-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, P2QN/GLLzBBDaIpJh8qnT4bTAtAyTtz8DjsiAC4+Mo9JKwB4YJtCje4fy8fYUC9Z ae77sdUlLwvXj99KC8RyRQ== 0000086312-94-000010.txt : 19940513 0000086312-94-000010.hdr.sgml : 19940513 ACCESSION NUMBER: 0000086312-94-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ST PAUL COMPANIES INC /MN/ CENTRAL INDEX KEY: 0000086312 STANDARD INDUSTRIAL CLASSIFICATION: 6331 IRS NUMBER: 410518860 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10898 FILM NUMBER: 94527410 BUSINESS ADDRESS: STREET 1: 385 WASHINGTON ST CITY: SAINT PAUL STATE: MN ZIP: 55102 BUSINESS PHONE: 6122217911 FORMER COMPANY: FORMER CONFORMED NAME: SAINT PAUL COMPANIES INC DATE OF NAME CHANGE: 19900730 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ---- EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1994 ------------------------------------------ or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ---- EXCHANGE ACT OF 1934 For the transition period from to ---------------------- ------------------ Commission File Number 0-3021 ------ THE ST. PAUL COMPANIES, INC. - --------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Minnesota 41-0518860 --------- --------------------------------- (State or other jurisdiction of (I.R.S Employer Identification incorporation or organization) No.) 385 Washington St., Saint Paul, MN 55102 - ---------------------------------- --------------------------------- (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code (612) 221-7911 -------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The number of shares of the Registrant's Common Stock, without par value, outstanding at May 10, 1994, was 84,087,248. This total of shares outstanding reflects the impact of the 2-for-1 stock split approved and declared by the Registrant's Board of Directors on May 3, 1994. THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES TABLE OF CONTENTS Page No. -------- PART I. FINANCIAL INFORMATION Consolidated Statements of Income, (Unaudited), Three Months Ended March 31, 1994 and 1993 3 Consolidated Balance Sheets, March 31, 1994 (Unaudited) and December 31, 1993 4 Consolidated Statements of Common Shareholders' Equity, Three Months Ended March 31, 1994 (Unaudited) and Twelve Months Ended 6 December 31, 1993 Consolidated Statements of Cash Flows (Unaudited), Three Months Ended March 31, 1994 and 1993 7 Notes to Consolidated Financial Statements (Unaudited) 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 15 PART II. OTHER INFORMATION Item 1 through Item 6 21 Signatures 23 PART I FINANCIAL INFORMATION THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Consolidated Statements of Income Unaudited (In thousands) Three Months Ended March 31 ----------------------- 1994 1993 ---- ---- Revenues: Premiums earned $845,402 800,937 Net investment income 168,408 165,612 Insurance brokerage fees and commissions 66,450 62,578 Investment banking-asset management 53,598 60,075 Realized investment gains 21,783 11,358 Other 8,134 13,468 --------- --------- Total revenues 1,163,775 1,114,028 --------- --------- Expenses: Insurance losses and loss adjustment expenses 667,688 619,490 Policy acquisition expenses 191,351 184,990 Operating and administrative 222,733 199,706 --------- --------- Total expenses 1,081,772 1,004,186 --------- --------- Income before income taxes 82,003 109,842 Income tax expense (benefit): Federal current 20,698 28,189 Other (3,132) (6,378) --------- --------- Total income tax expense 17,566 21,811 --------- --------- Net income $64,437 88,031 ========= ========= Earnings per common share: Primary $0.73 1.01 ========= ========= Fully diluted $0.71 0.98 ========= ========= Dividends declared on common stock $0.375 0.35 ========= ========= See notes to consolidated financial statements. THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands) March 31, December 31, ASSETS 1994 1993 - ------ ---------- ---------- (Unaudited) Investments: Fixed maturities, at estimated market value $8,816,933 9,147,964 Equities, at estimated market value 491,173 548,682 Real estate, at cost less accumulated depreciation of $51,569 (1993; $48,847) 505,955 488,691 Venture capital, at estimated market value 308,919 297,982 Other investments 51,599 47,834 Short-term investments, at cost 695,725 725,261 ---------- ---------- Total investments 10,870,304 11,256,414 Cash 20,178 25,420 Investment banking inventory securities 249,511 305,804 Reinsurance recoverables: Unpaid losses 1,525,798 1,545,026 Paid losses 77,973 94,437 Receivables: Underwriting premiums 967,454 1,008,034 Insurance brokerage activities 722,874 805,209 Interest and dividends 175,582 174,852 Other 127,533 105,513 Deferred policy acquisition expenses 284,500 294,860 Ceded unearned premiums 245,491 238,633 Deferred income taxes 607,073 425,012 Office properties and equipment, at cost less accumulated depreciation of $224,352 (1993; $215,389) 455,338 455,861 Goodwill 278,014 284,276 Other assets 133,386 129,845 ---------- ---------- Total assets $16,741,009 17,149,196 ========== ========== See notes to consolidated financial statements. THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (continued) (In thousands) March 31, December 31, LIABILITIES AND SHAREHOLDERS' EQUITY 1994 1993 - ------------------------------------ ------------ ----------- (Unaudited) Liabilities: Insurance reserves: Losses and loss adjustment expenses $9,291,021 9,185,191 Unearned premiums 1,842,601 1,875,635 ---------- ---------- Total insurance reserves 11,133,622 11,060,826 Debt 584,737 639,729 Payables: Insurance brokerage activities 1,023,804 1,083,845 Income taxes 165,809 162,645 Reinsurance premiums 146,079 138,150 Accrued expenses and other 552,699 593,205 Other liabilities 442,711 466,989 ---------- ---------- Total liabilities 14,049,461 14,145,389 ---------- ---------- Series B convertible preferred stock; 1,450 shares authorized; 1,021 shares outstanding (1,023 shares in 1993) 147,315 147,608 Guaranteed obligation - PSOP (146,600) (148,929) ---------- ---------- Net convertible preferred stock 715 (1,321) ---------- ---------- Common Shareholders' Equity: Common stock, 240,000 shares authorized; 84,041 shares outstanding (84,715 shares in 1993) 437,381 438,559 Retained earnings 2,088,421 2,082,832 Guaranteed obligation - ESOP (52,743) (56,005) Unrealized appreciation of investments 276,907 588,844 Unrealized loss on foreign currency translation (59,133) (49,102) ---------- ---------- Total common shareholders' equity 2,690,833 3,005,128 ---------- ---------- Total liabilities, preferred stock and common shareholders' equity $16,741,009 17,149,196 ========== ========== See notes to consolidated financial statements. THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Consolidated Statements of Common Shareholders' Equity (In thousands) Three Twelve Months Ended Months Ended March 31 December 31 ------------ ------------ 1994 1993 ---- ---- (Unaudited) Common stock: Beginning of period $438,559 422,249 Stock issued under stock option and other incentive plans 2,629 16,334 Reacquired common shares (3,807) (24) --------- --------- End of period 437,381 438,559 --------- --------- Retained earnings: Beginning of period 2,082,832 1,781,113 Net income 64,437 427,609 Dividends declared on common stock (31,219) (116,962) Dividends declared on preferred stock, net of taxes (2,109) (8,395) Reacquired common shares (25,520) (533) --------- --------- End of period 2,088,421 2,082,832 --------- --------- Guaranteed obligation - ESOP: Beginning of period (56,005) (67,452) Principal payments 3,262 11,447 --------- --------- End of period (52,743) (56,005) --------- --------- Unrealized appreciation of investments, net of taxes: Beginning of period 588,844 63,669 Change during the period (311,937) 23,193 Change due to adoption of SFAS No. 115 - 501,982 --------- --------- End of period 276,907 588,844 --------- --------- Unrealized gain (loss) on foreign currency translation, net of taxes: Beginning of period (49,102) 2,920 Change during the period (10,031) (52,022) --------- --------- End of period (59,133) (49,102) --------- --------- Total common shareholders' equity $2,690,833 3,005,128 ========= ========= See notes to consolidated financial statements. THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Unaudited (In thousands) Three Months Ended March 31 ----------------------- 1994 1993 ------ ------ OPERATING ACTIVITIES Underwriting: Net income $71,126 92,568 Adjustments: Change in net insurance reserves 88,808 133,557 Change in underwriting premiums receivable 38,556 62,835 Provision for deferred taxes (6,250) (8,495) Realized gains (19,202) (8,663) Other 29,382 (56,898) --------- --------- Total underwriting 202,420 214,904 --------- --------- Insurance brokerage: Net loss (11,194) (9,822) Adjustments: Change in premium balances 22,773 (37,641) Change in accounts payable and accrued expenses (18,799) (45,481) Depreciation and goodwill amortization 4,545 5,899 Other (9,342) (10,248) --------- --------- Total insurance brokerage (12,017) (97,293) --------- --------- Investment banking-asset management: Net income 10,728 13,009 Adjustments: Change in inventory securities 56,293 (11,936) Change in open security transactions 17,461 32,674 Change in short-term borrowings (80,383) (20,000) Other 25,245 15,128 --------- --------- Total investment banking-asset management 29,344 28,875 --------- --------- Parent company and consolidating eliminations: Net loss (6,223) (7,724) Realized gains (2,581) (2,695) Adjustments 4,745 15,601 --------- --------- Total parent company and consol. eliminations (4,059) 5,182 --------- --------- Net cash provided by operating activities 215,688 151,668 --------- --------- INVESTING ACTIVITIES Purchases of investments (518,789) (614,486) Sales and maturities of investments 391,649 456,447 Change in short-term investments 28,426 58,057 Change in open security transactions (55,788) (8,644) Net purchases of office properties and equipment (9,846) (12,959) Other (16,029) (16,109) --------- --------- Net cash used in investing activities (180,377) (137,694) --------- --------- FINANCING ACTIVITIES Dividends paid on common and preferred stock (32,632) (31,620) Proceeds from issuance of debt 28,528 41,005 Reacquired common shares (29,245) (207) Repayment of debt - (22,806) Other (6,295) 1,731 --------- --------- Net cash used in financing activities (39,644) (11,897) --------- --------- Effect of exchange rate changes on cash (909) (949) --------- --------- Increase (decrease) in cash (5,242) 1,128 Cash at beginning of period 25,420 26,648 --------- --------- Cash at end of period $20,178 27,776 ========= ========= See notes to consolidated financial statements. THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Unaudited March 31, 1994 Note 1 Basis of Presentation - ----------------------------- The consolidated financial statements include The St. Paul Companies, Inc. and subsidiaries, and have been prepared in conformity with generally accepted accounting principles. These consolidated financial statements rely, in part, on estimates. In the opinion of management, all necessary adjustments have been reflected for a fair presentation of the results of operations, financial position and cash flows in the accompanying unaudited consolidated financial statements. The results for the period are not necessarily indicative of the results to be expected for the entire year. Reference should be made to the "Notes to Consolidated Financial Statements" on pages 49 to 63 of the Registrant's annual report to shareholders for the year ended December 31, 1993. The amounts in those notes have not changed except as a result of transactions in the ordinary course of business or as otherwise disclosed in these notes. Some figures in the 1993 consolidated financial statements have been reclassified to conform with the 1994 presentation. These reclassifications had no effect on net income or common shareholders' equity, as previously reported. All references in the consolidated financial statements and related footnotes to per share amounts and to the number of shares of common stock for both 1994 and 1993 reflect the effect of the 2-for-1 stock split approved by the company's Board of Directors on May 3, 1994 (see Note 9). THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Note 2 Earnings Per Share - -------------------------- Earnings per common share (EPS) amounts were calculated by dividing net income, as adjusted, by the adjusted average common shares outstanding. The common shares outstanding were adjusted for the 2-for-1 stock split (see Note 9). Three Months Ended March 31 ------------------ 1994 1993 ------ ------ (In thousands) PRIMARY Net income, as reported $64,437 88,031 Preferred dividends declared (net of taxes) (2,109) (2,102) ------- ------- Net income, as adjusted $62,328 85,929 ======= ======= FULLY DILUTED Net income, as reported $64,437 88,031 Additional PSOP expense (net of taxes) due to assumed conversion of preferred stock (950) (1,038) ------- ------- Net income, as adjusted $63,487 86,993 ======= ======= ADJUSTED AVERAGE SHARES OUTSTANDING Primary 85,017 84,883 ======= ======= Fully diluted 89,124 89,032 ======= ======= Adjusted average shares outstanding include the common and common equivalent shares outstanding for the period and, for fully diluted EPS, common shares that would be issuable upon conversion of preferred stock. THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Note 3 Investments - ------------------- A summary of investment transactions is presented below. Three Months Ended March 31 ------------------------------ 1994 1993 ------ ------ (In thousands) Purchases: Fixed maturities $305,417 489,198 Equities 151,408 98,064 Real estate 22,638 3,355 Venture capital 31,976 23,372 Other investments 7,350 497 -------- --------- Total purchases 518,789 614,486 -------- --------- Proceeds from sales and maturities: Fixed maturities: Sales 27,056 73,866 Maturities and redemptions 156,789 263,928 Equities 187,787 105,110 Venture capital 10,971 12,816 Other investments 9,046 727 -------- --------- Total sales and maturities 391,649 456,447 -------- --------- Net purchases $127,140 158,039 ======== ========= The increase (decrease) in unrealized appreciation of investments was as follows: Three Months Ended Twelve Months Ended March 31, 1994 December 31, 1993 ------------------ ------------------- (In thousands) Fixed maturities $(453,184) 257,774 Equities (35,450) (23,993) Venture capital 324 52,550 -------- ------- Total change in pretax unrealized appreciation (488,310) 286,331 ======= Increase in deferred tax benefit due to change in unrealized appreciation 176,373 -------- Total change in unrealized appreciation, net of taxes $(311,937) ======== THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Premiums collected by the brokerage operations from insureds, but not yet remitted to insurance carriers, are restricted as to use by business practices. These restricted funds are included in short-term investments and totaled $394 million at March 31, 1994, and $393 million at December 31, 1993. Note 4 Income Taxes - -------------------- The components of income tax expense are as follows: Three Months Ended March 31 ------------------- 1994 1993 ------ ------ (In thousands) Federal current tax expense $20,698 28,189 Federal deferred tax benefit (6,069) (11,163) ------ ------ Total federal income tax expense 14,629 17,026 Foreign income taxes 1,797 3,085 State income taxes 1,140 1,700 ------ ------ Total income tax expense $17,566 21,811 ====== ====== Note 5 Contingent Liabilities - ------------------------------ In the ordinary course of conducting business, some of the company's subsidiaries have been named as defendants in various lawsuits. Some of these lawsuits attempt to establish liability under insurance contracts issued by those companies. Plaintiffs in these lawsuits are asking for money damages or to have the court direct the activities of our operations in certain ways. In some cases, plaintiffs seek to establish coverage for their liability under environmental protection laws. The company believes that the total amounts that it or its subsidiaries will ultimately have to pay in all of these lawsuits will have no material effect on its overall financial position. THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Note 6 Debt - ------------ Debt consists of the following: March 31, December 31, 1994 1993 ---------------- ------------------ Book Fair Book Fair Value Value Value Value ----- ----- ----- ----- (In thousands) Commercial paper $215,549 215,549 201,384 201,384 Medium-term notes 224,781 223,000 210,780 221,100 9 3/8% notes 99,962 109,400 99,959 113,400 Guaranteed ESOP debt 44,445 48,100 47,223 52,200 Short-term borrowings - - 80,383 80,383 ------- ------- ------- ------- Total debt $584,737 596,049 639,729 668,467 ======= ======= ======= ======= Note 7 Reinsurance - ------------------- The company's consolidated financial statements reflect the effects of assumed and ceded reinsurance transactions. Assumed reinsurance refers to the company's acceptance of certain insurance risks that other insurance companies have underwritten. Ceded reinsurance involves transferring certain insurance risks the company has underwritten to other insurance companies who agree to share these risks. The primary purpose of ceded reinsurance is to protect the company from potential losses in excess of the amount it is prepared to accept. The company expects those with whom it has ceded reinsurance to honor their obligations. In the