<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, 1997
--------------
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
----- OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------- -----------
Commission File Number 0-3021
------
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
incorporation or organization) Identification No.)
385 Washington St., Saint Paul, MN 55102
---------------------------------- --------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code (612) 310-7911
-------------
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 8, 1997, was 83,611,381.
<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, 1997 and 1996 3
Consolidated Balance Sheets, March 31, 1997
(Unaudited) and December 31, 1996 4
Consolidated Statements of Shareholders' Equity,
Three Months Ended March 31, 1997
(Unaudited) and Twelve Months Ended
December 31, 1996 6
Consolidated Statements of Cash Flows (Unaudited),
Three Months Ended March 31, 1997 and 1996 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 22
Signatures 23
EXHIBIT INDEX 24
<PAGE>
PART I FINANCIAL INFORMATION
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Unaudited
(In thousands)
Three Months Ended
March 31
-------------------------
1997 1996
------ ------
Revenues:
Premiums earned $1,171,453 1,030,576
Net investment income 218,662 192,379
Realized investment gains 95,592 47,920
Investment banking-asset management 58,605 53,340
Other 12,891 5,676
----------- -----------
Total revenues 1,557,203 1,329,891
----------- -----------
Expenses:
Insurance losses and loss adjustment expenses 868,878 755,460
Policy acquisition expenses 254,760 230,488
Operating and administrative 188,355 166,455
----------- -----------
Total expenses 1,311,993 1,152,403
----------- -----------
Income from continuing operations
before income taxes 245,210 177,488
Income tax expense (benefit):
Federal current 64,671 35,655
Other (11,760) (2,578)
----------- -----------
Total income tax expense 52,911 33,077
----------- -----------
Income from continuing operations 192,299 144,411
Discontinued operations:
Operating loss, net of taxes - (15,590)
Loss on disposal, net of taxes (67,750) -
----------- -----------
Loss from discontinued operations (67,750) (15,590)
----------- -----------
Net income $124,549 128,821
=========== ===========
Primary earnings per common share:
Income from continuing operations $2.25 1.67
Loss from discontinued operations (0.81) (0.18)
----------- -----------
Net income $1.44 1.49
=========== ===========
Fully diluted earnings per common share:
Income from continuing operations $2.10 1.57
Loss from discontinued operations (0.73) (0.17)
----------- -----------
Net income $1.37 1.40
=========== ===========
Dividends declared on common stock $0.47 0.44
=========== ===========
See notes to consolidated financial statements.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
March 31, December 31,
ASSETS 1997 1996
- ---------- ------------- -------------
(Unaudited)
Investments:
Fixed maturities, at estimated market value $11,772,252 11,944,085
Equities, at estimated market value 850,997 808,295
Real estate, at cost less accumulated
depreciation of $77,367 (1996; $81,764) 729,257 693,910
Venture capital, at estimated market value 533,665 586,222
Other investments 45,272 43,311
Short-term investments, at cost 203,403 289,793
------------ ------------
Total investments 14,134,846 14,365,616
Cash 38,383 37,214
Investment banking inventory securities 141,688 143,594
Reinsurance recoverables:
Unpaid losses 1,783,981 1,890,105
Paid losses 84,258 68,692
Receivables:
Underwriting premiums 1,462,116 1,558,967
Interest and dividends 218,551 213,883
Other 118,942 104,865
Deferred policy acquisition expenses 393,424 401,768
Ceded unearned premiums 208,460 243,663
Deferred income taxes 1,033,851 908,220
Office properties and equipment,
at cost less accumulated
depreciation of $237,062 (1996; $217,454) 285,832 281,093
Goodwill 239,024 167,338
Other assets 246,396 295,958
------------ ------------
Total assets $20,389,752 20,680,976
============ ============
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 1997 1996
- ------------------------------------ ------------- ------------
(Unaudited)
Liabilities:
Insurance reserves:
Losses and loss adjustment expenses $11,679,590 11,673,148
Unearned premiums 2,397,437 2,566,551
------------ ------------
Total insurance reserves 14,077,027 14,239,699
Debt 707,588 689,141
Payables:
Income taxes 260,522 219,081
Reinsurance premiums 157,561 181,524
Accrued expenses and other 428,604 484,062
Other liabilities 647,887 656,649
------------ ------------
Total liabilities 16,279,189 16,470,156
------------ ------------
Company-obligated mandatorily
redeemable preferred
securities of St. Paul Capital L.L.C. 207,000 207,000
------------ ------------
Shareholders' equity:
Preferred:
Series B convertible preferred stock;
1,450 shares authorized; 981 shares
outstanding (985 shares in 1996) 141,732 142,131
Guaranteed obligation - PSOP (123,000) (126,068)
------------ ------------
Total preferred shareholders' equity 18,732 16,063
------------ ------------
Common:
Common stock, 240,000
shares authorized; 83,525 shares
outstanding (83,198 shares in 1996) 487,557 475,710
Retained earnings 3,020,490 2,935,928
Guaranteed obligation - ESOP (16,786) (20,353)
Unrealized appreciation of investments 407,730 616,968
Unrealized loss on foreign currency translation (14,160) (20,496)
------------ ------------
Total common shareholders' equity 3,884,831 3,987,757
------------ ------------
Total shareholders' equity 3,903,563 4,003,820
------------ ------------
Total liabilities, redeemable preferred
securities and shareholders' equity $20,389,752 20,680,976
============ ============
See notes to consolidated financial statements.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(In thousands)
Three Twelve
Months Ended Months Ended
March 31 December 31
------------- -----------
1997 1996
------- -------
(Unaudited)
Preferred shareholders' equity:
Series B convertible preferred stock:
Beginning of period $142,131 144,165
Change during period (399) (2,034)
------------ ------------
End of period 141,732 142,131
------------ ------------
Guaranteed obligation - PSOP:
Beginning of period (126,068) (133,293)
Principal payments 3,068 7,225
------------ ------------
End of period (123,000) (126,068)
------------ ------------
Total preferred shareholders' equity 18,732 16,063
------------ ------------
Common shareholders' equity:
Common stock:
Beginning of period 475,710 460,458
Stock issued under stock option and
other incentive plans 11,853 23,057
Reacquired common shares (6) (7,805)
------------ ------------
End of period 487,557 475,710
------------ ------------
Retained earnings:
Beginning of period 2,935,928 2,704,075
Net income 124,549 450,099
Dividends declared on common stock (39,122) (145,956)
Dividends declared on
preferred stock, net of taxes (2,185) (8,664)
Reacquired common shares (61) (67,445)
Tax benefit on employee
stock options and awards 1,381 3,819
------------ ------------
End of period 3,020,490 2,935,928
------------ ------------
Guaranteed obligation - ESOP:
Beginning of period (20,353) (32,294)
Principal payments 3,567 11,941
------------ ------------
End of period (16,786) (20,353)
------------ ------------
Unrealized appreciation of
investments, net of taxes:
Beginning of period 616,968 627,791
Change during the period (209,238) (10,823)
------------ ------------
End of period 407,730 616,968
------------ ------------
Unrealized loss on foreign currency
translation, net of taxes:
Beginning of period (20,496) (40,781)
Change during the period 6,336 20,285
------------ ------------
End of period (14,160) (20,496)
------------ ------------
Total common shareholders' equity 3,884,831 3,987,757
------------ ------------
Total shareholders' equity $3,903,563 4,003,820
============ ============
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
-------------------------
1997 1996
-------- -------
OPERATING ACTIVITIES
Underwriting:
Net income $181,410 137,466
Adjustments:
Change in net insurance reserves (98,727) (11,594)
Change in underwriting premiums receivable 119,656 92,293
Provision for deferred taxes (4,270) (7,226)
Realized investment gains (92,713) (42,298)
Other (41,341) 43,355
----------- -----------
Total underwriting 64,015 211,996
----------- -----------
Investment banking-asset management:
Net income 13,845 13,288
Adjustments:
Change in inventory securities 1,906 180,066
Change in short-term investments 40,674 (180,973)
Change in short-term borrowings - (25,000)
Change in open security transactions (3,589) 1,784
Other (12,487) 26,627
----------- -----------
Total investment banking-asset management 40,349 15,792
----------- -----------
Parent company, consolidating eliminations
and discontinued operations:
Net loss (70,706) (21,933)
Adjustments:
Provision for loss on disposal, net of taxes 67,750 -
Realized investment gains (2,879) (5,622)
Other adjustments (34,241) 11,644
----------- -----------
Total parent company, consolidating eliminations
and discontinued operations (40,076) (15,911)
----------- -----------
Net cash provided by operating activities 64,288 211,877
----------- -----------
INVESTING ACTIVITIES
Purchases of investments (790,346) (732,306)
Proceeds from sales and maturities of investments 721,727 528,421
Change in short-term investments 51,489 84,531
Change in open security transactions (9,659) (32,926)
Net purchases of office properties and equipment (15,791) (6,097)
Other (11,529) 9,130
----------- -----------
Net cash used in investing activities (54,109) (149,247)
----------- -----------
FINANCING ACTIVITIES
Dividends paid on common and preferred stock (39,453) (36,487)
Proceeds from issuance of debt 30,000 -
Repayment of debt (8,662) (3,819)
Reacquired common shares (67) (20,206)
Other 9,103 1,616
----------- -----------
Net cash used in financing activities (9,079) (58,896)
----------- -----------
Effect of exchange rate changes on cash 69 (77)
----------- -----------
Increase in cash 1,169 3,657
Cash at beginning of period 37,214 25,475
----------- -----------
Cash at end of period $38,383 29,132
=========== ===========
See notes to consolidated financial statements.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Unaudited
March 31, 1997
Note 1 Basis of Presentation
- -----------------------------
The 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 53 to 69 of the Registrant's annual report
to shareholders for the year ended December 31, 1996. 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 1996 consolidated financial statements have
been reclassified to conform with the 1997 presentation. These
reclassifications had no effect on net income or shareholders'
equity, as previously reported.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Note 2 Earnings Pper Share
- ---------------------------
Earnings per common share (EPS) amounts were calculated by
dividing operating earningsnet income, as adjusted, by the
adjusted average common shares outstanding.
