<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
------------------------------------------
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---- EXCHANGE ACT OF 1934
For the transition period from to
---------------------- ------------------
Commission File Number 0-3021
------
THE ST. PAUL COMPANIES, INC.
- ---------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Minnesota 41-0518860
--------- ---------------------------------
(State or other jurisdiction of (I.R.S Employer Identification
incorporation or organization) No.)
385 Washington St., Saint Paul, MN 55102
- ---------------------------------- ---------------------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code (612) 221-7911
--------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
The number of shares of the Registrant's Common Stock, without par
value, outstanding at May 10, 1994, was 84,087,248. This total of
shares outstanding reflects the impact of the 2-for-1 stock split
approved and declared by the Registrant's Board of Directors on May 3,
1994.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
Consolidated Statements of Income, (Unaudited),
Three Months Ended March 31, 1994 and 1993 3
Consolidated Balance Sheets, March 31, 1994
(Unaudited) and December 31, 1993 4
Consolidated Statements of Common Shareholders'
Equity, Three Months Ended March 31, 1994
(Unaudited) and Twelve Months Ended 6
December 31, 1993
Consolidated Statements of Cash Flows (Unaudited),
Three Months Ended March 31, 1994 and 1993 7
Notes to Consolidated Financial Statements
(Unaudited) 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 15
PART II. OTHER INFORMATION
Item 1 through Item 6 21
Signatures 23
<PAGE>
PART I FINANCIAL INFORMATION
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Unaudited
(In thousands)
Three Months Ended
March 31
-----------------------
1994 1993
---- ----
Revenues:
Premiums earned $845,402 800,937
Net investment income 168,408 165,612
Insurance brokerage fees and commissions 66,450 62,578
Investment banking-asset management 53,598 60,075
Realized investment gains 21,783 11,358
Other 8,134 13,468
--------- ---------
Total revenues 1,163,775 1,114,028
--------- ---------
Expenses:
Insurance losses and loss adjustment expenses 667,688 619,490
Policy acquisition expenses 191,351 184,990
Operating and administrative 222,733 199,706
--------- ---------
Total expenses 1,081,772 1,004,186
--------- ---------
Income before income taxes 82,003 109,842
Income tax expense (benefit):
Federal current 20,698 28,189
Other (3,132) (6,378)
--------- ---------
Total income tax expense 17,566 21,811
--------- ---------
Net income $64,437 88,031
========= =========
Earnings per common share:
Primary $0.73 1.01
========= =========
Fully diluted $0.71 0.98
========= =========
Dividends declared on common stock $0.375 0.35
========= =========
See notes to consolidated financial statements.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
March 31, December 31,
ASSETS 1994 1993
- ------ ---------- ----------
(Unaudited)
Investments:
Fixed maturities, at estimated market value $8,816,933 9,147,964
Equities, at estimated market value 491,173 548,682
Real estate, at cost less accumulated
depreciation of $51,569 (1993; $48,847) 505,955 488,691
Venture capital, at estimated market value 308,919 297,982
Other investments 51,599 47,834
Short-term investments, at cost 695,725 725,261
---------- ----------
Total investments 10,870,304 11,256,414
Cash 20,178 25,420
Investment banking inventory securities 249,511 305,804
Reinsurance recoverables:
Unpaid losses 1,525,798 1,545,026
Paid losses 77,973 94,437
Receivables:
Underwriting premiums 967,454 1,008,034
Insurance brokerage activities 722,874 805,209
Interest and dividends 175,582 174,852
Other 127,533 105,513
Deferred policy acquisition expenses 284,500 294,860
Ceded unearned premiums 245,491 238,633
Deferred income taxes 607,073 425,012
Office properties and equipment, at cost less
accumulated depreciation of $224,352
(1993; $215,389) 455,338 455,861
Goodwill 278,014 284,276
Other assets 133,386 129,845
---------- ----------
Total assets $16,741,009 17,149,196
========== ==========
See notes to consolidated financial statements.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (continued)
(In thousands)
March 31, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1994 1993
- ------------------------------------ ------------ -----------
(Unaudited)
Liabilities:
Insurance reserves:
Losses and loss adjustment expenses $9,291,021 9,185,191
Unearned premiums 1,842,601 1,875,635
---------- ----------
Total insurance reserves 11,133,622 11,060,826
Debt 584,737 639,729
Payables:
Insurance brokerage activities 1,023,804 1,083,845
Income taxes 165,809 162,645
Reinsurance premiums 146,079 138,150
Accrued expenses and other 552,699 593,205
Other liabilities 442,711 466,989
---------- ----------
Total liabilities 14,049,461 14,145,389
---------- ----------
Series B convertible preferred stock;
1,450 shares authorized; 1,021 shares
outstanding (1,023 shares in 1993) 147,315 147,608
Guaranteed obligation - PSOP (146,600) (148,929)
---------- ----------
Net convertible preferred stock 715 (1,321)
---------- ----------
Common Shareholders' Equity:
Common stock, 240,000 shares authorized;
84,041 shares outstanding
(84,715 shares in 1993) 437,381 438,559
Retained earnings 2,088,421 2,082,832
Guaranteed obligation - ESOP (52,743) (56,005)
Unrealized appreciation of investments 276,907 588,844
Unrealized loss on foreign currency translation (59,133) (49,102)
---------- ----------
Total common shareholders' equity 2,690,833 3,005,128
---------- ----------
Total liabilities, preferred stock
and common shareholders' equity $16,741,009 17,149,196
========== ==========
See notes to consolidated financial statements.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Common Shareholders' Equity
(In thousands)
Three Twelve
Months Ended Months Ended
March 31 December 31
------------ ------------
1994 1993
---- ----
(Unaudited)
Common stock:
Beginning of period $438,559 422,249
Stock issued under stock option and
other incentive plans 2,629 16,334
Reacquired common shares (3,807) (24)
--------- ---------
End of period 437,381 438,559
--------- ---------
Retained earnings:
Beginning of period 2,082,832 1,781,113
Net income 64,437 427,609
Dividends declared on common stock (31,219) (116,962)
Dividends declared on preferred
stock, net of taxes (2,109) (8,395)
Reacquired common shares (25,520) (533)
--------- ---------
End of period 2,088,421 2,082,832
--------- ---------
Guaranteed obligation - ESOP:
Beginning of period (56,005) (67,452)
Principal payments 3,262 11,447
--------- ---------
End of period (52,743) (56,005)
--------- ---------
Unrealized appreciation of investments,
net of taxes:
Beginning of period 588,844 63,669
Change during the period (311,937) 23,193
Change due to adoption of SFAS No. 115 - 501,982
--------- ---------
End of period 276,907 588,844
--------- ---------
Unrealized gain (loss) on foreign currency
translation, net of taxes:
Beginning of period (49,102) 2,920
Change during the period (10,031) (52,022)
--------- ---------
End of period (59,133) (49,102)
--------- ---------
Total common shareholders' equity $2,690,833 3,005,128
========= =========
See notes to consolidated financial statements.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Unaudited
(In thousands)
Three Months Ended
March 31
-----------------------
1994 1993
------ ------
OPERATING ACTIVITIES
Underwriting:
Net income $71,126 92,568
Adjustments:
Change in net insurance reserves 88,808 133,557
Change in underwriting premiums receivable 38,556 62,835
Provision for deferred taxes (6,250) (8,495)
Realized gains (19,202) (8,663)
Other 29,382 (56,898)
--------- ---------
Total underwriting 202,420 214,904
--------- ---------
Insurance brokerage:
Net loss (11,194) (9,822)
Adjustments:
Change in premium balances 22,773 (37,641)
Change in accounts payable and accrued expenses (18,799) (45,481)
Depreciation and goodwill amortization 4,545 5,899
Other (9,342) (10,248)
--------- ---------
Total insurance brokerage (12,017) (97,293)
--------- ---------
Investment banking-asset management:
Net income 10,728 13,009
Adjustments:
Change in inventory securities 56,293 (11,936)
Change in open security transactions 17,461 32,674
Change in short-term borrowings (80,383) (20,000)
Other 25,245 15,128
--------- ---------
Total investment banking-asset management 29,344 28,875
--------- ---------
Parent company and consolidating eliminations:
Net loss (6,223) (7,724)
Realized gains (2,581) (2,695)
Adjustments 4,745 15,601
--------- ---------
Total parent company and consol. eliminations (4,059) 5,182
--------- ---------
Net cash provided by operating activities 215,688 151,668
--------- ---------
INVESTING ACTIVITIES
Purchases of investments (518,789) (614,486)
Sales and maturities of investments 391,649 456,447
Change in short-term investments 28,426 58,057
Change in open security transactions (55,788) (8,644)
Net purchases of office properties and equipment (9,846) (12,959)
Other (16,029) (16,109)
--------- ---------
Net cash used in investing activities (180,377) (137,694)
--------- ---------
FINANCING ACTIVITIES
Dividends paid on common and preferred stock (32,632) (31,620)
Proceeds from issuance of debt 28,528 41,005
Reacquired common shares (29,245) (207)
Repayment of debt - (22,806)
Other (6,295) 1,731
--------- ---------
Net cash used in financing activities (39,644) (11,897)
--------- ---------
Effect of exchange rate changes on cash (909) (949)
--------- ---------
Increase (decrease) in cash (5,242) 1,128
Cash at beginning of period 25,420 26,648
--------- ---------
Cash at end of period $20,178 27,776
========= =========
See notes to consolidated financial statements.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Unaudited
March 31, 1994
Note 1 Basis of Presentation
- -----------------------------
The consolidated financial statements include The St. Paul Companies,
Inc. and subsidiaries, and have been prepared in conformity with
generally accepted accounting principles.
These consolidated financial statements rely, in part, on estimates.
In the opinion of management, all necessary adjustments have been
reflected for a fair presentation of the results of operations,
financial position and cash flows in the accompanying unaudited
consolidated financial statements. The results for the period are not
necessarily indicative of the results to be expected for the entire
year.
Reference should be made to the "Notes to Consolidated Financial
Statements" on pages 49 to 63 of the Registrant's annual report to
shareholders for the year ended December 31, 1993. The amounts in
those notes have not changed except as a result of transactions in the
ordinary course of business or as otherwise disclosed in these notes.
Some figures in the 1993 consolidated financial statements have been
reclassified to conform with the 1994 presentation. These
reclassifications had no effect on net income or common shareholders'
equity, as previously reported.
All references in the consolidated financial statements and related
footnotes to per share amounts and to the number of shares of common
stock for both 1994 and 1993 reflect the effect of the 2-for-1 stock
split approved by the company's Board of Directors on May 3, 1994 (see
Note 9).
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Note 2 Earnings Per Share
- --------------------------
Earnings per common share (EPS) amounts were calculated by dividing net
income, as adjusted, by the adjusted average common shares outstanding.
The common shares outstanding were adjusted for the 2-for-1 stock split
(see Note 9).
Three Months Ended
March 31
------------------
1994 1993
------ ------
(In thousands)
PRIMARY
Net income, as reported $64,437 88,031
Preferred dividends declared (net of taxes) (2,109) (2,102)
------- -------
Net income, as adjusted $62,328 85,929
======= =======
FULLY DILUTED
Net income, as reported $64,437 88,031
Additional PSOP expense (net of taxes)
due to assumed conversion of preferred stock (950) (1,038)
------- -------
Net income, as adjusted $63,487 86,993
======= =======
ADJUSTED AVERAGE SHARES OUTSTANDING
Primary 85,017 84,883
======= =======
Fully diluted 89,124 89,032
======= =======
Adjusted average shares outstanding include the common and common
equivalent shares outstanding for the period and, for fully diluted
EPS, common shares that would be issuable upon conversion of preferred
stock.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Note 3 Investments
- -------------------
A summary of investment transactions is presented below.
Three Months Ended March 31
------------------------------
1994 1993
------ ------
(In thousands)
Purchases:
Fixed maturities $305,417 489,198
Equities 151,408 98,064
Real estate 22,638 3,355
Venture capital 31,976 23,372
Other investments 7,350 497
-------- ---------
Total purchases 518,789 614,486
-------- ---------
Proceeds from sales and maturities:
Fixed maturities:
Sales 27,056 73,866
Maturities and redemptions 156,789 263,928
Equities 187,787 105,110
Venture capital 10,971 12,816
Other investments 9,046 727
-------- ---------
Total sales and maturities 391,649 456,447
-------- ---------
Net purchases $127,140 158,039
======== =========
The increase (decrease) in unrealized appreciation of investments was
as follows:
Three Months Ended Twelve Months Ended
March 31, 1994 December 31, 1993
------------------ -------------------
(In thousands)
Fixed maturities $(453,184) 257,774
Equities (35,450) (23,993)
Venture capital 324 52,550
-------- -------
Total change in pretax
unrealized appreciation (488,310) 286,331
=======
Increase in deferred tax
benefit due to change
in unrealized appreciation 176,373
--------
Total change in unrealized
appreciation, net of taxes $(311,937)
========
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Premiums collected by the brokerage operations from insureds, but not
yet remitted to insurance carriers, are restricted as to use by
business practices. These restricted funds are included in short-term
investments and totaled $394 million at March 31, 1994, and $393
million at December 31, 1993.
Note 4 Income Taxes
- --------------------
The components of income tax expense are as follows:
Three Months Ended
March 31
-------------------
1994 1993
------ ------
(In thousands)
Federal current tax expense $20,698 28,189
Federal deferred tax benefit (6,069) (11,163)
------ ------
Total federal income tax expense 14,629 17,026
Foreign income taxes 1,797 3,085
State income taxes 1,140 1,700
------ ------
Total income tax expense $17,566 21,811
====== ======
Note 5 Contingent Liabilities
- ------------------------------
In the ordinary course of conducting business, some of the company's
subsidiaries have been named as defendants in various lawsuits. Some
of these lawsuits attempt to establish liability under insurance
contracts issued by those companies. Plaintiffs in these lawsuits are
asking for money damages or to have the court direct the activities of
our operations in certain ways. In some cases, plaintiffs seek to
establish coverage for their liability under environmental protection
laws.
The company believes that the total amounts that it or its subsidiaries
will ultimately have to pay in all of these lawsuits will have no
material effect on its overall financial position.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Note 6 Debt
- ------------
Debt consists of the following:
March 31, December 31,
1994 1993
---------------- ------------------
Book Fair Book Fair
Value Value Value Value
----- ----- ----- -----
(In thousands)
Commercial paper $215,549 215,549 201,384 201,384
Medium-term notes 224,781 223,000 210,780 221,100
9 3/8% notes 99,962 109,400 99,959 113,400
Guaranteed ESOP debt 44,445 48,100 47,223 52,200
Short-term borrowings - - 80,383 80,383
------- ------- ------- -------
Total debt $584,737 596,049 639,729 668,467
======= ======= ======= =======
Note 7 Reinsurance
- -------------------
The company's consolidated financial statements reflect the effects of
assumed and ceded reinsurance transactions. Assumed reinsurance refers
to the company's acceptance of certain insurance risks that other
insurance companies have underwritten. Ceded reinsurance involves
transferring certain insurance risks the company has underwritten to
other insurance companies who agree to share these risks. The primary
purpose of ceded reinsurance is to protect the company from potential
losses in excess of the amount it is prepared to accept.
