10(E) to Registrant's Annual Report on
Form 10-K for 1991).
** (F) * 1985 Old Republic International Corporation Non-qualified Stock
Option Plan A (Exhibit 10.1 to Form S-3 Registration Statement No.
2-98166).
** (G) * Amendments to 1985 Old Republic International Corporation
Non-qualified Stock Option Plan A (Exhibit 10(G) to Registrant's
Annual Report on Form 10-K for 1991).
<PAGE>
(Exhibit Index, Continued)
(10) Material contracts (Continued)
** (H) * 1985 Old Republic International Corporation Non-qualified Stock
Option Plan B (Exhibit 10.2 to Form S-3 Registration Statement No.
2-98166).
** (I) * 1990 Old Republic International Corporation Non-qualified Stock
Option Plan (Exhibit 10 to Form S-8 Registration Statement No.
33-37692).
** (J) * 1992 Old Republic International Corporation Non-qualified Stock
Option Plan (Exhibit 10 to Form S-8 Registration Statement No.
33-49646).
(K) * Old Republic International Corporation Employees Retirement Plan
(Exhibit 10(J) to Registrant's Annual Report on Form 10-K for 1991).
** (L) * Old Republic International Corporation Executives Excess Benefits
Pension Plan (Exhibit 10.16 to Registration Statement No. 2-95243).
** (M) * Form of Indemnity Agreement between Old Republic International
Corporation and each of its directors and certain officers (Exhibit
10 to Form S-3 Registration Statement No. 33-16836).
** (N) * Copy of directors and officers liability and company reimbursement
policy dated October 6, 1970 (Exhibit 12(A) to Form S-1 Registration
Statement No. 2-41089).
(O) * Copy of Bitco Savings Plan (Exhibit 4.3 to Form S-8 Registration
Statement No. 33-32439).
(P) Form 11-K Annual Report of the Bitco Savings Plan for the year ended
December 31, 1994 (To be filed by amendment on Form 10-K).
(Q) * Copy of RMIC Corporation Profit-Sharing Plan (Exhibit 10(M) to
Registrant's Annual Report on Form 10-K for 1980).
** (R) * Copy of a written description of the RMIC Key Employees Performance
Recognition Plan (Exhibit 10(Q) to Registrant's Annual Report on
Form 10-K for 1991).
(S) * Copy of Great West Casualty Company Profit Sharing Plan (Exhibit 10
to Form S-8 Registration Statement No. 33-52069).
(T) Form 11-K Annual Report of the Great West Casualty Company Profit
Sharing Plan for the year ended December 31, 1994 (To be filed by
amendment on Form 10-K).
** (U) * Copy of deferred compensation agreement dated November 4, 1976, as
amended, between RMIC Corporation and William A. Simpson (Exhibit
10(J) to Registrant's Annual Report on Form 10-K for 1980).
** (V) * Copy of deferred compensation agreement dated November 4, 1976, as
amended, between RMIC Corporation and Jimmy A. Dew (Exhibit 10(K) to
Registrant's Annual Report on Form 10-K for 1980).
** (W) * Copy of Incentive Compensation Plan of The Founders Title Group,
Inc. (Exhibit 10(N) to Registrant's Annual Report on Form 10-K for
1980).
** (X) * Copy of part time employment agreement between Old Republic Title
Company and John C. Collopy. (Exhibit 10(W) to Registrant's Annual
Report on Form 10-K for 1993).
(Y) * Placement Agency Agreement dated November 16, 1987 among Old
Republic International Corporation, Old Republic Capital Corporation
and Merrill Lynch Money Markets Inc. (Exhibit 10.1 to Form S-3
Registration Statement No. 33-16836).
<PAGE>
(Exhibit Index, Continued)
(Z) * Issuing and Paying Agency Agreement dated November 16, 1987 among
Old Republic International Corporation, Old Republic Capital
Corporation and Morgan Guaranty Trust Company of New York (Exhibit
10.2 to Form S-3 Registration Statement No. 33-16836).
(11) Schedule showing computations of average number of common shares
outstanding, as used in the calculations of per share earnings for
each of the three years ended December 31, 1994, 1993 and 1992.
(21) Subsidiaries of the registrant.
(23) Consent of Coopers & Lybrand L.L.P.
(24) Powers of attorney
(28) Consolidated Schedule P (To be filed by amendment.)
-----------------------
* Exhibit incorporated herein by reference.
** Denotes a management or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 601 of Regulation S-K.
RESTATED
CERTIFICATE OF INCORPORATION
OF
OLD REPUBLIC INTERNATIONAL CORPORATION
The Board of Directors, in a procedure authorized by Section
245 of the General Corporation Law of Delaware, approved and
adopted at a meeting held on May 19, 1994 the following Restated
Certificate of Incorporation. This document only restates and
integrates and does not further amend the provisions of the
corporation's Certificate of Incorporation duly filed with the
Secretary of State of Delaware on March 9, 1969 as heretofore
amended or supplemented, and there is no discrepancy between those
provisions and the provisions of this restated certificate.
FIRST: The name of the corporation is Old Republic International
Corporation.
SECOND: The address of its registered office in the State
of Delaware is 32 Loockerman Square, Suite L-100,
in the City of Dover 19901, County of Kent. The
name of its registered agent at such address is
Prentice-Hall Corporation System, Inc.
THIRD: The nature of the business or purposes to be conducted or
promoted are:
To acquire, own and dispose of the whole or any
part of the capital stock, securities, assets, or
obligations of other corporations; and
To engage in any lawful act or activity for which
corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of
capital stock which the Corporation shall have
authority to issue is Three Hundred Seventy-Five
Million (375,000,000) shares, divided into three
classes as follows:
Seventy Five Million (75,000,000) shares of
Preferred Stock of the par value of one cent ($.01)
per share (Preferred Stock).
Two Hundred Fifty Million (250,000,000) shares of
Common Stock of the par value of $1.00 per share
(Common Stock).
Fifty Million (50,000,000) shares of Class B Common
Stock of the par value of $1.00 per share (Class B
Common Stock).
The designations, powers, preferences and rights, and the
qualifications, limitations or restrictions of the above classes of
stock are as follows:
DIVISION I
Preferred Stock
1. The Board of Directors is expressly authorized at any
time, and from time to time, to issue shares of Preferred Stock in
one or more series, and for such consideration as the Board may
determine, with such voting powers, full or limited but not to
exceed one vote per share, or without voting powers, and with such
designations, preferences and relative, participating optional or
other special rights, and qualifications, limitation or
restrictions thereof, as shall be stated in the resolution or
resolutions providing for the issue thereof, and as are not stated
in this Certificate of Incorporation, or any amendment thereto.
All shares of any one series shall be of equal rank and identical
in all respects.
2. No dividend shall be paid or declared on any particular
series of Preferred Stock unless dividends shall be paid or
declared pro rata on all shares of Preferred Stock at the time
outstanding of each other series which ranks equally as to
dividends with such particular series.
3. Unless and except to the extent otherwise required by law
or provided in the resolution or resolutions of the Board of
Directors creating any series of Preferred Stock pursuant to this
Division I, the holders of the Preferred Stock shall have no voting
power with respect to any matter whatsoever. In no event shall the
Preferred Stock be entitled to more than one vote in respect of
each share of stock. Subject to the protective conditions or
restrictions of any outstanding series of Preferred Stock, any
amendment to this Certificate of Incorporation which shall increase
or decrease the authorized capital stock of any class or classes
may be adopted by the affirmative vote of the holders of a majority
of the outstanding shares of the voting stock of the Corporation.
4. Shares of Preferred Stock redeemed, converted, exchanged,
purchased, retired or surrendered to the Corporation, or which have
been issued and reacquired in any manner, shall, upon compliance
with any applicable provisions of The General Corporation Law of
the State of Delaware, have the status of authorized and unissued
shares of Preferred Stock and may be reissued by the Board of
Directors as part of the series of which they were originally a
part or may be reclassified into and reissued as part of a new
series or as a part of any other series, all subject to the
protective conditions or restrictions of any outstanding series of
Preferred Stock.
DIVISION II
Common Stock and Class B Common Stock
1. Dividends. Subject to the preferential dividend rights,
if any, applicable to shares of the Preferred Stock and subject to
applicable requirements, if any, with respect to the setting aside
of sums for purchase, retirement or sinking funds for the Preferred
Stock, the holders of the Common Stock and the Class B Common Stock
shall be entitled to receive to the extent permitted by law, such
dividends as may be declared from time to time by the Board of
Directors; provided that whenever a cash dividend is paid to the
holders of Class B Common Stock, the Corporation shall also pay to
the holders of the Common Stock a cash dividend per share at least
equal to the cash dividend per share at least equal to the cash
dividend per share paid to the holders of the Class B Common Stock
and further provided that the Corporation may pay cash dividends to
the holders of the Common Stock in excess of cash dividends paid,
or without paying cash dividends, to holders of the Class B Common
Stock.
2. Liquidation. In the event of the voluntary or
involuntary liquidation, dissolution, distribution of assets or
winding up of the Corporation, after distribution in full of the
preferential amounts, if any, to be distributed to the holders of
shares of the Preferred Stock, holders of the Common Stock and the
Class B Common Stock shall be entitled to receive all the remaining
assets of the Corporation of whatever kind available for
distribution to stockholders ratably in proportion to the number of
shares of Common Stock and the Class B Common Stock held by them,
respectively.
3. Voting Rights. Except as may be otherwise required by
law or this Certificate of Incorporation, each holder of the Common
Stock shall have one vote in respect of each share of Common Stock
held by him of record on the books of the Corporation on all
matters voted upon by the stockholders and each holder of the Class
B Common Stock shall have one-tenth (1/10) of one vote in respect
of each share of Class B Common Stock held by him of record on the
books of the Corporation on all matters voted upon by the
stockholders; provided that the holders of the Common Stock and the
Class B Common Stock shall vote together as a single class.
4. Definition. Notwithstanding the provisions of section
11.(a) of Designations, Preferences and Rights of Series B
Cumulative Convertible Preferred Stock, section 12.(a) of
Designations, Preferences and Rights of Series D Cumulative
Convertible Preferred Stock, and section 10.(a) of Designations,
Preferences and Rights of Series E Cumulative Convertible Preferred
Stock, for the purposes of the Corporation's Restated Certificate
of Incorporation, as amended, the term "Common Stock" shall mean
Common Stock as defined in the first paragraph of this Article
FOURTH and shall not include the Class B Common Stock of the
Corporation, provided, however, that for the purposes of the
section titled "Voting", the first five paragraphs of the section
titled "Dividends" and the last paragraph of the Resolutions
Regarding Issuance of a Series of Preferred Stock; sections 9. and
10. of Designations, Preferences and Rights of Series B Cumulative
Convertible Preferred Stock; sections 10. and 11. of Designations,
Preferences and Rights of Series D Cumulative Convertible Preferred
Stock; and section 9. of Designations, Preferences and Rights of
Series E Cumulative Convertible Preferred Stock, the term "Common
Stock" shall mean both the Common Stock as defined in the first
paragraph of this Article FOURTH and the Class B Common Stock of
the Corporation."
DIVISION III
Elimination of Preemptive Rights
No holder of stock of any class of the Corporation shall be
entitled as a matter of right to purchase or subscribe for any part
of any unissued stock of any class, or of any additional stock of
any class of capital stock of the Corporation, or of any bonds,
certificates of indebtedness, debentures, or other securities
convertible into stock of the Corporation, now or hereafter
authorized, but any such stock of other securities convertible into
stock may be issued and disposed of pursuant to resolution by the
Board of Directors to such persons, firms, corporations or
associations and upon such terms and for such consideration (not
less than the par value or stated value thereof) as the Board of
Directors in the exercise of its discretion may determine and as
may be permitted by law without action by the stockholders.
DESIGNATIONS, PREFERENCES AND RIGHTS OF
SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK
1. Designation.
4,750,000 shares of Preferred Stock of the Corporation are
hereby constituted as a series of Preferred Stock designated as
"Series B Cumulative Convertible Preferred Stock" (hereinafter
called "Series B Preferred Stock").
2. Voting Rights.
Each holder of Series B Preferred Stock shall have one vote in
respect of each share of stock held by him of record on the books
of the Corporation on all matters voted upon by the stockholders,
in addition to any other voting rights provided by law.
3. Dividends.
(a) Each share of Series B Preferred Stock shall be entitled
to dividends, when and as declared by the Board of Directors, at a
rate of $.90 per share per annum, before any dividends or
distribution in cash or other property (other than dividends
payable in stock ranking junior to the Series B Preferred Stock) on
any class or classes of stock of the Corporation ranking junior to
the Series B Preferred Stock as to dividends or on liquidation
shall be declared or paid or set apart for payment.
(b) Dividends on the Series B Preferred Stock shall be paid
quarterly on the last business day of January, April, July and
October of each year (or on such other date or dates as may be
determined by the Board of Directors) to holders of record on the
respective dates not exceeding sixty days preceding such dividend
payment dates as may be determined by the Board of Directors in
advance of the payment of each particular dividend.
(c) Dividends on the Series B Preferred Stock shall be
cumulative from and after the date of original issuance thereof,
whether or not declared by the Board of Directors. Accruals of
dividends shall not bear interest.
(d) At the option of the Board of Directors, dividends on the
Series B Preferred Stock may be paid in the form of Common Stock or
Series B Preferred Stock of the Corporation, in lieu of cash. In
such event, the Common Stock shall be valued at its average "Market
Price" (as hereinafter defined) for the 30 consecutive "Trading
Days" (as hereinafter defined) commencing on the forty-fifth
Trading Day next preceding the record date established for the
payment of such dividend; and the value of the Series B Preferred
Stock shall be established as of the record date by an independent
appraisal to be obtained by the Board of Directors.
(e) At the option of the Board of Directors, any accumulated
dividends in arrears with respect to the Series B Preferred Stock
may be satisfied by the distribution of Common Stock of Series B
Preferred stock equal in value to the amount of such arrearages.
In such event, the Common Stock shall be valued at its average
Market Price for the 30 consecutive Trading Days commencing on the
forty-fifth Trading Day prior to the date established by the Board
of Directors for the payment of such arrearages; and the value of
the Series B Preferred Stock shall be established as of a date
within 30 days of such payment date by an independent appraisal to
be obtained by the Board of Directors.
4. Liquidation Rights; Certain Rights Upon Consolidation or
Merger.
(a) Upon the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of the
shares of the Series B Preferred Stock shall be entitled to receive
out of the assets of the Corporation before any payment of
distribution shall be made on the Common Stock or on any other
class of stock ranking junior to the Preferred Stock upon
liquidation, cash in the amount of $15.00 per share, plus a sum
equal to all dividends on such shares accrued and unpaid thereon to
the date of final distribution, but they shall be entitled to no
further payment. If, upon any liquidation, dissolution or winding
up of the Corporation, the assets of the Corporation, or proceeds
thereof, distribute among the holders of the Series B Preferred
Stock or any other class of Preferred Stock ranking on a parity
with the Series B Preferred Stock shall be insufficient to pay in
full the preferential amount aforesaid, then such assets, or the
proceeds thereof, shall be distributed among such holders ratably
in accordance with the respective amounts which would be payable on
such shares if all amounts payable thereon were paid in full. For
the purposes of this paragraph 4(a), the merger or consolidation of
the Corporation with one or more corporations in which the
Corporation is the corporation surviving such consolidation or
merger shall not be deemed to be a liquidation, dissolution or
winding up, voluntary or involuntary.
(b) Prior to the merger of the Corporation into or the
consolidation of the Corporation with another corporation which the
Corporation is not the survivor, each share of the Series B
Preferred Stock shall be redeemed by the Corporation for cash in
the amount of $15.00 per share, plus a sum equal to all dividends
on such shares accrued and unpaid thereon to the date of such
merger or consolidation, plus 10% of such total amount.
5. Redemption after April 1, 1994 at the Option of the Holder;
Corporation's Option to Issue Common Stock in Such Event.
(a) At any time after April 1, 1994, a holder of Series B
Preferred Stock may request the Corporation, by giving to the
Corporation at least 60 days' prior written notice, to redeem as of
the July 31 or January 31 whichever next follows the date of such
notice part or all of the Series B Preferred Stock held by him, for
cash equal to the greater of (i) $15.00 per share, plus a sum equal
to all dividends on such shares accrued and unpaid thereon to the
redemption date, or (ii) the value of such shares, as of the
applicable June 30 or December 31 date next preceding the date
fixed for redemption, as established by an independent appraisal
obtained by the Board of Directors. The Board of Directors shall
obtain such appraisal following receipt of such notice and the
Corporation shall furnish a copy of such appraisal to each holder
who has requested redemption of shares.
(b) The Corporation, at the option of the Board of Directors,
may limit the number of shares redeemed pursuant to this paragraph
5 in any one year to 10% of the Series B Preferred Stock
outstanding on January 1 of such year. Shares will be redeemed in
the order that the notices specified in paragraph 5(a) are
received, and if shares exceeding such percentage are tendered,
shares redeemed will be selected by lot or in such other manner as
the Board of Directors may determine to be equitable.
(c) In the event a holder elects to cause shares of Series B
Preferred Stock to be redeemed for cash pursuant to this paragraph,
the Corporation, at the option of the Board of Directors, may
satisfy its obligation to pay for such shares by notifying the
holder and thereafter issuing shares of Common Stock in lieu of
cash in the amount of the redemption price specified in paragraph
5(a). In such event, the Common Stock shall be valued at its
average Market Price for the 30 consecutive Trading Days next
preceding the applicable June 30 or December 31 date specified in
paragraph 5(a).
6. Holder's Annual Right of Redemption or Conversion to Common
Stock in Certain Events.
(a) Notwithstanding the holder's rights of redemption
specified in paragraph 5(a), a holder of shares of Series B
Preferred Stock on behalf of the participants or beneficiaries of
a retirement plan (hereinafter "plan participants") shall have the
right annually to cause the Corporation to redeem or convert into
Common Stock certain of the shares of Series B Preferred Stock in
order to permit the payment of benefits to plan participants
pursuant to the provisions of such plan. Such redemptions or
conversions shall be effected in the following manner:
(i) Each year commencing with 1979, the Board of Directors
shall obtain an independent appraisal of the value of the Series
B Preferred Stock as of December 31 of such year. A copy of
such appraisal shall be furnished by the Corporation to each
holder of Series B Preferred Stock.
(ii) For a period of 30 days following receipt of such
appraisal, each holder of Series B Preferred Stock on behalf of
plan participants shall have the right to cause the Corporation
to (a) redeem for cash that number of shares of Series B
Preferred Stock determined by dividing the total dollar amount
of benefits payable in such year under the terms of the plan in
either cash or Corporation stock at the option of the plan
participants by the appraised value per share of the Series B
Preferred Stock as of December 31 of the immediately preceding
year or (b) convert the number of shares of Series B Preferred
Stock so determined into shares of Common Stock at the rate of
one (1) share of Common Stock for five (5 shares of Series B
Preferred Stock. (In the event the outstanding Common Stock of
the corporation is hereafter combined into a smaller number of
shares, then the rate of conversion shall be adjusted
proportionately.)
(iii) The holder of such shares to be redeemed or
converted shall give to the Corporation at least 30 days' prior
written notice of its request for conversion or redemption,
specifying the number of shares to be converted or redeemed, the
requested date of redemption or conversion, and certifying that
the dollar amount represented by such shares (at the above
specified appraisal value) is (or will be within such notice
period) distributable to plan participants pursuant to the
provisions of such plan.
(iv) The Corporation shall thereupon redeem such shares for
cash or issue Common Stock in exchange therefore in accordance
with the provisions hereof.
(b) In the event a holder elects to cause shares of Series B
Preferred Stock to be redeemed for cash pursuant to this paragraph,
the Corporation, at the option of the Board of Directors, may
satisfy its obligation to pay for the shares so to be redeemed by
converting such shares into shares of Common Stock valued at the
average Market Price of the Common Stock for the 30 consecutive
Trading Days next preceding the date of the notice specified in
paragraph 6(a)(111).
7. Certain Provisions Applicable to Redemptions of Shares
From and after the applicable date specified for redemption of
shares of Series B Preferred Stock in accordance with these
provisions, unless the Corporation shall default in paying or
providing the funds necessary for the payment of the redemptions
price of the shares so specified for redemption, the right to
receive dividends on all shares of Series B Preferred Stock so
specified for redemption shall cease to accrue, and all rights of
the holders of the shares of Series B Preferred Stock specified for
redemption shall forthwith, after the redemption date, cease and
terminate, excepting only the right of such holders to receive the
specified redemption price for such shares but without interest,
and such shares shall no longer be deemed outstanding.
8. Certain Provisions Applicable to Conversions of Shares
(a) Shares of the Series B Preferred Stock to be converted in
accordance with these provisions shall be convertible at such
office or offices as the Board of Directors of the Corporation may
designate. (For the purpose of this paragraph, the issuance of
Common Stock in lieu of cash upon a redemption of Series B
Preferred Stock shall be deemed to be a conversion unless the
context otherwise requires.)