Three Months Ended
March 31
-------------------------
1997 1996
------ ------
(In thousands)
PRIMARY
Net income, as reported $124,549 128,821
PSOP preferred dividends
declared (net of taxes) (2,185) (2,165)
Premium on preferred shares redeemed (260) (208)
---------- ----------
Net income, as adjusted $122,104 126,448
========== ==========
FULLY DILUTED
Net income, as reported $124,549 128,821
Additional PSOP expense (net of taxes)
due to assumed conversion
of preferred stock (670) (758)
Dividends on monthly income preferred
securities (net of taxes) 2,018 2,018
Premium on preferred shares redeemed (260) (208)
---------- ----------
Net income, as adjusted $125,637 129,873
========== ==========
ADJUSTED AVERAGE COMMON
SHARES OUTSTANDING
Primary 84,505 85,150
======= =======
Fully diluted 91,948 92,596
======= =======
Adjusted average common 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 PSOP preferred stock and the company-obligated
mandatorily redeemable preferred securities of St. Paul Capital
L.L.C. (monthly income preferred securities).
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Note 3 Investments
- -------------------
Investment Activity. A summary of investment transactions is presented
below.
Three Months Ended March 31
------------------------------
1997 1996
------ ------
(In thousands)
Purchases:
Fixed maturities $344,439 490,613
Equities 347,817 207,698
Real estate 56,395 3,488
Venture capital 23,134 25,992
Other investments 18,561 4,515
----------- ----------
Total purchases 790,346 732,306
----------- ----------
Proceeds from sales and maturities:
Fixed maturities:
Sales 245,599 63,830
Maturities and redemptions 100,156 209,549
Equities 318,856 211,586
Real estate 16,028 1,466
Venture capital 37,567 41,428
Other investments 3,521 562
----------- -----------
Total sales and maturities 721,727 528,421
----------- -----------
Net purchases $ 68,619 203,885
=========== ===========
Change in Unrealized Appreciation. The increase (decrease) in
unrealized appreciation of investments recorded in common
shareholders' equity was as follows:
Three Months Ended Twelve Months Ended
March 31, 1997 December 31, 1996
------------------ -----------------
(In thousands)
Fixed maturities $(213,147) (198,855)
Equities (41,064) 25,975
Venture capital (66,291) 163,110
----------- ----------
Total change in pretax
unrealized appreciation (320,502) (9,770)
Increase (decrease) in
deferred tax asset 111,264 (1,053)
----------- ----------
Total change in unrealized
appreciation, net of taxes $(209,238) (10,823)
=========== ==========
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Note 4 Income Taxes
- --------------------
The components of income tax expense on continuing operations are
as follows:
Three Months Ended
March 31
-----------------------
1997 1996
------ ------
(In thousands)
Federal current tax expense $64,671 35,655
Federal deferred tax benefit (17,889) (7,875)
-------- --------
Total federal income tax expense 46,782 27,780
Foreign income taxes 4,606 3,881
State income taxes 1,523 1,416
-------- --------
Total income tax expense
on continuing operations $52,911 33,077
======== ========
Note 5 Contingent Liabilities
- ------------------------------
In the ordinary course of conducting business, the company and
some of its 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.
Although it is possible that the settlement of a contingency may
be material to the company's results of operations and liquidity
in the period in which the settlement occurs, 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.
In some cases, plaintiffs seek to establish coverage for their
liability under environmental protection laws. See
"Environmental and Asbestos Claims" in Management's Discussion
and Analysis for information on these claims.
<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,
1997 1996
---------------- -----------------
Book Fair Book Fair
Value Value Value Value
------ ------ ------ ------
(In thousands)
Medium-term notes $460,425 454,000 430,427 435,500
Commercial paper 122,833 122,833 131,610 131,610
9 3/8% notes 99,997 100,700 99,994 101,500
Guaranteed ESOP debt 11,113 11,200 13,890 14,000
Real estate mortgage 13,220 13,000 13,220 13,220
--------- -------- -------- --------
Total debt $707,588 701,733 689,141 695,830
========= ======== ======== ========
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, the company will pay these amounts.
The company has established allowances for possible nonpayment of
amounts due to it.
<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
-------------------------
1997 1996
------- --------
(In thousands)
Premiums written:
Direct $875,539 782,710
Assumed 218,133 223,610
Ceded (64,452) (71,709)
----------- ----------
Net premiums written $1,029,220 934,611
=========== ==========
Premiums earned:
Direct $1,023,494 918,121
Assumed 250,303 229,759
Ceded (102,344) (117,304)
----------- ----------
Net premiums earned $1,171,453 1,030,576
=========== ==========
Insurance losses and loss
adjustment expenses:
Direct $724,755 623,489
Assumed 161,230 189,399
Ceded (17,107) (57,428)
----------- ----------
Net insurance losses and
loss adjustment expenses $868,878 755,460
=========== ==========
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Note 8 Discontinued Operations
- -------------------------------
In early April, The St. Paul reached agreement with Aon
Corporation to sell its insurance brokerage operation, Minet, to
Aon. The sale is scheduled to close on or before May 26, 1997.
The St. Paul's gross proceeds from the sale are expected to be
approximately equal to its remaining carrying value of Minet.
The St. Paul agreed to indemnify Aon against most preclosing
liabilities of the Minet businesses in connection with the
transaction. The company recorded a net after-tax loss on
disposal of $67.8 million in the first quarter of 1997, which
resulted primarily from The St. Paul's agreement to be
responsible for certain severance, employee benefits, future
lease commitments and other costs relating to Minet.
The following summarizes discontinued operations for the first
quarter of 1997 and 1996:
Three Months Ended
March 31
------------------------
1997 1996
-------- --------
(In thousands)
Operating loss, before
income taxes $ - (13,408)
Income tax expense - 2,182
-------- ---------
Operating loss, net of taxes - (15,590)
-------- ---------
Loss on disposal, before
income taxes (103,280) -
Income tax benefit 35,530 -
-------- ---------
Loss on disposal, net of taxes (67,750) -
-------- ---------
Loss from discontinued operations $(67,750) (15,590)
======== =========
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and
Results of Operations
March 31, 1997
Consolidated Results
--------------------
The St. Paul's pretax income from continuing operations totaled
$245 million in the first quarter of 1997, 38% higher than income
of $177 million in the same 1996 period. The improvement over
1996 was centered in the underwriting segment, driven by an
increase in realized gains from investment sales and growth in
investment income.
The St. Paul recorded an after-tax loss from discontinued
operations of $67.8 million in the first quarter of 1997,
relating to the sale of its brokerage operation, Minet. Refer to
Note 8 on page 14 of this report for further information
regarding The St. Paul's discontinued operations.
Consolidated revenues of $1.56 billion in the first quarter
increased by almost $230 million, or 17%, from the equivalent
1996 total of $1.33 billion. Growth in insurance premiums
earned, investment income and realized investment gains accounted
for the revenue growth in 1997.
The following table summarizes The St. Paul's results for the
first quarters of 1997 and 1996.
Three Months Ended
March 31
------------------
1997 1996
Pretax income (loss): ---- ----
Underwriting:
GAAP underwriting result $(51) (42)
Net investment income 218 189
Realized investment gains 93 42
Other (19) (16)
---- ----
Total underwriting 241 173
Investment banking-asset management 23 22
Parent and other (19) (18)
---- ----
Income from continuing operations
before income taxes 245 177
Income tax expense 53 33
---- ----
Income from continuing operations 192 144
Loss from discontinued operations,
net of taxes (67) (15)
---- ----
Net income $125 129
==== ====
Fully diluted net income
per common share $1.37 1.40
==== ====
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion, Continued
Underwriting
------------
The following summarizes key financial results by underwriting
operation:
Three Months
% of 1997 Ended March 31
Written --------------
($ in Millions) Premiums 1997 1996
-------- ---- ----
Specialized Commercial:
Written Premiums 29% $300 264
Underwriting Result $(3) (10)
Combined Ratio 101.5 105.5
Commercial:
Written Premiums 24% $241 155
Underwriting Result $(16) (9)
Combined Ratio 112.6 106.3
Personal Insurance:
Written Premiums 17% $175 164
Underwriting Result $(23) (28)
Combined Ratio 112.9 116.9
Medical Services:
Written Premiums 9% $95 102
Underwriting Result $4 20
Combined Ratio 105.6 94.4
---- ----- -----
Total St. Paul
Fire and Marine:
Written Premiums 79% $811 685
Underwriting Result $(38) (27)
Combined Ratio 107.7 106.1
St. Paul International
Underwriting:
Written Premiums 5% $53 56
Underwriting Result $(7) (6)
Combined Ratio 113.9 112.2
---- ----- -----
Total Worldwide
Insurance Operations:
Written Premiums 84% $864 741
Underwriting Result $(45) (33)
Combined Ratio 108.1 106.6
St. Paul Re:
Written Premiums 16% $165 194
Underwriting Result $(6) (9)
Combined Ratio 104.2 104.7
---- ----- -----
Total Underwriting:
Written Premiums 100% $1,029 935
GAAP Underwriting Result $(51) (42)
Statutory Combined Ratio:
Loss and Loss Expense Ratio 74.2 73.3
Underwriting Expense Ratio 33.3 32.8
----- -----
Combined Ratio 107.5 106.1
===== =====
Combined Ratio Incl.