The company expects those with whom it has ceded reinsurance to honor
their obligations. In the event these companies are unable to honor
their obligations in full, the company will pay the shortfall. The
company has established allowances for possible nonpayment of amounts
due to it from these companies.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The effect of assumed and ceded reinsurance on premiums written,
premiums earned and insurance losses and loss adjustment expenses is as
follows:
Three Months Ended
March 31
--------------------
1994 1993
------ ------
(In thousands)
Premiums written:
Direct $764,593 682,817
Assumed 162,624 184,286
Ceded (122,646) (105,951)
------- -------
Net premiums written $804,571 761,152
======= =======
Premiums earned:
Direct $792,615 729,751
Assumed 167,207 180,087
Ceded (114,420) (108,901)
------- -------
Net premiums earned $845,402 800,937
======= =======
Insurance losses and loss
adjustment expenses:
Direct $543,212 492,088
Assumed 176,167 207,548
Ceded (51,691) (80,146)
------- -------
Net insurance losses and
loss adjustment expenses $667,688 619,490
======= =======
Note 8 New Accounting Standard
- -------------------------------
Effective January 1, 1994, the company adopted Statement of Financial
Accounting Standards (SFAS) No. 112, "Employers Accounting for
Postemployment Benefits." The company now recognizes the obligation
for postemployment benefits on the accrual basis. The company's
previous practice was to record workers' compensation benefits on the
accrual basis and record all other postemployment benefits on the cash
basis. The cumulative effect of adopting SFAS No. 112 was $4.0
million, which was recorded as an operating expense in the first
quarter of 1994.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Note 9 Shareholders' Equity
- ----------------------------
The company's Restated Articles of Incorporation were amended by vote
of the shareholders at the 1994 Annual Meeting of Shareholders to
increase the authorized common shares of the company from 120 million
to 240 million. Subsequent to this action, the Board of Directors
approved a 2-for-1 stock split, which will result in the issuance of
one additional share of common stock for each outstanding share to
shareholders of record on May 17, 1994. It is expected that the
additional shares will be issued on June 6, 1994.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
March 31, 1994
Consolidated Results
- --------------------
Pretax earnings of $82 million in the first quarter declined 25% from
1993 first quarter earnings of $110 million. Results in each industry
segment were below 1993 levels, particularly in underwriting, where
increased catastrophe losses accounted for the decline from 1993.
Catastrophe losses of $90 million in 1994 were nearly double the 1993
first quarter total of $46 million. First quarter investment banking-
asset management earnings were $3 million below comparable 1993
earnings due to a decline in investment banking and distribution
revenues. Net income for the first quarter was $64 million, or $0.71
per share, compared with 1993 first quarter net income of $88 million,
or $0.98 per share.
Consolidated revenues of $1.16 billion for the quarter were 4% higher
than 1993 revenues of $1.11 billion. An increase in insurance premiums
earned, primarily due to the company's acquisition of Economy Fire &
Casualty Company in the third quarter of 1993, accounted for the
majority of the growth over 1993.
Results by Segment
- ------------------
Pretax results by industry segment were as follows (in millions):
Three Months Ended
March 31
--------------------
1994 1993
Pretax income (loss): ---- ----
Underwriting:
GAAP underwriting result $(83) (60)
Net investment income 165 162
Realized investment gains 19 9
Other (12) (1)
--- ---
Total underwriting 89 110
Insurance brokerage (9) (8)
Investment banking-asset management 17 20
Parent and other (15) (12)
--- ---
Income before income taxes $82 110
=== ===
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion, Continued
Underwriting
- ------------
First quarter pretax earnings of $89 million in the underwriting
segment declined by 20% from 1993 earnings of $110 million, primarily
due to an increase in catastrophe losses.
The following summarizes key financial results by underwriting
operation:
Three Months
% of 1994 Ended March 31
Written -------------------
($ in Millions) Premiums 1994 1993
- --------------- --------- ----- ----
St. Paul Personal
& Business Insurance:
Written premiums 21% $172 83
Underwriting result $(22) (21)
Combined ratio 112.5 126.0
Medical Services:
Written premiums 20% $165 185
Underwriting result $34 43
Combined ratio 80.5 76.1
Custom Markets:
Written premiums 15% $119 121
Underwriting result $(11) (10)
Combined ratio 107.6 109.2
Other Specialty Markets:
Written premiums 18% $144 142
Underwriting result $(23) (19)
Combined ratio 112.9 115.7
St. Paul Commercial:
Written premiums 12% $ 93 111
Underwriting result $(23) (16)
Combined ratio 124.6 114.5
Reinsurance:
Written premiums 10% $ 81 80
Underwriting result $(29) (22)
Combined ratio 134.3 127.7
International:
Written premiums 4% $ 31 39
Underwriting result $(9) (15)
Combined ratio 128.9 137.0
---- ----- -----
Total:
Written premiums 100% $805 761
GAAP underwriting result $(83) (60)
Statutory combined ratio:
Loss and loss expense ratio 79.0 77.3
Underwriting expense ratio 31.2 31.5
----- -----
Combined ratio 110.2 108.8
===== =====
Combined ratio including
policyholders' dividends 110.2 108.9
===== =====
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion, Continued
The preceding table represents the company's restructured underwriting
operations effective in 1994. "St. Paul Personal & Business Insurance"
markets personal insurance products (including Economy's) and also
serves small commercial accounts. "Custom Markets" is composed of
several lines of business previously classified as "Specialized
Commercial," including Technology, Financial Services, Professional
Liability, Surplus Lines, Ocean Marine and Public Sector. "Other
Specialty Markets" consists of Construction, National Accounts, Surety
and Pools. "St. Paul Commercial" primarily consists of the company's
former Business Insurance operation and serves midsize commercial
customers. The company's Reinsurance and International underwriting
operations were unaffected by this restructuring; however, the company
now reports certain business in Other Specialty Markets that had been
previously reported in Reinsurance, and 1993 results have been
reclassified to reflect this change in reporting.
First quarter written premiums of $805 million were 6% higher than
comparable 1993 premiums of $761 million. The growth resulted from
increased premiums in St. Paul Personal & Business, which in 1994
includes $91 million of premiums from Economy Fire & Casualty Company,
acquired in September 1993. Excluding the impact of Economy on first
quarter 1994 premium volume, consolidated written premiums were below
1993. Medical Services experienced an 11% decline in premiums, which
resulted from a decrease in the number of insureds. St. Paul
Commercial volume was down 16%, primarily due to reduced involuntary
premiums.
Catastrophe losses of $90 million dominated the first quarter 1994
consolidated GAAP underwriting loss of $83 million. The Los Angeles
earthquake ($55 million) and East Coast winter storms ($33 million)
were the major catastrophes experienced during the quarter. Medical
Services continued its strong performance, posting a $34 million
underwriting profit for the quarter. The GAAP underwriting loss in the
first quarter of 1993 was $60 million, which included catastrophe
losses of $46 million. Key factors in the change in underwriting
results from 1993 were as follows:
- Medical Services - $9 million worse than 1993 - While still
performing well, the extent of favorable prior year loss
development was not as great as in the first quarter of 1993.
- St. Paul Commercial - $7 million worse than 1993 - Catastrophe
losses of $10 million in 1994 were $6 million higher than 1993,
accounting for the majority of the deterioration from 1993.
- Reinsurance - $7 million worse than 1993 - Catastrophe losses
were $40 million in the first quarter, compared with $13
million in the comparable 1993 period. Excluding the impact of
catastrophes in both years, Reinsurance posted an $11 million
underwriting profit in 1994, compared with a $9 million
underwriting loss in 1993. This improvement resulted from the
corrective actions taken in this operation.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion, Continued
- International - $6 million better than 1993 - Improved loss
experience on insurance business written in Spain provided the
majority of the improvement over 1993.
First quarter pretax investment income in the underwriting segment was
$165 million, slightly higher than first quarter 1993 investment income
of $162 million. The investment portfolio continues to grow due to
positive underwriting cash flows; however, yields on new investments
remain lower than those on maturing securities, resulting in minimal
growth in investment income. The weighted average pretax yield on the
Underwriting investment portfolio at March 31, 1994 was 7.4%, compared
with 7.9% at the same time in 1993. Fixed-maturities purchased in the
first quarter were predominantly taxable securities. Taxable
securities comprised 43% of the total Underwriting investment portfolio
at March 31, 1994 and 1993. Approximately 95% of the fixed maturities
portfolio is rated at investment grade levels (BBB or better).
Insurance Brokerage
- -------------------
The Insurance Brokerage segment posted a pretax loss of $9 million for
the quarter, compared with a loss of $8 million in 1993. Brokerage
fees and commissions increased by $4 million over 1993 and expenses
were up $6 million, both primarily the result of acquisitions made
during 1993. Brokerage fees and commissions were above 1993 levels in
most business units.
Investment Banking-Asset Management
- -----------------------------------
The John Nuveen Company's (Nuveen) pretax earnings of $23 million in
the first quarter of 1994 were down from first quarter 1993 earnings of
$28 million. The company's portion of pretax earnings from Nuveen was
$17 million, compared with $20 million in the first quarter of 1993.
The company now holds a 75% interest in Nuveen. Management fees earned
from investment advisory services provided on assets under Nuveen's
management grew 20% over the comparable period of 1993, and assets
under management were $2.1 billion higher than the same time in 1993.
However, managed assets fell by $1.4 billion (to $31.3 billion) from year-end
1993 and unit investment trust (UIT) sales in the quarter declined compared
with the first quarter of 1993 as investors sought alternative investment
vehicles in a rising interest rate environment. In addition, municipal
new issue volume declined from 1993, which, along with the decline in
mutual fund sales and UIT sales, resulted in a decline in underwriting
and distribution revenues compared with the first quarter of 1993.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion, Continued
Environmental Claims
- --------------------
The company's underwriting operations continue to receive claims under
policies written many years ago alleging injuries from hazardous waste
substances or alleging covered property damages for the cost to clean
up hazardous waste sites. Significant legal issues, primarily
pertaining to issues of coverage, exist with regard to the alleged
liability of the company's underwriting operations for these claims.
In the company's opinion, court decisions in certain jurisdictions have
tended to expand insurance coverage beyond the intent of the original
policies.
The company's ultimate liability for pollution claims is extremely
difficult to estimate. Insured parties have submitted claims for
losses not covered in the insurance policy, and the ultimate resolution
of these claims may be subject to lengthy litigation, during which time
it is difficult to estimate the company's potential liability. In
addition, variables, such as the length of time necessary to clean up a
polluted site, and controversies surrounding the identity of the
responsible party and the degree of remediation deemed necessary, make
it difficult to estimate the total cost of a pollution claim. The
company maintains a claim staff that continually evaluates its exposure
to pollution liability losses. At March 31, 1994, the company's total
reserves for pollution-related losses were approximately $75 million.
Despite these difficulties in estimating potential liability, the
company believes that its reserves for such losses are adequate. Many
significant pollution claims currently being brought against insurance
companies arise out of contamination that occurred 20 to 30 years ago,
a time frame during which the company's underwriting operations'
commercial book of business was largely composed of small- to medium-
sized businesses without significant exposure to pollution liability.
In addition, the company believes that its current mix of commercial
business carries a relatively low risk of significant pollution
liability. Finally, the company's Commercial General Liability policy
form has, since 1970, included a specific pollution coverage exclusion,
and, since 1986, an absolute pollution exclusion.
Legal developments may cause the company to make additional adjustments
to the reserves for these claims in the future, but, in management's
judgment, such adjustments should not have a material adverse impact on
the company's financial position.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion, Continued
Capital Resources
- -----------------
Common shareholders' equity of $2.7 billion at March 31, 1994 declined
by $314 million from year-end 1993. The unrealized appreciation of the
company's investment portfolio declined by $312 million (net of taxes)
in the first quarter primarily due to rising interest rates in the bond
market. The company also repurchased 733,400 of its outstanding common
stock (as adjusted for the 2-for-1 stock split) for a total cost of $29
million during the first quarter. Total debt outstanding declined $55
million from year-end 1993, due to a decline in Nuveen's short-term
borrowings. The company issued an additional $14 million of medium-
term notes under an existing shelf registration during the first
quarter. The ratio of total debt to total capitalization at quarter-
end was 18%, unchanged from year end 1993.
The company currently has no significant capital commitments planned
for 1994 and beyond.
The company's ratio of earnings to fixed charges was 5.69 for the first
three months of 1994, compared with 7.37 for the same period of 1993.
The company's ratio of earnings to combined fixed charges and preferred
stock dividends was 4.51 for the first three months of 1994, compared
with 5.83 for the same period of 1993. Fixed charges consist of
interest expense before reduction for capitalized interest and one-
third of rental expense, which is considered to be representative of an
interest factor.
Liquidity
- ---------
Liquidity refers to the company's ability to generate sufficient funds
to meet the cash requirements of its business operations. Net cash
provided by operations was $216 million in the first three months of
1994, compared to $152 million in 1993. The increase over 1993 was
primarily due to increased cash flows in the Insurance Brokerage
segment. The company's consolidated liquidity position remains strong
due to the Underwriting segment's cash flows from underwriting and
investment activities.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
The information set forth in Note 5 to the consolidated
financial statements included in Part I of this report is
incorporated herein by reference.
Item 2. Changes in Securities.
As noted in Item 4, the Registrant's articles of incorporation
were amended, effective May 3, 1994, to increase the number of
authorized shares of voting common stock from one hundred
twenty million to two hundred forty million.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
The Registrant's annual shareholders' meeting was held on
May 3, 1994.
(1) All thirteen persons nominated for directors by management
were named in proxies for the meeting which were solicited
pursuant to Regulation 14A of the Securities Exchange Act
of 1934. There was no solicitation in opposition to
management's nominees as listed in the proxy statements.
All thirteen nominees were elected by the following votes:
In favor Withheld
-------- --------
Michael R. Bonsignore 36,691,967 648,144
John H. Dasburg 36,632,208 707,903
W. John Driscoll 36,719,696 620,415
Mark S. Fowler 36,685,483 654,628
Pierson M. Grieve 36,718,397 621,714
Ronald James 36,722,857 617,254
William H. Kling 36,722,035 618,076
Douglas W. Leatherdale 36,711,908 628,203
Bruce K. MacLaury 36,721,176 618,935
Ian A. Martin 36,722,997 617,114
Glen D. Nelson 35,842,140 1,497,971
Anita M. Pampusch 35,837,809 1,502,302
Patrick A. Thiele 36,723,558 616,553
(2) By a vote of 36,723,054 in favor, 97,262 against and
519,692 abstaining, the shareholders ratified the
selection of KPMG Peat Marwick as the independent auditors
for the Registrant.
(3) By a vote of 34,377,028 in favor, 2,407,609 against and
555,371 abstaining, the shareholders voted to amend the
company's Restated Articles of Incorporation to increase
the number of authorized shares of voting common stock
from one hundred twenty million to two hundred forty
million.
<PAGE>
(4) By a vote of 23,655,026 in favor, 11,655,413 against and
650,965 abstaining, the shareholders did not pass the
proposal to amend the company's Restated Articles of
Incorporation to facilitate their amendment by the Board
of Directors when permitted by applicable law. A vote in
favor by two-thirds of all outstanding shares was required
for approval of this proposal.
(5) By a vote of 35,142,045 in favor, 1,645,368 against and
552,595 abstaining, the shareholders voted to amend the
company's Bylaws to reduce the minimum number of Directors
from thirteen to ten.
(6) By a vote of 35,305,890 in favor, 1,342,616 against and
691,302 abstaining, the shareholders voted to approve the
company's Annual Incentive Plan.
(7) By a vote of 35,572,360 in favor, 1,068,531 against and
699,117 abstaining, the shareholders voted to approve the
company's Long-Term Incentive Plan.
(8) By a vote of 32,185,820 in favor, 4,493,084 against and
661,104 abstaining, the shareholders voted to approve the
company's 1994 Stock Incentive Plan.
Item 5. Other Information.
Not applicable.
<PAGE>
SIGNATURES
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. An Exhibit Index is set forth as the last page
in this document.
(b) Reports on Form 8-K.
1) The Registrant filed a Form 8-K Current Report
dated January 24, 1994, pertaining to the Registrant's
press release of fourth quarter 1993 financial results.
2) The Registrant filed a Form 8-K Current Report
dated February 10, 1994, pertaining to its estimate of
pretax losses from January storms and the Los Angeles
earthquake, and to the possibility of its repurchase of
up to one million of its common shares.
3) The Registrant filed a Form 8-K Current Report
dated April 25, 1994, pertaining to the Registrant's
press release of first quarter 1994 financial results.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
THE ST. PAUL COMPANIES, INC.
(Registrant)
Date: May 12, 1994 By /s/ Bruce A. Backberg
---------------------
Bruce A. Backberg
Vice President
and Corporate Secretary
(Authorized Signatory)
Date: May 12, 1994 By /s/ Howard E. Dalton
--------------------
Howard E. Dalton
Senior Vice President
Chief Accounting Officer
<PAGE>
EXHIBIT INDEX
-------------
How
Exhibit Filed
- ------- -----
(2) Plan of acquisition, reorganization, arrangement,
liquidation or succession*
(3) (i) Articles of incorporation**.......................... (1)
(ii) By-laws**............................................ (1)
(4) Instruments defining the rights of security holders,
including indentures*..................................
