<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, 1998
----------------
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 6, 1998, was 234,585,388. This
total includes the shares to be issued pursuant to the
Registrant's merger with USF&G Corporation, and also reflects the
impact of the 2-for-1 stock split approved and declared by the
Registrant's board of directors on May 5, 1998.
<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, 1998 and 1997 3
Consolidated Balance Sheets, March 31, 1998
(Unaudited) and December 31, 1997 4
Consolidated Statements of Shareholders' Equity,
Three Months Ended March 31, 1998
(Unaudited) and Twelve Months Ended 6
December 31, 1997
Consolidated Statements of Comprehensive Income
(Unaudited), Three Months Ended March 31, 1998
and 1997 7
Consolidated Statements of Cash Flows (Unaudited),
Three Months Ended March 31, 1998 and 1997 8
Notes to Consolidated Financial Statements
(Unaudited) 9
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 19
PART II. OTHER INFORMATION
Item 1 through Item 6 26
Signatures 28
EXHIBIT INDEX 29
<PAGE>
PART I FINANCIAL INFORMATION
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Unaudited
(In thousands)
Three Months Ended
March 31
-------------------
1998 1997
------ ------
Revenues:
Premiums earned $1,114,756 1,171,453
Net investment income 219,299 218,662
Asset management-investment banking 71,402 58,605
Realized investment gains 44,804 95,592
Other 16,896 12,891
--------- ---------
Total revenues 1,467,157 1,557,203
--------- ---------
Expenses:
Insurance losses and
loss adjustment expenses 811,096 868,878
Policy acquisition expenses 253,053 254,760
Operating and administrative 209,799 188,355
--------- ---------
Total expenses 1,273,948 1,311,993
--------- ---------
Income from continuing operations
before income taxes 193,209 245,210
Income tax expense 39,209 52,911
--------- ---------
Income from continuing operations 154,000 192,299
Loss on disposal of discontinued
operations, net of taxes - (67,750)
--------- ---------
Net income $154,000 124,549
========= =========
Basic earnings per common share:
Income from continuing operations $0.90 1.14
Loss from discontinued operations - (0.41)
--------- ---------
Net income $0.90 0.73
========= =========
Diluted earnings per common share:
Income from continuing operations $0.83 1.05
Loss from discontinued operations - (0.37)
--------- ---------
Net income $0.83 0.68
========= =========
Dividends declared on common stock $0.25 0.235
========= =========
See notes to consolidated financial statements.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
March 31, December 31,
ASSETS 1998 1997
- ------ ---------- -----------
(Unaudited)
Investments:
Fixed maturities, at estimated market value $12,205,321 12,449,793
Equities, at estimated market value 1,080,733 1,033,920
Real estate, at cost less accumulated
depreciation of $96,960 (1997; $93,015) 668,502 649,114
Venture capital, at estimated market value 489,906 461,892
Other investments 58,493 41,359
Short-term investments, at cost 575,652 400,004
---------- ----------
Total investments 15,078,607 15,036,082
Cash 42,647 22,660
Investment banking inventory securities 58,117 130,203
Reinsurance recoverables:
Unpaid losses 1,841,053 1,893,122
Paid losses 53,088 69,693
Receivables:
Underwriting premiums 1,405,600 1,503,497
Interest and dividends 212,063 216,099
Other 81,110 78,360
Deferred policy acquisition expenses 382,867 404,274
Ceded unearned premiums 175,925 192,591
Deferred income taxes 736,512 845,331
Office properties and equipment, at cost
less accumulated depreciation
of $269,348 (1997; $246,158) 288,407 294,705
Goodwill 399,501 408,534
Other assets 371,013 405,506
---------- ----------
Total assets $21,126,510 21,500,657
========== ==========
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 1998 1997
- ------------------------------------ ---------- -----------
(Unaudited)
Liabilities:
Insurance reserves:
Losses and loss adjustment expenses $11,722,580 11,817,633
Unearned premiums 2,241,953 2,379,703
---------- ----------
Total insurance reserves 13,964,533 14,197,336
Debt 654,663 782,825
Payables:
Income taxes 220,511 274,177
Reinsurance premiums 125,449 142,554
Accrued expenses and other 481,244 587,689
Other liabilities 653,755 682,366
---------- ----------
Total liabilities 16,100,155 16,666,947
---------- ----------
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; 952 shares
outstanding (956 shares in 1997) 137,307 137,892
Guaranteed obligation - PSOP (121,167) (121,167)
---------- ----------
Total preferred shareholders' equity 16,140 16,725
---------- ----------
Common:
Common stock, 480,000 shares authorized;
168,050 shares outstanding
(167,456 shares in 1997) 523,700 512,162
Retained earnings 3,563,068 3,450,601
Guaranteed obligation - ESOP - (8,453)
Accumulated other comprehensive income:
Unrealized appreciation of investments 735,374 677,069
Unrealized loss on foreign currency translation (18,927) (21,394)
---------- ----------
Total accumulated other comprehensive income 716,447 655,675
---------- ----------
Total common shareholders' equity 4,803,215 4,609,985
---------- ----------
Total shareholders' equity 4,819,355 4,626,710
---------- ----------
Total liabilities, redeemable preferred
securities and shareholders' equity $21,126,510 21,500,657
========== ==========
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
------------ ------------
1998 1997
-------- --------
(Unaudited)
Preferred shareholders' equity:
Series B convertible preferred stock:
Beginning of period $137,892 142,131
Redemptions during period (585) (4,239)
--------- ---------
End of period 137,307 137,892
--------- ---------
Guaranteed obligation - PSOP:
Beginning of period (121,167) (126,068)
Principal payments - 4,901
--------- ---------
End of period (121,167) (121,167)
--------- ---------
Total preferred shareholders' equity 16,140 16,725
--------- ---------
Common shareholders' equity:
Common stock:
Beginning of period 512,162 475,710
Stock issued under stock incentive plans 10,109 28,224
Stock issued for preferred shares redeemed 1,429 8,678
Stock issued for acquisition - 1,676
Reacquired common shares - (2,126)
--------- ---------
End of period 523,700 512,162
--------- ---------
Retained earnings:
Beginning of period 3,450,601 2,935,928
Net income 154,000 705,473
Dividends declared on common stock (40,756) (156,692)
Dividends declared on preferred stock,
net of taxes (2,149) (8,645)
Reacquired common shares - (24,377)
Premium on preferred shares redeemed (844) (4,441)
Other changes during period 2,216 3,355
--------- ---------
End of period 3,563,068 3,450,601
--------- ---------
Guaranteed obligation - ESOP:
Beginning of period (8,453) (20,353)
Principal payments 8,453 11,900
--------- ---------
End of period - (8,453)
--------- ---------
Unrealized appreciation of investments,
net of taxes:
Beginning of period 677,069 616,968
Change during the period 58,305 60,101
--------- ---------
End of period 735,374 677,069
--------- ---------
Unrealized gain (loss)loss on foreign currency
translation, net of taxes:
Beginning of period (21,394) (20,496)
Change during the period 2,467 (898)
--------- ---------
End of period (18,927) (21,394)
--------- ---------
Total common shareholders' equity 4,803,215 4,609,985
--------- ---------
Total shareholders' equity $4,819,355 4,626,710
========= =========
See notes to consolidated financial statements.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Unaudited
(In thousands)
Three Months Ended
March 31
-------------------
1998 1997
----- -----
Net income $154,000 124,549
------- -------
Other comprehensive income, net of taxes:
Change in unrealized appreciation
of investments 58,305 (209,238)
Change in unrealized loss on foreign
currency translation 2,467 6,336
------- -------
Other comprehensive income (loss) 60,772 (202,902)
------- -------
Comprehensive income (loss) $214,772 (78,353)
======= =======
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
------------------
1998 1997
----- -----
OPERATING ACTIVITIES
Underwriting:
Net income $ 139,033 181,410
Adjustments:
Change in net insurance reserves (122,417) (98,727)
Change in underwriting premiums receivable 96,137 119,656
Realized investment gains (43,171) (92,713)
Other (12,365) (45,611)
------- -------
Total underwriting 57,217 64,015
------- -------
Asset management-investment banking:
Net income 14,133 13,845
Adjustments:
Change in inventory securities 72,085 1,906
Change in short-term investments (11,571) 40,674
Change in short-term borrowings (69,500) -
Change in open security transactions 7,105 (3,589)
Other (4,917) (12,487)
------- -------
Total asset management-investment banking 7,335 40,349
------- -------
Parent company and consolidating eliminations:
Net income (loss) from continuing operations 834 (2,956)
Adjustments:
Realized investment gains (1,633) (2,879)
Other (13,054) (34,241)
------- -------
Total parent company and
consolidating eliminations (13,853) (40,076)
------- -------
Net cash provided by operating activities 50,699 64,288
------- -------
Cash outflow resulting from
sale of discontinued operations (12,748) -
------- -------
INVESTING ACTIVITIES
Purchases of investments (598,012) (790,346)
Proceeds from sales and maturities of investments 726,076 721,727
Change in short-term investments (168,037) 51,489
Change in open security transactions 7,157 (9,659)
Net purchases of office properties and equipment (5,061) (15,791)
Other 62,755 (11,529)
------- -------
Net cash provided by
(used in) investing activities 24,878 (54,109)
------- -------
FINANCING ACTIVITIES
Dividends paid on common and preferred stock (42,105) (39,453)
Repayment of debt (55,663) (8,662)
Proceeds from issuance of debt - 30,000
Other 54,926 9,036
------- -------
Net cash used in financing activities (42,842) (9,079)
------- -------
Effect of exchange rate changes on cash - 69
------- -------
Increase in cash 19,987 1,169
Cash at beginning of period 22,660 37,214
------- -------
Cash at end of period $42,647 38,383
======= =======
See notes to consolidated financial statements.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Unaudited
March 31, 1998
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. The financial statements do not
include the results of USF&G Corporation, except for Note 11.
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 57 to 74 of The St. Paul's annual report to
shareholders for the year ended December 31, 1997. 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 1997 consolidated financial statements have
been reclassified to conform with the 1998 presentation. These
reclassifications had no effect on net income or shareholders'
equity, as previously reported.
All references in the consolidated financial statements and
related footnotes to per share amounts and to the number of
common shares for both 1998 and 1997 reflect the effect of the
2-for-1 stock split approved by The St. Paul's board of directors
on May 5, 1998 (see Note 10).
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Note 2 Earnings Per Share
- --------------------------
Earnings per common share (EPS) amounts were calculated by
dividing net income, as adjusted, by the average common
shares outstanding. Average common shares outstanding
for both periods reflect the impact of the 2-for-1
stock split approved by the board of directors on May 5, 1998.
Three Months Ended
March 31
------------------
1998 1997
------ ------
(In thousands)
BASIC
Net income, as reported $154,000 124,549
PSOP preferred dividends
declared (net of taxes) (2,149) (2,185)
Premium on preferred shares redeemed (844) (260)
------- -------
Net income, as adjusted $151,007 122,104
======= =======
DILUTED
Net income, as reported $154,000 124,549
Additional PSOP expense (net of taxes)
due to assumed conversion of preferred stock (576) (670)
Dividends on monthly income preferred
securities (net of taxes) 2,018 2,018
Premium on preferred shares redeemed (844) (260)
------- -------
Net income, as adjusted $154,598 125,637
======= =======
AVERAGE COMMON
SHARES OUTSTANDING
Basic 167,746 166,738
======= =======
Fully diluted 185,184 183,896
======= =======
EARNINGS PER SHARE
Basic $0.90 0.73
======= =======
Diluted $0.83 0.68
======= =======
Average common shares outstanding for diluted EPS include the common
and common equivalent shares outstanding for the period and
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
---------------------------
1998 1997
------ ------
(In thousands)
Purchases:
Fixed maturities $255,230 344,439
Equities 259,591 347,817
Real estate 24,664 56,395
Venture capital 38,560 23,134
Other investments 19,967 18,561
------- -------
Total purchases 598,012 790,346
------- -------
Proceeds from sales and maturities:
Fixed maturities:
Sales 131,241 245,599
Maturities and redemptions 227,007 100,156
Equities 346,205 318,856
Real estate 2,374 16,028
Venture capital 19,225 37,567
Other investments 24 3,521
------- -------
Total sales and maturities 726,076 721,727
------- -------
Net purchases (sales) $(128,064) 68,619
======= =======
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, 1998 December 31, 1997
------------------ ------------------
(In thousands)
Fixed maturities $(13,862) 184,874
Equities 92,136 63,236
Venture capital 8,838 (154,826)
------- -------
Total change in pretax
unrealized appreciation 87,112 93,284
Change in deferred taxes (28,807) (33,183)
------- -------
Total change in unrealized
appreciation, net of taxes $58,305 60,101
======= =======
<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
------------------
1998 1997
------ ------
(In thousands)
Federal current tax expense $44,794 64,671
Federal deferred tax benefit (13,749) (17,889)
------ ------
Total federal income tax expense 31,045 46,782
Foreign income taxes 5,631 4,606
State income taxes 2,533 1,523
------ ------
Total income tax expense
on continuing operations $39,209 52,911
====== ======
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,
1998 1997
---------------- --------------
Book Fair Book Fair
Value Value Value Value
------ ------ ------ ------
(In thousands)
Medium-term notes $511,919 528,900 511,920 529,000
Commercial paper 127,548 127,548 168,429 168,429
Real estate mortgages 15,196 15,400 15,196 15,400
Nuveen short-term borrowings - - 69,500 69,500
Nuveen notes payable - - 15,000 15,100
Guaranteed ESOP debt - - 2,780 2,800
------- ------- ------- -------
Total debt $654,663 671,848 782,825 800,229
======= ======= ======= =======
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
----------------------
1998 1997
------ ------
(In thousands)
Premiums written:
Direct $901,730 875,539
Assumed 199,950 218,133
Ceded (100,833) (64,452)
--------- ---------
Net premiums written $1,000,847 1,029,220
========= =========
Premiums earned:
Direct $998,688 1,023,494
Assumed 233,725 250,303
Ceded (117,657) (102,344)
--------- ---------
Net premiums earned $1,114,756 1,171,453
========= =========
Insurance losses and loss
adjustment expenses:
Direct $723,648 724,755
Assumed 157,499 161,230
Ceded (70,051) (17,107)
--------- ---------
Net insurance losses and
loss adjustment expenses $811,096 868,878
========= =========
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Note 8 Segment Information
- ---------------------------
Three Months Ended
March 31
----------------------
1998 1997
------ ------
Revenues from Continuing Operations
Underwriting:
St. Paul Fire and Marine:
Specialized Commercial $ 312,957 317,173
Commercial 206,426 268,709
Personal Insurance 188,894 180,243
Medical Services 147,112 148,842
--------- ---------
Total St. Paul Fire and Marine 855,389 914,967
St. Paul International 77,070 63,355
--------- ---------
Total Worldwide Insurance Operations 932,459 978,322
St. Paul Re 182,297 193,131
--------- ---------
Total premiums earned 1,114,756 1,171,453
Net investment income 218,803 218,269
Realized investment gains 43,171 92,713
Other 14,228 10,704
--------- ---------
Total underwriting 1,390,958 1,493,139
--------- ---------
Asset management-investment banking 72,469 61,122
--------- ---------
Total reportable segments 1,463,427 1,554,261
Parent company and consolidating eliminations 3,730 2,942
--------- ---------
Total revenues $1,467,157 1,557,203
========= =========
Income (Loss) from Continuing Operations
Before Income Taxes
Underwriting:
St. Paul Fire and Marine:
Specialized Commercial $ (6,371) (2,656)
Commercial (12,008) (16,304)
Personal Insurance (4,180) (22,971)
Medical Services (27,937) 3,463
-------- ---------
Total St. Paul Fire and Marine (50,496) (38,468)
St. Paul International (18,592) (7,041)
-------- ---------
Total Worldwide Insurance Operations (69,088) (45,509)
-------- ---------
St. Paul Re 8,465 (5,544)
-------- ---------
Total GAAP underwriting result (60,623) (51,053)
Net investment income 218,803 218,269
Realized investment gains 43,171 92,173
Other (10,076) (18,617)
-------- ---------
Total underwriting 191,275 240,772
-------- ---------
Asset management-investment banking:
Pretax income before minority interest 31,450 29,194
Minority interest (7,833) (6,490)
-------- ---------
Total asset management-investment banking 23,617 22,704
-------- ---------
Total reportable segments 214,892 263,476
Parent company and consolidating eliminations (21,683) (18,266)
-------- ---------
Total income from continuing
operations before income taxes $193,209 245,210
======== =========
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Note 9 Discontinued Operations
- -------------------------------
In May 1997, The St. Paul completed the sale of its brokerage
operation, Minet, to Aon Corporation. The St. Paul's gross
proceeds from the sale were approximately equal to its remaining
carrying value of Minet. In connection with the transaction, The
St. Paul agreed to indemnify Aon against most preclosing
liabilities of the Minet businesses. 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.
Note 10 Subsequent Event - Common Stock Split
- ----------------------------------------------
The St. Paul's Restated Articles of Incorporation were amended
after the vote of shareholders at the 1998 Annual Meeting of
Shareholders on May 5, 1998, to increase the authorized common
shares of the company from 240 million to 480 million.
Subsequent to this action, The St. Paul's board of directors
approved a 2-for-1 common stock split. One additional share of
common stock for each outstanding share was issued on May 11,
1998, to shareholders of record on May 6, 1998.
Note 11 Subsequent Event - Completion of Merger With USF&G Corporation
- -----------------------------------------------------------------------
In January 1998, The St. Paul and USF&G Corporation (USF&G)
announced an agreement to merge, subject to the approval of both
companies' shareholders and various regulatory authorities. On
April 24, 1998, having obtained all such approvals, The St. Paul
completed its merger with USF&G. The combined company operates
under The St. Paul name and remains based in Saint Paul, Minn.
The merger was a tax-free exchange of stock accounted for as a
pooling of interests. Under the terms of the merger agreement,
USF&G shareholders received 0.5642 of one of The St. Paul's
common shares (post-stock split) for each USF&G common share.
The St. Paul issued approximately 66.5 million of its common
shares (post-stock split) to USF&G shareholders. Based on The
St. Paul's closing common stock price of $42.125 (post-stock
split) on April 24, 1998, the total value of the transaction was
approximately $3.7 billion, which included the assumption of
USF&G's debt and capital securities.
The St. Paul anticipates incurring a pretax charge of
approximately $500 million in the second quarter of 1998 for
restructuring and other nonrecurring charges related to the
consummation of the merger.
The table on the next page presents unaudited statements of
income for the quarters ended March 31, 1998 and 1997 for The St.