Policyholders' Dividends 107.8 106.3
===== =====
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion, Continued
Written Premiums
- ----------------
First quarter written premiums of $1.03 billion were 10%
higher than the comparable 1996 total of $935 million.
Premium volume in The St. Paul's Commercial operation
increased $86 million over the first quarter of 1996,
reflecting the impact of The St. Paul's acquisition of
Northbrook Holdings, Inc. and its three commercial
underwriting companies (Northbrook) in the third quarter of
1996. Specialized Commercial written premiums of $300
million grew 14% over the same period of 1996. Several
business centers within Specialized Commercial, including
Construction, Financial and Professional Services, and Public
Sector Services, experienced premium growth over 1996.
Specialized Commercial premium volume in last year's first
quarter was reduced by $20 million for returned premiums
associated with The St. Paul's withdrawal from an insurance
pool arrangement.
Personal Insurance premiums grew 7%, to $175 million,
compared with the first quarter of 1996, primarily the result
of price increases on existing business. Medical Services'
written premiums in 1997's first quarter were down 8% from
1996, reflecting the competitive market conditions that
persist in the medical liability marketplace. The decline in
Medical Services' written premiums resulted principally from
pricing reductions. Reinsurance premiums were down $29
million, or 15%, from the same period of 1996. Worldwide
reinsurance markets are characterized by excess capacity and
competitive market conditions, causing downward pressure on
premium rates.
Underwriting Results
- --------------------
The first quarter GAAP underwriting loss was $51 million,
compared with a loss of $42 million in the first quarter of
1996. Improvements in Specialized Commercial and Personal
Insurance results were more than offset by a decline in
Medical Services' profitability and an increase in Commercial
losses. Pretax catastrophe losses in the 1997 period totaled
just $5 million, compared with last year's first quarter
total of $62 million. An East Coast blizzard and numerous
other winter storms were the source of 1996's sizable first
quarter catastrophe activity. The company-wide expense ratio
of 33.3 was one-half point worse than last year, primarily
due to an increase in expenses associated with ongoing
efforts to integrate Northbrook into The St. Paul's existing
Commercial operations. The Personal Insurance expense ratio
of 29.0 was over three points better than last year,
reflecting the impact of several corrective measures
implemented in 1997 aimed at improving this operation's
results.
Key factors in the change in underwriting results from 1996
were as follows:
- Specialized Commercial - $7 million better than
1996 - Improved Surety results and a decline in
losses from insurance pools were the primary
factors driving the improvement over 1996.
- Personal Insurance - $5 million better than 1996 -
A decline in expenses and an improvement in
prior year loss development accounted for the
favorable variance over 1996.
- Medical Services - $16 million worse than 1996 -
Loss costs continued to rise in a market
suffering through a sustained period of
aggressive competition. Despite the unfavorable
variance from 1996, Medical Services was still
profitable for the quarter.
- Commercial - $7 million worse than 1996 - An
increase in expenses, primarily relating to
Northbrook integration initiatives, along with
less favorable prior year loss development more
than offset a decline in catastrophe losses.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion, Continued
Investments
- -----------
First quarter pretax investment income in the underwriting
segment was $218 million, 15% higher than first quarter 1996
income of $189 million. Approximately half of the increase
was attributable to income derived from investments acquired
in the Northbrook purchase last year. The remainder of the
increase resulted from underlying growth in the underwriting
operations' investment portfolio, fueled by steady investment
cash flows over the last twelve months. Fixed maturities
purchased in the first quarter of 1997 were predominantly
taxable securities, due to The St. Paul's consolidated tax
position. The new money rate on taxable fixed maturities in
the first quarter of 1997 was 7.0%, compared with 5.8% on tax-
exempt securities. The weighted average pretax yield on the
fixed maturities portfolio at March 31, 1997 was 7.1%, and the
portfolio had an average life of 9.0 years. Approximately 96%
of that portfolio is rated at investment grade levels (BBB or
better).
Sales of equity and venture capital investments in the first
quarter of 1997 generated pretax realized gains of $54 million
and $40 million, respectively.
Environmental and Asbestos Claims
---------------------------------
The St. Paul's underwriting operations continue to receive
claims under policies written many years ago alleging injuries
from environmental pollution or alleging covered property
damages for the cost to clean up polluted sites. These
operations also receive asbestos claims arising out of product
liability coverages under general liability policies.
Significant legal issues, primarily pertaining to issues of
coverage, exist with regard to the company's alleged liability
for both environmental and asbestos 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 underwriting operations' ultimate liability for
environmental claims is 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. In addition, variables,
such as the length of time necessary to clean up a polluted
site, controversies surrounding the identity of the
responsible party and the degree of remediation deemed
necessary, make it difficult to estimate the total cost of an
environmental claim.
Estimating the ultimate liability for asbestos claims is
equally difficult. The primary factors influencing the
estimate of the total cost of these claims are case law and a
history of prior claims experience, both of which are still
developing.
In 1995, The St. Paul's underwriting operations recorded
additional gross reserves of $360 million and specifically
reallocated $113 million of previously recorded net reserves
for North American environmental and asbestos losses on
policies written in the United Kingdom prior to 1980.
The table on the next page represents a reconciliation of
total gross and net environmental reserve development for the
three months ended March 31, 1997, and the years ended Dec.
31, 1996 and 1995. Amounts in the "net" column are reduced by
reinsurance recoverable.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion, Continued
1997 1996 1995
Environmental (three months) ---- ----
- ------------- ------------
(in millions) Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
Beginning reserves $581 368 528 319 275 200
Reserves acquired - - 18 7 - -
Incurred losses 3 - 67 72 59 68
Reserve reallocation - - - - 233 79
Paid losses (5) (1) (32) (30) (39) (28)
---- ---- ---- ---- ---- ----
Ending reserves $579 367 581 368 528 319
==== ==== ==== ==== ==== ====
Many significant environmental claims currently being brought
against insurance companies arise out of contamination that
occurred 20 to 30 years ago. Since 1970, the underwriting
operations' Commercial General Liability policy form has
included a specific pollution exclusion, and, since 1986, an
industry standard absolute pollution exclusion for policies
underwritten in the United States.
The following table represents a reconciliation of total gross
and net reserve development for asbestos claims for the three
months ended March 31, 1997, and the years ended Dec. 31, 1996
and 1995.
1997 1996 1995
Asbestos (three months) ---- ----
- -------- ------------
(in millions) Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
Beginning reserves $278 169 283 158 185 145
Reserves acquired - - 6 6 - -
Incurred losses (12) (6) 12 18 (13) (9)
Reserve reallocation - - - - 127 34
Paid losses (8) (6) (23) (13) (16) (12)
---- ---- ---- ---- ---- ----
Ending reserves $258 157 278 169 283 158
==== ==== ==== ==== ==== ====
Most of the asbestos claims the company has received pertain
to policies written prior to 1986. Since 1986, for policies
underwritten in the United States, the underwriting
operations' Commercial General Liability policy has included
the industry standard absolute pollution exclusion, which the
company believes applies to asbestos claims.
Based on all information currently available, The St. Paul's
reserves for environmental and asbestos losses represent its
best estimate of its ultimate liability for such losses.
Because of the difficulty inherent in estimating such losses,
however, the company cannot give assurances that its ultimate
liability for environmental and asbestos losses will, in fact,
match current reserves. The company continues to evaluate new
information and developing loss patterns, but it believes any
future additional loss provisions for environmental and
asbestos claims will not materially impact the results of
operations, liquidity or financial position.
Total gross environmental and asbestos reserves at March 31,
1997, of $837 million represented approximately 7% of gross
consolidated reserves of $11.68 billion.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion, Continued
Investment Banking-Asset Management
-----------------------------------
The company's portion of pretax earnings from The John Nuveen
Company (Nuveen) was $23 million in the first quarter of 1997,
compared with $22 million in 1996's first quarter. The
company holds a 78% interest in Nuveen.
Fees earned from investment advisory services provided on
assets under Nuveen's management grew $4 million, or 8%, over
the first quarter of 1996. Total assets under management at
March 31, 1997 of $36.8 billion were up $4.4 billion from year-
end 1996. In January 1997, Nuveen completed its acquisition
of Flagship Resources Inc., a tax-exempt mutual fund and money
management firm. The increases in assets under management and
related fee income reflect the addition of Flagship to
Nuveen's operations. The total cost of the acquisition was
$63 million (substantially all of which represented goodwill),
plus as much as an additional $20 million, contingent upon
meeting future growth targets.
Contributing to the increase in assets under management were
gross product sales of $493 million, consisting of $208
million in unit investment trusts, $208 million in mutual
funds, and $77 million in managed accounts. Gross product
sales in the same 1996 period were $289 million.
Capital Resources
-----------------
Common shareholders' equity of $3.9 billion at March 31, 1997
was down $103 million from year-end 1996 common equity of $4.0
billion. First quarter net income was offset by a $140
million decline (net of taxes) in the unrealized appreciation
of the company's fixed maturities portfolio. An increase in
market interest rates negatively impacted bond values in the
first quarter. The after-tax unrealized appreciation on The
St. Paul's equity and venture capital portfolios declined by
$70 million since the end of 1996, primarily due to the sale
of investments which generated realized gains during the
quarter. Total debt outstanding at quarter-end of $708
million was up 3% from year-end 1996, due to the issuance of
$30 million of medium-term notes during the quarter. The
ratio of total debt to total capitalization of 15% increased
slightly over the year-end 1996 ratio of 14%.