(b) In order to effect the conversion of shares of the Series
B Preferred Stock into Common Stock in accordance with these
provisions, the holder thereof shall surrender at any office
hereinabove mentioned the certificate of certificates therefore,
duly endorsed to the Corporation or in blank, and give written
notice to the Corporation at said office in accordance with the
applicable provisions hereof, as to the conversion to be effected
and the name or names in which the certificate or certificates for
shares of Common Stock are to be issued. No payment or adjustment
shall be made upon any conversion on account of any dividends
accrued on the shares of the Series B Preferred Stock surrendered
for conversion or on account of any dividends on the Common Stock
issued upon such conversion. Shares of the Series B Preferred
Stock shall be deemed to have been converted immediately prior to
the close of business on the day specified for conversion and the
surrender of such shares for conversion in accordance with the
foregoing provisions, and the person or persons entitled to receive
the Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such Common Stock
at such time. As promptly as practicable after the receipt of such
notice and the surrender of such shares as aforesaid, the
Corporation shall issue and deliver at said office a certificate or
certificates for the number of full shares of Common Stock issuable
upon such conversion, together with a cash payment in lieu of any
fraction of any share, as hereinafter provided, to the person or
persons entitled to receive the same. In case shares of the
Series B Preferred Stock are called for redemption, the right to
convert such shares shall cease and terminate at the close of
business on the applicable redemption date, unless default shall be
made in payment of the redemption price.
(c) No fractional shares of Common Stock shall be issued upon
conversion of shares of the Series B Preferred Stock but, in lieu
of any fraction of a share of Common Stock which would otherwise be
issuable in respect of the aggregate number of shares of the Series
B Preferred Stock surrendered for conversion at one time by the
same holder, the Corporation shall pay in cash as an adjustment of
such fraction an amount equal to the same fraction of the Market
Price of the Common Stock, on the date on which such shares of the
Series B Preferred Stock were duly surrendered for conversion, or,
if such date is not a Trading Day, on the next preceding date which
was a Trading Day.
(d) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares the full number
of shares of Common Stock into which all shares of the Series B
Preferred Stock from time to time outstanding are convertible.
(e) The Corporation will pay any and all issue and other
taxes that may be payable in respect of any issue or delivery of
shares on conversion of shares of the Series B Preferred Stock
pursuant hereto. The Corporation shall not, however, be required
to pay any tax which may be payable in respect of any transfer
involved in such issue and delivery of shares in a name other than
that in which the shares so converted were registered, and no such
issue or delivery shall be made unless and until the person
requesting such issue 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.
9. Distribution or Reclassification of Series B Preferred Stock
In the Event of Distribution or Reclassification of Common
Stock
In the event the Corporation shall at any time after the
issuance of Series B Preferred Stock pay a dividend or make a
distribution in shares of Common Stock or subdivide or reclassify
its outstanding shares of Common Stock into a greater number of
shares of Common Stock, then a proportionate dividend,
distribution, subdivision or reclassification of the outstanding
Series B Preferred Stock shall also be effected, as of the
effective date of the applicable distribution or adjustment with
respect to the Common Stock. In such event, the redemption price
of $15.00 per share specified in paragraphs 4(a), 4(b) and 5(a) and
the annual dividend rate of $.90 per share specified in paragraph
3(a) hereof shall be reduced proportionately as to all shares of
Series B Preferred Stock outstanding or thereafter issued.
10. Relative Rights of Preferred Stock.
(a) So long as any of the Series B Preferred Stock is
outstanding the Corporation will not:
(i) Declare, or pay, or set apart for payment, any
dividends (other than dividends payable in stock ranking junior
to the Series B Preferred Stock) or make any distribution on any
other class or classes of stock of the Corporation ranking
junior to the Series B Preferred Stock either as to dividends or
upon liquidation and will not redeem, purchase or otherwise
acquire, any shares of any such junior class if at the time of
making such declaration, payment, distribution, redemption,
purchase or acquisition the Corporation shall be in default with
respect to any dividend payable on, or any obligation to retire
shares of, Series B Preferred Stock, provided that,
notwithstanding the foregoing, the Corporation may at any time
redeem, purchase or otherwise acquire shares of stock of any
such junior class in exchange for, or out of the net cash
proceeds from the sale or, other shares of stock of any junior
class;
(ii) Without the affirmative vote or consent of the holders
of at least 50% of all the Series B Preferred Stock at the time
outstanding, given in person or by proxy, either in writing or
by resolution adopted at an annual or special meeting called for
the purpose, amend, alter or repeal any of these resolutions so
as adversely to affect the new preferences, rights, or powers of
the Series B Preferred Stock; provided, that the creation of any
class of stock ranking prior to the Series B Preferred Stock
either as to dividends or upon liquidation or any increase in
the authorized number of shares of any such class of stock shall
not be deemed to adversely affect the preferences, rights or
powers of the Preferred Stock within the meaning of this
subparagraph (ii);
(iii) Without the affirmative vote or consent of the
holders of at least 50% of all the Series B Preferred Stock at
the time outstanding, given in person or by proxy, either in
writing or by resolution adopted at an annual or special meeting
called for the purpose, create any class or classes or stock
ranking prior to the Series B Preferred Stock either as to
dividends or upon liquidation, or increase the authorized number
of shares of any such class of stock.
11. Certain Definitions.
(a) For the purposes of these provisions the term "Common
Stock" means the Common Stock of the Corporation, $1 par value, as
the same exits as of the original date of issue of the Series B
Preferred Stock or as such stock may be reconstituted from time to
time.
(b) As used in these provisions, the term "Market Price" on
any day shall mean the reported last sales price regular way on
such day or, in case no such sale takes place on such day, the
average of the reported closing bid and asked prices regular way,
in each 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, the average of the
closing bid and asked prices in the over-the-counter market as
reported by the National Quotation Bureau or similar reporting
service; and the term "Trading Day" shall mean a date on which the
New York Stock Exchange (or any successor to such Exchange) is open
for the transaction of business.
(c) As used in these provisions, the term "retirement plan"
shall mean a retirement plan adopted by the Corporation or any of
its subsidiaries, including without limitation the Old Republic
International Corporation Employees Savings and Stock Ownership
Plan and similar plans.
DESIGNATIONS, PREFERENCES AND RIGHTS OF
SERIES D CUMULATIVE CONVERTIBLE PREFERRED STOCK
1. Designation.
25,000,000 shares of Preferred Stock of the Corporation are
hereby constituted as a series of Preferred Stock designated as
"Series D Cumulative Convertible Preferred Stock" (hereinafter
called "Series D Preferred Stock").
2. Voting Rights.
Each holder of Series D Preferred Stock shall have one vote in
respect of each share of stock held by him of record on the books
of the Corporation on all matters voted upon by the stockholders,
in addition to any other voting rights provided by law.
3. Dividends.
(a) Each share of Series D Preferred Stock shall be entitled
to dividends, when and as declared by the Board of Directors, at a
rate of $.50 per hare per annum, before any dividends or
distribution in cash or other property (other than dividends
payable in stock ranking junior to the Series D Preferred Stock) on
any class or classes of stock of the Corporation ranking junior to
the Series D Preferred Stock as to dividends or on liquidation hall
be declared or paid or set apart for payment.
(b) Dividends on the Series D Preferred Stock shall be paid
semi-annually on January 15 and July 15 of each year (or on such
other date or dates as may be determined by the Board of Directors)
to holders of record on the respective dates not exceeding sixty
days preceding such dividend payment dates as may be determined by
the Board of Directors in advance of the payment of each particular
dividend.
(c) Dividends on the Series D Preferred Stock shall be
cumulative from and after the date of original issuance thereof,
whether or not declared by the Board of Directors. Accruals of
dividends shall not bear interest.
4. Conversion Rights at Any Time.
Shares of the Series D Preferred Stock shall be convertible at
any time at the option of the holder of such shares into shares of
Common Stock at an exchange ratio of five (5) shares of Series D
Preferred Stock for one (1) share of Common Stock.
5. Conversion Right in the Event of Certain Business Combinations
or Acquisitions of Securities.
(a) In the event of a "Business Combination" (as hereinafter
defined), or in the event an Acquiring Entity obtains 20% or more
of any one class of the Corporation's voting securities, and unless
the conditions of subparagraph (c) hereof are complied with, shares
of Series D Preferred Stock shall become immediately convertible at
any time prior to or after the effectiveness of such Business
Combination or acquisition of the 20% or larger interest, at the
sole option of the holder of such shares, into shares of Common
Stock at a maximum exchange ratio of five (5) shares of Series D
Preferred stock for one (1) share of Common Stock, subject to a
proportionate reduction (but not lower than a minimum exchange
ratio of 2.5 to 1) to the extent that the "Common Stock Value" (as
hereinafter determined) as of the date on which the shares of
Series D Preferred Stock are surrendered for conversion exceeds
$25.00 per share of Common Stock. (For example, if the Common
Stock Value as of such date is $50.00 or higher, the exchange ratio
will be 2.5 to 1; or, alternatively, if the Common Stock Value as
of such date is $35.00, the exchange ratio will be 4.0 to 1). For
this purpose, "Common Stock Value" shall equal the greater of: (A)
the highest per share price (including brokerage commissions and/or
soliciting dealers' fees) paid by the "Acquiring Entity" (as
hereinafter defined) in acquiring any of its holdings of the
Corporation's Common Stock; or (B) an amount bearing a percentage
relationship to the market price of the Corporation's Common Stock
immediately prior to the public announcement of such Business
Combination, equal to the highest percentage relationship that any
per share price (including brokerage commissions and/or soliciting
dealer's fees) theretofore paid by the Acquiring Entity for any of
its holdings of the Corporation's Common Stock bore to the market
price of such Common Stock immediately prior to the transaction
resulting in the acquisition of such Common Stock; or (C) the book
value of the Corporation's Common Stock as of the end of the most
recent calendar quarter determined in accordance with generally
accepted accounting principles.
(b) For purposes of this paragraph, a Business Combination
shall include (i) a merger or consolidation of the Corporation with
or into any Other Corporation (as hereinafter defined), or (ii) any
sale, lease, exchange, mortgage, pledge or other disposition of
all, or substantially all, or any Substantial Part (as hereinafter
defined) of the assets of the Corporation or any Subsidiary (as
hereinafter defined) to any Other Corporation, or (iii) the
issuance or transfer by the Corporation of any Substantial Amount
(as hereinafter defined) of securities of the Corporation in
exchange for the securities or assets of any Other Corporation if,
in any such case, as of the record date for the determination of
stockholders entitled to notice thereof and to vote thereon or
consent thereto such Other Corporation is an Acquiring Entity.
(c) The provisions of subparagraph (a) of this paragraph
shall not be applicable to any transaction described therein if
such transaction is approved by majority resolution of the full
Board of Directors of the Corporation, provided that two-thirds of
the members of the Board of Directors voting for the approval of
such transaction were duly elected and acting members of the Board
of Directors prior to the time such Other Corporation shall have
become an Acquiring Entity.
(d) The Board of Directors shall have the power and duty to
determine for the purposes of this paragraph, on the basis of
information known to such Board, if and when any
Other Corporation is or has become an Acquiring Entity, and any
such determination shall be conclusive and binding for all purposes
of this paragraph.
<PAGE>
(e) As used in this paragraph, the following terms have the
meanings as set forth below:
"Acquiring Entity" means any Other Corporation which is the
Beneficial Owner of more than 10% of the outstanding shares of
stock of the Corporation entitled to vote in elections of
directors, considered for the purposes of this paragraph a one
class.
"Affiliate" or "Associate" of a person have the same meaning
as is assigned to such terms under Rule 12b-2 of the General
Rules and Regulations (the "Regulations") under the Securities
Exchange Act of 1934 as in effect on June 1, 1982.
"Beneficial Owner" of stock means a person, or an Affiliate or
Associate of such person, who is a "beneficial owner" of
stock, as such term is defined under Rule 13d-3 of the
Regulations as in effect on June 1, 1982.
"Business Combination" means any transaction described in part
(b) of this paragraph.
"Other Corporation" means any person, firm, corporation or
other entity, or group, other than a subsidiary of the
Corporation.
"Substantial Part" means any assets having a then fair market
value, in the aggregate, of more than $5,000,000.
"Subsidiary" means any corporation in which the Corporation
owns, directly or indirectly, more than 50% of the voting
securities.
"Substantial Amount" means any securities of the Corporation
having a then fair market value of more than $5,000,000.
6. Certain Conversion Rights Upon Other Consolidation or Merger;
Liquidation Rights.
(a) In the event of a "Business Combination" (as defined in
paragraphs 5(b)) not covered by paragraph 5 by reason of the
provisions of paragraph 5(c), shares of Series D Preferred Stock
shall be immediately convertible at any time prior to the
effectiveness of such Business Combination at an exchange ratio of
five (5) shares of Series D Preferred Stock for one (1) share of
Common Stock.
(b) Upon the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of the
shares of the Series D Preferred Stock which have not been
converted into Common Stock shall be entitled to receive out of the
assets of the Corporation before any payment or distribution shall
be made on the Common Stock or on any other class of stock ranking
junior to the Series D Preferred Stock upon liquidation, cash in
the amount of $5.00 per share, plus a sum equal to all dividends on
such shares accrued and unpaid thereon to the date of final
distribution, but they shall be entitled to no further payment.
If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation, or proceeds thereof,
distributable among the holders of the Series D Preferred Stock or
any other class of Preferred Stock ranking on a parity with the
Series D Preferred Stock shall be insufficient to pay in full the
preferential amount aforesaid, then such assets, or the proceeds
thereof, shall be distributed among such holders ratably in
accordance with the respective amounts which would be payable on
such shares if all amounts payable thereon were paid in full. For
the purposes of this paragraph 6(b), the merger or consolidation of
the Corporation with one or more corporations in which the
Corporation is the corporation surviving such consolidation or
merger shall not be deemed to be a liquidation, dissolution or
winding up, voluntary or involuntary.
(c) Prior to the merger of the Corporation into or the
consolidation of the Corporation with another corporation in which
the Corporation is not the survivor, each share of the Series D
Preferred Stock which has not been converted into Common Stock
shall be redeemed by the Corporation for cash in the amount of
$5.00 per share, plus a sum equal to all dividends on such shares
accrued and unpaid thereon to the date of such merger or
consolidation.
7. Redemption after July 1, 1987 at the Option of the
Corporation.
At any time after July 1, 1987, the Corporation, at its sole
option on at least 30 days' prior written notice to holders, may
redeem all, or any part (pro rata as to the holders), of the Series
D Preferred Stock then outstanding, for cash equal to $5.00 per
share, plus a sum equal to all dividends on such shares accrued and
unpaid thereon to the redemption date. During such 30 day notice
period, holders of the Series D Preferred Stock may exercise their
rights of conversion specified in paragraph 4 hereof, which
conversion right shall expire as of the close of business on the
thirtieth day of such notice period.
8. Certain Provisions Applicable to Redemptions of Shares.
From and after the applicable date specified for redemption of
shares of Series D Preferred Stock in accordance with these
provisions, unless the Corporation shall default in paying or
providing the funds necessary for the payment of the redemption
price of the shares so specified for redemption, the right to
receive dividends on all shares of Series D Preferred Stock so
specified for redemption shall cease to accrue, and all rights of
the holders of the shares of Series D Preferred Stock specified for
redemption shall forthwith, after the redemption date, cease and
terminate, excepting only the right of such holders to receive the
specified redemption price for such shares but without interest,
and such shares shall no longer be deemed outstanding.
9. Certain Provisions Applicable to Conversions of Shares.
(a) Shares of the Series D Preferred Stock to be converted in
accordance with these provisions shall be convertible at such
office or offices as the Board of Directors of the Corporation may
designate. (For the purpose of this paragraph, the issuance of
Common Stock in lieu of cash upon a redemption of Series D
Preferred Stock shall be deemed to be a conversion unless the
context otherwise requires.)
(b) In order to effect the conversion of shares of the Series
D Preferred Stock into Common Stock in accordance with these
provisions, the holder thereof shall surrender at any office
hereinabove mentioned the certificate or certificates therefor,
duly endorsed to the Corporation or in blank, and give written
notice to the Corporation at said office in accordance with the
applicable provisions hereof, as to the conversion to be effected
and the name or names in which the certificate or certificates for
shares of Common Stock are to be issued. No payment or adjustment
shall be made upon any conversion on account of any dividends
accrued on the shares of the Series D Preferred Stock surrendered
for conversion or on account of any dividends on the Common Stock
issued upon such conversion. Shares of the Series D Preferred
Stock shall be deemed to have been converted immediately prior to
the close of business on the day specified for conversion and the
surrender of such shares for conversion in accordance with the
foregoing provisions, and the person or persons entitled to receive
the Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such Common Stock
at such time. As promptly as practicable after the receipt of such
notice and the surrender of such shares as aforesaid, the
Corporation shall issue and deliver at said office a certificate or
certificates for the number of full shares of Common Stock issuable
upon such conversion, together with a cash payment in lieu of any
fraction of any share, as hereinafter provided, to the person or
persons entitled to receive the same. In case shares of the Series
D Preferred Stock are called for redemption, the right to convert
such shares shall cease and terminate at the close of business on
the applicable redemption date, unless default shall be made in
payment of the redemption price.
(c) No fractional shares of Common Stock shall be issued upon
conversion of shares of the Series D Preferred Stock but, in lieu
of any fraction of a share of Common Stock which would otherwise be
issuable in respect of the aggregate number of shares of the Series
D Preferred Stock surrendered for conversion at one time by the
same holder, the Corporation shall pay in cash as an adjustment of
such fraction an amount equal to the same fraction of the Market
Price of the Common Stock, on the date on which such shares of the
Series D Preferred Stock were duly surrendered for conversion, or,
if such date is not a Trading Day, on the next preceding date which
was a Trading Day.
(d) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares the full number
of shares of Common Stock into which all shares of the Series D
Preferred Stock from time to time outstanding are convertible.
(e) The Corporation will pay any and all issue and other
taxes that may be payable in respect of any issue or delivery of
shares on conversion of shares of the Series D Preferred Stock
pursuant hereto. The Corporation shall not, however, be required
to pay any tax which may be payable in respect of any transfer
involved in such issue and delivery of shares in a name other than
that in which the shares so converted were registered, and no such
issue or delivery shall be made unless and until the person
requesting such issue 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.
10. Distribution or Reclassification of Series D Preferred Stock
In the Event of Distribution or Reclassification of Common
Stock; Adjustment of Exchange Ratio.
(a) In the event the Corporation shall at any time after the
issuance of Series D Preferred Stock pay a dividend or make a
distribution in shares of Common Stock or subdivide or reclassify
its outstanding shares of Common Stock into a greater number of
shares of Common Stock, then a proportionate dividend,
distribution, subdivision or reclassification of the outstanding
Series D Preferred Stock shall also be effected, as of the
effective date of the applicable distribution or adjustment with
respect to the Common Stock. In such event, the redemption price
of $5.00 per share and the annual dividend rate of $.50 per share
specified in these provisions shall be reduced proportionately as
to all shares of Series D Preferred Stock outstanding or thereafter
issued.
(b) In the event the outstanding Common Stock of the
Corporation is hereafter combined into a smaller number of shares,
then the rate of conversion only, specified herein, shall be
adjusted proportionately.
11. Relative Rights of Preferred Stock.
(a) So long as any of the Series D Preferred Stock is
outstanding the Corporation will not:
(i) Declare, or pay, or set apart for payment, any
dividends (other than dividends payable in stock ranking junior
to the Series D Preferred Stock) or make any distribution on any
other class or classes of stock of the Corporation ranking
junior to the Series D Preferred Stock either as to dividends or
upon liquidation and will not redeem, purchase or otherwise
acquire, any shares of any such junior class if at the time of
making such declaration, payment, distribution, redemption,
purchase or acquisition the Corporation shall be in default with
respect to any dividend payable on, or any obligation to retire
shares of, Series D Preferred Stock, provided that,
notwithstanding the foregoing, the Corporation may at any time
redeem, purchase or otherwise acquire shares of stock of any
such junior class in exchange for, or out of the net cash
proceeds from the sale of, other shares of stock of any junior
class;
(ii) Without the affirmative vote or consent of the holders
of at least 50% of all the Series D Preferred Stock at the time
outstanding, given in person or by proxy, either in writing or
by resolution adopted at an annual or special meeting called for
the purpose, amend, alter or repeal any of these resolutions so
as adversely to affect the preferences, rights, or powers of the
Series D Preferred Stock; provided, that the creation of any
class of stock ranking prior to the Series D Preferred Stock
either as to dividends or upon liquidation or any increase in
the authorized number of shares of any such class of stock shall
not be deemed to adversely affect the preferences, rights or
powers of the Preferred Stock within the meaning of this
subparagraph (ii);
(iii) Without the affirmative vote or consent of the
holders of at least 50% of all the Series D Preferred Stock at
the time outstanding, given in person or by proxy, either in
writing or by resolution adopted at an annual or special meeting
called for the purpose, create any class or classes of stock
ranking prior to the Series D Preferred Stock either as to
dividends or upon liquidation, or increase the authorized number
of shares of any such class of stock.
(b) The Series B Cumulative Convertible Preferred Stock of
the Corporation heretofore authorized by the Board of Directors of
the Corporation shall rank on a parity with, and the Common Stock
of the Corporation shall rank junior to, the Series D Preferred
Stock as to dividends and upon liquidation.
12. Certain Definitions.
(a) For the purposes of these provisions, the term "Common
Stock" means the Common Stock of the Corporation, $1 par value, as
the same exists as of the original date of issue of the Series D
Preferred Stock or as such stock may be reconstituted from time to
time.