Paul and USF&G on a combined basis.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The St. Paul Companies Inc. and USF&G Corporation
Combined Statements of Income
Unaudited
(In thousands)
Three Months Ended
March 31
------------------------
1998 1997
------ ------
Revenues:
Premiums earned $1,782,000 1,840,000
Net investment income 397,000 391,000
Asset management-investment banking 71,000 59,000
Realized investment gains 50,000 95,000
Other 24,000 17,000
--------- ---------
Total revenues
from continuing operations 2,324,000 2,402,000
--------- ---------
Expenses:
Insurance losses, loss adjustment expenses
and policy benefits 1,331,000 1,385,000
Policy acquisition expenses 433,000 427,000
Operating and administrative 310,000 281,000
--------- ---------
Total expenses 2,074,000 2,093,000
--------- ---------
Income before income taxes 250,000 309,000
Income tax expense 56,000 72,000
--------- ---------
Income from continuing operations 194,000 237,000
Loss on disposal of discontinued
operations, net of taxes - (68,000)
--------- ---------
Net income $194,000 169,000
========= =========
Basic earnings per common share:
Income from continuing operations $0.82 1.01
Net income 0.82 0.71
Diluted earnings per common share:
Income from continuing operations $0.77 0.94
Net income 0.77 0.67
Adjusted average common shares outstanding
(post-stock split):
Basic 234,000 231,000
Diluted 256,000 253,000
This statement was prepared by combining the companies'
respective statements of income for the three months ended
March 31, 1998 and 1997, and adjusting the result to conform the
accounting policies of both companies with regard to loss and
loss adjustment expense reserves. USF&G discounted all of its
workers' compensation reserves to present value in its financial
statements,
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
whereas The St. Paul did not discount any of its loss reserves.
On a combined basis, The St. Paul and USF&G will
discount only tabular workers' compensation reserves
to present value using an interest rate of up to 4%.
Accordingly, the combined income statement includes a reduction
in insurance losses and loss adjustment expenses of $3.9 million
for the quarter ended March 31, 1998, and an increase in
insurance losses and loss adjustment expenses of $0.2 million for
the quarter ended March 31, 1997, to conform the discounting
policies of both companies.
The combined income statement does not reflect an estimated
pretax charge of approximately $500 million for restructuring
costs and other nonrecurring charges related to the merger,
which will be recorded during the quarter ended June 30, 1998.
For purposes of the combined earnings per common share
calculation, USF&G's weighted average common shares outstanding
was multiplied by the exchange ratio of 0.5642.
On a combined basis, shareholders' equity totaled $6.8 billion on
March 31, 1998, and $6.6 billion on Dec. 31, 1997.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and
Results of Operations
March 31, 1998
Consolidated Results
--------------------
The St. Paul's pretax income from continuing operations of $193
million in the first quarter of 1998 was down 21% from pretax
income of $245 million in the same period of 1997, primarily due
to a decline in realized investment gains, and, to a lesser
extent, deterioration in underwriting results.
On April 24, 1998, The St. Paul completed its merger with USF&G
Corporation. Refer to Note 11 on page 16 of this report for
further information regarding the merger, including unaudited
combined results of The St. Paul and USF&G for the first quarter
of 1998. The following discussion addresses only the financial
condition and results of operations of The St. Paul and does not
include a discussion of the results of USF&G Corporation.
The St. Paul's net income of $154 million in the first quarter of
1998 increased $29 million over comparable 1997 net income of
$125 million. In the 1997 period, The St. Paul recorded an after-
tax loss from discontinued operations of $67.8 million relating
to the sale of its brokerage operation, Minet.
Consolidated revenues of $1.47 billion in the first quarter of
1998 declined $90 million, or 6%, from the equivalent 1997 total
of $1.56 billion. A reduction in realized investment gains and
insurance premiums earned accounted for the revenue decline in
1998.
The following table summarizes The St. Paul's results for the
first quarters of 1998 and 1997.
Three Months Ended
March 31
------------------
1998 1997
Pretax income (loss): ----- -----
Underwriting:
GAAP underwriting result $(61) (51)
Net investment income 219 218
Realized investment gains 43 93
Other (10) (19)
--- ---
Total underwriting 191 241
Asset management-investment banking 24 23
Parent and other (22) (19)
--- ---
Income from continuing operations
before income taxes 193 245
Income tax expense 39 53
--- ---
Income from continuing operations 154 192
Loss from discontinued operations,
net of taxes - (67)
--- ---
Net income $154 125
=== ===
Diluted net income per common share $0.83 0.68
==== ====
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion, Continued
Underwriting
------------
The following summarizes key financial results by underwriting
business segment:
Three Months
% of 1998 Ended March 31
Written --------------
($ in Millions) Premiums 1998 1997
--------- ---- ----
Specialized Commercial:
Written Premiums 29% $292 300
Underwriting Result $(6) (3)
Combined Ratio 103.9 101.5
Commercial:
Written Premiums 20% $198 241
Underwriting Result $(12) (16)
Combined Ratio 106.2 112.6
Personal Insurance:
Written Premiums 17% $175 175
Underwriting Result $(4) (23)
Combined Ratio 103.1 112.9
Medical Services:
Written Premiums 10% $95 95
Underwriting Result $(28) 4
Combined Ratio 125.0 105.6
--- ----- -----
Total St. Paul
Fire and Marine:
Written Premiums 76% $760 811
Underwriting Result $(50) (38)
Combined Ratio 108.1 107.7
St. Paul International
Underwriting:
Written Premiums 9% $87 53
Underwriting Result $(19) (7)
Combined Ratio 120.8 113.9
--- ----- -----
Total Worldwide
Insurance Operations:
Written Premiums 85% $847 864
Underwriting Result $(69) (45)
Combined Ratio 109.2 108.1
St. Paul Re:
Written Premiums 15% $154 165
Underwriting Result $8 (6)
Combined Ratio 99.2 104.2
--- ----- -----
Total Underwriting:
Written Premiums 100% $1,001 1,029
GAAP Underwriting Result $(61) (51)
Statutory Combined Ratio:
Loss and Loss Expense Ratio 72.8 74.2
Underwriting Expense Ratio 34.7 33.3
----- -----
Combined Ratio 107.5 107.5
===== =====
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion, Continued
Written Premiums
- ----------------
First quarter written premiums of $1.00 billion were 3% below
the comparable 1997 total of $1.03 billion. Premium volume in
The St. Paul's Commercial segment was down $43 million, or
18%, from 1997's first quarter. Competitive pressures in this
market sector are intense, resulting in price declines and
severely limiting opportunities for new business. In
addition, premium volume in last year's first quarter included
certain business from Northbrook Holdings (acquired in August
1996) that was purposely not renewed in subsequent periods.
The Reinsurance segment experienced an $11 million decline in
premiums from the first quarter of 1997, reflecting the soft
demand for reinsurance products throughout domestic and
international markets.
The International segment posted a $34 million increase in
premium volume over the first quarter of 1997. New business
in Europe and Canada, in addition to approximately $10 million
of volume from The St. Paul's new operation in Botswana,
accounted for the strong increase over 1997. In March 1998,
St. Paul International sold the renewal rights to its personal
insurance business in the United Kingdom for approximately $4
million in order to focus on its commercial and surety
underwriting operations. That business accounted for
approximately $57 million of The St. Paul's written premium
volume for the year 1997.
Premiums written in the Personal Insurance and Medical
Services segments in the first three months of 1998 were level
with the same period of 1997, while Specialized Commercial
premiums were down 3%.
Underwriting Results
- --------------------
The first quarter GAAP underwriting loss was $61 million,
compared with a loss of $51 million in the first quarter of
1997. A sharp deterioration in Medical Services results and
an increase in catastrophe losses were to a significant extent
offset by favorable prior year loss development in several of
The St. Paul's underwriting business segments. Pretax
catastrophe losses totaled $39 million in the first three
months of 1998, compared with losses of just $5 million in the
same period of 1997. The majority of 1998 losses originated
from tornadoes in the Midwest and South and ice storms in
Canada. The lack of premium growth in the first quarter
negatively impacted the underwriting operations' expense
ratio, which, at 34.7, was 1.4 points worse than 1997's first
quarter ratio. Agent and broker commission expenses as a
percentage of premiums written were higher in 1998 than in
1997, reflecting the intense competition to retain existing
business and underwrite new business throughout the property-
liability industry.
Key factors in the change in underwriting results from 1997
were as follows:
- Medical Services - $32 million worse than 1997 -
An increase in the severity of prior year loss
development on medical malpractice coverages was
the primary factor in the deterioration from 1997.
- Personal Insurance - $19 million better than 1997 -
Improvements in both current year loss
experience and prior year loss development
contributed to the favorable 1998 result.
- Reinsurance - $14 million better than 1997 - The
absence of significant catastrophe losses in this
segment and substantial favorable prior year loss
development accounted for the improvement over
1997.
- International - $12 million worse than 1997 -
Catastrophe losses resulting from ice storms in
Canada and adverse loss development on personal
insurance coverages in Europe were the major
factors in the 1998 underwriting loss.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion, Continued
Investments
- -----------
The St. Paul's underwriting operations posted first quarter
pretax investment income of $219 million in 1998, virtually
level with first quarter 1997 income of $218 million. The
lack of written premium growth and an increase in insurance
losses paid in recent quarters have resulted in a decline in
new funds available for investment. In addition, market
yields available on new investments continue to decline.
These factors accounted for the negligible increase in
investment income in the first quarter of 1998. The weighted
average pretax yield on the fixed maturities portfolio was
6.9% at the end of the quarter, down from 7.1% at the same
time in 1997. Approximately 97% of that portfolio is rated at
investment grade levels (BBB or better).
Pretax realized investment gains of $43 million in the first
quarter largely resulted from the sale of equity investments.
Gains of $93 million in the first quarter of 1997 were fueled
by sales of equity and venture capital holdings.
Environmental and Asbestos Claims
---------------------------------
The St. Paul's underwriting operations continue to receive
claims alleging injuries from environmental pollution or
alleging covered property damages for the cost to clean up
polluted sites. The company also receives asbestos injury
claims arising out of product liability coverages under
general liability policies. The vast majority of these claims
arise from policies written many years ago. The St. Paul's
alleged liability for both environmental and asbestos claims
is complicated by significant legal issues, primarily
pertaining to the scope of coverage. In the company's
opinion, court decisions in certain jurisdictions have tended
to broaden insurance coverage beyond the intent of the
original policies.
The company's ultimate liability for environmental claims is
difficult to estimate because of these issues. 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, making it difficult to
estimate The St. Paul's potential liability. In addition,
variables, such as the length of time necessary to clean up a
polluted site and controversies surrounding the identity of
the responsible party and the degree of remediation deemed
necessary, make it difficult to estimate the total cost of 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 claim development, both of which are still
developing.
The table on the next page represents a reconciliation of
total gross and net environmental reserve development for the
three months ended March 31, 1998, and the years ended Dec. 31,
1997 and 1996. Amounts in the "net" column are reduced by
reinsurance recoverable.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion, Continued
1998 1997 1996
Environmental (three months) ------ ------
- ------------- --------------
(in millions) Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
Beginning reserves $563 373 581 368 528 319
Reserves acquired - - - - 18 7
Incurred losses 6 7 18 32 67 72
Paid losses (15) (14) (36) (27) (32) (30)
--- --- --- --- --- ---
Ending reserves $554 366 563 373 581 368
=== === === === === ===
Many significant environmental claims currently being brought
against the insurance industry arise out of contamination that
occurred 20 to 30 years ago. Since 1970, The St. Paul's
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, 1998, and the years ended Dec. 31, 1997
and 1996.
1998 1997 1996
Asbestos (three months) ------ ------
- -------- -------------
(in millions) Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
Beginning reserves $271 153 278 169 283 158
Reserves acquired - - - - 6 6
Incurred losses 5 2 25 (1) 12 18
Paid losses (7) (1) (32) (15) (23) (13)
--- --- --- --- --- ---
Ending reserves $269 154 271 153 278 169
=== === === === === ===
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 St. Paul's commercial
general liability policy has included the industry standard
absolute pollution exclusion, which the company believes
applies to asbestos claims.
The St. Paul's reserves for environmental and asbestos losses
at March 31, 1998 represent its best estimate of its ultimate
liability for such losses, based on all information currently
available. Because of the inherent difficulty 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,
1998, of $823 million represented approximately 7% of gross
consolidated reserves of $11.72 billion.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion, Continued
Asset Management-Investment Banking
-----------------------------------
The company's portion of pretax earnings from The John Nuveen
Company (Nuveen) was $24 million in the first quarter of 1998,
compared with $23 million in 1997's first quarter. The
company holds a 77% interest in Nuveen.
Asset management revenues of $64 million in the first quarter
were $14 million, or 28%, higher than in the same period of
1997. The increase was primarily due to Nuveen's acquisition
of Rittenhouse Financial Services, Inc., which manages
individual equity and balanced accounts for affluent
investors, in September 1997. The Rittenhouse acquisition
added approximately $9 billion to Nuveen's managed asset base.
Total managed assets grew to $51.3 billion at March 31, 1998,
an increase of $1.7 billion over year-end 1997. Growth in the
market value of underlying assets, together with new product
sales during the quarter, accounted for the increase.
Nuveen's gross product sales in the first quarter of 1998
totaled $1.7 billion, consisting of $1.1 billion in managed
accounts, $395 million in mutual funds and $167 million in
unit investment trusts. Gross product sales in the same 1997
period were $493 million.
Capital Resources
-----------------
Common shareholders' equity grew to $4.8 billion at March 31,
1998, an increase of nearly $200 million over year-end 1997.
In addition to the impact of first quarter net income on
shareholders' equity, the after-tax unrealized appreciation on
The St. Paul's investment portfolio increased by $58 million
during the quarter. Total debt outstanding at March 31, 1998
of $655 million declined $128 million from year-end 1997,
largely due to Nuveen's repayment of $70 million of short-term
borrowings and $15 million of other notes payable. After
final payment of its ESOP debt in the first quarter, The St.
Paul's debt at March 31, 1998 was largely comprised of medium-
term notes ($512 million) and commercial paper ($128 million).
The medium-term notes bear a weighted-average interest rate of
7.1%. The ratio of total debt to total capitalization of 12%
declined from the year-end 1997 ratio of 14%.
The company anticipates that any major capital expenditures
during the remainder of 1998 would involve acquisitions of
existing businesses. In February 1998, The St. Paul's board
of directors rescinded management's authority for repurchasing
common shares of the company. There are no major capital
improvements planned for the remainder of 1998.
The merger with USF&G Corporation was a noncash, tax-free
exchange of stock accounted for on a pooling-of-interests
basis. The St. Paul anticipates incurring a pretax charge of
approximately $500 million in the second quarter of 1998 for
restructuring and other nonrecurring charges related to
the USF&G merger.
The company's ratio of earnings to fixed charges was 11.29 for
the first three months of 1998, compared with 13.59 for the
same period of 1997. The company's ratio of earnings to
combined fixed charges and preferred stock dividends was 8.10
for the first three months of 1998, compared with 9.80 for the
same period of 1997. Fixed charges consist of interest
expense and one-third of rental expense, which is considered
to be representative of an interest factor.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion, Continued
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 $51
million in the first three months of 1998, compared to $64
million in the same period of 1997. Cash flows in The St. Paul's
underwriting operations declined $7 million from the first
quarter of 1997, primarily due to the decline in written
premiums. Operational cash flows at The John Nuveen Company were
also down from first quarter 1997, primarily due to the repayment
of short-term borrowings.
Year 2000 Issues
----------------
Many computer systems in the world have the potential of being
disrupted at the turn of the century due to programming
limitations that may cause the two-digit year code of "00" to be
recognized as the year 1900, instead of 2000. For several years,
The St. Paul has been evaluating its financial and operational
computer systems to determine the impact of the "Year 2000" issue
on those systems. With the completion of the merger
with USF&G Corporation, The St. Paul has further evaluated
USF&G's activities to become "Year 2000" compliant. The St. Paul
has developed and implemented plans to address the required
system modifications., and does not expect the financial impact
of making these modifications to be material to its results of
operations, cash flows or consolidated financial position.
The St. Paul also faces potential "Year 2000" claims stemming
from coverages offered in insurance policies it has sold to
customers. In some instances, coverage is not provided under the
insurance policies, while in other instances, coverage may be
provided under certain circumstances. The company continues to
assess its exposure to insurance claims arising from those
coverages, and it is taking a number of actions to
address that exposure, including individual risk evaluation and
classification of high hazard exposures. Currently, The St. Paul
does not believe that such claims will have a material effect
on its results of operations, cash flows or consolidated
financial position.
Forward-looking Statement Disclosure
------------------------------------
This report contains certain forward-looking statements within
the meaning of the Private Litigation Reform Act of 1995.
Forward-looking statements are statements other than historical
information or statements of current condition. Words such as
expects, anticipates, intends, plans, believes, seeks or
estimates, or variations of such words, and similar expressions
are also intended to identify forward-looking statements. In
light of the risks and uncertainties inherent in future
projections, many of which are beyond The St. Paul's control,
actual results could differ materially from those in forward-
looking statements. These statements should not be regarded as a
representation that the objectives will be achieved. Risks and
uncertainties include, but are not limited to, the following:
general economic conditions including changes in interest rates
and the performance of financial markets; changes in domestic and
foreign laws, regulations and taxes; changes in the demand for,
pricing of, or supply of reinsurance or insurance; catastrophic
events of unanticipated frequency or severity; loss of
significant customers; judicial decisions and rulings; and
various other matters, including the effects of the merger with
USF&G Corporation. The St. Paul undertakes no obligation to
release publicly the results of any future revisions we may make
to forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of
unanticipated events.
<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 held a special shareholders' meeting on
April 7, 1998.
(1) By a vote of 66,877,859 in favor, 427,887
against and 79,339 abstaining, the shareholders
approved the issuance of common stock of The St.
Paul pursuant to the Agreement and Plan of Merger,
dated as of January 19, 1998 among USF&G
Corporation, The St. Paul and SP Merger
Corporation, pursuant to which SP Merger
Corporation will be merged with and into USF&G and
USF&G will become a wholly owned subsidiary of The
St. Paul.
The St. Paul's annual shareholders' meeting was held
on May 5, 1998.
(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 72,423,850 126,854
John H. Dasburg 72,400,544 150,160
W. John Driscoll 72,403,483 147,221
Pierson M. Grieve 72,395,933 154,771
Thomas R. Hodgson 72,417,868 132,836
David G. John 72,419,655 131,049
William H. Kling 72,398,247 152,457
Douglas W. Leatherdale 72,415,736 134,968
Bruce K. MacLaury 72,410,117 140,587
Glen D. Nelson 72,422,627 128,077
Anita M. Pampusch 72,426,464 124,240
Gordon M. Sprenger 72,423,192 127,512
Patrick A. Thiele 72,418,479 132,225
(2) By a vote of 72,260,092 in favor, 125,187
against and 165,425 abstaining, the shareholders
ratified the selection of KPMG Peat Marwick LLP as
the independent auditors for The St. Paul.
