0000086312-95-000023.txt : 19950811 0000086312-95-000023.hdr.sgml : 19950811 ACCESSION NUMBER: 0000086312-95-000023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950810 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ST PAUL COMPANIES INC /MN/ CENTRAL INDEX KEY: 0000086312 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [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: 95560576 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) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) X OF THE SECURITIES EXCHANGE ACT OF 1934 ---- For the quarterly period ended June 30, 1995 -------------- 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 August 8, 1995, was 84,538,776. THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES TABLE OF CONTENTS Page No. -------- PART I. FINANCIAL INFORMATION Consolidated Statements of Income (Unaudited), Three and Six Months Ended June 30, 1995 and 1994 3 Consolidated Balance Sheets, June 30, 1995 (Unaudited) and December 31, 1994 4 Consolidated Statements of Common Shareholders' Equity, Six Months Ended June 30, 1995 (Unaudited) and Twelve Months Ended December 31, 1994 6 Consolidated Statements of Cash Flows (Unaudited), Six Months Ended June 30, 1995 and 1994 7 Notes to Consolidated Financial Statements (Unaudited) 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 16 PART II. OTHER INFORMATION Item 1 through Item 6 23 Signatures 25 EXHIBIT INDEX 26 PART I FINANCIAL INFORMATION THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Consolidated Statements of Income Unaudited (In thousands) Three Months Ended Six Months Ended June 30 June 30 ------------------ ------------------ 1995 1994 1995 1994 ---- ---- ---- ---- Revenues: Premiums earned $991,827 845,957 1,937,897 1,691,359 Net investment income 190,176 167,250 376,565 335,658 Insurance brokerage fees and commissions 77,052 74,298 144,113 140,748 Investment banking-asset management 54,262 53,201 107,878 106,799 Realized investment gains 9,347 14,897 12,324 36,680 Other 8,064 9,546 19,410 17,680 --------- --------- --------- --------- Total revenues 1,330,728 1,165,149 2,598,187 2,328,924 --------- --------- --------- --------- Expenses: Insurance losses and loss adjustment expenses 723,390 591,946 1,403,829 1,259,634 Policy acquisition expenses 219,228 193,468 426,922 384,819 Operating and administrative 244,856 220,541 476,036 443,274 --------- --------- --------- --------- Total expenses 1,187,474 1,005,955 2,306,787 2,087,727 --------- --------- --------- --------- Income before income taxes 143,254 159,194 291,400 241,197 Income tax expense (benefit): Federal current 44,192 42,152 91,260 62,850 Other (13,905) (10,720) (23,423) (13,852) --------- --------- --------- --------- Total income tax expense 30,287 31,432 67,837 48,998 --------- --------- --------- --------- Net income $112,967 127,762 223,563 192,199 ========= ========= ========= ========= Net income per common share: Primary $1.30 1.49 2.57 2.22 ========= ========= ========= ========= Fully diluted $1.24 1.43 2.47 2.14 ========= ========= ========= ========= Dividends declared on common stock $0.40 0.375 0.80 0.75 ========= ========= ========= ========= See notes to consolidated financial statements. THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands) June 30, December 31, ASSETS 1995 1994 ------ ---------- ---------- (Unaudited) Investments: Fixed maturities, at estimated market value $9,621,174 8,828,684 Equities, at estimated market value 662,461 531,042 Real estate, at cost less accumulated depreciation of $66,125 (1994; $60,234) 617,867 528,144 Venture capital, at estimated market value 335,407 330,032 Other investments 51,371 46,539 Short-term investments, at cost 1,057,047 898,081 ---------- ---------- Total investments 12,345,327 11,162,522 Cash 37,271 46,664 Investment banking inventory securities 59,618 148,031 Reinsurance recoverables: Unpaid losses 1,518,114 1,533,250 Paid losses 138,733 88,900 Receivables: Underwriting premiums 1,230,363 1,107,788 Insurance brokerage activities 759,145 891,823 Interest and dividends 184,057 182,938 Other 122,646 88,657 Deferred policy acquisition expenses 337,825 324,358 Ceded unearned premiums 239,371 255,687 Deferred income taxes 610,289 790,508 Office properties and equipment, at cost less accumulated depreciation of $255,503 (1994; $243,945) 475,854 477,570 Goodwill 292,916 279,308 Other assets 183,246 117,816 ---------- ---------- Total assets $18,534,775 17,495,820 ========== ========== See notes to consolidated financial statements. THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (continued) (In thousands) June 30, December 31, LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994 ------------------------------------ ------------ ----------- (Unaudited) Liabilities: Insurance reserves: Losses and loss adjustment expenses $9,693,382 9,423,429 Unearned premiums 2,169,679 2,109,170 ---------- ---------- Total insurance reserves 11,863,061 11,532,599 Debt 586,512 622,624 Payables: Insurance brokerage activities 1,088,163 1,191,089 Income taxes 192,209 183,659 Reinsurance premiums 177,428 155,833 Accrued expenses and other 666,033 600,211 Other liabilities 446,391 472,336 ---------- ---------- Total liabilities 15,019,797 14,758,351 ---------- ---------- Company-obligated minority interest in St. Paul Capital L.L.C. (Note 8) 207,000 - Series B convertible preferred stock; 1,450 shares authorized; 1,007 shares outstanding (1,012 shares in 1994) 145,245 146,102 Guaranteed obligation - PSOP (137,589) (141,567) ---------- ---------- Net convertible preferred stock 7,656 4,535 ---------- ---------- Common shareholders' equity: Common stock, 240,000 shares authorized; 84,481 shares outstanding (84,202 shares in 1994) 454,406 445,222 Retained earnings 2,513,794 2,362,286 Guaranteed obligation - ESOP (37,849) (44,410) Unrealized appreciation of investments 402,179 13,948 Unrealized loss on foreign currency translation (32,208) (44,112) ---------- ---------- Total common shareholders' equity 3,300,322 2,732,934 ---------- ---------- Total liabilities, minority interest, preferred stock and common shareholders' equity $18,534,775 17,495,820 ========== ========== See notes to consolidated financial statements. THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Consolidated Statements of Common Shareholders' Equity (In thousands) Six Twelve Months Ended Months Ended June 30 December 31 ------------ ------------ 1995 1994 ---- ---- (Unaudited) Common stock: Beginning of period $445,222 438,559 Stock issued under stock option and other incentive plans 9,239 11,130 Reacquired common stock (55) (4,467) ---------- ---------- End of period 454,406 445,222 ---------- ---------- Retained earnings: Beginning of period 2,362,286 2,082,832 Net income 223,563 442,828 Dividends declared on common stock (67,021) (124,921) Dividends declared on PSOP preferred stock, net of taxes (4,285) (8,448) Reacquired common shares (749) (30,005) ---------- ---------- End of period 2,513,794 2,362,286 ---------- ---------- Guaranteed obligation - ESOP: Beginning of period (44,410) (56,005) Principal payments 6,561 11,595 ---------- ---------- End of period (37,849) (44,410) ---------- ---------- Unrealized appreciation of investments, net of taxes: Beginning of period 13,948 588,844 Change during the period 388,231 (574,896) ---------- ---------- End of period 402,179 13,948 ---------- ---------- Unrealized loss on foreign currency translation, net of taxes: Beginning of period (44,112) (49,102) Change during the period 11,904 4,990 ---------- ---------- End of period (32,208) (44,112) ---------- ---------- Total common shareholders' equity $3,300,322 2,732,934 ========== ========== See notes to consolidated financial statements. THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Unaudited (In thousands) Six Months Ended June 30 ----------------------- 1995 1994 ------ ------ OPERATING ACTIVITIES Underwriting: Net income $244,253 201,956 Adjustments: Change in net insurance reserves 334,822 202,539 Change in underwriting premiums receivable (130,344) (56,662) Provision for deferred taxes (31,570) (19,038) Realized gains (9,133) (33,661) Other (102,901) 80,230 ---------- ---------- Total underwriting 305,127 375,364 ---------- ---------- Insurance brokerage: Net loss (23,061) (19,478) Adjustments: Change in premium balances 22,410 15,353 Change in accounts payable and accrued expenses (19,988) (18,693) Depreciation and goodwill amortization 12,241 9,396 Other 23,970 (6,650) ---------- ---------- Total insurance brokerage 15,572 (20,072) ---------- ---------- Investment banking-asset management: Net income 24,165 21,832 Adjustments: Change in inventory securities 88,413 226,255 Change in short-term investments (115,154) (168,990) Change in open security transactions (17,195) 6,040 Change in short-term borrowings - (80,383) Other 37,742 35,145 ---------- ---------- Total investment banking-asset management 17,971 39,899 ---------- ---------- Parent company and consolidating eliminations: Net loss (21,794) (12,111) Realized gains (3,191) (3,019) Adjustments 29,931 (5,612) ---------- ---------- Total parent company and consolidating eliminations 4,946 (20,742) ---------- ---------- Net cash provided by operating activities 343,616 374,449 ---------- ---------- INVESTING ACTIVITIES Purchase of investments (1,272,747) (1,097,732) Sales and maturities of investments 850,757 826,723 Change in short-term investments (33,468) 48,430 Change in open security transactions 60,929 (53,593) Net purchases of office properties and equipment (22,544) (18,101) Other (44,759) 15,721 ---------- ---------- Net cash used in investing activities (461,832) (278,552) ---------- ---------- FINANCING ACTIVITIES Dividends paid on common and preferred stock (71,184) (67,105) Proceeds from issuance of monthly income preferred securities 207,000 - Proceeds from issuance of debt 65,500 57,151 Reacquired common shares (497) (33,570) Repayment of debt (95,306) (20,350) Other 3,170 (18,819) ---------- ---------- Net cash provided by (used in) financing activities 108,683 (82,693) ---------- ---------- Effect of exchange rate changes on cash 140 (280) ---------- ---------- Increase (decrease) in cash (9,393) 12,924 Cash at beginning of period 46,664 25,420 ---------- ---------- Cash at end of period $37,271 38,344 ========== ========== THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Unaudited June 30, 1995 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 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 45 to 60 of the Registrant's annual report to shareholders for the year ended December 31, 1994. 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 1994 consolidated financial statements have been reclassified to conform with the 1995 presentation. These reclassifications had no effect on net income or common shareholders' equity, as previously reported. 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. Three Months Ended Six Months Ended June 30 June 30 ---------------- ---------------- 1995 1994 1995 1994 ------ ------ ------ ------ (In thousands) PRIMARY Net income, as reported $112,967 127,762 223,563 192,199 PSOP preferred dividends declared (net of taxes) (2,139) (2,105) (4,285) (4,214) -------- -------- -------- -------- Net income, as adjusted $110,828 125,657 219,278 187,985 ======== ======== ======== ======== FULLY DILUTED Net income, per financial statements $112,967 127,762 223,563 192,199 Additional PSOP expense (net of taxes) due to assumed conversion of preferred stock (871) (947) (1,745) (1,897) Dividend on monthly income preferred securities (net of taxes) 1,009 - 1,009 - -------- -------- -------- -------- Net income, as adjusted $113,105 126,815 222,827 190,302 ======== ======== ======== ======== ADJUSTED AVERAGE COMMON SHARES OUTSTANDING Primary 85,362 84,561 85,277 84,788 ======== ======== ======== ======== Fully diluted 91,157 88,678 90,231 88,935 ======== ======== ======== ======== Adjusted average common shares outstanding include the common and common equivalent shares outstanding for the period and, for fully diluted EPS, common shares that would be issuable upon conversion of PSOP preferred stock and monthly income preferred securities. THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Note 3 Investments ------------------- Investment Activity. A summary of investment transactions is presented below. Six Months Ended June 30 ------------------------------ 1995 1994 ------ ------ (In thousands) Purchases: Fixed maturities $761,513 660,534 Equities 376,182 344,006 Real estate 102,426 48,094 Venture capital 27,344 36,964 Other investments 5,282 8,134 --------- --------- Total purchases 1,272,747 1,097,732 --------- --------- Proceeds from sales and maturities: Fixed maturities: Sales 126,205 140,896 Maturities and redemptions 352,244 305,213 Equities 334,704 357,026 Venture capital 30,598 11,987 Real estate 4,839 - Other investments 2,167 11,601 --------- --------- Total sales and maturities 850,757 826,723 --------- --------- Net purchases $421,990 271,009 ========= ========= THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Change in Unrealized Appreciation. The increase (decrease) in unrealized appreciation of investments recorded in common shareholders' equity was as follows: Six Months Ended Twelve Months Ended June 30, 1995 December 31, 1994 ------------------ ------------------- (In thousands) Fixed maturities $505,121 (847,554) Equities 79,857 (30,106) Venture capital 9,099 (4,064) -------- ------- Total change in pretax unrealized appreciation 594,077 (881,724) Increase (decrease) in deferred tax asset due to change in unrealized appreciation (205,846) 306,828 -------- -------- Total change in unrealized appreciation, net of taxes $388,231 (574,896) ======== ======== Restricted Funds. 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 $388 million at June 30, 1995, and $385 million at December 31, 1994. THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Note 4 Income Taxes -------------------- The components of the income tax provision are as follows: Three Months Ended Six Months Ended June 30 June 30 ------------------ ------------------ 1995 1994 1995 1994 ------ ------ ------ ------ (In thousands) Federal current tax expense $44,192 42,152 91,260 62,850 Federal deferred tax benefit (17,396) (15,559) (31,017) (21,628) ------- ------- ------- ------- Total federal income tax expense 26,796 26,593 60,243 41,222 Foreign income taxes 2,265 3,664 5,135 5,461 State income taxes 1,226 1,175 2,459 2,315 ------- ------- ------- ------- Total income tax expense $30,287 31,432 67,837 48,998 ======= ======= ======= ======= 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. Although it is possible that the settlement of a contingency may be material to the company's results of operations and liquidity in the period in which the settlement occurs, the company believes that the total amounts that it or its subsidiaries will ultimately have to pay in all of these lawsuits will have no material effect on its overall financial position. In some cases, plaintiffs seek to establish coverage for their liability under environmental protection laws. See "Environmental Pollution and Asbestos Claims" in Management's Discussion and Analysis for information on these claims. THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Note 6 Debt ------------ Debt consists of the following: June 30, December 31, 1995 1994 ------------------ ----------------- Book Fair Book Fair Value Value Value Value ----- ----- ----- ----- (In thousands) Medium-term notes $270,037 272,100 204,433 189,400 Commercial paper 179,570 179,570 275,635 275,635 9 3/8% notes 99,977 104,400 99,971 102,800 Guaranteed ESOP debt 30,556 32,100 36,112 37,200 Pound sterling loan notes 6,372 6,372 6,473 6,473 ------- ------- ------- ------- Total debt $586,512 594,542 622,624 611,508 ======= ======= ======= ======= Note 7 Reinsurance ------------------- The company's consolidated financial statements reflect the effects of assumed and ceded reinsurance transactions. Assumed reinsurance refers to the company's acceptance of certain insurance risks that other insurance companies have underwritten. Ceded reinsurance involves transferring certain insurance risks the company has underwritten to other insurance companies who agree to share these risks. The primary purpose of ceded reinsurance is to protect the company from potential losses in excess of the amount it is prepared to accept. The company expects those with whom it has ceded reinsurance to honor their obligations. In the event these companies are unable to honor their obligations, the company will pay these amounts. The company has established allowances for possible nonpayment of amounts due to it. 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 Six Months Ended June 30 June 30 -------------------- --------------------- 1995 1994 1995 1994 ---- ---- ---- ---- (In thousands) Premiums written: Direct $947,804 806,107 1,752,006 1,570,700 Assumed 307,008 274,852 525,522 437,476 Ceded (159,686) (159,840) (266,039) (282,486) --------- --------- --------- --------- Net premiums written $1,095,126 921,119 2,011,489 1,725,690 ========= ========= ========= ========= Premiums earned: Direct $921,372 802,802 1,786,954 1,595,417 Assumed 239,556 198,180 433,745 365,387 Ceded (169,101) (155,025) (282,802) (269,445) --------- --------- --------- --------- Net premiums earned $991,827 845,957 1,937,897 1,691,359 ========= ========= ========= ========= Insurance losses and loss adjustment expenses: Direct $666,432 508,124 1,241,982 1,051,336 Assumed 170,814 183,366 375,546 359,533 Ceded (113,856) (99,544) (213,699) (151,235) --------- --------- --------- --------- Net insurance losses and loss adjustment expenses $723,390 591,946 1,403,829 1,259,634 ========= ========= ========= ========= Note 8 Company-obligated Minority Interest in St. Paul Capital L.L.C. ---------------------------------------------------------------------- On May 16, 1995, the company issued, through St. Paul Capital L.L.C.,("SPCLLC") 4,140,000 convertible monthly income preferred securities (MIPS), generating gross proceeds of $207 million. The MIPS pay an annual dividend of 6% of the liquidation preference of $50 per security. The company directly or indirectly owns all of the common securities of SPCLLC, a special purpose limited liability company which was formed for the purpose of issuing these preferred securities. The MIPS are guaranteed by the company and are convertible into 0.8475 shares of the company's common stock (equivalent to a conversion price of $59 per common share). The securities are noncallable for four years. THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued SPCLLC used the proceeds of the MIPS sale and common capital contributions from the company (together totaling $262 million) to purchase 6% convertible subordinated debentures issued by the company. These debentures are due May 31, 2025 and interest is payable monthly. The debentures are eliminated in the company's consolidated balance sheet. THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations June 30, 1995 Consolidated Results -------------------- Consolidated pretax earnings of $143 million in the second quarter were down 10% from second quarter 1994 earnings of $159 million. An increase in catastrophe losses and other expenses in the underwriting segment drove the decline in quarterly earnings. Results from the company's insurance brokerage and investment banking-asset management operations improved slightly over the second quarter of 1994. For the first half of 1995, pretax earnings of $291 million were $50 million higher than the first six months of 1994, primarily due to improved results in the underwriting segment. Net income in the second quarter was $113 million, or $1.24 per share, compared with net income of $128 million, or $1.43 per share, in the second quarter of 1994. Net income of $224 million, or $2.47 per share, for the first six months of 1995 increased 16% over comparable 1994 net income of $192 million, or $2.14 per share. Consolidated revenues in the second quarter totaled $1.33 billion, an increase of 14% over second quarter 1994 revenues of $1.17 billion. Year-to-date revenues in 1995 were 12% higher than the same period of 1994. Growth in insurance premiums earned drove the increased revenue in 1995. Results by Segment ------------------ Pretax results by industry segment were as follows (in millions): Three Months Six Months Ended June 30 Ended June 30 ------------- ------------- 1995 1994 1995 1994 ---- ---- ---- ---- Pretax income (loss): Underwriting: GAAP underwriting results ($26) (14) (41) (97) Net investment income 181 164 359 329 Realized investment gains 8 14 9 34 Other (18) (4) (22) (17) ---- ---- ---- ---- Total underwriting 145 160 305 249 Insurance brokerage (4) (5) (18) (14) Investment banking-asset management 20 18 39 35 Parent and other (18) (14) (35) (29) ---- ---- ---- ---- Income before income taxes $143 159 291 241 ==== ==== ==== ==== THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Management's Discussion, Continued Underwriting ------------ Pretax earnings in the underwriting segment totaled $145 million in the second quarter, down 9% from earnings of $160 million in the same period of 1994. A $12 million deterioration in underwriting results, driven by an increase in catastrophe losses, and an increase in other expenses were partially offset by a $17 million increase in investment income. The following summarizes key financial results by underwriting operation: % of Three Months Six Months 1995 Ended June 30 Ended June 30 Written -------------- -------------- ($ in Millions) Premiums 1995 1994 1995 1994 --------------- -------- ---- ---- ---- ---- Specialized Commercial: Written Premiums 33% $355 278 639 541 Underwriting Results ($26) (22) (46) (56) Combined Ratio 106.0 106.6 106.2 108.5 Personal Insurance: Written Premiums 16% $179 168 329 313 Underwriting Results ($3) (6) (10) (17) Combined Ratio 101.1 102.8 102.7 105.1 Commercial: Written Premiums 14% $142 120 289 241 Underwriting Results ($11) (15) (15) (49) Combined Ratio 107.9 112.5 105.2 120.3 Medical Services: Written Premiums 13% $129 130 266 295 Underwriting Results $25 37 51 71 Combined Ratio 85.8 78.3 85.5 79.3 ---- ----- ----- ----- ----- Total St. Paul Fire & Marine: Written Premiums 76% $805 696 1,523 1,390 Underwriting Results ($15) (6) (20) (51) Combined Ratio 101.3 100.5 101.2 103.1 Reinsurance: Written Premiums 20% $244 196 400 277 Underwriting Results $1 (3) (4) (32) Combined Ratio 95.5 97.7 99.4 113.0 International: Written Premiums 4% $46 29 88 59 Underwriting Results ($12) (5) (17) (14) Combined Ratio 127.5 121.1 120.8 125.4 ---- ----- ----- ----- ----- Total: Written Premiums 100% $1,095 921 2,011 1,726 GAAP Underwriting Results ($26) (14) (41) (97) Statutory Combined Ratio: Loss and Loss Expense Ratio 72.9 70.0 72.4 74.5 Underwriting Expense Ratio 28.5 30.2 29.3 30.7 ----- ----- ----- ----- Combined Ratio 101.4 100.2 101.7 105.2 ===== ===== ===== ===== Combined Ratio Including Policyholders' Dividends 101.6 100.3 101.9 105.2 ===== ===== ===== ===== THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Management's Discussion, Continued In the first quarter of 1995, the commercial underwriting operations of the company's business center previously known as St. Paul Personal & Business Insurance were transferred to the Commercial business center. The company's Personal Insurance business center, as renamed, now consists exclusively of personal insurance coverages for individuals. Amounts for 1994 have been reclassified to conform to the 1995 presentation. Written premiums of $1.1 billion in the second quarter were 19% higher than comparable 1994 premiums of $921 million. In the Specialized Commercial category, new business in the National Accounts and Construction business sectors accounted for the majority of the 28% increase in premium volume over 1994. Reinsurance written premiums were nearly $50 million higher than the same quarter of 1994, primarily due to approximately $40 million in incremental premiums from the renewal of reinsurance business acquired from a subsidiary of the CIGNA Corporation in 1994. New business in several classes of coverages accounted for the 19% increase in Commercial premium volume over the second quarter of 1994. Medical Services' written premiums in the second quarter were level with the same quarter last year. Written premiums for the first half of 1995 increased 17% over the same period of 1994, primarily due to premium growth in Reinsurance, Specialized Commercial and Commercial. The GAAP underwriting loss in the second quarter was $26 million, compared with 1994's second quarter loss of $14 million. Catastrophe losses of $55 million, primarily stemming from spring storms in Texas and the Midwest, severely impacted second quarter underwriting results and more than offset underlying improvement in loss experience and reduced expense ratios in many lines of business. The second quarter of 1994 included virtually no catastrophe losses. Key factors in the increase in second quarter underwriting losses compared to 1994 were as follows: - Medical Services - $12 million worse than 1994 - The magnitude of favorable prior year loss development was less than that experienced in 1994, resulting in a reduced underwriting profit. - International - $7 million worse than 1994 - An increase in losses in Canada was the primary factor in the deterioration from 1994. - Commercial - $4 million better than 1994 - Favorable prior year loss development and reduced expenses more than offset a $23 million increase in catastrophe losses in the quarter. - Specialized Commercial - $4 million worse than 1994 - A $20 million increase in catastrophe losses and deterioration in results from the company's participation in insurance pools were substantially offset by a decline in involuntary costs and reduced underwriting expenses. The year-to-date GAAP underwriting loss of $41 million was significantly better than the 1994 six-month loss of $97 million. Catastrophe losses in the first half of 1995 totaled $71 million, compared with $88 million THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Management's Discussion, Continued for the same period of 1994. Improvement in noncatastrophe loss experience, particularly in the Commercial business center, and the decline in catastrophe losses were the primary factors driving the reduction in underwriting losses in 1995. Pretax investment income in the underwriting segment for the second quarter was $181 million, up 10% from $164 million in 1994. Year-to- date investment income was $30 million ahead of last year. The increase over 1994 was primarily due to a general rise in interest rates over the last 18 months and strong cash flows from operations, which has fueled a $500 million increase in investments since June 30, 1994. The average yield on taxable fixed maturity purchases, which have constituted the majority of investment purchases in 1995, was 8.0% in the first six months of 1995, compared with 7.1% for the same period of 1994. For the first time in several years, the company began investing in tax-exempt fixed maturities in the second quarter, due to increasing yields on those securities and changes in the company's consolidated tax position which make tax-exempt investments more attractive. The weighted average pretax yield on the underwriting segment's fixed maturities portfolio was 7.3% at June 30, 1995, and approximately 95% of that portfolio was rated at investment grade levels (BBB or better). Environmental Pollution and Asbestos Claims ------------------------------------------- The company's underwriting operations continue to receive claims under policies written many years ago alleging injuries from environmental pollution or alleging covered property damages for the cost to clean up polluted sites. The company has also received asbestos claims arising out of product liability coverages under general liability policies. Significant legal issues, primarily pertaining to issues of coverage, exist with regard to the company's alleged liability for both pollution and asbestos claims. In the company's opinion, court decisions in certain jurisdictions have tended to expand insurance coverage beyond the intent of the original policies. The 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, making it 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. Estimating the ultimate liability for asbestos claims is equally difficult. The primary factors influencing the estimate of the total cost of these claims are case law and a history of prior claim development, both of which are still developing. THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Management's Discussion, Continued Because of the significant uncertainties associated with pollution and asbestos claims, and the likelihood that they will not be resolved in the near future, the company is unable to estimate its ultimate exposure to these claims and cannot quantify a range of reasonably possible losses in addition to recorded reserves at this time. However, the company is continually evaluating its exposure to these claims in an effort to quantify such a range. The company's results of operations in future periods may be materially impacted by these claims, but the company believes it is unlikely that such claims will materially impact its financial position or liquidity. Prior to 1994, the company made no specific allocation for pollution or asbestos claims of its IBNR (incurred but not reported) reserves, but rather identified reserves for only reported claims (case reserves). In the third quarter of 1994, the company specifically allocated for pollution and asbestos claims a portion of previously established IBNR reserves. The following table represents a reconciliation of total gross and net pollution reserve development for the six months ended June 30, 1995, and the years ended Dec. 31, 1994 and 1993. Amounts in the "net" column are reduced by reinsurance. 