event these companies are unable to honor their obligations in full, the company will pay the shortfall. The company has established allowances for possible nonpayment of amounts due to it from these companies. THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued The effect of assumed and ceded reinsurance on premiums written, premiums earned and insurance losses and loss adjustment expenses is as follows: Three Months Ended March 31 -------------------- 1994 1993 ------ ------ (In thousands) Premiums written: Direct $764,593 682,817 Assumed 162,624 184,286 Ceded (122,646) (105,951) ------- ------- Net premiums written $804,571 761,152 ======= ======= Premiums earned: Direct $792,615 729,751 Assumed 167,207 180,087 Ceded (114,420) (108,901) ------- ------- Net premiums earned $845,402 800,937 ======= ======= Insurance losses and loss adjustment expenses: Direct $543,212 492,088 Assumed 176,167 207,548 Ceded (51,691) (80,146) ------- ------- Net insurance losses and loss adjustment expenses $667,688 619,490 ======= ======= Note 8 New Accounting Standard - ------------------------------- Effective January 1, 1994, the company adopted Statement of Financial Accounting Standards (SFAS) No. 112, "Employers Accounting for Postemployment Benefits." The company now recognizes the obligation for postemployment benefits on the accrual basis. The company's previous practice was to record workers' compensation benefits on the accrual basis and record all other postemployment benefits on the cash basis. The cumulative effect of adopting SFAS No. 112 was $4.0 million, which was recorded as an operating expense in the first quarter of 1994. THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Note 9 Shareholders' Equity - ---------------------------- The company's Restated Articles of Incorporation were amended by vote of the shareholders at the 1994 Annual Meeting of Shareholders to increase the authorized common shares of the company from 120 million to 240 million. Subsequent to this action, the Board of Directors approved a 2-for-1 stock split, which will result in the issuance of one additional share of common stock for each outstanding share to shareholders of record on May 17, 1994. It is expected that the additional shares will be issued on June 6, 1994. THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations March 31, 1994 Consolidated Results - -------------------- Pretax earnings of $82 million in the first quarter declined 25% from 1993 first quarter earnings of $110 million. Results in each industry segment were below 1993 levels, particularly in underwriting, where increased catastrophe losses accounted for the decline from 1993. Catastrophe losses of $90 million in 1994 were nearly double the 1993 first quarter total of $46 million. First quarter investment banking- asset management earnings were $3 million below comparable 1993 earnings due to a decline in investment banking and distribution revenues. Net income for the first quarter was $64 million, or $0.71 per share, compared with 1993 first quarter net income of $88 million, or $0.98 per share. Consolidated revenues of $1.16 billion for the quarter were 4% higher than 1993 revenues of $1.11 billion. An increase in insurance premiums earned, primarily due to the company's acquisition of Economy Fire & Casualty Company in the third quarter of 1993, accounted for the majority of the growth over 1993. Results by Segment - ------------------ Pretax results by industry segment were as follows (in millions): Three Months Ended March 31 -------------------- 1994 1993 Pretax income (loss): ---- ---- Underwriting: GAAP underwriting result $(83) (60) Net investment income 165 162 Realized investment gains 19 9 Other (12) (1) --- --- Total underwriting 89 110 Insurance brokerage (9) (8) Investment banking-asset management 17 20 Parent and other (15) (12) --- --- Income before income taxes $82 110 === === THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Management's Discussion, Continued Underwriting - ------------ First quarter pretax earnings of $89 million in the underwriting segment declined by 20% from 1993 earnings of $110 million, primarily due to an increase in catastrophe losses. The following summarizes key financial results by underwriting operation: Three Months % of 1994 Ended March 31 Written ------------------- ($ in Millions) Premiums 1994 1993 - --------------- --------- ----- ---- St. Paul Personal & Business Insurance: Written premiums 21% $172 83 Underwriting result $(22) (21) Combined ratio 112.5 126.0 Medical Services: Written premiums 20% $165 185 Underwriting result $34 43 Combined ratio 80.5 76.1 Custom Markets: Written premiums 15% $119 121 Underwriting result $(11) (10) Combined ratio 107.6 109.2 Other Specialty Markets: Written premiums 18% $144 142 Underwriting result $(23) (19) Combined ratio 112.9 115.7 St. Paul Commercial: Written premiums 12% $ 93 111 Underwriting result $(23) (16) Combined ratio 124.6 114.5 Reinsurance: Written premiums 10% $ 81 80 Underwriting result $(29) (22) Combined ratio 134.3 127.7 International: Written premiums 4% $ 31 39 Underwriting result $(9) (15) Combined ratio 128.9 137.0 ---- ----- ----- Total: Written premiums 100% $805 761 GAAP underwriting result $(83) (60) Statutory combined ratio: Loss and loss expense ratio 79.0 77.3 Underwriting expense ratio 31.2 31.5 ----- ----- Combined ratio 110.2 108.8 ===== ===== Combined ratio including policyholders' dividends 110.2 108.9 ===== ===== THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Management's Discussion, Continued The preceding table represents the company's restructured underwriting operations effective in 1994. "St. Paul Personal & Business Insurance" markets personal insurance products (including Economy's) and also serves small commercial accounts. "Custom Markets" is composed of several lines of business previously classified as "Specialized Commercial," including Technology, Financial Services, Professional Liability, Surplus Lines, Ocean Marine and Public Sector. "Other Specialty Markets" consists of Construction, National Accounts, Surety and Pools. "St. Paul Commercial" primarily consists of the company's former Business Insurance operation and serves midsize commercial customers. The company's Reinsurance and International underwriting operations were unaffected by this restructuring; however, the company now reports certain business in Other Specialty Markets that had been previously reported in Reinsurance, and 1993 results have been reclassified to reflect this change in reporting. First quarter written premiums of $805 million were 6% higher than comparable 1993 premiums of $761 million. The growth resulted from increased premiums in St. Paul Personal & Business, which in 1994 includes $91 million of premiums from Economy Fire & Casualty Company, acquired in September 1993. Excluding the impact of Economy on first quarter 1994 premium volume, consolidated written premiums were below 1993. Medical Services experienced an 11% decline in premiums, which resulted from a decrease in the number of insureds. St. Paul Commercial volume was down 16%, primarily due to reduced involuntary premiums. Catastrophe losses of $90 million dominated the first quarter 1994 consolidated GAAP underwriting loss of $83 million. The Los Angeles earthquake ($55 million) and East Coast winter storms ($33 million) were the major catastrophes experienced during the quarter. Medical Services continued its strong performance, posting a $34 million underwriting profit for the quarter. The GAAP underwriting loss in the first quarter of 1993 was $60 million, which included catastrophe losses of $46 million. Key factors in the change in underwriting results from 1993 were as follows: - Medical Services - $9 million worse than 1993 - While still performing well, the extent of favorable prior year loss development was not as great as in the first quarter of 1993. - St. Paul Commercial - $7 million worse than 1993 - Catastrophe losses of $10 million in 1994 were $6 million higher than 1993, accounting for the majority of the deterioration from 1993. - Reinsurance - $7 million worse than 1993 - Catastrophe losses were $40 million in the first quarter, compared with $13 million in the comparable 1993 period. Excluding the impact of catastrophes in both years, Reinsurance posted an $11 million underwriting profit in 1994, compared with a $9 million underwriting loss in 1993. This improvement resulted from the corrective actions taken in this operation. THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Management's Discussion, Continued - International - $6 million better than 1993 - Improved loss experience on insurance business written in Spain provided the majority of the improvement over 1993. First quarter pretax investment income in the underwriting segment was $165 million, slightly higher than first quarter 1993 investment income of $162 million. The investment portfolio continues to grow due to positive underwriting cash flows; however, yields on new investments remain lower than those on maturing securities, resulting in minimal growth in investment income. The weighted average pretax yield on the Underwriting investment portfolio at March 31, 1994 was 7.4%, compared with 7.9% at the same time in 1993. Fixed-maturities purchased in the first quarter were predominantly taxable securities. Taxable securities comprised 43% of the total Underwriting investment portfolio at March 31, 1994 and 1993. Approximately 95% of the fixed maturities portfolio is rated at investment grade levels (BBB or better). Insurance Brokerage - ------------------- The Insurance Brokerage segment posted a pretax loss of $9 million for the quarter, compared with a loss of $8 million in 1993. Brokerage fees and commissions increased by $4 million over 1993 and expenses were up $6 million, both primarily the result of acquisitions made during 1993. Brokerage fees and commissions were above 1993 levels in most business units. Investment Banking-Asset Management - ----------------------------------- The John Nuveen Company's (Nuveen) pretax earnings of $23 million in the first quarter of 1994 were down from first quarter 1993 earnings of $28 million. The company's portion of pretax earnings from Nuveen was $17 million, compared with $20 million in the first quarter of 1993. The company now holds a 75% interest in Nuveen. Management fees earned from investment advisory services provided on assets under Nuveen's management grew 20% over the comparable period of 1993, and assets under management were $2.1 billion higher than the same time in 1993. However, managed assets fell by $1.4 billion (to $31.3 billion) from year-end 1993 and unit investment trust (UIT) sales in the quarter declined compared with the first quarter of 1993 as investors sought alternative investment vehicles in a rising interest rate environment. In addition, municipal new issue volume declined from 1993, which, along with the decline in mutual fund sales and UIT sales, resulted in a decline in underwriting and distribution revenues compared with the first quarter of 1993. THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Management's Discussion, Continued Environmental Claims - -------------------- The company's underwriting operations continue to receive claims under policies written many years ago alleging injuries from hazardous waste substances or alleging covered property damages for the cost to clean up hazardous waste sites. Significant legal issues, primarily pertaining to issues of coverage, exist with regard to the alleged liability of the company's underwriting operations for these claims. In the company's opinion, court decisions in certain jurisdictions have tended to expand insurance coverage beyond the intent of the original policies. The company's ultimate liability for pollution claims is extremely difficult to estimate. Insured parties have submitted claims for losses not covered in the insurance policy, and the ultimate resolution of these claims may be subject to lengthy litigation, during which time it is difficult to estimate the company's potential liability. In addition, variables, such as the length of time necessary to clean up a polluted site, and controversies surrounding the identity of the responsible party and the degree of remediation deemed necessary, make it difficult to estimate the total cost of a pollution claim. The company maintains a claim staff that continually evaluates its exposure to pollution liability losses. At March 31, 1994, the company's total reserves for pollution-related losses were approximately $75 million. Despite these difficulties in estimating potential liability, the company believes that its reserves for such losses are adequate. Many significant pollution claims currently being brought against insurance companies arise out of contamination that occurred 20 to 30 years ago, a time frame during which the company's underwriting operations' commercial book of business was largely composed of small- to medium- sized businesses without significant exposure to pollution liability. In addition, the company believes that its current mix of commercial business carries a relatively low risk of significant pollution liability. Finally, the company's Commercial General Liability policy form has, since 1970, included a specific pollution coverage exclusion, and, since 1986, an absolute pollution exclusion. Legal developments may cause the company to make additional adjustments to the reserves for these claims in the future, but, in management's judgment, such adjustments should not have a material adverse impact on the company's financial position. THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Management's Discussion, Continued Capital Resources - ----------------- Common shareholders' equity of $2.7 billion at March 31, 1994 declined by $314 million from year-end 1993. The unrealized appreciation of the company's investment portfolio declined by $312 million (net of taxes) in the first quarter primarily due to rising interest rates in the bond market. The company also repurchased 733,400 of its outstanding common stock (as adjusted for the 2-for-1 stock split) for a total cost of $29 million during the first quarter. Total debt outstanding declined $55 million from year-end 1993, due to a decline in Nuveen's short-term borrowings. The company issued an additional $14 million of medium- term notes under an existing shelf registration during the first quarter. The ratio of total debt to total capitalization at quarter- end was 18%, unchanged from year end 1993. The company currently has no significant capital commitments planned for 1994 and beyond. The company's ratio of earnings to fixed charges was 5.69 for the first three months of 1994, compared with 7.37 for the same period of 1993. The company's ratio of earnings to combined fixed charges and preferred stock dividends was 4.51 for the first three months of 1994, compared with 5.83 for the same period of 1993. Fixed charges consist of interest expense before reduction for capitalized interest and one- third of rental expense, which is considered to be representative of an interest factor. Liquidity - --------- Liquidity refers to the company's ability to generate sufficient funds to meet the cash requirements of its business operations. Net cash provided by operations was $216 million in the first three months of 1994, compared to $152 million in 1993. The increase over 1993 was primarily due to increased cash flows in the Insurance Brokerage segment. The company's consolidated liquidity position remains strong due to the Underwriting segment's cash flows from underwriting and investment activities. PART II OTHER INFORMATION Item 1. Legal Proceedings. The information set forth in Note 5 to the consolidated financial statements included in Part I of this report is incorporated herein by reference. Item 2. Changes in Securities. As noted in Item 4, the Registrant's articles of incorporation were amended, effective May 3, 1994, to increase the number of authorized shares of voting common stock from one hundred twenty million to two hundred forty million. Item 3. Defaults Upon Senior Securities. Not applicable. Item 4. Submission of Matters to a Vote of Security Holders. The Registrant's annual shareholders' meeting was held on May 3, 1994. (1) All thirteen persons nominated for directors by management were named in proxies for the meeting which were solicited pursuant to Regulation 14A of the Securities Exchange Act of 1934. There was no solicitation in opposition to management's nominees as listed in the proxy statements. All thirteen nominees were elected by the following votes: In favor Withheld -------- -------- Michael R. Bonsignore 36,691,967 648,144 John H. Dasburg 36,632,208 707,903 W. John Driscoll 36,719,696 620,415 Mark S. Fowler 36,685,483 654,628 Pierson M. Grieve 36,718,397 621,714 Ronald James 36,722,857 617,254 William H. Kling 36,722,035 618,076 Douglas W. Leatherdale 36,711,908 628,203 Bruce K. MacLaury 36,721,176 618,935 Ian A. Martin 36,722,997 617,114 Glen D. Nelson 35,842,140 1,497,971 Anita M. Pampusch 35,837,809 1,502,302 Patrick A. Thiele 36,723,558 616,553 (2) By a vote of 36,723,054 in favor, 97,262 against and 519,692 abstaining, the shareholders ratified the selection of KPMG Peat Marwick as the independent auditors for the Registrant. (3) By a vote of 34,377,028 in favor, 2,407,609 against and 555,371 abstaining, the shareholders voted to amend the company's Restated Articles of Incorporation to increase the number of authorized shares of voting common stock from one hundred twenty million to two hundred forty million. (4) By a vote of 23,655,026 in favor, 11,655,413 against and 650,965 abstaining, the shareholders did not pass the proposal to amend the company's Restated Articles of Incorporation to facilitate their amendment by the Board of Directors when permitted by applicable law. A vote in favor by two-thirds of all outstanding shares was required for approval of this proposal. (5) By a vote of 35,142,045 in favor, 1,645,368 against and 552,595 abstaining, the shareholders voted to amend the company's Bylaws to reduce the minimum number of Directors from thirteen to ten. (6) By a vote of 35,305,890 in favor, 1,342,616 against and 691,302 abstaining, the shareholders voted to approve the company's Annual Incentive Plan. (7) By a vote of 35,572,360 in favor, 1,068,531 against and 699,117 abstaining, the shareholders voted to approve the company's Long-Term Incentive Plan. (8) By a vote of 32,185,820 in favor, 4,493,084 against and 661,104 abstaining, the shareholders voted to approve the company's 1994 Stock Incentive Plan. Item 5. Other Information. Not applicable. SIGNATURES Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. An Exhibit Index is set forth as the last page in this document. (b) Reports on Form 8-K. 1) The Registrant filed a Form 8-K Current Report dated January 24, 1994, pertaining to the Registrant's press release of fourth quarter 1993 financial results. 