The company anticipates that any major capital expenditures
during the remainder of 1997 would involve acquisitions of
existing businesses or stock repurchases; there are no major
capital improvements planned for 1997.
The company's ratio of earnings to fixed charges was 13.59 for
the first three months of 1997, compared with 11.70 for the
same period of 1996. The company's ratio of earnings to
combined fixed charges and preferred stock dividends was 9.80
for the first three months of 1997, compared with 8.03 for the
same period of 1996. Fixed charges consist of interest
expense 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 short- and long-term cash
requirements of its business segments. Net cash provided by
operations was $64 million in the first three months of 1997,
compared to $212 million in 1996. The decrease from 1996 was
primarily due to a decline in cash flows in the underwriting
segment resulting from an increase in loss payments.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion, Continued
Impact of Accounting Pronouncement to be Adopted in the Future
- --------------------------------------------------------------
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings Per Share," which revises the calculation and
presentation provisions of Accounting Principles Board Opinion
No. 15 and its related interpretations. SFAS No. 128 is
effective for fiscal years and interim periods ending after
December 15, 1997. It replaces the presentation of primary
earnings per share with "basic earnings per share," and fully
diluted earnings per share with "diluted earnings per share."
If the provisions of SFAS No. 128 had been applied for the
periods ended March 31, 1997 and 1996, basic earnings per
share would have been $2.28 and $1.69, respectively, for
income from continuing operations, and $1.47 and $1.51,
respectively, for net income. Diluted earnings per share
would have been the same as fully diluted earnings per share
for both periods.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
The information set forth in Note 5 to the
consolidated financial statements is
incorporated herein by reference.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security
Holders.
The St. Paul's annual shareholders' meeting was
held on May 6, 1997.
(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 74,878,751 464,136
John H. Dasburg 74,764,469 578,418
W. John Driscoll 74,859,353 483,534
Pierson M. Grieve 74,822,094 520,793
Ronald James 74,834,125 508,762
David G. John 74,837,058 505,829
William H. Kling 74,831,967 510,920
Douglas W. Leatherdale 74,801,535 541,352
Bruce K. MacLaury 74,840,116 502,771
Glen D. Nelson 74,850,513 492,374
Anita M. Pampusch 74,846,415 496,472
Gordon M. Sprenger 74,851,560 491,327
Patrick A. Thiele 74,837,295 505,592
(2) By a vote of 64,562,572 in favor, 3,898,309
against and 776,901 abstaining, the
shareholders approved the Company's Special
Leveraged Stock Purchase Program.
(3) By a vote of 74,678,848 in favor, 282,885
against and 381,154 abstaining, the
shareholders ratified the selection of KPMG
Peat Marwick LLP as the independent auditors
for The St. Paul.
<PAGE>
Item 5. Other Information.
Not applicable.
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 St. Paul filed a Form 8-K Current
Report dated January 27, 1997, announcing
its financial results for the year ended
December 31, 1996.
2) The St. Paul filed a Form 8-K Current
Report dated February 7, 1997, announcing
share repurchase and stock ownership
plans.
3) The St. Paul filed a Form 8-K Current
Report dated April 28, 1997, announcing
its financial results for the quarter
ended March 31, 1997, and the anticipated
impact of flooding in the Red River Valley
on its second quarter 1997 financial
results.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto
duly authorized.
THE ST. PAUL COMPANIES, INC.
(Registrant)
Date: May 13, 1997 By /s/ Bruce A. Backberg
------------------------
Bruce A. Backberg
Vice President
and Corporate Secretary
(Authorized Signatory)
Date: May 13, 1997 By /s/ Howard E. Dalton
----------------------
Howard E. Dalton
Senior Vice President
Chief Accounting Officer
<PAGE>
EXHIBIT INDEX
-----------------------
Method of
Exhibit Filing
- -------- ------------
(2) Plan of acquisition, reorganization, arrangement,
liquidation or succession*..............................
(3) Articles of incorporation and by-laws*......................
(4) Instruments defining the rights of security holders,
including indentures*...................................
(10) Material contracts
a) Letter Agreement dated May 8, 1997 between the
Company and Mr. Paul J. Liska related to the
terms of his employment**..............................(1)
b) Letter Agreement, agreed to January 20, 1997
between the Company and Mr. Paul J. Liska related
to severanc benefits**.................................(1)
c) The Special Leveraged Stock Purchase Plan**..............(1)
d) Amendment to Deferred Stock Agreement with
Mr. Mark L.Pabst**.....................................(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**...................................(1)
(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 St. Paul Companies, 385
Washington Street, Saint Paul, MN 55102, Attention:
Corporate Secretary.
(1) Filed electronically.
<PAGE>
Exhibit 10A
-----------
May 8, 1997
Mr. Paul Liska
1048 Ashland Avenue
River Forest, IL 60305
Dear Paul:
The purpose of this letter is outline your compensation
package for your employment in the position of
Executive Vice President, Chief Financial Officer for
The St. Paul Companies, Inc., reporting to Doug
Leatherdale, Chairman, CEO and President, effective
beginning employment with the Company. The following
sets forth the terms originally set forth in the letter
of December 26, 1996 as subsequently modified:
Up Front Bonus A one time payment
-------------- of $400,000, minus
applicable taxes to be paid
upon starting employment
with The St. Paul.
Special Stock Option Grant You will participate in a
-------------------------- special one time stock option
grant of 120,000 options with
strike prices of $58.75 which
expire December 2, 2001.
These options have time and
performance conditions. In
order for these to vest, you
must be here until December 2,
2000. In addition the 20 day
average of our stock price
must reach $100 per share in
order for 50% of the grant to
vest. If the 20 day average
of our stock price reaches
$110 an additional 50% will
vest. At a stock price of
$110, this grant when vested
would be worth $6.2M.
Salary $600,000 per annum,
------ to be reviewed in 1998 and
annually thereafter. Annual
salary change date is March
for all officers.
<PAGE>
Annual Award Incentive The annual target award
---------------------- opportunity for this position
is 60% of base salary. Awards
are based solely on corporate
earnings for our top
executives. Upon annual Board
approval, an over-performance
incentive may be granted,
thereby increasing the maximum
award potential to 90% of base
salary.
We will guarantee your
first annual award payment of
$300,000 to be paid, minus
applicable federal and state
income taxes, in February
1997.
Stock Options You will
------------- participate in the annual
program starting in 1997.
Upon Board approval, you will
be awarded 40,000 options in
February 1997. Based on our
average stock growth of 10.79
since 1986, and assuming
40,000 annual stock options
through the year 2005, the
future value for the program
is approximately $60M. This
is estimated and is only
intended to illustrate the
financial value of this
component of our Executive
Compensation Package.
Restricted Stock Your
---------------- award, upon board approval, at
no cost to you except
applicable taxes, is 15,000
shares of The St. Paul
Companies stock. Vesting is
over four years at 3,750
shares per year on the
anniversary of your employment
date.
You will also participate
in our executive stock
purchase program which
provides, at no cost to you
except taxes, a 15% stock tip
upon purchase of company
stock. You become eligible
for this program upon
achieving 3X your annual
salary in direct St. Paul
Companies stock ownership.
<PAGE>
Tax/Financial Counseling You
------------------------ are eligible for executive
tax/financial counseling
service, which is worth
$15,000 for the first year and
$12,500 per year thereafter.
Physical Exam You are
------------- eligible for an annual
executive physical exam to be
administered, at your choice,
by Mayo Clinic, Rochester, MN
or Park Nicollet Clinic,
Minneapolis, MN.
Executive Benefits You are
------------------ eligible for executive
benefits that supplement our
qualified benefit plans such
as the retirement plan and the
401(K). This involves a
Benefit Equalization Plan for
highly compensated employees
which contains an Executive
Retirement Plan and an
Executive Savings Plan.
Details will be provided to
you upon starting with the
company.
Other Considerations Within the next three years,
-------------------- if you are terminated from The
St. Paul Companies, for any
reason other than malfeasance,
you will be paid three times
your normal annual cash
compensation. This
compensation is consistent
with the current St. Paul
Companies change of control
protection.
<PAGE>
Long Term Cash Incentive In
------------------------ addition you will be paid: i)
$255,000, if you are employed
by the company after December 2,
2000 and after the 20-day
average price of a share of
stock exceeds $100 per share
(if the price target is met
before December 3, 2001); and
ii) an additional $255,000, if
you are employed by the
company after December 2, 2000
and after the 20-day average
price of a share of stock
exceeds $110 per share (if the
price target is met before
December 3, 2001). These
amounts will automatically be
paid to you as soon as
administratively possible
after the vesting conditions
are met.
If you are in agreement that the terms of this letter
reflect the terms of your employment with the company
as ultimately agreed to, please indicate your
acceptance by signing below.
Sincerely yours,
/s/ Greg A. Lee
- ------------------
Greg A. Lee
Sr. Vice President
Human Resources
Accepted
/s/ Paul J. Liska
- ------------------
GAL/ala
Attachments
cc: Doug Leatherdale
<PAGE>
December 19, 1996
Mr. Paul Liska
1048 Ashland Avenue
River Forest, Illinois 60305
Dear Paul,
The purpose of this letter is to outline the compensation
and benefits you will receive if your employment with The
St. Paul Companies, Inc. ("Company") is terminated by the
Company, or by you for "Good Reason" as defined in
Section II below. This letter will also outline the
Company's expectations relative to any eventual
subsequent employment with a competitor. Referring to my
letter to you of December 5, 1996, to the extent that the
content of this letter conflicts in any way with any
previous written or oral communication between you, me or
any other representative of the Company, the content of
this letter will control and take precedence over such
previous communication. The terms of this letter
agreement can be amended in the future only by express
mutual written agreement between Doug Leatherdale, me or
our successors (representing the Company) and you.