1995 1994 1993 Pollution (six months) ---- ---- --------- ---------- (in millions) Gross Net Gross Net Gross Net ----- --- ----- --- ----- --- Beginning reserves $275 200 105 73 88 62 Incurred losses 31 35 71 56 32 22 IBNR allocation - - 132 95 - - Paid losses (16) (14) (33) (24) (15) (11) --- --- --- --- --- --- Ending reserves $290 221 275 200 105 73 === === === === === === Many significant pollution claims currently being brought against insurance companies arise out of contamination that occurred 20 to 30 years ago. Since 1970, the company's Commercial General Liability policy form has included a specific pollution exclusion, and, since 1986, an industry standard absolute pollution exclusion. THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Management's Discussion, Continued The following table represents a reconciliation of total gross and net reserve development for asbestos claims for the six months ended June 30, 1995, and the years ended Dec. 31, 1994 and 1993: 1995 1994 1993 Asbestos (six months) ---- ---- -------- ---------- (in millions) Gross Net Gross Net Gross Net ----- --- ----- --- ----- --- Beginning reserves $185 145 62 48 70 54 Incurred losses 7 9 13 14 17 15 IBNR allocation - - 127 95 - - Paid losses (9) (5) (17) (12) (25) (21) --- --- --- --- --- --- Ending reserves $183 149 185 145 62 48 === === === === === === Most of the asbestos claims the company has received pertain to policies written prior to 1986. Since 1986, the company's Commercial General Liability policy has used the industry standard absolute pollution exclusion, which the company believes applies to asbestos claims. Total gross pollution and asbestos reserves at June 30, 1995, of $473 million represented approximately 5% of gross consolidated reserves of $9.7 billion. Insurance Brokerage ------------------- The insurance brokerage segment (Minet) incurred a pretax loss of $4 million in the second quarter, a slight improvement over the comparable 1994 loss of $5 million. Investment income increased $4 million, and brokerage fees and commissions grew 5% over the second quarter of 1994. Salaries and related expenses increased 7% due to increased staffing levels associated with Minet's continuing effort to develop new business opportunities. Minet's pretax loss for the first half of 1995 was $18 million, compared with a loss of $14 million in the first six months of 1994. The competitive market environment for brokerage services worldwide continues to have a negative impact on Minet's results. Investment Banking-Asset Management ----------------------------------- The company's portion of The John Nuveen Company's second quarter pretax earnings was $20 million, compared with $18 million in 1994. For the first half of 1995, the company's portion was $39 million, compared with $35 million in 1994. The company currently owns 77% of Nuveen. The municipal bond market has stabilized somewhat compared to last year but still remains challenging. For the first time since the second quarter of 1994, Nuveen's asset management revenues increased over the comparable prior quarter as a result of the increased market value of managed assets. Assets under management totaled $31.4 billion at June 30, an increase of $1.7 billion THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Management's Discussion, Continued since year-end 1994. Nuveen's underwriting and distribution revenues in the first half of 1995 were more than double the comparable 1994 total, primarily due to inventory positioning profits resulting from more favorable market conditions in 1995. Unit Investment Trust sales in 1995 were $570 million, compared with $612 million in the first half of 1994. Capital Resources ----------------- Common shareholders' equity of $3.3 billion at quarter-end was 21% higher than year-end 1994 equity of $2.7 billion. The increase in equity was driven by the company's earnings and growth in the unrealized appreciation of the company's fixed maturities portfolio. The declining interest rate environment during the first half of 1995 fueled a rally in the bond market, which in turn has resulted in a $330 million increase (net of taxes) in the market value of the company's portfolio. On May 16, 1995, the company completed the sale of 4,140,000 convertible monthly income preferred securities (MIPS) bearing a dividend rate of 6%. Each preferred security is convertible at the option of the holder into 0.8475 shares of the company's common stock. Gross proceeds from the sale were $207 million. A portion of the proceeds was used to reduce the company's commercial paper debt, with the remainder invested in fixed maturity securities and available for general corporate purposes. Total debt outstanding at the end of the quarter was $587 million, down from $623 million at the end of 1994. The $95 million decline in commercial paper was partially offset by the issuance of $66 million of medium-term notes. The ratio of debt to total capitalization at June 30, 1995, was 14%, down from 19% at year-end 1994 due to the decline in debt and the significant increase in shareholders' equity. The MIPS are "hybrid" equity securities and are included in total capital. The company anticipates no major capital expenditures in 1995. The company's ratio of earnings to fixed charges was 8.93 for the first six months of 1995, compared with 8.34 for the same period of 1994. The company's ratio of earnings to combined fixed charges and preferred stock dividends was 6.93 for the first six months of 1995, compared with 6.52 for the same period of 1994. 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 $344 million in the first half of 1995, compared with $374 million in 1994. The company's 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. In late May of 1995, a purported class action lawsuit brought in the District Court of Brazoria County, Texas was served on three subsidiaries of the company on behalf of persons who allegedly paid $400 million from 1983 through 1985 for interests in certain limited partnerships that Damson Oil Corporation ("Damson") served as general partner. The complaint in this lawsuit (Olin Nelson, et al. v. St. Paul Fire and Marine Insurance Company, St. Paul Surplus Lines Insurance Company ("Surplus Lines") and St. Paul Specialty Underwriting, Inc.) alleges, among other things, that the defendants conspired with Damson to mislead the investors as to the protection afforded by certain insurance policies issued by Surplus Lines in violation of the Texas Deceptive Trade Practices Act and other laws. The plaintiffs seek unspecified actual damages, treble damages, punitive damages, attorney fees, costs, and pre- and post-judgment interest. The defendants have removed the case to the U.S. District Court for the Southern District of Texas, and plaintiffs are seeking to have the case remanded to the Texas state court. These proceedings are being vigorously contested by the defendants, and the company recognizes that the final outcome of these proceedings, if adverse to the defendants, may materially impact the results of operations of the company in the period in which that outcome occurs, but believes it should not have a material adverse effect on its liquidity or overall financial position. Item 2. Changes in Securities. i) On August 1, 1995, The company's Board of Directors approved certain amendments to the company's Shareholder Protection Rights Agreement (the "Rights Agreement") to, among other things, add a "flip-in" feature. On December 4, 1989, the company's Board of Directors approved the Rights Agreement and declared a dividend of one Right for each outstanding share of the company's common stock. Each Right entitles the registered holder under certain circumstances to purchase from the company one two-thousandth of a share of the company's Series A Junior Participating Preferred Stock at a current exercise price of $92.50 per right, subject to adjustment. The Rights currently trade with the company's common stock, and no separate Rights certificates have been distributed. The Rights will separate from the common stock and become exercisable under conditions and at times specified in the Rights Agreement. The "flip-in" feature of the amended Rights Agreement provides that if any person together with its affiliates and associates becomes the beneficial owner of 15% or more of the outstanding shares of the company's common stock, each Right (other than those held by the 15%-or-more shareholder and its affiliates, associates, successors and assigns) will entitle the holder to purchase, at the exercise price, shares of the company's common stock having a market value equal to two times the exercise price (i.e., in exchange for payment of the exercise price, currently $92.50, a holder of a Right will receive shares of the company's common stock with a market value of $185). In addition, the Rights Agreement was amended to provide that the Rights would flip-in (and the holder of each Right, other than an Adverse Person, as described below, and its affiliates, associates, successors and assigns would be entitled to the benefits described in the preceding paragraph) upon a determination of the Board of Directors that a person is an "Adverse Person." An "Adverse Person" is a person who beneficially owns at least 10% of the outstanding shares of the company's common stock and who, in the determination of the Board of Directors, either (i) intends to take certain actions not in the company's or a shareholder's best interests or (ii) is likely to cause a material adverse impact on the company, the company's employees, customers, suppliers, creditors or other constituencies. A copy of the amended and restated Shareholder Protection Rights Agreement is included as an exhibit hereto. The foregoing summary of the amendments to the Rights Agreement is not complete and is qualified in its entirety by reference to the amended and restated Shareholder Protection Rights Agreement. ii) In connection with the offering of Convertible Monthly Income Securities (MIPS) discussed in Note 8 to the Consolidated Financial Statements, the company designated a new series of preferred stock as Series C Cumulative Convertible Preferred Stock (the "Series C Preferred"). The Series C Preferred would only be issued in the event of certain circumstances, including the vote of a majority of the aggregate liquidation preference of MIPS to effectively elect to exchange the MIPS for depositary shares, each representing a 1/100th interest in a share of Series C Preferred. The Series C Preferred, if issued, would have dividend, conversion and other terms substantially similar to the terms of the Convertible MIPS, except that, among other things, the holders of the Series C Preferred would have the right to elect two additional directors of the company whenever dividends on the Series C Preferred are in arrears for 18 months. The Series C Preferred would not be subject to mandatory redemption. The "Certificate of Designation of The St. Paul Companies, Inc. Series C Cumulative Convertible Preferred Stock" is now a part of the company's Restated Articles of Incorporation, which are filed as an exhibit hereto. Item 3. Defaults Upon Senior Securities. Not applicable. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. Item 5. Other Information. Not applicable. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. An Exhibit Index is set forth on page 26 of this report. (b) Reports on Form 8-K. The Registrant filed a Form 8-K Current Report, dated July 24, 1995, pertaining to the Registrant's press release of second quarter 1995 financial results. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE ST. PAUL COMPANIES, INC. (Registrant) Date: August 10, 1995 By /s/ Bruce A. Backberg --------------------- Bruce A. Backberg Vice President and Corporate Secretary (Authorized Signatory) Date: August 10, 1995 By /s/ Howard E. Dalton -------------------- Howard E. Dalton Senior Vice President Chief Accounting Officer EXHIBIT INDEX ------------- Exhibit ------- (2) Plan of acquisition, reorganization, arrangement, liquidation or succession*.............................. (3) (i) Articles of incorporation **.......................... (ii) By-laws*.............................................. (4) Instruments defining the rights of security holders, including indentures**.................................. (i) Amended and Restated Shareholder Protection Rights Agreement**.......................................... (10) Material contracts*........................................ (11) Statement re computation of per share earnings**........... (12) Statement re computation of ratios**....................... (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 Legal Services, The St. Paul Companies, 385 Washington Street, Saint Paul, MN 55102. EX-3 2 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. CERTIFICATE OF DESIGNATION OF THE ST. PAUL COMPANIES, INC. Series C Cumulative Convertible Preferred Stock THE UNDERSIGNED, Bruce A. Backberg, the Vice President and Corporate Secretary of The St. Paul Companies, Inc. (the "Corporation"), does hereby certify that pursuant to Minnesota Statutes Section 302A.401, Subd.3(a), resolutions as hereinafter set forth were adopted by written consent executed by a majority of the Directors as of May 9, 1995. 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 and having such terms and relative rights, preferences and privileges as set forth in Exhibit A attached hereto (the "Series C Preferred Stock"). RESOLVED FURTHER, that the Vice President and Corporate Secretary or any Assistant Secretary of the Corporation shall prepare a Certificate of Designation describing the Series C Preferred Stock and cause the same to be filed with the Secretary of State of the State of Minnesota. IN WITNESS WHEREOF, the undersigned has signed this Certificate of Designation this 16th day of May, 1995. /s/ Bruce A. Backberg --------------------- Bruce A. Backberg Vice President and Corporate Secretary EXHIBIT A SECTION 1. Designation and Amount; Special Purpose; Restriction on Senior Series. (A) The shares of this series of Preferred Stock shall be designated as "Series C Cumulative Convertible Preferred Stock" ("Series C Preferred Stock") and the number of shares constituting such series shall be 41,400, without par value. (B) Shares of Series C Preferred Stock shall be issued by the conversion and exchange agent (the "Conversion Agent") for the Series C Preferred Stock only upon the exchange of 6% Convertible Subordinated Debentures due 2025 of the Corporation (the "Subordinated Debentures"), and accrued interest thereon following a valid exchange election (an "Exchange Election") by the holders of a majority of the aggregate liquidation preference of the outstanding 6% Convertible Monthly Income Preferred Securities, liquidation preference $50 per security (the "St. Paul Capital Preferred Securities"), of St. Paul Capital L.L.C., a Delaware limited liability company ("St. Paul Capital"), to cause the St. Paul Capital Preferred Securities then outstanding to be exchanged for depositary shares, each representing a one hundredth (1/100th) interest in a share of Series C Preferred Stock (the "Depositary Shares"), issued pursuant to the Deposit Agreement, dated as of May 16, 1995, among the Corporation, The Chase Manhattan Bank (National Association), as Depositary, and the holders from time to time of the receipts described therein (the "Deposit Agreement"), in the manner prescribed in the Amended and Restated Limited Liability Company Agreement of St. Paul Capital, dated as of May 16, 1995 (the "L.L.C. Agreement"). (C) So long as any St. Paul Capital Preferred Securities are outstanding, the Corporation shall not authorize or issue any other class or series of capital stock ranking senior as to the payment of dividends or amounts upon liquidation, dissolution or winding-up to the Series C Preferred Stock without the approval of the holders of not less than 66% of the aggregate liquidation preference of the St. Paul Capital Preferred Securities then outstanding. SECTION 2. Dividends and Distributions. (A)(1) The holders of shares of Series C Pre- ferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors of the Corporation out of funds legally available therefor, cumulative cash dividends in an amount per share per annum equal to $300 (equivalent to a rate per annum of 6% of the stated liquidation preference of $5,000 per share of Series C Preferred Stock), calculated on the basis of a 360-day year consisting of 12 months of 30 days each, and for any period shorter than a full monthly dividend period, dividends will be computed on the basis of the actual number of days elapsed in such period, and payable in United States dollars monthly in arrears on the last day of each calendar month of each year. (2) Dividends, when, as and if declared by the Board of Directors of the Corporation out of funds legally available therefor, shall be paid on the last day of each month. Such dividends will accrue and be cumulative whether or not they have been earned or declared and whether or not there are funds of the Corporation legally available for the payment of dividends. Dividends on the Series C Preferred Stock shall be cumulative from the date of the Exchange Election. Accumulated but unpaid dividends, if any (including arrearages at the rate of 6% per annum compounded monthly), on the St. Paul Capital Preferred Securities on the date of the Exchange Election shall constitute, and be treated as, accumulated and unpaid dividends on the Series C Preferred Stock as of the date of the issuance thereof. The record date for each dividend payment date shall be the day immediately preceding such dividend payment date, provided that such day is a day on which banking institutions in The City of New York are not authorized or obligated by law or executive order to be closed (a "Business Day"). In the event that any date on which dividends are payable on the Series C Preferred Stock is not a Business Day, then payment of the dividend payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. (B) In the event that full cumulative dividends on the Series C Preferred Stock have not been declared and paid or set apart for payment when due, then the Corporation shall not, and shall not permit any direct or indirect majority-owned subsidiary of the Corporation (except any of The John Nuveen Company, a Delaware corporation, and its consolidated subsidiaries) to, declare or pay any dividend on, or redeem, purchase, acquire for value or make a liquidation payment with respect to, any Pari Passu Stock or Junior Stock (each as defined herein) (other than as a result of a reclassification of Pari Passu Stock or Junior Stock or the exchange or conversion of one class or series of Pari Passu Stock or Junior Stock for another class or series of Pari Passu Stock or Junior Stock, respectively), or make any guarantee payments with respect to the foregoing (other than payments under the Guarantee Agreement dated as of May 16, 1995 of the Corporation in favor of the holders of St. Paul Capital Preferred Securities with respect to such securities or dividends or guarantee payments to the Corporation). When dividends are not paid in full, all dividends declared upon the Series C Preferred Stock and all dividends declared upon any Pari Passu Stock shall be paid ratably in proportion to the respective amounts of dividends accumulated and unpaid on the Series C Preferred Stock and accumulated and unpaid on such Pari Passu Stock. "Pari Passu Stock" means the Series B Convertible Preferred Stock, liquidation preference $100 per share (the "Senior B Preferred Stock") of the Corporation, together with any preference stock or preferred stock of the Corporation, or any guarantee now or hereafter entered into by the Corporation in respect of any preferred or preference stock of any affiliate of the Corporation, ranking, in such case, as to the payment of dividends and amounts upon liquidation, dissolution and winding-up on a parity with the Series C Preferred Stock. "Junior Stock" means Common Stock, the Series A Junior Participating Preferred Stock, without par value, of the Corporation, and any other class or series of capital stock of the Corporation or any of its affiliates which by its express terms ranks junior in the payment of dividends or amounts upon liquidation, dissolution or winding-up to the Series C Preferred Stock. SECTION 3. Voting Rights. (A) In the event that full cumulative dividends on the Series C Preferred Stock have not been paid for 18 monthly dividend periods (including for this purpose any arrearage with respect to St. Paul Capital Preferred Securities), the number of directors of the Corporation constituting the entire Board of Directors shall be increased by two (2) persons and the holders of the Series C Preferred Stock shall have the right to elect two persons to fill such positions at any regular meeting of shareholders or special meeting held in place thereof, or at a special meeting of the holders of the Series C Preferred Stock called as hereinafter provided. Whenever all arrearages of dividends on the Series C Preferred Stock then outstanding shall have been paid and dividends thereon for the current monthly period shall have been paid or declared and set apart for payment, then the right of the holders of the Series C Preferred Stock to elect such additional two (2) directors shall cease (but subject always to the same provisions for the vesting of such voting rights in the case of any similar future arrearages in dividends), and the terms of office of all persons elected as directors by the holders of the Series C Preferred Stock shall forthwith terminate and the number of directors of the Corporation shall be reduced accordingly. At any time after such voting power shall have been so vested in the holders of shares of the Series C Preferred Stock, the Secretary of the Corporation may, and upon the written request for a special meeting signed by the holders of at least 10% of all outstanding Series C Preferred Stock (addressed to the Secretary at the principal office of the Corporation) shall, call a special meeting of the holders of the Series C Preferred Stock for the election of the two (2) directors to be elected by them as herein provided; such call to be made by notice similar to that provided for in the by-laws for a special meeting of the shareholders or as required by law. If any such special meeting required to be called as above provided shall not be called by the Secretary within 20 days after receipt of any such request, then any holder of Series C Preferred Stock may call such meeting, upon the notice above provided, and for that purpose shall have access to the stock books and