(10) Material contracts
(a) 1994 Stock Incentive Plan**........................... (1)
(b) Annual Incentive Plan**............................... (1)
(c) Long-Term Incentive Plan**............................ (1)
(11) Statement re computation of per share earnings**.......... (1)
(12) Statement re computation of ratios**...................... (1)
(15) Letter re unaudited interim financial information*........
(18) Letter re change in accounting principles*................
(19) Report furnished to security holders*.....................
(22) Published report regarding matters submitted to
vote of security holders*..............................
(23) Consents of experts and counsel*..........................
(24) Power of attorney*........................................
(27) Financial data schedule*..................................
(99) Additional exhibits*......................................
* These items are not applicable.
** This exhibit is included only with the copies of this report that
are filed with the Securities and Exchange Commission. However, a
copy of the exhibit may be obtained from the Registrant for a
reasonable fee by writing to the Law Department, The St. Paul
Companies, 385 Washington Street, Saint Paul, MN 55102.
(1) Filed electronically under Operational EDGAR.
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
THE ST. PAUL COMPANIES, INC.
ARTICLE I
The name of the corporation is THE ST. PAUL COMPANIES, INC.
ARTICLE II
The address of the registered office of the
corporation is 385 Washington Street, St. Paul, Minnesota 55102.
ARTICLE III
The aggregate number of shares that the corporation
has authority to issue is two hundred forty-five million
shares which shall consist of five million undesignated
shares and two hundred forty million shares of voting common
stock. All shares of voting common stock shall have equal
rights and preferences. The board of directors of the
corporation is authorized to establish, from the
undesignated shares, one or more classes and series of
shares, to designate each such class and series and to fix
the relative rights and preferences of each such class and
series, provided that in no event shall the board of
directors fix a preference with respect to a distribution in
liquidation in excess of $100 per share plus accrued and
unpaid dividends, if any. No shares shall confer on the
holder any right to cumulate votes in the election of
directors. All shareholders are denied preemptive rights,
unless, with respect to some or all of the undesignated
shares, the board of directors shall grant preemptive
rights. The corporation may, without any new or additional
consideration, issue shares of voting common stock or any
other class or series pro rata to the holders of the same or
one or more other classes or series of shares.
Each share of common stock with a par value of One
Dollar Fifty Cents which is issued and outstanding (and has
not been reacquired by the corporation) as of the effective
date of these Restated Articles of Incorporation is hereby
reclassified into one share of voting common stock and each
certificate representing a share or shares of common stock
with a par value of One Dollar Fifty Cents shall represent
the same number of shares of voting common stock.
<PAGE>
ARTICLE IV
An action required or permitted to be taken at a board
meeting may be taken by written action signed by the number
of directors that would be required to act in taking the
same action at a meeting of the board at which all directors
were present.
ARTICLE V
Where shareholder approval, authorization or adoption
is required by Chapter 302A, Minnesota Statutes, for any of
the following transactions, the vote required for such
approval, authorization or adoption shall be the affirmative
vote of the holders of at least two-thirds of the voting
power of all voting shares:
(a) Any plan of merger;
(b) Any plan of exchange;
(c) Any sale, lease, transfer or other disposition of all or
substantially all of the corporation's property and
assets, including its good will, not in the usual and
regular course of its business; or
(d) Any dissolution of the corporation.
The shareholder vote required for approval,
authorization or adoption of an amendment to these Restated
Articles of Incorporation (other than an amendment to this
article) shall be the affirmative vote of the holders of at
least one-half of the voting power of all voting shares. The
shareholder vote required for approval, authorization or
adoption of an amendment to this article shall be the
affirmative vote of the holders of at least two-thirds of
the voting power of all voting shares. The provisions of
this article are not intended either to require that the
holders of the shares of any class or series of shares vote
separately as a class or series or to affect or increase any
class or series vote requirement of Chapter 302A, Minnesota
Statutes.
ARTICLE VI
A director of this Corporation shall have no personal
liability to the Corporation or its shareholders for
monetary damages for breach of fiduciary duty as a director,
to the full extent such immunity is permitted from time to
time under the Minnesota Business Corporation Act.
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.
<PAGE>
STATEMENT OF THE ST. PAUL COMPANIES, INC.
WITH RESPECT TO
SERIES B CONVERTIBLE PREFERRED STOCK
Pursuant to Section 302A.401, Subd. 3(b)
of Minnesota Statutes
The undersigned officers of The St. Paul Companies,
Inc. (the "Corporation"), being duly authorized by the Board
of Directors of the Corporation, do hereby certify that the
following resolution was duly adopted by the Board of
Directors of the Corporation on January 24, 1990 pursuant to
Minnesota Statutes, Section 302A.401, Subd. 3(a):
RESOLVED, That there is hereby established, out of the
presently available undesignated shares of the Corporation,
a series of Preferred Stock of the Corporation designated as
stated below and having the relative rights and preferences
that are set forth below (the "Series"):
1. Designation and Amount. The Series shall be
designated as "Series B Convertible Preferred Stock" (the
"Series B Preferred"). The number of shares constituting the
Series shall be one million four hundred fifty thousand
(1,450,000), which number may from time to time be decreased
(but not below the number of shares then outstanding) by
action of the Board of Directors of the Corporation (the
"Board of Directors"). Shares of Series B Preferred shall
have a preference upon liquidation, dissolution or winding
up of the Corporation of One Hundred Dollars ($100.00) per
share, which preference amount does not represent a
determination by the Board of Directors for the purpose of
the Corporation's capital accounts.
2. Rank. The Series B Preferred shall, with respect to
dividend rights and rights on liquidation, winding up or
dissolution of the Corporation, rank prior to the
Corporation's Series A Junior Participating Preferred Stock
and to the Corporation's voting common stock (the "Common
Stock") (together, the "Junior Stock") and shall, with
respect to dividend rights and rights on liquidation,
winding up or dissolution of the Corporation, rank junior to
all other classes and series of equity securities of the
Corporation, now or hereafter authorized, issued or
outstanding, other than any classes or series of equity
securities of the Corporation ranking on a parity with the
Series B Preferred as to dividend rights and rights upon
liquidation, winding up or dissolution of the Corporation
(the "Parity Stock").
3. Dividends. (a) Holders of outstanding shares of
Series B Preferred shall be entitled to receive, when, as
and if declared by the Board of Directors, to the extent
permitted by applicable law,
<PAGE>
cumulative quarterly cash dividends at the annual rate of
Eleven and 724/1000 Dollars ($11.724) per share, in
preference to and in priority over any dividends with
respect to Junior Stock.
(b) Dividends on the outstanding shares of Series B
Preferred shall begin to accrue and be cumulative
(regardless of whether such dividends shall have been
declared by the Board of Directors) from and including the
date of original issuance of each share of the Series B
Preferred, and shall be payable in arrears on January 17,
April 17, July 17 and October 17 of each year (each of such
dates a "Dividend Payment Date"), commencing April 17, 1990.
Each such dividend shall be payable to the holder or holders
of record as they appear on the stock books of the
Corporation at the close of business on such record dates,
not more than thirty (30) calendar days and not less than
ten (10) calendar days preceding the Dividend Payment Dates
therefor, as are determined by the Board of Directors (each
of such dates a "Record Date"). In any case where the date
fixed for any dividend payment with respect to the Series B
Preferred shall not be a Business Day, then such payment
need not be made on such date but may be made on the next
preceding Business Day with the same force and effect as if
made on the date fixed therefor, without interest.
(c) The amount of any dividends "accumulated" on any
share of Series B Preferred at any Dividend Payment Date
shall be deemed to be the amount of any unpaid dividends
accrued thereon to and excluding such Dividend Payment Date
regardless of whether declared, and the amount of dividends
"accumulated" on any share of Series B Preferred at any date
other than a Dividend Payment Date shall be calculated as
the amount of any unpaid dividends accrued thereon to and
excluding the last preceding Dividend Payment Date
regardless of whether declared, plus an amount calculated on
the basis of the annual dividend rate for the period from
and including such last preceding Dividend Payment Date to
and excluding the date as of which the calculation is made
(regardless of whether declared). The amount of dividends
payable with respect to a full dividend period on
outstanding shares of Series B Preferred shall be computed
by dividing the annual dividend rate by four and the amount
of dividends payable for any period shorter than a full
quarterly dividend period (including the initial dividend
period) shall be computed on the basis of thirty (3O)-day
months, a three hundred sixty (360)-day year and the actual
number of days elapsed in the period.
(d) So long as the shares of Series B Preferred shall
be outstanding, if (i) the Corporation shall be in default
or in arrears with respect to the payment of dividends
(regardless of whether declared) on any outstanding shares
of Series B Preferred or any other classes or series of
equity securities of the Corporation other than Junior Stock
or (ii) the Corporation shall be in default or in arrears
with respect to the mandatory or optional redemption,
purchase or other acquisition, retirement or other
requirement of, or with respect to, any sinking or other
similar fund or agreement for the redemption, purchase
<PAGE>
or other acquisition, retirement or other requirement of, or
with respect to, any shares of the Series B Preferred or any
other classes or series of equity securities of the
Corporation other than Junior Stock, then the Corporation
may not (A) declare, pay or set apart for payment any
dividends on any shares of Junior Stock, or (B) make any
payment on account of, or set apart payment for, the
purchase or other acquisition, redemption, retirement or
other requirement of, or with respect to, any sinking or
other similar fund or agreement for the purchase or other
acquisition, redemption, retirement or other requirement of,
or with respect to, any shares of Junior Stock or any
warrants, rights, calls or options exercisable or
exchangeable for or convertible into Junior Stock, other
than with respect to any rights that are now or in the
future may be issued and outstanding under or pursuant to
the Shareholder Protection Rights Agreement dated as of
December 4, 1989 between the Corporation and First Chicago
Trust Company of New York as Rights Agent, as it may be
amended in any respect or extended from time to time or
replaced by a new shareholders' rights plan of any scope or
nature (provided that in any amended or extended plan or in
any replacement plan any redemption of rights feature
permits only nominal redemption payments) (the "Rights
Agreement"), or (C) make any distribution in respect of any
shares of Junior Stock or any warrants, rights, calls or
options exercisable or exchangeable for or convertible into
Junior Stock, whether directly or indirectly, and whether in
cash, obligations, or securities of the Corporation or other
property, other than dividends or distributions of Junior
Stock which is neither convertible into nor exchangeable or
exercisable for any securities of the Corporation other than
Junior Stock or rights, warrants, options or calls
exercisable or exchangeable for or convertible into Junior
Stock or (D) permit any corporation or other entity
controlled directly or indirectly by the Corporation to
purchase or otherwise acquire or redeem any shares of Junior
Stock or any warrants, rights, calls or options exercisable
or exchangeable for or convertible into shares of Junior
Stock.
(e) Dividends in arrears with respect to the
outstanding shares of Series B Preferred may be declared and
paid or set apart for payment at any time and from time to
time, without reference to any regular Dividend Payment
Date, to the holder or holders of record as they appear on
the stock books of the Corporation at the close of business
on the Record Date established with respect to such payment
in arrears. If there shall be outstanding shares of Parity
Stock, and if the payment of dividends on any shares of the
Series B Preferred or the Parity Stock is in arrears, the
Corporation, in making any dividend payment on account of
any shares of the Series B Preferred or Parity Stock, shall
make such payment ratably upon all outstanding shares of the
Series B Preferred and Parity Stock in proportion to the
respective amounts of accumulated dividends in arrears upon
such shares of the Series B Preferred and Parity Stock to
the date of such dividend payment. The Holder or holders of
Series B Preferred shall not be entitled to any dividends,
whether payable in cash, obligations or securities of the
Corporation or other property, in excess of the accumulated
dividends
<PAGE>
on shares of Series B Preferred. No interest, or sum of
money in lieu of interest, shall be payable in respect of
any dividend or other payment or payments which may be in
arrears with respect to the Series B Preferred. All
dividends paid with respect to the Series B Preferred shall
be paid pro rata to the holders entitled thereto.
(f) Subject to the foregoing provisions hereof and
applicable law, the Board of Directors (i) may declare and
the Corporation may pay or set apart for payment dividends
on any Junior Stock or Parity Stock, (ii) may make any
payment on account of or set apart payment for a sinking
fund or other similar fund or agreement for the purchase or
other acquisition, redemption, retirement or other
requirement of, or with respect to, any Junior Stock or
Parity Stock or any warrants, rights, calls or options
exercisable or exchangeable for or convertible into any
Junior Stock or Parity Stock, (iii) may make any
distribution in respect to any Junior Stock or Parity Stock
or any warrants, rights, calls or options exercisable or
exchangeable for or convertible into any Junior Stock or
Parity Stock, whether directly or indirectly, and whether in
cash, obligations or securities of the Corporation or other
property and (iv) may purchase or otherwise acquire, redeem
or retire any Junior Stock or Parity Stock or any warrants,
rights, calls or options exercisable or exchangeable for or
convertible into any Junior Stock or Parity Stock, and the
holder or holders of the Series B Preferred shall not be
entitled to share therein.
4. Voting Rights. The holder or holders of Series B
Preferred shall have no right to vote for any purpose,
except as required by applicable law and except as provided
in this Section 4.
(a) So long as any shares of Series B Preferred remain
outstanding, the affirmative vote of the holder or holders
of at least a majority (or such greater number as required
by applicable law) of the votes entitled to be cast with
respect to the then outstanding Series B Preferred, voting
separately as one class, at a meeting duly held for that
purpose, shall be necessary to repeal, amend or otherwise
change any of the provisions of the articles of
incorporation of the Corporation in any manner which
materially and adversely affects the rights or preferences
of the Series B Preferred. For purposes of the preceding
sentence, the increase (including the creation or
authorization) or decrease in the amount of authorized
capital stock of any class or series (excluding the Series B
Preferred) shall not be deemed to be an amendment which
materially and adversely affects the rights or preferences
of the Series B Preferred.
(b) The holder or holders of Series B Preferred shall
be entitled to vote on all matters submitted to a vote of
the holders of Common Stock, voting together with the
holders of Common Stock as if one class. Each share of
Series B Preferred in such case shall be entitled to a
number of votes equal to the number of shares of Common
Stock into which such share of Series B Preferred could have
been converted on the
<PAGE>
record date for determining the holders of Common Stock
entitled to vote on a particular matter.
5. Optional Redemption. (a) The Series B Preferred
shall be redeemable, in whole or in part at any time and
from time to time, to the extent permitted by applicable
law, at the option of the Corporation, (i) on or before
December 31, 1994, if (A) there is a change in any statute,
rule or regulation of the United States of America which has
the effect of limiting or making unavailable to the
Corporation all or any of the tax deductions for amounts
paid (including dividends) on the Series B Preferred when
such amounts are used as provided under Section 404(k)(2) of
the Internal Revenue Code of 1986, as amended and in effect
on the date shares of Series B Preferred are initially
issued, or (B) the Plan is not initially determined by the
Internal Revenue Service to be qualified within the meaning
of 401(a) and 4975(e)(7) of the Internal Revenue Code of
1986, as amended, or (C) the Plan is terminated by the Board
of Directors or otherwise, at the greater of (l) $144.30 per
share plus accumulated and unpaid dividends, without
interest, to and excluding the date fixed for redemption, or
(2) the Fair Market Value of the Series B Preferred
redeemed, or (ii) after December 31, 1994, at the following
redemption prices per share if redeemed during the twelve
(12)-month period ending on and including December 31 in
each of the following years:
Redemption Price
Year per Share
---- ----------------
1995 $149.52
1996 148.22
1997 146.92
1998 145.62
1999 and thereafter 144.30
plus accumulated and unpaid dividends, without interest, to
and excluding the date fixed for redemption.
(b) Payment of the redemption price shall be made by
the Corporation in cash or shares of Common Stock, or a
combination thereof, as permitted by paragraph (d) of this
Section 5. On and after the date fixed for redemption,
dividends on shares of Series B Preferred called for
redemption shall cease to accrue, such shares shall no
longer be deemed to be outstanding and all rights in respect
of such shares shall cease, except the right to receive the
redemption price.