I. The benefits provided to you in a termination
situation initiated by the Company, will depend on
whether or not such termination is "For Cause". If
your termination is "For Cause", you will be
ineligible for any benefits not required by law.
For purposes of this agreement, "For Cause" shall
mean your conviction of any felony involving
intentional conduct, your conviction of any lesser
crime or offense involving the illegal use or
conversion of Company property, your willful
misconduct in connection with the performance of
your duties with the Company (which shall not be
deemed to include any action taken by you in good
faith in the interest of the Company), or your
taking illegal actions in your business or personal
life which materially and demonstrably harm the
reputation or damage the good name of the Company.
<PAGE>
If the cause of the termination is a Change in
Control of the Company, the Company's Special
Severance Policy ("Policy") as in force as of the
date of a Change of Control, as defined below, will
determine the level of benefits to which you will be
entitled. For purposes of this Policy, as it
currently is drafted, "Change in Control" means a
change in control that would cause the Company to
file a Form 8-K with the SEC; the Company's
incumbent board of directors ceases to be a
majority; or fifty (50) per cent of the Company's
common stock is acquired by a "person" within the
meaning of Section 14 (d) of the Securities Exchange
Act of 1934. Under the Policy, you are eligible for
these benefits once you've been employed for three
months with the Company and your employment is
terminated by the Company within two years after a
Change in Control for reasons other than "Cause" or
you terminate voluntarily for "Good Reason". While
the "Policy" cannot be amended to waive the three
month requirement detailed above, if you were to be
terminated for reasons covered by the Policy in that
time frame, the Company will pay you the cash
equivalency of the benefits and compensation you
would have received under the Policy as if you had
met the three month eligibility requirements.
For senior executives, under the Policy and for
purposes of this Section I of this letter agreement,
"Good Reason" includes such situations as an adverse
change in status or position as a result of a
material diminution in duties or responsibilities,
the refusal to allow you to engage in activities
that were not prohibited before the Change in
Control, a reduction in your salary, job relocation
of a certain type and failure to maintain benefits
that are substantially the same as are in effect
when the Change in Control occurs.
If you are eventually eligible for severance
payments under this Policy, you will be entitled to
receive:
A lump sum severance payment equal to 299 per cent
(299%) of your "annualized includible compensation for
the base period" (as determined under Section 280 G of
the Internal Revenue Code). All payments are subject to
reduction so that no amount will be subject to federal
excise tax on "excess parachute payments" imposed under
Section 4999 of the Internal Revenue Code.
<PAGE>
Continued participation for three years in Company
medical, dental, disability and life insurance programs
in which you participated on the date such employment is
terminated.
Outplacement assistance.
Please note that the Board may amend, modify or
revoke the Special Severance Policy as it applies to
senior executives of the Company as a group, at any
time prior to a Change in Control without employees'
consent. (There are restrictions on amendments to,
and the termination of, the policy after a Change in
Control has occurred.)
While the Policy addresses only the benefits as
outlined above, various Company benefit plans also
have Change in Control provisions. While these
plans are amended from time to time and the benefits
you would be entitled to receive in the future will
be affected by such amendments, currently such
provisions provide the following benefits to
individuals at your level in case of a Change in
Control. (What is provided below is a very brief
summary. If you would like more detail, I can
provide you with a complete copy of such plans for
your review):
If vested in the Company's qualified pension plan,
upon a Change in Control, the accrued benefits of all
participants is increased on a nondiscriminating basis to
apply any overfunded balance. You will also be credited
with three additional years of service as described
below, provided you are vested in the plan and meet any
other eligibility criteria.
Under the Company's 401 (k) plan, all Company
matching contributions become 100 percent (100%) vested
for terminated participants.
All stock options and shares of restricted stock
vest immediately upon a Change in Control and are fully
exercisable.
<PAGE>
The Company provides non-qualified benefit
equivalization plans through a Rabbi Trust for executives
eligible to receive 401 (k) or pension benefits in excess
of the statutory limit. If there is a Change in Control,
the Rabbi Trust will be funded and any benefits to which
you may be entitled will be paid to you by the trustee in
accordance with the terms of the Trust and the underlying
plans.
II. If the termination is as a result of any reason
other than a (i) Change in Control or (ii) for
Cause, or if you terminate the agreement for Good
Reason (as defined in this Section), you will
receive the following benefits:
Severance pay. If the termination takes place
before your third anniversary of employment with the
Company, you will receive a severance payment equal to
three hundred percent (300%) of your then current annual
salary, plus three hundred percent (300%) of the average
annual incentive award you earned since joining the
Company, provided that you sign the standard Company
severance agreement for senior executives releasing the
Company from legal liability for your termination. If
the termination takes place after your third anniversary,
you will receive a severance payment equal to one hundred
fifty percent (150%) of your then current annual salary,
plus one hundred fifty percent (150%) of your average
annual incentive award in the previous three years,
again, provided you sign the release described above.
Pension Benefits. You will be provided with three
additional years of credited service, which will have the
affect of increasing your net pension benefit at the time
of your termination of employment from the Company. You
must be vested in the Employees' Retirement Plan at the
time of termination in order to receive this additional
service.
What follows is an example of the value of this
benefit. When you review this chart, please note that
this is a good faith estimate and does not reflect any
future changes in the Employees' Retirement Plan,
Executive Retirement Plan (ERP) or future interest
rates, and thus is for illustrative purposes only:
<PAGE>
Actual Service +3 Years Credited Service
--------------- -------------------------
Annual Lump Annual Lump
Age Annuity Sum Annuity Sum
---- ------- ---------- --------- ----------
55 $183,144 $1,980,000 $228,924 $2,475,000
62 $545,388 $5,320,000 $663,888 $6,475,000
65 $830,256 $7,630,000 $943,476 $8,675,000
In preparing this estimate, we relied on the
following assumptions:
1997 Annual Salary: $600,000, with 4% per year
increases
1997 Annual $360,000, with 4% per year
Incentive: increases
Date of Birth: 1/1/55
Date of Hire: 1/1/97
Lump Sum Interest 30 - Year U. S. Treasury
Rate: rate of 8%
This estimate is based on the following current
defined benefit formula:
Multiply your monthly covered compensation amount by
45% (Your covered compensation amount is based on the
average of social security wage bases and your age, thus
it changes each year).
Multiply the amount of your five-year average
monthly salary, which is greater than your covered
compensation amount, by 54%.
Add the results of the first two bullets and
multiply the amount times your total years of credited
service (this is where the three additional years of
service will increase your benefit) and divide the result
by 30. This will be your normal monthly retirement
benefit under the current formula.
<PAGE>
Note that all pension benefit attributable to the
additional three years of credited service will be
payable from the ERP (the Company's non-qualified pension
plan). As you are aware, the government restricts the
amount of pension benefits which may be paid through tax
qualified plans. The portion of your pension not
attributable to this additional three years of credited
service will be, to the greatest extent possible, paid
out of the qualified plan. The remainder of the latter
commitment will be paid out of the ERP.
Savings and other Pension Benefits. As with our
defined pension plan, each of our savings and benefit
equalization plans is governed by a plan document that
may be amended from time to time. Your treatment will be
governed by the wording of those plans at the time of
termination. Currently these would include:
Executive Savings Plan (ESP) - - your vested account
balance.
Deferred Incentive Bonuses - - your vested deferred
bonus.
401(k) Plan - - all your contributions, plus vested
Company contributions.
Employee Stock Ownership Plan (ESOP) - - all vested
Company contributions.
In addition, in the event you terminate within
six years of your commencement of employment
with the Company, the Company will pay you a
lump sum amount equal to the unvested balance
of your 401(k) (Savings Plus), ESP and ESOP
accounts, as soon as administratively possible.
Welfare Benefits. While we will be unable to cover
you under the Company's broad-based welfare plans after
termination, we will either reimburse your out of pocket
cost, grossed up for income tax purposes, to replace
these coverages in essentially the same form as under our
plan, or arrange for equivalent policies to be purchased
for you at Company expense.
<PAGE>
For purposes of Section II of this agreement only,
"Good Reason" shall mean the continuation of any of
the following after written notice from you and a
failure of the Company to remedy such event within
thirty (30) days after the receipt of such notice:
(i) a reduction in your base salary as in effect
from time to time;
(ii) a failure of the Company to provide you
with any benefit or compensation plan (including
any pension, profit sharing, life insurance,
health, accidental death or disability plan)
which has been made available to other
comparable executives on terms and conditions no
less favorable to you than those offered to such
other executives [For purposes of this
subsection (ii), Pat Thiele, or a successor
executive performing essentially the same duties
currently being performed by Mr. Thiele will not
be considered a "comparable" executive.];
(iii) your receipt of any annual incentive payout
based on financial measures which are shared
with either senior executives that is not
consistent with the payout criteria of other
senior executives (all payouts are subject to
Board approval);
(iv) the assignment to you of duties materially
inconsistent with your position as Executive
Vice President and Chief Financial Officer of
the Company;
(v) a material adverse change in your title or the
line of authority through which you are required
to report; or
(vi) a relocation of the corporate headquarters
of the Company to a location outside of the
greater Minneapolis/St. Paul metropolitan area.