(b) As used in these provisions, the term "Market Price" on
any day shall mean the reported last sales price regular way on
such day or, in case no such sale takes place on such day, the
average of the reported closing bid and asked prices regular way,
in each 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, the average of the
closing bid and asked prices in the over-the-counter market as
reported by the National Quotation Bureau or similar reporting
service; and the term "Trading Day" shall mean a date on which the
New York Stock Exchange (or any successor to such Exchange) is open
for the transaction of business.
DESIGNATIONS, PREFERENCES AND RIGHTS
OF SERIES E CUMULATIVE CONVERTIBLE PREFERRED STOCK
1. Designations.
875,000 shares of Preferred Stock of the Corporation, without
par value, are hereby constituted as a series of Preferred Stock
designated as "Series E Cumulative Convertible Preferred Stock"
(hereinafter called "Series E Preferred Stock").
2. Voting Rights.
In addition to the special voting rights provided to the
holders of the Series E Preferred Stock as or part of a separate
series or class pursuant to paragraph 7 hereof, any other provision
of the Certificate of Incorporation of the Corporation, and any
other voting rights provided by law, each holder of Series E
Preferred Stock shall be entitled to one vote in respect of each
share of stock held by him of record on the books of the
Corporation on all matters voted upon by the stockholders, such
votes to be counted together with those for any other shares of
capital stock having the right to vote on all such matters and not
separately as a class or group.
3. Dividends.
(a) The holders of shares of Series E Preferred Stock shall
be entitled to receive cumulative cash dividends, when and as
declared by the Board of Directors out of funds legally available
therefor, at a rate of $1.00 per share per annum and no more,
before any dividend or distribution in cash or other property
(other than dividends payable in stock ranking junior to the Series
E Preferred Stock as to dividends and upon liquidation) on any
class or series of stock of the Corporation ranking junior to the
Series E Preferred Stock as to dividends or on liquidation shall be
declared or paid or set apart for payment.
(b) Dividends on the Series E Preferred Stock shall be paid
on the dividend payment date established by the Board of Directors
for the quarterly payment of dividends on the Common Stock (or
otherwise on the first business day of March, June, September and
December of each year) to holders of record on the respective
record dates not exceeding sixty days preceding such dividend
payment dates as may be determined by the Board of Directors in
advance of the payment of each particular dividend.
(c) Dividends on the Series E Preferred Stock shall be
cumulative and accrue from and after the date of original issuance
thereof, whether or not declared by the Board of Directors.
Accruals of dividends shall not bear interest.
(d) No dividend may be declared on any other class or series
of stock ranking on a parity with the Series E Preferred Stock as
to dividends in respect of any quarterly dividend unless there
shall also be or have been declared on the Series E Preferred Stock
like dividends for all quarterly periods coinciding with or ending
before such quarterly period, ratably in proportion to the
respective annual dividend rates per annum fixed therefor.
4. Liquidation Rights.
In the event of any dissolution, liquidation or winding up of
the Corporation, whether voluntary or involuntary, the holders of
outstanding shares of the Series E Preferred Stock shall be
entitled to receive, before any payment or distribution of assets
of the Corporation or proceeds thereof (whether capital or surplus)
shall be made to or set apart for the holders of the Common Stock
or any other class or series of stock ranking junior to the Series
E Preferred Stock upon liquidation, cash in the amount of $33.50
per share, plus a sum equal to all dividends on such shares accrued
and unpaid thereon to the date of final distribution, but they
shall be entitled to no further payment. If, upon any liquidation,
dissolution or winding up of the Corporation, the assets of the
Corporation, or proceeds thereof, distributable among the holders
of the Series E Preferred Stock or any other class or series
ranking on a parity with the Series E Preferred Stock as to
payments upon liquidation, dissolution or winding up shall be
insufficient to pay in full the preferential amount aforesaid, then
such assets, or the proceeds thereof, shall be distributed among
such holders ratably in accordance with the respective amounts
which would be payable on such shares if all amounts payable
thereon were paid in full. For the purposes of this paragraph 4,
the voluntary sale, lease, exchange or transfer (for cash, shares
of stock, securities or other consideration) of all or
substantially all of the property or assets of the Corporation to,
or a merger or consolidation of the Corporation with, one or more
corporations shall not be deemed to be a liquidation, dissolution
or winding up, voluntary or involuntary.
5. Redemption at Option of the Corporation.
The Corporation shall have the right to redeem shares of
Series E Preferred Stock pursuant to the following provisions:
(a) The Corporation shall not have any right to redeem shares
of Series E Preferred Stock prior to the 10th anniversary of the
date of the initial issue of shares of Series E Preferred Stock.
Thereafter, the Corporation shall have the right, at its sole
option and election, to redeem some or all of the shares of Series
E Preferred Stock, at any time and from time to time, at a
redemption price of $33.50 per share, plus an amount equal to all
accrued and unpaid dividends and distributions thereon (such sum
being hereinafter referred to as the "Redemption Price"), whether
or not declared, to the date fixed by the Board for redemption (the
"redemption date").
(b) If less than all of the shares of Series E Preferred
Stock at the time outstanding are to be redeemed, the shares so to
be redeemed shall be selected by lot, pro rata (as nearly as may
be) or in such other manner as the Board of Directors may determine
in its sole discretion to be fair and proper, except that in any
redemption of fewer than all the outstanding shares of Series E
Preferred Stock, the Corporation may redeem all shares held by
holders of less than 100 shares of Series E Preferred Stock.
Notwithstanding the foregoing provisions, the Corporation shall not
redeem less than all of the Series E Preferred Stock at any time
outstanding until all dividends accrued and in arrears upon all
Series E Preferred Stock then outstanding shall have been paid for
all past dividend periods, and until full dividends for the then
current dividend period on all Series E Preferred Stock then
outstanding, other than the shares to be redeemed, shall have been
paid or declared and the full amount thereof set apart for the
payment.
(c) Notice of any redemption of shares of Series E Preferred
Stock pursuant to this paragraph 5 shall be mailed at least 30, but
not more than 60 days prior to the redemption date to each holder
of shares of Series E Preferred Stock to be redeemed, at such
holder's address as it appears on the transfer agent's books. In
order to facilitate the redemption of shares of Series E Preferred
Stock, the Board of Directors may fix a record date for the
determination of holders of shares of Series E Preferred Stock to
be redeemed not more than 60 days prior to the date fixed for such
redemption.
(d) Any notice which is mailed as herein provided shall be
conclusively presumed to have been duly given, whether or not the
stockholder receives such notice; and failure to give such notice
by mail, or any defect in such notice, to the holders of any shares
designated for redemption shall not affect the validity of the
proceedings for the redemption of any other shares of Series E
Preferred Stock. On or after the date fixed for redemptions stated
in such notice, each holder of the shares called for redemption
shall surrender the certificate or certificates evidencing such
shares to the Corporation at the place designated in such notice
and shall thereupon be entitled to receive payment of the
Redemption Price. If less than all the shares represented by any
such surrendered certificate are redeemed, a new certificate shall
be issued representing the unredeemed shares.
(e) The Corporation may, on or prior to the date fixed for
redemption of any shares, but not earlier than 45 days prior to the
date fixed for redemption, deposit with its transfer agent or other
redemption agent selected by the Board of Directors of the
Corporation, a trust fund, a sum sufficient to redeem the shares
called for redemption, with irrevocable instructions and authority
to such transfer agent or other redemption agent to give or
complete the notice of redemption thereof and to pay to the
respective holders of such shares, as evidenced by a list of such
holders certified by an officer of the Corporation, the Redemption
Price upon surrender of their respective share certificates. Such
deposit shall be deemed to constitute full payment of such shares
to their holders; and from and after the date of such deposit,
notwithstanding that any certificates for such shares shall not
have been surrendered for cancellation, the shares represented
thereby shall no longer be deemed outstanding, the rights to
receive dividends and distributions shall cease to accrue from and
after the redemption date, and all rights of the holders of the
shares of Series E Preferred Stock called for redemption, as
stockholders of the Corporation with respect to such shares, shall
cease and terminate, except the right to receive the Redemption
Price, without interest, upon the surrender of their respective
certificates, and except the right to convert their shares into
Common Stock as provided in paragraph 6 hereof, until the close of
business on the third business day preceding the redemption date.
In case the holders of any shares shall not, within one year after
such deposit, claim the amount deposited for redemption thereof,
such transfer agent or other redemption agent shall, upon demand,
pay over to the Corporation the balance of such amount so
deposited. Thereupon, such transfer agent or other redemption
agent shall be relieved of all responsibility to the holders
thereof and the sole right of such holders shall be as general
creditors of the Corporation. To the extent that shares of Series
E Preferred Stock called for redemption are converted into Common
Stock prior to the date fixed for redemption, the amount deposited
by the Corporation to redeem such shares shall immediately be
returned to the Corporation. Any interest accrued on any funds so
deposited shall belong to the Corporation, and shall be paid to it
from time to time on demand.
6. Conversion.
Each share of Series E Preferred Stock (other than those
shares which have been surrendered for redemption pursuant to
paragraph 5) may be converted at any time (until the third business
day preceding the redemption date as provided in subparagraph (h)
of this paragraph 6), at the option of the holder thereof, into
shares of Common Stock of the Corporation, on the terms and
conditions set forth in this paragraph 6:
(a) Subject to the provisions for adjustment hereinafter set
forth, each share of Series E Preferred Stock shall be convertible
at the option of the holder thereof, in the manner hereinafter set
forth, into one fully paid and nonassessable share of Common Stock
of the Corporation.
(b) The number of shares of Common Stock into which each
share of Series E Preferred Stock is convertible shall be subject
to adjustment from time to time as follows:
(i) In case the Corporation shall at any time (A) pay a
dividend or make a distribution on its Common Stock in Common
Stock, (B) subdivide its outstanding shares of Common Stock into
a larger number of shares, (C) combine its outstanding shares of
Common Stock into a smaller number of larger shares, (D) issue
by reclassification of its Common Stock (whether by merger or
consolidation or otherwise) any shares of stock or other
securities of the Corporation, or (E) take any action with the
same effect as any of the foregoing, then the number of shares
of Common Stock which the holder of each outstanding share of
Series E Preferred Stock shall thereafter be entitled to receive
upon conversion of such share of Series E Preferred Stock
(subject to further adjustments pursuant to paragraphs 6(b)(ii)
and 6(b)(iii) shall be adjusted so as to consist of the number
of shares of the Corporation (or of the corporation surviving or
resulting from any merger or consolidation) which at the date of
such conversion he would have owned and been entitled to receive
had such share of Series E Preferred Stock been converted
immediately prior to the happening of the first of such events
to occur after the initial issue of shares of Series E Preferred
Stock and prior to such conversion. An adjustment made pursuant
to this paragraph 6(b)(i) shall become effective immediately
after the record date in the case of a dividend or distribution,
and immediately after the effective date in the case of a
subdivision, combination, reclassification, or an event with the
same effect as the foregoing;
(ii) In case the Corporation shall issue rights or warrants
to all holders of its Common Stock entitling them to subscribe
for or purchase shares of Common Stock at a price per share less
than the current Market Price (as defined herein) per share of
the Common Stock on the record date for determination of
stockholders entitled to receive such rights or warrants, other
than pursuant to a dividend reinvestment plan, then in each such
case the number of shares of Common Stock into which each share
of Series E Preferred Stock shall thereafter be convertible
shall be determined by multiplying the number of shares of
Common Stock into which such share of Series E Preferred Stock
was convertible immediately prior to such record date by a
fraction, of which the numerator shall be the number of shares
of Common Stock outstanding at such record date plus the number
of additional shares of Common Stock offered for subscription or
purchase, and of which the denominator shall be the number of
shares of Common Stock outstanding at such record date plus the
number of shares which the aggregate offering price of the total
number of shares so offered would purchase at such current
Market Price. For the purposes of this paragraph 6(b)(ii), the
issuance of rights or warrants to subscribe for or purchase
stock or securities convertible into shares of Common Stock
shall be deemed to be the issuance of rights or warrants to
purchase the shares of Common Stock into which such stock or
securities are convertible at an aggregate offering price equal
to the aggregate offering price of such stock or securities plus
the minimum aggregate amount (if any) payable upon conversion of
such stock or securities into Common Stock. An adjustment made
pursuant to this paragraph 6(b)(ii) shall become effective
immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants; and
(iii) In case the Corporation shall distribute to all
holders of its Common Stock its securities (excluding Common
Stock), evidences of its indebtedness or assets (excluding cash
dividends and distributions out of current or retained earnings)
or rights to subscribe (excluding those referred to in paragraph
6(b)(ii) hereof), then in each such case the number of shares of
Common Stock into which each share of Series E Preferred Stock
shall thereafter be convertible shall be determined by
multiplying the number of shares of Common Stock into which such
share of Series E Preferred Stock was convertible immediately
prior to the record date for determination of stockholders
entitled to such distribution by a fraction, of which the
numerator shall be the current Market Price per share of the
Common Stock on the record date for determination of
stockholders entitled to receive such distribution, and of which
the denominator shall be such current Market Price per share of
the Common Stock less the fair value (as determined by the Board
of Directors of the Corporation, whose determination shall be
conclusive) of the portion of the securities, evidences of
indebtedness or assets so distributed or of such subscription
rights applicable to one share of the Common Stock. An
adjustment made pursuant to this paragraph 6(b)(iii) shall
become effective immediately after the record date for the
determination of stockholders entitled to receive such
distribution.
Similar adjustments shall be made if any of the events
described above shall thereafter occur or reoccur.
(c) If any adjustment in the number of shares of Common Stock
into which each share of Series E Preferred Stock may be converted
required pursuant to this paragraph 6 would result in an increase
or decrease of less than 1% in the number of shares of Common Stock
into which each share of Series E Preferred Stock is then
convertible, the amount of any such adjustment shall be carried
forward and adjustment with respect thereto shall be made at the
time of and together with any subsequent adjustment which, together
with such amount and any other amount or amounts so carried
forward, shall aggregate at least 1% of the number of shares of
Common Stock into which each share of Series E Preferred Stock is
then convertible.
All calculations under this subparagraph (c) shall be made to the
nearest one-hundredth of a share.
(d) In order to effect the conversion of shares of the Series
E Preferred Stock into Common Stock in accordance with these
provisions, the holder thereof shall surrender at the Corporation's
principal office or such other office or agency as the Board of
Directors of the Corporation may designate the certificate or
certificates therefor, duly endorsed to the Corporation or in
blank, accompanied by a written notice to the Corporation at said
office stating that such holder elects to convert all or a
specified whole number of such shares in accordance with the
provisions of this paragraph 6 and specifying the name or names in
which the certificate or certificates for shares of Common Stock
are to be issued. Upon any conversion of shares of Series E
Preferred Stock into shares of Common Stock pursuant hereto, no
adjustment with respect to dividends shall be made; only those
dividends shall be payable on shares of Series E Preferred Stock so
converted as may be declared and may be payable to holders of
record of shares of Series E Preferred Stock on a date prior to the
Conversion Date (as defined herein) with respect to the shares so
converted; and only those dividends shall be payable on shares of
Common Stock issued upon such conversion as may be declared and
made payable to holders of record of shares of Common Stock on or
after such Conversion Date (as defined herein). Shares of the
Series E Preferred Stock shall be deemed to have been converted
immediately prior to the close of business on the date (the
"Conversion Date") of receipt by the Corporation of such notice and
the surrender of the certificate or certificates representing the
shares of Series E Preferred Stock to be converted (together with
any required instruments of transfer), and the rights of the holder
thereof, except for the right to receive Common Stock of the
Corporation in accordance herewith, shall cease on the Conversion
Date, and the person or persons entitled to receive the Common
Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such Common Stock on
the Conversion Date. As promptly as practicable after the receipt
of such notice and the surrender of such shares as aforesaid, the
Corporation shall issue and deliver at said office to the person or
persons entitled to receive the same (i) a certificate or
certificates for the number of validly issued, fully paid and
nonassessable shares of Common Stock issuable upon such conversion,
together with a cash payment in lieu of any fraction of any share,
as hereinafter provided, and (ii) if less than the full number of
shares of Series E Preferred Stock evidenced by the surrendered
certificate or certificates are being converted, a new certificate
or certificates, of like tenor, for the number of shares evidenced
by such surrendered certificate or certificates less the number of
shares converted.
(e) No fractional shares of Common Stock shall be issued upon
conversion of shares of the Series E Preferred Stock but, in lieu
of any fraction of a share of Common Stock which would otherwise be
issuable in respect of the aggregate number of shares of the Series
E Preferred Stock surrendered for conversion at one time by the
same holder, the Corporation shall pay in cash as an adjustment of
such fraction an amount equal to the same fraction of the Market
Price (as defined herein) of the Common Stock, on the Conversion
Date, or, if such date is not a Trading Day (as defined herein), on
the next preceding date which was a Trading Day.
(f) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares the full number
of shares of Common Stock into which all shares of the Series E
Preferred Stock from time to time outstanding are convertible.
(g) The Corporation will pay any and all issue and other
taxes that may be payable in respect of any issue or delivery of
shares on conversion of shares of the Series E Preferred Stock
pursuant hereto. The Corporation shall not, however, be required
to pay any tax which may be payable in respect of any transfer
involved in such issue and delivery of shares in a name other than
that in which the shares so converted were registered, and no such
issue or delivery shall be made unless and until the person
requesting such issue 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.
(h) Shares of Series E Preferred Stock may not be converted
after the close of business on the third business day preceding the
date fixed for redemption of such shares pursuant to paragraph 5.
(i) In the event that:
(i) the Corporation shall take action to make any
distribution (other than cash dividends and dividends or
distributions payable in shares of its Common Stock) to the
holders of its Common Stock;
(ii) the Corporation shall take action to offer for
subscription pro rata to the holders of its Common Stock any
securities of any kind;
(iii) the Corporation shall take action to accomplish
any capital reorganization, or reclassification of the capital
stock of the Corporation (other than a subdivision, split or
combination of its Common Stock), or consolidation or merger to
which the Corporation is a party and for which approval of any
stockholders of the Corporation is required; or
(iv) the Corporation shall take action looking to a
voluntary or involuntary dissolution, liquidation or winding up
of the Corporation;
then the Corporation shall (A) in case of any such distribution or
subscription rights, at least 15 days prior to the date or expected
date on which the books of the Corporation shall close or record
shall be taken for the determination of holders entitled to such
distribution or subscription rights, and (B) in the case of any
such reorganization, reclassification, consolidation, merger,
dissolution, liquidation or winding up, at least 15 days prior to
the date or expected date when the same shall take place, cause
written notice thereof to be mailed to each holder of shares of
Series E Preferred Stock at his address as shown on the books of
the transfer agent of the Corporation. Such notice in accordance
with the foregoing clause (A) shall also specify, in the case of
any such distribution or subscription rights, the date or expected
date on which the holders of Common Stock shall be entitled
thereto, and such notice in accordance with the foregoing clause
(B) shall also specify the date or expected date on which the
holders of Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger,
dissolution, liquidation or winding up, as the case may be.
7. Relative Rights of Preferred Stock.
(a) So long as any of the Series E Preferred Stock is
outstanding the Corporation will not:
(i) Declare, or pay, or set apart for payment, any
dividends (other than dividends payable in stock ranking junior
to the Series E Preferred Stock as to dividends and upon
liquidation) or make any distribution in cash or other property
on any other class or series of stock of the Corporation ranking
junior to the Series E Preferred Stock either as to dividends or
upon liquidation and will not redeem, purchase or otherwise
acquire, any shares of any such junior class or series if at the
time of making such declaration, payment, distribution,
redemption, purchase or acquisition the Corporation shall be in
default with respect to any dividend payable on, or any
obligation to retire shares of, Series E Preferred Stock,
provided that, notwithstanding the foregoing, the Corporation
may at any time redeem, purchase or otherwise acquire shares of
stock of any such junior class in exchange for, or out of the
net cash proceeds from the sale of, other shares of stock of any
junior class or series; and
(ii) Without the affirmative vote or consent of the holders
of at least a majority of all the Series E Preferred Stock at
the time outstanding, given in person or by proxy, either in
writing or by resolution adopted at an annual or special meeting
called for the purpose, at which the holders of the shares of
this series shall vote separately as a class, (A) authorize,
create or issue, or increase the authorized or issued amount, of
any class or series of stock ranking prior to the Series E
Preferred Stock either as to dividends or upon liquidation; (B)
amend, alter or repeal any of the provisions of the
Corporation's Certificate of Incorporation, or of the
Certificate of Designations, Preferences and Rights of the
Series E Preferred Stock, so as to materially and adversely
affect the preferences, rights, privileges or powers of the
Series E Preferred Stock, or (C) merge or consolidate with or
into any other corporation with an effect on the Series E
Preferred Stock substantially similar to the effect of any
action described in the preceding clause (A) or (B), except that
the provisions of this paragraph shall not be applicable with
respect to any action described in such clause (A) or (B) where
the effect on the Series E Preferred Stock is required by the
terms of a series or class of preferred stock of such other
corporation which is outstanding before any such merger or
consolidation; provided, however, that any increase in the
authorized Preferred Stock or the creation and issuance of other
series of Preferred Stock ranking on a parity with the Series E
Preferred Stock shall not be deemed to materially and adversely
affect such preferences, rights, privileges or powers.
8. Status
Shares of this series which have been converted into Common
Stock or which have been issued and acquired in any manner by the
Corporation (excluding, until the Corporation elects to retire
them, shares which are held as treasury shares but including shares
redeemed and shares purchased and retired) shall, upon compliance
with any applicable provisions of the laws of the State of
Delaware, have the status of authorized and unissued shares of
Preferred Stock and may be reclassified and reissued as part of a
new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors or as part of any series of
Preferred Stock other than this series, all subject to the
conditions and restrictions on issuance set forth in any resolution
or resolution adopted by the Board of Directors providing for the
issue of any series of Preferred Stock.