(c) Unless otherwise required by law, notice of
redemption shall be sent to the holder or holders of Series
B Preferred at the address shown on the books of the
Corporation by first class mail, postage prepaid, mailed not
less than twenty (20) days nor more than sixty (60) days
prior to the redemption date. Each such notice shall state:
(i) the redemption date; (ii) the total number of shares of
the Series B Preferred to be redeemed and, if fewer than all
the shares are to be redeemed, the number of such shares to
be redeemed;
<PAGE>
(iii) the redemption price; (iv) the place or places where
certificates for such shares are to be surrendered for
payment of the redemption price; (v) that dividends on the
shares to be redeemed will cease to accrue from and after
such redemption date; and (vi) the conversion rights of the
shares to be redeemed, the period within which conversion
rights may be exercised, and the then current Conversion
Price and number of shares of Common Stock issuable upon
conversion of a share of Series B Preferred at the time.
Upon surrender of the certificates for any shares so called
for redemption and not previously converted (properly
endorsed or assigned for transfer, if the Board of Directors
shall so require and the notice shall so state), such shares
shall be redeemed by the Corporation at the date fixed for
redemption and at the redemption price.
(d) The Corporation, at its option, may make payment of
the redemption price required upon redemption of shares of
Series B Preferred in cash or in shares of Common Stock, or
in a combination of such shares and cash, any such shares to
be valued for such purpose at the average Current Market
Price for the five (5) consecutive trading days ending on
the trading day next preceding the date of redemption.
6. Other Redemption Rights. Shares of Series B
Preferred shall be redeemed by the Corporation at the option
of the holder at any time and from time to time, to the
extent permitted by applicable law, upon notice to the
Corporation accompanied by the properly endorsed certificate
or certificates given not less than five (5) Business Days
prior to the date fixed by the holder in such notice for
such redemption, when and to the extent necessary (a) for
such holder to provide for distributions required to be made
under The St. Paul Companies, Inc. Savings Plus Preferred
Stock Ownership Plan and Trust, an employee stock ownership
plan and trust within the meaning of 4975(e)(7) of the
Internal Revenue Code of 1986, as amended (the "Plan and
Trust"), as the same may be amended, or any successor plans,
or (b) for such holder to make payment of principal or
interest due and payable (whether as scheduled or upon
acceleration) on the 9.40% Note dated January 24, 1990, due
January 31, 2005 made by Norwest Bank Minnesota, National
Association, not individually but solely as Trustee for the
Plan and Trust, payable to the order of St. Paul Fire and
Marine Insurance Company or registered assigns, in the
principal amount of One Hundred Fifty Million Dollars
($150,000,000) or other indebtedness of the Plan and Trust
or if funds otherwise available are not adequate to make a
required payment pursuant to such Note or other
indebtedness, in each case at a redemption price of the
greater of (l) $144.30 per share plus accumulated and unpaid
dividends, without interest, to and excluding the date fixed
for redemption, or (2) the Fair Market Value of the Series B
Preferred redeemed. Upon surrender of the shares to be
redeemed, such shares shall be redeemed by the Corporation
on the date fixed for redemption and at the applicable
redemption price and such price shall be paid within five
(5) Business Days after such date of redemption, without
interest. The terms and provisions of Sections
<PAGE>
5(b) and 5(d) are applicable to any redemption under this
Section 6.
7. Liquidation Preference. In the event of any
voluntary or involuntary liquidation, dissolution or winding
up of the Corporation, the holder or holders of outstanding
shares of Series B Preferred shall be entitled to receive
out of the assets of the Corporation available for
distribution to shareholders, before any distribution of
assets shall be made to the holders of shares of Junior
Stock, an amount equal to One Hundred Dollars ($100.00) per
share. If, upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the amounts
payable with respect to the Series B Preferred and any
Parity Stock are not paid in full, the holder or holders of
the Series B Preferred and of such Parity Stock shall share
ratably in any such distribution of assets of the
Corporation in proportion to the full respective
preferential amounts to which they are entitled. After
payment to the holder or holders of the Series B Preferred
of the full preferential amount provided for in this Section
7 and after the payment of any other preferential amounts to
the holder or holders of other equity securities of the
Corporation, the holder or holders of the Series B Preferred
shall be entitled to share in distributions of any remaining
assets with the holders of Common Stock, pro-rata on an as-
if-converted basis, to the extent of $44.30 per share plus
accumulated and unpaid dividends, without interest, to and
excluding the date fixed for such distribution of assets.
Written notice of any liquidation, dissolution or winding up
of the Corporation shall be given to the holder or holders
of Series B Preferred not less than twenty (20) days prior
to the payment date. Neither the voluntary sale, conveyance,
exchange or transfer (for cash, securities or other
consideration) of all or any part of the property or assets
of the Corporation, nor the consolidation or merger or other
business combination of the Corporation with or into any
other corporation or corporations, shall be deemed to be a
voluntary or involuntary liquidation, dissolution or winding
up of the Corporation, unless such voluntary sale,
conveyance, exchange or transfer shall be in connection with
a plan of liquidation, dissolution or winding up of the
Corporation.
8. Conversion Rights. (a) The holder of any Series B
Preferred shall have the right, at the holder's option, at
any time and from time to time, to convert any or all of
such shares into the number of shares of Common Stock of the
Corporation determined by dividing One Hundred Forty-four
and 30/100 Dollars ($144.30) for each share of Series B
Preferred to be converted by the then effective Conversion
Price per share of Common Stock, except that if any shares
of Series B Preferred are called for redemption by the
Corporation or submitted for redemption by the holder
thereof, according to the terms and provisions of this
Resolution, the conversion rights pertaining to such shares
shall terminate at the close of business on the date fixed
for redemption (unless the Corporation defaults in the
payment of the applicable redemption price). No fractional
shares of Common Stock shall be issued
<PAGE>
upon conversion of Series B Preferred, but if such
conversion results in a fraction, an amount shall be paid in
cash by the Corporation to the converting holder equal to
same fraction of the Current Market Price of the Common
Stock on the effective date of the conversion.
(b) The initial conversion price, which is Seventy-two
and 15/100 Dollars ($72.15) per share of Common Stock, shall
be subject to appropriate adjustment from time to time as
follows and such initial conversion price or the latest
adjusted conversion price is referred to in this Resolution
as the "Conversion Price":
(i) In case the Corporation shall, at any time or from
time to time while any of the shares of the Series B
Preferred is outstanding (A) pay a dividend in shares of
Common Stock, (B) subdivide outstanding shares of Common
Stock into a larger number of shares or (C) combine
outstanding shares of Common Stock into a smaller number of
shares, the Conversion Price in effect immediately prior to
such action shall be adjusted so that the holder of any
shares of the Series B Preferred thereafter surrendered for
conversion shall be entitled to receive the number of shares
of Common Stock of the Corporation which such holder would
have owned or have been entitled to receive immediately
following such action had such shares of the Series B
Preferred been converted immediately prior thereto. An
adjustment made pursuant to this Section 8(b)(i) shall
become effective retroactively to immediately after the
record date for determination of the shareholders entitled
to receive the dividend in the case of a dividend and shall
become effective immediately after the effective date in the
case of a subdivision or combination.
(ii) In case the Corporation shall, at any time or from
time to time while any of the shares of the Series B
Preferred is outstanding, distribute or issue rights,
warrants, options or calls to all holders of shares of
Common Stock entitling them to subscribe for or purchase
shares of Common Stock (or securities convertible into or
exercisable or exchangeable for Common Stock), at a per
share price less than the Current Market Price on the record
date referred to below, the Conversion Price shall be
adjusted so that it shall equal the Conversion Price
determined by multiplying the Conversion Price in effect
immediately prior to the record date of the distribution or
issuance of such rights, warrants, options or calls by a
fraction, the numerator of which shall be the number of
shares of Common Stock outstanding on such record date plus
the number of shares which the aggregate offering price of
the total number of shares of Common Stock so offered would
purchase at such Current Market Price, and the denominator
of which shall be the number of shares of Common Stock
outstanding on such record date plus the number of
additional shares of Common Stock offered for subscription
or purchase. For the purpose of this Section 8(b)(ii), the
distribution or issuance of rights, warrants, options or
calls to subscribe for or purchase securities convertible
into Common Stock shall be deemed to be
<PAGE>
the issuance of rights, warrants, options or calls to
purchase the shares of Common Stock into which such
securities are convertible at an aggregate offering price
equal to the aggregate offering price of such securities
plus the minimum aggregate amount (if any) payable upon
conversion of such securities into shares of Common Stock;
provided, however, that if all of the shares of Common Stock
subject to such rights, warrants, options or calls have not
been issued when such rights, warrants, options or calls
expire, then the Conversion Price shall promptly be
readjusted to the Conversion Price which would then be in
effect had the adjustment upon the distribution or issuance
of such rights, warrants, options or calls been made on the
basis of the actual number of shares of Common Stock issued
upon the exercise of such rights, warrants, options or
calls. An adjustment made pursuant to this Section 8(b)(ii)
shall become effective retroactively immediately after the
record date for the determination of shareholders entitled
to receive such rights, warrants, options or calls. This
Section 8(b)(ii) shall be inapplicable with respect to any
rights issued or to be issued pursuant to or governed by the
Rights Agreement.
(iii) In the event the Corporation shall, at any time
or from time to time while any of the shares of Series B
Preferred are outstanding, issue, sell or exchange shares of
Common Stock (other than pursuant to (a) any right or
warrant now or hereafter outstanding to purchase or acquire
shares of Common Stock (including as such a right or warrant
any security convertible into or exchangeable for shares of
Common Stock), (b) any rights issued or to be issued
pursuant to or governed by the Rights Agreement and (c) any
employee, officer or director incentive or benefit plan or
arrangement (including any employment, severance or
consulting agreement) of the Corporation or any subsidiary
of the Corporation heretofore or hereafter adopted) for a
consideration having a Fair Market Value, on the date of
such issuance, sale or exchange, less than the Fair Market
Value of such shares on the date of issuance, sale or
exchange, then, subject to the provisions of Sections
8(b)(v) and (vii), the Conversion Price shall be adjusted by
multiplying such Conversion Price by the fraction the
numerator of which shall be the sum of (x) the Fair Market
Value of all the shares of Common Stock outstanding on the
day immediately preceding the first public announcement of
such issuance, sale or exchange plus (y) the Fair Market
value of the consideration received by the Corporation in
respect of such issuance, sale or exchange of shares of
Common Stock, and the denominator of which shall be the
product of (a) the Fair Market Value of a share of Common
Stock on the day immediately preceding the first public
announcement of such issuance, sale or exchange multiplied
by (b) the sum of the number of shares of Common Stock
outstanding on such day plus the number of shares of Common
Stock so issued, sold or exchanged by the Corporation. In
the event the Corporation shall, at any time or from time to
time while any shares of Series B Preferred are outstanding,
issue, sell or exchange any right or warrant to purchase or
acquire shares of Common Stock (including as such a right or
warrant any security convertible into or exchangeable for
shares of Common Stock), other than any such issuance (a) to
holders of shares of Common Stock
<PAGE>
as a dividend or distribution (including by way of a
reclassification of shares or a recapitalization of the
Corporation), (b) pursuant to any employee, officer or
director incentive or benefit plan or arrangement (including
any employment, severance or consulting agreement) of the
Corporation or any subsidiary of the Corporation heretofore
or hereafter adopted, (c) of rights issued or to be issued
pursuant to or governed by the Rights Agreement and (d)
which is covered by the terms and provisions of Section
8(b)(ii) hereof, for a consideration having a Fair Market
Value, on the date of such issuance, sale or exchange, less
than the Non-Dilutive Amount, then, subject to the
provisions of Sections 8(b)(v) and (vii) hereof, the
Conversion Price shall be adjusted by multiplying such
Conversion Price by a fraction the numerator of which shall
be the sum of (I) the Fair Market Value of all the shares of
Common Stock outstanding on the day immediately preceding
the first public announcement of such issuance, sale or
exchange plus (II) the Fair Market Value of the
consideration received by the Corporation in respect of such
issuance, sale or exchange of such right or warrant plus
(III) the Fair Market Value at the time of such issuance of
the consideration which the Corporation would receive upon
exercise in full of all such rights or warrants, and the
denominator of which shall be the product of (x) the Fair
Market Value of a share of Common Stock on the day
immediately preceding the first public announcement of such
issuance, sale or exchange multiplied by (y) the sum of the
number of shares of Common Stock outstanding on such day
plus the maximum number of shares of Common Stock which
could be acquired pursuant to such right or warrant at the
time of the issuance, sale or exchange of such right or
warrant (assuming shares of Common Stock could be acquired
pursuant to such right or warrant at such time).
(iv) In the event the Corporation shall, at any time or
from time to time while any of the shares of Series B
Preferred are outstanding, make an Extraordinary
Distribution in respect of the Common Stock, whether by
dividend, distribution, reclassification of shares or
recapitalization of the Corporation (including a
recapitalization or reclassification effected by a merger
or consolidation to which Section 8(c) hereof does not
apply) or effect a Pro Rata Repurchase of Common Stock, the
Conversion Price in effect immediately prior to such
Extraordinary Distribution or Pro Rata Repurchase shall,
subject to Sections 8(b)(v) and (vii) hereof, be adjusted by
multiplying such Conversion Price by the fraction the
numerator of which is the difference between (a) the product
of (x) the number of shares of Common Stock outstanding
immediately before such Extraordinary Distribution or Pro
Rata Repurchase multiplied by (y) the Fair Market Value of a
share of Common Stock on the day before the ex-dividend date
with respect to an Extraordinary Distribution which is paid
in cash and on the distribution date with respect to an
Extraordinary Distribution which is paid other than in cash,
or on the applicable expiration date (including all
extensions thereof) of any tender offer which is a Pro Rata
Repurchase, or on the date of purchase with respect to any
Pro Rata Repurchase which is not a tender offer, as the case
may be, and
<PAGE>
(b) the Fair Market Value of the Extraordinary Distribution
or the aggregate purchase price of the Pro Rata Repurchase,
as the case may be, and the denominator of which shall be
the product of (x) the number of shares of Common Stock
outstanding immediately before such Extraordinary Dividend
or Pro Rata Repurchase minus, in the case of a Pro Rata
Repurchase, the number of shares of Common Stock repurchased
by the Corporation multiplied by (y) the Fair Market Value
of a share of Common Stock on the day before the ex-dividend
date with respect to an Extraordinary Distribution which is
paid in cash and on the distribution date with respect to an
Extraordinary Distribution which is paid other than in cash,
or on the applicable expiration date (including all
extensions thereof) of any tender offer which is a Pro Rata
Repurchase or on the date of purchase with respect to any
Pro Rata Repurchase which is not a tender offer, as the case
may be. The Corporation shall send each holder of Series B
Preferred (i) notice of its intent to make any dividend or
distribution and (ii) notice of any offer by the Corporation
to make a Pro Rata Repurchase, in each case at the same time
as, or as soon as practicable after, such offer is first
communicated (including by announcement of a record date in
accordance with the rules of any stock exchange on which the
Common Stock is listed or admitted to trading) to holders of
Common Stock. Such notice shall indicate the intended record
date and the amount and nature of such dividend or
distribution, or the number of shares subject to such offer
for a Pro Rata Repurchase and the purchase price payable by
the Corporation pursuant to such offer, as well as the
Conversion Price and the number of shares of Common Stock
into which a share of Series B Preferred may be converted at
such time.
(v) If the Corporation shall make any dividend or
distribution on the Common Stock or issue any Common Stock,
other capital stock or other security of the Corporation or
any rights or warrants to purchase or acquire any such
security, which transaction does not result in an adjustment
to the Conversion Price pursuant to this Section 8, the
Board of Directors shall consider whether such action is of
such a nature that an adjustment to the Conversion Price
should equitably be made in respect of such transaction. If
in such case the Board of Directors determines that an
adjustment to the Conversion Price should be made, an
adjustment shall be made effective as of such date, as
determined by the Board of Directors (which adjustment shall
in no event adversely affect the rights or preferences of
the Series B Preferred as set forth herein). The
determination of the Board of Directors as to whether an
adjustment to the Conversion Price should be made pursuant
to the foregoing provisions of this Section 8(b)(v), and, if
so, as to what adjustment should be made and when, shall be
final and binding on the Corporation and all shareholders of
the Corporation.