2) The Registrant filed a Form 8-K Current Report dated February 10, 1994, pertaining to its estimate of pretax losses from January storms and the Los Angeles earthquake, and to the possibility of its repurchase of up to one million of its common shares. 3) The Registrant filed a Form 8-K Current Report dated April 25, 1994, pertaining to the Registrant's press release of first quarter 1994 financial results. Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE ST. PAUL COMPANIES, INC. (Registrant) Date: May 12, 1994 By /s/ Bruce A. Backberg --------------------- Bruce A. Backberg Vice President and Corporate Secretary (Authorized Signatory) Date: May 12, 1994 By /s/ Howard E. Dalton -------------------- Howard E. Dalton Senior Vice President Chief Accounting Officer EXHIBIT INDEX ------------- How Exhibit Filed - ------- ----- (2) Plan of acquisition, reorganization, arrangement, liquidation or succession* (3) (i) Articles of incorporation**.......................... (1) (ii) By-laws**............................................ (1) (4) Instruments defining the rights of security holders, including indentures*.................................. (10) Material contracts (a) 1994 Stock Incentive Plan**........................... (1) (b) Annual Incentive Plan**............................... (1) (c) Long-Term Incentive Plan**............................ (1) (11) Statement re computation of per share earnings**.......... (1) (12) Statement re computation of ratios**...................... (1) (15) Letter re unaudited interim financial information*........ (18) Letter re change in accounting principles*................ (19) Report furnished to security holders*..................... (22) Published report regarding matters submitted to vote of security holders*.............................. (23) Consents of experts and counsel*.......................... (24) Power of attorney*........................................ (27) Financial data schedule*.................................. (99) Additional exhibits*...................................... * These items are not applicable. ** This exhibit is included only with the copies of this report that are filed with the Securities and Exchange Commission. However, a copy of the exhibit may be obtained from the Registrant for a reasonable fee by writing to the Law Department, The St. Paul Companies, 385 Washington Street, Saint Paul, MN 55102. (1) Filed electronically under Operational EDGAR. EX-3 2 EXHIBIT 3(I) RESTATED ARTICLES OF INCORPORATION OF THE ST. PAUL COMPANIES, INC. ARTICLE I The name of the corporation is THE ST. PAUL COMPANIES, INC. ARTICLE II The address of the registered office of the corporation is 385 Washington Street, St. Paul, Minnesota 55102. ARTICLE III The aggregate number of shares that the corporation has authority to issue is two hundred forty-five million shares which shall consist of five million undesignated shares and two hundred forty million shares of voting common stock. All shares of voting common stock shall have equal rights and preferences. The board of directors of the corporation is authorized to establish, from the undesignated shares, one or more classes and series of shares, to designate each such class and series and to fix the relative rights and preferences of each such class and series, provided that in no event shall the board of directors fix a preference with respect to a distribution in liquidation in excess of $100 per share plus accrued and unpaid dividends, if any. No shares shall confer on the holder any right to cumulate votes in the election of directors. All shareholders are denied preemptive rights, unless, with respect to some or all of the undesignated shares, the board of directors shall grant preemptive rights. The corporation may, without any new or additional consideration, issue shares of voting common stock or any other class or series pro rata to the holders of the same or one or more other classes or series of shares. Each share of common stock with a par value of One Dollar Fifty Cents which is issued and outstanding (and has not been reacquired by the corporation) as of the effective date of these Restated Articles of Incorporation is hereby reclassified into one share of voting common stock and each certificate representing a share or shares of common stock with a par value of One Dollar Fifty Cents shall represent the same number of shares of voting common stock. 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. STATEMENT OF THE ST. PAUL COMPANIES, INC. WITH RESPECT TO SERIES B CONVERTIBLE PREFERRED STOCK Pursuant to Section 302A.401, Subd. 3(b) of Minnesota Statutes The undersigned officers of The St. Paul Companies, Inc. (the "Corporation"), being duly authorized by the Board of Directors of the Corporation, do hereby certify that the following resolution was duly adopted by the Board of Directors of the Corporation on January 24, 1990 pursuant to Minnesota Statutes, Section 302A.401, Subd. 3(a): RESOLVED, That there is hereby established, out of the presently available undesignated shares of the Corporation, a series of Preferred Stock of the Corporation designated as stated below and having the relative rights and preferences that are set forth below (the "Series"): 1. Designation and Amount. The Series shall be designated as "Series B Convertible Preferred Stock" (the "Series B Preferred"). The number of shares constituting the Series shall be one million four hundred fifty thousand (1,450,000), which number may from time to time be decreased (but not below the number of shares then outstanding) by action of the Board of Directors of the Corporation (the "Board of Directors"). Shares of Series B Preferred shall have a preference upon liquidation, dissolution or winding up of the Corporation of One Hundred Dollars ($100.00) per share, which preference amount does not represent a determination by the Board of Directors for the purpose of the Corporation's capital accounts. 2. Rank. The Series B Preferred shall, with respect to dividend rights and rights on liquidation, winding up or dissolution of the Corporation, rank prior to the Corporation's Series A Junior Participating Preferred Stock and to the Corporation's voting common stock (the "Common Stock") (together, the "Junior Stock") and shall, with respect to dividend rights and rights on liquidation, winding up or dissolution of the Corporation, rank junior to all other classes and series of equity securities of the Corporation, now or hereafter authorized, issued or outstanding, other than any classes or series of equity securities of the Corporation ranking on a parity with the Series B Preferred as to dividend rights and rights upon liquidation, winding up or dissolution of the Corporation (the "Parity Stock"). 3. Dividends. (a) Holders of outstanding shares of Series B Preferred shall be entitled to receive, when, as and if declared by the Board of Directors, to the extent permitted by applicable law, cumulative quarterly cash dividends at the annual rate of Eleven and 724/1000 Dollars ($11.724) per share, in preference to and in priority over any dividends with respect to Junior Stock. (b) Dividends on the outstanding shares of Series B Preferred shall begin to accrue and be cumulative (regardless of whether such dividends shall have been declared by the Board of Directors) from and including the date of original issuance of each share of the Series B Preferred, and shall be payable in arrears on January 17, April 17, July 17 and October 17 of each year (each of such dates a "Dividend Payment Date"), commencing April 17, 1990. Each such dividend shall be payable to the holder or holders of record as they appear on the stock books of the Corporation at the close of business on such record dates, not more than thirty (30) calendar days and not less than ten (10) calendar days preceding the Dividend Payment Dates therefor, as are determined by the Board of Directors (each of such dates a "Record Date"). In any case where the date fixed for any dividend payment with respect to the Series B Preferred shall not be a Business Day, then such payment need not be made on such date but may be made on the next preceding Business Day with the same force and effect as if made on the date fixed therefor, without interest. (c) The amount of any dividends "accumulated" on any share of Series B Preferred at any Dividend Payment Date shall be deemed to be the amount of any unpaid dividends accrued thereon to and excluding such Dividend Payment Date regardless of whether declared, and the amount of dividends "accumulated" on any share of Series B Preferred at any date other than a Dividend Payment Date shall be calculated as the amount of any unpaid dividends accrued thereon to and excluding the last preceding Dividend Payment Date regardless of whether declared, plus an amount calculated on the basis of the annual dividend rate for the period from and including such last preceding Dividend Payment Date to and excluding the date as of which the calculation is made (regardless of whether declared). The amount of dividends payable with respect to a full dividend period on outstanding shares of Series B Preferred shall be computed by dividing the annual dividend rate by four and the amount of dividends payable for any period shorter than a full quarterly dividend period (including the initial dividend period) shall be computed on the basis of thirty (3O)-day months, a three hundred sixty (360)-day year and the actual number of days elapsed in the period. (d) So long as the shares of Series B Preferred shall be outstanding, if (i) the Corporation shall be in default or in arrears with respect to the payment of dividends (regardless of whether declared) on any outstanding shares of Series B Preferred or any other classes or series of equity securities of the Corporation other than Junior Stock or (ii) the Corporation shall be in default or in arrears with respect to the mandatory or optional redemption, purchase or other acquisition, retirement or other requirement of, or with respect to, any sinking or other similar fund or agreement for the redemption, purchase 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. (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 dividends) on the Series B Preferred when such amounts are used as provided under Section 404(k)(2) of the Internal Revenue Code of 1986, as amended and in effect on the date shares of Series B Preferred are initially issued, or (B) the Plan is not initially determined by the Internal Revenue Service to be qualified within the meaning of 401(a) and 4975(e)(7) of the Internal Revenue Code of 1986, as amended, or (C) the Plan is terminated by the Board of Directors or otherwise, at the greater of (l) $144.30 per share plus accumulated and unpaid dividends, without interest, to and excluding the date fixed for redemption, or (2) the Fair Market Value of the Series B Preferred redeemed, or (ii) after December 31, 1994, at the following redemption prices per share if redeemed during the twelve (12)-month period ending on and including December 31 in each of the following years: Redemption Price Year per Share ---- ---------------- 1995 $149.52 1996 148.22 1997 146.92 1998 145.62 1999 and thereafter 144.30 plus accumulated and unpaid dividends, without interest, to and excluding the date fixed for redemption. (b) Payment of the redemption price shall be made by the Corporation in cash or shares of Common Stock, or a combination thereof, as permitted by paragraph (d) of this Section 5. On and after the date fixed for redemption, dividends on shares of Series B Preferred called for redemption shall cease to accrue, such shares shall no longer be deemed to be outstanding and all rights in respect of such shares shall cease, except the right to receive the redemption price. (c) Unless otherwise required by law, notice of redemption shall be sent to the holder or holders of Series B Preferred at the address shown on the books of the Corporation by first class mail, postage prepaid, mailed not less than twenty (20) days nor more than sixty (60) days prior to the redemption date. Each such notice shall state: (i) the redemption date; (ii) the total number of shares of the Series B Preferred to be redeemed and, if fewer than all the shares are to be redeemed, the number of such shares to be redeemed; (iii) the redemption price; (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; (v) that dividends on the shares to be redeemed will cease to accrue from and after such redemption date; and (vi) the conversion rights of the shares to be redeemed, the period within which conversion rights may be exercised, and the then current Conversion Price and number of shares of Common Stock issuable upon conversion of a share of Series B Preferred at the time. Upon surrender of the certificates for any shares so called for redemption and not previously converted (properly endorsed or assigned for transfer, if the Board of Directors shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the date fixed for redemption and at the redemption price. (d) The Corporation, at its option, may make payment of the redemption price required upon redemption of shares of Series B Preferred in cash or in shares of Common Stock, or in a combination of such shares and cash, any such shares to be valued for such purpose at the average Current Market Price for the five (5) consecutive trading days ending on the trading day next preceding the date of redemption. 6. Other Redemption Rights. Shares of Series B Preferred shall be redeemed by the Corporation at the option of the holder at any time and from time to time, to the extent permitted by applicable law, upon notice to the Corporation accompanied by the properly endorsed certificate or certificates given not less than five (5) Business Days prior to the date fixed by the holder in such notice for such redemption, when and to the extent necessary (a) for such holder to provide for distributions required to be made under The St. Paul Companies, Inc. Savings Plus Preferred Stock Ownership Plan and Trust, an employee stock ownership plan and trust within the meaning of 4975(e)(7) of the Internal Revenue Code of 1986, as amended (the "Plan and Trust"), as the same may be amended, or any successor plans, or (b) for such holder to make payment of principal or interest due and payable (whether as scheduled or upon acceleration) on the 9.40% Note dated January 24, 1990, due January 31, 2005 made by Norwest Bank Minnesota, National Association, not individually but solely as Trustee for the Plan and Trust, payable to the order of St. Paul Fire and Marine Insurance Company or registered assigns, in the principal amount of One Hundred Fifty Million Dollars ($150,000,000) or other indebtedness of the Plan and Trust or if funds otherwise available are not adequate to make a required payment pursuant to such Note or other indebtedness, in each case at a redemption price of the greater of (l) $144.30 per share plus accumulated and unpaid dividends, without interest, to and excluding the date fixed for redemption, or (2) the Fair Market Value of the Series B Preferred redeemed. Upon surrender of the shares to be redeemed, such shares shall be redeemed by the Corporation on the date fixed for redemption and at the applicable redemption price and such price shall be paid within five (5) Business Days after such date of redemption, without interest. The terms and provisions of Sections 5(b) and 5(d) are applicable to any redemption under this Section 6. 7. Liquidation Preference. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holder or holders of outstanding shares of Series B Preferred shall be entitled to receive out of the assets of the Corporation available for distribution to shareholders, before any distribution of assets shall be made to the holders of shares of Junior Stock, an amount equal to One Hundred Dollars ($100.00) per share. If, upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the amounts payable with respect to the Series B Preferred and any Parity Stock are not paid in full, the holder or holders of the Series B Preferred and of such Parity Stock shall share ratably in any such distribution of assets of the Corporation in proportion to the full respective preferential amounts to which they are entitled. After payment to the holder or holders of the Series B Preferred of the full preferential amount provided for in this Section 7 and after the payment of any other preferential amounts to the holder or holders of other equity securities of the Corporation, the holder or holders of the Series B Preferred shall be entitled to share in distributions of any remaining assets with the holders of Common Stock, pro-rata on an as- if-converted basis, to the extent of $44.30 per share plus accumulated and unpaid dividends, without interest, to and excluding the date fixed for such distribution of assets. Written notice of any liquidation, dissolution or winding up of the Corporation shall be given to the holder or holders of Series B Preferred not less than twenty (20) days prior to the payment date. Neither the voluntary sale, conveyance, exchange or transfer (for cash, securities or other consideration) of all or any part of the property or assets of the Corporation, nor the consolidation or merger or other business combination of the Corporation with or into any other corporation or corporations, shall be deemed to be a voluntary or involuntary liquidation, dissolution or winding up of the Corporation, unless such voluntary sale, conveyance, exchange or transfer shall be in connection with a plan of liquidation, dissolution or winding up of the Corporation. 8. Conversion Rights. (a) The holder of any Series B Preferred shall have the right, at the holder's option, at any time and from time to time, to convert any or all of such shares into the number of shares of Common Stock of the Corporation determined by dividing One Hundred Forty-four and 30/100 Dollars ($144.30) for each share of Series B Preferred to be converted by the then effective Conversion Price per share of Common Stock, except that if any shares of Series B Preferred are called for redemption by the Corporation or submitted for redemption by the holder thereof, according to the terms and provisions of this Resolution, the conversion rights pertaining to such shares shall terminate at the close of business on the date fixed for redemption (unless the Corporation defaults in the payment of the applicable redemption price). No fractional shares of Common Stock shall be issued upon conversion of Series B Preferred, but if such conversion results in a fraction, an amount shall be paid in cash by the Corporation to the converting holder equal to same fraction of the Current Market Price of the Common Stock on the effective date of the conversion. (b) The initial conversion price, which is Seventy-two and 15/100 Dollars ($72.15) per share of Common Stock, shall be subject to appropriate adjustment from time to time as follows and such initial conversion price or the latest adjusted conversion price is referred to in this Resolution as the "Conversion Price": (i) In case the Corporation shall, at any time or from time to time while any of the shares of the Series B Preferred is outstanding (A) pay a dividend in shares of Common Stock, (B) subdivide outstanding shares of Common Stock into a larger number of shares or (C) combine outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such action shall be adjusted so that the holder of any shares of the Series B Preferred thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock of the Corporation which such holder would have owned or have been entitled to receive immediately following such action had such shares of the Series B Preferred been converted immediately prior thereto. An adjustment made pursuant to this Section 8(b)(i) shall become effective retroactively to immediately after the record date for determination of the shareholders entitled to receive the dividend in the case of a dividend and shall become effective immediately after the effective date in the case of a subdivision or combination. (ii) In case the Corporation shall, at any time or from time to time while any of the shares of the Series B Preferred is outstanding, distribute or issue rights, warrants, options or calls to all holders of shares of Common Stock entitling them to subscribe for or purchase shares of Common Stock (or securities convertible into or exercisable or exchangeable for Common Stock), at a per share price less than the Current Market Price on the record date referred to below, the Conversion Price shall be adjusted so that it shall equal the Conversion Price determined by multiplying the Conversion Price in effect immediately prior to the record date of the distribution or issuance of such rights, warrants, options or calls by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on such record date plus the number of shares which the aggregate offering price of the total number of shares of Common Stock so offered would purchase at such Current Market Price, and the denominator of which shall be the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock offered for subscription or purchase. For the purpose of this Section 8(b)(ii), the distribution or issuance of rights, warrants, options or calls to subscribe for or purchase securities convertible into Common Stock shall be deemed to be the issuance of rights, warrants, options or calls to purchase the shares of Common Stock into which such securities are convertible at an aggregate offering price equal to the aggregate offering price of such securities plus the minimum aggregate amount (if any) payable upon conversion of such securities into shares of Common Stock; provided, however, that if all of the shares of Common Stock subject to such rights, warrants, options or calls have not been issued when such rights, warrants, options or calls expire, then the Conversion Price shall promptly be readjusted to the Conversion Price which would then be in effect had the adjustment upon the distribution or issuance of such rights, warrants, options or calls been made on the basis of the actual number of shares of Common Stock issued upon the exercise of such rights, warrants, options or calls. An adjustment made pursuant to this Section 8(b)(ii) shall become effective retroactively immediately after the record date for the determination of shareholders entitled to receive such rights, warrants, options or calls. This Section 8(b)(ii) shall be inapplicable with respect to any rights issued or to be issued pursuant to or governed by the Rights Agreement. (iii) In the event the Corporation shall, at any time or from time to time while any of the shares of Series B Preferred are outstanding, issue, sell or exchange shares of Common Stock (other than pursuant to (a) any right or warrant now or hereafter outstanding to purchase or acquire shares of Common Stock (including as such a right or warrant any security convertible into or exchangeable for shares of Common Stock), (b) any rights issued or to be issued pursuant to or governed by the Rights Agreement and (c) any employee, officer or director incentive or benefit plan or arrangement (including any employment, severance or consulting agreement) of the Corporation or any subsidiary of the Corporation heretofore or hereafter adopted) for a consideration having a Fair Market Value, on the date of such issuance, sale or exchange, less than the Fair Market Value of such shares on the date of issuance, sale or exchange, then, subject to the provisions of Sections 8(b)(v) and (vii), the Conversion Price shall be adjusted by multiplying such Conversion Price by the fraction the numerator of which shall be the sum of (x) the Fair Market Value of all the shares of Common Stock outstanding on the day immediately preceding the first public announcement of such issuance, sale or exchange plus (y) the Fair Market value of the consideration received by the Corporation in respect of such issuance, sale or exchange of shares of Common Stock, and the denominator of which shall be the product of (a) the Fair Market Value of a share of Common Stock on the day immediately preceding the first public announcement of such issuance, sale or exchange multiplied by (b) the sum of the number of shares of Common Stock outstanding on such day plus the number of shares of Common Stock so issued, sold or exchanged by the Corporation. In the event the Corporation shall, at any time or from time to time while any shares of Series B Preferred are outstanding, issue, sell or exchange any right or warrant to purchase or acquire shares of Common Stock (including as such a right or warrant any security convertible into or exchangeable for shares of Common Stock), other than any such issuance (a) to holders of shares of Common Stock as a dividend or distribution (including by way of a reclassification of shares or a recapitalization of the Corporation), (b) pursuant to any employee, officer or director incentive or benefit plan or arrangement (including any employment, severance or consulting agreement) of the Corporation or any subsidiary of the Corporation heretofore or hereafter adopted, (c) of rights issued or to be issued pursuant to or governed by the Rights Agreement and (d) which is covered by the terms and provisions of Section 8(b)(ii) hereof, for a consideration having a Fair Market Value, on the date of such issuance, sale or exchange, less than the Non-Dilutive Amount, then, subject to the provisions of Sections 8(b)(v) and (vii) hereof, the Conversion Price shall be adjusted by multiplying such Conversion Price by a fraction the numerator of which shall be the sum of (I) the Fair Market Value of all the shares of Common Stock outstanding on the day immediately preceding the first public announcement of such issuance, sale or exchange plus (II) the Fair Market Value of the consideration received by the Corporation in respect of such issuance, sale or exchange of such right or warrant plus (III) the Fair Market Value at the time of such issuance of the consideration which the Corporation would receive upon exercise in full of all such rights or warrants, and the denominator of which shall be the product of (x) the Fair Market Value of a share of Common Stock on the day immediately preceding the first public announcement of such issuance, sale or exchange multiplied by (y) the sum of the number of shares of Common Stock outstanding on such day plus the maximum number of shares of Common Stock which could be acquired pursuant to such right or warrant at the time of the issuance, sale or exchange of such right or warrant (assuming shares of Common Stock could be acquired pursuant to such right or warrant at such time). (iv) In the event the Corporation shall, at any time or from time to time while any of the shares of Series B Preferred are outstanding, make an Extraordinary Distribution in respect of the Common Stock, whether by dividend, distribution, reclassification of shares or recapitalization of the Corporation (including a recapitalization or reclassification effected by a merger or consolidation to which Section 8(c) hereof does not apply) or effect a Pro Rata Repurchase of Common Stock, the Conversion Price in effect immediately prior to such Extraordinary Distribution or Pro Rata Repurchase shall, subject to Sections 8(b)(v) and (vii) hereof, be adjusted by multiplying such Conversion Price by the fraction the numerator of which is the difference between (a) the product of (x) the number of shares of Common Stock outstanding immediately before such Extraordinary Distribution or Pro Rata Repurchase multiplied by (y) the Fair Market Value of a share of Common Stock on the day before the ex-dividend date with respect to an Extraordinary Distribution which is paid in cash and on the distribution date with respect to an Extraordinary Distribution which is paid other than in cash, or on the applicable expiration date (including all extensions thereof) of any tender offer which is a Pro Rata Repurchase, or on the date of purchase with respect to any Pro Rata Repurchase which is not a tender offer, as the case may be, and (b) the Fair Market Value of the Extraordinary Distribution or the aggregate purchase price of the Pro Rata Repurchase, as the case may be, and the denominator of which shall be the product of (x) the number of shares of Common Stock outstanding immediately before such Extraordinary Dividend or Pro Rata Repurchase minus, in the case of a Pro Rata Repurchase, the number of shares of Common Stock repurchased by the Corporation multiplied by (y) the Fair Market Value of a share of Common Stock on the day before the ex-dividend date with respect to an Extraordinary Distribution which is paid in cash and on the distribution date with respect to an Extraordinary Distribution which is paid other than in cash, or on the applicable expiration date (including all extensions thereof) of any tender offer which is a Pro Rata Repurchase or on the date of purchase with respect to any Pro Rata Repurchase which is not a tender offer, as the case may be. The Corporation shall send each holder of Series B Preferred (i) notice of its intent to make any dividend or distribution and (ii) notice of any offer by the Corporation to make a Pro Rata Repurchase, in each case at the same time as, or as soon as practicable after, such offer is first communicated (including by announcement of a record date in accordance with the rules of any stock exchange on which the Common Stock is listed or admitted to trading) to holders of Common Stock. Such notice shall indicate the intended record date and the amount and nature of such dividend or distribution, or the number of shares subject to such offer for a Pro Rata Repurchase and the purchase price payable by the Corporation pursuant to such offer, as well as the Conversion Price and the number of shares of Common Stock into which a share of Series B Preferred may be converted at such time. (v) If the Corporation shall make any dividend or distribution on the Common Stock or issue any Common Stock, other capital stock or other security of the Corporation or any rights or warrants to purchase or acquire any such security, which transaction does not result in an adjustment to the Conversion Price pursuant to this Section 8, the Board of Directors shall consider whether such action is of such a nature that an adjustment to the Conversion Price should equitably be made in respect of such transaction. If in such case the Board of Directors determines that an adjustment to the Conversion Price should be made, an adjustment shall be made effective as of such date, as determined by the Board of Directors (which adjustment shall in no event adversely affect the rights or preferences of the Series B Preferred as set forth herein). The determination of the Board of Directors as to whether an adjustment to the Conversion Price should be made pursuant to the foregoing provisions of this Section 8(b)(v), and, if so, as to what adjustment should be made and when, shall be final and binding on the Corporation and all shareholders of the Corporation. (vi) In addition to the foregoing adjustments, the Corporation may, but shall not be required to, make such adjustments in the Conversion Price as it considers to be advisable in order that any event treated for federal income tax purposes as a dividend of stock or stock rights shall either not be taxable to the recipients or shall be taxable to the recipients to the minimum extent reasonable under the circumstances, as determined by the Board of Directors in its sole discretion. (vii) In no event shall an adjustment in the Conversion Price be required unless such adjustment would result in an increase or decrease of at least one percent (1%) in the Conversion Price then in effect; provided, however, that any such adjustments that are not made shall be carried forward and taken into account in determining whether any subsequent adjustment is required. In no event shall the Conversion Price be adjusted to an amount less than any minimum required by law. Except as set forth in this Section 8, the Conversion Price shall not be adjusted for the issuance of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, or carrying the right or option to purchase or otherwise acquire the foregoing, in exchange for cash, other property or services. (viii) Whenever an adjustment in the Conversion Price is required, the Corporation shall forthwith place on file with its transfer agent (or if the Corporation performs the functions of a transfer agent, with the corporate secretary) a statement signed by its chief executive officer or a vice president and by its secretary, assistant secretary or treasurer, stating the adjusted Conversion Price determined as provided herein. Such statements shall set forth in reasonable detail such facts as shall be necessary to show the reason and the manner of computing such adjustment. As soon as practicable after the adjustment of the Conversion Price, the Corporation shall mail a notice thereof to each holder of shares of the Series B Preferred of such adjustment. (ix) In the event that at any time, as a result of an adjustment made pursuant to this Section 8, the holder of any shares of Series B Preferred hereafter surrendered for conversion shall be entitled to receive any securities other than shares of Common Stock, thereafter the amount of such other securities so receivable upon conversion of any shares of Series B Preferred shall be subject to adjustment from time to