9. Priority
The Series B and D Preferred Stock of the Corporation
heretofore authorized by the Board of Directors of the Corporation
shall rank on a parity with, and the Common Stock of the
Corporation shall rank junior to, the Series E Preferred Stock as
to dividends and upon liquidation.
10. Certain Definitions.
(a) For the purposes of these provisions the term "Common
Stock" means the Common Stock of the Corporation, $1.00 par value,
as the same exists as of the original date of issue of the Series
E Preferred Stock or as such stock may be reconstituted from time
to time.
(b) As used in these provisions, the term "Market Price" on
any day shall mean the reported last sales price on such day or, in
case no such sale takes place on such day, the average of the
reported closing bid and asked prices, in each 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, then the average of the closing bid and asked
prices of the Common Stock in the over-the-counter market as
reported on NASDAQ or a similar reporting service; and the term
"Trading Day" shall mean a date on which the New York Stock
Exchange (or any successor to such Exchange) is open for the
transaction of business.
DESIGNATIONS, PREFERENCES AND RIGHTS OF
SERIES G CONVERTIBLE PREFERRED STOCK
1. Designation.
1,000,000 shares of Preferred Stock of the Corporation, no par
value, are hereby constituted as a series of Preferred Stock
designated as "Series G Convertible Preferred Stock" (hereinafter
called "Series G Preferred Stock").
2. Transferability.
The shares of Series G Preferred Stock shall not be
transferable by the holder thereof otherwise than by will or under
the laws of descent and distribution. In the event that any shares
of Series G Preferred Stock are transferred by will or under the
laws of descent and distribution and such shares of Series G
Preferred Stock are not thereafter converted into Common Stock
pursuant to the provisions of paragraphs 5 and 6, the Corporation
shall have the right to redeem such shares of Series G Preferred
Stock so transferred pursuant to the following provisions:
(a) At any time after six months from the date of death of
the holder which gave rise to such transfer, the Corporation shall
have the right, at its sole option and election, to redeem all of
such shares of Series G Preferred Stock so transferred by will or
under the laws of descent and distribution at a redemption price
per share equal to 95% of the audited book value per share of the
Common Stock as of the last day of the latest full fiscal year of
the Corporation, plus an amount equal to all accrued and unpaid
dividends and distributions thereon (the sum being hereinafter
referred to as the "Redemption Price"), whether or not declared, to
the date fixed by the Board for redemption (the "Redemption Date").
(b) The Corporation shall not redeem pursuant to this
paragraph 2 any of the Series G Preferred Stock at any time
outstanding until all dividends accrued and in arrears upon all
Series G Preferred Stock then outstanding shall have been paid for
all past dividend periods, and until full dividends for the then
current dividend periods on all Series G Preferred Stock then
outstanding, other than the shares to be redeemed, shall have been
paid or declared and the full amount thereof set apart for payment.
(c) Notice of any redemption of shares of Series G Preferred
Stock pursuant to this paragraph 2 shall be mailed at least 30, but
not more than 60, days prior to the redemption date to each holder
of shares of Series G Preferred Stock to be redeemed, at such
holder's address as it appears on the transfer agent's books. Any
notice which is mailed as herein provided shall be conclusively
presumed to have been duly given, whether or not the stockholder
receives such notice; and failure to give such notice by mail, or
any defect in such notice, to the holders of any shares designated
for redemption shall not affect the validity of the proceedings for
the redemption of any other shares of Series G Preferred Stock. On
or after the date fixed for redemption as stated in such notice,
each holder of the shares called for redemption shall surrender the
certificate or certificates evidencing such shares to the
Corporation at the place designated in such notice and shall
thereupon be entitled to receive payment of the Redemption Price.
(d) Shares of the Series G Preferred Stock shall be deemed to
have been redeemed immediately prior to the close of business on
the Redemption Date, the right to receive dividends and
distributions shall cease to accrue from and after the Redemption
Date, and the rights of the holder thereof, except for the right to
receive the Redemption Price in accordance herewith, shall cease
and terminate on the Redemption Date. As promptly as practicable
after surrender of such shares as aforesaid, the Corporation shall
pay to the holder the Redemption Price for each share of Series G
Preferred Stock surrendered for redemption.
3. Voting Rights.
In addition to any special voting rights provided to the
holders of the Series G Preferred Stock as or part of a separate
series or class pursuant to paragraph 8, any provision of the
Certificate of Incorporation of the Corporation and any other
voting rights provided by law, each holder of Series G Preferred
Stock shall be entitled to one vote in respect of each share of
stock held by him of record on the books of the Corporation on all
matters voted upon by the stockholders, such votes to be counted
together with those for any other shares of capital stock having
the right to vote on all such matters and not separately as a class
or group.
4. Dividends.
(a) The holders of shares of Series G Preferred Stock shall
be entitled to receive cumulative cash dividends, when and as
declared by the Board of Directors out of funds legally available
therefor, at an annual rate, based upon $20.00 per share, which
amount shall be proportionately adjusted in the event of any stock
dividend or distribution in shares of Series G Preferred Stock, any
subdivision, combination or reclassification of the outstanding
shares of Series G Preferred Stock, or any similar action, equal to
the prime rate to commercial borrowers posted by The Northern Trust
Company of Chicago on the January 1 or July 1 immediately preceding
the next dividend payment date and no more, before any dividend or
distribution in cash or other property (other than dividends
payable in stock ranking junior to the Series G Preferred Stock as
to dividends and upon liquidation) on any class or series of stock
of the Corporation ranking junior to the Series G Preferred Stock
as to dividends or on liquidation shall be declared or paid or set
apart for payment.
(b) Dividends on the Series G Preferred Stock shall be
payable semi-annually, when and as declared by the Board of
Directors, on June 30 and December 31 of each year, commencing the
first June 30 or December 31 after the date of the initial issuance
of shares of the Series G Preferred Stock, except that if such date
is a Saturday, Sunday or legal holiday then such dividends shall be
payable on the first immediately succeeding calendar day which is
not a Saturday, Sunday, or legal holiday, to holders of record on
the respective record dates not exceeding sixty days preceding such
dividend payment dates as may be determined by the Board of
Directors in advance of the payment of each particular dividend.
(c) Dividends on the Series G Preferred Stock shall be
cumulative and accrue from and after the date of original issuance
thereof, whether or not declared by the Board of Directors.
Accruals of dividends shall not bear interest.
(d) No dividend may be declared on any other class or series
of stock ranking junior or on a parity with the Series G Preferred
Stock as to dividends in respect of any dividend period unless
there shall also be or have been declared on the Series G Preferred
Stock like dividends for all semi-annual periods coinciding with or
ending before such semi-annual period, ratably in proportion to the
respective annual dividend rates fixed therefor.
5. Liquidation Rights.
(a) In the event of any dissolution, liquidation or winding
up of the Corporation, whether voluntary or involuntary, the
holders of outstanding shares of the Series G Preferred Stock shall
be entitled to receive, before any payment or distribution of
assets of the Corporation or proceeds thereof (whether capital or
surplus) shall be made to or set apart for the holders of any class
of common stock of the Corporation or any other class or series of
stock ranking junior to the Series G Preferred Stock upon
liquidation, cash, per share, in an amount equal to 95% of the book
value per share of the Common Stock on the date of liquidation plus
a sum equal to all dividends on such shares accrued and unpaid
thereon to the date of final distribution, but they shall be
entitled to no further payment. If, upon any liquidation,
dissolution or winding up of the Corporation, the assets of the
Corporation, or proceeds thereof, distributable among the holders
of the Series G Preferred Stock or any other class of Preferred
Stock ranking on a parity with the Series G Preferred Stock as to
payments upon liquidation, dissolution or winding up shall be
insufficient to pay in full the preferential amount aforesaid, then
such assets, or the proceeds thereof, shall be distributed among
such holders ratably in accordance with the respective amounts
which would be payable on such shares if all amounts payable
thereon were paid in full. For the purposes of this paragraph
4(a), the voluntary sale, lease, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or
substantially all of the property or assets of the Corporation to,
or a merger or consolidation of the Corporation with one or more
corporations in which the Corporation is the corporation surviving
such consolidation or merger shall not be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary.
(b) If there is a merger of the Corporation into or the
consolidation of the Corporation with another corporation in which
the Corporation is not the survivor, the holders of Series G
Preferred Stock shall retain the same rights in the surviving
corporation as outlined herein.
6. Conversion at Option of the Holder.
Each share of Series G Preferred Stock (other than those
shares which have been surrendered for redemption pursuant to
paragraph 2) may be converted at any time after six months from the
date of issuance of such share of Series G Preferred Stock, at the
option of the holder thereof, into shares of Common Stock of the
Corporation, on the terms and conditions set forth in this
paragraph 5:
(a) Each share of Series G Preferred Stock shall be
convertible at the option of the holder thereof, in the manner
hereinafter set forth, into .95 fully paid and nonassessable share
of Common Stock of the Corporation.
(b) In order to effect the conversion of shares of the Series
G Preferred Stock into Common Stock in accordance with these
provisions, the holder thereof shall surrender at the Corporation's
principal office or such other office or agency as the Board of
Directors of the Corporation may designate the certificate or
certificates therefor, duly endorsed to the Corporation or in
blank, accompanied by a written notice to the Corporation at said
office stating that such holder elects to convert all or a
specified whole number of such shares in accordance with the
provisions of this paragraph 5 and specifying the name or names in
which the certificate or certificates for shares of Common Stock
are to be issued. No payment or adjustment shall be made upon any
conversion on account of any dividends accrued on the shares of the
Series G Preferred Stock surrendered for conversion or on account
of any dividends on the Common Stock issued upon such conversion.
Shares of the Series G Preferred Stock shall be deemed to have been
converted immediately prior to the close of business on the date
(the "Conversion Date") of receipt by the Corporation of such
notice and the surrender of the certificate or certificates
representing the shares of Series G Preferred Stock to be converted
(together with any required instruments of transfer), and the
rights of the holder thereof, except for the right to receive
Common Stock of the Corporation in accordance herewith, shall cease
on the Conversion Date, and the person or persons entitled to
receive the Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such
Common Stock on the Conversion Date. As promptly as practicable
after the receipt of such notice and the surrender of such shares
as aforesaid, the Corporation shall issue and deliver at said
office to the person or persons entitled to receive the same (i) a
certificate or certificates for the number of validly issued, fully
paid and nonassessable shares of Common Stock issuable upon such
conversion, together with a cash payment in lieu of any fraction of
any share, as hereinafter provided, and (ii) if less than the full
number of shares of Series G Preferred Stock evidenced by the
surrendered certificate or certificates are being converted, a new
certificate or certificates, of like tenor, for the number of
shares evidenced by such surrendered certificate or certificates
less the number of shares converted.
(c) No fractional shares of Common Stock shall be issued upon
conversion of shares of the Series G Preferred Stock but, in lieu
of any fraction of a share of Common Stock which would otherwise be
issuable in respect of the aggregate number of shares of the Series
G Preferred Stock surrendered for conversion at one time by the
same holder, the Corporation shall pay in cash as an adjustment of
such fraction an amount equal to the same fraction of the Market
Price (as defined herein) of the Common Stock, on the Conversion
Date, or, if such date is not a Trading Day (as defined herein), on
the next preceding date which was a Trading Day.
(d) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares the full number
of shares of Common Stock into which all shares of the Series G
Preferred Stock from time to time outstanding are convertible.
(e) The Corporation will pay any and all issue and other
taxers that may be payable in respect of any issue or delivery of
shares on conversion of shares of the Series G Preferred Stock
pursuant hereto. The Corporation shall not, however, be required
to pay any tax which may be payable in respect of any transfer
involved in such issue and delivery of shares in a name other than
that in which the shares so converted were registered, and no such
issue or delivery shall be made unless and until the person
requesting such issue 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.
(f) Shares of Series G Preferred Stock may not be converted
after the close of business on the third business day preceding the
date fixed for redemption or conversion by the Corporation of such
shares pursuant to paragraphs 2 and 6.
7. Conversion at Option of the Corporation.
Each share of Series G Preferred Stock (other than those
shares which have been surrendered for redemption or conversion
pursuant to paragraphs 2 and 5) may be converted after five years
from the date of issuance of such share, at the option of the
Corporation, into shares of Common Stock of the Corporation, on the
terms and conditions set forth in this paragraph 6:
(a) Each share of Series G Preferred Stock shall be
convertible at the option of the Corporation, in the manner
hereinafter set forth, into .95 fully paid and nonassessable shares
of Common Stock of the Corporation.
(b) If less than all of the shares of Series G Preferred
Stock at the time outstanding are to be converted, the shares so to
be converted shall be selected by lot, pro rata (as nearly as may
be) or in such other manner as the Board of Directors may determine
in its sole discretion to be fair and proper, except that in any
conversion of fewer than all of the outstanding shares of Series G
Preferred Stock, the Corporation may convert all shares held by
holders of less than 100 shares of Series G Preferred Stock.
Notwithstanding the foregoing provisions, the Corporation shall not
convert less than all of the Series G Preferred Stock at any time
outstanding until all dividends accrued and in arrears upon all
Series G Preferred Stock then outstanding shall have been paid for
all past dividend periods, and until full dividends for the then
current dividend period on all series G Preferred Stock then
outstanding, other than the shares to be converted, shall have been
paid or declared and the full amount thereof set apart for payment.
(c) Notice of any conversion of shares of Series G Preferred
Stock pursuant to this paragraph 6 shall be mailed at least 30, but
not more than 60, days prior to the date fixed by the Board for
conversion (the "Corporation Conversion Date") to each holder of
shares of Series G Preferred Stock to be converted, at such
holder's address as it appears on the books of the Corporation. In
order to facilitate the conversion of shares of Series G Preferred
Stock, the Board of Directors may fix a record date for the
determination of holders of shares of Series G Preferred Stock to
be converted not more than 60 days prior to the date fixed for such
conversion.
(d) Any notice which is mailed as herein provided shall be
conclusively presumed to have been duly given, whether or not the
stockholder receives such notice; and failure to give such notice
by mail, or any defect in such notice, to the holders of any shares
designated for conversion shall not affect the validity of the
proceedings for the conversion of any other shares of Series G
Preferred Stock. On or after the date fixed for conversion as
stated in such notice, each holder of the shares called for
conversion shall surrender the certificate or certificates
evidencing such shares to the Corporation at the place designated
in such notice and shall thereupon be entitled to receive a
certificate or certificates for the number of validly issued,
fully-paid and nonassessable shares of Common Stock issuable upon
such conversion, together with a cash payment in lieu of any
fraction of any share, as hereinafter provided. If less than all
the shares represented by any such surrendered certificate are
converted, a new certificate shall be issued representing the
unconverted shares.
(e) No payment or adjustment shall be made upon any
conversion on account of any dividends accrued on the shares of the
Series G Preferred Stock surrendered for conversion or on account
of any dividends on the Common Stock issued upon such conversion.
Shares of the Series G Preferred Stock shall be deemed to have been
converted immediately prior to the close of business on the
Corporation Conversion Date, and the rights of the holder thereof,
except for the right to receive Common Stock of the Corporation in
accordance herewith, shall cease on the Corporation Conversion
Date, and the person or persons entitled to receive the Common
Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such Common Stock on
the Corporation Conversion Date.
(f) No fractional shares of Common Stock shall be issued upon
conversion of shares of the Series G Preferred Stock but, in lieu
of any fraction of a share of Common Stock which would otherwise be
issuable in respect of the aggregate number of shares of the Series
G Preferred Stock surrendered for conversion at one time by the
same holder, the Corporation shall pay in cash as an adjustment of
such fraction an amount equal to the same fraction of the Market
Price (as defined herein) of the Common Stock, on the Corporation
Conversion Date, or, if such date is not a Trading Day (as defined
herein), on the next preceding date which was a Trading Day.
(g) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares the full number
of shares of Common Stock into which all shares of the Series G
Preferred Stock from time to time outstanding are convertible.
(h) The Corporation will pay any and all issue and other
taxes that may be payable in respect of any issue or delivery of
shares on conversion of shares of the Series G Preferred Stock
pursuant hereto. The Corporation shall not, however, be required
to pay any tax which may be payable in respect of any transfer
involved in such issue and delivery of shares in a name other than
that in which the shares so converted were registered, and no such
issue or delivery shall be made unless and until the person
requesting such issue 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.
8. Distribution or Reclassification of Series G Preferred Stock
In the Event of Distribution or Reclassification of Common
Stock or Class B Common Stock; Adjustment of Conversion Ratio.
(a) In the event the Corporation shall at any time after the
issuance of Series G Preferred Stock pay a dividend or make a
distribution in shares of Common Stock or Class B Common Stock or
subdivide or reclassify its outstanding shares of Common Stock or
Class B Common Stock into a greater number of shares of Common
Stock or Class B Common Stock, respectively, then a proportionate
dividend, distribution, subdivision or reclassification of the
outstanding Series G Preferred Stock shall also be effected, as of
the effective date of the applicable distribution or adjustment
with respect to the Common Stock or Class B Common Stock. In such
event, the Redemption Price per share specified in these provisions
shall be reduced proportionately as to all shares of Series G
Preferred Stock outstanding or thereafter issued and the annual
dividend per share specified in these provisions shall be adjusted
as provided in paragraph 4.
(b) In the event the outstanding Common Stock or Class B
Common Stock of the Corporation is hereafter combined into a
smaller number of shares, then the rate of conversion only,
specified herein, shall be adjusted proportionately.
9. Relative Rights of Preferred Stock.
So long as any of the Series G Preferred Stock is outstanding
the Corporation will not:
(i) Declare, or pay, or set apart for payment, any
dividends (other than dividends payable in stock ranking junior
to the Series G Preferred Stock as to dividends and upon
liquidation) or make any distribution in cash or other property
on any other class or series of stock of the Corporation ranking
junior to the Series G Preferred Stock either as to dividends or
upon liquidation and will not redeem, purchase or otherwise
acquire, any shares of any such junior class or series if at the
time of making such declaration, payment, distribution,
redemption, purchase or acquisition the Corporation shall be in
default with respect to any dividend payable on, or any
obligation to retire shares of, Series G Preferred Stock,
provided that, notwithstanding the foregoing, the Corporation
may at any time redeem, purchase or otherwise acquire shares of
stock of any such junior class in exchange for, or out of the
net cash proceeds from the sale of, other shares of stock of any
junior class or series; or
(ii) Without the affirmative vote or of the holders of two-
thirds of all the Series G Preferred Stock at the time
outstanding, given in person or by proxy, by resolution adopted
at an annual or special meeting called for the purpose, at which
the holders of the shares of this series shall vote separately
as a class, (A) authorize, create or issue, or increase the
authorized or issued amount, of any class or series of stock
ranking prior to the Series G Preferred Stock either as to
dividends or upon liquidation; or (B) amend, alter or repeal any
of the provisions of the Corporation's Certificate of
Incorporation, Bylaws or Certificate of Designations,
Preferences and Rights of the Series G Preferred Stock, so as to
materially and adversely affect the preferences, rights,
privileges or powers of the Series G Preferred Stock; provided,
however, that any increase in the authorized Preferred Stock or
the creation and issuance of other series of Preferred Stock
ranking on a parity with the Series G Preferred Stock shall not
be deemed to materially and adversely affect such preferences,
rights, privileges or powers.
10. Status.
Shares of this series which have been converted into Common
Stock or which have been issued and acquired in any manner by the
Corporation (excluding, until the Corporation elects to retire
them, shares which are held as treasury shares but including shares
redeemed and shares purchased and retired) shall, upon compliance
with any applicable provisions of the laws of the State of
Delaware, have the status of authorized and unissued shares of
Preferred Stock and may be reclassified and reissued as part of a
new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors or as part of any series of
Preferred Stock other than this series, all subject to the
conditions and restrictions on issuance set forth in any resolution
or resolutions adopted by the Board of Directors providing for the
issue of any series of Preferred Stock.
11. Priority.
The Series B, D and E Preferred Stock of the Corporation
heretofore authorized by the Board of Directors of the Corporation
shall rank on a parity with, and the Common Stock and Class B
Common Stock of the Corporation shall rank junior to, the Series G
Preferred Stock as to dividends and upon liquidation.
12. Certain Definitions.
(a) For the purposes of these provisions the terms "Common
Stock" and "Class B Common Stock" mean the Common Stock of the
Corporation, $1.00 par value, and the Class B Common Stock of the
Corporation, $1.00 par value, as the same exist as of the original
date of issue of the Series G Preferred Stock or as such stock may
be reconstituted from time to time.
(b) As used in these provisions, the term "Market Price" on
any day shall mean the reported last sales price on such day or, in
case no such sale takes place on such day, the average of the
reported closing bid and asked prices, in each 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, then the average of the closing bid and asked
prices of the Common Stock in the over-the-counter market as
reported on NASDAQ or a similar reporting service; and the term
"Trading Day" shall mean a date on which the New York Stock
Exchange (or any successor to such Exchange) is open for the
transaction of business.
DESIGNATIONS, PREFERENCES AND RIGHTS OF
SERIES G-2 CONVERTIBLE
PREFERRED STOCK
1. Designation.
1,000,000 shares of Preferred Stock of the Corporation, no par
value, are hereby constituted as a series of Preferred Stock
designated as "Series G-2 Convertible Preferred Stock" (hereinafter
called "Series G-2 Preferred Stock").