<PAGE>
(3) By a vote of 69,723,277 in favor, 2,674,220
against and 153,207 abstaining, the shareholders
amended the Restated Articles of Incorporation of
The St. Paul to increase the number of authorized
shares of voting common stock from 240 million to
480 million.
(4) By a vote of 62,462,370 in favor, 9,056,577
against and 1,031,757 abstaining, the
shareholders approved The St. Paul's Amended and
Restated 1994 Stock Incentive Plan.
(5) By a vote of 62,126,111 in favor, 9,425,661
against and 998,932 abstaining, the shareholders
approved The St. Paul's Global Stock Option Plan.
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 19, 1998, relating to
the announcement of its definitive merger
agreement and stock option agreement with
USF&G Corporation.
2) The St. Paul filed a Form 8-K Current
Report dated January 26, 1998, relating to
the announcement of its financial results for
the year ended Dec. 31, 1997.
3) The St. Paul filed a Form 8-K Current
Report dated February 26, 1998, containing
the following documents for The St. Paul for
the year ended Dec. 31, 1997: Audited
Financial Statements, Notes to Consolidated
Financial Statements, Management's Discussion
and Analysis of Financial Condition and
Results of Operations, Eleven-year Summary of
Selected Financial Data, Independent
Auditors' Report, Statement Regarding
Management's Responsibility for Financial
Statements, Consent of Independent Auditors
and Financial Data Schedule.
4) The St. Paul filed a Form 8-K Current
Report dated April 24, 1998, relating to the
consummation of its merger with USF&G
Corporation.
5) The St. Paul filed a Form 8-K Current
Report dated April 27, 1998, relating to the
announcement of its financial results for the
quarter ended March 31, 1998.
6) The St. Paul filed a Form 8-K Current
Report dated May 5, 1998, relating to the
election of three former directors of USF&G
Corporation to The St. Paul's board of
directors, and the approval of a two-for-one
common stock split to shareholders of record
on May 6, 1998.
<PAGE>
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 12, 1998 By /s/ Bruce A.Backberg
--------------------
Bruce A. Backberg
Senior Vice President
and Chief Legal Counsel
(Authorized Signatory)
Date: May 12, 1998 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) (i) Articles of incorporation**...........................(1)
(ii) By-laws*.............................................
(4) Instruments defining the rights of security holders,
including indentures*..................................
(10) Material contracts*.......................................
(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 herewith.
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
THE ST. PAUL COMPANIES, INC.
ARTICLE I
The name of the corporation is THE ST. PAUL COMPANIES, INC.
ARTICLE II
The address of the registered office of the corporation is
385 Washington Street, St. Paul, Minnesota 55102.
ARTICLE III
The aggregate number of shares that the corporation has
authority to issue is four hundred eighty-five million shares
which shall consist of five million undesignated shares and four
hundred eighty million shares of voting common stock. All shares
of voting common stock shall have equal rights and preferences.
The board of directors of the corporation is authorized to
establish, from the undesignated shares, one or more classes and
series of shares, to designate each such class and series and to
fix the relative rights and preferences of each such class and
series, provided that in no event shall the board of directors
fix a preference with respect to a distribution in liquidation in
excess of $100 per share plus accrued and unpaid dividends, if
any. No shares shall confer on the holder any right to cumulate
votes in the election of directors. All shareholders are denied
preemptive rights, unless, with respect to some or all of the
undesignated shares, the board of directors shall grant
preemptive rights. The corporation may, without any new or
additional consideration, issue shares of voting common stock or
any other class or series pro rata to the holders of the same or
one or more other classes or series of shares.
Each share of common stock with a par value of One Dollar
Fifty Cents which is issued and outstanding (and has not been
reacquired by the corporation) as of the effective date of these
Restated Articles of Incorporation is hereby reclassified into
one share of voting common stock and each certificate
representing a share or shares of common stock with a par value
of One Dollar Fifty Cents shall represent the same number of
shares of voting common stock. (Amended on 5/5/98.)
<PAGE>
ARTICLE IV
An action required or permitted to be taken at a board
meeting may be taken by written action signed by the number of
directors that would be required to act in taking the same action
at a meeting of the board at which all directors were present
ARTICLE V
Where shareholder approval, authorization or adoption is
required by Chapter 302A, Minnesota Statutes, for any of the
following transactions, the vote required for such approval,
authorization or adoption shall be the affirmative vote of the
holders of at least two-thirds of the voting power of all voting
shares:
(a) Any plan of merger;
(b) Any plan of exchange;
(c) Any sale, lease, transfer or other disposition of all
or substantially all of the corporation's property and
assets, including its good will, not in the usual and
regular course of its business; or
(d) Any dissolution of the corporation.
The shareholder vote required for approval, authorization or
adoption of an amendment to these Restated Articles of
Incorporation (other than an amendment to this article) shall be
the affirmative vote of the holders of at least one-half of the
voting power of all voting shares. The shareholder vote required
for approval, authorization or adoption of an amendment to this
article shall be the affirmative vote of the holders of at least
two-thirds of the voting power of all voting shares. The
provisions of this article are not intended either to require
that the holders of the shares of any class or series of shares
vote separately as a class or series or to affect or increase any
class or series vote requirement of Chapter 302A, Minnesota
Statutes.
ARTICLE VI
A director of this Corporation shall have no personal
liability to the Corporation or its shareholders for monetary
damages for breach of fiduciary duty as a director, to the full
extent such immunity is permitted from time to time under the
Minnesota Business Corporation Act.
Any repeal or modification of the foregoing paragraph by the
shareholders of the Corporation shall not adversely affect any
right or protection of a Director of the Corporation existing at
the time of such repeal or modification.
<PAGE>
STATEMENT OF THE ST. PAUL COMPANIES, INC.
WITH RESPECT TO
SERIES B CONVERTIBLE PREFERRED STOCK
Pursuant to Section 302A.401, Subd. 3(b)
of Minnesota Statutes
The undersigned officers of The St. Paul Companies, Inc.
(the "Corporation"), being duly authorized by the Board of
Directors of the Corporation, do hereby certify that the
following resolution was duly adopted by the Board of Directors
of the Corporation on January 24, 1990 pursuant to Minnesota
Statutes, Section 302A.401, Subd. 3(a):
RESOLVED, That there is hereby established, out of the
presently available undesignated shares of the Corporation, a
series of Preferred Stock of the Corporation designated as stated
below and having the relative rights and preferences that are set
forth below (the "Series"):
1. Designation and Amount. The Series shall be designated
as "Series B Convertible Preferred Stock" (the "Series B
Preferred"). The number of shares constituting the Series shall
be one million four hundred fifty thousand (1,450,000), which
number may from time to time be decreased (but not below the
number of shares then outstanding) by action of the Board of
Directors of the Corporation (the "Board of Directors"). Shares
of Series B Preferred shall have a preference upon liquidation,
dissolution or winding up of the Corporation of One Hundred
Dollars ($100.00) per share, which preference amount does not
represent a determination by the Board of Directors for the
purpose of the Corporation's capital accounts.
2. Rank. The Series B Preferred shall, with respect to
dividend rights and rights on liquidation, winding up or
dissolution of the Corporation, rank prior to the Corporation's
Series A Junior Participating Preferred Stock and to the
Corporation's voting common stock (the "Common Stock") (together,
the "Junior Stock") and shall, with respect to dividend rights
and rights on liquidation, winding up or dissolution of the
Corporation, rank junior to all other classes and series of
equity securities of the Corporation, now or hereafter
authorized, issued or outstanding, other than any classes or
series of equity securities of the Corporation ranking on a
parity with the Series B Preferred as to dividend rights and
rights upon liquidation, winding up or dissolution of the
Corporation (the "Parity Stock").
<PAGE>
3. Dividends. (a) Holders of outstanding shares of Series B
Preferred shall be entitled to receive, when, as and if declared
by the Board of Directors, to the extent permitted by applicable
law, cumulative quarterly cash dividends at the annual rate of
Eleven and 724/1000 Dollars ($11.724) per share, in preference to
and in priority over any dividends with respect to Junior Stock.
(b) Dividends on the outstanding shares of Series B
Preferred shall begin to accrue and be cumulative (regardless of
whether such dividends shall have been declared by the Board of
Directors) from and including the date of original issuance of
each share of the Series B Preferred, and shall be payable in
arrears on January 17, April 17, July 17 and October 17 of each
year (each of such dates a "Dividend Payment Date"), commencing
April 17, 1990. Each such dividend shall be payable to the holder
or holders of record as they appear on the stock books of the
Corporation at the close of business on such record dates, not
more than thirty (30) calendar days and not less than ten (10)
calendar days preceding the Dividend Payment Dates therefor, as
are determined by the Board of Directors (each of such dates a
"Record Date"). In any case where the date fixed for any dividend
payment with respect to the Series B Preferred shall not be a
Business Day, then such payment need not be made on such date but
may be made on the next preceding Business Day with the same
force and effect as if made on the date fixed therefor, without
interest.
(c) The amount of any dividends "accumulated" on any share
of Series B Preferred at any Dividend Payment Date shall be
deemed to be the amount of any unpaid dividends accrued thereon
to and excluding such Dividend Payment Date regardless of whether
declared, and the amount of dividends "accumulated" on any share
of Series B Preferred at any date other than a Dividend Payment
Date shall be calculated as the amount of any unpaid dividends
accrued thereon to and excluding the last preceding Dividend
Payment Date regardless of whether declared, plus an amount
calculated on the basis of the annual dividend rate for the
period from and including such last preceding Dividend Payment
Date to and excluding the date as of which the calculation is
made (regardless of whether declared). The amount of dividends
payable with respect to a full dividend period on outstanding
shares of Series B Preferred shall be computed by dividing the
annual dividend rate by four and the amount of dividends payable
for any period shorter than a full quarterly dividend period
(including the initial dividend period) shall be computed on the
basis of thirty (30)-day months, a three hundred sixty (360)-day
year and the actual number of days elapsed in the period.
(d) So long as the shares of Series B Preferred shall be
outstanding, if (i) the Corporation shall be in default or in
arrears with respect to the payment of dividends (regardless of
whether declared) on any outstanding shares of Series B Preferred
or any other classes or series of equity securities of the
Corporation other than Junior Stock or (ii) the Corporation shall
be in default or in arrears with respect to the mandatory or
optional redemption, purchase or other acquisition,
<PAGE>
retirement or other requirement of, or with respect to, any
sinking or other similar fund or agreement for the redemption,
purchase or other acquisition, retirement or other requirement
of, or with respect to, any shares of the Series B Preferred or
any other classes or series of equity securities of the
Corporation other than Junior Stock, then the Corporation may not
(A) declare, pay or set apart for payment any dividends on any
shares of Junior Stock, or (B) make any payment on account of, or
set apart payment for, the purchase or other acquisition,
redemption, retirement or other requirement of, or with respect
to, any sinking or other similar fund or agreement for the
purchase or other acquisition, redemption, retirement or other
requirement of, or with respect to, any shares of Junior Stock or
any warrants, rights, calls or options exercisable or
exchangeable for or convertible into Junior Stock, other than
with respect to any rights that are now or in the future may be
issued and outstanding under or pursuant to the Shareholder
Protection Rights Agreement dated as of December 4, 1989 between
the Corporation and First Chicago Trust Company of New York as
Rights Agent, as it may be amended in any respect or extended
from time to time or replaced by a new shareholders' rights plan
of any scope or nature (provided that in any amended or extended
plan or in any replacement plan any redemption of rights feature
permits only nominal redemption payments) (the "Rights
Agreement"), or (C) make any distribution in respect of any
shares of Junior Stock or any warrants, rights, calls or options
exercisable or exchangeable for or convertible into Junior Stock,
whether directly or indirectly, and whether in cash, obligations,
or securities of the Corporation or other property, other than
dividends or distributions of Junior Stock which is neither
convertible into nor exchangeable or exercisable for any
securities of the Corporation other than Junior Stock or rights,
warrants, options or calls exercisable or exchangeable for or
convertible into Junior Stock or (D) permit any corporation or
other entity controlled directly or indirectly by the Corporation
to purchase or otherwise acquire or redeem any shares of Junior
Stock or any warrants, rights, calls or options exercisable or
exchangeable for or convertible into shares of Junior Stock.
(e) Dividends in arrears with respect to the outstanding
shares of Series B Preferred may be declared and paid or set
apart for payment at any time and from time to time, without
reference to any regular Dividend Payment Date, to the holder or
holders of record as they appear on the stock books of the
Corporation at the close of business on the Record Date
established with respect to such payment in arrears. If there
shall be outstanding shares of Parity Stock, and if the payment
of dividends on any shares of the Series B Preferred or the
Parity Stock is in arrears, the Corporation, in making any
dividend payment on account of any shares of the Series B
Preferred or Parity Stock, shall make such payment ratably upon
all outstanding shares of the Series B Preferred and Parity Stock
in proportion to the respective amounts of accumulated dividends
in arrears upon such shares of the Series B Preferred and Parity
Stock to the date of such dividend payment. The Holder or holders
of Series B Preferred shall not be entitled to any dividends,
whether payable in cash, obligations or securities of the
Corporation or other property, in excess of the accumulated
dividends on shares of Series B Preferred. No interest, or sum of
money in lieu of interest, shall be payable in respect of any
dividend or other payment or payments which may be in arrears
with respect to the Series B Preferred. All dividends paid with
respect to the Series B Preferred shall be paid pro rata to the
holders entitled thereto.
<PAGE>
(f) Subject to the foregoing provisions hereof and
applicable law, the Board of Directors (i) may declare and the
Corporation may pay or set apart for payment dividends on any
Junior Stock or Parity Stock, (ii) may make any payment on
account of or set apart payment for a sinking fund or other
similar fund or agreement for the purchase or other acquisition,
redemption, retirement or other requirement of, or with respect
to, any Junior Stock or Parity Stock or any warrants, rights,
calls or options exercisable or exchangeable for or convertible
into any Junior Stock or Parity Stock, (iii) may make any
distribution in respect to any Junior Stock or Parity Stock or
any warrants, rights, calls or options exercisable or
exchangeable for or convertible into any Junior Stock or Parity
Stock, whether directly or indirectly, and whether in cash,
obligations or securities of the Corporation or other property
and (iv) may purchase or otherwise acquire, redeem or retire any
Junior Stock or Parity Stock or any warrants, rights, calls or
options exercisable or exchangeable for or convertible into any
Junior Stock or Parity Stock, and the holder or holders of the
Series B Preferred shall not be entitled to share therein.
4. Voting Rights. The holder or holders of Series B
Preferred shall have no right to vote for any purpose, except as
required by applicable law and except as provided in this Section
4.
(a) So long as any shares of Series B Preferred remain
outstanding, the affirmative vote of the holder or holders of at
least a majority (or such greater number as required by
applicable law) of the votes entitled to be cast with respect to
the then outstanding Series B Preferred, voting separately as one
class, at a meeting duly held for that purpose, shall be
necessary to repeal, amend or otherwise change any of the
provisions of the articles of incorporation of the Corporation in
any manner which materially and adversely affects the rights or
preferences of the Series B Preferred. For purposes of the
preceding sentence, the increase (including the creation or
authorization) or decrease in the amount of authorized capital
stock of any class or series (excluding the Series B Preferred)
shall not be deemed to be an amendment which materially and
adversely affects the rights or preferences of the Series B
Preferred.
(b) The holder or holders of Series B Preferred shall be
entitled to vote on all matters submitted to a vote of the
holders of Common Stock, voting together with the holders of
Common Stock as if one class. Each share of Series B Preferred in
such case shall be entitled to a number of votes equal to the
number of shares of Common Stock into which such share of Series
B Preferred could have been converted on the record date for
determining the holders of Common Stock entitled to vote on a
particular matter.
5. Optional Redemption. (a) The Series B Preferred shall be
redeemable, in whole or in part at any time and from time to
time, to the extent permitted by applicable law, at the option of
the Corporation, (i) on or before December 31, 1994, if (A) there
is a change in any statute, rule or regulation of the United
States of America which has the effect of limiting or making
unavailable to the Corporation all or any of the tax deductions
for amounts paid (including
<PAGE>
dividends) on the Series B Preferred when such amounts are used
as provided under Section 404(k)(2) of the Internal Revenue Code
of 1986, as amended and in effect on the date shares of Series B
Preferred are initially issued, or (B) the Plan is not initially
determined by the Internal Revenue Service to be qualified within
the meaning of 401(a) and 4975(e)(7) of the Internal Revenue
Code of 1986, as amended, or (C) the Plan is terminated by the
Board of Directors or otherwise, at the greater of (1) $144.30
per share plus accumulated and unpaid dividends, without
interest, to and excluding the date fixed for redemption, or (2)
the Fair Market Value of the Series B Preferred redeemed, or (ii)
after December 31, 1994, at the following redemption prices per
share if redeemed during the twelve (12)-month period ending on
and including December 31 in each of the following years:
Redemption Price
Year per Share
---- ----------------
1995 $149.52
1996 148.22
1997 146.92
1998 145.62
1999 and thereafter 144.30
plus accumulated and unpaid dividends, without interest, to and
excluding the date fixed for redemption.
(b) Payment of the redemption price shall be made by the
Corporation in cash or shares of Common Stock, or a combination
thereof, as permitted by paragraph (d) of this Section 5. On and
after the date fixed for redemption, dividends on shares of
Series B Preferred called for redemption shall cease to accrue,
such shares shall no longer be deemed to be outstanding and all
rights in respect of such shares shall cease, except the right to
receive the redemption price.
(c) Unless otherwise required by law, notice of redemption
shall be sent to the holder or holders of Series B Preferred at
the address shown on the books of the Corporation by first class
mail, postage prepaid, mailed not less than twenty (20) days nor
more than sixty (60) days prior to the redemption date. Each such
notice shall state: (i) the redemption date; (ii) the total
number of shares of the Series B Preferred to be redeemed and, if
fewer than all the shares are to be redeemed, the number of such
shares to be redeemed; (iii) the redemption price; (iv) the place
or places where certificates for such shares are to be
surrendered for payment of the redemption price; (v) that
dividends on the shares to be redeemed will cease to accrue from
and after such redemption date; and (vi) the conversion rights of
the shares to be redeemed, the period within which conversion
rights may be exercised, and the then current Conversion Price
and number of shares of Common Stock issuable upon conversion of
a share of Series B Preferred at the time.