(vi) In addition to the foregoing adjustments, the
Corporation may, but shall not be required to, make such
adjustments in the Conversion Price as it considers to be
advisable in order that any event treated for federal income
tax purposes as a dividend of stock or
<PAGE>
stock rights shall either not be taxable to the recipients
or shall be taxable to the recipients to the minimum extent
reasonable under the circumstances, as determined by the
Board of Directors in its sole discretion.
(vii) In no event shall an adjustment in the Conversion
Price be required unless such adjustment would result in an
increase or decrease of at least one percent (1%) in the
Conversion Price then in effect; provided, however, that any
such adjustments that are not made shall be carried forward
and taken into account in determining whether any subsequent
adjustment is required. In no event shall the Conversion
Price be adjusted to an amount less than any minimum
required by law. Except as set forth in this Section 8, the
Conversion Price shall not be adjusted for the issuance of
Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, or carrying
the right or option to purchase or otherwise acquire the
foregoing, in exchange for cash, other property or services.
(viii) Whenever an adjustment in the Conversion Price
is required, the Corporation shall forthwith place on file
with its transfer agent (or if the Corporation performs the
functions of a transfer agent, with the corporate secretary)
a statement signed by its chief executive officer or a vice
president and by its secretary, assistant secretary or
treasurer, stating the adjusted Conversion Price determined
as provided herein. Such statements shall set forth in
reasonable detail such facts as shall be necessary to show
the reason and the manner of computing such adjustment. As
soon as practicable after the adjustment of the Conversion
Price, the Corporation shall mail a notice thereof to each
holder of shares of the Series B Preferred of such
adjustment.
(ix) In the event that at any time, as a result of an
adjustment made pursuant to this Section 8, the holder of
any shares of Series B Preferred hereafter surrendered for
conversion shall be entitled to receive any securities other
than shares of Common Stock, thereafter the amount of such
other securities so receivable upon conversion of any shares
of Series B Preferred shall be subject to adjustment from
time to time in a manner and on terms as nearly as
equivalent as practicable to the provisions with respect to
the Common Stock contained in this Section 8, and the
provisions of this Section 8 with respect to the Common
Stock shall apply on like terms to any such other
securities.
(c) In case of any consolidation or merger of the
Corporation with or into any other corporation (other than a
merger in which the Corporation is the surviving
corporation), or in case of any sale or transfer of
substantially all -the assets of the Corporation, or in case
of reclassification, capital reorganization or change of
outstanding shares of Common Stock (other than combinations
or subdivisions described in Section 8(b)(i) and other than
Extraordinary Distributions described in Section 8(b)(iv)),
there shall be no adjustment to the Conversion Price then in
effect, but appropriate provisions shall be
<PAGE>
made so that any holder of Series B Preferred shall be
entitled, after the occurrence (or, if applicable, the
record date) of any such event ("Transaction"), to receive
on conversion the consideration which the holder would have
received had the holder converted such holder's Series B
Preferred to Common Stock immediately prior to the
occurrence of the Transaction and had such holder, if
applicable, elected to receive the consideration in the form
and manner elected by the plurality of the electing holders
of Common Stock. In any such Transaction, effective
provisions shall be made to ensure that the holder or
holders of the Series B Preferred shall receive the
consideration that they are entitled to receive pursuant to
the provisions hereof, and in particular, as a condition to
any consolidation or merger in which the holders of
securities into which the Series B Preferred is then
convertible are entitled to receive equity securities of
another corporation, such other corporation shall expressly
assume the obligation to deliver, upon conversion of the
Series B Preferred, such equity securities as the holder or
holders of the Series B Preferred shall be entitled to
receive pursuant to the provisions hereof. Notwithstanding
the foregoing provisions of this Section 8(c), in the event
the consideration to be received pursuant to the provisions
hereof is not to be constituted solely of employer
securities within the meaning of 409(1) of the Internal
Revenue Code of 1986, as amended, or any successor
provisions of law, and of a cash payment in lieu of any
fractional securities, then the outstanding shares of Series
B Preferred shall be deemed converted by virtue of the
Transaction immediately prior to the consummation thereof
into the number and kind of securities into which such
shares of Series B Preferred could have been voluntarily
converted at such time and such securities shall be entitled
to participate fully in the Transaction as if such
securities had been outstanding on the appropriate record,
exchange or distribution date. In the event the Corporation
shall enter into any agreement providing for any
Transaction, then the Corporation shall as soon as
practicable thereafter (and in any event at least ten (10)
Business Days before consummation of the Transaction) give
notice of such agreement and the material terms thereof to
each holder of Series B Preferred and each such holder shall
have the right, to the extent permitted by applicable law,
to elect, by written notice to the Corporation, to receive,
upon consummation of the Transaction (if and when the
Transaction is consummated), from the Corporation or the
successor of the Corporation, in redemption of such Series B
Preferred, a cash payment per share equal to the amount
determined according to the following table, with the
redemption date to be deemed to be the same date that the
Transaction giving rise to the redemption election is
consummated:
<PAGE>
Transaction
Consummated in Year Redemption Price
Ending December 31 per Share
- --------------------- ----------------
1990 $156.02
1991 154.72
1992 153.42
1993 152.12
1994 150.82
1995 149.52
1996 148.22
1997 146.92
1998 145.62
1999 and thereafter 144.30
plus accumulated and unpaid dividends, without interest, to
and excluding such deemed redemption date. No such notice of
redemption by the holder of Series B Preferred shall be
effective unless given to the Corporation prior to the close
of business at least two (2) Business Days prior to
consummation of the Transaction.
(d) The holder or holders of Series B Preferred as they
appear on the stock books of the Corporation at the close of
business on a dividend payment Record Date shall be entitled
to receive the dividend payable on such shares on the
corresponding Dividend Payment Date notwithstanding the
subsequent conversion thereof or the Corporation's default
on payment of the dividend due on such Dividend Payment
Date; provided, however, that the holder or holders of
Series B Preferred subject to redemption on a redemption
date after such Record Date and before such Dividend Payment
Date shall not be entitled under this provision to receive
such dividend on such Dividend Payment Date. However, shares
of Series B Preferred surrendered for conversion during the
period after any dividend payment Record Date and before the
corresponding Dividend Payment Date (except shares subject
to redemption on a redemption date during such period) must
be accompanied by payment of an amount equal to the dividend
payable on such shares on such Dividend Payment Date. The
holder or holders of Series B Preferred as they appear on
the stock books of the Corporation at the close of business
on a dividend payment Record Date who convert shares of
Series B Preferred on a Dividend Payment Date shall be
entitled to receive the dividend payable on such Series B
Preferred by the Corporation on such Dividend Payment Date,
and the converting holders need not include payment in the
amount of such dividend upon surrender of shares of Series B
Preferred for conversion. Except as provided above, the
Corporation shall make no payment or allowance for unpaid
dividends (whether or not accumulated and in arrears) on
converted shares or for dividends on the shares of Common
Stock issuable upon such conversion.
(e) Each conversion of shares of Series B Preferred
into shares of Common Stock shall be effected by the
surrender of the certificate or certificates representing
the shares to be converted, accompanied
<PAGE>
by instruments of transfer satisfactory to the Corporation
and sufficient to transfer such shares to the Corporation
free of any adverse claims (the "Converting Shares"), at the
principal executive office of the Corporation (or such other
office or agency of the Corporation as the Corporation may
designate by written notice to the holder or holders of
Series B Preferred) at any time during its respective usual
business hours, together with written notice by the holder
of such Converting Shares, stating that such holder desires
to convert the Converting Shares, or a stated number of the
shares represented by such certificate or certificates, into
such number of shares of Common Stock into which such shares
may be converted (the "Converted Shares"). Such notice shall
also state the name or names (with addresses and federal
taxpayer identification numbers) and denominations in which
the certificate or certificates for the Converted Shares are
to be issued, shall include instructions for the delivery
thereof and shall include such other information as the
Corporation or its agents may reasonably request. Promptly
after such surrender and the receipt of such written notice
and the receipt of any required transfer documents and
payments representing dividends as described above, the
Corporation shall issue and deliver in accordance with the
surrendering holder's instructions the certificate or
certificates evidencing the Converted Shares issuable upon
such conversion, and the Corporation will deliver to the
converting holder (without cost to the holder) a certificate
(which shall contain such legends as were set forth on the
surrendered certificate or certificates) representing any
shares of Series B Preferred which were represented by the
certificate or certificates that were delivered to the
Corporation in connection with such conversion, but which
were not converted.
(f) Such conversion, to the extent permitted by
applicable law, shall be deemed to have been effected at the
close of business on the date on which such certificate or
certificates shall have been surrendered and such notice and
any required transfer documents and payments representing
dividends shall have been received by the Corporation, and
at such time the rights of the holder of the Converting
Shares as such holder shall cease, and the person or persons
in whose name or names the certificate or certificates for
the Converted Shares are to be issued upon such conversion
shall be deemed to have become the holder or holders of
record of the Converted Shares. Upon issuance of shares in
accordance herewith, such Converted Shares shall be deemed
to be fully paid and nonassessable. From and after the
effectiveness of any such conversion, shares of the Series B
Preferred so converted shall, upon compliance with
applicable law, be restored to the status of authorized but
unissued undesignated shares, until such shares are once
more designated as part of a particular series by the Board
of Directors.
(g) Notwithstanding any provision herein to the
contrary, the Corporation shall not be required to record
the conversion of, and no holder of shares shall be entitled
to convert, shares of Series B Preferred into shares of
Common Stock unless such conversion is
<PAGE>
permitted under applicable law; provided, however, that the
Corporation shall be entitled to rely without independent
verification upon the representation of any holder that the
conversion of shares by such holder is permitted under
applicable law, and in no event shall the Corporation be
liable to any such holder or any third party arising from
any such conversion whether or not permitted by applicable
law.
(h) The Corporation will pay any and all stamp,
transfer or other similar taxes that may be payable in
respect of the issuance or delivery of Common Stock received
upon conversion of the shares of Series B Preferred, but
shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issuance
or delivery of Common Stock in a name other than that in
which such shares of Series B Preferred were registered and
no such issuance or delivery shall be made unless and until
the person requesting such conversion shall have paid to the
Corporation the amount of any and all such taxes or shall
have established to the satisfaction of the Corporation that
such taxes have been paid in full.
(i) The Corporation shall at all times reserve and keep
available, free from preemptive rights, out of its
authorized but unissued stock, for the purpose of effecting
the conversion of the shares of the Series B Preferred, such
number of its duly authorized shares of Common Stock or
other securities as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the
Series B Preferred.
(j) Whenever the Corporation shall issue shares of Common
Stock upon conversion of shares of Series B Preferred as
contemplated by this Section 8, the Corporation shall issue
together with each such share of Common Stock one Right (as
defined in the Rights Agreement) pursuant to the terms and
provisions of the Rights Agreement.
9. Transfer Restriction. Shares of Series B Preferred
shall be issued only to the Plan and Trust and the
certificate or certificates representing such shares so
issued may be registered in the name of the Plan and Trust
or in the name of one or more Trustees acting on behalf of
the Plan and Trust (or the nominee name of any such
trustee). In the event the Plan and Trust, acting through
any such trustee or otherwise, should transfer beneficial or
record ownership of one or more shares of Series B Preferred
to any person or entity, the shares of Series B Preferred
so transferred, upon such transfer and without any further
action by the Corporation or the Plan and Trust or anyone
else, shall be automatically converted, as of the time of
such transfer, into shares of Common Stock on the terms
otherwise provided for the voluntary conversion of shares of
Series B Preferred into shares of Common Stock pursuant to
Section 8 hereof and no transferee of such share or shares
shall thereafter have or receive any of the rights and
preferences of the shares of Series B Preferred so
converted. Certificates representing shares of Series B
Preferred shall be legended to
<PAGE>
reflect the aforesaid restriction on transfer. Shares of
Series B Preferred may also be subject to restrictions on
transfer which relate to the securities laws of the United
States of America or any state or other jurisdiction
thereof.
10. No other Rights. The shares of Series B Preferred
shall not have any rights or preferences, except as set
forth herein or as otherwise required by applicable law.
11. Rules and Regulations. The Board of Directors shall
have the right and authority from time to time to prescribe
rules and regulations as it may determine to be necessary or
advisable in its sole discretion for the administration of
the Series B Preferred in accordance with the foregoing
provisions and applicable law.
12 . Definitions . For purposes of this Resolution, the
following definitions shall apply:
"Adjustment Period" shall mean the period of five (5)
consecutive trading days preceding the date as of which the
Fair Market Value of a security is to be determined.
"Business Day" shall mean each day that is not a Saturday,
Sunday or a day on which state or federally chartered
banking institutions in New York, New York are not required
to be open.
"Current Market Price" of publicly traded shares of Common
Stock or any other class of capital stock or other security
of the Corporation or any other issuer for any day shall
mean the last reported sales price, regular way, or, in the
event that no sale takes place on such day, the average of
the reported closing bid and asked prices, regular way, in
either case as reported on the New York Stock Exchange
Composite Tape or, if such security is not listed or
admitted to trading on the New York Stock Exchange, on the
principal national securities exchange on which such
security is listed or admitted to trading or, if not listed
or admitted to trading on any national securities exchange,
on the National Market System of the National Association of
Securities Dealers, Inc. Automated Quotation System
("NASDAQ") or, if such security is not quoted on such
National Market System, the average of the closing bid and
asked prices on each such day in the over-the-counter market
as reported by NASDAQ or, if bid and asked prices for such
security on each such day shall not have been reported
through NASDAQ, the average of the bid and asked prices for
such day as furnished by any New York Stock Exchange member
firm regularly making a market in such security selected for
such purpose by the Board of Directors or a committee
thereof.
"Extraordinary Distribution" shall mean any dividend or
other distribution to holders of Common Stock (effected
while any of the shares of Series B Preferred are
outstanding) (i) of cash (other than a regularly scheduled
quarterly dividend not exceeding 135% of the average
quarterly dividend for the four quarters immediately
preceding such dividend), where the aggregate amount of such
cash dividend or
<PAGE>
distribution together with the amount of all cash dividends
and distributions made during the preceding period of twelve
(12) months, when combined with the aggregate amount of all
Pro Rata Repurchases (for this purpose, including only that
portion of the aggregate purchase price of such Pro Rata
Repurchase which is in excess of the Fair Market Value of
the Common Stock repurchased as determined on the applicable
expiration date (including all extensions thereof) of any
tender offer or exchange offer which is a Pro Rata
Repurchase, or the date of purchase with respect to any
other Pro Rata Repurchase which is not a tender offer or
exchange offer made during such period), exceeds ten percent
(10%) of the aggregate Fair Market Value of all shares of
Common Stock outstanding on the day before the ex-dividend
date with respect to such Extraordinary Distribution which
is paid in cash and on the distribution date with respect to
an Extraordinary Distribution which is paid other than in
cash, and/or (ii) of any shares of capital stock of the
Corporation (other than shares of Common Stock), other
securities of the Corporation (other than securities of the
type referred to in Section 8(b)(ii) or (iii) hereof),
evidences of indebtedness of the Corporation or any other
person or any other property (including shares of any
subsidiary of the Corporation) or any combination thereof.
The Fair Market Value of an Extraordinary Distribution for
purposes of Section 8(b)(iv) hereof shall be equal to the
sum of the Fair Market Value of such Extraordinary
Distribution plus the amount of any cash dividends (other
than regularly scheduled dividends not exceeding 135% of the
aggregate quarterly dividends for the preceding period of
twelve (12) months) which are not Extraordinary
Distributions made during such 12-month period and not
previously included in the calculation of an adjustment
pursuant to Section 8(b)(iv) hereof.
"Fair Market Value" shall mean, as to shares of Common Stock
or any other class of capital stock or securities of the
Corporation or any other issue which are publicly traded,
the average of the Current Market Prices of such shares or
securities for each day of the Adjustment Period. The "Fair
Market Value" of any security which is not publicly traded
or of any other property shall mean the fair value thereof
as determined by an independent investment banking or
appraisal firm experienced in the valuation of such
securities or property selected in good faith by the Board
of Directors or a committee thereof, or, if no such
investment banking or appraisal firm is in the good faith
judgment of the Board of Directors or such committee
available to make such determination, as determined in good
faith by the Board of Directors or such committee. The Fair
Market Value of the Series B Preferred for purposes of
Section 5(a) hereof and for purposes of Section 6 hereof
shall be as determined by an independent appraiser,
appointed by the Corporation in accordance with the
provisions of the Plan and Trust, as of the most recent
Valuation Date, as defined in the Plan and Trust.