records of the Corporation. The directors elected at any such special meeting shall hold office until the next regular meeting of the shareholders or special meeting held in place thereof if such office shall not have previously terminated as above provided. In case any vacancy shall occur among the directors elected by the holders of the Series C Preferred Stock, a successor shall be elected by the Board of Directors to serve until the next regular meeting of the shareholders or special meeting held in place thereof upon the nomination of the then remaining director elected by the holders of the Series C Preferred Stock or the successor of such remaining director. (B) Except as otherwise required by law or set forth herein, holders of Series C Preferred Stock shall have no voting rights and their consent shall not be required for the taking of any corporate action. So long as any shares of Series C Preferred Stock are outstanding, the consent of the holders of not less than 66% of the outstanding shares of Series C Preferred Stock, given in person or by proxy either at a regular meeting or at a special meeting called for that purpose, at which the holders of Series C Preferred Stock shall vote separately as a series, shall be necessary for effecting, validating or authorizing any one or more of the following: (1) The amendment, alteration or repeal of any of the provisions of the Restated Articles of Incorpora- tion, as amended, of the Corporation, or any amendment thereto or any other certificate filed pursuant to law (including any such amendment, alteration or repeal effected by any merger or consolidation to which the Corporation is a party) that would adversely affect any of the rights, powers or preferences of outstanding shares of Series C Preferred Stock; provided, however, that any amendment or amendments to the provisions of the Restated Articles of Incorporation, as amended, so as to authorize or create, or to increase the authorized amount of, any Pari Passu Stock or any Junior Stock shall not be deemed to adversely affect the voting powers, rights or preferences of the holders of the Series C Preferred Stock; (2) The creation of any shares of any class or series or any security convertible into shares of any class or series of capital stock ranking prior to the Series C Preferred Stock in the distribution of assets on any liquidation, dissolution or winding-up of the Corporation or in the payment of dividends; or (3) Any merger or consolidation with or into, or any sale, transfer, exchange or lease of all or substan- tially all of the assets of the Corporation to, any other corporation, in either case that would adversely affect any of the rights, powers or preferences of outstanding shares of Series C Preferred Stock; provided, that so long as the convertible subordinated debentures of the Corporation issued pursuant to the Indenture, dated as of May 16, 1995, among the Corporation, St. Paul Capital L.L.C. ("St. Paul Capital") and The Chase Manhattan Bank (National Association), as Trustee, are exchangeable for shares of Series C Preferred Stock, that the consent of the holders of not less than 66_% of the aggregate liquidation preference of the 6% Convertible Monthly Income Preferred Securities of St. Paul Capital, given in person or by proxy at a meeting called for that purpose, shall be necessary for effecting validity or authorizing any one or more of the foregoing actions. (C) For purposes of this Section 3, while St. Paul Capital Preferred Securities are outstanding and owned by any entity other than the Corporation, St. Paul Capital, or their subsidiaries or affiliates, any St. Paul Capital Preferred Securities owned by the Corporation, St. Paul Capital or their subsidiaries or affiliates shall not have the voting rights referred to in this Section. SECTION 4. Redemption. (A) If at any time following the Conversion Expiration Date (as defined below), less than five percent (5%) of the shares of Series C Preferred Stock remain outstanding, such shares of Series C Preferred Stock are redeemable, at the option of the Corporation, in whole but not in part, from time to time, at a redemption price equal to the liquidation preference, plus accumulated and unpaid dividends, whether or not earned or declared, to the date of redemption (the "Redemption Price"). (B) Unless otherwise required by law, notice of redemption will be sent to the holders of Series C Preferred Stock by first-class mail, postage prepaid, mailed not less than thirty (30), nor more than sixty (60) days prior to the redemption date. Each such notice shall state: (i) the redemption date; (ii) the Redemption Price; (iii) the place or places where receipts for Depositary Shares representing such shares are to be surrendered for payment of the Redemption Price; and (iv) that dividends on the shares to be redeemed will cease to accrue on such redemption date. Upon surrender of the receipts for Depositary Shares representing the shares so called for redemption (properly endorsed or assigned for transfer, if the Board of Directors of the Corporation shall so require and the notice shall so state), such shares shall be redeemed by the Corporation on the date fixed for redemption at the Redemption Price. SECTION 5. Liquidation, Dissolution or Winding-Up. (A) Upon any voluntary or involuntary liquida- tion, dissolution, winding-up or termination of the Corporation, the holders of Series C Preferred Stock at the time outstanding will be entitled to receive out of the net assets of the Corporation available for payment to shareholders and subject to the rights of the holders of any stock of the Corporation ranking senior to or on a parity with the Series C Preferred Stock in respect of distri- butions upon liquidation, dissolution, winding-up or termination of the Corporation, before any amount shall be paid or distributed with respect to any Junior Stock, liquidating distributions in the amount of $50 per share plus an amount equal to all accrued and unpaid dividends thereon (whether or not earned or declared) to the date fixed for distribution. If, upon any liquidation, dissolution, winding-up or termination of the Corporation, the amounts payable with respect to the Series C Preferred Stock and the Pari Passu Stock are not paid in full, the holders of the Series C Preferred Stock and the Pari Passu Stock shall share ratably in any distribution of assets based on the proportion of their full respective liquidation preference to the entire amount of the unpaid aggregate liquidation preference of the Series C Preferred Stock and the Pari Passu Stock. After payment of the full amount to which they are entitled as provided by the foregoing provisions of this Section 5(A), the holders of shares of Series C Preferred Stock shall not be entitled to any further right or claim to any of the remaining assets of the Corporation. (B) Neither the merger or consolidation of the Corporation with or into any other corporation, nor the merger or consolidation of any other corporation with or into the Corporation, nor the sale, transfer, exchange or lease of all or any portion of the assets of the Corpora- tion, shall be deemed to be a dissolution, liquidation or winding-up of the affairs of the Corporation for purposes of this Section 5. (C) Written notice of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, stating the payment date or dates when, and the place or places where, the amounts distributable to holders of Series C Preferred Stock in such circumstances shall be payable, shall be given by first-class mail, postage pre- paid, mailed not less than twenty (20) days prior to any payment date stated therein, to the holders of Series C Preferred Stock, at the address shown on the books of the Corporation or the transfer agent for the Series C Preferred Stock; provided, however, that a failure to give notice as provided above or any defect therein shall not affect the Corporation's ability to consummate a voluntary or involuntary liquidation, dissolution or winding-up of the Corporation. SECTION 6. Conversion Rights of Series C Preferred Stock. (A) The shares of Series C Preferred Stock are convertible at any time before the close of business on the Conversion Expiration Date (as defined in the L.L.C. Agreement), at the option of the holder thereof, into shares of Common Stock at the initial conversion price of $59 per share of Common Stock, subject to adjustment, as provided in Section 7 (as so adjusted, the "Conversion Price"). For this purpose, each share of Series C Preferred Stock shall be taken at $5,000. (B) Holders of record of Series C Preferred Stock at the close of business on a dividend payment record date will be entitled to receive the dividend payable on such shares of Series C Preferred Stock on the corresponding dividend payment date notwithstanding the conversion thereof following such dividend payment record date but on or prior to such dividend payment date. Except as provided in the immediately preceding sentence, the Corporation will make no payment or allowance for accumulated and unpaid dividends, whether or not in arrears, on converted shares of Series C Preferred Stock. (C) No fractional shares of Common Stock will be issued as a result of conversion, but in lieu thereof, the Corporation shall pay a cash adjustment in an amount equal to the same fraction of the Closing Price (as hereinafter defined) on the date on which the certificate or certifi- cates for such shares were duly surrendered for conversion, or, if such date is not a Trading Day (as hereinafter defined), on the next Trading Day. (D) Any holder of shares of Series C Preferred Stock desiring to convert such shares into shares of Common Stock shall surrender the certificate or certificates representing the shares of Series C Preferred Stock being converted, duly assigned or endorsed for transfer to the Corporation (or accompanied by duly executed stock powers relating thereto), at the principal executive office of the Corporation or the offices of the transfer agent for the Series C Preferred Stock or such office or offices in the continental United States of an agent for conversion as may from time to time be designated by notice to the holders of the Series C Preferred Stock by the Corporation or the transfer agent for the Series C Preferred Stock, accompanied by written notice of conversion, on any day prior to the Conversion Expiration Date that is a Business Day. Such notice of conversion shall specify (i) the number of shares of Series C Preferred Stock to be converted and the name or names in which such holder desires the certificate or certificates for Common Stock and for any shares of Series C Preferred Stock not to be so converted to be issued (subject to compliance with applicable legal requirements if any of such certificates are to be issued in a name other than the name of the holder), and (ii) the address to which such holder wishes delivery to be made of such new certificates to be issued upon such conversion. (E) Upon surrender of a certificate representing a share or shares of Series C Preferred Stock for conversion, the Corporation shall issue and send by hand delivery (with receipt to be acknowledged) or by first-class mail, postage prepaid, to the holder thereof, at the address designated by such holder, a certificate or certificates representing the number of shares of Common Stock to which such holder shall be entitled upon conversion. In the event that there shall have been surrendered a certificate or certificates representing shares of Series C Preferred Stock, only part of which are to be converted, the Corporation shall issue and deliver to such holder or such holder's designee in the manner provided in the immediately preceding sentence a new certificate or certificates representing the number of shares of Series C Preferred Stock that shall not have been converted. (F) The issuance by the Corporation of shares of Common Stock upon a conversion of shares of Series C Preferred Stock into shares of Common Stock made at the option of the holder thereof shall be effective upon the surrender by such holder or such holder's designee of the certificate or certificates for the shares of Series C Preferred Stock to be converted, duly assigned or endorsed for transfer to the Corporation (or accompanied by duly executed stock powers relating thereto). The person or persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of the close of business on the effective date of the conversion. No allowance or adjustment shall be made in respect of dividends payable to holders of Common Stock of record as of any date prior to such effective date. (G) Whenever the Corporation shall issue shares of Common Stock upon conversion of shares of Series C Preferred Stock as contemplated by this Section 6, the Corporation shall issue, together with each such share of Common Stock, one right to purchase Series A Junior Participating Preferred Stock of the Corporation (or other securities in lieu thereof) pursuant to the Shareholder Protection Rights Agreement, dated as of December 4, 1989 (the "Rights Agreement"), between the Corporation and First Chicago Trust Company of New York, as Rights Agent, as such Rights Agreement may from time to time be amended, or any similar rights issued to holders of Common Stock of the Corporation in addition thereto or in replacement therefor (such rights, together with any additional or replacement rights, being collectively referred to as the "Rights"), whether or not such Rights shall be exercisable at such time, but only if such Rights are issued and outstanding and held by other holders of Common Stock of the Corporation (or are evidenced by outstanding share certificates representing Common Stock) at such time and have not expired or been redeemed. (H) (i) On and after May 31, 1999, the Corporation shall have the right, at its option, to cause the conversion rights set forth in this Section to expire, provided that the Current Market Price (as defined below) of the Common Stock of the Corporation on each of 20 Trading Days within any period of 30 consecutive Trading Days, including the last Trading Day of such period, exceeds 120% of the Conversion Price in effect on such Trading Day; (ii) In order to exercise its option to cause the conversion rights of holders of shares of Series C Preferred Stock to expire, the Corporation must issue a press release for publication on the Dow Jones News Service and such other print and electronic media as the Corporation shall select announcing the Conversion Expiration Date (the "Press Release") prior to the opening of business on the second Trading Day after a period in which the condition in the preceding paragraph has been met (but in no event prior to May 31, 1999). The Press Release shall state that the Corporation has elected to exercise its right to extinguish the conversion rights of holders of shares of Series C Preferred Stock, specify the Conversion Expiration Date and provide the Conversion Price of the Series C Preferred Stock and the Current Market Price of the Common Stock, in each case as of the close of business on the Trading Day next preceding the date of the Press Release. If the Corporation exercises the option described in this paragraph, the "Conversion Expiration Date" shall be a date selected by the Corporation which date shall be not less than 30 or more than 60 days after the date on which the Corporation issues the Press Release; and (iii) In addition to issuing the Press Release, the Company shall send notice of the expiration of con- version rights (a "Notice of Conversion Expiration") by first-class mail to each record holder of shares of Series C Preferred Stock not more than four (4) Business Days after the Corporation issues the Press Release. Such Notice of Conversion Expiration shall state: (1) the Conversion Expiration Date; (2) the Conversion Price of the Series C Preferred Stock and the Current Market Price of the Common Stock, in each case as of the close of business on the Trading Day next preceding the date of the Notice of Conversion Expiration; (3) the place or places at which receipts for Depositary Shares representing shares of Series C Preferred Stock are to be surrendered prior to the Conversion Expiration Date for certificates representing shares of Common Stock; and (4) such other information or instructions as the Corporation deems necessary or advisable to enable a holder of shares of Series C Preferred Stock to exercise its conversion right hereunder. No defect in the Notice of Conversion Expiration or in the mailing thereof with respect to any shares of Series C Preferred Stock shall affect the validity of such notice with respect to any other share of Series C Preferred Stock. As of the close of business on the Conversion Expiration Date, the Series C Preferred Stock shall no longer be convertible into Common Stock. As used in this Section, "Current Market Price" of publicly traded shares of Common Stock for any day means the last reported sales price, regular way on such day, or, if no sale takes place on such day, the average of the reported closing bid and asked prices on such day, regular way, in either case as reported on the New York Stock Exchange Consolidated Transaction Tape, or, if the Common Stock is not listed or admitted to trading on the New York Stock Exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading if the Common Stock is listed on a national securities exchange, or the National Market System of the National Association of Securities Dealers, Inc., or, if the Common Stock is not quoted or admitted to trading on such quotation system, on the principal quotation system on which the Common Stock may be listed or admitted to trading or quoted, or, if not listed or admitted to trading or quoted on any national securities exchange or quotation system, the average of the closing bid and asked prices of the Common Stock in the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similar generally accepted reporting service, or, if not so available in such manner, as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors of the Corporation for that purpose or, if not so available in such manner, as otherwise determined in good faith by the Board of Directors. (I) The Corporation shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for issuance upon the conversion of shares of Series C Preferred Stock as herein provided, free from any preemptive or other similar rights, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all the shares of Series C Preferred Stock then outstanding. All shares of Common Stock delivered upon conversion of the Series C Preferred Stock shall be duly authorized, validly issued, fully paid and non-assessable, free and clear of all liens, claims, interests and other encumbrances. The Corporation shall prepare and shall use its best efforts to obtain and keep in force such govern- mental or regulatory permits or other authorizations as may be required by law, and shall comply with all applicable requirements as to registration or qualification of the Common Stock (and all requirements to list the Common Stock issuable upon conversion of Series C Preferred Stock that are at the time applicable), in order to enable the Corpora- tion lawfully to issue and deliver to each holder of record of Series C Preferred Stock such number of shares of its Common Stock as shall from time to time be sufficient to effect the conversion of all shares of Series C Preferred Stock then outstanding and convertible into shares of Common Stock. SECTION 7. Adjustment of Conversion Price. (A) Adjustment of Conversion Price. The Conversion Price at which a share of Series C Preferred Stock is con- vertible into Common Stock shall be subject to adjustment from time to time as follows: (i) In case the Corporation shall pay or make a dividend or other distribution on any class or series of capital stock of the Corporation exclusively in Common Stock, the Conversion Price in effect at the opening of busi- ness on the day following the date fixed for the determina- tion of shareholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution or exchange, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purposes of this subparagraph (i), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Corporation. The Corporation shall not pay any dividend or make any distribution on shares of any class or series of capital stock of the Corporation exclusively in Common Stock held in the treasury of the Corporation. (ii) In case the Corporation shall pay or make a dividend or other distribution on its Common Stock consist- ing exclusively of, or shall otherwise issue to all holders of its Common Stock, rights or warrants entitling the holders thereof to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share (determined as provided in subpara- graph (vii) of this Section 7(a)) of the Common Stock on the date fixed for the determination of shareholders entitled to receive such rights or warrants, the Conversion Price in effect at the opening of business on the day following the date fixed for such determination shall be reduced by multi- plying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock which the aggregate of the offering price of the total num- ber of shares of Common Stock so offered for subscription or purchase would purchase at such current market price and the denominator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock so offered for subscription or purchase, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. In case any rights or warrants referred to in this subpara- graph (ii) in respect of which an adjustment shall have been made shall expire unexercised within 45 days after the same shall have been distributed or issued by the Corporation, the Conversion Price shall be readjusted at the time of such expiration to the Conversion Price that would have been in effect if no adjustment had been made on account of the distribution or issuance of such expired rights or warrants. (iii) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such subdi- vision becomes effective shall be proportionately reduced, and conversely, in case outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (iv) Subject to the last sentence of this subparagraph (iv), in case the Corporation shall, by dividend or otherwise, distribute to all holders of its Common Stock evidences of its indebtedness, shares of any class or series of capital stock, cash or assets (including securities, but excluding any rights or warrants referred to in subparagraph (ii) of this Section 7(A), any dividend or distribution paid exclusively in cash and any dividend or distribution referred to in subparagraph (i) of this Section 7(A)), the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this subpara- graph (iv) by a fraction of which the numerator shall be the current market price per share (determined as provided in subparagraph (vii) of this Section 7(A)) of the Common Stock on the date fixed for the payment of such distribution (the "Reference Date") less the fair market value (as determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors), on the Reference Date, of the portion of the evidences of indebtedness, shares of capital stock, cash and assets so distributed applicable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock, such reduction to become effective immediately prior to the opening of business on the day following the Reference Date. If the Board of Directors determines the fair market value of any distribution for purposes of this subparagraph (iv) by reference to the actual or when issued trading market for any securities comprising such distribution, it must in doing so consider the prices in such market over the same period used in computing the current market price per share of Common Stock pursuant to subparagraph (vii) of this Section 7(A). For purposes of this subparagraph (iv), any dividend or distribution that includes shares of Common Stock or rights or warrants to subscribe for or purchase shares of Common Stock shall be deemed instead to be (1) a dividend or distribution of the evidences of indebtedness, shares of capital stock, cash or assets other than such shares of Common Stock or such rights or warrants (making any Conversion Price reduction required by this subpara- graph (iv)) immediately followed by (2) a dividend or distribution of such shares of Common Stock or such rights or warrants (making any further Conversion Price reduction required by subparagraph (i) or (ii) of this Section 7(A)), except (A) the Reference Date of such dividend or distri bution as defined in this subparagraph (iv) shall be substituted as "the date fixed for the determination of shareholders entitled to receive such dividend or other distribution," "the date fixed for the determination of shareholders entitled to receive such rights or warrants" and "the date fixed for such determination" within the meaning of subparagraphs (i) and (ii) of this Section 7(A) and (B) any shares of Common Stock included in such dividend or distribution shall not be deemed "outstanding at the close of business on the date fixed for such determination" within the meaning of sub- paragraph (i) of this Section 7(A). (v) In case the Corporation shall pay or make a dividend or other distribution on its Common Stock exclu- sively in cash (excluding, in the case of any regular cash dividend on the Common Stock, the portion thereof that does not exceed the per share amount of the next preceding regular cash dividend on the Common Stock (as adjusted to appropriately reflect any of the events referred to in subparagraphs (i), (ii), (iii), (iv), (v) and (vi) of this Section 7(A)), or excluding all of such regular cash dividend if the annualized amount thereof per share of Common Stock does not exceed 15% of the current market price per share (determined as provided in subparagraph (vii) of this Section 7(A)) of the Common Stock on the Trading Day (as defined in Section 7(E)) next preceding the date of declaration of such dividend), the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this subparagraph (v) by a fraction of which the numerator shall be the current market price per share (determined as provided in subparagraph (vii) of this Section 7(A)) of the Common Stock on the date fixed for the payment of such distribution less the amount of cash so distributed and