time in a manner and on terms as nearly as equivalent as practicable to the provisions with respect to the Common Stock contained in this Section 8, and the provisions of this Section 8 with respect to the Common Stock shall apply on like terms to any such other securities. (c) In case of any consolidation or merger of the Corporation with or into any other corporation (other than a merger in which the Corporation is the surviving corporation), or in case of any sale or transfer of substantially all -the assets of the Corporation, or in case of reclassification, capital reorganization or change of outstanding shares of Common Stock (other than combinations or subdivisions described in Section 8(b)(i) and other than Extraordinary Distributions described in Section 8(b)(iv)), there shall be no adjustment to the Conversion Price then in effect, but appropriate provisions shall be made so that any holder of Series B Preferred shall be entitled, after the occurrence (or, if applicable, the record date) of any such event ("Transaction"), to receive on conversion the consideration which the holder would have received had the holder converted such holder's Series B Preferred to Common Stock immediately prior to the occurrence of the Transaction and had such holder, if applicable, elected to receive the consideration in the form and manner elected by the plurality of the electing holders of Common Stock. In any such Transaction, effective provisions shall be made to ensure that the holder or holders of the Series B Preferred shall receive the consideration that they are entitled to receive pursuant to the provisions hereof, and in particular, as a condition to any consolidation or merger in which the holders of securities into which the Series B Preferred is then convertible are entitled to receive equity securities of another corporation, such other corporation shall expressly assume the obligation to deliver, upon conversion of the Series B Preferred, such equity securities as the holder or holders of the Series B Preferred shall be entitled to receive pursuant to the provisions hereof. Notwithstanding the foregoing provisions of this Section 8(c), in the event the consideration to be received pursuant to the provisions hereof is not to be constituted solely of employer securities within the meaning of 409(1) of the Internal Revenue Code of 1986, as amended, or any successor provisions of law, and of a cash payment in lieu of any fractional securities, then the outstanding shares of Series B Preferred shall be deemed converted by virtue of the Transaction immediately prior to the consummation thereof into the number and kind of securities into which such shares of Series B Preferred could have been voluntarily converted at such time and such securities shall be entitled to participate fully in the Transaction as if such securities had been outstanding on the appropriate record, exchange or distribution date. In the event the Corporation shall enter into any agreement providing for any Transaction, then the Corporation shall as soon as practicable thereafter (and in any event at least ten (10) Business Days before consummation of the Transaction) give notice of such agreement and the material terms thereof to each holder of Series B Preferred and each such holder shall have the right, to the extent permitted by applicable law, to elect, by written notice to the Corporation, to receive, upon consummation of the Transaction (if and when the Transaction is consummated), from the Corporation or the successor of the Corporation, in redemption of such Series B Preferred, a cash payment per share equal to the amount determined according to the following table, with the redemption date to be deemed to be the same date that the Transaction giving rise to the redemption election is consummated: Transaction Consummated in Year Redemption Price Ending December 31 per Share - --------------------- ---------------- 1990 $156.02 1991 154.72 1992 153.42 1993 152.12 1994 150.82 1995 149.52 1996 148.22 1997 146.92 1998 145.62 1999 and thereafter 144.30 plus accumulated and unpaid dividends, without interest, to and excluding such deemed redemption date. No such notice of redemption by the holder of Series B Preferred shall be effective unless given to the Corporation prior to the close of business at least two (2) Business Days prior to consummation of the Transaction. (d) The holder or holders of Series B Preferred as they appear on the stock books of the Corporation at the close of business on a dividend payment Record Date shall be entitled to receive the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the subsequent conversion thereof or the Corporation's default on payment of the dividend due on such Dividend Payment Date; provided, however, that the holder or holders of Series B Preferred subject to redemption on a redemption date after such Record Date and before such Dividend Payment Date shall not be entitled under this provision to receive such dividend on such Dividend Payment Date. However, shares of Series B Preferred surrendered for conversion during the period after any dividend payment Record Date and before the corresponding Dividend Payment Date (except shares subject to redemption on a redemption date during such period) must be accompanied by payment of an amount equal to the dividend payable on such shares on such Dividend Payment Date. The holder or holders of Series B Preferred as they appear on the stock books of the Corporation at the close of business on a dividend payment Record Date who convert shares of Series B Preferred on a Dividend Payment Date shall be entitled to receive the dividend payable on such Series B Preferred by the Corporation on such Dividend Payment Date, and the converting holders need not include payment in the amount of such dividend upon surrender of shares of Series B Preferred for conversion. Except as provided above, the Corporation shall make no payment or allowance for unpaid dividends (whether or not accumulated and in arrears) on converted shares or for dividends on the shares of Common Stock issuable upon such conversion. (e) Each conversion of shares of Series B Preferred into shares of Common Stock shall be effected by the surrender of the certificate or certificates representing the shares to be converted, accompanied by instruments of transfer satisfactory to the Corporation and sufficient to transfer such shares to the Corporation free of any adverse claims (the "Converting Shares"), at the principal executive office of the Corporation (or such other office or agency of the Corporation as the Corporation may designate by written notice to the holder or holders of Series B Preferred) at any time during its respective usual business hours, together with written notice by the holder of such Converting Shares, stating that such holder desires to convert the Converting Shares, or a stated number of the shares represented by such certificate or certificates, into such number of shares of Common Stock into which such shares may be converted (the "Converted Shares"). Such notice shall also state the name or names (with addresses and federal taxpayer identification numbers) and denominations in which the certificate or certificates for the Converted Shares are to be issued, shall include instructions for the delivery thereof and shall include such other information as the Corporation or its agents may reasonably request. Promptly after such surrender and the receipt of such written notice and the receipt of any required transfer documents and payments representing dividends as described above, the Corporation shall issue and deliver in accordance with the surrendering holder's instructions the certificate or certificates evidencing the Converted Shares issuable upon such conversion, and the Corporation will deliver to the converting holder (without cost to the holder) a certificate (which shall contain such legends as were set forth on the surrendered certificate or certificates) representing any shares of Series B Preferred which were represented by the certificate or certificates that were delivered to the Corporation in connection with such conversion, but which were not converted. (f) Such conversion, to the extent permitted by applicable law, shall be deemed to have been effected at the close of business on the date on which such certificate or certificates shall have been surrendered and such notice and any required transfer documents and payments representing dividends shall have been received by the Corporation, and at such time the rights of the holder of the Converting Shares as such holder shall cease, and the person or persons in whose name or names the certificate or certificates for the Converted Shares are to be issued upon such conversion shall be deemed to have become the holder or holders of record of the Converted Shares. Upon issuance of shares in accordance herewith, such Converted Shares shall be deemed to be fully paid and nonassessable. From and after the effectiveness of any such conversion, shares of the Series B Preferred so converted shall, upon compliance with applicable law, be restored to the status of authorized but unissued undesignated shares, until such shares are once more designated as part of a particular series by the Board of Directors. (g) Notwithstanding any provision herein to the contrary, the Corporation shall not be required to record the conversion of, and no holder of shares shall be entitled to convert, shares of Series B Preferred into shares of Common Stock unless such conversion is permitted under applicable law; provided, however, that the Corporation shall be entitled to rely without independent verification upon the representation of any holder that the conversion of shares by such holder is permitted under applicable law, and in no event shall the Corporation be liable to any such holder or any third party arising from any such conversion whether or not permitted by applicable law. (h) The Corporation will pay any and all stamp, transfer or other similar taxes that may be payable in respect of the issuance or delivery of Common Stock received upon conversion of the shares of Series B Preferred, but shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance or delivery of Common Stock in a name other than that in which such shares of Series B Preferred were registered and no such issuance or delivery shall be made unless and until the person requesting such conversion shall have paid to the Corporation the amount of any and all such taxes or shall have established to the satisfaction of the Corporation that such taxes have been paid in full. (i) The Corporation shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued stock, for the purpose of effecting the conversion of the shares of the Series B Preferred, such number of its duly authorized shares of Common Stock or other securities as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series B Preferred. (j) Whenever the Corporation shall issue shares of Common Stock upon conversion of shares of Series B Preferred as contemplated by this Section 8, the Corporation shall issue together with each such share of Common Stock one Right (as defined in the Rights Agreement) pursuant to the terms and provisions of the Rights Agreement. 9. Transfer Restriction. Shares of Series B Preferred shall be issued only to the Plan and Trust and the certificate or certificates representing such shares so issued may be registered in the name of the Plan and Trust or in the name of one or more Trustees acting on behalf of the Plan and Trust (or the nominee name of any such trustee). In the event the Plan and Trust, acting through any such trustee or otherwise, should transfer beneficial or record ownership of one or more shares of Series B Preferred to any person or entity, the shares of Series B Preferred so transferred, upon such transfer and without any further action by the Corporation or the Plan and Trust or anyone else, shall be automatically converted, as of the time of such transfer, into shares of Common Stock on the terms otherwise provided for the voluntary conversion of shares of Series B Preferred into shares of Common Stock pursuant to Section 8 hereof and no transferee of such share or shares shall thereafter have or receive any of the rights and preferences of the shares of Series B Preferred so converted. Certificates representing shares of Series B Preferred shall be legended to reflect the aforesaid restriction on transfer. Shares of Series B Preferred may also be subject to restrictions on transfer which relate to the securities laws of the United States of America or any state or other jurisdiction thereof. 10. No other Rights. The shares of Series B Preferred shall not have any rights or preferences, except as set forth herein or as otherwise required by applicable law. 11. Rules and Regulations. The Board of Directors shall have the right and authority from time to time to prescribe rules and regulations as it may determine to be necessary or advisable in its sole discretion for the administration of the Series B Preferred in accordance with the foregoing provisions and applicable law. 12 . Definitions . For purposes of this Resolution, the following definitions shall apply: "Adjustment Period" shall mean the period of five (5) consecutive trading days preceding the date as of which the Fair Market Value of a security is to be determined. "Business Day" shall mean each day that is not a Saturday, Sunday or a day on which state or federally chartered banking institutions in New York, New York are not required to be open. "Current Market Price" of publicly traded shares of Common Stock or any other class of capital stock or other security of the Corporation or any other issuer for any day shall mean the last reported sales price, regular way, or, in the event that no sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in either case as reported on the New York Stock Exchange Composite Tape or, if such security is not listed or admitted to trading on the New York Stock Exchange, on the principal national securities exchange on which such security is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or, if such security is not quoted on such National Market System, the average of the closing bid and asked prices on each such day in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for such security on each such day shall not have been reported through NASDAQ, the average of the bid and asked prices for such day as furnished by any New York Stock Exchange member firm regularly making a market in such security selected for such purpose by the Board of Directors or a committee thereof. "Extraordinary Distribution" shall mean any dividend or other distribution to holders of Common Stock (effected while any of the shares of Series B Preferred are outstanding) (i) of cash (other than a regularly scheduled quarterly dividend not exceeding 135% of the average quarterly dividend for the four quarters immediately preceding such dividend), where the aggregate amount of such cash dividend or 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. "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. EX-3 3 EXHIBIT 3(II) THE ST. PAUL COMPANIES, INC. BY LAWS INDEX ARTICLE I. OFFICES Page ---- Sec. 1 Registered Office 1 Sec. 2 Principal Executive Office 1 ARTICLE II. MEETINGS OF SHAREHOLDERS Sec. 1 Place of Meeting 1 Sec. 2 Regular Annual Meeting 1 Sec. 3 Special Meeting 1 Sec. 4 Notice 1 Sec. 5 Record Date 1 Sec. 6 Quorum 2 Sec. 7 Voting Rights 2 Sec. 8 Proxies 2 Sec. 9 Act of the Shareholders 2 Sec. 10 Business of the Meeting 2 Sec. 11 Nomination of Directors 3 ARTICLE III. BOARD OF DIRECTORS Sec. 1 Board to Manage 3 Sec. 2 Number and Term of Office 4 Sec. 3 Meetings of the Board 4 Sec. 4 Advance Action by Absent Directors 4 Sec. 5 Electronic Communications 4 Sec. 6 Quorum 4 Sec. 7 Act of the Board 4 Sec. 8 Board - Appointed Committees 4 ARTICLE IV. OFFICERS Sec. 1 Required Officers 4 Sec. 2 Chairman 5 Sec. 3 President 5 Sec. 4 Chief Financial Officer 5 Sec. 5 Corporate Secretary 6 ARTICLE V. STOCK CERTIFICATES/TRANSFER Sec. 1 Certificate 6 Sec. 2 Transfer of Shares 6 Sec. 3 Lost, Stolen or Destroyed Certificates 6 ARTICLE VI. GENERAL PROVISIONS Sec. 1 Voting of Shares 7 Sec. 2 Execution of Documents 7 Sec. 3 Transfer of Assignment of Securities 7 Sec. 4 Fiscal Year 7 Sec. 5 Seal 7 Sec. 6 Indemnification 7 BYLAWS OF THE ST. PAUL COMPANIES, INC. ARTICLE I Offices Section 1. Registered Office. The registered office of the corporation required by Chapter 302A of the Minnesota Statutes ("Chapter 302A") to be maintained in the State of Minnesota is 385 Washington Street, St. Paul, Minnesota 55102. Section 2. Principal Executive Office. The principal executive office of the corporation, where the chief executive officer of the corporation has an office, is 385 Washington Street, St. Paul, Minnesota 55102. Article II Meetings of Shareholders Section 1. Place of Meeting. All meetings of the shareholders shall be held at the registered office of the corporation or, except for a meeting called by or at the demand of a shareholder, at such other place as may be fixed from time to time by the board of directors (the "board"). Section 2. Regular Annual Meeting. A regular annual meeting of shareholders shall be held on the first Tuesday of May of each year for the purpose of electing directors and for the transaction of any other business appropriate for action by the shareholders. Section 3. Special Meetings. Special meetings of the