2. Transferability.
The shares of Series G-2 Preferred Stock shall not be
transferable by the holder thereof otherwise than by will or under
the laws of descent and distribution. In the event that any shares
of Series G-2 Preferred Stock are transferred by will or under the
laws of descent and distribution and such shares of Series G-2
Preferred Stock are not thereafter converted into Common Stock
pursuant to the provisions of paragraphs 5 and 6, the Corporation
shall have the right to redeem such shares of Series G-2 Preferred
Stock so transferred pursuant to the following provisions:
(a) At any time after six months from the date of death of
the holder which gave rise to such transfer, the Corporation shall
have the right, at its sole option and election, to redeem all of
such shares of Series G-2 Preferred Stock so transferred by will or
under the laws of descent and distribution at a redemption price
per share equal to 95% of the audited book value per share of the
Common Stock as of the last day of the latest full fiscal year of
the Corporation, plus an amount equal to all accrued and unpaid
dividends and distributions thereon (the sum being hereinafter
referred to as the "Redemption Price"), whether or not declared, to
the date fixed by the Board for redemption (the "Redemption Date").
(b) The Corporation shall not redeem pursuant to this
paragraph 2 any of the Series G-2 Preferred Stock at any time
outstanding until all dividends accrued and in arrears upon all
Series G-2 Preferred Stock then outstanding shall have been paid
for all past dividend periods, and until full dividends for the
then current dividend period on all Series G-2 Preferred Stock then
outstanding, other than the shares to be redeemed, shall have been
paid or declared and the full amount thereof set apart for payment.
(c) Notice of any redemption of shares of Series G-2
Preferred Stock pursuant to this paragraph 2 shall be mailed at
least 30, but not more than 60, days prior to the redemption date
to each holder of shares of Series G-2 Preferred Stock to be
redeemed, at such holder's address as it appears on the transfer
agent's books. Any notice which is mailed as herein provided shall
be conclusively presumed to have been duly given, whether or not
the stockholder receives such notice; and failure to give such
notice by mail, or any defect in such notice, to the holders of any
shares designated for redemption shall not affect the validity of
the proceedings for the redemption of any other shares of Series G-
2 Preferred Stock. On or after the date fixed for redemption as
stated in such notice, each holder of the shares called for
redemption shall surrender the certificate or certificates
evidencing such shares to the Corporation at the place designated
in such notice and shall thereupon be entitled to receive payment
of the Redemption Price.
(d) Shares of the Series G-2 Preferred Stock shall be deemed
to have been redeemed immediately prior to the close of business on
the Redemption Date, the right to receive dividends and
distributions shall cease to accrue from and after the Redemption
Date, and the rights of the holder thereof, except for the right to
receive the Redemption Price in accordance herewith, shall cease
and terminate on the Redemption Date. As promptly as practicable
after surrender of such shares as aforesaid, the Corporation shall
pay to the holder the Redemption Price for each share of Series G-2
Preferred Stock surrendered for redemption.
3. Voting Rights.
In addition to any special voting rights provided to the
holders of the Series G-2 Preferred Stock as or part of a separate
series or class pursuant to paragraph 8, any provision of the
Certificate of Incorporation of the Corporation and any other
voting rights provided by law, each holder of Series G-2 Preferred
Stock shall be entitled to one vote in respect of each share of
stock held by him of record on the books of the Corporation on all
matters voted upon by the stockholders, such votes to be counted
together with those for any other shares of capital stock having
the right to vote on all such matters and not separately as a class
or group.
4. Dividends.
(a) The holders of shares of Series G-2 Preferred Stock shall
be entitled to receive cumulative cash dividends, when and as
declared by the Board of Directors out of funds legally available
therefor, at an annual rate, based upon $21.79 per share, which
amount shall be proportionately adjusted in the event of any stock
dividend or distribution in shares of Series G-2 Preferred Stock,
any subdivision, combination or reclassification of the outstanding
shares of Series G-2 Preferred Stock, or any similar action, equal
to the prime rate to commercial borrowers posted by The Northern
Trust Company of Chicago on the January 1 or July 1 immediately
preceding the next dividend payment date and no more, before any
dividend or distribution in cash or other property (other than
dividends payable in stock ranking junior to the Series G-2
Preferred Stock as to dividends and upon liquidation) on any class
or series of stock of the Corporation ranking junior to the Series
G-2 Preferred Stock as to dividends or on liquidation shall be
declared or paid or set apart for payment.
(b) Dividends on the Series G-2 Preferred Stock shall be
payable semi-annually, when and as declared by the Board of
Directors, on June 30 and December 31 of each year, commencing the
first June 30 or December 31 after the date of the initial issuance
of shares of the Series G-2 Preferred Stock, except that if such
date is a Saturday, Sunday or legal holiday then such dividends
shall be payable on the first immediately succeeding calendar day
which is not a Saturday, Sunday, or legal holiday, to holders of
record on the respective record dates not exceeding sixty days
preceding such dividend payments dates as may be determined by the
Board of Directors in advance of the payment of each particular
dividend.
(c) Dividends on the Series G-2 Preferred Stock shall be
cumulative and accrue from and after the date of original issuance
thereof, whether or not declared by the Board of Directors.
Accruals or dividends shall not bear interest.
(d) No dividend may be declared on any other class or series
of stock ranking junior or on a parity with the Series G-2
Preferred Stock as to dividends in respect of any dividend period
unless there shall also be or have been declared on the Series G-2
Preferred Stock like dividends for all semi-annual periods
coinciding with or ending before such semi-annual period, ratably
in proportion to the respective annual dividend rates fixed
therefor.
4. Liquidation Rights.
(a) In the event of any dissolution, liquidation or winding
up of the Corporation, whether voluntary or involuntary, the
holders of outstanding shares of the Series G-2 Preferred Stock
shall be entitled to receive, before any payment or distribution of
assets of the Corporation or proceeds thereof (whether capital or
surplus) shall be made to or set apart for the holders of any class
of common stock of the Corporation or any other class or series of
stock ranking junior to the Series G-2 Preferred Stock upon
liquidation, cash, per share, in an amount equal to 95% of the book
value per share of the Common Stock on the date of liquidation plus
a sum equal to all dividends on such shares accrued and unpaid
thereon to the date of final distribution, but they shall be
entitled to no further payment. If, upon any liquidation,
dissolution or winding up of the Corporation, the assets of the
Corporation, or proceeds thereof, distributable among the holders
of the Series G-2 Preferred Stock or any other class of Preferred
Stock ranking on a parity with the Series G-2 Preferred Stock as to
payments upon liquidation, dissolution or winding up shall be
insufficient to pay in full the preferential amount aforesaid, then
such assets, or the proceeds thereof, shall be distributed among
such holders ratably in accordance with the respective amounts
which would be payable on such shares if all amounts payable
thereon were paid in full. For the purposes of this paragraph
4(a), the voluntary sale, lease, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or
substantially all of the property or assets of the Corporation to,
or a merger or consolidation of the Corporation with one or more
corporations in which the Corporation is the corporation surviving
such consolidation of merger shall not be deemed to be a
liquidation dissolution or winding up, voluntary or involuntary.
(b) If there is a merger of the Corporation into or the
consolidation of the Corporation with another corporation in which
the Corporation is not the survivor, the holders of Series G-2
Preferred Stock shall retain the same rights in the surviving
corporation as outlined herein.
5. Conversion at Option of the Holder.
Each share of Series G-2 Preferred Stock (other than those
shares which have been surrendered for redemption pursuant to
paragraph 2) may be converted at any time after six months from the
date of issuance of such share of Series G-2 Preferred Stock, at
the option of the holder thereof, into shares of Common Stock of
the Corporation, on the terms and conditions set forth in this
paragraph 5.
(a) Each share of Series G-2 Preferred Stock shall be
convertible at the option of the holder thereof, in the manner
hereinafter set forth, into .95 fully paid and nonassessable shares
of Common Stock of the Corporation.
(b) In order to effect the conversion of shares of the Series
G-2 Preferred Stock into Common Stock in accordance with these
provisions, the holder thereof shall surrender at the Corporation's
principal office or such other office or agency as the Board of
Directors of the Corporation may designate the certificate or
certificates therefor, duly endorsed to the Corporation or in
blank, accompanied by a written notice to the Corporation at said
office stating that such holder elects to convert all or a
specified whole number of such shares in accordance with the
provisions of this paragraph 5 and specifying the name or names in
which the certificate or certificates for shares of Common Stock
are to be issued. No payment or adjustment shall be made upon any
conversion on account of any dividends accrued on the shares of the
Series G-2 Preferred Stock surrendered for conversion or on account
of any dividends on the Common Stock issued upon such conversion.
Shares of the Series G-2 Preferred Stock shall be deemed to have
been converted immediately prior to the close of business on the
date (the "Conversion Date") of receipt by the Corporation of such
notice and the surrender of the certificate or certificates
representing the shares of Series G-2 Preferred Stock to be
converted (together with any required instruments or transfer), and
the rights of the holder thereof, except for the right to receive
Common Stock of the Corporation in accordance herewith, shall cease
on the Conversion Date, and the person or persons entitled to
receive the Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such
Common Stock on the Conversion Date. As promptly as practicable
after the receipt of such notice and the surrender of such shares
as aforesaid, the Corporation shall issue and deliver at said
office to the person or persons entitled to receive the same (i) a
certificate or certificates for the number of validly issued,
fully-paid and nonassessable shares of Common Stock issuable upon
such conversion, together with a cash payment in lieu of any
fraction of any share, as hereinafter provided, and (ii) if less
than the full number of shares of Series G-2 Preferred Stock
evidenced by the surrendered certificate or certificates are being
converted, a new certificate or certificates, of like tenor, for
the number of shares evidenced by such surrendered certificate or
certificates less the number of shares converted.
(c) No fractional shares of Common Stock shall be issued upon
conversion of shares of the Series G-2 Preferred Stock but, in lieu
of any fraction of a share of Common Stock which would otherwise be
issuable in respect of the aggregate number of shares of the Series
G-2 Preferred Stock surrendered for conversion at one time by the
same holder, the Corporation shall pay in cash as an adjustment of
such fraction an amount equal to the same fraction of the Market
Price (as defined herein) of the Common Stock, on the Conversion
Date, or, if such date is not a Trading Day (as defined herein), on
the next preceding date which was a Trading Day.
(d) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares the full number
of shares of Common Stock into which all shares of the Series G-2
Preferred Stock from time to time outstanding are convertible.
(e) The Corporation will pay any and all issue and other
taxes that may be payable in respect of any issue or delivery of
shares on conversion of shares of the Series G-2 Preferred Stock
pursuant hereto. The Corporation shall not, however, be required
to pay any tax which may be payable in respect of any transfer
involved in such issue and delivery of shares in a name other than
that in which the shares so converted were registered, and no such
issue or delivery shall be made unless and until the person
requesting such issue 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.
(f) Shares of Series G-2 Preferred Stock may not be converted
after the close of business on the third business day preceding the
date fixed for redemption or conversion by the Corporation of such
shares pursuant to paragraphs 2 and 6.
6. Redemption or Conversion at Option of the Corporation.
The Corporation shall have the right either to redeem or to
convert shares of Series G-2 Preferred Stock pursuant to the
following provisions:
(a) Each share of Series G-2 Preferred Stock, at any time
after five years following the date of issuance of such share,
shall be redeemable by the Corporation, at its sole option and
discretion, at a redemption price of $21.79 per share, plus an
amount equal to all accrued and unpaid dividends and distributions
thereon (hereinafter the "Redemption Price"), whether or not
declared, to the date fixed by the Board of Directors for
redemption (hereinafter the "Redemption Date"), or convertible by
the Corporation, at its sole option and discretion, into .95 fully
paid and nonassessable share of Common Stock of the Corporation.
(b) If less than all of the shares of Series G-2 Preferred
Stock at the time outstanding are to be redeemed or converted, the
shares so to be redeemed or converted shall be selected by lot, pro
rata (as nearly as may be) or in such other manner as the Board of
Directors may determine in its sole discretion to be fair and
proper, except that in any redemption or conversion of fewer than
all of the outstanding shares of Series G-2 Preferred Stock, the
Corporation may redeem or convert all shares held by holders of
less than 100 shares of Series G-2 Preferred Stock.
Notwithstanding the foregoing provisions, the Corporation shall not
redeem or convert less than all of the Series G-2 Preferred Stock
at any time outstanding until all dividends accrued and in arrears
upon all Series G-2 Preferred Stock then outstanding shall have
been paid for all past dividend periods, and until full dividends
for the then current dividend period on all Series G-2 Preferred
Stock then outstanding, other than the shares to be redeemed or
converted, shall have been paid or declared and the full amount
thereof set apart for payment.
(c) Notice of any redemption or conversion of shares of
Series G-2 Preferred Stock pursuant to this paragraph 6 shall be
mailed at least 30, but not more than 60, days prior to the
Redemption Date or the date fixed by the Board for conversion (the
"Corporation Conversion Date") to each holder of shares of Series
G-2 Preferred Stock to be redeemed or converted, at such holder's
address as it appears on the books of the Corporation. In order to
facilitate the redemption or conversion of shares of Series G-2
Preferred Stock, the Board of Directors may fix a record date for
the determination of holders of shares of Series G-2 Preferred
Stock to be redeemed or converted not more than 60 days prior to
the date fixed for such redemption or conversion.
(d) Any notice which is mailed as herein provided shall be
conclusively presumed to have been duly given, whether or not the
stockholder receives such notice; and failure to give such notice
by mail, or any defect in such notice, to the holders of any shares
designated for redemption or conversion shall not affect the
validity of the proceedings for the redemption or conversion of any
other shares of Series G-2 Preferred Stock. On or after the
Redemption or Corporate Conversion Date as stated in such notice,
each holder of the shares called for redemption or conversion shall
surrender the certificate or certificates evidencing such shares to
the Corporation at the place designated in such notice and shall
thereupon be entitled to receive either the redemption price, in
the case of a redemption, or a certificate or certificates for the
number of validly issued, fully-paid and nonassessable shares of
Common Stock issuable in the case of a conversion, together with a
cash payment in lieu of any fraction of any share, as hereinafter
provided. If less than all the shares represented by any such
surrendered certificate are redeemed or converted, a new
certificate shall be issued representing the unredeemed or
unconverted shares.
(e) No payment or adjustment shall be made upon any
redemption or conversion on account of any dividends accrued on the
shares of the Series G-2 Preferred Stock surrendered for redemption
or conversion or on account of any dividends on the Common Stock
issued upon such redemption or conversion. Shares of the Series G-
2 Preferred Stock shall be deemed to have been redeemed or
converted immediately prior to the close of business on the
Redemption Date or Corporation Conversion Date, and the rights of
the holder thereof, except for the right to receive the Redemption
Price or Common Stock of the Corporation in accordance herewith,
shall cease on the Redemption Date or Corporation Conversion Date,
and the person or persons entitled to receive the Common Stock
issuable in the case of conversion shall be treated for all
purposes as the record holder or holders of such Common Stock on
the Corporation Conversion Date.
(f) No fractional shares of Common Stock shall be issued upon
conversion of shares of the Series G-2 Preferred Stock but, in lieu
of any fraction of a share of Common Stock which would otherwise be
issuable in respect of the aggregate number of shares of the Series
G-2 Preferred Stock surrendered for conversion at one time by the
same holder, the Corporation shall pay in cash as an adjustment of
such fraction an amount equal to the same fraction of the Market
Price (as defined herein), of the Common Stock, on the Corporation
Conversion Date, or, if such date is not a Trading Day (as defined
herein), on the next preceding date which was a Trading Day.
(g) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares the full number
of shares of Common Stock into which all shares of the Series G-2
Preferred Stock from time to time outstanding are convertible.
(h) The Corporation will pay any and all issue and other
taxes that may be payable in respect of any issue or delivery of
shares on conversion of shares of the Series G-2 Preferred Stock
pursuant hereto. The Corporation shall not, however, be required
to pay any tax which may be payable in respect of any transfer
involved in such issue and delivery of shares in a name other than
that in which the shares so converted were registered, and no such
issue or delivery shall be made unless and until the person
requesting such issue 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.
(i) In the case of a redemption, the Corporation may, on or
prior to the Redemption Date, but not earlier than 45 days prior to
the Redemption Date, deposit with its transfer agent or other
redemption agent selected by the Board of Directors of the
Corporation, as a trust fund, a sum sufficient to redeem the shares
of Series G-2 Preferred Stock called for redemption, with
irrevocable instructions and authority to such transfer agent or
other redemption agent to give or complete the notice of redemption
thereof and to pay to the respective holders of such shares of
Series G-2 Preferred Stock, as evidenced by a list of such holders
certified by an officer of the Corporation, the Redemption Price
upon surrender of their respective share certificates. Such
deposit shall be deemed to constitute full payment of such shares
of Series G-2 Preferred Stock to their holders; and from and after
the date of such deposit, notwithstanding that any certificates for
such shares of Series G-2 Preferred Stock shall not have been
surrendered for cancellation, the shares represented thereby shall
no longer be deemed outstanding, the rights to receive dividends
and distributions shall cease to accrue from and after the
Redemption Date, and all rights of the holders of the shares of
Series G-2 Preferred Stock called for redemption, as stockholders
of the Corporation with respect to such shares, shall cease and
terminate, except the right to receive the Redemption Price,
without interest, upon the surrender of their respective
certificates, and except the right to convert their shares into
Common Stock as provided in paragraph 5 hereof, until the close of
business on the Redemption Date. In case the holders of any shares
shall not, within six years after such deposit, claim the amount
deposited for redemption thereof, such transfer agent or other
redemption agent shall, upon demand, pay over to the Corporation
the balance of such amount so deposited. Thereupon, such transfer
agent or other redemption agent shall be relieved of all
responsibility to the holders thereof and the sole right of such
holders shall be as general creditors of the Corporation. To the
extent that shares of Series G-2 Preferred Stock called for
redemption are converted into Common Stock prior to the Redemption
Date, the amount deposited by the Corporation to redeem such shares
shall immediately be returned to the Corporation. Any interest
accrued on any funds so deposited shall belong to the Corporation,
and shall be paid to it from time to time on demand.
7. Distribution of Reclassification of Series G-2 Preferred Stock
In the Event of Distribution or Reclassification of Common
Stock or Class B Common Stock; Adjustment of Conversion Ratio.
(a) In the event the Corporation shall at any time after the
issuance of Series G-2 Preferred Stock pay a dividend or make a
distribution in shares of Common Stock or Class B Common Stock or
subdivide or reclassify its outstanding shares of Common Stock or
Class B Common Stock into a greater number of shares of Common
Stock or Class B Common Stock, respectively, then a proportionate
dividend, distribution, subdivision or reclassification of the
outstanding Series G-2 Preferred Stock shall also be effected, as
of the effective date of the applicable distribution or adjustment
with respect to the Common Stock or Class B Common Stock. In such
event, the Redemption Price per share specified in these provisions
shall be reduced proportionately as to all shares of Series G-2
Preferred Stock outstanding or thereafter issued and the annual
dividend per share specified in these provisions shall be adjusted
as provided in paragraph 4.
(b) In the event the outstanding Common Stock or Class B
Common Stock of the Corporation is hereafter combined into a
smaller number of shares, then the rate of conversion only,
specified herein, shall be adjusted proportionately.
8. Relative Rights of Preferred Stock.
So long as any of the Series G-2 Preferred Stock is
outstanding the Corporation will not:
(i) Declare, or pay, or set apart for payment, any
dividends (other than dividends payable in stock ranking junior
to the Series G-2 Preferred Stock as to dividends and upon
liquidation) or make any distribution in cash or other property
on any other class or series of stock of the Corporation ranking
junior to the Series G-2 Preferred Stock either as to dividends
or upon liquidation and will not redeem, purchase or otherwise
acquire, any shares of any such junior class or series if at the
time of making such declaration, payment, distribution,
redemption, purchase or acquisition the Corporation shall be in
default with respect to any dividend payable on, or any
obligation to retire shares of, Series G-2 Preferred Stock,
provided that, notwithstanding the foregoing, the Corporation
may at any time redeem, purchase or otherwise acquire shares of
stock of any such junior class in exchange for, or out of the
net cash proceeds from the sale of, other shares of stock of any
junior class or series; or
(ii) Without the affirmative vote or of the holders of
two-thirds of all the Series G-2 Preferred Stock at the time
outstanding, given in person or by proxy, by resolution adopted
at an annual or special meeting called for the purpose, at which
the holders of the shares of this series shall vote separately
as a class, (A) authorize, create or issue, or increase the
authorized or issued amount, of any class or series of stock
ranking prior to the Series G-2 Preferred Stock either as to
dividends or upon liquidation; or (B) amend, alter or repeal any
of the provisions of the Corporation's Certificate of
Incorporation, Bylaws or Certificate of Designations,
Preferences and Rights of the Series G-2 Preferred Stock, so as
to materially and adversely affect the preferences, rights,
privileges or powers of the Series G-2 Preferred Stock;
provided, however, that any increase in the authorized Preferred
Stock or in the creation and issuance of other series of
Preferred Stock ranking on a parity with the Series G-2
Preferred Stock shall not be deemed to materially and adversely
affect such preferences, rights, privileges or powers.