<PAGE>
Upon surrender of the certificates for any shares so called for
redemption and not previously converted (properly endorsed or
assigned for transfer, if the Board of Directors shall so require
and the notice shall so state), such shares shall be redeemed by
the Corporation at the date fixed for redemption and at the
redemption price.
(d) The Corporation, at its option, may make payment of the
redemption price required upon redemption of shares of Series B
Preferred in cash or in shares of Common Stock, or in a
combination of such shares and cash, any such shares to be valued
for such purpose at the average Current Market Price for the five
(5) consecutive trading days ending on the trading day next
preceding the date of redemption.
6. Other Redemption Rights. Shares of Series B Preferred
shall be redeemed by the Corporation at the option of the holder
at any time and from time to time, to the extent permitted by
applicable law, upon notice to the Corporation accompanied by the
properly endorsed certificate or certificates given not less than
five (5) Business Days prior to the date fixed by the holder in
such notice for such redemption, when and to the extent necessary
(a) for such holder to provide for distributions required to be
made under The St. Paul Companies, Inc. Savings Plus Preferred
Stock Ownership Plan and Trust, an employee stock ownership plan
and trust within the meaning of 4975(e)(7) of the Internal
Revenue Code of 1986, as amended (the "Plan and Trust"), as the
same may be amended, or any successor plans, or (b) for such
holder to make payment of principal or interest due and payable
(whether as scheduled or upon acceleration) on the 9.40% Note
dated January 24, 1990, due January 31, 2005 made by Norwest Bank
Minnesota, National Association, not individually but solely as
Trustee for the Plan and Trust, payable to the order of St. Paul
Fire and Marine Insurance Company or registered assigns, in the
principal amount of One Hundred Fifty Million Dollars
($150,000,000) or other indebtedness of the Plan and Trust or if
funds otherwise available are not adequate to make a required
payment pursuant to such Note or other indebtedness, in each case
at a redemption price of the greater of (l) $144.30 per share
plus accumulated and unpaid dividends, without interest, to and
excluding the date fixed for redemption, or (2) the Fair Market
Value of the Series B Preferred redeemed. Upon surrender of the
shares to be redeemed, such shares shall be redeemed by the
Corporation on the date fixed for redemption and at the
applicable redemption price and such price shall be paid within
five (5) Business Days after such date of redemption, without
interest. The terms and provisions of Sections 5(b) and 5(d) are
applicable to any redemption under this Section 6.
7. Liquidation Preference. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation, the holder or holders of outstanding shares of
Series B Preferred shall be entitled to receive out of the assets
of the Corporation available for distribution to shareholders,
before any distribution of assets shall be made to the holders of
shares of Junior Stock, an amount equal to One Hundred Dollars
($100.00) per share. If, upon any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the
<PAGE>
amounts payable with respect to the Series B Preferred and any
Parity Stock are not paid in full, the holder or holders of the
Series B Preferred and of such Parity Stock shall share ratably
in any such distribution of assets of the Corporation in
proportion to the full respective preferential amounts to which
they are entitled. After payment to the holder or holders of the
Series B Preferred of the full preferential amount provided for
in this Section 7 and after the payment of any other preferential
amounts to the holder or holders of other equity securities of
the Corporation, the holder or holders of the Series B Preferred
shall be entitled to share in distributions of any remaining
assets with the holders of Common Stock, pro-rata on an as-if-
converted basis, to the extent of $44.30 per share plus
accumulated and unpaid dividends, without interest, to and
excluding the date fixed for such distribution of assets. Written
notice of any liquidation, dissolution or winding up of the
Corporation shall be given to the holder or holders of Series B
Preferred not less than twenty (20) days prior to the payment
date. Neither the voluntary sale, conveyance, exchange or
transfer (for cash, securities or other consideration) of all or
any part of the property or assets of the Corporation, nor the
consolidation or merger or other business combination of the
Corporation with or into any other corporation or corporations,
shall be deemed to be a voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, unless such
voluntary sale, conveyance, exchange or transfer shall be in
connection with a plan of liquidation, dissolution or winding up
of the Corporation.
8. Conversion Rights. (a) The holder of any Series B
Preferred shall have the right, at the holder's option, at any
time and from time to time, to convert any or all of such shares
into the number of shares of Common Stock of the Corporation
determined by dividing One Hundred Forty-four and 30/100 Dollars
($144.30) for each share of Series B Preferred to be converted by
the then effective Conversion Price per share of Common Stock,
except that if any shares of Series B Preferred are called for
redemption by the Corporation or submitted for redemption by the
holder thereof, according to the terms and provisions of this
Resolution, the conversion rights pertaining to such shares shall
terminate at the close of business on the date fixed for
redemption (unless the Corporation defaults in the payment of the
applicable redemption price). No fractional shares of Common
Stock shall be issued upon conversion of Series B Preferred, but
if such conversion results in a fraction, an amount shall be paid
in cash by the Corporation to the converting holder equal to same
fraction of the Current Market Price of the Common Stock on the
effective date of the conversion.
(b) The initial conversion price, which is Seventy-two and
15/100 Dollars ($72.15) per share of Common Stock, shall be
subject to appropriate adjustment from time to time as follows
and such initial conversion price or the latest adjusted
conversion price is referred to in this Resolution as the
"Conversion Price":
<PAGE>
(i) In case the Corporation shall, at any time or from time
to time while any of the shares of the Series B Preferred is
outstanding (A) pay a dividend in shares of Common Stock, (B)
subdivide outstanding shares of Common Stock into a larger number
of shares or (C) combine outstanding shares of Common Stock into
a smaller number of shares, the Conversion Price in effect
immediately prior to such action shall be adjusted so that the
holder of any shares of the Series B Preferred thereafter
surrendered for conversion shall be entitled to receive the
number of shares of Common Stock of the Corporation which such
holder would have owned or have been entitled to receive
immediately following such action had such shares of the Series B
Preferred been converted immediately prior thereto. An adjustment
made pursuant to this Section 8(b)(i) shall become effective
retroactively to immediately after the record date for
determination of the shareholders entitled to receive the
dividend in the case of a dividend and shall become effective
immediately after the effective date in the case of a subdivision
or combination.
(ii) In case the Corporation shall, at any time or from time
to time while any of the shares of the Series B Preferred is
outstanding, distribute or issue rights, warrants, options or
calls to all holders of shares of Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities
convertible into or exercisable or exchangeable for Common
Stock), at a per share price less than the Current Market Price
on the record date referred to below, the Conversion Price shall
be adjusted so that it shall equal the Conversion Price
determined by multiplying the Conversion Price in effect
immediately prior to the record date of the distribution or
issuance of such rights, warrants, options or calls by a
fraction, the numerator of which shall be the number of shares of
Common Stock outstanding on such record date plus the number of
shares which the aggregate offering price of the total number of
shares of Common Stock so offered would purchase at such Current
Market Price, and the denominator of which shall be the number of
shares of Common Stock outstanding on such record date plus the
number of additional shares of Common Stock offered for
subscription or purchase. For the purpose of this Section
8(b)(ii), the distribution or issuance of rights, warrants,
options or calls to subscribe for or purchase securities
convertible into Common Stock shall be deemed to be the issuance
of rights, warrants, options or calls to purchase the shares of
Common Stock into which such securities are convertible at an
aggregate offering price equal to the aggregate offering price of
such securities plus the minimum aggregate amount (if any)
payable upon conversion of such securities into shares of Common
Stock; provided, however, that if all of the shares of Common
Stock subject to such rights, warrants, options or calls have not
been issued when such rights, warrants, options or calls expire,
then the Conversion Price shall promptly be readjusted to the
Conversion Price which would then be in effect had the adjustment
upon the distribution or issuance of such rights, warrants,
options or calls been made on the basis of the actual number of
shares of Common Stock issued upon the exercise of such rights,
warrants, options or calls. An adjustment made pursuant to this
Section 8(b)(ii) shall become effective retroactively immediately
after the record date for the determination of shareholders
entitled to receive such rights, warrants, options or calls. This
Section 8(b)(ii) shall be inapplicable with respect to any rights
issued or to be issued pursuant to or governed by the Rights
Agreement.
<PAGE>
(iii) In the event the Corporation shall, at any time or
from time to time while any of the shares of Series B Preferred
are outstanding, issue, sell or exchange shares of Common Stock
(other than pursuant to (a) any right or warrant now or hereafter
outstanding to purchase or acquire shares of Common Stock
(including as such a right or warrant any security convertible
into or exchangeable for shares of Common Stock), (b) any rights
issued or to be issued pursuant to or governed by the Rights
Agreement and (c) any employee, officer or director incentive or
benefit plan or arrangement (including any employment, severance
or consulting agreement) of the Corporation or any subsidiary of
the Corporation heretofore or hereafter adopted) for a
consideration having a Fair Market Value, on the date of such
issuance, sale or exchange, less than the Fair Market Value of
such shares on the date of issuance, sale or exchange, then,
subject to the provisions of Sections 8(b)(v) and (vii), the
Conversion Price shall be adjusted by multiplying such Conversion
Price by the fraction the numerator of which shall be the sum of
(x) the Fair Market Value of all the shares of Common Stock
outstanding on the day immediately preceding the first public
announcement of such issuance, sale or exchange plus (y) the Fair
Market value of the consideration received by the Corporation in
respect of such issuance, sale or exchange of shares of Common
Stock, and the denominator of which shall be the product of (a)
the Fair Market Value of a share of Common Stock on the day
immediately preceding the first public announcement of such
issuance, sale or exchange multiplied by (b) the sum of the
number of shares of Common Stock outstanding on such day plus the
number of shares of Common Stock so issued, sold or exchanged by
the Corporation. In the event the Corporation shall, at any time
or from time to time while any shares of Series B Preferred are
outstanding, issue, sell or exchange any right or warrant to
purchase or acquire shares of Common Stock (including as such a
right or warrant any security convertible into or exchangeable
for shares of Common Stock), other than any such issuance (a) to
holders of shares of Common Stock as a dividend or distribution
(including by way of a reclassification of shares or a
recapitalization of the Corporation), (b) pursuant to any
employee, officer or director incentive or benefit plan or
arrangement (including any employment, severance or consulting
agreement) of the Corporation or any subsidiary of the
Corporation heretofore or hereafter adopted, (c) of rights issued
or to be issued pursuant to or governed by the Rights Agreement
and (d) which is covered by the terms and provisions of Section
8(b)(ii) hereof, for a consideration having a Fair Market Value,
on the date of such issuance, sale or exchange, less than the Non-
Dilutive Amount, then, subject to the provisions of Sections
8(b)(v) and (vii) hereof, the Conversion Price shall be adjusted
by multiplying such Conversion Price by a fraction the numerator
of which shall be the sum of (I) the Fair Market Value of all the
shares of Common Stock outstanding on the day immediately
preceding the first public announcement of such issuance, sale or
exchange plus (II) the Fair Market Value of the consideration
received by the Corporation in respect of such issuance, sale or
exchange of such right or warrant plus (III) the Fair Market
Value at the time of such issuance of the consideration which the
Corporation would receive upon exercise in full of all such
rights or warrants, and the denominator of which shall be the
product of (x) the Fair Market Value of a share of Common
<PAGE>
Stock on the day immediately preceding the first public
announcement of such issuance, sale or exchange multiplied by (y)
the sum of the number of shares of Common Stock outstanding on
such day plus the maximum number of shares of Common Stock which
could be acquired pursuant to such right or warrant at the time
of the issuance, sale or exchange of such right or warrant
(assuming shares of Common Stock could be acquired pursuant to
such right or warrant at such time).
(iv) In the event the Corporation shall, at any time or from
time to time while any of the shares of Series B Preferred are
outstanding, make an Extraordinary Distribution in respect of the
Common Stock, whether by dividend, distribution, reclassification
of shares or recapitalization of the Corporation (including a
recapitalization or reclassification effected by a merger or
consolidation to which Section 8(c) hereof does not apply) or
effect a Pro Rata Repurchase of Common Stock, the Conversion
Price in effect immediately prior to such Extraordinary
Distribution or Pro Rata Repurchase shall, subject to Sections
8(b)(v) and (vii) hereof, be adjusted by multiplying such
Conversion Price by the fraction the numerator of which is the
difference between (a) the product of (x) the number of shares of
Common Stock outstanding immediately before such Extraordinary
Distribution or Pro Rata Repurchase multiplied by (y) the Fair
Market Value of a share of Common Stock on the day before the ex-
dividend date with respect to an Extraordinary Distribution which
is paid in cash and on the distribution date with respect to an
Extraordinary Distribution which is paid other than in cash, or
on the applicable expiration date (including all extensions
thereof) of any tender offer which is a Pro Rata Repurchase, or
on the date of purchase with respect to any Pro Rata Repurchase
which is not a tender offer, as the case may be, and (b) the Fair
Market Value of the Extraordinary Distribution or the aggregate
purchase price of the Pro Rata Repurchase, as the case may be,
and the denominator of which shall be the product of (x) the
number of shares of Common Stock outstanding immediately before
such Extraordinary Dividend or Pro Rata Repurchase minus, in the
case of a Pro Rata Repurchase, the number of shares of Common
Stock repurchased by the Corporation multiplied by (y) the Fair
Market Value of a share of Common Stock on the day before the ex-
dividend date with respect to an Extraordinary Distribution which
is paid in cash and on the distribution date with respect to an
Extraordinary Distribution which is paid other than in cash, or
on the applicable expiration date (including all extensions
thereof) of any tender offer which is a Pro Rata Repurchase or on
the date of purchase with respect to any Pro Rata Repurchase
which is not a tender offer, as the case may be. The Corporation
shall send each holder of Series B Preferred (i) notice of its
intent to make any dividend or distribution and (ii) notice of
any offer by the Corporation to make a Pro Rata Repurchase, in
each case at the same time as, or as soon as practicable after,
such offer is first communicated (including by announcement of a
record date in accordance with the rules of any stock exchange on
which the Common Stock is listed or admitted to trading) to
holders of Common Stock. Such notice shall indicate the intended
record date and the amount and nature of such dividend or
distribution, or the number of shares subject to such offer for a
Pro Rata Repurchase and the purchase price payable by the
Corporation pursuant to such offer, as well as the Conversion
Price and the number of shares of Common Stock into which a share
of Series B Preferred may be converted at such time.
<PAGE>
(v) If the Corporation shall make any dividend or
distribution on the Common Stock or issue any Common Stock, other
capital stock or other security of the Corporation or any rights
or warrants to purchase or acquire any such security, which
transaction does not result in an adjustment to the Conversion
Price pursuant to this Section 8, the Board of Directors shall
consider whether such action is of such a nature that an
adjustment to the Conversion Price should equitably be made in
respect of such transaction. If in such case the Board of
Directors determines that an adjustment to the Conversion Price
should be made, an adjustment shall be made effective as of such
date, as determined by the Board of Directors (which adjustment
shall in no event adversely affect the rights or preferences of
the Series B Preferred as set forth herein). The determination of
the Board of Directors as to whether an adjustment to the
Conversion Price should be made pursuant to the foregoing
provisions of this Section 8(b)(v), and, if so, as to what
adjustment should be made and when, shall be final and binding on
the Corporation and all shareholders of the Corporation.
(vi) In addition to the foregoing adjustments, the
Corporation may, but shall not be required to, make such
adjustments in the Conversion Price as it considers to be
advisable in order that any event treated for federal income tax
purposes as a dividend of stock or stock rights shall either not
be taxable to the recipients or shall be taxable to the
recipients to the minimum extent reasonable under the
circumstances, as determined by the Board of Directors in its
sole discretion.
(vii) In no event shall an adjustment in the Conversion
Price be required unless such adjustment would result in an
increase or decrease of at least one percent (1%) in the
Conversion Price then in effect; provided, however, that any such
adjustments that are not made shall be carried forward and taken
into account in determining whether any subsequent adjustment is
required. In no event shall the Conversion Price be adjusted to
an amount less than any minimum required by law. Except as set
forth in this Section 8, the Conversion Price shall not be
adjusted for the issuance of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock,
or carrying the right or option to purchase or otherwise acquire
the foregoing, in exchange for cash, other property or services.
(viii) Whenever an adjustment in the Conversion Price is
required, the Corporation shall forthwith place on file with its
transfer agent (or if the Corporation performs the functions of a
transfer agent, with the corporate secretary) a statement signed
by its chief executive officer or a vice president and by its
secretary, assistant secretary or treasurer, stating the adjusted
Conversion Price determined as provided herein. Such statements
shall set forth in reasonable detail such facts as shall be
necessary to show the reason and the manner of computing such
adjustment. As soon as practicable after the adjustment of the
Conversion Price, the Corporation shall mail a notice thereof to
each holder of shares of the Series B Preferred of such
adjustment.
<PAGE>
(ix) In the event that at any time, as a result of an
adjustment made pursuant to this Section 8, the holder of any
shares of Series B Preferred hereafter surrendered for conversion
shall be entitled to receive any securities other than shares of
Common Stock, thereafter the amount of such other securities so
receivable upon conversion of any shares of Series B Preferred
shall be subject to adjustment from time to time in a manner and
on terms as nearly as equivalent as practicable to the provisions
with respect to the Common Stock contained in this Section 8, and
the provisions of this Section 8 with respect to the Common Stock
shall apply on like terms to any such other securities.