<PAGE>
III. Upon termination, in exchange for all of the
benefits provided above, you agree, for a period of
two (2) years, to not engage directly or indirectly
in any business (as a shareholder, employee,
director, officer, partner, owner or in any capacity
calling for the performance of acts of management,
operation or control) which competes with the
Company. This non-compete prohibition applies to
any business engaging in the underwriting of
property and casualty insurance, or any other
business which the Company may enter between now and
the date of termination.
You also agree, for this two (2) year period, to not
hire or cause to be hired, without the express
written consent of the Company, any employee of the
Company by a successor entity or employer with whom
you may ultimately become associated.
You also agree, for an indefinite period, to not
divulge to any person or entities, without the
express written consent of the Company, confidential
information relating to the Company's business,
including, but not limited to, investment
strategies, business methods, rating methodologies
and strategies, actuarial methodologies and
reserving strategies, customer and agent lists,
trade secrets and the like.
If you are in agreement with the terms of this
letter, please indicate that acceptance by signing
below. Keep one original for your files and return
the other to me. As I noted above, to the extent
that the content of this letter conflicts in any way
with previous written or oral communication between
you, me or any other representatives of the Company,
the content of this letter will control and take
precedence over such previous communication.
<PAGE>
Agreed to and Accepted:
PAUL LISKA THE ST. PAUL COMPANIES, INC.
/s/ Paul J. Liska
- ----------------------
Paul J. Liska
Date: January 20, 1997 By: /s/ Greg A.Lee
- -------------------------- ------------------------
Greg A. Lee
Its: Senior Vice President- Human
Resources
---------------------------
Date: December 26, 1996
---------------------------
<PAGE>
THE ST. PAUL COMPANIES, INC.
SPECIAL LEVERAGED STOCK PURCHASE PLAN
1. Purpose and Term. The purpose of The St. Paul Companies,
Inc. Special Leveraged Stock Purchase Plan (the "Plan") is
to increase senior officers' ownership of Company common
stock and to provide those officers with a stronger, more
immediate focus on shareholder value creation. The Plan
shall become effective upon the approval of the shareholders
of the Company and will terminate May 7, 2003.
2. Definitions. Wherever used herein, the following terms
shall have the respective meanings set forth below:
"Board" means the Board of Directors of the Company.
"Committee" means the Personnel and Compensation Committee
of the Board, or, if no longer established, the Board.
"Common Stock" means the common stock of the Company.
"Company" means The St. Paul Companies, Inc.
"Drawdown" means any advance of funds under a Note.
"Notes" or "Note" means the Secured Promissory Notes in form
of the attached Exhibit A entered into by each Participant
with the Company.
"Participant" means an employee of the Company or its
subsidiaries who is selected by the Committee to participate
in the Plan.
"Pledge Agreement" means the Pledge and Custody Agreement
entered into by each Participant and the Company in the form
of the attached Exhibit B
"Purchase Loan" means loans made pursuant to this Plan.
"Purchased Stock" means the shares of Company Common Stock
purchased with the loan proceeds.
"Retirement" means termination of employment which entitles
the Participant to an immediate pension under the terms of
The St. Paul Companies, Inc. Employees Retirement Plan.
<PAGE>
3. Eligibility. The Committee shall select from time to time
as Participants in the Plan such senior executives of the
Company or its subsidiaries who are expected to contribute
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 a Purchase Loan, or
(iii) having been selected for a Purchase Loan, to receive
any further Purchase Loans. Selected Participants will be
eligible for loans if they have previously met their stock
ownership targets established by the Committee. Generally
stock ownership targets are to range from 200 percent of
salary to 500 percent of salary and will be similar to the
Participants' stock ownership target for the Company's
Executive Stock Ownership Program. Participants who do not
initially meet their stock ownership targets could receive
Purchase Loans when they meet their stock ownership targets
if they do so by May 6, 1999.
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, the Committee shall
(i) select the Participants, determine the amount of the
loans to be made to Participants and the Participants' stock
ownership targets, 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 Purchase
Loan 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. Loans. Company shall provide each Participant with a full-
recourse interest bearing Purchase Loan, the proceeds of
which shall be used by the Participant to purchase
additional Common Stock on the open market within the next
available window period. Funds shall be advanced upon the
Participant providing the Company with evidence that
additional shares have been purchased. The total amount
that each Participant shall be allowed to borrow under this
Plan shall be as determined by the Committee. Each Drawdown
and the total amount of all Drawdowns under each Note shall
in no event be greater than the cost of the Purchased Stock,
including commissions. Each Drawdown shall be at least
$100,000.00 and as a condition precedent to any additional
Drawdown the market value of the Pledged Securities shall at
least be equal to the amount outstanding under the Note
<PAGE>
Purchase Loans will accrue interest at the "applicable
federal rate" (as determined by Section 1274(d) of the
Internal Revenue Code) as of the date the advances were made
for loans of such maturity, compounded annually. While
interest on the Purchase Loans will accrue at the applicable
federal rate, interest will not be payable until the loan
terminates. Accrued but unpaid interest on the Purchase
Loans will be added to the principal balance of the Purchase
Loan. Fifty percent of the total principal amounts of all
advances under the Purchase Loan will be payable by May 7,
2002. All remaining principal and interest under the
Purchase Loans will be due and payable May 7, 2003. The
Participant may prepay at any time.
The payment of the Purchase Loans will be accelerated if a
Participant's service is terminated because of resignation
or involuntary termination. In those instances, the
Purchase Loan must be paid within 30 days following such
event. If a Participant's termination of service is due to
Retirement, death, disability or following a Change of
Control (as defined below), the Purchase Loan must be repaid
over a two-year period following such event, but no later
than May 7, 2003. The Purchase Loan may also be prepaid at
any time at the Participant's option.
Purchase Loans shall be evidenced by the Participant's
execution of a Secured Promissory note in the form of the
attached Exhibit A.
"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 6, 1997, 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, or fifty percent (50%) or more of the Common
Stock; or (b) individuals who constitute the Board on May 6,
1997, cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director
subsequent to May 6, 1997, 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 6, 1997 (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 6, 1997.
<PAGE>
6. Pledged Securities. The Participant shall pledge the
Purchased Stock and such additional securities as may be
necessary, to secure the Purchase Loan by executing a Pledge
Agreement in the form of the attached Exhibit B.
Participants will be permitted at any time to sell the
Purchased Stock so pledged, provided that the proceeds from
such sale must be applied against the outstanding balance of
the Purchase Loan.
Participants would be entitled to any shareholder dividends,
and to vote any pledged securities, including the Purchased
Stock.
7. 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.
8. No Right to Employment. No person shall have any claim or
right to be granted a Purchase Loan, and the grant of a
Purchase Loan 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.
9. Amendment. The Board of Directors upon the recommendation
of the Committee may amend, suspend, or terminate the Plan
at any time provided no amendment, suspension or termination
of the Plan may cause the Plan to fail to meet the
requirements of Rule 16b-3, or such successor rule as may
hereinafter be in effect, or Section 162(m) of the Internal
Revenue Code or may, without the consent of the Participant,
adversely affect such Participant's rights under the Plan in
any material aspect. No such amendment shall be made
without the approval of the Company's shareholders to the
extent such approval is required by law or agreement.
10. Governing Law. The Plan shall be construed and its
provisions enforced and administered in accordance with the
laws of the State of Minnesota.
<PAGE>
Exhibit A
SECURED PROMISSORY NOTE
May 7, 1997
This Note is issued under and subject to the terms of The St.
Paul Companies, Inc. Special Leveraged Stock Purchase Plan
("Plan"). All capitalized terms used herein without definition
have the meaning ascribed to them in the Plan.
For value received, the undersigned (hereinafter referred to
as the "Borrower") promises to pay to the order of The St. Paul
Companies, Inc., a Minnesota corporation (the "Holder"), the
principal amount that the Borrower is advanced under the terms of
the Plan. The Borrower further promises to pay at the maturity
of this Note to the order of the Holder interest on the amount of
each advance of principal outstanding from time to time at the
mid-term federal rate (with annual compounding) that would avoid
imputed interest as determined under section 1274 (c) of the
Internal Revenue Code of 1986, as amended as of the date on which
the advance was made, compounded annually (the "Interest Rate").
Fifty percent of the total principal advances shall, to the
extent not prepaid, be payable May 7, 2002. All principal and
all interest outstanding on this Note from time to time shall be
payable at a date no later than the earlier of (a) May 7, 2003,
or (b) the date thirty (30) days after the Borrower ceases to be
an employee of the Company or one of its subsidiaries; provided
that if the Borrower's employment is terminated due to
Retirement, death, disability or following a Change in Control,
the outstanding principal and interest shall be repaid in eight
(8) (or a lesser number if after May 7, 2001) equal quarterly
installments. Principal and interest shall be payable to the
Holder at 385 Washington Street, MC 516A, St. Paul, Minnesota,
55102 or at such other location as the Holder may designate in
writing.
The Holder, or authorized agent of the Holder, shall record
all advances of principal under this Note (each a "Drawdown"),
the Interest Rate to be paid on each Drawdown and all payments of
principal and interest hereunder and shall endorse such Drawdowns
and payments on the grid which is attached to and made a part of
this Note (the "Grid"). The entries on the Grid shall be prima
facie evidence of amounts outstanding hereunder. Each advance or
Drawdown shall be at least $100,000.00.
The Borrower may prepay any amount of principal outstanding
and any accrued but unpaid interest in whole or in part without
penalty or premium.
<PAGE>
The Holder shall apply each payment on this Note to the
Drawdown bearing the highest Interest Rate and then to additional
Drawdowns in descending order of the Interest Rate applicable to
each Drawdown, in each case first to the accrued but unpaid
interest and second to the principal outstanding on such
Drawdown, unless the Borrower shall request otherwise.