not excluded as provided above applicable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock, such reduction to become effective immediately prior to the opening of business on the day following the date fixed for the payment of such distribution. (vi) In case a tender or exchange offer made by the Corporation or any subsidiary of the Corporation for all or any portion of the Corporation's Common Stock shall expire and such tender or exchange offer shall involve the payment by the Corporation or such subsidiary of consideration per share of Common Stock having a fair market value (as determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a reso- lution of the Board of Directors) at the last time (the "Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it shall have been amended) that exceeds 10% of the current market price per share (determined as provided in subparagraph (vii) of this Section 7(A)) of the Common Stock on the Trading Day (as defined in Section 7(E)) next succeeding the Expiration Time, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conver- sion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this subparagraph (vi) by a fraction of which the numerator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) at the Expiration Time multiplied by the current market price per share (determined as provided in subparagraph (vii) of this Section 7(A)) of the Common Stock on the Trading Day next succeeding the Expiration Time and the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to holders of Common Stock based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) at the Expiration Time and the current market price per share (determined as provided in subparagraph (vii) of this Section 7(A)) of the Common Stock on the Trading Day next succeeding the Expiration Time, such reduction to become effective immediately prior to the opening of business on the day following the Expiration Time. (vii) For the purpose of any computation under subpara- graphs (ii), (iv), (v) and (vi) of this Section 7(A), the current market price per share of Common Stock on any date in question shall be deemed to be the average of the daily Closing Prices (as defined in Section 7(E)) for the five consecutive Trading Days selected by the Company commencing not more than 20 Trading Days before, and ending not later than, the earlier of the day in question and, if applicable, the day before the "ex" date with respect to the issuance or distribution requiring such computation; provided, however, that if another event occurs that would require an adjust- ment pursuant to subparagraphs (i) through (vi), inclusive, the Board of Directors may make such adjustments to the Closing Prices during such five Trading Day period as it deems appropriate to effectuate the intent of the adjust- ments in this Section 7(A), in which case any such determination by the Board of Directors shall be set forth in a resolution of the Board of Directors and shall be conclusive. For purposes of this paragraph, the term "ex" date, (1) when used with respect to any issuance or distri- bution, means the first date on which the Common Stock trades regular way on the New York Stock Exchange or on such successor securities exchange as the Common Stock may be listed or in the relevant market from which the Closing Price was obtained without the right to receive such issuance or distribution, and (2) when used with respect to any tender or exchange offer means the first date on which the Common Stock trades regular way on such securities exchange or in such market after the Expiration Time of such offer. (viii) The Corporation may make such reductions in the Conversion Price, in addition to those required by subpara- graphs (i), (ii), (iii), (iv), (v) and (vi) of this Section 7(A), as it considers to be advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or dis- tribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. The Corporation from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least twenty (20) days, the reduction is irrevocable during the period, and the Board of Directors of the Corporation shall have made a determination that such reduction would be in the best interest of the Corporation, which determination shall be conclusive. Whenever the Conversion Price is reduced pursuant to the preceding sentence, the Corporation shall mail to holders of record of the Series C Preferred Stock a notice of the reduction at least fifteen (15) days prior to the date the reduced Conversion Price takes effect, and such notice shall state the reduced Conversion Price and the period it will be in effect. (ix) Notwithstanding anything herein to the contrary, no adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Conversion Price; provided, however, that any adjustments which by reason of this subparagraph (ix) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. (x) Whenever the Conversion Price is adjusted as herein provided: (1) the Corporation shall compute the adjusted Conversion Price and shall prepare a certificate signed by the Chief Financial Officer or the Treasurer of the Corporation setting forth the adjusted Conversion Price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed with the transfer agent for the Series C Preferred Stock; and (2) a notice stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price shall as soon as practicable be mailed by the Corporation to all record holders of shares of Series C Preferred Stock at their last addresses as they shall appear upon the stock transfer books of the Corporation. (B) Reclassification, Consolidation, Merger or Sale of Assets. In the event that the Corporation shall be a party to any transaction (including without limitation any recapitalization or reclassification of the Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination of the Common Stock), any consolidation of the Corporation with, or merger of the Corporation into, any other person, any merger of another person into the Corporation (other than a merger which does not result in a reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Corporation), any sale or transfer of all or substantially all of the assets of the Corporation or any compulsory share exchange) pursuant to which the Common Stock is converted into the right to receive other securities, cash or other property), then lawful provision shall be made as part of the terms of such transaction whereby the holder of each share of Series C Preferred Stock then outstanding shall have the right thereafter, to convert such share only into (i) in the case of any such transaction other than a Common Stock Fundamental Change (as defined in Section 7(E)), the kind and amount of securities, cash and other property receivable upon such transaction by a holder of the number of shares of Common Stock of the Corporation into which such share of Series C Preferred Stock could have been converted immediately prior to such transaction, after giving effect, in the case of any Non-Stock Fundamental Change (as defined in Section 7(E)), to any adjustment in the Conversion Price required by the provisions of Section 7(D), and (ii) in the case of a Common Stock Fundamental Change, common stock of the kind received by holders of Common Stock as a result of such Common Stock Fundamental Change in an amount determined pursuant to the provisions of Section 7(D). The Corporation or the person formed by such consolidation or resulting from such merger or which acquires such assets or which acquires the Corporation's shares, as the case may be, shall make provision in its certificate or articles of incorporation or other constituent document to establish such right. Such certificate or articles of incorporation or other consti- tuent document shall provide for adjustments which, for events subsequent to the effective date of such certificate or articles of incorporation or other constituent document, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 7. The above provisions shall similarly apply to successive transactions of the foregoing type. (C) Prior Notice of Certain Events. In case: (i) the Corporation shall (1) declare any dividend (or any other distribution) on its Common Stock, other than (A) a dividend payable in shares of Common Stock or (B) a dividend payable in cash out of its retained earnings that would not require an adjustment pursuant to 7(A)(iv) or (v) or (2) authorize a tender or exchange offer that would require an adjustment pursuant to 7(A)(vi); (ii) the Corporation shall authorize the granting to all holders of Common Stock of rights or warrants to subscribe for or purchase any shares of stock of any class or series or of any other rights or warrants; (iii) of any reclassification of Common Stock (other than a subdivision or combination of the outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or of any consolidation or merger to which the Corporation is a party and for which approval of any shareholders of the Corporation shall be required, or of the sale or transfer of all or substantially all of the assets of the Corporation or of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or other property; or (iv) of the voluntary or involuntary dissolution, liquidation or winding-up of the Corporation; then the Corporation shall cause to be filed with the transfer agent for the Series C Preferred Stock, and shall cause to be mailed to the holders of record of the Series C Preferred Stock, at their last addresses as they shall appear upon the stock transfer books of the Corporation, at least fifteen (15) days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record (if any) is to be taken for the purpose of such dividend, distribution, redemption, repurchase, rights or warrants or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, redemption, repurchase, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding-up (but no failure to mail such notice or any defect therein or in the mailing thereof shall affect the validity of the corporate action required to be specified in such notice). (D) Adjustments in Case of Fundamental Changes. Notwithstanding any other provision in this Section 7 to the contrary, if any Fundamental Change (as defined in Section 7(E)) occurs, then the Conversion Price in effect will be adjusted immediately after such Fundamental Change as described below. In addition, in the event of a Common Stock Fundamental Change, each share of Series C Preferred Stock shall be convertible solely into common stock of the kind and amount received by holders of Common Stock as the result of such Common Stock Fundamental Change as more specifically provided in the following clauses (D)(i) and (D)(ii). For purposes of calculating any adjustment to be made pur- suant to this Section 7(D) in the event of a Fundamental Change, immediately after such Fundamental Change: (i) in the case of a Non-Stock Fundamental Change, the Conversion Price of the Series C Preferred Stock shall thereupon become the lower of (A) the Conversion Price in effect immediately prior to such Non-Stock Fundamental Change, but after giving effect to any other prior adjust- ments effected pursuant to this Section 7, and (B) the result obtained by multiplying the greater of the Applicable Price (as defined in Section 7(E)) or the then applicable Reference Market Price (as defined in Section 7(E)) by a fraction of which the numerator shall be $50 and the denomi- nator shall be an amount per share of Series C Preferred Stock determined by the Corporation in its sole discretion, after consultation with a nationally recognized investment banking firm, to be the equivalent of the hypothetical redemption price that would have been applicable if the Series C Preferred Stock had been redeemable during such period; and (ii) in the case of a Common Stock Fundamental Change, the Conversion Price of the Series C Preferred Stock in effect immediately prior to such Common Stock Fundamental Change, but after giving effect to any other prior adjust- ments effected pursuant to this Section 7, shall thereupon be adjusted by multiplying such Conversion Price by a frac- tion of which the numerator shall be the Purchaser Stock Price (as defined in Section 7(E)) and the denominator shall be the Applicable Price; provided, however, that in the event of a Common Stock Fundamental Change in which (A) 100% by value of the consideration received by a holder of Common Stock is common stock of the successor, acquiror or other third party (and cash, if any, is paid with respect to any fractional interests in such common stock resulting from such Common Stock Fundamental Change) and (B) all of the Common Stock shall have been exchanged for, converted into or acquired for common stock (and cash with respect to fractional interests) of the successor, acquiror or other third party, the Conversion Price of the Series C Preferred Stock in effect immediately prior to such Common Stock Fundamental Change shall thereupon be adjusted by multiplying such Conversion Price by a fraction of which the numerator shall be one (1) and the denominator shall be the number of shares of common stock of the successor, acquiror, or other third party received by a shareholder for one share of Common Stock as a result of such Common Stock Fundamental Change. (E) Definitions. The following definitions shall apply to terms used in this Section 7: (1) "Applicable Price" shall mean (i) in the event of a Non-Stock Fundamental Change in which the holders of the Common Stock receive only cash, the amount of cash received by a shareholder for one share of Common Stock and (ii) in the event of any other Non-Stock Fundamental Change or any Common Stock Fundamental Change, the average of the daily Closing Prices of the Common Stock for the ten (10) consecu- tive Trading Days prior to and including the record date for the determination of the holders of Common Stock entitled to receive securities, cash or other property in connection with such Non-Stock Fundamental Change or Common Stock Fundamental Change, or, if there is no such record date, the date upon which the holders of the Common Stock shall have the right to receive such securities, cash or other property, in each case, as adjusted in good faith by the Board of Directors of the Corporation to appropriately reflect any of the events referred to in subparagraphs (i), (ii), (iii), (iv), (v) and (vi) of Section 7(A). (2) "Closing Price" of any common stock on any day shall mean the last reported sale price regular way on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices regular way of such common stock, in each case on the principal national securities exchange on which such common stock is listed, if the common stock is listed on a national securi- ties exchange, or the NASDAQ National Market System of the National Association of Securities Dealers, Inc., or, if the common stock is not quoted or admitted to trading on such quotation system, on the principal national securities exchange or quotation system on which the common stock is listed or admitted to trading or quoted, or, if not listed or admitted to trading or quoted on any national securities exchange or quotation system, the average of the closing bid and asked prices of the common stock in the over- the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similarly generally accepted reporting service, or, if not so available in such manner, as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors of the Corporation for that purpose or, if not so available in such manner, as otherwise determined in good faith by the Board of Directors. (3) "Common Stock Fundamental Change" shall mean any Fundamental Change in which more than 50% by value (as determined in good faith by the Board of Directors of the Corporation) of the consideration received by holders of Common Stock consists of common stock that for each of the ten (10) consecutive Trading Days referred to with respect to such Fundamental Change in Section 7(E)(1) above has been admitted for listing or admitted for listing subject to notice of issuance on a national securities exchange or quoted on the NASDAQ National Market System of the National Association of Securities Dealers, Inc.; provided, however, that a Fundamental Change shall not be a Common Stock Fundamental Change unless either (i) the Corporation con- tinues to exist after the occurrence of such Fundamental Change and the outstanding shares of Series C Preferred Stock continue to exist as outstanding shares of Series C Preferred Stock, or (ii) not later than the occurrence of such Fundamental Change, the outstanding shares of Series C Preferred Stock are converted into or exchanged for shares of convertible preferred stock of a corporation succeeding to the business of the Corporation, which convertible preferred stock has powers, preferences and relative, participating, optional or other rights, and qualifications, limitations and restrictions, substantially similar to those of the Series C Preferred Stock. (4) "Fundamental Change" shall mean the occurrence of any transaction or event in connection with a plan pursuant to which all or substantially all of the Common Stock shall be exchanged for, converted into, acquired for or constitute solely the right to receive securities, cash or other property (whether by means of an exchange offer, liquida- tion, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise); provided, however, in the case of a plan involving more than one such transaction or event, for purposes of adjustment of the Conversion Price, such Fundamental Change shall be deemed to have occurred when substantially all of the Common Stock of the Corporation shall be exchanged for, converted into, or acquired for or constitute solely the right to receive securities, cash or other property, but the adjustment shall be based upon the highest weighted average of consideration per share which a holder of Common Stock could have received in such transactions or events as a result of which more than 50% of the Common Stock of the Corporation shall have been exchanged for, converted into, or acquired for or constitute solely the right to receive securities, cash or other property. (5) "Non-Stock Fundamental Change" shall mean any Fundamental Change other than a Common Stock Fundamental Change. (6) "Purchaser Stock Price" shall mean, with respect to any Common Stock Fundamental Change, the average of the daily Closing Prices of the common stock received in such Common Stock Fundamental Change for the ten (10) consecutive Trading Days prior to and including the record date for the determination of the holders of Common Stock entitled to receive such common stock, or, if there is no such record date, the date upon which the holders of the Common Stock shall have the right to receive such common stock, in each case, as adjusted in good faith by the Board of Directors of the Corporation to appropriately reflect any of the events referred to in subparagraphs (i), (ii), (iii), (iv), (v) and (vi) of Section 7(A). (7) "Reference Market Price" shall initially mean $32.25 and in the event of any adjustment to the Conversion Price other than as a result of a Non-Stock Fundamental Change, the Reference Market Price shall also be adjusted so that the ratio of the Reference Market Price to the Conver- sion Price after giving effect to any such adjustment shall always be the same as the ratio of $32.25 to the initial Conversion Price per share. (8) "Trading Day" shall mean a day on which securities are traded on the national securities exchange or quotation system or in the over-the-counter market used to determine the Closing Price. (F) Dividend or Interest Reinvestment Plans. Notwithstanding the foregoing provisions, the issuance of any shares of Common Stock pursuant to any plan providing for the reinvestment of dividends or interest payable on securities of the Corporation and the investment of addi- tional optional amounts in shares of Common Stock under any such plan, and the issuance of any shares of Common Stock or options or rights to purchase such shares pursuant to any employee benefit plan or program of the Corporation or pursuant to any option, warrant, right or exercisable, exchangeable or convertible security outstanding as of the date the Series C Preferred Stock is first issued, shall not be deemed to constitute an issuance of Common Stock or exercisable, exchangeable or convertible securities by the Corporation to which any of the adjustment provisions described above applies. (G) Certain Additional Rights. In case the Corpora- tion shall, by dividend or otherwise, declare or make a distribution on its Common Stock referred to in Section 7(A)(iv) or 7(A)(v) (including, without limitation, dividends or distributions referred to in the last sentence of Section 7(A)(iv)), the holder of each share of Series C Preferred Stock, upon the conversion thereof subsequent to the close of business on the date fixed for the determina- tion of shareholders entitled to receive such distribution and prior to the effectiveness of the Conversion Price adjustment in respect of such distribution, shall also be entitled to receive for each share of Common Stock into which such share of Series C Preferred Stock is converted, the portion of the shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash and assets so distributed applicable to one share of Common Stock; provided, however, that, at the election of the Corporation (whose election shall be evidenced by a resolution of the Board of Directors) with respect to all holders so converting, the Corporation may, in lieu of distributing to such holder any portion of such distribution not consisting of cash or securities of the Corporation, pay such holder an amount in cash equal to the fair market value thereof (as determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors). If any conversion of a share of Series C Preferred Stock described in the immediately preceding sentence occurs prior to the payment date for a distribution to holders of Common Stock which the holder of the share of Series C Preferred Stock so converted is entitled to receive in accordance with the immediately preceding sentence, the Corporation may elect (such election to be evidenced by a resolution of the Board of Directors) to distribute to such holder a due bill for the shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash or assets to which such holder is so entitled, provided that such due bill (i) meets any applicable requirements of the principal national securities exchange or other market on which the Common Stock is then traded and (ii) requires payment or delivery of such shares of Common Stock, rights, warrants, evidences of indebted ness, shares of capital stock, cash or assets no later than the date of payment or delivery thereof to holders of shares of Common Stock receiving such distribution. (H) Stock Issuances; Multiple Adjustments. There shall be no adjustment of the Conversion Price in case of the issuance of any stock (or securities convertible into or exchangeable for stock) of the Corporation except as specifically described in this Section 7. If any action would require adjustment of the Conversion Price pursuant to more than one of the provisions described above, only one adjustment shall be made and such adjustment shall be the amount of adjustment which has the highest absolute value to holders of Series C Preferred Stock. SECTION 8. Ranking; Attributable Capital and Adequacy of Surplus; Retirement of Shares. (A) The Series C Preferred Stock shall rank senior to all shares of Junior Stock and pari passu (i.e., on a parity) with Pari Passu Stock of the Corporation as to the payment of dividends and amounts upon the liquidation, dissolution or winding-up of the Corporation. The ranking of any subsequent series of Preferred Stock issued by the Corporation as compared to the Series C Preferred Stock as to the payment of dividends and amounts upon the liquidation, dissolution or winding-up of the Corporation shall be as specified in the Restated Articles of Incorporation, as amended, of the Corporation, the Certifi- cate of Designation pertaining thereto and, if appropriate, shall also be subject to the provisions of paragraph (C) of Section 1 and paragraph (B) of Section 3 hereof. (B) The capital of the Corporation allocable to the Series C Preferred Stock for purposes of the Minnesota Business Corporation Act shall be $5,000 per share. (C) Any shares of Series C Preferred Stock acquired by the Corporation by reason of the conversion or redemption of such shares, or otherwise so acquired, shall be retired as shares of Series C Preferred Stock and restored to the status of authorized but unissued undesignated shares of the Corporation and may thereafter be reissued as part of a new series of Preferred Stock as permitted by law. SECTION 9. Miscellaneous. (A) All notices referred to herein shall be in writing, and all notices hereunder shall be deemed to have been given upon the earlier of receipt thereof or three business days after the mailing thereof if sent by regis- tered or certified mail (unless first-class mail shall be specifically permitted for such notice) with postage prepaid addressed: (i) if to the Corporation, to its office at 385 Washington Street, St. Paul, Minnesota 55102 (Attention: Secretary) or to the transfer agent for the Series C Preferred Stock, or such other agent of the Corporation designated as permitted by this paragraph, or (ii) if to any holder of the Series C Preferred Stock or Common Stock, as the case may be, to such holder at the address of such holder as listed in the stock record books of the Corporation (which may include the records of any transfer agent for the Series C Preferred Stock or Common Stock, as the case may be) or (iii) to such other address as the Corporation or any such holder, as the case may be, shall have designated by notice similarly given. (B) The term "Common Stock" as used herein means the Corporation's Common Stock, without par value, as the same exists at the date of filing of the Certificate of Designation relating to the Series C Preferred Stock (the "Certificate of Designation") with the Secretary of State of the state of Minnesota, or any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. However, subject to the provisions of Sec- tion 7(B), shares of Common Stock issuable on conversion of shares of