(c) In case of any consolidation or merger of the
Corporation with or into any other corporation (other than a
merger in which the Corporation is the surviving corporation), or
in case of any sale or transfer of substantially all the assets
of the Corporation, or in case of reclassification, capital
reorganization or change of outstanding shares of Common Stock
(other than combinations or subdivisions described in Section
8(b)(i) and other than Extraordinary Distributions described in
Section 8(b)(iv)), there shall be no adjustment to the Conversion
Price then in effect, but appropriate provisions shall be made so
that any holder of Series B Preferred shall be entitled, after
the occurrence (or, if applicable, the record date) of any such
event ("Transaction"), to receive on conversion the consideration
which the holder would have received had the holder converted
such holder's Series B Preferred to Common Stock immediately
prior to the occurrence of the Transaction and had such holder,
if applicable, elected to receive the consideration in the form
and manner elected by the plurality of the electing holders of
Common Stock. In any such Transaction, effective provisions shall
be made to ensure that the holder or holders of the Series B
Preferred shall receive the consideration that they are entitled
to receive pursuant to the provisions hereof, and in particular,
as a condition to any consolidation or merger in which the
holders of securities into which the Series B Preferred is then
convertible are entitled to receive equity securities of another
corporation, such other corporation shall expressly assume the
obligation to deliver, upon conversion of the Series B Preferred,
such equity securities as the holder or holders of the Series B
Preferred shall be entitled to receive pursuant to the provisions
hereof. Notwithstanding the foregoing provisions of this Section
8(c), in the event the consideration to be received pursuant to
the provisions hereof is not to be constituted solely of employer
securities within the meaning of 409(1) of the Internal Revenue
Code of 1986, as amended, or any successor provisions of law, and
of a cash payment in lieu of any fractional securities, then the
outstanding shares of Series B Preferred shall be deemed
converted by virtue of the Transaction immediately prior to the
consummation thereof into the number and kind of securities into
which such shares of Series B Preferred could have been
voluntarily converted at such time and such securities shall be
entitled to participate fully in the Transaction as if such
securities had been outstanding on the appropriate record,
exchange or distribution date. In the event the Corporation shall
enter into any agreement providing for any Transaction, then the
Corporation shall as soon as practicable thereafter (and in any
event at least ten (10) Business
<PAGE>
Days before consummation of the Transaction) give notice of such
agreement and the material terms thereof to each holder of Series
B Preferred and each such holder shall have the right, to the
extent permitted by applicable law, to elect, by written notice
to the Corporation, to receive, upon consummation of the
Transaction (if and when the Transaction is consummated), from
the Corporation or the successor of the Corporation, in
redemption of such Series B Preferred, a cash payment per share
equal to the amount determined according to the following table,
with the redemption date to be deemed to be the same date that
the Transaction giving rise to the redemption election is
consummated:
Transaction
Consummated in Year Redemption Price
Ending December 31 per Share
------------------ ---------
1990 $156.02
1991 154.72
1992 153.42
1993 152.12
1994 150.82
1995 149.52
1996 148.22
1997 146.92
1998 145.62
1999 and thereafter 144.30
plus accumulated and unpaid dividends, without interest, to and
excluding such deemed redemption date. No such notice of
redemption by the holder of Series B Preferred shall be effective
unless given to the Corporation prior to the close of business at
least two (2) Business Days prior to consummation of the
Transaction.
(d) The holder or holders of Series B Preferred as they
appear on the stock books of the Corporation at the close of
business on a dividend payment Record Date shall be entitled to
receive the dividend payable on such shares on the corresponding
Dividend Payment Date notwithstanding the subsequent conversion
thereof or the Corporation's default on payment of the dividend
due on such Dividend Payment Date; provided, however, that the
holder or holders of Series B Preferred subject to redemption on
a redemption date after such Record Date and before such Dividend
Payment Date shall not be entitled under this provision to
receive such dividend on such Dividend Payment Date. However,
shares of Series B Preferred surrendered for conversion during
the period after any dividend payment Record Date and before the
corresponding Dividend Payment Date (except shares subject to
redemption on a redemption date during such period) must be
accompanied by payment of an amount equal to the dividend payable
on such shares on such Dividend Payment Date. The holder or
holders of Series B Preferred as they appear on the stock books
of the Corporation at the close of business on a dividend payment
Record Date who convert shares of Series B Preferred on a
Dividend Payment Date shall be entitled to receive the
<PAGE>
dividend payable on such Series B Preferred by the Corporation
on such Dividend Payment Date, and the converting holders need
not include payment in the amount of such dividend upon surrender
of shares of Series B Preferred for conversion. Except as
provided above, the Corporation shall make no payment or
allowance for unpaid dividends (whether or not accumulated and in
arrears) on converted shares or for dividends on the shares of
Common Stock issuable upon such conversion.
(e) Each conversion of shares of Series B Preferred into
shares of Common Stock shall be effected by the surrender of the
certificate or certificates representing the shares to be
converted, accompanied by instruments of transfer satisfactory to
the Corporation and sufficient to transfer such shares to the
Corporation free of any adverse claims (the "Converting Shares"),
at the principal executive office of the Corporation (or such
other office or agency of the Corporation as the Corporation may
designate by written notice to the holder or holders of Series B
Preferred) at any time during its respective usual business
hours, together with written notice by the holder of such
Converting Shares, stating that such holder desires to convert
the Converting Shares, or a stated number of the shares
represented by such certificate or certificates, into such number
of shares of Common Stock into which such shares may be converted
(the "Converted Shares"). Such notice shall also state the name
or names (with addresses and federal taxpayer identification
numbers) and denominations in which the certificate or
certificates for the Converted Shares are to be issued, shall
include instructions for the delivery thereof and shall include
such other information as the Corporation or its agents may
reasonably request. Promptly after such surrender and the receipt
of such written notice and the receipt of any required transfer
documents and payments representing dividends as described above,
the Corporation shall issue and deliver in accordance with the
surrendering holder's instructions the certificate or
certificates evidencing the Converted Shares issuable upon such
conversion, and the Corporation will deliver to the converting
holder (without cost to the holder) a certificate (which shall
contain such legends as were set forth on the surrendered
certificate or certificates) representing any shares of Series B
Preferred which were represented by the certificate or
certificates that were delivered to the Corporation in connection
with such conversion, but which were not converted.
(f) Such conversion, to the extent permitted by applicable
law, shall be deemed to have been effected at the close of
business on the date on which such certificate or certificates
shall have been surrendered and such notice and any required
transfer documents and payments representing dividends shall have
been received by the Corporation, and at such time the rights of
the holder of the Converting Shares as such holder shall cease,
and the person or persons in whose name or names the certificate
or certificates for the Converted Shares are to be issued upon
such conversion shall be deemed to have become the holder or
holders of record of the Converted Shares. Upon issuance of
shares in accordance herewith, such Converted Shares shall be
deemed to be fully paid and nonassessable. From and after the
effectiveness of any such conversion, shares of the Series B
Preferred so converted shall, upon compliance with applicable
law, be restored to the status of authorized but unissued
undesignated shares, until such shares are once more designated
as part of a particular series by the Board of Directors.
<PAGE>
(g) Notwithstanding any provision herein to the contrary,
the Corporation shall not be required to record the conversion
of, and no holder of shares shall be entitled to convert, shares
of Series B Preferred into shares of Common Stock unless such
conversion is permitted under applicable law; provided, however,
that the Corporation shall be entitled to rely without
independent verification upon the representation of any holder
that the conversion of shares by such holder is permitted under
applicable law, and in no event shall the Corporation be liable
to any such holder or any third party arising from any such
conversion whether or not permitted by applicable law.
(h) The Corporation will pay any and all stamp, transfer or
other similar taxes that may be payable in respect of the
issuance or delivery of Common Stock received upon conversion of
the shares of Series B Preferred, but shall not, however, be
required to pay any tax which may be payable in respect of any
transfer involved in the issuance or delivery of Common Stock in
a name other than that in which such shares of Series B Preferred
were registered and no such issuance or delivery shall be made
unless and until the person requesting such conversion shall have
paid to the Corporation the amount of any and all such taxes or
shall have established to the satisfaction of the Corporation
that such taxes have been paid in full.
(i) The Corporation shall at all times reserve and keep
available, free from preemptive rights, out of its authorized but
unissued stock, for the purpose of effecting the conversion of
the shares of the Series B Preferred, such number of its duly
authorized shares of Common Stock or other securities as shall
from time to time be sufficient to effect the conversion of all
outstanding shares of the Series B Preferred.
(j) Whenever the Corporation shall issue shares of Common
Stock upon conversion of shares of Series B Preferred as
contemplated by this Section 8, the Corporation shall issue
together with each such share of Common Stock one Right (as
defined in the Rights Agreement) pursuant to the terms and
provisions of the Rights Agreement.
9. Transfer Restriction. Shares of Series B Preferred shall
be issued only to the Plan and Trust and the certificate or
certificates representing such shares so issued may be registered
in the name of the Plan and Trust or in the name of one or more
Trustees acting on behalf of the Plan and Trust (or the nominee
name of any such trustee). In the event the Plan and Trust,
acting through any such trustee or otherwise, should transfer
beneficial or record ownership of one or more shares of Series B
Preferred to any person or entity, the shares of Series B
Preferred so transferred, upon such transfer and without any
further action by the Corporation or the Plan and Trust or anyone
else, shall be automatically converted, as of the time of such
transfer, into shares of Common Stock on the terms otherwise
provided for the voluntary conversion of shares of Series B
Preferred into shares of Common Stock pursuant to Section 8
hereof and no transferee of such share or shares shall thereafter
have or receive any of the rights and preferences of the
<PAGE>
shares of Series B Preferred so converted. Certificates
representing shares of Series B Preferred shall be legended to
reflect the aforesaid restriction on transfer. Shares of Series B
Preferred may also be subject to restrictions on transfer which
relate to the securities laws of the United States of America or
any state or other jurisdiction thereof.
10. No other Rights. The shares of Series B Preferred shall
not have any rights or preferences, except as set forth herein or
as otherwise required by applicable law.
11. Rules and Regulations. The Board of Directors shall have
the right and authority from time to time to prescribe rules and
regulations as it may determine to be necessary or advisable in
its sole discretion for the administration of the Series B
Preferred in accordance with the foregoing provisions and
applicable law.
12 . Definitions . For purposes of this Resolution, the
following definitions shall apply:
"Adjustment Period" shall mean the period of five (5)
consecutive trading days preceding the date as of which the Fair
Market Value of a security is to be determined.
"Business Day" shall mean each day that is not a Saturday,
Sunday or a day on which state or federally chartered banking
institutions in New York, New York are not required to be open.
"Current Market Price" of publicly traded shares of Common
Stock or any other class of capital stock or other security of
the Corporation or any other issuer for any day shall mean the
last reported sales price, regular way, or, in the event that no
sale takes place on such day, the average of the reported closing
bid and asked prices, regular way, in either case as reported on
the New York Stock Exchange Composite Tape or, if such security
is not listed or admitted to trading on the New York Stock
Exchange, on the principal national securities exchange on which
such security is listed or admitted to trading or, if not listed
or admitted to trading on any national securities exchange, on
the National Market System of the National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ")
or, if such security is not quoted on such National Market
System, the average of the closing bid and asked prices on each
such day in the over-the-counter market as reported by NASDAQ or,
if bid and asked prices for such security on each such day shall
not have been reported through NASDAQ, the average of the bid and
asked prices for such day as furnished by any New York Stock
Exchange member firm regularly making a market in such security
selected for such purpose by the Board of Directors or a
committee thereof.
<PAGE>
"Extraordinary Distribution" shall mean any dividend or
other distribution to holders of Common Stock (effected while any
of the shares of Series B Preferred are outstanding) (i) of cash
(other than a regularly scheduled quarterly dividend not
exceeding 135% of the average quarterly dividend for the four
quarters immediately preceding such dividend), where the
aggregate amount of such cash dividend or distribution together
with the amount of all cash dividends and distributions made
during the preceding period of twelve (12) months, when combined
with the aggregate amount of all Pro Rata Repurchases (for this
purpose, including only that portion of the aggregate purchase
price of such Pro Rata Repurchase which is in excess of the Fair
Market Value of the Common Stock repurchased as determined on the
applicable expiration date (including all extensions thereof) of
any tender offer or exchange offer which is a Pro Rata
Repurchase, or the date of purchase with respect to any other Pro
Rata Repurchase which is not a tender offer or exchange offer
made during such period), exceeds ten percent (10%) of the
aggregate Fair Market Value of all shares of Common Stock
outstanding on the day before the ex-dividend date with respect
to such Extraordinary Distribution which is paid in cash and on
the distribution date with respect to an Extraordinary
Distribution which is paid other than in cash, and/or (ii) of any
shares of capital stock of the Corporation (other than shares of
Common Stock), other securities of the Corporation (other than
securities of the type referred to in Section 8(b)(ii) or (iii)
hereof), evidences of indebtedness of the Corporation or any
other person or any other property (including shares of any
subsidiary of the Corporation) or any combination thereof. The
Fair Market Value of an Extraordinary Distribution for purposes
of Section 8(b)(iv) hereof shall be equal to the sum of the Fair
Market Value of such Extraordinary Distribution plus the amount
of any cash dividends (other than regularly scheduled dividends
not exceeding 135% of the aggregate quarterly dividends for the
preceding period of twelve (12) months) which are not
Extraordinary Distributions made during such 12-month period and
not previously included in the calculation of an adjustment
pursuant to Section 8(b)(iv) hereof.
"Fair Market Value" shall mean, as to shares of Common Stock
or any other class of capital stock or securities of the
Corporation or any other issue which are publicly traded, the
average of the Current Market Prices of such shares or securities
for each day of the Adjustment Period. The "Fair Market Value" of
any security which is not publicly traded or of any other
property shall mean the fair value thereof as determined by an
independent investment banking or appraisal firm experienced in
the valuation of such securities or property selected in good
faith by the Board of Directors or a committee thereof, or, if no
such investment banking or appraisal firm is in the good faith
judgment of the Board of Directors or such committee available to
make such determination, as determined in good faith by the Board
of Directors or such committee. The Fair Market Value of the
Series B Preferred for purposes of Section 5(a) hereof and for
purposes of Section 6 hereof shall be as determined by an
independent appraiser, appointed by the Corporation in accordance
with the provisions of the Plan and Trust, as of the most recent
Valuation Date, as defined in the Plan and Trust.
<PAGE>
"Non-Dilutive Amount" in respect of an issuance, sale or
exchange by the Corporation of any right or warrant to purchase
or acquire shares of Common Stock (including any security
convertible into or exchangeable for shares of Common Stock)
shall mean the difference between (i) the product of the Fair
Market Value of a share of Common Stock on the day preceding the
first public announcement of such issuance, sale or exchange
multiplied by the maximum number of shares of Common Stock which
could be acquired on such date upon the exercise in full of such
rights and warrants (including upon the conversion or exchange of
all such convertible or exchangeable securities), whether or not
exercisable (or convertible or exchangeable) at such date, and
(ii) the aggregate amount payable pursuant to such right or
warrant to purchase or acquire such maximum number of shares of
Common Stock; provided, however, that in no event shall the Non-
Dilutive Amount be less than zero. For purposes of the foregoing
sentence, in the case of a security convertible into or
exchangeable for shares of Common Stock, the amount payable
pursuant to a right or warrant to purchase or acquire shares of
Common Stock shall be the Fair Market Value of such security on
the date of the issuance, sale or exchange of such security by
the Corporation.
"Pro Rata Repurchase" shall mean any purchase of shares of
Common Stock by the Corporation or any subsidiary thereof,
whether for cash, shares of capital stock of the Corporation,
other securities of the Corporation, evidences of indebtedness of
the Corporation or any other person or any other property
(including shares of a subsidiary of the Corporation), or any
combination thereof, effected while any of the shares of Series B
Preferred are outstanding, pursuant to any tender offer or
exchange offer subject to Section 13(e) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or any
successor provision of law, or pursuant to any other offer
available to substantially all holders of Common Stock; provided,
however, that no purchase of shares by the Corporation or any
subsidiary thereof made in open market transactions shall be
deemed a Pro Rata Repurchase. For purposes of this definition,
shares shall be deemed to have been purchased by the Corporation
or any subsidiary thereof "in open market transactions" if they
have been purchased substantially in accordance with the
requirements of Rule 10b-18, as in effect under the Exchange Act,
on the date shares of Series B Preferred are initially issued by
the Corporation or on such other terms and conditions as the
Board of Directors or a committee thereof shall have determined
are reasonably designed to prevent such purchases from having a
material effect on the trading market for the Common Stock.
<PAGE>
CERTIFICATE OF DESIGNATION
OF
THE ST. PAUL COMPANIES, INC.
Series C Cumulative Convertible Preferred Stock
SECTION 1. Designation and Amount; Special Purpose; Restriction
on Senior Series.
(A) The shares of this series of Preferred Stock shall be
designated as "Series C Cumulative Convertible Preferred Stock"
("Series C Preferred Stock") and the number of shares constituting
such series shall be 41,400, without par value.
(B) Shares of Series C Preferred Stock shall be issued by the
conversion and exchange agent (the "Conversion Agent") for the Series
C Preferred Stock only upon the exchange of 6 Convertible Subordinated
Debentures due 2025 of the Corporation (the "Subordinated
Debentures"), and accrued interest thereon following a valid exchange
election (an "Exchange Election") by the holders of a majority of the
aggregate liquidation preference of the outstanding 6% Convertible
Monthly Income Preferred Securities, liquidation preference $50 per
security (the "St. Paul Capital Preferred Securities"), of St. Paul
Capital L.L.C., a Delaware limited liability company ("St. Paul
Capital"), to cause the St. Paul Capital Preferred Securities then
outstanding to be exchanged for depositary shares, each representing a
one hundredth (1/100th) interest in a share of Series C Preferred
Stock (the "Depositary Shares"), issued pursuant to the Deposit
Agreement, dated as of May 16, 1995, among the Corporation, The Chase
Manhattan Bank (National Association), as Depositary, and the holders
from time to time of the receipts described therein (the "Deposit
Agreement"), in the manner prescribed in the Amended and Restated
Limited Liability Company Agreement of St. Paul Capital, dated as of
May 16, 1995 (the "L.L.C. Agreement")
(C) So long as any St. Paul Capital Preferred Securities are
outstanding, the Corporation shall not authorize or issue any other
class or series of capital stock ranking senior as to the payment of
dividends or amounts upon liquidation, dissolution or winding-up to
the Series C Preferred Stock without the approval of the holders of
not less than 6 of the aggregate liquidation preference of the St.
Paul Capital Preferred Securities then outstanding.
SECTION 2. Dividends and Distributions.
(A) (1) The holders of shares of Series C Preferred Stock shall
be entitled to receive, when, as and if declared by the Board of
Directors of the Corporation out of funds legally available therefor,
cumulative cash dividends in an amount per share per annum equal to
$300 (equivalent to a rate per
<PAGE>
annum of 6E, of the stated liquidation preference of $5,000 per share
of Series C Preferred Stock), calculated on the basis of a 360-day
year consisting of 12 months of 30 days each, and for any period
shorter than a full monthly dividend period, dividends will be
computed on the basis of the actual number of days elapsed in such
period, and payable in United States dollars monthly in arrears on the
last day of each calendar month of each year.
(2) Dividends, when, as and if declared by the Board of Directors
of the Corporation out of funds legally available therefor, shall be
paid on the last day of each month. Such dividends will accrue and be
cumulative whether or not they have been earned or declared and
whether or not there are funds of the Corporation legally available
for the payment of dividends. Dividends on the Series C Preferred
Stock shall be cumulative from the date of the Exchange Election.
Accumulated but unpaid dividends, if any (including arrearages at the
rate of 6-7 per annum compounded monthly), on the St. Paul Capital
Preferred Securities on the date of the Exchange Election shall
constitute, and be treated as, accumulated and unpaid dividends on the
Series C Preferred Stock as of the date of the issuance thereof. The
record date for each dividend payment date shall be the day
immediately preceding such dividend payment date, provided that such
day is a day on which banking institutions in The City of New York are
not authorized or obligated by law or executive order to be closed (a
"Business Day"). In the event that any date on which dividends are
payable on the Series C Preferred Stock is not a Business Day, then
payment of the dividend payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or
other payment in respect of any such delay) except that, if such
Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on such date.