9. Status.
Shares of this series which have been converted into Common
Stock or which have been issued and acquired in any manner by the
Corporation (excluding, until the Corporation elects to retire
them, shares which are held as treasury shares but including shares
redeemed and shares purchased and retired) shall, upon compliance
with any applicable provisions of the laws of the State of
Delaware, have the status of authorized and unissued shares of
Preferred Stock and may be reclassified and reissued as part of a
new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors or as part of any series of
Preferred Stock other than this series, all subject to the
conditions and restrictions on issuances set forth in any
resolution or resolutions adopted by the Board of Directors
providing for the issue of any series of Preferred Stock.
10. Priority.
The Series B, D, E, and G Preferred Stock of the Corporation
heretofore authorized by the Board of Directors of the Corporation
shall rank on a parity with, and the Common Stock and Class B
Common Stock of the Corporation shall rank junior to, the Series G-
2 Preferred Stock as to dividends and upon liquidation.
11. Certain Definitions.
(a) For the purposes of these provisions the terms "Common
Stock" and "Class B Common Stock" mean the Common Stock of the
Corporation, $1.00 par value, and the Class B Common Stock of the
Corporation, $1.00 par value, as the same exist as of the original
date of issue of the Series G Preferred Stock or as such stock may
be reconstituted from time to time.
(b) As used in these provisions, the term "Market Price" on
any day shall mean the reported last sales price on such day or, in
case no such sale takes place on such day, the average of the
reported closing bid and asked prices, in each 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, then the average of the closing bid and asked
prices of the Common Stock in the over-the-counter market as
reported on NASDAQ or a similar reporting service; and the term
"Trading Day" shall mean a date on which the New York Stock
Exchange (or any Successor to such Exchange) is open for the
transaction of business.
DESIGNATIONS, PREFERENCES AND RIGHTS
OF 8 3/4% SERIES H CUMULATIVE PREFERRED STOCK
1. Designation; Number of Shares; Stated Value.
Five million (5,000,000) shares of Preferred Stock shall be
designated 8 3/4% Series H Cumulative Preferred Stock (hereinafter
sometimes referred to as the "Series H Preferred Stock" or as this
"Series"). Shares of this Series shall have a stated value of
$25.00 per share.
2. Dividends.
(a) The holders of shares of Series H Preferred Stock shall
be entitled to receive cumulative cash dividends, when and as
declared by the Board of Directors out of funds legally available
therefor, at a rate of 8 3/4% per annum of the stated value per
share thereof and no more, before any dividend or distribution in
cash or other property (other than dividends payable in stock
ranking junior to the Series H Preferred Stock as to dividends and
upon liquidation, dissolution or winding-up) on any class or series
of stock of the Corporation ranking junior to the Series H
Preferred Stock as to dividends or upon liquidation, dissolution or
winding-up shall be declared or paid or set apart for payment.
(b) Dividends on the Series H Preferred Stock shall be
payable, when and as declared by the Board of Directors, on January
1, April 1, July 1 and October 1 of each year, commencing January
1, 1992 (each such date being hereinafter individually a "Dividend
Payment Date" and collectively the "Dividend Payment Dates"),
except that if such date is a Saturday, Sunday or legal holiday
then such dividend shall be payable on the first immediately
preceding calendar day which is not a Saturday, Sunday or legal
holiday, to holders of record as they appear on the books of the
Corporation on such respective dates, not exceeding 60 days
preceding such Dividend Payment Date, as may be determined by the
Board of Directors in advance of the payment of each particular
dividend. Dividends in arrears may be declared and paid at any
time, without reference to any regular Dividend Payment Date, to
holders of record on such date as may be fixed by the Board of
Directors of the Corporation. The amount of dividends payable per
share of this Series for each dividend period shall be computed by
dividing by four the 8 3/4% annual rate and multiplying the
resulting rate by $25.00. Dividends payable on this Series for the
initial dividend period and for any period less than a full
quarterly period shall be computed on the basis of a 360-day year
of twelve 30-day months.
(c) Dividends on the Series H Preferred Stock shall be
cumulative and accrue from and after the date of original issuance
thereof, whether or not declared by the Board of Directors.
Accruals of dividends shall not bear interest.
(d) No dividend may be declared on any other class or series
of stock ranking on a parity with the Series H Preferred Stock as
to dividends in respect of any dividend period unless there shall
also be or have been declared on the Series H Preferred Stock like
dividends for all quarterly periods coinciding with or ending
before such quarterly period, ratably in proportion to the
respective annual dividend rates fixed therefor.
3. Redemption.
The Corporation shall have the right to redeem shares of this
Series pursuant to the following provision:
(a) The Corporation shall not have any right to redeem shares
of this Series prior to the fifth anniversary of the date of the
original issuance of shares of this Series. On and after such
fifth anniversary of the date of original issuance, the Corporation
shall have the right, at its sole option and election, to redeem
some or all of the shares of this Series, at any time and from time
to time, at a redemption price of $25.00 per share, plus an amount
equal to all accrued and unpaid dividends and distributions thereon
(such sum being hereinafter referred to as the "redemption price"),
whether or not declared, to the date fixed by the Board for
redemption (the "redemption date").
In the case of the redemption of a part only of the shares of
this Series at the time outstanding, the shares of this Series to
be so redeemed shall be selected by lot, pro rata (as nearly as may
be practicable), or in such other equitable manner as the Board of
Directors may determine.
(b) Notice of any redemption pursuant to this paragraph 3
shall be mailed at least 30, but not more than 60, days in advance
of the redemption date to the holders of record of shares of this
Series so to be redeemed at their respective addresses as the same
shall appear on the books of the Corporation. In order to
facilitate the redemption of shares of this Series, the Board of
Directors may fix a record date for the determination of holders of
shares of this Series to be redeemed not more than 60 days prior to
the redemption date. Each such notice shall state: (1) the
redemption date; (2) the number of shares of this Series to be
redeemed and, if less than all the shares held by such holder are
to be redeemed, the number of such shares to be redeemed from such
holder; (3) the redemption price; (4) the place or places where
certificates for such shares are to be surrendered for payment of
the redemption price; and (5) that dividends on the shares to be
redeemed will cease to accrue on such redemption date. If less
than all the shares represented by any such surrendered certificate
are redeemed, a new certificate shall be issued representing the
unredeemed shares.
(c) The Corporation shall, on or prior to the date fixed for
redemption of any shares, but not earlier than 45 days prior to the
date fixed for redemption, deposit with its transfer agent or other
redemption agent selected by the Board of Directors of the
Corporation, as a trust fund, a sum sufficient to redeem the shares
called for redemption, with irrevocable instructions and authority
to such transfer agent or other redemption agent to give or
complete the notice of redemption thereof and to pay to the
respective holders of such shares, as evidenced by a list of such
holders certified by an officer of the Corporation, the redemption
price upon surrender of their respective share certificates. Such
deposit shall be deemed to constitute full payment of such shares
to their holders; and from and after the date of such deposit,
notwithstanding that any certificates for such shares shall not
have been surrendered for cancellation, the shares represented
thereby shall no longer be deemed outstanding, the rights to
receive dividends and distributions shall cease to accrue from and
after the redemption date, and all rights of the holders of the
shares of Series H Preferred Stock called for redemption, as
stockholders of the Corporation with respect to such shares, shall
cease and terminate, except the right to receive the redemption
price, without interest, upon the surrender of their respective
certificates. In case the holders of any shares shall not, within
six years after such deposit, claim the amount deposited for
redemption thereof, such transfer agent or other redemption agent
shall, upon demand, pay over to the Corporation the balance of such
amount so deposited. Thereupon, such transfer agent or other
redemption agent shall be relieved of all responsibility to the
holders thereof and the sole right of such holders shall be as
general creditors of the Corporation. Any interest accrued on any
funds so deposited shall belong to the Corporation, and shall be
paid to it from time to time on demand.
4. Voting.
The shares of this Series shall not have any voting powers
either general or special, except as set forth in this Certificate
of Designations, Preferences and Rights, in the Corporation's
Restated Certificate of Incorporation, or as otherwise provided by
law.
5. Liquidation Rights.
Upon the dissolution, liquidation or winding-up of the
Corporation, whether voluntary or involuntary, the holders of the
shares of this Series shall be entitled to receive, before any
payment or distribution of the assets of the Corporation or
proceeds thereof (whether capital or surplus) shall be made to or
set apart for the holders of the Common Stock, Class B Common Stock
or any other class or series of stock ranking junior to the shares
of this Series upon liquidation, the amount of $25.00 per share,
plus a sum equal to all dividends on such shares (whether or not
earned or declared) accrued and unpaid thereon to the date of final
distribution, but such holders shall not be entitled to any further
payment. If, upon any liquidation, dissolution or winding-up of
the Corporation, the assets of the Corporation, or proceeds
thereof, distributable among the holders of shares of the Series H
Preferred Stock and any other class or series of Preferred Stock
ranking on a parity with the Series H Preferred Stock as to
payments upon liquidation, dissolution or winding-up shall be
insufficient to pay in full the preferential amount aforesaid, then
such assets or the proceeds thereof, shall be distributed among
such holders ratably in accordance with the respective amounts
which would be payable on such shares if all amounts payable
thereon were paid in full. For the purposes of this paragraph 5,
the voluntary sale, conveyance, lease, exchange or transfer (for
cash, shares of stock, securities or other consideration) of all or
substantially all the property or assets of the Corporation to, or
a consolidation or merger of the Corporation with, one or more
other corporations (whether or not the Corporation is the
corporation surviving such consolidation or merger) shall not be
deemed to be a liquidation, dissolution or winding-up, voluntary or
involuntary.
<PAGE>
6. No Purchase, Retirement or Sinking Fund.
The shares of this Series shall not be subject to the
operation of any purchase, retirement or sinking fund.
7. Status.
Shares of this Series which have been issued and reacquired in
any manner by the Corporation (excluding, until the Corporation
elects to retire them, shares which are held as treasury shares,
but including shares redeemed, and shares purchased and retired)
shall, upon compliance with any applicable provisions of the
General Corporation Law of the State of Delaware, have the status
of authorized and unissued shares of Preferred Stock and may be
reissued as a part of this Series or as part of a new series of
Preferred Stock to be established by the Board of Directors or as
part of any other series of Preferred Stock the terms of which do
not prohibit such reissue.
8. Priority.
The Series B, D, E, G and G-2 Preferred Stock of the
Corporation as presently designated and heretofore authorized by
the Board of Directors of the Corporation shall rank on a parity
with, and the Common Stock (including Class B Common Stock) of the
Corporation shall rank junior to, the Series H Preferred Stock as
to dividends and upon liquidation.
9. Special Rights on Default.
(a) If at any time the Corporation shall have failed to pay
dividends in full on the Series H Preferred Stock, thereafter and
until dividends in full, including all accumulated and unpaid
dividends to the next preceding Dividend Payment Date on the Series
H Preferred Stock outstanding, shall have been declared and set
apart for payment or paid: (i) the Corporation shall not redeem
less than all the Series H Preferred Stock at such time
outstanding, and (ii) neither the Corporation nor any subsidiary
shall purchase or otherwise acquire any Series H 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 Series H Preferred Stock upon such terms as the Board of
Directors in their sole discretion, after consideration of the
annual dividend rate and other rights and preferences of this
Series, shall determine (which determination shall be final and
conclusive) will result in fair and equitable treatment to all
stockholders of the Corporation, provided that nothing shall
prevent the Corporation from completing the purchase or redemption
of shares of Series H Preferred Stock for which a purchase contract
was entered into, or notice of redemption of which was initially
given, prior to such default.
(b) Whenever, at any time or times, dividends payable on the
shares of this Series shall be in arrears in an amount equal to at
least six full quarterly dividends, whether or not consecutive, on
the shares of this Series at the time outstanding, the holders of
the outstanding shares of this Series shall have the right, voting
separately as a class with holders of shares of any one or more
other series of Preferred Stock ranking on a parity with this
Series either as to dividends or the distribution of assets upon
liquidation, dissolution or winding-up and upon which like voting
rights have been conferred and are exercisable (collectively, this
Series and such other series of Preferred Stock, the "Voting
Preferred Class"), to elect two directors of the Corporation at the
Corporation's next annual meeting of stockholders and at each
subsequent annual meeting of stockholders. At elections for such
directors, the presence, in person or by proxy, of the holders of
a majority of the outstanding shares of the Voting Preferred Class
shall be required and be sufficient to constitute a quorum of such
class for the election of such directors. At elections for such
directors or adjournments thereof, (1) the absence of a quorum of
the Voting Preferred Class shall not prevent the election of the
directors to be elected otherwise than pursuant to this
subparagraph (b), and the absence of a quorum of stock other than
the Voting Preferred Class shall not prevent the election of the
directors to be elected pursuant to this subparagraph (b), and (2)
in the absence of such quorum either of the Voting Preferred Class
or of the stock other than the Voting Preferred Class, or both, a
majority of the holders, present in person or by proxy, of the
class or classes of stock which lack a quorum shall have the power
to adjourn the meeting for the election of directors whom they are
entitled to elect, from time to time without notice other than
announcement at the meeting, until a quorum shall be present. At
elections for such directors, each holder of this Series shall be
entitled to one vote for each share held (the holders of shares of
any other series included in the Voting Preferred Class being
entitled to such number of votes, if any, for each share of stock
held as may be granted to them). Upon the vesting of such right of
the holders of this Series, the maximum authorized number of
members of the Board of Directors shall automatically be increased
by two and the two vacancies so created shall be filled by vote of
the holders of the outstanding shares of this Series (together with
the holders of shares of any one or more other series of Preferred
Stock included in the Voting Preferred Class) as hereinafter set
forth. The right of the holders of this Series, voting separately
as a class to elect (together with the holders of shares of any one
or more other series of Preferred Stock included in the Voting
Preferred Class) members of the Board of Directors of the
Corporation as aforesaid shall continue until such time as all
dividends in arrears on this Series shall have been paid in full,
at which time such right shall immediately terminate, except as
herein or by law expressly provided, subject to re-vesting in the
event of each and every subsequent default of the character above
mentioned.
Each director elected by the holders of shares of this Series
shall continue to serve as such director until such time as all
dividends in arrears on this Series shall have been paid in full,
at which time the term of office of all persons elected as
directors by the holders of shares of this Series shall immediately
terminate and the number of members of the Board of Directors of
the Corporation shall be reduced accordingly. If the office of any
director elected by the holders of this Series voting as a class
becomes vacant by reason of death, resignation, retirement,
disqualification, removal from office, or otherwise, the remaining
director elected by the holders of this Series voting as a class
may choose a successor who shall hold office for the unexpired term
in respect of which such vacancy occurred. Whenever the term of
office of the directors elected by the holders of this Series
voting as a class shall end and the special voting powers vested in
the holders of this Series as provided in this subparagraph (b)
shall have expired, the number of directors shall be such number as
may be provided for in the By-Laws irrespective of any increase
made pursuant to the provisions of this subparagraph (b).
10. Relative Rights of Series H Preferred Stock.
So long as any of the Series H Preferred Stock is outstanding,
the Corporation will not:
(a) Declare, or pay, or set apart for payment, any dividends
(other than dividends payable in stock ranking junior to the Series
H Preferred Stock as to dividends and upon liquidation, dissolution
or winding-up) or make any distribution in cash or other property
on any other class or series of stock of the Corporation ranking
junior to the Series H Preferred Stock either as to dividends or
upon liquidation, dissolution or winding-up and will not redeem,
purchase or otherwise acquire any shares of any such junior class
or series if at the time of making such declaration, payment,
distribution, redemption, purchase or acquisition the Corporation
shall be in default with respect to any dividend payable on, or any
obligation to retire shares of, Series H Preferred Stock; and
(b) Without the affirmative vote or consent of the holders of
at least 66-2/3% of all the Series H Preferred Stock at the time
outstanding, given in person or by proxy, either in writing or by
resolution adopted either at an annual meeting or special meeting
called for the purpose, the holders of this Series consenting or
voting separately as a class, (i) authorize, create, or issue, or
increase the authorized or issued amount, of any class or series of
stock ranking prior to the Series H Preferred Stock, either as to
dividends or upon liquidation, dissolution or winding-up or (ii)
amend, alter or repeal (whether by merger, consolidation or
otherwise) any of the provisions of the Corporation's Restated
Certificate of Incorporation, or of the Certificate of
Designations, Preferences and Rights of the Series H Preferred
Stock, so as to materially and adversely affect the preferences,
special rights, privileges or powers of the Series H Preferred
Stock; provided, however, that any increase in the authorized
Preferred Stock or the creation and issuance of other series of
Preferred Stock ranking on a parity with or junior to the Series H
Preferred Stock shall not be deemed to materially and adversely
affect such preferences, rights, privileges or powers.
FIFTH: The number of directors of the Corporation shall be fixed
from time to time by, or in the manner provided in, its
by-laws and may be increased or decreased as therein
provided, but in no event shall the number of directors
of the Corporation be less than five nor more than
eighteen. The directors shall be classified with respect
to the time for which they shall severally hold office by
dividing them as equally as the total number of directors
will permit into three classes, and all directors shall
hold office until their successors are elected and
qualified. The term of service of each class of
directors shall be three years or until the third annual
meeting of the shareholders following the election of the
class. The terms of service of each class of directors
shall expire in successive years. At each annual meeting
of the shareholders, successors to the class of directors
whose terms then expire shall be elected to serve for the
full term of three years or until the third annual
meeting of shareholders following their election.
For purposes of the annual meeting of shareholders to be
held in 1978, the current classification of directors
shall continue and only that class of directors whose
term expires at that meeting shall be elected. At each
succeeding annual meeting of shareholders,the
shareholders shall elect directors only of the class
whose terms then expire.
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: The private property of the stockholders shall not be
subject to the payment of corporate debts to any extent
whatsoever.
EIGHTH: In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly
authorized, subject to the protective conditions or
restrictions of any outstanding series of Preferred Stock
fixed by the Board of Directors pursuant to the authority
conferred upon the Board of Directors by Article Fourth
of this Certificate of Incorporation and Section 151 of
Title 8 of the Delaware Code:
1. To make, alter or repeal the By-laws of the
Corporation.
2. To authorize and cause to be executed mortgages
and liens on the real and personal property of
the Corporation.
3. To set apart out of any of the funds of the
Corporation available for dividends a reserve
or reserves for any proper purpose and to
abolish any such reserve in the manner in which
it was created.
4. By a majority of the whole Board, to designate
one or more committees, each committee to
consist of two or more of the Directors of the
Corporation. The Board may designate one or
more Directors as alternate members of any
committee, who may replace any absent or
disqualified member at any meeting of the
committee. Any such committee, to the extent
provided in the resolution or in the By-laws of
the Corporation, shall have and may exercise
the powers of the Board of Directors in the
management of the business and affairs of the
Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which
may require it; provided, however, the By-laws
may provide that in the absence or
disqualification of any member of such
committee or committees the member or members
thereof present at any meeting and not
disqualified from voting, whether or not he or
they constitute a quorum, may unanimously
appoint another member of the Board of
Directors to act at the meeting in the place of
any such absent or disqualified member.
5. Subject to the provisions of Article Fourteenth
of this Certificate of Incorporation, when and
as authorized by the affirmative vote of the
holders of a majority of the stock issued and
outstanding having voting power given at a
stockholders meeting duly called upon such
notice as is required by statute, or when
authorized by the written consent of the
holders of a majority of the voting stock
issued and outstanding, to sell, lease or
exchange all or substantially all of the
property and assets of the Corporation,
including its goodwill and its corporate
franchises, upon such terms and conditions
and for such consideration, which may consist
in whole or in part of money or property
including shares of stock in, and/or other
securities of any other corporation or
corporations, as its Board of Directors shall
deem expedient and for the best interests of
the Corporation.
NINTH: Whenever a compromise or arrangement is proposed between
this Corporation and its creditors or any class of them
and/or between this Corporation and its stockholders or
any class of them, any court of equitable jurisdiction
within the State of Delaware may on the application in a
summary way of this Corporation or of any creditor or
stockholder thereof or on the application of any receiver
or receivers appointed for this Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code
or on the application of trustees in dissolution or of
any receiver or receivers appointed for this Corporation
under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class
of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to
be summoned in such manner as the said court directs. If
a majority in number representing three-fourths in value
of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise
or arrangement and to any reorganization of this
Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the
said reorganization shall, if sanctioned by the court to
which the said application has been made, the binding on
all the creditors or class of creditors, and/or on all
the stockholders or class of stockholders, of this
Corporation, as the case may be, and also on this
Corporation.
TENTH: Meetings of stockholders and of the Board of Directors
may be held within or without the State of Delaware, as
the By-laws may provide. The books of the Corporation
may be kept (subject to any provision contained in the
statutes) outside the State of Delaware at such place or
places as may be designated from time to time by the
Board of Directors or in the By-laws of the Corporation.
Elections of Directors need not be by written ballot
unless the By-laws of the Corporation shall so provide.
ELEVENTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this
Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this
reservation.
TWELFTH: 1. No contract or transaction between the Corporation
and one or more of its Directors or officers, or
between the Corporation and any other corporation,
partnership, association or other organization in
which one or more of its Directors or officers are
directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or
solely because the Director or officer is present at
or participates in the meeting of the Board or
committee thereof which authorizes the contract or
transaction, or solely because his or their votes
are counted for such purpose, if:
(a) The material facts as to his interest and as to the
contract or transaction are disclosed or are known
to the Board of Directors or the committee, and the
Board or committee in good faith authorizes the
contract or transaction by a vote sufficient for
such purpose without counting the vote of the
interested Director or Directors; or
(b) The material facts as to his interest and as to the
contract or transaction are disclosed or are known
to the stockholders entitled to vote thereon, and
the contract or transaction is specifically approved
in good faith by vote of the stockholders; or
(c) The contract or transaction is fair as to the
Corporation as of the time it is authorized,
approved or ratified, by the Board of Directors, a
committee thereof, or the stockholders.