Series C Preferred Stock shall include only shares of the class designated as Common Stock of the Corporation at the date of the filing of the Certificate of Designation with the Secretary of State of the state of Minnesota or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation and which are not subject to redemption by the Corporation; provided that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassi- fications bears to the total number of shares of such classes resulting from all such reclassifications. (C) The Corporation shall pay any and all stock transfer and documentary stamp taxes that may be payable in respect of any issuance or delivery of shares of Series C Preferred Stock or shares of Common Stock or other secur- ities issued on account of Series C Preferred Stock pursuant hereto or certificates representing such shares or secur- ities. The Corporation shall not, however, be required to pay any such tax that may be payable in respect of any transfer involving the issuance or delivery of shares of Series C Preferred Stock or Common Stock or other securities in a name other than that in which the shares of Series C Preferred Stock with respect to which such shares or other securities are issued or delivered were registered, or in respect of any payment to any person with respect to any such shares or securities other than a payment to the registered holder thereof, and shall not be required to make any such issuance, delivery or payment unless and until the person otherwise entitled to such issuance, delivery or payment has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corpora- tion, that such tax has been paid or is not payable. (D) In the event that a holder of shares of Series C Preferred Stock shall not by written notice designate the name in which shares of Common Stock to be issued upon conversion of such shares should be registered or to whom payment upon redemption of shares of Series C Preferred Stock should be made or the address to which the certificate or certificates representing such shares, or such payment, should be sent, the Corporation shall be entitled to register such shares, and make such payment, in the name of the holder of such Series C Preferred Stock as shown on the records of the Corporation and to send the certificate or certificates representing such shares, or such payment, to the address of such holder shown on the records of the Corporation. (E) The Corporation may appoint, and from time to time discharge and change, a transfer agent for the Series C Preferred Stock. Upon any such appointment or discharge of a transfer agent, the Corporation shall send notice thereof by first-class mail, postage prepaid, to each holder of record of Series C Preferred Stock. EX-4 3 SHAREHOLDER PROTECTION RIGHTS AGREEMENT SHAREHOLDER PROTECTION RIGHTS AGREEMENT (as amended and restated, the "Agreement"), dated as of December 4, 1989, between THE ST. PAUL COMPANIES, INC., a Minnesota corporation (the "Company"), and FIRST CHICAGO TRUST COMPANY OF NEW YORK, a New York corporation, as Rights Agent (the "Rights Agent", which term shall in- clude any successor Rights Agent hereunder), as amended as of March 9, 1990 and as amended and restated as of August 1, 1995. WHEREAS, the Company and the Rights Agent entered into the Shareholder Protection Rights Agreement, dated as of December 4, 1989, as amended March 9, 1990 (the "Original Rights Agreement"), and in connection therewith, the Board of Directors of the Company has authorized and declared a dividend of one right ("Right") in respect of each outstanding share of voting common stock, without par value (the "Common Stock"), of the Company held of record as of the close of business on December 19, 1989 (the "Record Date") and has authorized the issuance of one Right in respect of each share of Common Stock which shall become issued and outstanding thereafter and prior to the Separation Date (as herein- after defined) and, in certain circumstances, after the Separation Date; WHEREAS, each Right entitles the holder thereof to purchase one two-thousandth (1/2000) of a share (ad- justed hereby from 1/1000 of a share for the effect of the Company's two-for-one stock split on May 17, 1994) of Preferred Stock of the Company (or, in certain cases, other capital stock of the Company or of certain other entities) pursuant to the terms and subject to the condi- tions set forth herein; and WHEREAS, the Company and the Rights Agent wish to amend and restate the Original Rights Agreement in its entirety as follows: NOW, THEREFORE, in consideration of the premis- es and respective agreements set forth herein, the par- ties hereby agree as follows: Article I - Certain Definitions 1.1 Certain Definitions. For purposes of this Agreement, the following terms have the meanings indicated: a) "Acquiring Person" shall mean any Person who or which, together with all Affiliates and Associates of such Person, shall be the Beneficial Owner of 15% or more of the shares of Common Stock then outstanding but shall not include the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company or any Person or entity organized, ap- pointed or established by the Company for or pursuant to the terms of any such plan. b) "Adverse Person" shall mean any Person declared to be an Adverse Person by the Board of Directors upon a determination that the criteria set forth in Section 3.1(a) (ii) apply to such Person. c) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 under the Securities Exchange Act of 1934, as such Rule is in effect on the date of this Agreement. d) A Person shall be deemed the "Beneficial Owner" of, and shall be deemed to "Beneficially Own", any securities: (i) which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agree- ment, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, ex- change rights, other rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the "Beneficial Owner" of, or to "Beneficially Own", (A) securities tendered pursuant to a tender or ex- change offer made by such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange, or (B) securities issuable upon exercise of Rights at any time prior to the occurrence of a Triggering Event, or (C) securities issuable upon exercise of Rights from and after the occurrence of a Triggering Event which Rights were ac- quired by such Person or any of such Person's Affiliates or Associates prior to the Separation Date or pursuant to Section 2.3(c) or Section 5.3; (ii) which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has "beneficial ownership" of (as determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934), in- cluding pursuant to any agreement, arrangement or under- standing, whether or not in writing; provided, however, that a Person shall not be deemed the "Beneficial Owner" of, or to "Beneficially Own", any security under this clause (ii) as a result of an agreement, arrangement or understanding to vote such security if such agreement, arrangement or understanding: (A) arises solely from a revocable proxy given in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable provisions of the rules under the Securities Exchange Act of 1934, and (B) is not also then reportable by such Person on Schedule 13D under the Securities Exchange Act of 1934 (or any comparable or successor report); or (iii) which are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person (or any of such Person's Affiliates or Associates) has any agreement, arrangement or understanding (whether or not in writing), for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in the proviso to clause (ii) of this paragraph (d)) or disposing of any voting securities of the Company; pro- vided, however, that nothing in this paragraph (d) shall cause a Person engaged in business as an underwriter of securities to be the "Beneficial Owner" of, or to "Beneficially Own", any securities acquired through such Person's participation in good faith in a firm-commitment underwriting until the expiration of 40 days after the date of such acquisition. For purposes of this Agree- ment, in determining the percentage of the outstanding shares of Common Stock with respect to which a Person is the Beneficial Owner, all shares as to which such Person is deemed the Beneficial Owner shall be deemed outstand- ing. (e) "Business Day" shall mean any day other than a Saturday, Sunday or a day on which banking institutions in the City of New York are generally authorized or obligated by law or executive order to close. (f) The "close of business" on any given date shall mean 5:00 p.m., Minnesota time, on such date; provided, howev- er, that if such date is not a Business Day it shall mean 5:00 p.m., Minnesota time, on the next succeeding Busi- ness Day. (g) "Continuing Director" shall mean a director who either (i) has been a member of the Board of Directors of the Company since prior to the earlier of (A) the date a Person becomes an Acquiring Person and (B) the date of a change in a majority of directors resulting from a proxy or consent solicitation as set forth in clause (ii) of the first proviso to Section 5.1(a) or (ii) became a director of the Company subsequent to such date and whose election, or nomination for election by the Company's shareholders, was duly approved by the Continuing Direc- tors then on the Board, either by a specific vote or by approval of the proxy materials of the Company on behalf of the Board of Directors in which such person is named as nominee for director; provided, however, that in no event shall a director be considered a "Continuing Direc- tor" if such director is an Acquiring Person or Adverse Person or an Affiliate or Associate thereof. (h) "Exchange Time" shall mean the time at which the right to exercise the Rights shall terminate pursuant to Section 3.1(c) hereof. (i) "Exercise Price" shall mean, as of any date, the price at which a holder may purchase the securities issuable upon exercise of one whole Right. Until adjustment thereof in accordance with the terms hereof, the Exercise Price shall equal $92.50 (as adjusted from the original Exercise Price of $185.00 to reflect the Company's two-for-one stock split on May 17, 1994). (j) "Expiration Date" shall mean the earlier of (i) the Final Expiration Date, (ii) the Exchange Time and (iii) the Redemption Date. (k) "Final Expiration Date" shall mean December 19, 1999 or, if the Separation Date occurs subsequent to December 19, 1996 but prior to December 19, 1999, the third anniversa- ry of the Separation Date. (l) "Flip-in Date" shall mean the 10th day after any Stock Acquisition Date which is not the result of a Flip-over Transaction or Event. (m) "Flip-over Entity", for purposes of Section 3.2, shall mean, (i) in the case of a Flip-over Transaction or Event described in clause (i) or (ii) of the definition thereof, the Person issuing any securities into which shares of Common Stock are being converted or exchanged and, if no such securities are being issued, the other party to such Flip-over Transaction or Event and, (ii) in the case of a Flip-over Transaction or Event referred to in clause (iii) of the definition thereof, the Person receiving the greatest portion of the assets or earning power being transferred in such Flip-over Transaction or Event, provided in all cases that if such Person is a subsidiary of a corporation, the parent corporation shall be the Flip-over Entity. (n) "Flip-over Stock" shall mean the capital stock (or similar equity interest) with the greatest voting power in respect of the election of directors (or persons similarly responsible for direction of the business and affairs) of the Flip-over Entity. (o) "Flip-over Transaction or Event" shall mean a trans- action or series of transactions following a Stock Acquisition Date in which, directly or indirectly, (i) the Company shall consolidate with, or merge with and into, any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 3.1(e)) and the Company shall not be the continuing or surviving corporation of such consolidation or merger or (ii) any Person (other than a Subsidiary of the Company in a transaction which complies with Section 3.1(e)) shall engage in a share exchange with or shall consolidate with, or merge with or into, the Company and the Company shall be the continuing or surviving corporation of such share exchange, consolidation or merger and, in connection with such share exchange, consolidation or merger, all or part of the outstanding shares of Common Stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property or (iii) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one transaction or a series of related transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any Person or Persons (other than the Company or any Subsid- iary of the Company in one or more transactions each of which complies with Section 3.1(e)). (p) "Market Price" per share of any securities on any date of determination shall mean the average of the daily closing prices per share of such securities (determined as described below) on each of the 20 consecutive Trading Days through and including the Trading Day immediately preceding such date; provided, however, that if an event of a type analogous to any of the events described in Section 2.4 hereof shall have caused the closing prices used to determine the Market Price on any Trading Days during such period of 20 Trading Days not to be fully comparable with the closing price on such date, each such closing price so used shall be appropriately adjusted in order to make it fully comparable with the closing price on such date. The closing price per share of any securi- ties on any date shall be the last reported sale price, regular way, or, in case no such sale takes place or is quoted on such date, the average of the closing bid and asked prices, regular way, for each share of such securities, in either case as reported in the prinicipal consolidated transactions reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange, Inc. or, if the securities are not listed or admitted to trading on the New York Stock Exchange, Inc., as reported in the principal consolidated transac- tion reporting system with respect to securities listed on the principal national securities exchange on which the securities are listed or admitted to trading or, if the securities are not listed or admitted to trading on any national securities exchange, as reported by the Nasdaq Stock Market or such other system then in use, or, if on any such date the securities are not listed or admitted to trading on any national securities exchange or quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the securi- ties selected by the Board of Directors of the Company; provided, however, that if on any such date the securities are not listed or admitted to trading on a national securities exchange or traded in the over-the-counter market, the closing price per share of such securities on such date shall mean the fair value per share of such securities on such date as determined in good faith by the Board of Directors of the Company, after consultation with a nationally recognized investment banking firm, and set forth in a certificate delivered to the Rights Agent. (q) "Person" shall mean any individual, firm, partnership, association, group (as such term is used in Rule 13d-5 under the Securities Exchange Act of 1934, as such Rule is in effect on the date of this Agreement), corporation or other entity. (r) "Preferred Stock" shall mean the series of Preferred Stock, without par value, of the Company created by a Statement with respect to Preferred Stock in substan- tially the form set forth in Exhibit C hereto appropri- ately completed. (s) "Redemption Date" shall mean the date selected by the Board of Directors to redeem the Rights pursuant to Section 5.1 hereof. (t) "Redemption Price" shall mean $.005 per Right (as adjusted from the original Redemption Price of $.01 per Right to reflect the Company's two-for-one stock split on May 17, 1994), appropriately adjusted to reflect any further stock split, stock dividend or similar trans- action. (u) "Separation Date" shall mean the close of business on the earliest of (i) the Flip-in Date, (ii) the 10th Business Day (or such later date as the Board of Directors shall determine after the date of the commencement of, or first public announcement of the intent of any Person (other than the Company, any Subsidiary of the Company or any employee stock ownership or other employee benefit plan of the Company or any Subsidiary of the Company) to commence, a tender or exchange offer which, if consummated, would result in such Person acquiring Beneficial Ownership (when added to any shares as to which such Person is the Beneficial Owner immediately prior to such tender or exchange offer) of 15% or more of the outstanding shares of Common Stock and (iii) the 10th Business Day after the Board of Directors determines, pursuant to the criteria set forth in Section 3.1(a)(ii) hereof, that a Person is an Adverse Person; provided that if any of the foregoing results in the Separation Date being prior to the Record Date, the Separation Date shall be the Record Date. (v) "Stock Acquisition Date" shall mean the first date of public announcement (which, for purposes of this defini- tion, shall include, without limitation, a report filed pursuant to Section 13(d) under the Securities Exchange Act of 1934) by the Company or an Acquiring Person that an Acquiring Person has become such. (w) "Subsidiary" of any specified Person shall mean any corporation or other entity of which a majority of the voting power of the equity securities or a majority of the equity interest is Beneficially Owned, directly or indirectly, by such Person. (x) "Trading Day", when used with respect to any securities, shall mean a day on which the New York Stock Exchange, Inc. is open for the transaction of business or, if such securities are not listed or admitted to trading on the New York Stock Exchange, Inc., a day on which the princi- pal national securities exchange on which such securities are listed or admitted to trading is open for the trans- action of business or, if the securities are not listed or admitted to trading on any national securities ex- change, a Business Day. (y) "Triggering Event" shall mean any Section 3.1(a) Event (as such term is defined in Section 3.1(a)) or any Flip-over Transaction or Event. Article II - The Rights 2.1 Summary of Rights. As soon as practicable after the Record Date, the Company will mail a copy of a letter to shareholders summarizing the terms of the Rights, in substantially the form of Exhibit A hereto, to each holder of record of Common Stock as of the close of business on such Record Date, at such holder's address as shown by the records of the Company. 2.2 Legend on Common Stock Certificates. Common Stock cer- tificates issued after the date of this Agreement but prior to the close of business on the Separation Date shall evidence one Right for each share of Common Stock represented thereby and shall have impressed on, printed on, written on or otherwise affixed to them the following legend: Until the close of business on the Separation Date (as defined in the Rights Agreement re- ferred to below), this certificate also evi- dences and entitles the holder hereof to cer- tain Rights as set forth in a Rights Agreement, dated as of December 4, 1989 (as such may be amended from time to time, the "Rights Agree- ment"), between The St. Paul Companies, Inc. and First Chicago Trust Company of New York, as Rights Agent, the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of The St. Paul Companies, Inc. Under certain circumstances, as set forth in the Rights Agreement, such Rights may be redeemed, may be exchanged for shares of Common Stock or other securities or assets of the Company or a Subsidiary of the Company, may expire, may become void (if they are "Beneficially Owned" by an "Acquiring Person" or "Adverse Person" or an Affiliate or Associate thereof, as such terms are defined in the Rights Agreement, or by any transferee of any of the foregoing) or may be evidenced by separate certificates and may no longer be evidenced by this certificate. The St. Paul Companies, Inc. will mail or ar- range for the mailing of a copy of the Rights Agreement to the holder of this certificate without charge within five days after the re- ceipt of a written request therefor. Certificates representing shares of Common Stock that were issued and outstanding at the Record Date shall evidence one Right for each share of Common Stock evi- denced thereby despite the absence of the foregoing legend, and certificates representing shares of Common Stock issued after the Record Date but prior to the date hereof bearing the form of legend set forth in the Origi- nal Rights Agreement shall evidence one Right for each share of Common Stock on the terms set forth in this Agreement. To the extent provided in Section 5.3, Rights shall be issued with respect to shares of Common Stock which are issued or sold after the Separation Date. 2.3 Separation and Exercise. (a) Subject to the terms hereof (including Sections 3.1, 5.1 and 5.16) and subject to adjustment as herein set forth, each Right will enti- tle the holder thereof, after the Separation Date and prior to the Expiration Date, to purchase, for the Exer- cise Price, one two-thousandth (1/2000) of a share of Preferred Stock. (b) Until the close of business on the Separation Date, (i) no Right may be exercised, and (ii) each Right will be evidenced by the certificate for the associated share of Common Stock (together, in the case of certificates issued prior to the Record Date, with the letter mailed to the record holder thereof pursuant to Section 2.1) and will be transferable only together with, and will be transferred by a transfer (whether with or without such letter) of, such associated share. (c) Subject to the terms hereof (including Sections 3.1, 5.1 and 5.16), after the close of business on the Separation Date and prior to the close of business on the Expiration Date, the Rights (i) may be exercised and (ii) may be transferred independently of shares of Common Stock. Promptly following the Separation Date, the Rights Agent will mail to each holder of record of Common Stock as of the close of business on the Separation Date (other than any Person whose Rights have become void pursuant to Section 3.1(b)), at such holder's address as shown by the records of the Company (the Company hereby agreeing to furnish copies of such records to the Rights Agent for this purpose), (1) a certificate (a "Rights Certificate") in substantially the form of Exhibit B hereto appropri- ately completed, representing the number of Rights held by such holder at the close of business on the Separation Date and having such marks of identification or designa- tion and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any national securities exchange or quotation system on which the Rights may from time to time be listed or traded, or to conform to usage, and (2) a disclosure statement describing the Rights. (d) Subject to the terms hereof (including Sections 3.1, 5.1 and 5.16), Rights may be exercised on any Business Day after the close of business on the Separation Date and prior to the close of business on the Expiration Date by submitting to the Rights Agent the Rights Certificate evidencing such Rights with an Election to Exercise (an "Election to Exercise") substantially in the form at- tached to the Rights Certificate duly completed, accompa- nied by payment in cash, or by certified check, bank check or money order payable to the order of the Company, of a sum equal to the Exercise Price multiplied by the number of Rights being exercised and a sum sufficient to cover any transfer tax or charge which may be payable in respect of any transfer involved in the transfer or delivery of Rights Certificates or the issuance or deliv- ery of certificates for shares or depositary receipts (or both) in a name other than that of the holder of the Rights being exercised. (e) Upon receipt of a Rights Certificate, with an Election to Exercise accompanied by payment as set forth in Sec- tion 2.3(d) above, and subject to the terms hereof, the Rights Agent will thereupon promptly (i) (A) requisition from a transfer agent stock certificates evidencing such number of shares of Preferred Stock, Common Stock or other securities to be purchased (the Company hereby irrevocably authorizing its transfer agents to comply with all such requisitions) and, (B) if the Company elects pursuant to Section 5.17 hereof not to issue certificates representing fractional shares, requisition from the depositary selected by the Company depositary receipts representing the fractional shares to be pur- chased or requisition from the Company the amount of cash to be paid in lieu of fractional shares in accordance with Section 5.17 hereof and, (ii) after receipt of such certificates, depositary receipts and/or cash, cause the same to be delivered to or upon the order of the registered holder of such Rights Certificate, registered (in the case of certificates or depository receipts) in such name or names as may be designated by such holder. fIn case the holder of any Rights shall exercise less than all the Rights evidenced by such holder's Rights Certificate, a new Rights Certificate evidencing the Rights remaining unexercised will be issued by the Rights Agent to such holder or to such holder's duly authorized assigns. (g) The Company covenants and agrees that it will (i) cause to be reserved and kept available until the Expiration Date out of its authorized and unissued or treasury shares of capital stock a number of shares of Preferred Stock that will be sufficient to permit the exercise in full of all outstanding Rights; (ii) take all such action as may be necessary to ensure that all shares of capital stock delivered upon exercise of Rights shall, at the time of delivery of the certificates for such shares (subject to payment of the Exercise Price), be duly and validly authorized, executed, issued and delivered and fully paid and nonassessable; (iii) take all such action as may be necessary to comply with any applicable re- quirements of the Securities Act of 1933 or the Securi- ties Exchange Act of 1934, and the rules and regulations thereunder, and any other applicable law, rule or regula- tion, in connection with the issuance of any shares of capital stock upon exercise of the Rights; (iv) if and for so long as any shares of Preferred Stock are listed on any national securities exchange, use its best efforts to cause all shares of Preferred Stock issued upon exercise of Rights to be listed on such exchange upon issuance; and (v) pay when due and payable any and all federal al and state transfer taxes and charges which may be payable in respect of the original issuance or delivery of the Rights Certificates or of any shares of capital stock issued upon the exercise of Rights; provided that the Company shall not be required to pay any transfer tax or charge which may be payable in respect of any transfer involved in the transfer or delivery of Rights Certifi- cates or the issuance or delivery of certificates for shares in a name other than that of the holder of the Rights being transferred or exercised. 