<PAGE>
"Non-Dilutive Amount" in respect of an issuance, sale or
exchange by the Corporation of any right or warrant to
purchase or acquire shares of Common Stock (including any
security convertible into or exchangeable for shares of
Common Stock) shall mean the difference between (i) the
product of the Fair Market Value of a share of Common Stock
on the day preceding the first public announcement of such
issuance, sale or exchange multiplied by the maximum number
of shares of Common Stock which could be acquired on such
date upon the exercise in full of such rights and warrants
(including upon the conversion or exchange of all such
convertible or exchangeable securities), whether or not
exercisable (or convertible or exchangeable) at such date,
and (ii) the aggregate amount payable pursuant to such
right or warrant to purchase or acquire such maximum number
of shares of Common Stock; provided, however, that in no
event shall the Non-Dilutive Amount be less than zero. For
purposes of the foregoing sentence, in the case of a
security convertible into or exchangeable for shares of
Common Stock, the amount payable pursuant to a right or
warrant to purchase or acquire shares of Common Stock shall
be the Fair Market Value of such security on the date of
the issuance, sale or exchange of such security by the
Corporation.
"Pro Rata Repurchase" shall mean any purchase of shares of
Common Stock by the Corporation or any subsidiary thereof,
whether for cash, shares of capital stock of the
Corporation, other securities of the Corporation, evidences
of indebtedness of the Corporation or any other person or
any other property (including shares of a subsidiary of the
Corporation), or any combination thereof, effected while
any of the shares of Series B Preferred are outstanding,
pursuant to any tender offer or exchange offer subject to
Section 13(e) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any successor provision of
law, or pursuant to any other offer available to
substantially all holders of Common Stock; provided,
however, that no purchase of shares by the Corporation or
any subsidiary thereof made in open market transactions
shall be deemed a Pro Rata Repurchase. For purposes of this
definition, shares shall be deemed to have been purchased
by the Corporation or any subsidiary thereof "in open
market transactions" if they have been purchased
substantially in accordance with the requirements of Rule
10b-18, as in effect under the Exchange Act, on the date
shares of Series B Preferred are initially issued by the
Corporation or on such other terms and conditions as the
Board of Directors or a committee thereof shall have
determined are reasonably designed to prevent such
purchases from having a material effect on the trading
market for the Common Stock.
<PAGE>
THE ST. PAUL COMPANIES, INC.
BY LAWS
<PAGE>
INDEX
ARTICLE I.
OFFICES
Page
----
Sec. 1 Registered Office 1
Sec. 2 Principal Executive Office 1
ARTICLE II.
MEETINGS OF SHAREHOLDERS
Sec. 1 Place of Meeting 1
Sec. 2 Regular Annual Meeting 1
Sec. 3 Special Meeting 1
Sec. 4 Notice 1
Sec. 5 Record Date 1
Sec. 6 Quorum 2
Sec. 7 Voting Rights 2
Sec. 8 Proxies 2
Sec. 9 Act of the Shareholders 2
Sec. 10 Business of the Meeting 2
Sec. 11 Nomination of Directors 3
ARTICLE III.
BOARD OF DIRECTORS
Sec. 1 Board to Manage 3
Sec. 2 Number and Term of Office 4
Sec. 3 Meetings of the Board 4
Sec. 4 Advance Action by Absent Directors 4
Sec. 5 Electronic Communications 4
Sec. 6 Quorum 4
Sec. 7 Act of the Board 4
Sec. 8 Board - Appointed Committees 4
ARTICLE IV.
OFFICERS
Sec. 1 Required Officers 4
Sec. 2 Chairman 5
Sec. 3 President 5
Sec. 4 Chief Financial Officer 5
Sec. 5 Corporate Secretary 6
<PAGE>
ARTICLE V.
STOCK CERTIFICATES/TRANSFER
Sec. 1 Certificate 6
Sec. 2 Transfer of Shares 6
Sec. 3 Lost, Stolen or Destroyed Certificates 6
ARTICLE VI.
GENERAL PROVISIONS
Sec. 1 Voting of Shares 7
Sec. 2 Execution of Documents 7
Sec. 3 Transfer of Assignment of Securities 7
Sec. 4 Fiscal Year 7
Sec. 5 Seal 7
Sec. 6 Indemnification 7
<PAGE>
BYLAWS OF
THE ST. PAUL COMPANIES, INC.
ARTICLE I
Offices
Section 1. Registered Office. The registered office of
the corporation required by Chapter 302A of the Minnesota
Statutes ("Chapter 302A") to be maintained in the State of
Minnesota is 385 Washington Street, St. Paul, Minnesota
55102.
Section 2. Principal Executive Office. The principal
executive office of the corporation, where the chief
executive officer of the corporation has an office, is 385
Washington Street, St. Paul, Minnesota 55102.
Article II
Meetings of Shareholders
Section 1. Place of Meeting. All meetings of the
shareholders shall be held at the registered office of the
corporation or, except for a meeting called by or at the
demand of a shareholder, at such other place as may be fixed
from time to time by the board of directors (the "board").
Section 2. Regular Annual Meeting. A regular annual
meeting of shareholders shall be held on the first Tuesday
of May of each year for the purpose of electing directors
and for the transaction of any other business appropriate
for action by the shareholders.
Section 3. Special Meetings. Special meetings of the
shareholders may be called at any time by the Chief
Executive Officer or the Chief Financial Officer or by two
or more directors or by a shareholder or shareholders
holding ten percent or more of the voting power of all
shares entitled to vote; except that a special meeting
called by shareholders for the purpose of considering any
action to directly or indirectly facilitate or effect a
business combination, including any action to change or
otherwise affect the composition of the board of directors
for that purpose, must be called by twenty-five percent or
more of the voting power of all shares entitled to vote. A
shareholder or shareholders holding the requisite voting
power may demand a special meeting of shareholders only by
giving the written notice of demand required by law.
Special meetings shall be held on the date and at the time
and place fixed as provided by law.
Section 4. Notice. Notice of all meetings of
shareholders shall be given to every holder of voting shares
in the manner and pursuant to the requirements of Chapter
302A.
Section 5. Record Date. The board shall fix a record
date not more than 60 days before the date of a meeting of
shareholders as the date for the determination of the
holders of voting shares entitled to notice of and to vote
at the meeting.
<PAGE>
Section 6. Quorum. The holders of a majority of the
voting power of the shares entitled to vote at a meeting
present in person or by proxy at the meeting are a quorum
for the transaction of business. If a quorum is present
when a meeting is convened, the shareholders present may
continue to transact business until adjournment sine die,
even though the withdrawal of a number of shareholders
originally present leaves less than the proportion otherwise
required for a quorum.
Section 7. Voting Rights. Unless otherwise provided in
the terms of the shares, a shareholder has one vote for each
share held on a record date. A shareholder may cast a vote
in person or by proxy. Such vote shall be by written ballot
unless the chairman of the meeting determines to request a
voice vote on a particular matter.
Section 8. Proxies. The chairman of the meeting shall,
after shareholders have had a reasonable opportunity to vote
and file proxies, close the polls after which no further
ballots, proxies, or revocations shall be received or
considered.
Section 9. Act of the Shareholders. Except as otherwise
provided by Chapter 302A of the restated articles of
incorporation of the corporation, the shareholders shall
take action by the affirmative vote of the holders of a
majority of the voting power of the shares present at the
time a vote is cast.
Section 10. Business of the Meeting. At any annual
meeting of shareholders, only such business shall be
conducted as shall have been brought before the meeting (i)
by or at the direction of the board or (ii) by any
shareholder who is entitled to vote with respect thereto and
who complies with the notice procedures set forth in this
section 10. For business to be properly brought before an
annual meeting by a shareholder, the shareholder must have
given timely notice thereof in writing to the corporate
secretary. To be timely, a shareholder's notice must be
delivered or mailed to and received at the principal
executive office of the corporation not less than 60 days
prior to the date of the annual meeting; provided, however,
that in the event that less than 70 days' notice or prior
public disclosure of the date of the meeting is given or
made to shareholders, notice by the shareholders to be
timely must be received not later than the close of business
on the 10th day following the day of which such notice of
the date of the annual meeting was mailed or such public
disclosure was made. A shareholder's notice to the
corporate secretary shall set forth as to each matter such
shareholder proposes to bring before the annual meeting (i)
a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting
such business at the annual meeting (ii) the name and
address, as they appear on the corporation's share register,
of the shareholder proposing such business; (iii) the class
and number of shares of the corporation's capital stock that
are beneficially owned by such shareholder and (iv) any
material interest of such shareholder in such business. No
shareholder proposal will be eligible for inclusion in the
corporation's proxy materials or form of proxy for any
annual meeting of shareholders unless received by the
corporate secretary of the corporation on or before the
first day of December next preceding the date of the annual
meeting. Notwithstanding anything in the bylaws to the
contrary, no business shall be brought before or conducted
at the annual meeting except in accordance with the
provisions of this section 10. The officer of the
corporation or other person presiding over the annual
meeting shall, if the facts so warrant, determine and
declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions
of this section 10 and, if he shall so determine, he shall
so declare to the meeting and any such business so
determined to be not properly brought before the meeting
shall not be transacted.
<PAGE>
At any special meeting of shareholders, the business
transacted shall be limited to the purposes stated in the
notice of the meeting. With respect to a special meeting
held pursuant to the demand of a shareholder or
shareholders, the purposes shall be limited to those
specified in the demand in the event that the shareholder or
shareholders are entitled by law to call the meeting because
the board does not do so.
Section 11. Nomination of Directors. Only persons who
are nominated in accordance with the procedures set forth in
these bylaws shall be eligible for election as directors.
Nominations of persons for election to the board of the
corporation may be made at a meeting of shareholders at
which directors are to be elected only (i) by or at the
direction of the board or (ii) by any shareholder of the
corporation entitled to vote for the election of directors
at the meeting who complies with the notice procedures set
forth in this section 11. Such nominations, other than
those made by or at the direction of the board, shall be
made by timely notice in writing to the corporate secretary.
To be timely, a shareholder's notice shall be delivered or
mailed to and received at the principal executive office of
the corporation not less than 60 days prior to the date of
the meeting, provided, however, that in the event that less
than 70 days' notice or prior disclosure of the date of this
meeting is given or made to shareholders, notice by the
shareholders to be timely must be so received not later than
the close of business on the 10th day following the date on
which such notice of the date of the meeting was mailed or
such public disclosure was made. Such shareholder's notice
shall set forth (i) as to each person whom such shareholder
proposes to nominate for election as a director, all
information relating to such person that is required to be
disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant
to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including such person's written consent to being
named in the proxy statement as a nominee and to serving as
a director if elected), and (ii) as to the shareholder
giving the notice (a) the name and address, as they appear
on the corporation's share register, of such shareholder and
(b) the class and number of shares of the corporation's
capital stock that are beneficially owned by such
shareholder, and shall be accompanied by the written consent
of each such person to serve as a director of the
corporation, if elected. At the request of the board any
person nominated by the board for election as a director
shall furnish to the corporate secretary that information
required to be set forth in a shareholder's notice of
nomination which pertains to the nominee. No person shall
be eligible for election as a director of the corporation
unless nominated in accordance with the provisions of this
section 11. The officer of the corporation or other person
presiding at the meeting shall, if the facts so warrant,
determine and declare to the meeting that a nomination was
not made in accordance with such provisions and, if he shall
so determine, he shall so declare to the meeting and the
defective nomination shall be disregarded.
ARTICLE III
Board of Directors
Section 1. Board to Manage. The business and affairs of
the corporation shall be managed by or under the direction
of the board.
<PAGE>
Section 2. Number and Term of Office. The number of
directors shall be at least ten (10) but not more than
eighteen (18), as determined from time to time by the board.
Each director shall be elected to serve for a term that
expires at the next regular annual meeting of the
shareholders and when a successor is elected and has
qualified, or at the time of the earlier death, resignation,
removal or disqualification of the director.
Section 3. Meetings of the Board. The board may hold
meetings either within or without the State of Minnesota at
such places as the board may select. If the board fails to
select a place for a meeting, the meeting shall be held at
the principal executive office of the corporation. Four
regular meetings of the board shall be held each year. One
shall be held immediately following the regular annual
meeting of the shareholders. The other three regular
meetings shall be held on dates and at times determined by
the board. No notice of a regular meeting is required if
the date, time and place of the meeting has been announced
at a previous meeting of the board. A special meeting of
the board may be called by any director or by the chief
executive officer by giving, or causing the corporate
secretary to give at least twenty-four hours notice to all
directors of the date, time and place of the meeting.
Section 4. Advance Action by Absent Directors. A
director may give advance written consent or opposition to a
proposal to be acted on at a board meeting.
Section 5. Electronic Communications. A board meeting
may be held and participation in a meeting may be effected
by means of communications permitted by Chapter 302A.
Section 6. Quorum. At all meetings of the board, a
majority of the directors then holding office is a quorum
for the transaction of business. In the absence of a
quorum, a majority of the directors present may adjourn a
meeting from time to time until a quorum is present. If a
quorum is present when a meeting is convened, the directors
present may continue to transact business until adjournment
sine die even though the withdrawal of a number of directors
originally present leaves less than the proportion otherwise
required for a quorum.
Section 7. Act of the Board. The board shall take
action by the affirmative vote of at least a majority of the
directors present at a meeting. In addition, the board may
act without a meeting by written action signed by all of the
directors then holding office.
Section 8. Board-Appointed Committees. A resolution
approved by the affirmative vote of a majority of the
directors then holding office may establish committees
having the authority of the board in the management of the
business of the corporation to the extent provided in the
resolution and each such committee is subject at all times
to the direction and control of the board except as provided
by Chapter 302A with respect to a committee of disinterested
persons.
ARTICLE IV
Officers
Section 1. Required Officers. The corporation shall
have officers who shall serve as chief executive officer and
chief financial officer and such other officers as the board
shall determine from time to time.
<PAGE>
Section 2. Chairman. The board shall at its regular
meeting each year immediately following the regular annual
shareholders meeting elect from its number a chairman who
shall serve until the next regular meeting of the board
immediately following the regular annual shareholders
meeting. The chairman shall be the chief executive officer
of the corporation and shall
(a) have general policy level responsibility for the
management of the business and affairs of the
corporation;
(b) have responsibility for development and
implementation of long range plans for the
corporation;
(c) preside at all meetings of the board and of the
shareholders;
(d) see that all the orders and resolutions of the board
are carried into effect;
(e) perform other duties prescribed by the board or
these bylaws.
In the absence of the president, the chairman shall assume
the duties of the president.
Section 3. President. The board shall at its regular
meeting each year immediately following the regular annual
shareholders meeting elect a president who shall serve until
the next regular meeting of the board immediately following
the regular annual meeting of the shareholders. The
president shall be the chief operating officer of the
corporation and shall
(a) have responsibility for the operational aspects of
the business and affairs of the corporation;
(b) have responsibility to direct and guide operations
to achieve corporate profit, growth and social
responsibility objectives; and
(c) perform other duties prescribed by the board and
these bylaws.
In the absence of the chairman, the president shall assume
the duties of chairman.
In the event of the inability of both the chairman and the
president to act, then the executive vice president with the
greatest seniority in office, if any, the senior vice
president with the greatest seniority in office, if any, or
if neither of the foregoing is available, then the vice
president with the greatest seniority in that office shall
perform the duties and exercise the powers of the chairman
and the president during the period of their inability or
until the next meeting of the executive committee or the
board.
Section 4. Chief Financial Officer. The board shall
elect one or more officers, however denominated, to serve at
the pleasure of the board who shall together share the
function of chief financial officer.