The Borrower hereby waives demand, notice, presentment,
protest and notice of dishonor. The Borrower hereby consents to
any delays, extensions of time, renewals, waivers or
modifications that may be granted or consented to by the Holder
with respect to the time of payment or any other provision
hereof.
No waiver of any obligation of the Borrower under this Note
shall be effective unless it is in writing signed by the Holder.
No waiver by the Holder of any right or remedy under this Note
shall constitute a bar to exercise of the same right or remedy on
any subsequent occasion or of any other right or remedy at any
time.
Upon the occurrence of an Event of Default (as defined in that
certain Pledge Agreement between the Borrower and the Holder,
dated as of the date hereof (the "Pledge Agreement")), the Holder
may exercise in full its rights to foreclose on the collateral
pledged by the Borrower under the Pledge Agreement. In addition,
the Borrower agrees to pay the Holder's reasonable costs in
collecting this Note, including reasonable attorneys' fees.
The interpretation of this Note and the rights and remedies of
the parties hereto shall be governed by the laws of the State of
Minnesota.
If one or more of the provisions of the Note is held invalid,
illegal or unenforceable, in whole or in part, or if any one or
more of the provisions of this Note operate or would operate to
invalidate this Note, then only such provision(s) shall be deemed
null and void and shall not affect any other provision of this
Note, which shall remain in full force and effect.
IN WITNESS WHEREOF the Borrower has executed this Note on
the date first above written.
------------------------------------
<PAGE>
Amount of Amount of Outstanding
Date of Date of Amount of Interest Principal Interest Principle Notation
Transaction Drawdown Drawdown Rate Paid Paid Balance Made By
- ----------- -------- -------- -------- --------- --------- --------- -------
<PAGE>
Exhibit B
PLEDGE AND CUSTODY AGREEMENT
PLEDGE AGREEMENT, dated as of May 7, 1997, made by the
undersigned (the "Borrower") in favor of The St. Paul Companies,
Inc., a Minnesota corporation (the "Lender").
WHEREAS, under the terms of The St. Paul Companies Special
Leveraged Stock Purchase Plan ("Plan"), the Lender has agreed to
make loans to the Borrower upon the terms and subject to the
conditions set forth in the Plan, to be evidenced by a promissory
notes (the "Note") of the Borrower thereunder; and
WHEREAS, it is a condition precedent of the Borrower under
the Plan that the Borrower shall execute and deliver this Pledge
Agreement to the Lender;
NOW, THEREFORE, in consideration of the premises set forth,
the Borrower hereby covenants and agrees with the Lender as
follows:
1. Defined Terms. Unless otherwise defined herein, terms
which are defined in the Plan or Note and used herein are used as
so defined, and the following terms shall have the following
meanings:
"Additional Pledged Securities" means shares of Common Stock
or cash above and beyond the Purchased Stock and the Tipped
Common Stock which the Borrower may be required to pledge.
"Collateral" means the Pledged Securities and all Proceeds.
"Common Stock" means the common stock of The St. Paul
Companies, Inc..
"Event of Default" means any failure to pay any or all
Obligations, or any portion thereof, when due or any breach or
violation of this Pledge Agreement or the Notes, which breach or
violation has not been cured within 10 days following written
notice thereof by the Lender to the Borrower.
"Obligations" means the unpaid principal of and interest on
any or all Notes.
"Pledge Agreement" means this Pledge and Custody Agreement,
as amended, supplemented or otherwise modified from time to time.
"Pledged Securities" means the Purchased Stock , the Tipped
Company Stock, and the Additional Pledged Securities. and all
additional securities pledged by the Borrower as required
hereunder.
<PAGE>
"Proceeds" means all "proceeds" as such term is defined in
the Uniform Commercial Code and, in any event, shall include,
without limitation, all dividends or other income from or
distributions with respect to the Pledged Securities or proceeds
from the sale, disposition or other liquidation thereof.
"Purchased Stock" means the shares of The St. Paul
Companies, Inc. Common Stock purchased by the Borrower with the
Note proceeds.
"Tipped Common Stock" means the shares of Common Stock
awarded to the Borrower pursuant to the St. Paul Companies, Inc.
executive stock ownership plan as a result of the acquisition of
the Purchased Stock.
2. Pledge; Grant of Security Interest. The Borrower
grants to the Lender a first priority security interest in the
Collateral, as collateral security for the prompt and complete
payment and performance when due of the Obligations.
3. Custody. Promptly after the issuance of the loan
amount, the Borrower shall deliver to the Company the stock
certificates representing the Purchased Stock and stock transfer
powers granting the Company the power to endorse and transfer the
Purchased Stock.
4. Covenants. The Borrower covenants and agrees with the
Lender that, from and after the date of this Pledge Agreement
until the Obligations are paid in full:
(a) Without the prior written consent of the Lender,
the Borrower will not (i) sell, assign, transfer, exchange or
otherwise dispose of, or grant any option with respect to, the
Collateral, or (ii) create, incur or permit to exist any lien or
option in favor of, or any claim of any person or entity with
respect to, any of the Collateral, or any interest therein.
(b) At any time and from time to time, upon the
written request of the Lender, and at the sole expense of the
Borrower, the Borrower will promptly and duly execute and deliver
such further instruments and documents and take such further
actions as the Lender may reasonably request for the purposes of
obtaining or preserving the full benefits of this Pledge
Agreement and of the rights and powers herein granted.
5. Adjustments to Pledged Securities. In the event that
Borrower desires to make a further Drawdown and the market value
of the currently Pledged Securities is less than the Borrower's
Obligations, the Borrower, as a condition precedent to a further
Drawdown, shall deposit with the Lender additional shares of
Company Common Stock or cash which, together with the Pledged
Securities then on deposit, will equal the Borrower's
Obligations.
<PAGE>
In the event that the aggregate market value of the
Pledged Securities increases, due to market appreciation, to more
than 115% of the Borrower's Obligations, Borrower, by notice to
Lender, may demand that the Lender release to Borrower the excess
of Additional Pledged Securities, if any, and any Tipped Common
Stock (if the restrictions have lapsed).
In addition if the Borrower prepays any principal
amount outstanding under the Note, then Lender may release
Purchased Stock such that the aggregate market value of the
remaining Purchased Stock pledged hereunder is not more than 115%
of the Borrower's Obligations.
6. Rights of the Lender. (a) If an Event of Default shall
occur and be continuing: (i) the Lender shall have the right to
receive any and all Proceeds paid in respect of the Pledged
Securities and make application thereof to the Obligations in
such order as it may determine in its sole discretion, and
(ii) the Lender shall have no duty to exercise any such right,
privilege or option and shall not be responsible for any failure
to do so or delay in so doing.
(b) The rights of the Lender hereunder shall not be
conditioned or contingent upon the pursuit by the Lender of any
right or remedy against the Borrower or against any other person
or entity which may be or become liable in respect of all or any
part of the Obligations or against any other collateral security
therefor, guarantee thereof or right of offset with respect
thereto. The Lender shall not be liable for any failure to
demand, collect or realize upon all or any part of the Collateral
or for any delay in doing so, nor shall it be under any
obligation to sell or otherwise dispose of any Collateral upon
the request of the Borrower or any other person or entity or to
take any other action whatsoever with regard to the Collateral or
any part thereof.
7. Remedies. If an Event of Default shall occur and be
continuing, the Lender may exercise, in addition to all other
rights and remedies granted in this Pledge Agreement, the Plan or
in any Note, all rights and remedies of a secured party under the
Minnesota Uniform Commercial Code. Without limiting the
generality of the foregoing, the Lender, without demand of
performance or other demand, presentment, protest, advertisement
or notice of any kind (except any notice required by law referred
to below) to or upon the Borrower (all and each of which demands,
defenses, advertisements and notices are hereby expressly
waived), may in such circumstances, forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, assign, give options or options to
purchase or otherwise dispose of and deliver the Collateral or
any part thereof (or contract to do any of the foregoing) at
public or private sale, upon such terms and conditions as it may
deem advisable and at such prices as it may deem best, for cash
or on credit or for future delivery without assumption of any
credit risk. The Lender shall have the right upon any such
public sale, and, to the
<PAGE>
extent permitted by law, upon any such private sale, to purchase
the whole or any part of the Collateral so sold, free of any
right or equity of redemption in the Borrower, which right or
equity is hereby expressly waived and released. The Lender shall
apply any Proceeds from time to time held by it and the net
proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all
reasonable costs and expenses of every kind incurred therein,
including, without limitation, reasonable attorneys' fees and
disbursements, to the payment in whole or in part of the
Obligations.
8. Limitation on Duties Regarding Collateral. The
Lender's sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession shall
be to deal with it in the same manner as the Lender deals with
similar securities, instruments and property for its own account.
Neither the Lender nor any of its affiliates, directors,
officers, employees or agents shall be liable for failure to
demand, collect or realize upon any of the Collateral or for any
delay in doing so or shall be under any obligation to sell or
otherwise dispose of any of the Collateral upon the request of
the Borrower or otherwise.
9. Powers Coupled with an Interest. All authorizations
and agencies herein contained with respect to the Collateral or
any part thereof are irrevocable and powers coupled with an
interest.