(B) In the event that full cumulative dividends on the Series C
Preferred Stock have not been declared and paid or set apart for
payment when due, then the Corporation shall not, and shall not permit
any direct or indirect majority-owned subsidiary of the Corporation
(except any of The John Nuveen Company, a Delaware corporation, and
Its consolidated subsidiaries) to, declare or pay any dividend on, or
redeem, purchase, acquire for value or make a liquidation payment with
respect to, any Pari Passu Stock or Junior Stock (each as defined
herein) (other than as a result of a reclassification of Pari Passu
Stock or Junior Stock or the exchange or conversion of one class or
series of Pari Passu Stock or Junior Stock for another class or series
of Pari Passu Stock or Junior Stock, respectively), or make any
guarantee payments with respect to the foregoing (other than payments
under the Guarantee Agreement dated as of May 16, 1995 of the
Corporation in favor of the holders of St. Paul Capital Preferred
Securities with respect to such securities or dividends or guarantee
payments to the Corporation).
When dividends are not paid in full, all dividends declared upon
the Series C Preferred Stock and all dividends declared upon any Pari
Passu Stock shall be paid ratably in proportion to the respective
amounts of dividends accumulated and unpaid on the Series C Preferred
Stock and accumulated and unpaid on such Pari Passu Stock. "Pari Passu
Stock" means the Series B Convertible Preferred Stock, liquidation
preference $100 per share (the "Senior B Preferred Stock") of the
Corporation, together with
<PAGE>
any preference stock or preferred stock of the Corporation, or any
guarantee now or hereafter entered into by the Corporation in respect
of any preferred or preference stock of any affiliate of the
Corporation, ranking, in such case, as to the payment of dividends and
amounts upon liquidation, dissolution and winding-up on a parity with
the Series C Preferred Stock. "Junior Stock" means Common Stock, the
Series A Junior Participating Preferred Stock, without par value, of
the Corporation, and any other class or series of capital stock of the
Corporation or any of its affiliates which by its express terms ranks
junior in the payment of dividends or amounts upon liquidation,
dissolution or winding-up to the Series C Preferred Stock.
SECTION 3. Voting Rights.
(A) In the event that full cumulative dividends on the Series C
Preferred Stock have not been paid for 18 monthly dividend periods
(including for this purpose any arrearage with respect to St. Paul
Capital Preferred Securities), the number of directors of the
Corporation constituting the entire Board of Directors shall be
increased by two (2) persons and the holders of the Series C Preferred
Stock shall have the right to elect two persons to fill such positions
at any regular meeting of shareholders or special meeting held in
place thereof, or at a special meeting of the holders of the Series C
Preferred Stock called as hereinafter provided. Whenever all
arrearages of dividends on the Series C Preferred Stock then
outstanding shall have been paid and dividends thereon for the current
monthly period shall have been paid or declared and set apart for
payment, then the right of the holders of the Series C Preferred Stock
to elect such additional two (2) directors shall cease (but subject
always to the same provisions for the vesting of such voting rights in
the case of any similar future arrearages in dividends), and the terms
of office of all persons elected as directors by the holders of the
Series C Preferred Stock shall forthwith terminate and the number of
directors of the Corporation shall be reduced accordingly. At any time
after such voting power shall have been so vested in the holders of
shares of the Series C Preferred Stock, the Secretary of the
Corporation may, and upon the written request for a special meeting
signed by the holders of at least 10% of all outstanding Series C
Preferred Stock (addressed to the Secretary at the principal office of
the Corporation) shall, call a special meeting of the holders of the
Series C Preferred Stock for the election of the two (2) directors to
be elected by them as herein provided; such call to be made by notice
similar to that provided for in the by-laws for a special meeting of
the shareholders or as required by law. If any such special meeting
required to be called as above provided shall not be called by the
Secretary within 20 days after receipt of any such request, then any
holder of Series C Preferred Stock may call such meeting, upon the
notice above provided, and for that purpose shall have access to the
stock books and records of the Corporation. The directors elected at
any such special meeting shall hold office until the next regular
meeting of the shareholders or special meeting held in place thereof
if such office shall not have previously terminated as above provided.
In case any vacancy shall occur among the directors elected by the
holders of the Series C Preferred Stock, a successor shall be elected
by the Board of Directors to serve until the next regular meeting of
the shareholders or special meeting held in place thereof upon the
nomination of the then remaining director elected by the holders of
the Series C Preferred Stock or the successor of such remaining
director.
<PAGE>
(B) Except as otherwise required by law or set forth herein,
holders of Series C Preferred Stock shall have no voting rights and
their consent shall not be required for the taking of any corporate
action. So long as any shares of Series C Preferred Stock are
outstanding, the consent of the holders of not less than 66) of the
outstanding shares of Series C Preferred Stock, given in person or by
proxy either at a regular meeting or at a special meeting called for
that purpose, at which the holders of Series C Preferred Stock shall
vote separately as a series, shall be necessary for effecting,
validating or authorizing any one or more of the following:
(1) The amendment, alteration or repeal of any of the
provisions of the Restated Articles of Incorporation, as amended,
of the Corporation, or any amendment thereto or any other
certificate filed pursuant to law (including any such amendment,
alteration or repeal effected by any merger or consolidation to
which the Corporation is a party) that would adversely affect any
of the rights, powers or preferences of outstanding shares of
Series C Preferred Stock; provided, however, that any amendment
or amendments to the provisions of the Restated Articles of
Incorporation, as amended, so as to authorize or create, or to
increase the authorized amount of, any Pari Passu Stock or any
Junior Stock shall not be deemed to adversely affect the voting
powers, rights or preferences of the holders of the Series C
Preferred Stock;
(2) The creation of any shares of any class or series or
any security convertible into shares of any class or series of
capital stock ranking prior to the Series C Preferred Stock in
the distribution of assets on any liquidation, dissolution or
winding-up of the Corporation or in the payment of dividends; or
(3) Any merger or consolidation with or into, or any sale,
transfer, exchange or lease of all or substantially all of the
assets of the Corporation to, any other corporation, in either
case that would adversely affect any of the rights, powers or
preferences of outstanding shares of Series C Preferred Stock;
provided, that so long as the convertible subordinated debentures
of the Corporation issued pursuant to the Indenture, dated as of
May 16, 1995, among the Corporation, St. Paul Capital L.L.C. "St.
Paul Capital") and The Chase Manhattan Bank (National
Association), as Trustee, are exchangeable for shares of Series C
Preferred Stock, that the consent of the holders of not less than
66% of the aggregate liquidation preference of the 6% Convertible
Monthly Income Preferred Securities of St. Paul Capital, given in
person or by proxy at a meeting called for that purpose, shall be
necessary for effecting validity or authorizing any one or more
of the foregoing actions.
(C) For purposes of this Section 3, while St. Paul Capital
Preferred Securities are outstanding and owned by any entity other
than the Corporation, St. Paul Capital, or their subsidiaries or
affiliates, any St. Paul Capital Preferred Securities owned by the
Corporation, St. Paul Capital or their subsidiaries or affiliates
shall not have the voting rights referred to in this Section.
<PAGE>
SECTION 4. Redemption.
(A) If at any time following the Conversion Expiration Date (as
defined below), less than five percent (5%) of the shares of Series C
Preferred Stock remain outstanding, such shares of Series C Preferred
Stock are redeemable, at the option of the Corporation, in whole but
not in part, from time to time, at a redemption price equal to the
liquidation preference, plus accumulated and unpaid dividends, whether
or not earned or declared, to the date of redemption (the "Redemption
Price").
(B) Unless otherwise required by law, notice of redemption will
be sent to the holders of Series C Preferred Stock by first-class
mail, postage prepaid, mailed not less than thirty (30), nor more than
sixty (60) days prior to the redemption date. Each such notice shall
state: (i) the redemption date; (ii) the Redemption Price; (iii) the
place or places where receipts for Depositary Shares representing such
shares are to be surrendered for payment of the Redemption Price; and
(iv) that dividends on the shares to be redeemed will cease to accrue
on such redemption date. Upon surrender of the receipts for Depositary
Shares representing the shares so called for redemption (properly
endorsed or assigned for transfer, if the Board of Directors of the
Corporation shall so require and the notice shall so state), such
shares shall be redeemed by the Corporation on the date fixed for
redemption at the Redemption Price.
SECTION 5. Liquidation, Dissolution or Winding-Up.
(A) Upon any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Corporation, the holders of Series C
Preferred Stock at the time outstanding will be entitled to receive
out of the net assets of the Corporation available for payment to
shareholders and subject to the rights of the holders of any stock of
the Corporation ranking senior to or on a parity with the Series C
Preferred Stock in respect of distributions upon liquidation,
dissolution, winding-up or termination of the Corporation, before any
amount shall be paid or distributed with respect to any Junior Stock,
liquidating distributions in the amount of $50 per share plus an
amount equal to all accrued and unpaid dividends thereon (whether or
not earned or declared) to the date fixed for distribution. If, upon
any liquidation, dissolution, winding-up or termination of the
Corporation, the amounts payable with respect to the Series C
Preferred Stock and the Pari Passu Stock are not paid in full, the
holders of the Series C Preferred Stock and the Pari Passu Stock shall
share ratably in any distribution of assets based on the proportion of
their full respective liquidation preference to the entire amount of
the unpaid aggregate liquidation preference of the Series C Preferred
Stock and the Pari Passu Stock. After payment of the full amount to
which they are entitled as provided by the foregoing provisions of
this Section 5(A), the holders of shares of Series C Preferred Stock
shall not be entitled to any further right or claim to any of the
remaining assets of the Corporation.
<PAGE>
(B) Neither the merger or consolidation of the Corporation with
or into any other corporation, nor the merger or consolidation of any
other corporation with or into the Corporation, nor the sale,
transfer, exchange or lease of all or any portion of the as sets of
the Corporation, shall be deemed to be a dissolution, liquidation or
winding-up of the affairs of the Corporation for purposes of this
Section 5
(C) Written notice of any voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, stating the payment date
or dates when, and the place or places where, the amounts
distributable to holders of Series C Preferred Stock in such
circumstances shall be payable, shall be given by first-class mail,
postage prepaid, mailed not less than twenty (20) days prior to any
payment date stated therein, to the holders of Series C Preferred
Stock, at the address shown on the books of the Corporation or the
transfer agent for the Series C Preferred Stock; provided, however,
that a failure to give notice as provided above or any defect therein
shall not affect the Corporation's ability to consummate a voluntary
or involuntary liquidation, dissolution or winding-up of the
Corporation.
SECTION 6. Conversion Rights of Series C Preferred Stock.
The shares of Series C Preferred Stock are convertible at any
time before the close of business on the Conversion Expiration Date
(as defined in the L.L.C. Agreement), at the option of the holder
thereof, into shares of Common Stock at the initial conversion price
of $59 per share of Common Stock, subject to adjustment, as provided
in Section 7 (as so adjusted, the "Conversion Price"). For this
purpose, each share of Series C Preferred Stock shall be taken at
$5,000.
Holders of record of Series C Preferred Stock at the close of
business on a dividend payment record date will be entitled to receive
the dividend payable on such shares of Series C Preferred Stock on the
corresponding dividend payment date notwithstanding the conversion
thereof following such dividend payment record date but on or prior to
such dividend payment date. Except as provided in the immediately
preceding sentence, the Corporation will make no payment or allowance
for accumulated and unpaid dividends, whether or not in arrears, on
converted shares of Series C Preferred Stock.
No fractional shares of Common Stock will be issued as a result
of conversion, but in lieu thereof, the Corporation shall pay a cash
adjustment in an amount equal to the same fraction of the Closing
Price (as hereinafter defined) on the date on which the certificate or
certificates for such shares were duly surrendered for conversion, or,
if such date is not a Trading Day (as hereinafter defined), on the
next Trading Day.
Any holder of shares of Series C Preferred Stock desiring to
convert such shares into shares of Common Stock shall surrender the
certificate or certificates representing the shares of Series C
Preferred Stock being converted, duly assigned or endorsed for
transfer to the Corporation (or accompanied by duly executed stock
powers relating thereto), at the principal executive office of the
Corporation or the offices of the transfer agent for the Series C
Preferred Stock or such office or offices in the continental
<PAGE>
United States of an agent for conversion as may from time to time be
designated by notice to the holders of the Series C Preferred Stock by
the Corporation or the transfer agent for the Series C Preferred
Stock, accompanied by written notice of conversion, on any day prior
to the Conversion Expiration Date that is a Business Day. Such notice
of conversion shall specify (i) the number of shares of Series C
Preferred Stock to be converted and the name or names in which such
holder desires the certificate or certificates for Common Stock and
for any shares of Series C Preferred Stock not to be so converted to
be issued (subject to compliance with applicable legal requirements if
any of such certificates are to be issued in a name other than the
name of the holder), and (ii) the address to which such holder wishes
delivery to be made of such new certificates to be issued upon such
conversion.
Upon surrender of a certificate representing a share or shares of
Series C Preferred Stock for conversion, the Corporation shall issue
and send by hand delivery (with receipt to be acknowledged) or by
first-class mail, postage prepaid, to the holder thereof, at the
address designated by such holder, a certificate or certificates
representing the number of shares of Common Stock to which such holder
shall be entitled upon conversion. In the event that there shall have
been surrendered a certificate or certificates representing shares of
Series C Preferred Stock, only part of which are to be converted, the
Corporation shall issue and deliver to such holder or such holder's
designee in the manner provided in the immediately preceding sentence
a new certificate or certificates representing the number of shares of
Series C Preferred Stock that shall not have been converted.
The issuance by the Corporation of shares of Common Stock upon a
conversion of shares of Series C Preferred Stock into shares of Common
Stock made at the option of the holder thereof shall be effective upon
the surrender by such holder or such holder's designee of the
certificate or certificates for the shares of Series C Preferred Stock
to be converted, duly assigned or endorsed for transfer to the
Corporation (or accompanied by duly executed stock powers relating
thereto). The person or persons entitled to receive the Common Stock
issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of the
close of business on the effective date of the conversion. No
allowance or adjustment shall be made in respect of dividends payable
to holders of Common Stock of record as of any date prior to such
effective date.
Whenever the Corporation shall issue shares of Common Stock upon
conversion of shares of Series C Preferred Stock as contemplated by
this Section 6, the Corporation shall issue, together with each such
share of Common Stock, one right to purchase Series A Junior
Participating Preferred Stock of the Corporation (or other securities
in lieu thereof) pursuant to the Shareholder Protection Rights
Agreement, dated as of December 4, 1989 (the "Rights Agreement"),
between the Corporation and First Chicago Trust Company of New York,
as Rights Agent, as such Rights Agreement may from time to time be
amended, or any similar rights issued to holders of Common Stock of
the Corporation in addition thereto or in replacement therefor (such
rights, together with any additional or replacement rights, being
collectively referred to as the "Rights"), whether or not such Rights
shall be exercisable at such time, but only if such Rights are issued
and outstanding and held by other holders of Common Stock of the
Corporation (or are evidenced by outstanding share certificates
representing Common Stock) at such time and have not expired or been
redeemed.
<PAGE>
(i) On and after May 31, 1999, the Corporation shall have the
right, at its option, to cause the conversion rights set forth in this
Section to expire, provided that the Current Market Price (as defined
below) of the Common Stock of the Corporation on each of 20 Trading
Days within any period of 30 consecutive Trading Days, including the
last Trading Day of such period, exceeds 120 of the Conversion Price
in effect on such Trading Day;
(ii) In order to exercise its option to cause the conversion
rights of holders of shares of Series C Preferred Stock to expire, the
Corporation must issue a press release for publication on the Dow
Jones News Service and such other print and electronic media as the
Corporation shall select announcing the Conversion Expiration Date
(the "Press Release") prior to the opening of business on the second
Trading Day after a period in which the condition in the preceding
paragraph has been met (but in no event prior to May 31, 1999). The
Press Release shall state that the Corporation has elected to exercise
its right to extinguish the conversion rights of holders of shares of
Series C Preferred Stock, specify the Conversion Expiration Date and
provide the Conversion Price of the Series C Preferred Stock and the
Current Market Price of the Common Stock, in each case as of the close
of business on the Trading Day next preceding the date of the Press
Release. If the Corporation exercises the option described in this
paragraph, the "Conversion Expiration Date" shall be a date selected
by the Corporation which date shall be not less than 30 or more than
60 days after the date on which the Corporation issues the Press
Release; and
(iii) In addition to issuing the Press Release, the Company shall
send notice of the expiration of conversion rights (a "Notice of
Conversion Expiration") by first-class mail to each record holder of
shares of Series C Preferred Stock not more than four (4) Business
Days after the Corporation issues the Press Release. Such Notice of
Conversion Expiration shall state: (1) the Conversion Expiration Date;
(2) the Conversion Price of the Series C Preferred Stock and the
Current Market Price of the Common Stock, in each case as of the close
of business on the Trading Day next preceding the date of the Notice
of Conversion Expiration; (3) the place or places at which receipts
for Depositary Shares representing shares of Series C Preferred Stock
are to be surrendered prior to the Conversion Expiration Date for
certificates representing shares of Common Stock; and (4) such other
information or instructions as the Corporation deems necessary or
advisable to enable a holder of shares of Series C Preferred Stock to
exercise its conversion right hereunder. No defect in the Notice of
Conversion Expiration or in the mailing thereof with respect to any
shares of Series C Preferred Stock shall affect the validity of such
notice with respect to any other share of Series C Preferred Stock. As
of the close of business on the Conversion Expiration Date, the Series
C Preferred Stock shall no longer be convertible into Common Stock. As
used in this Section, "Current Market Price" of publicly traded shares
of Common Stock for any day means the last reported sales price,
regular way on such day, or, if no sale takes place on such day, the
average of the reported closing bid and asked prices on such day,
regular way, in either case as reported on the New York Stock Exchange
Consolidated Transaction Tape, or, if the Common Stock is not listed
or admitted to trading on the New York Stock Exchange, on the
principal national securities
<PAGE>
exchange on which the Common Stock is listed or admitted to trading if
the Common Stock is listed on a national securities exchange, or the
National Market System of the National Association of Securities
Dealers, Inc., or, if the Common Stock is not quoted or admitted to
trading on such quotation system, on the principal quotation system on
which the Common Stock may be listed or admitted to trading or quoted,
or, if not listed or admitted to trading or quoted on any national
securities exchange or quotation system, the average of the closing
bid and asked prices of the Common Stock in the over-the-counter
market on the day in question as reported by the National Quotation
Bureau Incorporated, or a similar generally accepted reporting
service, or, if not so available in such manner, as furnished by any
New York Stock Exchange member firm selected from time to time by the
Board of Directors of the Corporation for that purpose or, if not so
available in such manner, as otherwise determined in good faith by the
Board of Directors.