shareholders may be called at any time by the Chief Executive Officer or the Chief Financial Officer or by two or more directors or by a shareholder or shareholders holding ten percent or more of the voting power of all shares entitled to vote; except that a special meeting called by shareholders for the purpose of considering any action to directly or indirectly facilitate or effect a business combination, including any action to change or otherwise affect the composition of the board of directors for that purpose, must be called by twenty-five percent or more of the voting power of all shares entitled to vote. A shareholder or shareholders holding the requisite voting power may demand a special meeting of shareholders only by giving the written notice of demand required by law. Special meetings shall be held on the date and at the time and place fixed as provided by law. Section 4. Notice. Notice of all meetings of shareholders shall be given to every holder of voting shares in the manner and pursuant to the requirements of Chapter 302A. Section 5. Record Date. The board shall fix a record date not more than 60 days before the date of a meeting of shareholders as the date for the determination of the holders of voting shares entitled to notice of and to vote at the meeting. Section 6. Quorum. The holders of a majority of the voting power of the shares entitled to vote at a meeting present in person or by proxy at the meeting are a quorum for the transaction of business. If a quorum is present when a meeting is convened, the shareholders present may continue to transact business until adjournment sine die, even though the withdrawal of a number of shareholders originally present leaves less than the proportion otherwise required for a quorum. Section 7. Voting Rights. Unless otherwise provided in the terms of the shares, a shareholder has one vote for each share held on a record date. A shareholder may cast a vote in person or by proxy. Such vote shall be by written ballot unless the chairman of the meeting determines to request a voice vote on a particular matter. Section 8. Proxies. The chairman of the meeting shall, after shareholders have had a reasonable opportunity to vote and file proxies, close the polls after which no further ballots, proxies, or revocations shall be received or considered. Section 9. Act of the Shareholders. Except as otherwise provided by Chapter 302A of the restated articles of incorporation of the corporation, the shareholders shall take action by the affirmative vote of the holders of a majority of the voting power of the shares present at the time a vote is cast. Section 10. Business of the Meeting. At any annual meeting of shareholders, only such business shall be conducted as shall have been brought before the meeting (i) by or at the direction of the board or (ii) by any shareholder who is entitled to vote with respect thereto and who complies with the notice procedures set forth in this section 10. For business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the corporate secretary. To be timely, a shareholder's notice must be delivered or mailed to and received at the principal executive office of the corporation not less than 60 days prior to the date of the annual meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholders to be timely must be received not later than the close of business on the 10th day following the day of which such notice of the date of the annual meeting was mailed or such public disclosure was made. A shareholder's notice to the corporate secretary shall set forth as to each matter such shareholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting (ii) the name and address, as they appear on the corporation's share register, of the shareholder proposing such business; (iii) the class and number of shares of the corporation's capital stock that are beneficially owned by such shareholder and (iv) any material interest of such shareholder in such business. No shareholder proposal will be eligible for inclusion in the corporation's proxy materials or form of proxy for any annual meeting of shareholders unless received by the corporate secretary of the corporation on or before the first day of December next preceding the date of the annual meeting. Notwithstanding anything in the bylaws to the contrary, no business shall be brought before or conducted at the annual meeting except in accordance with the provisions of this section 10. The officer of the corporation or other person presiding over the annual meeting shall, if the facts so warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this section 10 and, if he shall so determine, he shall so declare to the meeting and any such business so determined to be not properly brought before the meeting shall not be transacted. At any special meeting of shareholders, the business transacted shall be limited to the purposes stated in the notice of the meeting. With respect to a special meeting held pursuant to the demand of a shareholder or shareholders, the purposes shall be limited to those specified in the demand in the event that the shareholder or shareholders are entitled by law to call the meeting because the board does not do so. Section 11. Nomination of Directors. Only persons who are nominated in accordance with the procedures set forth in these bylaws shall be eligible for election as directors. Nominations of persons for election to the board of the corporation may be made at a meeting of shareholders at which directors are to be elected only (i) by or at the direction of the board or (ii) by any shareholder of the corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this section 11. Such nominations, other than those made by or at the direction of the board, shall be made by timely notice in writing to the corporate secretary. To be timely, a shareholder's notice shall be delivered or mailed to and received at the principal executive office of the corporation not less than 60 days prior to the date of the meeting, provided, however, that in the event that less than 70 days' notice or prior disclosure of the date of this meeting is given or made to shareholders, notice by the shareholders to be timely must be so received not later than the close of business on the 10th day following the date on which such notice of the date of the meeting was mailed or such public disclosure was made. Such shareholder's notice shall set forth (i) as to each person whom such shareholder proposes to nominate for election as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected), and (ii) as to the shareholder giving the notice (a) the name and address, as they appear on the corporation's share register, of such shareholder and (b) the class and number of shares of the corporation's capital stock that are beneficially owned by such shareholder, and shall be accompanied by the written consent of each such person to serve as a director of the corporation, if elected. At the request of the board any person nominated by the board for election as a director shall furnish to the corporate secretary that information required to be set forth in a shareholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the provisions of this section 11. The officer of the corporation or other person presiding at the meeting shall, if the facts so warrant, determine and declare to the meeting that a nomination was not made in accordance with such provisions and, if he shall so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. ARTICLE III Board of Directors Section 1. Board to Manage. The business and affairs of the corporation shall be managed by or under the direction of the board. Section 2. Number and Term of Office. The number of directors shall be at least ten (10) but not more than eighteen (18), as determined from time to time by the board. Each director shall be elected to serve for a term that expires at the next regular annual meeting of the shareholders and when a successor is elected and has qualified, or at the time of the earlier death, resignation, removal or disqualification of the director. Section 3. Meetings of the Board. The board may hold meetings either within or without the State of Minnesota at such places as the board may select. If the board fails to select a place for a meeting, the meeting shall be held at the principal executive office of the corporation. Four regular meetings of the board shall be held each year. One shall be held immediately following the regular annual meeting of the shareholders. The other three regular meetings shall be held on dates and at times determined by the board. No notice of a regular meeting is required if the date, time and place of the meeting has been announced at a previous meeting of the board. A special meeting of the board may be called by any director or by the chief executive officer by giving, or causing the corporate secretary to give at least twenty-four hours notice to all directors of the date, time and place of the meeting. Section 4. Advance Action by Absent Directors. A director may give advance written consent or opposition to a proposal to be acted on at a board meeting. Section 5. Electronic Communications. A board meeting may be held and participation in a meeting may be effected by means of communications permitted by Chapter 302A. Section 6. Quorum. At all meetings of the board, a majority of the directors then holding office is a quorum for the transaction of business. In the absence of a quorum, a majority of the directors present may adjourn a meeting from time to time until a quorum is present. If a quorum is present when a meeting is convened, the directors present may continue to transact business until adjournment sine die even though the withdrawal of a number of directors originally present leaves less than the proportion otherwise required for a quorum. Section 7. Act of the Board. The board shall take action by the affirmative vote of at least a majority of the directors present at a meeting. In addition, the board may act without a meeting by written action signed by all of the directors then holding office. Section 8. Board-Appointed Committees. A resolution approved by the affirmative vote of a majority of the directors then holding office may establish committees having the authority of the board in the management of the business of the corporation to the extent provided in the resolution and each such committee is subject at all times to the direction and control of the board except as provided by Chapter 302A with respect to a committee of disinterested persons. ARTICLE IV Officers Section 1. Required Officers. The corporation shall have officers who shall serve as chief executive officer and chief financial officer and such other officers as the board shall determine from time to time. Section 2. Chairman. The board shall at its regular meeting each year immediately following the regular annual shareholders meeting elect from its number a chairman who shall serve until the next regular meeting of the board immediately following the regular annual shareholders meeting. The chairman shall be the chief executive officer of the corporation and shall (a) have general policy level responsibility for the management of the business and affairs of the corporation; (b) have responsibility for development and implementation of long range plans for the corporation; (c) preside at all meetings of the board and of the shareholders; (d) see that all the orders and resolutions of the board are carried into effect; (e) perform other duties prescribed by the board or these bylaws. In the absence of the president, the chairman shall assume the duties of the president. Section 3. President. The board shall at its regular meeting each year immediately following the regular annual shareholders meeting elect a president who shall serve until the next regular meeting of the board immediately following the regular annual meeting of the shareholders. The president shall be the chief operating officer of the corporation and shall (a) have responsibility for the operational aspects of the business and affairs of the corporation; (b) have responsibility to direct and guide operations to achieve corporate profit, growth and social responsibility objectives; and (c) perform other duties prescribed by the board and these bylaws. In the absence of the chairman, the president shall assume the duties of chairman. In the event of the inability of both the chairman and the president to act, then the executive vice president with the greatest seniority in office, if any, the senior vice president with the greatest seniority in office, if any, or if neither of the foregoing is available, then the vice president with the greatest seniority in that office shall perform the duties and exercise the powers of the chairman and the president during the period of their inability or until the next meeting of the executive committee or the board. Section 4. Chief Financial Officer. The board shall elect one or more officers, however denominated, to serve at the pleasure of the board who shall together share the function of chief financial officer. The function of chief financial officer shall be to (a) cause accurate financial records to be maintained for the corporation; (b) cause all funds belonging to the corporation to be deposited in the name of and to the credit of the corporation in banks and other depositories selected pursuant to general and specific board resolutions; (c) cause corporate funds to be disbursed as appropriate in the ordinary course of business; (d) cause appropriate internal control systems to be developed, maintained, improved and implemented; and (e) perform other duties prescribed by the board, the chairman or the president. Section 5. Corporate Secretary. The board shall elect a corporate secretary who shall serve at the pleasure of the board. The corporate secretary shall (a) be present at and maintain records of and certify proceedings of the board and the shareholders and, if requested, of the executive committee and other board committees; (b) serve as custodian of all official corporate records other than those of a financial nature; (c) cause the corporation to maintain appropriate records of share transfers and shareholders; and (d) perform other duties prescribed by the board, the chairman or the president. In the absence of the corporate secretary, a secretary, assistant secretary or other officer shall be designated by the president to carry out the duties of corporate secretary. ARTICLE V Share Certificates/Transfer Section 1. Certificate. Certificated shares of this corporation shall be in such form as prescribed by law and adopted by the board. Section 2. Transfer of Shares. Transfer of shares on the books of the corporation shall be made by the transfer agent and registrar in accordance with procedures adopted by the board. Section 3. Lost, Stolen or Destroyed Certificates. No certificate for shares of the corporation shall be issued in place of one claimed to be lost, stolen or destroyed except in compliance with Section 336.8-405, Minnesota Statutes, as amended from time to time, and the corporation may require a satisfactory bond of indemnity protecting the corporation against any claim by reason of the lost, stolen or destroyed certificate. ARTICLE VI General Provisions Section 1. Voting of Shares. The chairman, president, any vice president or the corporate secretary, unless some other person is appointed by the board, may vote shares of any other corporation held or owned by the corporation and may take any required action with respect to investments in other types of legal entities. Section 2. Execution of Documents. Deeds, mortgages, bonds, contracts and other documents and instruments pertaining to the business and affairs of the corporation may be signed and delivered on behalf of the corporation by the chairman, president, any vice president or corporate secretary or by such other person or by such other officers as the board may specify. Section 3. Transfer of Assignment of Securities. The chairman, the president, the chief financial officer, the treasurer, or any vice president, corporate secretary, secretary or assistant secretary of the corporation shall execute the transfer and assignment of any securities owned by or held in the name of the corporation. The transfer and assignment of securities held in the name of a nominee of the corporation may be accomplished pursuant to the contract between the corporation and the nominee. Section 4. Fiscal Year. The fiscal year of the corporation shall end on December 31 of each year. Section 5. Seal. The corporation shall have a circular seal bearing the name of the corporation and an impression of a man at a plow, a gun leaning against a stump and an Indian on horseback. Section 6. Indemnification. Subject to the limitations of the next sentence, the corporation shall indemnify and make permitted advances to a person made or threatened to be made a party to a proceeding by reason of his former or present official capacity against judgments, penalties, fines (including without limitation excise taxes assessed against the person with respect to an employee benefit plan), settlements and reasonable expenses (including without limitation attorneys' fees and disbursements) incurred by him in connection with the proceeding in the manner and to the fullest extent permitted or required by Section 302A.521, Minnesota Statutes 1981 Supplement, as amended from time to time. Notwithstanding the foregoing, the corporation shall neither indemnify nor make advances under Section 302A.521 to any person who at the time of the occurrence or omission claimed to have given rise to the matter which is the subject of the proceeding only had an agency relationship to the corporation and was not at that time an officer, director or employee thereof unless such person and the corporation were at that time parties to a written contract for indemnification or advances with respect to such matter or unless the board specifically authorizes such indemnification or advances. EX-10 4 EXHIBIT 10A THE ST. PAUL COMPANIES, INC. 1994 STOCK INCENTIVE PLAN 1. Purpose. The purposes of The St. Paul Companies, Inc. 1994 Stock Incentive Plan (the "Plan") are (i) to promote the interests of The St. Paul Companies, Inc. (the "Company") and its shareholders by attracting and retaining key officers and Non-Employee Directors of the Company and its subsidiaries upon whom major responsibilities rest for the successful administration and management of the Company's business, (ii) to provide such officers and Non- Employee Directors with incentive-based compensation in the form of Company stock, which is supplemental to any other compensation or benefit plans, based upon the Company's sustained financial performance, (iii) to encourage decision making based upon long-term goals and (iv) to align the interest of such officers and Non-Employee Directors with that of the Company's shareholders by encouraging them to acquire a greater ownership position in the Company. 