Common or interested Directors may be counted in
determining the presence of a quorum at a meeting of the
Board of Directors or of a committee which authorizes the
contract or transaction.
THIRTEENTH: 1. The Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that
he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the
request of the Corporation as a director, officer,
employee or agent of another corporation,
partnership, joint venture, trust or other
enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him
in connection with such action, suit or proceeding
if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no
reasonable cause to believe this conduct was
unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere
or its equivalent, shall not, of itself, create a
presumption that the person did not act in good
faith and in a manner which he reasonably believed
to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal
action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
2. The Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit
by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he
is or was a Director, officer, employee or agent of
the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses
(including attorneys' fees) and amounts paid in
settlement actually and reasonably incurred by
him/her in connection with the defense or
settlement of such action or suit if he/she acted in
good faith and in a manner he/she reasonably
believed to be in or not opposed to the best
interests of the Corporation and except that no such
indemnification shall be made in respect to any
claim, issue or matter as to which such person shall
have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of
Chancery of Delaware or the court in which such
action or suit was brought shall determine upon
application that, despite the adjudication of
liability but in view of all the circumstances of
the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem
proper.
3. To the extent that any person referred to in
paragraphs 1 and 2 of this Article Thirteenth has
been successful on the merits or otherwise in
defense of any action, suit or proceeding referred
to therein or in defense of any claim, issue or
matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
4. Any indemnification under paragraphs 1 and 2 of
this Article Thirteenth, (unless ordered by a court)
shall be made by the Corporation only as authorized
in the specific case upon a determination that
indemnification of the Director, officer, employee
or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth
in paragraphs 1 and 2 of this Article Thirteenth.
Such determination shall be made (a) by the Board of
Directors by a majority vote of a quorum (as defined
in the By-laws of the Corporation) consisting of
Directors who were not parties to such action, suit
or proceeding, or (b) if such quorum is not
obtainable, or, even if obtainable a quorum of
disinterested Directors so directs, by independent
legal counsel in a written opinion, or (c) by the
stockholders.
5. Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of
such action, suit or proceeding in the manner
provided in paragraph 4 of this Article Thirteenth
upon receipt of an undertaking by or on behalf of
the Director, officer, employee or agent to repay
such amount if it shall ultimately be determined
that he/she is not entitled to be indemnified by the
Corporation as authorized in this Article
Thirteenth.
6. The indemnification and advancement of expenses
provided by, or granted pursuant to other section of
this Article Thirteenth shall not be deemed
exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be
entitled under any statute, by-law, agreement, vote
of stockholders or disinterested Directors or
otherwise, both as to action in his official
capacity and as to action in another capacity while
holding such office.
7. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint
venture, trust or other enterprise, against any
liability asserted against him and incurred by him
in any such capacity, or arising out of his status
as such, whether or not the Corporation would have
the power to indemnify him against such liability
under the provisions of this Article Thirteenth.
8. The indemnification and advancement of expenses
provided by, or granted pursuant to, this Article
Thirteenth shall, unless otherwise provided when
authorized or ratified, continue as to a person who
has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs,
executors and administrators of such a person. Any
repeal or modification of this Article Thirteenth
shall not adversely affect any right to
indemnification or advancement of expenses of any
present or former director, officer, employee or
agent of the Corporation existing at the time of
such repeal or modification.
9. For purposes of this Article Thirteenth, references
to the "Corporation" shall include, in addition to
the resulting corporation, any constituent
corporation (including any constituent of a
constituent) absorbed in a consolidation or merger
which, if its separate existence had continued,
would have had power and authority to indemnify its
directors, officers, and employees or agents, so
that any person who is or was a director, officer,
employee or agent of such constituent corporation,
or is or was serving at the request of such
constituent corporation as a director, officer,
employee or agent of another corporation,
partnership, joint venture, trust or other
enterprise, shall stand in the same position under
the provisions of this Article Thirteenth, with
respect to the resulting or surviving corporation as
he would have with respect to such constituent
corporation if its separate existence had continued.
10. For purposes of this Article Thirteenth, references
to "other enterprises" shall include employee
benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect
to any employee benefit plan; and references to
"serving at the request of the Corporation" shall
include any service as a director, officer, employee
or agent of the Corporation which imposes duties on,
or involves services by, such director, officer,
employee or agent with respect to an employee
benefit plan, its participants or beneficiaries; and
a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the
participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the
Corporation" as referred to in this Article
Thirteenth.
11. If this Article Thirteenth or any portion hereof is
invalidated by any court of competent jurisdiction,
then the corporation shall nevertheless provide such
indemnification and advancement of expenses as would
otherwise be permitted under any portion of this
Article Thirteenth that shall not have been
invalidated.
FOURTEENTH: A. Except as set forth in paragraph B. of this Article
Fourteenth, the affirmative vote or consent of the
holders of 80% of the outstanding shares of all
classes of stock of the Corporation entitled to vote
in elections of directors, considered for the
purposes of this Article Fourteenth as one class,
shall be required:
(i) for the adoption of any agreement for the
merger or consolidation of the Corporation
with or into any Other Corporation (as
hereinafter defined), or
(ii) to authorize any sale, lease, exchange,
mortgage, pledge or other disposition of
all, or substantially all, or any
Substantial Part (as hereinafter defined)
of the assets of the Corporation or any
Subsidiary (as hereinafter defined) to any
Other Corporation, or
(iii) to authorize the issuance or transfer by
the Corporation of any Substantial Amount
(as hereinafter defined) of securities of
the Corporation in exchange for the
securities or assets of any Other
Corporation
if, in any such case, as of the record date for the
determination of stockholders entitled to notice
thereof and to vote thereon or consent thereto such
Other Corporation is the Beneficial Owner (as
hereinafter defined) of more than 10% of the
outstanding shares of stock of the Corporation
entitled to vote in elections of directors
considered for the purposes of this Article
Fourteenth as one class. Such affirmative vote or
consent shall be in addition to the vote or consent
of the holders of the stock of the Corporation
otherwise required by law, this Certificate of
Incorporation or any agreement or contract to which
the Corporation is a party.
B. The provisions of paragraph A. of this Article
Fourteenth shall not be applicable to any
transaction described therein if such transaction is
approved by resolution of the Board of Directors of
the Corporation, provided that (a) a majority of the
members of the Board of Directors voting for the
approval of such transaction were duly elected and
acting members of the Board of Directors prior to
the time such Other Corporation shall have become a
Beneficial Owner of more than 10% of the shares of
stock of the Corporation entitled to vote in
elections of directors; or (b) such transaction is
approved by resolution unanimously adopted by the
whole Board of Directors of the Corporation at any
time prior to the consummation thereof.
C. The Board of Directors shall have the power and duty
to determine for the purposes of this Article
Fourteenth, on the basis of information known to
such Board, if and when any Other Corporation is the
Beneficial Owner of more than 10% of the outstanding
shares of stock of the Corporation entitled to vote
in elections of directors, and any such
determination shall be conclusive and binding for
all purposes of this Article Fourteenth.
D. As used in Article Fourteenth, the following terms
have the meanings as set forth below:
"Other Corporation" means any person, firm,
corporation or other entity, other than a
subsidiary of the Corporation.
"Substantial Part" means any assets having
a then fair market value, in the aggregate,
of more than $5,000,000.
"Subsidiary" means any corporation in which
the Corporation owns, directly or indirectly, more
than 50% of the voting securities.
"Substantial Amount" means any securities of
the Corporation having a then fair market value of
more than $5,000,000.
"Beneficial Owner" of stock means a person, or an
affiliate or "associate" of such person (as such
terms are defined in Rule 12b-2 of the General Rules
and Regulations under the Securities Exchange Act of
1934 as in effect on February 1, 1978), who directly
or indirectly controls the voting of such stock, or
who has any option, warrants, conversion or other
rights to acquire such stock.
FIFTEENTH:In addition to any separate class vote, if any, which
may be required by law, the affirmative vote of the
holders of 80% of the outstanding shares of all classes
of stock of the Corporation entitled to vote in the
election of directors, such outstanding shares of stock
to be considered as one class, shall be required in order
to amend or repeal any of the provisions of Article
Fourteenth or subsection 5 of Article Eighth of the
Certificate of Incorporation. The affirmative vote of
the holders of 66-2/3% of the outstanding shares of all
classes of stock of the Corporation entitled to vote in
the election of directors, such outstanding shares of
stock to be considered as one class, shall be required in
order to amend or repeal any of the provisions of Article
Fifth of the Certificate of Incorporation. The same
respective stockholder vote requirements prescribed by
the foregoing provisions of this Article Fifteenth shall
also be required, respectively, in order to amend or
repeal the respective foregoing provisions of this
Article Fifteenth prescribing such stockholder vote
requirement.
SIXTEENTH: (a) The provisions of this Article Sixteenth shall apply
independently of any other provision of this Certificate
of Incorporation if any Other Corporation (as
hereinafter defined) seeks to accomplish a Business
Combination (as hereinafter defined) within the ten year
period following the date the Other Corporation became
an Acquiring Entity (as hereinafter defined).
(b) (1) As used in Article Sixteenth, the following
terms shall have the meanings as set forth below:
"Acquiring Entity" means any Other
Corporation which is, and for fewer than ten
years has been, the Beneficial Owner of more
than 10% of the outstanding shares of stock
of the Corporation entitled to vote in
elections of directors, considered for the
purposes of this paragraph as one class.
"Affiliate" or "Associate" of a person have
the same meaning as is assigned to such
terms under Rule 12b-2 of the General Rules
and Regulations (the "Regulations") under
the Securities Exchange Act of 1934 as in
effect on March 1, 1983.
"Beneficial Owner" of stock means a person,
or an Affiliate or Associate of such person,
who is a "beneficial owner" of stock, as
such term is defined under Rule 13d-3 of the
Regulations as in effect on March 1, 1983,
except that, without limitation, any shares
of voting stock of the Corporation that any
Acquiring Entity, or any Affiliate or
Associate of such Acquiring Entity, has the
right to acquire pursuant to any agreement,
or upon exercise of conversion rights,
warrants or options, or otherwise, shall be
deemed beneficially owned by the Acquiring
Entity.
"Business Combination" means any transaction
described in part A. of Article Fourteenth.
"Continuing Director" means a director duly
elected to the Board of Directors prior to
the time the Other Corporation became an
Acquiring Entity, and the term "Outside
Director" shall mean a director who is not
(a) an officer or employee of the
Corporation or any relative of an officer or
employer or (b) an Acquiring Entity, or an
officer, director, employee, Affiliate or
Associate of an Acquiring Entity, or a
relative of any of the foregoing.
"Other Corporation" shall have the same
meaning as set forth in part D. of Article
Fourteenth.
(2) For the purposes of this Article Sixteenth, the
Board of Directors shall have the power and duty to
determine, on the basis of information known to such
Board, if and when any Other Corporation is or has
become an Acquiring Entity. Any such determination
shall be conclusive and binding for all purposes of
this Article Sixteenth.
(c) Except as set forth in part (d) of this Article
Sixteenth, the affirmative vote of the holders of
66-2/3% of all classes of stock of the Corporation
entitled to vote in elections of directors,
considered for this purpose as one class, excluding
stock of which the Acquiring Entity is the
Beneficial Owner, shall be required for approval of
any Business Combination with an Other Corporation
unless all of the following conditions are
fulfilled.
(1) The cash or fair market value or other consideration
to be received per share by common stockholders of
the Corporation in such Business Combination will
not, at the time the Business Combination is
effected, be less than the greater of:
(A) the highest per share price (including
brokerage commissions and/or soliciting
dealers' fees) paid by the Acquiring
Entity in acquiring any of it holdings of
the Corporation's Common Stock; or
(B) an amount bearing a percentage
relationship to the market price of the
Corporation's Common Stock immediately
prior to the public announcement of such
Business Combination equal to the highest
percentage relationship that any per share
price (including brokerage commissions
and/or soliciting dealers' fees)
theretofore paid by the Acquiring Entity
for any of its holdings of the
Corporation's Common Stock bore to the
market price of such Common Stock
immediately prior to the transaction
resulting in the acquisition of such
Common Stock; or
(C) the book value of the Corporation's Common
Stock as of the end of the most recent
calendar quarter determined in accordance
with generally accepted accounting
principles; or
(D) an amount calculated by multiplying the
earnings per share of the Corporation's
Common Stock for the four fiscal quarters
immediately preceding the record date for
determination of stockholders entitled to
vote on such Business Combination by the
then price earnings multiple of the
Acquiring Entity as customarily computed
and reported in the financial press.
Appropriate adjustments shall be made with
respect to (A), (B), (C) and (D) above for
recapitalization and for stock splits, stock
dividends, and like distributions. For
purposes of subparagraph (c)(1) of this Article
Sixteenth, the term "other consideration to be
received" shall include, without limitation,
capital stock of this Corporation retained by
its existing public stockholders in the event
of a Business Combination in which this
Corporation is the surviving corporation.
(2) After the Other Corporation has become an Acquiring
Entity:
(A) the Corporation's Board of Directors shall
have included at all times representation
by one or more Continuing Directors unless
the lack of such representation results
entirely from either death or normal
retirement under retirement policies in
effect prior to the time the Other
Corporation became an Acquiring Entity;
and
(B) there shall have been no reduction in the
rate of dividends payable on the
Corporation's Common Stock except as
required by law or as may be necessary to
insure that the Corporation is not in
breach of any covenant in any of its
agreements for borrowed money, or except
as may have been approved by a majority
vote of the Continuing Directors; and
(C) such Acquiring Entity shall not have
acquired any newly issued shares of stock,
directly or indirectly, from the
Corporation (except upon conversion of
convertible securities acquired by it
prior to becoming an Acquiring Entity or
as a result of a pro rate stock dividend
or stock split, or except with the
approval of a majority vote of the
Continuing Directors).
(3) Without the approval of a majority vote of the
Continuing Directors, such Acquiring Entity
shall not have (i) received the benefit
directly or indirectly (except proportionately
as a stockholder) of any loans, advances,
guarantees, pledges or other financial
assistance provided by the Corporation, or
(ii) made any major change in the Corporation's
business or equity capital structure.
(4) A timely mailing shall have been made to the
stockholders of this Corporation containing in
a prominent place (i) any recommendations as to
the advisability (or inadvisability) of the
Business Combination that the Continuing
Directors or Outside Directors may choose to
state, if there are at the time any such
directors, and (ii) the opinion of a
reputable nationally recognized investment
banking or financial services firm as to the
fairness (or not) of the terms of the Business
Combination, from the point of view of the
stockholders of this Corporation other than the
Acquiring Entity (such firm to be engaged
solely on behalf of such other stockholders, to
be paid a reasonable fee for its services by
this Corporation upon receipt of such opinion,
to be a firm that has not previously been
significantly associated with the Acquiring
Entity and, if there are at the time any such
directors, to be selected by a majority of the
Continuing Directors and Outside Directors).
(d) The provisions of part (c) of this Article
Sixteenth shall not be applicable to any Business
Combination if: (i) such transaction is approved by
resolution unanimously adopted by the whole Board
of Directors of the Corporation at any time prior
to the consummation thereof; or (ii) the Business
Combination is solely between this Corporation and
another corporation, 50% or more of the voting
stock of which is owned by this Corporation and
none of which is owned by the Acquiring Entity;
provided that if this Corporation is not the
surviving entity, each stockholder of this
Corporation receives the same type of consideration
in such transaction in proportion to his stock
holdings and the provisions of this Article
Sixteenth of the Corporation's Certificate of
Incorporation are continued in effect or adopted by
such surviving corporation as part of its articles
of incorporation or certificate of incorporation,
as the case may be, without any charge.
(e) In connection with a proposed Business Combination,
the Continuing Directors may retain special outside
legal counsel, an investment banking firm, an
accounting firm, and such other experts that they,
in their discretion, may deem necessary or
appropriate to assist them in their evaluation of
the transaction, all at the expense of the
Corporation.
(f) In addition to any other provision of this
Certificate of Incorporation, there shall be
required to amend, alter, change or repeal any of
the provisions of this Article Sixteenth the
affirmative vote of the holders of 66-2/3% of all
classes of stock of the Corporation entitled to
vote in elections of directors, considered
for this purpose as one class, excluding stock of
which an Acquiring entity, if any, is the
Beneficial Owner.
(g) Nothing contained in this Article Sixteenth shall
be construed to relieve an Acquiring Entity from
any fiduciary obligation imposed by law. The
conditions and voting requirements of this Article
Sixteenth shall be in addition to the conditions
and voting requirements imposed by law or other
provisions of this Certificate of Incorporation,
including, without limitation, Article Fourteenth.
SEVENTEENTH: No director of the Corporation shall be personally
liable to the Corporation or its shareholders for
monetary damages for any breach of fiduciary duty as
a director; provided, however, that this Article
Seventeenth shall not eliminate or limit the liability
of a director (1) for any breach of the director's
duty of loyalty to the Corporation or its share-
holders, (2) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing
violation of law, (3) under Section 174 of the General
Corporation Law of the State of Delaware, or (4) for
any transaction from which the director derived an
improper personal benefit. If the General Corporation
Law of the State of Delaware is amended after
approval by the shareholders of the Corporation of
this provision to authorize corporate action further
eliminating or limiting the personal liability of
directors, then the liability of a director of the
Corporation shall be eliminated or limited to the
fullest extent permitted by the General Corporation
Law of the State of Delaware, as so amended.
Any repeal or modification of the foregoing paragraph
by the shareholders of the Corporation shall not
adversely affect any right or protection of a director
of the Corporation existing at the time of such repeal
or modification.
IN WITNESS WHEREOF, said Old Republic International
Corporation has caused this Restated Certificate of Incorporation
to be signed and executed by its President and attested by its
Secretary.