The Corporation shall at all times reserve and keep available out
of its authorized and unissued Common Stock, solely for issuance upon
the conversion of shares of Series C Preferred Stock as herein
provided, free from any preemptive or other similar rights, such
number of shares of Common Stock as shall from time to time be
issuable upon the conversion of all the shares of Series C Preferred
Stock then outstanding. All shares of Common Stock delivered upon
conversion of the Series C Preferred Stock shall be duly authorized,
validly issued, fully paid and non-assessable, free and clear of all
liens, claims, interests and other encumbrances. The Corporation shall
prepare and shall use its best efforts to obtain and keep in force
such governmental or regulatory permits or other authorizations as may
be required by law, and shall comply with all applicable requirements
as to registration or qualification of the Common Stock (and all
requirements to list the Common Stock issuable upon conversion of
Series C Preferred Stock that are at the time applicable), in order to
enable the Corporation lawfully to issue and deliver to each holder of
record of Series C Preferred Stock such number of shares of its Common
Stock as shall from time to time be sufficient to effect the
conversion of all shares of Series C Preferred Stock then outstanding
and convertible into shares of Common Stock.
SECTION 7. Adjustment of Conversion Price.
(A) Adjustment of Conversion Price. The Conversion Price at
which a share of Series C Preferred Stock is convertible into Common
Stock shall be subject to adjustment from time to time as follows:
(i) In case the Corporation shall pay or make a dividend or
other distribution on any class or series of capital stock of the
Corporation exclusively in Common Stock, the Conversion Price in
effect at the opening of business on the day following the date fixed
for the determination of shareholders entitled to receive such
dividend or other distribution shall be reduced by multiplying such
Conversion Price by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding at the close of business
on the date fixed for such determination and the denominator shall be
the sum of such number
<PAGE>
of shares and the total number of shares constituting such dividend or
other distribution or exchange, such reduction to become effective
immediately after the opening of business on the day following the
date fixed for such determination. For the purposes of this
subparagraph (i), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the
Corporation. The Corporation shall not pay any dividend or make any
distribution on shares of any class or series of capital stock of the
Corporation exclusively in Common Stock held in the treasury of the
Corporation.
(ii) In case the Corporation shall pay or make a dividend or
other distribution on its Common Stock consisting exclusively of, or
shall otherwise issue to all holders of its Common Stock, rights or
warrants entitling the holders thereof to subscribe for or purchase
shares of Common Stock at a price per share less than the current
market price per share (determined as provided in subparagraph (vii)
of this Section 7(a)) of the Common Stock on the date fixed for the
determination of shareholders entitled to receive such rights or
warrants, the Conversion Price in effect at the opening of business on
the day following the date fixed for such determination shall be
reduced by multiplying such Conversion Price by a fraction of which
the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock which the
aggregate of the offering price of the total number of shares of
Common Stock so offered for subscription or purchase would purchase at
such current market price and the denominator shall be the number of
shares of Common Stock outstanding at the close of business on the
date fixed for such determination plus the number of shares of Common
Stock so offered for subscription or purchase, such reduction to
become effective immediately after the opening of business on the day
following the date fixed for such determination. In case any rights or
warrants referred to in this subparagraph (ii) in respect of which an
adjustment shall have been made shall expire unexercised within 45
days after the same shall have been distributed or issued by the
Corporation, the Conversion Price shall be readjusted at the time of
such expiration to the Conversion Price that would have been in effect
if no adjustment had been made on account of the distribution or
issuance of such expired rights or warrants.
(iii) In case outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the
Conversion Price in effect at the opening of business on the day
following the day upon which such subdivision becomes effective shall
be proportionately reduced, and conversely, in case outstanding shares
of Common Stock shall each be combined into a smaller number of shares
of Common Stock, the Conversion Price in effect at the opening of
business on the day following the day upon which such combination
becomes effective shall be proportionately increased, such reduction
or increase, as the case may be, to become effective immediately after
the opening of business on the day following the day upon which such
subdivision or combination becomes effective.
(iv) Subject to the last sentence of this subparagraph (iv), in
case the Corporation shall, by dividend or otherwise, distribute to
all holders of its Common Stock evidences of its indebtedness, shares
of any class or series of capital stock, cash or assets (including
securities, but excluding any rights or
<PAGE>
warrants referred to in subparagraph (ii) of this Section 7(A), any
dividend or distribution paid exclusively in cash and any dividend or
distribution referred to in subparagraph (i) of this Section 7(A)),
the Conversion Price shall be reduced so that the same shall equal the
price determined by multiplying the Conversion Price in effect
immediately prior to the effectiveness of the Conversion Price
reduction contemplated by this subparagraph (iv) by a fraction of
which the numerator shall be the current market price per share
(determined as provided in subparagraph (vii) of this Section 7(A)) of
the Common Stock on the date fixed for the payment of such
distribution (the "Reference Date") less the fair market value (as
determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the
Board of Directors), on the Reference Date, of the portion of the
evidences of indebtedness, shares of capital stock, cash and assets so
distributed applicable to one share of Common Stock and the
denominator shall be such current market price per share of the Common
Stock, such reduction to become effective immediately prior to the
opening of business on the day following the Reference Date. If the
Board of Directors determines the fair market value of any
distribution for purposes of this subparagraph (iv) by reference to
the actual or when issued trading market for any securities comprising
such distribution, it must in doing so consider the prices in such
market over the same period used in computing the current market price
per share of Common Stock pursuant to subparagraph (vii) of this
Section 7(A) . For purposes of this subparagraph (iv), any dividend or
distribution that includes shares of Common Stock or rights or
warrants to subscribe for or purchase shares of Common Stock shall be
deemed instead to be (1) a dividend or distribution of the evidences
of indebtedness, shares of capital stock, cash or assets other than
such shares of Common Stock or such rights or warrants (making any
Conversion Price reduction required by this subparagraph (iv))
immediately followed by (2) a dividend or distribution of such shares
of Common Stock or such rights or warrants (making any further
Conversion Price reduction required by subparagraph (i) or (ii) of
this Section 7(A)), except (A) the Reference Date of such dividend or
distribution as defined in this subparagraph (iv) shall be substituted
as "the date fixed for the determination of shareholders entitled to
receive such dividend or other distribution," "the date fixed for the
determination of shareholders entitled to receive such rights or
warrants" and "the date fixed for such determination" within the
meaning of subparagraphs (i) and (ii) of this Section 7(A) and (B) any
shares of Common Stock included in such dividend or distribution shall
not be deemed "outstanding at the close of business on the date fixed
for such determination" within the meaning of subparagraph (i) of this
Section 7(A).
(v) In case the Corporation shall pay or make a dividend or
other distribution on its Common Stock exclusively in cash (excluding,
in the case of any regular cash dividend on the Common Stock, the
portion thereof that does not exceed the per share amount of the next
preceding regular cash dividend on the Common Stock (as adjusted to
appropriately reflect any of the events referred to in subparagraphs
(i), (ii), (iii), (iv), (v) and (vi) of this Section 7(A)), or
excluding all of such regular cash dividend if the annualized amount
thereof per share of Common Stock does not exceed 15% of the current
market price per share (determined as provided in subparagraph (vii)
of this Section 7 (A) ) of the Common Stock on the Trading Day (as
defined in Section 7(E)) next preceding the date of declaration of
such dividend), the
<PAGE>
Conversion Price shall be reduced so that the same shall equal the
price determined by multiplying the Conversion Price in effect
immediately prior to the effectiveness of the Conversion Price
reduction contemplated by this subparagraph (v) by a fraction of which
the numerator shall be the current market price per share (determined
as provided in subparagraph (vii) of this Section 7(A)) of the Common
Stock on the date fixed for the payment of such distribution less the
amount of cash so distributed and not excluded as provided above
applicable to one share of Common Stock and the denominator shall be
such current market price per share of the Common Stock, such
reduction to become effective immediately prior to the opening of
business on the day following the date fixed for the payment of such
distribution.
(vi) In case a tender or exchange offer made by the Corporation
or any subsidiary of the Corporation for all or any portion of the
Corporation's Common Stock shall expire and such tender or exchange
offer shall involve the payment by the Corporation or such subsidiary
of consideration per share of Common Stock having a fair market value
(as determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the
Board of Directors) at the last time (the "Expiration Time") tenders
or exchanges may be made pursuant to such tender or exchange offer (as
it shall have been amended) that exceeds 101 of the current market
price per share (determined as provided in subparagraph (vii) of this
Section 7(A)) of the Common Stock on the Trading Day (as defined in
Section 7(E)) next succeeding the Expiration Time, the Conversion
Price shall be reduced so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately
prior to the effectiveness of the Conversion Price reduction
contemplated by this subparagraph (vi) by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding
(including any tendered or exchanged shares) at the Expiration Time
multiplied by the current market price per share (determined as
provided in subparagraph (vii) of this Section 7(A)) of the Common
Stock on the Trading Day next succeeding the Expiration Time and the
denominator shall be the sum of (x) the fair market value (determined
as aforesaid) of the aggregate consideration payable to holders of
Common Stock based on the acceptance (up to any maximum specified in
the terms of the tender or exchange offer) of all shares validly
tendered or exchanged and not withdrawn as of the Expiration Time (the
shares deemed so accepted, up to any such maximum, being referred to
as the "Purchased Shares") and (y) the product of the number of shares
of Common Stock outstanding (less any Purchased Shares) at the
Expiration Time and the current market price per share (determined as
provided in subparagraph (vii) of this Section 7 (A) (of the Common
Stock on the Trading Day next succeeding the Expiration Time, such
reduction to become effective immediately prior to the opening of
business on the day following the Expiration Time.
(vii) For the purpose of any computation under subparagraphs
(ii), (iv), (v) and (vi) of this Section 7(A), the current market
price per share of Common Stock on any date in question shall be
deemed to be the average of the daily Closing Prices (as defined in
Section 7(E)) for the five consecutive Trading Days selected by the
Company commencing not more than 20 Trading Days before, and ending
not later than, the earlier of the day in question and, if applicable,
the day before the "ex" date with respect to the issuance or
distribution requiring such computation; provided, however, that if
another event occurs that would require an adjustment pursuant to
subparagraphs (i) through (vi), inclusive, the
<PAGE>
Board of Directors may make such adjustments to the Closing Prices
during such five Trading Day period as it deems appropriate to
effectuate the intent of the adjustments in this Section 7(A), in
which case any such determination by the Board of Directors shall be
set forth in a resolution of the Board of Directors and shall be
conclusive. For purposes of this paragraph, the term "ex" date, (1)
when used with respect to any issuance or distribution, means the
first date on which the Common Stock trades regular way on the New
York Stock Exchange or on such successor securities exchange as the
Common Stock may be listed or in the relevant market from which the
Closing Price was obtained without the right to receive such issuance
or distribution, and (2( when used with respect to any tender or
exchange offer means the first date on which the Common Stock trades
regular way on such securities exchange or in such market after the
Expiration Time of such offer.
(viii) The Corporation may make such reductions in the
Conversion Price, in addition to those required by subparagraphs (i),
(ii), (iii), (iv), (v) and (vi) of this Section 7(A), as it considers
to be advisable to avoid or diminish any income tax to holders of
Common Stock or rights to purchase Common Stock resulting from any
dividend or distribution of stock (or rights to acquire stock) or from
any event treated as such for income tax purposes. The Corporation
from time to time may reduce the Conversion Price by any amount for
any period of time if the period is at least twenty (20) days, the
reduction is irrevocable during the period, and the Board of Directors
of the Corporation shall have made a determination that such reduction
would be in the best interest of the Corporation, which determination
shall be conclusive. Whenever the Conversion Price is reduced pursuant
to the preceding sentence, the Corporation shall mail to holders of
record of the Series C Preferred Stock a notice of the reduction at
least fifteen (15) days prior to the date the reduced Conversion Price
takes effect, and such notice shall state the reduced Conversion Price
and the period it will be in effect.
(ix) Notwithstanding anything herein to the contrary, no
adjustment in the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the
Conversion Price; provided, however, that any adjustments which by
reason of this subparagraph (ix) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
(x) Whenever the Conversion Price is adjusted as herein
provided:
(1) the Corporation shall compute the adjusted Conversion
Price and shall prepare a certificate signed by the Chief
Financial Officer or the Treasurer of the Corporation setting
forth the adjusted Conversion Price and showing in reasonable
detail the facts upon which such adjustment is based, and such
certificate shall forthwith be filed with the transfer agent for
the Series C Preferred Stock; and
(2) a notice stating that the Conversion Price has been
adjusted and setting forth the adjusted Conversion Price shall as
soon as practicable be mailed by the Corporation to all record
holders of shares of Series C Preferred Stock at their last
addresses as they shall appear upon the stock transfer books of
the Corporation.
<PAGE>
(B) Reclassification, Consolidation, Merger or Sale of Assets.
In the event that the Corporation shall be a party to any transaction
(including without limitation any recapitalization or reclassification
of the Common Stock (other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a
result of a subdivision or combination of the Common Stock), any
consolidation of the Corporation with, or merger of the Corporation
into, any other person, any merger of another person into the
Corporation (other than a merger which does not result in a
reclassification, conversion, exchange or cancellation of outstanding
shares of Common Stock of the Corporation), any sale or transfer of
all or substantially all of the assets of the Corporation or any
compulsory share exchange) pursuant to which the Common Stock is
converted into the right to receive other securities, cash or other
property), then lawful provision shall be made as part of the terms of
such transaction whereby the holder of each share of Series C
Preferred Stock then outstanding shall have the right thereafter, to
convert such share only into (i( in the case of any such transaction
other than a Common Stock Fundamental Change (as defined in Section
7(E)), the kind and amount of securities, cash and other property
receivable upon such transaction by a holder of the number of shares
of Common Stock of the Corporation into which such share of Series C
Preferred Stock could have been converted immediately prior to such
transaction, after giving effect, in the case of any Non-Stock
Fundamental Change (as defined in Section 7(E)), to any adjustment in
the Conversion Price required by the provisions of Section 7(D), and
(ii) in the case of a Common Stock Fundamental Change, common stock of
the kind received by holders of Common Stock as a result of such
Common Stock Fundamental Change in an amount determined pursuant to
the provisions of Section 7(D). The Corporation or the person formed
by such consolidation or resulting from such merger or which acquires
such assets or which acquires the Corporation's shares, as the case
may be, shall make provision in its certificate or articles of
incorporation or other constituent document to establish such right.
Such certificate or articles of incorporation or other constituent
document shall provide for adjustments which, for events subsequent to
the effective date of such certificate or articles of incorporation or
other constituent document, shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 7. The
above provisions shall similarly apply to successive transactions of
the foregoing type.
(C) Prior Notice of Certain Events. In case:
(i) the Corporation shall (1) declare any dividend (or any other
distribution) on its Common Stock, other than (A) a dividend
payable in shares of Common Stock or (B) a dividend payable in
cash out of its retained earnings that would not require an
adjustment pursuant to 7(A) (iv) or (v) or (2) authorize a tender
or exchange offer that would require an adjustment pursuant to
7(A) (vi);
(ii) the Corporation shall authorize the granting to all holders
of Common Stock of rights or warrants to subscribe for or
purchase any shares of stock of any class or series or of any
other rights or warrants;
(iii) of any reclassification of Common Stock (other than a
subdivision or combination of the outstanding Common Stock, or a
change in par value, or from par value to no par value, or from
<PAGE>
no par value to par value), or of any consolidation or merger to
which the Corporation is a party and for which approval of any
shareholders of the Corporation shall be required, or of the sale
or transfer of all or substantially all of the assets of the
Corporation or of any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or other
property; or
(iv) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Corporation;
then the Corporation shall cause to be filed with the transfer agent
for the Series C Preferred Stock, and shall cause to be mailed to the
holders of record of the Series C Preferred Stock, at their last
addresses as they shall appear upon the stock transfer books of the
Corporation, at least fifteen (15) days prior to the applicable record
or effective date hereinafter specified, a notice stating (x) the date
on which a record (if any) is to be taken for the purpose of such
dividend, distribution, redemption, repurchase, rights or warrants or,
if a record is not to be taken, the date as of which the holders of
Common Stock of record to be entitled to such dividend, distribution,
redemption, repurchase, rights or warrants are to be determined or (y)
the date on which such reclassification, consolidation, merger, sale,
transfer, share exchange, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is expected
that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale,
transfer, share exchange, dissolution, liquidation or winding-up (but
no failure to mail such notice or any defect therein or in the mailing
thereof shall affect the validity of the corporate action required to
be specified in such notice)
(D) Adjustments in Case of Fundamental Changes. Notwithstanding
any other provision in this Section 7 to the contrary, if any
Fundamental Change (as defined in Section 7(E)) occurs, then the
Conversion Price in effect will be adjusted immediately after such
Fundamental Change as described below. In addition, in the event of a
Common Stock Fundamental Change, each share of Series C Preferred
Stock shall be convertible solely into common stock of the kind and
amount received by holders of Common Stock as the result of such
Common Stock Fundamental Change as more specifically provided in the
following clauses (D) (i) and (D) (ii).
For purposes of calculating any adjustment to be made pursuant to this
Section 7(D) in the event of a Fundamental Change, immediately after
such Fundamental Change:
(i) in the case of a Non-Stock Fundamental Change, the Conversion
Price of the Series C Preferred Stock shall thereupon become the lower
of (A) the Conversion Price in effect immediately prior to such Non-
Stock Fundamental Change, but after giving effect to any other prior
adjustments effected pursuant to this Section 7, and (B) the result
obtained by multiplying the greater of the Applicable Price (as
defined in Section 7(E)) or the then applicable Reference Market Price
(as defined in Section 7(E)) by a fraction of which the numerator
shall be $50 and the denominator shall be an amount per share of
Series C Preferred Stock determined by the Corporation in its sole
discretion, after consultation with a nationally recognized investment
banking firm, to be the equivalent of the hypothetical redemption
price that would have been applicable if the Series C Preferred Stock
had been redeemable during such period; and
<PAGE>
(ii) in the case of a Common Stock Fundamental Change, the
Conversion Price of the Series C Preferred Stock in effect immediately
prior to such Common Stock Fundamental Change, but after giving effect
to any other prior adjustments effected pursuant to this Section 7,
shall thereupon be adjusted by multiplying such Conversion Price by a
fraction of which the numerator shall be the Purchaser Stock Price (as
defined in Section 7(E)) and the denominator shall be the Applicable
Price; provided, however, that in the event of a Common Stock
Fundamental Change in which (A) 100% by value of the consideration
received by a holder of Common Stock is common stock of the successor,
acquiror or other third party (and cash, if any, is paid with respect
to any fractional interests in such common stock resulting from such
Common Stock Fundamental Change) and (B) all of the Common Stock shall
have been exchanged for, converted into or acquired for common stock
(and cash with respect to fractional interests) of the successor,
acquiror or other third party, the Conversion Price of the Series C
Preferred Stock in effect immediately prior to such Common Stock
Fundamental Change shall thereupon be adjusted by multiplying such
Conversion Price by a fraction of which the numerator shall be one (1)
and the denominator shall be the number of shares of common stock of
the successor, acquiror, or other third party received by a
shareholder for one share of Common Stock as a result of such Common
Stock Fundamental Change.