2. Definitions. Wherever used herein, the following terms shall have the respective meanings set forth below: "Award" means an award to a Participant made in accordance with the terms of the Plan. "Board" means the Board of Directors of the Company. "Committee" means the Executive Compensation Committee of the Board, or a subcommittee of that committee. "Common Stock" means the common stock of the Company. "Disinterested Person" means "disinterested person" as defined in Rule 16b-3 of the Securities and Exchange Commission, as amended from time to time, and, generally, means any member of the Board who is not at the time of acting on a matter, and within the previous year has not been, an officer of the Company or a subsidiary. "Participant" means an employee of the Company or its subsidiaries who is selected by the Committee to participate in the Plan or a Non-Employee Director who is granted options under the provisions of Section 20 and/or Section 21 of the Plan. 3. Shares Subject to the Plan. Subject to adjustment as provided in Section 16, the number of shares of Common Stock which shall be available and reserved for the grant of Awards under the Plan shall not exceed two million (2,000,000) (or four million (4,000,000) if the Board and the shareholders, at their May 3, 1994 meeting, approve the two-for-one stock split described in the proxy statement for the May 3, 1994 annual meeting of the shareholders of the Company (the "Stock Split")). The shares of Common Stock issued under the Plan will come from authorized and unissued shares. Shares of Common Stock subject to an Award that expires unexercised, that is forfeited, terminated or canceled, in whole or in part, shall thereafter again be available for grant under the Plan. No more than twenty per cent (20%) of all shares subject to the Plan may be granted to Participants as restricted stock. 4. Administration. The Plan shall be administered by the Committee. A majority of the Committee shall constitute a quorum, and the acts of a majority shall be the acts of the Committee. Subject to the provisions of the Plan and except where inconsistent with the provisions of Section 20, 21 and 22 of the Plan, the Committee shall (i) select the Participants, determine the type of Awards to be made to Participants, determine the shares subject to Awards, and (ii) have the authority to interpret the Plan, to establish, amend, and rescind any rules and regulations relating to the administration of the Plan, to determine the terms and provisions of any agreements entered into hereunder, and to make all other determinations necessary or advisable for the administration of the Plan. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any Award in the manner and to the extent it shall deem desirable to carry it into effect. The determinations of the Committee in the administration of the Plan, as described herein, shall be final and conclusive. 5. Eligibility. Non-Employee Directors shall become Participants under the provisions of Section 20 of the Plan and may become Participants under Section 21 of the Plan. In addition, the Committee shall select from time to time as Participants in the Plan such officers of the Company or its subsidiaries who are responsible for the management of the Company or a subsidiary or who are expected to contribute in a substantial measure to the successful performance of the Company. No employee shall have at any time the right (i) to be selected as a Participant, (ii) to be entitled to an Award, or (iii) having been selected for an Award, to receive any further Awards. 6. Awards. Awards under the Plan may consist of: stock options (either incentive stock options, within the meaning of Section 422 of the Internal Revenue Code, or nonstatutory stock options), Rights and restricted stock. Awards of restricted stock may provide the Participant with dividends or dividend equivalents and voting rights prior to vesting (whether based on a period of time or based on attainment of specified performance conditions). 7. Stock Options. The Committee shall establish the option price at the time each stock option is granted, which price shall not be less than the closing price of a share of the Common Stock on the New York Stock Exchange on the date of grant, or the fair market value of a share of the Common Stock if it is not so listed, as determined by the Committee. Stock options shall be exercisable for such period as specified by the Committee, but in no event may options become exercisable less than one year after the date of grant (except in the case of a Change of Control) or be exercisable for a period of more than ten (10) years after their date of grant. The option price of each share as to which a stock option is exercised shall be paid in full at the time of such exercise. Such payment shall be made in cash (including check, bank draft or money order), by tender of shares of Common Stock owned by the Participant valued at fair market value as of the date of exercise, subject to such guidelines for the tender of Common Stock as the Committee may establish, in such other consideration as the Committee deems appropriate, or by a combination of cash, shares of Common Stock and such other consideration. No Participant may be granted Awards of stock options with respect to more than four hundred thousand (400,000) shares (eight hundred thousand (800,000) shares if the Stock Split is approved) of Common Stock during the term of the Plan, subject to adjustment as provided in Section 16. 8. Stock Appreciation Rights. Stock appreciation, or similar rights (each a "Right") may be granted either concurrently with or subsequent to the date of grant of the related stock option. A Right shall entitle the Participant to receive from the Company an amount equal to the increase of the fair market value of one (1) share of Common Stock on the date of exercise of the Right over the fair market value of one (1) share of Common Stock on the date of grant. The Committee shall determine in its sole discretion whether the Right shall be settled in cash, Common Stock or a combination of cash and Common Stock. In no event may Rights with respect to more than four hundred thousand (400,000) shares (eight hundred thousand (800,000) shares if the Stock Split is approved) of Common Stock in the aggregate be granted to any Participant during the term of the Plan, subject to adjustment as provided in Section 16. 9. Termination of Stock Options and Rights. Each option and any related Rights shall terminate: If the Participant is then living, at the earliest of the following times: (i) ten (10) years after the date of grant of the option; (ii) three (3) years after termination of employment because of retirement; (iii) one (1) month after termination of employment other than termination because of retirement or through discharge for cause provided, however, that if any option is not fully exercisable at the time of such termination of employment, such option shall expire on the date of such termination of employment to the extent not then exercisable; (iv) immediately upon termination of employment through discharge for cause; or (v) any other time set forth in the agreement describing and setting the terms of the Award, which time shall not exceed ten (10) years after the date of grant. If the Participant dies while employed by the Company or any subsidiary, or if no longer so employed dies prior to termination of the entire option under Section 9 (ii) or (iii) hereof, the Participant's options and Rights shall terminate one (1) year after the date of death, but subject to earlier termination pursuant to Section 9 (i) or (v). However, notwithstanding the provisions of Section 9 (v), to the extent an option is exercisable on the date of the Participant's death, it shall remain exercisable until the earlier of one hundred eighty (180) days following the date of death or ten (10) years after the date of grant. To the extent an option is exercisable after the death of the Participant, it may be exercised by the person or persons to whom the Participant's rights under the agreement have passed by will or by the applicable laws of descent and distribution. 10. Restricted Stock. Restricted stock may be granted in the form of actual shares of Common Stock which shall be evidenced by a certificate registered in the name of the Participant but held by the Company until the end of the restricted period. Any employment conditions, performance conditions and the length of the period for vesting of restricted stock shall be established by the Committee in its discretion. In no event will Awards of restricted stock to any one Participant total more than fifty thousand (50,000) shares (one hundred thousand (100,000) shares if the Stock Split is approved) of Common Stock during the term of the Plan, subject to adjustment as provided in Section 16. Any performance conditions applied to any Award of restricted stock may include earnings per share, net income, operating income, total shareholder return, market share, return on equity, achievement of profit or revenue targets by a business unit, or any combination thereof. No Award of restricted stock may vest earlier than one year from the date of grant (except in the case of a Change of Control). 11. Agreements. Each Award under the Plan shall be evidenced by an agreement setting forth the terms and conditions, as determined by the Committee, which shall apply to such Award, in addition to the terms and conditions specified in the Plan. 12. Change of Control. In the event of a Change of Control, as hereinafter defined, (i) all Rights shall become exercisable in full, (ii) the restrictions applicable to all shares of restricted stock shall lapse and such shares shall be deemed fully vested; and (iii) subject to any limitations set forth in agreements documenting any stock option Awards, all stock options shall become immediately exercisable in full. The Committee may, in its discretion, include such further provisions and limitations in any agreement documenting such Awards as it may deem equitable and in the best interests of the Company. "Change of Control" means a change of control of the Company of a nature that would be required to be reported (assuming such event has not been "previously reported") in response to Item 1(a) of the Current Report on Form 8-K, as in effect on May 3, 1994, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934; provided that, without limitation, such a change in control shall be deemed to have occurred at such time as (a) any "person" within the meaning of Section 14(d) of the Securities Exchange Act of 1934, other than the Company, a subsidiary or any employee benefit plan(s) sponsored by the Company or any subsidiary is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of fifty per cent (50%) or more of the Common Stock; or (b) individuals who constitute the Board on May 3, 1994, cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to May 3, 1994, whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least three quarters of the directors comprising the Board on May 3, 1994 (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this clause (b), considered as though such person were a member of the Board on May 3, 1994. 13. Withholding. The Company and its subsidiaries shall have the right to deduct from any payment to be made pursuant to the Plan, or to require prior to the issuance or delivery of any shares of Common Stock or the payment of cash under the Plan, any taxes required by law (whether federal, state, local or foreign) to be withheld therefrom. The Committee may, in its discretion, permit a Participant to elect to satisfy such withholding obligation by having the Company retain the number of shares of Common Stock whose fair market value equals the amount required to be withheld. Any fraction of a share of Common Stock required to satisfy such obligation shall be disregarded and the amount due shall instead be paid in cash to the Participant. 14. Nontransferability. No amount payable or other right under the Plan shall be subject in any manner to alienation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge or encumbrance of any kind nor in any manner be subject to the debts or liabilities of any person, except by will or the laws of descent and distribution, and any attempt to so alienate or subject any such amount, whether presently or thereafter payable, or any such right shall be void. 15. No Right to Employment. No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to continue in the employ of the Company or its subsidiaries. Further, the Company and its subsidiaries expressly reserve the right at any time to dismiss a Participant without any liability, or any claim under the Plan, except as provided herein or in any agreement entered into hereunder. 16. Adjustment of and Changes in Common Stock. In the event of any stock dividend or split, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other change in the corporate structure or shares of stock of the Company, or any distributions to common shareholders other than regular cash dividends, the Committee may make such substitution or adjustment, if any, as it deems to be equitable, as to the number or kind of shares of Common Stock or other securities issued or reserved for issuance pursuant to the Plan and to outstanding Awards. 17. Amendment. The Board may amend, suspend or terminate the Plan or any portion thereof at any time, provided that (i) no amendment shall be made without stockholder approval if such approval is necessary in order for the Plan to continue to comply with Rule 16b-3 under the Securities Exchange Act of 1934 and (ii) no amendment, suspension or termination may adversely affect any outstanding Award without the consent of the Participant to whom such Award was made. Section 20 of this Plan may not be amended more than once every six months, other than to comport with changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules thereunder. 18. Governing Law. The Plan shall be construed and its provisions enforced and administered in accordance with the laws of the State of Minnesota. 19. Effective Date. The Plan shall be effective as of May 4, 1994. Subject to earlier termination pursuant to Section 17, the Plan shall have a term of ten (10) years from its effective date. 20. Automatic Grant to Non-Employee Directors. Commencing with the first meeting of the Board in November 1994, each year on the date of the first meeting of the Board in November of each such year, each Non-Employee Director who is a director of the Company as of such date shall, without any Committee action, automatically be granted a stock option to purchase five hundred (500) shares (one thousand (1,000) shares if the Stock Split is approved) of Common Stock (subject to adjustment upon changes in capitalization of the Company as provided in Section 16 of the Plan). Each such option shall be evidenced by and subject to the provisions of an agreement setting forth the terms described in Section 22 and such additional terms of the Plan as are not inconsistent with the terms of Section 22. 21. Discretionary Grant to Non-Employee Directors. The Board may, subsequent to the effective date of the Plan, permit Non-Employee Directors to choose to receive all or a portion of their basic annual retainer in the form of stock options valued in accordance with a method deemed appropriate by the Committee. Each such option shall be evidenced by and subject to the provisions of an agreement setting forth the terms described in Section 22 and such additional terms of the Plan as are not inconsistent with the terms of Section 22. 