OLD REPUBLIC INTERNATIONAL CORPORATION
By:______/s/ Aldo C. Zucaro_____________
President
Attest:
__/s/ Spencer_LeRoy III__
Secretary
(Corporate Seal)
<TABLE>
OLD REPUBLIC INTERNATIONAL CORPORATION Exhibit (11)
EARNINGS PER SHARE EXHIBIT
(In Millions)
------------------------------------------------------------------------------------------------------
Primary EPS
Years Ended December 31,
------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Weighted average number of common shares actually
outstanding. . . . . . . . . . . . . . . . . . . . . . . . 51.8 51.6 48.8
Weighted average number of incremental shares for common
stock equivalents:
Redeemable and/or convertible preferred stock. . . . . . . 4.9 5.0 5.1
Stock Options. . . . . . . . . . . . . . . . . . . . . . . .3 .4 .5
-------- -------- --------
Weighted average number of common shares and common
stock equivalents outstanding - primary. . . . . . . . . . 57.2 57.0 54.5
======== ======== ========
Net income for the period. . . . . . . . . . . . . . . . . . $ 151.0 $ 175.1 $ 174.7
Less dividends applicable to appropriate series of redeemable
and convertible preferred stock. . . . . . . . . . . . . . 5.1 5.2 6.0
-------- -------- --------
Adjusted net income - primary. . . . . . . . . . . . . . . . $ 145.9 $ 169.8 $ 168.6
======== ======== ========
Earnings per share - primary . . . . . . . . . . . . . . . . $ 2.55 $ 2.98 $ 3.09
======== ======== ========
Fully Diluted EPS
Years Ended December 31,
------------------------------
1994 1993 1992
-------- -------- -------- Weighted
Weighted average number of common shares and
common stock equivalents outstanding - primary . . . . . . 57.2 5.0 54.5
Weighted average number of incremental shares for
common stock equivalents:
Redeemable and/or convertible preferred stock/debentures . 4.4 4.4 3.7
Stock options. . . . . . . . . . . . . . . . . . . . . . . - - -
-------- -------- --------
Weighted average number of common shares and
common stock equivalents outstanding - fully diluted . . . 61.6 61.5 58.3
======== ======== ========
Adjusted net income - primary. . . . . . . . . . . . . . . . $ 145.9 $ 169.8 $ 168.6
Adjustment for dividends/interest applicable to appropriate
series of redeemable and convertible preferred
stock/debentures . . . . . . . . . . . . . . . . . . . . . 4.2 4.2 3.3
-------- -------- --------
Adjusted net income - fully diluted. . . . . . . . . . . . . $ 150.1 $ 174.0 $ 172.0
======== ======== ========
Earnings per share - fully diluted . . . . . . . . . . . . . $ 2.44 $ 2.83 $ 2.95
======== ======== ========
</TABLE>
<TABLE>
Exhibit (21)
Subsidiaries of the registrant (As of December 31, 1994)
--------------------------------------------------------
Percentage
of Voting
Securities
Owned by
State of Immediate
Name Organization Parent
------------------ -------------- ------------
<S> <C> <C>
OLD REPUBLIC INTERNATIONAL CORPORATION Delaware ---
----------------------------------------
Old Republic General Insurance Group, Inc. Delaware 100%
-----------------------------------------
Old Republic International Reinsurance Group, Inc. Delaware 100%
International Business & Mercantile REassurance Company Illinois 100%
Old Republic RE, Inc. Delaware 100%
American Treaty Management Corporation Delaware 100%
Sierra Reinsurance Services, Inc. Delaware 100%
American Business & Mercantile Insurance Group, Inc. Delaware 40%
American Business & Mercantile REassurance Company Delaware 100%
Old Republic Insurance Company Pennsylvania 100%
Old Republic Investment Management Company Delaware 100%
Old Republic Lloyds of Texas Texas 100%
Old Republic Home Protection Company, Inc. California 100%
ORI Great West Holding, Inc. Delaware 100%
Great West Casualty Company Nebraska 100%
Great West Insurance Agencies, Inc. Delaware 100%
Central Data Services, Inc. Delaware 100%
Bitco Corporation Delaware 100%
Bituminous Casualty Corporation Illinois 100%
Bituminous Fire & Marine Insurance Corporation Illinois 100%
Old Republic Union Insurance Company Illinois 100%
Old Republic Union Insurance Managers, Inc. Alabama 100%
Brummel Brothers, Inc. Illinois 100%
Phoenix Aviation Managers, Inc. Delaware 90%
Aerie REassurance Company, Ltd. Bermuda 100%
Chicago Underwriting Group, Inc. Delaware 83%
Upper Peninsula Insurance Company Arizona 100%
Old Republic Insured Credit Services, Inc. Illinois 100%
International Business & Mercantile Insurance Managers,Inc. Delaware 100%
Old Republic Northern Holdings, Inc. Delaware 93%
Old Republic Risk Management, Inc. Delaware 100%
Old Republic Mercantile Insurance Company Arizona 100%
Old Republic Standard Underwriters, Inc. Delaware 86%
Old Republic Standard Insurance Company Arizona 100%
Old Republic Surety Group, Inc. Delaware 93%
Old Republic Surety Company Wisconsin 100%
State Surety Company Iowa 100%
Employers General Insurance Group, Inc. Delaware 90%
Employers General Insurance Company Texas 100%
Employers General Insurance, Ltd. Bermuda 100%
National General Agency, Inc. Texas 100%
Employers National Risk Management Services, Inc. Texas 100%
Employers Claims Adjustment Services, Inc. Texas 100%
Old Republic Security Holdings, Inc. Delaware 100%
Old Republic Minnehoma Insurance Company Arizona 100%
ORDESCO, Inc. Oklahoma 100%
Reliable Canadian Holdings, Ltd. Ontario(Canada) 100%
DISCC, Enterprise, Inc. Ontario(Canada) 100%
Old Republic Insurance Company of Canada Ontario(Canada) 100%
Old Republic Life Insurance Group, Inc. Delaware 100%
--------------------------------------
Old Republic Life Insurance Company Illinois 100%
Old Republic Canadian Holdings, Ltd. Ontario(Canada) 100%
Reliable Life Insurance Company Ontario(Canada) 100%
Old Republic Life Insurance Company of New York New York 100%
Old Republic Dealer Service Corporation Delaware 100%
ORDESCO Life & Accident Insurance Company Arizona 100%
Old Republic Life Reinsurance Group, Inc. Delaware 100%
Home Owners Life Insurance Company Illinois 100%
Old Republic Title Insurance Group, Inc. Delaware 100%
---------------------------------------
Old Republic National Title Holding Company Delaware 100%
Houston Title Company Texas 100%
Old Republic Title Company of Bell County Texas 100%
Old Republic Title Company of Conroe Texas 54%
Old Republic Title Company of St. Louis, Inc. Missouri 100%
Old Republic Title Company of Kansas City, Inc. Missouri 100%
Old Republic Title Company of Tennessee Tennessee 100%
Badger Abstract & Title Corporation Wisconsin 100%
Old Republic Title Agency of Columbus, Inc. Ohio 100%
Old Republic Title Company of Cleburne Texas 100%
Old Republic Title Company of Indiana Indiana 100%
The Title Company of North Carolina, Inc. North Carolina 100%
Old Republic Title Company of Utah Utah 100%
Southwest Land Title Co. of Fort Worth, Inc. Texas 100%
Old Republic National Title Insurance Company Minnesota 100%
Mississippi Valley Title Insurance Company Mississippi 100%
Old Republic Title Holding Company, Inc. California 100%
Old Republic Title Company California 100%
Old Republic Title Insurance Agency, Inc. Arizona 100%
Old Republic Title, Ltd. Delaware 100%
Old Republic Title Company of Nevada Nevada 100%
Old Republic Title Corporation of Hawaii, Ltd. Hawaii 100%
Old Republic Escrow Corporation Hawaii 100%
Founders Title Company of Sacramento California 100%
Lincoln Title Company of Ventura County California 33%
Old Republic Exchange Faciliator Company California 100%
Old Republic General Title Insurance Corporation Colorado 100%
Old Republic Mortgage Guaranty Group, Inc. Delaware 100%
-----------------------------------------
Republic Mortgage Insurance Company North Carolina 100%
Republic Mortgage Insurance Company of Florida Florida 100%
Republic Mortgage Insurance Company of North Carolina North Carolina 100%
RMIC Corporation North Carolina 100%
Old Republic Marketing, Inc. Illinois 100%
---------------------------
Owns minor non-consolidated subsidiaries & affiliates Various Various
American Business & Mercantile Insurance Mutual, Inc. Delaware *
----------------------------------------------------
Inter Capital Group, Inc. Delaware 100%
Inter Capital Assurance Company Arizona 100%
Inter Capital Leasing and Finance Corporation Delaware 100%
Inter Capital Realty Corporation Delaware 100%
Ridgefield International, Inc. Delaware 100%
Inter West Assurance Company, Ltd. Bermuda 100%
Remington General Assurance Limited Bermuda 100%
Old Republic Capital Corporation Delaware 100%
--------------------------------
* Owned by its policyholders
</TABLE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Old Republic International Corporation on Form S-8 (File Nos. 2-66302,
33-38528, 33-38525, 33-37692, 33-49646, 33-32439, 2-80883, 33-52069) and on
Form S-3 (File Nos. 33-29220, 33-49864 and 33-54104) of our report dated
March 14, 1995 on our audits of the consolidated financial statements of Old
Republic International Corporation as of December 31, 1994 and 1993, and for
the years ended December 31, 1994, 1993 and 1992, which report is included in
this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Chicago, Illinois
March 14, 1995
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the
undersigned, being a member of the Board of Directors of Old
Republic International Corporation, a corporation duly organized
under the laws of the State of Delaware and having its principal
place of business in Chicago, Illinois, does hereby make,
constitute, and appoint A.C. Zucaro, President of the said
corporation, as his true and lawful attorney, for him, and in his
name, place, and stead to execute, sign, acknowledge, confirm or
ratify all documents, papers, forms, statements, certificates and
filings of any kind whatsoever required to be filed by the said
corporation with the Securities and Exchange Commission, giving and
granting to said attorney full power and authority to do and
perform all and every act whatsoever requisite and necessary to be
done in and about the premises as fully, to all intents and
purposes, as he might or could do if personally present, with full
power of substitution and revocation, hereby ratifying and
confirming all that said attorney or his substitute shall lawfully
do or cause to be done by virtue hereof. The power of attorney
aforesaid shall expire as of the anniversary of the date shown
below.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand and seal this 16th day of March, 1995.
/s/ William G. White, Jr.
-----------------------------
William G. White, Jr.
WITNESS:
/s/ Spencer LeRoy, III
-----------------------------
/s/ Paul D. Adams
-----------------------------
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the
undersigned, being a member of the Board of Directors of Old
Republic International Corporation, a corporation duly organized
under the laws of the State of Delaware and having its principal
place of business in Chicago, Illinois, does hereby make,
constitute, and appoint A.C. Zucaro, President of the said
corporation, as his true and lawful attorney, for him, and in his
name, place, and stead to execute, sign, acknowledge, confirm or
ratify all documents, papers, forms, statements, certificates and
filings of any kind whatsoever required to be filed by the said
corporation with the Securities and Exchange Commission, giving and
granting to said attorney full power and authority to do and
perform all and every act whatsoever requisite and necessary to be
done in and about the premises as fully, to all intents and
purposes, as he might or could do if personally present, with full
power of substitution and revocation, hereby ratifying and
confirming all that said attorney or his substitute shall lawfully
do or cause to be done by virtue hereof. The power of attorney
aforesaid shall expire as of the anniversary of the date shown
below.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand and seal this 16th day of March, 1995.
/s/ Peter Lardner
-----------------------------
Peter Lardner
WITNESS:
/s/ Spencer LeRoy, III
------------------------------
/s/ Paul D. Adams
------------------------------
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the
undersigned, being a member of the Board of Directors of Old
Republic International Corporation, a corporation duly organized
under the laws of the State of Delaware and having its principal
place of business in Chicago, Illinois, does hereby make,
constitute, and appoint A.C. Zucaro, President of the said
corporation, as his true and lawful attorney, for him, and in his
name, place, and stead to execute, sign, acknowledge, confirm or
ratify all documents, papers, forms, statements, certificates and
filings of any kind whatsoever required to be filed by the said
corporation with the Securities and Exchange Commission, giving and
granting to said attorney full power and authority to do and
perform all and every act whatsoever requisite and necessary to be
done in and about the premises as fully, to all intents and
purposes, as he might or could do if personally present, with full
power of substitution and revocation, hereby ratifying and
confirming all that said attorney or his substitute shall lawfully
do or cause to be done by virtue hereof. The power of attorney
aforesaid shall expire as of the anniversary of the date shown
below.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand and seal this 16th day of March, 1995.
/s/ Anthony F. Colao
------------------------------
Anthony F. Colao
WITNESS:
/s/ Spencer LeRoy, III
------------------------------
/s/ Paul D. Adams
------------------------------
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the
undersigned, being a member of the Board of Directors of Old
Republic International Corporation, a corporation duly organized
under the laws of the State of Delaware and having its principal
place of business in Chicago, Illinois, does hereby make,
constitute, and appoint A.C. Zucaro, President of the said
corporation, as his true and lawful attorney, for him, and in his
name, place, and stead to execute, sign, acknowledge, confirm or
ratify all documents, papers, forms, statements, certificates and
filings of any kind whatsoever required to be filed by the said
corporation with the Securities and Exchange Commission, giving and
granting to said attorney full power and authority to do and
perform all and every act whatsoever requisite and necessary to be
done in and about the premises as fully, to all intents and
purposes, as he might or could do if personally present, with full
power of substitution and revocation, hereby ratifying and
confirming all that said attorney or his substitute shall lawfully
do or cause to be done by virtue hereof. The power of attorney
aforesaid shall expire as of the anniversary of the date shown
below.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand and seal this 16th day of March, 1995.
/s/ Kurt W. Kreyling
------------------------------
Kurt W. Kreyling
WITNESS:
/s/ Spencer LeRoy, III
------------------------------
/s/ Paul D. Adams
------------------------------
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the
undersigned, being a member of the Board of Directors of Old
Republic International Corporation, a corporation duly organized
under the laws of the State of Delaware and having its principal
place of business in Chicago, Illinois, does hereby make,
constitute, and appoint A.C. Zucaro, President of the said
corporation, as his true and lawful attorney, for him, and in his
name, place, and stead to execute, sign, acknowledge, confirm or
ratify all documents, papers, forms, statements, certificates and
filings of any kind whatsoever required to be filed by the said
corporation with the Securities and Exchange Commission, giving and
granting to said attorney full power and authority to do and
perform all and every act whatsoever requisite and necessary to be
done in and about the premises as fully, to all intents and
purposes, as he might or could do if personally present, with full
power of substitution and revocation, hereby ratifying and
confirming all that said attorney or his substitute shall lawfully
do or cause to be done by virtue hereof. The power of attorney
aforesaid shall expire as of the anniversary of the date shown
below.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand and seal this 16th day of March, 1995.
/s/ John C. Collopy
------------------------------
John C. Collopy
WITNESS:
/s/ Spencer LeRoy, III
------------------------------
/s/ Paul D. Adams
------------------------------
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the
undersigned, being a member of the Board of Directors of Old
Republic International Corporation, a corporation duly organized
under the laws of the State of Delaware and having its principal
place of business in Chicago, Illinois, does hereby make,
constitute, and appoint A.C. Zucaro, President of the said
corporation, as his true and lawful attorney, for him, and in his
name, place, and stead to execute, sign, acknowledge, confirm or
ratify all documents, papers, forms, statements, certificates and
filings of any kind whatsoever required to be filed by the said
corporation with the Securities and Exchange Commission, giving and
granting to said attorney full power and authority to do and
perform all and every act whatsoever requisite and necessary to be
done in and about the premises as fully, to all intents and
purposes, as he might or could do if personally present, with full
power of substitution and revocation, hereby ratifying and
confirming all that said attorney or his substitute shall lawfully
do or cause to be done by virtue hereof. The power of attorney
aforesaid shall expire as of the anniversary of the date shown
below.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand and seal this 16th day of March, 1995.
/s/ David Sursa
----------------------------
David Sursa
WITNESS:
/s/ Spencer LeRoy, III
------------------------------
/s/ Paul D. Adams
------------------------------
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the
undersigned, being a member of the Board of Directors of Old
Republic International Corporation, a corporation duly organized
under the laws of the State of Delaware and having its principal
place of business in Chicago, Illinois, does hereby make,
constitute, and appoint A.C. Zucaro, President of the said
corporation, as his true and lawful attorney, for him, and in his
name, place, and stead to execute, sign, acknowledge, confirm or
ratify all documents, papers, forms, statements, certificates and
filings of any kind whatsoever required to be filed by the said
corporation with the Securities and Exchange Commission, giving and
granting to said attorney full power and authority to do and
perform all and every act whatsoever requisite and necessary to be
done in and about the premises as fully, to all intents and
purposes, as he might or could do if personally present, with full
power of substitution and revocation, hereby ratifying and
confirming all that said attorney or his substitute shall lawfully
do or cause to be done by virtue hereof. The power of attorney
aforesaid shall expire as of the anniversary of the date shown
below.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand and seal this 16th day of March, 1995.
/s/ Jimmy A. Dew
------------------------------
Jimmy A. Dew
WITNESS:
/s/ Spencer LeRoy, III
------------------------------
/s/ Paul D. Adams
------------------------------
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned,
being a member of the Board of Directors of Old Republic
International Corporation, a corporation duly organized under the
laws of the State of Delaware and having its principal place of
business in Chicago, Illinois, does hereby make, constitute, and
appoint A.C. Zucaro, President of the said corporation, as his true
and lawful attorney, for him, and in his name, place, and stead to
execute, sign, acknowledge, confirm or ratify all documents,
papers, forms, statements, certificates and filings of any kind
whatsoever required to be filed by the said corporation with the
Securities and Exchange Commission, giving and granting to said
attorney full power and authority to do and perform all and every
act whatsoever requisite and necessary to be done in and about the
premises as fully, to all intents and purposes, as he might or
could do if personally present, with full power of substitution and
revocation, hereby ratifying and confirming all that said attorney
or his substitute shall lawfully do or cause to be done by virtue
hereof. The power of attorney aforesaid shall expire as of the
anniversary of the date shown below.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand and seal this 16th day of March, 1995.
/s/ John W. Popp
------------------------------
John W. Popp
WITNESS:
/s/ Spencer LeRoy, III
------------------------------
/s/ Paul D. Adams
------------------------------
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the
undersigned, being a member of the Board of Directors of Old
Republic International Corporation, a corporation duly organized
under the laws of the State of Delaware and having its principal
place of business in Chicago, Illinois, does hereby make,
constitute, and appoint A.C. Zucaro, President of the said
corporation, as his true and lawful attorney, for him, and in his
name, place, and stead to execute, sign, acknowledge, confirm or
ratify all documents, papers, forms, statements, certificates and
filings of any kind whatsoever required to be filed by the said
corporation with the Securities and Exchange Commission, giving and
granting to said attorney full power and authority to do and
perform all and every act whatsoever requisite and necessary to be
done in and about the premises as fully, to all intents and
purposes, as he might or could do if personally present, with full
power of substitution and revocation, hereby ratifying and
confirming all that said attorney or his substitute shall lawfully
do or cause to be done by virtue hereof. The power of attorney
aforesaid shall expire as of the anniversary of the date shown
below.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand and seal this 16th day of March, 1995.
/s/ Wilbur S. Legg
-----------------------------
Wilbur S. Legg
WITNESS:
/s/ Spencer LeRoy, III
------------------------------
/s/ Paul D. Adams
------------------------------
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the
undersigned, being a member of the Board of Directors of Old
Republic International Corporation, a corporation duly organized
under the laws of the State of Delaware and having its principal
place of business in Chicago, Illinois, does hereby make,
constitute, and appoint A.C. Zucaro, President of the said
corporation, as his true and lawful attorney, for him, and in his
name, place, and stead to execute, sign, acknowledge, confirm or
ratify all documents, papers, forms, statements, certificates and
filings of any kind whatsoever required to be filed by the said
corporation with the Securities and Exchange Commission, giving and
granting to said attorney full power and authority to do and
perform all and every act whatsoever requisite and necessary to be
done in and about the premises as fully, to all intents and
purposes, as he might or could do if personally present, with full
power of substitution and revocation, hereby ratifying and
confirming all that said attorney or his substitute shall lawfully
do or cause to be done by virtue hereof. The power of attorney
aforesaid shall expire as of the anniversary of the date shown
below.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand and seal this 16th day of March, 1995.
/s/ William A. Simpson
------------------------------
William A. Simpson
WITNESS:
/s/ Spencer LeRoy, III
------------------------------
/s/ Paul D. Adams
------------------------------
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the
undersigned, being a member of the Board of Directors of Old
Republic International Corporation, a corporation duly organized
under the laws of the State of Delaware and having its principal
place of business in Chicago, Illinois, does hereby make,
constitute, and appoint A.C. Zucaro, President of the said
corporation, as his true and lawful attorney, for him, and in his
name, place, and stead to execute, sign, acknowledge, confirm or
ratify all documents, papers, forms, statements, certificates and
filings of any kind whatsoever required to be filed by the said
corporation with the Securities and Exchange Commission, giving and
granting to said attorney full power and authority to do and
perform all and every act whatsoever requisite and necessary to be
done in and about the premises as fully, to all intents and
purposes, as he might or could do if personally present, with full
power of substitution and revocation, hereby ratifying and
confirming all that said attorney or his substitute shall lawfully
do or cause to be done by virtue hereof. The power of attorney
aforesaid shall expire as of the anniversary of the date shown
below.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand and seal this 16th day of March, 1995.
/s/ Arnold L. Steiner
------------------------------
Arnold L. Steiner
WITNESS:
/s/ Spencer LeRoy, III
------------------------------
/s/ Paul D. Adams
------------------------------
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the
undersigned, being a member of the Board of Directors of Old
Republic International Corporation, a corporation duly organized
under the laws of the State of Delaware and having its principal
place of business in Chicago, Illinois, does hereby make,
constitute, and appoint A.C. Zucaro, President of the said
corporation, as his true and lawful attorney, for him, and in his
name, place, and stead to execute, sign, acknowledge, confirm or
ratify all documents, papers, forms, statements, certificates and
filings of any kind whatsoever required to be filed by the said
corporation with the Securities and Exchange Commission, giving and
granting to said attorney full power and authority to do and
perform all and every act whatsoever requisite and necessary to be
done in and about the premises as fully, to all intents and
purposes, as he might or could do if personally present, with full
power of substitution and revocation, hereby ratifying and
confirming all that said attorney or his substitute shall lawfully
do or cause to be done by virtue hereof. The power of attorney
aforesaid shall expire as of the anniversary of the date shown
below.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand and seal this 16th day of March, 1995.
/s/ William R. Stover
------------------------------
William R. Stover
WITNESS:
/s/ Spencer LeRoy, III
------------------------------
/s/ Paul D. Adams
------------------------------
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM OLD REPUBLIC INTERNATIONAL'S CONSOLIDATED BALANCE SHEET
AND CONSOLIDATED STATEMENT OF INCOME AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<DEBT-HELD-FOR-SALE> 620
<DEBT-CARRYING-VALUE> 2,727
<DEBT-MARKET-VALUE> 2,583
<EQUITIES> 264
<MORTGAGE> 14
<REAL-ESTATE> 0
<TOTAL-INVEST> 3,811
<CASH> 31
<RECOVER-REINSURE> 25
<DEFERRED-ACQUISITION> 101
<TOTAL-ASSETS> 6,263
<POLICY-LOSSES> 3,700
<UNEARNED-PREMIUMS> 406
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 79
<NOTES-PAYABLE> 315
<COMMON> 58
17
59
<OTHER-SE> 1,272
<TOTAL-LIABILITY-AND-EQUITY> 6,263
1,283
<INVESTMENT-INCOME> 228
<INVESTMENT-GAINS> 8
<OTHER-INCOME> 160
<BENEFITS> 754
<UNDERWRITING-AMORTIZATION> 178
<UNDERWRITING-OTHER> 514
<INCOME-PRETAX> 226
<INCOME-TAX> 73
<INCOME-CONTINUING> 151
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151
<EPS-PRIMARY> 2.55
<EPS-DILUTED> 2.44
<RESERVE-OPEN> 1,701
<PROVISION-CURRENT> 706
<PROVISION-PRIOR> (89)
<PAYMENTS-CURRENT> 237
<PAYMENTS-PRIOR> 312
<RESERVE-CLOSE> 1,768
<CUMULATIVE-DEFICIENCY> 31
</TABLE>