(E) Definitions. The following definitions shall apply to terms
used in this Section 7:
(1) "Applicable Price" shall mean (i) in the event of a Non-
Stock Fundamental Change in which the holders of the Common Stock
receive only cash, the amount of cash received by a shareholder for
one share of Common Stock and (ii) in the event of any other Non-Stock
Fundamental Change or any Common Stock Fundamental Change, the average
of the daily Closing Prices of the Common Stock for the ten (10)
consecutive Trading Days prior to and including the record date for
the determination of the holders of Common Stock entitled to receive
securities, cash or other property in connection with such Non-Stock
Fundamental Change or Common Stock Fundamental Change, or, if there is
no such record date, the date upon which the holders of the Common
Stock shall have the right to receive such securities, cash or other
property, in each case, as adjusted in good faith by the Board of
Directors of the Corporation to appropriately reflect any of the
events referred to in subparagraphs (i), (ii), (iii), (iv), (v) and
(vi) of Section 7(A)
(2) "Closing Price" of any common stock on any day shall mean the
last reported sale price regular way on such day or, in case no such
sale takes place on such day, the average of the reported closing bid
and asked prices regular way of such common stock, in each case on the
principal national securities exchange on which such common stock is
listed, if the common stock is listed on a national securities
exchange, or the NASDAQ National Market System of the National
Association of Securities Dealers, Inc., or, if the common stock is
not quoted or admitted to trading on such quotation system, on the
principal national securities exchange or quotation system on which
the common stock is listed or admitted to trading or quoted, or, if
not listed or admitted to trading or quoted on any national securities
<PAGE>
exchange or quotation system, the average of the closing bid and asked
prices of the common stock in the over-the-counter market on the day
in question as reported by the National Quotation Bureau Incorporated,
or a similarly generally accepted reporting service, or, if not so
available in such manner, as furnished by any New York Stock Exchange
member firm selected from time to time by the Board of Directors of
the Corporation for that purpose or, if not so available in such
manner, as otherwise determined in good faith by the Board of
Directors.
(3) "Common Stock Fundamental Change" shall mean any Fundamental
Change in which more than 50% by value (as determined in good faith by
the Board of Directors of the Corporation) of the consideration
received by holders of Common Stock consists of common stock that for
each of the ten (10) consecutive Trading Days referred to with respect
to such Fundamental Change in Section 7(E) (1) above has been admitted
for listing or admitted for listing subject to notice of issuance on a
national securities exchange or quoted on the NASDAQ National Market
System of the National Association of Securities Dealers, Inc.;
provided, however, that a Fundamental Change shall not be a Common
Stock Fundamental Change unless either (i) the Corporation continues
to exist after the occurrence of such Fundamental Change and the
outstanding shares of Series C Preferred Stock continue to exist as
outstanding shares of Series C Preferred Stock, or (ii) not later than
the occurrence of such Fundamental Change, the outstanding shares of
Series C Preferred Stock are converted into or exchanged for shares of
convertible preferred stock of a corporation succeeding to the
business of the Corporation, which convertible preferred stock has
powers, preferences and relative, participating, optional or other
rights, and qualifications, limitations and restrictions,
substantially similar to those of the Series C Preferred Stock.
(4) "Fundamental Change" shall mean the occurrence of any
transaction or event in connection with a plan pursuant to which all
or substantially all of the Common Stock shall be exchanged for,
converted into, acquired for or constitute solely the right to receive
securities, cash or other property (whether by means of an exchange
offer, liquidation, tender offer, consolidation, merger, combination,
reclassification, recapitalization or otherwise); provided, however,
in the case of a plan involving more than one such transaction or
event, for purposes of adjustment of the Conversion Price, such
Fundamental Change shall be deemed to have occurred when substantially
all of the Common Stock of the Corporation shall be exchanged for,
converted into, or acquired for or constitute solely the right to
receive securities, cash or other property, but the adjustment shall
be based upon the highest weighted average of consideration per share
which a holder of Common Stock could have received in such
transactions or events as a result of which more than 50% of the
Common Stock of the Corporation shall have been exchanged for,
converted into, or acquired for or constitute solely the right to
receive securities, cash or other property.
(5) "Non-Stock Fundamental Change" shall mean any Fundamental
Change other than a Common Stock Fundamental Change.
<PAGE>
(6) "Purchaser Stock Price" shall mean, with respect to any
Common Stock Fundamental Change, the average of the daily Closing
Prices of the common stock received in such Common Stock Fundamental
Change for the ten (10) consecutive Trading Days prior to and
including the record date for the determination of the holders of
Common Stock entitled to receive such common stock, or, if there is no
such record date, the date upon which the holders of the Common Stock
shall have the right to receive such common stock, in each case, as
adjusted in good faith by the Board of Directors of the Corporation to
appropriately reflect any of the events referred to in subparagraphs
(i), (ii), (iii), (iv), (v) and (vi) of Section 7(A)
(7) "Reference Market Price" shall initially mean $32.25 and in
the event of any adjustment to the Conversion Price other than as a
result of a Non-Stock Fundamental Change, the Reference Market Price
shall also be adjusted so that the ratio of the Reference Market Price
to the Conversion Price after giving effect to any such adjustment
shall always be the same as the ratio of $32.25 to the initial
Conversion Price per share.
(8) "Trading Day" shall mean a day on which securities are
traded on the national securities exchange or quotation system or in
the over the-counter market used to determine the Closing Price.
(F) Dividend or Interest Reinvestment Plans. Notwithstanding the
foregoing provisions, the issuance of any shares of Common Stock
pursuant to any plan providing for the reinvestment of dividends or
interest payable on securities of the Corporation and the investment
of additional optional amounts in shares of Common Stock under any
such plan, and the issuance of any shares of Common Stock or options
or rights to purchase such shares pursuant to any employee benefit
plan or program of the Corporation or pursuant to any option, warrant,
right or exercisable, exchangeable or convertible security outstanding
as of the date the Series C Preferred Stock is first issued, shall not
be deemed to constitute an issuance of Common Stock or exercisable,
exchangeable or convertible securities by the Corporation to which any
of the adjustment provisions described above applies.
(G) Certain Additional Rights. In case the Corporation shall, by
dividend or otherwise, declare or make a distribution on its Common
Stock referred to in Section 7(A) (iv) or 7(A) (v) (including, without
limitation, dividends or distributions referred to in the last
sentence of Section 7 (A) (iv) ), the holder of each share of Series C
Preferred Stock, upon the conversion thereof subsequent to the close
of business on the date fixed for the determination of shareholders
entitled to receive such distribution and prior to the effectiveness
of the Conversion Price adjustment in respect of such distribution,
shall also be entitled to receive for each share of Common Stock into
which such share of Series C Preferred Stock is converted, the portion
of the shares of Common Stock, rights, warrants, evidences of
indebtedness, shares of capital stock, cash and assets so distributed
applicable to one share of Common Stock; provided, however, that, at
the election of the Corporation (whose election shall be evidenced by
a resolution of the Board of Directors) with respect to all holders so
converting, the Corporation may, in
<PAGE>
lieu of distributing to such holder any portion of such distribution
not consisting of cash or securities of the Corporation, pay such
holder an amount in cash equal to the fair market value thereof (as
determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the
Board of Directors). If any conversion of a share of Series C
Preferred Stock described in the immediately preceding sentence occurs
prior to the payment date for a distribution to holders of Common
Stock which the holder of the share of Series C Preferred Stock so
converted is entitled to receive in accordance with the immediately
preceding sentence, the Corporation may elect (such election to be
evidenced by a resolution of the Board of Directors) to distribute to
such holder a due bill for the shares of Common Stock, rights,
warrants, evidences of indebtedness, shares of capital stock, cash or
assets to which such holder is so entitled, provided that such due
bill (i) meets any applicable requirements of the principal national
securities exchange or other market on which the Common Stock is then
traded and (ii) requires payment or delivery of such shares of Common
Stock, rights, warrants, evidences of indebtedness, shares of capital
stock, cash or assets no later than the date of payment or delivery
thereof to holders of shares of Common Stock receiving such
distribution.
(H) Stock Issuances; Multiple Adjustments. There shall be no
adjustment of the Conversion Price in case of the issuance of any
stock (or securities convertible into or exchangeable for stock) of
the Corporation except as specifically described in this Section 7. If
any action would require adjustment of the Conversion Price pursuant
to more than one of the provisions described above, only one
adjustment shall be made and such adjustment shall be the amount of
adjustment which has the highest absolute value to holders of Series C
Preferred Stock.
SECTION 9. Ranking; Attributable Capital and Adequacy of Surplus;
Retirement of Shares.
(A) The Series C Preferred Stock shall rank senior to all shares
of Junior Stock and pari passu (i.e., on a parity) with Pari Passu
Stock of the Corporation as to the payment of dividends and amounts
upon the liquidation, dissolution or winding-up of the Corporation.
The ranking of any subsequent series of Preferred Stock issued by the
Corporation as compared to the Series C Preferred Stock as to the
payment of dividends and amounts upon the liquidation, dissolution or
winding-up of the Corporation shall be as specified in the Restated
Articles of Incorporation, as amended, of the Corporation, the
Certificate of Designation pertaining thereto and, if appropriate,
shall also be subject to the provisions of paragraph (C) of Section 1
and paragraph (B) of Section 3 hereof.
(B) The capital of the Corporation allocable to the Series C
Preferred Stock for purposes of the Minnesota Business Corporation Act
shall be $5,000 per share.
(C) Any shares of Series C Preferred Stock acquired by the
Corporation by reason of the conversion or redemption of such shares,
or otherwise so acquired, shall be retired as shares of Series C
Preferred Stock and restored to the status of authorized but unissued
undesignated shares of the Corporation and may thereafter be reissued
as part of a new series of Preferred Stock as permitted by law.
<PAGE>
SECTION 9. Miscellaneous.
(A) All notices referred to herein shall be in writing, and all
notices hereunder shall be deemed to have been given upon the earlier
of receipt thereof or three business days after the mailing thereof if
sent by registered or certified mail (unless first-class mail shall be
specifically permitted for such notice) with postage prepaid
addressed: (i) if to the Corporation, to its office at 385 Washington
Street, St. Paul, Minnesota 55102 (Attention: Secretary) or to the
transfer agent for the Series C Preferred Stock, or such other agent
of the Corporation designated as permitted by this paragraph, or (ii)
if to any holder of the Series C Preferred Stock or Common Stock, as
the case may be, to such holder at the address of such holder as
listed in the stock record books of the Corporation (which may include
the records of any transfer agent for the Series C Preferred Stock or
Common Stock, as the case may be) or (iii) to such other address as
the Corporation or any such holder, as the case may be, shall have
designated by notice similarly given.
(B) The term "Common Stock" as used herein means the
Corporation's Common Stock, without par value, as the same exists at
the date of filing of the Certificate of Designation relating to the
Series C Preferred Stock (the "Certificate of Designation") with the
Secretary of State of the state of Minnesota, or any other class of
stock resulting from successive changes or reclassifications of such
Common Stock consisting solely of changes in par value, or from par
value to no par value, or from no par value to par value. However,
subject to the provisions of Section 7(B), shares of Common Stock
issuable on conversion of shares of Series C Preferred Stock shall
include only shares of the class designated as Common Stock of the
Corporation at the date of the filing of the Certificate of
Designation with the Secretary of State of the state of Minnesota or
shares of any class or classes resulting from any reclassification or
reclassifications thereof and which have no preference in respect of
dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the Corporation
and which are not subject to redemption by the Corporation; provided
that if at any time there shall be more than one such resulting class,
the shares of each such class then so issuable shall be substantially
in the proportion which the total number of shares of such class
resulting from all such reclassifications bears to the total number of
shares of such classes resulting from all such reclassifications.
(C) The Corporation shall pay any and all stock transfer and
documentary stamp taxes that may be payable in respect of any issuance
or delivery of shares of Series C Preferred Stock or shares of Common
Stock or other securities issued on account of Series C Preferred
Stock pursuant hereto or certificates representing such shares or
securities. The Corporation shall not, however, be required to pay
any such tax that may be payable in respect of any transfer involving
the issuance or delivery of shares of Series C Preferred Stock or
Common Stock or other securities in a name other than that in which
the shares of Series C Preferred Stock with respect to which such
shares or other securities are issued or delivered were registered, or
in respect of any payment to any person with respect to any such
shares or securities other than a payment to the registered holder
thereof, and shall not be required to make any such issuance, delivery
or payment unless and until the person otherwise entitled to such
issuance, delivery or payment has paid to the Corporation the amount
of any such tax or has established, to the satisfaction of the
Corporation, that such tax has been paid or is not payable.
<PAGE>
(D) In the event that a holder of shares of Series C Preferred
Stock shall not by written notice designate the name in which shares
of Common Stock to be issued upon conversion of such shares should be
registered or to whom payment upon redemption of shares of Series C
Preferred Stock should be made or the address to which the certificate
or certificates representing such shares, or such payment, should be
sent, the Corporation shall be entitled to register such shares, and
make such payment, in the name of the holder of such Series C
Preferred Stock as shown on the records of the Corporation and to send
the certificate or certificates rap resenting such shares, or such
payment, to the address of such holder shown on the records of the
Corporation.
(E) The Corporation may appoint, and from time to time discharge
and change, a transfer agent for the Series C Preferred Stock. Upon
any such appointment or discharge of a transfer agent, the Corporation
shall send notice thereof by first-class mail, postage prepaid, to
each holder of record of Series C Preferred Stock.
<PAGE>
Exhibit 11
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Computation of Earnings Per Share
(In thousands) Three Months Ended
March 31
---------------------
1998 1997
EARNINGS: ------ ------
Basic:
Net income, as reported $154,000 124,549
PSOP preferred dividends
declared (net of taxes) (2,149) (2,185)
Premium on preferred shares redeemed (844) (260)
------- -------
Net income, as adjusted $151,007 122,104
======= =======
Diluted:
Net income, as reported $154,000 124,549
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 (576) (670)
Premium on preferred shares redeemed (844) (260)
------- -------
Net income, as adjusted $154,598 125,637
======= =======
SHARES:
Basic:
Weighted average number of common
shares outstanding, per consolidated
financial statements 167,746 166,738
======= =======
Diluted:
Weighted average number of common shares
outstanding, per consolidated
financial statements 167,746 166,738
Additional dilutive effect of:
Assumed conversion of PSOP preferred stock 7,634 7,868
Assumed conversion of monthly income
preferred securities 7,018 7,018
Outstanding stock options (based on treasury
stock method using average market price
during period) 2,786 2,272
------- -------
Weighted average, as adjusted 185,184 183,896
======= =======
EARNINGS PER COMMON SHARE:
Basic $0.90 0.73
Diluted $0.83 0.68
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Exhibit 12
Computation of Ratios
(In thousands, except ratios)
Three Months Ended
March 31
------------------
1998 1997
----- -----
EARNINGS:
Income before income taxes $193,209 245,210
Add: fixed charges 18,785 19,477
------- -------
Income, as adjusted $211,994 264,687
======= =======
FIXED CHARGES:
Interest costs $12,489 12,901
Rental expense (1) 6,296 6,576
------- -------
Total fixed charges $18,785 19,477
======= =======
FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS:
Fixed charges $18,785 19,477
PSOP preferred stock dividends 4,291 4,425
Dividends on monthly income
preferred securities 3,105 3,105
------- -------
Total fixed charges and
preferred stock dividends $26,181 27,007
======= =======
Ratio of earnings to fixed charges 11.29 13.59
======= =======
Ratio of earnings to combined fixed
charges and preferred stock dividends 8.10 9.80
======= =======
(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-31-1998 DEC-31-1997 DEC-31-1996
<PERIOD-END> MAR-31-1998 MAR-31-1997 MAR-31-1996
<DEBT-HELD-FOR-SALE> 12,205,321 11,772,252 10,335,291
<DEBT-CARRYING-VALUE> 0 0 0
<DEBT-MARKET-VALUE> 0 0 0
<EQUITIES> 1,080,733 850,997 746,635
<MORTGAGE> 0 0 0
<REAL-ESTATE> 668,502 729,257 607,987
<TOTAL-INVEST> 15,078,607 14,134,846 12,674,332
<CASH> 42,647 38,383 29,134
<RECOVER-REINSURE> 53,088 84,258 94,851
<DEFERRED-ACQUISITION> 382,867 393,424 361,063
<TOTAL-ASSETS> 21,126,510 20,389,752 18,339,862
<POLICY-LOSSES> 11,722,580 11,679,590 10,276,100
<UNEARNED-PREMIUMS> 2,241,953 2,397,437 2,217,602
<POLICY-OTHER> 0 0 0
<POLICY-HOLDER-FUNDS> 0 0 0
<NOTES-PAYABLE> 654,663 707,588 664,975
207,000 207,000 207,000
16,140 18,732 13,265
<COMMON> 523,700 487,557 462,893
<OTHER-SE> 4,279,515 3,397,274 3,216,151
<TOTAL-LIABILITY-AND-EQUITY> 21,126,510 20,389,752 18,339,862
1,114,756 1,171,453 1,030,576
<INVESTMENT-INCOME> 219,299 218,662 192,379
<INVESTMENT-GAINS> 44,804 95,592 47,920
<OTHER-INCOME> 88,298 71,496 59,016
<BENEFITS> 811,096 868,878 755,460
<UNDERWRITING-AMORTIZATION> 253,053 254,760 230,488
<UNDERWRITING-OTHER> 209,799 188,355 166,455
<INCOME-PRETAX> 193,209 245,210 177,488
<INCOME-TAX> 39,209 52,911 33,077
<INCOME-CONTINUING> 154,000 192,299 144,411
<DISCONTINUED> 0 (67,750) (15,590)
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 154,000 124,549 128,821
<EPS-PRIMARY> 0.90 0.73 0.75
<EPS-DILUTED> 0.83 0.68 0.70
<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
<RESERVE-CLOSE> 0 0 0
<CUMULATIVE-DEFICIENCY> 0 0 0
</TABLE>