2.4 Exercise Price, Number of Rights. (a) In the event the Company shall at any time after the Record Date and prior to the close of business on the Separation Date (i) de- clare or pay a dividend on Common Stock payable in Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares of Common Stock, then (A) (x) the Exer- cise Price in effect after such adjustment will be equal to the Exercise Price in effect immediately prior to such adjustment divided by the number of shares of Common Stock (the "Expansion Factor") that a holder of one share of Common Stock immediately prior to such dividend, subdivision or combination would hold thereafter as a result thereof and (y) each Right held prior to such adjustment will become that number of Rights equal to the Expansion Factor, and the adjusted number of Rights will be deemed to be distributed among the shares of Common Stock with respect to which the original Rights were associated (if they remain outstanding) and the shares issued in respect of such dividend, subdivision or combi- nation, so that each such share of Common Stock will have exactly one Right associated with it and (B) the number of shares of Preferred Stock for which a Right is exercisable shall be adjusted by dividing the number of shares of Preferred Stock for which a right is exercisable immediately prior to such adjustment by the Expan- sion Factor. Each adjustment made pursuant to this para- graph shall be made as of the payment or effective date for the applicable dividend, subdivision or combination. In the event the Company shall at any time after the Record Date and prior to the close of business on the Separation Date issue any shares of Common Stock otherwise than in a transaction referred to in the pre- ceding paragraph, each such share of Common Stock so issued shall automatically have one new Right associated with it, which Right shall be evidenced by the certifi- cate representing such share. To the extent provided in Section 5.3, Rights shall be issued with respect to shares of Common Stock which are issued and sold after the Separation Date. (b) In the event the Company shall at any time after the Record Date and prior to the close of business on the Separation Date issue or distribute any securities or assets in respect of, in lieu of or in exchange for Common Stock (other than pursuant to a regular periodic cash dividend or a dividend paid solely in Common Stock) whether by dividend, in a reclassification or recapital- ization (including any such transaction involving a merger, consolidation or binding share exchange), or otherwise, the Company shall make such adjustments, if any, in the Exercise Price, number of Rights and/or securities or other property purchasable upon exercise of Rights as the Board of Directors of the Company, in its sole discretion, may deem to be appropriate under the circumstances in order to adequately protect the interests of the holders of Rights generally, and the Company and the Rights Agent shall amend this Agreement as necessary to provide for such adjustments. (c) Each adjustment to the Exercise Price made pursuant to this Section 2.4 shall be calculated to the nearest cent. Whenever an adjustment to the Exercise Price is made pursuant to this Section 2.4, the Company shall (i) promptly prepare a certificate setting forth such adjust- ment and a brief statement of the facts accounting for such adjustment, (ii) promptly file with the Rights Agent and with each transfer agent for the Common Stock a copy of such certificate and (iii) mail a brief summary there- of to each holder of Rights. (d) Irrespective of any adjustment or change in the secu- rities purchasable upon exercise of the Rights, the Rights Certificates theretofore and thereafter issued may continue to express the securities so purchasable which were expressed in the initial Rights Certificates issued hereunder. 2.5 Date on Which Exercise Is Effective. Each Person in whose name any certificate for shares of capital stock is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the shares represented thereby on, and such certificate shall be dated, the date upon which the Rights Certificate evidencing such Rights was duly surrendered and payment of the Exercise Price for such Rights (and any applicable taxes and other governmental charges payable by the exercising holder hereunder) was made; provided, however, that if the date of such surrender and payment is a date upon which the stock transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the stock transfer books of the Company are open. 2.6 Execution, Authentication, Delivery and Dating of Rights Certificates. The Rights Certificates shall be executed on behalf of the Company by its Chairman of the Board, its President or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Rights Certificates may be manual or facsimile. Rights Certificates bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Compa- ny, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the countersig- nature and delivery of such Rights Certificates. Promptly after the Separation Date, the Company will notify the Rights Agent of such Separation Date and will deliver Rights Certificates executed by the Company to the Rights Agent for countersignature, and subject to Section 3.1(b), the Rights Agent shall manually counter- sign and deliver such Rights Certificates to the holders of the Rights pursuant to Section 2.3(c) hereof. No Rights Certificate shall be valid for any purpose until manually countersigned by the Rights Agent. 2.7 Registration, Registration of Transfer and Exchange. (a) After the Separation Date, the Company will cause to be kept a register (the "Rights Register") in which, subject to such reasonable regulations as it may pre- scribe, the Company will provide for the registration and transfer of Rights. The Rights Agent is hereby appointed "Rights Registrar" for the purpose of maintaining the Rights Register for the Company and registering Rights and transfers of Rights after the Separation Date as herein provided. In the event that the Rights Agent shall cease to be the Rights Registrar, the Rights Agent will have the right to examine the Rights Register at all reasonable times after the Separation Date. After the Separation Date and prior to the close of business on the Expiration Date, upon surrender for registration of transfer or exchange of any Rights Certificate, and subject to the provisions of Sections 2.7(c) and (d) and 5.1, the Company will execute, and the Rights Agent will countersign and deliver, in the name of the holder or the designated transferee or transferees, as required pursuant to the holder's instructions, one or more new Rights Certificates evidencing the same aggre- gate number of Rights as did the Rights Certificate so surrendered. (b) Except as otherwise provided in Sections 3.1(b) and 5.1, all Rights issued upon any registration of transfer or exchange of Rights Certificates shall be the valid obli- gations of the Company, and such Rights shall be entitled to the same benefits under this Agreement as the Rights surrendered upon such registration of transfer or ex- change. (c) Every Rights Certificate surrendered for registration of transfer or exchange shall be duly endorsed, or be accom- panied by a written instrument of transfer in form satis- factory to the Company or the Rights Agent, as the case may be, duly executed by the holder thereof or such holder's attorney duly authorized in writing. As a condition to the issuance of any new Rights Certificate under this Section 2.7, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto. (d) The Company shall not be required to register the trans- fer of or exchange any Rights after such Rights have become void under Section 3.1(b), been exchanged under Section 3.1(c) or been redeemed or terminated under Section 5.1. 2.8 Mutilated, Destroyed, Lost and Stolen Rights Certifi- cates. (a) If any mutilated Rights Certificate is surrendered to the Rights Agent prior to the close of business on the Expiration Date, then, subject to Sec- tions 3.1(b) and 5.1, the Company shall execute and the Rights Agent shall countersign and deliver in exchange therefor a new Rights Certificate evidencing the same number of Rights as did the Rights Certificate so surren- dered. (b) If there shall be delivered to the Company and the Rights Agent prior to the close of business on the Expi- ration Date (i) evidence to their satisfaction of the de- struction, loss or theft of any Rights Certificate and (ii) such security or indemnity as may be required by them to save each of them and any of their agents harm- less, then, subject to Sections 3.1(b) and 5.1 and in the absence of notice to the Company or the Rights Agent that such Rights Certificate has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Rights Agent shall countersign and deliver, in lieu of any such destroyed, lost or stolen Rights Certificate, a new Rights Certificate evidencing the same number of Rights as did the Rights Certificate so destroyed, lost or stolen. (c) As a condition to the issuance of any new Rights Cer- tificate under this Section 2.8, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Rights Agent) connected therewith. (d) Every new Rights Certificate issued pursuant to this Section 2.8 in lieu of any destroyed, lost or stolen Rights Certificate shall evidence an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Rights Certificate shall be at any time enforceable by anyone, and, subject to Section 3.1(b), shall be entitled to all the benefits of this Agreement equally and proportionately with any and all other Rights duly issued hereunder. 2.9 Persons Deemed Owners. Prior to due presentment of a Rights Certificate (or, prior to the close of business on the Separation Date, the associated Common Stock certifi- cate) for registration of transfer, the Company, the Rights Agent and any agent of the Company or the Rights Agent may deem and treat the person in whose name such Rights Certificate (or, prior to the close of business on the Separation Date, such Common Stock certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby for all purposes whatsoever, including the payment of the Redemption Price, and nei- ther the Company nor the Rights Agent shall be affected by any notice to the contrary. As used in this Agree- ment, unless the context otherwise requires, the term "holder" of any Rights shall mean the registered holder of such Rights (or, prior to the close of business on the Separation Date, the associated shares of Common Stock). 2.10 Delivery and Cancellation of Certificates. All Rights Certificates surrendered upon exercise or for redemption, registration of transfer or exchange shall, if surren- dered to any person other than the Rights Agent, be delivered to the Rights Agent and, in any case, shall be promptly cancelled by the Rights Agent. The Company may at any time deliver to the Rights Agent for cancellation any Rights Certificates previously countersigned and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Rights Certificates so delivered shall be promptly cancelled by the Rights Agent. No Rights Certificates shall be countersigned in lieu of or in exchange for any Rights Certificates can- celled as provided in this Section 2.10, except as ex- pressly permitted by this Agreement. The Rights Agent shall destroy all cancelled Rights Certificates and deliver a certificate of destruction to the Company. 2.11 Agreement of Rights Holders. Every holder of Rights by accepting the same consents and agrees with the Company and the Rights Agent and with every other holder of Rights that: (a) prior to the close of business on the Separation Date, each Right will be transferable only together with, and will be transferred by a transfer of, the associated share of Common Stock; (b) after the Separation Date, the Rights Certificates will be transferable only on the Rights Register as provided herein; (c) prior to due presentment of a Rights Certificate (or, prior to the close of business on the Separation Date, the associated Common Stock certificate) for registration of transfer, the Company, the Rights Agent and any agent of the Company or the Rights Agent may deem and treat the person in whose name the Rights Certificate (or, prior to the close of business on the Separation Date, the asso- ciated Common Stock certificate) is registered as the absolute owner thereof and of the Rights evidenced there- by for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary; (d) Rights beneficially owned by certain Persons will, under the circumstances set forth in Section 3.1(b), become void; and (e) this Agreement may be supplemented or amended from time to time pursuant to Section 2.4(b) or 5.4 hereof. Article III - Certain Transactions 3.1 Flip-in. (a) In the event that prior to the close of business on the Expiration Date (i) any Person shall become an Acquiring Person, unless the event causing such Person to become an Acquiring Person is a Flip-over Transaction or Event or is an acquisition of shares of Common Stock pursuant to a tender offer or an exchange offer for all outstanding shares of Common Stock at a price and on terms determined by at least a majority of the members of the Board of Directors who are not offi- cers of the Company and who are not representatives, nominees, Affiliates or Associates of an Acquiring Per- son, after receiving advice from one or more investment-banking firms, to be (A) at a price which is fair to shareholders (taking into account all factors which such members of the Board deem relevant, including, without limitation, prices which could reasonably be achieved if the Company or its assets were sold on an orderly basis designed to realize maximum value) and (B) otherwise in the best interests of the Company and its shareholders, or (ii) the Board of Directors of the Company shall de- clare any Person to be an Adverse Person upon a determi- nation that such Person, alone or together with its Affiliates and Associates, has, at any time after this Agreement has been filed with the Securities and Exchange Commission as an exhibit to a filing under the Securities Exchange Act of 1934, become the Beneficial Owner of a number of shares of Common Stock which the Board of Directors of the Company determines to be substantial (which number of shares shall in no event represent less than 10% of the outstanding shares of Common Stock) and a determination by the Board of Directors of the Company, after reasonable inquiry and investigation, including consultation with such persons as such directors shall deem appropriate and consideration of such factors as are permitted by applicable law, that (a) such Beneficial Ownership by such Person is intended to cause the Company to repurchase the shares of Common Stock beneficially owned by such Person or to cause pressure on the Company to take action or enter into a transaction or series of transactions intended to provide such Person with short- term financial gain under circumstances where the Board of Directors determines that the best long-term interests of the Company would not be served by taking such action or entering into such transaction or series of transac- tions at that time or (b) such Beneficial Ownership is causing or reasonably likely to cause a material adverse impact (including, but not limited to, impairment of relationships with customers or impairment of the Company's ability to maintain its competitive position) on the business or prospects of the Company, on the Company's employees, customers, suppliers or creditors or on the communities in which the Company operates or is located, then, promptly following the occurrence of any event described in this Section 3.1(a)(i) or (ii) (a "Section 3.1(a) Event"), proper provision shall be made so that each holder of a Right (except as provided in Section 3.1(b)) shall thereafter have the right to re- ceive, upon exercise thereof at the then-current Exercise Price in accordance with the terms of this Agreement, in lieu of a number of one two-thousandths of a share of Preferred Stock (as from time to time adjusted), such number of shares of Common Stock of the Company as shall equal the result obtained by dividing (x) the then-cur- rent Exercise Price by (y) 50% of the Market Price per share of Common Stock on the date of the first occurrence of a Section 3.1(a) Event (such number of shares, the "Adjustment Shares"); provided that the Exercise Price and the number of Adjustment Shares shall be further adjusted, as appropriate, in order to protect the inter- ests of the holders of Rights generally in the event that on or after the date of such first occurrence an event analogous to any of the events described in Section 2.4(a) or (b) shall have occurred. (b) Notwithstanding the foregoing, any Rights that are or were Beneficially Owned on or after the Stock Acquisition Date by an Acquiring Person or an Adverse Person or an Affiliate or Associate thereof or by any transferee, direct or indirect, of any of the foregoing shall become void, and any holder of such Rights (including trans- ferees) shall thereafter have no right to exercise or transfer such Rights under any provision of this Agree- ment. If any Rights Certificate is presented for assign- ment or exercise and the Person presenting the same will not complete the certification set forth at the end of the form of assignment or notice of election to exercise and provide such additional evidence of the identity of the Beneficial Owner and its Affiliates and Associates (or former Beneficial Owners and their Affiliates and Associates) as the Company shall reasonably request, then the Company shall be entitled conclusively to deem the Beneficial Owner thereof to be an Acquiring Person or an Adverse Person or an Affiliate or Associate thereof or a transferee of any of the foregoing and accordingly will deem the Rights evidenced thereby to be void and not transferable or exercisable. (c) The Board of Directors of the Company may, at its option, at any time after a Section 3.1(a) Event and prior to the time that an Acquiring Person or Adverse Person becomes the Beneficial Owner of more than 50% of the out- standing shares of Common Stock, elect to exchange all (but not less than all) of the then-outstanding Rights (which shall not include Rights that have become void pursuant to the provisions of Section 3.1(b)) for Common Stock at an exchange ratio of one share of Common Stock per Right, appropriately adjusted in order to protect the interests of holders of Rights generally in the event that after the Separation Date an event of a type analo- gous to any of the events described in Section 2.4(a) or (b) shall have occurred with respect to the Common Stock (such exchange ratio, as adjusted from time to time, being hereinafter referred to as the "Exchange Ratio"). The Board of Directors of the Company may not make an election pursuant to this Section 3.1(c) if the number of shares of Common Stock which is authorized by the Com- pany's restated articles of incorporation but not out- standing or reserved for issuance for purposes other than upon exercise of the Rights is not sufficient to permit the exchange of all Rights in accordance with this Section 3.1(c). Immediately upon the action of the Board of Directors of the Company electing to exchange the Rights, without any further action and without any notice, the right to exercise the Rights will terminate, and each Right (other than Rights that have become void pursuant to Section 3.1(b)) will thereafter represent only the right to receive a number of shares of Common Stock equal to the Exchange Ratio. Promptly after the action of the Board of Directors electing to exchange the Rights, the Company shall give notice thereof (specifying the steps to be taken to receive shares of Common Stock in exchange for Rights) to the Rights Agent and the holders of the Rights (other than Rights that have become void pursuant to Section 3.1(b)) outstanding immediately prior thereto by mailing such notice in accordance with Section 5.8. Each Person in whose name any certificate for shares is issued upon the exchange of Rights pursuant to this Section 3.1(c) shall for all purposes be deemed to have become the holder of record of the shares represent- ed thereby on, and such certificate shall be dated the date upon which the Rights Certificate evidencing such Rights was duly surrendered and payment of any applicable taxes and other governmental charges payable by the holder was made; provided, however, that if the date of such surrender and payment is a date upon which the stock transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the stock transfer books of the Company are open. (d) In the event that the number of shares of Common Stock which is authorized by the Company's restated articles of incorporation but not outstanding or reserved for issu- ance for purposes other than upon exercise of the Rights is not sufficient to permit the exercise in full of the Rights in accordance with Section 3.1(a) (and the Company has not elected to exchange securities for Rights pursuant to Section 3.1(c)), the Company shall (A) determine the value of the Adjustment Shares issuable upon the exercise of a Right (the "Current Value") and, (B) with respect to each Right (subject to Section 3.1(b) hereof), make adequate provision to substitute for the Adjustment Shares, upon the exercise of such Right and payment of the applicable Exercise Price, (1) cash, (2) a reduction in the Exercise Price, (3) Common Stock or other equity securities of the Company (including, without limitation, shares, or units of shares, of preferred stock, such as the Preferred Stock, which the Board of Directors of the Company has deemed to have essentially the same value or economic rights as shares of Common Stock (such shares of preferred stock being referred to as "Common Stock Equiv- alents")), (4) debt securities of the Company, (5) other assets or (6) any combination of the foregoing, having an aggregate value equal to the Current Value (less the amount of any reduction in the Exercise Price), where such aggregate value has been determined by the Board of Directors of the Company based upon the advice of a nationally recognized investment banking firm selected by the Board of Directors of the Company; provided, however, that if the Company shall not have made adequate provi- sion to deliver value pursuant to clause (B) above within 30 days following the later of (x) the first occurrence of a Section 3.1(a) Event and (y) the date on which the Company's right of redemption pursuant to Section 5.1 expires (the later of (x) and (y) being referred to herein as the "Section 3.1(a) Trigger Date"), then the Company shall be obligated to deliver, upon the surrender for exercise of a Right and without requiring payment of the Exercise Price, shares of Common Stock (to the extent available) and then, if necessary, cash, which shares and/or cash have an aggregate value equal to the Spread. For purposes of the preceding sentence, the term "Spread" shall mean the excess of (i) the Current Value over (ii) the Exercise Price. If the Board of Directors of the Company shall determine in good faith that it is likely that sufficient additional shares of Common Stock could be authorized for issuance upon exercise in full of the Rights, the 30-day period set forth above may be extended to the extent necessary, but not more than 90 days after the Section 3.1(a) Trigger Date, in order that the Com- pany may seek shareholder approval for the authorization of such additional shares (such 30-day period, as it may be extended, is herein called the "Substitution Period"). To the extent that the Company determines that some action needs to be taken pursuant to the first and/or third sentences of this Section 3.1(d), the Company (1) shall provide, subject to Section 3.1(b) hereof, that such action shall apply uniformly to all outstanding Rights and (2) may suspend the exercisability of the Rights until the expiration of the Substitution Period in order to seek such shareholder approval for such authori- zation of additional shares and/or to decide the appro- priate form of distribution to be made pursuant to such first sentence and to determine the value thereof. In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. For purposes of this Section 3.1(d), the value of each Adjustment Share shall be the Market Price per share of the Common Stock on the Section 3.1(a) Trigger Date, and the per-share or per-unit value of any Common Stock Equivalent shall be deemed to equal the Mar- ket Price per share of the Common Stock on such date. (e) The Company covenants and agrees that, after the Separation Date, it will not, except as permitted by Section 5.1 or Section 5.4, take (or permit any Subsidiary to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights. 