22. Non-Employee Director Options. Options granted pursuant to Section 20 or 21 shall have an exercise price per share equal to 100% of the fair market value of one (1) share of Common Stock on the date the option is granted, shall become exercisable in full one (1) year after the date of grant, and shall remain exercisable until terminated in accordance with Section 9 of the Plan, provided that (i) Section 9(iii) shall be applied without regard to the words "or through discharge for cause," (ii) Sections 9(iv) and (v) shall not be applicable and (iii) references in Section 9 to "employment" and "termination of employment" shall, for the purposes of Sections 20 and 21, refer to "service as a director" and "termination of service as a director." Payment of the exercise price of the shares to be purchased under options granted under Section 20 and 21 must be made in cash only (including check, bank draft or money order) at the time of exercise of such option. The provisions of Sections 20 and 21 shall control with respect to options granted under either Section 20 or 21, respectively, over any other inconsistent provisions of the Plan. It is intended that the provisions of Sections 20 and 21 shall not cause the Non-Employee Directors to cease to be considered Disinterested Persons and, as a result, the provisions of Sections 20 and 21 shall be interpreted to be consistent with the foregoing intent. Non-Employee Directors may not be granted options under the Plan other than pursuant to the provisions of Section 20 and 21. No Rights may be granted to Non-Employee Directors. EX-10 5 EXHIBIT 10B THE ST. PAUL COMPANIES, INC. ANNUAL INCENTIVE PLAN 1. Purpose The purpose of this Annual Incentive Plan ("AIP") is to provide key executives of The St. Paul Companies, Inc. and its subsidiaries (the "Company") with financial incentives which will motivate and reward performance that achieves established goals, including annual corporate earnings and business unit performance objectives. It is also intended to provide a procedure whereby a plan participant may defer the payment of all or a specified percentage of any awards under this plan payable to him/her until a specified time or event, elect an investment vehicle in which an award will be deemed invested for the period of deferral, and specify the manner and timing of the payment of any deferred amount. Further, it is intended that this plan be unfunded for tax purposes and for Title I of ERISA. 2. Eligibility Executive officers of the Company (as defined under Rule 3b-7 of the Securities Exchange Act of 1934) at the end of the previous year are eligible to participate in the AIP. The participants will be those eligible executive officers who are selected prior to the beginning of the AIP plan year by the Executive Compensation Committee to receive awards for the plan year. 3. Awards under the AIP The Executive Compensation Committee of the Board of Directors administers the AIP and approves awards based on the achievement of Company and/or business unit objectives. For purposes of the AIP, the Committee may consider and establish only the following measures: total shareholder return, return on equity, earnings per share, expense management, business unit achievement of profit or revenue targets, revenues, net income, operating income, or any combination thereof. Maximum awards to the eligible participants under the AIP range from 50%-105% of the participant's annual base salary as in effect on March 31 of the year for which the award is based. In no event shall the annual base salary used to compute a maximum award for any participant exceed 120% of that participant's annual base salary in effect on January 1 of the year for which the award is paid. Awards are either paid in cash or deferred, at the election of each participant, during the first quarter of the year following the year for which the award was earned. 4. Deferral of Awards Commencing with the calendar year in which a Participant is first entitled to an award and each subsequent year in which he/she is so entitled, the Company shall retain the awards that participants have previously elected to defer, payable to the Participant at the time or times and in the manner specified by the Participant in a written election notice. Deferral elections may be made annually. An election notice will specify the amount or percentage, if any, of any award to be deferred, the deferral period, the investment vehicle in which the amount deferred will be deemed invested, and the manner and timing of payment. Investment options are such investment vehicles as the Company may from time to time offer. The election notice must be delivered to the Company on or before December 31 preceding the year for which the award is made. An election is irrevocable once the year for which the award will be made has commenced, except that a participant may change his/her investment election periodically as the Company in its discretion may provide. 5. Non-Alienation The rights and benefits of a participant hereunder and any other person or persons to whom payments may be made pursuant to this plan are personal to her/him and them, as the case may be, and, except for payments made following a participant's death, shall not be subject to any voluntary or involuntary alienation, assignment, pledge, transfer, encumbrance, attachment, garnishment or other disposition. 6. Exclusion From Benefits Awards under this plan shall not constitute compensation for the purpose of determining participation or benefits under any other plan of the Company unless specifically included as compensation in such plan. 7. Status of Deferred Awards This plan constitutes a mere promise by the Company to pay the deferred awards in the future. To the extent a participant or any other person acquires a right to receive payments from the Company under this plan, such rights shall be no greater than the right of any unsecured general creditor of the Company. 8. Payment Options A Participant may elect to have deferred awards paid in a single payment or in annual installments ranging from two to twenty years. Payment or commencement of payment of deferred awards may be elected as of the last day of the month in which the following events or dates (Valuation Dates) occur: a. Termination from employment, which means a complete severance of a participant's employment relationship with the Company and all affiliated companies. Accordingly, neither a transfer of a participant's employment among affiliated companies nor his/her absence from active service with the Company by reason of a disability leave or any other leave of absence will constitute a termination from employment. b. Retirement, which shall be deemed to occur if the participant terminates from employment with eligibility for an immediate and regular benefit payment under a tax qualified defined benefit plan of the Company. c. Total permanent disability, which shall be deemed to have occurred if the Executive Compensation Committee finds on the basis of medical evidence satisfactory to it that the participant is prevented from engaging in any suitable gainful employment or occupation and that such disability will be permanent and continuous during the remainder of his/her life. d. Death. e. December 31 of a year of the participant's choice. Except as provided herein with respect to insiders, the actual first or single payment will be made within 30 days of the first elected Valuation Date to occur. In the case of installments, subsequent installments will be valued as of the last day of each subsequent calendar year and will be paid within sixty days thereafter. 9. Payment of Deferred Awards Awards deferred, together with interest and dividend equivalents accrued thereon, and/or valued and adjusted for income, gains, and losses hereunder, as the case may be, shall be paid in cash to the participant at such time or times as the participant shall have specified in writing in his/her irrevocable deferral notices to the Company. However, if a Phantom Company Stock Account is offered as an investment vehicle for deferred awards, a payment shall not be made to or on behalf of a participant subject to Section 16 of the Securities Exchange Act of 1934 ("insider") with respect to the participant's Phantom Company Stock Account hereunder unless at least six months shall have elapsed from the date the Company stock represented by such payment was credited to such participant's Phantom Company Stock Account except in case of the participant's death, disability, retirement or termination of employment with the Company and all affiliated organizations. 10. Amendment and Termination The Board of Directors of the Company may amend or terminate this Plan at any time. EX-10 6 EXHIBIT 10C THE ST. PAUL COMPANIES, INC. LONG-TERM INCENTIVE PLAN 1. Purpose The purpose of this Plan is to further the growth and profitability of the Company by offering Key Executives the opportunity to receive incentive awards based on the successful achievement of certain long-range corporate goals. 2. Definitions For the purpose of the Plan, except where the context otherwise indicates, the following definitions shall apply: "Board" means the Board of Directors of the Company. "Committee" means the Executive Compensation Committee or any other committee designated by Board action. "Company" means The St. Paul Companies, Inc. "Key Executive" means any person who is employed by the Company or a Subsidiary on a salaried basis and whose performance could have a significant effect on the long- term success of the Company or a Subsidiary (or both). "Participant" means a Key Executive to whom Performance Objectives or group Performance Objectives have been assigned for a Performance Period. "Performance Award" means an award made pursuant to the Plan following the attainment of any Performance Objective. "Performance Objective" means an absolute or relative goal set for a Participant. Performance Objectives must be based on the Company's total shareholder return or earnings per share or on the return on equity, expense management, revenues, net income or operating income of the Company, any Subsidiary or any business unit of the Company or any Subsidiary, or any combination thereof. "Performance Period" means a period of three or more consecutive years with respect to which one or more Performance Objectives have been set. Consecutive Performance Periods may be commenced each year while the Plan remains in effect. Each Performance Objective established in any year for a Participant shall be assigned a Performance Period which need not be of the same duration as any other Performance Period assigned to any other Performance Objective established for such individual in that year. "Plan" means this Long-Term Incentive Plan. "Retirement" of any Participant means a retirement under the retirement plan of the Company or a Subsidiary. "Subsidiary" means any entity of which, at the time such Subsidiary status is to be determined, at least 50% of the combined voting power of such entity is directly or indirectly owned or controlled by the Company. 3. Administration of the Plan The Plan shall be administered by the Committee. A majority of the Committee shall constitute a quorum, and all acts of the Committee must be approved by a majority of its members. Subject to the provisions of the Plan and applicable laws and regulations, the Committee shall have authority in its discretion: (a) To interpret the provisions of the Plan and decide all questions of fact arising in its application; (b) To prescribe, amend and rescind rules and regulations relating to the Plan; (c) To determine which Key Executives shall be Participants; (d) To establish Performance Objectives and adjust Performance Objectives pursuant to Section 5 hereof; (e) To establish Performance Periods; and (f) To terminate, suspend or modify the Plan. The Committee's determination of the foregoing matters shall be final and conclusive unless disapproved by the Board. 4. Participant Selection; Establishment of Potential Award A Key Executive may be selected as a Participant in more than one Performance Period and in overlapping Performance Periods. Selection may be made before or at any time during Performance Periods. The Committee shall set a potential Performance Award or a range of potential Performance Awards for each Participant at the time of the Participant's selection. Potential Performance Awards shall be in terms of the dollar amounts payable if Performance Objectives are attained. In no event may the maximum Performance Award payable to any Participant for any Performance Period exceed 50% of that Participant's average annual base salary in effect over the Performance Period. In no event shall the average base salary used to compute such a maximum Performance Award exceed 150% of the annual salary in effect on January 1 of the first year of the Performance Period. Nothing in the Plan is intended or shall be construed to give any employee of the Company or a Subsidiary any right to be selected as a Participant. 5. Performance Objective Adjustments Subject to applicable laws and regulations, and the specific terms of any particular Performance Objective, any Performance Objective or group Performance Objective may be adjusted, at any time not later than the midpoint of any Performance Period, if it is determined that external economic conditions or other factors beyond the reasonable control of a Participant or a group of Participants have materially changed in a manner not reasonably foreseeable or taken into account when the Performance Objective was originally set, provided that failure to make an adjustment would likely be inconsistent with the purpose of the Plan. 6. Determination of Performance Awards As soon as practicable following the conclusion of each Performance Period for each Performance Objective, the Committee shall determine which Participants and groups of Participants have earned Performance Awards. Performance Awards will be made as soon as practicable following such determination. 7. Entitlement to Performance Awards A Participant is entitled to a Performance Award for a Performance Period only if a Performance Objective for the Participant or the Participant's group is met and if the Participant is actively employed by the Company or a Subsidiary on the final day of the Performance Period, provided, however, that, in the event of the Participant's death, disability, approved leave of absence or Retirement during a Performance Period or for any other reason deemed appropriate, a pro rata Performance Award may be made based upon the period of active employment. In no event shall there be pro rata entitlement to a Performance Award if a Performance Objective is not achieved. Nothing in the Plan or in the administration thereof shall in any way diminish the right of the Company or any Subsidiary to reduce the compensation or to terminate the employment of any Participant. 8. Non-Alienation No potential Performance Award or unpaid earned Performance Award shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge the same shall be void. 9. Exclusion From Benefits Computations By becoming a Participant under the Plan, each Participant shall be deemed to have agreed that any Performance Award paid to such Participant is special incentive compensation and that it will not be taken into account as "salary" or "compensation" or "bonus" in determining the amount of any payment under any insurance, pension, retirement, profit sharing or similar plan of the Company or any Subsidiary. EX-11 7 EXHIBIT 11 Exhibit 11 THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Computation of Earnings Per Share (In thousands) Three Months Ended March 31 ------------------ 1994 1993 EARNINGS: ------ ------ Primary: Net income, as reported $64,437 88,031 Preferred dividends declared (net of taxes) (2,109) (2,102) ------- ------- Net income, as adjusted $62,328 85,929 ======= ======= Fully diluted: Net income, as reported $64,437 88,031 Additional PSOP expense (net of taxes) due to assumed conversion of preferred stock (950) (1,038) ------- ------- Net income, as adjusted $63,487 86,993 ======= ======= SHARES*: Primary: Weighted average number of common shares outstanding, per financial statements 84,521 84,176 Additional dilutive effect of outstanding stock options (based on treasury stock method using average market price) 496 707 ------- ------- Weighted average, as adjusted 85,017 84,883 ======= ======= Fully diluted: Weighted average number of common shares outstanding, per financial statements 84,521 84,176 Additional dilutive effect of: Convertible preferred stock 4,088 4,126 Outstanding stock options (based on treasury stock method using market price at end of period) 515 730 ------- ------- Weighted average, as adjusted 89,124 89,032 ======= ======= EARNINGS PER COMMON SHARE*: Primary $0.73 1.01 Fully diluted $0.71 0.98 *As adjusted for 1994 2-for-1 stock split. EX-12 8 EXHIBIT 12 THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Exhibit 12 Computation of Ratios (In thousands, except ratios) Three Months Ended March 31 -------------------- 1994 1993 ------ ------ EARNINGS: Income before income taxes $82,003 109,842 Add: fixed charges 17,478 17,242 ------- ------- Income, as adjusted $99,481 127,084 ======= ======= FIXED CHARGES: Interest costs $9,854 10,841 Rental expense (1) 7,624 6,401 ------- ------- Total fixed charges $17,478 17,242 ======= ======= FIXED CHARGES AND PREFERRED STOCK DIVIDENDS: Fixed charges $17,478 17,242 Preferred stock dividends 4,603 4,564 ------- ------- Total fixed charges and preferred stock dividends $22,081 21,806 ======= ======= Ratio of earnings to fixed charges 5.69 7.37 ======= ======= Ratio of earnings to combined fixed charges and preferred stock dividends 4.51 5.83 ======= ======= (1) Interest portion deemed implicit in total rent expense. -----END PRIVACY-ENHANCED MESSAGE-----