10. Severability. Any provision of this Pledge Agreement
which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
11. No Waiver; Cumulative Remedies. The Lender shall not
by any act (except by a written instrument pursuant to
paragraph 12 hereof), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have
acquiesced in any default or Event of Default or in any breach of
any of the terms and conditions hereof. No failure to exercise,
nor any delay in exercising, on the part of the Lender, any
right, power or privilege hereunder shall operate as a waiver
thereof. No single or partial exercise of any right, power or
privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
A waiver by the Lender of any right or remedy hereunder on any
one occasion shall not be construed as a bar to any right or
remedy which the Lender would otherwise have on any future
occasion. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not
exclusive of any rights or remedies provided by law.
<PAGE>
12. Waivers and Amendments; Successors and Assigns;
Governing Law. None of the terms or provisions of this Pledge
Agreement may be waived, amended, supplemented or otherwise
modified except by a written instrument executed by the Borrower
and the Lender, provided that any provision of this Pledge
Agreement may be waived in writing by the Lender. This Pledge
Agreement shall be binding upon the successors and assigns of the
Borrower and shall inure to the benefit of the Lender and its
successors and assigns. This Pledge Agreement shall be governed
by, and construed and interpreted in accordance with, the laws of
the State of Minnesota.
13. Counterparts. This Pledge Agreement may be executed in
several counterparts, each of which shall constitute an original,
but all of which, when taken together, shall constitute but one
agreement.
IN WITNESS WHEREOF, the undersigned has caused this Pledge
Agreement to be duly executed and delivered as of the date first
above.
BORROWER:
------------------------------------
LENDER:
THE ST. PAUL COMPANIES, INC.
By: -------------------------------
Title: --------------------------
<PAGE>
AMENDMENT NO. 2 TO THE ST. PAUL COMPANIES, INC.
DEFERRED STOCK GRANT AGREEMENT WITH MARK PABST
WHEREAS, The St. Paul Companies, Inc. (the "Company") and
Mark Pabst (the "Employee") entered into a Deferred Stock Grant
Agreement dated November 2, 1993 (the "Agreement"); and
WHEREAS, the Agreement, as heretofore amended, provides that
the Employee will be entitled to receive the Deferred Shares no
later than March 14, 1997 unless the Employee has a termination
of employment prior to March 14, 1997 for any reason other than
death, disability or involuntary termination without cause; and
WHEREAS, the Company has determined that it is not in the
Company's interest to issue the Deferred Shares to the Employee
on or before March 14, 1997; and
WHEREAS, Company has requested that Employee agree to the
deferral of the Company's delivery of the Deferred Shares to the
Employee, and
WHEREAS, the Employee has indicated that he is willing to
accept the deferral of the Company's delivery of the Deferred
Shares on the condition that the Employee not forfeit his right
to receive the Deferred Shares if he voluntarily terminates his
employment with the Company and all of its subsidiaries prior to
delivery of the Deferred Shares.
NOW THEREFORE, the Company and the Employee hereby agree to
amend Sections 3 and 4 of the Agreement as follows:
3. Issuance of Deferred Shares. The Company shall cause
the issuance, fully paid and nonassessable, and
delivery to the Employee of four thousand Deferred
Shares duly registered in the Employee's name upon the
earliest to occur of the Employee's - (1) return to the
United States from expatriate assignment, (2)
involuntary termination of employment with the Company
(and all of its subsidiaries) for any reason, (3)
voluntary termination of employment with the Company
(and all of its subsidiaries), or (4) death or
disability. The Employee shall be considered to be
disabled if he becomes physically or mentally disabled,
whether totally or partially, so that he is prevented
from satisfactorily performing his duties as an
employee for a period of six consecutive months or for
shorter periods aggregating six months in any period of
twelve consecutive months.
<PAGE>
In the event that the Employee is not an employee of
the Company or one of its subsidiaries on the date he
becomes entitled to have his Deferred Shares issued to
him pursuant hereto, the Company may, in lieu of
issuing Deferred Shares, elect to pay to him (or his
surviving spouse or representative of his estate, as
the case may be) an amount equal to the market value on
the date that the Deferred Shares would have otherwise
been issuable to him. The "market value" of such
Deferred Shares shall be the closing price in the
principal United States market for common shares of the
Company on that day, or if the market is closed on that
day, on the next preceding day on which the market was
open.
4. RESERVED
The capitalized terms used above shall have the same meaning as
defined in the Agreement.
In witness whereof, the Company and the Employee have executed
this Amendment No. 2 to the Agreement as of the 13th day of
March, 1997 and such Amendment shall be effective as of that
date.
THE ST. PAUL COMPANIES, INC.
By: /s/ Greg A. Lee /s/ Mark Pabst
-------------------------- ----------
Greg A. Lee Mark Pabst
Senior Vice President
<PAGE>
Exhibit 11
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Computation of Earnings Per Share
(In thousands) Three Months Ended
March 31
------------------
1997 1996
EARNINGS: ------ ------
Primary:
Net income, as reported $124,549 128,821
PSOP preferred dividends
declared (net of taxes) (2,185) (2,165)
Premium on preferred shares redeemed (260) (208)
------- -------
Net income, as adjusted $122,104 126,448
======= =======
Fully diluted:
Net income, as reported $124,549 128,821
Dividends on monthly income preferred
securities (net of taxes) 2,018 2,018
Additional PSOP expense (net of taxes) due to
assumed conversion of preferred stock (670) (758)
Premium on preferred shares redeemed (260) (208)
------- -------
Net income, as adjusted $125,637 129,873
======= =======
SHARES:
Primary:
Weighted average number of common shares
outstanding, per consolidated
financial statements 83,369 83,977
Additional dilutive effect of outstanding stock
options (based on treasury stock method using
average market price) 1,136 1,173
------- -------
Weighted average, as adjusted 84,505 85,150
======= =======
Fully diluted:
Weighted average number of common shares
outstanding, per consolidated
financial statements 83,369 83,977
Additional dilutive effect of:
Assumed conversion of PSOP preferred stock 3,934 3,990
Assumed conversion of monthly income
preferred securities 3,509 3,509
Outstanding stock options (based on treasury
stock method using market price at end of
period) 1,136 1,120
------- -------
Weighted average, as adjusted 91,948 92,596
======= =======
EARNINGS PER COMMON SHARE:
Primary $1.44 1.49
Fully diluted $1.37 1.40
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Exhibit 12
Computation of Ratios
(In thousands, except ratios)
Three Months Ended
March 31
--------------------
1997 1996
------ ------
EARNINGS:
Income before income taxes $245,210 177,488
Add: fixed charges 19,477 16,585
------- -------
Income, as adjusted $264,687 194,073
======= =======
FIXED CHARGES:
Interest costs $12,901 12,424
Rental expense (1) 6,576 4,161
------- -------
Total fixed charges $19,477 16,585
======= =======
FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS:
Fixed charges $19,477 16,585
PSOP preferred stock dividends 4,425 4,489
Dividends on monthly income
preferred securities 3,105 3,105
------- -------
Total fixed charges and
preferred stock dividends $27,007 24,179
======= =======
Ratio of earnings to fixed charges 13.59 11.70
======= =======
Ratio of earnings to combined fixed
charges and preferred stock dividends 9.80 8.03
======= =======
(1) Interest portion deemed implicit in total rent expense.
<TABLE> <S> <C>
<ARTICLE> 7
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-END> MAR-31-1997 MAR-31-1996 MAR-31-1995
<DEBT-HELD-FOR-SALE> 11,772,252 10,335,291 9,066,702
<DEBT-CARRYING-VALUE> 0 0 0
<DEBT-MARKET-VALUE> 0 0 0
<EQUITIES> 850,997 746,635 588,355
<MORTGAGE> 0 0 0
<REAL-ESTATE> 729,257 607,987 613,867
<TOTAL-INVEST> 14,134,846 12,674,332 11,244,812
<CASH> 38,383 29,134 13,264
<RECOVER-REINSURE> 84,258 94,851 106,650
<DEFERRED-ACQUISITION> 393,424 361,063 320,388
<TOTAL-ASSETS> 20,389,752 18,339,862 16,532,716
<POLICY-LOSSES> 11,679,590 10,276,100 9,555,780
<UNEARNED-PREMIUMS> 2,397,437 2,217,602 2,071,324
<POLICY-OTHER> 0 0 0
<POLICY-HOLDER-FUNDS> 0 0 0
<NOTES-PAYABLE> 707,588 664,975 621,861
207,000 207,000 0
18,732 13,265 8,120
<COMMON> 487,557 462,893 449,863
<OTHER-SE> 3,397,274 3,216,151 2,558,938
<TOTAL-LIABILITY-AND-EQUITY> 20,389,752 18,339,862 16,532,716
1,171,453 1,030,576 946,070
<INVESTMENT-INCOME> 218,662 192,379 179,409
<INVESTMENT-GAINS> 95,592 47,920 2,977
<OTHER-INCOME> 71,496 59,016 64,299
<BENEFITS> 868,878 755,460 680,439
<UNDERWRITING-AMORTIZATION> 254,760 230,488 207,694
<UNDERWRITING-OTHER> 188,355 166,455 141,845
<INCOME-PRETAX> 245,210 177,488 162,777
<INCOME-TAX> 52,911 33,077 35,393
<INCOME-CONTINUING> 192,299 144,411 127,384
<DISCONTINUED> (67,750) (15,590) (16,788)
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 124,549 128,821 110,596
<EPS-PRIMARY> 1.44 1.49 1.27
<EPS-DILUTED> 1.37 1.40 1.23
<RESERVE-OPEN> 0 0 0
<PROVISION-CURRENT> 0 0 0
<PROVISION-PRIOR> 0 0 0
<PAYMENTS-CURRENT> 0 0 0
<PAYMENTS-PRIOR> 0 0 0
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<CUMULATIVE-DEFICIENCY> 0 0 0
</TABLE>