3.2 Flip-over. (a) Prior to the close of business on the Expiration Date, the Company will not enter into any agreement with respect to, consummate, permit to occur or suffer to exist any Flip-over Transaction or Event unless the Company shall have taken such action as shall be necessary to ensure and provide, and shall have entered into a supplemental agreement with the Flip-over Entity, for the benefit of the holders of the Rights, providing, that upon consummation or occurrence of the Flip-over Transaction or Event, (i) each holder of a Right, except as provided in Section 3.1(b) hereof, shall thereafter have the right to receive, upon the exercise thereof at the then-current Exercise Price in accordance with the terms of this Agreement, such number of validly autho- rized and issued, fully paid, nonassessable and freely tradable shares of Flip-over Stock, not subject to any liens, encumbrances, rights of first refusal or other adverse claims, as shall be equal to the result obtained by dividing (1) the then-current Exercise Price by (2) 50% of the Market Price per share of the Flip-over Stock on the date of consummation of such Flip-over Transaction or Event (such right to be appropriately adjusted in order to protect the interests of the holders of Rights generally in the event that after such date of consumma- tion or occurrence an event of a type analogous to any of the events described in Section 2.4(a) or (b) shall have occurred with respect to the Flip-over Stock), (ii) the Flip-over Entity shall thereafter be liable for, and shall assume, by virtue of such Flip-over Transaction or Event and such supplemental agreement, all the obliga- tions and duties of the Company pursuant to this Agree- ment; and (iii) the provisions of Section 3.1(a) shall be of no effect following the first occurrence of any Flip-over Transaction or Event. The provisions of this Sec- tion 3.2 shall apply to successive Flip-over Transactions or Events. (b) Prior to the close of business on the Expiration Date, unless the Rights will be redeemed pursuant to Section 5.1 hereof in connection therewith, the Company shall not enter into any agreement with respect to, consummate or permit to occur any Flip-over Transaction or Event if at the time thereof there are any rights, warrants or secu- rities outstanding or any other arrangements, agreements or instruments which would eliminate or otherwise dimin- ish in any material respect the benefits intended to be afforded by this Rights Agreement to the holders of Rights (other than an Acquiring Person or Adverse Person or an Affiliate or Associate thereof) upon consummation of such transaction. (c) Notwithstanding anything in this Agreement to the con- trary, Section 3.2 shall not be applicable to a trans- action described in subparagraphs (i) and (ii) of the definition of Flip-over Transaction or Event if (i) such transaction is consummated with a Person or Persons (or a wholly owned subsidiary of any such Person or Persons) who acquired shares of Common Stock pursuant to a tender offer or exchange offer for all outstanding shares of Common Stock which complies with the provisions of Sec- tion 3.1(a)(i) relating to offers for all outstanding shares, (ii) the price per share of Common Stock offered in such transaction is not less than the price per share of Common Stock paid to all holders of shares of Common Stock whose shares were purchased pursuant to such tender offer or exchange offer and (iii) the form of consider- ation being offered to the remaining holders of shares of Common Stock pursuant to such transaction is the same as the form of consideration paid pursuant to such tender offer or exchange offer. Upon consummation of any such transaction contemplated by this Section 3.2(c), all Rights hereunder shall expire. Article IV - The Rights Agent 4.1 General. (a) The Company hereby appoints the Rights Agent to act as agent for the Company in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, or expense, incurred without negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability. (b) The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any certificate for securities purchasable upon exercise of Rights, Rights Certificate, certificate for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper person or persons. 4.2 Merger or Consolidation or Change of Name of Rights Agent. (a) Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent is a party, or any corporation succeeding to the shareholder services business of the Rights Agent or any successor Rights Agent, will be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 4.4 hereof. In case at the time such successor Rights Agent succeeds to the agency created by this Agreement any of the Rights Certificates have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Rights Certificates so countersigned; and in case at that time any of the Rights Certificates have not been countersigned, any successor Rights Agent may countersign such Rights Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Rights Certificates will have the full force provided in the Rights Certificates and in this Agreement. (b) In case at any time the name of the Rights Agent is changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so counter- signed; and in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its prior name or in its changed name; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. 4.3 Duties of Rights Agent. The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Rights Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may consult with legal counsel (which may be counsel for the Company), and the opinion of such counsel will be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. (b) Whenever in the performance of its duties under this Agreement the Rights Agent deems it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by a person believed by the Rights Agent to be the Chairman of the Board, the President or any Vice President and by the Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary of the Company and delivered to the Rights Agent; and such certificate will be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. (c) The Rights Agent will be liable hereunder only for its own negligence, bad faith or willful misconduct. (d) The Rights Agent will not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the certificates for securities purchasable upon exercise of Rights or the Rights Cer- tificates (except its countersignature thereof) or be re- quired to verify the same, but all such statements and recitals are and will be deemed to have been made by the Company only. (e) The Rights Agent will not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due authorization, execution and delivery hereof by the Rights Agent) or in respect of the validity or execution of any certificate for securities purchasable upon exercise of Rights or Rights Certificate (except its countersignature thereof); nor will it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Rights Certificate; nor will it be responsible for any change in the exercisability of the Rights; nor will it be responsible for any adjustment required under the provisions of Section 2.4, 3.1 or 3.2 hereof or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights after receipt of the certificate contemplated by Section 2.4 describing any such adjustment); nor will it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any securities purchas- able upon exercise of any Rights or as to whether any securities purchasable upon exercise of Rights will, when issued, be duly and validly authorized, executed, issued and delivered and fully paid and nonassessable. (f) The Company agrees that it will perform, execute, ac- knowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any person believed by the Rights Agent to be the Chairman of the Board, the Presi- dent or any Vice President or the Secretary or any Assis- tant Secretary or the Treasurer or any Assistant Treasur- er of the Company, and to apply to such persons for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered by it in good faith in accordance with instructions of any such person. (h) The Rights Agent and any shareholder, director, officer or employee of the Rights Agent may buy, sell or deal in Common Stock, Rights, or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity. (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent will not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof. 4.4 Change of Rights Agent. The Rights Agent may resign and be discharged from its duties under this Agreement upon 90 days' notice (or such lesser notice as is acceptable to the Company) in writing mailed to the Company and to each transfer agent of Common Stock by registered or certified mail, and to the holders of the Rights by first-class mail (at the expense of the Company). The Company may remove the Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent and to each transfer agent of the Common Stock by registered or certified mail, and to the holders of the Rights by first-class mail. If the Rights Agent should resign or be removed or otherwise become incapable of acting, the Company will appoint a successor to the Rights Agent. If the Company fails to make such appointment within a period of 30 days after such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of any Rights (which holder shall, with such notice, submit such holder's Rights Certificate for inspection by the Company), then the holder of any Rights may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be a corporation organized and doing business under the laws of the United States or any State, in good standing, having an office in the State of New York or the State of Minnesota, which is authorized under such laws to exercise the powers of the Rights Agent contemplated by this Agreement and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $50,000,000. After appointment, the successor Rights Agent will be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company will file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Stock, and mail a notice thereof in writing to the holders of the Rights. Failure to give any notice provided for in this Section 4.4, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. Article V - Miscellaneous 5.1 Redemption. (a) The Board of Directors of the Company may, at its option, at any time prior to the earlier of (i) the close of business on the 10th day following the Stock Acquisition Date and (ii) the Expiration Date, redeem all but not less than all the then-outstanding Rights at the Redemption Price; provided, however, if the Board of Directors of the Company authorizes redemption of the Rights in either of the circumstances set forth in clauses (i) and (ii) below, then there must be Continuing Directors then in office and such authorization shall require the concurrence of a majority of such Continuing Directors: (i) such authorization occurs on or after the time a Person becomes an Acquiring Person, or (ii) such authorization occurs on or after the date of a change (resulting from a proxy or consent solicitation) in a majority of the directors in office at the commencement of such solicitation if any Person who is a participant in such solicitation has stated (or, if upon the com- mencement of such solicitation, a majority of the Board of Directors of the Company has determined in good faith) that such Person (or any of its Affiliates or Associates) intends to take, or may consider taking, any action which would result in such Person becoming an Acquiring Person or which would cause the occurrence of a Triggering Event unless, concurrent with such solicitation, such Person (or one or more of its Affiliates or Associates) is making a cash tender offer pursuant to a Schedule 14D-1 (or any successor form) filed with the Securities and Exchange Commission for all outstanding shares of Common Stock not beneficially owned by such Person (or by its Affiliates or Associates). The Board of Directors may not redeem any Rights following a determination pursuant to Section 3.1(a)(ii) that any Person is an Adverse Per- son. Notwithstanding anything contained in this Agree- ment to the contrary, the Rights shall not be exercisable after the first occurrence of a Triggering Event until such time as the Company's right of redemption set forth in the first sentence of this Section 5.1(a) has expired. The Company may, at its option, pay the Redemption Price in cash, shares of Common Stock (based on the Market Price of the Common Stock at the time of redemption) or any other form of consideration deemed appropriate by the Board of Directors. (b) Immediately upon the action of the Board of Directors of the Company ordering the redemption of the Rights, evi- dence of which shall have been filed with the Rights Agent, and without any further action and without any notice, the right to exercise the Rights will terminate, and the only right thereafter of the holders of Rights shall be to receive the Redemption Price for each Right so held. Promptly after the action of the Board of Directors ordering the redemption of the Rights, the Company shall give notice of such redemption to the Rights Agent and the holders of the then-outstanding Rights by mailing such notice to all such holders at each holder's last address as it appears upon the registry books of the Rights Agent or, prior to the Separation Date, on the registry books of the Transfer Agent for the Common Stock. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemp- tion will state the method by which the payment of the Redemption Price will be made. 5.2 Expiration. The Rights and this Agreement shall expire on the close of business on the Expiration Date, and no Person shall have any rights pursuant to this Agreement or any Right after the close of business on the Expira- tion Date, except, if the Rights are exchanged or re- deemed, as provided in Section 3.1(c) or 5.1 hereof. 5.3 Issuance of New Rights Certificates. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the number or kind or class of shares of stock purchasable upon exercise of Rights made in accordance with the provisions of this Agreement. In addition, in connection with the issuance or sale of shares of Common Stock following the Separation Date and prior to the redemption or expiration of the Rights, the Company (a) shall, with respect to shares of Common Stock so issued or sold pursuant to the exercise of stock op- tions or under any employee plan or arrangement, granted or awarded as of the Separation Date, or upon the redemption, exercise, conversion or exchange of the Company's Series B Convertible Preferred Stock or any other securi- ties hereinafter issued by the Company, and (b) may, in any other case, if deemed necessary or appropriate by the Board of Directors of the Company, issue Rights Certifi- cates representing the appropriate number of Rights in connection with such issuance or sale; provided, however, that (i) no such Rights Certificate shall be issued if, and to the extent that, the Company shall be advised by counsel that such issuance would create a significant risk of material adverse tax consequences to the Company or the Person to whom such Rights Certificate would be issued and (ii) no such Rights Certificate shall be issued if, and to the extent that, appropriate adjustment shall otherwise have been made in lieu of the issuance thereof. 5.4 Supplements and Amendments. Prior to the Separation Date and subject to the penultimate sentence of this Section 5.4, the Company may and the Rights Agent shall, if the Company so directs, supplement or amend any provi- sion of this Agreement without the approval of any hold- ers of certificates representing shares of Common Stock. From and after the Separation Date and subject to the penultimate sentence of this Section 5.4, the Company may and the Rights Agent shall, if the Company so directs, supplement or amend this Agreement without the approval of any holders of Rights Certificates in order (i) to cure any ambiguity, (ii) to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, (iii) to shorten or lengthen any time period hereunder (which lengthening or shortening, following the first occurrence of an event set forth in clauses (i) and (ii) of the first proviso to Section 5.1(a), shall be effective only if there are Continuing Directors and shall require the concurrence of a majority of such Continuing Directors) or (iv) to change or supplement the provisions hereunder in any manner which the Company may deem necessary or desirable and which shall not adversely affect the inter- ests of the holders of Rights Certificates (other than an Acquiring Person or Adverse Person or an Affiliate or Associate of an Acquiring Person or Adverse Person); provided, this Agreement may not be supplemented or amended to lengthen, pursuant to clause (iii) of this sentence, (A) a time period relating to when the Rights may be redeemed at such time as the Rights are not then redeemable or (B) any other time period unless such lengthening is for the purpose of protecting, enhancing or clarifying the rights of, and/or the benefits to, the holders of Rights (other than any Acquiring Person or Adverse Person and their Affiliates and Associates). Notwithstanding anything in this Agreement to the con- trary, no provision which provides for action by Continu- ing Directors (including this sentence) may be amended without the concurrence of a majority of Continuing Directors after the first occurrence of an event set forth in clauses (i) and (ii) of the first proviso of Section 5.1(a). Upon the delivery of a certificate from an appropriate officer of the Company which states that the proposed supplement or amendment is in compliance with the terms of this Section 5.4, the Rights Agent shall execute such supplement or amendment. Notwith- standing anything contained in this Agreement to the contrary (except Section 2.4(b)), no supplement or amend- ment shall be made which changes the Redemption Price, the Expiration Date or the Exercise Price. Prior to the Separation Date, the interests of the holders of Rights shall be deemed coincident with the interests of the holders of Common Stock. 5.5 Rights of Action. Subject to the terms of this Agreeement (including Section 3.1(b)), rights of action in re- spect of this Agreement, other than rights of action vested solely in the Rights Agent, are vested in the respective holders of the Rights; and any holder of any Rights, without the consent of the Rights Agent or of the holder of any other Rights, may, on such holder's own behalf and for such holder's own benefit and the benefit of other holders of Rights, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, such holder's right to exercise such holder's Rights in the manner provided in such holder's Rights Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is spe- cifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations under, and injunctive relief against actual or threatened violations of, the obligations of any Person subject to this Agreement. 5.6 Holder of Rights Not Deemed a Shareholder. No holder, as such, of any Rights shall be entitled to vote, receive dividends or be deemed for any purpose the holder of shares or any other securities which may at any time be issuable on the exercise of such Rights, nor shall any- thing contained herein or in any Rights Certificate be construed to confer upon the holder of any Rights, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in Section 5.7 hereof), or to receive dividends or subscription rights, or otherwise, until such Rights shall have been exercised or exchanged in accordance with the provisions hereof. 5.7 Notice of Proposed Actions. In case the Company shall propose after the Separation Date and prior to the Expi- ration Date (i) to effect or permit occurrence of any Flip-over Transaction or Event, or (ii) to effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to each holder of a Right, in accordance with Section 5.8 hereof, a notice of such proposed action, which shall specify the date on which such Flip-over Transaction or Event, liqui- dation, dissolution, or winding up is to take place, and such notice shall be so given at least 20 Business Days prior to the date of the taking of such proposed action. 5.8 Notices. Notices or demands authorized or required by this Agreement to be given or made by the Rights Agent or by the holder of any Rights to or on the Company shall be sufficiently given or made when delivered or when sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: The St. Paul Companies, Inc. 385 Washington Street St. Paul, Minnesota 55102 Attention: Corporate Secretary Notices or demands authorized or required by this Agree- ment to be given or made by the Company or by the holder of any Rights to or on the Rights Agent shall be suffi- ciently given or made when delivered or when sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: First Chicago Trust Company of New York 30 West Broadway 11th Floor New York, New York 10007 Attention: Tenders and Exchanges Administration Notices or demands authorized or required by this Agree- ment to be given or made by the Company or the Rights Agent to or on the holder of any Rights shall be suffi- ciently given or made when delivered or when sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as it appears upon the registry books of the Rights Agent or, prior to the Separation Date, on the registry books of the transfer agent for the Common Stock. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. 5.9 Costs of Enforcement. The Company agrees that if the Company or any other Person the securities of which are purchasable upon exercise of Rights fails to fulfill any of its obligations pursuant to this Agreement, then the Company or such Person will reimburse the holder of any Rights for the costs and expenses (including legal fees) incurred by such holder in actions to enforce such holder's rights pursuant to any Rights or this Agreement. 5.10 Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. 5.11 Benefits of This Agreement. Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent and the holders of the Rights any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the holders of the Rights. 5.12 Descriptive Headings. Descriptive headings appear herein for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. 5.13 Governing Law. This Agreement and each Right issued hereunder shall be deemed to be a contract made under the laws of the State of Minnesota and for all purposes shall be governed by and construed in accordance with the laws of such state applicable to contracts to be made and performed entirely within such state, except for Article IV hereof, which shall be governed by the laws of the State of New York. 5.14 Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. 5.15 Severability. If any term or provision hereof or the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unen- forceable the remaining terms and provisions hereof or the application of such term or provision to circumstanc- es other than those as to which it is held invalid or unenforceable. 5.16 Suspension of Exercisability. To the extent that the Company determines in good faith that some action need be taken pursuant to this Agreement to comply with federal or state securities laws, the Company may suspend the ex- ercisability of the Rights for a period of up to 90 days following the date of the occurrence of the Separation Date in order to take such action or comply with such laws. In the event of any such suspension, the Company shall issue as promptly as practicable a public announcement stating that the exercisability of the Rights has been temporarily suspended. Notice thereof pursuant to Section 5.8 shall not be required. 5.17 Fractional Shares. If the Company elects not to issue certificates representing fractional shares upon exercise or redemption of Rights, the Company shall, in lieu thereof, in the sole discretion of the Board, either (a) evidence such fractional shares by depositary receipts issued pursuant to an appropriate agreement between the Company and a depositary selected by it, provided that such agreement shall provide that each holder of a depos- itary receipt shall have all of the rights, privileges and preferences to which he would be entitled as a bene- ficial owner of such fractional share, or (b) pay to the registered holder of such Rights the same fraction of the Market Price of one share of the stock issuable upon such exercise on the date of exercise. 5.18 Determinations and Actions by the Board of Directors, etc. For all purposes of this Agreement, any calculation of the number of shares of Common Stock outstanding at any particular time, including for purposes of determin- ing the particular percentage of such outstanding shares of Common Stock of which any Person is the Beneficial Owner, shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regula- tions under the Securities Exchange Act of 1934. The Board of Directors of the Company (with, where specifi- cally provided for herein, the concurrence of the Contin- uing Directors) shall have the exclusive power and au- thority to administer this Agreement and to exercise all rights and powers specifically granted to the Board (with, where specifically provided for herein, the con- currence of the Continuing Directors) or to the Company, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to (i) interpret the provisions of this Agreement and (ii) make all determinations deemed neces- sary or advisable for the administration of this Agree- ment (including a determination to redeem or not redeem the Rights or to amend this Agreement). All such ac- tions, calculations, interpretations and determinations (including, for purposes of clause (y) below, all omis- sions with respect to the foregoing) which are done or made by the Board (with, where specifically provided for herein, the concurrence of the Continuing Directors) in good faith shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights and all other parties and (y) not subject the Board or the Continuing Directors to any liability to the holders of the Rights. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. Attest: THE ST. PAUL COMPANIES, INC. /s/ Bruce A. Backberg By /s/ Patrick A. Thiele -------------------------- -------------------------- Name: Patrick A. Thiele Title: Executive Vice President and Chief Financial Officer Attest: FIRST CHICAGO TRUST COMPANY OF NEW YORK By /s/ Joanne Gorostiola -------------------------- --------------------------- Name: Joanne Gorostiola Title: Assistant Vice President SHAREHOLDER PROTECTION RIGHTS AGREEMENT dated as of December 4, 1989 as amended as of March 9, 1990 and as amended and restated as of August 1, 1995 between THE ST. PAUL COMPANIES, INC. and FIRST CHICAGO TRUST COMPANY OF NEW YORK, as Rights Agent SHAREHOLDER PROTECTION RIGHTS AGREEMENT Table of Contents Page Article I CERTAIN DEFINITIONS Section 1.1 Certain Definitions. . . . . . . . 