The function of chief financial officer shall be to
(a) cause accurate financial records to be maintained
for the corporation;
<PAGE>
(b) cause all funds belonging to the corporation to be
deposited in the name of and to the credit of the
corporation in banks and other depositories selected
pursuant to general and specific board resolutions;
(c) cause corporate funds to be disbursed as appropriate
in the ordinary course of business;
(d) cause appropriate internal control systems to be
developed, maintained, improved and implemented; and
(e) perform other duties prescribed by the board, the
chairman or the president.
Section 5. Corporate Secretary. The board shall elect
a corporate secretary who shall serve at the pleasure of the
board. The corporate secretary shall
(a) be present at and maintain records of and certify
proceedings of the board and the shareholders and,
if requested, of the executive committee and other
board committees;
(b) serve as custodian of all official corporate records
other than those of a financial nature;
(c) cause the corporation to maintain appropriate
records of share transfers and shareholders; and
(d) perform other duties prescribed by the board, the
chairman or the president.
In the absence of the corporate secretary, a secretary,
assistant secretary or other officer shall be designated by
the president to carry out the duties of corporate
secretary.
ARTICLE V
Share Certificates/Transfer
Section 1. Certificate. Certificated shares of this
corporation shall be in such form as prescribed by law and
adopted by the board.
Section 2. Transfer of Shares. Transfer of shares on
the books of the corporation shall be made by the transfer
agent and registrar in accordance with procedures adopted by
the board.
Section 3. Lost, Stolen or Destroyed Certificates. No
certificate for shares of the corporation shall be issued in
place of one claimed to be lost, stolen or destroyed except
in compliance with Section 336.8-405, Minnesota Statutes, as
amended from time to time, and the corporation may require a
satisfactory bond of indemnity protecting the corporation
against any claim by reason of the lost, stolen or destroyed
certificate.
<PAGE>
ARTICLE VI
General Provisions
Section 1. Voting of Shares. The chairman, president,
any vice president or the corporate secretary, unless some
other person is appointed by the board, may vote shares of
any other corporation held or owned by the corporation and
may take any required action with respect to investments in
other types of legal entities.
Section 2. Execution of Documents. Deeds, mortgages,
bonds, contracts and other documents and instruments
pertaining to the business and affairs of the corporation
may be signed and delivered on behalf of the corporation by
the chairman, president, any vice president or corporate
secretary or by such other person or by such other officers
as the board may specify.
Section 3. Transfer of Assignment of Securities. The
chairman, the president, the chief financial officer, the
treasurer, or any vice president, corporate secretary,
secretary or assistant secretary of the corporation shall
execute the transfer and assignment of any securities owned
by or held in the name of the corporation. The transfer and
assignment of securities held in the name of a nominee of
the corporation may be accomplished pursuant to the contract
between the corporation and the nominee.
Section 4. Fiscal Year. The fiscal year of the
corporation shall end on December 31 of each year.
Section 5. Seal. The corporation shall have a
circular seal bearing the name of the corporation and an
impression of a man at a plow, a gun leaning against a stump
and an Indian on horseback.
Section 6. Indemnification. Subject to the
limitations of the next sentence, the corporation shall
indemnify and make permitted advances to a person made or
threatened to be made a party to a proceeding by reason of
his former or present official capacity against judgments,
penalties, fines (including without limitation excise taxes
assessed against the person with respect to an employee
benefit plan), settlements and reasonable expenses
(including without limitation attorneys' fees and
disbursements) incurred by him in connection with the
proceeding in the manner and to the fullest extent permitted
or required by Section 302A.521, Minnesota Statutes 1981
Supplement, as amended from time to time. Notwithstanding
the foregoing, the corporation shall neither indemnify nor
make advances under Section 302A.521 to any person who at
the time of the occurrence or omission claimed to have given
rise to the matter which is the subject of the proceeding
only had an agency relationship to the corporation and was
not at that time an officer, director or employee thereof
unless such person and the corporation were at that time
parties to a written contract for indemnification or
advances with respect to such matter or unless the board
specifically authorizes such indemnification or advances.
<PAGE>
THE ST. PAUL COMPANIES, INC.
1994 STOCK INCENTIVE PLAN
1. Purpose. The purposes of The St. Paul Companies,
Inc. 1994 Stock Incentive Plan (the "Plan") are (i) to
promote the interests of The St. Paul Companies, Inc. (the
"Company") and its shareholders by attracting and retaining
key officers and Non-Employee Directors of the Company and
its subsidiaries upon whom major responsibilities rest for
the successful administration and management of the
Company's business, (ii) to provide such officers and Non-
Employee Directors with incentive-based compensation in the
form of Company stock, which is supplemental to any other
compensation or benefit plans, based upon the Company's
sustained financial performance, (iii) to encourage decision
making based upon long-term goals and (iv) to align the
interest of such officers and Non-Employee Directors with
that of the Company's shareholders by encouraging them to
acquire a greater ownership position in the Company.
2. Definitions. Wherever used herein, the following
terms shall have the respective meanings set forth below:
"Award" means an award to a Participant made in
accordance with the terms of the Plan.
"Board" means the Board of Directors of the Company.
"Committee" means the Executive Compensation Committee
of the Board, or a subcommittee of that committee.
"Common Stock" means the common stock of the Company.
"Disinterested Person" means "disinterested person" as
defined in Rule 16b-3 of the Securities and Exchange
Commission, as amended from time to time, and, generally,
means any member of the Board who is not at the time of
acting on a matter, and within the previous year has not
been, an officer of the Company or a subsidiary.
"Participant" means an employee of the Company or its
subsidiaries who is selected by the Committee to participate
in the Plan or a Non-Employee Director who is granted
options under the provisions of Section 20 and/or Section 21
of the Plan.
3. Shares Subject to the Plan. Subject to adjustment
as provided in Section 16, the number of shares of Common
Stock which shall be available and reserved for the grant of
Awards under the Plan shall not exceed two million
(2,000,000) (or four million (4,000,000) if the Board and
the shareholders, at their May 3, 1994 meeting, approve the
two-for-one stock split described in the proxy statement for
the May 3, 1994 annual meeting of the shareholders of the
Company (the "Stock Split")). The shares of Common Stock
issued under the Plan will come from authorized and unissued
shares. Shares of Common Stock subject to an Award that
expires unexercised, that is forfeited, terminated or
canceled, in whole or in part, shall thereafter again be
available for grant under the Plan. No more than twenty per
cent (20%) of all shares subject to the Plan may be granted
to Participants as restricted stock.
<PAGE>
4. Administration. The Plan shall be administered by
the Committee. A majority of the Committee shall constitute
a quorum, and the acts of a majority shall be the acts of
the Committee.
Subject to the provisions of the Plan and except where
inconsistent with the provisions of Section 20, 21 and 22 of
the Plan, the Committee shall (i) select the Participants,
determine the type of Awards to be made to Participants,
determine the shares subject to Awards, and (ii) have the
authority to interpret the Plan, to establish, amend, and
rescind any rules and regulations relating to the
administration of the Plan, to determine the terms and
provisions of any agreements entered into hereunder, and to
make all other determinations necessary or advisable for the
administration of the Plan. The Committee may correct any
defect, supply any omission or reconcile any inconsistency
in the Plan or in any Award in the manner and to the extent
it shall deem desirable to carry it into effect. The
determinations of the Committee in the administration of the
Plan, as described herein, shall be final and conclusive.
5. Eligibility. Non-Employee Directors shall become
Participants under the provisions of Section 20 of the Plan
and may become Participants under Section 21 of the Plan.
In addition, the Committee shall select from time to time as
Participants in the Plan such officers of the Company or its
subsidiaries who are responsible for the management of the
Company or a subsidiary or who are expected to contribute in
a substantial measure to the successful performance of the
Company. No employee shall have at any time the right (i)
to be selected as a Participant, (ii) to be entitled to an
Award, or (iii) having been selected for an Award, to
receive any further Awards.
6. Awards. Awards under the Plan may consist of:
stock options (either incentive stock options, within the
meaning of Section 422 of the Internal Revenue Code, or
nonstatutory stock options), Rights and restricted stock.
Awards of restricted stock may provide the Participant with
dividends or dividend equivalents and voting rights prior to
vesting (whether based on a period of time or based on
attainment of specified performance conditions).
7. Stock Options. The Committee shall establish the
option price at the time each stock option is granted, which
price shall not be less than the closing price of a share of
the Common Stock on the New York Stock Exchange on the date
of grant, or the fair market value of a share of the Common
Stock if it is not so listed, as determined by the
Committee. Stock options shall be exercisable for such
period as specified by the Committee, but in no event may
options become exercisable less than one year after the date
of grant (except in the case of a Change of Control) or be
exercisable for a period of more than ten (10) years after
their date of grant. The option price of each share as to
which a stock option is exercised shall be paid in full at
the time of such exercise. Such payment shall be made in
cash (including check, bank draft or money order), by tender
of shares of Common Stock owned by the Participant valued at
fair market value as of the date of exercise, subject to
such guidelines for the tender of Common Stock as the
Committee may establish, in such other consideration as the
Committee deems appropriate, or by a combination of cash,
shares of Common Stock and such other consideration. No
Participant may be
<PAGE>
granted Awards of stock options with respect to more than
four hundred thousand (400,000) shares (eight hundred
thousand (800,000) shares if the Stock Split is approved) of
Common Stock during the term of the Plan, subject to
adjustment as provided in Section 16.
8. Stock Appreciation Rights. Stock appreciation, or
similar rights (each a "Right") may be granted either
concurrently with or subsequent to the date of grant of the
related stock option. A Right shall entitle the
Participant to receive from the Company an amount equal to
the increase of the fair market value of one (1) share of
Common Stock on the date of exercise of the Right over the
fair market value of one (1) share of Common Stock on the
date of grant. The Committee shall determine in its sole
discretion whether the Right shall be settled in cash,
Common Stock or a combination of cash and Common Stock. In
no event may Rights with respect to more than four hundred
thousand (400,000) shares (eight hundred thousand (800,000)
shares if the Stock Split is approved) of Common Stock in
the aggregate be granted to any Participant during the term
of the Plan, subject to adjustment as provided in Section
16.
9. Termination of Stock Options and Rights. Each
option and any related Rights shall terminate:
If the Participant is then living, at the earliest of
the following times:
(i) ten (10) years after the date of grant of the
option;
(ii) three (3) years after termination of employment
because of retirement;
(iii) one (1) month after termination of employment
other than termination because of retirement or through
discharge for cause provided, however, that if any
option is not fully exercisable at the time of such
termination of employment, such option shall expire on
the date of such termination of employment to the
extent not then exercisable;
(iv) immediately upon termination of employment through
discharge for cause; or
(v) any other time set forth in the agreement
describing and setting the terms of the Award, which
time shall not exceed ten (10) years after the date of
grant.
If the Participant dies while employed by the Company
or any subsidiary, or if no longer so employed dies
prior to termination of the entire option under
Section 9 (ii) or (iii) hereof, the Participant's
options and Rights shall terminate one (1) year after
the date of death, but subject to earlier termination
pursuant to Section 9 (i) or (v). However,
notwithstanding the provisions of Section 9 (v), to
the extent an option is exercisable on the date of the
Participant's death, it shall remain exercisable until
the earlier of one hundred eighty (180) days following
the date of death or ten (10) years after the date of
grant. To the extent an option is exercisable after
the death
<PAGE>
of the Participant, it may be exercised by the person
or persons to whom the Participant's rights under the
agreement have passed by will or by the applicable laws
of descent and distribution.
10. Restricted Stock. Restricted stock may be granted
in the form of actual shares of Common Stock which shall be
evidenced by a certificate registered in the name of the
Participant but held by the Company until the end of the
restricted period. Any employment conditions, performance
conditions and the length of the period for vesting of
restricted stock shall be established by the Committee in
its discretion. In no event will Awards of restricted stock
to any one Participant total more than fifty thousand
(50,000) shares (one hundred thousand (100,000) shares if
the Stock Split is approved) of Common Stock during the term
of the Plan, subject to adjustment as provided in Section
16. Any performance conditions applied to any Award of
restricted stock may include earnings per share, net income,
operating income, total shareholder return, market share,
return on equity, achievement of profit or revenue targets
by a business unit, or any combination thereof. No Award of
restricted stock may vest earlier than one year from the
date of grant (except in the case of a Change of Control).
11. Agreements. Each Award under the Plan shall be
evidenced by an agreement setting forth the terms and
conditions, as determined by the Committee, which shall
apply to such Award, in addition to the terms and conditions
specified in the Plan.
12. Change of Control. In the event of a Change of
Control, as hereinafter defined, (i) all Rights shall become
exercisable in full, (ii) the restrictions applicable to all
shares of restricted stock shall lapse and such shares shall
be deemed fully vested; and (iii) subject to any limitations
set forth in agreements documenting any stock option Awards,
all stock options shall become immediately exercisable in
full. The Committee may, in its discretion, include such
further provisions and limitations in any agreement
documenting such Awards as it may deem equitable and in the
best interests of the Company.
"Change of Control" means a change of control of the
Company of a nature that would be required to be reported
(assuming such event has not been "previously reported") in
response to Item 1(a) of the Current Report on Form 8-K, as
in effect on May 3, 1994, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934; provided that, without
limitation, such a change in control shall be deemed to have
occurred at such time as (a) any "person" within the meaning
of Section 14(d) of the Securities Exchange Act of 1934,
other than the Company, a subsidiary or any employee benefit
plan(s) sponsored by the Company or any subsidiary is or
becomes the "beneficial owner" (as defined in Rule 13d-3
under the Securities Exchange Act of 1934), directly or
indirectly, of fifty per cent (50%) or more of the Common
Stock; or (b) individuals who constitute the Board on May 3,
1994, cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director
subsequent to May 3, 1994, whose election, or nomination for
election by the Company's shareholders, was approved by a
vote of at least three quarters of the directors comprising
the Board on May 3,
<PAGE>
1994 (either by a specific vote or by approval of the proxy
statement of the Company in which such person is named as a
nominee for director, without objection to such nomination)
shall be, for purposes of this clause (b), considered as
though such person were a member of the Board on May 3,
1994.
13. Withholding. The Company and its subsidiaries
shall have the right to deduct from any payment to be made
pursuant to the Plan, or to require prior to the issuance or
delivery of any shares of Common Stock or the payment of
cash under the Plan, any taxes required by law (whether
federal, state, local or foreign) to be withheld therefrom.
The Committee may, in its discretion, permit a Participant
to elect to satisfy such withholding obligation by having
the Company retain the number of shares of Common Stock
whose fair market value equals the amount required to be
withheld. Any fraction of a share of Common Stock required
to satisfy such obligation shall be disregarded and the
amount due shall instead be paid in cash to the Participant.
14. Nontransferability. No amount payable or other
right under the Plan shall be subject in any manner to
alienation, sale, transfer, assignment, bankruptcy, pledge,
attachment, charge or encumbrance of any kind nor in any
manner be subject to the debts or liabilities of any person,
except by will or the laws of descent and distribution, and
any attempt to so alienate or subject any such amount,
whether presently or thereafter payable, or any such right
shall be void.
15. No Right to Employment. No person shall have any
claim or right to be granted an Award, and the grant of an
Award shall not be construed as giving a Participant the
right to continue in the employ of the Company or its
subsidiaries. Further, the Company and its subsidiaries
expressly reserve the right at any time to dismiss a
Participant without any liability, or any claim under the
Plan, except as provided herein or in any agreement entered
into hereunder.
16. Adjustment of and Changes in Common Stock. In the
event of any stock dividend or split, recapitalization,
merger, consolidation, spin-off, combination or exchange of
shares or other change in the corporate structure or shares
of stock of the Company, or any distributions to common
shareholders other than regular cash dividends, the
Committee may make such substitution or adjustment, if any,
as it deems to be equitable, as to the number or kind of
shares of Common Stock or other securities issued or
reserved for issuance pursuant to the Plan and to
outstanding Awards.
17. Amendment. The Board may amend, suspend or
terminate the Plan or any portion thereof at any time,
provided that (i) no amendment shall be made without
stockholder approval if such approval is necessary in order
for the Plan to continue to comply with Rule 16b-3 under the
Securities Exchange Act of 1934 and (ii) no amendment,
suspension or termination may adversely affect any
outstanding Award without the consent of the Participant to
whom such Award was made. Section 20 of this Plan may not
be amended more than once every six months, other than to
comport with changes in the Internal Revenue Code, the
Employee Retirement Income Security Act, or the rules
thereunder.
<PAGE>
18. Governing Law. The Plan shall be construed and
its provisions enforced and administered in accordance with
the laws of the State of Minnesota.
19. Effective Date. The Plan shall be effective as of
May 4, 1994. Subject to earlier termination pursuant to
Section 17, the Plan shall have a term of ten (10) years
from its effective date.
20. Automatic Grant to Non-Employee Directors.
Commencing with the first meeting of the Board in November
1994, each year on the date of the first meeting of the
Board in November of each such year, each Non-Employee
Director who is a director of the Company as of such date
shall, without any Committee action, automatically be
granted a stock option to purchase five hundred (500) shares
(one thousand (1,000) shares if the Stock Split is approved)
of Common Stock (subject to adjustment upon changes in
capitalization of the Company as provided in Section 16 of
the Plan). Each such option shall be evidenced by and
subject to the provisions of an agreement setting forth the
terms described in Section 22 and such additional terms of
the Plan as are not inconsistent with the terms of Section
22.
21. Discretionary Grant to Non-Employee Directors.
The Board may, subsequent to the effective date of the Plan,
permit Non-Employee Directors to choose to receive all or a
portion of their basic annual retainer in the form of stock
options valued in accordance with a method deemed
appropriate by the Committee. Each such option shall be
evidenced by and subject to the provisions of an agreement
setting forth the terms described in Section 22 and such
additional terms of the Plan as are not inconsistent with
the terms of Section 22.
22. Non-Employee Director Options. Options granted
pursuant to Section 20 or 21 shall have an exercise price
per share equal to 100% of the fair market value of one (1)
share of Common Stock on the date the option is granted,
shall become exercisable in full one (1) year after the date
of grant, and shall remain exercisable until terminated in
accordance with Section 9 of the Plan, provided that (i)
Section 9(iii) shall be applied without regard to the words
"or through discharge for cause," (ii) Sections 9(iv) and
(v) shall not be applicable and (iii) references in Section
9 to "employment" and "termination of employment" shall, for
the purposes of Sections 20 and 21, refer to "service as a
director" and "termination of service as a director."
Payment of the exercise price of the shares to be
purchased under options granted under Section 20 and 21 must
be made in cash only (including check, bank draft or money
order) at the time of exercise of such option.
The provisions of Sections 20 and 21 shall control with
respect to options granted under either Section 20 or 21,
respectively, over any other inconsistent provisions of the
Plan. It is intended that the provisions of Sections 20 and
21 shall not cause the Non-Employee Directors to cease to be
considered Disinterested Persons and, as a result, the
provisions of Sections 20 and 21 shall be interpreted to be
consistent with the foregoing intent.
<PAGE>
Non-Employee Directors may not be granted options under
the Plan other than pursuant to the provisions of Section 20
and 21. No Rights may be granted to Non-Employee Directors.
<PAGE>
THE ST. PAUL COMPANIES, INC.
ANNUAL INCENTIVE PLAN
1. Purpose
The purpose of this Annual Incentive Plan ("AIP") is to
provide key executives of The St. Paul Companies, Inc. and
its subsidiaries (the "Company") with financial incentives
which will motivate and reward performance that achieves
established goals, including annual corporate earnings and
business unit performance objectives. It is also intended
to provide a procedure whereby a plan participant may defer
the payment of all or a specified percentage of any awards
under this plan payable to him/her until a specified time or
event, elect an investment vehicle in which an award will be
deemed invested for the period of deferral, and specify the
manner and timing of the payment of any deferred amount.
Further, it is intended that this plan be unfunded for tax
purposes and for Title I of ERISA.
2. Eligibility
Executive officers of the Company (as defined under
Rule 3b-7 of the Securities Exchange Act of 1934) at the end
of the previous year are eligible to participate in the AIP.
The participants will be those eligible executive officers
who are selected prior to the beginning of the AIP plan year
by the Executive Compensation Committee to receive awards
for the plan year.
3. Awards under the AIP
The Executive Compensation Committee of the Board of
Directors administers the AIP and approves awards based on
the achievement of Company and/or business unit objectives.
For purposes of the AIP, the Committee may consider and
establish only the following measures: total shareholder
return, return on equity, earnings per share, expense
management, business unit achievement of profit or revenue
targets, revenues, net income, operating income, or any
combination thereof. Maximum awards to the eligible
participants under the AIP range from 50%-105% of the
participant's annual base salary as in effect on March 31 of
the year for which the award is based. In no event shall
the annual base salary used to compute a maximum award for
any participant exceed 120% of that participant's annual
base salary in effect on January 1 of the year for which the
award is paid. Awards are either paid in cash or deferred,
at the election of each participant, during the first
quarter of the year following the year for which the award
was earned.
4. Deferral of Awards
Commencing with the calendar year in which a
Participant is first entitled to an award and each
subsequent year in which he/she is so entitled, the Company
shall retain the awards that participants have previously
elected to defer, payable to the Participant at the time or
times and in the manner specified by the Participant in a
written election notice.
<PAGE>
Deferral elections may be made annually. An election
notice will specify the amount or percentage, if any, of any
award to be deferred, the deferral period, the investment
vehicle in which the amount deferred will be deemed
invested, and the manner and timing of payment. Investment
options are such investment vehicles as the Company may from
time to time offer. The election notice must be delivered
to the Company on or before December 31 preceding the year
for which the award is made. An election is irrevocable
once the year for which the award will be made has
commenced, except that a participant may change his/her
investment election periodically as the Company in its
discretion may provide.
5. Non-Alienation
The rights and benefits of a participant hereunder and
any other person or persons to whom payments may be made
pursuant to this plan are personal to her/him and them, as
the case may be, and, except for payments made following a
participant's death, shall not be subject to any voluntary
or involuntary alienation, assignment, pledge, transfer,
encumbrance, attachment, garnishment or other disposition.
6. Exclusion From Benefits
Awards under this plan shall not constitute
compensation for the purpose of determining participation or
benefits under any other plan of the Company unless
specifically included as compensation in such plan.
7. Status of Deferred Awards
This plan constitutes a mere promise by the Company to
pay the deferred awards in the future. To the extent a
participant or any other person acquires a right to receive
payments from the Company under this plan, such rights shall
be no greater than the right of any unsecured general
creditor of the Company.
8. Payment Options
A Participant may elect to have deferred awards paid in
a single payment or in annual installments ranging from two
to twenty years.
Payment or commencement of payment of deferred awards
may be elected as of the last day of the month in which the
following events or dates (Valuation Dates) occur:
a. Termination from employment, which means a
complete severance of a participant's employment
relationship with the Company and all affiliated
companies. Accordingly, neither a transfer of a
participant's employment among affiliated
companies nor his/her absence from active service
with the Company by reason of a disability leave
or any other leave of absence will constitute a
termination from employment.
b. Retirement, which shall be deemed to occur if the
participant terminates from employment with
eligibility for an immediate and regular benefit
payment under a tax qualified defined benefit plan
of the Company.
<PAGE>
c. Total permanent disability, which shall be deemed
to have occurred if the Executive Compensation
Committee finds on the basis of medical evidence
satisfactory to it that the participant is
prevented from engaging in any suitable gainful
employment or occupation and that such disability
will be permanent and continuous during the
remainder of his/her life.
d. Death.
e. December 31 of a year of the participant's choice.
Except as provided herein with respect to insiders, the
actual first or single payment will be made within 30
days of the first elected Valuation Date to occur. In
the case of installments, subsequent installments will
be valued as of the last day of each subsequent
calendar year and will be paid within sixty days
thereafter.
9. Payment of Deferred Awards
Awards deferred, together with interest and dividend
equivalents accrued thereon, and/or valued and adjusted for
income, gains, and losses hereunder, as the case may be,
shall be paid in cash to the participant at such time or
times as the participant shall have specified in writing in
his/her irrevocable deferral notices to the Company.
However, if a Phantom Company Stock Account is offered as an
investment vehicle for deferred awards, a payment shall not
be made to or on behalf of a participant subject to Section
16 of the Securities Exchange Act of 1934 ("insider") with
respect to the participant's Phantom Company Stock Account
hereunder unless at least six months shall have elapsed from
the date the Company stock represented by such payment was
credited to such participant's Phantom Company Stock Account
except in case of the participant's death, disability,
retirement or termination of employment with the Company and
all affiliated organizations.
10. Amendment and Termination
The Board of Directors of the Company may amend or
terminate this Plan at any time.
<PAGE>
THE ST. PAUL COMPANIES, INC.
LONG-TERM INCENTIVE PLAN
1. Purpose
The purpose of this Plan is to further the growth and
profitability of the Company by offering Key Executives the
opportunity to receive incentive awards based on the
successful achievement of certain long-range corporate
goals.
2. Definitions
For the purpose of the Plan, except where the context
otherwise indicates, the following definitions shall apply:
"Board" means the Board of Directors of the Company.
"Committee" means the Executive Compensation Committee
or any other committee designated by Board action.
"Company" means The St. Paul Companies, Inc.
"Key Executive" means any person who is employed by the
Company or a Subsidiary on a salaried basis and whose
performance could have a significant effect on the long-
term success of the Company or a Subsidiary (or both).
"Participant" means a Key Executive to whom Performance
Objectives or group Performance Objectives have been
assigned for a Performance Period.
"Performance Award" means an award made pursuant to the
Plan following the attainment of any Performance
Objective.
"Performance Objective" means an absolute or relative
goal set for a Participant. Performance Objectives
must be based on the Company's total shareholder return
or earnings per share or on the return on equity,
expense management, revenues, net income or operating
income of the Company, any Subsidiary or any business
unit of the Company or any Subsidiary, or any
combination thereof.
"Performance Period" means a period of three or more
consecutive years with respect to which one or more
Performance Objectives have been set. Consecutive
Performance Periods may be commenced each year while
the Plan remains in effect. Each Performance Objective
established in any year for a Participant shall be
assigned a Performance Period which need not be of the
same duration as any other Performance Period assigned
to any other Performance Objective established for such
individual in that year.
<PAGE>
"Plan" means this Long-Term Incentive Plan.
"Retirement" of any Participant means a retirement
under the retirement plan of the Company or a
Subsidiary.
"Subsidiary" means any entity of which, at the time
such Subsidiary status is to be determined, at least
50% of the combined voting power of such entity is
directly or indirectly owned or controlled by the
Company.
3. Administration of the Plan
The Plan shall be administered by the Committee. A
majority of the Committee shall constitute a quorum, and all
acts of the Committee must be approved by a majority of its
members.
Subject to the provisions of the Plan and applicable laws
and regulations, the Committee shall have authority in its
discretion:
(a) To interpret the provisions of the Plan and decide
all questions of fact arising in its application;
(b) To prescribe, amend and rescind rules and
regulations relating to the Plan;
(c) To determine which Key Executives shall be
Participants;
(d) To establish Performance Objectives and adjust
Performance Objectives pursuant to Section 5 hereof;
(e) To establish Performance Periods; and
(f) To terminate, suspend or modify the Plan.
The Committee's determination of the foregoing matters
shall be final and conclusive unless disapproved by the
Board.
4. Participant Selection; Establishment of Potential Award
A Key Executive may be selected as a Participant in
more than one Performance Period and in overlapping
Performance Periods. Selection may be made before or at any
time during Performance Periods. The Committee shall set a
potential Performance Award or a range of potential
Performance Awards for each Participant at the time of the
Participant's selection. Potential Performance Awards shall
be in terms of the dollar amounts payable if Performance
Objectives are attained. In no event may the maximum Performance
Award payable to any Participant for any Performance Period
exceed 50% of that Participant's average annual base salary
in effect over the Performance Period. In no event shall the
average base salary used to compute such a maximum Performance
Award exceed 150% of the annual salary in effect on January 1
of the first year of the Performance Period.
Nothing in the Plan is intended or shall be construed
to give any employee of the Company or a Subsidiary any
right to be selected as a Participant.
5. Performance Objective Adjustments
Subject to applicable laws and regulations, and the
specific terms of any particular Performance Objective, any
Performance Objective or group Performance Objective may be
adjusted, at any time not later than the midpoint of any
Performance Period, if it is determined that
<PAGE>
external economic conditions or other factors beyond the
reasonable control of a Participant or a group of
Participants have materially changed in a manner not
reasonably foreseeable or taken into account when the
Performance Objective was originally set, provided that
failure to make an adjustment would likely be inconsistent
with the purpose of the Plan.
6. Determination of Performance Awards
As soon as practicable following the conclusion of each
Performance Period for each Performance Objective, the
Committee shall determine which Participants and groups of
Participants have earned Performance Awards. Performance
Awards will be made as soon as practicable following such
determination.
7. Entitlement to Performance Awards
A Participant is entitled to a Performance Award for a
Performance Period only if a Performance Objective for the
Participant or the Participant's group is met and if the
Participant is actively employed by the Company or a
Subsidiary on the final day of the Performance Period,
provided, however, that, in the event of the Participant's
death, disability, approved leave of absence or Retirement
during a Performance Period or for any other reason deemed
appropriate, a pro rata Performance Award may be made based
upon the period of active employment. In no event shall
there be pro rata entitlement to a Performance Award if a
Performance Objective is not achieved.
Nothing in the Plan or in the administration thereof
shall in any way diminish the right of the Company or any
Subsidiary to reduce the compensation or to terminate the
employment of any Participant.
8. Non-Alienation
No potential Performance Award or unpaid earned
Performance Award shall be subject to anticipation,
alienation, sale, assignment, pledge, encumbrance, or
charge, and any attempt to anticipate, alienate, sell,
assign, pledge, encumber or charge the same shall be void.
9. Exclusion From Benefits Computations
By becoming a Participant under the Plan, each
Participant shall be deemed to have agreed that any
Performance Award paid to such Participant is special
incentive compensation and that it will not be taken into
account as "salary" or "compensation" or "bonus" in
determining the amount of any payment under any insurance,
pension, retirement, profit sharing or similar plan of the
Company or any Subsidiary.
<PAGE>
Exhibit 11
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Computation of Earnings Per Share
(In thousands) Three Months Ended
March 31
------------------
1994 1993
EARNINGS: ------ ------
Primary:
Net income, as reported $64,437 88,031
Preferred dividends declared (net of taxes) (2,109) (2,102)
------- -------
Net income, as adjusted $62,328 85,929
======= =======
Fully diluted:
Net income, as reported $64,437 88,031
Additional PSOP expense (net of taxes) due to
assumed conversion of preferred stock (950) (1,038)
------- -------
Net income, as adjusted $63,487 86,993
======= =======
SHARES*:
Primary:
Weighted average number of common shares
outstanding, per financial statements 84,521 84,176
Additional dilutive effect of outstanding stock
options (based on treasury stock method using
average market price) 496 707
------- -------
Weighted average, as adjusted 85,017 84,883
======= =======
Fully diluted:
Weighted average number of common shares
outstanding, per financial statements 84,521 84,176
Additional dilutive effect of:
Convertible preferred stock 4,088 4,126
Outstanding stock options (based on treasury
stock method using market price at end of
period) 515 730
------- -------
Weighted average, as adjusted 89,124 89,032
======= =======
EARNINGS PER COMMON SHARE*:
Primary $0.73 1.01
Fully diluted $0.71 0.98
*As adjusted for 1994 2-for-1 stock split.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Exhibit 12
Computation of Ratios
(In thousands, except ratios)
Three Months Ended
March 31
--------------------
1994 1993
------ ------
EARNINGS:
Income before income taxes $82,003 109,842
Add: fixed charges 17,478 17,242
------- -------
Income, as adjusted $99,481 127,084
======= =======
FIXED CHARGES:
Interest costs $9,854 10,841
Rental expense (1) 7,624 6,401
------- -------
Total fixed charges $17,478 17,242
======= =======
FIXED CHARGES AND PREFERRED STOCK
DIVIDENDS:
Fixed charges $17,478 17,242
Preferred stock dividends 4,603 4,564
------- -------
Total fixed charges and preferred
stock dividends $22,081 21,806
======= =======
Ratio of earnings to fixed charges 5.69 7.37
======= =======
Ratio of earnings to combined fixed
charges and preferred stock dividends 4.51 5.83
======= =======
(1) Interest portion deemed implicit in total rent expense.