2 Article II THE RIGHTS Section 2.1 Summary of Rights. . . . . . . . . 15 Section 2.2 Legend on Common Stock Certificates . . . . . . . . . . 15 Section 2.3 Separation and Exercise. . . . . . 16 Section 2.4 Exercise Price, Number of Rights . 21 Section 2.5 Date on Which Exercise Is Effective. . . . . . . . . . . . 24 Section 2.6 Execution, Authentication, Delivery and Dating of Rights Certificates . . . . . . . . . . 25 Section 2.7 Registration, Registration of Transfer and Exchange. . . . . . 26 Section 2.8 Mutilated, Destroyed, Lost and Stolen Rights Certificates . . . 28 Section 2.9 Persons Deemed Owners. . . . . . . 31 Section 2.10 Delivery and Cancellation of Certificates . . . . . . . . . . 31 Section 2.11 Agreement of Rights Holders. . . . 31 Article III CERTAIN TRANSACTIONS Section 3.1 Flip-in. . . . . . . . . . . . . . 33 Section 3.2 Flip-over. . . . . . . . . . . . . 42 Article IV THE RIGHTS AGENT Section 4.1 General. . . . . . . . . . . . . . 45 Section 4.2 Merger or Consolidation or Change of Name of Rights Agent . 47 Section 4.3 Duties of Rights Agent . . . . . . 48 Section 4.4 Change of Rights Agent . . . . . . 53 Article V MISCELLANEOUS Page Section 5.1 Redemption . . . . . . . . . . . . 55 Section 5.2 Expiration . . . . . . . . . . . . 58 Section 5.3 Issuance of New Rights Certificates . . . . . . . . . . 58 Section 5.4 Supplements and Amendments . . . . 59 Section 5.5 Rights of Action . . . . . . . . . 61 Section 5.6 Holder of Rights Not Deemed a Shareholder. . . . . . . . . . 62 Section 5.7 Notice of Proposed Actions . . . . 63 Section 5.8 Notices. . . . . . . . . . . . . . 63 Section 5.9 Costs of Enforcement . . . . . . . 65 Section 5.10 Successors . . . . . . . . . . . . 65 Section 5.11 Benefits of This Agreement . . . . 65 Section 5.12 Descriptive Headings . . . . . . . 66 Section 5.13 Governing Law. . . . . . . . . . . 66 Section 5.14 Counterparts . . . . . . . . . . . 66 Section 5.15 Severability . . . . . . . . . . . 66 Section 5.16 Suspension of Exercisability . . . 67 Section 5.17 Fractional Shares. . . . . . . . . 67 Section 5.18 Determinations and Actions by the Board of Directors, etc. . . . . 68 EXHIBITS Exhibit A Letter to Shareholders and Summary of Terms (Not Amended) Exhibit B Form of Rights Certificate Exhibit C Form of Statement with Respect to Preferred Stock (Not Amended) EXHIBIT A (Not Amended) TO OUR SHAREHOLDERS: On Dec. 4, your Board of Directors adopted a Shareholder Protection Rights Plan. This letter briefly describes the Rights Plan and your Board's reasons for adopting it. I have also enclosed additional, summary information. The Rights Plan was adopted to enable your Board to protect your rights against unsolicited and unfair or coercive attempts to acquire control of your company. These might take the form of a partial or two-tier tender offer, an offer for your shares at less than a full and fair price, a "market sweep" or other takeover tactics which your Board believes are not in your best interests. This plan was not designed or adopted to deal with any specific known efforts to gain control of your company. The plan will not interfere with any merger or other business combination approved by your Board as being in the best interest of shareholders and other stakeholders. The plan also does not weaken your company's financial strength, interfere with our business plans or dilute your investment. Also, the issuance of rights is not taxable to the company or to you. No rights certificates will be issued since they presently trade with your common stock, and you need not take any action at this time with respect to this rights distribution. Over 1,000 other corporations have adopted shareholder rights plans. Your Board of Directors believes you are entitled to similar protection. A complete copy of the Rights Agreement may be obtained without charge by writing to your company at 385 Washington St., St. Paul, MN 55102, Attention: Corporate Secretary. Sincerely, Robert J. Haugh Chairman Exhibit A, cont'd THE ST. PAUL COMPANIES, INC. SUMMARY OF SHAREHOLDER PROTECTION RIGHTS PLAN Distribution and Transfer of Rights; Right Certificates: The Board has declared a dividend of one Right for each share of Common Stock outstanding. Prior to the Separation Date referred to below, the Rights would be evidenced by and trade with the Com- mon Stock and will not be exercisable. After the Separation Date the Company will mail Rights Certificates to share- holders and the Rights would become transferable apart from the Common Stock. Separation Date: Rights would separate from the Common Stock and become exercisable following the earlier of (i) the tenth day (or such earlier or later date, not beyond the thirtieth day, as the Board may de- cide) after any person becomes the bene- ficial owner (a broadly defined term) of 15% or more of the Common Stock (and thereby becomes an "Acquiring Person"), or (ii) the tenth day (or such later date as the Board may decide) after any person commences a tender or exchange offer that would result in such person becoming the beneficial owner of 15% or more of the Common Stock. Exercise of Rights: After the Separation Date, each Right would entitle the holder to purchase, for the Exercise Price, one one-thousandth (1/1000) of a share of Preferred Stock designed so that each one one-thousandth of a share has eco- nomic and voting terms similar to those of one share of Common Stock (e.g., each full share of Preferred Stock would have 1000 votes). "Flip-over" Trigger: After any person becomes an Acquiring Person, the Company may not (i) consoli- date or merge with the Acquiring Person, (ii) sell 50% or more of its assets or earning power to one or more persons in one or a series of transactions within a period of two years or (iii) engage in certain specified self-dealing transac- tions with the Acquiring Person, unless proper provision is made so that each Right would thereafter become a right to buy, at the Exercise Price, that number of shares of capital stock with the greatest voting power of the Acquiring Person having a market value of twice the Exercise Price. Redemption: The Rights may be redeemed by the Board at any time until ten days (or such ear- lier or later date, not beyond the 30th day, as may be fixed by the Board) after any person becomes the beneficial owner of 15% or more of the Common Stock, at a Redemption Price of $0.01 per Right; provided, however, that if following the expiration of this redemption period but prior to the occurrence of any Flip-over trigger such Acquiring Person's stake in the Company is reduced below 10%, the right of redemption is revived. Power to Amend: The Board may amend the Plan in any re- spect without the consent of the holders of Rights until the Separation Date. Thereafter, the Board may amend the Plan in any respect not materially adverse to Rights holders generally, except that the Board may not reduce the Redemption Price, accelerate the Final Expiration Date or reduce the number of shares of Preferred Stock issuable upon exercise of a Right. Expiration: The Rights will expire ten years from the date of their issuance unless pre- viously redeemed. EXHIBIT B [Form of Rights Certificate] Certificate No. W- Rights THE RIGHTS ARE SUBJECT TO REDEMPTION OR MANDATORY EXCHANGE, AT THE OPTION OF THE COMPANY, ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. RIGHTS BENEFICIALLY OWNED BY ACQUIRING PERSONS OR ADVERSE PERSONS OR AFFILIATES OR ASSOCIATES THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) OR TRANSFEREES OF ANY OF THE FOREGOING WILL BE VOID. Rights Certificate THE ST. PAUL COMPANIES, INC. This certifies that , or regis- tered assigns, is the registered holder of the number of Rights set forth above, each of which entitles the regis- tered holder thereof, subject to the terms, provisions and conditions of the Shareholder Protection Rights Agreement, dated as of December 4, 1989 (as such may be amended from time to time, the "Rights Agreement"), between The St. Paul Companies, Inc., a Minnesota corporation (the "Company"), and First Chicago Trust Company of New York, a New York corporation, as Rights Agent (the "Rights Agent", which term shall include any successor Rights Agent under the Rights Agreement), to purchase from the Company at any time after the Separation Date (as such term is defined in the Rights Agreement) and prior to the close of business on Decem- ber 19, 1999 (or, if the Separation Date occurs subsequent to December 19, 1996 but prior to December 19, 1999, the third anniversary of the Separation Date), at the principal office of the Rights Agent, one two-thousandth (1/2000) of a fully paid share (adjusted from 1/1000 of a share for the effect the Company's two-for-one stock split on May 17, 1994) of Preferred Stock, without par value (the "Preferred Stock"), of the Company (subject to adjustment as provided in the Rights Agreement), at the Exercise Price referred to below, upon presentation and surrender of this Rights Cer- tificate with the Form of Election to Exercise duly executed at the principal office of the Rights Agent in New York. The Exercise Price shall initially be $92.50 per Right (as adjusted from the original Exercise Price of $185.00 to reflect the Company's two-for-one stock split on May 17, 1994) and shall be subject to further adjustment in certain events as provided in the Rights Agreement. In certain circumstances described in the Rights Agreement, the Rights evidenced hereby may entitle the reg- istered holder thereof to purchase securities of an entity other than the Company or securities or assets of the Compa- ny other than Preferred Stock, all as provided in the Rights Agreement. This Rights Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorpo- rated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obliga- tions, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Rights Certificates. Copies of the Rights Agreement are on file at the principal office of the Company and are available without cost upon written request. This Rights Certificate, with or without other Rights Certificates, upon surrender at the office of the Rights Agent designated for such purpose, may be exchanged for another Rights Certificate or Rights Certificates of like tenor evidencing an aggregate number of Rights equal to the aggregate number of Rights evidenced by the Rights Certificate or Rights Certificates surrendered. If this Rights Certificate shall be exercised in part, the regis- tered holder shall be entitled to receive, upon surrender hereof, another Rights Certificate or Rights Certificates for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, each Right evidenced by this Certificate may be (a) redeemed by the Company under certain circumstances at its option at a redemption price of $.005 per Right (as adjusted from the original redemption price of $.01 to reflect the Company's two-for-one stock split on May 17, 1994) or (b) exchanged by the Company under certain circumstances, at its option, for one share of Common Stock per Right (or, in certain cases, other securities or assets of the Company), subject to further adjustment in certain events as provided in the Rights Agreement. No holder of this Rights Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of any securities which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be con- strued to confer upon the holder hereof, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or with- hold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in the Rights Agreement), or to receive divi- dends or subscription rights, or otherwise, until the Rights evidenced by this Rights Certificate shall have been exer- cised or exchanged as provided in the Rights Agreement. This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been counter- signed by the Rights Agent. WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of , 19 . [SEAL] ATTEST: THE ST. PAUL COMPANIES, INC. By -------------------------- -------------------------- Corporate Secretary Chairman and Chief Executive Officer Countersigned: FIRST CHICAGO TRUST COMPANY OF NEW YORK By --------------------------- Authorized Officer Date: [Form of Reverse Side of Rights Certificate] FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Rights Certificate.) FOR VALUE RECEIVED hereby sells, assigns and transfers unto (Please print name and address of transferee) this Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint Attorney, to transfer the within Rights Certificate on the books of the within-named Company, with full power of substitution. Dated: , 19 Signature Guaranteed: ------------------------ Signature (Signature must correspond to name as written upon the face of this Rights Certifi- cate in every particular, without alteration or en- largement or any change whatsoever) Signatures must be guaranteed by a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States. (To be completed if true) The undersigned hereby represents, for the benefit of all holders of Rights and shares of Common Stock, that the Rights evidenced by this Rights Certificate are not, and, to the knowledge of the undersigned, have never been, Benefi- cially Owned by an Acquiring Person or an Adverse Person or an Affiliate or Associate thereof (as such terms are defined in the Rights Agreement). Signature NOTICE In the event the certification set forth above is not completed in connection with a purported assignment, the Company will deem the Beneficial Owner of the Rights evi- denced by the enclosed Rights Certificate to be an Acquiring Person or an Adverse Person or an Affiliate or Associate thereof (as such terms are defined in the Rights Agreement) or a transferee of any of the foregoing and accordingly will deem the Rights evidenced by such Rights Certificate to be void and not transferable or exercisable. [To be attached to each Rights Certificate] FORM OF ELECTION TO EXERCISE (To be executed if holder desires to exercise the Rights Certificate.) The undersigned hereby irrevocably elects to exercise whole Rights represented by the attached Rights Certificate to purchase the shares of Preferred Stock issuable upon the exercise of such Rights and requests that certificates for such shares be issued in the name of: Address: Social Security or Other Taxpayer Identification Number: If such number of Rights shall not be all the Rights evi- denced by this Rights Certificate, a new Rights Certificate for the balance of such Rights shall be registered in the name of and delivered to: Address Social Security or Other Taxpayer Identification Number: Dated: , 19 Signature Guaranteed: --------------------------- Signature (Signature must correspond to name as written upon the face of this Rights Certifi- cate in every particular, without alteration or en- largement or any change whatsoever) Signatures must be guaranteed by a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States. (To be completed if true) The undersigned hereby represents, for the benefit of all holders of Rights and shares of Common Stock, that the Rights evidenced by the attached Rights Certificate are not, and, to the knowledge of the undersigned, have never been, Beneficially Owned by an Acquiring Person or an Ad- verse Person or an Affiliate or Associate thereof (as such terms are defined in the Rights Agreement). Signature NOTICE In the event the certification set forth above is not completed in connection with a purported exercise, the Company will deem the Beneficial Owner of the Rights evi- denced by the attached Rights Certificate to be an Acquiring Person or an Adverse Person or an Affiliate or Associate thereof (as such terms are defined in the Rights Agreement) or a transferee of any of the foregoing and accordingly will deem the Rights evidenced by such Rights Certificate to be void and not transferable or exercisable. Exhibit C (Not Amended) STATEMENT OF THE ST. PAUL COMPANIES, INC. WITH RESPECT TO SERIES A JUNIOR PARTICIPATING PREFERRED STOCK Pursuant To Section 302A.401, Subd. 3(b) of Minnesota Statutes The undersigned officers of The St. Paul Compa- nies, 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 December 4, 1989 pursuant to Minnesota Statutes, Section 302A.401, Subd. 3(a): RESOLVED, that there is hereby established, out of the five million undesignated shares of the Corporation, none of which has previously been authorized for issuance by the Board of Directors, a series of Preferred Stock of the Corporation designated as stated below and having the rela- tive rights and preferences that are set forth below (the "Series"): Section 1. Designation and Amount. The Series shall be designated as "Series A Junior Participating Pre- ferred Stock" (the "Series A Preferred Stock"). The number of shares constituting the Series shall initially be fifty thousand, which number may from time to time be increased or decreased (but not below the number then outstanding) by the Board of Directors. Section 2. Dividends and Distributions. (A) Subject to the rights of the holders of any series of undesignated shares hereinafter created ranking prior and superior to the Series A Preferred Stock, the holders of Series A Preferred Stock shall be entitled to re- ceive, when, as and if declared by the Board of Directors, dividends payable in cash or in kind (other than dividends payable in shares of Common Stock, or a subdivision of the outstanding shares of Common Stock, by reclassification or otherwise) on the same day as each dividend is paid on the Corporation's voting common stock (respectively, a "Dividend Payment Date" and the "Common Stock"), commencing on the first Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent), subject to adjustment as provided herein from time to time, equal to 1000 times the aggregate per share amount of all dividends payable in cash and 1000 times the aggregate per share amount of all dividends payable in kind (other than divi- dends payable in shares of Common Stock, or a subdivision of the outstanding shares of Common Stock, by reclassification or otherwise) or other distributions declared on the Common Stock since the immediately preceding Dividend Payment Date, or, with respect to the first Dividend Payment Date, since the first issuance of a share or fraction of a share of Se- ries A Preferred Stock. In the event the Corporation shall at any time (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of Series A Preferred Stock are thereafter entitled under the preceding sentence shall be adjusted by multiplying the amount immediately prior to such event by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) above simultaneously with the declaration of any dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event regular dividends on the Common Stock are suspended, dividends on the Series A Preferred Stock shall likewise be suspended until dividends on the Common Stock are resumed. (C) The Board of Directors may fix a record date for the determination of holders of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be the same day as the record date fixed for the payment of the simultaneous dividend or distribution on the Common Stock that, pursuant to paragraph (A) above, requires the payment of the dividend or distribution on the Series A Preferred Stock. Section 3. Voting Rights. The holders of Series A Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment here- inafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 1000 votes on all mat- ters submitted to a vote of the shareholders of the Corpora- tion. In the event the Corporation shall at any time (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the number of votes per share to which holders of Series A Preferred Stock are thereafter entitled shall be adjusted by multiplying the number of votes per share immediately prior to such event by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided by law, the holders of Series A Preferred Stock and the holders of Common Stock shall vote together as one class on all matters submitted to a vote of shareholders of the Corporation. Section 4. Reacquired Shares. Any shares or fractional shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatso- ever shall be retired and cancelled promptly after the ac- quisition thereof. All such shares shall upon their cancel- lation become authorized but unissued undesignated shares and may be reissued as part of a new series of shares to be created by the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. Section 5. Liquidation, Dissolution or Winding Up. On any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the hold- ers of Common Stock or other stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of Series A Preferred Stock shall have received, subject to the restrictions set forth in Article III of the Corporation's Restated Articles of Incorporation, an aggre- gate amount per share equal to 1000 times the aggregate amount to be distributed per share to holders of Common Stock or (2) to the holders of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dis- tributions made ratably on the Series A Preferred Stock and all other such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall at any time (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) com- bine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of Series A Preferred Stock are entitled under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying the amount in effect immediately after such event by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 6. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination, exchange or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the outstanding Series A Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 1000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which, and in the same proportion as, each share of Common Stock is changed or exchanged. In the event the Cor- poration shall at any time (i) declare any dividend on Com- mon Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstand- ing Common Stock into a smaller number of shares, then in each such case the amount to which the holders of Series A Preferred Stock are thereafter entitled as set forth in the preceding sentence, shall be adjusted by multiplying the amount in effect immediately prior to such event by a frac- tion the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. No Redemption. The Series A Preferred Stock shall not be redeemable. Section 8. Ranking. The Series A Preferred Stock shall rank junior to all other series of the Corporation's undesignated shares hereinafter created as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise. Section 9. Fractional Shares. Series A Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's frac- tional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Preferred Stock. IN WITNESS WHEREOF, we have signed this Statement this day of , 19 . President Corporate Secretary EX-11 4 Exhibit 11 THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Computation of Earnings Per Share (In thousands) Three Months Ended Six Months Ended June 30 June 30 ------------------ ----------------- 1995 1994 1995 1994 ----- ----- ----- ----- EARNINGS: Primary: Net income, as reported $112,967 127,762 223,563 192,199 PSOP preferred dividends declared (net of taxes) (2,139) (2,105) (4,285) (4,214) -------- -------- -------- -------- Net income, as adjusted $110,828 125,657 219,278 187,985 ======== ======== ======== ======== Fully diluted: Net income, as reported $112,967 127,762 223,563 192,199 Additional PSOP expense (net of taxes) due to assumed conversion of preferred stock (871) (947) (1,745) (1,897) Dividend on monthly income preferred securities (net of taxes) 1,009 - 1,009 - -------- -------- -------- -------- Net income, as adjusted $113,105 126,815 222,827 190,302 ======== ======== ======== ======== SHARES: Primary: Weighted average number of common shares outstanding, per consolidated financial statements 84,414 84,026 84,340 84,273 Additional dilutive effect of outstanding stock options (based on treasury stock method using average market price) 948 535 937 515 -------- -------- -------- -------- Weighted average, as adjusted 85,362 84,561 85,277 84,788 ======== ======== ======== ======== Fully diluted: Weighted average number of common shares outstanding, per consolidated financial statements 84,414 84,026 84,340 84,273 Additional dilutive effect of: Convertible PSOP preferred stock 4,034 4,079 4,040 4,084 Monthly income preferred securities 1,774 - 892 - Outstanding stock options (based on treasury stock method using market price at end of period) 935 573 959 578 -------- -------- -------- -------- Weighted average, as adjusted 91,157 88,678 90,231 88,935 ======== ======== ======== ======== EARNINGS PER COMMON SHARE: Primary $1.30 1.49 2.57 2.22 Fully diluted $1.24 1.43 2.47 2.14 EX-12 5 THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Exhibit 12 Computation of Ratios (In thousands, except ratios) Three Months Ended Six Months Ended June 30 June 30 ------------------ ------------------ 1995 1994 1995 1994 ----- ----- ----- ----- EARNINGS: Income before income taxes $143,254 159,194 291,400 241,197 Add: fixed charges 19,291 15,392 36,736 32,870 ------- ------- ------- ------- Income, as adjusted $162,545 174,586 328,136 274,067 ======= ======= ======= ======= FIXED CHARGES: Interest costs $13,740 10,358 25,357 20,212 Rental expense (1) 5,551 5,034 11,379 12,658 ------- ------- ------- ------- Total fixed charges $19,291 15,392 36,736 32,870 ======= ======= ======= ======= FIXED CHARGES AND PREFERRED STOCK DIVIDENDS: Fixed charges $19,291 15,392 36,736 32,870 PSOP preferred stock dividends 4,538 4,591 9,092 9,194 Dividends on monthly income preferred securities 1,553 - 1,553 - ------- ------- ------- ------- Total fixed charges and preferred stock dividends $25,382 19,983 47,381 42,064 ======= ======= ======= ======= Ratio of earnings to fixed charges 8.43 11.34 8.93 8.34 ======= ======= ======= ======= Ratio of earnings to combined fixed charges and preferred stock dividends 6.40 8.74 6.93 6.52 ======= ======= ======= ======= (1) Interest portion deemed implicit in total rent expense. EX-27 6
7 1,000 6-MOS DEC-31-1995 JUN-30-1995 9,621,174 0 0 662,461 0 617,867 12,345,327 37,271 138,733 337,825 18,534,775 9,693,382 2,169,679 0 0 586,512 454,406 0 7,656 2,845,916 18,534,775 1,937,897 376,565 12,324 271,401 1,403,829 426,922 476,036 291,400 67,837 223,563 0 0 0 223,563 2.57 2.47 0 0 0 0 0 0 0